Unaudited Interim Report for the Krka Group and the Krka Company for January March 2014

Transcription

1 Unaudited Interim Report for the Krka Group and the Krka Company for January March 2014 Novo mesto, May 2014

2 CONTENTS Introduction... 3 Highlights January to March Krka Group and Krka Company financial highlights... 4 Krka Group ID card... 5 Krka Group business model... 5 Krka Group companies... 6 Krka Group development strategy... 7 Business report... 9 Financial risk... 9 Investor and share information Business operations analysis Marketing and sales Investments Employees Condensed consolidated financial statements of the Krka Group, with notes Consolidated statement of financial position of the Krka Group Consolidated income statement of the Krka Group Consolidated statement of comprehensive income of the Krka Group Consolidated statement of changes in equity of the Krka Group Consolidated statement of cash flows of the Krka Group Notes to the consolidated financial statements of the Krka Group Condensed financial statements of Krka, d. d., Novo mesto, with notes Statement of financial position of Krka, d. d., Novo mesto Income statement of Krka, d. d., Novo mesto Statement of comprehensive income of Krka, d. d., Novo mesto Statement of changes in equity of Krka, d. d., Novo mesto Statement of cash flows of Krka, d. d., Novo mesto Segment reporting of Krka, d. d., Novo mesto Notes to the financial statements of Krka, d. d., Novo mesto Management Board statement of responsibilities Unaudited Interim Report for the Krka Group and the Krka Company for January March 2014

3 INTRODUCTION The condensed financial statements of the Krka Group and the condensed financial statements of Krka, d. d., Novo mesto (Krka Company) for the periods January March 2014 and 2013 are unaudited, while the financial statements for the full 2013 business year present audited figures. The Krka Company has no authorised capital and has not made a conditional share capital increase. The Krka Company promptly announces all significant changes of the data in its listing prospectus in the Ljubljana Stock Exchange electronic information dissemination system SEOnet, in the Polish Financial Supervision Authority electronic information dissemination system (ESPI), and/or in the Delo daily newspaper. This interim report for the Krka Group and the Krka Company is available on the Krka website The Krka Company Supervisory Board discussed the January March 2014 Report for the Krka Group and the Krka Company at its regular meeting on 14 May Highlights January to March 2014 The Krka Group sold EUR million worth of products and services, and Krka Company sales amounted to EUR million. Sales were up 1% from the year before both at the level of the Company and the Group. The highest absolute as well as relative sales growth compared to the same period last year (EUR 15.7 million, or 16%) was recorded in Region East Europe, which is Krka's largest sales region, representing 39% of total sales. Given the Russian Federation's slowing economic growth and the depreciation of the rouble, Krka estimates that annual sales growth in the Russian Federation will be lower than in the past two years. In Ukraine, Krka's second largest market in the Region, order placement, supply and payments have been normal so far despite the difficult situation in the country. The Group generated 94%, and the Krka Company 96% of its sales revenues in markets outside Slovenia. The Group generated EUR 63.0 million of operating profit, an increase by 8% compared to the same period last year, and the Krka Company generated EUR 61.6 million of operating profit, up 12%. The Krka Group recorded EUR 42.5 million of profit for the period, a decrease by 17% compared to the same period last year, and the Krka Company generated EUR 41.8 million of profit for the period, down 16%. Lower profit is mainly the result of EUR 14 million of net negative foreign exchange differences, while in the same period last year both the Krka Group and the Krka Company recorded EUR 2 million of net positive foreign exchange differences. As at 31 March 2014 Krka's share traded at EUR on the Ljubljana Stock Exchange (up 0.65% from the year-end of 2013), with Krka s market capitalisation totalling EUR 2.1 billion. The Group allocated EUR 46.2 million to investments, of which the Krka Company invested EUR 42.1 million and subsidiaries EUR 4.1 million. At the end of March 2014 the Krka Group had 10,178 employees, just over 1% more than at the beginning of the year. 3 Unaudited Interim Report for the Krka Group and the Krka Company for January March 2014

4 Krka Group and Krka Company financial highlights Krka Group Krka Company EUR thousand 1 3/ / / /2013 Revenues 298, , , ,427 EBIT 1 62,984 58,445 61,585 54,879 EBITDA 86,675 81,160 79,075 72,693 Profit for the period 42,540 51,367 41,794 49,965 R&D costs 25,221 24,636 26,386 25,694 Investments 46,161 29,972 42,053 15, Mar Dec Mar Dec 2013 Non-current assets 991, , , ,947 Current assets 796, , , ,288 Equity 1,363,196 1,332,611 1,371,029 1,332,246 Non-current liabilities 129, ,833 98,990 98,778 Current liabilities 295, , , ,211 RATIOS 1 3/ / / /2013 EBIT margin 21.1% 19.9% 21.3% 19.3% EBITDA margin 29.1% 27.6% 27.4% 25.6% Profit margin (ROS) 14.3% 17.4% 14.5% 17.6% ROE % 16.2% 12.4% 15.9% ROA 3 9.6% 12.4% 9.7% 12.5% Liabilities/Equity R&D costs 8.5% 8.4% 9.1% 9.0% NUMBER OF EMPLOYEES 31 Mar Dec Mar Dec 2013 As at 10,178 10,048 4,664 4,628 SHARE INFORMATION 1 3/ /2013 Total number of shares issued 35,426,120 35,426,120 Earnings per share in EUR Closing price at end of period in EUR Price/Earnings ratio (P/E) Book value in EUR Price/Book value (P/B) Market capitalisation in EUR thousand (end of period) 2,139,383 1,642,709 1 The difference between operating income and expenses 2 Profit for the period, annualised/average shareholders' equity in the period 3 Profit for the period, annualised/average total assets in the period 4 Profit for the period attributable to equity holders of the parent, annualised/average number of shares issued in the period excluding treasury shares 5 Share price on the Ljubljana Stock Exchange 6 Equity at the end of the period/total shares issued 4 Unaudited Interim Report for the Krka Group and the Krka Company for January March 2014

