ANNUAL REPORT 2005 CONTENTS

UNCONSOLIDATED REPORT 3 Unconsolidated Financial Highlights 5 Letter to Shareholders 7 Corporate Governance 8 Company's Boards 8 Information for Shareholders 14 Annual General Meeting 14 Investor Relations Activities 14 Earnings Per Share 16 Dividend 16 Share Price Performance 16 Market Capitalisation 19 Management Report 21 Operating Review 25 Markets 26 Gynaecology – a Focus on a Therapeutic Niche 40 Products 44 Research and Development 48 Production 49 Corporate Social Responsibility 50 Human Resources 52 Financial Review 55 Corporate Matters 62 Preference Shares 62 Registered Shareholders 62 Treasury Shares 64 Share Ownership of the Company’s Boards 64 Other Information 65 Recent Litigation 65 Unconsolidated Financial Statements 67 Unconsolidated Financial Record 1995-2005 72

CONSOLIDATED STATEMENTS 77 Consolidated Financial Highlights 79 Consolidated Review 80 Richter – a Regional Multinational Company 80 Consolidated Companies 81 Brief Operating Review 82 Summary Financial Review 83 Consolidated Financial Statements 85 Independent Auditor's Report 86 Notes to the Consolidated Financial Statements 91 Consolidated Financial Record 2002-2005 114

CONTACTS 116

2 ANNUAL REPORT 2005 GEDEON RICHTER LTD. UNCONSOLIDATED FINANCIAL HIGHLIGHTS

2005 2004 Growth 2005 2004 Growth HUF m HUF m % US$ m US$ m % Total sales 140,929 121,593 15.9 705.7 599.0 17.8 Operating profit 37,364 35,008 6.7 187.1 172.4 8.5 Net profit for the year 43,623 37,475 16.4 218.4 184.6 18.3

2005 2004 Growth 2005 2004 Growth HUF HUF % US$ US$ % Earnings per share (EPS) 2,341 2,011 16.4 11.72 9.91 18.3 Dividends per ordinary share 600 500 20.0 3.00 2.46 22.0

HUF m Sales US$ m Sales 160,000 800 140,000 700 120,000 600 100,000 500 80,000 400 60,000 300 40,000 200 20,000 100 0 0 95 96 97 98 99 00 01 02 03 04 05 95 96 97 98 99 00 01 02 03 04 05

HUF Earnings per share US$ Earnings per share 2,400 12

2,000 10

1,600 8

1,200 6

800 4

400 2

0 0 95 96 97 98 99 00 01 02 03 04 05 95 96 97 98 99 00 01 02 03 04 05

HUF Dividends per ordinary share US$ Dividends per ordinary share 600 3.0

500 2.5

400 2.0

300 1.5

200 1.0

100 0.5

0 0 95 96 97 98 99 00 01 02 03 04 05 95 96 97 98 99 00 01 02 03 04 05

Notes: • Earnings per share: Headline, i.e. diluted excluding exceptional and non-recurring items. • 2005 dividends per ordinary share of HUF 600 are as recommended by the Board of Directors.

UNCONSOLIDATED REPORT UNCONSOLIDATED FINANCIAL HIGHLIGHTS 5 LETTER TO SHAREHOLDERS

I am pleased to report that, notwithstanding at times difficult and changing conditions, our overall dynamic growth continued during 2005. We are proud of our sales and net profit performance both of which provide a strong basis for our confidence in the future.

The Company’s performance during 2005 represented a milestone in the history of our business in Russia. Our successful participation in the Russian Government’s subsidised drugs programme resulted in a major step-change in our sales which well surpassed the increases of previous years. Russia together with other CIS republics became our best performing business region in 2005, exceeding our sales in Hungary.

The EU, including the new member states, made also a strong contribution to the overall results. In Western countries new product launches and in Central and Eastern Europe our own sales network together contributed to the performance of the Company. Notwithstanding strong competition and uncertainties surrounding the reimbursement system we enjoyed a successful year also in Hungary.

Our women’s healthcare business which is based on our unique steroid chemistry capability has continued to progress most satisfactorily.

As a medium-sized Central-European multinational Company with chemical knowledge accumulated over many decades, we continued to concentrate our resources on the therapeutic areas where we have an established competitive advantage and which offer the best chances of sound growth.

To create the basis for a successful future we had to take important decisions on manufacturing capacity increases, on quality control and needed to keep pace with the industry’s continuing technological progress. Hence we inaugurated last November a new biotechnological laboratory and to augment the original research activities we widened our cooperation with the US-based Forest Laboratories.

Our efforts would have been to no avail without the devotion and hard work of our colleagues. On behalf of the Board I wish to express my sincere thanks to all Richter employees both in Hungary and beyond its borders for their exemplary commitment and support. My sincere thanks also go to our Shareholders for their ongoing encourage- ment and their trust in our long-term policy of organic growth. We are convinced that this strategy will bring forth a prosperous future for our shareholders and employees.

William de Gelsey Chairman of the Board of Directors

UNCONSOLIDATED REPORT LETTER TO SHAREHOLDERS 7 CORPORATE GOVERNANCE

Gedeon Richter complies fully with the highest ethical standards and acts according to both the legal and regu- Dr György Bíró (1945) latory requirements following the Corporate Governance Recommendations of the Budapest Stock Exchange. Legal adviser, specialising on economic law. Director of Industrial Association, Legal-International-Secretariat Directorate. Is member of Ethical Board of Conciliation Committee of Interests. Joined the Board in 1998. The Annual General Meeting is the highest decision-making body of the Company, comprising all shareholders.

The Company differentiates the roles and responsibilities of the Board of Directors, the ultimate decision-making Gábor Bojár (1949) body which itself operates with two subcommittees since 2004 – the Corporate Governance subcommittee and President and Founder of Graphisoft Software Development Ltd., established in 1982. A physicist, graduate of the Compensation subcommittee, the Executive Board which is responsible for the executive management of the Eötvös Loránd Tudományegyetem (ELTE) in Budapest. Previously worked in the Geophysical Institute at ELTE. Company’s business, and the Supervisory Board which is the controlling body of the Company. Has been a member of the Board since 1995.

Dr Jenô Koltay (1944) Economist, University doctorate in Economic Sciences. Director of Institute of Economics of the Hungarian Academy of Sciences. Visiting fellow and visiting professor at several Research Institutions and Universities. Joined the Board in 1998. COMPANY’S BOARDS

Dr László Kovács (1944) HONORARY PRESIDENT Deputy Managing Director with responsibility for Commerce and Marketing from 1990 to 2005. Currently strategic adviser to the Executive Board of Gedeon Richter Ltd. Economist, University doctorate in Economic Sciences. Formerly with Medimpex from 1966 to 1990, Secretary of the Commercial Section of the Hungarian Embassy in Lajos Pillich (1913) São Paulo, Brazil, 1975 to 1978. Graduated from the Technical University of Budapest. Chemical engineer. With Richter since 1935 and was Technical Director, managing production and technical development of Research and Development from 1942 to 1976. Chairman between 1990 and 1999. Became Honorary Life President in 1999. Christopher William Long (1938) Career diplomat. Experience in the full range of diplomatic work including management, personnel, political and economic analysis. British Ambassador to Hungary from 1995 to 1998. Joined the Board in 1998. BOARD OF DIRECTORS

Dr Gábor Perjés (1941) William de Gelsey (1921) Medical doctor, urologist, nephrologist. Between 1966 and 1970 assistant at the Postgraduate Medical School. Senior adviser to the Managing Board of CA IB Corporate Finance Beratungs GmbH (a wholly owned subsidiary Member of Parliament from 1990 to 1994. Currently practising as a physician, appointed medical manager of of Bank Austria-Creditanstalt) Vienna and London. Has over 45 years of international investment banking Gyógyír XI. Public Company responsible for medical services in XIth district of Budapest. Has been a member experience. He also has significant banking experience in Hungary. A graduate of Trinity College, Cambridge. Joined of the Board since 1992. the Board in 1995. Chairman since 1999.

István Somkuti (1958) Erik Bogsch (1947) Economist, has worked with the Hungarian State Privatization and Holding Company Ltd. since December 2002, Appointed Managing Director in November 1992. Chemical engineer, qualified economic engineer. With Richter Managing Director of the Privatisation Department II. Joined the Board in 2004. since 1970 in a number of Research and Development management positions. Medimpex director in Mexico from 1977 to 1983. Managing Director of Medimpex UK from 1988 to 1992. Member of the Board of MAGYOSZ, Chairman from March 2006.

8 UNCONSOLIDATED REPORT CORPORATE GOVERNANCE COMPANY’S BOARDS UNCONSOLIDATED REPORT COMPANY’S BOARDS 9 EXECUTIVE BOARD

Erik Bogsch (1947) Appointed Managing Director in November 1992. Chemical engineer, qualified economic engineer. With Richter since 1970 in a number of Research and Development management positions. Medimpex director in Mexico from 1977 to 1983. Managing Director of Medimpex UK from 1988 to 1992. Member of the Board of MAGYOSZ, Chairman from March 2006.

Dr László Kovács (1944) Deputy Managing Director with responsibility for Commerce and Marketing from 1990 to 2005. Currently strategic adviser to the Executive Board of Gedeon Richter Ltd. Economist, University doctorate in Economic Sciences. Formerly with Medimpex from 1966 to 1990, Secretary of the Commercial Section of the Hungarian Embassy in São Paulo, Brazil, 1975 to 1978.

Dr Gábor Gulácsi (1958) Appointed Deputy Managing Director upon joining the Company in February 2000. Responsible for Finance. Economist, University doctorate in Economic Sciences. Previously General Secretary of State, Ministry of Economic Affairs.

Lajos Kovács (1960) Appointed Director in 2005. Responsible for Technical services. Chemical engineer, with postgraduate degree in phar- maceutical research. With Richter since 1984 in different positions. Research fellow at the University of Liverpool (UK) between 1987 and 1989.

András Radó (1954) Appointed Director in 1995. Responsible for Production and Logistics. Deputy Managing Director since 2000. Chemical engineer, economic engineer. With Richter since 1979 in a number of management positions.

Dr Zsolt Szombathelyi (1957) Appointed Research Director in October 2000. Physician, graduated from the Semmelweis Medical University. With Richter since 1981, in a number of management positions. Director of the Representative Office of Medimpex Japan Co. Ltd. in Tokyo from 1993 to 1998.

Dr György Thaler (1959) Appointed Development Director in 1993. Chemical engineer, University doctorate in Chemical Sciences. With Richter since 1983 in a number of management positions.

UNCONSOLIDATED REPORT COMPANY’S BOARDS 11 SUPERVISORY COMMITTEE Changes occurred within the Company's Board

Dr Attila Chikán (1944) • At the Annual General Meeting on 27 April 2005, the following were appointed, namely re-elected to the Board Professor of the Corvinus University of Budapest, Business Economics Department; Manager of the Competi- of Directors: tiveness Research Centre, doctor of the Hungarian Academy of Sciences. Between 2000 and 2003 Rector of the Budapest University of Economics and Public Administration. From 1998 to 1999 Minister of Economy. Chairman – William de Gelsey of the Supervisory Committee since 2000. – Erik Bogsch – Gábor Bojár – Dr László Kovács József Erôs (1933) – Dr Gábor Perjés Qualified accountant, qualified tax adviser, qualified price expert. Previously Deputy Head of Accounting at the Ministry of Finance. Joined the Committee in 1991. • During the meeting of the Board of Directors held after the AGM on 27 April 2005, Mr William de Gelsey was reappointed as Chairman of the Board of Directors for a three-year term.

Dr Mária Balogh, Jánokiné (1951) • In addition, Mr Erik Bogsch was reappointed as a Managing Director for a three-year term. Economist with University doctorate in Economic Sciences. Executive Director at Magyar Hitelbank since 1987. Deputy General Manager of OTP Bank since September 1995. Has been a member of the Committee since 1990. • Director and Deputy Managing Director Dr László Kovács retired on 2 January 2006. He will participate in the future as a strategic adviser in the operation of the Company. He will remain a member of the Board of Directors. Mr. Sándor Kováts has been appointed to the position of Director responsible for Commercial Services. Vencelné Sedlák (1953) Employee representative. Chemical engineer, quality system engineer qualifications. With Richter since 1971. Head of Validation Department at the Quality Assurance Directorate from January 2000. Joined the Committee in 2001. Sándor Kováts (1960) Chemical engineer, specialized in refined chemistry. Appointed Director since January 2006. Responsible for Commercial Services. Joined Richter in 1984. From 1992 to 1995 Deputy Leader of Laboratory Fermentation Dr Gábor Simon Kis (1940) Research, project manager at the Chemical and Biochemical Research and Development Department between Private pharmacist, economist, PhD in Economics. Head of Department at Ministry of Health from 1971 to 1988, 1995 and 1998. During 2001-2002 was Director responsible for Technical Services at Gedeon Richter USA. then Director of Institute of National Hospital and Medical Technology until 1995. Joined the Committee in 1998.

András Sugár S. (1956) Electrical and economic engineer. Managing Director at the Alaska Advisory Ltd. since 2000. Joined the Committee in 2004.

Gábor Tóth (1955) Employee representative. Chemical engineer, economic engineer. With Richter since 1980, currently responsible for administration of the share register and representing the Company at the Budapest Stock Exchange (BSE) regarding domestic shareholders' issues. Joined the Committee in 1990.

Zoltán Tóth (1968) Employee representative. Has a degree in Biology and Management. With Richter since 1996, at present Project Manager at the Development Department. Joined the Committee in 2003.

12 UNCONSOLIDATED REPORT COMPANY’S BOARDS UNCONSOLIDATED REPORT COMPANY’S BOARDS 13 INFORMATION FOR SHAREHOLDERS Investor roadshows in 2005

New York, Boston 8-10 February 2005 London, Edinburgh 16-18 February 2005 ANNUAL GENERAL MEETING London, Edinburgh 6-8 September 2005 Frankfurt 5-6 October 2005 The Annual General Meeting will be held at 15.00 and if an insufficient quorum, at 16.00 on 26 April 2006 New York 29 November 2005 at Budapest H-1143, Stefánia út 34.

The Company’s website (www.richter.hu) includes a folder meeting the specific stated needs of investors and INVESTOR RELATIONS ACTIVITIES analysts concerning information on Richter's business operations. The Company's Investor Relations Department, with its office in Budapest, continues to act as a focal point for contact with institutional shareholders. The Company reports formally to shareholders four times a year, as its quarterly non-audited results are an- nounced, and publishes its Annual Report including audited figures by the date of the Annual General Meeting. The AGM of the Company takes place in Budapest and formal notification is sent to shareholders at least four Contacts with the Investor Relations Department weeks in advance of the meeting. At the Meeting a business presentation is made to shareholders by the Managing Director, and all Directors are available during the meeting for questions. Phone: + 36-1 431 5764 Fax: + 36-1 261 2158 Management, principally the Managing Director and investor relations staff, maintain a dialogue with institu- E-mail: [email protected] tional shareholders on Company plans and objectives through a programme of conferences, regular meetings, conference calls and roadshows. Representatives of the IR Department of Gedeon Richter Ltd. participated at 8 international conferences and 5 roadshows in 2005. Gedeon Richter's management held 58 meetings for Analysts providing regular coverage about the Company during 2005 approximately 158 fund managers and analysts at its headquarters presenting the Company's business progress

and financial results. Conference calls were organised during the year, following the publication of the quarterly Company Analyst Company Analyst reports of the Company. CA IB Ms Katalin Dani KBC Securities Mr Péter Tordai Citigroup Mr Robert Bonte-Friedheim Merrill Lynch Mr Andreas Schmidt Concorde Mr Attila Vágó Nomura Ms Frances Cloud Deutsche Bank Mr Gergely Várkonyi Raiffeisen Bank Mr Bernd Maurer Conferences in 2005 Erste Bank Ms Vladimíra Urbánková UBS Warburg Mr Andrzej Kasperek, Mr György Oláh JPMorgan Mr Martin van Tol WOOD & Company Mr Bram Buring Merrill Lynch New York, ‘Global Pharmaceutical, Biotechnology & Medical Device Conference‘ 8-9 February 2005 Banca Intesa, CIB Bank, Caboto Milan, ‘Presentation of the Budapest Stock Exchange‘ 8 March 2005 UBS London, ‘Central Eastern European one-on-one conference‘ 18-19 May 2005 Budapest Stock Exchange Budapest, ‘Conference on the 15 year old Budapest Stock Exchange‘ 20 June 2005 Templeton Budapest, ‘Semiannual Conference‘ 8 July 2005 Budapest Stock Exchange, Concorde Securities Ltd. Budapest, ‘Conference for Institutional Investors 2005‘ 24 August 2005 CA IB Istanbul, ‘Emerging Europe in Turkey 2005‘ 15-16 September 2005 ING Prague, ‘Annual Emerging European Forum‘ 1 December 2005

14 UNCONSOLIDATED REPORT INFORMATION FOR SHAREHOLDERS UNCONSOLIDATED REPORT INFORMATION FOR SHAREHOLDERS 15 EARNINGS PER SHARE Gedeon Richter share price at the Budapest Stock Exchange compared to BUX and CETOP20 Indices The net profit for the year amounted to HUF 43,623 million (US$ 218.4 million) which resulted in 'Headline earnings per share' of HUF 2,341 per share (US$ 11.72 per share). The company describes as 'Headline earn- 190 % Richter ings per share' the diluted earnings per share following adjustment to exclude exceptional and non-recurring 180 % items. The weighted average number of shares outstanding during 2005 was 18,637,486. 170 % BUX 160 % 150 % 140 % CETOP20 130 % DIVIDEND 120 % 110 % In accordance with the dividend policy practised by the Company, the Board of Directors recommends the pay- 100 % ment of 25 percent of net profit calculated according to the Hungarian Accounting Law for 2005. 90 % 2005 03.01 03.02 03.03 03.04 03.05 03.06 03.07 03.08 03.09 03.10 03.11 03.12 31.12 Dividends approved by the shareholders of the Company at the Annual General Meeting held on 27 April 2005 totalled HUF 9,300 million (US$ 49.7 million) in respect of 2004. The portion payable in relation to ordinary Notes: • BUX Index constituents are (as of 31 December 2005): Antenna Hungária, Borsodchem, Démász Rt., Egis Rt., FHB Földhitel Rt., Fotex, MOL Rt., Magyar Telekom, OTP Bank, Richter Gedeon Rt., Tiszai Vegyi Kombinát, Synergon Informatika Rt. shares was HUF 9,299 million (US$ 49.7 million) or HUF 500 per share, 50 percent of the nominal share • CETOP20 Index (Central European blue chip index) constituents are (as of 31 December 2005): Bank BPH, Bank Pekao SA, Bank Zachodni, CEZ, Cesky Telecom AS, Egis Rt., Erste Bank, KGHM, Komercni Banka, Krka DD, MOL, Magyar Telekom, OTP Bank, PKN ORLEN, Pliva DD, Prokom Software, Richter Gedeon Rt., Telekom Polska, value; the portion payable in relation to preference shares was HUF 1 million or HUF 120 per preference share. Unipetrol Hldg, Zentiva.

The record dates for these dividend payments were announced on 18 May 2005 with payments having Source: Bloomberg commenced on 15 June 2005.

Gedeon Richter share price on the SEAQ compared to FTSE Global Pharmaceuticals and FTSEurofirst 300 Pharmaceuticals Indices SHARE PRICE PERFORMANCE 160 % Richter The Gedeon Richter share price on the Budapest Stock Exchange increased significantly during 2005, while the BUX on the SEAQ 150 % index increased by 41 percent (20,785 points at 30 December 2005) from its January value (14,740 points at 3 January 2005). The BUX index performed approximately in line with the PX50 index of the Prague Stock 140 % FTSEurofirst Exchange and the WIG index of the Warsaw Stock Exchange. However it performed well behind the RTS, the 130 % 300 Moscow Stock Exchange index. The BUX index achieved a significantly higher growth rate than the major Pharmaceuticals 120 % international indices (DJ, FTSE). The Gedeon Richter share price outperformed significantly the BUX and by the end of the year it was 73 percent (HUF 38,315 at 30 December 2005) higher compared to its January 110 % price (HUF 22,200 at 3 January 2005), with a yearly high of HUF 40,300. Gedeon Richter shares traded at the FTSE Global 100 % SEAQ showed similar performance and they outperformed the FTSE index family during almost the whole year. Pharmaceuticals The charts on next page provide a brief comparison of the Gedeon Richter share price performance and index 90 % movements during 2005. 2005 03.01 03.02 03.03 03.04 03.05 03.06 03.07 03.08 03.09 03.10 03.11 03.12 31.12

Notes: • FTSE Global Pharmacuticals Index (.FTGPH) constituents are (as of 31 December 2005): Abbott Laboratories, Allergan, Altana, Amgen Corp, Astellas Pharmaceutical, AstraZeneca, Biogen Idec, Bristol Myers Squibb, Celgene Corp, Chugai Seiyaku, Daiichi Sankyo, Eisai, Forest Laboratories, Genentech, Genzyme General, Gilead Sciences, GlaxoSmithKline, Johnson and Johnson, Lilly (Eli) & Co, Merck & Co, Novartis, Novo-Nordisk, Pfizer, Roche-Hldgs-Genus, Sanofi-Aventis, Schering AG, Schering-Plough, Takeda Pharmaceutical, UCB Cap, Wyeth. • FTSEurofirst 300 Pharmaceuticals (.E3PHRM) constituents are (as of 31 December 2005): Altana, AstraZeneca, GlaxoSmithKline, Novartis, Novo-Nordisk, Roche-Hldg-Genus, Roche-Holding-BE, Sanofi-Aventis, Schering AG, Serono, Shire, UCB SA.

