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2 0 0 3
A N N U A L R E P O R T
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Gedeon Richter Ltd.H-1103 Budapest, Gyömrõi út 19-21.
Phone: +36-1-431-4000, Fax: +36-1-260-6650, +36-1-260-4891Email: [email protected], Internet: www.richter.hu
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A N N U A L R E P O R T 2 0 0 3
C O N T E N T S
Financial HighlightsLetter to the ShareholdersCorporate GovernanceCompany's Boards
Honorary PresidentBoard of DirectorsExecutive BoardSupervisory Committee
Information for ShareholdersManagement ReportOperating Review
MarketsFemale healthcare - competitive edgeProductsResearch and DevelopmentProductionCorporate Social ResponsibilityHuman Resources
Financial Review Key Financial DataGross ProfitOperating ProfitFinancial ItemsTaxationBalance SheetCash FlowCapital ExpenditureTreasury Policy
Corporate MattersThe Company's Registered ShareholdersShares held by the Company in TreasuryShare Remuneration of the Company's Board Other informationRecent Litigation
Unconsolidated Financial StatementsIndependent Auditors' ReportNotes to the UnconsolidatedFinancial StatementsUnconsolidated Financial Record 1992-2003Consolidated Financial StatementsIndependent Auditor's Report Contacts
1
246888
101112162021333641424344464747484851515152535455565657586061
6686909196
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A N N U A L R E P O R T 2 0 0 3
F I N A N C I A L H I G H L I G H T S
2
F I N A N C I A L H I G H L I G H T S
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3
F I N A N C I A L H I G H L I G H T S
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.
S A L E S
HUF m
92 93 94 95 96 97 98 99 00 01 02 03
120,000
100,000
80,000
60,000
40,000
20,000
0
S A L E S
US$ m
92 93 94 95 96 97 98 99 00 01 02 03
600
500
400
300
200
100
0
E A R N I N G S P E R S H A R E
HUF 2,000
1,500
1,000
500
0
-500
D I V I D E N D S P E R O R D I N A R Y S H A R E
HUF
92 93 94 95 96 97 98 99 00 01 02 03
500
400
300
200
100
0
92 93 94 95 96 97 98 99 00 01 02 03
E A R N I N G S P E R S H A R E
US$
10
8
6
4
2
0
-2
-4
D I V I D E N D S P E R O R D I N A R Y S H A R E
US$
92 93 94 95 96 97 98 99 00 01 02 03
2.00
1.60
1.20
0.80
0.40
0
92 93 94 95 96 97 98 99 00 01 02 03
HUF million US$ million
2003 2002 Growth % 2003 2002 Growth %
Sales 116,659 99,308 17.5 520.8 389.1 33.8
Operating profit 34,619 25,143 37.7 154.5 98.5 56.9
Net income 33,678 28,180 19.5 150.3 110.4 36.1
HUF US$
2003 2002 Growth % 2003 2002 Growth %
Earnings per share 1,807 1,512 19.5 8.07 5.92 36.1
Dividends per ordinary share 440 330 33.3 1.96 1.29 51.9
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4
L E T T E R T O T H E S H A R E H O L D E R S
William de GelseyChairman of the Board of Directors
A N N U A L R E P O R T 2 0 0 3
L E T T E R T O T H E S H A R E H O L D E R S
I am very pleased to report a further year of growth for Gedeon Richter in
2003. In particular the expansion of the US business was highly gratifying,
which played an important role in the excellent financial results. Turnover
in the USA surpassed all other export markets for the first time in the
Company's history.
Satisfactory sales growth was also recorded in the EU, which pleased us in
view of Hungary's EU accession on 1 May 2004. Gedeon Richter is well on
the way of becoming an important regional company with a strong empha-
sis for quality within the required regulatory framework.
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5
L E T T E R T O T H E S H A R E H O L D E R S
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 sales
and marketing teams.
Our international standing of steroid chemistry has contributed substan-
tially to increased sales of gynaecological products, which represented
30 percent of the Company's overall turnover. We are glad that we were
able to contribute once again to the improvement of women's quality of
life. We supply steroid active pharmaceutical ingredients to the US and
sell a wide range of female healthcare products in our traditional mar-
kets. In order to meet the ever increasing demand of steroid products we
have 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 the
commitment, loyalty and enthusiasm of all the Richter employees both in
Hungary and abroad and which was also strongly supported by the ongo-
ing confidence of our shareholders. We continue to strive to achieve our
long-term targets of a profitable growth and delivering a satisfactory
financial return for our shareholders.
William de GelseyChairman of the Board of Directors
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C O R P O R A T E G O V E R N A N C E
6
A N N U A L R E P O R T 2 0 0 3
C O R P O R A T E G O V E R N A N C E
Gedeon Richter's key principles of Corporate Governance are to create and maintain satisfac-
tory dialogue with shareholders, enhance shareholder value, differentiate the roles and
responsibilities 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 with
high 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.
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C O R P O R A T E G O V E R N A N C E
7
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.
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C O M P A N Y ' S B O A R D S
8
A N N U A L R E P O R T 2 0 0 3
C O M P A N Y ’ S B O A R D S
H O N O R A R Y P R E S I D E N T
LAJOS PILLICH (91)
Graduated from the Technical University of Budapest. Chemical engineer. With Richter since 1935 and
was Technical Director, managing production and technical development of Research and
Development from 1942 to 1976. Chairman between 1990 and 1999. Became Honorary Life President
in April 1999.
B O A R D O F D I R E C T O R S
WILLIAM DE GELSEY (82)
Senior adviser to the Managing Board of CA IB Corporate Finance Beratungs GmbH (a wholly owned
subsidiary 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 Trinity
College, Cambridge. Joined the Board in 1995. Chairman since April 1999.
ERIK BOGSCH (56)
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 1988
to 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.
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9
C O M P A N Y ' S B O A R D S
DR GYÖRGY BÍRÓ (58)
Legal adviser, specialising on economic law. Director of Industrial Association, Legal-
International-Secretariat Directorate. Is member of Ethical Board of Conciliation
Committee 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 the
Board since 1995.
DR JENÕ KOLTAY (60)
Economist, University doctorate in Economic Sciences. Director of Institute of
Economics of the Hungarian Academy of Sciences. Visiting fellow and visiting professor
at 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 from
1995 to 1998. Joined the Board in 1998.
DR GÁBOR PERJÉS (63)
Medical doctor, urologist, nephrologist. Between 1966 and 1970 assistant at the
Postgraduate Medical School, joining staff of the Tétényi street Hospital in 1970. Member
of Parliament from 1990 to 1994. Currently practising as a physician. Has been a member
of 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.
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C O M P A N Y ' S B O A R D S
1 0
E X E C U T I V E B O A R D
DR GÁBOR LÁSZLÓ DR LÁSZLÓ ERIK ANDRÁS DR ZSOLT DR GYÖRGY GULÁCSI GODÓ KOVÁCS BOGSCH RADÓ SZOMBATHELYI THALER
ERIK BOGSCH (56)
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. Responsible
for Finance. Economist, University doctorate in Economic Sciences. Previously General Secretary of
State, Ministry of Economic Affairs.
ANDRÁS RADÓ (49)
Appointed Director in 1995. Responsible for Production and Logistics. Deputy Managing Director since
2000. Chemical engineer, economic engineer. With Richter since 1979 in a number of management
positions.
DR ZSOLT SZOMBATHELYI (47)
Appointed Research Director in October 2000. Physician, graduated from the Semmelweiss
Medical University. With Richter since 1981, in a number of management positions. Director of
the 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 Chemical
Sciences. With Richter since 1983 in a number of management positions.
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C O M P A N Y ' S B O A R D S
1 1
S U P E R V I S O R Y C O M M I T T E E
DR ATTILA CHIKÁN (60)
Professor of the Budapest University of Economics and Public Administration, Business Economics
Department; Manager of the Competitiveness Research Centre, doctor of the Hungarian Academy of
Sciences. 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 Accounting
at the Ministry of Finance. Joined the Committee in 1991.
VENCELNÉ SEDLÁK (51)
Employee representative. Chemical engineer, quality system engineer qualifications. With Richter since
1971. Head of Validation Department at the Quality Assurance Directorate from January 2000. Joined
the Committee in 2001.
DR MÁRIA BALOGH, JÁNOKINÉ (52)
Economist with University doctorate in Economic Sciences. Executive Director at Magyar Hitelbank since
1987. Deputy General Manager of OTP Bank since September 1995. Has been a member of the
Committee since 1990.
DR GÁBOR SIMON KIS (64)
Private pharmacist, economist, PhD in Economics. Head of Department at Ministry of Health from 1971
to 1988, then Director of Institute of National Hospital and Medical Technology until 1995. Joined the
Committee in 1998.
GÁBOR TÓTH (48)
Employee representative. Chemical engineer, economic engineer. With Richter since 1980, currently
responsible for administration of the share register and representing the Company at the Budapest Stock
Exchange (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 Project
Manager 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
Re-elected : 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.
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1 2
I N F O R M A T I O N F O R S H A R E H O L D E R S
A N N U A L R E P O R T 2 0 0 3
I N F O R M A T I O N F O R S H A R E H O L D E R S
A N N U A L G E N E R A L M E E T I N G
The Annual General Meeting will be held at 15.00 and if an insufficient quorum, at 16.00 on 28 April 2004
at Budapest 1143, Stefánia út 34.
I N V E S T O R R E L A T I O N S A C T I V I T I E S
The Company reports formally to shareholders four times a year, as its quarterly non-audited results are
announced, and publishes its Annual Report including audited figures by the date of the Annual General
Meeting. The AGM of the Company takes place in Budapest and formal notification is sent to shareholders at
least four weeks in advance. At the Meeting a business presentation is made to shareholders by the Managing
Director, and all Directors are available during the meeting for questions.
The Managing Director and the Investor Relations Manager maintain a dialogue with institutional shareholders on
Company 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 conferences
and 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 the
quarterly reports and occasionally following announcements related to the Company's operating activities.
CONFERENCESMerrill Lynch New York, ”Global Pharmaceutical, Biotechnological & 5-7 February 2003 Medical Device Conference” (2003: Innovation Still Counts)IR Magazine Warsaw,”IR Magazine Central Eastern European Conference & Award” 17 September 2003Erste Bank Tatzmannsdorf,”Investor Relations Conference” 30 September - 3 October 2003ING Budapest,”5th Annual Central European Investment Forum” 25-26 November 2003
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1 3
I N F O R M A T I O N F O R S H A R E H O L D E R S
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 analysts
concerning information on Richter's business operations. The Company's Investor Relations Department, with
its 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 the
period end in English and Hungarian.
Contacts to the Investor Relations Department (International Finance Department):
Phone: +36-1 431 5764
Fax: +36-1 261 2158
E-mail: [email protected]
The table below contains the list of analysts who provided regular coverage about Gedeon Richter Ltd. in 2003:
E A R N I N G S P E R S H A R E
The net profit for the year amounted to HUF 33,678 million (US$ 150.3 million) which resulted in 'Headline
earnings per share' of HUF 1,807 per share (US$ 8.07 per share). The company describes as 'Headline earnings
per 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.
ROADSHOWS
New York 6-7 February 2003
Boston 10 February 2003
London 20-21 February 2003
London 19-20 May 2003
Frankfurt 24 June 2003
London, Edinburgh 10-12 September 2003
Boston, New York, San Diego, San Francisco 22-26 September 2003
COMPANY ANALYST
CA-IB Ms Katalin Dani
Cashline Mr József Miró
CIB Ms Mariann Trippon
Citigroup Mr Paolo Zaniboni
Mr Robert Bonte-Friedheim
Concorde Mr Attila Vágó
Deutsche Bank Ms Krisztina Kovács
Erste Ms Vladimíra Urbánková
COMPANY ANALYST
HSBC Mr Taher Gargour
K & H Equities Mr Péter Tordai
ING Mr Gergely Várkonyi
Nomura Ms Frances Cloud
OTP Ms Orsolya Rátkai
Raiffeisen Mr Bram Buring
UBS Warburg Mr György Oláh
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%
200
180
160
140
120
100
80
2003 01.01 01.02 01.03 01.04 01.05 01.06 01.07 01.08 01.09 01.10 01.11 01.12 2004
1 4
I N F O R M A T I O N F O R S H A R E H O L D E R S
D I V I D E N D
In accordance with the dividend policy implemented by the Company, the Board of Directors recommends the
payment 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 2003
totalled HUF 6,145 million (US$ 24.1 million) in respect of 2002. The portion payable in relation to ordinary
shares 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. The
record dates for these dividend payments were announced on 24 June 2003 with payments having commenced
on 23 July 2003.
S H A R E P R I C E P E R F O R M A N C E
The performance of the Budapest Stock Exchange showed a marked strengthening during 2003, the BUX index
having increased by 25 percentage to 9,914 points at 31 December 2003 from its January value (7,914 points
at 2 January 2003). However it underperformed most of other indices in the Central and Eastern European
region. The Gedeon Richter share price significantly outperformed the BUX and by the end of the year was as
high as 70 percent (HUF 24,555 at 31 December 2003) higher compared with its January price (HUF 14,845 at
2 January 2003), with a yearly high of HUF 27,000. Gedeon Richter shares traded on the SEAQ have also
outperformed Pharma indices linked to the FTSE index family. See the below charts for a brief comparison
of 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
Source: Reuters
Richter
BUX
CETOP20
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1 5
I N F O R M A T I O N F O R S H A R E H O L D E R S
M A R K E T C A P I T A L I S A T I O N *
US$ m*Calculations based onthe SEAQ share pricesand the total number ofshares issued
All data calculated as of31 December prices
94 95 96 97 98 99 00 01 02 03
2,500
2,000
1,500
1,000
500
0
%200
180
160
140
120
100
80
2003 01.01 01.02 01.03 01.04 01.05 01.06 01.07 01.08 01.09 01.10 01.11 01.12 2004
GEDEON RICHTER SHARE PRICES ON THE SEAQ COMPARED TOFTSE 350 PHARMA AND EUROPHARMA INDICES
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.
