Krka

Quarterly Report • May 12, 2016

Unaudited Interim Report for the Krka Group and the Krka Company for January–March 2016

Novo mesto, May 2016

Introduction 3
Highlights January–March 2016 3
Krka Group and Krka Company financial highlights 4
Krka Group ID card 5
Krka Group business model 5
Krka Group companies 6
Krka Group development strategy 7
Events after the accounting period 9
Business report 10
Financial risk 10
Investor and share information 11
Business operations analysis 14
Marketing and sales 16
Research and development 26
Investments 27
Employees 28
Condensed consolidated financial statements of the Krka Group, with notes 30
Consolidated statement of financial position of the Krka Group 30
Consolidated income statement of the Krka Group 31
Consolidated statement of other comprehensive income of the Krka Group 32
Consolidated statement of changes in equity of the Krka Group 33
Consolidated statement of cash flows of the Krka Group 35
Segment reporting of the Krka Group 36
Notes to the consolidated financial statements of the Krka Group 37
Condensed financial statements of Krka, d. d., Novo mesto, with notes 43
Statement of financial position of Krka, d. d., Novo mesto 43
Income statement of Krka, d. d., Novo mesto 44
Statement of other comprehensive income of Krka, d. d., Novo mesto 44
Statement of changes in equity of Krka, d. d., Novo mesto 45
Statement of cash flows of Krka, d. d., Novo mesto 47
Segment reporting of Krka, d. d., Novo mesto 48
Notes to the financial statements of Krka, d. d., Novo mesto 49
Management Board statement of responsibilities 55

INTRODUCTION

The condensed financial statements of the Krka Group and the condensed financial statements of Krka, d. d., Novo mesto (Krka Company) for the periods January–March 2016 and 2015 are unaudited, while the financial statements for the full 2015 business year present audited figures. The Krka Company has no authorised capital and has not made a conditional share capital increase.

The Krka Company promptly announces all significant changes of the data in its listing prospectus in the Ljubljana Stock Exchange

Highlights January–March 2016

• The Krka Group sold €300.9 million worth of products and services, and Krka Company sales amounted to €263.4 million.
• The Krka Group sales increased by 4% compared to the first quarter 2015, and the Krka Company sales were up 1%.
• The highest absolute year-on-year sales growth (up €7.1 million) was recorded in Region South-East Europe, and the highest relative sales growth (up 33%) in Region Overseas Markets.
• Krka's largest sales region are West Europe and East Europe, contributing 26.6% of total sales each.
• The Krka Group generated 93%, and the Krka Company 95% of its revenues in markets outside Slovenia.
• The Krka Group generated €50.4 million of operating profit, an increase by 17% compared to the same period last year, and the Krka Company €39.4 million, up 16%.

electronic information dissemination system SEOnet, in the Polish Financial Supervision Authority electronic information dissemination system (ESPI), and/or in the Delo daily newspaper. This interim report for the Krka Group and the Krka Company is available on the Krka website www.krka.si.

The Krka Company Supervisory Board discussed the January–March 2016 Report for the Krka Group and the Krka Company at its regular meeting on 11 May 2016.

• The Krka Group reported a net profit of €40.2 million, down 27% compared to the same period last year, and the Krka Company generated €32.8 million of net profit, down 34%.
• Lower year-on-year net profit at Group and Company level is attributable to increased financial expenses on account of the change in the fair value of derivatives. In the first quarter of 2015 there were also higher exchange rate gains than this year, which resulted from the Russian rouble's appreciation and which had thus increased financial income in that period.
• As at 31 March 2016 Krka's share traded at €61.50 on the Ljubljana Stock Exchange (down 5.7% from the year-end of 2015), and Krka Company's market capitalisation amounted to €2.0 billion.
• The Krka Group allocated €26.2 million to investments, of which the Krka Company invested €18.5 million and subsidiaries €7.7 million.
• At the end of March 2016 the Krka Group had 10,708 employees, which is an increase by 144, or 1%, from the beginning of the year.

Krka Group and Krka Company financial highlights

		Krka Group	Krka Company
In € thousand	1–3/2016	1–3/2015	1–3/2016	1–3/2015
Revenues	300,892	289,304	263,371	260,756
EBIT1	50,438	43,068	39,366	34,034
EBITDA	76,839	69,327	60,124	54,387
Net profit	40,196	55,114	32,785	49,551
R&D expenses	29,697	27,722	31,154	28,853
Investments	26,179	20,289	18,497	17,458
	31 Mar 2016	31 Dec 2015	31 Mar 2016	31 Dec 2015
Non-current assets	992,087	986,598	1,014,367	999,975
Current assets	878,225	822,606	803,992	761,737
Equity	1,451,078	1,405,984	1,464,475	1,433,211
Non-current liabilities	110,887	110,982	76,998	76,753
Current liabilities	308,347	292,238	276,886	251,748
RATIOS	1–3/2016	1–3/2015	1–3/2016	1–3/2015
EBIT margin	16.8%	14.9%	14.9%	13.1%
EBITDA margin	25.5%	24.0%	22.8%	20.9%
Profit margin (ROS)	13.4%	19.1%	12.4%	19.0%
ROE2	11.3%	15.9%	9.1%	14.1%
ROA3	8.7%	12.1%	7.3%	11.1%
Liabilities/Equity	0.289	0.310	0.242	0.255
R&D costs/Revenues	9.9%	9.6%	11.8%	11.1%
NUMBER OF EMPLOYEES (as at)	31 Mar 2016	31 Dec 2015	31 Mar 2016	31 Dec 2015
	10,708	10,564	4,823	4,798

SHARE INFORMATION	1–3/2016	1–3/2015
Total number of shares issued	32,793,448	32,793,448
Earnings per share in €4	4.95	6.77
Closing price at end of period in €5	61.50	61.40
Price/Earnings ratio (P/E)	12.43	9.08
Book value in €6	44.25	43.35
Price/Book ratio (P/B)	1.39	1.42
Market capitalisation in € thousand (end of period)	2,016,797	2,013,518

¹Difference between operating income and expenses

2 Net profit, annualised/Average shareholders' equity in the period

3 Net profit, annualised/Average total assets in the period

⁴ Net profit attributable to majority owners of the Krka Group, annualised/Average number of shares issued in the period exclusive of treasury shares

⁵Share price on the Ljubljana Stock Exchange

⁶ Equity at the end of the period/Total shares issued

Krka Group ID card

The controlling company in the Krka Group is Krka, tovarna zdravil, d. d., Novo mesto (Krka, d. d. or the Krka Company).

Registered office Šmarješka cesta 6, 8501 Novo mesto, Slovenia Telephone ++386 7 331 21 11 Fax ++386 7 332 15 37 E-mail info@krka.biz Website www.krka.si Core business Production of pharmaceutical preparations Business clarification code 21.200 Year established 1954 Registration entry 1/00097/00, District Court of Novo mesto, Slovenia Tax number 82646716 VAT number SI82646716 Company ID number 5043611 Share capital €54,732,264.71 Number of issued shares 32,793,448 ordinary registered no-par value shares with the symbol KRKG. Krka shares have been listed on the Ljubljana Stock Exchange under symbol KRKG since 1997, and since April 2012

Krka Group business model

Krka is one of the world's leading generic pharmaceutical companies. Its registered office is in Slovenia, and it has over 60 years of experience in the industry.

additionally on the Warsaw Stock Exchange under symbol KRK.

Krka is the leader in the Slovenian market, and it also has a significant presence in the generic pharmaceutical markets of Eastern, Central and South-Eastern Europe, having been gaining ever stronger visibility in Western European markets in recent years as well. We have been strengthening our presence in overseas markets, aiming to further exploit the sales potential of the Middle East, Far East, Africa and the Americas. We have production and distribution facilities in Slovenia, the Russian Federation, Poland, Croatia and Germany.

Our modern pharmaceutical production and vertically integrated business model allow us to provide patients in over 70 countries with a wide range of safe, high quality and effective prescription pharmaceuticals, non-prescription products and animal health products. Krka's product range primarily consists of solid dosage pharmaceutical forms. Our product range is supplemented by the health resort and tourist services of Terme Krka.

We focus on generic prescription pharmaceuticals marketed under Krka's own brands. We offer numerous medicinal products for the treatment of conditions from key therapeutic areas, including pharmaceuticals for cardiovascular diseases, for alimentary and metabolic diseases, and for diseases of the central nervous system. We have also been entering new therapeutic areas (oncology and antiviral medicines), selected ones also with non-prescription products.

We have been expanding our marketing and sales network and thereby gaining market shares by establishing subsidiaries in selected markets. Our objective is to strengthen the Krka Group's market position in European and Central Asian markets, and to enter new high-potential markets.

Striving to increase the competitive advantage of Krka's product range, we have been allocating a large proportion of our revenues to research and development. More than 170 new products are currently in the pipeline. A large proportion of our revenues are generated by the sales of new products launched on different markets in the past five years.

Krka Group companies

The controlling company, Krka, d. d., Novo mesto, holds 100% ownership stakes in all of the above subsidiaries apart from Farma GRS (99.7%) and Krka Belgium (95%); the remaining 5% in the latter is held by the subsidiary Krka France Eurl a capital variable.

Krka Group development strategy

The Krka Group development strategy is updated on a bi-annual basis. In November 2015 the Krka Management Board adopted the Krka Group's development strategy for the period 2016–2020, and presented it to the Supervisory Board.

The success of implementing strategic objectives is measured against performance criteria set at the level of the Krka Group, at the level of product groups and at the level of business functions. Performance at the level of the Krka Group is

Key strategic objectives to 2020

• Report an average annual sales volume growth of at least 5%.
• In addition to organic growth, expand through acquisitions and long-term partnerships (including joint ventures).
• Allocate a few hundred million euros in the fiveyear strategic period for available commercially appealing acquisition targets.
• Have new products account for at least one third of total sales.
• Be the first generic producer to launch selected products on selected key markets.

Key strategies to 2020

• Prioritise focus on European and Central Asian markets.
• Maximise the utilisation of the sales potential in all sales regions (Slovenia, South-East Europe, East Europe, Central Europe, West Europe, Overseas Markets).
• Focus on key markets (Slovenia, Croatia, Romania, Ukraine, the Russian Federation, Poland, Hungary, the Czech Republic, Slovakia, West Europe), key customers and key products.
• Strengthen and consolidate Krka's presence in the markets of Western Europe with our own marketing and sales companies and our own brands.
• Strengthen the pharmaceuticals and chemicals business, and in this respect expand our range of prescription pharmaceuticals for three key therapeutic areas (cardiovascular diseases, the alimentary tract and metabolism, and the

monitored by the Management Board, while performance at the level of product and service groups, and business functions, is monitored by the relevant committees. The key principle in managing performance criteria is increasing competitiveness of the entire Krka Group and of each company individually.

The key Krka Group objectives and strategies to 2020 are set out below.

• Strengthen the competitive advantage of our product range.
• Maintain the largest possible share of vertically integrated products.
• Improve the cost-effective use of assets.
• Increase cost-effectiveness in products.
• Improve innovation across all business functions.
• Maintain independence.

central nervous system), while also entering new areas (oncology, antiviral medicines) and expanding the range of non-prescription products in selected therapeutic fields.

• Strengthen vertical integration from product development to sale.
• Ensure a permanent supply of incoming materials and optimise supply by aiming to continuously reduce purchasing prices.
• Develop generic pharmaceuticals and prepare their marketing authorisation documentation prior to the expiry of the patent for the original medicine.
• Strengthen all types of relationships in the area of development with external institutions and companies.

• Continue to increase investments in production, development and infrastructure capacities.

• Search for options to purchase local pharmaceutical companies, make business acquisitions, and enter into various long-term joint ventures in selected markets, the primary objective being to acquire market shares and enter new therapeutic areas.

• Reduce the impact of financial risk and economic hazards on Krka Group operations.
• Pursue a dividend-increase policy whereby up to 50% of the previous year's consolidated net profit attributable to majority owners is allocated to dividends, with the Krka Company's financial requirements connected to investments and acquisitions also being taken into account.
• Be open to prospective business combinations (networking) on relevant projects.

Krka Group business objectives for 2016

• Product and service sales are expected to total €1,210 million.
• Sales in markets outside Slovenia are expected to account for 93% of total sales.

• Prescription pharmaceuticals will remain the most important product group, accounting for 83% of total sales.

• Strengthen the professional and cost synergy within the Krka Group, and maximise the utilisation of competitive advantages in the business environments of Krka companies outside Slovenia.

• Strengthen the internationalisation of all business functions by implementing English and Russian as the key foreign languages of communication in the Krka Group.
• Mobilise the internal human resource potential with a business and goal orientation.
• Maintain economic, social and environmental responsibility to the surroundings in which we operate.
• Operate on the principles of business excellence and thereby strengthen Krka's identity and positive public profile.
• Net profit is planned to amount to €160 million.
• The number of employees is planned to increase both in Slovenia and abroad, together by more than 4%.
• The €162 million of planned investments will primarily expand and modernise production and R&D capacities, and infrastructure.

Events after the accounting period

• At the meeting of the Supervisory Board of 30 March 2016, Matej Pirc informed members of the Supervisory and Management Boards about his resignation from the post of a member and President of the Supervisory Board of Krka, d. d., Novo mesto. The resignation enters into effect on the date of the first regular Annual General Meeting of Shareholders of Krka, d. d., Novo mesto (AGM). According to the financial calendar, the AGM is planned for 7 July 2016.

At their meeting of 11 May 2016, following the motion put forward by the Human Resource Committee, the Supervisory Board decided to propose to the AGM Boris Žnidarič be elected a Supervisory Board member – shareholder representative, the post vacated by Matej Pirc. The Supervisory Board did not form the Nominations Committee for that purpose. Its function was performed by the Human Resource Committee in accordance with the Rules of Procedure for the Supervisory Board.

