Bachem : Half-Year Report 2022 EN

BACHEM

HALF-YEAR REPORT

20

22

EXPERIENCE FOR THE FUTURE

Bachem is a leading, innovation-­ driven company specializing in the development and manufacture of peptides and oligonucleotides. The company, which has 50 years of experience and expertise, provides products for research, clinical devel- opment, and commercial application to pharmaceutical and biotechno­ logy companies worldwide and offers a comprehensive range of services. Bachem operates internationally with headquarters in Switzerland and locations in Europe, the US and Asia. The company is listed on the SIX Swiss Exchange. For further infor- mation, see www.bachem.com.

CONTENT

2 COMMENT AND OUTLOOK

5 CONSOLIDATED INTERIM FINANCIAL STATEMENTS

1. CONSOLIDATED INCOME STATEMENT
2. CONSOLIDATED BALANCE SHEET
3. CONSOLIDATED CASH FLOW STATEMENT
4. CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
5. SELECTED EXPLANATORY NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS

13 FINANCIAL CALENDAR

CHF 234.9

MILLION

SALES IN FIRST HALF

OF THE YEAR

Slight decline to prior half-year. Large number of development projects.

STRONG

GROWTH

EXPECTED FOR THE SECOND HALF OF THE YEAR

High demand for peptides and oligonucleotides.

RECOGNITION

FOR SUSTAINABILITY

EcoVadis Gold Medal for the entire Bachem Group.

STRATEGIC COLLABORATION

IN OLIGONUCLEOTIDES

Important milestone in expanding the second business pillar.

1ST HALF-YEAR 2022 IN BRIEF

EBITDA	EBIT MARGIN	EARNINGS PER SHARE
in CHF million	in percent	in CHF

67.3 22.0 0.50

SALES	EBIT	NET INCOME
in CHF million	in CHF million	in CHF million

	239.1	234.9		61.9	51.6		53.1
177.1			40.3		32.8		36.6
2020	2021	2022	2020	2021	2022	2020	2021	2022

			Changes in
	2022	2021	CHF	LC
Sales (in CHF million)	234.9	239.1	- 1.8%	- 3.0%
EBITDA (in CHF million)	67.3	75.5	- 10.8%	- 12.7%
EBITDA margin	28.7%	31.6%
EBIT (in CHF million)	51.6	61.9	- 16.8%	- 18.9%
EBIT margin	22.0%	25.9%
Net income (in CHF million)	36.6	53.1	- 31.1%
Net income margin	15.6%	22.2%
Earnings per share (in CHF)	0.50	0.76	- 34.6%
Cash flow from operating activities (in CHF million)	50.7	59.8	- 15.2%
Number of employees (in full-time equivalents)	1 663	1 6391

1 Value as per December 31, 2021

1  BACHEM HALF-YEAR REPORT 2022

COMMENT AND OUTLOOK

The first half of 2022 was characterized by a large number of complex development projects and lower order volumes in the commercial product portfolio. The order situation for the second half is very positive and none- theless, the demand trend for peptides and oligonucleotides remains high. A significant improvement

of sales and profit is expected for 2022 as a whole.

Sales

The Bachem Group (SIX: BANB) achieved sales of CHF

234.9 million in Swiss francs in the first half of2022 (-1.8% compared to the prior year period). In local currencies, sales declined by 3.0%. Sales for the first half of 2022 were shaped by a large number of complex development projects. Meanwhile, order volumes

in the commercial product portfolio were lower due to factors such as delayed market launches of customer products. Given a positive order situation and ongoing high demand for peptides and oligonucleotides, however, Bachem expects significantly stronger sales in the second half.

Profit

Operating income before depreciation and amortization (EBITDA) came to CHF 67.3 million (-10.8% compared to prior year period) in the first half of 2022 while operating income (EBIT) amounted to CHF 51.6 million (-16.8% compared to prior year period). This represents an EBITDA margin of 28.7% (first half-year 2021: 31.6%) and an EBIT margin of 22.0% (first half-year 2021: 25.9%). Net income was CHF 36.6 million (-31.1% compared to prior year period) with a margin of 15.6% (first half-year 2021: 22.2%). A major factor in the lower operating income figures compared to the prior year period was

a product mix with a large number of elaborate development projects. High capacity utilization is expected in the second half of the year.

Cost structure

Due to a more elaborate product mix, the Bachem Group was unable to benefit from economies of scale during the period under review. With sales slightly lower and operating expenses higher, gross profit was below the corresponding figure for the previous year. Marketing and sales costs in the first half of the year were CHF 9.0 million (first half-year 2021: CHF 8.5 million), due largely to the resumption of travel after the COVID-19 pandemic, amounting to 3.8% of sales as compared to 3.6% the previous year. As previously stated, the Group undertook increased investments into proprietary process improvements and manufacturing technology. Conse- quently, research and development costs rose to CHF

2.1 million (first half-year 2021: CHF 1.9 million), equiva- lent to 0.9% of sales (first half-year 2021: 0.8%). General administrative costs of CHF 8.6 million (first half-­year 2021: CHF 8.1 million) were equal to 3.7% of sales (prior year period: 3.4%). These expenses were impacted by a moderate expansion of functions serving a larger organization as well as additional capital tax expense from the capital increase in the second half of 2021.

