KATREN OJSC Annual Report 2013 Contents Katren OJSC THE COMPANY IN NUMBERS

Katren OJSC The Company in Numbers 3 ✔ The Katren Group has businesses in 4 countries: Russia, Ukraine, Kazakhstan General Director’s Address 4 and Belarus Mission and Strategy 6 Legal Structure 8 Board of Directors 10 Financial Results 12 ✔ Revenue excluding VAT — $ 4.5 billion (+17 %) Risk Management System 22 Information Technology 25 Social Policy 26 Company History 32 ✔ Net profi t to company shareholders — $ 54 million (–22 %)

Katren CJSC The Company in Numbers 34 Geographical Structure 35 ✔ EBITDA — $ 105 million (–12 %) Operating Results 36 Logistics System 39 Product Range 42 Promotion 43 ✔ Negative net debt — $ 2 million Results and Plans 50 Pharmaceutical Market Analysis 52 Market Situation 54 Market Share on the Russian Market 60 ✔ Over 6 000 employees

Melodiya Zdorovya Pharmacy Chain 62 Venta.LTD (Ukraine) 64 AMITY International (Kazakhstan) 66 ✔ Distribution units serve over 58 900 pharmacies, pharmacy Dominantapharm (Belarus) 68 warehouses and healthcare facilities Contacts 70

2 3 ANNUAL REPORT 2013 ANNUAL REPORT 2013 Katren OJSC Katren OJSC GENERAL DIRECTOR’S ADDRESS GENERAL DIRECTOR’S ADDRESS

Our retail division in Russia — the Melodiya Zdorovya pharmacy chain — is continuing its organic development and now includes more than 400 pharmacies. This fi gure will rise to 500 by the end of 2014. As of the end of last year, our pharmacy chain was in sixth place in the comprehensive ranking by RNC Pharma and eighth in the rating of infl uential pharmacy chains. We will continue to work towards strengthening our leading positions in the regional markets of the CIS. The increase in goods turnover at our distribution companies in Kazakhstan and Ukraine also exceeds market growth. Despite the deteriorating political and economic situation in Ukraine, we believe that our company has the possibility to increase its market share. We plan to achieve this by being committed to a low-cost strategy and optimising the fi nancial cycle, as well as on account of the weakening market position of our less stable competitors. I believe that by the end of 2014, our company Venta.LTD will move from 4th to 3rd place in the rating of Ukraine's pharmaceutical distributors based on goods turnover. The situation in Kazakhstan has stabilised and fi nancial performance is improving. Now, our priority is to create a culture of savings in functional areas by redesigning operational processes, structure and motivation. Another key problem Dear partners, is increasing goods turnover. In order to do this, we are training sales teams and developing competencies with techniques used by the parent company. In 2013, especially the latter half, was not an easy year for the regional markets of particular, we are implementing CRM procedures in sales, optimising pricing and Russia, Ukraine, Kazakhstan and Belarus, where divisions of our holding operate. realising marketing projects. All this combined will allow Amity International to Growth was weak, and was mainly due to infl ation and exchange rate changes, take third place in the 2014 ranking of distributors in Kazakhstan. while in physical terms —units sold —the market remained virtually unchanged. In Belarus, we have started adapting our marketing projects for pharmacies and These factors led to increased price competition, which resulted in a decline of forming a product portfolio that will fully meet the requirements of an emerging industry margins. As a result, the holding's net profi t was $ 55 million, which is 21 % market. We are interested in two segments at once: commercial and state-fi nanced less than in 2012. sales. In the current environment, work is complicated by the fact that we need Nevertheless, our company has shown steady growth, and at the end of the year to adapt a new team to existing management processes and that there is a local we achieved turnover of 4.5 billion dollars. Our main distribution unit in Russia — decrease in goods turnover. The number of clients working with Dominantapharm Katren CJSC —showed growth above market level, and the year ended with us on the commercial market is increasing: this process, along with improvement to taking a leading position on gross turnover and fi rst place in the overall rating of the product range and customer service, will be a major factor in our development pharmaceutical distributors. In my opinion, this result was to be expected. Being on this regional market in 2014. “fi rst”, “second” or “third” in the market does not matter for us: we have worked, Generally speaking, we will continue to develop the holding company, reaching work and will continue to work responsibly, effi ciently and —most importantly — our goods turnover and profi tability targets while paying attention to the quality eff ectively for ourselves and our partners. We continue to improve technology in of this development, adjusted for the feasibility of scenarios to fulfi l our plans in order to reduce costs and maximise profi ts. local markets. Main objectives are to continue to improve operational processes, Among the past year's signifi cant events for our Russian distributor, it is to implement already initiated measures in functional areas and to strengthen our worth noting, fi rst of all, the opening of six regional warehouses, including a new position in the market. automated retail complex in Moscow, which is by far the largest in Eastern Europe. Another signifi cant event is the successful development of the Apteka.ru project. By the end of 2013, the project fully realised its turnover targets and was joined by more than 5 000 pharmacies across Russia. In support of the project, we release a magazine of the same name, which has the potential to become one of the most popular publications about health and medicine in the country. Today, the Vladimir Spiridonov development of apteka.ru opens up new perspectives for us. General Director, Katren OJSC

4 5 ANNUAL REPORT 2013 ANNUAL REPORT 2013 ОАОKatren «Катрен» OJSC Katren OJSC MISSION AND STRATEGY

Katren OJSC Mission

We are an ethical company, aiming to improve people’s health and quality of life.

We develop open and mutually beneficial cooperation with partners, adhering to the following principles: ✔ Trustworthy relations and high professional standards ✔ Aspiration for technological leadership ✔ High requirements in quality assurance and safety

The key values underlying our development are: ✔ Trust in our employees and in their energy, initiative and conscientiousness ✔ Focus on their personal and professional growth ✔ Approachability and openness ✔ Honesty and fairness in relationships

Katren OJSC’s strategic goal is to become an international company with a strong presence in major developing pharmaceutical markets, to deliver continuous capital increase and to make efficient use of investments.

Katren OJSC Strategy

Key elements of the company’s strategy are: ✔ Increasing its share in each of its markets ✔ Cost reduction and stable, competitive pricing for products and services ✔ The use of geographical and industry-specific synergy ✔ Effective deployment of resources in every area.

6 7 ANNUAL REPORT 2013 ANNUAL REPORT 2013 Katren OJSC Katren OJSC LEGAL STRUCTURE LEGAL STRUCTURE

15.37 % EBRD Katren OJSC owns businesses in four countries: Katren OJSC (Moscow, Russia) Russia 81.13 % Individuals The group’s leading company is the pharmaceutical distributor Katren CJSC. The company’s revenue excluding VAT in 2013 was $ 3.83 billion, 18 % higher 3.5 % than in 2012. The total growth of the pharmaceutical market, according to leading marketing agencies, was 14 %. 100 % Katren CJSC (Novosibirsk, Russia) According to the international agency IMS Health, Katren CJSC occupied 16.74 % of the market of directly supplied pharmaceutical products in 2013. The company is top of the overall rating of pharmaceutical distributors and top 25 100 % Melodiya Zdorovya distributors in terms of gross sales. (Novosibirsk, Russia) Melodiya Zdorovya Pharmacy Chain As of 31 December 2013, the chain had 420 retail outlets (including franchises) 90 % Venta.LTD 10 % Individuals (Dnepropetrovsk, Ukraine) in 51 subjects of the Russian Federation. According to the international agency IMS Health, Melodiya Zdorovya was ranked 8th for infl uence and 6th in the cumulative 2013 rating of pharmacy chains. 100 % AMITY International (Almaty, Kazakhstan) Ukraine

Venta.LTD is a Ukrainian pharmaceutical distributor that joined the group in 2008. 95 % Dominantapharm 5 % Individuals (Belarus) In 2013, the company’s share in the local market was 11.7 %. According to PharmXplorer/Pharmstandart, the analytical market research system of Proxima Research, Venta.LTD is ranked 4th. Revenue increased by 24 %, whereas the local pharmaceutical market grew by 14 % in dollar terms (according to the National Bank of Ukraine exchange rate) in 2013. As of today, the company has 7 branches This diagram shows the Katren Group corporate structure as of 31 March 2014. and 2 representative offi ces (all in Ukraine). Katren OJSC is an international holding involved in pharmaceutical wholesale and retail. Kazakhstan

AMITY International is a pharmaceutical distributor in Kazakhstan that joined the group in 2009. In 2012, Katren OJSC became the sole owner of the company. In 2013, its share of the local pharmaceutical market was 12 %. The company’s sales in dollar terms grew by 16 %. As of today, AMITY International has 8 branches and 9 representative offi ces (all in Kazakhstan).

Belarus

Dominantapharm is a Belarusian pharmaceutical distributor that joined the Katren holding in 2010. In March 2014, Katren OJSC increased its stake in Dominantapharm from 87 % to 95 %. In 2013, the company's revenue decreased by 22 % in dollar terms.

8 9 ANNUAL REPORT 2013 ANNUAL REPORT 2013 Katren OJSC Katren OJSC BOARD OF DIRECTORS BOARD OF DIRECTORS

Oksana Kuznetsova Chairperson, Katren OJSC Board of Directors Anatoly Tentser Finance Director, Katren CJSC Development Director, Katren CJSC Novosibirsk Commercial Institute (1993) Novosibirsk State Technical University (1991) MBA, The Open University, UK MBA, The Open University, UK

Vladimir Spiridonov General Director, Katren OJSC Jere C. Calmes Company Shareholder Independent Director Novosibirsk State University (1985) Bachelor of Arts Degree in Political Science and International Relations, Bates College, Lewiston, ME, USA Degree from The Open University, UK Executive Development Program, Wharton School of Business, University of Pennsylvania

Leonid Konobeev Sergei Shibaev General Director, Katren CJSC Independent Director Company Shareholder Moscow State Institute of International Relations (1981) Novosibirsk State University (1986) Association of Chartered Certified Accountants (ACCA), UK (1995) Degree from The Open University, UK MBA, Henley Management College, UK

Irina Tsoi Artyom Sitnikov Deputy General Director, Katren OJSC Director nominated by the EBRD Novosibirsk State University (1996) Moscow State Institute of International Relations (1995) MBA, The Open University, UK MBA, London Business School (2002)

Ekaterina Tolkachova Director, Zelyony Dom Novosibirsk State University (2000) MBA, The Open University, UK

The members of the Board of Directors were elected by a General Shareholders’ Meeting on 27.06.2013.

10 11 ANNUAL REPORT 2013 ANNUAL REPORT 2013 Katren OJSC Katren OJSC FINANCIAL RESULTS FINANCIAL RESULTS

Revenue Katren Group Consolidated Profi t and Loss Account for the Year Ending 31 December 2013 (US$ ’000) In 2013, revenue (excluding VAT) according to IFRS increased by 17 % compared to 2012 and amounted to $ 4 495 million. Consolidated Accounts 2013* 2012 Revenue ($, millions) Group Country Change Revenue 4 495 451 3 827 217 2013/2012 2013 2012 Cost of Sales (4 170 239) (3 512 598) Total for the Katren Group 4 495 3 827 17 Gross Profi t 325 212 314 619 Katren CJSC Russia 3 827 3 253 18 Other Income 7 499 9 276 Melodiya Zdorovya Russia 158 138 14 Operating Expenses (160 034) (134 433) Venta.LTD Ukraine 410 331 24 Administrative Expenses (85 105) (80 403) AMITY International Kazakhstan 119 102 16 Dominantapharm Belarus 21 27 –23 Other Expenses (674) (7 233) Other subsidiaries Russia 0 8 Impairment of Intangible Assets (7 155) — Consolidation adjustments –40 –32 22 Operating Results 79 743 101 826

Net Financial Expenses (4 429) (10 701) Share of group revenue in 2013: Profi t Before Tax 75 314 91 125 Katren CJSC 85.1 % Profi t Tax Expenses (20 162) (20 887) Melodiya Zdorovya 3.5 % Profi t for the Year 55 152 70 238 Venta.LTD 9.1 % AMITY International 2.6 % Profi t due to: Dominantapharm 0.5 % Company Owners 54 375 70 043 Consolidating adjustments –0.9 % Minority Shareholders 777 195 EBITDA 104 766 118 945 Gross profi t for 2013 was $ 325 million, which is 3 % more than in 2012. The gross * See www.katrengroup.ru for detailed reports margin percentage was 7.2 %, compared to 8.2 % in 2012.

