Table of contents

 NOTE EXPLICATIVE LA SITUATIILE FINANCIARE:

1. GENERAL INFORMATION

1.1 Brief company profile

Antibiotice SA, based in the city of Iasi, Valea Lupului street no. 1, tax registration code RO 1973096 was established by the Decision of the Cabinet Office no. 2980 / 29.12.1952 and it was subsequently reorganized as a joint stock company based on Law no.15 / 1990 and the Government Decision no.1200 / 12.11.1990.

The company is listed on the Bucharest Stock Exchange in the premium category, based on Decision no. 43 / 21.02.1997 of the Bucharest Stock Exchange.

Our company’s 8 manufacturing flows, upgraded and certified according to the Good Manufacturing Practice (GMP) standards, produce medicinal products in the following dosage forms: powders for injectable solutions and suspensions (penicillins), capsules, tablets, suppositories and topical preparations (ointments, gels and creams), Nystatin active substance and biocidal products. Altogether they form a complex portfolio of more than 150 medicinal products for human use designed to treat a wide range of infectious, dermatological, cardiovascular, digestive tract or musculoskeletal system diseases.

All production capacities owned by our company are located to the headquarters.

The Company owns the right to ownership of all the fixed assets registered in the

company's accounts.

1.2 Corporate Governance

The structures the Antibiotice corporate governance system are based upon are as follows:

• The General Meeting of Shareholders;

• The Management Board;

• The Advisory Committees;

• The Executive Management.

The General Meeting of Shareholders

Antibiotice S.A. is organized on the principles of corporate governance, which regulates the procedure for selecting and appointing managers and directors, as well as the functioning of the management system, seeking to strengthen the independence, accountability and professionalism of management structures, the transparency and quality of publicly presented information, including minorities.

The management of the company is organized to meet the expectations of shareholders in terms of ensuring competitiveness, profitability and generating long-term added value. A well-defined, traceable decision-making system is ensured and the delegations of attributions and competencies are made in proportion to the prerogatives granted and the existing control system.

Applying the principles of good corporate governance practices in strict compliance with the recommendations of the Corporate Governance Code of the Bucharest Stock Exchange (CGC-BVB), ensures the transparency and efficiency of the company's activities and processes, thus providing the framework for maximizing the value of long-term ATB shares, as well as protecting the interests of the interested parties and increasing the degree of trust in Antibiotice S.A.

The company's management believes the Corporate Governance Code to be an important tool for obtaining a sustainable performance, ensuring the accuracy and transparency of the company's decision-making process, through equal access of all shareholders to relevant information about the company.

The structures that transpose the corporate governance rules into practice can be found on the company's website at https://www.antibiotice.ro/en/investors/corporate-governance/. They are as follows:

• The General Meeting of Shareholders;

• The Management Board;

• The Advisory Committee;

• The Executive Management;

• The Corporate Governance Secretariat;

• The Internal Audit, the Financial Management Control and Risk Management.

The main legal framework for ensuring the corporate governance system is given by:

• Law no. 31/1990 regarding the commercial companies;

• GEO no. 109/2011 on the corporate governance of public enterprises;

• Law no. 24/2017 regarding the issuers of financial instruments and market operations;

• ASF Regulation no. 5/2018 regarding the issuers of financial instruments and market operations;

• The corporate governance code of Antibiotice S.A. which also includes the Regulations for the Organization and Functioning of the Management Board and the Regulations for the Evaluation of Administrators;

• The Code of ethics.

The General meeting of Shareholders

The General Meeting of Shareholders (GMS) is the company's highest decision-making body, the place where shareholders participate directly and make decisions. Among other attributions, the GMS decides upon the distribution of the profit, appoints the Management Board and the auditors and establishes the remuneration of the Management Board.

During 2021, the Management Board convened two Ordinary and one Extraordinary General Meetings, the decisions of which can be found on the company's website at the following address:

https://www.antibiotice.ro/en/investors/financial-information/archive-of-the-general-meeting-of-shareholders/?raport=2021#

The main shareholders of the company on 31.12.2021 (excerpt from the Register of Shareholders):

Classes of shareholders:

• Legal entities – 87,3615 %

• Natural persons – 12,6385 %

Antibiotice on the capital market

The titles issued by Antibiotice have been listed in the PREMIUM category of the Bucharest Stock Exchange under the ATB symbol since 1997. The first transaction was registered on April 16, 1997, at a reference price of 0.3500 LEI/share. The historical maximum was reached on July 10, 2007, with the price of 2.1700 LEI/share, and the historical minimum of 0.0650 LEI/share was registered on June 8, 2000.

The Antibiotice Actions (ATB) are included in the BET-BK indices (it was created to be used as a benchmark by fund managers, but also by other institutional investors; the calculation methodology reflects the legal requirements and investment limits of the funds) and BET-Plus (includes Romanian companies listed on the BSE market that meet the minimum selection criteria except for financial investment companies).

In 2021, the minimum price of the ATB share was worth 0.4800 lei and a maximum of 0.6080 lei/share.

The stock market capitalization as of December 31, 2021 was 406,831 thousand lei.

In 2021, Antibiotice SA concluded a market making contract with BRK Financial Group, one of the most active brokers in the structured products segment traded on the Bucharest Stock Exchange. The collaboration with BRK Financial Group aims to create added value for shareholders by improving liquidity and minimizing volatility.

Antibiotice shares – ATB / Regular Market

* Calculated based upon the share price in the last trading day of that year,

** Proposed dividend

*** Calculation of the earnings per share is based upon the net profit of each year

**** Dividend per share/share price in the first trading day of each year

***** Dividend distribution rate = (total number of shares x gross dividend per share)/total net profit

During 2021, 80,534,368 shares were traded, amounting to 43.65 million lei (8.87 million EURO, 10.51 million USD), with an average price of 0.5420 lei/share.

In 2021, dividends were paid for the financial years 2017, 2018, 2019 and 2020, amounting to 2,102,442.59 lei, as follows:

Dividend history (2017 – 2018 - 2019- 2020)

For the years 2017, 2018, 2019 and 2020, the payment of dividends is made through the Bucharest Central Depository and implicitly, through the Payment Agent - CEC Bank.

