1Basis of preparation

These condensed consolidated financial statements are the unaudited, interim consolidated financial statements (hereafter “the Half-year Report”) of PolyPeptide Group AG and its subsidiaries for the six-month period ended 30 June 2023 (hereafter “the interim period”). The Half-year Report is prepared in accordance with the International Accounting Standard 34 – Interim Financial Reporting and thus does not include all of the information required for a complete set of IFRS financial statements. The Half-year Report should be read in conjunction with the consolidated financial statements for the year ended 31 December 2022 (hereafter “the Annual Report 2022”) as it provides an update of the previously reported information. No new standards or amendments to existing standards with a material effect on the Group’s Half-year Report have become mandatorily effective for reporting periods beginning 1 January 2023 and the accounting policies adopted in the Half-year Report are thus consistent with those of the previous financial year.

The preparation of the Half-year Report requires management to make estimates and assumptions that affect the reported amounts of revenues, expenses, assets, liabilities, and disclosure of contingent liabilities. If in the future such estimates and assumptions, which are based on management’s best judgment at the date of the Half-year Report, deviate from the actual circumstances, the original estimates and assumptions will be modified as appropriate in the year in which the circumstances change.

There are a number of standards and interpretations that have been issued by the International Accounting Standards Board that are effective for periods beginning subsequent to 31 December 2023 (the date of the Group's next annual consolidated financial statements) that the Group has decided not to adopt early. The Group does not believe these standards and interpretations will have a material impact on the consolidated financial statements once adopted.

All amounts are stated in thousands of Euros, unless otherwise stated.

2Segment information

PolyPeptide generates revenue that can be divided into the three business areas described in Note 4. The chief operating decision maker (i.e., the Executive Committee) reviews revenue generated within each business area but does not review results at this disaggregated level. The chief operating decision maker rather reviews the results of the Group as a whole to assess performance. As a result, the three business areas should not be considered three separate operating segments since only revenue information for each area is reviewed by the chief operating decision maker. Accordingly, there is only one operating segment according to IFRS 8 – Operating segments.

No segment information is thus required to be disclosed in the notes to the interim consolidated financial statements according to IAS 34 – Interim Financial Reporting.

3Seasonality

The activities of PolyPeptide are not subject to seasonal or cyclical variations in the underlying business. However, PolyPeptide may experience variability in its revenue across periods as a result of, among other things, the timing of customer purchase orders and payments, investments made during the period, increased competition, the number of selling days in a period and fluctuation of foreign currency exchange rates.

4Revenue

PolyPeptide generates revenue from the following three business areas:

Revenue by business area

Custom Projects business area specializes in the manufacturing of custom research-grade peptides and oligonucleotides, in milligram, gram or pilot scale quantities, at predefined purity levels for use in pre-clinical and clinical development as well as for regulatory and scientific studies. Custom Projects also provides cGMP manufacturing services during the later phases of development. Revenue is allocated to Custom Projects for sales of products in the pre-clinical through clinical stage development (i.e., prior to commercial launch) as generally set out in master service agreements and/or the accompanying work / purchase orders.

Contract Manufacturing business area manufactures peptides for commercial stage peptide therapeutics, at scale, in commercial batches and in accordance with cGMP requirements. The Group's Contract Manufacturing services also include consultation for continuous improvement and process stabilization / optimization to support scale-up, process changes to support cost of goods sold enhancement, lifecycle management and extension as well as regulatory support. Revenue is allocated to Contract Manufacturing where production is related to the commercial supply of products, including the production of commercial generic products where we manufacture for the patent originator, as generally set out in master supply agreements and/or the accompanying work / purchase orders.

Generics and Cosmetics business area manufactures peptide-based generics for the human and veterinary market, produced on an industrial scale following cGMP guidelines. Generally, PolyPeptide’s generic products are off-patent and manufactured for numerous generic customers. The business area also includes revenue generated from the sale of peptides used in cosmetics, primarily for anti-aging applications. Revenue is allocated to Generics and Cosmetics for product sales to generics manufacturers and non-originators (i.e., not the original patent holder) as well as cosmetics sales, each as generally set out in nonproprietary master supply agreements and/or the accompanying work / purchase orders.

Revenue from contracts with customers

Revenue from Active Pharmaceutical Ingredients (API) fully relate to the sale of goods, and revenue from related services relate to the rendering of services. All revenues from contracts with customers classify as business-to-business.

Revenue by geographical area

Revenue is attributed to the individual geographical area based on the invoice address of the respective customer.

5Significant events and transactions

The Group assesses the value of its inventory on a regular basis which may lead to inventory write-downs. In H1 2023, the Group recognized a material write-down of inventory at one of its operating sites. The write-down is included within “Cost of sales” in the income statement and amounts to EUR 9.5 million, reflecting a net realizable value of nil.