Operating expenses in 2013 were $ 238 million, 12 % higher than in 2012. The operating expense ratio was reduced to 5.3 % from 5.6 % in 2012. All companies in the group, except for Melodiya Zdorovya, showed lower operating costs. The Katren OJSC, as the parent company of the Katren Group, has presented main areas in which distribution companies managed to reduce expenditure were consolidated accounts showing its fi nancial results in accordance with IFRS for marketing and incoming logistics. the fi fth year running. Consolidated accounts for 2013, confi rmed by independent auditor KPMG, are published on the site http://www.katrengroup.ru. Net fi nancial expenses were lower than last year’s, totalling $ 4.4 million in 2013. Information on the companies is disclosed in the annual report according the materiality principle. The group’s net profi t due to Katren OJSC shareholders in 2013 was $ 54 million Katren CJSC (Novosibirsk, Russia) has been allocated a separate segment in this (against $ 70 million in 2012). report, as its contribution in the balance-sheet total is 91 %, its share in the group’s turnover is 85 %, and its share in the profi ts of profi t-making companies is 90 %. The EBITDA in 2013 was $ 118.5 million, compared to $ 118.9 million in 2012. other companies in the Katren Group are combined into one segment — Other Companies. Net fi nancial debt was negative as of 31.12.2013 and amounted to $ 2 million.

12 13 ANNUAL REPORT 2013 ANNUAL REPORT 2013 Katren OJSC Katren OJSC FINANCIAL RESULTS FINANCIAL RESULTS

Changes in the Balance Structure Katren OJSC Consolidated Statement of Financial Position (US$ ’000) — The share of non-current assets as of 31.12.2012 was 11.3 % (against 10.7 % in Consolidated Reports 2012); the share of fi xed assets in assets increased by 0.4 % to 9.7 % as of 31.12.2011 2013* 2012 — The structure of current assets in assets: the share of accounts receivable Assets increased by 2.9 % and the proportion of trade stocks decreased by 1.6 % — The proportion of loans and borrowings in assets was 3.2 %, against 1.5 % in Non-current Assets 2012 Fixed Assets 176 396 146 239 — The share of equity decreased by 0.7 %, but increased by $ 14 million in Intangible Assets 7 676 13 187 monetary terms. The equity of Katren OJSC shareholders totalled $ 15 million Other Non-current Assets 22 136 10 063 Financial Cycle Total Non-current Assets 206 208 169 489 Current Assets The table below shows the dynamics of key cash fl ow management indicators for the Katren Group. Stock 880 995 787 510 Other Investments 11 422 14 450 Current Profi t Tax 135 55 Turnover, times per year 2013 2012 2011 Description of Indicator Trade and Other Accounts Receivable 660 995 527 033 Trade Receivables 8.1 9.0 10.2 Trade Stock* 5.0 4.9 5.1 Prepayment for Current Assets 7 022 7 055 Sales proceeds to the Payables* 2.9 3.0 3.3 respective average an- Cash and Cash Equivalents 61 146 77 077 nual asset ratio, US$ Loans 108.3 53.5 27.9 Total Current Assets 1 621 715 1 413 180 Assets 2.6 2.7 3.0 Total Assets 1 827 923 1 582 669 Equity and Liabilities * Cost of sales to average total assets ratio, US$ Equity Share Capital 4 4 118 4 4 118 Share Premium 47 839 47 839 Reserves 2 712 16 274 Retained Earnings 89 003 60 387 Total Equity of Company Shareholders 183 672 168 618 Non-controlling Interest 3 261 4 219 Total Equity 186 933 172 837 Long-term Liabilities Loans and Borrowings 18 332 — Deferred Tax Liabilities 10 222 8 592 Total Long-term Liabilities 28 554 8 592 Short-term Liabilities Loans and Borrowings 40 630 24 046 Trading and Other Accounts Payable 1 568 332 1 368 702 Reserves 337 311 Profi t Tax Payable 3 137 8 181 Total Short-term Liabilities 1 612 436 1 401 240 Total Liabilities 1 640 990 1 409 832 Total Equity and Liabilities 1 827 923 1 582 669

* See www.katrengroup.ru for detailed reports

14 15 ANNUAL REPORT 2013 ANNUAL REPORT 2013 Katren OJSC Katren OJSC FINANCIAL RESULTS FINANCIAL RESULTS

Fixed Assets Accounts Payable to Suppliers

As of 31 December 2013, fi xed assets amounted to $ 176 million (against $ 146 As of 31 December 2013, the debt to suppliers amounted to $ 1 552 million, 4 days million in 2012). The increase was mainly due to investment in warehouses in higher than last year. The growth in trade payables is attributed to a wider scope Krasnodar, Voronezh, Moscow and Yuzhno-Sakhalinsk. of operations and longer delays in payment in line with goods delivery contracts.

Intangible Assets Loans and Borrowings

As of 31 December 2013, intangible assets totalled $ 8 million (2012 — $ 13 million). As of 31 December 2013, total loans amounted to $ 59 million. Compared to 2012, this is an increase of $ 35 million. Stock The group’s main creditors are: As of 31 December 2013, stock value was $ 881 million. Compared to 31 December ✔ in Russia — Siberian Bank, Sberbank of Russia, all loans are denominated in 2012, stock increased by 11.8 %, while cost of sales grew by 18.7 %. The company roubles is creating a reserve in order to reduce the cost of goods that have a short shelf life ✔ in Kazakhstan — a subsidiary bank of Sberbank of Russia, the loan is in tenge or low turnover. ✔ in Ukraine — OTP Bank, loans denominated in hryvnia

Accounts Receivable Equity

As of 31 December 2013, trade receivables (prior to the creation of the reserve) As of 31 December 2013, shareholders' equity in Katren OJSC was $ 183.7 million amounted to $ 628 million, a 27 % growth over 2012. ($ 168.6 million on 31 December 2012). The average receivables turnover of the Katren Group was 45 days, 5 days longer than last year. One of the factors slowing down receivables turnover is the growing The main drivers behind this equity increase are as follows: proportion of sales in major pharmacy chains, which are characterised by long- ✔ Profi t earned in the reporting period by Katren CJSC, Melodiya Zdorovya, Venta. term deferred payments. LTD and Dominantapharm The sales team regularly monitors the state of accounts receivable. In addition, ✔ Losses incurred by AMITY International the legal department monitors receivables and makes decisions as to whether a ✔ Dividends declared and paid to Katren OJSC shareholders debt should be recovered using pre-trail or judicial proceedings. The company ✔ Repurchase of stock creates reserves for possible losses incurred when writing off doubtful debts for individual purchasers in the risk zone.

Group Trading Receivables Year Receivables Reserve (IFRS) Turnover Receivables Turnover $ ’000 $ ’000 $ ’000 % of receivables times per year 2011 3 139 458 368 560 7 814 2 10.2 2012 3 827 217 495 278 6 499 1 9.0 2013 4 495 451 628 132 7 583 1 8.1

16 17 ANNUAL REPORT 2013 ANNUAL REPORT 2013 Katren OJSC Katren OJSC FINANCIAL RESULTS FINANCIAL RESULTS

Katren Group Consolidated Statement of Comprehensive Income for the Year Ending 31 December 2013 ('000 $US)

Katren CJSC Other Companies Consolidation Adjustments Consolidated Accounts 2013 * 2012 2013 * 2012 2013 * 2012 2013 * 2012 Turnover 3 827 223 3 252 509 708 397 607 115 (40 169) (32 407) 4 495 451 3 827 217 Cost of Sales (3 586 496) (3 009 165) (623 962) (536 026) 40 219 32 593 (4 170 239) (3 512 598) Gross Profi t 240 727 243 344 84 435 71 089 50 186 325 212 314 619 Other Revenue 1 882 1 608 5 825 8 158 (208) (490) 7 499 9 276 Commercial Expenses (109 624) (92 558) (50 698) (42 225) 288 350 (160 034) (134 433) Administrative Expenses (57 643) (53 801) (27 407) (26 830) (55) 228 (85 105) (80 403) Other Expenses (476) (6 432) (198) (662) — (139) (674) (7 233) Impairment of Intangible Assets — — (924) — (6 231) — (7 155) — Operating Results 74 866 92 161 11 033 9 530 (6 156) 135 79 743 101 826 Net Financial Expenses 3 435 (1 545) (7 912) (9 078) 48 (78) (4 429) (10 701) Profi t (Loss) Before Taxes 78 301 90 616 3 121 452 (6 108) 57 75 314 91 125 Profi t Tax Expenses (17 547) (19 806) (2 615) (1 086) — 5 (20 162) (20 887) Profi t (Loss) for the Year 60 754 70 810 506 (634) (6 108) 62 55 152 70 238 Profi t due to: Owners of the Company 60 754 70 810 (271) (829) (6 108) 62 54 375 70 043 Minority Shareholders — — 777 195 — — 777 195

* See www.katrengroup.ru for detailed reports

18 19 ANNUAL REPORT 2013 ANNUAL REPORT 2013 Katren OJSC Katren OJSC FINANCIAL RESULTS FINANCIAL RESULTS

Katren OJSC Consolidated Statement of Financial Position (US$ ’000)

