1 2022 ANNUAL REPORT OF RECORDATI S.p.A.
2 RECORDATI INDUSTRIA CHIMICA E FARMACEUTICA S.p.A. Company subject to management and co-ordination by Rossini Holdings Sà.r.L. Registered Office: 1, Via Matteo Civitali, Milan Fully paid up share capital: € 26,140,644.50 Tax identification number and Milan Company Registration No. 00748210150 The Company prepares the consolidated financial statements for the Recordati Group. BOARD OF DIRECTORS Elected by a Shareholders’ Meeting of 29 th April 2022, in office until the date of the Shareholders’ Meeting held to approve the 2024 Annual Report. ANDREA RECORDATI Chairman GUIDO GUIDI Vice Chairman ROBERT KOREMANS Chief Executive Officer MICHAELA CASTELLI Lead Independent Director ELISA CORGHI Independent GIORGIO DE PALMA LUIGI LA CORTE (also Group CFO) JOANNA LE COUILLIARD Independent GIAMPIERO MAZZA PIERGIORGIO PELUSO Independent CATHRIN PETTY KIM STRATTON BOARD OF STATUTORY AUDITORS Elected by a Shareholders’ Meeting of 29 th April 2020, in office until the date of the Shareholders’ Meeting held to approve the 2022 Annual Report. ANTONIO SANTI Chairman LIVIA AMIDANI ALIBERTI EZIO SIMONELLI Statutory Auditors ANDREA BALELLI PATRIZIA PALEOLOGO ORIUNDI Alternate Auditors INDEPENDENT AUDITORS EY S.p.A. Engaged by a Shareholders’ Meeting of 29 th April 2020 for the financial years 2020-2028.
3 Review of operations To our Shareholders, The annual report of the Company for the year ended 31 st December 2022, which we submit to you for your approval, reports net income of € 219,234 thousand. The review of operations in the consolidated annual report may be consulted for further information on operations and growth strategies. The items in the reclassified income statement which shows costs by function are given below with the relative percentage of revenue (1) and the change compared with the previous year: € (thousands) 2022 % of revenue 2021 % of revenue Changes 2022/2021 % Net revenue (1) 512,438 100.0 464,719 100.0 47,719 10,3 Cost of sales (213,437) (41.6) (182,444) (39.3) (30,993) 17,0 Gross profit 299,001 58.4 282,275 60.7 16,726 5,9 Selling expenses (71,766) (14.0) (67,146) (14.4) (4,620) 6,9 R&D expenses (45,482) (8.9) (43,148) (9.3) (2,334) 5,4 G&A expenses (52,715) (10.3) (41,126) (8.8) (11,589) 28.2 Other income (expense), net (19,517) (3.8) (7,014) (1.5) (12,503) 178.3 Operating income 109,521 21.4 123,841 26.7 (14,320) (11,6) Dividends 164,976 32.2 123,854 26.6 41,122 33,2 Financial income (expense), net (40,963) (8.0) (16,514) (3.6) (24,449) 148,1 Pre-tax income 233,534 45.6 231,181 49.7 2,353 1,0 Income taxes (14,300) (2.8) (12,072) (2.6) (2,228) 18,5 Net income 219,234 42.8 219,109 47.1 125 0,1 (1) The revenue reported in the reclassified income statement includes other income of € 128 thousand (€ 68 thousand in 2021), relating in particular to training grants and rents, which in the statutory balance sheet are classified under Note 4 as Other revenue and income. Net revenue came to € 512.4 million, up € 47.7 million compared with the previous year in relation to higher sales to foreign subsidiaries, due in particular to the gradual transition to direct marketing of Eligard® that occurred in 2021. The increase in the cost of sales as a percentage of net revenue, which rose from 39.3% to 41.6%, is attributable to a difference in the mix of sales revenue compared with the previous year, arising in particular from the dilutive impact of the indirect marketing of Eligard® adopted in 2021 and a slight increase in raw materials costs. Selling expenses increased by € 4.6 million (6.9%), mainly due to an increase in variable costs related to growth in turnover. R&D expenses came to € 45.5 million accounting for 8.9% of net revenue, up 5.4% compared with the previous year, due in particular to the amortisation of intangibles relating to Eligard® and Reagila®.
