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Company’s PresentationAugust 2011
2
Disclaimer
This presentation has been prepared by DIOD OJSC (the "Company“, “Group” or “DIOD”). By attending the meeting where the presentation is made, or by reading the presentation, you agree to the limitations and notifications set out below.
This presentation is strictly confidential to the recipient and may not be reproduced or redistributed, passed on, or the contents otherwise divulged, directly or indirectly, to any other person or published in whole or in part for any purpose. Failure to comply with this restriction may constitute a violation of applicable securities laws.
This presentation has been prepared solely for your information in connection with the possible offering of securities of the Company.
The presentation does not constitute or form part of, and should not be construed as, an offer, solicitation or invitation to subscribe for, underwrite or otherwise acquire, any securities of the Company or any member of its group nor should it or any part of it form the basis of, or be relied on in connection with, any contract to purchase or subscribe for any securities of the Company or any member of its group, nor shall it or any part of it form the basis of or be relied on in connection with any contract or commitment whatsoever. Any person considering the purchase of any securities of the Company must inform himself or herself independently based solely on the Company's prospectus and any amendments or supplements thereto before taking any investment decision. The prospectus, when issued, may contain information different from the information contained in this presentation.
This presentation includes forward-looking statements. These forward-looking statements include statements concerning targets, plans, objectives, goals, strategies, future events or performance, and underlying assumptions and other statements, which are other than statements of historical facts. The words "believe", "expect", "anticipate", "intend", "estimate", "forecast", "project", "will", "may", "should" and similar expressions identify forward-looking statements. Forward-looking statements include statements regarding: strategies, outlook and growth prospects; future plans and potential for future growth; liquidity, capital resources and capital expenditures; growth in demand for products; economic outlook and industry trends; developments of markets; the impact of regulatory initiatives; and the strength of competitors.
By their nature, forward-looking statements involve risks and uncertainties, because they relate to events and depend on circumstances that may or may not occur in the future. The forward-looking statements in this presentation are based upon various assumptions, many of which are based, in turn, upon further assumptions, including, without limitation, data available from third parties.
Although the Company believes that these assumptions were reasonable when made, these assumptions are inherently subject to significant uncertainties and contingencies which are difficult or impossible to predict and are beyond the Company's control, and the Company may not achieve or accomplish these targets, expectations, beliefs or projections. The Company cautions you that forward-looking statements are not guarantees of future performance and that its actual results of operations, financial condition and liquidity and the development of the industry in which the Company operates may differ materially from those made in or suggested by the forward-looking statements contained in this presentation. These forward looking statements speak only as at the date as of which they are made and, neither the Company, nor any of its agents, employees or advisors intend or have any duty or obligation to supplement, amend, update or revise any of the forward-looking statements contained in this presentation to reflect any change in the Company's expectations with regard thereto or any change in events, conditions, or circumstances on which any such statements are based. The Company does not undertake any obligation to review or confirm analysts' expectations.
This presentation is not directed to or intended for distribution to or use by, any person or entity that is a citizen or resident or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation or which would require any registration or licensing within such jurisdiction.
This presentation is not an offer or solicitation to purchase or subscribe for securities in the United States. The securities of the Company have not been registered under the US Securities Act of 1933, as amended (the "Securities Act") and may not be offered or sold in the United States or to or for the account or benefit of US persons (as such terms are defined in Regulation S under the Securities Act) unless registered under the Securities Act or pursuant to an exemption from such registration. The Company does not intend to register its securities under the Securities Act or to conduct a public offering of the securities in the U.S.
This presentation does not constitute an offer to the public or an advertisement of securities in the Russian Federation, and is not an offer or an invitation to make offers to purchase securities in the Russian Federation, and must not be passed on to third parties or otherwise made publicly available in the Russian Federation.
This communication is only directed (i) at persons who are outside the United Kingdom, (ii) to investment professionals falling within Article 19(5) of the Financial Services and Markets Act of 2000(Financial Promotion) Order 2005, as amended (the "Order") or (iii) other persons to whom it may be lawfully communicated, falling within Article 49 (a) to (d) of the Order (all such persons together being referred to as "Relevant Persons"). Any person who is not a Relevant Person should not act or rely on this communication or any of its contents. Any investment or investment activity to which this communication relates is available only to relevant persons and will be engaged in only with relevant persons. Other persons should not act or rely on this document or any of its contents.
NOT FOR PUBLICATION, RELEASE OR DISTRIBUTION IN THE UNITED STATES, CANADA, AUSTRALIA OR JAPAN.
Failure to comply with the restrictions set out in this Disclaimer may constitute a violation of applicable securities laws or may otherwise be actionable.
3
Table of Contents
I. Company Overview
II. Investment Highlights
III. Strategy and directions of development
IV. Key Financial Indicators
APPENDIX
1. Financial Statements For The Years of 2007-2010
2. Key Financial Parameters Forecast
3. Company's Product Portfolio
3
9
21
26
31
35
37
Company OverviewSection 1
5
DIOD at a Glance
■ DIOD, one of the founders of the Russian consumer healthcare market, has started production of consumer healthcare and pharmaceutical products in 1997
■ As of the end of 2010, the Company was the forth largest player in the Russian consumer healthcare market according to the volume of sales 5,2% on the market of nutritional supplements*
■ Company’s product portfolio includes leading brands in the Russian consumer healthcare market
Capilar, the Company’s core brand with a market share of 2.1%*, has been the leading and best-selling consumer healthcare brand in Russia since 2006
The Company’s other brands include Phase 2, Iod-Aktiv, Viardo Forte, Stella
■ The Company is the world’s largest producer of dihydroquercetin (DHQ)
■ The Group currently comprises 11 subsidiaries involved in production and distribution of consumer healthcare products, pharmaceuticals, medical and ecological equipment and innovative substances
■ The Company boasts an efficient distribution chain, which covers almost 100% of the territory of Russia. In 77 regions (93% of the total area in Russia) the Company enjoys partnership relationships with regional distributors. DIOD also operates its own retail network, which is comprised of 6 stores
■ The Group employs 565 people (incl. 20 R&D** employees)
■ In June 2010, the Company did IPO and became public on MICEX’s sector of “ Market of Innovations and Investments”. There were placed 10% of shares among private investors. After IPO finished, Company’s capitalization was about $100 mln.
