Valartis : 06.04.2021 Annual Report 2020

ANNUAL REPORT

2020

KEY FIGURES AT GLANCE

Key Figures

in CHF 1,000		1.1.-31.12.2020	1.1.-31.12.2019
Total operating income		9,831	8,186
Income from management services		5,331		4,140
Income from investment property	3,608		4,043
Share of results of associated companies	684		-344
Other income	208		347
Administrative expense	-10,092		-10,526
Personnel expense	-6,176		-5,487
General expense	-3,916		-5,039
Earnings before depreciation, valuation adjustments, provisions, interest and taxes	-261		-2,340
Depreciation, valuation adjustments and provisions	1,897		1,215
Earnings before interest and taxes (EBIT)	1,636		-1,125
Finance result, net (financial income, financial expense, market value adjustment)	-9,857		5,170
Net result from continued operations before taxes	-8,221		4,045
Income taxes		-523		-905
Net result from continued operations	-8,744		3,140
Net result from discontinued operations		-1,941		-718
Net result	-10,685		2,422
attributable to shareholders of Valartis Group AG		-8,385		448
attributable to non-controlling interests	-2,300		1,974
in CHF 1,000	31.12.2020	31.12.2019
Total assets		172,708	168,570
Current assets		76,084		60,319
Non-current assets		96,624		106,310
Non-current assets classified as held for sale	-		1,941
Total liabilities	65,335		44,879
Current liabilities	24,632		26,637
Non-current liabilities	40,703		18,242
Total shareholders' equity (including non-controlling interests)	107,373		123,691
Equity capital quota, in per cent	62.2		73.4
Staff (full-time equivalents, FTE)	69.5		65.5
Closing price of VLRT share, in CHF	9.00		10.20
Equity of Shareholders per share, in CHF	23.94		27.52

CONTENTS

2 LETTER TO OUR SHAREHOLDERS

5 MANAGEMENT REPORT

1. Business performance and economic situation of Valartis Group
2. The financial situation of Valartis Group

6	Employees of Valartis Group

1. Carrying out a risk assessment
2. Business development

1. Balance sheet
2. Significant events

1. Outlook
2. STRATEGY AND OBJECTIVES

12 CORPORATE SUSTAINABILITY

1. RISK MANAGEMENT OF VALARTIS GROUP
2. CORPORATE GOVERNANCE

26 COMPENSATION REPORT

1. Foreword by the Chairman of the Compensation Committee
2. Compensation Committee: Organisation, Tasks and Responsibilities

1. Compensation principles for the Board of Directors, the Executive Committee and employees
2. Determination the compensation

28	Compensation of the Board of Directors

1. Compensation of Executive Committee
2. Compensation of employees

1. Long Term Incentive Program description
2. Overview: Loans, shares and options held by members of the Board of Directors and Executive Committee

35	Auditor's Report on the Compensation Report

1. VALARTIS GROUP CONSOLIDATED FINANCIAL STATEMENTS
2. Consolidated income statement
3. Consolidated statement of comprehensive income
4. Consolidated statement of financial position

42	Consolidated statement of changes in equity
44	Consolidated cash flow statement
47	Notes to the consolidated financial statements
108	Auditor's Report on the consolidated financial statements

112 FINANCIAL STATEMENTS VALARTIS GROUP AG

1. Income statement of Valartis Group AG
2. Statement of financial position of Valartis Group AG
3. Notes to the financial statements

1. Proposal of the Board of Directors to the General Meeting of Shareholders
2. Statutory Auditor's Report on the financial statements

1. Valartis Group AG registered share
2. Addresses and imprint

This annual report is also published in German, whereby the English version is binding. The Annual Report 2020 is available online and in a pdf version (http://www.valartisgroup.ch/en/#geschaeftsberichte).

TO OUR SHAREHOLDERS

Dear Shareholders

activities of ENR Russia Invest SA and the property management activities for EPH European Property Holdings Ltd. In connection with this further expansion on the real estate side, our property management subsidiary, VLR Austria GmbH, has opened office in Vienna.

Gustav Stenbolt,

Chairman and Delegate of the Board of Directors

The course of business was marked by high volatility on the currency markets in 2020 affecting the investment portfolio together with operational business performing in line with expec- tations. According to International Financial Reporting Standards (IFRS), an annual net loss of CHF 10.7 million (previous year: annual net profit of CHF 2.4 million) arose essentially from the weakening of Russian ruble against the Swiss franc by 25 per cent and the weakening of the USD against Swiss franc by 9 per cent which resulted in a foreign exchange loss of CHF 9.7 million on the investment property and other investments held in those currencies. On the operational side, the business improved, and the earnings before interest and taxes (EBIT) showed a profit of CHF 1.6 million (previous year: loss of CHF 1.1 million) mainly due to an increase in management services that developed in line with expectations for 2020 thanks to the successful completion of several transactions and projects. Another positive effect issued from the increase in value of the investment property (CHF

2.9 million) in ruble terms and overall operational costs remained under control thanks to further cost-cutting measures and the reduction of consulting costs.

FUTURE DEVELOPEMENTS

The future of Valartis Group lies in the successful development of existing and new profitable, cash-producing activities. Valar- tis Group has applied a bottom-up approach over the last years, based on overriding corporate objectives reflected in the strategy to become profitable on an operational basis.

