29. 1. 2020

Estimation of Krka Business Performance in 2019

11 min. read

The Management Board of Krka, d. d. held a press conference today and presented the 2019 unaudited performance estimate of the Krka Group and the controlling company Krka discussed by the company Supervisory Board at their meeting yesterday. According to President of the Management Board Jože Colarič, the Krka Group generated €1,489.1 million by products and services sales, or 12% more than in 2018. Based on unaudited financial statement estimates, net profit of the Krka Group is approximated at €242.1 million, up 39% compared to 2018. Publication of the 2019 unaudited financial statements of the Krka Group and Krka is scheduled for Thursday, 19 March 2020.

Sales of Products and Services by Region
Generating €481.2 million or 32.3% of total sales, the largest region of the Krka Group in terms of sales was Region East Europe. Sales increased by 17% year-on-year. In the Russian Federation, we made €310.5 million by product sales, a 13% rise compared to 2018. In Ukraine, product sales added up to €79.8 million, an upsurge of 42%. We recorded significant sales growth rates also in most other regional markets.

Region Central Europe, comprising the Visegrad Group and the Baltic states, followed with €339.6 million, or 22.8% of total Krka Group sales. We recorded a 7% rise compared to the year before. Poland, the leading market, generated €159.5 million product sales and recorded 7% growth. Sales also went up in Hungary, Slovakia, Lithuania, Latvia, and Estonia.

Region West Europe made €336.1 million, a 22.6% share, and was the third largest Krka Group region in terms of sales value. We recorded a 17% rise compared to the year before. Germany, the Scandinavian countries, Spain, and Italy generated the strongest sales. Sales through subsidiaries were essential for continued sales growth and composed 76% of regional sales, while sales through unrelated parties retained the 2018 level. The Scandinavian countries, Benelux, Germany, Portugal, Italy, and the United Kingdom presented strongest growth.

Product sales in Region South-East Europe amounted to €191.3 million, 9% more than in 2018, constituting 12.8% share of total Krka Group sales. Romania and Croatia were our two leading markets. However, we recorded the highest sales growth in Bulgaria and Serbia.
In Slovenia, sales added up to €92.4 million, accounting for 6.2% of total Krka Group sales. The growth rate was 4%. Product sales accounted for €52.9 million, the major portion of sales total, while health resorts and tourist services yielded €39.5 million.

Region Overseas Markets made €48.6 million by product sales, recording 12% growth and 3.3% share of total Krka Group sales.

Sales by Product and Service Group
The Krka Group sales of prescription pharmaceuticals totalled €1,247.3 million, 13% more than last year, accounting for 83.8% of total Krka Group product and service sales. All regions saw higher sales: 18% Region East Europe, 18% Region West Europe, 11% Region Overseas Markets, 9% Region South-East Europe, 6% Region Central Europe, and 1% Region Slovenia.

Out of our ten largest individual markets, Ukraine, Germany, and the Russian Federation increased prescription pharmaceutical sales in relative terms the most. Of other markets, Finland, Belarus, and Kyrgyzstan stood out.

Top-ranking therapeutic categories of prescription pharmaceuticals included medicines for the treatment of cardiovascular diseases, the central nervous system, and gastrointestinal agents.

Ten leading prescription pharmaceuticals in terms of sales were product groups containing:
• valsartan (Valsacor, Valsacombi, Vamloset, Co-Vamloset, Valarox);
• perindopril (Prenessa, Co-Prenessa, Amlessa, Co-Amlessa);
• losartan (Lorista, Lorista H, Lorista HD, Tenloris);
• atorvastatin (Atoris);
• pantoprazole (Nolpaza);
• rosuvastatin (Roswera, Co-Roswera);
• esomeprazole (Emanera);
• enalapril (Enap, Enap H, Enap HL, Elernap);
• clopidogrel (Zyllt); and
• candesartan (Karbis, Karbicombi).

All pharmaceuticals listed above are marketed under different brand names in individual markets.

Sales of non-prescription products totalled €133.3 million, an 8% year-on-year rise, and accounted for 8.9% of total sales. Sales of animal health products grew by 9% and totalled €69.1 million (4.6% of total sales). Sales of health resort and tourist services totalled €39.5 million, up 5% over the same period last year (2.7% share of total sales).

Research and Development
In 2019, we filed nine patent applications for technological solutions that we had developed and evaluated as inventions. Based on priority applications from 2018, we submitted five international patent applications. We were granted eight patent rights in various countries. More than 200 patents filed by Krka are currently in force.

We applied for 62 Krka trademarks in Slovenia. We also submitted 38 international and 18 national applications for trademarks. Overall, we have registered more than 1,100 trademarks in several countries.

We were granted marketing authorisations for 20 new products (13 prescription pharmaceuticals, three non-prescription products, and four animal health products) in 43 pharmaceutical forms and strengths.

The estimated value of investments made in 2019 by the Krka Group amounted to €113 million, €93 million in the controlling company. Our investments were made to increase and upgrade our manufacturing and development capacities, ensure quality assurance, and construct Krka production-and-distribution centres across the globe.

