Stada Arzneimittel AG Annual Report 2019

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FY2019 Annual Report · Stada Arzneimittel AG

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A n n u a l R e p o r t

STADA KEY FIGURES

Key figures for the Group in € million

2019

2018

± %

Group sales

• Generics

• Branded Products

Portfolio effects1)

Operating profit

• Generics

• Branded Products

EBITDA

• Generics

• Branded Products

Group sales adjusted for currency and portfolio effects 1)

• Generics

• Branded Products

Operating profit, adjusted 2) 3)

• Generics

• Branded Products

EBITDA, adjusted 2) 3)

• Generics

• Branded Products

Gross profit

Gross margin

Cash flow from operating activities

Investments

Depreciation and amortization (net of write-ups)

Employees (average number – based on full-time employees)4)

Employees (as of the reporting date – based on full-time employees)

2,608.6

1,534.7

1,073.9

–

385.8

345.8

175.6

612.8

436.2

297.8

2,608.6

1,534.7

1,073.9

489.0

372.7

237.4

625.5

436.8

296.0

1,369.3

52.5%

444.1

282.2

227.0

10,626

11,100

2,330.8

1,382.8

948.0

60.2

378.1

291.9

165.0

530.6

359.2

242.5

2,410.7

1,424.2

986.5

392.7

307.9

189.4

503.5

359.6

240.6

+12%

+11%

+13%

–

+2%

+18%

+6%

+15%

+21%

+23%

+8%

+9%

+25%

+21%

+25%

+24%

+21%

+23%

1,191.3

+15%

51.1%

320.3

422.2

148.8

10,247

10,416

+39%

-33%

+53%

+4%

+7%

1) Adjustments for currency and portfolio effects are shown solely as an adjustment to
previous year sales. Previous year sales were adjusted for currency effects by applying the
exchange rates of the reporting year.
2) The elimination of effects which have an impact on the presentation of STADA’s results of
operations and the derived key figures improves the comparability of key figures from
previous years. To achieve this, STADA uses adjusted key figures, which are not governed by
the accounting requirements in accordance with IFRS. Since other companies may not
calculate these figures presented by STADA in the same way, STADA’s figures are comparable
only to a limited extent with similarly designated disclosures by other companies.

3) Whenever adjustments are identified in connection with key earnings figures in this
Annual Report, they fundamentally relate to special items.
4) This average number includes changes in the scope of consolidation on a pro-rata time
basis.

STADA Key Figures03

TABLE OF CONTENTS

LETTER TO SHAREHOLDERS FROM THE STADA CEO
REPORT OF THE SUPERVISORY BOARD

COMBINED MANAGEMENT REPORT OF THE EXECUTIVE BOARD

Fundamental Information about the Group
Introduction

Group’s Business Model

Management and Control

Product Development

Procurement and Production

Sales and Marketing

Employees

Objectives and Strategies

Internal Management System

Disclosures pursuant to Section 315b HGB

Economic Report
Macroeconomic and Sector-Specific Environment

Course of Business and Net Assets, Financial Position and Results of Operations

Development of 2019 Compared to Outlook

Development of Financial Performance Indicators

Results of Operations

– Sales Development of the Group

– Earnings Development of the Group

– Sales and Earnings Development of the Generics Segment

– Sales and Earnings Development of the Branded Products Segment

Financial Position

Net Assets

Results of Operations, Financial Position and Net Assets of STADA Arzneimittel AG

Introduction

Results of Operations

Financial Position

Net Assets

General Statements of the Executive Board on the Course of Business in 2019

Report on Post-Balance Sheet Date Events

Report on Expected Developments

Opportunities and Risk Report

STADA Annual Report 2019 | Table of ContentsCOMBINED SEPARATE NON-FINANCIAL REPORT

Business Model and Strategy

Product Safety and Quality

Contributions to Society

Responsible Corporate Governance and Compliance

Employee Matters

Health, Safety and Environmental Protection

Observance of Human Rights

STADA CONSOLIDATED FINANCIAL STATEMENTS

Consolidated Income Statement

Consolidated Statement of Comprehensive Income

Consolidated Balance Sheet

Consolidated Cash Flow Statement

Consolidated Statement of Changes in Equity

Notes to the Consolidated Financial Statements
General Information

Notes to the Consolidated Income Statement

Notes to the Consolidated Balance Sheet

Other Disclosures

FURTHER INFORMATION

Responsibility Statement

Independent Auditor’s Report

Independent Practitioner’s Report on a Limited Assurance Engagement
on Non-Financial Reporting

Boards of the Company
The STADA Supervisory Board

The STADA Executive Board

The STADA Advisory Board

Glossary A–Z

Publishing Information

FIVE-YEAR CONSOLIDATED FINANCIAL SUMMARY

103

132

152

154

155

161

163

164

165

166

167

168

STADA Annual Report 2019 | Table of ContentsLET TER TO SHAREHOLDERS
FROM THE STADA CEO

Dear Shareholders,
Ladies and Gentlemen,

2019 was an exceptionally successful financial year for STADA with double-digit growth in sales and earnings. Group sales

increased by 12% to €2.61 billion – with strong organic growth of 8% which was well above the level of the market. Both busi-

ness segments – Generics and Consumer Healthcare – grew by more than 10%. Adjusted EBITDA increased at a disproportion-

ately high rate of 24% to €625.5 million. The primary factors contributing to this increase included, in particular, a significantly

higher gross margin which was improved by successful cost measures in the supply chain and in production in addition to

a better product mix.

On top of strong sales increases and substantial market share gains in our European core markets, we were also able to success-

fully close the key acquisitions Walmark in Central Europe and the purchase of the Takeda portfolio in Russia in the first quarter

of 2020. The outstanding results we achieved in the past financial year support our long-term growth journey which is based

on our operationalized company values “Agility“, “Entrepreneurship“, “Integrity“ and “One STADA“. These developments have

positioned STADA as the go-to partner for Generics and Consumer Healthcare in Europe and in the emerging markets.

Because we would never be able to achieve these results without our committed and highly-motivated employees, I would like

to thank them on behalf of the entire Executive Board for their excellent work. In addition, I would like to thank the Superviso-

ry Board and the Advisory Board for their support in the growth journey we have embarked on.

Regardless of the success we have achieved, we still have a lot of work to do. We have ambitious goals. I am optimistic that

we will be able to continue the successful journey in 2020. By building on our strengths and focusing clearly on our top priorities

as well as the fabulous spirit and commitment in the Group, we will pave the way for a sustainable, successful future for STADA.

Our five strategic priorities “leading marketing and sales capabilities”, “superior growth through pipeline acceleration”, “bench-

mark low-cost operating model”, “highly efficient and reliable supply chain” and “growth culture” will all provide key contribu-

tions to this development. This is how we will successfully meet our objective of looking after people’s health as a reliable

partner both today and in the future.

Peter Goldschmidt

Chairman of the Executive Board/CEO

Letter to Shareholders from the STADA CEOREPORT OF THE SUPERVISORY BOARD

Dr. Günter von Au,
Chairman of the Supervisory Board of STADA Arzneimittel AG

Dear Shareholders,

In the reporting year, the Supervisory Board carefully executed the duties incumbent upon it in accordance with the law and

the Articles of Incorporation. It continuously monitored the management of the Company and regularly advised the Executive

Board, particularly on the course of business and business policy, corporate planning including financial, investment and per-

sonnel planning, accounting and the position and strategy of the Company and the Group. The Supervisory Board was involved

directly and at an early stage in all decisions of fundamental importance for the Company.

Cooperation with the Executive Board and monitoring

With the exception of specific Supervisory Board issues, the members of the Executive Board regularly participated in the total

of five meetings of the Supervisory Board in financial year 2019. In an intensive exchange with the Executive Board, the Super-

visory Board examined the business development of the Company and the Group, the fundamental positioning of the corporate

strategy, corporate planning of the Company and the Group as well as the position of the Company and the Group, especially

the net assets and financial position. The Supervisory Board talked regularly to the Executive Board about the Group’s financial

and liquidity situation, considering especially the investment plans and related financing in the Group, the financing structures

and refinancing strategies as well as the development of the debt-to-equity ratio.

The Supervisory Board had the Executive Board report to it regularly on the market structures, development of demand, the

competitive situation and price, conditions and discount development, in particular development of the Group’s market share

and that of its relevant competitors. In addition, the Supervisory Board regularly gained an overview of the product development

and product portfolio of the Group. It discussed with the Executive Board the possibilities related to cost, tax and process

optimizations. The Supervisory Board dealt with all relevant investments and acquisitions. The Executive Board also regularly

informed the Supervisory Board in a timely and comprehensive manner on the risk situation, risk management, the internal

control system and questions related to compliance. The Supervisory Board dealt with and reviewed matters presented to it in

detail and discussed them with the Executive Board.

Report of the Supervisory Board07

In the reporting year, the Supervisory Board also dealt with Executive Board matters as well as the search for a successor to

Mark Keatley as new Chief Financial Officer.

Changes in the Executive Board and Supervisory Board

In financial year 2019, the Executive Board consisted of Peter Goldschmidt as Chairman of the Executive Board/CEO, Mark

Keatley as Chief Financial Officer as well as Miguel Pagan Fernandez as Chief Technical Officer. With effect from February 1,2020,

the Supervisory Board appointed Dr. Wolfgang Ollig as the Group’s new Chief Financial Officer, succeeding Mark Keatley.

Mark Keatley decided to step down from his Executive Board position for personal reasons. The Supervisory Board would like

to thank Mark Keatley for his commitment on behalf of STADA.

At the end of the Annual General Meeting on May 29, 2019 there were – as a result of regular new elections held in May of this

year – changes to the employee representatives in the Supervisory Board. The Supervisory Board now includes as employee

representatives Jens Steegers as well as the newly-elected Markus Damm and Dr. Klaus Scheja. At the same time, Halil Duru

stepped down from the Supervisory Board. At its Supervisory Board meeting directly following the conclusion of this General

Meeting, Markus Damm was elected new Deputy Chairman of the Supervisory Board at STADA Arzneimittel AG. The Super-

visory Board would like to thank Halil Duru for his many years of commitment on the Supervisory Board.

Annual and consolidated financial statements, audit; non-financial report

The Annual Financial Statements of STADA Arzneimittel AG and the Consolidated Financial Statements as of December 31, 2019

as well as the Combined Management Report for STADA Arzneimittel AG and the Group for financial year 2019 were audited by

PricewaterhouseCoopers GmbH Wirtschaftsprüfungsgesellschaft, Frankfurt am Main, and issued with an unqualified audit

opinion. The Audit Committee issued the audit contract for the Supervisory Board and determined the main areas for the audit

with the auditor. The auditor submitted a declaration of independence to the Supervisory Board.

On the basis of the preparation by the Audit Committee, the Supervisory Board examined the Annual Financial Statements and

the Consolidated Financial Statements prepared by the Executive Board, the Combined Management Report for STADA Arznei-

mittel AG and the Group on financial year 2019. It had all necessary documentation and audit reports from the auditor which

were also the object of comprehensive discussions with the auditor and the Executive Board at the balance-sheet meeting in

March 2020. Following the final results of its own audit, the Supervisory Board did not raise any objections and approved the

results of the audit of the financial statements. It approved the Annual Financial Statements and the Consolidated Financial

Statements prepared by the Executive Board and audited by the auditor.

Furthermore, the Audit Committee and the Supervisory Board dealt with the Combined Separate Non-Financial Report for

STADA Arzneimittel AG and the Group prepared by the Executive Board for financial year 2019. Auditing firm Pricewaterhouse-

Coopers GmbH conducted an audit to obtain limited assurance and issued an unqualified audit opinion. The documents were

carefully reviewed by the Audit Committee and Supervisory Board at its balance sheet meetings in March 2020 and discussed

in detail with the Executive Board and representatives of the auditor. Following their review, the Supervisory Board had no

objections.

Expression of thanks

The Supervisory Board would like to thank the members of the Executive Board, management and all of the Group’s employees

across the globe for their great commitment and constructive collaboration in the past months.

Bad Vilbel, March 11, 2020

Dr. Günter von Au

Chairman of the Supervisory Board

Report of the Supervisory BoardCombined Management Report of the Executive Board

COMBINED
MANAGEMENT REPORT
OF THE E XECUTIVE BOARD

Fundamental Information about the Group
Introduction

Group’s Business Model

Management and Control

Product Development

Procurement and Production

Sales and Marketing

Employees

Objectives and Strategies

Internal Management System

Disclosures pursuant to Section 315b HGB

Economic Report
Macroeconomic and Sector-Specific Environment

Course of Business and Net Assets, Financial Position and Results of Operations

Development of 2019 Compared to Outlook

Development of Financial Performance Indicators

Results of Operations

– Sales Development of the Group

– Earnings Development of the Group

– Sales and Earnings Development of the Generics Segment

– Sales and Earnings Development of the Branded Products Segment

Financial Position

Net Assets

Results of Operations, Financial Position and Net Assets of STADA Arzneimittel AG

Introduction

Results of Operations

Financial Position

Net Assets

General Statements of the Executive Board on the Course of Business in 2019

Report on Post-Balance Sheet Date Events

Report on Expected Developments

Opportunities and Risk Report

COMBINED SEPARATE NON-FINANCIAL REPORT

Business Model and Strategy

Product Safety and Quality

Contributions to Society

Responsible Corporate Governance and Compliance

Employee Matters

Health, Safety and Environmental Protection

Observance of Human Rights

Combined Management Report of the Executive Board | Table of Contents10

Fundamental Information about the Group

Introduction

In financial year 2019, the delisting of the shares of STADA Arzneimittel AG from the regulated market and from the not officially
regulated markets (“free market”) was completed.1) For this reason, the Group Management Report will no longer include, in
particular, the share chapter, the corporate governance report, the corporate governance declaration including the declaration

of compliance, the remuneration report or takeover-related disclosures.

The remaining listing on the open market of the Hamburg Stock Exchange is not due to the initiative of STADA Arzneimittel AG.

Irrespective of this, STADA continues to be classified as a capital market-oriented Company, as the bond issued by the Com-

pany in 2015/2022 remains listed on the regulated market in Luxembourg.

Group’s Business Model

Focus on the high-growth health care market with emphasis on pharmaceuticals

STADA is an internationally-active health care Company organized as a stock corporation. The focus of the Company is on the

two segments Generics and Branded Products. With respect to cost and risk factors, STADA does not concentrate on research

and development of innovative active ingredients, but rather on the development and marketing of pharmaceutical products.

These are no longer covered by commercial property rights, in particular patents and are known as generics. In financial year

2019, Generics had a share of approximately 59% and Branded Products approximately 41% of Group sales.

In light of the fact that Generics represent a more economical alternative to the often significantly more expensive original
products and therefore make a significant contribution to the financial relief of health care systems, this area continues to have

relevant growth potentials.

The Branded Products segment at STADA includes, in particular, non-prescription (OTC), prescription (RX) and discretionary
prescription (OTX) products. With a view to existing growth opportunities, STADA pursues both the ongoing expansion of the

branded products portfolio and the increasing internalization of successful brands.

While generics are marketed on the basis of low pricing, the sale of branded products focuses on product characteristics and,

above all, on the brand name. In this context, the Group pursues the concept of so-called “strong brands,” where brand aware-

ness plays a major role.

Top 5 generic active ingredients

Active ingredient

Indication group

Epoetin zeta

Tilidin Naloxon

Atorvastatin

Omeprazol

Pantoprazol

Total

Anemia

Pain

Elevated cholesterol level

Gastric ulcer/reflux

1) Subsequent to the delisting from the Frankfurt Stock Exchange already completed in
2018, the delisting of the STADA shares from the Düsseldorf Stock Exchange was carried
out as planned at the end of December 2, 2019. In addition, inclusion in the free market
of the Munich Stock Exchange was halted at the end of the same day.

2019 sales
in € million

Change from
previous year

78.1

38.2

28.6

22.5

21.3

+>100%

+1%

+8%

+6%

+13%

188.7

+41%

Combined Management Report of the Executive Board | Fundamental Information about the Group

Top 5 branded products

Branded product

Indication group

Bortezomib STADA®

Cancer

APO-Go®

Grippostad®

Zoflora®

Snup®

Total

Parkinson’s disease

Colds

Disinfection

Head cold

Operative positioning

2019 sales
in € million

Change from
previous year

78.5

74.5

41.8

41.4

31.8

+4%

+63%

-26%

268.0

+49%

Given the Group’s operative positioning, the areas of product development, procurement, purchasing, production, quality

management, finances, risk management, human resources (HR), legal, compliance and corporate governance as well as

responsibility for sales and earnings are managed centrally.

Management and Control

The Executive Board of STADA Arzneimittel AG runs the businesses in accordance with the legal requirements, the Articles of

Incorporation and the rules of procedure for the Executive Board. It is supported by an extended management team, manage-

ment of the Company, however, lies with the Executive Board.

The Executive Board is appointed and dismissed by the Supervisory Board in accordance with legal regulations. The STADA

Supervisory Board is composed in accordance with the German One-Third-Participation Act (Drittelbeteiligungsgesetz) and

consists of nine members, including six members who are shareholder representatives and three members who are employee

representatives. It monitors and advises the Executive Board in the management of the business.

On March 20, 2018, a domination and profit and loss transfer agreement between STADA Arzneimittel AG and Nidda Healthcare

GmbH was entered into the commercial register at the district court in Frankfurt am Main which grants Nidda Healthcare GmbH

the right to issue instructions to the Executive Board of STADA Arzneimittel AG with regard to the management of the Company.

STADA, however, remains a legally independent entity with the previously described bodies. The STADA Executive Board

also remains responsible for the management and representation of the Company. Insofar as no instructions are issued, the

Executive Board of STADA can and must manage the Company on its own responsibility.

Product Development

Strategic orientation of development activities

Within the scope of the Group’s development activities, there is a focus on generics. Here, so-called “specialties” are also devel-

oped – generics which are particularly complex due to their technology or application form and the development of which is

accordingly more expensive. As a result of the increasing growth potential of branded products, STADA has also been continu-

ously expanding its development activities in this area for several years. This includes development activities for branded

products, particularly non-prescription medications, nutritional supplements and cosmetics.

One example for the successful development and introduction of branded products is Bortezomib STADA®. In the second quar-
ter of 2019, the Group introduced this product – used for the treatment of multiple myeloma – in 14 European countries.1) In
contrast to the original product, the new product does not have to be dissolved before use and is available as a so-called “ready

to use” solution. Thanks to this clear additional benefit, Bortezomib STADA® is one of the most important international product

1) See the Company’s website at www.stada.com/media/press-releases/2019.

Combined Management Report of the Executive Board | Fundamental Information about the Group

launches in STADA’s history. With the development, the Group has managed to give

patients early access to an affordable alternative to the original product and to offer

pharmaceutical professionals an additional benefit.

5-year development:
Number of
product launches

High level of competence in development and approval

With the introduction of 729 individual products worldwide (previous year: 650),

STADA once again demonstrated its strength with respect to development and

approval. The Group continues to have a well-stocked product pipeline. As of

December 31, 2019, STADA pursued over 1,200 approval procedures for more than

160 active pharmaceutical ingredients and ingredient combinations for more than

50 countries. These include, on the one hand, all relevant generics and, on the other

hand, numerous branded products. The number of the approval applications was

more than 730 in the reporting year. The number of new approvals was over 700.

Consistent expansion of the Branded Product segment and increasing
internationalization of successful brands

In the Branded Products segment, STADA’s focus is, on the one hand, on the expan-

sion of existing product lines. One example is the innovative dissolving tablet from

Hoggar night®. On the other hand, the focus is on the increasing internationalization

9
2
7

5
6
6

0
7
6

0
5
6

8
7
5

of successful branded products. The Group is launching selected products in other

2015 2016 2017 2018 2019

markets that to date have been successful primarily at a regional level. Examples

that can be mentioned in this connection in the reporting year include Hedrin®,

Hoggar night®, Fultium® and Fructosin®.

Gradual expansion of the biosimilar portfolio

In light of the growth opportunities, the Group is continuously expanding its biosimilar portfolio. STADA is currently on the
market with two biosimilars – SILAPO®, a erythropoeitin biosimilar, and Movymia® 1), a teriparatide product. In addition, STADA
as is known has in-licensed further biosimilars that are currently in the development phase. There is also a contract in place

between STADA and Xbrane Biopharma AB, a Swedish biosimilar company, for the joint development of Xlucane, a biosimilar

from Lucentis® (ranibizumab). In financial year 2019, STADA and Xbrane Biopharma expanded their strategic partnership for
the development of biosimilars.2) This allows both companies to review potential development and marketing cooperations
related to the pre-clinical biosimilars Xcimzane and Xdivane from XBrane Biopharma as well as further biosimilars that are

suited to the portfolios of both companies. At the end of 2019, STADA announced that the Company had entered into an

exclusive strategic partnership with Alvotech ehf, an international biopharmaceutical company, for the marketing of seven
biosimilars in all European core markets and selected markets outside of Europe.3) The partnership initially includes biosimilar
candidates for the treatment of auto-immune diseases, cancer and inflammatory diseases as well as in the area of ophthal-

mology for patients throughout the world. As part of this partnership, Alvotech is responsible for the development, approval

and delivery of the biosimilars within the EU. STADA will exclusively market the products in most European core markets.