Source: Reuters
M A R K E T C A P I T A L I S A T I O N
The Company's market capitalisation almost doubled during 2003, reaching a value of US$ 2,199 million by the
end 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.
The Company reported excellent results in 2003 primarily due to dynamic growth recorded in the US market as
a result of steroid API supply agreements. It appears that the expanding US business including the ongoing
strategic cooperation with Barr Laboratories and the long term agreement with Johnson & Johnson as well as
the 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 in
Hungary offset investors positive perceptions regarding the overall development of the Company's business.
Richter on the SEAQ
FTSE 350 Pharma
FTSE Europharma
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M A N A G E M E N T R E P O R T
1 6
A N N U A L R E P O R T 2 0 0 3
M A N A G E M E N T R E P O R T
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 in
every 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 efforts
to broaden the partnership base and / or further increase the co-operation within
our existing partnership agreements. We are pleased to report that considerable
progress was made during the year in both areas.
Erik BogschManaging Director
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1 7
M A N A G E M E N T R E P O R T
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 five
for which we have already supplied APIs. Additionally, Barr has signed a letter of
intent in October 2003 to acquire the marketing rights for the emergency con-
traceptive PLAN B from Women's Capital Corporation, a current partner of
Richter. Barr also applied to the US FDA for OTC status of this product.
Steroid API shipments for the contraceptive patch of Johnson & Johnson were
continued. 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 certain
developing countries. In the EU, similar to the USA we work via partners, while
in the CIS and CEE we market these products through our own well established
and specialised sales network.
Our aim is to offer a full range of women's healthcare products and to achieve
this we license in products on a selective basis. Registration procedures were
ongoing during 2003 in the case of HRT patches (FEMSEVEN, FEMSEVEN PLUS
and FEMSEVEN COMBI) licensed in from Merck KgaA and the antifungal
GYNAZOL 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 sales
of lisinopril and spironolactone and steady sales of famotidine contributed
to the excellent results reported.
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1 8
M A N A G E M E N T R E P O R T
• 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 the
current conditions at our subsidiary and implemented a restructuring programme
in 2003. This includes product re-registrations in order to meet the ever increasing
regulatory standards, an increase of promotional activities and the introduction of
the specialisation of the sales force team and the product manager system, review
and analysis of the product portfolio. We have also started some investment proj-
ects in line with our capital expenditure obligation stipulated in the Privatisation
Contract.
• 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.
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1 9
M A N A G E M E N T R E P O R T
• 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 agenda
focused on our key strategic initiatives. By building on our strengths, we will meet
the challenges of the years ahead while contributing, as we always have, to the
health and well-being of people. We recognise the enormous dedication, loyalty
and knowledge of employees. We are grateful for their efforts and continued con-
fidence of you, our shareholders.
Erik BogschManaging Director
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A N N U A L R E P O R T 2 0 0 3
O P E R A T I N G R E V I E W
2 0
O P E R A T I N G R E V I E W
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2 1
O P E R A T I N G R E V I E W
CIS 24 %
EU, USA and other markets31 %
Central and Eastern Europe 15 %
Hungary30 %
S A L E S A N D S A L E S G R O W T H B Y R E G I O N
2003 2002 Growth 2003 2002 Growth
HUF m HUF m % US$ m US$ m %
Hungary 34,050 29,997 13.5 152.0 117.5 29.4
EU, USA and other markets 38,738 30,340 27.7 172.9 118.9 45.4
CIS 25,944 23,692 9.5 115.9 92.9 24.8
Central and Eastern Europe 17,927 15,279 17.3 80.0 59.8 33.8
Export 82,609 69,311 19.2 368.8 271.6 35.8
Total 116,659 99,308 17.5 520.8 389.1 33.8
S A L E S B R E A K D O W N B Y C U R R E N C Y
S A L E S B R E A K D O W N B Y R E G I O N
2 0 0 3 2 0 0 2
M A R K E T S
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 the
Hungarian markets were primarily responsible for the substantial growth reported.
CIS22 %
EU, USA and other markets33 %
Central and Eastern Europe16 %
Hungary29 %
50 % ofCompany sales are US$denominated
EUR
EURHUF
US$US$
Hungary
EU, USA and other markets
Central and Eastern Europe
CIS
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O P E R A T I N G R E V I E W
2 2
H U N G A R Y
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 payment
problems. Financial measures were taken by the Government and the Central Bank during the year. These
included an upward change to the parity of the target HUF/EUR band and an increase of the standard rate of
interest several times in 2003. Besides fluctuations to the exchange rates, both US dollar and the Euro relative
to 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 introduced
price changes for reimbursed pharmaceutical products. Another price increase for reimbursed products with a
lower 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: with
effect 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 introduced
for pharmaceutical products in Hungary from 1 January 2004, and this resulted in some additional stock-piling
during 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, Gedeon
Richter signed an agreement with the National Health Insurance Fund in August which provided a temporary
solution in respect of reimbursement regulations for the second half of 2003. According to the agreement, the
Company paid approximately HUF 700 million contribution to the National Health Insurance Fund. This payment
was based on the excess over the reimbursement budget allocated for Richter products for the period between
1 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 new
third-generation oral contraceptive LINDYNETTE, containing gestodene, was introduced in Hungary during the
third 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 interferon
beta-1a). According to the agreement, Gedeon Richter Ltd. has exclusive marketing and distribution rights to
AVONEX 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.
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O P E R A T I N G R E V I E W
2 3
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, was
led 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 their
previous 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 multivitamin
CENTRUM (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.
T O P 1 0 P R O D U C T S I N H U N G A R Y
Active Therapeutic 2003 2002 Changeingredients area HUF m HUF m HUF m %
NORMODIPINE amlodipine Antihypertensive 4,981 3,617 1,364 37.7
EDNYT/ enalapril/ Antihypertensive 3,328 3,604 -276 -7.7
LISOPRESS lisinopril
QUAMATEL famotidine Antiulcer 3,022 2,581 441 17.1
Oral hormones Gynaecology 2,372 1,827 545 29.8
Contraceptives
CAVINTON vinpocetine Central Nervous System 2,011 1,884 127 6.7
MYDETON tolperisone Muscle relaxant 1,131 1,196 -65 -5.4
CENTRUM vitamins Multivitamins 1,089 924 165 17.9
REXETIN paroxetine Antidepressant 996 908 88 9.7
MYCOSYST fluconazole Antifungal 817 832 -15 -1.8
LANSONE lansoprazole Antiulcer 765 615 150 24.4
Subtotal 20,512 17,988 2,524 14.0
Others 13,538 12,009 1,529 12.7
Total 34,050 29,997 4,053 13.5
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2 4
O P E R A T I N G R E V I E W
S A L E S T O T O P 1 0 E X P O R T M A R K E T S
2003 2002 Growth
US$ m US$ m US$ m %
USA 92.1 57.5 34.6 60.2
Russia 78.4 66.9 11.5 17.2
Poland 27.7 21.1 6.6 31.3
Germany 21.4 10.0 11.4 114.0
Ukraine 17.3 12.5 4.8 38.4
Czech Republic 11.7 9.5 2.2 23.2
Japan 11.6 8.4 3.2 38.1
Baltic States 10.8 7.6 3.2 42.1
Slovakia 9.9 6.3 3.6 57.1
Romania 9.8 7.9 1.9 24.1
Total top 10 markets 290.7 207.7 83.0 40.0
Total export 368.8 271.6 97.2 35.8
Share of the top markets 79 % 76 %
E X P O R T S A L E S B R E A K D O W N B Y R E G I O N
2 0 0 3 2 0 0 2
CIS 31 %
Central and Eastern Europe22 %
EU, USA andother markets47 %
CIS 34 %
Central and Eastern Europe22 %
EU, USA andother markets44 %
E X P O R T
Exports amounted to US$ 368.8 million in 2003, a substantial increase of US$ 97.2 million or 35.8 percent over
2002. Sales to EU, USA and other markets increased 45.4 percent, an excellent performance which was a key
driver of the strong growth reported. Almost 50 percent of our export sales were realised in this region led by
the expanding steroid API sales to the US market. Sales to Central and Eastern Europe (invoiced in euros and
reported in US$) also increased significantly, 33.8 percent, while good growth of 24.8 percent in the CIS also
contributed to the higher sales levels reported.
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2 5
O P E R A T I N G R E V I E W
E U , U S A A N D O T H E R M A R K E T S
EU, USA and other markets significantly outperformed the Company's other regions during the year. Sales
totalled US$ 172.9 million in 2003, an excellent increase of US$ 54.0 million, or 45.4 percent when compared
to the previous year. This region, the USA and EU markets in particular, contributed strongly to the record
export sales levels reported in 2003. Sales growth of 60 percent was achieved in the USA while in the EU sales
growth of 64 percent was recorded (38 percent in euro terms).
E U , U S A A N D O T H E R M A R K E T S S A L E S B Y A R E A S
2003 2002 Growth
US$ m US$ m %
EU 42.8 26.1 64.0
USA 92.1 57.5 60.2
Other markets 38.0 35.3 7.6
Total 172.9 118.9 45.4
T O P 1 0 P R O D U C T S I N E X P O R T M A R K E T S
Active Therapeutic 2003 2002 Growthingredients area US$ m US$ m US$ m %
Oral hormones Gynaecology 124.6 85.5 39.1 45.7
Contraceptives
EDNYT/ enalapril/ Antihypertensive 38.2 28.5 9.7 34.0
LISOPRESS lisinopril
CAVINTON vinpocetine Central Nervous System 36.6 28.0 8.6 30.7
QUAMATEL famotidine Antiulcer 24.8 19.8 5.0 25.3
VEROSPIRON spironolactone Diuretic 18.7 13.3 5.4 40.6
PANANGIN asparaginates Cardiovascular 13.9 12.4 1.5 12.1
MYCOSYST fluconazole Antifungal 13.0 3.3 9.7 293.9
MYDETON tolperisone Muscle relaxant 12.4 8.9 3.5 39.3
PREDNISOLON prednisolone Antiinflammatory 10.3 8.6 1.7 19.8
NORMODIPINE amlodipine Antihypertensive 8.6 2.5 6.1 244.0
Subtotal 301.1 210.8 90.3 42.8
Other 67.7 60.8 6.9 11.3
Total 368.8 271.6 97.2 35.8
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2 6
O P E R A T I N G R E V I E W
S A L E S B R E A K D O W N O F E U , U S A A N D O T H E R M A R K E T S
USA 53 %
Other markets22 %
EU 25 %
USA 48 %
Othermarkets30 %
EU 22 %
L I C E N C I N G P A R T N E R S O F G E D E O N R I C H T E R
Company Location Product Active Therapeuticlicenced in ingredients area
Biogen USA AVONEX recombinant Multiple sclerosis
International BV human interferon
beta-1aKV Pharmaceutical USA GYNAZOL butoconazole Gynaecology
CompanyAlmirall Spain AFLAMIN aceclofenac Antiinflammatory
ProdesfarmaMerck KgaA Germany FEMSEVEN hormones Gynaecology,
FEMSEVEN COMBI Hormone Replacement
FEMSEVEN PLUS TherapyTakeda Chemical Japan LANSONE lansoprazole Antiulcer
Industries, Ltd.Fujisawa Japan SUPRAX cefixime Antibiotic
Healthcare, Inc.Lek d.d. Slovenia AKTIL amoxicillyn, Antibiotic
clavulanic acid
As one of the Company's primary objectives has been and remains to expand its business in the field of
women's healthcare, it is pleasing to report that sales of gynaecological products represented 56 percent of
total EU, USA and other markets sales, with excellent 57 percent growth year-on-year.
2 0 0 3 2 0 0 2
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2 7
O P E R A T I N G R E V I E W
US$ m
93 94 95 96 97 98 99 00 01 02 03
100
80
60
40
20
0
USA
Russia
E U , U S A A N D O T H E R M A R K E T S S A L E S B Y F O R M U L A T I O N
2003 2002 Growth
US$ m US$ m %
Bulk products 128.0 89.0 43.8
(API, active pharmaceutical ingredients)
Finished products 41.8 29.0 44.1
Royalty 3.1 0.9 244.4
Total 172.9 118.9 45.4
SALES COMPARISON: USA AND RUSSIA
U S A
The excellent reported performance results primarily from management's successful efforts to expand the
Company's business with a niche portfolio in the competitive US market. Turnover in the USA surpassed Russia
for the first time in the Company's history. Significantly increased API sales to the USA totalled US$ 89.5 million
during 2003, and now represent 70 percent, compared with 63 percent in 2002, of the Company's total API
sales. 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 with
Barr Laboratories, Inc., the second largest player by cycles / the third largest player by value of the current
hormonal contraceptive market in the US market. Gedeon Richter Ltd. currently supplies steroid APIs for
eight of Barr's oral contraceptive products.
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2 8
O P E R A T I N G R E V I E W
According to the long-term strategic partnership agreement, Barr will distribute and market fluconazole tablets
following 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 enables
the Company to prepare for the launch of its first finished generic supply to the US market which is expected to
occur during the second half of 2004.
Additionally, Barr signed a letter of intent on 2 October 2003 to acquire the marketing rights for the emergency
contraceptive, 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 the
last quarter of 2003 to the FDA for OTC status of the emergency contraceptive product. Barr's request is currently
under review at the FDA.
These steps are considered as further links which strengthen the co-operation and partnership between the two
companies.
