To today's webcast on first quarter 2026 business results of Krka Group. My name is Gregor Gavranić. I work in capital markets, I will be hosting today this event. Together with Mr. David Bratož, Member of the Management Board, and Mr. Uroš Ožbolt, Director of Finance. They will provide detailed insight in Krka's first quarter performance. After the presentation, there will be Q&A part. May I remind you that this webcast is intended for professional audience only, not media representatives, and is being recorded. Mr. Bratož, the floor is yours.
Good afternoon, ladies and gentlemen, also from my side. It is a pleasure to welcome you to today's conference call. In the first part, I will share with you our first quarter 2026 results, and after the presentation, we will open the floor to your questions. Thank you for your interest in Krka. Let us begin with the most important highlights. In the first quarter of 2026, the Krka Group delivered strong results with revenue of EUR 566 million, operating profit above EUR 150 million for the first time in a single quarter, and an EBITDA margin of 31%, which reflects continued sales growth and sustained profitability.
Sales increased by 8%, and we recorded growth in most markets and across all product groups except OTC. Operating profit increased by 24% year-on-year. Net profit of EUR 121 million was affected by currency exchange volatility, while underlying profitability and cash generation remain very strong, supported by ongoing portfolio expansion for new products and continued investments. To wrap up, in first quarter, we recorded one of the highest margins, I mean, gross margin, EBITDA and EBIT margin in our history. This is the consequence of good demand on many of our key markets.
This is also the consequence of improved product mix, which is again focused towards innovative and high value-added products. These are combinations and also new product launches. Together with our good marketing and sales force, this is a reason for success on many markets. Beside that, we also continuously work on improving production and other operating efficiency. Krka activities are geographically well-diversified. We offer our high quality and affordable medicines in over 70 markets worldwide. Eastern Europe remains our largest region, accounting for 35% of Krka sales.
In Russia, which is our largest individual market, we delivered very strong growth, we retained our leading position among foreign generic pharma companies, which was driven primarily by new higher value RX products and strong local productions, which were reproduced more than 70%, 70% of quantities for this market. We recorded growth of 28% in euros and 14% in volume in this market.
In Ukraine, which is also the key market, I could say that despite an unpredictable market environment, we maintained our second position in this, in the pharmacy segment, we significantly outperformed market growth. Our volume growth in Ukraine was 5%, which was temporarily not enough to exceed sales index 100. This will most probably change in the quarters to come. Growth was also recorded across most other regional markets of East Europe region, including Belarus, +18%, and Moldova, +6%.
In Uzbekistan, which is also important market, despite major changes due to the official registered maximum price, prices implemented at the end of 2025, we remain the leading provider of medicines on the market. According to the latest available data, we also achieved growth in quantities on this market, but that was still not enough to grow in values. Central Europe is our second largest region, accounting for almost 24% of total sales, and Poland is the leading market with very stable growth of 5% in value and 5% in volume.
We rank third among foreign generics in Poland, and our Warsaw production site plays an important role manufacturing selected products for all Krka markets. This is the difference in comparison to our Russian sites, which produces only for Russian markets. Sales also increased across all other countries in this region. Especially, we would like to highlight the Czechia with 17% of growth, followed by Hungary, Slovakia, and all three Baltic states. Western Europe follows with nearly 17% of sales, and Germany remained our key market with strongest sales in cardiovascular and CNS therapies.
We maintained leading positions in many combinations, including sartan medicines, as well as tramadol-paracetamol combinations, and some other products. The highest sales increases in the region were recorded in Ireland, up 16%, and in the U.K. and Portugal. Southeast Europe and Slovenia together contribute 20.6% of total sales. This is driven primarily by Romania, a key market, Croatia and Slovenia. We increased sales in all markets of these both regions. The highest relative growth were recorded in Bosnia and Herzegovina, followed by Serbia and Greece as well.
