Equity
Hungary Richter profit leaps in the first quarter of 2019
Highlights of the earnings report:
- Sales in Hungary were practically flat in Q1;
- EU15 sales dropped 11% yr/yr, mainly over a decrease in Esmya sales;
- Owing to Vraylar, sales in the U.S. grew significantly, thanks to the royalty and one-off sales related milestone in respect of Vraylar;
- Richter’s after-tax profit beat the consensus estimate by almost 20%, reaching HUF 22.013 bn in Q1.
Revenue and profit overshoot consensus estimates
Richter published its Q1 2019 earnings report on Friday morning. Its revenues were 1.2% higher than the consensus estimate of analysts polled by Portfolio and gross profit came in 2.3% higher. Although operating profit fall 3.1% short of the median estimate, Richter’s after-tax profit was 19.9% higher than projected.
Revenues up
Richter’s Q1 sales rose 6.7% year on year to HUF 121.6 billion. Total proceeds resulting from Vraylar amounted to HUF 14.78 bn, including a one-off sales related milestone of USD 25.6 mn (HUF 7.154 bn). Royalty at an estimated sales figure of USD 27.3 million (HUF 7.63 bn) grew by 83.2% year on year. Sales performance in the reported period was impacted negatively by sales declines of Esmya amounting to EUR 10.2 million (HUF 3.12 bn). Currency fluctuations had a positive impact on sales levels reported in forint, caused primarily by a 10.6% appreciation year-on-year of the average USDHUF exchange rate.
U.S. sales soar
Consolidated sales rose 6.7% yr/yr in Q1, while sales in Hungary were practically flat, and there was a double-digit contraction in the EU15. Sales in the United Sales, however, skyrocketed.Richter’s Q1 sales in Hungary edged up 0.3% yr/yr, and its market share was 5.2%.
Sales in the EU12 region grew by 3% over the base period. Sales in Poland dropped 16% in forint terms. Increasing competition in the antiviral market segment resulted in a sales decline of our local leading product, Groprinosin which impacted adversely our performance in the reported period. In Romania, sales increased by 12% yr/yr.
In the EU15, sales decreased by 11% in January-March, due to lower sales levels of Esmya but the turnover of the range of oral contraceptives also fell behind high figures recorded in the base period.
Sales to the Commonwealth of Independent Countries (CIS) went down 3% over Q118, and sales in forint terms contracted by 14% in Russia, while in RUB terms the company recorded a 10.2% drop, as a consequence of pre-shipments relating to regulatory changes. In Ukraine, sales rose sharply by 26% in Q1 in HUF terms.
Sales in the United States skyrocketed by 175% in forint terms. The significant annual growth was primarily due to the one-off sales related milestone income linked to cariprazine (Vraylar) amounting to USD 25.6 million (EUR 22.5 million). In addition to the above, the Group reports in the current quarter royalty income based on sales estimations made for the same period by our partner, Allergan. This amounted to USD 27.3 million (EUR 24.0 million) in the first quarter of 2019.
Sales to China (in HUF terms) declined by 45% yr/yr, primarily due to certain pre-shipments of Cavinton in the base period.
Vraylar thunders ahead
Investigations into Esmya were closed in the third quarter of 2018, and after a ruling by the European Commission, the Richter was allowed to keep the product on the market, albeit with restrictions. In late August/early September Richter commenced a focused relaunch of Esmya on major European markets. Esmya sales grew in the first quarter and reached EUR 5.9 mn.
Gross margin flat
Gross margin remained virtually flat at 57.5% in Q1 compared with to the figure achieved in the first quarter 2018. A positive impact was delivered by the Vraylar-related royalty and milestone, while a negative effect was made by a drop in Esmya sales in annual terms, as well as by pressure experienced on the Central and Eastern European labour market where wages have also increased considerably ultimately leading to a shrinking gross profit.
Operating profit decreases
Sales and marketing expenses rose 4.8% yr/yr in Q1, primarily due to the exchange rate movements and wage increases incurred in the Central and Eastern European countries. R&D expenses rose 3.2% yr/yr. These expenses include the ongoing clinical trials being carried out in co-operation with Allergan together with development programs executed in the field of biotechnology. R&D expenses of the Group also include such costs at the operations of GR Polska and GR Romania.Profit from operations declined 2.7% to HUF 17.198 bn in Q1. The increase recorded at gross profit level was practically offset by the worsening balance of Other income and expenses.
Profit up
Richter’s net profit exceeded the consensus forecast of analysts polled by Portfolio, reporting HUF 22.013 bn after-tax profit, versus the projected HUF 18.4 bn. The profit was boosted by financial gains. Financial gains on Unrealised financial items in Q1 resulted from the revaluation of Trade receivables and trade payables but the figure for Exchange gain/loss on other currency related items period was negatively impacted in the base period by a further revaluated item, the fair valuation of Exchangeable bonds. Reassessment gains were a consequence of the period end appreciation of RUB and USD against HUF. Gains reported on Realised items were incurred primarily on exchange gains realised on the settlement of Trade receivables and trade payables.
