Recordati : Financial Statements of Recordati S.p.A. at 31 December 2022

2022 ANNUAL REPORT OF

RECORDATI S.p.A.

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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 29th 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 29th 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 29th April 2020 for the financial years 2020‐2028.

Review of operations

To our Shareholders,

The annual report of the Company for the year ended 31st 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	2021	% of	Changes
revenue	revenue	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®.

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:

€ (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 31st December 2021.

The significant increase in net debt is mainly due to the payment of € 707.0 million for the acquisition, completed on 16th 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 28th 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).