Rights of holders of financial instruments

Corporate governance framework adopted and applied:

• protects the shareholders' rights,

• ensures the fair treatment of all shareholders,

• recognizes the role of third parties with interests in the company

• guarantees the information and transparency,

• guarantees the responsibility of the Management Board towards the company and the shareholders.

On the company’s website at:

https://www.antibiotice.ro/en/investors/information-for-shareholders, 

there is a section in which each shareholder can access and download documents related to the General Shareholders' Meetings: procedures regarding the access and participation in the meetings, the notice to attend, the additions to the agenda, informative materials, special representation proxies, correspondence voting forms, draft decisions, decisions, voting results.

The Investors Relation

The investor relations activity supports the constant communication between the company and the investors. This process allows the knowledge of the operational activity, of the strategy and prospects of the business, in order to achieve a fair evaluation of the company. As it is a listed company, we make available to the public and send to the Financial Supervisory Authority (ASF) and to the Bucharest Stock Exchange (BVB), annual, half-yearly, quarterly and current reports, as well as documents related to the good conduct of general meetings. As we are oriented towards developing and increasing transparency towards shareholders, immediately after the regular financial reports (annual and half-yearly), we organize meetings and presentation events attended by investors and interested analysts, offering them the opportunity to convey questions, opinions and their suggestions, thus ensuring a dialogue for a sufficient basis for the investment decision-making process.

In 2021, two teleconferences (13.05.2021 and 30.07.2021) and a conference entitled “Round table with the management of Antibiotice” - which took place on 23.11.2021 were organized.

All the documents related to the mentioned events were published in accordance with the legislation in force, Government Emergency Ordinance no. 109/2011 on the corporate governance of public enterprises, Law no. 24/2017 regarding the issuers of financial instruments and market operations, Regulation no. 5/2018 regarding the issuers of financial instruments and market operations.

The organization of the General Meetings of Shareholders, the changes in the company's structure, the decisions of the general meetings, as well as the actions related to guaranteeing the shareholders' rights - the distribution of dividends related to the financial year 2020, were made in accordance with the legal regulations.

The awards obtained during the year brought the recognition of the active and constant communication of Antibiotice SA with the investors. Thus, the maximum grade obtained when evaluating the VEKTOR indicator based on 15 criteria of good practices in the relationship with investors, underlined the fact that Antibiotice SA is a grade 10 company, in which it is worth investing.

The Management Board

Antibiotice SA is managed by a Management Board responsible for carrying out all the tasks necessary to achieve the object of the company's activity, except for those provided by the law for the General Meeting of Shareholders. There is a clear division of responsibilities between the Management Board and the Executive Board.

The Management Board seeks that its own decisions, the decisions of the Company's management and those of the General Meeting of Shareholders, as well as the internal regulations, be lawful and properly implemented. The Board is responsible for monitoring the company management on behalf of the shareholders.

The tasks of the Management Board are described in the Company’s Articles of Association and in the relevant internal regulations, available on the company's website, under the section Corporate Governance.

During 2021, the Management Board met in 15 sessions and adopted decisions that enabled the Board to carry out its duties effectively and efficiently.

The Management Board of Antibiotice SA on December 31, 2021

Economist, Ioan NANI

Vice-President of the Management Board and General Manager.

Full-time Executive Administrator.

At the Ordinary General Meeting of Shareholders of May 20, 2020, Mr. Nani was

reconfirmed as a member of the Management Board, for a term valid until 18.04.2024; Mr. Nani was then elected by the members of the Management Board from 20.05.2020, in the position of Vice-President.

Mr. Nani is an economist specialized in management, a chartered accountant and a member of the Board since 2009 and General Manager (1998-2008 and 2009–present day).

Number of Antibiotice SA shares owned - 1.513*

Eng. Catalin Codrut Popescu

A Member of the Management Board and representative of the shareholder SIF Oltenia

At the Ordinary General Meeting of Shareholders on August 26, 2021, Mr. Popescu was elected as a member of the Management Board, for a term valid until April 18, 2024.

Definitive Non-Executive Administrator

Number of Antibiotice SA shares owned - 0*

Ec. Mihai Trifu

Member of the Management Board and representative of the shareholder SIF Oltenia Definitive Non-Executive Administrator

At the Ordinary General Meeting of Shareholders on August 26, 2021, Mr. Trifu was elected as a member of the Management Board for a term valid until April 18, 2024. Vice President and Deputy General Manager of SIF Oltenia.

Number of Antibiotice SA shares owned - 0*

Physicist Lucian Timofticiuc

Member of the Management Board and representative of the Ministry of Health

Definitive Non-Executive Administrator

Chairman of the Management Board

At the Ordinary General Meeting of Shareholders on September 16, 2020, Mr. Timofticiuc was elected as a member of the Management Board for a term valid until 18.04.2024. Currently, Mr. Lucian Timofticiuc holds the position of administrator and general manager of Vremea Noua.

Number of Antibiotice SA shares owned - 0*

Legal Adviser Ionel Damian

Member of the Management Board

Definitive Non-Executive Administrator

At the Ordinary General Meeting of Shareholders of November 2, 2020, Mr. Damian was elected as a definitive member of the Management Board of the company, for a term valid until 18.04.2024.

Fiscal Inspection Executive Director - Iasi Regional General Directorate of Public Finances

Number of Antibiotice SA shares owned - 0*

(*) The number of Antibiotice shares (ATB) held on 31 December, 2021 according to the latest database held by Antibiotice for the year 2020.

The Advisory Committees

During the year 2021, the specialized advisory committees had the following membership:

• The Audit Committee: Mr. Ionel Damian, Mr. Mihai Trifu and Mr. Catalin Codrut Popescu;

• The Nomination and Remuneration Committee: Mr. Lucian Timofticiuc, Mr. Ionel Damian and Mr. Mihai Trifu;

• The Trade Policy Committee: Mr. Lucian Timofticiuc, Mr. Ionel Damian and Mr. Catalin Codrut Popescu.

