Greetings. Welcome to the Gedeon Richter's fourth quarter fiscal year 2023 earnings report. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance during today's conference, please press star zero on your telephone keypad. Please note that this conference is being recorded. At this time, I'll now turn the conference over to Gábor Orbán, CEO. Mr. Orbán, you may begin your presentation.
Thank you very much. Hello, everyone. Good morning, and welcome to today's earnings call from Gedeon Richter. I have CFO István Hamecz, Chief Controller László Kovács, and Head of IR Róbert Réthy with me in the room, and we'll present to you our 2023 results. The first set of numbers I'm giving you is a simplified slide of six main financial KPIs. Pharmaceutical sales last year grew by 14%, and this number could have been much higher in the 20s had it not been for the ruble depreciation we suffered in the last year. The number in euro is, as promised, close but not quite to EUR 1 billion. Our clean EBIT went up by a similar amount, HUF 14 billion.
Again, dragged down by the FX headwinds, quite significant, cut this growth rate in half from 28% to 14%, still in line with the guidance that was given early on in the year. Net of FX gains, we outperformed by a wide margin our clean EBIT guidance. EBIT is lower, but for EUR 500 million, it grew 23% over the previous year. Earnings per share went up. Free cash flow went down. This is a bit unusual for the company, so I'll make sure that we give you a detailed explanation why that was the case. Our return on equity is relatively stable, around 14%. There's a long list of details here on this slide, which I will leave to you to parse out and jump straight to the next slide, which is about ESG at first sight, but not quite.
It has to do with the strong underlying momentum in volumes that we saw in 2023. We raised our production level by 18% compared to the previous year, and we did that with a relatively stable headcount. So our productivity growth was remarkable, and it serves our ultimate goal of providing patients, a growing number of patients, with access to our medications. In particular, cariprazine is now available in 13 more countries than before. We have treated 1.3 million patients with this drug, and we have expanded the label for RYEQO, our endometriosis, our women's health brand, our most innovative women's health brand, added endometriosis to the label, which means there is an oral treatment for endometriosis now. This is a breakthrough in the therapy. Again, this will open up a new patient pool and allow us to reach a growing number of women with our products.
The increase in volume was accompanied not only by a stable headcount but also a decline in energy use. Now, our energy bill is up compared to the previous year, but our energy consumption is lower, which has led to a further decline in our carbon footprint. We are well on track to reach our 2030 objective in line with the Fit for 55 goal of the European Union. We've also begun to measure, and so consequently to manage, the group-level carbon footprint. Not only can we now target CO2 emissions at the headquarters main site level, but also in our sites at the affiliates. Also, I'm proud to say we have a Scope 3 level view of carbon emissions. Moving into so this was the part about access, volumes, productivity, and energy consumption, carbon footprint.
All of the above went really well, and we have made very visible progress on all fronts there. Delving a bit more deeply into the financial highlights, as I mentioned, revenues in the Pharmaceutical segment went up by 21.6% net of FX changes, and that was equal to a 14% increase in headline terms. That's how much the ruble depreciation, which you see in the bottom right corner of this slide, that's how much it mattered to our financials. Hardest hit was the General Medicines Business Unit, which managed to grow only just as a consequence of the strong FX headwind. Women's Health revenues were impacted also, although I'll show you in a second they grew nicely, and the other two business units were much less impacted by the ruble.
In terms of geographical breakdown, the only region that fell in EUR or H1 terms was the Eastern European region, not surprisingly, since the ruble played a major role here. Here's the breakdown according to business units. As I said, there was stagnation on the General Medicines side as a consequence of a 13.2 percentage point drag from the ruble. Women's Health growth was cut in half as a consequence of the same effect. Still grew at double digits, so we're proud of that. Biotechnology grew 16.7%, and VRAYLAR CNS revenues went up by a lot as a consequence of REAGILA getting reimbursement and getting launched in a higher number of countries than the previous year. We delivered on our business plan. Also on the cost side, operating costs remain under control.
The only uptick in revenue proportional costs was seen in admin, which has to do with the reclassifications that we spoke about in previous calls. Other than that, you see declining ratios over the years. There's some hectic movement seen in COGS in Q4. It's just the way the business works. I'm afraid shouldn't read much into that last figure. Moving on to clean EBIT. As I said, the growth, 28.6% on a constant exchange rate basis, was cut in half as a consequence of the ruble impacting revenues much more than costs. We ended the year with clean EBIT at HUF 236 billion. Pharmaceutical clean EBIT developments are shown in the bottom half of the slide.