■ In July Company’s shares were included in the calculation base of the index "MICEX-Innovation» (MICEX INNOV)
Group’s structure
Key financial parameters
(*) according to DSM Group marketing agency, 2010(**) – Research and Development
Source: Company’s audited consolidated IFRS financial statements for the years of 2007-2010
CJSC Ametis
Taxifoliya, Ltd.
CJSC Taiga-Gaz
Flavir, Ltd.
Taxifoliya, Ltd.
CJSC Ametis
OJSC Diod
CJSC Ecologia Pitaniya
CJSC Olyfen
CJSC AmetisVitamedis AG
Gruppa Kompanij SIBLAREX, Ltd.
CJSC Vega Pharm
Ecologia Zhizni, Ltd.
Source: Company data
OJSC Diod
Mln. rub. 2007 2008 2009 2010
Revenue 1 624 1 730 1 559 1 548Growth rate 14% 7% -10% -1%Gross profit 953 1 056 833 796Gross margin 59% 61% 53% 51%EBITDA 417 389 332 359EBITDA margin 26% 23% 21% 23%Net profit 232 303 374 163Net margin 14% 17% 24% 11%
Net profit less M&A 229 200 109 131Net margin less M&A 14% 12% 7% 8%
6
Sales Structure*
Nutritional Supplements Health CosmeticsPharmaceuticals Other
■ Nutritional supplements – food supplements for oral consumption, containing natural nutritive and biologically active ingredients of plant, animal, microbial and mineral origin
■ Major products:
• Capillar (cardiovascular system) - brand #1 in Russia in the consumer healthcare market
• Viardo / Viardo Forte (men’s health)
• Iod-Aktiv (thyroid gland function sustentation)
• Phase 2 (weight control)
■ Health cosmetics – cosmetics, creams, balms, sprays and other products for application to body surfaces
■ Combine aesthetic and therapeutic properties
■ Major products:
• Artro-Aktiv health cosmetics (musculoskeletal system health)
• Capillar health cosmetics (venous insufficiency, hydrops, bruises)
• Spray-tonic Okulist for eyelid and eye contour (vision correction)
■ Original and generic pharmaceuticals production
■ The Company started pharmaceuticals’ production in 2008, when acquired Olyfen and Vega Pharm
■ Major products:
• Gipoksen (hypoxia treatments, OTC)
• Mebix (depression, neurosis treatment, Rx)
• Orvirem (antiviral treatment, Rх)
■ The Company has a license for rendering medicine services. Since 2001, the Company operates Mir Ekologii medical center
■ Own retail network (6 stores, operating under Mir Ekologii brand name)
■ Online store operations
www.ecvita.ru
(*) highlighted figures refer to the share of the product group in the total Group’s revenue. Figures in the circles indicate sales of the product group in 2009Source: Company data
RUB 938 mln
Equipment
■ Technology for diagnosis and monitoring of, and relief from, health conditions
■ Major products:
• Cardiovisor (heart condition screening)
• Georgy (silver ion water ioniser)
• Svetovit (infrared therapy)
• Elion-132 (aeroionization profilactics equipment)
• Urinary iodine analyzer
• Minimax (blood hemophoresis measurement)
Consumer Healthcare
RUB 187 mln
RUB 155 mln
RUB 19,5 mln
RUB 247 mln
7
Top-15 Company’s Products
Source: Company data
Top - 15 Company's Brands
Brand TypeSales 2010, RUB mln
Sales share, %
Segment
Capilar pills cardiovascular system 305,8 20%
Capilar Cardio cardiovascular system 18,6 1%
Phase-2 weight control 193,7 13%
Viardo men's sexual health 71,5 5%
Viardo Forte men's sexual health 81,5 5%
Stella women's sexual health 72,5 5%
Iodine-active vitamin&mineral supplements 23,6 2%
Iodine-active 100 vitamin&mineral supplements 14,9 1%
Calcium-active vitamin&mineral supplements 28,0 2%
Okulist eyes health 27,1 2%
Selenium-active vitamin&mineral supplements 38,0 2%
Arto-active healthy vessels 28,2 2%
Chistovit health of gastrointestinal tract 23,0 1%
Segment of pharmaceuticals
Orvirem® antiviral 51,5 3%
Dikvertin® antioxidant 33,9 2%
Segments' total 1 011,9 65%
Others 536,2 35%
Total 1 548,1 100%
8
Production Facilities
Blagoveshensk
CJSC Ametis
■ Russian and world’s largest producer of taxifolin
Production capacity:
■ 11 tons of taxifolin annually
4Belgorod
CJSC Taxifoliya
■ Largest Russian company, engaged in taxifolin chromatographic purification
Production capacity:
■ Purification of 45 tons raw taxifolin annually
2 Irkutsk
CJSC Taiga-GAZ
■ Producer of raw taxifolin with purity factor of 75-80%
Production capacity:
■Up to 10 tons annually
Flavir, Ltd.