Source: Bloomberg

16 UNCONSOLIDATED REPORT INFORMATION FOR SHAREHOLDERS UNCONSOLIDATED REPORT INFORMATION FOR SHAREHOLDERS 17 MARKET CAPITALISATION

The Company's market capitalisation increased significantly during 2005, reaching a value of HUF 714 billion with calculations based on Budapest Stock Exchange share price and US$ 3,355 million with calculations based on SEAQ share price by the end of the year.

Market Capitalisation HUF bn 800 700 600 500 400 300 200 100 0 95 96 97 98 99 00 01 02 03 04 05

US$ m 3,500

3,000

2,500

2,000

1,500

1,000

500

0 95 96 97 98 99 00 01 02 03 04 05

Note: All data based on year-end prices; calculations based on the total number of shares issued, forint calculations based on the performance of Richter share price on the Budapest Stock Exchange, dollar calculations based on the SEAQ share price.

The Company reported excellent results in 2005 although individual markets were characterised by both positive and unfavourable business conditions. Significant growth was achieved in the CIS while good performance was also reported in member states of the EU and in Hungary which more than offset lower USA sales. Overall, investors’ confidence regarding the future development of the Company’s business was maintained.

UNCONSOLIDATED REPORT INFORMATION FOR SHAREHOLDERS 19 MANAGEMENT REPORT

With the sustained and committed labour of its employees and especially due to the strong efforts made during the reported year, Gedeon Richter Ltd. completed a successful year in 2005. I am also pleased to report about several ongoing processes that aim to create a solid foundation for the Company’s future development.

In our last Annual Report, one key element of the Company’s long term strategy that I referred to was the maintenance of our balanced business model. This strategy served Gedeon Richter well during 2005 as we optimised the opportunity to significantly expand our market position in Russia, more than offsetting dis- appointing sales in the USA.

I am also pleased with the progress made during the year in our original research endeavours which although in a relatively early phase continue to show promise as highlighted by the further extension of our excellent collaboration with Forest Laboratories in the USA.

Gedeon Richter is a considerably stronger company today than it was a year ago. Our focus on a balanced business model enabled us to achieve excellent double digit growth and record sales and profits in 2005.

Being a medium sized regional multinational company we feel that it is essential to continue to identify niche markets where we can establish and maximise our competitive advantage. One such therapeutic niche is gynaecology where we have unique steroid chemistry knowledge and extensive medical and marketing experience and where we are convinced that there remains considerable market growth potential, particularly in our traditional markets. According to IMS statistics (2005) the use of oral contraceptives amongst the female population at the age of 15-44 ranges from 3 percent in Russia, 6 percent in Romania, 10 percent in Poland and 22 percent in Hungary. These figures are in the majority of cases substantially lower than those in many EU countries (25-43 percent) and we continue to anticipate a steady increase in the per capita usage of oral contraceptives in Central and Eastern Europe and the CIS in the next few years.

In our domestic market Hungary we achieved excellent results in 2005. The year saw the national government and the associations of pharmaceutical companies sign an agreement relating to the clawback to be paid to the National Health Insurance Fund for both 2005 and 2006. Whilst this has brought some much needed stability to the market medium term uncertainty remains primarily post elections scheduled for Spring 2006.

UNCONSOLIDATED REPORT MANAGEMENT REPORT 21 The Company was in an excellent position to take advantage of the opportunity to supply its products under the With the full introduction of the International Financial Reporting Standards (IFRS) we have in this Annual new reimbursement scheme (DLO) implemented by the government in Russia for its socially handicapped people. Report introduced for the first time a report for the Consolidated Group which incorporates not only those This, supported by the favourable macroeconomic environment associated primarily with high oil prices, represented companies which have a major influence on the consolidated results, but in addition, all subsidiaries, joint ventures an upward step-change in the size of the local pharmaceutical market resulting in good sales for the Company. and associated companies owned by Richter. These include marketing, manufacturing and service companies It is to be expected that market growth in 2006 will revert to a more subdued level as healthcare spending continues – although in many cases small in value they all contribute to the strategic development of the company and its to grow from the newly established higher base and further amendments are made to the government’s subsidised future growth prospects. medicine scheme.

I would like to thank all our employees for their commitment and contribution to our excellent performance In the European Union we reported good growth in sales for the year both in the new and the traditional 15 EU in 2005. Undoubtedly challenges will continue to arise but we have established a sound base for future progress member states. The primary focus of the Company is on the expansion of our gynaecology business and an increase across both our focused geography and niche therapeutic areas. in generic product sales through preparing for future product patent expiries. Sales of gynaecology products increased substantially in 2005 and represented one third of the EU turnover. The outstanding performance achieved by the Company in the Central and Eastern European countries relies upon our decades-long experience, Last but not least, let me express my grateful thanks to our shareholders whose trust and loyalty plays a special market recognition of our products and the activities of our commercial affiliate companies. Taking advantage of important role in the excellent performance and the steady growth of the Company in a highly competitive these assets allowed us to successfully address increasing competition and adapt to frequent changes in the international market environment. reimbursement systems. The expansion of our business in the ‘traditional’ 15 EU member states became a primary objective for the Company as early as the mid 1990’s. In the major Western European countries sales continue to be made via partner third party companies. In the absence of adequate market experience and critical mass it is not currently our intention to establish own marketing networks.

Whilst sales to the USA were disappointing in 2005 we continue to work well with our strategic partner Barr Erik Bogsch Laboratories and with our customer Johnson and Johnson under a long term supply agreement. Our co-operation Managing Director with Ivax was impacted by its acquisition by Teva. Following excellent collaboration with KV Pharmaceuticals in recent years this has been in February 2006 extended to include generic products in the USA.

Capital expenditure programmes currently being carried out have the utmost importance for the future development of the Company. Among the ongoing projects in Hungary which I would like to highlight are the construction of a new experimental technological laboratory and a chemical-analytical research centre meeting the highest technological and quality requirements. Both projects are part of the renewal programme for our Research and Development facilities and procedures. Important other steps were also taken during 2005 for the whole Richter Group. The capacity of our Russian subsidiary was significantly enhanced and this is expected to result in an enhanced role for Gedeon Richter-RUS in the Group’s performance in future years. In addition, construction work at our recently established joint venture in India reached an advanced level and it is expected that Richter Themis Ltd. will be able to start operation soon.

22 UNCONSOLIDATED REPORT MANAGEMENT REPORT UNCONSOLIDATED REPORT MANAGEMENT REPORT 23

OPERATING REVIEW Sales analysis by region

2005 EU 2004 EU MARKETS 21 % 21 % USA USA Gedeon Richter Ltd. markets and sells its products to nearly one hundred countries through an extensive market 10 % 14 % network. The Company is present in 30 countries through its 5 production sites outside Hungary, 30 representative CIS CIS offices, and a dozen commercial subsidiaries and wholesale joint ventures. 30 % 26 % Other countries Other countries Gedeon Richter is the largest Hungarian pharmaceutical producer. The Company has maintained its traditionally 10 % 10 % strong presence in the CIS and Central and Eastern European countries and established either a strategic partner- Hungary Hungary ship or a long-term supply agreement with a number of major international players both in the US and EU. 29 % 29 %

In 2005 good overall steady progress was made by the Company. Sales amounted to HUF 140,929 million (US$ 705.7 million) representing excellent growth of 15.9 percent (17.8 percent in US$ terms) when compared with 2004. Significant growth was achieved in the CIS while good performance was also reported in the member Sales by region – historic analysis states of the EU and in Hungary which more than offset lower USA sales. 2005 EU, USA and 2004 EU, USA and other markets other markets Sales by region 23 % 28 %

CIS CIS 2005 2004 Change 2005 2004 Change 30 % 26 % HUF m HUF m % US$ m US$ m % Central and Central and Hungary 40,803 35,649 14.5 204.3 175.6 16.3 Eastern Europe Eastern Europe Export 100,126 85,944 16.5 501.4 423.4 18.4 18 % 17 % CIS 43,095 31,281 37.8 215.8 154.1 40.0 Hungary Hungary EU* 29,129 25,033 16.4 145.9 123.3 18.3 29 % 29 % USA 13,952 16,942 -17.6 69.9 83.5 -16.3 Other countries 13,950 12,688 9.9 69.8 62.5 11.7 Total 140,929 121,593 15.9 705.7 599.0 17.8

Sales analysis by currency in 2005 * Note: All member states of the enlarged EU following 1 May 2004, except for Hungary.

Hungary EU Approximately Sales by region – historic analysis half of Company sales are US$

2005 2004 Change 2005 2004 Change denominated. HUF m HUF m % US$ m US$ m % USA Hungary 40,803 35,649 14.5 204.3 175.6 16.3 Export 100,126 85,944 16.5 501.4 423.4 18.4 CIS 43,095 31,281 37.8 215.8 154.1 40.0 EU, USA and other markets 32,623 33,928 -3.8 163.4 167.2 -2.3 Other countries CIS Central and Eastern Europe 24,408 20,735 17.7 122.2 102.1 19.7 Total 140,929 121,593 15.9 705.7 599.0 17.8 * Note: HUF exchange rate is linked to the EUR.

26 UNCONSOLIDATED REPORT OPERATING REVIEW UNCONSOLIDATED REPORT OPERATING REVIEW 27 HUNGARY

The Hungarian macroeconomic environment was mainly unfavourable in 2005. Overspending of the central budget completion of the required regulatory procedures, on both the CEE and CIS markets. The proportion of new accelerated a fiscal deficit and this continued to be a substantial handicap for all sectors of the Hungarian economy. products in our turnover continued to increase in 2005, with products launched since the mid 1990's representing Although the inflation rate declined when compared to 2004 the introduction of the Euro in Hungary still appears 70 percent of Richter's domestic sales. to be unlikely for the immediate future. Both the US dollar and the Euro exchange rate improved relative to the Hungarian forint, being 18.6 percent and 2.7 percent stronger at year-end. Our efficient sales network plays a key role in the success achieved on the domestic market and accordingly we expanded the sales force teams during the year. Uncertainty also characterised the Hungarian pharmaceutical market, although conditions were slightly better than in 2004, when the Hungarian Government cut prices of all pharmaceutical products by 15 percent and froze Based on the latest available market audit (IMS) data for the twelve months to December 2005, Gedeon Richter Ltd. prices at 85 percent of previous levels. Following this price freeze, in June 2004 the Government and the manu- had 7.6 percent share of the Hungarian pharmaceutical market by value. facturers signed an agreement that cancelled the price freeze in two steps and regulates the prices of all pharma- ceutical products and the reimbursement budget until the end of 2006. According to the agreement any overspending of the reimbursement budget would be jointly financed and shared by the Government and the Top 10 products in Hungary manufacturers. 2005 2004 Growth Product Active ingredients Therapeutic area The agreement created a more predictable environment for 2005. However, the calculation of the claw-back paid HUF m HUF m HUF m % by the manufacturers to the reimbursement budget was not clearly declared. As the projected health care budget NORMODIPINE amlodipine Cardiovascular, 5,508 5,279 229 4.3 deficit grew steadily during the year, the drug manufacturers started negotiations with the government to antihypertensive introduce a limit to their expected claw-back. On 23 September 2005 the Government and associations of pharma- QUAMATEL famotidine Gastrointestinal, 3,890 3,387 503 14.9 ceutical companies finally signed an agreement relating to the contribution to be paid to the National Health antiulcer Insurance Fund (NHIF) for both 2005 and 2006. According to the agreement, which had as its aim the lowering of EDNYT / enalapril / Cardiovascular, 3,877 3,627 250 6.9 the overall level of overspending, the manufacturers were obliged to pay up to HUF 20 billion for 2005 and a LISOPRESS lisinopril antihypertensive maximum of HUF 22.5 billion for 2006 as a contribution to the NHIF. Gedeon Richter’s contribution was slightly Oral hormones Gynaecology 2,885 2,653 232 8.7 more than HUF 600 million for 2005. contraceptives CAVINTON vinpocetine Central Nervous System 2,497 2,361 136 5.8 The health care budget deficit continued to be the biggest problem for the sector in 2005. Although the planned MYDETON tolperisone Muscle relaxants 1,381 1,284 97 7.6 budget for drug reimbursement was HUF 284 billion, the actual spending amounted to almost HUF 350 billion. LANSONE lansoprazole Gastrointestinal, 1,142 926 216 23.3 It is not expected that the situation will be much more favourable in 2006. antiulcer EFECTIN venlafaxine CNS, Antidepressant 1,023 869 154 17.7 There were no significant changes in 2005 regarding the possibility for price increases from the side of drug REXETIN paroxetine CNS, Antidepressant 1,018 906 112 12.4 manufacturers. In line with the already mentioned agreement, signed in June 2004, prices of non-reimbursed and MYCOSYST fluconazole Antifungal 951 732 219 29.9 OTC products became uncontrolled with effect from 1 January 2005. Prices of this category of products may be Subtotal 24,172 22,024 2,148 9.8 changed on the first day of every quarter of the year. Although prices of reimbursed products are fixed, where Other 16,631 13,625 3,006 22.1 prices of drugs are lower than HUF 1,000 / box they were permitted to be amended on 1 January 2005 and 2006. Total 40,803 35,649 5,154 14.5

Despite the unfavourable market conditions and increasing competition, the Company recorded good results on its home market. Sales amounted to HUF 40,803 million in 2005, 14.5 percent higher than in 2004. In US$ terms New products launched in Hungary during 2005 sales totalled US$ 204.3 million reflecting an increase of 16.3 percent.

Brand name Active ingredients Therapeutic area Launch date The sales growth in 2005 was primarily due to the good performance of the recently launched CALUMID SEDRON alendronate Osteoporosis Quarter 2, 2005 (bicalutamide) for the treatment of advanced prostatic cancer, the antiulcer QUAMATEL, the antihypertensive TAMSOL tamsulosine Benign prostate hypertrophy Quarter 2, 2005 LISONORM (a combination of lisinopril and amlodipine), the antifungal TERBISIL (terbinafine) and the range of oral MILLIGEST gestodene + ethinyl estradiol Gynaecology, oral contraception Quarter 2, 2005 contraceptives. FEMSEVEN COMBI* estradiol + levonorgestrel Gynaecology, Quarter 2, 2005 hormone replacement therapy In accordance with one of the Company’s strategic objectives, we continued to expand our product portfolio. ATORVOX* atorvastatin Cholesterol lowering Quarter 4, 2005 Several new products were introduced on the domestic market in 2005. We believe that these recently launched compounds will contribute to the future growth of the Company on the Hungarian market and following * Note: Licenced-in products.

28 UNCONSOLIDATED REPORT OPERATING REVIEW UNCONSOLIDATED REPORT OPERATING REVIEW 29 EXPORT Sales to top 10 export markets

Gedeon Richter’s export regions consist of four groups of countries. Different market strategies are used in each 2005 2004 Change area and the Company’s achievements are detailed below. US$ m US$ m US$ m % Russia 157.2 108.7 48.5 44.6 Exports amounted to US$ 501.4 million in 2005, an increase of US$ 78.0 million or 18.4 percent over the previous USA 69.9 83.5 -13.6 -16.3 year. Sales to the CIS grew by 40.0 percent, where the Company was in an excellent position to supply products Poland 41.3 31.0 10.3 33.2 under the reimbursement programme implemented by the government in the first quarter of the year. Ukraine 27.2 18.8 8.4 44.7 This was supplemented by good sales growth of 18.3 percent in EUR terms to the EU. In the USA the Company Germany 22.7 17.1 5.6 32.7 reported a 16.3 percent decrease in 2005 due to reduced demand for certain active pharmaceutical ingredients. Czech Republic 21.3 17.4 3.9 22.4 Slovakia 16.5 15.6 0.9 5.8 Romania 14.0 12.0 2.0 16.7 Baltic States 13.2 12.7 0.5 3.9 Kazakhstan 13.0 10.9 2.1 19.3 Export sales breakdown by region Subtotal 396.3 327.7 68.6 20.9 Total export 501.4 423.4 78.0 18.4 2005 EU 2004 EU Share of the top 10 export markets 79 % 77 % 29 % 29 %

USA USA 14 % 20 %

CIS CIS 43 % 36 %

Other countries Other countries 14 % 15 %

Export sales by region – historic breakdown

2005 EU, USA and 2004 EU, USA and other markets other markets 33 % 40 %

CIS CIS 43 % 36 %

Central and Central and Eastern Europe Eastern Europe 24 % 24 %

30 UNCONSOLIDATED REPORT OPERATING REVIEW UNCONSOLIDATED REPORT OPERATING REVIEW 31 CIS

Primarily due to the newly introduced Russian reimbursement scheme the Company achieved an outstanding According to the Russian Government’s decree, for 2005 approximately US$ 1.7 billion (at retail price levels) was sales increase in 2005 in the CIS. The recorded growth rate well exceeded even the high levels of sales ex- allocated amongst the leading wholesalers to subsidise a list of selected products for socially handicapped people pansion achieved in previous years. Overall macroeconomic conditions were favourable in the region with high with effect from 1 January 2005. Certain changes were made to the list in the second quarter of 2005, which oil prices and stable rouble exchange rates together resulting in increasing purchasing power. Political stability resulted in some delisting in respect of Gedeon Richter’s products. According to a decree issued on 26 May 2005 in Russia also positively impacted business conditions. The economic debate over gas prices with its neighbour- doctors were allowed to prescribe the delisted products until 1 December 2005 if they were delivered to Russia by ing country did not affect negatively our sales in Ukraine, while in other member states of the CIS the Company 1 July 2005. A further decree was published in June which modified both the deadline for deliveries to 1 October 2005 also recorded good sales growth. and prescriptions to 31 December 2005.

In the CIS in 2005 sales totalled US$ 215.8 million, a significant increase of 40.0 percent compared to 2004. In 2005 slightly more than US$ 30 million of the Company’s sales were realised through the new reimbursement programme. With a 1 October 2005 deadline as mentioned above there were no shipments in connection with the programme of 2005 in the last quarter. However, in preparation for 2006, pre-shipments amounting to US$ 5 million Sales to the CIS were realised during the fourth quarter of 2005, which is accounted in the results of the reported year. Excluding US$ m sales generated from shipments allocated for the new reimbursement scheme, sales growth recorded on the private 240 Other market was around 10 percent in 2005. republics 200

160 Russian sales analysis in 2005

120 Ukraine

80 Reimbursement programme – sales in 2005 40 Russia US$ 30 m Private market 0 US$ 122 m 95 96 97 98 99 00 01 02 03 04 05 Reimbursement programme – preshipments for 2006 US$ 5 m Being a key element in our strategy we continued to renew our product portfolio also in this region. It is pleasing to report that products launched since the mid 1990’s continued to outperform the Company's average in this region with an outstanding 68.7 percent sales growth and represented 35 percent of total CIS sales in 2005 compared to 29 percent reported in 2004. With effect from 1 January 2006 certain of Richter’s previously delisted products were reinstated on the list. Although Expansion of the gynaecological business in all our markets remains to be a primary objective of the Company. it is difficult to predict it is nevertheless expected that further changes will be forthcoming in 2006. We continued to launch new gynaecological products in the region and these contributed to the sales of female healthcare products which increased by 18.5 percent compared to the previous year. Sales growth in 2005 was reported throughout most of the product portfolio. The Company’s original compound, CAVINTON (vinpocetine) and the antihypertensive DIROTON (lisinopril) continued to show outstanding results. The Company has been present in the CIS region for more than fifty years, and this history and experience forms As a result of being on the reimbursement list the turnover of these products increased substantially compared to a strong basis for our own well-established and specialised sales network. The increased efficiency of our sales force the same period of the previous year. It is also pleasing to report that the performance of oral contraceptives, teams also contributed to the excellent results reported. especially the recently launched third generation LINDYNETTE (gestodene), together with the diuretic VEROSPIRON (spironolactone), the antifungal TERBISIL (terbinafine) and the antidepressant REXETIN (paroxetine) significantly Sales to Russia totalled US$ 157.2 million for 2005, 44.6 percent higher than in 2004. This outstanding contributed to the excellent growth reported. performance primarily resulted from the Company being in an excellent position to supply products under the reimbursement programme implemented by the government in the first quarter of the year.

32 UNCONSOLIDATED REPORT OPERATING REVIEW UNCONSOLIDATED REPORT OPERATING REVIEW 33 EU

Although trade credits increased substantially due to the shipments through the reimbursement programme, the On 1 May 2004 Hungary joined the European Union together with a number of other Central and Eastern Company continues to consider its payment terms as a key element of its Russian business and has maintained its European countries. Although the expansion did not result in significant changes in our business model, the Com- previously established credit terms. pany revised its analysis of sales by region. The enlarged EU became a separate region in our analysis, although we excluded and separately reported on our home market. Despite intense political changes, the economic environment remained stable and favourable in Ukraine. The Company’s position improved substantially and sales amounted to US$ 27.2 million in 2005, an outstanding Although the EU is presented as a consistent region in our analysis, the Company’s product portfolio and marketing 44.7 percent increase when compared to 2004. The high sales levels of CAVINTON together with the range of strategies differ substantially between those 15 traditional member states and those Central and Eastern European oral contraceptives and DIROTON were primarily responsible for the excellent results reported. countries which joined the EU on 1 May 2004.

Sales in other republics of the CIS totalled US$ 31.4 million for 2005, representing 18.0 percent growth over 2004. Sales in the European Union amounted to EUR 117.5 million (US$ 145.9 million) in 2005, representing substantial Most notable sales growth was recorded in Kazakhstan and Belarus. growth of 18.3 percent. The Company achieved good growth both in the new member states of the EU and the traditional 15 EU member states.

New products launched in the CIS republics during 2005 Sales to the EU in 2005

Brand name Active ingredients Therapeutic area Launch date TEBANTIN gabapentine Antiepileptic Quarter 2, 2005 GYNOFORT* butoconazole Gynaecology, antifungal Quarter 2, 2005 ESCAPELLE levonorgestrel Gynaecology, emergency contraception Quarter 2, 2005 Western European Central and Eastern European countries – countries the new member states 37 % 63 % * Note: Licenced-in product.