Katren CJSC Other Companies Consolidation Adjustments Consolidated Accounts 2013* 2012 2013* 2012 2013* 2012 2013* 2012 Assets Assets Non-current Assets Non-current Assets Fixed Assets 153 173 125 142 13 403 9 946 9 820 11 151 176 396 146 239 Intangible Assets 1 398 1 451 6 481 5 884 (203) 5 852 7 676 13 187 Other Investments 78 902 38 645 125 896 92 491 (182 662) (121 073) 22 136 10 063 Total Non-current Assets 233 473 165 238 145 780 108 321 (173 045) (104 070) 206 208 169 489 Current Assets Current Assets Stock 734 907 668 280 146 024 119 231 64 (1) 880 995 787 510 Other Investments 25 236 39 684 1 9 185 (13 815) (34 419) 11 422 14 450 Current Profi t Tax —— 136 54 (1) 1 135 55 Trade and Other Accounts Receivable 608 782 492 122 63 677 44 865 (11 464) (9 954) 660 995 527 033 Prepayment for Current Assets 16 659 19 375 674 345 (10 311) (12 665) 7 022 7 055 Cash and Cash Equivalents 53 204 68 770 7 941 8 307 1 — 61 146 77 077 Total Current Assets 1 438 788 1 288 231 218 453 181 987 (35 526) (57 038) 1 621 715 1 413 180 Total Assets 1 672 261 1 453 469 364 233 290 308 (208 571) (161 108) 1 827 923 1 582 669 Equity and Liabilities Equity and Liabilities Equity Equity Share Capital 48 299 48 299 102 914 61 152 (107 095) (65 333) 44 118 44 118 Share Premium 4 152 — 42 755 47 839 932 — 47 839 47 839 Reserves (5 762) 13 832 836 4 133 7 638 (1 691) 2 712 16 274 Retained Earnings 171 137 144 852 (29 239) (37 312) (52 895) (47 153) 89 003 60 387 Total Equity of Shareholders 217 826 206 983 117 266 75 812 (151 420) (114 177) 183 672 168 618 Non-controlling Interest —— — — 3 261 4 219 3 261 4 219 Total Equity 217 826 206 983 117 266 75 812 (148 159) (109 958) 186 933 172 837 Long-term Liabilities Long-term Liabilities Loans and Borrowings 18 332 — 37 987 22 654 (37 987) (22 654) 18 332 — Deferred Tax Liabilities 6 328 4 370 3 894 4 222 — — 10 222 8 592 Total Long-term Liabilities 24 660 4 370 41 881 26 876 (37 987) (22 654) 28 554 8 592 Short-term Liabilities Short-term Liabilities Loans and Borrowings 27 498 9 087 23 858 33 072 (10 726) (18 113) 40 630 24 046 Trading and Other Accounts Payable 1 399 358 1 225 202 180 672 153 884 (11 698) (10 384) 1 568 332 1 368 702 Reserves 154 164 185 145 (2) 2 337 311 Profi t Tax Payable 2 765 7 663 371 519 1 (1) 3 137 8 181 Total Short-term Liabilities 1 429 775 1 242 116 205 086 187 620 (22 425) (28 496) 1 612 436 1 401 240 Total Liabilities 1 454 435 1 246 486 246 967 214 496 (60 412) (51 150) 1 640 990 1 409 832 Total Equity and Liabilities 1 672 261 1 453 469 364 233 290 308 (208 571) (161 108) 1 827 923 1 582 669

* See www.katrengroup.ru for detailed reports

20 21 ANNUAL REPORT 2013 ANNUAL REPORT 2013 Katren OJSC Katren OJSC RISK MANAGEMENT SYSTEM RISK MANAGEMENT SYSTEM

Since 2009, Katren has employed an integrated system of operational risk The diagram below shows a more detailed scheme for the integrated risk management. management system.

Integrated System of Operational Risk Management 1. Annual monitoring of key operational risks and their assessment

1. Annual monitoring of key Annual monitoring of key operational risks in Identifi cation/ Quantitative Quantitative Risk Ranking Risk Map operational risks major functional areas Monitoring of Risks Evaluation Evaluation and their assessment Determination of risk zones: Identify risks, links to goals Risk assessment: Evaluating the risks on a – Red and business processes – Consequences ('000 roubles) point system – Yellow Outbound document – Probability (%) – Green

Detailed analysis of the major risks detected 2. Working plan for the internal audit service during monitoring in order to propose risk 2. Working plan for the internal audit service minimisation measures

Planning

3. Improving the effi ciency If necessary, the introduction of new or Risk Map Identifi cation Drafting an Audit Plan Approving the Audit Plan Audit Plan of the existing modifi cation of existing internal procedures of Priorities for the Next Year for Next Year internal monitoring system and internal controls to minimise risks – The Audit Committee of the Formation Forming an audit list for the most Katren OJSC Board of Directors Incoming document of a consolidated problematic areas – Supervisory boards of the Outbound document risk register companies in the holding

Audits Conducted

Facilitate company objective fulfi lment Formation of Conclusions Analysis of the Gathering Information on Audit Report and Recommendations Information the Subject of the Audit

3. Improving the effi ciency of the existing internal monitoring system

Initiate/participate in the implementation of new orders/regulations/procedures

Initiate a process of change in the software used Based on results of the internal audit and discussion with stakeholders, the internal audit service can do the following together with Initiate the performance management in order to minimise risks: of regular/one-only activities

Develop proposals for changes in the organisational structure of the division

22 23 ANNUAL REPORT 2013 ANNUAL REPORT 2013 Katren OJSC Katren OJSC RISK MANAGEMENT SYSTEM INFORMATION TECHNOLOGY

Organisational Structure of the Risk Management System Information Technology

Shareholders Leadership in technology is one of Katrens's competitive advantages. All distribution divisions of Katren OJSC use a proprietary corporate information system, which allows them to effi ciently meet industry and market requirements imposed on Board of Directors pharmaceutical distributors in diff erent regions of Russia, Ukraine, Kazakhstan and Belarus. Integrated logistics management equipment based on modern robotic systems are a signifi cant advantage when it comes to operational processes. The Audit Committee unifi ed information space allows divisions of the company and its partners to communicate and exchange data at no additional cost.

Internal Monitoring Top Executive Management The primary tasks of the IT Service remain the same: and Audit Service ✔ ensuring business continuity ✔ ensuring low IT costs Risk Management Group Companies in the Katren Holding Highly-skilled staff in the IT Service at headquarters are the main guarantee of stable results. The basic infrastructure and standard IT systems are developed based on the most advanced technologies, chosen with consideration for the company’s needs and tailored to them. Skills developed in-house and in cooperation with IT industry leaders, such as Cisco, Hewlett Packard and Microsoft, make it possible to In order to manage operational risks, a working group has been set up to include successfully solve tasks. key specialists from all of the company’s divisions. 2013 Results The main functions of this group are: ✔ Regular monitoring and assessment of operational risks, taking into consideration In 2013, the main external task of the IT Service was to create a legally sound internal and external factors in the company’s business environment electronic document management system. Large internal projects were: the launch ✔ Prioritisation of major operations risks of a data processing centre at the new warehouse complex in Moscow, audit ✔ Development of procedures and controls to minimise risks and modernisation of IT management processes, implementation of the latest ServiceDesk system. The next deployment phase of the infrastructure monitoring Work with operational risks in 2013 was focused on monitoring internal control and management system was completed. systems operating in diff erent divisions of Katren. Monitoring included analysis of the following elements of the internal control Main Tasks for 2014 system: ✔ Analysis of goals and objectives for 2013 ✔ Introduction of an electronic document management system for working with ✔ Assessment of the eff ectiveness of the organisational structure customers and suppliers ✔ Evaluation of the optimality of procedures and monitoring tools, as well as the ✔ Fuller integration of IT management systems with robotic warehouse frequency of their use equipment ✔ Analysis of the eff ectiveness parameters used ✔ Infrastructure support for logistics projects in Krasnodar, Saratov, Stavropol, Ufa, ✔ Assessment of the correspondence between current motivation and tasks Yaroslavl and other cities assigned to employees ✔ Continued consolidation of IT systems at branches

Action Plans for Operational Risk Management in 2014

A list of risks to be minimised in 2014 was identifi ed based on the results of operational risk monitoring carried out at the end of 2013 and approved by the company's management. The focus will be on operational risks in sales and project risks associated with the construction of warehouse and offi ce space. Additionally, Katren will continue to work on improving the eff ectiveness of the current internal control system in 2014.

24 25 ANNUAL REPORT 2013 ANNUAL REPORT 2013 Katren OJSC Katren OJSC SOCIAL POLICY SOCIAL POLICY

We are fully aware of our social commitments and develop our business with due Responsibility to Employees consideration for public expectations and ethical standards. We establish fair and mutually benefi cial relationships with all stakeholders − employees, investors, Our relationships with staff are based on the following principles: partners, communities and the state, which is refl ected in the company's mission. ✔ The company respects and maintains the personal, social-economic, cultural and political rights of its employees Responsibility to Society and the State ✔ Relations with each employee are based on mutual respect, trust and honesty ✔ Any form of discrimination vis-à-vis employees and applicants is forbidden It is our fi rm belief that no company should be disconnected from the community ✔ The company strives to uncover the potential of each employee and promote within which it operates. Our main business objective is supplying quality, their professional and personal growth. The company off ers a wide range of reasonably priced medication to the population. In our work, we maintain high training and development opportunities quality standards and comply with legal requirements. Developing our business, ✔ The company provides a safe working environment for all staff , regularly we create new jobs and make all statutory tax payments to the state budget. monitors risks that may be harmful to employees’ health and takes the necessary Of no less importance to us is assisting the state and society in dealing with action to minimise such risks. social problems by making social investments in education, science and health ✔ The company ensures the confi dentiality of employees' personal data, including care. We support a number of sport and art projects in order to help preserve and employment records, information on income, holidays, promotions, and other develop our country’s cultural, historical and spiritual heritage. In charity activities, personal records. Such data is available to employees of the Company that our priority is supporting socially vulnerable groups, primarily orphaned children. have a reasonable and legitimate need to know this information in accordance with their duties Responsibility to Investors ✔ The company strives to create a favourable psychological climate in the collective and promotes the maintenance of ethical conduct among employees We are focused on doing business effi ciently, creating added value and increasing It is of vital importance to us that the companies making up Katren OJSC be reliable the wealth of our shareholders. employers for their staff and comply with existing labour legislation.

Responsibility to Partners We guarantee our employees: ✔ Competitive salaries paid on time We pay the utmost attention to our interaction with partners and build our relations ✔ Full and timely payments to pension, health and social security programmes on the principles of mutually benefi cial cooperation, trust and honesty, ensuring ✔ Safe working conditions the high quality of the products we sell and a high level of service. ✔ Confi dentiality of employees' personal data, including employment records, information on income, holidays, promotions, and other personal records We manage the quality of our service based on TQM (Total Quality Management) ✔ Social support techniques. ✔ Professional development and qualifi cation courses ✔ We place high demands on manufacturers and predominantly receive direct ✔ Universal corporate training supplies from them. ✔ Access to health care as part of an optional medical insurance scheme ✔ We guarantee appropriate storage and transport conditions, rapid transfer of necessary information and an immediate response to defective products In 2012, Katren CJSC signed an optional medical insurance agreement for ✔ With a view to improving our service, we regularly conduct customer opinion employees in order to increase productivity, save working time, and attract and polls with respect to the quality of our services. keep highly-skilled professionals. In 2013, cooperation with insurance company ✔ We develop our business so as to minimise operating costs, ensuring high Sogas continued under this contract. The insurance policy includes outpatient profi tability of the company and stably low prices for our clients. and inpatient care. According to this agreement, any employee of Katren CJSC is ✔ We submit transparent reports prepared in accordance with IFRS. entitled to receive medical care under the Outpatient Service programme.