■ Chromatographic purification of raw taxifolin up to the purity factor of 90-92% for producing pharmaceuticals
Production capacity:
■Up to 5 tons annually
3
Moscow1
43
2Belgorod
IrkutskBlagoveshensk
Russia
Source: Company data
The Company acquired a land plot – 5,8 hectares in Podolsk, where it plans to build a new modern manufacturing and warehouse facilities and relocate R&D and manufacturing departments from Moscow
Moscow
Paveletskaya
OJSC Diod (Paveletskaya)
■3 workshops with 5 production lines specialized in production of consumer healthcare products
■1 workshop producing ecology equipment
Production capacity:
■1.8 bln pills (0.25g pills), 50 mln blisters annually
■Capacity utilization amounted to 55-60% in 2009
CJSC Olyfen (Voikovskaya)
Production facility:
■ 2 workshop producing pills and syrups
■ An additional workshop is planned to be launched
Production capacity:
■ 1.8 mln blisters, 48,000 liters syrup and 300 mln pills annually
1
Voikovskaya
9
History Milestones
Company's establishment
1994
■Company's privatization on the basis of territory #2 (workshop #4) of Sapfir Company
1995
■DIOD – leading producer of uncooled photodiods
■Company's management decides to switch from B2B market to consumer healthcare (B2C) market
■Serial launch of Elion-132, developed in association with Research Institute of First Aid n.a. N.V.Sklifosovsky
■Launch of Mir Ekologii retail chain
1996
■Launch of 1st modification of Georgy equipment, developed in association with the Central Military Hospital n.a. N.N.Burdenko
1994 - 1996 2007 - 20111997 - 2002
Enter Russian consumer healthcare market
1997
■Founding of a “Ekologiya Pitaniya” subsidiary, producing consumer healthcare products
■Launch of Spirulina BEL (nutritional supplement) production
1998
■Start of design and development of production workshop, specializing in production of healthcare products on the territory of DIOD
1999
■Launch of production of Dolgolet and Iod-Aktiv (nutritional supplements), developed in association with the Medical Radiological Center of the Russian Academy of Medical Sciences
2000
■Launch of Viardo (nutritional supplement) production
2001
■Launch of Capillar (nutritional supplement) production
2002
■Launch of Selen-Aktiv (nutritional supplement) production, developed in association with the Medical Radiological Center of the Russian Academy of Medical Sciences
2003 - 2007
Leadership in consumer healthcare market
Diversification
2003
■DIOD is the leading player in the consumer healthcare market
■Launch of Kaltcy-Aktiv (nutritional supplement) production, developed in association with Moscow Stomatological University and Okulist
2004
■Launch of health cosmetics production – Capillar body cream-balm
2005
■Launch of Kapsula Artro-Aktiv (nutritional supplement), oil balm Artro-Aktiv Warming, cream-balm Artro-Aktiv Alimentary production
2006
■Launch of Capillar leg gel production
2007
■Procurement of exclusive rights on the territory of Russia & CIS for producing of Phase 2 - Calories blocker; signing of an exclusive distribution agreement with Pharmachem, USA
Launch of pharmaceuticals production
Innovation development
2008
■Launch of Phase 2 production Acquisition and consolidation of Olyfen and Vega Pharm pharmaceutical companies
■Start of nanotechnology development
2009
■Procurement of Security certificate (GRAS), USA for taxifolin
■Acquisition of controlling equity interest in CJSC Flavir and CJSC Taiga-GAZ, producing Dikveretin (pharmaceutical)
■Launch of Agralin D (nutritional supplement) production, developed in association with the Flu Institute of the Russian Academy of Medical Sciences
■Launch of Okulist Chernika (nutritional supplement) production, developed in association with the Russian Association of Children Ophthalmologists
■Development of Okulist sprey in association with the Institute of Biomedical Problems
2010
■Launch of Stella (nutritional supplement) production, developed in association with the Russian Association of Obstetricians /Gynaecologists
■Registration of urinary iodine analyzer MIKON-IOD
■Development of medical paste for tooth filling using nanotechnology
2011
■Launch of production of medical and prophylactic food with the brand “Capilar”.
■Getting the certificate Novel Food for the substance dihydroquercetin (DHQ)
Source: Company data
Investment HighlightsSection 2
11
Key Investment Highlights
Portfolio of recognizable brands
Efficient multi-level distribution network
High corporate governance standards
Professional and entrepreneurial
management team
■ Senior management team that determines the Company’s strategic development
■ Strong track record of converting concepts and scientific and technical knowledge into commercially viable products that cater to specific market needs
■ Ability to transform the Company’s direction at different development stages
■ Adherence to best corporate governance practices
Innovative leader of the Russian consumer
healthcare market
Strong R&D capabilities
■ Second-largest player in the Russian consumer healthcare market (according to DSM)
■ Focus on the fastest growing market segments – cardiovascular systems, weight control, men’s and women’s health, musculoskeletal system, central nervous system, vision
■ Well positioned to re-register nutritional supplements and health cosmetics as medical nutrition and pharmaceutical products, enabling the Company to capture additional market share
■ First company in Russia which got the expert conclusion from the Russian Academy of Medical Sciences and Research Institute of Nutrition for the use of clinical nutrition for prevention and as a component of complex therapy coronary heart disease
■ Portfolio of recognizable and demanded brands in the market
■ Since 2006, Capillar has been the best-selling consumer healthcare product in Russia
■ Product portfolio includes such well-known brands as Viardo, Okulist, Blocker of calories Phasa-2, Iod-Aktiv, Artro-Aktiv, Stella
■ Team of highly skilled R&D staff, including 10 Ph.D. professionals with comprehensive industry experience
■ Established partnerships with more than 50 Russian and international scientific research institutes, clinical centers, research and testing laboratories, and professional groups