The sales growth of products launched since the mid 1990’s grew significantly by 33.9 percent in Euros during the reported period and represented 51 percent of total sales in 2005 compared to the 45 percent in the previous year.

Sales of gynaecological products increased by 25.9 percent in Euros in 2005 compared with 2004. In the reported period this product group represented 33 percent of the turnover in the region.

The expansion of our business in the ’traditional’ 15 EU member states became a primary objective for the Company as early as the mid 1990’s. While commercial associated companies have been established in several countries, sales are still made via partner third party companies. In the absence of an adequate sales force and critical mass it is not currently our intention to establish our own marketing networks. The primary focus of the Company is on the expansion of our gynaecological business and an increase in generic sales, i.e. to prepare for upcoming product patent expiries.

In line with this strategic aim and following its patent expiry in early August 2005 we launched the antifungal terbinafine in tablet form, via our partners, in certain EU countries, notably Germany and the UK.

34 UNCONSOLIDATED REPORT OPERATING REVIEW UNCONSOLIDATED REPORT OPERATING REVIEW 35 We have concluded licensing-out agreements with well-established German and French companies to market our Solid economic performance characterised the Czech Republic in 2005 and that assisted our Company to achieve original product CURIOSIN as a medical device in their respective markets. CURIOSIN is a wound healing gel, higher sales than in the previous year. The good work of our sales network resulted in an increased market share containing zinc-hyaluronate. compared to 2004. Pharmaceutical product consumption was relatively high with drug prices being substantially lower than the EU average. The Company’s turnover increased by 22.4 percent growth in Euro terms and sales In Germany the Company reported sales of EUR 18.3 million representing a 32.7 percent increase compared with amounted to EUR 17.2 million primarily due to significant sales growth of the multiple sclerosis drug, AVONEX 2004. The excellent results were primarily due to shipments of terbinafine tablets launched in August 2005 and the (interferon beta-1a), licenced-in from the US-based Biogen and the third generation oral contraceptive LINDYNETTE. recently introduced emergency contraceptive LEVONELLE ONE STEP (marketed under the brand name ESCAPELLE in Hungary). In France turnover of the range of oral contraceptives showed a significant increase in the reported In Slovakia several changes to the health care system were introduced in 2005 in order to reduce the increase of period and the Company achieved excellent overall sales levels of EUR 7.0 million. Elsewhere, the range of oral debt. Expenditure in health service costs per capita remained substantially lower than in Hungary or the Czech contraceptives boosted sales during the period, especially the recently launched gestodene containing third Republic. Notwithstanding these circumstances Gedeon Richter Ltd. managed to improve its position on this mar- generation LINDYNETTE in Denmark and the desogestrel containing third generation NOVYNETTE in Belgium. ket. The Company’s sales totalled EUR 13.3 million and 6.3 percent sales growth in EUR terms was realised. Good performance by the multiple sclerosis drug AVONEX (interferon beta-1a), the antiepileptic GORDIUS (gabapentine), Having been established for decades in Central and Eastern Europe the Company distributes and markets its the oral contraceptives and the antifungal TERBISIL were responsible for the results achieved. products via its own well-established sales network. We continue to increase both the efficiency of our specialised sales force teams and the number of medical representatives which also contributed substantially to the higher In the Baltic States sales amounted to EUR 10.6 million during 2005. AVONEX, TERBISIL and oral contracep- sales levels recorded in the reported period. tives were the major contributors to the sales levels reported.

Poland is our largest and most important market in this region. In this country the economic situation was stable during 2005 but there were no positive changes in the financing of the health care system. Conditions on the pharmaceutical market were overall rather positive, with the growth of the hospital segment being higher than in the open pharmacy sector. The Company recorded sales of EUR 33.3 million (including shipments to GZF Polfa in a value of EUR 8.2 million) a substantial increase of 33.4 percent in Euro terms over the previous year. Outstanding performance of the range of oral contraceptives, the antifungal MYCOSYST (fluconazole) and TERBISIL (terbinafine) together with the Company’s original compound CAVINTON contributed significantly to the growth reported.

New products launched in Central and Eastern Europe during 2005

Country Brand name Active ingredients Therapeutic area Launch date Slovakia GORDIUS gabapentine Antiepileptic Quarter 2, 2005 LAMOLEP lamotrigine Antiepileptic Quarter 2, 2005 GYNAZOL* butoconazole Gynaecology, antifungal Quarter 2, 2005 AFLAMIN* aceclofenac Antiinflammatory Quarter 3, 2005 Baltic States ESCAPELLE levonorgestrel Gynaecology, Quarter 3, 2005 emergency contraception

* Note: Licenced-in products.

36 UNCONSOLIDATED REPORT OPERATING REVIEW UNCONSOLIDATED REPORT OPERATING REVIEW 37 USA OTHER COUNTRIES

During the past several years the US market had proved to be an important geographic area for the Company and Sales in these countries amounted to US$ 69.8 million in 2005, an increase of US$ 7.3 million, or 11.7 percent when contributed substantially to the overall sales level. This reflected the Management’s efforts to create a balanced compared to 2004. The sales growth reported was mainly due to finished form products. business model and to decrease the dependence on our traditional markets. The Company’s two emergency contraceptives together with the second generation oral contraceptive RIGEVIDON Gedeon Richter has built mainly upon its competitive advantage and good reputation in the field of female and the third-generation oral contraceptive NOVYNETTE contributed substantially to the reported sales growth. healthcare. Realising the possibility to become a niche player, in the past several years the Company established Sales of TERBISIL, DIROTON and CAVINTON, together with famotidine shipments also added significantly to the new long-term supply agreements with key manufacturers in the US pharmaceutical market, i.e. Barr Laboratories, sales level achieved. Inc., Johnson and Johnson. Romania and Bulgaria remained our largest markets in this group of countries. Notable sales were also realised in However, the Company’s activity in the US is not limited to steroid APIs and female healthcare. Cardiovascular and Vietnam, Japan, China and Brazil. gastrointestinal products were also supplied to partners such as Ivax Pharmaceuticals, Inc., mainly in API form. In Romania the Company had to adapt to frequent changes in the product registration procedures while chronic Sales in the USA totalled US$ 69.9 million in 2005, a 16.3 percent decline when compared to last year, principally debt in the health care system prevailed throughout 2005. Gedeon Richter’s sales amounted to EUR 11.3 million due to lower demand for certain steroid active pharmaceutical ingredients (APIs). (US$ 14.0 million), representing a good increase of 17.4 percent over 2004. The antifungal TERBISIL contributed mostly to the sales level reported. The range of oral contraceptives and the antihypertensive DIROTON also Sales to the USA showed good results. US$ m In Bulgaria the government during 2005 amended a number of the health care regulations. Notwithstanding 100 Finished products these changing circumstances the Company’s sales totalled EUR 6.6 million (US$ 8.2 million), positive growth of 16.8 percent, primarily due to the good performance of CAVINTON and DIROTON and certain oral contraceptives. 80

Turnover in Vietnam increased by 18.1 percent compared to 2004. The emergency contraceptive POSTINOR was 60 Bulk products our best selling drug in this country during the reported year.

40

20

0 95 96 97 98 99 00 01 02 03 04 05

Despite the declining turnover of the region sales of gynaecological products continued to represent more than 70 percent of total USA sales, and the proportion of those products which were launched since the mid 1990’s represented 39 percent of turnover in the region.

During 2005 the Company continued to work with its strategic partner, Barr Laboratories, Inc., which is accord- ing to the IMS statistics for 2005 – the second largest player by value in the hormonal contraceptive market of the USA. The Company currently supplies steroid APIs for nine oral contraceptive products of Barr Laboratories. In addition Gedeon Richter Ltd. supplies the antifungal fluconazole and the emergency contraceptive PLAN B in fin- ished form to the US-based company.

Sales of APIs amounted to US$ 64.8 million, 19.1 percent lower than in 2004. Substantial sales growth of the finished form emergency contraceptive PLAN B was more than offset by lower demand for APIs.

Gedeon Richter also has a long-term supply agreement with Ortho-McNeil, a subsidiary of Johnson and Johnson, focusing on female healthcare. The co-operation between the two companies continued in 2005, although at lower sales levels than that achieved in 2004.

38 UNCONSOLIDATED REPORT OPERATING REVIEW UNCONSOLIDATED REPORT OPERATING REVIEW 39 GYNAECOLOGY – A FOCUS ON A THERAPEUTIC NICHE

Solving specific women’s healthcare problems is a several thousand year old challenge. Elementary and ever Gedeon Richter Ltd. is a gynaecological product manufacturer of international renown. The international developing methods from birth control to gynaecological antibacterial infections have existed during all ages. reputation and success of the Company are primarily due to its broad range of oral contraceptives. One of the However, many were far from efficient and sufficiently safe. The first pharmaceutical compounds containing aims of the Company remains to provide access to its gynaecological products for as many women as possible hormones appeared during the 1920’s. worldwide. The competitiveness of the Company is based on and guaranteed by the widely appreciated knowledge of its employees in the field of steroid chemistry, their special experience in product development as well as by the The Company’s founder, Mr. Gedeon Richter, recognised both the medical and the business opportunities and im- high-capacity, cost-effective production facilities. These, together with their detailed medical and marketing experi- portance of this new scientific discovery. The earliest manufacture of gynaecological products at Gedeon Richter Ltd. ence, enable the Company to continue increasing its share of the market for gynaecological products. began before the Second World War. During the past 70 years the gynaecological portfolio has been enhanced significantly with a wide range of different generation oral contraceptives together with emergency pills, several Gynaecological products, led by a wide range of oral contraceptives, accounted for 26 percent of total sales in 2005. hormone replacement products including two types of patches, and in addition gynaecological antiinfective drugs and other female healthcare products. Steroid active pharmaceutical ingredients are also manufactured by the Company. Based on its considerable experience and unique know-how the Company provides a broad range of Sales of gynaecological products modern, high-quality products for women of any age, life cycle or circumstances. US$ m 200 Development, production, licencing-in and marketing of steroid based products has recently gained strategic importance and Gedeon Richter has become one of the few large scale producers of these types of products 160 in the world. As part of its traditional innovation activity, in the past decade the Company has established research and production facilities that meet the expectations of even the most demanding US and EU markets. 120 Substantial investment was made during the second half of the 1990’s primarily in the overhaul and modern- isation of the instrumentation involved in research and development, in quality assurance and control, and in 80 improving the efficiency of production.

40 In 2000 a new tablet-compressing facility with an annual production capacity of 2 billion tablets was installed in the Budapest factory for the manufacture of gynaecological products. Similar facilities are operated only by a few 0 multinational companies worldwide. In addition, a steroid production facility meeting in all respects the latest 95 96 97 98 99 00 01 02 03 04 05 production and environmental requirements has been established at the Dorog plant. These new facilities are supplemented with modern pilot plants ensuring that production of both active pharmaceutical ingredients and finished products is carried out according to current Good Manufacturing Practice (cGMP) at an early stage of Performance of sales of gynaecological products and current shares of turnover within each region differs. However, development. These substantial investments are instrumental in enabling the Company to manufacture high quality these products represent a major contribution to success on all markets for the Company. products which satisfy the increasingly demanding regulatory standards. In order to validate compliance, Richter facilities are regularly inspected not only by the Hungarian (National Institute of Pharmacy) and EU authorities but While overall sales of gynaecological products increased only 4.6 percent in 2005, this is impacted by the decline also by the FDA (Food and Drug Administration) of the USA and several other quality controlling institutions in API sales to the USA. Gynaecological finished-form product sales increased significantly to both our domestic and appointed by various Western European companies with which we collaborate. Richter production facilities export markets. A detailed summary of the Company’s main gynaecological products by region is presented in continually meet the highest quality requirements. the following table on next page.

40 UNCONSOLIDATED REPORT OPERATING REVIEW UNCONSOLIDATED REPORT OPERATING REVIEW 41 Main gynaecological products of Gedeon Richter

In line with its strategy the Company further enlarged and improved its women’s healthcare supply by product Product Active ingredients Product type Regions where launched (1) launches in 2005 including the third generation oral contraceptive MILLIGEST containing gestodene and the hor- mone replacement therapy patch FEMSEVEN COMBI. MILLIGEST gestodene + Third generation Hungary ethinyl estradiol oral contraception An excellent 25.9 percent sales growth of female healthcare products was reported in 2005 in the EU member LINDYNETTE gestodene + Third generation Hungary; CIS; EU; ethinyl estradiol oral contraception Other countries states. The sales performance of the range of our contraceptive products in Central and Eastern European countries reflected the favourable impact of the efficiency of the specialised sales force teams set up in 2000, while REGULON desogestrel + Third generation Hungary; CIS; EU; ethinyl estradiol oral contraception Other countries shipments in finished form to Western European countries also showed outstanding results. In the CIS sales of gynaecological products represented 18 percent of the Company's total sales and due to its 18.5 percent sales NOVYNETTE desogestrel + Third generation Hungary; CIS; EU; ethinyl estradiol oral contraception Other countries increase, the product group was one of the important elements of growth in the region. We anticipate that per capita use of oral contraceptives in Central and Eastern Europe and in the CIS will rise steadily in the next few years. RIGEVIDON levonorgestrel + Second generation Hungary; CIS; EU; ethinyl estradiol oral contraception Other countries It is currently at a significantly lower level than in many European countries. This is expected to provide further opportunities for the Company to expand its female healthcare business. TRI REGOL levonorgestrel + Second generation Hungary; CIS; EU; ethinyl estradio oral contraception Other countries Gedeon Richter’s main strategic partner for API sales is the US based Barr Laboratories, Inc., the second largest player OVIDON levonorgestrel + Second generation Hungary; CIS; ethinyl estradiol oral contraception Other countries by value according to IMS statistics on the hormonal contraceptive market in the USA. Our Company currently supplies steroid APIs for nine of Barr's range of oral contraceptive products. Beside bulk supply we sell also an ANTEOVIN levonorgestrel + Second generation Hungary; CIS; EU ethinyl estradiol oral contraception emergency contraceptive in finished form to the company. Steroid API shipments to Ortho-McNeil Pharmaceuticals, a Johnson and Johnson subsidiary in the USA which specialises in female healthcare also continued during the year. ESCAPELLE levonorgestrel Emergency Hungary; CIS; EU; (LEVONELLE ONE STEP in the EU) contraception Other countries However, sales levels were lower in 2005 than in 2004. POSTINOR levonorgestrel Emergency Hungary; CIS; EU; USA; (RIGESOFT in Hungary, contraception Other countries LEVONELLE-2 in the EU, PLAN B in the USA) FEMSEVEN COMBI (2) estradiol + Hormone replacement Hungary levonorgestrel therapy (patch) FEMSEVEN (2) estradiol Hormone replacement Hungary; EU; therapy (patch) Other countries TRIAKLIM estradiol + Hormone replacement Hungary; CIS; EU norethisterone acetate therapy ESTRIMAX estradiol Hormone replacement Hungary; CIS; EU therapy PAUSOGEST estradiol Hormone replacement Hungary; CIS; EU; therapy Other countries GYNAZOL (2) butoconazole Antifungal Hungary; CIS; EU; (cream) Other countries MYCOSYST GYNO fluconazole Antifungal Hungary; CIS; EU; Other countries bulk products Oral contraception EU; USA; Other countries

Notes: (1) Products are launched in certain countries of the given region. (2) Licenced-in products.

42 UNCONSOLIDATED REPORT OPERATING REVIEW UNCONSOLIDATED REPORT OPERATING REVIEW 43 PRODUCTS Main licencing-in partners of Gedeon Richter

Gedeon Richter, as a vertically integrated medium-sized independent pharmaceutical company in Central Europe Company Country Product Therapeutic area focuses on those therapeutic categories where it has unique chemistry knowledge recognised worldwide in Pliva Croatia ATORVOX Cholesterol lowering order to continue its business expansion. During 2005 the Company expanded successfully its portfolio with both Biogen Idec USA AVONEX Multiple sclerosis promising generic and licenced-in products while drugs launched in previous years achieved outstanding results in KV Pharmaceutical USA GYNAZOL Gynaecology, antifungal, ever more competitive market conditions. CLINDESSE antibacterial Almirall Prodesfarma Spain AFLAMIN Antiinflammatory Based on its specialised chemistry and process development experience the Company concentrates on female Merck KGaA Germany FEMSEVEN Gynaecology, healthcare with its original research focused on diseases of the Central Nervous System (CNS). Beyond these two FEMSEVEN COMBI hormone replacement therapy areas, Gedeon Richter is knowledgeable and successful in developing products in other therapeutic fields, notably FEMSEVEN EVO the cardiovascular and gastrointestinal areas. Takeda Japan LANSONE Gastrointestinal, antiulcer Astellas Japan SUPRAX Antibiotic In line with the Company's aim to continuously renew its product portfolio, we launched five drugs in Hungary Lek Slovenia AKTIL Antibiotic during 2005. Janssen Belgium several products Central Nervous System, antifungal, antibacterial The product portfolio by type remained relatively steady in the past decade. In 2005 17 percent of total sales was Sanofi-Aventis France TARIVID Antibiotic generated by products originating from the Company's original research and a 70 percent share was accounted Fournier France LIPIDIL, LIPANTHYL Lipid lowering agents for by reproduction and generic products. A further 13 percent of the sales revenue was attributable to products Pierre Fabre France TARDYFERON Iron supplement licenced-in from numerous international companies, most of which are listed on next page.

The Company has successfully enhanced its product portfolio since the mid 1990's and continues to do so, Products by type withdrawing low volume and low margin products and introducing new products with improved profit potential. Progress by the Company in increasing sales of new products continued in 2005, as products launched since the 2005 Reproduction / 1995 Reproduction / mid 1990's represented 47 percent of the Company's total sales. Generic Generic 70 % 62 % Sales of new products by region in 2005 Own-developed Own-developed compounds compounds 17 % 22 % Share within region sales Change in sales in US$ terms Hungary 70 % 21.6 % CIS 35 % 68.7 % Licenced-in Licenced-in products products EU 51 % 33.9 % 13 % 16 % USA 39 % -25.0 % Other countries 22 % 35.7 % Total 47 % 26.3 %

44 UNCONSOLIDATED REPORT OPERATING REVIEW UNCONSOLIDATED REPORT OPERATING REVIEW 45 Products which Gedeon Richter Ltd. introduced in the last decade had a significant impact on the composition We are pleased to report a new and successful launch during the year: the antifungal TERBISIL, containing terbina- of the Company’s portfolio by therapeutic group and resulted in substantial changes compared to 1995. fine, was marketed in tablet form via partners to certain Western European countries mainly to Germany and the UK following its patent expiry in August 2005. Substantial shipments were realised in the second half of the year. The Company’s other antifungal product, MYCOSYST, containing fluconazole, reported also significantly higher Products by therapeutic group sales levels in 2005 based on good performance primarily on our traditional markets.

2005 Central Nervous 1995 Central Nervous System System Good sales of the muscle relaxant MYDETON, containing tolperisone (MYDOCALM in export markets), an original 17 % 28 % product of the Company, were recorded in 2005. Cardiovascular Cardiovascular 24 % 13 % Regarding those products which were launched in recent years on the Company’s markets, the multiple sclerosis Gynaecology Gynaecology 26 % 10 % drug AVONEX (interferon beta-1a) licenced-in from the US-based Biogen showed substantial growth during the year. Gastro- Gastro- intestinal intestinal 7% 9% Top 10 products Muscle relaxants Muscle relaxants 4% 5% Other Other 2005 2004 Change Product Active ingredients Therapeutic area 22 % 35 % HUF m HUF m HUF m % Oral hormones Gynaecology 32,146 31,537 609 1.9 contraceptives Drugs for diseases of the Central Nervous System accounted for 17 percent of total sales, the main contributor CAVINTON vinpocetine Central Nervous System 17,209 11,989 5,220 43.5 being our original product, CAVINTON, a cerebral oxygenation enhancer. Total sales of this product increased signifi- EDNYT / enalapril / lisinopril Cardiovascular, 16,160 13,611 2,549 18.7 cantly in 2005, compared to the previous year. Excellent sales of CAVINTON on the Company's traditional markets LISOPRESS antihypertensive were primarily due to its successful participation in the new reimbursement programme of the Russian government. QUAMATEL famotidine Gastrointestinal, antiulcer 8,623 8,366 257 3.1 NORMODIPINE amlodipine Cardiovascular, 8,197 7,740 457 5.9 Cardiovascular drugs continued to represent a high share of total sales, accounting for 24 percent of the Com- antihypertensive pany's sales in 2005. The ACE-inhibitor LISOPRESS, containing lisinopril, contributed significantly to the sales VEROSPIRON spironolactone Cardiovascular, diuretic 4,767 3,577 1,190 33.3 growth reported, particularly due to substantial shipments to the Company’s export markets (in certain cases under TERBISIL terbinafine Antifungal 4,494 1,691 2,803 165.8 the trademark DIROTON), mainly to Russia within the framework of the new subsidised medicine programme. MYDETON / tolperisone Muscle relaxant 4,355 4,217 138 3.3 Although sales of the Company's other ACE-inhibitor, EDNYT containing enalapril have reached maturity level, the MYDOCALM product contributed to the total sales achieved in 2005. One of the Company's most successful products has been MYCOSYST fluconazole Antifungal 3,701 2,959 742 25.1 NORMODIPINE, containing amlodipine, which has become the leading product on the domestic pharmaceutical PANANGIN asparaginates Cardiovascular 3,537 3,654 -117 -3.2 market some years after its introduction. Although the appearance of a few new generic amlodipine competitors Subtotal 103,189 89,341 13,848 15.5 in Hungary during recent quarters resulted in a moderate slowdown in the sales growth of the product, it has still Other 37,740 32,252 5,488 17.0 gained 50 percent of the total amlodipine market in Hungary. Two other recently launched antihypertensive Total 140,929 121,593 19,336 15.9 products LISONORM, a combination of lisinopril and amlodipine, and EDNYT HCT, containing enalapril and hydro- chlorothiazide, also boosted results. The diuretic VEROSPIRON containing spironolactone played a key role in all of our business regions and achieved significant sales growth. The performance of PANANGIN, containing aspa- raginates, marketed primarily in China and the CIS republics also contributed to the good results.

