Dottikon ES : Condensed Half-Year Report 2023/24

2023/24  Condensed Half-Year Report

Dottikon ES Holding AG

2023/24 Condensed Half-Year Report More than Hazardous Reactions.

2  DOTTIKON ES

Condensed Half-Year Report 2023/24

Content

Summary/Outlook	3
Group Financial Statements DOTTIKON ES Group	20
	Consolidated Income Statements	21
	Consolidated Balance Sheets	22
	Consolidated Cash Flow Statements	23
	Consolidated Statements of Changes in Equity	24
	Notes	25
Investor Relations	26

The Half-Year Report 2023/24 in English includes only condensed financial information.

The comprehensive Half-Year Report 2023/24 is available in German.

3  Summary/Outlook DOTTIKON ES Group

Condensed Half-Year Report 2023/24

Dear Shareholder,

If the functioning social structures with population growth and increasing prosperity are to be maintained, we will have to accept the associated increase in entropy. The challenge lies in the sustainable organization of this entropy increase.

Along with the publication of the Half-Year Report 2023/24, for the first time, DOTTIKON ES Group publishes the anticipated Sustainability & Corporate Responsibility Report 2022. The new non-financial reporting obligations according to the Swiss Code of Obligations will be applicable from 2023, followed by the new transparency obligations for climate risks from 2024 onwards. Further, the Swiss population has voted in favor of the Federal Act on Climate Protection Targets, Innovation and Strengthening Energy Security. This law mandates DOT- TIKON ES Group to achieve net-zero greenhouse gas emissions by 2050 for at least the direct emissions caused by its operations (Scope 1 according to the Greenhouse Gas [GHG] Proto- col) as well as those indirectly caused through purchased energy (Scope 2). A main challenge lies already in the many assumptions with great uncertainties for the greenhouse gas emission estimates, in particular with the required inclusion of the entire value chain. This inevitably results in excessive bureaucracy to monitor and prevent cosmetically improved calculations - so called green-washing, which is already done opportunistically by governments and companies on a grand scale. Yet this formal aspect is only the beginning, as the ultimate real challenge lies in the technical and economic feasibility of net zero. A section of this shareholder letter will be dedicated to this challenge in the context of DOTTIKON ES Group.

4  Summary/Outlook DOTTIKON ES Group

Condensed Half-Year Report 2023/24

Half-Year Report

Herewith we present to you DOTTIKON ES Group's Condensed Half-Year Report 2023/24 for the period from April 1 to September 30, 2023.

At CHF 152.6 million, net sales in the first business half-year 2023/24 were 14.0 percent higher than in the previous-year period and were broad-based in terms of products and custom- ers. The production output - net sales plus inventory changes in semi-finished and finished goods - was 2 percent lower in the first business half-year 2023/24, taking into account the higher materials share related to the product mix in the previous-year period, which was up

1. percentage points or CHF 8.7 million. This demonstrates the high utilization of the existing plants and the necessity of the new plants currently under construction for additional capaci- ty to continue the growth path hitherto. Material expenses were down 22.7 percent com- pared to the previous-year period at CHF 41.7 million (previous-year period: CHF 53.9 million) due to a less material-intense product mix and accounted for 28.5 percent (previous-year period: 34.1 percent) of the production output. Personnel expenses rose by 6.5 percent to CHF

1. million compared to the previous-year period due to higher salaries and a 3.6 percent increase in the average staff number. In combination with other operating expenses of CHF

1. million below the previous-year period's figure, mainly due to higher costs and provisions made for the disposal of burdened soil in the previous-year period, EBITDA was 11.8 percent higher at CHF 52.6 million (previous-year period: CHF 47.1 million), with a lower EBITDA
   margin­ of 34.5 percent (previous-year period: 35.2 percent). Without the two effects of the more material-intense product mix and the disposal of burdened soil in the previous-year

