- convenience translation - Independent auditor's report on the audit of the remuneration report in accordance with Section 162 (3) AktG
To Bionfrontera AG, Leverkusen
Audit opinionWe have formally audited the remuneration report of Biofrontera AG, Leverkusen, for the financial year from
January 1, 2024 to December 31, 2024, as to whether the disclosures pursuant to Section 162 (1) and (2) AktG have been made in the remuneration report. In accordance with § 162 Abs. 3 AktG, we have not audited the content of the remuneration report.
In our opinion, the accompanying remuneration report includes, in all material respects, the disclosures required by section 162 (1) and (2) AktG. Our audit opinion does not cover the content of the remuneration report.
Basis for the audit opinionThe remuneration report was audited in accordance with Section 162 (3) AktG (IDW PS 870 (09.2023)).
Our responsibilities under this regulation and this standard are further described in the "Auditor's Responsibilities" section of our report. As an audit firm, we have applied the requirements of the IDW Quality Assurance Standard: Requirements for Quality Management in the Auditing Practice (IDW QMS 1 (09.2022)) have been applied. We have complied with the professional requirements of the German Public Auditors' Code and the Professional Code for German Public Auditors / Chartered Accountants, including the independence requirements.
Responsibility of the Management Board and the Supervisory BoardThe Management Board and the Supervisory Board are responsible for the preparation of the remuneration report, including the related disclosures, in accordance with the requirements of Section 162 AktG. They are also responsible for such internal control as they determine is necessary
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to enable the preparation of a remuneration report that is free from material misstatement, whether due to fraud or error.
Responsibility of the auditorOur objective is to obtain reasonable assurance about whether the remuneration report includes, in all material respects, the disclosures required by section 162 (1) and (2) AktG and to issue an auditor's report thereon.
We planned and performed our audit such that we can determine the formal completeness of the remuneration report by comparing the disclosures made in the remuneration report with the disclosures required by section 162 (1) and (2) AktG. In accordance with § 162 Abs. 3 AktG, we have not audited the content accuracy of the disclosures, the completeness of the individual disclosures or the fair presentation of the remuneration report.
Frankfurt am Main, April 14, 2025
countant
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Nexia GmbH Auditing company
Tax consulting company
Annika Fröde Adrian Schmidt
Certified public accountant Certified Public Ac-
Remuneration system for the members of the Management Board:
Principles of the system for the remuneration of the members of the Management Board of Biofrontera AG.
The compensation system for the executive doard aims to appropriately remunerate the executive board members in line with their duties and responsibilities, taking into amount the performance of each board memder as well as the success of the company. The structure of the compensation system for the executive board of Biofrontera AG aims at sustainable increase of the company's value and performance-oriented corporate management. The compensation system is effective from August 2024 for new contracts .The performance of the executive board members is adequately considered through appropriately and ambitiously set performance criteria within the variable compensation components (Pay for Performance). The current market practices are taken into amount in designing the compensation system.
In determining the compensation levels and the compensation system, the Supervisory Board generally follows the following guidelines:
The compensation system significantly contributes to promoting the business strategy as a whole.
In particular, the variable compensation components should be linked to the achievement of strategic objectives.
The compensation system and the performance criteria of its variable components incentivize long-term and sustainable development of the Biofrontera Group.
The strategic objectives formulated within the framework of the variable compensation components should ensure longterm and sustainable growth of the company.
To ensure long-term developments, variable compensation components with a multi-year character should further contribute, aligning with the share price performance of Biofrontera AG and thus linking compensation to profit growth and shareholder interests.
The compensation system consists of:
a fixed basic remuneration, payable monthly, which takes into amount the tasks and performance of the members of the Management Board ("basic remuneration").
a short-term variable compensation dependent on the achievement of the Company's annual performance targets in the form of an annual performance-related bonus ("Short-Term Variable Compensation": "STI").
A long-term compensation in the form of a stock appreciation rights program ("SAR program"), which is therefore directly linked to the Company's performance and is intended to create an incentive for sustained commitment to the Company. From August 2024, long-term variable remuneration may also take the form of a performance-related bonus based on performance over several consecutive years ("long-term variable compensation"; "LTI"). The goals for short- and longterm variable compensation are derived from the corporate strategy of Biofrontera AG. In addition, customary fringe benefits are provided.
Overall, the compensation thus contributes to the long-term development of the company.
The target total compensation for each board member results from the base salary, the short-term variable compensation, and the long-term variable compensation at 100% target achievement.
In a ordance with the compensation system, the Supervisory Board determines the level of target total compensation for each
board member.
In doing so, it takes into amount not only an appropriate relationship to the duties and performances of the board member but also the economic situation as well as the success and future prospects of the company. The Supervisory Board ensures that the target total compensation does not exceed the customary compensation without special reasons.
Biofrontera AG Annual Report 2024
The assessment of market conformity is carried out both horizontally (external comparison/peer group comparison) and vertically (internal comparison).
Horizontal Comparison
The selection of the comparison group for assessing the market conformity of total compensation is based on the requirements of the Stock Corporation Act (especially industry and size as well as international orientation).
The composition of the comparison group is generally determined, as far as ascertainable, on the one hand from a comparison group of publicly traded companies in terms of revenue, EBIT, number of employees, and market capitalization.Furthermore, the selection of the comparison group is made, as far as ascertainable, from a comparison group of publicly traded industry companies.
Vertical Comparison
The compensation and employment conditions of the employees are taken into amount within the framework of the vertical comparison outlined below.
Components of Compensation in Detail
Fixed Compensation Components
The fixed compensation components granted to the members of the Executive Board under the compensation system include the base salary and fringe benefits. The members of the Executive Board do not receive any pension commitments.
