STADA: Group sales increased in 1-9/2010 - adjusted EBITDA went up considerably - high burdening one-time special effects

STADA: Group sales increased in 1-9/2010 - adjusted EBITDA went up considerably - high burdening one-time special effects - confirmation of outlook for 2010

Important items at a glance
Group sales EUR 1,177.8 million (+3%)
Adjusted EBITDA EUR 224.2 million (+12%)
Adjusted earnings per share EUR 1.55 (+8%)
High burdening one-time special effects of EUR 63.1 million before taxes
Free cash flow EUR 56.2 million (+9%) - net debt further reduced (EUR 879.1 million)
Consistent execution of "STADA - build the future"
Outlook for 2010 confirmed
Today, on November 11, 2010, STADA Arzneimittel AG published the financial results for the first nine months of 2010. Accordingly, Group sales increased by 3% in the first three quarters of the current financial year compared to the corresponding period of the previous year. Key earnings figures were at the same time influenced by high one-time special effects in the amount of EUR 63.1 million before or EUR 53.6 million after taxes - primarily due to write-downs on receivables as a result of liquidity problems on the part of Serbian wholesalers and expenses in connection with the "STADA - build the future" project - and thus decreased. Operationally, however, i.e. excluding one-time special effects, all key earnings figures for the first nine months of 2010 exceeded the key earnings figures of the comparable period in the previous year.

"In the first nine months of 2010, we further expanded our international business activities in order to become more independent from the German market, which continues to be difficult. Overall, the operating development in the international markets that are important for us was thereby positive as expected", said Hartmut Retzlaff, Chairman of the Executive Board. "And also in Serbia, we anticipate a recovery following the burdens there in the third quarter as a result of the now changed local business policy in the current fourth quarter", Retzlaff is confident.

Development of Sales
Group sales rose in the first nine months of 2010 - despite the continuing difficult framework conditions particularly in the Serbian and German markets - by 3% to EUR 1,177.8 million (1-9/2009: EUR 1,138.5 million). The Group's international sales thus had a share of 67% in Group sales in the reporting period (1-9/2009: 64%). In the third quarter of 2010 taken alone, STADA recorded an increase in Group sales of 4% to EUR 399.7 million (third quarter of 2009: EUR 383.3 million).

When effects on sales attributable to changes in the Group portfolio and currency effects are taken into account, Group sales increased by 2% in the first nine months of 2010 compared to the corresponding period in the previous year.

Sales of Generics, which continues to be the significantly larger core segment (share of Group sales 69.3%, 1-9/2009: 71.7%), was at about the level of the previous year - despite the partly difficult framework conditions in individual national markets - to EUR 815.7 million (1-9/2009: EUR 816.6 million) in the first three quarters of 2010. Adjusted, generics sales in the Group were also at about the level of the previous year.

Branded Products (share of Group sales 26.4%, 1-9/2009: 24.5%) rose in the first nine months of the current financial year by 12% to EUR 311.4 million (1-9/2009: EUR 278.7 million). The Group recorded an increase of 6% in adjusted sales of branded products.

In Europe, the STADA Group achieved an increase in sales of 3% to EUR 1,122.1 million in the reporting period (1-9/2009: EUR 1,093.0 million). STADA's sales in European markets thus amounted to a 95.3% (1-9/2009: 96.0%) share of Group sales. STADA's adjusted sales in European markets increased by 1%.

In Western Europe, sales rose in the first three quarters of the current financial year by 3% to EUR 852.1 million (1-9/2009: EUR 825.8 million). The decreased sales in Germany had a particularly noticeable curbing effect here. STADA's sales in Western European countries thus amounted to a 72.3% share (1-9/2009: 72.5%) of Group sales. Adjusted, STADA's sales in Western Europe increased by 2%.

In Eastern Europe the Group recorded a sales plus of 1% to EUR 270.0 million (1-9/2009: EUR 267.1 million) in the first nine months of 2010. Sales generated by STADA in Eastern European markets thus had a share of 22.9% of Group sales (1-9/2009: 23.5%). STADA's adjusted sales in Eastern Europe decreased by 1%. The curbed sales development in the Eastern European market was predominantly characterized by the difficult situation in Serbia, which affected all market participants there.

