Zentiva S A : SCD_Zentiva_Annual Report 2023-EN

Annual Report of the Board of Directors

for the financial year 2023

Reporting date: 31 December 2023

• ZENTIVA SA
• Registered office: Bd. Theodor Pallady nr.50, Bucharest
• Phone / Fax: 021.304.72.00, 021.304.75.00 / 021.345.40.04
• No. and registration date with the Trade Registry Office: J40/363/1991
• Tax Identification Number: RO 336206
• Class, type, no. and main characteristics of securities: 697,017,040 dematerialized class I shares;
• Regulated market wherein trading is performed: Bucharest Stock Exchange;
• Market value: RON 2,92 / share representing the reference price on the last trading day of 2023.

Market capitalization as at the 31 December 2023: RON 2,035,289,757.

1. STOCKS AND SHAREHOLDERS

ZENTIVA SA (hereinafter, the "Company") was established in 1962 under the name Intreprinderea de Medicamente Bucuresti (hereinafter "IMB").

In 1990, the Company was incorporated, taking over the entire patrimony of the former IMB in accordance with the Government Decision.

In November 1999, the majority shareholding was taken over by the group of institutional investors consisting of the European Bank for Reconstruction and Development, the Post-Privatization Foundation, GED Eastern Fund, Euro Merchant Balkan Fund, Black Sea Fund and Galenica North East through the Cypriot company Venoma Holdings Limited.

On 27 June 2002, the Extraordinary General Shareholders' Meeting approved the increase in the share capital by the amount of former RON 277,974,100,000 (equivalent of RON 27,797,410), and from the amount of former RON 138,987,050,000 (equivalent of RON 13,898,705), respectively, to the value of former RON 416,961,150,000 (equivalent of RON 41,696,115), by granting of 2 free share for each share held by the shareholders recorded with the Shareholders Register as at the reference date 30 May 2002.

On 12 October 2005, Zentiva N.V., a Dutch company seated in Amsterdam, the Netherlands, with branches in several European countries, purchased the stocks of Venoma.

In October 2005, Zentiva NV made a public offer regarding the purchase of the shares of issuer Sicomed SA, subsequently renamed as Zentiva SA, for the amount of RON 1.37 / share, during the period 9 November 2005 - 12 January 2006.

In March 2009, Sanofi - Aventis Europe announced it had become a shareholder of Zentiva N.V., holding approximately 96.8% of shares.

In August 2009, Sanofi-Aventis Europe made a public offer for the purchase of the shares of issuer Zentiva SA, for the amount of RON 0.7/share, during the period 12 August 2009 - 22 August 2009. Between 20 February 2018 and 5 April 2018, Sanofi-Aventis Europe, through Zentiva N.V., conducted a public purchase offer at a price of RON 3.50 per share, acquiring 48,216,352 shares, and reaching a shareholding of 93.2295% of the share capital of the Company.

On 31 August 2018 the transfer of shares from Venoma Holdings Limited, ZENTIVA NV and Sanofi Aventis Europe to Zentiva Group a.s. was registered Therefore, Zentiva Group a.s. became a shareholder of Zentiva SA (holding of 93.2295% of the share capital).

On 30 September 2018, the transfer of shares was finalized between Zentiva N.V. (100% owned and controlled by Sanofi Aventis Europe), as seller, and AI Sirona BidCo s.r.o. (100% owned and controlled by AI Sirona [Luxembourg] Acquisition S. à r.l., a company which is, in its turn, entirely owned by AI Sirona [Luxembourg] Subco S. à r.l. and ultimately controlled by Advent Funds GPE VIII, a fund managed by Advent International Corporation), as buyer, by which the control over Zentiva Group a.s. was transferred. On 31 December 2018, Zentiva Group a.s. held 388,730,877 shares, representing 93.2295% of the share capital of the Company.