Procurement and Production

Central needs planning

STADA has three supply-chain hubs managed through STADA Arzneimittel AG, in Bad Vilbel (Germany), Vrsac (Serbia), and

Moscow (Russia), where centralized needs planning takes place for selected products in the Group.

1) See the Company’s press release of August 20, 2019.
2) See the Company’s press release of May 31, 2019.
3) See the Company’s press release of November 4, 2019.

Combined Management Report of the Executive Board | Fundamental Information about the Group13

Ongoing investments

STADA continually invests in the Group’s own production facilities and test laboratories. Investments in the expansion and

modernization of production sites and facilities, as well as test laboratories, amounted to €61.2 million in the reporting year

(previous year: €22.8 million).

Sales and Marketing

International Group structure with national-level distributors

The STADA Group has an international sales structure made up of nationally focused sales companies. In accordance with

the operational positioning, the subsidiaries that are active in sales are organized centrally, but they nevertheless have a

strong market proximity and thus also extraordinary sales strength. Including the export share, STADA sells its products in about

120 countries.

Employees

Global cooperation

STADA’s personnel policy is managed centrally by the Global Human Resources department at Group headquarters. In this

regard, the global functional departments “Talent Management & People Development“, “People Analytics, Talent Acquisition

& Employer Branding“ as well as “Compensation & Benefits“ lay out the standards, guidelines and processes that are

implemented by the international companies and supplemented in accordance with the conditions specific to the market. To

strengthen the centrally managed international HR structure, in financial year 2019, functional reporting lines for all local

personnel managers to global HR management were established.

Development in the number of employees and personnel expenses

Development in the
number of employees

Regional distribution
of Group employees

Reporting date
Dec. 31

Annual
average

Reporting date
Dec. 31

Annual
average

Germany

0
0
1
,
1
1

6
1
4
0
1

6
2
6
,
0
1

7
4
2
0
1

2
8
1
1

6
2
9
:
l
e
b

l
i

V
d
a
B

1
6
1
,
1

3
0
9
:
l
e
b

l
i

V
d
a
B

5
2
1
1

3
0
9
:
l
e
b

l
i

V
d
a
B

4
5
1
,
1

2
0
9
:
l
e
b

l
i

V
d
a
B

Outside Germany

Reporting date
Dec. 31

Annual
average

9
3
9
,
9

4
3
2
9

2
7
4
,
9

2
2
1
9

2018 2019

Combined Management Report of the Executive Board | Fundamental Information about the Group

Development of
personnel expenses

Personnel
expenses
in € million

Personnel
expenses ratio
in %

9
.
0
2
4

3
9
5
3

%
1
.
6
1

%
4
5
1

2018 2019

The average number of employees increased in the reporting year by 4% to 10,626

(previous year: 10,247), mainly due to the increase in the number of production

employees in Serbia and Vietnam as well as the expansion of sales and marketing

activities in Spain and Italy. As of the reporting date, the number of employees rose

by 7% to 11,100 (previous year: 10,416). This increase was primarily based on the

previously-mentioned development in the number of production and sales employees

as well as on the initial consolidation of the Biopharma units as of December 31, 2019

with about 300 employees.

The proportion of women employed in management positions at the Group in financial

year 2019 amounted to approximately 51% (previous year: approximately 52%).

Declaration in accordance with Section 289f Paragraph 4 of the

German Commercial Code (HGB)

At the beginning of the 2019 financial year, the Executive Board set the target for the

proportion of women in the first management level at at least 16.7% and at least 38.2%

in the second management level pursuant to section 76 (4) of the German Stock

Corporation Act (AktG) with a deadline for implementation of December 31, 2023.

In December 2017, the Supervisory Board set the target for the proportion of women

on the Supervisory Board at at least one woman in accordance with section 111 (5)

AktG, with a deadline for implementation of December 31, 2022. The Supervisory

Board resolved to maintain the status quo of 0% for the proportion of women on the

Executive Board until December 31, 2022.

Objectives and Strategies

Sustained profitable growth and long-term value enhancement

With its business model, the Group aims to achieve sustained profitable growth and enhance Company value over the long term

(see “Fundamental Information about the Group – Internal Management System”).

In order to achieve these goals, STADA continued to implement the transformation process in the reporting year, including

numerous initiatives for increasing efficiency in the areas of procurement, supply chain, production, R&D as well as portfolio,

among others. Overall, this serves to increase competitiveness, enhance innovative strength and create greater value over the

long term.

As part of its corporate strategy, the Group relies on new marketing channels, efficiency enhancements in the area of marketing

& sales, increased investments in the core markets as well as new product launches. In addition, STADA pursues strategic

partnerships throughout the world in the areas of development and production which allow the Company, also in the future, to

have a competitive product portfolio that generates sustainable growth.

Internal Management System

In financial year 2019, the performance indicators for adjusted Group sales and adjusted EBITDA were applied to operational
management of corporate divisions. Management of the change of adjusted Group sales and adjusted EBITDA occurred at the

segment level.

In order to ensure the Company’s sustained success, the relative change in Group sales adjusted for currency and portfolio
effects1) plays an important role. At STADA, adjusted EBITDA2) is understood as EBITDA adjusted for special items. Excluded
from this are the special items that relate to impairment losses and write-ups on non-current assets. Using this indicator, STADA

measures its operational performance and the results of the individual segments, adjusted for impacts from special items that

distort year-on-year comparisons. This includes earnings from associates and income from investments.

1) Adjustments for currency and portfolio effects are shown solely as an adjustment to
previous year sales. Previous year sales were adjusted for currency effects by applying the
exchange rates of the reporting year. The current reporting year remains unchanged and
corresponds to reported Group sales. The key figures calculated in this way are subsequently
compared with one another in order to determine a relative change.

2) The elimination of effects which have an impact on the presentation of STADA’s results of
operations and the derived key figures improves the comparability of key figures from
previous years. To achieve this, STADA uses adjusted key figures, which, as so-called pro
forma figures, are not governed by the accounting requirements in accordance with IFRS.
Since other companies may not calculate the pro-forma figures presented by STADA in the
same way, STADA’s pro-forma figures are comparable only to a limited extent with similarly
designated disclosures by other companies.

Combined Management Report of the Executive Board | Fundamental Information about the Group15

At the STADA Group, the financial performance indicators for Group sales adjusted for currency and portfolio effects, adjusted

EBITDA are derived as follows:

Financial
performance indicators

Determination based on the consolidated income statement and
the consolidated balance sheet in accordance with IFRS

Change in Group sales
adjusted for currency and
portfolio effects1)

Group sales

Portfolio effects1)

Currency effects1)

Adjusted EBITDA2)

= Group sales adjusted for currency and portfolio effects1)

Earnings before interest and taxes (EBIT)

Balance from depreciation/amortization and impairments/write-ups on intangible assets
(including goodwill), property, plant and equipment and financial assets

Earnings before interest, taxes, depreciation and amortization (EBITDA)

Special items within operating profit excluding one-time special items that relate to impairments
and write-ups of fixed assets

Adjusted earnings before interest, taxes, depreciation and amortization (adjusted EBITDA)

Disclosures pursuant to Section 315b HGB

Pursuant to § 315b (1) of the German Commercial Code (HGB), STADA Arzneimittel AG is obligated to provide Group reporting

on non-financial matters. In fulfillment of this obligation, STADA Arzneimittel AG prepares a combined separate non-financial

report in accordance with § 289b HGB in conjunction with § 315b (3) HGB.

1) Adjustments for currency and portfolio effects are shown solely as an adjustment to
previous year sales. Previous year sales were adjusted for currency effects by applying the
exchange rates of the reporting year. The current reporting year remains unchanged and
corresponds to reported Group sales. The key figures calculated in this way are subsequently
compared with one another in order to determine a relative change.

Combined Management Report of the Executive Board | Fundamental Information about the Group16

Economic Report

Macroeconomic and Sector-Specific Environment

Macroeconomic development

According to the calculations of the International Monetary Fund (IWF), global economic growth in 2019 slowed significantly

as compared with the previous year. While the growth rate for worldwide gross domestic product was at 3.7% in 2018, it was
at 3.0% in 2019.1) The IWF sees the primary reasons for the decrease in growing trade and geopolitical tensions which, as a result
of the uncertainties regarding the future of global trade and international cooperations, have an impact on confidence in the

economy, investment decisions and worldwide trade.

Overall, STADA is active in markets whose growth rates in gross domestic product in 2019 – parallel to the slowing global

economy - developed at times only moderately. Regardless of this situation, the Group was able to record a very positive business

development (see “Economic Report – General Statements of the Executive Board on the Course of Business in 2019”).

The following chart shows economic development in those countries of primary importance to STADA. They are arranged in

descending order by sales achieved by STADA in the reporting year.

Growth rates gross domestic product 20191) in %

+0.5%

+1.1%

0.0%

+1.2%

+2.2%

+3.5%

+1.2%

+0.8%

+4.3%

Germany

Russia

Italy

United
Kingdom

Belgium

Spain

Serbia

France

Switzer-
land

Ireland

Sector-specific development

In financial year 2019, sales in the international generics market increased as compared with the previous year by approximately
4.1% to approximately €234.8 billion.2) Generics thus had a share of the global pharmaceutical market of approximately 20.8%.2)

In 2019, sales in the global OTC market increased by approximately 2.1% to approximately €72.5 billion as compared to the
previous year. 2) The share of OTC products in the global pharmaceutical market was thus approximately 6.4%2).

1) Source: International Monetary Fund: World Economic Outlook October 2019.
2) IQVIA Syndicated Analytics Service; prepared for STADA February 2020.

Combined Management Report of the Executive Board | Economic Report

Effects of the macroeconomic and sector-specific environment

Because the STADA Group is active in the health care market and therefore operates in a sector relatively unaffected by cyclical

factors, its business development is generally less dependent on economic influences than it is on the regulatory environment

in each respective health care system. In the reporting year there were no significant changes in the regulatory environment

relating to health care in the countries in which STADA operates that would have had a substantive impact on Group performance.

Generally, there is a greater impact on STADA from economic factors in those countries that belong to so-called self-payer

markets, because demand there also depends on the purchasing power of the population.

The British pound, the Russian ruble, and the Serbian dinar are key national currencies with respect to the currency translation

of sales and earnings in relation to the Group currency, the euro. In addition, the Kazakh tenge, the Swiss franc, the Ukrainian

hryvnia and the Vietnamese dong are also of importance. The currency relations in other countries of relevance to STADA only

have a minor impact in this regard. In financial year 2019, the increase in value of the Russian ruble as well as the British pound

in relationship to the euro had a positive impact on earnings.

Course of Business and Net Assets, Financial Position and Results of Operations

Development of 2019 Compared to Outlook

In the Report on Expected Developments from the Annual Report 2018, the Executive Board anticipated further Group growth

in financial year 2019 as compared with the previous year. In both segments, sales adjusted for currency and portfolio effects

were expected to grow strongly and adjusted EBITDA was expected to grow significantly.

With the development achieved in 2019, Group sales adjusted for currency and portfolio effects and adjusted EBITDA were
in line with the forecast.

Development of Financial Performance Indicators

Financial performance indicators for the STADA Group

In financial year 2019, the financial performance indicators of the STADA Group developed as follows:

Financial performance indicators in €million

2019

2018

±%

Group sales adjusted for currency and portfolio effects

• Generics

• Branded Products

EBITDA, adjusted

• Generics

• Branded Products

2,608.6

1,534.7

1,073.9

625.5

436.8

296.0

2,410.7

1,424.2

986.5

503.5

359.6

240.6

+8%

+9%

+24%

+21%

+23%

Detailed information on the development of financial performance indicators for STADA can be found in the following notes on

earnings performance.

Combined Management Report of the Executive Board | Economic Report18

Results of Operations – Sales Development of the Group

Increase in reported and adjusted Group sales

Reported Group sales increased in the reporting year by 12% to €2,608.6 million (previous year: €2,330.8 million). The increase
was primarily attributable to growth in the German, American, Italian, Spanish and French generics segment as well as in the

German, British and Italian branded products segment. The sales decrease in the Russian generics and branded products

segment had a counter effect.

After deducting effects on sales resulting from changes in the Group portfolio and currency effects, adjusted Group sales
increased by 8% to €2,608.6 million (previous year: €2,410.7 million). The growth resulted in particular from sales increases

in Germany, the United States, Italy, Spain and France in the Generics segment and in Germany, the United Kingdom and Italy

in the Branded Products segment.

Adjustments for currency effects are shown exclusively as an adjustment of the previous year’s sales. Previous year sales were

adjusted for currency effects by applying the exchange rates of the reporting year. The portfolio effects consider the sales of the

previous year as well as the sales of the reporting year – with the adjustment only applied to the previous year’s figure. Recon-

ciliation of the reported previous year’s sales to the previous year’s sales adjusted for currency and portfolio effects was as

follows:

Reconciliation of reported previous year’s sales to adjusted previous year’s sales in € million

2,330.8

0.9%

19.7

2.8%

60.2

2,410.7

Currency
effects

Portfolio
changes

Reported
Group sales
2018

Adjusted
Group sales
2018

In detail, effects on sales attributable to changes in the Group portfolio and currency effects were as follows:

The changes to the portfolio in the form of an adjustment of the previous year’s figure totaled €60.2 million or 2.8% and were
based for the most part on the consolidation of BIOCEUTICALS Arzneimittel AG since September 30, 2018 as well as on the sales

contributions from the Nizoral® acquired product portfolio and the product portfolio acquired from Glaxo SmithKline.

Applying the exchange rates for financial year 2019 compared with those of the previous year in translating local sales contri-
butions into the Group currency, the euro, STADA showed a positive currency effect amounting to €19.7 million or an adjustment
of previous year’s sales by 0.9%.

Combined Management Report of the Executive Board | Economic Report19

In 2019, the development of national currencies of greatest relevance to STADA – the British pound, Russian ruble and Serbian

dinar – relative to the Group currency euros was as follows compared to the previous year:

Significant currency relations
in local currency to €1

British pound

Russian ruble

Serbian dinar

Closing rate on Dec. 31
in local currency

Average rate
for the reporting period

2019

2018

± %

2019

2018

± %

0.85208

0.89453

-5%

0.87724

0.88475

69.27810

79.71530

-13%

72.45524

74.05507

117.59280

118.19460

-1%

117.86094

118.27336

-1%

-2%

Since the currency relations in other countries of primary importance to STADA had only a limited impact on the translation of

sales and earnings from the local currencies into the Group currency, euro, they are not presented in this Annual Report.

Where adjusted sales figures are shown in this Annual Report, they are adjusted for portfolio and currency effects.

Results of Operations – Earnings Development of the Group

Positive development of key earnings figures

Both the reported and the adjusted key earnings figures developed positively in 2019.

Reported operating profit in the reporting year increased by 2% to €385.8 million (previous year: €378.1 million) resulting
primarily from the increase in the German, American, Italian, Belgian, Spanish and French generic segment as well as in the
British and Italian branded products segment. Growth in adjusted operating profit of 25% to €489.0 million (previous year:
€392.7 million) was primarily attributable to the previously-mentioned increases in operating profit in Germany, the United
States, Italy, Belgium Spain, the United Kingdom and France. The 15% growth of reported EBITDA to €612.8 million (previous
year: €530.6 million) was based on opposing effects. On the one hand, there were the aforementioned improvements in oper-

ating results in Germany, the United States, Italy, Belgium, Spain, France and the United Kingdom. On the other hand, the
reported EBITDA was shaped by expenses for various transformation projects, among other things. The 24% increase in adjusted
EBITDA to €625.5 million (previous year: €503.5 million) was mainly attributable to the effects already mentioned for the
operating profit.

The reported tax rate in 2019 was 7.9% (previous year: 9.4%). The adjusted tax rate was 7.2% (previous year: 19.2%).

Combined Management Report of the Executive Board | Economic Report20

Effect of special items on earnings

STADA made different adjustments to the adjusted earnings figures in financial year 2018 than in financial year 2019 (see the

following tables “Effect of special items on earnings”).

In financial year 2019, special items resulted in a net burden on earnings of €103.2 million before taxes and €96.7 million
after taxes. The following overview shows the reconciliation of the reported financial performance indicators and other signifi-

cant earnings figures of the STADA Group to those adjusted for special items:

in € million1)

Operating profit

Result from investments
measured at equity

Investment income

Earnings before interest and taxes (EBIT)

Financial income and expenses

Earnings before taxes (EBT)

Income taxes

Result distributable to
non-controlling shareholders

Result distributable to shareholders of
STADA Arzneimittel AG (net income)

Earnings before interest and taxes (EBIT)

Balance from depreciation/amortization
and impairments/write-ups of intangible
assets (including goodwill), property, plant
and equipment and financial assets

Earnings before interest, taxes,
depreciation and amortization (EBITDA)

Impairments/
write-ups on
non-current
assets

Effects from
purchase price
allocations and
product
acquisitions2)

2019
reported

Severance
expenses

2019
adjusted

385.8

0.0

385.8

45.1

340.7

26.9

11.1

302.7

385.8

227.0

612.8

66.5

22.4

14.3

489.0

–

66.5

–

66.5

3.7

0.3

62.5

66.5

-66.5

–

22.4

–

22.4

1.1

1.4

19.9

22.4

-24.0

-1.6

–

14.3

–

14.3

0.1

–

14.2

14.3

–

14.3

0.0

489.0

45.1

444.0

31.8

12.8

399.4

489.0

136.5

625.5

1) As a result of the presentation in € million, deviations due to rounding may occur in the
tables.
2) Relates to additional scheduled depreciation and other measurement effects due to
purchase price allocations as well as significant product acquisitions taking financial year
2013 as basis.

Combined Management Report of the Executive Board | Economic Report

In financial year 2018, special items resulted in a net burden on earnings of €14.7 million before taxes and €22.9 million after
taxes. Reconciliation of reported financial performance indicators and other significant STADA Group earnings figures to those

adjusted for special items was as follows:

in € million1)

2018
reported

Impair-
ments/
write-ups
on
non-current
assets

Effects from
purchase
price
allocations
and product
acquisi-
tions2)

Revalua-
tion effect
BIO-
CEUTICALS

Severance
expenses

Change
of tax
status of
STADA
Arznei-
mittel AG

2018
adjusted

Operating profit

378.1

26.3

14.1

2.6

-28.3

0.0

392.7

Result from investments
measured at equity

Investment income

Earnings before interest
and taxes (EBIT)

Financial income and
expenses

Earnings before taxes (EBT)

Income tax expenses

Result distributable to
non-controlling shareholders

Result distributable to
shareholders of
STADA Arzneimittel AG
(net income)

Earnings before interest
and taxes (EBIT)

Balance from depreciation/
amortization and impair-
ments/write-ups of intan-
gible assets (including good-
will), property, plant and
equipment and financial
assets

Earnings before interest,
taxes, depreciation and
amortization (EBITDA)

3.7

0.0

381.8

38.9

342.9

32.3

3.6

–

26.3

–

26.3

6.5

0.3

–

14.1

–

14.1

1.0

0.9

–

2.6

–

2.6

–

-28.3

–

-28.3

–

0.0

28.9

–

3.7

0.0

396.5

38.9

357.6

68.7

4.8

306.9

19.5

12.2

2.6

-28.3

-28.9

284.0

381.8

26.3

14.1

2.6

-28.3

148.8

-26.3

-15.5

–

530.6

–

-1.4

2.6

-28.3

–

396.5

107.0

503.5

Combined Management Report of the Executive Board | Economic Report

The following tables show further key earnings figures of the STADA Group and the resulting margins, on both a reported and

adjusted basis for 2019 and for the previous year.

Development of the STADA Group’s reported earnings figures

2019

2018

± %

385.8

345.8

175.6

14.8%

22.5%

16.4%

612.8

436.2

297.8

23.5%

28.4%

27.7%

385.8

14.8%

340.7

13.1%

378.1

+2%

291.9

+18%

165.0

+6%

16.2%

21.1%

17.4%

530.6

+15%

359.2

+21%

242.5

+23%

22.8%

26.0%

25.6%

381.8

+1%

16.4%

342.9

-1%

14.7%

2019

2018

± %

489.0

372.7

237.4

18.7%

24.3%

22.1%

625.5

436.8

296.0

24.0%

28.5%

27.6%

489.0

18.7%

444.0

17.0%

392.7

+25%

307.9

+21%

189.4

+25%

16.9%

22.3%

20.0%

503.5

+24%

359.6

+21%

240.6

+23%

21.6%

26.0%

25.4%

396.5

+23%

17.0%

357.6

+24%

15.3%

in € million

Operating profit

• Generics

• Branded Products

Operating profit margin1)

• Generics

• Branded Products

EBITDA

• Generics

• Branded Products

EBITDA margin1)

• Generics

• Branded Products

EBIT

EBIT margin1)

EBT

EBT margin1)

Development of the STADA Group’s adjusted 2) earnings figures

in € million

Adjusted operating profit

• Generics

• Branded Products

Adjusted operating profit margin 1)

• Generics

• Branded Products

Adjusted EBITDA

• Generics

• Branded Products

Adjusted EBITDA margin 1)

• Generics

• Branded Products

Adjusted EBIT

Adjusted EBIT margin 1)

Adjusted EBT

Adjusted EBT margin 1)

1) Based on relevant Group sales.
2) Adjusted for special items.

