Krka

549300H9RLRTRTLRUZ73-2021-12-31-en.xhtml 549300H9RLRTRTLRUZ73 2021-01-01 2021-12-31 549300H9RLRTRTLRUZ73 2020-01-01 2020-12-31 549300H9RLRTRTLRUZ73 2021-12-31 549300H9RLRTRTLRUZ73 2020-12-31 549300H9RLRTRTLRUZ73 2020-12-31 ifrs-full:IssuedCapitalMember 549300H9RLRTRTLRUZ73 2021-01-01 2021-12-31 ifrs-full:IssuedCapitalMember 549300H9RLRTRTLRUZ73 2021-12-31 ifrs-full:IssuedCapitalMember 549300H9RLRTRTLRUZ73 2020-12-31 ifrs-full:TreasurySharesMember 549300H9RLRTRTLRUZ73 2021-01-01 2021-12-31 ifrs-full:TreasurySharesMember 549300H9RLRTRTLRUZ73 2021-12-31 ifrs-full:TreasurySharesMember 549300H9RLRTRTLRUZ73 2020-12-31 krkg:ReservesForTreasurySharesMember 549300H9RLRTRTLRUZ73 2021-01-01 2021-12-31 krkg:ReservesForTreasurySharesMember 549300H9RLRTRTLRUZ73 2021-12-31 krkg:ReservesForTreasurySharesMember 549300H9RLRTRTLRUZ73 2020-12-31 ifrs-full:SharePremiumMember 549300H9RLRTRTLRUZ73 2021-01-01 2021-12-31 ifrs-full:SharePremiumMember 549300H9RLRTRTLRUZ73 2021-12-31 ifrs-full:SharePremiumMember 549300H9RLRTRTLRUZ73 2020-12-31 krkg:LegalReservesMember 549300H9RLRTRTLRUZ73 2021-01-01 2021-12-31 krkg:LegalReservesMember 549300H9RLRTRTLRUZ73 2021-12-31 krkg:LegalReservesMember 549300H9RLRTRTLRUZ73 2020-12-31 ifrs-full:StatutoryReserveMember 549300H9RLRTRTLRUZ73 2021-01-01 2021-12-31 ifrs-full:StatutoryReserveMember 549300H9RLRTRTLRUZ73 2021-12-31 ifrs-full:StatutoryReserveMember 549300H9RLRTRTLRUZ73 2020-12-31 krkg:FairValueReservesMember 549300H9RLRTRTLRUZ73 2021-01-01 2021-12-31 krkg:FairValueReservesMember 549300H9RLRTRTLRUZ73 2021-12-31 krkg:FairValueReservesMember 549300H9RLRTRTLRUZ73 2020-12-31 ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember 549300H9RLRTRTLRUZ73 2021-01-01 2021-12-31 ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember 549300H9RLRTRTLRUZ73 2021-12-31 ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember 549300H9RLRTRTLRUZ73 2020-12-31 ifrs-full:OtherReservesMember 549300H9RLRTRTLRUZ73 2021-01-01 2021-12-31 ifrs-full:OtherReservesMember 549300H9RLRTRTLRUZ73 2021-12-31 ifrs-full:OtherReservesMember 549300H9RLRTRTLRUZ73 2020-12-31 ifrs-full:RetainedEarningsMember 549300H9RLRTRTLRUZ73 2021-01-01 2021-12-31 ifrs-full:RetainedEarningsMember 549300H9RLRTRTLRUZ73 2021-12-31 ifrs-full:RetainedEarningsMember 549300H9RLRTRTLRUZ73 2020-12-31 krkg:ProfitInTheYearMember 549300H9RLRTRTLRUZ73 2021-01-01 2021-12-31 krkg:ProfitInTheYearMember 549300H9RLRTRTLRUZ73 2021-12-31 krkg:ProfitInTheYearMember 549300H9RLRTRTLRUZ73 2020-12-31 ifrs-full:EquityAttributableToOwnersOfParentMember 549300H9RLRTRTLRUZ73 2021-01-01 2021-12-31 ifrs-full:EquityAttributableToOwnersOfParentMember 549300H9RLRTRTLRUZ73 2021-12-31 ifrs-full:EquityAttributableToOwnersOfParentMember 549300H9RLRTRTLRUZ73 2020-12-31 ifrs-full:NoncontrollingInterestsMember 549300H9RLRTRTLRUZ73 2021-01-01 2021-12-31 ifrs-full:NoncontrollingInterestsMember 549300H9RLRTRTLRUZ73 2021-12-31 ifrs-full:NoncontrollingInterestsMember 549300H9RLRTRTLRUZ73 2019-12-31 549300H9RLRTRTLRUZ73 2019-12-31 ifrs-full:IssuedCapitalMember 549300H9RLRTRTLRUZ73 2020-01-01 2020-12-31 ifrs-full:IssuedCapitalMember 549300H9RLRTRTLRUZ73 2019-12-31 ifrs-full:TreasurySharesMember 549300H9RLRTRTLRUZ73 2020-01-01 2020-12-31 ifrs-full:TreasurySharesMember 549300H9RLRTRTLRUZ73 2019-12-31 krkg:ReservesForTreasurySharesMember 549300H9RLRTRTLRUZ73 2020-01-01 2020-12-31 krkg:ReservesForTreasurySharesMember 549300H9RLRTRTLRUZ73 2019-12-31 ifrs-full:SharePremiumMember 549300H9RLRTRTLRUZ73 2020-01-01 2020-12-31 ifrs-full:SharePremiumMember 549300H9RLRTRTLRUZ73 2019-12-31 krkg:LegalReservesMember 549300H9RLRTRTLRUZ73 2020-01-01 2020-12-31 krkg:LegalReservesMember 549300H9RLRTRTLRUZ73 2019-12-31 ifrs-full:StatutoryReserveMember 549300H9RLRTRTLRUZ73 2020-01-01 2020-12-31 ifrs-full:StatutoryReserveMember 549300H9RLRTRTLRUZ73 2019-12-31 krkg:FairValueReservesMember 549300H9RLRTRTLRUZ73 2020-01-01 2020-12-31 krkg:FairValueReservesMember 549300H9RLRTRTLRUZ73 2019-12-31 ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember 549300H9RLRTRTLRUZ73 2020-01-01 2020-12-31 ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember 549300H9RLRTRTLRUZ73 2019-12-31 ifrs-full:OtherReservesMember 549300H9RLRTRTLRUZ73 2020-01-01 2020-12-31 ifrs-full:OtherReservesMember 549300H9RLRTRTLRUZ73 2019-12-31 ifrs-full:RetainedEarningsMember 549300H9RLRTRTLRUZ73 2020-01-01 2020-12-31 ifrs-full:RetainedEarningsMember 549300H9RLRTRTLRUZ73 2019-12-31 krkg:ProfitInTheYearMember 549300H9RLRTRTLRUZ73 2020-01-01 2020-12-31 krkg:ProfitInTheYearMember 549300H9RLRTRTLRUZ73 2019-12-31 ifrs-full:EquityAttributableToOwnersOfParentMember 549300H9RLRTRTLRUZ73 2020-01-01 2020-12-31 ifrs-full:EquityAttributableToOwnersOfParentMember 549300H9RLRTRTLRUZ73 2019-12-31 ifrs-full:NoncontrollingInterestsMember 549300H9RLRTRTLRUZ73 2020-01-01 2020-12-31 ifrs-full:NoncontrollingInterestsMember iso4217:EUR iso4217:EUR xbrli:shares Krka, d. d., Novo mesto 2021 ANNUAL REPORT 2 Contents INTRODUCTION ................................................................................................................................................. 3 Statement by the President of the Management Board .................................................................................................. 3 Krka Group Financial Highlights ..................................................................................................................................... 7 At a Glance ..................................................................................................................................................................... 8 2021 Highlights ............................................................................................................................................................. 12 Subsequent Events ...................................................................................................................................................... 14 Business report ............................................................................................................................................... 15 Corporate Governance Statement ................................................................................................................................ 15 Non-Financial Statement .............................................................................................................................................. 37 Krka Group Development Strategy ............................................................................................................................... 39 Macroeconomic Forecast for 2022 ............................................................................................................................... 44 Risk Management ........................................................................................................................................................ 48 Investor and Share Information .................................................................................................................................... 69 Business Performance ................................................................................................................................................. 72 Marketing and Sales ..................................................................................................................................................... 79 Product and Service Groups ....................................................................................................................................... 92 Research and Development ....................................................................................................................................... 112 Production and Supply Chain ..................................................................................................................................... 121 Investments ................................................................................................................................................................ 125 Integrated Management System and Quality ............................................................................................................. 128 SUSTAINABLE DEVELOPMENT................................................................................................................... 138 About the Report ........................................................................................................................................................ 139 Employees .................................................................................................................................................................. 142 Patients and Other Customers ................................................................................................................................... 151 Corporate Social Responsibility .................................................................................................................................. 153 Natural Environment ................................................................................................................................................... 158 Krka's Sustainable Development Indicators ............................................................................................................... 174 GRI GS (Global Standards) Content Index ................................................................................................................ 176 FINANCIAL REPORT ..................................................................................................................................... 183 Introduction to Financial Statements .......................................................................................................................... 185 Statement of Compliance ........................................................................................................................................... 186 Consolidated Financial Statements of the Krka Group ............................................................................................... 187 Financial statements of Krka, d. d., Novo mesto ........................................................................................................ 252 Enclosure 1 ................................................................................................................................................................ 321 SIGNING OF THE 2021 ANNUAL REPORT AND ITS CONSTITUENT PARTS ........................................... 323 2021 Annual Report – Introduction 3 INTRODUCTION Statement by the President of the Management Board 1 Dear shareholders, business partners and employees, The Supervisory Board of Krka appointed me President of the Management Board and Chief Executive Officer for another term commencing on 1 January 2022. I accepted the responsibility with great confidence as Krka recently strengthened its position as one of the leading generic pharmaceutical companies in the world. My fellow board members and I focus on the future built on new products, development and strategies adopted to achieve our financial and sustainability goals. Over the past few years, Krka has been growing and competing successfully with its competitors in the industry. Our business model and corporate culture, which stem from a strong pharmaceutical tradition, ensured our continued successful performance in 2021. Despite the pandemic and its impact on our business operations in almost all markets, this was our most successful year to date. We proved once again that we are flexible, well prepared and able to react to opportunities and challenges in our markets instantly thanks to our vertically integrated business model. I am proud of our colleagues' exceptional flexibility and ability to respond quickly. They helped materialise our commitment to supply medicines to patients in our markets and ensure the Krka Group's continuous growth and stability. Record Sales to Date Even though our marketing-and-sales activities were still somewhat limited compared to pre-pandemic times, we achieved record sales in 2021. The Krka Group recorded the strongest sales since its incorporation totalling €1,565.8 million. Revenue in markets outside Slovenia reached €1,467.4 million, accounting for 94% of total Krka Group sales. Despite the pandemic, we recorded 2% growth in terms of value and volume compared to the previous year. By selling more and relying on effective business processes, we improved our margins and recorded net profit of €308.2 million, the highest to date, up 7% on 2020. ROE reached 16.8%. Our results prove that we managed to adapt quickly and efficiently, preserving high profitability. The consistent growth of our sales, a sound increase in profit and a positive cash flow demonstrate the resilience and sustainability of our operations. Region East Europe generated the strongest sales of all our regions, earning €547.8 million or 35.1% of total sales, a 6% increase from 2020. Our successful business performance in the Russian Federation contributed the most to the results, as country sales amounted to €332.9 million, up 2% (denominated in the rouble, growth was 9%). In Ukraine, where market conditions in 2021 were harsh, we recorded sales in the amount of €96.4 million, up 12% compared to 2020. In Uzbekistan, our sales increased by 18%, totalling €31.2 million. We recorded growth in all other regional markets, except in Armenia and Tajikistan. Our sales increased by 3% to €351.5 million in Region Central Europe, constituting 22.5% share of total Krka Group sales. We recorded growth in all markets of the region. In Poland, the largest regional market, product sales reached €166.7 million, up 2% compared to 2020 (denominated in the zloty, growth was 5%). In Hungary, sales amounted to €50.3 million. Compared to 2020, sales in the Czech Republic increased by 5%, totalling €48 million, while in Slovakia, sales of products amounted to €40.3 million. The highest relative growth in Region Central Europe was recorded in Latvia, where our sales increased by 6% year on year, totalling €15 million in 2021. Generating €305.2 million or 19.6% of the Krka Group total sales, Region West Europe was the third largest region in terms of sales. Sales dropped 11% due to price pressures and slightly fewer new product launches in 2021. Germany remained our most important regional market with product sales of €80.3 million. Even so, we recorded substantial sales growth compared to 2020 in several Western European markets: 4% in Benelux, 6% in Austria, 9% in the United Kingdom, and 13% in Ireland. Product sales in Region South-East Europe amounted to €209.2 million, 5% higher than in 2020, constituting 13.4% of total Krka Group sales. In Romania, we generated €58.6 million in sales of products and services. In Croatia, our sales 1 GRI GS 102-14 2021 Annual Report – Introduction 4 amounted to €36.1 million. We recorded sales growth in all other regional markets, the highest in Serbia, North Macedonia and Bulgaria. In Slovenia, our domestic market, we sold €92.9 million of products and services, contributing 6% to total Krka Group sales. Product sales generated the majority of sales, €56.4 million, recording 2% growth. Health resorts and tourist services yielded €36.5 million, a 23% rise on 2020, making an important contribution to the Krka Group's 9% sales growth in Slovenia. Region Overseas Markets accounted for a 3.4% share of total Krka Group sales and yielded €53.7 million in sales, an 18% year-on-year increase. We recorded growth in all markets. Product sales in the markets of the Far East and Africa reached €28 million, up 3% compared to 2020. Product sales in the markets of the Middle East generated €24.2 million, a 42% increase on the previous year. The strongest sales growth in terms of value and in relative terms was recorded in China with a product containing pregabalin. No Compromises on Quality and Innovation Our key priority is to continuously develop new technologies and products that improve patient treatment. Today, cardiovascular medicines account for more than 50% of our prescription pharmaceutical sales, followed by medicines for the treatment of the central nervous system and gastrointestinal tract. Apart from key therapeutic classes, we have recently been focusing mainly on antidiabetics and analgesics. Our development activities remain aimed at oncology medicines and autoimmune diseases to make our own contribution to the treatment of the most widespread illnesses of modern times. We continue adding new products to our non-prescription and animal health portfolios. Long-term growth depends primarily on the continuous increase of supply, making it imperative to supplement our portfolio with new generic molecules, in-house innovative R&D and technological solutions each year. In 2021, we obtained marketing authorisations for 16 new products, completed more than 200 registration procedures, and obtained more than 1,000 new marketing authorisations in different countries. We offer products in various therapeutic classes and are considered one of the leading providers of medicinal products. We make no compromises on quality and innovation, the two main foundations of our achievements. Our main goal and commitment is to ensure that as many patients as possible in our existing and new markets have access to our state-of- the-art and innovative portfolio of quality, safe and effective products in advanced therapeutic forms at affordable prices. We firmly believe that innovations of all types are a prerequisite to improving our competitiveness. This is why we encourage creativity in all work processes, which is reflected in our effective business operations. We pay special attention to new products, new therapeutic classes, and improved processes and technologies. In 2021, we filed 12 patent applications for new technological solutions considered novel on the global stage. More than 200 patents protect our technological solutions. Innovation and quality are integral parts of our operations that give a series of tangible results. We use them to ensure efficient processes. They guarantee quality, safe, and effective finished products, rational business operations, reasonably priced products for our customers, and good relations with our shareholders. Stable Production in Uncertain Times Governments and healthcare institutions in many countries worldwide are cutting back on their healthcare expenses and encouraging the use of generic products. The demand for generic products is increasing, in particular in emerging markets. In 2021, we manufactured and packed 16.2 billion tablets, film-coated tablets and capsules, comparable to the record quantity manufactured in 2020 and a billion units more than manufactured in 2019. We consider this an important achievement. In 2021, we faced serious incoming material shortages, lower manufacturing output of our partners, and transport issues due to the COVID-19 pandemic. Krka’s supply chain processes remained uninterrupted owing to our vertically integrated model. We produce a large part of raw materials used in our finished products. At the same time, the Company’s good liquidity and capital structure allow for the financing of sufficient inventories of base materials. Because of this, we were able to ensure adequate quantities of other raw materials at unchanged prices despite the unstable situation. 2021 Annual Report – Introduction 5 Consistent preventive measures, including vaccinations for employees, prevented the COVID-19 pandemic from affecting our operations in 2021. Moreover, we are pleased to report that none of our business processes were hindered and the supply of our finished products remained uninterrupted. Investments to Increase Production Capacities In 2021, more than 30 investment projects worth over €66 million were made in the Krka Group. Most of our investments were geared towards increasing and modernising the capacities for producing finished products and APIs. Let me mention just a few of the larger ones. The Notol 2 plant, our most advanced plant for the production of tablets, film-coated tablets and capsules, manufactured more than one-third of all Krka Group products. Due to increasing demands on production capacities, we have continued to purchase additional technological equipment for Notol 2. Its full manufacturing capacity will reach 5 billion tablets and 8 billion packagings per year. The construction of new API development and production capacities is planned at Krško, a town 30 km from Krka’s central site. The investment worth €163 million complies with our vertical integration strategy, which Krka uses to control all product stages, from product development to production. The expansion and modernisation of the Krka-Rus plant located in the industrial zone of a town north-west of Moscow is one of the key investments in Krka subsidiaries abroad. The plant manufactures more than 75% of products intended for the Russian market, giving us the status of a domestic producer in the Russian Federation. We started increasing its laboratory and production capacities in 2020. Moreover, we plan to continue to purchase manufacturing and quality control equipment for our joint venture Ningbo Krka Menovo in China. Krka Share Price Exceeded €100 Krka’s share was the most actively traded security on the Ljubljana Stock Exchange also in 2021. Its price increased by 29.1% to €118.00 at the end of the year, while market capitalisation of Krka amounted to €3.9 billion. The growth of Krka’s share price is the result of good business performance and the trust shareholders place in our operations and strategy. We plan to preserve our long-term dividend policy, in which at least 50% of the net profit of the controlling company's equity holders is allocated for dividends. The Krka Group’s financial requirements for investments and potential acquisitions are also taken into account. The shareholders received €5.00 gross per share, up 17.6% on the previous year. The dividend yield was 4.2%. Strong Supply Chain and Development Activities at the Start of 2022 We know that our markets shares can grow only if our development is strong, we produce as many innovative products of high quality as possible, have a solid supply chain, flexible and rapid manufacture, and effective marketing and sales. The 2022 business results will depend on the slowing down of the pandemic and the related containment measures adopted by countries. The situation in Ukraine and the Russian Federation and the ensuing global economy developments will certainly impact the Krka Group’s business activities. The main short-term risk is the current situation in Ukraine, economic sanctions, volatility and depreciation of the Russian rouble, and credit risk. In our opinion, other markets and sales regions will not sustain direct harm on the account of the present situation. The indirect impact on all other markets of Region East Europe will depend on how long the situation in Ukraine and the Russian Federation lasts. Krka has been present in Region East Europe for over 50 years. In that time, we encountered several challenges that affected our business operations through devaluation of national currencies and short-term decreases in demand, but in the long term, Krka managed to strengthen its market position after each such situation. The vertical integration system ensures our resilience against external shocks and responsiveness to fast-changing market situations. We have a strong capital structure, generate a robust cash flow from operating activities, and have no financial debt, so our successful business performance in the long run is not jeopardised. We closely monitor events and implement all necessary activities to ensure business continuity in the two countries. We also take measures to manage operational risks and reduce any potential negative impact on business results. 2021 Annual Report – Introduction 6 In 2022, the Krka Group plans product and service sales at €1.610 million and net profit at approximately €300 million. We plan to allocate €130 million to investments, primarily for expanding and upgrading our production and development capacities as well as the infrastructure. We plan to increase the total number of employees in Slovenia and abroad by 2%. The 2022 business plan was derived from expectations, assessments, projections and other available data at disposal to the Management and Supervisory Boards at the time of its preparation. Vertically Integrated Model at the Heart of Our Strategy Members of the Management and Supervisory Boards have adopted the updated strategy for the period up to 2026, to adapt to the changes and challenges in the external environment, transforming them into new opportunities for the Krka Group. The strategy is based on two key starting points: to improve our achievements, and plan Krka’s strategic development. In the upcoming five years, we plan to achieve at least 5% average annual sales growth and EBITDA margin of at least 25%. We intend to further strengthen and optimise our vertical integration business model, which has proven to be an effective strategic guideline and competitive advantage. It will allow us to ensure high product quality, safety, and efficacy standards. We plan to enter new therapeutic areas, develop complex products, maintain profitability on which future development depends, secure organic growth, and pursue growth through long-term partnerships, and ensure a stable dividend policy. In all our endeavours, we intend to prioritise digitalisation, automation and optimisation of processes, as well as further strengthen the Krka Group’s commitment to environmental sustainability. Part of a Broader Environment We remain committed to the values of sustainable development. We endeavour to devote even closer attention to conserving natural and societal heritage and further improving it throughout the Krka Group. At Krka, we have always believed that a company needs to have good operating results and focus on environmental, social, and corporate governance (ESG) issues to achieve business success. We intend to set clear sustainability goals and indicators to check our progress in these areas. We will continue our efforts to preserve natural resources and climate change management, and reduce our impact on the natural environment. With regard to social issues, we are mainly concerned with the availability of our products to all those who need them, a safe, healthy and encouraging work environment, employee satisfaction and support for community development. Krka’s success stems from our renown and the trust enjoyed by the Krka brand. This could not be possible without ethical and responsible corporate governance. Our goal is to further improve the sustainability culture in the Krka Group. We believe that investors and our current and future employees will favour companies with clear environmental sustainability goals that can create value for their stakeholders in the long term. Focused on Results The members of the Management Board have been appointed for another six-year term of office. We intend to justify the trust placed in us by continuing to pursue revised company goals from the updated strategy. My colleagues and I believe that our key responsibility is to successfully meet any challenges arising from the increasingly rapid global changes and to ensure that our products reach more than 50 million patients in 70 markets quickly and efficiently. I am convinced that under the leadership of this experienced team, all of us at Krka can help create an environment that will be beneficial to all – patients, customers, shareholders, Krka employees and the local community – and which will allow us to continue achieving good results. Jože Colarič President of the Management Board and CEO 2021 Annual Report – Introduction 7 Krka Group Financial Highlights 2 € thousand 2021 2020 2019 2018 2017 Revenue 1,565,802 1,534,941 1,493,409 1,331,858 1,266,392 – Of that revenue from contracts with customers (products and services) 1 1,560,288 1,529,959 1,489,080 1,326,747 1,260,898 Earnings before interest, tax, depreciation and amortisation (EBITDA) 2 463,625 502,432 385,437 343,280 306,638 Operating profit (EBIT) 3 354,788 390,744 274,195 232,686 198,741 Profit before tax (EBT) 362,417 338,992 284,368 202,573 176,174 Net profit 308,150 288,949 244,272 174,008 152,576 Non-current assets (year-end) 1,075,747 990,998 1,041,833 1,010,811 1,033,008 Current assets (year-end) 1,461,936 1,244,544 1,142,785 974,258 886,123 Equity (year-end) 1,919,085 1,751,812 1,667,516 1,540,270 1,487,699 Non-current liabilities (year-end) 162,674 172,796 160,905 123,058 121,182 Current liabilities (year-end) 455,924 310,934 356,197 321,741 310,250 R&D expenses 154,559 153,447 152,421 130,700 125,864 Investments 66,386 76,613 112,568 96,293 105,088 RATIOS 2021 2020 2019 2018 2017 EBITDA margin 29.6% 32.7% 25.8% 25.8% 24.2% EBIT margin 22.7% 25.5% 18.4% 17.5% 15.7% EBT margin 23.1% 22.1% 19.0% 15.2% 13.9% Net profit margin (ROS) 19.7% 18.8% 16.4% 13.1% 12.0% Return on equity (ROE) 4 16.8% 16.9% 15.2% 11.5% 10.4% Return on assets (ROA) 5 12.9% 13.1% 11.7% 8.9% 8.0% Liabilities/Equity 0.322 0.276 0.310 0.289 0.290 R&D expenses/Revenue 9.9% 10.0% 10.2% 9.8% 9.9% NUMBER OF EMPLOYEES 2021 2020 2019 2018 2017 Year-end 11,511 11,677 11,696 11,390 10,832 Average 11,581 11,631 11,484 11,129 10,823 SHARE INFORMATION 2021 2020 2019 2018 2017 Total number of shares issued 32,793,448 32,793,448 32,793,448 32,793,448 32,793,448 Earnings per share (EPS) in € 6 9.92 9.27 7.73 5.46 4.74 Gross dividend per share in € 5.00 4.25 3.20 2.90 2.75 Closing price on LJSE at the end of the period in € 118.00 91.40 73.20 57.80 57.50 Price/Earnings ratio (P/E) 11.90 9.86 9.47 10.59 12.14 Book value in € 7 58.52 53.42 50.85 46.97 45.37 Price/Book value (P/B) 2.02 1.71 1.44 1.23 1.27 Market capitalisation in € thousand (31 Dec) 3,869,627 2,997,321 2,400,480 1,895,461 1,885,623 1 Revenue generated in 2021, 2020, 2019, and 2018 complies with IFRS 15. Revenue generated in 2017 from contracts with customers for the sale of products and services has also been presented accordingly. 2 The difference between operating income and expenses increased by accumulated depreciation and amortisation 3 The difference between operating income and expenses 4 Net profit/Average shareholders' equity in the year 5 Net profit/Average total asset balance in the year 6 Net profit for the year attributable to majority equity holders of the controlling company/Average number of shares issued in the year, excluding treasury shares 7 Equity as at 31 Dec/Total number of shares issued 2 GRI GS 102-7, 102-10, 201-1 2021 Annual Report – Introduction 8 At a Glance 3 The Krka Group consists of the controlling company, Krka, d. d., Novo mesto, a subsidiary in Slovenia, Terme Krka, d. o. o., Novo mesto, and 31 subsidiaries outside Slovenia. The Krka Group develops, produces, markets, and sells human health products (prescription pharmaceuticals and non- prescription products), animal health products, and health resorts and tourist services. Production takes place in the controlling company in Slovenia and in Krka subsidiaries in the Russian Federation, Poland, Croatia, and Germany. In addition to production, these subsidiaries, apart from Krka-Rus in the Russian Federation, deal with marketing and sales. In China, production takes place in leased production facilities. Other subsidiaries outside Slovenia carry out marketing and/or sales of Krka products but do not have production capacities. Terme Krka, d. o. o., Novo mesto deals with health resorts and tourist services, and operates through the following branches: Terme Dolenjske Toplice, Terme Šmarješke Toplice, Hoteli Otočec, and Talaso Strunjan. Terme Krka is also the majority owner of Golf Grad Otočec, d. o. o. In 2021, we established a wholly owned subsidiary in Germany, 123 Acurae Pharma GmbH. ID Card Krka, d. d., Novo mesto Registered office Šmarješka cesta 6, 8501 Novo mesto, Slovenia Telephone +386 (7) 331 21 11 Fax +386 (7) 332 15 37 E-mail [email protected] Website www.krka.si Core business Manufacture of pharmaceutical preparations Business classification code 21,200 Year established 1954 Registration entry 1/00097/00, District Court of Novo mesto Tax number 82646716 VAT number SI82646716 Company ID number 5043611000 Share capital €54,732,264.71 Total number of shares issued 32,793,448 ordinary registered no-par value shares 3 GRI GS 102-1, 102-3, 102-5 2021 Annual Report – Introduction 9 Krka Group Business Model 2021 Annual Report – Introduction 10 Krka Group Organisational Chart Russian Federation KRKA-RUS LLC Russian Federation KRKA FARMA LLC Region East Europe Poland KRKA - POLSKA Sp. z o.o. Hungary KRKA Magyarország Kft. Region Central Europe KRKA, d. d., Novo mesto TERME KRKA, d. o. o., Novo mesto Region Slovenia Region West Europe Spain KRKA FARMACÉUTICA, S.L. Sweden Krka Sverige AB Ireland KRKA PHARMA DUBLIN LIMITED Portugal KRKA Farmacêutica, Unipessoal Lda. Germany TAD Pharma GmbH Austria KRKA Pharma GmbH, Wien Slovakia KRKA Slovensko, s.r.o. Czech Republic KRKA ČR, s. r. o. Croatia KRKA-FARMA d.o.o. Serbia KRKA-FARMA DOO BEOGRAD North Macedonia KRKA-FARMA DOOEL Skopje Region South-East Europe Romania KRKA ROMANIA S.R.L. Bosnia and Herzegovina KRKA FARMA d.o.o., Sarajevo Lithuania UAB KRKA Lietuva Ukraine KRKA UKRAINE LLC Latvia SIA KRKA Latvia Italy KRKA FARMACEUTICI MILANO S.R.L. France KRKA France Eurl à capital variable Belgium KRKA Belgium, SA Kazakhstan LLС ‘KRKA Kazakhstan’ The chart includes companies in operation as at 31 December 2021. Other subsidiaries outside Slovenia Production and distribution companies Health resorts and tourist services China Ningbo Krka Menovo Pharmaceutical Co. Ltd. Bulgaria KRKA Bulgaria EOOD Region Overseas Markets United Kingdom KRKA UK LTD Finland KRKA Finland Oy US KRKA USA LLC Joint venture for development, production, and distribution Greece KRKA HELLAS E.P.E. Germany 123 Acurae Pharma GmbH 2021 Annual Report – Introduction 11 Krka in Global Markets 4 4 GRI GS 102-4 2021 Annual Report – Introduction 12 2021 Highlights Business Operations  In 2021, the Supervisory Board appointed the current Management Board for another six-year term of office ending on 31 December 2027. The Management Board is comprised of the President of the Management Board Jože Colarič, members of the Management Board Dr Aleš Rotar, Dr Vinko Zupančič and David Bratož, and member of the Management Board and Worker Director Milena Kastelic.  At the beginning of the year, we presented Krka’s Big Five: products or product families that in 2020 surpassed the milestone of 1 billion tablets sold. These are Nolpaza, Atoris, and Krka’s valsartans, perindoprils and losartans. They are known for quality, efficacy, safety, trust, completed clinical trials, and wide recognition among doctors and patients.  The 27th Annual General Meeting was held on 9 July 2021. The proposed dividend per share of €5.00 gross, up 17.6% on the previous year, was approved.  We organised online conferences to maintain regular contact with investors in capital markets. Krka’s share price saw strong growth in 2021, exceeding the price of €100 per share for the first time since 2008.  In mid-October, Krka passed the 26th audit of its integrated management system, conducted by the Slovenian Institute of Quality and Metrology (SIQ). During an online and onsite audit, the auditors inspected five management systems adapted to the following standards: ISO 9001, ISO 14001, HACCP, ISO 45001 and ISO/IEC 27001. No non-compliances were identified during the audit. The validity of all certificates we hold was confirmed.  The development strategy of the Krka Group is drawn up for a five-year period and updated every two years. At their November meeting, the Management Board adopted the 2022–2026 Krka Group Development Strategy, which the Supervisory Board approved at their meeting of 17 November. Visibility  For the tenth time, Krka was included in the Golden Thread (Zlata nit) research project conducted by the Slovenian media company Dnevnik on the quality of the relationship between an organisation and its employees. Assessments show that employees value their relationship with Krka. This aspect is especially important in the current uncertain times, in which Krka continues to provide safe and stable employment.  Krka ranked among top employers of 2020 in the reputation measuring survey (Ugled delodajalca 2020) conducted by the recruitment portal MojeDelo.com and published in March 2021. The project included more than 12,000 individuals from the Slovenian labour market.  Once again, Krka researchers proved they belong among the very best. At last year’s innovation ceremony of the Chamber of Commerce of Dolenjska and Bela krajina (GZDBK), Krka’s innovations received four gold and four silver awards.  At the end of November, the Slovenian Chamber of Commerce and Industry (GZS) presented Krka with two silver awards for innovations in high blood pressure therapy: one award for a bi-layer tablet containing a combination of candesartan and amlodipine, and one award for a solid pharmaceutical form containing a combination of olmesartan, amlodipine, and hydrochlorothiazide.  At the end of the year, the Ljubljana Stock Exchange presented Krka with the Prime Market Share of the Year award for the fourth consecutive year and the Best Investor Relations Award for the third time. 2021 Annual Report – Introduction 13 Sustainability  We have formed a project group for sustainability to put additional focus on sustainability and introduce the ESG system to the Krka Group in line with legislation, in particular the EU’s Corporate Sustainability Reporting Directive.  The 2020 Talent-of-the-Year award was announced at the 15th traditional meeting with Krka’s sponsorship recipients. Three outstanding young people received the award for their accomplishments in sports and culture.  On 22 September, as part of the European Mobility Week, we organised the 6th consecutive Krka Car-Free Day for Krka employees in Slovenia and abroad. Our commitment to green mobility grows ever stronger: sustainable means of transport is becoming a habit and not just a one-time act for an increasing number of employees.  We regularly meet with local communities because we care for the natural and social environment in which we operate. This year, circumstances did not yet allow for in-person meetings. Because we believe in the importance of uninterrupted dialogue, we prepared an informative issue of Krka’s Utrip magazine covering the relevant environmental protection topics and distributed it to the residents of the Ločna-Mačkovec community.  In 2020, we marked the 50th anniversary of Krka Prizes. Due to the circumstances at that time, the ceremony was postponed until the beginning of September 2021. On this occasion, the President of the Republic of Slovenia Borut Pahor presented the national Order of Merit to Krka for its Krka Prizes, which have been encouraging scientific achievements, particularly among the young, for half a century.  In 2021, we continued with our unique and long-standing tradition of Krka Prizes. The recipients of the secondary school, undergraduate and graduate-level prizes were declared at online symposiums. Employees  The 18th International Regulatory and Pharmacovigilance Conference was organised remotely. More than 300 colleagues from 40 countries attended the online event. The best regulatory affairs employees received awards, recognitions, and commendations.  The slogan Rethink and React marked the 23rd Marketing and Sales Conference. The online event was attended by 190 colleagues in 42 markets and established new foundations for achieving even better results in the future.  On Krka Awards Day, we conferred plaques to employees who celebrated their many years of service, best employees, best managers, and those who excelled in the field of innovation.  In July, 18 worker assemblies were held at Krka in Slovenia. The President and members of the Management Board briefed employees on performance results, plans for the current year, the strategy, and other current issues.  For the 21st consecutive year, Marketing Awards were conferred on the best employees in marketing.  Through our innovation and efficiency, we developed several concrete solutions that support quality processes, quality finished products, and rational business operations that help us ensure reasonably priced products for our customers and good relations with our shareholders. Individuals and organisational units that contributed the highest number of proposals were recognised for their efforts. 2021 Annual Report – Introduction 14 Subsequent Events The events after the end of the period had no impact on the 2021 financial statements. Situation in Ukraine and the Russian Federation: Impact on the Krka Operations We conduct business in Ukraine and the Russian Federation, sales Region East Europe, through three subsidiaries and the controlling company, Krka, d. d., Novo mesto. The registered office of our subsidiary Krka Ukraine LLC engaged only in marketing, but not manufacturing, is in Kiev. The registered office of Krka-Rus LLC engaged in pharmaceutical production is in Istra, a town in the vicinity of Moscow. Main offices of Krka Farma LLC, a company engaged in marketing and sales, are in Moscow. On account of rapid changes and their unpredictability, it is not possible to reliably forecast the impact of the situation in Ukraine and Russian Federation on our business operations in 2022 and any long-term consequences. Krka has a strong capital structure, generates a strong cash flow from operations and has no financial debt, so its successful business performance in the long run is not jeopardised. Our Management Board closely monitor events and implement all necessary activities to ensure business continuity in the two countries. They also take measures to manage operational risks and reduce the eventual negative impact on business results. The Management Board will prepare and publish the eventual revision of guidance for 2022, when and if tangible assessment of short and long term implication of current situation is possible. Please find further explanation in Note 35 'Subsequent events' to the consolidated financial statements of the Krka Group and Note 36 'Subsequent events' to the financial statements of Krka, d. d., Novo mesto. Acquisition of Treasury Shares in 2022 From 1 January 2022 to 14 April 2022, we acquired 21,689 treasury shares. At the end of this period, Krka held 1,705,597 treasury shares, accounting for 5.201% of total shares. 2021 Annual Report – Business Report 15 BUSINESS REPORT Corporate Governance Statement 5 Corporate governance at Krka is a two-tier system. The Management Board runs the Company and is controlled by the Supervisory Board. Corporate governance is based on the legislation of the Republic of Slovenia, Slovenian and international good practice, the publicly available Corporate Governance Policy of the Company and its internal rules. Governing bodies are:  Annual General Meeting (AGM);  Supervisory Board; and  Management Board. Annual General Meeting Under the Slovenian Companies Act (ZGD-1), the Company's highest body is the Annual General Meeting (AGM). It is where shareholders directly participate in the Company's governance and where all fundamental and statutory decisions are taken. Each share, except for treasury shares, represents one vote at the AGM. Krka has one share class only: ordinary no-par value shares. The Management Board calls the regular AGM once a year, at least 30 days before the due date. Upon request, all the materials for each AGM can be viewed at the Company's registered office from the day of the call. All shareholders entered in the shareholder register as at the record date, which is published in the notice, have the right to attend the AGM and vote. The same applies to their representatives and proxies. At the AGM, the Management Board provides shareholders with all the information required to assess the agenda, taking into account all legal or other information disclosure restrictions. In the 2021 AGM notice, per Item 6.2 of the Corporate Governance Code for Listed Companies in force at the time, the Company requested all major shareholders to publicly disclose their investment policies in respect of their shareholdings in the Company, in particular their voting policy, the type and frequency of their engagement in the Company’s governance, and the flow of their communication with the Company’s managerial and supervisory bodies. At the 27th AGM of 8 July 2021, the shareholders:  Received information about the 2020 Annual Report from the Management Board, including the remuneration of Management and Supervisory Board members, the auditor's report, and the report of the Supervisory Board on its verification and approval of the 2020 Annual Report;  Adopted the resolution on the appropriation of accumulated profit for 2020;  Discharged the Management and Supervisory Boards of liability for 2020;  Incorporated in the Articles of Association (i) the option to hold shareholder meetings online and resolved that, for a justified reason, an AGM can be held in any other place in the Republic of Slovenia besides the Hotel Šport in Otočec; (ii) added C.32.500 ‘Manufacture of medical and dental instruments and supplies’ to Krka's business activites; (iii) adopted certain other amendments to the Articles of Association in compliance with legislative changes; (iv) determined the procedure for convening an AGM in closer detail;  Updated the remuneration system for Supervisory Board members, which was adopted on 7 July 2011, and brought it in line with the current good practice. According to the 2022 financial calendar, the regular AGM is due on 7 July. The Company must give a clear 30 days’ notice before the AGM is held and publish it on the AJPES website, in the Company’s printed or online publication if it is due for publication at the time of the call and on the Company’s website. The notice must also comply with the Financial Instruments Market Act. Further information on shareholders and voting rights is available under ‘Investor and Share Information’. 5 GRI GS 102-18 2021 Annual Report – Business Report 16 Supervisory Board The Supervisory Board supervises the Company’s operations and business management, and selects and appoints members to the Management Board. The body meets at least four times a year. Under the provisions of the Articles of Association, the Supervisory Board pre-approves the annual business and financial plan and the strategy for adoption by the Management Board. It also carries out other tasks in accordance with the Companies Act. It primarily approves (i) the appointment, removal, and remuneration of the Head of Internal Audit; (ii) the act regulating the purpose, meaning, and duties of Internal Audit; and (iii) the annual and multi-year plans of Internal Audit. It is also briefed about the annual report of Internal Audit. The President of the Supervisory Board concludes a contract with an external auditor. The composition of the Supervisory Board is stipulated by the Company's Articles of Association. The Supervisory Board is composed of nine members: six are elected by the AGM, and three employee representatives are elected by the Company's Works Council. The President of the Supervisory Board is always elected from the AGM-appointed members. Members are appointed for a five-year term and can be reappointed. The 26th regular AGM was held on 9 July 2020. With the terms of office expired for Jože Mermal, Andrej Slapar, Julijana Kristl, and Boris Žnidarič, the AGM elected Jože Mermal, Matej Lahovnik, Julijana Kristl, and Boris Žnidarič to a new five- year term of office. Another two shareholder representatives sit on our Supervisory Board. Borut Jamnik was elected by the AGM on 6 July 2017, and Mojca Osolnik Videmšek on 4 July 2019. The President of the Supervisory Board is Jože Mermal. His deputies are Matej Lahovnik, the shareholder representative, and Franc Šašek, the employee representative. If the President of the Supervisory Board is absent, the shareholder representative replaces him, and if the latter is also absent, the employee representative replaces him in turn. The Supervisory Board’s work complies with legislation, recommendations of professional associations, above all the Slovenian Directors' Association, and other good practice recommendations, particularly the Slovenian Corporate Governance Code for Listed Companies. The remuneration, reimbursement, and other benefits of Supervisory Board members do not directly depend on the Company's performance and are disclosed in the financial report under the Note entitled ‘Related Party Transactions’. In addition to attendance fees, members receive fixed amounts for exercising their functions and additional payments, i.e. for membership on committees, presiding the Supervisory Board or acting as a deputy to its president, presiding committees, and for special undertakings. All remuneration amounts were fixed by resolutions passed at the 27th regular AGM in 2021. Supervisory Board members report to the Company and competent institutions on any acquisitions or disposals of Company shares. Krka makes the information public. Please find the disclosure on how many Krka shares are held by Supervisory Board members in the 'Related Party Transactions' section of the financial report. In addition to the Companies Act, the Rules of Procedure of the Supervisory Board govern any potential conflict of interest on the part of Supervisory Board members. Supervisory Board members must consider the Company’s objectives in their work and subordinate any personal interests or interests of third parties accordingly. All members have been asked to complete a conflict of interest questionnaire. The questionnaire is available on the Krka website. The Rules of Procedure of the Supervisory Board outline members' conduct in the event of a conflict of interest. The document is available at http://www.krka.biz/en/for-investors/documents/corporate-governance-documents/. A conflict of interest can constitute an impediment to voting. Any non-temporary material conflict of interest may be grounds for termination of a member's term of office and is assessed when drafting the proposal for that person's election. The work of the Supervisory Board and related committees in 2021 is detailed in the Supervisory Board report. 2021 Annual Report – Business Report 17 Shareholder Representatives Jože Mermal President of the Supervisory Board Jože Mermal (born 1954) is from Ljubljana and holds a university degree in economics. Since 2019, when BTC introduced the one-tier management system, Mermal has chaired the company’s management board. He had successfully managed BTC for over 26 years before that, having worked creatively in many responsible managerial positions since 1978. He initiated and managed the project to restructure and transform public warehouses into a successful, dynamic, and rapidly expanding company that has also become one of the largest business, shopping, entertainment, recreation, culture, and innovation centres in Europe: BTC City. As the founder and strategist of BTC, he has been supporting investments in development to reach the company's long-term goal: to make BTC an open company for future generations. Under his management, the company has established connections with long-term business partners through various activities and is becoming a unique business ecosystem, seeking new opportunities and finding challenges in a vast society, globalisation, innovation and sustainable development. In partnership with the Municipality of Ljubljana, he has been involved in setting up a 230 hectare urban regeneration project for the city of Ljubljana, the Šmartinska District Partnership. Crystal Palace, the Radisson Blu Plaza Hotel, and Ikea have been constructed as part of the project. He has also collaborated with the Municipality of Ljubljana in setting up the Intermodal Logistic Terminal (ILT) Ljubljana. Under his management, ABC Accelerator was established in 2015. Its principal function is the development of a start-up business ecosystem. He also holds key managerial functions in various sports organisations and at international sporting events. Under his management, BTC has received a plethora of awards and prizes for various community projects. He participates in cultural, sporting, educational, humanitarian, and scientific events, which he supports and is involved in. He is the receipient of several awards for his work, including Manager of the Year in 1997 and the Primus award for excellence in communication in 2001 by the Slovenian Public Relations Society. He is a keen supporter of culture and received the title of Cultural Patron of the Year in 2011. His visionary management and creativity at BTC earned him the Vision Manager Award in 2012, which is conferred by public relations experts from South-Eastern Europe. In 2013, the Municipality of Ljubljana conferred the Marjan Rožanc Award on Mermal for sporting achievements. The Chamber of Commerce and Industry of Slovenia awarded him for exceptional business and entrepreneurial achievements in the category of large companies for the year 2013. Under Mermal's management, BTC has become the first – and, to this date, the only – Slovenian company listed on the London Stock Exchange. In 2015, he received a gold plaque from the Managers’ Association of Slovenia for more than two decades of support. It was followed by the highest managerial lifetime achievement award, the Best Manager of South-East Europe 2016 award, which is bestowed by the Independent Agency for the Selection and Promotion of Managers. Mermal was awarded the title of a 2017 honorary citizen of Ljubljana, the highest honour bestowed by the Municipality of Ljubljana, for his contribution to the renown, significance, and development of the municipality and its inter-city and international relations. At the awards for best managers and companies from Central and South-Eastern Europe, he received the Best Manager and Best Company in Europe lifetime-achievement award in 2019. In 2020, the Management Board of the Managers’ Association of Slovenia awarded Mermal the Lifetime Achievement Award in Management. Prof. Dr Matej Lahovnik Deputy President of the Supervisory Board Matej Lahovnik (born 1971) holds a PhD in economics. He is a full professor at the Faculty of Economics in Ljubljana and has worked there since 1995. As a researcher, teacher and mentor, he deals with strategic management, mergers and acquisitions, organisation and business skills. Lahovnik has served twice as Minister of Economic Development and Technology to the Government of the Republic of Slovenia. During Slovenia's OECD membership talks, he led the corporate governance and investment negotiation teams. 2021 Annual Report – Business Report 18 He has been involved in numerous scientific project teams researching the behaviour of enterprises and financial institutions in the transition period; Slovenian economic development strategy; successful competitive strategies of Slovenian and Croatian companies; company acquisitions in economies in transition; and market regulations after accession to the EU. He has authored or co-authored many papers on strategic management and mergers and acquisitions, published in scientific and research journals and at conferences. He has co-authored a scientific monograph, and authored or co-authored two university textbooks. He is also vice-president of the supervisory board of Mercator. Dr Boris Žnidarič President of the Human Resource Committee Boris Žnidarič (born 1948) holds a PhD in social sciences and a Master's degree in law. Up to his retirement, he served on the management board of Kapitalska družba, d. d., Ljubljana, a company that manages additional funds for pension and disability insurance. Prior to that, he held various roles at the Triglav Group insurance company. He was assistant to the president of the management board of Zavarovalnica Triglav, where, in addition to leading and directing heads of organisational units, he was also responsible for strategic human resource management at subsidiaries. He was on the management board of Triglav Osiguranje in Zagreb, Croatia. He also managed the Celje regional unit of Zavarovalnica Triglav, and led the central department for the prevention and detection of insurance fraud. Before taking up that role, he was an adviser to a management board member for strategic human resource management in the Triglav Group, and an assistant director for legal, human resources, and general affairs at the Ljubljana unit. He holds a certificate of professional competence for supervisory board membership. In addition to his diverse career in insurance, he is also a university lecturer. Borut Jamnik President of the Audit Committee Borut Jamnik (born 1970) is from Ljubljana and graduated in mathematics from the Faculty of Natural Sciences and Engineering at the University of Ljubljana. He commenced his career at the Agency of the Republic of Slovenia for Restructuring and Privatisation. After completing his traineeship, he managed many ownership transformation projects. After a brief spell at the Securities Market Agency of Slovenia, Jamnik took up a post at the IT and analyses department of Kapitalska družba, a company that evaluates investments and prepares the grounds for management decisions. He managed the project that led to establishing the First Pension Fund in Slovenia. In 2000, he began his term on the management board of Kapitalska družba in charge of finance, analyses, information technology, and pension fund management activities. Jamnik chaired the management board of Kapitalska družba from 2003 to 2005 and from 2008 to 2011. In the intervening years, he was a board member with responsibility for finance and group management at Hit, then at Probanka Asset Management, first as a management consultant and later as a management board member. During that tenure, he oversaw the merger of two hotels, HIT Alpinea and Kompas Hoteli KG, and was involved in negotiations with the strategic partner, the then Harrah’s Entertainment. He chaired the board of a special business consulting company Posebna družba za podjetniško svetovanje (PDP) until its dissolution following the merger with Slovenski državni holding (SDH, Slovenian Sovereign Holding), a procees that involved a series of financial and business restructurings, culminating int the companies being sold. In 2011 he began chairing the management board at Modra zavarovalnica, where he is responsible for asset management, compliance, planning and controlling, legal and HR matters. Since 1999, he has chaired many management bodies of major Slovenian companies, including Telekom Slovenije, Pivovarna Laško, Zavarovalnica Triglav, NLB, Luka Koper, Comet, Swaty, Lesnina, Žito, and Krka. Until 2018, he was a management board member of the European Association of Public Sector Pension Institutions (EAPSPI). He is currently a member of the supervisory board and audit committee at Nova KBM. Jamnik held the presidency of the Slovenian Directors’ Association (SDA) from 2008 until 2020, where he helped to develop corporate governance expertise and practices and the functioning of supervisory and management boards. Since 2020, he has chaired the SDA's Policy Committee. He also chaired Slovensko zavarovalno združenje (SZZ, Slovenian Insurance Association), where he currently continues his tenure as a committee board member. As an executive and member of supervisory boards, he has been involved in various complex corporate campaigns and helped resolve complex business issues using his extensive experience and negotiation skills. 2021 Annual Report – Business Report 19 Mojca Osolnik Videmšek Mojca Osolnik Videmšek (born 1966) holds a university degree in economics. She is director of GB Leasing, where she is primarily responsible for finance, general support services, and risk management. Before that (2014–2019), she served one term of office on the management board of Gorenjska banka, where she was in charge of risk management, financial management and support, legal affairs, and corporate compliance. Before taking up employment with Gorenjska banka, she was responsible for various challenging areas of work at NLB, d. d., primarily concerning corporate governance at the NLB Group. As director of Capital Investments Management and Control she sat on several supervisory boards and audit committees of subsidiaries in Slovenia and abroad. She was also director of the office of the management board and secretary general at NLB. She also has experience in dealing with challenging tasks in public administration. From September 1994 until April 1999, she worked as head of the Prime Minister’s Office. Between 2001 and 2003, she was director of the Administrative Office of the Prime Minister of the Republic of Slovenia and, for a brief spell in 2000, Secretary General at the Ministry of Foreign Affairs. She has extensive experience in governance and control. She holds a certificate from the Slovenian Directors’ Association. She sat on the management board of the Slovenian Directors’ Association for three terms of office. Prof. Dr Julijana Kristl Julijana Kristl (born 1953) holds a PhD in pharmaceutical sciences and worked at the Faculty of Pharmacy at the University of Ljubljana (1977–2021). She upskilled at the University of Geneva and the University of Lyon, and also in the pharmaceutical industry. During her career, she served as Vice-Dean, Head of the Chair of Pharmaceutical Technology, Dean of the Faculty of Pharmacy and as Vice-Rector at the University of Ljubljana (two terms). She is an active member of many prominent commissions and committees at state and university level. Her scientific career started in the area of pharmaceutical technology. Her greatest achievements include developing and deploying pharmaceutical nanotechnology in Slovenia. Her work initially focused on the development and evaluation of API nanodelivery systems that support innovative modes and new mechanisms of treatment. Her notable achievements include research and development on lipid and polymer nanostructures (various nanoparticles and nanofibres), the discovery of mechanisms for increasing solubility and bioavailability of active ingredients, understanding the correlation between the structural composition and the real-time cell response after coming into contact with them. Her achievements have won her global renown as a pharmaceutical nanotechnologist. She is committed to research, gaining and sharing knowledge with students and the scientific and business communities. She sets high professional goals, is future-focused, and acts to benefit the community. Her knowledge, personal skills, independence, and autonomy are solid foundations for a successful tenure on the Supervisory Board of Krka. Employee Representatives Franc Šašek Deputy President of the Supervisory Board Franc Šašek (born 1967) has a degree in organisational sciences. He joined Krka in 1984 and heads up Technical Services. He has worked in engineering and technical services from the outset in roles ranging from technologist, Head of the Technical and Technological Preparations Department, and later as a senior specialist in maintenance and project management. In 2004, he was the SAP PM-maintenance project team leader for the roll out of the business process management system (SAP) and was later appointed process owner for maintenance in the Krka Group. Since 1999, he has also served as an authorised person and trainer for quality assurance. As a certified internal quality auditor, he also conducted internal audits from 2000 to 2013. He is jointly responsible for the development and maintenance of the Company's integrated quality system. In 2009, he underwent training for supervisory and management board members at the Slovenian Directors’ Association. Šašek was elected President of Krka's Works Council for 2009–2013 and 2014–2018, and again for 2019–2022. He assumed his third term as an employee representative on the Supervisory Board on 21 June 2019. 2021 Annual Report – Business Report 20 Dr Mateja Vrečer Mateja Vrečer (born 1966) has worked at Krka since 1990. She started as a pharmaceutical engineering graduate, later passing the pharmaceutical engineering certification examination, which she followed up with a Master's degree and then a doctorate in pharmaceutical sciences. She first worked in Research and Development on regulatory feasibility studies for proposed new products, and once approved, she managed product registration and produc launch projects in Slovenia. In 1997, she was appointed Deputy Director of Quality Management, and in March 2007, she took up the role of head of International Quality Assurance. In September 2011, she accepted the position of Director of Quality Management. She was an employee representative of the Krka Supervisory Board in 2005–2009 and 2009–2014. In June 2014, she was reappointed to her third term of office. The Works Council elected Vrečer as an employee representative for another term of office commencing on 21 June 2019. Tomaž Sever Tomaž Sever (born 1967) has a degree in mechanical engineering and a Master’s degree in management and organisational sciences. He has been employed at Krka since 1995. He is Deputy Director of Sales and Director of Region Central Europe, entrusted with market research; putting forward and expanding Krka’s presence in individual markets; specifying the product range; recommending pricing strategies for individual markets; involvement in planning sales promotion; formation, development and management of distribution channels; and building the sales network abroad. Before joining Krka, he worked for IBM Slovenia from 1992 to 1995, first as an information systems sales representative, then as an information system project manager. Sever joined the Krka Supervisory Board as an employee representative in the 2005–2009 term, was reappointed for another five-year term of office in 2009, and started his third term as an employee representative in June 2014. The Works Council elected him to the Supervisory Board as an employee representative for another term of office that commenced on 21 June 2019. Independent Expert, Member of the Audit Committee In accordance with Article 280 of the Companies Act, the Supervisory Board appointed Borut Šterbenc, an independent accounting and auditing expert, to the Audit Committee. He is not a member of the Supervisory Board. Borut Šterbenc Independent Accounting and Auditing Expert, Member of the Audit Committee Certified auditor, Borut Šterbenc (born 1978 in Ljubljana) holds a university degree in economics. He graduated from the Faculty of Economics, University of Ljubljana. On 1 January 2020, he assumed chairmanship of the management board of Kolpa, d. d., Metlika, and chairmanship of Kolpa Holding, d. o. o. Up to 2011, he was a project manager at KPMG, where he planned, led, and conducted complex audits at many Slovenian companies, including Krka, Intereuropa, Sava, NEK, and Lama. Šterbenc is also a supervisory board member at Pokojninska družba A, d. d. and an experienced rapporteur to governance and supervisory bodies. He is a certified auditor and registered as such with the Agencija za nadzor nad revidiranjem (Agency for Public Oversight of Auditing). He also holds a certificate of professional competence for supervisory board membership issued by Slovenian Directors’ Association. He is fluent in English, Croatian, and Russian. 2021 Annual Report – Business Report 21 Management Board The primary Management Board duties are to:  Manage the Company and make business decisions directly and independently;  Adopt the development strategy of the Krka Group following endorsement by the Supervisory Board;  Ensure appropriate risk management; and  Act with the reasonable care and diligence of a good and honest manager and protect business secrets. The Management Board is composed of five members:  President of the Management Board;  Three members; and  A worker director who represents the employees’ interests regarding human resource and social issues. President and other members of the Management Board of Krka were not members of any management or supervisory bodies outside the Krka Group in 2021. The term of office of Management Board members is six years. Members can be reappointed. The candidacy procedure and delegation of authority to Management Board members and criteria for appointment are disclosed in section ‘2021 Supervisory Board Report’, subsection ‘Appointing Management Board Members for Next Term of Office’. The Management Board’s operational functions and assignment of duties are set down in the Rules of Procedure of the Management Board. The body’s operating approach is to coordinate opinions and make decisions by consensus. In line with the Rules of Organisation and the Rules of Procedure of the Management Board, Management Board members also have executive management duties. Every member is responsible for a certain number of organisational units, which permits direct cooperation between the Management Board and directors of organisational units. The following bodies assist the Management Board:  Directors' Committee;  Sales Committee;  Development Committee;  Quality Committee;  Investment Committee;  Human Resource Committee;  Information Technology Committee;  Economics and Finance Committee; and  Corporate Identity Committee. The committees bring together Management Board members, managerial staff, and experts from individual sectors in Krka. They prepare business policies and strategic guidelines by individual areas and have some decision-making responsibilities relating to implementing annual plans. Certain committees also have a risk management remit. Remuneration, reimbursements, and other benefits for Management Board members are fixed in work contracts drawn up between the Supervisory Board and individual Management Board members. Since 24 August 2021, shareholders decide on reimbursement policies at AGM assemblies. This is an amendment to the Companies Act. In 2021, payments to Management Board members were made in cash. The data are disclosed in ‘Related Party Transactions’ section of the financial report. The section also includes data on equity stakes in Krka held by Management Board members. Management Board members and their related parties report to the Company and the competent institutions on any acquisition or disposal of the Company's or related parties' shares. Krka makes this information public. Management Board members’ obligations regarding any potential conflict of interest are governed by the Companies Act, and operationally also by the Rules of Procedure of the Management Board based on good practices, in particular on the Corporate Governance Code for Listed Companies. Under the Rules of Procedure of the Management Board, the 2021 Annual Report – Business Report 22 members must be absolutely loyal to the Company. They must disclose any conflict of interest to the Supervisory and Management Boards immediately, but no later than three days after it arises. They must comply with anticompetitive practices throughout their term of office. In conformance with the Rules of Procedure, they can accept membership on supervisory bodies of companies outside the Krka Group only after notifying the Supervisory Board of Krka accordingly and obtaining their approval. In 2021, no member of the Management Board of Krka was a member of a supervisory body of any company outside the Krka Group. The existence of any conflict of interest is assessed prior to their nomination. As regards the Management Boards’ powers, the shareholders adopted a resolution at the 26th AGM of 9 July 2020, authorising the Management Board to acquire treasury shares over a 36-month period provided that total treasury shares, including new purchases and shares already held, do not exceed 10% of total share capital. The Company informed the public about the treasury share repurchase programme on the web portal of the Ljubljana Stock Exchange SEOnet (http://seonet.ljse.si). Management Board Members Please, find below the CVs of the members of the Management Board presided over by Jože Colarič. Their six-year term of office commenced on 1 January 2016 and ended on 31 December 2021. The Supervisory Board reappointed the unchanged Management Board for another six-year term of office that commenced on 1 January 2022. Jože Colarič President of the Management Board and CEO Jože Colarič (born 1955 in Brežice) finished his secondary education at Gimnazija Novo mesto, then continued studies at the Faculty of Economics in Ljubljana, graduating in 1979. He has been employed at Krka since 1982. He started work in the Finance Sector, where he initially headed Foreign Currency Payments, and then won promotion to Assistant Director. In 1989, he started managing the Exports Department within the Import-Export Sector, and two years later became Deputy Director of Import-Export. Early in 1993, Colarič was appointed Deputy Chief Executive for Marketing and Finance, and in September of the same year also accepted management of Marketing-and-Sales Sector. In 1997, he was appointed as a member to the Management Board. The following year, the Supervisory Board appointed him Deputy President of the Management Board, and in 2002, endorsed him as a future president of the Management Board, making him responsible for proposing candidates for the new Management Board team. At their meeting of 12 July 2004, the Supervisory Board appointed Colarič President of the Management Board and Chief Executive Officer. His five-year term of office began on 1 January 2005. At their meeting of 21 January 2009, the Supervisory Board appointed him for another six-year term of office commencing on 1 January 2010. Under his management, Krka has developed into one of the leading generic pharmaceutical companies in the world and built solid foundations for growth. Colarič’s actions rely on Krka's in-house knowledge, new product development, annual investments, recruitment, and regular dividend payments. In 2015, the Supervisory Board therefore unanimously appointed him President of the Management Board and CEO for a new six-year term of office commencing on 1 January 2016. When that term of office ended, the Supervisory Board appointed him President of the Management Board and CEO for another six-year term of office commencing on 1 January 2022. He put forward the unchanged Management Board, and the Supervisory Board unanimously reappointed the body and member od the management board-worker director, proposed by Works Council, for the 2022–2027 term of office as proposed. Dr Aleš Rotar Member of the Management Board and Director of Pharmaceutical R&D and Production Aleš Rotar (born 1960 in Zadar, Croatia) graduated in pharmacy from the Ljubljana Faculty of Natural Sciences and Engineering in 1984, and earned a Master’s degree seven years later. In 1993, he finished the international business programme and got his MBA from IEDC, Brdo. He earned his doctorate from the Faculty of Pharmacy, Ljubljana, in 2000. 2021 Annual Report – Business Report 23 He started working at Krka in the Stability Department in 1984. In 1991, he was appointed Head of Pharmaceutical Technology and two years later Head of Pharmaceutical Development within Research and Development. In 1998, he was appointed Deputy Director and in 1999, Director of Research and Development. He was appointed to the Management Board in 2001. He began his second term on 31 July 2002 and was reappointed for the period from 31 July 2007 to 31 December 2009. Rotar has been Director of Research and Development since 2002. At their meeting of 29 July 2009, the Supervisory Board reappointed him to the Management Board for a further six-year term of office, starting on 1 January 2010. Rotar has notably contributed to know-how and establishment of business functions for in-house research and development at Krka. Because of his successful performance, in November 2015 the Supervisory Board unanimously appointed Aleš Rotar to the Management Board for a new term of office from 2016 to 2021 following a proposal by Colarič. Within that term, he successfully united development and production processes into Pharmaceutical R&D and Production, one of Krka’s largest organisational units. Synergies between the experts from development and production helped improve technology transfer and product life cycle management, also leading to higher production output. During his terms of office Krka almost doubled product launches. Following the 2021 proposal by Colarič, the Supervisory Board unanimously appointed him a member of the Management Board for another six-year term of office commencing on 1 January 2022. Dr Vinko Zupančič Member of the Management Board and Director of API R&D, Production and Supply Chain Vinko Zupančič (born 1971 in Novo mesto) finished his secondary education at Gimnazija Novo mesto. He graduated from the Faculty of Pharmacy in 1996, earning a Master’s degree in pharmacy. In 1998, he passed a certification examination in pharmacy and in 2010 earned a doctorate from the Faculty of Pharmacy. He joined Krka in 1997 as a Warehousing and Transport of Product Supply trainee. In 1998, he became a warehouse technologist and then a senior warehouse technologist. In 2000, he assumed the job of assistant to the head of Warehouse and Transport Services and in 2002 became Deputy Head of Supply Chain. Commencing on 1 February 2004, Zupančič took up his appointment of Director at Krka’s representative office in Bangalore, India. He returned to Krka in Slovenia on 1 July 2005 to act as Head of Supply Chain at Product Supply. He was appointed Deputy Director of Product Supply on 1 December 2008 and Director of Product Supply on 1 January 2010. On 29 July 2009, the Supervisory Board appointed him member of the Management Board for a six-year term commencing on 1 January 2010. Krka’s significant competitive advantage is that we manufacture most of the APIs and raw materials we require, enhancing product economics and cutting response time. Zupančič has been integral to the success of this strategy. Following the 2015 proposal by Colarič, the Supervisory Board unanimously appointed him to the Management Board for a term of office from 2016 to 2021. He successfully managed raw material development, production, and the supply chain during that term. As concerns finished products, he played a key role in supply chain management, from improving raw material economics to process optimisation. He is also to be credited for constant improvement in utilisation of warehousing capacities and optimisation of road and other means of transport. He chairs the Krka Otočec Tennis Club (Slovenia). Following the 2021 proposal by Colarič, the Supervisory Board unanimously appointed him a member of the Management Board for another six-year term of office commencing on 1 January 2022. David Bratož Member of the Management Board David Bratož (born 1976 in Novo mesto) holds a university degree in economics. Having finished his secondary education at Gimnazija Novo mesto, he continued his studies at the Faculty of Economics in Ljubljana, and graduated in 2000, specialising in finance. Bratož began his career at Krka in 2001 in the department of Finance, where he managed several major projects. In 2003, he began working in Sales, Region Central Europe, and was primarily in charge of the Polish market. Owing to his good 2021 Annual Report – Business Report 24 performance, he was appointed Director of Krka - Polska in 2007, where he managed operations in marketing, sales, production, and distribution. Two years later, he was appointed President of the Board of Directors. Bratož and his team worked together to make Krka - Polska one of the largest and most successful Krka subsidiaries. Product sales and production volume doubled during his tenure in Poland, winning him and Krka - Polska many awards. David Bratož has extensive knowledge of all business functions of a big company. Following the 2015 proposal by Colarič, the Supervisory Board appointed him to the Management Board for his first term of office, from 2016 to 2021. He contributed to the renewal of our development strategy and was also accountable for managing finance, economics of international and domestic business operations, Krka Group controlling, business intelligence, and development of business informatics. He instigated the implementation of business compliance, corporate integrity, and personal data protection in the Company. During his term of office, Krka accelerated digitalisation and the use of cloud technologies and upgraded information security. He leads the expert team for upgrading sustainable management (ESG) in the Company. As a member of the Management Board, Bratož cooperates closely with the Works Council and the two trade unions. He is also responsible for issues related to employee recreation, meals during worktime, housing issues, and Krka’s societies. He sits on the supervisory board of the Chamber of Commerce and Industry of Slovenia. Following the 2021 proposal by Colarič, the Supervisory Board unanimously appointed him a member of the Management Board for another six-year term of office commencing on 1 January 2022. Milena Kastelic Member of the Management Board – Worker Director; Deputy Director of Pharmaceutical Production Milena Kastelic (born 1968 in Novo mesto) holds a degree in food technology. After finishing her secondary education at Gimnazija Novo mesto in 1986, she enrolled at the Biotechnical Faculty at the University of Ljubljana. In 1991, she won the Prešeren Award for students for her undergraduate diploma thesis, ‘Evaluation of glucoamylase activity in yeast Saccharomyces diastaticus’. In 1993, she completed training in work design at the REFA Association in Germany. She started her career at Krka in 1992 and has been a successful staff member ever since. Over a span of nearly three decades, her professional career has been closely linked to herbs, production of non-prescription products, and prescription pharmaceuticals for human use and animal health. She completed her traineeship in the Auxiliary Medicinal Products and Herbs Programme with an assignment on the technology of drying plant-based raw materials. She worked as a production technologist for five years. In 1996, she became the Head of the Plant for the Production of Herbal Medicines, today's Bršljin Department, which she successfully managed until April 2018. At present, Kastelic heads Semi- Solid, Liquid and Other Products. She took up the position of Deputy Director of Pharmaceutical Production in charge of the corresponding segment in July 2021 and also gives employee training. As Krka's internal auditor of 15 years, she has contributed to improving business processes in the Company. This function gave her the opportunity to become familiar with other organisational units, the importance of close connections between them, and the results of mutual cooperation. She sits on the management board of the Stopiče Tourist Association (Slovenia). In 2015, the Works Council proposed her as the Worker Director, and the Supervisory Board unanimously appointed her to the Management Board for her first term of office from 2016 to 2021. Kastelic is well-trusted by the employees, and on that account, the Works Council reappointed her Worker Director. The Supervisory Board, therefore, unanimously appointed her a member of the Management Board – Worker Director for another six-year term of office commencing on 1 January 2022. 2021 Annual Report – Business Report 25 Roles and Responsibilities of Management Board Members Roles and responsibilities of Management Board members are available at https://www.krka.biz/en/about-krka/whos-who- in-krka/management-board/. In compliance with good practice, we herewith state the Management Board member David Bratož acts under the board resolution as the expert team leader for upgrading sustainable management (ESG). 2021 Management and Supervisory Board Diversity Policy In 2020, the Management and Supervisory Boards adopted the Diversity Policy and published the document on the corporate website. The bodies closely followed recommendations by the Slovenian Directors' Association for the voluntary pursuit of gender diversity in management and supervisory bodies. By the year 2026, they aim to gradually implement the 40-33-2026 model (i.e. 40% of women on the Supervisory Board, and 33% on the Management and Supervisory Boards together). In 2021, women accounted for 33% of the Supervisory Board structure and constituted 29% of the Management and Supervisory Boards together. Key areas of the Diversity Policy are gender, age, and qualification profile diversity. The policy aims at balanced gender structure, suitable interdisciplinarity and age structure, allowing for the transfer of experiences and knowledge. The policy addresses the diversity of the Management and Supervisory Boards, but the Company intends to apply it rationally also to all other management levels. Krka provides its employees with equal opportunities, regardless of their gender, race, colour, age, medical condition or disability, religious, political or any other belief, trade union stewardship, national or social origin, family status, financial condition, sexual orientation, or other personal particulars. Diversity policy monitors are:  Human Resource Committee of the Supervisory Board;  Supervisory Board;  Management Board;  Works Council;  Any committees involved in procedures for selecting members to management and supervisory bodies; and  Human Resources of Krka. Governance of the Krka Group The Krka Group comprises the controlling company Krka and subsidiaries in Slovenia and beyond. Generally, Krka is the sole owner of the subsidiaries incorporated as limited liability companies. Uniform rules on governance, organisation, and operation are applied to all companies in the Krka Group, unless otherwise required by national legislation. The controlling company sets the strategies and objectives of all individual subsidiaries in the Krka Group and monitors the implementation of their plans. To ensure cohesive management and supervision across the Group, the controlling company's Management Board also acts as the Annual General Meeting of all subsidiaries. An exception is Ningbo Krka Menovo Pharmaceutical Co. Ltd., the joint venture in China, where Krka holds 60%, and the Chinese partner, Ningbo Menovo, a 40% shareholding. Krka has two representatives in the company's three-member Board of Directors, one of whom is the President. 2021 Annual Report – Business Report 26 Corporate Compliance and Integrity Values, Norms, Integrity 6 Corporate integrity, compliance, and transparency of operations are important for Krka and apply to all levels of business operations, employees, and third parties. We endeavour to increase the culture of ethics and protect Krka's renown and property. When working and carrying out tasks, the basic guideline for all employees is to comply with fundamental ethical principles of honesty, loyalty, professionalism, applicable regulations, and Krka's internal rules. We constantly increase employee awareness of any potential fraud, non-compliance and other violations, and ways of managing them, accountability in their detection and reporting. Krka’s Code of Conduct, containing principles and rules of ethical conduct, good business practice, and standards of conduct, is the umbrella document for this area. The Management Board passed the document in 2018 at the Group level. It was updated in 2020 and is to be reviewed and, if necessary, updated biennially. It is available in 29 languages on our corporate website or websites of our subsidiaries. National legislation and transparent business practices must be considered by subsidiaries. The code applies to every employee. It emphasises that all employees must endeavour to comply with ethical, uncorrupted, and legal conduct principles. The code outlines how to act in case of conflicts of interest. A conflict of interest exists when the personal interests of an individual affect or could affect the ability of an employee to carefully and objectively make decisions and carry out work to the benefit of Krka. A conflict of interest can also arise from an individual's involvement in entrepreneurial, scientific, political, or other associations. The basic principle employees must follow is making decisions in Krka’s interest. Under the code, employees must refrain from decision-making that has a risk of conflicts of interest attached to it. Education and Training on Corporate Compliance and Integrity 7 At the Krka Group level, we provide regular education and employee awareness on the importance of corporate compliance and corporate integrity. Employees take refresher courses every two years via eCampus, while Marketing employees also attend internal professional meetings. Refresher training was last completed in autumn 2021. Krka’s various departments examine customers, suppliers, and business partners. For now, we also manage risks related to corporate compliance and corporate integrity in this manner. New employees are informed accordingly at induction seminars and receive a printed copy of the code each. When a training course is completed, this is evident from lists of attendance or eCampus. Addressing Purported Irregularities 8 Any violation of Krka’s Code of Conduct, potential fraudulent, corruptive, or any other non-compliant action causing harm to Krka is handled in accordance with Directive (EU) 2019/1937 or the ensuing national legislation, and internally also with Rules on Fraud Prevention, Detection and Investigation. Employees can send reports of any purported irregularities to our publicly available address at [email protected]. Our subsidiaries with more than 250 employees have followed our example and set up their own channels. The compliance officer considers the reports, who in turn appoints a working team for each case separately by including experts on relevant issues. We look into each report carefully. We guarantee anonymity to reporters and safeguard them against any potential retaliatory measures. When a case is closed, we adopt corrective measures if necessary. 6 GRI GS 102-16 7 GRI GS 205-2 8 GRI GS 103-1, 103-2, 103-3, 205-3 2021 Annual Report – Business Report 27 Krka’s Code of Conduct entered into force on 1 May 2018. Since then, the compliance officer has received 64 reports for consideration to the public address ([email protected]), of that 15 in 2021; 25 in 2020; 10 in 2019; and 14 in 2018. We adopted relevant corrective actions with this regard to further improve our internal controls. Chief Compliance Officer A Chief Compliance Officer, whose autonomous and independent function is to monitor corporate integrity, is appointed at the Krka Group level. He liaises with Legal Affairs, employees from individual organisational units who provide advice on how to manage compliance in their respective areas, and a secretary. The Chief Compliance Officer informs the Supervisory Board on his activities through the Integrity Plan discussed by the body biennially. He reports to the Management Board on all undertakings once a year. Our subsidiaries with 250 or more employees employ their own compliance officers. In 2021, subsidiaries in the Russian Federation, Poland, Ukraine, Germany, and Terme Krka (Slovenia) had their own officers in charge of compliance. They report to Krka’s Chief Compliance Officer every quarter. Integrity Plan In 2020, based on good practice (Corporate Governance Code for State-Owned Enterprises), we drew up the Integrity Plan that describes risk in the areas of integrity, ethics, and compliance in business operations and proposes improvements. Updates to the plan are given every year. The plan commits us to constant improvements in compliance of operations in areas below. 2021–2022 Integrity Plan includes as follows:  Investments, acquisition of fixed assets, and execution of major maintenance works;  Purchase of raw materials;  Insider trading, shareholder relations;  Recruitment and human resource management;  Personal data processing;  Documentary-and-financial control, accounting processes, independence of internal and external auditors;  Fraud risk or non-compliance with corporate instructions in subsidiaries;  Marketing of prescription pharmaceuticals, non-prescription products, and animal health products;  Product sales;  Sponsorships and donations;  Gift receiving and giving;  Environmental management;  Use of information technologies;  Product quality;  Systemic risk related to integrity and compliance. The probabilities and consequences of adverse events are evaluated as low, moderate, or high. Individual risk is evaluated vis-à-vis of potential harm and the likelihood of it occurring. With respect to the risk level and established internal controls, further corrective actions are taken if necessary. Our subsidiaries in the Russian Federation, Poland, and Ukraine drew up their integrity plans in 2021, while our German subsidiary and Terme Krka (Slovenia) started preparing them in the same year. In 2021, no high risk was detected in connection with any area stated above. 9 Description of Code of Ethics Governing Interactions with Healthcare Professionals Our subsidiaries comply with national legislation and Krka’s Code of Promotion in marketing activities. Activities pursued by employees when marketing prescription pharmaceuticals are further detailed in Krka’s Code of Promotion, and 9 GRI GS 205-1 2021 Annual Report – Business Report 28 operational instructions for visits to healthcare professionals and professional meetings, education and training, and company visits. Cooperation with the healthcare community relates in particular to healthcare workers, healthcare organisations, patients, and patient societies. The said rules were last reviewed in 2020 and 2021, and have been translated to all official languages used in countries with Krka’s marketing network. The employees engaged in marketing activities receive information through eCampus, at internal cyclic meetings, and training courses for marketing employees. They learn about the rules stated above and sign a relevant statement. Management Approach to Non-Discrimination 10 The non-discrimination principles are set in two umbrella documents, Krka’s Code of Conduct and the Integrity Plan, an implementation document. We have so far not received any reports on purported discrimination based on race, colour of the skin, gender, religious or political conviction, nationality, or social origin. Contributions and Other Spending 11 In 2021 and over the past five years, Krka did not fund any political campaigns, political organisations, lobbyists, or lobbying organisations. The Krka Group companies are members of those advocacy groups, where their membership is obligatory or considered a common practice in the industry. 12 We regularly disclose any transfers of funds to healthcare professionals, healthcare providers, associations, and patient societies. We publish disclosures on our corporate website every year by 30 June for the past year. According to Item 6.18 of the Articles of Association, the Supervisory Board approves The Krka Group Development Strategy which serves as the umbrella document regulating sponsorships and donations. Activities are carried out in accordance with The Krka Group Sponsorship Manual governing sponsorships and donations. In accordance with our primary mission, ‘Living a healthy life.’, we allocate most of our sponsorships and donations to projects related to health and quality of life. We allocate most funds to sports, culture, healthcare, science, education and humanitarian actions. Please refer to section ‘Sustainable Development’ for further information in this regard. Human Rights in Business Operations 13 On 31 May 2019, Krka signed Commitment to Respect Human Rights in Business Operations instigated by the Ministry for Foreign Affairs of the Republic of Slovenia. The document was signed by 18 major Slovenian companies. At the state level, the issue is governed by National Action Plan of the Republic of Slovenia on Business and Human Rights. Contracts concluded by Krka with business entities currently do not include stipulations on human rights, but we are committed to honouring them by Krka’s Code of Conduct. We pursue all legal regulations and standards related to human rights in all countries where we operate. Human resources are referred to by the Integrity Plan, which is updated every year; the latest update was made in June 2021. 10 GRI GS 103-1, 103-2, 103-3, 406-1 11 GRI GS 103-1, 103-2, 103-3, 415-1 12 GRI GS 102-12, 102-13 13 GRI GS 102-12, 103-1, 103-2, 103-3, 412-3 2021 Annual Report – Business Report 29 Internal Audit Internal auditors discharge their duties in the Krka Group based on medium-term and annual work plans per the applicable rules (International Standards for the Professional Practice of Internal Auditing, Code of Ethics). In line with the 2021 work plan, seventeen regular internal audits were conducted using the COSO (Committee of Sponsoring Organizations of the Treadway Commission) methodology. This methodology is globally recognised and serves as the basis for comprehensive risk management monitoring. Internal auditors use these methods to assess the fulfilment of audit objectives in several categories: business operations, reporting, and regulatory compliance in each audit area. The following areas were subject to internal audits: sales, regional marketing, engineering, quality of sterile, semi-solid, solid and liquid dosage forms, human resource management, supply chain planning, regulatory affairs, health and safety at work, and information technology management in certain subsidiaries and specified processes. Regular internal audits were also conducted in several subsidiaries and representative offices in Slovenia and abroad. Moreover, internal auditors provided consulting services in line with the abovementioned standards. Internal auditors provided assurances that the applied systems of internal controls in the audited areas and processes had been established, had been in place and effective for achieving set objectives. However, there was room for improvement, so they made recommendations categorised by individual risk level and regularly verified their implementation. Internal auditors work with the Krka Supervisory Board and its Audit Committee and external auditors. In line with the Standards, Internal Audit was subject to three independent external quality audits. We received positive opinions. Internal Controls and Risk Management Relating to Financial and Tax Reporting 14 The Krka Group has established internal controls, i.e. guidelines and procedures that it implements at every level of operation to manage risks related to financial and tax reporting. Internal controls ensure the reliability of financial reporting and compliance with the applicable legislation and other internal and external regulations. The implementation of standard information systems in subsidiaries and the development of business information systems improve the efficiency in exchanging accounting data between the subsidiaries and the controlling company, and therefore also control of information. Accounting controls, including internal tax controls, are based on the principles of veracity and segregation of duties, transaction controls, updated accounting records, reconciliation of accounting balances and the actual balance, separation of record-keeping from payment transactions, professionalism of the accounting staff, and independence. The Krka Group Tax Strategy and Krka Group Tax Code of Conduct set out the policy, objectives, guidelines, and principles of tax management, including transfer pricing, based on principles and rules of ethical conduct and good business practices and standards of conduct, which are defined in Krka's Code of Conduct. The basic guidelines and principles that the Krka Group follows in the tax field are to: act in accordance with the legislation in the country in which we operate; settle tax liabilities voluntarily and on time; avoid risky tax decisions; to consider tax perspective when changes occur or when introducing new business models; monitor changes in tax legislation and continuously train employees involved in the tax process; work with tax authorities and ensure open, fair and constructive cooperation, and maintain a good partnership. All this should be ensured through the appropriate organisation and functioning of the Krka Group's tax function and clearly defined responsibilities. Accounting and tax controls are closely linked to information technology controls, which, among other things, ensure restrictions and the supervision of access to networks, data and applications and the completeness and accuracy of data capture and processing. Authorised external agents also verify the compliance of operations and the existence of the requisite controls within information systems on an annual basis. 14 GRI GS 207-1, 207-2, 207-3 2021 Annual Report – Business Report 30 We manage risks related to the consolidated financial statements of the Krka Group by directing the accounting activities and their supervision in the subsidiaries and by auditing the annual financial statements of all Krka Group subsidiaries. External Audit The audit firm Ernst & Young d. o. o., Ljubljana, audits the financial statements of the controlling company and the consolidated financial statements of the Krka Group. The external auditor reports audit findings to the Management Board, Supervisory Board, and the Audit Committee of the Supervisory Board. Transactions between Krka and the audit firm Ernst & Young d. o. o., Ljubljana, and transactions between the Krka Group companies and individual audit firms are disclosed in the 'Notes to the Financial Statements' section, item 'Transactions with the Audit Firm'. 2021 Annual Report – Business Report 31 Composition of Supervisory Board of Krka as at 31 December 2021 15 Name and surname Jože Mermal Borut Jamnik Matej Lahovnik Julijana Kristl Boris Žnidarič Mojca Osolnik Videmšek Franc Šašek Mateja Vrečer Tomaž Sever Function President Member Deputy President Member Member Member Deputy President Member Member First appointed 2015 2017 2020 2010 2016 2019 2009 2005 2005 Term of office until 2025 2022 2025 2025 2025 2024 2024 2024 2024 Representative of Shareholders Shareholders Shareholders Shareholders Shareholders Shareholders Employees Employees Employees Attendance at meetings 6/6 6/6 6/6 6/6 6/6 6/6 6/6 6/6 6/6 Gender Male Male Male Female Male Female Male Female Male Citizenship Slovenian Slovenian Slovenian Slovenian Slovenian Slovenian Slovenian Slovenian Slovenian Year of birth 1954 1970 1971 1953 1948 1966 1967 1966 1967 Education and qualifications University degree in economics University degree in mathematics PhD in economics PhD in pharmaceutical sciences PhD in social sciences and master’s degree in law University degree in economics University degree in organisational sciences PhD in pharmaceutical sciences University degree in mechanical engineering and master’s degree in management and organisational sciences Independent according to Corporate Governance Code for Listed Companies Yes Yes Yes Yes Yes Yes Yes Yes Yes Conflict of interest in the financial year In 2021, no permanent or relevant conflicts of interest were identified in respect of any Supervisory Board member. Statements of independence are published on the Company’s website. Committee membership No President of the Audit Committee Member of the Audit Committee Member of the Human Resource Committee President of the Human Resource Committee Member of the Audit Committee Member of the Audit Committee Member of the Human Resource Committee Member of the Human Resource Committee Attendance at regular committee meetings No 6/6 6/6 4/4 4/4 6/6 6/6 4/4 4/4 Membership of supervisory bodies of other companies Members of the Supervisory Board, especially representatives of shareholders, have seats on supervisory or management boards of other companies, but not to the extent that would influence their work on the Supervisory Board of Krka. They comply with the provisions of the Companies Act. ESG competencies Received several awards for his visionary entrepreneurship as well as activities in culture, sports, education, and the humanitarian field Long-time president of the Slovenian Directors’ Association; made a key contribution to the development of the area and practice of corporate governance Authored and co-authored many scientific papers on strategic management and has extensive international experience in economic policy- making and governance Long-time professor and dean at the Faculty of Pharmacy; extraordinary achievements include developing and establishing pharmaceutical nanotechnology in Slovenia as well as researching and lecturing on affordable treatment University lecturer in social sciences with many years of leadership experience in an international insurance company, primarily in human resource management and talent attraction and retention Leadership experience in banking, risk management, compliance, and corporate governance support Active in the field of employee inclusion and participation in management for many years (President of Krka's Works Council) Experience in the field of quality (head of quality management at Krka); elected to the Supervisory Board as an employee representative Leadership and organisational experience in the field of responsible sales (Deputy Director of Sales at Krka); elected to the Supervisory Board as an employee representative 15 GRI GS 405-1 2021 Annual Report – Business Report 32 External Members of Committees as at 31 December 2021 Audit Committee Name and surname Borut Šterbenc Function Independent external expert of the Audit Committee in accordance with Article 280 of the Companies Act Attendance at meetings 6/6 Gender Male Citizenship Slovenian Year of birth 1978 Education and qualifications Holds a university degree in economics with experience in planning, leading, and conducting complex audits; is a certified auditor and registered as such with the Agency for Public Oversight of Auditing Independent according to the Corporate Governance Code for Listed Companies Yes Membership of supervisory bodies of other companies Member of the supervisory board of Pokojninska družba A, d. d ESG competencies Transparency in terms of reporting and business operations; is a certified auditor 2021 Annual Report – Business Report 33 Composition of the Management Board as at 31 December 2021 16 Name and surname Jože Colarič Aleš Rotar Vinko Zupančič David Bratož Milena Kastelic Function President Member Member Member Member, Worker Director Area of work in the Management Board Marketing, sales, human resources, investments, public relations, legal affairs, new products to a certain extent, certain administrative services Research and development of finished products, new products, quality management, health and safety at work API R&D and production, supply chain management Corporate performance management, finance, information technology, relations with trade unions and the works council, certain administrative services Acts as a workers’ representative and represents their interests in human resource and social issues First appointment to the Management Board 1997 2001 2010 2016 2016 Duration of current term of office Until the end of 2021, followed by a new six-year term of office for all current members Gender Male Male Male Male Female Citizenship Slovenian Slovenian Slovenian Slovenian Slovenian Year of birth 1955 1960 1971 1976 1968 Education and qualifications University degree in economics PhD in pharmaceutical sciences PhD in pharmaceutical sciences University degree in economics University degree in food technology Membership of supervisory bodies of non-related parties No No No No No ESG competencies Many years of leadership experience; numerous awards for running a large company; an outstanding reputation as a good businessman; under his leadership, Krka developed into one of the leading international generic pharmaceutical companies Knowledge of and extensive experience in development and production of quality products for accessible healthcare (managing development, research, pharmaceutical production, new products) Supply chain management, contributed to uninterrupted supply of medicines in markets and a resilient and flexible vertically integrated business model Head of the ESG expert team at Krka; contributed to the development of the local community (Krka's societies); contributed to tax and reporting transparency (responsible for the relevant organisational unit) Effective representation of workers' interests with regard to human resource and social issues as well as health and safety at work Independence Yes. Members' independence is assessed upon their appointment. Under the Rules of Procedure of the Management Board, the members must immediately disclose any conflicts of interest. The Rules of Procedure of the Management Board propose measures to manage such conflicts. The composition and amount of remuneration of the Management Board members are disclosed in the section ´Related Party Transactions' 16 GRI GS 405-1 2021 Annual Report – Business Report 34 Corporate Governance Code Compliance Statement In 2021, Krka's code of reference was the Slovenian Corporate Governance Code for Listed Companies (hereinafter: the Code), adopted on 27 October 2016 by the Ljubljana Stock Exchange and the Slovenian Directors' Association. The Code was valid from 1 January 2017 to 31 December 2021 and is available on the Ljubljana Stock Exchange website. On 1 January 2022, a new version of the Code entered into force. The Management Board and Supervisory Board of Krka, tovarna zdravil, d. d., Novo mesto hereby declare that in 2021 individual members of the Management and Supervisory Boards and the Management and Supervisory Boards as bodies of a listed company acted in compliance with the principles and recommendations of the Code. Some of the recommendations were not implemented in full. However, we have always endeavoured to implement these recommendations and find appropriate ways of doing so. Individual derogations from the Code valid until the end of 2021 are explained below. In the context of self-assessment, the Supervisory Board can establish an annual training plan for its members and determine indicative training costs. In 2021, no proposal for additional training was made, so the plan was not adopted (Item 13.1 of the Code). Supervisory Board members themselves evaluate the board's performance by thoroughly following the methods and Supervisory Board Assessment Manual prepared by the Slovenian Directors' Association. The evaluation process was carried out professionally and objectively. As there was no need for external professional support in 2021, an external assessment of the Supervisory Board's performance in collaboration with a specialised institution or other experts was not carried out (Items 14.2 and 14.4 of the Code). Internal Audit of Krka monitors the procedures related to corporate governance to the extent required by International Standards for the Professional Practice of Internal Auditing. Krka's Rules of Procedure of the Supervisory Board stipulate that the President of the Supervisory Board has two deputies: a shareholder representative and an employee representative. This is necessary to ensure the inclusion of employee representatives in the most important activities of the bodies. The Rules of Procedure of the Supervisory Board state that the shareholder representative is first to assume the duties of the President, and only in the absence of the former does the employee representative assume this role. This ensures we do not deviate significantly from the Code, which stipulates that only a shareholder representative may act as Deputy President of the Supervisory Board (Item 15.4 of the Code). In 2021, Krka's 'Corporate Governance Statement' was reviewed by an external auditor as part of the regular audit. An additional external assessment of the statement's adequacy was not performed (Item 5.7 of the Code). Krka does not list any association of members of the Management and Supervisory Boards with any governance or supervisory bodies of non-related companies in the uniform tables (Attachments C1 and C2 to the Code in force at the time) in the 'Corporate Governance Statement' section of the 2021 Annual Report of Krka. The information is included in members' CVs, which also state their managerial functions and duties (Items 5.5. and 29.5 of the Code). Data from Attachments C3 and C4 to the Code on composition and remuneration amounts are almost entirely disclosed in accordance with the recommendations of the Code (Items 5.6 and 29.7). Only for the purposes of year-on-year comparability, the Company discloses them in the same manner as before the Code entered into force, i.e. in the 'Related Party Transactions' section of the financial report. The variable amount of the salaries is always paid in two parts. The first part is paid according to the interim results. The second after the Supervisory Board confirms the annual report at their meeting, always together with the monthly salary for the following month (Item 21.2). The Supervisory Board updated the criteria for the variable part of the Management Board remuneration in 2012, 2014, 2016, and 2018, when this was necessary due to additional duties of the Management Board arising either from the business strategy, change of business environment, or remuneration trends. However, the criteria were not determined every year in exactly the same way as stipulated by Item 12.10 of the Code, as the manner described above is better suited to the actual needs of the Supervisory Board for monitoring the work of the Management Board, which is related mainly to the biennial renewal of the strategy. The Rules of Procedure of the Management Board stipulate that members of the Management Board may become members of supervisory boards of non-related companies only after they inform the Company's Supervisory Board 2021 Annual Report – Business Report 35 accordingly and obtain the Supervisory Board’s consent. This is a partial derogation from Article 19.6 of the Code, which addresses all companies, not only the non-related ones. Krka publishes contact details for investors and the public on its website, but not the names of individuals (Item 28.2 of the Code), as several persons are in charge of various areas. The Company also published the Rules of Procedure of the Supervisory Board. In the 2021 'Corporate Governance Statement', Krka disclosed the composition, competences, and other aspects concerning the operation of its bodies, and thereby all essential information on corporate governance. No other operational documents were published in 2021 (Item 29.9 of the Code). According to the Code (Item 25.3), a company should replace the external auditor at least once every seven years. Following a motion of the Audit Committee and the Supervisory Board, the AGM of Krka appointed the current auditor for another three-year term. Therefore, the same external auditor will audit Krka's business operations for more than seven years, i.e. ten years, which is the maximum duration of an audit engagement permitted by law. However, the audit firm did replace the audit partner and the coordinator responsible for audit performance in compliance with International Auditing Standards. Two members of the Supervisory Board, i.e. employee representatives, could be regarded as members of the expanded management according to certain criteria (Item 11 of the Code). This is despite the fact that they cannot independently make decisions regarding allocations of financial resources and employment and cannot fully plan the strategy for their respective work areas. Krka also complied with more than half of provisions of Best Practice for GPW Listed Companies 2021, i.e. the code relating to companies listed on the Warsaw Stock Exchange. The discrepancies are explained in a separate document published in the dissemination system of the Warsaw Stock Exchange. Novo mesto, 28 March 2022 Jože Colarič President of the Management Board and CEO Jože Mermal President of the Supervisory Board 2021 Annual Report – Business Report 36 Signing the Governance Statement and Its Constituent Parts Jože Colarič President of the Management Board and CEO dr. Aleš Rotar Member of the Management Board dr. Vinko Zupančič Member of the Management Board David Bratož Member of the Management Board Milena Kastelic Member of the Management Board – Worker Director 2021 Annual Report – Business Report 37 Non-Financial Statement The Management Board of Krka, tovarna zdravil, d. d., Novo mesto hereby declares that Krka adheres to the policies of the Krka Group relating to the social sphere and human resources, respect for human rights and diversity, anti-corruption and anti- bribery management, and the environment. The Krka Group operates in accordance with the business model presented in the 'Krka Group Business Model' section and also monitors its own placement in various environments. Further information is available in the ‘Risk Management’ section. Krka is committed to high ethical standards. The Krka Code of Conduct includes principles and rules of ethical conduct, as well as good business practices and standards of conduct in the Group, which are binding on all Krka employees. The Code is also the basis for all other Krka's internal rules. The guiding principle is to act in accordance with the highest moral standards, principles governing honesty, loyalty, and professionalism, and consistent compliance with regulations and guidelines provided by international organisations for the pharmaceutical industry, and with Krka's bye-laws. The Code is published on the Krka website. All business partners are familiar with the Code, and we expect them to adhere to it when doing business with Krka. The Krka Group places strong emphasis on the social sphere and human resources. We realise that employees and their knowledge, experience, and cooperation are key to achieving the planned results of the entire Krka Group. Our success depends on employees’ commitment, good and constructive relationships, as well as contemporary and stable management methods which guide our employees towards efficiency, proactivity, improvement, and development, and thus uphold Krka values. We try to make our overall operations reflect responsibility towards employees, the environment, and stakeholders. Krka values guide us when setting objectives, achieving results, and working with employees, as well as in managing them and developing their potential. Together, we encourage a culture of mutual trust, respect, cooperation and teamwork, lifelong learning, and responsible, efficient, and sustainable work. Krka employees are known to be loyal, innovative, flexible, diligent, and focused on achieving business objectives and results of the Krka Group. For further information, please see sections 'Employees' and 'Corporate Social Responsibility'. We provide a safe and healthy working environment and regularly adopt measures to reduce and eliminate potential health and safety risks. We adhere to all regulations and bye-laws related to health and safety at work. Smoking is prohibited at all Krka sites. We respect human rights as defined in internationally recognised principles and guidelines. We operate in accordance with all regulatory requirements and standards relating to human rights in all countries where Krka operates. We respect the dignity, personal integrity, and privacy of each individual. We also respect the freedom of speech and expression of opinions, and always treat others with respect. We communicate openly with our employees, regardless of their professional qualifications and leadership position. All forms of unfair and unauthorised work are prohibited. Any discrimination against employees is prohibited. We treat all employees equally, regardless of their nationality, race or ethnicity, national or social origin, gender, colour, medical condition, disability, religion or belief, age, sexual orientation, family status, trade union membership, financial standing, or any other personal circumstance. Any form of harassment and ill-treatment in the workplace is prohibited. We provide adequate working conditions and an open and creative working environment. Our working environment is free from any psychological pressure, sexual or other harassment, or ill- treatment by other employees, superiors, or third parties. All employees are required to refrain from any inappropriate action that would threaten the dignity of another person. Any employee may report mobbing to the relevant company officer. Krka's diversity policy applies the principle of integration and equal opportunities also in respect of the composition of the supervisory and management bodies, among others. In 2020, the Management and Supervisory Boards adopted document 'Diversity policy', which is available to the public, in line with the recommendations of the Slovenian Directors' Association. See also 'Corporate Governance Statement', subsection '2021 Management and Supervisory Board Diversity Policy'. The Rules on Fraud Prevention, Detection and Investigation, which are available to the public, govern the prevention of fraud and corruption, measures to combat it, and the responsibility of employees in its detection. Krka applies the principle of zero tolerance with regard to fraud and corruption prevention, and corporate compliance. This means that no unethical, unprofessional, or unlawful conduct on the part of employees and business partners is allowed. We do not exploit Krka business opportunities, its assets, and information for personal, commercial, or third-party gain. We do not promise any benefits and do not give gifts to influence the decisions of national authorities, public officials, business partners, or other entities, nor do we accept gifts or any other benefits that may influence our decisions in relation to our work. We ensure that persons who have access to inside information are aware of the confidentiality levels and sensitivity of such information. We have bye-laws governing trading in the Krka’s financial instruments, and we have oversight mechanisms in place for employees and third parties that handle such information. This gives us a platform to prevent potential abuses and insider trading. Periodic restrictions are in place for all persons with access to inside information, during which time they are prohibited from trading in Krka's financial instruments. You can find more on this topic in the Krka Code of Conduct and 'Corporate Governance Statement', subsection 'Corporate Compliance and Integrity'. In 2021, no cases of corruption were detected or confirmed. 