Gedeon Richter has also signed a long-term supply agreement with Johnson & Johnson. Increased steroid API
shipments to Ortho-McNeil, a Johnson & Johnson subsidiary focusing on female healthcare primarily related to their
contraceptive patch, also contributed to the significant year-on-year sales growth reported. Johnson & Johnson
launched the product in the USA in April 2002 and in certain EU countries during the second half of 2003.
B A R R ' S O R A L C O N T R A C E P T I V E S T O W H I C H
G E D E O N R I C H T E R S U P P L I E S A C T I V E I N G R E D I E N T S
Brand name Launch date Originator Original
of product brand name
APRI September 1999 RW Johnson Ortho-Cept
Organon Desogen
AVIANE May 2001 Wyeth Ayerst Alesse
KARIVA April 2002 Organon Mircette
ENPRESSE July 2002 Wyeth Ayerst Triphasil
Berlex Tri-Levlen
CRYSELLE August 2002 Wyeth Ayerst Lo-Ovral
LESSINA April 2002 Berlex Levlite
PORTIA July 2002 Wyeth Ayerst Nordette
Watson Levora
SEASONALE October 2003 Barr's own development
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2 9
O P E R A T I N G R E V I E W
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 IVAX
Corporation, 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.
E U
The outstanding performance of Gedeon Richter on the EU markets in 2003 was generated by both the generic
finished 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 and
enalapril 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 with
other, finished-form and API contraceptives were also responsible for the sales growth recorded.
O T H E R M A R K E T S
As a result of the recent trends in both the USA and EU, the proportion of other markets within the region
became 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 other
countries and sales of the cardiovascular PANANGIN (asparaginates) to China continued in 2003 and are expected
to generate further growth in the future.
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3 0
O P E R A T I N G R E V I E W
S A L E S T O T H E C I S
US$ m
93 94 95 96 97 98 99 00 01 02 03
120
100
80
60
40
20
0
C I S
2003 was a year of significant success for the Company as indicated by higher than market average growth and its
sales levels surpassed the turnover achieved in 1997, the previous peak year in the Company's CIS history. Sales to
the 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 economic
environment was favourable in Russia due to the high level of oil prices and the stable rouble exchange rate which
resulted in an increase in the level of real wages. General market conditions are expected to be further improved as
a result of the positive impact of the Parliamentary elections held in the fourth quarter of 2003 and the Presidential
elections 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 results
during 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 maintained
its 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 positive
impact of the Russian economy, market conditions have improved in Ukraine. The successful performance reported
was due to both traditional and new products such as the range of oral contraceptives, DIROTON and PANANGIN
contributing significantly to the good results.
Excellent sales in other republics totalled US$ 20.2 million during 2003, representing an outstanding 50.3 percent
growth over 2002 and an even higher proportion within the Company's CIS turnover. The most notable sales and
sales growth were recorded in Uzbekistan, Belarus and Kazakhstan. The latter became one of the Company's largest
selling export markets with sales level of US$ 9.1 million.
Ukraine
Russia
otherrepublics
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3 1
O P E R A T I N G R E V I E W
Bulgaria7 %
Slovakia12 %
Poland35 %
Vietnam6 %
Baltic States13 %
Romania12 %
Czech Republic15 %
S A L E S B R E A K D O W N I N C E N T R A L A N D E A S T E R N E U R O P E I N 2 0 0 3
Good overall sales growth was achieved and the Company outperformed the market average. The most substantial
group 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, further
expanded our sales force teams and continued the specialisation of the sales force during 2003. We are pleased to
report that as a result of the efficient work of the sales staff the proportion of those products launched since the mid
1990's continued to outperform significantly the Company's average in this region and represented 25 percent of
total CIS sales in 2003 compared to the 19 percent in 2002.
C E N T R A L A N D E A S T E R N E U R O P E
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 to
face challenges as a result of changes in reimbursement systems, reimbursement budget restrictions, payment
problems at hospitals, delayed publishing of prices and new product launches during 2003. Consequently, the
enhanced role and activity of our expanded and specialised sales force teams were considered even more
important and their increased efficiency and efforts contributed strongly to the higher sales recorded.
N E W P R O D U C T L A U N C H E D D U R I N G 2 0 0 3
Brand name Active ingredients Therapeutic area
AVONEX recombinant human interferon beta-1a Multiple sclerosis
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3 2
O P E R A T I N G R E V I E W
During 2003, the Company's largest market in the region, Poland recorded sales of US$ 25.2 million (excluding
shipments to GZF Polfa), representing a substantial 22.4 percent growth over the prior year. This was primarily
due 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 Company
reported an excellent 57.1 percent growth in sales in 2003 primarily due to the success of those products
which 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 a
healthy 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. reported
non-consolidated sales of US$ 7.2 million in 2003, representing a 33.3 percent growth over 2002. In Bulgaria
the Company reported significant 43.1 percent sales growth, resulting primarily from higher sales of
NEW PRODUCT LAUNCHES DURING 2003
Country Brand name Active ingredients Therapeutic area
Poland AVONEX recombinant human Multiple sclerosis
interferon beta-1a
EMETRON ondansetrone Antiemetic
TERBISIL terbinafine Antifungal
MYCOSYST fluconazole Antifungal
FEMSEVEN hormones Gynaecology, Hormone,
Replacement Therapy
Czech Republic DEPREXIN fluoxetine Antidepressant
TRIAKLIM hormones Gynaecology, Hormone
Replacement Therapy
ESTRIMAX hormones Gynaecology, Hormone
Replacement Therapy
Baltic States TRIAKLIM hormones Gynaecology, Hormone
Replacement Therapy
ESTRIMAX hormones Gynaecology, Hormone
Replacement Therapy
REXETIN paroxetine Antidepressant
Slovakia EMETRON ondansetrone Antiemetic
ESTRIMAX hormones Gynaecology, Hormone
Replacement Therapy
REXETIN paroxetine Antidepressant
Romania TONOLYSIN lisinopril Antihypertensive
MYCOSYST fluconazole Antifungal
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3 3
O P E R A T I N G R E V I E W
CAVINTON, oral contraceptives, DIROTON and QUAMATEL. In Vietnam outstanding sales growth of 32.7 percent
was 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$ terms
year-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 and
launch new products in the region during 2003. The proportion of those products which have been launched
since the mid 1990's has been growing rapidly in recent years and represented 28 percent of total sales in
2003 compared to 24 percent reported one year ago.
F E M A L E H E A L T H C A R E – C O M P E T I T I V E E D G E
The manufacture of gynaecological products by Gedeon Richter Ltd. goes back all the way to the foundation of
the Company in 1901. In the spirit of this tradition, in additional to oral contraceptive product portfolio serving
women's health care and helping them attain a higher quality of life has been supplemented in the new millenium
with hormone replacement therapy products, building on the experience and know how gained in the course of
steroid production.
In harmony with its tradition for innovative efforts, the Company has pursued coordinated development in the
field of steroid chemistry for several decades. As a result, research, development and production of steroid agents
and hormonal contraceptives have recently gained strategic importance and Gedeon Richter became one of the
few producers of steroids in the world.
As part of its traditional innovation activity, in the past decade the Company has set up research and production
facilities that meet the expectations of even the most demanding US and EU markets. By the turn of the millenium
substantial sums had been invested primarily in the overhaul and modernisation of the instrumentation involved in
research 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 within
the Budapest factory for the manufacture of gynaecological products. Similar facilities are operated only by a
few multinational companies worldwide. Moreover, a steroid production facility meeting latest production and
environmental 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 finished
products 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 products
which 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 the
Hungarian authorities (National Institute of Pharmacy) but also by the FDA (Food and Drug Administration) of the
USA and several other quality controlling institutions appointed by various Western European companies. Richter
production facilities meet even the highest quality requirements.
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O P E R A T I N G R E V I E W
3 4
In Hungary Company experts manufacture hormonal preparations, a much more complex and longer process than
production of any other pharmaceutical products assisted increasingly by computer controls which monitor each
and 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 reputation
and success of the Company are primarily due to its oral contraceptives. The aim of the Company remains to provide
access to its gynaecological products for as many women as possible worldwide. The competitiveness of the
Company is based on and guaranteed by the widely appreciated knowledge of its employees in the field of steroid
chemistry, 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 and
showed an excellent 43 percent increase over 2002 reported sales levels.
MAIN ORAL CONTRACEPTIVES OF GEDEON RICHTER
Brand name Active ingredients(1) Generation Regions where launched(2)
LINDYNETTE gestodene third Hungary
REGULON desogestrel third Hungary; CIS; CEE; EU, USA and other markets
NOVYNETTE desogestrel third Hungary; CIS; CEE; EU, USA and other markets
RIGEVIDON levonorgestrel second Hungary; CIS; CEE; EU, USA and other markets
TRI REGOL levonorgestrel second Hungary; CIS; CEE; EU, USA and other markets
OVIDON levonorgestrel second Hungary; CIS;
EU, USA and other markets
FERTILAN levonorgestrel second Hungary; EU, USA and other markets
ANTEOVIN levonorgestrel second Hungary; CIS; CEE
FEMINA desogestrel third EU, USA and other markets
POSTINOR levonorgestrel emergency Hungary; CIS; CEE; (RIGESOFT in Hungary, contraceptive EU, USA and other marketsLEVONELLE 2 in the EU,PLAN B in the USA)
Notes: (1) In case of all products: plus ethinyl estradiol.(2)
Products are launched in certain countries of the given region.
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O P E R A T I N G R E V I E W
3 5
D Y N A M I C S A L E S G R O W T H O F G Y N A E C O L O G I C A L P R O D U C T S
US$ m
93 94 95 96 97 98 99 00 01 02 03
160140120100
80604020
0
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-operation
between the two companies will be further extended, as Barr Laboratories signed a letter of intent on 2 October 2003
to 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 OTC
status 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 in
female 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 2003
and 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 second
and third generation oral contraceptives in the EU and other markets. Under a long-term supply agreement with
the 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 country
within 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 and
Eastern European region reflecting the favourable impact of the efficiency of the specialised sales force teams set
up in 2000. This product group represented 27 percent of total Central and Eastern European (CEE) sales. In the
CIS sales of gynaecological drugs represented 21 percent of the Company's total sales in this market. We consider
it most likely that per capita use of oral contraceptives in Central and Eastern Europe and in the CIS will rise steadily
in the next few years, as it is currently at a significantly lower level than in the EU countries and in the USA.
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O P E R A T I N G R E V I E W
G Y N A E C O L O G I C A L P R O D U C T S ' S A L E S B Y R E G I O N S
Share within Sales growthregion sales in 2003
US$ US$Hungary 9 % 36 %
EU, USA and other markets 56 % 57 %
CIS 21 % 14 %
CEE 27 % 34 %
Total 30 % 43 %
P R O D U C T S B Y P R O D U C T T Y P E
2 0 0 3 1 9 9 3
Reproduction / Generic
74 %
Own developed compounds 15 %
Licensed-in11 %
Reproduction / Generic
63 %
Own developed compounds 21 %
Licensed-in16 %
In line with the Company's aim to offer a full range of women healthcare products, we enhanced our hor-
mone replacement therapy portfolio by three hormone replacement therapy products: FEMSEVEN, FEMSEV-
EN PLUS and FEMSEVEN COMBI licensed in from Merck KgaA in addition to the already existing PAUSOGEST,
TRIAKLIM and ESTRIMAX.
P R O D U C T S
Gedeon Richter as a medium sized independent pharmaceutical company in Central Europe, has to find thera-
peutic areas in which it has competitive advantage in order to remain competitive in a challenging environ-
ment. Based on its special chemistry and process development knowledge the Company is focusing on female
healthcare and as far as its original research is concerned on the field of Central Nervous System (CNS). Beyond
these two areas, Gedeon Richter is experienced and successful in developing products in other therapeutic
fields, such as cardiovascular and gastrointestinal.
3 6
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O P E R A T I N G R E V I E W
S A L E S O F N E W P R O D U C T S B Y R E G I O N I N 2 0 0 3
Proportion Sales growthof sales in 2003
in US$ terms in US$ terms
Hungary 66 % 35 %
EU, USA and other markets 40 % 43 %
CIS 25 % 63 %
CEE 28 % 60 %
Total 42 % 43 %
The product portfolio by product type has remained relatively steady for a number of years. In 2003 15 percent
of total sales was generated by products originating from the Company's original research and an increased
share of 74 percent was accounted for by reproduction and generic products in 2002. A further 11 percent of
the 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 early
1990's and it continues to do so, withdrawing low volume and low margin products and introducing new products
with improved profit potential. Progress by the Company in increasing sales of new products continued in 2003, as
product 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 in
Hungary, 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 compared
to Hungary. This proportion however has been growing rapidly in CEE during recent years and represented
28 percent of total sales in 2003, while in the CIS region this product group accounted for 25 percent. Due
to the continued supply of generic and gynaecology products both to the USA or EU markets, sales arising
from new product launches represented 40 percent of the Company's turnover in this region.
Szív- és érrendszer 24 %
Fekélyellenes 9%
Nõgyógyászat 28%
P R O D U C T S B Y T H E R A P E U T I C G R O U P
3 7
Other19 %
CNS14 %
Gastrointestinal9 %
Cardio- vascular
24 %
Gynaeocology30 %
Cardio-vascular10 %
Musclerelaxants4 %
Other39 %CNS
30 %
Gynaeocology8 %
Gastrointestinal9 %
2 0 0 3 1 9 9 3
Muscle relaxants4 %
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O P E R A T I N G R E V I E W
3 8
LIST OF MAJOR PRODUCTS LAUNCHED SINCE 1993
Brand name Active Therapeutic area Launch date Introduced in other regions(1)
ingredients in Hungary
QUAMATEL famotidine Antiulcer 1993 CIS; CEE; EU, USA and other markets
ACC(2) acetylcystein Expectorant 1994 -
CENTRUM(2) vitamins Multivitamin 1994 -
EDNYT enalapril Antihypertensive 1994 CIS; CEE; EU, USA and other markets
CURIOSIN hyaluronicum zinc Wound healing agent, 1996 CIS; CEE; EU, USA and other marketstopical anti-acne preps.
