Pharmaceutical Firm Kalbe Farma Facing Macroeconomic Headwinds
Indonesia's largest pharmaceutical company, Kalbe Farma, felt the impact of macroeconomic headwinds. The company, one of the largest public pharmaceutical companies in Southeast Asia, today announced its indicative performance (unaudited) for the year 2015. While its net sales grew 3 percent year-on-year (y/y) to IDR 17.4 trillion (approx. USD $1.3 billion), the company's net income fell 4.3 percent (y/y) to IDR 1.98 trillion (approx. USD $147 million). Kalbe Farma's performance in 2015 was plagued by weaker purchasing power in Indonesia and the depreciated rupiah exchange rate.
Vidjongtius, Finance Director and Corporate Secretary at Kalbe Farma, said "in addition to the positive sales growth, the company managed to maintain a healthy cash flow generation as well as solid liquidity. Kalbe Farma believes that by driving product and service innovation, marketing and a good internal control, it will be able to improve the company’s performance and stimulate future growth. The company remains optimistic of Indonesia’s economic recovery that will cause a positive impact on Kalbe Farma's performance."
In 2015 Indonesia's gross domestic product (GDP) growth eased to 4.79 percent (y/y), the slowest growth pace in six years, due to weak commodity prices, China's economic slowdown, and Bank Indonesia's high interest rate environment (which gives rise to slowing credit growth). Optimism occurred, however, after seeing Indonesia's GDP growth figure of the fourth quarter of 2015 when economic growth accelerated to 5.04 percent (y/y). Supported by government spending, GDP growth is forecast to accelerate to 5.3 percent (y/y) in full-year 2016. In line with this modest macroeconomic recovery, Kalbe Farma expects its net sales and net profit to grow in the range of 8 - 10 percent (y/y) in 2016. The company allocated between IDR 1 - 1.5 trillion for its capital expenditure (capex) in 2016. This will be used to expand its production and distribution capacity.
Besides weaker purchasing power and the weak rupiah (Indonesia’s pharmaceutical industry is still highly dependent on imports of raw materials, hence a weakening rupiah raises the costs of imports thus eroding profit margins), slowing growth of Kalbe Farma's net sales in 2015 was also blamed on a prescription pharmaceuticals product recall. In February 2015 the anesthetic Buvanest Spinal, produced by Kalbe Farma, was withdrawn from stores and hospitals after the deaths of two hospital patients (who reportedly had taken the wrong medicine as a result of wrongly packaged products).
In a press release, published today (26/02), Kalbe Farma also stated that "discontinued distributorship agreement with a third party principal at the end of 2014" was partly to blame for slowing growth of the company's net sales in 2015.
Kalbe Farma's Financial Results:
| Subject | 2014 |
2015 | Change (y/y) |
| Net Sales | 17.4 | 17.9 | +3% |
| Gross Profit | 8.5 | 8.6 | +1.2% |
| Gross Profit Margin | 48.8% | 47.9% | - |
| Operating Income | 2.7 | 2.6 | -4.3% |
| Net Income | 2.06 | 1.98 | -4.3% |
in trillion of IDR rupiah
¹ in rupiah
Source: Kalbe Farma
The company added that its dividend policy remains at the level of around 40 - 50 percent payout ratio, depending on the cash availability and internal fund requirement.
Kalbe Farma, established in 1966, has four main business divisions: prescription medicines division (such as Cefspan, Brainact and Broadced), over-the-counter medications division (including Woods, Promag, Mixagrip, Komix and Fatigon), the health drink and nutrition division (such as Hydro Coco, Extra Joss, Nitros, ChilKid, Prenagen and Diabetasol), and the distribution division. The company currently has over 20 subsidiaries and nine production facilities, equipped with international standards. It employs more than 17,000 people across more than 71 branches throughout Indonesia.
Further Reading:
• Company Profile of Kalbe Farma