5 Krka Group ID card The controlling company in the Krka Group is Krka, tovarna zdravil, d. d., Novo mesto (Krka d. d. or the Krka Company). Registered office Šmarješka cesta 6, 8501 Novo mesto, Slovenia Telephone +386 (0) Fax +386 (0) info@krka.biz Website Core business Production of pharmaceutical preparations Business clarification code Year established 1954 Registration entry 1/00097/00, District Court of Novo mesto Tax number VAT number SI Company ID number Share capital EUR 59,126, Total number of shares issued 35,426,120 ordinary registered no-par value shares. Krka has been listed on the Ljubljana Stock Exchange under symbol KRKG since 1997, and since April 2012 additionally on the Warsaw Stock Exchange under symbol KRK. Krka Group business model Krka is one of the world s leading generic pharmaceutical companies. It is domiciled in Slovenia and has a 60-year tradition. Krka is the market leader in its domestic market, and its presence is also significant in the generic pharmaceutical markets of: Eastern Europe the Russian Federation and Ukraine, Central Europe Poland, the Czech Republic and Hungary, and South-Eastern Europe Croatia and Romania. By expanding the network of our subsidiaries, we are also strengthening Krka's position in the EU member states in Western Europe. Our modern pharmaceutical production and vertically integrated business model allow us to provide patients in over 70 countries a wide range of safe, high quality and effective prescription pharmaceuticals, non-prescription products and animal health products. Most Krka products are in solid dosage pharmaceutical forms. The Company' product range is supplemented by the health resort and tourist services of the Terme Krka spa group. We focus on generic prescription pharmaceuticals marketed under Krka's own brands. Our main therapeutic groups include pharmaceuticals for cardiovascular diseases, for alimentary and metabolic diseases, and for diseases of the central nervous system, and we have also entered certain new therapeutic fields. We will continue to concentrate on marketing and developing our own marketing-and-sales network in the future, both by establishing new companies and through mergers in target markets. Our objective is to strengthen the Krka Group's market position in European and Central Asian markets as well as to enter new high-potential markets. Our new sales region, Overseas Markets, will aim to exploit the sales potential of the Middle East, Far East, Africa and the Americas. In order to increase the competitive advantage of our product portfolio and maintain a large share of vertically integrated products, Krka has been allocating 8 to 10% of our revenues to research and development. We have more than 170 new products in the pipeline. A large proportion of our total revenue is generated by the sales of new products, i.e. products launched on different markets in the past five years. 5 Unaudited Interim Report for the Krka Group and the Krka Company for January March 2014

6 Krka Group companies Central Europe East Europe Poland KRKA - POLSKA, Sp. z o.o. Russian Federation OOO KRKA-RUS Czech Republic KRKA ČR, s. r. o. Hungary KRKA Magyarország Kft. Slovakia KRKA Slovensko, s. r. o. Lithuania UAB KRKA Lietuva Latvia SIA KRKA Latvia Slovenia KRKA, d. d., Novo mesto TERME KRKA, d. o. o., Novo mesto Farma GRS, d. o. o., Novo mesto Russian Federation OOO KRKA FARMA Ukraine TOV KRKA UKRAINA Kazakhstan TOO KRKA Kazahstan West Europe Germany TAD Pharma GmbH Sweden Krka Sverige AB Austria KRKA Pharma GmbH, Wien Ireland KRKA PHARMA DUBLIN LIMITED South-East Europe Portugal KRKA Farmacêutica, Unipessoal Lda. Croatia KRKA-FARMA, d. o. o. Spain KRKA FARMACÉUTICA, S.L. Romania KRKA ROMANIA S.R.L. Italy KRKA FARMACEUTICI MILANO S.R.L. Serbia KRKA-FARMA DOO BEOGRAD France KRKA France Eurl a capital variable Macedonia KRKA-FARMA DOOEL Skopje - Bosnia and Herzegovina KRKA FARMA d. o. o., Sarajevo Belgium KRKA Belgium, SA Great Britain KRKA UK Ltd Bulgaria KRKA Bulgaria EOOD Production and distribution companies Health resort and tourist services company Overseas Markets USA KRKA USA LLC Other subsidiaries outside Slovenia EU project: research and development company The controlling company, Krka, d. d., Novo mesto, holds 100% ownership stakes in all of the above subsidiaries apart from Farma GRS (99.7%) and Krka Belgium (95%). 6 Unaudited Interim Report for the Krka Group and the Krka Company for January March 2014

7 Krka Group development strategy The Krka Group updates its development strategy on a bi-annual basis. At the beginning of November 2013 the Krka Company Management Board adopted the Krka Group development strategy for the five-year period, and presented it to the Supervisory Board at its November meeting. The success of implementing strategic objectives at the level of the Group is measured by the Management Board, while the success criteria at the level of product and service groups, and business functions, are monitored by the relevant committees. The key guideline in monitoring performance criteria is increasing the competitiveness of the entire Krka Group. The key Krka Group objectives and strategies to 2018 are set out below. Key strategic objectives to 2018 To report an average annual sales growth of at least 5%. In addition to organic growth, to expand through long-term business arrangements (including joint ventures) and by merging with available companies of interest to us in business terms. To have new products account for at least one third of total sales. To be the first generic producer to launch selected products on target markets. To strengthen the competitive advantages of our products. To maintain the largest possible share of vertically integrated products. To improve asset efficiency. To increase cost efficiency in products. To strengthen innovation across all business functions. To remain independent. Key strategies to 2018 To prioritise focus on European and Central Asian markets. To establish a new sales region, Overseas Markets, with sales offices for the Middle East, Far East, Africa, and the Americas, in order to better exploit the areas' sales potential. To focus our orientation on key markets (Slovenia, Croatia, Romania, Ukraine, the Russian Federation, Poland, Hungary, the Czech Republic, Western Europe), key customers and key products. To strengthen Krka's presence in the markets of Western Europe via our own marketing-andsales companies and by marketing products under our own brands. To intensify pharmaceutical and chemical activities and increase the range of prescription products in three key therapeutic fields (the treatment of cardiovascular diseases, the alimentary tract and metabolism, and the central nervous system), while also entering new therapeutic fields and expanding the range of non-prescription products in selected therapeutic fields. To strengthen vertical integration from development through to product manufacture. To ensure a permanent supply of incoming materials, and optimise supply by striving for a constant reduction in purchase prices. To develop generic pharmaceuticals and prepare their marketing authorisation documentation prior to the expiry of the product patent for the original medicine. To strengthen all types of connections with external institutions and companies in the field of development. To continue to increase investments in our production, development and infrastructure capacities. To acquire local pharmaceutical companies, and plan takeovers, mergers and various kinds of long-term business arrangements (joint ventures) in selected markets, with the primary objective to acquire market shares and enter 7 Unaudited Interim Report for the Krka Group and the Krka Company for January March 2014