Furthermore, Valartis Group has geared its market development accordingly and adapted its range of services. The group structure was adapted to new circumstances, requirements and ranges of services which required further adjustments to the group's organisation and infrastructure. The focus of activities in 2021 will be on the successful setup and management of Valartis Group's new strategic projects in addition to the daily business

ACTIVITIES IN 2020

Valartis Group continued to actively pursue its business activities and participations in 2020:

Valartis Group continues to hold a 63.2 per cent participation in ENR Russia Invest SA. The devaluation of the Ruble and the COV- ID situation in Russia had a negative impact on the ENR assets. The largest ruble exposure of ENR is the Petrovsky Fort business centre in St. Petersburg. The vacancy rate of the office tenants increased to 10 per cent, but all tenants are current with their lease payments. The local management team of Petrovsky Fort was able to minimise the consequence of the introduction by the Russian government of certain tenant protection at the time when work from home restrictions applied (only a small number of such tenants at the business centre).

ENR led further investments into Kaluga Flower Holding LLC (ru- ble 365 million or CHF 4.95 million) in Russia to further refurbish and bring into operation the greenhouses. At year end, 11.2 hectares in greenhouses have been refurbished and are in opera- tions. The remaining 13.8 hectares will be refurbished in 2021 giving a total productive area of 25 hectares.

On the asset management and advisory side, the activities are growing with Assets under Management or Advisory Mandates having increased to CHF 1.5 Billion. The main increase is coming from EPH European Property Holdings Ltd. (EPH) that further expanded in Germany and Austria and added a new asset class, ho- tels, to its portfolio. EPH acquired a 89.9 per cent stake of the extraordinary nhow hotel in Berlin Friedrichshain managed by NH Hotel Group. Shortly after the first hotel purchase, EPH acquired the Innside Hotel in Dresden's historic city centre next to the Church of Frauenkirche which is operated by Meliá Hotels In- ternational.

The hotel acquisitions were followed by the purchase of an office property in Vienna's Lasallestrasse which is currently undergoing a full refurbishment to create an intelligent and future-oriented workspace over nine floors with a total area of approxima- tively. 29,000 square metres. In addition, EPH closed the forward purchase of QBC 1, 2 and 7 in the newly developed Quartier Belvedere in December 2020. The office properties QBC 1 and 2 with a leasable area of 38,700 square metres as well as QBC 7, the underground car park with 680 parking spaces, have been developed by UBM Development.

In December, EPH completed a capital increase of 4,435,000 new shares for a price of USD 36.82 per share amounting to a total of USD 163.3 million. Valartis was an advisor to the transaction. The Company's issued share capital now consists of 14,409,022 ordinary shares, of which Valartis acquired 4.9 per cent.

2

As an investor as well as an investment advisor, Valartis participates in managing and developing the Valartis German Residential Health Care Fund, Luxembourg, which was created exclusively for qualified investors. The fund benefits from the megatrend "Aging" and the growth of the aging population in Germany. The properties are leased out for 20 to 25 years to reputable tenants or operators which take care of the nursing services for their res- idents. These operators are large and experienced organisations operating a series of homes and buildings in the health care and elderly living sector. By respecting certain sustainability topics throughout the acquisition, the maintenance, and daily management processes the Fund contributes to the U.N.'s Sustainable Developing Goals.

The Fund manages currently thirteen operating properties, which are rented out long-term to reputable nursing home and assisted living operators. The total investment volume amounts to approximately EUR 70 million by end of 2020. The Fund has distributed dividends to its investors of EUR 60 per share in 2020 corresponding to a dividend yield of 5 per cent.

Valartis Group holds a stake of 25 per cent in Norinvest Holding SA, the parent company of Banque Cramer Cie SA, Geneva, Swit- zerland.

TODAYʼS AND TOMORROWʼS PRIORITIES

The 2021 financial year will continue to present us with challenges. A key success factor in our front units Private Equity, Real Estate Project Management and Financial Services continues to be the rapid and successful development of new profitable activities and the further development of existing projects. Valartis Group focuses on market development, develops and launches innovative investment opportunities and adapts its range of services to demand.

THANK YOU

We would like to take this opportunity to express our special appreciation and gratitude to our employees for their continued loy- alty. We thank you, dear Shareholders of Valartis Group AG, for the loyalty and understanding you have shown us. We are confident that Valartis Group is well prepared for future challenges and will return to sustained corporate success.

Fribourg, Switzerland, 30 March 2021

VALARTIS GROUP TODAY

Gustav Stenbolt, Chairman and Delegate of the Board of Directors

The business model continues to be based on our core competencies i.e. Financial Services, Real Estate project management and Investments.

We continue to look for new or additional investments today. We are mainly looking for investments and projects which will increase our cash flow. Our main industries are still financial services and real estate projects, but we are also looking for opportunities in other markets.

At the end of 2020, Valartis Group employed a total of 70 people (69.5 Full-Time Equivalents, FTE) in the Swiss front and service organisation and in Russian real estate management in Moscow and St. Petersburg (marketing, leasing and maintenance) - previous year: 66 employees (65.5 FTE).

The 2019 Annual General Meeting of 14 May 2019 authorised the repurchase of up to a maximum of 470,000 shares of Valartis Group's own shares prior to the 2020 Annual General Meeting by way of a public share buyback programme for cancellation purposes which was performed in two stages during 2019. The amendment of the Articles of Association (reduction of share capital, article no. 3) in respect of the actual number of shares repurchased, 470,000 shares have been approved by the Annual General Meeting 2020. The share capital was reduced accordingly in October 2020 from CHF 4,769,295 to CHF 4,299,295 accordingly.

VALARTIS GROUP ANNUAL REPORT 2020     |     LETTER TO SHAREHOLDERS|3