OREANDA-NEWS. May 27, 2011. OJSC Pharmacy Chain 36.6 [RTS:APTK; MICEX:RU14APTK1007], the leading Russian pharmaceutical retailer, announces unaudited sales and operational results for Q1 2011 according to the management accounts.

Group sales[1]

Group’s consolidated sales reached RUR 5 345.8 mln in Q1 2011 versus RUR 4 537.1 mln in Q1 2010, a 17.8% increase in ruble terms y-o-y;

Pharmacy Retail Sales reached RUR 3 709.9 mln in Q1 2011 versus RUR 3 416.1 mln in Q1 2010, a 8.6% increase in ruble terms y-o-y;

Sales of finished goods of the production unit Veropharm increased by 49.5% in Q1 2011 in ruble terms and reached RUR 1 440 mln versus RUR 962.9 mln in Q1 2010.

Non-core businesses sales increased by 20.5% and reached RUR 205.3 mln in Q1 2011 in ruble terms compared to RUR 170.4 mln in the relative period of 2010.

Valeria Solok, Chief Executive Officer of the Management Company “Pharmacy Chain 36.6”:

"Q1 2011 optimistic operational results of every business segment and of the Group as a whole is the vivid reflection of the Company’s properly chosen and systematically implemented strategy since the end of 2009; the aim of which is the Company’s profitability and operational efficiency improvement, primarily in the retail unit. Q1 2011 is definitely a threshold of the further retail unit advancing growth started in Q4 last year. The management aims at the strengthening of the Company’s position as well as its dynamic development on the Russian pharmaceutical market in 2011".

Retail

As of the end of Q1 2011 Pharmacy Chain 36.6 operated 990 stores in 29 regions of Russia.

During Q1 2011 6 stores were opened organically and 5 were closed;

As of the end of Q1 2011 Pharmacy Chain 36.6 operated 10 stand-alone optical outlets and 20 additional optical departments within pharmacies.

As of the end of Q1 2011 Pharmacy Chain 36.6 operated 19 ELC stores.

Early Learning Center revenue consolidated by the Group (which is 50% of the total revenue) reached RUR 52.7 mln in FY 2010, a 55.5% growth in ruble terms versus FY 2009 (RUR 33.9 mln).

Operational data for the retail unit

In Q1 2011 average check across the network stood at RUR 299, in Moscow – RUR 368, an increase of 22% and 16.8% respectively in ruble terms versus Q1 2010.

Like-for-like sales in comparable stores[2]

As of the end of Q1 2011 the Company operates 843 comparable stores.

In Q1 2011 L-F-L sales growth reached 19.3% and average check growth equalled to 22% (from RUR 245 to 299) in these stores as compared to Q1 2010.

Consumer traffic

In January 2011 the number of purchases (number of receipts) growth in L- F- L stores compared to the previous year equaled to almost 5%, demonstrating the maximum positive value within a year – since January 2010. But in February and March of 2011 the traffic dynamics appeared to be negative compared to the relative periods of 2010, meanwhile month- tо- month growth within 2011 remained positive.

The traffic negative dynamics in February and March of 2011 versus the relative periods of 2010, on the one hand, indirectly resulted from the pharmacies accrued taxes increase since the 1st of January 2011[3], which provoked a predictable price growth in pharmacies all over the country (including "36.6" stores); and on the other hand, from the public service and rent rates rise within these months[4]. This could not but affected the people purchasing power as a whole and in relation to the beauty and health products.

Besides, the slow traffic rehabilitation in 2010 – Q1 2011 was influenced by customers’ flows redistribution between the market retail players. Due to the significant increase of a number of discounters (by 5—15% depending on the region)[5] in high consumer traffic areas within the crisis and post-crisis period, we were witnessing, on the one hand, a partial outflow of the low-income customers (with an average check level between 50 and 150 rubles), and an increase of high-income customers share, on the other. The infow of the latter with an average check level of more than 500 rubles resulted in considerable average check growth in the chain in 2010 – Q1 2011.

Sales per trading sq.m.

Thanks to the taken by the management measures within 2010 aimed at operational efficiency improvement, including maximum possible stock–out elimination, allocation of more shelf area to private label goods as well as promotion and advertising campaigns, sales per trading sq.m. in L-F-L stores showed an advancing growth in Q1 2011, i.e. 20% versus Q1 2010, indicating the strengthening of the positive tendency begun in the second half of 2010.

Private label

In Q1 2011 the private label sales reached RUR 359.9 mln (in L-F-L stores), which represents a more than 40 % growth in ruble terms compared to Q1 2010.

In Q1 2011 a share of private label sales in the total turnover reached 9.97% (compared to 8.44% in Q4 2009).

Number of SKUs increased by 24% from 863 at the end of Q1 2010 to 1071 by the end of Q1 2011. Parapharmaceuticals constitute the major part of private label goods assortment; a share of OTC drugs, vitamins and supplements equals to 10% of the private label goods turnover.

In 2011 the Company planes a consistent growth of private label SKUs number (up to 1600 SKUs) as well as a private label goods share increase both in the total turnover (up to 13.3%) and within every product category and subcategory and in every geographical region. The Company anticipates that favourable market environment, increasing demand for the private label goods together with the launch of new products will contribute significantly to the retail profitability in the current year.

The cornerstone of the Company’s retail business development strategy in 2011 will be the strengthening of the positive tendencies of 2010, i.e.:

providing further customers’ traffic and loyalty improvement;

sales growth of highly marginal goods, including parapharmaceuticals, active cosmetics and private label goods, aimed at total retail business gross margin increase;

transaction costs reduction.

intended for the sustained control of the Company’s profit through building-up of quality administration instruments.

The current year of 2011 is a year of adjustment of business procedures and processes, allowing the Company to implement its commercial strategy from the headquarters down to every pharmacy and providing a fast and flexible reaction of the business system, as a whole.

[1] Hereinafter – these financial indicators may vary from the consolidated financial reporting prepared in accordance with IFRS.

[2] The L-F-L reporting is executed for a selection of comparable stores, which are:

opened or acquired 24 months prior to the current reporting period, and

not closed in the current reporting period.

[3] Pharmacies insurance contributions increased from 14% up to 34%. since 1st of January 2011. Besides, the pharmacies having the staff of more than 100 people and benefiting from single tax for imputed earnings before 1st of January 2011, were transferred to the general taxation system.

[4] Source: Pharmacies guilt, March 2011.

[5] According to the Company’s estimates.