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ZENTIVA N.V. NINE MONTH REPORT 2008

I      FINANCIAL HIGHLIGHTS

• Total net sales CZK 13,096.9 million; +17.7% yoy, driven by the consolidation of the Turkish business Eczacibasi-Zentiva, acquired in July 2007. At constant exchange rates, sales would have increased 28.1% during the first nine months of 2008

• Gross profit CZK 7,749.6 million; +14.6% yoy, due to the lower margins of Eczacibasi-Zentiva being only partially offset by the continued improvement of our product mix

• Gross margin of 59.2%; excluding Eczacibasi-Zentiva the gross margin was 64.3%

• EBIT¹ CZK 2,167.4 million, +48.4% yoy, due to improved operating efficiencies, particularly in the commercial area. This was partially offset by a CZK 193.8 million impairment to fixed assets charge. Excluding the impairment charge, EBIT increased by 61.7% and EBIT margin was 18.0%. 

• EBIT margin of 16.5%; excluding Eczacibasi-Zentiva the margin was 18.2%

• Net profit² of CZK 1,091.9 million; a 2.7% increase yoy, was mainly negatively affected by decrease in FX gains and increase in effective tax rate in Q3 2008

• Net profit margin 8.3%; excluding the impairment charge 9.5% 

• Capital expenditure during the first nine months of 2008 was CZK 846.6 million representing 6.5% of sales

• Free cash flow (FCF³) for the nine month period was CZK 1,670.0 million representing 77.1% EBIT Cash conversion

• Net debt to equity ratio of 108.3% as of September 30, 2008

Jiří Michal, Chairman of the Board and CEO, commenting today on the Company's Nine Month results said: 

'The results that we have announced today show that Zentiva is achieving sales growth, at constant exchange rates, in line with our expectations whilst at the same time making excellent progress in improving the efficiency of all aspects of our much enlarged business.  

In Turkey, we are continuing to work on the integration of Eczacibasi-Zentiva into the Group. As a result of the integration we have taken a number of important steps to improve margins including substantially changing the products that are actively promoted, as well as significantly increasing our overall sales force efficiency. The results that we have already achieved to-date means that we are on track to deliver both improved sales and profits in Turkey in 2008 reinforcing our view that this market will be an important contributor to our growth over the next several years. 

In the Czech Republic, our sales have been hit by market pressures such as the mandatory fees for physicians' visits and prescriptions introduced at the beginning of the year. However we have been able to respond to these developments by placing more efforts in this market on our promoted prescription and CHC brands and continuing to work on maintaining our overall commercial efficiency. 

In Romania, our business performance reflects the operational changes that we started to make in mid 2007. We now have a much leaner and more focused organization that based on progress in recent months is well positioned to deliver the higher sales and earnings that we expect.

Elsewhere our businesses have done well against a background of challenging market conditions and adverse currency developments. We have grown sales in Russia, and the Ukraine as well as in most of our newer markets including Bulgaria and Hungary.

Our progress in 2008 continues to demonstrate the attractions of the much enlarged, better balanced Zentiva organization that was created in 2007. This larger regional platform provides us with access to a much increased patient population and gives us important opportunities to generate economies of scale. Over the course of the last twelve months we have maintained a tight focus on efficiency and based on the numbers we have announced today I am confident that Zentiva will deliver our guidance for 2008 and is well positioned to successfully navigate our business through the tougher economic environment ahead of us. 

Turning to the improved offer for Zentiva of CZK 1,150 per share that was made by sanofi-aventis on October 1, 2008. I would like to confirm that the Board remains of the view that this Improved Offer is in the best interests of shareholders and all other stakeholders in Zentiva and recommends that the Company's shareholders accept the Improved Offer and tender their shares in the Improved Offer.' 

 Key Figures 

	Three Months to Sept. 30			Nine Months to Sept. 30
(in CZKm)	2008	2007	change change	2008	2007	change
Gross Sales	4,824.9	4,976.5	(3.0%)	15,388.8	12,216.1	26.0%
Net Sales	4,106.6	4,330.7	(5.2%)	13,096.9	11,127.3	17.7%
COGS	(1,663.2)	(1,983.5)	(16.1%)	(5,347.3)	(4,362.5)	22.6%
Gross Profit	2,443.4	2,347.2	4.1%	7,749.6	6,764.8	14.6%
Marketing & Sales	(1,018.1)	(1,209.3)	(15.8%)	(3,344.0)	(3,316.9)	0.8%
Admin.& General	(450.1)	(594.0)	(24.2%)	(1,478.7)	(1,512.0)	(2.2%)
Impairment of Fixed Assets	(2.5)	-	-	(193.8)	-	-
R&D	(169.0)	(193.8)	(12.8%)	(565.7)	(475.8)	18.9%
EBITDA (1)	1,135.9	697.6	62.8%	3,367.2	2,293.6	46.8%
EBIT (2)	803.7	350.0	129.6%	2,167.4	1,460.1	48.4%
PBT	461.0	318.1	44.9%	1,613.7	1,500.3	7.6%
Profit for the Period	260.3	245.1	6.2%	1,172.0	1,113.3	5.3%
Attributable to:
Equity holders of the Parent	258.9	231.5	11.9%	1,091.9	1,062.7	2.7%
Minority Interest	1.4	13.7	(89.8%)	80.1	50.5	58.5%
EPS Basic(CZK) (3)				28.76	27.97
EPS Diluted (CZK) (4)				28.72	27.89
EPS Diluted (US$)(5)				1.76	1.33
Gross margin	59.5%	54.2%		59.2%	60.8%
EBIT margin	19.6%	8.1%		16.5%	13.1%
Net profit(6) margin	6.3%	5.3%		8.3%	9.6%
Net Debt/Equity (e.o.p.)	108.3%	122.4%		108.3%	122.4%
CAPEX	292.6	326.6	(10.4%)	846.6	1,120.0	(24.4%)
FCF before acquisitions	554.4	913.1	(39.3%)	1,670.0	598.9	178.8%

 

• EBITDA - Earnings Before Interest, Taxes, Depreciation, Amortization and Impairment charged

• EBIT - Profit before Tax and Finance costs

• Basic EPS is calculated by dividing Net profit for the period attributable to Equity holders of the parent by the weighted average number of ordinary shares outstanding during the period excluding treasury shares

• Diluted EPS is calculated by dividing Net profit for the period attributable to Equity holders of the parent by weighted average number of shares outstanding during the period (excluding treasury shares) which are adjusted for effect of dilutive potential shares

• For convenience the EPS figures have been translated into USD using the average exchange rate for 9M 2007 and 9M 2008 of 20.905 and 16.332 CZK/USD respectively 

• Profit for the period attributable to Equity holders of the parent

  II    Sales Overview⁴

• Total net sales in the first nine months were up 17.7% to CZK 13,096.9 million from CZK 11,127.3 million in the same period in 2007. Eczacibasi-Zentiva, our Turkish business, which was acquired in July 2007, achieved net sales of CZK 3,613.0 million in the first nine months of 2008. Zentiva's total net sales would have increased by 28.1% at constant exchange rates in the first nine months of 2008 versus the same period in 2007.

• Total net sales in the third quarter of 2008 declined by 5.2% to CZK 4,106.6 million in comparison to the same period in 2007. The strength of the Czech Koruna being the major factor in the overall sales decline. In constant currency terms third quarter net sales would have increased by 3.2%.

• Net pharmaceutical sales in the first nine months of 2008 increased by 12.4% to CZK 11,269.4 million. In the third quarter net pharmaceutical sales decreased by 0.1% to CZK 3,641.6 million.