8 new therapeutic fields. To reduce the impact of financial risk and economic hazards on Krka Group operations. To pursue a dividend-increase policy whereby up to 50% of the consolidated profit of major shareholders generated in the previous year is allocated to dividends, whereby the Group's financial requirements for investments and major acquisitions each year are also considered. To strengthen the professional and cost synergy within the Krka Group, and maximise the utilisation of competitive advantages in the business environments of Krka companies outside Slovenia. To enhance the internationalisation of all business functions by asserting English and Russian as the key foreign languages of communication throughout the Group. To maintain economic, social and environmental responsibility to the surroundings in which we operate. To operate according to the principles of business excellence, thereby strengthening Krka's recognition and its positive public image. Krka Group business objectives for 2014 Product and service sales are estimated at EUR billion. East Europe is expected to be Krka's largest sales region, and the Russian Federation our most important individual market. The proportion of sales outside Slovenia is estimated to exceed 93%. Prescription pharmaceuticals will remain the most important product group, representing more than 80% of overall sales. Profit is planned at the level from The number of employees is planned to increase in Slovenia and abroad, together by more than 4%. Investments of more than EUR 164 million are planned, to be allocated primarily to extending and modernising production capacities, research and development capacities, and infrastructure. 8 Unaudited Interim Report for the Krka Group and the Krka Company for January March 2014

9 BUSINESS REPORT Financial risk Foreign exchange risk Due to our widespread international operations, the Group is exposed to foreign exchange risk relating to the Russian rouble, Romanian leu, Polish złoty, Croatian kuna, Serbian dinar, Swedish krona, Czech koruna, Hungarian forint and Ukrainian hryvnia. The Group statement of financial position shows a surplus of assets over liabilities in these currencies, which we consider a long currency position. The key accounting categories that make up a currency position are trade receivables and trade payables. In the first quarter the Krka Group recorded negative exchange rate differences resulting mainly due to the declining value of the Russian rouble and also Ukranian hryvnia, The other currencies contributed relatively little to the overall translation differences in the Krka Group. Currency positions in the first quarter were not hedged. Russian rouble is partially hedged with purchases in roubles on the Russian market. Interest rate risk In 2013 the Krka Group had settled all its noncurrent borrowings. Changes in reference interest rates therefore no longer have an impact on the Group's overall financial expense. Credit risk Credit control involves the credit-rating assessment of customers to whom the controlling company and subsidiaries sell products totalling or exceeding EUR 100,000, and the regular dynamic monitoring of customer payment discipline. More than 400 of the Group s customers are included in the credit control system. From the beginning of the year to the end of the first quarter 2014 total trade receivables increased. This was the result of sales growth in markets with longer payment periods and the result of increased sales at the year-end of 2013 for which payment was not yet due. An increase in trade receivables at the end of the first quarter is a recurring seasonal occurrence in Krka Group's annual operations. The amount of past due receivables at the end of the first quarter remained at a level that Krka considers normal and acceptable. Customer payment discipline is estimated to have remained unchanged. We did not write off any trade receivables in the first quarter. Approximately one half of our trade receivables have credit insurance coverage or are hedged with financial instruments. Our policy of hedging receivables did not change in the reported period. Liquidity risk Risks related to the Group s liquidity were managed by effective short-term cash flow planning. Shortterm liquidity was ensured through a continual cash flow, pre-agreed current borrowings from banks, and the daily, rolling weekly, monthly and longerterm planning and monitoring of cash inflows and outflows. We also optimised the bank balances of Krka's subsidiaries. 9 Unaudited Interim Report for the Krka Group and the Krka Company for January March 2014

10 CONFI With the volume of our current borrowings small against a substantial cash flow, liquidity risk is estimated as very low. We settled all our liabilities regularly and in the agreed time frames. Property, business interruption and liability insurance After thoroughly examining insurance arrangements in the Krka Group and after researching the insurance market offers for over 98% of our total insurance premium, we entered in the first quarter of 2014 into insurance agreements with domestic and foreign insurers. We optimised our insurance costs by eliminating certain classes of insurance and by increasing net retained loss. Companies abroad are insured locally with the so-called "fronting" insurance policies, while inside the European Union policies are taken out in line with the system of the free movement of services. The analysis of the Group's car insurance arrangements in 2013 shows that measures introduced in the past continue to have positive effects. Insurance premiums and the number of loss events have decreased, with the cost-effectiveness and availability of cars increasing. With respect to transportation insurance, we examined insurance covers in purchase contracts from the perspective of the International Commercial Terms, Incoterms 2010, and implemented measures to increase its efficiency and efficacy. In the first quarter Krka's insurance arrangements ensured the management of risks and liabilities related to investment projects Krka-Rus 2, Sinteza 1 and Notol 2. Investor and share information Krka had 63,193 shareholders at the end of March 2014, which is 1% less than at the end of The decrease was mainly due to individual Slovenian investors. The shareholdings of international investors and of Slovenian investment companies and funds were slightly up in the first quarter, while the shareholdings of individual Slovenian investors and of other Slovenian legal entities were slightly down. Shareholder structure (%) 31 Mar Dec 2013 Individual Slovenian investors SOD fund KAD fund and PPS Slovenian investment companies and funds Other Slovenian legal entities International investors Treasury shares Total At the end of March 2014 Krka held 2,612,600 treasury shares, which is 7.4% of the value of its share capital. Krka repurchased 51,595 treasury shares via the Ljubljana Stock Exchange in the first quarter of 2014, in the total value of EUR 3,180, Unaudited Interim Report for the Krka Group and the Krka Company for January March 2014

