State of Global Retailing

A Closer Look at Russia

Artem Bektemirov, CEO
Pharmacy Chain 36.6
NRF Annual Meeting
16 January 2005
Soviet-Style
Retailing

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Retailing
Today

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Shopping at
Apteka 36.6

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RUSSIA: #1 EMERGING RETAIL
GROWTH MARKET

A.T. Kearney’s 2004 Global Retail Development Index

Country Market Market Time

Ranking Country Risk Attractiveness Saturation Pressure Score

1 Russia 56 56 77 100 100

2 India 62 34 92 72 88

3 China 71 42 62 90 86

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WHY RUSSIA IS #1
RETAIL GROWTH MARKET

 Market Growth: 10% annual growth in the next 5 years.

Already one of the 10 largest retail markets in the world.

 Strong Economy: Driven by strong trade balance, growth in

productivity and investment, and fiscal responsibility.

 Market Opportunities: With rising incomes, consumers seek

greater quality and choice offered by modern formats.

 Government Support: Relatively liberal policies in consumer

economy balance traditional hurdles.

 Strong Local Players Emerging: Russia retailers now emerging

with operating efficiencies comparable to international
benchmarks.

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RUSSIA’S TWO ECONOMIES

Consumer-Based Resource-Based

% of GDP 50% 25%

Growth Rate (2002-04) 15-20% 10-15%

Gov’t Influence Limited Significant

Entrepreneurial start ups Privatized State Resources
Privatization
after 1990s in 1990s
Political Risks Adequate Very High

Company Size SMEs and MMEs Domestic Blue Chips

Concentration Varies by Sector High

Investment Under-invested Highly-invested

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RUSSIA’S RETAIL MARKET:
$170 BILLION AND GROWING
6-Year Annual
Real growth of consumer income and retail turnover % y-o-y
Average:
16.0
14.6
14.0
Retail:
11.9
12.0
10.9
10.2 9.1%
10.0 9.0 9.2 9.2 9.0
8.9
8.5 8.5
8.0
8.0
Income:
6.0
10.3%
4.0

2.0

0.0
2000 2001 2002 2003 2004F 2005F
Income Retail turnover

Source: State statistic committee, IRG estimations

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RETAIL MARKET SEGMENTS
Other Annual
Forecast Growth
19% 2004-2010*

Apparel
Electronics 15%
13%
Food
DIY 14%
47% Furniture
Food 12%
7%
Cosmetics 11%
Consumer
electronics Pharmaceuticals 9%
4%
Pharmaceuticals Cosmetics
2% & toiletries *nominal USD, CAGR

DIY 4%
4%
Source: GKS, UFG, Euromonitor
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RUSSIAN RETAIL MARKET
REMAINS FRAGMENTED
Top Russian
Top-5 Players’ Marketshare Retailers

Food:
Metro
Electronics:
Eldorado

5% 36% 6% 9% Pharmaceuticals:
Food Electronics Pharmaceuticals DIY 36.6
DIY:
Starik
Source: UFG Research Hottabych
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FOOD RETAIL:
RUSSIA vs. INTERNATIONAL
Sales per Square Meter (2002)

USD
Tesco 22000

Sainsbury 15500

Safeway 14080

Morrisons 16500

Pyaterochka 9400

Perekrestok 5600

Sedmoy Kontinent 4900

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PHARMACY RETAIL CHAINS:
RUSSIA vs. INTERNATIONAL
Sales per Square Meter (2003)

USD

Walgreen 7,500

CVS 7,000

Rite-Aid 4,120

36.6 9,100

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RUSSIAN RETAIL: FUTURE TRENDS

 New Formats: New and different formats (DIY, convenience

stores).

 Consolidation: Small chains bought by larger retailers.

 Regional Expansion: Cities with population +1 million.

 Foreign Retailers: Continued expansion over next 2 - 3 years.

 Large Format Retail: Trade centers and hypermarkets.

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RUSSIAN RETAIL: MAIN BARRIERS

 Capital: Lack of investments for domestic retail chain

development.

 Consumer Income: Low income of Russian population

outside Moscow.