■ Wide development portfolio of compounds , products/substances that have already passed pre-clinical and clinical trials
■ Product distribution network covers all 83 Russian regions (100%), with established regional distribution partnerships in 77 Russian regions (93%)
■ High penetration of each regional market without dependency on any single distributor
■ Own retail chain, comprising 6 branch stores and an online store
■ Cooperation with leading industry associations and access to key opinion-leaders
■ 3 independent Board Directors’ protecting shareholders’ interests
■ Transparent corporate structure and business-model, supported by IFRS financial accounts
■ Management’s ISO 9001:2008 certified
1
2
3
5
4
6
12
■ Focus on the most perspective market segments
■ Joint R&Ds with the leading Russian institutes and associations, such as the Flu Institute of the Russian Academy of Medical Sciences and the Russian Association of Obstetrician-Gynecologists
■ Clinical trials done in association with the leading Russian research institutes and clinics
■ Promotion support from NGOs and professional associations: Russian Association of Honored Doctors, Restorative Medicine Institute, Nation Health League, Russian Association of Children Ophthalmologists
■ Promotion of the Company’s products through its own medical equipment
■ Developed methodological recommendations for use across medical activities
■ 6 registered medical technologies for the usage of the Company’s products in medical practices
Nutritional Supplements (NS)
Russian Consumer Healthcare Market Leader (1/2)
13
Russian Consumer Healthcare Market Leader (2/2)
Health Cosmetics
■ As of 2010, the Company’s market share in the health cosmetics market amounted to 3.4%
■ Ability to leverage off some of the best selling brands to produce a number of successful brand families
■ The Company registered 3 medical technologies for the usage of health cosmetics products in medical practices
Equipment
■ The Company produces diagnostic and therapeutic medical equipment
■ Medical equipment allows the Company to effectively promote other Company’s products as well as to demonstrate effectiveness of the Company’s consumer healthcare products
■ The Company registered 2 medical technologies for the usage of its products in medical practices (on the basis of Georgy water ionizer and Svetovit infrared therapy equipment)
Source: DSM Group data
14
Portfolio of Recognizable Brands
Capillar
■ Cardiovascular system disease prevention
■ NS #1 in Russia since 2006
Viardo
■ Erectile dysfunction treatment
■ NS #3 for erectile dysfunction treatment in 2009
Calories blocker – Phase 2
■ Weight control, blocks complex carbohydrate fixation
■ NS #2 for weight control in 2009
Iod-Aktiv and Iod-Aktiv 100
■ Thyroid gland function sustentation
■ NS #2 in Russian in thyroid gland function sustentation in 2006
Artro-Aktiv
■ Diarthroses treatment
■ NS #2 for diarthroses treatment in 2009
Other brands
KALTCY-AKTIVRegulation of calcium
metabolism
SELEN AKTIVAnti-oxidant, radio
protector
OKULISTVision correction
Araglin DFlu and acute
respiratory viral infection
prevention
DolgoletGeneral tonic action
StellaWomen reproductive
system health
Source: Company data, DSM Group
15
Clinical nutrition (1/2)
■ JSC DIOD opens a new manufacturing segment – clinical nutrition.
■ This is relatively new segment of products for health for Russia. Production of clinical and functional nutrition is the main brand of Healthcare industry.
■ JSC DIOD has got Certificate of State registration of clinical (dietary) nutrition “Cardio capilar”, “Capilar 120/80”.
■ In the nearest future JSC DIOD is planning to produce clinical nutrition for use together with cure as a complex therapy of treatment the following diseases: arthrosis, vision diseases, insufficiency of iodine, diseases of female reproductive system.
“Capilar 120/80” is for:
■ strengthening of vascular walls and improvement of functional state of cardiovascular system;
■ normalization of arterial pressure and heart rate;
■ reduction of risk of development of ischemic heart disease, stroke, hypertension, atherosclerosis.
“Cardio capilar” is for:
■ reduction of risk of development of ischemic heart disease and its complications (heart attack and stroke), cardiopulmonary insufficiency;
■ Reduction of inclination to trombus’ formation, normalization of microcirculation of blood, improvement of functional state of cardiovascular system;
■ Increase of physical endurance of heart muscle and tolerance to physical activity, reduction of period of rehabilitation after acute old myocardial infarction.
Certificates of state registration of clinical (dietary) nutrition ‘’Cardio capilar with coenzyme Q10”, “Capilar 120/80”.
Consumer package
For realization to people who suffer from high arterial pressure
and hypertension
For realization to people as specialized foodstuff for dietary
(clinical and prophylactic) nutrition for prevention and complex therapy
of ischemia
16
Clinical nutrition (2/2)
■ According to the WHO data more than 17 mln people die annually in the world from cardiovascular diseases, more than 1 mln – in Russia;
■ According to the GNITS of prophylactic medicine of Ministery of Healthcare and Social Development in Russia about 10 mln capable of working people have stable forms of Ischemic heart disease;
■ More than 40 mln people of patients in Russia suffer from arterial hypertension;
■ According to the official data of Russian Healthcare Organization in Russia 2,4 mln people are registered with the chronic obstructive disease of lungs, but according to the epidemiologic evidence this figure could be about 16 mln people.
■ World’s market of clinical and prophylactic nutrition is developing intensively, and annually it is increasing for 15-20%.
■ Federal authorities give annually from the federal budget in USA budget millions of dollars on subvention for enrichment of nutrition products with natural active components. About 40% of functional products belongs to USA according to official data.
■ The volume of probiotic products and products that have food supplements in France has increased in 350 times.
■ It is considered that till 2015 the market will be more than 30% of all the selling nutrition products.