11 10 largest shareholders as at 31 March 2014 Country No. of shares Share in equity (%) Share of voting rights (%) SLOVENSKA ODŠKODNINSKA DRUŽBA, D. D. Slovenia 5,312, KAPITALSKA DRUŽBA, D. D. Slovenia 3,493, SOCIETE GENERALE-SPLITSKA BANKA D. D. Croatia 1,348, HYPO ALPE-ADRIA-BANK D. D. Croatia 1,011, NEW WORLD FUND INC USA 755, KDPW POLAND Poland 649, LUKA KOPER, D. D. Slovenia 433, ZAVAROVALNICA TRIGLAV, D. D. Slovenia 388, AMERICAN FUNDS INSURANCE SERIES USA 353, UNICREDIT BANK HUNGARY ZRT Hungary 309, Total 14,053, Krka's ten largest shareholders held a total of 14,053,913 shares at the end of March 2014, which is just over 39.67% of all issued shares. On 31 March 2014 members of the Krka Management and Supervisory Board held a total of 50,495 shares, which is 0.143% of all issued shares. Shares in equity and shares of voting rights held by members of the Krka Management Board and Supervisory Board on 31 March 2014 Management Board members No. of shares Share in equity (%) Share of voting rights (%) Jože Colarič 22, Aleš Rotar 12, Zvezdana Bajc 1, Vinko Zupančič Danica Novak Malnar Total Management Board 37, Supervisory Board members Jože Lenič Matjaž Rakovec Julijana Kristl Vincenc Manček 11, Mojca Osolnik Videmšek Tomaž Sever Sergeja Slapničar Franc Šašek Mateja Vrečer Total Supervisory Board 13, Unaudited Interim Report for the Krka Group and the Krka Company for January March 2014

12 Share trading January March 2014 Krka's share price rose by 0.65% in the first quarter of 2014, and stood at EUR at the end of March. In the same period, the Slovenian blue-chip index SBI TOP was up 9%. Krka's market capitalisation as at 31 March 2014 amounted to EUR 2.1 billion. Deals in Krka's share generated an average EUR 0.6 million of daily trading volume on the Ljubljana Stock Exchange, making it the most traded share on the LJSE. 12 Unaudited Interim Report for the Krka Group and the Krka Company for January March 2014

13 Business operations analysis The business operations analysis includes data for the Krka Group and the Krka Company, whereas the comments relate primarily to the Group. Revenues Group generated EUR million of sales revenues from these products plus the health resort and tourist services. The sale of prescription pharmaceuticals increased by 2% compared to the same period last year, representing 83% of total Krka Group sales revenues. The Group generated 94% of its sales revenues in markets outside Slovenia. Both the Krka Group and the Krka Company witnessed a 1% increase in their sales revenues compared to the same period last year. The Krka Company sold EUR million worth of prescription pharmaceuticals, non-prescription products and animal health products, while the Taking into account other operating and financial income, the Group generated a total of EUR million of revenues, and the Krka Company EUR million. A more detailed analysis of sales results by individual markets and groups of products and services is given in the chapter Marketing and Sales below. Expenses Total Group expenses incurred in the first quarter of 2014 amounted to EUR million, up 6% compared to the same period last year. The Group incurred EUR million of operating expenses, of which the cost of sales was EUR million, distribution expenses were EUR 73.8 million, R&D costs were EUR 25.2 million, and administrative expenses were EUR 19.1 million. The Group cost of sales increased by 3%, on a costs to sales ratio of 40.3%. Distribution expenses decreased by 4%, on a costs to sales ratio of 24.8%. Group R&D costs increased by 2%, on a costs to sales ratio of 8.5%. The Group does not capitalise R&D costs, therefore they are recognised as expenses for the period in full. Administrative expenses decreased by 3% compared to the same period last year, on a costs to sales ratio of 6.4%. 13 Unaudited Interim Report for the Krka Group and the Krka Company for January March 2014

14 Operating result Profit before tax amounted to EUR 48.9 million, down 19% compared to the same period last year. Income tax totalled EUR 6.4 million, and the effective tax rate was 13.1%. The Krka Group recorded EUR 63.0 million of operating profit, up 8% compared to the same period last year. The Group reported EUR 42.5 million of profit for the period, down 17% compared to the same period last year, and the Krka Company generated EUR 41.8 million of profit for the period, down 16%. Lower profit is mainly the result of EUR 14 million of net negative foreign exchange differences, while in the same period last year both the Krka Group and the Krka Company recorded EUR 2 million of net positive foreign exchange differences. Assets At the end of March 2014 Krka Group assets totalled EUR 1,788.0 million, an increase by 2% compared to the year-end of Non-current assets represent 55.5% of total assets, up 0.2 of a percentage point since the beginning of the year. The largest item under non-current assets, which totalled EUR million, was property, plant and equipment on EUR million, which represents 46.9% of the Group's total assets. Property, plant and equipment were up 2% from the beginning of the year. Intangible assets amounted to EUR million. Current assets were up 1% in the first three months of 2014, to EUR million. Inventories were down 3% in the same period, to EUR million, and receivables increased by 6% to EUR million (of which trade receivables amounted to EUR million, up 7% from the beginning of the year). Equity and liabilities The Group s equity increased by 2% from the yearend of 2013, to EUR 1,363.2 million, and represents 76.2% of total equity and liabilities. Amounting to EUR million, non-current liabilities represent 7.2% of the Group's total assets. Provisions, which amounted to EUR million at the end of the period, remained at the same level as at the year-end of Current liabilities decreased by 1% from to the yearend of 2013 and totalled EUR million, which is 16.6% of the Group's total assets. Among current liabilities, trade payables amounted to EUR million, up 1% compared to the year-end of 2013, with other current liabilities down 5% to EUR million. 14 Unaudited Interim Report for the Krka Group and the Krka Company for January March 2014

