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GEDEON RICHTER LT Gedeon Richter Ltd.
H-1103 Budapest, Gyömrõi út 19-21.
Phone: +36-1-431-4000, Fax: +36-1-260-6650, +36-1-260-4891 Email: posta@richter.hu, Internet: www.richter.hu Financial Highlights Letter to the Shareholders Corporate Governance Honorary President Board of Directors Supervisory Committee Information for Shareholders Management Report Female healthcare - competitive edge Research and Development Corporate Social Responsibility Financial Review Key Financial Data Capital Expenditure Corporate Matters The Company's Registered Shareholders Shares held by the Company in Treasury Share Remuneration of the Company's Board Other information Recent Litigation Unconsolidated Financial Statements Independent Auditors' Report Notes to the UnconsolidatedFinancial Statements Unconsolidated Financial Record 1992-2003 Consolidated Financial Statements Independent Auditor's Report


Earnings per share Dividends per ordinary share Notes: - Earnings per share: Headline, i.e. diluted excluding exceptional and non-recurring items.
- 2003 Dividens per ordinary share of HUF 440 are as recommended by the Board of Directors.


William de Gelsey Chairman of the Board of Directors I am very pleased to report a further year of growth for Gedeon Richter in2003. In particular the expansion of the US business was highly gratifying,which played an important role in the excellent financial results. Turnoverin the USA surpassed all other export markets for the first time in theCompany's history.
Satisfactory sales growth was also recorded in the EU, which pleased us inview of Hungary's EU accession on 1 May 2004. Gedeon Richter is well onthe way of becoming an important regional company with a strong empha-sis for quality within the required regulatory framework.


Although we were confronted with difficult markets in Hungary, includ-ing unfavourable regulatory and pricing environment, we achieved a sat-isfactory growth in turnover thanks to the special efforts of our salesand marketing teams.
Our international standing of steroid chemistry has contributed substan-tially to increased sales of gynaecological products, which represented30 percent of the Company's overall turnover. We are glad that we wereable to contribute once again to the improvement of women's quality oflife. We supply steroid active pharmaceutical ingredients to the US andsell a wide range of female healthcare products in our traditional mar-kets. In order to meet the ever increasing demand of steroid products wehave embarked on a major capital expenditure programme in 2003.
We are pleased to report that from 1 January 2004 as a result of certain capital expenditure, the Company expects to benefit from a further 100 per-cent tax holiday, having met all the established criteria.
On behalf of the Board, I would like to express my warm thanks for thecommitment, loyalty and enthusiasm of all the Richter employees both inHungary and abroad and which was also strongly supported by the ongo-ing confidence of our shareholders. We continue to strive to achieve ourlong-term targets of a profitable growth and delivering a satisfactoryfinancial return for our shareholders.
William de Gelsey Chairman of the Board of Directors


Gedeon Richter's key principles of Corporate Governance are to create and maintain satisfac-tory dialogue with shareholders, enhance shareholder value, differentiate the roles andresponsibilities of the Board of Directors, the Executive Board and the Supervisory Committee,and to operate the business in compliance with legal and regulatory requirements and withhigh ethical standards.
The General Meeting ranks as the highest decision making body of the Company, and compris-
es of all shareholders. Amongst its activities the Annual General Meeting decides on the adop-
tion of the annual financial statements and the appropriation of profit, the election or removal
of members of the Board of Directors and Supervisory Committee, the appointment of auditors,
amendments to the Articles of Association, changes in the Company's share capital and other
issues in its competence. At the Annual General Meeting of the Company a quorum exists if
shareholders, personally or through their representatives, representing over 66 percent of the
votes embodied by voting shares are present and have duly evidenced their shareholder repre-
sentative status. If an insufficient quorum, the General Meeting shall be postponed and will be
held regardless of the number of shares represented.
The Board of Directors is the ultimate decision-making body of the Company except with respect to
those matters reserved to the shareholders. The Board comprises Executive and Non-Executive Directors.
The views of all the non-executive directors are independent of management and free from any business
or other relationship which could materially interfere with the exercise of their independent judgement.
The offices of Managing Director and Chairman are held separately. The latter is elected amongst the
non-executive directors. The Board meets regularly, once a month, throughout the year. According to the
Articles of Association, it has a formal schedule of matters reserved to it for decisions. The Board works
to an agreed agenda in reviewing the key activities of the business and the Company's long-term strate-
gy and receives materials and presentations to enable it to do so effectively. The Company Secretary is
responsible to the Board and is available to individual Directors in respect of Board procedures. Board
members are elected at the AGM for a maximum term of 5 years. Two subcommities of the Board were
formed during 2004, which are to prepare and submit proposals contributing to the Board's decision
making process. Committees consist of at least three non-executive independent Board directors.
The Corporate Governance Subcommittee is responsible for considering and making recommenda-
tions to the Board concerning the appropriate size, function and needs of the Board. This responsibili-
ty includes: establishing the criteria for Board membership; conducting the appropriate inquiries into
the background and qualifications of possible candidates and it also considers matters of corporate gov-
ernance and reviews periodically our Corporate Governance Principles.
The Compensation Subcommittee is responsible for establishing annual and long-term performance
goals and objectives for our elected officers. This responsibility includes: making recommendations to
the Board of Directors with respect to cash-based incentive compensation plans and equity-based com-
pensation plans; and setting the compensation of the Managing Director.
The Executive Board is responsible for the executive management of the Company's business. The
Executive Board is chaired by the Managing Director. In order to maintain a sharp focus on strategic
management the committee comprises only the Executive Directors.
Overseeing the management of the Company is the Supervisory Committee. It meets every month dur-
ing the year in accordance with legal requirements and when necessary to access details of the
Company's operating activities. It submits proposals to the Board of Directors and discusses the
Company's strategy, financial results, investment policy and system of internal audit and control. During
its meetings, the Supervisory Committee is provided with regular and adequately detailed information
about the management of the Company. The Chairman of the Supervisory Committee may attend meet-
ings of the Board of Directors as an advisor. The members of the Supervisory Committee are elected at
the AGM for a maximum term of 3 years.
LAJOS PILLICH (91) Graduated from the Technical University of Budapest. Chemical engineer. With Richter since 1935 andwas Technical Director, managing production and technical development of Research andDevelopment from 1942 to 1976. Chairman between 1990 and 1999. Became Honorary Life Presidentin April 1999.
WILLIAM DE GELSEY (82) Senior adviser to the Managing Board of CA IB Corporate Finance Beratungs GmbH (a wholly ownedsubsidiary of Bank Austria-Creditanstalt) Vienna and London. Has over 45 years of international invest-ment banking experience. He also has significant banking experience in Hungary. A graduate of TrinityCollege, Cambridge. Joined the Board in 1995. Chairman since April 1999. Appointed Managing Director in November 1992. Chemical engineer, qualified economic engineer.
With Richter since 1970 in a number of Research and Development management positions.
Medimpex director in Mexico from 1977 to 1983. Managing Director of Medimpex UK from 1988to 1992. Member of the Board of MAGYOSZ, Head of Manufacturer Section.
DR LÁSZLÓ KOVÁCS (60) Appointed Deputy Managing Director with responsibility for Commerce and Marketing in 1990.
Economist, University doctorate in Economic Sciences. Formerly with Medimpex from 1966 to 1990,Secretary of the Commercial Section of the Hungarian Embassy in Sao Paulo, Brazil, 1975 to 1978.
DR GYÖRGY BÍRÓ (58) Legal adviser, specialising on economic law. Director of Industrial Association, Legal-International-Secretariat Directorate. Is member of Ethical Board of ConciliationCommittee of Interests. Joined the Board in 1998. GÁBOR BOJÁR (55) President and Founder of Graphisoft Software Development Ltd., established in 1982.
A physicist, graduate of Eötvös Loránd Tudományegyetem (ELTE) in Budapest.
Previously worked in the Geophysical Institute at ELTE. Has been a member of theBoard since 1995.
DR JENÕ KOLTAY (60) Economist, University doctorate in Economic Sciences. Director of Institute ofEconomics of the Hungarian Academy of Sciences. Visiting fellow and visiting professorat several Research Institutions and Universities. Joined the Board in 1998. CHRISTOPHER WILLIAM LONG (66) Career diplomat. Experience in the full range of diplomatic work including manage-ment, personnel, political and economic analysis. British Ambassador to Hungary from1995 to 1998. Joined the Board in 1998. DR GÁBOR PERJÉS (63) Medical doctor, urologist, nephrologist. Between 1966 and 1970 assistant at thePostgraduate Medical School, joining staff of the Tétényi street Hospital in 1970. Memberof Parliament from 1990 to 1994. Currently practising as a physician. Has been a memberof the Board since 1992.
RUDOLF TÓTH (39) Economist, financial/treasury expert. Managing director of Antenna-Tower Company Ltd.
from 1 July 2002. Became Board member in 1999.


DR LÁSZLÓ KOVÁCS (60) LÁSZLÓ GODÓ (59) Appointed Director and Deputy Managing Director since 1989. Responsible for Technical services.
Chemical engineer, economic engineer. Joined Richter in 1968; Director of Dorog site from 1976 to 1989.
DR GÁBOR GULÁCSI (46) Appointed Deputy Managing Director upon joining the Company in February 2000. Responsiblefor Finance. Economist, University doctorate in Economic Sciences. Previously General Secretary ofState, Ministry of Economic Affairs. ANDRÁS RADÓ (49) Appointed Director in 1995. Responsible for Production and Logistics. Deputy Managing Director since2000. Chemical engineer, economic engineer. With Richter since 1979 in a number of managementpositions. DR ZSOLT SZOMBATHELYI (47) Appointed Research Director in October 2000. Physician, graduated from the SemmelweissMedical University. With Richter since 1981, in a number of management positions. Director ofthe Representative Office of Medimpex Japan Co. Ltd. in Tokyo from 1993 to 1998. DR GYÖRGY THALER (45) Appointed Development Director in 1993. Chemical engineer, University doctorate in ChemicalSciences. With Richter since 1983 in a number of management positions. DR ATTILA CHIKÁN (60) Professor of the Budapest University of Economics and Public Administration, Business EconomicsDepartment; Manager of the Competitiveness Research Centre, doctor of the Hungarian Academy ofSciences. Between 2000 and 2003 Rector of the Budapest University of Economics and Public Administration.
From 1998 to 1999 Minister of Economy. Chairman of the Supervisory Committee since April 2000. JÓZSEF ERÕS (70) Qualified accountant, qualified tax adviser, qualified price expert. Previously Deputy Head of Accountingat the Ministry of Finance. Joined the Committee in 1991. VENCELNÉ SEDLÁK (51) Employee representative. Chemical engineer, quality system engineer qualifications. With Richter since1971. Head of Validation Department at the Quality Assurance Directorate from January 2000. Joinedthe Committee in 2001. DR MÁRIA BALOGH, JÁNOKINÉ (52) Economist with University doctorate in Economic Sciences. Executive Director at Magyar Hitelbank since1987. Deputy General Manager of OTP Bank since September 1995. Has been a member of theCommittee since 1990. DR GÁBOR SIMON KIS (64) Private pharmacist, economist, PhD in Economics. Head of Department at Ministry of Health from 1971to 1988, then Director of Institute of National Hospital and Medical Technology until 1995. Joined theCommittee in 1998. GÁBOR TÓTH (48) Employee representative. Chemical engineer, economic engineer. With Richter since 1980, currentlyresponsible for administration of the share register and representing the Company at the Budapest StockExchange (BSE) regarding domestic shareholders' issues. Joined the Committee in 1990. ZOLTÁN TÓTH (36) Employee representative. He has a degree in Biology and Management. With Richter since 1996, at present ProjectManager at the Development Department. Joined the Committee in April 2003. Changes occurred within the Company's Board during 2003 At the Annual General Meeting on 28 April 2003, the following were appointed to the Supervisory Committee: Supervisory Committee Elected: Dr Dénes Aparácz, Mr Zoltán Tóth Dr Attila Chikán, Mr József Erõs, Dr Mária Balogh, Jánokiné, Dr Gábor Simon Kis, Mr Gábor Tóth, Ms Vencelné Sedlák In addition, on 28 April 2003 Dr Attila Chikán was re-appointed Chairman of the Supervisory Committee.
Mr Dénes Aparácz, former member of the Supervisory Board, resigned from his position on 31 May 2003.
The Annual General Meeting will be held at 15.00 and if an insufficient quorum, at 16.00 on 28 April 2004at Budapest 1143, Stefánia út 34. The Company reports formally to shareholders four times a year, as its quarterly non-audited results areannounced, and publishes its Annual Report including audited figures by the date of the Annual GeneralMeeting. The AGM of the Company takes place in Budapest and formal notification is sent to shareholders atleast four weeks in advance. At the Meeting a business presentation is made to shareholders by the ManagingDirector, and all Directors are available during the meeting for questions.
The Managing Director and the Investor Relations Manager maintain a dialogue with institutional shareholders onCompany plans and objectives through a programme of conferences, regular meetings, conference calls and road-shows. The representatives of the IR Department of Gedeon Richter Ltd. participated at 4 international conferencesand 7 roadshows in Europe and the USA in 2003. Gedeon Richter's management held 60 meetings for approxi-mately 146 fund managers and analysts at its headquarters presenting the Company's business progress and finan-cial results. Numerous conference calls were organised during the year, primarily following the publication of thequarterly reports and occasionally following announcements related to the Company's operating activities. "Global Pharmaceutical, Biotechnological & 5-7 February 2003 Medical Device Conference" (2003: Innovation Still Counts)
IR Magazine
"IR Magazine Central Eastern European Conference & Award" 17 September 2003 Erste Bank
"Investor Relations Conference" 30 September - 3 October 2003 "5th Annual Central European Investment Forum" 25-26 November 2003 6-7 February 2003 20-21 February 2003 London, Edinburgh 10-12 September 2003 Boston, New York, San Diego, San Francisco 22-26 September 2003 The Company completely renewed during the year both the Hungarian and English versions of its website(www.richter.hu). This now includes a new folder meeting the specific stated needs of investors and analystsconcerning information on Richter's business operations. The Company's Investor Relations Department, withits office in Budapest, continues to act as a focal point for contact with institutional shareholders.
Unaudited Financial Statements of Gedeon Richter Ltd. are published on a quarterly basis within 45 days of theperiod end in English and Hungarian.
Contacts to the Investor Relations Department (International Finance Department): Phone: The table below contains the list of analysts who provided regular coverage about Gedeon Richter Ltd. in 2003: Mr József Miró Ms Mariann Trippon Mr Gergely Várkonyi Mr Paolo Zaniboni Mr Robert Bonte-Friedheim Ms Orsolya Rátkai Ms Krisztina Kovács Ms Vladimíra Urbánková The net profit for the year amounted to HUF 33,678 million (US$ 150.3 million) which resulted in 'Headlineearnings per share' of HUF 1,807 per share (US$ 8.07 per share). The company describes as 'Headline earningsper share' the diluted earnings per share following adjustment to exclude exceptional and non-recurring items.