Gastrointestinal products represented 7 percent of total sales, the main contributor being the H2-blocker QUAMATEL, containing famotidine, which retained a market leadership position in its therapeutic category with good sales growth in Hungary and showed good results in the CIS and EU export markets.

46 UNCONSOLIDATED REPORT OPERATING REVIEW UNCONSOLIDATED REPORT OPERATING REVIEW 47 RESEARCH AND DEVELOPMENT PRODUCTION

Innovation and the research of original drug molecules have been a key element in the Company’s strategy since During the year the active pharmaceutical ingredient (API) production unit met all the demands made of it from its foundation in 1901. With a budget of more than US$ 60 million in 2005 and 750 employees in the field of both API exports and finished product manufacturing. The volume of finished products produced in 2005 research and development, Gedeon Richter Ltd. today is the most significant pharmaceutical research base in the increased compared to the previous year. Production of finished form drugs was particularly high in the first half Central and Eastern European region. of the year due to the Russian reimbursement programme implemented by the government in 2005. The packag- ing teams also successfully met record high demands created by growth in sales in most of our business regions. Original research activities are focused exclusively on diseases of the central nervous system (CNS), primarily The volume produced of solid form drugs, injections and creams all showed an increase in the reported year. on chronic pain, schizophrenia and anxiety. Out of a portfolio of approximately 17 ongoing projects one is in clinical phase II trials and two are in clinical phase I while the remainder are in the preclinical phase. The transfer of the production of steroid active ingredients from Budapest to the Dorog site was technically finished in 2005. By the end of 2007 we expect to have obtained all licenses required to commence commercial Between 2000 and 2004 considerable transformation and development work was carried out in the original manufacturing. research activity increasing the focus of innovation, scientific standards and speed. As a result we believe that with our first class research team, fulfilment of strict sector requirements, and excellent equipment, our research activity In order to meet international standards we pay particular attention to the prevention of environmental in some indication areas is a match for the leading companies in the pharmaceutical industry. The quality of our pollution. During the year we concluded several environmental safety investments, with special attention to the research portfolio has also improved substantially. field of waste water treatment.

Recognising that our resources are insufficient for the entire research and development process and the global The Hungarian OGYI (National Institute of Pharmacy) and pharmaceutical authorities from other countries success- marketing of a new molecule, the Company has considered it as a key target to find and establish research fully concluded several general audits at the Company’s facilities and operations. The Company was found to be partners. Initially at the end of 2004 and later in November 2005 we signed research agreements with the operating according to required standards in all instances. US-based Forest Laboratories. We continue to collaborate on clinical studies of our RGH-896 pain relief and RGH-188 antipsychotic, and on research of our mGLUR1/5 antagonist molecule for the treatment of anxiety.

Based on experience accumulated during decades in the field of biotechnology, we have established a biotech- nological pilot plant which gives us the possibility to develop protein based and other compounds. The new pilot plant was opened in November 2005.

High quality laboratories are essential for any successful research activity. Following a three-year modernisation programme of our pharmacological facilities we started the construction of a new experimental technological laboratory where high quality APIs would be produced on kilogram scale which are suitable for clinical trials. The laboratory is expected to start operating in 2006. We have also started the construction work on a chemical – analytical research centre that meets the highest quality and technological requirements, together with related offices. This building project is expected to be completed in 2007.

Development work in several therapeutic areas continued during 2005. The Company’s target is to launch 5-7 new generic and branded generic products per year on its traditional markets, i.e. Hungary, CEE and CIS. Process devel- opment activities and bioequivalence studies on several active pharmaceutical ingredients and finished products continued so as to create opportunities for further product introductions in the USA and EU markets.

In 2005 the product development units of our Polish and Romanian subsidiaries also worked on generic devel- opment projects.

The Company reported in 2005 a 16.6 percent increase in its spending on research and development which totalled HUF 12,167 million (US$ 60.9 million), representing 8.6 percent of total sales.

48 UNCONSOLIDATED REPORT OPERATING REVIEW UNCONSOLIDATED REPORT OPERATING REVIEW 49 CORPORATE SOCIAL RESPONSIBILITY

Each pharmaceutical manufacturer has to pay particular attention to social and environmental standards. The health As a part of our employee care system we have earlier set up regular assessments for employees who work in front and welfare of society are highly dependent on the quality of drugs produced by the sector and on innovation of computer screens and we continuously provide and monitor the healthy and safe conditions for activities carried activity by pharmaceutical companies. Not only the patient but our whole society and national economy benefits out at computer workstations. from new products of higher quality which help people keep their health and condition. Environmental responsibility has equal importance. Utilising a wide range of potentially hazardous chemicals, and conducting activities which result in emission of materials with a safe but certain environmental load, every pharmaceutical manufacturer has to consider environmental standards as key important issues. COMMUNITY INVOLVEMENT

Gedeon Richter is fully aware of its responsibility towards society and the great importance of protecting the Gedeon Richter Ltd. has always been aware of the importance of good relationships with people both inside and environment. The above mentioned requirements are completely in line with the operating philosophy of our outside the Company. We recognise that as a leading pharmaceutical manufacturer and employer in Hungary it is Company. Improving the quality of human life and operating in an environmentally responsible manner are our responsibility to maintain dialogue with the society at large and with those who have an interest in the objectives of primary focus in our business. Company’s activities. In this respect Gedeon Richter supports projects in the areas of healthcare, science and education. To encourage young people’s interests we sponsor a range of science-based school programmes, We are subject to extensive regulation in the field of quality and environmental, health and safety matters in including chemistry education in secondary schools and university programmes, e.g. at the Budapest University of the countries where we manufacture and market our products. Our aim is to set and maintain high standards Technology and Economics and the University of Medical Science. On the occasion of its centenary in 2001 the in respect of social responsibility worldwide ensuring that Gedeon Richter meets both national and inter- Company created a foundation which has as its aim the support of scientific research and university education in national legal standards. the field of pharmaceutical research. The Company also supports health education initiatives designed to increase awareness of certain healthcare issues, notably those related to women's healthcare and fungal diseases, as well as conferences, scientific forums in the field of healthcare and other related areas.

SAFETY, HEALTH AND ENVIRONMENT

Having as a key objective to fulfil safety, health and environment requirements the Company operates in line with strict standards. We believe that ensuring the health of our employees and creating safety in the manufacturing facilities form the basis for effective and successful production. The high quality and safety of the workplace contributes not only to better performance but also creates a better atmosphere which determines the motivation and satisfaction of employees. The Company regularly organises training for colleagues in the field of safety in the workplace and makes every effort to prevent injuries and work-related accidents. All of our efforts are part of an integral employee care system which meets the highest standards.

In previous years we have carried out several projects with the aim of improving the Company’s performance in the field of environmental safety. In 2005 we continued to pay particular attention to the environmental impact of the Company’s manufacturing activities in all our production sites. During the year our Dorog site also received the Integrated Pollution Prevention and Control (IPPC) authorization. As a result both of our Hungarian manufacturing sites are fully in line with domestic and international environmental legal standards. To maintain this level of safety we implement all necessary technical upgrading every year. In 2005 construction of a new waste water pre- treatment unit in Budapest was completed and currently the testing trials are ongoing. Significant reconstruction and upgrading was also carried out at our waste water treatment facility at the Dorog site.

In order to continuously improve our environmental performance we maintain an Environmental Management System in accordance with ISO 14001 standard. The adequacy of the system is justified by an international body that first issued the certificate in 2001. We continuously maintain dialogue with civil organizations, e.g. the Environmental Protection Association of Dorog, which monitors industrial activities in the city.

50 UNCONSOLIDATED REPORT OPERATING REVIEW UNCONSOLIDATED REPORT OPERATING REVIEW 51 HUMAN RESOURCES

The Company’s strategic priorities include an enabling strategy of developing and improving operational The proportion of skilled employees at the Company in 2005 did not increase significantly as in the previous capabilities. The human capital of Gedeon Richter is fundamental to the continuous success of the business, and year. 1,434 graduate educated personnel were employed by Gedeon Richter in Hungary at the end 2005, 82 more is represented by the potential of the scientific, commercial and financial assets of the Company. than at the end 2004 and these represented 65 percent of white collar staff and 29 percent of the total number of employees. Human resources need capital, investment and managing as with other resources. To achieve this, we are committed to seeking and engaging the best employment candidates who reflect a diversity of backgrounds, Proportion of graduates experience and perspectives and who can contribute most to the success of the Company.

70 % We aim to ensure that our business leaders have a common understanding of what is required to inspire delivery of our core values. Programmes are designed to help managers to develop their competences and sound professional knowledge. Management training programmes continued in 2005 and involved all managers of the 65 % Company both at middle and senior levels. For those managers who have been appointed within the last three years, a special manager training programme was implemented in 2005 to identify and prepare the key talent 60 % necessary for growing our business. A Welcome programme for young emloyees aims at giving an insight into the forms of organisation of Gedeon Richter and its activities and sharing company culture and values. 55 %

Employees 50 % Number of staff 95 96 97 98 99 00 01 02 03 04 05 6,000 All staff Note: Within the white collar staff in Hungary. 5,000 Employees in Hungary 4,000 Our well-being programmes, e.g. access to fitness facilities, are planned to promote physical and psychological welfare and to help our employees cope with their demanding jobs and busy lives. 3,000 White collar staff in Hungary In order to encourage personal development the Company continued during 2005 to support employees studying 2,000 foreign languages, participation in PhD courses and computer user training programmes. In 2005 Richter put in 1,000 Graduates place the first steps of a new form of education, e-learning. in Hungary 0 95 96 97 98 99 00 01 02 03 04 05

The importance of people must translate into employment practices that demonstrate the value of each individual. Compensation philosophy and experience support Gedeon Richter's commitment to a performance culture. Performance based pay, both base and variable, share awards, other benefits, career development planning and education all contribute to the retention of key talent, superior performance and the accomplishment of business targets.

All Gedeon Richter employees participate in an individual appraisal process. This helps employees set objectives and helps them identify the training they need to develop their careers.

The total headcount for the Company was 5,867 at the end of 2005. In Hungary Gedeon Richter's headcount totalled 4,873 an increase of 116 compared with December 2004 due to both the expansion of Research and Devel- opment staff in Hungary and additional sales and marketing force. The Company's headcount at its international offices totalled 994 in 2005 and this represented an increase of 132 compared to 2004.

52 UNCONSOLIDATED REPORT OPERATING REVIEW UNCONSOLIDATED REPORT OPERATING REVIEW 53

FINANCIAL REVIEW FINANCIAL ITEMS

KEY FINANCIAL DATA Net financial income

2005 2004 Growth 2005 2004 Change 2005 2004 Change 2005 2004 Change HUF m HUF m % US$ m US$ m % HUF m HUF m HUF m US$ m US$ m US$ m Total sales 140,929 121,593 15.9 705.7 599.0 17.8 Results of the forward -1,171 1,391 -2,562 -5.9 6.8 -12.7 Gross profit 86,435 73,780 17.2 432.8 363.5 19.1 exchange contracts Gross margin % 61.3 60.7 61.3 60.7 Net interest income 2,711 3,304 -593 13.6 16.3 -2.7 Operating profit 37,364 35,008 6.7 187.1 172.4 8.5 Dividends 674 628 46 3.4 3.1 0.3 Operating margin % 26.5 28.8 26.5 28.8 Exchange gains / losses realised 2,191 -1,756 3,947 11.0 -8.6 19.6 Profit before taxation 43,623 37,467 16.4 218.4 184.6 18.3 on trade receivables and trade payables Net profit 43,623 37,475 16.4 218.4 184.6 18.3 Exchange gain on conversion 569 52 517 2.8 0.3 2.5 Net margin % 31.0 30.8 31.0 30.8 Impairment loss of investments -335 -180 -155 -1.7 -0.9 -0.8 Earnings per share (EPS; HUF, US$)* 2,341 2,011 16.4 11.72 9.91 18.3 Reassessment of currency 1,504 -1,158 2,662 7.5 -5.7 13.2 related items Total assets and total shareholders' 265,220 227.620 16.5 1,239.9 1,262.5 -1.8 Other financial items 116 178 -62 0.6 0.9 -0.3 equity and liabilities Net financial income 6,259 2,459 3,800 31.3 12.2 19.1 Shareholders' equity 246,239 211,294 16.5 1,151.2 1,171.9 -1.8 Capital expenditure 25,799 24,259 6.3 129.2 119.5 8.1 Net financial income in 2005 totalled HUF 6,259 million (US$ 31.3 million), reflecting an increase of HUF 3,800 million (US$ 19.1 million) when compared to HUF 2,459 million (US$ 12.2 million) reported in 2004. Number of employees at year-end 5,867 5,619 4.4 At 31 December 2004 we closed all our forward exchange contracts. During 2005 we concluded at various

* Note: Headline, i.e. diluted excluding exceptional and non-recurring items. dates US$ / HUF and US$ / EUR forward option contracts. In order to minimise risks arising from a potential weakening of the US$ exchange rate we have concluded forward option contracts exclusively in US$ / EUR for the year 2006. GROSS PROFIT

Gross profit totalled HUF 86,435 million (US$ 432.8 million) in 2005 compared with HUF 73,780 million Result from forward exchange contracts (US$ 363.5 million) in 2004.

2005 2004 Change 2005 2004 Change Gross margins increased to 61.3 percent from 60.7 percent in the prior year. Improvements in product mix and HUF m HUF m HUF m US$ m US$ m US$ m good sales growth in the CIS more than offset the slight depreciation of the US$ exchange rate and the slowdown Reversal of opening fair value - -1,820 1,820 - -9.0 9.0 in sales recorded in certain export markets. of forward exchange contracts

OPERATING PROFIT Realised forward exchange -962 3,211 -4,173 -4.8 15.8 -20.6 contracts during the year Closing fair value of forward -209 - -209 -1.1 - -1.1 Operating profit at HUF 37,364 million (US$ 187.1 million) increased 6.7 percent from the HUF 35,008 million exchange contracts reported in 2004. In US$ terms it increased by US$ 14.7 million (8.5 percent). Operating profit was positively im- Results of the forward -1,171 1,391 -2,562 -5.9 6.8 -12.7 pacted by income generated from an out of court settlement, from our research co-operation agreements and from exchange contracts an impairment loss on commercial credits. These items were recorded mainly in the fourth quarter of the year and generated in aggregate a one-off benefit in the value of HUF 2.1 billion, while it amounted to HUF 3.5 billion in the previous year. Due to the improvement of the US$ exchange rate the realised US$ / EUR forward exchange contracts and the re- assessment of open contracts on 31 December 2005 resultedin a financial loss of HUF 1,171 million (US$ 5.9 million) Operating margins for the twelve months to December 2005 were 26.5 percent compared with 28.8 percent compared with the financial gain of HUF 1,391 million (US$ 6.8 million) achieved in the previous year. It is important in the prior year. Improvements in product mix were more than offset by higher sales and marketing expenses. to note that the loss resulting from forward exchange contracts, however, was more than offset by gains realised In addition, the impact of the above-mentioned one-off items in Administrative and General Expenses which on trade receivables and the reassessment of currency related trade receivables, trade payables and other currency influenced positively the operating profit was less in 2005 than during 2004. related items (loans receivables, foreign currency deposits, etc.).

56 UNCONSOLIDATED REPORT FINANCIAL REVIEW UNCONSOLIDATED REPORT FINANCIAL REVIEW 57 INCOME TAX

Net interest income including interest income resulting from movement in the net value of open-ended bond From 1 January 2004, as a result of its capital expenditure programme and increase in the number of employees, funds amounted to HUF 2,711 million (US$ 13.6 million) in 2005 compared to the HUF 3,304 million (US$ 16.3 mil- the Company has benefitted and expects to benefit from a 100 percent tax holiday for the next few years, in the best lion) in 2004. The reduction in the income was due to lower interest rates. case scenario until 2011. In 2005 the Company did not report any deferred tax obligations, while a HUF 8 million (US$ 0.04 million) deferred tax was realised in 2004. Foreign manufacturing subsidiaries improved their performance significantly during 2005. The businesses of GZF Polfa and Gedeon Richter Romania produced profits by the end of the year, and Gedeon Richter-RUS closed the year only slightly in deficit. In accordance with good accounting practice the Company’s Management considers it prudent BALANCE SHEET to account for a RUR 28.1 million impairment loss reflecting a cost of HUF 309 million at Gedeon Richter-RUS for the year 2005. In 2006 we expect further efficiency improvement at Gedeon Richter-RUS. The Company additionally Total assets and total shareholders' equity and liabilities amounted to HUF 265,220 million on 31 December accounted for AZM 396 million and HUF 23 million at Vita-Richter (Azerbaijan), GEL 13 thousands and HUF 2 mil- 2005, an increase of HUF 37,600 million over the totals reported at 31 December 2004. lion at P.S.P. Richter (Georgia) and HUF 1 million impairment at Richter Szolgáltató Kft. Non-current assets amounted to HUF 142,539 million representing an increase of 11.6 percent due to increased Net financial income includes revaluation gains resulting from the reassessment of currency related items at levels of Property, plant and equipment and Loans receivable when compared with 31 December 2004. 31 December 2005 of HUF 1,504 million (US$ 7.5 million), while we realised revaluation losses of HUF 1,158 million (US$ 5.7 million) in 2004. Current assets at HUF 122,681 million at the end of 2005 were 22.8 percent higher than the level reported at 31 December 2004, primarily due to an increase in Trade receivables and Inventories. The significant increase was Reassessment of currency related items the result of the higher sales levels recorded and the shipments delivered to Russia under the new reimbursement scheme established for socially handicapped people.

2005 2004 Growth 2005 2004 Growth Shareholders' equity amounted to HUF 246,239 million which represented a 16.5 percent increase compared to HUF m HUF m HUF m US$ m US$ m US$ m the level at 31 December 2004, primarily due to the higher levels of Retained earnings. Reassessment of foreign currency 675 -260 935 3.4 -1.3 4.7 loans receivables Current liabilities at HUF 18,981 million on 31 December 2005 were 16.3 percent higher than at 31 December 2004 Reassessment of currency related trade 574 -639 1,213 2.9 -3.1 6.0 mainly due to an increase of Trade payables and Other payables when compared to 2004 year-end. receivables and trade payables Reassessment of other currency 255 -259 514 1.2 -1.3 2.5 related items CASH FLOW Reassessment of currency related items 1,504 -1,158 2,662 7.5 -5.7 13.2

2005 2004 Exchange gains realised on trade receivables and trade payables together with reported gains resulting from HUF m HUF m reassessment of currency related trade receivables and trade payables are due to the fluctuation of exchange rates Net cash flow during the year, as shown in the following table. From operating activities 34,491 44,562 From investing activities -17,543 -22,620 Exchange rate movements From financing activities -11,108 -12,460 Total 5,840 9,482

31 December 31 March 30 June 30 September 31 December 2004 2005 2005 2005 2005 As indicated by the cash flow statement, during 2005 the Company generated net cash from operating activities EUR / HUF 246.35 246.98 247.48 249.78 253.00 of HUF 34,491 million (US$ 172.7 million). Higher levels of working capital decreased the net cash flow while inter- US$ / HUF 180.43 190.57 204.79 207.24 213.85 est and similar income increased it by HUF 7,980 million during 2005. Significant amounts have been directed to- wards investments in fixed assets and the payment of dividends. Overall, cash increased by HUF 5,840 million in 2005.

58 UNCONSOLIDATED REPORT FINANCIAL REVIEW UNCONSOLIDATED REPORT FINANCIAL REVIEW 59 CAPITAL EXPENDITURE TREASURY POLICY

Capital expenditure in 2005 totalled HUF 25,799 million (US$ 129.2 million), compared to HUF 24,259 million The Company's treasury activities are co-ordinated and managed in accordance with procedures approved by (US$ 119.5 million) reported for 2004. The transfer of the production of steroid active ingredients from Budapest the Board of Directors. The treasury function of the Company maintains responsibility for the financing of its to the Dorog site was technically finished in 2005. At the same time we increased the Company’s steroid activities both on the domestic market and in the export regions and the administration of trade receivables production capacity. Installation of manufacturing facilities of steroid based APIs at Dorog has been concluded and trade payables. It also manages exchange rate risks relating to the Company's operations and ensures and manufacturing activities are being gradually transferred from Budapest. By the end of 2007 we expect to appropriate financial income via investing temporarily free cash through bank deposits and open-ended funds obtain all licenses required for the completion of the transfer of the manufacturing. and government securities.