In Asia, STADA's sales rose in the first three quarters of the current financial year by 23% to EUR 39.7 million (1-9/2009: EUR 32.2 million). STADA's sales in the Asian countries thus contributed 3.4% (1-9/2009: 2.8%) to Group sales. STADA's adjusted sales in Asia increased by 18%.

STADA recorded an increase in Group sales in the rest of the world in the reporting period of 21% to EUR 16.0 million (1-9/2009: EUR 13.3 million). Sales in the rest of the world thus had a share of 1.4% in Group sales (1-9/2009: 1.2%). STADA's adjusted sales growth amounted here to 19%.

Earnings development
Due to the curbed sales development in Serbia and Germany, high one-time special effects in the third quarter of 2010, primarily due to write-downs on receivables as a result of liquidity problems on the part of Serbian wholesalers, as well as expenses in connection with the "STADA - build the future" project, the Group's key earnings figures in the reporting period decreased; operationally, however, i.e. excluding one-time special effects, they all exceeded the key earnings figures from the corresponding period in the previous year. In addition, all adjusted earnings margins, too, rose in the first nine months of 2010 primarily as a result of continuous cost optimization and an increased focus on profitability.

Operating profit decreased in the first three quarters of 2010 by 19% to EUR 104.9 million (1-9/2009: EUR 129.1 million). In the third quarter of 2010 taken alone, operating profit decreased by 85% to EUR 6.3 million (third quarter of 2009: EUR 43.7 million). Net income declined in the first nine months of 2010 by 46% to EUR 38.8 million (1-9/2009: EUR 71.5 million). In this period, the tax rate rose to 41.1% (1-9/2009: 21.8%). This effect is based in particular on the limited tax deductibility of special effects as well as a structurally changed regional earnings allocation. In the third quarter of 2010 taken alone, net income amounted to EUR -11.2 million (third quarter of 2009: EUR 23.2 million). Earnings before interest, taxes, depreciation and amortization (EBITDA) recorded a decline in the first three quarters of 2010 of 4% to EUR 182.9 million (1-9/2009: EUR 190.2 million). In the third quarter of 2010 taken alone, EBITDA decreased by 40% to EUR 40.0 million (third quarter of 2009: EUR 66.2 million). Earnings before interest and taxes (EBIT) went down by 19% to EUR 105.3 million (1-9/2009: EUR 129.9 million) in the reporting period. In the third quarter of 2010 taken alone, EBIT declined by 85% to EUR 6.5 million (third quarter of 2009: EUR 43.4 million). Earnings before taxes (EBT) recorded a decrease by 28% to EUR 66.1 million (1-9/2009: EUR 91.7 million). In the third quarter of 2010 taken alone, EBT decreased to EUR -6.3 million (third quarter of 2009: EUR 30.8 million). Earnings per share were at EUR 0.66 in the first nine months of 2010 (1-9/2009: EUR 1.22). In the third quarter of 2010 taken alone, earnings per share amounted to EUR -0.19 (third quarter of 2009: EUR 0.39). Diluted earnings per share were at EUR 0.65 in the first three quarters of 2010 (1-9/2009: EUR 1.22). In the third quarter of 2010 taken alone, diluted earnings per share amounted to EUR -0.19 (third quarter of 2009: EUR 0.39).

The key earnings figures of the first nine months of 2010 included burdening one-time special effects in the total amount of EUR 63.1 million before taxes or EUR 53.6 million after taxes (1-9/2009: net burden due to one-time special effects in the amount of EUR 12.1 million before taxes or EUR 9.4 million after taxes). In the third quarter of 2010, one-time special effects resulted in a burden on earnings in the total amount of EUR 49.7 million before or EUR 43.1 million after taxes (third quarter of 2009: net burden on earnings due to one-time special effects in the amount of EUR 11.0 million before or EUR 8.0 million after taxes). As a result of non-operational effects from currency influences and interest rate hedge transactions the key earnings figures were relieved by a total amount of EUR 1.8 million before or EUR 1.2 million after taxes in the reporting period (1-9/2009: net burden on earnings due to non-operational effects from currency influences and interest rate hedge transactions in the amount of EUR 5.1 million before or EUR 3.4 million after taxes). In the third quarter of 2010, non-operational effects from currency influences and interest rate hedge transactions resulted in a relief of earnings in the total amount of EUR 0.5 million before or EUR 0.3 million after taxes (third quarter of 2009: net burden on earnings due to non-operational effects from currency influences and interest rate hedge transactions in the amount of EUR 1.6 million before or EUR 1.0 million after taxes).

