Celyad Oncology SA — Audit Report / Information 2017

Apr 6, 2018

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Statutory auditor's report to the general meeting of shareholders of CELYAD S.A. for the year ended December 31, 2017

In the context of the statutory audit of the consolidated financial statements of Celyad S.A. (the Company) and its subsidiaries (together referred to as 'the Group'), we hereby present our statutory auditor's report. It includes our report on the audit of the consolidated financial statements as well as our report on the other legal and regulatory requirements. These reports form part of an integrated whole and are indivisible.

We have been appointed as statutory auditor by the general meeting of May 5, 2017, following the proposal formulated by the board of directors issued upon recommendation of the audit committee. Our statutory auditor's mandate expires on the date of the general meeting deliberating on the annual accounts closed on December 31, 2019. We have performed the statutory audit of the consolidated financial statements of Celyad S.A. for one year.

Report on the audit of the consolidated financial statements Ungualified opinion

We have performed the statutory audit of the Group's consolidated financial statements, which comprise the consolidated statement of financial position as at December 31, 2017, and the consolidated statement of profit or loss and other comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies and other explanatory information, and which is characterised by a consolidated statement of financial position total of 77.626 (000) EUR and for which consolidated statement of profit or loss and other comprehensive income shows a loss for the year of 57.164 (000) EUR.

In our opinion, the consolidated financial statements give a true and fair view of the Group's net equity and financial position as at December 31, 2017, as well as of its consolidated financial performance and its consolidated cash flows for the year then ended, in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union and with the legal and regulatory requirements applicable in Belgium.

Basis for unqualified opinion

We conducted our audit in accordance with International Standards on Auditing (ISAs) as applicable in Belgium. Our responsibilities under those standards are further described in the 'Statutory auditor's responsibilities for the audit of the consolidated financial statements' section in this report. We have complied with all the ethical requirements that are relevant to the audit of consolidated financial statements in Belgium, including those concerning independence.

BDO Bedrijfsrevisoren Burg. CVBA / BTW BE 0431.088.289 / RPR Brussel BDO Réviseurs d'Entreprises Civ. SCRL / TVA BE 0431.088.289 / RPM Bruxelles

BDO Bedrijfsrevisoren CVBA / BDO Réviseurs d'Entreprises SCRL, a civil company under Belgian law in the form of a cooperative company with limited liability, is a member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms

We have obtained from the board of directors and company officials the explanations and information necessary for performing our audit.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Key audit matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements of the current year. These matters were addressed in the context of our audit of the consolidated accounts as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

Financial funding

Description of the matter

As described in Note 1.7 of the consolidated financial statements, the Company has disclosed that based on its current scope of activities, the Group estimates that its treasury position as of 31 December 2017 (including short term investments) is sufficient to cover its cash requirements at least until end of the first quarter of 2019, so that there is no going concern issue at this moment.

Given the high cash burn ratio that is inherent to the sector the Company is operating in, we consider financial funding a key audit matter requiring high auditors' attention.

Procedures performed

Our audit procedures included, among others, the following:

• We obtained the business plan and the cash forecast for the year 2018 and 2019 and reviewed it for reasonableness;
• We challenged the assumptions underlying this budget and cash forecast, especially with respect to the expected level of operating expenses and revenues;
• We compared the total of expected revenues included in the budget and cash forecast with those expected from existing agreements;
• We discussed with management any potential future financing possibilities and assessed their reasonableness.

Goodwill and intangible assets impairment

Description of the matter

As described in Note 5.6.2 of the consolidated financial statements, the Group is required to annually test its intangible assets for impairment.

We consider this area a key audit matter requiring high auditors' attention because of the potential significant impact on the financial statements and the fact that the impairment test contains key judgmental areas that are strongly affected by assumptions.

Procedures performed

Our audit procedures included, among others, the following:

• We have analyzed internal and external information in order to identify potential impairment indicators;
• We have analyzed and reviewed the Company's impairment model including the significant underlying assumptions and checked whether an adequate valuation model was applied;
• We have analyzed the consistency of the underlying data used in the valuation model and compared these with the latest Board approved business plan;
• We have analyzed the consistency of the underlying data used in the valuation model and compared these with the data used in the context of a valuation done by an outside valuation expert for purposes of an intended at arm's length transfer of certain assets between group companies;
• We have assessed whether the cash generating units were defined in accordance with IFRS;
• We consulted a valuation expert in our firm to assess the methodology, clerical accuracy, long term growth rate and discount rate as applied;
• We reviewed the sensitivity analysis prepared by management to understand the effect of a change in assumptions;
• We considered all available information provided to us by the Company to assess potential additional factors that could trigger impairment;
• We reviewed the completeness and adequacy of the disclosures in Note 5.6.2 of the Company's Financial Statements.

Contingent consideration valuation

Description of the matter

As a result of the acquisition of OnCyte LLC in January 2015, the consolidated financial statements include a contingent consideration towards Celdara Medical LLC. As disclosed in Note 5.19.2 of the consolidated financial statements, this contingent liability is reported at fair value in the statement of financial position.

We consider this area a key audit matter requiring high auditors' attention because of the fact that the valuation of the contingent consideration is complex, contains key judgmental areas and is strongly affected by assumptions with regards to expected future cash flows and market conditions.