15 Performance ratios The Krka Group profit margin for the period January March 2014 was 14.3% (Krka Company 14.5%), its EBIT margin 21.1% (Krka Company 21.3%), and its EBITDA margin 29.1% (Krka Company 27.4%). ROE at the level of the Group was 12.6% (Krka Company 12.4%), with ROA at 9.6% (Krka Company 9.7%). Marketing and sales In the first three months of 2014 the sales of both the Krka Group and the Krka Company exceeded the sales figures recorded in the same period last year. Group sales were EUR million and Krka Company sales amounted to EUR million. Sales by Region Krka s sales were the highest in Region East Europe, where they amounted to EUR million, which is 39.0% of total Group sales. Region Central Europe reported the second best result, sales there amounting to EUR 62.1 million and representing 20.8% of total sales. The third largest area in terms of sales was Region West Europe, where Krka sold EUR 59.8 million worth of products in the reported period, which is 20.1% of overall sales. In Region South-East Europe product sales amounted to EUR 34.2 million, which represents 11.4% of Group sales. In the domestic market sales totalled EUR 19.3 million, which is 6.5% of total sales, while Overseas Markets sales generated EUR 6.5 million, or 2.2% of Group sales. Krka Group Krka Company EUR thousand 1 3/ /2013 Index 1 3/ /2013 Index Slovenia 19,286 21, ,880 14, South-East Europe 34,158 34, ,282 39, East Europe 116, , ,652 97, Central Europe 62,093 63, ,423 65, West Europe 59,790 64, ,455 57, Overseas Markets 6,484 10, ,865 9, Total 298, , , , Unaudited Interim Report for the Krka Group and the Krka Company for January March 2014

16 Krka Group sales by Region, January March 2014 Krka Group sales by Region, January March 2013 and 2014 Slovenia Operations in the domestic market in the first quarter were affected by legislative changes which additionally strengthened competition in the market for prescription pharmaceuticals. In January we witnessed therapeutic groups of ACE inhibitors and statins enter into effect. Krka responded by adjusting the prices of our products; in this way we preserved our patients, but recorded lower sales as a result. The new Medicinal Products Act, which took effect in February, has introduced additional changes in numerous areas, including price formation, pharmacovigilance and pharmaceutical marketing. In the first three months of the year we sold a total of EUR 19.3 million worth of products and services in Slovenia. The majority EUR 9.6 million came from prescription pharmaceuticals, with nonprescription product sales amounting to EUR 1.4 million, and animal health product sales totalling EUR 0.5 million. Terme Krka Group sales in the period were EUR 6.8 million, while other sales amounted to EUR 1.0 million. Most attention was devoted to our best-selling product group, prescription pharmaceuticals, especially products treating cardiovascular diseases. We additionally strengthened our recognition in the market for antihypertensives, thereby enhancing the identity of Krka brands Prenessa (perindopril), Prenewel (perindopril and indapamide) and Amlessa (perindopril and amlodipine). In addition to the angiotensin II receptor antagonist Tolura, our product portfolio now includes its fixed-dose combination with a diuretic, Tolucombi (telmisartan and hydrochlorothiazide), and we also launched Elyrno (enalapril and lercanidipine), a brand new fixeddose combination in two concentrations. As to the group of statins we built up brand recognition for Sorvasta (rosuvastatin) and Atoris (atorvastatin), while on the market for oncology medications we launched Meaxin (imatinib) and Ecansya (capecitabine). South-East Europe Product sales in the markets of South-East Europe totalled EUR 34.2 million at the end of the first quarter, remaining on the level of sales recorded in the same period last year. Sales growth was recorded in Romania, Serbia, Macedonia, Kosovo and Albania. Romania is the most important market in the Region and one of Krka's key markets. Sales there were up 5% to EUR 12.5 million. Our best-selling products were prescription pharmaceuticals, especially the leading Atoris (atorvastatin), Roswera (rosuvastatin), Prenessa/Co-Prenessa (perindopril/perindopril and indapamide), Tolura 16 Unaudited Interim Report for the Krka Group and the Krka Company for January March 2014

17 (telmisartan), Karbis (candesartan), Enap (enalapril) and Nolpaza (pantoprazole). With respect to non-prescription products, sales were up for Bilobil (ginkgo biloba) and we launched new products of the Pikovit brand. In the area of veterinary products, we continued introducing medicinal products for companion animals. In March we thus launched Amflee (fipronil), a product to be sold in specialised shops. In our second most important market in the Region, Croatia, product sales totalled EUR 7.3 million. This ranks Krka the country's fourth largest generic provider of human health pharmaceuticals and the second largest in the animal health market. Sales in Croatia were down 8% compared to the same period last year. Most sales were generated in prescription pharmaceuticals, especially our ACE inhibitors, anxiolytics, sartans, statins and proton pump inhibitors; these are all product groups in which we hold considerable market shares. Our best-selling products from these therapeutic groups were Atoris (atorvastatin), Helex (alprazolam), Nolpaza (pantoprazole), Emanera (esomeprazole), Co- Perineva (perindopril and indapamide), Ciprinol (ciprofloxacin), Roswera (rosuvastatin) and Valsacor (valsartan). New launches on this market in the reported period included Tolucombi (telmisartan and hydrochlorothiazide) and Atordapin (atorvastatin and amlodipine), an additional strength of Gliclada (gliclazide), and oncology medications Tolnexa (docetaxel) and Cansata (capecitabine). In Bosnia and Herzegovina product sales in the first quarter totalled EUR 4.4 million, down 7% compared to the same period last year. The decrease is the result of pressures to reduce our product prices, which are expected to continue in the future. The largest contributors to sales were prescription pharmaceuticals, especially Enap (enalapril), Lorista (losartan), Valsacor (valsartan), Atoris (atorvastatin), Naklofen (diclofenac), Roswera (rosuvastatin) and Nolpaza (pantoprazole). The best-selling non-prescription products were those of the B-complex, Nalgesin (naproxen), Septolete and Bilobil (ginkgo biloba) brands, the entire product group witnessing growing sales. In Macedonia Krka remains the leading foreign producer of generic pharmaceuticals. Sales there were up 5% compared to the same period last year, to EUR 2.9 million. Despite lower reference prices, prescription pharmaceuticals were the main contributors to the increase in sales volume and sales value, while non-prescription product sales were up 11% compared to the same period last year. Preserving sales growth and a large market share in Macedonia remain our goals for the future in this market. After the sales-wise weak initial two months of 2014, conditions in Serbia stabilised in March, Krka sales there totalling EUR 2.5 million at the end of the quarter, up 8% compared to the same period last year. We expect sales growth to continue in the future. Sales in Bulgaria were EUR 2.1 million, down 2% compared to the same period last year. Despite the overall decrease, the group of non-prescription products recorded a 75% sales growth. In the future we expect overall sales to pick up again, both due to good sales results for existing and newly launched products. First quarter sales in Kosovo totalled EUR 1.4 million, up 3% compared to the same period last year. Krka remains one of the leading providers of pharmaceutical products in the Kosovo market. In Albania we sold EUR 0.9 million worth of products in the same period, up 1%, while in Montenegro sales were down 7% compared to the same period last year, to EUR 0.2 million. Sales in this market continue to depend to a large extent on government tenders. 17 Unaudited Interim Report for the Krka Group and the Krka Company for January March 2014

