Audited annual report 2020

• New JSC Olainfarm strategy is approved
• The Company reviewed operations in the main markets
• JSC Olainfarm continued investments to modernize its operations and worked on clinical trials
• Group’s revenues in 2020 were EUR 122,157 thousand, net profit was EUR 9,478 thousand.
• Group actively engaged to improve operations and financial results of subsidiaries

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 Olainfarm Group continued the transformation process towards sustainable growth. Due to the Covid-19 pandemic, it was a year of challenges to remain operational efficient, where innovative ways of thinking to break the traditional way of conducting business were key to ensuring availability of our products & services throughout the markets. We identified priorities and focused efforts to achieve what is set out in our 5-year strategy. We are grateful to our employees for their commitment to sustain the operational business and for their continuous involvement, and transforming the company in line with “Forward! 2020 – 2025” strategy! We keep building on the solid financial foundation from 2019 that is serving as a base for our growth. Strengthening research and development is a strategic priority for 2021 and beyond,” said Jeroen Weites, Chairperson of the Management Board of JSC Olainfarm.

JSC Olainfarm revised its operational activities in its main-end markets, including its home market in Latvia. As a long-term investment, JSC Olainfarm established a subsidiary in Russia, providing the Company with a better understanding of events in the medication market as well as the ability to conduct its own market surveys to ensure that what the Company has to offer best matches customer expectations.

In 2020, a serialization of the products made for the Russian market began, thus ensuring compliance with the regulatory requirements set for drug verification systems, product traceability and protection against counterfeiting.

In January 2020, JSC Olainfarm successfully completed the implementation and audit of the project “Experimental Technology for the Production of New Products in JSC Olainfarm”. In total, 253 components of the experimental production line were delivered and installed within the project, which started in May 2017 with a total investment of EUR 6.4 million. This includes EUR 2.2 million from the European Regional Development Fund.

At the start of Covid-19 pandemic the company provided support to Pauls Stradiņš Clinical University Hospital by donating four artificial ventilators and isopropyl alcohol. During the year, JSC Olainfarm continued to provide support to limit the spread of Covid-19. Additionally, in 2020 JSC Olainfarm continued to support students in cooperation with the University of Latvia, Riga Technical University and Rīga Stradiņš University.

Environment

In 2020, JSC Olainfarm built and commissioned a new, fully automated refrigeration plant supporting production processes, replaced external refrigeration lines by building new refrigeration units in production facilities. More than EUR 2.7 million has been invested in the modernization of the refrigeration and distribution infrastructure. The resulting savings are expected to be 1486.6 MWh per year, with a reduction in greenhouse gas (CO2 ) emissions of 235.6 tonnes per year.

In 2020, work began on the modernization of wastewater facility of the Company, with the preparation of the terms of reference for the development of an engineering design for the wastewater facility. The purpose of this project is to create a new, fully automated, closed wastewater treatment facility in 5 Rūpnīcu street in Olaine.

A partial modernization of lighting was carried out, replacing light bulbs and luminaires with energy-efficient LED bulbs, for savings of 30.4 MWh per year.

Heat insulation was replaced on the indoor cooling energy and heat energy lines within the production units in order to reduce energy losses. Savings: 59.5 MWh per year.

Social

In 2020, JSC Olainfarm employed an average of 1,217 people, of which 1,050 were employed in Latvia and 167 in other countries where JSC Olainfarm is represented.

In 2020, a new remuneration system was developed based on assessing all positions using an internationally recognized method and on allocating all positions into groups. The purpose of the new remuneration system is to provide equal remuneration for holding equivalent positions (internal fairness) and to promote JSC Olainfarm as an employer on the job market.

Corporate governance

A goal-orientated process to improve the Company’s operations was started in 2020, with intention to improve corporate governance, update the product portfolio, and modernize the Company as a whole.

In 2020, JSC Olainfarm announced the convening of three shareholders’ meetings and ensured that they were organized. The danger of spreading Covid-19 and its containment measures affected the timing of the shareholders’ meetings.