During 2005 we continued the necessary technical improvements in line with GMP, environmental, safety and Considering that more than 70 percent of the Company's turnover is realised in various currencies, almost half employee care standards. Similar to previous years we have paid particular attention to the modernisation of of which in US dollars, while its costs are incurred in Hungarian forints, the Company's operating profit is exposed instruments in the research and quality control departments while in the area of finished product manu- to currency fluctuations. To manage this exposure, the Board of Directors has approved a strategy of foreign facturing an expansion of the dispensing unit for solid compounds started in 2005 and a new plastic bottle exchange rate exposure risk reduction, in which forward and option contracts used for hedging purposes filling machine was installed. Construction work on a new chemical research centre and related office building are to be employed. started in 2005. This project is expected to be completed in 2007. In accordance with a policy approved by the Board of Directors in January 2000, the Company has concluded forward exchange contracts to manage its exposure to fluctuations in exchange rates. As at 31 December 2004 Capital expenditure analysed by function 2005 the Company did not have any open forward exchange contracts. During 2005 we concluded at various dates US$ / HUF and US$ / EUR forward option contracts for 2005 and 2006. In order to minimise risks arising Research and Development 19 % from a potential weakening of the US$ exchange rate we have concluded forward contracts denominated exclusively in US$ / EUR for the year 2006. Logistics 15 % Trading in a number of countries served by the Company may give rise to sovereign risk and economic uncertainty. Trade credit risks and related provisions are closely monitored and subject to executive director supervision. Production 46 % Environmental 5 %

IT 4 %

Other 11 %

In order to meet all requirements of the Russian reimbursement programme we prepared for the expansion of packaging activities carried out at our Russian subsidiary, Gedeon Richter-RUS.

In 2004 the Company signed an agreement which established a joint venture in India with Themis Ltd. for the production of active pharmaceutical ingredients and intermediates. Construction work has been completed and commissioning of the new plant is under way. It is expected to start regular operations in the second half of 2006.

60 UNCONSOLIDATED REPORT FINANCIAL REVIEW UNCONSOLIDATED REPORT FINANCIAL REVIEW 61 CORPORATE MATTERS Detailed ownership structure as of 31 December 2005

Ordinary shares Voting Preference Total Registered PREFERENCE SHARES capital (1) shares shares capital Number % Number Number % Preference shareholders are entitled to initiate conversion of their shares into ordinary shares. It is the Board of Director's responsibility to determine the terms of the conversion which must be approved by the Company's Annual Domestic investors General Meeting. The AGM on 27 April 2005 approved the conversion of 2,678 preference shares into registered ÁPV Rt. 4,659,373 25.01 - 4,659,373 25.00 ordinary shares. Local Governments 44,719 0.24 - 44,719 0.24 Institutional investors 1,077,331 5.78 - 1,077,331 5.78 Dematerialisation of the converted shares and listing at the BSE of the new shares took place with effect from Private investors 369,857 1.99 4,341 374,198 2.01 14 July 2005 following registration by the Registry Court. A value difference of HUF 2,000 per share, totalling Total 6,151,280 33.02 4,341 6,155,621 33.03 HUF 5 million was deposited with the Company and has been accounted as a share premium.

Foreign investors Shares in issue Institutional investors 12,472,011 66.94 - 12,472,011 66.92 The Bank of New York (2) 3,760,404 20.18 - 3,760,404 20.18 31 December 2005 31 December 2004 Private investors 7,339 0.04 10 7,349 0.04 Shares is issue Number Nominal value % Number Nominal value % Total 12,479,350 66.98 10 12,479,360 66.96 (HUF '000) (HUF '000) Ordinary shares 18,633,135 18,633,135 99.9 18,630,457 18,630,457 99.9 Treasury shares 2,505 0.00 - 2,505 0.01 Preference shares 4,351 4,351 0.1 7,029 7,029 0.1 Total shares 18,637,486 18,637,486 100.0 18,637,486 18,637,486 100.0 Registered capital 18,633,135 100.00 4,351 18,637,486 100.00

Notes: (1) Treasury shares are not included in the voting capital. (2) Apart from the foreign nominee company and ÁPV Rt. no other shareholdings reported to be above 5 percent. REGISTERED SHAREHOLDERS

There were no significant changes relating to the shareholder structure of the Company during 2005. The share held by the Hungarian Privatisation and State Holding Company (ÁPV Rt.) remained at 25 percent, the same level as at 31 December 2004. The proportion held by domestic investors decreased by 5 percentage points (to 8 percent) while at the same time the share held by foreign investors increased to 67 percent.

Ownership structure as of 31 December 2005

ÁPV Rt. (Hungarian Privatisation and State Holding Company) Foreign investors 25 % 67 % Domestic Investors 8%

62 UNCONSOLIDATED REPORT CORPORATE MATTERS UNCONSOLIDATED REPORT CORPORATE MATTERS 63 TREASURY SHARES OTHER INFORMATION

Shares held by the Company in Treasury decreased during 2005 to 2,505 ordinary shares. The Company purchased • The following table shows the extraordinary press releases published by Gedeon Richter Ltd. during the period. 50,000 Treasury shares at the Budapest Stock Exchange during 2005 as well as a further 36,623 treasury shares on Detailed information can be found on the Company’s homepage (www.richter.hu), on the website of the the OTC market. Based on decisions of the Board of Directors of Gedeon Richter Ltd., 75,975 shares held by the Budapest Stock Exchange (www.bet.hu) and in the Hungarian language newspaper ‘Magyar Tôkepiac‘. Company in Treasury were granted to employees participating in the bonus share programme, to qualified employees as bonuses and to members of the Board of Directors. Extraordinary press releases

Shares held by the Company in Treasury Date Subject matter, brief summary 26 January 2005 Announcement re share conversion 31 December 2005 31 December 2004 29 April 2005 Resolutions of the 2005 Annual General Meeting Number 2,505 31,552 18 May 2005 Payment of dividends Nominal value (HUF '000) 2,505 31,552 3 June 2005 Press release on reimbursement programme in Russia Book value (HUF '000) 99,896 689,420 9 June 2005 Temporary court ruling regarding patent infringement of Merck's alendronate containing product 15 July 2005 Conversion of converted preference shares into dematerialised ordinary shares Due to a repurchase obligation stipulated in the programme approved by the Ministry of Finance related to 28 November 2005 Forest-Richter Agreement employee share bonuses, the Company repurchased 1,909 shares from employees who resigned from the 4 January 2006 Change in the position of the Deputy Managing Director Company during 2005. with responsibility for Commerce and Marketing 18 January 2006 Favourable court ruling regarding the patent infringement of Merck's In line with a programme approved by the Ministry of Finance related to employee share bonuses, on 19 December alendronate containing product 2005 the Company granted 41,604 shares to 4,769 of its employees. These shares will be deposited at the em- 15 February 2006 KV Pharmaceutical Company-Richter Agreement ployees’ individual securities accounts at HVB Bank Hungary until restrictions expire on 2 January 2008.

On 2 January 2006, the Company removed all restrictions on 61,812 Gedeon Richter ordinary shares granted • The Company has used the opportunity given by the Hungarian Accounting Law to prepare its consolidated to its employees on 17 December 2003, during the first year of a three-year programme approved by the financial statements for year 2005 only based on the IFRS requirements. Audited consolidated financial state- Ministry of Finance. ments based on IFRS requirements for year 2005 include all the subsidiaries, joint ventures and associated companies of the Company. (Details are available on page 83 onwards.)

SHARE OWNERSHIP OF THE COMPANY'S BOARDS RECENT LITIGATION

Membership of the Company’s Boards is shown on pages 8-13 of the Annual Report. • Merck & Co., Inc., as plaintiff, in its claim filed against the Company, as defendant, before the Metropolitan Court under No. 3.P.24.017/2005 on 7 April 2005, requested the establishment of the infringement of its patent regis- Ordinary shareholdings by the Company’s Boards tered under no. 211.908 protecting the production of alendronat by the production and distribution of the Com- pany's product SEDRON. The Metropolitan Court, in its order delivered on 9 June 2005, as interim measures, prohibited the Company from manufacturing and distributing SEDRON products and simultaneously ordered the 31 December 2005 31 December 2004 plaintiff to deposit HUF 3 billion as security. Number of ordinary shares Number of ordinary shares Board of Directors 7,279 10,531 In the proceedings initiated for the nullification of Merck's patent by the Company in April 2003, at the hearing of Supervisory Committee 1,486 3,333 17 January 2006, the Metropolitan Court of Appeals announced its final and binding ruling and nullified Merck's Executive Board 2,813 7,026 patent with retrospective effect. Therefore, the claim for infringement has no legal basis. (The written decision of Total 11,578 20,890 the Metropolitan Court of Appeals will be delivered at a later date.)

64 UNCONSOLIDATED REPORT CORPORATE MATTERS UNCONSOLIDATED REPORT CORPORATE MATTERS 65 Considering the final and binding retrospective nullification of Merck's patent, on 18 January 2006, the Company requested the Metropolitan Court to set aside the interim injunction. Simultaneously, Merck also requested the ’revocation’ of the interim injunction and transferring back the security deposit in the amount of HUF 3 billion to MSD Finance Europe Ltd. In its order rendered on 30 January 2006 and delivered on 8 February 2006, the Metropolitan Court set aside the interim measure (a provision which became immediately enforceable), and furthermore, it dismissed the plaintiff’s claim with respect to transferring back the security deposit. The order can be appealed within 15 days.

In order to enforce its claim for damages arising from the interim injunction, the Company submitted a counter- claim on 1 February 2006 by requesting the Court to order Merck to pay to the Company HUF 3,503.5 million (i.e. three billion five hundred and three million five hundred thousand Forints), the interest with respect thereto as of 1 December 2005 and the costs of the proceedings. The Company intends to seek satisfaction of its claim from the security deposit. In the infringement proceedings, the Metropolitan Court held a hearing on 20 February 2006, where Merck disputed both the legal basis and the amount of the counterclaim. The Metropolitan Court set the next hearing for 3 April 2006.

• ÁPV Rt. (State Holding Company Ltd.) initiated a litigation proceedings before the Metropolitan Court against Magnezitipari Ltd. ’under liquidation’ as first defendant and the Company as second defendant in connection with a real estate purchased from Magnezitipari Ltd. ’under liquidation’ in the course of a liquidation procedure.

The Plaintiff requested that the Court establish that the real estate sale and purchase agreement concluded between the Company and the first defendant was null and void and order the defendants to restore the original status.

In the proceedings commenced by ÁPV Rt., the Economic Division of the Metropolitan Court, in its partial judgment dated 23 April 2002, rejected the Plaintiff’s claim requesting the Court to establish that the sale and purchase agreement was null and void. ÁPV Rt. filed an appeal against this partial judgment. The Supreme Court, as a court of second instance, in its judgment rendered on 28 April 2003, affirmed the partial judgment of the court of first instance which rejected the claim of ÁPV Rt. as plaintiff. This judgment may not be appealed; therefore, the partial judgment – relating to the rejection of the claim requesting the establishment of the agreement as null and void – is final and binding. With respect to the claim based on gross unfair difference between the value of the service and the consideration, the Metropolitan Court, following a suspension period in the proceedings, ordered the continuation of the proceedings.

The plaintiff proposed a motion for evidence and requested an expert's appraisal in order to establish the existence of a gross unfair difference between the value of the service and the consideration. The Metropolitan Court, in its order issued on 10 January 2004, rejected the Plaintiff's motion for expert's appraisal.

The Metropolitan Court rejected the claim of ÁPV Rt. at the hearing held on 13 April 2004. ÁPV Rt. filed an appeal against the judgment. Upon the joint request of the parties, the Metropolitan Court of Appeals ordered the suspension of the proceedings in its order dated 15 December 2004. ÁPV Rt. in its submission filed on 2 May 2005 requested the continuation of the proceedings, and thereafter, the parties again submitted a joint request for suspension on 12 September 2005. The Metropolitan Court of Appeals in its order dated 3 October 2005 established that the proceedings were suspended and that the litigation would be terminated following the six-month-suspension period.

66 UNCONSOLIDATED REPORT CORPORATE MATTERS UNCONSOLIDATEDCONSOLIDATED FINANCIAL STATEMENTS FINANCIAL STATEMENTS UNCONSOLIDATED STATEMENTS OF INCOME* UNCONSOLIDATED BALANCE SHEET

for the years ended 31 December 2005 2004 as at 31 December 2005 2005 HUF m HUF m HUF m HUF m

Sales 140,010 120,958 ASSETS Royalty and other similar income ,919 ,635 Non-current assets 142,539 127,707 Total sales 140,929 121,593 Property, plant and equipment 101,220 90,433 Cost of sales (54,494) (47,813) Intangible assets 2,177 1,811 Gross profit 86,435 73,780 Investments 35,012 34,454 Sales and marketing expenses (25,070) (20,314) Deferred tax assets ,498 ,498 Administration and general expenses (9,300) (8,898) Loans receivable 3,632 ,511 Research and development expenses (12,167) (10,432) Current assets 122,681 99,913 Other income and other expenses (2,534) ,872 Inventories 40,462 32,907 Operating profit 37,364 35,008 Trade receivables 29,979 19,354 Net financial income 6,259 2,459 Other receivables 7,682 6,098 Profit before taxation 43,623 37,467 Investments in securities 16,972 19,808 Income tax ,00- ,008 Cash and cash equivalents 27,586 21,746 Net profit for the year 43,623 37,475 Total Assets 265,220 227,620

Earnings per share (HUF) SHAREHOLDERS' EQUITY AND LIABILITIES Basic 2,345 2,014 Shareholders' equity 246,239 211,294 Diluted 2,341 2,011 Share capital 18,638 18,638 Share premium 15,207 15,202 Capital reserves 3,475 3,475 Treasury shares (100), (689), Fair value reserve ,164 ,136 Retained earnings 208,855 174,532 Non-current liabilities ,00- ,004 Borrowings ,00- ,004 Current liabilities 18,981 16,322 Borrowings ,004 ,007 Trade payables 12,132 10,784 Other payables 6,674 5,395 Provision ,171 ,136 Total shareholders' equity and liabilities 265,220 227,620

* Audited Unconsolidated Financial Statements of Gedeon Richter Ltd. for year 2005 prepared in accordance with the International Financial Reporting Standards (IFRS) are available at the Shareholders’ Relations Department of the Company (H-1103 Budapest, Gyömrôi út 8.).

68 UNCONSOLIDATED REPORT UNCONSOLIDATED FINANCIAL STATEMENTS UNCONSOLIDATED REPORT UNCONSOLIDATED FINANCIAL STATEMENTS 69 UNCONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY UNCONSOLIDATED CASH FLOW STATEMENTS

Share Share Capital Treasury Fair value Retained Total for the years ended 31 December 2005 2004 capital premium reserves shares reserve earnings HUF m HUF m HUF m HUF m HUF m HUF m HUF m HUF m HUF m Operating activities Balance at 31 December 2003 18,638 15,197 3,475 (506), .00,00- 145,246 182,050 Net profit from operating activities 37,364 35,008 Ordinary share dividend for 2003 ,00- ,00- ,00- .,00- .00,00- (8,188) (8,188) Depreciation and amortisation 14,119 11,727 Net profit for the year ,00- .,00- ,00- ,00- ,00- 37,475 37,475 Changes amount of receivables (12,209) (509), Fair value adjustment ,00- ,00- .00,00- ,00- ,136 ,00- ,136 Changes amount of inventories (7,555) (6,011) Dividend - preference shares ,00- ,00- .00,00- ,00- ,00- , (1) , (1) Changes amount of payables and other adjustments 2,663 3,955 Conversion of preference shares ,00- .00,005 .00,00- ,00- .,00- ,00- .,005 Tax paid .0,0(1) ,185 Treasury shares issued and purchased ,00- ,00- .00,00- (183), .,00- .,00- (183), Changes amount of disposal of property, plant and equipment ,110 ,207 Balance at 31 December 2004 18,638 15,202 3,475 (689), ,136 174,532 211,294 Net cash flow from operating activities 34,491 44,562 Ordinary share dividend for 2004 ,00- ,00- ,00- ,00- ,00- (9,299) (9,299) Net profit for the year ,00- .,00- ,00- ,00- ,00- 43,623 43,623 Investing activities Fair value adjustment ,00- ,00- .,00- ,00- .0,028 ,00- .0.0,028 Purchase of property, plant and equipment and intangible assets (25,798) (24,260) Dividend - preference shares ,00- ,00- ,00- ,00- ,00- .00, (1) .00, (1) Proceeds from disposal of property, plant and equipment ,416 ,131 Conversion of preference shares ,00- .00,005 .,00- ,00- ,00- ,00- .,005 Changes amount of non-current investments (558), (4,919) Treasury shares issued and purchased ,00- ,00- ,00- ,589 ,00- ,00- ,589 Changes amount of securities 2,864 (1,946) Balance at 31 December 2005 18,638 15,207 3,475 (100), ,164 208,855 246,239 Changes amount of loans receivable (3,121) ,192 Interest and similar income 7,980 7,554 Dividends received ,674 ,628 Net cash flow from investing activities (17,543) (22,620)

Financing activities Proceeds from conversion of preference shares ,005 ,005 Proceeds from disposal of Treasury shares ,589 (183), Other financial expenses (2,395) (4,094) Dividends paid (9,300) (8,182) Net repayment receipt of long-term borrowings , (7) , (6) Net cash flow from financing activities (11,108) (12,460)

Increase in cash and cash equivalents 5,840 9,482

Movement in cash and cash equivalents at beginning of year 21,746 12,264 Increase 5,403 9,668 Effects of exchange rates ,437 (186), Movement in cash and cash equivalents at end of year 27,586 21,746

70 UNCONSOLIDATED REPORT UNCONSOLIDATED FINANCIAL STATEMENTS UNCONSOLIDATED REPORT UNCONSOLIDATED FINANCIAL STATEMENTS 71 UNCONSOLIDATED FINANCIAL RECORD 1995-2005

STATEMENTS OF INCOME (HUF M) 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 for the years ended 31 December Total sales 27,394 36,764 52,016 55,063 59,554 74,107 88,731 99,308 116,659 121,593 140,929 Cost of sales (10,445) (14,250) (24,060) (24,630) (27,102) (29,598) (35,606) (40,076) (42,343) (47,813) (54,494) Gross profit 16,949 22,514 27,956 30,433 32,452 44,509 53,125 59,232 74,316 73,780 86,435 Operating expenses and other income and expenses (11,233) (13,483) (13,373) (17,159) (17,468) (23,310) (30,914) (34,089) (39,697) (38,772) (49,071) Operating profit 5,716 9,031 14,583 13,274 14,984 21,199 22,211 25,143 34,619 35,008 37,364 Royalty and other similar income ,270 ,720 ,536 ,282 ,384 ,549 ,201 , - ,, - , - , - Net financial income 1,023 1,263 3,384 3,731 2,488 (1,106) 4,008 4,567 1,713 2,459 6,259 Net other income / exceptional items ,881 ,257 ,152 , - , - , - , - , - , - , - , - Profit before taxation 7,890 11,271 18,655 17,287 17,816 20,642 26,420 29,710 36,332 37,467 43,623 Income tax , (5) , - , - ,300 (1,180) (1,528) (1,628) (1,530) (2,654) ,, 8 , - Net profit for the year 7,885 11,271 18,655 17,587 16,636 19,114 24,792 28,180 33,678 37,475 43,623

SHARE STATISTICS (HUF) Earnings per share ,397 ,624 1,017 ,944 ,893 1,026 1,330 1,512 1,807 2,011 2,341 Dividends per ordinary share ,100 ,160 ,270 ,230 ,240 ,250 ,310 ,330 ,440 ,500 ,600

STATEMENTS OF INCOME (US$ M) 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 for the years ended 31 December Total sales 222.0 246.7 278.6 258.4 250.4 261.9 309.6 389.1 520.8 599.0 705.7 Cost of sales (84.6) (95.6) (128.9) (115.6) (114.0) (104.6) (124.2) (157.0) (189.0) (235.5) (272.9) Gross profit 137.3 151.1 149.7 142.8 136.4 157.3 185.4 232.1 331.8 363.5 432.8 Operating expenses and other income and expenses (91.0) (90.5) (71.6) (80.5) (73.4) (82.4) (107.9) (133.6) (177.3) (191.1) (245.7) Operating profit 46.3 60.6 78.1 62.3 63.0 74.9 77.5 98.5 154.5 172.4 187.1 Royalty and other similar income 2.2 4.8 2.9 1.3 1.4 1.9 0.7 .- .- .- .- Net financial income 8.3 8.5 18.1 17.5 10.5 (3.9) 14.0 17.9 7.7 12.2 31.3 Net other income / exceptional items 7.1 1.7 0.8 .- .- .- .- .- .- .- .- Profit before taxation 63.9 75.6 99.9 81.1 74.9 72.9 92.2 116.4 162.2 184.6 218.4 Income tax .- .- .- 1.4 (4.9) (5.4) (5.7) (6.0) (11.9) .- .- Net profit for the year 63.9 75.6 99.9 82.5 70.0 67.5 86.5 110.4 150.3 184.6 218.4

SHARE STATISTICS (US$) Earnings per share 3.22 4.19 5.45 4.43 3.76 3.62 4.64 5.92 8.07 9.91 11.72 Dividends per ordinary share 0.81 1.07 1.45 1.08 1.01 0.88 1.08 1.29 1.96 2.46 3.00

Notes: • Figures for 1997 and 2002 have been restated. • Earnings per share: Headline, i.e. diluted excluding exceptional and non-recurring items. • 2005 dividends per ordinary share of HUF 600 are as recommended by the Board of Directors. • This Financial Record is not part of the audited Unconsolidated Financial Statements prepared in accordance with IFRS.