At the end of 2019, the Krka Group had 11,696 employees, of that 5,699 abroad, which accounts for just short of 49% of the total Krka Group headcount. The proportion of Krka Group employees with at least university-level qualifications was 52%. This includes 198 employees with a doctoral degree. Together with agency workers, the Krka Group had 12,770 persons on payroll, 288 more than at the end of 2018.

Investor Information
In 2019, the price of Krka share on the Ljubljana Stock Exchange increased by just shy of 27% reaching €73.20 at the end of the year. Market capitalisation of the Company amounted to €2.4 billion.

At the end of 2019, Krka had 48,631 shareholders. The shareholders’ structure, with 38.5% of individual Slovenian retail investors and 23.0% of international investors, is stable and without any major changes.

In 2019, Krka acquired 340,805 treasury shares. On 31 December 2019, Krka held 1,234,252 treasury shares, which is 3.764% of the share capital.

2020 Krka Group Plans
According to the 2020 plan, the Krka Group sales are projected at €1.520 million and profit at just over €210 million. Krka intends to allocate €134 million for investment projects to increase and modernise production capacities and infrastructure. We plan to increase the number of employees in Slovenia and abroad by 3%. At the end of 2020, the total number of regular employees is projected to exceed 12,300.

The 2020 operations plan derives from the Krka Group development strategy 2020–2024. It is based on estimates, assessments, projections, and other available data at disposal to the Management Board. The Management Board believes the projections are reasonable. Should the business conditions in 2020 differ significantly from the projections, operating results may also be different from the plan.

No Alleged Irregularities Identified in Romania
In the period from 14 to 24 January 2020, the media cited reports by the Romanian internet portal and newspaper the Libertatea, claiming the press had obtained information on the alleged irregularities that involved employees of a Krka subsidiary, Krka Romania S.R.L., Bucharest (hereafter Krka Romania). On 17 January 2020, we informed the public that we had appointed a special team to review in detail the operations of the Krka subsidiary in Romania in relation to the published allegations.

Based on the findings of the special team, Krka, d. d., Novo mesto denies justification of any allegations related to reports that Krka Romania acted unlawfully and marketed medications by bribing healthcare professionals, allegedly following the instructions given to the employees of the subsidiary by the controlling company.

Krka promotes its products in ways permitted by national legislations and, as a member of generic manufacturers’ association Medicines for Europe, in compliance with the stipulations of its Code of Conduct. All marketing personnel of Krka are bound by the Code of Conduct, Krka’s Code of Promotion, the Rules on Fraud Prevention, Detection and Investigation, and other bylaws. All Krka employees who visit healthcare professionals and pharmacists are properly trained before commencing work and must regularly undergo further training throughout their employment. Training encompasses professional knowledge related to Krka products, expert medical and pharmaceutical knowledge, and regulations governing promotion of pharmaceuticals. Krka, as the controlling company of the Krka Group, draws up guidelines for business operations, but the managers of each subsidiary are accountable for ensuring business operations in compliance with their national legislations.

Krka Romania carries out the following promotional activities that are legal and comply with the legislation of the EU and Romania governing pharmaceutical promotion to expert community: visiting healthcare professionals, presenting samples, sponsoring scientific congresses and promotional meetings attended by persons qualified for prescribing or dispensing pharmaceuticals. Based on the 2010–2014 report by Consiliul Concurente, the Romanian competition agency, sponsorship is one of the legitimate means of promotion of pharmaceuticals. According to the said agency report, the originators spend several-fold more funds on sponsorship of their products than generic pharmaceutical companies.

Krka has instigated an internal investigation and has found that allegations about the systemic corruption in Romania are not justified, as are not the allegations referring to employees of Krka Romania, and has established that in no way whatsoever was the corruption managed from Slovenia by the controlling company.

The investigation of the spreadsheets published by the Libertatea also showed that the employees in Romania and Slovenia were not familiar with them, nor could they be found at Krka Romania. The investigation, however, revealed that the employees in Romania possessed various spreadsheets generated by themselves or according to the instructions of their immediate superior to whom they also reported, and the superior in turn reported to the management of the subsidiary.

Krka does not pay healthcare professionals by prescriptions in any of its markets. The company requires funds allocated for promotion be used legally and prudently. This means that sponsoring scientific congresses and promotional meetings is approved for making familiar with the developments in the medical field healthcare professionals from various expert areas and specialist doctors engaging in therapeutic areas embarked by Krka. Krka invests in promotion exclusively in order to reach legitimate objectives, to become renowned as a pharmaceutical company that supplies medicinal products of highest quality at affordable prices and to make it possible for healthcare professionals to become familiar with the latest developments in the field of pharmaceuticals. The good name and trust in Krka products shared by healthcare professionals and patients in Romania stem from long-term professional work and are by no means linked to corruption as claimed by the internet portal the Libertatea in any way.

According to the investigation, the subsidiary in Romania received relevant instructions from the controlling company. However, it cannot be completely ruled out that in the past a certain individual employee of the subsidiary had violated the bylaws of Krka and obligations arising from the employment relationship. Based on the findings, Krka is implementing measures that also aim to further improve transparency and compliance.

The Supervisory Board were informed about the Management Board report and support all measures adopted in relation to this matter.