2021 Annual Report – Business Report 38 We safeguard the environment and respect environmental regulations, while working in tandem with the local community and beyond. Our commitment to preserving the natural environment is set out in our environmental policy, and thereby we undertake to safeguard the environment in accordance with the newly issued ISO 14001:2015 standard, and to prevent or reduce our environmental impact to the largest extent possible. More information is available in the 'Natural Environment' section. As a public limited company with more than 500 employees, Krka is subject to the EU Taxonomy Regulation (EU) 2020/852 on the establishment of a framework to facilitate sustainable investment and is committed to complying with all the applicable rules and regulations. We examined the economic activities that qualify as contributing to the environmental objectives set out in the Regulation. Based on our current understanding, available data and assessment of requirements, we believe that none of our key activities belongs to one of the categories defined in the Annexes on EU taxonomy technical screening criteria and substantially contribute to climate change mitigation or adaptation. The Regulation and the issued delegated acts contain references and definitions that are currently still under interpretation and for which adequate explanations have not yet been published. We cannot exclude the possibility that substantial contributions of specific activities to EU taxonomy might be identified in the near future. As this Regulation is subject to further amendments, we will continue to take account of its impact and the reporting obligations it imposes. The non-financial risks faced by the Krka Group are addressed in the 'Risk Management' section, and non-financial indicators and results of the aforementioned policies under the 'Sustainable Development' section. The Krka Group's sustainability culture is an integral part of our current 2022–2026 group development strategy. We want to further integrate sustainability aspects in corporate governance and business decisions, and maintain accountability in terms of economics, society, and nature in all environments where we operate. The 'Corporate Governance Statement', subsection 'Corporate Compliance and Integrity' describes our activities in the following areas: corporate compliance and integrity, education and training on corporate compliance and corporate integrity, addressing purported irregularities, the role of Chief Compliance Officer in the Company, integrity plan, management approach to non- discrimination, and human rights in business operations. Jože Colarič President of the Management Board and CEO dr. Aleš Rotar Member of the Management Board dr. Vinko Zupančič Member of the Management Board David Bratož Member of the Management Board Milena Kastelic Member of the Management Board – Worker Director 2021 Annual Report – Business Report 39 Krka Group Development Strategy 17 The current Krka Group development strategy covering the five-year period from 2022 to 2026 was prepared by the Management Board and approved by the Supervisory Board of Krka in November 2021. The strategy focuses on maximising added value for the Krka Group and investors and covers all areas of operation within the Krka Group, especially its core pharmaceutical and chemical activities. The strategy views the Krka Group as an international company since it operates through subsidiaries and representative offices abroad and cooperates with partners wherever it is present. It regards all business processes within the Krka Group, from development and production to marketing and sales, including all support processes. The Krka Group updates its development strategy every two years. The next update is planned for autumn 2023. The development strategy builds on the mission, vision, and values of the Krka Group. 18 Mission, vision, and values MISSION Living a healthy life. VISION We are continually consolidating our position as one of the leading generic pharmaceutical companies in the world. VALUES Speed and flexibility Partnership and trust Creativity and efficiency The development strategy is based on an in-depth analysis of Krka's position in the global generic pharmaceutical industry. The strategy outlines the originator and generic pharmaceutical industry characteristics, growth projections for the generic market, and Krka's position in the international generic pharmaceutical industry. These aspects were considered in identifying possibilities and opportunities for further development and independent existence in the future. In addition to these starting points, the strategy comprises three different sections: the strategy and objectives at the Krka Group level, objectives by regions and territories with a product range strategy, and strategies of individual business functions and processes. It also includes a draft development, financial, and investment business plan. The strategy also considers risk management, which is incorporated in all Krka Group business processes. Risk management is based on the Risk Register. The Risk Register provides a comprehensive overview of risks at the Group level and is designed to promptly identify and manage factors that could derail the objectives defined in the development strategy. Every time the strategy is updated, the Risk Register is updated as well. Further information on risks is available in the ‘Risk Management’ section. The strategy also outlines the Krka Group’s focus on sustainability and reinforces our commitment to further integrate sustainability aspects into corporate governance and business decisions and thereby maintain our economic, social and environmental responsibility to the environment in which we operate. Strategic objective success is measured against performance criteria established at three levels: the Krka Group, product and service groups, and business functions. The Group’s performance criteria are monitored by the Management Board, while criteria at the level of product and service groups and business functions are monitored by the relevant committees (Sales Committee; Development Committee; Economics and Finance Committee; Information Technology Committee; Human Resource Committee; Quality Committee; and Corporate Identity Committee). The guiding principle in managing the system of criteria is to increase the competitiveness of the Krka Group as a whole and of individual companies within the Group. In order to maintain and improve the Krka Group position in an international context, we use all external opportunities and, as much as possible, all internal advantages, especially the coordinated and synergistic functioning of organisational units within the Krka Group and efficient management of all partnerships in the value-added chain. 17 GRI GS 103-1, 103-2, 103-3, 18 GRI GS 102-16 2021 Annual Report – Business Report 40 Key Strategic Objectives of the Krka Group up to 2026 To attain at least 5% average annual sales growth in terms of volume/value, achieve above-average sales growth against market dynamics, and remain or rank among the leading generic pharmaceutical companies with our brands in individual markets and selected therapeutic categories. To strengthen and optimise the vertically integrated business model, proven to be an effective strategic guideline and a comparative advantage. To ensure high standards of product quality, safety, and efficacy. To keep the focus on maximising the long-term profitability of the products sold from development and production to sales of finished products, including all other functions within the Krka Group, and to achieve an average EBITDA margin of at least 25%. To ensure that new products and vertically integrated products account for the largest possible proportion in total sales in addition to the existing range of products, also referred to as ‘the golden standard’. To enter new therapeutic categories and specialities as an innovative generic pharmaceutical company and develop complex products, including biosimilars. To ensure growth through long-term partnerships and targeted acquisitions in addition to organic growth. The primary goal is to increase sales by entering new markets and adding new products. To allocate 10% of revenue to research and development and an approximate amount of calculated amortisation, i.e. €110 million annually on average, to investments. To pursue a stable dividend policy and consider the Group's financial requirements for investments and acquisitions when determining the net profit share for dividend payout each year, and to allocate at least 50% of net profit of majority shareholders for dividends. To upgrade the Krka Group’s sustainability culture, integrate sustainability aspects into corporate governance and business decisions, and maintain our economic, social and environmental responsibility to the environments in which we operate. To disclose sustainability topics in accordance with the GRI standards in 2022 and obtain an ESG rating in 2023. To exploit digitalisation potentials in all business phases. To maintain independence. Key Strategic Guidelines of the Krka Group up to 2026 Markets To consolidate and strengthen our presence in our traditional markets of Regions East Europe, South-East Europe, Central Europe, and Slovenia and bolster our presence in the Region West Europe and in Asian markets. To maximise sales potential in all six sales regions and to focus primarily on key markets (the Russian Federation, Poland, Ukraine, Germany, Slovenia, Romania, Hungary, the Czech Republic, Slovakia, and Croatia), key customers, and key products. To strengthen our position as one of the five leading generic pharmaceutical companies in all our traditional markets, which involves strengthening our sales and market shares, especially in therapeutic categories and molecules with a traditionally strong Krka’s presence (cardiovascular system, central nervous system, gastrointestinal tract, and pain relief), and in categories with a high growth potential (diabetes and oncology). To enhance the visibility of Krka (Krka and TAD brands) and our market position in markets of the Region West Europe through our subsidiaries and unrelated partners and to strengthen our position as one of the ten leading generic pharmaceutical companies in all western European markets. To market our products under our brand names in the Region Overseas Markets through partnerships with unrelated parties and through our companies. To continue product registration and sales activities and win tenders in China through direct presence in the market. Products To enter the segment for complex generic products. To introduce innovative products in key therapeutic areas, namely combinations, new strengths, dosage forms, and delivery systems. To expand the range of sterile dosage forms. To asses specific projects on biosimilars with strategic partners in European markets and to assume a central role in regulatory affairs, sales and marketing in these projects. To prioritise therapeutic areas of diabetes and diseases of the immune system. To extend the range of non-prescription products not affected by seasonal demand. To supplement the portfolio with products that complement key therapeutic areas as regards prescription pharmaceuticals. To focus on markets of Regions East Europe, Slovenia, and South-East Europe. To focus on companion animal products – the most promising segment in animal health – accounting for more than 60% of animal health sales. To extend the range of antiparasitics and pain relief medicines with dermatologicals and cardiovascular agents. To maintain the range of products for farm animals. To focus on our key markets and all markets in Region West Europe and to assess entry to the US market. Development and manufacture of products and quality To strengthen cost-effective vertical integration, from product development, through production and to sales. 2021 Annual Report – Business Report 41 To develop generic medicines and prepare relevant registration documents before data protection expires and obtain marketing authorisations before the product patent or marketing protection expires to be one of the first generic entrants. To ensure cost competitiveness and manage further sales growth of established products under lifecycle management principles while taking into account new regulatory requirements on safety and quality of medicines and obtaining additional marketing authorisations for new markets. To manage the development and production of vertically integrated active ingredients manufactured at Krka and our contractual partners using our own technological processes and provide sufficient quantities of high-quality and cost-competitive active ingredients to be incorporated in our finished products. Investments and financial stability To invest in production, development, and infrastructure facilities in a stable and optimal manner. To actively seek opportunities for further sales growth by entering new markets and increasing market shares in selected existing markets through acquisitions of pharmaceutical companies, products and technologies, and long-term partnerships. To reduce the impact of financial risks on the Krka Group operations, especially credit and currency risks. To ensure transparent reporting and provide up-to-date information to investors and financial community and improve the visibility of Krka’s business model, strategic guidelines and financial results to enhance the appeal of Krka share to shareholders and investors. Digitalisation of operations To further pursue digitalisation of business operations, manage information technology efficiently and in compliance with regulatory standards, and ensure high availability and information security of the implemented IT solutions. International group accountable to its business environment To strengthen professional and cost synergies within the Krka Group and maximise the utilisation of competitive advantages in the business environments of Krka subsidiaries abroad. To ensure personnel are appropriately qualified by providing continuous training to employees throughout their careers at Krka. To strengthen internationalisation within the Krka Group by managing employee potential in an international environment and ensure the activation of all human resource potentials to attain strategic and operational goals of the Group. To effectively identify and manage sustainability risks and opportunities to strengthen Krka’s competitive advantages and maintain its long-term ability to achieve strategic goals and creating value for stakeholders. To enhance the visibility and positive image of the Krka Group with all stakeholders. To ensure high levels of business ethics, integrity, transparency, and corporate and business compliance. Objectives by Markets To strengthen the reputable and well-known Krka brand in Krka’s traditional markets (Regions Slovenia, South-East Europe, Central Europe, and East Europe) among general practitioners, selected specialists and pharmacists, and to continue to market the majority of products under our own brand names. To build reputation and recognition among target groups of specialists, to whom medicines from new therapeutic areas will be presented. To strengthen the recognition of Krka (Krka and TAD brands) as well as its market position in the Region West Europe, primarily through subsidiaries and unrelated partners. To take advantage of the potential of the current range of products, expand the product range in the existing therapeutic areas while entering new therapeutic areas, and strengthen our position with pharmacists and selected target groups of doctors. To market Krka products under our own brands, enter new markets by acquisitions and establishing specialised local joint ventures in which Krka has the majority share (marketing authorisations, marketing, etc.), and continue with marketing through unrelated partners in the Region Overseas Markets. Product and Service Portfolio Prescription pharmaceuticals To retain cardiovascular diseases, the central nervous system, the gastrointestinal tract, and pain relief as the key therapeutic areas. To add diabetes to our key therapeutic areas. To introduce innovative products, in addition to generic products, in the market of leading medicines (innovative combinations, new strengths, dosage forms, and delivery systems) in the key therapeutic areas. To supplement the range of (double or triple) combinations for the treatment of high blood pressure, heart failure, and pain relief. To supplement the portfolio of medicines for antiaggregant and anticoagulant therapy and oncology medicines with new products. To continue entering into the therapeutic area of autoimmune diseases. To launch the first medicines for the treatment of multiple sclerosis and assess possible entry into the therapeutic areas of rheumatic diseases and diseases of the alimentary tract. To provide a wide range of medicines from other therapeutic areas with our products or products of unrelated partners (third parties). 2021 Annual Report – Business Report 42 To expand our portfolio of medicines by entering the segments of complex peptides and biosimilars. To launch products from new therapeutic areas in several Krka markets. To provide key sales products through the vertically integrated business model. To ensure cost competitiveness and profitability of key sales products by optimising formulations and technological procedures and manufacturing products cost-effectively. To ensure formulation and procedure optimisation and cost competitiveness of new products from the launching phase. To launch products with higher sales potential among the first generics – right after patent expiry. To adapt the registration of medicinal products and their names (brands and names consisting of international non-proprietary name and marketing authorisation holder, INN MAH) to market situations and regulatory requirements. To launch at least one medicine with high sales potential and several medicines with less considerable sales potential every year. To launch at least one medicine with high sales potential on each key market every year. Non-prescription products To retain medicines for pain relief, products for the gastrointestinal tract and metabolism, cough and cold remedies, and vasoprotectives as our key therapeutic areas. To supplement the umbrella brands of medicines for pain relief, cough and cold remedies, and vasoprotectives with products with new ingredients and dosage forms. To supplement our portfolio with products related to key therapeutic areas of prescription pharmaceuticals, with products that can be switched from prescription to non-prescription status (synergy in promotion), and products from other or new categories with marketing potential. To search for new products of unrelated partners (third parties), which are promising and have appropriate economic value. To focus on markets in sales regions East Europe, Slovenia, and South-East Europe. Animal health products To retain products for companion animals (antiparasitics and medicines for pain relief) as our key therapeutic area. To supplement the product range for companion animals with dermatologicals and medicines for the treatment of cardiovascular diseases. To expand the product range for companion animals with new combinations, dosage forms, and technologies. To maintain the existing range of products for farm animals. To focus on markets in Region West Europe and selected traditional markets and consider possible entry into new markets. Health resorts and tourist services To deliver at least 3% average revenue growth per year and increased profitability. To ensure that foreign visitors account for one-third of total visitors. To retain the leading market share among Slovenian natural health resorts in healthcare services. Delivering on Krka Group Objectives in 2021 In 2021, the Krka Group sales revenue amounted to €1,565.8 million (of which revenue from contracts with customers on sales of products and services reached €1,560.3 million, while revenue from contracts with customers on sales of materials and other sales revenue constituted the difference), up 2% on 2020 and 2% more than planned. Regional dispersion of sales among Regions Slovenia, East Europe, West Europe, Central Europe, South-East Europe, and Overseas Markets is good. The largest sales region was Region East Europe. The Russian Federation remained the largest individual market. The proportion of sales in markets outside Slovenia amounted to 94% as planned. Prescription pharmaceuticals were the most important product group in terms of sales, accounting for 84% of total sales, which is in line with our plans. Net profit of €308.2 million was higher than planned. The number of the Krka Group employees was 1% lower than at the end of 2020. Krka Group Business Objectives for 2022 Sales of products and services are expected to reach €1.610 billion. The proportion of sales in markets outside Slovenia is estimated at 94%. Prescription pharmaceuticals are set to remain the most important product group, composing 84% of overall sales. Profit is planned at approximately €300 million. The total number of employees in Slovenia and abroad is projected to increase by 2%. We plan to allocate €130 million to investments, primarily for expanding and modernising production facilities and infrastructure. 2021 Annual Report – Business Report 43 Sustainability Management of the Krka Group We have introduced sustainability criteria in the management of Krka Group to contribute to its improved business performance in the 2022–2026 strategic period. We aim to make progress and increase the value of the Krka Group as a whole through a comprehensive sustainability management process. At the beginning of 2021, the Member of the Management Board David Bratož was designated as the responsible person for sustainability and integration of the ESG system into business and Finance as the dedicated body to integrate ESG topics into the strategy. Its tasks will be transferred to a new body, which will address ESG aspects at the Group level and operate under the umbrella ESG policy. An interdisciplinary sustainability project team has also started on its work. At strategic meetings, management teams of all organisational units discussed the sustainable management model. An upgrade of sustainability aspects of governance was identified as a strategic objective, which will be considered in updated relevant policies and a more comprehensive set of performance indicators. Materiality Assessment 19 The interdisciplinary sustainability project team conducted a comprehensive process of updating the list of our stakeholders and identifying material ESG topics of the Krka Group. Following a resolution, the Management Board approved the identified topics. Their boundaries were verified in structured discussions with representatives of key stakeholder groups, where we examined their understanding, assessment, and expected disclosures. The outcomes will help us to improve the system. Key Stakeholders Patients Health professionals, healthcare providers and direct customers Employees, prospective employees, and trade union organisations Regulatory agencies/bodies and government organisations Educational and scientific research institutions Shareholders, financial institutions and other capital market stakeholders Strategic partners and suppliers Local communities and non-governmental organisations Media Professional associations and interest groups Material ESG Topics We identified material ESG topics and divided them into seven groups, which we will regularly verify and update. We considered the interests and expectations of key stakeholders about the industry and the Krka Group, regulatory requirements, requirements of professional guidelines and standards, media analyses, future risks, and opportunities related to the environment, society and governance. We used the collected information as the basis for a double materiality matrix, presented in more detail in the ‘Sustainable Development’ section. Groups of Material ESG Topics of the Krka Group Product quality and patient safety Talent attraction and retention Accessible healthcare Good leadership and governance practices Compliance, integrity and transparency Planet and climate change Economic impact and taxes 19 GRI GS 102-46 2021 Annual Report – Business Report 44 Macroeconomic Forecast for 2022 Dispersed international operations and a vertically integrated business model ensure stable performance of the Krka Group despite different macroeconomic situations in individual key markets. In 2020, following several consecutive years of favourable macroeconomic trends, economic activity slowed due to pandemic-related restrictions. The economy recovered in 2021. In 2020, governments and central banks passed measures to stimulate economic growth and mitigate the negative impact of the pandemic. This continued in 2021 and is expected to continue in 2022. Inflation increased rapidly in 2021. Its acceleration surpassed expectations and reached the highest levels in the last ten years. Inflation is projected to start easing in 2022. Following increased volatility of exchange rates and uncertainty in the financial markets in 2020, the macroeconomic situation stabilised in 2021. Due to the situation in Ukraine and the Russian Federation, the volatility of exchange rates is expected to increase in 2022. Measures to limit the spread of the pandemic and stimulus measures to aid economies of individual countries adopted throughout 2021 were disproportionate. Amid the resumption of economic activity and improvement of macroeconomic trends in 2021, expectations for the upcoming years are moderately optimistic. Forecasts of the European Commission and international banks indicate that the macroeconomic situation in our sales markets should improve in 2022. However, the 2022 macroeconomic forecasts for our target markets are more encouraging, because they were prepared before the outbreak of the complex situation between Ukraine and the Russian Federation that started in February 2022 and could affect business situation in certain countries of the Region East Europe and also elsewhere. 2022 Macroeconomic Forecasts Country Pharmaceuticals market growth (%) Projected value of pharmaceutical market at wholesale prices (million) FX rate (currency/€) Slovenia 7 €850 Eurozone Croatia 8 €1,500 7.5 Romania 7 €4,500 5.0 Poland 4 €6,900 4.6 Hungary 4 €2,940 365 Czech Republic 6 €3,200 25.5 Slovakia 5 €1,550 Eurozone Western Europe 3 €263,000 Primarily Eurozone China 4–7 $150,000 7.4 Sources (pharmaceutical market forecasts): internal estimates. Sources (foreign exchange rates): bank reports, internal estimates. Slovenia With the removal of most restrictions, Slovenia’s economy grew substantially by 6.9% in the first half of 2021 compared to the same period in 2020, exceeding pre-pandemic levels of 2019. All supply and demand components also increased compared to 2020. Strong economic growth is expected to continue in the remainder of 2022 and 2023 mainly due to consumption and investment growth. The economy is expected to continue growing strongly in 2022 and 2023, by 3.8% and 3.6%, respectively. High public expenditure is projected to hinder a stronger improvement in public finances. Public consumption growth is forecast to be moderate. However, public investments are expected to grow rapidly thanks to the availability of European Structural Funds and the Recovery and Resilience Facility financing. Inflation in 2021 was 4.9%. It is projected to exceed 2% in 2022 before stabilising under 2% in the following years. The general government deficit in 2021 was 7.2% of GDP. Negative impacts of the pandemic on unemployment were short-lived due to measures to support economic activity. Unemployment increased in 2020 and decreased to 4.6% in 2021. Unemployment is projected to decline in 2022 and 2023, reaching 4.5% in 2022 and settling at 4.4% in 2023. Labour shortages are poised to become a limiting factor to the economic growth over the forecast horizon. In 2021, public debt decreased to 77.7% of GDP. It is projected to further decrease to 76% of GDP by 2023. 2021 Annual Report – Business Report 45 In 2022, we estimate the sales value of pharmaceuticals at €850 million, or 7% more compared to 2021. Croatia Recovery of Croatia’s economy in 2021 was supported by strong consumption and a better-than-expected performance of the tourism sector. GDP growth reached 10.5% in 2021. Robust household consumption supported by favourable labour market developments, high accumulated household savings, and growth in consumer loans should be the main engine of growth also in 2022. Additional new investments are likely to contribute to growth in the upcoming years. In 2022, GDP is forecast to grow by 4.8%, followed by 3% in 2023. Inflation rose to 2.7% in 2021, mainly due to a surge in energy and food prices. Inflation in 2022 is forecast at 3.5%. It is expected to stabilise in the upcoming years and fall under 2% in 2023. Favourable economic developments spilled over to the labour market, which experienced strong recovery after 2020. In 2021, unemployment declined to 6.7%. It is expected to further drop to 6.2% in 2022 and 5.8% in 2023. The general government deficit, which increased in 2020, narrowed to 4.1% of GDP in 2021. This trend is expected to continue in the upcoming years. Public debt is set to gradually decrease from 82.3% of GDP in 2021 to 77.9% in 2023. Croatia entering the Schengen Area and adopting the euro could benefit the country’s economy. Conversely, low vaccination rates, which could lead to stricter containment measures, may compromise economic growth. We expect the value of the Croatian pharmaceutical market to grow by 8% in 2022 compared to the previous year, to approximately €1.5 billion. Romania After a strong rebound in the first half of 2021, Romania’s GDP is set to reach its pre-pandemic levels before the end of the year with economic growth at 6.3%. Going forward, growth is expected to remain robust in 2022 and 2023 at 4.2% and 4.5%, respectively. It is set to be propelled by strong consumption and growing investments. Export growth is set to be less dynamic than that of imports due to supply-side bottlenecks, especially in the automotive industry. Problems in forming a new government could delay public investments, compromising economic growth. In the upcoming years, unemployment rates are set to gradually drop to under 5% due to economic growth. Inflation increased year-on-year to 4.1% in 2021, largely on account of the increase in energy prices. It is projected to reach 5.3% in 2022. As the price shocks are expected to gradually phase out over the forecast horizon, inflation is set to reach 2.5% in 2023. Romania’s general government deficit decreased to 8% of GDP in 2021. It is expected to gradually fall in the upcoming years and reach 6.3% of GDP in 2023. The general government debt rose to 49.3% of GDP in 2021. It is expected to further increase to 53.2% of GDP in 2023. Risks to public finances are broadly balanced, while in the short-term the risk of a delayed budget, and the risk of more waves of infection due to low vaccination rates and further restraining measures loom. We expect the value of the Romanian pharmaceutical market to grow by 7% in 2022 compared to 2021, reaching €4.5 billion. Russian Federation In 2021, the economic growth was the highest in the past ten years and reached 4.7%. Imposing strict sanctions at the beginning of 2022 will heavily burden economic activity. Credit crunch and falls in consumer and investment spending are expected due to a sharp rise in key interest rates. At the same time, strong energy exports at elevated prices of oil and gas are expected to generate large current account surplus, which will importantly contribute to economic growth, as long as energy exports are not included in imposed sanctions. In this case, economic activities are expected to shrink by 3 to 5% in 2022. As value of the national currency is falling, inflation should get a significant momentum. Economic sanctions, volatility and depreciation of the Russian rouble represent key short-term risks. In the mid-term, economic sanctions could make business activities in the Russian Federation more difficult, cause additional currency and credit risks, inflation, a decrease in standard of living, and of purchasing power. Ukraine After the recession in 2020, the Ukrainian economy increased by 3%. Because of the events that started at the end of February, a deep recession is expected in 2022. Macroeconomic outlook is highly uncertain. A sharp drop in domestic 2021 Annual Report – Business Report 46 demand is expected, as well as a pronounced decrease in imports. Export is also expected to drop due to disrupted logistics and manufacturing capacity, and closed air and seaports. Economic activity is expected to fall by at least 10% in 2022, which is comparable to the 2015 decline, assuming the conflict is resolved quickly and substantial donor support. A long-term conflict would significantly deteriorate macroeconomic outlook. In that case, the economic contraction would be much higher, between 25 to 35%. Key short-term risk comprises security of the country, geopolitical instability, and credit risk. Poland The Polish economy rebounded strongly in the first half of 2021, reaching pre-pandemic levels of GDP in the second quarter of the year. Record low unemployment levels and increased consumption have driven economic activity, which rose by 5.7%. Economic growth is expected to remain strong in 2022 and 2023, mainly due to investment growth, changes in the personal income tax, and increasing household incomes, despite supply chain disruptions and rising costs of raw material. Private sector investments are set to grow on the back of a favourable financial position of companies and low borrowing costs. Economic growth is projected at 5.5% and 4.2% in 2022 and 2023, respectively. Rising energy prices and unit labour costs put upward pressure on inflation. It reached 5.2% in 2021 and is expected to accelerate to 6.8% in 2022. However, inflation is expected to slow in the upcoming years, to 3.8% in 2023. General government deficit declined to 3.3% of GDP in 2021. This is driven by substantial increase in fiscal revenue, in particular taxes and social contributions, mainly due to the economic recovery and favourable labour market developments. Further decrease of public deficit to around 2% of GDP is expected in 2022 and 2023. In 2021, public debt represented 54.7% of GDP. It is expected to decline to less than 50% of GDP by 2023. Given the anticipated 4% growth, the value of the Polish pharmaceutical market is estimated at approximately €6.9 billion. Hungary Hungary’s GDP expanded by 6.5% in 2021, driven by fiscal stimulus offsetting external headwinds. Global supply chain disruptions dampened GDP growth in 2021. Despite projections that this trend will continue in 2022, economic growth is expected at 5%. Growth is expected to slow to 3.2% in 2023 as policy support is gradually withdrawn. High consumer confidence is driven by government support measures, which also stimulate household income gains. Household consumption is forecast to accelerate. Public investment is also expected to grow in the upcoming years. Rising prices of raw materials and wage pressures hike up production costs and inflation. In 2021, inflation peaked at 5.2%. It is set to rise further to 5.4% in 2022, then gradually drop to 3.6% in 2023. Unemployment fell to 4.1% in 2021. It is expected to further decrease, reaching 3.1% in 2022 and 2.9% in 2023. Despite strong economic rebound, general government deficit and debt are projected to decline only gradually. Large fiscal expenditure contributed to public deficit at 7.5% of GDP in 2021. The additional fiscal space generated by a robust growth in revenues is set to be utilised for new expansionary measures addressed to various social groups. Public deficit of 5.7% of GDP is expected in 2022. In 2021, public debt dropped to 79.2% of GDP. Public debt is set to further decrease in the upcoming years. We expect the Hungarian pharmaceutical market to grow by 4% in 2022, reaching €2.9 billion. Czech Republic Following the decline of economic activity in 2020 caused by supply-chain disruptions, GDP rose by 3.3% in 2021. Economic activity is forecast to accelerate in early 2022, driven by both domestic and foreign demand as well as investments, including public. The Czech economy is set to reach its pre-pandemic level in the second half of 2022. Starting from 2022, investments will be additionally supported by the Recovery and Resilience Facility. Economic growth is projected at 4.4% and 3.9% in 2022 and 2023, respectively. Inflation rose to 3.3% in 2021 due to a combination of rising energy prices, supply-side bottlenecks and robust demand. It is estimated to rise to 5.8% in 2022 and gradually drop down to 2.2% in 2023. The unemployment rate was 2.7% in 2021. It is set to decrease further in the following years, reaching 2.6% in 2022 and 2.4% in 2023. The government deficit rose to 7% in 2021 due to wide fiscal stimulus to mitigate the negative impact of the pandemic. It is set to decline to 4.3% of GDP in 2022, mainly due to withdrawn support measures, but is projected to stay well above the levels before the start of the pandemic. Public debt rose to 42.4% of GDP in 2021 2021 Annual Report – Business Report 47 and is projected to further increase in the upcoming years. Public debt is expected to reach 46.3% of GDP in 2023. It remains low compared to other EU Member States. The Czech pharmaceutical market is expected to grow by 6% and its value to reach approximately €3.2 billion. Slovakia In 2021, Slovakia’s economy recovered from the 2020 recession. GDP growth was recorded at 3%. However, supply- chain disruptions and resurging COVID-19 infections are expected to slow the recovery in the short term. Accelerated growth is forecast from 2022 onwards, also boosted by Recovery and Resilience Facility-financed public investments. Economic activity is forecast to rise to 5% in 2022. Strong GDP growth is expected to continue in 2023, reaching 5.1%. Similarly to 2021, inflation is forecast to rise also in 2022 due to a combination of supply-side bottlenecks and robust demand. In 2021, inflation was recorded at 2.8%. It is projected to climb to 6.4% in 2022. Inflationary pressures are projected to stabilise in 2023 and inflation is set to drop to 2.4%. Unemployment increased somewhat in 2021 to 6.8%. It is set to decrease further in the following years, reaching 6.4% in 2022 and 5.6% in 2023. Fiscal support is set to weaken as from 2022, and the public deficit is projected to decrease, due to accelerated economic growth, from 7.3% of GDP in 2021 to 4.2% of GDP in 2022. Public debt edged up to 61.8% of GDP in 2021. It is projected to start declining in the upcoming years and stabilise at 60% of GDP. We expect the Slovakian pharmaceutical market to grow by 5%, to approximately €1.6 billion. Western Europe Following a decline in 2020, economic activity increased in 2021 and GDP growth amounted to 5.1%. The momentum gained in the first half of 2021 was slowed in the second half of the year due to supply chain disruptions that constrained production recovery. Gradual improvements in supply chain conditions are expected in 2022. Resurging COVID-19 infections followed by country shutdowns and eroding household purchasing power caused by increased energy prices pose an additional risk to economic growth. The retreat of COVID-19 is expected in spring, while the pressure on healthcare and hospitals is projected to endure longer. GDP growth of 3.5% and 3% is projected in 2022 and 2023, respectively. Varying price pressures, including rising prices of energy, basic goods and commodities, services and food have pushed inflation to 2.6% in 2021. These pressures are expected to persist throughout 2022, and in particular in the first half of the year, hindering economic growth. Inflation is forecast to reach 3.8% in 2022. In 2023, it is expected to fall to 1.6% due to the projected low private consumption. In 2021, the unemployment rate was 7.7%. It is expected to further decrease in the upcoming years. Public deficit was under pressure at 6.9% of GDP due to increased fiscal expenditure in 2021. However, it is projected to improve in 2022 and settle at around 4.8% of GDP. If necessary, the government will continue to support the economy within the scope of fiscal policy in 2022. In 2021, public debt was 100% of GDP. It is expected to decrease in the upcoming years and drop to 97.8% of GDP by 2023. We expect the value of the Western European pharmaceutical market to grow by 3% in 2022, reaching €263 billion. China China’s economy seems to be slowing, burdened mainly by ongoing turmoil in the property sector, which is set to hinder growth in the upcoming years. China’s economic growth was estimated at 8.1% in 2021. Stronger measures for stimulating economic growth are expected, but contrary to those adopted in the past, these will no longer include real estate sector incentives. China’s policy focus recently shifted towards tighter managing of corporate indebtedness, in particular in the property sector, and delivering on ambitious climate change targets. The government is likely to increase support for infrastructure investments, in particular projects for reducing the carbon footprint. Consumption growth is likely to remain affected by increasing unemployment. GDP growth is expected to moderate to 4.7% and 4.8% in 2022 and 2023, respectively. Stable public deficit at around 3% of GDP is forecast in the coming years. Inflation was 1.8% in 2021. It is expected to climb to 2.8% in 2022 and drop to 2.2% in 2023. Public debt is expected to increase from 91% of GDP in 2021 to 95% of GDP in 2022 and 97% of GDP in 2023. Export growth is set to slow down in 2022, as global consumer trends seem to be shifting from goods to services consumption. Ongoing disruptions in the domestic property sector, possible energy crisis, supply chain risks, and geopolitical tensions all constitute risks to economic growth. 2021 Annual Report – Business Report 48 We estimate the value of the Chinese pharmaceutical market at approximately $150 billion of which the generic market accounts for approximately 65%. Growth in the upcoming years is forecast at 4–7%. Risk Management In accordance with legislation and good practice, risk management comes under the remit of the Management Board, which regularly reports on risks and adopted measures to the Audit Committee and the Supervisory Board. During each business results analysis, the Audit Committee and the Supervisory Board are briefed about the operational and financial risk management. Their risk management work is described in the '2021 Supervisory Board Report' section. The Krka Group monitors its exposure to various forms of risk on a daily basis and adopts measures to manage those risks. The following committees and Management Board-authorised representatives also have certain risk management-related responsibilities:  Quality Committee;  Information Technology Committee;  Development Committee;  Sales Committee;  Human Resource Committee;  Business Continuity Officer;  Information Security Officer;  Chief Compliance Officer. Risk management is integrated into all business processes in the Group. The controlling company manages financial risks centrally at the Group level, while subsidiaries manage business risks independently in accordance with controlling company guidelines. We apply over 2700 standard operating procedures relating to quality systems and other bye-laws and instructions that determine the activities and responsibilities that allow for uninterrupted operations and mitigate risks. We use the Krka Group Risk Register as a risk management support tool. The Risk Register provides a comprehensive overview of risks at the Group level and serves to timely identify and manage factors that may derail efforts to deliver on the objectives defined in the current Krka Group Development Strategy and the Quality Manual. The Integrity Plan complements the Risk Register and addresses ethics, integrity, and compliance. In cooperation with relevant departments, the Chief Compliance Officer drew up the Integrity Plan in accordance with the Corporate Governance Code for State- Owned Enterprises. The Management Board adopts the Integrity Plan, reviews it annually, and updates it if necessary. To manage risks, we also apply guidelines from the Business Continuity Strategy, Information Security Management System (ISMS), principles of Good Manufacturing Practice (GMP), requirements of the ISO 14001 standard, and guidelines relating to the integration of quality management in all business processes. Sustainability risks or ESG (Environment, Social, Governance) risks are managed as part of various risks and are included in their risk management processes. Below we outline Krka's significant operating risks and how we manage them. Every risk assessment is based on assessing the extent of the damage and the probability of its occurrence. The final assessment of an individual risk is made by considering the extent of damage and the likelihood of it occurring at the same time, whereby the impact of control activities has already been taken into account. Preliminary risk assessments in the 'Operational risks and business continuity' table were made in the previous version of the Risk Register. 2021 Annual Report – Business Report 49 OPERATIONAL RISKS AND BUSINESS CONTINUITY Risk area Risk description Control activities Preliminary risk assessment Latest risk assessment Availability of critical resources to ensure production and sales of key products Unplanned stoppages and unavailability of key resources for production and sales of finished products (employees, buildings, equipment, various materials, media supply, information, epidemiological situation) Business continuity management system, business impact analysis, requirement for the availability of critical resources and services, risk analysis by area; measures to increase process resilience against disturbance and mitigate consequences of incidents, supervision of hygiene, organisational, and technical measure implementation to prevent the spread of infections, business continuity plans for critical processes, training, tests, drills Moderate Moderate Supply of APIs and finished products Delays in the supply of production materials and finished products and ineffective utilisation of means of production Careful supply chain planning in consideration of the economic, health, and political situation around the world, pandemics, natural disasters, explosions, etc., careful planning of production material inventories, maintaining contingency stocks, ensuring several sources from various locations; providing adequate production capacities at Krka's sites and alternative sites with contract manufactures, establishing remote technology transfer, fast adaptation to sudden increases in product demand by providing additional resources and adjusting priorities; setting up alternative transport routes for production materials and finished products Moderate High Quality management Loss of a manufacturing authorisation, distribution permit, or marketing authorisation Compliance with legal and regulatory requirements, and implementation of all activities in the Krka Group processes that are critical in terms of good quality practices Moderate Moderate Technical services Inadequate supplies of production media to processes and substandard technical maintenance Redundant power supply resources, robustly planned media supply systems, redundant capacities and planned maintenance processes Moderate Moderate Information technology Business process disruption due to a disruption in information resources Independent security checks and preventive measures to rectify disruption; assessment of different types of risks, information technology continuity plan, recovery procedures following major incidents and disasters Moderate Moderate Employees Workplace accidents or injuries, infectious diseases (epidemic, pandemic) Testing technological procedures, system for workplace risk assessment, preventive measures, introduction of cautionary measures – sanitary, health, and organisational actions that prevent the introduction and spread of potential infections, while also ensuring uninterrupted implementation of all work processes Moderate Moderate Issues arising from the epidemiological situation in the country, unplanned increase in absences, and shortages of personnel in the labour market Employee interchangeability, new recruitment methods, appropriate and regular communication with employees, employee education and training, reorientation of activities to basic processes in the case of a significant loss of available personnel (e.g. pandemic, natural and other disasters) Protection of property Alienation and destruction of property Security plan, systematic threat assessment, and implementation of necessary measures Moderate Moderate 2021 Annual Report – Business Report 50 BUSINESS RISKS Risk area Risk description Control activities Preliminary risk assessment Latest risk assessment Research and development Ineffectiveness of development processes; inadequacy of regulatory procedures and supply of new products Detailed planning of development projects and management of regulatory processes Moderate Moderate Marketing and sales Unfavourable situations in sales markets and inadequacy of marketing activities, also due to difficulties with or inability to make personal contacts Responding to changing business conditions in markets, establishing standardised, compliant, and transparent sales and marketing activities, continuously educating and testing employees' knowledge, using modern communication tools Moderate Moderate Intellectual property protection Infringement of third-party intellectual property rights or unjustified use of Krka's intellectual property Monitoring patent processes, consistent respect for the intellectual property rights of others, and forming provisions for potential damages when reasonable Moderate Moderate Delays in hearings and decisions in cases where we have to seek the revocation of secondary patents of third parties in order to enter the market Additional risk assessment and formation of provisions for potential damages where possible Quality management Substandard quality of development and production process, substandard quality of products, and failing to maintain the validity of manufacturing authorisations and GMP certificates Timely implementation of new regulatory requirements, precise implementation and control of prescribed quality management and quality control procedures in all key development, control, and production processes Moderate Moderate Environmental protection Waste removal issues, environmental pollution due to hazardous substance spills and emissions during emergencies; deviations from statutory requirements, and loss of reputation due to excessive environmental pollution Effective control of the environmental management process, continuous emission monitoring; application of best available techniques to reduce environmental impact, and cooperation with several business partners in the field of waste management Moderate Moderate Investment projects Poor decisions on investing in production and other capacities, and implementation of investments Constant supervision of all project phases, plan monitoring, systematic selection of contractors Moderate Moderate Human resources Issues with providing key and qualified personnel (recruiting and retaining) and social dialogue with employees Systematic work with key personnel, remuneration system, employee development, continuous education and training, measuring of the organisational culture and climate Moderate Moderate Legal matters Inadequate legal regulation of business relations and non-compliance with or incorrect interpretation of legislation, issues arising from potential court and other legal proceedings, especially disputes Involving Legal Affairs department in key areas, cooperation with external specialised legal experts Moderate Moderate 2021 Annual Report – Business Report 51 FINANCIAL RISKS Risk area Risk description Risk management method Preliminary risk assessmen t Latest risk assessmen t Foreign exchange risk Potential major financial losses due to unfavourable changes in foreign exchange rates Financial market tracking; monitoring currency exposure; working with leading global financial institutions; monitoring new practices of foreign exchange risk hedging; use of financial instruments; natural hedging High High Interest rate risk Unfavourable interest rate changes Monitoring interest rate changes; negotiations with credit institutions; hedging with appropriate financial instruments Low Low Credit risk Customers defaulting on payment prompt receivable write-off accrual Credit rating calculations; limiting maximum exposure to individual customers; active management of receivables; utilisation of instruments for insurance of payments and receivables with a credit insurance company Moderate Moderate Liquidity risk Insufficient liquid assets for settling operating and financial liabilities Credit lines agreed in advance and planned liquidity requirements; cash pooling Moderate Moderate Risk of damage to property Damage to property caused by natural disasters and other risk factors Systematic risk assessment for buildings; taking measures in accordance with fire safety studies; arranging appropriate insurance Moderate Moderate Risk of claims for damages and civil actions Claims for damages by third parties due to loss events caused accidentally by Company activities, property, or products placed on the market Insurance for civil, employer and environmental liability; product liability insurance; and clinical trials liability insurance Moderate Moderate Risk of financial losses due to business interruption Financial loss resulting from interruption of production due to property damage Insurance of labour costs, amortisation and depreciation, other operating expenses and operating profit, and technical and organisational measures to reduce the impact of business interruption Moderate Moderate Operational Risks and Business Continuity Availability of Critical Resources to Ensure the Production and Sales of Key Products Major emergencies that halt the production and sale of products for a lengthy period could compromise the existence of the Krka Group We analyse their impact on operations to estimate the criticality of processes and risks to operations. As a result of these activities, the Business Continuity Officer prepares Business Impact Analysis, Risk Assessment, and Business Continuity Management Strategy together with the persons involved in critical processes. The documents are discussed and adopted by Krka's Management Board. The documents are renewed at least every five years or with each major technological and/or organisational change, the emergence of new threats or an increase of existing ones. We apply effective measures to protect employees, property, and other key resources and prevent emergencies. We have designed action plans, and disaster relief measures for emergencies, measures for mitigating direct damage, and emergency operations plans until normal operations can be restored. Based on the Business Continuity Management Strategy, we prepare business continuity plans for each critical process or service. In agreement with Business Continuity Officer, we appoint persons responsible for critical processes to prepare and maintain these plans. The plans are approved by critical process or critical service managers and the Business Continuity Officer. Adequacy of plans is reviewed at least once a year and harmonised with the business continuity policy and strategy. Exercises and training are the key part of testing the implementation of individual business continuity measures. The Quality Committee discusses the adequacy of the implementation of these plans annually. In 2020, Krka's Management 2021 Annual Report – Business Report 52 Board also included measures in the event of a pandemic into the Business Continuity Management Strategy. A pandemic could pose risks in various areas, resulting in, e.g. supply chain disruption, increased employee absences, and outsourcing-related issues. By identifying and implementing appropriate preventive and other measures, we ensure that critical resources are adequately available to ensure the production and sales of key products. Risks Related to Supply of APIs and Finished Products We continuously monitor the supply market, suppliers, and prices of production materials to ensure the required quantities in line with annual and monthly production plans and in accordance with the standard operating procedure (SOP). We carefully plan our inventories and maintain contingency stocks to ensure uninterrupted access to production materials required for manufacturing finished products. We apply adopted criteria to assess and select our suppliers and regularly audit them in accordance with both relevant SOPs. Twice a year, the Quality Committee discusses the findings of past audits, indicators, supplier risk assessment, and the audit plan for the next period. A regular supplier audit is conducted every three years. In the case of emergencies and deviations, a risk assessment and an audit is conducted immediately. In addition to regulatory compliance, guaranteed quality, and environmental protection, we primarily focus on price competitiveness and supply reliability when selecting our contractual partners. Selection and evaluation of a contractual partner for the manufacture of finished products as well as the implementation and management are also regulated by a relevant SOP. SOPs are part of the quality system described in 'Quality Management Risks' section. Further information on performed audits and regular controls are available in the subsection 'Inspections and Audits of the Management and Quality System' of the 'Integrated Management System and Quality' section. We ensure the punctual supply of finished products by monitoring every product supply phase. Production material inventories are planned according to sales forecasts. Inventory levels are checked regularly, and we have contingency stocks as well as several independent supply sources for strategically important production materials. We carefully plan optimal utilisation of production capacities and measure production efficiency. In this respect, we introduce measures for continuous process improvement. We meet sales requirements by purchasing new equipment and making new investments; we increase our own production capacities and expand contractual alliances. We adhere to good manufacturing practices in production processes and verify that the production environment is suitable. We ensure that production equipment operates reliably and to a high standard through regular and preventive maintenance. In major emergencies, we can ensure the production of key products at several plants. We comply with good warehousing and manufacturing practices when warehousing incoming materials, bulk products, and finished products. Our production material and finished product warehousing system allow us to keep goods at several standalone warehouses when handling major emergencies. We organise the transport of production materials and products using our own vehicles and those of our selected partners. All vehicles are equipped so as to ensure appropriate transport conditions and safety. Technical Service Risks Technical service risks include risks related to utility supplies, including power and other utilities used in processes, the reliability and availability of technical systems, and risks associated with metrology. To provide an uninterrupted electricity supply, we have put in place a back-up electricity system and a diesel-powered generator for critical processes. We continuously monitor the situation on the electric power market and make partial purchases. We use natural gas to generate thermal power and extra-light fuel oil as a back-up fuel, of which we keep extra stocks. As part of the Business Continuity Management Strategy and the Business Continuity Plan for 2021 in terms of risks and opportunities as a result of climate change, we identified a potential risk of insufficient supply of drinking water for production purposes. At the central production site in Novo mesto, Slovenia, where the vast majority of all Krka Group's products are manufactured, the short-term, medium-term, and long-term water supply is adequate and the risk low thanks to public infrastructure upgrades in 2020. In the case of loss of water supply from the main source due to force majeure, it is possible to connect to an alternative water source from the public infrastructure. We did not identify any other risks and opportunities due to climate change. 2021 Annual Report – Business Report 53 We mitigate risks related to inadequate production and distribution of power and process utilities (electricity, steam, heating water, compressed air, refrigerant water, river water, pharmaceutical and process water) by critical equipment redundancy, robust system planning, computer control, quality control of process utilities, regular preventive maintenance and system testing, and keeping critical spare parts in stock. Employees undergo regular training, and their skills and qualifications are regularly tested. We carry out preventive and scheduled maintenance of air-conditioning systems. Our maintenance team is well organised and trained to intervene swiftly in the event of a failure. The team uses a central control system to issue alerts rapidly and detect faults. It also keeps inventories of spare parts. Non-critical equipment is dispersed to ensure that a single breakdown does not significantly impact production capacities. All air-conditioning and power supply systems in server rooms are duplicated, have technical security systems in place, and are regularly tested for potential breakdowns. We mitigate risks related to the reliability and availability of technical systems by continuously monitoring performance, conducting preventive checks, servicing, improving the equipment, and introducing new maintenance approaches. Failures and disruptions are rectified according to planned procedures and instructions. In order to remedy failures and disruptions promptly and effectively, we have our own qualified maintenance teams and spare parts inventories which we regularly check and replenish. The employees who monitor and maintain technical systems undergo regular training. Their qualifications and skills are regularly tested. We have a management system in place for monitoring and measuring devices. We regularly measure, calibrate, and maintain the monitoring and measuring equipment. We ensure the reliability and availability of technical systems with our own facilities and employees and in cooperation with external contractual partners. Information Technology Risks We manage information security risks through an ISO 27001-certified Information Security Management System (ISMS). The ISMS is a separate business process within Krka's quality system. The Company's Management Board appointed the Information Security Officer to lead the ISMS process, which includes key organisational units and business processes in the controlling company. In 2021, we started to overhaul the ISMS in all Krka Group subsidiaries. We plan to complete the overhaul in 2022. Each quarter, the Information Security Officer reports to David Bratož, a Management Board member, on the ISMS. Further information on the ISMS is available in the 'Integrated Management System and Quality' section. A comprehensive report on the Krka Group information security is discussed annually by the Information Technology Committee. Krka specifies the criticality of information resources (information systems and services) using annual criticality assessments of business processes and information resources to implement the business process. All information systems, including infrastructure systems, refer to the criticality level of business services. Given the criticality in planning, construction, and use of information systems, we implement all relevant information and cyber security elements. We have identified threats and risks regarding resource availability, confidentiality, and integrity for all critical information resources (information systems, equipment, premises, and employees using the information systems). Risk assessments by individual processes are reviewed and approved by directors or heads of organisational units in which the processes are carried out. Based on risk assessments, organisational units take steps to eliminate unacceptable risks. Another method of threat detection involves independent security audits of our information resources. In 2021, the organisation behind the ISO 27001 standard conducted an independent preventive security audit of the ISMS. Their report was discussed by the Company's Management Board and the Information Security Officer briefed the Information Technology Committee on this topic. Information security internal audits are conducted in organisational units as well. We consistently eliminate any inconsistencies identified in external and internal audits and inspections. In the field of information technology, we perform comprehensive security audits every two years and partial security audits several times a year while eliminating any shortcomings. To mitigate risks during major emergencies, we introduced duplicated computer capacities for all critical information resources in two separate locations: back-up server rooms at the 2021 Annual Report – Business Report 54 Krka headquarters (i.e. the Disaster Recovery Centre – DRC) and at an adequate off-site location, where critical data is backed up daily. We also mitigate information security risks using modern tools such as advanced threat protection (ATP), security information and event management (SIEM) system, and vulnerability management. Krka has taken out cyber insurance to cover any damages caused by potential cyber attacks. As an international group, we are required to protect personal data in conformity with national legislation of all countries where our subsidiaries and representative offices are located. The Management Board appointed Data Protection Officer at the Company and Group level, who ensures that personal data are protected in accordance with EU regulations or national legislation insofar it lays down different or stricter rules. Employee Risks We manage all employee-related risks, systematically identify and evaluate them, and take appropriate measures to prevent and mitigate risks based on this. The Management Board checks and confirms the effectiveness of risk management. We use our own methods to assess workplace risks concerning health and safety at work, i.e. the probability of a specific incident and its consequences and any probable health implications for individual workplaces. Risks are assessed periodically, and security measures are taken to keep them at acceptable levels. In addition, we also assess the risks related to individual technological procedures carried out by authorised professionals for health and safety at work and responsible technologists. Risk assessments are conducted for all new technological procedures in research and development and if any changes are made to these procedures. The result of this process is the consent to the technological procedure including a risk assessment. The consent is issued for every technological procedure carried out on a pilot or production scale. The risk assessment methodology is based on identifying different risks related to each technological procedure. We identify hazards for each technological phase. Based on the occupational exposure band (OEB), exposure time, and level of hazard, we determine the safety measures strategy to prevent employees from exposure to a specific technological procedure. We continually verify the suitability and appropriateness of technical and organisational measures and personal protective equipment by conducting relevant measurements during technological operations. Technological Risk Assessments 2021 Annual Report – Business Report 55 When there is a risk of infection (epidemic, pandemic), we implement a series of sanitary, health, and organisational measures to prevent the introduction and spread of the possible infection, while ensuring not to disrupt work processes. We promote health among our employees and constantly raise awareness of health and safety at work. Identifying key employees and their potential in all work processes allows us to ensure the replacement of employees in key job positions. The training and recruitment methods applied in all organisational units facilitate the quick exchange of employees posted in similar positions should a shortage of employees occur in a certain organisational unit due to large- scale absences or increased workload. Protection of Property The exposure of our buildings and property is subject to regular and systematic assessments in accordance with the Security Plan (18 types of threats). Based on the assessment, we prescribe physical and/or technical security measures and other security actions and guidelines to prevent emergencies or act accordingly if they occur. Business Risks Research and Development Risks Krka's products must be of a high quality, safe, and effective. The required properties have to be confirmed by relevant studies and data, in compliance with regulatory requirements and standards. Risks to products and technologies include scientific and research risks and technological and technical risks. We mitigate these by introducing contemporary approaches and methods and exploiting in-house and acquired knowledge and experience in research and development and technology. Business and professional risks in product and technology development are managed based on a risk matrix at various levels of monitoring and decision-making. Responsibilities of leaders, organisational units, and work processes involved are clearly defined. We appoint a project team with a leader to manage, monitor, and document all crucial activities for each project. The Development Committee approves proposals for new product development based on feasibility studies, in which the proposed project is considered from regulatory, developmental, safety, cost, and other aspects. In addition to key development milestones, the Development Committee also monitors all development projects to be able to respond appropriately to any market, development, or regulatory changes that require a change or adjustment in the development scenario. The Committee meets several times a year. In the period between the Committee meetings, we monitor projects at several organisational levels (project, product meetings, project meetings) and thus ensure that activities are appropriately controlled and directed. Key organisational units with precisely defined individual responsibility in the product development phase are New Products, Pharmaceutical Research and Development, API Research and Development, Quality Management, Pharmaceutical Production, and Industrial Property. We mitigate these product and technological risks at the early stages of development through process updates, the introduction of modern technologies, and adjustments to regulatory requirements and through successful work of highly educated professionals, constant broadening of knowledge and the use of state-of-the-art equipment. The vertically integrated development and production model is important, as it allows us to control the entire process, from raw materials to the finished products. We maintain the vertically integrated development model with investments, annual achievements, and research-and- development results related to:  Medicines and therapeutic areas: we venture into therapeutic areas with new medicines and provide for their research, development, and evaluation, and prepare new combinations of active ingredients with patients in mind. We aim to achieve the same therapeutic effect with lower concentrations of individual ingredients and reduce the number of daily doses at the same time;  Krka's active ingredients: we introduce innovative preparation procedures and new synthesis routes;  Pharmaceutical forms: we prepare advanced pharmaceutical forms that allow for easier dosage and administration;  Research and development capacities: we introduce the most advanced development and technological processes, and invest in research and development capacities. 2021 Annual Report – Business Report 56 Regulatory risk management, associated with changes in legislation and its interpretation, starts at the early stages of developing a new product and continues throughout its life cycle. We monitor regulatory legislation, implement new requirements relating to active ingredients and finished products already in the development phase, and take them into account when preparing registration documentation and registration strategies to mitigate risks. The acceptability of any increased risks is discussed and approved by the Development Committee or a subsidiary supervisory body. Through official consultative mechanisms, Krka verifies its development solutions for each product and the planned content of marketing authorisation documents with regulatory bodies. This reduces the risk of encountering potential issues or even failure when obtaining or extending marketing authorisations. We are also engaged in working groups of various industry associations to participate actively in drafting legislative amendments in this field. Sales and Marketing Risk The Krka Group has a broad marketing-and-sales network, as it sells its products in more than 70 countries around the world. It operates in a variety of geopolitical and macro-economic climates, as well as in legal and competitive environments, and is exposed to different sales and marketing risks of varying intensities. Our key advantages over the competition are our quick response to altered business circumstances and prompt adjustment of sales and marketing activities in individual markets. In 2021, we successfully adapted to new circumstances brought about by the epidemic-related measures to restrict movement and limit contacts. We continuously monitor market conditions (especially competing generic producers and national pharmaceutical industry), the legal frameworks for marketing pharmaceuticals, systemic pricing arrangements, and government reimbursements for pharmaceuticals (in some countries based on statutory partial co-funding of healthcare budgets by medicine suppliers, i.e. clawback) through Krka's in-house departments and independent data sources. Once a year, the Sales Committee is briefed about the systemic pricing arrangements in markets where they exist. At their meetings, the supervisory bodies of subsidiaries and representative offices regularly discuss the changes in the legal basis related to price recording and government reimbursements. We ensure that medicine advertisement is suitable and give special attention to organising and supervising the work of employees in the marketing network. Our employees regularly undergo training, and we frequently test their qualifications, skills, and how familiar they are with instructions for work, legislation, and applicable regulations. When marketing our products, we consistently comply with legislation, recommendations of Medicines for Europe, and ethical norms related to advertising pharmaceuticals. In this regard, we also carry out comprehensive training and knowledge assessment for our employees. We place particular focus on business compliance, so marketing is also included in the Company's Integrity Plan, discussed by the Management Board. We also comply with the personal data protection legislation in marketing and sales. We monitor the risks related to entering new markets and new therapeutic areas by lowering prices of medicines in compliance with national regulations, by cross-border reference country impacts, and changing practises regarding the prescribing and/or dispensing and/or reimbursing of medicines. We systematically discuss entering new markets at annual meetings and determine where to obtain marketing authorisations for individual products. Prior to concluding sales agreements, the customer has to present evidence that their business establishment is duly registered. We pay special attention to risks related to individual market environments and economies, risks associated with each customer, in particular the risk of their insolvency or bankruptcy, risks related to payment terms, and other risks related to compliance with contractual provisions. Foreign currency risks and their impact on sales revenue denominated in euros in markets where sales are conducted in national currencies (especially in the Russian Federation) have been recognised as high risks. We continuously monitor market conditions, analyse them, adjust payment terms if necessary, and hedge against payment defaults. We systematically monitor the satisfaction level of direct and indirect customers. Krka's Quality Committee discusses the report for each year. We monitor sales at the primary level (sales to direct customers, primarily wholesalers) and if possible, also at the secondary level (wholesalers' sales to their customers, mainly pharmacies) and at the tertiary level (sales to end-users in pharmacies). We ensure that inventories are optimised and meet needs throughout the distribution chain. We duly monitor pharmacy networks and any changes by individual market, and adjust our actions accordingly. All of the above is regularly discussed at the Sales Committee meetings. 2021 Annual Report – Business Report 57 We regularly evaluate the market potential of individual therapeutic areas and their products. We use a range of external data sources and our own market research and analyses to monitor global, regional, and national trends as well as product supply in the market. Based on these, we define both the product portfolio and our activities according to current market positions of particular active ingredients and the vision of their development. We perform systematic analyses in terms of product position and market share movements in individual therapeutic classes at least twice a year. The number of important new active ingredients available for marketing to generic manufacturers at present or in the future has been declining. Therefore, we seek opportunities in new innovative fixed-dose combinations of existing active ingredients and in new therapeutic areas while continually striving to further improve the establishment of our products that contain existing active ingredients in less developed markets. We monitor the effectiveness of our marketing strategies and tactics using performance indicators and exert systematic control over marketing activities, which we plan, implement, and analyse in cycles, including compliance in marketing and sales. Indicators at the Krka Group level are discussed once a year by the Sales Committee and by Krka's Management Board in the context of performance indicators as part of the Company's successful strategy implementation. At their regular meetings, supervisory bodies of subsidiaries and representative offices discuss more specific indicators at the level of individual markets. Intellectual Property Risk Respect for the intellectual property rights of third parties, especially patent-related rights, is one of the fundamental principles of Krka Group operations. We, therefore, start the development of a new product by analysing the extent of third party property rights related to the new product and determine which solutions are protected. We define and direct our development work based on these findings and assess whether the solutions produced by our own development infringe the applicable rights of third parties. The current situation and any potential changes in the patent protection are monitored throughout a product's development up to its launch. If we believe that patents have been granted to third parties without proper grounds, which means that the subject of a patent is not actually an invention (the solution is not new or does not include an inventive step), and when such patents might hinder our work, we use the available legal remedies to cancel such patents. This prevents holders of such patents from filing actions against us for infringement. Despite these measures, if a patent holder considers that Krka has infringed its rights and takes legal action against Krka, we form appropriate provisions for potential damages and adopt relevant measures. If we believe that the results of our research work are new and innovative, we apply for patent protection. The same risk management method applies to distinctive signs, industrial designs, and other relevant intellectual property rights. Quality Management Risks The Krka Group evaluates quality management risks from the aspects of product quality, product safety, and Group operations. We apply well-known methods to assess risks and implement them in line with good manufacturing practice requirements (ICH Q9 Quality Risk Management). Product quality is defined during the development stage of a product and specified in the marketing authorisation documents. We adhere to standard procedures and requirements throughout the production process. From the purchase of various incoming materials, other purchases, and manufacturing processes to the manufacture of finished products, quality control, warehousing, and distribution, all while ensuring that the pharmaceutical product manufacturing complies with the relevant quality standards and the product's marketing authorisation documents. When the product is already on the market, the pharmacovigilance system is used to establish, evaluate, and respond to new findings on adverse effects and other safety aspects of a medicine. We employ a special system to process customer feedback and pursue constant internal improvements according to the PDCA (plan, do, check, and act) principle to upgrade and improve processes and products. Product quality management is a primary activity that involves various quality assurance elements: we focus on the suitable quality of incoming materials (i.e. active ingredients, excipients, and packaging materials) and conduct risk assessments to classify material- and supplier-related risks. We plan audits and other activities based on the identified risks as part of the GxP partner evaluation procedure. 2021 Annual Report – Business Report 58 We ensure the compliance of our production and control equipment and production rooms by qualifications and validations of equipment, production rooms, production environment, manufacturing processes, computer systems, cleaning procedures, calibrations, qualification of instruments, as well as maintenance procedures in order to prevent undesirable effects on the production process and product quality. Systematic approaches, monitoring, and documentation of all processes, procedures, and controls are crucial for product quality assurance. We, therefore, regularly examine, overhaul, upgrade, and improve the quality system and ensure that any necessary changes are made correctly. Further information on the quality system is available in the 'Integrated Management System and Quality' section, subsection 'Quality System Objectives'. We focus in particular on ensuring data integrity in quality management and thus mitigate the risk of improper use of test results when determining the suitability of raw materials, packaging, processes, and finished products Continuous monitoring of new developments in legislation and timely implementation of new requirements reduces the risk of quality system inadequacy and consequently the risks related to maintaining manufacturing and marketing authorisations and GMP certificates. We regularly raise awareness and provide employee training to ensure compliance with standard production and product control procedures. We control production processes, intermediate products, bulk products, finished products, and the production environment to ensure product compliance and conformity with the requirements of national legislation and GMP principles in the EU and other countries where we market our products. For non-compliant products (deviations, complaints), we apply control mechanisms, perform tests, investigate causes, and implement preventive and corrective actions in order to prevent any other non-compliance. Concerning quality risk management, we assess the risks related to maintaining manufacturing authorisations, GMP certificates, and other management systems applied in Krka manufacturing and distribution units for every quality assurance element separately. We regularly and systematically check the efficiency and effectiveness of the quality system in the Krka Group through external (agency and regulatory inspections, partner and certified body audits) and internal (internal self-control, internal audits, Quality Committee, quality indicators) verification. Where required, we make improvements and thus continuously upgrade the quality system and effectively manage risks related to product and service quality. Vertical integration of quality allows us to manage product and process quality risks effectively. Quality is vertically integrated through know-how, experience, understanding of the entire product life cycle – from an active ingredient to the finished product – through planning, development, quality assurance throughout the manufacturing process, and through the Company's organisational structure, which supports the integration of quality into all processes. The risk management process includes the regular identification, analysis, and evaluation of risks as well as operational strategy upgrades. Due to COVID-19, we introduced additional measures to our regular procedures, strategies, and risk assessments to ensure business continuity in a pandemic. Environmental Protection Risks Krka recognises and manages any environment-related risks in line with the requirements of the ISO 14001 standard and by managing the business continuity system. Every year, we review all environmental aspects, the associated risks, and extraordinary events and evaluate their impact on the environment. Risks and emergencies related to environmental protection, including climate change risks, are assessed and managed by the Committee for Monitoring Environmental Aspects at least twice a year and as part of regular activities of certain organisational units or business processes. All identified risks are included in the Report on Implementing Environmental Management System, which the Quality Committee discusses once a year. We mitigate environment-related risks and provide for efficient actions in the event of an emergency by using the best available techniques in manufacturing, warehousing, wastewater treatment, waste air treatment, waste management, preventive examinations and maintenance of equipment, employee training, and by employing our own fire brigade, which is qualified to intervene in cases of emergency, and emergency event drills. 2021 Annual Report – Business Report 59 In 2021, we recorded no extraordinary events with a negative impact on the environment. We reduced the risk that might arise if our contractual partners did not collect our waste on time or at all by adding warehousing facilities for waste solvents and dividing our waste streams. We also stepped up cooperation with several of our waste-collection and removal partners. Investment Project Risks Investment project risks primarily include risks related to planning investments and their value, the purchase of equipment, execution of works, schedules, quality, and changes to the original plan. We reduce these risks through document planning and preparation, and implementing the established system for selecting contractors and equipment suppliers, and regularly reviewing them. We supervise all execution phases. We review the compliance of project documents from the technical, technological, and regulatory points of view, and the compliance of contractual documents from the legal and accounting aspects. We examine whether potential changes are justified and what impact they could have on costs and schedules. We constantly monitor costs, i.e. regular costs and those incurred by subsequent changes in a project. Human Resource Risks We pay special attention to key personnel who are crucial to attaining the objectives of the Krka Group and are also highly sought after by our competitors. We regularly plan and monitor the training and development of our employees and at the same time assign them new work responsibilities, encourage them to take on new duties, and delegate them to new job positions. We plan employee training and development in our annual training plan, prepared by individual organisational units together with Human Resources and Training and Development. The Quality Committee discuss the plan and implementation of Krka's quality system training twice a year. Three times a year, the Human Resource Committee discuss the plan and implementation of other training and education programmes, such as part-time studies, Krka International Leadership School, and national vocational qualification programmes. We offer a range of incentives to strengthen employee loyalty to the Krka Group and minimise employee turnover. We manage risks related to the lack of experts on the labour market by being actively present in the labour market, bolstering Krka's image as a reputable employer, working with faculties and schools, and by awarding scholarships. This allows us to attract new employees required to meet our strategic, development, and sales plans. We systematically educate and train our employees to acquire national vocational qualification certificates. Financial Risks The Krka Group manages financial risk centrally in the Finance division of the controlling company in Slovenia. Financial departments of subsidiaries and representative offices abroad perform risk management operational tasks in accordance with the guidelines set out by the controlling company. Key financial risks include credit, market, liquidity, and insurance- related risks. The Krka Group's main market risk is foreign exchange risk. We monitor interest rate risk; however, in 2021, we did not take any measures due to low interest rate exposure. The risk of market value changes of raw materials and the risk of market value changes of shares and bonds do not significantly impact the Krka Group's net financial result. This is why we monitor changes in exposure to these risks but do not implement any risk management measures. Foreign Exchange Risk The Krka Group operates in diverse international environments and is exposed to foreign exchange risk in certain sales and purchase markets. Currency exposure arises from the difference in the value of assets and liabilities in a particular currency in the financial position statement of the Group and from differences between operating income and expenses generated in individual currencies. 2021 Annual Report – Business Report 60 The key accounting categories composing a currency position are trade receivables, trade payables, liquid financial assets in foreign currencies, derivatives for currency risk hedging, and subsidiary funding by the controlling company. Currency Position Structure of the Krka Group Percentage of the Currencies in the Krka Group Currency Position Structure At the end of 2021, the Russian rouble accounted for the largest, 29%, share of the Krka Group currency position, taking into account the size of the position in roubles was partially hedged with derivatives. The position in the rouble arises from trade receivables in the Russian market and partly from the controlling company’s funding in the Russian Federation. The importance of the Russian sales market, level of currency exposure, and volatility of the Russian rouble are why we pay special attention to Russian rouble risk management. Unlike with other currencies, a surplus of liabilities over assets has accrued in regular business operations from exposure to the US dollar, or in other words, the currency position is short. Exposure to the US dollar arises primarily from purchasing raw and other materials. Considering liquid financial assets in US dollars, which offset the short currency position from operations, the exposure in US dollars accounts for approximately 6% of the Krka Group total currency exposure. The exposure to the Romanian leu, accounting for 18% of the currency position at the end of 2021, arises from trade receivables accrued due to extended payment terms in Romania. Exposure to the Polish zloty is the result of trade receivables and manufacturing facilities held by the Group in Poland and represents 15% of the currency position. Other currencies, among them the Croatian kuna, Swedish krona, North Macedonian denar, Kazakh tenge, Serbian dinar, British pound, Czech koruna, Ukrainian hryvnia, and Hungarian forint, account for 32% of the Krka Group currency position. 2021 Currency Markets Krka's key sales and purchase markets experienced imbalanced dynamics in terms of economic recovery and uncertainty with regard to rising inflation in individual countries while at the same time facing a constant risk of economies shutting down again. Uncertainty in currency markets led to high volatility of individual exchange rates. The 2021 fluctuation in the Russian rouble was favourable for us. The value of the rouble expressed in the euro went up by 7.2% during the year. The average 2021 value of the Russian rouble was 5.1% below the 2020 level. The Brent oil price expressed in US dollars jumped by 50% in 2021. The value of the rouble expressed in the euro did not follow the dynamics of oil price increase. After 2020, which was heavily affected by the pandemic, the Russian economy recorded high economic growth and rising inflation in 2021. Consequently, the Central Bank of the Russian Federation 2021 Annual Report – Business Report 61 increased its key interest rate by 4.25 percentage points. Owing to high interest rate growth accompanied by a significant rise in oil prices, the rouble strengthened against the euro and the US dollar. Interest rate increase in the Russian Federation led to a gradual rise in the cost of hedging Krka’s position in roubles in 2021. The Polish zloty was more stable in 2021. Its value dropped by 0.8% from the beginning to the end of the year, while the average value was 2.7% lower than in 2020. In the last quarter of 2021, the Polish central bank started to increase its key interest rate due to the rising inflation. The central bank is not in favour of strengthening the domestic currency, which impacted the market value of zloty. Over the course of 2021, the value of the Romanian leu expressed in the euro declined by 1.7%, which was in line with the gradual depreciation of the currency against the euro in recent years. The Croatian kuna, participating in the ERM II mechanism since 2020, remained stable against the euro. In 2021, the British pound went up 7% against the euro. Although the movement of both currencies in 2021 positively impacted the Krka Group's net financial result, the contribution was small. The value of the US dollar expressed in the euro went up by 8.3% over the course of 2021, while the average value of the dollar expressed in the euro was 3.4% below the 2020 level. The US dollar strengthened more significantly in the second half of 2021, when it became clear that the inflation in the US and worldwide would rise over the longer term. In the second half of the year, the US Federal Reserve announced that it would gradually withdraw monetary stimulus measures and increase the key interest rate for the first time in 2022. Meanwhile, the European Central Bank decided to delay and slow down the tightening of its monetary policy, which further contributed to strengthening of the US dollar against the euro in 2021. In 2021, the Ukrainian hryvnia strengthened again after plummeting in 2020. However, its value against the euro weakened due to the geopolitical risk at the end of the year. The macroeconomic situation in the country remains uncertain, which will continue to be reflected in currency movements. 2021 Movement of Currencies Expressed in Euro (Index 31 Dec 2020 = 100) Currency Risk Management Results The Krka Group generally mitigates currency risks by natural hedging, primarily by increasing purchases and liabilities in currencies in which sales invoices are issued. When this is not possible, we use derivatives or do not hedge the risk. Generally, only forward contracts are used for hedging. 2021 Annual Report – Business Report 62 In 2021, Krka continued its policy of partial hedging against rouble-related risk. Less than 50% of the risk exposure to the Russian rouble was hedged using forward contracts. Due to the strengthening of the rouble value in euros, we generated net foreign exchange gains partially offset by net expenses from forward contracts used for hedging the rouble. The increasing operational risk exposure and an interest rate difference between the euro and the US dollar that is favourable for Krka are two key reasons that contributed to partial hedging of the exposure in the US dollar with financial instruments also in 2021. Due to the short currency position, the dollar strengthening had a negative financial impact on the Krka Group result. In 2021 however, this was largely offset by income from the US dollar hedging instruments. We generated net foreign exchange losses from other currencies in 2021. Exposure to other currencies was not hedged. The Krka Group's currency exposure to the Ukrainian hryvnia, Kazakh tenge, Serbian dinar, and certain other currencies is less significant, and no hedging instruments are available. The currency risk balance in 2021 was positive, totalling €7.7 million. Net financial result of the Krka Group, which also included currency risk result, interest income and expenses, and other financial income and expenses, totalled €7.6 million. 2022 Objectives In 2022, we intend to retain partial hedging for the exposure to the Russian rouble and the US dollar by using financial instruments. We will continue to focus on activities to offset currency exposure by natural hedging. 2021 Foreign Exchange Rates 31 Dec 2020 31 Dec 2021 Lowest value Highest value Average value Standard deviation Coefficient of variation RUB 91.47 85.30 80.64 92.38 87.17 2.93 3.4% HRK 7.55 7.52 7.48 7.59 7.53 0.03 0.4% RON 4.87 4.95 4.87 4.95 4.92 0.03 0.5% PLN 4.56 4.60 4.45 4.71 4.57 0.05 1.1% CZK 26.24 24.86 24.86 26.42 25.64 0.32 1.2% HUF 363.89 369.19 345.82 370.91 358.54 6.26 1.7% UAH 34.61 30.98 29.89 34.95 32.24 1.33 4.1% RSD 117.56 117.41 116.74 118.00 117.42 0.12 0.1% USD 1.23 1.13 1.12 1.23 1.18 0.03 2.4% GBP 0.90 0.84 0.84 0.91 0.86 0.01 1.5% * Standard deviation to mean value ratio Interest Rate Risk Interest rate risk is the risk of losses that result from a change in interest rates and is related to Krka’s non-current borrowings and investments. The interest rate risk with current borrowings and current investments is managed as part of the Group's liquidity risk. The Krka Group had no non-current borrowings in 2021. 2022 Objectives If we obtain non-current borrowings or make non-current investments resulting in interest rate risk exposure, we will consider all options to mitigate the risk using relevant financial instruments. 2021 Annual Report – Business Report 63 Credit Risk The key credit risk of the Krka Group arises from trade receivables. This is the risk of customers failing to settle their liabilities by maturity dates. Credit Risk Management Process The Krka Group introduced a centralised credit control process in 2004. The system includes all customers with credit limits exceeding €20,000. Numbering over 570 at the end of 2021, they accounted for more than 95% of total trade receivables. Receivables due from small customers accounted for less than 5% of total trade receivables. Control over small customers is decentralised in the sales network and under the constant supervision of the controlling company. Credit control is a two-step process. The first step involves assessing the credit risk for each customer, determining hedging instruments, and assigning relevant credit limits. We assess each new customer and review the credit ratings of all customers twice a year. Each credit rating includes many different financial and non-financial indicators, which fall into four categories; each has a different weight in the final assessment. Credit Risk Assessment Indicator Categories Each customer is assigned a customised credit limit according to the credit rating and the expected shipment and payment dynamics. The second step in the credit-control process involves regular dynamic monitoring of a customer's payment discipline. The information systems of all Krka Group companies engaged in sales monitor available limits and overdue receivables. Control is exercised for each shipment of Krka products to customers. A shipment is automatically blocked if a customer is in arrears or if receivables together with the new shipment exceed the approved credit limit. Sales personnel are required to initiate a payment collection procedure or arrange hedging for the outstanding settlements. Krka’s internal rules determine the process of credit control and authorisations for granting credit limits to customers. Credit control also avails of a system of regular reporting on trade receivables and the customer's payment discipline. The reporting system aids the early detection of customers at increased risk of defaulting on payments and facilitates effective credit risk management. The credit control process employs uniform rules which apply to all customers. Due to specifics of individual sales markets, additional national controls have been introduced in individual subsidiaries. Credit control processes are regularly adjusted to changes in the sales markets. 2021 Annual Report – Business Report 64 Credit Risk Management Results Credit control guarantees permanent control over the quality of the trade receivables portfolio. The result of the credit control process is a low percentage of receivable write-offs and impairments in total Krka Group sales. The amount of receivable write-offs and impairments is also low because receivables are dispersed across many customers and sales markets, and the majority of outstanding receivables are due from customers with whom Krka has been doing business for several years. Despite the risks arising from the COVID-19 pandemic, receivables were well managed in 2021. At the end of 2021, the value of trade receivables increased by 22% compared to the beginning of the year. However, the amount of overdue and outstanding receivables remained within limits acceptable for Krka. The amount of the newly established valuation allowance for receivables exceeded the amount of the reversed allowance. The impact of net impairments and write-offs on the Krka Group's bottom line in 2021 was less than 0.07% of sales. Receivable Impairments and Write-Offs (Net) Trade Receivable Insurance Since 2009, the Krka Group has insured part of its trade receivables with a credit insurance company. In the second quarter of 2020, trade receivable insurance was extended and supplemented. At the end of 2021, more than 98% of trade receivables were insured. Bank guarantees and letters of credit are used only exceptionally to secure payments. 2021 Annual Report – Business Report 65 Insured and Uninsured Receivables Trade Receivables by Region The structure of receivables by sales region is stable and conforms to the structure of sales and payment terms in individual countries. Trade Receivables by Region Maturity Structure of Trade Receivables The maturity structure of receivables remained stable. The percentage of overdue receivables compared to total trade receivables remained low at the end of 2021. 2021 Annual Report – Business Report 66 Receivables by Maturity 2022 Objectives We will continue standard credit risk management activities in 2022. The insurance contract for our trade receivables expires in the middle of 2022. Once renewed, we plan to optimise the conditions for receivable insurance further. As before, we plan to redouble our monitoring of customers from markets with less favourable macroeconomic environments and markets where we have identified increased risks in the wholesale distribution of medicines. Where individual customer exposure above the acceptable levels is established, we will introduce individual measures to reduce the exposure gradually. Our goal remains low receivable impairment and write-off total at the Group level. Liquidity Risk Business partners value Krka for its excellent financial discipline and stable cash flows. In 2021, we settled all financial liabilities regularly. Krka Group exposure to liquidity risk was low last year. We did not use any new short-term funding from banks or draw funds from existing credit lines in 2021. At the end of 2021, the Krka Group recorded excess liquidity, primarily as cash at bank or deposits with first-class commercial banks. The 2021 increase in excess liquidity resulted from surplus cash flow from operating activities over negative cash flows from investing and financing activities. In the European Economic and Monetary Union (EMU) money markets, negative interest rates still apply to low-risk cash investments. In accordance with internal rules on diversification of investments and taking account of banks’ credit risks, we deposited a part of the cash surplus with banks during the year. In this way, we reduced the cost of negative interest rates and invested another part in short-term bonds of selected European countries. The controlling company manages liquidity risk centrally for the entire Group. The controlling company finances subsidiaries through intra-group loans. Any potential cash surpluses are deposited with the controlling company. Excess cash from all Group companies is transferred to the controlling company's master account either automatically daily (cash pooling) or manually through individual bank transfers. This allows for cash management optimisation, currency risk mitigation, an overview of liquidity of all Group companies, and enhanced security of cash transactions. The Krka Group also reported favourable and stable liquidity ratios at the end of 2021. The continuing COVID-19 pandemic did not increase the Group’s liquidity risk in 2021. 