• Zentiva's core pharmaceutical business achieved the following performance in its key markets in the first nine months of 2008:

  • 10.9% decrease in Czech net sales to CZK 2,932.4 million 

  • 18.7% decrease in Romanian net sales to CZK 1,134.8 million 

  • Flat net sales in Poland of CZK 1,425.5 million 

  • 7.9% decrease in Slovakian net sales to CZK 1,459.0 million 

  • 12.9% net sales growth in Russia to CZK 997.4 million 

  • 267.8% increase in Turkish net sales to CZK 2,298.5 million 

  • 24.2% increase in net sales in Other markets to CZK 1,021.8 million 

• Third party API (Active Pharmaceutical Ingredient) net sales increased by 5.6% to CZK 209.0 million, due to the impact of the Turkish acquisition. 

• Other net sales, mainly contract manufacturing, increased by 79.4% to CZK 1,618.5 million in the nine months of 2008. This was due to the consolidation of our Turkish business, where contract manufacturing is a large part of this business.

• Sales deductions grew almost 110.5% to CZK 2,291.9 million when compared to the same period last year, mostly reflecting the consolidation of our Turkish business. 

Net Sales overview

(in CZKm) (in CZKm)	Three Months to Sept. 30				Nine Months to Sept. 30
	2008	2007		change	2008	2007	change
Pharmaceuticals	3,641.6	3,644.4	(0.1%)		11,269.4	10,027.0	12.4%
API	48.2	84.4	(42.9%)		209.0	197.9	5.6%
Other Sales5	416.8	601.9	(30.7%)		1,618.5	902.4	79.4%
Net Sales	4,106.6	4,330.7	(5.2%)		13,096.9	11,127.3	17.7%

Pharmaceutical Sales

In the first nine months of 2008, Zentiva's pharmaceutical business saw its net sales increase by 12.4% to CZK 11,269.4 million. 

In the third quarter net pharmaceutical sales declined 0.1% to CZK 3,641.6 million in part due to the strength of the Czech Koruna.

Zentiva's continued focus on its modern promoted pharmaceutical portfolio led to its increased contribution to overall sales, leading in part to the efficiency improvement seen in our pharmaceuticals business. 

Net Pharmaceutical Sales by Geography 

(in CZKm) (in CZKm)	Three Months to Sept. 30				Nine Months to Sept. 30
	2008	2007	change		2008	2007	change
Pharmaceuticals	3,641.6	3,644.4		(0.1%)	11,269.4	10,027.0	12.4%
Czech Republic	948.8	1,119.9		(15.3%)	2,932.4	3,290.1	(10.9%)
Turkey	663.3	624.9		6.1%	2,298.5	624.9	267.8%
Romania	336.9	205.1		64.3%	1,134.8	1,396.0	(18.7%)
Poland	392.4	478.4		(19.5%)	1,425.5	1,426.1	(0.0%)
Slovakia	544.4	518.6		5.0%	1,459.0	1,583.6	(7.9%)
Russia	383.5	370.7		3.4%	997.4	883.6	12.9%
Other markets	372.4	317.9		17.2%	1,021.8	822.7	24.2%
Ukraine	112.4	102.3		9.9%	289.3	252.3	14.7%
Other CIS	56.7	35.8		58.5%	155.9	113.7	37.1%
Baltic	63.5	57.4		10.8%	192.6	188.0	2.4%
Hungary	61.7	55.8		10.6%	172.6	158.9	8.6%
Bulgaria	67.3	44.8		50.1%	173.9	87.2	99.4%
Other	10.7	21.8		(50.8%)	37.5	22.5	66.6%

 

Czech Republic 

Zentiva's net sales in the Czech market declined by 10.9% to CZK 2,932.4 million in the nine months  of 2008. This expected reduction in sales reflects the introduction of mandatory fees for both physician visits and prescriptions from the beginning of 2008. These measures reduced the number of patient visits and prescriptions. In the third quarter, net sales in the Czech Republic fell by 15.3% yoy to CZK 948.8 million. 

Zentiva has responded to this challenging market situation by increasing the promotion of its CHC products and improving its overall cost efficiency, in order to off-set the top line pressures it is experiencing. At the end of September 2008, the commercial team in the Czech Republic comprised 185 employees down from 211 a year earlier. 

The key Rx brands in the first nine months of 2008 in the Czech market were the anti-ulcer drug Helicid (omeprazole), the anti-depressant Citalec (citalopram), and the cardiovascular drugs Torvacard (atorvastatin), Lozap (losartan) and Agen (amlodipine). A number of Zentiva's CHC products including the pain killers Ibalgin (ibuprofen) and Paralen (paracetamol) saw higher sales.

Zentiva launched one new product, Ultracod (paracetamol/codeine) in the pain segment during the first nine months of 2008. Zentiva received 4 new marketing authorizations during this period.

Turkey

Our Turkish pharmaceutical business contributed CZK 2,298.5 million of net sales during the first nine months of 2008. Sales increased in this period by 267.8%. This large increase reflects that fact that in 2007, Zentiva only began consolidating its business in Turkey from July. In the third quarter of 2008, the first comparable reporting period, net pharmaceutical sales in Turkey amounted to CZK 663.3 million, an increase of 6.1% versus the same period last year.  In local currency terms third quarter sales increased by 21.9%, underlining the negative impact of CZK/TRY fluctuations.

Our pharmaceutical operations have played an important role in the improvement of our overall efficiency in Turkey. This has been achieved by a combination of improved portfolio mix, which has led to lower discounts, and a significant increase in the efficiency of our Turkish commercial operation. These positive developments are the result of initiatives taken in the latter part of 2007 aimed at establishing a more efficient commercial structure by changing the promotional focus across the product portfolio and reducing the size of the commercial team. At the end of September 2008, the Turkish commercial team headcount was 545, down from 691 at the same point in 2007.

The leading products in the first nine months of 2008 in terms of sales were the muscular skeletal drug Thiospa (thiocolchicoside), the erectile dysfunction drug, Vigrande (sildenafil citrate) and the anti-diabetic drug Piogtan (pioglitazone).

In the first nine months of 2008, four new drugs were introduced including the urology drug Tamprost (tamsulosin), the respiratory drug Monax (montelukast), and the CNS drugs Memorix (memantine) and Zophix (olanzaphin). Zentiva received 11 new marketing authorizations in Turkey during the period.  

Romania

In Romania, Zentiva has now completed the changes that were needed to put this business in a much stronger position to generate sustainable growth in this attractive market. Over the last twelve months the focus of the business has been cash flow generation and this has enabled us to reduce our bad debt exposure.  

Zentiva's net sales declined by 18.7% to CZK 1,134.8 million in the first nine months of 2008. However in the third quarter of 2008 net sales increased 64.3% to CZK 336.9 million. This stronger performance in the third quarter reflects the much better business platform that Zentiva has developed in Romania and the weak comparable period last year and was achieved despite the  strength of the CZK vs. RON during this period.

In local currency terms, Zentiva's net pharmaceutical sales increased by 2.3% yoy during the first nine months of 2008 and by 111.2% in the third quarter of 2008.

The largest contributors to Zentiva's pharmaceutical sales in Romania were the Company's established local brands, most of which are CHC products, including Algocalmin (metamizole), the analgesic Antinevralgic P (paracetamol, codeine and acetylosalicylic acid) and the CNS drug Extraveral (phenobarbital, valerian). The lipid lowering drug Simvacard (simvastatin) also made an important contribution to sales in the first nine months of 2008.

The Romanian commercial team headcount declined by 27.9% to 176 at the end of September 2008 vs. 244 at this time in 2007. This headcount reduction coupled with other operational measures helped the Company's pharmaceutical operations restore their efficiency despite the lower sales. 

In the first nine months of 2008, two new drugs were introduced, the female drug Risendros (risendronate) and the cardiovascular drug Agen (amlodipine). Zentiva received 12 new marketing authorizations in Romania in the first nine months of 2008.

Poland

Zentiva's business in Poland continued to deliver higher volumes, but these were offset by lower prices resulting from a number of changes to product categorizations that took place in 2007 and 2008. Net sales in the first nine months of 2008 were flat at CZK 1,425.5 million in comparison to the same period in 2007. In local currency terms sales were 1.7% higher yoy. 

