Moscow, 28 April, 2009 – JSC Pharmstandard (LSE: PHST LI, RTS: PHST RU) published its audited 2008 financial results and sales results for 1Q 2009. Gross profit for the year ended 31 December 2008 amounted to RUR 8,758 million (2007: RUR 6,852 million) representing 28% increase. Sales in 1Q 2009 increased by 38%.

2008 audited Financial Results

Key Highlights

 

·         Revenue growth +26%; total revenue RUR 14,336 million

·         Gross profit growth +28%; gross profit RUR 8,759 million or 61% of sales

·         EBITDA[1] growth +24%; EBIDTA RUR 6,049 million or 42% of sales

·         Net profit growth + 7%; net profit RUR 3,503 million or 24% of sales

Revenue

The total revenue in 2008 amounted to RUR 14,335.9 million, which is by 26% more than in 2007 (RUR 11,371.3 million). The sales of pharmaceutical products amount 92.5% of total sales while the sales of medical equipment account for the remaining 7.5%.

Pharmaceutical Products

Revenue from pharmaceutical products was RUR 13,260 million, compared to RUR 9,763 million in the prior year’s period, an increase of RUR 3,498 million or 36%.

The sales of OTC products grew by RUR 2,033.5 million or by 24% – from RUR 8,519.9 million in 2007 to RUR 10,553.4 million in 2008. This increase was achieved largely due to implementation of an active promotion strategy.  The main contribution can be attributed to the following products: Arbidol®, Terpincod®, Pentalgin® and Codelac®. The sales of Afobazol® over the 5 months of 2008 (the trademark, was acquired by Pharmstandard in 2008) achieved an impressive result of RUR 217.5 million. 

The sales of prescription products (Rx) increased by RUR 1,449.4 million or by 122% – from RUR 1,188.2 million in 2007 to RUR 2,637.6 million in 2008. This increase was largely achieved due to the sales of Mildronate® (2008: RUR 1149 million). The organic sales growth in the Rx products segment (excluding Mildronate®) was equal to RUR 300.3 million or 25.2%. The organic growth of Rx products sales volume was materially influenced by the sales of Phosphogliv®, Cyclodol® and Biosulin®.

Medical Equipment & Disposables

In 2008, the sales of medical equipment and disposables dropped by RUR 553.0 million or by 33% and amounted to RUR 1,075.6 million against RUR 1,608.7 million in 2007. This decrease, however, cannot be interpreted as critical, since the high sales figures of 2007 were achieved mainly due to the fact that the Company was awarded a major government contract for sterilizers from the Directorate of the Federal Agency for the RF State Reserves. No similar tenders were held in 2008. Therefore, the analysis of the medical equipment segment trend over the period of 2007-2008 excluding the figures related to the above tender shows that the absolute decrease in the sales of medical equipment was equal to RUR 79.1 million or 7%.

This trend is mainly a result of the global recession, which lessened effective demand for high-priced equipment.

Cost of Sales

In 2008, the cost of goods sold by the Company increased by RUR 1,057.8 million or by 23% as compared to 2007 and amounted to RUR 5,577.5 million against RUR 4,519.7 million in 2007. In 2008, percentage of cost of sales in relation to total sales dropped to 38.9% against 39.7% in 2007 due to a considerable reduction of production overheads (by 10% or by RUR 80.6 million) achieved through the transfer of Masterlek products manufacturing to Pharmstandard own production facilities.

Gross Profit

The Company recorded a RUR 1,906.8 million or a 28% gross profit growth – from RUR 6,851.6 million in 2007 to RUR 8,758.4 million in 2008. Gross profit, as a percentage of revenue, achieved 61% comparing to 60% in 2007.

The main gross profit growth factors include (i) synergy effect achieved from the transfer of Arbidol®, Flukostat® and Phosphogliv® production to Pharmstandard own production facilities; and (ii) increased sales of highly cost-effective products.