Situation in Russia
Valuation of global market
Millions, rubles
17
■ 34 registered patents
■ 9 patents under registration
■ 47 brand name registration certificates
■ 1 prize winner of the Russian Government
■ 2 members of the Russian Academy of Natural Science
■ 5 Doctors of Science
■ 6 PhDs
Human resources Intellectual property
■ Established partnership with 53 leading R&D institutions, clinical centers, research and testing laboratories and professional groups
■ Unique bioactivity and toxicological safety test laboratory, certified by the Federal Service on Surveillance for Consumer Rights Protection and Human Well-being (“Rospotrebnadzor”)
■ 7 methods of bioactivity and safety measurement
■ Research preparative chromatography laboratory
■ Developed 6 state reference standards
Optimal Platform for Innovation, Product Development and Commercialization
Developed, registered and launched*:
■4 medical equipment products
■29 new unique medical products, including 3 finished products and 8 market leaders
Developed and registered:
■6 new medical technologies
■15 items of original raw materials, including 2 active pharmaceutical compounds
■4 state reference standards
Developed and under registration:
■8 finished products
■6 original active pharmaceutical compounds
■8 state reference standards
Own R&D laboratories Outsourced R&D facilities
(*) over the last 10 yearsSource: Company data, DSM Group
18
1999
2005 2006 2007 2008 2009
2000 2001 2003 20042002
• Dolgolet• Iod-Aktiv• Mitomin• Yantavit
• Elion 132• Georgy silver ion water
ionizer
• Viardo • Capillar (pills)• Enerlit• Selena VEL
• Selen-Aktiv• Gepavit• Chistovit VEL
• Calcium-Aktiv• Dushevny Chai
• Body cream-bal Capillar
• Artro-Aktiv blisters • Viardo-forte• Iod-Aktiv Forte
• Araglin D• Okulist-chernica• Chistovit forte• Cardio-Capillar• Q10• Stella• Products for thyroid gland
function sustentation • Spasin
• Calories blocker – Phase 2• L-carnitine
• Artro-Aktiv warming• Artro-Aktiv alimentary
• Capillar leg gel
• Liquid patch
• T-Iod
• Infrared therapy equipment Svetovit
• Medical technology with Artro-Aktiv balm
• 4 medical technologies applying:
NS Okulist Artro-Aktiv balm Medical equipment
Cardiovisor Svetovit
• Gipoksen• Orvirem• Mebiks
- Nutritional Supplements - Health cosmetics - Pharmaceuticals - Medical equipment - Medical technology
Longstanding R&D Experience
19
48%
18%
17%
13%4%
Developed Distribution Network
■ The Company has developed efficient multi-level distribution network (176 partners), comprising the following levels:
National distributors of pharmaceutical products: CIA, Katren, Apteka-Holding, Protek, Rosta (with presence in all Russian regions)
National distributors of consumer healthcare products Regional distributors of pharmacy products Regional representatives Independent drug-store chains Retail chains
■ Multilevel structure of the distribution network allows to limit dependency on any single distributor and to rapidly achieve high penetration levels of each regional market
■ Successful distribution of the Company’s products through Metro Cash&Carry chain showed the potential of retail chains as a new distribution channel
The Company plans to further enhance its presence in retail chains and currently holds negotiations with Auchan, X5 Retail Group (Perekrestok and Pyaterochka stores), Magnit, Giperglobus and Zelgros
■ Own retail stores enable the Company to pilot launch of new healthcare products
Sales breakdown by region
Distribution channels
Source: Company data for the year of 2009
Far East region
Siberian region
Urals region
North-West region
Central region
Volga regionRUB 38.96
mln
- Company’s head office
South and Caucasus region
Regional representatives
National pharmacy distributors
Specialized distributors of nutritional supplements
Regional pharmacy distributors
RUB 83.80mln
RUB 42.60mln
RUB 58.92mln
RUB 119.01mln
RUB 252.15mln
RUB 130.88mln
RUB 1,548**
mln
(*) distributor’s share in the total sales for the year of 2009(**) total sales for the year of 2010Source: Company data
Independent drug-store chains
MOSCOW
ТOP-10 distributors Share*, %
CIA International 14.8%
Regional representatives 12.9%
Katren 10.6%
AMMA 9.9%
Rosta 8.4%
Apteka-Holding 7.7%
Protek 5.8%
Akonit 4.0%
Moron 2.8%
Interpan 2.6%
Total TOP-10 79.6%
20
Vladimir TikhonovCEOOne of the Company’s founders, who manages it since its origin in 1994. Graduated from Moscow State Technical University n.a. Bauman in 1992 . Member of the Russian Academy of Natural Science
Experienced Management Team
The team of professionals with long-term experience in the market
Vladimir KozlovFirst Deputy CEOOne of the Company’s founders, Chairman of the Board of Directors. Graduated from Moscow Radiotechnics, Electronics and Automation Institute in 1991
Eduard ChernyshovForeign Economic Relations DirectorStarted his career in OJSC DIOD in the beginning of 1995. Graduated from All-Union Extramural Polytechnics Institute in 1989
Vadim SilantievSales and Marketing DirectorOccupies this position since the end of 2000. Graduated from All-Russian Extramural Financial-Economics Institute in 2002
Lubov Dergacheva Head of R&D DepartmentOccupies this position from September 2004. Graduated from Moscow State Medical University in 1984. Highest Quality Endocrinologist, specialist in restorative medicine, holds GSP certificate
21
Best Corporate Governance Practices
Independent directorsCompany’s corporate structure
Consumer Healthcare Pharmaceutical Export
CJSC Ecologia Pitaniya
Nutriceutical production
Ecologia Zhizni, Ltd.
Distribution
OJSC DIODProduction
Nika Stroj. Ltd.Land plot
CJSC OlyfenProduction
CJSC AmetisCompounds production,
distribution
CJSC Vega PharmDistribution
Nika Servis, Ltd.Land plot
Flavir, Ltd.Compounds and raw taxifolin production
99%
70%
100%
100%
100%
51%
100%
Vitamedis AG Distribution
SIBLAREX Gruppa Kompanij Ltd.