In the third quarter net pharma sales fell by 19.5% to CZK 392.4 million and by 18.2% in local currency terms, reflecting a slow-down in deliveries to the market in this quarter. 

In response to this changing environment we have continued to work to improve our operating efficiency. At the end of the first nine months of 2008, Zentiva's commercial team headcount had been reduced to 364 compared to 482 at the end of September 2007.

In Poland, the Company continued to rank as a volume and value leader in a number of selected therapeutic areas such as BPH treatment, hypolipidemia, anti-ulcerants as well as anti-hypertensives.⁶ 

In the first nine months of 2008, the anti-ulcer drug Helicid (omeprazole), the lipid lowering drugs Torvacard (atorvastatin) and Simvacard (simvastatin), the anti-hypertensive drug Lozap (losartan) and the urology drug Penester (finasteride) as well as the respiratory antibiotic Azitrox (azithromycin) were the main contributors to sales. Lozap, Torvacard and the anti-hypertensive drug Agen (amlodipine) are amongst our fastest growing prescription products in Poland. 

Zentiva launched four new products in the Polish market in the first nine months of 2008; Endiex (nifuroxazidem) for the treatment of diarrhoea, the female drug Risendros (risendronate), Lozap H (losartan plus a diurectic) for the treatment of hypertension and the urology drug Uroflow (tolterodin). Zentiva received 8 new marketing authorizations in the first nine months of 2008.

Slovakia

In Slovakia, net sales decreased by 7.9% to CZK 1,459.0 million during the first nine months of 2008. This performance reflects a slow down in sales prior to price decreases which became effective from July, as well as local currency weakness against the CZK. In the third quarter, net pharmaceutical sales in Slovakia increased by 5.0% to CZK 544.4 million. 

In local currency terms, Slovakian net pharma sales decreased by 3.0% in the first nine months but  increased by 9.7% in the third quarter. 

However, our continued efficiency focus helped us to partly offset the impact of lower sales on our operating margins. The commercial team headcount in Slovakia stood at 116 at the end of September of 2008 vs. 122 at the same time in 2007.

The modern branded prescription drugs that made the biggest contributions to the Company's sales in Slovakia were the lipid lowering drug Torvacard (atorvastatin), the anti-ulcer drug Helicid (omeprazole) and the cardiovascular drug Agen (amlodipine). These drugs are all now amongst Zentiva's top products in the Slovak market. The respiratory drug Zodac (cetirizine), the pain killer Tralgit (tramadol) as well as the anti-hypertensive Lozap (losartan) also made important sales contributions.  

The CHC products Ibalgin (ibuprofen), Paralen (paracetamol) and Anopyrin (acetylsalicylic acid) also made important contributions to sales in the first nine months of 2008. 

Zentiva launched two new products, Lindaxa (sibutramine) and CNS drug Argofan (venlafaxine) in the Slovak market in the first nine months of 2008. Zentiva received 12 new marketing authorizations in the first nine months of 2008.

Russia

In Russia, Zentiva continued to grow its business in the first nine months of 2008. Total net sales of pharmaceutical products increased by 12.9% to CZK 997.4 million in the period compared to CZK 883.6 million in the same period in 2007. This increase in sales was driven by higher volumes, which more than compensated for the negative impact of the strong CZK against the Ruble. In local currency terms, Zentiva's Russian net pharma sales grew by 33.9% in the first nine months of 2008.

In the third quarter Zentiva's sales in Russia grew by 3.4% to CZK 383.5 million, however in local currency terms, Zentiva's Russian net pharma sales grew by 21.8%.

Zentiva's 'in market' sales performance ranked the Company amongst the volume and value leaders in a number of therapeutic areas where modern treatments are important including 'sartans', BPH (benign prostatic hypertrophy), hypolipidemia, anti-hypertensives, nasal decongestants and anti-mycotics.⁷

Zentiva's organic growth strategy in the Russian market has continued to be successful due to the Company's modern product portfolio. The most significant contributors to Zentiva's sales in the first nine months of 2008 were the anti-hypertensive drugs Lozap (losartan) and Coronal (bisoprolol), the lipid lowering drug Torvacard (atorvastatin), and the urological products Zoxon (doxazosin) and Fokusin (tamsulosin). These drugs rank Zentiva as a leader in their respective therapeutic areas1. 

Within the CHC segment the nasal decongestant Pinosol and the antimycotics Mycomax (fluconazole) and Vitamin E were important contributors to Zentiva's sales. 

Zentiva's Russian commercial team headcount was 333 at the end of the first nine months of 2008 vs. 299 at the same time last year as we continued to invest in what we see as a key long term growth market for the Company. The efficiency of our commercial operations has continued to improve during the first nine months of 2008 when compared to last year.

During the first nine months of 2008 the Company received 6 new marketing authorizations. 

Other Markets

In addition to its six core markets, Zentiva has been rapidly developing its business in a number of other important countries in Central and Eastern Europe. In aggregate these markets grew net sales 24.2% to CZK 1,021.8 million in the first nine months of 2008 and together they now account for 9% of Zentiva's total net pharmaceutical sales. 

In the third quarter these markets achieved sales of CZK 372.4 million, a 17.2% growth over the same period last year.

During the first nine months of 2008 growth was achieved in the Ukraine with net sales up 14.7% to CZK 289.3 million, in Bulgaria where net sales were up 99.4% to CZK 173.9 million and in other markets of the CIS, where net sales grew by 37.1% to CZK 155.9 million. 

In Hungary, where Zentiva acquired certain products and assets as well as personnel from Sanofi-Aventis in March 2007, net sales increased 8.6% to CZK 172.6 million in comparison to the same nine month period in 2007.

  III        RESEARCH AND DEVELOPMENT 

Introduction

Zentiva's international growth strategy is dependent on a continuous flow of new self-developed modern affordable medicines. This means that new product development is a key determinant of the Company's success. In recent years, Zentiva has been investing in its research and development capability to provide the new branded products needed to support its much enlarged geographic footprint. Zentiva's primary care focus means that its product pipeline is centered on therapeutic areas which are mainly treated by primary care physicians. 

Marketing Authorization

The Company received 53 new marketing authorizations including 21 via MRP (Mutual Recognition Procedure) and 8 via DCP (Decentralized Procedure) in the first nine months of 2008 in Zentiva's six core markets (CZ, TR, RO, PL, SK, RU). These include registrations of new products and line extensions of existing products. In all of the markets in which Zentiva operates the Company received a total of 136 new marketing authorizations in the first nine months of 2008, of which 35 were via MRP and 12 via DCP. 

The Company submitted a total of 100 marketing authorization applications in the first nine months of 2008 in Zentiva's six core markets, 5 of which were via MRP and 78 via DCP. Across all of the markets in which it operates Zentiva submitted 228 marketing authorization applications during the first nine months of 2008 of which 11 were MRP applications and 167 DCP applications. 

As of September 30, 2008 the Company had a total of 173 marketing authorization applications pending in its six core markets for the sale of pharmaceutical products. This figure includes the registration of new products, the registration of existing products in new territories, and line extensions on existing products, 5 of these pending applications were made using MRP and 94 using DCP. Across all of the markets in which it operates, Zentiva had 343 marketing authorization applications pending at the end of September 2008, of which 21 were via MRP and 195 via DCP. 

  IV     MANAGEMENT'S DISCUSSION & ANALYSIS 

Sales

In the first nine months of 2008, Zentiva's net sales increased by 17.7% to CZK 13,096.9 million from the CZK 11,127.3 million achieved in the same period in 2007. Excluding the negative impact of the appreciation of the Czech Koruna, sales in the first nine months of 2008 would have increased by 28.1%.

The key factor behind the growth in sales was the consolidation of the Company's recent Turkish acquisition which contributed net sales of CZK 3,613.0 million. Higher net sales were also achieved in Russia as well as a number of the newer markets, which the Company is targeting. These include the Ukraine, other CIS countries, Bulgaria and Hungary. Sales in the Czech Republic, Slovakia and Romania declined. 

