Dottikon Es : Condensed Annual Report 2021/22

2020/21 Condensed Annual Report Your Specialist for Hazardous Reactions.

3  DOTTIKON ES

Condensed Annual Report 2020/21

Content

Summary/Outlook	5
Group Financial Statements DOTTIKON ES Group	15
	Consolidated Income Statements	16
	Consolidated Balance Sheets	17
	Consolidated Cash Flow Statements	18
	Consolidated Statements of Changes in Equity	19
	Notes	20
Corporate Governance	29
Investor Relations	39

The Annual Report 2020/21 in English includes only condensed financial information.

The comprehensive Annual Report 2020/21 is available in German.

5  Summary/Outlook DOTTIKON ES Group

Condensed Annual Report 2020/21

Dear Shareholder,

Herewith we present to you DOTTIKON ES Group's Condensed Annual Report 2020/21 for the period from April 1, 2020, to March 31, 2021. The reporting year coincided with the global COVID-19 pandemic. DOTTIKON ES was not and is not part of the COVID-19 vaccine and drug manufacturing supply chain. However, we have been and continue to be an important manufacturer of APIs for drugs used in the treatment of oncology, cardiovascular, and neurological diseases as well as diabetes, among other indications. Thanks to the disciplined and conscientious commitment and perseverance of our employees on site and those of our sup- pliers, our production and the on-time delivery of active pharmaceutical ingredients for life-saving drugs were always ensured, even during the pandemic, under the applicable hygiene and behavior rules. This Annual Report shows that even under special constraints such as the government-imposedCOVID-19 measures, things can take their regular course if they have to. The photo coverage of the brood and rearing of the common kestrel during the last business year in Dottikon is intended to strengthen the confidence and zest for life that nature gave many of us, especially during the pandemic. In springtime, the common kestrels' nesting box and their brood on our premises can be observed live at www.dottikon.com.

KEY FIGURES, APRIL-MARCH

CHF million	2019/20	2020/21	Changes
	Net sales	174.8	218.9	25.2%
	EBITDA	55.4	79.8	44.0%
	EBITDA margin  (in % of net sales)	31.7%	36.4%
	EBIT	36.5	60.6	66.3%
	EBIT margin  (in % of net sales)	20.9%	27.7%
	Net income	33.2	52.3	57.8%
	Net income margin  (in % of net sales)	19.0%	23.9%
	Cash flow from operating activities	43.7	60.0	37.3%

Employees  (FTE, annual average)

606

639

5.4%

6  Summary/Outlook DOTTIKON ES Group

Condensed Annual Report 2020/21

Review

At CHF 218.9 million, net sales in the business year 2020/21 were 25.2 percent higher than in the previous year and were broad-based in terms of products and customers. The production output for the full business year - net sales plus inventory changes in semi-finished and finished goods - even rose by 30.1 percent compared to the previous year. Next to an increase in sales, the steeper increase was due to a stronger rise in semi-finished and finished goods and the processed raw materials contained therein, which are also reflected in the higher material expenses. The increase in semi-finished and finished goods results from the high order volume for which production and processing have already started. Other operating income remained nearly unchanged compared to the previous year. At CHF 66.7 million, material expenses were 48.6 percent higher than in the previous year and represented 27.7 percent of the production output, 3.5 percentage points above the previous year. Personnel expenses rose by 7.5 percent to CHF 75.1 million in the business year 2020/21, with a large part of the increase due to a 5.4 percent staff buildup to 639 full-time equivalents and the remainder mainly attributable to higher salaries. In combination with other operating expenses, which were up

1. percent compared to the previous year, EBITDA rose by 44.0 percent to CHF 79.8 million, with an EBIDTA margin of 36.4 percent (previous year: 31.7 percent). At around CHF 19 ­million, depreciation and amortization were slightly higher than in the previous year. EBIT rose by

1. percent to CHF 60.6 million compared to the previous year, with an EBIT margin of 27.7
   percent­ (previous year: 20.9 percent). The financial income was CHF 1.2 million and was be-
   low the previous year's figure. Net income stood at CHF 52.3 million (previous year: CHF

1. million),­ and the net income margin was 23.9 percent (previous year: 19.0 percent).
   Compared to the previous year, cash flow from operating activities rose by 37.3 percent to CHF

1. million. Cash outflows from investments amounted to CHF 52.4 million, 17.9 percent above the previous year. The equity ratio is a strong 85.5 percent.

7  Summary/Outlook DOTTIKON ES Group

Condensed Annual Report 2020/21

Assessment of situation

The COVID-19 pandemic since early 2020 and the corresponding government-imposed measures to combat the virus have shaped the international economic situation. After a partial­ relaxation of the measures in summer 2020 and the subsequent short-term recovery, a further wave of infection in late 2020 and throughout spring 2021 brought about a renewed tightening of the measures and slowed down global economic growth once again. After more than a year under government-imposed restrictions, however, many economic sectors have come to terms with the new framework and have found ways to pursue their productive activities nonetheless. With the approval and increasingly broad-based availability of various vaccines, restrictions in the United States and Europe might be lifted gradually, and a return to ­normalcy can therefore be expected for the second half of 2021. Accordingly, the economic recovery should gain momentum, with first signs thereof already visible - along with the respective distortions in the global value and logistics chains, as supply had aligned itself downwards and stabilized at a low level in reaction to the marked drop in demand in the early stages of the pandemic and the significantly changed demand mix. With the market showing signs of partially sharp recovery, also driven by pent-up demand, integrated production and logistics once again have to adapt to the new mix and the higher demand and bring decommissioned capaci­ ties back into operation. For the time being, this has resulted in price hikes due to a demand overhang.

In the short term, the monetary and fiscal measures taken in response to COVID-19 have created an important safety net for the economy, but they also gave rise to unprecedented government debt. Central banks have financed, either directly or indirectly, a large portion of this increase in government debt. The world has never seen higher debt levels than today. At the same time, long-term interest rates are lower than ever before. If this changes, it will become increasingly difficult for many states to meet their interest and debt repayment obligations.

In the course of globalization, many companies focused on rapid value growth through the utili­ zation of global economies of scale. In other words, they focused on specialization and consoli­ dation of value chains and segments via outsourcing and a concentration on a small number

8  Summary/Outlook DOTTIKON ES Group

Condensed Annual Report 2020/21

of suppliers in countries with low manufacturing costs. Research and development for long- term innovation, proprietary in-house production and strategic supply security had been neglected in favor of short-sighted, rapid profit-making. In early 2020, COVID-19 abruptly revealed the danger of dependence on a few geographically concentrated producers. This being said, these dangers did not materialize to the extent initially feared, as the bottlenecks seen at the onset of the pandemic, especially in the health care sector, were primarily the result of a surge in demand rather than a supply disruption problem. Still, the danger, the strategic weaknesses and interdependencies of the geopolitically rivaling forces as well as the potential fallout from a disruption of the global value chains became brutally apparent.

The dynamics of the tripolar world order led by the United States, China, and Russia have changed as a result of the lessons learned from the pandemic, the intensified assertion of interests by China, which recovered earlier from the pandemic, and the reactivation of old alliance policies by the new administration in the United States. Given their similar core interests, the United States and Europe have grown closer again. As a response and based on pragmatic opportunism, Russia and China are also closing ranks. The strategic front therefore runs along the geographic regions of Eastern Europe, the Middle East, and Southeast Asia. In addition, global internet connectivity has given the power struggle a digital dimension with misinformation and cyberattacks in enemy territory, which is increasingly used in an effort to fan social tension and inflict economic damage on the opponent.

In the event of a major armed escalation between the power poles, the high degree of special- ization, concentration, and organization of the value chains and their segments harbors an immense economic, technological, and cultural destruction potential. This threat awakens the need for a reduction of geopolitical dependencies and thus a realignment of interest ties. To this end, the rivaling parties strive for economic unbundling. The implementation is - particularly for globally positioned large companies - a demanding, long-lasting and complex path. Values such as consistency, trust, and reliability as well as cultural regional anchoring and proximity have become important in establishing a trust base for building new or expanding existing business as well as political relations. As a consequence, the repatriation and region-

9  Summary/Outlook DOTTIKON ES Group

Condensed Annual Report 2020/21

alization trends continue. Even at higher costs, the value chains for sensitive goods are given a broader regional base in the interest of achieving greater supply security. For the coming decade, therefore, reindustrialization will gain traction in Europe as well as in the United States. Only those who mine, extract, and manufacture will have unrestricted access to goods.

Demographic developments and the related rise in drug demand, the accelerated market approvals for generics, biosimilars, and novel drugs as well as government attempts to reduce drug prices remain key medium- and long-term volume growth and innovation drivers in the pharmaceutical market. In addition, the demographic trend ensures stable volume growth in the long term. Global life expectancy will continue to rise, even if it is at lower rates than in the previous years in industrialized countries and may even decline in the short term in countries with a high proportion of older people in the population due to COVID-19. In the medium term, life expectancy is set to rise not least thanks to progress in the treatment of cancer, the world's second most common cause of death. The global increase in sales volumes expected in the medium term is around 3 percent per year, which roughly corresponds with the population growth of the group of people aged 65 and over. The overall annual sales market for all prescription drugs is around CHF 1'300 billion, with patent-protected products accounting for 60 percent of the total and generics/biosimilars representing the remaining 40 percent. 90 per- cent, or more than CHF 700 billion, of patent-protected drugs are sold in developed countries. Over the last five years, global drug sales grew by around 7 percent annually. Nearly 50 percent of the sales increase over the last five years took place in the United States, which accounts for more than 40 percent of the market share, followed by Europe and then China. Over the coming five years, overall global drug sales are expected to grow at 5 percent annu- ally, and at 7 to 8 percent for the patent-protected innovative drugs, divided into biologics with expected growth rates of 8 to 9 percent and small molecules with growth rates of 6 to 7 per- cent. In 2020, the Food and Drug Administration (FDA) approved 53 new drugs, a 10 percent increase over the previous year. More than 75 percent of the new drugs were small molecules, and 70 percent were expedited reviews for approval. The European Medicines Agency (EMA), meanwhile, approved 55 new drugs in 2020, an increase of more than 80 percent over the