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Richter Gedeon Q2 net profit down but increased exports nudge shares up

Richter Gedeon reports a 41 per cent plunge in Q2 FY07 net profit, but reveals increased export activity in the CIS and US

Hungary-based pharmaceutical company Richter Gedeon has reported a 41 per cent plunge in Q2 FY07 net profit, over higher costs incurred by Hungarian government healthcare cuts, a strong forint and falling domestic sales.

The largest Hungarian pharmaceutical company revealed that net profits fell to HUF 9.4bn (USD 51.2m) in Q2 FY07 from HUF 15.9bn in Q2 FY06. The drop was generally expected by analysts, as a previous Dow Jones survey of seven analysts had forecast Q2 net profit of HUF 9.3bn, with estimates ranging from HUF 8.5bn to HUF 9.9bn.

Since September 2006, shares in the company have dropped 23 per cent over increasing investor gloom regarding the continued healthcare cuts and financial strictures imposed by the Hungarian government.

In Q2 FY07, overall costs rose seven per cent to HUF 17.9bn (USD 98m) in the quarter due to higher R&D spending, as well as a rise in sales and marketing expenses after the government introduced a registration fee for reps employed by drug companies. The registration fee amounted to HUF 180m (USD 0.9m) in the reporting period.

Domestic sales continue to be depressed by the Hungarian government's austerity measures and dropped 17.1 per cent to rest at HUF 8bn (USD 43.8m). Also, the discontinuation of Wyeth OTC product sales resulted in a HUF 700m (USD 3.8m) loss in turnover in H1 FY07.
Exports save the quarter
Despite the difficulties faced on the domestic front, exports to the Commonwealth of Independent States (CIS) region and the US increased.

Sales from Russia were USD 59m in Q2 FY07, compared with USD 54.8m in Q2 FY06. Sales included under the Russian government's DLO state subsidy system came in at USD 1.5m, a massive fall from the USD 10m figure a year earlier. DLO sales in H1 FY06 were shored up by a one-off USD 10m payment over invoicing changes.

US exports also showed some marked improvement, with sales of USD 30.4m up from USD 21.4m in Q2 FY06. Much of the increase was due to sales of bulk steroids, finished Plan B products and the urology treatment, finasteride.

Total exports rose five per cent in Q2 to reach HUF 35.5bn (USD 194.3m) from HUF 33.7bn. Richter Gedeon has posted a Q2 HUF 1.1bn profit, as losses of about HUF 1.8bn of reassessed items were partly offset by gains on forward currency contracts.

Q2 FY07 results are still well short of the figure of HUF 4.9bn reported for Q2 FY06. Q2 earnings decreased to HUF 504 (USD 2.76) per share from HUF 854 for the prior year quarter.

Richter Gedeon stock was up 4.1 per cent to reach HUF 37,695 (USD 206.40), compared with a rise of 1.6 per cent in the Budapest Stock Index (BUX) in morning trading on 31 July. The company said it would increase its export growth target to 10-15 per cent in the US and CIS after previously predicting stagnating sales in those regions.

31st July 2007


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