OREANDA-NEWS. April 22, 2011. OJSC Pharmacy Chain 36.6 [RTS:APTK;MICEX:RU14APTK1007] the leading Russian pharmaceutical retailer announces unaudited 9M 2010 and Q3 2010 financial results prepared in accordance with the International Financial Reporting Standards (IFRS).

Group highlights of Q3 and 9M 2010

Consolidated EBITDA from ongoing operations increased by 57.5 million rubles in Q3 2010 versus Q3 2009 and reached RUR 207.4 mln., a 38.4% improvement;

Consolidated EBITDA from ongoing operations increased by 87.4 million rubles in 9M 2010 versus 9M 2009 and reached RUR 1 061 mln., a 9.0% improvement;

Group revenue from ongoing operations increased by 6.3% to RUR 4 867.5 mln in Q3 2010 versus Q3 2009;

Group revenue from ongoing operations decreased by 8.8% to RUR 14 616.8 mln in 9M 2010 versus the relative period of 2009;

Gross profit from ongoing operations in Q3 2010 increased by 5.5% to RUR 1 842.6 mln from RUR 1 747.3 mln in Q3 2009;

Gross profit margin improved by 2.1% from 38.6% to 40.7% in 9M 2010 versus 9M 2009.

Underlying Net loss from ongoing operations (excluding foreign exchange effect) decreased from RUR 778.3 mln in 9M 2009 to RUR 725.6 mln. in 9M 2010, a 6.8% improvement;

Group Net Loss decreased from RUR 830.8 mln in 9M 2009 to RUR 776 mln in 9M 2010, a 6.6% improvement;

The retail unit organically opened 3 and closed 5 stores in Q3 2010 (in addition 14 operating pharmacies were rebranded and 1 of them was reformatted within the same period);

The Company operated 997 pharmacies in 29 regions of Russia by the end of Q3 2010.

Retail unit

Revenue

As compared to the relative period the year before, Q3 2010 sales of the retail unit decreased by 3.3% in ruble terms from RUR 3 528.8 mln. to RUR 3 412.6 mln. 9M 2010 sales of the retail unit decreased by 18% in ruble terms from RUR 12 366.4 mln. to RUR 10 138.1 mln. The negative dynamics of the revenue absolute values was mainly driven by the reduction of the chain operating sales centers. The period of non-performing stores closure, caused by the economic crisis of 2009 and its consequences, has been completed by the end of 2010. Besides, the Company managed to increase significantly the efficiency of the operating stores by the end of Q3 2010 thanks to the taken reasonable measures.

Like-for-like sales1 in Q3 2010 versus Q3 2009 increased by 5.7% in ruble terms due to the reversion of the previous negative customers’ traffic dynamics and the beginning of its recovery within august – september 2010. L-f-L average check in Q3 2010 versus Q3 2009 considerably increased by 8.3% in ruble terms and reached RUR 248.

By the end of 9M 2010 average check across the network equaled to RUR 245, a 5.2% improvement in ruble terms versus 9M 2009.

Gross margin

Gross margin in the Retail Unit decreased by 1.7% from 31.7% in 9M 2009 to 30.0% in 9M 2010.

Gross margin drop was due for the new governmental price regulation rules on essential medicine to come into effect since 1st of April, 2010, and also for the Company`s pricing policy revision directed to reduction of medicines prices. The new strategy of the Company`s development, based on price decrease of the most required by the customers medicine as well as dynamic marketing activity, allowed the Company to reach its main objective – to improve essentially the customer traffic and to provide its performance in L-f-L stores by the end of 2010 at the level of 2009. Thus decline in 2010 gross margin was compensated by purchasing policy changes (products entry prices decrease) and improvement of non-medicine (parapharmaceutical products) and private label goods share in total sales turnover.

Selling, general and administrative expenses (SG&A)

Selling, general and administrative expenses (SG&A) dropped by 17.4% in ruble terms from RUR 1 284.9 mln in Q3 2009 to RUR 1 061.8 mln in Q3 2010. In 9M 2010 SG&A decreased by 19.9% in ruble terms versus the relative period of 2009.

The essential factor in SG&A reduction is taken up by the cut in administration, personnel (including the headcount reduction), logistics expenses as well as rental costs reduction due to rent rates decrease. Besides, within the reporting period a number of actions were taken aimed to improve the stores operational efficiency (including closing of non-profitable stores).

