Pharmstandard OJSC reports its H1 2014 financial results

28.08.2014

Moscow, August 28, 2014 – Pharmstandard OJSC (LSE: PHST IL, RTS: PHST RU) (further “Pharmstandard” or the “Company”) releases its unaudited financial results for the six months ended June 30, 2014. 

On April 1, 2014 OTCPharm PJSC (further “OTCPharm”), OTC business that was spun-off from Pharmstandard OJSC, started independent operating activities.

As of Q2 2014 OTCPharm sales are no longer included into Pharmstandard sales and will be recognized in OTCPharm statements.

H1 2014 Key Financial Highlights:

H1 2013 key highlights and developments

The deal was finalized on July, 24. Under the terms of the deal, Pharmstandard acquired 20% of Biocad Holding, while a Millhouse-affiliated entity will purchased a further 50% stake. 

H1 2014 Financial Results 

Consolidated Revenue

In the first half of 2014 (“H1 2014”), Pharmstandard revenue reached RUR 17,205 million demonstrating RUR 302 million or +1.8% y/y growth compared to RUR 16,903 million generated in the first half of 2013 (“H1 2013”).

This revenue includes the sale of remainder finished products to OTCPharm in the sum of RUR 2,334 million, and the sale of remainder raw materials to OTCPharm in the sum of RUR 1,261 million.

H1 2014 Pharmstandard sales, excluding third party products (“TPP”), reached RUR 12,003 million demonstrating RUR 1,002 million or +9% y/y growth compared to RUR 11,001 million in H1 2013.

Pharmaceutical products accounted for 93% in H1 2014 consolidated revenue of the Company, with 21% attributed to sale of raw materials and finished products to OTCPharm OJSC, 1.7% attributed to contract manufacturing income, 4.1% attributed to agency fees, and 1.7% attributed to medical equipment.

Pharmaceutical Products

H1 2014 total revenue from pharmaceutical sales, inclusive of the finished products and raw materials sale to OTCPharm, decreased by RUR 48 million (‑0.3% y/y) down to RUR 15,922 million vs RUR 15,970 million in H1 2013, with organic sales (incisive of the finished products and raw materials sale to OTCPharm) accounting for 42% in the pharmaceutical sales mix, TTP for 33%, and other sales for 25%, including the sale of remainder finished products and raw materials to OTCPharm for RUR 2,334 million and RUR 1,261 million respectively.

Organic pharmaceutical sales amounted to RUR 6,674 million (-30% y/y) in H1 2014 vs RUR 9,558 million in H1 2013, with over-the-counter (ÎÒÑ) product sales accounting for 23%, and organic prescription product (Rx) accounting for 19% in organic pharmaceutical mix.

Organic prescription product (Rx) sales grew by RUR 115 million (+4% y/y) to reach RUR 3,037 million in H1 2014. The key growth drivers were Phosphoglive®, Combilipen® and Biosulin®.

With the spin-off of OTCPharm, organic over-the-counter (ÎÒÑ) product sales decreased by RUR 2,998 million (‑45% y/y) and went down to RUR 3,637 million.

H1 2014 TPP sales went down to RUR 5,202 million (-12%) (vs RUR 5,902 million in H1 2013).

H1 2014 sales results include the sale of remainder finished products and raw materials to OTCPharm OJSC, and agency fees for realization of OTCPharm owned brands and contract manufacturing for the said company.

Up to 2014, the Company’s subsidiaries have been providing the services involving manufacturing of certain products from raw materials owned by the Company’s customers. Since 2014, the income from contract manufacturing, primarily related to the contract manufacturing for OTCPharm, is accounted in the Company’s revenue (previously it was accounted as other income and expense), expenses related to contract manufacturing are reflected in cost of sales (previously these were accounted as other income and expense). Similarly, since 2014, agency fees are accounted by the Company in revenue as a regular income. For the purposes of comparative analysis, the prior year figures were restated accordingly; however, such changes in the portfolio structure of the Group companies have no effect on the overall financial statements of the Company.

Contract Manufacturing

H1 2014 contract manufacturing revenue reached RUR 287 million vs RUR 53 million in H1 2013. The increase in contract manufacturing revenue is driven by the spin-off of OTCPharm and services on product manufacturing from customer-owned raw materials provided to OTCPharm.