Our domestic market recorded an 8% increase. We remain the market leader with almost 8% market share in value and 25% in volume. Region overseas markets recorded sales growth across all markets except in the Middle East. We have more than 1,000 products. Prescription medicines remain our core business, representing 84% of sales and providing us long-term stability. Sales of prescription products increased by EUR 42,500,000 , or 8%.
Half of that increase came from East Europe and the other half predominantly from Central Europe, Southeast Europe and Slovenia as well, and overseas markets. Our portfolio is very well-diversified and focused primarily on chronic diseases. Again, cardiovascular medicines, as you can see on right-hand side, are the largest group, representing over 50% of sales, including treatments for hypertension, cholesterol, anticoagulation, and many others. This is followed by CNS and gastrointestinal medicines.
OTC medicines represent our second-largest segment, supported by strong brands in cough and cold, pain relief, and vitamins. Sales unfortunately declined due to a weak flu season, but this part represent only 7.5% of total revenues. In veterinary products, where our sales increased by 10%, the same as Rx, our focus is on companion animals, particularly for cats and dogs, and this is a fast, fast-growing market segment, already accounting for 70% and more of our total vet sales.
Research and development is our strategic priority, with around 10% of sales reinvested annually, consistently year after year into research activities. More than 800 in-house experts are engaged in development activities. We are currently developing around 170 new products. Approximately 60% of budget is allocated for new product development, while the remaining 40% is dedicated to life cycle managing, which means that we work to improve the quality of established products.
We work on regulatory compliance and optimization of production processes, and also to improve, as I said, regulatory compliance for established and mature products. During the first quarter, we expanded our portfolio with four new products, as you can see, two antidiabetics, one CNS and one vet. Beside that, we completed over 240 registration procedures for new and already established products in several countries, which is also rather an important fact. We are a leading developer of single-pill combinations with more than 150 launched to date.
Many of them are based on innovative combinations of selected APIs, and they are developed to originator-like standards. It means that they are supported by clinical trials. These products are really, I would say, one of the most important and strategically important for our two segments of our portfolio. Our life cycle management strategy focuses on the continuous expansion of the portfolio through the targeted addition of new single-pill combinations.
This is for sure one of the strongest competitive advantages for Krka, and the share of combinations is already exceeding 30% and is expected to grow further. These combinations support patients' outcomes. They are generally more profitable. They reflect advances in prescribing practices. Despite higher development and production complexity, they represent one of the most promising segments of our business, as I said. Krka is currently ranked number three globally, I would like to highlight globally, in cardiovascular single-pill combinations volumes.
As far as CapEx is concerned, we are mainly investing in technological improvement of production capacities, R&D, and quality assurance. Last year, for instance, we allocated EUR 196 million to investments, and this year we plan to allocate EUR 140. On this slide, we listed some of the most important investment projects. For example, at Murska Sobota , which is our up to now site and our largest production site here in Slovenia, we replaced last year 16 packaging lines. This is quite a lot.
We installed new robotic cells, and we upgraded washing and granulation systems, which are very important part of the production facilities, production equipment. Strategic investments also include joint ventures in China and India, which are also part of our vertically integrated business model. Our China JV is fully operational, leveraging long-term lease production facilities to supply both Chinese and European markets. They have an EU GMP valid certificate. Recently, we strengthened our cooperation with our long-term partner. This is Laurus Labs. This is our long-term strategic API partner.
We established Krka Pharma Private Limited, a joint venture headquartered in Hyderabad. Krka holds a 51% stake and Laurus 49. We have started construction of a state-of-the-art facility that will include finished dosage forms manufacturing and an R&D center as well. This is scheduled for completion in approximately 2 - 3 years until the end of the next year. In the beginning, we will get additional capacities of 3 billion tablets in India, with the final goal of 10 billion tablets. Here we have our financial results.
