Lek reports SIT 3.12 billion of net profit in 1999

The publication of audited financial statements for the year 1999 – The Board of Management will propose payment of dividends to the AGM

2. 3. 2000

Ljubljana, 2 March – Despite tougher business conditions on its key markets, the Slovene pharmaceutical company Lek brought the 1999 business year to a successful conclusion, and results exceeded their expectations. During this period Lek made SIT 46.5 billion of sales, slightly more than the turnover made in 1998. In 2000 we plan sales of SIT 52 billion which represents 12% growth compared to last year. Lek achieved SIT 3.12 billion of net profit last year which is a 12% reduction on the previous year, but at the same time, 27% higher than planned.

The year 1999 meant a negative departure from the business growth trends of previous years for Lek, because the company encountered limitations in several key markets. The result reflects the instability of the macro-economic environment in the CIS and South-Eastern Europe and a temporary stoppage of sales of finished drugs in the USA. The company, however, succeeded in achieving sales targets and exceeding profit objectives.

Last year Lek achieved higher sales growth by approximately 9% in the domestic market, while in our key foreign market, Poland, the growth amounted to almost 18 . As last year, the leading Lek product was Amoksiklav which experienced a sales surge in 1999, i.e. a 21 sales growth, thus significantly offsetting the reduction of exports to the USA. The volume of export which was achieved last year was only by 1% smaller in comparison with the previous year. This year Lek began selling Amoksiklav in the EU, starting in the Austrian market.

The financial statements for the year reflect the characteristics of business in 1999. Lek made SIT 3.65 billion of operating profit, a figure which is 2% higher than the year before, and SIT 4.26 billion profit on ordinary activities which represents a 33% increase compared to the result achieved the year before.

By carrying out a successful cost optimisation process Lek considerably reduced costs, thus contributing to a better-than-expected financial result for the company. In order to assure the long-term development of the company Lek increased investments in sales operations by 3% and investments in development by 15%. Investments in development encompass mostly new products which will be marketed globally, in traditional markets as well as in the USA and the EU. New products that were brought to the market contributed 5% to the sales growth.

Profit before taxation is SIT 3.86 billion, i.e. an 18% decrease compared to last year, while net profit is SIT 3.12 billion or 12% less than last year. Last year Lek made net profit which exceeded the planned figure by 27%.

In considering the net profit, the effect of the withdrawal of three finished products from the US market could not be completely made up. The Board of Management considers that in given business circumstances and considering market limitations this is a good business result.

In the year 2000 the business objectives of Lek will include above all growth in 5 key markets (Slovenia, Poland, Croatia, Russia the USA), sales of Amoksiklav in EU markets, a return to the US market with finished products, and successful operations of a new joint venture Sanofi~Synthélabo – Lek d.o.o. in the domestic market and the markets of former Yugoslavia. Lek will be more active in the Chinese market in 2000, because the registration of the product Tamicin (a cephalosporine antibiotic for the treatment of severe infections) was accepted. In the markets where Lek has affiliated companies increases in market share are planned.

The effectiveness of Lek business operations will be enhanced through a systematic selection of markets and products which offer stable returns. Investments will be mainly for the development of new products and consolidation of Lek’s market position. In 2000 11% of the turnover will be allocated for research and development.

The plan for this year includes re-establishing the business growth trend and proceeding with operations in line with the strategic objectives of the company.

The Lek Board of Management has decided to propose to the annual general meeting of shareholders that the company pays dividend this year. “Last year Lek actively tackled several negative factors in the wider economic environment. Employees as well as the owners contributed to this. This action will allow the company to take the right course to achieve the business plans which were set for the year 2000 and which will generate added value for the owners as well as the employees. The implementation of the cost-rationalisation measures was the basis for the consolidation of the company in 1999 and investment in achieving better results in future," Metod Dragonja, President of the Board of Management, commented.