Medica S p A : Consolidated half-year financial report at 30 June 2023

HALF-YEAR FINANCIAL REPORT

at 30 June 2023

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Table of contents
DETAILS OF THE PARENT COMPANY	3
COMPOSITION OF THE PARENT COMPANY'S CORPORATE AND CONTROL BODIES	4
REPORT ON OPERATIONS	5
INTRODUCTION	5
THE GROUP'S STRUCTURE AND BUSINESS	5
PREAMBLE	6
GENERAL ECONOMIC PERFORMANCE	7
THE GROUP'S ECONOMIC AND FINANCIAL PERFORMANCE	7
THE GROUP'S RESULTS OF OPERATIONS IN THE HALF-YEAR ENDED 30 JUNE 2023	8
RECLASSIFIED BALANCE SHEET	9
NET FINANCIAL DEBT	10
NON-GAAP ALTERNATIVE PERFORMANCE INDICATORS	11
ATYPICAL AND/OR UNUSUAL TRANSACTIONS	12
RELATED-PARTY TRANSACTIONS	12
DESCRIPTION OF RISKS AND UNCERTAINTIES TO WHICH THE COMPANY AND THE GROUP ARE EXPOSED AND FINANCIAL
INSTRUMENTS	12
TREASURY SHARES	13
ENVIRONMENT AND PERSONNEL	13
RESEARCH AND DEVELOPMENT ACTIVITY	13
SIGNIFICANT EVENTS IN THE FIRST HALF OF 2023	14
EVENTS AFTER THE REPORTING DATE	15
OUTLOOK	15
CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS	16
BALANCE SHEET	16
INCOME STATEMENT	18
CASH FLOW STATEMENT	19
NOTES TO THE FINANCIAL STATEMENTS	20
1.	GENERAL INFORMATION	20
2.	BASIS OF PREPARATION	20
3.	FORM OF THE FINANCIAL STATEMENTS	20
4.	SCOPE OF CONSOLIDATION	21
5.	INTANGIBLE ASSETS	21
6.	PROPERTY, PLANT AND EQUIPMENT	22
7.	NON-CURRENT FINANCIAL ASSETS	23
8.	INVENTORIES	24
9.	RECEIVABLES STATED UNDER CURRENT ASSETS	24
10.	CASH AND CASH EQUIVALENTS	25
11.	ACCRUED INCOME AND PREPAID EXPENSES	25
12.	SHAREHOLDERS' EQUITY	26
13.	PROVISIONS FOR RISKS AND CHARGES	26
14.	EMPLOYEE SEVERANCE PAY	27
15.	PAYABLES	27
16.	ACCRUED EXPENSES AND DEFERRED INCOME	29
17.	REVENUES FROM SALES AND SERVICES	29
18.	OTHER REVENUES	30
19.	COSTS FOR SERVICES, LEASES AND RENTALS AND OTHER OPERATING CHARGES	30
20.	PERSONNEL COSTS	31
21.	FINANCIAL INCOME AND COSTS	31
22.	INCOME TAX	31
23.	RELATED-PARTY TRANSACTIONS	32
24.	EVENTS AFTER THE REPORTING DATE	32
25.	OTHER INFORMATION	32
INDEPENDENT AUDITORS' REPORT ………. ……………………………………………………………………………………………...……..35

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Details of the Parent Company

Medica S.p.A.

Registered office

Via degli Artigiani, 7 41036 Medolla (MO)

Legal information

Authorised share capital : Euro 4,223,250

Subscribed and paid-up share capital: Euro 4,223,250

Tax code/Register of Companies/VAT no. 01604300366

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Composition of the Parent Company's corporate and control bodies

Board of Directors

In office until the approval of the financial statements at 31 December 2023

Fecondini Luciano

Chairman of the board of directors Fecondini Marco

managing director Bocchi Letizia managing director Stancari Chiara managing director Andrea Moschetti independent director

Board of Statutory Auditors

In office until the approval of the financial statements at 31 December 2024

Mazza Anna Laura	Quattrini Loris
Chairman	Alternate Auditor
Grazia Stefania	Guerzoni Sandra
Standing Auditor	Alternate Auditor
Vergnanini Riccardo
Standing Auditor

Independent Auditors

EY S.p.A.

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REPORT ON OPERATIONS

Introduction

With regard to the half-year ended 30 June 2023, the figures shown and the comments made in this report are aimed at providing an overview of the Group's financial position, results of operations and cash flows and of any related change that was recorded during the reporting period, as well as of the significant events that occurred and had an impact on the result for the period.