After adjusting the key earnings figures for influences distorting the period comparison resulting from one-time special effects and non-operational effects from currency influences and interest rate hedge transactions, adjusted operating profit increased in the first nine months of 2010 by 15% to EUR 165.6 million (1-9/2009: EUR 143.5 million). In the third quarter taken alone, adjusted operating profit recorded a slight increase of 2% to EUR 56.0 million (third quarter of 2009: EUR 54.8 million). Adjusted net income increased by 8% to EUR 91.2 million in the first nine months of the current financial year (1-9/2009: EUR 84.3 million). In the third quarter of 2010 taken alone, adjusted net income showed a decrease of 2% to EUR 31.5 million (third quarter of 2009: EUR 32.1 million). STADA recorded an increase in adjusted earnings before interest, taxes, depreciation and amortization (adjusted EBITDA) of 12% to EUR 224.2 million in the first nine months of 2010 (1-9/2009: EUR 200.4 million). In the third quarter of 2010 taken alone, STADA recorded an increase in adjusted EBITDA of 1% to EUR 75.6 million (third quarter of 2009: EUR 74.6 million). Adjusted earnings before interest and taxes (adjusted EBIT) went up by 16% to EUR 166.0 million (1-9/2009: EUR 143.5 million) in the reporting period. In the third quarter taken alone, adjusted EBIT showed an increase of 3% to EUR 56.2 million (third quarter of 2009: EUR 54.4 million). Adjusted earnings before taxes (adjusted EBT) increased by 17% to EUR 127.4 million (1-9/2009: EUR 108.8 million) in the first three quarters of 2010. In the third quarter of 2010 taken alone, adjusted EBT went down by 1% to EUR 42.9 million (third quarter of 2009: EUR 43.4 million). Adjusted earnings per share were at EUR 1.55 in the first nine months of 2010 (1-9/2009: EUR 1.44). In the third quarter of 2010 taken alone, adjusted earnings per share amounted to EUR 0.54 (third quarter of 2009: EUR 0.55). Adjusted diluted earnings per share were at EUR 1.52 (1-9/2009: EUR 1.44) in the reporting period. In the third quarter of 2010 taken alone, adjusted diluted earnings per share amounted to EUR 0.53 (third quarter of 2009: EUR 0.55).

"STADA - build the future"
In the course of the implementation of the "STADA - build the future" project, the Group, as is known, in the third quarter of the current financial year, transferred the Dutch packaging unit in Etten-Leur as of August 1, 2010. Within the scope of the transfer, the 113 employees and the assets in the amount of EUR 0.7 million also passed to the acquiring company. The book loss for STADA associated with the transfer of the relevant property plant and equipment, which is within the scope of project planning for "STADA - build the future", amounted to EUR 6.2 million before or EUR 5.8 million after taxes and was reported as a burdening one-time special effect in the third quarter of 2010.

In the context of the "STADA - build the future" project, the Group moreover implemented a restructuring of the sales of branded products in Italy in the third quarter of 2010, which should lead to a reduction of the relevant sales force. Related discussions between Crinos and the Italian trade unions are currently taking place. In view of this, expenses were deferred already in the third quarter of the current financial year, which were recorded as burdening one-time special effects. As a result of the rapid proceedings in Italy, the special burden for "STADA - build the future" will exceed the amount of EUR 10 million originally expected in 2010.

Finally, as of October 1, 2010, the Group implemented the comprehensive reform of internal reporting lines envisaged by "STADA - build the future". The reporting structure, previously primarily locally aligned, was changed to a predominantly functional organizational structure for the areas of Finance as well as Production and Development (including Procurement); the sales functions remain close to the market, i.e. primarily locally and regionally organized.