In the third quarter, Zentiva's net sales decreased by 5.2% to CZK 4,106.6 million due to the negative impact of the stronger Czech Koruna. At constant exchange rates third quarter sales would have increased by 3.2%.

During the first nine months of 2008 our core pharmaceutical business increased net sales by 12.4% to CZK 11,269.4 million. Our non-pharmaceutical business, comprising sales of APIs, contract manufacturing and other sales, increased by 66.1% to CZK 1,827.5 million due to the inclusion of Eczacibasi-Zentiva's net sales of APIs, contract manufacturing and services. 

Gross Profit

In the first nine months of 2008, Zentiva's gross profit increased by 14.6% to CZK 7,749.6 million. The gross margin declined to 59.2% from 60.8% in the corresponding period in 2007. This decline was  mainly due to the consolidation of Eczacibasi-Zentiva, with its lower gross margins for the whole nine month period vs. only Q3 in 2007. Excluding Eczacibasi-Zentiva the gross margin was 64.3% in the first nine months of 2008. This difference in gross margin highlights the greater efficiency and the higher margin product mix of Zentiva's business in its markets outside Turkey. However in the last nine months we have made significant progress in our goal of increasing the margins of our Turkish business. This is the result of our focus on improving our product mix, which has led to lower discounts, as well as increasing the efficiency of our Turkish commercial organization. 

In the third quarter, gross profit increased by 4.1% to CZK 2,443.4 million, despite lower sales, as the gross margin improved from 54.2% to 59.5%, as our focus on greater efficiency continued to deliver positive results.  

Operating expenses

Sales & Marketing

The Company's sales and marketing expenses increased by 0.8% during the first nine months of 2008 to CZK 3,344.0 million. This is a result of the successful cost containment measures taken to control these costs that started in the latter part of 2007. In the first nine months of 2008, sales and marketing expenses amounted to 25.5% of net sales compared to 29.8% in the first nine months of 2007. 

The modest increase in expenditure is due to the consolidation of Eczacibasi-Zentiva, our larger commercial organizations in growth markets such as Russia and Ukraine, as well as the start of the Company's commercial operations in Hungary from March 2007 being offset by lower costs in a number of our other core markets. 

At the end of the first nine months of 2008, the commercial team headcount stood at 2,151, which represents a 14.0% reduction from the 2,502 people⁸ in commercial activities at the end of third quarter 2007. It was in the final quarter of 2007 when Zentiva started the activities needed to integrate its Turkish acquisition and adapt to the changing business environment in number of our markets. 

In the third quarter of 2008, Zentiva's sales and marketing expenses declined by 15.8% to CZK 1,018.1 million. This figure represents 24.8% of net sales during the period.

Research & Development

Zentiva's research and development expenses increased by 18.9% to CZK 565.7 million in the first nine months of 2008, representing 4.3% of net sales. This is the same level as in the first nine months 2007. The growth in spending is due to the consolidation of our R&D operation in Turkey and our higher number of registrations. 

In the third quarter overall R&D expenses amounted to CZK 169.0 million, a decrease of 12.8%.

General & Administrative

The Company's general and administrative expenses declined by 2.2% compared to the first nine months of 2007 to CZK 1,478.7 million representing 11.3% of net sales vs. 13.6% last year. This decline was due to higher general and administrative expenses in the comparable period last year as a result of allowances for doubtful debts relating to Romanian customers of CZK 235.1 million compared to the net release of allowances for doubtful debts of CZK 63.2 million during the first nine months 2008.  

In the third quarter, the Company's general and administrative expenses declined 24.2% to CZK 450.1 million mainly due to an impact of Romanian allowances for doubtful debts of CZK 108.2 million in the third quarter last year.

Impairment of Fixed Assets

In the first nine months of 2008, Zentiva made an impairment charge of CZK 193.8 million. This was due to the impairment of fixed assets related to its acquisitions in Turkey and Romania of CZK 154.1 million and CZK 39.7 million, respectively. In both cases nearly all of the impairment charge was made in Q2 2008 in respect of certain intangible assets (products, projects) so that the Company can focus on other more efficient brands and molecules. 

There is no goodwill impairment included in this figure and the decisions that have led to this impairment charge are expected to be beneficial to Zentiva's future profitability.

In Turkey the impairment charge relates mainly to the discontinuation of certain development projects, for commercial reasons (62% of impairment). The remaining part is due to the impairment of the value of several brands, whose performance is expected to be lower than had been expected at the time of the original asset value allocation. This is because these brands have been intentionally replaced by newer molecules in the same therapeutic area, from either Zentiva's pipeline (5 brands) or Eczacibasi-Zentiva's own pipeline (1 brand) or due to our decision to reduce the discounts on some products for efficiency reasons The lower expectations of future economic benefits, which have resulted in impairment of these intangible assets in Turkey, are more than compensated for by the higher sales of more profitable brands. Similar reasons are behind the impairment of brands in Romania, where those are being replaced by newer, higher margin products.

Profit before Tax and Finance Costs (EBIT)

The Company's EBIT increased by 48.4% to CZK 2,167.4 million in comparison to the first nine months of 2007. During the period the EBIT margin increased from 13.1% to 16.5%, including the impact of the impairment charge. EBIT in the first nine months of 2008 would have increased by 61.7% to CZK 2,361.2 million excluding the impairment charge, representing a margin of 18.0% in the first nine months of 2008. 

In the third quarter of 2008 EBIT increased by 129.6% to CZK 803.7 million due the positive impact of the efficiency improvements that the Company has made since the latter part of 2007.

Net Interest and Other Financial Results

In the first nine months of 2008 Zentiva had a net interest expense of CZK 634.8 million. This compares with a net interest expense in the same period of 2007 of CZK 265.5 million. This much higher net interest expense is due to the debt finance that Zentiva used for its acquisition in Turkey, which was made in July 2007. 

In the third quarter of 2008 net interest expense decreased by 13.2% to CZK 190.0 million due to the reduction in the Company's net debt levels as a result of strong cash flow.

In the first nine months of 2008, Zentiva recorded other financial income of CZK 81.0 million versus other financial income of CZK 305.8 million in the corresponding period of 2007. The financial income in 2008 was largely due to positive net foreign exchange translation effects of CZK 168.3 million, mainly driven by the strength of the CZK vs. EUR (part of the acquisition loan and financial liability to minorities⁹). This was partially offset by other net losses of CZK 87.3 million, arising mainly from a drop in fair value of interest rate derivatives as at September 30, 2008 that were entered into in connection with the acquisition financing in 2007. The decrease in the fair value reflects an increased volatility in interest rate markets in Q3 2008.

In the third quarter of 2008, Zentiva recorded other financial losses of CZK 152.8 million due to negative net foreign exchange translation effects of CZK 88.4 million and other net financial loss of CZK 64.4 million resulting from a drop in fair value of interest rate derivatives, as mentioned in the preceding paragraph. 

Profit before tax

The Company's profit before tax of CZK 1,613.7 million in the first nine months of 2008 was 7.6% higher than in the same period in 2007 as the much improved operating performance was partially offset by the above mentioned impacts. 

In the third quarter, profit before tax was CZK 461.0 million, 44.9% higher than the corresponding period in 2007.

Income tax expense

The Company's tax charge increased by 14.1% in the first nine months of 2008 to CZK 441.7 million from CZK 387.1 million in the same period of 2007. The effective tax rate was 27.4% versus 25.8% in 2007. The increase in effective tax rate was driven by a loss at the Group company holding level in the Q3 2008 due to a FX loss on EUR exposure, in comparison to FX gains in Q1 and Q2 2008. The Q3 loss could not be reflected through a deferred tax asset recognition, therefore, it significantly increased the effective tax rate of the group. The volatility of exchanges rates during 2008 has resulted in Zentiva's effective tax rate being significantly lower during the H1 2008 and  significantly higher in Q3 2008.  