Operating Expenses

Operating expenses increased by RUR 926.5 million or by 42% – from RUR 2,196.6 million in 2007 to RUR 3,123.1 million in 2008. The operating expenses to sales ratio increased from 19.3% in 2007 to 21.8% in 2008.

In 2008, operating expenses related to Sales and Distribution (S&D) increased by RUR 840.8 million (52%) and amounted to RUR 2,466.8 million against RUR 1,626.0 million in 2007, i.e. comprised 17.2% and 14.3%  of total sales, respectively. This relative increase occurred due to the allowances for impairment of receivables of one of the Company’s distributors CJSC Genesis in the amount of RUR 476.1 million in connection with the initiation of a bankruptcy procedure against that distributor.

In 2008, General and Administrative expenses (G&A) increased by RUR 85.7 million or by 15% and amounted to RUR 656.2 million against RUR 570.5 million in 2007. Labour costs are the major item of general and administrative expenses (61.4% of G&A).  As a percentage of sales, G&A expenses slightly decrease to 4.6% from 5.0%.

EBITDA

EBITDA increased RUR 1,167 million or 24% to RUR 6,049 million in 2008 from RUR 4,882 million in 2007.  EBITDA margin equals 42,3% which is  in small decrease  in comparison with EBITDA margin 42,9% in 2007.

Other Expenses, net and Interest Expenses, net

Other expenses in 2008 amounted to RUR 715.2 million or 5% of the total sales. Foreign exchange loss equal to RUR 524.8 million was the most significant item (3.7% of the total sales). The loss was caused by a considerable increase in the US dollar-rouble exchange rate in the fourth quarter 2008, resulting from the global financial crisis. An additional component of the other expenses item in 2008 was impairment of Afobazol® trademark amounting to RUR 140.5 million as of 31 December 2008. This impairment mainly resulted from increase of the discount rate applied in the trade mark valuation model from 13% to 18.1% for the first 10 years of the trademark’s useful economic life and declining thereafter. This increase in discount rate was a direct result of the current global financial crisis.

 

At the same time, this item shows the positive balance resulting from reimbursement of RUR 107.2 million promotional expenses primarily related to the Mildronate® Project.

In 2008, our interest expenses, net dropped by RUR 59 million or by 20% – from RUÊ 291.6  miion in 2007 to RUR 232.6 million in 2008 – due to the scheduled repayment of debts under the syndicated loan contract signed with the Citibank in December 2006. The contract stipulates full repayment of the debt in 2011.

Net Profit

In 2008, the Company’s net profit increased by RUR 239.9 million or by 7% and amounted to RUR 3,503.1 million against RUR 3,263.2 million in 2007, i.e. 24.4% and 28.7% to total sales, respectively. Net profit attributable to equity holders of the parent was RUR 3,504.0 million. Net loss attributable to minority shareholders was RUR 0.9 million.

 

Consolidated Balance Sheet at 31 December 2008
(in thousands of Russian Roubles)

 

 

n

		2008	2007
ASSETS
Non-current assets
Property, plant and equipment		3,917,109	3,691,266
Intangible assets		6,347,141	4,468,477
Long-term financial assets at fair value through profit or loss		-	245,398
		10,264,250	8,405,141
Current assets
Inventories		2,484,910	1,760,195
Trade receivables		4,761,359	4,176,200
VAT recoverable		326,208	358,767
Prepayments		73,544	130,479
Short-term financial assets at fair value through profit or loss		113,995	111,899
Cash and cash equivalents		186,066	192,589
		7,946,082	6,730,129
Non-current assets classified as held for sale		-	158,855
Total assets		18,210,332	15,294,125
EQUITY AND LIABILITIES
Equity attributable to equity holders of the parent
Share capital		37,793	37,793
Retained earnings		12,413,396	9,004,021
		12,451,189	9,041,814
Minority interest		163,203	560,879
Total equity		12,614,392	9,602,693
Non-current liabilities
Long-term borrowings and loans		760,512	1,954,576
Deferred tax liability		739,186	1,047,799
Derivative financial instruments		89,087	44,598
Other non-current liabilities		34,048	36,826
		1,622,833	3,083,799
Current liabilities
Trade and other payables and accruals		1,707,544	1,046,520
Current portion of long-term borrowings		1,582,722	1,310,374
Income tax payable		144,292	37,934
Other taxes payable		339,307	212,806
Bank overdraft		199,242	-
		3,973,107	2,607,633
Total liabilities		5,595,940	5,691,432
Total equity and liabilities		18,210,332	15,294,125