We would like to specify that this report provides all the information prescribed and required by Article 2428 of the Italian Civil Code, as amended by Legislative Decree no. 32 of 2007, as well as that required by the Italian Accounting Profession (Consiglio Nazionale dei Dottori Commercialisti e degli Esperti Contabili). The information provided is considered to be useful for giving a true, fair and comprehensive view of the Group's performance concerning the results of operations as a whole, as well as a description of the main risks and uncertainties to which the Group is exposed.

The Group's structure and business

Medica S.p.A. ("Company") and its subsidiaries (collectively, the "Group" or the "Medica Group") are an international player that is active in the manufacturing of medical products and hospital equipment, in particular in the rubber plastic and metalworking business sectors.

Since 2010 we have added a water filtration division (Medica Water Division) to our traditional areas of operation, where we are able to use our membrane and filter technology to place on the water filtration market certain products with significantly higher performance for microbiological purification. This division has taken on a key role in the evolution of the Medica group because important opportunities have been established for civil and industrial use, in addition to the initial successful experience in water filtration at hospitals; the proof of this is that in 2020 Medica was assigned the role as the leading company in an important European project, Graphil, which involves 6 other European entities (Universities and enterprises from various member states). The project is 100% funded by the EU and is key to the development of technology aimed at eliminating dangerous pollutants that are beginning to be observed in drinking water. The idea is to use graphene, which is a monolayer material of carbon molecules, to enhance the mechanical properties of polysulfone membranes that Medica has been producing for decades.

On 1 November 2021, we received from Borsa Italiana S.p.A. the admission to listing of Medica's ordinary shares on the Euronext Growth Milan market, a multilateral trading system organised and managed by Borsa Italiana S.p.A.. Following the placement, Medica's share capital increased from 3,538,100 shares to 4,223,250 ordinary shares with no par value, of which 20.07% consists of free float.

Since 2021, the Group has expanded its boundaries both through acquisitions and through the incorporation of new companies, as described in the following paragraphs.

At present the Group operates through the following companies:

1. Medica SpA (Medolla - Italy), which is the Parent Company responsible for management, research and development, quality and manufacturing of medical products and is controlled by the holding company Pelmo87 Srl (Ultimate Parent Company), which was established in March 2022;
2. Tecnoideal Srl, a sole-quotaholder company - hereinafter also referred to as Tecnoideal Srl (Mirandola - Italy) -, which is directly wholly owned by Medica SpA and operates in the electromechanical sector, developing and manufacturing assembly machines used in biomedical

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companies, as well as hospital equipment for the parent company Medica. Furthermore, the company acquired 100% of Slom Srl, a company specialising in precision machining, at the beginning of September 2022, which was then merged by incorporation at the end of December 2022;

1. Sar-medSrl (Iglesias - Italy), which is directly wholly owned by Medica SpA and produces membranes, catheters, filters and disposable products, both for blood and water filtration;
2. Medica Méditerranée (Bizerte-Tunisia), which is wholly owned directly by Medica SpA for 92.11% and indirectly through the sole-quotaholder subsidiary Tecnoideal Srl for the remaining investment of 7.89%, and produces printed parts, extruded tubes for blood lines and catheters;
3. Tecnoideal America (Maryland - USA), which is wholly owned (40% of which was acquired at the end of 2022) through the sole-quotaholder subsidiary Tecnoideal Srl that in turns holds an interest of 98.42% in Nefrodom (dialysis centres in Santo Domingo - Dominican Republic);
4. Tecnoideal ASIA (Shanghai - China), a commercial company that is wholly owned through the sole-quotaholder subsidiary Tecnoideal Srl and that started its operations in the 2020 financial year at the same time as the outbreak of the Covid-19 pandemic;
5. THF Srl (Marzolara - Italy), 100% of whose quotas were acquired through the sole-quotaholder subsidiary Tecnoideal Srl at the end of April 2021. The company operates in the design and manufacture of special machines for radiofrequency or thermal pulse welding of plastic films, applied to various products, including medical goods (typically blood bags or bags for liquids to be sterilised). By means of the acquisition we hope to expand Tecnoideal's technological offer by adding the sector of welding machines for medical films and consequently approach new industrial markets;
6. Spindial SpA (Collecchio - Italy), 51% of whose shares was acquired at the end of July 2022, which is specialising in the sale and technical support concerning medical devices for hospital and home dialysis and the operation of dialysis centres;
7. Dialpoint Srl (Traversetolo - Italy), which is 60% owned by Spindial SpA and is specialising in the management of services in the field of outpatient hemodialysis;
8. Medica USA Inc., established in October 2022 and 70% owned by Medica SpA, which will be responsible for the production of blood filters and water filters following the execution of the contract with Evoqua, which was finalised on 1 April 2023 and the distribution of medical products, including those manufactured by Medica SpA;
9. Medica Advanced Technologies Ltd, a commercial company that was established in October 2022 and is 85% owned by Medica SpA, operating in the field of medical products, mainly in the apheresis division, in the United Kingdom;
10. Medica GmbH, a commercial company that was established at the end of February 2023 and is wholly owned by Medica SpA, operating in the field of medical products in Germany.

