OREANDA-NEWS. July 8 2011. OJSC Pharmacy Chain 36.6 [RTS:APTK;MICEX:RU14APTK1007] — the leading Russian pharmaceutical retailer announces unaudited Q1 2011 financial results prepared in accordance with the International Financial Reporting Standards (IFRS).

Q1 2011 group highlights

Consolidated EBITDA from ongoing operations increased more than twice compared to the relative period of 2010 and reached RUR 443.4 mln.

Group revenue from ongoing operations increased by 16.6% to RUR 5 291.9 mln as compared with RUR 4 537.1 in Q1 2010;

Gross profit from ongoing operations increased by 19.5% to RUR 2 210.4 mln to RUR 1 849.4 mln in Q1 2010;

Gross profit margin from ongoing operations in 3M 2011 increased by 1.0% up to 41.8% as a percentage of consolidated sales compared to 40.8% in 3M 2010;

Group underlying Net profit from ongoing operations before minority interest  reached RUR 205.9 mln compared to the net loss of RUR 122.6 mln in Q1 2010;

The retail unit organically opened 6 stores and closed 5 stores in Q1 2010, thus operating 990 stores by the end of the reporting period.

Retail unit

Revenue

As compared to the relative period the year before, in Q1 2011 net sales of the Retail unit increased by 8.7% in ruble terms from RUR 3 416.1 mln to RUR 3 713.1 mln.[1] Gross sales of the Retail Unit (including VAT) grew by 15.8% in Q1 2011 versus Q1 2010.

Like-for-like gross sales[2] in Q1 2011 increased by 19.3% in ruble terms compared to the relative period of 2010 and an average check (including VAT) in like-for-like stores increased by 22% from 245 RUR in 3M 2010 up to 299 RUR in 3M 2011.

Gross profit and gross margin

Gross profit in the Retail unit increased by 6.5% from RUR 1 101.6 mln in Q1 2010 to RUR 1 173.2 mln in Q1 2011. Gross margin reached 31.6% versus 32.2 % in Q1 2010. The gross margin drop was primarily due to the governmental price regulation rules on essential medicine came into effect since 1st of April, 2010, and also to the Company`s pricing policy revision in 2010 (reduction of the majority of the medicines prices), directed to the customers’ traffic growth. Gross margin decline in 2010 was partially compensated by purchasing terms improvement (additional purchasing tenders) and increase of high-marginal products (parapharmaceutical and private label goods) share in the total turnover.

Selling, general and administrative expenses (SG&A)

Selling, general and administrative expenses grew by 5.9% in ruble terms from RUR 1 135.1 mln in Q1 2010 to RUR 1 202.5 mln in Q1 2011. SG&A growth in absolute values reflected a considerable tax pressure boost on wage fund in Q1 2011 (an increase of social tax rates since 2011).

SG&A expenses as a percentage to sales decreased by 0.8% from 33.2% in Q1 2010 to 32.4% in Q1 2011 driven by transaction costs and administration expenses reduction within 2010.

Trade accounts payable

Trade accounts payable decreased by 7.2% from RUR 3 048.1 mln in Q1 2010 to RUR 2 828.4 mln in Q1 2011. Compared with those as of 1st of January, 2011, trade accounts payable also decreased — by 3.2% from RUR 2 921.5 mln.

Inventory

Inventory average days of turnover increased from 73 days at the end of Q1 2010 to 77 days as of the end of Q1 2011. The inventory upgrowth in day terms is caused primarily by scheduled inventory turnover increase in pharmacies from 60 days in Q1 2010 to 63 days in Q1 2011 aimed at the maximum utilization of pharmacies’ shelf space and the range of goods expansion to meet the customers’ demand to the best advantage.

In absolute terms, inventory increased by 11.3% to RUR 2 457.0 mln compared with RUR 2 207.3 mln as of the end of Q1 2010. Versus Q4 2010 inventory in absolute terms as of the end of Q1 2011 decreased by 6.7% from RUR 2 634.2 mln.

Other businesses

Veropharm

For the latest update on Q1 2011 performance please refer to the official press-release of the company as of June 16th, 2011.

ELC

Early Learning Center revenue consolidated by the Group (which is 50% of the total revenue) reached RUR 52.9 mln, a 55.8% growth in Q1 2011 versus Q1 2010 (RUR 33.9 mln) driven primarily by an increase in L-f-L sales and opening of 7 new stores within 2010.

ELC Net loss decreased by 4.2% and equaled to RUR 4.4 mln in 3M 2011, compared to RUR 4.6 mln in 3M 2010.

As of the end of Q1 2011, the unit operated 19 stores.

Group financial debt

Group Financial Debt at the end of Q1 2011 increased by 2.7% to RUR 9 587.3 mln from RUR 9 334.9 mln as of the end of Q4 2010. Group Financial Net Debt (after deduction of monetary funds remains in the accounts) stood at RUR 8 681.0 mln at the end of Q1 2011.

As of 31st March 2011 the Retail and Corporate units debt equaled to RUR 9 196.0 mln, including 39% of the debt denominated in US dollars; Veropharm debt stood at RUR 391.1 mln with no debt denominated in US dollars.

Group financial costs

In Q1 2011 versus Q1 2010 consolidated financial costs grew by 13.7% to RUR 317.6 mln from RUR 279.4 mln due to the Group’s financial debt increase within the year of 2010.

Investments

In 3M 2011 the Group invested RUR 77.0 mln in fixed and intangible assets, out of which retail investments equaled to RUR 27.6 mln compared to RUR 13.8 mln in 3M 2010.

Veropharm investments reached RUR 48.8 mln.

Group net profit

Group underlying Net profit from ongoing operations before minority interest  reached RUR 205.9 mln in Q1 2011 compared to the net loss of RUR 122.6 mln in Q1 2010.

[1] Due to the restrictions of special tax regime application for pharmacies since 1st of January 2011, the regional retail units of Pharmacy Chain 36.6 Group were all transferred to the basic tax system with VAT exclusion from the revenue.

[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.

The L-F-L stores equaled to 843 units as of the end of Q1 2011.