The Audit Committee met in two meetings. It consists of three independent non-executive directors and has the following responsibilities:

• it performs an annual evaluation of the internal control system. The evaluation must consider the effectiveness and comprehensiveness of the internal audit function, the adequacy of the risk management and internal control reports submitted to the Audit Committee, the promptness and effectiveness with which the executive addresses the deficiencies or weaknesses identified following the internal control and the presentation of relevant reports for the attention of the Management Board.

The Audit Committee manages conflicts of interest in connection with the company's transactions.

• it monitors the application of legal standards and generally accepted internal audit standards;

• it receives and evaluates the reports of the Internal Audit team.

In exercising its main attributions and responsibilities, the Audit Committee will perform at least the following activities:

• examining and verifying the correctness of the company's annual and interim financial statements and any other financial reports, before they are submitted to the Board for approval;

• analyzing the appointment, renaming or revocation of external auditors;

• the periodic evaluation of the efficiency, independence and objectivity of the external auditor and monitoring of the relationship with him or her.

The Nomination and Remuneration Committee consists of three independent non-executive directors. Its attributions and responsibilities are mainly the following:

• it formulates proposals for the positions of administrator, it manages on behalf of the board the selection procedure for the candidates proposed by the public supervisory body, when the board is expressly mandated by the General Meeting of Shareholders, it elaborates and proposes to the board the selection procedure of the candidates for the position of director, it recommends to the management board the candidates for the position listed,

• it formulates proposals regarding the remuneration of the administrators and directors of the company,

• it ensures the fulfillment of the obligation regarding the elaboration of the annual reports and other reports, in accordance with the law,

• it evaluates, at least once a year, the independence of the members of the Management Board,

• it monitors the number of administrator mandates held by the members of the Management Board in other companies,

• it performs other tasks in connection with the appointment or removal of the members of the Management Board, at its instructions,

• it ensures that the candidates for the position of administrator have the necessary training and experience to fulfill their duties; the Committee may make proposals for the rejection of candidates who do not meet the criteria for membership of the Council,

• it draws up an annual report on the remuneration of the administrators and directors appointed by the board, as well as other benefits granted to them, a report which will be presented by the board to the General Meeting of Shareholders.

The Trade Policy Committee supports the Management Board in carrying out the management plan, by transposing it into appropriate trade policies.

The guiding principles that coordinate the work of the Trade Policy Committee are:

• the principle of legality, which implies the observance by the company of all the applicable legal provisions in the relations with the partners and the authorities, as well as of the internal norms and procedures approved by the administrator;

• the principle of optimizing the commercial policies, which implies the establishment of those marketing and promotion actions meant to stimulate the company's business and to ensure their sustainability in the medium and long term;

• the principle of territorial expansion, which implies the establishment of the commercial policies meant to identify new business opportunities in the international trade.

The executive management

Antibiotice is is represented by the General Director according to art. 143 of Law no. 31/1990, art. 35 of GEO no. 109/2011 and art. 47 of the Articles of Association of the company and the statute of the company.

Ec. Ioan NANI

Vice President of the Management Board - Executive Director, Non-Independent, with a mandate for the period 01.06.2020 ÷ 18.04.2024.

Job: S.C. Antibiotice S.A.

Position: General Director.

Profession: Economist.

1. THE ACCOUNTING POLICIES

2.1 Declaration of conformity

The financial statements have been prepared in accordance with:

• The Accounting Law no. 82 from 1991, republished and updated;

• The provisions of the Order of the Minister of Public Finance no. 2844/2016, for the approval of the Accounting Regulations conforming to the International Financial Reporting Standards, applicable to the commercial companies whose securities are admitted to trading on a regulated market, with the subsequent modifications and clarifications.

The current individual financial reports have been prepared in accordance with the criteria for recognition, measurement and evaluation according to the International Financial Reporting Standards, Interpretations and International Accounting Standards (collectively referred to as “IFRS”) issued by the International Accounting Standards Board (“IASB”) as adopted by the European Union (“IFRSs adopted”);

The financial statements for the financial year ended on December 31, 2021 include the statement of financial position, the statement of comprehensive income, the statement of cash flows, the statement of changes in equity and the explanatory notes.

The main accounting policies applied to the preparation of the financial statements are set out below. The policies have been applied consistently to all the years presented, unless stated otherwise.

The preparation of the financial statements in accordance with the adopted IFRS requires the use of certain crucial accounting estimates. It also asks the management to use the reasoning in the process of applying the Company's accounting policies. The areas in which decisions have been made and significant estimates have been made in the preparation of the financial statements and their effect are shown below.

2.2 The basses of assessment

The individual separate financial statements are prepared using the historical convention / depreciated cost except for the fixed tangible assets at revalued cost by using the fair value as deemed cost and the items presented at the fair value, i.e. financial assets and liabilities at fair value through profit and loss account and the financial assets available for sale, except for those for which the fair value can not be reliably determined.

These financial statements have been prepared for general purposes, for the use of persons who know the provisions of International Financial Reporting Standards, applicable to trading companies whose securities are admitted to trading on a regulated market. Consequently, these financial statements should not be considered as the only source of information by a potential investor or another user.

2.3 The functional and presentation currency

The company's management believes that the functional currency, as defined by IAS 21 “Effects of exchange rate variation” is the Romanian leu (“RON” or “LEU”). The separate financial statements are presented in lei, the values are rounded to the nearest leu, the currency that the Company chose as the presentation currency.

The transactions made by the company in a currency other than the functional currency are recorded at the rates in force at the date when the transactions take place. The monetary assets and liabilities in foreign currencies are converted at rates in effect at the reporting date.

The profit and loss arising from the exchange rate differences following the conclusion of these transactions and from the conversion to the exchange rate at the end of the reporting period of the monetary assets and obligations denominated in foreign currency is reflected in the statement of the comprehensive income.

The exchange rates of the main foreign currencies as reported by the NBR (National Bank of Romania) are as follows:

2.4 Critical accounting assessments and estimates

As a result of the uncertainties inherent in business activities, many items in the financial statements cannot be precisely assessed, but only estimated. The estimation involves judgements based upon the latest available reliable information.