Procedures performed

Our audit procedures included, among others, the following:

• . We have analyzed and reviewed the Company's fair value calculation including the significant underlying assumptions and checked whether an adequate valuation model was applied;
• We have analyzed the consistency of the underlying data used in the valuation model and compared these with the latest Board approved business plan;

• We have analyzed the consistency of the underlying data used in the valuation model and compared these with the data used in the context of the annual impairment test;

• We have analyzed the consistency of the underlying data used in the valuation model and compared these with the data used in the context of a valuation done by an outside valuation expert for purposes of an intended at arm's length transfer of certain assets between group companies;

• We have performed an assessment of the reasonableness of key assumptions, notably probabilities of success, discount rate and long term growth rate;
• We reviewed the completeness and adequacy of the disclosures as included in note 5.19.2 to the consolidated financial statements.

Significant transaction with Celdara Medical and Dartmouth College

Description of the matter

As explained in notes 5.28 and 5.33.3 to the consolidated financial statements, in August 2017, Celyad amended its agreements with Celdara Medical LLC and Dartmouth College related to the CAR-T NK cell drug product candidates and related technology licensed in January 2015 following the acquisition of OnCyte LLC. Under the amended agreements Celyad is to receive an increased share of future revenues generated by these assets, including revenues from its sub-licensees. In return, Celyad paid Celdara Medical LLC and Dartmouth College an upfront payment of \$12.5 million (€10.6 million) and issued to Celdara Medical LLC \$12.5 million worth of Celyad's ordinary shares at a share price of €32.35.

We consider this area a key audit matter requiring high auditors' attention because of the magnitude of the related amendment fees and their significance to the financial statements.

Procedures performed

Our audit procedures included, among others, the following:

• We have read the new agreements with Celdara Medical LLC and Dartmouth College and held discussions with Celyad management to understand the business purpose of this transaction;
• We have evaluated the transaction in the context of the appropriate accounting standards;
• We have reviewed the accounting entries related to this transaction, including the accounting treatment of the amendment fees and the resulting contribution in kind.

Responsibilities of the board of directors for the consolidated financial statements

The board of directors is responsible for the preparation of consolidated financial statements that give a true and fair view in accordance with the International Financial Reporting Standards (IFRS) as adopted by the European Union and with the legal and regulatory provisions applicable in Belgium, and for such internal control as the board of directors determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatements, whether due to fraud or error.

In preparing the consolidated financial statements, the board of directors is responsible for assessing the Group's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the board of directors either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so.

Statutory auditor's responsibilities for the audit of the consolidated financial statements

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue a statutory auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but it is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statement.

As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional scepticism throughout the audit. We also:

• Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control;
• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group's internal control;
• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the board of directors;
• Conclude on the appropriateness of the board of directors' use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our statutory auditor's report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our statutory auditor's report. However, future events or conditions may cause the Group to cease to continue as a going concern;
• Evaluate the overall presentation, structure and content of the consolidated financial statements and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation;
• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the management, the supervision and the performance of the Group audit. We assume full responsibility for the auditor's opinion.

We communicate with the Audit Committee regarding, among other matters, the planned scope and timing of the audit as well as significant audit findings, including any significant deficiencies in internal control identified during the audit.

We also provide the Audit Committee with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence and, where applicable, related safeguards.

From the matters communicated to the Audit Committee, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current year, and are therefore the key audit matters. We describe these matters in our statutory auditor's report unless law or regulation precludes public disclosure about the matter.

Other statement

• The consolidated financial statements of Celyad S.A. as at December 31, 2016 were audited by another statutory auditor who has expressed an unqualified opinion in his report dated April 4, 2017.

Report on other legal and regulatory requirements Responsibilities of the board of directors

The board of directors is responsible for the preparation and the contents of the management report on the consolidated financial statements and for the other information included in the annual report on the consolidated financial statements.

Responsibilities of the statutory auditor

In the context of our mandate and in accordance with the Belgian standard (revised in 2018) that is supplementary to the International Standards on Auditing (ISA) as applicable in Belgium, it is our responsibility to verify, in all material aspects, the management report on the consolidated financial statements and the other information included in the annual report on the consolidated financial statements, as well as to report on these elements.

Aspects related to the management report on the consolidated financial statements and to the other information included in the annual report on the consolidated financial statements

In our opinion, after having performed specific procedures in relation to the management report, the management report is consistent with the consolidated financial statements for the same same financial year, and it is prepared in accordance with article 119 of the Company Code.

In the context of our audit of the consolidated financial statements, we are also responsible for considering, in particular based on the knowledge we have obtained during the audit, whether the management report on the consolidated financial statements (chapter 1 of the annual report), and the other information included in the annual report on the consolidated financial statements, namely the operational and financial review by the Board of Directors (chapter 1.3 of the annual report) contain a material misstatement, i.e. information which is inadequately disclosed or otherwise misleading. Based on the procedures we have performed, there are no material misstatements we have to report to you.

We do not not express any form of assurance whatsoever on the management report on the consolidated financial statements nor on the other information contained in the annual report on the consolidated financial statements.

Statement concerning independence

• Our audit firm, and our network, did not provide services which are incompatible with the statutory audit of consolidated financial statements, and we remained independent of the Group throughout the course of our mandate.
• The fees related to additional services which are compatible with the statutory audit as referred to in article 134 of the Company Code were duly itemised and valued in the notes to the consolidated financial statements.

Other statement

• This report is in compliance with the contents of our additional report to the audit committee as referred to in article 11 of Regulation (EU) No 537/2014.

Zaventem, April 6, 2018

BDO Reviseurs d'Entreprises Soc. Civ. SCRL Statutory auditor Represented by Bert Kegels