ANNUAL REPORT 06 - Bosnalijek dd

ANNUAL REPORT 06

COMPANY CEO's LETTEREdin Arslanagić Chief Executive Officer4 ANNUAL REPORT 06 COMPANY CEO's LET TER

“It is my pleasure to mention the growth of income from sale of 2.82%, especially growth of export of54.19% and growth of net income of 2.42% in relation to previous financial year.“Dear shareholders, esteemed partners, honourable employees,We finished year 2006 once morel with successful business operations,thus continuing a continuous trend of growth and development that hasbeen the characteristic of Bosnalijek in last ten years.Accomplished business results are even more significant being realised invery unpleasant business surrounding with expressive influence of manyfactors, both those specific for pharmaceutical industry at world level,and those specific for our country due to inadequate legal regulation thatwould stimulate development of domestic manufacture and strengthenits competitiveness at international market.In that sense, it is my pleasure to mention the growth of income from saleof 2.82%, especially growth of export of 54.19% and growth of netincome of 2.42% in relation to previous financial year.A greater level of investing into development of new products, clinicaltrials and registrations in the country and abroad of 18.98% is especiallyimportant indicator for our company, because this is investment into asafe and prosperous future.With regard to investments, a year behind us was in the spirit of investinginto new equipment and new technologies, what will contribute to ourefforts directed to constant improvement of quality of our products,increase of our total business excellence and manufacture of new modernmedicines.During year 2006, Bosnalijek shares were the shares that were mostlytraded at the Sarajevo Stock Exchange. In the end of year, Bosnalijekshare has reached the value of 38 KM, what represents a growth of 67%in relation to end of previous year.Bosnalijek business success is the result of a driving energy of itsprofessional and motivated employees, into whose development weconstantly invest.We continuously develop partner relation with the social communitybecause we believe that Bosnalijek social responsibility is wider than itsbasic activity.In accordance with our mission, we realised social activities in previousyear through various forms of acting in the field of education, science,culture, sports and humanitarian action taking care about quality ofhuman life.We gave scholarships to 174 pupils and students, thus stimulatingeducation and studying of perspective young people, of whom some willtomorrow be the driving force of Bosnalijek.Commitment to quality and recognising the needs of our products' usersoffer us safety that Bosnalijek will also in future successfully respond tochallenges of demanding international market, working at the satisfactionof employees, shareholders and wider social community.Edin ArslanagićChief Executive Officerserving Your health COMPANY CEO's LET TER ANNUAL REPORT 06 5

BUSINESS INDICATORS 2006- Income from sale was increased by 2.82% in relation to previous year- Net income was increased by 2.42,% amounting to 7.84 million KM- First registration certificates were obtained for 26 products in Bosnia- Certification according to standard OHSAS 18001:1999 (health and safety)and it amounts to 84.53 million KM(14 products in FBiH, and 12 products in RS)- Production-Distribution Centre was placed into operation and transfer- Bosnalijek entered official quotation at the Sarajevo Stock Exchange SASE- Sale was realised at international market amounting to 16.91 millionof technologies into a new production unit was successfully carried out- New registration certificates were obtained for 35 products abroadKM, what is greater by 54,19% than export in year 2005.for leading products- Annual growth of Bosnalijek share value of 67% was realised at the- Number of employees in end of year was 581, of which 43% hadSarajevo Stock Exchange SASE, as well as market capitalisation in the- Income before depreciation, interest rate and tax is greater by 2.22%- Informatics system SAP was successfully placed into operationuniversity qualificationsend of year amounting to 224 million KMand it amounts to 20.06 million KM- Nine new products were launched to local market43%Number of employees in end of year was 581,of which 43% had universit y degreesserving Your health6 ANNUAL REPORT 06 BUSINESS INDICATORS 2006 BUSINESS INDICATORS 2006 ANNUAL REPORT 06 7

BASIC FINANCIAL INDICATORS 2006Bosnalijek d.d. '000 KMBosnalijek d.d. '000 EUR2006. 2005. 2006.2005.Net saleOperational income (EBITDA)EBITDA marginNet profitNet profit marginInvestmentsLong-term assetsShort-term assetsCapitalLong-term liabilitiesShort-term liabilitiesNumber of employeesSale/employeeNet profit/employee84.53220.06723,7%7.8379,3%8.19399.14454.46991.74916.74745.1175811451382.21019.63123,9%7.651*9,2%37.20299.65245.85485.10713.87746.5225361531443.22110.26023,7%4.0079,3%4.18950.69227.85046.9118.56323.06858174742.03310.03723,9%3.887*9,2%19.02150.95123.44543.5157.09523.786536787* Net income in 2005 was increased by 48 thousand KM, by correcting a mistake referring to recognition and estimate of reserves byshort-term and long-term liabilities according to employees in accordance with MRS 19INDEXES 2006.2005.Short-term relationReturn on assets (ROA)*Return on equity (ROE)**Level of indebtedness1,25,1%8,5%40,2%1,05,2%8,9%41,5%INFORMATION ON SHARES 2006.2005.Ukupan broj dionicaZarada po dionici u KMCijena dionice na kraju godine KMP/E odnos***Tržišna kapitalizacija u '000 KM5.843.2761,3038,3329,5223.7975.843.2761,3022,9917,7134.336* Net income/value of asset in the end of year** Net income/value of capital in the end of year*** Price of share in the end of year / earnings per a share8 ANNUAL REPORT 06 BASIC FINANCIAL INDICATORS 2006

FINANCIAL REVIEW 2002. - 2006. (‘000 KM)2002 2003 200420052006Income from saleChange in relation to previous yearOperational costsChange in relation to previous yearOperational net incomeChange in relation to previous yearProfit = Net profitChange in relation to previous yearTotal assetsChange in relation to previous yearTotal capitalChange in relation to previous yearSale by employeeChange in relation to previous year49.32212,1%42.48311,3%6.83917,3%4.88036,2%81.0055,0%61.6148,6%1092,8%58.48718,6%51.14820,3%7.3397,3%6.16426,3%92.85514,6%67.77810,0%12514,6%69.29718,5%58.07213,5%11.22553,0%7.57422,9%121.51730,9%77.50414,4%1379,8%82.21018,6%67.58116,4%14.66930,3%7.6510,4%145.50619,7%85.1079,8%15311,7%84.5322,8%72.0346,6%12.498-14,6%7.8373,1%153.6135,6%91.7497,8%145-5,2%FINANCIAL REVIEW 2002. - 2006. (‘000 EUR)2002 2003 200420052006Income from saleChange in relation to previous yearOperational costsChange in relation to previous yearOperational net incomeChange in relation to previous yearProfit = Net profitChange in relation to previous yearTotal assetsChange in relation to previous yearTotal capitalChange in relation to previous yearSale by employeeChange in relation to previous year25.21812,1%21.72111,3%3.49717,3%2.49536,2%41.4175,0%31.5038,6%562,8%29.90418,6%26.15220,3%3.7527,3%3.15226,3%47.47614,6%34.65410,0%6414,6%35.43118,5%29.69213,5%5.73953,0%3.87322,9%62.13130,9%39.62714,4%709,8%42.03318,6%34.55416,4%7.48030,3%3.9120,4%74.39619,7%43.5159,8%7811,7%43.2212,8%36.8306,6%6.390-14,6%4.0073,1%78.5415,6%46.9117,8%74-5,2%serving Your health BASIC FINANCIAL INDICATORS 2006 ANNUAL REPORT 06 9

INFORMATION FOR INVESTORSIn end of year 2006, a number of issued Bosnalijek shares was 5.843.276with nominal value of 10.00 KM. Since August 2006, the shares werelisted at official quotation of the Sarajevo Stock Exchange (SASE).Total number of shareholders in the end of year was 4308, of which 35.4%are international private and institutional investors, while 64.6% aredomestic private and institutional investors.In end of year 2006, Federation of Bosnia and Herzegovina was the largestsingle shareholder of Bosnalijek, having a 28.9% share in Bosnalijekcapital. International Finance Corporation, member of the World Bank,was the second shareholder in size, with total share of 12.5% in Bosnalijekcapital, while Investment Fund BIG owned 5% of the capital.Initial price of shares in year 2006 amounted to 23.53 KM and end pricewas 38.33 KM. The highest price in a year was recorded on 22ndNovember, when it was 39.43 KM. The volume of sale in year 2006 wassomewhat lower than in previous period. Total number of 708.610 shareswere traded with, but Bosnalijek was still among first 5 issuers in scope ofsale at SASE.ShareholderFBiHIFCIF BIGDomestic institutional and private investorsForeign institutional and private investorsNo. of shares31.12.20061.688.449731.661292.1651.793.7531.337.248%28,9012,525,0030,7022,88No. of shares31.12.20051.688.449731.661288.9611.847.2461.286.959%28,9012,524,9531,6122,023530% Ownership252015105200620050FBiHIFC IF BIG Domestic Foreigninstitutional and institutional andprivateinvestorsprivateinvestors10 ANNUAL REPORT 06 INFORMATION FOR INVESTORS

The Sarajevo Stock Exchange continued to show signs of strengtheningthrough an increased volume of trading and liquidity in 2006, and thevalue of index of investments funds BIFX was increased from 4.046 indexpoints to 5.155 index points, what is an increase of 27.4%.Value of the main index of the Sarajevo Stock Exchange SASX-10, whichincludes also trading with Bosnalijek shares has increased from 1.612index points in the beginning of year 2006, to 2856 index points in theend of period, what is a growth of 77.1%.INFORMATION ON SHARES IN KMPrice on 31st DecemberHighest price in the yearLowest price in the yearNumber of sold sharesNominal valueEarnings per share in the end of periodP/E IndexMarket capitalisation in the end of period ('000 KM)Number of issued shares2006.38,3339,4322,02708.61010,001,3029,5223.7975.843.2762005.22,9925,1512,89845.26710,001,3017,7134.3365.843.27640.00045,0035.00040,00VOLUME30.00025.00020.00015.00035,0030,0025,0020,0015,00PRICE KM10.00010,005.0005,0000,0004.01. 22.02. 25.04. 20.06. 14.08. 06.10. 29.11.REVIEW OF TRADING WITH BOSNALIJEK SHARES IN YEAR 2006 AT SASEserving Your health INFORMATION FOR INVESTORS ANNUAL REPORT 06 11

PRINCIPLES OF THE CORPORATE MANAGEMENTManagementSupervisory BoardThe Management is responsible for organisation of work and managingthe business, agency and representing the Company, as well as forlegality of the business. It is obliged to inform Supervisory Board onresults of the business, at least once in three months. The managementshall submit report to shareholders and it is obliged to put into effect thedecision of Company Shareholders Assembly.Bosnalijek Management consists of Company’s Chief Executive Officer andexecutive directors, of whom every is responsible for a certain area of thebusiness, reaching and supervising implementation of operationaldecisions.Supervisory Board is in charge for supervising the work of CompanyManagement, about which it is obliged to inform Company ShareholdersAssembly. The Supervisory Board shall have meetings at least once inthree months, and more frequently if necessary.Supervisory Board consists of a president and four members, who areelected for a mandate lasting 4 years.With observing principles of corporative management, Bosnalijek continuously fulfils its obligations of protecting interests ofshareholders and regular reporting on its business operations. Company management bodies are obliged to adhere to ethical principlesof the business, defined by the Company Charter and relevant laws.12 ANNUAL REPORT 06 PRINCIPLES OF THE CORPORATE MANAGEMENT

Auditing BoardCompany Shareholders AssemblyAuditing Board consists of a president and two members. It is authorisedand responsible for preparing and proposing procedures that need tominimise the risk of violations and breaches, for insuring and supervisingthe implementation of accounting standards and suggesting accountingpolicies.In year 2006, annual Company Shareholders Assembly meeting was heldon 24th June and it reached decisions on:• Adopting Annual Report on Business Operations in 2005, with reportsof Auditors, Supervisory Board and Auditing Board• Allocation and method of usage of income realised in year 2005• Allocation of a part of income realised in year 2004 into Companyreserves fund• Accepting Business Plan for 2006Having entered the official quotation of the Sarajevo Stock Exchange in 2006, Bosnalijek accepted the obligation for a regular andtransparent reporting to financial market on its business processes.serving Your health PRINCIPLES OF THE CORPORATE MANAGEMENT ANNUAL REPORT 06 13

MVSMISSION VISION STRATEGYBjelašnicaMISSIONOur mission is to improve the quality of life by producing, delivering andselling the new best-quality pharmaceuticals and related products.We shall maintain highest international standards related to the qualityof products and protection of the environment.By doing this, we shall meet expectations of our customers, shareholdersand employees.VISIONOur vision is to be a reputable and progressive pharmaceutical company,capable to compete in the world pharmaceutical market.We shall turn the vision into reality by developing our own proprietaryportfolio of the best quality pharmaceuticals, by investing into modernproduction facilities and by complying with regulatory requirements ofthe most demanding markets.STRATEGYOur long-term strategy is based on development, production and sale ofgenerics under proprietary trade names,in compliance with internationalstandards applicable for the pharmaceutical industry.Intensified investments into product development and promotion atlocal and international markets, along with strengthening of internationalsales network, will assure further growth of our company.serving Your health14 ANNUAL REPORT 06 MISSION VISION STRATEGYMISSION VISION STRATEGY ANNUAL REPORT 06 15

SUPERVISORY BOARD REPORTSupervisory Board President Prof. Hasan Muratović, PhD16 ANNUAL REPORT 06 SUPERVISORY BOARD REPORT

