Zentiva’s sales came at CZK 10.67bn (+11.2% y/y). Excluding sale of know-how (CZK 188m), the growth rate would equal 9.2% y/y.
Sales driven by growth in pharmaceticals sales (+10.4% y/y) and in particular by promoted brands (over 20% y/y) contributing to 53% of sales. Sales of top 15 products formed 37% of sales vs. 29 in 2003.
Sales in domestic market developed in line with the market (+8.0% y/y). Slovak market begins to stabilize after a healthcare reformed introduced in late 2003 with favourable conditions for Zentiva’s focus on new branded products going forward (sales were down by 6.3% y/y; in line with our forecast).
Polish sales grew by 127% y/y (faster than expected) meaning that Zentiva was the fastest growing pharma company in Poland (in 2004). Despite lower sales growth rate in Russia 44% y/y vs. 56% y/y (forecasted), the figures was rather strong. Expanding sales force and new distribution centre began to show results and hence should position the company for strong results going forward. Share of Polish sales on total sales increased to 8% from 4% in 2003 while Russia to 4% from 3%.
Despite higher proportion of sales of lower margin products in 2004, focus on high margin products, improved material sourcing and increased production of own APIs (active pharmaceutical ingredients) led to strong gross margin of 60.3% vs. 57.7% in 2003.
All Operating costs categories (Marketing&Sales, R&D, Administrative costs) developed in line with expectations and showed strong focus on operating efficiency leading to EBIT margin of 23.7% vs. 22.1% in 2003.
Pre-tax income was positively influenced by lower interest expenses (-68% y/y) due to reduce debt following Zentiva’s IPO in June and refinancing of some outstanding loans.
Lower effective tax rate of 28.9% vs. 35.7% in 2003 on the back of lower statutory tax rates in Slovakia, Poland and Czech Republic and increasing proportion of income being generated in lower tax counties had a positive impact on net income which better than our expectations and in line with market’s forecast.
Given Zentiva’s dividend policy of 15-20% of net income, 2004 dividend may come in the range of CZK 6 -8 / share implying a dividend yield of 0.7 – 0.9%.
Going forward, the company plans to focus on promoted higher margin branded products, increasing operating efficiency and margins.
We will release more details after the company’s analysts meeting scheduled for 2.30pm CET and conference call at 4.30pm CET.
Over all, the company reported solid FY results, which were in line with our expectation, hence we keep our fair value unchanged at CZK 904. In the near-to mid-term, the stock may be positively influenced by consolidation of the generics market and implied valuation multiples (refer to Novatis’s acquisition of Hexal valuing Zentiva at CZK 1,120 / share) or possible announcements of any acquisition/joint venture.
IFRS Consolidated (CZK m)
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|
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2004
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y/y change
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2004 Patria est.
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Consensus (Reuters)
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Sales
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10,674
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11.2%
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10,647
|
10,710
|
|
Gross Profit
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6,439
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16.2%
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6,386
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-
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EBIT
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2,531
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29.2%
|
2,385
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2,530
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Pre-tax income
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2,361
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35.1%
|
2,253
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-
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Net income
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1,613
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48.8%
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1,511
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1,550
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EPS
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44.2
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-
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39.6
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40.6
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