In first quarter, Krka generated EUR 565.8 million in revenue, achieving a solid 8% year-over-year growth, supported by strong demand across all key markets. We have 10 key markets. We realized the highest operating profit in a quarter. It was EUR 152, almost EUR 52, increased by 24%, driven by an improving product mix and continuous productivity enhancements. The share of sales from combinations continues to rise, growing faster in value than in volume and outperforming mono tablets. Foreign exchange impact on the net financial result was negative in the first quarter.
As you probably remember and know, we have a long position in Rubles, and we have a short position in US dollars. The value of the Ruble declined by 1.4%, while the value of US dollar increased by 2.2%. The other currencies remained mostly stable during the first three months of this year. Hedging of Ruble exposure with financial instruments is not feasible, mainly due to sanctions. Therefore, we use natural hedging wherever possible and occasionally apply also factoring to reduce credit and currency exposure at the same time.
We recorded a net financial loss of EUR 3.3 million during the first quarter, a year-over-year decrease of, attention, EUR 60 million, resulting from a extremely strong positive base effect in the same period last year. This was due to the strong appreciation of the Ruble in first quarter 2025, following its more than 10% depreciation at the end of December 2024. These short-term currency fluctuations, basically in the Russian Ruble, may significantly affect the short-term net financial result of the Krka Group, as you can see from this chart.
However, this effect generally offsets in the longer term, as also shown in the chart on this slide. Taking into account, for instance, the today's exchange rate of around RUB 86 for 1 EUR, the net financial result would be positive. Net profit of the first quarter amounted to EUR 121 million, which was the second highest to date in Krka after the last first quarter result. Year-on-year net profit decreased by 21% because as I said, because we recorded a substantially higher net profit last first quarter. While net financial results presented result for this quarter was generated a slight loss.
However, compared to an average quarter of the previous year, it also the net profit increased by 20%. Overall, the first quarter results confirm Krka's ability to further deliver consistent growth, robust profitability, and strong cash generation. All margins are pretty stable and high. We achieved the highest EBITDA and EBIT in Krka's history, we can say. We are improving operational efficiency at all levels. Selling and distribution expenses, as well as R&D costs general costs have been very well contained, and they did not exceed revenue growth. This also contribute to overall margin growth.
This slide illustrates the sustained and robust growth in both revenue and EBITDA. Over the last five years, including this year, revenue has achieved a compound annual growth of 6%, supported by strong performance across key markets and many other markets and product segments. EBITDA margins remains very solid, on average, about 28%, highlighting the efficiency of our operations. In summary, the consistent growth in sales and profitability over the last five years, decade, has delivered also the strong growth of earnings per share, which has achieved a CAGR of 7.3%.
Dividend policy is an important part of our capital allocation, we remain committed to our long-term stable dividend policy, allocating at least 50% of annual profits to dividends each year. Our dividends has increased continuously for 26 years. Today, we also announced the proposed agenda for the annual general meeting, which will be held on Thursday, the 9th of July. The proposed dividend for Krka shareholders is EUR 9.1 gross per share, which is 10.3% higher than last year.
Besides standard proposed resolutions, such as confirmation of the annual report and the proposal for a dividend, shareholders will also be asked to vote on a new three year buyback program for acquiring treasury shares also in the future. It is a part of our strategic capital allocation. We aim to increase earnings per share and have positive influence also on the return on equity. We have very strong operational cash flow, which enable us to carry out share buybacks regularly. In our view, many investor value share buybacks in addition to good dividends.
Krka shares are listed on two stock exchanges, Ljubljana Stock Exchange and the Warsaw Stock Exchange, and we have a rather stable shareholder structure with more than 48,000 shareholders per today. Slovenian private investors hold 41.5%, the state owns 27%, and international investors own 18%. The current market price of Krka share a few minutes ago was, I think, 258, and increased significantly in the last three years. Market cap of Krka is well about EUR 8 billion. Here you can see some of the KPIs on other share related data, which you know very well. For 2026, we expect continued solid growth.