Supervisory Board of Bosnalijek d.d. consists of five members: Hasan Muratović, President of Supervisory Board,and the following members: Rifat Klopić, Ljunora Mavrić, Abdul-Umid Šalaka and Midhat Vehabović. SupervisoryBoard members were selected by Shareholders Assembly on 12th June 2004, to a four-year mandate.Bosnalijek d.d. Supervisory Board is an independent organ of managementin Company management structure, acting in accordance with CompanyCharter, decisions of Company Assembly and laws of Bosnia andHerzegovina and Federation of Bosnia and Herzegovina, as well as in thebest interest of the Company shareholders. In accordance with that,Supervisory Board monitored in 2006 the work of Management andbusiness operations of Bosnalijek, and paid a special attention to problemsof realising the business goals in accordance with plans for businessoperations.In the period between two Company Assemblies, at which annual report onbusiness is considered, the Supervisory Board held five sessions, at whichissues of importance for functioning and business operations of theCompany were considered, and adopted 12 decisions, by which, within thecompetence of Supervisory Board, matters of significance for realising thefunction of supervising the Company business operations were organised,implementation of Assembly decisions and preparation of draft decisions toCompany Assembly.Within supervising the company business operations, Supervisory Boardhas also considered and adopted Report of Management on Companybusiness operations for period January – June 2006, and on session held onMarch 29, 2007, Supervisory Board adopted Management Report onCompany Business Operations by annual calculation for year 2006 withstatement of accounts and income statement, as well as auditor's report.Additionally, in the scope of its competence, at session held on May 29,2007, Supervisory Board accepted proposal of the Company Managementfor allocation and method of usage of income realised in year 2006,proposal on allocation of a part of income realised in 2005 into Companyreserves fund, as well as draft Business Plan for 2007, which shall besubmitted to the Company Assembly, in addition to Annual Report onCompany business operations for year 2006 with reports of auditors,Supervisory Board and Auditing Board.In performing its jobs and duties, Supervisory Board has cooperated withCompany Management in accordance with Company Charter and law, withtotal disposal of information and details on all the issues of Bosnalijekbusiness operations, which were explained additionally by the members ofManagement as necessary. That enabled, besides direct communicationthroughout the year between the Management and Supervisory Board, itsmembers a complete and unobstructed supervision over Bosnalijek businessoperations.On the basis of continuous supervision of Company business operations andthe mentioned reports of Management on Company business operations,the Supervisory Board concludes that Company business operations in year2006 were in accordance with decisions of Company Assembly, CompanyCharter, laws and other regulationsSupervisory Board PresidentProf. Hasan Muratović, PhDSarajevo, May 29, 2007serving Your health SUPERVISORY BOARD REPORT ANNUAL REPORT 06 17

MARKETING AND SALEBosnalijek continuous growth of sale represents an enviable success,given that government policies in all countries have a big impact on thesale of medicines through constant pressures on lowering drug prices,making stricter requirements in the field of medicines registration, aswell as more and more numerous and strong competition at local andinternational market.Increase of income from sale is a result of constant expanding of Bosnalijekproduct portfolio of qualitative products, so that over a half of thecomplete sale refers to products launched to market in past five years.INCREASE OF SALE 1997– 2006 (KM)100.000.00090.000.00080.000.00070.000.00060.000.00050.000.00040.000.00030.000.00020.000.00010.000.00031.303.80026.193.77218.069.47836.974.79658.486.98049.322.12743.971.22669.296.58084.531.58382.209.83501997 1998 1999 2000 2001 2002 2003 2004 2005 2006A continuous several-year trend of total sale growth was continued in year 2006. Income from sale was accomplishedat the amount of 84.53 million KM, what is an increase of 2.82% in relation to year 2005.18 ANNUAL REPORT 06 MARKETING AND SALE

STRUCTURE OF MARKET 2006.80% DOMESTIC MARKET20% EXPORTThrough selling produc ts at expor t markets in year2006, we realised 20,01% of total income of sale.In accordance with strategic goal of Bosnalijek, in the structure of realisedtotal income from existing sale, the share of export was increased from13.34% in 2005 to 20.01% in 2006, as a result of increase of export bySale of medicines, located in the centre of Bosnalijek business operations,was realised at the amount of 83.32 million KM, what represents anincrease of 3.34% in relation to past year.54.19% in relation to previous year.Sale of medicines in totally realised income from sale amounted toIncome from sale at local market was lower by 5.08% in relation toprevious year, as a consequence of lowering our products’ selling prices.98.56%, of which 85.56% refers to medications from our own productportfolio, and 13.00% to medicines from programme of cooperation withpartners.STRUCTURE OF SALE PER MARKETS (KM)2006 Struct.% 2005 Struct.%Index2006/2005BiH• Products• ServicesEXPORT• Ex-YU and Albania region• Eastern Europe and Ex-Soviet Union Region• Middle East and Africa RegionTOTAL67.617.78667.554.21263.57416.913.7978.148.3837.811.417953.99784.531.58379,9979,920,0820,019,649,241,13100,0071.240.27271.136.392103.88010.969.5635.806.7134.712.312450.53882.209.83586,6686,530,1313,347,065,730,55100,0094,9294,9661,20154,19140,33165,77211,75102,82VALUE AND STRUCTURE OF SALE PER PROGRAMMES IN 2006 (KM)2006 Struct.% 2005 Struct.%Index2006/2005Medicines• Our own medicines• Medicines in cooperation with partnersDisinfectantsChronolabServicesTOTAL83.315.30572.327.28210.988.023884.439268.26663.57484.531.58398,5685,5613,001,050,320,08100,0080.623.58769.278.03711.345.550886.415595.953103.88082.209.83598,0784,2713,801,080,720,13100,00103,34104,4096,8599,7845,0161,20102,82serving Your health MARKETING AND SALE ANNUAL REPORT 06 19

In total sale of medicines from our own product programme, prescriptionmedicines had a share of 83.59%, and non-prescription medicines (OTCprogramme) the remaining share of 16.41%.A trend of high growth of sale of OTC programme was continued, whichfaced an increase of sale in 2006 of 33.30% in relation to year 2005, as aconfirmation that medications for self-treatment are gaining more andmore significance due to increase of consumers awareness about the needfor taking care about their own health and preventing an illness.Leading positions in value of sale in B osnalijek por tfolio were taken byLopril®H, Lopril®, Lysobac t®, R anibos®, X i c l a v ® , E n t e r o f u r y l ® , Av a m i g r a n ® ,S t o m a t i d i n ® , Nitroglicerol®, Paracetamol, Dilatrend® and Rhinostop®.20 ANNUAL REPORT 06 MARKETING AND SALE

14% J-ANTIINFECTIVES2% M-MUSCULO-SKELETAL SYSTEM14% N-NERVOUS SYSTEM1% D-DERMATOLOGICALS3% -OTHER MEDICATIONS22% A-DIGESTIVE TRACT AND METABOLISM2% R-RESPIRATORY SYSTEM42% C-CARDIOVASCULAR SYSTEMSTRUCTURE BY PFARMACOTHERAPEUTIC GROUPSA continuous growth of sale of OTC programme and accomplished share of16.41% in total value of medicines sale, is especially generated by ourproducts Lysobact®, Stomatidin®, Paracetamol and Rhinostop®, as well asRoyal Jelly® that was accepted as excellent and quite demandedsupplement to nutrition at all markets, after target marketing activities.Cardiovascular medicines, digestives and antiinfectives are leadingpharmacotherapeutic groups of medicines by value of sale, by whichcoordination of Bosnalijek portfolio with the structure of world consumptionof medicines by indication areas is confirmed.Cardiovascular medicines are the leading medicines of B osnalijekpharmaceutical programme, which are followed by medicationsac ting on digestive system and metabolism, medicines for treatingsystemic infec tions and those ac ting on the ner vous system.serving Your health MARKETING AND SALE ANNUAL REPORT 06 21

BOSNIA AND HERZEGOVINA MARKETIncome from sale of products and services at local market was realised atvalue of 67.62 million KM, what is lower by 5.08% from realised sale inthe previous year.Disunited local market, existence of a double regulation at entity levels,different cantonal policies of financing consumption of essentialmedicines, without existence of any system of forming and control ofdrug prices, had the greatest impact on Bosnalijek business in Bosnia andThough a greater sale by 350000 unit packs of our own products wasHerzegovina.realised in 2006 in relation to previous year, lower value of sale is theresult of Bosnalijek decision, as a socially responsible economic organisation,to decrease the prices of its products as of 1 January 2006 at theaverage by 8%, for the purpose reducing consequences of introducingHowever, Bosnalijek still managed to keep the market leader position atthe local market in volume of its sale, even besides numerous presentforeign competitors.VAT.With keeping already accomplished relations in the structure of realisedincome from sale, our own production programmes had a share of83.35%, and programmes from collaboration with partners 16.65%.SALE IN BiH BY PROGRAMMES IN YEAR 2006 (KM)2006 Struct.% 2005 Struct.%Index2006/2005OUR OWN PROGRAMMESOur own medicinesDisinfectantsServicesCOOPERATION WITH PARTNERSEli LillyNovartisDiagnostic devicesTOTAL56.361.49755.413.484884.43963.57411.256.28910.418.250569.773268.26667.617.78683,3581,951,310,0916,6515,410,840,40100,0059.298.77058.350.026844.863103.88011.941.50210.736.460609.090595.95271.240.27283,2481,911,190,1516,7615,070,850,84100,0095,0594,97104,6861,2094,2697,0493,5445,0194,9222ANNUAL REPORT 06BOSNIA AND HERZEGOVINA MARKET

O ur own programmes take par t in total realised value of sale at local market with 83.35%.New productsThe highest growth of sale (4.68%) was accomplished with disinfectantsprogramme, as a result of Bosnalijek agreed relation towards buyers andsatisfying their basic needs for these products, although inadequateimplementation of Excise Law in BiH is a serious problem for producingthis programme, because of paying a high excise duty on basic rawmaterial(alcohol), what brings us to question whether we shall furtherkeep it in our portfolio because of negative profitability.Sale of products from our own production programmes at BiH marketinvolved 198 different products, namely 175 different presentations ofmedicines based on 85 different active ingredients, 12 disinfectants formedicinal usage and 11 disinfectants for wider consumption.With development of new products and their introducing into saleassortment, with constant harmonisation of portfolio with requirementsof modern pharmacotherapeutics, Bosnalijek ensured acontinuous growth of sale and confirms strategic orientationdirected to growth of competitiveness, satisfying needs of itscustomers and end users.Nine new medicines based on 5 active ingredients were launched tomarket in year 2006, namely:• 5 medicines based on two completely new active ingredients(clarithromycin and loratadine), and• 4 medicines based on 3 active ingredients already present inmanufacturing programme (new pharmaceutical forms and unitdoses).1009080STRUCTURE OF SALE AT LOCAL MARKET 2003 - 2007.80% 81% 83% 83%70OUR OWN PROGRAMMECOOPERATION-PARTNERSSTRUCTURE OF SALE IN BiH BY PROGRAMMES605040302010020% 19% 17% 17%2003 2004 2005 2006serving Your health BOSNIA AND HERZEGOVINA MARKET ANNUAL REPORT 06 23

OTC programme “Your Health Protec tors” continues several-year trend of sale growthIn the area of non-prescription medicines, Bosnalijek programme „YourHealth Protectors“ has been confirming, from one year to another, ourcorrect business strategy aimed at expanding and growth of thisprogramme.Products from this programme are intended for self-treatment, or tothose consumers whose life style is taking care about health and who cansolve smaller health problems by themselves and with available informationon these medicines in the public media and with help of pharmacistsin the pharmacies.Supporting sale of non-prescription medicines with numerous marketingactivities and advertising via public media, Bosnalijek is focused oninforming the population on the need for protecting health and preventingillnesses, as well as proper usage of medications for self-treatment.In conditions of a large competition for these products, of which many arenot even registered in our country, sale of these Bosnalijek products hasrecorded several-year trend of growth, so that a 16.04% growth of salewas recorded in year 2006, in relation to previous year.LYSOBACT® RHINOSTOP® COFADON® MAGALOX® CVit® VITAMIN A&E® PILFUD®a re „Yo u r Health Pro te c to r s “ w h i c h b e ca m et h e re co g n i s e d b ra n d s.24ANNUAL REPORT 06BOSNIA AND HERZEGOVINA MARKET

INTERNATIONAL MARKETSSale at international markets in year 2006 was accomplished at value of16.91 million KM with an increase of 54.19% from the previous year sale,by which a share of export in total sale has reached 20%.A continuity of growth of the export sale and strengthening Bosnalijekinternational operations is our priority goal, which is, due to relativelysmall domestic market and its small financial strength, one of the crucialsupports of Company's further growth and development.SALE IN EXPORT (KM)MARKET2006STRUCTURE20062005STRUCTURE2005INDEX2006/2005Ex-YU and Albania regionAlbaniaSerbiaMacedoniaMontenegroKosovaCroatiaSloveniaEast Europe and ex-USSR regionUkraineMoldovaRussiaMiddle East and Africa RegionQatarKuwaitLibyaYemenTOTAL:8.148.383308.4141.030.792630.1062.223.2652.571.1321.306.96677.7077.811.4174.201.517969.0322.640.868953.997183.271224.344486.99459.38716.913.79748,181,826,093,7313,1415,207,730,4646,1824,845,7315,615,641,081,332,880,35100,005.806.713237.634617.186690.3941.823.8111.932.143427.55877.9874.712.3123.019.825605.1781.087.309450.53874.176241.529134.83310.969.56352,932,175,636,2916,6317,613,900,7142,9627,535,529,914,110,682,201,23100,00140,33129,79167,0191,27121,90133,07305,6899,64165,77139,13160,12242,88211,75247,0892,88361,18154,19serving Your health INTERNATIONAL MARKETS ANNUAL REPORT 06 25

• East Europe and ex-USSR region, as market with highest potential,has faced a growth of share in total expor t in year 2006.• In Middle East and Africa region, the value of expor t was doubled.• In Ex-YU and Albania region, the expor t was increased by 40.33%in relation to 2005.48,18% EX YU AND ALBANIA46,18% EAST EUROPE AND EX-USSR5,64% MIDDLE EAST AND AFRICAAccomplished results in export result from long-lasting big investmentsdirected into development of international business through providingrepresentative network and registration of products, development andstrengthening personnel resources at local markets and realisation ofnumerous and quite intensive marketing activities.In accordance with a continuous increase of export as Bosnalijek strategicgoal, the regional structure of export is also changed, at which value ofexport is increased at those markets with the highest potential for growth– East Europe and Ex-Soviet Union countries.30,0025,0020,0015,00• First expor t into Yemen was realised.• Ukraine remains the leading expor t market in 2006 as well.• The position of recognisable B osnalijek brands was strengthenedin Montenegro, Albania, Macedonia and Kosova.• A significant growth of expor t in Croatia was realised throughsuccessful collaboration with a local par tner.10,005,000,00UkraineRussiaKosovo Montenegro CroatiaSerbiaMoldova MacedoniaLibyaAlbaniaKuwaitQatar Slovenia Yemen26ANNUAL REPORT 06INTERNATIONAL MARKETS