Combined Management Report of the Executive Board | Economic Report23

Income statement and cost development

Cost of sales increased in 2019 to €1,239.2 million (previous year: €1,139.5 million). This development was based on opposing
effects. A positive impact came from improvements in purchasing conditions. An opposing effect was caused by increased

depreciation due to, among other things, new product acquisitions. Overall, cost of sales developed at a lower rate than sales.
The cost of sales ratio thus improved to 47.5% (previous year: 48.9%).

Gross profit rose to €1,369.3 million (previous year: €1,191.3 million). The gross margin thus improved to 52.5% (previous year:
51.1%) – due primarily to the introduction of Bortezomib STADA® in the second quarter of 2019.

Selling expenses rose to €581.6 million (previous year: €538.6 million). This development was primarily based on investments
in sales in the generics and branded products areas in the United Kingdom, Italy and Spain. The selling expenses ratio was
22.3% (previous year: 23.1%).

General and administrative expenses showed an increase of €214.8 million (previous year: €183.7 million). Their share of
Group sales amounted to 8.2% (previous year: 7.9%). The increase resulted, among other things, from expenses for various

transformation projects.

Research and development expenses were €72.8 million (previous year: €72.3 million). The sales-related ratio of research and
development expenses was 2.8% (previous year: 3.1%).

Development costs reported by STADA include non-capitalized development costs, which consist mainly of costs associated

with regulatory requirements and the optimization of existing products. This cost item does not include payments for the

development of new products, since STADA usually capitalizes these costs. Development costs for new products of €20.4 million

were capitalized in financial year 2019 (previous year: €20.4 million). This corresponds to a capitalization rate of 21.9% (previ-

ous year: 22.0%). This does not include capitalized borrowing costs and the capitalization of software totaling €4.6 million

(previous year: €3.3 million).

Other income decreased to €42.7 million (previous year: €84.4 million). The development was primarily attributable to the
income included in this item in the previous year from the capital consolidation of BIOCEUTICALS Arzneimittel AG.

Other expenses decreased to €157.0 million (previous year: €103.1 million). This was based for the most part on recognized
impairment losses on non-current assets excluding goodwill. In addition, this item also included personnel expenses which, in

the reporting year, mainly resulted from severance payments for a BPO restructuring program as well as from expenses as a

result of management changes.

Financial expenses increased to €48.6 million (previous year: €44.6 million) – due primarily to higher interest expenses.

The financial result, which is composed primarily of financial income and financial expenses, amounted to -€45.1 million
(previous year: -€35.2 million). The largest operative-related individual item in this regard was the interest expense in the amount

of €48.6 million (previous year: €44.6 million).

In financial year 2019, STADA Arzneimittel AG was financed at interest rates between 1.01% p.a. and 3.50% p.a. (previous year:

0.95% p.a. and 2.3% p.a.). In addition, the Group financed itself at interest rates of between 1.01% p.a. and 69.15% p.a. (pre-

vious year: 2.84% p.a. and 3.19% p.a.), whereby the high interest rate is attributable to the taking of loans in Argentina, the

carrying amount of which is not significant for the Group. As of the reporting date December 31, 2019, the weighted average

interest rate for non-current financial liabilities was approximately 3.07% p.a. (December 31, 2018: approximately 3.43% p.a.).

As of the reporting date, the average weighted interest rate for current financial liabilities amounted to approximately 8.00%

p.a. (December 31, 2018: 1.97% p.a.). The average weighted interest rate for all Group financial liabilities amounted to approx-

imately 3.22% p.a. (December 31, 2018: approximately 2.97% p.a.).

Income tax expenses decreased to €26.9 million (previous year: €32.3 million). The reported tax rate was 7.9% (previous year:
9.4%). The adjusted tax rate was 7.2% (previous year: 19.2%).

Combined Management Report of the Executive Board | Economic Report24

Results of Operations – Sales and Earnings Development of the Generics Segment

Reported sales in the Generics segment rose in the reporting year by 11% to €1,534.7 million (previous year: €1,382.8 million).
Sales adjusted for portfolio and currency effects for the Generics segment increased by 8% to €1,534.7 million (previous year:
€1,424.2 million). This development was primarily based on sales increases in Germany, the United States, Italy, Spain and

France. There were counter-developments in Russia. Generics had a 58.8% share in Group sales (previous year: 59.3%).

Within the Generics segment in financial year 2019, Europe, Germany and CIS were the strongest markets in terms of sales.

In Europe, sales generated with generics rose by 12% to €978.9 million (previous year: €870.4 million). The primary growth
drivers in this regard were Italy, Spain and France – in particular as a result of positive volume effects and reduced discount

burdens.

In Germany, sales of generics increased by 7% to €328.5 million (previous year: €306.6 million). This development was primarily
attributable to product launches and low discount rates.

Currency-adjusted sales generated with generics decreased in CIS by 15% – mainly as a result of the sales decline in the Russian
market. This development resulted mainly from high inventories with wholesalers. In light of the appreciation of the ruble, sales

in euro decreased to by 12% to €96.1 million (previous year: €109.8 million).

In the reporting year, the Group achieved sales amounting to €188.7 million with products that contain the Group’s top five

active pharmaceutical ingredients in terms of sales (previous year: €135.7 million). These products thus contributed 12.3% to

sales in the Generics segment (previous year: 9.8%). With generated sales of €78.1 million (previous year: €29.6 million), epoetin

zeta (indication anemia) was the active pharmaceutical ingredient with the strongest sales in the Generics segment.

Reported operating profit in the Generics segment registered an increase in financial year of 18% to €345.8 million (previous
year: €291.9 million). This development was primarily attributable to the increase in the operating result in the German, Amer-
ican, Italian, Belgian, Spanish and French generics segment. Reported EBITDA for Generics increased by 21% to €436.2 million
(previous year: €359.2 million). This development was primarily based on the previously described development of the reported
operating result for the segment in Germany, the United States, Italy, Belgium, Spain and France. The reported
operating profit margin in the Generics segment amounted to 22.5% (previous year: 21.1%). The reported EBITDA margin
for Generics was 28.4% (previous year: 26.0%).

Adjusted operating profit in the Generics segment registered an increase in 2019 of 21% to €372.7 million (previous year:
€307.9 million). Adjusted EBITDA for Generics recorded growth of 21% to €436.8 million (previous year: €359.6 million). Both
developments were especially attributable to the previously-mentioned operating result in Germany, the United States, Italy,
Belgium, Spain and France. The adjusted operating profit margin in the Generics segment amounted to 24.3% (previous year:
22.3%). The adjusted EBITDA margin in the Generics segment amounted to 28.5% (previous year: 26.0%).

Results of Operations –
Sales and Earnings Development of the Branded Products Segment

Reported sales in the Branded Products segment increased in the reporting year by 13% to €1,073.9 million (previous
year: €948.0 million). Sales adjusted for portfolio and currency effects for the Branded Products segment rose by 9% to
€1,073.9 million (previous year: €986.5 million). This development was mainly the result of increasing sales in Germany, the

United Kingdom and Italy. Branded products contributed 41.2% of Group sales (previous year: 40.7%).

Within the Branded Products segment, Europe, Germany, the United Kingdom and CIS were the strongest markets in terms of

sales in financial year 2019.

Sales generated with branded products increased in Europe by 23% to €274.0 million (previous year: €223.4 million). Italy,
Spain and France contributed to this development.

Combined Management Report of the Executive Board | Economic Report
25

In Germany, sales generated with branded products rose by 28% to €232.4 million (previous year: €180.9 million). This devel-
opment was mainly a result of the sales contributions from product launches and price effects.

In the United Kingdom, sales with branded products adjusted for currency effects rose by 21%. This increase in sales resulted
mainly from new product launches and the expansion of the product portfolio. In light of an appreciation of the British pound,

sales in euro rose by 23% to €219.6 million (previous year: €179.2 million).

In CIS, sales generated with branded products, adjusted for currency effects, showed a decrease of 15% – mainly as a result of
the sales decline in the Russian market. This development resulted mainly from high inventories with wholesalers. In light of

the appreciation of the ruble, sales in euro decreased by 12% to €233.6 million (previous year: €266.0 million).

In 2019, STADA achieved sales amounting to €268.0 million with the Group’s top five branded products in terms of sales (previ-

ous year: €215.8 million). These products thus contributed 25.0% to sales in the Branded Products segment (previous year:

22.8%). With sales of €78.5 million the cancer treatment Bortezomib®, which was newly-launched in 2019, was the branded

product with the strongest sales in the segment.

Reported operating profit in the Branded Products segment registered an increase in the reporting year of 6% to €175.6 mil-
lion (previous year: €165.0 million). This development was due in particular to an increase in operating profit in the branded
products segment in the United Kingdom and Italy. Reported EBITDA for Branded Products recorded growth of 23% to
€297.8 million (previous year: €242.5 million). This development was primarily due to the previously mentioned improvements
in the operational segment earnings in the United Kingdom and Italy as well as an improved EBITDA in Germany. The reported
operating profit margin for Branded Products amounted to 16.4% (previous year: 17.4%). The reported EBITDA margin for
Branded Products was 27.7% (previous year: 25.6%).

Adjusted operating profit for the Branded Products segment registered an increase in financial year 2019 of 25% to €237.4 mil-
lion (previous year: €189.4 million). Adjusted EBITDA for Branded Products increased by 23% to €296.0 million (previous year:
€240.6 million). Both developments were mainly attributable to the increased operating result in the British and Italian as well
as the EBITDA in the German branded products segment. The adjusted operating profit margin of Branded Products
amounted to 22.1% (previous year: 20.0%). The adjusted EBITDA margin for Branded Products was 27.6% (previous year:
25.4%).

Financial Position

Stable financial position

The financial position of the STADA Group in financial year 2019 was stable. This is demonstrated both by several items in the

cash flow statement and by a variety of indicators that are presented in various parts of this chapter, including liquidity analysis.

Principles and goals of STADA financial management

The financing strategy of STADA in the reporting year was characterized by the securing of financial flexibility. The financing

needs of the Group was covered by loans from Nidda, promissory note loans, a bond and factoring.

The Group reduced financial risks to the extent possible via natural hedging and derivative financial instruments. In principle,

STADA did not issue or hold derivative financial instruments for speculative purposes in 2019. The “Opportunities and Risk

Report” contains details on managing individual financial risks.

Combined Management Report of the Executive Board | Economic Report26

Financing structure

The financing in the nominal amount of €1,285.6 million as of December 31, 2019 was comprised of the following:

Financial instruments following exercising of put-rights and
additional repayment in € million

Nominal Value

Maturity

Promissory note loans

Bond

Promissory note loans

Further bank loans

Total financial liabilities

Loan from Nidda Healthcare Holding GmbH

Total financing

April 26, 2021

April 8, 2022

April 26, 2023

rolling

41.5

267.4

7.0

315.9

40.1

356.0

929.6

1,285.6

On December 20, 2018, STADA announced that it and certain of its significant subsidiaries – in line with the instruction received

from Nidda – granted certain in rem security to secure certain capital markets indebtedness and other debt financing which is
borrowed and/or guaranteed by Nidda and its affiliates.1) The grant of such in rem security gave the right for holders of the
STADA €300,000,000 1.75% fixed rate notes due 2022 to demand repayment of their principal and accrued interest on such
STADA Notes. On January 8, 2019, STADA published a relevant tender offer the expiry of which was dated June 19, 2019.2) On
June 21, 2019, STADA announced that under the tender offer, since its announcement on January 8, 2019, bonds in a nominal
amount of €6,676,000 had been repurchased.2)

For the refinancing of the Group, there was a corporate bond as of December 31, 2019 with a nominal value of €267.4 million

(December 31, 2018: €274.1 million) with an interest rate of 1.75% p.a. In addition, as of December 31, 2019 the Group held

promissory note loans with a total nominal value of €48.5 million (December 31, 2018: €178.0 million) and further bank loans

in the amount of €40.1 million (December 31, 2018: €43.0 million).

In financial year 2019, STADA Arzneimittel AG was refinanced at interest rates between 1.01% p.a. and 3.5% p.a. (previous year:

0.95% p.a. and 2.3% p.a.). In addition, the Group financed itself at interest rates of between 1.01% p.a. and 69.15% p.a. (pre-

vious year: 2.84% p.a. and 3.19% p.a.), whereby the high interest rate is attributable to the taking of loans in Argentina, the

carrying amount of which is not significant for the Group. As of the balance sheet date December 31, 2019, the weighted average

interest rate for non-current financial liabilities was approximately 3.07% p.a. (December 31, 2018: approximately 3.43% p.a.).

As of the reporting date, the average weighted interest rate for current financial liabilities amounted to approximately 8.00%

p.a. (December 31, 2018: approximately 1.97% p.a.). The average weighted interest rate for all Group financial liabilities amount-

ed to approx imately 3.22% p.a. (December 31, 2018: approximately 2.97% p.a.).

The following table provides an overview of the structure of financial liabilities of the STADA Group:

Remaining maturities of
financial liabilities as of
Dec. 31, 2019 in k €

Promissory note loans

Bond

Liabilities to banks

Liabilities to shareholders

Total

< 1 year

1 – 3 years

3 – 5 years

> 5 years

–

40.1

–

40.1

41.5

266.6

0.1

–

308.2

7.0

–

929.6

936.6

–

thereof
as of
Dec. 31, 2019
> 1 year
in %

100%

0.3%

100%

97%

Total

48.5

266.6

40.2

929.6

1,284.9

1) See the Company’s press release of December 20, 2018.
2) See www.stada.com/investor-relations/bonds/bond-2015/disclaimer.html.

Combined Management Report of the Executive Board | Economic Report

Liquidity analysis

The Group’s liquidity was guaranteed at all times in the reporting year. It was based primarily on cash inflows from operating

activities as well as the borrowing of funds. Cash inflows from operating activities were affected by the profitability of business

activities and the net working capital, in particular receivables. In financial year 2019, STADA had current and non-current

borrowings from Nidda, a bond, promissory note loans and factoring available for financing.

Cash flow analysis

Cash flow statement (abridged) in k €

2019

2018

Cash flow from operating activities

Cash flow from investing activities

Free cash flow

Cash flow from financing activities

Non-cash changes to cash and cash equivalents

Cash flow

444,080

-264,988

179,092

-316,697

-150

320,288

-300,284

20,004

79,726

869

-137,755

100,599

Cash flow from operating activities consists of changes in items not covered by investments, financing, exchange differences
on the conversion of foreign financial statements or transactions in foreign currencies or through changes in the scope of

consolidation and measurement. Cash flow from operating activities amounted to €444.1 million in the reporting year (previous

year: €320.3 million). This development was mainly attributable to a significantly higher gross cash flow resulting from a signifi-

cant increase in EBITDA. There were also cash inflows in connection with the increase in trade accounts payable. This was

countered by higher cash outflows from the increase in inventories and trade accounts receivable.

Cash flow from investing activities, which includes cash outflows for investments reduced by the inflows from disposals,
amounted to -€265.0 million for financial year 2019 (previous year: -€300.3 million).

The cash flow from investing activities was influenced in financial year 2019 in particular by payments for significant investments

in intangible assets for the short-term expansion of the product portfolio in the amount of €135.1 million. Of that amount,

€84.2 million was accounted for by the acquisition of a branded product portfolio in the United Kingdom. Within the scope of

business combinations, the were net payments made from the acquisition of the Biopharma Group in the amount of €47.5 mil-

lion.

In 2019, STADA thus spent a total of €182.6 million for acquisitions – as part of business combinations in accordance with
IFRS 3 and significant investments in intangible assets for the short-term expansion of the product portfolio (previous year:

€236.2 million).

Investments in other intangible assets, i.e. investments in intangible assets in the context of ongoing operating business and
thus without consideration of significant investments or acquisitions for the short-term expansion of the product portfolio,

amounted to €26.6 million in the reporting year (previous year: €24.9 million). These comprise, in particular, individual

insignificant payments for the development and acquisition of approvals or approval dossiers.

Payments for investments in property, plant and equipment in 2019 amounted to €82.7 million (previous year: €48.1 million).
This also includes investments in production sites, manufacturing facilities and test laboratories, mainly in Vietnam and Serbia,

for which additions amounting to a total of €61.2 million were recorded in 2019 (previous year: €22.8 million).

Payments for investments in financial assets in the reporting year were €4.5 million (previous year: €0.3 million).

Combined Management Report of the Executive Board | Economic Report28

As a result of disposals, STADA recorded an inflow of payments totaling €31.5 million in cash flow from investing activities in
financial year 2019 (previous year: €9.2 million). Proceeds from the disposal of shares in consolidated companies as well as from

the disposal of non-current assets held for sale related to dividends of Stellapharm J.V. (formerly STADA Vietnam J.V.), which was

previously accounted for using the equity method, which represent partial payments in connection with the agreement con-

cluded in the fourth quarter of 2017 to sell the shares in this company held by STADA as of December 31, 2019, as well as the

final purchase price payment.

Cash flow from financing activities in 2019 were -€316.7 million (previous year: €79.7 million). This development was primar-
ily attributable to the settlement of liabilities, presented in the dividend distributions, to shareholders from a profit transfer

agreement in the amount of €134.2 million. In addition, there were dividend distributions to non-controlling interests in the

amount of €17.0 million. Furthermore, scheduled repayments of promissory note loans were recorded which were countered

by only limited assumption of financial liabilities. Cash flow from financing activities was also influenced by the repayment of

financial liabilities from leases which now also include the leases identified within the scope of the new standard IFRS 16 which

was applied for the first time as of January 1, 2019. In the previous year there were the following effects: Significantly higher

financial liabilities resulted from the loans granted to STADA by Nidda Healthcare Holding GmbH. This was also countered by

higher repayments of financial liabilities. Due to the takeover in 2017, the creditors of STADA Arzneimittel AG were entitled in

accordance with the financing conditions to prematurely terminate bonds, promissory note loans and bank loans. Among

other things, a partial amount of €360.2 million made due prematurely in the first quarter of 2018 in this context. Another

material item in the second quarter of 2018 was the scheduled repayment of a bond in the amount of €347.1 million.

Free cash flow, i.e. cash flow from ongoing operating activities plus cash flow from investing activities, was €179.1 million in
the financial year (previous year: €20.0 million) as a result of the still high payments for investments. Free cash flow adjusted
for payments for significant investments or acquisitions and proceeds from significant disposals was €336.9 million (previous

year: €249.6 million).

Cash flow for financial year 2019 net of all inflows and outflows from cash flow from operating activities, cash flows from
investing and financing activities as well as changes in cash and cash equivalents due to exchange rates and/or the scope of

consolidation amounted to -€137.8 million (previous year: €100.6 million).

Investments

Investment volume for the Group in the reporting year amounted to €282.2 million (previous year: €422.2 million). In this regard,

investments in property, plant and equipment (not including rights of use in accordance with IFRS 16) totaled €80.0 million

(previous year: €53.3 million). In financial year 2019, this did not include any amounts in connection with business combinations

in accordance with IFRS 3 (previous year: €0.3 million). In relation to Group sales, the share of investments in property, plant

and equipment amounted to 3.1% (previous year: 2.3% of Group sales). Investments in intangible assets amounted to €197.7 mil-

lion (previous year: €368.6 million). Of this, €31.9 million was attributable to business combinations in accordance with IFRS 3

(previous year: €81.9 million). In 2019, 28% of the total investment volume was used for for property, plant and equipment

(previous year: 13%) and 70% for intangible assets (previous year: 87%).

Acquisitions, cooperations and in-licensings

The Group continued to make progress in financial year 2019 in terms of its acquisitions policy, which is aimed at accelerating

organic growth through selected acquisitions.

On June 7, 2019, STADA announced that the Company, through its British subsidiary Thornton & Ross, and GlaxoSmithKline had

signed a contract to acquire five skin care brands as well as a pediatric cough remedy in Europe and selected markets in APAC
and Latin America.1) The contract took effect as of July 31, 2019. With the acquisition, STADA further expands the consumer
health business in the markets mentioned.

1) See the Company’s press release of June 7, 2019.

Combined Management Report of the Executive Board | Economic Report29

On November 4, 2019, STADA announced that it would acquire Walmark a.s., a leading manufacturer of consumer health prod-
ucts in Eastern Europe.1) Walmark has a portfolio of well-established Consumer Health brands across multiple categories. These
include Vitamins and Minerals, Children’s Health, Women’s Health, Men’s Health, Joint Care, Digestive and Intestinal, as well

as Cough and Cold and are set to generate continued growth. Walmark was founded in 1990 and is headquartered in the Czech

Republic. The company has a direct presence across nine European Union countries, including: the Czech Republic, Slovakia,

Poland, Hungary, Bulgaria, Romania, Lithuania, Latvia and Estonia, and sells its products to more than 40 countries worldwide.

Walmark employs more than 540 employees. In the course of the transaction, STADA will integrate Walmark’s manufacturing

facility in Trinec into STADA’s global production network. With Walmark, the Group strengthens its global branded product

portfolio and its presence in Eastern Europe – especially in the Czech Republic, Slovakia, Romania, Bulgaria and Hungary. The

transaction was concluded in the first quarter of 2020.