Compared to Q2 2010 selling, general and administrative expenses of Q3 2010 remained almost at the previous level (decreased by 0.04% from RUR 1 062.2 mln to RUR 1 061.8 mln).

As a percentage of sales, in Q3 2010 SG&A decreased by 5.3% versus Q3 2009.

The third quarter of 2010 proved the efficiency of the Company’s strategy aimed to the customers’ reversion and gradual sales growth. Store level net sales in Like-for-like stores increased by 5.7% from RUR 3 066.8 mln in Q3 2009 to RUR 3 242.6 mln in Q3 2010.

Store level net sales in Like-for-like stores decreased by 9.5% from RUR 10 518 mln in 9M 2009 to RUR 9 523.1 mln in 9M 2010. Store level expenses in Like-for-like stores decreased by 4.1 % in 9M 2010 versus 9M 2009. It was reached due to expenses optimization at store level, including the planned expense reduction for headcount.

Trade accounts payable

Versus 9M 2009 trade accounts payable decreased by 42.8% from RUR 5 038.1 mln to RUR 2 882.0 mln at the end of Q3 2010. Compared with the trade accounts payable amount as of 1st of January, 2010, its present level of RUR 2 882.0 mln decreased by 17.6% from RUR 3 498.6 mln.

Inventory

Inventory average days turnover increased by 1 day (to 71 days at the end of Q3 2010 compared to 70 days at the end of Q3 2009).

Inventory average days turnover slight increase was due to the Company’s planned increasing inventory turnover in the stores from 54 days in Q3 2009 to 61 days in Q3 2010 aimed at stock outs reduction and goods availability improvements in the stores.

Versus Q2 2010 average days of inventory turnover decreased from 77 days to 71 days due to seasonality.

In absolute terms, inventory grew by 11.6% to RUR 2 432.1 mln in 9M 2010 compared with RUR 2 179.2 mln in 9M 2009 caused by the sales growth.

Other businesses

Veropharm

For the update on 9M 2010 performance please refer to the official press-release of the company as of November 26th, 2010.

ELC

Early Learning Center revenue consolidated by the Group (which is 50% of the total revenue) reached RUR 51.4 mln, a 49.8% growth in Q3 2010 versus Q3 2009 (RUR 34.3 mln) and a 9% growth versus Q2 2010 (RUR 47.2 mln) driven primarily by an increase in L-f-L sales. 

ELC Net Profit equaled to RUR 2.2 mln in Q3 2010 compared with a Net loss of RUR 3.8 mln in the relative period of 2009, a 157.9% improvement.

EBITDA increased up to RUR 4.4 mln in ruble terms or up to 8.6% as a percentage of sales in Q3 2010 compared to a similar negative value of RUR -1.4 mln (or -4.1% as a percentage of sales) in Q3 2009.

As of the end of Q3 2010, the unit operated 17 stores, 5 of which were opened in Q2 2010.

Group financial debt

Group Financial Debt at the end of Q3 2010 increased in ruble terms to RUR 9 305.8 mln from RUR 5 135.4 mln at the end of Q3 2009 due to the minority interest restructuring into a long- term debt in 2009 and the attraction of additional bank loans in Q2 and Q3 2010 aimed at the Group current assets supplement

Group Financial Net Debt (after deduction of monetary funds remains in the accounts) stood at RUR 8 194.8 mln at the end of Q3 2010.

In 9M 2010 the Retail unit debt (including the debt of Corporate Center) equaled to RUR 1 245.2 mln, including no debt denominated in dollars; and Veropharm debt stood at RUR 821.3 mln with 3.5% denominated in dollars. 42.9 % of the Group debt is short-term.

Group financial costs

In 9M 2010 versus 9M 2009 financial costs dropped by 1.5% from RUR 887.7 mln to RUR 874.3 mln.

Investments

In 9M 2010 the Group invested in fixed and intangible assets RUR 187.7 mln, out of which retail investments equaled to RUR 46.8 mln, investments on ELC store level were RUR 5.5 mln and Veropharm investments reached RUR 135.4 mln.

In Q3 2010 the Group invested RUR 74.2 mln out of which retail investments were RUR 16.5 mln, investments on the store level at ELC were RUR 0.1 mln and Veropharm investments equaled to RUR 57.6 mln.