1% SLOVENIA16% CROATIA31% KOSOVO4% ALBANIA13% SERBIA8% MACEDONIA27% MONTENEGROIn this market area, Bosnalijek has accomplished increase of sale of 40%in relation to previous year and kept the highest share of this region inthe structure of total export, with tendency of its mild lowering due toa greater increase of sale in countries of other regions.Ex-YU and Albania regionIn this market area, Bosnalijek has accomplished increase of sale of 40%in relation to previous year and kept the highest share of this region in thestructure of total export, with tendency of its mild lowering due to agreater increase of sale in countries of other regions.At markets of Ex-YU and Albania, Bosnalijek shall build an image of arenowned pharmaceutical producer with well introduced and qualitativeproducts, of recognisable brands.• A 22% increase of sale was realised in Montenegro, good marketposition was strengthened with recognisability of Bosnalijek brands.• Sale in Croatia was increased by three times in relation to year 2005,activities were realised on registration of new products and verysuccessful cooperation was continued with Jadran GalenicLaboratory from Rijeka.• Macedonia market, with very low prices and dominant monopolisticposition of domestic producers, has required organisational and staffchanges in representative office, forming of new team of workers andnew marketing strategy directed at commercial sale and„non-prescription“ medicines.• In Serbia, increase of sale of 67% was realised with intensive work ofexpert associates and a significant advancement in prescribing of ourmedications. Representative office started working in 2006, and newwholesalers were introduced into distribution, by which availabilityof our portfolio at total market was raised to a satisfactory level.• Increase of sale in Albania of 30% was realised, a greater number ofproducts was registered, the work of expert associates was establishedin the field, and intensive promotional activities commenced for Lopril®,Lopril®H, Rhinostop®, Enterofuryl® etc.• With continuous increase of sale at Kosova, Bosnalijek has gained imageof a reliable producer of highly qualitative medicines and strengthenedthe market position.Lopril®, Lopril®H, Ulcosan®,Rhinostop®, Pilfud®, Royal Jelly®and otherB osnalijek produc ts at this market have become quite demanded since theygained trust of both doc tors and patients with their qualit y and efficac y.serving Your health INTERNATIONAL MARKETS ANNUAL REPORT 06 27

54% UKRAINE34% RUSSIA12% MOLDOVAEast Europe and Ex Soviet Union regionPotential of this market region and activities that are directed bothtowards technical equipping of representative offices, and even more topersonnel strengthening and professional training, and also more andmore successful marketing activities of promoting the Company andsome brands, have resulted in a high increase of sale and the resultsabove planned expectations.Increase of share of this region in total export is in accordance withBosnalijek export strategy, given the size of these markets, or their totalpotentials and expected trends of further growth.• An increase of sale of 60% was accomplished in Moldova, representativeoffice was strengthened technically and with personnel, activity forprotecting our trademarks was commenced, promotional activities wereorganised for new registered products and cardiovascular medicines.• In Ukraine, a leading Bosnalijek market, an increase of sale of 39% wasrealised, four new products were launched, a network of expertassociates was expanded, and numerous marketing activities wererealised on promotion of the products.• Sale in Russia was increased by 143%, new expert associates wereemployed and presence of Bosnalijek products was increased in theterritory of Russian Federation, collaboration with scientific-healthcareexperts, opinion leaders and medical institutions has been continued andimproved.Pilot study for using Enterofur yl suspension in new indication was finalised in Russia, and anagreement was reached on conduc ting multi- centre study on children and after wards on adults.28ANNUAL REPORT 06INTERNATIONAL MARKETS

51% LIBIYA24% KUWAIT19% QATAR6% YEMENFirst sale of B osnalijek produc ts was realised in Yemen.Middle East and Africa RegionSale in this export region was doubled in relation to previous year.With significant growth of sale of 112% in relation to previous year, thisexport market represents a significant potential and the real results areexpected after finalising the commenced and new registrationprocedures and preparation of sale-marketing activities in certaincountries.Activities were especially directed to registration of products in sevenAfrican French- speaking countries as well as coordinating marketingactivities with partner in these countries. First registrations of 10products were finished in Congo and Togo, and their finalisation in othercountries as well is expected in year 2007.• A continuous sale has been realised in Kuwait and further registrationof medications continued.• At Qatar market, the sale was increased by 2.5 times, and registrationof 5 new products commenced.• The sale of Bosnalijek products in Libya was increased by 3.6 times inrelation to year 2005, and many activities were realised that aresupposed to result in Bosnalijek significant business successes in thecoming period.• Marketing authorisation approvals were obtained in Yemen for 7products and first sale in this country took place.Leading expor t produc tsTotal expor t in 2006 was accomplished with sale of 122 different produc ts in 14 countries.Lopril®H and Lysobac t® are leading B osnalijek produc ts at the value of expor t, whichbecame recognisable brands in many foreign markets, and they are followed by Nomigren®,Enterofur yl®, Stomatidin®, Lopril®, Ranibos® and Rhinostop®.serving Your health INTERNATIONAL MARKETS ANNUAL REPORT 06 29

PRODUCTION AND QUALITY CONTROLHaving a long tradition and 55 years of experience, Bosnalijek has beenproducing medicines and harmonising its production capacities withcontinuously increasing and stricter and stricter requirements in thepharmaceutical production.With its technical-technological equipment, high level of readiness andgood organisation, manufacturing capacities have realised a successfulproduction, and they meet requirements of both local and internationalsale at every moment.Bosnalijek production capacities, in which almost all pharmaceuticalforms of medications are manufactured, were built in accordance withIn year 2006, we manufactured 18.534.165 unit packs of our products,what is an increase of 30.39% in relation to previous year.most modern GMP requirements and they represent very reliable foundationfor planning and forming the market and marketing strategy.FIZIČKI OBIM PROIZVODNJEPharmaceutical presentationUnit of measureMANUFACTURED MANUFACTURED2006 2005INDEX2006/2005Pharmaceutical productionAmpoulesVialsDropsCapsulesTabletsCoated tabletsOintments, gels, creamsSyrups, suspensions, lotionsOvulesNon-pharmaceutical productionDisinfectantsEmulsionspiecespiecespiecespiecespiecespieceskilogramslitrespieceslitreslitres3.358.130211.76669.23045.730.926231.193.47241.396.02517.952224.661215.50583.0442.0994.166.390265.67468.74443.603.364185.869.99935.868.73015.944176.941187.10581.2454.18980,6079,71100,71104,88124,38115,41112,59126,97115,18102,2150,1130 ANNUAL REPORT 06 PRODUCTION AND QUALITY CONTROL

As a part of new Bosnalijek Production-Distribution Centre, a new facilityfor preparing and weighing raw-materials, preparing granulates andwashing equipment and containers has started operating in year 2006.This modern production facility has, with introduction of SAP system,enabled further informatisations of production, automation, manipulationsof material and increase of production batches, what as a goal hasgreater productivity and more optimal servicing of the sale.Transfer of 10 products to new production equipment was successfullyrealised in year 2006, what means that size of particle is 2-3 timesgreater, and manufacturing time is significantly reduced (cleaning,sampling, control of semi-finished products).Bosnalijek quality system, and especially quality control are support toproduction and guarantee of quality and safety of products andprocesses.Quality control, with modernly equipped laboratories, organised inaccordance with requirements of Good Laboratory Practice hascompletely followed requirements for control of starting materials, allphases of production process and complete final analysis of finishedproducts according to the strictest pharmacopoeial requirements.At the same time, a great attention was paid to constant professionaladvancement of the employees, provision of most modern analyticalequipment and advancement of analytical methods.In year 2006, we manufactured 18.534.165 unit packs of our products,what is an increase of 30.39% in relation to previous year.serving Your health PRODUCTION AND QUALITY CONTROL ANNUAL REPORT 06 31

DEVELOPMENT OF NEW PRODUCTS AND REGISTRATIONSLong-term development strategy and development of new productsrepresent foundations of Bosnalijek long-term competitiveness at globalpharmaceutical market and the main support of its future businesssuccesses.Development activities include development of new technologies formanufacture of new medicines, development of new pharmaceuticalforms, as well as development and implementation of all the necessarytests in accordance with the strictest pharmaceutical standards thatenable medicines' registration.A significant support to development of new products and makingproduct portfolio that meets all the modern pharmaceutical-therapeuticrequirements, is definitely a modern Development Centre built two yearsago, which provides conditions for even more dynamic and successfuladvancement in this area of Bosnalijek business, by its construction(cGMP and GLP) and modern equipment.In order to have a more efficient management and monitoring of newproducts, implementation of information system SAP was continued in2006, through realisation of phase II that involves a new application of PS(Project System) focused on a project approach to monitoring of newproducts development.In addition to mentioned investments into material basis, developmentand registration of medicines in the pharmaceutical industry requireskilful, highly professional, innovative and motivated staff, into whosedevelopment Bosnalijek continuously allocates significant funds.Besides 11 employees with different scientific professions in this field,another 17 people from Bosnalijek are currently on their further advancement,of which 3 are on doctoral study in Basel University, 11 on MAdegree, and 3 on specialised advanced training.Realisation of agreed long-term cooperation of Bosnalijek with Institutefor Pharmaceutical Technology – Pharma-Centre, University in Basel, wassuccessfully continued in the field of exchange of personnel, so thatstudents from Basel carried out practical works in laboratories of BosnalijekDevelopment Centre in year 2006 as well.Total number of 43 products were in various phases of development in2006, where development of our own technology was started for 5 ofthem, and registration activities have been started for 15, while „site tosite“ transfer of technology was realised for 5 products.Final result of all development activities was registration of products inthe country and abroad.NEW PRODUCTS IN 2006 - FIRST REGISTRATIONS:ANGINAL® (izosorbide mononitrate), tablets 20 mgANGINAL® (izosorbide mononitrate), retard tablets 40 mgANGINAL® (izosorbide mononitrate), retard tablets 60 mgAZOMEX® (azithromycin), tablets 500 mgAZOMEX® (azithromycin), suspension 200mg/5mlAZOMEX® (azithromycin), bags 250 mgBOLDOL® (tramadol), drops 100mg/1ml32 ANNUAL REPORT 06 DEVELOPMENT OF NEW PRODUCTS AND REGISTRATIONS

Registrations in Bosnia and HerzegovinaIn year 2006, Bosnalijek got first marketing authorisation approvals inBiH for 26 products, namely:• First registrations of 14 new products in the Federation of BiH, of which9 are on the basis of three new generic names (azithromycin, loratadineand izosorbide mononitrate), and 5 of them are new pharmaceuticalforms and unit doses of the existing generics;• There were first registrations of 12 products in RS (8 new genericnames), which have previously been registered in the Federation of BiH.Registrations abroadIn accordance with development of products portfolio, activities onproducts registrations were continued in 2006, in accordance withestimated needs of each individual market.In year 2006, Bosnalijek obtained 35 new registration certificates in 8countries, renewed registration for 15 products and applied for firstregistrations of 47 products in 7 countries, thus having 236 active marketingauthorisation approvals for selling its products abroad in end of year.Post-marketing clinical trials represent a significant support to registrationactivities abroad, and more successful marketing of Bosnalijekmedications. In year 2006, multi-centre trial of administering Bosnalijekleading product Lopril®H tablets intended to patients having essentialhypertension, was successfully finalised. The trial was conducted in 12clinical centres in five countries (Bosnia and Herzegovina, Montenegro,Serbia, Ukraine and Moldova) with participation of 300 patients and 50physicians of different specialties. A formed database, with 60.000 detailson Lopril®H tablets and therapies in which this medicine was used, wasstatistically processed in licensed programme for medicinal trials, and allresults were processed and presented in the final study.A very positive effect of Lopril®H on the quality of life of patients thatadminister it, was proven in trials, as well as numerous possibilities wereopened for new marketing and more successful bringing close this drugto patients and physicians.NEW PRODUCTS IN 2006 - FIRST REGISTRATIONS:LIDOKAIN (lidocaine), injection 1% 3,5 mlLOSTOP® (loratadine), tablets 10 mgLOSTOP® (loratadine), syrup 5mg/5mlLOSTOP® (loratadine), suspension 5mg/5mlPILFUD® (minoxidil), lotion 5%RANIBOS® (ranitidine), film-coated tablets 75 mgULCOSAN® (omeprazole), capsules 40 mgserving Your health DEVELOPMENT OF NEW PRODUCTS AND REGISTRATIONS ANNUAL REPORT 06 33

QUALITY ASSURANCEQuality system that Bosnalijek builds on observing highest worldstandards in the pharmaceutical industry, high level of responsibility,continuous checking and verification of processes and procedures,represents a basis on which trust of its customers and business partners isbased.Bosnalijek strategic decision to implement international ISO standardshas also meant acceptance of the process approach to management, or itsclassification into those companies that base its system of qualitymanagement on identification of processes, their market linkage andtheir monitoring.Constant improvements arising from implementation of pharmaceuticaland other standards and commitment to quality, represent a driving forceof continuous improvement and advancement of integral quality systemin all areas of business, what Bosnalijek confirms by its regular annualsupervision of the system and recertification audit (re-certification) doneby certifying company BVQI London from United Kingdom.Managing system of quality and its improvement include all the employees,what means that every individual is obliged to consistently applyelements of the defined quality at their work position and within theireveryday tasks.Clearly defined policies of quality and integrated system of managementwas described in document Manual for managing quality, environmentand healthcare and safety, as a confirmation that Bosnalijek hasestablished, documented, implements and maintains system of qualitymanagement, environment management and healthcare and safety inaccordance with cGMP requirements and standards ISO 9001:2000(quality), ISO 14001:2004 (environment management) and OHSAS18001:1999 (healthcare and safety), that it continuously checks andimproves its efficacy.Quality system ensures education of all employees, and permanentinternal inspections are therefore in focus of Bosnalijek activities,education on elements of the system and GMP education for the purposeof further development of their capabilities, adopting new knowledgeand developing abilities for consistent implementation of the qualitysystem at all levels.34 ANNUAL REPORT 06 QUALITY ASSURANCE