• At their meeting of 11 May 2016, the Supervisory Board appointed Jože Mermal President of the Supervisory Board in place of Boris Žnidarič, PhD of Social Sciences and Master of Law, is a member of the Management Board of Kapitalska družba. Before that, he successfully worked in many areas of the Triglav Group, an insurance group. He assisted the President of the Management Board of Zavarovalnica Triglav, where he coordinated the work of directors and was in charge of strategic area of HRM in subsidiaries. He was a member of the Management Board of Triglav Osiguranje Zagreb. He was also in charge of the regional unit of Zavarovalnica Triglav in Celje, and led the central department for prevention and detection of insurance fraud. Before that, he was an adviser to the management board member for the strategic area of HRM of the Triglav Group. He also worked as the assistant director for legal, HR and general affairs in the Ljubljana regional unit. He holds a certificate of professional competence for supervisory board memberships. Besides his diverse career in insurance, he is also a habilitated university lecturer.

Matej Pirc, and Anja Strojin Štampar Deputy President of the Supervisory Board, their terms commencing on 7 July 2016.

BUSINESS REPORT

Financial risk

Foreign exchange risk

Due to widespread international operations, the Krka Group is exposed to foreign exchange risk in certain sales markets.

Exposure to foreign exchange risk resulted in €10.4 million of exchange rate gains in the first quarter of 2016. The majority is exchange rate gains from movements of the rouble, while the effects of other currencies balanced each other out and represent only a minor aggregate contribution to the total amount.

The rouble was unstable in the first quarter, chiefly due to the continued high volatility of oil prices. In mid-February 2016 they reached their lowest point in several years. Decreasing oil prices at the beginning of 2016 were caused by supply exceeding demand and by the uncertainty with respect to economic growth in China. The latter was further reflected in the downward trends of all key global stock indices. Conditions in stock markets have improved since mid-February, owing to a large

Interest rate risk

The Krka Group was not exposed to reference interest rate risk in the first quarter, as all noncurrent borrowings had been paid back in previous

Credit risk

The credit control process involves obtaining credit ratings for customers to which the controlling company and subsidiaries sell products worth an annual €100,000 or more, and regular, dynamic monitoring of customer payment discipline.

More than 90% of the Krka Group's trade receivables were included in the credit control process at the end of the first quarter.

Total trade receivables were up at the end of the first quarter compared to the beginning of the year, the positive restatement largely due to the appreciation of individual currencies.

extent to the activities of the Chinese, Japanese, US and EMU central banks. Amidst advances in stock markets, decreased risk of economic growth in China weakening, and forecasts of oil producing countries' plans to potentially freeze output, oil prices gradually increased in the second half of the first quarter.

Due to the rouble's high volatility, we preserved occasionally hedging of our rouble positions in the first quarter of 2016. Hedging resulted in derivatives income as inflows, and in derivatives expenses as the change in fair value.

Together with the exchange rate gains, the net effect of exposure to foreign exchange risk in the income statement for the first quarter of 2016 is €- 4.0 million.

Foreign exchange risks associated with other currencies were not hedged in the reported period.

years and no new non-current loans were taken out this year.

Approximately one half of the Krka Group's total trade receivables have credit insurance coverage or are hedged with financial instruments. Our policy of hedging receivables did not change in the reported period.

The amount of past due and outstanding receivables at the end of the first quarter was at a level that Krka considers normal and acceptable. Customer payment discipline is estimated to have remained unchanged, and we did not write off any major trade receivables.

Liquidity risk

Risks related to the Krka Group's liquidity were managed by effective short-term cash flow planning. Short-term liquidity was ensured through regular cash flows and pre-agreed short-term revolving borrowings from banks, and the daily, rolling weekly, monthly and longer-term planning and monitoring of cash inflows and outflows. We also optimised the bank balances of Krka's subsidiaries.

With the volume of our current borrowings in the reported period small, liquidity risk is estimated as low. All our liabilities in the reported period were settled regularly and in the agreed time frames.

Property, business interruption and liability insurance

On the basis of a thorough optimisation of insurance deals and an assessment of tenders, Krka has entered into new insurance arrangements. Even with the value of insured assets increasing, the total insurance premium has decreased. All Group companies have insurance policies at the local level, which provides them with optimum property protection and protects them from claims for damages.

The parent company provided insurance coverage for investment projects. It also conducted an analysis of car insurance arrangements in the Krka Group, finding that the effects of the implemented measures have had a positive effect and have made a substantial contribution to driving the insurance premium down and to decreasing the number of loss events.

Investor and share information

At the end of March 2016 Krka had 58,012 shareholders, which is 1.3% less than at the end of 2015. The decrease was mainly due to fewer Slovenian individual investors. The shareholdings of Krka's shareholders did not change considerably in the first quarter of 2016.

Shareholder structure (%)

	31 Mar 2016	31 Dec 2015
Individual Slovenian investors	39.7	39.8
Slovenian Sovereign Holding	16.2	16.2
KAD fund and PPS	11.0	11.0
Slovenian legal entities and funds	8.1	8.2
International investors	23.9	23.8
Treasury shares	1.1	1.0
Total	100.0	100.0

At the end of March 2016 Krka held 356,177 treasury shares, which represents 1.1% of its share capital.

The Krka Company repurchased 29,900 treasury shares on the Ljubljana Stock Exchange in the first quarter of 2016, worth a total of €1,838,131.

Krka's ten largest shareholders as at 31 March 2016

			Share in	Share of
		No. of	equity	voting rights
	Country	shares	(%)	(%)
SLOVENSKI DRŽAVNI HOLDING, D. D.	Slovenia	5,312,070	16.20	16.38
KAPITALSKA DRUŽBA, D. D.	Slovenia	3,493,030	10.65	10.77
SOCIETE GENERALE-SPLITSKA BANKA D. D.	Croatia	2,131,390	6.50	6.57
HYPO ALPE-ADRIA-BANK D. D.	Croatia	1,168,648	3.56	3.60
KDPW	Poland	496,048	1.51	1.53
LUKA KOPER, D. D.	Slovenia	433,970	1.32	1.34
NEW WORLD FUND INC	USA	400,000	1.22	1.23
ZAVAROVALNICA TRIGLAV, D. D.	Slovenia	388,300	1.18	1.20
THE BANK OF NEW YORK MELLON	USA	282,404	0.86	0.87
AMERICAN FUNDS INSURANCE SERIES	USA	232,246	0.71	0.72
Total		14,338,106	42.72	44.20

Krka's ten largest shareholders held a total of 14,338,106 shares at the end of March 2016, which is almost 43% of all issued shares.

On 31 March 2016 members of the Krka Management Board and Supervisory Board held a total of 38,030 shares, which is 0.116% of all issued shares.

Shares in equity and shares of voting rights held by members of the Krka Management Board and Supervisory Board on 31 March 2016

		Share	Share of
	No. of shares	in equity (%)	voting rights (%)
Management Board members
Jože Colarič	22,500	0.06861	0.06936
Aleš Rotar	13,023	0.03971	0.04015
David Bratož	0	0.00000	0.00000
Vinko Zupančič	120	0.00037	0.00037
Milena Kastelic	505	0.00154	0.00156
Total Management Board	36,148	0.11023	0.11144
Supervisory Board members
Julijana Kristl	230	0.00070	0.00071
Jože Mermal	0	0.00000	0.00000
Matej Pirc	152	0.00046	0.00047
Andrej Slapar	0	0.00000	0.00000
Simona Razvornik Škofič	0	0.00000	0.00000
Anja Strojin Štampar	0	0.00000	0.00000
Tomaž Sever	500	0.00152	0.00154
Franc Šašek	1,000	0.00305	0.00308
Mateja Vrečer	0	0.00000	0.00000
Total Supervisory Board	1,882	0.00574	0.00580

Share trading January–March 2016

In the first quarter of 2016 Krka's share price on the Ljubljana Stock Exchange decreased by 5.7% to stand at €61.50 at the end of March. In the same period, the Slovenian blue-chip index SBI TOP was up 4.3%. Krka's market capitalisation as at 31 March 2016 totalled €2.0 billion.

With a daily trading volume averaging €0.3 million, Krka was the most traded share on the Ljubljana Stock Exchange in the first quarter of 2016.

Business operations analysis

The business operations analysis includes data for the Krka Group and the Krka Company, while the comments relate primarily to the Krka Group.

Revenues and other income

Year-on-year revenues were up 4% at the level of the Krka Group and 1% at the level of the Krka Company. The Krka Company sold €263.4 million worth of prescription pharmaceuticals, non-

Expenses

Total Krka Group expenses incurred in the first quarter of 2016 amounted to €288.0 million, up 16% compared to the same period last year. This is mainly due to higher financial expenses from the change in the fair value of derivatives in the amount of €35.7 million.

The Krka Group incurred €252.2 million of operating expenses, a 2% year-on-year increase, among which the costs of goods sold were €130.7 million, selling and distribution expenses €71.2 million, R&D expenses €29.7 million, and general and prescription products and animal health products, while the Krka Group generated €300.9 million of revenues from these products plus the health resort and tourist services. The Krka Group generated 93% of its revenues in markets outside Slovenia.

Taking into account other operating and financial income, the Krka Group generated a total of €334.6 million of revenues, and the Krka Company €297.1 million.

A more detailed analysis of sales results by individual markets and by groups of products and services is given in the chapter Marketing and Sales below.

administrative expenses €20.6 million.

Krka Group's costs of goods sold increased by 7%, on a costs to sales ratio of 43.4%. Selling and distribution expenses decreased by a tenth, on a costs to sales ratio of 23.7%. R&D expenses increased by 7%, on a costs to sales ratio of 9.9%. The Krka Group does not capitalise R&D expenses, therefore they are recognised as expenses for the period in full. General and administrative expenses increased by 8%, on a costs to sales ratio of 6.9%.

Operating result

The Krka Group recorded €50.4 million of operating profit, up 17% from the comparable period last year.

Profit before tax amounted to €46.6 million, a 27% year-on-year decrease. Income tax totalled €6.4 million, and the effective tax rate was 13.8%.

The Krka Group recorded €40.2 million of net profit, a 27% year-on-year decrease, while the Krka Company generated €32.8 million of net profit, down 34%.

Assets

At the end of March 2016 Krka Group assets totalled €1,870.3 million, an increase by 3% compared to the year-end of 2015.

Non-current assets represent 53.0% of total assets, the proportion down 1.5 of a percentage point from the beginning of the year. The largest item under non-current assets, which totalled €992.1 million, was property, plant and equipment on €832.7 million, which is a 1% increase from the end of 2015

Equity and liabilities

From the end of 2015 the Krka Group's equity increased by 3% to €1,451.1 million, and represents 77.6% of total equity and liabilities.

Amounting to €110.9 million, non-current liabilities represent 5.9% of the Krka Group's total assets. Provisions, which amounted to €85.2 million at the end of the period, were at the same level as at the end of 2015.

and represents 44.5% of the Krka Group's total assets. Intangible assets amounted to €115.6 million, down 1% from the end of 2015.

Current assets were up 7% in the three months of 2016, to €878.2 million, with inventories decreasing by 3% to €265.1 million, and receivables up 5% to €487.8 million (of which trade receivables amounted to €459.1 million, up 6% from the beginning of the year).

Current liabilities increased by 6% from the end of 2015 and totalled €308.3 million, which is 16.5% of the Krka Group's total assets. Among current liabilities, trade payables amounted to €99.1 million, down 5% compared to the end of 2015, with other current liabilities up 10% to €198.2 million.

Performance ratios

The Krka Group profit margin for the first quarter of 2016 totalled 13.4% (Krka Company 12.4%), its EBIT margin 16.8% (Krka Company 14.9%) and its EBITDA margin 25.5% (Krka Company 22.8%).

ROE at the level of the Krka Group was 11.3% (Krka Company 9.1%), with ROA at 8.7% (Krka Company 7.3%).

Marketing and sales

Krka Group sales in the three months to March were €300.9 million, a 4% year-on-year increase, with Krka Company sales totalling €263.4 million, up 1%.

Sales by Regions

Sales were the highest in Region East Europe, where they amounted to €80.1 million, which is 26.6% of total Krka Group sales. The second best result was reported for Region West Europe, with €80.0 million of revenues generated there, which represents 26.6% of total sales. The third largest area in terms of sales was Region Central Europe, where Krka sold €73.0 million worth of products in The volume of sales at Krka Group level increased by more than 12% compared to the first quarter last year.

the reported period, which is 24.3% of overall sales. In Region South-East Europe sales amounted to €37.7 million, which represents 12.5% of Krka Group sales. In the domestic market sales totalled €20.2 million, which is 6.7% of total Krka Group sales. Product sales in Region Overseas Markets amounted to €9.9 million, which represents 3.3% of Krka Group sales.

		Krka Group			Krka Company
In € thousand	1–3/2016	1–3/2015	Index	1–3/2016	1–3/2015	Index
Slovenia	20,151	19,204	105	13,381	13,187	101
South-East Europe	37,744	30,610	123	38,975	34,179	114
East Europe	80,117	81,484	98	67,523	78,749	86
Central Europe	72,984	68,421	107	74,670	70,701	106
West Europe	80,002	82,134	97	60,402	57,035	106
Overseas Markets	9,894	7,451	133	8,420	6,905	122
Total	300,892	289,304	104	263,371	260,756	101

Krka Group sales by Region, January–March 2016

Krka Group sales by Region, January–March 2015 and 2016

Slovenia

Holding a 9.3% market share, we remain the leading provider of pharmaceuticals in the domestic market, which we consider one of Krka's key markets. Product sales in the three months of 2016 there totalled €12.2 million, up 2% compared to the same period last year. The majority, 77%, came from prescription pharmaceuticals, followed by nonprescription products on a 19% and animal health products on a 4% share in overall sales. Health resort and tourist service sales in the period were €7.2 million.

In the leading group of prescription pharmaceuticals, the most attention continues to be devoted to products treating cardiovascular diseases, especially the blood-pressure control treatment Prenessa (perindopril) and the fixed-dose combinations Prenewel (perindopril/indapamide), Amlessa (perindopril/amlodipine) and Amlewel (perindopril, amlodipine and indapamide). As to products controlling cholesterol levels, we strengthened the brand Sorvasta (rosuvastatin) and launched Rosmela (amlodipine and rosuvastatin), the first polypill for the combined treatment of cholesterol and blood-pressure levels. As to pharmaceuticals for the treatment of the central

South-East Europe

Product sales in the markets of South-Eastern Europe amounted to €37.7 million in the three nervous system, the majority of marketing activities focused on the antidepressant Dulsevia (duloxetine), the antipsychotic Aryzalera (aripiprazole) and the analgesic Doreta (tramadol and paracetamol). Among products treating diseases of the alimentary tract, brand recognition was strengthened for Nolpaza (pantoprazole), a medicine reducing the secretion of stomach acid.

