Slovakofarma expects profit rise due to renewed Czech demand

The head of Slovakia's largest drug maker said on May 14 that he expected renewed demand in the Czech Republic to significantly boost his company's profits in the next few years after a sharp fall in 1997.
"Demand in the Czech Republic decreased because of the overall financial situation in the country," said Ondřej Gattnár, Slovakofarma's General Director. "Our experience from other countries shows that such low demand should not last for long and that sales should pick up soon."
The Czech Republic accounts for more than 50 percent of Slovakofarma's consolidated sales, and the May 1997 fall of the Czech crown erased 155 million Slovak crowns from the company's 1997 gross profit. According to Gattnar, planned new legislation in the Czech Republic should enable easier registration of Slovakofarma's products on the Czech market, which should in turn help boost sales.

The head of Slovakia's largest drug maker said on May 14 that he expected renewed demand in the Czech Republic to significantly boost his company's profits in the next few years after a sharp fall in 1997.

"Demand in the Czech Republic decreased because of the overall financial situation in the country," said Ondřej Gattnár, Slovakofarma's General Director. "Our experience from other countries shows that such low demand should not last for long and that sales should pick up soon."

The Czech Republic accounts for more than 50 percent of Slovakofarma's consolidated sales, and the May 1997 fall of the Czech crown erased 155 million Slovak crowns from the company's 1997 gross profit. According to Gattnar, planned new legislation in the Czech Republic should enable easier registration of Slovakofarma's products on the Czech market, which should in turn help boost sales.

On April 27, Slovakofarma announced its net profits fell from 554 million Sk in 1996 to 403 million last year, but market analysts said the results were in line with forecasts and should not hit the company's share price.

"The figures are generally not surprising. We do not expect the results to mean anything to Slovakofarma's share," said Michal Holík, a broker at J&T Securities.

Other analysts said Slovakofarma's share may look undervalued compared to similar pharmaceutical companies in the region, but added that the discount was due to Slovakia's relatively high country risk rather than company fundamentals. Currently trading for around 4,100 Sk, Slovakofarma is the third most heavily-weighted issue on the Bratislava Stock Exchange, accounting for 13.5% of the official SAX index's capitalization.

Vladimír Zlacký, an equity analyst at ING Barings, said he considered Slovakofarma a good company with good prospects. "We consider the current price of Slovakofarma's share as exactly reflecting the present state of the company," Zlacký said. "There is no reason to change the recommendation unless the company presents some new product that would significantly increase its earnings."

Gattnár reaffirmed Slovakofarma's determination to increase its net profit to around 550 million crowns in 1998, "providing that a planned five percent increase in sales is achieved." Overall sales in 1997 rose to 5.356 billion from 4.889 billion a year ago.

Financial Director Helena Jandíková added that "it would be premature to talk about our forecasts for future years, but we can say that we expect further increases in earnings."

Gattnár, who is also chairman of the Board of Directors, said Slovakofarma planned to expand its production abroad in 1998 by acquiring through privatization a majority stake in an unspecified Bulgarian drug producing company.

"We have been working on the deal for a long time. We definitely want to complete the matter by the end of this year," Gattnár said, adding that Slovakofarma was also interested in forming a joint venture with a Russian drug producer. However, that deal is not very likely to happen within a year or so, due to problems in finding a suitable Russian partner. Gattnár said the company was not planning any major investment project for the near future.

Two brand new Slovakofarma products - one for reducing fat content in blood and one for the cardiovascular system - will undergo clinical tests later this year or early next year, and should be on sale in 2000. "The feasibility study is about to be finished and that is why we do not want to give estimates about the effect of the new products on overall results...but we can say we expect a significantly positive impact," Gattnár said.

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