Sales are planned to reach EUR 2 billion, EUR 144 billion. This is EUR 103 million up on the year ago or 5% more. CapEx will increase significantly to EUR 140 million to support our long-term development. We plan net profit at EUR 405 million. In mid-November last year, we updated also our five-year development strategy for 2026, 2030.
Our strategy was, and is built on organic growth, supported by carefully planned market entries and consolidation of position in existing markets, and on strong focus, medicines for chronic diseases, where demand remains very stable due to demographic trends such as aging of population. At the core of the strategy are three clear defined strategic pillars. The first one is providing access to medicines. Krka's primary mission is to ensure reliable and uninterrupted supply of high quality medicines to more than 100 million patients across 70 markets.
We focus on key therapeutic areas, particularly cardiovascular, diabetes, CNS, and gastrointestinal diseases. A key differentiator is Krka's leading position in combination medicines, the strategic goal under this pillar is to achieve average annual sales, I would like to underline average, of at least 5%, which is in line with or above market growth. We want to be among top five generics in our, in all traditional markets. Second pillar is vertical integrations. Vertical integration, which remains our backbone and our Krka's competitive advantage.
We continue to invest across the entire value chain, from APIs and development to production, quality control, and all other supporting activities such as regulatory processes. This model actually strengthens supply security, operational resilience and flexibility, which is particularly important in an environment of stricter quality requirements and occasional market shortages that happen on many markets. Key objectives include allocating around 10% of revenue to R&D, and average annual investments of approximately EUR 150 million.
The third pillar focuses on long-term value creation for all Krka stakeholders and investors, employees, patients, and the wider community. Financially, Krka targets a long-term average EBITDA margin of at least 25% and maintains a stable dividend policy, as I said before, with at least 50% of net profit allocated to dividends. On this slide, on the left-hand side, you can see our key material sustainability topics with accessible health care and product quality and patient safety at the very top of importance.
Of particular note is our second audited sustainability reporting in accordance with European Sustainability Reporting Standards. More than one-third or 130 pages in annual report are dedicated to this. For the first year in a row, we achieved a very strong ESG rating by S&P Global, placing Krka well above the pharmaceutical industry average and higher than most direct competitors, I can say. This is the final slide for today, it shows our performance from 2005 to 2025. During this period, we have grown faster than market.
We continued to operate successfully also in the first quarter of 2026, with sales increasing by 8%. Our new or renewed strategy is not a revolution, but an evolution, which is built on a strong foundation. The strategy was refined where necessary, we focus again to stay ahead in changing environment. We are sales-driven company through our own marketing and sales network of more than 4,000 medical representatives, key account representatives all around the world.
We expect further growth in both volume, which are rather important, and value, which is finally the most important one. Profitability remains our top priority. We do not pursue sales at the expense of margins. We grow mainly organically, making our business more stable and still faster than the market. Ladies and gentlemen, this brings us to the end of today's opening presentation. I hope you have gained a clear insight into the results for first quarter, our outlook for 2026, and basics of our updated strategy. Thank you. Now we can start with Q&A part of the meeting. Thank you.
Thank you, Mr. Bratož. We will now start with the Q&A session. You are most welcome to address your questions live by raising your virtual hand, and you will be given a word. First question from Mr. Bram Buring. Mr. Buring, please go ahead with your question.
Yes. Do you hear me please?
Yes, we can hear you.
Yeah.
Excellent. Two questions, please. Firstly, regarding Russia, very strong growth both in Ruble and in Euro terms. I'm wondering if, and you know, stands out clearly as an outlier in the run rate for that market. If you could explain why that is. Second of all, if the current pace of growth we saw in the first quarter is sustainable for the full year. That's the first question.
Second question is regarding the gross margin. Again, I think it's probably linked to Russia, but if you could go into a little bit more detail about what was driving that over 200 basis points increase year-on-year. Again, is this sustainable for the full year 2026? Thank you.