4 Approximately 60% of the € 11.6 million increase in general and administrative expenses was due to costs charged by subsidiaries, also caused by adjustments to product transfer prices for compliance with the arm's length principle. The increase in general and administrative expenses compared with the previous year, excluding the rise just mentioned, is due above all to improvements to the general co-ordination of operations designed to manage an increasingly complex portfolio and in particular to support the management of new corporate products. Other income and expenses, net amounted to € 19.5 million and mainly included the following non-recurring items: costs of € 10.8 million incurred for the acquisition in March of EUSA Pharma (UK) Ltd (a global specialty pharmaceutical company focused on niche rare and oncological diseases); and corporate reorganisation costs totalling €7.7 million, mainly related to the targeted reorganisation of the Specialty & Primary Care sales force. The remainder relates to costs incurred to support the people of Ukraine following the start of the conflict with Russia and those incurred for the Covid-19 pandemic, mainly to improve workplace safety and for the purchase of personal protective equipment. Operating income amounted to € 109.5 million (21.4% of net revenue), down € 14.3 million compared with the previous year, due to the increase in operating expenses reported above and to non-recurring costs and depreciation and amortisation in particular. Dividends from subsidiaries came to € 165.0 million, up € 41.1 million compared with 2021. Net financial expenses amounted to € 41.0 million, up € 24.4 million compared with 2021. This significant change was due above all to both a rise in interest payable on loans amounting to € 16.6 million due mainly to taking out new loans, especially those to cover the costs of acquiring Eusa Pharma (UK) Limited completed in March. It was also due to the negative balance on interest paid to subsidiaries through the cash pooling scheme amounting to €5.1 million and to greater exchange rate losses amounting to € 3.1 million following the depreciation of the euro against the Russian rouble and US dollar. The increase in taxes of € 2.2 million, with a more or less equivalent increase in pre-tax profit of € 2.4 million, is due in particular to the non-recurring impact of the ACE ( Aiuto alla Crescita Economica – Aid to Economic Growth) tax benefit recorded in the first half of 2021, which arose from the merger into the Company of its parent companies, whereby it inherited a benefit of € 12.9 million from Rossini Investimenti S.p.A., which was mainly offset by the lower percentage of taxes on the increase in dividends. Net income amounted to € 219.2 million. A brief summary is given below of the net financial position, while further details are given in item 42 of the notes to the financial statements:
5 € (thousands) 31.12.2022 31.12.2021 Changes 2022/2021 Current account sight deposits and other cash and cash equivalents 50,249 60,356 (10,107) Short-term receivables from Group companies 114,010 128,166 (14,156) Cash and cash equivalents and other short-term receivables 164,259 188,522 (24,263) Short-term liabilities to banks (79,564) (2,105) (77,459) Borrowings due within one year (254,317) (201,031) (53,286) Short-term payables to Group companies (632,547) (520,268) (112,279) Current debt (1) (966,428) (723,404) (243,024) Net current financial position (802,169) (534,882) (267,287) Loans and receivables - due after one year 88,653 131,711 (43,058) Borrowings – due after one year (2) (1,276,545) (709,364) (567,181) Net financial position (1,990,061) (1,112,535) (877,526) (1) Current debt includes borrowings due within one year, amounts due to banks and other short-term liabilities. (2) Inclusive of the fair value of derivatives to hedge foreign exchange rate risk (cash flow hedges), recognised within asset item 22 and liability item 33 with an overall net positive impact of € 381 thousand as at 31 st December 2021. The significant increase in net debt is mainly due to the payment of € 707.0 million for the acquisition, completed on 16 th March 2022, of 100% of the shares of EUSA Pharma (UK) Limited, a UK-based global specialty pharmaceutical company focused on niche rare and oncological diseases. This acquisition was completed by taking out a loan provided by a consortium of national and international lenders. More precisely, two separate loans were taken out in the first quarter for a combined total of € 650.0 million: a € 200.0 million loan with a 5-year term and a € 450.0 million bridge facility with a maximum term of 12 months, that can be extended at the Company's discretion for a further 6 months to allow it to enter into the final loan agreements in the meantime. Changes were made to the € 200.0 million loan on 28 th June 2022 by bringing in other banks and increasing the total debt to € 800 million and the “bridge facility” debt was fully repaid. In September, the Company issued a € 75.0 million bond placed privately and fully with companies belonging to the Prudential group. During the year, € 35.0 million was paid to Tolmar International Ltd. in connection with the development of a new device for easier administration of Eligard® (leuprorelin acetate). In addition, € 19.6 million was paid for the acquisition of the Telefil® business. Furthermore, treasury stock totalling € 38.6 million was purchased, net of sales for the exercise of stock options, and dividends totalling € 230.6 million were also paid. The change in the financial position gross of the impacts mentioned above, confirms the Company’s solid generation of cash flows which stood at approximately € 153.3 million. Capital expenditure on property, plant and equipment came to € 17.7 million and related to investments made in the Milan headquarters (€ 10.3 million), which included investments in the plant and in pharmaceutical research, as well as in the Campoverde plant (€ 7.4 million).