72 UNCONSOLIDATED REPORT UNCONSOLIDATED FINANCIAL RECORD 1995-2005 UNCONSOLIDATED REPORT UNCONSOLIDATED FINANCIAL RECORD 1995-2005 73 BALANCE SHEET (HUF M) 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 as at 31 December Non-current assets 17,928 23,116 30,773 45,981 58,444 70,200 83,173 99,815 110,800 127,707 142,593 Net other assets and liabilities 11,654 16,128 33,354 36,696 32,053 35,445 42,684 55,126 71,261 83,591 103,700 Non-current liabilities , (81) (194), , (24) (578), , (6) , (2) , (15) , (19) , (11) , (4) ,00- Total net assets 29,501 39,050 64,103 82,099 90,491 105,643 125,842 154,922 182,050 211,294 246,239 Share capital 17,638 17,638 18,638 18,638 18,638 18,638 18,638 18,638 18,638 18,638 18,638 Reserves 11,863 21,412 48,608 66,223 74,371 88,904 108,199 136,380 163,918 193,345 227,701 Treasury shares ,N/A ,N/A (3,143) (2,762) (2,518) (1,899) (995), , (96) (506), (689), (100), Shareholders' equity 29,501 39,050 64,103 82,099 90,491 105,643 125,842 154,922 182,050 211,294 246,239

Total assets and shareholders’ equity and liabilities 35,665 46,116 76,589 88,199 105,215 120,283 142,300 167,253 194,236 227,620 265,220

CAPITAL EXPENDITURE 4,989 6,659 9,469 14,736 15,608 17,366 14,934 17,419 20,053 24,259 25,799

BALANCE SHEET (US$ M) 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 as at 31 December Non-current assets 128.5 140.0 151.2 211.8 231.5 246.6 298.1 443.2 533.0 708.3 666.4 Net other assets and liabilities 83.6 97.7 163.9 169.0 126.9 124.5 153.0 244.8 342.8 463.6 484.8 Non-current liabilities (0.6) (1.2) (0.1) (2.6) .- .- .- (0.1) (0.1) .- .- Total net assets 211.5 236.5 315.0 378.2 358.4 371.1 451.1 687.9 875.7 1,171.9 1,151.2 Share capital 126.4 106.8 91.6 85.9 73.8 65.5 66.8 82.7 89.6 103.4 87.1 Reserves 85.1 129.7 238.8 305.0 294.6 312.3 387.8 605.6 788.5 1,072.3 1,064.5 Treasury shares N/A. N/A. (15.4) (12.7) (10.0) (6.7) (3.5) (0.4) (2.4) (3.8) (0.4) Shareholders' equity 211.5 236.5 315.0 378.2 358.4 371.1 451.1 687.9 875.7 1,171.9 1,151.2

Total assets and shareholders’ equity and liabilities 255.7 279.3 376.4 406.3 416.7 422.5 510.0 742.7 934.3 1,262.5 1,239.9

CAPITAL EXPENDITURE 40.4 44.7 50.7 69.2 65.6 61.4 52.1 68.3 89.5 119.5 129.2

Notes: • Figures for 1997 have been restated. • Prior to 1997, Treasury shares were reported as Net other assets and liabilities. • This Financial Record is not part of the audited Unconsolidated Financial Statements prepared in accordance with IFRS.

Throughout this Annual Report, certain Hungarian forint amounts have been converted into US$ for indicative purposes only. Expenditure and income amounts incurred during a period have been converted at an average rate calculated by the Company. Balance sheet figures for the end of the period have been translated at the year- end exchange rates.

EXCHANGE RATES (US$ / HUF) 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Average 123.4 149.0 186.7 213.1 237.8 283.0 286.6 255.2 224.0 203.0 199.7 End of year 139.5 165.1 203.5 217.1 252.5 284.7 279.0 225.2 207.9 180.3 213.9

NUMBER OF EMPLOYEES 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 End of year 4,533 4,436 4,450 4,575 4,730 4,835 5,007 5,124 5,466 5,619 5,867

74 UNCONSOLIDATED REPORT UNCONSOLIDATED FINANCIAL RECORD 1995-2005 UNCONSOLIDATED REPORT UNCONSOLIDATED FINANCIAL RECORD 1995-2005 75

CONSOLIDATED FINANCIAL HIGHLIGHTS

2005 2004 Growth 2005 2004 Growth HUF m HUF m % US$ m US$ m % Total sales 172,597 149,342 15.6 864.3 735.7 17.5 Operating profit 39,591 36,812 7.5 198.3 181.3 9.4 Net profit for the year 45,313 39,845 13.7 226.9 196.3 15.6

2005 2004 Growth 2005 2004 Growth HUF HUF % US$ US$ % Earnings per share (EPS) 2,431 2,138 13.7 12.17 10.53 15.6 Dividends per ordinary share 600 500 20.0 3.00 2.46 22.0

HUF m Sales US$ m Sales 200,000 1,000

160,000 800

120,000 600

80,000 400

40,000 200

0 0 02 03 04 05 02 03 04 05

HUF Earnings per share US$ Earnings per share 2,500 14 12 2,000 10 1,500 8

1,000 6 4 500 2 0 0 02 03 04 05 02 03 04 05

HUF Dividends per ordinary shareUS$ Dividends per ordinary share 600 3.0

500 2.5

400 2.0

300 1.5

200 1.0

100 0.5

0 0 Audited Consolidated Financial Statements 02 03 04 05 02 03 04 05 based on IFRS requirements for 2005 include all subsidiaries, joint ventures and Notes: • Earnings per share: Headline, i.e. diluted excluding exceptional and non-recurring items. associated companies of Gedeon Richter Ltd. • 2005 dividends per ordinary share of HUF 600 are as recommended by the Board of Directors.

CONSOLIDATED STATEMENTS CONSOLIDATED FINANCIAL HIGHLIGHTS 79 CONSOLIDATED REVIEW CONSOLIDATED COMPANIES

The following are the principal subsidiaries, joint ventures and associated companies included in the consolidated report:

Name Country Ownership Voting right Activity, comment RICHTER – A REGIONAL MULTINATIONAL COMPANY %% Subsidiaries The primary activities of the Company are the research and development, the manufacturing and the marketing ZAO Gedeon Richter-RUS Russia 100.00 100.00 Pharmaceutical manufacturing Gedeon Richter Romania S.A. Romania 99.10 99.10 Pharmaceutical manufacturing of pharmaceutical products and in this endeavour the Company is supported by a number of subsidiaries, joint GZF Polfa Sp. zo.o. Poland 63.02 63.02 Pharmaceutical manufacturing ventures and associated companies. The Richter Group comprises of these companies and the parent company Richter Themis Ltd. India 51.00 51.00 Pharmaceutical manufacturing; establishment in process, Gedeon Richter Ltd. This group has established synergies and thus means more than a simple association of the not yet operational individual performances of its members. Our manufacturing subsidiaries which operate in our traditional mar- Gedeon Richter Pharma GmbH Germany 100.00 100.00 Pharmaceutical trading kets together with the establishment and continuous development of our own, specialised marketing network Gedeon Richter USA Inc. USA 100.00 100.00 Pharmaceutical trading Medimpex France S.A.R.L. France 99.99 99.99 Pharmaceutical trading have created the foundation for a strong regional multinational Group. RG Befektetéskezelô Kft. Hungary 100.00 100.00 Financial, accounting and controlling activities Subsidiaries newly included in the consolidation The Company has used the opportunity given by the Hungarian Accounting Law to prepare its consolidated Gedeon Richter UA V.A.T. Ukraine 98.10 98.10 Pharmaceutical manufacturing financial statements for year 2005 only based on the IFRS requirements. Audited consolidated financial statements Biowet Drwalew S.A. Poland 62.80 62.80 Manufacturing of veterinary products based on IFRS requirements for 2005 include all subsidiaries, joint ventures and associated companies of Richter. Gedeon Richter UK Ltd. UK 100.00 100.00 Pharmaceutical trading Mediberia S.A. Spain 100.00 100.00 Pharmaceutical trading Due to the expansion of the range of the consolidated companies, a negative goodwill accounted in the Medimpex Hong Kong Ltd. Hong Kong 100.00 100.00 Pharmaceutical trading Statements of Income as a one-off item, increased Other income and expenses by HUF 1,486 million. Excluding the Nedermed B.V. Netherlands 100.00 100.00 Pharmaceutical trading Medimpex Japan Co. Ltd. Japan 90.90 90.90 Pharmaceutical trading above mentioned one-off impact, companies newly included in the consolidation did not have a significant Medimpex Jamaica Ltd. Jamaica 60.00 60.00 Pharmaceutical trading influence on the figures of the Statement of Income and Balance Sheet of the Group. Medimpex West Indies Ltd. Jamaica 60.00 60.00 Pharmaceutical trading Humanco Kft. Hungary 100.00 100.00 Social, welfare services Pesti Sas Holding Kft. Hungary 100.00 100.00 Portfolio management Companies involved in the consolidation procedure are shown in the table on page 81 with a special emphasis Richter Szolgáltató Kft. Hungary 100.00 100.00 Catering services given to the companies newly included in the consolidation. Reflex Kft. Hungary 100.00 100.00 Transportation, carriage Cito-Trans Kft. Hungary 100.00 100.00 Car rental Armedica Trading S.R.L. Romania 99.10 99.10 Asset management Through the establishment of greenfield investments in Russia and India, Gedeon Richter Ltd. has expanded its Chemitechnik Pharma Kft. Hungary 66.67 66.67 Engineering services network of manufacturing bases. The Company has also emphasised its regional multinational character through GYEL Kft. Hungary 66.00 66.00 Quality controlling services Joint ventures (1) acquisitions in Romania and Poland. Medimpex Gyógyszer- Hungary 50.00 50.00 Pharmaceutical wholesale nagykereskedelmi Zrt. Medimpex UK Ltd. UK 50.00 50.00 Pharmaceutical trading A number of marketing companies support the activity of Gedeon Richter in several countries of the world. Joint ventures newly included in the consolidation Wholesalers in Hungary – Hungaropharma Rt., Medimpex Gyógyszer-nagykereskedelmi Zrt. – further strengthen the Medimpex Irodaház Kft. Hungary 50.00 50.00 Renting real estate position of the Group in its domestic market. Pesti Sas Patika Bt. Hungary 74.00 50.00 Pharmaceutical trading Farnham Laboratories Ltd. UK 50.00 50.00 Pharmaceutical trading Associated companies (2) Richter also participates in a number of other companies that assist the main activities of the Parent Company Hungaropharma Rt. Hungary 30.67 30.67 Pharmaceutical wholesale Associated companies newly included in the consolidation by providing certain services. Pannonmedicina Rt. Hungary 33.65 33.65 Pharmaceutical retail Liget Patika Bt. Hungary 20.00 25.00 Pharmaceutical retail Salvia-Med Bt. Hungary 10.71 25.00 Pharmaceutical retail Szondi Bt. Hungary 49.00 25.00 Pharmaceutical retail Gyulai Fodormenta Bt. Hungary 20.00 20.00 Pharmaceutical retail Top Medicina Bt. Hungary 20.00 20.00 Pharmaceutical retail Gedeon Richter Ukrfarm O.O.O. Ukraine 49.00 49.00 Pharmaceutical retail Medservice Richter O.O.O. Kazakhstan 49.00 49.00 Pharmaceutical retail Pharmarichter O.O.O. Russia 49.00 49.00 Pharmaceutical sales promotion P.S.P. Richter O.O.O. Georgia 49.00 49.00 Pharmaceutical retail Richpangalpharma O.O.O. Moldavia 49.00 49.00 Pharmaceutical retail Richter-Lambron O.O.O. Armenia 49.00 49.00 Pharmaceutical retail Vita-Richter O.O.O. Azerbaijan 49.00 49.00 Pharmaceutical retail ZAO Farmograd Russia 45.00 45.00 Pharmaceutical retail

Notes: (1) Joint ventures were consolidated by proportion. (2) Associated companies were consolidated by equity method.

80 CONSOLIDATED STATEMENTS CONSOLIDATED REVIEW CONSOLIDATED STATEMENTS CONSOLIDATED REVIEW 81 BRIEF OPERATING REVIEW SUMMARY FINANCIAL REVIEW

MARKETS KEY FINANCIAL DATA

The activity of Gedeon Richter Ltd. is what mostly determines the overall performance of the Richter Group both at 2005 2004 Growth 2005 2004 Change sales and profit levels. The sales dynamic of the Group primarily is in line with the sales record of Gedeon Richter Ltd. HUF m HUF m % US$ m US$ m % Sales for the Group in 2005 totalled HUF 172,597 million (US$ 864.3 million) as analysed in the following table: Total sales 172,597 149,342 15.6 864.3 735.7 17.5 Gross profit 97,024 78,246 24.0 485.9 385.5 26.0 Gross margin % 56.2 52.4 56.2 52.4 Sales by region Operating profit 39,591 36,812 7.5 198.3 181.3 9.4 Operating margin % 22.9 24.6 22.9 24.6 2005 2004 Change 2005 2004 Change Profit before taxation 46,186 39,936 15.7 231.3 196.7 17.6 HUF m HUF m % US$ m US$ m % Profit after taxation 45,643 40,043 14.0 228.6 197.3 15.9 Hungary 57,117 50,527 13.0 286.0 248.9 14.9 Net profit for the year 45,313 39,845 13.7 226.9 196.3 15.6 Export 115,480 98,815 16.9 578.3 486.8 18.8 Net profit margin % 26.3 26.7 26.3 26.7 CIS 43,528 32,422 34.3 218.0 159.7 36.5 Earnings per share 2,431 2,138 13.7 12.17 10.53 15.6 EU* 39,595 34,073 16.2 198.3 167.9 18.1 (EPS; HUF, US$)* USA 14,510 17,473 -17.0 72.7 86.1 -15.6 Other countries 17,847 14,847 20.2 89.3 73.1 22.2 Total assets and total shareholders' 277,580 234,932 18.2 1,297.7 1,303.0 -0.4 Total 172,597 149,342 15.6 864.3 735.7 17.5 equity and liabilities Shareholders' equity 246,540 209,165 17.9 1,152.6 1,160.1 -0.6

* Note: All member states of the enlarged EU following 1 May 2004, except for Hungary. Capital expenditure 29,841 26,812 11.3 149.4 132.1 13.1

Number of employees at year-end 8,078 7,260 11.3

Subsidiaries and joint venture with significant sales levels (before consolidation) * Note: Headline, i.e. diluted excluding exceptional and non-recurring items.

2005 2004 Growth 2005 2004 Growth HUF m HUF m % US$ m US$ m % COSTS, PROFIT GZF Polfa Sp. zo.o. 10,184 8,338 22.1 51.0 41.1 24.1 Gedeon Richter Romania S.A. 3,437 2,389 43.9 17.2 11.8 45.8 Cost of sales in 2005 amounted to HUF 75,573 million, 6.3 percent higher when compared with the previous year. ZAO Gedeon Richter-RUS 2,378 1,618 47.0 11.9 8.0 48.8 However this was a lower increase than the sales growth and thus it resulted in a higher gross margin of 56.2 percent. Medimpex Gyógyszer-nagykereskedelmi Zrt.* 16,552 15,984 3.6 82.9 78.7 5.3 Sales and marketing expenses amounted to HUF 30,358 million during 2005, a 32.0 percent increase compared with 2004. Their proportion to sales increased during 2005 to 17.6 percent from the 15.4 percent recorded in * Note: Sales levels are proportional based on Richter's ownership ratio. the previous year.

Administrative and general expenses totalled HUF 13,325 million during 2005, representing an increase of INTERNATIONAL MANUFACTURING 53.7 percent over the levels recorded in the previous year.

Polish and Romanian manufacturing companies included in the Richter Group following acquisition have their Research and Development expenses represented 7.3 percent of sales and amounted to HUF 12,621 million during 2005. own product portfolio. Both GZF Polfa and Gedeon Richter Romania manufacture primarily for their respective – Poland and Romania – domestic markets and possess their own developing capacity. The importance of intra- Other income and other expenses decreased from HUF 836 million to HUF -1,129 million during the year, while group shipments and exports is however gradually increasing. HUF 1,486 million increased the consolidated profit realised as write off the negative goodwill of newly consoli- dated companies. Gedeon Richter-RUS is a Russia-based manufacturing company with tabletting and packaging activities and thus expanding opportunities for the Group in the local market. The recently established Indian joint venture will Operating profit was 7.5 percent higher at HUF 39,591 million, while the consolidated operating margin declined manufacture active pharmaceutical ingredients and intermediates for Gedeon Richter Ltd. to 22.9 percent from 24.6 percent in 2004.

82 CONSOLIDATED STATEMENTS CONSOLIDATED REVIEW CONSOLIDATED STATEMENTS CONSOLIDATED REVIEW 83 Profit before taxation in 2005 amounted to HUF 46,186 million, an increase of HUF 6,250 million over the levels achieved in 2004.

Profit after taxation in 2005 was HUF 2,020 million higher than that of the parent company, and HUF 2,568 million higher than in the previous year. It was impacted by an increase in corporate tax paid by the subsidiaries.

Minority interest in 2005 totalled HUF 330 million.

Consolidated net profit for the year increased by HUF 5,468 million to HUF 45,313. This represented 26.3 percent of sales, a slight decrease when compared with the 26.7 percent reported for 2004.

BALANCE SHEET

Total assets and total shareholders’ equity and liabilities of the Group amounted to HUF 277,580 million at 31 December 2005, HUF 42,648 million, or 18.2 percent higher than the level reported at 31 December 2004.

Non-current assets amounted to HUF 140,117 million at 31 December 2005, an increase of HUF 17,535 million (14.3 percent) when compared to the level reported at 31 December 2004, an increase primarily due to higher capital expenditure.

Current assets increased by HUF 25,113 million (22.4 percent) during 2005 and amounted to HUF 137,463 million due to higher levels of Trade Receivables, Inventories, and Cash and cash equivalents.

Shareholders’ equity of the Group amounted to HUF 246,540 million, an increase of HUF 37,375 million over the balance as at 31 December 2004.

Current liabilities of the Group at HUF 24,080 million on 31 December 2005 were 15.6 percent higher than at 31 December 2004.

EMPLOYEES

Number of employees at the end of the year

2005 2004 Growth Gedeon Richter Ltd. 5,867 5,619 248 Manufacturing companies 1,688 1,409 279 Trading and other subsidiaries and joint ventures 523 232 291 Total 8,078 7,260 818

Note: Data for 2004 include the number of employees of the 12 consolidated companies, while figures for 2005 relate to all companies included in the consolidation. Number of employees at year-end 2005 increased by 665 employees mainly due to the increase in the number of subsidiaries and joint ventures newly included in the consolidation.

There were in total 1,688 employees at the manufacturing companies included in the consolidation (out of which 748 were employed at GZF Polfa, 418 at Gedeon Richter Romania, 231 at Gedeon Richter-RUS, 199 at Biowet The Consolidated Financial Statements in this Annual Report Drwalew, 68 at Gedeon Richter UA and 24 at Richter Themis Ltd.). have been prepared in accordance with International Financial Reporting Standards (IFRS)

84 CONSOLIDATED STATEMENTS CONSOLIDATED REVIEW CONSOLIDATEDCONSOLIDATED FINANCIAL FINANCIAL STATEMENTS STATEMENTS CONSOLIDATED STATEMENTS OF INCOME

for the years ended 31 December Notes 2005 2004 HUF m HUF m

Sales 171,720 148,755 Royalty and other similar income ,877 ,587 Total sales 172,597 149,342 Cost of sales (75,573) (71,096) Gross profit 97,024 78,246 Sales and marketing expenses (30,358) (22,992) Administration and general expenses (13,325) (8,669) Research and development expenses (12,621) (10,609) Other income and other expenses (1,129) ,836 Profit from operations 4 39,591 36,812 Income from associate ,848 ,503 Net financial income 6 5,747 2,621 Profit before taxation 46,186 39,936 Income tax 7 ,(543) ,107 Profit after taxation 45,643 40,043 Minority interest ,(330) ,(198) Net profit for the year 45,313 39,845

Earnings per share (HUF) 8 Basic 2,436 2,142 Diluted 2,431 2,138

The notes on pages 91 to 113 form an integral part of the Consolidated Financial Statements.

86 CONSOLIDATED STATEMENTS INDEPENDENT AUDITOR'S REPORT CONSOLIDATED STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS 87 CONSOLIDATED BALANCE SHEET CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

as at 31 December Notes 2005 2004 Notes Share Share Capital Treasury Fair value Translation Retained Total HUF m HUF m capital premium reserves shares reserves reserves earnings HUF m HUF m HUF m HUF m HUF m HUF m HUF m HUF m ASSETS Non-current assets 140,117 122,582 Balance 18,638 15,197 3,475 (517) - (4,203) 144,916 177,506 at 31 December 2003 Property, plant and equipment 9 122,780 105,421 Exchange differences - - - - - 45 - 45 Intangible assets 9 3,297 1,948 arising on translation Investment property 10 ,742 ,00- of foreign operations Investment 11, 12, 13 11,720 13,901 Equity component - 5 - - - - - 5 Deferred tax assets 14 ,944 ,754 of convertible Goodwill 15 ,429 ,254 preference shares Loans receivable ,205 ,304 Treasury shares issued 22 - - - (183) - - - (183) Current assets 137,463 112,350 and purchased Inventories 16 47,327 37,860 Net profit for ------39,845 39,845 Trade receivables 17 32,660 22,204 the year Other current assets 18 5,394 6,525 Ordinary share 27 ------(8,188) (8,188) dividend for 2003 Investment in securities 19 18,931 19,917 Cash and cash equivalents 20 33,151 25,844 Dividend ------(1) (1) preference shares Total Assets 277,580 234,932 Fair value - - - - 136 - - 136 adjustment EQUITY AND LIABILITIES Balance 18,638 15,202 3,475 (700) 136 (4,158) 176,572 209,165 Capital and reserves 246,540 209,165 at 31 December 2004 Share capital 21 18,638 18,638 Effect of newly - - - (34) - - 361 327 Share premium 15,207 15,202 consolidated companies Capital reserves 3,475 3,475 Balance 18,638 15,202 3,475 (734) 136 (4,158) 176,933 209,492 Treasury shares 22 ,(145) ,(700) at 1 January 2005 Translation reserves (3,745) (4,158) Exchange differences - - - - - 413 - 413 Fair value reserves ,164 ,136 arising on translation of foreign operations Retained earnings 212,946 176,572 Minority interest 6,486 4,898 Equity component - 5 - - - - - 5 of convertible Non-current liabilities ,474 ,035 preference shares Borrowings ,403 ,035 Treasury shares issued 22 - - - 589 - - - 589 Deferred tax liability 14 ,071 ,00- and purchased Current liabilities 24,080 20,834 Net profit ------45,313 45,313 Borrowings ,118 ,007 for the year Trade payables 24 14,516 12,477 Ordinary share 27 ------(9,299) (9,299) Other payables and accruals 25 8,471 7,627 dividend for 2004 Provisions 26 ,975 ,723 Dividend ------(1) (1) Total equity and liabilities 277,580 234,932 preference shares Fair value - - - - 28 - - 28 adjustment Balance 18,638 15,207 3,475 (145) 164 (3,745) 212,946 246,540 at 31 December 2005

The notes on pages 91 to 113 form an integral part of the Consolidated Financial Statements. The notes on pages 91 to 113 form an integral part of the Consolidated Financial Statements.