2021 Annual Report – Business Report 67 Krka Group Liquidity Ratios 2021 2020 2019 2018 2017 Five-year average Current ratio 3.21 4.00 3.21 3.03 2.86 3.26 Quick ratio 2.21 2.54 2.02 1.89 1.85 2.10 Acid test ratio 0.69 1.04 0.62 0.38 0.15 0.58 Receivables turnover ratio 3.45 3.50 3.21 2.68 2.36 3.04 Current ratio = Current assets/Current liabilities Quick ratio = (Current assets – Inventories)/Current liabilities Acid test ratio = (Investments + Cash and cash equivalents)/Current liabilities Changes in Krka Group Liquidity Ratios 2022 Objectives In 2022, we intend to ensure adequate liquidity of all Group companies based on cash flow management within the Krka Group. Property, Liability, and Business Interruption Insurance The Krka Group holds insurance policies with domestic and foreign insurance companies to insure property, liabilities, and financial losses in the event of a business interruption. Insurance is one of the risk management tools. Our internal Insurance Policy defines types of insurance and their characteristics. The document was adopted by the Management Board, which also confirms any changes to it. Decisions on insurance type and scope of coverage are made based on the materiality of risks and the insurance price. The materiality of risks is determined based on estimates concerning the probability of occurrence and the extent of potential damages, and the impact on operations. The Krka Group primarily invests in prevention, as the effect on risk management is more optimal compared to purchasing insurance. One of the reasons for taking out insurance is legislation, which may require specific types of insurance. We adjust insurance scope and coverage to our business growth, property value, and conditions in the international insurance markets. We also consider the wider community's interests and those of our stakeholders, for example, concerning environmental liability insurance or product liability insurance. 2021 Annual Report – Business Report 68 Among the most important insurance policies taken out by the Krka Group for risk management are property and business interruption insurance, general civil liability insurance, insurance of product liability, clinical trials and product recalls, and freight-in-transit insurance. The controlling company manages the insurance policies of all Krka Group companies, except local car insurance policies. However, the Company still provides guidelines and monitors car insurance. The entire Krka Group is insured in compliance with uniform principles. The competitiveness and safety of individual insurance companies is reviewed every year. We consider the quality of coverage, premium rates, references, financial security, and national legal requirements when selecting insurance companies. Insurance premiums exclusive of car insurance amounted to 2.25‰ of sales in 2021 and accounted for 2.01‰ of total sales over the past six years. In order to improve our insurance programme, we surveyed the international insurance market in 2021. Krka makes gradual improvements every year and at the same time assumes part of the risk, either through insurance deductibles or by cancelling low-risk insurance policies. In 2020, we introduced a new method for insuring freight in transit, whereby the process of consignment insurance was automated. In 2021, Krka continued optimising the programme by increasing insurance deductibles and optimising insurance coverage. At the same time, three insurance audits were carried out in the Krka Group. We received no critical recommendations. Krka has been investing systematically in damage prevention. Our buildings are designed so that their hazard exposure is as low as possible. They are equipped with active fire protection systems, for example, fire and smoke alarms, sprinkler systems, fire flaps, and safety lighting. Preventive inspections and fire drills are arranged regularly. Employees undergo theoretical and practical emergency response training. Planned preventive actions and insurance coverages have reduced property damage over the last five years, which remains low, and all insurance claims were promptly resolved. Share of Insurance Premiums in Sales Note: This chart does not include car or personal insurance 2021 Annual Report – Business Report 69 Investor and Share Information Shareholder Return Krka Share Price on the Ljubljana Stock Exchange € 2021 2020 2019 2018 2017 Year high 120.00 92.60 74.60 59.80 58.00 Year low 91.20 54.00 56.80 53.60 50.75 31 December 118.00 91.40 73.20 57.80 57.50 Annual change (%) 29.1 24.9 26.6 0.5 8.7 In 2021, the Krka share price rose by 29.1%. In the same period, the value of the blue-chip index of the Ljubljana Stock Exchange (SBITOP) advanced by 39.8%. Krka Share Price Performance Compared to Selected Share Indices Over the Last Five Years Sources: The Ljubljana Stock Exchange and S&P Dow Jones Indices LLC Dividend Policy The Annual General Meeting decides on the proposed dividend amount. In 2021, we allocated 53.6% of the consolidated net profit attributable to equity holders of the controlling company generated in 2020 for the payout of dividends. Gross dividend per share increased by 17.6%. When determining the net profit share for dividend payout each year, the Company's long-term dividend policy is considered. At least 50% of the net profit of the controlling company's equity holders is allocated for dividends. The Group’s financial requirements for investments and potential acquisitions are also taken into account. 2021 Annual Report – Business Report 70 Dividends and Dividend Yield 2021 2020 2019 2018 2017 Earnings per share 1 (€) 9.92 9.27 7.73 5.46 4.74 Gross dividend per share 2 (€) 5.00 4.25 3.20 2.90 2.75 Dividend payout ratio 3 (%) 53.6 54.3 58.2 60.8 81.7 Dividend yield 4 (%) 4.2 4.6 4.4 5.0 4.8 1 Net profit of the year attributable to equity holders of the controlling company/Average number of shares issued in the period, excluding treasury shares 2 Dividends paid for the previous period per the AGM resolution 3 Total dividends paid/Net profit attributable to majority equity holders of the controlling company 4 Gross dividend per share/Share price as at 31 December Share Trading and Shareholding 20 Krka shares are listed on the prime market of the Ljubljana Stock Exchange. Since April 2012, they have been dual-listed on the Warsaw Stock Exchange. All Krka shares traded on the Ljubljana and Warsaw stock exchanges are of the same class: ordinary and freely transferable. Each share, except treasury shares, carries one vote at the AGM. Krka shares are traded freely through brokerage companies and banks that are members of the Ljubljana or Warsaw stock exchanges. Krka Share Trading Sources: The Ljubljana Stock Exchange and the Warsaw Stock Exchange Krka shares are the most traded security on the Ljubljana Stock Exchange. In 2021, the average daily trading volume of Krka shares on the Ljubljana Stock Exchange reached €0.65 million or 6,200 shares, including blocks. 20 GRI GS 102-5, 102-10 2021 Annual Report – Business Report 71 Ten Largest Shareholders as at 31 December 2021 Shareholder Number of shares Percentage of total shares issued (%) 1 Kapitalska družba, d. d. 3,493,030 10.65 2 Slovenski državni holding, d. d. (SDH) 2,949,876 9.00 3 Republic of Slovenia 2,366,105 7.22 4 OTP banka, d.d. 1 1,610,316 4.91 5 Erste Group Bank AG - PBZ Croatia Osiguranje 1 1,199,638 3.66 6 Clearstream Banking SA 1 1,064,929 3.25 7 State Street Bank and Trust 1 591,727 1.80 8 Luka Koper, d. d. 433,970 1.32 9 KDPW 1 327,475 1.00 10 Privredna banka Zagreb d. d. 1 318,434 0.97 Total 14,355,500 43.78 1 The shares are on custody accounts with the above banks and are owned by their clients. At the end of 2021, Krka had 46,820 shareholders, or just over 1% less than at the end of 2020. Shareholder Structure (%) Source: KDD Foreign investors' holdings have declined by 1 percentage point, while holdings of domestic retail investors and treasury shares have somewhat advanced. In 2021, the Company acquired 142,134 treasury shares valued at €15,238 thousand on the regulated market and held 1,683,908 treasury shares as at 31 December 2021. Communication with Investors 21 We strive for open, prompt, and consistent communication with investors as much as possible and mutual exchange of information. We provide them with information mainly related to our business results and the Krka Group’s future strategy, complying with the information disclosure policy. Investors and financial analysts give us feedback, which we always carefully consider and present to Krka’s Management Board. In 2021, we participated in 15 online investment conferences 21 GRI GS 102-43, 102-44 2021 Annual Report – Business Report 72 with investors from more than 15 countries. We organised four webcasts to present our quarterly business reports and held several conference calls with more than 100 investors. We hosted a virtual Krka Investor Day, where we presented our nine-month business report to 32 investors that attended the meeting. The event also offered a great opportunity to outline professional competency in development and regulatory affairs at Krka. Director of Pharmaceutical R&D and Director of New Products made the presentations. Of all companies listed on the Ljubljana Stock Exchange, we took home two prizes at the Ljubljana and Zagreb Stock Exchanges’ Investor Day, winning the Prime Market Share of the Year Award for the fourth successive time and Best Investor Relations Award for the third consecutive time. Krka’s business results are available in Slovenian and English on SEOnet (http://seonet.ljse.si) of the Ljubljana Stock Exchange, ESPI of the Warsaw Stock Exchange, and Krka’s webpages. Business Performance Operating Income Revenue In 2021, the Krka Group sales revenue amounted to €1,565.8 million, of which revenue from contracts with customers on sales of products and services reached €1,560.3 million. Revenue from contracts with customers on sales of materials and other sales revenue constituted the difference. Sales grew by €30.9 million, up 2% on 2020. Over the past five years, average annual sales grew by 3.7% in volume and 5.9% in value. Other operating income of the Krka Group amounted to €11.4 million. In 2021, the Company generated sales of €1,381.4 million, of which revenue from contracts with customers on sales of products and services amounted to €1,211.5 million. Revenue from contracts with customers on sales of materials accounted for €163.3 million and other revenue from sales totalled €6.6 million. Sales dropped by €65.7 million or 5% on 2020. Other operating income amounted to €6.7 million. 2021 Annual Report – Business Report 73 Operating Expenses The Krka Group operating expenses totalled €1,222.4 million, up €67.7 million or 6% on 2020. The Company incurred operating expenses of €1,114.7 million, which remained at the 2020 level. The Krka Group operating expenses comprised costs of goods sold amounting to €674.6 million, selling and distribution expenses of €305.9 million, R&D expenses of €154.6 million, and general and administrative expenses totalling €87.4 million. Operating expenses accounted for 78% of sales and, over the past five years, ranged between 75% in 2020 and 85% in 2017. Costs of goods sold, up 8% on 2020, represented the largest item in the Krka Group operating expense structure. Expressed as a percentage of sales, they accounted for 43.1% in 2021 and 40.6% in 2020. Selling and distribution expenses rose by 5% on 2020 and accounted for 19.5% of total sales, 0.5 percentage points more than in 2020. R&D expenses accounted for 9.9% of total sales, down 0.1 percentage points compared to 2020 and up 1% year on year. General and administrative expenses amounted to 5.6% of total sales, a 1% increase on 2020, while expressed as a proportion of sales they remained at the 2020 level. The Company's operating expenses included costs of goods sold amounting to €614.8 million, selling and distribution expenses of €271.4 million, R&D expenses of €150.2 million, and general and administrative expenses totalling €78.2 million. Costs of goods sold, which fell by 1% compared to 2020, represented the largest item in the Company's operating expense structure. They accounted for 44.5% of total sales, or 1.4 percentage points more than in 2020. Selling and distribution expenses grew by 3% on 2020 and accounted for 19.6% of total sales, a 1.4 percentage point increase on 2020. R&D expenses accounted for 10.9% of total sales, up 0.5 percentage points on 2020, and remained at the 2020 level. General and administrative expenses accounted for 5.7% of sales, up 4% on 2020, increasing as a proportion of sales by 0.5 percentage points. Financial Income and Expenses Krka Group Company € thousand 2021 2020 2019 2018 2017 2021 2020 2019 2018 2017 Financial income 19,711 23,259 24,987 5,935 24,041 24,714 31,786 34,410 17,382 24,908 Financial expenses -12,082 -75,011 -14,814 -36,048 -46,608 -12,083 -72,837 -14,751 -33,891 -46,599 Net financial result 7,629 -51,752 10,173 -30,113 -22,567 12,631 -41,051 19,659 -16,509 -21,691 In 2021, the Krka Group’s net financial result amounted to €7.6 million, and the Company’s net financial result totalled €12.6 million. The Krka Group operates in diverse international environments and is exposed to foreign exchange risks in certain sales and purchase markets. The Group's currency risk yielded a profit of €7.7 million in 2021. You can find more on foreign exchange risk on pages 59-62. The Krka Group financial income comprised net foreign exchange gains of €15.1 million, derivatives income totalling €3.0 million, interest income of €0.8 million, income from dividends and other profit shares worth €0.7 million, and other financial income totalling €0.1 million. Financial expenses consisted of derivatives expenses of €10.5 million, interest expenses of €0.5 million, and other financial expenses of €1.1 million. The Company's financial income comprised net foreign exchange gains totalling €15.1 million, income from dividends and other profit shares worth €6.1 million, derivatives income of €3.0 million, interest income of €0.5 million, and other financial income totalling €0.1 million. Financial expenses consisted of derivatives expenses of €10.5 million, interest expenses of €0.5 million, and other financial expenses of €1.1 million. 2021 Annual Report – Business Report 74 Operating Results Operating Profit and Net Profit for the Year The Krka Group’s EBIT amounted to €354.8 million, down €36.0 million or 9% on 2020. The drop is attributable to relatively higher operating expenses compared to 2020, when the COVID-19 pandemic had a stronger impact. The Krka Group’s EBITDA amounted to €463.6 million, down €38.8 million or 8%. The Company's EBIT totalled €273.3 million, while its EBITDA reached €358.2 million. In 2021, the Krka Group's profit before tax rose by €23.4 million or 7% to €362.4 million. The Krka Group's effective tax rate was 15.0%. The Company's profit before tax amounted to €286.0 million. 22 The Krka Group recorded net profit of €308.2 million, a €19.2 million or 7% climb on 2020. The Company's net profit totalled €245.2 million. 22 GRI GS 207-4 2021 Annual Report – Business Report 75 Assets Krka Group Company € thousand 2021 Share (%) 2020 Share (%) Index 2021/20 2021 Share (%) 2020 Share (%) Index 2021/20 Non-current assets 1,075,747 42.4 990,998 44.3 109 1,095,419 45.1 1,032,949 46.8 106 Property, plant and equipment 774,352 30.5 807,824 36.1 96 570,086 23.5 605,164 27.4 94 Intangible assets 104,301 4.1 107,371 4.8 97 25,628 1.1 27,893 1.3 92 Investments and loans 149,183 5.9 25,796 1.2 578 486,336 20.0 385,055 17.4 126 Other 47,911 1.9 50,007 2.2 96 13,369 0.5 14,837 0.7 90 Current assets 1,461,936 57.6 1,244,544 55.7 117 1,332,521 54.9 1,175,430 53.2 113 Inventories 455,707 18.0 453,690 20.3 100 394,323 16.2 389,178 17.6 101 Trade receivables 467,764 18.4 383,560 17.2 122 424,588 17.5 415,286 18.8 102 Other 538,465 21.2 407,294 18.2 132 513,610 21.2 370,966 16.8 138 Total assets 2,537,683 100.0 2,235,542 100.0 114 2,427,940 100.0 2,208,379 100.0 110 At the end of 2021, the Krka Group's assets were valued at €2,537.7 million, up €302.1 million or 14% on year-end 2020. The ratio of non-current to current assets in the overall asset structure differed from that recorded at year-end 2020, as non-current assets dropped 1.9 percentage points, accounting for 42.4%. At the end of 2021, the Company's assets were valued at €2,427.9 million, up €219.6 million or 10% on year-end 2020. The ratio of non-current to current assets in the overall asset structure differed from that recorded at year-end 2020, as non-current assets dropped 1.7 percentage points, accounting for 45.1%. The Krka Group's non-current assets were valued at €1,075.7 million, up €84.7 million or 9% on year-end 2020. The most important item in the asset structure of the Krka Group was property, plant and equipment (PP&E). It was valued at €774.4 million and accounted for 31% of total Group assets (of which the Company's PP&E accounted for €570.1 million or 74% of the Krka Group's PP&E). Intangible assets were worth €104.3 million and accounted for 4% of total assets (of which the Company's assets accounted for €25.6 million or 25% of total Krka Group intangible assets). The Krka Group's non-current loans totalled €40.3 million or 1.6% of total Krka Group assets. The Krka Group's current assets were valued at €1,461.9 million, a €217.4 million or 17% increase on year-end 2020. Trade receivables due from customers outside the Krka Group totalled €467.8 million, accounting for 18% of total Krka Group assets. Inventories amounted to €455.7 million and accounted for 18% of total Krka Group assets. Trade receivables increased by €84.2 million, or 22%, and inventories saw a rise of €2.0 million or 0.4%. The Krka Group's current loans totalled €192.4 million or 8% of total Krka Group assets. They comprised bank deposits of the controlling company maturing in 90 days or more, totalling €190.3 million. Cash and cash equivalents were valued at €159.8 million, down €153.7 million or 49% on year-end 2020, accounting for 6% of total Krka Group assets. The Company's non-current assets were valued at €1,095.4 million, accounting for a €62.5 million or 6% rise on year- end 2020. The most important item worth €570.1 million or 23% of total Company assets was PP&E. Investments in subsidiaries totalled €346.4 million or 14% of total Company assets. Intangible assets of €25.6 million accounted for 1% of total assets. The Company's non-current loans totalled €31.0 million or 1% of total Company assets. The Company's current assets were valued at €1,332.5 million, up €157.1 million or 13% on year-end 2020. Trade receivables totalled €424.6 million or 17% of Company assets (of which trade receivables due from customers outside the Krka Group totalled €191.3 million), and inventories amounted to €394.3 million or 16% of total Company assets. Trade receivables grew by 2% and inventories by 1%. The Company's current loans totalled €195.5 million or 8% of total Company assets. Cash and cash equivalents were valued at €145.0 million, down €151.4 million or 51% on year- end 2020, accounting for 6% of total Company assets. 2021 Annual Report – Business Report 76 Equity and Liabilities Krka Group Company € thousand 2021 Share (%) 2020 Share (%) Index 2021/20 2021 Share (%) 2020 Share (%) Index 2021/20 Equity 1,919,085 75.6 1,751,812 78.4 110 1,876,142 77.3 1,791,850 81.1 105 Non-current liabilities 162,674 6.4 172,796 7.7 94 128,783 5.3 136,380 6.2 94 Current liabilities 455,924 18.0 310,934 13.9 147 423,015 17.4 280,149 12.7 151 Total equity and liabilities 2,537,683 100.0 2,235,542 100.0 114 2,427,940 100.0 2,208,379 100.0 110 As at 31 December 2021, the Krka Group equity increased by €167.3 million or 10% on year-end 2020. The rise was attributable to the Krka Group's net profit totalling €308.2 million, other comprehensive income net of tax amounting to €25.1 million, and acquisition of non-controlling interests valued at €5.2 million. Equity declined as a result of dividend payout of €155.9 million and repurchase of treasury shares of €15.3 million. The Krka Group's provisions totalled €126.2 million (of which post-employment and other non-current employee benefits accounted for €124.3 million, provisions for lawsuits €0.6 million, and other provisions €1.3 million). They fell by €8.5 million or 6% compared to year-end 2020. Provisions for post-employment and other non-current employee benefits declined by €5.9 million, provisions for lawsuits by €1.6 million, and other provisions by €1.0 million. Among the Krka Group's current liabilities, trade payables grew by €22.9 million (of which payables to suppliers abroad by €14.4 million and payables to domestic suppliers by €8.5 million). Current liabilities from contracts with customers rose by €18.4 million (of which bonuses and volume rebates by €15.7 million and contract liabilities by €3.5 million, while right of return decreased by €0.8 million). Other current liabilities climbed by €111.7 million, of which liabilities from repurchase agreements by €102.2 million, payables to employees by €6.3 million, and other liabilities by €3.1 million. As at 31 December 2021, the Company’s equity increased by €84.3 million or 5% on year-end 2020. The increase was attributable to the Company's net profit amounting to €245.2 million and other comprehensive income net of tax totalling €10.2 million, while the decrease was a result of dividend payouts amounting to €155.9 million and repurchase of treasury shares totalling €15.3 million. The Company's provisions totalled €113.1 million (of which post-employment and other non-current employee benefits accounted for €112.6 million and provisions for lawsuits €0.5 million). Compared to year-end 2020, provisions declined by €6.7 million or 6% due to a decrease in provisions for post-employment and other non-current employment benefits by €5.1 million and provisions for lawsuits by €1.6 million. Of the Company’s current liability items, trade payables increased by €34.8 million. Current liabilities from contracts with customers rose by €2.9 million and other current liabilities by €104.8 million, of which liabilities from repurchase agreements by €102.2 million. At the end of 2021, the Company’s current borrowings from subsidiaries amounted to €55.1 million. Cash Flow Statement Krka Group Company € thousand 2021 2020 2021 2020 Net cash from operating activities 386,097 360,759 348,239 352,510 Net cash from investing activities -372,637 -109,594 -338,401 -87,552 Net cash from financing activities -169,850 -154,609 -163,901 -162,301 Net change in cash and cash equivalents -156,390 96,556 -154,063 102,657 Net change in cash and cash equivalents (exclusive of exchange rate fluctuations) of the Krka Group totalled -€156.4 million in 2021, since the positive cash flow from operating activities was lower than the negative cash flows from investing and financing activities. 2021 Annual Report – Business Report 77 The Krka Group generated profit from operating activities before changes in net current assets totalling €485.1 million. Changes in current assets that positively influenced cash flow included changes in trade payables and other current liabilities, while changes in trade receivables, inventories, provisions, and deferred revenue had a negative impact. Negative cash flows from investing activities of €372.6 million were primarily accrued due to net payments in connection with loans amounting to €162.5 million, net payments in connection with investments totalling €134.6 million, and acquisition of PP&E accounting for €65.9 million. Negative cash flows from financing activities totalling €169.9 million primarily resulted from payouts of dividends and other profit shares of €155.9 million and repurchased treasury shares of €15.3 million. Performance Ratios All 2021 performance ratios of the Krka Group and the Company are among the best in the past five years. 2021 Annual Report – Business Report 78 Operating Figures of Krka Group and Company for Past Five Years Krka Group Company € thousand 2021 2020 2019 2018 2017 2021 2020 2019 2018 2017 Revenue 1,565,802 1,534,941 1,493,409 1,331,858 1,266,392 1,381,367 1,447,112 1,390,248 1,231,784 1,197,756 EBIT 1 354,788 390,744 274,195 232,686 198,741 273,325 338,882 263,852 199,305 196,953 – EBIT margin 22.7% 25.5% 18.4% 17.5% 15.7% 19.8% 23.4% 19.0% 16.2% 16.4% EBITDA 2 463,625 502,432 385,437 343,280 306,638 358,188 424,028 345,929 282,493 278,627 – EBITDA margin 29.6% 32.7% 25.8% 25.8% 24.2% 25.9% 29.3% 24.9% 22.9% 23.3% Net profit 308,150 288,949 244,272 174,008 152,576 245,216 258,474 249,411 163,329 153,730 – Net profit margin 19.7% 18.8% 16.4% 13.1% 12.0% 17.8% 17.9% 17.9% 13.3% 12.8% Assets 2,537,683 2,235,542 2,184,618 1,985,069 1,919,131 2,427,940 2,208,379 2,129,960 1,916,065 1,837,482 ROA 3 12.9% 13.1% 11.7% 8.9% 8.0% 10.6% 11.9% 12.3% 8.7% 8.4% Equity 1,919,085 1,751,812 1,667,516 1,540,270 1,487,699 1,876,142 1,791,850 1,664,178 1,552,300 1,493,325 ROE 4 16.8% 16.9% 15.2% 11.5% 10.4% 13.4% 15.0% 15.5% 10.7% 10.5% 1 The difference between operating income and expenses 2 The difference between operating income and expenses increased by accumulated depreciation 3 Net profit/Average total asset balance in the year 4 Net profit/Average shareholders' equity in the year 2021 Annual Report – Business Report 79 Marketing and Sales In 2021, the Krka Group generated €1,565.8 million from sales of products and services, a 2% year-on-year rise. Of that revenue from contracts with customers on sales of products and services amounted to €1,560.3 million, while other revenue from contracts with customers on sales of material and other sales revenue constituted the difference. Sales in markets outside Slovenia reached €1,467.4 million and accounted for 94% of overall Krka Group sales. Product sales volume increased by 2%. Sales by Region 23 Region East Europe recorded the highest sales, €547.8 million or 35.1% of total Krka Group sales. Region Central Europe achieved the second-highest sales, €351.5 million or 22.5% of total Krka Group sales. Region West Europe ranked third in terms of sales with €305.2 million, accounting for 19.6% of total Krka Group sales. Sales generated by Region South- East Europe totalled €209.2 million or 13.4% of total sales, and by Region Overseas Markets €53.7 million or 3.4% of total sales. Region Slovenia generated sales of €92.9 million, accounting for 6% of total Krka Group sales. 2021 Krka Group Sales by Region Krka Group and Krka Sales by Region Krka Group Krka € thousand 2021 2020 Index 2021/20 2021 2020 Index 2021/20 Region Slovenia 92,880 85,138 109 56,421 55,385 102 Region South-East Europe 209,166 199,406 105 205,491 197,185 104 Region East Europe 547,778 517,231 106 320,973 289,471 111 Region Central Europe 351,501 341,463 103 336,699 325,793 103 Region West Europe 305,246 341,057 89 246,350 313,365 79 Region Overseas Markets 53,717 45,664 118 45,560 40,812 112 Total 1,560,288 1,529,959 102 1,211,494 1,222,011 99 23 GRI GS 102-6, 102-7 2021 Annual Report – Business Report 80 Quarterly Krka Group Sales by Region 2021 2020 € thousand Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Region Slovenia 18,270 23,502 27,033 24,075 23,325 15,022 26,207 20,584 Region South-East Europe 53,276 58,990 51,900 45,000 63,794 39,740 48,279 47,593 Region East Europe 132,122 144,401 121,226 150,029 153,082 118,606 105,495 140,048 Region Central Europe 97,805 91,098 82,955 79,643 113,706 68,969 79,328 79,460 Region West Europe 80,535 79,087 69,334 76,290 94,312 87,260 81,458 78,027 Region Overseas Markets 12,515 14,945 14,298 11,959 13,510 10,521 13,951 7,682 Total 394,523 412,023 366,746 386,996 461,729 340,118 354,718 373,394 Krka Group Sales by Region in Past Five Years Revenue since 2017 is presented in compliance with the IFRS 15. Region Slovenia In Slovenia, one of Krka's key markets, sales of products and services amounted to €92.9 million in 2021. Product sales reached €56.4 million, accounting for 2% growth in value. Prescription pharmaceuticals made up a major proportion of sales or 74%. Non-prescription products accounted for 21%, and sales of animal health products generated the remaining 5%. Holding a 7.4% market share, we maintained the leading position among providers of generic medicines in Slovenia in terms of sales value. Health resorts and tourist services generated €36.5 million, up 23% on the year before, contributing to 9% sales growth in the domestic market. Medicines for the treatment of cardiovascular diseases, pain, the gastrointestinal tract, and the central nervous system contributed to the highest prescription pharmaceutical sales. Market shares of all key therapeutic classes of prescription medicines increased. The highest sales volume was recorded by medicines for the treatment of cardiovascular diseases, most notably: Prenewel (perindopril/indapamide); Prenessa (perindopril); Amlessa (perindopril/amlodipine); and Amlewel (perindopril/amlodipine/indapamide). Of our cholesterol-lowering agents, sales of Sorvasta (rosuvastatin) were most substantial. We also strengthened the recognition of Sorvitimb (rosuvastatin/ezetimibe). We strengthened recognition of Roxiper, the only product on the market that contains perindopril, indapamide and rosuvastatin. We introduced a new single-pill combination of rosuvastatin, amlodipine, and perindopril, Roxampex. 2021 Annual Report – Business Report 81 Our most prominent pain relievers were Nalgesin Forte (naproxen) and Doreta (tramadol/paracetamol), including Doreta SR (tramadol/paracetamol) prolonged-release tablets. We placed on the markets our non-opioid analgesic Algominal (metamizole). Nolpaza (pantoprazole) and Emozul (esomeprazole) were our most notable agents for treating gastrointestinal diseases. From our range for the central nervous system, our most prominent brands included: Asentra (sertraline); Mirzaten (mirtazapine); Dulsevia (duloxetine); Kventiax (quetiapine); Parnido (paliperidone); and Memaxa (memantine). We added to our product portfolio Vitamin D3 Krka (cholecalciferol) available on prescription and an oncology agent Pemetrexed Krka (pemetrexed). Sales of non-prescription products were driven by Magnezij Krka, followed by Nalgesin S (naproxen), and Vitamin D3 Krka (cholecalciferol). Sales of animal health products were driven by Fypryst Combo (fipronil/S-methoprene), Rycarfa (carprofen), and Grovit vitamins and minerals. Krka Group Market Position in Slovenia Holding a 7.4% market share, we placed first among all providers of generic medicines. Of all medicines sold in Slovenia, one in five was made by Krka. We were the leading provider of:  Non-steroidal anti-inflammatory and antirheumatic medicines, accounting for more than a 65% market share;  Proton pump inhibitors, accounting for more than a 55% market share;  Statins, accounting for approximately a 55% market share;  Agents acting on the renin-angiotensin system, accounting for approximately a 45% market share;  Products with effect on pharynx, accounting for approximately a 40% market share;  Antipsychotics, anxiolytics, anti-dementia medicines, and antidepressants, accounting for approximately a 35% market share. We were the leading provider of medicines containing alprazolam; atorvastatin; ciprofloxacin; dexamethasone; doxazosin; donepezil, enalapril; esomeprazole; gliclazide; indapamide; carvedilol; quetiapine; losartan, including losartan in combination with hydrochlorothiazide; memantine; metronidazole; naproxen; omeprazole; pantoprazole; perindopril, including perindopril in combinations with amlodipine and indapamide; ramipril; rosuvastatin; sertraline; simvastatin; tramadol in combination with paracetamol; valsartan; and venlafaxine. We were the leading provider of generic medicines containing aripiprazole; duloxetine; etoricoxib; olanzapine; tamsulosin; and valsartan in combination with hydrochlorothiazide. We were the leading provider of non-prescription products as follows: products with effect on pharynx; non-steroidal anti- inflammatory drugs (NSAIDs); group B vitamins, proton pump inhibitors; magnesium-containing products; and vitamin D. Among medicines that generated strongest sales were: Nalgesin (naproxen); Nolpaza (pantoprazole); Sorvasta (rosuvastatin); Prenewel (perindopril/indapamide); Prenessa (perindopril); and Doreta (paracetamol/tramadol). Region South-East Europe Product sales in Region South-East Europe amounted to €209.2 million, a 5% year-on-year increase. We recorded growth on all regional markets. Serbia recorded the highest absolute sales growth of €2.4 million year on year. In terms of absolute sales growth, it was followed by North Macedonia and Bulgaria, where sales increased by €2.1 million and €1.9 million, respectively. Prescription pharmaceuticals accounted for almost 87% of regional sales and were followed by non-prescription products at just shy of 10%. Animal health products constituted slightly less than 4% of total regional sales. Our leading product group of prescription pharmaceuticals achieved 6% growth year-on-year. Non-prescription product sales advanced by 2%, while animal health products lagged behind the 2020 sales figure by 1%. In Romania, one of our key markets and the largest regional one, year-on-year sales increased by 1% to €58.6 million. We held a 2.1% market share, or more than 6.8% of the market share volume, ranking us the country's third foreign provider of generic prescription pharmaceuticals. Our most important medicines in terms of sales were: Atoris (atorvastatin); Co-Prenessa (perindopril/indapamide); Doreta (tramadol/paracetamol); Roswera (rosuvastatin); Nolpaza (pantoprazole); and Dexametazona Krka (dexamethasone). Our best-selling non-prescription products were Bilobil (ginkgo leaf extract) and Nalgesin (naproxen) in that order. Companion animal products constituted the major part of animal health product sales, notably Fypryst (fipronil) and Milprazon (milbemycin/praziquantel). 2021 Annual Report – Business Report 82 Krka Group Market Position in Romania We ranked fifth among foreign providers of generic medicines holding a 1.7% market share. We were among the leading providers of:  SNRI antidepressants, accounting for more than a 55% market share;  Statins, accounting for more than a 20% market share;  Antimicrobials (fluoroquinolones), accounting for approximately a 20% market share;  Prescription analgesics and antipyretics, accounting for approximately a 20% market share;  Angiotensin II receptor antagonists, also their combinations with diuretics, accounting for approximately a 15% market share;  ACE inhibitors and ACE-based combinations, accounting for more than 10% market share. We were the leading provider of medicines containing ciprofloxacin; dexamethasone; duloxetine; enalapril; lansoprazole; losartan; mirtazapine; naproxen; norfloxacin; perindopril in combination with amlodipine; pramipexole; ropinirole; sulfasalazine; telmisartan; and tramadol, including the combination with paracetamol. We were the leading provider of generic medicines containing aripiprazole; esomeprazole; ivabradine; ginkgo leaf extract; combination of perindopril and indapamide; and combination of perindopril, indapamide, and amlodipine. Croatia, our another key market, ranked second in the region in terms of sales. Croatian sales totalled €36.1 million, up 2% on 2020. We ranked fifth among all providers of generic medicines and placed second among manufacturers of animal health products. Year-on-year sales of prescription pharmaceuticals and non-prescription products increased, while sales of animal health products decreased. According to the plan, sales of prescription pharmaceuticals generated the highest value, above all: Atoris (atorvastatin); Emanera (esomeprazole); Co-Perineva (perindopril/indapamide); Roswera (rosuvastatin); Co-Dalneva (perindopril/amlodipine/indapamide); Valsacombi (valsartan/hydrochlorothiazide); Helex (alprazolam); and Dexamethason Krka (dexamethasone). Of non-prescription products, Nalgesin (naproxen) and the Septolete brand products recorded the strongest sales. Sales of Fypryst (fipronil) and Enroxil (enrofloxacin) were most substantial in the animal health range. Krka Group Market Position in Croatia We placed third among foreign providers of generic medicines, holding a 3.2% market share. We were the leading provider of:  Angiotensin II receptor antagonists, also their combinations with diuretics, accounting for more than a 60% market share;  Antimicrobials (oral fluoroquinolones), accounting for more than a 55% market share;  Antitussives, accounting for more than a 35% market share;  Statins, accounting for approximately a 30% market share;  ACE inhibitors and ACE-based combinations with diuretics, accounting for more than a 25% market share;  Antidepressants, accounting for more than a 15% market share. We were among the leading providers of:  Mono-component corticosteroids for systemic treatment, accounting for more than a 40% market share;  Typical antipsychotics, accounting for approximately a 30% market share;  Sulphonamide antidiabetics, accounting for more than a 25% market share;  Proton pump inhibitors, accounting for approximately a 25% market share;  Anxiolytics, accounting for more than a 15% market share;  ACE inhibitors and ACE-based combinations with calcium channel blockers, accounting for more than a 15% market share;  Angiotensin II receptor antagonists, also in combination with calcium channel blockers, accounting for more than a 15% market share. We were the leading provider of medicines containing: alprazolam; atorvastatin; butamirate; dexamethasone; diosmin; escitalopram; esomeprazole; clarithromycin; lansoprazole; norfloxacin; perindopril, including perindopril in combination with indapamide; rosuvastatin; theophylline; and valsartan, including valsartan in combination with hydrochlorothiazide. We were the leading provider of generic medicines containing: desloratadine; gliclazide; perindopril in combination with amlodipine; perindopril in combination with amlodipine and indapamide; valsartan in combination with amlodipine; valsartan in combination with amlodipine and hydrochlorothiazide; and simvastatin. Serbia generated €30.2 million in sales and recorded 9% growth, ranking it third among regional markets. Owing to strong sales of prescription pharmaceuticals in pharmacies, rapid market share growth continued. Their share grew by 10% and accounted for 87% of total sales. Nolpaza (pantoprazole); Co-Amlessa (perindopril/amlodipine/indapamide); Roxera (rosuvastatin); Co-Prenessa (perindopril/indapamide); Atoris (atorvastatin); and Ampril (ramipril) were key medicines from this group. Nolpaza (pantoprazole) with 6.3 million packs sold and 16% year-on-year sales value growth remained one of 2021 Annual Report – Business Report 83 five medicines presenting strongest sales in Serbia. Nalgesin (naproxen), Bilobil (ginkgo leaf extract), and products sold under the Septolete brand generated strongest non-prescription product sales, down 2% in terms of value. Sales of animal health products increased by 3% compared to 2020. Fypryst (fipronil); Dehinel; Enroxil (enrofloxacin); and Tuloxxin (tulathromycin) were at the forefront. In Bulgaria, sales climbed for the eighth consecutive year, primarily due to successful expansion of our product range in several therapeutic areas, and rapid adaptation to the state of the market. Prescription pharmaceuticals climbed by 8% to €25.5 million and contributed the most to overall sales. Co-Valsacor (valsartan/hydrochlorothiazide); Valsacor (valsartan); Roswera (rosuvastatin); Co-Amlessa (perindopril/amlodipine/indapamide); Dexamethason Krka (dexamethasone); Nolpaza (pantoprazole); and Wamlox (valsartan/amlodipine) generated strongest sales. Non-prescription product sales climbed by 11% on 2020, while animal health products advanced by 5%. We have recorded sales growth in North Macedonia for seventeen successive years. Sales totalled €24.3 million, up a good 9% on 2020. Krka remained the leading foreign provider of generic medicines in the country. Contributing most to sales total, prescription pharmaceuticals were pivotal, in particular: Roswera (rosuvastatin); Nolpaza (pantoprazole); Enap (enalapril); Co-Prenessa (perindopril/indapamide) Atoris (atorvastatin); Tanyz (tamsulosin); and Lorista (losartan). Our non-prescription product sales went up by 25% on 2020, and were driven by: Daleron (paracetamol); Septanazal (xylometazoline/dexpanthenol); Bilobil (ginkgo leaf extract); Septolete Total (benzydamine/cetylpyridinium chloride); and Nalgesin (naproxen). We increased sales of animal health products by 29%. Fypryst (fipronil) and Floron (florfenicol) contributed to the increase the most. In 2021, we started marketing several products in North Macedonia, most notably our prescription pharmaceutical Xerdoxo (rivaroxaban). In Bosnia and Herzegovina, we recorded sales of €20.3 million, up 1% on 2020. Despite restrictions that applied to foreign manufacturers on certain reimbursement lists, we maintained the leading position among foreign providers of generic medicines on the market. Sales were driven in particular by prescription pharmaceuticals. Agents that recorded strongest sales were: Enap H/HL (enalapril/hydrochlorothiazide); Lexaurin (bromazepam); Roswera (rosuvastatin); Enap (enalapril); Nolpaza (pantoprazole); Atoris (atorvastatin); Amlewel (perindopril/amlodipine/indapamide); and Lorista H/HD (losartan/hydrochlorothiazide). Non-prescription product sales were driven by: Nalgesin (naproxen); B-Complex; the Septolete brand products; Panatus (butamirate); and Bilobil (ginkgo leaf extract). Key animal health products were Fypryst (fipronil), Rycarfa (carprofen), and Calfoset. In 2021, we started marketing several products, most notably our prescription pharmaceutical, Xerdoxo (rivaroxaban) and a non-prescription product, Vitamin D3 Krka (cholecalciferol). In Kosovo, we recorded a 12% sales increase, placing us among the leading providers of medicines in the country. Sales reached €7.9 million. Year-on-year sales went up by 7% to €3.6 million in Albania. As we expected, prescription pharmaceuticals constituted the mass of sales total. Ultop (omeprazole), Atoris (atorvastatin), and Nolpaza (pantoprazole) generated strongest prescription pharmaceutical sales. In Montenegro, sales totalled €2 million, up 6%. Overall country sales were driven by prescription pharmaceuticals, in particular Nolpaza (pantoprazole), Lorista (losartan), and Roswera (rosuvastatin). In 2021, we launched several medicines in the country, most notably Sobycor (bisoprolol); Naklofen Duo (diclofenac); Nalgesin Relief (naproxen); and Vitamin D3 Krka (cholecalciferol). In Greece, we started promoting our own products and in the first year generated product sales totalling €0.55 million. Strongest sales were made by prescription pharmaceuticals, above all Pitavador (pitavastatin); Rosuvador (rosuvastatin); Co-Valsareta (valsartan/hydrochlorothiazide); and Zoletad (lansoprazole). Region East Europe Region East Europe remained our leading sales region in 2021, with €547.8 million in sales, up 6% year on year. The two key regional markets contributed most to the result. We also recorded growth in all other regional markets, except in Armenia and Tajikistan. The Russian Federation remained our leading regional and largest individual market. Sales reached €332.9 million, or €6 million more than in 2020, accounting for just shy of 2% growth. Growth denominated in the Russian rouble was 9%. We were the leading provider of generic prescription pharmaceuticals in the pharmacy segment. The leading product group was prescription pharmaceuticals, which constituted 83% of overall sales and remained at the 2020 level. Our medicines that recorded strongest sales were: Lorista (losartan); Valsacor (valsartan); Lorista H/HD 2021 Annual Report – Business Report 84 (losartan/hydrochlorothiazide); Nolpaza (pantoprazole); Atoris (atorvastatin); Co-Perineva (perindopril/indapamide); Roxera (rosuvastatin); Vamloset (valsartan/amlodipine); Valsacor H/HD (valsartan/hydrochlorothiazide); and Co-Dalneva (perindopril/amlodipine/indapamide). We successfully started marketing two new products, Telmista AM (telmisartan/amlodipine) and Roxatenz (rosuvastatin/perindopril/indapamide). We are the leading provider of prescription pharmaceuticals for the treatment of cardiovascular diseases in the Russian Federation. Non-prescription products generated sales total of €38.4 million, up 19% on 2020. Septolete Total (benzydamine/cetylpyridinium chloride), products sold under the Herbion brand, and Nalgesin (naproxen) were at the forefront. We also recorded solid sales of Panatus (butamirate), Flebaven (diosmin/hesperidin), and Sleepzone (doxylamine). Sales of animal health products were valued at €18.2 million, up 2%. Doxatib (doxycycline), Milprazon (milbemycin/praziquantel), and Enroxil (enrofloxacin) generated strongest sales. We have been increasing the production capacity of our subsidiary Krka-Rus, which manufactures more than 75% of Krka products on demand in the Russian Federation. Krka Group Market Position in the Russian Federation We ranked third among foreign providers of generic medicines holding a 1.7% market share. We were the leading provider of prescription pharmaceuticals for the treatment of cardiovascular diseases. We were the leading provider of generic prescription pharmaceuticals in the pharmacy segment. We were the leading provider of:  Angiotensin II receptor antagonists, also in combinations, accounting for more than a 35% market share;  Statins, accounting for more than a 20% market share. We were among the leading providers of:  ACE inhibitors and ACE-based combinations, accounting for approximately a 20% market share;  Proton pump inhibitors, accounting for approximately a 15% market share;  Atypical antipsychotics, accounting for approximately a 15% market share;  Platelet aggregation inhibitors (ADP receptor antagonists), accounting for more than a 10% market share. We were the leading provider of medicines containing: atorvastatin; enalapril, including the combination with hydrochlorothiazide; losartan, including the losartan-based combinations with amlodipine and hydrochlorothiazide; naproxen; norfloxacin; olanzapine; orlistat; pantoprazole; and valsartan, including combinations with amlodipine and hydrochlorothiazide. We were the leading provider of generic medicines containing escitalopram; esomeprazole; ivabradine; clopidogrel; perindopril, including all perindopril-based combinations with amlodipine and indapamide; ramipril; rosuvastatin; telmisartan; and valsartan in combination with amlodipine and hydrochlorothiazide. In Ukraine, also our key market, sales of pharmaceuticals stagnated over the past few years. We, however, recorded sales growth again in 2021. Value of the domestic currency spurred market growth in terms of value in the euro, even though sales volume presented a drop. Sales volume increased by 11%, generating total sales of €96.4 million, up 12% on 2020. We ranked second among foreign providers of generic medicines holding a 2.5% market share. Prescription pharmaceuticals were the leading product group and presented 11% growth primarily owing to: Dexamethason (dexamethasone); Co-Amlessa (perindopril/amlodipine/indapamide); Co-Prenessa (perindopril/indapamide); Nolpaza (pantoprazole); and Valsacor (valsartan). Sales of non-prescription products increased by 23%. The Herbion brand products, Nalgesin (naproxen), and the Septolete brand products achieved the highest sales. Sales of animal health products increased by 2% compared to 2020. 2021 Annual Report – Business Report 85 Krka Group Market Position in Ukraine We ranked second among foreign providers of generic medicines holding a 2.5% market share. We were the leading provider of:  Parenteral corticosteroids, accounting for more than a 35% market share;  Statins, accounting for more than a 35% market share;  Angiotensin-II antagonists, also in combinations, accounting for more than a 30% market share;  ACE inhibitors, also ACE-based combinations with diuretics, accounting for more than a 20% market share. We were among the leading providers of:  Proton pump inhibitors, accounting for approximately a 15% market share;  Antimicrobials (oral fluoroquinolones), accounting for approximately a 15% market share;  Macrolide and pyranoside antibiotics, accounting for approximately a 10% market share. We were the leading provider of medicines containing: atorvastatin; dexamethasone; enalapril in combination with hydrochlorothiazide; ginkgo leaf extract; carvedilol; clarithromycin; naproxen; pantoprazole; perindopril in combination with indapamide; rosuvastatin; simvastatin; and valsartan. We were the leading provider of generic medicines containing betamethasone; perindopril; perindopril in combination with amlodipine; and perindopril in combination with amlodipine and indapamide. Subregion East Europe B In Subregion East Europe B, which includes Belarus, Mongolia, Armenia, and Azerbaijan, our product sales reached €43.7 million, up 20%. In Belarus, Mongolia, and Azerbaijan our product sales saw two-digit growth. Sales in Belarus totalled €20.1 million, up 14% on 2020. We increased our market share by above-average growth dynamics in terms of value and volume and retained second place among foreign providers of generic medicines. Co-Amlessa (perindopril/amlodipine/indapamide), Nolpaza (pantoprazole), and Lorista H/HD (losartan/hydrochlorothiazide) accounted for the mass of prescription pharmaceuticals, our key product group. We launched Kventiax (quetiapine); Telmista H (telmisartan/hydrochlorothiazide); Telmista (telmisartan); and Elicea (escitalopram). In the non-prescription product range, the Septolete and Herbion brand products sold best. Sales of our animal health products generated €0.6 million. In Mongolia, we recorded €12.6 million sales total and 48% year-on-year growth, maintaining the position of the leading foreign provider of medicines. Growth of prescription pharmaceuticals was driven essentially by a sharp rise in sales of cardiovascular agents. Lorista (losartan) and Nolpaza (pantoprazole) surpassed sales of €1 million. Of our most new products, Vamloset (valsartan/amlodipine) and Emanera (esomeprazole) were most notable, recording high sales increases. In 2021, we started marketing Co-Vamloset (valsartan/amlodipine/hydrochlorothiazide), Pregabalin (pregabalin), and a non-prescription product Septolete Total honey-and-lemon flavour lozenges. Non-prescription product sales were driven by Bilobil (ginkgo leaf extract), the Duovit brand products, and Nalgesin (naproxen). In Azerbaijan, our product sales reached €6.5 million, up 13% on 2020, and placed us among the leading generic manufacturers in the country, holding a 2.9%-market share. Sales of prescription pharmaceuticals, our leading product group, climbed by 12%, while non-prescription products lagged behind 2020 sales figures. Sales of animal health products totalled €0.2 million. In Armenia, we generated €4.4 million by product sales, a 2% drop on 2020 primarily due to a sharp decrease in prices. By increasing our market share to 4.2%, we ranked first among providers of generic medicines in the country. Prescription pharmaceuticals generated the major proportion, or 87% of sales, above all Co-Amlessa (perindopril/amlodipine/indapamide), Captopril (captopril), and Dexamethasone (dexamethasone). We recorded an 11% increase in sales of non-prescription products. Sales of non-prescription products were driven by products from the Septolete and Herbion brands. Subregion East Europe K Product sales in Kazakhstan, Moldova, and Kyrgyzstan were valued at €32.5 million, up 5% year on year. We recorded growth in all markets of the subregion. In Kazakhstan, product sales generated €15.9 million, up 3% on 2020, despite the high exposure to currency risk as prices for our products are registered in national currency. Denominated in national currency, we achieved 14% sales 2021 Annual Report – Business Report 86 growth. Prescription pharmaceuticals accounted for 68% of country sales, the same as in 2020. Sales were driven by: Nolpaza (pantoprazole); Enap (enalapril); Atoris (atorvastatin); Valodip (valsartan/amlodipine); and Valsacor (valsartan). Of prescription pharmaceuticals, we started marketing Co-Valodip (valsartan/amlodipine/hydrochlorothiazide). Sales of non-prescription products amounted to €4.2 million, up 5%. Products sold under the Herbion, Septolete, and Duovit brands recorded the strongest sales. We successfully launched Herbion Ivy lozenges. Animal health products generated €0.9 million in sales, up 65%. Product sales in Moldova generated €11.5 million, or 8% more than in 2020. We maintained the high market share and remained the leading provider of prescription pharmaceuticals, accounting for 77% of overall country sales, up 9%. Lorista (losartan), Dexamethason (dexamethasone), and Rawel (indapamide) generated the bulk of sales total. We started marketing two new products, Dekenor (dexketoprofen) and Mirzaten (mirtazapine). Sales of non-prescription products amounted to €2.4 million, up 7%. The leading non-prescription products were Septanazal (xylometazoline/dexpanthenol), Septolete Total (benzydamine/cetylpyridinium chloride), and the Herbion brand products. Sales of our animal health products generated €0.3 million. In Kyrgyzstan, our sales were affected by government regulations for improving accessibility of therapy, above all regulation of medicine prices in the compulsory health insurance reimbursement list and reimbursement list for the treatment of the COVID-19 infections, and release of medicine imports. We generated €5.1 million by product sales and recorded a 2% increase, winning us a 3.6% market share, which placed us second among providers of generic pharmaceuticals. Prescription pharmaceuticals accounted for the major (74%) share of total sales. Lorista (losartan), Atoris (atorvastatin), and Nolpaza (pantoprazole) generated strongest sales. Of non-prescription products, sales were driven by Septolete, Herbion, and Pikovit brand products. We successfully launched Herbion Ivy lozenges. Subregion East Europe U Our Subregion East Europe U, composed of Uzbekistan, Georgia, Tajikistan and Turkmenistan, generated €42.3 million by product sales, up 15%. While sales advanced in Uzbekistan, Georgia, and Turkmenistan, they presented a drop in Tajikistan. Product sales in Uzbekistan totalled €31.2 million, up 18% on 2020. We ranked second among the most important providers of medicines in the country and were the leading provider of medicines for the treatment of cardiovascular diseases. Of our prescription pharmaceuticals, Amlessa (perindopril/amlodipine), Lorista (losartan), and Nolpaza (pantoprazole) generated the strongest sales. Key non-prescription products were those marketed under the Septolete and Pikovit brands. Our product sales amounted to €7 million in Georgia, a 14% year-on-year increase. Our 4.4% market share ranked us fifth among all providers of medicines in the country. Prescription pharmaceuticals were key in terms of sales, above all Lorista H/HD (losartan/hydrochlorothiazide), Co-Amlessa (perindopril/amlodipine/indapamide), and Atoris (atorvastatin). Key non-prescription products were Nalgesin (naproxen), and the Panzynorm and Herbion product brands. In Tajikistan, sales reached €2.2 million, an 8% year-on-year drop. Pikovit, a non-prescription product, remained our best- selling product in the country. Nolpaza (pantoprazole) and Co-Amlessa (perindopril/amlodipine/indapamide) were our new products that contributed to sales growth the most. In Turkmenistan, product sales amounted to €1.8 million, recording a 2% year-on-year increase. Nolpaza (pantoprazole) and Amlessa (perindopril/amlodipine) from our leading product group of prescription pharmaceuticals, and the Pikovit and Herbion brand products of non-prescription products generated the strongest sales. Region Central Europe Region Central Europe product sales totalled €351.5 million, up 3%. We recorded sales growth in all regional markets. In terms of value, growth was most significant in Poland and in relative terms in Latvia. In Poland, the largest regional market and our key market, product sales reached €166.7 million, up 2% on 2020. We placed third among foreign providers of generic medicines. Sales were driven by prescription pharmaceuticals, most 2021 Annual Report – Business Report 87 notably pharmaceuticals from the reimbursement list. Our new medicines placed on the market in the past years also contributed significantly to sales. We focused on medicines for the treatment of cardiovascular diseases. Despite market pressures, sartan sales remained at the 2020 level, maintaining our leading position among providers of products from the sartan family. Our most notable new medicines launched in the recent years were Valtricom (valsartan/amlodipine/hydrochlorothiazide), the first generic medicine put on the reimbursement list at the end of 2020, and Co-Roswera (rosuvastatin/ezetimibe), whose sales more than doubled from 2020. Through sales of our lipid lowering agents, notably Atoris (atorvastatin) and Roswera (rosuvastatin), we maintained the position of the leading provider of medicines despite sharp competition and price pressure. Owing to Doreta (tramadol/paracetamol), which accounted for approximately 60% market share, we were the leading provider of this combination for pain relief. We should also mention the more than 20% increase in sales of central nervous system agents, where Dulsevia (duloxetine) was a significant contributor. We retained the leading position among all providers regarding prescription pharmaceuticals from the reimbursement list for patients aged 75 years and older, as we had more medicines on the reimbursement list than any other producer. Sales of non-prescription products edged down compared to 2020. The leading non-prescription products were those of the Septolete brand, followed by Bilobil (ginkgo leaf extract). Nolpaza (pantoprazole) from the same product group advanced by 10%. Sales of animal health products also edged down on 2020. Generating the strongest sales, Milprazon (milbemycin/praziquantel) grew by 6% and Floron (florfenicol) by 11%, respectively. Krka Group Market Position in Poland We ranked third among foreign providers of generic medicines, holding a 2.3% market share. We were the leading provider of:  Angiotensin II receptor antagonists, also in combinations, accounting for approximately a 40% market share;  Statins, accounting for approximately a 35% market share;  SSRI and SNRI antidepressants, accounting for more than a 10% market share. We were among the leading providers of:  Oral corticosteroids, accounting for approximately a 25% market share;  Sulphonamide antidiabetics, accounting for approximately a 20% market share;  Proton pump inhibitors, accounting for approximately a 15% market share;  Aminosalicylates for bowel disease, accounting for approximately a 15% market share;  ACE inhibitors and ACE-based combinations, accounting for more than 10% market share;  Antimicrobials (fluoroquinolones), accounting for more than a 10% market share;  Antiparkinsonians, accounting for approximately a 10% market share. We were the leading provider of medicines containing: atorvastatin; celecoxib; duloxetine; esomeprazole; candesartan, including candesartan in combination with hydrochlorothiazide; lansoprazole; losartan, including losartan in combination with hydrochlorothiazide; norfloxacin; rabeprazole; ropinirole; rosuvastatin; sulfasalazine; tramadol in combination with paracetamol; telmisartan in combination with amlodipine; and valsartan, including valsartan in combination with hydrochlorothiazide. We were the leading provider of generic medicines containing active ingredients gliclazide; ivabradine; and perindopril, including all combinations with amlodipine and indapamide. Hungary, another key market of Krka, generated sales of €50.3 million, up 1% year on year, placing the country second among our regional markets. We ranked second among primarily foreign providers of generic medicines in the country, holding a 1.8% market share. Prescription pharmaceuticals contributed most to sales, in particular: Co-Prenessa (perindopril/indapamide); Roxera (rosuvastatin); Valsacor (valsartan); Emanera (esomeprazole); Atoris (atorvastatin); and Zyllt (clopidogrel). Sales of non-prescription products generated €3.4 million, up 31% on 2020. Sales were driven by Bilobil (ginkgo leaf extract), Venter (sucralfate), and Flebaven (diosmin). Our animal health product sales saw a decrease. Milprazon (milbemycin/praziquantel) and Fypryst (fipronil) generated the strongest sales. 2021 Annual Report – Business Report 88 Krka Group Market Position in Hungary We ranked second among primarily foreign providers of generic medicines, holding a 1.8% market share. We were the leading provider of:  SNRI antidepressants, accounting for approximately a 40% market share;  Angiotensin II receptor antagonists, also in combination with diuretics, accounting for more than a 35% market share;  Platelet aggregation inhibitors (ADP receptor antagonists), accounting for approximately a 35% market share;  Mono-component thiazide diuretics and analogues, with a market share of over 25%;  Antimicrobials (oral fluoroquinolones), accounting for approximately a 25% market share; We were among the leading providers of:  ACE inhibitors and ACE-based combinations with diuretics, accounting for approximately a 20% market share;  Statins, accounting for more than a 15% market share;  Antiparkinsonians, accounting for more than a 15% market share;  Proton pump inhibitors, accounting for approximately a 15% market share;  Cerebral and peripheral vasotherapeutics, accounting for more than a 10% market share;  Sulphonamide antidiabetics, accounting for more than a 10% market share; Macrolide and pyranoside antibiotics, accounting for a 10% market share; We were the leading provider of medicines containing: amlodipine in combination with telmisartan; dexamethasone; indapamide; ginkgo leaf extract; clarithromycin; clopidogrel; mirtazapine; pramipexole; rasagiline; and valsartan, including valsartan in combination with hydrochlorothiazide. We were the leading provider of generic medicines containing aripiprazole, gliclazide, and tadalafil. In the Czech Republic, also one of our key markets, sales of €48 million increased by 5% on the 2020 figure. We ranked fourth among foreign providers of generic medicines, holding a 1.4% market share. Prescription pharmaceuticals maintained the leading position, above all: Lexaurin (bromazepam); Atoris (atorvastatin); Sorvasta (rosuvastatin); Nolpaza (pantoprazole); Tonanda (perindopril/amlodipine/indapamide); Doreta (tramadol/paracetamol), Asentra (sertraline), Kventiax (quetiapine), Elicea (escitalopram); and Prenewel (perindopril/indapamide). Sales of non-prescription products decreased by 3%. In addition to Nalgesin S (naproxen), Bisacodyl (bisacodyl) and Septolete brand products sold best. Sales of animal health products decreased by 14%. The leading products were Dehinel and Fypryst (fipronil). Krka Group Market Position in the Czech Republic We ranked fourth among foreign providers of generic medicines, holding a 1.4% market share. We were the leading provider of:  Sulphonamide antidiabetics, accounting for approximately a 30% market share;  Mono-component products used in the treatment of benign hypertrophy of the prostate, accounting for more than a 15% market share; We were among the leading providers of:  Anxiolytics, accounting for more than a 30% market share;  Angiotensin II receptor antagonists, also combinations with diuretics, accounting for approximately a 25% market share;  Statins, accounting for more than a 20% market share;  Proton pump inhibitors, accounting for approximately a 20% market share;  SSRI and SNRI antidepressants, accounting for more than a 15% market share;  ACE inhibitors and ACE-based combinations with diuretics, accounting for approximately a 15% market share. We were the leading provider of medicines containing: esomeprazole; gliclazide; lansoprazole; valsartan, including valsartan in combination with hydrochlorothiazide; and ziprasidone. We were the leading provider of generic medicines containing: aripiprazole; escitalopram; levocetirizine; pantoprazole; perindopril, including all perindopril-based combinations with amlodipine and indapamide; sulfasalazine; tadalafil; and tamsulosin. In Slovakia, another key market, which ranked fourth among the regional markets, product sales totalled €40.3 million, up 5%. Prescription pharmaceuticals were the leading product group in terms of sales, above all: Co-Prenessa (perindopril/indapamide); Nolpaza (pantoprazole); Atoris (atorvastatin); Co-Amlessa (perindopril/amlodipine/indapamide); Prenessa (perindopril); and Lexaurin (bromazepam). Year on year, sales of non-prescription products went up by 8%. Best-selling products were Nalgesin S (naproxen) and Flebaven (diosmin). We also recorded 8% growth in animal health products, with Enroxil (enrofloxacin) and Fypryst (fipronil) at the forefront. 2021 Annual Report – Business Report 89 Krka Group Market Position in Slovakia We ranked third among all providers of generic pharmaceuticals, holding a 2.7% market share. We were the leading provider of:  Proton pump inhibitors, accounting for approximately a 40% market share;  Angiotensin II receptor antagonists, also in combination with diuretics, accounting for approximately a 40% market share;  Antimicrobials (fluoroquinolones), accounting for more than a 35% market share;  Statins, accounting for more than a 30% market share;  Antidementives, accounting for more than a 25% market share. We were among the leading providers of:  Sulphonamide antidiabetics, accounting for approximately a 25% market share;  ACE inhibitors and ACE-based combinations with diuretics, accounting for approximately a 25% market share;  Anxiolytics, accounting for approximately a 25% market share;  Antidepressants and mood stabilizers, accounting for approximately a 20% market share. We were the leading provider of medicines containing: atorvastatin, dexamethasone; duloxetine; escitalopram; indapamide; carvedilol; quetiapine; paliperidone; pantoprazole; pramipexole; tramadol in combination with paracetamol; venlafaxine; valsartan, including valsartan in combination with hydrochlorothiazide. We were the leading provider of generic medicines containing active ingredients gliclazide and perindopril, including all perindopril-based combinations with amlodipine and indapamide. Sales in Lithuania totalled €21.5 million, up 4% on 2020. Prescription pharmaceuticals, above all: Captopril (captopril); Nolpaza (pantoprazole); Roswera (rosuvastatin); Atoris (atorvastatin); and Valsacombi (valsartan/hydrochlorothiazide) constituted the major part of overall sales. Sales of non-prescription products jumped by 35%. Key products were Septabene (benzydamine/cetylpyridinium chloride) and Nalgesin S (naproxen). Animal health product sales of €1.5 million were 2% beneath the 2020 figures. In Latvia, sales reached €15 million in 2021, a 6% year-on-year rise. By this attainment, Krka strengthened its leading position among providers of generic medicines in the country. As expected, prescription pharmaceuticals accounted for the major part of sales total, above all Co-Amlessa (perindopril/amlodipine/indapamide); Sorvasta (rosuvastatin); Prenewel (perindopril/indapamide); and Nolpaza (naproxen). Sales of non-prescription products generated €1.4 million, the same as in 2020. The leading products were Nalgedol (naproxen) and Septanazal (xylometazoline/dexpanthenol). Animal health product sales decreased by 14%. In Estonia, sales totalled €9.8 million, slightly more than in 2020. Prescription pharmaceuticals again contributed most to total sales, above all: Co-Prenessa (perindopril/indapamide); Roswera (rosuvastatin); Co-Dalnessa (perindopril/amlodipine/indapamide); Atoris (atorvastatin); and Prenessa (perindopril). Non-prescription product sales advanced by 7% on 2020. Septolete Omni (benzydamine/cetylpyridinium chloride) and Nalgesin S (naproxen) remained the leading product in terms of sales. Animal health product sales decreased by 19%. Region West Europe The markets of Region West Europe are collectively regarded as one of our key markets. Regional sales amounted to €305.2 million in 2021, an 11% year-on-year decrease. Germany, the Scandinavian countries, France, and Italy led in terms of sales. Sales through our subsidiaries amounted to €234 million, a 7% drop on 2020 primarily due to an increased price pressure exerted by competitors and fewer product launches. We generated 23% of regional sales through unrelated parties. Sales generated by prescription pharmaceuticals, our leading product group, decreased from 2020 and accounted for 87% of overall sales. Medicines containing esomeprazole, candesartan, valsartan, clopidogrel, and venlafaxine were at the forefront. We remained one of the leading sartan providers on regional markets of western Europe. Animal health products recorded a 27% increase, and accounted for a good 11% of total sales. Sales through related parties reached 28% growth in 2021, accounting for more than 50% of total sales of animal health products in Region West Europe. Sales were driven by a combination of milbemycin and praziquantel, products containing fipronil, and tulathromycin-based products. 2021 Annual Report – Business Report 90 Non-prescription products grew by 4% and accounted for slightly less than 2% of total sales. Paracetamol-based products, the Septolete brand products, and diosmin-based products were best-selling non-prescription products. In Germany, our most important regional market, sales totalled €80.3 million, down 12% on 2020. Sales through our subsidiary TAD Pharma amounted to €76.5 million. Our most important products in terms of sales were medicines for the treatment of cardiovascular diseases and for the gastrointestinal tract and metabolism, followed by medicines for the treatment of the central nervous system. In 2021, we strengthened our position as the leading provider of sartans in terms of sales volume. In 2021, medicines containing candesartan, valsartan, ramipril, and esomeprazole recorded strongest sales. In the Scandinavian countries, sales totalled €49.1 million. Our product sales were most substantial in Sweden, followed by Finland, Norway, Denmark, and Iceland. Sales through our subsidiaries Krka Sverige and Krka Finland fell by 19% and 3%, respectively. Overall sales through subsidiaries reached 98%. Sales were driven by medicines containing esomeprazole, losartan, candesartan, venlafaxine, and sertraline. In Norway, we retained the leading position by many medicines, above all those containing esomeprazole, pantoprazole, losartan, valsartan, candesartan, enalapril, and venlafaxine. Sales in France totalled €37.6 million, similar to 2020. Sales through unrelated parties accounted for more than 60%. Medicines that sold best contained esomeprazole, clopidogrel, and gliclazide, and a combination of milbemycin and praziquantel – an animal health product. Sales through our subsidiary Krka France recorded a 26% year-on-year rise in terms of value. The majority of sales were generated by prescription pharmaceuticals, most notably those containing tadalafil, emtricitabine in combination with tenofovir, and dasatinib. In the non-prescription product group, medicines containing paracetamol stood out and were the second best-selling product of the subsidiary also in 2021. We should also mention strong sales of our animal health products for protecting companion animals against parasites, above all the combination of milbemycin and praziquantel. In Italy, year-on-year sales in terms of value slipped by 11% to €30.7 million. Products marketed under our own brand names decreased by 4% and accounted for 71% of sales. However, sales of our animal health products increased. The leading prescription pharmaceuticals were products containing pantoprazole, clopidogrel, esomeprazole, paliperidone, and gliclazide. In Portugal, sales totalled €23.1 million, a 6% drop on 2020. Sales of products under our own brand names went up by 11% and accounted for 77% of our total sales in the country. All product groups contributed to the rise. Prescription pharmaceuticals recorded the highest absolute growth maintaining the 6% generic market share. Of leading prescription pharmaceuticals, we should mention esomeprazole products; the single-pill combination of rosuvastatin and ezetimibe; the single-pill combination of perindopril and indapamide; and an olanzapine product. In Spain, year-on-year sales in terms of value slipped by 37% to €22.6 million. While termination of tender sales in Andalusia adversely affected our prescription pharmaceutical sales, we strengthened sales of our products from the animal health and non-prescription product ranges. Medicines containing donepezil, tulathromycin, pramipexole, galantamine, and esomeprazole generated strongest sales. In the Benelux countries, sales amounted to €17.3 million, a 4% year-on-year rise. Strongest sales were generated by products sold under our own brands, as their sales climbed by over 30% from 2020. Sales of medicines containing valsartan, esomeprazole, and a combination of milbemycin and praziquantel were the highest. Sales in the United Kingdom advanced by 9% compared to the year before and reached €14 million. Medicines containing esomeprazole and duloxetine generated strongest sales. Our subsidiary Krka UK increased sales by 64% compared to 2020, accounting for 48% of our overall sales in the country. In Ireland, we made €11.6 million by product sales and exceeded the 2020 sales by 13%. Sales through our subsidiary Krka Pharma Dublin went up by 12% and accounted for 86% of total sales in the country. We were one of the leading providers of generic medicines containing esomeprazole; tadalafil; venlafaxine; candesartan; valsartan; aripiprazole; indapamide; and duloxetine. 2021 Annual Report – Business Report 91 In Austria, our sales grew by 6% to €10.5 million. Medicines containing pregabalin, duloxetine, and valsartan were heading in terms of sales. The proportion of sales through our subsidiary Krka Pharma Wien grew by 7% and accounted for 95%. In other European countries, we sold most products through unrelated parties. Sales in 2021 reached €8.4 million, similar to 2020. Region Overseas Markets Region Overseas Markets generated sales of €53.7 million, an 18% year-on-year rise. All three sales offices recorded sales growth. Prescription pharmaceuticals contributed to the increase the most. We primarily marketed them under our own brands, and they constituted over 90% of total regional sales. Year-on-year sales in the Middle East countries increased by 42% to €24.2 million, primarily due to increased sales to Iran, which remained our largest regional market. We recorded the highest relative growth in the United Arab Emirates, where we expect high sales growth rates also in the future. In the Middle East countries, our most saleable products included: Asentra (sertraline); Zyllt (clopidogrel); Nolpaza (pantoprazole); Valsacor (valsartan); and Yasnal (donepezil). Product sales in the Far East and Africa markets reached €28 million, up 3% on 2020. Products containing pregabalin; esomeprazole; gliclazide; saw palmetto extract; and lansoprazole generated the strongest sales. In Vietnam, which remained our largest individual and the second-largest market in the region, sales declined by 8% as the country's borders were closed for a long time due to a high number of infections during the COVID-19 pandemic. After winning the tender for pregabalin in China, we achieved the highest increase in value and 170% relative sales growth. We also recorded high growth rates in Sudan and Ghana. Our Americas sales office remained focused on the countries of Central America, where overall product sales reached €1.4 million, up 1% on 2020. Our medicines in high demand were Valsacor (valsartan); Valsaden (valsartan/hydrochlorothiazide); Yasnal (donepezil); and Vizarsin (sildenafil). 2021 Annual Report – Business Report 92 Product * and Service Groups 24 * Products marketed under different product brand names or the Krka trademark in individual markets are marked with an asterisk. Brand names are listed at the end of this section. In 2021, sales of prescription pharmaceuticals accounted for 83.7% of total sales, followed by non-prescription products with 8.8%, animal health products with 5.2%, and health resorts and tourist services with 2.3%. Sales revenue of the Krka Group increased by 2% in 2021. Sales of prescription pharmaceuticals increased by 0.4%, non-prescription products by 11%, animal health products by 7%, and health resorts and tourist services by 22.6%. 2021 Krka Group Sales by Product Group Krka Group and Krka Sales by Region by Product and Service Group Krka Group Krka € thousand 2021 2020 Index 2021/20 2021 2020 Index 2021/20 Human health 1,442,566 1,424,292 101 1,135,800 1,149,667 99 – Prescription pharmaceuticals 1,305,316 1,300,640 100 1,017,273 1,039,105 98 – Non-prescription products 137,250 123,652 111 118,527 110,562 107 Animal health products 81,257 75,913 107 75,694 72,344 105 Health resort sand tourist services 36,465 29,754 123 Total 1,560,288 1,529,959 102 1,211,494 1,222,011 99 2021 2020 € thousand Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Human health 368,010 380,236 334,098 360,222 432,600 320,574 325,240 345,878 – Prescription pharmaceuticals 340,921 348,208 298,556 317,631 389,389 302,291 299,184 309,776 – Non-prescription products 27,089 32,028 35,542 42,591 43,211 18,283 26,056 36,102 Animal health products 21,656 23,304 19,619 16,678 22,221 16,459 17,139 20,094 Health resorts and tourist services 4,857 8,483 13,029 10,096 6,908 3,085 12,339 7,422 Total 394,523 412,023 366,746 386,996 461,729 340,118 354,718 373,394 24 GRI GS 102-2, 102-6, 102-10 2021 Annual Report – Business Report 93 2021 Sales of Main Products * Sales of leading products are presented by leading active ingredient. Combination medicines that incorporate this active ingredient are also included. New Products In 2021, sales of new products, i.e. products launched in individual markets in the past five years, accounted for 25% of the Krka Group overall sales, or 1 percentage point down on the year before. The COVID-19 pandemic significantly slowed down the launch of new products in 2021 also. In 2021, the following new products were most important in terms of absolute sales growth: Co-Roswera (rosuvastatin/ezetimibe), first marketed in 2019; Efavemten (efavirenz/emtricitabine/tenofovir), first marketed in 2018; and Emtenovo (emtricitabine/tenofovir), first marketed in 2017. Our non-prescription product Flebaven, which we started marketing in 2018, was another new product that recorded highest sales growth. In 2021, we launched several new products containing new generic active ingredients and their combinations, and added new pharmaceutical forms or pack sizes to the existing range, and placed them on new markets. 2021 Annual Report – Business Report 94 Share of New Products in Krka Group Sales The share of new products includes products launched on individual markets in the past five years. New Products in 2021 Prescription Pharmaceuticals Pain relief Algominal (metamizole) Doreta SR (tramadol/paracetamol) Blood and blood-forming organs Atixarso (ticagrelor) Oncology Pemetrexed Krka (pemetrexed) Anastrozole Krka (anastrozole) Prescription Pharmaceuticals In 2021, the Krka Group sales of prescription pharmaceuticals amounted to €1,305.3 million, up 0.4% year on year. Ukraine, Poland and the Czech Republic contributed to sales growth the most. The COVID-19 pandemic also impacted our 2021 sales. In certain countries, the use of medicines was still low, new products were few, and they were getting recognised slowly. Our established brands of prescription pharmaceuticals generated healthy sales from key therapeutic areas that achieved considerable market shares. Top-ranking 2021 therapeutic classes of prescription pharmaceuticals included medicines for the treatment of cardiovascular diseases, the central nervous system, and the gastrointestinal tract. We market our prescription pharmaceuticals under our brands in most European countries through our marketing-and- sales network. We have one of the most robust marketing-and-sales networks of all pharmaceutical companies in countries, where our presence is long standing. We have been managing sales on most markets of Region West Europe through our network. We use it for communicating with the expert community, especially physicians and pharmacists. In 2021, we started marketing prescription pharmaceuticals through our marketing-and-sales network in Greece. 2021 Annual Report – Business Report 95 Prescription Pharmaceuticals Sales by 10 Major Markets Revenue since 2017 is presented in compliance with the IFRS 15. Prescription Pharmaceuticals Sales by Therapeutic Classes 2021 Annual Report – Business Report 96 Cardiovascular System Sartans (Angiotensin II Receptor Antagonists) 2021 highlights  We have been the leading producer of sartans in Regions Slovenia, Central, East, and South-East Europe for several consecutive years. We held more than a 30% market share there last year.  Krka made almost one in three sartans prescribed in that region.  We sold more than 3.5 billion sartan-based tablets.  In Germany, physicians most often prescribed our medicines of all generic valsartan varieties. Sartans and sartan-based combinations  We market 20 sartan-based products. The range comprises six different sartans.  Our product portfolio includes single-pill combinations of sartans with a diuretic, a calcium channel blocker, and a statin.  We are the only pharmaceutical provider in Europe that markets a sartan in combination with a statin.  Our sartans are available almost in 60 markets across the world. Sartans Combinations containing a diuretic Combinations containing a calcium channel blocker Combinations containing a diuretic and a calcium channel blocker Combinations containing a statin valsartan (Valsacor) valsartan/ hydrochlorothiazide (Valsacombi) valsartan/amlodipine (Wamlox) valsartan/amlodipine/ hydrochlorothiazide (Valtricom) valsartan/rosuvastatin (Valarox) losartan (Lorista) losartan/ hydrochlorothiazide (Lorista H) losartan/amlodipine (Tenloris) telmisartan (Tolura) telmisartan/ hydrochlorothiazide (Tolucombi) telmisartan/amlodipine (Teldipin) candesartan (Karbis) candesartan/ hydrochlorothiazide (Karbicombi) candesartan/amlodipine (Camlocor) olmesartan (Olimestra) olmesartan/ hydrochlorothiazide (Co-Olimestra) olmesartan/amlodipine (Olssa) olmesartan/amlodipine/ hydrochlorothiazide (Olsitri) irbesartan (Ifirmasta) irbesartan/ hydrochlorothiazide (Ifirmacombi) Our valsartan products retained first place among all Krka products in terms of sales also in 2021. We sold more than 1.3 billion valsartan-based tablets. This product group consisted of five medicines: Valsacor (valsartan); Valsacombi (valsartan/hydrochlorothiazide); Wamlox (valsartan/amlodipine); Valtricom (valsartan/amlodipine/hydrochlorothiazide); and Valarox (valsartan/rosuvastatin). In Regions Slovenia, Central, East, and South-East Europe, we remained the leading producer of all valsartan-based medicines and held a high, almost 45%, market share. Two out of three patients on valsartan therapy took our medicines in this region, which added up close to 4 million patients. Most patients treated by a generic variety of valsartan in Germany used our medicines. Valarox is indicated for the treatment of lipitension and is the only single-pill combination of a sartan and a statin in Europe. In 2021, we launched our valsartan products on new markets. We started marketing: valsartan and valsartan in combination with hydrochlorothiazide in Greece; Wamlox in Hungary and as the first generic provider in Kosovo; Valtricom in Ireland, Kosovo, Mongolia, Kazakhstan, and as the first generic provider in Uzbekistan. Losartan-based products are second on the list of our sartans in terms of sales and included: Lorista (losartan); Lorista H (losartan/hydrochlorothiazide); and Tenloris (losartan/amlodipine). They ranked third of all Krka products. In terms of absolute sales growth in 2021, losartan-based medicines ranked first. We sold more than 1.4 billion losartan- based tablets. In Regions Slovenia, Central, East, and South-East Europe, we retained more than a 40% market share and were the leading producer of losartan medicines. In Uzbekistan, Moldova, Kyrgyzstan, and Georgia, Lorista (losartan) and losartan in combinations were the leaders among all sartans. In Germany, we became the leading generic 2021 Annual Report – Business Report 97 manufacturer of losartan and losartan in combination with hydrochlorothiazide. We remained the only provider of losartan in combination with amlodipine in the country. Candesartan ranked third among our sartans as regards sales and included: Karbis (candesartan); Karbicombi (candesartan/hydrochlorothiazide); and Camlocor (candesartan/amlodipine), our newest candesartan combination, which we started marketing in 2020. In 2021, we started marketing Karbis and Karbicombi in Latvia. In Europe, we were among the leading generic producers of candesartan and candesartan-based combinations. We surpassed all competitors in Germany, Poland, Hungary, and certain other countries. In Regions Slovenia, Central, East, and South-East Europe, we were the leading generic producer of telmisartan and telmisartan-based combinations. In 2021, we increased its market share to almost 18%. We were the leading producer of telmisartan-based products in Latvia and Croatia. Our range comprised: Tolura (telmisartan); Tolucombi (telmisartan/hydrochlorothiazide); and Teldipin (telmisartan/amlodipine). In 2021, we started marketing Tolura and Tolucombi in Belarus. Olimestra (olmesartan) and olmesartan combinations generated strongest sales in Region West Europe. In Germany, we were among the leading generic producers of olmesartan and olmesartan-based combinations. Olsitri (olmesartan/amlodipine/hydrochlorothiazide) is our newest triple combination, which we launched in 2020. Last year, we started marketing it in Belgium, and as the first generic provider in Lithuania, Latvia, and Estonia. Angiotensin-Converting Enzyme (ACE) Inhibitors 2021 highlights  We were the leading generic producer of ACE inhibitors in Regions Slovenia, Central, East, and South-East Europe.  We were the leading generic producer of perindopril-based products in Europe.  We sold more than 1.5 billion perindopril tablets.  We were the only producer in Europe that marketed triple combinations of perindopril/amlodipine/rosuvastatin and perindopril/indapamide/rosuvastatin. Angiotensin-converting enzyme inhibitors and ACE combinations  We market 15 medicines from the ACE-inhibitor class based on five different angiotensin-converting enzyme inhibitors.  We market four ACE-inhibitor combinations with a diuretic, three with a calcium channel blocker, one with active ingredients of all three classes, and two combinations containing a statin.  We are a generic pharmaceutical company with the most comprehensive perindopril-based product range in Europe. Angiotensin- converting enzyme (ACE) inhibitors Combinations containing a diuretic Combinations containing a calcium channel blocker Combinations containing a diuretic and a calcium channel blocker Combinations containing a statin perindopril (Prenessa) perindopril/indapamide (Co-Prenessa) perindopril/amlodipine (Amlessa) perindopril/amlodipine/ indapamide (Co-Amlessa) perindopril/indapamide/ rosuvastatin (Roxiper) perindopril/amlodipine/ rosuvastatin (Roxampex) enalapril (Enap) enalapril/ hydrochlorothiazide (Enap-H) enalapril/lercanidipine (Elernap) ramipril (Ampril) ramipril/ hydrochlorothiazide (Ampril HL) ramipril/amlodipine (Rameam) lisinopril (Laaven) cilazapril (Cazaprol) cilazapril/ hydrochlorothiazide (Cazacombi) Our most important medicines of that class were perindopril-based products and in terms of sales ranked second of all Krka products. They ranked second for absolute sales growth. The perindopril product group is one of our five product groups that in 2021 surpassed the milestone of 1 billion tablets sold. Our perindopril portfolio is the most complex of any 2021 Annual Report – Business Report 98 generic pharmaceutical company in Europe and includes 6 medicines in 25 strengths. It comprises: Prenessa (perindopril); Co-Prenessa (perindopril/indapamide); Amlessa (perindopril/amlodipine); Co-Amlessa (perindopril/amlodipine/indapamide); Roxiper (perindopril/indapamide/rosuvastatin); and Roxampex (perindopril/amlodipine/rosuvastatin). Roxiper and Roxampex are used to treat lipitension, i.e. coexisting hypertension and hyperlipidemia. They combine three active ingredients in a single pill, two antihypertensives and a statin. We are the only provider of these combinations in Europe. In 2021, we started marketing Roxampex in Slovenia and Roxiper in Ukraine. We also placed other combinations on new markets. We started marketing Co-Prenessa in Uzbekistan, Amlessa as the first generic producer in Latvia, and the lowest strength of Amlessa for the initial treatment of hypertension as the first generic producer in Poland. We are the leading generic producer of perindopril-based products in Europe. In 2021, we consolidated our position of the leading generic producer of perindopril and perindopril-based combinations in Regions Slovenia, Central, East and South-East Europe, as our market share climbed to almost 25%. In terms of sales, Enap (enalapril) and enalapril combinations remained one of our leading medicines also in 2021, even though promotion focused primarily on our new angiotensin-converting enzyme inhibitors. We are the leading manufacturer of medicines containing enalapril and hold more than a 30% market share in the region. We also rank among the leading manufacturers of those products in Germany. Our ACE-inhibitor range also comprises Ampril (ramipril); ramipril combinations with hydrochlorothiazide; and Rameam (ramipril/amlodipine), the combination containing a calcium channel blocker, which is among the leading generic combinations of this kind in Germany. Other Antihypertensives Altogether, we supply almost 50 antihypertensives in more than 150 strengths. Our most important antihypertensives are ACE-inhibitors and sartans, including their combinations with diuretics and calcium channel blockers. Our product portfolio also includes Tenox (amlodipine), a calcium channel blocker; Rawel SR (indapamide), a diuretic; and several adrenergic receptor blockers: Coryol (carvedilol), Bloxazoc (metoprolol), Niperten (bisoprolol), Nolibeta (nebivolol); and Sobycombi (bisoprolol/amlodipine), a single-pill combination that we market as the only generic provider in Poland, Hungary, and Bulgaria. In 2021, we were one of Germany's leading generic producers of carvedilol. We started marketing Sobycombi in Azerbaijan, and Nolibeta in Italy. 2021 Annual Report – Business Report 99 Statins and Other Hypolipemics 2021 highlights  As in previous years, we remained the leading generic producer of hypolipemics in Regions Slovenia, Central, East, and South-East Europe, holding more than a 25% market share.  The leading statins in the region were Atoris and Roswera.  One in four patients on statin therapy in this region took Krka statins. Hypolipemics and single-pill combinations  We market 12 medicines based on five different statins and ezetimibe.  The portfolio consists of single-pill combinations with other hypolipemics, and single-pill statin-based combinations with antihypertensives.  We market the broadest range of atorvastatin strengths and remain the only manufacturer of 30 mg and 60 mg tablets in many markets. Statins and other hypolipemics Combinations of hypolipemics Combinations containing a calcium channel blocker Combinations containing other antihypertensives rosuvastatin (Roswera) rosuvastatin/ezetimibe (Co-Roswera) perindopril/indapamide/ rosuvastatin (Roxiper) perindopril/amlodipine/ rosuvastatin (Roxampex) rosuvastatin/valsartan (Valarox) atorvastatin (Atoris) atorvastatin, amlodipin (Atordapin) simvastatin (Vasilip) simvastatin, ezetimib (Ezesimin) lovastatin (Holetar) pitavastatin (Pitavador) ezetimibe (Ezoleta) rosuvastatin/ezetimibe (Co- Roswera) ezetimibe/simvastatin (Ezesimin) Atoris (atorvastatin) is our most important statin and ranks among our five top-selling medicines. It is one of Krka’s five products that in 2021 surpassed the milestone of 1 billion tablets sold. In Regions Slovenia, Central, East, and South-East Europe, it held almost a 15% market share and remained the leading statin-based product. When prescribing statins, physicians in the Russian Federation, Poland, and several other countries, most often prescribed Atoris. In 2021, we started marketing it in Greece. We market the broadest range of atorvastatin strengths and are the only provider of 30 mg and 60 mg tablets in many countries. Roswera (rosuvastatin) is our second most important statin. It ranked among our ten top-selling products and three leading products, recording the highest absolute sales growth. Year on year, the sales went up by more than 15%. In Regions Slovenia, Central, East, and South-East Europe, Roswera was the leading rosuvastatin, of all statins preceded only by Atoris. Of statins, Roswera further increased its market share in 2021, presenting the highest sales growth of all competing products in the region. We also started marketing it in Greece. Pitavador (pitavastatin) is our latest statin, first placed on the market in 2020. In 2021, we launched it in Greece as the first generic provider. Ezoleta (ezetimibe), which is not a statin, supplements our hypolipemic portfolio. In Slovenia, Serbia, and the Baltic states, it remained the leading ezetimibe product in 2021. Our portfolio also included two single-pill combinations of ezetimibe and statin, Co-Roswera (rosuvastatin/ezetimibe) and Ezesimin (ezetimibe/simvastatin). In 2021, we launched Co-Roswera in Armenia. We started marketing the 40 mg/10 mg strength in Poland and Latvia as the only producer. Also, in Slovenia and Croatia, we were the sole provider of that strength. Statins are incorporated in single-pill lipitension medicines, which combine hyperlipidemic and antihypertensive agents. Our lipitension medicines are: Valarox (valsartan/rosuvastatin), a single-pill combination of statin and sartan; and two 2021 Annual Report – Business Report 100 single-pill combinations of statin and perindopril: Roxiper (perindopril/indapamide/rosuvastatin); and Roxampex (perindopril/amlodipine/rosuvastatin). Other Cardiovascular Agents Bravadin (ivabradine) reduces the increased heart rate and is indicated for the treatment of stable angina pectoris and chronic heart failure. In Regions Slovenia, Central, East, and South-East Europe, its market share increased, strengthening its position as the leading generic ivabradine variety. We recorded strong sales also in Germany, where we were one of the leading generic manufacturers of ivabradine. Apleria (eplerenone) is one of the new aldosterone receptor antagonists. It is used in combination with other medicines to treat heart failure. Last year, we placed it on the market in the Russian Federation and Estonia. Central Nervous System Antidepressants 2021 highlights  We were the leading generic producer of antidepressants in Regions Slovenia, Central, East, and South-East Europe.  Of all competing products, physicians there most frequently selected our antidepressant. Antidepressants  We market six advanced antidepressants from different groups.  We are the only producer in Germany that makes available the 90 mg strength of duloxetine. duloxetine (Dulsevia) agomelatine (Lamegom) escitalopram (Elicea) venlafaxine (Alventa) sertraline (Asentra) mirtazapine (Mirzaten) Dulsevia (duloxetine) is one of our most important antidepressants. It ranked first of all duloxetine products in Romania, the Russian Federation, Poland, Ireland, and several other countries. It was one of the leading generic varieties in Germany, where we were the only provider of 90 mg strength of duloxetine. Dulsevia ranked first of all duloxetine products throughout our Regions Slovenia, Central, East, and South-East Europe, accounting for over a 30% market share. In that region, another two antidepressants are the leading generic varieties, Elicea (escitalopram) and Asentra (sertraline), while Alventa (venlafaxine) and Lamegom (agomelatine) rank among the leading generic varieties. Mirzaten (mirtazapine) is the leader of all mirtazapine products. In 2021, we placed Elicea on market in Belarus, and Mirzaten in Moldova. Elicea (escitalopram) was first of all escitalopram products in Serbia, Croatia, and Slovakia. In Slovenia, Romania, and several other markets, Mirzaten and Alventa were the leaders. In the Russian Federation, we were the leading generic producer of antidepressants. In Slovenia, Estonia, and Croatia, we outperformed all antidepressant manufacturers, holding more than a 15% market share. Antipsychotics 2021 highlights  We were the leading generic producer of antipsychotics in Regions Slovenia, Central, East, and South-East Europe.  We were the leading generic producer of paliperidone in Europe. Atypical antipsychotics  We market six atypical antipsychotics, including all five leading oral agents of this class in Europe: aripiprazole (Aryzalera) paliperidone (Parnido) olanzapine (Zalasta) risperidone (Torendo) quetiapine (Kventiax) ziprasidone (Zypsilan) Kventiax (quetiapine) is our flagship antipsychotic. It is available in tablets and prolonged-release tablets, all together in ten strengths. Holding more than a 40% market share, it was the leading quetiapine in Slovenia, Latvia, and Slovakia. 2021 Annual Report – Business Report 101 Throughout Regions Slovenia, Central, East, and South-East Europe, we were the leading producer of quetiapine, holding a nearly 15% market share. In that region, also our other two atypical antipsychotics, Aryzalera (aripiprazole) and Zypsilan (ziprasidone) were the leading generic varieties, while Zalasta (olanzapine) placed among the leading products. In the Russian Federation, Portugal, and Latvia, Zalasta was the leading of all olanzapine products. Parnido (paliperidone) is one of our newest antipsychotics, which we started marketing in 2018 as the only generic producer in Europe. It is the only generic variety of paliperidone tablets in Region West Europe and several other markets. In 2021, we remained the leading generic producer of paliperidone in that pharmaceutical form in Europe. Anti-Parkinson Agents Our portfolio comprises three medicines for the treatment of Parkinson's disease: Oprymea (pramipexole); Rolpryna SR (ropinirole); and Rasagea (rasagiline). In Regions Slovenia, Central, East, and South-East Europe, we were the leading generic producer of medicines for the disease. In Hungary, we surpassed all competitors, holding more than a 15% market share. Oprymea (pramipexole), our flagship medicine in this class, recorded the most substantial sales in Region West Europe. It was one of the leading generic pramipexole varieties in Germany, while in Romania, Poland, Portugal, and several other markets, Oprymea outperformed all pramipexole products. In Poland, Romania, and certain other markets, our variety outperformed all other ropinirole products, and in Hungary, all rasagiline products. Our products from this group were the leading generic varieties in Regions Slovenia, Central, East, and South-East Europe. Anti-Alzheimer Agents Four oral agents are used as therapy for Alzheimer’s disease, and all four are also part of our product portfolio: Yasnal (donepezil); Marixino (memantine); Galsyo (galantamine); and Nimvastid (rivastigmine). They are available as tablets and capsules. Yasnal and Nimvastid are also available in orodispersible tablets. In Regions Slovenia, Central, East, and South-East Europe, we were the only producer supplying rivastigmine in that pharmaceutical form. In 2021, we ranked among the leading generic manufacturers of medicines for treating Alzheimer’s disease in the region. In Slovakia and Lithuania, we were the leading provider of those medicines, holding over a 25% market share. In Lithuania, we were the leading generic provider of memantine, while in Slovenia and Slovakia, we were the leading producer of donepezil and memantine. Gastrointestinal Tract Proton Pump Inhibitors 2021 highlights  We have been the leading manufacturer of proton pump inhibitors for more than a decade in Regions Slovenia, Central, East, and South-East Europe.  Of all competitors, we recorded the highest absolute growth.  We sold more than one billion tablets of Nolpaza. Proton pump inhibitors  We have been marketing proton pump inhibitors for more than 30 years.  We were the first company in Europe to present a range of five medicines in this class.  Our proton pump inhibitors are available in more than 60 countries worldwide. pantoprazol (Nolpaza) rabeprazol (Gelbra) esomeprazol (Emanera) omeprazol (Ultop) lansoprazol (Lanzul) Nolpaza (pantoprazole) is our flagship proton pump inhibitor. It ranked among the top five Krka products in terms of sales. In 2021, it was also among the five leading medicines as regards absolute sales growth. More than 1 billion tablets were sold. In Regions Slovenia, Central, East and South-East Europe, Nolpaza was the leading proton pump inhibitor, accounting for over a 12% market share. It achieved large market shares among pantoprazoles. In many markets, 2021 Annual Report – Business Report 102 Nolpaza held more than a 50% market share among pantoprazoles, and in the Russian Federation, more than 80%. Pantoprazole is also marketed as a non-prescription medicine. Our second most important medicinal product in this class was Emanera(esomeprazole), also one of Krka’s leading products. In Regions Slovenia, Central, East, and South-East Europe, Emanera was the leading generic variety of esomeprazole. Physicians in the region most often prescribed our product of all esomeprazole products, in Ireland most often of all proton pump inhibitors. Emanera was the leader of all esomeprazole products in ten regional markets, accounting for more than a 50% market share in seven markets. In Germany, we were the leading generic producer of esomeprazole. Other Medicines for Acid-Related Disorders Ulcavis (bismuth) is indicated for the treatment of gastritis. In combination with antibiotics and proton pump inhibitors, it is also indicated for removal of Helicobacter pylori bacteria. In Regions Slovenia, Central, East, and South-East Europe, it was the leading generic variety and the only bismuth-based medicine in many markets. In particular in Region East Europe, it is also available as a non-prescription product. Pain Relief 2021 highlights  We were among the leading generic producers of the tramadol/paracetamol combination in Europe.  In Regions Slovenia, Central, East and South-East Europe, this combination therapy headed all competing products.  We started marketing Doreta SR (tramadol/paracetamol) prolonged-release tablets and Algominal (metamizole). Pain relief  We have a broad range of medications for relieving various types and intensities of pain.  We market non-steroidal anti-inflammatory and antirheumatic medicines (NSAIDs), opioids and opioid-based combinations, medicines for alleviating neuropathic pain, and other analgesics.  Our non-prescription products complement the range of prescription analgesics. Non-steroidal anti- inflammatory and antirheumatic drugs (NSAIDs) Opioids and opioid-based combinations Other analgesics Other agents for treating neuropathic pain naproxen (Nalgesin) tramadol (Tadol) tramadol/paracetamol (Doreta, Doreta SR●) metamizole (Algominal)● pregabalin (Pragiola) diclofenac (Naklofen Duo) oxycodone/naloxone (Adolax) duloxetine (Dulsevia) dexketoprofen (Dekenor) etoricoxib (Roticox) celecoxib (Aclexa) ● New in 2021 Doreta (tramadol/paracetamol) is our flagship analgesic that was among top ten Krka’s medicines in terms of sales. In Regions Slovenia, Central, East, and South-East Europe, it was the leading combination of tramadol and paracetamol, accounting for almost a 50% market share. In 2021, we further increased that market share. We recorded strong Doreta sales also in Region West Europe, where we were among the leading producers of that combination. In Ireland, our product was the leading generic variety, while in Germany it outperformed all tramadol/paracetamol products, accounting for over a 65% market share. We market two strengths of Doreta. In Hungary and Bulgaria, we are the only provider of the tramadol/paracetamol 75 mg/650 mg combination. In 2021, we were the only producer in Europe to start marketing the tramadol/paracetamol prolonged-release tablets. We made Doreta SR available in seven countries: the Czech Republic, Hungary, Poland, Portugal, Slovakia, Romania, and Slovenia. Naklofen Duo (diclofenac) and Nalgesin (naproxen) are non-steroidal anti-inflammatory and antirheumatic medicines. In Regions Slovenia, Central, East, and South-East Europe, Nalgesin was the leading naproxen-based medicine, accounting for over a 60% market share, which further increased in 2021. It was among the most frequently prescribed non-steroidal antirheumatic medicines in several markets, and it took first place in Slovenia. We also market Nalgesin as 2021 Annual Report – Business Report 103 a non-prescription product. Dekenor (dexketoprofen) belongs to the same product group. In 2021, we made it available in Italy, Spain, and Moldova. Roticox (etoricoxib) is a non-steroidal anti-inflammatory and antirheumatic medicine from the class of coxibs. It was the leading generic etoricoxib variety in Regions Slovenia, Central, East, and South-Eastern Europe. In 2021, its market share further increased. We were one of the leading producers of etoricoxib in Germany and the leading producer of all etoricoxib varieties in Hungary, Uzbekistan and certain other markets. Aclexa (celecoxib) belongs to the class of coxibs. It was the leading generic celecoxib variety in that region in 2021. In Poland, the Czech Republic, Slovakia, and Estonia, it was the leading celecoxib. In 2021, we added a new analgesic with antipyretic and spasmolytic properties Algominal (metamizole) tablets to our portfolio of analgesics. We launched it in Slovenia. Agents also indicated for neuropathic pain therapy are Dulsevia (duloxetine), an antidepressant, and an antiepileptic Pragiola (pregabalin). In Slovakia, Ireland, Austria, and certain other countries, we ranked among the leading generic producers of pregabalin with our Pragiola. In Estonia, it was the leading pregabalin product, accounting for more than a 50% market share. In 2021, we started marketing Pragiola in Azerbaijan. Blood and Blood-Forming Organs Zyllt (clopidogrel) is our most important medicine for treating diseases of blood and blood-forming organs in terms of sales. We market it in more than 40 countries. In 2021, it remained the leading generic variety of clopidogrel in the Russian Federation and certain other markets. It was the leading clopidogrel product in Hungary and Kyrgyzstan. We have been among the leading generic producers of clopidogrel in Regions Slovenia, Central, East, and South-East Europe for several consecutive years. Our latest medicine for treating blood and blood-forming organs is Eliskardia (prasugrel). We started marketing it in 2019, and in 2021 also made it available in Croatia. Our prasugrel was the leading generic variety in the Czech Republic and Slovenia. In Slovakia, our prasugrel surpassed all prasugrel products. Xerdoxo (rivaroxaban) is one of the most advanced anticoagulants, which we made available in Europe as one of the first generic producers in 2020. In 2021, we launched it in Malta, Serbia, Bosnia and Herzegovina, and as the first generic producer in North Macedonia. In 2021, we added Atixarso (ticagrelor) to our product range of this therapeutic class. Ticagrelor is a reversible platelet aggregation inhibitor indicated in patients with complex cardiovascular conditions. It decreases the risk of cardiovascular events, such as myocardial infarction and stroke. In combination with acetylsalicylic acid, it is used to prevent atherothrombotic events. We launched it in Croatia, and intend to start marketing it also on other markets. Antidiabetics Our most important medicine in this class was sulphonylurea Gliclada (gliclazide). In Regions Slovenia, Central, East, and South-East Europe, it was the leading generic variety of gliclazide, and we were the leading generic producer of sulfonylureas. We were the only producer in the region that supplied three strengths of gliclazide modified-release tablets: 30 mg, 60 mg, and 90 mg. Gliclada outstripped all gliclazide products in the Czech Republic, Slovenia, and Latvia. Glypvilo (vildagliptin), an antidiabetic agent, is our first dipeptidyl peptidase-4 (DPP-4) inhibitor. We marketed it in three countries last year but intend to launch it on many more markets in the future. We intend to add other agents of this and other product groups to our range of antidiabetics. We market another antidiabetic agent, Enyglid (repaglinide), from the glinide class. 2021 Annual Report – Business Report 104 Antiinfectives for Systemic Use Antibacterials for Systemic Use Our portfolio of antibiotics comprises medicines from various classes: macrolides, β-lactam antibiotics, fluoroquinolones, and other antibiotics. In Regions Slovenia, Central, East, and South-East Europe, we were one of the leading generic producers of macrolide antibiotics. Fromilid (clarithromycin) is a macrolide antibiotic and our most important medicine of that therapeutic class. It has been the leading generic variety of clarithromycin in the region for years. It was the leading clarithromycin product in Ukraine, Slovenia, Hungary, and several other markets. Azibiot (azithromycin) is from the same class. In Slovenia and Latvia it was the leading generic variety of azithromycin, and the leader of all azithromycin products in Moldova. Our range of ß-lactam antibiotics comprises Furocef(cefuroxime) and Betaklav (amoxicillin/clavulanic acid) and our fluoroquinolone range comprises four antibiotics: Levalox (levofloxacin); Moloxin (moxifloxacin); Ciprinol (ciprofloxacin); and Nolicin (norfloxacin). Moloxin was the leading generic variety of moxifloxacin in Hungary, Portugal, and Ukraine, while in Poland it was at the head of all moxifloxacin products. We started marketing Levalox in the Russian Federation last year. Also, last year, we maintained the leading position among the producers of fluoroquinolones in Regions Slovenia, Central, East, and South-East Europe. HIV Infection and Other Antivirals We market four medicines for the treatment of HIV infection: Emtenovo (emtricitabine/tenofovir); Efavemten (efavirenz/emtricitabine/tenofovir); Darunasta (darunavir); and Atazam (atazanavir). Our antiviral range also includes Entecavir Krka (entecavir), indicated for chronic hepatitis B therapy. Our Region West Europe recorded the strongest sales of medicines from this class. Last year, Emtenovo and Efavemten were among the leading generic varieties in Germany. We surpassed all competing products with our double single-pill combination emtricitabine/tenofovir in Slovakia, Slovenia, and Lithuania; with a triple single-combination in Austria; and with our darunavir in Slovakia. Urologicals Our most important urinary tract medicines are those used to treat benign prostatic hyperplasia, erectile dysfunction, and urinary incontinence. We market five medicines used for benign prostatic hyperplasia therapy: Tanyz (tamsulosin); Dutrys (dutasteride); and Finpros (finasteride); Sidarso (silodosin); and Tadusta (dutasteride/tamsulosin). The latter two are our newest products, first launched in 2020. In 2021, we were the leading generic producer of a dutasteride/tamsulosin combination in Regions Slovenia, Central, East, and South-East Europe. In Latvia, Tadusta ranked first of all dutasteride/tamsulosin products. In Slovenia and the Czech Republic, Tanyz was the leading generic variety of tamsulosin. Vizarsin (sildenafil), Tadilecto (tadalafil), and Viavardis (vardenafil) compose our range of medicines for erectile dysfunction. In Regions Slovenia, Central, East, and South-East Europe, we were one of the leading generic producers of tadalafil, and the leading producer in Estonia. Our range of urologicals also includes Asolfena (solifenacin) and Loxentia (duloxetine) for treating urinary incontinence. Oncology Over the past few years, we started marketing 12 oncology agents. Last year, we added two agents to our oncology portfolio, Pemetrexed Krka (pemetrexed) and Anastrozole Krka (anastrozole). Pemetrexed Krka (pemetrexed) powder for solution for infusion is indicated for treating patients with metastatic non-small cell lung cancer. We launched it in Slovenia and intend to place it on other markets as well in the future. Anastrozole Krka is indicated for the treatment of breast cancer. We started marketing it in France. Among the most recent additions to the oncology range are Dasatilen (dasatinib) and Erlotev (erlotinib), first launched in 2020. Last year, we placed erlotinib on the markets of Poland and Hungary. In Slovenia and Hungary, we became the leading generic provider of erlotinib, and one of the leading providers in Poland. We market Dasatilen primarily in countries 2021 Annual Report – Business Report 105 of Western Europe. In Germany and Sweden, our dasatinib was the leading generic variety last year, and we were the only generic provider of dasatinib in Slovenia and Slovakia. We placed Gefitad (gefitinib) on market in Lithuania. We were the only generic provider of gefitinib in Slovenia. Gefitad was one of the leading gefitinib varieties in Germany. We also market Meaxin (imatinib). Last year, it was the leading imatinib product in Latvia and Bosnia and Herzegovina, and one of the leading generic varieties of imatinib in Slovenia, Serbia, Bulgaria, and Poland. Krka’s oncology portfolio is supplemented by Ecansya (capecitabine); Lortanda (letrozole); and Escepran (exemestane), etc. Other Medicines The portfolio of oncology medicines acting directly on cancer cells is also supplemented by certain complementary medicines. Dexamethasone Krka can be used in oncology, haematology, and other therapeutic areas. It plays an essential role in treating COVID-19 infections and, as a result, has been in high demand over the past two years. It is available in tablets and solution for injection. We started marketing it in Greece last year and also placed the solution for injection on the market in Hungary, and 4 mg tablets in Bosnia and Herzegovina. In Germany, Spain and many other markets, Krka is the only producer that markets 20 mg and 40 mg dexamethasone tablets. In these markets and throughout Regions Slovenia, Central, East, and South-East Europe, we were the leading producer of dexamethasone. Febuxodor (febuxostat) is indicated for treating gout and high levels of uric acid in the blood in initial chemotherapy for leukaemia. We started marketing it in 2019, and in 2021 we made it available in Italy and Mongolia. Cinacabet (cinacalcet) regulates parathyroid hormone levels and is used in patients with kidney disease on dialysis therapy, parathyroid gland cancer, or with primary hyperparathyroidism. Non-Prescription Products In 2021, the Krka Group sales of non-prescription products totalled €137.3 million, an 11% year-on-year increase. The Russian Federation, Ukraine, and Uzbekistan saw the strongest sales increase. Last year on the back of the COVID-19 pandemic and the related measures, sales of non-prescription products dropped. Coughs and colds resurged in the second half of 2021, prompting an increase in cough-and-cold product sales, our most important group of non-prescription products. We market non-prescription products through our marketing-and-sales network in most countries of Regions Central, East, and South-East Europe. Septolete, Herbion, Nalgesin, and Bilobil are our most important non-prescription product brands in terms of sales. 2021 Annual Report – Business Report 106 Non-Prescription Product Sales by 10 Major Markets Revenue since 2017 is presented in compliance with the IFRS 15. 