The weighted average number of total shares outstanding during 2003 was 18,637,486.
In accordance with the dividend policy implemented by the Company, the Board of Directors recommends thepayment of 25 percent of net profit calculated according to HAR (Hungarian Accounting Requirements) for 2003.
Dividends approved by the shareholders of the Company at the Annual General Meeting held on 28 April 2003totalled HUF 6,145 million (US$ 24.1 million) in respect of 2002. The portion payable in relation to ordinaryshares was HUF 6,143 million (US$ 24.1 million) or HUF 330 per share, 33 percent of the nominal share value;the portion payable in relation to preference shares was HUF 2 million or HUF 120 per preference share. Therecord dates for these dividend payments were announced on 24 June 2003 with payments having commencedon 23 July 2003.
The performance of the Budapest Stock Exchange showed a marked strengthening during 2003, the BUX indexhaving increased by 25 percentage to 9,914 points at 31 December 2003 from its January value (7,914 pointsat 2 January 2003). However it underperformed most of other indices in the Central and Eastern Europeanregion. The Gedeon Richter share price significantly outperformed the BUX and by the end of the year was ashigh as 70 percent (HUF 24,555 at 31 December 2003) higher compared with its January price (HUF 14,845 at2 January 2003), with a yearly high of HUF 27,000. Gedeon Richter shares traded on the SEAQ have alsooutperformed Pharma indices linked to the FTSE index family. See the below charts for a brief comparisonof Gedeon Richter share price performance and index movements during 2003.
GEDEON RICHTER SHARE PRICES AT THE BUDAPEST STOCK EXCHANGE COMPARED TO BUX AND CETOP20 INDICES Notes:• BUX index constituents are (as of 31 December 2003): Antenna Hungária, Borsodchem, Danubius Hotels, Démász Ltd., Egis Rt., Richter Gedeon Ltd., Mol Ltd., MATÁV, OTP Bank, Pannonplast Ltd., RÁBA, Synergon, Tiszai Vegyi Kombinát • CETOP20 index (Central European blue chip index) constituents are (as of 31 December 2003): Bank Pekao SA, Borsodchem, Komercni Banka, BPHPBK, CEZ, Egis Rt., Erste Bank STK, Richter Gedeon Rt., KGHM, Krka DD, Mol Rt., MATÁV,Netia, OTP Bank, Prokom Software, PKN Orlen, Pliva DD, Cesky Telekom, Telekom Polska, Unipetrol GEDEON RICHTER SHARE PRICES ON THE SEAQ COMPARED TO FTSE 350 PHARMA AND EUROPHARMA INDICES Richter on the SEAQ Notes:• FTSE 350 Pharma index constituents are (as of 31 December 2003): Acambis, Astra Zeneca, Celltech Group, Galen Holdings, Glaxo SmithKline, Shire Pharma Group, Skyepharma.
• Europharma index constituents are (as of 31 December 2003): Altana, Astra Zeneca, Aventis S.A., Glaxo SmithKline, H. Lundbeck, Novartis, Novo-Nordisk, Roche Holding, Sanofi-Synthelabo, Schering AG, Serono, Shire Pharma, UCB S.A.
The Company's market capitalisation almost doubled during 2003, reaching a value of US$ 2,199 million by theend of the year (calculation based on SEAQ share price). The year-on-year increase partly reflects the weaken-ing of the US$ against the HUF.
*Calculations based on the SEAQ share pricesand the total number of All data calculated as of 31 December prices The Company reported excellent results in 2003 primarily due to dynamic growth recorded in the US market asa result of steroid API supply agreements. It appears that the expanding US business including the ongoingstrategic cooperation with Barr Laboratories and the long term agreement with Johnson & Johnson as well asthe newly concluded agreement with IVAX further strengthened positive investors' perceptions of the Company.
Neither the unfavourable movements in the HUF/US$ exchange rate, nor the uncertain market conditions inHungary offset investors positive perceptions regarding the overall development of the Company's business.


We are pleased with the substantial progress made by the Company in 2003 partic-ularly as it followed excellent results achieved in 2002. Growth was generated inevery key area of our business.
• One of our primary objectives remains to expand our business in the field of female healthcare. Our competitive advantage - sophisticated steroid chemistry
knowledge, special active pharmaceutical ingredient (API) process development
know-how, cost effective large-scale production and manufacturing facilities
which are in line with the most up to date quality standards - provide a strong
basis for the expansion. With this competitive advantage, which gives a specialty
nature to the Company, we have been able to establish long-term supply agree-
ments with major multinational companies and those specialising in women's
healthcare products.
In order to progress further on our objective we are making considerable effortsto broaden the partnership base and / or further increase the co-operation withinour existing partnership agreements. We are pleased to report that considerableprogress was made during the year in both areas.
Managing Director The long-term strategic partnership established in 2002 with Barr Laboratories, Inc.
was further strengthened during 2003. We started to supply steroid active phar-maceutical ingredients for three of their products in addition to the existing fivefor which we have already supplied APIs. Additionally, Barr has signed a letter ofintent in October 2003 to acquire the marketing rights for the emergency con-traceptive PLAN B from Women's Capital Corporation, a current partner ofRichter. Barr also applied to the US FDA for OTC status of this product.
Steroid API shipments for the contraceptive patch of Johnson & Johnson werecontinued. Johnson & Johnson launched this product in certain EU countries dur-ing the year.
Gedeon Richter also markets a range of oral contraceptives in both bulk and fin-ished form to the EU countries, to our traditional markets and also to certaindeveloping countries. In the EU, similar to the USA we work via partners, whilein the CIS and CEE we market these products through our own well establishedand specialised sales network.
Our aim is to offer a full range of women's healthcare products and to achievethis we license in products on a selective basis. Registration procedures wereongoing during 2003 in the case of HRT patches (FEMSEVEN, FEMSEVEN PLUSand FEMSEVEN COMBI) licensed in from Merck KgaA and the antifungalGYNAZOL licensed in from KV Pharmaceutical.
• A significant proportion of the steroid based gynaecology products are sold in the USA market, which is a strategic focus of our Company in respect of
future development. We made considerable efforts to expand our business in
the USA both in the field of steroid APIs and generic business. Besides the co-
operation mentioned above our Company signed an agreement with another
USA based corporation, IVAX, and this is expected to provide a framework for
joint development activities in the generic business with patent expirations of
2007 onwards.
Continued generic sales showed positive results in the USA as higher salesof lisinopril and spironolactone and steady sales of famotidine contributedto the excellent results reported.
• 2004 will be an exciting and challenging year for both our country and our com- pany as with effect of 1 May 2004 Hungary will become a member of the
European Union. We started to prepare for the potential EU accession several
years ago. In our view this final step won't have a major impact on our Company's
activities. We have already completed the required product registration work,
upgraded our facilities to comply with EMEA (European Agency for the Evaluation
of Medicinal Products) standards and adopted strict environmental measures.
During the past few years we have successfully built a well established partnership
base in the EU. We are confident that we will be able to further strengthen these
relationships and our presence on EU markets.
• Although the main growth drivers have been the USA, EU and the domestic mar- ket during the past few years, we still consider the expansion in CIS and CEE as an
important element of our business strategy. Our tradition, experience and depth of
knowledge combined with our well established and specialised sales networks cre-
ate a competitive advantage in an increasingly competitive environment. In order
to strengthen our position in CEE we have made certain selective acquisitions. The
Management established a three year plan which aims to harmonise the activities
of our subsidiaries, notably Gedeon Richter Romania, GZF Polfa, which we acquired
in 2002, and Gedeon Richter-RUS, a greenfield investment in Russia.
Following the acquisition of the Polish company we have started to evaluate thecurrent conditions at our subsidiary and implemented a restructuring programmein 2003. This includes product re-registrations in order to meet the ever increasingregulatory standards, an increase of promotional activities and the introduction ofthe specialisation of the sales force team and the product manager system, reviewand analysis of the product portfolio. We have also started some investment proj-ects in line with our capital expenditure obligation stipulated in the PrivatisationContract.
• Notwithstanding the difficult and unpredictable market conditions our Company achieved excellent results in 2003 in Hungary. The restrictive position which was
adopted by the Government in 2002 in respect of industry wide pricing and reim-
bursement prevailed in 2003. Given the difficulties of operating in such an
unfavourable environment, we are very pleased with the performance of our sales
force teams. Due to their efforts we achieved very good sales growth, although
this was partly helped by some stock piling at wholesalers in anticipation of price
increases which occurred during the year.
• In order to meet both the ever increasing quality standards and the increasing demand of our partners, primarily in the field of the gynaecology business we
started new capital expenditure projects in 2003. In addition to a major ongo-
ing project which aims to support the expansion of the Company's business in the
USA and EU markets which is the transfer of production of steroid active ingredi-
ents from Budapest to the Dorog site, in 2003 we started to implement a further
increase of steroid manufacturing capacity. The upgrade of the injectable plant
was completed in 2003. In order to remain competitive we know that we have to
employ talented scientists in R & D and provide them with a state-of-the-art envi-
ronment in which they can effectively use their knowledge. Following the recon-
struction of the Pharmacology building in Budapest, plans for construction of a
new chemical research centre were also completed in 2003.
• Despite the unfavourable impact of the volatile currency movements and notwith- standing one-off type technical elements we successfully managed to maintain
both gross and operating profit margins at reasonable levels during the year.
This was primarily the result of a significant improvement of the product portfolio
both in the USA bulk business and on our traditional generic markets.
We begin another year with enthusiasm. We moved ahead with the agendafocused on our key strategic initiatives. By building on our strengths, we will meetthe challenges of the years ahead while contributing, as we always have, to thehealth and well-being of people. We recognise the enormous dedication, loyaltyand knowledge of employees. We are grateful for their efforts and continued con-fidence of you, our shareholders.
Managing Director Following on from several successful years it is pleasing to report on the Company's excellent per-formance in 2003. Sales in 2003 amounted to HUF 116,659 million (US$ 520.8 million) represent-ing 17.5 percent (33.8 percent in US$ terms) growth over the previous year. The USA and theHungarian markets were primarily responsible for the substantial growth reported. EU, USA and other markets 38,738 Central and Eastern Europe Central and Eastern Europe The unfavourable trend of the macroeconomic environment in Hungary continued in 2003, GDP growth was lower than anticipated while the fiscal deficit increased thereby significantly generating balance of paymentproblems. Financial measures were taken by the Government and the Central Bank during the year. Theseincluded an upward change to the parity of the target HUF/EUR band and an increase of the standard rate ofinterest several times in 2003. Besides fluctuations to the exchange rates, both US dollar and the Euro relativeto the Hungarian forint underwent unpredictable market conditions.
The domestic pharmaceutical market was also characterised by uncertain conditions during the year. Following extended negotiations which started in 2002 the Ministry of Health with effect from 1 February 2003 introducedprice changes for reimbursed pharmaceutical products. Another price increase for reimbursed products with alower than HUF 600 per box price level occurred from 1 September 2003. In respect of non-reimbursed prod-ucts including the over-the-counter (OTC) drugs, the Company increased prices twice during the year: witheffect from 1 April 2003 and from 1 October 2003. In consequence of the anticipated price increases, stock-pil-ing at wholesalers occurred in 2003. Additionally, according to EU regulations, a 5 percent VAT was introducedfor pharmaceutical products in Hungary from 1 January 2004, and this resulted in some additional stock-pilingduring the fourth quarter 2003.
The Government exceeded its budget in mid 2003 in respect of subsidies for pharmaceutical products.
Following extensive negotiations between the Government and the pharmaceutical manufacturers, GedeonRichter signed an agreement with the National Health Insurance Fund in August which provided a temporarysolution in respect of reimbursement regulations for the second half of 2003. According to the agreement, theCompany paid approximately HUF 700 million contribution to the National Health Insurance Fund. This paymentwas based on the excess over the reimbursement budget allocated for Richter products for the period between1 September 2003 to 31 December 2003. This amount is considered to be a one-off payment and all pharma-ceutical manufacturers are determined to avoid any replication of such a contract in the future.
Following publication in the official gazette by the Government, Gedeon Richter launched two new drugs dur- ing 2003. Considered as a further step in renewing and enhancing the Company's female healthcare line, a newthird-generation oral contraceptive LINDYNETTE, containing gestodene, was introduced in Hungary during thethird quarter. Gedeon Richter Ltd. and Biogen International BV signed during the first quarter 2003 an agree-ment relating to the marketing of Biogen's multiple sclerosis drug, AVONEX (recombinant human interferonbeta-1a). According to the agreement, Gedeon Richter Ltd. has exclusive marketing and distribution rights toAVONEX for a five-year period in Central and Eastern Europe including Hungary. The distribution of the prod-uct started during the first quarter. Both products showed promising results. Increased efficiency by our expanded and specialised sales force teams played a key role in the reported Company's sales growth, especially in case of the new products.
The good performance on the domestic market, which amounted to HUF 34,050 million in 2003, 13.5 percent higher than in 2002 and US$ 152.0 million reflecting a significant growth of 29.4 percent in dollar terms, wasled by the sales of the Company's new drugs, launched since the early 1990's, in 2003. One of our primary objec-tives is to enhance our product portfolio. Progress by the Company in increasing sales of new products contin-ued in 2003, when products launched since the early 1990's represented 66 percent of Richter's domestic sales. Successful sales of the antihypertensive NORMODIPINE (amlodipine) which has become the largest product not only within the Company's portfolio but also on the whole Hungarian pharmaceutical market continued at theirprevious excellent level during 2003. This was the principal contributor to Gedeon Richter's sales growth reported.
According to IMS statistics for 2003 NORMODIPINE sales represented 57 percent share of the amlodipine market.
A positive performance by sales of oral contraceptives (various hormones) and the growth of QUAMATEL(famotidine) together with the anti-inflammatory AFLAMIN (aceclofenac) launched in 2001, the multivitaminCENTRUM (multivitamins) and other OTC licenced-in products also boosted the Company's reported sales.
Based on the latest available market audit (IMS) data for the twelve months to December 2003, Gedeon Richter Ltd.
maintained its market leadership position with an 8.6 percent market share.
2003 2002
Central Nervous System Exports amounted to US$ 368.8 million in 2003, a substantial increase of US$ 97.2 million or 35.8 percent over2002. Sales to EU, USA and other markets increased 45.4 percent, an excellent performance which was a keydriver of the strong growth reported. Almost 50 percent of our export sales were realised in this region led bythe expanding steroid API sales to the US market. Sales to Central and Eastern Europe (invoiced in euros andreported in US$) also increased significantly, 33.8 percent, while good growth of 24.8 percent in the CIS alsocontributed to the higher sales levels reported.
