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State of Global Retailing

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.

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State of Global Retailing

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  1. State of Global Retailing A Closer Look at Russia Artem Bektemirov, CEO Pharmacy Chain 36.6 NRF Annual Meeting 16 January 2005

  2. Soviet-Style Retailing

  3. Retailing Today

  4. Shopping at Apteka 36.6

  5. RUSSIA: #1 EMERGING RETAIL GROWTH MARKET A.T. Kearney’s 2004 Global Retail Development Index

  6. 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.

  7. RUSSIA’S TWO ECONOMIES

  8. RUSSIA’S RETAIL MARKET:$170 BILLION AND GROWING 6-Year Annual Average: Retail: 9.1% Income: 10.3% Real growth of consumer income and retail turnover % y-o-y Source: State statistic committee, IRG estimations

  9. RETAIL MARKET SEGMENTS Annual Forecast Growth 2004-2010* Electronics15% DIY 14% Food 12% Cosmetics 11% Pharmaceuticals 9% *nominal USD, CAGR Pharmaceuticals Source: GKS, UFG, Euromonitor

  10. RUSSIAN RETAIL MARKETREMAINS FRAGMENTED Top Russian Retailers Top-5 Players’ Marketshare Food: Metro Electronics: Eldorado Pharmaceuticals: 36.6 DIY: Starik Hottabych 6% Pharmaceuticals 36% Electronics 9% DIY 5% Food Source: UFG Research

  11. FOOD RETAIL: RUSSIA vs. INTERNATIONAL Sales per Square Meter (2002) USD

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

  13. 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.

  14. 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.

  15. PHARMACEUTICALMARKET FORECAST 2003-2009 CAGR* USD Millions Russia 9.3% 6,269 5,805 5,375 4,886 4,442 4,038 Russia 3,671 Regions 10% Regions Moscow 5.8% *Compound Annual Growth Rate Moscow Source: Pharmexpert, RMBC, DSM, 36.6

  16. PARA-PHARMACEUTICALMARKET FORECAST 2003-2009 CAGR 911 USD Millions TotalPPh 18% 783 667 566 Other 20% 477 399 Total PPh 343 Other* Supplements 15.8% Dietary supplements *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

  17. COSMETICS AND TOILETRIES MARKET FORECAST Fastest Growing % CAGR (2003-2008) MARKET USD billions GROWTH Y-o-Y, % Diapers16.1% Sanitary Protection 15.5% Skin Care 14.6% Sources: AIPM/RMBC, UFG, GKS, Euromonitor

  18. Pharmacy Chain 36.6 Russia’s Leading Health and Beauty Retailer

  19. 36.6 AT A GLANCE 147.8 million 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. 145 million 25% 250 pharmacies 7.3 million 290 products 6000 employees

  20. MURMANSK 31 ST.PETERSBURG 4 MOSCOW & 92 LOGISTIC REGION NIZHNY NOVGOROD 40 VORONEZH & 5 TULA ULYANOVSK 9 BASHKIRIA 69 36.6 EXPANSION 250pharmacies 7 regions 30million customers

  21. 36.6 IS RUSSIA’S MOST RECOGNIZABLEBRAND Also leads in: attendance49% purchases40% Source: Gallup Media Survey, 2003

  22. Convenient locations. Reliable quality products. Excellent shopping experience. Wide assortment. Competitive prices. CUSTOMER VALUE PROPOSITION We strive to increase the value of the company by providing our customers with a reason to come back.

  23. 36.6 TODAY & TOMORROW SALES 2003 USD millions STORES 2003 3 0 0 2 5 0 By 2008: $800million in sales 10% of market 60 million customers 2 0 0 $76 1 5 0 $55 $45 $45 1 0 0 $39 5 0 0 first aid natur produkt rigla o3 36.6

  24. 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

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