6 R&D The arrival of new pharmaceuticals both through in-house research programmes and through opportunities to carry out research in collaboration with research companies and institutions outside the Group again represented an important factor in 2022 for enriching the pipeline and ensuring future growth for the Group. At the same time huge efforts were made on the regulatory front aimed at obtaining authorisations to sell Recordati pharmaceuticals on markets in new geographical areas. During the year, the Group's R&D activities were mainly concentrated in the field of rare diseases. Maintenance activities continued in the Specialty & Primary Care field to support pharmaceuticals already being marketed as did pretrial work on new pharmaceuticals. The main R&D activities carried out in 2022 are summarised in the paragraphs below. Eligard® (leuprorelin acetate) This is a medicine indicated for the treatment of advanced-stage hormone-dependent prostate cancer and for the treatment of localised and locally advanced-stage high-risk hormone-dependent prostate cancer in combination with radiotherapy. Following the finalisation of the licence and supply agreement, all marketing authorisations (except for some CIS countries) were transferred from Astellas to Recordati within a short period. The active ingredient in Eligard®, leuprorelin acetate, is in the form of a powder that is solubilised with a solvent for subcutaneous injection. The product is available in three different dosages (for 1 month, 3 months and 6 months of treatment respectively) in a single kit containing two syringes. Numerous activities have been carried out since 2021 to develop a new device consisting of two pre-connected syringes to facilitate the administration of the pharmaceutical by healthcare professionals as required by the EMA. In this regard, a change was submitted in all nations of the European community and was approved in September 2022. The same change is being submitted in all non-European countries. A large prospective observational “real-life” clinical trial also started in France to assess the efficacy and tolerability of the leuprorelin acetate formulation of 22.5 mg (for the 3-month treatment) and 45 mg (for the 6-month treatment) under conditions of normal daily medical practice. Nearly 800 of the expected 1,000 patients were enrolled in 2022. Seloken / Seloken ZOK (metoprolol) Logimax (metoprolol + felodipine) In 2022 Recordati SpA was added as a manufacturer responsible for primary and secondary packaging and batch release (excluding quality control) for Seloken and Seloken ZOK blister packaging and it completed the project to add a new manufacturer responsible for secondary packaging and batch release for Seloken vials in Belgium, Luxembourg, the Netherlands, the Nordic countries and Romania. In addition, changes were approved for Seloken vials to extend the shelf-life to 5 years in the Czech Republic in April and to introduce the Recordati Group's Pharmacovigilance System in the UK in July, as required following Brexit. Reagila® (cariprazine) Studies are continuing aimed at demonstrating the efficacy and safety of cariprazine treatment in adolescents (13-17 years), where patient recruitment has slowed due to the effects of the COVID-19 pandemic and the war in Ukraine. Gedeon Richter submitted a request to the EMA in October to modify the paediatric plan. It provided a supporting rationale with details of the extrapolation of short-term data obtained in adult population studies and requested a discontinuation of the short-term study (RGH-188-202). Furthermore, some modifications to the long-term safety study (RGH-188-203) have also been proposed.