Agency Fees

As at H1 2014, agency fee revenue reached RUR 712 million demonstrating RUR 297 million or +72% y/y growth compared to H1 2013. The increase in agency fee income is a result of the spin-off and the overall increase in shipments of the products distributed under agency contracts.

Sale of Remained Raw Materials and Finished Products

The sale of remainder finished products to OTCPharm OJSC amounted to RUR 2,334 million, and the sale of remainder raw materials to OTCPharm OJSC amounted to RUR 1,261 million.

Medical Equipment

As of H1 2014, medical equipment sales showed a 39% y/y decline vs H1 2013 and went down to RUR 284 million.

Cost of Sales

In H1 2014, the Company’s cost of sales declined by RUR 1,109 million or -12% y/y to RUR 8,070 million from RUR 9,179 million in H1 2013. Generally, cost of sales, as percent of sales, declined from 54% in H1 2013 to 47% in H1 2014. The decline is driven by contract manufacturing for OTCPharm, agency fees, and decrease of low margin products in third party products segment (“TPP”).

“Raw materials” and “Cost of third party products” – the main expenditure items in cost of sales structure – account for 81% of total cost of sales in H1 2014.

A decline in cost of sales in TPP segment by RUR 1,429 million (-29%), from RUR 4,939 million in H1 2013 to RUR 3,510 million in H1 2014, is attributed to the sales structure changes, including the reduction of low margin Reduksin sales which fell RUR 937 million (-65%).

In H1 2014, cost of sales in contract manufacturing increased by RUR 178 million compared to H1 2013 and reached RUR 217 million.

Cost of sales, excluding TPP segment, grew by RUR 319 million (+7.5%), from RUR 4,241 million in H1 2013 to RUR 4,560 million in H1 2014, where raw materials expenditure increased by RUR 311 million (+12% y/y).

Gross Profit

The Company’s gross profit rose by RUR 1,412 million (+18%), from RUR 772.5 million in H1 2013 to RUR 9,135.5 million in H1 2014. Gross profit margin increased from 46% in H1 2013 to 53% in H1 2014. This is attributed to:

Operating Expenses

The Company’s operating expenses in absolute terms increased by RUR 215 million (+6%), from RUR 3,560 million in H1 2013 to RUR 3,775 million in H1 2014. As percent of sales, this indicator increased to 22% as at H1 2014 compared to 21% as at H1 2013. 

Selling and Distribution Costs (S&D)

The Company’s S&D costs increased by RUR 115 million (+4%) and reached RUR 2,775 million in H1 2014 compared to RUR 2,660 million in H1 2013. As percent of sales, this indicator remained at the level of 16%.

As of Q2 2014, the Company does not incur advertising, promotion and marketing function expenses related to the spinned-off branded business (OTCPharm).

General and Administrative Expenses (G&A)

As at H1 2014, the Company’s overall G&A expenses increased by RUR 100 million (+11%) and reached RUR 999 million compared to RUR 899.5 million in H1 2013. G&A expenses accounted for 5.8% in H1 2014 total sales vs 5.3% in H1 2013.

This is primarily driven by:

Operating Income

As at H1 2014, the Company showed increase of its consolidated operating income (revenue, cost of sale, operating expenses) by RUR 1,197 million (+29% y/y) up to RUR 5,361 million vs RUR 4,164 million in H1 2013.

The increase in operating income is driven by:

The Company’s operating income as percent of total sales reached 31% in H1 2014 from 25% in H1 2013.

Other Income / Expense

As at H1 2014, the Company showed a loss of RUR 371 million in its other income vs RUR 27 million inH1 2013. This change in other income (expense) is attributed to foreign currency fluctuations: as at H1 2014, the Company sustained a loss of RUR 377 million, while for the same period of 2013 it generated a revenue of RUR 214 million.

EBITDA

In H1 2014, the Company’s EBITDA[1] reached RUR 5,645 million showing an increase by RUR 1,152 million (+26%) y/y compared to RUR 4,493 million inH1 2013. EBITDA growth is attributed to:

Financial Income / Expense

As at H1 2014, the Company’s financial income reached RUR 182 million compared to RUR 222 million in H1 2013. A decline is driven by the reduction of cash on bank deposits and interest income on short-term loans.