Marketing activities for the group of non-prescription products centred around the new Septabene brand. As to veterinary health, Ataxxa (imidacloprid and permethrin) was added to the group of Krka's products treating external parasites.

At the end of the first quarter, our main sales drivers were the prescription pharmaceuticals Prenessa (perindopril), including the combination with indapamide, Nolpaza (pantoprazole), Sorvasta (rosuvastatin) and Doreta (tramadol and paracetamol). The leading non-prescription products were Nalgesin S (naproxen), Daleron (paracetamol), Septolete and Septabene (benzydamine and cetylpyridinium), while in the group of animal health products the sales leaders were Fypryst (fipronil), Enroxil (enrofloxacin) and Grovit.

months of 2016. Despite decreasing prices in both key markets, Romania and Croatia, and in Serbia,

sales exceeded last year's in the same period by more than 23%. The main drivers of sales growth were the markets of Romania, Serbia, Croatia and Macedonia.

Romania, where year-on-year sales were up 40% to €13.5 million, remains one of Krka's key markets. Sales leaders were prescription pharmaceuticals, especially Atoris (atorvastatin), Dulsevia (duloxetine), Karbis (candesartan), including its combination with hydrochlorothiazide, Prenessa/ Co-Prenessa (perindopril and its combination with indapamide), and Roswera (rosuvastatin).

As to non-prescription products, special attention was devoted to accelerating sales for cold and flu products, and for analgesics. Our range of veterinary products was expanded as we launched new products for companion animals.

The sales result in Croatia, another one of Krka's key markets, was the second best in the Region. Three-month sales there totalled €7.1 million, up 10%. This has preserved our position as the fourth generic pharmaceutical company in the country and the second animal health products provider.

Product sales leaders were prescription pharmaceuticals, especially Atoris (atorvastatin), Co-Perineva (perindopril and indapamide), Dalneva (perindopril and amlodipine), Doreta (tramadol and paracetamol), Emanera (esomeprazole), Nolpaza (pantoprazole), Perineva (perindopril), Roswera (rosuvastatin), and Valsacor (valsartan), including its combination with hydrochlorothiazide. The leading non-prescription product in terms of sales in the reported period was Nalgesin (naproxen). A major acquisition in the group of non-prescription products is the new form of the oral antiseptic Septolete duo (benzydamine and cetylpyridinium). The main sales driver among animal health products was Fypryst (fipronil), and the new addition in this group is Attaxa (imidacloprid and permethrin), a product for the treatment of companion animals.

Sales in Bosnia and Herzegovina totalled €4.8 million, up 4% compared to last year's first quarter. The main sales drivers were prescription pharmaceuticals, among which the most important products were Enap (enalapril), including the combination with hydrochlorothiazide, Lorista (losartan), including the combination with hydrochlorothiazide, Roswera (rosuvastatin), Atoris (atorvastatin), Lexaurin (bromazepam), and Ampril (ramipril), including the combination with hydrochlorothiazide. Sales growth was also recorded for non-prescription products, among which the leaders were Septolete, Bilobil (ginkgo biloba) and Nalgesin (naproxen). The positive sales trend also continued for animal health products.

In Macedonia Krka remains the leading foreign pharmaceuticals producer. First quarter sales value there totalled €4.3 million, a 29% year-on-year increase. Despite lower reference prices, prescription pharmaceuticals were the main drivers of both sales growth and sales value, and sales growth was also recorded with products available without prescription.

Product sales in Serbia totalled €2.7 million, a yearon-year increase of 81%. Our most important prescription pharmaceuticals were Valsacor (valsartan), including the combination with hydrochlorothiazide, Nolpaza (pantoprazole), Lorista (losartan), including the combination with hydrochlorothiazide, Roxera (rosuvastatin) and Atoris (atorvastatin). The leading non-prescription products in terms of sales were Septolete, especially owing to the launch of Septolete total (benzydamine and cetylpyridinium). As to veterinary products, the sales results were the best for Fypryst (fipronil).

Product sales in Bulgaria totalled €2.5 million, up 8% compared to the same period last year. The main drivers of sales value were prescription pharmaceuticals, the year-on-year sales of which were also up 8%.

In Kosovo, where Krka remains one of the leading providers of pharmaceuticals, sales amounted to €1.7 million, up 3% compared to the same period last year. In Albania sales totalled €0.9 million, a decrease by 5% compared to the first quarter last year. This was due to renewals of marketing authorisations and the related stronger product sales in the final quarter of 2015. Product sales in Montenegro were €0.3 million, up 28% from the comparable period last year. This was mainly due to sales via government tenders.

East Europe

Region East Europe comprises several Eastern European and Central Asian markets, the largest sales impact of which has the key market the Russian Federation. Sales growth rates were the highest in the Region's second key market, Ukraine, and in certain smaller markets.

Sales in one of Krka's key markets and our largest individual market, the Russian Federation, totalled €56.2 million. Due to the lower average rouble rate, euro-denominated sales were down 9% compared to the same period last year, while at the same time, rouble-denominated sales increased by 9% and sales volume by 10%.

Sales leaders among products were prescription pharmaceuticals, especially Lorista (losartan), including the combination with hydrochlorothiazide, Perineva (perindopril), including the combination with indapamide, Nolpaza (pantoprazole), Zyllt (clopidogrel), Nolicin (norfloxacin), Valsacor (valsartan), including the combination with hydrochlorothiazide, and Roxera (rosuvastatin). The leading non-prescription product in terms of sales was Herbion. The highest sales growth rate, of 23%, was recorded for animal health products, among which the best-seller was Floron (florfenicol).

The following products, which were introduced to the market in the last two years, are also becoming increasingly important: Septolete total (benzydamine and cetylpyridinium), SeptaNazal (xylometazoline and dexpanthenol), Bravadin (ivabradine), Vamloset (valsartan and amlodipine), Dalneva (perindopril and amlodipine), Lortenza (losartan and amlodipine), and the most recent ones Co-Dalneva (perindopril, amlodipine and indapamide), Dilaxa (celecoxib) and Ulkavis (bismuth).

In the market of the Russian Federation we are continuously increasing the proportion of products produced in the plant of our subsidiary Krka-Rus, thereby strengthening our status as a domestic producer.

The shrinking of the pharmaceuticals market in Ukraine continued both in terms of volume and value in the first quarter of 2016. At the same time, the structure of the market changed to the benefit of domestic and at the expense of foreign producers. Nevertheless, our strengthened marketing and sales activities consolidated Krka's position among

the leading foreign providers of generic pharmaceuticals. As a result we ended the period reporting €7.9 million of sales, which is €5.2 million more than in the first quarter last year.

The leading group of products in terms of sales was prescription pharmaceuticals, the sales leaders among which were Enap (enalapril), including the combination with hydrochlorothiazide, Dexamethason (dexamethasone), Prenessa (perindopril), including the combination with indapamide, and Nolpaza (pantoprazole). In the group of non-prescription products, the leaders in terms of sales were Herbion, Panzynorm, Bilobil (ginkgo biloba) and Pikovit. As to animal health products, among which treatments for companion animals account for almost one third of total sales, our main sales driver in the first quarter of 2016 was Fypryst (fipronil), followed by Tiavalt (tiamulin) and Enroxil (enrofloxacin).

In Kazakhstan sales totalled €3.6 million, a decrease by 2% compared to the first quarter last year. The value of the pharmaceuticals market continued to decline, resulting from last year's depreciation of the local currency against the euro. Despite unfavourable conditions, however, we managed to increase our market share. As opposed to last year, the majority of sales in the first quarter of 2016 were generated via our subsidiary in that market.

Our best-selling products among prescription pharmaceuticals, the leading product group in terms of sales, were: Enap (enalapril), including the combination with hydrochlorothiazide, Candecor (candesartan), Gliclada (gliclazide), and Prenessa (perindopril), including the combination with indapamide. As to products available without prescription, the best sales results were recorded for Herbion and Duovit.

Product sales in Uzbekistan totalled €3.3 million, down 34% compared to the same period last year. The decrease was chiefly due to the depreciation of the local currency, which caused a decline in purchasing power. The majority of sales came from prescription pharmaceuticals, especially Lorista (losartan), including the combination with hydrochlorothiazide, Enap (enalapril), including the combination with hydrochlorothiazide, and Amlessa (perindopril and amlodipine). Non-prescription products Pikovit in Herbion also made a substantial

contribution to overall sales. As to new products, good results were recorded for Lortenza (losartan and amlodipine), which we have been successfully promoting in this market.

Despite increasing protectionism favouring domestic pharmaceuticals providers in Belarus, we sold €3.2 million of products there, up 3% compared to last year's first quarter. The main sales drivers were prescription pharmaceuticals, especially Lorista (losartan), including the combination with hydrochlorothiazide, Amlessa (perindopril and amlodipine) and Nolpaza (pantoprazole). The leading non-prescription products were Pikovit and Septolete.

In Moldova we faced severe pressures at the beginning of 2016 to lower our prices of pharmaceuticals. Nevertheless, three-month product sales there totalled €1.2 million, up 81% from the comparable period last year. We were especially successful with prescription pharmaceuticals, the year-on-year sales of which increased almost threefold. Increasingly difficult economic conditions presented a challenge in Mongolia too, where we remain the leading foreign pharmaceuticals provider despite our sales having decreased by 12%. Strengthened marketing activities resulted in sales totalling €1.0 million, an important driver of which was our leading prescription pharmaceutical Fromilid

Central Europe

Product sales in Region Central Europe amounted to €73.0 million in the three months of 2016, up 7% compared to the first quarter last year. Sales value increased in all markets of the Region, apart from the Czech Republic and Lithuania. The majority, 89%, of revenues came from prescription pharmaceuticals.

In Poland, a key market and the largest market in the Region, product sales were €36.1 million. This is a 6% year-on-year increase and represents 50% of the Region's sales. The leading products in terms of sales were prescription pharmaceuticals, especially Atoris (atorvastatin), Roswera (rosuvastatin), Valsacor (valsartan), including the combination with hydrochlorothiazide, Doreta (tramadol and paracetamol), Lorista (losartan), including the combination with hydrochlorothiazide, and Nolpaza (pantoprazole). Sales results were also good for the recently launched Aryzalera (aripiprazole) and Furocef (cephuroxime). Non-prescription product (clarithromycin). At the beginning of 2016 we began marketing Orsoten (orlistat). In Turkmenistan, where we have been recording two-digit growth rates over the past six years, year-on-year sales were up 23% to €1.0 million. The €0.8 million of sales and their 6% growth in Azerbaijan were mainly driven by the seasonally high growth in the sales of non-prescription products. All our prescription pharmaceuticals and certain nonprescription products sold in this country have already been added to the list of products with regulated prices. As their prices were lowered, the mentioned sales growth was the result of a high, two-digit increase in the volume of sales.

In Georgia we sold €0.7 million worth of products. The 17% year-on-year decrease in sales was mainly due to the strong pressure to reduce the prices of our prescription pharmaceuticals, attributable to legally authorised parallel imports. Our most important products in terms of sales were Enap (enalapril), including the combination with hydrochlorothiazide, Dexamethason (dexamethasone) and Sorvasta (rosuvastatin). Sales value in Kyrgyzstan was up 26% to €0.7 million. Product sales in Armenia totalled €0.4 million, up 22% compared to the same period last year. Due to economic crisis in full swing and parallel imports from neighbouring countries, our sales in Tajikistan were €0.3 million lower than in the same period last year.

sales were up 14%, the leading products in this group being Bilobil (ginkgo biloba) and Septolete. The most important animal health products in terms of sales were Fypryst (fipronil) and Enroxil (enrofloxacin).

In Hungary, one of Krka's key markets and the second largest market in the Region in terms of sales, product sales totalled €13.6 million, up 23% from the comparable period last year. The leading group of products in terms of sales was prescription pharmaceuticals, among which the key products were Prenessa (perindopril), including the combination with indapamide, Roxera (rosuvastatin), Atoris (atorvastatin), Dalnessa/Co-Dalnessa (perindopril and amlodipine and their combination with indapamide), Nolpaza (pantoprazole) and Zyllt (clopidogrel). The main sales drivers among non-prescription products were Bilobil (ginkgo biloba) and Septolete, which were launched last year. The leading animal health

products in terms of sales were Fypryst (fipronil) and Enroxil (enrofloxacin).

Sales in the Czech Republic, Krka's key market, are still influenced by different legislative changes exerting pressure to decrease the prices of pharmaceuticals, and consequently tightening competitive conditions. Year-on-year first-quarter sales decreased to €4.3 million. The biggest proportion of sales came from prescription pharmaceuticals, especially Lexaurin (bromazepam), Tanyz (tamsulosin), Tonarssa/Tonanda (perindopril and amlodipine), Emanera (esomeprazole) and Elicea (escitalopram). The leading non-prescription products in terms of sales were Septolete and Nalgesin (naproxen), and in the group of animal health products the sales leaders were Fypryst (fipronil) and Dehinel (febantel).

Three-month product sales in Slovakia totalled €10.3 million, up 3% compared to the same period last year. The largest proportion of sales came from prescription pharmaceuticals, especially Prenessa (perindopril), including the combination with hydrochlorothiazide, Nolpaza (pantoprazole), Valsacor (valsartan), including the combination with hydrochlorothiazide, Atoris (atorvastatin), Amlessa (perindopril and amlodipine) and Fromilid (clarithromycin). The leading non-prescription products in terms of sales were Nalgesin (naproxen) and Septolete, and in the group of animal health

West Europe

Product sales in the amount of €80.0 million in Region West Europe were down 3% compared to the same period last year. The decrease is the result of the falling prices of pharmaceuticals, as in the majority of markets in the Region sales volume was up. After several years of declining sales via third-party partners the trend had turned in 2015, and sales also increased in the first quarter this year, when they were up 3%. The majority, 62% of sales, is generated by Krka's subsidiaries. We expect sales trends to further improve in the second half of the year on account of the planned new launches of generic products.

