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International sales activities

Serbia

In Serbia STADA has its own sales company in Vrsac named Hemofarm A.D.¹⁾.

In Serbia, local sales decreased in the first quarter of 2012 as expected. Applying the exchange rates of the previous year, sales decreased by 27%. In euro, sales declined by 31% to EUR 16.5 million (1-3/2011: EUR 23.7 million). The reason for this expected reduction in sales was primarily the conversion of the local distribution model with the goal of being able to better control cash flows. Furthermore, a significantly negative currency effect of the Serbian dinar contributed to this development.

STADA’s sales generated by generics in the Serbian market declined by 41% to EUR 12.1 million (1-3/2011: EUR 20.4 million). Generics thus contributed 73% to STADA’s Serbian sales (1-3/2011: 86%). Sales of branded products in Serbia decreased by 7% to EUR 2.4 million (1-3/2011: EUR 2.6 million). Branded products thereby contributed a share of 15% (1-3/2011: 11%) to STADA’s sales in the Serbian market.

The technical problems existing since 2011 in part of the Serbian production for injection substances, which is primarily used for contract manufacturing, were solved in the first quarter of 2012 and the planned scope of production could recommence for all European markets. STADA will discontinue delivery to the US market with injectabilia from this production line, in agreement with the local customer, because the required specific regulatory expenses are not proportionate to the small business volume of this contract manufacturing business that is not part of STADA’s core business. The corresponding dissolution of the delivery contract, whose commercial components have already been agreed upon, is expected in the current second quarter of 2012; STADA will report the corresponding expenses of approx. EUR 0.5 million as a one-time special effect in the second quarter of 2012.

In accordance with a so-called letter of comfort announced in the fourth quarter of 2011²⁾, discussions are still being held between representatives of the Serbian Ministry of Finance and Economy and Hemofarm about the settlement of outstanding receivables from Serbian wholesalers and the Serbian government from earlier financial years, which were completely impaired by STADA in 2011. The STADA Executive Board generally views the issued letter of comfort as an important contribution to the stabilization of the Serbian health care market and therefore the Company’s own business outlook in Serbia as well. If the extensive write-downs on outstanding receivables due to Hemofarm are served to a better extent than anticipated, STADA will report such receipt of payments successively, as is known, in the respective reporting period as earnings improving one-time special effects.

STADA generally assumes that its own operating business in Serbia is fundamentally stable and that it offers further growth opportunities. In consideration of this, the Group continues to expect a sales increase in the local currency in Serbia for financial year 2012 and the following years. Operating profitability of the subgroup, whose management is carried out from there, is expected to be slightly above Group average.

The financial and earnings situation of the Serbian subgroup will continue to be largely characterized by the further development of the liquidity situation of the wholesalers and distribution partners in the Serbian market in financial year 2012 as well. In addition, the sales and earnings contributions of this subgroup will continue to predominantly depend on the currency relation of the Serbian dinar, in which this subgroup consolidates all results, to the euro.

1)	Including various local sub-labels.
2)	See the Company’s corporate news of November 10, 2011.

www.hemofarm.rs