Medica also holds 17.09% of Tecnopolo MISTE-R, a microtechnology laboratory located at the Italian National Research Council (CNR) in Bologna: the investment is considered to be key to participating in one of the Technology hub projects of the Emilia-Romagna Region, which boasts the best performance, both in terms of results of operations and as a research and development partner for members and third parties.

The sole-quotaholder subsidiary Tecnoideal Srl holds an interest of 11.25% of Medica Middle East (Cairo - Egypt), which was written down in full during the 2014 and 2015 financial years given that the company had not provided any information on its financial and economic performance such that the Directors could maintain the subscription value of the investment in the share capital.

General economic performance and Management Analysis

Preamble

It should be noted that although they do not show significant seasonal or cyclical variations in overall annual sales, the Group's business activities are affected by differences in the distribution of revenue and cost flows during the various months of the year.

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General economic performance

The global market is experiencing turbulence with a high level of uncertainty, mainly arising from the consequences of the Russian-Ukrainian conflict, which began when the effects of the Covid-19 pandemic were still in place.

Furthermore, significant growth in energy prices and a substantial decline in the supply of materials and components are putting a strain on both businesses and households, and are making it difficult to support new investments for businesses.

With regard to the business sector in which the Group operates, the pandemic had already led to a decline in global sales for the first time in decades in the field of extracorporeal blood treatment, and firstly hemodialysis, with mortality in critically ill patients, such as those who are already undergoing dialysis, reaching double-digit percentages in many of the world's major markets. The experience of fighting the pandemic has also accelerated the push towards technology capable of connecting patients with physicians remotely, both to avoid the risk of crowding at hospitals and to enable far faster and more effective patient monitoring and care. Telemedicine and portable equipment are certainly the main focus of development in the device industry in which Medica is active in the development of a portable device that will allow the removal of excess fluid from the patient's body and that will have potential applications in many renal, pulmonary and heart diseases.

Work will continue, in the short to medium term, on the development of specific devices against the pandemic, with a predominance of respiratory support devices; however, the experience gained in the meantime has made it increasingly clear that respiratory intervention is the "last resort", which should be avoided by using technology of extracorporeal purification of the patients' blood (removal of cytokines) before the pulmonary compromise occurs.

The Group's economic and financial performance

The result for the first half of 2023 was characterised by very diversified situations in the large product portfolio of the Group.

Sustained growth continued in sales of our apheresis products (lines and filters), which was also supported by substantial growth in sales of electromedical equipment in previous years, as also confirmed during the first half of 2023, with considerable increases in niche products with high profit margins such as plasma filters, hemoconcentrators and bioregenerative medicine.

Significant growth was reported in the OEM and Menfis divisions, while the Water division continued to record performance below expectations but for which we are confident of a recovery in the second half-year in view of the turnover volumes reported in July and August 2023.

The Automation division has developed important advances in the performance of the ongoing contracts: however, since revenues in this division are strongly affected by the time required to complete job orders, all the work done was not reflected in the income statement at 30 June 2023; we are confident of a recovery in the second half of the year, as also confirmed by the deliveries already made in the months following 30 June 2023. In addition, work continued on gaining orders under major contracts as a further confirmation of the division's continued growth in market positioning.

In general, an overall slowdown continues in the dialysis market, since the pandemic has affected, in particular, hemodialysis patients. Medica, too, has been affected by the decline in sales volumes of dialysis filters and lines.

From a financial point of view, non-recurring costs at the newly-acquired companies and the increase in stock inventory in the Group are the main reasons for the cash outflows that took place during the half-year; to this must be added the now nearing completion of the investment on the new building at Medica Mediterranée, and the investments in the start-up phase of the newly-established companies

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for which we are already beginning to see positive signs, which make us confident for the future recovery of the cash the Group has invested.

