Jsc Olainfarm

JSC OLAINFARM

WEBINAR PRESENTATION 1st HALF 2020

www.olainfarm.com 2 Agenda 01 02

Financial performance Outlook 2020 H1 2020

03 04

Strategy 2020-2025 Latest developments

Q&A session

www.olainfarm.com 3 Representatives of Management Board

CEO Jeroen Hidde Weites CFO Zane Kotāne

www.olainfarm.com Global Trends Group operations 4

Group continued safety Vertical integration is a Number of markets did not measures initiated during major advantage in the carry out the necessary the first quarter ability to ensure the marketing activities (face to The Covid-19 production of both face meetings) which are chemical components now scheduled to resume in impact is and FDF* the second half of the year slowing down Decrease in purchasing Compression products Taking into account power has impact on segment experienced guidelines issued by the economics affordability to buy the fluctuations in European Medicines Agency medical products demand some clinical trials were deferred to 2021

Group companies have received Latvian Government financial support amounting to EUR 295 thousand

* Final Dosage Forms www.olainfarm.com 5 Key Measures

Half year results for 2020 show stable sales with improved profitability while net profit is volatile due to currency fluctuation

0% Sales, th EUR 19% 66 369 66 392 EBITDA, th EUR Net Profit, th EUR 17 924 18% 12 244 15 123 10 017

61 844 10 436 5 786

H1 2020 H1 2019 H1 2018 H1 2020 H1 2019 H1 2018 H1 2020 H1 2019 H1 2018

www.olainfarm.com 6

Main business factors Russia

Review of cooperation partners in major markets. New subsidiary in Russia, fully opertational August 2020. Focused marketing activities with improved governance

Introduction of traceability* requirements for medicinal products in Russia have significant impact on sales fluctuations in 2020

* Source: Bloomberg Markets Currencies of developing countries lost their value against EUR in first six months of 2020 – value of the Russian Ruble dropped by 15%

* Serialization www.olainfarm.com 7 Net Profit

Net profit change (thousand, EUR) Selling expenses – timing delay due to marketing 4 353 model change in major markets and there were 12 244 4 510 physical limitations for performing marketing 1 608 10 017 462 activities

Financial – exchange rate fluctuations (Russian

Ruble)

Profit Profit net

Administration – changes in the accounting of net

expenses

2019 H1 Net H1 2019 Net H1 2020

personnel costs Administration

Other changes, Other

Selling expenses Selling Financial income, Financial

www.olainfarm.com Sales 8

Group’s Medicine Production segment reports primary sales – shipment to distributors, thus sales does not reflect final consumption

1st half of 2020 – Group’s sales EUR 66 369 thousand, 0% change y-o-y

Trailing 12 months Sales (1 July 2019 – 30 June 2020) totalled up to EUR 137 million: 6.5% increase y-o-y

One off items – Q4 2019 – sale of 6mEUR to Russia for use in Q1 2020; Q2 2020 – sale of 8mEUR to Russia for use in Q3 2020 (impact of traceability regulation)

www.olainfarm.com Business Segments 9 Group’s Medicine Production segment Medicine Production segment (th. constitutes 64% of EUR) 7% revenues and delivers 45 000 90% 5% 4% stable sales performance 40 000 80% Medicine Production 35 000 70% (+2%; y-o-y) Retail 30 000 60% 25 000 50% Compression materials 20% 66 mEUR 20 000 40% Wholesale 15 000 30% Retail segment has 28% 2020 64% Other 10 000 20% 20% increased its share in 5 000 10% Group revenues by 1%, - 0% EBIT profitability 5% H1 2020 H1 2019 (increase of 1% compared SALES EBIT Profitability Sales growth (%; y-o-y) to 2019) Retail segment (th. EUR)

14 000 90% Other 12 000 80% 70% Wholesale Compression materials 10 000 60% 8 000 segment is most impacted 50% Compression materials by COVID-19 and has 6 000 40% 30% 4 000 Retail negative sales growth, 20% 2 000 resulting in negative EBIT 5% 4% 10% Medicine Production of 298 th. EUR - 0% H1 2020 H1 2019 -40% -20% 0% 20% 40% SALES EBIT Profitability www.olainfarm.com Medicine 10 Russia Latvia Belarus Ukraine Central Asia EU countries Other countries Caucasian countries segment

2019 27% 29% 13% 9% 9% 8% 4% 2%

Group’s core markets 2020 30% 29% 14% 8% 7% 8% 4% 2% remained stable – 73% of sales delivered to three markets – Russia, Latvia 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% and Belarus Noofen Neiromidin Furamag/Furasol Adaptol Etacizin Fenkarol Other

Sales of medicine for health of nervous system 2019 19% 17% 16% 13% 12% 7% 16% reached 53% of product sales (+3% y-o-y)

2020 19% 18% 17% 16% 11% 6% 12%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

www.olainfarm.com 11 Financial Stability

Cash accumulated during reporting period is 24 million EUR

The Group’s Debt service coverage ratio (DSCR) in the first half of the year in 2020 continued to improve and was 5.6 due to higher EBITDA in the last twelve months

Net Debt-to-EBITDA ratio was -0.1 due to cash balance exceeding net debt

www.olainfarm.com 12 2020 Outlook

Group management revised the annual forecasts by reducing the Group’s forecast annual sales to 126 million EUR, or 7% down, compared to the initial forecast. The reduction in revenue of the Parent company against the initial forecast is 5% and amounts to 92 million EUR.

