Report of the Supervisory Council of JSC „Olainfarm” to the General Meeting of Shareholders

Supervisory Council of JSC „Olainfarm” has read the Consolidated and Parent Company’s Annual reports for 2016, as well as Independent Auditors’ Report about it. In addition, the Council has assessed financial position of the Company and Operations of the Management Board during this financial year and hence produced this Report.

The Council values the work conducted by Company’s Board during the last year as satisfactory, because, although its operations allowed the Company to significantly increase its sales in 2016, due to several unfavorable decisions and conditions it had to make significant provisions during this period, resulting in considerable profit reduction. The Council highly appreciated the acquisition of SIA Tonus Elast, which is so far the biggest acquired daughter company of the Group.  Tonus Elast is the company with a very strong and clearly not fully realized export potential.  The Council urges the Board to closely follow that during the harmonization of processes positions of Tonus Elast in its existing markets are not harmed. With regard to other acquisitions of 2016 and the upcoming ones, the Council asks the Board to assess financial feasibility of such, especially if the target operates in a sector where expertise of the Company itself is very limited.  The Council supports an opinion that for more rapid growth the Company must rather focus on acquisition of a larger company with greater development potential, than waste its financial and other resources on smaller, riskier and administratively more demanding objects.

Rapid decline in Company’s profitability and significant provisions for doubtful receivables made in 2016 makes the Council to draw Board’s attention to issues directly related to Company’s profitability, specifically, to necessity to more carefully assess the recoverability of assets and justification and transparency of marketing and sales costs of Parent Company and daughter companies.  The Council fully appreciates that when entering new markets or launching new products bigger sales and marketing costs are unavoidable.  However, the Council asks the Board to be more critical regarding the necessity to bear significant marketing costs for well-established products in well-established countries.   

During 2016 the Council continued following the development of different companies in the Group. And this is the second year in a row, when the Council wants to specifically emphasize rapid and positive development of SIA Silvanols. 2016 has been the second year in a row when this company makes significant profit from its main operations.  It is particularly satisfying that 2016 is going to be the first year, when this company pays dividends to its shareholders from its profits gained that year.

The Council is satisfied that the Board is dedicated to solve the related party lending issue and is suggesting the relatively high dividend payments of 0.64 cents per share, making the payments in three installments at the end of second, third and fourth quarters.  The Council shares Boards conservatism in approach to Company’s liquidity this year, but would like to draw the attention of the Board and shareholders that therefore suggests to abstain from it.

During 2016 the Council of the Company has performed its duties and supervised operations of the Company according to legislation, decisions by the general meeting.  The Council has approved financial statements and overviewed operations of Company’s management.  During the reporting period 17 Council meetings were held.  During these meetings, Board reports, Board composition, plans, planned and actual budgets were reviewed.  Agenda items of general meeting was pre-approved. Council found no significant insufficiencies in Boards operations in 2016.  The Board has been in constant consultations with the Council and has taken into account all previously mentioned and other recommendations of the Council targeted at safe further development of the Company.

The Council would like to take this opportunity to thank the Board, all employees of the Company and its partners for cooperation in 2016, and to wish successful, stable and positively challenging next year.

Approved by the Council Meeting on April 28, 2017

Chairman of the Council                       Ivars Godmanis

JSC Olainfarm is one of the biggest pharmaceutical companies in Latvia with more than 40 years of experience in production of medication and chemical and pharmaceutical products. A basic principle of company's operations is to produce reliable and effective top quality products for Latvia and the rest of the world. Products made by the Group are being exported to more than 35 countries of the world, including the Baltics, Russia, other CIS, Europe, Asia, North America and Australia.

Information prepared by:
         
Salvis Lapins
JSC Olainfarm
Member of the Management Board
Rupnicu iela 5, Olaine, Latvia, LV 2114
Phone: +371 6 7013 717
Fax: +371 6 7013 777
E-mail: Salvis.Lapins@olainfarm.lv