Between 18 December 2018 - 11 January 2018, Zentiva Group a.s. conducted a mandatory public offer for purchase at a price of RON 3.7472 per share, acquiring 200,333 shares, and reaching a shareholding of 388,931,210 shares representing 93.2776% of the share capital of the Company.

Between 5 July 2019 - 5 August 2019 (subscription period), the Company performed the share capital increase by granting preference rights, by issuing 300,000,000 new shares, with a nominal value of RON

0.1 / share, which were offered for subscription to the shareholders recorded with the Shareholders Register of the Company held by Depozitarul Central SA, as at the registration date 16 May 2019.

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1. SHARES AND SHAREHOLDERS (continued)

Following the subscriptions made, out of the total number of 300,000,000 new shares, 19,944,110 shares were not subscribed and were cancelled in accordance with the provisions of the decision of the Extraordinary General Meeting of the Shareholders of the Company dated 30 April 2019.

After the share capital increase, the share capital of the Company is RON 69,701,704 (compared to RON 41,696,115 prior to the increase), being divided into 697,017,040 nominative shares with a value of RON

0.1 each, and is held as follows:

• the shareholder Zentiva Group a.s. holds 668,778,101 shares, representing 95.9486% of the Company's share capital;
• other natural and legal persons hold 28,238,939 shares, representing 4.0514% of the Company's share capital.

The synthetic shareholding structure as of 31 December 2023 remained identical to the one as of

31 December 2022, i.e,:

Source: Depozitarul Central

*On 31 December 2019, the company Zentiva Group a.s. merged with the company AI Sirona Bidco s.r.o., the latter being the sole shareholder of Zentiva Group a.s. Following the merger, the company Zentiva Group a.s. ceased to exist, its entire assets being transferred to the company AI Sirona Bidco s.r.o., which, as of 31 December 2019 also, changed its legal form from a limited liability company ("s.r.o.") to a joint stock company ("a.s."), as well as the name from AI Sirona Bidco s.r.o. to Zentiva Group a.s.

The Company's shares have been listed on the Standard category of the Bucharest Stock Exchange since 1998.

Out of the total number of 697,017,040 shares, 696,833,149 shares are being traded on the capital market, with the remaining 183,891 shares being held by Zentiva SA.

The Company did not trade its own stocks during 2023.

The market capitalization of the Zentiva SA shares as at the 31 December 2023 amounted to RON 2,035,289,757 (2022: RON 1,352,213,058).

As of 31 December 2023, the price per share was RON 2.92 / share (2022: RON 1.94 / share).

As of 31 December 2023, the Company has net assets of RON 1,191,262,465 which represents more than 50% of the share capital of RON 69,701,704 (as of 31 December 2022, the Company had net assets of RON 999,354,559, representing more than 50% of the share capital of RON 69,701,704) which is in compliance with the requirements of Romanian Company Law (Law no. 31/1990, as amended and supplemented). As of 31 December 2023, the Company did not set a legal reserve. As of 31 December 2023, the level of legal reserves reached the threshold of 20% of the Company's share capital, in accordance with the Companies Law.

Company mergers and re-organizations

In 2023 the Company did not undergo any mergers or re-organizations.

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2. ECONOMIC & FINANCIAL ENVIRONMENT

Evolution of the macroeconomic indicators in Romania

The inflation rate had significant fluctuations, from 4.6% in 2018, to 10.4% in 2023. In 2023, the national currency depreciated against the EUR by 0.5%, from RON / EUR 4.9474 at 31 December 2022 to RON / EUR 4.9746 at 31 December 2023.

Source: National Institute of Statistics and NBR

Pharmaceutical industry

The Romanian pharmaceutical market, including prescription-based and over-the-counter medicines, recorded in 2023 a growth rate of 14.1% (in value) versus the previous year, reaching the level of EUR 6.224 million (according to the sell-in information provided by the market research agency IQVIA in December 2023).

According to IQVIA, the Romanian generic medicines market grew also in 2023 by 16.7% (in value), reaching the level of EUR 1.174 million, according to IQVIA.