Total top 10 markets
Share of the top markets
2003 2002
Central Nervous System NORMODIPINE amlodipine EU, USA and other markets significantly outperformed the Company's other regions during the year. Salestotalled US$ 172.9 million in 2003, an excellent increase of US$ 54.0 million, or 45.4 percent when comparedto the previous year. This region, the USA and EU markets in particular, contributed strongly to the recordexport sales levels reported in 2003. Sales growth of 60 percent was achieved in the USA while in the EU salesgrowth of 64 percent was recorded (38 percent in euro terms). Total 172.9
As one of the Company's primary objectives has been and remains to expand its business in the field ofwomen's healthcare, it is pleasing to report that sales of gynaecological products represented 56 percent oftotal EU, USA and other markets sales, with excellent 57 percent growth year-on-year.
Product Active
licenced in
Multiple sclerosis human interferonbeta-1a KV Pharmaceutical ProdesfarmaMerck KgaA Hormone Replacement Healthcare, Inc.
Lek d.d.
(API, active pharmaceutical ingredients)Finished products The excellent reported performance results primarily from management's successful efforts to expand theCompany's business with a niche portfolio in the competitive US market. Turnover in the USA surpassed Russiafor the first time in the Company's history. Significantly increased API sales to the USA totalled US$ 89.5 millionduring 2003, and now represent 70 percent, compared with 63 percent in 2002, of the Company's total APIsales. Substantially increased sales of steroid active pharmaceutical ingredients to the USA were primarily respon-sible for the positive sales levels reported and these represented 85 percent of total US API sales. The positive trend primarily reflects the results achieved from the Company's strategic partnership withBarr Laboratories, Inc., the second largest player by cycles / the third largest player by value of the currenthormonal contraceptive market in the US market. Gedeon Richter Ltd. currently supplies steroid APIs foreight of Barr's oral contraceptive products.
SALES COMPARISON: USA AND RUSSIA According to the long-term strategic partnership agreement, Barr will distribute and market fluconazole tabletsfollowing the expected patent expiry in mid 2004. Gedeon Richter has received tentative approval from the U.S.
Food and Drug Administration (FDA) to market its generic antifungal tablet containing fluconazole. This enablesthe Company to prepare for the launch of its first finished generic supply to the US market which is expected tooccur during the second half of 2004.
Brand name
Launch date
Original
of product
brand name
Barr's own development Additionally, Barr signed a letter of intent on 2 October 2003 to acquire the marketing rights for the emergencycontraceptive, PLAN B from Women's Capital Corporation, a current partner of Gedeon Richter. As one of the lead-ing pharmaceutical companies in the female healthcare market with an efficient sales and distribution network,Barr is expected to have the ability to slightly expand sales of the product. Barr Laboratories also applied in thelast quarter of 2003 to the FDA for OTC status of the emergency contraceptive product. Barr's request is currentlyunder review at the FDA. These steps are considered as further links which strengthen the co-operation and partnership between the twocompanies.
Gedeon Richter has also signed a long-term supply agreement with Johnson & Johnson. Increased steroid APIshipments to Ortho-McNeil, a Johnson & Johnson subsidiary focusing on female healthcare primarily related to theircontraceptive patch, also contributed to the significant year-on-year sales growth reported. Johnson & Johnsonlaunched the product in the USA in April 2002 and in certain EU countries during the second half of 2003.
Continued higher sales of generic products, particularly lisinopril and famotidine were also significant contribu-tors to the excellent results achieved in the USA in the reported year.
In line with the Company's strategy to expand further its partnership base in the USA, Gedeon Richter and IVAXCorporation, a US-based company, have entered into an agreement. A number of generic products will be devel-oped and registered by Gedeon Richter and IVAX will distribute and market those products in the US.
The outstanding performance of Gedeon Richter on the EU markets in 2003 was generated by both the genericfinished and bulk shipments and the gynaecological business. Following its patent expiry in early March 2003,the Company started to supply the antifungal fluconazole capsules to several EU-countries, notably Germany,the UK, Denmark, Finland, Austria and Portugal. Other generics, especially the antihypertensive lisinopril andenalapril shipments to EU markets, also contributed to the positive results. A positive performance by our emer-gency contraceptive product, LEVONELLE-2, which is marketed and distributed by Schering AG, together withother, finished-form and API contraceptives were also responsible for the sales growth recorded.
As a result of the recent trends in both the USA and EU, the proportion of other markets within the regionbecame smaller. However, famotidine shipments to Yamanouchi Pharmaceutical Co., Ltd., Japan, sales of emer-gency contraceptive POSTINOR and other second- and third-generation oral contraceptives to Brazil and othercountries and sales of the cardiovascular PANANGIN (asparaginates) to China continued in 2003 and are expectedto generate further growth in the future.
2003 was a year of significant success for the Company as indicated by higher than market average growth and itssales levels surpassed the turnover achieved in 1997, the previous peak year in the Company's CIS history. Sales tothe CIS in 2003 totalled US$ 115.9 million, an increase of 24.8 percent compared to 2002.
Sales to Russia totalled US$ 78.4 million for 2003, 17.2 percent higher than in 2002. During the year the economicenvironment was favourable in Russia due to the high level of oil prices and the stable rouble exchange rate whichresulted in an increase in the level of real wages. General market conditions are expected to be further improved asa result of the positive impact of the Parliamentary elections held in the fourth quarter of 2003 and the Presidentialelections planned to be held in the first quarter of 2004.
Sales growth was reported throughout most of the product portfolio. CAVINTON continued to show good resultsduring 2003, primarily due to the good performance of CAVINTON FORTE, a new presentation of the Company's orig-inal compound. It is pleasing to report that DIROTON (lisinopril), NORMODIPINE (amlodipine) and MYCOSYST(fluconazole) which were launched in the last couple of years, significantly contributed to the growth reported.
Performance of the range of oral contraceptives also positively affected the results achieved.
The Company continues to consider its payment terms as a key element of its Russian business and has maintainedits previously established credit terms. Sales to Ukraine amounted to US$ 17.3 million in 2003, 38.4 percent higher than in 2002. As a result of the positiveimpact of the Russian economy, market conditions have improved in Ukraine. The successful performance reportedwas due to both traditional and new products such as the range of oral contraceptives, DIROTON and PANANGINcontributing significantly to the good results.
Excellent sales in other republics totalled US$ 20.2 million during 2003, representing an outstanding 50.3 percentgrowth over 2002 and an even higher proportion within the Company's CIS turnover. The most notable sales andsales growth were recorded in Uzbekistan, Belarus and Kazakhstan. The latter became one of the Company's largestselling export markets with sales level of US$ 9.1 million.
Good overall sales growth was achieved and the Company outperformed the market average. The most substantialgroup of the portfolio, sales of oral contraceptives represented 14 percent of total CIS sales in 2003. As an important part of the Company's organic growth strategy we increased our promotional activities, furtherexpanded our sales force teams and continued the specialisation of the sales force during 2003. We are pleased toreport that as a result of the efficient work of the sales staff the proportion of those products launched since the mid1990's continued to outperform significantly the Company's average in this region and represented 25 percent oftotal CIS sales in 2003 compared to the 19 percent in 2002.
Brand name
recombinant human interferon beta-1a Multiple sclerosis Sales in Central and Eastern Europe, invoiced in euros and reported in US$ totalled US$ 80.0 million in 2003.
The reported 33.8 percent (12 percent in euro terms) growth on prior year resulted from a positive perform-ance in all countries in the region, most notably in Poland, Slovakia, the Baltic States and the Czech Republic.
Although no significant economic or political changes occurred in any of the countries, the Company had toface challenges as a result of changes in reimbursement systems, reimbursement budget restrictions, paymentproblems at hospitals, delayed publishing of prices and new product launches during 2003. Consequently, theenhanced role and activity of our expanded and specialised sales force teams were considered even moreimportant and their increased efficiency and efforts contributed strongly to the higher sales recorded.
During 2003, the Company's largest market in the region, Poland recorded sales of US$ 25.2 million (excludingshipments to GZF Polfa), representing a substantial 22.4 percent growth over the prior year. This was primarilydue to higher sales of the range of oral contraceptives together with the good performance of the muscle relax-ant MYDOCALM. Higher sales of CAVINTON, the diuretic VEROSPIRON (spironolactone) and DIROTON (lisinopril)also contributed to the sales growth reported. Our subsidiary, GZF Polfa reported non-consolidated sales of US$ 33.5 million in 2003. The Company's good performance in the Czech Republic continued during 2003.
The 23.2 percent year-on-year sales growth primarily resulted from good results of the range of oral contracep-tives, VEROSPIRON and the antihypertensive NORMODIPINE. In the Baltic States the Company achieved significant 42.1 percent sales growth during 2003. The range of oral contraceptives, NORMODIPINE, the antifungal TERBISIL(terbinafine), and DIROTON were primarily responsible for the sales growth reported. In Slovakia the Companyreported an excellent 57.1 percent growth in sales in 2003 primarily due to the success of those productswhich were launched during the last couple of years. Higher sales resulted particularly from the multiple scle-rosis drug, AVONEX and NORMODIPINE, CAVINTON and DIROTON. In Romania the Company reported ahealthy growth of 24.1 percent despite relatively poor economic conditions and serious payment problems.
The good performance as in other countries in the region was due to higher sales of the range of oral con-traceptives, the muscle relaxant MYDOCALM and VEROSPIRON. Our subsidiary, G.R. Romania S.A. reportednon-consolidated sales of US$ 7.2 million in 2003, representing a 33.3 percent growth over 2002. In Bulgariathe Company reported significant 43.1 percent sales growth, resulting primarily from higher sales of NEW PRODUCT LAUNCHES DURING 2003 Brand name
recombinant human Multiple sclerosis interferon beta-1a Gynaecology, Hormone,Replacement Therapy Gynaecology, HormoneReplacement Therapy Gynaecology, HormoneReplacement Therapy Gynaecology, HormoneReplacement Therapy Gynaecology, HormoneReplacement Therapy Gynaecology, HormoneReplacement Therapy CAVINTON, oral contraceptives, DIROTON and QUAMATEL. In Vietnam outstanding sales growth of 32.7 percentwas also recorded, although from a relatively low base which in turn was related to economic difficulties.
Sales growth of oral contraceptives, the most substantial product group in CEE was 36 percent in US$ termsyear-on-year. These products represented 24 percent of total CEE sales in the reported period. As part of the Company's organic growth strategy, we continued to expand our specialised sales network andlaunch new products in the region during 2003. The proportion of those products which have been launchedsince the mid 1990's has been growing rapidly in recent years and represented 28 percent of total sales in2003 compared to 24 percent reported one year ago.
The manufacture of gynaecological products by Gedeon Richter Ltd. goes back all the way to the foundation ofthe Company in 1901. In the spirit of this tradition, in additional to oral contraceptive product portfolio servingwomen's health care and helping them attain a higher quality of life has been supplemented in the new milleniumwith hormone replacement therapy products, building on the experience and know how gained in the course ofsteroid production.
In harmony with its tradition for innovative efforts, the Company has pursued coordinated development in thefield of steroid chemistry for several decades. As a result, research, development and production of steroid agentsand hormonal contraceptives have recently gained strategic importance and Gedeon Richter became one of thefew producers of steroids in the world.
As part of its traditional innovation activity, in the past decade the Company has set up research and productionfacilities that meet the expectations of even the most demanding US and EU markets. By the turn of the milleniumsubstantial sums had been invested primarily in the overhaul and modernisation of the instrumentation involved inresearch and development, in quality assurance and control and in increasing the efficiency of production.
In 2000 a new tablet-compressing facility with a yearly production capacity of 2 billion tablets was installed withinthe Budapest factory for the manufacture of gynaecological products. Similar facilities are operated only by afew multinational companies worldwide. Moreover, a steroid production facility meeting latest production andenvironmental requirements in all respects has been established at the Dorog unit. The new facilities are supple-mented with modern pilot plants ensuring that production of both active pharmaceutical ingredients and finishedproducts is carried out according to current Good Manufacturing Practice (cGMP) at an early stage of develop-ment. These large investments are instrumental in enabling the Company to manufacture high quality productswhich satisfy the increasingly demanding official regulations for any market in the world. In order to validate com-pliance with official regulations on the whole production, Richter facilities are regularly inspected not only by theHungarian authorities (National Institute of Pharmacy) but also by the FDA (Food and Drug Administration) of theUSA and several other quality controlling institutions appointed by various Western European companies. Richterproduction facilities meet even the highest quality requirements.
MAIN ORAL CONTRACEPTIVES OF GEDEON RICHTER Brand name
Regions where launched(2)
Hungary; CIS; CEE; EU, USA and other markets Hungary; CIS; CEE; EU, USA and other markets Hungary; CIS; CEE; EU, USA and other markets Hungary; CIS; CEE; EU, USA and other markets Hungary; CIS; EU, USA and other markets Hungary; EU, USA and other markets Hungary; CIS; CEE EU, USA and other markets Hungary; CIS; CEE; (RIGESOFT in Hungary, EU, USA and other markets LEVONELLE 2 in the EU, PLAN B in the USA) (1) In case of all products: plus ethinyl estradiol.
(2) Products are launched in certain countries of the given region.
In Hungary Company experts manufacture hormonal preparations, a much more complex and longer process thanproduction of any other pharmaceutical products assisted increasingly by computer controls which monitor eachand every step of the production including such as addition of the active ingredient, granulation, homogenisa-tion, tablet compression, sugar and film coating. Gedeon Richter Ltd. is a gynaecological product manufacturer of international renown. The international reputationand success of the Company are primarily due to its oral contraceptives. The aim of the Company remains to provideaccess to its gynaecological products for as many women as possible worldwide. The competitiveness of theCompany is based on and guaranteed by the widely appreciated knowledge of its employees in the field of steroidchemistry, their special experience in product development as well as by the high-capacity, cost-effective production,all of which enable the Company to continue increasing its share in the market of gynaecological products.
Gynaecological products, led by a wide range of oral contraceptives, accounted for 30 percent of total sales andshowed an excellent 43 percent increase over 2002 reported sales levels. Sales of gynaecological products grew by an outstanding 57 percent in EU, USA and other markets and repre-sented 56 percent of the Company's sales in this region primarily due to the success of long-term supply agree-ments on the US market. Substantially increased sales of steroid active pharmaceutical ingredients (APIs) repre-sented 85 percent of total US bulk sales. To a large extent, this positive trend is due to and expected to be strengthened by the Company's strategic part-nership with Barr Laboratories, Inc. Gedeon Richter Ltd. currently supplies steroid APIs for eight of Barr's oral con-traceptive products, the list of which is described in the Markets chapter. It is expected that the co-operationbetween the two companies will be further extended, as Barr Laboratories signed a letter of intent on 2 October 2003to acquire the marketing rights for the emergency oral contraceptive, PLAN B from Women's Capital Corporation,a current partner of Gedeon Richter. Barr Laboratories also applied in the last quarter of 2003 to the FDA for OTCstatus of the emergency contraceptive product. The request is currently under review at the FDA.