FEMINA desogestrel+ Gynaecology, - EU, USA and other marketsethinylestradiol oral contraceptive
STREPSILS(2) amylmetacresol+ Antiseptic / Pharyngeal 1996 -dichlorobenzyl alc. preparations
AKTIL(2) amoxycillin and Antibiotic 1997 -clavulanic acid
FERTILAN levonorgestrel+ Gynaecology, 1997 EU, USA and other marketsethinylestradiol oral contraceptive
LANSONE(2) lansoprazole Antiulcerant, 1997 -Proton-pump, inhibitor
LISOPRESS lisinopril Antihypertensive 1997 CIS; CEE; EU, USA and other markets
NOVYNETTE desogestrel+ Gynaecology, 1997 CIS; CEE; EU, USA and other marketsethinylestradiol oral contraceptive
REGULON desogestrel+ Gynaecology, 1997 CIS; CEE; EU, USA and other marketsethinylestradiol oral contraceptive
EMETRON ondansetrone Antiemetic 1998 CIS; CEE
SUPRAX(2) cefixime Antibiotic / Cefalosporin 1998 CIS; CEE
NORMODIPINE amlodipine Antihypertensive 1999 CIS; CEE; EU, USA and other markets
MYCOSYST fluconazole Antifungal 1999 CIS; CEE; EU, USA and other markets
DEPREXIN fluoxetine Antidepressant 1999 CIS; CEE; EU, USA and other markets
HYRON terazosin Antidepressant 1999 -hypertrophy
PROSTERID finasterid Benign prostata 1999 -hypertrophy
PAUSOGEST estradiol+ Gynaecology, Hormone 1999 CIS; CEE; EU, USA and other marketsnorethisterone acetate Replacement Therapy
NUROFEN(2) ibuprofen Antiinflammatory 2000 -
REXETIN paroxetine Antidepressant 2001 CEE; EU, USA and other markets
TERBISIL terbinafine Antifungal 2001 CIS; CEE; EU, USA and other markets
AFLAMIN(2) aceclofenac Antiinflammatory 2001 -
TRIAKLIM estradiol+ Gynaecology, Hormone 2001 CEE; EU, USA and other marketsnorethisterone acetate Replacement Therapy
ESTRIMAX estradiol Gynaecology, Hormone 2001 CIS; CEE; EU, USA and other marketsReplacement Therapy
AVONEX(2) recombinant human Multiple sclerosis 2003 CIS; CEEinterferon beta-1a
LINDYNETTE gestodene+ Gynaecology, 2003 -ethinylestradiol oral contraceptive
Notes: (1) Products are launched in certain countries of the given region (2) Licenced-in products
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3 9
O P E R A T I N G R E V I E W
Cardiovascular drugs continued to represent a high share of total sales, accounting for 24 percent of the
Company's sales in 2003. One of the Company's most successful product launches has been the introduction
of 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 of
the CIS republics and in almost all CEE countries. The ACE-inhibitor, LISOPRESS, containing lisinopril contributed
significantly 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, and
partly because of continued sales to our partners in the EU. LISOPRESS was gradually launched both in CEE and
CIS countries during the last couple of years, under the tradename DIROTON. Although sales of the Company's
other ACE-inhibitor, EDNYT containing enalapril have reached maturity level, the product contributed strongly
to the total sales achieved in 2003. We are pleased to report that the sales to all export markets, particularly
to the USA of both the finished and bulk form of the diuretic VEROSPIRON containing spironolactone were also
responsible for the reported growth. The performance of PANANGIN containing asparaginates and particularly
marketed 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 contributor
being CAVINTON, a cerebral oxygenation enhancer. Total sales of CAVINTON remained flat in 2003, compared
to 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 quickly
become one of the Company's leading products in Hungary.
Gastrointestinal products represented 9 percent of total sales, the main contributor being the H2-blocker
QUAMATEL, containing famotidine, which retained a market leadership position in its therapeutic category
with good sales growth in Hungary and showed good results in the CIS and CEE export markets. The Company
continued 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 in
the EU also contributed to the increased sales levels reported for this product.
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4 0
O P E R A T I N G R E V I E W
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 Eastern
European countries, in the CIS and also in Hungary, and showed promising results in Germany. The positive
results 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 potential
of 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 and
Portugal. We are pleased to report that further increased sales of the product is expected, as Gedeon Richter
has 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 half
of 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.
T O P 1 0 P R O D U C T S
Active Therapeutic 2003 2002 Change
ingredients area HUF m HUF m HUF m %
Oral hormones Contraceptives 30,285 23,648 6,637 28.1
Contraceptives
EDNYT/ enalapril/ Antihypertensive 11,888 10,870 1,018 9.4
LISOPRESS lisinopril
CAVINTON vinpocetine Central Nervous System 10,200 9,019 1,181 13.1
QUAMATEL famotidine Antiulcer 8,576 7,642 934 12.2
NORMODIPINE amlodipine Antihypertensive 6,908 4,245 2,663 62.7
VEROSPIRON spironolactone Diuretic 4,444 3,658 786 21.5
MYDETON tolperisone Muscle relaxant 3,902 3,469 433 12.5
MYCOSYST fluconazole Antifungal 3,728 1,683 2,045 121.5
PANANGIN asparaginates Cardiovascular 3,457 3,521 -64 -1.8
PREDNISOLON prednisolone Antiinflammatory 2,945 2,804 141 5.0
Subtotal 86,333 70,559 15,774 22.4
Others 30,326 28,749 1,577 5.5
Total 116,659 99,308 17,351 17.5
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O P E R A T I N G R E V I E W
4 1
R E S E A R C H A N D D E V E L O P M E N T
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 on
chronic pain, painful spasticity, schizophrenia, anxiety and Alzheimer's disease. Out of the approximately
20 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 & Johnson
during recent years. As far as the potential late stage clinical trials are concerned we aim to target either major
multinationals or specialty pharma companies to cooperate for both joint development activities and share the
significant costs and risks of the trials.
Restructuring of our Research organisation which has occurred during the past five years has contributed to
delivering a high quality research portfolio based on quality of science, innovation and speed. Similarly, high
quality laboratories are also critically important factors which lead to an increase in productivity of our original
research. 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 completed
during 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 has
created 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 we
adopt our pharmacovigilance system to the required level as regards the individual case safety reporting. The
required 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 several
active pharmaceutical ingredients and finished products continued so as to create opportunities for further
product 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 approval
in 2003. The same product has been successfully registered in most of the EU countries through the Mutual
Recognition Procedures (MRPs).
Regulatory activities accelerated during the year in both the EU and USA areas and the traditional markets, and
resulted 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 to
HUF 9,397 million (US$ 42.0 million), representing 8.0 percent of the Company's turnover.
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O P E R A T I N G R E V I E W
4 2
P R O D U C T I O N
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 gynaecology
areas, 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 from
Budapest to Dorog continued in 2003. As a result of significantly increased demand for steroid API, primarily
due to long-term supply agreements with customers in the USA, capital expenditure projects were started in
2002 with the aim of increasing the capacity of the related manufacturing facilities. A steady increase in
demand 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 this
aims to contribute in capacity planning and production optimisation.
During the year several audits of specific chemical manufacturing processes were undertaken by international
pharmaceutical companies with whom the Company has supply agreements. In addition, the Hungarian
authority (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.
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4 3
O P E R A T I N G R E V I E W
C O R P O R A T E S O C I A L R E S P O N S I B I L I T Y
We are subject to extensive regulation in the field of quality and environmental, health and safety matters in
the countries where we manufacture and sell our products. We expect such regulation to become increasingly
stringent 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.
S A F E T Y , H E A L T H A N D E N V I R O N M E N T ( S H E )
At the core of our SR agenda is our commitment to good safety, health and environmental performance. We
pay particular attention to provide a safe workplace environment. Training in the field of safety and regular
reviews of safety procedures together with continually improving technological standards in all our facilities are
key elements of our efforts made in this field. Advancing safety, preventing occupational injuries, work-related
accidents 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 remains
compliant 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 and
includes reduction of noise pollution.
As a part of the capital expenditure programme, transferring the steroid manufacturing from Budapest to
Dorog we carried out experiments in pilot scale of enhancement of the sewage treatment system in 2003. The
conceptual plan was completed in 2003 and the application for approval is expected to be submitted to the
authorities during 2004.
Following the purchase in late 2000 of the property of Magnezitipari Ltd., a plan for remediation of the site
was approved by the authorities in 2002. Soil decontamination work was completed and the related audit was
approved by the Authorities during the reported year. Construction of a waste water pre-treatment facility has
been also started in 2003, which includes an emergency reservoir in the future. The separation of industrial and
communal 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 and
Control 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-
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4 4
O P E R A T I N G R E V I E W
ment system was reinforced by Bureau Veritas Quality International. Safety assessment and documentation
according 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 site
has been accepted, while the one referring to our Dorog site is being under consideration by the authorities.
C O M M U N I T Y I N V O L V E M E N T
We recognise the importance of good relations with shareholders and employees, and in addition with all those
in society at large who have an interest in Gedeon Richter's activities and progress. We are fully aware of our
social responsibility, and in this respect Gedeon Richter supports projects in the areas of healthcare, science and
education. 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 the
Technological University and University of Medical Science. On the occasion of its centenary in 2001 the Company
created a foundation which has as its aim the support of scientific research and university education in the field
of pharmaceutical research. The Company also supports certain health education initiatives designed to
increase 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.
H U M A N R E S O U R C E S
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 the
potential 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 diversity
of 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 kept
up 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 our
core values. Management training programmes continued in 2003 and involved all managers of the Company
both at medium and senior levels. A management development programme initiated in 2002 for young talented
colleagues prepared them for the future demands of Company continued in 2003. The Welcome programme for
young employees aims at giving an insight into Gedeon Richter's activities, its culture and values.
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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 a
performance culture. Performance based pay, both base and variable, share awards, development planning and
education 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 headcount
totalled 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. The
Company's headcount at its international offices totalled 765 in 2003, primarily due to the expanding sales and
marketing 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. and
172 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 graduate
educated 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 funding
of academic research. It is worthy to mention that it creates opportunities for researchers not only in Hungary
but 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.
4 5
O P E R A T I N G R E V I E W
T H E P R O P O R T I O N O F G R A D U A T E S
Number of white collar staff
95 96 97 98 99 00 01 02 03
2,500
2,000
1,500
1,000
500
0
70 %
60 %
50 %
40 %
30 %
20 %
Graduates %
Graduates
Whitecollar staff
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A N N U A L R E P O R T 2 0 0 3
F I N A N C I A L R E V I E W
4 6
F I N A N C I A L R E V I E W
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4 7
F I N A N C I A L R E V I E W
K E Y F I N A N C I A L D A T A
HUF m US$ m12 months ended 12 months ended
31 December 31 December
2003 2002 Growth 2003 2002 Growth% %
Total revenue 116,659 99,308 17.5 520.8 389.1 33.8
Gross profit 74,316 59,232 25.5 331.8 232.1 43.0
Gross margin % 63.7 59.6 63.7 59.6
Operating profit 34,619 25,143 37.7 154.5 98.5 56.9
Operating margin % 29.7 25.3 29.7 25.3
Profit before taxation 36,332 29,710 22.3 162.2 116.4 39.3
Net profit 33,678 28,180 19.5 150.3 110.4 36.1
Net margin % 28.9 28.4 28.9 28.4
EPS (HUF, US$) 1,807 1,512 19.5 8.07 5.92 36.1
Total assets and total share- 194,236 167,253 16.1 934.3 742.7 25.8holders' funds and liabilities
Shareholders' funds 182,050 154,922 17.5 875.7 687.9 27.3
Capital expenditure 20,053 17,419 15.1 89.5 68.3 31.0
Number of employees 5,466 5,124 6.7at year-end
12 months ended31 December 2003
Changes in the valuation Changes in the valuation of inventory are not included of inventory are included
Gross profit (HUF million) 67,701 74,316
Gross margin (%) 58.0 63.7
Operating profit (HUF million) 28,004 34,619
Operating margin (%) 24.0 29.7
G R O S S P R O F I T
Gross profit totalled HUF 74,316 million (US$ 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 effect
from 1 January 2003 which positively impacted the gross margin. Depreciation of manufacturing fixed
assets has been included in the valuation of inventory since the fourth quarter of 2000, while since 2001
maintenance costs have also been included in the valuation of inventory. To complete the changes which
were 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.
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4 8
F I N A N C I A L R E V I E W
Gross margins increased to 63.7 percent from 59.6 percent in the prior year. When the adjustment for the
change in the valuation of inventory is excluded gross margins decreased slightly to 58.0 percent compared
with the 59.6 percent level reported in the same period of 2002. The favourable impact of the higher level of
shipments, primarily the steroid API supplies to the USA and the increased proportion of recently introduced
products primarily on the domestic market, were more than offset by the impact of the decline in the value of
the US$ and volatile market conditions which followed the exchange rate and interest rate measures intro-
duced in Hungary in 2003.
O P E R A T I N G P R O F I T
Operating profit at HUF 34,619 million increased by 37.7 percent from the HUF 25,143 million level reported
in 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 operating
profit 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 in
respect 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 the
adjustment, 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.
F I N A N C I A L I T E M S
“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 been
restated to reflect these changes.