As you see on the top chart, we lost some earnings income in Women's Health and also in General Medicines as a consequence of exchange rates, but in the rest of the business units, we had a strong performance. You know Biotechnology continues to require investment. We still haven't given up our objective to reach breakeven by 2027. We are well on track to do that. There's a lot going on below the line, and so we have two detailed slides to explain to you how clean EBIT is different from net profit. We start with a clean EBIT of HUF 235 billion, and we have to subtract HUF 28.3 billion in windfall tax. I'd like to stop there and maybe mention that given the very strong double-digit growth that our company has seen, this stability in the level of windfall tax should be seen as an achievement.
I'd like to thank the finance department for delivering on the promise that we will do everything to protect our shareholders from this tax. So we have, and the extra growth that we saw were not translated into a higher windfall tax burden in 2023. A couple of billion euros of well, a couple of billion HUF worth of savings for you guys. We had inventory and intangible asset impairment in the amount of close to HUF 18 billion , which took our EBIT to HUF 190 billion . FX gains and losses, unfortunately, were massive from 2022 to 2023. Came as no surprise to anyone, I don't think, because of the extent to which the ruble moved against the HUF. From peak to trough, it went down by 50%. So that's what is reflected in HUF 38 billion FX losses.
We earned net interest on our cash balance, and adding some other items like HUF 11 billion of taxes, we ended up with HUF 159 billion in net profit. Now, on a different note or looked at it from a different angle, our free cash flow evolved in a complicated manner last year, so let me explain a little bit. First thing you need to understand from this graph is we didn't hoard cash last year. In fact, we're down by about HUF 30 billion, and this is the consequence of the following factors. We start with HUF 190 billion operating cash flow, which got hit by the windfall tax that we had to pay in the year 2023 levied on the year 2022. So in cash flow terms, the windfall tax hit us twice last year. Also, we had a change in net working capital, which has two main sources.
First of all, the company grew, so receivables and inventories had to grow. But also, to make sure that we can meet our supply delivery fulfill our orders and deliver the supplies to patients, we kept a higher safety stock than in previous years. As you see in the cash conversion cycle, this KPI has worsened a little bit recently. And while the Romanian wholesale business moving out of the numbers has played a role, some of it is structural, and we have identified action items to make sure that we stop this growth in cash conversion time and make sure we bring those cycle times down in the future. Like I said, operating cash flows were HUF 124 billion, and interest received added HUF 25 billion to this, but we spent HUF 62 billion on CapEx, a number that we intend to see decline over the next years.
This is not a sustainable and not a necessary figure in the long term. Some of it had to do with capacity expansion, and some of it had to do with, of course, maintenance CapEx, but also the restructuring of our API infrastructure and the energy efficiency programs that we are pursuing in our physical infrastructure. That led free cash flow to go down to HUF 86.5 billion, and then acquisitions of intangibles worth HUF 58 billion, including DONESTA and REAGILA milestone payments. That brought it down further. We paid HUF 73 billion in dividend, as you remember, in the middle of last year, and we allocated HUF 40 billion in share buybacks, of which close to 30 fell on 2023, draining cash further. This is why our cash levels are somewhat below those last year.
Finally, I'd like to give you an outlook for 2024 in a much clearer and more transparent way than previously. Of course, we cannot take responsibility for what happens to exchange rates, but net of FX, we see low to mid-teens growth in our top line pharma segment only, taking our revenues to between EUR 2.15 billion and EUR 2.25 billion. This will be the combination of AbbVie delivering on their VRAYLAR sales targets. There's, again, no reason to question or second-guess AbbVie's sales target announcement. They have a lot of credibility and professionalism. They have always delivered on what they promised, and so we can take that as a given. At the same time, we see Women's Health and General Medicines growing around 10% next year net of FX effects, and the Biotechnology Business Unit will also grow somewhat.
This will add up to what I described as low to mid-teens growth in the next year, 2024. When it comes to clean EBIT, constant exchange rates assumed will end up somewhere between EUR 725 million and EUR 750 million in our clean EBIT. There's some detail given about each business unit's priorities for this year. For CNS, besides the obvious double-digit growth in VRAYLAR, we see as our main priority the continued collaboration with AbbVie, both on the projects that are in the clinical phase and also on those that are still in the research and discovery phase. We're talking about 932, the follow-on compound, moving into phase II, hopefully, toward the end of this year. That's our commitment in terms of the follow-on compound. In Women's Health, we want to make RYEQO available to as many women as we can.
