“Although we only managed to record a single digit sales growth this year, we are quite pleased with the performance because once again we had successfully beat the pharmaceutical industry growth,” said Johannes Setijono, CEO of Kalbe. “The year 2006 was an unusual year for the pharmaceutical industry in Indonesia. The industry usually performed a double digit growth every year but according to IMS, an independent research company which specialized in pharmaceutical information analysis, the market size of the industry (OTC + Prescription drugs) for 2006 has a year-on-year growth rate of -1.9. This figure can be further segregated into -5.7% growth for the Prescription drugs and 4% growth for the OTC drugs.”
This abnormality is mainly due to two macro-level incidents that happened during the year. The first incident is that the Government has decided to greatly reduce the amount of fuel subsidies it is giving to the Indonesians. This happened approximately in the month of October of 2005. As a result fuel price increased by an average 100%. This resulted in a significantly hampered consumer purchasing power especially to the people that belong in the middle to lower earnings segment that experienced the hardest hit.
But an even more disrupting effect came from the new Government regulation which was announced effective as of July 2006. Due to pressure coming from the Government, the association of local pharmaceutical producers decided to take a preemptive action to voluntarily lower the prices of 34 active pharmaceutical ingredients which defines to approximately 1,400 prescription product SKUs in the national market. The price decrease ranges from 10% to 70% of the original price. The deadline given for every pharmaceutical producers to reduce their prices was October 2006. Another regulation that was passed in the same year was the price reduction of certain unbranded generic drugs up to 50%.
YE Dec 31, 2006 Financial Highlights
Revenues - Kalbe reported revenue of IDR 6.07 trillion for the year ended in December 31, 2006, an increase of 3.42% compared to the previous year’s figure of IDR 5.87 trillion. Given the “not so good performance” year, the year 2006 was a meaningful year to Kalbe because this is commonly called ”The Restructuring Year” as the BOD has overtaken several projects that are aimed to successfully integrate the previous 2005 merger.
Prescription Revenues - Kalbe main business line, the Prescription Pharmaceutical Division, contribute 24% to the total consolidated sales. This division reported revenue of IDR 1.46 trillion, or 8% higher than the previous year’s performance. The main reason for this growth is that Kalbe has successfully completed its integration project to reorganize the marketing divisions within the whole group, coupled with the fact that Kalbe is not as deeply affected by the price reduction regulation. Therefore this rarely happening single digit growth from the division is well received by the Management because it is considered to be a rewarding experience if we compare ourselves to the rest of the companies in the Prescription Industry that performed an average of -5.7% year on year growth. This fact further supports how Kalbe became the number 1 player in the prescription industry with a market share of 10.6% as stated by IMS by the end of 2006. In the same statistics report, Kalbe ranked 3rd at the end of the previous year with a 9.4% market share.
Nutritional Revenues - Kalbe’s 2nd most important division is Nutritional Division which contribute 21.8%. The division is also not spared by the macro-level incidents but still manage to record sales of IDR 1.32 trillion, or 21.4% higher than the previous year’s figures. We believed that one of the reasons for this somewhat high growth is that Kalbe’s Nutritional Division mainly manufactures a generally higher priced products which are targeted towards the high income segment people which is not as greatly affected by the fuel price hike.
OTC Revenues - Kalbe’s OTC Division performed quite poorly this year if compared to the previous years. This division contribute 15.5% to the total consolidated sales; it recorded sales of IDR 1.32 trillion, or 3.8% lower than the previous year’s figures. Although the OTC is not as regulated as the Prescription industry, the Management believed that the reason for this is the macro-level incidents that was mentioned earlier in this document as well as a significant reduction of OTC products exports to Nigeria.
Energy Drink Revenues - Kalbe’s Energy Drink Division is very much affected by the reduced consumer purchasing power effect. This Division is currently contributing 14.8% to the total consolidated sales. It recorded sales of IDR 896 billion, or 8% lower versus 2005 figures. We believed that one of the main reasons for this minus growth is that Indonesia’s Energy Drink Industry performed poorly. The energy drink industry is also facing a fierce competition from non head to head competitors in other beverage category such as vitamin water. On the other hand, the exports of our energy drink products is doing relatively well, such as our exports to Philippines.
Distribution Revenues - Kalbe’s Distribution Division contribute 19.9% of total consolidated sales, it recorded sales of IDR 1.21 trillion, or 3.1% lower versus the previous year’s figures. This Division’s sales figures only take account sales generated from third parties’ products. The Management believed that the reason for this minus growth is that the previous year’s performance which is used as a benchmark with 2006, still include the sales of products from two principals that parted their ways with us in 2005.
Packaging Revenues - Kalbe’s Packaging Division contribute 4% of the total consolidated sales. It recorded sales of IDR 246 billion, or 5.8% higher than the previous year. This Division’s sales figures only take account sales generated from providing packaging service to third parties’. The Management believed that the reason for this slow growth is that while the fuel price hikes significantly increased their costs. The industry itself is experiencing a slowdown mainly due to the slower economic consumption for the year.
Gross profit - Gross profit is recorded at IDR 3.1 trillion which is 4.57% higher than the previous year’s. At the same time gross profit margin increased from 50.47% of Net Sales last year to become 51.04% of Net Sales this year. This is due to the favorable and stable US Dollar exchange rate resulting in favorable cost of raw material that is mostly imported.
Operating expense - Operating expense increased by 6.52% versus the same period last year. The Company will further make utmost efforts to minimize its expenses particularly its selling expenses so as to be in proportion with its sales growth towards the year end.
Operating Profit - Operating Profit reached IDR 1.07 trillion which is 1.06% higher than the previous year’s restated figures which was IDR 1.06 trillion. Operating profit ratio decreased from 18.06% of Net Sales to become 17.64% of Net Sales this year.
Net Profit - However, the Company posted net profit of IDR 677 billion; or 8.06% higher than 2005’s restated figure of IDR 626 billion. The growth is mainly contributed by the decrease of interest expense and realized gain/loss of foreign currency exchange.
BAHASA