The use of reasonable estimates is an essential part for preparing the financial statements and does not undermine their reliability.

An estimate may need review if changes occur regarding the circumstances on which the estimate was based or as a result of new information or subsequent experiences. By its nature, the review of an estimate does not relate to prior periods and is not the correction of an error in the current period. Any effect, if any, on future periods is recognized as income or expense in those future periods.

The company makes certain estimates and assumptions about the future. The estimates and judgments are continually evaluated based upon the historical experience and other factors, including forecasting future events that are believed to be reasonable under the existing circumstances. In the future, the concrete experience may differ from these estimates and assumptions.

The following are examples of assessments, estimations, assumptions applied within our company:

(a) The evaluation of investments in land and buildings owned 

The company obtains evaluations conducted by external evaluators to determine the fair value of its real-estate investments and its buildings owned. The current assessments are based upon assumptions which include future rental income, anticipated maintenance costs, future development costs and the appropriate discount rate. Evaluators also refer to market information related to the prices of transactions with similar properties.

(b) Adjustments for the impairment of receivables

The assessment for the impairment of receivables is performed individually and is based upon the management's best estimate of the present value of cash flows that are expected to be received. To estimate these flows, the management makes certain estimates on the financial situation of the partners. Each impaired asset is analyzed individually. The precision in adjustments depends upon the estimates of future cash flows.

(c) Legal proceedings

The company reviews the unsettled legal cases following the evolutions in the legal proceedings and the existing situation at each reporting date, in order to assess the provisions and disclosures in its financial statements. Among the factors considered in decisions related to the provisions we mention the nature of litigation or claims and the potential level of damage in the jurisdiction which settles the dispute, the progress of the case (including the progress after the date of financial statements but before those statements are issued), the opinions of legal advisors, the experience in similar cases and any decision taken by the company’s management related to how it will respond to the litigation, complaint, or assessment.

(d) Cost accounting estimates

There are situations in which, until the closing of some fiscal periods or up to the closing date of a financial year, the exact values of certain expenses incurred by the company are not known (e.g. marketing and promotion/sales campaigns of products, campaigns for boosting the sales). For this category of expenditure, preliminary spending will be made, which will be corrected in the following periods when cash outflows will occur. For this category of spending preliminary expenses will be made, which will be corrected in future periods when an output of cash flows will occurr. The estimates of expenditure for each category of expense will be made by someone with experience in the type of activity that generated the expense.

(e) Taxation

The taxation system in Romania is in a phase of consolidation and harmonization with the European legislation. However, there are still different interpretations of the tax legislation. In some cases, the tax authorities may have different approaches to certain issues, calculating additional taxes and penalties for their late payment. In Romania, the fiscal year has been remaining open for tax verification for a 5-year period. The company's management believes that the tax liabilities included in the financial statements are appropriate.

2.5 Presentation of separate financial statements

The financial statements are presented in accordance with the requirements of IAS 1 “Presentation of the financial statements”. The company adopted a liquidity-based presentation in its financial position statement and a presentation of its revenue and expense according to their nature in the overall result statement, considering that these disclosures provide information that is more credible and relevant than what would have been presented under other methods allowed by IAS 1.

2.6 Intangible assets purchased 

The inventory of the intangible assets is done in accordance with IAS 38 “Intangible assets” and IAS 36 “The impairment of assets”. The externally acquired intangible assets are initially recognized at cost and subsequently amortized on a straight-line basis over their useful economic life.

The expenses related to the acquisition of patents, copyrights, licenses, trademarks or factory brands and other intangible assets recognized from an accounting viewpoint, with the exception of formation expenses, goodwill, intangible assets with indefinite useful life, fitted according to the accounting regulations shall be recovered by means of linear depreciation deductions for the duration of the contract or for the period of use, as the case may be.

Intangible assets generated by the company (development costs)

The research expenditure (or related to the research stage of an internal project) is recognized as an expense for the year to which it relates.

The development costs related to projects for new products are recognized as intangible assets.

They consist of: the consumption of raw materials and consumables, labor costs related to the hours worked for each project, other authorization fees paid to the regulatory authorities in the pharmaceutical field with the amounts necessary for the authorization.

2.7. Tangible assets

The tangible assets are tangible items that:

a) are held for use in the production of goods or the provision of services, for rental to other parties or for administrative purposes; and

b) are expected to be used over several financial years.

Recognition:

The cost of a tangible asset item should be recognized as an asset if and only if:

a) the entity is likely to generate future economic benefits related to the asset; and

b) the cost of the asset can be reliably measured.

The evaluation after recognition

After the recognition as an asset, an item of property, plant and equipment is accounted for at its cost or minus the accumulated depreciation and accumulated impairment losses. After the recognition as an asset, an item of tangible assets whose fair value can be reliably measured is accounted for at a revalued amount, this being its fair value at the revaluation date.

The revaluations are made regularly enough to ensure that the accounting amount does not significantly differ from what would have been determined by using the fair value at the end of the reporting period. 

The fair value of land and buildings is generally determined based upon the prices in the market through an evaluation normally performed by qualified professional assessors. The fair value of the items of tangible assets is generally their value in the market determined after evaluation.

When an item of Category I tangible asset is revalued, any accumulated depreciation at the date of revaluation is eliminated from the gross carrying value of the asset and the net value is recalculated to the revalued value of the asset.

If an item of tangible assets is revalued, then the entire class of property, plant and equipment to which that item belongs is revalued.

If the carrying value of an intangible asset is increased as a result of the revaluation, then the increase is recognized in other items of the comprehensive income and accrued in equity as a revaluation surplus. However, the increase should be recognized in profit or loss to the extent that it compensates for a decrease in the revaluation of the same asset previously recognized in profit or loss.

If the carrying value of an asset is diminished as a result of a revaluation, this decrease should be recognized in profit or loss. However, the decrease should be recognized in other items of the comprehensive income to the extent that the revaluation surplus shows a credit balance for that asset. The reduction recognized in other items of the comprehensive income reduces the amount accumulated in equity as a revaluation surplus.