3. COMPANY'S ACTIVITY IN 2023

For 2023, ZENTIVA SA reports a turnover of MRON 953.6 with an increase of 25.5% compared to the previous year, and an operational profit of 192.6 MRON, with an increase of 93.7%, compared to the previous period, mainly due to the increase in sales of goods (27%) and services (8%) and the increase in the financial result (30%).

In 2023, the achieved production volume was higher by 5.5 million commercial units than the 2022 production, representing an increase of 4.5%.

The Company closed the year 2023 with a net profit of RON 192,615,832.

The most important achievements in 2023 were the following:

• Successful completion of the transfer of 6 more products for export, manufactured locally;
• External sales accounted for 44% of the achieved 2023 production volume (136.65 million manufactured commercial units both for the Romanian market, but also for other European markets - Germany, France, Italy, Czech Republic, Slovakia, etc.).
• Investments in total amount of RON 28.3 million (EUR 5.7 million) in new production equipment & laboratories and modernization of existing ones, equipment to reduce electricity consumption and reduce the carbon footprint.

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1. COMPANY'S ACTIVITY IN 2023 (continued)

1. Reporting base

As at the 31 December 2023, Zentiva SA prepared financial statements in accordance with Order of the Ministry of Finance no. 2844/2016 approving the accounting regulations compliant with the International Financial Reporting Standards applicable for companies whose securities are admitted to trading on a regulated market, with all the subsequent amendments and clarifications in force.

a. Sales - Volumes and amounts

The net turnover amounts to RON 953,633,084 as of 31 December 2023 (2022: RON 759,630,870).

The Zentiva's average selling price (finished goods and merchandise) was RON 5.99 in 2023 and RON

4.99 in 2022. The price increase is due to the change in the mix of products and to the price update in line with the increase in raw material costs and manufacturing costs.

Source: Zentiva, Annual Financial Report

In 2023, external sales accounted for 43.7% of total turnover (RON 417.1 million), compared to 41.1% in 2022 (RON 312.3 million). The external sales were made through Zentiva k.s. (part of Zentiva Group). The medicines were mainly intended for European Union markets.

The percentage of OTC (over the counter) products in Zentiva SA sales was 4.7% in 2023 versus 4.8% in the previous year.

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3. COMPANY'S ACTIVITY IN 2023 (continued)

Expenses for raw materials, materials and merchandise have increased compared with the prior year due to the increase in the acquisition prices and of the quantity of manufactured products and merchandise sold.

Personnel benefit expenses increased by 20% in 2023, i.e., by RON 27.2 million; the number of employees was 979 at the end of 2023 and 903 employees at the end of 2022. The increase in labor costs was influenced by the internalization of employees from an external workforce supplier, but also by the increase in the employee number and by the annual indexation of wages according to Company's policy.

Other operating expenses decreased by RON 16.6 million compared to 2022, mainly due to the increase in changes in inventories and of the decrease of other expenses, influenced by the termination of the factoring agreement.

Other operating revenues decreased by RON 3.0 million compared with previous year.

c. Cash availability

The Company's cash availabilities at the end of 2023 amounted to RON 27.3 million while as of 31 December 2022 were RON 11.2 million consisting mainly of cash in banks.

d. Cash Pooling - Intercompany receivable

In 2023 and 2022 the Company participated in a cash pooling agreement with AI Sirona (Luxembourg) Acquisition SARL (the ultimate parent entity of Zentiva Group, a.s.). Through the cash pooling arrangements AI Sirona (Luxembourg) Acquisition SARL manages centrally the surplus cash and the short- term liquidity needs of the subsidiaries. The cash deposits/drawdowns under the cash pooling agreement are subject to interest rates based on 3M ROBOR rate and applicable mark-up based on valid Group transfer pricing policy.