Financial position and cash flow
As of the reporting date September 30, 2010, the equity-to-assets ratio, at 34.4% (December 31, 2009: 35.5%), continued to be clearly above the minimum ratio targeted by the Executive Board. Net debt amounted to EUR 879.1 million as of September 30, 2010 (December 31, 2009: EUR 899.0 million). If the net debt of the Group is placed in proportion to the adjusted EBITDA of STADA, this value - on linear extrapolation of the adjusted EBITDA of the first nine months on a full year basis - amounted to 2.9. The Executive Board continues to target a maximum value of 3 for this ratio on a full year basis.

Besides a corporate bond, promissory notes in the total amount of EUR 525.0 million as of September 30, 2010 continue to contribute to a significant degree to the long-term refinancing of the Group. A large tranche of these promissory notes in the amount of approx. EUR 195.5 million do not next reach maturity until the fourth quarter of 2011. In addition, STADA currently continues to have short-term firmly-pledged open credit lines i.e. not utilized by the Group, in the amount of over EUR 500 million.

The Group's cash flow from operating activities in the first nine months of the current financial year amounted to EUR 130.6 million (1-9/2009: EUR 124.7 million). Free cash flow was at EUR 56.2 million in the reporting period (1-9/2009: EUR 51.8 million, adjusted for influences from other accounting periods at that time, EUR 62.5 million). Free cash flow adjusted for expenses from acquisitions and proceeds from disposals amounted to EUR 82.7 million in the reporting period, while free cash flow adjusted for expenses from acquisitions and proceeds from disposals as well as influences from other accounting periods had been at EUR 57.1 million in the first nine months of 2009.

"We have achieved our goal to further improve both the operating cash flow and the adjusted free cash flow in the first nine months of 2010. Resulting from intensified working capital management and consequent implementation of the "STADA - build the future" project, we continue to expect positive contributions here also in the future", commented Helmut Kraft, Chief Financial Officer of STADA, on the improved cash flow.

Regional development in national markets important for STADA
In Germany, which continues to be the Group's largest national market, sales in the first nine months of the current financial year decreased by 4% to EUR 392.7 million (1-9/2009: EUR 407.4 million) and were thus below expectations from the beginning of the year. STADA's German business thus contributed 33.3% to Group sales in the first three quarters of 2010 (1-9/2009: 35.8%). Sales achieved by STADA in the German market with generics in the first nine months of 2010 thus had a share of 76% (1-9/2009: 78%) of sales generated in the German market.

The decrease in sales in Germany continued to be attributable to the ongoing difficult local framework conditions for generics. Sales in the German Generics segment in the reporting period thus decreased by 6% to EUR 298.6 million (1-9/2009: EUR 318.4 million). The STADA Group's market share of generics sold in German pharmacies declined by volume in the first nine months of 2010 to approx. 12.6% (financial year 2009: approx. 13.4%). This continues to be contrasted however with operating profitability in the German Group business, as expected, only just under Group average in the first three quarters of 2010.

This development in the German market is primarily attributable to the results achieved by various STADA sales companies in the context of the numerous tenders for discount agreements by statutory health insurance organizations. STADA continues to participate on an ongoing basis in tenders for such discount agreements using various bid strategies characterized by margin and market share aspects and consequently also with a large variation in terms of award results. The associated primary objective that continues to be pursued by the Group of reaching an appropriate operating profitability in the German market will, for the full year 2010, result in a decrease in sales and market share for STADA in the Generics segment in Germany, without negatively affecting the position of the STADA Group as the clear number 3 in the German generics market.

This local market strategy currently being pursued by STADA is also attributable to the fact that further laws aiming to make structural changes in the German health care system are currently going through the legislative process. In this context, different regulatory changes are also being discussed for the structural element of discount agreements - with the goal, among other things, of achieving a greater degree of acceptance among patients as well as improved anti-trust protection - which, if actually implemented, in the current assessment of the Executive Board, could lead overall to moderately positive effects for generics suppliers from their expected effective date as of January 1, 2011.

In Russia, which continues to be the Group's second most important national market, STADA generated, applying the exchange rates of the previous year, pleasing sales growth of 16% in the reporting period - in spite of a local price regulation introduced on April 1, 2010, for so-called essential pharmaceuticals, which affects approx. 40% of local Group sales. In euro, sales went up by 22% to EUR 156.0 million (1-9/2009: EUR 127.4 million). The two core segments in the Russian market had nearly the same share of local Group sales in the first nine months of 2010. With generics, the Group achieved sales growth of 15% to EUR 77.9 million (1-9/2009: EUR 67.6 million) or 50% of STADA's sales in Russia (1-9/2009: 53%).