In the third quarter, Zentiva's income tax expense was CZK 200.7 million and its effective tax rate was 43.5% versus 22.9% in 2007. This increase was due to the above mentioned tax position at the holding level of Zentiva NV which could not be reflected through deferred tax asset recognition.

Net profit for the period attributable to equity holders of the parent (Net profit)

The Company's net profit increased by 2.7% to CZK 1,091.9 million in the first nine months of 2008. The net profit margin decreased to 8.3% from 9.6% in the first nine months of 2007. Excluding Impairment, Net profit was up 16.7% to CZK 1,240.1 million representing a margin of 9.5%.

In the third quarter, net profit was CZK 258.9 million, 11.9% higher than the corresponding period in 2007, and net profit margin was 6.3%. 

Balance Sheet 

At the end of September 2008, Zentiva's net debt decreased by 25.6% to CZK 11,613.8 million from CZK 15,608.1 million at the end of September 2007. The net debt to Equity ratio stood at 108.3% at the end of September 2008 vs. 122.4% last year. 

The Company has continued to improve its net debt position during the course of the first nine months of 2008 due to an improvement in its operating cash flow and an agreed-upon post-closing adjustment to the price of Eczacibasi Generic Pharmaceuticals, its Turkish acquisition, amounting to EUR 58 million. 

In Q3 2008, the company paid a dividend of CZK 239 million (net of withholding taxes).

Cash Flow

In 2008, Zentiva's free cash flow before acquisitions continued the much improved trend that began in the second half of 2007. In the first nine months of 2008 free cash flow before acquisitions amounted to CZK 1,670.0 million, representing 77.1% of EBIT (profit before tax and finance costs) in terms of cash conversion. This compares with cash conversion of 41.0% on free cash flow of CZK 598.9 million in the nine months of 2007. 

Capital Expenditures 

The Company's capital expenditure in the first nine months of 2008 fell by 24.4% to CZK 846.6 million. Capital expenditure represents 6.5% of net sales during this period in 2008 vs. 10.1% in the same period in 2007. The decrease in the capex-to-sales ratio reflects efforts to rationalize overall spending. 

  V    OUTLOOK 

• Zentiva's Outlook for 2008 remains unchanged and is in line with previous guidance 

• Excluding currency effects¹⁰ which have been significant, reducing sales by approximately CZK 0.9 bn. in the first nine months of 2008, we expect:

• A full year net sales growth of around 20%

• EBIT margin of at least 15%

• Sales growth in 2008 is expected to be driven by Turkey, Russia, and Ukraine. This will be aided by our continued solid sales performance in Romania in the last quarter

• In Turkey we have created a solid foundation for sustainable growth based on the integration measures which started in the second half of 2007 

• Our much enhanced geographic reach combined with significant efficiency improvements has led to much improved operating results in 2008 to-date. We remain of the view that our better balanced business and our continuing focus on efficiency provides us with a unique platform to successfully navigate our business through a tougher economic environment which is ahead of us.

  VI  Takeover offers 

• Since the beginning of May, Zentiva has been the subject of offers from its two largest shareholders, PPF and Sanofi-Aventis. 

• On June 17, 2008 PPF, via a wholly owned subsidiary, Anthiarose Limited, made a voluntary offer to acquire all of the outstanding shares of Zentiva at a price of CZK 950 per share.

• On July 11, 2008, Sanofi-Aventis Europe launched a competing bid for Zentiva at a price of CZK 1,050 per share valid till September 19, 2008. 

• The Board welcomes interest in the Company and is willing to explore any opportunities that are in the best interests of Zentiva, its shareholders and all other stakeholders. 

• Based on this principle, Zentiva' Board evaluated both of these offers carefully and issued Position Statements on June 20, 2008 and July 18, 2008 rejecting the PPF and Sanofi-Aventis Offers, respectively. A major reason for the rejection of the Offers was the fact that they failed to reflect the underlying value of Zentiva's business. As such it was the Board's view that they were not in the best interests of its shareholders and its other stakeholders.

• On July 30, 2008, PPF formally withdrew its offer. 

• The offer from Sanofi-Aventis was extended to November 28, 2008, unless further extended.

• On September 22, 2008, Sanofi-Aventis announced its intention to raise the offer for Zentiva to CZK 1,150 in cash per share and officially announced its improved offer on October 1, 2008.

• On October 1, Zentiva's Board recommended shareholders accept the Improved Offer from Sanofi-Aventis and tender their shares into the Improved Offer. This recommendation has been made after the Board had given due and careful consideration to the strategic, financial and social aspects and consequences of the Improved Offer and has reviewed other alternatives available to the Company. On the basis of these considerations, the Board having received legal and financial advice, and taking into account the identity, certainty of financing and track record of Sanofi-Aventis Europe, certainty of execution, conditionality, the nature of the consideration, and the future plans of Sanofi-Aventis Europe with respect to the Company and its strategy, management, employees and other stakeholders, unanimously reached the conclusion that the Improved Offer is in the best interests of the Company, the shareholders and all other stakeholders of the Company.

  VII     GROUP STRATEGY

Zentiva's development has been driven by its management team focusing on a clear and consistent strategy for profitable growth. The Company's strategy is based on a number of key elements: 

• Extending Zentiva's geographic reach outside its core markets of the Czech Republic, Turkey, Romania, Poland, Slovakia, and Russia into new markets of Central and Eastern Europe while strengthening its position in existing markets to become either a national pharmaceutical player or a leader in selected therapeutic areas. The Company's geographic expansion is being achieved via a combination of organic development and acquisitions which support Zentiva's strategy.

• Developing, manufacturing, marketing and selling modern pharmaceuticals at competitive prices in selected key therapeutic areas which are mainly treated by primary care physicians or are self-medicated by the patient. These include cardiovascular, central nervous system, pain management, alimentary tract, gynecology, urology, and consumer healthcare.

• Focusing on building an internationally competitive, efficient and flexible organization which is able to capitalize on the significant market opportunities that exist in primary care thanks to its strong management team, efficient and tightly integrated production capabilities and product development processes.

 

VIII         DIVIDEND 

 

On April 30, 2008 Zentiva announced that it plans to pay a dividend for 2007. The Board of directors proposed that in respect of the financial year of 2007, Zentiva would pay a dividend of CZK 7.40 (gross) per share representing a pay-out ratio of 20% which was in line with the Company's dividend policy. The proposal was approved by shareholders at the Annual General Meeting which was held on June 5, 2008 in Amsterdam, the Netherlands.

The dividend was paid from the profit realized in the financial year of 2007, and was payable on July 18, 2008. The record day for payment of the dividend was July 4, 2008. More details on dividend payment are available on www.zentiva.nl in the 'Investors' section.  

Zentiva's dividend policy is to pay out of between 15% - 20% of Net income. The Company paid dividends of CZK 8.0, CZK 9.5, CZK 11.50 and CZK 7.40 per share in 2005, 2006, 2007, and 2008 respectively, representing a pay out ratio of approx. 19% - 20%.