7 The pharmaceutical has been registered in Türkiye and is also being registered in Tunisia and Algeria for the treatment of schizophrenia. A change to extend the indication to include mania and bipolar depression has been submitted to Swissmedic by Recordati A.G. for national registration in Switzerland. LOMEXIN® (fenticonazole) Fenticonazole is an antimycotic product for topical use, developed by Recordati. Various projects have been carried out to support development of the product, in consideration of the growth in its sales and the potential arising from its transition to a medicine for which medical prescriptions are not required in a number of European countries and from the publication of scientific evidence to support the efficacy of the molecule fenticonazole for the treatment of vaginal infections with different aetiologies. A change in the supply regime from prescription to non-prescription for vaginal capsules has been obtained in Austria for the 2% cream and the 600mg vaginal capsule pharmaceutical forms and in Belarus for the 2% cream pharmaceutical form, while the 600mg vaginal capsules are under evaluation in Bosnia and Bulgaria. A change to extend the treatment indication for mixed gram-positive and -negative bacterial infections for the Lomexin 600 mg vaginal capsules and Lomexin 2% vaginal cream pharmaceutical forms was submitted in November in the Czech Republic and is planned in Latvia and Lithuania and, for the DCP procedure, in Belgium, Croatia, Cyprus, Denmark, Estonia, Luxembourg, the Netherlands and Slovenia. Activities involving pharmaceuticals for the treatment of rare diseases The Company carries out support activities for research carried out by other Group companies which is charged back to them on the basis of service agreements. In fact the Group is increasingly more committed to R&D for the development of treatments for rare diseases and it has many pharmaceuticals in its pipeline for treating these illnesses at different stages of development. OTHER INFORMATION Company is subject to management and co-ordination by Rossini Luxembourg S.àr.l, in accordance with Art. 2497 and following of the Italian Civil Code. Key figures from the financial statements for the year ended 31 st December 2021 approved by the company that exercises management and co-ordination are furnished in Attachment 6. No decisions were taken by the Board of Directors that were deemed “decisions influenced by management and co-ordination activities” during the course of 2022. Treasury stock consisting of 1,198,983 shares was purchased during the year, for consideration of € 52.3 million and 729,250 shares were sold for consideration of € 13.6 million, following the exercise of options under the 2014-2018 and 2018-2022 stock option plans by Group employees. As at 31 st December 2022 the Company held 3,684,033 treasury shares in portfolio accounting for 1.76 % of the share capital, with a nominal value of € 0.125 each. The section “Principal risks and uncertainties” in the review of operations in the consolidated annual report may be consulted for an analysis and description of the principal risks and uncertainties to which the Company is exposed pursuant to paragraphs 1 and 2 of article 2428 of the Italian Civil Code. The information required under point 6-bis of Art. 2428 of the Italian Civil Code concerning the Company’s objectives and policies in respect of financial risk management is reported in note 40 to the financial statements. In compliance with the requirements contained in Art. 4, paragraph 7 of the Regulation on related-party transactions adopted with Consob Resolution 17221 of 12 th March 2010 and subsequent amendments and
8 also in Art. 2391-bis, paragraph 1 of the Italian Civil Code, the Company reports that it has adopted “Regulations for related-party transactions”, the full text of which is available on the Company website at www.recordati.it (in the “Corporate Governance” section), as last updated on 17 th June 2021. For all information on corporate governance, reference is made to the Report on Corporate Governance and Ownership Structure prepared in accordance with Art. 123-bis of the Consolidated Finance Law, approved by the Board of Directors at the same time as it approved the Annual Report. Information pursuant to paragraphs 1 and 2 of Art. 123 bis of Legislative Decree No. 58/1998 is contained in the separate “Report on Corporate Governance and Ownership Structure”, the full text of which is available on the company’s website www.recordati.it (in the “Corporate governance” section). Reference is made for “information concerning the environment and personnel” to the Consolidated Non- Financial Statement. The Company has a secondary headquarters at 4, Via Mediana Cisterna, Campoverde di Aprilia (Latina). Shares held by directors, statutory auditors, general managers and other key management personnel are reported in the Report on remuneration policies and wages published in accordance with Art. 123-ter of the Consolidated Finance Law. Reference is made to the information given in the Non-Financial Statement for details of the principles governing conduct adopted by the Company. Reference is made to note 45 to the financial statements for information required by the Consob (Italian securities market authority) communication dated 28 th July 2006 on “atypical and/or unusual transactions”. RELATED-PARTY TRANSACTIONS As at 31 st December 2022, intercompany accounts with companies that form the Recordati Group showed payables of € 649,356 thousand and receivables of € 272,532 thousand. The most significant items were as follows: receivables of € 165,280 thousand for loans granted to Group companies; payables of € 78,510 thousand for loans received from Group companies; trade receivables of € 66,703 thousand from subsidiaries; trade payables of € 16,711 thousand to subsidiaries; miscellaneous receivables of € 3,256 thousand from subsidiaries; miscellaneous payables of € 98 thousand to subsidiaries; receivables of € 37,293 thousand from subsidiaries for the management of the centralised cash pooling scheme; payables of € 554,037 thousand to subsidiaries for the management of the centralised cash pooling treasury scheme. Sales, services and royalties supplied to Group companies in 2022 amounted to € 308,865 thousand. Dividends were received during the year as follows: € 75,000 thousand from Recordati Ireland Ltd, € 24,494 thousand from Casen Recordati S.L., € 19,115 thousand from Italchimici S.p.A., € 16,500 thousand from Bouchara Recordati S.a.s., € 11,262 thousand from Tonipharm S.A.S., € 10,000 thousand from Natural Point S.r.l., € 4,950 thousand from Recordati Pharma GmbH, € 2,023 thousand from Recordati Romania S.R.L. and € 1,632 thousand from Innova Pharma S.p.A.