26 27 ANNUAL REPORT 2013 ANNUAL REPORT 2013 Katren OJSC Katren OJSC SOCIAL POLICY SOCIAL POLICY

Occupational Health and Safety, Fire Prevention In 2013, workplace assessments were performed at the headquarters of Katren CJSC in Novosibirsk, and at the company’s Berdsk and Kazan branches. No harmful The company has adopted an Occupational Health and Safety Policy. Implementing and/or dangerous working conditions were discovered. this programme, the company operates in accordance with state policies in the fi eld Katren CJSC’s employees are provided with personal protection equipment and of occupational safety, minimisation of occupational risks and industrial injuries. safety devices in accordance with inter-industry rules adopted by the company The goal of this policy is the preservation of life and health in the workplace. regarding requirements for special clothing, footwear and other means of personal protection. Our aims are: Consequently, 100 % of the company’s personnel are equipped with the items ✔ To prevent accidents necessary for their work. ✔ To improve working conditions Fire Prevention Company management accepts responsibility for the implementation of policies in the fi elds of health and safety and fi re prevention, aiming to minimise accidents Throughout 2013, the company’s administration and divisions took measures at work and the negative impact of production procedures on employees. aimed at maintaining fi re safety conditions at their facilities. In order to ensure the functioning of the monitoring system, as well as to create conditions for the implementation of a common health and safety and The main tasks in this area remain: fi re prevention policy, internal audits are scheduled to be conducted annually at ✔ Organisation and implementation of fi re prevention measures branches. ✔ Organisation and planning of the fi re safety system In 2013, such checks were carried out at the Voronezh, Murmansk, Nizhny ✔ Organisation and implementation of monitoring at facilities in order to ensure Novgorod, Perm, Samara, St. Petersburg and Khabarovsk branches. compliance with fi re safety requirements Special attention is paid to the organisation and implementation of high-risk ✔ Provision of guidelines on employee training regarding fi re safety measures activities, in particular, the operation lifting devices, loading and unloading, as and actions in case of fi re well as to the quality of briefi ngs, training and knowledge tests with respect to occupational safety and fi re prevention. Industrial Safety The company constantly strives to improve results in the fi eld of occupational health and safety and fi re prevention and is working hard to reduce the risks. In 2013, the company received new state register registration certifi cates for the following six hazardous production facilities: Occupational Health and Safety ✔ Lifting mechanisms at the Berdsk branch ✔ The gas consumption network at the Rostov-on-Don branch The occupational health and safety management system is part of the company’s ✔ The gas consumption network at the Oryol branch corporate management system and serves to identify threats, as well as to assess ✔ The gas consumption network at the Stavropol branch and manage occupational risks. ✔ The gas consumption network at the Ufa branch Implementing aspects of the occupational safety policy, the company's units ✔ The gas consumption network at the Nizhny Novgorod branch and divisions, together with safety representatives from work collectives, conduct their activities in accordance with statutory requirements. Industrial safety is insured at hazardous production facilities by a set of organisational One of the main organisational measures designed to prevent job-related and technical measures: injuries and occupational diseases is eff ective labour safety training. ✔ Liability insurance against the risk of injury resulting from the operation of All of company’s managers and specialists are enrolled on a special training hazardous production facilities and examination programme on occupational safety requirements. Company ✔ Performing scheduled and preventive maintenance work, technical inspections employees also receive training in safe operational methods and techniques. and examinations An important aspect of occupational safety is the creation of secure of ✔ Review and revision of industrial safety documentation nonhazardous conditions for employees in the workplace ✔ Occupational safety training and assessment of personnel working at hazardous Workplace assessments are an eff ective mechanism in order to objectively production facilities determine the state of working conditions and provide a basis for subsequent risk ✔ Monitoring compliance with occupational safety requirements regarding the assessment of occupational diseases and job-related injuries operation of hazardous production facilities

In 2013, no accidents or incidents occurred at the company’s hazardous production facilities.

28 29 ANNUAL REPORT 2013 ANNUAL REPORT 2013 Katren OJSC Katren OJSC SOCIAL POLICY SOCIAL POLICY

Environment Initiative “Health” charity programmes: ✔ Health for Children We believe that every business should care about its surroundings. We protect the ✔ The Pharmacy as a Charity Centre environment and treat nature as a partner. All our branches constantly explore ✔ Certifi cates for Host Families opportunities to reduce their negative impact on the environment. Schoolchildren from orphanages were given 2.8 million roubles in help as part The company conducts internal monitoring in order to meet environmental of “Education”. The educational programs I Want to Learn and Education with a standards: Passion include: ✔ Routine industrial safety checks at hazardous production facilities, scheduled ✔ A scholarship fund for successful students preventative maintenance and repair in accordance with operating instructions ✔ Funding for additional tutoring and registration certifi cates for engineering systems. In 2013, there were no ✔ Organisation of career guidance activities and trips for orphans to St. Petersburg accidents or incidents. and ski resort Sheregesh (Kemerovo Region) ✔ Systematic inspection of load-bearing and enclosing structures in buildings ✔ support for the rugby team at orphanage 74 in Novokuznetsk and constructions in order to detect faults and damage that has occurred to buildings and utilities during operation in good time. Our facilities functioned The priority of the foundation's work is, as ever, “Family”, which includes the Children as expected in 2013. at Home and Gallery of Hearts programmes. The Children at Home magazine is ✔ In accordance with the requirements of Federal Law № 61-FZ “On Circulation a national information and analytical social magazine, which is published in full of Medicines” dated 12 April 2010, substandard drugs are to be destroyed. In colour once every 2 months. The total circulation in 2013 amounted to 1.1 million 2013, 72 medicines declared defective by federal law were withdrawn from copies. An independent audit conducted by the National Circulation Service circulation and destroyed. Medicines are destroyed by an organisation with the confi rmed the circulation of the Children at Home magazine, and the publication appropriate license, according to the rules established by Russian Government won the Circulation Record of the Year Award again in the Charity and Human Decree № 674 “On approval of the rules for the destruction of substandard, Rights category. The magazine is distributed free of charge in all regions where falsifi ed and counterfeit medicines” dated 3 September 2010. Apart from Katren operates batches of medicines deemed to be defective by federal law, the company's Since 2013, the Children at Home magazine has included advertising for branches dispose of expired goods and goods that are unfi t for use for other pharmaceutical products intended for mothers and children. 100 % of funds reasons. In 2013, the amount of defective or expired items destroyed was equal received from advertising are used for charitable purposes. This means that any to 0.06 % of the total number of units sold company that chooses to advertise in the social magazine provides charitable assistance to children. Charity The fund also continued its work on the Corporate Charity and Associate Charity programmes, organising participation in charity programs for Katren's employees In 2013, the Katren Corporate Charity Fund continued its work in three main and partners. According to the results of the 2013 Leaders in Corporate Charity areas for children without parental care and children in diffi cult situations. “Health” competition, the company Katren, as founder of the charity fund, was: works on maintaining the health of orphans, “Education” helps them to get ✔ First (as in 2012) among retailers and manufacturers of consumer goods (thanks education and career guidance, and “Family” assists in family placement. In 2013, to eff ective collaboration with pharmaceutical manufacturing companies and the company spent a total of 34.4 million roubles on charity, 23 % more than in pharmacies) 2012. ✔ Second in the “Best programme promoting infrastructure development for non- In 2013, more than 8.7 million roubles were spent on “Health”, which included profi t organisations, charities and volunteer work in the region the company donations of medical supplies and hygiene products to children at 426 orphanages works in” nomination from the Russian Ministry of Economic Development for in Russia. the Children at Home programme ✔ Third in the list of 63 Russian and foreign companies engaged in systematic charity work in Russia

30 31 ANNUAL REPORT 2013 ANNUAL REPORT 2013 Katren OJSC Katren OJSC COMPANY HISTORY COMPANY HISTORY

19 AAprilpril ——KatrenKatren CCJSCJSC is ffoundedounded NeNeww logisticslogistics centrecentre oopenedpened in AcAcquisitionquisition of a controllingcontrolling stakestake inin Moscow. Creation of Melodiya Zdorovya pharmaceutical distributor AMITY 19 regional warehouses in operation, 12 000m2 pharmacy chain International (Kazakhstan) logistics complex opened in Berdsk, Business Explorer warehouse program introduced

Katren CJSC takes fi rst place in the Russian pharmaceutical market (according to IMS Health) The company takes 6th place in the ranking of 15 regional representative national distributors. 31.43 % stake bought offi ces opened, 3 000m2 back from the EBRD warehouse built in Novosibirsk ThirdThird positionposition inin termsterms of Delta 10 projectproject launchedlaunched − a strategicstrategic gross turnover on the Russian partnership between producers, pharmaceutical market Katren and pharmacies

1995 1999 2003 2008 2010 2012

1993 1997 2000 20052006 2007 2009 2011 2013

Katren OJSC founded. Acquisition of Sale of a 15.4 % stake in Katren Katren enters the group a controlling stake in pharmaceutical OJSC (additional issue) to the of large interregional distributor Venta.LTD (Ukraine) EBRD completed. New distribution pharmaceutical warehouse opened in Moscow. distributors Online drug ordering service Apteka.ru launched

Offi cially recognised as First clients outside the a national distributor. Novosibirsk Oblast, goods Katren Charity Fund Acquisition of 51 % stake in delivered by railway and air established pharmaceutical distributor for the fi rst time Dominantapharm (Belarus)

32 33 ANNUAL REPORT 2013 ANNUAL REPORT 2013 Katren CJSC Katren CJSC THE COMPANY IN NUMBERS GEOGRAPHICAL STRUCTURE

Region Branch Representative Offi ce

Moscow Region Moscow

Voronezh Nizhny Novgorod Central Region Oryol Archangelsk Yaroslavl Leonid Konobeev Murmansk General Director Northwestern Region St Petersburg Kaliningrad

Kirov Novosibirsk State University (1986) Kazan Degree from The Open University, UK Cheboksary Ulyanovsk Volga Region Samara Orenburg Saratov Ufa Izhevsk

Volgograd Astrakhan The Company in Numbers Krasnodar North Caucasus Region Rostov-on-Don ✔ Russia’s number pharmaceutical company 1 Stavropol Yessentuki

✔ Volume of trade including VAT − $ 4.3 billion Yekaterinburg Perm ✔ According to IMS Health results for the last year, the company occupies Ural Region 16.74 % in the direct supply pharmaceuticals market, including Tyumen Surgut reimbursable drug coverage Chelyabinsk Kurgan

✔ 42 000 delivery points in 82 regions of Russia Barnaul Kemerovo Novosibirsk ✔ Over 105 000m2 of warehouse facilities Novokuznetsk Siberian Region Tomsk ✔ 28 branches Irkutsk ✔ 692 suppliers, including 236 suppliers of imported products Krasnoyarsk Omsk ✔ More than 16 335 items on the company's combined price list Vladivostok ✔ 3 013 employees Yuzhno-Sakhalinsk Far Eastern Region Yakutsk Khabarovsk

Total 28 14

34 35 ANNUAL REPORT 2013 ANNUAL REPORT 2013 Katren CJSC Katren CJSC OPERATING RESULTS OPERATING RESULTS

Key Results Average Monthly Number of Employees and Individual Productivity

In 2013, the revenue of Katren CJSC was $ 3 827 million excluding VAT. Year-on-year revenue growth was 18 % in U. S. dollars. In local currency, revenue increased by 4000 21 %, whereas the market grew by only 14 %. 3500

3000 Revenue and Net Profi t Trends 2500

70.8 4000 70 2000 3500 60 1500 3000 60.8 50 1000 2500 40 2000 500 turnover, '000 $US net profi t, '000net $US profi 30 1500 34.8 35.0 0 2011 2012 2013 2014 (plan) 1000 20 500 10 12.7 average number of employees per month output per 1 employee ('000 RUR/month) 0 0 2010 2011 2012 2013 2014 (plan)

turnover (excluding VAT) net profi t In 2013, the number of employees increased by 318 (12 %). This increase in personnel was mainly due to employing additional staff at branch warehouses in order to increase goods turnover (by 21 %). Net profi t decreased by $ 10 million compared with 2012 and amounted to $ 60.8 Recruitment took place in all divisions of the company, with a total increase of: million. The main reason for this decline is the general margin reduction on the ✔ 10 % at branches, mainly due to the Moscow (15 %) and Central Regions (20 %) pharmaceutical distribution market. For the same reason, Katren CJSC is planning ✔ 19 % at the Central Warehouse (recruitment following expansion) for a possible decline in profi t to $ 35 million in 2014. ✔ 5 % at head offi ce

Output of the company increased by 8 % in 2013 compared with 2012. To ensure a 10 % growth of shipments in 2014, it is planned to increase the number of staff by 8 %, mainly warehouse employees. Productivity growth (output per employee) Operating Expenses is expected to be at least 2 %.

