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

Retailing Today

Shopping at Apteka 36.6

RUSSIA: #1 EMERGING RETAIL
GROWTH MARKET

A.T. Kearneys 2004 Global Retail Development Index

RankingCountryCountry RiskMarket AttractivenessMarket SaturationTime PressureScore1Russia5656771001002India62349272883China7142629086

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.

WHY RUSSIA IS #1
RETAIL GROWTH MARKET

RUSSIAS TWO ECONOMIES

Consumer-BasedResource-Based% of GDP50%25%Growth Rate (2002-04)15-20%10-15%Govt InfluenceLimitedSignificantPrivatizationEntrepreneurial start ups after 1990sPrivatized State Resources in 1990sPolitical RisksAdequateVery HighCompany SizeSMEs and MMEsDomestic Blue ChipsConcentrationVaries by SectorHighInvestmentUnder-investedHighly-invested

Real growth of consumer income and retail turnover % y-o-y

Source: State statistic committee, IRG estimations

6-Year Annual Average:

Retail:

9.1%

Income: 10.3%

RUSSIAS RETAIL MARKET:
$170 BILLION AND GROWING

RETAIL MARKET SEGMENTS

Source: GKS, UFG, Euromonitor

Annual

Forecast Growth

2004-2010*

Electronics 15%

DIY 14%

Food 12%

Cosmetics 11%

Pharmaceuticals 9%

*nominal USD, CAGR

Pharmaceuticals

RUSSIAN RETAIL MARKET
REMAINS FRAGMENTED

5%

Food

36%

Electronics

9%

DIY

6%

Pharmaceuticals

Source: UFG Research

Top-5 Players Marketshare

Food:

Metro

Electronics: Eldorado

Pharmaceuticals:

36.6

DIY:

Starik

Hottabych

Top Russian

Retailers

FOOD RETAIL:
RUSSIA vs. INTERNATIONAL

Sales per Square Meter (2002)

USD

PHARMACY RETAIL CHAINS:
RUSSIA vs. INTERNATIONAL

Sales per Square Meter (2003)

USD

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.

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.

PHARMACEUTICAL
MARKET FORECAST

Source: Pharmexpert, RMBC, DSM, 36.6

Moscow

Regions

Russia

3,671

4,038

4,442

4,886

5,375

5,805

6,269

2003-2009 CAGR*

Russia

9.3%

Regions

10%

Moscow

5.8%

*Compound Annual Growth Rate

USD Millions

PARA-PHARMACEUTICAL
MARKET FORECAST

*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

Dietary supplements

Other*

Total PPh

343

399

477

566

667

783

911

2003-2009 CAGR

Total PPh

18%

Other

20%

Supplements

15.8%

USD Millions

COSMETICS AND TOILETRIES
MARKET FORECAST

Sources: AIPM/RMBC, UFG, GKS, Euromonitor

GROWTH

Y-o-Y, %

MARKET

USD billions

Diapers 16.1%

Sanitary

Protection 15.5%

Skin Care 14.6%

Fastest Growing

% CAGR

(2003-2008)

Pharmacy Chain 36.6

Russias Leading Health and Beauty Retailer

36.6 AT A GLANCE

sales in 2003. EBITDA was 9.3% in 2003.

market capitalization. 20% of shares placed

in 2003 IPO.

topline annual growth: 30% in retail, 20% in

manufacturing.

in 7 Russian regions.

purchases in 4th quarter 2004.

in the generic portfolio of Veropharm.

skilled personnel and experienced

management team.

250

pharmacies

145

million

25%

290

products

6000

employees

147.8

million

7.3

million

36.6 EXPANSION

250 pharmacies

7 regions

30 million

customers

36.6 IS RUSSIAS MOST
RECOGNIZABLE BRAND

Source: Gallup Media Survey, 2003

Also leads in:

attendance 49%

purchases 40%

CUSTOMER VALUE PROPOSITION

Convenient locations.

Reliable quality products.

Excellent shopping experience.

Wide assortment.

Competitive prices.

We strive to increase the value of the company by providing our customers with a reason to come back.

36.6 TODAY & TOMORROW

By 2008:

$800 million in sales

10% of market

60 million customers

0

5

0

1

0

0

1

5

0

2

0

0

2

5

0

3

0

0

$55

$76

$45

$45

$39

STORES

2003

SALES 2003

USD millions

36.6

o3

rigla

first aid

natur produkt

Address: 105082 Moscow,

36 Bolshaya Pochtovaya str.

Tel.: +7 (095) 792-5207

Fax: +7 (095) 792-5206

E-mail: info@oao366.ru

www.pharmacychain366.com

5.8

6.6

7.5

8.4

9.4

10.2

11.1

12.8%

15.0%

13.3%

12.4%

10.8%

9.4%

8.4%

0%

5%

10%

15%

20%

2002

2003

2004

2005

2006

2007

2008

0.0

2.0

4.0

6.0

8.0

10.0

12.0

617

660

706

749

786

826

867

3,054

3,378

3,736

4,137

4,588

4,979

5,402

2003

2004F

2005F

2006F

2007F

2008F

2009F

11.9

8.5

8.9

14.6

10.2

9.0

9.0

10.9

9.2

8.0

9.2

8.5

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

2000

2001

2002

2003

2004F

2005F

Income

Retail turnover

163

199

237

278

322

368

413

180

200

240

288

346

415

498

2002

2003

2004F

2005F

2006F

2007F

2008F

Apparel

13%

Other

19%

Food

47%

Furniture

7%

Consumer

electronics

4%

Cosmetics

& toiletries

4%

2%

DIY

4%

72.4%

67.2%

63.2%

63.0%

62.6%

58.9%

56.2%

56.2%

52.3%

51.2%

36.6

GUM

TsUM

IKEA

Detsky Mir

Starik Khottabych

Technosila

M.Video

Okhotny Ryad

Mir

15500

14080

16500

9400

5600

4900

22000

Tesco

Sainsbury

Safeway

Morrisons

Pyaterochka

Perekrestok

Sedmoy Kontinent

7,000

4,120

7,500

9,100

Walgreen

CVS

Rite-Aid

36.6