On November 5, 2019, STADA announced that it would acquire a portfolio of selected products from Takeda Pharmaceutical
Company Limited for a total value of $660 million.2) The portfolio consists of approximately 20 selected over-the-counter (‘OTC’)
and prescription pharmaceutical assets sold in countries including Russia, Georgia, Azerbaijan, Belarus, Kazakhstan and Uz-

bekistan. The portfolio includes OTC-vitamins and food supplements, plus selected products within the cardiovascular, diabe-

tes, general medicine, and respiratory therapeutic areas. The acquired products complement STADA’s already existing portfo-

lio in Russia. The acquisition is the largest to date in the history of STADA. The transaction will enable the Group to more

intensively expand its consumer health business in Russia and the CIS and to further internationalize the business. In the course

of the transaction, approximately 500 sales and marketing employees will move from Takeda to STADA. In further manufactur-

ing of supply contracts, it was agreed that Takeda will continue to deliver the products to STADA in the future. The acquisition

was financed by new debt financing. Conclusion of the transaction was carried out in the first quarter of 2020.

On December 2, 2019, STADA announced that it had acquired the pharmaceutical prescription and consumer health business
from Biopharma, one of the most important pharmaceutical manufacturers in Ukraine.3) As a result of the acquisition, STADA
becomes an important player in the Ukrainian pharmaceutical market with a strong local presence in production. In the course

of the acquisition, STADA also takes over the production facilities in Bila Tserkva, near Kiev, as well as about 300 employees.

Conclusion of the transaction was in December 2019.

In addition to acquisitions, STADA relies on targeted cooperations and in-licensings to expand the existing product portfolio.

The Group made further progress in this regard in the reporting year.

On May 31, 2019, STADA announced that the Company and XBrane Biopharma had expanded their strategic partnership for
the development of biosimilars.4) This allows both companies to review potential development and marketing cooperations
related to the pre-clinical biosimilars Xcimzane and Xdivane from XBrane Biopharma as well as further biosimilars that are

suited to the portfolios of both companies.

On November 4, 2019, STADA announced that the Group had entered into an exclusive strategic partnership with Alvotech ehf,

an international biopharmaceutical company, for the marketing of seven biosimilars in all European core markets and selected
markets outside of Europe.5) The partnership initially includes biosimilar candidates for the treatment of auto-immune diseases,
cancer and inflammatory diseases as well as in the area of ophthalmology for patients throughout the world. As part of this

partnership, Alvotech is responsible for the development, approval and delivery of the biosimilars within the EU. STADA will

exclusively market the products in most European core markets. In 2019, there were no significant effects on the results of

operations, financial position or net assets in this regard.

Beyond this, STADA was also able to record further successes in 2019 with more than 50 in-licensings for future product

launches.

1) See the Company’s press release of November 4, 2019.
2) See the Company’s press release of November 5, 2019.
3) See the Company’s press release of December 2, 2019.
4) See the Company’s press release of May 31, 2019.
5) See the Company’s press release of November 4, 2019.

Combined Management Report of the Executive Board | Economic Report30

Net Assets

Development of the balance sheet

Balance sheet (abridged)
Assets

Non-current assets

Intangible assets

Property, plant and equipment

Other assets

Current assets

Inventories

Trade accounts receivable

Other assets

Cash and cash equivalents

Non-current assets and disposal groups held for sale

Dec. 31, 2019
in k €

Dec. 31, 2019
in %

Dec. 31, 2018
in k €

Dec. 31, 2018
in %

2,284,014

1,785,969

453,385

44,660

1,575,412

638,237

615,090

112,917

206,039

3,129

59.2%

46.3%

11.7%

1.2%

40.8%

16.5%

15.9%

2.9%

5.3%

0.1%

2,113,845

1,707,205

351,467

55,173

1,446,281

515,251

516,011

71,175

343,794

59.4%

48.0%

9.9%

1.5%

40.6%

14.5%

1.9%

9.7%

0.0%

Total assets

3,859,426

100.0%

3,560,126

100.0%

Equity and liabilities

Equity

Non-current borrowed capital

Other non-current provisions

Financial liabilities

Other liabilities

Current borrowed capital

Other provisions

Financial liabilities

Trade accounts payable

Other liabilities

Dec. 31, 2019
in k €

Dec. 31, 2019
in %

Dec. 31, 2018
in k €

Dec. 31, 2018
in %

1,195,468

1,411,807

41,006

1,244,788

126,013

1,252,151

18,261

40,082

414,024

779,784

31.0%

36.6%

1.1%

32.3%

3.3%

32.4%

0.5%

1.0%

10.7%

20.2%

1,177,985

1,102,439

33,490

978,386

90,563

1,279,702

22,543

444,943

315,080

497,136

33.1%

31.0%

0.9%

27.5%

2.6%

35.9%

0.6%

12.5%

8.9%

13.9%

Non-current liabilities and associated liabilities
of disposal groups held for sale

–

Total equity and liabilities

3,859,426

100.0%

3,560,126

100.0%

The assets situation of the STADA Group recorded a positive development in financial year 2019. This is apparent on the basis

of the items reported in the balance sheet.

As of December 31, 2019, net debt amounted to €1,078.8 million (December 31, 2018: €1,079.5 million). The figure includes a
shareholders’ loan of €929.6 million.

The equity ratio was 31.0% as of the balance sheet date (December 31, 2018: 33.1%).

The balance sheet total increased to €3,859.4 million as of December 31, 2019 (December 31, 2018: €3,560.1 million). Signifi-
cant changes in assets are described below.

Intangible assets increased by €78.8 million to €1,786.0 million as of December 31, 2019 (December 31, 2018: €1,707.2 million).
This development primarily resulted from the additions that are included here from business combinations in accordance with

IFRS 3 which relate to the acquisition of the Biopharma Group.. This led to addition to goodwill in the Branded Products segment

from the initial consolidation in the amount of €31.2 million. Furthermore, STADA acquired a branded products portfolio in the

United Kingdom for €84.2 million.

Combined Management Report of the Executive Board | Economic Report

As of December 31, 2019, intangible assets included goodwill in the amount of €429.3 million (December 31, 2018: €388.8 mil-

lion). The change is attributable to additions from business combinations in accordance with IFRS 3 and to currency fluctuations.

In addition, in 2019, development costs amounting to €20.4 million were capitalized as internally created intangible assets

(December 31, 2018: €20.4 million). Amortization of capitalized development costs amounted to approximately €12 million

(December 31, 2018: approx. €11 million). In total, STADA recognized impairments, net of write-ups, on intangible assets to-

taling €65.9 million in 2019 (previous year: €26.1 million).

Property plant and equipment increased as of the reporting date to €453.4 million (December 31, 2018: €351.5 million). This
increase was primarily based on the initial application of IFRS 16 as of January 1, 2019 and the additions from business com-

binations that relate to the BIOPHARMA Group which was included in the scope of consolidation.

As of December 31, 2019, inventories amounted to €638.2 million (December 31, 2018: €515.3 million). The development was
primarily attributable to the sales growth, the new introduction of product portfolios and acquisitions.

In specific situations STADA puts – following the principle of market proximity – certain range considerations deliberately aside

in favor of possible operating opportunities. In individual cases this – if the utilization of opportunities cannot be realized as

expected – can lead to value allowances for inventories which burden earnings. Total burdens in the amount of €40.9 million as

of December 31, 2019 were incurred due to impairments net of reversals (December 31, 2018: €35.7 million).

Trade accounts receivable increased to €615.1 million as of the reporting date (December 31, 2018: €516.0 million).

Insofar as there exists the opportunity to attain a better market position, the Group accepts in exceptional cases, if necessary,

higher current trade accounts receivable. In terms of its receivables management, STADA pays careful attention to the liquidity

of customers as a general rule. However, defaults can never be entirely ruled out (see “Opportunities and Risk Report”).

Other assets contains various items, including financial assets, investments accounted for at equity, deferred tax assets, other
financial assets, other assets and income tax receivables.

Financial assets as of the balance sheet date were €6.4 million (December 31, 2018: €2.3 million).

Investments measured at equity decreased to €3.1 million as of December 31, 2019 (December 31, 2018: €24.6 million). The
decrease resulted predominantly from the reclassification of the shares held by STADA in Stellapharm J.V. (formerly STADA

Vietnam J.V.) into non-current assets held of sale (IFRS 5).

Deferred tax assets rose to €33.5 million (December 31, 2018: €26.3 million).

Other financial assets in the amount of €60.1 million (December 31, 2018: €13.6 million) include, among other things, positive
market values of derivative financial instruments which were €0.4 million as of the reporting date (December 31, 2018: €2.2 mil-

lion) and which consisted of currency forwards. In addition, this item includes receivables from factoring transactions, which

for German Group companies amounted to €4.4 million (December 31, 2018: €4.6 million) and receivables from cash pooling

with Nidda Healthcare Holding GmbH in the amount of €44.1 million.

Other assets decreased to €48.1 million as of December 31, 2019 (December 31, 2018: €50.4 million).

Cash and cash equivalents, which include cash and call deposits as well as current financial investments, registered an decrease
as of the balance sheet date to €206.0 million (December 31, 2018: €343.8 million). This was attributable to the effects described

as part of the explanations on the Consolidated Cash Flow Statement. Additional details on the development of cash and cash

equivalents can be found in the Consolidated Cash Flow Statement.

As of December 31, 2019, there were assets and disposal groups held for disposal in the amount of €3.1 million (December
31, 2018: €0.1 million).

As of December 31, 2019, equity rose to €1,195.5 million (December 31, 2018: €1,178.0 million).

Combined Management Report of the Executive Board | Economic Report32

Retained earnings including net income comprise net income for financial year 2019 as well as the earnings achieved in pre-
vious periods, provided these were not distributed, including the amounts transferred to retained earnings. In addition, reval-

uations of net debt from defined benefit plans that were recognized through other comprehensive income are reported under

this item, taking deferred taxes into account. In the context of measuring the defined benefit obligations as of Decem-

ber 31, 2019, net expense in the amount of €5.3 million after deferred taxes – not considering amounts attributable to non-

controlling interests – resulted from the remeasurement. This is based primarily on the reduction in the discount rate for various

defined benefit plans in the STADA Group underlying the measurement of December 31, 2019 as compared with December 31,

2018. In addition, this item also includes currency translation differences related to the revaluation of net debt recognized in

equity from performance-oriented pension plans as well as the deferred taxes they incur, which, in financial year 2019, amounted

to expenses recognized in equity of €0.1 million.

Other reserves include results recognized directly in equity. This relates, among other things to foreign exchange gains and
losses resulting from currency translation with no effect on income of the financial statements of the companies included in

the Group, which are shown in the statement of changes in equity under the currency translation reserve. The increase in other

reserves in the reporting year was attributable in particular to the appreciation of the Russian ruble and the British pound since

December 31, 2018 which led to earnings from currency translation with no effect on income of companies reporting in the

Russian ruble and the British pound.

The Group’s current and non-current financial liabilities of €40.1 million and €1,244.8 million as of December 31, 2019,
(December 31, 2018: €444.9 million and €978.4 million) mainly comprise a shareholder loan in the amount of €929.6 million,

promissory note loans with a nominal value of €48.5 million (December 31, 2018: €178.0 million) and a bond with a nominal

value in the amount of €267.4 million (December 31, 2018: a bond with a nominal value in the amount of €274.1 million).

Trade accounts payable increased to €414.0 million as of December 31, 2019 (December 31, 2018: €315.1 million). In addition
to reporting date effects, this development was particularly attributable to inventory settlements in the course of inventory

build-up and consulting settlements as part of the transformation process.

Other liabilities include deferred tax liabilities, other financial liabilities, other liabilities and income tax liabilities.

Deferred tax liabilities increased to €87.0 million as of December 31, 2019 (December 31, 2018: €83.9 million). This develop-
ment was primarily attributable to higher taxable temporary differences from property, plant and equipment and other assets.

Other financial liabilities of €618.7 million (December 12, 2018: €292.9 million) include liabilities from discount agreements
of German STADA companies in the amount of €150.9 million (December 31, 2018: €128.1 million) and a liability from the dom-

ination and profit and loss transfer agreement with the Nidda Healthcare GmbH in the amount of €349.6 million (December 31,

2018: €134.2 million). The increase in other financial liabilities compared with the balance sheet date of previous year was

mainly the result of the development of these items.

Income tax liabilities decreased to €59.4 million as of the reporting date (December 31, 2018: €79.7 million). This development
was primarily attributable to the reversal of tax provisions.

Other liabilities rose to €139.1 million as of December 31, 2019 (December 31, 2018: €129.7 million). This mainly resulted from
an increase in tax liabilities and personnel liabilities at STADA AG.

Combined Management Report of the Executive Board | Economic Report33

Results of Operations, Financial Position and Net Assets of STADA Arzneimittel AG

Introduction

STADA Arzneimittel AG is the parent and lead Company of the STADA Group. It directly and indirectly holds shares in the com-

panies that belong to the STADA Group.

In the evaluation of the results of STADA Arzneimittel AG, the operating profit of the activities of the Group companies in the

Generics and Branded Products segments should be taken into account. Profit or loss is significantly affected by the services

including the delivery of goods to other Group companies, which result from the function of the STADA Arzneimittel AG as a

parent company or holding company of the STADA Group. The costs for these strategic services are covered by the Group com-

panies taking advantage of them and are accounted for under sales at STADA Arzneimittel AG. STADA Arzneimittel AG’s net

profit is also influenced by investment income.

For STADA Arzneimittel AG, sales and net profit before profit transfer are used as key financial performance indicators for the

ability to pay a dividend to Nidda Healthcare GmbH and as management metrics.

For further information on the business activities of STADA Arzneimittel AG, in particular with regard to topics of “Research and

Development”, “Employees”, “Macroeconomic and Sector-Specific Environment”, as well as “Opportunities and Risk Report”,

reference is made to the statements regarding the STADA Group included in this Combined Management Report.

The Annual Financial Statements of STADA Arzneimittel AG are prepared in accordance with the provisions of the German

Commercial Code (HGB) under consideration of the supplementing requirements of the Stock Corporation Act (AktG). The pro-

visions for major capital corporations apply.

The full Annual Financial Statements of STADA Arzneimittel AG are available on the STADA website at www.stada.com/de or

www.stada.com.

Results of Operations

Results of operations in k €

Revenue

Net profit before profit transfer

2019

2018

566,727

349,550

475,009

134,189

In financial year 2019, STADA Arzneimittel AG’s sales increased by 19% to €566.7 million (previous year: €475.0 million).

In this regard, sales to third parties increased slightly as compared with the previous year. This was primarily attributable to

increased royalties.

Internal Group sales developed positively. The development was primarily attributable to an increased volume of product

deliveries.

Other operating income decreased to €63.2 million (previous year: €65.8 million) – particularly as a result of lower income from

write-ups in the amount of €21.1 million (previous year: €27.0 million) and a decrease exchange rate gains in the amount of

€13.4 million (previous year: €24.4 million), with a countervailing rise in income from the reversal of provisions by €6.3 million

to €9.3 million.

As a result of the increase in sales, the cost of materials and supplies and goods purchased increased to €176.1 million (previous

year: €159.6 million). Personnel expenses rose to €114.4 million (previous year: €91.4 million). Amortization/deprecation of

non-current intangible assets and property, plant and equipment recorded an increase to €93.7 million (previous year: €49.0 mil-

lion). This increase resulted for the most part from higher unscheduled amortization on approvals and brands. Depreciation of

Combined Management Report of the Executive Board | Economic Report34

financial assets declined to €1.1 million (previous year: €17.2 million). Other operating expenses decreased to €192.1 million

(previous year: €221.7 million) – especially due to lower intra-Group charges.

Income from profit transfer agreements and associates recorded an increase to €96.7 million as a result of positive earnings

development in the German sales companies (previous year: €83.0 million). Investment income showed an increase to €181.8 mil-

lion (previous year: €50.3 million). Income from intercompany loans to associates declined to €31.5 million (previous year:

€31.9 million). Other interest and similar income decreased to €11.4 million (previous year: €12.6 million). Interest and similar

expenses increased to €42.1 million (previous year: €35.1 million), particularly due to the funds from Nidda Healthcare GmbH.

STADA Arzneimittel AG’s net profit was, due to the domination and profit and loss transfer agreement, completely transferred
to Nidda Healthcare GmbH. Prior to the profit transfer, net profit amounted to €349.6 million (previous year: €134.2 million). In

the reporting year there was tax income of €14.8 million (previous year: tax expense of €12.3 million).

Financial Position

STADA Arzneimittel AG’s cash flow from operating activities increased to €160.1 million in financial year 2019 (previous year:
€138.1 million). This increase was particularly the result of increased liabilities to associates, particularly as a result of the

domination and profit and loss transfer agreement with Nidda Healthcare GmbH.

Cash flow from investing activities amounted to -€121.3 million (previous year: -€252.1 million) and was based primarily on
lower investments in intangible current assets.

Cash flow from financing activities was -€108.6 million (previous year: €177.2 million). The net change in financial liabilities
(loans, promissory note loans and a bond) declined to -€136.2 million (previous year: -€748.9 million). Inflows resulted in

particular from intercompany loans.

As a result of the cash flow executed in advance, cash and cash equivalents declined to €91.5 million (previous year: €161.3 mil-

lion). The primary goal of financial management is constant securing of liquidity and the limitation of risks associated with the

financing. In the reporting year, current debt financing was geared toward the capital markets and was primarily based on

current and non-current funds from Nidda, promissory note loans, a bond and factoring. The average capital-weighted interest

rate on the interest-bearing financial liabilities of STADA Arzneimittel AG on December 31, 2019 was 3.07% (December 31,

2018: 2.97%).

Net Assets

Net assets in € million

Non-current assets

Current assets

Equity

Provisions

Liabilities

2019

2018

2,416.3

2,362.8

733.2

886.8

115.9

592.3

886.8

107.0

2,153.5

1,969.0

In financial year 2019, STADA Arzneimittel AG’s non-current assets increased to €2,416.3 million (previous year: €2,362.8 mil-
lion). This development was based primarily in the increase in financial assets to €1,902.5 million (previous year: €1,811.9 mil-

lion). By contrast, intangible assets decreased to €460.5 million (previous year: €496.6 million). Intercompany loans to associates,

which were primarily used to finance acquisitions in the Central Europe region, also decreased to €479.6 million (previous year:

€488.5 million).

Combined Management Report of the Executive Board | Economic Report35

In 2019, STADA Arzneimittel AG’s current assets increased to €733.2 million (previous year: €592.3 million). The primary
reason for this was attributable to the increase in receivables from associates to €582.1 million (previous year: €380.7 million).

This was mainly related to an increase in current loans to subsidiaries. This was countered by a reduction in bank balances to

€91.5 million (previous year: €161.3 million. Inventories increased to €48.4 million (previous year: €35.0 million).

STADA Arzneimittel AG’s equity remained unchanged in the reporting year at €886.8 million. The equity ratio decreased to
28.1% (previous year: 29.9%).

STADA Arzneimittel AG’s provisions increased to €115.9 million (previous year: €107.0 million). The development was mainly
the result of an increase in provisions for outstanding invoices, primarily for consulting services.

STADA Arzneimittel AG’s liabilities amounted to €2,153.5 million (previous year: €1,969.0 million). The development resulted
for the most part from the liability due to the earnings transfer agreement to the parent company with an opposing effect from

the repayment of liabilities to banks. Trade accounts payable increased to €36.7 million (previous year: €24.9 million). Other

liabilities decreased to €7.2 million (previous year: €13.0 million). In addition to the assets recognized in the balance sheet,

STADA took advantage of off-balance sheet assets. These primarily include leased or rented items within the usual framework

such as company cars and rented building space.

The balance sheet total of STADA Arzneimittel AG rose to €3,156.3 million (previous year: €2,962.9 million).

General Statements of the Executive Board on the Course of Business in 2019

2019, STADA recorded a very successful financial year. In addition to increasing sales and key earnings figures, the Group also

made further significant progress in its transformation process. It was possible to achieve the forecast published in the Annual

Report 2018.

Group sales adjusted for currency and portfolio effects increased in the reporting year by 8% to €2,608.6 million. Adjusted
EBITDA rose by 24% to €625.5 million.

Combined Management Report of the Executive Board | Economic Report
36

Report on Post-Balance Sheet Date Events

This report on post-balance sheet date events includes events that occurred between the end of financial year 2019 and the

date of signing of the Combined Management Report and the Consolidated Financial Statements for 2019 and which have a

significant, or possibly significant effect on the net assets, financial position and results of operations of the STADA Group.

These were as follows:

On February 7, 2020 STADA announced that the Company is acquiring the FERN-C portfolio, a well-established range of
vitamin C food supplements, in the Philippines.1) The purchase price amounts to approximately €18 million.

On February 24, 2020, STADA announced that it agreed to acquire 15 well-established consumer healthcare products from
GlaxoShmithKline across more than 40 countries, predominantly in Europe, and multiple therapeutic areas.2) The purchase
price is between €311 million and €321 million.

On March 3, 2020 the acquisition of selected products from Takeda Pharmaceutical Company Limited was completed. The

purchase price amounts to approximately USD 610 million (see Note “8. Business combinations”).

The acquisition of Walmark, a leading manufacturer of consumer health products in Eastern Europe was completed on

March 4, 2020. The purchase price amounts to approximately €140 million (see Note “8. Business combinations”).

1) See the Company’s press release of February 7, 2020.
1) See the Company’s press release of February 24, 2020.