The Company has assessed the purpose of the cash pooling deposits held at AI Sirona (Luxembourg) Acquisition SARL and has concluded that they are held to generate an investment return. In accordance with the provisions of the cash pooling agreement at any time the Company may, by thirty days prior notice to the treasury group entity, request payment of the credit balance maintained and therefore the Company's management have assessed that the presentation as short term is appropriate

The total interest income for cash-pooling transactions during the year is in the amount of RON 37,877,564 (2022: interest income in the amount of RON 31,614,121) and is presented in Note 6.4 Financial income.

3.2. Portfolio of products and marketing market

The product portfolio of Zentiva SA includes 137 products for human use, as solids (tablets, capsules, and pellets) and injectable solutions.

a. Until 27 September 2018, the distribution activity on the local market was ensured by Sanofi Romania SRL, the exclusive distributor of the Sanofi Group on the Romanian market. After Zentiva exited Sanofi Group, the distribution activity on local market was ensured by Romanian distribution companies.

b. Zentiva is a part of Zentiva Group, which has production facilities in Czech Republic, Romania and India. The sales on the EU market were ensured by Sanofi Winthrop (part of Sanofi Group) until 30 September 2018 and by Zentiva k.s. (part of Zentiva Group) after 1 October 2018.

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3. COMPANY'S ACTIVITY IN 2023 (continued)

3.3. Selection policy for suppliers of raw materials

The policy of Zentiva SA is to permanently search for suppliers that deliver high quality raw materials.

The Quality Insurance Department assesses the potential producers and the existing ones on a permanent basis. Their focus is on the quality of documentation provided by them, which is necessary for authorization purposes and the quality of the supplied products, as well as the products behavior during the technological process.

3.4. The main competitors of Zentiva SA on the local market

Zentiva SA is one of the main producers of medicines on the local market.

According to the statistical data supplied by IQVIA, Zentiva had in 2023 an average producer price of RON 15.24* (+ 22.6% increase versus the average of RON 12.34 in 2022), ensuring patient accessibility to cost-effective medication.

*the average price is computed based on IQVIA consumption data (sales on the Romanian market from pharmacy to the patients)

As a reference, the average producer price for all medicines on local pharmaceutical market was of RON 40.15 in 2023 (+ 14.3% increase versus the average of RON 35.12 in 2022).

Other local producers, well-established on the medicines market, are: Terapia Cluj, Antibiotice Iasi, Biofarm.

The main importers of pharmaceutical products are: Novartis, Sanofi, AstraZeneca, Merck Sharp Dohme and Johnson&Johnson.

3.5. Information about personnel

In 2023, Zentiva SA had an average no of employees of 956 employees (2022: 884 employees).

The employees' rights and other labor relationships are regulated by the Collective Labor Agreement. For 40% of the employees, such rights are supported by the Zentiva SA Trade Union.

3.6. Information about Company's environmental policy

The following regulatory documents related to environmental protection were applicable in 2023:

• Environmental Permit no. 234/7 May 2012, revised on 22 June 2021, with the mention that "The authorization maintains its validity for the entire period in which its beneficiary obtains the annual visa";
• Wastewater Collection Agreement no. 1521/31 August 2012, valid for an unlimited period of time;
• Water Management Authorization no. 205 - B from 5 Mai 2022, valid until 30 April 2026.

The waste management process was maintained by applying solutions for waste elimination.

The supervisory audits performed by Lloyd's Register Romania confirmed that the environmental management system, which was implemented according to EN ISO 14001:2015, and the Energy Management Systems are properly maintained.

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1. COMPANY'S ACTIVITY IN 2023 (continued)

1. Research and development activity

The R&D expenses for 2023 were RON 6.1 million vs. RON 3.6 million in 2022 and consist in activities linked to the transfer of products. For 2024, R&D expenses are forecasted at RON 11.1 million.