Yeah. Thank you, Mr. Buring, for your questions. The first one was regarding strong growth in Russia.
Yeah.
This is based on the very good demand for our products on this market. We are growing faster than market. The market, the pharmaceutical market, is growing in Russian Rubles and quantities and euros as well. Taking into account our portfolio, which shifted towards more and more newer products, I mean more efficient combinations, and based on the good positioning of these products and systematical work with them, we realized exceptionally good first quarter of this year.
We are in the middle of the second quarter right now, and of course we cannot disclose what is going on. Basically we are, we do successfully as well also in this part of the year. We don't see that any changes are going on which would be less favorable for us. This is effect of systematic approach on this very promising and large market. yeah.
20% growth is sustainable for the rest of the year.
Yeah. It's this is really exceptional growth, which was noted during the first quarter. Normally, the first and the last quarter of the year are the strongest one. The second is also quite often in this part of the world supported by strong OTC sales if there is a strong flu season. I cannot say that we Okay, we will continue to perform to do our best even also in the future. Of course, such as, how to say, is it sustainable? It depends on the conditions of the market.
Yeah. Most probably such high numbers will not be seen, I assume, on average on the following quarters. We believe that there will be growth because let's say that this growth will be somehow on a two-digit growth, but not maybe really something about 20% or something. Now I'm talking on the long terms. You also ask about gross margin and is it sustainable or not?
Yes, we will do our best to continue with this good performance on many markets, but this first quarter was extremely good because many things on many markets were very favorable for us. There was good demand for the products. We improved efficiency for our production. We kept the cost under control and based on this, and the result was as it was. Maybe you, Uroš Ožbolt, you can explain a bit more, I would say a bit different, from financial point of view, if there's something to add.
That, the FX has also strongly influenced the sales since the, on average, the Russian Ruble was like 7.5% stronger than the, in the first quarter last year.
It's chaos.
Yeah. All in all, as we let's say, reiterated the guidance for the year, which is, let's say, mid-single digits growth. Probably some moderation is fair to expect. As Mr. David Bratož had said, we'll do our best to continue with the resilience we are showing.
Okay. Yeah. All right. Indicating that, gross margin can remain in this range for the rest of the year.
You know, there are some fluctuations during the year, so not every quarter is the same. For the time being, the situation is, if we generated extremely good sales on majority of imported or I would say traditional markets. Traditional markets means that these are markets of extremely high importance for Krka, where Krka is present for more than decades.
Yes. If we continue like this, so producing and placing the appropriate products which are deliverable, which will be delivered into the markets, and if there will be good demand in the future, and if we'll do our homework on the markets and here in production R&D as well, then we will see the good levels of margins also in the future. I cannot answer you precisely whether this will be gross margin of 60.1 or 59.2 or something like this. We have some corner figures, we have some KPIs which we disclose. Yeah, we do our best to exceed all these targets which we set as official one.
All right. Thank you very much.
Welcome.
If there is no more raised hands, there are a few questions in chat. The first from Miss Beets. She's asking, could the management provide more color on underlying prices versus volume contribution across Eastern European markets, particularly Russia, Central Europe, Poland and Czechia? She also added that Russia delivered exceptionally strong reported growth. She's asking to elaborate on how much of this growth was driven by pricing effects and product mix.
Okay. Yeah. Thank you. Basically, on both regions we had growth in volumes and values as well. Talking about Russian Federation, our growth in value was 28%. In quantities was 14%. Similar in Rubles. It means that we actually are selling improved product mix towards more combinations, which are more, I would say, profitable for us. This is also very similar for other markets within East Europe and Central Europe. We have growths in units and values as well.
We do not disclose this very precisely, but I can say that for instance I even already disclosed during the presentation that even in Poland, our growth in volume was 5%, followed by 5% growth in Euros as well. It means that on majority of markets, we are following the volume growths because the changes that the prices can change during the quarters and years.