Combined Management Report of the Executive Board | Report on Post-Balance Sheet Date Events37

Report on Expected Developments

Business model with long-term growth prospects

STADA’s business model will, also in the future, remain concentrated on the health care market with a focus on pharmaceuticals.

The Group will thus continue to be active in one of the international growth industries. Notwithstanding the unchanged posi-

tioning toward areas with long-term growth opportunities, the sales and earnings development of the Group will be subject to

partially opposing factors also in financial year 2020. Economic, regulatory and competitive framework conditions can vary

from country to country and from year to year. More detailed descriptions of the risks can be found in the “Opportunities and

Risk Report”. Overall, the Executive Board expects, with a view to the transformation process that has been launched including

the broad range of initiatives for efficiency enhancement, the further-developed corporate strategy and the comprehensive

opportunities management, to achieve further growth, also in the future. Details on the Group’s opportunities management

are also available in the “Opportunities and Risk Report.”

In the course of the successful product development and active acquisition policy, STADA will continuously expand the Group

portfolio in both the Generics and Branded Products segments with acquisitions. Within Generics, there are promising growth

opportunities exist in the expansion in markets with relatively low penetration rates in particular. In the Branded Products

segment, in addition to expansion, STADA is targeting the increasing internationalization of successful brands.

Macroeconomic outlook

For 2020, the IMF has forecast a growth rate of 3.4% for global gross domestic product.1) In this regard, a recovery is expected,
especially for the USA, the Euro zone, China and Japan which contribute roughly one half of the global gross domestic product.

The following chart shows the economic forecast for the most important STADA markets. The countries are arranged in descend-

ing order by sales achieved by STADA in financial year 2019.

Forecast growth rates for gross domestic product 20201) in %

1.2%

1.9%

0.5%

1.4%

1.3%

1.8%

4.0%

1.3%

3.5%

Germany

Russia

Italy

United
Kingdom

Belgium

Spain

Serbia

France

Switzer-
land

Ireland

Sector-specific outlook

In consideration of the general growth drivers such as the global population increase, an increasingly aging society in industri-

alized nations and further medical progress, many health care and pharmaceutical markets will also in future offer strong and

relatively non-cyclical growth opportunities. Because generics represent a more affordable alternative to the often much more

expensive original products and thus help to ease the financial burden on health care systems, there are further growth poten-

1) Source: International Monetary Fund: World Economic Outlook October 2019.

Combined Management Report of the Executive Board | Report on Expected Developments

tials within the pharmaceutical market, especially in this area. Additional growth opportunities result from the continuous

expiration of patents and other commercial property rights. Substantial growth opportunities are also attributed to biosimilars

because, in comparison with cost-intensive biopharmaceuticals, they can make a significant contribution to cost reductions.

With a view to these growth potentials, the international market research institute IQVIA forecast average annual sales growth
of 4–5% for the global pharmaceutical market between 2020 and 2024.1)

The experts from IQVIA forecast an average annual increase in sales for the global generics market in the amount of 7.0% between
2020 and 2024.1) It should, however, be taken into account that the actual growth rates of reported sales in markets where
significant discounts must be granted, should be substantially below gross sales generally recorded by the market research

institutions before discounts.

The average annual sales volume for the newly available active pharmaceutical ingredients (including biologics) introduced into

generics competition between 2020 and 2024 in the largest European pharmaceutical markets of Germany, France, Italy, the
United Kingdom and Spain will be more than €22.1 billion.2)

This forecast is supported by estimates from IQVIA, according to which annual generics growth in the EU (EU28) from 2020 to
2024 should be 5.1%1) on average. For selected markets in Eastern Europe3), IQVIA estimates average annual generics growth
in this period at 9.3% 1). In this regard, growth rates in the Russian generics market will amount to an annual average of 9.2%1).

According to experts, the average annual growth rates for sales in the global OTC market will be at 4.2%1) between 2020 and
2024. Forecasts for the average annual sales growth in the European OTC market (EU28) will be at 1.9% in this period, according
to information from IQVIA.1)

Basis of the outlook

The outlook for financial year 2020 was made taking into account the events known when this Annual Report was prepared.

It is also based on the details of the overall economic outlook and the sector-specific outlook.

The outlook is also supported by the following assumptions:

• Mainly unchanged regulatory conditions in the markets most relevant for STADA, not including the regulatory changes

and market assessments known at the time the outlook was prepared

• Optimization of procurement prices for raw materials

• The continued possibility of immediately launching new products upon patent expiration

• Largely unchanged tax situation in the countries where STADA is active with Group companies

• Applications of forward rates at the time the outlook was prepared for the conversion of currencies other than the

Group currency euro

Outlook for STADA Arzneimittel AG

For financial year 2020 the Executive Board assumes sales for STADA Arzneimittel AG at a nearly unchanged level as compared

to the previous year as well as an annual net profit before profit transfer of at least €250 million.

On February 2, 2018, the Extraordinary General Meeting approved the conclusion of a domination and profit and loss transfer

agreement between Nidda Healthcare GmbH and STADA Arzneimittel AG, which became effective on March 20, 2018. As a

result, STADA Arzneimittel AG will no longer record any net income for financial years from 2018 onwards.

1) IQVIA Syndicated Analytics Service; prepared for STADA February 2020.
2) STADA’s estimate of sales volume in 2019 on ex-factory prices for active pharmaceutical
ingredients (including biologics) for which, from a current perspective, STADA expects a
patent or other commercial property rights relevant for generics competition to expire by
2024, based on information from various international market research institutes. STADA’s
expectation of when an active pharmaceutical ingredient will be available for generics
competition is subject to continuous legal review and may change considerably in future
compared to the information underlying the current expectation (as of: March 1, 2020). The
actual new sales volume that is becoming available for generic competition at the relevant
dates is subject to fluctuations that may depend inter alia on a change in market profit, legal
framework conditions or market structures.

3) Russia, Serbia, Ukraine, Kazakhstan and Bosnia and Herzegovina.

Combined Management Report of the Executive Board | Report on Expected Developments39

Summarizing outlook

In consideration of the general and generics-specific growth drivers in the health care and pharmaceutical industry as well as

growth forecasts in the area of branded products, STADA Group’s business model is geared towards markets with long-term

growth potential.

There are, however, also associated operative risks and challenges that are due in particular to amended or additional govern-

ment regulations (e.g. additional official requirements for clinical studies which could lead to extended development times for

biosimilars) and/or intense competition. As a result, STADA will also face non-operational influence factors in future, such as

negative Group-relevant currency relations and the effects of the ongoing conflict in Ukraine and the associated sanctions

against Russia. Furthermore, the potentially negative macroeconomic consequences in connection with the United Kingdom’s

departure from the EU may have an effect.

In general, the Group’s future sales and earnings development will be characterized by growth-stimulating and challenging

conditions.

With a view to the transformation process that has been launched, including the broad range of initiatives for efficiency

enhancement, the further-developed corporate strategy and the comprehensive opportunities management, the positive

prospects are expected to prevail.

The Executive Board expects further Group growth for financial year 2020 as compared to the prior year. In this context, Group

sales adjusted for currency and portfolio effects in based on both segments will grow strongly and adjusted EBITDA will increase

significantly.

Combined Management Report of the Executive Board | Report on Expected Developments
40

Opportunities and Risk Report

As an internationally active pharmaceutical Company, STADA is part of a global business community and thus subject to a range

of risks. These are necessary consequences of business activity, as the Group can only take advantage of opportunities if it is

also prepared to take risks.

In view of the fact that the health-care and pharmaceutical areas are relatively non-cyclical, economic cycles have only a limited

impact on the Group. In addition, the dependence on negative developments or events is kept as low as possible due to the

international positioning and the diversified focus on generics and branded products. Generally speaking, decades long

activity in the pharmaceutical market forms a stable foundation for realistically assessing risks and for taking selected advantage

of growth opportunities.

Comprehensive opportunities management to take advantage of existing growth opportunities

Opportunities management at STADA is an ongoing task. Within the scope of these efforts, the Group continuously evaluates

opportunities for growth. With the goal of being in a position to recognize and analyze changing requirements, developments

and especially opportunities in the often fragmented markets and to adapt its actions accordingly, the STADA management

continuously observes markets and competitors. Moreover, there is a regular exchange of experiences within the individual

departments which helps to identify and take advantage of additional opportunities and synergies.

On the basis of the ongoing implementation of the numerous initiatives of the initiated transformation process and with a view

to the strategic success factors, opportunities management serves to take optimal advantage of growth opportunities.

Important strategic success factors of the STADA Group

Securing sustainable Group success

Taking advantage of growth potential

Strong
product
development

International
sales structure

Numerous
initiatives for
efficiency
enhancement

Qualified
and committed
employees

As part of its successful product development, the Group will continuously expand its product portfolio in the two segments

Generics and Branded Products.

Risk management

STADA also defines risk management as an ongoing task of entrepreneurial activities. The risk strategy is applied in all business
segments of the STADA Group and is closely linked with STADA’s corporate strategy, forming the basis of the Executive Board’s

continuous risk management system. This system is then integrated into the value-based management and existing organiza-
tional structure of the Group. STADA’s risk management system is based on the international risk management standard
COSO II Enterprise Risk Management – Integrated Framework (2004).

The goal of risk management is to ensure, throughout the Group, that risks are recognized at an early stage, evaluated, managed

and minimized using targeted measures and to ensure that all relevant regulatory requirements of the risk management system

Combined Management Report of the Executive Board | Opportunities and Risk Report41

are fully complied with. The company-wide standard and integrated approach to risk management is intended to ensure the

efficiency of Group-wide risk management and make it possible to aggregate risks and provide transparent reporting.

STADA’s risk strategy is substantiated by risk policy principles. This is to ensure that all risks are fully identified, presented

transparently and comparably and are assessed. It obligates those responsible for risks to proactively manage and monitor the

risks. The risk policy principles are defined in the risk management guide, which also sets out binding methodical and organi-

zational standards for the approach to risks.

the fundamental components of the Group-wide risk management system which calls for quarterly regular reporting are:

1. the Risk Management & Database department, which is vertically and horizontally integrated in the Company and is

responsible for the planning and further development of the risk management system (including the Group-wide establish-

ment of the risk management software “R2C – Risk to Chance”), as well as the methods and procedures used to identify and

assess risks and support the local risk managers;

2. the local risk officers who identify and assess risks (including measures) and document and update them in the risk

management system and who are integrated in all corporate units and subsidiaries throughout the Group.

3. Review and coordination by the Risk Management & Database department with the locally responsible risk officers on
current issues and on the identified risk situation in the individual divisions in the Group (especially with regard to risk

aggregates);

4. The Company-specific risk management guide, which defines the risk management terms, risk policy and the risk

management system including the risk management process and responsibilities.

5. Risk reporting at Group and individual-company level.

STADA’s Group-wide risk management covers STADA Arzneimittel AG and its Group companies as well as companies in which

STADA holds a stake of at least 50%, even if they are not consolidated. Insofar as risks to the Group arise at subsidiaries in which

STADA holds a stake of less than 50%, these risks are also recorded in the Group’s risk management system.

The risk management system does not provide for a segregated identification of opportunities. The identification and evaluation

of opportunities takes place in the respective business environments. A comprehensive, systematic classification regarding the

probability and effects of the opportunities is not performed.

At STADA, the risk management process comprises the phases of risk identification, risk measurement, risk control, risk
monitoring, risk aggregation and risk reporting. Based on the requirements of the new majority shareholders of the STADA

Group, the existing risk management system was reviewed in 2018. This review led to the start of a realignment of the risk

management system in 2018. As part of this process, in the year under review, among other things, processes for reporting risks

were adapted with regard to the reporting structure in the sales companies and the assessment periods were changed from

cumulative periods to additive periods. These periods are oriented toward calendar years.

Phase 1

Phase 2

Phase 3

Phase 4

Phase 5

Phase 6

Risk
identification

Risk
measurement

Risk
control

Risk
monitoring

Risk
aggregation

Risk
reporting

Combined Management Report of the Executive Board | Opportunities and Risk Report42

The ongoing risk management process begins with risk identification (phase 1), in which all individual risks that could have

significant negative impacts on STADA’s business model are systematically recorded. Identification of individual risks is carried

out, on the one hand, through decentralized self-assessments and, on the other hand, through centralized inquiries.

Risk measurement is carried out following risk identification (phase 2). This occurs on the basis of probability and potential

impact; the evaluation should consider potential direct damage as well as indirect results caused by individual risks if they arise.

Objective criteria or historical data are used in the evaluation to as great an extent as possible.

As part of risk management (phase 3), suitable measures for risk avoidance, reduction, transferring and/or compensation are

identified. The measures identified can relate to the cause (preventative) as well as to the effect (reactive).

The Risk Management and Database department ensures, through the ongoing risk monitoring (phase 4), that newly arising

individual risks and changes in individual risks and any corresponding need for adjustment in risk management are checked for

plausibility at an early stage and can be included in ad hoc reports.

Before preparing the risk report, the Risk Management & Database department summarizes the individual risks within a risk

aggregate in the risk aggregation stage (phase 5) that have an identical or similar cause of risk in order to increase transparency.

In the risk reporting (phase 6), the department creates recipient-oriented risk reports on the identified individual risks for the

management and Supervisory Board. Significant individual risks and risk aggregates indicated are jointly discussed by the

Executive Board and the Supervisory Board and if required, further measures to counter risks are addressed. In the case of new

significant individual risks or risk aggregates, the Executive Board and the Supervisory Board are also immediately informed

through ad-hoc reporting, including outside of the quarterly risk reporting.

Internal Audit conducts regular company internal and independent system audits with a focus on effectiveness, appropriateness

and economic efficiency of the STADA risk management system established by the Executive Board. As part of the monitoring

of the Executive Board, the Supervisory Board also looks at the effectiveness of the risk management system. In the scope of

auditing the annual financial statements, STADA’s auditor also reviews and evaluates whether the early risk detection system

which is integrated into the risk management system is generally suitable to recognize risks that may jeopardize the continued

existence of the Company at an early stage.

The relevant period for internal regular reporting to the Executive Board is the current year plus two additional years. In addition,

there is an area-related internal recording and monitoring of long-term risks beyond this relevant period. The assessment of the

individual risks as well as the overall risk situation of STADA in the Combined Management Report relates to December 31, 2019.

There were no relevant changes after the balance-sheet date that would have necessitated an amended presentation of STADA’s

risk situation. There is, however, no way to fully identify and manage risks with absolute certainty.

Internal Control and Risk Management System for the Group accounting process (report in accordance with
Sections 289 [4], 315 [4] HGB)

The Group-wide Internal Control and Risk Management System with regard to the financial reporting process (ICRMS) is
a component of STADA’s Group-wide risk management system and aims to ensure the accuracy and effectiveness of accounting

and financial reporting. STADA ensures the reliability of the accounting processes and the correctness of the financial reporting

with a variety of measures and internal controls. These include the preparation of separate and Consolidated Financial State-

ments and Management Reports that comply with regulations. The ICRMS is constantly developed and is an integral component

of the accounting and financial reporting processes in all relevant legal units and central functions. The system contains prin-

ciples, processes and preventative and disclosing controls.

Combined Management Report of the Executive Board | Opportunities and Risk Report43

It includes, among other things:

• Uniform accounting, measurement and account assignment specifications for the entire Group that are continuously

examined, updated and regularly communicated,

• Supplementary processes instructions, Group-internal reporting formats as well as IT-based coordination processes for

Group-internal balances,

• Processes that ensure the completeness of financial reporting,

• Processes for functional separation, the dual-control principle within the context of the preparation of financial state-

ments and for authorization and access regulations for relevant IT accounting systems,

• External experts, who are consulted when necessary, for example for purchase price allocation in accordance with IFRS 3.

The primary control functions for the significant accounting processes are carried out by the respective plausibility tests inte-

grated in the programs. Outside the software-supported systems, manual plausibility tests and verification of the completeness

and accuracy of data and calculations are carried out at all Group levels. The vast majority of the separate financial statements

of Group companies (included in STADA’s Consolidated Financial Statements) are generally subject to review by the auditor once

a year.

Responsibility for the introduction and the functionality of the ICRMS rests with the Executive Board of STADA Arzneimittel AG,

which assesses its appropriateness and effectiveness at least once every financial year. Its appropriateness and effectiveness

are also regularly examined across the Group by Internal Auditing.

Furthermore, the Audit Committee of the STADA Supervisory Board regularly monitors the accounting process and the effec-

tiveness of the control system, the risk management system and the internal auditing system as well as the audit on the basis

of Section 107 (3) AktG. The ICRMS for the accounting process cannot, however, offer any absolute security that false statements

are not made in accounting.

Evaluation of risk categories

The evaluation of individual risks is generally conducted for individual segments in the form of net risks, i.e. the individual risks

are evaluated under consideration of implemented and effective management and control instruments. If no segment is

explicitly referenced, the described risks affect both the Branded Products and Generics segments.

Within the risk management process described above, at STADA individual risks are evaluated on the basis of the probability of

occurrence and a potentially negative impact on the forecast financial targets in relation to adjusted EBITDA.

The underlying scale for the classification of the probability of occurrence and the potential impact is presented in the following

diagram:

Scale for the classification
of risk categories

Probability

Impact over 36 months

low

moderate

high

> 0% to ≤ 30%

> 30% to ≤ 70%

> 70% to 100%

up to ≤ €5 million

> €5 million
up to ≤ €10 million

> €10 million

Note on the probability category “moderate” and “high”: In general, all individual risks with a probability of occurrence greater

than 50% were checked for circumstances requiring recognition as a liability and corresponding provisions were formed.

Combined Management Report of the Executive Board | Opportunities and Risk Report

The combination of these two factors leads to the risk matrix presented below in which the risk categories of the combined

individual risks as well as aggregated risks are classified and presented according to their importance for the Group:

high

moderate

high

y
t
i
l
i

b
a
b
o
r
P

moderate

low

moderate

high

low

moderate

low

moderate

high

Impact

STADA classifies the identified risks in the risk reporting in accordance with the risk categories presented below. The chart shows

all relevant risk categories in accordance with the STADA evaluation scheme. Individual risks and aggregate risks that were

classified as “high” as of the balance-sheet date December 31, 2019 are to be considered particularly relevant.

Risk category

Sector risks

Regulatory risks

Economic risks

Product portfolio risks

Risk sub-category
(individual risk or aggregate risk)

Probability

Net impact

no relevant risks

health policy (price change)

moderate

high

no relevant risks

licenses & approvals
(prescription status)

licenses & approvals
(in-licensing)

no relevant risks

high

moderate

high

Legal risks

patents (patent violation)

Corporate strategy risks

no relevant risks

Performance-related risks

Personnel risks

Compliance risks

Risks in relation to
information technology

Financial risks

Other risks

production & purchasing
(supply interruption)

no relevant risks

moderate

high

no relevant risks

taxes (company audit)

moderate

high

no relevant risks

As a supplement to the tabular presentation and regardless of the degree of evaluation, the current main risk categories for the

STADA business model, based on the general risk reporting from Risk Management as of December 31, 2019 are explained in

detail below.

Combined Management Report of the Executive Board | Opportunities and Risk Report

Business-related risks

Risks that could have a significant influence on the net assets, financial position and results of operations of the STADA Group

are described below. Risks, which are not yet known or have been assessed as insignificant, could also influence the net assets,

financial position and results of operations.

Industry risks, regulatory and economic risks

a) Industry risks

According to the STADA evaluation scale, these are not relevant risks.

STADA is subject to constantly changing market conditions in the individual national markets. In terms of competition, the risks

exist on the basis of strong competition in particular in terms of pricing, range of products and services as well as supply and

discount conditions of existing and new competitors. In terms of demand, there is also the risk of a potential increase in pur-

chasing power of individual customer groups such as doctors, pharmacists, patients, health insurance organizations, buying

groups, pharmacy chains, wholesalers or mail-order companies. Such developments could weaken STADA’s competitive position,

for example through the (partial) loss of newly planned tenders or through a (partial) loss of previously won tenders, and

consequently result in a loss in sales or earnings. However, STADA principally takes advantage of opportunities arising in indi-

vidual markets or individual products or product groups and is also willing to accept, if necessary, temporary losses, for example,

in national markets with major potential for growth or to maintain or expand its market position. Overall, STADA tries to counter-

act industry risks through a diversification of brands and products.

Since the beginning of the conflict between Russia and Ukraine in 2014, business development of STADA has been impaired in

both the Russian and Ukrainian markets. In financial year 2019, too, the partial reluctance to buy remained noticeable. As a

result of the continued lack of momentum in the development of real income, the buying power of the Russian population

remained limited in 2019, and pressure on the pricing thus remained accordingly.

In the MENA region, ongoing unrest in the reporting year continued to have a negative impact on export business in this region.

It is currently unclear how long the political upheaval will last and, as a result, the remaining export business could continue to

be negatively impacted.

The conflict of the independence of Catalonia in Spain calmed down in 2018. As the fronts between the supporters and oppo-

nents of independence continued to solidify, the possibility of the conflict escalating again in future cannot be ruled out. STADA

has taken necessary countermeasures to limit any negative effects from a new inflammation of the Catalonian crisis to the

lowest possible extent for the future. It cannot be ruled out, however, that there may again be boycotts against the products of

STADA’s Spanish subsidiary – either in Catalonia or in the rest of Spain. For this reason, STADA has defined further counter-

measures and is prepared to implement them if needed.