88 CONSOLIDATED STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS 89 CONSOLIDATED CASH FLOW STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

for the years ended 31 December Note 2005 2004 1. GENERAL BACKGROUND HUF m HUF m

I) Legal status and nature of operations Operating activities Gedeon Richter Ltd. (“the Group”), a manufacturer of pharmaceutical products based in Budapest, was Net profit from operating activities 39,591 36,812 established first as a public limited Company in 1923. The Parent Company of the Group is Gedeon Richter Depreciation and amortisation 16,588 12,963 Vegyészeti Gyár Rt. (“Parent Company”), incorporated in Hungary. The predecessor of the Parent Company was Changes in receivables (9,515) ,172 founded in 1901 by Mr Gedeon Richter, when he acquired a pharmacy. In 1990, Kôbányai Gyógyszerárugyár Changes in inventories (9,467) (6,642) (“KGY”), a state owned enterprise which was transformed into a Company limited by shares (a “Rt.”), was Changes in payables and other liabilities 3,206 3,023 amalgamated into the Parent Company. The Group is headquartered in the Republic of Hungary and its registered Result from disposal of property, plant and equipment 1,133 ,412 office is at Gyömrôi út 19-21, 1103 Budapest. Movements attributable to minority interests 1,588 ,698 Net cash flow from operating activities 43,124 47,438 II) Basis of preparation The consolidated financial statements for the Group have been prepared on the historical cost basis of account- Cash flow from investing activities ing, as modified by a revaluation of fixed assets existing as of 1 November 1990, and in accordance with Inter- Purchase of property, plant and equipment (29,841) (25,793) national Financial Reporting Standards (IFRS). They are stated in millions of Hungarian forints (HUF m). The Group Purchase of intangible assets ,00- (1,019) maintains accounting, financial and other records in accordance with relevant local laws and accounting Proceeds from disposal of property, plant and equipment ,281 ,106 requirements. In order to present financial statements which comply with IFRS, appropriate adjustments have Changes in non-current investments 2,181 (5,475) been made to the local statutory accounts. Changes in current investments ,986 (2,156) Changes in loans receivable ,099 ,024 These financial statements present the consolidated financial position of the Group, the result of its activity and Interest and similar (expense) / income 8,609 2,794 cash flows, as well as the changes in shareholder’s equity. The Group’s significant subsidiaries are shown in Dividend income ,060 ,455 Note 11., 12. and 13. Goodwill 15 (175), ,00- Net cash flow from investing activities (17,800) (31,064) From 2002 Richter Gedeon Rt. as parent company has published consolidated financial statements in accordance with International Financial Reporting Standards. The Parent Company previously prepared non Cash flow from financing activities consolidated IFRS reports. Proceeds from conversion of preference shares ,005 ,005 According to the Parent Company management’s decision each subsidiary, joint venture and associated company Proceeds from disposal of Treasury shares ,589 (183), – revised in first hand or indirect – are involved into consolidation from 2005. Dividends paid – on ordinary shares (9,299) (8,181) Dividends paid – on preference shares , (1) , (1) The consolidated financial statements have been prepared in accordance with International Financial Reporting Other cash flows from financing activities (2,922) (511), Standards as adopted by the European Union (the “EU”). IFRS as adopted by the EU do not currently differ from Net repayment of long-term borrowings (362), , (45) IFRS as issued by the International Accounting Standards Board (IASB), except for portfolio hedge accounting Net cash flow from financing activities (11,990) (8,916) under IAS 39 which has not been approved by the EU. The Company has determined that portfolio hedge accounting under IAS 39 would not impact the consolidated financial statements had it been approved by the EU Net increase in cash and cash equivalents 13,334 7,458 at the balance sheet date.

Cash and cash equivalents at beginning of year 25,844 18,341 Effects of foreign exchange rate changes ,413 ,045 Effect of newly consolidated companies (6,440) ,00- Cash and cash equivalents at end of year 33,151 25,844

The notes on pages 91 to 113 form an integral part of the Consolidated Financial Statements.

90 CONSOLIDATED STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 91 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The principal accounting policies adopted in the preparation of these financial statements are set out below: III) Foreign currency transaction On consolidation, the assets and liabilities of the Group’s foreign operations are translated at the exchange rate I) Basis of Consolidation of Magyar Külkereskedelmi Bank Rt. closing mid-rates prevailing on the balance sheet date except for share capital, The consolidated financial statements incorporate the financial statements of the Parent Company and enterprises which is translated at historical value. Income and expense items are translated at the average exchange rates directly or indirectly controlled by the Parent Company (its subsidiaries, joint ventures and associated companies). for the period. Exchange differences arising, if any, are classified in the equity at the Group’s Translation reserve. Control is achieved where the Parent Company has the power to govern the financial and operating policies of an Such translation differences are recognised as income or as expenses in the period in which the Group disposes investee enterprise so as to obtain benefits from its activities. of an operation. The financial statements of the foreign subsidiary that reports in the currency of a former hyperinflationary On acquisition, the assets and liabilities of a subsidiary are measured at their fair values at the date of acquisition. economy (Gedeon Richter Romania S.A.) are restated in terms of the measuring unit current at the balance sheet The interest of minority shareholders is stated at the minority’s proportion of the fair values of the assets and liabil- date before they are translated into the Group’s reporting currency. ities recognised. Goodwill arising on consolidation represents the excess of the cost of acquisition over the Group’s interest in the Fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign fair value of the identifiable assets and liabilities of a subsidiary, associate or jointly controlled entity at the date of entity and translated at the closing rate on balance sheet date. acquisition. Goodwill is recognised as an asset and is not amortised in line with IFRS 3. In each reporting periods the Parent Company reviews its goodwill. Discounted Cash Flow method is used for fair value calculation. If the IV) Revenue recognition investments fair value is lower than the net book value, the goodwill – realised at the first time when consolidated Revenue on sales transactions is recognised in accordance with the terms of sales contracts when title has passed. – is charged with the difference between the fair and book value as impairment. On disposal of a subsidiary, Revenue is shown excluding value added taxes. All other income earned and expenditure incurred is allocated to associate or jointly controlled entity, the attributable amount of goodwill is included in the determination the appropriate period by applying the accrual basis. of the profit or loss on disposal. Negative goodwill arises if the fair value of net assets (difference of assets, liabilities and contingent liabilities) is V) Property, plant and equipment higher than acquisition costs. It is accounted for revenue at the date of recognition. Depreciation is charged so as to write-off the cost of assets on a straight-line basis over their estimated useful lives. The Group uses the following depreciation rates based on straight line method: The results of subsidiaries acquired or disposed of during the year are included in the consolidated financial state- ments from the effective date of acquisition or up to the effective date of disposal, as appropriate. Depreciation % Land 0 All significant intercompany transactions and balances between group enterprises are eliminated in consolidation. Buildings 1 - 4.5 % Plant and equipments 5 - 33.33 % II) Investments in joint ventures and associated companies Vehicles 10 - 20 % A joint venture is a contractual arrangement whereby the Group and the parties undertake an economic activity Office equipments 8 - 33.33 % that is subject to joint control.

Joint venture arrangements which involves the establishment of a separate entity in which each venturer has an Depreciation is calculated monthly. interest are referred to as jointly controlled entities. The Group reports its interests in jointly controlled entities using proportionate consolidation – the Group’s share of the assets, liabilities, income and expenses of jointly controlled Assets in the course of construction are not depreciated. The cost of maintenance, repairing are not capitalised. entities are combined with the equivalent items in the consolidated financial statements on a line-by-line basis. When the Parent Company was transformed into a Company limited by shares the property, plant and equipment An associated company is an enterprise of the Group on which the Parent Company is able to exercise directly or were revalued as of 1 November 1990. The revalued assets as of 1 November 1990 are being depreciated over the indirectly significant influence due to its influence in the financial and operating activity of the investee. remainder of their original useful life. Except of Gedeon Richter Romania S.A. the properties, plant and equipments of the consolidated companies were not revaluated. The results and assets and liabilities of associates are incorporated in these financial statements using the equity method of accounting. The carrying amount of such investments is reduced to recognise any impairment in the Gains and losses on disposal of property, plant and equipment are determined by reference to their carrying value of individual investments. amount and are taken into account in determining operating profit.

92 CONSOLIDATED STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 93 VI) Intangible assets XIII) Investments in securities Expenditures on trademarks, licences, patents and software is capitalised and amortised if it is probable that the Investments in securities are assessed at their fair value at the date of reporting with calculations based on publically expected future benefits that are attributable to the asset will flow to the entity, and the cost of the asset can be quoted prices. Unrealised gains and losses are credited/charged directly to shareholders equity. measured reliably. The Group is using the straight line method over their estimated useful lives as follows: XIV) Trade payables Depreciation % Trade payables are stated at their nominal cost. Property rights (connected with properties) 5 % Other rights (licences) 20 - 50 % XV) Derivative financial instruments Intellectual property, software 20 - 50 % Derivative financial instruments are measured at fair value that exists at reporting dates.

VII) Investment property Changes in the fair value of derivative financial instruments that do not qualify for hedge accounting are recognised Initially the investment properties are capitalized at cost with taking the transaction costs into consideration. At in the income statement as they arise. balance sheet date they are revalued to fair value. Gains and losses arising from changes of fair value are accounted in the reporting period’s income statement. XVI) Cash flow statement For the purposes of the cash flow statement, cash and cash equivalents comprise cash in hand, deposits held at VIII) Impairment call with banks, and investments in money market instruments with a maturity date within three months of At each balance sheet date, the Group reviews the carrying amount of its tangible and intangible assets to acquisition, net of bank overdrafts. determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the amount of such an impairment XVII) Provisions loss. If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of Provisions are recognized when the Company has a present legal or constructive obligation as a result of past the asset is reduced to its recoverable amount. events, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate of the amount of the obligation can be made. IX) Research and development Research and development expenditures are charged to the statement of income in the year in which they are The Company is exposed to environmental liabilities relating to its past operations and purchases of property, incurred. principally in respect of soil and groundwater remediation costs. Provisions for these costs are made when the commencement of remedial work is prescribed by binding decision and when expenditure on such remedial work X) Investments is probable and the cost can be estimated within a reasonable range of possible outcomes. Investments comprise the associated companies consolidated using equity method, investments in other companies and the long term bonds. Unconsolidated investments are those other investments where the Parent Company XVIII) Income taxes does not hold a controlling interest or does not have the ability to exercise significant influence. These investments The taxation charge is based on the tax payable under the appropriate fiscal law, adjusted for deferred taxation. are accounted at cost, because they are not classified as held for sale in accordance with IFRS 5. Deferred income tax is provided, using the liability method, in respect of temporary differences arising between the Gains and losses on the sale of equity investments are determined on the basis of the specific identification of the tax bases of assets and liabilities and their carrying values for financial reporting purposes. Tax rates currently in cost of each investment. force are used to determine deferred income tax amounts. Deferred tax assets are recognised only to the extent that it is anticipated that they can be utilised against available future taxable profits. XI) Inventories Inventories are stated at the lower of cost and net realisable value. Cost is determined by the first-in, first-out (FIFO) method. Net costs of own produced inventories include the direct cost of raw materials, the actual cost of direct production labour, the related maintenance and depreciation of production machinery and related overhead costs.

XII) Trade receivables Trade receivables are stated at their nominal value as reduced by appropriate impairment for estimates losses. An estimate is made for doubtful receivables based on a review of all outstanding amounts at the balance sheet date.

94 CONSOLIDATED STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 95 3. SEGMENT INFORMATION

XIX) Segment information I) Business segments For management purposes the Group is currently organised into two main segments: Pharmaceutical manu- facturing and sale, and Pharmaceutical wholesale and retail. These are the basis on which the Group reports its primary segment information. Pharmaceutical Pharmaceutical Eliminations Total manufacturing and sales wholesale and retail HUF m HUF m HUF m HUF m Geographical segments are determined as secondary segments as follows: 3rd party revenues 156,165 16,432 - 172,597 Inter segment sales 1,334 120 (1,454) - 1. Hungary Total sales 157,499 16,552 (1,454) 172,597 2. CIS Profit from operations 39,505 219 (133) 39,591 3. EU Total assets 274,688 3,357 (465) 277,580 4. USA Liabilities 22,782 2,102 (330) 24,554 5. Other countries Capital expenditure 29,841 - - 29,841 Depreciation 16,491 97 - 16,588 XX) Changes of the presentation of the Financial Statements Income from associates - 848 - 848 While in the previous years the Other income and expenses were included in Administration and general and Sales Investments in associates 5,205 287 - 5,492 and marketing expenses as statements of income, now is emphasized. The main figures are accounted and reversed impairments and supports. II) Geographical segments From 1 January 2005 the Sales and marketing expenses are extended with own production and purchased products which were transmitted without allowance. Hungary CIS EU USA Other Total countries In accordance with IFRS the deposits which are stated in the value of capital outlays and inventories are included HUF m HUF m HUF m HUF m HUF m HUF m in the other receivables from this year. Total sales 57,117 43,528 39,595 14,510 17,847 172,597 Total assets 229,498 9,366 19,297 4,196 15,223 277,580 Certain amounts in the prior year financial statements have been reclassified in order to conform to the current Capital expenditure 25,870 1,002 533 - 2,436 29,841 year presentation.

4. PROFIT FROM OPERATIONS

2005 2004 HUF m HUF m Total sales 172,597 149,342 Changes in inventories of finished goods and work in progress, cost of goods sold (26,963) (17,065) Material type expenses (47,180) (47,804) Personnel expenses (41,146) (35,534) Depreciation (16,588) (12,963) Other income and expenses* (1,129) 836 Operating profit 39,591 36,812

* In 2005 the Other income and expenses were increased by HUF 2.1 billion while in 2004 HUF 3.5 billion non- recurring expenses. Further HUF 1,486 million increased the consolidated profit realised as write off the negative goodwill of newly consolidated companies.

96 CONSOLIDATED STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 97 5. EMPLOYEE INFORMATION 8. CONSOLIDATED EARNINGS PER SHARE

The basic earnings per share is calculated by reference to the net profit attributable to shareholders and the 2005 2004 weighted average number of ordinary shares in issue during the year. These exclude the average number of Average number of people employed during the year 8,084 7,263 ordinary shares purchased by the Company and held as Treasury shares.

The consolidation of new companies resulted a 676 increase in the average number of people employed in 2005. EPS (basic)

6. NET FINANCIAL INCOME 2005 2004 Net financial income is analysed in detail in the following table: Net consolidated profit attributable to shareholders (HUF m) 45,313 39,845 Weighted average number of ordinary shares in issue (thousands) 18,605 18,604 Basic earnings per share (HUF) 2,436 2,142 2005 2004 HUF m HUF m For diluted earnings per share, the weighted average number of ordinary shares in issue is adjusted to assume Net interest income 2,710 3,513 conversion of all dilutive potential ordinary shares. Richter Gedeon Rt. has two categories of dilutive potential ordinary Dividend income 60 455 shares: Treasury shares, which are intended by the Parent Company to be issued to Management and Employees as part Realised (losses) / gains on forward exchange contracts (962) 3,211 of its remuneration policy and preference shares for which a program of conversion is in progress. Unrealised losses from the fair value of forward exchange contracts (209) - Reversal of opening fair value adjustment - (1,820) EPS (diluted) Impairment gains of equity investments 19 1 Gains / (losses) on foreign currency loans receivable 2,128 (1,731) Exchange gains / (losses) realised on trade receivables and trade payables 473 (16) 2005 2004 Unrealised exchange gains / (losses) on trade receivables and trade payables 594 (388) Net consolidated profit attributable to shareholders (HUF m) 45,313 39,845 Other financial items 934 (604) Weighted average number of total shares outstanding (thousands) 18,637 18,637 Total 5,747 2,621 Diluted earnings per share (HUF) 2,431 2,138

The Company has concluded forward exchange contracts to manage its exposure to fluctuations in exchange rates since January 2000.

The Group did not have any open hedge contracts open as at 31 December 2004, while in 2005 several US$/HUF and US$/EUR forward option contracts was contracted.

For 2006 the Parent Company has only US$/EUR forward and option contracts to minimize the risk of the potential weakening the US$ against the EUR.

7. INCOME TAX EXPENSE

From 1 January 2004, as a result of its capital expenditure program and the increase of work force, the Parent Company benefits from a 100 percent tax holiday, which will probably end in 2011.

2005 2004 HUF m HUF m Domestic (41) - Foreign (611) (647) Current tax (652) (647) Deferred tax (14) 109 754 Income tax (543) 107

98 CONSOLIDATED STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 99 9. PROPERTY, PLANT AND EQUIPMENT, AND INTANGIBLE ASSETS 10. INVESTMENT PROPERTY

A real estate, located in Budapest is presented as investment property owned by Medimpex Irodaház Kft. This Land and Plant and Intangible Assets in Total company is a joint venture with EGIS Rt in 50-50%. buildings equipment assets the course of construction Investment property is presented in fair value in balance sheet. Discounted Cash Flow method is used for calculation HUF m HUF m HUF m HUF m HUF m of fair value. The Parent Company’s portion of value is HUF 742 million as of December 31, 2005.

GROSS VALUE at 31 December 2004 58,875 96,541 4,330 16,432 176,178 Net value 2005 Effect of newly consolidated companies 2,569 2,615 148 175 5,507 HUF m Capitalisation 6,375 21,970 1,466 (29,811) - at 31 December 2005 312 Transfers and capital expenditure 417 262 832 30,798 32,309 Change in fair value 430 Disposals and other conversions (1,016) (3,046) (54) 780 (3,336) at 31 December 2005 742 at 31 December 2005 67,220 118,342 6,722 18,374 210,658 Incomes from renting and operating expenses of rent are the followings: ACCUMULATED DEPRECIATION at 31 December 2004 12,127 54,300 2,382 - 68,809 2005 Effect of newly consolidated companies 522 1,382 46 - 1,950 HUF m Current year depreciation 1,708 13,867 1,013 - 16,588 Income from renting real estate 122 Disposals, conversion (216) (2,534) (16) - (2,766) Operating expenses 42 at 31 December 2005 14,141 67,015 3,425 - 84,581

NET BOOK VALUE at 31 December 2004 46,748 42,241 1,948 16,432 107,369 at 31 December 2005 53,079 51,327 3,297 18,374 126,077

All items of property, plant and equipment are free from liens and charges.

100 CONSOLIDATED STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 101 11. SUBSIDIARIES 12. JOINT VENTURES

Details of the Group’s subsidiaries at 31 December 2005 are as follows: The Group had the following interests in joint ventures:

Name Place of Proportion Proportion Principal activity Name Place of Proportion Proportion Principal activity incorporation of ownership of voting incorporation of ownership of voting (or registration) rights held (or registration) rights held and operation and operation ZAO Gedeon Richter-RUS Russia 100.00 100.00 Pharmaceutical Medimpex Gyógyszer- Hungary 50.00 50.00 Pharmaceutical wholesale manufacturing nagykereskedelmi Zrt. Gedeon Richter Romania S.A. Romania 99.10 99.10 Pharmaceutical Medimpex UK. Ltd. UK 50.00 50.00 Pharmaceutical trading manufacturing Newly consolidated GZF Polfa Sp. zo.o. Poland 63.02 63.02 Pharmaceutical companies manufacturing Medimpex Irodaház Kft. Hungary 50.00 50.00 Renting real estate Richter Themis Ltd. India 51.00 51.00 Pharmaceutical Pesti Sas Patika Bt. Hungary 74.00 50.00 Pharmaceutical trading manufacturing Farnham Laboratories Ltd. UK 50.00 50.00 Pharmaceutical trading Gedeon Richter Pharma G.m.b.H. Germany 100.00 100.00 Pharmaceutical trading

Gedeon Richter USA Inc. USA 100.00 100.00 Pharmaceutical trading The following amounts are included in the Group’s financial statements as a result of the proportionate Medimpex France S.A.R.L. France 99.99 99.99 Pharmaceutical trading consolidation of the above joint ventures. RG Befektetéskezelô Kft. Hungary 100.00 100.00 Financial-accounting and controlling activities 2005 2004 Newly consolidated companies HUF m HUF m Current assets 3,521 3,639 Gedeon Richter UA V.A.T. Ukraine 98.10 98.10 Pharmaceutical manufacturing Non-current assets 991 739 Short-term liabilities 2,855 3,174 Biowet Drwalew S.A. Poland 62.80 62.80 Manufacturing of veterinary products Long-term liabilities 0 - Sales 18,590 18,124 Gedeon Richter UK Ltd. UK 100.00 100.00 Pharmaceutical trading Cost of sales 17,286 17,306 Mediberia S.A. Spain 100.00 100.00 Pharmaceutical trading Medimpex Hong Kong Ltd. Hong Kong 100.00 100.00 Pharmaceutical trading Nedermed B.V. Netherlands 100.00 100.00 Pharmaceutical trading Medimpex Japan Co. Ltd. Japan 90.90 90.90 Pharmaceutical trading Medimpex Jamaica Ltd. Jamaica 60.00 60.00 Pharmaceutical trading Medimpex West Indies Ltd. Jamaica 60.00 60.00 Pharmaceutical trading Humanco Kft. Hungary 100.00 100.00 Social, welfare services Pesti Sas Holding Kft. Hungary 100.00 100.00 Portfolio management Richter Szolgáltató Kft. Hungary 100.00 100.00 Catering services Reflex Kft. Hungary 100.00 100.00 Transportation, carriage Cito-Trans Kft. Hungary 100.00 100.00 Car rental Armedica Trading S.R.L. Romania 99.10 99.10 Asset management Chemitechnik Pharma Kft. Hungary 66.67 66.67 Engineering services GYEL Kft. Hungary 66.00 66.00 Quality controlling services

102 CONSOLIDATED STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 103 13.INVESTMENTS IN ASSOCIATED COMPANY AND OTHER INVESTMENTS 14. DEFERRED TAX

Deferred tax is calculated with the liability method based on the temporary differences. Due to the 100 percent tax 2005 2004 relief applied, deferred tax recognised as of 31 December 2004 only includes the deferred tax (at 16 percent) HUF m HUF m calculated for the temporary differences that are expected to remain in the period subsequent to the expiry of the Investments in associates 5,492 8,885* tax relief. Deferred tax assets and liabilities and the deferred tax (charge)/credit in the statement of income are Other investments 3,044 2,060 included to the following items: Long-term bonds 3,184 2,956 Total 11,720 13,901 2005 2004 HUF m HUF m * Contains the balances of non-consolidated, related companies as of December 31, 2004.