The revaluation surplus included in equity related to an item of property, plant and equipment is transferred directly to retained earnings when the asset is derecognised. The transfers from the revaluation surplus to the retained earnings are not made through profit or loss.

If any, the effects of taxes on income from the revaluation of tangible assets are recognized and presented in accordance with IAS 12 Income Tax.

Depreciation

The depreciable amount of an asset is systematically allocated over its useful life. The depreciation of an asset begins when it is available for use, i.e. when it is in the location and condition required to operate in the manner desired by the management.

The land owned is not depreciated.

For the depreciable fixed assets, the company utilizes, in accounting terms, the straight-line depreciation method. The depreciation periods are determined by an internal specialized committee according to the company’s internal procedures. Below there is a brief presentation of the lifetimes of the fixed assets by major categories of goods:

Impairment

To determine whether an item of tangible assets is impaired, an entity applies IAS 36 the Impairment of assets. At the end of each reporting period, the entity estimates if there are indications of impairment of assets. If such evidence is identified, the entity estimates the recoverable amount of the asset.

If and only if the recoverable amount of an asset is lower than its book value, the book value of the asset will be reduced to be equal to the recoverable amount. Such a reduction represents an impairment loss. An impairment loss is immediately recognized in the profit or loss of the period in question, except when the asset is reported to the revalued amount, in accordance with another standard (for example, in accordance with the revaluation model in IAS 16 Tangible assets). Any impairment loss concerning a revalued asset is considered to be a decrease generated by revaluation.

2.8 Financial assets - IFRS 9 Financial instruments (replaces IAS 39 Financial instruments: recognition and valuation) does not apply to our company

The initial valuation of financial assets and financial liabilities

IFRS 9 replaces IAS 39, Financial Instruments - recognition and valuation. The IASB developed IFRS 9 in three stages, which deals separately with IFRS classification and evaluation of financial assets, impairment and risk coverage. Other aspects of IAS 39, such as the scope, the recognition and derecognition of financial assets, have survived with only a few changes to IAS 39.

The classification on IFRS 9 is determined by the characteristics of the cash flows and the business model within which an asset is held.

2.9 Stocks

According to IAS 2, the stocks are active:

a) held for sale in the ordinary course of business;

b) under production for such sale; or

c) as raw materials and other consumables to be used in the production process or in the provision of services.

Stock assessment

The stocks are assessed at the lowest value between the cost and the net achievable value.

Cost of stocks

The cost of stocks includes all the purchase costs, conversion costs as well as other costs incurred in bringing the inventories to the state and location where they are now.

The stocks of raw materials and consumables are stated at the cost of acquisition. The inventory outflow is performed using the Weighted Average Price method.

The stocks of products in progress are stated at the value of the raw materials and consumables included in them. The stock of finished products is recorded at production cost upon the completion of the manufacture.

Adjustments for depreciation of stocks

The stock depreciation assessment is performed individually and is based upon the best estimate of the management on the current value of the cash flows that are expected to be received. Each depreciated asset is individually analyzed. The accuracy of the adjustments depends upon the estimation of future cash flows.

The stock adjustments are based on the end-of-year calculation for adjusting the specific value of stocks of raw materials, consumables and finished products and finished products which no longer correspond from a quality viewpoint. The calculation of the general adjustment for the depreciation of inventories is based upon the validity period of existing items in stock.

2.10 Receivables

Receivables arise mainly from the provision of goods and services to customers (e.g. trade receivables), but they also incorporate other types of contractual monetary assets.

The receivables are presented in the balance sheet at historical value less the adjustments for impairment in cases where it was found that the realizable value is lower than the historical value.

The impairment adjustments are recognized when there is objective evidence (such as significant financial difficulty of the partners or the non-fulfillment of payment obligations or significant payment delay) that the company will not be able to collect all the amounts due under the terms regarding the receivables, the amount of that adjustment being the difference between the net book value and the current value of expected future cash flows associated with the impaired receivable.

The assessment for the impairment of receivables is performed on an individual basis and is based upon a risk analysis based on customer categories, being the best estimate of the management regarding the current value of the cash flows expected to be received.

The Company assesses at each balance sheet date the extent to which there is any objective evidence that a financial asset (receivable) is impaired. If there is any evidence of this kind, the Company treats it differently to determine the amount of any impairment loss, depending upon the type of asset: financial assets accounted for at amortized cost, financial assets accounted for at cost and available-for-sale financial assets.

The carrying amount of the asset should be reduced either directly or by using a depreciation adjustment account. The amount of the loss should be recognized in profit or loss.

If, in a subsequent period, the value of the related impairment loss decreases, and the decrease can be objectively correlated with an event occurring after the impairment has been recognized (such as an improvement in the debtor's credit rating), the loss from the previously recognized impairment should be resumed either directly or by adjusting a provision account for impairment. The resumption should not result in a carrying amount of the financial asset higher than the amount that would have been the amortized cost if the impairment would have been recognized at the date when the impairment is resumed. The value of the resumption must be recognized in profit or loss.

The adjustments for the impairment of trade receivables consist of the specific provision, entirely constituted for litigation, based upon which the general provision is calculated.

The general provision for the impairment of client receivables is calculated based upon the maturity of the outstanding receivables in the balance. The calculated depreciation adjustments may not exceed from a value viewpoint the amounts that are required to settle the trade receivable. When analyzing receivables to be cashed, based upon commercial effects, in situations where events are identified that indicate the occurrence of payment incidents or the deterioration of the debtor's financial situation, adjustments may be calculated and the amount of the provision for impairment is at most equal to the value of the effect.