Shipments to Ortho-McNeil Pharmaceuticals, Inc, a Johnson & Johnson subsidiary in the USA which specialises infemale healthcare also significantly contributed to the high level of steroid API sales. Continued sales of the con-traceptive patch launched in the USA in April 2002 and in certain EU countries during the second half of 2003and for which the Company supplied steroid API have been a key driver of the reported sales growth. In line with our strategy to expand our gynaecology business we continued to supply our partners both secondand third generation oral contraceptives in the EU and other markets. Under a long-term supply agreement withthe Company, Schering AG successfully distributed and marketed LEVONELLE-2, the levonorgestrel-only emer-gency contraceptive product and achieved a positive performance in EU countries. The most important countrywithin other markets where substantial oral contraceptive shipments were supplied was Brazil.
An excellent 34 percent sales growth of female healthcare products was reported in 2003 in the Central andEastern European region reflecting the favourable impact of the efficiency of the specialised sales force teams setup in 2000. This product group represented 27 percent of total Central and Eastern European (CEE) sales. In theCIS sales of gynaecological drugs represented 21 percent of the Company's total sales in this market. We considerit most likely that per capita use of oral contraceptives in Central and Eastern Europe and in the CIS will rise steadilyin the next few years, as it is currently at a significantly lower level than in the EU countries and in the USA. Share within
Sales growth
region sales
EU, USA and other markets In line with the Company's aim to offer a full range of women healthcare products, we enhanced our hor-mone replacement therapy portfolio by three hormone replacement therapy products: FEMSEVEN, FEMSEV-EN PLUS and FEMSEVEN COMBI licensed in from Merck KgaA in addition to the already existing PAUSOGEST,TRIAKLIM and ESTRIMAX.
Gedeon Richter as a medium sized independent pharmaceutical company in Central Europe, has to find thera-peutic areas in which it has competitive advantage in order to remain competitive in a challenging environ-ment. Based on its special chemistry and process development knowledge the Company is focusing on femalehealthcare and as far as its original research is concerned on the field of Central Nervous System (CNS). Beyondthese two areas, Gedeon Richter is experienced and successful in developing products in other therapeuticfields, such as cardiovascular and gastrointestinal.
The product portfolio by product type has remained relatively steady for a number of years. In 2003 15 percentof total sales was generated by products originating from the Company's original research and an increasedshare of 74 percent was accounted for by reproduction and generic products in 2002. A further 11 percent ofthe sales revenue was attributable to products licensed from numerous international companies.
One of the Company's primary objectives is to supply both the domestic and export markets with high quality prod-ucts that meet world-class standards. The Company has successfully enhanced its product portfolio since the early1990's and it continues to do so, withdrawing low volume and low margin products and introducing new productswith improved profit potential. Progress by the Company in increasing sales of new products continued in 2003, asproduct launches since the early 1990's represented 42 percent of the Company's total sales in 2003. Analysing the different market segments, the highest proportion of new product launches was recorded inHungary, where they represented 66 percent of domestic sales. Due to the relatively extended registration pro-cedures in CEE and CIS and different market characteristics the proportion of these products is lower comparedto Hungary. This proportion however has been growing rapidly in CEE during recent years and represented28 percent of total sales in 2003, while in the CIS region this product group accounted for 25 percent. Dueto the continued supply of generic and gynaecology products both to the USA or EU markets, sales arisingfrom new product launches represented 40 percent of the Company's turnover in this region.
Proportion
Sales growth
in US$ terms
in US$ terms
EU, USA and other markets LIST OF MAJOR PRODUCTS LAUNCHED SINCE 1993 Brand name
Launch date Introduced in other regions(1)
in Hungary
CIS; CEE; EU, USA and other markets CIS; CEE; EU, USA and other markets hyaluronicum zinc Wound healing agent, CIS; CEE; EU, USA and other markets topical anti-acne preps.
EU, USA and other markets oral contraceptive Antiseptic / Pharyngeal dichlorobenzyl alc.
EU, USA and other markets oral contraceptive Antiulcerant, 1997 Proton-pump, inhibitor CIS; CEE; EU, USA and other markets CIS; CEE; EU, USA and other markets oral contraceptive CIS; CEE; EU, USA and other markets oral contraceptive Antibiotic / Cefalosporin NORMODIPINE amlodipine CIS; CEE; EU, USA and other markets CIS; CEE; EU, USA and other markets CIS; CEE; EU, USA and other markets Gynaecology, Hormone CIS; CEE; EU, USA and other markets norethisterone acetate Replacement Therapy CEE; EU, USA and other markets CIS; CEE; EU, USA and other markets Gynaecology, Hormone CEE; EU, USA and other markets norethisterone acetate Replacement Therapy Gynaecology, Hormone CIS; CEE; EU, USA and other markets Replacement Therapy recombinant human Multiple sclerosis interferon beta-1a Gynaecology, 2003 oral contraceptive Notes: (1) Products are launched in certain countries of the given region (2) Licenced-in products Cardiovascular drugs continued to represent a high share of total sales, accounting for 24 percent of theCompany's sales in 2003. One of the Company's most successful product launches has been the introductionof NORMODIPINE, containing amlodipine. Due to the excellent sales growth of this product during the year,NORMODIPINE became the largest product on the domestic pharmaceutical market by the end of 2003 gain-ing 57 percent of the total amlodipine market in Hungary. NORMODIPINE has also been introduced in most ofthe CIS republics and in almost all CEE countries. The ACE-inhibitor, LISOPRESS, containing lisinopril contributedsignificantly to the excellent sales growth reported in the EU and USA and other markets, partly due to signif-icant shipments of active pharmaceutical ingredients to the USA, following patent expiry in June 2002, andpartly because of continued sales to our partners in the EU. LISOPRESS was gradually launched both in CEE andCIS countries during the last couple of years, under the tradename DIROTON. Although sales of the Company'sother ACE-inhibitor, EDNYT containing enalapril have reached maturity level, the product contributed stronglyto the total sales achieved in 2003. We are pleased to report that the sales to all export markets, particularlyto the USA of both the finished and bulk form of the diuretic VEROSPIRON containing spironolactone were alsoresponsible for the reported growth. The performance of PANANGIN containing asparaginates and particularlymarketed in the CIS, in China and in EU markets also contributed to the sales level achieved.
Drugs for diseases of the central nervous system accounted for 14 percent of total sales, the main contributorbeing CAVINTON, a cerebral oxygenation enhancer. Total sales of CAVINTON remained flat in 2003, comparedto 2002. Higher sales of CAVINTON on the Company's traditional markets, were primarily due to a new formu-lation of the product, CAVINTON FORTE. The antidepressant REXETIN, containing paroxetine, which was intro-duced in 2001, showed substantial growth in 2003. As a result of its notable performance REXETIN has quicklybecome one of the Company's leading products in Hungary. Gastrointestinal products represented 9 percent of total sales, the main contributor being the H2-blockerQUAMATEL, containing famotidine, which retained a market leadership position in its therapeutic categorywith good sales growth in Hungary and showed good results in the CIS and CEE export markets. The Companycontinued supplying famotidine in API form to its partner in Japan, Yamanouchi and also to the USA follow-ing patent expiry of the product in April 2001. Famotidine shipments to the Company's generic partners inthe EU also contributed to the increased sales levels reported for this product. Good sales of the muscle relaxant MYDETON, containing tolperisone (MYDOCALM in export markets), an orig-inal product of the Company, were recorded in 2003. These were achieved in most Central and EasternEuropean countries, in the CIS and also in Hungary, and showed promising results in Germany. The positiveresults of the ongoing clinical trials which were conducted, mainly for development and marketing purposes,have already contributed to the higher sales recorded and are anticipated to increase the future sales potentialof this product. MYCOSYST, containing fluconazole, for the treatment of fungal infections, showed excellent sales growth dur-ing 2003 due to the significant shipments following its patent expiry in several EU countries in early March.
Gedeon Richter started to supply the capsules notably to Germany, the UK, Denmark, Finland, Austria andPortugal. We are pleased to report that further increased sales of the product is expected, as Gedeon Richterhas received tentative approval from the U.S. Food and Drug Administration (FDA) to market its generic anti-fungal tablet containing fluconazole which allows the Company to prepare for the launch in the second halfof 2004 of its first finished generic supply to the US market.
The anti-inflammatory product, PREDNISOLON containing prednisolone showed also good results on the tradi-tional markets. Central Nervous System Innovation continues to play a key role in the Company's strategy. Original research activities are focused exclusively on diseases of the central nervous system (CNS), primarily onchronic pain, painful spasticity, schizophrenia, anxiety and Alzheimer's disease. Out of the approximately20 ongoing projects there are a few under phase I trials while the rest are in early preclinical phase.
As co-operation is a paramount objective for the Company we continued to make considerable efforts to part-ner with European and other international research organisations and major multinational companies.
An example of such efforts is the case of the joint development activities carried out with Johnson & Johnsonduring recent years. As far as the potential late stage clinical trials are concerned we aim to target either majormultinationals or specialty pharma companies to cooperate for both joint development activities and share thesignificant costs and risks of the trials.
Restructuring of our Research organisation which has occurred during the past five years has contributed todelivering a high quality research portfolio based on quality of science, innovation and speed. Similarly, highquality laboratories are also critically important factors which lead to an increase in productivity of our originalresearch. Following the 3 year capital expenditure programme upgrading the Company's pharmacology facili-ties, plans for construction of a new chemical research centre meeting world class standards were completedduring 2003 and initial works are expected to start in 2004.
Construction of a small scale biotechnology pilot plant started in 2002 and was completed in 2003. This hascreated opportunities for the Company in this area, although for the time being on a limited scale.
In respect of having obtained several marketing authorisation in the EU and the upcoming EU accession weadopt our pharmacovigilance system to the required level as regards the individual case safety reporting. Therequired data base capable for collecting, processing and reporting of data will be available during 2004.
In line with the Company's strategic objectives, development work primarily in the gynaecology and cardiovas-cular areas continued during the year. Process development activities and bioequivalency studies on severalactive pharmaceutical ingredients and finished products continued so as to create opportunities for furtherproduct introductions in the USA and EU markets. For the first time in its history, the Company filed a regis-tration dossier for a generic product, fluconazole (ANDA) with the FDA in 2002 and received tentative approvalin 2003. The same product has been successfully registered in most of the EU countries through the MutualRecognition Procedures (MRPs). Regulatory activities accelerated during the year in both the EU and USA areas and the traditional markets, andresulted in granting 170 marketing authorisations in 39 countries for 25 products.
The Company in 2003 increased by 17 percent its spending on research and development amounting toHUF 9,397 million (US$ 42.0 million), representing 8.0 percent of the Company's turnover.
Production plants met all commercial demands during the year, and capacity utilization at the Company´s man-ufacturing facilities were generally steady in 2003.
Considerably increased demands for active pharmaceutical ingredients in both the generic and gynaecologyareas, particularly to the USA and EU markets meant that the active pharmaceutical ingredients (APIs) manu-facturing facilities operated almost at full capacity. The transfer of the steroid manufacturing operations fromBudapest to Dorog continued in 2003. As a result of significantly increased demand for steroid API, primarilydue to long-term supply agreements with customers in the USA, capital expenditure projects were started in2002 with the aim of increasing the capacity of the related manufacturing facilities. A steady increase indemand continued for the Company's products in both the CIS and CEE regions. This resulted in increased vol-umes of finished products in all areas, ie. solid dosage form, injectables and cream formulations.
A capital expenditure program, upgrading of the injectable plant, which started in 2003 was almost complet-ed during the reported year.
Implementation of the SAP Advanced Planner and Optimiser (APO) module, was continued in 2003, and thisaims to contribute in capacity planning and production optimisation.
During the year several audits of specific chemical manufacturing processes were undertaken by internationalpharmaceutical companies with whom the Company has supply agreements. In addition, the Hungarianauthority (OGYI) also successfully concluded several general audits at the Company's facilities and operations.
As is normal practice, the US FDA conducted a routine audit in September 2003 - an inspection of manufac-turing procedures of certain products and related facilities. The Company was found to be operating accord-ing to the required standards. We are subject to extensive regulation in the field of quality and environmental, health and safety matters inthe countries where we manufacture and sell our products. We expect such regulation to become increasinglystringent in the future. Our aim is to set and maintain high standards in respect of social responsibility (SR)worldwide which at least ensure that Gedeon Richter meets both national and international regulations.
At the core of our SR agenda is our commitment to good safety, health and environmental performance. Wepay particular attention to provide a safe workplace environment. Training in the field of safety and regularreviews of safety procedures together with continually improving technological standards in all our facilities arekey elements of our efforts made in this field. Advancing safety, preventing occupational injuries, work-relatedaccidents and raising the general level of employee satisfaction are all part of the integral employee care sys-tem, which incorporates the highest safety standards.
Managing Gedeon Richter's environmental impact continues to be a priority and our attention is focused in par-ticular on those areas where we believe our business has the greatest potential impact.
A significant large-scale five-year investment programme started in 2000 to ensure that the Company remainscompliant with the changing environmental standards. This programme includes an enhanced sewage treat-ment system, advanced in-purifying equipment and improved solvent storage facilities. In addition, the recon-struction of the cooling system, started during 2000 is related to a number of environmental projects andincludes reduction of noise pollution.
As a part of the capital expenditure programme, transferring the steroid manufacturing from Budapest toDorog we carried out experiments in pilot scale of enhancement of the sewage treatment system in 2003. Theconceptual plan was completed in 2003 and the application for approval is expected to be submitted to theauthorities during 2004.
Following the purchase in late 2000 of the property of Magnezitipari Ltd., a plan for remediation of the sitewas approved by the authorities in 2002. Soil decontamination work was completed and the related audit wasapproved by the Authorities during the reported year. Construction of a waste water pre-treatment facility hasbeen also started in 2003, which includes an emergency reservoir in the future. The separation of industrial andcommunal waste waters has been started in 2003.
In preparation for the ongoing EU accession the Company continued to adjust its regulations and environ-mental procedures in order to meet all requirements. An Application for Integrated Pollution Prevention andControl authorisation was completed and submitted to the authorities for both of the Company's sites in 2003.
Following a successful surveillance audit, the ISO 14001 certification of our established environmental manage- ment system was reinforced by Bureau Veritas Quality International. Safety assessment and documentationaccording to the prescriptions of EC Directive on the control of major-accident hazards involving dangerous sub-stances (Seveso II Directive) was prepared during the reported year. Documentation referring to our Budapest sitehas been accepted, while the one referring to our Dorog site is being under consideration by the authorities.
We recognise the importance of good relations with shareholders and employees, and in addition with all thosein society at large who have an interest in Gedeon Richter's activities and progress. We are fully aware of oursocial responsibility, and in this respect Gedeon Richter supports projects in the areas of healthcare, science andeducation. To encourage young people's interest in science, we sponsor a range of science-based school pro-grammes, such as chemistry education in secondary schools and university programmes, e.g. at theTechnological University and University of Medical Science. On the occasion of its centenary in 2001 the Companycreated a foundation which has as its aim the support of scientific research and university education in the fieldof pharmaceutical research. The Company also supports certain health education initiatives designed toincrease awareness of certain healthcare issues, notably those related to women's healthcare and fungal dis-eases, as well as conferences, scientific forums in the field of healthcare or other related areas.
