Bloomberg News

Krka Drugmakers First Quarter Profit Rises on West Europe

May 10, 2012

Krka Group d.d., Slovenia’s biggest drug company, tumbled to a three-year low in Ljubljana after the company said profit margins shrank in the first quarter.

The shares dropped 2.7 percent to 46 euros, closing at the lowest level since December 2008 after declining as much as 5.1 percent today. Earnings before interest, taxes, depreciation and amortization accounted for 28.1 percent of revenue, down from 31.4 percent a year earlier, the Novo Mesto, Slovenia-based company said in a regulatory statement today.

“The main reason for today’s drop is the disappointing trend in business margins, which is the main fear factor for investors as Krka has above-industry-average margins,” Andraz Grahek, head of asset management at KD Funds LLC in Ljubljana said by phone. “Their profitability will be under pressure.”

Operating profit, or earnings before interest and taxes, dropped to 20 percent of revenue from 23.6 percent in the year earlier period, it said. Net income climbed 1 percent to 48.6 million euros ($63 million) while revenue advanced 6 percent to 273.5 million euros, helped by rising sales in western Europe.

“Sales exceeded our expectations, but the drop in margins was bigger than expected,” Matej Simnic, an analyst at the brokerage Alta Invest d.d. in Ljubljana said in an e-mail. “Sales in east Europe are falling because of legislation changes and expired patents. This has been compensated by west European sales, though margins there are much smaller.”

Krka, Slovenia’s biggest public company by market value, wants to increase sales in eastern European markets as the euro- area slides into recession, including its home market. The biggest potential for revenue growth is in Russia, Ukraine and Kazakhstan, Chief Executive Officer Joze Colaric said in April.

The generic drugmaker started a secondary listing at the Warsaw Stock Exchange (GPW) last month to attract new investors.

“We’ll be able assess how Warsaw trading is affecting share prices when Krka completes the sale of its own shares,” Simnic said. “We have not yet seen the majority of shares transferred there.”

To contact the reporter on this story: Boris Cerni in Ljubljana at bcerni@bloomberg.net

To contact the editor responsible for this story: James M. Gomez at jagomez@bloomberg.net


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