2.11 Value added tax

The Value Added Tax must be paid to the tax authorities upon the basis of the monthly VAT return until the 25th of the following month, regardless of the level of receivables recovery from customers. The tax authorities allow the VAT to be settled on a net basis. If the deductible VAT is higher than the VAT collected, the difference is refundable at the request of the company. That particular VAT may be reimbursed after a tax audit, or even in the absence thereof, if certain conditions are met. The VAT on sales and purchases that were not settled at the end of the reporting period is recognized in the statement of the financial position at net cost and presented separately as a current asset or liability. In cases where adjustments for impairment of receivables have been recorded, the impairment loss is recorded for the debtor's gross value, including VAT. The related VAT must be paid to the state budget and can be recovered only in case of the debtor's prescription as a result of the bankruptcy decision.

2.12 Financial liabilities

The financial liabilities include primarily trade payables and other short-term financial liabilities (payables related to staff, tax and duty liabilities, short-term bank debt, debt in relation to various creditors) that are initially recognized at fair value and subsequently recorded at amortized cost using the effective interest method.

2.13 Recognition of income and expenses

2.13.1 Recognition of revenues IFRS 15 - Revenues from customer contracts (replaces IAS 18 Revenues)

The income represents the gross inflow of economic benefits during the period, generated in the course of the normal activities of an entity, when these inputs result in increases in equity, other than increases related to participants' contributions to equity.

The income constitutes increases in economic benefits recorded during the accounting period, in the form of inflows or increases in assets or debt reductions, which result in increases in equity, other than those resulting from shareholder contributions.

The fair value is the value at which an asset can be traded or a debt settled between interested and knowledgeable parties, in a transaction conducted under objective conditions.

Starting with January 1, 2018, the IFRS 15 standard regarding the contracts concluded with the clients has entered into force. In some cases, IFRS 15 may require changes to current systems and this may affect some aspects related to operations.

IFRS 15 is a complex standard that introduces far more prescriptive requirements than previously included in IAS 18 Revenues, IAS 11 Construction Contracts and can therefore lead to changes in revenue recognition policies.

The income assessment

According to IAS 18, revenues were measured at the fair value of the counter performance received or to be received, after deducting rebates or discounts. The revenues from the sale of the goods were recognized when all the following conditions were met:

(a) the entity transferred to the buyer the significant risks and benefits related to the ownership of the goods;

(b) the entity no longer manages the goods sold at the level at which it would normally have done in the case of their ownership and no longer has the effective control over them;

(c) the value of the revenues can be reliably evaluated;

(d) the economic benefits associated with the transaction are likely to be generated for the entity;

(e) the costs incurred or to be incurred in relation to the respective transaction can be reliably evaluated.

The new standard focuses upon identifying obligations and makes a clear distinction between obligations that are satisfied "at one point in time" and those that are satisfied "over a period of time"; this is determined by the manner according to which the control of goods or services is transferred to the client. The principle behind this standard is that the company should recognize and record revenue in a manner that indicates the transfer of goods or services.

IFRS 15 establishes a general framework that will be applied for the recognition of revenues from a contract concluded with a client (with limited exceptions), regardless of the type of transaction or industry; The standard sets out five steps for revenue recognition:

• the identification of the contract (s) with a client;

• the identification of performance obligations in a contract;

• the determination of the transaction price;

• the allocation of the transaction price for the execution obligations;

• the revenue recognition when (or as) the entity fulfills an obligation of execution.

Revenue is measured at the fair value of the amounts received or receivable net of VAT. Revenues are reduced by the value of returns, commercial discounts and other similar costs.

The revenues from the sale of the goods are recognized when there is an obligation to register a contract or when all the following conditions have been fulfilled:

a) the parties to the contract have approved the contract (in writing, verbally or according to other common business practices) and undertake to fulfill their obligations;

b) the company may identify the rights of each party with regard to the goods or services to be transferred;

c) the company can identify the payment terms for the goods or services to be transferred;

d) the contract has commercial content; and

e) it is likely that the company will collect the counter performance to which it will be entitled in exchange for the goods or services that will be transferred to the client.

The income from the sale of the goods is recognized when the company has transferred the significant risks and benefits related to the property right to the buyer and it is likely that the company will receive those previously agreed upon after the payment. The transfer of the risks and benefits related to the property right is considered to have been accomplished once with the transfer of the legal title of ownership or with the passing of the goods in the possession of the buyer. If the entity keeps significant risks related to the property, the transaction is not a sale and the income is not recognized.

The company management believes that the collection terms do not generate a financial component of the revenues invoiced to distributors.

Special cases: If it is found that the incomes associated with a period of the current year are free of fundamental errors, they will be corrected, during the period when the error is discovered, which is valid for the year 2020. If the error is discovered in the following years, the correction thereof will no longer affect the income accounts, but the returned earnings account carried over from the corrections of fundamental errors, if the value of the error will be considered significant.

2.13.2 Recognition of expenses

The expenses are decreases in the economic benefits recorded during the accounting period as outflows or decreases in the value of assets or increases in debt, which are materialized through reductions in equity, other than those arising from their distribution to shareholders.

2.14 The impairment of non-financial assets (excluding the stocks, real estate investments and deferred tax assets) – IAS 36 “Impairment of assets”

The assets owned by the company, as stated in IAS 36 “Impairment of assets”, are subject to the impairment tests whenever events or changes in circumstances indicate that their accounting value may not be fully recovered. When the accounting value of an asset exceeds the recoverable amount (i.e. the highest amount between the value of use and fair value minus the selling costs) the assets is adjusted accordingly.

When it is not possible to estimate the recoverable amount of an individual asset, the impaiment test is performed on the smallest group of assets to which it belongs for which there are separately identifiable cash flows; its cash-generating units (“CGUs”).

The impairment costs are included in the profit and loss account unless they reduce the earnings previously recognized in other items of the comprehensive income.

2.15 Provisions – IAS37 “Provisions, contingent liabilities and contingent assets”

The provision is measured at the best estimate of the expenses required for the settlement of the liability at the reporting date, updated at a pre-tax rate reflecting the current market assessments of the value of money over time and debt specific risks.

According to IAS 37 “Provisions, contingent liabilities and contingent assets”, a provision must be recognized, if:

a) the Company has a current (legal or implicit) obligation generated by a past event;

b) it is likely that an outflow of resources incorporating economic benefits will be required to settle the obligation; and

c) a reliable estimate of the amount of the obligation can be made.