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4 9
F I N A N C I A L R E V I E W
Net financial income is analysed in detail in the following table:
Net financial income totalled HUF 1,713 million (US$ 7.7 million) in 2003, reflecting a reduction of HUF 2,854
million (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 in
2003 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 has
to be reported at the end of each quarter during the year. The reassessment which occurred at the end of
December 2003 of the present value of all forward exchange contracts concluded resulted in an unrealised
financial income of HUF 1,820 million (US$ 8.1 million), compared to an unrealised financial income of
HUF 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 the
HUF 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 of
foreign 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/dollar
contracts. Management monitors closely the movements in HUF/US$ exchange rate and decides accordingly
about future contracts.
HUF m US$ m12 months ended 12 months ended
31 December 31 December
2003 2002 Change 2003 2002 Change
Realised forward exchange contracts 3,468 5,816 -2,348 15.5 22.8 -7.3
Unrealised forward exchange contracts -1,339 1,241 -2,580 -6.0 4.9 -10.9
Net interest income 2,075 1,628 447 9.3 6.4 2.9
Dividends 360 221 139 1.6 0.9 0.7
Impairment loss of investments -1,647 -992 -655 -7.3 -3.9 -3.4
Impairment loss of foreign currency loans -110 -321 211 -0.5 -1.3 0.8
Exchange losses realised on trade -438 -1,940 1,502 -2.0 -7.6 5.6
receivables and trade payables
Reassessment of currency related trade -431 -917 486 -1.9 -3.6 1.7
receivables and trade payables
Other financial items -225 -169 -56 -1.0 -0.7 -0.3
Net financial income 1,713 4,567 -2,854 7.7 17.9 -10.2
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5 0
F I N A N C I A L R E V I E W
Following a decision taken by the Hungarian Government a parity devaluation of 2.26 percent (from HUF/EUR 276
to HUF/EUR 282) of the +/- 15 percent target band has resulted since 4 June 2003. Between June and
November 2003 the Monetary Committee increased the standard rate of interest in three consecutive steps by
overall 6 percentage points, reaching by the end of November 2003 12.5 percent compared to the 6.5 percent
in early June.
Net interest income including interest income resulting from movements in the net value of open-ended bond funds
amounted 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 account
for an impairment loss at two of its investments.
Sales of Gedeon Richter-RUS, which were equivalent to approximately 4 percent of total Gedeon Richter sales
in 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 of
investment 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 this
will only be achieved gradually.
Following the acquisition of the majority stake of GZF Polfa, restructuring of the company has started. This has
resulted in an expanded sales and marketing network and the implementation of a 5-year capital expenditure
programme in the value of PLN 70 million. Decisions were made to stop manufacturing of non-profitable bulk
active ingredients and to transfer all the veterinary manufacturing activities to Bionet Drwalew, a subsidiary of
GZF Polfa. These are expected to improve the efficiency of the Polish company. To cover costs related to the
implementation of these measures provisions were made at GZF Polfa in 2003, which resulted in a loss and a
decrease 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 the
value 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.
EXCHANGE RATE MOVEMENTS DURING THE LAST TWELVE MONTHS
31 December 2003 30 September 2003 30 June 2003 31 March 2003 31 December 2002
HUF/EUR 262.65 255.20 267.30 246.72 235.60
HUF/US$ 208.30 218.52 233.98 226.37 224.86
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5 1
F I N A N C I A L R E V I E W
T A X A T I O N
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 percent
applicable in 2003, this equates to an effective rate of 7.2 percent. A HUF 2,211 million (US$ 9.9 million) income
tax charge was increased by a HUF 443 million (US$ 2.0 million) deferred tax charge. Accordingly, a tax charge
of 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 capital
expenditure programme, the Company expects to benefit from a further 100 percent tax holiday for the next few
years, in the best case scenario until 2011.
B A L A N C E S H E E T
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 at
31 December 2002, resulting from an increase both in Inventories and Investments in securities. The increased level of
Inventories 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 the
inclusion of profit for the period as Retained earnings.
Current liabilities at HUF 12,175 million on 31 December 2003 remained virtually unchanged as compared to
HUF 12,312 million at 31 December 2002.
C A S H F L O W
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 by
HUF 8,469 million during 2003. Significant amounts have been directed towards investments in fixed assets
and securities, and the payment of dividends. Overall, cash increased by HUF 1,633 million in 2003.
HUF m
12 months ended 12 months ended31 December 2003 31 December 2002
Net cash flow
From operating activities 34,005 33,520
From investing activities -20,565 -17,997
From financing activities -11,807 -9,659
Total 1,633 5,864
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5 2
F I N A N C I A L R E V I E W
C A P I T A L E X P E N D I T U R E
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 transfer
of the production of steroid active ingredients from Budapest to the Dorog site and at the same time to
increase 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 by
the end of 2004 expect to have finished the construction of a plant that manufactures steroid-based API for
non gynaecological purposes. In line with the steroid manufacturing capacity enlargement we have increased
significantly our fermentation capacity at Budapest site.
The reconstruction of the tank farm which was an important investment programme launched in 2000 ended
in 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 begin
during 2004.
In the field of information technology the main investment focus in 2003 was work to comply with the data
security requirements of the FDA.
In line with the Company's strategic goals to develop business in CIS and Central and Eastern European regions, we
continued in 2003 our investment projects.
Completed in 2003 at Gedeon Richter Romania S. A. (formed through the merger of Armedica S. A. and
Gedeon Richter Romania S. R. L.) was the reconstruction of the tabletting plant, together with the construc-
I N V E S T M E N T S A N A L Y S E D B Y F U N C T I O N
Research andDevelopment 4 %
Environmental1 %
IT4 %
Logistics 13 %
Production59 %
Other19 % Production
Logistics
Research and Development
IT
Environmental
Other
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5 3
F I N A N C I A L R E V I E W
tion of a new technical supply unit and the renewal of a microbiological laboratory and the installation of a
new manufacturing line for retard pellets. At GZF Polfa we concluded investments primarily concerned with the
implementation 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.
T R E A S U R Y P O L I C Y
The Company's treasury activities are co-ordinated and managed in accordance with procedures approved by
the Board of Directors.
The treasury function of the Company maintains responsibility for the financing of its activities both on the
domestic market and in the export regions and the administration of trade receivables and trade payables. It
also manages exchange rate risks relating to the Company's operations and ensures appropriate financial
income 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 exposed
to currency fluctuations. To manage this exposure, the Board of Directors has approved a strategy of foreign
exchange 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 continued
to conclude forward exchange contracts to manage its exposure to fluctuations in exchange rates. The
Company has concluded forward exchange contracts for 2004. All forward exchange contracts concluded have
an expiry on or before 30 September 2004, and they are all HUF/US$ based. Management monitors closely the
movements 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.
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5 4
C O R P O R A T E M A T T E R S
Preference shareholders are entitled to initiate conversion of their shares into ordinary shares. It is the Board of
Director's responsibility to determine the terms of the conversion and the conversion must be approved by the
Company's Annual General Meeting. The Annual General Meeting on 28 April 2003 approved the conversion of
1,806 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 effect
from 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 shares
issued by the Company. With respect to the dematerialisation, the Company published an announcement on
8 May 2003. The period for submitting the shares closed on 15 July 2003. Consequently, 18,627,887 registered
ordinary printed shares, each with nominal value of HUF 1,000 issued by the Company have been transformed
on 16 July 2003. As of 16 July 2003, the date of the transformation, all printed ordinary shares issued by the
Company will no longer be valid. The number of shares which were not turned in during the dematerialisation
period 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 the
realised income / amount. The price was HUF 20,806 per share.
A N N U A L R E P O R T 2 0 0 3
C O R P O R A T E M A T T E R S
31 December 2003 31 December 2002
Shares in issue Number Nominal value % Number Nominal value %HUF '000 HUF '000
Ordinary shares 18,627,887 18,627,887 99.9 18,626,081 18,626,081 99.9
Preference shares 9,599 9,599 0.1 11,405 11,405 0.1
Total shares 18,637,486 18,637,486 100.0 18,637,486 18,637,486 100.0
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5 5
C O R P O R A T E M A T T E R S
O W N E R S H I P S T R U C T U R E A S O F 3 1 D E C E M B E R 2 0 0 3
Domestic investors
Foreign investors
Hungarian Privatisation andState Holding Company(ÁPV Rt.)
O W N E R S H I P S T R U C T U R E A S O F 3 1 D E C E M B E R 2 0 0 3
Ordinary Voting Preference Total Registeredshares capital(1) shares shares capital
% %
Domestic
ÁPV Rt 4,659,373 25.04 - 4,659,373 25.00
Local Governments 48,869 0.26 - 48,869 0.26
Institutional investors 872,295 4.69 - 872,295 4.68
Private investors 762,771 4.10 9,589 772,360 4.15
Total 6,343,308 34.09 9,589 6,352,897 34.09
Foreign
Institutional investors(2) 12,263,979 65.91 - 12,263,979 65.80
Private investors 580 0.00 10 590 0.00
Total 12,264,559 65.91 10 12,264,569 65.80
Treasury shares 20,020 0.00 - 20,020 0.11
Registered capital 18,627,887 100.00 9,599 18,637,486 100.00
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.
T H E C O M P A N Y ' S R E G I S T E R E D S H A R E H O L D E R S
There were no significant changes relating to the shareholder structure of the Company during 2003. The share held
by the Hungarian Privatisation and State Holding Company (ÁPV Rt.) diminished slightly, by 0.2 percentage point, to
25.0 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:
As at 31 December 2003 the Company’s reported shareholders were:
ÁPV Rt.25.0 %
Domestic investors9.2 %
Foreigninvestors65.8 %
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5 6
C O R P O R A T E M A T T E R S
Shares held by the Company in Treasury increased during 2003 to 20,020 ordinary shares. The Company
purchased 137,113 Treasury shares at the Budapest Stock Exchange during 2003 as well as a further
55,140 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 share
programme, 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, on
17 December 2003 the Company granted 64,068 shares for 4,462 of its employees. These shares will be
deposited 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 Committee
and the Executive Board may be summarised as follows:
31 December 2003 31 December 2002
Board of Directors 10,604 11,148
Supervisory Committee 3,259 4,805
Executive Board 3,920 8,577
Total 17,783 24,530
S H A R E S H E L D B Y T H E C O M P A N Y I N T R E A S U R Y
31 December 2003 31 December 2002
Number 20,020 8,170
Nominal value (HUF '000) 20,020 8,170
Book value (HUF '000) 505,910 96,377
S H A R E S H E L D B Y T H E C O M P A N Y I N T R E A S U R Y
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5 7
C O R P O R A T E M A T T E R S
O T H E R I N F O R M A T I O N
• 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 April
2003. 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 Befektetési
Ltd. and Magyar Gyógyszer Ltd.) acquired further shares of Hungaropharma Rt. representing 10 percent
voting 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 the
Company 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 investor
Consortium, participated in a public tender issued for the sale of Hungaropharma shares at a nominal value
of 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 percent
ownership in Hungaropharma, totalling a 30.09 percent stake. The total participation of the Consortium in
Hungaropharma 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 of
the registered shares of Grodziskie Zaklady Farmaceutyczne Polfa (GZF Polfa Ltd.). On 30 December 2003
the share acquisition agreement was signed by Gedeon Richter Ltd. and the Polish State Treasury and the
purchase price of PLN 29.8 million was paid. The transaction increased Gedeon Richter Ltd.'s share in
GZF 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 region
breakdown according to the following listing:
Historical data will be furnished according to the new regional listing for comparative purposes.
REGION REGION LISTING
Hungary unchanged
CIS unchanged
USA new region
EU member states of the enlarged EU following 1 May 2004
Other countries 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
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5 8
C O R P O R A T E M A T T E R S
R E C E N T L I T I G A T I O N
• 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's
Laboratories Ltd., Reddy Cheminor, Inc., Andrx Corporation, Andrx Pharmaceuticals, Inc. and Carlsbad
Technology, Inc. in the U.S. District Court for the Eastern District at New York. This suit is directed
against famotidine sales by these companies in the United States, and seeks a permanent injunction
against the above-mentioned companies in respect of the manufacture, use or sale of famotidine, as
well 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 infringe
Pfizer's patent, i.e. the two procedures are different. The Metropolitan Court on 16 May 2001 rejected
Pfizer's appeal to nullify the decision of the Hungarian Patent Office. The decree issued by the Metropolitan
Court 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 Court
of Budapest. Therefore, the procedure for negative finding had been completed.
After the initiation of the above mentioned procedure for a negative judgement - commenced by the
Company - Pfizer Ltd. called into question, whether Gedeon Richter Ltd. manufactures the active ingredient
of 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. manufactures
according to the manufacturing process presented to and approved by OGYI (National Institute of
Pharmacy), 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 determined
that 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 the
respective patent, for the same product or process. Further, the Plaintiff claimed without any basis that
Richter's process presented in the negative finding process would be different from the procedure which
Richter actually uses for manufacturing the product. Pfizer Ltd. has filed an appeal against the first instance
judgement.
• 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 Commercial
Department. It was initiated by the ÁPV Rt. (State Holding Company Ltd.) against Magnezitipari Ltd. ”under
liquidation” as first defendant and the Company as second defendant.
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5 9
C O R P O R A T E M A T T E R S
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 the
defendants 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 Economic
Council of the Metropolitan Court dismissed the Plaintiff's claim that the sale and purchase agreement was
null and void. The ÁPV Rt. filed an appeal against the partial decision. In its judgement rendered on 28 April 2003, the
Supreme Court, as a court of second instance, affirmed the partial judgement dismissing the claim of ÁPV
Rt. 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 the
consideration, the Metropolitain Court - following the suspension of the related procedure - ordered the
continuation of the procedure.
