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UPDATE 2-Hungarian drugmaker Richter trims outlook on Ukraine crisis
July 31, 2014 / 5:46 AM / 3 years ago

UPDATE 2-Hungarian drugmaker Richter trims outlook on Ukraine crisis

* Cuts operating profit margin outlook to 10-11 pct

* Sales to Russia and Ukraine tumble, Poland a weak point

* Total revenue to fall by 6-7 pct in euros -CEO

* Shares underperform Budapest index (Updates with new outlook, market reaction)

By Gergely Szakacs

BUDAPEST, July 31 (Reuters) - Hungarian drugmaker Richter trimmed its operating profit margin outlook as a result of the dispute between Russia and Ukraine and a poor performance in Poland, three of its biggest markets.

Richter, which makes gynaecological, cardiovascular and central nervous system drugs, cut the outlook on Thursday to 10-11 percent of revenue from 11 percent expected in May.

Speaking after the company reported second-quarter results, Chief Executive Erik Bogsch said the crisis in Ukraine, where pro-Russian rebels are fighting government forces in the east of the country, would continue to hurt prospects.

“We cannot yet see the end of this situation, therefore I think we need to prepare that this situation will hopefully normalise, but just when, no one knows,” Bogsch told a news conference.

Richter’s operating profit margin sank to 10.9 percent in the first half of 2014 from 13.8 percent last year.

Bogsch said international sanctions imposed on Russia over Ukraine, Hungary’s eastern neighbour, would hurt the company indirectly by weakening the economy of one of its biggest export markets.

“We are affected by the GDP decline and the fall in purchasing power as a result of weak growth,” he said.

Richter is now forecasting revenue in Russia to fall 5-10 percent in roubles compared with a previous forecast for a maximum 5 percent fall, while sales to Ukraine are still expected to plummet by as much as 35 percent in dollar terms.

“We expect a difficult situation to prevail in Ukraine in any case in the years ahead, therefore, chances of sales there returning to 2013 levels of $95 million are approaching zero,” Bogsch said.

At 1032 GMT, Richter shares traded 1.8 percent lower at 3,859 forints on the Budapest Stock Exchange, underperforming the blue-chip index, which fell 0.9 percent.

POLISH PROBLEM

Richter said exports to Poland, its biggest market in central Europe, also tumbled. Wholesalers there have curbed stockpiles due to regulatory changes and the lack of a flu season this year cut demand for one of Richter’s leading products.

“Poland is a new element in the problematic group,” said analyst Akos Kuti at brokerage Equilor Investment.

“Revenue and margin figures for 2014 have been lowered only marginally, but this might be enough to sustain pressure on share price.”

Overall, revenue could fall by 6-7 percent from last year’s 1.2 billion euros, compared with guidance in May for a 6 percent decline, the company said. Bogsch said exchange rate changes could influence revenue developments.

The crisis has transformed Richter’s geographic revenue mix, slashing the top-line contribution of Russia, Ukraine and the former Soviet bloc to 38 percent in the first half from 43 percent in the same period a year earlier.

Bogsch said Richter, which has a market capitalisation of $3.2 billion, continued to diversify its markets and plans to expand in a number of Latin American countries this year.

Richter reported a 45 percent rise in second-quarter net profit to 13.8 billion forints ($59.41 million), beating market expectations, as strong financial income offset falling sales to Russia, Ukraine and Poland.

Its shares have gained 3.6 percent over the past three months according to Thomson Reuters data, outperforming the blue chip index, which rose 1.7 percent over that period.

Seven out of 12 analysts tracked by Thomson Reuters rate the stock as “hold”, three rate it “buy” and two a “sell.” ($1 = 232.27 Hungarian Forints) (Editing by Erica Billingham)

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