Responsibility towards environmentAs a special segment of long-term business strategy, a system of environmentprotection, is built into Bosnalijek quality system, as defined inBosnalijek Environmental guidelines.Principles on which we build relation towards environment are based onawareness on influence of our activities on the environment, continuousimprovement in our everyday working practice, economy of usingresources, cooperation with other subjects on keeping environment, aswell as transparency of our activities and communication with environment.Bosnalijek system of protecting environment implies obeying legalregulations, documenting all procedures, monitoring and reporting, andit was confirmed by certification of the Company in accordance withstandard ISO 14001:2004.With performing its basic activity, Bosnalijek influences on employees ina sense that environment protection in local and wider natural surroundingrequires an active relation and accepting obligations for environmentprotection. We conduct legal monitoring of influence of Bosnalijekactivities on environment (air, water, emission, imission, noise) and weconduct and control the disposal and destruction of waste.Our further activities are directed at modern technologies and equipmentthat lower emissions into environment, care for rational usage of waterand energents, separating and purifying waste waters, as well aseducation of employees and developing awareness on the need forconstant care for the environment.Bosnalijek aims on protecting environment are long-term and theirrealisation requires continuous activities, with professional personneland significant investments, because of which we define environmentaims and projects in annual plans, with whose realisation we performconstant improvements on protecting the environment.serving Your health QUALITY ASSURANCE ANNUAL REPORT 06 35

QUALITY POLICYOur quality policy is that we meet all requirements, needs and expectationsof our customers and shareholders. It is our aim to make andmaintain image of a successful and reliable company; penetrate intonew markets and improve quality of life with our products.We shall realise the following:Our quality policy is that we meet all requirements, needs and expecta-Observing GMP guidelines and implementing highest standards thatManagers' decision at all levels for a continuous improvement of theWe in Bosnalijek are aware of the influence of products and services ontions of our customers and shareholders. It is our aim to make andguarantee the quality of product and protection of human environment;quality;environment, and therefore, we shall act according to Company Environ-maintain image of a successful and reliable company; penetrate into newContinuous improvement of the quality in all business processes;Including vendors into our quality system and developing partnermental guidelines.markets and improve quality of life with our products.Permanent education of all employees;relations.We shall satisfy needs and expectations of customers by giving appropri-Implementing state-of-the art technological solutions;ate place to quality and by continuous work of implementing QualityPolicy.serving Your health36 ANNUAL REPORT 06 QUALITY POLICYQUALITY POLICY ANNUAL REPORT 06 37

ENVIRONMENT GUIDELINES OFBOSNALIJEK COMPANYWe are aware of environmental influence of our activitiesWe understand that we can accomplish our business goals if weobserve environmental standards defined by the society.Bosnalijek is aware that the main influences of its products andservices on the environment are through their life cycle. Theemployees understand their responsibility and take into considerationenvironmental problems during work.Dejćići-BjelašnicaWe constantly improve our work practiceWe economically use resourcesWe support collaboration on problems of environment protectionWe are open in our activitiesInvestments into technology, training and improving work practice areNatural resources, raw-materials and energy are frigally used in allThe company strives to ensure that the whole chain of supply meetsThe Company communicates in open manner and freely with regard to itsbased on experiences of various interest groups and on companyaspects of company processes. We shall gradually improve protection ofstandards of clearly determined quality. Out of that reason, it supportsaims, activities and influence related to influence on the environment. Aprocedures of systemic mentoring. Environmental influence monitoring isenvironment and reduce production of waste inside the company; wesuppliers and partners in development of their procedures to meet highconstructive, permanent dialogue is kept with key sides, and thereduced by using the best available technological solutions and acceptingshall develop recycling procedures and in any case strive for a safeenvironment standards used by Bosnalijek itself.company contributes to and supports development of environmentlegal and official requirements as a minimum standard that thosemethod of disposing unused waste, in order to avoid long-term negativeprotection by its active practice.procedures satisfy.influence on the environment. We shall continue development of lowemittingtechnologies, with increasing the usage of renewed energysources at the same time.serving Your health38 ANNUAL REPORT 06 ENVIRONMENT GUIDELINES OF BOSNALIJEK COMPANYENVIRONMENT GUIDELINES OF BOSNALIJEK COMPANY ANNUAL REPORT 06 39

POLICY OF HEALTHAND SAFETY PROTECTIONBosnalijek is determined in keeping and improvingprotection at work, protecting health of employees,protection from fire, and protection of facilities,plants and premisesThe aim of programme for increasing safety withcontinuous improvement is to ensure classification ofBosnalijek as a low-risk company.Prokoško jezero-Vranica• System of managing health and safety is an integral part of total• In order to implement this policy, Bosnalijek ensures funds appropriate• Periodical checking of the System for Protection of Health and SafetyIn order to implement concrete measures, Bosnalijek puts efforts intobusiness process, which enables preventing of losses induced byto the level of danger, with obeying legal, technical, financial and otherand appraisal of its harmonisation with the Policy is done withinactive participation of all its employees in development and improve-employees' injuries, professional illnesses, as well as other diseasesrequirements;re-examination of the system for quality and environment management;ment of the system for managing health and safety, and that theyrelated to work and property damage,• Aims of protecting health and safety are published in Bosnalijek• A planned implementation of training of all employees significantlydemonstrate in their scope of work acceptance of the system, by fulfilling• A high level of protection is based on observing relevant legal and othermagazine Info, in order to inform all the employees and interestedcontributes to development of awareness and making safe workingall its obligations in a safe manner.requirements, and it is at the same time improved via constant improve-parties, as well as ensure their inclusion into implementation of thisconditions and environment;ment of efficacy of the system for safety and health protection;policy in the practice;• Quality and care for environment, health protection and safety is• Realising of aims, as well as running and maintaining the entire system,obligation of the management and each employee.are responsibilities of heads from all levels;serving Your health40 ANNUAL REPORT 06 POLICY OF HEALTH AND SAFETY PROTECTIONPOLICY OF HEALTH AND SAFETY PROTECTION ANNUAL REPORT 06 41

HUMAN RESOURCESBiggest value of Bosnalijek are its employees, and that is why developmentof human resources is in its special focus, where creativity isespecially stimulated, as well as innovativity, and dynamism, and thespecial attention is paid to professional and responsible performance oftasks.Support to development of human potentials is also offered by corporationculture, by focusing on team work and coordinating professional andpersonal development of each individual.High goals are placed before employees, and their knowledge is built intoprocesses and highly-qualitative products, on which Bosnalijek positioningis founded among leading companies in the country, and a competitiveposition at local and export markets.Satisfaction of our employees is a category of equal significance as thesatisfaction of our customers, partners and wider public opinion. Bosnalijekbuilds satisfaction of its personnel through providing conditions forefficient performing of the work process and performing individual tasks,system of wages and awards, care for health of the employed, developmentof communications between managers at all levels and the employees,as well as strengthening the feeling of belonging to the Companythrough supporting various forms of mutual activities and gatherings.Accompanied with participating of Trade Union organisation, recreationalprogrammes, taking part in sports games of pharmaceutical companiesof the region are organised, as well as attending cultural and sportsmanifestations in the country. There is a mountaineering association„Bosnalijek“ inside the company, acting as a part of Mountaineering-Skiing Association „Runolist“, and it has more than 70 members.Commitment to the mutual goal is cherished in Bosnalijek, motivation isstimulated and total satisfaction of the staff is established. Public surveysconfirm that Bosnalijek is a company with many advantages and a gainedreputation in the social surrounding, desirable for recruiting youngprofessionals, which ranked Bosnalijek among 10 most desired employersin Bosnia and Herzegovina.42 ANNUAL REPORT 06 HUMAN RESOURCES

2% SEMI-QUALIFIED WORKERS14% QUALIFIED WORKERS4% HIGHLY QUALIFIED WORKERS25% SECOND SCHOOL GRADUATES10% NON-QUALIFIED WORKERS43% UNIVERSITY DEGREE2% TWO-YEAR COLLEGEEDUCATIONAL STRUCTUREOF EMPLOYEES IN THE ENDOF YEAR 2006Satisfaction of our employees is also reflected through duration of one'swork period, which is indicated in regular annual rewards for 25 years ofworking in the Company. All the employees took part in celebrating ajubilee of 55 years of existence and work of Bosnalijek, and 21 personsreceived a recognition for 25-year long work in the Company on thatoccasion.In the end of year 2006, Bosnalijek had 581 employees, or 45 personsmore than in previous year.Of total number of employees, 43% has university qualifications, while 46employees are currently at further advanced training and gatheringscientific knowledge at high-education institutions in Bosnia andHerzegovina and abroad (3 doctoral studies, 12 specialisations, and 31post-graduate studies).Being aware of a significance of personnel and their knowledge and skillsfor further development of the Company, Bosnalijek continuously andefficiently realises numerous activities in the field of education andadvanced training of the employees.In this way, 9570 working hours were spent in 2006 on mastering newknowledge and skills – especially in the field of professional jobs,managing and leading, quality and marketing, or 16.5 hours per anemployee, with financial investments of 700.000 KM.In year 2006, Bosnalijek continued support to project of Institute forRecruitment of Sarajevo Canton, with the aim of recruiting beginningemployees and provided conditions for performing their internship for 13young highly-educated persons, and gave scholarships to 151 studentsand 23 pupils of secondary schools.Totally 9570 hours or average of 16.5 hours/employee were spent in 2006for all forms of trainings and advanced trainings in all areas of our business.serving Your health HUMAN RESOURCES ANNUAL REPORT 06 43

SOCIAL RESPONSIBILITYThrough managing its business processes, Bosnalijek endeavours toprovide positive influences on the society and develops partner relationswith local and wider social community by realising positive businessresults, fulfilling legal regulations and obligations towards the society,implementing established standards through the system of quality,rational usage of natural and other resources and a responsible relationtowards environment protection.With realisation of numerous activities within our social responsibility,Bosnalijek is ranked into those successful Bosnia-Herzegovina companiesthat facilitate various social activities and actions in many ways, primarilythrough donations, and that are directed in accordance with its missionand vision into those activities focused on the care for health and morequalitative life.Bosnalijek directs its donations and sponsorships in accordance with itssponsorship policy, primarily into support to humanitarian actions,professional and educational institutions, activities of citizens' associations,cultural and sports activities, with participation in actions ofhumanitarian help in countries affected by natural or other disasters.In year 2006, our donations were directed towards institutions andorganisations caring for the sick, elderly and disabled, who mostly needhelp (Institution for Mentally Disabled Persons in Fojnica, Red Cross ofTuzla Canton, Association of Students of Medicine for Returnees in Palemunicipality, House for Care of the Old Persons in Sarajevo, Returnees intoVišegrad municipality, Humanitarian out-patient clinic „Sveti apostolLuka“ in Banja luka and others).44 ANNUAL REPORT 06 SOCIAL RESPONSIBILITY

We are proud of our SOS family in „Lamb“ house in Children's Village inSarajevo, Bosnalijek has been taking care of for already six years. Bosnalijekhas built a friendly and caring long-lasting relation with this family,which goes beyond a classical sponsorship, and good results in the school,as well as health and complete development of seven children from thisfamily are a reward for us, the city, and society at whole.Bosnalijek stimulates knowledge and realises a successful cooperationwith Pharmaceutical Faculty in Sarajevo and Medicine Faculties in BiH,and it has a cooperation with Medicinal High School in Sarajevo throughrealising practical teaching for pupils.In conditions of restricted funds of high-education institutions andmedicinal institutions, Bosnalijek helps producing of scientific papers fordoctors, specialists and students of medicine for their participation andpresenting scientific papers at international congresses and inprofessional magazines. We sponsored many professional gatherings,symposia and congresses of doctors and pharmacists in Sarajevo, Tuzla,Banja luka, Travnik, Neum, Teslić, Fojnica and other cities throughoutBosnia and Herzegovina.Being aware of significance of influence of culture and sports on thequality of life, we decided long time ago to offer help and presentsignificant achievements of Bosnia-Herzegovina cultural events and offerassistance to sports organisations gathering young people. In that sense,Bosnalijek continued a long-term cooperation with National Theatre inSarajevo, sponsored International Theatre Festival MESS, and as proposedby Centre for Modern Art, we sponsored production of a short feature film„What Do I Know About Love“ made by two young authors.serving Your health SOCIAL RESPONSIBILITY ANNUAL REPORT 06 45

We are proud of our SOS family in „Lamb“ house inChildren's Village in Sarajevo, Bosnalijek has been takingcare of for already six years. Bosnalijek has built a friendlyand caring long-lasting relation with this family, whichgoes beyond a classical sponsorship, and good results in theschool, as well as health and complete development ofseven children from this family are a reward for us, the city,and society at whole.In addition to other sports organisations in the field of sports in 2006, weBosnalijek approaches in a very responsible manner the selection andenthusiasm and professional relation contribute to improvement ofBosnalijek received many letters of thanks for such activities, as well assponsored two special categories of sportsmen: Association for deaf andmethod of helping numerous requirements, and tries to satisfy the mostconditions for acting or realisation of well planned activities that meanrecognitions that convince us that it is necessary to still build and improvehard-of-hearing sportsmen of Sarajevo Canton „Mladost“ and Sportendangered categories and those whose activity,improvement of quality of life in limited conditions of insufficientour policy of social responsibility in order to have a better world around us.association of invalids „SPID“, whose sportsmen have been accomplishingstrength of a wider social community.top world results for years.serving Your health46 ANNUAL REPORT 06 SOCIAL RESPONSIBILITYSOCIAL RESPONSIBILITY ANNUAL REPORT 06 47

ORGANISATION SCHEMEMANAGEMENTCHIEF EXECUTIVE OFFICEREXECUTIVE DIRECTOR FORMARKETING AND SALEEXECUTIVE DIRECTOR FORFINANCES ANDBUSINESS ECONMICSEXECUTIVE DIRECTORFOR PRODUCTIONMANAGEMENTEXECUTIVE DIRECTORFOR BUSINESS DEVELOPMENTCOMPANY SECRETARYDomestic marketingand saleFinancesPharmaceuticalproductionDevelopmentQuality Management andEnvironment ManagementLegal DepartmentInternational marketingand saleIT DepartmentMaterials ManagementMedical DepartmentHuman ResourcesGeneral ServicesStrategic marketingQuality ControlPublic RelationsQualified Person for drugrelease into saleInternal Audit andrelations with investors48 ANNUAL REPORT 06 ORGANISATION SCHEME

