OREANDA-NEWS. August 6, 2010. OJSC Pharmacy Chain 36.6 [RTS:APTK; MICEX:RU14APTK1007] the leading Russian pharmaceutical retailer announces unaudited Q1 2010 financial results prepared in accordance with the International Financial Reporting Standards (IFRS).

Group highlights of Q1 2010

Consolidated EBITDA from ongoing operations improved by 2 million rubles versus Q1 2009 and reached RUR 213.7 mln;

Group revenue from ongoing operations decreased by 22.6% tо RUR 4 537.1 mln compared with RUR 5 864.0 mln in Q1 2009; and by 9.7% compared with RUR 5 025.6 mln in Q4 2009;

Gross profit from ongoing operations decreased by 11.1% to RUR 1 849.0 mln in absolute terms, but increased by 5.3% as a percentage to consolidated revenues to 40.8% versus 35.5% in Q1 2009;

Underlying Net loss from ongoing operations (excluding foreign exchange effect) decreased from RUR 320.3 mln  in Q1 2009 to RUR 267.6 mln to in Q1 2010, a 16.4% improvement;

Group Net Loss decreased from RUR 648.5 mln in Q1 2009 to RUR 162.0 mln in Q1 2010; a 75% improvement.

The retail unit closed 15 stores in Q1 2010. The total amount of pharmacies in operation equaled to 1004 by the end of Q1 2010.

Retail unit

Revenue

As compared to the relative period the year before, in Q1 2010 sales of the retail unit decreased by 28.7% in ruble terms from RUR 4 792.5 mln to RUR 3 416.1 mln driven by the closure of non-performing stores and decrease in customer demand.

Like-for-like sales[1] Q1 2010 versus Q1 2009 decreased by 21.1% in ruble terms driven by weak customer traffic recovery after its seasonal decline in Q2 2009 L-f-L traffic decreased by 22.6% in Q1 2010 compared with Q1 2009; average check increased by 2.3 % in ruble terms.

Gross margin

The retail operations posted a gross margin increase from 30.3% in Q1 2009 to 32.2% in Q1 2010 due to the continuing improvements in parapharmaceutical goods share growth in overall sales, equaled to 1.5% in Q1 2010 compared with Q1 2009; as well as to the development of direct contracts with suppliers, more flexible pricing management and assortment policy optimization. The stated above changes in the sales structure were mainly achieved by private label goods penetration growth in overall sales.

Selling, general and administrative expenses

Selling, general and administrative expenses (SG&A) dropped by 23.2% in ruble terms from RUR 1 507.9 mln in Q1 2009 to RUR 1 157.8 mln in Q1 2010 and by 9.4% from RUR 1 278.6 mln in Q4 2009 due to management cost reduction, closure of non-performing stores, reduced  staff headcount, rental rates cutback and decreased expenses for logistics. Besides, in the course of 2009 and Q1 2010 the operational platform optimization arrangements (including the closure of non-performing stores) were undertaken.

Despite the decrease in absolute numbers of SG&A costs, their share in overall sales increased by 2.3% from 31.5% in Q1 2009 to 33.8% in Q1 2010 mainly due to decline in revenues.

Store level operating profit in Like-for-like stores decreased by 24.7% from RUR 396.1 mln in Q1 2009 to RUR 298.3 mln in Q1 2010.

Trade accounts payable

At the end of Q1 2010 trade accounts payable reached RUR 3 082.6 mln as compared with RUR 5 645.7 mln in the similar period last year, reflecting a 45.3% improvement; and in relation to RUR 3 540.1 mln as of 31 December 2009, a 13.0% improvement.

Inventory 

 Inventory average days turnover increased to 73 days at the end of Q1 2010 from 57 days at the end of Q1 2009. In ruble terms inventory has been reduced by 5.5% to RUR 2 207.8 mln at the end of Q1 2010 compared with RUR 2 319.4 mln at the end of Q1 2009. The inventory upgrowth in day terms is caused primarily by scheduled inventory turnover expansion in pharmacies from 48 days in Q1 2009 to 60 days in Q1 2010 aimed for stock outs reduction and goods availability improvement in pharmacies. Warehouses inventory share has also increased in Q1 2010 due to the development of centralized purchasing from the suppliers.  

Other businesses

Veropharm

For the latest update on Q1 2010 performance please refer to the official press-release of the company as of July 15th, 2010 at www.pharmacychain366.ru.

ELC

Early Learning Center revenue consolidated by the Group (which is 50% of the total revenue) reached RUR 33.9 mln in Q1 2010, a 18.0% growth from RUR 28.8 mln versus Q1 2009. 4 (four) unprofitable stores were closed in the course of 2009 and were replaced by 4 new profitable ones, which provided the given sales growth.

Early Learning Center Net Loss increased by 136.5% and stood at RUR 4609.0 mln as compared with RUR 1 949 mln in Q1 2009.

As of the end of Q1 2010, the unit operated 12 stores.

Group financial debt

Group Financial Debt in rubles at the end of Q1 2010 increased to RUR 8 147.4 mln from RUR 4 838.3 mln and from RUR 7 441.1 mln at the end of 2009 due to the minority interest restructuring into a long-term debt and the attraction of additional bank loans aimed for the Group current assets supplement in Q1 2010. As of 31st of March 2010 the Retail unit debt stood at RUR 7 121.0 mln with 55.8% denominated in dollars and Veropharm debt stood at RUR 1 026.5 mln with 3.4% denominated in dollars.

Group financial costs and foreign exchange revaluation

Despite a significant increase of the Group’s financial debt in Q1 2010, the financial costs in the same period dropped by 7.2% and reached RUR 279.4 mln as compared to RUR 301.1 mln in Q1 2009 and decreased by 2.4 % to RUR 286.3 mln in Q4 2009 driven by bank loans interest rates reduction.

Group consolidated profit from foreign currency revaluation equaled to RUR 105.6 mln in Q1 2010 compared to the loss in the amount of RUR 328.3 mln in the same period of 2009.

Investments

In Q1 2010 the Group investments in fixed and intangible assets equaled to RUR 29.9 mln (including Retail Unit investments in the amount of RUR 13.8 mln) versus to RUR 24.8 mln in Q1 2009, a 20.6% improvement, mainly due to Retail Unit fixed assets acquisitions.

Group net profit

Group Net Loss decreased from RUR 648.5 in Q1 2009 to RUR 162.0 in Q1 2010; a 75% improvement.

The underlying Group Net Loss decline resulted from gain on foreign currency revaluation, as well as reduction of debt service financial costs and minority interest payments.

Underlying Net loss from ongoing operations (excluding foreign exchange effect) decreased from RUR 320.3 mln in Q1 2009 to RUR 267.6 mln to in Q1 2010, a 16.4% improvement.

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

opened or acquired 24 months from the current reporting period, and

neither rebranded nor reformatted or somehow significantly changed during last 24 months, and

not closed in the current reporting period.

As of the end of Q1 2010 the company operates 823 comparable stores which make 91 % of sales and 90 % of traffic in the retail unit.