Gedeon Richter employees are fundamental to the success of the business. Their skills and intellect are essen-tial components in the implementation of sound business strategy. It is the human capital that maximises thepotential of the Company's scientific, production, commercial and financial assets.
To achieve this, we are committed to seeking and engaging the best employment candidates who reflect a diversityof background, experience and perspective and who can contribute most to the success of the Company.
Feedback is very important and opportunities for giving feedback are built in to all levels of communication.
The sharing of information is essential to maintaining employee confidence in the Company and its objectives.
We use a range of communication media, as well as face-to-face meetings, to ensure our employees are keptup to date with business developments and are clear about their individual and team roles and targets.
We aim to ensure that our leaders have a common understanding of what is required to inspire delivery of ourcore values. Management training programmes continued in 2003 and involved all managers of the Companyboth at medium and senior levels. A management development programme initiated in 2002 for young talentedcolleagues prepared them for the future demands of Company continued in 2003. The Welcome programme foryoung employees aims at giving an insight into Gedeon Richter's activities, its culture and values.
The importance of people must translate into employment practices that demonstrate the value of each indi-vidual. Compensation philosophy and programme development underscore Gedeon Richter's commitment to aperformance culture. Performance based pay, both base and variable, share awards, development planning andeducation contribute to retention of key talent, superior performance and accomplishment of business targets.
The total headcount for the Company was 5,466 at the end of 2003. In Hungary Gedeon Richter's headcounttotalled 4,701 an increase of 209 compared with December 2002. With significant emphasis placed on organ-ic growth, it is understandable that the number of employees increased primarily in the field of marketing. TheCompany's headcount at its international offices totalled 765 in 2003, primarily due to the expanding sales andmarketing teams in our traditional markets; while at its manufacturing subsidiaries Gedeon Richter staff num-ber totalled 1,633 employees including 1,095 employees at GZF Polfa, 366 employees at G.R. Romania S.A. and172 employees at Gedeon Richter-RUS. The proportion of skilled employees at the Company in 2003 remained at the same level as in 2002. 1,281 graduateeducated personnel are now employed by Gedeon Richter in Hungary, representing 63 percent of its white col-lar staff and 27 percent of the total number of its employees. It is pleasing to report on the Centenarian Foundation of Gedeon Richter. Its main purposes cover the fundingof academic research. It is worthy to mention that it creates opportunities for researchers not only in Hungarybut also ethnic Hungarian candidates living outside Hungary.
In order to encourage personal development the Company continued during 2003 to support employees study-ing foreign languages, participation in PhD courses and computer user training programmes.
Whitecollar staff 12 months ended
12 months ended
31 December
31 December
Gross margin %
Operating margin %
Profit before taxation Net margin %
Total assets and total share- holders' funds and liabilitiesShareholders' funds Capital expenditure Number of employees Gross profit totalled HUF 74,316 million (US$ 331.8 million) in 2003 compared with HUF 59,232 million(US$ 232.1 million) in 2002. As previously indicated certain changes were made to the Company's accounting practices with effectfrom 1 January 2003 which positively impacted the gross margin. Depreciation of manufacturing fixedassets has been included in the valuation of inventory since the fourth quarter of 2000, while since 2001maintenance costs have also been included in the valuation of inventory. To complete the changes whichwere implemented as part of the SAP programmes with effect from 1 January 2003, all remaining pro-duction costs have been included in the valuation of inventory. Due to the resulting change in the valu-ation of inventory the gross profit increased by HUF 6,615 million (US$ 29.5 million), and the gross mar-gin increased approximately 5.7 percentage points during the reported period.
12 months ended
31 December 2003
Changes in the valuation
Changes in the valuation
of inventory are not included
of inventory are included
Gross profit (HUF million) Gross margin (%)
Operating profit (HUF million) Operating margin (%)
Gross margins increased to 63.7 percent from 59.6 percent in the prior year. When the adjustment for thechange in the valuation of inventory is excluded gross margins decreased slightly to 58.0 percent comparedwith the 59.6 percent level reported in the same period of 2002. The favourable impact of the higher level ofshipments, primarily the steroid API supplies to the USA and the increased proportion of recently introducedproducts primarily on the domestic market, were more than offset by the impact of the decline in the value ofthe US$ and volatile market conditions which followed the exchange rate and interest rate measures intro-duced in Hungary in 2003.
Operating profit at HUF 34,619 million increased by 37.7 percent from the HUF 25,143 million level reportedin 2002. In US$ terms it increased by US$ 56.0 million (56.9 percent) to US$ 154.5 million. When the adjust-ment for the change in the company's accounting practices (valuation of inventory) is excluded the operatingprofit increased from HUF 25,143 million to HUF 28,004 million, which represented an increase of 11.4 percent(26.9 percent in US$ terms).
Operating margins for 2003 were 29.7 percent compared with 25.3 percent in the prior year period. As report-ed above, we completed with effect from 1 January 2003 changes to the Company's accounting practices inrespect of inventory valuation. All production costs are now included in the valuation of inventory. This result-ed in a one-time adjustment which increased operating profit by HUF 6,615 million during 2003. Excluding theadjustment, operating margins were 24.0 percent, lower than the 25.3 percent level reported in the same peri-od of 2002.
The excellent sales growth with favourable changes in the product mix were more than offset by higher oper-ating costs and adverse changes in the HUF/US$ exchange rate. The growth rate of sales and marketing expens-es slowed down during the fourth quarter of 2003.
"Exchange gains / losses realised on trade receivables and trade payables" and "Reassessment of currency relat-ed trade receivables and trade payables" items have been reclassified from operating costs and reported as"Financial income / expense" with effect from 1 January 2003. Financial income / expense for 2002 has beenrestated to reflect these changes.
Net financial income is analysed in detail in the following table: 12 months ended
12 months ended
31 December
31 December
Realised forward exchange contracts Unrealised forward exchange contracts Net interest income Impairment loss of investments Impairment loss of foreign currency loans Exchange losses realised on trade receivables and trade payables Reassessment of currency related trade receivables and trade payables Other financial items Net financial income
Net financial income totalled HUF 1,713 million (US$ 7.7 million) in 2003, reflecting a reduction of HUF 2,854million (US$ 10.2 million) when compared to HUF 4,567 million (US$ 17.9 million) reported in the same peri-od of 2002.
Financial income of HUF 3,468 million (US$ 15.5 million) resulted from realised forward exchange contracts in2003 and this compared to HUF 5,816 million (US$ 22.8 million) income for the same period of 2002.
According to IAS 39 implemented in 2001, the present value of all forward exchange contracts concluded hasto be reported at the end of each quarter during the year. The reassessment which occurred at the end ofDecember 2003 of the present value of all forward exchange contracts concluded resulted in an unrealisedfinancial income of HUF 1,820 million (US$ 8.1 million), compared to an unrealised financial income ofHUF 3,159 million (US$ 12.4 million) at 31 December 2002. This decline in the present value of income result-ed in an unrealised financial expense reported in 2003 of HUF 1,339 million (US$ 6.0 million) compared to theHUF 1,241 million (US$ 4.9 million) financial income reported in the same period in 2002.
In accordance with a policy approved by the Board of Directors in 2000, the Company has continued to con-clude forward exchange contracts to manage its exposure to fluctuations in exchange rates. The structure offoreign exchange contracts concluded for 2004 to manage the HUF/US$ exchange risks remains unchanged.
All forward exchange contracts concluded have an expiry of 30 September 2004 and they are all forint/dollarcontracts. Management monitors closely the movements in HUF/US$ exchange rate and decides accordinglyabout future contracts.
Following a decision taken by the Hungarian Government a parity devaluation of 2.26 percent (from HUF/EUR 276to HUF/EUR 282) of the +/- 15 percent target band has resulted since 4 June 2003. Between June andNovember 2003 the Monetary Committee increased the standard rate of interest in three consecutive steps byoverall 6 percentage points, reaching by the end of November 2003 12.5 percent compared to the 6.5 percentin early June.
EXCHANGE RATE MOVEMENTS DURING THE LAST TWELVE MONTHS 31 December 2003 30 September 2003
30 June 2003
31 March 2003 31 December 2002
Net interest income including interest income resulting from movements in the net value of open-ended bond fundsamounted to HUF 2,075 million (US$ 9.3 million) in 2003 compared to the HUF 1,628 million (US$ 6.4 million)in the same period of 2002. The slight increase was due to a higher average level of funds invested.
Dividends amounted to HUF 360 million (US$ 1.6 million) during 2003 compared to HUF 221 million(US$ 0.9 million) in 2002.
In accordance with good accounting practice the Company's management considers it prudent to accountfor an impairment loss at two of its investments.
Sales of Gedeon Richter-RUS, which were equivalent to approximately 4 percent of total Gedeon Richter salesin Russia, were more than 30 percent higher in 2003 compared to 2002 but were not able to cover all operat-ing costs (including depreciation charges of those assets which recently became operational.) The Russian com-pany's loss generated from operational activities resulted in shareholders' funds lower than the share capital,for which difference the Company's management considered it prudent to account for an impairment loss ofinvestment at a level of US$ 3.8 million, reflecting a cost of HUF 950 million. Although the Company's man-agement makes every effort to improve the operational efficiency of the Russian subsidiary, it is clear that thiswill only be achieved gradually.
Following the acquisition of the majority stake of GZF Polfa, restructuring of the company has started. This hasresulted in an expanded sales and marketing network and the implementation of a 5-year capital expenditureprogramme in the value of PLN 70 million. Decisions were made to stop manufacturing of non-profitable bulkactive ingredients and to transfer all the veterinary manufacturing activities to Bionet Drwalew, a subsidiary ofGZF Polfa. These are expected to improve the efficiency of the Polish company. To cover costs related to theimplementation of these measures provisions were made at GZF Polfa in 2003, which resulted in a loss and adecrease in its shareholders' funds. As we increased our stake in GZF Polfa the management considered it pru-dent to account for an impaired loss of PLN 11.2 million, representing a cost of HUF 697 million, reflecting thevalue of 50 percent of the decrease in GZF Polfa's shareholders' funds. As a consequence of the above men-tioned measures, GZF Polfa is again expected to be profitable in 2004. In accordance with established agreements, from 1 January 1999 for a period of five years the Company bene-fited from a 60 percent reduction in its corporate tax rate. At the Hungarian corporate tax rate of 18 percentapplicable in 2003, this equates to an effective rate of 7.2 percent. A HUF 2,211 million (US$ 9.9 million) incometax charge was increased by a HUF 443 million (US$ 2.0 million) deferred tax charge. Accordingly, a tax chargeof HUF 2,654 million (US$ 11.9 million) has been recorded in 2003.
The 60 percent corporate tax benefit expired on 31 December 2003. From 1 January 2004, as a result of its capitalexpenditure programme, the Company expects to benefit from a further 100 percent tax holiday for the next fewyears, in the best case scenario until 2011.
Total assets and total shareholders' funds and liabilities amounted to HUF 194,236 million on 31 December 2003,an increase of HUF 26,983 million over the totals reported at 31 December 2002. Non current assets increased by 11.0 percent to HUF 110,800 million when compared with 31 December 2002,due to the higher level of Property, Plant and Equipment and Investments.
Current assets at HUF 83,436 million on 31 December 2003 were 23.7 percent higher than the level reported at31 December 2002, resulting from an increase both in Inventories and Investments in securities. The increased level ofInventories was due to both higher sales figures and to the adjustment for the change in the valuation of inventory.
Shareholders' funds increased 17.5 percent during 2003 to HUF 182,050 million, primarily as a result of theinclusion of profit for the period as Retained earnings.
Current liabilities at HUF 12,175 million on 31 December 2003 remained virtually unchanged as compared toHUF 12,312 million at 31 December 2002.
As indicated by the cash flow statement, during 2003 the Company generated net cash from operating activ-ities of HUF 34,005 million (US$ 151.8 million). Interest and similar income increased the net cash flow byHUF 8,469 million during 2003. Significant amounts have been directed towards investments in fixed assetsand securities, and the payment of dividends. Overall, cash increased by HUF 1,633 million in 2003.
12 months ended
12 months ended
31 December 2003
31 December 2002
From operating activities From investing activities From financing activities Capital expenditure in 2003 totalled HUF 20,053 million (US$ 89.5 million) compared to HUF 17,419 million(US$ 68.3 million) for 2002. In line with its strategic objective to expand its business into the US and EU mar-kets, the Company continued its long term investment projects primarily directed towards the continuing mod-ernisation and improvement of manufacturing and research and development facilities. A major ongoing proj-ect which aims to support the expansion of the Company's business in the US and EU markets is the transferof the production of steroid active ingredients from Budapest to the Dorog site and at the same time toincrease capacity. The installation of manufacturing facilities of steroid based API at Dorog have been con-cluded and manufacturing activities are being gradually transferred from Budapest. We started in 2003 and bythe end of 2004 expect to have finished the construction of a plant that manufactures steroid-based API fornon gynaecological purposes. In line with the steroid manufacturing capacity enlargement we have increasedsignificantly our fermentation capacity at Budapest site.
Research and Development The reconstruction of the tank farm which was an important investment programme launched in 2000 endedin 2003 and this has resulted in significant modernisation both from a logistical and environmental standpoint.
A major part of the reconstruction work of the injection plant which commenced in 2002 was completed dur-ing the reported year.
Decontamination of the land acquired in 2000 from Magnezitipari Rt. ended in 2003. Plans for the new chem-ical research centre to be built on the land have been completed and construction work is planned to beginduring 2004.
In the field of information technology the main investment focus in 2003 was work to comply with the datasecurity requirements of the FDA.
In line with the Company's strategic goals to develop business in CIS and Central and Eastern European regions, wecontinued in 2003 our investment projects.
Completed in 2003 at Gedeon Richter Romania S. A. (formed through the merger of Armedica S. A. andGedeon Richter Romania S. R. L.) was the reconstruction of the tabletting plant, together with the construc- tion of a new technical supply unit and the renewal of a microbiological laboratory and the installation of anew manufacturing line for retard pellets. At GZF Polfa we concluded investments primarily concerned with theimplementation of SAP, the development of marketing and commercial departments and general infrastruc-tural modernisation. The majority of investments concluded at our subsidiaries in Russia and the Ukraine main-ly dealt with general infrastructure, warehouse capacity and manufacturing.
The Company's treasury activities are co-ordinated and managed in accordance with procedures approved bythe Board of Directors.
The treasury function of the Company maintains responsibility for the financing of its activities both on thedomestic market and in the export regions and the administration of trade receivables and trade payables. Italso manages exchange rate risks relating to the Company's operations and ensures appropriate financialincome via investing temporarily free cash through open-ended funds and government securities.
