Zentiva’s 9M2005 net income reached CZK 1.49bn, which is 2% above our and the market’s forecasts. Sales grew by 5.7% yoy to CZK 8.29bn, driven by growth in branded products (12% yoy) on the back of portfolio restructuring. Sales in the Czech Republic, forming 53% of Zentiva’s pharmaceutical sales, grew by 2.1% yoy thanks to an 18% yoy growth in promoted drugs. Sales in Slovakia (20% of Zentiva’s pharmaceutical sales) were down by 5.8% yoy due to adverse market conditions. Promoted drug sales increased by 3.5% yoy. Thanks to a focus on the sale of promoted drugs, an improved product portfolio and material sourcing, in particular the consumption of its own APIs (Active Pharmaceutical Ingredients), the gross margin expanded to 63.3% from its previous 61.7%, which is exactly in line with our forecast. As a result the EBIT margin expanded to 25.5% from 24.6% a year ago. Net income was positively impacted by lower interest expenses due to debt reduction, higher financial income and a lower effective tax rate of 27% vs. 33% last year. Zentiva expects its FY2005 net income to exceed CZK 1.8bn. We forecast a net income of CZK 1.805bn. As the 9M2005 results were broadly in line with our expectations, we are keeping our forecasts unchanged.
Separately, the Ceska pojistovna group, part of PPF, decreased its stake in Zentiva to 9.5% from 12.3%.