REPORT OF AUDITING BOARD FOR YEAR 2006Bosnalijek d.d. Auditing Board has continuously monitoredfinancial operations of Bosnalijek d.d. through report on businessoperations on semi-annual and annual statement, and also report of anindependent external auditor on revision of financial reports, done byauditing company Deloitte d.o.o. from Sarajevo.External auditor's report on auditing financial statementswith status on day 31.12.2006 has confirmed that presented financialstatement of Bosnalijek d.d. objectively and realistically showed, in allmaterial points, the financial position of Bosnalijek d.d. on 31.12.2006,results of the business operations, as well as changes in monetary flowsand share capital for year 2006. Additionally, external auditor hasdetermined that financial reports of Bosnalijek d.d. are made inaccordance with International Standards on Financial Reportingpublished by International Federation of Accountants and Law onAccounting of Federation of Bosnia and Herzegovina. In accordance withabove-mentioned regulations, a correction of mistake was made in finalcalculation for year 2004 and 2005, in the sense of consistent implementationof MRS 19 – Wages of employees as well as recognising calculatedbonus in accordance with Framework for Composing and Presenting,what is described in point 2, page 8 of the auditing report.In year 2006, Bosnalijek d.d. realised net income of7,836.711,89 KM, what is greater by 186 000 KM in relation to net incomerealised in 2005, or by 2.43%. Earning per a share amounts to 1.3, just likein 2005.In year 2006, Bosnalijek d.d. shareholders having less than10% ordinary shares did not, pursuant to article 70, paragraph 3 ofBosnalijek d.d. Statute, submit to Auditing Board the request forperformance of audit of 6-month and annual statement or audit offinancial operations of Bosnalijek d.d.Auditing Board(signed by):Sead Sarvan, PresidentRabija Avduli, MemberIbrahim Imamović, MemberIn Sarajevo, 29.03.2007serving Your health REPORT OF AUDITING BOARD FOR YEAR 2006 ANNUAL REPORT 06 49

200651525354555657Responsibility for the Financial StatementsIndependent auditor’s reportStatement of incomeBalance sheetStatement of changes in shareholders’ equityStatement of cash flowsNotes to financial statementsBOSNALIJEK d.d. SARAJEVOFinancial statements for the year ended 31 December 2006and independent auditor’s report50 ANNUAL REPORT 06 INDEPENDENT AUDITOR’S REPORT

RESPONSIBILITY FOR THE FINANCIAL STATEMENTSManagement is responsible for ensuring that the financial statements ofBosnalijek d.d. ( the “Company”) are prepared for each financial year inaccordance with International Financial Reporting Standards (IFRS) aspublished by the International Accounting Standards Board (IASB), whichgive a true and fair view of the state of affairs and results of the Companyfor that period.After making enquiries, Management has a reasonable expectation thatthe Company has adequate resources to continue in operational existencefor the foreseeable future. For this reason, Management continues toadopt the going concern basis in preparing the financial statements.In preparing those financial statements, the responsibilities of Managementinclude ensuring that:• suitable accounting policies are selected and then applied consistently;• judgments and estimates are reasonable and prudent;• applicable accounting standards are followed, subject to any materialdepartures disclosed and explained in the financial statements; and• the financial statements are prepared on the going concern basis unlessit is inappropriate to presume that the company will continue in business.Management is responsible for keeping proper accounting records, whichdisclose with reasonable accuracy at any time, the financial position ofthe Company. Management must also ensure that the financialstatements comply with the Accounting Law of the Feredation of Bosniaand Herzegovina. Management is also responsible for safeguarding theassets of the Company, and hence, for taking reasonable steps for theprevention and detection of fraud and other irregularities.Signed on behalf of ManagementEdin Arslanagić, DirectorBosnalijek d.d.Jukićeva 5371 000 SarajevoBosnia and Herzegovina23 February 2007serving Your health RESPONSIBILITY FOR THE FINANCIAL STATEMENTS ANNUAL REPORT 06 51

INDEPENDENT AUDITOR’S REPORTTo the Shareholders of Bosnalijek d.d. :We have audited the accompanying financial statements of Bosnalijek d.d.Sarajevo ('the Company'), set out on pages 4 to 24, which comprise thebalance sheet as at 31 December 2006, and the income statement,statement of changes in equity and cash flow statement for the year thenended, and a summary of significant accounting policies and other explanatorynotes.Management’s Responsibility for the Financial StatementsManagement is responsible for the preparation and fair presentation ofthese financial statements in accordance with International FinancialReporting Standards. This responsibility includes: designing, implementingand maintaining internal control relevant to the preparation and fairpresentation of financial statements that are free from material misstatement,whether due to fraud or error; selecting and applying appropriateaccounting policies; and making accounting estimates that are reasonablein the circumstances.Auditor’s ResponsibilityOur responsibility is to express an opinion on these financial statementsbased on our audit. We conducted our audit in accordance with InternationalStandards on Auditing. Those standards require that we comply withethical requirements and plan and perform the audit to obtain reasonableassurance whether the financial statements are free from materialmisstatement.An audit involves performing procedures to obtain audit evidence about theamounts and disclosures in the financial statements The proceduresselected depend on the auditor’s judgment, including the assessment of therisks of material misstatement of the financial statements, whether due tofraud or error. In making those risk assessments, the auditor considersinternal control relevant to the Company’s preparation and fair presentationof the financial statements in order to design audit procedures that areappropriate in the circumstances, but not for the purpose of expressing anopinion on the effectiveness of the Company’s internal control. An audit alsoincludes evaluating the appropriateness of accounting policies used and thereasonableness of accounting estimates made by Management, as well asevaluating the overall presentation of the financial statements.We believe that the audit evidence we have obtained is sufficient andappropriate to provide a basis for our audit opinion.OpinionIn our opinion, the financial statements present fairly, in all materialrespects, the financial position of the Company as of 31 December 2006,and the results of its operations and its cash flows for the year then ended inaccordance with International Financial Reporting Standards.Emphasis of MatterWithout qualifying our opinion, we draw attention to Note 25, whichdescribes the situations related to the Company’s noncompliance with theLoan Agreement between the Company and IFC dated 9 June 2005 (the"Third Loan Agreement").Deloitte d.o.o.Sarajevo, Bosnia and Herzegovina23 February 200752 ANNUAL REPORT 06 INDEPENDENT AUDITOR’S REPORT

Bosnalijek d.d.Statement of income for the year ended 31 December 2006(All amounts are expressed in thousands of KM)NOTE2006.2005.(RESTATED)RevenueCost of salesGross profitSelling, administrative and general expensesOther operating incomeOther operating expensesProfit from operationsInterest incomeInterest expensesIFC put option expenseForeign exchange, (losses), netProfit before taxIncome tax expenseNet profit for the yearEarnings per share456782291084.532(33.536)50.996(38.498)1.951(2.246)12.2037(2.351)(1.678)(180)8.001(164)7.8370,001382.210(32.244)49.966(35.297)1.918(5.759)10.8288(1.518)(1.405)(262)7.651-7.6510,0013The accompanying notes form an integral part of these financial statements.serving Your health INDEPENDENT AUDITOR’S REPORT ANNUAL REPORT 06 53

Bosnalijek d.d.Balance sheet as at 31 December 2006(All amounts are expressed in thousands of KM)NOTE2006.2005.(RESTATED)ASSETSNon-current assetsProperty, plant and equipmentIntangible assetsNon-current receivablesCurrent assetsCurrent portion of non-current receivablesInventoriesTrade receivablesOther receivablesCash and cash equivalentsTOTAL ASSETSEQUITY AND LIABILITIESEquity and ReservesShare capitalReservesRetained earningsNon-current liabilitiesLong-term loansObligations under finance leasesProvisions for retirement benefitsDeferred tax liabilitiesDeferred incomeCurrent liabilitiesCurrent portion of long-term loansCurrent portion of obligations under finance leasesTrade payablesShort-term loansOther payablesTOTAL EQUITY AND LIABILITIES1112131314151617181920921192022232494.3463.5051.29399.14440617.31531.0423.4732.23354.469153.61351.11623.15017.48391.74915.9573947016411716.7476.647239.96923.5894.88945.117153.61395.9442.80190799.65244715.43225.9302.3511.69445.854145.50651.11616.33316.46383.91213.67143510-16314.3876.6652811.78523.7934.93647.207145.506The accompanying notes form an integral part of these financial statements.Signed on behalf of the Company on 23 February 2007Edin ArslanagićDirectorŠefik HandžićExecutive director for finance and economy54 ANNUAL REPORT 06 INDEPENDENT AUDITOR’S REPORT

Bosnalijek d.d.Statement of changes in equity for the year ended 31 December 2006(All amounts are expressed in thousands of KM)SHARE CAPITALRESERVESRETAINEDEARNINGSTOTALBalance at 31 December 2004 (as originally reported)Correction of an error (Note 2)Balance at 31 December 2004 (Restated)Transfer (from) / toNet profit for the year (Restated) (Note 2)Balance at 31 December 2005 (Restated)Transfer (from) / toNet profit for the yearBalance at 31 December 200651.116-51.116--51.116--51.11610.027-10.0276.306-16.3336.817-23.15016.361(1.243)15.118(6.306)7.65116.463(6.817)7.83717.48377.504(1.243)76.261-7.65183.912--91.749The accompanying notes form an integral part of these financial statements.serving Your health INDEPENDENT AUDITOR’S REPORT ANNUAL REPORT 06 55

Bosnalijek d.d.Statement of cash flows for the year ended 31 December 2006(All amounts are expressed in thousands of KM)Operating activitiesNet profit for the yearAdjustments for:Depreciation and amortizationLoss on disposal of property, plant and equipmentAdjustment of property, plant and equipmentWrite-off of raw materials and finished goodsIncrease in allowance for bad and doubtful trade receivablesDecrease in retirement benefitsIncrease in deferred incomeIncrease in deferred tax liabilitiesAdjustment for IFC convertible loan costDepreciation for donated equipmentAdjustment for cash flow form investing and financing activitiesCash flow before changes in operating assets and liabilities:Increase in non-current receivablesIncrease in inventoriesIncrease in trade receivables(Increase) decrease in other receivables(Decrease) increase in trade payables(Decrease) increase in other payablesCash flow from operating activitiesInterest paidIncome tax paidNet cash from operating activitiesInvesting activitiesPurchase of property, plant and equipmentPurchase of intangible assetsProceeds from disposal of property, plant and equipmentInterest receivedNet cash used in investing activitiesFinancing activities(Decrease) increase in obligations under finance leasesProceeds from long-term loans, net of repayments(Repayment of ) proceeds from short-term loansNet cash provided by financing activitiesNet increase in cash and cash equivalentsCash and cash equivalents at the beginning of the yearCash and cash equivalents at the end of the year2006.7.8379.0185142-178(40)21641.679(48)2.34421.227(345)(1.883)(5.290)(423)(1.816)(47)11.423(2.351)(699)8.373(6.613)(1.669)657(8.210)(9)2.268(1.883)3765391.6942.2332005.(RESTATED)7.6518.708349-2.178345(9)21-1.405(58)1.42322.013(361)(408)(1.390)77011.3918432.099(1.431)-30.668(43.752)(1.806)5888(44.962)716.8588.13515.0647709241.694The accompanying notes form an integral part of these financial statements.56 ANNUAL REPORT 06 INDEPENDENT AUDITOR’S REPORT

Bosnalijek d.d.Notes to financial statements for the year ended 31 December 2006(All amounts are expressed in thousands of KM)1. GENERAL2. CORRECTION OF AN ERRORBosnalijek d.d. (the "Company") is a joint-stock company incorporated inthe Federation of Bosnia and Herzegovina with the registered addressJukićeva 53, 71 000 Sarajevo. The Company is primarily engaged in theproduction and wholesale trade of pharmaceuticals, veterinary medicineproducts, disinfectants and similar products.As of 31 December 2006, the Company employed 581 employees (2005,536 employees).The Company has restated the financial statements for the years ended 31December 2005 and 2004 in order to correct an error related to therecognition of the provisions for the long- and short-term employeebenefits as required by International Accounting Standard 19 – Employeebenefits and recognition of the accruals for employee bonuses as requiredby the Framework for the Preparation and Presentation of FinancialStatements, Underlying assumptions - Accrual basis. Previously, theManagementSupervisory BoardHasan Muratović Ph DLjunora MavrićAbdul-Umid ŠalakaMidhad VehabovićRifat KlopićManagementEdin ArslanagićAkif MujezinLjiljana KamberovićŠefik HandžićAudit CommitteeSead SarvanIbrahim ImamovićRabija AvduliChairmanMemberMemberMemberMemberDirectorExecutive director for production managementExecutive director for operations developmentExecutive director for finance and economyChairmanMemberMemberCompany recorded the costs of retirement severance payments andemployee bonuses when they became due and were paid to the employees.As a result of the above, as at 31 December 2005 and 2004, retainedearnings have decreased by KM 1,295 thousand and KM 1,243 thousandrespectively. In addition, as at 31 December 2005 and 2004, provisions forretirement benefits have increased by KM 510 thousand and KM 519thousand, and accruals for employee bonuses have decreased by KM 39thousand and increased by KM 724 thousand, respectively, whereas netresult for the year ended 31 December 2005 has increased by KM 48thousand.serving Your health INDEPENDENT AUDITOR’S REPORT ANNUAL REPORT 06 57

