Joint-stock company (JSC) Olainfarm (uniform registration number 40003007246) 2020 ANNUAL REPORT Audited consolidated and Group parent company financial reports Management report | Statement of management’s responsibility | Corporate governance report Non-financial report | Remuneration report | Independent auditor’s report OLAINFARM Group 3 Corporate mission 3 Corporate vission 3 HIGHLIGHTS OF 2020 4 SUPERVISORY COUNCIL REPORT 6 STRATEGY 9 CORPORATE GOVERNANCE 11 Governance model 11 Supervisory Council 12 Audit Committee 13 Management Board 14 Prevention of conflict of interest 15 CORPORATE GOVERNANCE REPORT 16 2020 developments in corporate governance 17 Compliance with the principles of the code of governance 18 SHARES AND SHAREHOLDERS 20 Shareholder involvement 21 JSC Olainfarm shares owned by the officers of its administrative bodies 22 INTERNAL CONTROL 22 Internal control system 22 Audit Committee’s report 23 Key governance policies 27 REMUNERATION REPORT 28 Remuneration policy and key components 29 Principles for determining the remuneration amount 29 Remuneration in 2020 30 Details 31 Linking to performance results 32 Additional information 32 NON-FINANCIAL REPORT 33 Environmental management indicators 37 Social responsibility indicators 43 Corporate governance indicators 47 CORPORATE SOCIAL RESPONSIBILITY 51 INFORMATION ABOUT SUBSIDIARIES 52 Ltd Latvijas aptieka operations in 2020 52 Ltd Tonus Elast operations in 2020 53 Ltd Silvanols operations in 2020 54 Activities of the Ltd DiaMed and Ltd OlainMed clinics in 2020 55 Biotest operations in 2020 56 MANAGEMENT REPORT 57 Operating environment 58 Corporate governance report 62 Non-financial report 63 Future prospects 63 DEFINITIONS OF TERMS AND ABBREVIATIONS 64 FINANCIAL STATEMENTS 65 STATEMENT OF MANAGEMENT RESPONSIBILITY 66 Statement of comprehensive income 67 Statement of financial position 68 Statement of cash flows 70 Notes to the financial statements 72 INDEPENDENT AUDITOR’S REPORT 118 Olainfarm Group JSC Olainfarm (hereinafter – the Company) is one of the biggest businesses in the Baltics, boasting more than 45 Corporate mission years of experience in manufacturing medications and other We improve our clients’ lives and create value for our chemical and pharmaceutical products. The product portfolio organization by providing sustainable healthcare products of the Company comprises more than 60 finished dosage and services and using our expertise in production and sales. forms, 25 active pharmaceutical substances, and more than 20 intermediate products. JSC Olainfarm specializes in nervous system, cardiovascular, antibacterial, antiviral and antiallergic medications. In the field of chemical products for pharmaceuticals, the Company is specialized in the development and manufacture of adamantane, quinuclidine, and the nitrofuran group of products. JSC Olainfarm is a licensed manufacturer of medications and active pharmaceuticals, equipped with modern technologies and certified in accordance with the Good Manufacturing Corporate vision Practices regulations of both the EU and Russia, the By 2025, we will be one of the top 10 Central and Eastern ISO 14001:2015 environmental management standard, and European manufacturers offering sustainable healthcare in certain categories, US Food and Drug Administration (FDA) products and services within certain therapeutic fields, standards, Australian Therapeutical Goods Administration intended primarily for Central and Eastern Europe, the CIS (TGA) standards and Japanese Pharmacauticals and and other global markets. Medical Devices Agency (PMDA) standards.(PMDA). Corporate information Group parent company information Joint-stock Company (JSC) OLAINFARM Manufacture and distribution of chemical pharmaceutical products Uniform registration number: 40003007246 Registration: 10 June 1991 in Riga (re-registered on 27 March 1997) Address: Rūpnīcu iela 5, Olaine, Latvia, LV-2114 Major subsidiaries (100%) Ltd Latvijas Aptieka — chain of pharmacies Ltd Silvanols — Latvian green pharmaceuticals manufacturer Ltd Tonus Elast — manufacturer of elastic and compression products Financial year 1 January–31 December 2020 3 Highlights of 2020 Every day, JSC Olainfarm products help to improve the quality of life of millions of patients from more than 50 countries and territories around the world, providing care for patients with health problems related to pain, inflammation, cardiovascular diseases, mental health and others. Our mission is to improve the lives of our customers and create value for the Company by providing sustainable healthcare products and services using our knowledge in manufacturing and sales. In 2020, JSC Olainfarm was among the TOP 20 most valuable companies in Latvia, contributing to our national economy In 2020, JSC Olainfarm approved its new strategy “Forward! 