The Group's results of operations in the half-year ended 30 June 2023

The table below shows the reclassified consolidated income statement for the half-years ended 30 June 2023 and 2022.

		Half-year ended 30 June			Change
(in thousands of Euro)	2023	(*)	2022	(*)	2023-2022
Revenues from sales and services	33,394	100%	20,424	100%	12,970	64%
Raw materials, supplies, consumables and goods for resale (1)	-12,716	-38%	-5,542	-27%	-7,174	129%
Gross Profit	20,678	62%	14,882	73%	5,796	39%
Costs for services and leases and rentals	-8,449	-25%	-4,700	-23%	-3,749	80%
Personnel costs	-9,842	-29%	-7,593	-37%	-2,249	30%
Other net operating costs (2)	1,358	4%	1,171	6%	187	16%
Write-downs(3)	-30	0%	-3	0%	-27	900%
EBITDA	3,716	11%	3,756	18%	-40	-1%
Amortisation and depreciation (4)	-3,379	-10%	-2,060	-10%	-1,319	64%
Accruals to provisions for risks and charges	-130	0%	0	0%	-130	-100%
Operating profit (EBIT)	206	1%	1,696	8%	-1,490	-88%
Net financial costs (5)	-591	-2%	-68	0%	-523	769%
Profit before tax	-384	-1%	1,628	8%	-2,012	-124%
Income tax	217	1%	-262	-1%	479	-183%
Profit for the period	-167	-1%	1,367	7%	-1,534	-112%
Of which Profit attributable to minority interests	-350	-1%	97	0%	-447	-461%
Of which Profit attributable to the Group	183	1%	1,270	6%	-1,087	-86%

(*) Percentage impact calculated with respect to "Revenues from sales and services"

Notes of reconciliation between reclassified consolidated and condensed consolidated income statement items:

1. This item includes costs for purchases of raw materials, consumables and goods for resale, net of changes in inventories
2. This item includes other revenues, capitalisation of internal construction costs and other operating charges
3. This item includes write-downs of receivables
4. This item includes depreciation of property, plant and equipment, amortisation of intangible assets and investment property
5. This item includes financial income and costs

Revenues from sales and services, equal to Euro 33,394 thousand in the first half of 2023, showed an increase of Euro 12,970 thousand (64%) compared to the first half of 2022. This figure was mainly attributable to the contribution given by the newly-acquired and newly-established companies, which achieved total consolidated sales of Euro 10,599 thousand, and to significant growth in group turnover on a like-for-like basis (+12%, equal to Euro 2,361 thousand), mainly concentrated in the medical business segment. The above total turnover includes adjustments amounting to Euro 236 thousand due to the best estimate of the payback impact on the first half of 2023.

Specifically, a strong growth trend continued to be reported in the Acute & Aferesis business line, from Euro 5,966 thousand in the first half of 2022 to Euro 9,461 thousand in the first half of 2023 (+59%), including sales of Euro 1,613 thousand resulting from the change in the perimeter, accompanied by significant growth in the OEM business line, from Euro 4,361 thousand to Euro 5,661 thousand (+30%), and in the Chronic business line, from Euro 2,298 thousand to Euro 10,382 thousand (+352%), which includes sales of Euro 8,469 thousand resulting from the change in the perimeter.

With regard to other lines of business, Tecnoideal Automation achieved a turnover substantially in line with the first half of 2022 (-4%), which was still marked by the effects of delays in procurement and consequently in the completion of some major job orders; on the other hand, the Water division achieved a turnover slightly higher than in the first half of 2022 (+8%), with the contribution of Euro 517 thousand deriving from the change in the perimeter; however, we are confident of a significant recovery in both business segments during the second half of 2023.

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Gross Profit, equal to Euro 20,678 thousand in the first half of 2023, showing a significant increase compared to the value posted in the first half of 2022 (+39%), reported a decline as a percentage of sales by 11% compared to the percentage achieved in the first half of 2022, mainly attributable to the contribution given by newly-acquired companies in the second half of 2022, which achieved a gross profit equal to 50% of revenues, and by the newly-established companies which achieved a gross profit equal to 22% of revenues since they were in the start-up phase.

EBITDA, equal to Euro 3,716 thousand at 30 June 2023, substantially in line with the result achieved as at 30 June 2022 (-1%), reported a decline as a percentage of sales by 7% compared to 30 June 2022, attributable for about 2% to the contribution given by the newly-established and newly-acquired companies, as well as for about 3% to an increase in costs for services on a like-for-like basis, and for about 2% to a decrease in gross profit on a like-for-like basis, mainly attributable to the companies in the Automation division.