The Plaintiff requested an expert's appraisal to establish the grossly unfair difference between the value of
the service and the consideration. The Metropolitan Court, by its order issued on 10 January 2004 rejected
the motion of the Plaintiff on the expert's appraisal. The order cannot be appealed. However, according to
the applicable jurisprudence, in litigation procedures related to the grossly unfair difference between the
value of the service and the consideration substantial evidence should be provided, and in the course of
such evidencing an expert's appraisal shall be conducted, therefore it might be possible that the Court shall
order 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 polymorphic
patent (namely the patent covering form ”B”) in 2002. Gedeon Richter Ltd. obtained patents claiming
Famotidine 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 Osaka
and the High Court of Tokyo. Notwithstanding the above decisions, Gedeon Richter Ltd. has other lawsuits
regarding 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 Gedeon
Richter 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 considerably
full and complete records of evidence adduced in the United States. Gedeon Richter Ltd. intends to continue
to enforce all of its Famotidine patents, including its synthesis claims as well as all product and process
claims relating to polymorphic form ”A” and form ”B”, in the United States.
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A N N U A L R E P O R T 2 0 0 3
U N C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
6 0
U N C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
(THE UNCONSOLIDATED FINANCIAL STATEMETS IN THIS ANNUAL REPORT HAVE BEEN PREPARED
IN ACCORDANCE WITH INTERNATIONAL FINANCIAL REPORTING STANDARDS)
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6 1
I N D E P E N D E N T A U D I T O R ’ S R E P O R T
I N D E P E N D E N T A U D I T O R ’ S R E P O R T
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U N C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
6 2
for the years ended 31 December Notes 2003 2002
HUF m HUF m
Sales 115,915 99,043
Royalty and other similar income 744 265
Total sales 3 116,659 99,308
Cost of sales (42,343) (40,076)
Gross profit 74,316 59,232
Sales and marketing expenses (18,677) (15,969)
Administration and general expenses (11,623) (10,056)
Research and development expenses (9,397) (8,064)
Operating profit 4 34,619 25,143
Net financial income 6 1,713 4,567
Profit before taxation 36,332 29,710
Income tax 7 (2,654) (1,530)
Net profit for the year 33,678 28,180
Earnings per share (HUF) 8
Basic 1,810 1,519
Diluted 1,807 1,512
The notes on pages 66 to 85 form an integral part of the Financial Statements.
U N C O N S O L I D A T E D S T A T E M E N T S O F I N C O M E
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U N C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
6 3
U N C O N S O L I D A T E D B A L A N C E S H E E T S
as at 31 December Notes 2003 2002
HUF m HUF m
ASSETS
Non-current assets 110,800 99,815
Property, plant and equipment 9 78,561 69,850
Intangible assets 10 1,511 1,401
Investments 11 29,535 27,047
Deferred tax assets 12 490 933
Loans receivable 15 703 584
Current assets 83,436 67,438
Inventories 13 26,898 17,044
Trade receivables 14 20,271 19,755
Other current assets 15 6,468 8,052
Investments in securities 16 17,535 11,956
Cash and bank 17 12,264 10,631
Total Assets 194,236 167,253
SHAREHOLDERS' EQUITY AND LIABILITIES
Shareholders' equity 182,050 154,922
Share capital 18 18,638 18,638
Share premium 15,197 15,193
Capital reserves 3,475 3,475
Treasury shares 19 (506) (96)
Retained earnings 145,246 117,712
Non-current liabilities 11 19
Borrowings 11 19
Current liabilities 12,175 12,312
Borrowings 6 3
Trade payables 20 7,339 7,946
Other payables and accruals 21 4,830 4,363
Total shareholders' equity and liabilities 194,236 167,253
The notes on pages 66 to 85 form an integral part of the Financial Statements.
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U N C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
6 4
Notes Share Share Capital Treasury Retained Totalcapital premium reserves shares earnings
HUF m HUF m HUF m HUF m HUF m HUF m
Balance 18,638 15,190 3,475 (995) 95,285 131,593
at 31 December 2001
Ordinary 22 - - - - (5,751) (5,751)
share dividend
for 2001
Net profit for the year - - - - 28,180 28,180
Dividend - preference - - - - (2) (2)
shares
Conversion - 3 - - - 3
of preference shares
Treasury shares 19 - - - 899 - 899
issued and purchased
Balance 18,638 15,193 3,475 (96) 117,712 154,922
at 31 December 2002
Ordinary share 22 - - - - (6,143) (6,143)
dividend for 2002
Net profit for the year - - - - 33,678 33,678
Dividend - preference - - - (1) (1)
shares
Conversion of - 4 - - - 4
preference shares
Treasury shares issued 19 - - - (410) - (410)
and purchased
Balance 18,638 15,197 3,475 (506) 145,246 182,050
at 31 December 2003
The notes on pages 66 to 85 form an integral part of the Financial Statements.
UNCONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
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U N C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
6 5
U N C O N S O L I D A T E D C A S H F L O W S T A T E M E N T S
for the years ended 31 December 2003 2002
HUF m HUF mCash flow from operating activities
Net profit from operating activities 34,619 25,143
Depreciation and amortisation 10,923 9,800
Increase in receivables (270) (986)
Increase in inventories (9,854) (600)
Increase in payables and other adjustments 689 1,806
Tax paid (2,241) (1,775)
Loss on disposal of property, plant and equipment 139 132
Net cash flow from operating activities 34,005 33,520
Cash flow from investing activities
Purchase of property, plant and equipment (19,494) (16,655)
Purchase of intangible assets (579) (726)
Proceeds from disposal of property, plant and equipment 189 257
Increase in non-current investments (3,276) (9,024)
(Increase) / decrease in securities (5,755) 360
Increase in loans receivable (119) (379)
Interest and similar income 8,469 8,170
Net cash flow from investing activities (20,565) (17,997)
Cash flow from financing activities
Proceeds from conversion of preference shares 4 3
Proceeds from disposal of Treasury shares (410) 899
Other financial expenses (5,240) (4,824)
Dividends paid (6,156) (5,742)
Net repayment receipt of long-term borrowings (5) 5
Net cash flow from financing activities (11,807) (9,659)
Increase in cash and cash equivalents 1,633 5,864
Movement in cash and cash equivalents
At beginning of year 10,631 4,767Increase 1,743 5,848Effects of exchange rates (110) 16
At end of year 12,264 10,631
The notes on pages 66 to 85 form an integral part of the Financial Statements.
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N O T E S T O T H E U N C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
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1 . G E N E R A L B A C K G R O U N D
I) 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.
II) 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 its
activity and cash flows, as well as the change of its shareholder's equity. The structure of the Company's
investments 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 similar
income and foreign exchange gains / losses from trade receivables and payables, consequently certain
items 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.
N O T E S T O T H E U N C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
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2 . A C C O U N T I N G P O L I C I E S
The principal accounting policies adopted in the preparation of these financial statements are set out below:
I) 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.
II) 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.
III) 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:
Property 33-50 years
Building improvements 12-50 years
Machinery and equipment 5-7 years
Vehicles 5 years
Land is not depreciated.
At the Company's transformation into a company limited by shares, the property, plant and equipment
were 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.
IV) 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 5 years
V) 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.
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If any such indication exists, the recoverable amount of the asset is estimated in order to determine the
amount of such impairment loss. If the recoverable amount of an asset is estimated to be less than its
carrying amount, the carrying amount of the asset is reduced to its recoverable amount.
VI) Research and development
Research and development expenditures are charged to the statement of income in the year in which
they are incurred.
VII) 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.
VIII) 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.
IX) 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.
X) 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.
XI) Trade payables
Trade payables are stated at their nominal cost.
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XII) Other current assets and current liabilities
Other current assets and current liabilities are stated at their nominal value.
XIII) 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.
XIV) 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.
XV) 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.
XVI) 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 for
deferred 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 assets
are 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 statements
are issued by the Company at the same time as these unconsolidated financial statements and are avail-
able at the Company's registered office.
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S A L E S O F L E A D I N G P R O D U C T S
2003 2002 Change
Product HUF m HUF m HUF m %
Oral contraceptives 30,285 23,648 6,637 28.1
EDNYT/LISOPRESS 11,888 10,870 1,018 9.4
CAVINTON 10,200 9,019 1,181 13.1
QUAMATEL 8,576 7,642 934 12.2
NORMODIPINE 6,908 4,245 2,663 62.7
VEROSPIRON 4,444 3,658 786 21.5
MYDETON/MYDOCALM 3,902 3,469 433 12.5
MYCOSYST 3,728 1,683 2,045 121.5
PANANGIN 3,457 3,521 -64 -1.8
PREDNISOLON and derivatives 2,945 2,804 141 5.0
KLION 1,309 1,344 -35 -2.6
ARDUAN 1,172 1,259 -87 -6.9
TERBISIL 1,113 644 469 72.8
CENTRUM 1,089 924 165 17.9
HALOPERIDOL 1,033 1,020 13 1.3
Subtotal 92,049 75,750 16,299 21.5
Others 24,610 23,558 1,052 4.5
Total 116,659 99,308 17,351 17.5
3 . I N F O R M A T I O N B Y S E G M E N T S A N D P R O D U C T S
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 - is
set out below:
Total Domestic Export
2003 2002 2003 2002 2003 2002
HUF m HUF m HUF m HUF m HUF m HUF m
Total sales 116,659 99,308 34,050 29,997 82,609 69,311
Cost of sales (42,343) (40,076) (13,211) (12,902) (29,132) (27,174)
Gross profit 74,316 59,232 20,839 17,095 53,477 42,137
Gross margin % 63.7 59.6 61.2 57.0 64.7 60.8
Current assets
Inventories 26,898 17,044 7,861 6,229 19,037 10,815
Receivables 26,739 27,807 7,656 9,792 19,083 18,015
Due to changes in the valuation of inventory the gross profit and the operating profit increased by HUF 6,615 million.
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N O T E S T O T H E U N C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
7 1
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 the
fourth quarter of 2000, while since 2001 maintenance costs have also been included in the valuation of
inventory. To complete the changes which were implemented as part of the SAP programmes with effect from
1 January 2003, all remaining production costs have been included in the valuation of inventory. Due to the
resulting change in the valuation of inventory gross profit increased by HUF 6,615 million for year ended
31 December 2003 as compared to the year ended 31 December 2002, and the gross margin increased
approximately 5.7 percentage points during the reported period.
2003 2002
HUF m HUF m
Wages and salaries 12,358 11,754
Social security and employer contribution 3,773 3,698
Share options and other bonuses 5,289 1,861
Depreciation and amortisation 8,494 9,592
Material costs 18,434 16,166
Cost of energy and water 2,245 3,670
Maintenance costs 2,018 2,200
Promotion costs 4,847 3,901
Research costs 1,732 1,320
Registration fee 433 461
Local taxes 2,015 1,767
Licence costs 1,897 677
Other costs 18,505 17,098
Cost of sales and operating activities 82,040 74,165
Sales 116,659 99,308
Operating profit 34,619 25,143
4 . O P E R A T I N G C O S T S
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Exchange gains / losses realised from trade receivables and payables and unrealised exchange gains / losses on trade
receivables 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:
The Company has concluded forward exchange contracts to manage its exposure to fluctuations in exchange
rates since January 2000.
The US$ exchange rate, which depreciated against the HUF during the year, reduced both the export revenues
and 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 all
forint/dollar contracts and have an expiry by the end of September 2004. Management monitors closely the
movements 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 million
or 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.
N O T E S T O T H E U N C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
7 2
2003 2002
Average number of persons employed during the year 5,374 5,094
(including those in international markets)
6 . N E T F I N A N C I A L I N C O M E
5 . E M P L O Y E E I N F O R M A T I O N
2003 2002
HUF m HUF m
Interest income 2,075 1,628
Dividend income 360 221
Realised gain on forward exchange contracts 3,468 5,816
Unrealised gains from the fair value of forward exchange contracts 1,820 3,159
Reversal of opening fair value adjustment (3,159) (1,918)
Impairment loss on equity investments (1,647) (992)
Loss on foreign currency loans receivable (110) (321)
Exchange gains / losses realised on trade receivables and trade payables (438) (1,940)
Unrealised exchange gains / losses on trade receivables and trade payables (431) (917)
Other financial items (225) (169)
Total 1,713 4,567
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N O T E S T O T H E U N C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
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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 tax
reduction to be applied against the prevailing rate of corporation tax for the subsequent five years. From
1 January 1999 to 31 December 2003 this equates to an effective rate of 7.2 percent based on the
currently applicable Hungarian corporate tax rate of 18 percent. The granting and continuation of the tax
holiday 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, the
Company benefits from a further 100 percent tax holiday, because it has met the requirements established
for the tax holiday.
7 . I N C O M E T A X
Income tax 2003 2002
HUF m HUF m
Current tax (2,211) (1,602)
Deferred tax (443) 72
Total (2,654) (1,530)
A reconciliation of the income tax charge is as follows:
2003 2002
HUF m HUF m
Profit before tax 36,332 29,710
Tax calculated at a rate of 18 percent 6,540 5,348
Effect of non-taxable items (1,466) (1,648)
Permanent differences 773 245
Tax holiday deduction (3,193) (2,415)
Income tax charge 2,654 1,530
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8 . E A R N I N G S P E R S H A R E
EPS (Diluted) 2003 2002
Net profit attributable to shareholders (HUF m) 33,678 28,180
Weighted average number of total shares outstanding (thousands) 18,637 18,637
Diluted earnings per share (HUF) 1,807 1,512
EPS (Basic) 2003 2002
Net profit attributable to shareholders (HUF m) 33,678 28,180
Weighted average number of ordinary shares in issue (thousands) 18,611 18,553
Basic earnings per share (HUF) 1,810 1,519
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 ordinary
shares purchased by the Company and held as Treasury shares.