2021 Non-Prescription Product Sales by Therapeutic Class Septolete from the cough-and-cold product group was our leading non-prescription product brand last year. Septolete ranked among the 15 leading Krka products in sales and was the leading non-prescription product brand in terms of absolute sales growth. Septolete Total (benzydamine/cetylpyridinium chloride) generated most sales and is available in spray and lozenges. We market eucalyptus, elder-and-lemon, and honey-and-lemon flavoured lozenges. In 2021, we extended marketing various flavours of Septolete Total to new markets. We made elder-and-lemon flavoured lozenges available in Montenegro, and honey-and-lemon in Mongolia and Spain. In Slovenia, Lithuania, Belarus, and Uzbekistan, Septolete Total was the best-selling non-prescription product in the category of products with an effect on the pharynx. The product accounted for more than a 20% market share in Slovenia and Uzbekistan. 2021 Annual Report – Business Report 107 Herbion, our second most important non-prescription product brand, also ranked among the 15 leading Krka products. Its sales climbed by more than 15% on 2020. Herbion was one of the leading non-prescription products in terms of absolute sales growth. Herbal cough syrups for various types of cough are marketed under the Herbion brand. Herbion Cowslip Syrup and Herbion Ivy Syrup facilitate expectoration, while Herbion Plantain Syrup relieves dry, irritating coughs. Herbion Iceland Moss Syrup also relieves sore throat and hoarseness, and relieves dry, irritating cough. Herbion Ivy Lozenges acts much like the syrup and helps expectoration. This pharmaceutical form is especially suitable for adults. In 2021, we started marketing lozenges in Ukraine, Kazakhstan, and other countries. We were the first to provide lozenges containing ivy leaf extract in the Russian Federation, Belarus, and Moldova. In Regions Slovenia, Central, East, and South- East Europe, Herbion was one of the three leading cough-and-cold brands and remained the leading natural syrup in 2021. The nasal decongestant Septanazal (xylometazoline/dexpanthenol) is also among our non-prescription products for cough and cold. It is available as spray for adults and spray for children. In Slovenia and Latvia, it was one of the leading sprays with that composition, and ranked first of all competing products in Moldova, holding an over 20% market share. Nalgesin is our third most important non-prescription product brand. Nalgesin (naproxen) is an analgesic, which is also available as a prescription pharmaceutical. In 2021, Nalgesin was a non-prescription brand that recorded the highest absolute growth. For several successive years, Nalgesin has been a leading variety of naproxen in Regions Slovenia, Central, East, and South-East Europe, holding a 30% market share. Its market share accounted for 25% in Slovenia, making Nalgesin the leading non-prescription NSAID. Bilobil, another best-selling non-prescription product, belongs to the group of products improving cerebral and peripheral circulation. It contains ginkgo extract and is indicated for slowing the progression of cognitive decline. We have been marketing it for more than 30 years. In Regions Slovenia, Central, East, and South-East Europe, it was the third ginkgo- based product in terms of sales volume. In Romania, Ukraine, and certain other markets it was the leading ginkgo-based product. Flebaven (diosmin) belongs to the group of vasoprotectives. It is used to treat chronic venous insufficiency, and acute haemorrhoidal syndrome. In certain countries, it is available on prescription as well. In 2021, its sales went up by more than 50%. The rise was the sharpest on our largest market of the Russian Federation. We placed 1 000 mg tablets on that market, which was a new strength. Pikovit and Duovit are our brands of vitamins and minerals. Duovit products are intended for adults, and Pikovit products for children. We recorded strong sales of Pikovit, especially in Region West Europe where it was one of the leading brands of vitamins and minerals for children. Pikovit was the market leader in its product class in Uzbekistan, Kyrgyzstan, and Moldova. Vitamin D3 Krka (cholecalciferol) is one of our new non-prescription products. It was first launched in 2020. It is indicated for the treatment and prevention of vitamin D deficiency, and as adjunctive therapy in the specific treatment of osteoporosis. As vitamin D3 stimulates immune system function, our product was in high demand on certain markets during the COVID-19 pandemic. In 2021, we started marketing Vitamin D3 Krka on nine markets, also in the Russian Federation, France, and Italy. Vitamin D3 Krka is the only vitamin D3 in tablets available on prescription or as a non- prescription product in Slovenia. Our food supplement Magnezij Krka 300 is available in water-soluble granules. It ranked first of all magnesium-based products in pharmacies and accounted for more than a 35% market share. We also started marketing it in Saudi Arabia. Noctiben Mea (doxylamine) is one of the new non-prescription product brands of Krka. It is indicated for adults with occasional insomnia. It is one of the leading non-prescription products in the category of medicines for the treatment of insomnia in Slovenia and its market share grew also in 2021. Animal Health Products In 2021, the Krka Group sales of animal health products amounted to €81.3 million, a 7% year-on-year climb. The largest contributors to sales growth were the United Kingdom, France, Spain, and the Russian Federation. 2021 Annual Report – Business Report 108 In Regions Slovenia, Central, East, and South-East Europe and most markets of Region West Europe, we use our marketing-and-sales network for selling our animal health products. On other markets of Regions West Europe and Overseas Markets, we market them through our partners. The combination of milbemycin and praziquantel (Milprazon) was our best-selling animal health product in 2021. It was followed by products containing fipronil (Fypryst, Fypryst Combo); enrofloxacin (Enroxil); florfenicol (Floron); and pyrantel/praziquantel (Dehinel, Dehinel Plus). Animal Health Product Sales by 10 Major Markets Revenue since 2017 is presented in compliance with the IFRS 15. 2021 Animal Health Product Sales by Therapeutic Class 2021 Annual Report – Business Report 109 We produce animal health products for farm animals and companion animals. Sales growth relies primarily on companion animal products, which accounts for over 50% of animal health products. Our most important companion animal product is the antiparasitic Milprazon (milbemycin/praziquantel), which is also our leading animal health product in terms of sales. Last year, its sales increased almost by one third, placing the product among the leading Krka products for absolute sales growth. We recorded the strongest Milprazon sales in Region West Europe, where its sales climbed by more than 30% on 2020. Milprazon is a broad-spectrum wormer available in tablets of four strengths. Spot-on solutions account for a significant proportion of the companion animal product range. Our most important companion animal brand and second most important animal health product brand is Fypryst. It is composed of Fypryst (fipronil) and a fixed-dose combination Fypryst Combo (fipronil/S-methoprene). The brand products generated strongest sales in the United Kingdom and other markets of our Region West Europe. This antiparasitic is available in spot-on solution and cutaneous spray. Selehold (selamectin) spot-on solution is another antiparasitic agent for the treatment of companion animals. It is used to treat and prevent infestations with endo- and ectoparasites. We started marketing it in 2019. In 2021, we placed it on the market in Italy and as the first generic provider in Armenia and North Macedonia. Selehold sales increased by more than 50%. It was one of our top ten animal health products and one of the top three in terms of absolute sales growth. Our second endectocide is Prinocate (imidacloprid/moxidectin), launched in 2020. In 2021, we started marketing it in Italy and as the first generic provider in Ukraine. We recorded the strongest Prinocate sales in Region West Europe, above all in the United Kingdom. Prinocate is available as a spot-on solution. We also supply another antiparasitic agent, Ataxxa (imidacloprid/permethrin) spot-on solution. This combination is used to treat infestations with ectoparasites in dogs. In 2021, we launched Ataxxa in the Russian Federation. This was the only competitor to the product already available in the country. It also remains the only competitor to the products available on other markets that sell Ataxxa. Our portfolio of antiparasitic agents for companion animals includes the Dehinel brand products. This is one of our leading animal health brands in terms of sales. We market Dehinel Plus (febantel/pyrantel/praziquantel) for small dogs and Dehinel Plus XL for large dogs. Our dog range also includes flavoured tablets Dehinel Plus Flavour, while Dehinel (pyrantel/praziquantel) is intended for cats. In 2021, we placed tablets for cats on the market in Romania and Georgia, and Dehinel Plus XL for dogs in Romania, Ukraine, and Armenia. Rycarfa (carprofen), available in tablets and solution for injection, is an analgesic from our companion animal product range. In 2021, its sales increased by almost 30%. Antimicrobials and parasiticides are an important part of our animal health product range for farm animals. Our leading antibiotic and one of our leading animal health products in terms of sales is Enroxil (enrofloxacin). Antibiotics Floron (florfenicol), Doxatib (doxycycline), and Tuloxxin (tulathromycin) rank among our ten best-selling animal health products. In 2021, we started marketing Tuloxxin as the first generic provider in Ukraine. Our antimicrobials also include Trisulfon (sulfamonomethoxine/trimethoprim), and Amatib (amoxicillin). In 2021, Doxatib and Enroxil ranked among our top animal health products for absolute sales growth. Our most important antiparasitic products for farm animals are Toltarox (toltrazuril) and Flimabend (flubendazole). Catobevit (butafosfan/cyanocobalamin) solution for injection is one of our new animal health products. It is indicated as supportive therapy for various metabolic or reproductive disorders in farm and companion animals. We began marketing it in 2019, and in 2021 made it available in Ukraine. Ecocid S ranks among our top ten animal health products. Last year, we successfully marketed it for prevention against African swine fever. 2021 Annual Report – Business Report 110 Health Resorts and Tourist Services In the first quarter of 2021, business at Terme Krka was restricted because of preventive measures for curbing the spread of COVID-19, hence the health resort units Terme Dolenjske Toplice, Terme Šmarješke Toplice and Talaso Strunjan only provided medical rehabilitation services. Demand for other services picked up when restrictions were lifted. Throughout the year, domestic guests prevailed, while foreign guests accounted for 7%. The annual occupancy rate at our hotels averaged 60%. Overall, we recorded 314,408 overnight stays and €36.5 million in revenue, up 23% from 2020. Healthcare services accounted for one-third of total revenue. Products Marketed Under Different Brands in Individual Markets APIs Brands Prescription Pharmaceuticals agomelatine Lamegom, Agomaval amlodipine Tenox, Hipres, Alneta amlodipine/atorvastatin Atordapin, Atorcombo amlodipine/valsartan Wamlox, Vamloset, Valodip, Amlo-Valsacor amlodipine/valsartan/hydrochlorothiazide Valtricom, Valsamtrio, Co-Vamloset amoxicillin/clavulanic acid Betaklav, Hiconcil Combi aripiprazole Aryzalera, Aripipan, Arisppa, Zylaxera atorvastatin Atoris, Atoridor bismuth Ulcavis, Ulcamed bisoprolol Niperten, Sobycor, Sobyc, Zonsiloc bisoprolol/amlodipine Sobycombi, Niperten Combi, Bisodipin candesartan Karbis, Candecor, Canocord candesartan/amlodipine Camlocor, Candecam candesartan/hydrochlorothiazide Karbicombi, Cancombino, Canocombi capecitabine Ecansya, Cansata cefuroxime Furocef, Ricefan celecoxib Aclexa, Dilaxa clopidogrel Zyllt, Kardogrel diclofenac Naklofen Duo, Naklofen donepezil Yasnal, Yasnoro duloxetine Dulsevia, Duloxalta, Dulovesic, Loxentia dutasteride Dutrys, Dutascar, Dortilla dutasteride/tamsulosin Tadusta, Dutastam, Dutamyz, Tadustix enalapril/hydrochlorothiazide Enap-H, Enap-HL, Enap-HL 20 enalapril/lercanidipine Elernap, Elyrno, EnaCanpin eplerenone Apleria, Enplerasa escitalopram Elicea, Ecytara, Escitalex, Anxila esomeprazole Emanera, Emozul, Escadra etoricoxib Roticox, Bericox, Etoxib, Etoriax exemestane Escepran, Etadron ezetimibe Ezoleta, Ezetad ezetimibe/simvastatin Ezesimin, Vasitimb finasteride Finpros, Finascar TAD galantamine Galsya SR, Galnora gliclazide Gliclada, Glyclada imatinib Meaxin, Neopax, Meapax, Itivas, Yntam irbesartan Ifirmasta, Irabel, Firmasta, Iracor, Irbecor irbesartan/hydrochlorothiazide Ifirmacombi, Co-Irabel, Firmasta H, Firmasta HD, Irbecor Comp ivabradine Bravadin, Bixebra, Brivecor, Ivabalan lansoprazole Lanzul, Lansoptol 2021 Annual Report – Business Report 111 APIs Brands Prescription Pharmaceuticals letrozole Lortanda, Likarda levofloxacin Levalox, Levnibiot, Leviaben, Levaxela lisinopril Laaven, Zonixem lisinopril/hydrochlorothiazide Laaven-HL, Zonixem-HL, Laaven-HL 20, Zonixem-HL 20, Laaven-HD, Zonixem- HD losartan Lorista, Lavestra losartan/amlodipine Tenloris, Alortia, Lortenza, Losamlo losartan/hydrochlorothiazide Lorista H, Lavestra H, Lorista HL, Lavestra HL, Lorista HD, Lavestra HD memantine Marixino, Memando, Maruxa, Memaxa, Mentixa, Maryzola metoprolol Bloxazoc, Metazero moxifloxacin Moloxin, Moflaxa, Moxibiot, Moflaxya naproxen Nalgesin, Analgesin, Naldorex olanzapine Zalasta, Zolrix olmesartan Olimestra, Olmecor olmesartan/amlodipine Olssa, Olmeamlo, Olmira olmesartan/amlodipine/hydrochlorothiazide Olsitri, OlmeAmlo HCT oxycodone/naloxone Adolax, Oxycaloxon, Oxynador paliperidone Parnido, Inpalix pantoprazole Nolpaza, Appryo perindopril Prenessa, Perineva perindopril/amlodipine Amlessa, Dalnessa, Tonarssa, Dalneva perindopril/amlodipine/indapamide Co-Amlessa, Co-Dalnessa, Co-Dalneva, Amlewel, Dalnecombi, Tonanda perindopril/indapamide Co-Prenessa, Co-Perineva, Prenewel perindopril/indapamide/rosuvastatin Roxiper, Triemma prasugrel Eliskardia, Prasillt, Sigrada pregabalin Pragiola, Pregabador, Pregabio quetiapine Kventiax, Quentiax rabeprazole Gelbra, Zulbex ramipril Ampril, Amprilan ramipril/amlodipine Rameam, Ramidipin ramipril/hydrochlorothiazide Ampril HL, Amprilan HL, Ampril HD, Amprilan HD rasagiline Rasagea, Ralago, Raglysa repaglinide Enyglid, Repodiab risperidone Torendo, Rorendo ropinirole Rolpryna SR, Ralnea SR rosuvastatin Roswera, Rosuvador, Roxera, Sorvasta rosuvastatin/amlodipine Rosudapin, Rosmela rosuvastatin/ezetimibe Co-Roswera, Coroswera, Sorvasta Plus sertraline Asentra, Sertrone, Sertra TAD sildenafil Vizarsin, Sildegra silodosin Sidarso, Silbesan solifenacin Asolfena, Solifemin tadalafil Tadilecto, Tadagis tamsulosin Tanyz, Tadin telmisartan Tolura, Telmista telmisartan/amlodipine Telassmo, Tamloset, Teldipin telmisartan/hydrochlorothiazide Tolucombi, Telmista H tramadol/paracetamol Doreta, Tramabian valsartan Valsacor, Valsareta valsartan/hydrochlorothiazide Valsacombi, Co-Valsacor, Valsacor H, Valsacor HD, Valsaden, Janartan, Co- Valsareta 2021 Annual Report – Business Report 112 APIs Brands Prescription Pharmaceuticals valsartan/rosuvastatin Valarox, Ravalsyo vardenafil Viavardis, Vardegin venlafaxine Alventa, Olwexya ziprasidone Zypsilan, Zypsila, Ypsila Non-Prescription Products benzydamine/cetylpyridinium chloride Septolete Total, Septabene, Septolete Extra, Septolete Omni, Septolete Ultra, Septolete Duo, Septafar diosmin; diosmin/hesperidin Flebaven, Fladios, Flebazol, Flabien doxylamine Noctiben Mea, Sleepzone, Calmesan ginkgo leaf extract Bilobil, Gingonin Iceland moss extract Herbion Iceland Moss, Herbisland ivy leaf extract Herbion Ivy Syrup, Herbihelix magnesium citrate Magnezij Krka 300, Magnesol B2 naproxen Nalgesin S, Analgesin, Nalgedol, Ilgesin, Nalgesin Dolo, Nalgesin Mini, Nalgesin Relief vitamins for children Pikovit, Divakid xylometazoline/dexpanthenol Septanazal, Septanasal Animal Health Products enrofloxacin Enroxil, Enrox, Enroxal febantel/pyrantel/praziquantel Dehinel Plus, Anthelmin Plus fipronil Fypryst, Amflee, Fyperix fipronil/S-methoprene Fypryst Combo, Amflee Combo, Fyperix Combo florfenicol Floron, Fenflor flubendazole Flimabend, Flimabo imidacloprid/moxidectin Prinocate, Imoxicate milbemycin/praziquantel Milprazon, Milquantel pyrantel/praziquantel Dehinel, Anthelmin selamectin Selehold, Selafort, Selames toltrazuril Toltarox, Tolzesya, Bovicox biocide Ecocid, Oxicid Research and Development Research and development is part of our vertically integrated business model and key element in designing and upholding a competitive portfolio of products. Vertical integration and connectivity of development and production know-how and processes are essential advantages of our development strategy. As we manage the entire process, we can introduce quality, effective, safe, and competitive products to the markets, continuously maintain their market position and ensure their long-term and stable availability for end-users. By following trends and scientific achievements in various areas of expertise, particularly medicine, pharmaceutical industry, and chemistry, we can respond quickly and appropriately to development challenges, marketing requirements, potentials, and opportunities. Increasingly complex regulatory requirements force us to introduce new, additional and improved approaches and methods in the development and conduct new studies, which we constantly upgrade. We also cooperate with external partners, including specialised companies, educational and R&D institutions, and in this way constantly upgrade our own knowledge and improve development results. To develop value added medicines and place them on markets on time, we adopt rational approaches to research and development and set optimal patent strategies. We use the vertically integrated model to manage patent, development, legislative, production, and marketing requirements and risks. By managing the entire process, we can research, develop, evaluate, authorise, and manufacture in-house active pharmaceutical ingredients (APIs), and finished products. 2021 Annual Report – Business Report 113 The adopted development strategy and project approach help us manage products in all phases of their life cycles, provide scientific objectives and control timelines and costs. R&D results and understanding of markets and legislative requirements enable us to prepare complex registration documentation and obtain marketing authorisations on time. Our registration procedures are time- and cost-efficient. Quality is an imperative for our products from early development stages onward to make it an integral part of each our product from the start. We also ensure compliance of all development activities with all established quality systems. We continuously enhance and upgrade all those systems, and improve standard procedures and good practices. Audits and inspections are regularly conducted by regulatory authorities in order to review compliance with the relevant standards. When entering new, technologically complex areas – for example peptides and similar biological medicines, we cooperate with other companies and institutions. At the same time we conduct our own development studies in finished product development. We consult regulatory authorities to validate key development steps. We assess potential business cooperation in various therapeutic areas, in particular medicines for the treatment of diabetes. We introduce new products and maintain their competitiveness in more than 70 countries. Investments and Accomplishments 25 Krka allocates 10% of annual revenue to research and development. Rapid scientific and technological progress and increasing market complexity require constant investing in know-how and the latest equipment. They are essential for innovative approaches and timely introduction of new products while maintaining top quality and competitiveness in all markets. R&D processes involve comprehensive and complex technological, analytical, preclinical, and clinical studies and procedures that enable us to manufacture innovative dosage forms in new therapeutic areas. Studies, in most cases bioequivalence studies, demonstrate the safety and efficacy of all new products. We always conduct clinical trials in line with the applicable legal requirements, good practice guidelines, the Helsinki Declaration, and Regulation (EU) 2016/679 (General Data Protection Regulation). Regular inspections, conducted by regulatory authorities, confirm that safety of the participants, transparency, ethics and high quality of research are ensured. Krka respects the intellectual property of its competitors; therefore, innovative R&D solutions drive the development of new products. The implementation of solid dispersion technology helped us to circumvent many patents successfully and made it possible to develop new products. In addition to innovative technological approaches, we also develop innovative complex dosage forms with added value, for example, modified-release forms, dispersible tablets, and bilayer tablets. In 2021, we filed twelve patent applications for new product solutions. Also in 2021, we invested in laboratory equipment and knowledge of physico-chemical analytics and cell tests to develop analytical methods related to complex products, including peptides. We took a big step forward in terms of digitalisation as we transferred a huge amount of technological and analytical R&D raw data into the electronic system. As a result, we can include, and more importantly, scientifically analyse a larger quantity of information and dig deeper in our research work. We also continued digitalising information and data on project- and-regulatory processes and linking them to manufacturing processes. We took an important step in robotisation of analytical processes. This improved the repeatability of performance, operation, and execution, while in the next phase, we also plan on optimising costs. Last year, we obtained initial regulatory approval of analytical procedure by automated sample preparation. Over several years, our in-depth R&D work on nitrosamine impurities made us one of the few pharmaceutical companies that could guarantee uninterrupted supplies of safe and quality sartan products. At the end of 2020, the European Medicines Agency (EMA) published a referral procedure for sartans requiring nitrosamine impurities limits to be included 25 GRI GS 103-1, 103-2, 103-3 2021 Annual Report – Business Report 114 in analytical specifications of finished products. We, therefore, developed and validated analytical methods for content of nitrosamine impurities for all sartan-containing products and clearly proved their high quality. We conducted extensive development studies on established products, adjusted development activities, coupled development and manufacturing operations, and learnt about regulatory and marketing requirements to enter a new strategic market – China. We obtained marketing authorisations for our first product in China in 2020, and for another three in 2021. The achievements of our researchers were noticed by the wider community. Last year we received prestigious awards for chemical synthesis of active ingredients and for developing finished dosage forms. We received several awards for innovation: eight regional awards from the Chamber of Commerce of Dolenjska and Bela Krajina and two national awards from the Slovenian Chamber of Commerce and Industry. The Chamber of Commerce of Dolenjska and Bela Krajina awarded our researchers for innovative solutions in developing several products. We received gold awards for the following innovations:  Bilayer tablet containing the combination of candesartan and amlodipine for the treatment of hypertension;  Pitavastatin-based solid dosage form for lowering cholesterol;  Fixed-dose combination of olmesartan, amlodipine, and hydrochlorothiazide in solid dosage form for the treatment of hypertension; and  Solid dosage form containing vitamin D3. Silver awards were received for the following innovations:  Erlotinib-based solid dosage form for the treatment of non-small cell lung or pancreatic cancer;  Optimisation of duloxetine hydrochloride finalisation as regards processability and flexibility on an industrial scale;  Optimisation of API ezetimibe production and its transfer from pilot to industrial scale; and  Synthesis of silodosin with reduced oxidation impurity content. We received two national silver awards from the Slovenian Chamber of Commerce and Industry for innovations in the development of dosage forms and technologies for finished products:  Candesartan and amlodipine in bilayer tablets for the treatment of hypertension; and  Fixed-dose combination of olmesartan, amlodipine, and hydrochlorothiazide in solid dosage form for the treatment of hypertension. Protecting Our Know-How and Industrial Property In 2021, we filed twelve patent applications for new technological solutions we had developed and evaluated as inventions at the global ranking level. Based on priority applications from 2020, we submitted four international patent applications. We were granted three patents in various countries. Over 200 valid patents protect Krka’s technological solutions. We filed 42 applications for Krka trademarks in Slovenia. We also filed 29 international and 27 national trademark applications. In total, we have registered more than 1,100 trademarks in various countries. In addition to protecting our own know-how, inventions, and trademarks, the strategy for achieving the most economical and at the same time acceptable technological solutions with respect to patent protection includes recourse to available legal measures (nullity or opposition proceedings against the grant of invalid patents or defending Krka’s patent rights). This contributes to a high-level legal security. New Products and Marketing Authorisations of the Krka Group In 2021, we further extended the portfolio of Krka products by obtaining marketing authorisations for 16 new and revised products. We develop and obtain marketing authorisations for our new and revised products to supplement our key product groups and intensify the expansion of our new therapeutic areas, i.e. oncology, antithrombotic agents, and a very important therapeutic category of diabetes. Besides this, we also continue entering new markets. We continue adding new products to our non-prescription and animal health portfolios. 2021 Annual Report – Business Report 115 We completed more than 200 registration procedures and obtained more than 1,000 new marketing authorisations on new markets. Thanks to this approach, we can launch value added, quality and affordable medicines for contemporary treatment, saving patients and healthcare systems money in various markets. We obtained marketing authorisations for several prescription pharmaceuticals:  Products containing new active ingredients included Aboxoma (apixaban), also marketed as Abidalo; Abiraterone Krka (abiraterone); Sunitinib Krka (sunitinib); and Apeneta (tapentadol), also marketed as Adoben;  A new fixed-dose combination of vildagliptin and metformin, Vimetso, also marketed as Vildakombi;  Products based on a new perindopril salt, i.e. Neoprenessa (perindopril arginine) tablets, in markets also available as Prenessa NEO, Prenessa-AS, or Perineva; and a fixed-dose combination of perindopril arginine and indapamide, Neoprenewel, also marketed Co-Prenessa Neo, or Co-Prenessa-AS;  Products containing established active ingredients in a new dosage form of dispersible tablets, i.e. Doreta (tramadol/paracetamol); and Hiconcil (amoxicillin);  Products for which we carried out new market-based studies: atorvastatin, rosuvastatin, and losartan in China; and lenalidomide in the Russian Federation;  Ezoleta (ezetimibe) containing an optimised in-house active ingredient. We added to our animal health portfolio with a fixed-dose combination Cladaxxa (amoxicillin/clavulanic acid) from our antibiotic range, marketed also as Twinox; and a new formulation of the fixed-dose combination Milprazon (milbemycin/praziquantel) for dogs, also marketed as Amcofen, Mektix, or Milgusto. As we are committed to the highest quality and safety levels possible, we continuously monitor, evaluate, and upgrade established products and adapt them to the latest findings and requirements. In 2021, we filed marketing authorisation documents for over 36,000 variations. In compliance with EMA requirements, we included new analytical methods for nitrosamine impurities in registration dossiers for all sartan-based finished products, drew up documents for more than 3,000 variations, and submitted them to regulatory bodies in all EU member states that market our sartan-based products. We adapted to the requirements of the latest edition of the Russian Pharmacopoiea (GF 14) and filed documents for variations of over 300 products registered in the Russian Federation. We continued to review and update the dossiers for our established products in compliance with the new product registration legislation effective in the Eurasian Economic Union (EAEU). In 2021, we surpassed our goal and submitted revised dossiers for more than one-third of all our products registered in the EAEU. Prescription Pharmaceuticals In 2021, we were granted marketing authorisations for 14 new prescription pharmaceuticals. We were granted more than 500 new marketing authorisations in EU Member States. We developed and obtained marketing authorisations for Aboxoma (apixaban) film-coated tablets, also marketed as Abidalo, a medicine from an important therapeutic area of antithrombotic agents. It is used for the prevention of atherothrombotic events in adults with cardiovascular diseases. API synthesis and formulation development are the results of our know-how. The API and finished product are manufactured at our production plants. By connecting all development and manufacturing processes, we ensure continuous supply of this advanced antithrombotic agent. A product based on new arginine salt of Krka’s key API perindopril was added to our group of cardiovascular products. Two perindopril arginine-based products were approved: monotherapy Neoprenessa (perindopril arginine) tablets, on markets also available as Prenessa NEO, Prenessa-AS, or Perineva; and a fixed-dose combination Neoprenewel, also marketed as Co-Prenessa Neo, or Co-Prenessa-AS (perindopril arginine/indapamide) tablets. Perindopril arginine product is developed and produced according to our vertical integration model. It is a result of our know-how and is manufactured in Krka’s-own facilities. Managing all processes from development to marketing enables us to respond quickly and ensure a product's availability on markets. 2021 Annual Report – Business Report 116 Marketing authorisations were granted for the cholesterol lowering agent Ezoleta (ezetimibe) containing an optimised active ingredient. Based on new scientific studies, we improved the process of API synthesis. We manufacture the API at our premises. We continued obtaining new marketing authorisations for our products in China. We completed registration documentation for several products by adding results of additional research and clinical trials performed in compliance with the requirements of the Chinese regulatory authorities. We obtained marketing authorisations for three cardiovascular agents, atorvastatin, rosuvastatin, and losartan, all in tablets. We are rapidly entering the area of antidiabetics, which is expected to become one of our major therapeutic areas. We extended our portfolio with a new fixed-dose combination Vimetso (vildagliptin/metformin) film-coated tablets, marketed also as Vildakombi. The two active ingredients exert synergistic action, regulate blood sugar levels, and help increase postprandial insulin levels in adult patients with type 2 diabetes. The product is made according to the vertically integrated production model and incorporates vildagliptin, an in-house developed and manufactured API. The formulation is non- infringing. By controlling development and manufacturing processes in-house, we will ensure uninterrupted supplies of the finished product to our markets. We added Apeneta (tapentadol) prolonged-release tablets, also marketed as Adoben, to our analgesic range. Tapentadol is an opioid analgesic and is used to treat various types of severe chronic pain in adults. The medicine is produced according to the vertically integrated production model and is the result of in-house API synthesis and dosage form development. We obtained marketing authorisations for the product via Decentralised Procedure (DCP) as the first generic manufacturer. We manufacture the medicine in our own production facilities to provide for uninterrupted finished product market supply and availability of therapy. Another result of our development is the approval of our analgesic combination Doreta (tramadol/paracetamol) dispersible tablets, a new dosage form. This opioid analgesic plays an important role in treating moderate to severe pain. Dispersible tablets can be taken whole or dissolved in water. The new dosage form ensures quick dissolution, is palatable and easier to take for the patient. We obtained marketing authorisations for the first time for two oncology agents, Abiraterone Krka (abiraterone) film- coated tablets and Sunitinib Krka (sunitinib) hard capsules. Sunitinib is indicated for the treatment of tumours of the stomach, pancreas, and kidneys, while abiraterone is used for the treatment of prostate cancer. We manufacture Abiraterone Krka at our state-of-the-art production plant in Jastrebarsko (Croatia), which is dedicated to producing products containing highly active APIs. In the Russian Federation, we obtained marketing authorisation for our oncology agent Lenalidomide (lenalidomide) hard capsules, indicated for various types of blood cancer. Its key indication is maintenance treatment of multiple myeloma in adult patients. The registration documentation was based on new scientific studies and the availability of this medicine in the Russian Federation was ensured by setting up an additional manufacturing site in the Russian Federation. Our established antibiotic Hiconcil (amoxicillin) was approved in a new dosage form, dispersible tablets. It is indicated for the treatment of bacterial infections in adults and children. The product can be taken whole or dissolved in water, making administration easier for the patient. In the Region East Europe, we were granted nearly 100 new marketing authorisations. We entered regional markets with value added medicines. In Moldova, we were granted marketing authorisations for our antithrombotic agent Rivaroxia (rivaroxaban) film-coated tablets. We obtained marketing authorisations under the product registration procedure applied by the EAEU for Tadalafil Krka (tadalafil) film-coated tablets in the Russian Federation and extended our range of medicines for the treatment of erectile dysfunction. In Belarus, we obtained marketing authorisations under the shortened procedure for Rivestar (rivastigmine) capsules and for Elicea (escitalopram) film-coated tablets; Duloxenta (duloxetine) hard gastro-resistant capsules; Kventiax (quetiapine) film-coated tablets; and Zalasta (olanzapine) tablets. With this we prepared the grounds for this important therapeutic area of diseases of the central nervous system in the region. 2021 Annual Report – Business Report 117 In the Region South-East Europe, 50 new marketing authorisations were granted. The following medicines from two important therapeutic areas containing advanced APIs stood out: an antithrombotic agent Xerdoxo (rivaroxaban) in the form of film-coated tablets; and two agents from the promising group of antidiabetics, Maysiglu (sitagliptin) film-coated tablets and the fixed-dose combination Maymetsi (sitagliptin/metformin) film-coated tablets. We obtained more than 60 marketing authorisations in our Region Overseas Markets. We make value added medicines from various therapeutic areas available to patients in many countries in the region. Among others, our antidementia agent Memando (memantine) film-coated tablets and antipsychotic Aryzalera (aripiprazole) tablets were approved in Saudi Arabia. We obtained our first marketing authorisations in the United Arab Emirates for prescription pharmaceuticals as follows: two cardiovascular agents, Valsacor (valsartan) tablets and Valsaden (valsartan/hydrochlorothiazide) tablets; an antidiabetic agent Gliclada (gliclazide) prolonged-release tablets; and Vizarsin (sildenafil) orodispersible tablets for the treatment of erectile dysfunction. We continued obtaining the Certificates of Suitability to the monographs of the European Pharmacopoeia (CEP) based on our own API manufacturing process for a hypolipemic rosuvastatin and rabeprazole for the treatment of stomach problems. We adopted changed legislation on APIs and obtained CEPs for key Krka’s APIs: perindopril erbumine, telmisartan, and clopidogrel. We achieve the highest quality of API synthesis in all our production facilities by undertaking extra R&D and registration activities. In this way, we can provide a continuous supply of our finished products. New MAs for Established Medicinal Products Therapeutic areas (ATC) Brand or registered name APIs Dosage form Country Cardiovascular system Co-Vamloset Valtricom amlodipine/valsartan/hydr ochlorothiazide film-coated tablets Azerbaijan, Mongolia, Albania, Kosovo, United Arab Emirates Roxiper, Roxatenz-Inda perindopril/indapamide/ro suvastatin film-coated tablets Montenegro, Belarus Roxampex perindopril/ amlodipine/ rosuvastatin film-coated tablets Croatia, Georgia, Ukraine Teldipin telmisartan/amlodipine tablets North Macedonia Tolucombi telmisartan/hydrochloroth iazide tablets North Macedonia Sorvitimb, Co-Roxera ezetimibe/rosuvastatin film-coated tablets Georgia, Azerbaijan Wamlox amlodipine/ valsartan film-coated tablets Kosovo, Iraq Valsaden valsartan/hydrochlorothia zide film-coated tablets United Arab Emirates Niperten Combi bisoprolol/amlodipine tablets Azerbaijan Olelom HCT olmesartan/hydrochloroth iazide film-coated tablets Greece Candesartan HCT candesartan/hydrochlorot hiazide tablets Iraq telmisartan telmisartan tablets Russian Federation Valsacor valsartan film-coated tablets United Arab Emirates Candesartan TAD candesartan tablets Iraq Metazero metoprolol prolonged-release tablets Greece Apleria eplerenone film-coated tablets Ukraine Amiokordin amiodarone tablets Azerbaijan Simvastatin Krka simvastatin film-coated tablets Iceland Olelom olmesartan film-coated tablets Greece 2021 Annual Report – Business Report 118 Therapeutic areas (ATC) Brand or registered name APIs Dosage form Country Antithrombotics Xerdoxo, Rivaroxia rivaroxaban film-coated tablets Bosnia and Herzegovina, Kosovo; Moldova Eliskardia prasugrel film-coated tablets Bosnia and Herzegovina Central nervous system Aryzalera aripiprazole tablets Saudi Arabia Memando memantine film-coated tablets Saudi Arabia Pregabalin Krka pregabalin hard capsules Mongolia, Iraq Elicea escitalopram film-coated tablets Belarus Alventa venlafaxine prolonged-release hard capsules Armenia Parnido paliperidone prolonged-release tablets Greece Agomaval agomelatine film-coated tablets Malta Rivestar rivastigmine capsules Belarus Kventiax quetiapine film-coated tablets Belarus Duloxenta duloxetine gastro-resistant capsules Belarus Zalasta olanzapine tablets Belarus Antineoplastic agents Pemetrexed Krka pemetrexed powder for solution for infusion North Macedonia Erlotinib Krka erlotinib film-coated tablets Ukraine Corticosteroids for systemic use Dexamethasone Krka dexamethasone tablets; solution for injection Russian Federation, Serbia, Iraq Musculoskeletal system Dekenor, Deksiaks dexketoprofen solution for injection, film- coated tablets Russian Federation, Azerbaijan, Moldova, Kyrgyzstan, Ukraine Etoxib, Etoriax etoricoxib film-coated tablets Ukraine, Mongolia, Kazakhstan Tramadol tramadol prolonged-release tablets Albania Naklofen diclofenac solution for injection Sudan Antidiabetics Maysiglu sitagliptin film-coated tablets Serbia, Bosnia and Herzegovina, North Macedonia Maymetsi sitagliptin/metformin film-coated tablets Serbia Gliclada gliclazide prolonged-release tablets United Arab Emirates Antibacterials for systemic use Ciprinol ciprofloxacin film-coated tablets Malta Fromilid clarithromycin film-coated tablets Malta Antivirals for systemic use (HIV) Efavirenz/Emtricitabine/ Tenofovir Krka efavirenz/emtricitabine/te nofovir film-coated tablets Azerbaijan Alimentary tract and metabolism Nolpaza pantoprazole powder for solution for injection Tajikistan Emanera esomeprazole gastro-resistant capsules Malta, Iraq Bismuth Krka bismuth film-coated tablets Greece Erectile dysfunction Vizarsin sildenafil film-coated tablets, orodispersible tablets Armenia, United Arab Emirates Tadalafil Krka tadalafil film-coated tablets Russian Federation Vardenafil Krka vardenafil film-coated tablets Kazakhstan 2021 Annual Report – Business Report 119 Therapeutic areas (ATC) Brand or registered name APIs Dosage form Country Benign prostatic hyperplasia Twinpros dutasteride/tamsulosin hard capsules Serbia Sidarso silodosin hard capsules Serbia Urologicals Asolfena solifenacin film-coated tablets Lebanon Antihistamines for systemic use Letizen cetirizine film-coated tablets Iraq Cezera levocetirizine film-coated tablets Iraq Dasselta desloratadine film-coated tablets Iraq Non-Prescription Products In 2021, we obtained marketing authorisations on new markets for our key non-prescription product brands. We obtained more than 80 marketing authorisations and notifications. We obtained marketing authorisations for Vitamin D3 Krka (cholecalciferol) tablets in Armenia, Kosovo, Bosnia and Herzegovina, Bulgaria and Ukraine, and received notifications in Italy, France, Croatia, Montenegro, and Serbia. In Slovenia, we submitted an application for the status of a prescription product for packages of 90 tablets. We obtained new marketing authorisations for the renewed formulation of our established product B- Complex (thiamine/riboflavin/pyridoxine/cyanocobalamin/calcium pantothenate/nicotinamide) film-coated tablets in Croatia, Serbia, and Albania. We obtained new marketing authorisations for the Septolete brand products. Septolete Total (benzydamine/cetylpyridinium chloride) honey-and-lemon flavour lozenges were approved in Denmark, Iceland, Spain, Montenegro, Albania, Mongolia, and the United Arab Emirates. We obtained a marketing authorisation for Septolete Total (benzydamine/cetylpyridinium chloride) elder-and-lemon flavoured lozenges in Montenegro. Septolete Total (benzydamine/cetylpyridinium chloride) spray was approved for marketing in Germany, Iceland, and Denmark. Approvals were granted in Spain and Malta for Septanazal (xylometazoline/dexpanthenol) nasal spray, marketed also as Septanasal. Of the Herbion brand products, we obtained new marketing authorisations for Herbion Ivy (ivy leaf dry extract) lozenges and syrup. Syrup was approved for marketing as a food supplement under the product registration procedure applied by the EAEU in Armenia, the Russian Federation, Belarus, Kazakhstan, and Kyrgyzstan. Syrup was also approved for marketing in Montenegro. Lozenges were approved for marketing as a non-prescription product in Georgia, Armenia, Turkmenistan, and Albania. According to the changed legislative requirements for medical devices, we revised the dossier for requalification. In the EU Member States, we obtained the certificate for Herbisland (ivy leaf dry extract) syrup as a class IIa medical device. In the Czech Republic, we confirmed amendments in the status of two established products by registration procedures switching them from prescription pharmaceuticals to non-prescription products in small packages. They are Flebazol (diosmin) 500 mg film-coated tablets to treat symptoms of chronic venous insufficiency and Dasmini (desloratadine) film- coated tablets for relieving symptoms associated with allergic rhinitis and urticaria. They come in the form of film-coated tablets. As the first generic manufacturer in Spain, we obtained a marketing authorisation for Emanera (esomeprazole) 20 mg gastro-resistant capsules as a non-prescription product. We also obtained marketing authorisations for our esomeprazole- based products as non-prescription products in Bulgaria (Emanera Kontrol), Estonia (Escadra Control), Lithuania (Escadra), and Hungary (Emozul Control). We also increased the number of marketing authorisations in Region East Europe markets. In Azerbaijan, we obtained marketing authorisations for KontrDiar (nifuroxazide) capsules for treating acute bacterial diarrhoea. We revised the 2021 Annual Report – Business Report 120 dossiers for Pikovit and Pikovit Forte vitamin tablets to switch their status from the food supplement category to non- prescription products. Region South-East Europe expanded marketing opportunities by obtaining marketing authorisations for Nalgesin (naproxen) 220 mg film-coated tablets, and dietary supplement notifications for mineral-and-vitamin products Duovit for Women and Duovit for Men film-coated tablets, and hair care product Fitoval capsules. Region Overseas Markets expanded marketing opportunities by approvals for Novolax (bisacodyl) film-coated tablets, and the Septolete, Bilobil and Pikovit brand products. Animal Health Products We obtained marketing authorisations for our two new animal health products. We extended indications and marketing opportunities for our key animal health product brands and in various countries obtained almost 180 new marketing authorisations. We added a new fixed-dose combination Cladaxxa (amoxicillin/clavulanic acid), chewable tablets in three strengths to our range of products for companion animals. The product is indicated for the treatment of bacterial infections of the skin, gums, respiratory tract, urinary tract, and intestines in cats and dogs. We obtained marketing authorisations for the medicine for the first time in EU Member States and North Macedonia. Registration procedures were concluded for our new formulation of the fixed-dose combination of milbemycin and praziquantel in film-coated tablets for dogs, on various markets available as Milprazon Chewable, Milprazon Plus, Amcofen, Mektix Chewable, Milgusto Chewable. The improved palatability enhances voluntary uptake, reaching over 80% in dogs. This fixed-dose combination is intestinal parasite dewormer. Thanks to its systemic mechanism of action, it at the same time prevents infestations with heartworms and eyeworms. New indications of Ataxxa (imidacloprid/permethrin), our spot-on solution for treating and preventing flea and tick infestations in dogs, were approved. Single treatment provides repellent activity against I. ricinus ticks, and protects pets from sand flies and A. aegypti mosquitoes. We introduced Selafort on new markets, available also as Selehold, (selamectin) 60 mg/ml spot-on solution for cats and small dogs and 120 mg/ml spot-on solution for dogs. Selamectin is a contemporary medicine effective against external parasites, including mange, fleas, lice, and internal gastrointestinal parasites, heartworms, and eyeworms. It is approved for the treatment of mixed infestations in dogs and cats. We obtained marketing authorisations in the Russian Federation and North Macedonia. In Ukraine, we were granted marketing authorisations for Prinocate (imidacloprid/ moxidectin) 100 mg/25 mg/ml spot-on solution for dogs in four filling sizes and 100 mg/10 mg/ml spot-on solutions for cats and ferrets in two filling sizes. This medicine is effective against external parasites such as mange, fleas, and lice and against internal gastrointestinal parasites, heartworms, lungworms, and eyeworms. It is used to treat mixed infestations in dogs, cats, and ferrets. We obtained marketing authorisations for Rycarfa (carprofen) tablets in three strengths for dogs and a solution for injection for dogs and cats in North Macedonia. Tablets are indicated for relieving pain and inflammation in chronic arthritis in dogs, while solutions for injection are indicated for postoperative pain relief in dogs and cats. In the United Kingdom, we obtained marketing authorisations for the febantel/pyrantel/praziquantel fixed-dose combination tablets for treating gastrointestinal infestations in dogs. We are introducing companion animal products also in countries of Region Overseas Markets. In Egypt, we obtained marketing authorisations for Fypryst (fipronil) spot-on solution and spray used to prevent and treat tick and flea infestations in dogs. We introduced our products for farm animals on new markets. In Ukraine, we obtained marketing authorisations for Catobevit (butafosfan/ cyanocobalamin) solution for injection indicated for the treatment and prevention of metabolic or 2021 Annual Report – Business Report 121 reproductive disorders in cattle, and Tuloxxin (tulathromycin) solution for injection for the treatment of respiratory infections in cattle. An additional strength of Tuloxxin (tulathromycin) solution for injection indicated for respiratory tract infections in pigs was approved in Serbia. In the Russian Federation, we obtained a marketing authorisation for Solvimin Se powder for oral solution indicated for pigs, cattle, and poultry. This mixture of vitamins and minerals (including selenium) is indicated as a supportive therapy to enhance the immune system in farm animals and improve their development and growth. Krka-owned additional production capacities ensured the accessibility of our animal health products. For several animal health products, a regulatory approval was granted for our production plant in Jastrebarsko, Croatia. We adapted the plant to the requirements for the production of tablets for veterinary use, introduced certain automated working processes, and increased capacities. The new plant ensures high quality and safety of animal health products, including Dehinel (pyrantel/praziquantel), Milprazon (milbemycin/praziquantel), Rycarfa (carprofen), Marfloxin (marbofloxacin), and Enroxil (enrofloxacin). Terme Krka When developing services, programmes, and activities at Terme Krka, we are always mindful of our guests' health and well-being. We primarily focus on medical rehabilitation, medical wellness, and programmes for maintaining health and strengthening the immune system. In 2021, we developed programmes for long COVID reconvalescents. Our healthcare teams designed programmes to include specialist heart and respiratory treatment, various therapies, and a healthy diet. The three health resorts offer specialised programmes. Talaso Strunjan focuses on respiratory and climatic therapy, Terme Šmarješke Toplice offers specialist cardiology treatment, and Terme Dolenjske Toplice also focuses on psychological support. In Terme Šmarješke Toplice, we developed a new programme for increasing the immune system dubbed ImmunoRebalance. It ensures active relaxation, strengthening the immune system and revitalisation for our guests in peaceful and clean surroundings, harmonisation through natural methods, restitution of vitamins and minerals by wholesome and ecologically produced food, strengthening the immune system, and professional support for bringing life in balance. The programme offers excellent active relaxation and recovery after daily stress caused by many stressors, including electronic ones. We provide our guests with professional guidance to improve important behavioural patterns in a relaxed way, comprising exercise, diet, relationship with self, etc. European Spas Association (ESPA) conferred an award on Terme Krka for the programme of the most innovative healthcare programme in Europe in 2021, the ESPA Innovation Award. Production and Supply Chain The key objective of the production and supply chain is to satisfy market demand by providing sufficient quantities of quality products in a timely and cost-effective manner. To meet this objective, we rapidly respond to changing market demands, continuously improve processes to reduce lead time along the entire supply chain, and integrate supply processes in all Krka Group subsidiaries and other contractual production sites. We comply with new product manufacturing requirements and relevant laws by promptly introducing advanced technological processes in the production of active pharmaceutical ingredients and finished products. We have been increasing production capacities and improving the cost-effectiveness of processes in Slovenia and in our subsidiaries abroad. By controlling all stages of a product life cycle, we can adapt to challenges in markets more easily and effectively. We effectively integrate research and development with API and pharmaceutical production, which allows us to quickly and smoothly transfer new products from development to regular production. We accelerated technological problem solving, optimised technological processes, and ensured uninterrupted production. 2021 Annual Report – Business Report 122 The COVID-19 pandemic continued to pose major challenges. However, sound organisation of work, the prompt introduction of numerous preventive measures and our focus on key tasks and products helped us keep our capacities at pre-pandemic levels. Planning By implementing continuous process improvements, we considerably reduced the average lead time from an order to delivery and, consequently, increased our responsiveness and process flexibility throughout the supply chain. We continue to optimise inventories of raw materials and finished products. By optimal use of available resources in the controlling company and subsidiaries and through cooperation with contractors, we manufactured and packed 16.2 billion tablets and other pharmaceutical forms in 2021. We continued our long-term trend in volume growth of more than 5% a year. Actual product manufacturing was in line with planned market needs. Finished Product Manufacturing The number of our bulk and finished products rose due to the increasing number of products and production sites, changing market requirements, requirements for package labelling in national languages, and other demands. Careful planning and efficient production allowed us to fulfil diverse customer demands. We continuously improved post-registration procedures for preparing packaging materials and technological documents for production in Slovenia, our subsidiaries abroad and at contract manufacturers to ensure timely provision of products and a prompt response to sales requirements. We continued to upgrade the IT support for process management, monitoring and control, standardisation of production processes, and optimisation of the production documentation system and process controls. In 2021, we increased the use of production documentation in e-format and improved process digitalisation. Supply Process 26 We mainly use self-produced raw materials for our products but also buy some in the market. In 2021, the number of raw material manufacturers further decreased, primarily due to environmental and financial reasons and those related to good manufacturing practices. Raw material shortage and disruption of transport routes also affected our business. Despite the 26 GRI GS 102-9, 103-1, 103-2, 103-3, 414-1 2021 Annual Report – Business Report 123 unstable situation, significant lack of incoming materials, lower manufacturing output at our partners, and transport issues during the COVID-19 pandemic, we provided enough raw materials for uninterrupted production of finished products at the same prices. We improved the transparency of purchasing raw and packaging materials and upgraded the system for managing purchase agreements and coordinating raw material specifications with suppliers. We continued introducing alternative sources of active pharmaceutical ingredients, excipients, and packaging materials of equal quality at better prices. This helped mitigate risks posed by changing circumstances that affect supply. We improved integration of our subsidiaries and optimised purchasing processes. We also improved established partnerships with suppliers. Purchase and transport agreements concluded with our suppliers and contractors require them to comply with national and international laws and regulations. We work with 76 suppliers with an ISO 45001 certification and 202 suppliers certified to ISO 14001 and regularly audit them. We conduct approximately 145 audits a year. Production of Active Pharmaceutical Ingredients A high level of vertical integration in the production process generates high added value. Vertical integration means that we produce and technologically control a large proportion of the active ingredients that we incorporate into our finished products at various production sites in Slovenia and abroad. In doing so, we reduce the dependency on external suppliers in this key supply chain segment. We improve the cost-effectiveness of the production of key intermediates and raw materials by optimising production processes at all production sites. We transferred additional technologies (products) to increase capacity at our Sinteza 1 Plant in Krško in Slovenia and, in turn, considerably expanded capacity to produce active ingredients for our vertically integrated products. We plan to expand our capacities even further. Intensive production of active ingredients and intermediates continued at our own production sites in Novo mesto and Krško in Slovenia. Production plans for 2021 were implemented. Production of Pharmaceutical Products We have been introducing additional equipment and advanced high-tech solutions into pharmaceutical production. The Notol 2 Plant started operating at the end of 2015 and was upgraded in 2021 with several packaging lines. We also ordered the equipment needed to render the plant fully operational. The plant utilises cutting-edge technology, high level of automation and robotisation supported by advanced computerised systems. This approach helps us reinforce our competitive edge on demanding global markets. In 2021, over 30% of total Krka Group products were manufactured at the Notol 2 Plant. We also increased production in our production and distribution centre in the Russian Federation, equipped it with new production machinery, and made a transfer of new technologies and products essential for the Russian market. This further consolidated our position as a local manufacturer. The plant in the Russian Federation manufactures approximately 80% of all our products intended for the Russian market. In addition to significant investments in new equipment and technology, which provide additional production capacities, we modernised existing machines and production lines. Upgrades and refurbishments resulted in adequate production process cost-effectiveness and augmented the level of digitalisation. Production documentation in e-format was introduced to add to automation and paperless operations. We promptly responded to a fluid situation in the pharmaceutical market and a changing demand for pharmaceutical products. We supplied our products in line with our customers’ expectations and in compliance with increasing regulatory requirements. We were able to meet the challenges by optimising technologies, increasing product batch sizes and launching new products. At the same time, we maintained a high level of quality standards required by laws, regulations and inspections, and upgraded process management in terms of environmental care and health and safety at work. In order to respond more quickly to the rising demand for our products, strengthen our presence in international markets, and reduce risks in the production process, we continued with activities related to transfers of production technologies to 2021 Annual Report – Business Report 124 contractual partners and expanded the network of contract manufacturers. We completed the transfer of several products to Ningbo Krka Menovo, our joint venture established together with our Chinese partner. In 2021, several products intended for our traditional markets were in regular production and the first product to be sold in China was launched. To raise awareness and the quality of work, we upgraded the training centre in Pharmaceutical Production, where our employees acquire skills for working with equipment used in all key production processes. Participants learn through the experience and expertise of their mentors, selected from the most successful Krka employees, and modern methods for knowledge transfer, i.e. video lessons and training in a real-life work setting. The system proved very useful, as the introduction process is faster and more efficient, while the quality of regular work improves. It was initially intended for new employees only but is now used for other groups of employees that can benefit from it. Warehousing and Transport We improved warehouse capacity utilisation through process optimisation, new computer system options, and inventory optimisation in conjunction with other organisational units. The new multipurpose warehouse served its purpose well. We increased the number of environmentally friendly cargo vehicles to distribute our products and cut operating costs. We augmented sea transport and continued to use rail transport in compliance with temperature-control requirements. In 2021, transport was hindered, so we looked for new transport options and efficiently transported products by road. Road transport is an alternative to the established transport routes. We effectively arranged all necessary means of transport to accommodate increasing sales volumes. We are approved as an authorised economic operator (AEO) in customs clearance procedures. This allows for a faster flow of goods and facilitates obtaining authorisations for simplified declaration procedures. We are a registered exporter according to the Registered Exporter system (REX). Suppliers 27 Our long-term relations with business partners, including suppliers of equipment, raw and base materials, contractors, and partners, are based on mutual respect, trust, honesty, integrity, and fairness. At all stages of the purchasing process, employees must comply with the procedures defined in internal guidelines, international agreements, and local regulations. Roles and responsibilities in purchasing activities ranging from the identification of user needs, tender preparation, and selection of suppliers to contracting and placing orders are precisely specified. In line with our long-term objectives, sustainability goals, and main principles, we select potential suppliers by considering their:  Previous performance at Krka;  References in implementing similar projects with other clients;  Technical facilities;  Number of key employees and respective qualifications; and  Financial stability and relation to sub-suppliers or sub-contractors. We conduct supplier audits in accordance with quality standards and Krka guidelines, and take into consideration suppliers’ prices, quality, delivery terms, reliability, regulatory compliance, compliance with our guidelines, and their social responsibility. We follow the policy and practice of addressing local suppliers and contractors especially when – besides acceptable prices – responsiveness, flexibility and frequent or constant involvement of suppliers and contractors in investment and service processes also matter. In 2021, spending on suppliers of goods and services in Slovenia accounted for 16% of total Krka procurement budget. 28 27 GRI GS 102-9, 103-1, 103-2, 103-3 28 GRI GS 204-1 2021 Annual Report – Business Report 125 Investments 29 In 2021, the Krka Group allocated €66.4 million to investments, of that €49.4 million to the controlling company, and €17.0 million to subsidiaries. We primarily invested in our production and development plants to enlarge facilities and upgrade technologies, quality management, and our production-and-distribution centres worldwide. In Slovenia and the Russian Federation, we made multiple investments in new production equipment and upgraded systems and instruments, increasing our production capacities and improving quality. Lengthy procedures for obtaining permits in the two countries stalled funding; hence 2021 investments were lower than planned. Due to the high demand for certain products, we had to increase their production and postpone reconstruction of the Solid Dosage Products plant. The slow-down in investments was partly caused by lack of electronic components on the global markets, postponing the delivery of certain machines and equipment to 2022. We place a strong emphasis on the values of sustainable development and take into account environmental standards, indirect, and direct environmental impacts in all investment projects. The approved equipment complies with the best available technology for environmental protection and energy efficiency, and guarantees safe and efficient operations. 2017–2021 Krka Group Investments In 2021, in order to ensure product quality, we streamlined the major part of investments to the production of finished products, increasing and upgrading facilities for development, research, and analysis. This provides for coordinated functioning of our research and development, production and control, which embody the essential advantages of our vertically integrated business model. Investments accounted for 4.2% of sales revenue generated in 2021. 29 GRI GS 102-10 2021 Annual Report – Business Report 126 Structure of 2021 Krka Group Investments Notol 2 Plant The Notol 2 plant, our state-of-the-art facility for manufacturing solid dosage forms in Ločna (Novo mesto, Slovenia), has been in operation for several years now. The growing need for production capacities has incited us to acquire additional technological equipment. In 2019, we started equipping a new packaging facility. We installed several highly automated and robotised packaging lines. We plan to install the remaining two packaging lines in 2022. This will make the facility fully technologically equipped. Its full manufacturing capacity is expected to reach 5 billion tablets and its full packaging capacity 8 billion tablets per year. The investment is estimated at €41 million. In 2021, we allocated €8.5 million to equip the new packaging facility and purchase production equipment. Production and Capacity Upgrades After 20 years of continued operations, we intend to upgrade water supply systems and automated washing systems of the oldest section of the Notol plant in compliance with cGMP guidelines. The investment is estimated at €3.1 million. Also, we plan to renovate the format tool washing room, replace and overhaul the worn-out packaging lines in the same plant to ensure the uninterrupted performance of the packaging room in the next 20 years. The investment is estimated at €38.2 million. In the Solid Dosage Form Products plant (Novo mesto, Slovenia), we are investing €26 million in additional capacities for compression mixture preparation and granulation in the tablet compression process, and in logistic capacities. We are finishing several investments totalling €8.2 million to upgrade and increase the capacities for research, development and analyses in our development-and-control laboratories. We renovated the temporary storage room of the warehousing section of the Ljutomer (Slovenia) manufacturing plant in compliance with the standards of good warehousing practice and health and safety at work. We apportioned €2 million to the investment. We also plan to increase the production capacities for granulation and packaging. The investment is estimated at €13 million. At our Slovenian Beta Šentjernej plant, we upgraded the systems and equipment in compliance with ATEX standards. We intend to install another mixer to increase the production capacity for the preparation of dry granules. The total value of investments is estimated at €2.6 million. 2021 Annual Report – Business Report 127 In Ločna (Novo mesto, Slovenia), we intend to replace the one-storey house by a six-storey building called Paviljon 3. The multiple-purpose building will house an extension for our microbiology laboratory and additional rooms for several organisational units. Project documentation for this €18.6 million investment has been completed, and construction works are expected to start in spring 2022 after the construction permit is obtained. Increasing API Development and Production Capacities We plan to build new facilities for developing and producing active pharmaceutical ingredients (APIs) in Krško, Slovenia. The designs for execution have been drawn up. In June 2021, we obtained the integral building permit for Sinteza 2, and laboratories for chemical analyses (Kemijsko-analitski center in Slovene). The permit entered into force at the end of July 2021. We are still waiting for the final IED OVD environmental protection permit, which must be obtained before construction can start. The Sinteza 2 plant will be our second plant for API production in Krško. We plan to build other small technology and infrastructure facilities required for uninterrupted production processes. The investment estimated at €163 million pursues our strategy of vertical integration. This means that our product is made in-house from its development to production. Energy Supply Projects As our production capacities increase, so do our energy demands. Investment in production capacities for compressed air and construction of new utility lines for energy supplies to manufacturing facilities are drawing to an end. We allocated €2.5 million for energy infrastructure extension at our Novo mesto production facility. Investments Outside Slovenia The Krka-Rus plant in the industrial zone of Istra, a town north-west of Moscow, is one of the key investments in Krka subsidiaries abroad. The plant manufactures more than 75% of products we sell in the Russian Federation, giving us the status of a domestic producer in the country. By the end of 2021, we technologically equipped the Krka-Rus 2 production plant. In 2020, we transferred new technologies to the plant and gradually started producing new products vital for the Russian market. In summer 2021, we started refurbishing the high-bay warehouse at the Krka-Rus 1 plant to revamp it into production and laboratory rooms. We intend to invest €35 million in increasing the factory production capacity to 3.5 billion tablets per year. In 2021, our investment amounted to €5.6 million. We continued to purchase manufacturing and quality control equipment for our joint venture Ningbo Krka Menovo in China. The joint venture manufactures products for markets outside China, and in January 2021 also started manufacturing the first product intended for the Chinese market. New Projects Project designs are being drafted for three substantial investments in new solid dosage form production. In 2021, we started preparing project documents for the construction of a new plant in the Russian Federation. Project designs for the 2 Solid Dosage Products plant (Slovene abbreviation: OTO 2) and packaging centre in Novo mesto (Slovenia) are in the course of preparation. Terme Krka We finished refurbishing Mihevc holiday houses, the four accommodation facilities in Strunjan, Slovenia. The refurbishment of 40 accommodation units and construction of a new sewer system totalled €1.5 million. We also began a thorough renovation of the accommodation facility at the Laguna Hotel in Strunjan after the end of the summer season. The reconstruction of the building is still in progress. We are refurbishing the restaurant and the reception room, and converting six rooms above the restaurant into apartments and the conference hall into an accommodation facility of a high price range. 2021 Annual Report – Business Report 128 We thoroughly renovated 48 hotel rooms in Šmarješke Toplice health resort (Slovenia), including the triple glazing of the exterior windows. We adjusted 19 bathrooms at the Šmarjeta Hotel to the needs of our guests from the rehabilitation programme making them more comfortable. We replaced the roof and renovated the façade, giving the exterior of stables near the Struga castle (Slovenia) a new look. This gives the building complex by the golf course a new appearance. We are also planning to renovate the building interior. In 2021, the subsidiary Terme Krka allocated a total of €2.1 million to investments. Integrated Management System and Quality 30 Our fundamental strategy in terms of quality is to ensure quality by continuously improving our products, processes and services. To this end, we pursue effective performance of the integrated management system (IMS) and quality system in compliance with the principles of good pharmaceutical practices (GxP) and regulations governing quality in the pharmaceutical industry. We maintain flexibility, respond quickly to new developments, market needs and legal requirements, improve our processes, make investments, and implement advanced work systems and proper control methods to meet various client requirements. In addition, we demonstrate the continued suitability of processes to deliver on goals. We, therefore, address quality-related risks and opportunities in all processes systematically. We aim to achieve sustainable development. Careful planning, employee quality culture and continuous development of our processes and services allow us to meet the requirements of our internal and external clients and pave the way for further improvements. Management System and Quality Various aspects of our operations are managed uniformly with our integrated management system (IMS) to achieve optimal business targets. The IMS shapes our attitude to quality, environment, health and safety at work, food safety, medical device safety, information security, and business continuity. The IMS complies with ISO 9001, GxP and HACCP principles, Regulation (EU) 2017/745 (Medical Device Regulation, MDR) and ISO 14001, ISO 45001, ISO/IEC 27001, and ISO 22301. In 2021, we again upgraded our management systems in line with the relevant legislation and guidelines. Testament to the management system's compliance is the renewal of good pharmaceutical practice certificates. We also renewed other management system certificates (ISO 9001, ISO 14001, ISO/IEC 27001, ISO 45001, MDR, and HACCP). To ensure the credibility of our IMS and strengthen partner trust, the IMS is regularly certified by SIQ (Slovenian Institute of Quality and Metrology). It has demonstrated its compliance with regulatory and legal requirements during inspections and audits. The IMS is supported by a centralised information and document management system, which we regularly upgrade through digitalisation and other measures to ensure that data in documents and electronic records are credible, easily accessible and protected and to provide for transparency as regards our processes and products. We use this approach to conduct analyses, observe trends, ensure sound support for improving process efficiency and product quality, and fulfil all requirements. Our data management system is built on ethical principles of personal integrity, staff responsibility to diligently perform their work, and framework quality guidelines, operating procedures and IT system and organisational process controls. 30 GRI GS 103-1, 103-2, 103-3, 416-2 2021 Annual Report – Business Report 129 Integrated Management System Continuous improvements dictated by standards, quality guidelines, and the PDCA (Plan-Do-Check-Act) approach are the driving force of progress and upgrades in all areas of Krka Group operations. We systematically manage processes from purchasing, research and development, production of active ingredients and finished products, distribution, marketing and sales to monitoring customer satisfaction by observing vertical integration of quality. Customer satisfaction and sustained business success remain our key objectives going forward. Management and Quality System Controls The quality assurance system is supervised by certification bodies and domestic and foreign inspections, internal audits and audits by our partners. Because we manufacture various medicines marketed in various countries, we are supervised by several competent authorities and institutions. In Slovenia, the Agency for Medicinal Products and Medical Devices of the Republic of Slovenia (JAZMP) supervises medicinal products and medical devices, while the Health Inspectorate of the Republic of Slovenia (ZIRS) monitors our self-medication products and food supplements. The Chemical Office of the Republic of Slovenia controls biocidal products, compliance with good laboratory practice principles in studies on mutagenicity, chemical clinical trials, and toxicity of medicines for human and veterinary use, biocides and feed additives. The Administration of the Republic of Slovenia for Food Safety, Veterinary Sector and Plant Protection (UVHVVR) controls feed additives, food and wood packaging materials. The Metrology Institute of the Republic of Slovenia (MIRS) conducts inspections of measuring devices in use and available on the market and prepacked products. In 2021, the number of inspections and audits remained roughly the same as the year before. The JAZMP regularly inspects medicinal product and API manufacturing processes, clinical trials, and pharmacovigilance. The body carried out:  Two verifications of new API manufacturing processes at a production plant;  One verification of new rooms for physico-chemical laboratories;  Regular inspections of: - Production of sterile, semi-liquid, solid, and liquid dosage forms; and - Laboratories for quality control and development of analytical procedures. Regular inspections help us maintain the validity of GMP certificates, which confirm that the manufacture of medicines and APIs complies with the GMP principles and guidelines applicable to medicines and APIs. We were awarded the GLP certificate following a successful periodic review. As our medicines are also marketed in non-EU states, we were inspected by certain regulatory authorities from those countries. Following successful inspections by the Russian State Institute of Drugs and Good Practices (SID&GP) in 2021, we were granted a new Russian GMP certificate for our Bršljin Department, namely for the production of medicines for human use. At the same time, we successfully passed a veterinary inspection conducted by the Russian State Centre for Animal Feed and Drug Standardization and Quality (VGNKI) on behalf of the Eurasian Economic Union (EAEU). Following that inspection, we obtained a GMP certificate that allows us to register and market animal health products throughout the GXP ISO 9001 ISO 14001 ISO 22301 MDR ISO 45001 ISO/IEC 27001 HACCP 2021 Annual Report – Business Report 130 EAEU. The pharmacovigilance system and interconnections between global and local processes successfully passed a regular inspection conducted by the UK's Veterinary Medicines Directorate. Our experts took part in European, Russian, and Chinese inspections conducted at our subsidiaries and main contractors. The control over operations and quality management in product manufacture and testing of active pharmaceutical ingredients, bulk products, and finished products, and clinical trial monitoring contribute significantly to integrated quality management, product safety and efficacy, and risk management control in all areas. In 2021, we satisfied requirements set down in the new Federal Law No. 449 governing the import of medicines to the Russian market. Quality audits showed that all our products were compliant, with no deviations identified. In 2021, Ningbo Krka Menovo continued with regulatory activities to obtain marketing authorisations for products in China. The company was granted its first regulatory approval at the end of 2020. In line with new Chinese legislation, active ingredient and finished product manufacturers must pass a GMP inspection to obtain a marketing authorisation. Krka employees took part in all inspections. All inspections were successful. Last year, our medicines were subject to 158 controls and analytical tests carried out by agencies from Slovenia, Croatia, Poland, Germany, France, Belgium, Austria, the Czech Republic, Slovakia, Bulgaria, and Spain. We passed all controls confirming our pharmaceutical products' quality, safety, and efficacy. Inspections and Audits in the Krka Group Food safety, safety of wood packaging materials, and fulfilment of HACCP requirements were subject to four inspections conducted by the Administration of the Republic of Slovenia for Food Safety, Veterinary Sector and Plant Protection (UVHVVR). We passed all inspections. Successful inspections and relevant GMP certificates enable us to maintain the marketing authorisation status of our products and submit marketing authorisation applications for new products, meaning uninterrupted access to our products in various markets. Our partners conduct audits every year to verify good manufacturing practice compliance, the suitability of the pharmacovigilance system, and contract compliance. In 2021, Krka was subject to seven audits and passed all of them. Their findings confirm that we meet our partners' requirements. 2021 Annual Report – Business Report 131 We passed all inspections and audits, eliminated all instances of non-compliance within the deadlines, and implemented suitable corrective actions. In the past two years, no breaches or deviations related to health and safety were identified that could lead to penalties or warnings or be related to voluntary commitments. Also in 2021, we continued auditing quality management systems at our GxP partners, i.e. suppliers and contractual partners, in compliance with GMP. We focused on legislative requirements for good manufacturing practice and other good practices, environmental protection, human resource management, and social responsibility. We implemented measures to reduce the risk to an acceptable level based on findings regarding quality assurance, safety, and efficacy of products and raw materials manufactured by our partners. Suitable quality and timely delivery of products and raw materials manufactured by partners allow for optimal production process planning. Due to the COVID-19 pandemic, related travel restrictions and personal distancing, we conducted several audits online. Despite all this, the number of audits remained approximately the same as in the past. Audits at Suppliers and Contractual Partners Quality Assurance Processes The baselines for establishing and developing the quality system are laid out in the umbrella document on quality - Krka Group's Quality Policy – in line with legislation, good practices and standards. We monitor all new developments and systematically roll them out accross all processes and management systems. The document outlines a uniform quality policy for all Krka Group subsidiaries. Krka has introduced six key processes to implement its policies and deliver on strategic objectives:  Company management;  Pharmaceutical research, development and production;  API research, development, production and supply;  Marketing;  Sales; and  Engineering and technical services. Quality management processes are integrated into corporate management processes and facilitate the implementation of the general rules of all process operations. We are committed to continuously upgrading the quality system to increase process efficiency, quality, and competitiveness of products and services. Therefore, it is vital that our employees are aware of the importance of the quality system, undergo continuous training, and constantly upgrade their knowledge in quality management. They cooperate with experts from various fields to identify opportunities for improvements and introduce new developments into processes. We promote a high level of awareness of the importance of quality in all 2021 Annual Report – Business Report 132 processes. We encourage and solicit new innovative approaches in various publications and on our corporate intranet and incorporate them into work procedures. The EU and the Russian Federation adopted laws to prevent the entry into the legal supply chain of falsified medicinal products in consideration of good manufacturing practices. According to Commission Delegated Regulation (EU) 2016/161, the EU requires the placing of safety features consisting of a unique identifier (serialisation) and an anti- tampering device (ATD) on the packaging of medicines for human use, and the unique identifiers to be reported to the European Medicines Verification System via the European Hub (EU Hub). This allows medicines throughout the supply chain to be identified and verified for authenticity. In addition to the unique identifiers, laws in the Russian Federation require records of individual packaging units in a transport box or aggregation to be kept, the introduction of the 'Crypto Code', and reporting serialisation and aggregation data to the Russian governmental "Markirovka" information system called. The Krka Group successfully harmonised its products with all legislative requirements regarding safety features on 9 February 2019 in the EU and on 1 January 2020 in the Russian Federation. We supply properly furnished medicines to our customers and end-users, and the reporting system works well. Also in 2021, we recorded no market alerts concerning incorrect labelling or reporting on serialisation and/or aggregation data. Quality is integrated at the earliest stages of research and development to produce a high-quality, safe and effective product. We promptly incorporate legislative amendments in our work processes to follow good practices from the product development phase onwards. When producing medicines for clinical trials, we use new tools and apply extensive expertise to ensure the level of patient and volunteer safety required by law. We employ new technologies in product development to gain a competitive edge on the market and increase the acceptance of our medicines among patients and their adherence. We set up a system for ensuring the quality of clinical trials, the safety of the patients, and the quality of the pharmacovigilance system to prevent any harm due to adverse reactions in end users of our medicines. We ensure quality through:  Highly qualified personnel who comply with all applicable laws and guidelines;  Internal rules;  Use of adequate equipment and computer systems;  Risk management;  Careful selection of contractual partners;  Clinical study performance monitoring;  Reporting on patient safety and safety of all other participants in clinical trials; and  The deviation investigation system. Organisational units within Krka manage clinical trials and pharmacovigilance on the group level, while our subsidiaries and representative offices manage country-level activities. We ensure the safety of medicinal products for use in human and veterinary medicine through the pharmacovigilance system, by complying with the requirements of the EU and third countries, and through the internal quality assurance system. We carefully record and medically review all adverse events claimed to be related to our medicines in all countries where we hold marketing authorisations and clinical trials. We regularly analyse data and assess the benefit-risk ratio for our medicines used in therapy. We incorporate new findings important for the safe administration of medicines in product information leaflets, or take other risk mitigation steps. We present data and findings to regulatory authorities. We have a quality management system for active ingredients, excipients, packaging materials, and finished products, which complies with good manufacturing practice standards. We ensure the compliance of inputs and active ingredients through registration documents for the chemical and pharmaceutical production of finished medicines for use in human and veterinary medicine. We continually upgrade input quality control. In 2021, we introduced the Raman spectroscopy to identify inputs without opening their packaging. We continuously make an effort to minimise non-compliant inputs, meaning we recorded hardly any complaints regarding input batches over the past five years. In 2021, various medicines agencies comprehensively tested all relevant products for possible contamination by genotoxic nitrosamine impurities at all marketing authorisation holders. Owing to adequate quality, safety and efficacy, the situation, especially with the delivery of antihypertensives (sartans), represented a business opportunity for the Krka Group rather 2021 Annual Report – Business Report 133 than a setback suffered by many of our competitors. We used all available production capacities and valid marketing authorisations to seize the opportunity. The European Medicines Agency (EMA) requested all marketing authorisation holders to test all their medicines on the market for possible nitrosamine impurities and prepare an evaluation by the end of March 2021. We have redoubled the preparation of underlying documents and evaluations of our medicines by taking advantage of our vertically integrated production model (covering all stages from the purchase of raw materials used in API production to finished products and their testing and market release) and by employing our know-how, qualified experts, and experience in vertical integration of quality in all our processes. Although all products we place on the market are safe, we had to apply for marketing authorisation variations for all medicines that contain sartans, which we did within the deadlines. Our communication with regulatory authorities following the detection of genotoxic impurities in medicines produced by many other producers was appropriate and effective. We produce strategically important active ingredients following technological procedures resulting from our research and development. They are produced at our chemical production plants or by our contractual partners and are subject to quality assurance processes which we further improved in 2021. We successfully adapted to changes caused by the COVID-19 pandemic without impacting the quality of active ingredients. The reliability of supply remained unchanged throughout the year despite the challenging situation. In 2021, we commenced preparations to increase API production capacity in Krško. Qualifications and validations of investment and computer projects, technological and laboratory equipment, utilities, air- conditioning systems, technological procedures, cleaning processes, calibrations and maintenance processes ensure suitable conditions in production and control processes. Over the past five years, we recorded a linear growth trend in the equipment and systems, increasing the number of qualifications. Process and packaging validations ensure the compliance of technological procedures applied in bulk product manufacturing and finished product packaging. Validations also confirm the suitability of transport conditions. Improvements help us deliver on annual plans and goals and are reaffirmed by permanent controls by internal and external auditors and inspectors. Before a new investment project is launched or a reconstructed building is made operational by quality approval, the compliance of the new or reconstructed building is verified against all applicable good manufacturing practice requirements. In certain instances, JAZMP must verify new investments and major reconstruction projects before being green-lighted. In 2021, we verified the quality of project implementation in production plants for finished products, warehouses, and control laboratories. The high number of quality certificates illustrates a commitment to investment in new plants and departments, new or reconstructed rooms, new production and laboratory equipment, etc. The two largest projects completed that were granted quality approval for project implementation were moving the small-batch production within the Notol 2 Plant, and laboratories for physico-chemical analytics from RKC 1 to RKC 4 (RKC stands for Research and Control Centre). We had to obtain JAZMP verification to make them operational. We place a huge emphasis on data integrity by ensuring compliance with regulatory requirements for data completeness, persistence, availability, legibility, accuracy, origin and descriptiveness throughout the prescribed data retention period. We pursue the principle of data integrity in development, production, control, distribution, product quality assurance, and pharmacovigilance. Considerable attention is given to the development and implementation of information systems and introduction and management of laboratory and production equipment. We ensure source data integrity through validations and qualifications of equipment, change control and the management of any process deviations. Medicines on the market must satisfy quality, safety and efficacy requirements. We control the quality of finished, batch, intermediate products, and inptus, i.e. excipients, APIs, and packaging materials. We also continually monitor the stability of marketed products and APIs and guarantee their high quality, safety and efficacy throughout their shelf lives. The number of samples analysed annually correspond to the production plans, which depend on market demand. We use validated or verified analytical methods and calibrated or qualified laboratory equipment in analyses. This ensures the correctness and credibility of results, which are confirmed through internal verification procedures. We manage documents in accordance with good documentation practice guidelines and internal regulations, which provide for data integrity throughout their retention or archiving periods. Constant employee training and monitoring set quality indicators guarantee that analyses are done correctly. This leads to continual improvement and optimisation of work processes in line with legislative requirements and our stakeholders' demands. 2021 Annual Report – Business Report 134 Analysed Samples We control production processes, active ingredients, and finished pharmaceutical products. We also control the critical stages of the production process and examine and assess documents for every product batch separately to confirm that our medicines are manufactured in compliance with the prescribed procedures and good manufacturing practice guidelines. We continuously make improvements to the production of non-sterile solid, liquid, and sterile dosage forms. Employees who carry out control and supervision undergo job-related training frequently. We discuss the findings with heads of production departments and take corrective and preventive actions together. We periodically check the effectiveness of the adopted actions. During the COVID-19 pandemic, we introduced various disinfection procedures for rooms, air-conditioning systems and surfaces. All organisational units involved in the production, control and distribution of our products cooperate closely on quality assurance processes. A well-organised structure adds to process efficiency. We continuously monitor the quality of our products. We confirm the quality of our processes and products according to the latest standards and guidelines for pharmaceutical production by using the most advanced statistical tools and reporting systems. We develop product control strategies that include quality attributes for ensuring adequate and reproducible quality of our products. We assess trends in quality attributes of incoming raw materials and products to identify any potential quality-related risks. We conduct stability studies to confirm the quality of our products until their expiry date. We evaluate our work performance by regularly monitoring quality indicators. The ultimate indicator is the response of our customers, i.e. patients, healthcare professionals, distributors, and partners, which we follow closely. The indicator confirms that our quality system is effective and ensures high product quality, which is still rising. 2021 Annual Report – Business Report 135 Complaints to Released Batches Ratio We closely look into each complaint, opinion or suggestion related to quality, thoroughly investigate each case and respond to the customer as soon as possible. The ratio of batches with complaints lodged over several years as a total of all released batches is marginal and shows no upward trend despite rising production volumes. Over the past five years, we recorded very few recalls. In most cases, the decision to reall was ours. Even though there was no significant impact on quality, safety and efficacy, we opted for recalls because we are aware of the importance of the integrity of our medicines. We cooperate with the JAZMP and other national regulatory bodies in the event of a recall. In 2021, we carried out four recalls. The Danish Medicines Agency requested one recall because of inconsistent wording on the packaging. The recall ensued from stringent Danish legislation. Although we believe that our recall system is effective, we occasionally test it by simulating a recall. Qualified persons for the release of medicinal products authorised by the JAZMP confirm the quality, safety and efficacy of each product batch before it is released to the market. Then certificates and batch documents for customers are issued. In view of sales and production requirements, we carefully plan and coordinate activities for the timely release of inputs, bulk products, and finished products. We regularly make improvements to the planning process and actively engage in the project to overhaul product supply planning. We constantly monitor the quality of our products on the market, collect and evaluate data on the safety of a medicine throughout its life cycle, prior to and after obtaining the marketing authorisation, and during its daily use. We continuously manage risks and provide the correct information to healthcare providers and users of our medicines. Quality System Objectives Documents on the level of the Krka Group, i.e. the Quality Policy, guidelines and instructions, set out key provisions for quality, safety and efficacy of medicines and processes. This ensures standardised processes, knowledge transfer, and uniform criteria across our subsidiaries. Every subsidiary draws up internal documents in accordance with Krkg Group umbrella documents and in consideration of national legislation. A key objective of the IMS is the satisfaction of our customers with Krka products and services. Our quality system addresses our customers' demands and expectations in line with legislative requirements and guidelines on good manufacturing practice. We continuously monitor indirect indicators to gauge customer satisfaction with our products and further improve processes. 2021 Annual Report – Business Report 136 We regularly update quality assurance contracts and conduct annual product quality reviews to ensure customer satisfaction with our products and services. Successfully completed inspections and audits of product manufacturing for compliance with good manufacturing practice standards and registration documents are also a testament to partner satisfaction. Our Quality Committee periodically reviews all major processes against our IMS and performance criteria and proposes strategic guidelines for developing them further. Quality is measured against five criteria: quality-related costs, complaints, deviations, response times, and inspection and audit findings. The Quality Committee checks every year whether they have been attained and approves the objectives for the next year. The objectives have always been met. We conduct monthly reviews of quality indicators for Krka's key processes that affect the quality, safety and efficacy of products to check whether objectives are fulfilled and whether any additional improvements are necessary. In 2021 six such reviews were carried out. We conduct monthly reviews of quality indicators in our subsidiaries also. We analyse the objectives and their achievement every quarter and prepare guidelines for the next period. We report on quality indicators to the Quality Committee twice a year. We regularly monitor monthly reviews of quality indicators at our key contractual partners. Krka places a strong emphasis on environmental protection and health and safety at work (also by considering the requirements of ISO 14001, ISO 45001, and Responsible Care Guidelines) and on open and fair public relations. We regularly report to and inform the public of improvements. We periodically upgrade the environmental management system and the system for health and safety at work to further improve their efficiency. The right to use the 'Responsible Care' logo every year is recognition of our sound safety at work and environmental protection record. Quality starts with the daily performance of each organisational unit, process, product, and employee. There is always room for improvement, so we continuously promote quality (also in relation to efficiency, safety, economising, knowledge, useful proposals, and the environment), for example, by publishing a series of professional and motivational articles on our internal portal Krkanet, in our in-house magazine Utrip, and our weekly bulletin Bilten. In doing so, we keep our employees informed and raise their awareness about changes to IMS and the impact of quality work on the results of the Krka Group. Our standing objective is to improve the agility of our operations, in particular, understanding changes, cooperation and consultation, adaptation to market requirements and needs, coordinated and coherent work of organisational units, and integration and streamlining of management and quality systems in the processes of all Krka Group companies. Against that background, we upgrade systems and pursue their optimisation. We also share information, introduce new developments, and assist subsidiaries, where we regularly audit their quality systems. The steady growth of production volumes, new product launches and timely implementation of legislative amendments require us to promptly upgrade and control our capacities and make improvements to manufacture and place larger volumes of products and batches on the market and ensure their manufacture to both regulatory and Krka's requirements. Quality issues are also crucial concerning expansion to new markets. We have to understand, implement, and adapt to regulatory requirements on the new markets and ensure our processes are adjusted accordingly. Information Security and Personal Data Protection Systems Our information security management system (ISMS) is ISO/IEC 27001 certified. We successfully completed its recertification audit in 2021. We regularly assess risks related to information sources. The ISMS is regularly reviewed by way of self-inspections, audits, and external security inspections. In 2021 we implemented measures required by the external security inspection in 2020, conducted a security inspection and implemented the recommendations. We employed state of the art technologies to protect our systems from external attacks. All Krka subsidiaries actively pursue the guidelines of the controlling Company set out in the Information Security Policy. We reviewed certain personal data processing elements and redesigned them to comply with the latest practices of supervisory bodies in Slovenia, EU Member States, and non-EU states. For example, regular personal data updates in databases maintained by all Krka subsidiaries in the EU, processing geolocation data for certain employee groups, and the use of cookies on websites. We established and rolled out an internal General Data Protection Regulation (GDPR) 2021 Annual Report – Business Report 137 compliance system. We aim to minimise the risk of violations and ensure compliance with applicable legislation and practice. Key elements for successful implementation of the ISMS include regular and continuous training of our employees and raising their awareness. We updated all relevant rules, particularly those on safe communication practices and data protection in the latest tools, and informed all employees accordingly. In 2021, we focused on raising awareness of all Krka Group employees about phishing attacks through the use of simulated attacks to mimic real-life situations. We maintain a high uptime of critical systems, including the business system, production system, documentation system, e-mail, control systems, etc. The expected minimum availability of critical systems is 99.5%. Krka has implemented various measures and duplicated its data centre to support system availability and data safety. Together with the main data centre, they ensure a high level of redundancy, meeting the requirements of high-level availability and data safety. Backups are made in real-time for all computer systems, applications and databases at a remote location outside Novo mesto. Annual Availability of Critical Systems Annual availability (%) 2021 2020 2019 2018 2017 Production system 99.9 99.9 99.9 99.9 99.9 Documentation system 100.0 100.0 99.6 99.8 99.9 E-mail 99.9 99.9 99.9 99.3 99.8 Business system 100.0 100.0 99.9 99.9 99.9 Business Continuity Management System The purpose of the business continuity management system (BCMS) is to prepare and implement measures and procedures for uninterrupted production and sales of our flagship products in the event of major incidents and disasters. BCMS operates according to the adopted strategy and policy, and makes improvements in line with ISO 22301 - the Business Continuity Management Standard. In 2020, we supplemented the strategy with steps to be taken in the event of an epidemic outbreak and pursued them throughout 2021 due to the COVID-19 pandemic. Essential parts of the BCMS include procedures for optimising our resilience to damaging incidents, procedures for incident management, and business continuity plans for crisis management. The BCMS forms an integral part of comprehensive risk management in the Company. We are also introducing it in our subsidiaries that are engaged in production. We regularly control the system through internal audits and inspections. In 2021, we checked the implementation of the BCMS strategy and focused in particular on the reliability of external resources at our remote plants. We arranged regular drills and comprehensive training courses to verify the feasibility and efficiency of planned business continuity measures in all critical processes. This honed the skills of employees tasked with taking charge of emergencies and leading activities to contain damage and rapidly get processes back online. We made the requisite improvements to business continuity plans or confirmed the suitability of planned measures following training 2021 Annual Report – Sustainable Development 138 SUSTAINABLE DEVELOPMENT Environmental, social and corporate governance (ESG) is a signifcant element of Krka’s ability for long-term value creation and effective implementation of business strategy. Sustainability governance, achievement of sustainability goals, and transparent reporting are becoming increasingly important for Krka Group stakeholders. Hence, they are gradually and comprehensively finding their way into our business strategy and operations. We carefully plan the development of our products and all processes that affect lives and the environment in which we operate. We build the trust of our patients and partners through our know-how, professional and ethical approach, and high-quality standards in all spheres of our operations. Sustainable development principles guide us in our efforts to further improve our performance regarding nature conservation, health and safety, and to co-design our social environment. The needs of our stakeholders and the social environment and the impacts of our business are addressed through a constant, proactive dialogue. In 2021, we conducted a materiality assessment for our company and updated the list of our key stakeholders. They were considered when identifying key ESG topics of the Krka Group and defining their boundaries. Information on this aspect is also available in the ‘Krka Group Development Strategy’ section. Key stakeholders and sustainability issues are detailed below. An interdisciplinary sustainability project team outlined key ESG topics, which were then assessed in a comprehensive and open process involving other business functions beyond the ESG team. We gathered information on the concerns of our stakeholders through various forms of interaction, such as surveys on stakeholders’ needs, questions received from the stakeholders and topics discussed with them, media analyses, and identification of increasingly important stakeholders’ concerns. We used the information in in-depth discussions with representatives from seven stakeholder groups to verify their understanding, assessment of ESG topics, and the scope of expected disclosures. In addition to determining key stakeholders, we identified 22 material ESG topics of the Krka Group and divided them into seven groups. The Management Board of Krka considered and approved all the above-mentioned aspects. The results are presented in the Krka Group materiality matrix below. 31 The process allowed us to improve reporting on our impacts on the environment, society and economy. The annual report fully considers indicators of GRI (Global Reporting Initiative) Standards and introduces indicators of SASB (Sustainability Accounting Standards Board) Standards for pharmaceutical industry. They are disclosed in relevant sections of the Annual Report, as indicated in footnotes and the GRI content index. They are complemented by management approaches, which will be aligned in the process with updated policies on key topics, strategic objectives and indicators. We also identified major sustainable development goals of the United Nations that we help to achieve through our operations. Goal 3 ‘Good health and well-being’ is the most important one because our core business can contribute to it significantly. Main Sustainable Development Goals from the Perspective of the Krka Group 31 GRI GS 102-46 2021 Annual Report – Sustainable Development 139 About the Report Relevant departments prepare the contents of the comprehensive Annual Report, while Finance, Corporate Performance Management and Public Relations are responsible for preparing the Report. GRI sustainability indicators generally apply to Krka d. d., Novo mesto (also referred to as Krka or the Company). If they apply to all subsidiaries of the Krka Group, reference to the Group is made in the text. The indicators will be upgraded and further applied to other subsidiaries of the Group. The reporting period covers one calendar year. There have been no significant changes in data from the previous reports, and any specific changes and deviations are clarified in relevant sections of the Annual Report. 32 Any questions regarding the Annual Report can be sent to [email protected]. 33 Key Stakeholder Groups and Approach to Stakeholder Engagement 34 Stakeholder group Engagement modality Patients  Responsible, professional communication about products through various media, including social networks and digital channels Health professionals, healthcare providers and direct customers  Long-term partnerships  Annual online survey on satisfaction with core aspects of business operations (general satisfaction, satisfaction with products, sales personnel, order processing and fulfilment, and complaint procedures)  Suggestions for improvement  Regular information on products provided in print and electronic forms  Direct contacts through medical representatives in 40 countries  Organisation and support for professional and educational meetings  Advanced digital content for the professional community  Feedback and opinion obtained through daily contact and market research Employees, prospective employees, and trade union organisations  International conferences for employees (on various topics)  Measuring organisational climate  Works Council  Worker assemblies Regulatory agencies/bodies and government organisations  Long-term cooperation and provision of reliable documents Educational and scientific research institutions  Cooperation with secondary schools, universities and scientific institutes  Cooperation under the Krka Prizes Fund for young researchers Shareholders, financial institutions and other capital market stakeholders  Meetings with investors at the Krka headquarters  Meetings between financial analysts and Krka management  Participation in investor conferences  Roadshows in financial centres around the world  Conference calls with financial analysts after releasing business results  Regular annual general meetings  Communication with financial media Strategic partners and suppliers  Participation in tenders and competitions  Working meetings  Auditing Local communities and non- governmental organisations  Identification of needs of local and social environments through various activities related to donations and sponsorships, annual meetings for clubs and associations, and Krka’s Week of Charity and Volunteering  Open dialogue and exchange of views with residents (inclusion of environmental goal planning and sustainable environmental protection)  Cooperation with environmental organisations 32 GRI GS 102-48, 102-49 33 GRI GS 102-53 34 GRI GS 102-40, 102-42, 102-43, 102-44 2021 Annual Report – Sustainable Development 140 Stakeholder group Engagement modality Media  Transparent information on business operations and events in press releases and responses to media inquiries  Press conferences and meetings with media representatives  Information on websites Professional associations and interest groups  Work with specialised development institutions and companies  Involvement in the development of professional, scientific and regulatory environments by participating in various professional and industry associations in Slovenia, the European Union, and other markets Material ESG Topics and Their Seven Groups 35 Topic groups Topics Product quality and patient safety  Safety, quality and efficacy of products and APIs  Uninterrupted supply of medicines  Integrated quality management system  Product labelling  Anti-counterfeiting Talent attraction and retention  Recruitment, development and talent management  Employee diversity, inclusion and participation  Health and safety at work  Flexible working Accessible healthcare  Product portfolio  Affordable medicines  R&D for affordable healthcare  Cost-effective business operations and efficient registration procedures  Expert support for health professionals  Initiatives to raise awareness of healthy lifestyles and identification of widespread diseases Good leadership and governance practices  Resilient and flexible vertically integrated business model  Legislative and regulatory compliance  Management diversity, independence and competence  Performance-based remuneration  Data privacy, integrity and protection  Prosperous business operations and financial strength  Innovative technologies  Cyber security Compliance, integrity and transparency  Ethics in clinical trials, R&D, production and business practices  Anti-corruption  Transparent and accessible reporting  Fair marketing and sales practices  Human rights  Supply chain business practices Planet and climate change  Management of direct and indirect carbon emissions  Waste management  Efficient use of energy and natural resources  Management of hazardous materials Economic impact and taxes  Contribution to local community development  Tax policy  Tax transparency 35 GRI GS 102-47 2021 Annual Report – Sustainable Development 141 Double Materiality Matrix of the Krka Group The figure presents identified main groups of ESG topics of the Krka Group on the left and the most crucial individual material ESG topics on the right. The topics are ranked from high to very high by their significance and assigned the colour of the relevant group of topics. 