3.8. Investment activity

In 2023, the Company investment expenses amounted RON 28.3 million. The objectives of the investment program, which will be continued in 2024 are to maintain the Good Manufacturing Practice Guidelines and update technologies in line with the international quality and environmental standards, and to extend the product portfolio and of new forms of packaging. The investments provided in the 2024 budget is RON 41.1 million (EUR 8.3 million).

In 2023, the financing of the investments programs was made exclusively from own sources.

4. COMPANY'S TANGIBLE ASSETS

1. The operating activity of Zentiva SA is located at Bd. Theodor Pallady nr.50, on the Dudesti industrial platform, in the South-Eastern area of Bucharest Municipality.
2. The depreciation methods of the fixed assets used by the Company are the following:
3. • the straight-line method for buildings, fixed assets purchased under financial lease and for fixed assets other than those related to the production capacity;
   • the reducing balancing method for the fixed assets in the form of equipment related to the production capacity;

The useful life and depreciation method are subject to periodic review, in order to ensure the expectations relating to the economic benefits of the assets.

As of 31 December 2022, the Company revalued the existing land and buildings in the Company's patrimony. The revaluation was made by an independent valuer in accordance with the International Valuation Standards.

The net impact following the revaluation was in the amount of RON 11,481,031, of which in the revaluation reserve it was registered the amount of RON 10,884,283.

As at 31 December 2023, the independent valuer reassessed the fair values using updated market estimates and concluded that there are no significant variations compared to the fair values estimated as at 31 December 2022.

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4. COMPANY'S TANGIBLE ASSETS (continued)

Gross value and depreciation amount in 2023 comparing to year 2022 is the following:

PROPERTY, PLANT AND EQUIPMENT

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1. COMPANY'S MANAGEMENT

1. Board of Directors

As at 31 December 2023, the Board of Directors had the following composition:

• Simona Cocos
• Member of the Board - Starting April 2010
• President of the Board - Starting August 2021

Born in 1967, she graduated from the Faculty of Chemistry in 1992. In 2006 she obtained a Professional Diploma in Management at Open University (UK) / Codecs Romania and in 2008 she graduated from a MBA program in Business / Economics at Open University (UK).

Starting 1995 she held several positions at Sanofi Romania, the last ones being: Marketing Manager, and Marketing Director, respectively.

Margareta Tanase

Member of the Board - Starting April 2010

Born in 1960, she graduated the Faculty of Chemistry - Polytechnic Institute Bucharest in 1989.

Starting 2000 she held several positions at Sicomed / Zentiva, the last ones being: Regulatory Affairs Manager, and Regulatory Affairs and Medical Director, respectively.

Kenneth Lynard

Member of the Board - Starting October 2019

Born in 1968, Kenneth holds a MSc in Auditing & Accounting from Copenhagen Business School (Denmark) and an Executive MBA from IMD, Lausanne (Switzerland).

Earlier in his career, Kenneth was the CFO for Europe, Middle East, Africa and Canada at Medtronic, one of the world's largest medical device companies, and he has also held multiple management positions in other regional healthcare and financial services companies.

During 2012 - 2016, Kenneth was the CFO for Commercial Operations of Gilead Sciences, a large California (USA) based biopharmaceutical company, and Group CFO during 2017 - 2019, at Affidea a privately held advanced diagnostics imaging company.

Kenneth Lynard is also part of the management bodies of several other entities from Zentiva Group, also being a member of the Board of Directors and Chief Financial Officer of the company Zentiva Group as.

Alin Briciu

Member of the Board - Starting February 2023

Born in 1982, Alin was appointed Head of Finance, Central Eastern Europe (CEE) within Zentiva, as of February 1st 2023, position from which he ensures strong regional financial management (planning, reporting and analytics), full compliance with all group financial and accounting policies across CEE and leads, develops and implements improvements and change management strategies and initiatives across CEE markets.

He started professional activity in the pharmaceutical field in 2007 and he joined Labormed Pharma SA 16 years ago, holding over time multiple managerial positions at the group level.

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