18 East Europe Encompassing several Eastern European and Central Asian markets, Region East Europe remains one of Krka's leading sales regions. Despite the first quarter of 2014 being marked by economic and overall instability in certain regional markets, our sales increased as compared to the same period last year in 11 out of the 13 markets. Sales in the Region totalled EUR million, up 16%, mainly driven by sales growth in the Russian Federation. The Russian Federation remains Krka's key market while also being our largest individual market. First quarter sales value there totalled EUR 84.6 million, up 20% compared to the same period last year. The main drivers of sales growth were prescription pharmaceuticals. Krka is one of the country's leading suppliers of ACE inhibitors, statins, sartans, proton pump inhibitors and weight care pharmaceutical products, and in the area of non-prescription products we have strong market shares for multivitamin products for children, and cough syrups. Good sales results were recorded for products treating diseases of the central nervous system, for which the sales growth rate in the reported period was high. Our leading products in terms of sales were Atoris (atorvastatin), Enap (enalapril), Lorista (losartan), Zyllt (clopidogrel), Perineva (perindopril), Nolpaza (pantoprazole), Orsoten (orlistat), Herbion, Panzynorm, Roxera (rosuvastatin) and Nolicin (norfloxacin). An increasingly important contribution to sales has been coming from pharmaceuticals launched on the market in the last five years; the ones that recorded the highest sales growth in the reported period were Perineva (perindopril), Nolpaza (pantoprazole) and Roxera (rosuvastatin). Operations in Ukraine in the first quarter of 2014 were marked by the difficult general and economic situation in the country. We monitored market developments throughout the reported period, adjusting to the changing conditions. Despite the general instability and the depreciation of the local currency we sold EUR 13.2 million worth of products there; while representing a decrease by 3% compared to the sales recorded in the same period last year, this result increased Krka's market share in the country. Our best-selling prescription pharmaceuticals were Enap (enalapril), Atoris (atorvastatin), Prenessa (perindopril) and Nolpaza (pantoprazole). The leading non-prescription products in terms of sales were Herbion, Panzynorm and Bilobil (ginkgo biloba). The sales of Krka's products in Uzbekistan continued to rise, totalling EUR 4.5 million in the first quarter, up 18% compared to the same period last year. Prescription pharmaceuticals remained the leaders in term of sales, especially Enap (enalapril), Lorista (losartan) and Atoris (atorvastatin). Nonprescription product sales were up 28%, the main sales drivers being Pikovit, Septolete and Herbion. Sales results were also good for the newly launched medicine Amlessa (perindopril and amlodipine). Later this year we plan to launch Zulbex (rabeprazole), Azibiot (azithromycin) and Herbion Iceland moss syrup. Due to the specifics in payment transactions in this market, we continue to devote special attention to shortening payment periods and decreasing receivables. Kazakhstan witnessed a depreciation of the local currency in February, followed by several days of insecurity. However, the pharmaceuticals market stabilised quickly, and we managed to increase first quarter sales by 3% compared to the same period last year. Total sales value amounted to EUR 4.3 million, mainly driven by prescription pharmaceuticals, especially Zyllt (clopidogrel), Enap (enalapril), Nolpaza (pantoprazole) and Gliclada (gliclazide). Good sales results were also reported for the new products Kventiax (quetiapine), Asentra (sertraline), Elicea (escitalopram) and Alventa (venlafaxine). In the following quarter we plan to launch two new products on the market, Helex SR (alprazolam) and Naklofen gel (diclofenac). Despite strong protectionism in Belarus, Krka's product sales there amounted to EUR 2.9 million, up 11% compared to the same period last year. The largest contributors to total sales were Lorista (losartan), Nolpaza (pantoprazole) and Prenessa (perindopril). The product group that recorded the highest sales growth rate was prescription pharmaceuticals, the sales of which were up 23% compared to the same period last year. In Moldova sales in the first quarter totalled EUR 1.6 million, up 12% compared to the same period last year. Our leading prescription product in terms of sales was Rawel SR (indapamide), and we managed to include Glyclada (gliclazide) on the reimbursement list and launch it on the market. In 18 Unaudited Interim Report for the Krka Group and the Krka Company for January March 2014