The largest proportion of sales is driven by prescription pharmaceuticals. In the first quarter of 2016 the most important generic products in terms of sales were those with esomeprazole, pantoprazole, duloxetine, pregabalin, clopidogrel, candesartan and aripiprazole, which we were the products the best-sellers were Enroxil (enrofloxacin) and Fypryst (fipronil).

Sales in Lithuania were down 6% compared to the first quarter of 2015. €4.2 million of sales were mainly driven by prescription pharmaceuticals, especially Valsacor (valsartan), including the combination with hydrochlorothiazide, Prenessa (perindopril) and Amlessa/Co-Amlessa (perindopril and amlodipine, and their combination with indapamide). The leading non-prescription products in terms of sales were Daleron Cold 3 (paracetamol, pseudoephedrine and dextromethorphan) and Septolete. The best sales results in the group of animal health products were recorded for Fypryst (fipronil) and Enroxil (enrofloxacin).

Sales in Latvia amounted to €2.8 million, up 17% compared to the first quarter last year. The crucial contributors were prescription pharmaceuticals, especially Prenessa (perindopril), including the combination with indapamide, Atoris (atorvastatin), and Nolpaza (pantoprazole).

In Estonia three-month sales totalled €1.7 million, a 23% year-on-year increase. Our best-selling prescription pharmaceuticals were Valsacor (valsartan), including the combination with hydrochlorothiazide, Roswera (rosuvastatin), and Prenessa (perindopril), including the combination with indapamide.

first generic company to launch in the past year in the majority of Western European markets. Animal health product sales more than doubled compared to the same period last year, our best-selling products in the reported period being those with the generic milbemycin in combination with praziquantel. Sales growth was mainly driven by sales via subsidiaries. TAD Pharma was the first generic company in Germany to have launched the ectoparasiticide Ataxxa (imidacloprid and permethrin). The sales of non-prescription products were up 21%. In several Western European markets we launched Septolete lozenges and spray, marketed under different brands.

Germany remains our most important market in the Region. The value of sales there totalled €27.5 million in the three months, up 13% from the comparable period last year. Three quarters of sales were reported by the subsidiary TAD Pharma. The

best-selling products were Pregabador (pregabalin), Pantoprazol TAD (pantoprazole), Duloxalta (duloxetine) and Esomeprazol TAD (esomeprazole).

In France sales were up 24% compared to the first quarter of 2015, to €10.7 million, mainly driven by the launched animal health products and increased sales via the subsidiary Krka France.

The Region's third largest market in terms of sales was Spain, where we sold €9.5 million worth of products. The majority of sales there were reported by the subsidiary Krka Farmacéutica, which, however, witnessed a 30% decline in sales. This was due to certain public tenders in Andalusia having expired. Overall, sales dropped in this market by 24%.

Sales in the UK totalled €6.9 million. We faced a severe erosion of prices in this market as well, our sales having decreased by 30% compared to the first quarter last year. Sales in the Scandinavian countries totalled €6.7 million, down 36% from the comparable period last year. This is mainly due to

Overseas Markets

Three-month product sales in Region Overseas Markets totalled €9.9 million, up 33% compared to the same period last year. Sales growth was reported by all sales offices. The most sales, 87%, came from prescription pharmaceuticals, which are sold under our own brands in most of the Region's markets.

Despite the emergency situation there, the sales office Middle East reported €5 million of sales, up 40% compared to the same period last year. Our most important markets remain Iran, Iraq and Lebanon, and our best-selling products Nolpaza (pantoprazole), Vizarsin (sildenafil), Zyllt (clopidogrel), Asentra (sertraline), Letizen (cetirizine), Valsacor (valsartan) and Ultop (omeprazole).

severe price reductions for products with duloxetine and aripiprazole in Sweden and Denmark. Sales in Finland and Norway, on the other hand, increased by 35% and 12%, respectively. In Italy sales were up 32% to €5.5 million. The highest sales growth, of 54%, was recorded by the subsidiary Krka Farmaceutici, which has already accounted for one half of total sales in this market. Three-month product sales in Portugal totalled €4.9 million, down 3% from to the comparable period last year. Despite slightly lower sales, Krka remains the fastest growing generic pharmaceutical company in Portugal. In the Benelux countries, year-on-year sales were up 3% to €2.3 million, and in Ireland they increased by 56% to €1.9 million. Krka was also successful in Austria, where product sales totalled €1.7 million, up 33%. Both in Ireland and Austria Krka's subsidiaries are maintaining their position as the leading generic suppliers of products with pregabalin, duloxetine and aripiprazole.

In other European countries product sales via thirdparty partners amounted to €2.4 million, an increase by 3% compared to the first quarter last year.

Sales in the markets of the Far East and Africa totalled €4.6 million, up 23% from last year's first quarter. The most important market there remains the Republic of South Africa, followed by China, Vietnam and Ghana. Our leading products in terms of sales were Sabalfrucht TAD (Serenoa repens) and products with enalapril, amlodipine and esomeprazole.

The sales office the Americas reported a 105% year-on-year sales increase, sales there totalling €0.3 million. The majority of sales came from the markets of Central America. The sales leader among products was Valsacor (valsartan), including the combination with hydrochlorothiazide.

Sales by product and service groups

The Krka Group generated 90.1% of first quarter 2016 sales in human health products, reaffirming them as Krka's most important product group. The most sales, i.e. 81.0%, were generated in prescription pharmaceuticals, followed by non-

prescription products on 9.1% and veterinary products on 7.2% of total Krka Group sales. Health resort and tourist services account for 2.4% of overall Krka Group sales.

		Krka Group			Krka Company
In € thousand	1–3/2016	1–3/2015	Index	1–3/2016	1–3/2015	Index
Human health products	271,204	270,391	100	240,911	247,818	97
– Prescription pharmaceuticals	243,853	243,217	100	216,641	223,523	97
– Non-prescription products	27,351	27,174	101	24,270	24,295	100
Animal health products	21,765	11,743	185	21,317	11,785	181
Health resort and tourist services	7,154	6,456	111
Other	769	714	108	1,143	1,153	99
Total	300,892	289,304	104	263,371	260,756	101

Krka Group sales by product and service groups, January–March 2016

Prescription pharmaceuticals

The Krka Group sold €243.9 million worth of prescription pharmaceuticals, up 0.3% compared to the same period last year. Sales increased in regions Overseas Markets (up 28%), South-East Europe (up 25%), Central Europe (up 5%) and East Europe (up 1%).

With respect to the largest markets, sales increased in Poland (by 5%). On account of the exchange rate, year-on-year sales were down in the Russian Federation (down 5%), whereas sales denominated in the local currency were up 9% there. Compared to the same period last year, sales also decreased in the third largest market, Germany (by 8%), where the beginning of 2015 had been a major sales success for Krka due to important new product launches.

As to other large markets, the year-on-year sales of prescription pharmaceuticals were up the most, more than 170%, in Ukraine, Romania (up 45%) and Hungary (up 20%).

With respect to mid-size markets, the highest sales growth rates were recorded in Serbia (119%), Macedonia (34%), Italy (30%) and Croatia (7%).

Among smaller markets for Krka's prescription pharmaceuticals, the highest sales growth rates were recorded in Moldova (183%), the Benelux (143%), Ireland (45%), Austria (33%), Kyrgyzstan (26%), Finland (25%), Estonia (17%), and Latvia and Armenia (14% in both).

The ten leading prescription pharmaceuticals in terms of sales were Atoris (atorvastatin), Lorista* (losartan), Nolpaza* (pantoprazole), Prenessa* (perindopril), Emanera* (esomeprazole), Enap (enalapril), Valsacor (valsartan), Roswera* (rosuvastatin), Zyllt* (clopidogrel) and Dulsevia* (duloxetine).

The highest year-on-year sales growth in absolute terms were recorded for the most recently launched products Dulsevia* (duloxetine) and Ralago* (rasagiline), and for Nolpaza* (pantoprazole).

In the first quarter of 2016 Krka launched, as the first provider in Europe, the fixed-dose combination Rosudapin* (rosuvastatin and amlodipine) in Poland

Non-prescription products

In the three months to March 2016, we sold €27.4 million worth of non-prescription products, an increase by 1% compared to the same period last year.

Sales increased the most in regions Central Europe (by 33%), West Europe (by 21%), South-East Europe (by 19%) and Slovenia (by 11%). In East Europe sales were down, predominantly due to lower sales in the Russian Federation, Uzbekistan, Belarus and Moldova.

With respect to large individual markets, the highest sales growth rates were recorded in Kazakhstan

Animal health products

Animal health product sales totalled €21.8 million in the first quarter of 2016, up 85% from the same period last year. Sales were up the most in Region West Europe, where they tripled, and in regions East Europe (up 24%) and Central Europe (up 17%).

and Slovenia, and we were among the first generic providers to have launched Ralago* (rasagiline) for the treatment of Parkinson's disease in Hungary, Slovakia, Lithuania, Latvia, Estonia and Portugal.

We also launched other existing products on new markets:

• candesartan and hydrochlorothiazide in Belgium;
• Prenessa (perindopril) in Moldova;
• Co-Amlessa (perindopril, indapamide and amlodipine) in Belarus;
• carvedilol in Spain;
• Alortia* (losartan and amlodipine) in Georgia;
• Levalox* (levofloxacin) in Lithuania, Ireland and France;
• Furocef* (cephuroxime) in Lithuania, Latvia and Spain;
• linezolid in Germany, Finland and Ireland;
• Dilaxa* (celecoxib) in the Russian Federation;
• Doreta* SR (tramadol and paracetamol) prolonged-release tablets in Poland;
• the oncology range imatinib and letrozole in Serbia, and
• Ecansya (capecitabine) in Latvia.

(85%), Turkmenistan (50%), Latvia (49%), Serbia (32%), Romania (29%), Slovakia (17%), Poland (14%), Lithuania (14%), and Bosnia and Herzegovina (8%). Sales also increased in several other markets. The leading products were those of the master brands Septolete, Bilobil and Herbion.

Year-on-year first quarter sales were up considerably for both recently launched seasonal products – Septolete total and Septanazal –, as well as for Bilobil (ginkgo biloba) and Nalgesin* (naproxen).

Among the largest markets, sales increased several-fold in Germany and France, and they were also up considerably in Lithuania (up 67%), Ukraine (up 27%), the Russian Federation (up 23%), Poland (up 21%) and Hungary (up 11%).

The sales leaders among products are Milprazon* (milbemycin oxime and praziquantel), Floron*

(florfenicol), Fypryst* (fipronil) and Enroxil* (enrofloxacin), followed by Dehinel plus (febantel, pyrantel embonate and praziquantel) and Ecocid S (biocide).

Health resort and tourist services

In the first three months of 2016 the Terme Krka health resort sold €7.2 million worth of services, an increase by 11% compared to the same period in 2015. Overnight stays were up 8%, whereby the highest growth rate, of 13%, was recorded for Italian guests, and the number of domestic guests increased by 9%.

In the markets of Central Europe, South-East Europe, Slovenia and Germany we launched an important new product for companion animals in the first quarter, Ataxxa* (imidacloprid and permethrin), in the form of spot on solution for dogs.

As to business units, the most sales and the highest sales growth rate, of 20%, were reported by the resort Terme Dolenjske Toplice. The second best sales result was reported by the seaside resort Talaso Strunjan, where sales were up 11%, followed by Terme Šmarješke Toplice, where sales increased by 13%.

* Products marked with the asterisk are marketed under different brand names in individual markets.

Research and development

In the first quarter of 2016 Krka obtained marketing authorisations for three new products in three dosage forms and four strengths.

Prescription pharmaceuticals

In Hungary we acquired a first marketing authorisation for Bravadin (ivabradine) film-coated tablets in the two strengths of 5 mg and 7,5 mg. Bravadin is a cardiac medication used to treat patients with angina pectoris. A first marketing authorisation was also obtained for the Moloxin (moxifloxacin) 400 mg/250 ml solution for injection. Having a wide-spectrum antimicrobial action, the product is used to treat pneumonia, dermal infections and soft tissue infections. Together with Moloxin tablets, which were approved last year, it supplements Krka's range of antimicrobial pharmaceuticals. The product was approved for marketing in 14 European countries under the decentralised procedure.

In different Eastern European countries we obtained new marketing authorisations for Krka's key pharmaceuticals Roswera (rosuvastatin), Kventiax (quetiapine), Moloxin (moxifloxacin) tablets and Vizarsin QTab (sildenafil) dispersible tablets, and in

Non-prescription products

In the Russian Federation we obtained a first marketing authorisation for Flebaven film-coated tablets. They contain 500 mg of the purified flavonoid fraction, which equals 450 mg of diosmin and 50 mg of flavonoids expressed as hesperidin. It is used to treat symptoms of chronic venous insufficiency, lymphedema and acute hemorrhoidal disease.

Animal health products

In the first quarter of 2016 we obtained new marketing authorisations and strengthened brand recognition for our products. Applying the decentralised procedure we were the first generic company to have obtained marketing authorisations in ten countries of Western Europe, and in the Czech Republic and Slovakia, for Fypryst/Amflee Combo (fipronil and S-methoprene) in the form of spot-on solution in five strengths, a product preventing and treating tick, flea and lice infestations in cats, dogs and skunks. The product We acquired 69 new marketing authorisations in different markets.

the area of cancer treatments we were issued new marketing approvals for Neopax (imatinib) and Letrozole Krka (letrozole). Additionally in the area of cardiovascular treatments, we were granted new authorisations for our fixed-dose combinations Sobycombi and Niperten combi (bisoprolol and amlodipine), and for Telmista H and Telmista HD (telmisartan and hydrochlorothiazide).

In the markets of South-Eastern Europe we expanded opportunities for products from various indication areas. New marketing authorisations were granted for Furocef (cephuroxime) film-coated tablets and for the Levalox (levofloxacin) solution for injection. We obtained a new marketing authorisation for the fixed-dose combination for the treatment of cardiovascular conditions, Tenloris (losartan and amlodipine), and a marketing authorisation for Pregabalin (pregabalin), a central nervous system treatment.

In different Eastern European markets we obtained new marketing authorisations, expanding markets for certain key cold and flu products. The Septanazal nasal spray for adults and the Septanazal nasal spray for children were approved in Azerbaijan, and the Septolete Total spray in Moldova.

enables a modern and wholesome treatment of external parasite infestations with an expanded mode of action on all life cycle stages of fleas.