2020–2025”. The main goal is to become one of the TOP 10 largest pharmaceutical manufacturing companies in Central and Eastern Europe by 2025, sustainably supplying healthcare products and services in specific therapeutic areas: cardiovascular diseases, neurology, psychiatry, and the treatment of urinary diseases. In 2020, JSC Olainfarm continued to strengthen synergies Sustainable production between Olainfarm Group companies. Last year, changes In January 2020, JSC Olainfarm successfully completed the were made to the management teams of subsidiaries Tonus implementation and audit of the project Elast and Latvijas Aptieka with an eye towards sustainable “Experimental Technology for the Production of New development. Products in JSC Olainfarm”. In total, 253 components of the experimental production line were delivered and installed Strengthening the end-market business model within the project, which started in May 2017 with a total JSC Olainfarm revised its operational activities in its investment of EUR 6.4 million. This includes EUR 2.2 million main-end markets, including its home market in Latvia. from the European Regional Development Fund. As a long-term investment, JSC Olainfarm established a In December 2020, the project on reconstruction of subsidiary in Russia, providing the Company with a better the refrigeration plant and its engineering system was understanding of events in the medication market as well completed, which will contribute to reducing greenhouse gas as the ability to conduct its own market surveys to ensure emissions. More than EUR 2.7 million has been invested that what the Company has to offer best matches customer in the modernization of the refrigeration and distribution expectations. Currently, almost half a million patients in infrastructure, including co-financing from the Cohesion Russia use medications made by JSC Olainfarm. They are Fund in the amount of EUR 700 thousand. largely used for treating psychosomatic diseases, cerebral JSC Olainfarm has a number of ongoing projects with the ischaemia, urinary tract infections and other conditions, all in support of European funds. accordance with international therapy guidelines. University professors and leading researchers in Russia highly Support for young professionals appreciate their education and research partnerships with The Company continues to support young professionals. JSC Olainfarm. In 2020, a serialization of the products made JSC Olainfarm donation worth EUR 10,000 will ensure the for the Russian market began, thus ensuring compliance with promotion of the digitization of the study process of the the regulatory requirements set for drug verification systems, Faculty of Law of Rīga Stradiņš University (RSU). Thanks product traceability and protection against counterfeiting. to the donation, the RSU Faculty of Law will digitize the The Company focuses on ensuring the compliance of its range of study courses and use virtual reality technologies products with national and international standards, as well in the learning process. Additionally, in 2020 JSC Olainfarm as the requirements of EU and Russian law. This year, continued to support students in cooperation with the JSC Olainfarm received Russian certificate of Good University of Latvia, Riga Technical University and Rīga Manufacturing Practice which confirms the JSC Olainfarm Stradiņš University. care for the quality system, including the maintenance of requirements for the production and quality control of medicines, and compliance with the market of Russia. GMP certificates have also been obtained from the competent authority in Japan. 4 Support to limit the spread of Covid-19 In order to provide support for the treatment of persons infected with Covid-19 and taking into account the state of emergency declared in the country, JSC Olainfarm has donated four artificial ventilators, in total worth EUR 100 thousand, to Pauls Stradiņš Clinical University Hospital and provided training on the use of the donated lung ventilation equipment. JSC Olainfarm also handed over half a tonne of isopropyl alcohol, which can be used for disinfection purposes and to limit the spread of the Covid-19 outbreak. In order to promote the health of Children of Latvia and the mitigation of the consequences of Covid-19, JSC Olainfarm donated funds in the amount of EUR 15 thousand at the end of the year to the Children’s Hospital Foundation, which operates in support of the Children’s Clinical University Hospital (CCUH). Also, this year, instead of corporate gifts, the Company donated funds worth almost EUR 18 thousand to the Support Fund of Riga East Clinical University Hospital. These funds were directed towards the purchase of equipment