2021 Annual Report – Sustainable Development 142 Employees Employees are the key to our success; therefore, we maintain a working environment where they can develop professionally and personally. We encourage employees to cooperate, exchange relevant information and be creative. We foster an environment in which the goals and needs of individuals may be linked to company’s objectives and contribute to the development of skills, competencies and careers of our employees. Special attention is paid to attracting, identifying, and developing young talent to ensure that the company remains successful in the future. The trend of new employments continued in 2021, as we recruited more than 1,500 new employees. We intensified educational activities and increased the number of hours of training per employee. The health and safety of our employees remained among our top priorities. The workplace injury rate slightly increased, yet the injuries were mainly minor. The Krka Group operates in diverse cultural settings. To that end we foster a common culture of mutual trust, respect, cooperation and teamwork, lifelong learning, and responsible and efficient work. We ensure equal opportunities to our employees regardless of their gender, race, religion, sexual orientation, nationality or other cultural differences. We respect human rights as enshrined in internationally recognised principles and guidelines, including the United Nations' Universal Declaration of Human Rights. We abide by all legal regulations and standards related to human rights in all countries where we operate. We are bound by high ethical standards, hence all employees receive training on Krka’s Code of Conduct. The Code defines the principles and rules for ethical conduct, good business practice and standards of conduct, which are binding for all employees of the Company and its subsidiaries. Clear rules and procedures ensure a quick response to any identified inappropriate conduct in interpersonal relations and prevent any forms of mobbing. 36 The progress reported below mainly refers to the Company. Common guidelines, management approach and policies as well as good practices are being transferred to work processes of the Krka Group subsidiaries. This increases the scope of compiled data, which is expected to expand in the future. Organisational Climate Highly dedicated and engaged employees shape a positive working environment and organisational climate and thus contribute to business results. We regularly gauge the organisational climate in the Company to learn how our employees feel about their work at the Company. Analyses of the findings are helpful in preparing improvements, which contribute to an efficient and creative environment. The most recent organisational climate survey confirmed that Krka employees feel loyal to the Company and are eager to achieve the set goals. Our employees acknowledged Krka’s corporate social responsibility and adherence to high ethical standards. Key Data about Employees 37 31 Dec 2021 Number of employees 11,511 of which 54.2% in Slovenia Number of agency workers 948 (7.6% of total personnel) Employees covered by collective bargaining agreements 62% Average age 38.7 years Female employees 60% Female employees in management positions 49% Permanent employees 89% (women 88% and men 89%) 36 GRI GS 103-1, 103-2, 103-3 37 GRI GS 102-7, 102-8, 102-41, 405-1 2021 Annual Report – Sustainable Development 143 2021 Employment Index Index 2021/20 Krka in Slovenia 100 Krka’s representative offices abroad 105 Company 101 Subsidiaries abroad 97 Terme Krka 94 Krka Group 99 Agency workers 99 We hired 1,522 new employees in 2021, accounting for 12% of total Krka Group headcount. Employee turnover of the Krka Group was 12%. 2021 New Employee Hires by Age Group, Gender and Region 38 Rate of new employee hires Age groups Under 30 years old 49% 30–50 years old 49% Over 50 years old 2% Gender Male 37% Female 63% Region Slovenia (including Terme Krka) 22% South-East Europe 8% East Europe 46% Central Europe 15% West Europe 9% Overseas Markets 0% Employee Structure by Region as at 31 December 2021 39 38 GRI GS 401-1 39 GRI GS 405-1 2021 Annual Report – Sustainable Development 144 Educational Structure One of the pillars of Krka’s human resource policy is the improvement of the educational structure of its employees. We are aware that only a high level of qualification of our experts allows us to respond to the demands of a highly competitive market quickly and effectively. The Krka Group employs 5,882 people with at least university-level qualifications, accounting for 51% of all Krka employees. Of that number, 207 employees hold a doctoral degree and 391 employees a master’s degree or specialisation. Krka Group Employees by Education Level at the End of 2021 Higher professional, university degree or higher (level VII or higher) 66% Vocational college degree (level VI) 3% Secondary school education (level V) 22% Other (less than level V) 9% Employee Education and Development 40 We provide planned and systematic development and continuous education programmes to our employees where they can upskill in various fields, develop professionally and personally, and advance their career. Our competence-based system for various work areas helps us determine development requirements that inform our knowledge development and upskilling programmes. Competencies are a good starting point for recruiting new employees and for designing training and skills development programmes and their evaluation. Our employees participate in continuing educational and training programmes in various specialised fields such as management, quality management, modern information technologies, personal growth, and foreign languages, especially English and Russian. They learn about the most recent and significant developments at higher-education institutions, institutes and other organisations in Slovenia and abroad. In 2021, 456 Krka employees were part-time students, of whom 55 were pursuing postgraduate studies to obtain a specialisation, master's, or doctoral degree. An important tool enabling effective leadership, identification of potentials, motivation and development of employees is the Krka appraisal interview. Managers and employees use it to review objectives defined in the previous appraisal period, discuss the main tasks and expectations relating to work and employee development, and plan their future work and training. 41 We are the only company in Slovenia to offer six national vocational qualification programmes for the pharmaceutical industry. These programmes are available also to employees of pharmacies and other pharmaceutical companies. In 2021, as many as 104 Krka employees successfully completed the training programme (level IV). In total, 1,827 certificates have been awarded since 2004: 1,685 to Krka employees and 142 to employees of other companies and pharmacies. 42 Krka has almost 70 in-house trainers in its marketing-and-sales network. Their task is to implement Krka strategy and ensure that good practices are transferred in the market. Trainers support employees and managers at regular training sessions and individually in the field. The combination of traditional forms of training and e-learning and e-testing has been particularly important given Krka’s widely dispersed organisation. It proved helpful during the COVID-19 pandemic because we could continue our training processes. 40 GRI GS 103-1, 103-2, 103-3 41 GRI GS 404-3 42 GRI GS 203-2 2021 Annual Report – Sustainable Development 145 We place a considerable emphasis on preparing training programmes on people management, conflict resolution, and effective and respectful communication. Quality comprises a significant proportion of our educational activities. In 2021, we recorded 90,988 hours of training on quality. 2021 Key Data on Employee Education in the Krka Group 43 2021 Average training hours per employee 39 Proportion of revenue allocated for education 0.33% Average cost of training per employee €452 Hours of training on human rights 4,289 Proportion of employees trained on human rights 67% We offer scholarships to those students who demonstrate talent and high competence during their studies. We systematically work with them to provide them with the opportunity to gain experience and to identify potential new hires for the company. These students learn about Krka and the company’s working processes during their internship, where they can also develop and prove their skills and competencies. We assist students and junior researchers with their theses on various topics. Our employees run courses in undergraduate and master’s study programmes and help design their content. In 2021, Krka had 99 scholarship students, 18 of whom graduated and started work at Krka. We also work with secondary schools and faculties in providing obligatory work placements. Key and Promising Employees We identify and systematically train key and promising employees early in their careers. We provide training, mentoring and coaching to prepare them for the most challenging and pivotal roles. Promising employees with less than one year of service at Krka whose proactive approach, determination and the ability to cooperate are particularly evident during the selection process or at the beginning of their career at Krka are invited to a workshop. Here we test their abilities in various individual and group task settings. We observe them to identify their motivation, insight and capacity to cooperate. We also use this method to select candidates for challenging roles and for internal transfers of employees to other roles. To support their individual development, we offer identified key and promising employees and young talents several programmes tailored to their needs and the nature of their work. The need to train key and promising employees and develop well-trained leaders encouraged us to start our own leadership programme. We run four programmes for different levels of leadership: the Krka International Leadership School, the Krka Operational Leadership School, the basic level leadership programme, and the HDM Academy specially designed for heads of district managers. The programmes are complemented by coaching and action learning that contribute to the development of leaders. 43 GRI GS 404-1, 412-2 2021 Annual Report – Sustainable Development 146 Key and Promising Employees We also provide an international programme for expert and project teams focused on communication skills, teamwork and project work, learning about and exchanging Krka’s good practices, establishing links between employees from various backgrounds, and employees’ personal development. New employees who have just started in their jobs and employees who take on roles carrying greater responsibility learn about their tasks through mentoring. A special form of mentorship at an international level is used to systematically develop promising employees. Rewarding and Motivation We systematically recognise good work and encourage employees to perform well through various reward and recognition systems. We encourage dedication and praise excellence and loyalty. Various reward and recognition systems cover all our employees. Our best employees receive recognitions and awards for their work at the Krka Awards Day, our traditional and most important event dedicated to Krka employees. We select and award the best employees and the best managers in organisational units and the Krka Group as a whole, the best employees in the sales-and-marketing network, and the best employees in regulatory affairs and other fields. Our most loyal employees receive long-service awards and special recognition awards. In 2021, we conferred the awards at several hybrid events due to circumstances at that time. Encouraging Innovation The inventive work system leads to continuous improvement of the quality system and hence the integrated management system and generates savings through useful proposals and improvements. The corporate campaign Your Effectiveness Counts encourages our employees to strive continuously to improve the quality of their work. We try to inspire them to resolve issues related to economy, production, logistics, technology, engineering, administration, environment, business, information science, quality, and health and safety at work. Useful proposals that are easy to implement, and complex improvements with notable effects, matter. We encourage inventive work by quarterly awards, by a token award with a thank you letter from the President of the Management Board and CEO, presentation of proposers on Krkanet and in our bulletin Bilten, interviews in the Utrip internal magazine, an annual meeting of proposers, and awards and recognitions that the best employees receive for inventive work on Krka Awards Day. In 2021, as many as 452 useful proposals and improvements were submitted, and we awarded 450 proposals put forward by 393 employees. Their contributions were presented in a video clip because of the situation at that time. Selection process Key and promising employees – 13% of all Krka Group employees Annual review of key and promising Young talent Expert and project teams Leadership School basic level Mentoring Coaching Leadership School operational level Krka International Leadership School Potential identification List of potentials identified Key and promising employee development programmes HDM Academy 2021 Annual Report – Sustainable Development 147 Digitalisation in Human Resources Modern technologies add to the simplicity and integrity of human resource processes and ensure that IT systems support them. In 2021, we continued to optimise and digitalise our human resource processes, mainly those that are uniform in the entire Krka Group. We constantly upgrade our human resource information system to take account of business-related and legal requirements. We also introduce new solutions. We digitalised the onboarding process for new employees and upgraded our time management system, which now includes a solution for submitting and approving absence, arrival and departure requests. The new system is being phased in at all organisational units. We completed the digitalisation of the system of rewarding the most successful employees in our markets abroad and introduced the e-recruitment system at our subsidiaries in Germany and the Russian Federation. Health and Safety at Work 44 We ensure a safe and healthy work environment for all our employees and contractors of Krka . The latest developments in health and safety at work and fire prevention are incorporated into every new project and technology. The Management Board adopted the policy on health and safety at work in line with Krka’s strategic goals. The implemented system complies with the ISO 45001 standard and is fully incorporated into Krka’s integrated management system. External auditors verify its performance every year. We also conduct internal audits of the system to improve its efficiency constantly. At the Company level, we have a health and safety at work team responsible for preparing and implementing key objectives and programmes approved by the Management Board. The group regularly reports on the implementation of set goals to the Management Board. Health and safety at work workgroups operate in organisational units and production sites and comprise, among others, an authorised certified HSW officer having relevant competencies from Safety and Health. Workers Covered by ISO 45001 System We conduct periodic risk assessments for all workplaces using our own methodology. We assess the probability of incidents, their consequences, and the probability of health implications for every work position. Specific safety measures are in place to maintain the risks at acceptable levels and ensure continued long-term improvement in the working environment. 44 GRI GS 403-1, 403-2, 403-3, 403-4, 403-5, 403-6, 403-7 2021 Annual Report – Sustainable Development 148 Risk assessments are also conducted for all new technological procedures in API research and development and pharmaceutical research and development, and any changes to these procedures. In order to ensure continued long-term improvement in the working environment, risks are assessed periodically and protective measures are taken to reduce them to acceptable levels. The assessment methodology is based on identifying different risks related to each technological procedure. We identify hazards for each technological phase and determine a safety measure strategy to prevent exposure of employees who perform a certain technological procedure. We continually verify the suitability and appropriateness of technical and organisational measures and personal protective equipment by conducting relevant measurements during technological operations. We organise regular occupational health and safety training to ensure process continuity, which is mandatory for all employees. They are conducted during working hours and fully compensated by Krka. Related information is published in internal media and accessible to all employees. The programme and duration of training depend on risk assessments and identification of hazards workers are or might be exposed to. We provide training for high-risk positions at least every two years. It is delivered by internal authorised certified health and safety officers and mentors responsible for introducing correct and safe working practices to employees. We conduct written and/or oral exams to verify the level of acquired knowledge and skills. All training courses are provided in languages that employees easily understand. Training effectiveness is evaluated in regular safety audits in all organisational units and production sites. We gather information also through managing safety incidents, near misses and accidents and take all necessary systematic corrective and preventive actions if any deviations are identified. Workplace accident and safety incident management complies with internal instructions for handling dangerous events and workplace accidents. All employees, agency workers and student workers are informed about the instructions. Contractors at Krka receive a summary of key information from internal documents on safety. We promote healthy lifestyles for our employees and raise awareness of the importance of health and safety at work. Care for health is the shared responsibility of all employees, managers, professional services, and occupational medicine doctors. The Works Council and both trade unions are also incorporated into the system. We foster awareness of promoting health for a quality life through our Health Promotion Plan, which we update every year and publish on Krkanet. Health promotion planning is a dynamic process because all employees, agency workers and student workers can contribute by presenting their proposals and initiatives. They also voluntarily participate in sporting activities organised by Trim Klub Krka, healthy diet campaigns, satisfaction surveys, and other activities. Certain Krka departments or external providers conduct them during work hours or outside regular work hours. To prevent the spread of viral infections, we updated the risk assessment and adopted many sanitary, health and organisational measures to prevent the introduction and spread of infectious diseases in our company and to ensure uninterrupted work processes. Various activities that help reduce sick leave have been in place in the Krka Group for several years. In 2021, the sick leave rate was 6.9%, up 1.2 percentage points compared to 2020. The increase can be attributed to the COVID-19 pandemic, which resulted in an increased number of sick days and childcare leave days. In 2021, there were 5.3% of Krka employees on parental leave, which they can take in compliance with their national legislation. 45 There are 5% of Krka employees with a registered disability. We adjusted their workplaces to enable them to do their jobs in accordance with laws and regulations governing persons with disabilities. We apply various preventive measures to reduce the risk of additional health issues and disabilities. Employees who can no longer work in their current positions are included in appropriate re-qualification programmes. We measure the occurrence of workplace accidents using the LTIFR (Lost Time Injury Frequency Rate) indicator, which refers to the number of workplace accidents with three or more days’ absence from work per one million hours worked. In 2021, the LTIFR reached 3.41, up 4.3% on 2020. There were no fatalities or workplace accidents requiring absence of 45 GRI GS 401-3 2021 Annual Report – Sustainable Development 149 6 months or more. All accidents were minor and involved hits, cuts and slips. There were no cases of work-related ill- health. 67% of accidents involved men, and 33% involved women with no significant age group representation. 46 LTIFR Indicator by Year for Krka Employees and Agency Workers 47 The Fire Safety Unit and the Industrial Fire Brigade are mobilised if any incident occurs. In 2021, we recorded no major safety incidents that might cause a fire or a major spillage of hazardous chemicals or have an impact on manufacturing processes. We conducted 49 fire drills, five of which were full scale. We worked hand-in-hand with the Novo Mesto Professional Fire and Rescue Brigade, local external fire services, and emergency medical service teams. We assessed and presented the risks and realistic emergency scenarios and their impact on the stability and continuity of business operations in Krka. We also tested the coordination and efficiency of internal and external intervention teams and Krka first aid and medical teams. 46 GRI GS 403-9 47 GRI GS 403-9 2021 Annual Report – Sustainable Development 150 Number of Drills and Simulations for Emergency Situations Systems of health and safety at work in our subsidiaries abroad conform to relevant national laws; however, we have been gradually streamlining them by introducing internal instructions, safety documents and policy on health and safety at work. Communicating with Employees We promote open, regular, responsible, and ethical communication between employees and the management team, contributing to a productive working environment. This helps increase a sense of belonging and builds a culture of mutual trust and respect and responsible and efficient work. The members of the Works Council represent all organisational units and are a link between employees and the management team. Employees can put their initiatives and questions forward through their Council representatives, the President of the Works Council, or the Worker Director. At annual worker assemblies, the President of the Management Board, Management Board members and representatives of the Works Council inform employees about operating results of the year past, plans for the current year, development strategy, and other news. Employees can set questions and give proposals. If employees wish to talk to the President of the Management Board, they can do so by sending e-mail or making an appointment to see him in person. Internal corporate communication takes place simultaneously through various internal media and tools. Employees receive information regularly via the Bilten, our internal weekly bulletin, and our internal web portal Krkanet. The Utrip is our monthly magazine, which brings news about the Krka Group, encourages teamwork, loyalty, and highlights Krka’s values, vision and mission. Our employees also receive the latest information via e-mail address Krkaš.si, information screens, and notice boards at manufacturing and other sites. Over the past few years, videos have become an important communication channel for online events, announcements and instructions. We have also expanded our corporate communication tools by creating official Krka profiles on Instagram, LinkedIn and YouTube. We use them to post corporate content for our employees and members of the external public. Employees also learn about important corporate guidelines in communication campaigns and at various internal events. The campaign Your Effectiveness Counts encourages employees to find ways to be more effective at work, and Krka’s Mobility Plan promotes the use of alternative and less environmentally harmful means of transport. 2021 Annual Report – Sustainable Development 151 When COVID-19 was declared a pandemic, we coordinated communication in our subsidiaries and representative offices. We asked them to closely follow and apply measures to prevent the spread of COVID-19 and legislation in force in their respective countries. Internal communication tools abroad include local issues of the Utrip (Puls), Bilten (Bulletin), Krkanet and e-mailings about local and important corporate news and campaigns. Employees in key markets use intranet websites (Krkanet) in national languages, and our marketing and sales staff also receives M-Bulletin, another Krka newsletter in electronic form. Employees learn news important to all Krka Group employees by e-mail and on Krkanet. Communication with employees in minor markets is the responsibility of directors of subsidiaries and representative offices abroad, while marketing communication managers are responsible for good communication practices in key markets. Patients and Other Customers We are closely connected to healthcare systems because we develop and produce high-quality, innovative generic medicines. Our high-quality, safe and effective medicines for the treatment and prevention of the most common diseases of modern time are used to treat more than 50 million patients around the globe. Our guiding principle is caring for their health. We differentiate two groups of users of our products: the group made up of patients and other end users, and the group made up of health professionals, healthcare providers and direct customers. Their trust is the result of the long-term relationship we nourish by responsible and professional communication and provision of all necessary information about our products in compliance with the relevant legislation. 48 Patients and Other End Users The quality of active ingredients, excipients, incoming materials and finished products is laboratory tested using state-of- the-art and validated analytical methods, devices and procedures. All our prescription pharmaceuticals and non- prescription products are tested and compliant with all regulations. We market only products that have been approved and comply with relevant requirements and regulations. Detailed information about Krka products is regularly published on our product, corporate, and thematic web pages in more than 30 languages. We are developing digital media and tools that help users alleviate symptoms in certain therapeutic areas. We also create digital content to promote healthy lifestyles. We are constantly optimising digital communication channels and improving information to fully and accurately address the concerns and needs of our end users. All our product information complies with relevant regulations and is pre-approved by the responsible regulatory body in each country, i.e. the public agency for medicinal products. No incidents of non-compliance concerning product information and labelling were identified in 2021. 49 Advertising of pharmaceutical products is subject to strict regulation and control. No complaints about non-compliance of marketing activities with regulations and ethical standards were received in 2021. 50 We implement health protection, safety, and patient and other end-user protection systems according to clear guidelines incorporated into our operations. Our risk management system related to these aspects complies with legal requirements and regulations. Our system for collecting information about risks to the health of patients or public health related to prescription pharmaceuticals and non-prescription products, scientific data evaluation, assessment of potentials for risk reduction and prevention, and the adoption of measures for the safe use of medicines complies with European legislation and regulations in other countries where Krka holds marketing authorisations. 48 GRI GS 103-1, 103-2, 103-3 49 GRI GS 417-1, 417-2 50 GRI GS 417-3 2021 Annual Report – Sustainable Development 152 Our e-Health portal featuring various articles on health is an important source of diverse, verified and credible information in Slovenia. Health Professionals, Healthcare Providers and Direct Customers We cooperate with various institutions, health insurance companies and other bodies dealing with medicinal and other Krka products at all stages of product development, production, sales and marketing. We follow all prescribed procedures and ensure our documents are up to date and reliable. To this end, we carry out our procedures properly and make sure our documentation is systematically organised, transparent and complete. Our professional, scientific and regulatory environment is changing, and we take an active part in these changes. We engage in various professional and industry associations in Slovenia, the European Union and other countries. Every year, we conduct satisfaction surveys among direct customers, i.e. distributors, pharmacy chains, hospitals, and other pharmaceutical companies. Online opinion polls help us determine customer satisfaction with our products, sales personnel, order processing, complaint procedures, and general level of satisfaction. After a thorough analysis of responses, we can identify challenges and opportunities for improvement and set measurable goals, adopt relevant actions, and monitor their performance at the next survey. In 2021, as many as 86% of our customers responded to the survey. The satisfaction index rose from a sound 89% in 2020 to 92%, reinforcing a high level of customer satisfaction in recent years. Satisfaction scores improved in most survey sections. We achieved above-average satisfaction rates in sales staff response to customer needs and in all aspects of order processing and fulfilment, which the respondents attached the highest importance to. 51 Indirect customers or health professionals comprise doctors, veterinarians and pharmacists, who prescribe, recommend, and dispense our products and represent a crucial link with patients and other end users. We regularly inform them about our products, enabling them to make an informed decision about which product is most suitable for their patients and users. We are in direct contact with them through our medical representatives in 42 countries and provide them information in printed or electronic form. Whenever we communicate with health professionals, we act responsibly and in accordance with the applicable laws and other regulations on business operations, including regulations on product marketing and personal data protection. We comply with good business practices, recommendations of the Medicines for Europe, and an ethical code of promotion. We contribute to the professional development of doctors, pharmacists and veterinarians. We organise and support professional and educational meetings where they can upgrade their knowledge, learn about new guidelines, exchange opinions and experience, and establish contacts. Meetings take place in various countries where Krka is present. In 2021, we mainly organised online or hybrid meetings, and only a few took place in person. As a response to our stakeholder needs, we intensified educational activities and prepared added-value tools and contents that contribute to effective disease detection and facilitate communication with patients. Doctors and pharmacists can access educational information on our thematic web pages, which we constantly upgrade. Our medical representatives regularly undergo professional training so they can inform health professionals about the latest treatment guidelines and provide accurate and current information about therapeutic classes and our products. We make sure that they have appropriate communication skills, are familiar with and follow legal and other regulations and standards of work. Special emphasis is given to compliance with ethical standards. Feedback and opinions obtained through daily contact and independent market research are important. IQVIA data for Poland, our second-largest market, indicated that medical specialists from 18 specialist areas of medicine and general practitioners placed us among the most visible companies, with cardiologists ranking us the most visible. Proxima Research data for the Russian Federation, our major market, and Ukraine showed that general practitioners ranked us first and cardiologists second in terms of visibility. We also ranked first among general practitioners and second among cardiologists in both countries in terms of frequency of prescribing. 51 GRI GS 102-43, 102-44 2021 Annual Report – Sustainable Development 153 We recognise the major importance of clinically proven medicines and monitor their efficacy, safety, and quality during registration procedures and after obtaining relevant marketing authorisations. To that end, we conduct many bioequivalence studies and researches in pre-authorisation phases and support post-authorisation clinical studies. We are one of the few generic pharmaceutical companies whose products have had clinical efficacy demonstrated in post- authorisation clinical studies. Physicians participate in the studies as investigators, which significantly contributes to understanding and advancing treatment. We ensure high quality, transparency and ethics in clinical research by complying with legal regulations, good clinical practice guidelines and the Helsinki Declaration. Patients can only be included in a study after expressing their willingness to freely and voluntarily participate in the study. Investigators inform them about the course of the study and any risks involved. Our main concerns are patient safety, privacy, and data confidentiality. We pursue them in line with Regulation (EU) 2016/679 on the protection of natural persons with regard to the processing of personal data and on the free movement of such data. We identified no privacy or confidentiality breaches. We apply good pharmacovigilance practices in monitoring and reporting adverse events and publish results of interventional clinical studies in the EU Clinical Trials Register to support transparency of clinical trials. 52 More than 350,000 patients from 27 countries have so far participated in over 150 post-authorisation clinical studies with our key medicinal products from the main therapeutic classes. In 2021, we completed BLOSSOM, the international randomised interventional clinical study with pregabalin (Pragiola) and duloxetine (Dulsevia). The study took place in five countries and included 254 patients with painful diabetic peripheral neuropathy. Statistical data processing is expected in 2022. Study data will allow us to assess the efficacy and safety of both medicines and their impact on pain, quality of life, symptoms of depression, cognitive function, quality of sleep at night, and daily somnolence. In 2021, a regulatory body of a participating state inspected the conduct of the BLOSSOM clinical study and concluded that good clinical practice guidelines had been applied, and identified no deficiencies. 53 An international interventional clinical study is being designed to investigate the efficacy and safety of telmisartan/amlodipine (Teldipin) and telmisartan/indapamide combinations in patients with high blood pressure levels. Krka also supports studies on medicines in regular clinical practice aimed at monitoring the efficacy and safety of Krka medicines in daily use. The studies are conducted with medicines from various therapeutic classes. In 2021, 37 non- interventional and epidemiological studies were conducted in 21 countries. Five of them were international. The most significant was the study conducted in a laboratory of the Institute of Microbiology and Immunology of the Faculty of Medicine in Ljubljana, Slovenia. The study demonstrated the virucidal effect of throat lozenges with a fixed combination of cetylpyridinium chloride and benzydamine hydrochloride (Septolete Total) on SARS-CoV-2, influenza A virus and human betacoronavirus. * Products marketed under different product brand names in individual markets are marked with an asterisk and listed on pages 115–117. Products can also be marketed under the corporate trademark in individual markets. Corporate Social Responsibility We aim to develop long-term partnerships that foster an integrated and responsible social development, scientific research, intergenerational and interdisciplinary cooperation, adherence to diversity principles, and healthy lifestyles. We are aware of our impacts related to sustainability topics, as we are an international pharmaceutical group and one of the largest companies in Slovenia. Our strategic guidelines require us to conduct our day-to-day business in line with social responsibility principles and consider social needs. In 2021, our commitment to fostering long-term relations was reflected in important anniversaries, most notably the 50th Krka Prizes. 52 GRI GS 103-1, 103-2, 103-3, 418-1 53 GRI GS 419-1 2021 Annual Report – Sustainable Development 154 We support projects related to health and the quality of life by allocating sponsorships and donations. We build partnerships through sports, culture, healthcare, science, education, and humanitarian actions and contribute to protecting the natural environment in line with the set criteria. We identify the needs of our partners through regular contacts, long-term sponsorships, annual meetings with sponsorship recipients, and the process of preparing new sponsorship and donation contracts. Our sponsorship and donation committee examines all sponsorship and donation applications. In 2021, we fulfilled all agreed sponsorship and donation obligations as much as possible given the circumstances caused by the pandemic. 54 We allocated 0.18% of our sales revenue to sponsorship and donations and helped more than 400 institutions, associations, and organisations achieve their goals. 55 We allocated 0.09% of sales revenue for donations alone, representing 50% of the total amount for sponsorships and donations. As many as 17 sports and cultural clubs and associations appeared under the Krka banner, and Krka supported another seven clubs and associations as their main sponsor. Three outstanding young people were given the Talent-of-the-Year Award and 14 young individuals received recognition for their achievements. For the first time, we expressed our appreciation to ten representatives of clubs, associations and institutions for their invaluable contribution and long-term success, dedication and creativity, commitment to cooperation, respect, and tolerance, active role in sharing their knowledge and values with young people, and active promotion of the sponsor. Encouraging New Scientific Discoveries 56 Krka Prizes are an incentive for young researchers to engage in research and development. Over the past 51 years, we awarded 2,981 Krka Prizes. The Krka Prizes Council has played a prominent role in making research work popular among students, pupils and mentors in educational institutions. In 2021, we marked the 50th anniversary of Krka Prizes with a special ceremony. The President of the Republic of Slovenia Borut Pahor conferred the state Order of Merit to Krka for its Krka Prizes, which have been encouraging scientific achievements, particularly among the young, for half a century. In two calls for secondary school research papers and graduate and postgraduate research papers in 2021, as many as 173 pupils and students handed in 166 research papers. We announced the recipients of Krka Prizes at an online ceremony and held an online symposium where students and pupils presented the best research papers. Five Krka Grand Prizes, 25 Krka Prizes, and 44 special commendations were presented to graduate and postgraduate students for their research work. Among the recipients, 31 held doctoral degrees. We also awarded 40 recognitions to students for presenting research papers of exceptional quality. With the help of their supervisors and co-supervisors, 86 pupils from 17 Slovenian secondary schools prepared 52 research papers. For the fifth year in a row, we awarded a special plaque to one supervisor for his long-standing encouragement and successful supervision of pupils. We are also engaged in projects run by various educational and scientific institutions designed to upgrade infrastructure and to provide scholarships, above-standard educational activities, research work, and participation at national and international competitions. In 2021, we supported projects at two primary schools and contributed to school funds for talented pupils. Our contribution to the Janez Drnovšek Scholarship Fund, named after a prominent Slovenian politician, also showed our support for the Fund’s activities for the fourth consecutive time. Krka is a long-time sponsor of the Slovene Science Foundation. In 2021, the Foundation organised the 23rd Slovene Science Festival, which took place online and attracted participants from around the world. Our donation was used by the Faculty of Arts of the University of Ljubljana to acquire the collection of major works for scholars and students Oxford Scholarly Editions Online. We contributed to scientific and research work of the Faculty of Health Sciences of the University of Ljubljana and supported an international conference on nuclear magnetic resonance in Europe, which brought together academic professionals and active practitioners in versatile NMR spectroscopy. Our involvement in the project added to our successful long-term collaboration with the Slovenian NMR Centre. We also supported FEBS 2021, a virtual congress organised by the Federation of European Biochemical Societies, which aims to promote biochemistry, molecular biology, and related research areas in Europe and neighbouring regions. 54 GRI GS 103-1, 103-2, 103-3 55 GRI GS 201-1 56 GRI GS 203-1, 203-2 2021 Annual Report – Sustainable Development 155 Charity and Volunteering We have been fostering the spirit of volunteering ever since Krka was established. All our charity and volunteering actions were united under Krka’s Week of Charity and Volunteering in 2012. Since then, the campaign has brought together more than 8,300 Krka employees. Due to the poor epidemiological situation, we had to cancel it in 2021. Krka’s management encourages Krka employees to participate in volunteering activities by supporting sponsorship boards of non-profit institutions and providing supplies. We have supported the Novo mesto Dragotin Kette Primary School for children with special needs since 1974; since 1977 through our sponsorship board. In 2021, the school used Krka’s donation to lay out and plant the garden and the park. We have been sponsoring the running of several occupational activity centres and retirement homes. We have supported the retirement home in Novo mesto for 40 years. To mark its 40th anniversary, we attended a special celebration and prepared a special publication. Our donation was used to set up a room for relaxation, physical and occupational therapy. We have been conferring the Volunteer of the Year Award since 2012 to acknowledge volunteer work of our colleagues. In 2021, we also thanked 145 Krka employees who donated blood 10 to 80 times. Our employees donated 933 litres of blood just during Krka’s Week of Charity and Volunteering in eight years. Sound awareness of the importance of blood donation is reflected in the fact that on average, more than 1,000 Krka employees donate blood twice a year and many new blood donors join the cause every year. Support for Health Care Institutions Modern medicinal devices facilitate the work of healthcare professionals and ensure a high level of service. Therefore, we donated towards the construction of new premises of the Emergency Department of the Community Health Centre in Ljutomer in Slovenia, the purchase of new equipment for the Centre, and the acquisition of ten electrically operated hospital beds for General Hospital in Brežice in Slovenia. We donated to the purchase of 50 bedside ultrasound machines featuring a tablet computer. They were provided to 38 health centres across Slovenia. The donation also included necessary trainings on the use of the machines. Support for Patient Associations and Societies Healthcare associations and societies contribute to an improved quality of treatment and patient safety. We have supported them in their effort to raise awareness of how to prevent or delay certain diseases or to teach patients how to live their lives to the fullest. Among others, we supported two projects, which significantly raise awareness and provide support to patients. Both are related to our key therapeutic areas. What Does Your Heart Beat for? was a campaign run by the Slovenian Hypertension Society and the Slovenian Society of Cardiology, while Neuropathic Pain was a project managed by the Slovenian Association for Pain Management. We supported the celebration of the 160th anniversary of the Slovenian Medical Association, one of the oldest medical organisations in Central European countries. The event featured a professional programme on academic medicine in Slovenia and the importance of medical texts in Slovene. Support for Nature Protection Projects We cultivated our traditional partnership with Krka Beekeepers’ Association, which was established in 1979. In 2021, we supported the set up of a new beehive of the Beekeepers’ Association in the Trebelno-Mokronog municipality in Slovenia. The beehive will be used as a training centre for Association members and pupils of the beekeeping course at the primary school in Trebelno. 2021 Annual Report – Sustainable Development 156 Partnership in Sports We promote many sporting activities, which contribute to a healthy lifestyle. We support primarily local clubs and associations encouraging young people to take up recreational or professional sports. Our long-term partners in sports are Krka Athletic Club Novo mesto, Gymnastics Society Novo mesto, Golf Club Grad Otočec, Krka Bowling Society Novo mesto, Adria Mobil Cycling Club Novo mesto, Krka Equestrian Club - Grm Novo mesto, Krka Basketball Club, Krka Men’s Volleyball Club Novo mesto, Krka Men’s Handball Club, Krka Table Tennis Club Novo mesto, Krka Football Club, TPV Volley Club Novo mesto, Krka Mountaineering Society Novo mesto, Krka Rog Ski Society, Krka Chess Society Novo mesto, Krka Otočec Tennis Club, Krka Women’s Basketball Club Novo mesto, and Krka Women’s Handball Club. Through our campaign Caring for Your Health – Together We Scale the Heights we carried out maintenance work on signposted hiking trails and contributed to safety in the Slovenian mountains together with the Alpine Association of Slovenia. Our sponsorship of the Ski Flying World Championship in Planica was an acknowledgement of the 36-year-long collaboration. We also supported the Women FIS Ski Jumping World Cup in Ljubno in Slovenia, events organised by the Slovenian Tennis Association and the Slovenian Gymnastics Federation, and the biggest amateur cycling event in Slovenia, Maraton Franja BTC City. We donated funds to purchase sports equipment to schools and other organisations that promote a healthy lifestyle. Krka Retirees Society has been active since 2000. We have supported the Society in organising recreational and sporting activities, such as trips, hikes, visits to cultural and professional events, sports and recreational gatherings, social events, creative workshops, and other events. Dedicated to Culture Culture has been an essential part of our employees’ lives. That incited us 67 years ago to support various cultural genres and activities that make an important contribution to wider society. The importance of reading culture in Krka is reflected in Krka’s book collection and our contributions to book publishing. In 2021, we contributed to the publication of 17 books. We staged the Krka Cultural Evening at the church constituting the Galerija Božidarja Jakca gallery in Kostanjevica na Krki for the fifteenth year running. Krka’s Culture and Arts Society, established 50 years ago, adapted its activities to the COVID-19 pandemic. Certain events were organised in their traditional form, while others had to be replaced or moved online. The Society arranged 19 exhibitions in Novo mesto and Ljubljana. Krka Theatre Club organised five online meetings with actors, and Krka’s mixed choir practised regularly and performed at two important occasions. Krka Octet was established at the year-end. Instead of the traditional Dolenjska Book Fair, Krka’s Culture and Arts Society arranged an exhibition on the history of the Book Fair and new best-selling books. Over the last five decades, the Society has organised more than 850 exhibitions, 550 Krka’s mixed choir performances, 233 Theatre Club meetings, 42 Book Fairs, numerous workshops, and gatherings of culture and art enthusiasts of different generations. We also supported other cultural societies and events, among them the Galerija Božidarja Jakca gallery in Kostanjevica na Krki, Pihalni orkester Krka brass band, the Novo Mesto Anton Podbevšek Teater theatre, the Cankarjev dom cultural and congress centre, the Slovenian Reading Badge Society, a literary contest for pupils and students from Slovenia and the neighbouring countries, the Slavic Society of Dolenjska and Bela krajina, the Europe Readr digital platform, the 53rd international PEN Writers’ Meeting organised by the Slovene PEN Centre, the Cankar Award for the best original literary work, and the Tone Pavček Fund, which fosters the Russian language and culture in primary and secondary schools in Slovenia. 2021 Annual Report – Sustainable Development 157 Support for Non-Governmental Organisations 57 Every year, we support several non-profit, non-governmental and non-political organisations. In January, we donated €25,000 to the Slovenian Red Cross for the restoration of damaged buildings and to help local people after a severe earthquake in Petrinja, Glina and Sisak in Croatia. We also made a donation of our non-prescription products worth €3,000. Employees of Krka Croatia and those from Marketing and Sales in Slovenia contributed funds to purchase a container home. We made a substantial donation to Sonček – the Cerebral Palsy Association of Slovenia (in the Dolenjska and Bela Krajina regions) to purchase new premises. The Polžek Society for Children with Special Needs received our donation to purchase a mobile home adapted to carry out a therapeutic swimming programme. In collaboration with the local Association of Friends of Youth Mojca in Novo mesto, we gave presents to more than 2,500 children. Santa Claus visited children from three municipalities in the Dolenjska region and children of Krka employees at a special event, which took place at the main square in Novo mesto due to COVID-19 restrictions. We frequently respond to the Red Cross and Karitas charities' calls for donations. Krka has been the main sponsor of the People in Need Fund of the Regional Branch of Red Cross in Novo mesto for several years. We worked together with humanitarian organisations and made several substantial donations to help six families in need. Our executive managers also made a contribution to the Regional Branch of Red Cross in Novo mesto to help three children from Novo mesto who lost their parents. In 2021, we continued our association with the Chain of Good People project launched by the Association of Friends of Youth Ljubljana Moste-Polje. The funds collected as part of this humanitarian programme are intended for families in need in Slovenia. We have been sponsoring the running of Novo mesto Occupational Activity Centre through various projects. The residents of the Centre prepared New Year gifts for Krka employees and our business partners also in 2021. We provided material and financial support to firefighting departments. In 2021, we supported 15 fire departments and firefighting agencies in Slovenia by contributing towards the purchase of new fire engines, equipment, and the renovation of fire stations. In June, the Krka Volunteer Industrial Fire Service marked its 50th anniversary and received an Order of Merit in Firefighting from the Slovenian Firefighters Association. The Krka Volunteer Industrial Fire Service has a record number of 346 members with a strong female participation in their ranks. The all-male fire crew has achieved remarkable results at various national and international firefighting competitions. The all-female firefighting team has also taken top spots in firefighting competitions in Slovenia. To celebrate the 50th anniversary, the Krka Volunteer Industrial Fire Service members compiled their inspiring stories and the milestones of the Service into a book titled For the Safety of the Plant and its Workers. We continued to support the Elderly for the Elderly programme in the Dolenjska and Bela Krajina regions. Members of pensioner's organisations and senior volunteers visit all senior citizens in their region to see their living conditions and cater for their needs. Social Responsibility Projects If you need further information on social responsibility projects, please e-mail us to [email protected] or contact us by regular post at Krka, tovarna zdravil, d. d., Novo mesto, Public Relations, Šmarješka cesta 6, 8501 Novo mesto, Slovenia. 57 GRI GS 201-1, 203-1 2021 Annual Report – Sustainable Development 158 Natural Environment Krka made further progress in environmentally sound management and climate change mitigation in 2021. To that end, we downsized certain pack units, introduced power supply from renewable energy sources, improved our separate waste collection system, established a waste management system for certain waste streams based on circular economy principles, and reduced water consumption. 2021 Environmental Milestones The quantity of waste for disposal in landfills was reduced by 1,143 tonnes. Indirect CO 2 emissions of Krka in Slovenia were reduced by 45,000 tonnes. The impact of the reduction is comparable to planting 170,000 trees. The quantity of packaging materials was reduced by 18 tonnes thanks to downsized pack units. Consumption of river water for cooling tower supply was reduced by 8% and replaced by clean rinse-water from production and rainwater. Drinking water consumption was reduced by 6%. River water consumption was reduced by 13%. A total of 495 tonnes of waste composites were handed over for processing, from which the contractor recovered 180 tonnes of aluminium and 270 tonnes of plastic. In 2021, all our energy consumers in Slovenia switched to zero-carbon energy sources and contributed to reducing indirect CO 2 emissions. Many energy efficiency projects generated energy savings of 2,583 MWh, while the specific use of energy by production volume remained at 2020 levels. Despite an increase in production volume, we reduced the total quantity of waste by 1,143 tonnes and the quantity of waste disposed at landfills by 3.5% (or 28 tonnes). The quantity of recyclable waste increased by 2.3%. The quantity of separately collected waste composites increased by 13.7%. They were sent to a waste processing plant, which recovered 180 tonnes of aluminium and 270 tonnes of plastic for further processing. By downsizing pack units, we reduced the consumption of packaging materials by 18 tonnes and proportionally reduced the quantity of waste packaging and purchase costs. Year on year, drinking water consumption and river water consumption decreased by 6% to 643,965 m 3 and by 13% to 817,059 m 3 respectively. Total wastewater generated dropped by 8.8% compared to 2020, while total environmental load units (ELUs) for wastewater treatment increased by 9.5%. All water monitoring results at all sites in Slovenia were compliant with the requirements of environmental protection permits. We follow the guidelines on environmentally sound management in the entire Krka Group. We strive to reduce the environmental impacts of our operations by finding sustainable solutions. Our updated 2022– 2026 business strategy, adopted in 2021, restates the close connection between our operations and sustainable development. Responsible environmental management adds to our long-term competitiveness and helps us achieve strict environmental standards. Our stakeholders also rely on us to mitigate environmental risks. Krka established its comprehensive environmental management system under the ISO 14001 standard 20 years ago. The Environmental Management System (EMS) certificate binds us to reduce all our impacts on the environment constantly. We also follow the revised edition of the ISO 14001:2015 standard. We have therefore integrated environmental care in the earliest development stages and projects. Successful audits confirm that we have made improvements in all areas that impact the environment. All employees are included in the comprehensive environmental management system detailed in our internal document on the environmental management system. Employees of Environmental Protection carry our tasks at the operational level. The system's goals are: (i) a high level of environmental protection throughout the lifecycle of a product; (ii) constant reduction of our environmental impact; (iii) compliance; and (iv) attainment of the corporate environmental objectives. The best effects can be achieved at the start of a process. In our case, these are the product development stage (through selection of raw materials with lower environmental burden), and production. We manage by best available techniques (BAT) waste that remains after certain processes and must not be reused according to strict requirements applicable to the pharmaceutical industry. We apply the precautionary principle when a risk assessment, a hazard assessment for the water environment, or a feasibility study shows that new technology, production process or a product might lead to a significant environmental burden. If a risk of this kind is determined for a product in the pre-development phase, the product is discontinued. For products in the development phase, we consider options to replace substances 2021 Annual Report – Sustainable Development 159 posing major environmental hazards, while for products in the production phase, we adopt additional measures to mitigate their environmental impacts. We collect and analyse data about the environmental management system by various methodological tools. We use all available resources, such as monitoring results for our processes or activities that can significantly impact the environment, findings of self-inspections and audits, internal audits, security checks, inspections, customer claims, and risk analyses. They confirm the suitability and efficiency of the system and indicate opportunities for improvement. 58 We report environmental data to our management, national authorities (reports on monitoring environmental emissions submitted to the Slovenian Environment Agency (ARSO)), the Association of Chemical Industries at the Chamber of Commerce and Industry of Slovenia (Responsible Care Reports – RC), and other stakeholders. Environmental data in the Annual Report are compiled according to GRI Standards and will be further aligned with the Standards in the future. We remain committed to:  Include environmental awareness in the earliest stages of development activities and projects;  Use water, fuels and energy, raw materials, and other resources sparingly;  Reduce or prevent the environmental impact throughout the lifecycle of products by employing the best available technologies and other measures;  Replace (wherever possible) hazardous substances used in technologies with less hazardous ones;  Reduce risks of incidents and improve measures undertaken in any such events;  Control environmental impacts regularly;  Increase environmental awareness of employees through education and training;  Inform employees and other interested parties about the present state and achievements related to the environmental management;  Comply regularly with legal and other requirements adopted by Krka;  Raise environmental awareness of contractual partners as much as possible;  Set environmental objectives and programmes systematically to improve the current state of the environment; and  Implement the applicable environmental policy in Krka’s subsidiaries abroad. All our activities comply with the requirements of the Environmental Protection Act and implementing regulations (on emissions into the air, water, noise, waste, light pollution, electromagnetic radiation, transport of hazardous substances, soil pollution, etc.), which we regularly and closely follow. They serve as the basis for environmental protection permits issued for individual production sites. We regularly account for environmental taxes and submit them to competent institutions in conformity with environmental legislation. Environmental legislation composes an extensive part of the European acquis, and we have collected a compendium for our own use listing 21 legal areas. They are revised at least two times each year. All lists are published on our internal web pages. The Committee for Monitoring Environmental Aspects periodically reviews compliance with legal and other requirements adopted by Krka. It appoints responsible persons and sets deadlines to implement any additional activities that could be required due to legal amendments. The Committee is also responsible for periodic identification of environmental aspects. These include impacts of our products and services throughout their lifecycles. A management review deals with the achievement of goals and the implementation of programmes. Environmental Protection and the Committee assess identified environmental risks within environmental planning. Environmental risks are also integrated in business continuity, quality, and risk assessments of contractual partners. 59 We control compliance with legislation and environmental protection permits by regular monitoring of air and water emissions, noise, and electromagnetic radiation, waste assessments, and regular checks of reservoirs and equipment. Any deviations from legal threshold values are managed in compliance with internal standards, and we introduce necessary corrective measures to ensure compliance of our operations with the existing legislation. No deviations were identified in 2021. 60 In 2021, the Inspectorate of the Republic of Slovenia for the Environment inspected our production plants in Ločna, Krško, and Bršljin in Slovenia. The Inspectorate issued a decision that required us to set up measurement points at the cooling 58 GRI GS 102-11 59 GRI GS 103-1, 103-2, 103-3 60 GRI GS 103-1, 103-2, 103-3 2021 Annual Report – Sustainable Development 160 wastewater outlet into the Krka River at our production site in Ločna. All works to comply with the decision were completed within the set deadline. The remaining findings by the Inspectorate confirmed that Krka’s operations comply with relevant legislative requirements. The Inspectorate issued a decision in 2019 ordering us an intervention for wastewater treatment at our Krško plant. We have been implementing the remedial actions within our Sinteza 2 project. The procedure to obtain an environmental permit is underway. In 2021, we received a complaint from a nearby resident of our Ljutomer plant regarding noise level. We examined the complaint, took appropriate measures, and replied to the complainant in writing. We carried out further and more extensive noise measurements and regular noise monitoring. They showed that noise levels in the plant's immediate vicinity were significantly below the legal thresholds. No non-compliances were found in environmental audits. Their findings show that Krka complies with the requirements of ISO 14001 and constantly improves the environmental protection situation. 61 In 2021, we prepared extensive documentation for our Ločna site and applied at the Slovenian Ministry of the Environment and Spatial Planning for an environmental protection permit for a low environmental risk facility. The project complies with the Seveso III Directive on the prevention and control of major-accident hazards involving dangerous substances, especially chemicals. The permit is expected in 2022. Environmental Protection Costs Continuous improvement in environmental protection requires technical and organisational measures as well as considerable financial assets. Over the last five years, we have allocated more than €40 million to environmental protection, of that €11.6 million in 2021. Direct costs amounted to €6.3 million and included costs of wastewater discharge and treatment, waste management, waste air treatment, noise reduction, monitoring costs, environmental taxes and other direct costs of environmental protection. We invested €5.3 million in equipment and technology for environmental protection to further reduce environmental impacts. Use of Natural Resources Depletion of natural resources has become evident in our lifetime, revealing our planet's physical limits and its vulnerability. We understand that dependence of the economic growth on the use of natural resources must end. We at Krka encounter challenges responsibly by striving to use natural resources sustainably to a maximum effect. To this end, we have launched several projects and activities involving all our employees. Water 62 Access to clean drinking water is essential for the pharmaceutical industry because it is used as a raw material in preparing pharmaceutical water, which must meet strict chemical and microbiological quality requirements. Therefore, water is a crucial aspect of environmental protection, and we consistently plan, monitor and control it. We encourage employees to drink tap water wherever the working process allows it. Tap water is considered potable from a health care standpoint and a much better alternative to bottled water, which increases the amount of waste. We devote much effort to preserving the quality of water bodies at our production sites. Water systems at Krka are managed in compliance with good manufacturing practice (GMP) and the HACCP requirements. Water quality parameters are within prescribed limits and change with seasonal variations and precipitation. We closely monitor any changes to ensure optimum operation of facilities for preparing pharmaceutical water. Wastewater that comes from rinsing the machines for preparing pharmaceutical water and does not contain chemicals is reused in the preparation of water for energy supply. Two separate supply systems deliver water to the central distribution system and ensure that pharmaceutical water is continuously supplied to production. If the water supply is disrupted, the system reduces the quantity of water from the public network. Instead, pre-prepared pharmaceutical water flows into the system from reservoirs designed to cover the drinking water shortage. 61 GRI GS 307-1, 413-1 62 GRI GS 103-1, 103-2, 103-3, 303-1 2021 Annual Report – Sustainable Development 161 Drinking and River Water Use Our main water sources are:  Drinking water from the municipal utility services; and  River water. Drinking water consumption is monitored by a computerised control system, which records the total flow rate and total consumption at the plant input and main user points. We can immediately identify any increase or deviation in drinking water consumption and investigate the underlying reasons. We comply with stringent requirements of pharmacopoeias regarding water preparation in the pharmaceutical industry. We strictly use drinking water of officially controlled quality from the municipal water supply utility. Water is additionally purified depending on its purported use, most commonly using sophisticated membrane technologies. Correct preventive maintenance, machine operation monitoring, and technological improvements ensure consistent water quality, extended the useful life of the equipment, decreased water and chemical consumption, and reduced waste generation. In 2021, drinking water consumption in Krka in Slovenia decreased by 6% compared to the previous year thanks to proper management and maintenance of water preparation and distribution systems, active water consumption monitoring, and prompt interventions in case of water leaks. River water consumption declined by 13% compared to 2020. Approximately 50% of total river water is used for cooling through various heat exchangers, especially in API production, while the rest is used for preparing technological waters to meet the demands of energy supply and production. We have been replacing adequately treated river water used in cooling towers by rainwater and clean rinsing water from production. We plan to use all rainwater in cooling towers in 2022 as well. Drinking and River Water Use 63 Energy Our main energy resources are:  Natural gas;  Electric power; and  Fuel oil as back-up fuel. 63 GRI GS 303-3, 303-5 2021 Annual Report – Sustainable Development 162 The electric power supply comes from the public utility electricity grid, from in-house generators powered by renewable sources such as the solar power station, and from the cogeneration plant operating on natural gas. Energy Management System 64 Energy management strategy is incorporated into Krka’s integrated management system and drafted in accordance with the principles of ISO 50001 Energy Management System. The strategy is a part of the corporate strategy and comprises activities and actions for achieving cost-related and environmental objectives. The Committee for Monitoring Environmental Aspects is responsible for periodic identification of energy-related aspects in accordance with ISO 14001 and internal rules. In this way, we manage and refine our processes based on sustainable development and circular economy principles to maintain a high level of environmental protection. Energy management system incorporates:  Energy operators in production plants in Slovenia and abroad;  A corporate energy manager, who supervises and coordinates the work of energy operators; and  All employees, who are committed to efficient and rational energy use pursuant to the environmental policy. Regular energy audits are also a part of the system. In 2021, we completed the comprehensive energy audit of all production sites in Slovenia and adopted various measures in line with the action plan. The energy management control system is the key information tool for supporting the energy management system and supplementing the computer system for monitoring and control. In 2021, measurements were added to the system to increase the transparency of mass and energy flows in the company. We upgraded it with new tools. We updated the energy management control system to allow for advanced analyses and evaluation of the achievement of set environmental goals. Multi-Year Survey of Implemented Measures and Their Effects on Energy Management 65 In accounting for an average simple payback period, only measures taken exclusively for economic viability were considered. 64 GRI GS 103-1, 103-2, 103-3 65 GRI GS 302-4 2021 Annual Report – Sustainable Development 163 Specific Use of Energy 66 Specific use of energy portrays production costs in consideration of the physical volume of production. Specific use of energy as regards production costs remained at the 2020 levels. Specific Use of Energy by Production Costs The specific use of energy in correlation to the physical production volume remained stable year over year thanks to many activities geared towards efficient energy use, energy efficiency investment, and energy-efficient maintenance. Specific Use of Energy by Production Volume 66 GRI GS 302-3 2021 Annual Report – Sustainable Development 164 Energy Efficiency Projects We have been dealing with specific use of energy for years and constantly optimising our specific water and energy consumption. Systematic measures and investments have returned average electricity and natural gas savings of more than 50 GWh per year in recent years. This means we have reduced our CO 2 emissions by more than 17,000 tonnes. In 2021, all energy efficiency projects generated savings of 2,583 MWh and reduced our CO 2 emissions by 454 tonnes. We started devising a new regenerative thermal oxidation system at our Ločna Plant in Novo mesto, which will allow us to use waste heat from flue gas. This will help us achieve natural gas savings of 1,100 MWh or reduce our CO 2 emissions by 190 tonnes. The project is due for completion in 2022. Replacement of Liquefied Petroleum Gas with Natural Gas at Šentjernej In 2021, we connected our plant in Šentjernej to the natural gas distribution system. Natural gas is considered a reliable, safe and affordable power source as it generates on average 25% savings compared to liquefied petroleum gas. The quantity of dust particles as well as NO x and SO x emissions are much lower than those from liquefied petroleum gas. The entire site in Šentjernej was supplied with natural gas in 2021. Optimisation of Air-Conditioning System Operation Air-conditioning (HVAC) systems impact approximately 60% of end use of energy at Krka and must be used as efficiently as possible. The following projects were delivered in 2021:  Upgrade of the system for targeted monitoring of energy media consumption in individual buildings at the Ločna site in Novo mesto. The system will improve the overview of the energy balance of each building and help us identify anomalies and improve our energy efficiency system;  Replacement of the existing air dehumidification system with drying wheels with a glycol cooling system –1/3 °C at our site in Ljutomer, Slovenia. The replacement will generate annual natural gas savings of 1,935 MWh and consequently reduce annual CO 2 emissions by 454 tonnes. Improved Reliability of the 8-Bar Compressed Air Supply at Ločna (Novo mesto) At the Notol 2 compressor station at Ločna, we started installing an additional high-pressure compressor to achieve more reliable and efficient supply of 8-bar compressed air. We will also increase the capacity of the existing connection between compressor stations to improve the supply reliability further. This will save more than 200 MWh of electricity each year. Replacement of FLUO Lighting with LED Lights We have been gradually replacing FLUO lights with LED lights. We upgraded the lighting system in two warehouses at Ločna and Gotna vas sites in Novo mesto. The upgrade improved illumination of rooms and work surfaces. The project will generate 112 MWh electricity savings per year. Recovery of Waste Heat We make constant efforts to maximise the recovery of heat generated as a by-product in various processes. We use waste heat from the compressed air station, flue gases from steam boilers, vapours from the steam boiler system, and condensed heat from cooling units and cogeneration to prepare heating water. Because of this, preparation of heating water requires 54% (or 24 GWh) less natural gas. Biodiversity 67 Biodiversity balances the functioning of all ecosystems and human life on Earth and should be maintained. Biodiversity in Slovenia is among the greatest in the European Union. Slovenia covers only 0.004% of the Earth's total surface area but is home to more than one percent of all known species and more than two percent of terrestrial species. All Krka production sites comply with and implement all guidelines and requirements of the European and national legislation on biodiversity to preserve the ecological, biotic and landscape features of the natural world. We inform 67 GRI GS 103-1, 103-2, 103-3, 304-2, 304-4 2021 Annual Report – Sustainable Development 165 employees about the importance of biodiversity at internal training courses because every person can significantly help improve the present state. Krka industrial buildings are concentrated in the area around the Krka River. The area is important as it is a natural habitat of several water and riparian plant and animal species, especially fish, amphibians and birds. As such, it is defined as an ecologically important area (EIA) and protected as a Natura 2000 site. According to the Nature Conservation Act, an EIA is an important contributor to biodiversity, while Natura 2000 demonstrates our commitment to preserving natural heritage important for Slovenia and Europe. Responsibilities are clearly defined in the European Birds Directive and the Habitats Directive. The Krka River is a habitat for several threatened species. These include fish species such as the asp, huchen, and cactus roach, the thick-shelled river mussel, the olm, as well as the European otter and beaver. Systematic biodiversity evaluation of watercourses as ecosystems in Slovenia has not been established yet. Therefore, we observe various publications and reports issued by the Slovenian Environment Agency, the Institute of the Republic of Slovenia for Nature Conservation, the Statistical Office of the Republic of Slovenia, and other professional institutions. In 2021, the European Environment Agency (EEA) issued a new 2013–2018 assessment of biodiversity and nature in compliance with the EU Birds and Habitats Directives. Based on the reported and assessed data about species living in habitats of Slovenia, the report found that biodiversity in 2013–2018 remained stable compared to the previous reporting period. All Krka industrial buildings are concentrated within their respective sites and do not sprawl into ecologically sensitive areas. We comply with the strictest environmental requirements for the existing buildings and newly planned ones. The river water catchment and discharge of treated wastewater from our wastewater treatment plant do not threaten the preservation of water and riparian areas or the conditions for connecting these areas. The areas of our Ljutomer and Krško plants are not included in the Natura 2000 network. Nevertheless, all wastewater is treated appropriately at the municipal wastewater treatment plant in Ljutomer and the Vipap wastewater treatment plant in Krško so that we do not endanger biodiversity with our emissions. Transport We use all means of transport in our logistic processes. We use most modern vehicles for road transport with environmentally sound engines. We supply products to distant markets by sea or by air. Transport is organised through our in-house transport department. We use our own vehicles or employ contractual carriers. Our products are mostly transported to European and Asian markets. In 2021, we continued to transport goods from Shanghai in China to Novo mesto in Slovenia by road, because road transport proved to be a good alternative to air transport. Transport went unhindered despite the COVID-19 restrictions and air and maritime transport difficulties. We organised transport for almost 11,000 shipments of finished products, raw materials and packaging materials. Total mileage by our own vehicles surpassed 2 million km, and fuel consumption totalled 576,000 litres. We continued to modernise our fleet of vehicles and organised training for vehicle operators. We closely follow and comply with the requirements of the laws governing the transport of pharmaceutical products and pay special attention to duly informing all our contractual carriers and their drivers about the requirements and other specificities. Last year, the competent national bodies for transport control found no violations of the legislation. Krka's fleet comprises 19 vehicles and is regularly renewed. In 2021, we ordered three new vehicles (truck and trailer combinations). Their supply is planned for 2022. All vehicles satisfy relevant requirements regarding drivers, safety, and environmental standards. New vehicles are equipped with state-of-the-art accessories (e.g. adaptive cruise control systems, ESP/ESC emergency braking, traction control system, and blind-spot detection system) that enhance traffic safety. We select our transport contractors carefully and encourage them to use modern vehicles that comply with the highest environmental standards. Their fleet includes vehicles running on liquefied natural gas. 2021 Annual Report – Sustainable Development 166 We have seven electric vehicles in our personal carpool and plan to add another two electric vehicles and one hybrid vehicle in 2022. Based on our vehicle acquisition strategy, we plan to replace 20 used diesel and petrol vehicles with electric ones by 2025. We have eight charging stations at two sites. When possible, we substitute business travel with teleconferencing or video conferencing to minimise fuel consumption and air pollution. For the sixth consecutive year, we participated in the European Mobility Week with our Krka Car-Free Day campaign to promote sustainable mobility activities. We included them in Krka's Mobility Plan, which encourages the use of alternative and less environmentally harmful ways of commuting. In 2021, the campaign ran in 15 subsidiaries. This proves that sustainable mobility is becoming a habit of Krka employees. Green mobility should be safe, which is why we regularly adopt health and safety recommendations and measures and raise awareness among our employees of how important it is to follow them at the workplace and on the way to work. We arranged additional bike parking areas to encourage our employees to cycle to work. Emissions Waste Water 68 Wastewater treatment protects surface and groundwater from organic and microbiological pollution and fouling by nitric and phosphorus substances. Therefore, one of our top environmental protection priorities is ensuring the most comprehensive and effective treatment. We use various physical, chemical and biological processes to remove pollutants from wastewater. We comply with the Decree on the Emission of Substances and Heat in the Discharge of Wastewater from Installations for the Production of Pharmaceutical Products and Active Substances, which serves as the basis for environmental protection permits issued for individual Krka production sites. At all our sites, an authorised contractor carries out wastewater monitoring. Its frequency and scope are defined in individual permits. We reduce industrial wastewater quantities and pollution at all stages of the production process. We consider requirements of environmental protection permits and legislative requirements already at the development stage of a product and opt for technologies that use the lowest quantities of water possible. Advanced water preparation technologies, closed cooling systems, and other methods are used for saving water in production. Whenever possible, we use raw materials and excipients that are less harmful to water in technological processes and minimise the quantity of detergents used in washing procedures in production. At all our production sites, wastewater is treated in compliance with all legislative parameters for effluents before discharging into rivers. Wastewater in Ločna, Novo mesto, is treated at our advanced in- house industrial wastewater treatment plant using the best available technologies to meet the requirements. Wastewater from dislocated plants is treated at highly efficient municipal wastewater treatment plants. Our plant in Ločna generates industrial, municipal and cooling wastewater. We treat industrial and municipal wastewater at the in-house biological wastewater treatment plant. Over the past few years, it was upgraded and technology professionally managed, so the quality of effluents is high and in compliance with all legal requirements. In 2021, we treated 778,818 m 3 of wastewater. Organic pollution expressed by chemical oxygen demand was cleaned in 92.7%, while removal of organic pollution expressed by biochemical oxygen demand within 5 days reached 98.9%. We generated 406,307 m 3 of cooling water that was not polluted and was discharged into the Krka River through a cooling-and-rainwater discharge system. Our plant in Bršljin generates industrial and municipal wastewaters, which are discharged by the public sewerage system and treated at the municipal wastewater treatment plant in Novo mesto. In 2021, we generated a total of 16,004 m 3 of wastewater. Our plant in Šentjernej generates industrial and municipal wastewaters. Effluents are discharged by the public sewerage system and treated at the common municipal wastewater treatment plant in Šentjernej. In 2021, we generated a total of 13,274 m 3 of wastewater. 68 GRI GS 303-2, 303-4 2021 Annual Report – Sustainable Development 167 Our plant in Ljutomer generates industrial, municipal, and cooling wastewaters. Effluents are discharged by the public sewerage system and treated at the common municipal wastewater treatment plant in Ljutomer. In 2021, we generated a total of 27,674 m 3 of wastewater. Our plant in Krško generates industrial, municipal and energy supply wastewater. Effluents are discharged by the public sewerage system and treated at the Vipap wastewater treatment plant in Krško. In 2021, we generated a total of 24,417 m 3 of wastewater. Construction of an in-house water treatment plant is planned at the site and we have already prepared project design documents. The project is at its final stage of obtaining a final environmental protection permit. Construction work can start only after obtaining the permit. Total environmental load units (ELU) increased by 130 ELU or 9.5% compared to 2020 due to higher wastewater load at wastewater treatment plants. Water monitoring results at all sites in Slovenia were compliant with the requirements of environmental protection permits. Study findings show that the proportion of active pharmaceutical ingredients discharged into water from the pharmaceutical industry is lower than the proportion of these substances released into the water by end users. Nevertheless, we supplemented this well-managed aspect of wastewater treatment with hazard assessments for the water environment for individual active pharmaceutical ingredients and other substances. Hazard assessment for the water environment is a part of a broad risk assessment. The method of treating wastewater, any additional measures and the procedure for handling waste are prescribed according to the calculated risks based on physico-chemical, ecotoxicological and toxicological data for each active pharmaceutical ingredient and data on the familiar water environment. We regularly control and update the calculations and use most recent research findings and other credible technical information in wastewater and waste management. Complex analytical methods for monitoring wastewater residue concentrations were developed with our external partners for several active pharmaceutical ingredients that present an increased environmental risk. Wastewater Management Environmental load units (ELU) represent the prescribed mathematical calculation of pollution from all wastewater outlets in Slovenia (Ločna, Šentjernej, Bršljin, Ljutomer, and Krško). The calculation takes into account the annual wastewater rate of discharge; organic pollution; nitrogen, phosphorous, and suspended solids load; and the impact of wastewater treatment. 2021 Annual Report – Sustainable Development 168 Waste 69 Waste management in Krka complies with the waste management plan, which considers legal requirements and sets out technical and organisational measures and waste management goals. We consider extended producer responsibility in common plans for managing waste medicines and packaging waste to ensure collection and appropriate processing of packaging materials and safe disposal of unused medicines by end users. We comply with the legally prescribed waste management classification and consider the commitment to reduce environmental impacts, as set out in the environmental standard. The most important step in waste management is to prevent waste generation. This is achieved by downsizing pack units, improved technological procedures and production development, use of recovered solvents, pallet reuse, and many other measures. By downsizing pack units, we reduced the consumption of packaging materials by 18 tonnes and proportionally reduced the quantity of waste packaging and purchase costs in 2021. Waste is an important source of raw materials and energy, so special attention is paid to separating waste at source, i.e. at the point where it is generated, and to preparing it for reuse. In doing so, we contribute to the circular economy. We have set up a separate waste collection system. All employees take part in the process. Our system relies on advanced equipment for separated collection, pressing and waste transportation. In 2021, we collected 495 tonnes of waste composites, accounting for a 14% increase compared to 2020. We handed them over to an authorised waste processing company, which recovered 180 tonnes of aluminium and 270 tonnes of plastic for further processing. We achieved the set goals by constantly improving the waste management system and increasing the quantity of separately collected waste materials. We reduced the amount of waste disposed at landfills by 28 tonnes compared to 2020 despite an increase in production. Risks related to the reception and removal of certain types of waste in Slovenia persisted in 2021. We diversified our waste management channels and extended cooperation to several waste collection and removal companies in Slovenia and abroad to manage the risks. Good results can only be achieved if all employees work responsibly. To accomplish this, we provided our employees with regular waste management training. Recyclable Waste 70 69 GRI GS 103-1, 103-2, 103-3, 306-1, 306-2 70 GRI GS 306-4 2021 Annual Report – Sustainable Development 169 Waste for Biological Processing 71 Waste Disposed at Landfills 71 GRI GS 306-4 2021 Annual Report – Sustainable Development 170 Waste for Incineration 72 Noise According to the European Environment Agency (EEA) estimate, 20% of the European population is exposed to long-term health-damaging noise levels. Noise is, therefore, a key aspect of environmental protection in Slovenia. Despite its versatile activities, the industry is among minor noise polluters. We minimise noise emissions by suitable equipment, installing the equipment in closed rooms, setting up noise barriers, fitting cargo vehicles with electrical cooling units, and moving cargo vehicle docks to the inner areas of the production sites. In compliance with the regulation on environmental noise indicators, we measure noise levels every three years and when an alteration is made that could increase them. We implement all necessary measures to ensure that results comply with legal requirements. Results of monitoring conducted by an authorised contractor in 2021 at all our sites in Slovenia confirm this. Air Emissions 73 Air pollution by sulphur dioxide, nitrogen oxide, carbon monoxide, ozone and particulate matter greatly impacts our health and quality of life. Reduction of air emissions is, therefore, our environmental protection priority. We comply with the EU actions to implement the European Green Deal, legal requirements, and the strict requirements for the pharmaceutical industry to prevent any cross-contamination. We reduce air emissions with treatment systems fitted to all outlets that constitute a potential source of pollution. We use effective de-dusting systems, filters, wet-type filtration systems, condenser columns, and thermal oxidisers to keep air emissions below the legal threshold or the levels allowed for by the best available technology. We remove organic compounds from waste air by advanced thermal oxidisers. In 2020, the third thermal oxidiser was installed at our production site in Ločna. In 2021 at our plant in Krško, we replaced an obsolete thermal oxidiser with an advanced high-capacity thermal oxidiser and upgraded the waste-air distribution system. The device will be started up in 2022. Slovenia still has the problem of harmful and, at times, excessive air pollution with PM 10 particles and certain other pollutants, for example, PM 2.5 particles, nitrogen dioxide, ozone, and benzo(a)pyrene, which cause many health issues. At Krka, absolute air filtration is applied to all airborne particle emissions to remove all particulate matter, or at least over 99.7% of all particles. Our air emissions are not polluted by particulate matter and do not increase air pollution with PM 10 particles. 72 GRI GS 306-5 73 GRI GS 103-1, 103-2, 103-3 2021 Annual Report – Sustainable Development 171 Air Emissions 74 We generate direct CO 2 emissions (Scope 1 under the Greenhouse Gas (GHG) Protocol) by using fuels and emitting ozone-depleting substances from our cooling devices, and indirect emissions by exploiting electric power from the public utility electricity grid. Even though production increased, direct CO 2 emissions remained at similar levels as in 2020. In 2021, all our energy consumers in Slovenia switched to zero-carbon energy sources. We made great progress in reducing our carbon footprint and neutralised indirect CO 2 emissions (Scope 2 under the GHG Protocol). Over the past few years, average indirect CO 2 emissions amounted to approximately 45,000 tCO 2 . We aim to reduce further total CO 2 emissions (Scope 1 and Scope 2 under the GHG Protocol) and maximise the carbon neutrality of our processes. 75 As our production site in Ločna is included in the EU emissions trading scheme, we report on our emissions to the Ministry of the Environment and Spatial Planning in accordance with the relevant legislation. Electromagnetic Radiation (EMR) Electromagnetic radiation is universally present in our living environment. However, extended electric power grids and appliances also emit high-level electromagnetic radiation harmful to living organisms. We constantly follow relevant legislation and carry out required measurements. At our central site in Ločna, Novo mesto, we have identified sources of high- and low-frequency electromagnetic radiation. They include base stations for cell phones, signal amplifier systems inside buildings, transformer stations and power sources used in production, and medium-voltage power lines and connections. The results of initial measurements indicate that radiation burdens of identified sources were below thresholds set by laws. We also comply with laws on electromagnetic radiation at our other production and business sites in Slovenia, even though there are no mobile phone base stations there, making them less intense energy-wise. Light Pollution Parking areas, traffic routes (i.e. roads and pedestrian areas), transport and warehousing facilities at our production and business sites in Slovenia are lit with outdoor lighting. Our signboards and billboards are also illuminated. The astronomical clock regulates the automatic switching on and off of outdoor lighting, sign boards, and billboards. We separately measure electric power consumption for outdoor lighting at our major sites. 74 GRI GS 305-1, 305-2 75 GRI GS 305-5 2021 Annual Report – Sustainable Development 172 We are aware of the impact of light pollution. To address it, we responsibly started upgrading outdoor lighting six years ago and have essentially reduced total rated electric power over that time. In Ločna, Novo mesto, we replaced old lamps in 2015 and 2016, and recorded a 47% decrease in rated power. In 2021, total rated power for all sites in Slovenia amounted to 25 kW or 17% less than in 2014 in Ločna alone. Environmental Protection at Krka’s Subsidiaries We incorporate the responsibility to our natural environment in various activities of our subsidiaries abroad, where we coordinate the environmental management systems according to the ‘function-for-function’ principle. We transfer good environmental protection guidelines and practices to all subsidiaries by permanent cooperation, information exchange, and investment, and consider national legislation in the process. We have set up efficient separate waste collection systems, and handed waste over exclusively to authorised waste collection and treatment companies. Wastewater generated in the production of highly potent active ingredients at our plant in Jastrebarsko, Croatia, is treated at the in-house wastewater treatment plant using advanced oxidation processes (AOP) with a 99.9% degradation of active substances. Wastewater at Krka-Rus in the Russian Federation is treated at the in-house wastewater membrane biological wastewater treatment plant. Conceptual design for ramping up production capacities was prepared in 2021. The project includes an upgrade of the wastewater treatment plant. Wastewater from other production plants and companies is discharged to modern municipal wastewater treatment plants. We install highly efficient absolute filtration devices on units emitting particulate matter to reduce emissions. We transfer good practices in the rational use of energy and water to subsidiaries. We upgraded the energy management system in our subsidiary Krka-Rus in the Russian Federation by additional energy flow metres and implemented data in Krka’s energy management control system. We also launched the project on the installation of another glycol cooling tower to increase the capacity of the existing free cooling system and provide redundancy for critical components of the cooling system during the winter. Environmental Communication We know that each employee can contribute to good environmental protection results. We, therefore, encourage them to constantly upgrade their knowledge and handle the environment with a high level of awareness. Our internal communication campaign Your Care for the Environment Counts promotes energy savings, print savings and separate waste collection. In 2021, two articles on environmental protection were published in our internal magazine, the Utrip, while several notices and advice on environmental issues were published in our internal bulletin, the Bilten, and on internal web pages. We publish posts on environmental topics to mark Earth Day, World Water Day, and Earth Hour each year. Responsible environmental management is included in the induction seminar for newly recruited employees and in the national vocational qualification programmes. We included courses on comprehensive environmental management in the Catalogue of Training Programmes and courses on waste, wastewater, noise, air emissions, and light pollution. In 2021, 393 employees attended environment-related training courses. We transferred all environment-related content online as a response to the pandemic. We inform the public about our environmental activities via public announcements in the media and at various seminars, symposia and round tables. We actively engage in drafting environmental legislation and are co-founders and active members of the Environment and Energy Section of the Dolenjska and Bela Krajina Chamber of Commerce and Industry. We work hand in hand with professional and scientific organisations in Slovenia and abroad. Improvement of the environment also depends on good relationships with the stakeholders in the social environment, especially with our immediate neighbours, because we impact their living space and the quality of life. Every other year, we organise a traditional meeting for local residents. We provide them with information on our activities, performance, and plans related to environmental protection. These meetings help us maintain an open dialogue and exchange opinions. We learn what the locals think and consider this when planning environmental goals and programmes. The most recent 2021 Annual Report – Sustainable Development 173 meeting took place in 2019. The COVID-19 pandemic prevented us from organising the traditional meeting in 2021. Instead, we prepared an informative booklet Utrip okolja. We have a formal complaint system in place. If members of the local community or our stakeholders have a complaint, a question or a suggestion related to environmental protection, they can send it to us via the system. Publicly available information on environmental protection and contact details are published on www.krka.si. 2021 Annual Report – Sustainable Development 174 Krka's Sustainable Development Indicators 2021 2020 2019 2018 2017 ENVIRONMENTAL DATA Water consumption (total) m 3 1,461,024 1,623,046 1,399,303 1,341,333 1,588,474 Drinking water m 3 643,965 684,950 613,919 655,837 644,577 River water m 3 817,059 938,096 785,384 685,496 943,897 Energy (total) GJ 1 953,366 969,833 956,577 961,319 935,484 Electric power GJ 330,453 344,957 356,610 344,983 330,274 Natural gas GJ 601,041 604,287 580,048 595,739 588,121 Liquid petroleum gas GJ 17,750 20,564 19,409 20,214 17,029 Fuel oil (extra light) GJ 4,122 26 510 383 60 Generated electric power – alternative sources (total) GJ 53,337 48,294 39,482 46,909 46,014 Solar power plant GJ 266 280 252 223 258 Cogeneration GJ 53,071 48,014 39,230 46,686 45,756 Energy intensity Specific use of energy MJ/€ 1.55 1.55 1.60 1.80 1.83 Specific use of energy TJ/billion units 74.8 74.8 79.4 83.6 82.8 Wastewater (total) 76 m 3 1,266,494 1,388,829 1,225,003 1,150,578 1,376,629 Cooling water m 3 407,807 517,090 392,490 298,137 509,091 Industrial wastewater m 3 858,687 871,739 832,513 852,441 867,538 – Suspended solids load t 11.8 10.3 23.9 16.1 24.3 – Biochemical oxygen demand t 3.1 7.0 6.9 5.0 5.8 – Chemical oxygen demand t 41.4 42.1 57.5 38.4 43.6 – Nitrogen t 5.1 2.9 4.9 4.8 3.9 – Phosphorus t 0.7 0.6 0.7 0.6 0.6 Environmental load units (ELU) 2 ELU 1,371 1,241 1,737 1,286 1,359 Waste (total) t 11,369 12,512 11,091 10,312 11,541 Hazardous waste (total) t 6,480 7,329 6,047 5,491 5,879 Solid waste t 808 889 789 670 718 Liquid waste t 5,672 6,440 5,258 4,821 5,161 Non-hazardous waste (subtotal) t 4,889 5,183 5,044 4,821 5,662 Disposal at landfills (subtotal) t 763 791 802 824 905 Composites (energy use and processing) t 495 427 489 371 246 Biomass (composting) t 1,231 1,618 1,308 1,187 1,971 Recycling waste (total) t 2,381 2,327 2,422 2,422 2,524 – Paper t 1,243 1,273 1,221 1,191 1,097 – Plastics t 421 380 401 432 392 – Glass t 110 135 136 125 132 – Metal t 186 150 239 201 193 – Wood t 421 389 425 473 710 Electric and electronic equipment t 19 20 23 17 16 76 GRI GS 306-3 2021 Annual Report – Sustainable Development 175 2021 2020 2019 2018 2017 ENVIRONMENTAL DATA Air emissions 77 Energy related CO 2 – direct t CO 2 -eq 3 35,046 34,709 33,332 34,242 33,603 Energy related CO 2 – indirect t CO 2 -eq 3 0 45,707 47,251 45,710 43,761 Energy related SO 2 t 1 1 1 1 1 Energy related NO x t 28 27.9 26.8 27.6 27 Ozone-depleting substances and fluorinated greenhouse gases t CO 2 -eq 1,277 2,501 1,744 1,954 2,267 Compliance Extraordinary events related to environment 0 0 0 3 0 Environmental protection (total) € thousand 11,599 10,056 7,672 6,738 6,585 Environmental protection costs € thousand 6,258 6,357 5,517 5,107 4,882 Investments in environmental programmes € thousand 5,301 3,699 2,155 1,631 1,703 SOCIETY Number of employees 6,228 6,191 5,907 5,496 5,020 Slovenia 5,690 5,679 5,386 4,995 4,514 Representative offices abroad 538 512 521 501 506 Health and safety 4 Number of accidents 27 21 27 18 27 Lost time injury frequency rate (LTIFR) 2.4 2.3 2.8 1.9 3.3 Proportion of disabled employees % 5.0 4.9 5.3 5.4 5.5 Education and training Number of education and training hours hour/employee 27 32 41 42 42 Education and training costs €/employee 603 667 897 881 862 1 The calculation of GJ was based on net calorific values published on the website of the Slovenian Environment Agency. 2 Environmental load units (ELU) indicate the annual load on the environment due to the discharge of waste water at a particular pollution source. The calculation takes into account the average annual value of an individual parameter, which is assigned the appropriate factor, and the annual wastewater rate of discharge at a particular outlet (The Rules on Initial Measurements and Operational Monitoring of Wastewater; Official Gazette of the Republic of Slovenia No. 94/14, as amended, No. 98/15). 3 The calculation of tonnes of CO 2 was based on the emission factors published on the website of the Slovenian Environment Agency. 77 GRI GS 305-7 2021 Annual Report – Sustainable Development 176 GRI GS (Global Standards) Content Index This report has been prepared in accordance with the GRI Standards: Core option GENERAL DISCLOSURES GRI standard Disclosure Page Chapter Notes GRI 101: Foundation 2016 GRI 102: General disclosures 2016 Organizational Profile 102-1 Name of the organization 8 At a Glance 102-2 Activities, brands, products, and services 92–112 Product and Service Groups 102-3 Location of headquarters 8 At a Glance 102-4 Location of operations 11 Krka in Global Markets 102-5 Ownership and legal form 8 70 At a Glance Share Trading and Shareholding 102-6 Markets served 79 92–112 Sales by Region Product and Service Groups 102-7 Scale of the organization 7 79 142 Financial Highlights of the Krka Group Sales by Region Employees 102-8 Information on employees and other workers 142 Employees 102-9 Supply chain 122 124 Supply Process Suppliers 102-10 Significant changes to the organization and its supply chain 7 70 92–112 125 Financial Highlights of the Krka Group Share Trading and Shareholding Product and Service Groups Investments 102-11 Precautionary Principle or approach 159 Natural Environment 102-12 External initiatives 28 28 Contributions and Other Financial Commitments Human Rights in Business Operations 102-13 Membership of associations 28 Contributions and Other Financial Commitments Strategy 102-14 Statement from senior decision-maker 3–6 Statement by the President of the Management Board Ethics and integrity 102-16 Values, principles, standards, and norms of behavior 26 39 Corporate Compliance Krka Group Development Strategy Governance 102-18 Governance structure 15–25 Corporate Governance Statement 2021 Annual Report – Sustainable Development 177 GENERAL DISCLOSURES GRI standard Disclosure Page Chapter Notes Stakeholder engagement 102-40 List of stakeholder groups 139–140 Sustainable Development 102-41 Collective bargaining agreements 142 Employees 102-42 Identifying and selecting stakeholders 139–140 Sustainable Development 102-43 Approach to stakeholder engagement 71 139–140 152 Communication with Investors Sustainable Development Health Professionals, Healthcare Providers and Direct Customers 102-44 Key topics and concerns raised 71 139–140 152 Communication with Investors Sustainable Development Health Professionals, Healthcare Providers and Direct Customers Reporting practice 102-45 Entities included in the consolidated financial statements 243 Finacial Report, Profile of the Krka Group 102-46 Defining report content and topic Boundaries 43 138 Krka Group Development Strategy Sustainable Development 102-47 List of material topics 140 Sustainable Development 102-48 Restatements of information 139 Sustainable Development 102-49 Changes in reporting 139 Sustainable Development 102-50 Reporting period Calendar year: from 1 January to 31 December 102-51 Date of most recent report 15 April 2021 102-52 Reporting cycle Annually 102-53 Contact point for questions regarding the report 139 Sustainable Development, About the Annual Report 102-54 Claims of reporting in accordance with the GRI Standards GRI Content Index 102-55 GRI content index 173 102-56 External assurance Krka has not yet decided on an external verification of GRI reporting. 2021 Annual Report – Sustainable Development 178 SPECIFIC STANDARD DISCLOSURES Management Approach and disclosures Material topics Page Chapter Limitations/notes ECONOMY GRI 201: Economic performance 103-1 103-2 103-3 Explanation of the material topic and its Boundaries 39–42 Krka Group Development Strategy 201-1 Direct economic value generated and distributed 7 154, 157 212 Financial Highlights of the Krka Group Corporate Social Responsibility Financial Report, Employee benefits GRI 203: Indirect Economic Impacts 2016 103-1 103-2 103-3 Explanation of the material topic and its Boundaries 151 Corporate Social Responsibility 203-1 Infrastructure investments and services supported 152–154 Corporate Social Responsibility 203-2 Significant indirect economic impacts 143 152 Employee Education and Development Corporate Social Responsibility GRI 205: Anti-Corruption 2016 103-1 103-2 103-3 Explanation of the material topic and its Boundaries 26 Corporate Compliance 205-1 Operations assessed for risks related to corruption 27 Integrity Plan 205-2 Communication and training about anti-corruption policies and procedures 26 Corporate Compliance Data capturing does not include the number of hours. 205-3 Confirmed incidents of corruption and actions taken 26 Corporate Compliance Data capturing includes reported suspected incidents. GRI 206: Anti-Competitive Behavior 2016 103-1 103-2 103-3 Explanation of the material topic and its Boundaries 113 Investments and Accomplishments 206-1 Legal actions for anti-competitive behavior, anti- trust, and monopoly practices 226 Financial Report,Trade payables 207: Tax 2019 207-1 Approach to tax 29 Internal Controls and Risk Management Relating to Financial and Tax Reporting 207-2 Tax governance, control, and risk management 29 Internal Controls and Risk Management Relating to Financial and Tax Reporting 207-3 Stakeholder engagement and management of concerns related to tax 29 Internal Controls and Risk Management Relating to Financial and Tax Reporting 207-4 Country-by-country reporting 74 Business Performance Data capturing includes effective tax rate. 2021 Annual Report – Sustainable Development 179 SPECIFIC STANDARD DISCLOSURES Management Approach and disclosures Material topics Page Chapter Limitations/notes ENVIRONMENT GRI 302: Energy 2016 103-1 103-2 103-3 Explanation of the material topic and its Boundaries 159 162 Natural Environment Energy 302-3 Energy intensity 163 Specific Use of Energy 302-4 Reduction of energy consumption 162 Specific Use of Energy GRI 303: Water and Effluents 2018 103-1 103-2 103-3 303-1 Interactions with water as a shared resource 160 Water 303-2 Management of water discharge-related impacts 166 Emissions, Wastewater 303-3 Water withdrawal 161 Drinking and River Water Use 303-4 Water discharge 166 Emissions, Wastewater 303-5 Water consumption 161 Drinking and River Water Use GRI 304: Biodiversity 2016 103-1 103-2 103-3 Explanation of the material topic and its Boundaries 164 Biodiversity 304-2 Significant impacts of activities, products, and services on biodiversity 164 Biodiversity 304-4 IUCN Red List species and national conservation list species with habitats in areas affected by operations 164 Biodiversity GRI 305: Emissions 2016 103-1 103-2 103-3 Explanation of the material topic and its Boundaries 170 Air emissions 305-1 Direct (Scope 1) GHG emissions 171 Air emissions 305-2 Energy indirect (Scope 2) GHG emissions 171 Air emissions 305-5 Reduction of GHG emissions 171 Air emissions 305-7 Nitrogen oxides (NOX), sulfur oxides (SOX), and other significant air emissions 175 Krka's Sustainable Development Indicators GRI 306: Waste 2020 103-1 103-2 103-3 306-1 Waste generation and significant waste-related impacts 168 Waste 306-2 Management of significant waste-related impacts 168 Waste 306-3 Waste generated 174 Krka's Sustainable Development Indicators 306-4 Waste diverted from disposal 168 Waste 306-5 Waste directed to disposal 170 Waste GRI 307: Environmental Compliance 2016 103-1 103-2 103-3 Explanation of the material topic and its Boundaries 160 Natural Environment 307-1 Non-compliance with environmental laws and regulations 160 Natural Environment 2021 Annual Report – Sustainable Development 180 SPECIFIC STANDARD DISCLOSURES Management Approach and disclosures Material topics Page Chapter Limitations/notes SOCIAL GRI 401: Employment 2016 103-1 103-2 103-3 Explanation of the material topic and its Boundaries 142 Employees 401-1 New employee hires and employee turnover 143 Employees Data capturing includes employee turnover at the Krka Group level. 401-3 Parental leave 148 Health and Safety at Work Data capturing includes the share of employees who took parental leave. GRI 403: Occupational Health and Safety 2018 403-1 Occupational health and safety management system 147–150 Health and Safety at Work 403-2 Hazard identification, risk assessment, and incident investigation 147–150 Health and Safety at Work 403-3 Occupational health services 147–150 Health and Safety at Work 403-4 Worker participation, consultation, and communication on occupational health and safety 147–150 Health and Safety at Work 403-5 Worker training on occupational health and safety 147–150 Health and Safety at Work 403-6 Promotion of worker health 147–150 Health and Safety at Work 403-7 Prevention and mitigation of occupational health and safety impacts directly linked by business relationships 147–150 Health and Safety at Work 403-9 Work-related injuries 149 Health and Safety at Work GRI 404: Training and Education 2016 103-1 103-2 103-3 Explanation of the material topic and its Boundaries 144 Employee Education and Development 404-1 Average hours of training per year per employee 145 Employee Education and Development Data capturing does not include breakdown by gender and employee category. 404-3 Percentage of employees receiving regular performance and career development reviews 144 Employee Education and Development GRI 405: Diversity and Equal Opportunity 2016 103-1 103-2 103-3 Explanation of the material topic and its Boundaries 142 Employees 405-1 Diversity of governance bodies and employees 31 33 142, 143 Composition of the Supervisory Board of Krka as at 31 December 2021 Composition of the Board of Management of Krka as at 31 December 2021 Employees Data capturing includes categorisation by gender and education. 