 

 

Consolidated Income Statement 
For the Year Ended 31 December 2008
(in thousands of Russian Roubles)

 

		2008	2007
Revenue		14,335,867	11,371,345
Cost of sales		(5,577,468)	(4,519,749)
Gross profit		8,758,399	6,851,596
Selling and distribution costs		(2,466,841)	(1,626,041)
General and administrative expenses		(656,248)	(570,519)
Other income		149,762	274,142
Other expenses		(864,963)	(315,591)
Financial income		22,569	28,729
Financial expense		(255,189)	(320,367)
Profit before income tax		4,687,489	4,321,949
Income tax expense		(1,184,381)	(1,058,709)
Profit for the year		3,503,108	3,263,240
Attributable to:
Equity holders of the Parent		3,504,046	3,227,895
Minority interests		(938)	35,345
		3,503,108	3,263,240
Earnings per share (in Russian roubles)
- basic and diluted, for profit of the year attributable to equity holders of the parent		92.72	85.41

 

 

1Q 2009 Sales Results

According to unaudited report, Pharmstandard net sales in 1Q 2009 increased by 38% to RUR 4,553 million, which represents the increase of RUR 1,256 million in comparison with RUR 3,297 million in 1Q 2008. Pharmaceutical products and medical equipment sales contributed 97% and 3% of total sales, respectively.

In 1Q 2009 the Company’s sales of pharmaceutical products achieved RUR 4,445 million and increased by 45% compared to 1Q 2008. Pharmaceutical sales contributed between OTC and Rx as 80% and 20% respectively.

The sales of OTC products were RUR 3,548 million in 1Q 2009 and grew by 43% in comparison with prior-year period.  Key growth drivers in OTC segment were Arbidol®, Pentalgin®, Flukostat®, Complivit®.

The Company’s revenue from prescription (Rx) products amounted to RUR 878 million and increased by 52% compared with 1Q 2008.  Sales growth of Pharmstandard Rx products achieved RUR 480 million and increased by 60% compared to 1Q 2009. Key growth drivers  in Rx are Phosphogliv®, Cyclodol®, Azitroks® and Mildronate®.

In 1Q 2009 the Company reported revenues of RUR 108 million from its medical equipment business segment, which represents a 54% decline in comparison with 1Q 2008.

Sales structure – 1Q 2009, RUR million.

	1Q 2009 (mln RUR)	1Q 2008 (mln RUR)	Difference (mln RUR)	Difference (%)
Pharmaceutical products	4 445	3 061	1 384	45%
OTC products	3 548	2 477	1 071	43%
Prescription products	878	576	302	52%
Mildronat	398	277	121	44%
Other sales	19	8	11	133%
Medical equipment and disposables	108	236	-128	-54%
Total sales	4 553	3 297	1 256	38%

Conference Call

Pharmstandard is pleased invite the investment community to a results conference call with the management of the company followed by a Q&A session.

Tuesday, April 28, 2009

09:00 New York

14:00 London

17:00 Moscow

International Call-in Number:  +44 (0)20 7162 0025

US Call-in Number: +1 334 323 6201

We recommend that participants start dialling in 5-10 minutes prior to ensure a timely start to the conference call. Conference call participants can register in advance using the link below:
https://eventreg1.conferencing.com/webportal3/reg.html?Acc=387058&Conf=165949

Pharmstandard will be represented by:

Igor Krylov, CEO

Elena Arkhangelskaya, CFO

Olga Mednikova, Sales & Marketing


Conference call presentation will be available on Tuesday, 28 April 2009 on Company’s web-site: http://www.pharmstd.ru/investors_en/investor/p2/

The conference call replay will be available through May 3, 2009.