Bosnalijek d.d.Notes to financial statements for the year ended 31 December 2006(All amounts are expressed in thousands of KM)3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESThe financial statements have been prepared in accordance with InternationalFinancial Reporting Standards (‘IFRS’), as published by the InternationalAccounting Standards Board. The financial statements have beenprepared on the historical cost basis, except for the revaluation of certainfinancial instruments. The financial statements are presented in Convertiblemarks since that is the functional currency of the Company. TheConvertible mark (KM) is officially tied to the Euro (EUR 1 = KM 1.95583).The preparation of financial statements in conformity with IFRS requiresmanagement to make estimates and assumptions that effect the reportedamounts of assets and liabilities and disclosure of contingent assets andliabilities at the date of the financial statements and their reportedamounts of revenues and expenses during the reporting period. Theseestimates are based on the information available as at the date of theconsolidated financial statements and actual results could differ fromthose estimates.Certain amounts in the previous year financial statements have beenreclassified to conform to the current year presentation.3.1. Adoption of new and revised standardsIn the current year, the Company has adopted all of the new and revisedStandards and Interpretations issued by the International AccountingStandards Board (the IASB) and the International Financial ReportingInterpretations Committee (the IFRIC) of the IASB that are relevant to itsoperations and effective for annual reporting periods beginning on 1January 2006. The adoption of these new and revised Standards andInterpretations has not resulted in changes to the Company’s accountingpolicies.At the date of authorization of these financial statements, the followingStandard, relevant for the Company’s financial statements, was in issuebut not yet effective and not:• IFRS 7 Financial Instruments: Disclosures and complementaryamendments to IAS 1 Presentation of Financial Statements - Effective forannual periods beginning on or after 1 January 2007.At the date of authorization of these financial statements, the followingStandard and Interpretations were in issue but not yet effective and notrelevant for the Company’s financial statements:• IFRS 8 Operating Segments - Effective for annual periods beginning onor after 1 January 2009;• IFRIC 7 Applying the Restatement Approach under IAS 29, FinancialReporting in Hyperinflationary Economies - Effective for annual periodsbeginning on or after 1 March 2006;• IFRIC 8 Scope of IFRS 2 - Effective for annual periods beginning on orafter 1 May 2006;• IFRIC 9 Reassessment of Embedded Derivatives - Effective for annualperiods beginning on or after 1 June 2006;• IFRIC 10 Interim Financial Reporting and Impairment - Effective forannual periods beginning on or after 1 November 2006;• IFRIC 11 IFRS 2 Group and Treasury Share Transaction - Effective forannual periods beginning on or after 1 March 2007;• IFRIC 12 Service Concession Arrangements - Effective for annual periodsbeginning on or after 1 January 2008.The directors anticipate that the adoption of these Standards andInterpretations in future periods will have no material financial impact onthe financial statements of the Company.58 ANNUAL REPORT 06 INDEPENDENT AUDITOR’S REPORT

Bosnalijek d.d.Notes to financial statements for the year ended 31 December 2006(All amounts are expressed in thousands of KM)Revenue recognitionSales of goods are recognised when goods are delivered and title haspassed to the customer. Sales of services are recognized net of sales taxesand discounts when the services have been provided. Interest income isaccrued on a timely basis, by reference to the principal outstanding and atthe effective interest rate applicable.Foreign currenciesTransactions in currencies other than KM are initially recorded at the ratesof exchange prevailing on the date of the transactions. Monetary assetsand liabilities denominated in such currencies are retranslated at therates ruling on the balance sheet date. Foreign exchange profits andlosses arising on exchange are included in net profit or loss for the period.Borrowing costsBorrowing costs are charged to the statement of income in the periodincurred.LeasingLeases are classified as finance leases whenever the terms of the leasetransfer substantially all the risks and rewards of ownership to the lessee.All other leases are classified as operating leases.The Company as lesseeAssets held under finance leases are recognised as assets of the Companyat their fair value at the date of acquisition or, if lower, at the presentvalue of the minimum lease payments. The corresponding liability to thelessor is included in the balance sheet as a finance lease obligation. Leasepayments are apportioned between finance charges and reduction of thelease obligation so as to achieve a constant rate of interest on the remainingbalance of the liability. Finance charges are charged to the statementof income in the period incurred.Rentals payable under operating leases are charged to income on astraight-line basis over the term of the relevant lease.Employee benefitsOn behalf of its employees, the Company is paying pension and healthinsurance on and from salaries, which are calculated on the gross salarypaid, as well as taxes, which are calculated on the net salary paid. TheCompany is paying the above contributions into the Federal Pension andHealth Fund, as per the set legal rates during the course of the year on thegross salary paid. In addition, meal allowances, transport allowances andvacation bonuses are paid in accordance with the local legislation. Theseexpenses are recorded in the income statement in the period in which thesalary expense is incurred.Retirement severance paymentsAccording to the local legislation and internal Rulebook on employment,the Company makes retirement severance payments of minimum 4average monthly salaries of the employee in question or 4 averagesalaries paid in the Federation of Bosnia and Herzegovina in the periodpreceding the retirement date, according to the latest data published bythe Federal Bureau of Statistics, depending on what is more favorable tothe employee. The Company has no other defined post-retirement benefitplans for its employees or Management in Bosnia and Herzegovina.serving Your health INDEPENDENT AUDITOR’S REPORT ANNUAL REPORT 06 59

Bosnalijek d.d.Notes to financial statements for the year ended 31 December 2006(All amounts are expressed in thousands of KM)TaxationIncome tax expense represents the sum of the tax currently payable anddeferred tax.The tax currently payable is based on taxable profit for the year. Taxableprofit differs from net profit as reported in the income statement becauseit excludes items of income or expense that are never taxable ordeductible. The Company’s liability for current tax is calculated using taxrates that have been enacted or substantively enacted by the balancesheet date. Deferred tax is the tax expected to be payable or recoverableon differences between the carrying amount of assets and liabilities inthe financial statements and the corresponding tax basis used in thecomputation of taxable profit, and is accounted for using the balancesheet liability method. Deferred tax liabilities are generally recognizedfor all taxable temporary differences and deferred tax assets arerecognised to the extent that it is probable that taxable profits will beProperty, plant and equipmentProperty, plant and equipment are started at cost less accumulateddepreciation and any accumulated impairment losses. Cost includes thepurchase price and directly associated cost of bringing the asset to aworking condition for its intended use. Maintenance and repairs, replacementsand improvements of minor importance are expensed as incurred.Significant improvements and replacement of assets are capitalised.Gains or losses on the retirement or disposal of fixed assets are includedin the statement of income in the period they occur.Properties in the course of construction are carried at cost, lessimpairment loss, if any. Depreciation commences when the assets areready for their intended use. Depreciation is charged so as to write-off thecost or valuation of assets, other than land and properties underconstruction, over their estimated useful lives, using the straight-linemethod, on the following annual bases:available against which deductible temporary differences can be utilised.The carrying amount of deferred tax assets is reviewed at each balancesheet date and reduced to the extent that it is no longer probable thatsufficient taxable profit will be available to allow all or part of the asset tobe recovered.Deferred tax is calculated at the tax rates that are expected to apply in theperiod when the liability is settled or the asset realised. Deferred tax ischarged or credited in the income statement, except when it relates toitems charged or credited directly to equity, in which case the deferredtax is also dealt with in equity.2006. 2005.Buildings7 to 33 years 20 to 33 years(3% - 14.3%)(3%-5%)Machinery, equipment 3 to 15 years 3 to 7 yearsand software(6.7% - 33.3%) (14.3% - 33.3%)In 2006, the Company has reassessed the estimated useful lives for itsproperty, plant and equipment. The effect of this change on the currentand next year’s is a decrease in depreciation expense in the amount ofabout KM 2,343 thousand.Assets held under finance leases are depreciated over their expecteduseful life or, where shorter, the term of the relevant lease.60 ANNUAL REPORT 06 INDEPENDENT AUDITOR’S REPORT

Bosnalijek d.d.Notes to financial statements for the year ended 31 December 2006(All amounts are expressed in thousands of KM)Intangible assetsIntangible assets are measured initially at purchase cost and areamortised on a straight-line basis over their estimated useful lives.Cash and cash equivalentsCash and cash equivalents include demand accounts and fixed depositswith an original maturity of three months or less.Cash and cash equivalentsCash and cash equivalents include demand accounts and fixed depositswith an original maturity of three months or less.ImpairmentAt each balance sheet date, the Company reviews the carrying amounts ofits tangible assets to determine whether there is any indication thatthose assets have suffered an impairment loss. If any such indicationexists, the recoverable amount of the asset is estimated in order todetermine the extent of the impairment loss (if any). Where it is notpossible to estimate the recoverable amount of an individual asset, theCompany estimates the recoverable amount of the cash-generating unitto which the asset belongs.Recoverable amount is the greater of net selling price and value in use. Inassessing value in use, the estimated future cash flows are discounted totheir present value using a pre-tax discount rate that reflects currentmarket assessments of the time value of money and the risks specific tothe asset.If the recoverable amount of an asset (or cash-generating unit) isestimated to be less than its carrying amount, the carrying amount of theasset (cash-generating unit) is reduced to its recoverable amount.Impairment losses are recognized as an expense immediately, unless therelevant asset is land or buildings other than investment property carriedat a revalued amount, in which case the impairment loss is treated as arevaluation decrease.Where an impairment loss subsequently reverses, the carrying amount ofthe asset (cash-generating unit) is increased to the revised estimate of itsrecoverable amount, but so that the increased carrying amount does notexceed the carrying amount that would have been determined had noimpairment loss been recognized for the asset (cash-generating unit) inprior years. A reversal of an impairment loss is recognized as incomeimmediately, unless the relevant asset is carried at a revalued amount, inwhich case the reversal of the impairment loss is treated as a revaluationincrease.InventoriesInventories are stated at the lower of cost and net realisable value. Cost iscomprised of direct materials and, where applicable, direct labour costsand those overheads that have been incurred in bringing the inventoriesto their present location and condition. Cost is calculated using theweighted average method. Net realizable value represents the estimatedselling price less all estimated costs to completion and costs to beincurred in marketing, selling and distribution.serving Your health INDEPENDENT AUDITOR’S REPORT ANNUAL REPORT 06 61

Bosnalijek d.d.Notes to financial statements for the year ended 31 December 2006(All amounts are expressed in thousands of KM)ReservesFinancial liabilities and equityEquity reserves are formed in accordance with the local legislation byallocating at least 10% of annual net profit, up to 25% of share capital ofthe Company.Financial instrumentsFinancial assetsThe Company’s principal financial assets are cash and cash equivalents,trade receivables, other receivables and short-term loan receivables.Trade receivables, other receivables and short-term loan receivables arestated at their nominal value as reduced by appropriate allowances forestimated irrecoverable amounts.Financial liabilities are classified according to the substance of thecontractual arrangements entered into. Debt instruments issued whichcarry a right to convert to equity that is dependent on the outcome ofuncertainties beyond the control of both the Company and the holder areclassified as liabilities except where the possibility of non-conversion isremote.Significant financial liabilities include long-term loans, trade payables,short-term loans and other payables.Interest-bearing bank loans are recorded at the proceeds received, net ofdirect issue costs. Finance charges, including premiums payable onsettlement or redemption, are accounted for on an accrual basis and areadded to the carrying amount of the instrument to the extent they arenot settled in the period in which they arise.Trade and other payables are stated at their nominal value.62 ANNUAL REPORT 06 INDEPENDENT AUDITOR’S REPORT

Bosnalijek d.d.Notes to financial statements for the year ended 31 December 2006(All amounts are expressed in thousands of KM)4. REVENUE2006.Domestic sales67.554Foreign sales16.914Services rendered6484.5325. COST OF SALES2006.Raw materials15.510Merchandise8.395Production services6.754Employee expenses1.808Depreciation1.06933.5366. SELLING, ADMINISTRATIVE AND GENERAL EXPENSES2006.Employee expenses13.201Depreciation and amortisation7.949Marketing4.452Non-production services3.175Entertainment2.883Energy1.766Per diems and travel expenses1.416Bank fees445Insurance premium417Other expenses2.79438.4982005.71.13610.97010482.2102005.14.8619.1885.1141.2291.85232.2442005.(RESTATED)13.3406.8564.3072.2022.4041.1561.6497073192.35735.2977. OTHER OPERATING INCOME2006.2005.(RESTATED)Income from written off liabilties1.072-Collected trade receivables for whichallowance was made (Note 15)234300Donations (Note 21)4858Subsequently approved discounts from suppliers -340Income from investments*-920Other5973001.9511.918In 2006 the Company has recognized the income in the amount of KM1,072 in respect ot the lapsed liabilities towards former employees.* In 2005 income from investments in the amount of KM 911 thousandrelates to income from sale of appartment complex at Bjelašnica uponcompletion of construction works.8. OTHER OPERATING EXPENSES2006.2005.Donations and sponsorships738909Allowance for bad and doubtfultrade receivables (Note 15)448727Write-off of obsolete and unusable raw materials 2221.568Loss upon disposal of property, plant andequipment, net51349Write-off of finished goods and merchandise 34610Subsequently approved discounts to customers -670Other7539262.2465.759serving Your health INDEPENDENT AUDITOR’S REPORT ANNUAL REPORT 06 63

Bosnalijek d.d.Notes to financial statements for the year ended 31 December 2006(All amounts are expressed in thousands of KM)9. INCOME TAX EXPENSEProfit before taxNon-deductible expensesAdditional depreciation charge for the tax purposesTaxable incomeIncome tax at the rate of 30%Tax relief – 100% upon reinvestment of profit in property, plant and equipmentDeferred tax expenseTax expense for the yearEffective tax rate for the year (%)2006.8.001114(2.343)5.7721.732(1.732)1641642,04%2005.(RESTATED)7.6512.2739.9242.977(2.977)---Changes to deferred tax liability can be presented as follows:Balance at beginning of yearIncreaseBalance at the end of year-164164---In 2006, the Company has decreased its taxable income by KM 2,434thousand in respect of the temporary difference between annualdepreciation charge for 2006, using the depreciation rates based on theestimated useful lives of property, plant and equipment, anddeprecition charge using the maximum allowable depreciation rates forthe tax purposes. As a result the Company has recognized the deferred taxliability using effective tax rate of 7% that is expected to apply in theperiod whan the liabilitiy will be settled.10. EARNINGS PER SHARENet profit for the purposes of basic earnings per shareWeighted average number of ordinary sharesfor the purposes of basic earnings per shareEarnings per share2006.7.8375.843.2760,00132005.(RESTATED)7.6515.843.2760,001364 ANNUAL REPORT 06 INDEPENDENT AUDITOR’S REPORT