KEY FIGURES, APRIL-SEPTEMBER

CHF million (unaudited)		2022	2023	Changes
AWith employment contract
Net sales	133.8	152.6	14.0%
	EBITDA	47.1	52.6	11.8%
	EBITDA margin  (in % of net sales)	35.2%	34.5%
	EBIT	37.5	42.6	13.5%
	EBIT margin  (in % of net sales)	28.0%	27.9%
	Net income	38.9	37.4	-4.0%
	Net income margin  (in % of net sales)	29.1%	24.5%
	Cash flow from operating activities	49.4	50.0	1.2%
	EmployeesA (FTEs, six-month average)	670	694	3.6%

5  Summary/Outlook DOTTIKON ES Group

Condensed Half-Year Report 2023/24

period, the EBITDA margin in relation to the production output was comparable with the previous -year period. With depreciation and amortization of around CHF 10 million, EBIT was CHF 42.6 million, 13.5 percent above the previous-year period, with an EBIT margin of 27.9 percent (previous-year period: 28.0 percent). After the financial result, net income before taxes was CHF 42.9 million (previous-year period: 37.1 million), 15.7 percent above the previous- year period. The lower income taxes in the previous year due to the newly applicable reduced income tax rate and the related extraordinary income due to a one-time revaluation of deferred tax liabilities resulted in a net income of CHF 37.4 million (previous-year period: CHF 38.9 mil- lion), 4.0 percent lower than in the previous-year period, with a net income margin of 24.5 percent (previous-year period: 29.1 percent). Without the extraordinary income effect, the previous -year period's net income margin would have been 24.2 percent.

Cash flow from operating activities was CHF 50.0 million, slightly above the previous-year period. Property, plant and equipment rose by CHF 91.2 million in the first business half-year as a result of ongoing strong investments. Cash outflows from investment activities were CHF 72.4 million, up 39 percent compared to the previous-year period. Cash and cash equivalents and current financial assets were up CHF 16.9 million in the reporting period and were CHF 236.2 million at the end of the first business half-year. As planned, a further CHF 40 million of the committed bank loans were drawn and attributed to the non-current financial liabili­ ties in the reporting period. Shareholders' equity was up CHF 38.6 million at CHF 841.6 million in the reporting period, while the equity ratio was down from 76.2 percent to 71.8 percent, mainly due to an increase in financial liabilities, higher accruals, and higher trade payables, the two latter ones mainly related to the plants under construction.

For the ongoing full business year 2023/24, we expect net sales above the previous year's fig- ure. Expansion and buildup of new manufacturing capacities and infrastructure for ongoing growth continues. The construction of the new drying and chemical multipurpose production plants for APIs progresses according to plan. The plants will become operational in 2024 and 2025. The building construction is largely complete, and the interior installations are pro- gressing.

6  Summary/Outlook DOTTIKON ES Group

Condensed Half-Year Report 2023/24

Assessment of situation

The dipolar world order has solidified and is shaping the geopolitical tensions caused by the struggle between the United States and China to secure future world supremacy. The alliance partnerships accentuated by the war in Ukraine, have further intensified both on the US side and the Chinese side as a result of the Hamas attack on Israel. Europe seems to be becoming increasingly aware of the existential necessity of an explicit commitment to its US alliance and a clear political distance to China. At the same time, an unholy alliance is forming around China with Russia, North Korea, and Iran. This alliance focuses on the mutual exchange of military weapons and technology with the sole common purpose of challenging and fighting the United States' hegemonial power. With its path of investment diplomacy, China has expanded and strengthened its influence. Developing nations with key raw material reserves were actively tied to China and are now being used to expand the military and geopolitical power zone to create an alternative world order with China at the top. According to the ­United States' National Security Strategy report, China is the only competitor in the world that not only has the intention to reshape the world order, but also has the economic, diplomatic, mili­ tary, and technological power to do so. The United States view the coming ten years as the self-declared decisive decade in this matter. The struggle to defend and expand their political and military power is costly and time-consuming for both sides, especially in times when political upheavals and the outbreak of new military conflicts seem to be the order of the day. All this in an environment of an increasingly apparent global economic downturn of potentially monstrous proportions due to record-high government debt, high inflation rates, rising interest rates and migration waves, as well as the negligent shutdowns and conversion of energy infrastructure in Europe as part of the energy transition combined with the simulta­ neous neglect of a buildup of new infrastructure. The latter is leading to an industrial exodus, particularly in Europe, and an increase in the already high dependence on China. Paradoxically enough, immense subsidy packages are being made available in both the United States and in Europe to allegedly increase supply security, promote domestic industry, reduce

