Krka d d : H1 2023 Krka Business Performance Results Webcast

Krka H1 2023 Business Performance Results Webcast

CORRECTED TRANSCRIPT

URL:www.krka.biz

20 July 2023

KRKA, d. d., Novo mesto (KRKG SV)

H1 2023 Krka Business Performance Results Webcast

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Krka H1 2023 Business Performance Results Webcast

CORPORATE PARTICIPANTS

PANELIST:

David Bratož, Member of the Management Board, Krka d. d.

Brane Kastelec, Finance Director, Krka d. d.

HOST:

Gregor Gavranič, Associate, Krka d. d.

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Krka H1 2023 Business Performance Results Webcast

BUSINESS PERFORMANCE PRESENTATION:

Gregor Gavranič

Dear ladies and gentlemen, welcome to today's webcast on first half of the year results of the Krka Group. My name is Gregor Gavranič and I am hosting today this event, together with Mr. David Bratož, Member of the Management Board, and Mr. Brane Kastelec, Finance Director. Krka has released first half of the year results this morning and reaffirmed guidance for this year. Detailed interpretation of our performance and highlights for the first half of the year will be provided by Mr. Bratož and Mr. Kastelec. Both will be available during the Q&A session that will follow. We invite you to address your questions live. May I remind you that this webcast is intended for professional audience only, not media representatives and is being recorded. Mr. Bratož, the word is yours.

David Bratož

Good afternoon, ladies and gentlemen, it is my great pleasure to welcome you at today's webcast. I am David Bratož, member of the Management Board, and today I'd like to share with you the business results for the first half of the year. The Krka group operating results for the first half of the year are good. Sales increased in all 6 regions, and in most of our key markets, and also for all product and service groups. We generated revenue of 920 million euro up 7% on first half 2022. At the same time, we maintained high profitability of operations. The reported half-year operating profit is the highest to-date.

We achieved EBIT of 236 million euros, which is up 9% on adjusted EBIT for the first half of 2022. The rubble volatility affected the net financial result. Net profit of 170 million euros has exceeded one half of the planned 2023 full year net profit. However, it is down 28% compared to that of the same period last year, when we recorded substantial foreign exchange gains.

The gap between this year and last year's net financial result, which is quite large for the first half, is expected to narrow by the end of the year. I can say that results for the 6 months to June are encouraging. We assume that 2023 targets are realistic, and that we will reach the planned 1,755 million euros in sales and the net profit of around 300 million euro.

Krka is providing access to safe, effective, high quality and affordable medicines to patients on 70 plus markets worldwide. We are striving to reach highest standards of sustainability. We produce 17 billion finished dosage forms annually, and more than 55 million patients use our medicines on a daily basis. In the first half of 2023, we produced and sold almost 9 billion packages or 4% more than in the first half of last year. We operate in many low to middle-income countries, therefore we create substantial savings for patients and healthcare systems in such a way.

On this slide number four you can see our performance from 2005 to 2022. The green bars represent sales and the blue line represents the quantity sold per year. We can see that our sales and volumes have roughly tripled from 2005 to 2022. The average growth rate for both sales in euros and quantity sold is about 7%, even slightly higher. The average growth rate of net profit is 10% per year, which is also a very good result. The constantly increasing production output is also reflected in the growth of turnover and profitability. In summary, we can say that volume growth is very important for Krka. Furthermore, we have also outperformed the market growth during this period.

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Krka H1 2023 Business Performance Results Webcast

We increased sales in all 6 regions and in majority of individual markets. The increase was 7% or 63 million euro more compared to the first half of last year. Region East Europe recorded the highest sales representing almost one-third of Krka sales. Sales in the largest individual market for Krka the Russian Federation reached 180 million euro. This is up 4%. We recorded sales increases in all other markets of Eastern Europe and Central Asia, except in Ukraine, where we sold 39 million euros, down 16% on the same period last year.

Our activities in the Russian Federation have been running rather undisturbed. Our local production site located in Russia, in Istra, Moscow covers 76% of Russian sales, and we have the status of a domestic producer. We do not manufacture any products in the Russian Federation for sales in any other country outside of Russia. Krka is present there for more than 50 years, and 10 million patients use our medicines on a daily basis.