In Italy, the Group recorded sales growth in the first three quarters of 2010 of 20% to EUR 99.9 million (1-9/2009: EUR 83.1 million). With a considerable increase of 43% to EUR 68.0 million (1-9/2009: EUR 47.5 million), generics continued to have the largest share of local sales, thus contributing 68% (1-9/2009: 57%) to Italian sales. The significant sales growth in generics was based on the relatively low comparable basis of the corresponding period in the previous year, a ban on discounts to the trade channels as well as overall strong market growth.

In Belgium, STADA achieved sales growth in the first three quarters of the current financial year in the amount of 10% to EUR 99.1 million (1-9/2009: EUR 90.4 million). With an increase of 10% to EUR 94.0 million (1-9/2009: EUR 85.8 million), generics thereby continued to have the largest share of local sales in the reporting period. They thus had a 95% share of STADA's Belgian sales (1-9/2009: 95%).

In Spain, STADA achieved considerable sales growth in the amount of 10% to EUR 61.8 million in the reporting period (1-9/2009: EUR 56.2 million). This was due primarily to the growth of the Spanish generics business. In this market characterized by an increased growth dynamic, STADA was able to increase generics sales in the first nine months of 2010 by 12% to EUR 56.9 million (1-9/2009: EUR 50.9 million). Generics thus contributed 92% in the first three quarters of the current financial year (1-9/2009: 91%) to STADA's sales in Spain.

In Serbia, sales declined in the first nine months of 2010 by 27% applying the exchange rates of the previous year. In euro, the Group recorded a decrease in sales of 33% to EUR 52.7 million (1-9/2009: EUR 78.7 million). STADA generated sales of EUR 36.9 million with generics in the local market in the reporting period (1-9/2009: EUR 61.4 million). Generics thus contributed 70% (1-9/2009: 78%) to sales in Serbia. The primary reason for this development remained the deliberate renouncement, continued also in the third quarter of 2010, by the Serbian sales force of further sales possible in the double-digit million euro area accumulated for the current financial year, in order to reduce the default risk on receivables for the Group in view of the ongoing liquidity problems on the part of Serbian wholesalers (see the Company's ad hoc release of September 28, 2010).

Under new management, Hemofarm will modify the local distribution model with the goal of improving the risk profile with respect to wholesalers and customers. In addition, Hemofarm's cost structure, in the context of a special project, is currently being rapidly adjusted to the changed environmental conditions, in the context of which specific measures may considerably exceed the optimizations already planned in the context of the Group-wide "STADA - build the future" project.

Research and development
Research and development costs amounted to EUR 39.1 million in the first three quarters of the current financial year (1-9/2009: EUR 33.8 million). In the first nine months of 2010, the Group launched 442 individual products worldwide (1-9/2009: 335 product launches) in individual national markets.

Outlook
As expected, the sales and earnings development of the STADA Group will also be characterized in financial year 2010 by differing and partially contradictory factors in the various national markets.

Against the backdrop of all the factors influencing the Group's earnings development mentioned in this outlook, the Executive Board, in its overall assessment for the prognosis for financial year 2010 believes from today's perspective - provided the recovery now strived for in the Serbian business in the current fourth quarter in the course of the changed business policy - can be just achieved. According to this, the opportunity continues to exist for growth in Group sales and operating profit i.e. adjusted for one-time special effects, with at least stable operating margins.

In addition, the Executive Board continues to hold to the long-term targets envisaged for financial year 2014, according to which Group sales of approx. EUR 2.15 billion, an adjusted EBITDA of approx. EUR 430 million and net income of approx. EUR 215 million should be reached.


For more information, please contact:

STADA Arzneimittel AG
Corporate Communications
D-61118 Bad Vilbel
Tel.: +49 6101 603-113
Fax: +49 6101 603-506
e-mail: [email protected]
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(c) 2010 STADA Arzneimittel AG, Stadastraße 2-18, 61118 Bad Vilbel, Telefon 06101 603-0, Fax 06101 603-259, e-Mail: [email protected]

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