Analysis for financial reporting purposes At 31 December 2005 the following associated company has been accounted for under the equity method: Deferred tax assets 944 754 Deferred tax liabilities (71) - Name Place of Proportion Proportion Principal activity Net position at 31 December 873 754 incorporation of ownership of voting (or registration) rights held and operation The following are the major deferred tax liabilities and assets recognised by the Group and movements thereon during the period: Hungaropharma Rt. Hungary 30.67 30.67 Pharmaceutical wholesale Newly consolidated companies 31 December Deferred tax (Charged) / (Charged) / 31 December Pannonmedicina Rt. Hungary 33.65 33.65 Pharmaceutical retail 2005 carried by credited credited 2004 Liget Patika Bt. Hungary 20.00 25.00 Pharmaceutical retail subsidiary to retained to Income Salvia-Med Bt. Hungary 10.71 25.00 Pharmaceutical retail earnings Statement Szondi Bt. Hungary 49.00 25.00 Pharmaceutical retail HUF m HUF m HUF m HUF m HUF m Gyulai Fodormenta Bt. Hungary 20.00 20.00 Pharmaceutical retail Top Medicina Bt. Hungary 20.00 20.00 Pharmaceutical retail Deferred tax Gedeon Richter Ukrfarm O.O.O. Ukraine 49.00 49.00 Pharmaceutical retail Depreciation 498 - - - 498 Medservice Richter O.O.O. Kazakhstan 49.00 49.00 Pharmaceutical retail Consolidation adjustments 446 (256) 337 109 256 Pharmarichter O.O.O. Russia 49.00 49.00 Pharmaceutical Consolidation adjustments (71) - (71) - - sales promotion (tax liabilities) P.S.P. Richter O.O.O. Georgia 49.00 49.00 Pharmaceutical retail Total 873 (256) 266 109 754 Richpangalpharma O.O.O. Moldavia 49.00 49.00 Pharmaceutical retail

Richter-Lambron O.O.O. Armenia 49.00 49.00 Pharmaceutical retail At the balance sheet date, the Group has HUF 316 million unused tax losses (HUF 240 million in 2004) available Vita-Richter O.O.O. Azerbaijan 49.00 49.00 Pharmaceutical retail for offset against future profits. ZAO Farmograd Russia 45.00 45.00 Pharmaceutical retail

Temporary differences arising in connection with interest in associates and joint ventures are insignificant.

104 CONSOLIDATED STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 105 15. GOODWILL 18. OTHER CURRENT RECEIVABLES

Goodwill 2005 2004 HUF m HUF m HUF m Tax and duties recoverable 2,449 2,306 COST Loans receivable 272 272 at 1 January 2005 314 Advances 671 385 Changes in opening value (60) Fair value of open forward exchange contracts (IAS 39) 6 - An acquisition of a subsidiary 201 Other receivables 990 2,236 at 31 December 2005 455 Prepayments 1,006 1,326 Total 5,394 6,525 IMPAIRMENT at 1 January 2005 - 19. INVESTMENT IN SECURITIES Impairment charged for the year (26) Eliminated on a disposal of a subsidiary - at 31 December 2005 (26) 2005 2004 HUF m HUF m NET BOOK VALUE Hungarian Government securities 10,990 14,517 at 31 December 2004 254 Open-ended bond funds 5,643 3,733 at 31 December 2005 429 Other securities 2,298 1,667 Total 18,931 19,917

The goodwill comes from the acquisition of 58,800 Polfa shares on 30 December 2003 and the consolidation of newly consolidated companies in 2005. All current investments are classified as available for sale.

16. INVENTORIES 20. CASH AND CASH EQUIVALENTS

2005 2004 2005 2004 HUF m HUF m HUF m HUF m Raw materials, packaging and consumables 9,965 5,632 Bank deposits 33,053 24,608 Production in progress 889 523 Cash on hand 98 88 Semi-finished and finished goods 36,473 31,705 Short-term securities (duration less than 3 months) - 1,148 Total 47,327 37,860 Total 33,151 25,844

Inventories are reported net of impairment which amounted to HUF 985 million in 2005 (HUF 2,921 million in 2004).

17. TRADE RECEIVABLES

2005 2004 HUF m HUF m Trade receivables 25,272 19,934 Amounts due from related companies 7,388 2,270 Total 32,660 22,204

Trade receivables are reported net of impairment for debts which amounted to HUF 1,420 million in 2005 (HUF 924 million in 2004).

106 CONSOLIDATED STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 107 21. SHARE CAPITAL 22. TREASURY SHARES

It is the intention of the Parent Company to issue over time the Treasury shares to Management and Employees as 2005 2004 part of its remuneration policy. The Parent Company implemented a new bonus scheme in 1996 to further Number HUF m Number HUF m incentivise managers and key employees whose performance can significantly influence the Parent Company’s Ordinary shares of HUF 1,000 each 18,633,135 18,633 18,630,457 18,631 profitability. As of 1 January 2003 tax laws applicable to remuneration provided in the form of securities changed; 12 percent non-voting cumulative 4,351 5 7,029 7 preference shares of HUF 1,000 each such bonuses are now taxable as income from employment. In 2005 31,585 shares were distributed to 419 em- ployees of the Parent Company. Similar bonuses are expected to be granted also in 2006. 18,637,486 18,638 18,637,486 18,638

41,250 ordinary shares were granted to employees showing exceptional performance as bonuses during the year. Preference shareholders are entitled to a dividend of 12 percent per annum before ordinary shareholders. Any con- version of preference shares into ordinary shares can be decided only once a year. An application to convert must Pursuant to the programme approved by the Ministry of Finance related to employee share bonuses, the Parent be submitted to the Board of Directors by 28 February prior to the holding of the Company's Annual General Company granted 41,604 treasury shares to 4,769 employees. The shares are deposited on the employees’ security Meeting at which the conversion must be approved. As the preference shares are not listed or quoted on a Stock accounts with HVB Hungary Bank Rt. until 2 January 2008. Exchange it is the Directors' responsibility to determine the terms on which preference shares may be converted into ordinary shares. Further, in accordance with a resolution of the Annual General Meeting on 27 April 2005 a total of 3,140 shares were transferred during 2005 to members of the Board of Directors of the Parent Company in lieu of fees. Recently, preference shareholders were entitled to request conversion of their preference shares up to 28 February The Annual General Meeting held on 27 April 2005 has approved that the Parent Company shall purchase its own 2006, by which date requests in respect of the conversion of 902 preference shares had been filed. As the pref- shares for the treasury, the aggregated nominal value of which shall not exceed 3 percent of the registered capital erence shareholders are entitled either to withdraw their request or to meet the financial and other conditions of of the Parent Company. Based on this approval, the Parent Company purchased 50,000 Treasury shares at the the conversion up until 20 April 2006, the Parent Company is unable to make any firm announcement in respect Budapest Stock Exchange during the year, and a further 36,623 shares on the OTC market. of conversion of preference shares until the relevant resolution of the Annual General Meeting to be held on 26 April 2006 is published. NUMBER OF SHARES Ordinary shares

Following the approval by the Annual General Meeting on 27 April 2005 the Court of Registration registered the at 31 December 2004 32,102 conversion of 2,678 preference shares into ordinary shares. A HUF 2,000 per share conversion fee was paid by Out of these, number of shares owned by subsidiaries 550 preference shareholders who successfully applied for conversion; a total amount of HUF 5 million has been Share purchase 86,623 accounted for as Share Premium. Issued as part of bonus program (31,585) Board of Directors (3,140) Bonuses (41,250) Granted pursuant to the Finance Ministry-approved plan (41,604) Granted pursuant to the Finance Ministry – re-entry 1,909 Shares of newly consolidated companies 10,000 at 31 December 2005 13,055

BOOK VALUE HUF m at 31 December 2004 700 Share purchase 3,288 Issued as part of bonus program (911) Board of Directors (92) Bonuses (1,300) Granted pursuant to the Finance Ministry-approved plan (1,630) Granted pursuant to the Finance Ministry – re-entry 56 Shares of newly consolidated companies 34 at 31 December 2005 145

108 CONSOLIDATED STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 109 23. SHARE-ALLOTMENTS ACCOUNTED ACCORDING TO IFRS 2: 26. PROVISIONS

Bonus program: beneficiaries of this program are the directors of the company appointed at least as head of a 2005 2004 department and some employees in dominant positions. The allotment is distributed half yearly in accordance with HUF m HUF m the complex evaluation of the performances. The continuance of the program is adjudged by the Board annually. Provision for environmental liabilities 57 73 Other provisions 918 650 The 3-year security-allotment program for the reputed employees is registered by the Ministry of Finance in its Total 975 723 decree issued on November 18, 2003. The employees have been employed for a longer term at the Parent Company were entitled to receive Richter ordinary shares free of any charge in the frame of the program terminated on December, 2005. 27. DIVIDEND ON ORDINARY SHARES

In accordance with a decree issued by the ordinary general meeting the ordinary shares are granted to the Board 2005 2004 Members as an emolument. HUF m HUF m Dividend paid on ordinary shares 9,299 8,188 On January 1, 2005 and on December 31, 2005 the Parent Company had no liabilities with respect to IFRS 2 and during the year the appropriate changes were recorded based on method of accrual. The cost of the above listed A dividend of HUF 500 per share (HUF 9,299 million) was declared in respect of the 2004 results, approved at the security programs were HUF 3,006 million in 2005. (The own shares are detailed in note 22). Annual General Meeting on 27 April 2005 and paid during the year. The Group has no share-option programs. No dividend on ordinary shares has been declared in respect of the 2005 results, but it is anticipated that a dividend will be declared at the Annual General Meeting on 26 April 2006.

24. TRADE PAYABLES 28. AGREED CAPITAL COMMITMENTS AND 2005 2004 EXPENSES RELATED TO INVESTMENTS HUF m HUF m Trade payables 14,424 12,392 2005 Amount due to related companies 92 85 HUF m Total 14,516 12,477 Capital expenditure that has been contracted for but not included in the financial statements 2,619 Capital expenditure that has been authorised by the directors but has not yet been contracted for 28,241 25. OTHER PAYABLES Capital expenditure committed by GZF Polfa 4,128

2005 2004 The Parent Company investments program –that amounts HUF 30,860 million-, equals the total cost of the projects HUF m HUF m appearing in the medium-term development plan (2005-2008) approved by the Board of Directors and presented Wages and payroll taxes payable 3,415 2,740 to the Ministry of Finance. The commitments were not recorded through statements of income or balance sheet. Income tax 58 31 Dividend payable 49 48 Gedeon Richter Rt. as the majority shareholder has committed that GZF Polfa will implement a PLN 70 million Liabilities in relation to investments in related parties - 103 (HUF 4,128 million) investment programme within the next five years. Accruals 3,321 2,514 Other liabilities 1,315 2,102 Deposits from customers 98 89 Market value of open futures 215 - Total 8,471 7,627

110 CONSOLIDATED STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 111 29. GUARANTEES GIVEN IN RESPECT OF GROUP COMPANIES AND THIRD PARTIES 6 percent of the gross monthly wages of those employees who are contributing members. In addition, a one-off contribution is made in respect of employees who are within five years of the statutory retirement age. The total 2005 cost of the contributions made by the Company was HUF 575 million in 2005. This pension fund had a total of HUF m 6,280 members in 2005, 4,542 of whom were contributing members. Medimpex Gyógyszer-nagykereskedelmi Zrt. – bank guarantee 950 RG Befektetéskezelô Kft – Company guarantee to Medimpex UK Ltd. 37 The contribution fulfilled Hungary based subsidiaries amounted HUF 33 million. Foreign subsidiaries settle pension Cash surety given by Medimpex Gyógyszer-nagykereskedelmi Zrt. 4 fund payments in favour of its employees. Biowet Drwalew S.A. - bank guarantee 83 Bank guarantee given by Gedeon Richter Pharma G.m.b.H. 2 The Company provides a private health insurance fund payment for its employees since 1 September 2003. At the Bank guarantee given by GZF Polfa Sp. z.o.o. 6 first eight months of 2005 the contribution amounted to HUF 3,000 per capita per month, from 1 September 2005 this amount is HUF 3,200 per capita per month. 4,942 employees are members of Patika Health Insurance Fund 30. RISK MANAGEMENT thus the amount paid on their behalf to the fund in 2005 amounted to HUF 179 million.

I. Based on a strategy approved by the Board of Directors, the Parent Company continues to cover against possible None of the subsidiaries of the Group operate any pension schemes. RG Befektetéskezelô Kft., Humanco Kft., currency fluctuations and it has concluded options and forward exchange contracts for 2006. For 2006 Richter Reflex Kft., Richter Szolgáltató Kft. pay a pension contribution of 6% of its employees gross wage similar to the Parent Company toward Patika Health Insurance Fund. Gedeon Rt. has only US$/EUR forward and option contracts to minimise the risk of potential weakening of the US$ against the EUR.

II. The Parent Company has number of investments, direct or indirect control, in companies located in volatile 32. OTHER COMMITMENTS AND CONTINGENT LIABILITIES economies. The risk associated with the valuation of these investments by reference to weakening currencies is somewhat mitigated on the basis that the underlying non-monetary assets may maintain their market value. The Employees contributing to the development of a new product on their own initiative are entitled to a portion of value of these investments represented by underlying monetary assets is fully exposed to the significant risk of the future income generated by the given invention or innovation. According to estimates as of 31 December 2005, currency devaluation. the related payment obligation during the three year period ending 2008 will be approximately HUF 930 million. The commitments were not recorded through statements of income or balance sheet. III. Credit Risk – the Group has customers of significance in a number of countries. These customers are major import distributors in their respective countries and the Parent Company maintains close management contact with them on ongoing basis. Provisions for doubtful receivables are estimated by the Company’s management based on prior 33. INSURANCE experience and the current economic environment. The Group has the adequate and appropriate coverage. The credit risk on liquid funds and derivative financial instruments is limited because the counterparties are banks with high credit-ratings assigned by international credit-rating agencies. The Group’s insurance for product liability extends globally including the USA and Canada, and relates to all registrated products produced and marketed by the Company. The Parent Company has no significant concentration of credit risk, with exposures spread over a large number of counterparties and customers. The property and breakdown insurance policies provide satisfactory coverage for the Company’s assets at replacement value as well as net profits lost due to any specific event and the overhead costs.

31. SOCIAL SECURITY AND PENSION SCHEMES The general, environmental pollution and employer liability insurance cover potential damages caused to third parties or employees. Contributions amounting to 29 percent of gross salaries and HUF 3,450 per capita per month (from 1 November 2005 HUF 1,950 per capita per month) for healthcare allowance were made in 2005 to the Tax and Financial Due to the proportions of the Group’s assets and revenues, it is of utmost importance for the Company to use large Control Administration of the Hungarian State. The Company has no obligation to contribute to these schemes and financially strong global insurance companies that co-operate with leading re-insurers. beyond the statutory rates in force during the year.

In November 1994, the Company offered the opportunity to its employees and those employees of related companies to join a voluntary externally organised defined contribution pension scheme. The Company contributes

112 CONSOLIDATED STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 113 CONSOLIDATED FINANCIAL RECORD 2002-2005

STATEMENTS OF INCOME (HUF M) 2002 2003 2004 2005 BALANCE SHEET (HUF M) 2002 2003 2004 2005 for the years ended 31 December as at 31 December Total sales 120,013 145,916 149,342 172,597 Non-current assets 95,572 103,853 122,582 140,117 Cost of sales (59,806) (67,315) (71,096) (75,573) Net other assets and liabilities 62,426 77,912 91,516 113,383 Gross profit 60,207 78,601 78,246 97,024 Non-current liabilities , (83) , (59) , (35) (474), Operating expenses and other income and expenses (35,373) (46,324) (41,434) (57,433) Minority interest , (6,921) (4,200) x(((4,898) (6,486) Operating profit 24,834 32,277 36,812 39,591 Total net assets 150,994 177,506 209,165 246,540 Profit from associated company , - , - ,503 ,848 Share capital 18,638 18,638 18,638 18,638 Net financial income 5,449 3,385 2,621 5,747 Reserves 132,460 159,385 191,227 228,047 Profit before taxation 30,283 35,662 39,936 46,186 Treasury shares (104), (517), (700), ,(145) Income tax (1,664) (2,907) ,107 (543), Shareholders' equity 150,994 177,506 209,165 246,540 Profit after taxation 28,619 32,755 40,043 45,643 Minority interest ,198 ,962 (198), (330), Total assets and shareholders’ equity and liabilities 175,243 199,575 234,932 277,580 Net profit for the year 28,817 33,717 39,845 45,313 CAPITAL EXPENDITURE N/A 21,948 26,812 29,841 SHARE STATISTICS (HUF) Earnings per share 1,546 1,809 2,138 2,431 Dividends per ordinary share ,330 ,440 ,500 ,600 BALANCE SHEET (US$ M) 2002 2003 2004 2005 as at 31 December Non-current assets 424.4 499.6 679.9 655.0 STATEMENTS OF INCOME (US$ M) 2002 2003 2004 2005 Net other assets and liabilities 277.2 374.7 507.6 530.1 for the years ended 31 December Non-current liabilities (0.4) (0.3) (0.2) (2.2) Total sales 470.3 651.4 735.7 864.3 Minority interest (30.7) (20.2) (27.2) (30.3) Cost of sales (234.4) (300.5) (350.2) (378.4) Total net assets 670.5 853.8 1,160.1 1,152.6 Gross profit 235.9 350.9 385.5 485.9 Share capital 82.8 89.6 103.4 87.1 Operating expenses and other income and expenses (138.6) (206.8) (204.2) (287.6) Reserves 588.2 766.7 1,060.6 1,066.2 Operating profit 97.3 144.1 181.3 198.3 Treasury shares (0.5) (2.5) (3.9) (0.7) Profit from associated company .- .- 2.5 4.2 Shareholders' equity 670.5 853.8 1,160.1 1,152.6 Net financial income 21.4 15.1 12.9 28.8 Profit before taxation 118.7 159.2 196.7 231.3 Total assets and shareholders’ equity and liabilities 778.2 960.0 1,303.0 1,297.7 Income tax (6.6) (13.0) 0.6 (2.7) Profit after taxation 112.1 146.2 197.3 228.6 CAPITAL EXPENDITURE N/A 98.0 132.1 149.4 Minority interest 0.8 4.3 (1.0) (1.7)

Net profit for the year 112.9 150.5 196.3 226.9 Note: This Financial Record is not part of the audited Consolidated Financial Statements prepared in accordance with IFRS.

SHARE STATISTICS (US$) Throughout this Annual Report, certain Hungarian forint amounts have been converted into US$ for indicative Earnings per share 6.06 8.08 10.53 12.17 purposes only. Expenditure and income amounts incurred during a period have been converted at an average rate Dividends per ordinary share 1.29 1.96 2.46 3.00 calculated by the Company. Balance sheet figures for the end of the period have been translated at the year-end exchange rates.

Notes:• Figures for 2002 have been restated. • Earnings per share: Headline, i.e. diluted excluding exceptional and non-recurring items. • 2005 dividends per ordinary share of HUF 600 are as recommended by the Board of Directors. • This Financial Record is not part of the audited Consolidated Financial Statements prepared in accordance with IFRS. EXCHANGE RATES (US$ / HUF) 2002 2003 2004 2005 Average 255.2 224.0 203.0 199.7 End of year 225.2 207.9 180.3 213.9

NUMBER OF EMPLOYEES 2002 2003 2004 2005 End of year 6,950 7,328 7,260 8,078

114 CONSOLIDATED STATEMENTS CONSOLIDATED FINANCIAL RECORD 2002-2005 CONSOLIDATED STATEMENTS CONSOLIDATED FINANCIAL RECORD 2002-2005 115 CONTACTS

Registered Office Gedeon Richter Ltd. 1103 Budapest, Gyömrôi út 19-21. Hungary

Address for Correspondence Gedeon Richter Ltd. Budapest 10 • P.O.Box 27 1475 Hungary

Investor Relations International Finance Department Gedeon Richter Ltd. Budapest 10 • P.O.Box 27 1475 Hungary Phone: +36 -1 431 5764 Fax: +36 -1 261 2158 [email protected] www.richter.hu

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