After Remuneration policy was approved at the shareholders meeting the Company established Remuneration Committee. Its main functions are to support the Supervisory Council in determining the remuneration amount for the Management Board, to develop and assess compliance with work performance indicators and remuneration-setting criteria, to participate in drafting policy amendments, and to monitor the application of the policy.

Financial results

During the 12 months of 2020, the income of the Group reached EUR 122,157 thousand, with a year-on-year reduction of 11%. The gross profits were EUR 72, 404 thousand, which is EUR 12,403 thousand (14.6%) less than the gross profits in 2019. This reduction in gross profits can be explained by changes in the amount of time required for deliveries to Russia due to the negative effects of new regulations and the spread of Covid-19. Gross profitability in 2020 was 59.3%, with a 2.5% drop compared to 2019 (61.8%).

Group EBITDA in 2020 was EUR 24,861 thousand or 17% (EUR 5,098 thousand) less year-on-year. Group EBITDA profitability was 20.4%.

At the same time Group’s net profit in the whole 2020 was EUR 9,478 thousand, which was impacted by drop in gross profit in Russia and negative fluctuations of Russian ruble exchange rate.

Business segments

In 2020, sales within production of medications segment amounted to EUR 74,701 thousand, with a 13% (EUR 11,416 thousand) reduction year-on-year. The proportion of this segment in the overall turnover structure of the Group during the reporting period was 61%, with a reduction of 2% compared to 2019.

The pharmacy segment rose by 4% year-on-year in 2020, reaching EUR 26,472 thousand. During the reporting period, the proportion of this segment in the overall turnover structure rose to 22% (+3% year-on-year).

The turnover of compression products segment in 2020 was EUR 6,474 thousand, a 26% drop compared with 2019. During the reporting period, the proportion of this segment in the overall turnover structure of the Group was 5% (-1%).

The wholesale of medications segment’s turnover in 2020 was EUR 5,062 thousand, a 6% reduction compared with 2019.

The income of other activities segment in 2020 was EUR 9,448 thousand, or 18% less than in 2019. During the reporting period, the proportion of this segment in the overall turnover structure of the Group was 8%, the same as in the previous year.

During the 2020 reporting period, the main segments of the Group operated with a profit. The highest profits (before tax) were generated by the segment of pharmaceuticals and chemicals, generating EUR 13,346 thousand; EUR 2,143 thousand was earned through wholesale trade and EUR 781 thousand through retail. The compression material segment generated a loss of EUR 93 thousand before tax; in other segments, losses before tax were as high as EUR 389 thousand.

Clinical trials

During the reporting period, investments were made in preclinical and clinical trials of medications. In 2020, four (pharmacokinetics and bioavailability) clinical trials of Phase 1 were completed; because of the Covid-19 pandemic, one clinical trial of Phase 1 was moved to the first half of 2021. Planning for four clinical trials of Phase 3 was done in 2020. Due to the restrictions caused by the Covid-19 pandemic and the associated risks when conducting clinical research, it is planned to begin the Phase 3 clinical trials (the clinical part) in 2021.

SC Olainfarm, a part of Olainfarm Group, is one of the leading pharmaceutical companies in the Baltic States offering high quality medicine and chemical pharmaceutical products. The business strategy “FORWARD” highlights the company’s main vision – to become one of the TOP10 Central and Eastern European manufacturing companies by 2025.

With nearly 50 years of expertise, Olainfarm Group delivers sustainable healthcare products and services with added value to patients in more than 50 countries all over the world via its key subsidiaries – pharmaceutical company JSC Olainfarm, food supplement & medical device producer Silvanols, elastic & compression material producer Tonus Elast, pharmacy chain Latvijas Aptieka and healthcare & diagnostics centres DiaMed & OlainMed.

Additional information:  
Jānis Dubrovskis
Investor Relations Advisor of JSC Olainfarm
Phone: +371 29178878
Email: janis.dubrovskis@olainfarm.com

Attachment

• Olainfarm_Annual_report_2020