Moscow, Аugust 28, 2013 –Pharmstandard OJSC (LSE: PHST IL, RTS: PHST RU) reports 1H2013 unaudited Financial Results in compliance with IFRS. 

1H2013 data includes numbers for Bioprocess group of companies and LEKKO CJSC acquired in 2012 (“New Companies”).

As of January 1, 2013, 100% of TZMOI OJSC sales are included into the Company’s revenue.

1H2013 key financial highlights:

Consolidated revenue reached RUR 16 435m (+2%);

Gross profit reached RUR7 294 m (+17%), gross profit margin: 44%;

EBITDA reached RUR4 493 m (+9%), EBITDA margin: 27%;

Net profit reached RUR3 416 m (+11%), Net Profit Margin: 21%.

1H2013 Financial Results 

Consolidated revenue

In 1H2013 Pharmstandard sales reached RUR16 435m demonstrating RUR268m or +2% y/y growth, compared to RUR16 167m in 1H2012.

In 1H2013 Pharmstandard sales excluding third party products (further “TPP”) reached RUR 10 069m demonstrating RUR2 046m or +26% y/y growth, compared to RUR8 022m in 1H2012

Pharmaceutical products and medical equipment accounted for 97.2% and 2.8%. of the Company’s total sales in 1H2013, respectively

Pharmaceutical products

Pharmaceutical sales in 1H2013 increased by RUR184m (+1%) up to RUR15 970m vs RUR15 786m in 1H2012, with organic sales accounting for 60%, TPP for 37% and API for 3% in the pharmaceutical sales mix.

Organic pharmaceutical sales in 1H2013 amounted to RUR9 558m (+22%) vs RUR7 771m in 1H2012 with 69% accounted for by OTC products and 31% by Rx products.

Organic prescription product (Rx) sales in 1H2013 grew by RUR663m (+29%) to reach RUR2 922m. Key growth drivers were Biosulin®, Combilipen® and Formetine®.

Organic over-the-counter (ОТС) product sales in 1H2013 went up to RUR6 635m (+20%). In 1H2013 Arbidol® demonstrated 75% growth vs 1H 2012 reaching RUR1 136m in sales.

TPP sales in 1H2013 went down to RUR5 901m (-24%) (vs RUR7 764 m in 1H2012). 

Medical equipment sales as of 1H2013 amounted to RUR464m (+22%). 

Further in text “ORGANIC” stands for indicators which refer to Company’s own products EXCLUDING TPP segment data and the synergy effect form acquisitions of Bioprocess Group and LEKKO CJSC (the “synergy”) unless otherwise stated

COGS

In 1H2013 the Company’s cost of sales showed an 8% decline (-RUR798m) y/y, to RUR9 141m from RUR9 939m in 1H2012. Generally, cost of sales as percent of sales declined from 62% in 1H2012 to 56% in 1H2013 as a result of:

1)     Decrease of low margin products in the TPP segment

2)     Synergy effect – new high margin products added to portfolio

“Raw materials” and “Cost of third party products” – the main expenditure items in the cost structure –in the aggregate account for 84% of total cost of sales in 1H2013.

A decline in cost value of the TPP segment by RUR1 517m (-23%), from RUR6 455m as at 1H2012 to RUR4 939m as at 1H2013, is mainly attributed to the decline in revenue in this segment (-24%).

Other items show an increase of RUR718 m, which is explained by the synergy (RUR231m) and by organic sales growth (+16%).

Growth in cost of sales in the organic segment amounted to RUR382m (+12%) moving from RUR3 253m in 1H2012 to RUR3 635m in 1H2013. This growth is primarily attributed to raw materials cost increase (RUR238m/+11%)

Gross Profit

The Company’s gross profit rose by RUR1 066m (+17%) from RUR6 228m in 1H2012 to RUR7 294m in 1H2013. Gross profit margin increased from 39% in 1H2012 to 44% in 1H2013. This is attributed to:

1)     the synergy (RUR471m)

2)     gross profit growth in the organic segment (RUR962m/+20%), and a

3)     TPP segment gross profit decrease by RUR346m (- 26%), from RUR1 309m in 1H 2012 to RUR963m in 1H2013.

Gross profit of New Companies amounted to RUR471m with a gross profit margin of 67%.

Operating Expenses

The Company’s operating expenses in absolute terms increased by RUR946m (+ 36%) from RUR2 614m in 1H2012 to RUR3 560m in 1H2013. As percent of sales this indicator increased to 22% as at 1H2013 compared to 16% as at 1H2012.