Considering that more than 70 percent of the Company's turnover is realised in various currencies, predomi-nantly in US dollars, while its costs are incurred in Hungarian forints, the Company's operating profit is exposedto currency fluctuations. To manage this exposure, the Board of Directors has approved a strategy of foreignexchange rate exposure risk reduction, in which only forward and option contracts used exclusively for hedg-ing purposes are to be employed.
In accordance with a policy approved by the Board of Directors in January 2000, the Company has continuedto conclude forward exchange contracts to manage its exposure to fluctuations in exchange rates. TheCompany has concluded forward exchange contracts for 2004. All forward exchange contracts concluded havean expiry on or before 30 September 2004, and they are all HUF/US$ based. Management monitors closely themovements in HUF/US$ exchange rate and decides accordingly about future contracts.
Trading in a number of countries served by the Company may give rise to sovereign risk and economic uncertainty.
Trade credit risks and related provisions are closely monitored and subject to executive director supervision.
Preference shareholders are entitled to initiate conversion of their shares into ordinary shares. It is the Board ofDirector's responsibility to determine the terms of the conversion and the conversion must be approved by theCompany's Annual General Meeting. The Annual General Meeting on 28 April 2003 approved the conversion of1,806 preference shares into registered ordinary shares.
The dematerialisation of the converted shares and the listing at the BSE of the new shares took place with effectfrom 17 July 2003 following the registration by the Registry Court. A value difference of HUF 2,000 per share,totalling HUF 4 million has been deposited with the Company and has been accounted as a share premium.
The Annual General Meeting held on 28 April 2003 approved the dematerialisation of all the ordinary sharesissued by the Company. With respect to the dematerialisation, the Company published an announcement on8 May 2003. The period for submitting the shares closed on 15 July 2003. Consequently, 18,627,887 registeredordinary printed shares, each with nominal value of HUF 1,000 issued by the Company have been transformedon 16 July 2003. As of 16 July 2003, the date of the transformation, all printed ordinary shares issued by theCompany will no longer be valid. The number of shares which were not turned in during the dematerialisationperiod is 10,950. Owners of 2,964 shares had been identified prior to the sale of these shares. The Company pro-ceeded to sell the remaining 7,986 dematerialized shares at the Budapest Stock Exchange and deposited therealised income / amount. The price was HUF 20,806 per share.
31 December 2003
31 December 2002
Shares in issue
Preference shares Total shares
There were no significant changes relating to the shareholder structure of the Company during 2003. The share heldby the Hungarian Privatisation and State Holding Company (ÁPV Rt.) diminished slightly, by 0.2 percentage point, to25.0 percent, the proportion held by domestic investors also decreased by 2 percentage points (to 9.2 percent).
At the same time the share held by foreign investors increased by 2.2 percentage points, totalling 65.8 percent.
The chart below shows the shareholders structure on 31 December 2003: Domestic investors Domestic investors Foreign investors Hungarian Privatisation andState Holding Company(ÁPV Rt.) As at 31 December 2003 the Company's reported shareholders were: Local Governments Institutional investors Private investors Private investors Notes: (1) Treasury shares are not included in the voting capital. (2) Nominee company holdings amounted to 23.81 percent of Registered Capital; no other shareholdings report- ed to be above 5 percent. 31 December 2003
31 December 2002
Nominal value (HUF '000) Book value (HUF '000) Shares held by the Company in Treasury increased during 2003 to 20,020 ordinary shares. The Companypurchased 137,113 Treasury shares at the Budapest Stock Exchange during 2003 as well as a further55,140 treasury shares on the OTC market. Based on the decision of the Board of Directors of Gedeon Richter Ltd.,116,335 shares held by the Company in Treasury were granted to employees participating in the bonus shareprogramme, to qualified employees as bonuses and to members of the Board of Directors.
In line with a programme approved by the Ministry of Finance related to employee share bonuses, on17 December 2003 the Company granted 64,068 shares for 4,462 of its employees. These shares will bedeposited at the employees' individual securities accounts at CA-IB Securities Ltd. until 2 January 2006.
SHARE REMUNERATION OF THE COMPANY'S BOARDS The Company's Boards are shown on pages 8-11 of this Annual Report. Ordinary shareholdings in the Company held by members of the Board of Directors, the Supervisory Committeeand the Executive Board may be summarised as follows: 31 December 2003
31 December 2002
Board of Directors Supervisory Committee • The privatisation process of Hungaropharma Gyógyszernagykereskedelmi Rt. continued in 2003 with Gedeon Richter Ltd. having purchased 28,343 Hungaropharma shares on the OTC market during April2003. The transaction increased the Company's share in Hungaropharma by 4.71 percent to 19.71 percent.
On 19 December 2003 the Consortium (represented by Gedeon Richter Ltd., Egis Ltd., Béres BefektetésiLtd. and Magyar Gyógyszer Ltd.) acquired further shares of Hungaropharma Rt. representing 10 percentvoting rights and took an obligation at the same time towards ÁPV Rt. to make a purchase offer co-ordi-nated with the Chamber of Hungarian Pharmacists for its registered members. On 31 December 2003 theCompany owned 21.76 percent of the Hungaropharma shares, while ownership by the Consortium repre-sented 71.94 percent. The Company, presenting its bid on 19 January 2004 as a member of an investorConsortium, participated in a public tender issued for the sale of Hungaropharma shares at a nominal valueof HUF 1,504,720,000 by ÁPV Rt. on 18 December 2003. The tender was adjudicated on 19 February 2004.
Consequently the Company as a member of the investment consortium acquired a further 8.33 percentownership in Hungaropharma, totalling a 30.09 percent stake. The total participation of the Consortium inHungaropharma share capital has increased to 96.94 percent.
• Based on the privatisation regulation dated 30 August 1996, the Polish State Treasury made an offer for Gedeon Richter Ltd to acquire its 58,800 shares of GZF Polfa. The shares offered represented 12 percent ofthe registered shares of Grodziskie Zaklady Farmaceutyczne Polfa (GZF Polfa Ltd.). On 30 December 2003the share acquisition agreement was signed by Gedeon Richter Ltd. and the Polish State Treasury and thepurchase price of PLN 29.8 million was paid. The transaction increased Gedeon Richter Ltd.'s share inGZF Polfa to 63 percent.
• As a consequence of Hungary's accession to the EU with effect from 1 May 2004, the Company will be required to fulfil a number of new registration and reporting requirements.
After considering the new regulations, the Company's Management has decided to revise its sales by regionbreakdown according to the following listing: member states of the enlarged EU following 1 May 2004 those Central and East European countries that remain outside the EU in 2004, together with all other countries that were not previously listed in „EU, USA and other markets" group Historical data will be furnished according to the new regional listing for comparative purposes.
• Gedeon Richter Ltd. filed a patent infringement action against Gyma Laboratories of America, Inc., Fermentaciones Y Sintesis Espanolas, S.A., Ercros, Ercros Industrial, Cheminor Drugs Ltd., Dr. Reddy'sLaboratories Ltd., Reddy Cheminor, Inc., Andrx Corporation, Andrx Pharmaceuticals, Inc. and CarlsbadTechnology, Inc. in the U.S. District Court for the Eastern District at New York. This suit is directedagainst famotidine sales by these companies in the United States, and seeks a permanent injunctionagainst the above-mentioned companies in respect of the manufacture, use or sale of famotidine, aswell as monetary damages.
• In a procedure for a negative judgement commenced by the Company, the Hungarian Patent Office declared in its decision dated 14 June 2000, that the procedure used by Gedeon Richter Ltd. for manufac-turing the active ingredient (amlodipine-besilate) for the antihypertensive NORMODIPINE does not infringePfizer's patent, i.e. the two procedures are different. The Metropolitan Court on 16 May 2001 rejectedPfizer's appeal to nullify the decision of the Hungarian Patent Office. The decree issued by the MetropolitanCourt is final, with no possibility of appeal. On the basis of the supervisory procedure initiated by Pfizer Ltd.,the Supreme Court - in its order delivered on 14 May 2002 - affirmed the decision of the Metropolitan Courtof Budapest. Therefore, the procedure for negative finding had been completed. After the initiation of the above mentioned procedure for a negative judgement - commenced by theCompany - Pfizer Ltd. called into question, whether Gedeon Richter Ltd. manufactures the active ingredientof NORMODIPINE according to the manufacturing process described in the procedure for a negative judge-ment. In 1999, Pfizer Ltd. commenced a lawsuit alleging the infringement of its patent because of the man-ufacturing of NORMODIPINE with the active ingredient amlodipine-besilate.
The Metropolitan Court ordered an expert's investigation to find out if Gedeon Richter Ltd. manufacturesaccording to the manufacturing process presented to and approved by OGYI (National Institute ofPharmacy), that is according to the Company's own patent that was described in the procedure for a neg-ative judgement. OGYI had previously inspected the Company on more than one occasion and determinedthat no deviations from the approved process were made. In its judgement rendered on 21 May 2003, the Metropolitan Court dismissed Pfizer Ltd.'s claim. The rea-soning indicated in the judgement sets forth that the final decision establishing a negative finding pre-cluded that proceedings may be commenced based on an alleged patent infringement, pursuant to therespective patent, for the same product or process. Further, the Plaintiff claimed without any basis thatRichter's process presented in the negative finding process would be different from the procedure whichRichter actually uses for manufacturing the product. Pfizer Ltd. has filed an appeal against the first instancejudgement. • A litigation procedure concerning the real estate purchased from Magnezitipari Ltd. "under liquidation" in the course of the liquidation procedure are ongoing before the Municipal Court and its CommercialDepartment. It was initiated by the ÁPV Rt. (State Holding Company Ltd.) against Magnezitipari Ltd. "underliquidation" as first defendant and the Company as second defendant.
In the lawsuit the claimant requested the Court to establish that the real estate sale and purchase agree-ment concluded by and between the Company and the first defendant is null and void and to order thedefendants to restore the original status of the real property.
In the litigation commenced by ÁPV Rt., in its partial judgement rendered on 23 April 2002, the EconomicCouncil of the Metropolitan Court dismissed the Plaintiff's claim that the sale and purchase agreement wasnull and void. The ÁPV Rt. filed an appeal against the partial decision. In its judgement rendered on 28 April 2003, theSupreme Court, as a court of second instance, affirmed the partial judgement dismissing the claim of ÁPVRt. Thus, the partial judgement finding the agreement null and void was final.
With respect to the claim based on the grossly unfair difference between the value of the service and theconsideration, the Metropolitain Court - following the suspension of the related procedure - ordered thecontinuation of the procedure.
The Plaintiff requested an expert's appraisal to establish the grossly unfair difference between the value ofthe service and the consideration. The Metropolitan Court, by its order issued on 10 January 2004 rejectedthe motion of the Plaintiff on the expert's appraisal. The order cannot be appealed. However, according tothe applicable jurisprudence, in litigation procedures related to the grossly unfair difference between thevalue of the service and the consideration substantial evidence should be provided, and in the course ofsuch evidencing an expert's appraisal shall be conducted, therefore it might be possible that the Court shallorder further evidence.
• Gedeon Richter Ltd. filed a patent infringement action against several Japanese pharmaceutical companies approved to manufacture generic drugs in connection with the infringement of its Famotidine polymorphicpatent (namely the patent covering form "B") in 2002. Gedeon Richter Ltd. obtained patents claimingFamotidine for forms "A" and "B" worldwide, in Japan in 1997 and 1998, respectively.
The District Courts of Osaka and Tokyo, however, rejected Gedeon Richter Ltd's infringement claim against cer-tain generic manufacturers. The Company has filed an appeal against the decisions with the High Court of Osakaand the High Court of Tokyo. Notwithstanding the above decisions, Gedeon Richter Ltd. has other lawsuitsregarding the infringement of its process patent for the manufacturing of famotidine still pending in Japan.
Irrespective of the Court's decisions, the Licence Agreement - concluded between Yamanouchi and GedeonRichter Ltd. - remains in force. Gedeon Richter Ltd. has been advised that United States Courts are not bound by decisions of foreign tri-bunals (favourable to Gedeon Richter Ltd. or otherwise), and will decide all issues based on considerablyfull and complete records of evidence adduced in the United States. Gedeon Richter Ltd. intends to continueto enforce all of its Famotidine patents, including its synthesis claims as well as all product and processclaims relating to polymorphic form "A" and form "B", in the United States.
(THE UNCONSOLIDATED FINANCIAL STATEMETS IN THIS ANNUAL REPORT HAVE BEEN PREPARED IN ACCORDANCE WITH INTERNATIONAL FINANCIAL REPORTING STANDARDS) for the years ended 31 December Royalty and other similar income Total sales
Gross profit
Sales and marketing expenses Administration and general expenses Research and development expenses Net financial income Profit before taxation
Net profit for the year
Earnings per share (HUF)
The notes on pages 66 to 85 form an integral part of the Financial Statements.
as at 31 December Property, plant and equipment Intangible assets Deferred tax assets Trade receivables Other current assets Investments in securities Total Assets
SHAREHOLDERS' EQUITY AND LIABILITIES
Retained earnings Other payables and accruals Total shareholders' equity and liabilities
The notes on pages 66 to 85 form an integral part of the Financial Statements.
UNCONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY at 31 December 2001
share dividendfor 2001 Net profit for the year Dividend - preference of preference shares issued and purchased at 31 December 2002
dividend for 2002 Net profit for the year Dividend - preference preference shares Treasury shares issued at 31 December 2003
The notes on pages 66 to 85 form an integral part of the Financial Statements.
for the years ended 31 December Cash flow from operating activities
Net profit from operating activities Depreciation and amortisation Increase in receivables Increase in inventories Increase in payables and other adjustments Loss on disposal of property, plant and equipment Net cash flow from operating activities
Cash flow from investing activities
Purchase of property, plant and equipment Purchase of intangible assets Proceeds from disposal of property, plant and equipment Increase in non-current investments (Increase) / decrease in securities Increase in loans receivable Interest and similar income Net cash flow from investing activities
Cash flow from financing activities
Proceeds from conversion of preference shares Proceeds from disposal of Treasury shares Other financial expenses Net repayment receipt of long-term borrowings Net cash flow from financing activities
Increase in cash and cash equivalents
Movement in cash and cash equivalents
At beginning of year
Effects of exchange rates At end of year
The notes on pages 66 to 85 form an integral part of the Financial Statements.
Legal status and nature of operations
The Chemical Works Of Gedeon Richter Ltd. ("the Company" or "Gedeon Richter Ltd."), a manufacturer
of pharmaceutical products based in Budapest, was established as a public limited company in 1923.
The predecessor of the Company was founded in 1901 by Mr Gedeon Richter, when he acquired a
pharmacy. In 1990, Kõbányai Gyógyszerárugyár ("KGY"), a state-owned enterprise which was trans-
formed into a company limited by shares ("Rt."), was amalgamated into the Company. The Company
is incorporated in the Republic of Hungary and its registered office is at Gyömrõi út 19-21, 1103 Budapest.
Basis of preparation
The unconsolidated financial statements for the Company have been prepared on the historical cost basis
of accounting, as modified by a revaluation of fixed assets existing as of 1 November 1990, and in accor-
dance with International Financial Reporting Standards (IFRS). They are stated in millions of Hungarian
forints (HUF m). The Company maintains accounting, financial and other records in accordance with rel-
evant local laws and accounting requirements. In order to present financial statements which comply
with IFRS, appropriate adjustments have been made to the local statutory accounts.
These financial statements present the unconsolidated financial position of the Company, the result of itsactivity and cash flows, as well as the change of its shareholder's equity. The structure of the Company'sinvestments is shown in Note 11.
Presentation changes with effect from 1 January 2003 are as follows:The Company has reviewed its accounting policy relating to the presentation of royalty and other similarincome and foreign exchange gains / losses from trade receivables and payables, consequently certainitems have been restructured within the Statement of Income.
– Royalties and other similar income are included within total sales therefore operating profit includes this item.
– Realised and unrealised exchange gains / losses from trade receivables and trade payables have been reclassified from operating costs and reported among Net Financial income / expense. Where necessary, comparative figures have been reclassificated to conform with changes in presenta-tion in the current year.
The principal accounting policies adopted in the preparation of these financial statements are set out below: Foreign currencies
Transactions in currencies other than HUF are initially recorded at the rates of exchange prevailing on the
dates of such transactions. Monetary assets and liabilities denominated in foreign currencies are translated
into HUF at rates of exchange prevailing at the balance sheet date unless the recoverability of an asset is con-
sidered doubtful. The resulting exchange rate differences are credited / charged to the statement of income.
Revenue recognition
Revenue on sales transactions is recognized in accordance with the terms of sales contracts when title
has passed. Revenue is shown excluding value added taxes. All other income earned and expenditure
incurred is allocated to the appropriate period by applying the accrual basis.
Property, plant and equipment
Depreciation is charged so as to write-off the cost of assets on a straight-line basis over their estimat-
ed useful lives. The lives of property, plant and equipment are as follows:
Building improvements Machinery and equipment Land is not depreciated.
At the Company's transformation into a company limited by shares, the property, plant and equipmentwere revalued as of 1 November 1990. The revalued assets as of 1 November 1990 are being depreci-ated over the remainder of their original useful life.
Borrowing costs are not capitalized. Maintenance costs are expensed as incurred.
Gains and losses on disposal of property, plant and equipment are determined by reference to their car-rying amount and are taken into account in determining operating profit.
Intangible assets
Expenditures on trademarks, licences, patents and software is capitalised and amortized using the
straight line method over their estimated useful lives as follows:
Intellectual property and other rights, software Impairment
At each balance sheet date, the Company reviews the carrying amount of its tangible and intangible
assets to determine whether there is any indication that those assets have suffered an impairment loss.
If any such indication exists, the recoverable amount of the asset is estimated in order to determine theamount of such impairment loss. If the recoverable amount of an asset is estimated to be less than itscarrying amount, the carrying amount of the asset is reduced to its recoverable amount.
Research and development
Research and development expenditures are charged to the statement of income in the year in which
they are incurred.
Non-current investments
Non-current investments comprise equity investments and equity securities. Equity investments with a
controlling or significant interest include investments in companies in which the Company holds an equi-
ty share of 20 percent or more and investments made for strategic, regulatory or operational purposes.
Equity investments representing a controlling interest comprise those investments where the Company,
through direct and indirect ownership interest, has the power to govern the financial and operating poli-
cies of the investee. Equity investments representing a significant interest comprise those investments
where the Company, through direct and indirect ownership interest, has the power to participate in the
financial and operating policies of the investee but not to control those activities. Other equity securities
comprise shareholdings, which do not meet the preceding criteria.
Investments are recorded at the cost of acquisition, less allowance for impairment in value, when appropriate.
Inventories
Inventories are stated at the lower of cost and net realisable value less a provision for excess and obso-
lete items. Cost is determined by the first-in, first-out (FIFO) method. Net costs of own produced inven-
tories include the weighted average cost of raw materials, the actual cost of direct production labour
and the related maintenance and depreciation of production machinery , as well as from 1 January 2003
all further overhead costs.
Trade receivables
Trade receivables are stated at their nominal value as reduced by appropriate provision for estimated
losses. An estimate is made for doubtful receivables based on a review of all outstanding amounts at
the balance sheet date.
Investments in securities
Investments in securities are recognized on a trade-date basis and are initially measured at cost. Current
investments, consisting of held for trading securities, are measured at subsequent reporting dates at fair
value, calculated by reference to publically quoted prices at the close of business on the balance sheet
date. Unrealized gains and losses are credited / charged to the statement of income.
Trade payables
Trade payables are stated at their nominal cost.
Other current assets and current liabilities
Other current assets and current liabilities are stated at their nominal value.
Derivative financial instruments
Derivative financial instruments are measured initially at cost and are remeasured to fair value at
subsequent reporting dates. Changes in the fair value of derivative financial instruments that do not
qualify for hedge accounting are recognised in the statement of income as they arise.
Cash flow statement
For the purposes of the cash flow statement, cash and cash equivalents comprise cash in hand, deposits
held at call with banks, and investments in money market instruments with a maturity date within three
months of acquisition, net of bank overdrafts. In the balance sheet, bank overdrafts are presented as
borrowings among current liabilities.
Environmental liabilities
The Company is exposed to environmental liabilities relating to its past operations and purchases of
property, principally in respect of soil and groundwater remediation costs. Provisions for these costs are
made when the commencement of remedial work is prescribed by a binding decision and when expen-
diture on such remedial work is probable and the cost can be estimated within a reasonable range of
possible outcomes.
Provisions
Provisions are recognised when the Company has a present legal or constructive obligation as a result of
past events, it is probable that an outflow of resources embodying economic benefits will be required to
settle the obligation, and a reliable estimate of the amount of the obligation can be made.
XVII) Income taxes
The taxation charge is based on the tax payable under the appropriate fiscal law, adjusted fordeferred taxation. Deferred income tax is provided, using the liability method, in respect of temporary dif-ferences arising between the tax bases of assets and liabilities and their carrying values for financial report-ing purposes. Currently enacted tax rates are used to determine deferred income tax. Deferred tax assetsare recognised only to the extent that it is anticipated that they can be utilised against available future tax-able profits.
XVIII) Consolidation
The Company has published consolidated financial statements. The consolidated financial statementsare issued by the Company at the same time as these unconsolidated financial statements and are avail-able at the Company's registered office.
In the opinion of management, the Company operates in one business sector. A geographical analysis of the gross profit on sales, and Current assets - Inventories and Receivables - isset out below: Total sales
Gross profit
Due to changes in the valuation of inventory the gross profit and the operating profit increased by HUF 6,615 million.
Oral contraceptives PREDNISOLON and derivatives Wages and salaries Social security and employer contribution Share options and other bonuses Depreciation and amortisation Cost of energy and water Maintenance costs Cost of sales and operating activities
Certain changes made to the Company's accounting practices positively impacted result of the Company busi-ness. Depreciation of manufacturing fixed assets has been included in the valuation of inventory since thefourth quarter of 2000, while since 2001 maintenance costs have also been included in the valuation ofinventory. To complete the changes which were implemented as part of the SAP programmes with effect from1 January 2003, all remaining production costs have been included in the valuation of inventory. Due to theresulting change in the valuation of inventory gross profit increased by HUF 6,615 million for year ended31 December 2003 as compared to the year ended 31 December 2002, and the gross margin increasedapproximately 5.7 percentage points during the reported period.
Average number of persons employed during the year (including those in international markets) Exchange gains / losses realised from trade receivables and payables and unrealised exchange gains / losses on tradereceivables and payables have been reclassified from operating costs and reported as "Financial income / expense"with effect from 1 January 2003. Financial income / expense for 2002 has been restated to reflect these changes.
Net financial income is analysed in detail in the following table: Realised gain on forward exchange contracts Unrealised gains from the fair value of forward exchange contracts Reversal of opening fair value adjustment Impairment loss on equity investments Loss on foreign currency loans receivable Exchange gains / losses realised on trade receivables and trade payables Unrealised exchange gains / losses on trade receivables and trade payables Other financial items The Company has concluded forward exchange contracts to manage its exposure to fluctuations in exchangerates since January 2000. The US$ exchange rate, which depreciated against the HUF during the year, reduced both the export revenuesand the operating margin, the effect of which was offset by the gain on foreign exchange contracts. The Company has also concluded forward exchange contracts for 2004. The forward exchange contracts are allforint/dollar contracts and have an expiry by the end of September 2004. Management monitors closely themovements in HUF/US$ exchange rate and decides accordingly about future contracts.
The Company's management considers it prudent to account for an impairment loss of US$ 3.8 millionor HUF 950 million at Gedeon Richter-Rus Ltd. The Company additionally accounted for a HUF 697 million (PLN 11.2 million) provision at GZF Polfa.
The Company obtained a corporate tax holiday pursuant to the Government Decision No. 2056 of 8 June 1994.
This exempted the Company from corporate income tax for five years from 1994 and allows it a 60 percent taxreduction to be applied against the prevailing rate of corporation tax for the subsequent five years. From1 January 1999 to 31 December 2003 this equates to an effective rate of 7.2 percent based on thecurrently applicable Hungarian corporate tax rate of 18 percent. The granting and continuation of the taxholiday is dependent on the Company meeting certain conditions set out in the Government Decision No. 3188 of 1994. Management believe that the conditions have been met by the Company.
From 1 January 2004 until 31 December 2011 as a result of its capital expenditure programme, theCompany benefits from a further 100 percent tax holiday, because it has met the requirements establishedfor the tax holiday.
Income tax
A reconciliation of the income tax charge is as follows: Profit before tax
Tax calculated at a rate of 18 percent Effect of non-taxable items Permanent differences Tax holiday deduction Income tax charge
Basic earnings per share is calculated by reference to the net profit attributable to shareholders and the weight-ed average number of ordinary shares in issue during the year. These exclude the average number of ordinaryshares purchased by the Company and held as Treasury shares.
EPS (Basic)
Net profit attributable to shareholders (HUF m) Weighted average number of ordinary shares in issue (thousands) Basic earnings per share (HUF)
For diluted earnings per share, the weighted average number of ordinary shares in issue is adjusted to assumeconversion of all dilutive potential ordinary shares. The company has two categories of dilutive potential ordi-nary shares: Treasury shares, which are intended by the Company to be issued to Management and Employeesas part of its remuneration policy and preference shares for which a programme of conversion is in progress.
Net profit attributable to shareholders (HUF m) Weighted average number of total shares outstanding (thousands) Diluted earnings per share (HUF)
Plant and
Assets in the
course of
Cost / Revaluation
at 31 December 2002 at 31 December 2003 at 31 December 2002 Charge for the year at 31 December 2003 Net book value
at 31 December 2002 at 31 December 2003 Included in tangible fixed assets at 31 December 2003 are assets subject to finance leases with a cost ofHUF 1,316 million, that were fully depreciated by 31 December 2002.
All items of property, plant and equipment are free from liens and charges.
Assets in the course
and other rights
at 31 December 2002 at 31 December 2003 at 31 December 2002 Amortisation for the year at 31 December 2003 Net book value
at 31 December 2002 at 31 December 2003 31 December 2003
31 December 2002
Investments in subsidiaries Investments in joint ventures Investments in associate companies Other investments Cost at 31 December 2002 Cost at 31 December 2003
The following are the principal subsidiaries and joint ventures, which form part of the consolidation: Ownership %
S.C. Armedica S.A., Romania (I) Gedeon Richter Romania S.R.L., Legal and financial accounting activities Gedeon Richter Romania S.A., Gedeon Richter-RUS Ltd., Russia (II) GZF Polfa, Poland (III) Gedeon Richter Investment Kft., Financial accounting and controlling activities Medimpex Gyógyszer- nagykereskedelmi Rt., Hungary Gedeon Richter USA Inc., USA Pharmaceutical marketing Medimpex UK Ltd., UK Pharmaceutical marketing Medimpex France S.A.R.L., France Pharmaceutical marketing Gedeon Richter Pharma GmbH, Pharmaceutical marketing (I) On 11 September 2003 the dissolution of G.R. Romania S.R.L. and its merger with S.C. Armedica S.A. was registered by the Romanian Registry Court, thus the latter became the direct interest of the Companyunder the name of Gedeon Richter Romania S.A. (II) An impairment charge of HUF 950 million was recognised with respect to the investment in Gedeon Richter-RUS Ltd.
(III) The Company signed an agreement with the Polish Treasury Ministry for the acquisition of a further 12 percent quota in GZF Polfa Pharmaceuticals on 30 December 2003. As a result of the transaction the Company'sshare increased to 63 percent. An impairment of HUF 697 million was recognised as at 31 December 2003.
(IV) As of 7 May 2003 the name of the Company was changed from Pharma Haupt GmbH to Gedeon Richter Pharma GmbH.
In 2003 the Company purchased shares of Hungaropharma Rt. as a result of which its ownership shareincreased to 21.76 percent. On 19 December 2003 the consortium, including the Company, purchased afurther 10 percent stake in Hungaropharma and undertook an obligation to offer the block of shares for saleby the registered members of the Hungarian Chamber of Pharmacists.
Deferred tax is calculated with the liability method based on the temporary differences. Deferred tax recog-nised as of 31 December 2002 for differences reversing by 31 December 2003 and for the subsequent yearswas calculated at 7.2 percent and 18 percent, respectively. Due to the 100 percent tax relief applied, deferredtax recognised as of 31 December 2003 only includes the deferred tax (at 16 percent) calculated for the tem-porary differences that are expected to remain in the period subsequent to the expiry of the tax relief.
Deferred tax assets and liabilities end the deferred tax (charge) / credit in the statement of income are attributable to the following items: 31 December
(Charged) / credited
31 December
to Statement of
Deferred income tax assets
Other temporary differences Raw materials, packaging and consumables Production in progress Semi-finished and finished goods Due to changes in the valuation of inventory the gross profit and the operating profit increased byHUF 6,615 million for the year ended 31 December 2003 compared to the prior year.
Trade receivables Amounts due from related companies Trade receivables are reported net of provision for doubtful debts which amounted to HUF 1,789 millionin 2003 (HUF 2,015 million in 2002). Other current assets
Tax and duties recoverable Loans receivable from subsidiaries Other receivables Fair value of open forward exchange contracts Loans granted to employees Loans receivable granted to subsidiaries Hungarian Government securities Open-ended bond funds All securities are classified as held for trading.
Foreign currency deposits Short term securities (duration less than 3 months) Foreign currency deposits as at 31 December 2003 comprised US$ 9.1 million (HUF 1,888 million), EUR 4.4 million (HUF 1,166 million), PLN 3.5 million (HUF 195 million), and DKK 0.4 million (HUF 13 million).