International Replay Number: +44 (0) 20 7031 4064

US Toll Replay Number : +1 954 334 0342

Replay Access Code: 832737

Contacts:

JSC Pharmstandard
Anton Golubok
Tel: +7 495 970 0030 ext 2029
E-mail: ir@pharmstd.ru
www.pharmstd.ru

***

Pharmstandard is the leading Russian pharmaceutical company. According to Pharmexpert Marketing Research Centre, it holds the top position in the domestic pharmaceutical market retail segment and the second position among Russian pharmaceutical companies overall. Pharmstandard is the only Russian company among the top ten Russian pharmaceutical market operators.

Pharmstandard portfolio includes over 200 products used in the treatment of diabetes, growth hormone deficiency, cardiovascular diseases, gastroenterological and neurological disorders, infectious diseases, cancer, etc. Over 90 products offered by Pharmstandard are included in the List of Vital Pharmaceutical Products.

Pharmstandard products are well known to Russian consumers. Among our market-leading brands are Arbidol ®, Complivit®, Pentalgin®, Flucostat®, Codelac®, Phosphogliv®, Amiksin® and Afobazol®. Arbidol® is the leading brand on the Russian pharmaceutical market. Its antiviral action has been studied in international research centers. Pentalgin® has been granted “BRAND #1 IN RUSSIA” award for 2008 in analgesics category. Afobazol® - new original selective anxiolytic for anxiety disorders treatment.

Pharmstandard have agreements with Grindex, Latvia on exclusive distribution and promotion of Mildronate® (cardio-vascular) and with Solvay Pharmaceuticals, France on production of IRS19® and Imudon® (immunomodulating).

In 2004–2008, we developed and introduced over 35 new pharmaceutical products. Our business priorities lie in the development of new product lines comprising genetically engineered medicines, vitamin and mineral complexes, cold relief preparations and medicines used in the treatment of cardiovascular, gastroenterological, neurological disorders and endocrinopathies. Currently, the Company is working on the development of new high-tech formulations in close cooperation with the leading Russian research centres.

Pharmstandard operates four pharmaceutical manufacturing facilities in Kursk, Ufa, Tomsk and Nizhny Novgorod and, with a production capacity of 1.3 billion packs per year. Six production lines of JSC «Pharmstandard-Leksredstva» meet GMP requirements. JSC «Pharmstandard-Leksredstva» is the first Russian pharmaceutical plant included in EudraGMP database. All plants meet Russian legislative requirements.

In addition to its pharmaceutical business, the Company also develops, manufactures, markets and sells medical equipment, such as sterilizing and distilling machines, and disposable medical products.

The Company has invested approximately RUR 3 billion in capital investments in its manufacturing facilities since 2004. Pharmstandard placed its shares on Russian Trading System (RTS) and GDRs on London Stock Exchange (LSE) during IPO in May 4, 2007. The current GDR to ordinary share ratio is 1:4. Augment Investments Limited controls 54.2% of share capital. Free float represents 45.8% of share capital (LSE – 27.5%, RTS – 18.3%).

www.pharmstd.ru

 

This press release does not constitute or form part of and should not be construed as, an offer to sell or issue or the solicitation of an offer to buy or acquire securities of JSC Pharmstandard (the “Company”) or any of its subsidiaries in any jurisdiction or an inducement to enter into investment activity. No part of this press release, nor the fact of its distribution, should form the basis of, or be relied on in connection with, any contract or commitment or investment decision whatsoever.

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[1] EBITDA is defined as profit for the accounting period before finance costs, income tax expense and depreciation and amortization and excluding foreign exchange gain or loss