In connection with the exit of the United Kingdom from the EU, there is the risk that in the further course of negotiations or upon

their completion. There could be an economic downturn that would increase price pressure in the health care system and, as a

consequence, lead to price-cutting measures. There is also the risk, in the case of a downturn, that it could cause hesitation on

the part of consumers in the self-payer area.

If these crises continue, this could have further negative impacts on the results of operations and financial position of the STADA

Group.

b) Regulatory risks

According to the STADA evaluation scale, these are relevant risks.

The national markets in which STADA is active are characterized by a large number of regulations. The changing, lifting or pass-

ing of new regulations could have significant economic and strategic impacts on STADA and the economic success of individual

products or investments. Regulations at a national or supranational level are highly significant if, for example, they affect the

Combined Management Report of the Executive Board | Opportunities and Risk Report46

market structure, pricing, reimbursement or approvals of pharmaceutical products. This can mean that as a result of national

regulations, the prices of pharmaceutical products are regulated directly (for example through statutory price reductions) or

indirectly (for example through reference prices, mandatory discounts, terms concerning discounts, reduction or exclusion of

cost reimbursement). Furthermore, direct costs for the fulfillment of requirements (e.g. during approval) or increased indirect

costs (e.g. through evasive action by competitors or consumers) can be incurred. This can reduce the profitability of products

affected in the markets and prevent the market launch of a product in individual cases. STADA assumes that the extent of price

regulation and pricing pressure will remain, primarily in the Generics segment. STADA counters these risks, among other things,

through a targeted expansion of the product portfolio in less regulated areas.

Exact forecasts concerning potential changes in national or supranational regulations as well as their effects on STADA’s business

activities are not possible since the introduction and scope of such regulations depend on the political process of the country

in question or on court decisions, the consequences are influenced to a large degree by the reactions of the market participants

affected. Changes in the regulatory environment in STADA’s main markets by sales volume are continuously analyzed. Depend-

ing on the extent of state regulation, it could become necessary to adjust the business model in individual markets.

Based on the conflict between Ukraine and Russia, regulatory obstacles for the importation of products produced in Russia

have occurred that have led to delays in delivery and thus to bottlenecks. Should these obstacles continue to occur in the future,

this could have additional negative effects on the results of operations and financial position of the STADA Group.

c) Economic risks

According to the STADA evaluation scale, these are not relevant risks.

STADA’s business success is, to a certain extent, dependent on economic influences, because an economic downturn often

results in a reduction in purchasing power in the affected market. A reduction in purchasing power can particularly cause a

reluctance to buy in the area of Branded Products, which is primarily a self-pay market. Furthermore, an economic downturn

could intensify the already dominant cost pressure in individual national health care systems and thus significantly increase

the speed and scope of regional regulatory measures to contain costs. For STADA, this could result in significant disadvantages

with reimbursable pharmaceutical products or in state-required price reductions and the elimination of reimbursability for

individual products. In general, STADA is continuously working to counteract potential risks through performance increases or

cost reductions.

In the referendum decision held on June 23, 2016, a majority of voters in the United Kingdom voted in favor of the United King-

dom leaving the EU (“Brexit”). Notwithstanding the departure on January 31, 2020 with a transition phase until Decem-

ber 31, 2020, the negotiations are underway on the future cooperation between the EU and the United Kingdom are proceed-

ing slowly and it is not yet foreseeable what the conditions of the departure will be or even if there will be an orderly departure.

Up to this point, the British economy has proven relatively robust. There is, however, the risk that an economic downturn will

occur during the course of or following negotiations, potentially increasing cost pressure in the health care system and, for

example, resulting in price reduction measures. There is also the risk, in the case of a downturn, that it could cause hesitation

on the part of consumers in the self-payer area.

Product portfolio risks

According to the STADA evaluation scale, these are relevant risks.

The continuous expansion of the product portfolio plays an essential role for the competitive position and business success at

STADA. Associated with this is the risk that products to be added to the product portfolio either cannot be launched on the

market, are launched belatedly or only launched at higher development and production costs than originally assumed due to

unexpected events or faulty implementation. Reasons for this can include additional requirements of approval authorities,

direct government price controls or additional approvals for reimbursement via the relevant national health system. The risks

of development and approval processes for new products are continuously identified and evaluated.

Combined Management Report of the Executive Board | Opportunities and Risk Report47

Furthermore, in the Generics segment in particular, a significant factor in the development and approval of each product is the

meticulous observance of relevant legislation such as commercial property rights. This involves the risk that an individual reg-

ulation is violated despite careful investigation of the legal situation and the introduction of a new product is delayed or even

hindered. This also applies retrospectively for products already introduced to the market. There is also the risk that, despite

intensive investigation, potential side effects or quality defects in products are not uncovered until after approval or that new

scientific findings and evaluations lead to a market recall and corresponding legal proceedings.

Legal risks

According to the STADA evaluation scale, this is a relevant risk.

STADA’s business activities are subject to risks resulting from existing or potential future legal disputes. In the Generics core

segment, in particular, STADA’s business activities are associated with an increased risk of legal disputes regarding commercial

property rights (particularly patents and supplementary protection certificates), product liability, warranty obligations, breaches

of duty of care as well as the allegations of violations of company or trade confidentiality. As a consequence of these legal dis-

putes, in particular in the cases of such processes in the USA, damage claims, legal fees, a complete or temporary ban on the

marketing of products or costs for recalls may be incurred, irrespective of whether a damage claim ultimately exists. In order to

protect trade and business secrets, which are to be treated with confidentiality, STADA makes use of confidentiality agreements

with employees, external alliance partners, service providers or other contractual partners.

Furthermore, it may be difficult for STADA to enforce its own claims under the law of a country where STADA undertakes business

at affordable costs and without any materially adverse effects on business in this country. If, contrary to expectations, it turns

out that this is not a case in a country, this can have significant negative impacts on the Group as a whole.

If there is a serious risk of future damage claims, STADA creates case-specific provisions for potential damage claims. However,

STADA currently does not expect any negative effects on the net assets, financial position and results of operations from pend-

ing proceedings.

Operational risks

a) Corporate strategy risks

According to the STADA evaluation scale, these are not relevant risks.

STADA’s corporate strategy is mainly focused on growth and internationalization in the pharmaceutical market in the Generics

and Branded Products segments. STADA’s growth strategy is associated with the risk that companies, products or other assets

acquired in the past or in the future may only be able to be integrated with high integration costs or that intended synergy effects

cannot be achieved at the desired level. Furthermore, acquired companies or products may not achieve the expected results

on the market, as markets or market segments, which STADA focuses on, may develop differently than expected. STADA reduces

these risks by means of careful analyses. Nevertheless, it cannot be ruled out that each of the situations mentioned above could

lead to an impairment requirement on intangible assets or that expected results in individual markets cannot be achieved.

b) Performance-related risks

According to the STADA evaluation scale, these are relevant risks.

Combined Management Report of the Executive Board | Opportunities and Risk Report48

The Group’s own production facilities (including product development and logistics) are subject to the risk of defective or

inefficient planning and production processes as well as to production faults or breakdowns as a result of this or external

influence. As hazardous substances are regularly used within these processes, such faults can also damage employees’ and

third parties’ health or result in environmental damage. This could have a materially adverse effect on costs, competitiveness,

supply availability and the associated expectations regarding units sold, sales and earnings as well as the image with clients.

Furthermore, STADA’s ability to deliver can also be negatively influenced by the the supplier’s inability to deliver, as the change

in a supplier is generally associated with delays. STADA restricts this risk by partially using more than one resource supply (dual

sourcing).

A further negative influencing factor on the ability to deliver is the increasing volume volatility in individual national markets in

the Generics segment which regularly arise in the environment of tenders from state institutions or public health insurance

organizations. Although STADA undertakes every effort to avoid delivery bottlenecks or an unintentional increase in inventories,

this cannot be ruled out in consideration of the comprehensive portfolio.

STADA is dependent on global developments with respect to purchase prices for active ingredients or auxiliary materials required

as well as on the prices negotiated with contract manufacturers in the case of products produced by these companies; these

prices may fluctuate significantly, also depending on the product. To limit the risk of market-related margin losses due to reduced

selling prices, STADA partly makes use of instruments towards suppliers that involve them in the market price risk such as retro-

active negotiations or the agreement of special procurement prices for special sales volumes, in the context of tenders, for

example. However, it cannot be ruled out that procurement cost increases and/or supply shortages in the case of individual

products will have materially adverse effects on the Group’s sales and/or profit margins.

c) Personnel risks

According to the STADA evaluation scale, these are not relevant risks.

STADA depends to a large extent on the commitment, motivation and abilities of its employees. The loss of specialists and man-

agers as well as a prolonged search for reappointments in key positions could have significant adverse effects on the development

of the Group. STADA’s continued success also depends on its ability, in competition with other companies, to attract and keep

qualified employees in the future for the long-term regardless of demographic challenges. Country, industry and business-

specific fluctuation risks must be proactively identified and addressed specifically to maintain and achieve success and critical

skills and competencies within the Company. STADA counters these risks through global employee development and succession

processes through which the potential of employees is systematically identified and promoted. These processes support both

young professionals and experienced highly qualified employees in their professional development and to help STADA to

develop, promote and retain performance-critical skills in the Company.

d) Compliance risks

According to the STADA evaluation scale, these are not relevant risks.

It is STADA’s expressed goal that all business activities are carried out exclusively within the framework of the respective laws
and internal guidelines. STADA has therefore implemented a Group-wide compliance system, in which all employees are regu-

larly informed about existing compliance guidelines at STADA, adapted to their individual area of responsibility. STADA believes

that the compliance system is sufficient provision for the compliance with and observance of national and international regu-

lations. Training courses and compliance guidelines cannot, however, fully guarantee that employees do not accidentally,

negligently or deliberately breach laws or internal guidelines. Such breaches can disturb internal business processes and

negatively influence the financial position.

Combined Management Report of the Executive Board | Opportunities and Risk Report49

e) Risks in relation to information technology

According to the STADA evaluation scale, these are not relevant risks.

STADA’s strategic goals can only be achieved through optimal alignment and appropriate support using a variety of IT systems

and processes. Therefore, the Group has to make continuous investments to appropriately adapt these complex and high-

performing systems to changing business processes.

Global IT applications form the basis for the delivery of products to the global customers of the STADA Group as agreed upon.

Inefficiencies in the IT processes in the Group, the failure of business-critical IT applications as well as the failure of a data center

could have a direct impact on STADA’s supply availability.

In addition, all IT systems used in the STADA Group could principally be affected by misuse of digital technologies as a means to

perpetrate new types of crime, so-called cyber-crime (e-crime), that alongside the manipulation or failure of the affected IT

systems could also result in the transfer of confidential information to third parties or a revocation of pharmaceutical approval

due to the deficient validation of relevant IT systems.

To reduce the risk of failure and to protect against cybercrime, STADA operates a quality management system for IT and redun-

dantly designed data centers.

Financial risks

To the extent that it is possible, STADA counters financial risks with finance policy methods and specific risk management. The

basic principles of financial policy and of financial risk management are determined or confirmed at least once annually by the

Executive Board in the context of the budget process. Furthermore, all transactions above a certain limit determined to be

relevant by the Executive Board must first be approved by the Executive Board. The Executive Board is also regularly informed

of the nature, scope and amount of current risks.

a) Liquidity risks

According to the STADA evaluation scale, these are not relevant risks.

Liquidity risks may result, for example, from the loss of existing cash items, lack of availability of credit, reduced access to

financing of Nidda, or fluctuation in the operational development of business. The goal of the liquidity management is to ensure

solvency and financial flexibility of the STADA Group at all times by way of maintaining a sufficient supply of liquidity reserves.

In 2019, STADA financed itself with current and non-current borrowings from Nidda, promissory note loans, bonds, a revolving

credit facility and factoring.

b) Currency risks

According to the STADA evaluation scale, these are not relevant risks.

Due to the international alignment of business activities, STADA is subject to risks arising from exchange rate fluctuations. These

particularly result from fluctuations of the US dollar, Russian ruble, British pound and the Serbian dinar in relation to the euro.

A currency risk consists of potential changes in value, especially of receivables and liabilities in a currency other than the

respective functional currency or as a result of exchange rate fluctuation (transaction risk). However, STADA is only subject to

this risk to a limited extent, as the Company counters risks from currency risks, in addition to natural hedges, through the use

of derivative financial instruments. These are used to hedge currency risks from operating activities, financial transactions and

investments. In the reporting year, STADA made use of foreign-exchange futures contracts and interest/currency swaps. The

maturity of futures contracts is aligned with the terms of the underlying transactions. The remaining term of the contracts is

currently up to one year.

Combined Management Report of the Executive Board | Opportunities and Risk Report50

Furthermore, currency risks also exist in relation to the conversion of the balance sheet items as well as the conversion of earn-

ings and expenses of international Group companies outside of the euro zone (translation risk). In this connection, the current

political conflict between Ukraine and the Russian Federation, as well as negotiations between the United Kingdom and the

EU over Brexit, could indirectly continue to have a negative influence on the earnings situation and exchange rates.

A currency sensitivity analysis on the basis of the outstanding foreign currency items as of December 31, 2019 showed that in

financial year 2019, an appreciation or devaluation of the functional currency compared with the ruble by 10% with otherwise

unchanged conditions would change the EBITDA by approximately €2.0 million (previous year: €0.2 million) (translation risk).

At the same time, an appreciation or devaluation of the functional currency in relation to the British pound of 10% with other-

wise unchanged conditions would lead to a change in EBITDA of approximately €6.5 million (previous year: €0.3 million) (trans-

lation risk).

c) Interest rate risks

According to the STADA evaluation scale, these are not relevant risks.

STADA is subject to interest rate risks from financial assets and financial debts, primarily in the euro zone and Russia. STADA

calculates existing interest rate risks using sensitivity analyses, which show the effects of changes in market interest rates on

interest payments, interest income and expenses as well as equity. Should the sensitivity analysis show that interest rate fluc-

tuations could lead to significant impacts, STADA could use derivative hedging instruments to avoid the risk.

A sensitivity analysis has shown that an increase in market interest rates of 100 basis points in financial year 2019 would have

led to a burden on earnings in the amount of €6.2 million (previous year: €4.5 million) and a decrease in market interest rates

of 100 basis points would have led to a relief on earnings in the amount of €0.4 million (previous year: €0.4 million).

d) Default risks

According to the STADA evaluation scale, these are not relevant risks.

STADA is exposed to a default risk in its operating business or as a result of financing activities if contracting parties fail to meet

their obligations. Alongside the implementation of appropriate credit management processes, such transactions are generally

only concluded with counterparties of impeccable financial standing to avoid default risks in financing activities.

Default risks also exist as a result of the supply of goods and services. STADA therefore strives to maintain business relations

only with partners of impeccable financial standing. In addition, STADA partly uses suitable measures such as guarantees, loan

insurances, or the transfer of assets to safeguard itself against default risk. Past due receivables in the operating area are con-

tinuously monitored and potential default risks are anticipated through the creation of valuation adjustments. Furthermore,

there is the risk that in a difficult economic and financial environment, national health care systems delay or fail to make pay-

ments to STADA or business partners of STADA and that, as a result, directly or indirectly increased default risks arise.

Combined Management Report of the Executive Board | Opportunities and Risk Report51

e) Tax risks

According to the STADA evaluation scale, these are relevant risks.

STADA’s business activity in the individual national markets is subject to the applicable national or supranational legal tax

regulations. Changes to the tax laws and their jurisdiction as well as different interpretations as part of external audit can result

in risks with impacts on tax expenses, tax revenues, tax receivables and tax liabilities. The Group tax department identifies,

evaluates and monitors tax risks as early as possible and systematically and initiates measures to reduce risk, where appropriate.

Furthermore, STADA takes advantage of an international network and carries out strategic Group functions centrally through

STADA Arzneimittel AG. This means an overarching tax transfer-pricing model for the billing of the corresponding Group internal

services is of increasing importance. Potential risks of non-recognition of these transfer prices for tax purposes, for example

from retro-active tax claims of the local tax authorities against a subsidiary of the STADA Group, are limited by way of the intro-

duction of corresponding agreement procedures and a comprehensive definition of transfer prices in the form of a Group

guideline.

f) Impairment risks

According to the STADA evaluation scale, these are not relevant risks.

The valuation rates of the assets included in the Group balance sheet are subject to changes in market and business relationships

and thereby to changes in fair value. As part of an annual or case-related impairment test, significant non-cash burdens on

earnings and impacts on balance sheet ratios may result. This particularly applies to goodwill, which primarily results from

purchase price allocations linked to previous acquisitions, and for other intangible assets. All relevant risks are considered in

the context of the preparation of the Consolidated Financial Statements.

Other risks

According to the STADA evaluation scale, these are not relevant risks.

STADA as a Group and the STADA subsidiaries in the markets, like any company, are subject to additional general business risks

such as unexpected disruptions in infrastructure, strikes, accidents, natural disasters, sabotage, criminal activities, terrorism,

war and other unforeseeable materially adverse influences. STADA protects itself against such risks to the extent possible and

financially reasonable through appropriate insurance policies. However, it cannot be ruled out that these insurances are insuf-

ficient.

Should STADA no longer meet the necessary criteria according to IFRS 10 (“Consolidated Financial Statements”) for control, and

consequently for consolidation, of subsidiaries due to particular capital constraints or other measures – such as may come as a

result of political or military conflict – STADA would have to deconsolidate these companies. The resulting effects depend on

the significance of the affected companies for STADA and could result in materially adverse effects for the Group.

Summary evaluation of risks

The assessment of the overall risk situation is the result of the consolidated consideration of all significant individual risks on

the basis of the applied risk management. In light of STADA’s broadly diversified product and customer portfolio, the risk

situation in the reporting year did not change significantly in comparison to the previous year despite the varying regional

economic developments. The risks from the slow pace of negotiations on the conditions of the United Kingdom’s exit from the

EU (“Brexit”) have been offset by the relatively robust course of economic situation in the United Kingdom. Furthermore, the

geopolitical situation in the CIS region remains the same.

The process of realigning the risk management system, which was started in 2018, has led to a reduction in the number of

individual risks to be reported, and the impairment of this reduction has a disproportionately low effect on the overall risk

position of the STADA Group. The changes in the high areas of the evaluation scale in 2019 (within the tabular overview under

“evaluation of risk categories”) are due to the conversion of the valuation periods carried out by the system in 2019.

Combined Management Report of the Executive Board | Opportunities and Risk Report52

In the context of the corona virus, which has been spreading globally since January 2020, the Chinese authorities have gener-

ally closed down production facilities. Since only a limited number of the active ingredients sold by STADA come from China and

in many cases there is another source of supply outside of China (dual source system), a resulting significant supplier risk for

STADA is currently considered low. In addition, any delays in delivery can be absorbed by existing inventories.

In the event that one or more of the above-mentioned risks should materialize or newly occur in the development of business,

this could have materially adverse effects on the Group’s business activities. In particular, material adverse effects on STADA’s

net assets, financial position and results of operations could arise as a result. From today’s perspective, however, no risks are

discernible which, individually or as a whole, could jeopardize the continued existence of the Group. In terms of organization,

STADA has created the necessary prerequisites to be informed of possible risk situations early and to be able to take appropriate

measures.

Combined Management Report of the Executive Board | Opportunities and Risk Report53

COMBINED
SEPARATE NON-FINANCIAL REPORT

The Non-Financial Reporting for STADA Arzneimittel AG and the Group has been prepared within the scope of a Combined

Separate Non-Financial Report (hereinafter “Non-Financial Report”) pursuant to Section 289b of the German Commercial Code

(HGB) in conjunction with Section 315b HGB.

While topics such as product safety and quality, portfolio development, human resources (HR) as well as internal control and

risk management are regulated centrally by corporate policies that are valid throughout the Group, the individual national

companies assume responsibility for other CSR matters as part of what is mainly a decentralized approach. In light of this, the

reporting that follows distinguishes between the circumstances that are described and their concepts for the Group, its parent

company or individual national companies. If no other information is provided, the information presented generally relates to

the STADA Group.

STADA established processes for reporting on non-financial aspects in order to survey these globally and collect the information

centrally. A next step was taken by starting to implement systems to record and later monitor CSR issues. In the reporting year,

with a view to the increasing importance of the topic of “CSR”, the Group for the first time introduced non-financial key figures.
These key figures are “Climate change: CO2 balance”, “Health and safety: accident rate”, and “Gender diversity”.

As part of its business activities as an internationally active health care Company, STADA has been assuming responsibility for

employees, society and the environment for more than 120 years. Because responsible behavior as well as social and ecologi-

cally sustainable business operations are the foundation for the long-term success of the Company. In this Non-Financial Report,

STADA provides information on significant non-financial aspects for financial year 2019, on the aspects that are necessary for

an understanding of business operations as well as the earnings and position of the Group. Furthermore, the effects of business

activities on the aspects as well as their impact on business activities are taken into account. The reporting period is January 1,

2019 through December 31, 2019. The contents of the report are based exclusively on the definition of materiality and the

content requirements of the HGB. In light of the fact that the Group introduced non-financial key figures for the first time in

financial year 2019, in terms of non-financial reporting STADA is currently in a coordination process for a framework to be applied

in the future in accordance with Section 289d HGB. For this reason, no framework has been applied at this time.