In Belgium a new marketing authorisation was granted for the Enrox classic (enrofloxacin) solution for injection treating infections in foodproducing animals. In Bosnia and Herzegovina, and Macedonia, we obtained approvals to market Ataxxa (imidacloprid and permethrin) in the form of spot-on solution in four strengths, for treating dogs. We were also granted marketing authorisations for the Dehelman (levamisole) oral powder, for the treatment of intestinal parasites and lung worms in food-producing animals.

Investments

In the first quarter of 2016 the Krka Group allocated €26.2 million to investments, of which the controlling company invested €18.5 million and subsidiaries €7.7 million. Investments were primarily increasing and modernising our production and R&D capacities.

At Krka's main location in Ločna, Novo mesto, Slovenia we officially opened in November 2015 a plant for solid dosage pharmaceuticals, Notol 2. The investment is worth €200 million and provides new capacities for implementing our vertically integrated business model, with which we control the entire process of development and production of both raw materials and finished products. Approximately one third of technological equipment was installed at the start-up of Notol 2 last February. Production lines will gradually be added over the following two years to increase the plant's production capacity to the target 4.5 billion tablets and capsules per year.

Krka's key investment supporting development activities and quality assurance in the following years is the new Development and Control Centre (RKC) 4, to be located in the group of production facilities in Ločna. RKC 4 will be positioned in the immediate vicinity of the other three development and control centres, directly connected to RKC 2 and also joined with RKC 3 by means of a connecting building. Site preparation works for the building worth €54 million had started at the end of June 2015. By the end of March the underground concrete part of the building was completed and the construction of the connecting building between RKC 3 and RKC 4 had begun. The construction of the new facility with the total surface area of 18,000 m² will take two years.

The €8 million investment into increasing the production of sprays in the sterile product production plant is in its final phase. Currently ongoing works include qualifications of the technological equipment and systems, and preparations for the technical inspection of the facility. Production lines will be ready for operation in the autumn 2016.

The €11 million investment into increasing the capacity for the coating of pellets in the solid dosage forms plant (OTO) is in the design phase. The new production halls and equipment will be explosion-proof. Works are planned to start in August. Two productions lines will be supplied in the autumn and will be made ready for production by the end of June 2017.

At Krka's location in Ločna we are building a new multi-purpose warehouse. It will be positioned along Andrijaničeva street and will connect functionally with the existing warehouses of raw materials and packaging. This investment will procure sufficient space for the storage of packaging, raw materials and finished products to last a decade. The investment is estimated at €30 million.

One of the most important investments in Krka's subsidiaries is Krka-Rus 2 in Istra, the Russian Federation. The first phase had included building a new plant and logistics centre, while in 2015 we started fitting the additional technical and logistics equipment. This will increase the new plant's production capacity to two thirds of its planned target capacity, which will total 1.8 billion tablets and capsules per year. The warehouse and logistics systems will reach full capacity after the remaining logistics equipment is installed. The value of the entire additional equipment, which is expected to be fitted by the end of 2016, is estimated at €30 million.

Due to the expansion of our production programme in the Jastrebarsko distribution and production centre in Croatia, the warehousing and distribution segment of the facility are being converted to acquire new laboratory and production facilities for the production of solid dosage pharmaceuticals. Detailed design was completed in 2015. Works started on the facility after Krka was granted the building permit in December. Heavy construction and installation works are currently ongoing. The main production equipment will be supplied and installed by the end of the year, and production is planned to start on the new equipment in the first quarter of 2017. The investment is estimated at €31 million.

Employees

In the first quarter of 2016 the number of Krka Group employees increased by 144, or 1.4%, so that at the end of March the Krka Group had 10,708 employees.

Krka's subsidiaries and representation offices outside Slovenia employ more than 54% of the Krka Group's employees, and almost 56% of the entire Krka team have at least a university level degree.

Educational structure in the Krka Group

		31 Mar 2016	31 Dec 2015
	No. of		No. of
	employees	Share (%)	employees	Share (%)
PhD	159	1.5	152	1.4
MSc	353	3.3	349	3.3
University degree	5,465	51.0	5,291	50.1
Higher professional education degree	1,390	13.0	1,385	13.1
Vocational college degree	260	2.4	304	2.9
Secondary school education, level V	1,876	17.5	1,844	17.5
Other	1,205	11.3	1,239	11.7
Krka Group	10,708	100.0	10,564	100.0

Krka employees undergo additional training both in Slovenia and abroad, related to various professional areas of expertise, quality, management, personal growth, foreign languages and informatics. Training is adjusted to our employees' needs, the technological process, market conditions, and the Krka Group's development requirements, which is why we organise the majority of staff trainings ourselves.

For our marketing and sales staff we organise numerous seminars led by over 60 in-house trainers. We have a job coaching system in place for new employees at all posts.

In 2015 every Krka Group employee took part in more than six education or training programmes, spending 55 hours on average.

Employees learn about the most demanding topics and most recent discoveries at faculties, institutes and other institutions, both at home and abroad. At the end of March 2016, 219 employees were enrolled into part-time studies, 49 of them postgraduate students obtaining a specialisation, master's degree or doctoral degree. Krka supports them by party funding their tuitions and by granting study time leaves.

Krka is the only certificate-awarding body with the power to examine and approve six national vocational qualification programmes (NVQ) in the area of the pharmaceutical industry. By examining and approving candidates under the NVQ system between 2002 and the beginning of April 2016, we have awarded a total of 1,306 NVQ certificates – 1,163 to Krka employees and 142 to the employees of other companies and pharmacies. We awarded 67 certificates in 2015, with 73 employees currently in the process of obtaining one.

We are securing a continuous inflow of new talented staff by offering study grants to students. At the end of March 2016 we had a total of 50 scholarship holders.

A research conducted by the employment website MojeDelo.com into the reputation of Slovene employers this March found Krka the most reputable employer of 2015.

Krka's employees also display social corporate responsibility and responsibility toward our environment. This April we again organised Krka's week of charity and volunteering. It was attended by 1,361 employees, which is one fourth of the entire Krka team in Slovenia, and employees from certain subsidiaries and representative offices abroad also joined. As many as 261 of us donated blood, numerous brought clothes, toys, shoes, foods, books and other consumables for adults and children, and pet food. More than three tonnes of consumables were collected and over 260 kilograms of pet food. We kept company with the

elderly at 37 retirement homes and with the tenants of eight occupational activity centres, special schools and certain other institutions. We also helped out at two animal shelters. The charity week

was rounded off with two open door days for employees, their families, relatives and friends, at which Krka hosted almost 4,000 visitors.

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF THE KRKA GROUP, WITH NOTES

Consolidated statement of financial position of the Krka Group

In € thousand	31 Mar 2016	31 Dec 2015	Index
Assets
Property, plant and equipment	832,714	826,192	101
Intangible assets	115,611	116,940	99
Loans	8,136	7,696	106
Investments	7,966	7,580	105
Deferred tax assets	27,414	27,949	98
Other non-current assets	246	241	102
Total non-current assets	992,087	986,598	101
Assets held for sale	41	41	100
Inventories	265,052	272,878	97
Trade receivables	459,115	433,133	106
Other receivables	28,681	31,540	91
Loans	47,149	37,380	126
Investments	85	11,808	1
Cash and cash equivalents	78,102	35,826	218
Total current assets	878,225	822,606	107
Total assets	1,870,312	1,809,204	103
Equity
Share capital	54,732	54,732	100
Treasury shares	-21,912	-20,071	109
Reserves	82,498	73,387	112
Retained earnings	1,334,446	1,296,688	103
Total equity holders of the parent	1,449,764	1,404,736	103
Non-controlling interests within equity	1,314	1,248	105
Total equity	1,451,078	1,405,984	103
Liabilities
Provisions	85,220	84,865	100
Deferred revenue	13,069	13,381	98
Deferred tax liabilities	12,598	12,736	99
Total non-current liabilities	110,887	110,982	100
Trade payables	99,102	103,871	95
Income tax payable	11,036	8,030	137
Other current liabilities	198,209	180,337	110
Total current liabilities	308,347	292,238	106
Total liabilities	419,234	403,220	104
Total equity and liabilities	1,870,312	1,809,204	103

Consolidated income statement of the Krka Group

In € thousand	1–3/2016	1–3/2015	Index
Revenues	300,892	289,304	104
Costs of goods sold	-130,728	-121,619	107
Gross profit	170,164	167,685	101
Other operating income	1,764	1,657	106
Selling and distribution expenses	-71,176	-79,409	90
R&D expenses	-29,697	-27,722	107
General and administrative expenses	-20,617	-19,143	108
Operating profit	50,438	43,068	117
Financial income	31,956	21,416	149
Financial expenses	-35,760	-260	13,754
Net financial result	-3,804	21,156	-18
Profit before tax	46,634	64,224	73
Income tax	-6,438	-9,110	71
Net profit	40,196	55,114	73
Attributable to:
– equity holders of the parent	40,130	55,117	73
– non-controlling interest	66	-3
Basic earnings per share (in €)	1.24	1.69	73
Diluted earnings per share (in €)	1.24	1.69	73

* Net profit / Average number of shares issued in the period, exclusive of treasury shares

** All shares issued by the controlling company are ordinary registered shares, therefore the diluted EPS equals the basic EPS.

Consolidated statement of other comprehensive income of the Krka Group

In € thousand	1–3/2016	1–3/2015	Index
Net profit	40,196	55,114	73
Other comprehensive income for the period
Other comprehensive income reclassified to profit or loss in future periods
Translation reserve	6,419	16,196	40
Change in fair value of available-for-sale financial assets	386	1,097	35
Deferred tax effect	-66	-186	35
Net other comprehensive income reclassified to profit or loss in future periods	6,739	17,107	39
Total other comprehensive income for the period (net of tax)	6,739	17,107	39
Total comprehensive income for the period (net of tax)	46,935	72,221	65
Attributable to:
– equity holders of the parent	46,869	72,224	65
– non-controlling interest	66	-3

Consolidated statement of changes in equity of the Krka Group

					Res	erv es			Ret	ain ed nin ear	gs	No n
In € tho nd usa	Sha re ital cap	Tre asu ry sha res	Res erv es for tre asu ry sha res	Sha re miu pre m	Leg al res erv es	Sta tut ory res erv es	Fai lue r va res erv e	Tra nsl atio n res erv e	Oth rof it er p res erv es	Ret ain ed nin ear gs	Pro fit f or the riod pe	Tot al e ity qu hol der f s o the t pa ren	tro llin con g inte ts w ithi res n ity equ	Tot al ity equ
Ba lan 1 Ja 2 0 1 6 t ce a n	4, 3 2 5 7	-2 0, 0 1 7	2 0, 0 1 7	1 0 8 9 5, 7	1 4, 9 9 0	3 0, 0 0 0	-1 2, 4 3 5	-8 1 1 8 5,	1, 0 1, 6 5 7 7	9 6, 1 6 0	1 4 8, 8 1 5	1, 4 0 4, 3 6 7	1, 2 4 8	1, 4 0 9 8 4 5,
f Ne t p i t ro	0	0	0	0	0	0	0	0	0	0	4 0, 1 3 0	4 0, 1 3 0	6 6	4 0, 1 9 6
To ta l o t he he ive inc r c om p re ns om e for t he io d ( t o f tax ) p er ne	0	0	0	0	0	0	8 5 1	6, 4 1 9	0	-5 3 1	0	6, 7 3 9	0	6, 7 3 9
To ta l co he ive inc for t he mp re ns om e io d ( t o f tax ) p er ne	0	0	0	0	0	0	8 5 1	6, 4 1 9	0	-5 3 1	4 0, 1 3 0	4 6, 8 6 9	6 6	4 6, 9 3 5
Tra t ion i t h o nsa c s w wn ers , ise d d ire t ly in e i ty rec og n c q u
Tra fer f p iou io d 's p f i t to ns o rev s p er ro ine d e ing ta re arn s	0	0	0	0	0	0	0	0	0	1 4 8, 8 5 1	-1 4 8, 8 5 1	0	0	0
Re has f har tre p urc e o asu ry s es	0	-1, 8 4 1	0	0	0	0	0	0	0	0	0	-1, 8 4 1	0	-1, 8 4 1
f re for Fo t ion tre rma o ser ves asu ry har s es	0	0	1, 8 1 4	0	0	0	0	0	0	0	-1, 8 1 4	0	0	0
To ta l tra t ion i t h o nsa c s w wn ers , ise d d ire t ly in e i ty rec og n c q u	0	-1, 8 4 1	1, 8 4 1	0	0	0	0	0	0	1 4 8, 8 5 1	-1 5 0, 6 9 2	-1, 8 4 1	0	-1, 8 4 1
Ba lan t 3 1 Ma 2 0 1 6 ce a r	5 4, 7 3 2	-2 1, 9 1 2	2 1, 9 1 2	1 0 5, 8 9 7	1 4, 9 9 0	3 0, 0 0 0	-1 1, 6 0 2	-7 8, 6 9 9	1, 0 5 1, 6 7 7	2 4 4, 4 8 0	3 8, 2 8 9	1, 4 4 9, 7 6 4	1, 3 1 4	1, 4 5 1, 0 7 8

