We expect Krka to report net profit of € 49.2m or an EPS of € 1.48 in 4Q12. For 2012, we expect consolidated net profit to reach € 160.7m or an EPS of € 4.83 (slightly above the € 155m for nonconsolidated net profit, which was released on January 24 along with the revenue breakdown for 2012), but 2.6% below current Bloomberg consensus of € 165.0m (EPS of € 4.89). In 2011, the difference between the non-consolidated (€ 150.4m) and
consolidated (€ 162.7m) net profit was € 12.3m, while the difference was only € 5.0m in 2010 and € 2.9m in 2009.
Gross margin likely to improve q/q and remain flat y/y: We expect gross margin to reach 58.5% in 4Q12, up from 56.3% in 3Q12, which was low due to one-off items and in line with the 58.6% margin posted in 4Q11. We believe the 20.6% y/y revenue growth in Russia should support gross margins. As a result, 2012F gross margin could have declined by as much as 200bps to 59.3% from 61.3% in 2011, due to the price erosion in Central
and South-East Europe.
Relatively good EBIT margin in 4Q12 will unlikely to arrest the decline for 2012: We expect EBIT margin at 17.2% in 4Q12 versus 14.6% in 4Q11 as we expect lower R&D and Admin expense margins. Our 4Q12 EBIT of € 56.8m (+26.1% y/y) implies € 200.2m for 2012 (-6.4% y/y) and a 2012F EBIT margin of 17.5% versus 19.9% in 2011. We expect S&M expenses to increase by 6.0% y/y to € 92.2m, making up 28.0% of 4Q12 sales (roughly in line with the 28.3% in 4Q11).
Financial results: We expect € 0.4m FX gains in 4Q12 as the 4Q12 ending EUR/RUB, EUR/PLN rates did not change more than 1% from 30 September. For 2012, total contribution should reach € -6.5m versus € - 14.0m in 2011, thus the 2012 bottom line will be punished much less by the financial result than in 2011, but it still won’t be enough for Krka to squeeze out net profit growth in 2012.
Tax rate: We expect the tax rate to reach 14.0% in 4Q12 as Krka alluded to the lower tax rates in 2012, which we expect to moderate to 17.0% from 18.6% in 2012.