Taking the requirements for the CSR Directive Implementation Act as a basis and against the backdrop of its business model,

STADA’s Non-Financial Report includes the following aspects:

• Product safety and quality (social matters)

• Contributions to society (social matters)

• Responsible corporate governance and compliance including anti-corruption and anti-bribery measures

• Employee matters

• Health, safety and environmental protection

• Observance of human rights

References to disclosures outside of the Consolidated Financial Statements and the Combined Management Report is additional

information and not part of this Non-Financial Report.

Quantitative and qualitative statements made in the Non-Financial Report have been subjected to an external business assess-

ment in accordance with ISAE 3000 (revised) on a voluntary basis with limited assurance through the auditor. A corresponding

report regarding this business assessment can be found in the chapter “Further Information”.

STADA, under application of the net method, did not identify any significant reportable risks in the reporting period linked

to its own business activity or to its business relations, products and services which very probably have or will have serious

negative effects on the non-financial aspects mentioned previously. Additionally, there are no essential correlations to report

between the non-financial aspects and the Consolidated and Annual Financial Statements.

Combined Separate Non-Financial Report

More than 120 years of corporate responsibility

As early as 1895, the founders of the Professional Community of German Pharmacists (STADA) set a goal to care for the well-

being of its patients by preparing certain medicines in accordance with standardized guidelines. The safekeeping of society’s

greatest asset, its health, has always been the focus of STADA’s business activities. To this day, STADA contributes to efficient

and affordable health care and preventative health care and, at the same time, helps to ease the burden on health-care systems.

Business Model and Strategy

STADA is an internationally active health-care Company organized as a stock corporation and that sells its products in about

120 countries. STADA Arzneimittel AG, based in Bad Vilbel, is the parent company of the Group. In financial year 2019, STADA’s

two segments, Generics and Branded Products, achieved adjusted Group sales of €2,608.6 million and adjusted EBITDA of

€625.5 million.

Sustained profitable growth and long-term value enhancement

With its business model, the Group aims to achieve sustained profitable growth and enhance Company value over the long term

(see “Fundamental Information about the Group – Internal Management System”).

In order to achieve these goals, STADA introduced its transformation process in the reporting year, including numerous initiatives

for increasing efficiency. The measures taken will increase competitiveness, enhance innovative strength and create greater

value over the long term.

As part of its corporate strategy, the Group relies on new marketing channels, efficiency enhancements in the area of marketing

and sales, increased investments in the core markets as well as new product launches. In addition, STADA pursues strategic

partnerships throughout the world in the areas of development and production which allow the Company, also in the future, to

have a competitive product portfolio that generates sustainable growth.

Focus on growth markets

As a health Company with a focus on the pharmaceutical market, STADA is active in one of the world’s growth industries.

Significant growth drivers include the continuously growing and aging world population, increasingly improved access to health

care, particularly in emerging markets, and the availability of new medications – including those for so far untreatable or hard

to treat diseases.

Both generics and biosimilars offer additional growth opportunities within the pharmaceutical market. Because of the rela tively

low research and development costs attributable to them, they generally represent a low-cost alternative to the significantly

more expensive original products and consequently contribute to counteracting the significant cost pressure in individual

health-care markets.

The Branded Products segment benefits particularly from a change in demographics and increasing health awareness associ-
ated with the willingness and desire to personally make provisions for one’s own health. Through individual health management,

people’s need to live happier, healthier and longer lives grows accordingly.

Product Safety and Quality

Pharmaceutical drugs are products that have a direct impact on people’s health. For this reason, STADA, as a pharmaceutical

and health-care Company, is responsible for ensuring the Group-wide safety of its products and thus also the safety of patients.

Combined Separate Non-Financial Report55

Good Clinical Practice

To ensure product safety and quality, STADA complies with legal requirements and guidelines in its development activities or,

in the case of local developments, with the respective national requirements. In addition, for the planning and conduct of

clinical trials, the Group follows the so-called Good Clinical Practice (GCP), an international ethical and scientific standard for

the planning, conduct, documentation and reporting of clinical trials in humans. Compliance with this standard ensures that

the rights, safety and well-being of trial subjects are in accordance with the Declaration of Helsinki. It also ensures the credi-

bility of data collected during clinical trials. Contract research organizations for the execution of clinical trials in Germany and

internationally are qualified by STADA and regularly audited in order to ensure GCP compliance during the conduct of a study.

In addition, all clinical trials are monitored at trial sites so that any deviations from the GCP standard can be recognized at an

early stage and corrected if necessary.

Good Manufacturing Practices

Within the scope of the manufacture of pharmaceutical products, STADA also follows the so-called Good Manufacturing

Practice (GMP) standards for its quality assurance and control. They represent the guidelines for quality assurance in terms of

both the processes and the environment in the production of pharmaceuticals and active ingredients as well as cosmetics.

STADA is also certified in accordance with external, international quality assurance systems and, at its numerous production

sites, not only focuses on GMP standards, but also on all relevant ISO standards. Group-wide quality assurance is carried out

centrally through STADA Arzneimittel AG, whereby individual, national companies are supported by regional quality assurance

officers. The focuses in 2019 were on the area of harmonization, consisting of a standardization of the organization as relates

to the topic of “quality” as well as the introduction of a global workflow system along with new performance indicator and

reporting systems.

For GMP audits, quality assurance regularly reviews both compliance with the quality standards set by the Group for its produc-

tion sites and the facilities of suppliers and contract manufacturers. In addition, inspections are conducted at the locations of

the STADA production network at regular intervals by the responsible national regulatory authorities – within the EU these take

place every two to three years. Within the audits carried out in financial year 2019, no critical findings were identified. STADA

requests additional EU GMP compliance inspections for production sites outside of the EU.

Good Pharmacovigilance Practices

As part of a Group-wide global pharmaceutical safety system – the so-called STADA Global Pharmacovigilance System – the

safety of all STADA pharmaceuticals worldwide is monitored and ensured through the collection and evaluation of all reported

pharmaceutical risks. Here, STADA’s subsidiaries work in accordance with standard operating procedures (SOPs) issued by the

central department of Corporate Pharmacovigilance. In accordance with Good Pharmacovigilance Practices (GVP) and as part

of the Global Pharmacovigilance Quality System, adherence to legal requirements and STADA standard operating procedures

is monitored globally by means of a pharmacovigilance auditing system. Pharmacovigilance audits required in accordance with

GVP are conducted by auditors from the Medical Affairs/Corporate Pharmacovigilance department. Additionally, STADA’s GVP

conformity is regularly inspected by authorities such as the German Federal Institute for Drugs and Medical Devices (BfArM).

The inspections made in financial year 2019 were concluded without critical results.

In addition to the assurance of product safety, quality and effectiveness, STADA is also equally responsible for the safe use of its

products by patients. In this context, the readability and comprehensibility of a drug’s package insert take on a special meaning.

As part of a pharmaceutical approval procedure, readability tests for package inserts – so-called “readability user tests” – are

conducted early on with representative test subjects. Through the optimization of the layout, explanations for technical terms

and the use of simple sentence structures it is possible to ensure that patients can easily read and understand the package insert.

As a result, compliance (therapy adherence) for the patients is not only increased, but abuse also avoided.

Combined Separate Non-Financial Report56

Contributions to Society

In view of the fact that STADA, with its generics and biosimilar portfolio, provides society with access to affordable medical care

and thus reduces the cost pressure on the health care systems, the Company makes a fundamental social contribution. At the

same time, with its Branded Products portfolio, STADA contributes not only to health care in general, but also to preventive

health care.

Product portfolio and development

To meet its social responsibility and to secure its competitive position over the long term, STADA’s product portfolio is continuously

expanded and optimized.

STADA’s business model is focused on supplying the global health-care market with a near-comprehensive portfolio, comprising

products with patent-free active ingredients at competitive prices. In the Generics segment, STADA pursues the goal of launch-

ing a generic product in the respective market directly following the expiration of the original product’s patent protection. In

the Branded Products segment, which also generally includes active ingredients that are no longer protected, the focus is on

additional benefits for patients.

STADA has implemented a Group-wide “idea-to-market” process for the execution of this concept. As part of this process, a

detailed evaluation of all product ideas for the Generics and Branded Products segments is carried out from a technical, regu-

latory and commercial standpoint and according to a global market analysis. All applicable quality requirements regarding the

safety and efficacy of a product are reviewed during the development cycle and particularly in the context of the approval

process. At the end of a product life cycle, relevant products are actively removed from the portfolio as part of an orderly process.

The entire process is accompanied by the Executive Board. This ensures that the current portfolio composition follows the Group

strategy as a whole. Continuous optimization of the product portfolio is monitored via the corresponding number of new

product launches and the number of ongoing approval procedures (see “Fundamental Information about the Group – Group’s

Business Model”).

STADA as a health partner

STADA believes that it is not only responsible for providing society with access to safe and affordable health care, but also further

considers its role as a health-care partner. In this way, the Company also aims to increase society’s health competence and

create awareness for dealing responsibly with one’s own health. In this context, the publication of high-quality health-care

information has for many years made a contribution to the education of society. STADA has established a health blog

(www.yourhealth.stada) and is present in the social networks. Both channels deal with a range of health topics with the aim

of improving physical and mental well-being – in accordance with the self-image: “STADA: Caring for people’s health as a

trusted partner”.

In addition, the Group launched the STADA Health Report in 2014. The core of this report, which is supported by experts from

the world of medicine, science, sport and lifestyle, is an annual study. Surveys carried out among the population on their

attitudes, desires, behaviors and knowledge related to the topic of health form the basis of the respective studies. In 2018, the

survey was conducted for the first time in various countries. In this context, 18,000 people in nine European countries were

surveyed. The results of the survey conducted in 2018 appeared in the STADA Health Report for 2019 in various languages.

Responsible Corporate Governance and Compliance

As an internationally-active Group, STADA is subject to a wide range of legal framework conditions. Adherence to these conditions

forms the foundation of responsible, sustainable and successful corporate governance – because unlawful behavior or even the

appearance of a breach of the law can damage the reputation and market position of the Company in a lasting manner and cause

significant financial loss. For this reason, the principles of transparent, responsible and value-oriented corporate governance

determine the actions of STADA’s Executive and Supervisory Boards. Furthermore, in addition to legal requirements and further

Combined Separate Non-Financial Report57

regulations, the regulatory framework in which the Company operates encompasses the provisions of its Internal Control and

Risk Management System, the STADA Code of Conduct and corporate policies on specific topics derived from it.

STADA’s Code of Conductis published on the Company’s website at www.stada.com/de or www.stada.com.

STADA Code of Conduct

STADA’s Code of Conduct and corporate policies not only serve the Company itself, but also its employees in particular as

guidance for proper behavior when confronting legal or ethical challenges in their daily work. They also help to prevent corrupt

behavior, among other things. The Code of Conduct contains binding behavioral guidelines on topics such as anti-corruption,

fair competition, social aspects regarding tolerance and respect as well as dealing with the media. In order to familiarize

employees with the content of the Code of Conduct, they are instructed by a compliance officer, for example, in the context of

an interactive e-learning seminar including practical examples. Special guidelines also exist for cooperation with members of

the medical care profession and serve as a behavioral measure for appropriately dealing with, for instance, gifts, invitations

and similar items, thus preventing any sort of misconduct.

In financial year 2019, internal communication measures regarding compliance issues and the values of STADA were further

expanded and stepped up at a global and local level, e.g. through regular newsletters and intranet contributions. In addition,

in the reporting year, a number of global policies, such as the anti-bribery and antitrust policy, were approved or updated to

further strengthen the Compliance Management System.

For financial year 2020, among other things, a further intensification of cooperation and the exchange of ideas and information

within the global compliance organization is planned, for example with a global meeting.

Compliance Management

In order to ensure compliance with applicable law, STADA implemented a comprehensive Compliance Management System

comprising the main areas of anti-corruption, competition law, export control, money laundering and data protection.

A key component of the Compliance Management System at STADA is the Corporate Compliance Office, which acts as an

independent and objective advisor. Its function is to protect the Company from damage to its financial position and reputation,

to safeguard STADA’s management and employees from personal liability and to prevent the occurrence of competitive dis-

advantages. It pursues internal and external indications, clarifies issues while taking into account the principle of proportion-

ality, issues recommendations on the optimization of intra-Group processes and regularly conducts exchanges of information

with other corporate departments, particularly with Internal Auditing and Risk Management. Additionally, an Ombudsman is

available to employees as well as business partners and other third parties as a neutral and independent contact person for

reporting suspicious cases. The Ombudsman’s contact details can be accessed on the Company’s website at www.stada.com/de

or www.stada.com. His task is to receive confidential information and, with the consent of the information provider or anony-

mously, to forward it to the Compliance Office. A decision will then be made on how to proceed in each individual case.

There are separate compliance departments that manage the topic locally in a decentralized manner and act as contact persons

on site. They support the Corporate Compliance Office and maintain an intensive dialog with it.

Through a regular review of the existing Compliance Management System, it is continuously optimized and the international

exchange between compliance officers is intensified. In financial year 2017, an expanded reporting system from the sub sidiaries

to the Compliance Office was set up which is developed on an ongoing basis. As part of this system, disclosures from subsidiaries

regarding individual compliance topics are collected and evaluated in order to, in turn, derive new optimization measures from

them. This reporting was also developed further in financial year 2019. At the same time, an assessment and systematic review

of the situation at individual locations regarding their positioning within the area of compliance – for example using so-called

“Readiness Assessments” or audits in the Compliance department take place on an ongoing basis with the goal of gradually

strengthening the Group-wide compliance organization. Following implementation of the German Data Protection Regulation

(GDPR) in financial year 2018, the focus in 2019 was especially on a review of the implementation of this regulation in addition

to general compliance reviews.

Combined Separate Non-Financial Report58

Internal Control and Risk Management System

Further, STADA’s Internal Control and Risk Management System, which is designed to ensure the responsible handling of risks,

represents the basis for responsible corporate governance. It puts the Executive Board in a position to recognize Group-wide

risks and market tendencies so that it can immediately react to relevant changes in the risk profile. In this regard, all departments

are connected to the Risk Management System, thus allowing for comprehensive risk monitoring, including the monitoring of

potential risks from non-financial areas.

The Internal Control and Risk Management System is subject to the annual audit, as well as to audits by Internal Auditing at

regular intervals. The Internal Auditing department also supports the Executive Board as an independent body outside of daily

business operations by evaluating Group-wide internal procedures and processes from an objective perspective and with the

necessary distance. The goal is to optimize business processes, reduced costs, realize efficiency increases and to achieve inter-

nally determined goals by way of improved internal controls (see “Opportunities and Risk Report – Internal Control and Risk

Management System for the Group accounting process [report in accordance with Sections 289 [4], 315 [4] HGB]”).

Employee Matters

STADA’s personnel policy is managed centrally by the Global Human Resources department at Group headquarters. In this re-

gard, the global functional departments “Talent Management & People Development“, “People Analytics, Talent Acquisition &

Employer Branding“ as well as “Compensation & Benefits“ lay out the standards, guidelines and processes that are implemented

by the international subsidiaries and supplemented in accordance with the conditions specific to the market. To strengthen the

centrally managed international HR structure, in financial year 2019, functional reporting lines for all local personnel managers

to global HR management were established.

In the reporting year, two HR Leadership conferences took place, bringing together HR representatives from headquarters and

those responsible for personnel from the larger subsidiaries in order to improve international cooperation. The focus of the

event, which in the future will take place twice a year in different countries in which STADA is active, is especially the presenta-

tion of global projects.

The measures initiated globally in financial year 2019 included, among others, the establishment of the global department

“Talent Management & People Development”, which in the future will be responsible for the areas of “Culture and Values”,

“Change Management”, “Talent Management”, as well as “Succession Planning and Executive Development”. Furthermore, in

the reporting year, the process of creating and implementing the new SAP-based HR IT environment was continued, enabling

the standardization and digitalization of Group-wide HR processes. In two countries in which the Company is active, the basis

module will now be used for the recording of employee core data and organizational structures. In Germany, the modules for

personnel recruitment and time recording are also already being used. In addition, a global project team led by the Compensa-

tion & Benefits department began working on a global compensation structure in the reporting year.

Employee recruitment and retention

A company’s success depends, to a great extent, on the competence, commitment and motivation of its workforce. In order to

recruit and retain qualified employees, STADA offers its staff a wide range of social and financial benefits.

Equal opportunities and family-friendly framework conditions are important factors in the success of every company and

fundamentally contribute to competitiveness. For this reason, STADA supports its employees in establishing a work-family

balance by allowing for flexible work hours, or by granting employees contributions to childcare costs and consultation services

on the topic of caring for dependents.

Combined Separate Non-Financial Report59

In addition to contributions to childcare costs, STADA’s financial contributions include payments or subsidies for the commute

to the workplace, supplementary occupational disability insurance in the chemical industry (BUC) for every employee covered

by collective agreements and those covered by similar agreements, the promotion of the ChemiePensionfonds, as well as group

accident insurance, which also covers private accidents.

In order to deal responsibly with the labor of each individual employee – one of the Company’s key resources – STADA has, among

other things, established Company health management at its headquarters in Bad Vilbel, which supports the workforce in

staying physically fit. These include, for example, a fitness room, yoga courses, massage programs and sports groups as well as

a health day held annually at two locations in Bad Vilbel.

In order to continue to be perceived as an attractive global employer in the future, the Human Resources department is, on the

one hand, constantly developing the above-mentioned programs and framework conditions. On the other hand, in financial

year 2019 it began to further expand communication with internal and external target groups. Internal communication takes

place in particular through regular reporting on the global intranet and the global newsletter. LinkedIn and the fully-revised

global career website are now also used for external communication.

Training and development

STADA attaches great importance to training and development. Particularly against the backdrop of covering its own need for

qualified young talent and, with it, securing and strengthening the competitiveness of the Company, STADA makes use of

internal promotion and targeted programs. The individual training of employees is defined and coordinated by the respective

departments on a needs-oriented basis and in accordance with individual targets.

In the reporting year, STADA introduced a global program for the promotion of talent aligned with the corporate culture and the

goal of future growth. In three development cycles, participants are given a comprehensive understanding of STADA’s purpose,

values and strategy.

With the goal of recruiting and promoting young talent, STADA also initiated the introduction of a global trainee program called

“IMPACT” which will start in financial year 2020. Ten trainees in four functional areas will be trained at STADA for 24 months

within the framework of the program and prepared for a potential long-term position in the STADA Group.

In 2019, nine people successfully completed their training or dual studies at STADA in Germany. Six additional persons were still

undergoing training in different areas of the Company during this period. As part of its development program, the Company also

offers students the opportunity to collect practical experience in the pharmaceutical industry with an internship or clerkship.

Employee communication

In the reporting year, internal communication assumed a decisive role in the communication of the various growth and

transformation initiatives at STADA. The various channels were used on the one hand to provide background information on

acquisitions or to explain the overall Group strategy and, on the other hand, to strengthen corporate culture.

This becomes particularly clear on the Group’s newly established intranet that, in line with one of the four corporate values,

bears the name @ONESTADA. After various local platforms had made the central flow of information more difficult for years,

there is now for the first time a central contact point that combines international information from the Company’s headquarters

and countries with national news. A common “Look & Feel” based on Sharepoint, which fits seamlessly into the Group’s existing

IT landscape, facilitated the establishment of the new site and creates a sense of togetherness among the participating

country organizations both visually and in terms of content. The intranet was initially launched in the Group’s four main languages

English, German, Russian and Serbian. The intranet was initially launched in the Group’s four main languages English, German,

Russian and Serbian. An expansion to other languages and subsidiaries is planned.

The employee magazine was also further internationalized in financial year 2019. In spring, STADA published the jacket section,

which is identical in all languages and contains the most important information at Group level – for the first time also in Viet-

namese. The publication now appears in nine different languages and in ten countries.

In order to integrate communication topics even better in the future, an international meeting was held for the first time in 2019

with around 40 communication managers from the various countries, which is to be repeated annually. In the meantime,

regular telephone conferences ensure the exchange and flow of information with the countries.

Combined Separate Non-Financial Report
60

A constant on the agenda is the communication of values across the entire STADA Group. As a blueprint for other countries, a

concept for a poster campaign was developed at the Company’s headquarters that presents employees as ambassadors of

values. It was possible to attract more than forty participants for this. In the future, the images will be used both for internal

communication and for all measures relating to the topic of “employer branding”. There are also numerous local value initiatives

that can be shared in the form of best practices and adapted if desired.

With regard to direct communication, an ever-increasing degree of internationalization can also be observed. For the first time

in the reporting year, a global employee meeting was held outside Group headquarters. Similar to the last events, the one in

Belgrade, Serbia, was transmitted to the entire organization via livestream and simultaneously translated into German, Spanish,

Russian and Serbian.

Employee rights and occupational safety

Throughout the Group, STADA respects the rights of its employees in compliance with local laws.

The Company is committed to the principle of equal treatment and pursues violations of the German Non-Discrimination Act

(AGG) with disciplinary consequences. In order to promote protection against discrimination in the workplace, employees at

German locations are, for example, instructed in the applicable non-discrimination policy upon entering the Company and an

internal complaints office serves as a contact point.

