According to the preliminary results, Krka recorded a revenue growth of 7% YoY, adjusted EBITDA growth of 7%, and a net profit of EUR 170.1m, a decrease of 28% YoY. The results show a continuation of strong top-line growth, while the company kept its 2023 annual estimate for net income in the region of EUR 300m.
Yesterday, Krka’s General Meeting of Shareholders was held, and as a result, the Company published its preliminary H1 2023 numbers. According to the release, Krka recorded a sales revenue of EUR 920.4m, an increase of 7.3% YoY. In Q2 sales growth picked up to 8.8% YoY from 6% in Q1. This is in line with our estimates, where we said that we expect the growth of sales revenue to continue in this quarter as well, with a mid-single-digit growth rate.
Breaking the revenue by regions, the largest region was Region East Europe, where revenue amounted to EUR 300.5m. Breaking this down further, in the Russian Federation, Krka’s largest single market, product sales amounted to EUR 179.8m, an increase of 4% YoY. On the other hand, in Ukraine, they sold EUR 38.6m, a decrease of 16% YoY. Krka notes that the extraordinary circumstances and measures taken by distributors in inventory management have led to a contraction of the pharmaceutical market. However, sales still picked up in Q2 compared to Q1. In all other markets of Eastern Europe and Central Asia, Krka’s sales increased. The second-best result was recorded in Region Central Europe, where Krka recorded EUR 212.9m worth of product sales. In Poland, Krka’s 2nd largest single market, product sales amounted to EUR 93.1m, an increase of 5% YoY, while in the Czech Republic product sales increased by 15% to EUR 34.5m. Other markets in the region also recorded growth.
In Region West Europe, Krka’s third largest market, sales amounted to EUR 181.4m. Furthermore, in Germany, Krka’s largest market in the region and the 3rd largest single market, product sales amounted to EUR 49.2m, a 4% increase YoY. Growth was recorded in all other regional markets except the UK. In particular, sales in Portugal grew by 24% YoY, in Ireland they increased by 20%, in Austria, they grew by 11%, while in both Scandinavia and Spain a 10% YoY increase was recorded. In Region South-East Europe, Krka generated sales of EUR 127.4m, with growth in all markets except Bulgaria. Meanwhile, in Region Slovenia sales amounted to 56.6m, an increase of 15% YoY. Furthermore, according to the latest data, Krka holds a 7.3% market share in Slovenia in terms of the value of sales, and as such is Slovenia’s leading supplier of medicinal products. Finally, sales growth in Region Overseas Markets amounted to EUR 37.6m, an increase of 16% YoY, fueled by sales results for the Far East and Africa, which increased by more than 50%.
Moving on, Krka’s EBITDA is estimated at EUR 288.6m, an increase of 50% YoY. We expected G&A expenses to continue to rise due to higher wages and service costs that have risen due to ongoing inflation, but we expect a slowdown in Q2 given the first quarter’s annual growth rate of 28%. So we did not expect significant changes in the company’s profitability, but rather a stable development trend. This has materialized by looking at the adjusted EBITDA, as it amounted to EUR 270.1m in H1 2022, meaning that this increase is the more reasonable 7% YoY. Finally, the net profit is estimated at EUR 170.1m, a decrease of 28% YoY. This came as a result of high FX gains last year, which naturally decreased the net profit this year. Krka further notes that the estimated H1 2023 profit of EUR 170.1m is more than 50% of what is planned for the 2023 full year. Overall, this would imply a net profit margin of 18.5%, a decrease of 9 p.p. YoY.
Krka’s strategy of opening a business in new markets and increasing its share in existing markets is effective, and therefore we expect an increase in the volume of products sold. By managing the life cycle of the product and releasing new combinations, the average net price is on the rise, which also has a positive effect on the growth of sales revenue over the years. We do not expect significant changes in the company’s profitability, but rather a stable development trend. Therefore, we expect the company’s expectation for a net profit of EUR 300m to be exceeded, if there is no significant depreciation of the rouble exchange rate.
Krka key financials (preliminary H1 2023 vs. H1 2022, EURm)
Source: Krka, InterCapital Research
In terms of new products, the Company is developing numerous products, obtaining marketing authorizations for them, and launching them in different markets. In H1 2023, they obtained marketing authorizations for five new products and several existing ones. A total of more than 260 marketing authorization procedures were finalized in different markets.
In terms of investments, Krka Group allocated 45.6m to investments in the first 6 months of 2023. Finally, for the entire 2023, Krka expects revenue of EUR 1,755m, with a net profit of app. EUR 300m. They expect that the number of employees in Slovenia and abroad will increase by 2%. They plan on allocating EUR 130m to investments, primarily to expand and technologically modernize production and development facilities as well as the infrastructure.