2021 Annual Report – Sustainable Development 181 SPECIFIC STANDARD DISCLOSURES Management Approach and disclosures Material topics Page Chapter Limitations/notes GRI 406: Non-Discrimination 2016 103-1 103-2 103-3 Explanation of the material topic and its Boundaries 28 Management Approach to Non-Discrimination 406-1 Incidents of discrimination and corrective actions taken 28 Management Approach to Non-Discrimination GRI 412: Human Rights Assessment 2016 103-1 103-2 103-3 Explanation of the material topic and its Boundaries 28 Human Rights in Business Operations 412-2 Employee training on human rights policies or procedures 145 Employee Education and Development 412-3 Significant investment agreements and contracts that include human rights clauses or that underwent human rights screening 28 Human Rights in Business Operations GRI 413: Local Communities 2016 103-1 103-2 103-3 Explanation of the material topic and its Boundaries 160 Natural Environment 413-1 Operations with local community engagement, impact assessments, and development programs 160 Natural Environment GRI 414: Supplier Social Assessment 2016 103-1 103-2 103-3 Explanation of the material topic and its Boundaries 122 Supply Process 414-1 New suppliers that were screened using social criteria 122 Supply Process Data capturing includes the number of assessments by all criteria. GRI 415: Public Policy 2016 103-1 103-2 103-3 Explanation of the material topic and its Boundaries 28 Contributions and Other Financial Commitments 415-1 Political contributions 28 Contributions and Other Financial Commitments GRI 416: Customer Health and Safety 2016 103-1 103-2 103-3 Explanation of the material topic and its Boundaries 128–129 Integrated Management System and Quality 416-2 Incidents of non-compliance concerning the health and safety impacts of products and services 128–129 Integrated Management System and Quality GRI 417: Marketing and Labeling 2016 103-1 103-2 103-3 Explanation of the material topic and its Boundaries 151 Patients and Other Customers 417-1 Requirements for product and service information and labeling 151 Patients and Other End Users 417-2 Incidents of non-compliance concerning product and service information and labeling 151 Patients and Other End Users 417-3 Incidents of non-compliance concerning marketing communications 151 Patients and Other End Users 2021 Annual Report – Sustainable Development 182 SPECIFIC STANDARD DISCLOSURES Management Approach and disclosures Material topics Page Chapter Limitations/notes GRI 418: Customer Privacy 2016 103-1 103-2 103-3 Explanation of the material topic and its Boundaries 153 Health Professionals, Healthcare Providers and Direct Customers 418-1 Substantiated complaints concerning breaches of customer privacy and losses of customer data 153 Health Professionals, Healthcare Providers and Direct Customers GRI 419: Socioeconomic Compliance 2016 103-1 103-2 103-3 Explanation of the material topic and its Boundaries 153 Health Professionals, Healthcare Providers and Direct Customers 419-1 Non-compliance with laws and regulations in the social and economic area 153 Health Professionals, Healthcare Providers and Direct Customers 2021 Annual Report – Financial Report 183 FINANCIAL REPORT 2021 Annual Report – Financial Report 184 Contents Introduction to Financial Statements .......................................................................................................... 185 Statement of Compliance ............................................................................................................................. 186 Consolidated Financial Statements of the Krka Group ............................................................................. 187 Consolidated Statement of Financial Position ............................................................................................................ 187 Consolidated Income Statement ................................................................................................................................ 188 Consolidated Statement of Other Comprehensive Income ........................................................................................ 188 Consolidated Statement of Changes in Equity ........................................................................................................... 189 Consolidated Statement of Cash Flows ..................................................................................................................... 191 Notes to the Consolidated Financial Statements ........................................................................................................ 192 Independent Auditor's Report ..................................................................................................................................... 246 Financial statements of Krka, d. d., Novo mesto ........................................................................................ 252 Statement of Financial Position .................................................................................................................................. 252 Income Statement ...................................................................................................................................................... 253 Statement of Other Comprehensive Income .............................................................................................................. 253 Statement of Changes in Equity ................................................................................................................................. 254 Statement of Cash Flows ........................................................................................................................................... 256 Notes to the Financial Statements .............................................................................................................................. 257 Independent Auditor's Report ..................................................................................................................................... 315 Enclosure 1 .................................................................................................................................................... 321 2021 Annual Report – Financial Report 185 Introduction to Financial Statements The financial statements consist of two separate sections. The first section illustrates the consolidated financial statements and related Notes of the Krka Group, whereas the second section encompasses the financial statements and related Notes of Krka, d. d., Novo mesto (hereinafter referred to as: “the Company”). The financial statements have been prepared in compliance with the International Financial Reporting Standards (hereinafter referred to as: “IFRS”) as adopted by the European Union, which is in compliance with the resolution adopted at the 11 th Annual General Meeting held on 6/7/2006. The financial statements of the Company and the Krka Group are presented in euros, rounded to the nearest thousand. They are an integral part of the 2021 Annual Report, which is published via the SEOnet electronic announcement system of the Ljubljana Stock Exchange, the ESPI system of the Warsaw Stock Exchange, and on the Krka website (https://www.krka.biz/en/for-investors/financial-reports/). Each section of the financial statements was audited by ERNST & YOUNG Revizija, poslovno svetovanje, d. o. o., and two separate reports as individual sections have been prepared accordingly. The Statement of Compliance presented below includes an acknowledgement of the Management Board's responsibility for all financial statements of both the Company and the Krka Group. 2021 Annual Report – Financial Report 186 Statement of Compliance The Management Board of Krka, d. d., Novo mesto is responsible for the preparation of the Annual Report of the Company and of the Krka Group including the financial statements in a manner that gives the interested public a true and fair view of the financial position and the results of operations of the Company and its subsidiaries in 2021. The Management Board hereby acknowledges as follows:  The financial statements of the Company and its subsidiaries have been prepared on a going concern basis.  The selected accounting policies are applied consistently and any changes in accounting policies have been reported.  The accounting estimates have been prepared in a fair and reasonable manner and are in compliance with the principles of prudence and due diligence.  The financial statements and the Notes thereto for the Company and the Krka Group have been prepared in accordance with the applicable legislation and the IFRS, as adopted by the European Union. The Management Board is responsible for taking the measures required to preserve the assets of the Company and the Krka Group and to prevent and detect fraud and other forms of misconduct. The tax authorities may, at any time within a period of five years after the end of the year for which tax assessment was due, carry out the audit of the Company operations, which may lead to assessment of additional tax liabilities, default interest, and penalties with regard to corporate income tax or other taxes and levies. The Management Board is not aware of any circumstances that may result in a significant tax liability. Novo mesto, 28 March 2022 Jože Colarič President of the Management Board and CEO dr. Aleš Rotar Member of the Management Board dr. Vinko Zupančič Member of the Management Board David Bratož Member of the Management Board Milena Kastelic Member of the Management Board – Worker Director 2021 Annual Report – Financial Report of the Krka Group 187 Consolidated Financial Statements of the Krka Group Consolidated Statement of Financial Position € thousand Notes 31 Dec 2021 31 Dec 2020 Index 2021/20 Assets Property, plant and equipment 12 774,352 807,824 96 Intangible assets 13 104,301 107,371 97 Loans 14 40,300 15,376 262 Investments 15 108,883 10,420 1,045 Deferred tax assets 16 46,883 48,969 96 Other non-current assets 1,028 1,038 99 Total non-current assets 1,075,747 990,998 109 Assets held for sale 41 41 100 Inventories 17 455,707 453,690 100 Contract assets 1,214 1,644 74 Trade receivables 18 467,764 383,560 122 Other receivables 18 29,564 27,768 106 Loans 14 192,360 54,774 351 Investments 15 155,448 9,499 1,636 Cash and cash equivalents 19 159,838 313,568 51 Total current assets 1,461,936 1,244,544 117 Total assets 2,537,683 2,235,542 114 Equity Share capital 20 54,732 54,732 100 Treasury shares 20 -114,541 -99,279 115 Reserves 20 145,077 103,595 140 Retained earnings 20 1,819,937 1,684,285 108 Total equity holders of the controlling company 1,905,205 1,743,333 109 Non-controlling interests 20 13,880 8,479 164 Total equity 1,919,085 1,751,812 110 Liabilities Provisions 22 126,153 134,686 94 Deferred revenue 23 6,875 7,804 88 Trade payables 24 10,000 10,006 100 Lease liabilities 28 8,724 9,121 96 Deferred tax liabilities 16 10,922 11,179 98 Total non-current liabilities 162,674 172,796 94 Trade payables 24 130,011 107,116 121 Lease liabilities 28 3,433 2,712 127 Income tax payables 7,023 15,748 45 Contract liabilities 25 124,730 106,299 117 Other current liabilities 26 190,727 79,059 241 Total current liabilities 455,924 310,934 147 Total liabilities 618,598 483,730 128 Total equity and liabilities 2,537,683 2,235,542 114 The accompanying Notes are an integral part of the consolidated financial statements and should be read in conjunction with them. 2021 Annual Report – Financial Report of the Krka Group 188 Consolidated Income Statement € thousand Notes 2021 2020 Index 2021/20 Revenue 1,565,802 1,534,941 102 – Revenue from contracts with customers 5 1,562,266 1,531,674 102 – Other revenue 3,536 3,267 108 Cost of goods sold -674,594 -623,616 108 Gross profit 891,208 911,325 98 Other operating income 6 11,376 10,495 108 Selling and distribution expenses -305,870 -291,203 105 – Of that net impairments and write-offs of receivables -1,048 3,206 R&D expenses -154,559 -153,447 101 General and administrative expenses -87,367 -86,426 101 Operating profit 354,788 390,744 91 Financial income 10 19,711 23,259 85 Financial expenses 10 -12,082 -75,011 16 Net financial result 7,629 -51,752 Profit before tax 362,417 338,992 107 Income tax 11 -54,267 -50,043 108 Net profit 308,150 288,949 107 Attributable to: – Equity holders of the controlling company 309,214 290,995 106 – Non-controlling interests -1,064 -2,046 52 Basic earnings per share (€) 21 9.92 9.27 107 Diluted earnings per share (€) 21 9.92 9.27 107 The accompanying Notes are an integral part of the consolidated financial statements and should be read in conjunction with them. Consolidated Statement of Other Comprehensive Income € thousand Notes 2021 2020 Index 2021/20 Net profit 308,150 288,949 107 Other comprehensive income for the year Other comprehensive income reclassified to profit or loss at a future date Translation reserve 20 14,503 -43,726 Net other comprehensive income reclassified to profit or loss at a future date 14,503 -43,726 Other comprehensive income that will not be reclassified to profit or loss at a future date Change in fair value of financial assets 5,441 739 736 Restatement of post-employment benefits 22 6,759 -11,271 Deferred tax effect -1,622 873 Net other comprehensive income that will not be reclassified to profit or loss at a future date 10,578 -9,659 Total other comprehensive income of the year (net of tax) 25,081 -53,385 Total comprehensive income of the year (net of tax) 333,231 235,564 141 Attributable to: – Equity holders of the controlling company 333,030 237,689 140 – Non-controlling interests 201 -2,125 The accompanying Notes are an integral part of the consolidated financial statements and should be read in conjunction with them. 2021 Annual Report – Financial Report of the Krka Group 189 Consolidated Statement of Changes in Equity € thousand Share capital Treasury shares Reserves Retained earnings Total equity holders of the controlling company Non- controlling interests Total equity Reserves for treasury shares Share premium Legal reserves Statutory reserves Fair value reserve Translation reserve Other profit reserves Retained earnings Profit for the year At 1 Jan 2021 54,732 -99,279 99,279 105,897 14,990 30,000 -35,059 -111,512 1,280,090 138,705 265,490 1,743,333 8,479 1,751,812 Net profit 0 0 0 0 0 0 0 0 0 0 309,214 309,214 -1,064 308,150 Total other comprehensive income of the year (net of tax) 0 0 0 0 0 0 12,982 13,238 0 -2,404 0 23,816 1,265 25,081 Total comprehensive income of the year (net of tax) 0 0 0 0 0 0 12,982 13,238 0 -2,404 309,214 333,030 201 333,231 Total transactions with owners, recognised in equity Formation of other profit reserves under the resolution of the AGM 0 0 0 0 0 0 0 0 90,812 -90,812 0 0 0 0 Transfer of previous period’s profit to retained earnings 0 0 0 0 0 0 0 0 0 265,490 -265,490 0 0 0 Repurchase of treasury shares 0 -15,262 0 0 0 0 0 0 0 0 0 -15,262 0 -15,262 Formation of reserves for treasury shares 0 0 15,262 0 0 0 0 0 0 0 -15,262 0 0 0 Dividends paid 0 0 0 0 0 0 0 0 0 -155,896 0 -155,896 0 -155,896 Acquisition of non-controlling interests 0 0 0 0 0 0 0 0 0 0 0 5,200 5,200 Total transactions with owners, recognised in equity 0 -15,262 15,262 0 0 0 0 0 90,812 18,782 -280,752 -171,158 5,200 -165,958 At 31 Dec 2021 54,732 -114,541 114,541 105,897 14,990 30,000 -22,077 -98,274 1,370,902 155,083 293,952 1,905,205 13,880 1,919,085 The accompanying Notes are an integral part of the consolidated financial statements and should be read in conjunction with them. 2021 Annual Report – Financial Report of the Krka Group 190 € thousand Share capital Treasury shares Reserves Retained earnings Total equity holders of the controlling company Non- controlling interests Total equity Reserves for treasury shares Share premium Legal reserves Statutory reserves Fair value reserve Translation reserve Other profit reserves Retained earnings Profit for the year At 1 Jan 2020 54,732 -73,774 73,774 105,897 14,990 30,000 -26,925 -67,865 1,211,292 118,350 223,847 1,664,318 3,198 1,667,516 Net profit 0 0 0 0 0 0 0 0 0 0 290,995 290,995 -2,046 288,949 Total other comprehensive income of the year (net of tax) 0 0 0 0 0 0 -8,134 -43,647 0 -1,525 0 -53,306 -79 -53,385 Total comprehensive income of the year (net of tax) 0 0 0 0 0 0 -8,134 -43,647 0 -1,525 290,995 237,689 -2,125 235,564 Transactions with owners, recognised in equity Formation of other profit reserves under the resolution of the AGM 0 0 0 0 0 0 0 0 68,798 -68,798 0 0 0 0 Transfer of previous period's profits to retained earnings 0 0 0 0 0 0 0 0 0 223,847 -223,847 0 0 0 Repurchase of treasury shares 0 -25,505 0 0 0 0 0 0 0 0 0 -25,505 0 -25,505 Formation of reserves for treasury shares 0 0 25,505 0 0 0 0 0 0 0 -25,505 0 0 0 Acquisition of a stake in Farma GRS 0 0 0 0 0 0 0 0 0 105 0 105 -109 -4 Dividends paid 0 0 0 0 0 0 0 0 0 -133,274 0 -133,274 0 -133,274 Acquisition of non-controlling interests 0 0 0 0 0 0 0 0 0 0 0 0 7,515 7,515 Total transactions with owners, recognised in equity 0 -25,505 25,505 0 0 0 0 0 68,798 21,880 -249,352 -158,674 7,406 -151,268 At 31 Dec 2020 54,732 -99,279 99,279 105,897 14,990 30,000 -35,059 -111,512 1,280,090 138,705 265,490 1,743,333 8,479 1,751,812 The accompanying Notes are an integral part of the consolidated financial statements and should be read in conjunction with them. 2021 Annual Report – Financial Report of the Krka Group 191 Consolidated Statement of Cash Flows € thousand Notes 2021 2020 CASH FLOWS FROM OPERATING ACTIVITIES Net profit 308,150 288,949 Adjustments for: 176,925 135,729 – Amortisation/Depreciation 12, 13 108,837 111,688 – Foreign exchange differences 4,828 -19,263 – Investment income -5,699 -24,076 – Investment expenses 13,199 15,504 – Interest expenses and other financial expenses 1,532 1,975 – Financial income -39 -142 – Income tax 11 54,267 50,043 Operating profit before changes in net current assets 485,075 424,678 Change in trade receivables -83,704 55,699 Change in inventories 17 -2,017 -32,112 Change in trade payables 24 45,164 -33,681 Change in provisions -2,647 1,572 Change in deferred revenue -929 -905 Change in other current liabilities 9,484 -892 Income tax paid -64,329 -53,600 Net cash flow from operating activities 386,097 360,759 CASH FLOWS FROM INVESTING ACTIVITIES Interest received 718 2,144 Dividends received 668 575 Proceeds from sale of property, plant and equipment 3,700 516 Purchase of property, plant and equipment 12 -65,914 -74,806 Purchase of intangible assets 13 -6,213 -6,017 Acquisition of subsidiaries and a share of minority interests net of financial assets acquired 0 -5 Net payments for non-current loans -25,235 -4,558 Net payments for current loans -137,277 -22,857 Net payments for non-current investments -92,114 -554 Net payments for current investments -42,513 -6,801 Net payments for/proceeds from derivatives -8,457 2,769 Net cash flow from investing activities -372,637 -109,594 CASH FLOWS FROM FINANCING ACTIVITY Interest paid -366 -247 Net payments for current borrowings 0 -3 Lease liabilities paid 28 -3,515 -3,086 Dividends and other profit shares paid 29 -155,907 -133,283 Repurchase of treasury shares 29 -15,262 -25,505 Proceeds from payment of non-controlling interests 5,200 7,515 Net cash flow from financing activities -169,850 -154,609 Net decrease/increase in cash and cash equivalents -156,390 96,556 Cash and cash equivalents at beginning of year 313,568 218,667 Effect of foreign exchange rate fluctuations on cash held 2,660 -1,655 Closing balance of cash and cash equivalents 159,838 313,568 The accompanying Notes are an integral part of the consolidated financial statements and should be read in conjunction with them. 2021 Annual Report – Financial Report of the Krka Group 192 Notes to the Consolidated Financial Statements Krka, d. d., Novo mesto is the controlling company in the Krka Group with its registered seat at Šmarješka cesta 6, 8501 Novo mesto, Slovenia. The Company was registered at the District Court of Novo mesto on 13 July 1989, registration No. 1/00097/00. Company registration No.: 5043611000. The consolidated financial statements for the year ended 31 December 2021 refer to the Krka Group consisting of the controlling company and its subsidiaries in Slovenia and abroad. A list of subsidiaries, members of the Group, is included in Note 32 Profile of the Krka Group. The Krka Group is engaged in the development, production, marketing and sale of human health products (prescription pharmaceuticals, non-prescription products), animal health products, and health resorts and tourist services. 1. Basis of preparation Statement of compliance The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (‘IFRS’), and interpretations issued by the International Financial Reporting Interpretations Committee of the IASB (‘IFRIC’) adopted by the European Union, and in compliance with the Companies Act (ZGD-1). The consolidated financial statements were approved by the Krka Management Board on 28 March 2022. Basis of measurement The financial statements have been prepared on the historical cost basis, with the exception of derivatives, financial instruments at fair value through profit or loss and financial instruments at fair value through other comprehensive income (OCI) for which fair value was used. Methods applied in the measurement of fair value are presented in Note 2 Fair Value. Functional and reporting currency The consolidated financial statements are presented in the euro, which is Krka’s functional currency. All financial information presented in the euro has been rounded to the nearest thousand. Use of estimates and judgements The preparation of financial statements requires the Management Board of the controlling company to make judgements, estimates and assumptions that affect the carrying amounts of assets and liabilities of the Krka Group, as well as the reported income and expenses for the period. Management estimates include among others: determination of the useful life and residual value of property, plant and equipment, as well as intangible assets; revenue from contracts with customers, allowances made for inventories and receivables; assumptions material to the actuarial calculation of defined employee benefits; assumptions used in the calculation of provisions for lawsuits, as well as assumptions and estimates relating to impairment of goodwill and TAD Pharma trademark, the assumptions and estimates for the impairment testing of the Terme Krka cash-generating unit, and the estimate of the lease term and the interest rate used. Regardless of the fact that the Management Board of the managing company duly considers all factors that may impact the preparation of these assumptions, the actual consequences of business events may differ from those estimates. In the process of making accounting estimates, management makes judgements while considering potential changes in the business environment, new business events, new and additional information that may be available, as well as experience. Until 31 December 2012, the Krka Group 2021 Annual Report – Financial Report of the Krka Group 193 recognised the TAD Pharma trademark as an item of intangible assets with indefinite useful life, determining its assessed recoverable amount at each reporting date. As from 1 January 2013, the TAD Pharma trademark is recognised as an intangible asset with finite useful life. Krka annually verifies the need for impairment of the trademark and goodwill that arose on the takeover of TAD Pharma. Key estimates and assumptions as at the day of the statement of financial position that are associated with future operations and which could result in significant adjustment of the book values of assets and liabilities are presented below. Information on significant estimates about uncertainty and critical judgements in applying accounting policies that have the most significant effect on the amounts recognised in the financial statements is presented in the following notes:  Note 12 ‘Impairment testing of non-financial assets’ The controlling company checks for each cash generating unit whether there are any indicators of impairment at least once a year. The recoverable amount of non-financial assets determined as the present value of future cash flows is based on an estimate of expected cash flows from the cash generating unit and on determination of the appropriate discount rate.  Note 5 ‘Revenue from contracts with customers’ Revenue from contracts with customers is recognised when control of the goods and services is transferred to the customer at an amount that reflects the consideration to which the Krka Group expects to be entitled in exchange for those goods or services, while considering specific terms and conditions of an individual contract. In assessing variable compensation, the Krka Group specifically addresses returns, while considering specific terms and conditions of an individual contract for the sale of products and services to customers, statutory provisions and business practices in a given environment. When assessing variable compensation, the Krka Group applies either the expected value method or the most likely amount method, whichever better predicts the amount of consideration to which the Krka Group will be entitled. Given the large number of contracts with customers, the Krka Group determined the expected value method as the most appropriate for estimating variable consideration for the sale of products with a right of return. To estimate the variable consideration for expected future volume rebates on the quantity of products purchased, the Krka Group identified a combination of the most likely amount method and the expected value method as the most appropriate. The method that best predicts the amount of variable consideration is primarily driven by the number of volume thresholds contained in the contract, legal provisions and business practices in various environments. The most likely amount method is best suited for contracts with a single-volume threshold, and the expected value method for contracts with more than one volume threshold. Prior to including any variable consideration in the transaction price, the Krka Group assesses whether there is a constraint on variable consideration. Based on past experience, business forecasts, and current economic conditions, the Krka Group has determined that there are no constraints on variable consideration. The Krka Group is a seller of products that may be subject to payment terms in excess of one year in certain markets. Krka recognises financial income and expenses on these sales using the appropriate discount rate.  Note 13 ‘Impairment testing of the TAD Pharma trademark and the associated goodwill’ The criteria used in goodwill impairment testing are verified at least once a year by the controlling entity. Determining the present value of future cash flows requires the controlling company's Management Board to assess estimated future cash flows from each cash-generating unit as well as to determine the appropriate discount rate and other significant assumptions explained in Note. 2021 Annual Report – Financial Report of the Krka Group 194  Note 18 ‘Impairment testing of receivables’ On the financial statement preparation (quarterly and annually), individual companies in the Krka Group recognise allowances (impairment) of those receivables for which it is assumed that will not be settled in full or not at all. Allowances are recognised using uniform methodology applicable to the Krka Group and in consideration of the probability or assessed probability of receivable settlement by the debtors. The methodology includes quantitative and qualitative criteria grouped into the following four sets: an analysis of the existing business dealings with the customer, an analysis of the customer's financial statements, a qualitative assessment of the customer by the sales personnel, and an assessment of the customer's country risk. Hence, allowances of receivables due from individual customer are calculated by means of an algorithm that includes all the above criteria.  Note 22 ‘Post-employment benefits’ Defined post-employment benefit obligations include the present value of termination benefits on retirement. They are recognised on the basis of the actuarial calculation using assumptions and estimates effective at the time of the calculation, and which may, as a result of future changes, differ from actual assumptions applicable at that future time. This applies primarily to determination of a discount rate, assessment of employee turnover, mortality assessment, and assessment of an increase in salaries. Due to the complexity of the actuarial calculation and the long-term nature of the item, defined benefit obligations are sensitive to changes in the above estimates and assessments.  Note 22 ‘Provisions for lawsuits and contingent liabilities’ Lawsuits and claims may be brought against individual companies in the Krka Group for alleged breaches of intellectual property (patent rights or competition law) and those referring to other civil law areas. A provision is recognised when a Group company has present obligations (legal or constructive) as a result of past events, a reliable estimate can be made of the amount of obligation, and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation. Contingent liabilities are not recognised in the financial statements as their actual existence will be confirmed only upon the occurrence or non-occurrence of one or more uncertain future events not entirely within the control of the Group. The Management Board of the controlling company continually assesses contingent liabilities to determine whether an outflow of resources embodying economic benefits has become probable. If this is the case, a provision is recognised in the financial statements of the period in which the change in probability occurs.  Note 25 ‘Current liabilities from contracts with customers’ The Krka Group accrues contractually agreed discounts in its financial statements when, based on the annual sales, individual customers gain the right to discount recognition in the next financial year, i.e. when contractually agreed terms and conditions of discounts are fulfilled. The assessed rate of discount depends on the facts known at the time of the financial statement preparation, past experience in trading with individual customers, and other relevant facts.  Notes 28 ‘Leases’ The controlling company recognises leases based on measurement of lease liabilities and thus its determination of the lease term, its incremental borrowing rate if the implicit interest rate is not readily determinable, and its assessment at contract inception whether a contract is, or contains, a lease. At contract inception, the Krka Group assesses whether a contract is, or contains a lease. That is, if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. 2021 Annual Report – Financial Report of the Krka Group 195 As a lessee, the Krka Group determines the lease term as the period during which the lease cannot be terminated, inclusive of: a) The period for which the option to extend the lease applies if it is reasonably certain that the lessee will exercise that option; and b) The period for which the option to terminate the lease applies if it is reasonably certain that the lessee will not exercise that option. The Group considers all relevant facts, circumstances, and past practices that provide an economic incentive for the Krka Group not to exercise the option of contract extension or termination. The Group reassesses the lease term upon occurrence of any significant event or a material change in the circumstances it controls that affect its decision to exercise the option of contract extension or termination. The Krka Group uses its incremental borrowing rate when the implicit interest rate in the lease cannot be determined. The assessed borrowing rate is based on the estimated bond yield if the Krka Group were to incur debt on the financial markets, depending on the maturity of the contract. 2. Significant accounting policies The Krka Group applied the same accounting policies in all periods presented in the accompanying consolidated financial statements. Accounting policies applied by subsidiaries have been changed where necessary and adjusted with policies applied by the Group. The accounting policies and the calculation methods used are the same as for the last annual reporting, except for the newly adopted standards and interpretations. which are noted below and were applied if relevant events occurred in the Group in the reporting period. New standards and interpretations effective from 1 January 2021 Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 – Interest Rate Benchmark Reform – Phase two The International Accounting Standards Board (IASB) published phase two of the Interest Rate Benchmark Reform, namely the amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16, which concludes its work to respond to the effects of Interbank Offered Rates (IBOR). The amendments introduce a temporary exemption for reporting the financial effects of replacing the interbank offered rates (IBOR) with an alternative nearly risk-free interest rate (RFR). They provide a practical expedient to companies when accounting for modification in the basis for determining the contractual cash flows of a financial asset and liability, where an entity is required to adjust the effective interest rate that is equivalent to the fluctuation of the market interest rates. In addition, they provide entities with certain relief from discontinuing hedge accounting, including a temporary exemption from the requirement of differentiation for hedging relationships in which an alternative interest rate reference has been specified as a non-contractually determined risk component. Amendments to IFRS 7 – Financial Instruments Ammedments require entities to make appropriate disclosures to enable the financial statement users to understand the effect of the interest rate benchmark reform on their financial instruments and risk management strategy. The entity must apply the amendments retrospectively, without restatement of prior period data. The management has assessed the impact of the amendments and believes they had no significant impact on the consolidated financial statements of the Krka Group. Amendments to IFRS 16 Leases – COVID-19-Related Rent Concessions after 30 June 2021 The amendments are effective for annual periods beginning on or after 1 April 2021 and must be applied retrospectively, with early application permitted even in financial statements that were not authorised for issue at the date of the 2021 Annual Report – Financial Report of the Krka Group 196 amendments. In March 2021, the IASB amended the conditions for applying the practical expedient in IFRS 16, which allows a lessee not to treat lease rent adjustments that arise as a direct result of the COVID-19 pandemic under the guidance in the standard IFRS 16. An entity may obtain practical expedient relief from the treatment of a rent concession where the individual rent reduction affects only payments that would have been originally due on or before 30 June 2022, and provided that all the conditions for applying the practical expedient are met. The Krka Group applied the amendments on 1 June 2020. The management has assessed the impact of the amendments and believes they had no significant impact on the consolidated financial statements of the Krka Group. Basis for consolidation Subsidiaries Subsidiaries are entities controlled by the controlling company. Control exists when the controlling company has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting rights that are currently exercisable or exchangeable are taken into account. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. To account for a merger of a subsidiary controlled by the controlling company, the difference between the investment and the net value of the merged assets is recognised in the controlling company's separate financial statements within the same capital category as was recognised in the Group's consolidated financial statements prior to the merger. Transactions eliminated on consolidation Intragroup balances and transactions, and any unrealised gains and losses arising from intragroup transactions, are eliminated in preparing the consolidated financial statements of the Krka Group. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment. Changes within the Group Farma GRS, d. o. o., was established as a partnership between companies operating in the pharmaceutical and pharmaceutical-processing activities. It was involved in developing new pharmaceutical products, new technological products for pharmaceutical production and contributed to a more energy-efficient, environmentally friendly and enhanced business efficiency of pharmaceutical production. Pursuant to the agreement on the purchase of business stakes, in February 2020 controlling company Krka, d. d., Novo mesto acquired a 100% stake in Farma GRS, d. o. o. In October 2020, Farma GRS, d. o. o. merged with the Company, with 30 June 2020 as the effective date of the merger. The merger of Farma GRS, d. o. o. did not have any impact on the financial statements of the Krka Group since the controlling company, Krka, d. d., Novo mesto was its sole owner. The difference between the net value of the merged assets of €38,183,327 and the investment of €1,004,410 was recognised in the controlling company's separate financial statements within the same capital category as in the Group's consolidated financial statements prior to the merger. Consequently, on 2 October 2020, Farma GRS, d. o. o. was removed from the court register. The key reason for the merger of the acquiree with the acquirer is in addition to the rationalisation of processes, the simplification of operations and business processes. More detailed presentation of the effects of the merger are disclosed in Notes to the separate financial statements of the controlling company Krka for the previous year. Foreign currencies Foreign currency transactions Transactions and balances in foreign currencies are translated to the respective functional currencies of Krka Group entities at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are translated to the functional currency at the prevailing exchange rate at that date. Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are translated to the functional currency at the exchange rate at the date when the fair value was determined. Foreign currency differences are recognised 2021 Annual Report – Financial Report of the Krka Group 197 in profit or loss, except for differences arising on the translation of equity instruments, which are recognised directly in other comprehensive income. Non-cash items measured at historical cost in foreign currency are translated to the functional currency by applying the exchange rate valid at the date of the transaction. Financial statements of foreign operations The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on consolidation, are translated to the euro at exchange rates prevailing at the reporting date. The income and expenses of foreign operations are translated to the euro at the average annual exchange rate, which in view of transaction dynamics is closest to the exchange rate ruling at the date of the transaction. Foreign exchange differences arising on translation are recognised directly in other comprehensive income as a translation reserve. When a foreign operation is disposed of, in part or in full, the relevant amount in the translation reserve is transferred to profit or loss. Operating profit Operating profit comprises profit before tax and financial items. Financial items include interest on bank balances, deposits, investments held for sale, interest paid on borrowings, profit or loss from the sale of financial assets at fair value through other comprehensive income, and foreign exchange gains or losses from the translation of all monetary assets and liabilities to foreign currency. Fair value A number of the Krka Group's accounting policies and disclosures require the determination of fair value for both, financial and non-financial assets and liabilities. Fair value is the amount for which an asset could be sold or a liability exchanged in a regular transaction between market participants. All assets and liabilities measured and disclosed at their fair value in financial statements are classified in the fair value hierarchy on the basis of lowest level of input data significant for measurements of total fair value: • Level 1 – market value (unadjusted) from the active market for similar assets and liabilities; • Level 2 – valuation model, which is not classified in level 1, is valued directly or indirectly on the basis of comparable market data; • Level 3 – valuation model which is not based on the market data. Fair values have been determined for measurement and/or disclosure purposes based on the methods presented below. Where applicable, further information about the assumptions made in determining fair values is disclosed in the Notes specific to that asset or liability of the Krka Group. Investments in equity and debt securities The fair value of financial assets at fair value through profit or loss and at fair value through OCI is determined by reference to their quoted closing bid price. For investment in debt securities at amortised cost, for reporting purposes the fair value is calculated on the basis of the closing rate, which is increased by accrued interest on the reporting date. Trade and other receivables Fair value of trade and other receivables is estimated at the present value of future cash flows discounted at the market rate of interest effective at the reporting date. Financial liabilities Fair value is determined based on the present value of future principal and interest payments discounted at the market rate of interest prevailing at the reporting date. 2021 Annual Report – Financial Report of the Krka Group 198 Financial instruments A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity. Financial assets Financial assets of the Krka Group include cash and cash equivalents, receivables and loans and investments. Initial recognition and measurement Financial assets are classified, at initial recognition, as subsequently measured at amortised cost, fair value through other comprehensive income (OCI), and fair value through profit or loss. The classification of financial assets at initial recognition depends on the financial assets’ contractual cash flow characteristics and the Group's business model for managing them. With the exception of trade receivables that do not contain a significant financing component or for which the Group has applied the practical expedient, the Group initially measures a financial asset at fair value plus, in the case of a financial asset not at fair value through profit or loss, transaction costs. Trade receivables that do not contain a significant financing component or for which the Group has applied the practical expedient are measured at the transaction price determined under IFRS 15. Refer to the accounting policies in section ‘Revenue from contracts with customers’. In order for financial assets to be classified and measured at amortised cost or fair value through OCI, they need to give rise to cash flows that are ‘solely payments of principal and interest (SPPI)’ on the principal amount outstanding. This assessment is referred to as the SPPI test and is performed at an instrument level. The Group's business model for managing financial assets refers to how it manages its financial assets in order to generate cash flows. The business model determines whether cash flows will result from collecting contractual cash flows, selling the financial assets, or both. Purchases or sales of financial assets that require delivery of assets within a time frame established by regulation or convention in the marketplace (regular way trades) are recognised on the trade date, i.e. the date that the Group commits to purchase or sell the asset. The Krka Group derecognises a financial asset when the contractual rights to the cash flows from the asset expire or when it transfers the rights to the contractual cash flows from the financial asset in a transaction that transfers all the risks and rewards of ownership of the financial asset. Subsequent measurement For purposes of subsequent measurement, financial assets are classified into four categories:  Financial assets at amortised cost (debt instruments);  Financial assets at fair value through OCI with recycling of cumulative gains and losses (debt instruments);  Financial assets designated at fair value through OCI with no recycling of cumulative gains and losses upon derecognition (equity instruments);  Financial assets at fair value through profit or loss. Financial assets at amortised cost (debt instruments) Cash and cash equivalents comprise cash, bank deposits up to three months, and other current, highly realisable investments with an original maturity of three months or less. The latter can be easily converted into known amounts of cash and for which the risk of changes in value is insignificant. The cash flows derived from these assets are solely payments of the principal and interest are therefore classified as financial assets at amortised cost. According to the SSPI test, loans issued by the Group are classified as financial assets at amortised cost, since the cash flows derived from these assets are solely payments of principal and interest on the principal amount outstanding. 2021 Annual Report – Financial Report of the Krka Group 199 Krka's investments in debt securities, which include only low credit risk government bonds, are classified as financial assets at amortised cost. The Group's financial assets at amortised cost also include trade receivables. After initial recognition, these investments are measured using the effective interest method and are subject to impairment. Gains and losses are recognised in profit or loss when the asset is derecognised, modified or impaired. Financial assets at fair value through OCI (debt instruments) The Krka Group classifies its investments in debt securities as financial assets at fair value through OCI. Subsequent to initial recognition, they are measured at fair value. Interest income, foreign exchange differences, and impairment losses or reversals are recognised in the statement of profit or loss and computed in the same manner as for financial assets measured at amortised cost. The remaining fair value changes are recognised in OCI. Upon derecognition, the cumulative fair value change recognised in OCI is recycled to profit or loss. Financial assets at fair value through OCI (equity instruments) The Krka Group classifies its investments in equity securities as financial assets at fair value through OCI. The Company elected to classify irrevocably its listed and non-listed investments in this category. Subsequent to initial recognition, they are measured at fair value. Changes in fair value are recognised directly in other comprehensive income. When an investment is derecognised, the cumulative gain or loss in equity is not transferred to profit or loss. Financial assets at fair value through profit or loss Financial assets at fair value through profit or loss include financial assets held for trading, financial assets designated upon initial recognition at fair value through profit or loss, or financial assets mandatorily required to be measured at fair value. Financial assets are classified as held for trading if they are acquired for the purpose of selling or repurchasing in the near term. Derivatives, including separated embedded derivatives, are also classified as held for trading unless they are designated as effective hedging instruments. Financial assets with cash flows that are not solely payments of principal and interest are classified and measured at fair value through profit or loss, irrespective of the business model. Financial assets at fair value through profit or loss are carried in the statement of financial position at fair value with net changes in fair value recognised in the statement of profit or loss. Impairment of financial assets is described in the Impairment – financial assets section. Financial liabilities Financial liabilities consist mainly of loans, payables to suppliers and other liabilities. Lease liabilities and employee benefits are treated separately (see accounting policies in the Leases and Employee Benefits sections). All other financial liabilities are initially recognised on the trade date or when the Krka Group becomes a contracting party in relation to the instrument. On initial recognition, the Krka Group classifies non-derivative financial liabilities as subsequently measured at amortised cost and derivative financial liabilities as at fair value through profit or loss. After initial recognition, financial liabilities arising from loans are measured using the effective interest method. Gains and losses are recognised in profit or loss when these liabilities are discharged or modified. The Krka Group derecognises a financial liability if the obligations set out in the contract are fulfilled, cancelled or expired. Property, plant and equipment The items of property, plant and equipment are measured at cost less accumulated depreciation and impairment losses (refer to the accounting policy ‘Impairment’). 2021 Annual Report – Financial Report of the Krka Group 200 Cost includes expenditures that are directly attributable to the acquisition of the asset. The cost of self-constructed assets includes the cost of materials and direct labour, any other directly attributable cost of making the asset ready for its intended use, and (if applicable) costs of dismantling and removing the items and restoring the site on which they are located, as well as capitalised borrowing costs. Purchased software that is integral to the functionality of the related equipment is capitalised as part of that equipment. When parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items of property, plant and equipment. Gains and losses on disposal of an item of property, plant and equipment are determined as the difference between proceeds from disposal and the carrying amount of property, plant and equipment and are recognised within ‘Other operating income’ or ‘Other operating expenses’ in profit or loss. As of 1 January 2009, costs of borrowings that may be directly attributable to the acquisition, construction or production of an asset under construction, are also part of the cost of an item of property, plant and equipment of the Krka Group. If borrowings raised are not earmarked and they cannot be attributed directly to the acquisition of an asset under construction, the pro-rata amount of costs is capitalised only when borrowing costs exceed 10% of the value of all investments of the accounting period. The pro-rata amount of costs is calculated using the capitalisation rate as the weighted average costs of borrowings that have not been settled in the accounting period. The pro-rata amount of costs increases the cost of significant assets under construction, i.e. assets that account for more than 10% of total investments in the period and the construction of which extends over a period of more than 6 months. Subsequent expenditure The cost of replacing part of an item of property, plant and equipment is recognised in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to the Krka Group and its cost can be measured reliably. The carrying amount of the replaced part is derecognised. All other costs are recognised in profit or loss as an expense when incurred. Depreciation Depreciation is recognised in profit or loss on a straight-line basis over the estimated useful lives of each item of property, plant and equipment or its individual parts. Land and assets being acquired are not depreciated. The estimated useful lives are as follows:  For buildings 15 to 60 years,  For plant and equipment 2 to 20 years,  For furniture 5 years,  For computer hardware 4 to 6 years, and  For means of transportation 5 to 15 years. Leases At contract inception, the Krka Group assesses whether a contract is, or contains a lease. That is, if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. The Krka Group determines the lease term as the period during which the lease cannot be terminated, inclusive of: a) The period for which the option to extend the lease applies if it is reasonably certain that the lessee will exercise that option; and b) The period for which the option to terminate the lease applies if it is reasonably certain that the lessee will not exercise that option. The Krka Group as a lessee The Krka Group applied a single measurement and recognition approach for all leases, except for current leases and leases of low-value assets. In respect of those, the Krka Group applies a practical expedient of the standard and recognises 2021 Annual Report – Financial Report of the Krka Group 201 lease liabilities as expenses on a straight-line basis over the lease term. The practical expedient applies to leases with a lease term of less than 1 year and leases of assets valued at less than €5,000. The Group recognises right-of-use assets and lease liabilities at the commencement date of the lease (i.e. the date the underlying asset is available for use). Right-of-use assets Right-of-use assets are measured at cost less any accumulated depreciation and impairment losses and adjusted for any remeasurement of lease liabilities. The cost of right-of-use assets includes the amount of lease liabilities recognised, initial direct costs incurred, and lease payments made at or before the commencement date less any lease incentives received, as well as an assessment of costs that will be incurred in dismantling or removing the leased asset, restoring the site to its original condition, or returning the asset to a condition as required in the lease terms. The right-of-use assets are depreciated on a straight-line basis over the shorter of the estimated lease term or the estimated useful lives of the assets. Lease liabilities At the commencement date of the lease, the Krka Group recognises lease liabilities measured at the present value of lease payments to be made over the lease term. The lease payments include fixed payments (including in-substance fixed payments) less any lease incentives receivable, variable lease payments that depend on an index or a rate, and amounts expected to be paid by the Krka Group under residual value guarantees. The lease payments also include the exercise price of a purchase option reasonably certain to be exercised by the Krka Group and payments of penalties for terminating the lease if the lease term reflects the Krka Group exercising the option to terminate. Variable lease payments that do not depend on an index or a rate are recognised in profit or loss as expenses in the period in which the event or condition that triggers the payment occurs. In calculating the present value of lease payments, the Group uses its incremental borrowing rate based on estimated bond returns if it were to incur debt on the financial markets, while considering their maturity if the interest rate implicit in the lease is not readily determinable. After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments made. The carrying amount of lease liabilities is remeasured if there is a modification, a change in the lease term, a change in the lease payments (e.g. changes to future payments resulting from a change in an index or rate used to determine such lease payments) or a change in the assessment of an option to purchase the underlying asset. The Krka Group as a lessor Leases in which the Krka Group does not transfer substantially all the risks and rewards incidental to ownership of an asset are classified as operating leases. Rental income arising is accounted for on a straight-line basis over the lease terms and is included in revenue in the statement of profit or loss. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognised over the lease term on the same basis as rental income. Intangible assets Goodwill Goodwill, which arose on the acquisition of the subsidiary, represents the excess of the cost of the acquisition over the Krka Group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities of the acquiree. Goodwill is measured at cost less accumulated impairment losses. 2021 Annual Report – Financial Report of the Krka Group 202 Trademark Until 31 December 2012, the Krka Group recognised the TAD Pharma trademark as an item of intangible assets with indefinite useful life, determining its assessed recoverable amount at each reporting date. As from 1 January 2013, the TAD Pharma trademark is recognised as an intangible asset with finite useful life of 50 years. Krka annually verifies the need for impairment of the trademark and goodwill that arose on the acquisition of TAD Pharma. Research and development All costs referring to the research and development work within the Krka Group are recognised in profit or loss as incurred. Other intangible assets Other intangible assets that are acquired by the Group, which have finite useful lives, are measured at cost less accumulated amortisation and accumulated impairment losses (refer to the accounting policy ‘Impairment’). Subsequent expenditure Subsequent expenditure is capitalised only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure, including expenditure on internally generated goodwill and trademarks, is recognised in profit or loss as incurred. Amortisation Amortisation is recognised on a straight-line basis over the estimated useful lives of intangible assets (except of goodwill) from the date that they are available for use. The estimated useful lives of software, licences and other rights range from 2 to 10 years, and 50 years for TAD Pharma trademark. Inventories In the statement of financial position, inventories are measured at the lower of cost and net realisable value. Net realisable value is the estimated selling price at the reporting date less selling expenses and other potential administrative expenses, which are usually associated with the sale. The Krka Group reviews the net realisable value of inventories once a year at the financial position date. If the carrying amount of inventories exceeds their net realisable value, inventories are impaired. An inventory unit of raw materials and materials, auxiliary and packaging materials is valued at cost including all direct costs of purchase. Inventories of material are carried at moving average prices. Inventories of finished products and work in progress are carried at standard cost, which in addition to direct cost of material includes also cost of production, such as: direct labour cost, direct cost of depreciation, direct cost of services, energy, maintenance, and quality management. Fixed price variances are determined in accordance with the current valuation of inventories using production costs. A quantity unit of merchandise is valued at cost including cost of purchase, import duties, and all costs directly attributable to the acquisition decreased by discounts. Inventories of merchandise are carried at moving average prices. Impairments Financial assets The Group recognises an allowance for the expected credit losses (ECLs) for all debt instruments not held at fair value through profit or loss. ECLs are based on the difference between the contractual cash flows due in accordance with the contract and all the cash flows that the Group expects to receive, discounted at an approximation of the original effective interest rate. The expected cash flows will include cash flows from the sale of collateral held or other credit enhancements that are integral to the contractual terms. Expected credit losses are recognised in two stages. For credit exposures for which there has not been a significant increase in credit risk since initial recognition, ECLs are provided for credit losses that result from default events that are possible within the next 12 months (a 12-month ECL). For those credit exposures for which there has been a significant 2021 Annual Report – Financial Report of the Krka Group 203 increase in credit risk since the initial recognition, a loss allowance is required for credit losses expected over the remaining life of the exposure, irrespective of the timing of the default (a lifetime ECL). Impairments of receivables and assets from contracts For trade receivables and contract assets, the Group applies a simplified approach in calculating ECLs. Trade receivables that do not contain a significant financing component or for which the Krka Group has applied the practical expedient (contracts agreed for a period of one year or less) are measured at the transaction price determined under IFRS 15 less any impairment losses. Therefore, the Group does not track changes in credit risk, but instead recognises a loss allowance based on a lifetime ECL at each reporting date. The Group has established a provision matrix that is based on its historical credit loss experience, adjusted for forward-looking factors specific to the debtors and the economic environment. Allowances are recognised using uniform methodology applicable to the Krka Group and in consideration of the probability or assessed probability of receivable settlement by the debtors. Impairment of investments For investments that include government bonds measured at amortised cost, the Group measures expected credit losses annually. If there has been a significant increase in credit risk since recognition, the Group recognises an allowance over the life of the expected credit loss. Non-financial assets The carrying amounts of the Group’s non-financial assets are reassessed at each reporting date to determine whether there is any indication of impairment. If such indications exist, the asset’s recoverable amount is assessed. An impairment loss is recognised if the carrying amount of an asset or its cash-generating unit exceeds its estimated recoverable amount. Impairment loss is recognised in profit or loss. Impairment losses recognised in respect of cash- generating units are allocated first to reduce the carrying amount of any goodwill allocated to the units and then to reduce the carrying amount of the other assets in the unit (group of units) on a pro-rata basis of the asset’s carrying amount. The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For the purpose of impairment testing, assets are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets. For the purpose of impairment testing, the goodwill acquired in a business combination is allocated to cash-generating units that are expected to benefit from the synergies of the combination. An impairment loss in respect of goodwill is not reversed. In respect of other assets, impairment losses recognised in previous periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount of the asset. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised in the previous periods. Share capital Repurchase of treasury shares When treasury shares recognised as a part of share equity are repurchased, the amount of the consideration paid, including directly attributable costs, is recognised as a deduction from equity. Repurchased shares are classified as treasury shares and are presented as a deduction from total equity. 2021 Annual Report – Financial Report of the Krka Group 204 Dividends Dividends are recognised in the Krka Group’s consolidated financial statements in the period in which they are declared by the Annual General Meeting. Current employee benefits Current employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided. Non-current employee benefits Provisions for post-employment benefits and other non-current employee benefits Pursuant to the local legislation of countries where the controlling company and subsidiaries are located, the Krka Group is liable to pay to its employees’ anniversary bonuses and termination benefits upon retirement. Provisions are set aside for these obligations. Provisions are determined by discounting, at the reporting date, the estimated future benefits in respect of retirement benefits and anniversary bonuses paid to employees in those countries where this legal obligation exists. The obligation is calculated by estimating the costs of retirement benefits upon retirement and the costs of all expected anniversary bonuses until retirement. The calculation is performed using the projected unit credit method. Employee benefit costs, as well as cost of interest, are recognised in profit or loss, whereas restatement of post-employment benefits or unrealised actuarial profit or loss is recognised in other comprehensive income. Provisions A provision is recognised if, as a result of a past event, the Group has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions for disputes The Group discloses provisions for lawsuits referring to alleged patent infringements. The eligibility of provisions formed in terms of a favourable or unfavourable outcome of the lawsuit is assessed on an annual basis. The amounts of provisions are defined on the basis of the noted amount of the indemnification claim, or on the basis of anticipated potential amount, if the indemnification claim is not yet disclosed. Revenue from contracts with customers The Krka Group is engaged in the development, production, marketing and sale of human health products (prescription pharmaceuticals, non-prescription products), animal health products, and health resorts and tourist services. Revenue from contracts with customers is recognised when control of the goods and services is transferred to the customer at an amount that reflects the consideration to which the Group expects to be entitled in exchange for those goods or services while considering specific terms and conditions of an individual contract. Transfer of control over those goods and services depends on terms and conditions of the contract. In general, control is transferred when goods are accepted by the customer or services are rendered. The normal credit term ranges from 30 to 120 days. The Group considers whether there are other promises in the contract that are separate performance obligations to which a portion of the transaction price needs to be allocated. In determining the transaction price for the sale of products, the Group considers the effects of variable consideration and the existence of significant financing components. 2021 Annual Report – Financial Report of the Krka Group 205 Variable consideration If the consideration in a contract includes a variable amount, the Group estimates the amount of consideration to which it will be entitled in exchange for transferring the goods or services to the customer. The variable consideration is estimated at contract inception and constrained until it is highly probable that a significant revenue reversal in the amount of cumulative revenue recognised will not occur when the associated uncertainty with the variable consideration is subsequently resolved. Some contracts for the sale of products provide customers with a right of return, bonuses, and volume rebates. The rights of return, bonuses, and volume rebates give rise to variable consideration. Rights of return Certain contracts provide a customer with a right to return goods that are past the expiry date. The Group uses the expected value method to estimate the goods that will not be returned because this method best predicts the amount of variable consideration to which the Group will be entitled. The requirements of IFRS 15 on constraining estimates of variable consideration are also applied in order to determine the amount of variable consideration that can be included in the transaction price. For the goods expected to be returned instead of revenue, the Group recognises a refund liability. A right-of-return asset (and corresponding adjustment to cost of products sold) is also recognised for the right to recover products from a customer. Bonuses and volume rebates The Group provides retrospective bonuses and volume rebates to certain customers once the quantity or value of products or services purchased during the period exceeds a threshold specified in the contract. Rebates are offset against amounts payable by the customer. To estimate the variable consideration for the expected future rebates, the Group considers the terms and conditions of the contract, including criteria and elements that provide the basis for the recognition of bonuses and volume rebates. For valuation, Krka Group uses the most probable value method or the expected value method. The method chosen, which best predicts the value of the rebates and volume discounts, is based on the number of thresholds in the contract. In addition to discounts available to end customers, the Krka Group also grants discounts for public procurement to countries, ministries, or insurance companies in individual countries, based on the agreed tender conditions or contractual provisions and the actual sales orders realised. Disclosures about the use of estimates and judgements in estimating variable consideration are provided in the Basis of preparation of the financial statements section. Significant financing component In some cases, the Group receives current advances from its customers. Using the practical expedient in IFRS 15.63, the Group does not adjust the promised amount of consideration for the effects of a significant financing component if it expects, at contract inception, that the period between the transfer of the promised goods or services to the customer and when the customer pays for those goods or services will be one year or less. Contract balances Contract assets A contract asset is the right to an amount of consideration in exchange for goods or services transferred to the customer. If the Group transfers goods or services to a customer before the customer pays consideration or payment is due, a contract asset is recognised for the earned consideration that is conditional. Once the transaction is completed and the customer is confirmed, the contract assets are reclassified as trade receivables. Trade receivables A receivable represents the Group's right to an amount of consideration that is unconditional, i.e. only the passage of time is required before payment of consideration is due. Refer to the accounting policy ‘Recognition of financial instruments’. 2021 Annual Report – Financial Report of the Krka Group 206 Contract liabilities A contract liability is the obligation to transfer goods or services to a customer for which the Group has received consideration (or an amount of consideration is due) from the customer. If a customer pays consideration before the goods or services are transferred to the customer, a contract liability is recognised when the payment is made, or the payment is due (whichever is earlier). Contract liabilities are recognised as revenue when the Group performs under the contract. Right-of-return assets Right-of-return assets represent the Group's right to recover the goods expected to be returned by customers. The asset is measured at the former carrying amount of the inventory, less any expected costs to recover the goods, including any potential decreases in the value of returned goods. The Group regularly updates the measurement of the asset recorded for any revisions to its expected level of returns, as well as any additional decreases in the value of the returned products. Refund liabilities A refund liability is the obligation to refund some or all of the consideration received (or receivable from the customer). The refund liability arises from bonuses and volume discounts. It is measured at the amount the Group ultimately expects it will have to return to the customer. The Group updates its estimates of refund liabilities (and the corresponding change in the transaction price) at the end of each reporting period. Refer to above accounting policy on variable consideration. Government grants Revenue from government grants is initially recognised when there is reasonable assurance that the grant will be received and that the Group will comply with the attached conditions. Revenue that compensates the expenses incurred is recognised in profit or loss on a systematic basis in the same periods in which the costs are recognised. Revenue that compensates an entity for the cost of an asset is recognised in profit or loss on a systematic basis over the useful life of the asset. Financial income and expenses Financial income comprises interest income on funds invested, dividend income, gains on the disposal of financial assets, changes in the fair value of financial assets at fair value through profit or loss, foreign exchange gains and gains on hedging instruments that are recognised in profit or loss. Interest income is recognised as it accrues in profit or loss, using the effective interest method. Dividend income is recognised on the date that the shareholder's right to receive payment is established, which in the case of quoted securities is the ex-dividend date. Financial expenses comprise interest expense on borrowings, foreign exchange losses, changes in the fair value of financial assets at fair value through profit or loss, impairment losses recognised on financial assets, and losses on hedging instruments that are recognised in profit or loss. All borrowing costs are recognised in profit or loss using the effective interest method, except those that are attributable to property, plant and equipment under construction. Income tax Income tax expense comprises current and deferred tax. Income tax expense is recognised in profit or loss except to the extent that it relates to items recognised directly in other comprehensive income. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted at the reporting date, and any adjustment to tax payable in respect of previous financial years. 2021 Annual Report – Financial Report of the Krka Group 207 Deferred tax is recognised using the balance sheet liability approach providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognised for the following temporary differences: the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit, and differences relating to investments in subsidiaries and jointly controlled entities to the extent that it is probable that they will not reverse in the foreseeable future. Also, deferred tax is not recognised for taxable temporary differences arising on the initial recognition of goodwill. The amount of deferred tax is based on the expected manner of settling the carrying amount of assets and liabilities using tax rates enacted at the reporting date. Deferred tax assets are offset against deferred tax liabilities when an entity has a legal right to offset current assets and liabilities, and deferred tax assets and liabilities relate to the same taxable entity and the same tax authority. A deferred tax asset is recognised to the extent that it is probable that future taxable profits will be available against which the deferred tax asset can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realised. Earnings per share The Krka Group presents basic earnings per share (EPS) data. EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding during the period. Diluted EPS equals the basic EPS, as all shares of the Krka Group belong to the same class of ordinary no-par value shares. Segment reporting An operating segment is a distinguishable component of the Group that is engaged in providing products or services within a particular geographically defined economic environment. Segments are different in terms of risks and returns. The Krka Group's segment reporting is based on the Group's internal reporting system applied by the controlling company's management in the decision-making process. The segments include: the EU (all countries of the European Union), South-Eastern Europe (Serbia, Bosnia and Herzegovina, North Macedonia, Montenegro, Kosovo, and Albania), Eastern Europe (Russian Federation and other former Soviet Union countries excluding the Baltic countries), as well as Other (countries not included in any of the above segments). Revenues generated by individual segments of the Krka Group are presented in terms of customers’ geographical location. The data are calculated on the basis of revenue and expenses, assets and liabilities directly attributable to each Krka Group market. Eliminations relate to transactions between the controlling company and subsidiaries and to transactions between subsidiaries themselves. Segment capital expenditure is the total cost incurred during the period to acquire property, plant and equipment, and intangible assets. Amendments to standards and interpretations issued but not yet effective The following new and amended standards have not come into effect by the date of the financial statements and will be applied in future periods. The Krka Group will apply the new and revised standards and interpretations when they become effective. The Krka Group did not apply any amended standards or interpretations prior to their effective date. Amendments to IFRS 10 – Consolidated Financial Statements and IAS 28 – Investments in Associates and Joint Ventures: Sale or Contribution of Assets between an Investor and its Associate or Joint Venture The amendments address an acknowledged inconsistency between the requirements in IFRS 10 and those in IAS 28, in dealing with the sale or contribution of assets between an investor and its associate or joint venture. The main 2021 Annual Report – Financial Report of the Krka Group 208 consequence of the amendments is that a full gain or loss is recognised when a transaction involves a business (whether it is housed in a subsidiary or not). A partial gain or loss is recognised by an entity when a transaction involves assets that do not constitute the entity’s business, even if these assets are housed in a subsidiary. In December 2015, the IASB postponed the effective date of this standard indefinitely pending the outcome of its research project on the equity method of accounting. The amendments have so far not been endorsed by the EU. The management has assessed the impact of the amendments and believes they will have no significant impact on the consolidated financial statements of the Krka Group. Amendments to IAS 1 – Presentation of Financial Statements: Classification of Liabilities as Current or Non-Current The amendments were initially effective for annual periods beginning on or after 1 January 2022. Early adoption was permitted. In response to the COVID-19 pandemic, the IASB has deferred the effective date by one year, i.e. by 1 January 2023, to provide companies with more time to implement any changes to the classification of liabilities resulting from the amendments. The amendments help promoting consistency in applying the requirements by helping entities determine whether, in the statement of financial position, debt and other liabilities with an uncertain settlement date should be classified as current or non-current. The amendments affect the presentation of liabilities in the statement of financial position; however, they do not change existing requirements around measurement or timing of recognition of any asset, liability, income or expenses, nor the information that entities disclose about those items. Also, the amendments clarify the classification requirements for debt which may be settled by an entity issuing own equity instruments. In November 2021, the IASB published an Exposure Draft (ED) that clarifies how an entity treats liabilities that are subject to commitments that are due to be fulfilled at a date after the reporting period. In particular, the Board proposes a limited scope of amendments to IAS 1 that effectively repeal the 2020 amendments that require an entity to classify the liabilities to which the commitments are linked as current liabilities that it is not required to meet until within the next twelve months after the reporting period if it is not meeting them at the end of the reporting period. Instead, the proposed amendments require an entity to present separately and make additional disclosures about any non-current liabilities, to which the commitments are linked that it is not required to meet until within the next twelve months after the reporting period if it is not meeting them at the end of the reporting period. The proposed amendments are effective for annual periods beginning on or after 1 January 2024 and, in accordance with the requirements of IAS 8, an entity shall apply them retrospectively. Early adoption is permitted. At the same time, the Management Board has proposed to postpone the entry into force of the amendments from 2020, which means that companies do not need to change their existing practices before the proposed amendments enter into force. The EU has not yet endorsed the updates to the standard and the drafts for public consultation. The management has assessed the impact of the amendments and believes they will have no significant impact on the consolidated financial statements of the Krka Group. Amendments to IFRS 3 – Business Combinations, IAS 16 – Property, Plant and Equipment, IAS 37 – Provisions, Contingent Liabilities and Contingent Assets, as well as Annual Improvements 2018–2020 The amendments are effective for annual periods beginning on or after 1 January 2022. Early adoption is permitted. The IASB has issued narrow-scope amendments to the IFRS standards as follows:  IFRS 3 Business Combinations (Amendments), updated reference to IFRS 3, Conceptual Framework for Financial Reporting without changing the accounting requirements for business combinations.  IAS 16 Property, Plant and Equipment (Amendments) prohibit a company from deducting from the cost of property, plant and equipment amounts received from selling items produced while the company is preparing the asset for its intended use. Instead, a company will recognise such sales proceeds and related cost in profit or loss.  IAS 37 Provisions, Contingent Liabilities and Contingent Assets (Amendments) specify which costs a company includes in determining the cost of fulfilling a contract for the purpose of assessing whether a contract is onerous.  Annual Improvements 2018–2020 make minor amendments to IFRS 1 First-time Adoption of International Financial Reporting Standards, IFRS 9 Financial Instruments, IAS 41 Agriculture and the Illustrative Examples accompanying IFRS 16 – Leases. 2021 Annual Report – Financial Report of the Krka Group 209 The management has assessed the impact of the amendments and believes they will have no significant impact on the consolidated financial statements of the Krka Group. Amendments to IAS 1 – Presentation of Financial Statements and Note 2 to IFRS – Disclosure of Accounting Policies The amendments are effective for annual periods beginning on or after 1 January 2023. Early adoption is permitted. The amendments provide guidance for assessing materiality in the disclosure of accounting policies and replace the requirement to disclose “significant” accounting policies with a requirement to disclose “material” accounting policies. At the same time, the Note provides guidance and illustrative examples to assist in applying the concept of materiality in assessing disclosures about accounting policies. The amendment has so far not been endorsed by the EU. The management has assessed the impact of the amendments and believes they will have no significant impact on the consolidated financial statements of the Krka Group. Amendments to IAS 8 – Accounting Policies, Changes in Accounting Estimates and Errors Definition of accounting estimates The amendments are effective for annual periods beginning on or after 1 January 2023. Early adoption is permitted. They address changes in accounting policies and accounting estimates at the beginning of the period or subsequently and define accounting estimates as monetary amounts in the financial statements that have measurement uncertainty associated with them. They also explain what changes in accounting estimates are and how they differ from changes in accounting policies and corrections of errors. The amendment has so far not been endorsed by the EU. The management has assessed the impact of the amendments and believes they will have no significant impact on the consolidated financial statements of the Krka Group. Amendments to IAS 12 – Income Taxes: Deferred Tax related to Assets and Liabilities from a single transaction The amendments are effective for annual periods beginning on or after 1 January 2023. Early adoption is permitted. In May 2021, the IASB issued amendments to IAS 12 to restrict the application of the initial recognition exemption under IAS 12 and to specify how an entity should account for deferred tax on certain transactions, such as leases and decommissioning liabilities. Under the amendments, the exemption does not apply to transactions for which the taxable amount at initial recognition is equal to the amount of deductible temporary differences. The exception applies only if, on recognition of the leased asset and the related liability (or the liability in connection with the decommissioning and decommissioning of a component of the asset), the taxable amount is not equal to the amount of the deductible temporary differences. The amendment has so far not been endorsed by the EU. The management has assessed the impact of the amendments and believes they will have no impact on the consolidated financial statements of the Krka Group. 2021 Annual Report – Financial Report of the Krka Group 210 4. Segment reporting The Krka Group reports in terms of certain geographical segments. Revenues generated by individual segments are presented in terms of customers’ geographical location. The data are calculated on the basis of revenue and expenses, assets and liabilities directly attributable to each Krka Group market. Eliminations relate to transactions between the controlling company and subsidiaries and to transactions between subsidiaries themselves. Segment reporting European Union South-Eastern Europe Eastern Europe Other Eliminations Total € thousand 2021 2020 2021 2020 2021 2020 2021 2020 2021 2020 2021 2020 Revenue from external customers 851,210 866,521 88,481 82,447 547,916 517,348 78,195 68,625 0 0 1,565,802 1,534,941 – Revenue from contracts with customers 848,023 863,524 88,481 82,447 547,781 517,242 77,981 68,461 0 0 1,562,266 1,531,674 – Other revenue 3,187 2,997 0 0 135 106 214 164 0 0 3,536 3,267 Sales between Group companies 204,426 250,981 50,877 47,746 252,938 301,391 5,172 3,879 -513,413 -603,997 0 0 Other operating income 11,005 10,161 46 96 307 238 18 0 0 0 11,376 10,495 Operating costs -713,409 -717,723 -61,607 -55,605 -386,483 -327,483 -60,891 -53,881 0 0 -1,222,390 -1,154,692 Operating expenses to Group companies -344,147 -376,183 -55,573 -51,996 -558,710 -599,288 -17,227 -10,982 975,657 1,038,449 0 0 Operating profit 148,806 158,959 26,920 26,938 161,740 190,103 17,322 14,744 0 0 354,788 390,744 Interest income 249 152 4 0 216 1,926 351 70 0 0 820 2,148 Interest income from Group companies 278 414 -1 -1 2 4 1 7 -280 -424 0 0 Interest expenses -366 -169 -11 -15 -113 -132 -5 -3 0 0 -495 -319 Interest expense to Group companies -264 -308 0 0 0 -8 0 -1 264 317 0 0 Net financial result -1,104 -5,933 -155 -191 5,891 -44,879 2,997 -749 0 0 7,629 -51,752 Income tax -26,730 -20,560 -3,963 -3,182 -21,634 -24,751 -1,940 -1,550 0 0 -54,267 -50,043 Net profit 120,972 132,466 22,802 23,565 145,997 120,473 18,379 12,445 0 0 308,150 288,949 Investments 54,623 67,672 363 131 10,619 6,652 781 2,158 0 0 66,386 76,613 Depreciation of property, plant and equipment 71,657 72,765 2,004 1,982 22,586 24,690 2,442 2,232 0 0 98,689 101,669 Depreciation of the right-of-use assets 2,502 2,116 105 107 600 587 66 120 0 0 3,273 2,930 Amortisation 4,261 4,461 351 322 1,989 2,055 274 251 0 0 6,875 7,089 31 Dec 2021 31 Dec 2020 31 Dec 2021 31 Dec 2020 31 Dec 2021 31 Dec 2020 31 Dec 2021 31 Dec 2020 31 Dec 2021 31 Dec 2020 31 Dec 2021 31 Dec 2020 Total assets 1,957,545 1,743,793 56,344 49,641 484,051 404,474 39,743 37,634 0 0 2,537,683 2,235,542 Goodwill 42,644 42,644 0 0 0 0 0 0 0 0 42,644 42,644 Trademark 34,918 35,788 0 0 0 0 0 0 0 0 34,918 35,788 Total liabilities 405,218 338,453 23,401 15,444 151,208 110,326 38,771 19,507 0 0 618,598 483,730 2021 Annual Report – Financial Report of the Krka Group 211 5. Revenue from contracts with customers Breakdown of revenue from contracts with customers € thousand 2021 2020 Revenue from contracts with customers (products) 1,523,823 1,500,205 Revenue from contracts with customers (health resorts and tourist services) 36,465 29,754 Revenue from contracts with customers (materials) 1,978 1,715 Total revenue from contracts with customers 1,562,266 1,531,674 Revenue from contracts with customers by region € thousand 2021 2020 Slovenia 56,415 55,384 South-East Europe 209,166 199,406 East Europe 547,778 517,231 Central Europe 351,501 341,463 West Europe 305,246 341,057 Overseas Markets 53,717 45,664 Total 1,523,823 1,500,205 Revenue from contracts with customers by product groups € thousand 2021 2020 Prescription pharmaceuticals 1,305,316 1,300,640 Non-prescription products 137,250 123,652 Animal health products 81,257 75,913 Total 1,523,823 1,500,205 All revenues from contracts with customers of health resorts and tourist services are generated in Slovenia. Contract balances Trade receivables are described in Note 18 Trade and other receivables, while liabilities recognised from contracts with customers in Note 25 Current liabilities from contracts with customers. Contract assets are reported in the consolidated statement of financial position. The Group recognised assets from contracts with customers in the amount of €437 thousand (2020: €524 thousand) and liabilities from contracts in the amount of €7,766 thousand (2020: €4,229 thousand). Right-of-return assets and liabilities The Krka Group recognised right-of-return assets within the amount of €777 thousand (€1,120 thousand) and right-of- return liabilities within the amount of €116,965 thousand (2020: €102,071 thousand). Performance obligations The Krka Group is engaged in the development, production, marketing and sale of human health products (prescription pharmaceuticals, non-prescription products), animal health products, and health resorts and tourist services. Revenue from contracts with customers is recognised when control of the goods and services is transferred to the customer at an amount that reflects the consideration to which Krka expects to be entitled in exchange for those goods or services, while considering specific terms and conditions of an individual contract. 2021 Annual Report – Financial Report of the Krka Group 212 Transfers of risks and rewards depend on terms and conditions of an individual contract. Generally, the transfer occurs when the customer accepts the goods in accordance with INCOTERMS 2020 or when the relevant services are performed. Payment terms vary from region to region (distribution channels), while the normal credit term ranges from 30 to 120 days. At the year-end, the Krka Group incurred no costs on acquisition or fulfilment of contracts with customers. 6. Other operating income € thousand 2021 2020 Reversal of non-current provisions 5,116 2,290 Deferred revenue reversal 1,229 1,286 Gains on sale of property, plant and equipment and intangible assets 1,161 959 Other operating income 3,870 5,960 Total other operating income 11,376 10,495 Detailed information on reversal of non-current provisions is included in Note 22 Provisions. Other operating income includes €618 thousand (2021: €2,817 thousand) of State grants aimed at curbing the COVID-19 pandemic. State grants are unconditional and as such are recognised in the 2021 financial statements in the full amount. 7. Costs by nature € thousand 2021 2020 Cost of goods and materials 394,891 370,142 Cost of services 229,106 219,594 Employee benefits 441,476 438,412 Amortisation and depreciation 108,837 111,688 Inventory write-offs and allowances (net) 20,738 23,019 Receivable impairments and write-offs (net) 1,048 -3,206 Formation of provisions for lawsuits 563 50 Other operating expenses 34,716 34,479 Total costs 1,231,375 1,194,178 Change in the value of inventories of finished products and work in progress -8,985 -39,486 Total 1,222,390 1,154,692 8. Employee benefits 78 € thousand 2021 2020 Gross wages and salaries and continued pay 339,342 336,920 Social security contributions 25,003 24,822 Pension insurance contributions 46,601 45,972 Payroll tax 784 847 Post-employment benefits and other non-current employee benefits 7,799 8,285 Other employee benefits 21,947 21,566 Total employee benefits 441,476 438,412 Post-employment benefits and other non-current employee benefits are detailed in Note 22 Provisions. Other employee benefits include primarily vacation bonuses and commuting allowances. 78 GRI GS 201-1 2021 Annual Report – Financial Report of the Krka Group 213 9. Other operating expenses € thousand 2021 2020 Grants and assistance for humanitarian and other purposes 1,548 1,456 Environmental protection expenditures 5,161 5,019 Other taxes and levies 21,264 22,886 Loss on sale and write-offs of property, plant and equipment and intangible assets 2,754 1,503 Other operating expenses 3,989 3,615 Total other operating expenses 34,716 34,479 Other levies include €17,320 thousand of various taxes and levies paid on pharmaceuticals and fees paid to associates in individual foreign countries for pursuing promotional activities (2020: €19,244 thousand). 10. Financial income and expenses € thousand 2021 2020 Net foreign exchange differences 15,145 0 Interest income 820 2,148 Derivatives income 2,968 20,319 – Realised revenue 2,002 17,212 – Fair value change 966 3,107 Income from dividends 691 650 Other financial income 87 142 Total financial income 19,711 23,259 Net foreign exchange differences 0 -58,563 Interest expenses -495 -319 – Interest paid -199 -30 – Interest expenses on lease liabilities -296 -289 Derivatives expenses -10,459 -14,443 – Incurred expenses -10,459 -14,443 Other financial expenses -1,128 -1,686 Total financial expenses -12,082 -75,011 Net financial result 7,629 -51,752 The net financial result in 2021 was better mainly due to a better result of €73,708 thousand in the net foreign exchange result. In 2021, Krka continued its policy of partial hedging against rouble-related risk and the US dollar with financial instruments. The most significant impact was the exchange rate of the rouble (final exchange rate on 31 December 2021 €1 = RUB 85.3004 and on 31 December 2020 €1 = RUB 91.4671). Detailed information on the risk of changes in foreign exchange rates can be found in Note 30 Financial Instruments and Financial Risks and in the chapter Risk Management in the Business Part of the Report. 2021 Annual Report – Financial Report of the Krka Group 214 11. Income tax Adjustment to effective tax rate € thousand 2021 2020 Income tax 53,767 50,421 Deferred tax 500 -378 Total income tax 54,267 50,043 Profit before tax 362,417 338,992 Income tax calculated at the rate of 19% (the same as in 2020) 68,859 64,408 Income tax from increased expenses -1,366 -2,385 Income tax from non-exempt expenses 7,268 4,297 Income tax from tax incentives -16,028 -17,322 Income tax from adjustment of revenue decreasing the tax base -611 -1,365 Income tax from adjustment of revenue increasing the tax base 749 780 Effect of different tax rates 603 480 Other -5,207 1,150 Total income tax 54,267 50,043 Effective tax rate 15.0% 14.8% Investments in R&D and investment relief represent the major share of tax incentives. 12. Property, plant and equipment € thousand 31 Dec 2021 31 Dec 2020 Land 40,645 40,345 Buildings 359,247 376,130 Equipment 313,864 338,059 Property, plant and equipment being acquired 44,090 38,042 Advances for property, plant and equipment 4,743 3,685 Right-of-use assets 11,763 11,563 Total property, plant and equipment 774,352 807,824 In 2021, the most significant investments in the controlling company Krka include the relocation of small series production and the increase of semi-finished products production capacity in Notol 2 in the amount of €7,260 thousand (2020: €7,025 thousand), and the construction of Sinteza 2 in Krško in the amount of €5,351 thousand (2020: €1,247 thousand). A total of €3,606 thousand was spent on various projects in the area of information technology and telecommunications (2020: €4,279 thousand), for relocation and redevelopment projects. €3,470 thousand (€691 thousand in 2020) were earmarked for the reconstruction of RCC 4 and RCC 1 in the Laboratory Control Room, and €2,583 thousand (€4 thousand in 2020) for the reconstruction of RCC 2 and the relocation of equipment to RCC 4. Major investments in subsidiaries included investment in subsidiary Krka-Rus in Russian Federation amounting to €5,690 thousand (2020: €5,068 thousand). An additional €2,152 thousand was invested in subsidiary Terme Krka (2020: €2,001 thousand); €72 thousand was invested in subsidiary Krka-Farma Zagreb (2020: €610 thousand); €25 thousand was invested in subsidiary Krka – Polska (2020: €173 thousand). Most of the right-of-use assets relate to the right-of-use buildings in the amount of €8,487 thousand. 2021 Annual Report – Financial Report of the Krka Group 215 Movements in property, plant and equipment (PP&E) € thousand Land Buildings Equipment PP&E being acquired Advances for PP&E Right-of-use assets Total Cost At 1 Jan 2020 39,796 851,995 1,191,881 43,113 3,082 15,541 2,145,408 Additions 0 0 0 69,718 874 0 70,592 Capitalisation – transfer from PP&E under construction 756 13,881 57,461 -72,098 0 0 0 Capitalisation – IFRS 16 Leases 0 0 0 0 0 3,041 3,041 Disposals, impairment, deficit, surplus 0 -162 -19,116 0 0 -1,452 -20,730 Translation reserve -207 -17,975 -19,715 -2,684 -271 -612 -41,464 Transfers, reclassification 0 289 -330 -7 0 -10 -58 At 31 Dec 2020 40,345 848,028 1,210,181 38,042 3,685 16,508 2,156,789 At 1 Jan 2021 40,345 848,028 1,210,181 38,042 3,685 16,508 2,156,789 Additions 0 0 0 60,166 959 0 61,125 Capitalisation – transfer from PP&E under construction 336 8,165 45,356 -53,857 0 0 0 Capitalisation – IFRS 16 Leases 0 0 0 0 0 3,871 3,871 Disposals, impairment, deficit, surplus -80 -723 -18,310 -907 0 -1,135 -21,155 Translation reserve 44 4,087 5,214 677 99 172 10,293 Transfers, reclassification 0 0 -8 -31 0 0 -39 At 31 Dec 2021 40,645 859,557 1,242,433 44,090 4,743 19,416 2,210,884 Accumulated depreciation At 1 Jan 2020 0 -449,720 -830,138 0 0 -2,702 -1,282,560 Depreciation 0 -27,851 -73,818 0 0 -2,930 -104,599 Disposals, deficit, surplus 0 91 18,479 0 0 515 19,085 Transfers, reclassification 0 3 36 0 0 1 40 Translation reserve 0 5,579 13,319 0 0 171 19,069 At 31 Dec 2020 0 -471,898 -872,122 0 0 -4,945 -1,348,965 At 1 Jan 2021 0 -471,898 -872,122 0 0 -4,945 -1,348,965 Depreciation 0 -27,560 -71,129 0 0 -3,273 -101,962 Disposals, deficit, surplus 0 423 17,835 0 0 641 18,899 Transfers, reclassification 0 0 5 0 0 0 5 Translation reserve 0 -1,275 -3,158 0 0 -76 -4,509 At 31 Dec 2021 0 -500,310 -928,569 0 0 -7,653 -1,436,532 Carrying amount At 1 Jan 2020 39,796 402,275 361,743 43,113 3,082 12,839 862,848 At 31 Dec 2020 40,345 376,130 338,059 38,042 3,685 11,563 807,824 At 1 Jan 2021 40,345 376,130 338,059 38,042 3,685 11,563 807,824 At 31 Dec 2021 40,645 359,247 313,864 44,090 4,743 11,763 774,352 No borrowing costs relate to the items of property, plant and equipment in 2021. The carrying amount of the items of property, plant and equipment, which are temporarily not used amounted to €1,864 thousand as at 31 December 2021 (2020: €1,467 thousand). 2021 Annual Report – Financial Report of the Krka Group 216 Of total property, plant and equipment in use as at 31 December 2021, 38% was fully depreciated (2020 year-end: 35%). The share of fully depreciated property, plant and equipment is calculated in consideration of their cost. Land is excluded from the calculation. All property, plant and equipment is free of encumbrances. The status of known future commitments related to the acquisition of property, plant and equipment is disclosed in Note 27 Contingent Liabilities and Commitments. The movements and lease liabilities recognised in profit or loss are presented in Notes 28 Leases and 30 Financial Instruments and Risk. Impairment test of non-current assets of the Terme Krka cash-generating unit An impairment test of the non-current assets of the Terme Krka cash-generating unit was made as there were signs that the asset may be impaired due to the impact of the COVID-19 pandemic on the economic environment. With the entry into force of the PCT conditions in 2021, the tourism and health resort services are operating normally. A portion of the loss of revenue during the closure of activities was recovered by the Terme Krka, also on account of State measures imposed to overcome the issues facing the economy (tourist vouchers), improved occupancy and higher prices due to a greater number of direct bookings and a drop in bookings made through agencies. Terme Krka's performance in 2021 was successful. The asset's recoverable amount is the greater of the fair value net of selling expenses or value in use. For the purposes of the impairment test, the recoverable amount of the cash-generating unit was determined based on its value in use, i.e. using cash flow projections based on five-year financial plans of the cash-generating unit, under assumption of a gradual normalisation of the circumstances. The discount rate of 7.0%, and the long-term growth rate of net cash flows (g) after the forecast period (after 2026) of 2% were applied in the projection. In the opinion of the management, a reasonable change in the discount rate or growth rate would not result in the asset impairment of the cash-generating unit. Considering the above assumptions, the assessed recoverable amount of the Terme Krka cash-generating unit exceeds its carrying amount and therefore no impairment is required. 13. Intangible assets € thousand 31 Dec 2021 31 Dec 2020 Goodwill 42,644 42,644 Trademark 34,918 35,788 Concessions, trademarks and licences 22,806 24,452 Intangible assets being acquired 3,933 4,487 Total intangible assets 104,301 107,371 Goodwill arose on the acquisition of subsidiaries TAD Pharma in Germany (€42,277 thousand) and Krka Pharma in Austria (€367 thousand). The trademark refers mostly to the trademark of TAD Pharma. 2021 Annual Report – Financial Report of the Krka Group 217 Movement of intangible assets (IA) € thousand Goodwill Trademark Concessions, trademarks and licences IA being acquired Total Cost At 1 Jan 2020 42,644 42,629 131,640 4,096 221,009 Additions 0 0 0 6,021 6,021 Transfer from IA being acquired 0 0 5,272 -5,272 0 Disposals, deficit, surplus 0 0 -639 -355 -994 Transfers, reclassification 0 0 -11 0 -11 Translation reserve 0 0 -1,107 -3 -1,110 At 31 Dec 2020 42,644 42,629 135,155 4,487 224,915 At 1 Jan 2021 42,644 42,629 135,155 4,487 224,915 Additions 0 0 0 5,261 5,261 Transfer from IA being acquired 0 0 4,865 -4,865 0 Disposals, deficit, surplus 0 0 -651 -952 -1,603 Transfers, reclassification 0 0 -6 2 -4 Translation reserve 0 0 246 0 246 At 31 Dec 2021 42,644 42,629 139,609 3,933 228,815 Accumulated depreciation At 1 Jan 2020 0 -5,970 -105,957 0 -111,927 Amortisation 0 -871 -6,218 0 -7,089 Disposals, deficit, surplus 0 0 521 0 521 Transfers, reclassification 0 0 8 0 8 Translation reserve 0 0 943 0 943 At 31 Dec 2020 0 -6,841 -110,703 0 -117,544 At 1 Jan 2021 0 -6,841 -110,703 0 -117,544 Amortisation 0 -870 -6,005 0 -6,875 Disposals, deficit, surplus 0 0 106 0 106 Transfers, reclassification 0 0 2 0 2 Translation reserve 0 0 -203 0 -203 At 31 Dec 2021 0 -7,711 -116,803 0 -124,514 Carrying amount At 1 Jan 2020 42,644 36,659 25,683 4,096 109,082 At 31 Dec 2020 42,644 35,788 24,452 4,487 107,371 At 1 Jan 2021 42,644 35,788 24,452 4,487 107,371 At 31 Dec 2021 42,644 34,918 22,806 3,933 104,301 Of total intangible assets in use as at 31 December 2021, 67% was fully amortised, (2020 year-end: 65%). The share of fully amortised intangible assets is calculated in consideration of their cost. 2021 Annual Report – Financial Report of the Krka Group 218 Impairment test of goodwill and TAD Pharma trademark An impairment test was applied to the TAD Pharma trademark and the associated goodwill which arose on the takeover of the German company TAD Pharma by the controlling company Krka at the end of 2007. In addition, the Company made an impairment test of its capital investment in the subsidiary TAD Pharma. The recoverable amount is the higher of an asset's or a cash-generating unit's fair value less costs to sell, or its value in use. The recoverable amount of goodwill that arose on the acquisition of the stake in TAD Pharma was determined based on its value in use using the cash flow projection method based on five-year financial plans of the two cash generating units to which goodwill was allocated. Both, the Company and TAD Pharma were considered cash-generating units. A discount rate of 6.8% was applied in the projection for the TAD Pharma cash generating unit (7.6% in 2020) and 7.9% for Krka (8.5% in 2020). For both cash-generating units, cash flows over 5 years are extrapolated by 2.0% average annual growth, the same as in 2019. For both cash-generating units, cash flows over 5 years are extrapolated with an average annual growth rate of 2.0% (also in 2020, cash flows over 5 years for both cash-generating units have been extrapolated with an average annual growth rate of 2.0%). In the opinion of the management, a reasonable change in the discount rate or growth rate would not result in impairment of goodwill. In the opinion of the management, a reasonable change in the discount rate or growth rate would not result in impairment of goodwill. Considering the above assumptions, the total assessed value of the Company and TAD Pharma (taking into account the value of the trademark and goodwill), exceeds the carrying amount and therefore no impairment of goodwill is required. The controlling company found no indications of impairment of goodwill. The carrying amount of goodwill referring to TAD Pharma of €42,277 thousand has not changed compared to the previous year. The Company also made an impairment test of the TAD Pharma trademark and found that the carrying amount of the trademark stands at €34,770 thousand as at 31 December 2021 (2020 year-end: €35,619 thousand). 14. Loans € thousand 31 Dec 2021 31 Dec 2020 Non-current loans 40,300 15,376 – Loans to others 40,300 15,376 Current loans 192,360 54,774 – Portion of non-current loans maturing next year 1,826 1,641 – Loans to others 190,585 53,128 – Current interest receivable -51 5 Total loans 232,660 70,150 Non-current loans include a loans by a subsidiary in China for the construction of a production plant for an amount of €27,798 thousand, as well as housing loans granted by the controlling company and certain subsidiaries to employees in accordance with the internal rules. Current loans to others include bank deposits in total of €190,264 thousand maturing in more than 90 days (2020 year- end: €52,988 thousand). 2021 Annual Report – Financial Report of the Krka Group 219 15. Investments € thousand 31 Dec 2021 31 Dec 2020 Non-current investments 108,883 10,420 - Financial assets at fair value through OCI 15,861 10,420 – Financial assets at amortised cost 93,022 0 Current investments including derivatives 155,448 9,499 – Financial assets at amortised cost 113,987 0 – Derivatives 1,491 524 – Other current financial investments at fair value through profit or loss 39,970 8,975 Total investments 264,331 19,919 Financial assets at fair value through other comprehensive income (OCI) comprised €1,002 thousand of investments in shares and interests in companies in Slovenia (2020 year-end: €801 thousand), and €14,859 thousand of investments in shares of companies located abroad (2020 year-end: €9,619 thousand). Investments at amortised cost include investments in Slovenian government bonds amounted to €4,455 thousand, while investments in foreign government bonds amounted to €202,554 thousand. Other current investments at fair value through profit or loss include an investment in a foreign highly liquid money market fund of €39,970 thousand. In 2020, there were no investments in government bonds and money market funds. Movement in financial assets € thousand Financial assets at fair value through OCI Financial assets at amortised cost Financial assets at fair value through profit or loss At 1 Jan 2020 9,681 0 0 Adjustment to market value 739 0 0 At 31 Dec 2020 10,420 0 0 At 1 Jan 2021 10,420 0 0 Increase 0 205,946 40,000 Decrease 0 0 0 Exchange rate differences 0 1,063 0 Adjustment to market value 5,441 / -30 At 31 Dec 2021 15,861 207,009 39,970 Adjustments of non-current investments at fair value through OCI were recognised in other comprehensive income in the amount of €5,441 thousand (2020: €739 thousand). Exchange differences on investments at amortised cost of €1,063 thousand are recognised in financial income. The mark-to-market adjustment of investments at fair value through profit or loss in the amount of -€30 thousand is recognised in financial expenses. 2021 Annual Report – Financial Report of the Krka Group 220 16. Deferred tax assets and liabilities Assets Liabilities € thousand 2021 2020 2021 2020 Investments, property, plant and equipment and intangible assets 367 360 12,316 12,566 Financial investments at fair value through OCI 1,727 1,727 2,466 1,432 Inventories 24,378 30,481 -37 -66 Receivables 10,242 4,693 0 0 Dividends 19 14 0 0 Provisions for post-employment benefits and other non-current employee benefits 13,398 13,642 0 0 Transfer of tax loss 575 805 0 0 Total 50,706 51,722 14,745 13,932 Offsetting -3,823 -2,753 -3,823 -2,753 Net 46,883 48,969 10,922 11,179 € thousand At 1 Jan 2020 Recognised in P&L Translation reserve Recognised in OCI At 31 Dec 2020 Recognised in P&L Translation reserve Recognised in OCI At 31 Dec 2021 Investments, property, plant and equipment and intangible assets -12,438 149 83 0 -12,206 296 -39 0 -11,949 Financial assets at fair value through OCI 436 0 0 -141 295 0 0 -1,034 -739 Inventories 30,120 598 -171 0 30,547 -6,208 76 0 24,415 Receivables 5,626 -337 -596 0 4,693 5,290 259 0 10,242 Dividends 95 -81 0 0 14 5 0 0 19 Provisions for post- employment benefits and other non-current employee benefits 12,382 258 -12 1,014 13,642 347 -3 -588 13,398 Transfer of tax loss 1,012 -207 0 0 805 -230 0 0 575 Total 37,233 380 -696 873 37,790 -500 293 -1,622 35,961 Unrecognised deferred tax on account of tax losses of subsidiaries amounted to €850 thousand at the end of 2021 (2020 year-end: €1,139 thousand). 17. Inventories € thousand 31 Dec 2021 31 Dec 2020 Materials 188,994 191,649 Work in progress 104,640 100,741 Finished products 152,597 150,263 Merchandise 7,299 9,614 Advances for inventories 2,177 1,423 Total inventories 455,707 453,690 The write-downs and write-offs of inventories to their net realisable value amounted to €20,738 thousand in 2021. In 2020, they amounted to €23,019 thousand. The Group does not pledge inventories as collateral. 2021 Annual Report – Financial Report of the Krka Group 221 18. Trade and other receivables € thousand 31 Dec 2021 31 Dec 2020 Current trade receivables 467,764 383,560 – Trade receivables 468,589 385,237 – Deferred revenue from contracts with customers -825 -1,677 Other current receivables 29,564 27,768 Total trade and other receivables 497,328 411,328 The net amount of the receivable write-offs and impairment disclosed in operating expenses amounted to €1,048 thousand in 2021 (2020: -€3.206 thousand). Of the total amount, more than 98.6% of trade receivables was insured with the Coface PKZ, d. d. insurance company (2020 year-end: 98.2%). Current trade receivables € thousand Gross value Receivable allowances Net value at 31 Dec 2021 Net value at 31 Dec 2020 Due from domestic customers 12,285 73 12,212 9,172 Due from foreign customers 493,853 37,476 456,377 376,065 Deferred revenue from contracts with foreign customers -825 0 -825 -1,677 Total current trade receivables 505,313 37,549 467,764 383,560 Other receivables Other receivables were mostly due by the State. Income tax credits amounted to €3,057 thousand (2020: €1,220 thousand), while the remaining €17,368 thousand related to other receivables due by the State (2020: €17,457 thousand). Advances for services reached €2,442 thousand at the year-end (€2,620 thousand as at 31 December 2020). 19. Cash and cash equivalents € thousand 31 Dec 2021 31 Dec 2020 Cash in hand 30 17 Bank balances 159,808 313,551 Total cash and cash equivalents 159,838 313,568 The Krka Group concluded contracts with two banks to secure bank overdrafts in total of €5,415 thousand (in 2020, contracts in total of €5,075 thousand were concluded with two banks). No negative balances were recorded on these bank accounts as at 31 December 2021 as no overdraft facilities were used. The Krka Group had an undrawn credit facility of €20,000 thousand as at 31 December 2021 (as at 31 Dec 2020 totalling €20,000 thousand). 2021 Annual Report – Financial Report of the Krka Group 222 20. Equity Share capital Krka reduced its share capital by withdrawal of 2,632,672 treasury shares, accounting for 7.431% of all shares issued, in accordance with resolution adopted at the 19th Annual General Meeting on 3 July 2014. After the withdrawal of treasury shares, the share capital of Krka in the amount of €54,732 thousand is represented by 32,793,448 ordinary no-par value shares. There is solely one class of shares, whereas the first and only issue of shares was carried out in 1995. The share capital is fully paid. Treasury shares At the 26 th Annual General Meeting on 9 July 2020, the Management Board was granted authorisation for the purchase of treasury shares. However, the total amount of treasury shares should not exceed the 10% of Company's share capital, i.e. 3,279,344 shares, whereby the total amount is inclusive of shares already held by Krka as at the date. The authorisation is valid for a period of 36 months from the date of the decision adoption. Based on this authorisation, Krka is allowed to acquire treasury shares on the regulated market at respective market prices. The Company may also acquire treasury shares outside the regulated market. When purchasing treasury shares on the regulated market or non-regulated market, the purchase price must not be lower than the book value based on the last published audited financial statements of the Krka Group. Furthermore, the purchase price must not exceed 25-fold the earnings per share held by the majority stakeholders as stated in the last published audited financial statements of the Krka Group. Pursuant to paragraphs 3 and 4, Article 381 of the Companies Act, an entity may reduce the share capital by withdrawal of all treasury shares in a simplified procedure and recognise the amount against other profit reserves. Repurchase of treasury shares in 2021 No. of shares Weighted average share price (€) Value of treasury shares (€ thousand) At 31 Dec 2020 1,541,774 99,279 Repurchases in 2021 142,134 107.38 15,262 At 31 Dec 2021 1,683,908 114,541 The repurchase of treasury shares in 2021 refers to repurchases that were recorded in books of accounts in 2021. A subscription fee is included in the weighted average price of shares. The 2021 repurchase of treasury shares in terms of days is illustrated within Enclosure 1 to the Financial Statements of the Krka Group and Krka, d. d., Novo mesto. Reserves The Krka Group's reserves comprise reserves for treasury shares, the share premium, legal and statutory reserves, fair value reserve and translation reserves. Reserves for treasury shares amounted to €114,541 thousand at the reporting date and increased by €15,262 thousand based on their formation as a result of additional repurchase of treasury shares. The share premium is to be used under the terms and purposes as defined by the applicable act. The share premium was reported at €105,897 thousand as at 31 December 2021 and consisted of the general equity revaluation adjustment of €90,659 thousand that was included in share premium during the transfer to IFRS; the share premium of €10,844 thousand formed pursuant to a special regulation applicable in the ownership transformation of the controlling company; and 2021 Annual Report – Financial Report of the Krka Group 223 €4,394 thousand of share premium resulting from reduction in the share capital due to the withdrawal of treasury shares. The amount may be used solely for the purpose of increasing share capital. In 2021, the value of share premium remained unchanged. Legal reserves may be formed up to 30% of the share capital. They amounted to €14,990 thousand as at 31 December 2021 and remained unchanged compared to the previous period. Statutory reserves amounted to €30,000 thousand as at the reporting date and remained unchanged over the previous period. Statutory reserves are formed by the Krka Group up to the amount of €30,000 thousand. Statutory reserves can be used for loss coverage, formation of reserves for treasury shares, for decreasing share capital by share withdrawal, and for regulating the dividend policy. The fair value reserve includes the cumulative change in the fair value of financial assets and post-employment benefits. Compared to the previous period, the fair value reserve increased by €12,982 thousand and amounted to –€22,077 thousand as at 31 December 2021. The cumulative change is due to a €5,441 thousand increase in the fair value of financial assets through OCI (equity instruments); a decrease for the impact of deferred taxes of €1,622 thousand and an increase due to the restatement of post-employment benefits of €9,163 thousand. Compared to the previous period, the value of the translation reserve increased by €13,238 thousand and amounted to – €98,274 thousand as at 31 December 2021. The increase occurred as a result of exchange rate losses occurring during the translation of individual items in financial statements of foreign operations into the reporting currency. Retained earnings Retained earnings grew based on the majority shareholder's profit of €309,214 thousand. On the other hand, they decreased as a result of allocation of accumulated profit to dividend payment (€155,896 thousand) in accordance with the resolution adopted by the 27 th Annual General Meeting on 8 July 2021; an additional formation of reserves for treasury shares in total of €15,262 thousand on account of the share repurchase by the controlling company in 2021; and a change in provisions for termination benefits amounting to €2,404 thousand. The amount of the dividend payout reported in the statement of cash flows, differs from the figure confirmed by the Annual General Meeting and reported in the statement of changes in equity by €11 thousand of dividends paid in respect of previous periods (2020: €9 thousand). Dividends per share In 2021, the declared gross dividend per share was €5.00 (2020: €4.25). Non-controlling interests Non-controlling interests Equity attributable to the non-controlling interest Net profit for the year attributable to the non-controlling interest € thousand 31 Dec 2021 31 Dec 2020 31 Dec 2021 31 Dec 2020 31 Dec 2021 31 Dec 2020 Interest held by minority shareholders in Ningbo Krka Menovo Pharmaceutical Co. Ltd. 40.0% 40.0% 13,880 8,479 -1,064 -2,046 Total 13,880 8,479 -1,064 -2,046 * Krka has a 60-percent holding in Ningbo Krka Menovo Pharmaceutical Co. Ltd., with Ningbo Menovo Pharmaceutical Co., Ltd. having a 40-percent holding. 2021 Annual Report – Financial Report of the Krka Group 224 21. Earnings per share Basic earnings per share amounted to €9.92 in 2021 and increased by 7% over the previous year, when it amounted to €9.27. The calculation of earnings per share took into account the profit for the period attributable to the controlling interests in the amount of €309,214 thousand (2020: €290,995 thousand). The weighted average number of shares was accounted for in the calculation for both years, i.e. 31,185,323 shares for 2021, and 31,400,501 shares for 2020. Treasury shares were eliminated from the calculation. All shares issued by the controlling company are ordinary shares, hence the diluted earnings per share ratio equals the basic earnings per share. 22. Provisions € thousand At 31 Dec 2020 Formation Utilisation Reversal Translation reserve At 31 Dec 2021 Provisions for lawsuits 2,164 563 -12 -2,138 0 577 Provisions for post-employment benefits 109,698 854 -4,699 -1,421 -3 104,429 Provisions for other non-current employee benefits 20,512 1,243 -1,584 -315 -2 19,854 Other provisions 2,312 629 -406 -1,242 0 1,293 Total provisions 134,686 3,289 -6,701 -5,116 -5 126,153 The amounts of provisions for lawsuits referring to intellectual property are defined on the basis of the noted amount of the indemnification claim, or on the basis of anticipated amount, if the indemnification claim is not yet disclosed. External advisers for disputes referring to intellectual property are engaged for defining the anticipated amounts. Furthermore, the management each year verifies the calculated amount of provisions for each individual claim that is not yet closed. In total, 17 lawsuits referring to intellectual property were filed against Krka and its subsidiaries, 11 of which were in Portugal. In 2021, 8 disputes were closed. The Krka Group has no provisions allocated for intellectual property disputes. In other areas of law (civil, labour, administrative, etc.), Krka and its subsidiaries were involved as defendants in 14 disputes in 2021, with the total value of claims against Krka estimated at €1,073 thousand. For these disputes, the Krka Group has provisions €577 thousand. Provisions for obligations to employees arising from post-employment and other non-current benefits are based on actuarial calculation using the following assumptions:  The discount rate that depends on the average duration of a liability per company. The controlling company opted for the discounted interest rate of 1.27% annually, equal to the return on 15-year corporate bonds with high credit rating in the Eurozone at the end of October 2021 (2020: 0.72%). Discount rates applied to subsidiaries ranged from 0.78% to 3.60% (2020: from 0.33% to 3.60%);  Currently applicable amounts of retirement benefits and anniversary bonuses as defined by internal rules;  Staff turnover depending primarily upon the employees' age;  Mortality rates calculated on the basis of most recent mortality tables available;  The 2.00% increase in salaries, the same as in 2020. 2021 Annual Report – Financial Report of the Krka Group 225 Post-employment benefits € thousand 2021 2020 At 1 Jan 109,698 96,994 Employee benefit costs (CSC) 6,602 4,949 Interest expense (IC) 796 1,251 Post-employment benefits paid -4,526 -3,177 Reversal -1,382 -2,060 Merger by acquisition 0 470 Actuarial surplus/deficit, of that: -6,759 11,271 – Change in financial assumptions -7,973 8,253 – Experience 1,214 3,018 At 31 Dec 104,429 109,698 Sensitivity analysis Discount rate Salary increase Change in Percentage point Percentage point Change by 0.5 -0.5 0.5 -0.5 Impact on liabilities (€ thousand) -6,643 7,397 7,302 -6,628 23. Deferred revenue € thousand At 31 Dec 2020 New deferred revenue received Deferred revenue reversal At 31 Dec 2021 Grants received from the European Regional Development Fund and budget of the Republic of Slovenia intended for the production of pharmaceuticals in the new Notol 2 Plant 1,317 0 -259 1,058 Grants received from the budget for the Dolenjske and Šmarješke Toplice health resorts and Golf Grad Otočec 3,408 0 -88 3,320 Grants received from the European Regional Development Fund (Farma GRS) 2,960 0 -584 2,376 Subsidy for acquisition of electric drive vehicles 4 0 -1 3 Property, plant and equipment received free of charge 16 8 -12 12 Emission coupons 0 10 0 10 Subsidy for the purchase of joinery 95 0 -2 93 Subsidy for acquisition of other equipment 4 19 -20 3 Other deferred revenue 0 263 -263 0 Total deferred revenue 7,804 300 -1,229 6,875 Production of pharmaceuticals in the new Notol 2 Plant and Farma GRS projects are partly funded by the European Union from the European Regional Development Fund. The Notol project is carried out within the framework of the Operational programme for strengthening regional development potentials for the period 2007 2013; Priority axis 1: Competitiveness and Research Excellence: main type of activity 1.1.: Improvement of competitiveness and research excellence. The Farma GRS project was eligible for co-financing of costs under R&D projects, including project management and investment in research and development and production activities. The amounts of deferred revenue are decreased by the proportionate share of depreciation of assets to which the grants refer and by any other types of expenses incurred. 2021 Annual Report – Financial Report of the Krka Group 226 24. Trade payables € thousand 31 Dec 2021 31 Dec 2020 Non-current trade payables 10,000 10,006 Current trade payables 130,011 107,116 Payables to domestic suppliers 46,767 38,317 Payables to foreign suppliers 83,244 68,799 Total trade payables 140,011 117,122 In 2014, the Commission of the European Union ruled that Krka infringed the provision of Article 101 of the Treaty on the Functioning of the European Union, which resulted in a distortion of competition on the perindopril market of the European Union. Thus, it imposed on Krka a fine of €10,000 thousand. Krka paid the penalty imposed within the deadline set by the Commission and filed a lawsuit against the Commission's decision before the General Court of the European Union because it considered that its conduct did not violate the competition law rules. In December 2018, the Court ruled in favour of Krka. 79 The decision of the General Court is not final, as the Commission lodged an appeal against the decision of the General Court, which will be decided by the European Court of Justice. Although the Commission did indeed pay back a fine of €10,000 thousand in early 2020, based on the assessment of legal experts Krka deferred the revenue and recognised non- current trade payables in that same amount until the final decision of the Court is issued. 25. Current contract liabilities € thousand 31 Dec 2021 31 Dec 2020 Refund liabilities 116,965 102,070 – Bonuses and volume rebates 114,795 99,097 – Rights of return 2,170 2,973 Contract liabilities 7,765 4,229 – Contract liabilities – deferred revenues 1,101 0 – Contract liabilities – advances from other customers 6,664 4,229 Total current contract liabilities 124,730 106,299 Accrued bonuses and volume discounts include discounts to which the customers are entitled when the relevant terms and conditions are fulfilled; these discounts are not granted to customers in the year of the sale. 26. Other current liabilities € thousand 31 Dec 2021 31 Dec 2020 Payables to employees – gross salaries, other receipts and charges 67,978 61,643 Liabilities under repurchase transactions (repo-type operations) 102,234 0 Other 20,515 17,416 Total other current liabilities 190,727 79,059 The liabilities under repurchase transactions relate to the repurchase of bonds in June 2022, maturing in July 2022. The repurchase of bonds has legally taken place, but in terms of economics it is a financing activity. The bonds serve as collateral for a deposit made by the controlling company to the bank. The balance of assets held for repurchase as at 31 December 2021 amounts to €102,228 thousand and is recognised within investments at amortised cost. Liabilities under repurchase transactions were recognised in the amount €102,234 thousand. The item ‘Other’ also includes current liabilities to the State on account of VAT payable in the amount of €13,261 thousand (2020: €7,324 thousand) and other current liabilities to the State totalling €4,133 thousand (2020: €7,114 thousand). 79 GRI GS 206-1 2021 Annual Report – Financial Report of the Krka Group 227 27. Contingent liabilities and commitments € thousand 31 Dec 2021 31 Dec 2020 Guarantees issued 16,019 16,111 Other 976 0 Total contingent liabilities 16,995 16,111 Major items of guarantees issued included (i) a contract bond in total of €6,000 thousand for supply of products by Krka Faramaceutici that was selected as the bidder in tenders in Italy, and (ii) a counter guarantee for due payment of potential liabilities from customs guarantee issued in the amount of €4,500 thousand in Belarus. Based on the contracts that had been signed in connection with the on-going investments, at the end of 2021 Krka recorded €45,539 thousand of commitments for acquisition of property, plant and equipment (2020 year-end: €29,338 thousand). 28. Leases The Krka Group concludes lease agreements for various assets such as parking spaces and offices, warehouses, land, apartments, cars and equipment. The lease terms are assessed according to the type of a lease:  Offices, parking spaces and warehouses: up to 10 years;  Land: 30 years;  Apartments: up to 3 years maximum;  Cars: up to 5 years maximum;  Equipment: up to 10 years. The Krka Group does not sub-lease the leased assets. The Krka Group concluded lease contracts for various production and non-production equipment, temporary offices and parking spaces, with lease term of shorter than one year. In respect of those leases, the Group applied a practical expedient provided by the Standard. The carrying amounts of lease liabilities included under interest-bearing loans and borrowings and the movements during the period € thousand Carrying amounts of lease liabilities under interest-bearing loans and borrowings and movements during the period At 1 Jan 2020 13,000 Increase/Decrease 1,654 Accretion of interest 289 Lease payments -3,086 Translation reserve -24 At 31 Dec 2020 11,833 – Current lease liabilities 2,712 – Non-current lease liabilities 9,121 At 1 Jan 2021 11,833 Increase/Decrease 3,473 Accretion of interest 296 Lease payments -3,515 Translation reserve 70 At 31 Dec 2021 12,157 – Current lease liabilities 3,433 – Non-current lease liabilities 8,724 The maturity analysis of lease liabilities is disclosed in Note 30 Financial instruments and financial risks. 2021 Annual Report – Financial Report of the Krka Group 228 Amounts recognised in profit or loss € thousand 2021 2020 Depreciation of right-of-use assets 3,273 2,930 Interest expenses on lease liabilities 296 289 Expenses relating to current leases 1,357 1,204 Expenses relating to leases of low-value assets 0 3 Total amount recognised in profit or loss 4,926 4,426 29. Financial liabilities Movement in financial liabilities in 2021 € thousand At 31 Dec 2020 Monetary changes Non-monetary changes Other At 31 Dec 2021 Dividends 1,335 -155,907 155,894 0 1,322 Treasury shares 0 -15,262 15,262 0 0 Leases 11,833 -3,515 3,543 296 12,157 Liabilities under repurchase transactions (repo-type operations) 0 102,292 0 -58 102,234 Total 13,168 -72,392 174,699 238 115,713 Liabilities under repurchase transactions (repo-type operations) are presented in Note 26 Other current liabilities. Movement in financial liabilities in 2020 € thousand At 31 Dec 2019 Monetary changes Non-monetary changes Other At 31 Dec 2020 Dividends 1,344 -133,283 133,274 0 1,335 Treasury shares 0 -25,505 25,505 0 0 Leases 13,000 -3,086 1,630 289 11,833 Total 14,344 -161,874 160,409 289 13,168 30. Financial instruments and financial risks Detailed information about financial risk management is described in the Business Section of the Annual Report, section ‘Risk Management’. Credit risk The key credit risk of the Krka Group arises from trade receivables. This is the risk of customers failing to settle their liabilities by maturity dates. The Krka Group introduced a centralised credit control process in 2004. The system includes all customers with credit limits exceeding €20,000. Numbering over 570 at the end of 2021, they accounted for more than 95% of total trade receivables. Receivables due from small customers accounted for less than 5% of total trade receivables. Control over small customers is decentralised in the sales network and under the constant supervision of the controlling company. 2021 Annual Report – Financial Report of the Krka Group 229 Credit control is a two-step process. The first step involves assessing the credit risk for each customer, determining hedging instruments, and assigning relevant credit limits. We assess each new customer and review the credit ratings of all customers twice a year. Each credit rating includes many different financial and non-financial indicators, which fall into four categories; each has a different weight in the final assessment. Each customer is assigned a customised credit limit according to the credit rating and the expected shipment and payment dynamics. The second step in the credit-control process involves regular dynamic monitoring of a customer's payment discipline. The information systems of all Krka Group companies engaged in sales monitor available limits and overdue receivables. Control is exercised for each shipment of Krka products to customers. A shipment is automatically blocked if a customer is in arrears or if receivables together with the new shipment exceed the approved credit limit. Sales personnel are required to initiate a payment collection procedure or arrange hedging for the outstanding settlements. Krka’s internal rules determine the process of credit control and authorisations for granting credit limits to customers. Credit control also avails of a system of regular reporting on trade receivables and the customer's payment discipline. The reporting system aids the early detection of customers at increased risk of defaulting on payments and facilitates effective credit risk management. The credit control process employs uniform rules which apply to all customers. Due to specifics of individual sales markets, additional national controls have been introduced in individual subsidiaries. Credit control processes are regularly adjusted to changes in the sales markets. Credit control guarantees permanent control over the quality of the trade receivables portfolio. The result of the credit control process is a low percentage of receivable write-offs and impairments in total Krka Group sales. The amount of receivable write-offs and impairments is also low because receivables are dispersed across many customers and sales markets, and the majority of outstanding receivables are due from customers with whom Krka has been doing business for several years. Despite the risks arising from the COVID-19 pandemic, receivables were well managed in 2021. At the end of 2021, the value of trade receivables increased by 22% compared to the beginning of the year. However, the amount of overdue and outstanding receivables remained within limits acceptable for Krka. The amount of the newly established valuation allowance for receivables exceeded the amount of the reversed allowance. The impact of net impairments and write-offs on the Krka Group's bottom line in 2021 was less than 0.07% of sales. Credit risk exposure The carrying amount of financial assets represents the largest exposure to credit risk as illustrated below. € thousand Notes 31 Dec 2021 31 Dec 2020 Loans 14 232,660 70,150 Investments 15 264,331 19,919 Trade receivables 18 467,764 383,560 Cash and cash equivalents 19 159,838 313,568 Total 1,124,593 787,197 As for the financial assets exposed to credit risk, the loans and trade receivables are presented separately. 2021 Annual Report – Financial Report of the Krka Group 230 Loans by geographical region € thousand 31 Dec 2021 31 Dec 2020 Slovenia 101,727 65,933 South-East Europe 114 69 East Europe 159 153 Central Europe 262 256 West Europe 102,302 0 Overseas Markets 28,096 3,739 Total 232,660 70,150 Trade receivables by geographical region € thousand 31 Dec 2021 31 Dec 2020 Slovenia 12,214 9,173 South-East Europe 80,178 76,417 East Europe 240,641 167,955 Central Europe 58,109 62,337 West Europe 71,966 64,229 Overseas Markets 4,656 3,449 Total 467,764 383,560 Maturity analysis of loans as at reporting date € thousand Gross at 31 Dec 2021 Allowance at 31 Dec 2021 Gross at 31 Dec 2020 Allowance at 31 Dec 2020 Not past due 232,650 0 70,141 0 Past due up to 20 days 0 0 0 0 Past due from 21 to 50 days 1 0 1 0 Past due from 51 to 180 days 2 0 3 0 Past due more than 180 days 7 0 5 0 Total 232,660 0 70,150 0 Maturity structure of trade receivables as at the reporting date € thousand Gross at 31 Dec 2021 Allowance at 31 Dec 2021 Gross at 31 Dec 2020 Allowance at 31 Dec 2020 Not past due 457,944 487 375,563 569 Past due up to 20 days 7,011 39 4,352 34 Past due from 21 to 50 days 2,341 80 2,310 76 Past due from 51 to 180 days 95 46 823 53 Past due more than 180 days 37,922 36,897 37,798 36,554 Total 505,313 37,549 420,846 37,286 The Krka Group agrees extended terms with certain customers. If Krka did not extend payment terms to some of its customers, receivable maturity structure would be as follows at the reporting date: not past due €400,150 thousand (2020: €345,442 thousand); past due up to 20 days €43,046 thousand (2020: €25,915 thousand); past due between 21 and 50 days €22,462 thousand (2020: €8,030 thousand); past due between 51 and 180 days €104 thousand (2020: €2,762 thousand); and past due more than 180 days €1,610 thousand (2020: €1,243 thousand). Movement of allowance for loans € thousand 2021 2020 At 1 Jan 0 11 Impairment reversal 0 -11 At 31 Dec 0 0 2021 Annual Report – Financial Report of the Krka Group 231 Movement of receivable allowance € thousand 2021 2020 At 1 Jan 37,286 25,506 Formation of allowance 1,550 16,065 Write-off of receivables -957 -269 Impairment reversal -334 -3,513 Collected written-off receivables -16 -3 Effect of exchange rate differences 20 -500 At 31 Dec 37,549 37,286 Liquidity risk Business partners value Krka for its excellent financial discipline and stable cash flows. In 2021, we settled all financial liabilities regularly. Krka Group exposure to liquidity risk was low. We did not use any new short-term funding from banks or draw funds from existing credit lines in 2021. At the end of 2021, the Krka Group recorded excess liquidity, primarily as cash at bank or deposits with first-class commercial banks. The 2021 increase in excess liquidity resulted from surplus cash flow from operating activities over negative cash flows from investing and financing activities. In the European Economic and Monetary Union (EMU) money markets, negative interest rates still apply to low-risk cash investments. In accordance with internal rules on diversification of investments and taking account of banks’ credit risks, we deposited a part of the cash surplus with banks during the year. In this way, we reduced the cost of negative interest rates and invested another part in short-term bonds of selected European countries. The controlling company manages liquidity risk centrally for the entire Group. The controlling company finances subsidiaries through intra-group loans. Any potential cash surpluses are deposited with the controlling company. Excess cash from all Group companies is transferred to the controlling company's master account either automatically daily (cash pooling) or manually through individual bank transfers. This allows for cash management optimisation, currency risk mitigation, an overview of liquidity of all Group companies, and enhanced security of cash transactions. The Krka Group also reported favourable and stable liquidity ratios at the end of 2021. The continuing COVID-19 pandemic did not increase the Group’s liquidity risk in 2021. 2021 Annual Report – Financial Report of the Krka Group 232 Maturity of financial liabilities Financial liabilities in terms of maturity are outlined in the tables below. Maturity of financial liabilities as at 31 Dec 2021 Carrying amount Contractual cash flows € thousand Total Up to 6 months 6 to 12 months 1 to 2 years 2 to 5 years 5 to 10 years Financial liabilities Lease liabilities 12,157 12,157 1,777 1,657 2,851 4,445 1,427 Trade payables excluding advances 130,011 130,011 130,011 0 0 0 0 Contract liabilities excluding advances 114,795 114,795 114,795 0 0 0 0 Liabilities under repurchase transactions (repo-type operations) 102,234 102,234 102,234 0 0 0 0 Other liabilities excluding amounts owed to the State, to employees and advances 4,241 4,241 4,241 0 0 0 0 Total financial liabilities 363,438 363,438 353,058 1,657 2,851 4,445 1,427 Total derivative financial liabilities 0 0 0 0 0 0 0 Total 363,438 363,438 353,058 1,657 2,851 4,445 1,427 Maturity of financial liabilities as at 31 Dec 2020 Carrying amount Contractual cash flows € thousand Total Up to 6 months 6 to 12 months 1 to 2 years 2 to 5 years 5 to 10 years Financial liabilities Lease liabilities 11,833 11,833 1,379 1,333 4,375 3,367 1,379 Trade payables excluding advances 107,116 107,116 107,116 0 0 0 0 Contract liabilities excluding advances 99,097 99,097 99,097 0 0 0 0 Other liabilities excluding amounts owed to the State, to employees and advances 15,174 15,174 15,174 0 0 0 0 Total financial liabilities 233,220 233,220 222,766 1,333 4,375 3,367 1,379 Total derivative financial liabilities 0 0 0 0 0 0 0 Total 233,220 233,220 222,766 1,333 4,375 3,367 1,379 Foreign exchange risk The Krka Group operates in diverse international environments and is exposed to foreign exchange risk in certain sales and purchase markets. Currency exposure arises from the difference in the value of assets and liabilities in a particular currency in the financial position statement of the Group and from differences between operating income and expenses generated in individual currencies. The key accounting categories composing a currency position are trade receivables, trade payables, liquid financial assets in foreign currencies, derivatives for currency risk hedging, and subsidiary funding by the controlling company. At the end of 2021, the Russian rouble accounted for the largest, 29%, share of the Krka Group currency position, taking into account the size of the position in roubles was partially hedged with derivatives. The position in the rouble arises from trade receivables in the Russian market and partly from the controlling company’s funding in the Russian Federation. The importance of the Russian sales market, level of currency exposure, and volatility of the Russian rouble are why we pay special attention to Russian rouble risk management. 2021 Annual Report – Financial Report of the Krka Group 233 Unlike with other currencies, a surplus of liabilities over assets has accrued in regular business operations from exposure to the US dollar, or in other words, the currency position is short. Exposure to the US dollar arises primarily from purchasing raw and other materials. Considering liquid financial assets in US dollars, which offset the short currency position from operations, the exposure in US dollars accounts for approximately 6% of the Krka Group total currency exposure. The exposure to the Romanian leu, accounting for 18% of the currency position at the end of 2021, arises from trade receivables accrued due to extended payment terms in Romania. Exposure to the Polish zloty is the result of trade receivables and manufacturing facilities held by the Group in Poland and represents 15% of the currency position. Other currencies, among them the Croatian kuna, Swedish krona, North Macedonian denar, Kazakh tenge, Serbian dinar, British pound, Czech koruna, Ukrainian hryvnia, and Hungarian forint, account for 32% of the Krka Group currency position. Krka's key sales and purchase markets experienced imbalanced dynamics in terms of economic recovery and uncertainty with regard to rising inflation in individual countries while at the same time facing a constant risk of economies shutting down again. Uncertainty in currency markets led to high volatility of individual exchange rates. The 2021 fluctuation in the Russian rouble was favourable for us. The value of the rouble expressed in euros increased by 7.2% during the year. The average 2021 value of the Russian rouble was 5.1% lower compared to 2020. The Brent oil price expressed in US dollars jumped by 50% in 2021. The value of the rouble expressed in the euro did not follow the dynamics of oil price increase. After 2020, which was heavily affected by the pandemic, the Russian economy recorded high economic growth and rising inflation in 2021. Consequently, the Central Bank of the Russian Federation increased its key interest rate by 4.25 percentage points. Owing to high interest rate growth accompanied by a significant rise in oil prices, the rouble strengthened against the euro and the US dollar. Interest rate increase in the Russian Federation led to a gradual rise in the cost of hedging Krka’s position in roubles in 2021. The Polish zloty was more stable in 2021. Its value dropped by 0.8% from the beginning to the end of the year, while the average value was 2.7% lower than in 2020. In the last quarter of 2021, the Polish central bank started to increase its key interest rate due to the rising inflation. The central bank is not in favour of strengthening the domestic currency, which impacted the market value of zloty. Over the course of 2021, the value of the Romanian leu expressed in the euro declined by 1.7%, which was in line with the gradual depreciation of the currency against the euro in recent years. The Croatian kuna, participating in the ERM II mechanism since 2020, remained stable against the euro. In 2021, the British pound went up 7% against the euro. Although the movement of both currencies in 2021 positively impacted the Krka Group's net financial result, the contribution was small. The value of the US dollar expressed in the euro went up by 8.3% over the course of 2021, while the average value of the dollar expressed in the euro was 3.4% below the 2020 level. The US dollar strengthened more significantly in the second half of 2021, when it became clear that the inflation in the US and worldwide would rise over the longer term. In the second half of the year, the US Federal Reserve announced that it would gradually withdraw monetary stimulus measures and increase the key interest rate for the first time in 2022. Meanwhile, the European Central Bank decided to delay and slow down the tightening of its monetary policy, which further contributed to strengthening of the US dollar against the euro in 2021. In 2021, the Ukrainian hryvnia strengthened again after plummeting in 2020. However, its value against the euro weakened due to the geopolitical risk at the end of the year. The macroeconomic situation in the country remains uncertain, which will continue to be reflected in currency movements. The Krka Group generally mitigates currency risks by natural hedging, primarily by increasing purchases and liabilities in currencies in which sales invoices are issued. When this is not possible, we use derivatives or do not hedge the risk. Generally, only forward contracts are used for hedging. 2021 Annual Report – Financial Report of the Krka Group 234 In 2021, Krka continued its policy of partial hedging against rouble-related risk. Less than 50% of the risk exposure to the Russian rouble was hedged using forward contracts. Due to the strengthening of the rouble value in euros, we generated net foreign exchange gains partially offset by net expenses from forward contracts used for hedging the rouble. The increasing operational risk exposure and an interest rate difference between the euro and the US dollar that is favourable for Krka are two key reasons that contributed to partial hedging of the exposure in the US dollar with financial instruments also in 2021. Due to the short currency position, the dollar strengthening had a negative financial impact on the Krka Group result. In 2021 however, this was largely offset by income from the US dollar hedging instruments. We generated net foreign exchange losses from other currencies in 2021. Exposure to other currencies was not hedged. The Krka Group's currency exposure to the Ukrainian hryvnia, Kazakh tenge, Serbian dinar, and certain other currencies is less significant, and no hedging instruments are available. The currency risk balance in 2021 was positive, totalling €7,654 thousand. Net financial result of the Krka Group, which also included currency risk result, interest income and expenses, and other financial income and expenses, totalled €7,629 thousand. Exposure to the risk of foreign exchange rate fluctuations 31 Dec 2021 € thousand EUR RUB PLN HRK RON Loans 204,071 69 211 0 31 Trade receivables 118,062 198,121 44,803 17,924 44,213 Cash and cash equivalents 87,416 6,497 3,104 1,733 1,075 Non-current trade payables -10,000 0 0 0 0 Current trade payables -101,305 -8,566 -2,058 -496 -283 Financial position exposure (net) 298,244 196,121 46,060 19,161 45,037 * EUR is the functional currency and does not represent exposure to foreign currency risk. 31 Dec 2020 € thousand EUR RUB PLN HRK RON Loans 65,999 3,003 1,051 0 38 Trade receivables 91,709 142,197 46,729 18,815 42,154 Cash and cash equivalents 284,753 9,191 3,383 488 1,376 Non-current trade payables -10,000 0 0 0 0 Current trade payables -85,994 -8,208 -1,725 -475 -262 Financial position exposure (net) 346,467 146,183 49,437 18,827 43,307 * EUR is the functional currency and does not represent exposure to foreign currency risk. Significant foreign exchange rates Average exchange rate Final exchange rate 2021 2020 2021 2020 RUB 87.15 82.72 85.30 91.47 PLN 4.57 4.44 4.60 4.56 HRK 7.53 7.54 7.52 7.55 RON 4.92 4.84 4.95 4.87 * Number of national currency units for one euro The above-stated exchange rates were used for the calculation of items in the financial statements as at 31 Dec and equal the reference exchange rates of the ECB effective on the last day of the year. 2021 Annual Report – Financial Report of the Krka Group 235 Sensitivity analysis A 1% increase/decrease of the euro exchange rate in respect of currencies stated as at 31 December 2021 or 31 December 2020 would increase or decrease the profit by the amounts stated below. The analysis, prepared in the same manner for both years, assumes that all other remaining variables, in particular interest rates, remain unchanged. The calculation of the above-stated exchange rate volatility impact took into account the balance of receivables, liabilities, loans and borrowings denominated in the local currencies. Effect on the profit or loss before tax 2021 2020 Currency fluctuation +1% -1% +1% -1% RUB 1,961 -1,961 1,462 -1,462 PLN 461 -461 494 -494 HRK 192 -192 188 -188 RON 450 -450 433 -433 Any additional 1% increase/decrease of the euro exchange rate in respect of currencies stated above, would increase or decrease the profit or loss before tax in the above-stated amounts. Interest rate risk Interest rate risk is the risk of losses that result from a change in interest rates and is related to Krka’s non-current borrowings and investments. The interest rate risk with current borrowings and current investments is managed as part of the Group's liquidity risk. The Krka Group had no non-current borrowings in 2021. Exposure to interest rate risk € thousand 31 Dec 2021 31 Dec 2020 Financial instruments at a fixed rate of interest 232,701 70,135 Financial assets 232,701 70,135 Financial liabilities 0 0 Financial instruments at a variable rate of interest 10 10 Financial assets 10 10 Financial liabilities 0 0 Analysis of the cash flow’s sensitivity by applying the variable interest rate Decrease/increase of the interest rate by 100 basis points would increase/decrease the profit or loss for 2021 by €0.1 thousand. Decrease/increase of the interest rate by 100 basis points would increase/decrease the profit or loss for 2020 by €0.1 thousand. The analysis, prepared in the same manner for both years, assumes that all other remaining variables, in particular the foreign exchange rate, remain unchanged. Capital management Krka reduced its share capital by withdrawal of 2,632,672 treasury shares, accounting for 7.431% of all shares issued, in accordance with the resolution adopted at the 19 th Annual General Meeting on 3 July 2014. After the withdrawal of treasury shares, the share capital of Krka in the amount of €54,732 thousand is represented by 32,793,448 ordinary no-par value shares. Krka has one class of shares only, and the first and only issue of shares was carried out in 1995. The share capital was fully paid. 2021 Annual Report – Financial Report of the Krka Group 236 The Group's capital management is aimed at ensuring high credit rating and relevant financing indicators in order to ensure the proper development of its operations and to generate a maximum value for its shareholders. The Krka Group follows the changes in the economic environment by managing and adjusting its equity structure. Dividends are paid out on annual basis in line with the strategic policy of dividend increase. The Krka Group has no specific goals as regards the ownership share held by employees or share option plans. There were no changes in Company’s approach to capital management in 2021 or 2020. The Krka Group monitors capital using a gearing ratio, which is net debt divided by total net debt plus total equity. Within net debt, Krka includes interest bearing borrowings and trade payables less cash and cash equivalents. Gearing (debt/equity) ratio € thousand 31 Dec 2021 31 Dec 2020 Trade payables and other current liabilities 455,468 302,480 Cash and cash equivalents 159,838 313,568 Net indebtedness 295,630 -11,088 Equity 1,919,085 1,751,812 Equity and net indebtedness 2,214,715 1,740,724 Gearing (debt/equity) ratio 13.3% -0.6% Fair value 31 Dec 2021 31 Dec 2020 € thousand Carrying amount Fair value Carrying amount Fair value Non-current financial assets Loans 40,300 40,300 15,376 15,376 Financial assets at fair value through OCI 15,861 15,861 10,420 10,420 Financial assets at amortised cost 93,022 92,570 0 0 Current financial assets Loans 192,360 192,360 54,774 54,774 Financial assets through profit or loss 39,970 39,970 8,975 8,975 Financial assets at amortised cost 113,987 113,912 0 0 Derivatives 1,491 1,491 524 524 Trade receivables 467,764 467,764 383,560 383,560 Cash and cash equivalents 159,838 159,838 313,568 313,568 Non-current financial liabilities Trade payables -10,000 -10,000 -10,006 -10,006 Lease liabilities -8,724 -8,724 -9,121 -9,121 Current financial liabilities Lease liabilities -3,433 -3,433 -2,712 -2,712 Trade payables excluding advances -130,011 -130,011 -107,116 -107,116 Contract liabilities excluding advances -114,795 -114,795 -99,097 -99,097 Liabilities under repurchase transactions (repo-type operations) -102,234 -102,234 0 0 Other current liabilities excluding amounts owed to the State, to employees and advances -4,241 -4,241 -15,174 -15,174 Total 751,155 750,628 543,971 543,971 2021 Annual Report – Financial Report of the Krka Group 237 In terms of fair value, assets and liabilities are classified into three levels:  Level 1 – assets at market price;  Level 2 – assets not classified within level 1 and the value of which is determined directly or indirectly based on observable market data;  Level 3 – assets the value of which cannot be determined using observable market data. Assets at fair value 31 Dec 2021 31 Dec 2020 € thousand Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total Assets at fair value Financial assets at fair value through OCI 14,474 0 1,387 15,861 9,033 0 1,387 10,420 Financial assets through profit or loss 39,970 0 0 39,970 8,975 0 0 8,975 Derivatives 0 0 1,491 1,491 0 0 524 524 Total assets at fair value 54,444 0 2,878 57,322 18,008 0 1,911 19,919 Assets for which fair value is disclosed Loans 0 0 232,660 232,660 0 0 70,150 70,150 Trade receivables 0 0 467,764 467,764 0 0 383,560 383,560 Financial assets at amortised cost 206,482 0 0 206,482 0 0 0 0 Cash and cash equivalents 0 0 159,838 159,838 0 0 313,568 313,568 Total assets for which fair value is disclosed 206,482 0 860,262 1,066,744 0 0 767,278 767,278 Total 260,926 0 863,140 1,124,066 18,008 0 769,189 787,197 Liabilities at fair value 31 Dec 2021 31 Dec 2020 € thousand Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total Liabilities for which fair value is disclosed Trade payables 0 0 10,000 10,000 0 0 10,006 10,006 Borrowings 0 0 0 0 0 0 0 0 Lease liabilities 0 0 12,157 12,157 0 0 11,833 11,833 Trade payables excluding advances 0 0 130,011 130,011 0 0 107,116 107,116 Contract liabilities excluding advances 0 0 114,795 114,795 0 0 99,097 99,097 Liabilities under repurchase transactions (repo-type operations) 0 0 102,234 102,234 0 0 0 0 Other current liabilities excluding amounts owed to the State, to employees and advances 0 0 4,241 4,241 0 0 15,174 15,174 Total liabilities for which fair value is disclosed 0 0 373,438 373,438 0 0 243,226 243,226 Total 0 0 373,438 373,438 0 0 243,226 243,226 The fair value of securities held for trading is computed on the basis of the stock exchange quotation of the respective securities as at reporting date, and is not decreased by any costs that may arise upon the sale or purchase of securities. 2021 Annual Report – Financial Report of the Krka Group 238 31. Related party transactions Data on groups of persons By the end of the year, members of the Management Board of the controlling company held 37,040 Krka shares i.e. 0.1129% of total equity or 0.1191% of voting rights. Members of the Supervisory Board of the controlling company held 3,347 shares, i.e. 0.0102% of total equity or 0.0108% of voting rights. Directors of subsidiaries held 3114 shares, i.e.: 0.0095% of the total equity or 0.0100% of voting rights. Equity stakes held by Management and the Supervisory Board members of the controlling company and their shares of voting rights 31 Dec 2021 31 Dec 2020 No. of shares Equity share (%) Share of voting rights (%) No. of shares Equity share (%) Share of voting rights (%) Members of the Management Board Jože Colarič 22,500 0.0686 0.0723 22,500 0.0686 0.0720 Aleš Rotar 13,915 0.0424 0.0447 13,915 0.0424 0.0445 Vinko Zupančič 120 0.0004 0.0004 120 0.0004 0.0004 David Bratož 0 0.0000 0.0000 0 0.0000 0.0000 Milena Kastelic 505 0.0015 0.0016 505 0.0015 0.0016 Total Members of the Management Board 37,040 0.1129 0.1191 37,040 0.1129 0.1185 Members of the Supervisory Board (owner representatives) Jože Mermal 0 0.0000 0.0000 0 0.0000 0.0000 Matej Lahovnik 600 0.0018 0.0019 600 0.0018 0.0019 Julijana Kristl 230 0.0007 0.0007 230 0.0007 0.0007 Borut Jamnik 0 0.0000 0.0000 0 0.0000 0.0000 Mojca Osolnik Videmšek 617 0.0019 0.0020 617 0.0019 0.0020 Boris Žnidarič 0 0.0000 0.0000 0 0.0000 0.0000 Members of the Supervisory Board (owner representatives) Franc Šašek 1,400 0.0043 0.0045 1,400 0.0043 0.0045 Tomaž Sever 500 0.0015 0.0016 500 0.0015 0.0016 Mateja Vrečer 0 0.0000 0.0000 0 0.0000 0.0000 Total Members of the Supervisory Board 3,347 0.0102 0.0108 3,347 0.0102 0.0107 Total 40,387 0.1232 0.1298 40,387 0.1232 0.1292 Treasury shares were eliminated from the calculation of voting rights (1,683,908 treasury shares as at 31 December 2021 and 1,541,774 as at 31 December 2020). Remuneration paid to groups of persons (gross) € thousand 31 Dec 2021 31 Dec 2020 Members of the Management Board in the controlling company 3,560 3,768 Managers of subsidiaries 2,682 2,609 Members of the Supervisory Board in the controlling company 303 210 Members of the Supervisory and Management Boards in subsidiaries 1 1 Total gross remuneration paid to groups of persons 6,546 6,588 Remuneration paid to members of the Management Board in the controlling company and directors of subsidiaries included wages and salaries, fringe benefits and any other earnings. For each year, they are shown on a cost basis and therefore 2021 Annual Report – Financial Report of the Krka Group 239 differ from the remuneration shown in the Report on Remuneration of the Members of the Management Board and Supervisory Board of Krka for 2021, where they are shown by payments in each year. Remuneration paid to members of the Supervisory Board in the controlling company represents earnings in connection with exercising the function within the Supervisory Board. Remuneration paid to members of the Supervisory and Management Boards in subsidiaries, who simultaneously act as members of the Management Board in the controlling company or are employed under individual employment contracts, also only include earnings for exercising the function within the Supervisory and Management Boards. Gross earnings paid to persons employed under individual employment contracts in 2021 amounted to €13,091 thousand (2020: €12,670 thousand). Remuneration paid to Management Board members in the controlling company in 2021 Salary – fixed part Salary – variable part Total € thousand Gross Net payout Net fringe benefits and other earnings Gross Net Gross Net Jože Colarič 430 178 7 734 306 1,164 491 Aleš Rotar 342 141 11 465 194 807 346 Vinko Zupančič 289 120 13 387 161 676 294 David Bratož 283 120 11 380 159 663 290 Milena Kastelic 170 78 6 80 34 250 118 Total Members of the Management Board 1,514 637 48 2,046 854 3,560 1,539 Net fringe benefits and other earnings € thousand Executive health insurance Supplementary pension insurance Anniversary bonuses Other bonuses Refund of work- related costs Pay for annual leave Total Jože Colarič 0.00 2.82 0.00 1.79 0.05 1.98 6.64 Aleš Rotar 0.00 2.82 0.00 4.80 1.05 1.98 10.65 Vinko Zupančič 0.00 2.82 0.00 7.15 0.91 1.98 12.86 David Bratož 0.00 2.82 1.34 3.59 1.08 1.98 10.81 Milena Kastelic 0.00 2.82 0.00 0.44 1.08 1.98 6.32 Total Members of the Management Board 0.00 14.10 1.34 17.77 4.17 9.90 47.28 Remuneration paid to Management Board members in the controlling company in 2020 Salary – fixed part Salary – variable part Total € thousand Gross Net payout Net fringe benefits and other earnings Gross Net Gross Net Jože Colarič 432 177 8 800 313 1,232 498 Aleš Rotar 347 141 13 517 202 864 356 Vinko Zupančič 290 119 13 430 168 720 300 David Bratož 281 119 10 422 166 703 295 Milena Kastelic 169 78 6 80 32 249 116 Total Members of the Management Board 1,519 634 50 2,249 881 3,768 1,565 2021 Annual Report – Financial Report of the Krka Group 240 Net fringe benefits and other earnings € thousand Executive health insurance Supplementary pension insurance Anniversary bonuses Other bonuses Refund of work- related costs Pay for annual leave Total Jože Colarič 0.00 2.82 0.00 3.41 0.03 1.81 8.06 Aleš Rotar 0.00 2.82 1.86 5.32 1.12 1.81 12.93 Vinko Zupančič 0.00 2.82 0.00 7.87 0.99 1.81 13.48 David Bratož 0.00 2.82 0.00 4.13 1.06 1.81 9.82 Milena Kastelic 0.00 2.82 0.00 0.05 1.04 1.81 5.71 Total Members of the Management Board 0.00 14.10 1.86 20.78 4.23 9.04 50.00 Other bonuses refer to the use of a company car for private purposes and other similar bonuses. Refund of work-related costs consists of commuting and meal allowances. Members of the Management Board do not receive attendance fees or any other income for exercising their functions in the Management and Supervisory Boards in subsidiaries. Remuneration paid to Supervisory Board members in the controlling company in 2021 Basic pay for exercising the function Attendance fees Commuting allowances Total € thousand Gross Net Gross Net Gross Net Gross Net Members of the Supervisory Board (owner representatives) Jože Mermal 33.51 24.38 1.65 1.20 0.00 0.00 35.16 25.58 Matej Lahovnik 30.82 22.41 2.97 2.16 0.23 0.17 34.02 24.74 Borut Jamnik 31.61 22.99 2.97 2.16 0.00 0.00 34.58 25.15 Julijana Kristl 29.70 21.60 2.53 1.84 0.42 0.31 32.65 23.75 Mojca Osolnik Videmšek 29.70 21.60 2.97 2.16 0.40 0.29 33.07 24.05 Boris Žnidarič 31.61 22.99 2.53 1.84 0.41 0.30 34.55 25.13 Members of the Supervisory Board (employee representatives) Franc Šašek 31.23 22.71 2.97 2.16 0.00 0.00 34.20 24.87 Tomaž Sever 29.70 21.60 2.53 1.84 0.51 0.37 32.74 23.81 Mateja Vrečer 29.70 21.60 2.53 1.84 0.00 0.00 32.23 23.44 Total remuneration paid to Members of the Supervisory Board 277.58 201.88 23.65 17.20 1.97 1.44 303.20 220.52 In accordance with a resolution adopted at the 27 th Annual General Meeting on 8 July 2021, Members of the controlling company's Supervisory Board are entitled to an attendance fee, which for each individual member of the controlling company's Supervisory Board amounts to €275.00 gross. Members of the Supervisory Board Commission receive an attendance fee for their participation in sessions, which for each individual member amounts to 80% of the attendance fee for Supervisory Board sessions. The attendance fee for participating in correspondence sessions amounts to 80% of the general attendance fee. Notwithstanding the foregoing, and irrespective of the number of attendances at meetings of the Supervisory Board and the Commissions in any financial year, a member of the Supervisory Board shall be entitled to the payment of attendance fees until the total amount of the attendance fees reaches 50% of the basic pay for exercising the function of a Member of the Supervisory Board on an annual basis. Notwithstanding the foregoing, and irrespective of the number of attendances at meetings of the Supervisory Board and the Commissions in any financial year, a member of the Supervisory Board who is a member of a Commission or Commissions of the Supervisory Board shall be entitled to the payment of attendance fees until the total amount of the attendance fees for attendance at sessions of the Supervisory Board and the Commissions reaches 75% of the basic pay for exercising the function of a Member of the Supervisory Board on an annual basis. 2021 Annual Report – Financial Report of the Krka Group 241 In addition to attendance fees, member of the Company's Supervisory Board receives on an annual basis also a basic pay for exercising the function in the amount of €15,000.00 gross. The President of the Supervisory Board is further entitled to an extra fee in the amount of 50% of the basic pay for exercising the function of Member of NS, whereas Deputy President of the Supervisory Board is entitled to an extra fee of 10% of the basic pay for exercising the function of a Member of the Supervisory Board. Members of the Supervisory Board Commission are further entitled to a bonus corresponding to 25% of the basic fee for exercising the function of a member of the Supervisory Board. The President of the Commission is entitled to a bonus corresponding to 37.5% of the extra fee for exercising the function of a member of the Supervisory Board Commission. A Member of the Supervisory Board Commission is in every financial year entitled – regardless of the above-mentioned or the number of Commissions he/she is a member of or presides over – to receive bonuses until the total amount of these bonuses reaches 50% of the basic pay for exercising the function of the Supervisory Board member on an annual basis. Notwithstanding the above, if the term of office of a member of the SC is shorter than a financial year, and irrespective of the number of Commissions of which he/she is a member or presides over, a member of a Commission of the Supervisory Board shall be entitled to pay-outs of extra fees for the performance of his/her duties in a financial year, until the total amount of such pay-outs for exercising the function reaches 50% of the basic pay for of a member of the Supervisory Board in respect of the eligible payments for the period of his/her term of office in the financial year. Members of the Supervisory Board are also entitled to extra fees for special tasks. Special tasks are those which involve the actual performance of unusual tasks of above-average complexity over a prolonged period of time, normally lasting at least one month. The Supervisory Board is authorised to take decisions with the agreement of the Supervisory Board member on the assignment of special tasks to that member, the duration of the special tasks and the extra fees for the special tasks in accordance with this Assembly Decision. The Supervisory Board is also authorised to take decisions on extra fees for special tasks of the Supervisory Board members due to objective circumstances in the company. Extra fees for special tasks are only admissible for the time when the special tasks are actually carried out, which may exceptionally be decided retrospectively by the Supervisory Board (in particular in the case of special tasks due to objective circumstances in the company), but not more than for the previous financial year. The extra fees for special tasks that a member may receive in a given year may amount to a maximum of 50% of the basic pay for exercising the functions of a member of the Supervisory Board (irrespective of the number of special tasks). The amount of the additional payment shall take into account the complexity of the special task and the increased workload and responsibility involved. The extra fee rate shall be calculated according to the time actually spent on the special task. Members of the Company's Supervisory Board receive a basic pay and an extra fee for exercising the function and a bonus for special tasks, in proportionate monthly payments which they are entitled while they are performing a function and/or a special task. The monthly payment amounts to one twelfth of the aforesaid annual amounts. Depending on the circumstances, a surcharge for special tasks may also be applied in a lump sum when the special task is completed. The limitation of the amount of the total amount of the attendance fees and the payment of the extra fees to a member of the Supervisory Board shall in no way affect his/her duty to actively participate in all sessions of the Supervisory Board and of the sessions of the Commissions of which he/she is a member, nor his/her statutory responsibility. The Members of the Supervisory Board are entitled to reimbursement of transportation costs, daily allowance and overnight accommodation expenses incurred in connection with their work for the Supervisory Board, up to the amount laid down in the rules governing the reimbursement of expenses relating to work and other income not deductible for tax purposes (provisions applicable to transport on official travel and accommodation on business travel). The amount due to a member of the Supervisory Board under the above-mentioned regulation is increased by the corresponding levies, therefore the net payment represents the reimbursement of actual travel expenses. The distances between places calculated on the AMZS public website are used to determine the mileage. Overnight accommodation expenses may be reimbursed only if the permanent or temporary residence of the member of the Supervisory Board or of a member of a Supervisory Board Commission is at least 100 kilometres from the place of work of the body, if he/she was unable to return because the timetable no longer provided for any public transport or for other objective reasons. 2021 Annual Report – Financial Report of the Krka Group 242 Loans to groups of persons Balance Repayments € thousand 31 Dec 2021 31 Dec 2020 2021 2020 Members of the Management Board in the controlling company 0 0 0 0 Managers of subsidiaries 37 11 10 0 Members of the Supervisory Board in the controlling company 0 0 0 0 Members of the Supervisory and Management Boards in subsidiaries 0 0 0 0 Total loans to groups of persons 37 11 10 0 Loans to staff employed under individual employment contracts amounted to €179 thousand at 31 December 2021 (€155 thousand as at 31 December 2020). In 2021, repayments of loans by staff employed under individual employment contracts reached €26 thousand (2020: €22 thousand). 2021 Annual Report – Financial Report of the Krka Group 243 32. Profile of the Krka Group 80 Transactions between the Krka Group companies were implemented on the basis of sale and purchase contracts, whereby intercompany transactions were based on market prices of products and services. Ownership share Share capital value at 31 Dec 2021 in thousand Currency Headcount at 31 Dec 2021 Headcount at 31 Dec 2020 Controlling company Krka, d. d., Novo mesto 100% 54,732 EUR 6,228 6,191 Subsidiaries TERME KRKA, d. o. o., Novo mesto, Slovenia 100% 14,753 EUR 548 580 KRKA-FARMA d.o.o., Zagreb, Croatia 100% 143,027 HRK 184 191 KRKA ROMANIA S.R.L., Bucharest, Romania 100% 37 RON 144 147 KRKA-FARMA DOO BEOGRAD, Belgrade, Serbia 100% 65 RSD 77 82 KRKA-FARMA DOOEL, Skopje, North Macedonia 100% 49,021 MKD 44 42 KRKA Bulgaria EOOD, Sofia, Bulgaria 100% 20 BGN 74 72 KRKA HELLAS E.P.E., Athens, Greece 100% 10 EUR 16 18 KRKA FARMA, d.o.o., Sarajevo, Bosnia and Herzegovina 100% 20 BAM 1 1 KRKA-RUS LLC, Istra, Russian Federation 100% 5,361,375 RUB 525 525 KRKA FARMA LLC, Istra, Russian Federation 100% 753,875 RUB 1,427 1,547 KRKA UKRAINE LLC, Kiev, Ukraine 100% 100 UAH 395 384 LLC ´KRKA Kazakhstan´, Almaty, Kazakhstan 100% 14 USD 93 91 KRKA – POLSKA Sp. z.o.o., Warsaw, Poland 100% 17,490 PLN 660 683 KRKA ČR, s. r. o., Prague, Czech Republic 100% 100 CZK 173 187 KRKA Magyarország Kft., Budapest, Hungary 100% 44,880 HUF 174 170 KRKA Slovensko, s.r.o., Bratislava, Slovakia 100% 10 EUR 113 122 UAB KRKA Lietuva, Vilnius, Lithuania 100% 10 EUR 55 62 SIA KRKA Latvija, Riga, Latvia 100% 10 EUR 39 40 TAD Pharma GmbH, Cuxhaven, Germany 100% 6,650 EUR 215 235 KRKA Sverige AB, Stockholm, Sweden 100% 150 SEK 7 6 KRKA Pharma GmbH, Vienna, Austria 100% 37 EUR 21 22 KRKA Farmacêutica, Unipessoal Lda., Estoril, Portugal 100% 10 EUR 46 46 KRKA FARMACÉUTICA, S.L., Madrid, Spain 100% 10 EUR 62 59 KRKA Farmaceutici Milano, S.r.l., Milan, Italy 100% 10 EUR 69 72 Krka France Eurl, Paris, France 100% 10 EUR 41 28 KRKA PHARMA DUBLIN LIMITED, Dublin, Ireland 100% 1 EUR 11 8 KRKA Belgium, SA, Brussels, Belgium 100% 300 EUR 21 22 KRKA Finland Oy, Espoo, Finland 100% 3 EUR 17 15 KRKA UK Ltd, London, United Kingdom 100% 1 GBP 14 12 123 Acurae Pharma GmbH, Cuxhaven, Germany 100% 25 EUR 0 0 Ningbo Krka Menovo Pharmaceutical Co. Ltd., Ningbo, China 60% 345 CNY 17 17 KRKA USA LLC, Wilmington, USA 100% 10 USD 0 0 Total 11,511 11,677 The subsidiary Terme Krka, d. o. o. had a 100% interest in Golf Grad Otočec, d. o. o., at 31 December 2021; the subsidiary KRKA France Eurl had a 100-percent interest in HCS bvba in Belgium. The Chinese company Ningbo Menovo Pharmaceutical Co. Ltd. has a 40-percent holding of the company Ningbo Krka Menovo. 80 GRI GS 102-45 2021 Annual Report – Financial Report of the Krka Group 244 33. Educational structure of the Krka Group employees 2021 2020 Average headcount Equity (%) Average headcount Equity (%) PhD 206 1.8 203 1.7 MSc 397 3.4 391 3.4 University education 5,313 45.9 5,428 46.7 Higher professional education 1,727 14.9 1,700 14.6 Vocational college education 306 2.6 297 2.6 Secondary school education 2,613 22.6 2,547 21.9 Skilled workers 859 7.4 877 7.5 Unskilled workers 160 1.4 188 1.6 Total (average for the year) 11,581 100.0 11,631 100.0 34. Transactions with audit firms The annual fee for auditing of the Krka Group's financial statements in 2021 amounted to €483 thousand (2020: €466 thousand). In addition, the auditing firms provided various consultation services to the Krka Group in 2021 charging a fee of €31 thousand (2020: €60 thousand). 35. Subsequent events The events after the end of the period had no impact on the 2021 financial statements. Situation in Ukraine and the Russian Federation: Impact on the Krka Group Operations We conduct business in Ukraine and the Russian Federation, sales Region East Europe, through three subsidiaries and the controlling company, Krka, d. d., Novo mesto. The registered office of our subsidiary Krka Ukraine LLC engaged only in marketing, but not manufacturing, is in Kiev. The registered office of Krka-Rus LLC engaged in pharmaceutical production is in Istra, a town in the vicinity of Moscow. Main offices of Krka Farma LLC, a company engaged in marketing and sales, are in Moscow. On account of rapid changes and their unpredictability, it is not possible to reliably forecast the impact of the situation in Ukraine and Russian Federation on our business operations in 2022 and any long-term consequences. Krka has a strong capital structure, generates a strong cash flow from operations and has no financial debt, so its successful business performance in the long run is not jeopardised. Our Management Board closely monitor events and implement all necessary activities to ensure business continuity in the two countries. They also take measures to manage operational risks and reduce the eventual negative impact on business results. The Management Board will prepare and publish the eventual revision of guidance for 2022, when and if tangible assessment of short and long term implication of current situation is possible. As at 31 December 2022, Krka’s trade receivables due from customers outside the Krka Group in Ukraine amounted to €39,159 thousand. Krka’s Ukrainian subsidiary does not deal with sales, so it posted no trade receivables due from customers outside the Krka Group, but recorded other assets in total of €2,492 thousand. As at 31 December 2021, the Krka Group recorded trade receivables in total of €181,661 thousand in the Russian Federation. The Krka Group’s other assets in the two subsidiaries in the Russian Federation amounted to €133,968 thousand. In 2022, there was an unfavorable change in the EUR/RUB exchange rate. The exposure at 31 December 2021 and related risks are presented in Note 30 Financial instruments and financial risks. 2021 Annual Report – Financial Report of the Krka Group 245 Acquisition of Treasury Shares in 2022 From 1 January 2022 to 14 April 2022, we acquired 21,689 treasury shares. At the end of this period, Krka held 1,705,597 treasury shares, accounting for 5.201% of total shares. 2021 Annual Report – Financial Report of the Krka Group 246 Independent Auditor's Report 2021 Annual Report – Financial Report of the Krka Group 247 2021 Annual Report – Financial Report of the Krka Group 248 2021 Annual Report – Financial Report of the Krka Group 249 2021 Annual Report – Financial Report of the Krka Group 250 2021 Annual Report – Financial Report of the Krka Group 251 2021 Annual Report – Financial Report of Krka, d. d., Novo mesto 252 Financial statements of Krka, d. d., Novo mesto Statement of Financial Position € thousand Notes 31 Dec 2021 31 Dec 2020 Index 2021/20 Assets Property, plant and equipment 12 570,086 605,164 94 Intangible assets 13 25,628 27,893 92 Investments in subsidiaries 14 346,444 339,612 102 Loans 15 31,010 35,024 89 Investments 16 108,882 10,419 1,045 Deferred tax assets 17 12,742 14,222 90 Other non-current assets 627 615 102 Total non-current assets 1,095,419 1,032,949 106 Assets held for sale 41 41 100 Inventories 18 394,323 389,178 101 Contract assets 300 500 60 Trade receivables 19 424,588 415,286 102 Other receivables 19 17,381 15,667 111 Loans 15 195,459 57,836 338 Investments 16 155,448 524 29,666 Cash and cash equivalents 20 144,981 296,398 49 Total current assets 1,332,521 1,175,430 113 Total assets 2,427,940 2,208,379 110 Equity Share capital 21 54,732 54,732 100 Treasury shares 21 -114,541 -99,279 115 Reserves 21 246,424 218,787 113 Retained earnings 21 1,689,527 1,617,610 104 Total equity 1,876,142 1,791,850 105 Liabilities Provisions 24 113,136 119,830 94 Deferred revenue 25 3,546 4,387 81 Trade payables 26 10,000 10,000 100 Lease liabilities 2,101 2,163 97 Total non-current liabilities 128,783 136,380 94 Trade payables 26 178,143 143,294 124 Borrowings 23 55,092 46,345 119 Lease liabilities 987 659 150 Income tax payables 4,611 13,354 35 Contract liabilities 27 19,477 16,581 117 Other current liabilities 28 164,705 59,916 275 Total current liabilities 423,015 280,149 151 Total liabilities 551,798 416,529 132 Total equity and liabilities 2,427,940 2,208,379 110 The accompanying Notes are an integral part of the financial statements and should be read in conjunction with them. 2021 Annual Report – Financial Report of Krka, d. d., Novo mesto 253 Income Statement € thousand Notes 2021 2020 Index 2021/20 Revenue 1,381,367 1,447,112 95 – Revenue from contracts with customers 5 1,374,765 1,440,930 95 – Other revenue 6,602 6,182 107 Cost of goods sold -614,832 -624,105 99 Gross profit 766,535 823,007 93 Other operating income 6 6,660 5,137 130 Selling and distribution expenses -271,425 -263,174 103 – Of that net impairments and write-offs of receivables -50 1,177 R&D expenses -150,232 -150,727 100 General and administrative expenses -78,213 -75,361 104 Operating profit 273,325 338,882 81 Financial income 10 24,714 31,786 78 Financial expenses 10 -12,083 -72,837 17 Net financial result 12,631 -41,051 Profit before tax 285,956 297,831 96 Income tax 11 -40,740 -39,357 104 Net profit 245,216 258,474 95 Basic earnings per share (€) 22 7.86 8.23 96 Diluted earnings per share (€) 22 7.86 8.23 96 The accompanying Notes are an integral part of the financial statements and should be read in conjunction with them. Statement of Other Comprehensive Income € thousand Notes 2021 2020 Index 2021/20 Net profit 245,216 258,474 95 Net profit – effect of the merger 0 1,778 0 Other comprehensive income for the year Other comprehensive income that will not be reclassified to profit or loss at a future date Change in fair value of financial assets 5,441 739 736 Restatement of post-employment benefits 24 6,438 -10,966 Deferred tax effect -1,645 901 Effect of the merger 0 35,525 0 Net other comprehensive income that will not be reclassified to profit or loss at a future date 10,234 26,199 39 Total other comprehensive income of the year (net of tax) 10,234 26,199 39 Total comprehensive income of the year (net of tax) 255,450 286,451 89 The accompanying Notes are an integral part of the financial statements and should be read in conjunction with them. 2021 Annual Report – Financial Report of Krka, d. d., Novo mesto 254 Statement of Changes in Equity € thousand Share capital Treasury shares Reserves Retained earnings Total equity Reserves for treasury shares Share premium Legal reserves Statutory reserves Fair value reserve Other profit reserves Retained earnings Profit for the year At 1 Jan 2021 54,732 -99,279 99,279 105,897 14,990 30,000 -31,379 1,280,090 102,773 234,747 1,791,850 Net profit 0 0 0 0 0 0 0 0 0 245,216 245,216 Total other comprehensive income of the year (net of tax) 0 0 0 0 0 0 12,375 0 -2,141 0 10,234 Total comprehensive income of the year (net of tax) 0 0 0 0 0 0 12,375 0 -2,141 245,216 255,450 Total transactions with owners, recognised in equity Formation of other profit reserves under the resolution of the AGM 0 0 0 0 0 0 0 90,812 -90,812 0 0 Transfer of previous period's profits to retained earnings 0 0 0 0 0 0 0 0 234,747 -234,747 0 Repurchase of treasury shares 0 -15,262 0 0 0 0 0 0 0 0 -15,262 Formation of reserves for treasury shares 0 0 15,262 0 0 0 0 0 0 -15,262 0 Dividends paid 0 0 0 0 0 0 0 0 -155,896 0 -155,896 Total transactions with owners, recognised in equity 0 -15,262 15,262 0 0 0 0 90,812 -11,961 -250,009 -171,158 At 31 Dec 2021 54,732 -114,541 114,541 105,897 14,990 30,000 -19,004 1,370,902 88,671 229,954 1,876,142 The accompanying Notes are an integral part of the financial statements and should be read in conjunction with them. 2021 Annual Report – Financial Report of Krka, d. d., Novo mesto 255 € thousand Share capital Treasury shares Reserves Retained earnings Total equity Reserves for treasury shares Share premium Legal reserves Statutory reserves Fair value reserve Other profit reserves Retained earnings Profit for the year At 1 Jan 2020 54,732 -73,774 73,774 105,897 14,990 30,000 -23,604 1,211,292 43,158 227,713 1,664,178 Net profit 0 0 0 0 0 0 0 0 0 258,474 258,474 Net profit – effect of the merger 0 0 0 0 0 0 0 0 0 1,778 1,778 Total other comprehensive income of the year (net of tax) 0 0 0 0 0 0 -7,775 0 33,974 0 26,199 Total comprehensive income of the year (net of tax) 0 0 0 0 0 0 -7,775 0 33,974 260,252 286,451 Total transactions with owners, recognised in equity Formation of other profit reserves under the resolution of the AGM 0 0 0 0 0 0 0 68,798 -68,798 0 0 Transfer of previous period's profits to retained earnings 0 0 0 0 0 0 0 0 227,713 -227,713 0 Repurchase of treasury shares 0 -25,505 0 0 0 0 0 0 0 0 -25,505 Formation of reserves for treasury shares 0 0 25,505 0 0 0 0 0 0 -25,505 0 Dividends paid 0 0 0 0 0 0 0 0 -133,274 0 -133,274 Total transactions with owners, recognised in equity 0 -25,505 25,505 0 0 0 0 68,798 25,641 -253,218 -158,779 At 31 Dec 2020 54,732 -99,279 99,279 105,897 14,990 30,000 -31,379 1,280,090 102,773 234,747 1,791,850 The accompanying Notes are an integral part of the financial statements and should be read in conjunction with them. 2021 Annual Report – Financial Report of Krka, d. d., Novo mesto 256 Statement of Cash Flows € thousand Notes 2021 2020 CASH FLOWS FROM OPERATING ACTIVITIES Net profit 245,216 258,474 Adjustments for: 126,230 111,062 – Amortisation/Depreciation 12, 13 84,863 85,146 – Foreign exchange differences -3,634 1,611 – Investment income -10,118 -28,408 – Investment expenses 12,951 15,131 – Financial income -3 -3,779 – Interest expenses and other financial expenses 1,431 2,004 – Income tax 11 40,740 39,357 Operating profit before changes in net current assets 371,446 369,536 Change in trade receivables -10,797 57,672 Change in inventories 18 -5,145 -22,171 Change in trade payables 41,785 -13,832 Change in provisions -1,128 1,176 Change in deferred revenue 25 -841 -518 Change in other current liabilities 2,567 3,288 Income tax paid -49,648 -42,641 Net cash flow from operating activities 348,239 352,510 CASH FLOWS FROM INVESTING ACTIVITIES Interest received 403 575 Dividends received 668 575 Proportionate profit of subsidiaries 5,419 7,092 Proceeds from sale of property, plant and equipment 1,391 760 Purchase of property, plant and equipment 12 -48,851 -60,917 Purchase of intangible assets 13 -4,836 -5,582 Acquisition of subsidiaries and a share of minority interests net of financial assets acquired 14 -7,824 -11,281 Refunds of subsequent contributions to subsidiaries 14 992 0 Net proceeds from non-current loans 3,875 2,207 Net payments for current loans -137,558 -23,210 Net payments for non-current investments -92,135 -540 Net payments for current investments -51,488 0 Net payments for/proceeds from derivatives -8,457 2,769 Net cash flow from investing activities -338,401 -87,552 CASH FLOWS FROM FINANCING ACTIVITY Interest paid -444 -512 Net proceeds from/payments for current borrowings 31 8,703 -2,269 Lease liabilities paid 30 -991 -732 Dividends and other profit shares paid 31 -155,907 -133,283 Repurchase of treasury shares 31 -15,262 -25,505 Net cash flow from financing activities -163,901 -162,301 Net decrease/increase in cash and cash equivalents -154,063 102,657 Cash and cash equivalents at beginning of year 296,398 195,236 Effect of foreign exchange rate fluctuations on cash held 2,646 -1,751 Cash proceeds from merger of Farma GRS 0 256 Closing balance of cash and cash equivalents 144,981 296,398 The accompanying Notes are an integral part of the financial statements and should be read in conjunction with them. 2021 Annual Report – Financial Report of Krka, d. d., Novo mesto 257 Notes to the Financial Statements Krka, d. d., Novo mesto is the controlling company in the Krka Group with its registered seat at Šmarješka cesta 6, 8501 Novo mesto, Slovenia. The Company was registered at the District Court of Novo mesto on 13 July 1989, registration number 1/00097/00. Company registration No.: 5043611000. The financial statements of the Company refer to the year ended 31 December 2021. The Company is engaged in the development, production, marketing and sale of human health products (prescription pharmaceuticals and non-prescription products), and animal health products. 1. Basis of preparation Statement of compliance The financial statements of the Company have been prepared in accordance with International Financial Reporting Standards (‘IFRS‘), and interpretations issued by the International Financial Reporting Interpretations Committee of the IASB (‘IFRIC’), as adopted by the European Union, and in compliance with the Companies Act (ZGD-1). The financial statements were approved by the Krka Management Board on 28 March 2022. Basis of measurement The financial statements have been prepared on the historical cost basis, with the exception of derivatives, financial instruments at fair value through profit or loss and financial instruments at fair value through OCI for which fair value was used. Methods applied in the measurement of fair value are presented in Note 2 Fair Value. Functional and reporting currency The financial statements are presented in the euro, which is the Company’s functional currency. All financial information presented in the euro has been rounded to the nearest thousand. Use of estimates and judgements The preparation of financial statements requires the Management Board of the controlling company to make judgements, estimates and assumptions that affect the carrying amounts of assets and liabilities of Krka as well as the reported income and expenses for the period. These include, among others: determination of the useful life and residual value of property, plant and equipment, as well as intangible assets; income from contracts with customers, allowances made for inventories and receivables; investment impairment; assumptions material to the actuarial calculation of defined employee benefits; assumptions used in the calculation of potential provisions for disputes, and an estimate of the duration of the lease and the interest rate used. Regardless of the fact that the Management Board duly considers all factors that may impact the preparation of these assumptions, the actual consequences of business events may differ from those estimates. In the process of making accounting estimates, management makes judgements while considering potential changes in the business environment, new business events, new and additional information that may be available, as well as experience. Key estimates and assumptions as at the day of the statement of financial position that are associated with future operations and which could result in significant adjustment of the book values of assets and liabilities are presented below. 2021 Annual Report – Financial Report of Krka, d. d., Novo mesto 258 Information on significant estimates about uncertainty and critical judgements in applying accounting policies that have the most significant effect on the amounts recognised in the financial statements is presented in the following notes:  Note 5 ‘Revenue from contracts with customers’ Revenue from contracts with customers is recognised when control of the goods and services is transferred to the customer at an amount that reflects the consideration to which Krka expects to be entitled in exchange for those goods or services, while considering specific terms and conditions of an individual contract. In assessing variable compensation, Krka specifically addresses returns, while considering specific terms and conditions of an individual contracts for the sale of products and services to customers, statutory provisions, and business practices in a given environment. When assessing variable compensation, Krka must use either the expected value method or the most likely amount method, whichever better predicts the amount of consideration to which it will be entitled. Given the large number of contracts with customers, Krka determined the expected value method as the most appropriate for estimating variable consideration for the sale of products with a right to return. To estimate the variable consideration for expected future volume rebates on the quantity of products purchased, Krka identified combination of the most likely amount method and the expected value method as the most appropriate. The method that best predicts the amount of variable consideration is primarily driven by the number of volume thresholds contained in the contract, legal provisions and business practices in various environments. The most likely amount method is best suited for contracts with a single-volume threshold, and the expected value method for contracts with more than one volume threshold. Prior to including any variable consideration in the transaction price, Krka assesses whether there is a constraint on variable consideration. Based on past experience, business forecasts and current economic conditions, Krka has determined that there are no constraints on variable consideration. The Company is a seller of products that may be subject to payment terms in excess of one year in certain markets. Krka recognises financial income and expenses on these sales using the appropriate discount rate.  Note 14 ‘Impairment testing of investments in subsidiaries’ The controlling company checks whether there are any indicators of impairment of investments in subsidiaries at least once a year. The fair value of investments that may be impaired is determined as the present value of future cash flows, which is based on an estimate of expected cash flows from the cash-generating unit and on determination of the appropriate discount rate. Krka found no need for impairment of investments in subsidiaries as at 31 December 2021.  Note 19 ‘Impairment testing of receivables’ On the financial statement preparation (quarterly and annually), Krka recognises allowances (impairment) of those receivables for which it is assumed that will not be settled in full or not at all. Allowances are recognised using uniform methodology applicable to the Krka Group and in consideration of the probability or assessed probability of receivable settlement by the debtors. The methodology includes quantitative and qualitative criteria grouped into the following four sets: an analysis of the existing business dealings with the customer, an analysis of the customer's financial statements, a qualitative assessment of the customer by the sales personnel, and an assessment of the customer's country risk. Hence, allowances of receivables due from individual customer are calculated by means of an algorithm that includes all the above criteria.  Note 24 ‘Post-employment benefits’ Defined post-employment benefit obligations include the present value of termination benefits on retirement. They are recognised on the basis of the actuarial calculation using assumptions and estimates effective at the time of the calculation, and which may, as a result of future changes, differ from actual assumptions applicable at that future time. This applies primarily to determination of a discount rate, assessment of employee turnover, mortality assessment, and assessment of an increase in salaries. Due to the complexity of the actuarial calculation and the 2021 Annual Report – Financial Report of Krka, d. d., Novo mesto 259 long-term nature of the item, defined benefit obligations are sensitive to changes in the above estimates and assessments.  Note 24 ‘Provisions for lawsuits and contingent liabilities’ Lawsuits and claims may be brought against the Company for alleged breaches of intellectual property (patent rights or competition law) and those referring to other civil law areas. A provision is recognised when Krka has present obligations (legal or constructive) as a result of past events, a reliable estimate can be made of the amount of obligation, and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation. Contingent liabilities are not recognised in the financial statements as their actual existence will be confirmed only upon the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of Krka. The Management Board continually assess contingent liabilities to determine whether an outflow of resources embodying economic benefits has become probable. If this is the case, a provision is recognised in the financial statements of the period in which the change in probability occurs.  Note 27 ‘Current liabilities from contracts with customers’ Krka accrues contractually agreed discounts in its financial statements when, based on the annual sales, individual customers gain the right to discount recognition in the next financial year, i.e. when contractually agreed terms and conditions of discounts are fulfilled. The assessed rate of discount depends on the facts known at the time of the financial statement preparation, past experience in trading with individual customers, and other relevant facts.  Notes 30 ‘Leases’ Krka recognises leases based on measurement of lease liabilities and thus its determination of the lease term, its incremental borrowing rate if the implicit interest rate is not readily determinable, and its assessment at contract inception whether a contract is, or contains, a lease. At contract inception, Krka assesses whether a contract is, or contains a lease. That is, if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. As a lessee, Krka determines the lease term as the period during which the lease cannot be terminated, inclusive of: a) The period for which the option to extend the lease applies if it is reasonably certain that the lessee will exercise that option; and b) The period for which the option to terminate the lease applies if it is reasonably certain that the lessee will not exercise that option. Krka considers all relevant facts, circumstances, and past practices that provide an economic incentive for Krka not to exercise the option of contract extension or termination. Krka reassesses the lease term upon occurrence of any significant event or a material change in the circumstances it controls that affect its decision to exercise the option of contract extension or termination. Krka uses its incremental borrowing rate when the implicit interest rate in the lease cannot be determined. The assessed borrowing rate is based on the estimated bond yield if the Company were to incur debt on the financial markets, depending on the maturity of the contract. 2021 Annual Report – Financial Report of Krka, d. d., Novo mesto 260 2. Significant accounting policies Krka applied the same accounting policies in all periods presented in the accompanying financial statements. The accounting policies and the calculation methods used are the same as for the last annual reporting, except for the newly adopted standards and interpretations. which are noted below and were applied if relevant events occurred in the Company in the reporting period. New standards and interpretations effective from 1 January 2021 Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 – Interest Rate Benchmark Reform – Phase two The International Accounting Standards Board (IASB) published phase two of the Interest Rate Benchmark Reform, namely the amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16, which concludes its work to respond to the effects of Interbank Offered Rates (IBOR). The amendments introduce a temporary exemption for reporting the financial effects of replacing the interbank offered rates (IBOR) with an alternative nearly risk-free interest rate (RFR). They provide a practical expedient to companies when accounting for modification in the basis for determining the contractual cash flows of a financial asset and liability, where an entity is required to adjust the effective interest rate that is equivalent to the fluctuation of the market interest rates. In addition, they provide entities with certain relief from discontinuing hedge accounting, including a temporary exemption from the requirement of differentiation for hedging relationships in which an alternative interest rate reference has been specified as a non-contractually determined risk component. Amendments to IFRS 7 – Financial Instruments Amendments require entities to make appropriate disclosures to enable the financial statement users to understand the effect of the interest rate benchmark reform on their financial instruments and risk management strategy. The entity must apply the amendments retrospectively, without restatement of prior period data. The management has assessed the impact of the amendments and believes they had no significant impact on the Krka’s consolidated financial statements. Amendments to IFRS 16 Leases – COVID-19-Related Rent Concessions after 30 June 2021 The amendments are effective for annual periods beginning on or after 1 April 2021 and must be applied retrospectively, with early application permitted even in financial statements that were not authorised for issue at the date of the amendments. In March 2021, the IASB amended the conditions for applying the practical expedient in IFRS 16, which allows a lessee not to treat lease rent adjustments that arise as a direct result of the COVID-19 pandemic under the guidance in the standard IFRS 16. An entity may obtain practical expedient relief from the treatment of a rent concession where the individual rent reduction affects only payments that would have been originally due on or before 30 June 2022, and provided that all the conditions for applying the practical expedient are met. The Company applied the amendments on 1 June 2020. The management has assessed the impact of the amendments and believes they had no significant impact on the consolidated financial statements of the Company. Merger of a subsidiary Pursuant to the agreement on the purchase of business stakes, in February 2020 Krka, d. d., Novo mesto acquired a 100% stake in Farma GRS, d. o. o. In October 2020, Farma GRS, d. o. o. merged with the Company, with 30 June 2021 as the effective date of the merger. The merger of Farma GRS, d. o. o. did not have any impact on the financial statements of the Krka Group since the controlling company, Krka, d. d., Novo mesto was its sole owner. The difference between the net value of the merged assets of €38,183,327 and the investment of €1,004,410 was recognised in the controlling company's separate financial statements within the same capital category as in the Group's consolidated financial statements prior to the merger. Consequently, on 2 October 2020, Farma GRS, d. o. o. was removed from the court register. The key reason for the merger of the acquiree with the acquirer is in addition to the rationalisation of processes, the simplification of operations and business processes. 2021 Annual Report – Financial Report of Krka, d. d., Novo mesto 261 In 2020, following the merger of Farma GRS, d. o. o., the Company recognised:  €1,777,842 of net profit of the 2020 financial period;  €35,501,994 of retained earnings; and  €22,421 of value reserves. A more detailed presentation of the effects of the merger is disclosed below in Notes to the separate financial statements of the Company for the previous year. Foreign currencies Foreign currency transactions Transactions and balances in foreign currencies are translated to the euro (the functional currency of Krka) at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are converted to the functional currency at the exchange rate at that date. Non-monetary assets and liabilities denominated in foreign currencies are translated to the euro at the exchange rate applicable on the reporting date. Non- monetary assets and liabilities denominated in foreign currencies and measured at the fair value are converted to the euro at the exchange rate at the date that the fair value was determined. Foreign currency differences are recognised in profit or loss, except for differences arising on the translation of equity instruments, which are recognised directly in other comprehensive income. Non-cash items measured at historical cost in foreign currency are translated to the functional currency by applying the exchange rate valid at the date of the transaction. Fair value A number of the Company’s accounting policies and disclosures require the determination of fair value, for both financial and non-financial assets and liabilities. Fair value is the amount for which an asset could be sold or a liability exchanged in a regular transaction between market participants. All assets and liabilities measured and disclosed at their fair value in financial statements are classified in the fair value hierarchy on the basis of lowest level of input data significant for measurements of total fair value: • Level 1 – market value (unadjusted) from the active market for similar assets and liabilities; • Level 2 – valuation model, which is not classified in level 1, is valued directly or indirectly on the basis of comparable market data; • Level 3 – valuation model which is not based on the market data. Fair values have been determined for measurement and/or disclosure purposes based on the methods presented below. Where applicable, further information about the assumptions made in determining fair values is disclosed in the Notes specific to that asset or liability. Investments in equity and debt securities The fair value of financial assets at fair value through profit or loss and at fair value through OCI is determined by reference to their quoted closing bid price. For investments in debt securities at amortised cost, for reporting purposes the fair value is calculated on the basis of the closing rate, which is increased by accrued interest on the reporting date. Trade and other receivables Fair value of trade and other receivables is estimated at the present value of future cash flows discounted at the market rate of interest effective at the reporting date. Financial liabilities Fair value is determined based on the present value of future principal and interest payments discounted at the market rate of interest prevailing at the reporting date. 2021 Annual Report – Financial Report of Krka, d. d., Novo mesto 262 Financial instruments A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity. Financial assets Financial assets of the Company include cash and cash equivalents, receivables and loans and financial investments and investments in subisidiaries (see accounting policies in the Investments in subsidiaries section). Initial recognition and measurement Financial assets are classified, at initial recognition, as subsequently measured at amortised cost, fair value through other comprehensive income (OCI), and fair value through profit or loss. The classification of financial assets at initial recognition depends on the financial assets’ contractual cash flow characteristics and Krka's business model for managing them. With the exception of trade receivables that do not contain a significant financing component or for which the Company has applied the practical expedient, the Company initially measures a financial asset at fair value plus, in the case of a financial asset not at fair value through profit or loss, transaction costs. Trade receivables that do not contain a significant financing component or for which the Company has applied the practical expedient are measured at the transaction price determined under IFRS 15. Refer to the accounting policies in section ‘Revenue from contracts with customers’. In order for financial assets to be classified and measured at amortised cost or fair value through OCI, they need to give rise to cash flows that are ‘solely payments of principal and interest (SPPI)’ on the principal amount outstanding. This assessment is referred to as the SPPI test and is performed at an instrument level. Krka's business model for managing financial assets refers to how it manages its financial assets in order to generate cash flows. The business model determines whether cash flows will result from collecting contractual cash flows, selling the financial assets, or both. Purchases or sales of financial assets that require delivery of assets within a time frame established by regulation or convention in the marketplace (regular way trades) are recognised on the trade date, i.e. the date that the Company commits to purchase or sell the asset. The Company derecognises a financial asset when the contractual rights to the cash flows from the asset expire or when it transfers the rights to the contractual cash flows from the financial asset in a transaction that transfers all the risks and rewards of ownership of the financial asset. Subsequent measurement For purposes of subsequent measurement, financial assets are classified into four categories:  Financial assets at amortised cost (debt instruments);  Financial assets at fair value through OCI with recycling of cumulative gains and losses (debt instruments);  Financial assets designated at fair value through OCI with no recycling of cumulative gains and losses upon derecognition (equity instruments);  Financial assets at fair value through profit or loss. Financial assets at amortised cost (debt instruments) Cash and cash equivalents comprise cash, bank deposits up to three months, and other current, highly realisable investments with an original maturity of three months or less. The latter can be easily converted into known amounts of cash and for which the risk of changes in value is insignificant. The cash flows derived from these assets are solely payments of the principal and interest are therefore classified as financial assets at amortised cost. According to the SSPI test, loans issued by the Company are classified as financial assets at amortised cost, since the cash flows derived from these assets are solely payments of the principal and interest on the principal amount outstanding. 2021 Annual Report – Financial Report of Krka, d. d., Novo mesto 263 Krka's investments in debt securities, which include only low credit risk government bonds, are classified as financial assets at amortised cost. The Company’s financial assets at amortised cost also include trade receivables. After initial recognition, these investments are measured using the effective interest method and are subject to impairment. Gains and losses are recognised in profit or loss when the asset is derecognised, modified or impaired. Financial assets at fair value through OCI (debt instruments) The Company classifies its investments in equity securities as financial assets at fair value through OCI. Subsequent to initial recognition, they are measured at fair value. Interest income, foreign exchange differences, and impairment losses or reversals are recognised in the statement of profit or loss and computed in the same manner as for financial assets measured at amortised cost. The remaining fair value changes are recognised in OCI. Upon derecognition, the cumulative fair value change recognised in OCI is recycled to profit or loss. Financial assets at fair value through OCI (equity instruments) The Company classifies its investments in equity securities as financial assets at fair value through OCI. The Company elected to classify irrevocably its listed and non-listed investments in this category. Subsequent to initial recognition, they are measured at fair value. Changes in fair value are recognised directly in other comprehensive income. When an investment is derecognised, the cumulative gain or loss in equity is not transferred to profit or loss. Financial assets at fair value through profit or loss Financial assets at fair value through profit or loss include financial assets held for trading, financial assets designated upon initial recognition at fair value through profit or loss, or financial assets mandatorily required to be measured at fair value. Financial assets are classified as held for trading if they are acquired for the purpose of selling or repurchasing in the near term. Derivatives, including separated embedded derivatives, are also classified as held for trading unless they are designated as effective hedging instruments. Financial assets with cash flows that are not solely payments of principal and interest are classified and measured at fair value through profit or loss, irrespective of the business model. Financial assets at fair value through profit or loss are carried in the statement of financial position at fair value with net changes in fair value recognised in the statement of profit or loss. Impairment of financial assets is described in the Impairment – financial assets section. Financial liabilities Financial liabilities consist mainly of loans, payables to suppliers and other liabilities. Lease liabilities and employee benefits are treated separately (see accounting policies in the Leases and Employee Benefits sections). All other financial liabilities are initially recognised on the trade date or when the Company becomes a contracting party in relation to the instrument. On initial recognition, the Company classifies non-derivative financial liabilities as subsequently measured at amortised cost and derivative financial liabilities as at fair value through profit or loss. After initial recognition, financial liabilities arising from loans are measured using the effective interest method. Gains and losses are recognised in profit or loss when these liabilities are discharged or modified. The ompany derecognises a financial liability if the obligations set out in the contract are fulfilled, cancelled or expired. 2021 Annual Report – Financial Report of Krka, d. d., Novo mesto 264 Investments in subsidiaries Non-current investments made in equity of subsidiaries included in consolidated financial statements are valued at cost. Participation in the profit of a subsidiary is recognised in the profit or loss of the controlling company when an appropriate resolution referring to profit distribution has been adopted. If the investment is required to be impaired due to subsidiary's loss, the amount of loss due to impairment is measured as a difference between the carrying amount of the investment and the present value of expected future cash flows. Property, plant and equipment The items of property, plant and equipment are measured at cost less accumulated depreciation and impairment losses (refer to the accounting policy ‘Impairment’). The cost of an item of property, plant and equipment as at 1 January 2004, the date of transition to IFRS, is determined by reference to its fair value at that date. Cost includes expenditures that are directly attributable to the acquisition of the asset. The cost of self-constructed assets includes the cost of materials and direct labour, any other directly attributable cost of making the asset ready for its intended use, and (if applicable) assessed costs of dismantling and removing the items and restoring the site on which they are located, as well as capitalised borrowing costs. Purchased software that is integral to the functionality of the related equipment is capitalised as part of that equipment. When parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items of property, plant and equipment. Gains and losses on disposal of an item of property, plant and equipment are determined as the difference between proceeds from disposal and the carrying amount of property, plant and equipment and are recognised within ‘Other operating income’ or ‘Other operating expenses’ in profit or loss. As from 1 January 2009, costs of borrowings that may be directly attributable to the acquisition, construction or production of an asset under construction, are also part of the cost of an item of property, plant and equipment. If borrowings raised are not earmarked and they cannot be attributed directly to the acquisition of an asset under construction, the pro-rata amount of costs is capitalised only when borrowing costs exceed 10% of the value of all investments of the accounting period. The pro-rata amount of costs is calculated using the capitalisation rate as the weighted average costs of borrowings that have not been settled in the accounting period. The pro-rata amount of costs increases the cost of significant assets under construction, i.e. assets that account for more than 10% of total investments in the period and the construction of which extends over a period of more than 6 months. Subsequent expenditure The cost of replacing part of an item of property, plant and equipment is recognised in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to the Company and its cost can be measured reliably. The carrying amount of the replaced part is derecognised. All other costs are recognised in profit or loss as an expense when incurred. Depreciation Depreciation is recognised in profit or loss on a straight-line basis over the estimated useful lives of each item of property, plant and equipment or its individual parts. Land and assets being acquired are not depreciated. The estimated useful lives are as follows:  For buildings 15 to 60 years,  For plant and equipment 2 to 20 years,  For furniture 5 years,  For computer hardware 4 to 6 years, and  For means of transportation 5 to 15 years. 2021 Annual Report – Financial Report of Krka, d. d., Novo mesto 265 Leases At contract inception, the Company assesses whether a contract is, or contains a lease. That is, if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. As a lessee, the Company determines the lease term as the period during which the lease cannot be terminated, inclusive of: a) The period for which the option to extend the lease applies if it is reasonably certain that the lessee will exercise that option; and b) The period for which the option to terminate the lease applies if it is reasonably certain that the lessee will not exercise that option. The Company as a lessee The Company applied a single measurement and recognition approach for all leases, except for current leases and leases of low-value assets. In respect of those, the Krka Group applies a practical expedient of the standard and recognises lease liabilities as expenses on a straight-line basis over the lease term. The practical expedient applies to leases with a lease term of less than 1 year and leases of assets valued at less than €5,000. The Company recognises right-of-use assets and lease liabilities at the commencement date of the lease (i.e. the date the underlying asset is available for use). Right-of-use assets Right-of-use assets are measured at cost less any accumulated depreciation and impairment losses and adjusted for any remeasurement of lease liabilities. The cost of right-of-use assets includes the amount of lease liabilities recognised, initial direct costs incurred, and lease payments made at or before the commencement date less any lease incentives received, as well as an assessment of costs that will be incurred in dismantling or removing the leased asset, restoring the site to its original condition, or returning the asset to a condition as required in the lease terms. The right-of-use assets are depreciated on a straight-line basis over the shorter of the estimated lease term or the estimated useful lives of the assets. Lease liabilities At the commencement date of the lease, the Company recognises lease liabilities measured at the present value of lease payments to be made over the lease term. The lease payments include fixed payments (including in-substance fixed payments) less any lease incentives receivable, variable lease payments that depend on an index or a rate, and amounts expected to be paid by the Company under residual value guarantees. The lease payments also include the exercise price of a purchase option reasonably certain to be exercised by the Company and payments of penalties for terminating the lease if the lease term reflects the Company exercising the option to terminate. Variable lease payments that do not depend on an index or a rate are recognised in profit or loss as expenses in the period in which the event or condition that triggers the payment occurs. In calculating the present value of lease payments, the Company uses its incremental borrowing rate based on estimated bond returns if the Company were to incur debt on the financial markets, while considering their maturity if the interest rate implicit in the lease is not readily determinable. After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments made. The carrying amount of lease liabilities is remeasured if there is a modification, a change in the lease term, a change in the lease payments (e.g. changes to future payments resulting from a change in an index or rate used to determine such lease payments) or a change in the assessment of an option to purchase the underlying asset. 2021 Annual Report – Financial Report of Krka, d. d., Novo mesto 266 The Company as a lessor Leases in which the Company does not transfer substantially all the risks and rewards incidental to ownership of an asset are classified as operating leases. Rental income arising is accounted for on a straight-line basis over the lease terms and is included in revenue in the statement of profit or loss. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognised over the lease term on the same basis as rental income. Intangible assets Research and development All costs referring to the research and development work within the Company are recognised in profit or loss as incurred. Other intangible assets Other intangible assets that are acquired by the Company, which have finite useful lives, are measured at cost less accumulated amortisation and accumulated impairment losses (refer to the accounting policy ‘Impairment’). Subsequent expenditure Subsequent expenditure is capitalised only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure is recognised in profit or loss as incurred. Amortisation Amortisation is recognised on a straight-line basis over the estimated useful lives of intangible assets from the date that they are made available for use. The estimated useful lives for software, licences and other rights range from 2 to 10 years. Inventories In the statement of financial position, inventories are measured at the lower of cost and net realisable value. Net realisable value is the estimated selling price at the reporting date less selling expenses and other potential administrative expenses, which are usually associated with the sale. The Company reviews the net realisable value of inventories once a year at the financial position date. If the carrying amount of inventories exceeds their net realisable value, inventories are impaired. An inventory unit of raw materials and materials, auxiliary and packaging materials is valued at cost including all direct costs of purchase. Inventories of material are carried at moving average prices. Inventories of finished products and work in progress are carried at standard cost, which in addition to direct cost of material includes also cost of production, such as: direct labour cost, direct cost of depreciation, direct cost of services, energy, maintenance, and quality management. Fixed price variances are determined in accordance with the current valuation of inventories using production costs. A quantity unit of merchandise is valued at cost including cost of purchase, import duties, and all costs directly attributable to the acquisition decreased by discounts. Inventories of merchandise are carried at moving average prices. Impairments Financial assets The Company recognises an allowance for the expected credit losses (ECLs) for all debt instruments not held at fair value through profit or loss. ECLs are based on the difference between the contractual cash flows due in accordance with the contract and all the cash flows that the Company expects to receive, discounted at an approximation of the original effective interest rate. The expected cash flows will include cash flows from the sale of collateral held or other credit enhancements that are integral to the contractual terms. 2021 Annual Report – Financial Report of Krka, d. d., Novo mesto 267 Expected credit losses are recognised in two stages. For credit exposures for which there has not been a significant increase in credit risk since initial recognition, ECLs are provided for credit losses that result from default events that are possible within the next 12 months (a 12-month ECL). For those credit exposures for which there has been a significant increase in credit risk since the initial recognition, a loss allowance is required for credit losses expected over the remaining life of the exposure, irrespective of the timing of the default (a lifetime ECL). Impairments of receivables and assets from contracts For trade receivables and contract assets, the Company applies a simplified approach in calculating ECLs. Trade receivables that do not contain a significant financing component or for which the Company has applied the practical expedient (contracts agreed for a period of one year or less) are measured at the transaction price determined under IFRS 15 less any impairment losses. Therefore, the Company does not track changes in credit risk, but instead recognises a loss allowance based on a lifetime ECL at each reporting date. The Company has established a provision matrix that is based on its historical credit loss experience, adjusted for forward-looking factors specific to the debtors and the economic environment. Allowances are recognised using uniform methodology applicable to the Company and in consideration of the probability or assessed probability of receivable settlement by the debtors. Impairment of investments For investments that include government bonds measured at amortised cost, the Company measures expected credit losses annually. If there has been a significant increase in credit risk since recognition, the Company recognises an allowance over the life of the expected credit loss. Non-financial assets The carrying amounts of the Company’s non-financial assets are reviewed at each reporting date to determine whether there is any indication of impairment. If such indications exist, the asset’s recoverable amount is assessed. An impairment loss is recognised if the carrying amount of an asset or its cash-generating unit exceeds its estimated recoverable amount. Impairment loss is recognised in profit or loss. Impairment losses recognised in respect of cash- generating units are allocated to assets in the unit (group of units) on a pro rata basis of the asset's carrying amount. The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For the purpose of impairment testing, assets are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets. Impairment losses recognised in previous periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount of the asset. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised in the previous periods. Share capital Repurchase of treasury shares When treasury shares recognised as a part of share equity are repurchased, the amount of the consideration paid, including directly attributable costs, is recognised as a deduction from equity. Repurchased shares are classified as treasury shares and are presented as a deduction from total equity. Dividends Dividends are recognised in the Company’s financial statements in the period in which they are declared by the Annual General Meeting. 2021 Annual Report – Financial Report of Krka, d. d., Novo mesto 268 Current employee benefits Current employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided. Non-current employee benefits Provisions for post-employment benefits and other non-current employee benefits Pursuant to the local legislation, Krka is liable to pay to its employees’ anniversary bonuses and termination benefits upon retirement and recognises relevant amount of provisions for these purposes. The Company has no other pension obligations. Provisions are determined by discounting, at the reporting date, the estimated future benefits in respect of retirement benefits and anniversary bonuses paid to employees in those countries where this legal obligation exists. The obligation is calculated by estimating the costs of retirement benefits upon retirement and the costs of all expected anniversary bonuses until retirement. The calculation is performed using the projected unit credit method. Employee benefit costs, as well as cost of interest, are recognised in profit or loss, whereas restatement of post-employment benefits or unrealised actuarial profit or loss is recognised in other comprehensive income. Provisions A provision is recognised if, as a result of a past event, the Company has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the estimated future cash flows to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the liability. Provisions for disputes The Company discloses provisions for lawsuits referring to alleged patent infringements. The eligibility of provisions formed in terms of a favourable or unfavourable outcome of the lawsuit is assessed on an annual basis. The amounts of provisions are defined on the basis of the noted amount of the indemnification claim, or on the basis of anticipated potential amount, if the indemnification claim is not yet disclosed. Revenue from contracts with customers The Company is engaged in development, production, marketing and sale of human health products (prescription pharmaceuticals, non-prescription products), animal health products, and material. Revenue from contracts with customers is recognised when control of the goods and services is transferred to the customer at an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services while considering specific terms and conditions of an individual contract. Transfer of control over those goods and services depends on terms and conditions of the contract. In general, control is transferred when goods are accepted by the customer or services are rendered. The normal credit term ranges from 30 to 120 days. The Company considers whether there are other promises in the contract that are separate performance obligations to which a portion of the transaction price needs to be allocated. In determining the transaction price for the sale of products, The Company considers the effects of variable consideration and the existence of significant financing components. Variable consideration If the consideration in a contract includes a variable amount, the Company estimates the amount of consideration to which it will be entitled in exchange for transferring the goods to the customer. The variable consideration is estimated at contract inception and constrained until it is highly probable that a significant revenue reversal in the amount of cumulative revenue 2021 Annual Report – Financial Report of Krka, d. d., Novo mesto 269 recognised will not occur when the associated uncertainty with the variable consideration is subsequently resolved. Some contracts for the sale of products provide customers with a right of return, bonuses, and volume rebates. The rights of return, bonuses, and volume rebates give rise to variable consideration. Rights of return Certain contracts provide a customer with a right to return goods that are past the expiry date. The Company uses the expected value method to estimate the goods that will not be returned because this method best predicts the amount of variable consideration to which it will be entitled. The requirements of IFRS 15 on constraining estimates of variable consideration are also applied in order to determine the amount of variable consideration that can be included in the transaction price. For the goods expected to be returned instead of revenue, the Company recognises a refund liability. A right-of-return asset (and corresponding adjustment to cost of products sold) is also recognised for the right to recover products from a customer. Bonuses and volume rebates The Company provides retrospective bonuses and volume rebates to certain customers once the quantity or value of products purchased during the period exceeds a threshold specified in the contract. Rebates are offset against amounts payable by the customer. The Company estimates the variable consideration for the expected future bonuses and volume rebates based on terms and conditions of the contract including criteria and elements that provide the basis for the recognition of those bonuses and volume rebates. For valuation, the Company uses the most probable value method or the expected value method. The method chosen, which best predicts the value of the rebates and volume discounts, is based on the number of thresholds in the contract. Disclosures about the use of estimates and judgements in estimating variable consideration are provided in the Basis of preparation of the financial statements section. Significant financing component In some cases, the Company receives current advances from its customers. Using the practical expedient in IFRS 15.63, the Company does not adjust the promised amount of consideration for the effects of a significant financing component if it expects, at contract inception, that the period between the transfer of the promised goods or services to the customer and when the customer pays for those goods or services will be one year or less. For sales to the subsidiary Krka-Rus in the Russian Federation, the Company has in the past periods agreed payment terms in excess of one year. In order to take into account a significant financing component, in such cases the transaction price under these contracts is discounted using a discount rate that reflects the Company's separate financial transactions. Contract balances Contract assets A contract asset is the right to an amount of consideration in exchange for goods or services transferred to the customer. If the Company transfers goods or services to a customer before the customer pays consideration or payment is due, a contract asset is recognised for the earned consideration that is conditional. Once the transaction is completed and the customer is confirmed, the contract assets are reclassified as trade receivables. Trade receivables A receivable represents the Company's right to an amount of consideration that is unconditional, i.e. only the passage of time is required before payment of consideration is due. Refer to the accounting policy ‘Recognition of financial instruments’. Contract liabilities A contract liability is the obligation to transfer goods or services to a customer for which the Company has received consideration (or an amount of consideration is due) from the customer. If a customer pays consideration before the goods or services are transferred to the customer, a contract liability is recognised when the payment is made, or the payment is due (whichever is earlier). Contract liabilities are recognised as revenue when the Company performs under the contract. 