The Company continues to place importance on the fair involvement of employee representatives and expresses a clear

commitment to the freedom of association as well as to the right of its workforce to membership of a union.

With a view to the safety of employees, the prevention of accidents and emergency situations as well as the planning of

emergency measures take on great importance. Within this framework, the Group ensures their safety in the workplace in

compliance with current standards. You can find more detailed information on this topic in the sub-chapter “Health, safety and

environmental protection”.

Fostering equal opportunity

STADA values the diversity of personal qualities, talent and performance within its workforce. The future viability of the

Company largely depends on how this diversity is promoted and utilized. As an internationally active Group with locations in

over 30 countries worldwide, cultural diversity is an important part of the Company.

With regard to equal opportunity for women and men, STADA places importance on the balanced representation of both genders.

Also, as part of succession planning for managers, the Executive Board ensures an appropriate promotion of female employees

for a constant increase in the proportion of women. When it comes to filling management positions, however, the professional

and personal qualifications of the candidates, and not their gender, are always at the forefront.

In relation to the STADA Group’s total workforce, the proportion of women as of December 31, 2019 was approximately 57%.

In 2019, a new global definition for gender diversity was introduced. The new breakdown replaces the previous indicators of

female share “1st management level” with 11% and “2nd management level” with 28% (as of December 31, 2018). For 2019,

the new global definition for gender diversity calls for a breakdown in “upper, middle and lower management levels”. The “upper

management level” includes all members of the STADA Global Leadership Team. In this Group, women have a share of 21%. For

the “middle and lower management levels”, the share of women was 53%. A breakdown of these level was not yet possible in

the reporting year but will be conducted in the current financial year 2020. In the category “middle and lower management

levels”, all employees to whom at least one employee reports were counted.

Combined Separate Non-Financial Report
Important non-financial performance indicators

Gender diversity

Senior management level

Middle and junior management level

2019

21%

53%

2018

–1)

Health, Safety and Environmental Protection

Management processes

The corporate values defined by STADA in financial year 2019 serve as a guideline for corporate action and are the basis for

Company management’s commitment to health, safety and environmental protection, which are anchored in the internal HSE

Policy.

Good corporate governance means not only aligning its decisions and actions with the legal framework, but also taking measures

that go well beyond the legal requirements that promote sustainable and responsible action.

For this reason, STADA has established corresponding responsibilities and processes both at Group and location-related levels.

To this end, globally valid HSE guidelines are defined at Group level, their implementation is accompanied at the location level

and verified by internal or external audits. In the reporting year, external HSE legal conformity audits were carried out at all

larger STADA production sites with more than 100 employees.

At individual production locations, local HSE guidelines and procedures were, in turn, defined that ensure compliance with

legal requirements and guarantee continuous improvement in accordance with the principles of Plan-Do-Check-Act. In order

to have these processes monitored externally on a regular basis, HSE Management Systems with certification in accordance

with the relevant ISO standards have been introduced at approximately 80% of the larger production sites.

Locations with certified ISO management systems (as of the end of 2019):

Location

Vrsac, Serbia

Dubovac, Serbia

Sabac, Serbia

Podgorica, Montenegro

Banja Luka, Bosnia-Herzegovina

Huddersfield, UK

Nizhny Novgorod2), Russia

Obninsk, Russia

ISO 45001

ISO 14001

The effectiveness and success of the local management systems are also regularly acknowledged through external awards. In

financial year 2019, the British location in Huddersfield was presented with the “RoSPA Silver Achievement Award”. The Russian

location in Obninsk received the nomination from the Kaluga Region Government as “Environmental responsibility for produc-

tion organization”.

1) No information possible due to a different breakdown.
2) GOST 12.0.230.1-2015 occupational safety and health protection GOST 12.0.230-2007.

Combined Separate Non-Financial Report62

Health and occupational safety

Safety and health protection at work are of tremendous importance for STADA. For this reason, the respective local legal pro-

visions represent the minimum standard for the Group. Their implementation and ongoing improvement is ensured by the local

HSE management systems.

In financial year 2019, the Hemofarm sites in Podgorica and Banja Luka launched occupational safety management systems in

accordance with ISO 45001 within the framework of a matrix certification. At the Huddersfield location, the existing occupa-

tional safety management system was also certified in accordance with ISO 45001 for the first time.

In addition, in the reporting year, programs were established at all locations to further improve responsibility and awareness

of occupational safety at all hierarchical levels and to enhance the occupational safety culture. These include the introduction

of “Near Miss” programs and the establishment of integrated HSE/Gemba Walks.

Important non-financial performance indicators

In the reporting year, as a result of the broad range of measures, it was possible to significantly reduce the number of accidents

(accidents > 1 lost work day) as compared to 2018:

Health and safety: Accident rate

Accident rate1) 2)

2019

0.6

2018

0.7

STADA employees are offered a broad range of programs for general health protection. Coordination of the measures is carried

out locally by the respective locations. These include, for example, health days, flu vaccinations, anti-smoking informational

events.

Environmental protection

For STADA, responsible entrepreneurship means – in addition to compliance with local environmental regulations – continuously

reducing environmental impact and increasing resource efficiency.

Even though the direct environmental impact of the locations are relatively low compared to other industries, management

systems certified in accordance with ISO 14001 have been introduced at approximately 80% of the larger locations. As part of

the local environmental programs, measures relating to in particular to energy, water/wastewater and waste were planned and

implemented accordingly. Where necessary, there is support in the form of legally required energy audits. In 2019, for example,

external energy audits were conducted at the Bad Vilbel and Huddersfield locations.

In the course of planning new production facilities, environmental and occupational safety requirements are defined in the

manufacturer’s specifications during the concept phase and evaluated throughout the tendering process.

In 2019, the reporting of environmental key figures was further expanded. For this purpose, both absolute and relative, related

to production volume, key figures were determined. Compared to financial year 2018, energy consumption and the resulting
CO2 emissions were as follows in the reporting year:

Important non-financial performance indicators

Climate change: Carbon footprint3)

Energy consumption – total (MWh)

Scope 1: CO2 emissions4) (tons CO2 eq.)

Scope 2: CO2 emissions5) (tons CO2 eq.)

2019

2018

252,000

242,000

30,000

95,000

29,000

87,000

1) All production locations; accident rate calculated for every 200,000 working hours for
accidents > 1 lost day (not including commuting accidents).
2) Work-related accidents with lost time > 24 h per 200,000 working hours.

3) All production locations.
4) Scope 1: Direct emissions (production locations).
5) Scope 2: Indirect emissions from energy purchasing (production locations).

Combined Separate Non-Financial Report63

Even though absolute energy consumption and CO2 emissions increased in 2019, production-volume related energy efficiency
improved by more than 1%. The main reasons for this are the more efficient use of production and building technology

(e.g. heating and air-conditioning technology) with increased production volumes and the implementation of technical energy-

saving measures.

Observance of Human Rights

For STADA, good corporate governance means that the focus is not only on the achievement of goals, but also on the way in which

these goals are achieved. The Company goal of achieving economic success in line with ethical responsibility, is also mirrored

in STADA’s Code of Conduct, which provides guidance to employees particularly for proper behavior when facing legal or ethical

challenges. It includes, for example, behavioral guidelines for dealing with each other and with third parties as well as rules

regarding tolerance, respect and discrimination.

Contracts negotiated since financial year 2016 pursuant to the Corporate Policies and which have been negotiated in connection

with the production of finished goods include additional clauses on the topic of social responsibility within the scope of which

STADA and its suppliers are increasingly obligated to comply with the ten principles of the UN Global Compact. This is associated

with an obligation to, among other things, support and respect the protection of international human rights and ensure that

neither party is complicit in any violations of human rights and commits to the removal of all forms of compulsory labor and to

the elimination of child labor.

Combined Separate Non-Financial Report64

STADA CONSOLIDATED
FINANCIAL STATEMENTS

STADA Consolidated Financial Statements65

103

132

Consolidated Income Statement

Consolidated Statement of Comprehensive Income

Consolidated Balance Sheet

Consolidated Cash Flow Statement

Consolidated Statement of Changes in Equity

Notes to the Consolidated Financial Statements
General Information

Notes to the Consolidated Income Statement

Notes to the Consolidated Balance Sheet

Other Disclosures

STADA Consolidated Financial Statements | Table of Contents66

Consolidated Income Statement

Consolidated Income Statement
in k €

2019

2018

Note

Sales

Cost of sales

Gross profit

Selling expenses

General and administrative expenses

Research and development expenses

Other income

Other expenses

Operating profit

Result from investments measured at equity

Investment income

Financial income

Financial expenses

Financial result

Earnings before taxes

Income tax expenses

Earnings after taxes

thereof

• distributable to shareholders of STADA Arzneimittel AG (net income)

• distributable to non-controlling shareholders

2,608,563

1,239,225

1,369,338

2,330,824

1,139,493

1,191,331

581,593

214,830

72,782

42,661

156,994

385,800

-6

3,571

48,634

-45,069

340,731

26,888

313,843

302,697

11,146

538,587

183,714

72,256

84,380

103,104

378,050

3,722

5,624

44,565

-35,176

342,874

32,342

310,532

306,927

3,605

11.

12.

13.

14.

15.

16.

17.

18.

19.

20.

Profit transfer to Nidda Healthcare GmbH

349,550

134,189

Earnings per share in € (basic/diluted)

4.86

4.93

21.

STADA Consolidated Financial Statements | Consolidated Income Statement

Consolidated Statement of Comprehensive Income

Consolidated Statement of Comprehensive Income
in k €

2019

2018

Note

Earnings after taxes

313,843

310,532

Items to be recycled to the income statement in future:

Currency translation gains and losses

75,412

-45,380

thereof

•

income taxes

Gains and losses on financial assets (FVOCI)

thereof

•

income taxes

Items not to be recycled to the income statement in future:

Gains and losses on financial assets (FVOCI)

Revaluations of net debt from defined benefit plans

thereof

•

income taxes

-387

-7

130

-5,323

734

397

-11

–

739

-162

Other comprehensive income

70,212

-44,618

Consolidated comprehensive income

384,055

265,914

thereof

• distributable to shareholders of STADA Arzneimittel AG

• distributable to non-controlling shareholders

372,334

11,721

261,750

4,164

35.

19.

47.

19.

26.

36.

19.

STADA Consolidated Financial Statements | Consolidated Statement of Comprehensive Income

Dec. 31, 2019

Dec. 31, 2018

Note

Consolidated Balance Sheet

Consolidated Balance Sheet in k €
Assets

Non-current assets

Intangible assets

Property, plant and equipment

Financial assets

Investments measured at equity

Other financial assets

Other assets

Deferred tax assets

Current assets

Inventories

Trade accounts receivable

Return assets

Income tax receivables

Other financial assets

Other assets

Cash and cash equivalents

Non-current assets and disposal groups held for sale

2,284,014

2,113,845

1,785,969

1,707,205

453,385

351,467

6,393

3,067

340

1,328

33,532

2,281

24,568

823

1,164

26,337

1,575,412

1,446,281

638,237

615,090

689

5,659

59,808

46,761

206,039

3,129

515,251

516,011

620

8,545

12,755

49,255

343,794

Total assets

3,859,426

3,560,126

Equity and liabilities

Dec. 31, 2019

Dec. 31, 2018

Equity

Share capital

Capital reserve

Retained earnings including net income

Other reserves

Treasury shares

Equity attributable to shareholders of the parent

Shares held by non-controlling shareholders

Non-current borrowings

Other non-current provisions

Financial liabilities

Other financial liabilities

Other liabilities

Deferred tax liabilities

Current borrowings

Other provisions

Financial liabilities

Trade accounts payable

Contract liabilities

Income tax liabilities

Other financial liabilities

Other liabilities

Non-current liabilities and associated liabilities of
disposal groups held for sale and disposal groups

Total equity and liabilities

1,195,468

1,177,985

162,090

514,206

806,278

-400,829

-1,403

162,090

514,206

858,606

-475,941

-1,403

1,080,342

1,057,558

115,126

120,427

1,411,807

1,102,439

41,006

1,244,788

36,333

2,635

87,045

33,490

978,386

4,168

2,460

83,935

1,252,151

1,279,702

18,261

40,082

414,024

1,590

59,364

582,368

136,462

22,543

444,943

315,080

1,491

79,723

288,718

127,204

–

3,859,426

3,560,126

24.

25.

26.

27.

30.

31.

32.

28.

29.

30.

31.

33.

34.

Note

35.

35.1.

35.2.

35.3.

35.4.

35.5.

35.6.

36.

37.

40.

41.

42.

37.

38.

39.

40.

41.

STADA Consolidated Financial Statements | Consolidated Balance Sheet

Consolidated Cash Flow Statement

Consolidated Cash Flow Statement in k €

2019

2018

Note

Net income

Depreciation and amortization net of write-ups of non-current assets

Income tax expense

Income tax paid

Interest income and expenses

Interest and dividends received

Interest paid

Result from investments measured at equity

Result from the disposal of non-current assets

Additions to / reversals of other non-current provisions

Currency translation income and expenses

Other non-cash expenses and gains1)

Gross cash flow

Changes in inventories

Changes in trade accounts receivable

Changes in trade accounts payable

Changes in other net assets, unless attributable to investing
or financing activities1)

Cash flow from operating activities

Payments for investments in

•

intangible assets

• property, plant and equipment

•

financial assets

• business combinations in accordance with IFRS 3

Proceeds from the disposal of

•

intangible assets

• property, plant and equipment

•

financial assets

• shares in consolidated companies

• Non-current assets held for sale

Cash flow from investing activities

Borrowing of funds

Settlement of financial liabilities

Settlement of liabilities from leases

Dividend distribution

Changes in non-controlling interests

Changes in treasury shares

Cash flow from financing activities

Changes in cash and cash equivalents

Changes in cash and cash equivalents due to the scope of consolidation

Changes in cash and cash equivalents due to exchange rates

313,843

227,001

26,888

-47,879

45,063

1,065

-51,324

-920

5,353

964

215,628

735,688

-145,778

-60,294

85,470

-171,006

444,080

-161,694

-82,718

-4,504

-47,538

6,755

–

1,903

22,755

310,532

148,799

32,342

-46,542

38,941

4,726

-46,375

-3,722

1,421

2,673

1,888

165,785

610,468

-44,867

485

-51,511

-194,287

320,288

-280,284

-48,063

-280

19,185

1,278

1,655

–

6,225

–

-264,988

-300,284

12,905

-152,093

-26,298

-151,211

–

-316,697

-137,605

–

-150

944,599

-820,883

-1,699

-8,944

-33,349

79,726

99,730

-40

909

Net change in cash and cash equivalents

-137,755

100,599

Balance at beginning of the period

Balance at end of the period

343,794

206,039

243,195

343,794

23.

19.

18.

27.

16./17.

36.

16./17.

32.

28.

38.

43.

24.

25.

26.

24.

25.

26.

33.

43.

37.

35.

43.

33.

1) Non-cash additions to accruals for discounts to health insurance organizations in 2019 in
the amount of €150.5 million (previous year: €131.6 million) are recognized in gross cash flow
and are therefore not included in changes in other net assets.

STADA Consolidated Financial Statements | Consolidated Cash Flow StatementConsolidated Statement of Changes in Equity

Consolidated Statement of Changes in Equity
in k €

2019

Number
of shares

Share
capital

Capital
reserve

Balance as of Dec. 31, 2019

62,342,440

162,090

514,206

Profit transfer to Nidda Healthcare GmbH

Dividend distribution

Capital increase from share options

Changes in treasury shares

Changes in retained earnings

Changes in non-controlling interests

Changes in the scope of consolidation

Other comprehensive income

Net income

Balance as of Jan. 1, 2019

62,342,440

162,090

514,206

Previous year

Balance as of Dec. 31, 2018

62,342,440

162,090

514,206

Profit transfer to Nidda Healthcare GmbH

Dividend distribution

Capital increase from share options

Changes in treasury shares

Changes in retained earnings

Changes in non-controlling interests

Changes in the scope of consolidation

Other comprehensive income

Net income

Balance as of Jan. 1, 2018, adjusted

62,342,440

162,090

514,206

Adjustments under IFRS 15

Adjustments under IFRS 9

Balance as of Jan. 1, 2018

Retained
earnings
including
net income

806,278

-349,550

-5,475

302,697

858,606

-134,189

-6,848

-23,336

-306

713

306,927

715,645

446

-2,165

62,342,440

162,090

514,206

717,364

-430,013

-1,405

962,242

Currency

translation

reserve

FVOCI

reserve

Treasury

shareholders of

non-controlling

the parent

shareholders

Group

equity

Equity

attributable to

relating to

-400,937

108

-1,403

115,126

1,195,468

1,080,342

-349,550

-17,022

-349,550

-17,022

74,989

-475,926

123

-15

69,637

302,697

575

11,146

120,427

70,212

313,843

1,177,985

-1,403

1,057,558

-475,926

-15

-1,403

1,057,558

120,427

1,177,985

–

-134,189

-6,848

-23,336

-306

-45,177

306,927

960,485

446

-2,203

–

-134,189

-10,378

-31,686

83,781

-44,618

310,532

1,004,541

446

-2,311

1,006,406

-3,530

-8,350

84,087

559

3,605

44,056

-108

44,164

-1,405

-45,913

-430,013

-38

–

STADA Consolidated Financial Statements | Consolidated Statement of Changes in Equity

Consolidated Statement of Changes in Equity

in k €

2019

Number

of shares

capital

Capital

reserve

Currency
translation
reserve

FVOCI
reserve

Treasury
shares

Equity
attributable to
shareholders of
the parent

Shares
relating to
non-controlling
shareholders

Group
equity

Balance as of Dec. 31, 2019

62,342,440

162,090

514,206

-400,937

108

-1,403

Profit transfer to Nidda Healthcare GmbH

Dividend distribution

Capital increase from share options

Changes in treasury shares

Changes in retained earnings

Changes in non-controlling interests

Changes in the scope of consolidation

Other comprehensive income

Net income

Previous year

Profit transfer to Nidda Healthcare GmbH

Dividend distribution

Capital increase from share options

Changes in treasury shares

Changes in retained earnings

Changes in non-controlling interests

Changes in the scope of consolidation

Other comprehensive income

Net income

Adjustments under IFRS 15

Adjustments under IFRS 9

Balance as of Jan. 1, 2018

Balance as of Jan. 1, 2018, adjusted

62,342,440

162,090

514,206

62,342,440

162,090

514,206

717,364

Retained

earnings

including

net income

806,278

-349,550

-5,475

302,697

858,606

-134,189

-6,848

-23,336

-306

713

306,927

715,645

446

-2,165

Balance as of Jan. 1, 2019

62,342,440

162,090

514,206

74,989

-475,926

123

-15

-1,403

1,057,558

Balance as of Dec. 31, 2018

62,342,440

162,090

514,206

-475,926

-15

-1,403

1,057,558

120,427

1,177,985

-1,405

-134,189

-6,848

–

-23,336

-306

-45,177

306,927

960,485

446

-2,203

-1,405

962,242

-3,530

-8,350

84,087

559

3,605

44,056

-108

44,164

-134,189

-10,378

–

-31,686

83,781

-44,618

310,532

1,004,541

446

-2,311

1,006,406

-45,913

-430,013

-38

–

1,080,342

-349,550

–

69,637

302,697

115,126

1,195,468

-17,022

-349,550

-17,022

–

575

11,146

120,427

70,212

313,843

1,177,985

STADA Consolidated Financial Statements | Consolidated Statement of Changes in Equity

Notes to the Consolidated Financial Statements

Table of Contents

General Information

1. Corporate information

2. Basis of preparation of the financial statements

Consequences of new or amended standards

and interpretations

4. Changes in accounting policies

5. Scope of consolidation

Principles for the consolidation of subsidiaries,

joint ventures and associates

7. Currency translation

8. Business combinations

9. Accounting policies

10. Estimates, assumptions and discretion in the

application of accounting principles

Notes to the Consolidated Income Statement

11. Sales

12. Cost of sales

13. Selling expenses

14. General and administrative expenses

15. Research and development expenses

16. Other income

17. Other expenses

18. Financial result

19. Income tax expenses

35. Equity

35.1. Share capital

35.2. Capital reserve

35.3. Retained earnings including net income

35.4. Other reserves

35.5. Treasury shares

35.6. Shares relating to

non-controlling shareholders

36. Other non-current provisions

37. Financial liabilities

38. Trade accounts payable

39. Contractual liabilities

40. Other financial liabilities

41. Other liabilities

42. Other provisions

Other Disclosures

43. Notes to the cash flow statement

44. Segment reporting

44.1. Information by operating segment

44.2. Reconciliation of segment results

to net profit

44.3. Information by country

44.4. Information on important customers

45. Contingent liabilities

20. Income attributable to non-controlling interests 100

46. Other financial obligations

21. Earnings per share

22. Number of employees and personnel expenses

23. Depreciation, amortization and

impairment losses

Notes to the Consolidated Balance Sheet

24. Intangible assets

25. Property, plant and equipment

26. Financial assets

27. Investments measured at equity

28. Trade accounts receivable

29. Return assets

30. Other financial assets

31. Other assets

32. Inventories

33. Cash and cash equivalents

101

102

103

108

110

111

112

113

114

115

47. Disclosures about financial instruments

47.1. Carrying amounts, valuation rates and

fair values in accordance with valuation