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Interview with Chief Financial Officer Helmut Kraft on the occasion of the half-year results
- Press Release
On the occasion of the half-year results on August 7, 2014, Chief Financial Officer Helmut Kraft answers some questions about his area of responsibility.
How did sales develop in H1 2014? What were the driving factors?
Following an increase in sales of 7% in the first quarter, growth weakened somewhat towards the end of the first half. Overall, we were able to record sales growth of 4% for the half year – a very solid result in our opinion considering the difficult market environment particularly in Russia.
The Branded Products area was the main growth driver in the first half of 2014 (adjusted +5%). We were not able to repeat the extraordinarily high growth rates of the first quarter in the rest of the half year, however. This is because the high sales growth of the first quarter was attributable to pull-forward effects such as the early delivery of our branded product Ladival and early orders in Ukraine in advance of the announced introduction of value-added tax. The demand situation in Russia also remained difficult. The Generics area decreased as expected (adjusted -3%), with burdens both from the damaging discount agreement business in Germany and the current weak demand in Russia.
Highlights of the first half year include good performance in market region Central Europe (adjusted +3%), with particularly pleasing growth in Belgium, Italy, the UK and Spain.
For full-year 2014, we continue to expect slight sales growth for the Group.
Can you explain your financing strategy?
Our top goal is to have sufficient liquidity at all times. Both long-term financing and a balanced maturity dates profile for liabilities are important for this purpose. We also do not want to be too dependent on individual banks. For that reason, we primarily obtain financing through the capital markets via promissory notes and bonds.
STADA, by definition, pursues a low-risk business model that offers us more room to maneuver in financing. In contrast to pharmaceutical companies that carry out research, we have no or next to no development risks, a diversified product portfolio and we have to keep smaller cash reserves for liability risks as our products are long-established on the markets.
We are generally satisfied with the current level of the leverage ratio – that is, the net debt to adjusted EBITDA ratio – which increased to 3.5 at the end of the first half year due to acquisitions. STADA remains a company that focuses on growth. Our internal goal, however, is to return the leverage figure to three within 12 to 18 months by way of our operating performance. We currently see the capacity for smaller acquisitions.
How do you estimate the tax rate to develop in the current year?
The level of income taxes decreased in comparison to the prior year amounting to € 21.8 million in the first six months. The tax rate thereby amounts to 24%, adjusted for special effects even 22.5%. This represents an improvement on the prior year of more than eleven percentage points.
This quite substantial decrease in the tax rate is predominately the result of a changed profit allocation: since the end of 2013, and following the conclusion of the “STADA – build the future” program, we in Germany handle the central service functions for the Group. At the same time, we adjusted the corresponding transfer pricing model for this purpose.
In addition, we took advantage of existing tax interest carryforwards in the first quarter of 2014 which resulted from applying German regulations in connection with the so-called interest barrier in previous periods.
Regarding the development for 2014, we had previously set ourselves the goal of reaching an adjusted tax rate of 26-28%. Looking at the results of the first half, we are very optimistic that we will reach a figure at the lower end of this range for the full-year.