					Res	erv es			Ret ain ed nin ear gs				No n
In € tho nd usa	Sha re ital cap	Tre asu ry sha res	Res erv es for tre asu ry sha res	Sha re miu pre m	Leg al res erv es	Sta tut ory res erv es	Fai lue r va res erv e	Tra nsl atio n res erv e	Oth rof it er p res erv es	Ret ain ed nin ear gs	Pro fit f or the riod pe	Tot al e ity qu hol der f s o the t pa ren	llin tro con g inte ts w ithi res n ity equ	Tot al ity equ
Ba lan t 1 Ja 2 0 1 5 ce a n	5 4, 7 3 2	-1 0, 6 7 7	1 0, 6 7 7	1 0 5, 8 9 7	1 4, 9 9 0	3 0, 0 0 0	-8, 9 8 1	-7 5, 2 9 2	1, 0 0 1, 6 3 6	7 9, 5 2 8	1 4 8, 0 8 1	1, 3 5 0, 5 9 1	1, 3 0 8	1, 3 5 1, 8 9 9
Ne f i t p t ro	0	0	0	0	0	0	0	0	0	0	1 1 5 5, 7	1 1 5 5, 7	-3	1 1 4 5 5,
To ta l o t he he ive inc r c om p re ns om e for ( f ) t he io d t o tax p er ne	0	0	0	0	0	0	9 1 1	1 6, 1 9 6	0	0	0	1 7, 1 0 7	0	1 7, 1 0 7
for To ta l co he ive inc t he mp re ns om e ( f ) io d t o tax p er ne	0	0	0	0	0	0	9 1 1	1 6, 1 9 6	0	0	5 5, 1 1 7	7 2, 2 2 4	-3	7 2, 2 2 1
Tra t ion i t h o nsa c s w wn ers , ise d d ire t ly in e i ty rec og n c q u
Tra fer f p iou io d 's p f i t to ns o rev s p er ro ta ine d e ing re arn s	0	0	0	0	0	0	0	0	0	1 4 8, 0 8 1	-1 4 8, 0 8 1	0	0	0
Re has f tre har p urc e o asu ry s es	0	-2, 3 8 3	0	0	0	0	0	0	0	0	0	-2, 3 8 3	0	-2, 3 8 3
Fo ion f re for t tre rma o ser ves asu ry har s es	0	0	2, 3 8 3	0	0	0	0	0	0	0	-2, 3 8 3	0	0	0
To l ion i h o ta tra t t nsa c s w wn ers , ise d d ire ly in e i t ty rec og n c q u	0	-2, 3 8 3	2, 3 8 3	0	0	0	0	0	0	1 4 8, 0 8 1	-1 0, 4 6 4 5	-2, 3 8 3	0	-2, 3 8 3
Ba lan t 3 1 Ma 2 0 1 5 ce a r	5 4, 7 3 2	-1 3, 0 6 0	1 3, 0 6 0	1 0 5, 8 9 7	1 4, 9 9 0	3 0, 0 0 0	-8, 0 7 0	-5 9, 0 9 6	1, 0 0 1, 6 3 6	2 2 7, 6 0 9	5 2, 7 3 4	1, 4 2 0, 4 3 2	1, 3 0 5	1, 4 2 1, 7 3 7

Consolidated statement of cash flows of the Krka Group

In € thousand	1–3/2016	1–3/2015
OPERATING ACTIVITIES
Net profit	40,196	55,114
Adjustments for:	48,210	38,634
– amortisation/depreciation	26,401	26,259
– foreign exchange differences	1,260	2,971
– investment income	-21,813	-294
– investment expenses	35,861	340
– interest expenses and other financial expenses	63	248
– income tax	6,438	9,110
Operating profit before changes in net operating current assets	88,406	93,748
Change in trade receivables	-22,341	-44,003
Change in inventories	7,826	-19,543
Change in trade payables	-9,100	-5,368
Change in provisions	355	885
Change in deferred revenues	-312	-809
Change in other current liabilities	-6,019	11,998
Income taxes paid	-3,080	-7,357
Net cash flows from operating activities	55,735	29,551
INVESTING ACTIVITIES
Interest received	227	210
Proceeds from sale of current investments and repayment of current loans	0	27
Proceeds from sale of property, plant and equipment	1,195	1,445
Acquisition of intangible assets	-441	-1,227
Purchase of property, plant and equipment	-24,027	-20,770
Non-current loans	-481	-366
Proceeds from repayment of non-current loans	308	241
Payments to acquire non-current investments	-22	-50
Proceeds from sale of non-current investments	16	5
Payments/Proceeds in connection with current investments and loans	-9,782	380
Proceeds from derivative financial instruments	21,292	0
Net cash flows used in investing activities	-11,715	-20,105
FINANCING ACTIVITIES
Interest paid	-63	-246
Payments in connection with current borrowings	0	-9,958
Dividends and other profit shares paid	-78	-23
Repurchase of treasury shares	-1,841	-2,383
Net cash flows used in financing activities	-1,982	-12,610
Net increase/decrease in cash and cash equivalents	42,038	-3,164
Cash and cash equivalents at the beginning of the period	35,826	23,585
Effect of exchange rate fluctuations on cash held	238	491
Net cash and cash equivalents at the end of the period	78,102	20,912

Segment reporting of the Krka Group

	Eu rop ea	Un ion n	So h- Ea t u	Eu t s rop e	Ea t s	Eu rop e	O t	he r	E l im ina	ion t	To	l ta
€ In t ho d usa n	/ 1– 3 2 0 1 6	/ 1– 3 2 0 1 5	/ 1– 3 2 0 1 6	/ 1– 3 2 0 1 5	/ 1– 3 2 0 1 6	/ 1– 3 2 0 1 5	/ 1– 3 2 0 1 6	/ 1– 3 2 0 1 5	/ 1– 3 2 0 1 6	/ 1– 3 2 0 1 5	/ 1– 3 2 0 1 6	/ 1– 3 2 0 1 5
Re fro ve nu es m no n	1 9 9 0	1 8 8 6	1 6 2	1 2 1	8 1 1	8 4 8	1 2 4	7 3	0		3 0 8 9	2 8 3 0
Gr ies ou p co mp an	3, 4	5, 5	4, 7	2, 8	0, 7	1, 4	2, 4	9, 7		0	0, 2	9, 4
In -G tra rou p rev en ue s	4 8, 8 9 0	4 9, 2 7 5	6, 1 4 3	3 3 9 5,	3 6, 6 8 7	4 2 8 4 7,	0	0	-9 1, 8 0 1	-1 0 1, 8 9 8	0	0
O t he t ing inc r o p era om e	1, 0 8 9	7 1 7	1 9 3	3 9	4 8 2	9 0 1	0	0	0	0	1, 7 6 4	1, 6 5 7
Op ing t era ex p en se s	-1 6 2, 9 7 5	-1 4 8, 3 6 7	-1 0, 6 1 4	-1 0, 2 8 2	2, 3 4 8 -7	-8 2, 9 8 5	-6, 4 9 7	-6, 2 7 7	0	0	-2 2, 2 1 8 5	-2 4 8 9 3 7,
In tra -G t ing rou p op era	-8 6 2	-9 3 2	6 7	6 3	4 -7 5	4 6 -7			1 8 4 7	1 8 4 2
ex p en se s	6, 5	9, 8	-6, 4	1 -5,	9, 1	2 7,	-2	-2	2, 2	2, 3	0	0
Op t ing f i t era p ro	3 2, 2 3 4	3 8, 2 0 6	4, 2 0 6	1, 9 7 5	8, 2 5 1	-5 7 3	5, 7 4 7	3, 4 6 0	0	0	5 0, 4 3 8	4 3, 0 6 8
In ter t inc es om e	1 4 1	1 0 6	0	0	8 3	1 0 3	0	0	0	0	2 2 4	2 0 9
In in tra ter t -g rou p es	2 2	2							-2 2	-2
inc om e	9	8 3	0	0	0	0	0	0	9	8 3	0	0
In ter t e es xp en se s	-1	-1 9 4	0	0	-1	-2	0	0	0	0	-2	-1 9 6
In tra in ter t -g rou p es	-8 4	-1 6			-1 8	-1 8			2 7	3 4
ex p en se s		7	0	0	9	0	0	0	3	7	0	0
Ne t f ina ia l re l t nc su	-6 2	2, 0 9 6	-6 2 5	-6	-3, 0 6 2	2 0, 0 2 9	-5 5	-9 6 3	0	0	-3, 8 0 4	2 1, 1 5 6
Inc tax om e	-4, 4 6 7	-8, 1 0 6	-3 2 8	-6 5 3	-1, 2 6 7	2 2 3	-3 7 6	-5 7 4	0	0	-6, 4 3 8	-9, 1 1 0
Ne t p f i t ro	2 7, 7 0 5	3 2, 1 9 6	3, 2 5 3	1, 3 1 6	3, 9 2 2	1 9, 6 7 9	5, 3 1 6	1, 9 2 3	0	0	4 0, 1 9 6	5 5, 1 1 4
Inv tm ts es en	2 1, 6 9 5	1 8, 6 9 3	2 3	1 5	4, 8 5 7	1, 8 1 5	0	0	0	0	2 6, 1 9 7	2 0, 2 8 9
De ia t ion p rec	1 7, 7 6 0	1 7, 3 3 8	4 9 4	4 6 8	6, 2 1 3	6, 4 7 2	9 3	9 0	0	0	2 4, 5 6 0	2 4, 3 6 8
Am t isa t ion or	1, 2 3 3	1, 2 5 0	7 6	7 4	4 7 6	5 1 9	5 6	4 8	0	0	1, 8 4 1	1, 8 9 1
	3 1 Ma 2 0 1 6 r	3 1 De 2 0 1 5 c	3 1 Ma 2 0 1 6 r	3 1 De 2 0 1 5 c	3 1 Ma 2 0 1 6 r	3 1 De 2 0 1 5 c	3 1 Ma 2 0 1 6 r	3 1 De 2 0 1 5 c	3 1 Ma 2 0 1 6 r	3 1 De 2 0 1 5 c	3 1 Ma 2 0 1 6 r	3 1 De 2 0 1 5 c
To ta l a ts ss e	1, 4 2 0, 5 8 4	1, 3 9 4, 8 5 3	4 1, 2 7 4	3 8, 6 8 0	3 9 8, 6 1 5	3 6 8, 3 0 9	9, 8 3 9	7, 3 6 2	0	0	1, 8 7 0, 3 1 2	1, 8 0 9, 2 0 4
Go dw i l l o	4 2, 6 4 4	4 2, 6 4 4	0	0	0	0	0	0	0	0	4 2, 6 4 4	4 2, 6 4 4
Tra de k ma r	3 9, 6 4 7	4 0, 4 9 5	0	0	0	0	0	0	0	0	3 9, 6 4 7	4 0, 4 9 5
To ta l l ia b i l i t ies	3 2 0, 4 6 7	3 0 9, 3 0 5	9, 8 0 9	8, 2 3 1	6 7, 0 0 5	6 4, 0 7 9	2 1, 9 5 3	2 1, 6 0 5	0	0	4 1 9, 2 3 4	4 0 3, 2 2 0

Notes to the consolidated financial statements of the Krka Group

Costs by nature €252,218 thousand

In € thousand	1–3/2016	1–3/2015	Index
Costs of goods and material	80,354	96,148	84
Costs of services	53,878	50,188	107
Employee benefit costs	79,414	79,156	100
Amortisation and depreciation	26,401	26,259	101
Inventory write-offs and allowances	2,031	2,590	78
Receivables impairment and write-offs	829	6,035	14
Other operating expenses	7,267	9,530	76
Total costs	250,174	269,906	93
Change in the value of inventories of products and work in progress	2,044	-22,013	-9
Total	252,218	247,893	102

Employee benefit costs €79,414 thousand

In € thousand	1–3/2016	1–3/2015	Index
Gross wages and salaries and continued pay	63,134	62,435	101
Social security contributions	4,792	4,807	100
Pension insurance contributions	8,334	8,261	101
Payroll tax	292	248	118
Post-employment benefits and other non-current employee benefits	455	890	51
Other employee benefit costs	2,407	2,515	96
Total employee benefit costs	79,414	79,156	100

Other operating expenses €7,267 thousand

In € thousand	1–3/2016	1–3/2015	Index
Grants and assistance for humanitarian and other purposes	338	415	81
Environmental protection expenses	791	785	101
Other taxes and levies	4,968	6,848	73
Loss on sale of property, plant and equipment and intangible assets	164	328	50
Other expenses	1,006	1,154	87
Total other operating expenses	7,267	9,530	76

Other taxes and levies include taxes (claw-back and similar) that have been imposed in several markets of Krka Group operations in recent periods.

Financial income and expenses

In € thousand	1–3/2016	1–3/2015	Index
Net foreign exchange differences	10,434	21,183	49
Interest income	224	209	107
Change in fair value of investments through profit or loss	6	0
Proceeds from sale of investments	0	24	0
Derivatives income	21,292	0
– income	21,292	0
Total financial income	31,956	21,416	149
Interest expenses	-2	-196	1
Change in fair value of investments through profit or loss	0	-12	0
Derivatives expenses	-35,697	0
– change in fair value	-35,697	0
Other financial expenses	-61	-52	117
Total financial expenses	-35,760	-260	13,754
Net financial result	-3,804	21,156

Income tax €6,438 thousand

Current income tax amounts to €6,062 thousand, which is 13.0% of pre-tax profit. Together with the deferred tax of €376 thousand, the total income tax expense in the income statement equals €6,438

Property, plant and equipment €832,714 thousand

thousand. The effective tax rate is 13.8%, down 0.4 of a percentage point from the same period last year.

In € thousand	31 Mar 2016	31 Dec 2015	Index
Land	35,379	35,227	100
Buildings	404,300	408,238	99
Equipment	340,051	352,005	97
Property, plant and equipment being acquired	52,984	30,722	172
Total property, plant and equipment	832,714	826,192	101

The value of property, plant and equipment represents 45% of the Krka Group's total assets. Krka's major investments are described in the chapter Investments in the Business Report.

Intangible assets €115,611 thousand

In € thousand	31 Mar 2016	31 Dec 2015	Index
Goodwill	42,644	42,644	100
Trademark	39,647	39,859	99
Concessions, patents, licences and similar rights	29,026	30,506	95
Intangible assets being acquired	4,294	3,931	109
Total intangible assets	115,611	116,940	99

Loans €55,285 thousand

In € thousand	31 Mar 2016	31 Dec 2015	Index
Non-current loans	8,136	7,696	106
– loans to others	8,136	7,696	106
Current loans	47,149	37,380	126
– portion of non-current loans maturing next year	703	155	454
– loans to others	46,445	37,224	125
– current interest receivable	1	1	100
Total loans	55,285	45,076	123

loans.

Non-current loans represent 15% of total loans.

Non-current loans to others include loans that the Krka Group extends in accordance with its internal acts to its employees, and that are primarily housing Current loans to others include €46,000 thousand of the controlling company's short-term bank deposits

with maturities longer than 30 days.

