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Richter profit plummets on financial loss, taxes

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LaMography/Moni Lazar

Hungarian drugmaker Gedeon Richterʼs fourth-quarter net income fell 70% year-on-year to HUF 6.6 billion, dragged lower by a financial loss and tax payments, an earnings report published early Monday shows, exceeding the most pessimistic of forecasts of analysts last week. Richterʼs net income for the full year was down 23% at HUF 51.2 bln.

Richter booked a HUF 1.0 bln net financial loss in Q4, compared to a net financial gain of HUF 9.0 bln in the base period. It also paid HUF 5.6 bln in income and deferred tax, after getting a HUF 5.0 bln rebate in Q4 2016, national news agency MTI reported.

Profit was several billion forints under the median estimate by analysts polled by online business and stock market news portal portfolio.hu. (Analysts last week were unusually divided over how Richterʼs profits might be impacted, with after-tax forecasts varying widely; however, the actual published figure is lower than even the most pessimistic forecast.)

The release of quarterly figures had been delayed from the originally set date of February 8 as Richter revealed last Friday that the European Medicines Agency (EMA) has recommended temporarily restricting prescriptions of its uterine fibroid drug Esmya until a review of potentially related liver damage has been completed.

Revenues rose 4% to HUF 110.2 bln in Q4. Direct costs of sales increased at a slower rate, edging up 3% to HUF 49.3 bln. Gross profit was up 6% at HUF 60.9 bln, while operating profit jumped 63% to HUF 15.1 bln.

Full-year profit slides

Richterʼs net income for the full year was down 23% at HUF 51.2 bln, also hit by a financial loss and taxes.

Richter booked a net financial loss of HUF 8.5 bln in 2017, compared to a net financial gain of HUF 11.8 bln in the previous year. Richter noted that HUF 3.7 bln of the 2017 financial loss was unrealized. In addition, the company paid HUF 4.3 bln in income and deferred tax, after getting a HUF 3.0 bln rebate in 2016.

Revenues rose 14% to HUF 444.4 bln in 2017. Costs of sales were up 17% at HUF 191.9 bln. Gross profit climbed 12% to HUF 252.5 bln, while operating profit increased 26% to HUF 68.8 bln. Earnings per share came to HUF 275.

Richter had total assets of HUF 802.1 bln at the end of December, down 2% from twelve months earlier. Net assets rose 3% to HUF 704.2 bln and included HUF 645.0 bln of retained earnings.

CIS sales climb

In a breakdown of pharmaceutical sales by market, Richter said sales in the CIS countries, the companyʼs biggest market, rose 16% to HUF 129.1 bln in 2017, lifted by an "improving overall economic and FX environment."

Domestic sales inched up 1% to HUF 35.4 bln, while sales in other European Union member states increased 10% to HUF 125.7 bln.

Sales in the United States jumped 46% to HUF 27.5 bln, supported by royalties from Vraylar, the U.S. trademark of Richterʼs antipsychotic cariprazine. Sales in China were up 11% at HUF 24.0 bln.

Richterʼs total pharmaceuticals sales reached HUF 364.8 bln in 2017.

In a breakdown by product, Richter said sales of hormonal contraceptives generated HUF 90.6 bln of revenues in 2017. Sales of Richterʼs nootropic Cavinton reached HUF 30.8 bln, while sales of its third best-selling product, the uterine fibroid drug Esmya currently subject to the aforementioned EMA review, came to HUF 28.8 bln.

2018 guidance postponed

At a press conference after the earnings report was released, Richter CEO Gábor Orbán said the company would deviate from its usual practice and not offer investors guidance for total, full-year revenue because of the scrutiny over Esmya, according to MTI. However, he said domestic sales could climb 2% in 2018, while sales in new EU member states stagnate.

Richter sees sales in Russia, accounted in rubles, rising 4%, while sales in Ukraine, accounted in dollars, fall 10%. Sales in other CIS members are set to increase 4%.

The company expects U.S. sales, accounted in dollars, to fall 15%, while sales in China and Latin America, calculated in euros, rise 5%.

Excluding the impact of Esmya and calculating with an unchanged ruble exchange rate, overall sales are expected to stagnate, the Richter CEO was cited as saying by MTI.

In the wake of the press conference, Richterʼs share price fell sharply, finishing the day down 6.43% at HUF 5,600. The Budapest Stock Exchangeʼs main BUX index finished the session on Monday down 0.09% at 38,287.22, dragged down by Richter, MTI noted.

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