Distribution
51%
50%
74%
V. TyurenkovIndependent Director■Private investor, consults several USA and Singapore investment funds. Worked as a management director of Hansberger Global Investors investment company, USA; OGK-4 Board Member; Open Investments Board Member Education:■Moscow State Technical University n.a. Bauman, graduate education in the Russian Academy of Science Institute of USA and Canada■Pepperdine University, USA, California (MBA)
E.FellIndependent Director■Worked as an employee of the Russian representative office of Hansberger Global Investors (USA)■Has a great experience at the high-tech companies■Education: Moscow Aviation Institute, Economist
Y.KuznetsovIndependent Director■Head of Industry Department of the Moscow Government (1992 – 2000)Education:■Kharkov Academy АRTA (1984)■Minsk Higher Engineer Technician Academy (1981)
Strategy and directions of developmentSection 3
23
Development Strategy
■ Retain 5-7% market share in consumer healthcare segment with annual market growth of 10-15%
■ Launch of 12-15 new products by 2013, with the goal of introducing 2-3 “blockbuster” products (with annual sales of $10-15 mln) .
■ Construction a new pharmaceutical plant as a joint venture with a large producer of generics and substances
■ Launch of:
- generics
- modernized generics (combined drugs)
- drugs production under Diod’s umbrella brands
- registration and launch of Diod’s healthcare products as branded drugs
Convert into a pharmaceutical company2
■ Besides drugstores, establish new partnerships with food retailers to sale consumer healthcare products and functional/medical nutrition
■ Tune the current distribution to sale new pharmaceuticals
■ Increase the share of sales by regional distribution partners and due to regional promoting
■ Export sales through partnerships with foreign pharmaceutical companies
Expand distribution network5
■ Increase sales CAGR up to 30-33% as a result of launching of pharmaceuticals and functional/medical nutrition
■ Reach EBITDA margin up to 35-40%
Increase sales and margins 6
Pharmaceuticals revenue share shall increase from 10% up to 50%
■ Launch of new forms of current products
■ Development and marketing new brands without material commercial costs
■ Use of nanotechnologies in the development of consumer healthcare products
Stabilize and retain the share of consumer healthcare products market
1
Launch of functional /medical nutrition
3
■ Use of current healthcare product substances for functional/medical nutrition
■ Marketing of functional/medical nutrition under Diod’s umbrella brands
■ Develop substances export for food, cosmetics, and consumer healthcare production
Export and production of substances
4
2010 2016
24
Pipeline
Existing brands
New (innovative) products
2011
2012
2013
2011
2012
2013
2014
OTC (over-the-counter) Rx (prescription products)
OTC (over-the-counter) Rx (prescription products)
■ Antibacterial nose spray
■ Prevention and treatment of iodine deficit■ Decreasing of arterial blood pressure (antihypertensive
treatment)
■ Rheumatologic diseases and diseases of musculoskeletal system treatment
■ Antiviral product
■ Heart ischemia treatment
■ Children memory and attention enhancing treatment, immune system treatment
■ Weight control treatment■ Sexual dysfunction treatment
■ Cardio- and angioprotecting treatment
■ Neurological diseases’ treatment
■ Gynecopathy treatment and mastitis
■ Anti-inflammatory for rheumatism diseases treatment
■ Prostatitis treatment
■ Side effects of chemo- and radiotherapy treatment■ Prevention of thrombosis (hemoreologic treatment)
2015 ■ Antibacterial and immunostimulatory product ■ Osteoporosis treatment
25
Sales and Marketing
Sales and promotion
■ Defining market trends, analysis of new attractive market segments
■ Development and implementation of efficient brands and advertising strategy
■ Implementation of customer loyalty and customer incentive programs
■ The Company has historically successfully launched new products, which were in great demand and addressed customers’ needs and demands
■ The Company makes substantial investments in marketing and advertising
Key initiatives of the marketing strategy of “DIOD”
Key elements of the brand strategy
■ 15-years’ comprehensive experience of partnership with leading mass media
■ Reputation of producer of efficient and secure products
■ Focus on unique technologies and original compounds
■ Creation of brands by umbrella pattern which will unite products of different product categories
■ 60-90 day delay of payment provided to distributors at 30% annual interest rate
■ Additional discounts, bonuses and incentive schemes
■ Recurrent marketing initiatives in order to increase customers’ interest to Company’s products
■ Target amount of advertising costs - 20% of total sales
Advertising expenses allocation, RUB mln
Source: Company data Source: Company’s management accounts for the year of 2009
26
46%
35%
19%
1,200
1,000
400
Investment Program
Based on the Company’s investment program for 2010-2014.Source: Company data.