Payroll 4 % Payroll growth for 2013 was 5 %. In particular, wages increased by 20 %, while 3 % bonuses for net profi t growth were 3 times lower than in 2012. 2 % Wages increased due to the recruitment of additional staff and growth in the variable component of warehouse and sales employees' remuneration. 1 % Salary increases were not made in 2013. Wages were incremented using a operating expensesoperating regular supplement that depended on the level of annual profi ts reached in 2012. 0 % Year-on-year payroll growth of 9 % is planned for 2014, due to the planned 2010 2011 2012 2013 2014 (plan) increase in the amount of business and additional recruitment.

Operating expenses decreased from 3.95 % of revenue in 2012 to 3.88 % in 2013. The main relative cost reductions occurred in marketing and incoming logistics. Continuous cost optimisation is a priority task of the company’s management.

36 37 ANNUAL REPORT 2013 ANNUAL REPORT 2013 Katren CJSC Katren CJSC OPERATING RESULTS LOGISTICS SYSTEM

Distribution of Shipments by Federal District Central Distribution Warehouse

The 27 000m2 Class-A warehouse complex is located in the town of Khimki, Moscow Ural Region, near major arterial roads. Far Eastern In 2013, the Central Warehouse worked to increase the processing speed of incoming drugs and medical products, which are then shipped to all branches. 10 % Northwestern 5 % Siberian In the past year, great signifi cance was assigned to transferring all warehouse 8 % 10 % operations onto radio terminals and mobile thermal printers, in order to improve the speed and accuracy of work throughout the logistics cycle. Almost all Southern 11 % warehouse operations on stock were transferred to paperless technology, which 14 % makes it possible to manage warehouse staff more accurately and effi ciently. If Volga necessary, a warehouse worker can quickly and easily switch from one type of work to another, thereby increasing the productivity of each employee. The warehouse shelving system has been reconstructed; some of the shelves were replaced with more capacious, narrow-aisle models. This made it possible to 42 % increase total storage capacity by almost 20 % without changing total warehouse Central area. Equipment is being replaced by more modern, high-performance equivalents. An up-to-date navigation system is currently being introduced that receives a signal from the information system and automatically positions a stacker at the location where goods must be taken or stored. This system will signifi cantly increase speed and achieve almost 100 % accuracy when gathering and storing products. Half of Katren’s shipments are accounted for by the Central and North-Western Work is also being done at the warehouse to optimise boxing and move Regions. The Siberian Region, which houses the company’s headquarters, accounts wholesale storage onto tall multitier shelves. This will make it possible to optimise for 10 % of sales. storage space and achieve high goods processing speeds. As before, the Central Distribution Warehouse pays a lot of attention to quality at all stages of processing and storing medicines. For this purpose, the latest automatic monitoring system for environmental parameters (temperature and Annual Average Inventory in Days humidity) has been installed throughout the warehouse complex. This system makes it possible to monitor and record temperature and humidity at all levels of goods storage around the clock, as well as to promptly signal if these parameters 60 exceed the specifi ed values. The quality management system at the warehouse 50 is constantly being improved. Additional control systems, which help to quickly identify and correct errors at all stages of the product distribution chain, are being 40 introduced. Under the «just in time» project, the company's suppliers are able to arrive at 30 the Katren warehouse on schedule. Katren promptly unloads goods, achieving 20 minimum waiting periods and downtime and, as a consequence, making savings on transport costs. 10 Katren historically places high emphasis on electronic document management with suppliers. In 2014, it is planned to refi ne electronic document management 0 annual average inventory in days with suppliers, which would eliminate the need to print a signifi cant amount of 2009 2010 2011 2012 2013 2014 (plan) legal documents on paper. The high pace of work, optimal use of storage space and introduction of original, proprietary warehouse logistics developments at the Katren Central Distribution Warehouse allows the entire company to keep prices low and expand its product range in order to maintain a leading position in the pharmaceutical market.

38 39 ANNUAL REPORT 2013 ANNUAL REPORT 2013 Katren CJSC Katren CJSC LOGISTICS SYSTEM LOGISTICS SYSTEM

Regional Warehouses Logistics Costs

In 2013, the warehouse logistics service continued to work on infrastructure 2.0 projects and the opening of new automated warehouses, providing a basis for the company's further dynamic development. Process structuring and working 1.5 practices were improved, new equipment introduced. Today, the company's warehouses have a high storage capacity, are well equipped with all necessary 1.0

modern equipment, and are ready to quickly and effi ciently fulfi l customer orders. costs, % 0.5 Warehouse performance in 2013: ✔ Total warehouse area exceeded 105 000m2 0.0 ✔ 271 000m3 of goods processed, a 19 % increase on 2012 2009 2010 2011 2012 2013 2014 (plan) ✔ Warehouse logistics costs remained at 2012 levels and amounted to 1.33 % of

net sales storage transport ✔ 5 % higher individual productivity per warehouse worker ✔ In 2013, several major warehouse automation projects were implemented: The Moscow retail warehouse moved to its own new facilities and an automated Annual Volume of Goods Processed order picking conveyor, capable of handling up to 30 000 items per hour, was 350 3 launched. The modern warehouse, high-tech equipment and professionalism 300 of staff make the new Katren storage facilities some of the most advanced and 250 powerful in the country. 200 A new warehouse in Voronezh, which also has an automated order picking 150 conveyor system, was opened. 100 Stage 2 of warehouse automation was carried out in Irkutsk, where a quick 50 order picking line was integrated into the existing conveyor system, signifi cantly 0 increasing storage capacity and performance. '000 m processed, goods of volume 2009 2010 2011 2012 2013 2014 (plan) New warehouses were opened in Khabarovsk, Murmansk, Chelyabinsk and Yuzhno-Sakhalinsk. Total Warehouse Capacity Plans for 2014 140 120 2 Open new automated warehouses in Yaroslavl, Ufa, Krasnodar, Stavropol, expansion 100 of capacity at a number of the company's warehouses. 80 60 40

20 goods volume, '000 m 0 2009 2010 2011 2012 2013 2014 (plan)

40 41 ANNUAL REPORT 2013 ANNUAL REPORT 2013 Katren CJSC Katren CJSC PRODUCT RANGE PROMOTION

The product range of Katren CJSC is balanced and meets the requirements of Delta 10 Project customers. The product mix is constantly optimised in response to the changing internal and external environment. Since 2011, the company has been realising the Delta 10 project, aimed at promoting goods produced by manufacturers that participate in the project. Delta 10 shapes strategic partnerships between Katren, producers and Imported and Domestic Medications in Katren CJSC Sales pharmacies, allowing each stakeholder to fulfi l its goals: ✔ For manufacturers − higher sales and a larger market share against competing goods ✔ For pharmacies − higher profi tability due to the bonus based on turnover increase ✔ For Katren − a larger share in the pharmaceutical market 28 % 61 % The project is being implemented in full compliance with Russian legislation. It makes it possible to encourage pharmacies to increase turnover by entering into a formal contract between the legal entities. Participants who meet the conditions get 10 % of the total turnover growth on items included in the project as a bonus. 39 % 72 % The following tools have been developed in order to eff ectively implement the project: ✔ Personal accounts for project participants at www.katren.ru: pharmacies can monitor information about the project online and get estimates of their

imported domestic bonuses ✔ A reporting system for all categories of project participants with a view to in monetary terms in real terms monitoring project implementation ✔ Flagging the products in Katren’s in-house software, price comparison programmes and pharmacy software

Total number of items on the price list 16 335 Project participants: Average number of items at the company’s warehouses 13 433 ✔ Manufacturers — strategic partners with a 20 % aggregate share in Katren’s sales Number of Russian suppliers 456 ✔ Small and medium-size pharmacies and pharmacy chains that have no direct Number of imported goods suppliers, 236 marketing contracts with producers including direct import Direct import 67

Delta 10 Project Results 2012 2013 Sales by Type of Supplier mln RUR % mln RUR % 2011 2012 2013 Domestic Goods 34 852 31 44 567 33 Imported Goods 78 742 69 90 848 67 Number of participants (legal entities) 8 839 9 557 7 483 Including Direct Import 13 042 11 12 995 10 Number of participants (pharmacies) 22 898 32 918 26 191

Number of winners (legal entities) 6 500 7 839 6 275

Number of winners (pharmacies) 18 329 28 952 22 590

Proportion of winners (legal entities) 74 % 82 % 84 %

Number of manufacturers 22 37 45

Total bonus to pharmacies, million RUR 112.5 356.9 270.9

Turnover increase 23 % 44 % 28 %

42 43 ANNUAL REPORT 2013 ANNUAL REPORT 2013 Katren CJSC Katren CJSC PROMOTION PROMOTION

Katren-Media Reading Level and Importance of Information, Printed Media, October 2013

Katren-Media is a project that brings together several industry information products 70 % targeted at pharmaceutical industry players and the consumers of medicines. 60 % Today, the project comprises: 50 % 40 % ✔ Katren-Style magazine for doctors 30 % 32 ✔ 20 % respondents, % 24 27 Katren-Style magazine for pharmacists 19 19 16 13 13 ✔ Apteka.RU magazine for consumers of medicines 10 % 10 ✔ Seasonal product catalogues 0 5 ✔ Annual Katren-Style almanac Vestnik

✔ Website www.katrenstyle.ru Ledi Vita (magazine) Pervostolnik Katren-Style ✔ (newspaper) D.S. (Da Signa)

WinPrice electronic ordering program Apteka Novaya Vesti ot ProtekaVesti ot Aptechnoye Delo Aptekar (magazine) Aptekar Pharmatsevticheskiy Katren-Media is an image-building project that allows the company to strengthen Pervy Stol (magazine) partnerships with stakeholders. For pharmaceutical manufacturers, it is an eff ective readership importance of information (5 —max) media channel for promoting pharmacy products, covering all elements of Source: “Pharmacists’ Opinion”, Pharma-Q, October 2013 the commodity distribution chain. Katren-Media off ers them topical print and electronic media with high quality content for doctors, pharmacies and the fi nal Apteka.ru Project consumers of medicines. is a federal online service to search for and order medicines that can be collected from pharmacies. The project allows the public to order drugs at discount prices, and pharmacies − to attract more buyers. It is no secret that many online pharmacies in Russia ignore the law prohibiting the remote sale of medicines, which spoils the reputation of the industry as a whole. An important feature of the service is its full compliance with all current Katren-Media today: legislation. The company does not engage in distance selling or the home delivery of medicines: all products are delivered to licensed pharmacies from the Katren warehouse, with strict observance of the necessary procedures and document circulation, and are then collected and paid for by customers in pharmacies. The The Katren-Media projects cover all target groups — doctors, pharmacists and end Integrated Approach mission of the Apteka.ru project is to build a civilised market for online medicine users. Our channels can convey complex information about pharmaceutical products orders in this country, involving all active participants of the pharmaceutical market. 2013 was a year of active development for the project. During this period, more than 5 000 pharmacies throughout Russia became project partners. In December The total circulation among the professional audience is 75 000 copies per month! This 2013, turnover amounted to 38.9 million roubles, over the entire year − 217 million was recognised as a 2013 Record in the Pharmaceutical Publishing category, according roubles. The site had more than 700 000 unique visitors a month. Over the year, Wide Coverage to the National Circulation Service. In 2013, the circulation for fi nal consumers of 165 000 orders were made on the site. More than half of them were by repeat medicines reached 350 000 copies. By the end of 2014, this fi gure will be one million customers, i.e. buyers appreciate the quality and convenience of the service and copies per month gladly return to it again and again.