Bosnalijek d.d.Notes to financial statements for the year ended 31 December 2006(All amounts are expressed in thousands of KM)11. PROPERTY, PLANT AND EQUIPMENTCOSTAt 31 December 2005AdditionsDisposalsOtherTransfersAt 31 December 2006ACCUMULATED DEPRECIATIONAt 31 December 2005Charge for the yearElimination on disposalsAt 31 December 2006CARRYING AMOUNTAt 31 December 2006At 31 December 2005LAND2.323----2.323----2.3232.323BUILDINGS69.824-(45)-18.01087.78924.8633.082(17)27.92859.86144.961MACHINERYAND EQUIPMENT39.985-(1.072)-13.84952.76222.0984.492(1.019)25.57127.19117.887SOFTWARE1.306-(40)-1.8683.134995479(5)1.4691.665311ASSETS UNDERCONSTRUCTION30.1035.831-(42)(33.034)2.858----2.85830.103ADVANCESPAID359782--(693)448----448359TOTAL143.9006.613(1.157)(42)-149.31447.9568.053(1.041)53.96894.34695.944Included in machinery and equipment with a carrying amount of KM 103thousand (2005 - KM 135 thousand) in respect of assets held underfinance leases (Note 20).The Company has pledged land, buildings, machinery and equipment with acarrying amount of approximately KM 48,421 thousand (2005 – KM 41,723thousand) to secure loans granted by IFC Washington, CBS Bank d.d.Sarajevo, HVB Central Profit banka d.d. Sarajevo, Investicijska bankaFederacije BiH d.o.o. Sarajevo and Bosna Bank International d.d. Sarajevo.12. INTANGIBLE ASSETSCOSTAt 31 December 2005AdditionsTransfersAt 31 December 2006ACCUMULATED AMORTIZATIONAt 31 December 2005Charge for the yearAt 31 December 2006CARRYING AMOUNTAt 31 December 2006At 31 December 2005LICENSES1.434-3.7595.1937239651.6883.505711INTANGIBLESIN PROGRESS2.0901.669(3.759)-----2.090TOTAL3.5241.669-5.1937239651.6883.5052.801Intangibles in progress include KM 539 thousand in respect of purchasedknow how and transfer of technology for the development of the newproducts.serving Your health INDEPENDENT AUDITOR’S REPORT ANNUAL REPORT 06 65

Bosnalijek d.d.Notes to financial statements for the year ended 31 December 2006(All amounts are expressed in thousands of KM)13. NON-CURRENT RECEIVABLESDeposits with UPI bank d.d. Sarajevo, held as collateral for loansgranted to Company employees, maturing in 2018,bearing interest at the rate of 0.5% per annumReceivables for rescheduled payments, repayable in 24 monthly installmentsstarting from 1 December 2006, due on 30 November 2008, interest-freeReceivables from employeesReceivables from other individualsLess: Current portion of non-current receivables2006.87675054191.699(406)1.2932005.87643332131.354(447)90714. INVENTORIESFinished goodsRaw materialsWork-in-progress2006.8.6537.3521.31017.3152005.7.1985.3042.93015.432Inventories with a carrying amount of KM 4,428 thousand have beenpledged as security for revolvling short-term loan liabilities towardsBosnia Bank International d.d. Sarajevo (Note 23).15. TRADE RECEIVABLESTrade receivablesLess: allowance forimpairment of receivables2006.33.525(2.483)31.0422005.28.235(2.305)25.930Changes in the allowance for impairment of receivables can be presentedas follows:Balance at the beginning of the yearIncrease (Note 8)Decrease due to collections (Note 7)Decrease due to write-offsBalance at the end of the year2006.2.305448(234)(36)2.4832005.1.960727(300)(82)2.30566 ANNUAL REPORT 06 INDEPENDENT AUDITOR’S REPORT

Bosnalijek d.d.Notes to financial statements for the year ended 31 December 2006(All amounts are expressed in thousands of KM)16. OTHER RECEIVABLES17. CASH AND CASH EQUIVALENTSPrepaid income taxOther receivables from customersAdvances givenReceivables from prepaid expensesReceivables from employeesReceivables from BBM d.o.o. Sarajevofor sold office spaceOther2006.2.45742330920155-283.4732005.1.758-1119662324-2.351Current accountsForeign currency accountsCash on hand2006.1.2907871562.2332005.1.019637381.69418. SHARE CAPITAL5,843,276 common shares withnominal value of KM 10Less: International FinanceCorporation (IFC) conversion option2006.58.432(7.316)51.1162005.58.432(7.316)51.116The ownership structure as of 31 December 2006 and 2005 can besummarised as follows:Federation of Bosnia and HerzegovinaWorld Bank, Washington D.C. USA (IFC)Other% SHARE28,9012,5258,58100,002006.16.8847.31634.23258.432% SHARE28,9012,5258,58100,002005.16.8847.31634.23258.432IFC loan conversion option was exercised in August 2001 and theCompany increased its share capital by the amount of 7,316 thousand.These shares have been restated as debt as required by InternationalFinancial Reporting Standards due to the existence of a Put Option, whichIf the IFC were to sell their shares at any time in the five years prior to theexpiry of the Put Option Agreement on 9 August 2007, the Put Optionwould lapse and the shares would be restated in the accounts at KM 7,316thousand plus or minus a discount or premium.gives the IFC the right to require the Company to repurchase the shares.serving Your health INDEPENDENT AUDITOR’S REPORT ANNUAL REPORT 06 67

Bosnalijek d.d.Notes to financial statements for the year ended 31 December 2006(All amounts are expressed in thousands of KM)19. LONG-TERM LOANS2006.IFC, Washington, maturing on 15 December 2012,with the interest at the rate of EURIBOR13.117HVB Central Profit banka d.d. Sarajevo, maturing on07 April 2009, with interest at the rate of EURIBOR + 3% per annum3.803HVB Central Profit banka d.d. Sarajevo, maturing on 15 November 2011,with interest at the rate of EURIBOR + 3.5% per annum3.288Investicijska banka Federacije BiH d.o.o. Sarajevo, maturing on 06 February 2008, at interest rates ranging between 4% and 7% per annum835Investicijska banka Federacije BiH d.o.o. Sarajevo, maturing on 27 August 2008,with interest at the rate of EURIBOR + 3% per annum703IFC, Washington, maturing on 18 October 2006,with the interest at the rate of LIBOR + 3%414NLB Tuzlanska banka d.d. Tuzla (previously CBS bank d.d. Sarajevo), maturingon 26 September 2007, interest rate EURIBOR +3% per annum394HVB Central Profit banka d.d. Sarajevo, maturing 01 September 2007,with interest at the rate of 4% per annum50HVB Central Profit banka d.d. Sarajevo – Canton Sarajevo, maturing on05 September 2006, with interest at the rate of LIBOR + 1.5% per annum-22.604Less: current portion of long-term loans(6.647)15.957Amounts are due for settlement as follows:Within one year6.647In the second year5.374In the third to fifth years inclusive9.960After five years62322.6042005.5.8845.4303.9551.4911.3381.241787506020.336(6.665)13.6716.6656.7026.969-20.33668 ANNUAL REPORT 06 INDEPENDENT AUDITOR’S REPORT

Bosnalijek d.d.Notes to financial statements for the year ended 31 December 2006(All amounts are expressed in thousands of KM)20. OBLIGATIONS UNDER FINANCE LEASESMINIMUM LEASEPAYMENTSPRESENT VALUE OFMINIMUM LEASE PAYMENTSAmounts payable under finance leases:Within one yearIn the second to fifth year inclusiveLess: future finance chargesPresent value lease obligationsLess: amount due within 12 monthsAmount due for settlement after 12 months2006.493079(18)61(38)232005.3862100(29)71(28)432006.382361-61(38)232005.284371-71(28)43The Company leases 5 vehicles with a carryng amount of KM 103thousand (31 December 2005 – KM 135 thousand). The average term offinance leases entered into is 5 years. The interest rate inherent in theThe fair value of the Company's finance lease obligations approximatestheir carrying amount. The Company’s obligations under finance leasesare secured by the lessor’s charge over the leased assets.leases is fixed at the contract date for all of the lease term and theaverage effective interest rate contracted approximates 8.83% perannum. All leases are on a fixed repayment basis and no arrangementshave been entered into for contingent rental payments. All leaseobligations are denominated in Euro.21. DEFERRED INCOMEDeferred income is comprised of donated equipment, which is amortisedinto income at the same rate as the depreciation expense recognised forthe respective equipment.Balance at the beginning of the yearDonated equipment receivedRelease to income (Note 7)Balance at the end of the year2006.1632(48)1172005.20021(58)163Changes in deferred income can be presented as follows:serving Your health INDEPENDENT AUDITOR’S REPORT ANNUAL REPORT 06 69

Bosnalijek d.d.Statement of income for the year ended 31 December 2006(All amounts are expressed in thousands of KM)22. TRADE PAYABLES2006.Trade payables – foreign8.240Trade payables – domestic1.7299.96923. SHORT-TERM LOANS2006.IFC Convertible Loan (see Note 18)10.687Bosna Bank International d.d. Sarajevo, partnershipagreements for purchase of raw materials andsemi-finished products expiring in 2007, with profitmargin ranging between 7.93% and 14.20%(2005-expiring in 2006, with profit margin rangingbetween 9.60% and 10.49%)6.889HVB Central Profit banka d.d. Sarajevo, working capitalloans maturing in 2007 (2005-15.06.2006) with interestat the rate of 5.5% per annum3.007Raiffeisen bank d.d. BiH Sarajevo, working capital loanmaturing on 07.04.2007 (2005-07.04.2006)with interest at the rate of EURIBOR+3.45% per annum(2005-EURIBOR+3.75%)3.006HVB Central Profit banka d.d Sarajevo, working capitalloan for financing of building and equipment of PDCmaturing on 15.04.2006 with interest of the rate ofEuribor + 3,75 % per annum.-23.58924. OTHER PAYABLES2006.Salaries1.739Accrued expenses1.231Bonuses710VAT payables539Contributions345Other taxes payable256Salary taxes55Other144.8892005.8.7813.00411.7852005.9.0092.9043.0072.0106.86323.7932005.(RESTATED)3.00046741-720258157144.93625. CONTINGENT LIABILITIESAs of 31 December 2006, court proceedings were initiated against theCompany in the total amount of KM 416 thousand related to formeremployee and supplier litigation issues (2005 – KM 497 thousand).Management is of the opinion that these court proceedings are withoutmerit and therefore, no amounts have been recorded in the accompanyingfinancial statements. Amounts, if any, will be recorded in the periodof settlement, if settlement occurs.Noncompliance with covenants included in Project LoanAgreement with EBRDAccording to the Loan Agreement between the Company and IFC dated 9June 2005 (the "Third Loan Agreement"), the Company is obliged tomaintain procedures, records and accounts adequate to reflect theoperations in accordance with internationally accepted accountingstandards and certain financial conditions. We note that the Companyfailed to comply with the terms, covenants, provisions, or conditions ofArticle VI, section 6.02 NegativeCovenants of the Loan Agreement between the Company and IFC dated 9June 2005 (the "Third Loan Agreement") as they relate to financial andaccounting matters. The Company did not comply with the “Peak DebtService Coverage Ratio” and “Current Ratio” provisions of Section 6.02 (c).Management is not aware of any circumstances or information whichwould lead it to believe that these non-compliances will cause neitherearly repayment of the IFC loan nor additional liabilities for the Companyand consequently no provisions are included in the financial statementsin respect of these matters.26. CAPITAL COMMITMENTSAt 31 December 2006, the Company had capital commitments for 2007 inthe amount of KM 1,276 thousand (2005 - KM 7,645 thousand for 2006).70 ANNUAL REPORT 06 INDEPENDENT AUDITOR’S REPORT

Bosnalijek d.d.Statement of income for the year ended 31 December 2006(All amounts are expressed in thousands of KM)27. RELATED PARTY TRANSACTIONSDirectors' and executives' remunerationThe remuneration of directors and Supervisory Board members duringTrade and other payables comprise amounts outstanding for tradepurchases and ongoing costs. Management considers that the carryingthe year was as follows:Gross salariesBonusesOther benefits2006.710710781.4982005.(RESTATED)502684691.255amount of trade and other payables approximates to their fair value.Foreign currency riskThe Company raises funds from loans and other liabilities. Therefore, theCompany is exposed to market risk related to possible foreign currencyfluctuations. The Company does not have financial instruments to reducethese risks.28. OTHER FINANCIAL ASSETS AND LIABILITIESInterest rate riskTrade and other receivables comprise amounts receivable for the sale ofgoods. The average credit period taken on sale of goods is 123 days (2005– 113). An allowance has been made for estimated irrecoverable amountsInterest rate risk is the risk that the value of the Company’s long-termdebt will fluctuate due to changes in market interest rates. The Companydoes not have financial instruments to reduce these risks.from the sale of goods of KM 2,483 thousand (2005 – KM 2,305thousand). This allowance has been determined by reference to pastdefault experience. Management considers that the carrying amount oftrade and other receivables approximates to their fair value.Credit risk29. APPROVAL OF FINANCIAL STATEMENTSThe financial statements were approved by the Management Board andauthorized for issue on 23 February 2007:The Company’s credit risk is primarily attributable to its trade and otherreceivables. The amounts presented in the balance sheet are net ofallowanced for doubtful receivables, estimated by the Company’sManagement based on prior experience and the current economicenvironment. The Company has no significant concentration of credit risk,with exposure spread over a large number of counterparties and customers.Edin ArslanagićDirectorŠefik HandžićExecutive director for finance and economyserving Your health INDEPENDENT AUDITOR’S REPORT ANNUAL REPORT 06 71