  IX    Important announcements MADE during 2008

Date	Announcement11
January 28, 2008	Notification of Change in Shareholders' Structure (J&T Financial Services Limited)
January 30, 2008	Notification of Change in Shareholders' Structure (Generali PPF Holding B.V.)
February 14, 2008	12 Month 2007 Sales Report
March 6, 2008	Turkish acquisition - Post-closing adjustment agreement
March 10, 2008	Preliminary 2007 results
April 24, 2008	3 Month 2008 Sales Report
April 30, 2008	2007 Audited results and 2007 Annual Report
April 30, 2008	Dividend of CZK 7.40 (Gross) per Share for 2007 Proposed to Shareholders
May 5, 2008	Statement regarding Approach by Anthiarose Limited
May 5, 2008	Change in the Board of Zentiva N.V.
May 5, 2008	Notice of Annual General Meeting
May 19, 2008	First Quarter Results 2008
June 5, 2008	Results of Annual General Meeting
June 11, 2008	Results of Annual General Meeting - update
June 17, 2008	Statement regarding official publication of voluntary takeover offer by Anthiarose Limited
June 18, 2008	Statement regarding intended competing offer by sanofi-aventis
June 20, 2008	Zentiva Responds to Anthiarose CZK 950 per Share Voluntary Offer
June 20, 2008	Notice of Extraordinary General Meeting
June 26, 2008	Termination of the shareholders agreement between Sanofi-Aventis Europe and certain management shareholders
July 9, 2008	Results of Extraordinary General Meeting
July 11, 2008	Statement regarding Official Publication of Voluntary Takeover Offer by Sanofi Aventis Europe
July 18, 2008	Zentiva Responds to Sanofi-Aventis CZK 1,050 per Share Voluntary Offer
July 21, 2008	Results of Extraordinary General Meeting - update
July 22, 2008	6 Month 2008 Sales Report
August 12, 2008	Notice of Extraordinary General Meeting
September 3, 2008	Results of Extraordinary General Meeting
September 3, 2008	Statement regarding Sanofi-Aventis Europe CZK 1,050 per Share Voluntary Offer
September 5, 2008	Results of Extraordinary General Meeting - update
September 22, 2008	Statement regarding Intended Improved Offer of CZK 1,150 per Share by Sanofi Aventis Europe. The Board of Directors of Zentiva recommended the Intended Improved Offer.
September 26, 2008	Notification of Change in Shareholders' Structure (Belviport Trading Ltd.)
October 1, 2008	Notification of Change in Shareholders' Structure (PPF Group N.V. and Generali PPF Holding B.V. acting in concert and Belviport Trading Ltd.)
October 1, 2008	Statement regarding the officially announced Improved Offer of CZK 1,150 per Share by Sanofi Aventis Europe
October 22, 2008	9 Month 2008 Sales Report

X    SHAREHOLDER STRUCTURE 

Current shareholder structure1:

Shareholder	Capital interest	Voting Rights
Sanofi-Aventis Group	24.9%	24.9%
PPF Group N.V. and Generali PPF Holding B.V. acting in concert	24.3%	24.3%
Belviport Trading Ltd.	10.1%	10.1%
Fervent Holdings Limited	7.6%	7.6%
Management and employees	5.9%	5.9%
Other Institutional & Private investors	27.2%	27.2%
Total	100.0%	100.0%

   Source: Zentiva, AFM

1 Under Dutch law, if any person or entity actively or passively, directly or indirectly, acquires or disposes of shares and/or voting rights relating to Zentiva and such person or entity knows or should reasonably know that the shares and/or voting rights that are at its disposal reach, exceed or fall below any of the thresholds of 5%, 10%, 15%, 20%, 25%, 30%, 40%, 50%, 60%, 75%, or 95%, that person or entity must promptly notify the same to the AFM. Notifications received by AFM are then published by AFM on its website at www.afm.nl. Shareholder's disclosure obligation only applies if one of the relevant thresholds is crossed. Movements in shareholding within the thresholds are not required to be disclosed. Publicly disclosed information relates only to a specific date and may no longer be completely accurate as of a later date. Zentiva's information about its shareholders' structure is based only on publicly disclosed information.

Treasury Shares

Number of treasury shares stood at 143,720 shares at the end of the third quarter 2008, which is less of 27,280 shares from 171,000 shares held at the end of June 2008. The difference is a result of use in line with the Company's employee stock option plan adopted in 2005. No treasury shares had been purchased during the third quarter 2008. The treasury shares had been purchased to be used as part of the Company's employee stock option plan.

 XI    BOARD STRUCTURE 

Board structure as of September 30, 2008 and current Board structure 

Jiří Michal, Chairman	Director A
Brad Wilson, Vice Chairman	Director B
Urs Kamber	Director B
Jean-Michel Levy	Director B
Johannes Scholts	Director B
Hanspeter Spek	Director B

Note: According to the Articles of Association Director A represents an Executive Director, Director B is a Non-executive Director. 

Changes to the Board structure in 2008

On May 5, 2008, Zentiva announced that Mr. Bülent Eczacibaşi had resigned from the Board of Managing Directors (the 'Board') of Zentiva N.V. as of May 1, 2008.

On June 5, 2008, the Annual General Meeting (the 'AGM') was informed that in 2008, terms of three Directors A of the Board, i.e., of Petr Šulc, Lars Ramneborn, and Jiří Michal, would expire in accordance with the Dutch corporate governance code. On April 23, 2008 the Board resolved to decrease the number of Directors A from three to one, and therefore there was one Director A vacancy open for election by the AGM. The Board recommended to re-appoint Mr. Jiří Michal, the Chief Executive Officer of the Company, as Director A. The AGM resolved to appoint Mr. Jiří Michal as Director A for the term starting on June 6, 2008 and expiring at the end of the day of the annual general meeting to be held in the year 2012.

On June 5, 2008, the AGM was informed that in 2008, terms of two Directors B of the Board, i.e., of Messrs. Brad Wilson and Johannes Scholts would expire in accordance with the Dutch corporate governance code. The AGM appointed Messrs. Brad Wilson and Johannes Scholts as Directors B for the term starting on June 6, 2008 and expiring at the end of the day of the annual general meeting to be held in the year 2012. The AGM failed to appoint Mr. Marcel Dostal, a Director B. Currently, one Director B seat on the Board is vacant.

The Board was informed of the U.S. Securities and Exchange Commission's announcement of May 30, 2008 concerning Urs Kamber, a Director B of the Company. The Board took note of the facts and decided to take no further action. 

The current composition of the key Board Committees is as follows: 

Audit committee: 
Urs Kamber (chairman)
Jean-Michel Levy
Brad Wilson

Remuneration committee:
Brad Wilson (chairman)
Hanspeter Spek
Jan Scholts

Selection & Appointment committee:
Jan Scholts (chairman)
Hanspeter Spek
Brad Wilson

  XII    METHOD OF CONSOLIDATION

The consolidated financial statements are in accordance with IFRS and comprise the financial statements of Zentiva N.V. and its subsidiaries. Subsidiaries are consolidated from the date on which control is transferred to the Group and cease to be consolidated from the date on which control is transferred out of the Group. Group companies are those companies in which the parent company has a controlling financial interest through direct and indirect ownership of a majority voting interest or effective managerial and contractual control. The subsidiaries held or acquired exclusively with a view to subsequent resale are excluded from consolidation and are included as available-for-sale investments and measured at fair value where this can be reliably measured or at cost less impairment losses where fair value cannot be reliably measured. All material inter-company accounts and transactions have been eliminated in consolidation. The equity and net profit for the period attributable to minority interests are shown as separate items in the consolidated financial statements.

The impairment test of goodwill from Turkish acquisition was performed in accordance with IAS 36 Impairment of assets before year end 2007.

Goodwill impairment

The initial purchase price allocation related to Turkey and related goodwill were determined only provisionally as of December 31, 2007. Goodwill impairment test was performed as of December 31, 2007 based on knowledge about the acquired business which management of the Group had gathered so far. Budgets used for identifiable asset valuation (prepared for provisional acquisition accounting in summer 2007) were updated in order to calculate the recoverable amount and test goodwill impairment. The revised budgets were prepared in accordance with business strategy of Zentiva Group which will be applied in Turkey and were also applied for intangible assets impairment testing and valuation of put call option related to the remaining 25% stake acquisition. 

Goodwill impairment sensitivity analysis provided below is based on calculated difference between recoverable and carrying amount of goodwill in comparison with the base value which represents the result of goodwill impairment test performed by Zentiva Group as of December 31, 2007. The results of the test lead to a conclusion that no impairment needs to be recognized in year 2007.