19 addition to the ongoing pressures to reduce prices, first quarter sales were marked by the depreciation of the local currency. Sales in Mongolia were impacted by the deteriorating economic situation, which resulted in high inflation and a decrease in purchasing power. Krka nevertheless sold EUR 1.3 million worth of products there in the first quarter, up 4%, thus remaining one of the leading pharmaceuticals providers in the market. After a longer period of stagnation, first quarter sales in Azerbaijan were up 50% compared to the same period last year, amounting to EUR 0.9 million. Sales increased considerably for prescription pharmaceuticals and for nonprescription products, the leader in the latter group being Herbion. First quarter sales in Georgia were up 24% to EUR 0.8 million, mainly driven by the 36% sales growth in the group of prescription pharmaceuticals. In Turkmenistan sales totalled EUR 0.8 million, up 65% compared to the same period last year. The increase was mainly driven by the sale of prescription pharmaceuticals, especially the leading Naklofen (diclofenac). The generally stringent economic conditions in Kyrgyzstan, together with the depreciation of the local currency and thus higher prices of all imports, resulted in Krka reporting first quarter sales of EUR 0.6 million there, down 37% compared to the same period last year. In Armenia sales increased by 3% to EUR 0.4 million, with the main sales drivers being prescription pharmaceuticals. Despite the economically and generally unstable situation in Tajikistan, our sales there were up 7% to EUR 0.4 million. Central Europe Sales in the markets of Central Europe totalled EUR 62.1 million in the first quarter, down 2% compared to the first three months last year. The decrease was mainly due to the lower sales in the Czech Republic. A half of the Region's overall sales was generated in Poland, the leading market in the Region as well as one of Krka's key markets. Sales there totalled EUR 31.5 million, up 3% compared to the same period last year. The main sales drivers were prescription pharmaceuticals, mainly Atoris (atorvastatin), Roswera (rosuvastatin), Valsacor (valsartan), Nolpaza (pantoprazole), Lorista (losartan), Sulfasalazin (sulfasalazine) and Tolura (telmisartan), while high sales growth rates were also recorded for the more recently launched Doreta (paracetamol and tramadol) and Emanera (esomeprazole). The leading non-prescription products in terms of sales were Septolete and Bilobil (ginkgo biloba), while in the group of animal health products the best-sellers were Fypryst (fipronil) and Floron (florfenicol). Sales in Hungary, one of the Krka s key markets, were up 92% compared to the same period last year, to EUR 11.0 million. Our key products from the best-selling group of prescription pharmaceuticals were Prenessa (perindopril), Fromilid (clarithromycin), Roxera (rosuvastatin), Atoris (atorvastatin), Nolpaza (pantoprazole) and Tenox (amlodipine). We expect sales growth in Hungary to continue in the next quarter. First quarter sales in Slovakia totalled EUR 8.8 million, up 26% compared to the same period last year. The largest contributors to overall sales value were prescription pharmaceuticals, especially Prenessa (perindopril), Valsacor (valsartan), Atoris (atorvastatin), Nolpaza (pantoprazole) and Amlessa (perindopril and amlodipine), while Nalgesin (naproxen) and Septolete recorded the best sales results among non-prescription products. In the first quarter of 2014 the pharmaceuticals market of the Czech Republic witnessed changes of the healthcare system that caused a drop in the prices of pharmaceuticals. This was reflected in Krka's sales value for the period, which totalled EUR 3.2 million, down 73% compared to the first quarter last year. The leading product group in terms of sales were prescription pharmaceuticals, in which the best-selling products were Nolpaza (pantoprazole), Tolura (telmisartan), Fromilid (clarithromycin), Prenessa (perindopril), Likarda (letrozole) and Oprymea (pramipexole). The leading non-prescription products were Septolete and Bisacodyl-K (bisacodyl). Sales in Lithuania totalled EUR 4.6 million, down 8% compared to the first quarter last year, mainly due to the lower sales of seasonal products. The 19 Unaudited Interim Report for the Krka Group and the Krka Company for January March 2014

20 most important prescription pharmaceuticals in terms of sales were Valsacor (valsartan), Prenessa (perindopril) and Tolura (telmisartan), and all their fixed-dose combinations with diuretics, while sales increased for Atoris (atorvastatin) and Roswera (rosuvastatin). Non-prescription product sales were also down 5%, however the products' market shares increased. The sale of animal health products decreased by 9%, with the best-selling products in this group remaining Enroxil (enrofloxacin) and Fypryst (fipronil). Sales in Latvia were down 16% compared to the same period last year, to EUR 1.8 million. High sales growth rates were recorded for Amlessa (perindopril and amlodipine) and Tolura (telmisartan) in fixed-dose combinations with a diuretic. In Estonia first quarter sales increased by 5% to EUR 1.1 million. The most important prescription pharmaceuticals in terms of sales were Gliclada (gliclazide), Enap (enalapril) and Valsacor (valsartan), including their fixed-dose combinations with a diuretic, and Roswera (rosuvastatin). By successfully launching Escadra (esomeprazole), we managed to additionally increase our market share in a demanding economic environment. West Europe Product sales in Region West Europe amounted to EUR 59.8 million in the three months of 2014, down 8% compared to the same period last year. This was exclusively the result of the continued decrease in sales via unaffiliated companies, mainly in France, Italy and Germany. Krka's presence in Western European markets is nevertheless strengthening via our subsidiaries, which reported a 29% sales increase compared to the same period last year. The Region's leading market in the first quarter was Germany, where the majority of sales was generated by Krka's subsidiary TAD Pharma, which reported a sales increase of 27% compared to the same period last year. A major share of sales in Spain was via a public tender in Andalusia. The third market in terms of sales was France, where the majority of sales continues to be generated by unaffiliated companies. In Portugal Krka's products have been successfully sold via the subsidiary Krka Farmaceutica, which continues to rank as one of the fastest growing companies in Portugal. All the other newly founded subsidiaries in Western Europe also recorded high first-quarter sales growth rates, and we expect the trend to continue in the future. The main sales drivers were again prescription pharmaceuticals, which represented 91% of overall first-quarter sales despite sales in the Region being down 8%. The best-selling products are generic pharmaceuticals with esomeprazole, gliclazide, clopidogrel, candesartan and pantoprazole. As the first and only generic producer in Germany we successfully launched the generic medicine for high blood pressure Tolucombi (telmisartan and hydrochlorothiazide); our subsidiary TAD Pharma released the medicine in mid-january. In Portugal, good sales results continued for our generic enalapril in the fixed-dose combination with lercanidipine, and for 60 mg of gliclazide in prolonged release tablet form. The latter sold well in France as well, where we remain the only provider of this generic medicine. After successfully launching it in Germany, we continued introducing the generic medicine with pramipexole in the form of prolonged release tablets, which we market under the brand name Oprymea SR, in several other Western European countries. The sales value of non-prescription products was comparable to that in the first quarter last year, and represented 2% of overall first-quarter 2014 sales in the Region, with the most important markets in terms of sales being Germany and Portugal. Animal health product sales were down 10% from the first quarter last year and represented 7% of the Region's overall sales, with the most important markets in terms of sales being the Benelux, France and Germany. In the second quarter of 2014 we plan to launch products under Krka's brand in the Benelux via Krka Belgium and in Germany via TAD Pharma, thereby fostering sales growth for our animal health products intended both for large animals and pets in the markets of Western Europe. 20 Unaudited Interim Report for the Krka Group and the Krka Company for January March 2014