Katren-Style: has the highest readership and the highest level of importance among Apteka.ru Orders and Sales Trends, 2013 pharmaceutical media.* Katren-Style has been the ratings leader since May 2010. Katren-Style: 2nd place in the ranking of the top 10 most infl uential specialised 35 35 pharmaceutical periodicals.** 28 473 Audience Demand www.katrenstyle.ru: 2nd place in the rating of industry sites.* In 2013, more than 30 30 25 25 140 000 people read the online version of the magazine! 25 948 Apteka.RU: unique distribution system throughout Russia. Is distributed free of charge 20 23 458 20 mln RUR mln at clinics, health facilities, pharmacies, airports, shopping centres and coff ee shops. All 15 units '000 15 17 516 issues can also be read at apteka.ru/info/magazine/ 10 15 249 10 13 111 13 997 5 3300 4763 5 1082 8311 9678 0 0 July May June April March August January October * According to Synovate Comcon. February December November September ** According to RNC Pharma. Total sales, mln RUR Number of orders, '000

44 45 ANNUAL REPORT 2013 ANNUAL REPORT 2013 Katren CJSC Katren CJSC PROMOTION PROMOTION

Number of Pharmacies Working with the Apteka.Ru Service in Federal Districts and Regions of the Russian Federation

St. Petersburg 163 Arkhangelsk Oblast 72 Vologda Oblast 56 Murmansk Oblast 43 Leningrad Oblast 23 Komi Republic 23 Pskov Oblast 22 Republic of Karelia 17 Novgorod Oblast 11

NORTHWESTERN FEDERAL DISTRICT 430 Moscow 249 Moscow Oblast 222 Tula Oblast 107 Bryansk Oblast 97 Voronezh Oblast 83 Vladimir Oblast 77 Lipetsk Oblast 69 Smolensk Oblast 65 Oryol Oblast 63 Belgorod Oblast 61 Yaroslavl Oblast 56 Kursk Oblast 45 Ivanovo Oblast 29 Tambov Oblast 22 Kaluga Oblast 17 Perm Krai 228 Khabarovsk Krai 49 Kostroma Oblast 16 Tyumen Oblast 196 Primorsky Krai 25 Tver Oblast 9 Chelyabinsk Oblast 169 Sakha Republic (Yakutia) 11 Ryazan Oblast 9 Sverdlovsk Oblast 164 Amur Oblast 10 Kurgan Oblast 121 Jewish Autonomous Oblast 6 Khanty-Mansi Autonomous Okrug (Yugra) 107 CENTRAL FAR EASTERN FEDERAL DISTRICT FEDERAL DISTRICT URAL Republic of Bashkortostan 364 FEDERAL DISTRICT 1296 Saratov Oblast 190 101 Republic of Tatarstan 160 Samara Oblast 145 985 Nizhny Novgorod Oblast 119 Chuvash Republic 48 Republic of Mordovia 43 Orenburg Oblast 35 Penza Oblast 33 Ulyanovsk Oblast 32 Mari El Republic 28 Kirov Oblast 17 Udmurt Republic 16 Rostov Oblast 192 Volgograd Oblast 103 Novosibirsk Oblast 180 Krasnodar Krai 76 VOLGA Kemerovo Oblast 175 Astrakhan Oblast 40 FEDERAL DISTRICT Altai Krai 96 Republic of Adygea 10 Tomsk Oblast 87 Republic of Kalmykia 5 Krasnoyarsk Krai 54 1230 Omsk Oblast 47 SOUTHERN Republic of Khakassia 29 FEDERAL DISTRICT Zabaykalsky Krai 5 Tuva Republic 2 426 SIBERIAN FEDERAL DISTRICT 675

Stavropol Krai 198 North Ossetia-Alania 49 Kabardino-Balkar Republic 20 Karachay-Cherkess Republic 13 Republic of Dagestan 3 Chechen Republic 1

NORTH CAUCASIAN FEDERAL DISTRICT 284

information correct as of 18.12.2013

46 47 ANNUAL REPORT 2013 ANNUAL REPORT 2013 Katren CJSC Katren CJSC PROMOTION PROMOTION

In the last days of 2013, we launched a new version of the side with improved The portal is actively promoted at a regional level in the Russian cities where ergonomics, a convenient search function and new advertising opportunities. pharmacies have joined the project. Promotional materials are placed on local By the end of 2013, the Apteka.ru portal was among the top ten most infl uential news and parenting websites, on public transport and the metro, in supermarkets, pharmaceutical sites, according to RNS Pharma. outdoors, and on television and radio stations. Every month, there is an increase in visitors and orders on Apteka.ru, which Top 10 Most Infl uential Websites says a lot about the growing popularity of the project and the eff ectiveness of our on the Russian Pharmaceutical Market, 2013 promotional campaigns.

Rating Website Points Apteka.RU Magazine 1 roszdravnadzor.ru 1 912 The Apteka.RU magazine represents the eponymous federal service for fi nding 2 pharmvestnik.ru 1 605 and ordering medicines in city pharmacies. It is a free magazine with mass appeal 3 rosminsdrav.ru 1 154 for anyone who cares about their health. The Apteka.RU magazine promotes the 4 stada.ru 648 portal, telling people about how to make an order, how to get information faster and easier, and in which cities the service is available. 5 medi.ru 630 Each issue of Apteka.RU raises questions about the proper treatment of 6 remedium.ru 557 medicines, healthy lifestyles, family, career, sports, nutrition and personal 7 rlsnet.ru 529 development. The authors are practicing psychologists, nutritionists, fi tness 8 pharmindex.ru 331 trainers, doctors and other experts, whose recommendations help readers take a 9 apteka.ru 143 few more steps towards achieving outer beauty and inner peace. 10 medpred.ru 93 In 2013, the circulation of the Apteka.RU magazine reached 350 000 copies. The publication is distributed free of charge throughout Russia at clinics, health Source: RNC Pharma facilities, pharmacies, airports, shopping centres and coff ee shops. All issues can also be read at apteka.ru/info/magazine/ Plans for 2014 About Apteka.RU ✔ Achieve sales of 100 million roubles per month by the end of the year ✔ Free distribution ✔ Launch a mobile application for ordering goods ✔ Format of the print version: A5 (pocket size) ✔ Make apteka.ru an authoritative portal that provides up-to-date information ✔ Size: 80–124 pages about medication and healthy lifestyles ✔ Circulation: 350 000 copies per month (growth to 1 million copies per month ✔ Increase the number of partner pharmacies to 10 000 planned in 2014) ✔ First printed edition: October 2013 Promotion of the Apteka.ru Portal

The main promotion tasks are to inform the target audience about the Apteka.ru service and form new consumer behaviour − ordering medicines and Distribution Channels Distribution by Region pharmaceutical products over the Internet. (apteka.ru № 3-4) (apteka.ru № 3-4) Advertising is conducted using both online and offl ine channels. Both centralised and regional media are involved. Business centres Ural Northwestern Centralised promotion is carried out on search engine Yandex, online directory Letterboxes of organisations/map 2GIS, social networks (VKontakte, Odnoklassniki, Facebook) Other Far Eastern Moscow and the largest federal pharmaceutical search engines. The population are also 4 % 7 % 8 % informed by advertising campaigns on radio stations Autoradio, Russian Radio, 4 % 6 % Caucasus 10 % Humour FM and Radio Dacha, as well as in printed media —Telesem, etc. 0.2 %

11 % 30 % 41 %

44 % 15 %

20 % Siberian Clinics, hospitals, medical centres Pharmacies Volga Central

48 49 ANNUAL REPORT 2013 ANNUAL REPORT 2013 Katren CJSC Katren CJSC RESULTS AND PLANS RESULTS AND PLANS

2013 Results Plans for 2014 2013 Results Plans for 2014

Finance Product Range

Sales including VAT − $ 4.3 billion Sales including VAT − $ 4.73 billion The product range of Katren CJSC is the broadest Product range optimisation, taking into account Net profi t − $ 60.8 million Net profi t − $ 35 million in the industry and meets the needs of customers the changed economic situation

Sales Market share growth in the state-fi nanced segment Reducing stock levels held by Katren CJSC Market share in direct shipments of medicines, including of the pharmaceutical market reimbursable drug coverage − 16.74 % (IMS Health) Turnover growth of 10.0 % in dollars and 10.1 % in roubles Turnover growth of 17.6 % in dollars and 20.9 % in roubles A new program − Smart − introduced for providing reports Expansion of the analytical information to the company's suppliers. It is notable for its convenience provided as part of the Smart program and ease of use, as well as the greater detail of data Operations

Operating costs − 3.88 % of net sales Operating costs cut down to 3.8 % of net sales Product Promotion − Delta Number of manufacturers participating Involvement of new manufacturers 3.79 million roubles per month − output per employee Individual productivity up to 3.85 million roubles per month in the Delta project − 45 with a small market share in the project Bonus size for participating pharmacies − 10 % Introduction of a diff erentiated bonus (from 10 % upwards) Logistics of turnover growth Product Promotion − Apteka.ru Logistics costs − 1.3 % of net sales Logistics costs cut down to 1.29 % of net sales The volume of orders through the service Increase orders to 100 million roubles per month reached 38.9 million roubles per month Volume of goods processed was 271 000m3 Volume of goods processed up to 300 000–310 000m3 5 000 partner pharmacies Increase the number of partner pharmacies to 10 000 Total warehouse area exceeded 105 000m2 Warehouse area increased to 120 000m2 The Apteka.ru portal entered the top 10 most infl uential Launch a mobile application for ordering goods pharmaceutical sites The Moscow retail warehouse moved to its own new facilities and an automated order picking conveyor, capable of handling Open new automated warehouses in Yaroslavl, Ufa, Circulation of the Apteka.RU magazine − 350 000 copies Increase circulation to 1 000 000 copies up to 30 000 items per hour, was launched. New warehouses Krasnodar, Stavropol, expansion of capacity at a number were opened in Khabarovsk, Murmansk, Chelyabinsk and of the company's warehouses. Social Policy − Charity Fund Yuzhno-Sakhalinsk. Total amount of donations − 34.4 million roubles Increase donations to 36.8 million roubles Information Technology 346 children placed in families Continue active work to place children in families Introduce an electronic document management system for working with customers and suppliers Create a legally sound electronic Increase the number of staff involved in the private donations document management system Number of employees involved in corporate charity − 43 % Continued consolidation of IT systems at branches programme on a regular basis to 50 %

50 51 ANNUAL REPORT 2013 ANNUAL REPORT 2013 Katren CJSC Katren CJSC PHARMACEUTICAL MARKET ANALYSIS PHARMACEUTICAL MARKET ANALYSIS

In 2013, the Russian pharmaceutical market has shown growth at the same level as The growth of the market in terms of value at the same time as it decreased in in previous years. In terms of value, the market grew by 14 %, in physical terms — physical terms is evidence of structural changes occurring in the market − the decreased by 2.1 %. position of cheap items is being eroded and consumers are moving to more expensive products. This change in structure accounted for 10 % of last year's growth. Last year saw one of the lowest infl ation rates for medicines − 3.7 % vs. 6 % Pharmaceutical Market Capacity, in 2012. In 2011, infl ation was 9 %, meaning that the infl ation factor is falling and the Billion Roubles, Consumer Prices sales bias is increasingly shifting in favour of more expensive drugs. Analysts (DSM Group) predict that this trend will continue in the future. According to analysts, 1045 market growth in 2014 will remain at the level of the last fi ve years and will be 1000 14 % 900 919 around 12 % in value terms. In physical terms, the market will retain the trend of 12 % 267 reducing slightly. 800 824 14 % 234 700 4 % 226 169 14 % 600 149 14 % 500 130 Growth Factors on the Commercial Market