The financial result for the first half of the year was a net expense of CHF 11.2 million (first half-year 2021: net income of CHF 0.7 million). Foreign exchange effects had a positive impact on the result. Among other factors, the the valuation at the balance sheet date of USD loans granted to subsidiaries by the holding company was significant. The result was a net foreign exchange gain of CHF 1.2 million­ (first half-year 2021: CHF 1.0 million). Dividends and interest earned from securities amounted to CHF 1.5 million (first half-year 2021: CHF 0.0 million). However, the current stock market climate also resulted in book losses in the amount of CHF 13.5 million (first half-year 2021: CHF 0.0 million). Since the Group

has repaid all bank loans as of the balance sheet date, interest expense is no longer relevant for the financial result. Income taxes came to CHF 3.7 million, resulting in a consolidated tax rate of 9.3% (first half-year 2021: CHF 9.5 million, i.e. 15.2%). In the reporting period,

the tax authorities made the final assessment of the tax treatment of new tax instruments related to the Swiss tax reform, which were claimed for the years 2020

and 2021. This led to a reduction in tax liabilities of CHF 1.9 million, which was recorded affecting net income.

2  BACHEM HALF-YEAR REPORT 2022

COMMENT AND OUTLOOK

In the future, expenses will evolve in line with the needs of long-term corporate growth. In particular, there will be disproportionate investment in research and development to further expand Bachem's technology lead.

Macroeconomic environment

Ensuring smooth business operations requires significant attention given the current macroeconomic environ- ment. Significant risk factors include inflation, supply chain and energy security. In the first half of 2022

risk management efforts were successful at Bachem. A number of customer contracts were updated to reflect higher energy and raw material prices. Capacity expansion projects, by contrast, benefit from long-term supply contracts with stable prices. Shortages in the global supply chain are being compensated through active project management, but remain a risk factor with view to specialized plant material and solvents. Subject to an acute shortage situation in Switzerland, the supply of electricity, gas and oil for production remains secure. An internal task force has been established to prepare for a possible electricity shortage in Switzerland.

Sales by product category

The Commercial API category recorded sales of CHF

131.0 million (first half-year 2021: CHF 148.2 million, -11.7%) due to lower order quantities, especially of launch-stage customer products. In the CMC Develop- ment category, sales came to CHF 79.3 million (first half-year 2021: CHF 68.3 million, +16.2%). The growth in this category reflects an expanded global pipeline of clinical development projects with peptide- and oligonucleotide-based ingredients. The Research & Specialties business amounted to CHF 24.6 million (first half-year 2021: CHF 22.6 million, +8.9%).

Sales by region

In the regional sales breakdown, the Europe/Asia region contributed CHF 142.3 million (first half-year 2021: CHF 116.9 million, +21.7%). The North America region accounted for CHF 92.6 million of sales (first half- year 2021: CHF 122.2 million, -24.2%). The decline in commercial orders most heavily impacted the North America sales region.

Capacity expansion

Capital investments of CHF 38.7 million across all sites were undertaken in the first half of 2022. Investments are on track, with the major portion of capital expenditures scheduled to occur in the second half of 2022. Bachem began construction of the world's most advanced peptide and oligonucleotide production plant in 2021. The facility is scheduled to open in 2024. A total of CHF 220 million from the start of the project is budgeted for the first phase. Bachem AG acquired Ingro Immobilien AG with Breiten Immobilien AG effective April 25, 2022, and is now the owner of the respective land and formerly leased office buildings in Bubendorf. The search for a third location in Switzerland for long-­ term capacity expansion is at an advanced stage.

Peptides update

Bachem sees sustained high demand for services and products for peptides as active pharmaceutical ingredi- ents. Positive study data on the use of peptides to treat diabetes, obesity, and eye complaints are indicators

of this industry trend.

Oligonucleotides update

The expansion of the oligonucleotide business is proceeding according to plan. The goal of CHF 100 million in sales in the oligonucleotide business is expected to be reached in 2023. In the period under review, a strategic collaboration was announced with the pharmaceutical concern Lilly for the development and production of medical ingredients based on oligonucleotides, with long-term sales potential of some CHF 100 million annually within seven years.

Sustainability

Bachem was awarded an EcoVadis Gold Medal for sustainability in the first half of 2022. The EcoVadis Gold rating applies to the entire Bachem Group, including the four GMP locations producing active pharmaceutical ingredients according to Good Manufacturing Practice. The rating places Bachem among the top 5% of all companies evaluated by EcoVadis and among the top 2% of companies in the industry. In addition, Bachem has set long-term sustainability goals for the entire Group in the areas of workplace safety and health, diversity and equal opportunity, as well as in terms of energy consumption and greenhouse gas emissions.

3  BACHEM HALF-YEAR REPORT 2022