For diluted earnings per share, the weighted average number of ordinary shares in issue is adjusted to assume
conversion 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 Employees
as part of its remuneration policy and preference shares for which a programme of conversion is in progress.
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N O T E S T O T H E U N C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
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Included in tangible fixed assets at 31 December 2003 are assets subject to finance leases with a cost of
HUF 1,316 million, that were fully depreciated by 31 December 2002.
All items of property, plant and equipment are free from liens and charges.
9 . P R O P E R T Y , P L A N T A N D E Q U I P M E N T
Land and Plant and Assets in the Totalbuildings equipment course of
construction
HUF m HUF m HUF m HUF m
Cost / Revaluation
at 31 December 2002 40,573 64,960 8,548 114,081
Additions - 288 19,494 19,782
Disposals (458) (1,278) (24) (1,760)
Transfers 4,899 14,041 (18,940) -
at 31 December 2003 45,014 78,011 9,078 132,103
Accumulated depreciation
at 31 December 2002 7,736 36,495 - 44,231
Charge for the year 931 9,522 - 10,453
Disposals (52) (1,090) - (1,142)
at 31 December 2003 8,615 44,927 - 53,542
Net book value
at 31 December 2002 32,837 28,465 8,548 69,850
at 31 December 2003 36,399 33,084 9,078 78,561
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31 December 2003 31 December 2002
HUF m HUF m
Investments in subsidiaries 23,611 21,599
Investments in joint ventures 1,253 1,302
Investments in associate companies 1,741 -
Other investments 2,930 4,146
Total 29,535 27,047
HUF m
Cost at 31 December 2002 27,047
Additions 2,488
Cost at 31 December 2003 29,535
1 1 . N O N - C U R R E N T I N V E S T M E N T S
1 0 . I N T A N G I B L E A S S E T S
Property rights Software Assets in the course Total
and other rights of development
HUF m HUF m HUF m HUF m
Cost
at 31 December 2002 108 2,431 - 2,539
Additions - - 579 579
Disposals - (7) - (7)
Transfers - 579 (579) -
at 31 December 2003 108 3,003 - 3,111
Accumulated amortisation
at 31 December 2002 103 1,035 - 1,138
Amortisation for the year 1 469 - 470
Disposals - (8) - (8)
at 31 December 2003 104 1,496 - 1,600
Net book value
at 31 December 2002 5 1,396 - 1,401
at 31 December 2003 4 1,507 - 1,511
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The following are the principal subsidiaries and joint ventures, which form part of the consolidation:
(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 Company
under 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's
share 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 share
increased to 21.76 percent. On 19 December 2003 the consortium, including the Company, purchased a
further 10 percent stake in Hungaropharma and undertook an obligation to offer the block of shares for sale
by the registered members of the Hungarian Chamber of Pharmacists.
Name Activity Ownership %
31 31December December
2003 2002
S.C. Armedica S.A., Romania (I) Pharmaceutical manufacturing - 97.95
Gedeon Richter Romania S.R.L., Legal and financial - 100.00Romania (I) accounting activities
Gedeon Richter Romania S.A., Pharmaceutical 98.46 -Romania (I) manufacturing
Gedeon Richter-RUS Ltd., Russia (II) Pharmaceutical manufacturing 100.00 100.00
GZF Polfa, Poland (III) Pharmaceutical manufacturing 63.00 51.00
Gedeon Richter Investment Kft., Financial accounting 100.00 100.00Hungary and controlling activities
Medimpex Gyógyszer- Pharmaceutical wholesaling 50.00 50.00nagykereskedelmi Rt., Hungary
Gedeon Richter USA Inc., USA Pharmaceutical marketing 100.00 100.00
Medimpex UK Ltd., UK Pharmaceutical marketing 50.00 50.00
Medimpex France S.A.R.L., France Pharmaceutical marketing 99.99 99.99
Gedeon Richter Pharma GmbH, Pharmaceutical marketing 100.00 100.00Germany (IV)
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31 December (Charged) / credited 31 December
2003 to Statement of 2002
Income
HUF m HUF m HUF m
Deferred income tax assets
Provisions - (240) 240
Depreciation 490 (291) 781
Other temporary differences - 88 (88)
Total 490 (443) 933
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 years
was calculated at 7.2 percent and 18 percent, respectively. Due to the 100 percent tax relief applied, deferred
tax 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:
1 3 . I N V E N T O R I E S
2003 2002
HUF m HUF m
Raw materials, packaging and consumables 4,740 4,288
Production in progress 775 616
Semi-finished and finished goods 21,383 12,140
Total 26,898 17,044
Due to changes in the valuation of inventory the gross profit and the operating profit increased by
HUF 6,615 million for the year ended 31 December 2003 compared to the prior year.
1 2 . D E F E R R E D T A X A S S E T
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N O T E S T O T H E U N C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
7 9
2003 2002
HUF m HUF m
Trade receivables 10,252 9,387
Amounts due from related companies 10,019 10,368
Total 20,271 19,755
Trade receivables are reported net of provision for doubtful debts which amounted to HUF 1,789 million
in 2003 (HUF 2,015 million in 2002).
2003 2002
HUF m HUF m
Other current assets
Tax and duties recoverable 2,040 1,613
Loans receivable from subsidiaries 924 2,121
Advances 212 356
Other receivables 436 303
Fair value of open forward exchange contracts 1,820 3,159
Prepayments 1,036 500
Total 6,468 8,052
Non-current receivables
Loans granted to employees 182 244
Loans receivable granted to subsidiaries 521 340
Total 7,171 8,636
1 5 . O T H E R R E C E I V A B L E S
1 4 . T R A D E R E C E I V A B L E S
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N O T E S T O T H E U N C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
8 0
2003 2002
HUF m HUF m
Hungarian Government securities 11,822 5,898
Open-ended bond funds 4,233 4,788
Other securities 1,480 1,270
Total 17,535 11,956
All securities are classified as held for trading.
2003 2002
HUF m HUF m
Foreign currency deposits 3,262 3,807
Bank deposits 7,079 4,632
Cash on hand 126 136
Short term securities (duration less than 3 months) 1,797 2,056
Total 12,264 10,631
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).
2003 2002
Number HUF m Number HUF m
Issued and fully paid
Ordinary shares of HUF 1,000 each 18,627,887 18,628 18,626,081 18,626
12 percent non-voting cumulative 9,599 10 11,405 12
Preference shares of HUF 1,000 each
Total 18,637,486 18,638 18,637,486 18,638
Preference shareholders are entitled to a dividend of 12 percent per annum before ordinary shareholders. Any
conversion 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 Annual
General Meeting at which the conversion must be approved. As the preference shares are not listed or quoted
on a Stock Exchange it is the Directors' responsibility to determine the terms on which preference shares may
be converted into ordinary shares.
1 8 . S H A R E C A P I T A L
1 7 . C A S H A N D B A N K
1 6 . I N V E S T M E N T S I N S E C U R I T I E S
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N O T E S T O T H E U N C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
Number of shares Ordinary shares
at 31 December 2002 8,170Share purchase 192,253Issued as part of bonus programme (56,108)Board of Directors (3,040)Bonuses (57,187)Granted pursuant to the Finance Ministry - approved plan (64,068)
at 31 December 2003 20,020
Book value HUF m
at 31 December 2002 96
Share purchase 4,370Issued as part of bonus programme (1,067)Board of Directors (60)Bonuses (1,241)Granted pursuant to the Finance Ministry - approved plan (1,592)
at 31 December 2003 506
8 1
Recently, preference shareholders were entitled to request conversion of their preference shares up to
28 February 2004, by which date requests in respect of the conversion of 2,712 preference shares had been
filed. As the preference shareholders are entitled either to withdraw their request or to meet the financial and
other conditions of the conversion up until 22 April 2004, the Company is unable to make any firm announcement
in respect of conversion of preference shares until the relevant resolution of the Annual General Meeting to be
held on 28 April 2004 is published.
Following the approval by the Annual General Meeting on 28 April 2003 the Court of Registration registered
the conversion of 1,806 preference shares into ordinary shares. A HUF 2,000 per share conversion fee was paid
by preference shareholders who successfully applied for conversion, and a total amount of HUF 4 million has
been accounted for as Share Premium.
1 9 . T R E A S U R Y S H A R E S
It is the intention of the Company to issue over time the Treasury shares to management and employees as part of
its 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 January
2003 tax laws applicable to remuneration provided in the form of securities changed; such bonuses are now taxable
as income from employment. In 2003 56,108 shares were distributed to 419 employees of the Company. Similar
bonuses are expected to be granted also in 2004. 57,187 ordinary shares were granted to qualified employees as
bonuses 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 Annual
General Meeting on 28 April 2003 a total of 3,040 shares were transferred during 2003 to members of the Supervisory
Committee and Board of Directors of the Company in lieu of fees. The AGM held on 28 April 2003 has approved that
the Company shall purchase its own shares for the treasury, the aggregated nominal value of which shall not exceed
3 percent of the registered capital of the Company. Based on this approval, the Company purchased 137,113 Treasury
shares at the Budapest Stock Exchange during the year, and a further 55,140 shares on the OTC market.
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N O T E S T O T H E U N C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
8 2
2003 2002
HUF m HUF m
Trade payables 6,687 7,359
Amount due to related companies 652 587
Total 7,339 7,946
2003 2002
HUF m HUF m
Wages and payroll taxes payable 2,279 1,695
Income tax (185) (155)
Dividend payable
- to preference shares 5 6
- to ordinary shares 38 50
Liabilities in relation to investments in related parties - 787
Accruals 1,404 1,091
Other liabilities 336 200
Deposits from customers 93 57
Provision for future environmental liabilities 195 500
Accrual for costs of share options and other bonuses 665 132
Total 4,830 4,363
2003 2002
HUF m HUF m
Dividend paid on ordinary shares 6,143 5,751
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 anticipated
that a dividend will be declared at the Annual General Meeting on 28 April 2004.
2 2 . D I V I D E N D O N O R D I N A R Y S H A R E S
2 1 . O T H E R P A Y A B L E S A N D A C C R U A L S
2 0 . T R A D E P A Y A B L E S
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N O T E S T O T H E U N C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
8 3
2003
HUF m
Capital expenditure that has been contracted for 2,404but not included in the Financial Statements
Capital expenditure that has been authorised by the directors 47,291but has not yet been contracted for
49.695
One of the conditions of a EU related restructuring of the corporate tax holiday was that investment
commitments 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.
2003
HUF m
Medimpex Gyógyszernagykereskedelmi Rt. - bank guarantee 700
Pharmacy - Hatvani István - bank guarantee 7
2 5 . S O C I A L S E C U R I T Y A N D P E N S I O N S C H E M E S
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 contributes
6 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 had
a 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 on
their behalf to the fund in 2003 amounted to HUF 47 million.
2 4 . C O M P A N Y G U A R A N T E E S G I V E N I N R E S P E C T O F T H I R D P A R T I E S
2 3 . C A P I T A L C O M M I T M E N T S
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N O T E S T O T H E U N C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
8 4
( 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 the
Chamber of Hungarian Pharmacists for its registered member shares. On 31 December 2003 the Company
is in possession of 21.76 percent of the Hungaropharma shares, while the ownership of the Consortium
represents 71.94 percent. The Company, presenting its bid on 19 January 2004 as a member of an investor
Consortium, participates in a public tender issued for the sale of Hungaropharma shares at a nominal value
of 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 percent
ownership in Hungaropharma, totalling a 30.09 percent stake. The total participation of the Consortium
in 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 the
registered shares of Grodziskie Zaklady Farmaceutyczne Polfa (GZF Polfa Ltd). On 30 December 2003 the share
acquisition agreement was signed by Gedeon Richter Ltd. and the Polish State Treasury and the purchase price
of 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 as
of 31 December 2003 the related payment obligation during the three year period ending 2006 will be
approximately HUF 510 million.
2 6 . O T H E R C O M M I T M E N T S A N D C O N T I N G E N T L I A B I L I T I E S
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N O T E S T O T H E U N C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
8 5
2 7 . R I S K M A N A G E M E N T
(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 mitigated
on the basis that the underlying non-monetary assets may maintain their market value. The value of these
investments represented by underlying monetary assets is fully exposed to the significant risk of currency
devaluation.
(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's
management based on prior experience and the current economic environment.
The credit risk on liquid funds and derivative financial instruments is limited because the counterparties
are 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 number
of counterparties and customers.
2 8 . I N S U R A N C E
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 all
registrated products produced and marketed by the Company.
The property and breakdown insurance policies provide satisfactory coverage for the Company's assets at
replacement 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 third
parties or employees.
Due to the proportions of the Company's assets and revenues, it is of utmost importance for the Company to
use large and financially strong global insurance companies that co-operate with leading re-insurers.