9 The following summary is set out in the table below in compliance with Consob Resolution No. 15519 of 27 th July 2006: PERCENTAGE OF TRANSACTIONS WITH RELATED PARTIES (€ thousand) Total Related Parties (amount) Related Parties (%) Percentage of transactions or positions in the balance sheet with related parties Trade receivables and other 135,473 69,959 51.64% Long-term financial assets 88,653 88,562 99.90% Short-term financial assets 114,010 114,010 100.00% Trade payables and other (180,811) (16,809) 9.30% Short-term financial liabilities (966,428) (632,547) 65.45% Percentage of transactions or positions in the income statement with related parties Revenue 518,454 308,865 59.57% Income from investments 164,976 164,976 100.00% Costs of purchases and service provision (308,226) (32,357) 10.50% Financial income (expense), net (40,963) (5,153) 12.58% Transactions and positions with related parties as a percentage of cash flows is basically the same as that for the income statement items because the transactions are conducted under normal market conditions. It is underlined that no direct business was conducted during the year with the company that carries out management and co-ordination activities. With regard to direct relations during the year with the company that exercises management and co- ordination, we report that the CEO and some employees of the Recordati Group have been designated as beneficiaries of an incentive scheme, with a vesting period of five years, under which they have purchased shares of Rossini Luxembourg S.àr.l. at face value, an indirect shareholder of Recordati S.p.A., and they will receive a return at the end of the life of the scheme. NON-EUROPEAN UNION SUBSIDIARIES In relation to the provisions of articles 15 and 18 of the Markets Regulations concerning the conditions for the listing of the parent companies of companies formed and regulated under the laws of countries that do not belong to the EU and which are of significant importance for the purposes of consolidated financial statements, since 31 st December 2021 the regulatory provisions of Art. 15 of the Markets Regulations have applied to the subsidiaries Recordati Ilaç, Sanayi Ve Ticaret A.Ş., Recordati Rare Diseases Inc., Rusfic LLC Recordati AG and Eusa Pharma UK ltd and the conditions laid down in the aforementioned Art. 15 in relation to which the certification is required from the management body, have been satisfied. SIGNIFICANT TRANSACTIONS, EXCEPTION TO DISCLOSURE OBLIGATIONS The Company decided to take advantage, with effect from 20 th December 2012, of the right not to comply with obligations to publish the reports required when significant extraordinary operations are performed consisting of mergers, demergers, share capital increases through contributions in kind, acquisitions and disposals, in accordance with Art. 70, paragraph 8 and with Art. 71, paragraph 1-bis of the Issuers’ Regulations issued by Consob with Resolution No. 11971/1999 and subsequent amendments.