Basic remuneration
The Executive Board members receive the base salary, which is paid out in twelve equal parts monthly.
Fringe Benefits
Fringe benefits are granted based on employment contracts with individual members of the Executive Board and may include, for example, the following: private use of company cars, special payments such as payment of school fees, housing, rental, and relocation expenses, contributions to pension insurance (excluding pension commitments as outlined here), contributions to accident, life, and health insurance, or other insurances. Fringe benefits may be granted once or repeatedly. The annual value of fringe benefits should not exceed 10% of the annual base salary.
Short-Term Variable Compensation (Short Term Incentives;"STI")
Members of the Executive Board are entitled to short-term variable compensation, which can result in an annual bonus payment. The short-term variable compensation is linked to the achievement of performance goals, the specific target values of which are agreed upon at the end of a fiscal year.
The due date for STI payment generally a urs one month after the approval of the annual financial statements and consolidated financial statements for the respective fiscal year by the Supervisory Board of the Company. If the Company terminates the employment relationship for good cause within the meaning of § 626 of the German Civil Code (BGB), the STI payment for the fiscal year in which the termination becomes effective is forfeited.
Target Amounts
Target amounts are agreed upon with the Executive Board in the employment contracts, which are granted to them upon 100% achievement of the goals ("STI target amounts"). The amount of STI target amounts should not exceed 50% of the base salary at 100% target achievement. The amount of short-term variable compensation depends on the degree of achievement of the agreed goals and can range between 00/ and 200%. The exact payout is determined by multiplying the degree of goal achievement by the STI target amount of each Executive Board member. In case of exceeding the target, an increase up to a maximum of 2000/ of the STI target amount (cap) takes place. If the target is achieved up to 70%, the short-term variable compensation is reduced linearly; if the target achievement is less than 70%, the STI payment is completely waived.
Performance Goals
In determining the annual target agreement, the Supervisory Board aligns with the following performance goals:
The assessment criteria for STI include financial and non-financial performance criteria, which are agreed upon in a target agreement at the end of each fiscal year for the following fiscal year. If no agreement is reached between the Executive Board member and the Supervisory Board, the Supervisory Board decides on the determination of the assessment criteria at its reasonable discretion.
2 Biofrontera AG Annual Report 2024
Financial performance criteria should include, besides the company's revenue, financial indicators such as earnings and profitability ratios (e.g., EBITDA - Earnings Before Interest, Taxes, Depreciation, and Amortization, EBITDA margin). The Supervisory Board has the option to adjust the financial performance measure used for evaluation by excluding extraordinary components.
Non-financial performance criteria should include criteria such as integrity, employee satisfaction, diversity, as well as sustainability/environmental-social-governance (ESG) aspects, which should amount for at least 10% of the total goal achievement. Strategic criteria should also be included in the target agreement, such as achieving approvals, successful completion of studies, conclusion of significant contracts, or conducting financings.
A non-financial, strategic component should consider the contribution of the entire Executive Board as well as individual Executive Board members to the implementation of the company's strategy and thus to the long-term development of the company.
For the non-financial, strategic goals, it should be clearly defined within the target agreement under which conditions the respective goal is fully met (100% achievement of the individual criterion) and which parameters are used to assess the degree of goal achievement.
Calculation of Target Achievement
The total target achievement of short-term variable compensation is determined by the weighted average of individual performance criteria and the degree of respective goal achievement. Financial performance criteria should generally account for at least 550/ of the goal achievement weighting, while non-financial criteria can account for up to 450/».
Short-Term Variable Compensation for Extraordinary Developments and Performances of an Executive Board Member
In justified exceptional cases, the Supervisory Board may grant the Executive Board members a special bonus at the discretion of the Supervisory Board, not exceeding EUR 50,000 (gross) per fiscal year and Executive Board member. The resolution on the existence of an exceptional case, which should specify the extent and quality of the extraordinary performance of the Executive Board member, also determines the specific amount of a special bonus and the timing of its payment by the Supervisory Board.
Long-Term Variable Compensation (Long Term Incentive;"LTI")
As a long-term incentive, members of the Executive Committee may be granted Stock Appreciation Rights (SARs) or, from August 2024, performance-related bonuses based on the performance of the Group over a number of consecutive years.
Bonus payments based on multi-year performance
Bonus payments may be agreed with the members of the Executive Committee based on performance over at least three consecutive years. The performance measures for the LTI consist of financial and non-financial performance criteria and are mutually agreed in a target agreement at the end of each financial year for the following financial year. The performance measures for the LTI should be based on the performance measures for the STI, but should cover a multi-year period. In the event of disagreement between the Executive Committee and the Supervisory Board, the Supervisory Board will determine the assessment factors at its own discretion.
Stock appreciation rights ('SARs')
An annual target amount equal to 150% of the STI target amount ("LTI target amount") is agreed upon with the Executive Board members. The numberof SARs granted annually corresponds to the LTI target amount divided by the economic value of the SARs at the time of grant. The economic value per SAR to be used corresponds to the intrinsic value determined based on the unweighted average closing prices of the company's shares traded in the closing auction on the Xetra trading platform of the Frankfurt Stock Exchange or in a corresponding su essor system on the 15 trading days preceding the grant. Executive Board members receive a payout based on the stock price performance of the company upon exercise of the SARs
Exercise Conditions
SARs can only be exercised
if the reference price at the beginning of the respective exercise window exceeds the issue price by at least 20 per cent
and
if, in addition, the reference price has performed as well as or better than the 'MSCI World Health Care Index TR' or a
comparable su essor index ('reference index') in percentage terms in the period from the last trading day before the
Biofrontera AG Annual Report 2024