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Egis issues profit warning because of changes in R+D deduction rules

Retroactive legislative changes regarding the deduction of R+D spending will compel Hungarian pharmaceuticals company Egis to account HUF 1.8 billion as unforeseen expense in the April-June period, and will also generate additional expenses of about HUF 1.3 billion per quarter, the company said in a profit warning on Friday.

In line with earlier legislation, Egis deducted 100% of R+D expenditure from its tax payment obligations starting 2010 January 1 in its accounts. Accordingly, the company calculated it would be refunded HUF 2.4 billion of the payments made in January-December 2010 and another HUF 0.6 billion for January-March this year.

Legislation published on July 1 amended, however, the rules with a retroactive affect. Therefore Egis will be able to reclaim only 50% instead of 100% of the R+D expenditure or HUF 1.2 billion for the 2010 calendar year, and will not be able to reclaim any payments made after January 1, 2011.

As a result Egis will book HUF 1.8 billion of the combined HUF 3 billion projected deductions as expense in April-June, the third quarter of its business year. The fact that amended legislation will not allow for similar deductions in the future (including Q3), will add about HUF 1.3 billion per quarter to the company's expenses, the company said.

Egis added that it continues to regard performance good so far in the current 2010/2011 business year, especially that on foreign markets.