■ In order to enhance its market positions, the Company makes substantial investments in its business development
■ The Company has developed a comprehensive investment program for 2010 - 2014 with a total value RUB 2.6 bln ($84 mln)
■ These investments are aimed at growing DIOD’s market share, increasing its efficiency and capitalization
RUB 2,600 mln
Enhancing of market positions
Capital expenditure
Corporate structure optimization
Share issuing and company financing
Long-term loan resources
Bond issuing
RUB 2,600 mln
Investment program Financing sources
Steps TargetBudget, RUB mln
Expenditures
Capitalization of R&Ds
n
n
Conversion of healthcare products into pharmaceuticals
Development of specialized medical nutrition
Grow DIOD’s market share, increase efficiency and capitalization
1 200
u
u
u
Enhance positions in pharmaceutical segment
Development of innovative medical technologies
Enter into new market of health medical food
Capital expenditure
n Modernization of current and construction of new production facilities
Increase of production volume and reduction of costs
900
u
u
Build a new complex to relocate production and R&D facilities outside of Moscow
Modernization of existing production facilities in consumer health and pharmaceutical segments
Development and optimization of corporate structure
n Vertical and horizontal integration
Hedging of business risks and growth of the market share
500
u
u
Completion of current M&A deals
Strengthen of vertical integration through new acquisitions
Key Financial IndicatorsSection 4
28
Key Financial Indicators
Company’s key financial indicators
Source: Company’s audited consolidated IFRS financial statements for the years of 2007-2010
Revenue structure by segment, 2010
Source: Company’s audited financial statements for the year of 2010
Mln. rub.2007 2008 2009 2010
Revenue 1 624 1 730 1 559 1 548
Growth rate 14% 7% -10% -1%
Cost of Sales (671) (674) (726) (752)
Gross profit 953 1 056 833 796
Gross margin 59% 61% 53% 51%
SG&A and other expenses (527) (670) (529) (493)
R&D expenses (18) (17) (17) (12)
EBITDA 417 389 332 359
EBITDA margin 26% 23% 21% 23%
Operating profit 407 368 287 303
Operating margin 25% 21% 18% 20%
Net profit 232 303 374 163
Net margin 14% 17% 24% 11%
Net profit less M&A 229 200 109 131
Net margin less M&A 14% 12% 7% 8%
Total debt182 516 529 610
Net debt159 488 491 572
29
Key Financial Parameters Dynamics
Revenue, RUB mln EBITDA, RUB mln
Investment expenditures*, RUB mln Net income, RUB mln
*According to the Cash Flow report for the years of 2007-2010
Source: Company’s audited consolidated IFRS financial statements for the years of 2007-2010
14%
7%
-10%
-1%
14%
12%
7%8%
26%
23% 21%23%
30
Cost Structure and EBITDA
Cost structure, 2010 SG&A structure, 2010
EBITDA calculation, 2010 RUB mln
RUB 752 mln
RUB 481 mln
Source: Company’s audited IFRS financial statements
Labor
Tax
Fixed Assets depreciation and intangible assets amortization
Cost of purchased goods
OtherServices of outside organizations
Advertising expenses
Taxes
Labor expenses
Rent
Royalty
31
Long-Term Growth Drivers
EBITDA 2008
EBITDA 2009
EBITDA 2013
Marketing expenses decrease
Market size decreases
Cost-cutting initiatives
Consumer healthcare market
growth
Launch of new products under existing brand
names
Launch of new products and
brands
Financial Statements for the Years of 2007-2010Appendix 1
33
Income Statement for the Years of 2007-2010
Source: Company’s audited consolidated IFRS financial statements for the years of 2007-2010
Mln. rub. 2007 2008 2009 2010
Revenue 1 624 1 730 1 559 1 548
growth rate % 14% 14% 14% 14%
COGS (671) (674) (726) (752)
Gross profit 953 1 056 833 796
Sales expenses (396) (516) (369) (332)
G&A expences (131) (154) (160) (150)
R&D expenses (18) (17) (17) (12)
Operating profit 407 368 287 303
Other income 7 154 292 46
Other expenses (74) (65) (56) (92)
Earnings before taxes 333 408 410 165
Income tax (101) (106) (46) (35)
Net income 229 303 364 130
Payments after taxes
Retained earnings per annum 232 303 364 130
Minority Interest 3 0 -10 -33
Shareowners’ Profit 229 303 374 163
Weighted Average Shares Outstanding perannum
91 500 000 91 500 000 91 500 000 91 500 000
Earnings per Share (in RUR per share). Basic. 2,50 3,31 4,08 1,78
34
Balance Sheet for the Years of 2007 - 2010
Source: Company’s audited consolidated IFRS financial statements for the years of 2007-2010
Mln. rub. 2007 2008 2009 2010
Assets
NON-CURRENT ASSETS:
Fixed assets 384 401 443 452
Investment property 0 0 1 1
Goodwill 215 266 268 266
Intangible assets 4 478 1 100 1 160
Financial assets for sale 0 0 0 0
Other financial assets 9 19 1 0
Long-term accounts receivable
16 28 0 0
Deferred taxes 29 33 46 51
Non-current assets held for sale
11 0 0 0
Total non-current assets 6671 226 1 860 1 931
CURRENT ASSETS:
Inventories 336 578 639 570
Accounts receivable 496 493 548 797
Loans 53 21 16 21
Cash and cash equivalents 23 29 38 38
Total current assets 9081 121 1 241 1 425
TOTAL ASSETS 1 5742 347 3 101 3 356
Mln. rub. 2007 2008 2009 2010
EQUITY
Shareowners' equity 1 1 1 1
Revaluation reserve 280 285 285 279
Retained earnings 808 1 082 1 429 1 544
Total Capital pertaining to the Mother Company Capital
1 089 1 368 1 709 1 824
Minority interest 11 57 296 350
Total equity 1 100 1 425 2 005 2 174LIABILITIES
Non-current liabilities
Long-term loans and liabilities
0 310 76 381
Deferred taxes 73 152 281 295
Long-term accounts payable 0 0 21 14
Total non-current liabilities
73 462 379 691CURRENT LIABILITIES:
Loans 182 206 453 229
Accounts payable 21 91 158 146
Other accounts payable 106 46 0 24
Reserves 10 42 45 40
Tax liabilities 84 74 62 51
Total current liabilities 402 459 718 491TOTAL LIABILITIES 475 922 1 096 1 182TOTAL EQUITY AND LIABILITIES
1 574 2 347 3 101 3 356
35
Cash Flow Statement for the Years of 2007-2010
Source: Company’s consolidated IFRS financial statements for the years of 2007 - 2010
Mln. rub. 2006 2007 2008 2009 2010
Current activities:
Cash from buyers and customers 1 822 1 638 2 028 1 756 1 578
Other revenues 1 372 1 11 12
Cash used to pay for:
Purchased goods, services, raw materials and other current assets
-1 242 -1 134 -1 474 -1 039 -988
Labor -180 -181 -248 -226 -212
Dividends and interests -27 -67 -49 -99 -91
Taxes and duties including income tax
-289 -250 -352 -308 -300
Other expenses -157 -239 -10 -19 -22
Cash Flows from Operations, net
-73 140 -103 74 -23
Mln. rub. 2006 2007 2008 2009 2010
Investing activities:
Proceeds from fixed assets sales and other non-current assets sales
0 0 66 0 0
Proceeds from sale of securities and other financial investments
0 0 1 0 0
Interest earned 0 1 1 0 1
Redemption of loans provided to other companies
0 9 9 47 15
Affiliated companies acquisition 0 -140 -55 -37 -51
Fixed assets acquisition and other investments into commodities and intangible assets
0 -2 -34 -22 -18
Acquisition of securities and other financial investments
0 -10 -200 -1 -3
Loans provided to other companies 0 -24 -15 -17 -8
Cash Flows from Investment Activities, net
0 -166 -227 -30 -63
Financial activities
Loss from Currency Purchase 0 0 -1 -1 0
Proceeds from issue of shares or other equity securities
0 0 0 0 0
Loans and Credits repaid 0 30 1 494 1 129 1 271
Repayment of loans and credits (without interest)
0 -3 -1 144 -1 140 -1 182
Dividends paid 0 0 -13 -24 -10
Subsidies 0 0 0 1 7
Cash Flows from Financing Activities, net
0 27 336 -35 86
Net Cash Increase (Decrease) -73 0 5 10 0
End of the Year Balance5 24 29 38 38
Key Financial Parameters ForecastAppendix 2
37
Key Financial Parameters Forecast
Revenue forecast in nutrition supplements, RUB mln Revenue forecast in clinical nutrition, RUB mln
Revenue forecast in pharmaceutical sector, RUB mln Revenue dynamics, EBITDA & net income, RUB mln
Source: Company data
Company’s Product PortfolioAppendix 3
39
Product Portfolio*
Consumer healthcare products
Medical nutrition Health cosmetics Branded generics Original products
Cardiovascular
CapillarCapillar-cardioCapillar 120/80ArmakorSelen-Aktiv
Capillar cardioCapillar 120/80
Capillar balm creamCapillar leg balm
Капилар ЭналаприлКапилар Бета-блокатор
GipoksenCapillar forteDikvertinSalivertin
NeurologicalNurovenaOil extract with ataractic effect
Ataractic teaActivny Den Tea
AskovertinMebixCapilashka
Arthrological
Artro-Aktiv blistersArtro-Aktiv alimentary pills
Artro-Aktiv alimentary Artro aktiv warmingArtro aktiv alimentary
Артро актив НемесулидАртро актив Диклофенак
Artro Aktiv forte antiphogisticArtro Aktiv forte reconstructiveArtro strong
Antiviral and antibacterial
Araglin DBronhodiolPulmo Aktiv
Flu treatment Tooth paste Георгий спрей для носа Орвирем таблетка
OrviremArbistrong
Oncologic Basidial mushrooms Khimdetox
Gynaecological Stella Stella Georgy silver ion water ionizer Stella parm
OphthamologyOkulistOkulist-chernikaOkulist-lutein
Okulist Tonic Okulist Okulisty forte
Weight control
Phase 1 Phase 2Phase 4 (Bloker of sweets)
Phase 0 Phase 1 (olean)Phase 3Cosmossup
Phase 3 forte
Women’s reproductive health
Е-AktivQ10-AktivIod-AktivIod-Aktiv forteDolgoletL-karnitin
Iod-Aktiv standard Calcium srtrong
Men’s sexual healthViardoViardo-forte
Viardo-max Prostatcel
(*) Indicated by colors as follows: registered brands, products under registration, planned products
40
Established Partnership With Research Institutes and Associations
■ The Company has sufficient capabilities to develop new pharmaceutical and consumer healthcare products building partnership with leading research institutes
■ The Company has established partnership with 53 research institutes and 8 professional associations, including:
Belgorod State University (nanocenter)
State Research University of the Russian Academy of Medical Sciences (“RAMS”) of pharmacology n.a. Zakusov
Russian Oncology Scientific Center of RAMS n.a. N.N. Blokhin
Moscow Medical Academy n.a. I.M. Sechenov
Russian Cardiologic Scientific Institute
Russian State Medical University
Moscow Pediatric Surgery Research Institute
Russian Center of Reconstructive and Spa Medicine
Flu Research Institute of RAMS (St. Petersburg)
Russian Chemical-Engineering University n.a. D.I. Mendeleev
Association of Restorative Medicine
Russian Association of Children Oculists
Russian Association of Obstetrician-Gynecologist
National Association of Dietarians and Threpsologists
R&D partnerships in different sectors
15
12
9
8
8
8
7
6
5
4
Cardiovascular
Antiviral
Women's health
Oncological
Arthrological
Neurological
Ophthalmology
Weight control
Men's sexual health
Gynaecological
41
IMPORTANT NOTICENeither this document nor any copy hereof may be sent or taken or transmitted into the United States, Canada, Australia or Japan or distributed, directly or indirectly, in the United States, Canada, Australia or Japan. Any failure to comply with this restriction may constitute a violation of U.S., Canadian, Australian or Japanese securities laws.
Contacts
DIOD OJSC
11A Derbenevskaya Str.Moscow 115114Russia
phone: +7 (499) 235-2151e-mail: [email protected]