The exchange rate changes in the first half of the year, as well as the postponing of marketing costs to the second half of the year in several operating markets, led to reduction in the estimation of annual profit of the Group to 11.2 million EUR, compared to the 14.2 million in prior forecast. The profits of the Parent company are expected to be 12.5 million EUR, what represents a reduction of 6.6% against the original envisaged.

www.olainfarm.com JSC OLAINFARM FORWARD

COMPANY’S STRATEGY 2020–2025

www.olainfarm.com Executive summary 14 The new Olainfarm Strategy is addressing current global challenges by utilising the strengths of the company: vertical integration and the full control of the production cycle.

New culture where courage is fostered, a can-do-mindset is rewarded, and people are empowered to make decisions to respond fast on changing dynamics.

Strategy measures 2025

Increase shareholder Sales Growth Rx / OTC / API Improved profitability Products Geographical 15% of revenue

value with 5 points % Double digit sales diversification Ratio of revenue turn- Net profit margin @18% 3-6 new Rx, 2-4 new Extended product (ROE) growth in segment Rx, Investment in R&D in over 70%:20%:10% in 2025 OTC products before presence in CEE OTC and API YoY 2025 2025 and 1 new API Y- region and beyond by 2020 – 2025 o-Y 2025

Dividend policy: 20% of net profit www.olainfarm.com 15 Mission We improve customers’ lives and create value to our organization by providing sustainable health care products and services leveraging on our manufacturing and commercial expertise. Vision By the year 2025 we are the top 10 CEE manufacturing (*) company sustainably delivering healthcare products and services in specific therapeutic disease(**) areas in CIS, CEE and beyond.

*Pharmaceutical manufacturing company with HQ in CEE region (**) niche areas in

**neurology/ psychiatry, cardiology, urinary and allergy/ alimentary www.olainfarm.com Major value growth driver for Olainfarm’s future is 16 pharma manufacturing

ANALYSIS ADDRESSED

Market Attractiveness (*): market size, market growth 5 yr horizon API > 6%, sizeable untapped opportunity, competitors, pricing and Net Profit > 18%

Strategic fit: treatment standards, regulatory proximity, Olainfarm (future) footprint, group synergies for economics of scale

SHIFT TO FOCUS AREAS

Primary segments Secondary segments Priority growth areas for Olainfarm: Rx, OTC (including Silvanols) and API Shift focus of Latvijas Aptiekas, Tonus Elast and Clinics to improved and • Core business activity of Olainfarm with legacy and competencies in customized commercial model driving sales revenue and margin product manufacturing • Strong synergistic effect in operational model (channels) and customer characteristics • Firstly securing strong position and prepare for expansion to Europe (*) Exercise was conducted for current markets and current products and on future • Net Profit > 18% markets new products Roadmap of our strategic imperatives 17 Response to market challenges

Growing sustainably & profitably Maximizing value Accelerate Business Development Delivering FDFs & APIs – at least 3 Rx products and at Improving operating efficiencies of core business in our Making the right capital allocation decisions across the least 2 OTC products before 2025. Expanding in main core markets in 2020 and in 2021 start building on top a business portfolio enabling us to deliver improved therapeutic areas via product acquisition (short term) and future growth platform by generating a portfolio of shareholders value. R&D (mid - to long term) in low competitive niche disease differentiated products to meet the needs of our customers. LEAN program to optimize processes and to reduce cost. areas. Establish strong OTC footprint in Allergy, Cough & New Go-to-market model. Cold and Immune system categories.

Optimized R&D focus Manufactory optimization & innovation Align the organization

As part of the vertical integration model of development, Modernize manufacturing process, increase capacity to Support new strategy of the three core value drivers (Rx, producing and commercialization (from idea to the market), meet demand forecast, from batch to continuous production OTC and API) as of 2021. to design and to maintain a competitive portfolio of products of core brands and as Contract Manufacturer (CMO) for New culture and new competency building sustainably delivering 3-5 new products YoY after 2025. large customers in 2023 and onwards.

www.olainfarm.com 18

Acquisition of new Empowered Culture of Open competencies board collaboration and dialogue new capabilities Business building R&D and in Business Clear goals and Continuous learning, Openness with transformation development competencies to deliver improvement and shareholders and other growth ambition readiness for change key stakeholders to reach growth ambition

Clear Positive Empowered local and Evidence based assignment culture international team decisions

To set clear goals and Investment in Promote entrepreneurial Supporting innovation competencies. development of and innovative mindset and strategic initiatives To take responsibility for employees strategic initiatives and foster measurable objectives

www.olainfarm.com 19 R&D: Current* product pipeline driving value

Business potential Feasibility 2020 2021 2022 2023 2024 2025 Beyond

2 API Cardiovascular 5 products 3 FDF 14 products

Neurology 3 products 3 FDF 14 products 1 FDF Urology 2 products 1 FDF 2 products 1 API Disease area area Disease Alimentary 2 products 1 FDF 13 products 1 API 3 API Other 6 products 1 FDF 10 products 1 FDF

API = Active Pharmaceutical Ingredient = commercially available

FDF = Final Dose Form * August 2020 www.olainfarm.com 20 Ways of working

Customer focus Scientific Excellence Innovation Integrity Transparency

We are deeply committed to We are dedicated to the Through continuous innovation Integrity is the cornerstone of We believe transparency meet the needs of our highest level of scientific we challenge ourselves to what makes us credible to makes mutual trust possible customers, and we constantly excellence. Our research is meet every customer need everyone. We are holding and will be achieved trough focus on customer satisfaction guided by a commitment to ourselves and others to the openness with shareholders preserving human health and highest ethical standards and and other key stakeholders the quality of life our products and process will be of the highest quality

www.olainfarm.com 21 Latest 01 02

Shareholder meeting on Sales reporting in Development September 22 Nasdaq and next steps

03 04

Changes in management Cashflow – cash accumulation and future investments

Political situation in Belarus – impact on operations

www.olainfarm.com 22

Q&A session