10 BUSINESS OUTLOOK At the date of preparing the financial statements no corporate events had occurred after the end of the year which might require modifications to be made to the value of assets and liabilities and the amounts in the income statement. The implementation of company policies, operations at the beginning of the current year, the potential of our products, the financial strength of the company and the managerial capacities of our personnel lead us to forecast a positive result again in 2023. Milan, 16 th March 2023 on behalf of the Board of Directors the Chief Executive Officer Robert Koremans
11 RECORDATI S.p.A. INCOME STATEMENTS FOR THE YEARS ENDED 31 ST DECEMBER 2022 AND 31 ST DECEMBER 2021 Income statement Amounts in euro Notes 2022 2021 Net revenue 3 512,309,820 464,718,992 Other income 4 6,144,678 4,401,262 Total income 518,454,498 469,120,254 Raw materials costs 5 (159,000,925) (119,556,680) Personnel costs 6 (89,461,346) (88,774,171) Depreciation and amortisation 7 (28,196,889) (26,245,866) Other operating expenses 8 (149,225,258) (111,381,140) Changes in inventories 9 16,951,079 679,226 Operating income 109,521,159 123,841,623 Income from investments 10 164,975,691 123,853,746 Financial income (expense), net 11 (40,963,075) (16,513,669) Pre-tax income 233,533,775 231,181,700 Income taxes 12 (14,299,749) (12,072,354) Net income 219,234,026 219,109,346 Earnings per share (in euro) Basic 1,066 1,064 Diluted 1,048 1,048 Basic earnings per share are calculated on average shares outstanding in the relative periods, consisting of 205,582,127 shares in 2022 and 206,011,089 in 2021. The figures are calculated net of average treasury stock held, which amounted to an average of 3,543,029 in 2022 and 3,114,067 in 2021. Diluted earnings per share is calculated taking into account stock options granted to employees. The explanatory notes form an integral part of these financial statements.
12 RECORDATI S.p.A. BALANCE SHEETS as at 31 ST DECEMBER 2022 and 31 ST DECEMBER 2021 Assets Amounts in euro Notes 31 st December 2022 31 st December 2021 Non-current assets Property, plant and equipment 13 83,735,980 75,828,587 Goodwill 14 16,944,333 - Intangible assets 15 349,777,776 250,296,891 Investments 16 1,846,135,716 1,086,514,035 Other non-current financial assets 17 88,652,954 131,710,603 Deferred tax assets 18 9,866,448 20,472,262 Total non-current assets 2,395,113,207 1,564,822,378 Current assets Inventories 19 99,838,743 82,368,189 Trade receivables 20 110,680,050 86,552,137 Other receivables 21 24,793,277 22,819,739 Other current assets 22 1,873,199 2,875,782 Derivatives measured at fair value 23 23,010,340 11,149,360 Other short-term financial receivables 24 114,010,618 128,165,448 Cash and cash equivalents 25 50,249,300 60,356,039 Total current assets 424,455,527 394,286,694 Total assets 2,819,568,734 1,959,109,072 The explanatory notes form an integral part of these financial statements.
13 RECORDATI S.p.A. BALANCE SHEETS as at 31 ST DECEMBER 2022 and 31 ST DECEMBER 2021 Equity and Liabilities Amounts in euro Notes 31 st December 2022 31 st December 2021 Equity Share capital 26 26,140,645 26,140,645 Additional paid-in capital 26 83,718,523 83,718,523 Treasury stock 26 (149,559,248) (126,981,351) Statutory reserve 26 5,228,129 5,228,129 Other reserves 26 288,602,052 300,155,621 Revaluation reserve 26 2,602,229 2,602,229 Interim dividend 26 (112,979,037) (109,329,280) Net income 26 219,234,026 219,109,346 Total equity 362,987,319 400,643,862 Non-current liabilities Borrowings – due after one year 27 1,278,883,866 711,534,603 Employee benefit obligations 28 4,555,877 6,959,922 Total non-current liabilities 1,283,439,743 718,494,525 Current liabilities Trade payables 29 71,577,325 59,450,998 Other current payables 30 109,234,079 32,464,615 Tax liabilities 31 5,785,613 2,892,219 Other current liabilities 32 381,818 572,728 Provisions 33 4,568,958 7,488,309 Derivatives measured at fair value 34 15,166,056 13,697,606 Borrowings - due within one year 35 254,317,108 201,031,240 Short-term liabilities to banks 36 79,563,782 2,104,887 Other short-term liabilities 37 632,546,933 520,268,083 Total current liabilities 1,173,141,672 839,970,685 Total equity and liabilities 2,819,568,734 1,959,109,072 The explanatory notes form an integral part of these financial statements.