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U N C O N S O L I D A T E D F I N A N C I A L R E C O R D 1 9 9 2 - 2 0 0 3
U N C O N S O L I D A T E D F I N A N C I A L R E C O R D 1 9 9 2 - 2 0 0 3
8 6
Profit and Loss Accounts (HUF m) 1992 1993 1994 1995 1996
for the years ended 31 December
Sales 13,089 17,957 21,196 27,394 36,764
Cost of Sales (5,488) (6,705) (7,875) (10,445) (14,250)
Gross profit 7,601 11,252 13,321 16,949 22,514
Operating expenses (8,397) (8,537) (9,327) (11,233) (13,483)
Operating profit / (loss) (796) 2,715 3,994 5,716 9,031
Royalty income 669 307 658 270 720
Interest expense (2,088) (1,345) (1,080) (292) (120)
Interest income 50 82 288 1,315 1,383
Net other income / exceptional items 47 609 393 881 257
Profit / (loss) before taxation (2,118) 2,368 4,253 7,890 11,271
Taxation - (471) (50) (5) -
Profit / (loss) after taxation (2,118) 1,897 4,203 7,885 11,271
Share statistics (HUF)
Earnings per share (162) 116 265 397 624
Dividends per ordinary share - - 60 100 160
Profit and Loss Accounts (US$ m) 1992 1993 1994 1995 1996
for the years ended 31 December
Sales 165.7 195.2 202.2 222.0 246.7
Cost of Sales (69.5) (72.9) (75.1) (84.6) (95.6)
Gross profit 96.2 122.3 127.2 137.3 151.1
Operating expenses (106.3) (92.8) (89.0) (91.0) (90.5)
Operating profit / (loss) (10.1) 29.5 38.1 46.3 60.6
Royalty income 8.5 3.3 6.3 2.2 4.8
Interest expense (26.4) (14.6) (10.3) (2.4) (0.8)
Interest income 0.6 0.9 2.7 10.7 9.3
Net other income / exceptional items 0.6 6.6 3.7 7.1 1.7
Profit / (loss) before taxation (26.8) 25.7 40.6 63.9 75.6
Taxation - (5.1) (0.5) - -
Profit / (loss) after taxation (26.8) 20.6 40.1 63.9 75.6
Share statistics (US$)
Earnings per share (2.05) 1.26 2.53 3.22 4.19
Dividends per ordinary share - - 0.57 0.81 1.07
Notes: · 1992 is proforma, 1997 and 2002 have been restated.· Earnings per share: Headline, i.e. diluted excluding exceptional and non-recurring items· 2003 Dividends per ordinary share of HUF 440 are as recommended by the Board of Directors.
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U N C O N S O L I D A T E D F I N A N C I A L R E C O R D 1 9 9 2 - 2 0 0 3
8 7
1997 1998 1999 2000 2001 2002 2003
52,016 55,063 59,554 74,107 88,731 99,308 116,659
(24,060) (24,630) (27,102) (29,598) (35,606) (40,076) (42,343)
27,956 30,433 32,452 44,509 53,125 59,232 74,316
(13,373) (17,159) (17,468) (23,310) (30,914) (34,089) (39,697)
14,583 13,274 14,984 21,199 22,211 25,143 34,619
536 282 344 549 201 - -
(14) (33) (49) (2,898) (268) (4,824) (6,580)
3,398 3,764 2,537 1,792 4,276 9,391 8,293
152 - - - - - -
18,655 17,287 17,816 20,642 26,420 29,710 36,332
- 300 (1,180) (1,528) (1,628) (1,530) (2,654)
18,655 17,587 16,636 19,114 24,792 28,180 33,678
1,017 944 893 1,026 1,330 1,512 1,807
270 230 240 250 310 330 440
1997 1998 1999 2000 2001 2002 2003
278.6 258.4 250.4 261.9 309.6 389.1 520.8
(128.9) (115.6) (114.0) (104.6) (124.2) (157.0) (189.0)
149.7 142.8 136.4 157.3 185.4 232.1 331.8
(71.6) (80.5) (73.4) (82.4) (107.9) (133.6) (177.3)
78.1 62.3 63.0 74.9 77.5 98.5 154.5
2.9 1.3 1.4 1.9 0.7 - -
(0.1) (0.2) (0.2) (10.2) (0.9) (18.9) (29.3)
18.2 17.7 10.7 6.3 14.9 36.8 37.0
0.8 - - - - - -
99.9 81.1 74.9 72.9 92.2 116.4 162.2
- 1.4 (4.9) (5.4) (5.7) (6.0) (11.9)
99.9 82.5 70.0 67.5 86.5 110.4 150.3
5.45 4.43 3.76 3.62 4.64 5.92 8.07
1.45 1.08 1.01 0.88 1.08 1.29 1.96
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8 8
U N C O N S O L I D A T E D F I N A N C I A L R E C O R D 1 9 9 2 - 2 0 0 3
Throughout this Annual Report, certain Hungarian forint amounts have been converted into US$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.
Exchange Rates 1992 1993 1994 1995 1996
Average 79.0 92.0 104.8 123.4 149.0
End of period 84.0 100.7 110.7 139.5 165.1
Number of employees 1992 1993 1994 1995 1996
End of period 5,274 4,800 4,626 4,533 4,436
Balance Sheets (HUF m) 1992 1993 1994 1995 1996
as at 31 December
Fixed Assets 13,875 13,558 15,083 17,928 23,116
Net other assets and liabilities 514 1,739 8,612 11,654 16,128
Long-term liabilities (1,428) (525) (313) (81) (194)
Total net assets 12,961 14,772 23,382 29,501 39,050
Share capital 13,223 13,223 17,638 17,638 17,638
Reserves (262) 1,549 5,744 11,863 21,412
Treasury shares N/A N/A N/A N/A N/A
Shareholders' equity 12,961 14,772 23,382 29,501 39,050
Capital expenditure 953 1,615 3,140 4,989 6,659
Balance Sheets (US$ m) 1992 1993 1994 1995 1996
as at 31 December
Fixed Assets 165.2 134.6 136.3 128.5 140.0
Net other assets and liabilities 6.1 17.3 77.7 83.6 97.7
Long-term liabilities (17.0) (5.2) (2.8) (0.6) (1.2)
Total net assets 154.3 146.7 211.2 211.5 236.5
Share capital 157.4 131.3 159.3 126.4 106.8
Reserves (3.1) 15.4 51.9 85.1 129.7
Treasury shares N/A N/A N/A N/A N/A
Shareholders' equity 154.3 146.7 211.2 211.5 236.5
Capital expenditure 12.0 17.5 30.0 40.4 44.7
Notes: · 1992 is proforma; 1997 has been restated.· Prior to 1997, Treasury shares were reported as Net other assets and liabilities.
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U N C O N S O L I D A T E D F I N A N C I A L R E C O R D 1 9 9 2 - 2 0 0 3
8 9
1997 1998 1999 2000 2001 2002 2003
186.7 213.1 237.8 283.0 286.6 255.2 224.0
203.5 217.1 252.5 284.7 279.0 225.2 207.9
1997 1998 1999 2000 2001 2002 2003
4,450 4,575 4,730 4,835 5,007 5,124 5,466
1997 1998 1999 2000 2001 2002 2003
30,773 45,981 58,444 70,200 83,173 99,815 110,800
33,354 36,696 32,053 35,445 42,684 55,126 71,261
(24) (578) (6) (2) (15) (19) (11)
64,103 82,099 90,491 105,643 125,842 154,922 182,050
18,638 18,638 18,638 18,638 18,638 18,638 18,638
48,608 66,223 74,371 88,904 108,199 136,380 163,918
(3,143) (2,762) (2,518) (1,899) (995) (96) (506)
64,103 82,099 90,491 105,643 125,842 154,922 182,050
9,469 14,736 15,608 17,366 14,934 17,419 20,053
1997 1998 1999 2000 2001 2002 2003
151.2 211.8 231.5 246.6 298.1 443.2 533.0
163.9 169.0 126.9 124.5 153.0 244.8 342.8
(0.1) (2.6) - - - (0.1) (0.1)
315.0 378.2 358.4 371.1 451.1 687.9 875.7
91.6 85.9 73.8 65.5 66.8 82.7 89.6
238.8 305.0 294.6 312.3 387.8 605.6 788.5
(15.4) (12.7) (10.0) (6.7) (3.5) (0.4) (2.4)
315.0 378.2 358.4 371.1 451.1 687.9 875.7
50.7 69.2 65.6 61.4 52.1 68.3 89.5
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C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
9 0
The Company for the first time published audited consolidated accounts for 2002. In 2003 we published also
the 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 2003
Gedeon 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 Company
continues 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 higher
than reported for 2002. Consolidated operating profit totalled HUF 32,277 million and reflected an
increase of 30.0 percent compared to that achieved in the previous year. Net profit for the Richter Group
for the reported period was HUF 33,717 million representing a 17.0 percent increase over that reported
for 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 to
HUF 199,575 million on 31 December 2003, an increase of HUF 24,332 million over the totals reported
at 31 December 2002.
C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
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I N D E P E N D E N T A U D I T O R ’ S R E P O R T
9 1
I N D E P E N D E N T A U D I T O R ’ S R E P O R T
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C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
9 2
for the years ended 31 December 2003 2002
HUF m HUF m
Revenue 145,172 119,755
Royalty and other similar income 744 258
Total sales 145,916 120,013
Cost of sales (67,315) (59,806)
Gross profit 78,601 60,207
Sales and marketing expenses (20,992) (16,259)
Administration and general expenses (15,885) (10,964)
Research and development expenses (9,447) (8,150)
Profit from operations 32,277 24,834
Net financial income 3,385 5,449
Profit before taxation 35,662 30,283
Income tax (2,907) (1,664)
Profit after taxation 32,755 28,619
Minority interest 962 198
Net profit for the year 33,717 28,817
Earnings per share (HUF)
Basic 1,812 1,553
Diluted 1,809 1,546
C O N S O L I D A T E D S T A T E M E N T S O F I N C O M E
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C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
9 3
C O N S O L I D A T E D B A L A N C E S H E E T S
as at 31 December 2003 2002
HUF m HUF m
ASSETSNon-current assets 103,853 95,572
Property, plant and equipment 92,618 84,410
Intangible assets 1,678 1,616
Investments 8,426 8,162
Deferred tax assets 489 1,035
Goodwill 314 -
Loans receivable 328 349
Current assets 95,722 79,671
Inventories 31,240 21,988
Trade receivables 21,281 21,804
Other current assets 7,235 6,617
Securities 17,625 11,956
Bank balances and cash 18,341 17,306
Total Assets 199,575 175,243
EQUITY AND LIABILITIES
Capital and reserves 177,506 150,994
Share capital 18,638 18,638
Share premium 15,197 15,193
Capital reserves 3,475 3,475
Treasury shares (517) (104)
Translation reserves (4,203) (3,551)
Retained earnings 144,916 117,343
Minority interest 4,200 6,921
Non-current liabilities 59 83
Borrowings 59 83
Current liabilities 17,810 17,245
Borrowings 6 16
Trade payables 9,005 10,344
Other payables and accruals 8,604 6,385
Provision for environmental liabilities 195 500
Total equity and liabilities 199,575 175,243
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C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
C O N S O L I D A T E D S T A T E M E N T O F C H A N G E S I N E Q U I T Y
9 4
Share Share Capital Treasury Translation Retained Totalcapital premium reserves shares reserves earnings
HUF m HUF m HUF m HUF m HUF m HUF m HUF m
Balance at 18,638 15,190 3,475 (1,005) (123) 94,279 130,45431 December 2001
Exchange differences arising - - - - (3,428) - (3,428)on translation of overseas operations
Equity component of - 3 - - - - 3convertible preference shares
Treasury shares reissued - - - 901 - - 901
Net profit for the year - - - - - 28,817 28,817
Ordinary share - - - - - (5,751) (5,751)dividend for 2001
Dividend - preference shares - - - - - (2) (2)
Balance at 18,638 15,193 3,475 (104) (3,551) 117,343 150,99431 December 2002
Exchange differences arising - - - - (652) - (652)arising on translation of overseas operations
Equity component of - 4 - - - - 4convertible preference sharesTreasury shares reissued - - - (413) - - (413)
Net profit for the year - - - - - 33,717 33,717
Ordinary share dividend - - - - - (6,143) (6,143)for 2002
Dividend - preference shares - - - - - (1) (1)
Balance at 18,638 15,197 3,475 (517) (4,203) 144,916 177,50631 December 2003
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C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
9 5
C O N S O L I D A T E D C A S H F L O W S T A T E M E N T
for the years ended 31 December 2003 2002
HUF m HUF m
Cash generated by operations 33,875 34,583
Income taxes paid (2,422) (1,709)
Interest received 1,975 1,641
Net cash flow from operating activities 33,428 34,515
Cash flow from investing activities
Purchase of property, plant and equipment (20,393) (15,800)
Purchase of intangible assets (594) (771)
Proceeds from disposal of property, 162 262
plant and equipment
Increase in non current investments (264) (1,076)
(Increase) / decrease in short term investments (5,669) 1,061
(Increase) / decrease in loans receivable 21 (136)
Interest and similar income 1,409 609
Acquisition of subsidiary - 65
Goodwill (314) -
Net cash flow from investing activities (25,642) (15,786)
Cash flow from financing activities
Proceeds from conversion of preference shares 4 3
Proceeds from disposal of treasury shares (413) 901
Dividends paid - on ordinary shares (6,143) (5,751)
Dividends paid - on preference shares (1) (2)
Other cash flows from financing activities 499 3,442
Net repayment of long term borrowings (45) (3,352)
Net cash flow from financing activities (6,099) (4,759)
Net increase in cash and cash equivalents 1,687 13,970
Cash and cash equivalents at beginning of year 17,306 7,322
Effect of foreign exchange rate changes (652) (3,986)
Cash and cash equivalents at end of year 18,341 17,306
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C O N T A C T S
C O N T A C T S
A D D R E S S E S
Registered Office
Richter Gedeon Rt.
1103 Budapest, 19-21 Gyömrõi út
Hungary
Addresses for correspondence
Richter Gedeon Rt.
Budapest 10
P.O.Box 27
1475
Hungary
Investor Relations
International Finance Department
Richter Gedeon Rt.
Budapest 10
P.O.Box 27
1475
Hungary
Phone: +36-1-431-5764
Fax: +36-1-261-2158
E-mail: [email protected]
www.richter.hu
9 6DESIGN: ENTER STUDIO 98 P R I N T : E L E K T R O P R O D U C T
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Gedeon Richter Ltd.H-1103 Budapest, Gyömrõi út 19-21.
Phone: +36-1-431-4000, Fax: +36-1-260-6650, +36-1-260-4891Email: [email protected], Internet: www.richter.hu