21 Overseas Markets First-quarter sales in the Overseas Markets Krka's sales region that was established this year totalled EUR 6.5 million, down 36% compared to the same period last year. The majority of sales, 88%, came from prescription pharmaceuticals. Sales growth was recorded in the Far East and in Africa, where the Republic of South Africa remains our most important market, sales there up 15% from the same period last year. The best-selling products there are generic pharmaceuticals with lansoprazole, amlodipine and enalapril. The next best result was recorded in Malaysia where sales more than doubled from the same period last year. The leading product in this market was Kamiren (doxazosin), which we sold after winning a public tender. Sales in the Middle East did not reach the sales we recorded in the same period last year, mainly due to the impact of the quarterly order-placement dynamics and due to the restrictions imposed on Iranian importers of pharmaceuticals. This drove down sales in Iran, which nevertheless remains our leading market in the Region. Intensified marketing activities resulted in high sales growth in Yemen. Our best-selling products in this market were dexamethasone, Atoris (atorvastatin), Novolax (bisacodyl), Naklofen (diclofenac) and Fromilid (clarithromycin). 10% of the Region's sales were generated by the subsidiary TAD Pharma, which makes the most sales to Iraq and China. Krka Group and Krka Company sales by product and service group The Group generated 93.7% of overall sales during the period January to March 2014 in human health products, making this Krka s most important product group. The most sales in the Krka Group were generated in prescription pharmaceuticals, which represented 83.3% of overall sales, being up 2% compared to the same period last year. Nonprescription product sales represented 10.4% of total sales, and animal health products 3.7%, while health resort and tourist services accounted for 2.3% of overall Krka Group sales. Krka Group Krka Company EUR thousand 1 3/ /2013 Index 1 3/ /2013 Index Human health products 279, , , , Prescription pharmaceuticals 248, , , , Non-prescription products 31,048 33, ,056 28, Animal health products 10,894 10, ,771 11, Health resort and tourist services 6,830 6, Other , Total 298, , , , Unaudited Interim Report for the Krka Group and the Krka Company for January March 2014

22 Krka Group sales by product and service group, January March 2014 Prescription pharmaceuticals The Krka Group sold EUR million worth of prescription pharmaceuticals in the first quarter of 2014, up 2% compared to the same period last year. A substantial sales increase was recorded in Region East Europe (up 22%). The sale of prescription pharmaceuticals was up compared to the same period last year in all large markets, the most in Hungary, where it more than doubled, in the Russian Federation (up 24%), Ukraine (up 16%) and Germany (up 14%). As to mid-size markets, the highest sales growths were recorded in Spain (up 63%) and Slovakia (up 31%). Among small markets for Krka's prescription pharmaceuticals, the highest sales growth rates were recorded in Belarus (up 23%), Uzbekistan (up 13%) and Macedonia (up 6%). The ten leading prescription pharmaceuticals in terms of sales were Atoris (atorvastatin), Enap (enalapril), Prenessa* (perindopril), Nolpaza* (pantoprazole), Lorista* (losartan), Zyllt* (clopidogrel), Emanera* (esomeprazole), Roswera* (rosuvastatin), Valsacor (valsartan) and Gliclada* (gliclazide). The highest sales growth rates in absolute terms compared to the same period last year were recorded by the leading products Atoris (atorvastatin), Enap (enalapril), Tolura* (telmisartan), Gliclada* (gliclazide), Roswera* (rosuvastatin), Nolpaza* (pantoprazole) and Marixino* (memantine). In the first three months of 2014 we launched several products on new markets: Atordapin* (atorvastatin and amlodipine) in Croatia and Spain; Elernap* (enalapril and lercanidipine) in the Czech Republic and Spain; Candecor (candesartan) in Kazakhstan; Ifirmacombi (irbesartan and hydrochlorothiazide) in Ireland; Tolura (telmisartan) in Portugal and Ireland, and Tolucombi (telmisartan and hydrochlorothiazide) in Germany, Spain, the Czech Republic, Portugal and Ireland; Perindopril in Spain, and perindopril with indapamide in Italy; Amlessa (amlodipine and perindopril) in Uzbekistan and Armenia; Ramipril in Italy; Sobycor* (bisoprolol) in Poland, Hungary, the Czech Republic, Portugal, Ireland and Estonia; Glyclada (gliclazide) in Moldova; Emanera (esomeprazole) in Estonia and Georgia; Marixino (memantine) in Latvia; Oprymea (pramipexole) prolonged release tablets in Romania, Lithuania, Spain, France, Hungary, the Czech Republic and Ireland; Ypsila (ziprasidone) in Estonia; Dasselta (desloratadine) in Kosovo; Montelukast in Portugal; and Sildenafil in Portugal. 22 Unaudited Interim Report for the Krka Group and the Krka Company for January March 2014