The Krka brand is very well known for its quality, safety and efficacy among physicians, doctors, and inhabitants. We are holding the second position among foreign generic producers and first in pharmacy segment and the leading position in Cardiovascular segment.

In Ukraine, where many people left the country and the distributors reduced their inventories, caused the pharmaceutical market to shrink to certain extent. Nevertheless, according to the most recent secondary sales data Krka has remained the second ranked foreign provider of generics in the pharmacy segment. The sales dynamics in the second quarter already improved, and it is also expected to pick up considerably in the second half of the year. On both markets everything is running smoothly, and we also can add that in the past sanctions have never been imposed on medicines, so we can assume that our products will not be placed on any trade restriction list in the future.

The second biggest region in terms of sales is region Central Europe representing 23% of total Krka sales and up 9% in the first half. Poland, with 93 million sales and 5% growth, remained the leading regional market and the second biggest individual market for Krka. Here we also have production located in Warsaw. We ranked third among foreign providers of generic medicines in the country. Sales increased in all other regional markets, such as Czech Republic, Hungary and others.

Our third-largest region West Europe recorded sales in amount of 181 million euro, representing one-fifth of total Krka group sales and generated an 8% rise. In Germany, which is the largest market in the region and the third biggest market for Krka, we recorded growth. In the second half of the previous year, we had successfully launched the gliptide products for treating diabetes. According to the most recent available data, Krka has managed to become the leading generic supplier on the market in this therapeutic group. We achieved sales growth in most other regional markets, among them the highest in Portugal, Ireland, and Finland.

Sales in the region Southeast Europe, plus region Slovenia represent together one-fifth of the sales and is actually comparable to the West Europe sales. Key markets are Romania, Croatia, and Serbia, the countries that contributed the most to the sales in this region, and all of them with quite a nice growth.

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Krka H1 2023 Business Performance Results Webcast

Krka holds a 7.4% share of the Slovenian pharmaceutical market in terms of sales value, and we are the country-leading supplier of pharmaceuticals. Volume wise, we have a market share of around 20%. Region overseas markets generated the highest relative increase among all regions, 16% increase. We recorded an impressive increase of sales in Far East and South Africa especially. I would like to underline the sales growth in Vietnam. In China we sold a bit less and this is mainly due to the dynamics of sales and in the second half of this year the sales in China are expected to exceed those of the first six months this year, with full year sales growing over 2022.

As far as the structure of sales is concerned, prescription pharmaceuticals remain by far the most important group of products for Krka as they generate 82% of the total Krka sales. We keep saying that this is our core business. If we do a good business here, then we have good results for Krka as well. In first half of this year's sale of Rx increased by 6%. We gained additional 45 million euros in sales.

Also, sales of non-prescription pharmaceuticals representing 9% of total sales increased by 6% as well. However, already on an elevated or relatively high base, because last year growth index of OTC was around 30%.

Sales of animal health products representing a good 6% of Krka sales, increased sharply by 23%. We gained additional 11 million euro in sales. Already 70% of animal health sales are for companion animals or for pets.

We have diversified product portfolio. Cardiovascular products represent more than a half, second biggest group are medicines for central nervous system, followed by gastro and pain relief, which represents more than 6% of our sales. We are also focused on antidiabetics, anti-coagulants, and on oncology products.

As far as R&D is concerned, I would like to underline that currently, we are working on 170 products in our pipeline, and our goal is, of course, to be among the first on the market after the patent expiration. This important objective of timely launches will enable Krka to increase market shares in the future as well. We invest up to 10% of sales for R&D year after year, and have more than 800 experts engaged in R&D. During the first half we added 5 new products to our portfolio. We also enlarged the product range in China. In addition, we obtained 263 MA's in the EU countries for products from established product range, and also the new one.

We are innovative branded generic producer with own R&D. Krka was the first generic company to introduce many single pill combinations. These are tablets containing two or three active ingredients in one single pill, and currently, we have more than 100 single pill combinations in our portfolio. We are number one among generics regarding our broad product range of SPC products. This is our competitive advantage.

Our medicines are available in many unconventional dosage forms. We are offering advanced pharmaceutical formulations that offer us an opportunity of differentiation from other originators and generics. By adding different single-pill combinations, we are tackling pricing pressures and other challenges, which are also important for the life cycle of our product. In this way, we give doctors and patients access to high-quality, innovative medicines, which firstly make it easier to

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