Operating Profit amounted to Euro 206 thousand, showing a decrease of Euro 1,490 thousand compared to the value posted at 30 June 2022, which was mainly attributable to the operating losses contributed by the newly-acquired and newly-established companies in the amount of Euro 1,078 thousand. On a like-for-like basis, the reduction in EBITDA described in the previous paragraph was partly offset by a reduction in amortisation and depreciation for Euro 379 thousand, mainly attributable to the completion of amortisation of certain development projects and the sale of an automation line that had been used for in-house purposes until that time, which took place at the end of 2022.

Loss for the Period, amounting to Euro 167 thousand, showing a deterioration compared to the profit achieved at 30 June 2022 for Euro 1,367 thousand, was mainly due to the losses contributed by the newly-acquired and newly-established companies in the amount of Euro 848 thousand, as well as to a reduction in operating profit on a like-for-like basis described in the previous paragraph, and an increase in financial costs due to higher EURIBOR rates.

Reclassified balance sheet

The table below shows the reclassified statement of financial position at 30 June 2023 and 31 December 2022:

	At 30 June	At 31 December
(in thousands of Euro)	2023	2022
Investments:
Net Working Capital (B)(2)	18,487	9,344
Intangible assets	11,841	11,577
Property, plant and equipment	36,857	35,560
Non-current financial assets	3,801	3,775
Fixed assets (A)	52,499	50,912
Employee severance pay	(2,225)	(2,238)
Provisions for risks and charges	(1,893)	(2,838)
Net deferred tax liabilities (1)	1,428	1,336
Net invested capital (A+B+C)	68,297	56,517
Sources:
Shareholders' Equity	52,795	52,179
Net Financial Debt	15,502	4,338
Sources of financing	68,297	56,517

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Notes of reconciliation between reclassified and consolidated balance sheet items:

1. This item includes receivables for deferred tax assets, net of the provision for deferred tax liabilities
2. For more information, reference should be made to the paragraph on Non-GAAP alternative performance indicators.

The investments made in the period, totalling Euro 4,965 thousand, mainly related to the following items:

1. continuation of the works involving the new building at subsidiary Medica Méditerranée for Euro 1,204 thousand, purchase of machinery and moulds at the former Slom workshop for about Euro 700 thousand, purchase of equipment for hospital and home dialysis in Italy for Euro 803 thousand, and in-house manufacturing of equipment in apheresis for the German market for Euro 453 thousand;
2. capitalisations of costs incurred for development projects, which had been started in previous years, the most significant items of which were: Euro 234 thousand related to the NewHemo project, Euro 181 thousand related to the Grafene project, Euro 105 thousand related to the Homemo project, and Euro 87 thousand related to the Life Remembrance project.

Below is the breakdown of the Group's Net Working Capital at 30 June 2023 and 31 December 2022:

	At 30 June	At 31 December
(in thousands of Euro)	2023	2022
Inventories	29,538	23,371
Receivables from customers	15,942	13,587
Advances from customers	(8,391)	(7,031)
Payables to suppliers	(14,182)	(17,272)
Net Trade Working Capital	22,907	12,654
Other current and non-current assets	8,992	9,384
Other current and non-current liabilities	(13,412)	(12,694)
Net Working Capital	18,487	9,344

The increase in net working capital was mainly due to a rise in inventory, mainly attributable to both an increase in the order backlog received from customers resulting in higher sales in 2023 compared to 2022 and an increase in stock due to uncertainties about the timing of delivery of materials from suppliers as a result of the Russian-Ukrainian conflict, and a significant reduction in the exposure to suppliers of subsidiary Spindial SpA that existed before the date of acquisition.

Net Financial Debt

Below is the breakdown of the Group's Net Financial Debt at 30 June 2023 and 31 December 2022, determined as required by the ESMA 32-382-1138 guidelines:

in thousands of Euro	At 30 June	At 31 December
2023	2022
A. Cash on hand	(11,973)	(20,509)
B. Cash equivalents
C. Other current financial assets	(7,956)	(10,049)
D. Liquidity (A + B + C)	(19,929)	(30,558)
E. Current financial debt	249	1,140
F. Current portion of non-current financial debt	8,551	8,397
G. Current financial debt (E) + (F)	8,800	9,537
H. Net current financial debt (G)- (D)	(11,129)	(21,021)
I. Non-current financial debt	22,241	20,969
J. Debt instruments	-	-
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