 Real Estate Shortage/Prices: Lack of space and high

rental and purchase prices.

 Competition: Particularly with unorganized trade and

open markets.

 Bureaucracy & Red Tape.

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 PHARMACEUTICAL
MARKET FORECAST
2003-2009
CAGR*
USD Millions
6,269 Russia
5,805
5,375
9.3%
4,886
4,442
4,038
Russia 3,671
5,402 Regions
4,979
4,137
4,588 10%
3,736
3,378
Regions 3,054

617 660 706 749 786 826 867 Moscow

Moscow
5.8%
2003 2004F 2005F 2006F 2007F 2008F 2009F
*Compound Annual Growth
Source: Pharmexpert, RMBC, DSM, 36.6 Rate
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 PARA-PHARMACEUTICAL
MARKET FORECAST
2003-2009
USD Millions 911
CAGR
Total PPh
783
18%
667
566 498

477 415 Other

Total PPh
399 346 20%
343 288
240
200
Other* 180
368 413
278 322 Supplements
Dietary 237
supplements 163 199
15.8%
2002 2003 2004F 2005F 2006F 2007F 2008F

* Includes medical devices (blood pressure meters, thermometers, glucometers, etc.), first aid (adhesive bandages, wound
care materials, etc.), patient care products, specialty hosiery and support products.
Source: Euromonitor, Pharmexpert, Supplier data, Internal estimates
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 COSMETICS AND TOILETRIES
MARKET FORECAST
GROWTH MARKET Fastest
Y-o-Y, % USD billions Growing
20% 12.0 % CAGR
(2003-2008)
10.0
15.0%

15%
13.3%
Diapers 16.1%
12.8%
12.4%
8.0

10.8%
Sanitary
10%
9.4% 11.1
6.0 Protection 15.5%
8.4%
10.2

Skin Care 14.6%

9.4
8.4
4.0
7.5
6.6
5% 5.8

2.0

0% 0.0
2002 2003 2004 2005 2006 2007 2008

Sources: AIPM/RMBC, UFG, GKS, Euromonitor

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Pharmacy Chain 36.6
Russia’s Leading Health and
Beauty Retailer
36.6 AT A GLANCE
147.8 sales in 2003. EBITDA was 9.3% in 2003.
million

145 market capitalization. 20% of shares placed

million in 2003 IPO.
25% topline annual growth: 30% in retail, 20% in
manufacturing.
250 in 7 Russian regions.
pharmacies

7.3 purchases in 4th quarter 2004.

million

290 in the generic portfolio of Veropharm.

products

6000 skilled personnel and experienced

employees
management team.

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36.6 EXPANSION
MURMANSK 31
250 pharmacies
ST.PETERSBURG 4

MOSCOW & 92 7 regions

LOGISTIC REGION

NIZHNY 30 million
NOVGOROD 40
customers

VORONEZH & 5
TULA

ULYANOVSK 9

BASHKIRIA 69

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36.6 IS RUSSIA’S MOST
RECOGNIZABLE BRAND
Also leads in:
36.6 72.4%

GUM 67.2% attendance 49%

purchases 40%
TsUM 63.2%

IKEA 63.0%

Detsky Mir 62.6%

Starik Khottabych 58.9%

Technosila 56.2%

M.Video 56.2%

Okhotny Ryad 52.3%

Mir 51.2%

Source: Gallup Media Survey, 2003 21

CUSTOMER VALUE PROPOSITION

 Convenient locations.

 Reliable quality products.

We strive to
 Excellent shopping experience. increase the
value of the
company by
 Wide assortment. providing our
customers with a
reason to come
 Competitive prices. back.

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36.6 TODAY & TOMORROW
SALES 2003 STORES
USD millions 2003

300

250

200 By 2008:

$76 150 $800 million in

$55 sales
$45 $45 $39
100

50 10% of market
0 60 million
36.6 natur first rigla o3
produkt aid customers

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 Address: 105082 Moscow,
36 Bolshaya Pochtovaya str.

Tel.: +7 (095) 792-5207

Fax: +7 (095) 792-5206
E-mail: [email protected]

www.pharmacychain366.com

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