0.4WHO IS WHO IN BOSNALIJEK• Chief Executive OfficerEdin ArslanagićTelephone: + 387 33 212 920Fax: + 387 33 664 971e-mail: e.arslanagic@bosnalijek.ba• Executive Director for Finances and Business EconomicsŠefik HandžićTelephone: + 387 33 254 402Fax: + 387 33 664 971e-mail: s.handzic@bosnalijek.ba• Executive Director for Production ManagementAkif MujezinTelephone: + 387 33 254 404Fax: + 387 33 216 676e-mail: a.mujezin@bosnalijek.ba• Executive Director for Business DevelopmentLjiljana KamberovićTelephone: + 387 33 254 421Fax: + 387 33 254 472e-mail: ljiljana.k@bosnalijek.ba• Company SecretaryMeliha BegovićTelephone: + 387 33 254 490Fax: + 387 33 216 676e-mail: m.begovic@bosnalijek.ba• Director of Domestic Marketing and Sale DepartmentAbdul – Umid ŠalakaTelephone: + 387 33 254 415Fax: + 387 33 664 975e-mail: umid.s@bosnalijek.ba• Director of Ex YU and Albania regionAziz ŠukaloTelephone: + 387 33 254 525Fax: + 387 33 216 018e-mail: aziz.s@bosnalijek.ba• Director of East Europe and Ex Soviet Union regionSamir TelibečirovićTelephone: + 387 33 254 515Fax: + 387 33 216 018e-mail: samir.t@bosnalijek.ba• Director of Middle East and Africa regionAmar ArslanagićTelephone: + 387 33 254 524Fax: + 387 33 216 018e-mail: aarslanagic@bosnalijek.ba• Director of Internal Audit and Investors Relations DepartmentNedim VilogoracTelephone: + 387 33 254 449Fax: + 387 33 254 472e-mail: nedim.v@bosnalijek.ba• IT Department DirectorAmela HasovićTelephone: + 387 33 254 468Fax: + 387 33 216 676e-mail: a.hasovic@bosnalijek.ba• Pharmaceutical Production Department DirectorAmira KurtovićTelephone: + 387 33 254 422Fax: + 387 33 665 443e-mail: amira.k@bosnalijek.ba72 ANNUAL REPORT 06 WHO IS WHO IN BOSNALIJEK

• Finances Department DirectorMirjana LasićTelephone: + 387 33 254 438Fax: + 387 33 221 288e-mail: mirjana.l@bosnalijek.ba• Quality Control Department DirectorMihneta ButurovićTelephone: + 387 33 254 420Fax: + 387 33 665 442e-mail: m.buturovic@bosnalijek.ba• Development Department DirectorŠeherzada HadžidedićTelephone: + 387 33 254 423Fax: + 387 33 254 545e-mail: seherzada.h@bosnalijek.ba• Medical Department DirectorMidhat VehabovićTelephone: + 387 33 254 410Fax: + 387 33 665 925e-mail: m.vehabovic@bosnalijek.ba• Materials Management Department DirectorLjunora MavrićTelephone: + 387 33 254 530Fax: + 387 33 664 974e-mail: lj.mavric@bosnalijek.ba•Quality Management and Environment Management Department DirectorNermin ZubčevićTelephone: + 387 33 254 407Fax: + 387 33 254 538e-mail: nermin.z@bosnalijek.ba• Legal Department DirectorEdin BuljubašićTelephone: + 387 33 560 608Fax: + 387 33 254 514e-mail: edin.b@bosnalijek.ba• General Services Department DirectorMustafa MuharemovićTelephone: + 387 33 254 406Fax: + 387 33 254 514e-mail: m.muharemovic@bosnalijek.ba• Human Resources Department Director Public Relations Department DirectorBahrija AvdibegovićTelephone: + 387 33 254 458Fax: + 387 33 254 466e-mail: b.avdibegovic@bosnalijek.ba• Director of Medicinal-Informative ServiceDomestic Marketing and SaleGordan PašalićTelephone: + 387 33 254 416Fax: + 387 33 664 975e-mail: g.pasalic@bosnalijek.ba• Sale Unit DirectorDomestic Marketing and SaleMirsad SirbubaloTelephone: + 387 33 254 595Fax: + 387 33 254 595e-mail: m.sirbubalo@bosnalijek.ba• Head of Marketing and Sale UnitInternational Marketing and SaleDamir BibezićTelephone: + 387 33 254 523Fax: + 387 33 211 985e-mail: damir.b@bosnalijek.baserving Your health WHO IS WHO IN BOSNALIJEK ANNUAL REPORT 06 73

REPRESENTATIVE OFFICES AND AGENCIES ABROADEx YU and Albania Region• Representative Office in CroatiaGruška 18, 10 000 Zagreb, CroatiaTelephone: + 385 1 615 71 22Fax: + 385 1 615 72 37e-mail: bosnalijek@globalnet.hrContact person: Zoran Grgurev, Representative Office Director• Representative Office in MacedoniaBulevar Partizanski odredi no. 101, 1000 Skopje, MacedoniaTelephone: + 389 2 30 90 230+ 389 2 30 90 240Fax: + 389 2 30 90 255e-mail: marija.akimovska@bosnalijek.com.mkContact person: Mara Akimovska, Representative Office Director• Representative Office in MontenegroBulevar Lenjina 45, 81 000 Podgorica, MontenegroTel/fax: + 381 81 248 920+ 381 81 248 921e-mail: bosnalijek@cg.yuContact person: Biljana Popović, Representative Office Director• Representative Office in KosovaBulevardi Nënë Terezë No. 40/7, Priština, KosovaTelephone: + 381 38 247 820Fax: + 381 38 247 817Mob: + 381 64 822 6407e-mail: bosnalijek_pr@ipko.netContact person: Genc Bućinca, Representative Office Director• Representative Office in SerbiaCara Nikolaja II 61/B, 11 000 Belgrade, SerbiaTelephone: + 381 11 244 5425Fax: + 381 11 308 7333Mob: + 381 64 822 6407e-mail: office@bosnalijek.com.yuContact person: Jasmina Novaković, Representative Office Director• Representative Office for Albania - „Rio – farma“Rr. „4 Dëshmorët“ Nr. 28, Tirana, AlbaniaTelephone: + 355 4 247 824Fax: + 355 4 230 277e-mail: riofarma@interalb.comContact person: Bardhyl CanajEast Europe and Ex Soviet Union Region• Representative Office in RussiaDmitria Ulianova 16, korp. 2, kv. 321 117, Moscow, RussiaTel/fax: + 7 495 124 2895Tel/fax: + 7 495 771 7632Mob: + 7 495 768 8953e-mail: nedim.u@bosnalijek.baContact person: Nedim Uzunović, Representative Office Director• Representative Office in UkraineRaisa Okipnaya 4 of 81, Kiev 02 002, UkraineTelephone: + 380 44 569 5703Mob: + 380 50 311 5603e-mail: bosnalek@i.com.uaContact person: Oksana Kogay, Representative Office Director• Representative Office in MoldovaStr. A.Mateevici 27, 2001 Chisinau, MoldovaTel/fax: + 373 222 43 192Mob: + 373 69 151 345e-mail: bosnalek@mail.ruContact person: Stella Grama, Representative Office Director74 ANNUAL REPORT 06 REPRESENTATIVE OFFICES AND AGENCIES ABROAD

Middle East and Africa Region• Agent for KuwaitAgent „Yanbua Al-Khaleey International“Gen.Trad.Co.W.I.I.P.O.Box 629, Salmya, KuwaitTelephone: + 965 433 25 38Fax: + 965 433 25 36Mob: + 965 989 9660e-mail: alam@fasttelco.comContact person: Alamaladin M.Adi• Agent for United Arab EmiratesAgent „Pharmatrade“P.O.Box 11397Isdt Floor, Abdul Rehman Al Bahar Building, Deira, Dubai, UAETelephone: + 971 4 266 6158Fax: + 971 4 269 0942e-mail: azza@pharmatradeuae.comContact person: Dr Azza el Sveissy• Agent for QatarAgent „Qatar Pharmacy Establishment“P.O.Box 390, Doha, QatarTelephone: + 974 432 0887Fax: + 974 432 0933Mob: + 974 542 3074e-mail: samer_otaibi@yahoo.comContact person: Samer Al-Otaibi• Agent for YemenAgent „Al-Saadah Corporation“Ali.A Mugni St. Beside Tag Sheba Hotel SaanaP.O.Box 5102, Saana, YemenTelephone: + 9671 272214+ 9671 297955Fax: + 9671 283678e-mail: dhaifv2@yahoo.comContact person: Ahmad Saeed Mohammed Hasan• Agent for KenyaAgent „Servania Marketing Services Limited“P.O.Box 55855, Nairobi, KenyaTelephone: + 254 722 523 584e-mail: jmwaima@yahoo.comContact person: John Mwai• Agent for LibyaAgent „ETHAR, Pharmaceuticals and Medical Equipment“Servania Marketing Services Limited“110 September street, Tripoli, LibyaTel/fax: + 218 21 483 1614Mob: + 218 91 313 3198e-mail: info@etar-medicals.comContact person: Abdulkhalek Mhanni• Agent for BahrainAgent „Bahrain Pharmacy and General Store W.L.L.“P.O.Box: 403, Manama, BahrainTelephone: + 973 1726 4088Fax: + 973 1726 4099e-mail: bahpharm@batelco.com.bhContact person: Abdulrahman Alnajjar• Agent for Cameroon, Togo, Benin, Ivory Coast, Senegal, Gabon, and CongoFor distribution „EURIMEX PHARMA“43, Route des Eaux _ BP 80307 – 35503 VITRE Cedex, FranceTelephone: + 33 2 99 743 220Fax: + 33 2 99 743 221e-mail: christine.legat@eurimex-pharma.comContact person: Christine LegatFor marketing and registration „AFRIMED CORPORATION LTD“BDO-Connaught House Alexandra Terrace- GuilfordSURREY GUI 3 DA - ENGLANDTelephone: +44 1 483 401 401Fax: + 44 1 483 401 399Contact person: Bernard Filippiserving Your health REPRESENTATIVE OFFICES AND AGENCIES ABROAD ANNUAL REPORT 06 75

PRODUCTSPRESCRIPTION DRUGSAMINOL®atenololAMLODIL®amlodipinAMOXIBOS®amoxycillinAMPIBOS®ampicillinANGINAL®isosorbide mononitrateAPNEX®aminophyllineARGEDIN®sulfadiazine AgAVAFORTAN®camylofine, metamizol sodiumAVAMIGRAN®/NOMIGREN®ergotamine tartarate, mecloxamine citrate, camilofine,coffeine, prophyphenasoneAZOMEX®azihromycinBENDAZOL®mebendazoleBETHAGEN®betamethasone, gentamicinBETHASAL®bethametasone, salicylic acidBOLDOL®tramadolBOSALGIN®metamizol sodiumBOSAURIN®diazepamBOSNYL®sulpirideBOSOPTIN®, verapamilBOSTROMBIN®heparin sodium, allantoin, dexpanthenolBRONCHOBOS®carbocisteineCEPHABOS®cephalexineCINARIZINcinarizineCIPROL®ciprofloxacinCITOFEN®tamoxifenCLAROMAC®clarithromycinCOBAL®mecobalaminDIABOS®glibenclamideDIFEN®diclofenac sodiumDILATREND®carvedilolENTEROFURYL®nifuroxazideESBESUL®sulphamethoxasole, trimetoprimFAVISTAN®thiamazoleFEMOX®/OXETIN®fluoxetineFENADEX®fexofenadineFUNZOL®fluconazoleGENTAMICINgentamicinHEPALIP FORTE®essential phospholipids, vitaminsINHIBACE®cilazaprilINHIBACE PLUS®cilazapril, hydrochlorthiazideKETOBOS®ketoprofenLANIBOS®digoxinLIDOKAINlidocaineLIDOKAIN2% ADRENALINlidocaine, adrenalineLIDIPROCT®lidocaine, cortizolone, Al-subacetate, Zn-oxideLODIX®furosemideLOPRIL®lisinoprilLOPRIL® Hlisinopril, hydrochlorthiazideLOSTOP®loratadineMETROZOL®metronidazoleNAF®sodium fluorideNELOREN®lincomicinNITROGLICEROL®nitroglycerineNIZON®prednisone76 ANNUAL REPORT 06 PRODUCTS

®Registeredname/INNNOMIGREN N®coffeine, ergotamine tartarateNORACIN®norfloxacinONTRIL®salbutamolPANTOR®pantoprazolePYLOMID®metoclopramideRANIBOS®ranitidineROXAM®piroxicamSECNEZOL®secnidazoleTAXIM®cefotaximeTEGREBOS®carbamazepineTOREM®torasemideTRAZEM®nitrazepamTRIAX®ceftriaxoneULCOSAN®omeprazoleVENOSAN®escin, essential phospholipids, heparinXICLAV®/XICLAV 2X®amoxycillin, clavulanic acidNON-PRESCRIPTION DRUGS - OTCBOSPYRIN®acetylalicylic acidCOFADON®propyphenasone, paracetamol, coffeine, codeineCVit®ascorbic acidDIFEN®diclofena diethylaminKAMFART®benzyl nicotinate, methyl salicilate, menthol,camphorKOFAN instant®propyphenasone, paracetamol, coffeineLYSOBACT®lysozime, piridoxineMAGALOX®Al-hydroxide, Mg-oxideAl-hydroxide, Mg-hydroxidePARACETAMOLparacetamolPILFUD®minoxidilPOLIBEVIT®B complex vitaminsRANIBOS®ranitidinrREUKAP®/REUKAP P®ephedrineRHINOSTOP®paracetamol, pseudoephedrine hydrocloride,chlorphenamine maleateRODAVAN®chlorphenoxamine, coffeine, clofyllineSCABITOX®benzyl benzoateSTOMATIDIN®hexetidineVITAMINE A&E®vitamins A palmitat, tochopherolFOOD SUPPLEMENTSROYAL JELLY, royal jellysoft capsules 200 mgDESINFICTANSHIBIBOS Gchlorhexidine gluconateHIBIBOS Tchlorhexidine gluconateIZOSEPT Ppovidone-iodineIZOSEPT Dpovidone-iodineOTHER PRODUCTSASEPTANALCOSOLBACTICIDBENZAL 5benzalkonium chlorideserving Your health PRODUCTS ANNUAL REPORT 06 77

pharmaceutical and chemical industry, joint stock co., Jukićeva 53, Sarajevo, Bosnia & Hercegovina,tel: + 387 33 25 44 00, fax: + 387 33 66 49 71, e-mail: info@bosnalijek.ba, www.bosnalijek.baserving Your health