[1] * EBITDA adjusted to FX gain/loss

 

As at H1 2014, the Company’s financial expense rose to RUR 224 million vs RUR 2 million in H1 2013. This growth in the Company’s financial expense is attributed to Citibank and Nordea Bank loan facilities furnished to the Company.

Net Income and Minority Stake

The Company’s net income increased by RUR 187 million (+5.5% y/y) and reached RUR 3,603 million compared to RUR 3,416 million in H1 2013. As at H1 2014, net income margin was 21%.

Net income in TPP segment amounted to RUR 993 million vs RUR 462 million in H1 2013.

As at H1 2014, earnings per shareholders’ interest in the parent company reached RUR 3,514 million vs RUR 3,413 million in the previous year.

As at H1 2014, earnings per ordinary share decreased by 3% to RUR 97 compared to RUR 100 per ordinary share in H1 2013. Weighted average number of ordinary shares outstanding as of H1 2014 amounted to 36,355,683 shares (vs 34,306,494 shares in H1 2013). 

The Table below provides an overview of the Company’s key performance indicators for H1 2014 and H1 2013 in absolute terms and in percent to sales volume.

Consolidated results

H1 2014

H1 2013

RUR, million

%

RUR, million

%

Sale of goods

17,205.3

100.0%

16,902.9

100.0%

Pharmaceutical products

13,588.0

79.0%

15,970.5

94.5%

OTC products

3,637.0

21.1%

6,635.2

39.3%

Branded

2,500.8

14.5%

5,365.6

31.7%

Non-branded

1,136.2

6.6%

1,269.6

7.5%

Prescription products

3,037.1

17.7%

2,922.4

17.3%

Branded

2,681.6

15.6%

2,523.6

14.9%

Non-branded

355.5

2.1%

398.7

2.4%

Third parties products

5,202.1

30.2%

5,901.6

34.9%

Other sales

1,711.8

9.9%

511.3

3.0%

Contract manufacturing

286.9

1.7%

53.4

0.3%

Agency fee income

712.2

4.1%

414.8

2.5%

Sale of finished goods to related party

2,334.3

13.6%

0.0

0.0%

Medical equipment and disposables

283.9

1.7%

464.2

2.7%

COG's

8,069.9

46.9%

9,179.4

54.3%

Gross profit

9,135.5

53.1%

7,723.5

45.7%

Selling & distribution

2,775.5

16.1%

2,660.1

15.7%

G&A

999.2

5.8%

899.5

5.3%

Other expenses (income)

371.4

2.2%

-26.6

-0.2%

EBITDA

5,644.9

32.8%

4,493.3

26.6%

Financial income

181.6

1.1%

222.1

1.3%

Financial expense

224.4

1.3%

1.7

0.0%

Profit before income tax

4,783.9

27.8%

4,389.5

26.0%

Income tax expense

1,180.9

6.9%

973.8

5.8%

Profit for the year

3,603.0

20.9%

3,415.7

20.2%

Parent of the Company

3,513.9

3,412.5

Minority interests

89.0

3.2

We take pleasure to invite you to participate in H1 2014 IFRS results Conference Call followed by a Q&A session.

Conference Call will take place on: 

Thursday, August 28, 2014 

09:00 New York

14:00 London

17:00 Moscow 

To join the conference call, pls, use the following details: 

UK Call-in Number: +44(0)20 3427 0503

US Call-in Number: +1646 254 3365 

Russia Call-in Number: +7495 705 9450

Confirmation code: 9770927 

Pharmstandard will be represented by:

Igor Krylov, CEO

Irina Bakhturina, Head of Investor Relations 

Conference call presentation

will be available on Thursday, August 28, 2014

on our web-site:

http://pharmstd.com/page_6.html 

The conference call replay will be available through September 2nd, 2014 

Local - London, United Kingdom: +44(0)20 3427 0598

Local - Moscow, Russia: +7495 705 9453

Local - New York, United States of America: +1347 366 9565

National free phone - Russian Federation:+8810 800 2870 1012

National free phone - United Kingdom: 0800 358 7735 

Confirmation code: 9770927

 

Contacts:

Irina Bakhturina

Head of Investor Relations

Pharmstandard OJSC

Tel: +7 495 970 0030 ext 2824

E-mail: ir@pharmstd.ru


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