Normally we are not able to increase the prices because majority of countries uses the reference pricing system, which means that they exchange the prices between the countries and the systems relies on the fact that the prices should be among the lowest on many markets, et cetera, et cetera. The only possibility, the only possible way is to launch the new products with better profitability or with better margins and to replace them with some older products or with less profitable products. In some rare cases, we are able to increase prices.
This is the case of OTC segment or the case if we are without competitors on the market and if even the state is very interested to get the product on the market, et cetera. These are really very rare situations. I can say that because we are following the quantities as well. Generally, Krka during the first quarter recorded 8% growth in value, and it was without growth in volume generally.
Talking about these two regions that you mentioned, East Europe and Central Europe, both of the regions generated growth in volumes as well. Even the markets we generated decrease, such as Uzbekistan and Kazakhstan, for instance. The both markets had increases of volumes, which indicates that in the future, in the quarters to come, also the value should follow.
Okay. Hope this was clear. Another question from chat is regarding China. What was the sales on Chinese markets? What yearly growth rates do you expect there? Do comment on the key drivers behind this performance, whether it was driven by underlying China demand or exports, and how sustainable current growth dynamics is in the coming quarters.
The sales in China was EUR 4,500,000. That was the growth of 60%, basically due to the fact that one important product was delivered in the first quarter of this year instead of the last quarter of the previous year. Generally, this market is important one. The yearly sales is around EUR 15 million-EUR 16 million up to now.
W e have 16 products already launched and five in the last phase of registration procedure. We are seeking for different sales channels which would be profitable enough to suit in Krka's model, and we are doing quite well. Unfortunately, not so fast as someone would expect it, but still, we see this market as one of the important market in the future, also from sales point of view. Of course, China is also very important as production site for Krka's finished dosage forms.
Another question from chat from Miss Tea Pevec. How does management currently assess long-term inflation dynamics across Krka's core markets compared to assumptions embedded in previous five-year plan?
We don't see any special differences or worries about it. The inflation rate. The inflation is there. On some markets higher, on some markets already, we can see even some decreased tendencies. This is something in place. Unfortunately, this has the highest negative influence on us because there are pressures on salaries. Otherwise, talking about the raw materials or energy or other costs, everything is under control. We do not see any strong pressures right now or in the mid future. In the, I would say, midterm of our future quarters. Maybe Uroš you have some.
Yeah. The inflation is currently a little bit elevated also due to the big geopolitical tension. Basically the price of crude oil and natural gas. More or less, yeah, Our assumptions haven't changed from the, let's say, the November last year where we presented the strategy. All is well, it's manageable.
Also the energy and other costs that are input costs on our side do not represent such a significant portion that would influence, let's say, the cost of goods sold. The wages remain sticky as well. As you have seen from the report, I think this figure is by far the highest figure that is elevated and influencing all the costs and they represent around 1/4 of total sales are wages currently.
Thank you.
Another question from Mr. Pevec is exactly regarding the employee benefit expenses that continue to increase strongly. Should we expect wage inflation pressure to remain elevated throughout 2026, particularly in Slovenia and Eastern Europe?
Again, this is something that is going on. On the other hand, the employees know that there is lack of people to be eager to work or to get them. This is something that is all around Europe. That's why we invest very, very intense elsewhere in Asia, particularly because in India there is not a problem of people and problem with the salaries, etc.
Here we do our best to have control over this and, yeah, we're doing market by market. There are expectations everywhere. In Germany, for instance, in Slovenia, in some other markets. That's why the salaries are growing, but still they are, I would say, under acceptable levels, if we compare them with some of our peers.
Thank you. Are there any further questions from the audience since we have time for one last question? If there are no further questions, we will conclude today's webcast. Again, thank you for your participation. In case of any further questions, do not hesitate to reach out to investor relations team. The transcript of today's webcast will be available on our website in the following days. Thank you for your participation and have a nice rest of the day. Bye.
Thank you. Bye.
Bye-bye.