Investments €8,051 thousand

In € thousand	31 Mar 2016	31 Dec 2015	Index
Non-current investments	7,966	7,580	105
– available-for-sale financial assets	7,966	7,580	105
Current investments including derivatives	85	11,808	1
– shares and interests held for trading	85	79	108
– derivatives	0	11,729	0
Total investments	8,051	19,388	42

Available-for-sale financial assets include €712 thousand of investments in shares and interests in Slovenia, and €7,254 thousand of investments in shares and interests abroad.

Inventories €265,052 thousand

In € thousand	31 Mar 2016	31 Dec 2015	Index
Material	104,624	111,113	94
Work in progress	66,339	64,369	103
Products	87,378	90,395	97
Merchandise	6,243	6,287	99
Inventory advances	468	714	66
Total inventories	265,052	272,878	97

Trade and other receivables €487,796 thousand

In € thousand	31 Mar 2016	31 Dec 2015	Index
Current trade receivables	459,115	433,133	106
Other current receivables	28,681	31,540	91
Total receivables	487,796	464,673	105

Cash and cash equivalents €78,102 thousand

In € thousand 31 Mar 2016 31 Dec 2015 Index Cash in hand 23 32 72 Bank balances 78,079 35,794 218 Total cash and cash equivalents 78,102 35,826 218

Equity €1,451,078 thousand

In € thousand	31 Mar 2016	31 Dec 2015	Index
Share capital	54,732	54,732	100
Treasury shares	-21,912	-20,071	109
Reserves	82,498	73,387	112
– reserves for treasury shares	21,912	20,071	109
– share premium	105,897	105,897	100
– legal reserves	14,990	14,990	100
– statutory reserves	30,000	30,000	100
– fair value reserve	-11,602	-12,453	93
– translation reserve	-78,699	-85,118	92
Retained earnings	1,334,446	1,296,688	103
Total equity holders of the parent	1,449,764	1,404,736	103
Non-controlling interests within equity	1,314	1,248	105
Total equity	1,451,078	1,405,984	103

Provisions €85,220 thousand

In € thousand	31 Mar 2016	31 Dec 2015	Index
Provisions for lawsuits	265	264	100
Provisions for post-employment benefits and other non-current employee benefits	84,482	84,131	100
Other provisions	473	470	101
Total provisions	85,220	84,865	100

Deferred revenues €13,069 thousand

In € thousand	31 Mar 2016	31 Dec 2015	Index
Grants received from the European Regional Development Fund and the Republic of Slovenia budget for the construction of the new Notol 2 plant for production of pharmaceuticals	2,583	2,650	97
Grants received from the budget for the Dolenjske and Šmarješke Toplice health resorts and Golf Grad Otočec	4,056	4,100	99
Grants received from the European Regional Development Fund received for the Sinteza 4 project	3	4	75
Grants received from the European Regional Development Fund – development of new technologies (FBD project)	413	437	95
Grants received from the European Regional Development Fund for setting up information and technology solutions system (GEN-I)	18	19	95
Grants by the European Fund – Development Centres of the Slovene Economy	5,924	6,094	97
Property, plant and equipment received for free	50	55	91
Emission coupons	22	22	100
Total deferred revenue	13,069	13,381	98

Development Centres of the Slovene Economy and the FBD project are partly funded by the European Union via the European Regional Development Fund. The project is implemented as part of the Operational Programme 2007–2013, Strengthening Regional Development Potentials; 1. Priority axis: Competitiveness and Research Excellence; 1.1. Priority objective: Improving Competitiveness and Research Excellence.

Trade payables €99,102 thousand

In € thousand	31 Mar 2016	31 Dec 2015	Index
Payables to domestic suppliers	41,418	38,298	108
Payables to foreign suppliers	56,040	61,742	91
Payables from advances	1,644	3,831	43
Total trade payables	99,102	103,871	95

Other current liabilities €198,209 thousand

In € thousand	31 Mar 2016	31 Dec 2015	Index
Accrued contractual discounts on products sold	121,433	128,179	95
Payables to employees – gross wages, other receipts and charges	36,995	33,657	110
Derivatives	23,968	0
Other	15,813	18,501	85
Total other current liabilities	198,209	180,337	110

Contingent liabilities €13,873 thousand

In € thousand	31 Mar 2016	31 Dec 2015	Index
Guarantees issued	13,253	19,150	69
Other	620	620	100
Total contingent liabilities	13,873	19,770	70

CONDENSED FINANCIAL STATEMENTS OF KRKA, D. D., NOVO MESTO, WITH NOTES

Statement of financial position of Krka, d. d., Novo mesto

In € thousand	31 Mar 2016	31 Dec 2015	Index
Assets
Property, plant and equipment	607,267	610,067	100
Intangible assets	30,578	31,557	97
Investments in subsidiaries	310,152	302,114	103
Non-current receivables due from subsidiaries	18,200	10,704	170
Loans	28,643	26,300	109
Investments	7,964	7,578	105
Deferred tax assets	11,473	11,567	99
Other non-current assets	90	88	102
Total non-current assets	1,014,367	999,975	101
Assets held for sale	41	41	100
Inventories	223,670	230,568	97
Trade receivables	420,979	402,189	105
Other receivables	15,190	16,602	91
Loans	84,477	75,907	111
Investments	85	11,808	1
Cash and cash equivalents	59,550	24,622	242
Total current assets	803,992	761,737	106
Total assets	1,818,359	1,761,712	103
Equity
Share capital	54,732	54,732	100
Treasury shares	-21,912	-20,071	109
Reserves	162,657	159,965	102
Retained earnings	1,268,998	1,238,585	102
Total equity	1,464,475	1,433,211	102
Liabilities
Provisions	73,927	73,585	100
Deferred revenue	3,071	3,168	97
Total non-current liabilities	76,998	76,753	100
Trade payables	125,845	132,065	95
Borrowings	71,050	66,244	107
Income tax payable	9,926	7,509	132
Other current liabilities	70,065	45,930	153
Total current liabilities	276,886	251,748	110
Total liabilities	353,884	328,501	108
Total equity and liabilities	1,818,359	1,761,712	103

Income statement of Krka, d. d., Novo mesto

In € thousand	1–3/2016	1–3/2015	Index
Revenues	263,371	260,756	101
Costs of goods sold	-114,256	-112,873	101
Gross profit	149,115	147,883	101
Other operating income	718	526	137
Selling and distribution expenses	-62,083	-69,580	89
R&D expenses	-31,154	-28,853	108
General and administrative expenses	-17,230	-15,942	108
Operating profit	39,366	34,034	116
Financial income	33,022	23,121	143
Financial expenses	-35,960	-525	6,850
Net financial result	-2,938	22,596	-13
Profit before tax	36,428	56,630	64
Income tax	-3,643	-7,079	51
Net profit	32,785	49,551	66
Basic earnings per share (in €)	1.01	1.52	66
Diluted earnings per share (in €)	1.01	1.52	66

* Net profit / Average number of shares issued in the period, exclusive of treasury shares

** All issued shares are ordinary registered shares, therefore the diluted EPS equals the basic EPS.

Statement of other comprehensive income of Krka, d. d., Novo mesto

In € thousand	1–3/2016	1–3/2015	Index
Net profit	32,785	49,551	66
Other comprehensive income for the period
Other comprehensive income reclassified to profit or loss in future periods
Change in fair value of available-for-sale financial assets	386	1,097	35
Deferred tax effect	-66	-186	35
Net other comprehensive income reclassified to profit or loss in future periods	320	911	35
Total other comprehensive income for the period (net of tax)	320	911	35
Total comprehensive income for the period (net of tax)	33,105	50,462	66

Statement of changes in equity of Krka, d. d., Novo mesto

			Re se rve s				Re	ta ine d e ing arn s
			Re se rve s for					O t he
	S ha re	Tre as ury	tre as ury	S ha re	l Le g a	S ta tu tor y	Fa ir v lue a	r f i t p ro	Re ine d ta	Pro f i for t	To l ta
In € tho nd usa	i ta l ca p	ha s res	ha s res	ium p rem	res erv es	res erv es	res erv e	res erv es	ing ea rn s	t he io d p er	i ty eq u
Ba lan 1 Ja 2 0 1 6 t ce a n	4, 3 2 5 7	-2 0, 0 1 7	2 0, 0 1 7	1 0 8 9 5, 7	1 4, 9 9 0	3 0, 0 0 0	-1 0, 9 9 3	1, 0 1, 6 5 7 7	0, 0 4 0 5	1 3 6, 8 6 8	1, 4 3 3, 2 1 1
f Ne t p i t ro	0	0	0	0	0	0	0	0	0	3 2, 7 8 5	3 2, 7 8 5
To ta l o t he he ive inc for t he r c om p re ns om e ( f ) io d t o tax p er ne	0	0	0	0	0	0	8 1 5	0	3 1 -5	0	3 2 0
To l c he ive inc for he ta t om p re ns om e ( f ) io d t o tax p er ne	0	0	0	0	0	0	8 1 5	0	3 1 -5	3 2, 8 7 5	3 3, 1 0 5
Tra ion i h o ise d t t ns ac s w wn ers rec og n , d ire t ly in i ty c eq u
Tra fer f p iou io d 's p f i t to ta ine d ns o rev s p er ro re ing ea rn s	0	0	0	0	0	0	0	0	1 3 6, 8 6 8	-1 3 6, 8 6 8	0
Re ha f tre ha p urc se o as ury s res	0	-1, 8 4 1	0	0	0	0	0	0	0	0	-1, 8 4 1
f re for Fo t ion tre ha rm a o se rve s as ury s res	0	0	1, 8 4 1	0	0	0	0	0	0	-1, 8 4 1	0
To ta l tra t ion i t h o ns ac s w wn ers , ise d d ire ly in i t ty rec og n c eq u	0	-1, 8 4 1	1, 8 4 1	0	0	0	0	0	1 3 6, 8 6 8	-1 3 8, 0 9 7	-1, 8 4 1
Ba lan t 3 1 Ma 2 0 1 6 ce a r	5 4, 7 3 2	-2 1, 9 1 2	2 1, 9 1 2	1 0 5, 8 9 7	1 4, 9 9 0	3 0, 0 0 0	-1 0, 1 4 2	1, 0 5 1, 6 7 7	1 8 6, 3 7 7	3 0, 9 4 4	1, 4 6 4, 4 7 5

					Re se rve s			Re	ine d e ing ta arn	s
			Re se rve s for					O he t r
	S ha re	Tre as ury	tre as ury	S ha re	Le l g a	S ta tu tor y	Fa ir v lue a	f i t p ro	Re ta ine d	Pro f i t for	To ta l
In € tho nd usa	i ta l ca p	ha s res	ha s res	ium p rem	res erv es	res erv es	res erv e	res erv es	ing ea rn s	t he io d p er	i ty eq u
Ba lan t 1 Ja 2 0 1 5 ce a n	5 4, 7 3 2	-1 0, 6 7 7	1 0, 6 7 7	1 0 5, 8 9 7	1 4, 9 9 0	3 0, 0 0 0	-7, 4 3 1	1, 0 0 1, 6 3 6	5 5, 2 4 4	1 2 6, 2 4 5	1, 3 8 1, 3 1 3
Ne t p f i t ro	0	0	0	0	0	0	0	0	0	4 9, 5 5 1	4 9, 5 5 1
To l o he he ive inc for he ta t t r c om p re ns om e io d ( t o f tax ) p er ne	0	0	0	0	0	0	9 1 1	0	0	0	9 1 1
for To ta l c he ive inc t he om p re ns om e io d ( t o f tax ) p er ne	0	0	0	0	0	0	9 1 1	0	0	4 9, 5 5 1	5 0, 4 6 2
Tra t ion i t h o ise d ns ac s w wn ers rec og n , d ire t ly in i ty c eq u
fer f p f Tra iou io d 's p i t to ta ine d ns o rev s p er ro re ing ea rn s	0	0	0	0	0	0	0	0	1 2 6, 2 4 5	-1 2 6, 2 4 5	0
f Re ha tre ha p urc se o as ury s res	0	-2, 3 8 3	0	0	0	0	0	0	0	0	-2, 3 8 3
Fo t ion f re for tre ha rm a o se rve s as ury s res	0	0	2, 3 8 3	0	0	0	0	0	0	-2, 3 8 3	0
To l ion i h o ta tra t t ns ac s w wn ers , ise d d ire t ly in i ty rec og n c eq u	0	-2, 3 8 3	2, 3 8 3	0	0	0	0	0	1 2 6, 2 4 5	-1 2 8, 6 2 8	-2, 3 8 3
Ba lan 3 1 Ma 2 0 1 t 5 ce a r	4, 3 2 5 7	-1 3, 0 6 0	1 3, 0 6 0	1 0 8 9 5, 7	1 4, 9 9 0	3 0, 0 0 0	-6, 2 0 5	1, 0 0 1, 6 3 6	1 8 1, 4 8 9	4 1 6 8 7,	1, 4 2 9, 3 9 2

Statement of cash flows of Krka, d. d., Novo mesto

In € thousand	1–3/2016	1–3/2015
OPERATING ACTIVITIES
Net profit	32,785	49,551
Adjustments for:	37,134	25,691
– amortisation/depreciation	20,758	20,353
– foreign exchange differences	-1,494	-2,062
– investment income	-21,823	-483
– investment expenses	35,786	291
– interest expenses and other financial expenses	264	513
– income tax	3,643	7,079
Operating profit before changes in net operating current assets	69,919	75,242
Change in trade receivables	-24,107	-17,476
Change in inventories	6,898	-16,729
Change in trade payables	-9,798	-10,624
Change in provisions	342	842
Change in deferred revenues	-97	-607
Change in other current liabilities	245	-1,063
Income taxes paid	-1,198	-5,474
Net cash flows from operating activities	42,204	24,111
INVESTING ACTIVITIES
Interest received	401	482
Proceeds from sale of current investments	0	24
Proceeds from sale of property, plant and equipment	61	1,298
Acquisition of intangible assets	-424	-1,141
Purchase of property, plant and equipment	-13,779	-17,956
Acquisition of subsidiaries and a share of minority interest without obtained assets	-8,038	-2,396
Non-current loans	-1,405	-612
Proceeds from repayment of non-current loans	666	7,252
Payments to acquire non-current investments	-20	-7
Proceeds from sale of non-current investments	17	5
Payments/Proceeds in connection with current investments and loans	-8,980	1,075
Proceeds from derivative financial instruments	21,292	0
Net cash flows used in investing activities	-10,209	-11,976
FINANCING ACTIVITIES
Interest paid	-450	-508
Proceeds/Payments in connection with current borrowings	4,993	-8,065
Dividends and other profit shares paid	-78	-23
Repurchase of treasury shares	-1,841	-2,383
Net cash flows used in financing activities	2,624	-10,979
Net increase/decrease in cash and cash equivalents	34,619	1,156
Cash and cash equivalents at the beginning of the year	24,622	8,203
Effect of exchange rate fluctuations on cash held	309	461
Net cash and cash equivalents at the end of the period	59,550	9,820