If these conditions are not met, a provision must not be recognized. The provisions are recorded in accountancy using the accounts from the group 15 “Provisions” and are based upon the expenses, except those related to the decommissioning of tangible assets and other similar actions related thereto, for which the provisions of IFRIC 1 will be taken into account.

The recognition, assessment and updating of provisions are made in compliance with IAS 37 “Provisions, contingent liabilities and contingent assets”.

The provisions are grouped in accountancy by categories and are considered for:

a) litigation;
b) guarantees to customers;
c) decommissioning of tangible assets and other similar actions related thereto;
d) reorganization;
e) employee benefits;
f) other provisions.
The previously established provisions are periodically analyzed and regulated.

2.16 Benefits of employees –IAS 19 Benefits of employees

Current benefits granted to employees

The short-term benefits granted to employees include allowances, salaries, and social security contributions. These benefits are recognized as expenses when providing services.

Benefits after the termination of the employment contract

Both the Company and its employees have a legal obligation to contribute to the social security established with the National Pension Fund administered by the National House of Pensions (contribution plan founded on the principle of “pay on the way”).

Therefore, the Company has no other legal or implicit obligation to pay further contributions. Its only obligation is to pay the contributions when they are due. If the Company ceases to employ people who are contributors to the financing plan of the National House of Pensions, the Company will have no obligation to pay for the benefits earned by its own employees in previous years. The Company's contributions to the contributions plan are reported as expense in the year to which they relate.

2.17 Deferred tax - IAS 12

In the deferred tax calculation, the Company will take into account the provisions of IAS 12.

The deferred tax assets and liabilities are recognized when the book value of an asset or liability in the statement of the financial position differs from the tax base.

The recognition of the deferred income tax assets is limited to those moments in which the taxable profit of the next period is likely to be available.

The amount of the asset or liability is determined by using tax rates that have been enacted or adopted largely up to the reporting date and are expected to be applied when the liabilities/(assets) concerning the deferred tax are settled/(recovered).

The Company compensates for receivables and liabilities concerning the deferred tax if and only if:

a) it has the legal right to offset the current tax receivables with the current tax liabilities; and

b) the deferred tax receivables and liabilities relate to the income taxes charged by the same fiscal authority.

2.18 Dividends

The share of profits that is to be paid according to the law, to each shareholder is a dividend. The dividends distributed to shareholders, proposed or declared after the reporting period, as well as the other similar distributions made from the profit determined under the IFRS and included in the annual financial statements are not recognized as a liability at the end of the reporting period.

When accounting for the dividends, the provisions of IAS 10 are taken into consideration.

2.19 Capital and reserves

The capital and reserves (equity) represents the right of shareholders over the assets of an entity after deducting all liabilities. The equity includes: capital shares, reserves, reported result and the result of the financial year.

The entity was established under Law no. 31/1990 on trading companies.

In the first set of financial statements prepared under IFRS, the Company applied IAS 29 –“Financial reporting in hyperinflationary economies” for the contributions of shareholders obtained before January 1, 2004, i.e. they were properly adjusted with the inflation index.

2.20 Financing costs

An entity shall capitalize the borrowing costs that are directly attributable to the acquisition, construction or production of an asset with a long production cycle as part of the cost of that asset. An entity must recognize other borrowing costs as expenses during the period during which it bears them.

2.21 Earnings per share

The Company shows the basic earnings per share for the ordinary shares. The basic earnings per share is calculated by dividing the profit or loss attributable to ordinary shareholders of the Company to the weighted average number of ordinary shares over the reporting period.

2.22 Reporting on segments

A segment is a distinct component of the Company that provides certain products or services (business segment) or provides products and services in a particular geographical environment (geographical segment) and which is subject to risks and benefits that are different from those of the other segments. In terms of business segments, the Company does not identify separate components in terms of associated risks and benefits.

2.23 Affiliated parties

A person or a close family member of that person is considered to be affiliated with the Company if that person:

(i) has the control or a joint control over the Company;

(ii) has a significant influence over the Company; or

(i) is a member of key management staff.

The key management staff includes those persons having authority and responsibility for planning, managing and controlling the activities of the Company, directly or indirectly, including any director (executive or non-executive) of that entity. The transactions with the key personnel include exclusively the salary benefits granted to them as shown in Note 7 - “Staff Expenses”.

An entity is affiliated with the Company if it meets any of the following conditions:

(i) the entity and the Company are members of the same group (which means that each parent company, subsidiary and subsidiary of the same group is linked to the other);

(ii) an entity is the associate or joint venture of the other entity (or associate or joint venture of a member of the group the other entity belongs to);

(iii) both entities are joint ventures of the same third party.

(iv) one entity is a joint venture of a third party, and the other is an associate of the third-party entity.

(v) the entity is a post-employment benefit plan in the benefit of the employees of the reporting entity or an entity affiliated to the reporting entity. In the event the reporting entity is itself such a plan, the sponsoring employers are also affiliates of the reporting entity.

(vi) the entity is controlled or jointly controlled by an affiliated person.

(vii) an affiliated person having control significantly influences the entity or is a member of the key management staff of the entity (or the parent company of the entity).

The Company does not carry out transactions with entities described in points (i) –(vii) above.

2.24 Issued standards that entered into force in 2021

The reference interest rate reform - phase 2 - amendments to IFRS 9 Financial Instruments, IAS 39 Financial Instruments: Recognition and Measurement, Except for Certain Provisions Related to Hedge Accounting, IFRS 7 Financial Instruments: Disclosures, IFRS 4 Insurance Contracts and IFRS 16 Leasing contracts.

The amendments to IFRS 16 Leasing contracts in connection with concessions to lease contracts imposed by the Covid-19 pandemic after June 30, 2021.

Issued standards, which are not yet in force and have not been adopted in advance

The following new standards, interpretations and amendments, which are not yet in force and have not been adopted in advance in these financial statements, may have an effect on the Company's future financial statements. The list below presents the IFRSs (and amendments to the IFRSs) that were issued, but are not mandatory for the financial statements prepared on December 31, 2021:

The amendments to IAS 1 “Presentation of Financial Statements” regarding the classification of debts and will enter into force after January 1, 2022.

