Dottikon ES : Condensed Half-Year Report 2017/18

Condensed Half-Year Report

2018/19

Dottikon ES Holding AG

2018/19 Condensed Half-Year Report Your Specialist for Hazardous Reactions.

2 DOTTIKON ES	Condensed Half-Year Report 2018/19
Content
Summary/Outlook	3
Group Financial Statements DOTTIKON ES Group	9
Consolidated Income Statements	10
Consolidated Balance Sheets	11
Consolidated Cash Flow Statements	12
Consolidated Statements of Changes in Equity	13
Notes	14
Investor Relations	16
This Half-Year Report 2018/19 in English includes only condensed financial information.
The comprehensive Half-Year Report 2018/19 is available in German.

Dear Shareholder,

Herewith we present to you DOTTIKON ES Group's Condensed Half-Year Report 2018/19 for the period from April 1 to September 30, 2018.

In the first half of the current business year, net sales stood at CHF 56.6 million, around 19 percent below the previous-year period's result. The production output - net sales plus inven-tory changes in semi-finished and finished goods - declined by 11 percent. This decline is the result of current market challenges: (i) geopolitical and economic uncertainties; (ii) inter-mittent scale-up of processes with limited experience due to accelerated market approval processes; and (iii) supply bottlenecks due to rigorous enforcement of environmental regu-lations and, subsequently, the temporary or permanent closure of Asian chemical producers. In the period under review, this resulted in increased sourcing complexity, the interruption of campaigns, and therefore production and delivery acceptance delays related to existing customer contracts.

The increase in inventory in semi-finished and finished goods, which was twice as high in the reporting period compared to the previous-year period, as well as the partially related more material-intense product mix led to an increase in material expenses by approximately 9 per-cent in the first half of the business year 2018/19. The number of staff rose by 6 percent com-pared to the previous-year period, while personnel expenses only increased by 3 percent or CHF 0.9 million. This resulted in an operating result before depreciation and amortization (EBITDA) of CHF 9.8 million, down approximately 51 percent from the previous year, with an

EBITDA margin of 17.4 percent (previous year: 28.5 percent). The previously announced

KEY FIGURES, APRIL-SEPTEMBER

CHF million (unaudited)

A Restated, see "Changes in

Corporate Accounting Principles", page 14

EBIT margin

Net income

2017A	2018	Changes
70.1	56.6	-19.2%
19.9	9.8	-50.7%
28.5%	17.4%
11.4	2.4	-78.8%
16.3%	4.3%
9.6	2.0	-79.1%
13.6%	3.5%
Cash flow from operating activities	39.0	24.8	-36.4%
563	596	5.9%

(in % of net sales)

Net sales EBITDA

EBITDA margin (in % of net sales) EBIT

Net income margin (in % of net sales)

Employees (FTEs, six-month average)

major investments will be put into operation at the end of the second business half-year 2018/19 and therefore did not yet have an impact on depreciation in the current reporting period. In addition, depreciation on some plant components from previous years expired, which reduced depreciation and amortization by around CHF 1.1 million to CHF 7.4 million. The operating result (EBIT) stood at CHF 2.4 million, around 79 percent below the previous-year period. Together with the financial result and income taxes, net income was CHF 2.0 mil-lion (previous year: CHF 9.6 million) and the net income margin stood at 3.5 percent, clearly below the previous year's 13.6 percent. Cash flow from operating activities was CHF 24.8 million in the reporting period (previous year: CHF 39.0 million). In line with the quality man-agement, development, and production capacity increase, cash outflows for investments in property, plant and equipment rose by around 45 percent compared to the previous-year period to CHF 22.2 million. At the end of the reporting period, cash and cash equivalents stood at CHF 56.9 million (end of business year 2017/18: CHF 54.6 million). The equity ratio was a solid 80.2 percent.

Due to the delayed net sales realization in the past first business half-year and despite the forecasted significantly stronger second business half-year, we expect lower net sales and net income for the full business year 2018/19 compared to the previous year. Our focus remains on stabilizing past successes, additional buildup and expansion efforts in infrastruc-ture as well as development and manufacturing plants, and advance performances for the expected product-related medium-term growth.

Global economic growth continued to improve in the period under review. Given the brighter economic situation in industrialized nations, inflation rates move closer to their target ranges. Central banks mainly maintain their expansive policies. With additional interest rate hikes, the Federal Reserve has taken further steps toward normalization. While growth rates are gener-ally expected to ease, the expansive monetary policies and the improved labor market situa-tion continue to provide the economy with further impetus. Despite this, the economic riskcontinues to rise. High debt levels, low interest rates, and the rising, but still low raw material and energy prices clash with increasing geopolitical tension, which creates a dangerous combination. The demonstration and expansion of power in the new tripolar world order with a confrontational United States, subversive Russia, and ambivalent China give rise to region-alization and nationalization. As a result, unpredictability and uncertainty intensify. Values such as trust, reliability, and long-term consistency as well as cultural and regional proximity become increasingly important.

The demographic trend and the accelerated market approval for novel drugs, combined with inexpensive capital, are key innovation drivers. They ensure long-term pharma volume growth. Despite state-imposed efforts to curb health care costs, boost generics and biosimi-lars, and contain excessive drug price hikes, global pharma drug sales volumes are expected to grow by 6 to 7 percent annually over the next 5 years. For generics, which represent more than 90 percent of the pharma market volume, annual volume growth is expected at 3 percent, in proportion with the increase in the population of over 65-year-olds. In contrast, the pharma market share of innovative patent-protected drugs, which represent around 80 percent of pharma sales, is expected to grow at a more rapid pace of around 10 percent, primarily driven by the US, European, and Japanese markets.

Innovation is undiminished. In the first 9 months of this calendar year alone, the FDA has approved as many as 42 new drugs. Extrapolated for the entire year, this would amount to 56 new approvals and represent a new high since 1996. At more than 70 percent, small mole-cules continue to represent the lion's share of market approvals. The significant capital inflow in the biotech sector has increased the number of market approvals of drugs subject to accelerated market approval processes, which has further intensified competitive and pric-ing pressure and increasingly reduced the times to harvest profits to shorter periods than the patent lifetime. This reduces the return on invested capital.