1 1. Introduction................................................................................................................ 4 2. Key Financial Indicators in 2020 .................................................................................. 5 3. Key Events in 2020 ...................................................................................................... 7 4. Letter from the CZG President ..................................................................................... 8 5. Group Performance .................................................................................................... 12 a. Market and Products .............................................................................................. 12 i) Relevant Markets and Competition .................................................................... 17 ii) Markets ............................................................................................................ 19 iii) Marketing and Customers ................................................................................ 20 iv) Suppliers .......................................................................................................... 22 v) Regulation ........................................................................................................ 23 b. Financial Performance ............................................................................................ 25 c. Strategy and Outlook .............................................................................................. 28 d. Information Concerning COVID-19 .......................................................................... 33 e. Plants and Facilities ................................................................................................ 36 f. Investments ............................................................................................................ 38 g. Human Resources ................................................................................................... 39 h. Legal Proceedings ................................................................................................... 40 i. Research and Development ..................................................................................... 43 j. Intellectual Property and Licences ........................................................................... 44 k. Environment and Climate Change ........................................................................... 46 l. Auditors Remuneration in 2020 ............................................................................... 46 6. Diversity Policy .......................................................................................................... 47 7. Risk Factors, Risk management and Internal Control ................................................... 49 8. Basic Information about CZG - Česká zbrojovka Group SE ........................................... 63 9. Organizational Chart and Group´s Entities .................................................................. 64 a. Business and Value Creation Model ....................................................................... 67 10. Shares and Shareholding Structure ............................................................................. 69 a. Information about Shares Held by the Key Management and Members of the Board of Directors and Supervisory Board ......................................................................... 71 b. Other Legal Requirements ...................................................................................... 72 c. Important agreements concerning shares ............................................................... 73 d. Material contracts .................................................................................................. 73 e. Dividend Policy ....................................................................................................... 75 11. Corporate Governance Principles ............................................................................... 77 a. Corporate Governance Code ................................................................................... 77 b. Compliance and Anti-Bribery policy ........................................................................ 77 12. General Meeting Principles ........................................................................................ 79 13. Management of the Company .................................................................................... 84 14. Related Party Disclosures ........................................................................................... 94 15. Declaration of Persons Responsible for the Annual Report ......................................... 99 16. Standalone Financial Statements for the Year Ended 31 December 2020................... 100 17. Independent Auditor´s Report .................................................................................. 117 18. Subsequent Events ................................................................................................... 123 19. Glossary and Alternative Performance Measures ...................................................... 124 a. Alternative Performance Measures ....................................................................... 124 b. Glossary ............................................................................................................... 128 20. Consolidated Financial Statements under International Financial Reporting Standards as Adopted by the European Union for the Year Ended 31 December 2020 ............. 132 3 1. Introduction CZG - Česká zbrojovka Group SE („CZG“ or „the Company“) and together with its consolidated subsidiaries („the Group“) is one of the leading European producers of firearms and tactical accessories for military and law enforcement, personal defence, hunting, sport shooting and other civilian uses. Its products are marketed and sold under the Česká zbrojovka, CZ-USA, Dan Wesson, Zbrojovka Brno and 4M Systems brands. Its history dates back to 1936 when the Česká zbrojovka firearms factory was established in Uherský Brod. The factory was built prior to WWII by the Czechoslovak state with the strategic aim of moving firearms production further away from the German border. It was one of the largest and most modern armaments production facilities in Europe. The factory’s production of a full range of firearms started to develop gradually after WWII, resulting in strong product positioning in all major segments of the firearms market. In 1997, CZ-USA was established in the United States to handle local distribution, sales and service of firearms. In 2004, CZG acquired the firearms division of Zbrojovka Brno and, subsequently, it acquired Dan Wesson Firearms through CZ-USA in 2005. In May 2020, the Company acquired a minority stake in Spuhr i Dalby AB, a Swedish manufacturer of optical mounting solutions for weapons. As of 31 December 2020, CZG had an average recalculated headcount of 1,673 people, based in the Czech Republic, United States and Germany. Since October 2020, CZG´s shares are traded on the Prague Stock Exchange. The majority shareholder is Česká zbrojovka Partners SE with a 90.76% stake, the rest is free float. 4 2. Key Financial Indicators in 2020 Consolidated Statement of Profit or Loss and Other Comprehensive Income (consolidated, audited) For the year ended (CZK thousands) 31 December Change 2020 2019 in % (audited) Revenues from the sale of own products, goods and services 6,819,673 5,958,742 14.4% There of: Production, Purchase and Sale of Firearms and Accessories Segment 6,704,434 5,876,851 14.1% There of: Other Segment 124,672 81,891 52.2% Operating profit 1,056,319 943,710 11.9% Profit before tax 851,023 912,455 (6.7%) Profit for the period from continued operations 676,571 734,119 (7.8%) Post-tax profit from discontinued operation - 15,192 n/a Profit for the period attributable to: Owner of the parent 672,948 743,276 (9.1%) Non-controlling interests 3,623 6,035 (40.0%) Net earnings per share attributable to the owner of the parent company (CZK per share) Basic 21 25 (16.0%) Diluted 21 25 (16.0%) Consolidated Statement of Financial Position (consolidated, audited) (CZK thousands) As of 31 December 31 December Change in % 2020 2019 Total assets 8,787,551 7,548,575 16.4% Total equity 4,522,686 3,468,961 30.3% Total liabilities 4,264,865 4,079,614 4.5% Total liabilities and equity 8,787,551 7,548,575 16.4% 5 6 Notes to the Consolidated Financial Statements for the Year Ended 31 December 2020 3. Key Events in 2020 January 2020 An award for Česká zbrojovka a.s. in the prestigious Exporter of the Year contest The production of components for automotive and aviation industry was spun off outside of the Group April 2020 Česká zbrojovka signed a framework contact worth up to CZK 2.35 billion with the Czech Army May 2020 Shares of CZG listed on the Prague Stock Exchange (technical listing) CZG – Česká zbrojovka Group SE acquired a minority stake in Swedish Spuhr CARDAM provided the Ministry of Health with the first masks against COVID-19 September CZG announced the public offering of its shares 2020 October 2020 Initial Public offering of CZG´s shares completed CZG – Česká zbrojovka Group SE raised CZK 812,000,000 in public offering of its shares November Changes in the Board of Directors. Ladislav Britaňák was replaced 2020 by Jan Zajíc, new CEO of Česká zbrojovka, a.s. CZG announced exclusivity for negotiation