Expenditures increased due to:

1)     the synergy effect from Bioprocess Group acquisition (1H2013:RUR196m)

2)     the expenditure growth in the organic segment by RUR645m, from RUR2 170m in 1H2012 to RUR2 815m in 1H2013

This is further detailed below.

Sales and Distribution Expenses (S&D)

The Company’s S&D costs increased by RUR671m (+34%) and reached RUR2 660m in 1H2013 compared to RUR1 989m in 1H2012. As percent of sales this indicator rose respectively to 16% in 1H 2013 compared to 12% in 1H 2012. This increase was mainly driven by the increase of the number of employees engaged in the promotion and marketing (+17%), as well as by the indexation of salaries of the employees of the Pharmstandard Group.

The organic segment shows a 33% growth y/y (+ RUR572m) moving from RUR1 753m as at 1H2012 to RUR2 325m as at 1H 2013.

The maximum S&D costs escalation in the organic segment (by RUR440 m, from RUR965m in 1H2012 to RUR1 405m in 1H2013) falls to the media support of high-margin branded OTC proprietary products aggressively promoted via media advertising. These are the products like Arbidol®, Aphobazolum®, Complivit®, Flucostat®, Acipol®, Codelac®, Next®. It is worth mentioning that there were practically no S&D costs for Next® in the same period last year.

An increase in pay-roll expenditures in the organic segment amounted to RUR104m, showing growth from RUR49m in 1H2012 to RUR579 m in 1H2013.

In total S&D costs the synergy accounted for RUR53m.

S&D costs in the TPP segment remained at the level of 1H2012 and amounted to RUR197.

General and Administrative Expenses (G&A)

As at 1H2013, the overall Company’s G&A expenses rose by RUR275m (+44%), and reached RUR900 m against RUR624m in 1H2012. The share of G&A expenses accounts for 6% of total sales in 1H2013 compared to 4% in 1H2012.

The following factors caused the increase in G&A expenses:

1)     the synergy (1H2013: RUR143m);

2)     increase of organic segment expenses by RUR73m (+18%) to RUR490m in 1H2013 compared to RUR417m in 1H2012.

Such growth is mainly induced by an increase in pay-roll expenditures in the amount of RUR59m, due to:

1)     an increase of administrative personnel headcount by 4%;

2)     wage indexation at manufacturing plants.

A share of New Companies in G&A expenses accounts for RUR143m in 1H2013.

Operating income

As at 1H2013, the Company showed increase of its consolidated operating income (revenue, cost of sales, operating expenses) by RUR120m (+3% y/y), to RUR3 734m compared to RUR3 614m in 1H2012. At the same time, TPP segment demonstrated a decline by RUR384m, to RUR581m in 1H2013 compared to RUR965m in 1H2012 which was primarily driven by TPP segment revenue decrease (-24%).

The synergy contributed RUR275m to the total growth of the operating income in 1H2013.

The Company’s operating income as percent of total sales reached 23% in 1H2013.

Major part of the operating income was generated from sales in the organic segment.

Operating income in the organic segment rose by RUR317m (+12% y/y), to RUR2 917m in 1H2013 compared to RUR2 600m in 1H2012. Operating income margin stayed at the same level of 31%.

Other Income and Other Expenses

As at 1H2013, other income of the Company amounted to RUR707m compared to RUR313m of other income for the same period of 2012. Other income was primarily generated from the following activities of the Company:

1)     agency fee income (1H2013: RUR415m vs 1H2012: RUR125m) associated with distribution of products to third parties under agency contracts;

2)     income from FX  (1H2013: RUR214 m vs 1H2012: RUR150m).

As at 1H2013, other expenses of the Company amounted to RUR251m compared to RUR87m in 1H2012. This was driven by:

1)     the synergy (RUR50m)

2)     impairment of Aphobazolum® trade mark as a result of valuation differences between its book value and fair value at the reporting date.

EBITDA[1]

In 1H2013, the Company’s EBITDA reached RUR4 493m showing a 9% growth (+RUR366 m) compared to RUR4 127 in 1H 2012. EBITDA margin reached 27%. EBITDA growth is attributed to the following factors:

1)     the synergy (RUR314m);

2)     EBITDA growth in the organic segment which amounted to RUR3 596m in 1H2013 compared to RUR3 093m in 1H2012 (+RUR503.2 m/ +16%) with a margin of 38.4% versus 38.6% accordingly;

3)     EBITDA decrease in the TPP segment (-RUR384m/-39%) as a result of decrease in revenue (-24%).