2021 Annual Report – Financial Report of Krka, d. d., Novo mesto 270 Right-of-return assets Right-of-return assets represent the Company's right to recover the goods expected to be returned by the customer. The asset is measured at the former carrying amount of the inventory, less any expected costs to recover the goods, including any potential decreases in the value of returned goods. The Company regularly updates the measurement of the asset recorded for any revisions to its expected level of returns, as well as any additional decreases in the value of the returned products. Refund liabilities A refund liability is the obligation to refund some or all of the consideration received (or receivable from the customer). The refund liability arises from bonuses and volume discounts. It is measured at the amount the Company ultimately expects it will have to return to the customer. The Company updates its estimates of refund liabilities (and the corresponding change in the transaction price) at the end of each reporting period. Refer to above accounting policy on variable consideration. Government grants Revenue referring to government grants is initially recognised when there is reasonable assurance that they will be received and that the Company will comply with the conditions associated with the grants. Revenue that compensates the expenses incurred is recognised in profit or loss on a systematic basis in the same periods in which the costs are recognised. Revenue that compensates an entity for the cost of an asset is recognised in profit or loss on a systematic basis over the useful life of the asset. Financial income and expenses Financial income comprises interest income on funds invested, dividend income, gains on the disposal of financial assets, changes in the fair value of financial assets at fair value through profit or loss, foreign exchange gains and gains on hedging instruments that are recognised in profit or loss. Interest income is recognised as it accrues in profit or loss, using the effective interest method. Dividend income is recognised on the date that the shareholder's right to receive payment is established, which in the case of quoted securities is the ex-dividend date. Financial expenses comprise interest expense on borrowings, foreign exchange losses, changes in the fair value of financial assets at fair value through profit or loss, impairment losses recognised on financial assets, and losses on hedging instruments that are recognised in profit or loss. All borrowing costs are recognised in profit or loss using the effective interest method, except those that are attributable to property, plant and equipment under construction. Income tax Income tax expense comprises current and deferred tax. Income tax expense is recognised in profit or loss except to the extent that it relates to items recognised directly in other comprehensive income. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted at the reporting date, and any adjustment to tax payable in respect of previous financial years. Deferred tax is recognised using the balance sheet liability approach providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognised for the following temporary differences: the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit, and differences relating to investments in subsidiaries and jointly controlled entities to the extent that it is probable that they will not reverse in the foreseeable future. Also, deferred tax is not recognised for taxable temporary differences arising on the initial recognition of goodwill. The amount of deferred tax is based on the expected manner of settling the carrying amount of assets and 2021 Annual Report – Financial Report of Krka, d. d., Novo mesto 271 liabilities using tax rates enacted at the reporting date. Deferred tax assets are offset against deferred tax liabilities when an entity has a legal right to offset current assets and liabilities, and deferred tax assets and liabilities relate to the same taxable entity and the same tax authority. A deferred tax asset is recognised to the extent that it is probable that future taxable profits will be available against which the deferred tax asset can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realised. Earnings per share The Company presents basic earnings per share (EPS) data. EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding during the period. Diluted EPS equals the basic EPS, as all the Company shares belong to the same class of ordinary no-par value shares. Segment reporting An operating segment is a distinguishable component of Krka that is engaged in providing products or services within a particular geographically defined economic environment. Segments are different in terms of risks and returns. The Company's segment reporting is based on internal reporting system applied by the management in the decision-making process. The segments include: the EU (all countries of the European Union), South-Eastern Europe (Serbia, Bosnia and Herzegovina, North Macedonia, Montenegro, Kosovo and Albania) and Eastern Europe (Russian Federation and other former Soviet Union countries excluding the Baltic countries), as well as Other (countries not included in any of the above segments). Revenues generated by individual segments of the Company are presented in terms of customers’ geographical location. The data are calculated on the basis of revenue and expenses, assets and liabilities directly attributable to each market of the Company. Segment capital expenditure is the total cost incurred during the period to acquire property, plant and equipment, and intangible assets. Amendments to standards and interpretations issued but not yet effective The following new and amended standards have not come into effect by the date of the financial statements and will be applied in future periods. The Company will apply the new and revised standards and interpretations when they become effective. The Company did not apply any revised standards or interpretations prior to their effective date. Amendments to IFRS 10 – Consolidated Financial Statements and IAS 28 – Investments in Associates and Joint Ventures: Sale or Contribution of Assets between an Investor and its Associate or Joint Venture The amendments address an acknowledged inconsistency between the requirements in IFRS 10 and those in IAS 28, in dealing with the sale or contribution of assets between an investor and its associate or joint venture. The main consequence of the amendments is that a full gain or loss is recognised when a transaction involves a business (whether it is housed in a subsidiary or not). A partial gain or loss is recognised by an entity when a transaction involves assets that do not constitute the entity’s business, even if these assets are housed in a subsidiary. In December 2015, the IASB postponed the effective date of this standard indefinitely pending the outcome of its research project on the equity method of accounting. The amendments have so far not been endorsed by the EU. The management has assessed the impact of the amendments and believes they will have no significant impact on the consolidated financial statements of the Company. 2021 Annual Report – Financial Report of Krka, d. d., Novo mesto 272 Amendments to IAS 1 – Presentation of Financial Statements: Classification of Liabilities as Current or Non-Current The amendments were initially effective for annual periods beginning on or after 1 January 2022. Early adoption was permitted. In response to the COVID-19 pandemic, the IASB has deferred the effective date by one year, i.e. by 1 January 2023, to provide companies with more time to implement any changes to the classification of liabilities resulting from the amendments. The amendments help promoting consistency in applying the requirements by helping entities determine whether, in the statement of financial position, debt and other liabilities with an uncertain settlement date should be classified as current or non-current. The amendments affect the presentation of liabilities in the statement of financial position; however, they do not change existing requirements around measurement or timing of recognition of any asset, liability, income or expenses, nor the information that entities disclose about those items. Also, the amendments clarify the classification requirements for debt which may be settled by an entity issuing own equity instruments. In November 2021, the IASB published an Exposure Draft (ED) that clarifies how an entity treats liabilities that are subject to commitments that are due to be fulfilled at a date after the reporting period. In particular, the Board proposes a limited scope of amendments to IAS 1 that effectively repeal the 2020 amendments that require an entity to classify the liabilities to which the commitments are linked as current liabilities that it is not required to meet until within the next twelve months after the reporting period if it is not meeting them at the end of the reporting period. Instead, the proposed amendments require an entity to present separately and make additional disclosures about any non-current liabilities, to which the commitments are linked that it is not required to meet until within the next twelve months after the reporting period if it is not meeting them at the end of the reporting period. The proposed amendments are effective for annual periods beginning on or after 1 January 2024 and, in accordance with the requirements of IAS 8, an entity shall apply them retrospectively. Early adoption is permitted. At the same time, the Management Board has proposed to postpone the entry into force of the amendments from 2020, which means that companies do not need to change their existing practices before the proposed amendments enter into force. The EU has not yet endorsed the updates to the standard and the drafts for public consultation. The management has assessed the impact of the amendments and believes they will have no significant impact on the consolidated financial statements of the Company. Amendments to IFRS 3 – Business Combinations, IAS 16 – Property, Plant and Equipment, IAS 37 – Provisions, Contingent Liabilities and Contingent Assets, as well as Annual Improvements 2018–2020 The amendments are effective for annual periods beginning on or after 1 January 2022. Early adoption is permitted. The IASB has issued narrow-scope amendments to the IFRS standards as follows:  IFRS 3 Business Combinations (Amendments), updated reference to IFRS 3, Conceptual Framework for Financial Reporting without changing the accounting requirements for business combinations.  IAS 16 Property, Plant and Equipment (Amendments) prohibit a company from deducting from the cost of property, plant and equipment amounts received from selling items produced while the company is preparing the asset for its intended use. Instead, a company will recognise such sales proceeds and related cost in profit or loss.  IAS 37 Provisions, Contingent Liabilities and Contingent Assets (Amendments) specify which costs a company includes in determining the cost of fulfilling a contract for the purpose of assessing whether a contract is onerous.  Annual Improvements 2018–2020 make minor amendments to IFRS 1 First-time Adoption of International Financial Reporting Standards, IFRS 9 Financial Instruments, IAS 41 Agriculture and the Illustrative Examples accompanying IFRS 16 – Leases. The management has assessed the impact of the amendments and believes they will have no significant impact on the consolidated financial statements of the Company. Amendments to IAS 1 – Presentation of Financial Statements and Note 2 to IFRS – Disclosure of Accounting Policies The amendments are effective for annual periods beginning on or after 1 January 2023. Early adoption is permitted. The amendments provide guidance for assessing materiality in the disclosure of accounting policies and replace the requirement to disclose “significant” accounting policies with a requirement to disclose “material” accounting policies. At the same time, the Note provides guidance and illustrative examples to assist in applying the concept of materiality in 2021 Annual Report – Financial Report of Krka, d. d., Novo mesto 273 assessing disclosures about accounting policies. The amendment has so far not been endorsed by the EU. The management has assessed the impact of the amendments and believes they will have no significant impact on the consolidated financial statements of the Company. Amendments to IAS 8 – Accounting Policies, Changes in Accounting Estimates and Errors Definition of accounting estimates The amendments are effective for annual periods beginning on or after 1 January 2023. Early adoption is permitted. They address changes in accounting policies and accounting estimates at the beginning of the period or subsequently and define accounting estimates as monetary amounts in the financial statements that have measurement uncertainty associated with them. They also explain what changes in accounting estimates are and how they differ from changes in accounting policies and corrections of errors. The amendment has so far not been endorsed by the EU. The management has assessed the impact of the amendments and believes they will have no significant impact on the consolidated financial statements of the Company. Amendments to IAS 12 – Income Taxes: Deferred Tax related to Assets and Liabilities from a single transaction The amendments are effective for annual periods beginning on or after 1 January 2023. Early adoption is permitted. In May 2021, the IASB issued amendments to IAS 12 to restrict the application of the initial recognition exemption under IAS 12 and to specify how an entity should account for deferred tax on certain transactions, such as leases and decommissioning liabilities. Under the amendments, the exemption does not apply to transactions for which the taxable amount at initial recognition is equal to the amount of deductible temporary differences. The exception applies only if, on recognition of the leased asset and the related liability (or the liability in connection with the decommissioning and decommissioning of a component of the asset), the taxable amount is not equal to the amount of the deductible temporary differences. The amendment has so far not been endorsed by the EU. The management has assessed the impact of the amendments and believes they will have no impact on the consolidated financial statements of the Company. 2021 Annual Report – Financial Report of Krka, d. d., Novo mesto 274 4. Segment reporting The Company reports in terms of certain geographical segments. Revenues generated by individual segments are presented in terms of customers’ geographical location. The data are calculated on the basis of revenue and expenses, assets and liabilities directly attributable to each market of the Company. Segment reporting European Union South-Eastern Europe Eastern Europe Other Total € thousand 2021 2020 2021 2020 2021 2020 2021 2020 2021 2020 Revenue 767,347 815,626 85,075 80,346 463,028 489,452 65,917 61,688 1,381,367 1,447,112 – Revenue from contracts with customers 761,005 809,659 85,075 80,346 462,982 489,401 65,703 61,524 1,374,765 1,440,930 – Other revenue 6,342 5,967 0 0 46 51 214 164 6,602 6,182 Other operating income 6,660 5,137 0 0 0 0 0 0 6,660 5,137 Operating costs -648,942 -667,278 -59,187 -54,534 -353,383 -343,942 -53,190 -47,613 -1,114,702 -1,113,367 Operating profit 125,065 153,485 25,888 25,812 109,645 145,510 12,727 14,075 273,325 338,882 Interest income 501 438 0 0 0 8 0 2 501 448 Interest expenses -497 -454 -2 -2 -11 -11 -3 -10 -513 -477 Net financial result 4,546 737 -61 -83 5,501 -40,634 2,645 -1,071 12,631 -41,051 Income tax -18,641 -17,826 -3,859 -2,998 -16,343 -16,899 -1,897 -1,634 -40,740 -39,357 Net profit 110,970 136,396 21,968 22,731 98,803 87,977 13,475 11,370 245,216 258,474 Investments 49,493 61,311 0 0 0 0 0 0 49,493 61,311 Depreciation of property, plant and equipment 59,410 58,769 1,680 1,672 15,536 16,647 1,677 1,610 78,303 78,698 Depreciation of the right-of-use assets 721 549 20 15 194 160 20 15 955 739 Amortisation 3,113 3,218 345 317 1,879 1,931 268 243 5,605 5,709 31 Dec 2021 31 Dec 2020 31 Dec 2021 31 Dec 2020 31 Dec 2021 31 Dec 2020 31 Dec 2021 31 Dec 2020 31 Dec 2021 31 Dec 2020 Total assets 1,836,904 1,644,023 53,117 47,873 485,242 470,677 52,677 45,806 2,427,940 2,208,379 Total liabilities 372,823 288,890 22,299 15,112 125,083 95,513 31,593 17,014 551,798 416,529 2021 Annual Report – Financial Report of Krka, d. d., Novo mesto 275 5. Revenue from contracts with customers Breakdown of revenue from contracts with customers € thousand 2021 2020 Revenue from contracts with customers (products) 1,211,494 1,222,011 Revenue from contracts with customers (materials) 163,271 218,919 Total revenue from contracts with customers 1,374,765 1,440,930 Revenue from contracts with customers by region € thousand 2021 2020 Slovenia 56,421 55,385 South-East Europe 205,491 197,185 East Europe 320,973 289,471 Central Europe 336,699 325,793 West Europe 246,350 313,365 Overseas Markets 45,560 40,812 Total 1,211,494 1,222,011 Revenue from contracts with customers by product groups € thousand 2021 2020 Prescription pharmaceuticals 1,017,273 1,039,105 Non-prescription products 118,527 110,562 Animal health products 75,694 72,344 Total 1,211,494 1,222,011 Contract balances Trade receivables are described in Note 19 Trade and other receivables, while liabilities recognised from contracts with customers in Note 27 Current liabilities from contracts with customers. The Company recognised assets from contracts with customers in the amount of €300 thousand (2020: €501 thousand) and liabilities from contracts in the amount of €5,839 thousand (2020: €4,641). Recognised assets and liabilities arising from contracts with customers are reported in the statement of financial position. Right-of-return assets and liabilities The Company recognised right-of-return liabilities as accrued bonuses, volume rebates and discounts on products sold to other customers in the amount €13,638 thousand (2020: €11,940 thousand). There were no right-of-return entitlements. Performance obligations The Company is engaged in the development, production, marketing and sale of human health products (prescription pharmaceuticals, non-prescription products), animal health products, and material. Revenue from contracts with customers is recognised when control of the goods and services is transferred to the customer at an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services, while considering specific terms and conditions of an individual contract. Transfers of risks and rewards depend on terms and conditions of an individual contract. Generally, the transfer occurs when the customer accepts the goods in accordance with INCOTERMS 2020 or when the relevant services are performed. Payment terms vary from region to region (distribution channels), while the normal credit term ranges from 30 to 120 days. 2021 Annual Report – Financial Report of Krka, d. d., Novo mesto 276 At the year-end, the Company incurred no costs on acquisition or fulfilment of contracts with customers. 6. Other operating income € thousand 2021 2020 Reversal of non-current provisions 3,332 2,058 Deferred revenue reversal 870 640 Gains on sale of property, plant and equipment and intangible assets 515 396 Revaluation operating revenue – leases 3 7 Other operating income 1,940 2,036 Total other operating income 6,660 5,137 Other operating income includes €489 thousand (2020: €1,172 thousand) of government grants aimed at curbing the COVID-19 pandemic. The government grants received were linked to the fulfilment of conditions from past operations and are therefore fully recognised in the 2021 financial statements. 7. Costs by nature € thousand 2021 2020 Cost of goods and materials 388,639 414,326 Cost of services 307,464 305,619 Employee benefits 305,192 301,908 Amortisation and depreciation 84,863 85,146 Inventory write-offs and allowances (net) 17,287 12,895 Receivable impairments and write-offs (net) 50 -1,177 Formation of provisions for lawsuits 543 0 Other operating expenses 25,053 24,220 Total costs 1,129,091 1,142,937 Change in the value of inventories of finished products and work in progress -14,389 -29,570 Total 1,114,702 1,113,367 8. Employee benefits € thousand 2021 2020 Gross wages and salaries and continued pay 234,331 231,236 Social security contributions 16,173 16,209 Pension insurance contributions 31,079 30,349 Post-employment benefits and other non-current employee benefits 7,020 7,464 Other employee benefits 16,589 16,650 Total employee benefits 305,192 301,908 Post-employment benefits and other non-current employee benefits are detailed in Note 24 Provisions. Other employee benefits include primarily vacation bonuses and commuting allowances. Compulsory pension and disability insurance (comprising both the employee’s and the employer’s contribution) payable in 2021 amounted to €57,825 thousand (2020: €56,422 thousand). Compulsory pension and disability insurance amounted to €57,825 thousand, and there was no exemption from compulsory pension and invalidity insurance contributions. Supplementary pension insurance contributions amounted to €8,913 thousand in 2021 (2020: €8,448 thousand). 2021 Annual Report – Financial Report of Krka, d. d., Novo mesto 277 9. Other operating expenses € thousand 2021 2020 Grants and assistance for humanitarian and other purposes 1,409 1,286 Environmental protection expenditures 3,653 3,528 Other taxes and levies 15,040 15,819 Loss on sale and write-offs of property, plant and equipment and intangible assets 2,506 1,138 Other operating expenses 2,445 2,449 Total other operating expenses 25,053 24,220 Other levies include €13,100 thousand of various taxes and levies paid on pharmaceuticals and fees paid to associates in individual foreign countries for pursuing promotional activities (2020: €13,892 thousand). 10. Financial income and expenses € thousand 2021 2020 Net foreign exchange differences 15,111 0 Interest income 501 448 Derivatives income 2,968 20,319 – Realised revenue 2,002 17,212 – Fair value change 966 3,107 Income from dividends and other profit shares 6,075 7,247 – Dividends 691 650 – Profits of subsidiaries 5,384 6,597 Other financial income 59 3,772 Total financial income 24,714 31,786 Net foreign exchange differences 0 -56,392 Interest expenses -513 -477 – Interest paid -466 -428 – Interest expenses on lease liabilities -47 -49 Derivatives expenses -10,459 -14,443 – Incurred expenses -10,459 -14,443 Other financial expenses -1,111 -1,525 Total financial expenses -12,083 -72,837 Net financial result 12,631 -41,051 The net financial result in 2021 was better mainly due to a better result of €71,503 thousand in the net foreign exchange result. In 2021, Krka continued its policy of partial hedging against rouble-related risk and the US dollar with financial instruments. The most significant impact was the exchange rate of the rouble (final exchange rate on 31 December 2021 €1 = RUB 85.3004 and on 31 December 2020 €1 = RUB 91.4671). Detailed information on the risk of changes in foreign exchange rates can be found in Note 32 Financial Instruments and Financial Risks and in the chapter Risk Management in the Business Part of the Report. 2021 Annual Report – Financial Report of Krka, d. d., Novo mesto 278 11. Income tax Adjustment to effective tax rate € thousand 2021 2020 Income tax 40,905 39,436 Deferred tax -165 -79 Total income tax 40,740 39,357 Profit before tax 285,956 297,831 Income tax calculated at the rate of 19% (the same as in 2020) 54,332 56,588 Income tax from increased expenses 728 -846 Income tax from non-exempt expenses 2,598 2,370 Income tax from tax incentives -15,664 -17,172 Income tax from adjustment of revenue decreasing the tax base -1,254 -1,583 Total income tax 40,740 39,357 Effective tax rate 14.2% 13.2% Investments in R&D and investment relief represent the major share of tax incentives. 12. Property, plant and equipment € thousand 31 Dec 2021 31 Dec 2020 Land 28,065 27,758 Buildings 248,553 263,859 Equipment 255,802 280,433 Property, plant and equipment being acquired 32,960 27,242 Advances for property, plant and equipment 1,661 3,021 Right-of-use assets 3,045 2,851 Total property, plant and equipment 570,086 605,164 In 2021, the most significant investments in the Company include the relocation of small series production and the increase of semi-finished products production capacity in Notol 2 in the amount of €7,260 thousand (2020: €7,025 thousand), and the construction of Sinteza 2 in Krško in the amount of €5,351 thousand (2020: €1,247 thousand). A total of €3,606 thousand was spent on various projects in the area of information technology and telecommunications (2020: €4,279 thousand), for relocation and redevelopment projects. €3,470 thousand (€691 thousand in 2020) were earmarked for the reconstruction of RCC 4 and RCC 1 in the Laboratory Control Room, and €2,583 thousand (€4 thousand in 2020) for the reconstruction of RCC 2 and the relocation of equipment to RCC 4. Most of the right-of-use assets relate to the right-of-use buildings in the amount of €3,026 thousand (2020: €2,839 thousand). 2021 Annual Report – Financial Report of Krka, d. d., Novo mesto 279 Movements in property, plant and equipment (PP&E) € thousand Land Buildings Equipment PP&E being acquired Advances for PP&E Right-of-use assets Total Cost At 1 Jan 2020 27,074 595,912 982,172 31,473 769 3,719 1,641,119 Merger by acquisition 0 12,358 22,482 0 0 0 34,840 Additions 0 0 0 53,477 2,252 0 55,729 Capitalisation – transfer from PP&E under construction 684 10,293 46,731 -57,708 0 0 0 Capitalisation – IFRS 16 Leases 0 0 0 0 0 738 738 Disposals, impairment, deficit, surplus 0 -58 -13,055 0 0 -397 -13,510 Transfers, reclassification 0 289 -274 0 0 -10 5 At 31 Dec 2020 27,758 618,794 1,038,056 27,242 3,021 4,050 1,718,921 At 1 Jan 2021 27,758 618,794 1,038,056 27,242 3,021 4,050 1,718,921 Additions 0 0 0 46,017 -1,360 0 44,657 Capitalisation – transfer from PP&E under construction 307 6,104 33,031 -39,442 0 0 0 Capitalisation – IFRS 16 Leases 0 0 0 0 0 1,320 1,320 Disposals, impairment, deficit, surplus 0 -683 -12,167 -857 0 -259 -13,966 Transfers, reclassification 0 0 8 0 0 0 8 At 31 Dec 2021 28,065 624,215 1,058,928 32,960 1,661 5,111 1,750,940 Accumulated depreciation At 1 Jan 2020 0 -330,054 -697,234 0 0 -621 -1,027,909 Merger by acquisition 0 -3,849 -15,238 0 0 0 -19,087 Depreciation 0 -21,035 -57,663 0 0 -739 -79,437 Disposals, deficit, surplus 0 0 12,520 0 0 160 12,680 Transfers, reclassification 0 3 -8 0 0 1 -4 At 31 Dec 2020 0 -354,935 -757,623 0 0 -1,199 -1,113,757 At 1 Jan 2021 0 -354,935 -757,623 0 0 -1,199 -1,113,757 Depreciation 0 -21,115 -57,188 0 0 -955 -79,258 Disposals, deficit, surplus 0 388 11,691 0 0 88 12,167 Transfers, reclassification 0 0 -6 0 0 0 -6 At 31 Dec 2021 0 -375,662 -803,126 0 0 -2,066 -1,180,854 Carrying amount At 1 Jan 2020 27,074 265,858 284,938 31,473 769 3,098 613,210 At 31 Dec 2020 27,758 263,859 280,433 27,242 3,021 2,851 605,164 At 1 Jan 2021 27,758 263,859 280,433 27,242 3,021 2,851 605,164 At 31 Dec 2021 28,065 248,553 255,802 32,960 1,661 3,045 570,086 No borrowing costs relate to the items of property, plant and equipment in 2021. The carrying amount of the items of property, plant and equipment, which are temporarily not used amounted to €1,348 thousand as at 31 December 2021 (2020 year-end: €1,300 thousand). 2021 Annual Report – Financial Report of Krka, d. d., Novo mesto 280 Of total property, plant and equipment in use as at 31 December 2021, 39% was fully depreciated (2020 year-end: 36%). The share of fully depreciated property, plant and equipment is calculated in consideration of their cost. Land is excluded from the calculation. All property, plant and equipment is free of encumbrances. The status of known future commitments related to the acquisition of property, plant and equipment is disclosed in Note 29 Contingent Liabilities and Commitments. The movements and lease liabilities recognised in profit or loss are presented in Notes 30 Leases and 32 Financial Instruments and Risk. 13. Intangible assets € thousand 31 Dec 2021 31 Dec 2020 Concessions, trademarks and licences 21,699 23,443 Intangible assets being acquired 3,929 4,450 Total intangible assets 25,628 27,893 Intangible assets refer to software and registration documentation for new pharmaceuticals. 2021 Annual Report – Financial Report of Krka, d. d., Novo mesto 281 Movement of intangible assets (IA) € thousand Concessions, trademarks and licences IA being acquired Total Cost At 1 Jan 2020 107,475 4,062 111,537 Merger by acquisition 438 0 438 Additions 0 5,582 5,582 Transfer from IA being acquired 4,839 -4,839 0 Disposals, deficit, surplus -627 -355 -982 Transfers, reclassification -5 0 -5 At 31 Dec 2020 112,120 4,450 116,570 At 1 Jan 2021 112,120 4,450 116,570 Additions 0 4,836 4,836 Transfer from IA being acquired 4,404 -4,404 0 Disposals, deficit, surplus -541 -953 -1,494 Transfers, reclassification -8 0 -8 At 31 Dec 2021 115,975 3,929 119,904 Accumulated depreciation At 1 Jan 2020 -83,127 0 -83,127 Merger by acquisition -354 0 -354 Amortisation -5,709 0 -5,709 Disposals, deficit, surplus 509 0 509 Transfers, reclassification 4 0 4 At 31 Dec 2020 -88,677 0 -88,677 At 1 Jan 2021 -88,677 0 -88,677 Amortisation -5,605 0 -5,605 Transfers, reclassification 6 0 6 At 31 Dec 2021 -94,276 0 -94,276 Carrying amount At 1 Jan 2020 24,348 4,062 28,410 At 31 Dec 2020 23,443 4,450 27,893 At 1 Jan 2021 23,443 4,450 27,893 At 31 Dec 2021 21,699 3,929 25,628 Of total intangible assets in use as at 31 December 2021, 58% was fully amortised (55% as at 31 December 2020). The share of fully amortised intangible assets is calculated in consideration of their cost. 2021 Annual Report – Financial Report of Krka, d. d., Novo mesto 282 14. Investments in subsidiaries Movement of investments in subsidiaries € thousand Investments in subsidiaries Cost At 1 Jan 2020 338,326 Subsequent payments 11,281 Merger by acquisition -1,004 At 31 Dec 2020 348,603 At 1 Jan 2021 348,603 Establishment of new companies 25 Subsequent payments 7,799 Refunds of subsequent contributions -992 At 31 Dec 2021 355,435 Accumulated depreciation At 1 Jan 2020 -8,991 At 31 Dec 2020 -8,991 At 1 Jan 2021 -8,991 At 31 Dec 2021 -8,991 Carrying amount At 1 Jan 2020 329,335 At 31 Dec 2020 339,612 At 1 Jan 2021 339,612 At 31 Dec 2021 346,444 The Company reviews whether there are any indications for impairment of investments in subsidiaries at least once a year. The fair value of an investment that may be impaired is determined by applying methods that are most appropriate in an individual investment. The most recent assessment was performed in November 2021. 2021 Annual Report – Financial Report of Krka, d. d., Novo mesto 283 Investments in subsidiaries Ownership share Share capital Value of share in subsidiaries € thousand 31 Dec 2021 31 Dec 2021 31 Dec 2021 31 Dec 2020 KRKA-RUS LLC, Istra, Russian Federation 100% 62,853 118,916 118,916 TAD Pharma GmbH, Cuxhaven, Germany 100% 6,650 97,000 97,000 TERME KRKA, d. o. o., Novo mesto, Slovenia 100% 14,753 36,416 36,416 Ningbo Krka Menovo Pharmaceutical Ltd., Ningbo, China 60% 48,067 26,414 18,615 KRKA-FARMA d.o.o., Zagreb, Croatia 100% 19,031 19,738 19,738 KRKA – POLSKA Sp. z.o.o., Warsaw, Poland 100% 3,805 18,697 18,697 KRKA FARMA LLC, Istra, Russian Federation 100% 8,838 15,170 15,170 Krka France Eurl, Paris, France 100% 10 4,662 4,662 KRKA Pharma GmbH, Vienna, Austria 100% 36 2,344 2,344 KRKA Farmacêutica, Unipessoal Lda., Estoril, Portugal 100% 10 2,266 2,266 KRKA Farmaceutici Milano, S.r.l., Milan, Italy 100% 10 1,350 1,350 KRKA-FARMA DOO BEOGRAD, Belgrade, Serbia 100% 1 1,042 1,042 KRKA Finland Oy, Espoo, Finland 100% 2 1,003 1,003 KRKA-FARMA DOOEL, Skopje, North Macedonia 100% 797 802 802 KRKA Belgium, SA, Brussels, Belgium 100% 300 285 285 KRKA Magyarország Kft., Budapest, Hungary 100% 122 184 184 123 Acurae Pharma GmbH, Cuxhaven, Germany 100% 25 25 0 KRKA Sverige AB, Stockholm, Sweden 100% 15 16 16 LLC ´KRKA Kazakhstan´, Almaty, Kazakhstan 100% 12 11 11 KRKA Bulgaria EOOD, Sofia, Bulgaria 100% 10 10 10 KRKA FARMA, d.o.o., Sarajevo, Bosnia and Herzegovina 100% 10 10 10 KRKA FARMACÉUTICA, S.L., Madrid, Spain 100% 10 10 1,002 KRKA HELLAS E.P.E., Athens, Greece 100% 10 10 10 KRKA ROMANIA S.R.L., Bucharest, Romania 100% 7 10 10 KRKA Slovensko, s.r.o., Bratislava, Slovakia 100% 10 10 10 SIA KRKA Latvija, Riga, Latvia 100% 10 10 10 UAB KRKA Lietuva, Vilnius, Lithuania 100% 10 10 10 KRKA UKRAINE LLC, Kiev, Ukraine 100% 3 9 9 KRKA USA LLC, Wilmington, USA 100% 9 8 8 KRKA ČR, s. r. o., Prague, Czech Republic 100% 4 3 3 KRKA UK Ltd, London, United Kingdom 100% 1 2 2 KRKA PHARMA DUBLIN LIMITED, Dublin, Ireland 100% 1 1 1 Total 165,432 346,444 339,612 The subsidiary Terme Krka, d. o. o. had a 100% interest in Golf Grad Otočec, d. o. o., at 31 December 2021; the subsidiary KRKA France Eurl had a 100-percent interest in HCS bvba in Belgium. The Chinese company Ningbo Menovo Pharmaceutical Co. Ltd. has a 40-percent holding of the company Pharmaceutical Ltd. has a 40-percent holding of the company Ningbo Krka Menovo. Impairment test of equity investment in Terme Krka An impairment test of Krka's equity investment in Terme Krka was made as there were signs that the asset may be impaired due to the impact of the COVID-19 pandemic on the economic environment. In 2021, with the PCT conditions in 2021, the tourism and health resorts services are operating normally. A portion of the loss of revenue during the closure of activities was recovered by Terme Krka, also on account of State measures imposed to overcome the issues facing the economy (tourist vouchers), improved occupancy and higher prices due to a greater number of direct bookings and a drop in bookings made through agencies. Terme Krka's performance in 2021 was successful. 2021 Annual Report – Financial Report of Krka, d. d., Novo mesto 284 The asset's recoverable amount is the greater of the fair value net of selling expenses or value in use. For the purposes of the impairment test, the equity investment's recoverable amount was determined based on its value in use, i.e. using cash flow projections based on five-year financial plans of the cash-generating unit, under the assumption of a gradual normalisation of the circumstances. The discount rate of 7.0%, and the long-term growth rate of net cash flows (g) after the forecast period (after 2026) of 2% were applied in the projection. In the opinion of the management, a reasonable change in the discount rate or growth rate would not result in the asset impairment of the cash-generating unit. Considering the above assumptions, the assessed recoverable amount of the investment in Terme Krka exceeds the carrying amount and therefore no impairment of the cash-generating unit required. 15. Loans € thousand 31 Dec 2021 31 Dec 2020 Non-current loans 31,010 35,024 – Loans to subsidiaries 18,850 23,650 – Loans to others 12,160 11,374 Current loans 195,459 57,836 – Portion of non-current loans maturing next year 4,163 4,022 – Loans to subsidiaries 1,055 707 – Loans to others 190,287 53,094 – Current interest receivable -46 13 Total loans 226,469 92,860 The annual rate of interest agreed on conclusion of loan contracts within the Krka Group companies, is the rate of interest set by the Minister of Finance in accordance with the Corporate Income Tax Act that defines the interest rate for related parties. In 2021, the interest rate ranged from 0.0086% to 0.0165%. Non-current loans to other entities comprise loans that are extended to the employees in accordance with internal rules of the Company. These loans are used for the purchase or renovation of dwellings. The actual interest rate fluctuated between 0.269% and 0.367% in 2021 (2020: between 0.294% and 0.707%). The maximum repayment period is 15 years. Current loans to others include bank deposits in total of €190,264 thousand maturing in more than 90 days (2020 year- end: €52,988 thousand). 2021 Annual Report – Financial Report of Krka, d. d., Novo mesto 285 Loans to subsidiaries including related current interest receivable € thousand 31 Dec 2021 31 Dec 2020 Non-current loans to subsidiaries 18,850 23,650 TERME KRKA, d. o. o., Novo mesto, Slovenia 16,800 21,500 KRKA Farmaceutici Milano, S.r.l., Milan, Italy 2,000 2,000 KRKA Bulgaria EOOD, Sofia, Bulgaria 50 150 Current loans to subsidiaries, inclusive of the current amounts of non-current loans 3,559 3,215 TERME KRKA, d. o. o., Novo mesto, Slovenia 2,500 2,705 KRKA Finland Oy, Espoo, Finland 462 12 KRKA HELLAS E.P.E., Athens, Greece 365 145 SIA KRKA Latvija, Riga, Latvia 115 175 123 Acurae Pharma GmbH, Cuxhaven, Germany 80 0 HCS bvba, Edegem, Belgium 33 33 Krka France Eurl, Paris, France 2 34 TAD Pharma GmbH, Cuxhaven, Germany 1 3 KRKA Sverige AB, Stockholm, Sweden 1 0 KRKA Belgium, SA, Brussels, Belgium 0 106 KRKA UKRAINE LLC, Kiev, Ukraine 0 1 KRKA FARMACÉUTICA, S.L., Madrid, Spain 0 1 Total loans to subsidiaries 22,409 26,865 * Subsidiary Krka France Eurl holds a 100% stake in HCS bvba The maximum repayment period on non-current loans to subsidiaries as at 31 December 2021 is three years. 16. Investments € thousand 31 Dec 2021 31 Dec 2020 Non-current investments 108,882 10,419 – Financial assets at fair value through OCI 15,860 10,419 – Financial assets at amortised cost 93,022 0 Current investments including derivatives 155,448 524 – Financial assets at amortised cost 113,987 0 – Derivatives 1,491 524 – Other current financial investments at fair value through profit or loss 39,970 0 Total investments 264,330 10,943 Financial assets at fair value through other comprehensive income (OCI) comprised €1,001 thousand of investments in shares and interests in companies in Slovenia (2020 year-end: €801 thousand), and €14,859 thousand of investments in shares of companies located abroad (2020 year-end:€9,619 thousand). Investments at amortised cost include investments in Slovenian government bonds amounted to €4,455 thousand, while investments in foreign government bonds amounted to €202,554 thousand. Other current investments at fair value through profit or loss include an investment in a foreign highly liquid money market fund of €39,970 thousand. In 2020, there were no investments in government bonds and money market funds. 2021 Annual Report – Financial Report of Krka, d. d., Novo mesto 286 Movement in financial assets € thousand Financial assets at fair value through OCI Financial assets at amortised cost Financial assets at fair value through profit or loss At 1 Jan 2020 9,680 0 0 Adjustment to market value 739 0 0 At 31 Dec 2020 10,419 0 0 At 1 Jan 2021 10,419 0 0 Increase 0 205,946 40,000 Decrease 0 0 0 Exchange rate differences 0 1,063 0 Adjustment to market value 5,441 / -30 At 31 Dec 2021 15,860 207,009 39,970 Adjustments of non-current investments at fair value through OCI were recognised in other comprehensive income in the amount of €5.441 thousand in 2020 (2020: €739 thousand). Exchange differences on investments at amortised cost of €1,063 thousand are recognised in financial income. The mark-to-market adjustment of investments at fair value through profit or loss in the amount of -€30 thousand is recognised in financial expenses. 17. Deferred tax assets and liabilities Assets Liabilities € thousand 2021 2020 2021 2020 Financial assets at fair value through OCI 1,727 1,727 2,466 1,432 Receivables 1,484 1,447 0 0 Dividends 19 14 0 0 Provisions for post-employment benefits and other non-current employee benefits 11,978 12,411 0 0 Provisions for post-employment benefits and other non-current employee benefits – effect of the merger by acquisition 0 55 0 0 Total 15,208 15,654 2,466 1,432 Offsetting -2,466 -1,432 -2,466 -1,432 Net 12,742 14,222 0 0 € thousand At 1 Jan 2020 Recognised in P&L Recognised in OCI Merger by acquisition– P&L Merger by acquisition– OCI At 31 Dec 2020 Recognised in P&L Recognised in OCI At 31 Dec 2021 Financial assets at fair value through OCI 436 0 -141 0 0 295 0 -1,034 -739 Receivables 1,535 -88 0 0 0 1,447 37 0 1,484 Dividends 95 -81 0 0 0 14 5 0 19 Provisions for post- employment benefits and other non-current employee benefits 11,121 248 1,042 58 -3 12,466 123 -611 11,978 Total 13,187 79 901 58 -3 14,222 165 -1,645 12,742 The relevant amount of deferred tax assets and liabilities was calculated using the 19% income tax rate. 2021 Annual Report – Financial Report of Krka, d. d., Novo mesto 287 18. Inventories € thousand 31 Dec 2021 31 Dec 2020 Materials 183,593 182,523 Work in progress 89,744 90,196 Finished products 108,124 105,170 Merchandise 10,773 10,062 Advances for inventories 2,089 1,227 Total inventories 394,323 389,178 The write-downs and write-offs of inventories to their net realisable value amounted to €17,287 thousand in 2021, and €12,895 in 2020. The Company has no pledged stock as a liability guarantee. 19. Trade and other receivables € thousand 31 Dec 2021 31 Dec 2020 Current trade receivables 424,588 415,286 – Receivables due from subsidiaries 234,064 242,370 – Receivables due from customers other than Group companies 191,294 174,505 – Deferred revenue from contracts with customers -770 -1,589 Current receivables for dividends 99 76 – Current receivables for other dividends 99 76 Other current receivables 17,282 15,591 Total trade and other receivables 441,969 430,953 Of the total amount, 99.1% of trade receivables due from customers other than related parties was insured with the Coface PKZ, d. d. insurance company (2020 year-end: 98.7%). 2021 Annual Report – Financial Report of Krka, d. d., Novo mesto 288 Current trade receivables Current trade receivables due from subsidiaries € thousand 31 Dec 2021 31 Dec 2020 KRKA-RUS LLC, Istra, Russian Federation 104,394 118,451 KRKA FARMA LLC, Istra, Russian Federation 52,541 43,434 KRKA Sverige AB, Stockholm, Sweden 16,508 19,419 KRKA-FARMA DOO BEOGRAD, Belgrade, Serbia 9,098 8,407 KRKA – POLSKA Sp. z.o.o., Warsaw, Poland 8,763 7,192 KRKA-FARMA DOOEL, Skopje, North Macedonia 8,750 8,582 LLC ´KRKA Kazakhstan´, Almaty, Kazakhstan 7,667 6,637 Krka France Eurl, Paris, France 5,384 6,799 TAD Pharma GmbH, Cuxhaven, Germany 4,558 0 KRKA Farmaceutici Milano S.r.l., Milan Italy 3,843 5,541 KRKA Finland Oy, Espoo, Finland 3,175 3,580 KRKA-FARMA d.o.o., Zagreb, Croatia 3,091 1,392 KRKA Farmacêutica, Unipessoal Lda., Estoril, Portugal 1,360 2,033 KRKA Belgium, SA, Brussels, Belgium 1,301 2,726 KRKA PHARMA DUBLIN LIMITED, Dublin, Ireland 1,137 2,329 KRKA Pharma GmbH, Vienna, Austria 1,026 846 KRKA FARMACÉUTICA, S.L., Madrid, Spain 605 2,692 KRKA UK Ltd, London, United Kingdom 244 1,845 Ningbo Krka Menovo Pharmaceutical Co. Ltd., Ningbo, China 200 247 Receivables due from other Group companies 419 218 Total current trade receivables due from subsidiaries 234,064 242,370 Current trade receivables due from customers other than Group companies € thousand Gross value Receivable allowances Net value at 31 Dec 2021 Net value at 31 Dec 2020 Current trade receivables due from domestic customers other than Group companies 10,394 13 10,381 7,641 Current trade receivables due from foreign customers other than Group companies 215,465 34,552 180,913 166,864 Deferred revenue from contracts with foreign customers -770 0 -770 -1,589 Total current trade receivables due from customers other than Group companies 225,089 34,565 190,524 172,916 The net amount of the receivable write-offs and impairment disclosed in operating expenses amounted to €50 thousand in 2021 (2020: -€1,177 thousand). Other receivables The major proportion of other current receivables in total of €17,282 thousand (2020: €15,591 thousand) was due from the State on account of VAT amounting to €10,227 thousand (€8,987 thousand as at 31 December 2020). Advances for services reached €777 thousand (€764 thousand as at 31 December 2020). 2021 Annual Report – Financial Report of Krka, d. d., Novo mesto 289 20. Cash and cash equivalents € thousand 31 Dec 2021 31 Dec 2020 Cash in hand 1 1 Bank balances 144,980 296,397 Total cash and cash equivalents 144,981 296,398 The Company concluded contracts with two banks to secure bank overdrafts in total of €5,415 thousand (in 2020, contracts in total of €5,075 thousand were concluded with two banks). No negative balances were recorded on these bank accounts as at 31 December 2021 as no overdraft facilities were used. The Company had an undrawn credit facility of €20,000 thousand as at 31 December 2021 (as at 31 Dec 2020 totalling €20,000 thousand). 21. Equity Share capital Krka reduced its share capital by withdrawal of 2,632,672 treasury shares, accounting for 7.431% of all shares issued, in accordance with resolution adopted at the 19th Annual General Meeting on 3 July 2014. After the withdrawal of treasury shares, the share capital of Krka in the amount of €54,732 thousand is represented by 32,793,448 ordinary no-par value shares. Krka has one share class only, and the first and only issue of shares was carried out in 1995. The share capital was fully paid. Treasury shares At the 26 th Annual General Meeting on 9 July 2020, the Management Board was granted authorisation for the purchase of treasury shares. However, the total amount of treasury shares should not exceed the 10% of Company's share capital, i.e. 3,279,344 shares, whereby the total amount is inclusive of shares already held by Krka as at the date. The authorisation is valid for a period of 36 months from the date of the decision adoption. Based on this authorisation, Krka is allowed to acquire treasury shares on the regulated market at respective market prices. The Company may also acquire treasury shares outside the regulated market. When purchasing treasury shares on the regulated market or non-regulated market, the purchase price must not be lower than the book value based on the last published audited financial statements of the Krka Group. Furthermore, the purchase price must not exceed 25-fold the earnings per share held by the majority stakeholders as stated in the last published audited financial statements of the Krka Group. Pursuant to paragraphs 3 and 4, Article 381 of the Companies Act, an entity may reduce the share capital by withdrawal of all treasury shares in a simplified procedure and recognise the amount against other profit reserves. Repurchase of treasury shares in 2021 No. of shares Weighted average share price (€) Value of treasury shares (€ thousand) At 31 Dec 2020 1,541,774 99,279 Repurchases in 2021 142,134 107.38 15,262 At 31 Dec 2021 1,683,908 114,541 The repurchase of treasury shares in 2021 refers to repurchases that were recorded in books of accounts in 2021. A subscription fee is included in the weighted average price of shares. 2021 Annual Report – Financial Report of Krka, d. d., Novo mesto 290 The 2021 repurchase of treasury shares in terms of days is illustrated within Enclosure 1 to the Financial Statements of the Krka Group and Krka, d. d., Novo mesto. Reserves The Company's reserves comprise reserves for treasury shares, the share premium, legal and statutory reserves and fair value reserve. Reserves for treasury shares amounted to €114,541 thousand at the reporting date and increased by €15,262 thousand based on their formation as a result of additional repurchase of treasury shares. The share premium is to be used under the terms and purposes as defined by the applicable act. The share premium was reported at €105,897 thousand as at 31 December 2021 and consisted of the general equity revaluation adjustment (€90,659 thousand) that was included in share premium during the transfer to IFRSs; the share premium (€10,844 thousand) formed pursuant to a special regulation applicable in the ownership transformation of the controlling company; and €4,394 thousand of share premium resulting from reduction in the share capital due to the withdrawal of treasury shares. The amount may be used solely for the purpose of increasing share capital. In 2021, the value of share premium remained unchanged. Legal reserves are to be formed up to 30% of the share capital. They amounted to €14,990 thousand as at 31 December 2021 and remained unchanged compared to the previous period. Statutory reserves amounted to €30,000 thousand as at the reporting date and remained unchanged over the previous period. Statutory reserves are formed by Krka up to the amount of €30,000 thousand. Statutory reserves can be used for loss coverage, formation of reserves for treasury shares, for decreasing share capital by share withdrawal, and for regulating the dividend policy. The fair value reserve includes the cumulative change in the fair value of financial assets and post-employment benefits. Compared to the previous period, the fair value reserve increased by €12,375 thousand and amounted to -€19,004 thousand as at 31 December 2021. The cumulative change is due to a €5,441 thousand increase in the fair value of financial assets through OCI (equity instruments); an increase due to the restatement of post-employment benefits of €8,579 thousand, and a decrease for the impact of deferred taxes of €1,645 thousand. Retained earnings Retained earnings grew based on the majority shareholder's profit of €245,216 thousand; on the other hand, they decreased as a result of allocation of €155,896 thousand of accumulated profit to dividend payment in accordance with the resolution adopted at the 27 th Annual General Meeting held on 8 July 2021, and an additional formation of reserves for treasury shares in total of €15,262 thousand. The amount of the dividend payout reported in the statement of cash flows, differs from the figure confirmed by the Annual General Meeting and reported in the statement of changes in equity by €11 thousand of dividends paid in respect of previous periods (2020: €9 thousand). Dividends per share In 2021, the declared gross dividend per share was €5.00 (2020: €4.25). 2021 Annual Report – Financial Report of Krka, d. d., Novo mesto 291 Identification of distributable profit Data in the following table is expressed in €, unlike all other tables in the financial report, where data is expressed in € thousand. € 2021 2020 Compulsory appropriation of profit Net profit 245,216,436.23 258,473,731.06 – To cover the loss from previous periods 0.00 0.00 – Allocation to legal reserves 0.00 0.00 – Allocation to reserves for treasury shares -15,261,862.79 -25,504,335.93 – Allocation to statutory reserves 0.00 0.00 Profit after compulsory appropriation 229,954,573.44 232,969,395.13 – Formation of other profit reserves under the resolution of the Management and Supervisory Boards 0.00 0.00 – Net profit – the merger effect 0.00 1,777,841.82 Surplus of profit 229,954,573.44 234,747,236.95 Identification of distributable profit – Surplus of profit 229,954,573.44 234,747,236.95 – Transferred profit 88,670,552.72 67,270,600.18 – Transferred profit – the merger effect 0.00 35,501,993.87 Distributable profit 318,625,126.16 337,519,831.00 22. Earnings per share Basic earnings per share amounted €7.86 in 2021, a decrease of 4% on the previous year, when it amounted to €8.23. The calculation took into account the net profit of €245,216 thousand (2020: €258,474 thousand). The weighted average number of shares was accounted for in the calculation for both years, i.e. 31,185,323 shares for 2021 and 31,400,501 shares for 2020. Treasury shares were eliminated from the calculation. All shares issued by the Company are ordinary shares, hence the diluted earnings per share ratio equals the basic earnings per share. 23. Borrowings € thousand 31 Dec 2021 31 Dec 2020 Current borrowings 55,092 46,345 – Borrowings from subsidiaries 55,068 46,317 – Current interest payable 24 28 Total borrowings 55,092 46,345 2021 Annual Report – Financial Report of Krka, d. d., Novo mesto 292 Borrowings from subsidiaries, including current interest payable € thousand 31 Dec 2021 31 Dec 2020 – Current borrowings from subsidiaries 55,092 46,345 TAD Pharma GmbH, Cuxhaven, Germany 51,960 39,114 TERME KRKA, d. o. o., Novo mesto, Slovenia 1,575 0 KRKA FARMACÉUTICA, S.L., Madrid, Spain 1,211 2,156 KRKA Pharma GmbH, Vienna, Austria 337 484 KRKA Belgium, SA, Brussels, Belgium 8 0 Krka France Eurl, Paris, France 1 1 KRKA Sverige AB, Stockholm, Sweden 0 3,984 KRKA PHARMA DUBLIN LIMITED, Dublin, Ireland 0 1 KRKA Finland Oy, Espoo, Finland 0 1 KRKA UK Ltd, London, United Kingdom 0 604 Total borrowings from subsidiaries 55,092 46,345 Current borrowings are denominated in euro and were extended for the period of one year. These borrowings are not collateralised. 24. Provisions € thousand At 31 Dec 2020 Formation Utilisation Reversal At 31 Dec 2021 Provisions for lawsuits 2,100 543 0 -2,100 543 Provisions for post-employment benefits 98,516 318 -3,879 -992 93,963 Provisions for post-employment benefits and other non-current employee benefits 19,214 1,136 -1,480 -240 18,630 Total provisions 119,830 1,997 -5,359 -3,332 113,136 In total, 15 lawsuits referring to intellectual property were filed against the Company and its subsidiaries, 11 of which were in Portugal. In 2021, it closed 8 disputes. The Krka Group has no provisions allocated for intellectual property disputes. In other areas of law (civil, labour, administrative, etc.), the Company was involved as defendant in 2 disputes in 2021, with the total value of claims against the Company estimated at €730 thousand. For this purpose, the Company formed provisions in amount of €543 thousand. Provisions for obligations to employees arising from post-employment and other non-current benefits are based on actuarial calculation using the following assumptions:  The selected discounted interest rate of 1.27% annually equals the return on 15-year corporate bonds with high credit rating in the Eurozone at the end of October 2021 (2020: 0.72 percent); source of data: Bloomberg;  Currently applicable amounts of retirement benefits and anniversary bonuses as defined by internal rules;  Staff turnover depending primarily upon the employees' age;  Mortality rates calculated on the basis of most recent mortality tables available;  The 2.00% increase in salaries, the same as in 2020. 2021 Annual Report – Financial Report of Krka, d. d., Novo mesto 293 Post-employment benefits € thousand 2021 2020 At 1 Jan 98,516 85,986 Employee benefit costs (CSC) 6,030 4,446 Interest expense (IC) 726 1,188 Post-employment benefits paid -3,879 -2,628 Reversal -992 -1,913 Merger by acquisition 0 470 Actuarial surplus/deficit, of that: -6,438 10,966 – Change in financial assumptions -7,562 8,050 – Experience 1,124 2,916 At 31 Dec 93,963 98,516 Sensitivity analysis Discount rate Salary increase Change in Percentage point Percentage point Change by 0.5 -0.5 0.5 -0.5 Impact on liabilities (€ thousand) -6,412 7,141 7,052 -6,398 25. Deferred revenue € thousand At 31 Dec 2020 New deferred revenue received Deferred revenue reversal At 31 Dec 2021 Grants received from the European Regional Development Fund and budget of the Republic of Slovenia intended for the production of pharmaceuticals in the new Notol 2 Plant 1,317 0 -259 1,058 Subsidy for acquisition of electric drive vehicles 4 0 -1 3 Property, plant and equipment received free of charge 7 0 -4 3 Emission coupons 0 10 0 10 Subsidy for the purchase of joinery 95 0 -2 93 Subsidy for acquisition of other equipment 4 19 -20 3 Grants received from the European Regional Development Fund (Farma GRS) 2,960 0 -584 2,376 Total deferred revenue 4,387 29 -870 3,546 Production of pharmaceuticals in the new Notol 2 Plant and Farma GRS projects are partly funded by the European Union from the European Regional Development Fund. The Notol project is carried out within the framework of the Operational programme for strengthening regional development potentials for the period 2007 2013; Priority axis 1: Competitiveness and Research Excellence: main type of activity 1.1.: Improvement of competitiveness and research excellence. The Farma GRS project was eligible for co-financing of costs under R&D projects, including project management and investment in research and development and production activities. The amounts of deferred revenue are decreased by the proportionate share of depreciation of assets to which the grants refer and by any other types of expenses incurred. 2021 Annual Report – Financial Report of Krka, d. d., Novo mesto 294 26. Trade payables € thousand 31 Dec 2021 31 Dec 2020 Non-current trade payables 10,000 10,000 Current trade payables 178,143 143,294 Payables to subsidiaries 79,391 66,205 Payables to domestic suppliers 43,654 36,329 Payables to foreign suppliers 55,098 40,760 Total trade payables 188,143 153,294 In 2014, the Commission of the European Union ruled that Krka infringed the provision of Article 101 of the Treaty on the Functioning of the European Union, which resulted in a distortion of competition on the perindopril market of the European Union. Thus, it imposed on Krka a fine of €10,000 thousand. Krka paid the penalty imposed within the deadline set by the Commission and filed a lawsuit against the Commission's decision before the General Court of the European Union because it considered that its conduct did not violate the competition law rules. In December 2018, the Court ruled in favour of Krka. The decision of the General Court is not final, as the Commission lodged an appeal against the decision of the General Court, which will be decided by the European Court of Justice. Although the Commission did indeed pay back a fine of €10,000 thousand in early 2020, based on the assessment of legal experts Krka deferred the revenue and recognised non-current trade liabilities in that same amount until the final decision of the Court is issued. 2021 Annual Report – Financial Report of Krka, d. d., Novo mesto 295 Payables to subsidiaries € thousand 31 Dec 2021 31 Dec 2020 KRKA-FARMA d.o.o., Zagreb, Croatia 21,116 16,355 KRKA FARMA LLC, Istra, Russian Federation 17,042 20,572 KRKA – POLSKA Sp. z.o.o., Warsaw, Poland 6,612 6,156 KRKA ROMANIA S.R.L., Bucharest, Romania 4,459 3,941 Krka France Eurl, Paris, France 3,622 479 KRKA ČR, s. r. o., Prague, Czech Republic 3,190 2,287 KRKA UKRAINE LLC, Kiev, Ukraine 3,081 2,022 TAD Pharma GmbH, Cuxhaven, Germany 2,886 1,323 KRKA Magyarország Kft., Budapest, Hungary 2,872 2,944 KRKA-RUS LLC, Istra, Russian Federation 2,403 1,600 KRKA Slovensko, s.r.o., Bratislava, Slovakia 2,124 1,987 Ningbo Krka Menovo Pharmaceutical Co. Ltd., Ningbo, China 1,466 55 UAB KRKA Lietuva, Vilnius, Lithuania 1,431 1,004 KRKA Farmaceutici Milano S.r.l., Milan Italy 873 662 KRKA-FARMA DOO BEOGRAD, Belgrade, Serbia 866 1,010 LLC ´KRKA Kazakhstan´, Almaty, Kazakhstan 767 239 KRKA Bulgaria EOOD, Sofia, Bulgaria 766 673 SIA KRKA Latvija, Riga, Latvia 681 636 KRKA Farmacêutica, Unipessoal Lda., Estoril, Portugal 475 489 KRKA-FARMA DOOEL, Skopje, North Macedonia 461 514 KRKA FARMACÉUTICA, S.L., Madrid, Spain 455 263 KRKA Belgium, SA, Brussels, Belgium 427 137 KRKA HELLAS E.P.E., Athens, Greece 322 153 KRKA Finland Oy, Espoo, Finland 249 193 KRKA FARMA, d.o.o., Sarajevo, Bosnia and Herzegovina 213 25 KRKA Sverige AB, Stockholm, Sweden 176 152 KRKA Pharma GmbH, Vienna, Austria 143 210 HCS bvba, Edegem, Belgium 77 55 KRKA UK Ltd, London, United Kingdom 68 40 TERME KRKA, d. o. o., Novo mesto, Slovenia 43 10 KRKA PHARMA DUBLIN LIMITED, Dublin, Ireland 24 18 KRKA USA LLC, Wilmington, USA 1 1 Total payables to subsidiaries 79,391 66,205 * Subsidiary Krka France Eurl holds a 100% stake in HCS bvba 27. Current contract liabilities € thousand 31 Dec 2021 31 Dec 2020 Refund liabilities 13,638 11,940 – Bonuses and volume rebates 13,638 11,940 Contract liabilities 5,839 4,641 – Contract liabilities – advances from group companies 0 2,021 – Contract liabilities – advances from other customers 5,839 2,620 Total current contract liabilities 19,477 16,581 Accrued bonuses and volume discounts include discounts to which the customers are entitled when the relevant terms and conditions are fulfilled; these discounts are not granted to customers in the year of the sale. 2021 Annual Report – Financial Report of Krka, d. d., Novo mesto 296 28. Other current liabilities € thousand 31 Dec 2021 31 Dec 2020 Payables to employees – gross salaries, other receipts and charges 53,446 52,202 Liabilities under repurchase transactions (repo-type operations) 102,234 0 Other 9,025 7,714 Total other current liabilities 164,705 59,916 The liabilities under repurchase transactions relate to the repurchase of bonds in June 2022, maturing in July 2022. The repurchase of bonds has legally taken place, but in terms of economics it is a financing activity. The bonds serve as collateral for a deposit made by the Company to the bank. The balance of assets held for repurchase as at 31 December 2021 amounts to €102,228 thousand and is recognised within investments at amortised cost. Liabilities under repurchase transactions were recognised in the amount of €102,234 thousand. The item ‘Other’ also includes current liabilities to the State on account of VAT payable in the amount of €6,284 thousand (2020: €5,215 thousand). 29. Contingent liabilities and commitments € thousand 31 Dec 2021 31 Dec 2020 Guarantees issued 13,695 14,204 Other 976 0 Total contingent liabilities 14,671 14,204 Major items of guarantees issued included (i) a contract bond in total of €6,000 thousand issued after Krka was selected as the best bidder in a tender in Italy; (ii) a counter guarantee for due payment of potential liabilities from customs guarantee issued in the amount of €4,500 thousand in Belarus; and (iii) a contract bond issued on behalf of the subsidiary TAD Pharma in the amount of €3,000 thousand. Based on the contracts that had been signed in connection with the on-going investments, at the end of 2021 Krka recorded €27,787 thousand of commitments for acquisition of property, plant and equipment (2020 year-end: €27,215 thousand). 30. Leases The Company concludes lease agreements for various assets such as land, parking spaces and offices, apartments, warehouses, and equipment. The lease terms are assessed according to the type of a lease:  Offices, parking spaces and warehouses: up to 10 years;  Land: 30 years;  Apartments: up to 2 years maximum;  Equipment: up to 10 years. The Company does not sub-lease the leased assets. The Company has concluded lease contracts for various production and non-production equipment, temporary offices and parking spaces, with lease term of shorter than one year. In respect of those leases, Krka applied the practical expedient provided by the Standard. 2021 Annual Report – Financial Report of Krka, d. d., Novo mesto 297 The carrying amounts of lease liabilities included under interest-bearing loans and borrowings and movements during the period € thousand Carrying amounts of lease liabilities under interest-bearing loans and borrowings and movements during the period At 1 Jan 2020 3,093 Increase/Decrease 412 Accretion of interest 49 Lease payments -732 At 31 Dec 2020 2,822 – Current lease liabilities 659 – Non-current lease liabilities 2,163 At 1 Jan 2021 2,822 Increase/Decrease 1,210 Accretion of interest 47 Lease payments -991 At 31 Dec 2021 3,088 – Current lease liabilities 987 – Non-current lease liabilities 2,101 The maturity analysis of lease liabilities is disclosed in Note 32 Financial instruments and risks. Amounts recognised in profit or loss € thousand 2021 2020 Depreciation of right-of-use assets 956 739 Interest expenses on lease liabilities 47 49 Expenses relating to current leases 39 23 Expenses relating to leases of low-value assets 6 6 Total amount recognised in profit or loss 1,048 817 31. Financial liabilities Movement in financial liabilities in 2021 Non-monetary changes € thousand At 31 Dec 2020 Monetary changes Addition/ Disposal Other At 31 Dec 2021 Borrowings 46,317 8,703 0 48 55,068 Accretion of interest 28 -444 440 0 24 Dividends 1,335 -155,907 155,894 0 1,322 Treasury shares 0 -15,262 15,262 0 0 Leases 2,822 -991 1,210 47 3,088 Liabilities under repurchase transactions (repo-type operations) 0 102,292 0 -58 102,234 Total 50,502 -61,609 172,806 37 161,736 Liabilities under repurchase transactions (repo-type operations) are presented in Note 28 Other current liabilities. 2021 Annual Report – Financial Report of Krka, d. d., Novo mesto 298 Movement in financial liabilities in 2020 Non-monetary changes € thousand At 31 Dec 2019 Monetary changes Addition/ Disposal Other At 31 Dec 2020 Borrowings 72,961 -2,337 0 -24,307 46,317 Accretion of interest 72 -512 468 0 28 Dividends 1,344 -133,283 133,274 0 1,335 Treasury shares 0 -25,505 25,505 0 0 Leases 3,093 -732 412 49 2,822 Total 77,470 -162,369 159,659 -24,258 50,502 32. Financial instruments and financial risks Detailed information about financial risk management is described in the Business Section of the Annual Report, section ‘Risk Management’. Credit risk The key credit risk of the Company arises from trade receivables. This is the risk of customers failing to settle their liabilities by maturity dates. The Krka Group introduced a centralised credit control process in 2004. The system includes all customers with credit limits exceeding €20,000. Numbering over 570 at the end of 2021, they accounted for more than 95% of total trade receivables. Receivables due from small customers accounted for less than 5% of total trade receivables. Control over small customers is decentralised in the sales network and under the constant supervision of the controlling company. Credit control is a two-step process. The first step involves assessing the credit risk for each customer, determining hedging instruments, and assigning relevant credit limits. We assess each new customer and review the credit ratings of all customers twice a year. Each credit rating includes many different financial and non-financial indicators, which fall into four categories; each has a different weight in the final assessment. Each customer is assigned a customised credit limit according to the credit rating and the expected shipment and payment dynamics. The second step in the credit-control process involves regular dynamic monitoring of a customer's payment discipline. The information systems of all Krka Group companies engaged in sales monitor available limits and overdue receivables. Control is exercised for each shipment of Krka products to customers. A shipment is automatically blocked if a customer is in arrears or if receivables together with the new shipment exceed the approved credit limit. Sales personnel are required to initiate a payment collection procedure or arrange hedging for the outstanding settlements. Krka’s internal rules determine the process of credit control and authorisations for granting credit limits to customers. Credit control also avails of a system of regular reporting on trade receivables and the customer's payment discipline. The reporting system aids the early detection of customers at increased risk of defaulting on payments and facilitates effective credit risk management. The credit control process employs uniform rules which apply to all customers. Due to specifics of individual sales markets, additional national controls have been introduced in individual subsidiaries. Credit control processes are regularly adjusted to changes in the sales markets. Credit control guarantees permanent control over the quality of the trade receivables portfolio. The result of the credit control process is a low percentage of receivable write-offs and impairments in total Krka Group sales. 2021 Annual Report – Financial Report of Krka, d. d., Novo mesto 299 The amount of receivable write-offs and impairments is also low because receivables are dispersed across many customers and sales markets, and the majority of outstanding receivables are due from customers with whom Krka has been doing business for several years. Despite the risks arising from the COVID-19 pandemic, receivables were well managed in 2021. At the end of 2021, the value of trade receivables increased by 2% compared to the beginning of the year. However, the amount of overdue and outstanding receivables remained within limits acceptable for Krka. Credit risk exposure The carrying amount of financial assets represents the largest exposure to credit risk as illustrated below. € thousand Notes 31 Dec 2021 31 Dec 2020 Loans 15 226,469 92,860 Investments 16 264,330 10,943 Current trade receivables including those due from subsidiaries 19 424,687 415,362 Cash and cash equivalents 20 144,981 296,398 Total 1,060,467 815,563 As for the financial assets exposed to credit risk, the loans, trade receivables and receivables due from subsidiaries are presented separately. Loans by geographical region € thousand 31 Dec 2021 31 Dec 2020 Slovenia 121,027 90,137 South-East Europe 50 151 East Europe 41 63 Central Europe 115 175 West Europe 105,236 2,334 Overseas Markets 0 0 Total 226,469 92,860 Trade receivables including those due from subsidiaries by geographical region € thousand 31 Dec 2021 31 Dec 2020 Slovenia 10,452 7,697 South-East Europe 83,873 79,248 East Europe 222,183 211,531 Central Europe 56,348 58,152 West Europe 46,877 54,962 Overseas Markets 4,855 3,696 Total 424,588 415,286 Maturity analysis of loans as at reporting date € thousand Gross at 31 Dec 2021 Allowance at 31 Dec 2021 Gross at 31 Dec 2020 Allowance at 31 Dec 2020 Not past due 226,456 0 92,851 0 Past due up to 20 days 0 0 0 0 Past due from 21 to 50 days 1 0 1 0 Past due from 51 to 180 days 3 0 4 0 Past due more than 180 days 9 0 4 0 Total 226,469 0 92,860 0 2021 Annual Report – Financial Report of Krka, d. d., Novo mesto 300 Maturity structure of trade receivables including those due from subsidiaries as at reporting date € thousand Gross at 31 Dec 2021 Allowance at 31 Dec 2021 Gross at 31 Dec 2020 Allowance at 31 Dec 2020 Not past due 409,494 187 397,995 1,071 Past due up to 20 days 7,384 14 5,229 10 Past due from 21 to 50 days 4,597 67 6,810 71 Past due from 51 to 180 days 2,361 0 5,524 40 Past due more than 180 days 35,317 34,297 34,781 33,861 Total 459,153 34,565 450,339 35,053 The Company agrees extended terms with some customers. If the Company did not extend payment terms to some of its customers, receivable maturity structure would be as follows at the reporting date: not past due €404,494 thousand (2020: €387,380 thousand); past due up to 20 days €9,223 thousand (2020: €10,846 thousand); past due between 21 and 50 days €6,905 thousand (2020: €8,728 thousand); past due between 51 and 180 days €2,360 thousand (2020: €7,476 thousand); and past due more than 180 days €1,606 thousand (2020: €932 thousand). Movement of allowance for loans € thousand 2021 2020 At 1 Jan 0 11 Impairment reversal 0 -11 At 31 Dec 0 0 Movements of trade receivable allowance including those due from subsidiaries € thousand 2021 2020 At 1 Jan 35,053 20,783 Formation of allowance 1,215 16,299 Write-off of receivables -766 -174 Impairment reversal -921 -1,852 Collected written-off receivables -16 -3 At 31 Dec 34,565 35,053 Liquidity risk Business partners value Krka for its excellent financial discipline and stable cash flows. In 2021, we settled all financial liabilities regularly. Krka Group exposure to liquidity risk was low last year. We did not use any new short-term funding from banks or draw funds from existing credit lines in 2021. At the end of 2021, the Krka Group recorded excess liquidity, primarily as cash at bank or deposits with first-class commercial banks. The 2021 increase in excess liquidity resulted from surplus cash flow from operating activities over negative cash flows from investing and financing activities. In the European Economic and Monetary Union (EMU) money markets, negative interest rates still apply to low-risk cash investments. In accordance with internal rules on diversification of investments and taking account of banks’ credit risks, we deposited a part of the cash surplus with banks during the year. In this way, we reduced the cost of negative interest rates and invested another part in short-term bonds of selected European countries. The controlling company manages liquidity risk centrally for the entire Group. The controlling company finances subsidiaries through intra-group loans. Any potential cash surpluses are deposited with the controlling company. Excess cash from all Group companies is transferred to the controlling company's master account either automatically daily (cash pooling) or manually through individual bank transfers. This allows for cash management optimisation, currency risk mitigation, an overview of liquidity of all Group companies, and enhanced security of cash transactions. 2021 Annual Report – Financial Report of Krka, d. d., Novo mesto 301 The Krka Group also reported favourable and stable liquidity ratios at the end of 2021. The continuing COVID-19 pandemic did not increase the Group’s liquidity risk in 2021. Maturity of financial liabilities Financial liabilities in terms of maturity are outlined in the tables below. Maturity of financial liabilities as at 31 Dec 2021 Carrying amount Contractual cash flows € thousand Total Up to 6 months 6 to 12 months 1 to 2 years 2 to 5 years 5 to 10 years Financial liabilities Lease liabilities 3,088 3,088 511 476 633 1,230 238 Trade payables excluding advances 178,143 178,143 178,143 0 0 0 0 Contract liabilities excluding advances 13,638 13,638 13,638 0 0 0 0 Liabilities under repurchase transactions (repo-type operations) 102,234 102,234 102,234 0 0 0 0 Other liabilities excluding amounts owed to the State, to employees and advances 2,741 2,741 2,741 0 0 0 0 Total financial liabilities 354,936 354,936 352,359 476 633 1,230 238 Lease liabilities 3,088 3,088 511 476 633 1,230 238 Total derivative financial liabilities 0 0 0 0 0 0 0 Total 354,936 354,936 352,359 476 633 1,230 238 Maturity of financial liabilities as at 31 Dec 2020 Carrying amount Contractual cash flows € thousand Total Up to 6 months 6 to 12 months 1 to 2 years 2 to 5 years 5 to 10 years Financial liabilities Other current borrowings 46,345 46,345 46,345 0 0 0 0 Lease liabilities 2,822 2,822 332 327 554 1,206 403 Trade payables excluding advances 143,294 143,294 143,294 0 0 0 0 Contract liabilities excluding advances 11,940 11,940 11,940 0 0 0 0 Other liabilities excluding amounts owed to the State, to employees and advances 2,499 2,499 2,499 0 0 0 0 Total financial liabilities 206,900 206,900 204,410 327 554 1,206 403 Total derivative financial liabilities 0 0 0 0 0 0 0 Total 206,900 206,900 204,410 327 554 1,206 403 2021 Annual Report – Financial Report of Krka, d. d., Novo mesto 302 Foreign exchange risk The Company operates in diverse international environments and is exposed to foreign exchange risk in certain sales and purchase markets. Currency exposure arises from the difference in the value of assets and liabilities in a particular currency in the financial position statement of the Group and from differences between operating income and expenses generated in individual currencies. The key accounting categories composing a currency position are trade receivables, trade payables, liquid financial assets in foreign currencies, derivatives for currency risk hedging, and subsidiary funding by the controlling company. Krka's key sales and purchase markets experienced imbalanced dynamics in terms of economic recovery and uncertainty with regard to rising inflation in individual countries while at the same time facing a constant risk of economies shutting down again. Uncertainty in currency markets led to high volatility of individual exchange rates. The 2021 fluctuation in the Russian rouble was favourable for us. The value of the rouble expressed in the euro went up by 7.2% during the year. The average 2021 value of the Russian rouble was 5.1% below the 2020 level. The Brent oil price expressed in US dollars jumped by 50% in 2021. The value of the rouble expressed in the euro did not follow the dynamics of oil price increase. After 2020, which was heavily affected by the pandemic, the Russian economy recorded high economic growth and rising inflation in 2021. Consequently, the Central Bank of the Russian Federation increased its key interest rate by 4.25 percentage points. Owing to high interest rate growth accompanied by a significant rise in oil prices, the rouble strengthened against the euro and the US dollar. Interest rate increase in the Russian Federation led to a gradual rise in the cost of hedging Krka’s position in roubles in 2021. The Polish zloty was more stable in 2021. Its value dropped by 0.8% from the beginning to the end of the year, while the average value was 2.7% lower than in 2020. In the last quarter of 2021, the Polish central bank started to increase its key interest rate due to the rising inflation. The central bank is not in favour of strengthening the domestic currency, which impacted the market value of złoty. Over the course of 2021, the value of the Romanian leu expressed in the euro declined by 1.7%, which was in line with the gradual depreciation of the currency against the euro in recent years. The Croatian kuna, participating in the ERM II mechanism since 2020, remained stable against the euro. In 2021, the British pound went up 7% against the euro. Although the movement of both currencies in 2021 positively impacted the Krka Group's net financial result, the contribution was small. The value of the US dollar expressed in the euro went up by 8.3% over the course of 2021, while the average value of the dollar expressed in the euro was 3.4% below the 2020 level. The US dollar strengthened more significantly in the second half of 2021, when it became clear that the inflation in the US and worldwide would rise over the longer term. In the second half of the year, the US Federal Reserve announced that it would gradually withdraw monetary stimulus measures and increase the key interest rate for the first time in 2022. Meanwhile, the European Central Bank decided to delay and slow down the tightening of its monetary policy, which further contributed to strengthening of the US dollar against the euro in 2021. In 2021, the Ukrainian hryvnia strengthened again after plummeting in 2020. However, its value against the euro weakened due to the geopolitical risk at the end of the year. The macroeconomic situation in the country remains uncertain, which will continue to be reflected in currency movements. The Company generally mitigates currency risks by natural hedging, primarily by increasing purchases and liabilities in currencies in which sales invoices are issued. When this is not possible, we use derivatives or do not hedge the risk. Generally, only forward contracts are used for hedging. 2021 Annual Report – Financial Report of Krka, d. d., Novo mesto 303 In 2021, Krka continued its policy of partial hedging against rouble-related risk. Less than 50% of the risk exposure to the Russian rouble was hedged using forward contracts. Due to the strengthening of the rouble value in euros, we generated net foreign exchange gains partially offset by net expenses from forward contracts used for hedging the rouble. The increasing operational risk exposure and an interest rate difference between the euro and the US dollar that is favourable for Krka are two key reasons that contributed to partial hedging of the exposure in the US dollar with financial instruments also in 2021. Due to the short currency position, the dollar strengthening had a negative financial impact on the Krka Group result. In 2021 however, this was largely offset by income from the US dollar hedging instruments. We generated net foreign exchange losses from other currencies in 2021. Exposure to other currencies was not hedged. The Company's currency exposure to the Ukrainian hryvnia, Kazakh tenge, Serbian dinar, and certain other currencies is less significant, and no hedging instruments are available. Exposure to the risk of foreign exchange rate fluctuations 31 Dec 2021 € thousand EUR RUB PLN HRK RON Loans 226,469 0 0 0 0 Trade receivables 128,233 176,785 42,897 20,782 44,213 Cash and cash equivalents 85,394 1,217 1,295 1,677 994 Borrowings -55,092 0 0 0 0 Non-current trade payables -10,000 0 0 0 0 Current trade payables -131,638 -19,493 -6,957 -15 -4,438 Financial position exposure (net) 243,366 158,509 37,235 22,445 40,770 * EUR is the functional currency and does not represent exposure to foreign currency risk. 31 Dec 2020 € thousand EUR RUB PLN HRK RON Loans 92,860 0 0 0 0 Trade receivables 110,640 183,377 42,456 20,073 42,154 Cash and cash equivalents 282,664 184 1,998 405 1,314 Borrowings -45,741 0 0 0 0 Non-current trade payables -10,000 0 0 0 0 Current trade payables -99,050 -22,129 -6,340 -7 -3,934 Financial position exposure (net) 331,373 161,432 38,114 20,471 39,534 * EUR is the functional currency and does not represent exposure to foreign currency risk. Significant foreign exchange rates Average exchange rate Final exchange rate 2021 2020 2021 2020 RUB 87.15 82.72 85.30 91.47 PLN 4.57 4.44 4.60 4.56 HRK 7.53 7.54 7.52 7.55 RON 4.92 4.84 4.95 4.87 * Number of national currency units for one euro The above-stated exchange rates were used for the calculation of items in the financial statements as at 31 Dec and equal the reference exchange rates of the ECB effective on the last day of the year. 2021 Annual Report – Financial Report of Krka, d. d., Novo mesto 304 Sensitivity analysis A 1% percent increase/decrease of the euro exchange rate in respect of currencies stated as at 31 December 2021 or 31 December 2020 would increase or decrease the profit by the amounts stated below. The analysis, prepared in the same manner for both years, assumes that all other remaining variables, in particular interest rates, remain unchanged. The calculation of the above-stated exchange rate volatility impact took into account the balance of receivables, liabilities, loans and borrowings denominated in the local currencies. Effect on the profit or loss before tax € thousand 2021 2020 Currency fluctuation +1% -1% +1% -1% RUB 1,585 -1,585 1,614 -1,614 PLN 372 -372 381 -381 HRK 224 -224 205 -205 RON 408 -408 395 -395 Any additional 1% increase/decrease of the euro exchange rate in respect of currencies stated above, would increase or decrease the profit or loss before tax in the above-stated amounts. Interest rate risk Interest rate risk is the risk of losses that result from a change in interest rates and is related to Krka’s non-current borrowings and investments. The interest rate risk with current borrowings and current investments is managed as part of the Group's liquidity risk. In 2021, the Company raised non-current borrowings only from subsidiaries. Exposure to interest rate risk € thousand 31 Dec 2021 31 Dec 2020 Financial instruments at fixed rate of interest 226,043 92,483 Financial assets 226,043 92,483 Financial liabilities 0 0 Financial instruments at variable rate of interest -54,596 -45,953 Financial assets 472 364 Financial liabilities -55,068 -46,317 Analysis of the cash flow’s sensitivity by applying the variable interest rate Decrease/increase of the interest rate by 100 basis points would increase/decrease the profit or loss for 2021 by €546 thousand. Decrease/increase of the interest rate by 100 basis points would increase/decrease the profit or loss for 2020 by €460 thousand. The analysis, prepared in the same manner for both years, assumes that all other remaining variables, in particular the foreign exchange rate, remain unchanged. A detailed schedule of current borrowings is presented below. 2021 Annual Report – Financial Report of Krka, d. d., Novo mesto 305 Current borrowings € thousand 31 Dec 2021 31 Dec 2020 Current borrowings inclusive of current portion of non-current borrowings 55,068 46,317 – Other borrowings 55,068 46,317 Current borrowings exclusive of current portion of non-current borrowings 55,068 46,317 Average balance of current borrowings 50,693 59,639 Interest paid in the financial year 280 423 Other costs of raising current borrowings 0 0 Average effective cost of current borrowings 0.55% 0.71% Currency structure of current borrowings – EUR 100% 100% Structure of current borrowings in terms of interest rates – Fixed 0% 0% – Variable 100% 100% Capital management Krka reduced its share capital by withdrawal of 2,632,672 treasury shares, accounting for 7.431% of all shares issued, in accordance with the resolution adopted at the 19 th Annual General Meeting on 3 July 2014. After the withdrawal of treasury shares, the share capital of Krka in the amount of €54,732 thousand is represented by 32,793,448 ordinary no-par value shares. Krka has one class of shares only, and the first and only issue of shares was carried out in 1995. The share capital was fully paid. The Company’s capital management is aimed at ensuring a high credit rating and relevant financing indicators in order to ensure the proper development of its operations and to generate a maximum value for its shareholders. The Company follows the changes in the economic environment by managing and adjusting its equity structure. Dividends are paid out on an annual basis in line with the strategic policy adopted. The Company has no specific goals as regards the ownership share held by employees, and no share option plans. There were no changes in Company’s approach to capital management in 2021 or 2020. The Company monitors capital using a gearing ratio, which is net debt divided by total net debt plus total equity. Within net debt, Krka includes interest bearing borrowings and trade payables less cash and cash equivalents. Gearing (debt/equity) ratio € thousand 31 Dec 2021 31 Dec 2020 Borrowings 55,092 46,345 Trade payables and other current liabilities 372,325 229,791 Cash and cash equivalents 144,981 296,398 Net indebtedness 282,436 -20,262 Equity 1,876,142 1,791,850 Equity and net indebtedness 2,158,578 1,771,588 Gearing (debt/equity) ratio 13.1% -1.1% 2021 Annual Report – Financial Report of Krka, d. d., Novo mesto 306 Fair value 31 Dec 2021 31 Dec 2020 € thousand Carrying amount Fair value Carrying amount Fair value Non-current financial assets Loans 31,010 31,010 35,024 35,024 Financial assets at fair value through OCI 15,860 15,860 10,419 10,419 Financial assets at amortised cost 93,022 92,570 0 0 Current financial assets Loans 195,459 195,459 57,836 57,836 Financial assets through profit or loss 39,970 39,970 0 0 Financial assets at amortised cost 113,987 113,912 0 0 Derivatives 1,491 1,491 524 524 Trade receivables 424,588 424,588 415,286 415,286 Cash and cash equivalents 144,981 144,981 296,398 296,398 Non-current financial liabilities Trade payables -10,000 -10,000 -10,000 -10,000 Lease liabilities -2,101 -2,101 -2,163 -2,163 Current financial liabilities Borrowings -55,092 -55,092 -46,345 -46,345 Lease liabilities -987 -987 -659 -659 Trade payables excluding advances -178,143 -178,143 -143,294 -143,294 Contract liabilities excluding advances -13,638 -13,638 -11,940 -11,940 Liabilities under repurchase transactions (repo-type operations) -102,234 -102,234 0 0 Other liabilities excluding amounts owed to the State, to employees and advances -2,741 -2,741 -2,499 -2,499 Total 695,432 694,905 598,587 598,587 In terms of fair value, investments are classified into three levels  Level 1 – assets at market price;  Level 2 – assets not classified within level 1 and the value of which is determined directly or indirectly based on observable market data;  Level 3 – assets the value of which cannot be determined using observable market data. In 2021, there were no transfers between fair value levels. 2021 Annual Report – Financial Report of Krka, d. d., Novo mesto 307 Assets at fair value 31 Dec 2021 31 Dec 2020 € thousand Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total Assets at fair value Financial assets at fair value through OCI 14,474 0 1,386 15,860 9,033 0 1,386 10,419 Financial assets through profit or loss 39,970 0 0 39,970 0 0 0 0 Derivatives 0 0 1,491 1,491 0 0 524 524 Total assets at fair value 54,444 0 2,877 57,321 9,033 0 1,910 10,943 Assets for which fair value is disclosed Loans 0 0 226,469 226,469 0 0 92,860 92,860 Trade receivables 0 0 424,588 424,588 0 0 415,286 415,286 Financial assets at amortised cost 206,482 0 0 206,482 0 0 0 0 Cash and cash equivalents 0 0 144,981 144,981 0 0 296,398 296,398 Liabilities for which fair value is disclosed 206,482 0 796,038 1,002,520 0 0 804,544 804,544 Total 260,926 0 798,915 1,059,841 9,033 0 806,454 815,487 Liabilities at fair value 31 Dec 2021 31 Dec 2020 € thousand Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total Liabilities for which fair value is disclosed Trade payables 0 0 10,000 10,000 0 0 10,000 10,000 Borrowings 0 0 55,092 55,092 0 0 46,345 46,345 Lease liabilities 0 0 3,088 3,088 0 0 2,822 2,822 Trade payables excluding advances 0 0 178,143 178,143 0 0 143,294 143,294 Contract liabilities excluding advances 0 0 13,638 13,638 0 0 11,940 11,940 Liabilities under repurchase transactions (repo-type operations) 0 0 102,234 102,234 0 0 0 0 Other liabilities excluding amounts owed to the State, to employees and advances 0 0 2,741 2,741 0 0 2,499 2,499 Total liabilities for which fair value is disclosed 0 0 364,936 364,936 0 0 216,900 216,900 Total 0 0 364,936 364,936 0 0 216,900 216,900 The fair value of securities held for trading is computed on the basis of the stock exchange quotation of the respective securities as at reporting date, and is not decreased by any costs that may arise upon the sale or purchase of securities. 2021 Annual Report – Financial Report of Krka, d. d., Novo mesto 308 33. Related party transactions Intragroup transactions Transactions with subsidiaries in 2021 are presented below. € thousand Sales Purchases Borrowings Loans TERME KRKA, d. o. o., Novo mesto, Slovenia 293 439 0 0 KRKA-FARMA d.o.o., Zagreb, Croatia 7,644 23,491 0 0 KRKA ROMANIA S.R.L., Bucharest, Romania 84 17,512 0 0 KRKA-FARMA DOO BEOGRAD, Belgrade, Serbia 28,268 3,582 0 0 KRKA-FARMA DOOEL, Skopje, North Macedonia 22,604 1,695 0 0 KRKA Bulgaria EOOD, Sofia, Bulgaria 48 2,935 0 0 KRKA HELLAS E.P.E., Athens, Greece 16 1,341 0 220 KRKA FARMA, d.o.o., Sarajevo, Bosnia and Herzegovina 4 619 0 0 KRKA-RUS LLC, Istra, Russian Federation 143,278 8,888 0 0 KRKA FARMA LLC, Istra, Russian Federation 94,238 51,277 0 0 KRKA UKRAINE LLC, Kiev, Ukraine 155 15,689 0 0 LLC ´KRKA Kazakhstan´, Almaty, Kazakhstan 15,267 2,522 0 0 KRKA – POLSKA Sp. z.o.o., Warsaw, Poland 25,121 25,764 0 0 KRKA ČR, s. r. o., Prague, Czech Republic 84 10,457 0 0 KRKA Magyarország Kft., Budapest, Hungary 68 11,628 0 0 KRKA Slovensko, s.r.o., Bratislava, Slovakia 294 6,475 0 0 UAB KRKA Lietuva, Vilnius, Lithuania 28 3,732 0 0 SIA KRKA Latvija, Riga, Latvia 21 2,718 0 0 KRKA Finland Oy, Espoo, Finland 11,439 1,485 0 0 TAD Pharma GmbH, Cuxhaven, Germany 57,973 9,910 0 0 KRKA Sverige AB, Stockholm, Sweden 32,187 1,681 0 0 KRKA Pharma GmbH, Vienna, Austria 8,985 1,625 0 0 KRKA Farmacêutica, Unipessoal Lda., Estoril, Portugal 14,499 2,173 0 0 KRKA FARMACÉUTICA, S.L., Madrid, Spain 10,204 2,503 0 0 KRKA Farmaceutici Milano S.r.l., Milan Italy 15,437 7,004 0 0 Krka France Eurl, Paris, France* 4,128 5,885 0 0 KRKA PHARMA DUBLIN LIMITED, Dublin, Ireland 6,857 86 0 0 KRKA Belgium, SA, Brussels, Belgium 9,017 1,439 0 0 KRKA UK Ltd, London, United Kingdom 4,819 647 0 0 123 Acurae Pharma GmbH, Cuxhaven, Germany 0 0 0 80 Ningbo Krka Menovo Pharmaceutical Co. Ltd., Ningbo, China 353 11,603 0 0 KRKA USA LLC, Wilmington, USA 0 7 0 0 Total 513,413 236,812 0 300 * Including the subsidiary Golf Grad Otočec, d. o. o. ** Including the subsidiary HCS bvba The transactions between the Company and the above-mentioned subsidiaries were based on sales contracts, which included rendering products and services at market prices. The annual rate of interest agreed on conclusion of loan contracts within the Krka Group companies, is the rate of interest set by the Minister of Finance in accordance with the Corporate Income Tax Act that defines the interest rate for related parties. In 2021, the interest rate ranged from 0.0086% to 0.0165%. 2021 Annual Report – Financial Report of Krka, d. d., Novo mesto 309 The balance of loans to subsidiaries is presented in Note 15 Loans, the balance of borrowings from subsidiaries is presented in Note 23 Borrowings, the balance of receivables due from subsidiaries is presented in Note 19 Trade receivables and the balance of current trade payables to subsidiaries is presented in Note 26 Trade payables. Data on groups of persons By the end of the year, members of the Management Board of Krka held 37,040 of Krka shares, i.e. 0.1129% of total equity or 0.1191% of voting rights. By the end of the year, Members of the Supervisory Board of Krka held 3,347 of Krka shares, i.e. 0.0102% of total equity or 0.0108% of voting rights. Equity stakes held by Management and the Supervisory Boards members of the Company and their shares of voting rights 31 Dec 2021 31 Dec 2020 No. of shares Equity share (%) Share of voting rights (%) No. of shares Equity share (%) Share of voting rights (%) Members of the Management Board Jože Colarič 22,500 0.0686 0.0723 22,500 0.0686 0.0720 Aleš Rotar 13,915 0.0424 0.0447 13,915 0.0424 0.0445 Vinko Zupančič 120 0.0004 0.0004 120 0.0004 0.0004 David Bratož 0 0.0000 0.0000 0 0.0000 0.0000 Milena Kastelic 505 0.0015 0.0016 505 0.0015 0.0016 Total Members of the Management Board 37,040 0.1129 0.1191 37,040 0.1129 0.1185 Members of the Supervisory Board (owner representatives) Jože Mermal 0 0.0000 0.0000 0 0.0000 0.0000 Matej Lahovnik 600 0.0018 0.0019 600 0.0018 0.0019 Julijana Kristl 230 0.0007 0.0007 230 0.0007 0.0007 Borut Jamnik 0 0.0000 0.0000 0 0.0000 0.0000 Mojca Osolnik Videmšek 617 0.0019 0.0020 617 0.0019 0.0020 Boris Žnidarič 0 0.0000 0.0000 0 0.0000 0.0000 Members of the Supervisory Board (owner representatives) Franc Šašek 1,400 0.0043 0.0045 1,400 0.0043 0.0045 Tomaž Sever 500 0.0015 0.0016 500 0.0015 0.0016 Mateja Vrečer 0 0.0000 0.0000 0 0.0000 0.0000 Total Members of the Supervisory Board 3,347 0.0102 0.0108 3,347 0.0102 0.0107 Total 40,387 0.1232 0.1298 40,387 0.1232 0.1292 Treasury shares were eliminated from the calculation of voting rights (1,683,908 treasury shares as at 31 December 2021 and 1,541,774 as at 31 December 2020). Remuneration paid to groups of persons (gross) € thousand 31 Dec 2021 31 Dec 2020 Members of the Management Board 3,560 3,768 Members of the Supervisory Board 303 210 Total gross remuneration paid to groups of persons 3,863 3,978 Remuneration paid to members of the Management Board in the controlling company included wages and salaries, fringe benefits and any other earnings. For each year, they are shown on a cost basis and therefore differ from the remuneration 2021 Annual Report – Financial Report of Krka, d. d., Novo mesto 310 shown in the Report on Remuneration of the Members of the Management Board and Supervisory Board of Krka for 2021, where they are shown by payments in each year. Gross earnings paid to persons employed under individual employment contracts in 2021 amounted to €11,919 thousand (2020: €11,454 thousand). Remuneration paid to Management Board members in 2021 Salary – fixed part Salary – variable part Total € thousand Gross Net payout Net fringe benefits and other earnings Gross Net Gross Net Jože Colarič 430 178 7 734 306 1,164 491 Aleš Rotar 342 141 11 465 194 807 346 Vinko Zupančič 289 120 13 387 161 676 294 David Bratož 283 120 11 380 159 663 290 Milena Kastelic 170 78 6 80 34 250 118 Total Members of the Management Board 1,514 637 48 2,046 854 3,560 1,539 Net fringe benefits and other earnings € thousand Executive health insurance Supplementary pension insurance Anniversary bonuses Other bonuses Refund of work- related costs Pay for annual leave Total Jože Colarič 0.00 2.82 0.00 1.79 0.05 1.98 6.64 Aleš Rotar 0.00 2.82 0.00 4.80 1.05 1.98 10.65 Vinko Zupančič 0.00 2.82 0.00 7.15 0.91 1.98 12.86 David Bratož 0.00 2.82 1.34 3.59 1.08 1.98 10.81 Milena Kastelic 0.00 2.82 0.00 0.44 1.08 1.98 6.32 Total Members of the Management Board 0.00 14.10 1.34 17.77 4.17 9.90 47.28 Remuneration paid to Management Board members in 2020 Salary – fixed part Salary – variable part Total € thousand Gross Net payout Net fringe benefits and other earnings Gross Net Gross Net Jože Colarič 432 177 8 800 313 1,232 498 Aleš Rotar 347 141 13 517 202 864 356 Vinko Zupančič 290 119 13 430 168 720 300 David Bratož 281 119 10 422 166 703 295 Milena Kastelic 169 78 6 80 32 249 116 Total Members of the Management Board 1,519 634 50 2,249 881 3,768 1,565 2021 Annual Report – Financial Report of Krka, d. d., Novo mesto 311 Net fringe benefits and other earnings € thousand Executive health insurance Supplementary pension insurance Anniversary bonuses Other bonuses Refund of work- related costs Pay for annual leave Total Jože Colarič 0.00 2.82 0.00 3.41 0.03 1.81 8.06 Aleš Rotar 0.00 2.82 1.86 5.32 1.12 1.81 12.93 Vinko Zupančič 0.00 2.82 0.00 7.87 0.99 1.81 13.48 David Bratož 0.00 2.82 0.00 4.13 1.06 1.81 9.82 Milena Kastelic 0.00 2.82 0.00 0.05 1.04 1.81 5.71 Total Members of the Management Board 0.00 14.10 1.86 20.78 4.23 9.04 50.00 Other bonuses refer to the use of a company car for private purposes and other similar bonuses. Refund of work-related costs consists of commuting and meal allowances. Members of the Management Board do not receive attendance fees or any other income for exercising their functions in the Management and Supervisory Boards in subsidiaries. Remuneration paid to Supervisory Board members in 2021 Basic pay for exercising the function Attendance fees Commuting allowances Total € thousand Gross Net Gross Net Gross Net Gross Net Remuneration of the members of the Supervisory Board (owner representatives) Jože Mermal 33.51 24.38 1.65 1.20 0.00 0.00 35.16 25.58 Matej Lahovnik 30.82 22.41 2.97 2.16 0.23 0.17 34.02 24.74 Borut Jamnik 31.61 22.99 2.97 2.16 0.00 0.00 34.58 25.15 Julijana Kristl 29.70 21.60 2.53 1.84 0.42 0.31 32.65 23.75 Mojca Osolnik Videmšek 29.70 21.60 2.97 2.16 0.40 0.29 33.07 24.05 Boris Žnidarič 31.61 22.99 2.53 1.84 0.41 0.30 34.55 25.13 Members of the Supervisory Board (employee representatives) Franc Šašek 31.23 22.71 2.97 2.16 0.00 0.00 34.20 24.87 Tomaž Sever 29.70 21.60 2.53 1.84 0.51 0.37 32.74 23.81 Mateja Vrečer 29.70 21.60 2.53 1.84 0.00 0.00 32.23 23.44 Total remuneration paid to Members of the Supervisory Board 277.58 201.88 23.65 17.20 1.97 1.44 303.20 220.52 In accordance with a resolution adopted at the 27 th Annual General Meeting on 8/7/2021, Members of the controlling company's Supervisory Board receive an attendance fee, which for each individual member of the amounts to €275.00 gross. Members of the Supervisory Board Commission receive an attendance fee for their participation in sessions, which for each individual member amounts to 80% of the attendance fee for Supervisory Board sessions. The attendance fee for participating in correspondence sessions amounts to 80% of the general attendance fee. Notwithstanding the foregoing, and irrespective of the number of attendees at the meetings, a member of the Supervisory Board shall be entitled to the payment of attendance fees in an individual financial year until the total amount of the attendance fees reaches 50% of the basic remuneration for exercising the function of a Member of the Supervisory Board on an annual basis. Notwithstanding the foregoing, and irrespective of the number of attendances at meetings of the Supervisory Board and the Commissions in any financial year, a member of the Supervisory Board who is a member of a Commission or Commissions of the Supervisory Board shall be entitled to the payment of attendance fees until the total amount of the attendance fees for attendance at sessions of the Supervisory Board and the Commissions reaches 75% of the basic remuneration for exercising the function of a Member of the Supervisory Board on an annual basis. 2021 Annual Report – Financial Report of Krka, d. d., Novo mesto 312 In addition to attendance fees, member of the Company's Supervisory Board receives on an annual basis also a basic pay for exercising the function in the amount of €15,000.00 gross. The President of the Supervisory Board is further entitled to an extra fee in the amount of 50% of the basic pay for exercising the function of Member of NS, whereas Deputy President of the Supervisory Board is entitled to an extra fee of 10% of the basic pay for exercising the function of a Member of the Supervisory Board. Members of the Supervisory Board Commission are further entitled to a bonus corresponding to 25% of the basic fee for exercising the function of a member of the Supervisory Board. The President of the Commission is entitled to a bonus corresponding to 37.5% of the extra fee for exercising the function of a member of the Supervisory Board Commission. A member of the Supervisory Board Commission is in every financial year entitled – regardless of the above-mentioned or the number of Commissions he/she is a member of or presides over – to receive bonuses until the total amount of these bonuses reaches 50% of the basic pay for exercising the function of the Supervisory Board member on an annual level. Notwithstanding the above, if the term of office of a member of the SC is shorter than a financial year, and irrespective of the number of Commissions of which he/she is a member or presides over, a member of a Commission of the Supervisory Board shall be entitled to pay-outs of extra fees for the performance of his/her duties in a financial year, until the total amount of such pay-outs for exercising the function reaches 50% of the basic pay for of a member of the Supervisory Board in respect of the eligible payments for the period of his/her term of office in the financial year. Members of the Supervisory Board are also entitled to extra fees for special tasks. Special tasks are those which involve the actual performance of unusual tasks of above-average complexity over a prolonged period of time, normally lasting at least one month. The Supervisory Board is authorised to take decisions with the agreement of the Supervisory Board member on the assignment of special tasks to that member, the duration of the special tasks and the extra fees for the special tasks in accordance with this Assembly Decision. The Supervisory Board is also authorised to take decisions on extra fees for special tasks of the Supervisory Board members due to objective circumstances in the company. Extra fees for special tasks are only admissible for the time when the special tasks are actually carried out, which may exceptionally be decided retrospectively by the Supervisory Board (in particular in the case of special tasks due to objective circumstances in the company), but not more than for the previous financial year. The extra fees for special tasks that a member may receive in a given year may amount to a maximum of 50% of the basic pay for exercising the functions of a member of the Supervisory Board (irrespective of the number of special tasks). The amount of the additional payment shall take into account the complexity of the special task and the increased workload and responsibility involved. The extra fee rate shall be calculated according to the time actually spent on the special task. Members of the Company's Supervisory Board receive a basic pay and an extra fee for exercising the function and a bonus for special tasks, in proportionate monthly payments which they are entitled while they are performing a function and/or a special task. The monthly payment amounts to one twelfth of the aforesaid annual amounts. Depending on the circumstances, the bonus for special tasks may also be made in a single lump sum when the specific task is completed. The limitation of the amount of the total amount of the attendance fees and the payment of the extra fees to a member of the Supervisory Board shall in no way affect his/her duty to actively participate in all sessions of the Supervisory Board and of the sessions of the Commissions of which he/she is a member, nor his/her statutory responsibility. The Members of the Supervisory Board are entitled to reimbursement of transportation costs, daily allowance and overnight accommodation expenses incurred in connection with their work for the Supervisory Board, up to the amount laid down in the rules governing the reimbursement of expenses relating to work and other income not deductible for tax purposes (provisions applicable to transport on official travel and accommodation on business travel). The amount due to a member of the Supervisory Board under the above-mentioned regulation is increased by the corresponding levies, therefore the net payment represents the reimbursement of actual travel expenses. The distances between places calculated on the AMZS public website are used to determine the mileage. Overnight accommodation expenses may be reimbursed only if the permanent or temporary residence of the member of the Supervisory Board or of a member of a Supervisory Board Commission is at least 100 kilometres from the place of work of the body, if he/she was unable to return because the timetable no longer provided for any public transport or for other objective reasons. In 2020 and 2021, the members of the Management Board and the Supervisory Board, the employee representatives, did not receive any loans from Krka. Loans to staff employed under individual employment contracts amounted to €179 thousand at 31 December 2021 (€155 thousand as at 31 December 2020). In 2021, repayments of loans by staff employed under individual employment 2021 Annual Report – Financial Report of Krka, d. d., Novo mesto 313 contracts reached €26 thousand (2020: €22 thousand). The loans to the above-mentioned persons are meant for housing purposes. 34. Educational structure of employees 2021 2020 Average headcount Equity (%) Average headcount Equity (%) PhD 169 2.7 161 2.7 MSc 268 4.3 266 4.5 University education 1,947 31.4 1,875 31.2 Higher professional education 846 13.7 798 13.3 Vocational college education 257 4.1 248 4.1 Secondary school education 1,905 30.7 1,809 30.1 Skilled workers 716 11.5 728 12.1 Unskilled workers 96 1.6 120 2.0 Total (average for the year) 6,204 100.0 6,005 100.0 35. Transactions with the audit firm The agreed fee for the audit services performed in 2021 by the audit firm ERNST & YOUNG Revizija, poslovno svetovanje, d. o. o., amounted to €107 thousand, the same as in 2020. In total, audit costs amounted to €109 thousand (2020: €112 thousand). In addition to the financial statement audit, the audit firm provided a translation of the financial section of the Annual Report at a cost of €3 thousand and the audit of the on the compliance of the report with the ESEF Regulation at a cost of €5 thousand. 36. Subsequent events The events after the end of the period had no impact on the 2021 financial statements. Situation in Ukraine and the Russian Federation: Impact on the Company Operations On account of rapid changes and their unpredictability, it is not possible to reliably forecast the impact of the situation in Ukraine and Russian Federation on our business operations in 2022 and any long-term consequences. Krka has a strong capital structure, generates a strong cash flow from operations and has no financial debt, so its successful business performance in the long run is not jeopardised. Our Management Board closely monitor events and implement all necessary activities to ensure business continuity in the two countries. They also take measures to manage operational risks and reduce the eventual negative impact on business results. The Management Board will prepare and publish the eventual revision of guidance for 2022, when and if tangible assessment of short and long term implication of current situation is possible. As at 31 December 2021, Krka’s investment in Ukrainian subsidiary totalled €9 thousand, while investments in two Russian subsidiaries added up to €134,086 thousand. As at 31 December 2021, Krka’s trade receivables in Ukraine due from customers and subsidiaries amounted to €39,194 thousand, of that €35 thousand from the subsidiary and €39,159 thousand from customers outside the Krka Group. As at 31 December 2021, Krka’s trade receivables in the Russian Federation due from customers and subsidiaries amounted to €160,340 thousand, of that €156,935 thousand from the subsidiaries and €3,405 thousand form customers outside the Krka Group. In 2022, there was an unfavorable change in the EUR/RUB exchange rate. The exposure at 31 December 2021 and related risks are presented in Note 32 Financial instruments and financial risks. 2021 Annual Report – Financial Report of Krka, d. d., Novo mesto 314 Acquisition of Treasury Shares in 2022 From 1 January 2022 to 14 April 2022, we acquired 21,689 treasury shares. At the end of this period, Krka held 1,705,597 treasury shares, accounting for 5.201% of total shares. 2021 Annual Report – Financial Report of Krka, d. d., Novo mesto 315 Independent Auditor's Report 2021 Annual Report – Financial Report of Krka, d. d., Novo mesto 316 2021 Annual Report – Financial Report of Krka, d. d., Novo mesto 317 2021 Annual Report – Financial Report of Krka, d. d., Novo mesto 318 2021 Annual Report – Financial Report of Krka, d. d., Novo mesto 319 2021 Annual Report – Financial Report of Krka, d. d., Novo mesto 320 Annual Report 2021 – Financial Report 321 Enclosure 1 Repurchased treasury shares in 2021 by days Date No. of shares Average share price (€) Value of treasury shares (€ thousand) Date No. of shares Average share price (€) Value of treasury shares (€ thousand) Date No. of shares Average share price (€) Value of treasury shares (€ thousand) 4 Jan 2021 1,909 91.23 174 25 May 2021 1,200 107.68 129 17 Aug 2021 270 110.68 30 5 Jan 2021 2,044 92.60 189 26 May 2021 1,023 107.17 110 18 Aug 2021 1,044 112.65 118 6 Jan 2021 2,218 93.44 207 27 May 2021 1,399 107.10 150 19 Aug 2021 1,047 113.48 119 7 Jan 2021 1,877 94.62 178 28 May 2021 1,525 106.67 163 20 Aug 2021 211 112.25 24 8 Jan 2021 926 95.82 89 31 May 2021 1,059 106.48 113 23 Aug 2021 633 112.04 71 11 Jan 2021 1,764 96.92 171 1 June 2021 1,440 106.37 153 24 Aug 2021 1,106 111.98 124 12 Jan 2021 1,727 96.90 167 2 June 2021 1,331 107.17 143 25 Aug 2021 540 112.41 61 13 Jan 2021 1,876 96.59 181 3 June 2021 1,414 107.17 152 26 Aug 2021 1,077 112.61 121 29 Jan 2021 1,578 95.50 151 4 June 2021 1,480 106.68 158 27 Aug 2021 1,050 112.30 118 1 Feb 2021 1,613 95.15 153 7 June 2021 1,526 106.17 162 30 Aug 2021 310 112.08 35 2 Feb 2021 1,610 95.00 153 8 June 2021 1,587 105.05 167 31 Aug 2021 967 113.61 110 3 Feb 2021 1,706 94.78 162 9 June 2021 1,645 103.74 171 1 Sep 2021 978 113.14 111 4 Feb 2021 1,666 94.55 158 10 June 2021 1,787 104.67 187 2 Sep 2021 999 111.68 112 5 Feb 2021 1,637 94.29 154 11 June 2021 1,814 105.41 191 3 Sep 2021 977 113.05 110 9 Feb 2021 1,630 93.92 153 14 June 2021 1,850 105.17 195 6 Sep 2021 715 112.49 80 10 Feb 2021 1,561 93.35 146 15 June 2021 1,885 105.17 198 7 Sep 2021 516 113.59 59 11 Feb 2021 1,425 92.99 133 16 June 2021 1,906 105.44 201 8 Sep 2021 968 112.93 109 12 Feb 2021 1,369 92.89 127 17 June 2021 1,911 105.26 201 9 Sep 2021 1,008 111.92 113 15 Feb 2021 307 93.08 29 18 June 2021 1,968 104.67 206 10 Sep 2021 799 111.45 89 15 Apr 2021 2,041 99.00 202 21 June 2021 1,813 104.09 189 13 Sep 2021 852 112.46 96 16 Apr 2021 843 100.58 85 22 June 2021 1,819 104.02 189 14 Sep 2021 1,032 112.54 116 19 Apr 2021 2,390 103.18 247 23 June 2021 1,250 103.29 129 15 Sep 2021 580 111.68 65 21 May 2021 1,011 107.04 108 29 July 2021 1,158 108.75 126 16 Sep 2021 996 111.92 111 24 May 2021 1,188 107.33 128 16 Aug 2021 1,040 110.69 115 17 Sep 2021 883 111.68 99 Annual Report 2021 – Financial Report 322 Date No. of shares Average share price (€) Value of treasury shares (€ thousand) Date No. of shares Average share price (€) Value of treasury shares (€ thousand) Date No. of shares Average share price (€) Value of treasury shares (€ thousand) 20 Sep 2021 884 110.46 98 13 Oct 2021 687 111.18 76 7 Dec 2021 1,323 117.76 156 21 Sep 2021 994 111.30 111 14 Oct 2021 214 111.34 24 8 Dec 2021 1,448 117.90 171 22 Sep 2021 1,007 110.99 112 15 Oct 2021 1,064 112.30 119 9 Dec 2021 773 117.19 91 23 Sep 2021 274 111.22 30 18 Oct 2021 1,073 111.96 120 10 Dec 2021 1,263 117.92 149 24 Sep 2021 835 115.15 96 18 Nov 2021 510 115.24 59 13 Dec 2021 1,474 117.48 173 27 Sep 2021 1,092 112.44 123 19 Nov 2021 915 115.53 106 14 Dec 2021 1,302 118.13 154 28 Sep 2021 605 112.30 68 22 Nov 2021 940 116.46 109 15 Dec 2021 1,689 117.81 199 29 Sep 2021 1,056 112.64 119 23 Nov 2021 286 117.74 34 16 Dec 2021 1,754 117.19 206 30 Sep 2021 800 112.92 90 24 Nov 2021 921 119.31 110 17 Dec 2021 1,582 116.17 184 1 Oct 2021 445 112.62 50 25 Nov 2021 1,015 119.92 122 20 Dec 2021 1,496 116.47 174 4 Oct 2021 941 111.55 105 26 Nov 2021 1,000 119.90 120 21 Dec 2021 785 115.88 91 5 Oct 2021 1,010 111.38 112 29 Nov 2021 834 119.82 100 22 Dec 2021 442 116.53 52 6 Oct 2021 332 109.68 36 30 Nov 2021 1,155 117.19 135 23 Dec 2021 1,298 116.93 152 7 Oct 2021 522 111.17 58 1 Dec 2021 1,227 116.62 143 27 Dec 2021 1,597 118.05 189 8 Oct 2021 978 111.38 109 2 Dec 2021 1,122 116.68 131 28 Dec 2021 910 118.78 108 11 Oct 2021 620 110.49 69 3 Dec 2021 1,572 116.19 183 12 Oct 2021 783 110.45 86 6 Dec 2021 981 115.65 113 Total purchase in 2021 142,134 107.38 15,262 A broker's fee is included in the weighted average price of shares. 2021 Annual Report 323 SIGNING OF THE 2021 ANNUAL REPORT AND ITS CONSTITUENT PARTS President and members of the Krka, d. d., Novo mesto Management Board are aware of the content of the integral parts of the 2021 Annual Report of Krka and the Krka Group, and hence of the entire 2021 Annual Report of Krka and the Krka Group. We hereby acknowledge the Report by our signatures. Jože Colarič President of the Management Board and CEO dr. Aleš Rotar Member of the Management Board dr. Vinko Zupančič Member of the Management Board David Bratož Member of the Management Board Milena Kastelic Member of the Management Board – Worker Director

AI Terminal

More from Krka

Talk to a Data Expert