Goodwill impairment test sensitivity analysis in CZK million from base value

EBITDA margin average growth12	WACC
	9.50%	10%	10.50%	11%	11.50%
4.0%	4,696	3,255	1,953	775	(279)
3.5%	2,480	1,178	base value	(1,069)	(2,030)
3.0%	310	(868)	(1,922)	(2,867)	(3,735)

EBITDA breakeven growth resulting in goodwill impairment to be charged is 2.6 % using WACC of 10.5%

  XIII    CONSOLIDATED STATEMENTS OF INCOME FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007

Unaudited financial statements in accordance with IFRS

	Nine month period ending
(all figures in CZK ´000)	September 30, 2008	September 30, 2007	% change
Total sales	13 096 893	11 127 277	17.7%
Costs of Goods Sold	(5 347 299)	(4 362 489)	22.6%
Gross Profit	7 749 594	6 764 788	14.6%
Sales and Marketing Expenses	(3 344 027)	(3 316 907)	0.8%
General and Administrative Expenses, net	(1 478 659)	(1 511 998)	(2.2%)
Impairment of fixed assets	(193 769)	-	-
Research and Development	(565 695)	(475 808)	18.9%
Profit Before Tax and Finance Costs	2 167 444	1 460 075	48.4%
Interest Income	108 677	35 795	203.6%
Interest Expenses	(743 437)	(301 336)	146.7%
Financial income/(expenses), net	81 003	305 790	(73.5%)
Profit Before Tax	1 613 687	1 500 324	7.6%
Income Tax Expense	(441 717)	(387 063)	14.1%
Net Profit for the Period	1 171 970	1 113 261	5.3%
Attributable to:
Equity Holders of the parent	1 091 905	1 062 739	2.7%
Minority Interest	80 065	50 522	58.5%

  XIV    CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007

Unaudited financial statements in accordance with IFRS

	Three month period ending
(all figures in CZK ´000)	September 30, 2008	September 30, 2007	% change
Total sales	4 106 628	4 330 694	(5.2%)
Costs of Goods Sold	(1 663 201)	(1 983 535)	(16.1%)
Gross Profit	2 443 427	2 347 159	4.1%
Sales and Marketing Expenses	(1 018 132)	(1 209 334)	(15.8%)
General and Administrative Expenses, net	(450 131)	(593 959)	(24.2%)
Impairment of fixed assets	(2 458)	-	-
Research and Development	(168 970)	(193 843)	(12.8%)
Profit Before Tax and Finance Costs	803 736	350 023	129.6%
Interest Income	55 126	17 136	221.7%
Interest Expenses	(245 106)	(236 064)	3.8%
Financial income/(expenses), net	(152 780)	186 964	(181.7%)
Profit Before Tax	460 976	318 059	44.9%
Income Tax Expense	(200 651)	(72 949)	175.1%
Net Profit for the Period	260 325	245 110	6.2%
Attributable to:
Equity Holders of the parent	258 927	231 458	11.9%
Minority Interest	1 398	13 652	(89.8%)

  XV   CONSOLIDATED BALANCE SHEETS AS AT SEPTEMBER 30, 2008 AND 2007 and DECEMBER 31, 2007  

Financial statements in accordance with IFRS 

Balance Sheets as at	September 30,  2008	September 30,   2007	December 31, 2007
(all figures in CZK ´000)	(Unaudited)	(Unaudited)	(Audited)
ASSETS
Non-Current Assets
Property, Plant and Equipment, net	8 157 026	8 739 071	8 643 798
Intangible Assets, net	3 826 895	6 936 529	4 802 897
Investments	24 318	25 735	24 977
Long Term Receivables1	74 635	140 780	133 318
Deferred Tax Asset	345 024	303 755	254 601
Goodwill	7 946 884	8 758 200	9 038 007
Total Non-Current Assets	20 374 782	24 904 070	22 897 598
Current Assets
Inventory	2 765 273	3 651 420	3 000 887
Accounts Receivables, net	6 540 304	8 056 185	7 081 659
Purchase price adjustment receivable	-	-	1 634 720
Prepayments and Other Current Assets	259 848	464 010	205 907
Marketable securities	21	21	21
Assets Held for Sale	287	5 609	5 565
Cash and Cash Equivalents	3 090 949	1 941 545	2 213 613
Cash restricted more than 3 months	12 962	14 262	13 970
Total Current Assets	12 669 644	14 133 052	14 156 342
TOTAL ASSETS	33 044 426	39 037 122	37 053 940
LIABILITIES AND EQUITY
Equity
Share Capital	12 112	12 112	12 112
Treasury shares	(153 018)	(182 592)	(182 592)
Share Premium	2 514 784	2 514 784	2 514 784
Share Options Granted	144 779	95 966	103 101
Retained Earnings	10 140 024	8 985 430	9 335 127
Cumulative translation adjustment	(2 939 103)	208 246	(860 737)
Total Shareholders' Equity	9 719 578	11 633 946	10 921 795
Minority interest	1 008 393	1 118 805	1 037 607
Total Equity	10 727 971	12 752 751	11 959 402
Non-Current Liabilities
Obligations Under Capital Lease	557	9 747	3 339
Interest Bearing Loans and Borrowings	9 607 995	13 386 907	13 172 128
Financial liability to minorities1	-	4,285,554  -	4 195 026
Provisions and Other Long Term Liabilities	257 347	5,951	279 491
Deferred Tax Liability	565 052	1 156 596	699 395
Total Non-Current Liabilities	10 430 951	18 844 755	18 349 379
Current Liabilities
Accounts Payables	1 669 748	1 910 186	2 152 776
Other Taxes Payables	105 658	103 081	117 036
Accruals and Other Current Liabilities	829 792	1 200 167	784 763
Current Tax Accrual	101 811	22 341	34 877
Overdraft and Short Term Notes	5 109 686	4 176 999	3 625 718
Financial liability to minorities	4 047 482	-	-
Dividends Payable	19 956	20 446	20 468
Current Capital Lease Obligation	1 371	6 396	9 521
Total Current Liabilities	11 885 504	7 439 616	6 745 159
TOTAL LIABILITIES AND EQUITY	33 044 426	39 037 122	37 053 940

1 The BS as of 31.12.2007 and 30.9.2007 was revised to conform with 2008 presentation. Contingent consideration receivable which was originally presented as deduction from the financial liability to minorities is currently shown under long term receivables.

  XVI    CONSOLIDATED CASH FLOWS FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 2008 AND 2007

 Unaudited financial statements in accordance with IFRS

(all figures in CZK ´000)	Nine month period ending
	September 30,   2008	September 30,  2007
Cash flows from operating activities
Profit before income taxes	1 613 687	1 500 324
Adjustment for:
Depreciation, amortization expense and impairment	1 199 721	833 495
Net interest costs	634 760	265 541
(Gain)/Loss on disposal of property, plant and equipment	(7 377)	(880)
Other non-cash (gains)/charges, net	(329 291)	37 371
Operating cash flows before working capital changes	3 111 500	2 635 851
Changes in:
Accounts receivables	(88 412)	(236 963)
Inventory	180 455	(203 306)
Accounts payables	197 493	329 123
Other assets	(61 943)	(251 241)
Other liabilities and provisions	(23 442)	106 980
Cash generated from operations	3 315 651	2 380 444
Interest paid	(593 502)	(129 373)
Income taxes paid	(342 763)	(614 681)
Net cash flows used in operating activities	2 379 386	1 636 390
Cash flows from investing activities
Purchase of tangible and intangible assets	(846 553)	(1 120 020)
Proceeds from disposal of property, plant and equipment	26 817	48 921
Proceeds from disposal of assets held-for-sale	6 276	-
Proceeds from / Purchase of long-term receivables	(875)	(2 193)
Acquisitions, net of cash acquired	1 510 363	(13 139 083)
Interest received	104 991	35 829
Net cash flows used in investing activities	801 019	(14 176 546)
Cash flows from/(used in) financing activities
Proceeds from / Purchase of treasury shares	23 509	(59 687)
Proceeds from borrowings13	1 584 327	16 425 226
Repayment of borrowings14	(3 420 422)	(2 588 149)
Dividends paid to equity holder of the parent	(280 943)	(437 217)
Dividends paid to minority interests	(46 961)	(36 085)
Net cash flows from/(used in) financing activities	(2 140 490)	13 304 088
Net increase/(decrease) in cash and cash equivalents	1 039 915	763 932
Net foreign exchange difference	(163 587)	2 377
Cash and cash equivalents at the beginning of the period14	2 227 583	1 189 498
Cash and cash equivalents13 at the end of the period	3 103 911	1 955 807
Free cash flow YTD (before acquisitions)	1 670 042	598 927