400 bln RUR

300 609 –1 % 537 13 % 200 468 15 % 12 % 100 2 % 6 % 14 % 8 % 0 10.2 % 2011 2012 2013 1 % 16 % Commercial sector, fi nished medicinal products Commercial sector, parapharmaceuticals 9 % 12 % 3 % 6 % State sector, fi nished medicinal products 3.7 % -6 %

0 % 0 % –0.6 % 2008 2009 2010 2011 2012 2013 Pharmaceutical Market Capacity, Million Units Growth due to units sold Infl ation-related growth Growth due to structural changes Source: monthly commercial market monitoring, DSM Group

6000 5 570 +0.2 % 5 579 –2.1 % 5 460 97 –14 % 83 Forecast of Pharmaceutical Market Capacity, –10.4 % 75 5000 Billion Roubles, Consumer Prices 1019 +1.9 % 1038 –7.9 % 956 1174 4000 1100 12 % 1000 1045 289 3000 8 % mln units 900 267 800 4 454 +0.1 % 4 458 –0.6 % 4 429 193 2000 700 169 14 % 600 1000 500 bln RUR 400 0 691 2011 2012 2013 300 609 14 % 200

Commercial sector, fi nished medicinal products Reimbursable coverage ГHospital sector 100 0 Source: monthly pharmaceutical market monitoring, DSM Group 2013 2014 (forecast) Commercial sector, fi nished medicinal products Commercial sector, parapharmaceuticals State sector, fi nished medicinal products Source: monthly pharmaceutical market monitoring, DSM Group

52 53 ANNUAL REPORT 2013 ANNUAL REPORT 2013 Katren CJSC Katren CJSC MARKET SITUATION MARKET SITUATION

According to IMS Health, Katren CJSC ranks first on the Russian pharmaceutical market in the aggregate rating of pharmaceutical distributors based on their share Top 10 Distributors by Gross Sales, 2013 of direct supplies of medicines and gross sales. Relative Volume

Rating Company Gross Gross Sales of Direct Overall Rating of Pharmaceutical Distributors, 2013 Sales of Resale** Sales** Medicines** Medicines** Sales Growth 2013/2012. Relative Volume 1 Katren 1.000 1.000 1.000 0.203 Rating Distributors % (RUR. including VAT) of Gross Sales 2 Protek 0.971 0.982 0.930 0.362 National Companies 3 SIA International 0.738 0.738 0.471 1.000 1 Katren 20.7 1.000 4 ROSTA 0.684 0.781 0.794 0.093 2 Protek 8.4 0.971 5 R-Pharm 0.457 0.527 0.364 0.542 3 SIA International 1.3 0.738 6 Alliance Healthcare Rus 0.450 0.460 0.480 0.030 4 ROSTA 14.3 0.684 7 Pulse 0.361 0.420 0.340 0.293 5 Alliance Healthcare Rus 28.4 0.457 8 Oriola 0.341 0.369 0.377 0.045 6 R-Pharm 0.1 0.450 9 Pharmcomplect 0.225 0.238 0.203 0.183 7 Pulse 38.0 0.361 10 BSS 0.139 0.142 0.148 0.009 8 Oriola 22.4 0.341 * Based on data from distributors − the volume of gross sales, taken as the sum total of commercial sales and orders of medicines for government programmes (at reimbursement/shipping prices) ** Relative to the rating leader Top 10 Distributors, Share of Direct Supplies of Medicines (Including Reimbursable Drug Coverage), 2013 Top 10 Importing Distributors, 2013 Direct Supplies Market Share, % Rating Company 2013 2012 Breakdown 1 Katren 16.74 13.41 Rating of imports by Share in distribution 2 Protek 15.57 14.34 Imports Growth Importing Distributor Imported (US$), 2013/2012 category, % 3 ROSTA 13.30 11.66 Goods, % 4 Alliance Healthcare Rus 8.03 8.23 2013 2012 Rx OTC

5 SIA International 7.89 8.31 1 1 Protek 3.97 –12 65 35 6 Oriola 6.32 5.14 2 2 Katren 2.98 –4 66 34 7 R-Pharm 6.10 3.98 3 6 Pharmimex 2.13 1 100 — 8 Pulse 5.69 3.84 4 4 SIA International 1.85 –31 53 47 9 Pharmcomplect 3.39 1.91 5 5 ROSTA 1.71 –26 59 41 10 BSS 2.49 2.03 6 3 R-Pharm 1.45 –50 100 — 7 8 Euroservice 1.35 33 100 — 8 7 Oriola 1.31 12 48 52 9 9 Pulse 0.94 28 58 42 10 11 Biotek 0.73 10 99 1

* Total imports are adjusted for the overstated value of sales (only customs regimes 40 and 42 were taken into account; goods imported to Russia through customs warehouses under regimes for clients of other companies (71, 96, 93, 94, 63) were not taken into account); this overestimation is due to taking into account drugs imported under the Customs Warehouse regime. Source: IMS Health

54 55 ANNUAL REPORT 2013 ANNUAL REPORT 2013 Katren CJSC Katren CJSC MARKET SITUATION MARKET SITUATION

10 Most Infl uential Distributors Katren Performance, According to Synovate Comcon

№ Distributors Points The company Synovate Comcon has been regularly conducting Pharma-Q 1 Katren 3 106 “Pharmacists’ Opinion” studies since 2002. A part of these studies is devoted to 2 Protek 3 024 comprehensive analysis of how pharmacy administration rates distributors' work. The purpose of this research is to determine pharmacies' perceptions of the quality 3 SIA International 1 639 of services provided by distributors. 4 ROSTA 1 170 The most important fi gures are a distributor's coverage of pharmacies and 5 Alliance Healthcare Russia (pharmacy holding) 821 the evaluation of its work on a 5-point scale. These characteristics are combined 6 Oriola (Moron) 428 into an index (the ratio of the proportion of pharmacies that gave a distributor's 7 Pulse 307 work a maximum rating to all pharmacies with which this distributor works), which 8 Pharmcomplect 131 makes it possible to compare the pharmacies' degree of satisfaction regarding distributors with the various rates of coverage within the target group they work 9 R-Pharm 112 with. In other words, the higher the index, the higher the distributor's service is 10 «Интермедсервис» 82 rated by its customers.

Top 15 Distributors, Market Share of Direct Supplies of Medicines (Including Reimbursable Drug Coverage), 2013 90 % 80 % 70 % Direct Supplies Market Share, % 60 % Rating Company Head Offi ce 50 % 2013, % 2012, % 40 % 1 Katren Novosibirsk 16.3 14.2 30 % 20 % 2 Protek Moscow 14.0 15.0 10 % 3 ROSTA Moscow 12.8 12.2 0 % 4 Alliance Healthcare Rus Moscow 7.6 8.7 Protek Katren SIA International ROSTA Apteka Holding 5 SIA International** Moscow 7.6 9.0 6 Oriola Moscow 6.0 5.4 Coverage Proportion of respondents to award 5 points 7 R-Pharm Moscow 5.9 4.2 2013 index 2012 index 8 Pulse Khimki 5.7 4.0 9 Pharmcomplect** Nizhny Novgorod 2.7 2.0 10 BSS St. Petersburg 2.5 2.1 According to the study held in October 2013, Katren's quality of service was rated as the highest in comparison with other distributors. Relative to 2012, the customer 11 Biotek** Moscow 2.2 2.3 satisfaction index rose by 4.4 points. 12 Imperia-Pharma St. Petersburg 1.8 2.2 In addition, pharmacies recognised Katren to be the most important distributor 13 Profi tMed Moscow 1.1 0.7 in October 2013. Katren received the highest possible score in the largest number 14 Euroservice Moscow 1.0 1.6 of pharmacies for all performance indicators: product range, prices, fi nancial 15 Godovalov Perm 0.9 0.8 conditions, delivery, customer service, sales promotion and the work of the company as a whole.

* Rating based on sales of medicinal product, excluding sales of non-medicinal products. ** Expert estimate

Source: RNC Pharma

56 57 ANNUAL REPORT 2013 ANNUAL REPORT 2013 Katren CJSC Katren CJSC MARKET SITUATION MARKET SITUATION

Most Important Distributor Our Customers

35 % In 2013, Katren worked with 17 500 customers, delivering goods to 42 000 delivery 30 % points. 68.3 % of the clients are repeat customers, providing for 97 % of the 25 % 20 % company's turnover. 15 % 10 % 5 % 0 % October 2011 April 2012 October 2012 April 2013 October 2013 Breakdown of Shipments by Types of Customer

Medical Facilities Katren Protek SIA International ROSTA АApteka Holding Wholesalers Municipal Pharmacies 6 % 2 % Municipal Pharmacy Chains Percentage of Clients to Give Their Distributor the Highest Score 2 % 4 % 70 % 60 % 34 % Commercial Pharmacies 50 % 40 % 30 % 20 % 10 % 0 % Commercial Pharmacy Chains 52 % Pricing Delivery Price level Price Price stability Price Product range Product Customer serviceCustomer Items out of stock Promotion of sales Promotion Financial conditions Financial The commercial segment of the pharmaceutical market is the most important for Company performanceCompany Katren. It accounts for about 86 % of the company's turnover.

Katren Protek SIA International Apteka Holding ROSTA

The Share of the Largest Chains in Katren Sales

One of the most important indicators for each distributor is the frequency with Katren’s main customers are small and medium-size chains. Turnover from the which items are out of stock. According to this parameter, Katren has the best largest pharmacy chains, occupying 9.3 % of the market, makes up 5.7 % of the results − clients are less likely to be confronted with this problem at Katren than at company’s shipments. other suppliers.

Out-of-stock Frequency Share in Katren’s Share in the Retail Drug Pharmacy Chains Shipments, 2013 Market, 2013*

Apteka Holding Rigla 1.8 % 2.8 % Apteki 36.6 1.2 % 1.4 % ROSTA Pharmland 1.0 % 0.9 % SIA International А5 Group 0.9 % 2.0 %

Protek Doctor Stoletov 0.8 % 2.3 % Total: 5.7 % 9.3 % Katren

0 % 5 % 10 % * Source: RNC Pharma

58 59 ГОДОВОЙ ANNUAL REPORT ОТЧЕТ 2013 ГОДОВОЙ ANNUAL REPORT ОТЧЕТ 2013 Katren CJSC Katren CJSC MARKET SHARE ON THE RUSSIAN MARKET MARKET SHARE ON THE RUSSIAN MARKET

NORTHWESTERN REGION FAR EASTERN 26.6 % REGION CENTRAL 19.6 % REGION 20.2 % MOSCOW URAL REGION 19.4 % 19.8 %

VOLGA REGION 21.5 %

SIBERIAN REGION

SOUTHERN 25.4 % REGION 18.1 %

60 61 ANNUAL REPORT 2013 ANNUAL REPORT 2013 Melodiya Zdorovya Pharmacy Chain Melodiya Zdorovya Pharmacy Chain