And in financial terms or numerical terms, this means we want to double the revenue coming from RYEQO and reach a EUR 30 million revenue target from that brand. Secondly, as you know, we are targeting a leadership position in Women's Health by the end of the decade, but within the Women's Health market in the contraceptives subfield, we are aiming for a market leader position already this year. Maybe not in values, but in cycles, I think this is achievable, and I'm very proud to be able to make that commitment. In Biotechnology, we'll be focusing on our first large-scale clinical trial. Well, not the trial itself because we completed that last year, but the dossier submission with the large-scale clinical trial data in that dossier. We'll make sure that goes into it, gets submitted to the authorities this year.
Secondly, we have added capacity at our German microbial fermentation plant, and we look forward to filling that capacity in the coming year and get it up and running. In General Medicines, we have new and relatively large compounds getting launched, including novel oral anticoagulants and diabetology products, apixaban, rivaroxaban, and a cardio combination in 2024. Also, we are very much focused on making sure that cost efficiency in this business unit improves, because that's how we can make sure that we have affordable, not only high quality, but also affordable medications, and that's the way to provide as broad access to our products as we can in our core Central and Eastern European region. I have one more set of information to give you, and this is about changes in the R&D pipeline.
Around this table here, we feel that our pipeline is not sufficiently valued by the outside world, by the general public and the investor community, and we feel partly responsible for that because we haven't given you enough clarity on what's going on in the pipeline and what progress looks like. Here you see a number of our projects getting launched, especially in General Medicines and some in Women's Health. You see one project getting killed in the preclinical phase, but others moving into the clinic with four phase I CNS projects now and one coming into phase II in 2024, which means that we'll sorry, we also discontinued one Women's Health clinical phase project because we felt that the data wouldn't support a strong dossier. This is a bit of color on the R&D pipeline.
I have many, many more slides to show you, but I would like us to have a discussion, see what your questions and concerns and issues may be, and then we can turn the slides forward, see if we have some written information to show you on those questions. So I'd like to open up for Q&A.
Thank you. We'll now be conducting the question- and- answer session. If you'd like to ask a question at this time, please press star one from your telephone keypad, and a confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue. For participants that are using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we pull for questions, and once again, that's star one.
Thank you. Thank you. Our first question will be coming from the line of Victoria Lambert with Berenberg Capital Markets. Please proceed with your questions.
Thanks for taking my questions. The first one is just on the growth outlook for Women's Health in 2024 and the medium term. It's just a bit hard to see the underlying market data. I think Organon has commented that globally, they expect low-teens growth going forward, and they've been making investments. But firms like Bayer, who's number one in the European market, they've been, it looks like, deprioritizing women's health. So I would just like to get your comments on that market. And then the next question will be about your Formycon stake acquisition. You took almost, I think, 9% stake in the business. How does this help your biosimilars business? And yeah, just would like to get a sense of how you think synergies can work with that acquisition.
And then lastly, the CNS pipeline, the phase II molecule, when can we expect a data read from that or an update on that? Thank you.
Thank you, Victoria. Let me start with the Formycon deal because we haven't had a chance to discuss this, and I'm hoping that we'll have maybe opportunities to have calls in the future together with the head of Biotechnology Business Unit to clarify this further for all of you. However, I'd like to give you an answer now in brief, and maybe we can take the discussion from there. Given the size of our company and given the complexity and fast-paced nature of the biotechnology scene, it's very important, almost indispensable, that we partner in everything we do in biotechnology.
The parts of the value chain that we can cover may vary from region to region, from technology to technology, from therapeutic area to therapeutic area, which means that collaboration is almost inevitable in whatever we do, in whatever way we try to generate value in the biotechnology biologicals scene, which is why we have connected with Formycon in the past years and explored the complementarities between the two companies. Formycon is very strong at developing and managing projects, acquiring dossiers, acquiring assets, but they operate an asset-like model, asset meaning in the second sense, physical infrastructure. They also are lacking commercial capability. So the fit between the two companies is really strong. You'd say, "Why not acquire Formycon?" Well, because it would be pointless to engulf a well-functioning, knowledge-intensive company like that.
We are much better off having them as partners and look for acquisition opportunities, development opportunities, commercial opportunities, technological platforms together. And this is what we've been doing recently. We are a client of theirs in many of the sorry, the other way around. They're a client of ours in many of the projects that they pursue. We are in discussions about future projects they have in mind and ways to not only manufacture but also maybe commercialize. And so seeing how those collaboration dynamics have evolved, we felt that it would be helpful to solidify the existing ties by acquiring a small minority stake in order to help them grow because it is our interest that this company becomes or remains, rather, successful. That's what led to the capital increase in Formycon.