7  Summary/Outlook DOTTIKON ES Group

Condensed Half-Year Report 2023/24

dependence on foreign countries and implement climate policies. In the end, most of these subsidies end up in the pockets of Chinese suppliers, who can increase their prices thanks to these subsidies.

The United States' public debt has increased four-fold over the last ten years and grew by 50 percent in the last four years alone. By now, public debt represents more than 120 percent of the nation's gross domestic product (GDP). The expected 10-year Treasury yield in the US is now nearly 5 percent. The mean value of EU member state government debt is 84 percent of GDP. The money supply caused by high government debt has led to high inflation and forced the national banks to raise their key interest rates in rapid succession to a level that takes a heavy toll on the national budget of countries with high debt levels in case of due replacements or a further increase of debt. At the same time, despite the forecasts, inflation remains at high levels due to an increase in structural costs as a result of the politically enforced energy transition in combination with the war in Ukraine and excessive bureaucracy and over­ regulation,net-zerotargetsforgreenhousegasemissions,andtheeliminationof­self-regulating market forces. In combination with the efforts to disentangle geopolitical ties and reduce the related risk and high dependence on China, which are being strategically promoted by the United States and are now also increasing in the EU, inflation is more and more a result of a further increase in structural costs. To combat the latter, interest rate hikes are not as effective as they are in case of purely money-supply related inflation. Chinese exports are declining on the back of the described geopolitical disentanglement. At the same time, a real estate crisis is brewing in China. This sector was China's most important growth driver in the past. In order to counteract speculation, the Chinese government has restricted financing options for real estate developers and buyers. Some large real estate developers are now faltering on the back of this development or have already gone bankrupt. As the majority of financing was provided by domestic banks, this, together with the general economic slowdown, may also lead to a Chinese banking crisis. Officially, China's debt is 70 percent of GDP, but when local government financing vehicles are taken into account, the debt rate is around 100 percent

8  Summary/Outlook DOTTIKON ES Group

Condensed Half-Year Report 2023/24

of GDP. This development will adversely affect Chinese consumption and further weaken China's, but also the world's, economic growth rates. According to IMF estimates, China contributes 35 percent to global economic growth.

The central banks face the dilemma that excessively high interest rate hikes will lead to a hard landing and drive heavily indebted governments further into the debt trap. Overly low interest rates, on the other hand, prevent central banks from curbing inflation, which will result in a loss of wealth and in social tension. The current higher interest rates are already slowly, but steadily shedding a light on the risks that have built up on real estate and banking balance sheets over the past years. If a critical number of market participants becomes aware of these risks, this will quickly turn into a wildfire and result in a major financial crisis.

Against this background, a global economic slump is to be expected, with lasting high interest rates and inflation or rather higher intrinsic structural costs. Given the economic and politi­ cal challenges the two rivals face, neither the United States nor China have an interest in an immediate military escalation in the South China Sea. Despite a tense economic environment and higher costs, this time must be used to further disentangle dependencies and thus reduce the geopolitical risks in the value chains.

Net zero

Greenhouse gas emissions are converted into CO² equivalents (CO²-eq) according to their effect compared to CO² and are reported accordingly. For the sake of simplicity, only the term CO² is used here.

