Richter - 2Q09 earnings preview, due 4 August

Richter (3 7100 HUF, 0,41%) is expected to post HUF 5.96bn consolidated net profit for 2Q09 (down 72.4% q/q and up 104.7% y/y) on 4 August 2009 before market open, on the back of decent US and CIS sales expansion and one-off FX losses. Our 2Q09 EBIT forecast of HUF 14.7bn stands 25% above the quarterly consensus of HUF 11.7bn (source: portfolio.hu based on 10 estimates, range: HUF 8.9-14.7bn). We expect slight positive market reaction to the results, as we forecast 1H09 consolidated net profit to come at HUF 27.53bn, which amounts to 56.5% of the full year Bloomberg consensus of HUF 48.75bn and 57.4% of our full year estimate of HUF 47.96bn.

Total (38,83 EUR, -0,22%) sales is forecasted to came at HUF 66.0bn on a consolidated level in 2Q09 (up 7.7% q/q and 14.3% y/y), mainly driven by strong US and Russian sales. We forecast US$ sales growth (+73% y/y to € 31.0m) to be driven by generic Yasmin sales in 2Q09, besides slightly decreasing orders for PLAN B. We forecast strong recovery in CIS sales (+22% y/y to € 60.5m) in 2Q09, mainly on the back of positive stockpiling effect and improving economic outlook of Russia. We expect CEE sales (-14% y/y to € 69.7m) in 2Q09 to be negatively affected by the discontinuation of Avonex contracts and strong price pressure in Poland and Romania. Hungarian sales (-13% y/y to € 26.3m) is expected to be hit by negative stockpiling impact due to subsidy cuts of cardiovascular and nervous system drugs from 1 April 2009.

Gross margin is expected to come at 62.2% in 2Q09 (significantly up by 559 bp q/q and 770 bp y/y), mainly due to shifting sales mix towards higher margin CIS and US sales and positive currency effects.

Operating expenses are expected to come at HUF 26.3bn for 2Q09 (up 18.5q/q, and up 18.3% y/y), mainly driven by R&D costs due to increasing number of advanced clinical research stage molecules.

Financial result is expected to be HUF 8.3bn loss for 2Q09, mainly on the back of one-off FX revaluation losses on the company’s trade receivables, cash equivalents and hedge positions, which will only be partly offset by net interest income.

Gedeon Richter consolidated P/L

IFRS consolidated, figures are in HUF m unless otherwise stated
	2Q08A	1Q09A	2Q09F	q/q	y/y
Total sales (ex royalty)	57,759	61,289	66,015	7.7%	14.3%
Group sales breakdown by key markets (in €m)
Total sales (incl. royalty)	233.8	206.9	231.5	11.9%	-1.0%
Hungarian sales	30.2	28.8	26.3	-8.8%	-13.0%
CIS sales	75.6	59.6	80.5	35.1%	6.5%
-Russia	49.5	40.7	60.5	48.6%	22.2%
-Ukraine	10.5	6.5	7.0	7.7%	-33.3%
-Other CIS	15.2	12.4	13.0	4.8%	-14.5%
EU sales	97.0	84.9	83.0	-2.2%	-14.4%
o/w CEE/EU-12 sales	81.4	69.7	69.7	0.0%	-14.4%
-Poland	24.9	17.9	18.0	0.6%	-27.7%
-Romania	37.6	36.7	36.0	-1.9%	-4.3%
-EU-9	18.9	15.1	15.7	4.1%	-16.9%
o/w WE sales	15.6	15.2	13.3	-12.4%	-14.7%
USA sales	17.9	22.4	31.0	38.4%	73.2%
Other sales	12.9	11.0	10.5	-4.9%	-18.9%
Royalty	0.2	0.2	0.2	5.1%	-11.3%
Gross profit	31,477	34,694	41,061	18.4%	30.4%
Sales and Marketing expenses	12,620	12,591	13,890	10.3%	10.1%
Administrative, general and other expenses	4,903	3,098	5,741	85.3%	17.1%
R&D expenses	4,772	6,568	6,751	2.8%	41.5%
Total operating expenses	22,295	22,257	26,383	18.5%	18.3%
EBIT	9,182	12,437	14,678	18.0%	59.9%
Income from associates	163	264	260	-1.5%	59.5%
Financial result	-5,807	9,746	-8,389	-186.1%	44.5%
Pretax profit	3,538	22,447	6,549	-70.8%	85.1%
Taxation	622	917	598	-34.8%	-3.9%
Minority interest	3	-42	-10	-76.2%	-433.3%
Net Result	2,913	21,572	5,962	-72.4%	104.7%
EPS (HUF)	156	1,158	320	-72.4%	104.7%
Gross margin	54.5%	56.6%	62.2%	559bps	770bps
EBIT margin	15.9%	20.3%	22.2%	194bps	634bps
Net profit margin	5.0%	35.2%	9.0%	-2,617bps	399bps

Source: Richter, Bloomberg, KBC (15,16 EUR, 1,30%) Securities estimates