Overall Rating of Russian Pharmacy Chains, 2013

Number Rating Pharmacy Chain Headquarters of Pharmacies Total Score Federal Chains Oleg Arifullin 1 Rigla Moscow 992 79.1 General Director 2 Raduga St. Petersburg 567 52.2 Novosibirsk Higher Military Command School (1976), Novosibirsk 3 Apteki 36.6 Moscow 622 52.0 State Technical University (1980), MBA, The Open University, UK 4 Pharmaimpax Izhevsk 496 46.9 At Melodiya Zdorovya since 2007 5 Implozia** Samara 1 013 45.5 6 Melodiya Zdorovya Novosibirsk 450 43.5 7 Ladushka** Nizhny Novgorod 200 32.6 8 Pharmakor St. Petersburg 394 32.5 Multiregional Chains The pharmacy chain Melodiya Zdorovya is a subsidiary of Katren OJSC, which has 1 Doctor Stoletov* Moscow 414 78.6 been working on the pharmaceutical retail market since 2006 and currently has 28 2 А5 Group Moscow 1 052 77.9 regional branches. 3 Pharmland Ufa 300 51.4 4 Vita Samara 466 49.5 The Company in Numbers 5 Stary Lekar Moscow 232 43.9 6 Planeta Zdorovya** Perm 506 39.7 420 pharmacies in 51 regions of Russia * Including franchise pharmacies 2013 turnover growth in dollar terms − 14 % ** Expert estimate 2 Total area of pharmacies − 28 000m Source: RNC Pharma Key events in 2013: 102 pharmacies opened, 20 pharmacies bought, 22 franchise agreements signed ✔ Increased geographical coverage − regional pharmacy chain opened in Rostov-on-Don Top 10 Most Infl uential National and Interregional Pharmacy Chains ✔ In order to strengthen the pharmacies' position against competitors, techniques have been adopted from pharmacies surrounded by discounters Rating Pharmacy Chain Points ✔ A system for assessing the external appearance of pharmacies has been 1 A.V.E. GROUP (including 36.6, GORZDRAV) 1 538 developed in order to increase footfall 2 Rigla 1 099 3 Implozia 419 4 А5 408 5 Doctor Stoletov (including Ozerki) 368 Melodiya Zdorovya Development 6 Klassika 340 7 Ladushka 270 8 Melodiya Zdorovya 269 200 9 Pharmakor 201 10 Kazanskie Apteki 199 515 150 Source: RNC Pharma

100 388 million US$ 300 50 232 236 146 0 130 2008 2009 2010 2011 2012 2013 2014 (plan)

turnover number of pharmacies, excluding franchising

62 63 ANNUAL REPORT 2013 ANNUAL REPORT 2013 Venta.LTD (Ukraine) Venta.LTD (Ukraine)

The Pharmaceutical Market in Ukraine*

In 2013, growth of the Ukrainian pharmaceutical market reached 14 % in hryvnia. In terms of volume − 0.5 % growth. The values in local currency depend on the exchange rate. In dollar terms (according to the National Bank of Ukraine exchange rate), growth in 2013 amounted to 14 %, at the interbank rate** − 13 %, and 9 % in Alexander Voloshin euros. In 2013, market development was due in a lesser degree to the replacement General Director index than to infl ation. Dnepropetrovsk Medical Institute (1993) At the company since 1995 Venta.LTD Turnover Dynamics 13.6 % 500 11.4 % 11.7 % A Brief History of the Company 400 9.3 % 7.4 % 300 January 1995 − foundation of the company in Dnepropetrovsk 200 mln US$ 2008 − Venta.LTD becomes part of Katren OJSC, A+ category primary logistics 100 complex (4 060m2) opens in Dnepropetrovsk 0 2009 − new regional pharmacy warehouse (1150m2) opens in Odessa; Kiev 2010 2011 2012 2013 2014 (plan) 2 pharmacy warehouse moves to new class-A+ logistics complex (3 600m ); turnover market share advanced methods for accounting, trade and employee training introduced based on leading divisions of Katren CJSC; Business Explorer program put into operation 2010 − Donetsk pharmacy warehouse relocates to new complex (1 800m2) Plans for 2014 2011 − expansion of Lviv and Kharkiv regional warehouses, project launched to provide transit discounts to suppliers Sales: 2012 − expansion of Odessa and Dnepropetrovsk regional pharmacy warehouses, ✔ Increasing Ukrainian market share to 13.6 % development of supplier transit discount project ✔ Increasing customer base coverage to 85 % 2013 − new licensed server software purchased, training programmes launched for ✔ Accounts receivable turnover no more than 40 days sales divisions, system to monitoring storage and transport conditions introduced Logistics: ✔ Modernising equipment in regional warehouses The Company in Numbers ✔ Planning and preparation for construction of a regional pharmacy warehouse in Ternopil Market share − 11.7 % Deliveries: 8 warehouses ✔ Stock optimisation up to an average of 50 days 7 branches and 2 representative offi ces ✔ Increase effi ciency of the supply chain to 91 %. Introduce a new system to More than 4 700 customers and 12 000 delivery points calculate supply chain effi ciency 17 400m2 of warehouse premises ✔ Increase proportion of sales contracts from domestic manufacturers 7 563 items on the price list ✔ Continue to increase proportion of market-making contracts in sales 445 suppliers, including 281 suppliers of imported products Information Technology (IT): 572 employees ✔ Introduce a motivation system for IT employees in regional pharmacy warehouses, and an online quality assessment system for the company's IT services as a whole ✔ Upgrade the server park in branches ✔ Participate in a pilot labelling project for individual packages of medicinal products Top 5 Distributors by Medicine Supply to Pharmacies Marketing: ✔ Optimise the range of goods in each product group Distributor 2010 2011 2012 2013 ✔ Support producers' social programs BaDM 1111 ✔ Participate in transit discount programmes from suppliers Optima-Pharm 2222 Staff : Alba Ukraina 3333 ✔ Introduce a training system for the purchasing department Venta 6544

Fra-M 5455 * According to PharmXplorer/Pharmstandart analytical market research system by Proxima Research Source: PharmXplorer/Pharmstandart analytical market research system by Proxima Research ** Reuters exchange rates

64 65 ANNUAL REPORT 2013 ANNUAL REPORT 2013 AMITY International (Kazakhstan) AMITY International (Kazakhstan)

Amity International Turnover Dynamics in the Commercial Market Segment

Evgeny Zemlyankin 180 14.6 % General Director 160 12.3 % 11.1 % Omsk State Medical Academy (1997). Degrees: Strategy MBA 140 9.4 % 8.6 % (2009), Master's in Management (2012), LINK International 120 Management Institute 100 At Katren OJSC since 2005. 80 mln US$ At Amity International since 2013. 60 40 20 0 2010 2011 2012 2013 2014 (plan) A Brief History of the Company turnover market share

December 1993 − foundation of the company (Kazakhstan) 1997–2007 − branches in Astana, Pavlodar, Aktobe, Karaganda, Öskemen, Aktau, Plans for 2014 Oral, Atyrau, Semey, Shymkent, Taraz, Taldykorgan, Kokshetau, Petropavl and Kyzylorda open In 2014, AMITY International plans to increase its share in the pharmaceutical 2005 − certifi cate received for meeting ISO 9001 standards in quality management market of the Republic of Kazakhstan to 15 %. systems − the fi rst of its type in the pharmaceutical industry distribution sector in To achieve this target, the following steps will be taken: Kazakhstan. The compliance certifi cate was issued by Moody International (UK), ✔ Development of company infrastructure − increased storage capacity, the world's largest certifi cation body improved stock management procedures, optimisation of warehouse and 2006 − Central Warehouse opens in Almaty transport logistics 2008 − company ranked second in the ranking of distributors in Kazakhstan, ✔ Warehouses should correspond to the GDP standard (Central Warehouse in Central Warehouse relocates to Class-A storage facilities Almaty and retail warehouses in Aktau and Shymkent). Relocation of warehouse 2009 − AMITY International becomes part of the Katren OJSC holding in Astana 2010 − optimisation of the branch network: warehouses closed and branches ✔ Sales teams training and development of management competencies using converted into representative offi ces in Pavlodar, Semey and Aktobe; expansion techniques from the parent company. Automation of interaction processes of warehouses in the southern, western, and northern regions. WinPrice electronic with customers ordering program introduced ✔ Individual planning and budgeting broken down by individual clients; 2011 − warehouse in Petropavl closed; branch opens in Kostanay introduction of CRM procedures in sales 2012 − 100 % stake in Amity International owned by Katren CJSC, relocation to new ✔ Improving pricing systems and marketing projects warehouses in Astana and Öskemen ✔ Increasing client coverage to 95 % 2013 − 12 % market share in the commercial segment ✔ Improving the quality of communication with incoming suppliers and extending the product range to 6 000 items The Company in Numbers ✔ Building a culture of savings in all functional areas and departments by redesigning operational processes, structure and motivation 12.3 % market share in the commercial segment ✔ Reduction in the proportion of operating costs 8 branches and 9 representative offi ces 2 800 customers, over 4 200 delivery points 5 300 items on the price list 215 suppliers, including 90 suppliers of imported products 276 employees

66 67 ANNUAL REPORT 2013 ANNUAL REPORT 2013 Dominantapharm (Belarus) Dominantapharm (Belarus)

Company Turnover Dynamics

Sergei Sabodakha 300 Director 250 Murmansk State Technical University, International Law (2002) 200 Master's degree in Management (2013), LINK International 150 Management Institute. 100 At Katren OJSC since 2008. 50 At Dominantapharm since 2013 0 2010 2011 2012 2013 2014 (plan)

mln $US bln BYR

A Brief History of the Company Plans for 2014 2004 − the company emerges on the pharmaceutical market of the Republic of Belarus In 2014, Dominantapharm plans to increase its market share to 5 % and client 2010 − the company becomes an enterprise with foreign investment. Katren OJSC coverage to 95 %. To do this, the following actions are planned: becomes a participant of the company, acquiring a majority stake of 51 % ✔ Expansion of the customer base and building long-term partnerships with key 2011 − relocation to a more effi cient warehouse players on the market 2012 − development of cooperation with new suppliers on the Belarusian market ✔ Expansion of the portfolio of contracts, increasing product list to 5000 items April 2013 − Katren OJSC increases its stake in Dominantapharm from 51 % to ✔ Effi ciency improvements. Increase in output per employee, outsourcing of 87 %. An increase in the company's authorised capital makes it possible to greatly transport, focus on processes that add value increase working capital ✔ Introduction of sales techniques from the parent company, development of July 2013 − new General Director Sergei Sabodakha starts work purchasing, stock and fi nancial cycle management expertise ✔ Automation of interaction processes with customers The Company in Numbers ✔ Improvement of pricing systems, development and implementation of marketing projects Market share − 3 % ✔ Cost reduction 1 warehouse with a total area of 2 000m2 174 customers and 385 delivery points 3 000 items in the price list 76 suppliers, including 41 suppliers of imported products 67 employees

68 69 ANNUAL REPORT 2013 ANNUAL REPORT 2013 Contacts

Katren OJSC Address: 22 Vashutinskoe Shosse, Khimki, Moscow Oblast, 141400, Russia Tel.: +7 495 539 29 96 Website: www.katrengroup.ru

Katren CJSC Address: 4 ul. Timakova, Novosibirsk, 630117 Tel./fax: +7 383 333 67 01 Website: www.katren.ru

AMITY International (Kazakhstan) Address: 23 ul. Muratbaeva, Almaty, 050026 Tel.: +7 727 2 448 448 Website: www.amity.kz

Venta.LTD (Ukraine) Address: 3a Krestyansky Spusk, Dnepropetrovsk, 49000 Tel.: + 380 56 370 35 00 Website: www.ventaltd.com.ua

Melodiya Zdorovya Address: 4/3 ul. Timakova, Novosibirsk, 630117 Tel./fax: +7 383 363 59 83 Website: www.melzdrav.ru

Dominantapharm (Belarus) Address: Room 53, Building 2, 8 ul. Leshchinskogo, Minsk 220140 Tel./fax: + 375 17 205 77 85 Website: www.dominantapharm.by

70 ANNUAL REPORT 2013