CO² emissions are the product of population number multiplied by prosperity level (GDP per person), energy efficiency (energy consumption per activity), and CO² intensity (CO² emission per usable energy unit). Technological progress can improve energy efficiency and CO² ­intensity. The most important drivers, however, remain population size and degree of pros- perity. A growing population with increasing prosperity leads to high energy and material consumption and therefore to significant entropy increase and, as a result, to more disorder or

9  Summary/Outlook DOTTIKON ES Group

Condensed Half-Year Report 2023/24

destruction. Entropy is a thermodynamic parameter to measure disorder in a system. If order is created at one place in the system, the same amount or more disorder is created at another place in the system. In a closed system, spontaneous processes are irreversible. There are no possibilities to reverse irreversible processes in any way while at the same time returning all aids used for it back into their original state. Entropy, therefore, always increases. If the functioning social structures with population growth and increasing prosperity are to be main- tained, we will have to accept the associated increase in entropy. The challenge lies in the sustainable organization of this entropy increase. The increase should be organized along the following entropy efficiency principles and priorities and affects all functional structures at global, regional, and local levels, as well as biological (habitats and settlement structures), industrial and economic (production and distribution) and social structures: (1) more efficient and longer use of existing structures; (2) recycling and reuse of existing structures at high

value­ levels; and (3) focus on more sustainable approaches when expanding or replacing structures with new ones. In addition, DOTTIKON ES' business priorities are as follows: (1) ensuring the supply of active pharmaceutical ingredients for humans and animals; (2) compliance with laws, regulations, and industry standards; (3) creating long-term added value for customers, employees, suppliers, and shareholders; and (4) sustainability in the form of the described entropy efficiency.

In Switzerland, according to the Federal Act on Climate Protection Targets, Innovation and Strengthening Energy Security, the federal government must ensure that man-made greenhouse gas emissions are zero by 2050. Greenhouse gas emissions are to be avoided as much as possible, and remaining greenhouse gas emissions are to be offset by applying nega­ tive emission technologies in Switzerland and abroad. After 2050, the amount of CO² removed and stored must outweigh the remaining greenhouse gas emissions. As an intermediate reduction target, the law stipulates a reduction of at least 75 percent of greenhouse gas emissions until 2040 versus the 1990 baseline. In the wording of the Federal Act, the reduction targets must be technically and economically feasible. Compared to 1990, Switzerland

10  Summary/Outlook DOTTIKON ES Group

Condensed Half-Year Report 2023/24

reduced its CO² emissions by around 18 percent until 2021, with the industrial sector ­reducing its emissions by as much as 21 percent over the same time period. This was achieved not only through increased efficiency, but also by outsourcing energy-intensive production steps to other countries, such as China. The Federal Act on Climate Protection Targets, Innovation and Strengthening Energy Security mandates DOTTIKON ES Group to achieve net-zero greenhouse gas emissions by 2050 for at least those emissions caused directly by its operations (Scope 1) and those indirectly caused through purchased energy (electricity, heating and cooling of buildings; Scope 2). The other emissions from activities in the upstream or downstream value chains outside the company's premises are referred to as Scope 3. In addition to the direct (Scope 1) and indirect (Scopes 2 and 3) emissions, there is also the concept of avoided emissions, often referred to as Scope 4 (not part of the GHG Protocol termi- nology). These are potential emissions that are avoided as a result of measures taken to avoid emissions that otherwise would have occurred. In the case of DOTTIKON ES' business activi­ ties, these are reductions in material and energy use through shorter synthesis routes, more efficient manufacturing processes with high selectivities, yields, and purities as well as reduced energy consumption, also taking into account the raw materials in use. In line with the entropy efficiency priorities, waste materials shall be recycled, materially or thermically reprocessed according to the priorities described earlier. This reduces waste and ultimately (CO²) emissions. Scope 4 is the most important lever to secure long-term lower Scope 1, 2, and 3 emissions.

DOTTIKON ES is a strongly backward integrated Custom Development and Manufacturing Organization (CDMO) with a one-site strategy in Dottikon (Aargau, Switzerland). DOTTIKON ES' only Scope 2 emissions are the externally sourced electricity from nuclear power with around 16 g CO²/kWh (depending on the assumptions and political orientation of the source; the literature values vary between 5 and 115 g/kWh). In terms of DOTTIKON ES' annual electricity consumption at around 23 MWh, this corresponds to CO² emissions of around 370 tons. Offsetting these emissions will not be possible with hydro and wind energy (8 to 73 g/kWh),