IFRS 17 “Insurance Contracts” will replace IFRS 4 and take effect after 2023. The Company does not estimate a significant impact on the situation.

The amendments to IAS 16 in relation to the recognition of the benefits obtained in the process of installing fixed assets and will enter into force after January 1, 2021.

The Amendments to IAS 37 regarding the definition of costs directly related to the contract and will take effect after January 1, 2021.

The amendments to IAS 1 and IFRS Practical Statement 2 in connection with the Presentation of Accounting Policies and will take effect after January 1, 2023.

The amendments to IAS 12 in connection with the application of exceptions to the initial recognition of deferred tax assets and liabilities and shall take effect after January 1, 2023.

There will be no significant effects on the financial statements of the company, following the changes brought to the standards or the annual improvements that will be in force after January 1, 2021.

2. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT

The Company is exposed through its operations to the following financial risks:

• The credit risk;

• The foreign exchange risk;

• The liquidity risk.

Like all the other activities, the Company is exposed to risks arising from the use of financial instruments. This note describes the company’s objectives, policies and processes for managing these risks and methods used to assess them. The additional quantitative information on these risks is presented in these financial statements.

There were no major changes in the Company's exposure to financial instruments related risks in its objectives, policies and processes for managing these risks or in the methods used to assess them in comparison to the prior periods, except where otherwise stated in this note.

Main financial instruments

The main financial instruments used by the Company, of which the risk concerning the financial instruments may occur are as follows:

• Trade and other receivables;

• Cash and cash equivalents;

• Investments in quoted participation titles;

• Trade and other liabilities.

A summary of the financial instruments held by category is provided below:

The overall objective of the Management Board is to establish policies that seek to reduce the risk as much as possible without affecting the competitiveness and flexibility of the Company.

Further details on these policies are set out below:

The credit risk

The credit risk is the risk of financial loss for the Company, which occurs if a customer or counterparty to a financial instrument fails to meet its contractual obligations. The Company is primarily exposed to the credit risk arising from sales to customers.

Antibiotice SA has developed a Commercial Policy approved by its Management Board. This policy clearly states the commercial conditions for sale and there are conditions imposed in the selection of the clients.

Antibiotice SA cooperates with large distributors in the national pharmaceutical market. In all situations where possible, the export sales are paid in advance.

Calculation and analysis of the net statement (equity)

The foreign exchange risk

The Company is mainly exposed to the currency risk in the purchases made from the suppliers of raw materials, packaging and other materials outside Romania. The suppliers from whom the company purchases these items for the production of medicines must have documents attesting the quality of their goods, as required by the European medicine registration rules. The Company cannot limit the acquisitions in third countries so much. The Financial Unit is responsible for tracking the payment deadlines and for ensuring the available funds for payment, so that the effect of foreign exchange risk to be minimized.

On December 31, 2021 the company’s net exposure by types of currency to the foreign currency risk was as follows:

The company's net exposure to the foreign exchange risk, equivalent in lei, is shown in the table below:

Given the relatively low exposure to exchange rate fluctuations, reasonable fluctuations in exchange rates are not expected to have significant effects in the future financial statements.

Liquidity risk

The Company’s policy is to provide the necessary cash for the payment of obligations when they become due. To achieve this objective, the Company seeks to maintain cash balances (or facilities agreed upon) to satisfy the payment needs.

The following tables show the contractual maturities (representing outdated contractual cash flows) of the financial liabilities:

Bank liquidity

The banks where the company has bank accounts are periodically reviewed by the company's management.

Operational risk

The operational risk is the risk of some direct or indirect losses arising from a wide range of reasons associated to processes, staff, technology and infrastructure of the Company as well as from external factors, others than the credit, market and liquidity risk, such as those arising from legal and regulatory requirements and from the generally accepted standards on the organizational behavior. The operational risks arise from all the Company's operations.

The management is responsible for conducting operational risk related-controls. The management is supported in its mission through the development of the company’s general operational risk standards in the following fields:

• the requirements for the separation of responsibilities, including the independent transaction authorization;

• the requirements for reconciliating and monitoring the transactions;

• the compliance with regulatory and legal requirements;

• documenting controls and procedures;

• requirements for the periodic review of operational risk the Company is exposed to and the adequacy of controls and procedures to prevent the identified risks;

• requirements for reporting the operational losses and proposals to remedy the causes that generated them;

• the development of business continuity plans;

• professional development and training;

• establishing ethical standards;

• preventing the litigation risk, including insurance, where applicable;

• the mitigation of risks, including the efficient use of insurance, where applicable.

Adequacy of capital

The management’s policy regarding the capital adequacy is focused upon maintaining a sound capital base, in order to support the company’s ongoing development and reach its the investment objectives.

2. SALES INCOME

The sales income includes the following items:

The sales revenues are mainly driven by the sales of finished products directly to pharmaceutical distributors. In 2021, the intra and extra-community sales amounted to 141,566,902 lei.

3. OTHER OPERATING INCOME

Other operating income includes the following:

4. RAW MATERIALS, CONSUMABLES AND GOODS

The expenditure on raw materials and consumables consists of:

5. STAFF COSTS

The staff costs are as follows:

For the year 2021, provisions were made in the amount of 3,853,530 lei, representing the provision for the participation of the employees in the variable allowances of the Board of Directors and of the mandate contract as well as the provision for unused vacation leave.

The company is managed in a unitary system within the meaning of Law 31/1990 on commercial companies; the management of the company is provided by the Management Board of SC Antibiotice SA. The Component of the Management Board and Executive Management are presented in Note 1. General Information.

The remuneration granted to the Management Board and the Executive Management is presented in the following table:

For the year 2021, provisions were made in the amount of 1,853,530 lei representing the provision for the variable allowances of the Management Board for the variable allowance pertaining to the mandate contract to achieving the 2021 objectives as well as for the unused vacation leave.

6. OTHER OPERATING EXPENDITURE

Other operating expenditure include the following: