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Richter Q2 profit falls on higher sales costs, financial loss

Hungarian drugmaker Richter Gedeon’s second-quarter net income fell 68% to HUF 8.5 billion from the same period a year earlier as sales and marketing costs rose and the company booked a financial loss, its consolidated IAS report published Tuesday shows.

Revenue edged up 1.8% to HUF 75.1 billion. At the same time, cost of sales fell 3.5% to HUF 27.7 billion, lifting gross margin 5.1% to HUF 47.4 billion. However, sales and marketing expenses rose 26.6% to HUF 20.1 billion, pushing operating profit down 28.6% to HUF 13.2 billion. A HUF 3.4 billion net financial loss, compared to a HUF 9.0 billion gain in the base period, caused the bottom line to deteriorate further.

Pre-tax profit was down 64.6% at HUF 9.7 billion. After-tax profit dipped 67.7% to HUF 8.6 billion.

Net profit was under the HUF 8.9 billion estimate by analysts polled by Portfolio.hu.

Diluted earnings per share (EPS) were down 67.9c at HUF 456.

Richter’s first-half results were impacted, more or less, by the same factors in the first quarter: the company’s gross margin widened, but higher sales and marketing costs and a net financial loss caused net income to fall.

First-half net income was down 48.3% at HUF 19.7 billion. Basic and diluted EPS both dropped 48.3% to HUF 1,057 and HUF 1,056, respectively.

Revenue climbed 6.3% to HUF 145.9 billion. Costs of sales inched down 1.9% to HUF 55.4 billion in H1 of 2011, lifting gross profit 12.1% to HUF 90.5 billion.

Richter said its gross margin edged up to 62.0% from 58.8% mainly because of more sales of its high margin pharmaceutical segment and a fall in sales of its low margin wholesale and retail businesses.

Sales in Hungary were up 10.8% at HUF 19.2 billion. EU sales rose 4.2% to HUF 51.1 billion. Sales in the CIS climbed 17.4% to HUF 58.3 billion, but US sales were down 36.9% at HUF 9.0 billion.

Sales and marketing expenses were up 36.1% at HUF 38.8 billion, and administration and general expenses rose 13.3% to HUF 16.4 billion, causing operating profit to fall 21.3% to HUF 23.4 billion.

Research and development spending was down 3.9% at HUF 16.4 billion for the period.

Richter noted in the report that sales and marketing costs rose because of increased promotional activities in CIS countries, higher costs related to its sales force for women’s health products in Western Europe and a HUF 2.2 billion amortization booked for the marketing and patent protection rights of Grunenthal, which Richter acquired late in 2010.