EASTPHARMA LTD.
London, 23 March 2011 - EastPharma (EAST LI), a company active in the manufacturing and marketing of pharmaceutical products in Turkey and in other regional markets, announces the 2011 year end audited financial results of EastPharma and its main subsidiary DEVA Holdings for the related period.
Management comment on the financial performance of EastPharma is provided in the attachment, and a presentation of the results will be available on the EastPharma website www.eastpharmaltd.com on 23 March 2011.
A conference call to review the 2011 financial performance will be hosted by the management of EastPharma at 4:00pm London time on 26 March 2011 (11:00am New York / 5:00pm Zurich time / 6:00pm Istanbul time). The dial-in details are provided below.
Conference call:
Dial-in Number (UK): + 44 (0)207 1620 177
Dial-in Number (US): + 1 866 803 8344
Dial-in Number (Switzerland): + 41 (0)434 5692 63
Dial-in Number (Germany): + 49 (0)695 8999 0509
Conference ID: 913867
For further information, please contact:
Investor Relations:
email: ir@eastpharmaltd.com
SALES UPDATE AND MANAGEMENT REVIEW
2011 MARKET vs EASTPHARMA PERFORMANCE ACCORDING TO IMS DATA
According to the results of 12M 2011 IMS Health data, a total of 1.7bn units of drugs, worth TRY 15.2bn (USD 9.1bn), were sold in the Turkish Pharmaceutical market.
In unit terms the market grew by 9.7% in 2011, while EastPharma sales grew by 11.5% compared to the previous year, which corresponds to 97mn units IMS sales for EastPharma. With this growth in sales amount, EastPharma has increased its market share in unit terms from 5.5% in 2010 to 5.6% in 2011 and maintained its 4th place ranking in the Turkish pharmaceuticals market.
By sales value in Turkish Lira, the market grew by 2.6% in 2011 compared to 2010. According to IMS figures for 2011, EastPharma achieved sales worth TRY 619mn (USD 373mn), an increase of 5.5% compared to the previous year. Consequently, EastPharma increased its market share by value from 4.0% in 2010 to 4.1% in 2011 and has moved up the national ranking from 7th to 5th place.
MANAGEMENT COMMENTS ON 2011 FINANCIAL PERFORMANCE FOR EASTPHARMA:
During 2011, the company faced some important challenges which had negative impact on financial performance of the company. The first challenge was the depreciation of the Turkish Lira against hard currencies. The average USD/TRY exchange rate increased by 12% to 1.6708 in 12M 2011, which compares with an average rate of 1.4990 in 12M 2010. The USD/TRY exchange rate was 1.8889 on 31 December 2011, while it was 1.5460 as of 31 December 2010: this corresponds to an increase of 22%.
The second challenge was price decreases introduced by the Turkish authorities in November 2011. As we announced in our detailed statement to the market dated 14 November 2011, generic products pricing has been set as 60% of the reference price (previously 66%), 20 year products pricing has been set as 80% of the reference price (previously 100%), and an additional institutional discount of between 7.5% and 8.5% depending on the product group has been introduced.
EastPharma's IFRS results show revenue in 12M 2011 was USD 242.3mn, down 4.6% from the same period in 2010 (USD 253.8mn). Although net sales increased in TRY terms by 5% in 2011 compared to 2010, the decrease in USD terms is mainly due to depreciation of TRY against USD as given above.
EastPharma's sales increase in TRY terms was driven by increased volumes at DEVA's Human Pharma and Veterinary Products businesses. In 12M 2011 versus 12M 2010, Human Pharma revenues increased by 3% (from TRY 361.0mn to TRY 373.4mn) and Veterinary Products revenue increased by 28% (from TRY 20.0mn to TRY 25.5mn)
EastPharma's gross profit in 12M 2011 was USD 88.2mn, down from USD 101.3mn in 12M 2010. The gross profit margin in 12M 2011 was 36% vs 40% in 12M 2010. The decrease is mainly due to the further price cut imposed in 4Q 2011 and the depreciation of the Turkish Lira against hard currencies in 2011 as mentioned above.
EBITDA in 12M 2011 was USD 30.3mn vs USD 20.4mn in 12M 2010 representing an EBITDA margin of 12.5% vs 8.0% in 12M 2010. During 2011, the company had some extraordinary items as follows; a gain on the reversal of a tax penalty totaling to USD 6.3mn, a gain on the bargain purchase of Zentiva API Plant totaling to USD 6.0mn, a gain on the sale of land at Kartepe totaling to USD 5.9mn and a loss due to provision for terminated personnel totaling to USD 3.9mn.
Operating expenses in 12M 2011 decreased by 5%, from USD 101mn to USD 96.0mn. The ratio of operating expenses to revenues is in-line with the prior year at 40%. Sales and marketing expenses in 12M 2011 were 27% of revenues; general administrative expenses were 11% of revenues. These expenses were 27% and 12% respectively in 12M 2010.
Finance cost increased significantly in 12M 2011, from USD 25.7mn in 12M 2010 to USD 46mn in 12M 2011. This was due primarily to net foreign exchange losses because of the TRY depreciation and higher interest rates on TRY compared to 2010. Net foreign exchange losses were USD 18.4mn in 12M 2011, compared to a USD 0.5mn gain in 12M 2010, and interest on borrowings increased to USD 7.2mn in 12M 2011 from USD 6.2mn in 12M 2010.
Receivable days at 31 December 2011 were 124 days, showing an improvement from 132 days at 31 December 2010.
Philipp Haas, EastPharma's Chairman and CEO, said; "2011 was an extremely challenging year. A 22% Turkish Lira depreciation resulted in a strong increase in raw material and also other costs, as many prices and services in Turkey are linked to hard currencies. As a consequence, our Gross Profit margin decreased from 40% to 36%. A weaker Turkish Lira also impacted our results negatively as on one hand our hard currency debt cost increased correspondingly and on the other hand interest rates in TL went up sharply as well, thereby causing an upward move in our finance costs.
In November 2011, the Turkish authorities surprised all market participants by announcing price decreases between 10% and 20%; this was compounded by the announcement of increased institutional discounts of up to 7.5% to 8.5% one week later. This price decrease was imposed at a time when in fact the pharmaceutical sector was due a price increase, under the still-valid reference price system, of around 25% due to the EUR/TRY exchange rate movement. However, this was not awarded to the industry. As a result, in hard currency terms, the price decrease of November 2011 reached -40%.
The management team reacted quickly to the new environment by various and severe cost cutting measures. These included overhead reduction, introducing limits on many expenses, and cuts at the operating level. On the market level, we decreased all additional pharmacy discounts as well as free goods levels.
Our strategy for 2012 is now focused on increasing margins, if necessary at the expense of sales, by strictly limiting free goods and by concentrating our marketing on high value added and unique or strategic products only.
During 2012, our new products, for which we have made significant investments and incurred high costs in the past few years, will start to generate sales and this will re-compensate some part of the great price loss we suffered in November 2011 and the approximately -80% price loss on average on our products since EastPharma acquired Deva at the end of 2006.
On the positive side, we can mention that we successfully passed the inspection of the German Ministry of Health in October 2011, a milestone in our corporate development, and at the same time we have submitted our first dossier in Germany.
With the measures we took and with new products coming on stream we can look into 2012 with cautious optimism. In the increasingly challenging market environment, your management team is working harder than ever in order to lead the company to success. I believe that the hard work and the good investments over the last 5 years will bear fruit over the coming years, but more efforts are needed to achieve our goals."