Segment reporting of Krka, d. d., Novo mesto

	Eu rop ea	Un ion n	So t h- Ea u	t Eu s rop e	Ea t s	Eu rop e	O t	he r	To	ta l
In € tho nd usa	1– 3 / 2 0 1 6	1– 3 / 2 0 1 5	1– 3 / 2 0 1 6	1– 3 / 2 0 1 5	1– 3 / 2 0 1 6	1– 3 / 2 0 1 5	1– 3 / 2 0 1 6	1– 3 / 2 0 1 5	1– 3 / 2 0 1 6	1– 3 / 2 0 1 5
Re ve nu es	1 1, 0 1 7 5	1 6 0, 2 2 4	1 3, 8 9 7	1 2, 4 7 7	6 2 3 7, 5	8, 4 9 7 7	1 0, 8 5 5	9, 0 3 6	2 6 3, 3 1 7	2 6 0, 6 7 5
O t he t ing inc r o p era om e	6 0 5	3 9 2	4	4	1 0 9	1 3 0	0	0	7 1 8	5 2 6
Op ing t era ex p en se s	-1 4 5, 1 4 1	-1 4 0, 5 3 6	-9, 9 5 4	-9, 7 6 1	-6 3, 1 3 1	-7 0, 6 7 4	-6, 4 9 7	-6, 2 7 7	-2 2 4, 7 2 3	-2 2 7, 2 4 8
Op ing f i t t era p ro	2 6, 9 6 5	2 0, 0 8 0	3, 8 3 9	2, 9 9 0	4, 0 1 5	8, 2 0 5	4, 0 6 1	2, 9 7 5	3 9, 3 6 6	3 4, 0 3 4
In ter t inc es om e	2 2 0	2 6 7	0	0	1 8 9	1 8 0	0	0	4 0 9	4 4 7
In ter t e es xp en se s	-2 3 0	-4 6 9	0	0	0	0	0	0	-2 3 0	-4 6 9
f Ne t ina ia l re l t nc su	1 3 1	1, 9 8 1	6	-6	-3, 0 2 0	2 1, 5 8 4	-5 5	-9 6 3	-2, 9 3 8	2 2, 5 9 6
Inc tax om e	-2, 4 9 5	-4, 1 7 6	-3 5 5	-6 2 2	-4 1 7	-1, 7 0 7	-3 7 6	-5 7 4	-3, 6 4 3	-7, 0 7 9
Ne f i t p t ro	2 4, 6 0 1	1 8 8 7, 5	3, 4 9 0	2, 3 6 2	1, 0 6 4	2 8, 0 8 2	3, 6 3 0	1, 2 2 2	3 2, 8 7 5	4 9, 1 5 5
Inv tm ts es en	1 8, 4 9 7	1 7, 4 5 8	0	0	0	0	0	0	1 8, 4 9 7	1 7, 4 5 8
De ia ion t p rec	1 4, 2 4 4	1 3, 6 9 9	4 3 4	4 1 1	4, 5 8 4	4, 7 6 1	9 3	9 0	1 9, 3 5 5	1 8, 9 6 1
Am isa ion t t or	9 1 4	8 5 5	3 7	6 8	3 6 0	4 2 1	6 5	4 8	1, 4 0 3	1, 3 9 2
	3 1 Ma 2 0 1 6 r	3 1 De 2 0 1 5 c	3 1 Ma 2 0 1 6 r	3 1 De 2 0 1 5 c	3 1 Ma 2 0 1 6 r	3 1 De 2 0 1 5 c	3 1 Ma 2 0 1 6 r	3 1 De 2 0 1 5 c	3 1 Ma 2 0 1 6 r	3 1 De 2 0 1 5 c
To ta l a ts ss e	1, 3 3 5, 6 3 0	1, 2 9 4, 9 1 3	4 1, 6 5 8	3 9, 3 2 5	4 3 1, 2 3 6	4 2 0, 1 1 7	9, 8 3 5	7, 3 5 7	1, 8 1 8, 3 5 9	1, 7 6 1, 7 1 2
To ta l l ia b i l i t ies	2 6 6, 5 8 4	2 4 2, 4 2 6	8, 9 7 3	7, 4 5 7	5 6, 3 7 4	5 7, 0 1 3	2 1, 9 5 3	2 1, 6 0 5	3 5 3, 8 8 4	3 2 8, 5 0 1

Notes to the financial statements of Krka, d. d., Novo mesto

Costs by nature €224,723 thousand

In € thousand	1–3/2016	1–3/2015	Index
Costs of goods and material	77,771	89,551	87
Costs of services	74,378	71,230	104
Employee benefit costs	49,768	49,029	102
Amortisation and depreciation	20,758	20,353	102
Inventory write-offs and allowances	1,515	1,100	138
Receivables impairment and write-offs	45	5,556	1
Other operating expenses	4,662	7,070	66
Total costs	228,897	243,889	94
Change in the value of inventories of products and work in progress	-4,174	-16,641	25
Total	224,723	227,248	99

Employee benefit costs €49,768 thousand

In € thousand	1–3/2016	1–3/2015	Index
Gross wages and salaries and continued pay	40,535	39,442	103
Social security contributions	2,665	2,605	102
Pension insurance contributions	4,835	4,596	105
Post-employment benefits and other non-current employee benefits	341	842	40
Other employee benefit costs	1,392	1,544	90
Total employee benefit costs	49,768	49,029	102

Other operating expenses €4,662 thousand

In € thousand	1–3/2016	1–3/2015	Index
Grants and assistance for humanitarian and other purposes	200	302	66
Environmental protection expenses	525	608	86
Other taxes and levies	3,105	5,033	62
Loss on sale of property, plant and equipment and intangible assets	89	279	32
Other expenses	743	848	88
Total other operating expenses	4,662	7,070	66

Other taxes and levies include taxes (claw-back and similar) that have been imposed in several markets of Krka Group operations in recent periods.

Financial income and expenses

In € thousand	1–3/2016	1–3/2015	Index
Net foreign exchange differences	11,315	22,650	50
Interest income	409	447	91
Change in fair value of investments through profit or loss	6	0
Proceeds from sale of investments	0	24	0
Derivatives income	21,292	0
– income	21,292	0
Total financial income	33,022	23,121	143
Interest expenses	-230	-469	49
Change in fair value of investments through profit or loss	0	-12	0
Derivatives expenses	-35,697	0
– change in fair value	-35,697	0
Other financial expenses	-33	-44	75
Total financial expenses	-35,960	-525	6,850
Net financial result	-2,938	22,596

Income tax €3,643 thousand

Current income tax amounts to €3,615 thousand, which is 9.9% of pre-tax profit. Together with the deferred tax of €28 thousand, the total income tax expense in the income statement equals €3,643

Property, plant and equipment €607,267 thousand

thousand. The effective tax rate is 10.0%, down 2.5 of a percentage point from the same period last year.

In € thousand	31 Mar 2016	31 Dec 2015	Index
Land	22,928	22,826	100
Buildings	269,903	275,657	98
Equipment	284,647	295,893	96
Property, plant and equipment being acquired	29,789	15,691	190
Total property, plant and equipment	607,267	610,067	100

The value of property, plant and equipment represents just over 33% of the Krka Company's total assets. Krka's major investments are described in the chapter Investments in the Business Report.

Intangible assets €30,578 thousand

In € thousand	31 Mar 2016	31 Dec 2015	Index
Concessions, patents, licences and similar rights	26,283	27,642	95
Intangible assets being acquired	4,295	3,915	110
Total intangible assets	30,578	31,557	97

Intangible assets include marketing authorisation documentation for new medicines, and software.

Loans €113,120 thousand

In € thousand	31 Mar 2016	31 Dec 2015	Index
Non-current loans	28,643	26,300	109
– loans to subsidiaries	20,785	18,908	110
– loans to others	7,858	7,392	106
Current loans	84,477	75,907	111
– portion of non-current loans maturing next year	1,795	2,459	73
– loans to subsidiaries	36,186	37,040	98
– loans to others	46,309	36,230	128
– current interest receivable	187	178	105
Total loans	113,120	102,207	111

Non-current loans represent 25% of total loans.

Non-current loans to others include loans that the Company extends in accordance with its internal acts to its employees and that are primarily housing loans.

Current loans to others include €46,000 thousand of short-term bank deposits with maturities longer than 30 days.

Investments €8,049 thousand

In € thousand	31 Mar 2016	31 Dec 2015	Index
Non-current investments	7,964	7,578	105
– available-for-sale financial assets	7,964	7,578	105
Current investments	85	11,808	1
– shares and interests held for trading	85	79	108
– derivatives	0	11,729	0
Total investments	8,049	19,386	42

Available-for-sale financial assets include €711 thousand of investments in shares and interests in Slovenia, and €7,253 thousand of investments in shares and interests abroad.

Inventories €223,670 thousand

In € thousand	31 Mar 2016	31 Dec 2015	Index
Material	95,587	103,895	92
Work in progress	64,445	61,941	104
Products	55,138	54,934	100
Merchandise	8,110	9,172	88
Inventory advances	390	626	62
Total inventories	223,670	230,568	97

Trade and other receivables €436,169 thousand

In € thousand	31 Mar 2016	31 Dec 2015	Index
Current trade receivables	420,979	402,189	105
– current receivables due from subsidiaries	228,614	217,352	105
– current receivables due from customers other than Group companies	192,365	184,837	104
Other current receivables	15,190	16,602	91
Total receivables	436,169	418,791	104

Cash and cash equivalents €59,550 thousand

In € thousand	31 Mar 2016	31 Dec 2015	Index
Cash in hand	2	1	200
Bank balances	59,548	24,621	242
Total cash and cash equivalents	59,550	24,622	242

Equity €1,464,475 thousand

In € thousand	31 Mar 2016	31 Dec 2015	Index
Share capital	54,732	54,732	100
Treasury shares	-21,912	-20,071	109
Reserves:	162,657	159,965	102
– reserves for treasury shares	21,912	20,071	109
– share premium	105,897	105,897	100
– legal reserves	14,990	14,990	100
– statutory reserves	30,000	30,000	100
– fair value reserve	-10,142	-10,993	92
Retained earnings	1,268,998	1,238,585	102
Total equity	1,464,475	1,433,211	102

Borrowings €71,050 thousand

In € thousand	31 Mar 2016	31 Dec 2015	Index
Current borrowings	71,050	66,244	107
– portion of non-current loans maturing next year	500	500	100
– borrowings from subsidiaries	70,436	65,443	108
– current interest payable	114	301	38
Total borrowings	71,050	66,244	107

Provisions €73,927 thousand

In € thousand	31 Mar 2016	31 Dec 2015	Index
Provisions for post-employment benefits and other non-current employee benefits	73,927	73,585	100
Total provisions	73,927	73,585	100

Deferred revenue €3,071 thousand

In € thousand	31 Mar 2016	31 Dec 2015	Index
Grants received from the European Regional Development Fund and Republic of Slovenia budget for the project Pharmaceuticals	2,583	2,650	97
Production in the new Notol 2 Plant
Grants received from the European Regional Development Fund received for the Sinteza 4 project	3	4	75
Grants received from the European Regional Development Fund – development of new technologies (FBD project)	413	437	95
Grants received from the European Regional Development Fund for setting up information and technology solutions system (GEN-I)	18	19	95
Property, plant and equipment received free of charge	32	36	89
Emission coupons	22	22	100
Total deferred revenue	3,071	3,168	97

The FBD project is partly funded by the European Union via the European Regional Development Fund. It is implemented as part of the Operational Programme 2007–2013 for Strengthening Regional Development Potentials; 1. Priority axis Competitiveness and Research Excellence; 1.1. Priority objective: Improving Competitiveness and Research Excellence.

Trade payables €125,845 thousand

In € thousand	31 Mar 2016	31 Dec 2015	Index
Payables to subsidiaries	55,679	58,766	95
Payables to domestic suppliers	37,526	34,124	110
Payables to foreign suppliers	31,575	35,733	88
Payables from advances	1,065	3,442	31
Total trade payables	125,845	132,065	95

Other current liabilities €70,065 thousand

In € thousand	31 Mar 2016	31 Dec 2015	Index
Accrued contractual discounts on products sold	12,985	12,985	100
Payables to employees – gross wages, other receipts and charges	27,506	26,185	105
Derivatives	23,968	0
Other	5,606	6,760	83
Total other current liabilities	70,065	45,930	153

Contingent liabilities €15,587 thousand

In € thousand	31 Mar 2016	31 Dec 2015	Index
Guarantees issued	14,967	21,306	70
Other	620	620	100
Total contingent liabilities	15,587	21,926	71

MANAGEMENT BOARD STATEMENT OF RESPONSIBILITIES

The Management Board of Krka, d. d., Novo mesto hereby states that the condensed financial statements of the Krka Company and the condensed consolidated financial statements of the Krka Group for the three months ended 31 March 2016 were drawn up so as to provide a true and fair view of the financial standing and operating results of the Krka Company and the Krka Group. The condensed statements for the period January– March 2016 were drawn up using the same accounting principles as for the annual financial statements of the Krka Company and the Krka Group for the full year 2015.

The condensed interim financial statements for the three months ended 31 March 2016 were drawn up

Novo mesto, 26 April 2016

pursuant to IAS 34 – Interim Financial Reporting, and must be read in conjunction with the annual financial statements drawn up for the business year ended 31 December 2015.

The Management Board is responsible for implementing measures to maintain the value of the Krka Company and the Krka Group assets, and to prevent and detect frauds or other forms of misconduct.

The Management Board states that all transactions between related parties in the Krka Group were executed on the basis of purchase contracts, using market prices for products and services.

Jože Colarič, President of the Management Board and Chief Executive

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