I hope this is a satisfying answer for now, and I would encourage us all to engage in more in-depth dialogue on our Biotechnology efforts sometime in the future. On the second one, Organon. So we don't really see Organon as a women's health company. I understand this is the image they're projecting. The corporate brand is built around it. The name itself is, of course it dates back to those days when Organon was a full-fledged, full-bodied women's health company. That's not the case anymore. Most of their business comes from elsewhere. So whatever they tell you about growth rates or whatnot, it's not really I don't think it's relevant for us. I have a lot of respect for the company. We look for ways to collaborate, especially in this Eastern half of Europe, but they're not a women's health company in my view.
Bayer, indeed, as you correctly said, is deprioritizing. We have had discussions with them about potential acquisitions. We haven't come to, unfortunately, to a deal so far, but it's true that the opportunity, even though the market is stagnating or even sometimes declining, Bayer's pivot away from women's health is an opportunity that allows us to grow and target the market leader position. Your third question had to do with CNS phase II, which is only happening toward the end of the year. So a readout, which you were asking about, should be most likely in 2026, no sooner. But the task for us today is to figure out, jointly with AbbVie, which indications we will pursue in phase II. That's what we're working on right now.
Great. Thank you. So I just wanted to, did you say readout 2026? Just double-checking.
That's my best guess for now, but Robi, we'll come back to you on this because we want to make sure we don't give you the wrong idea. It's important to note that the clinical development program that we have agreed on with Abby. I don't think this 2026 date gives you a good sense of how accelerated that program is going to be. We are moving fast with this one. Abby's firm commitment is to get this done before LOE.
Great. Thank you.
Thank you. As a reminder, you may press star one at this time to ask a question. The next question is from the line of Alistair Campbell with Royal Bank of Canada. Please receive their questions.
Brilliant. Thank you. I'd like to sort of ask again just about the biosimilars business or the Biotechnology business. Basically, you're making progress bringing products towards market. Obviously, the Formycon deal really seems to underpin your confidence that this business will grow and will thrive. So I guess my question is, when, broadly, do you think you'll see it be in a position where the biotech business can turn from loss-making into profit? Thank you.
We are committed to breaking even in 2027, and from then on, we have good reason to hope that this can be a profit-generating business unit which can stand on its own two feet and will be financially viable on its own. For that to happen, we have to ramp up the sales of denosumab, tocilizumab, and maintain our positions with Terrosa. Also, we look for in-licensing opportunities to beef up the revenue side, and the capacity expansion project will serve to generate more EBIT from a relatively low-cost service-based service fee type income. That's only the revenue side, however. We also need to look at the cost side, and when we look at the cost side, we realize immediately that we have pursued, in the past two and a half years, two large-scale clinical projects in parallel. It's not the first time I'm telling you this.
We cannot afford to do that. The business unit is overloaded currently because of the coincidence of the LOEs of those two compounds. This was never supposed to be the case that we run those two projects simultaneously. We'll pay more attention to what kind of R&D expense the business unit can manage efficiently and on a cash-positive basis. Those are the two drivers of my faith in a cash-positive Biotechnology Business Unit beyond 2027.
Great. That's very clear. Thank you.
Thank you. We have a follow-up question from the line of Victoria Lambert with Barenberg Capital Markets. Please receive your question.
Thanks. Just another one from me. I just wanted to get an update on how things are going with Mithra. It looks like they've been having maybe some cash flow issues, so I just wanted to understand when you think the DONESTA, when you'll be able to launch that product. I think you indicated that's being delayed to 2025, and yeah, just how you see the relationship with the company going forward.
Thank you for that question. It's not an easy one. I think it's clear from a distance that the company is struggling financially. It's in a distressed state, and the selling off of their assets will be a precondition for a proper continuation of anything. So I see the future for Mithra as gradually divesting the assets that they have and unwinding the business in that way. For DONESTA, of course, it'd be preferable for the company to stay functional and operational and viable for as long as possible. So I'm hoping that they can get this done in an orderly manner. Clinical development is complete, so what we, meaning Mithra and us, need to do is prepare the file and submit before the end of the year so that a launch in 2025 becomes possible. It's a listed company.
I shouldn't be commenting much more on the state of affairs around them, but if you have any specific questions, I'm happy to help. I'm not too happy about anything related to Mithra, but I'm ready to answer if I can.
Great. Thank you.
Thank you. As a reminder, you may press star one at this time to ask a question. Thank you. Mr. Orbán, there are no additional questions at this time. Would you like to make some further comments?
Thank you very much, all of you, for joining our call today, and please feel free to continue asking questions. Our investor relations department, and Róbert specifically, personally, is very keen on making sure that you have all the information you need to be able to understand in detail what we're working on and the results that we are delivering. So please reach out. We're happy to have your thoughts and questions and comments.
Thank you. This will conclude today's conference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.