Krka - 2Q09 preview, due on 30 July

We forecast Krka to post a € 46.0m IFRS consolidated net profit (up 4.8% q/q and 34.2% y/y) for 2Q09 on 30 July after Slovenian market close. The company already revealed the it’s 2Q09 sales (up 3.5% y/y), which indicated strong CEE and WE sales. We expect the company to continue to expand it’s operating expenses to support the introduction of new products. We expect revaluation gains mainly on the company’s PLN denominated trade receivables to boost the financial result during the quarter. We regard it positively that Krka recently get positive opinions from the European regulator (European Medicines Agency – EMEA) for three of it’s generic medicines, which suggests the drugs could soon get marketing registrations: while Krka's generic clopidogrel is expected to face relatively fierce competition, we expect less intense competition for Krka’s generic Viagra and generic Alzheimer drug in the initial period after they receive the EMEA marketing registrations.

		2Q08	1Q09	2Q09F	Change (%)
In € m, unless otherwise stated		IFRS	IFRS	IFRS	Q/Q	Y/Y
Net sales		224.9	245.2	232.7	-5.1%	3.5%
Geographical sales breakdown
Slovenia		26.3	26.8	25.9	-3.0%	-1.5%
o/w Terme Krka		8.3	7.7	8.4	9%	1%
South-East Europe		31.2	32.3	31.6	-2.0%	1.4%
o/w Croatia		10.2	10.3	10.0	-2.9%	-1.6%
o/w Romania		8.4	7.6	7.0	-7.9%	-17.0%
East Europe		58.4	64.0	53.3	-16.6%	-8.7%
o/w Russia		35.2	49.4	37.2	-24.7%	5.7%
Central Eastern Europe		56.9	72.2	64.1	-11.3%	12.7%
o/w Poland		29.8	29.6	28.0	-5.4%	-6.0%
o/w Czech Republic		7.0	17.8	12.0	-32.6%	71.4%
West Europe and Overseas Markets		52.0	50.0	57.6	15.4%	10.8%
Gross operating profit		145.1	159.9	152.2	-4.8%	4.9%
Sales and marketing expenses		61.8	56.9	61.1	7.3%	-1.2%
R&D expenses		19.1	22.0	24.0	8.7%	25.4%
Administrative expenses		19.9	17.4	18.6	7.3%	-6.5%
Other operating revenues		1.5	3.9	5.0	28.7%	238.3%
Total net operating expenses		99.4	92.4	98.7	6.7%	-0.7%
Operating profit		45.7	67.5	53.5	-20.7%	17.0%
Net financial expenses		-1.6	-12.4	5.4	-143.9%	-448.6%
Profit before tax		44.2	55.1	59.0	7.0%	33.5%
Income tax expense		9.8	11.2	13.0	15.5%	32.1%
Minority interest		0.1	0.0	0.0	-100.0%	-100.0%
Net profit		34.3	43.9	46.0	4.8%	34.2%
Earnings per share (in EUR)		1.01	1.30	1.36	4.8%	34.2%
Gross margin		64.5%	65.2%	65.4%	18bps	-6,452bps
S&M to sales		27.5%	23.2%	26.3%	303bps	-2,749bps
Admin to sales		8.9%	7.1%	8.0%	92bps	-886bps
R&D to sales		8.5%	9.0%	10.3%	131bps	-850bps
EBIT margin		20.3%	27.5%	23.0%	-452bps	-2,033bps
Net profit margin		15.2%	17.9%	19.8%	187bps	-1,524bps