  References

1) Profit before Tax and Finance costs

2) Profit for the period attributable to equity holders of the parent

3) Free Cash Flow before acquisitions

4) 9M/3Q 2007 Sales and Commercial staff were revised to conform with 2008 reporting

5) Includes contract manufacturing sales and other sales

6) Source: IMS (Retail market), September 2008, YTD data

7) Source: RMBC (Retail market), June 2008, MAT data

8) 9M/3Q 2007 Commercial staff was revised to conform with 2008 reporting

9) The consolidated figures include the Turkish acquisition assuming that Zentiva N.V. acquired 100% of Eczacibasi-Zentiva while 75% was acquired on July 2, 2007 and the remaining 25% is covered by a put/call option as per the shareholder's agreement and is assumed as a deferred payment for 25% stake. In connection with this financial liability to minorities CZK 152 million interest expense and CZK 300 million FX gain were charged / credited to 2008 P&L. The valuation of compensation to be paid for this stake under the put/call option arrangements is based on the same budgeted figures as those which are used for the goodwill impairment test and intangibles impairment analysis. The FX gains/losses connected with Turkish acquisition were also effected by realized FX loss on purchase price adjustment receivable which was collected on March 7, 2008 in amount of CZK 126 million.

10) Any further deviation of the CZK of 1% against all other currencies at the same time would have an impact of approx. CZK 160 mil. on top line, CZK 80 mil. on EBIT, and CZK 40 mil. on pre-tax earnings.

11) Full wording of the announcements is available on www.zentiva.cz in the section 'Investors'

12) Average budgeted EBITDA growth per years 2008-2012. From year 2013 onwards the estimated EBITDA growth is nil

13) 2007 proceeds and repayments of borrowings were revised to conform to the 2008 presentation - borrowings with maturities less than 3 months are presented on a net basis

14) Cash and cash equivalents and Cash restricted more than 3 months

Investor Relations		Media Relations
Petr Šulc Chief Financial Officer Tel: +420 267 242 737 petr.sulc@zentiva.cz	Alexander Marček Corporate Finance Director Tel: +420 267 243 745 alexander.marcek@zentiva.cz	Věra Kudynová PR Manager Tel: +420 267 242 312 vera.kudynova@zentiva.cz
Liběna Stiebitzová Investor Relations Specialist Tel: +420 267 243 055 libena.stiebitzova@zentiva.cz	General Inquiries Tel: +420 267 243 888 Fax: +420 272 702 869 investor.relations@zentiva.cz	Citigate Dewe Rogerson  Tel: +44 (0)20 7638 9571     David Dible david.dible@citigatedr.co.uk Chris Gardner  chris.gardner@citigatedr.co.uk

IMPORTANT NOTICES

Forward-looking Statements

This document contains 'forward-looking statements'. These forward-looking statements include all statements that are not historically known facts. They appear in a number of places throughout this document and include, but are not limited to, statements and underlying assumptions regarding Zentiva's intentions, beliefs, projections, plans, objectives, estimates, and current expectations concerning, amongst other things, Zentiva's results of operations, financial condition, liquidity, performance, prospects, growth, strategies, and the countries and industries in which Zentiva operates. Forward-looking statements are generally identified by the words 'expects,' 'anticipates,' 'believes,' 'intends,' 'estimates,' 'plans' and similar expressions. By their nature, forward-looking statements involve risk and uncertainty because they relate to future events and circumstances, many of which are difficult to predict and generally beyond the control of Zentiva. Forward-looking statements are not guarantees of future performance, and the actual results of Zentiva's operations, financial condition, liquidity, performance, prospects, growth, strategies, and the development of the countries and the industries in which Zentiva operates may differ materially from those described in, or suggested by, the forward-looking statements contained in this document. Other than as required by applicable law, Zentiva does not undertake any obligation to update or revise any forward-looking information or statements.

Other Important Notices

This document does not constitute or form part of any offer or invitation to sell or issue, or any solicitation of any offer to purchase or subscribe for, any shares or global depositary shares in Zentiva, nor shall it or any part of it nor the fact of its distribution form the basis of, or be relied on in connection with, any contract or investment decision. 

Recipients of this document, or any part or any copy of it, may not, directly or indirectly, take, or transmit into, or further distribute the document in, the United States, Canada, Australia, or Japan, or to any resident thereof. The distribution of this document in other jurisdictions may also be restricted by law, and persons into whose possession this document comes should inform themselves about, and observe, any such restrictions. Any failure to comply with these restrictions may constitute a violation of US, Canadian, Japanese, Australian or other securities laws.

Zentiva's ordinary shares and global depositary shares have not been and will not be registered under the US Securities Act of 1933 (the 'Securities Act') and may not be offered or sold in the US except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act.

For the purpose of Section 21 of the Financial Services and Markets Act 2000 of the United Kingdom (the 'FSMA'), any potential invitation or inducement to engage in any investment activity included within this document (which Zentiva believes there is none) is directed only at (i) persons who are investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (as amended) of the United Kingdom (the 'Financial Promotion Order'); (ii) persons who fall within Articles 49(2)(a) to (d) ('high net worth companies, unincorporated associations etc.') of the Financial Promotion Order; and (iii) any other persons to whom this document for the purposes of Section 21 of FSMA can otherwise lawfully be made (all such persons together being referred to as 'relevant persons'), and must not be acted on or relied upon by persons other than relevant persons. Any potential invitation or inducement to engage in any investment activity included within this document (which Zentiva believes there is none) is available only to relevant persons and will be engaged in only with relevant persons.

This document is published in both English and Czech version, however, only its English version should be considered the official one. Its Czech version is published solely for information purposes, and no representation is made and no warranty is given as to the accuracy of the Czech translation. Should there be any difference between the English and Czech version of this document, the English version shall always prevail.

NOTE FOR EDITORS

Zentiva N.V. is an international pharmaceutical company focused on developing, manufacturing and marketing modern generic pharmaceutical products. The Company has leading positions in the pharmaceutical markets in the Czech Republic, Slovakia, Romania, and Turkey and is growing rapidly in Poland, Russia, Bulgaria, Hungary, the Ukraine and the Baltic States. Zentiva's strategy is to further this growth by increasing patient access to modern medicines through primary care providers within the EU and Eastern Europe. This growth will be based on further organic development of Zentiva's existing business and through selective acquisitions, whilst maintaining profitable growth.

The Company addresses a wide range of therapeutic areas but has a particular focus on cardiovascular disorders, inflammatory conditions, pain, infections and diseases of the central nervous system and the gastrointestinal and urology fields.

The Zentiva Group employs almost 6,000 people and has production sites in the Czech Republic, Slovakia, Romania, and Turkey.

Zentiva is listed on the Prague and London Stock Exchanges. Based on official notifications by shareholders to the Dutch regulator, the Company's largest shareholders are Sanofi-Aventis (24.9%), PPF Group and Generali PPF Holding B.V. acting in concert (24.3%), Belviport Trading Ltd. (10.1%) and Fervent Holdings Limited (7.6%). Zentiva's management holds 5.9% of the Company shares. Other institutional and private investors hold a combined 27.2% of Company shares.

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