Protek Group Announces 2Q 2011 and 1H 2011 Operational Results

OREANDA-NEWS. August 4, 2011. Protek Group (PRTK: RTS, MICEX), one of the major pharmaceutical companies in Russia operating in all segments of the pharmaceutical market (production, distribution and retail sales), has announced its operating results for Q2-2011 and 1HY-2011.

Consolidated unaudited revenue of the Group for Q2-2011* increased by 1.2% y-o-y reaching RUB 23,481 mln.

Group Operating Highlights by segment, Q2-2011:

The Group’s consolidated unaudited revenue for 1HY-2011 increased by 4.5% y-o-y reaching RUB 47,511 mln. The Group’s revenue growth was facilitated by its success in the Retail Sales Segment (19.5%).

Group Operating Highlights by segment, 1HY-2011:

Distribution Segment:

The key company in the segment is CV Protek.

Distribution Segment Operating Highlights, Q2-2011:

The Q2-2011 revenue of the Distribution Segment decreased by 2.7% y-o-y reaching RUB 20,495 mln.
Sales growth in the commercial segment reached 4%, with the state-funded segment decreasing by 18%, including a 77% fall in the NMRP segment. The hospital segment, however, demonstrated a 26% increase. The Distribution Segment makes up 82.2% of the Group’s total revenue**.

The implementation of steps aimed to increase profitability and average package price was the key performance driver in Q2-2011. The volume reduction was mainly due to the commercial market (- 14%), while the average package price increased by 20%.

Distribution Segment Operating Highlights, 1HY-2011:

The 1HY-2011 revenue of the Distribution Segment increased by 0.8% y-o-y reaching RUB 41,475 mln. The Distribution Segment makes up 81.8% of the Group’s total revenue.**

These indicators were mostly driven by a 7% sales growth in the commercial segment and a 19% sales decrease in the budget-funded segment, including a 75% fall in the NMRP segment. The hospital segment, however, demonstrated a 29% increase. In 1HY-2011, the number of clients increased by 5% to surpass 16,700 customers. Following measures to increase efficiency of the product range, the number of price list items grew by approximately 5% and exceeded 14,200 items. An additional retail assembly line installed in the central warehouse increased its capacity to 450 thousand items per day.

Retail Sales Segment

The key company in the segment is Rigla.

The total number of retail outlets as of June 30, 2011 stood at 655 pharmacies.

In Q2-2011  22 pharmacies were organically opened and 10 pharmacies were closed. In 1HY-2011 29 pharmacies were organically opened and 22 pharmacies were closed due to inconsistent performance as well as lease terminations.

Retail Sales Segment Operating Highlights, Q2-2011:

The Q2-2011 revenue of the Retail Sales Segment increased by 16.5% reaching RUB 3,290 mln. The growth was accredited to the increase in number of tickets and average ticket amount. The Retail Sales Segment makes up 13.2%.of the Group’s total revenue. The growth in the comparable revenue bases (including VAT) amounted to 23.1%. The growth dynamics is considerably higher than dynamics in the commercial market segment (10.4% according to DSM Group data).

Retail Sales Segment Operating Highlights, 1HY-2011:

The 1HY-2011 revenue of the Retail Sales Segment increased by 19.5% reaching RUB 6,749 mln.compared to RUB 5,646 mln. in 1HY-2010. The significant growth trend of the Retail Sales Segment revenue in 1HY-2011 is c. 2 times higher than the market growth rate, and the growth in the comparable revenue bases (including VAT) amounted to 26.5%.

Like-for-Like (L-f-L) Sales****

L-f-L pharmacies revenue decreased by 1.8%, while the average ticket amount increased by 4.9% y-o-y. The growth in comparable revenue bases (including VAT) amounted to 6.1%, the average ticket amount growth making up 13.4%.

The implementation over the reporting period of the company’s strategic development trends aimed at enhancing competitiveness as well as market share and profitability growth continued. “Bud Zdorov!” (Bless You!) discount chain managed by Rigla expanded to include 77 retail outlets as of June 30, 2011. The number of own brands in Q2-2011 reached 92 items; making up 1.7% of the revenue and 4.3% of the gross profit. The optimisation program for the Retail Sales Segment structure and the affiliation of subsidiaries to Rigla (Moscow) was commenced over the reporting period to simplify the regional pharmacies management system (to reduce the number of legal entities and consolidate business processes) and to optimise operational expenditures.  

Revenue of L-f-L pharmacies remained unchanged in 1HY-2011. The growth in comparable revenue bases (incl. VAT) reached 6.9%. A 4% decrease in tickets was compensated by a 4% increase in the average ticket price.

Production Segment

The key company in the segment is Sotex.

The Q2-2011 revenue of the Production Segment decreased by 11.7% y-o-y reaching RUB 1,154 mln. The Production Segment makes up 4.6% of the Group’s total revenue.

The volume trend in packages decreased by 36.2% reaching 3.34 mln. packages, resulting from the reduction in contract production sales in Q2-2011. The revenue share of own brands reached 22%. The Group expanded its line of nephrology and oncology products. New private labels were launched, such as: Likferr100, Eralfon 40,000 IE, Eralfon 20,000 IE, Idrinol (injections), and BlokkoS.

The 1% growth in revenue can be attributed to the changes made in the sales structure: the decrease of low-margin licensed products sales and the increase of own brands sales by 57%. The Sales reduction in packages of 36.9% follows the reduction in contract production sales.

Mr. Vadim Muzyayev, President of Protek Group comments on Q2-2011 and 1HY-2011 operating results: ‘Performance indicators of the Group segments are generally in line with the market trends slightly growing in the rouble terms and decreasing in volumes. We share the analysts' opinion that the situation remains challenging still influenced by the factors of 2010.
As for the Group's results, I would like to break down the major trends by key segments: first, the Retail Segment outperforms the market growth almost twice. This fact is specifically positive taking into account a tax burden increased earlier this year.  Second, our Production Segment has significantly expanded own brands (up to 22%). By the end of the first half year, Sotex had expanded its range of private label products to 34 items. These include BlokkoS, now in the list of strategic drugs. 
Finally, our key Distribution Segment continues to increase its operating efficiency. Costs were reduced in the reporting period, and our efforts are now focused on maintaining operating margins.  A positive factor which will definitely affect the Group's future performance is an increase in the average package price due to reduction of the low-margin price-list items.

I believe that joint efforts of all segments to increase their efficiency will make a substantial contribution to Protek performance in the coming periods.’

* Unaudited management accounts for Q2-2011 and 1HY-2011, preliminary data

** Calculated as each segment revenue in relation to the total revenue, excluding eliminations and segment allocations

*** Comparable revenue indicators incl. VAT following tax changes in 2011

**** Like-for-Like indicators for the pharmacies opened or acquired 24 months prior to the current reporting period and not closed in the current reporting period