Issued and fully paid
Ordinary shares of HUF 1,000 each 12 percent non-voting cumulative Preference shares of HUF 1,000 each Preference shareholders are entitled to a dividend of 12 percent per annum before ordinary shareholders. Anyconversion of preference shares into ordinary shares can be decided only once a year. An application to con-vert must be submitted to the Board of Directors by 28 February prior to the holding of the Company's AnnualGeneral Meeting at which the conversion must be approved. As the preference shares are not listed or quotedon a Stock Exchange it is the Directors' responsibility to determine the terms on which preference shares maybe converted into ordinary shares.
Recently, preference shareholders were entitled to request conversion of their preference shares up to28 February 2004, by which date requests in respect of the conversion of 2,712 preference shares had beenfiled. As the preference shareholders are entitled either to withdraw their request or to meet the financial andother conditions of the conversion up until 22 April 2004, the Company is unable to make any firm announcementin respect of conversion of preference shares until the relevant resolution of the Annual General Meeting to beheld on 28 April 2004 is published.
Following the approval by the Annual General Meeting on 28 April 2003 the Court of Registration registeredthe conversion of 1,806 preference shares into ordinary shares. A HUF 2,000 per share conversion fee was paidby preference shareholders who successfully applied for conversion, and a total amount of HUF 4 million hasbeen accounted for as Share Premium. It is the intention of the Company to issue over time the Treasury shares to management and employees as part ofits remuneration policy. Richter has implemented a bonus share programme since 1996 to further incentivise man-agers and key employees whose performance can significantly influence the Company's profitability. As of 1 January2003 tax laws applicable to remuneration provided in the form of securities changed; such bonuses are now taxableas income from employment. In 2003 56,108 shares were distributed to 419 employees of the Company. Similarbonuses are expected to be granted also in 2004. 57,187 ordinary shares were granted to qualified employees asbonuses during the year. Pursuant to its "Recognised Staff Stock Option Plan" approved by the Ministry of Finance,the Company granted 64,068 treasury shares to 4,462 employees. The shares are deposited on the employees'security accounts with CA IB Értékpapír Rt. until 2 January 2006. Further, in accordance with a resolution of the AnnualGeneral Meeting on 28 April 2003 a total of 3,040 shares were transferred during 2003 to members of the SupervisoryCommittee and Board of Directors of the Company in lieu of fees. The AGM held on 28 April 2003 has approved thatthe Company shall purchase its own shares for the treasury, the aggregated nominal value of which shall not exceed3 percent of the registered capital of the Company. Based on this approval, the Company purchased 137,113 Treasuryshares at the Budapest Stock Exchange during the year, and a further 55,140 shares on the OTC market.
Number of shares
at 31 December 2002
Issued as part of bonus programme Board of Directors Granted pursuant to the Finance Ministry - approved plan at 31 December 2003
Book value
at 31 December 2002
Issued as part of bonus programme Board of Directors Granted pursuant to the Finance Ministry - approved plan at 31 December 2003
Amount due to related companies Wages and payroll taxes payable - to preference shares - to ordinary shares Liabilities in relation to investments in related parties Other liabilities Deposits from customers Provision for future environmental liabilities Accrual for costs of share options and other bonuses Dividend paid on ordinary shares A dividend of HUF 330 per share (HUF 6,143 million) was declared in respect of the 2002 results,approved at the Company's Annual General Meeting on 28 April 2003 and paid during the year.
No dividend on ordinary shares has been declared in respect of the 2003 results, but it is anticipatedthat a dividend will be declared at the Annual General Meeting on 28 April 2004.
Capital expenditure that has been contracted for but not included in the Financial StatementsCapital expenditure that has been authorised by the directors but has not yet been contracted for One of the conditions of a EU related restructuring of the corporate tax holiday was that investmentcommitments amounted to HUF 49,695 million. This amount equals the total cost of the projects appear-ing in the medium-term development plan (2004-2008) approved by the Board of Directors and pre-sented to the Ministry of Finance. Medimpex Gyógyszernagykereskedelmi Rt. - bank guarantee Pharmacy - Hatvani István - bank guarantee Contributions amounting to 29 percent of gross salaries and HUF 3,450 per person per month for health-care allowance were made in 2003 to the Tax and Financial Control Administration of the Hungarian State.
The Company has no obligation to contribute to these schemes beyond the statutory rates in force during the year.
In November 1994 the Company offered the opportunity to its employees and those employees of related com-panies to join a voluntary externally organised defined contribution pension scheme. The Company contributes6 percent of the gross monthly wages of those employees who are contributing members. In addition, a one-off contribution is made in respect of employees who are within five years of the statutory retirement age. The total cost of the contributions made by the Company was HUF 441 million in 2003. This pension fund hada total of 5,921 members in 2003, 4,256 of whom were contributing members. The Company provides a private health insurance fund payment for its employees (HUF 2,500/person/month)since 1 September 2003. 4,701 employees are members of Patika Health Insurance Fund thus amount paid ontheir behalf to the fund in 2003 amounted to HUF 47 million.
(I) The privatisation process of Hungaropharma Gyógyszernagykereskedelmi Rt. continued in 2003. Gedeon Richter Ltd. purchased 28,343 Hungaropharma shares on the OTC market during April 2003. On 19 December 2003 the Consortium (represented by Gedeon Richter Ltd., Egis Ltd., Béres Befektetési Ltd.
and Magyar Gyógyszer Ltd.) acquired further shares of Hungaropharma Rt. representing 10 percent vot-ing rights and at the same time commited to ÁPV Rt to make a purchase offer coordinated with theChamber of Hungarian Pharmacists for its registered member shares. On 31 December 2003 the Companyis in possession of 21.76 percent of the Hungaropharma shares, while the ownership of the Consortiumrepresents 71.94 percent. The Company, presenting its bid on 19 January 2004 as a member of an investorConsortium, participates in a public tender issued for the sale of Hungaropharma shares at a nominal valueof HUF 1,504,720,000 by ÁPV Rt on 18 December 2003. The tender was adjudicated on 19 February 2004.
Consequently the Company as a member of the investment Consortium acquired a further 8.33 percentownership in Hungaropharma, totalling a 30.09 percent stake. The total participation of the Consortiumin Hungaropharma share capital has increased to 96.94 percent.
(II) Based on the privatisation regulation dated 30 August 1996, the Polish State Treasury has made an offer for Gedeon Richter Ltd. to acquire its 58,800 shares of GZF Polfa. The shares offered represent 12 percent of theregistered shares of Grodziskie Zaklady Farmaceutyczne Polfa (GZF Polfa Ltd). On 30 December 2003 the shareacquisition agreement was signed by Gedeon Richter Ltd. and the Polish State Treasury and the purchase priceof PLN 29.8 million was paid. The transaction increases Gedeon Richter Ltd.'s share in GZF Polfa to 63 percent.
(III) Employees contributing to the development of a new product on their own initiative are entitled to a portion of the future income generated by the given invention or innovation. According to estimates asof 31 December 2003 the related payment obligation during the three year period ending 2006 will beapproximately HUF 510 million.
(I) Based on a strategy approved by the Board of Directors, the Company continues to cover against possible currency fluctuations and it has concluded forward exchange contracts for 2004.
(II) The Company has a number of investments in companies located in volatile economies. The risk associat- ed with the valuation of these investments by reference to weakening currencies is somewhat mitigatedon the basis that the underlying non-monetary assets may maintain their market value. The value of theseinvestments represented by underlying monetary assets is fully exposed to the significant risk of currencydevaluation. (III) Credit Risk - the Company has customers of significance in a number of countries. These customers are major import distributors in their respective countries and the Company maintains close management con-tact with them on an ongoing basis. Provisions for doubtful receivables are estimated by the Company'smanagement based on prior experience and the current economic environment. The credit risk on liquid funds and derivative financial instruments is limited because the counterpartiesare banks with high credit-ratings assigned by international credit-rating agencies.
The Company has no significant concentration of credit risk, with exposures spread over a large numberof counterparties and customers.
In the Company's opinion its insurance coverage is adequate and appropriate.
The Company's insurance for product liability extends globally including the USA and Canada, and relates to allregistrated products produced and marketed by the Company.
The property and breakdown insurance policies provide satisfactory coverage for the Company's assets atreplacement value as well as net profits lost due to any specific event and overhead costs.
The general, environmental pollution and employer liability insurance cover potential damages caused by thirdparties or employees.
Due to the proportions of the Company's assets and revenues, it is of utmost importance for the Company touse large and financially strong global insurance companies that co-operate with leading re-insurers.
Profit and Loss Accounts (HUF m)
for the years ended 31 December Operating expenses Operating profit / (loss) Net other income / exceptional items Profit / (loss) before taxation Profit / (loss) after taxation Share statistics (HUF)
Earnings per share Dividends per ordinary share Profit and Loss Accounts (US$ m)
for the years ended 31 December Operating expenses Operating profit / (loss) Net other income / exceptional items Profit / (loss) before taxation Profit / (loss) after taxation Share statistics (US$)
Earnings per share Dividends per ordinary share · 1992 is proforma, 1997 and 2002 have been restated.
· Earnings per share: Headline, i.e. diluted excluding exceptional and non-recurring items· 2003 Dividends per ordinary share of HUF 440 are as recommended by the Board of Directors.
Balance Sheets (HUF m)
as at 31 December Net other assets and liabilities Long-term liabilities Shareholders' equity Balance Sheets (US$ m)
as at 31 DecemberFixed Assets Net other assets and liabilities Long-term liabilities Shareholders' equity · 1992 is proforma; 1997 has been restated.
· Prior to 1997, Treasury shares were reported as Net other assets and liabilities.
Throughout this Annual Report, certain Hungarian forint amounts have been converted into US$s for indicative pur-poses only. Expenditure and income amounts incurred during a period have been converted at an average rate cal-culated by the Company. End of period balance sheet figures have been converted at the official daily mid-rate setby the National Bank of Hungary (NBH) on the relevant day.
Number of employees
The Company for the first time published audited consolidated accounts for 2002. In 2003 we published alsothe non-audited consolidated balance sheet, statements of income and cash flow in all quarterly reports.
The following subsidiaries and joint ventures have been included in the consolidation procedure:Gedeon Richter Romania S. A. (former S.C. Armedica S.A.), Gedeon Richter-RUS Ltd., GZF Polfa Ltd.,Richter Gedeon Investment Kft., Medimpex Gyógyszer-nagykereskedelmi Rt., Gedeon Richter USA Inc.,Medimpex UK Ltd., Medimpex France S.A.R.L., Gedeon Richter Pharma GmbH. On 30 December 2003Gedeon Richter Ltd. acquired an additional 12 percent stake in Grodziskie Zaklady Farmaceutyczne POLFA Ltd.
(GZF Polfa Ltd.) sold by the Polish State Treasury.
On 11 September 2003 Gedeon Richter Romania S.R.L. merged with S.C. Armedica S.A., its subsidiary.
Following the approval of the Romanian Registry Court with effect from 8 December 2003 the Companycontinues its activity under the name of Gedeon Richter Romania S.A.
Consolidated sales of the Richter Group amounted HUF 145,916 million in 2003, 21.6 percent higherthan reported for 2002. Consolidated operating profit totalled HUF 32,277 million and reflected anincrease of 30.0 percent compared to that achieved in the previous year. Net profit for the Richter Groupfor the reported period was HUF 33,717 million representing a 17.0 percent increase over that reportedfor 2002. It was slightly higher than the parent Company's net profit.
Total assets and total shareholders' funds and liabilities of the consolidated balance sheet amounted toHUF 199,575 million on 31 December 2003, an increase of HUF 24,332 million over the totals reportedat 31 December 2002.
for the years ended 31 December Royalty and other similar income Total sales
Gross profit
Sales and marketing expenses Administration and general expenses Research and development expenses Profit from operations
Net financial income Profit before taxation
Profit after taxation
Minority interest Net profit for the year
Earnings per share (HUF)
as at 31 December Property, plant and equipment Intangible assets Deferred tax assets Trade receivables Other current assets Bank balances and cash Total Assets
EQUITY AND LIABILITIES
Capital and reserves

Translation reserves Retained earnings Other payables and accruals Provision for environmental liabilities Total equity and liabilities
Capital Treasury Translation
capital premium reserves
Balance at
31 December 2001
Exchange differences arising on translation of overseas operations Equity component of convertible preference shares Treasury shares reissued Net profit for the year dividend for 2001 Dividend - preference shares Balance at
31 December 2002
Exchange differences arising arising on translation of overseas operations Equity component of convertible preference sharesTreasury shares reissued Net profit for the year Ordinary share dividend Dividend - preference shares Balance at
31 December 2003
for the years ended 31 December Cash generated by operations
Income taxes paid Interest received Net cash flow from operating activities
Cash flow from investing activities
Purchase of property, plant and equipment Purchase of intangible assets Proceeds from disposal of property, plant and equipmentIncrease in non current investments (Increase) / decrease in short term investments (Increase) / decrease in loans receivable Interest and similar income Acquisition of subsidiary Net cash flow from investing activities
Cash flow from financing activities
Proceeds from conversion of preference shares Proceeds from disposal of treasury shares Dividends paid - on ordinary shares Dividends paid - on preference shares Other cash flows from financing activities Net repayment of long term borrowings Net cash flow from financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Effect of foreign exchange rate changes Cash and cash equivalents at end of year
Registered Office Richter Gedeon Rt.
1103 Budapest, 19-21 Gyömrõi út Addresses for correspondence Richter Gedeon Rt.
Investor Relations International Finance Department Richter Gedeon Rt.
Phone: +36-1-431-5764 Fax: +36-1-261-2158 DESIGN: ENTER STUDIO 98 GEDEON RICHTER LT Gedeon Richter Ltd.
H-1103 Budapest, Gyömrõi út 19-21.
Phone: +36-1-431-4000, Fax: +36-1-260-6650, +36-1-260-4891 Email: posta@richter.hu, Internet: www.richter.hu

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Title page

This is the full-text of the pre-print version. Title Page 1. Title of the article. The Effectiveness of Acupuncture for Plantar Heel Pain: a systematic review. Full name, postal address, e-mail, telephone and fax numbers of the corresponding Richard J Clark BSc, MBBS, LicAc, DipMedAc Peninsula College of Medicine and Dentistry, C206 Portland Square, Drake Circus, PLYMOUTH, PL4 8AA, UK

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Typhoid fever perforation in Kathmandu, Nepal - A retrospective study of risk factors and antibiotic treatment Author: Isabel Vigmo, Medical Student at the Sahlgrenska Academy University of Gothenburg, Sweden Supervisors: Yogendra Singh, MD, PhD, Professor of Surgical Oncology Department of Surgery, Tribhuvan University Teaching Hospital, Kathmandu, Nepal Göran Kurlberg, MD, PhD, Associating Professor of Surgery