EBITDA margin increased from 25% in 1H 2012 to 27% in 1H2013.

Financial income and expense

As at 1H2013, financial income of the Company amounts to RUR222m (1H2012:RUR55m). This growth is generated from cash on bank deposits and interest on a short-term loan furnished to the major shareholder of the Company - Augment Investments Ltd – in April 2012.

Net Income and Minority Stake

The Company’s net income increased by RUR341m (+11%) and reached RUR3 416m compared to RUR3 075m in 1H2012. Net income margin in 1H2013 was 21%.

Net income from the synergy constitutes RUR209m in 1H2013.

Net income in the organic segment rose by RUR527m to RUR2 776m as at 1H 2013 compared to RUR2 249m as at 1H2012. Net income margin in 1H2013 was 23%.

Parent company shareholder return as of 1H2013 reached RUR3 413m compared to RUR3 060 m in the previous year.

Income per ordinary share as of 1H2013 increased by 17 % and rose to RUR100 compared RUR85 in 1H2012. Weighted average number of ordinary shares outstanding as of 1H2013 was 34 306 494 shares (versus 35 967 853 shares in 1H 2012). This change resulted from the increase of quasi-treasury shares on the balance sheet of Pharmstandard-Leksredstva OJSC.

The Table below provides an overview of key performance indicators of the Company for 1H 2013 and 1H 2012 in absolute terms and in percent to sales volume.

Key events after the reporting period

Spin-off of Branded over-the-counter business

On July 5, 2013, the Company’s Board of Directors convened to discuss the matter of potential spin-off of Company’s branded over-the-counter business into a separate legal entity whose shares will be proportionally distributed among the shareholders of the Company, and agreed to announce the extraordinary shareholder meeting on September 27, 2013 in accordance with legislation of Russian Federation and with the Company’s Charter. 

Acquisition of Bever Pharmaceutical Pte Ltd

The Company announced the completion of the transaction to acquire a 100% share capital in Bever Pharmaceutical Pte Ltd (Singapore) (“Bever”) (the “Transaction”).

The amount of the transaction is US$590million. The Transaction will be funded by the combination of Pharmstandard’s shares and GDRs owned by Pharmstandard-Leksredstva OJSC in the amount of US$542 million (18.74%) and cash of US$48 million.

 All settlements will be finalized by the end of December 2013.

 The Company's strategic rationale for the Transaction includes securing a long-term fixed-cost supply of critical active pharmaceutical ingredients for two flagship OTC brands Arbidol® and Aphobazolum® as well as significantly increasing the Company's profitability.

It is expected that Bever will be included in a proposed spin-off of the Company's branded over-the-counter business.

Bever is now a part of Pharmstandard Group and will be included into Company’s perimeter of operations in the near term.

Share buy-back Program

On February 15, 2013, The Company’s Board of Directors approved a buyback program in respect of ordinary shares of Pharmstandard OJSC (the "Shares) and/or Global Depositary Receipts representing Shares (each Share representing 4 GRDs) (the “Program”) in the aggregate amount of up to RUR8bn.

Pursuant to this buyback program15 009 162 GDRs and 140 000 ordinary shares were purchased on the open market as of July 16, 2013.

All purchases of GDRs and shares were made by an independent broker Citigroup Global Markets Limited for the account of Pharmstandard-Leksredstva OJSC, an indirect wholly owned subsidiary of the Company. Pharmstandard-Leksredstva OJSC currently holds 18.74% of the Company’s shareholder capital.

Notice of 1H2013 Financial Results (unaudited) – announcement date

OJSC Pharmstandard takes pleasure to invite you to participate in 1H2013 unaudited Financial Results Conference Call followed by a Q&A session.

Wednesday, 28 August, 2013

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

Conference ID: 936076

Conference call participants can register in advance using the link below:

https://eventreg1.conferencing.com/webportal3/reg.html?Acc=975352&Conf=188316

We recommend that participants start dialing in 5-10 minutes prior to ensure a timely start to

the conference call.

Pharmstandard will be represented by:

Igor Krylov, CEO

Elena Arkhangelskaya, CFO

Irina Bakhturina, IR

Conference call presentation

will be available on Wednesday, 28 August, 2013 on Company's web-site:

http://pharmstd.com/

The conference call replay will be available through September 4th, 2013

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

US Replay Number: +1 954 334 0342

Replay Access Code: 936076 

Contacts:

Irina Bakhturina

Investor Relations

OJSC Pharmstandard

Tel: +7 495 970 0030 ext. 2824

E-mail: ir@pharmstd.ru