In H1 2023, the Group furthermore recognized an impairment loss of Property, plant and equipment. The impairment loss is included within “General and administrative expenses” in the income statement and amounts to EUR 2.0 million, reflecting a recoverable amount of nil.

6Share-based payment

The following equity-settled share-based payment arrangements are recognized in the interim consolidated financial statements:

Board of Directors

Members of the Board of Directors receive at least half of their fixed fees in shares, with the option to elect to be paid up to 100% of their fixed fee in shares. For Board members electing to receive more than 50% of their fixed fee in shares, the shares exceeding the 50% portion are granted at a discount of 20% to market price. The proportion between shares (in excess of 50%) and cash is selected by each Board member upon election at the annual general meeting and is fixed until next annual general meeting. The Board of Directors is compensated on a pro-rata basis for the period of service, even in the case of early termination or removal.

In H1 2023, the fair value at grant date amounted to kEUR 886 (H1 2022: kEUR 799), reflecting a measurement based on a total number of shares of 43,690 (H1 2022: 9,835) and a price of EUR 20 (CHF 20) per share as at 12 April 2023 (H1 2022: a price of EUR 81 (CHF 83) per share as at 26 April 2022).

All shares will be fully vested at the annual general meeting in April 2024. In H1 2023, a total amount of kEUR 541 (H1 2022: kEUR 570) was recognized as “General and administrative expenses” in the income statement according to the principles of graded vesting in IFRS 2.

Chief Executive Officer

In January 2023, Raymond De Vré resigned as the CEO of the Group. He was subsequently succeeded by the current CEO of the Group, Juan-José Gonzalez, who joined the Group in April 2023. The resignation of Raymond De Vré has impacted the share-based payment related expenses as follows:

• When Raymond De Vré joined the Group in 2021, he received a one-time grant of shares at a value of kCHF 750, which was calculated at a 20% discount to the initial public offering price of CHF 64, as compensation for the loss of unvested options from his previous employer. The fair value at grant date amounted to kEUR 854, reflecting a measurement based on 14,648 number of shares and the initial public offering price of EUR 58 (CHF 64) per share. The grant included a service condition of three years, one-third vesting each year as of 1 June (starting from 2022). The expenses have been recognized in the income statement as “General and administrative expenses” according to the principles of graded vesting in IFRS 2, resulting in an accumulated expense of kEUR 730 as at 31 December 2022.
  Due to the resignation of Raymond De Vré, the last tranche previously expected to vest in June 2024 will not vest. As a result, an adjustment has been recognized in H1 2023, resulting in an accumulated expense of kEUR 569 as at 30 June 2023. No further expenses relating to this grant will thus be recognized in future periods.
• During the second half of 2021, the Board of Directors adopted a Long-Term Incentive Plan (“LTIP”) for Executive Committee members and other members of senior management of the Group. Under this share-based incentive program, eligible participants will be awarded the contingent right to receive a certain number of shares in the future (“PSU(s)”) in the Company, subject to, inter alia, continued employment and achievement of non-market performance targets. The actual number of PSUs that will eventually vest and be settled in shares depend on the RONOA and EPS performance of the Group over a three-year performance period.
  
  As at 30 June 2023, the only eligible participant in the LTIP has been the former CEO of the Group, Raymond De Vré. The PSUs were granted to Raymond De Vré on 29 November 2021, and the vesting period would end 10 trading days after the shareholders approve the 2023 audited consolidated financial statements.
  
  The resignation of Raymond De Vré has changed the vesting terms. However, due to the expected RONOA and EPS performance of the Group over the three-year performance period, no shares from the 2021 grant are expected to vest (similar to the expectation as at 31 December 2022). As a result, no expenses have been recognized in the income statement in H1 2023 (H1 2022: kEUR 173) and the change in the terms due to the resignation has thus not resulted in a financial impact.

No grants have been made to the new CEO, Juan-José Gonzalez, or other eligible members of the LTIP in H1 2023.

The comparative figures for H1 2022 include an expense of kEUR 46 recognized as “General and administrative expenses” in the income statement, reflecting a grant to Raymond De Vré for his loss of variable payments from his previous employer. The shares vested in 2022 and have thus no impact on H1 2023.

7Shareholders' equity

Share capital

There have been no changes to the share capital of the parent company of the Group, PolyPeptide Group AG, during H1 2023. As a result, the share capital of PolyPeptide Group AG comprised 33,125,001 shares of CHF 0.01 each as at 30 June 2023.

All shares are fully paid.

Treasury shares

Cash distribution

No cash distribution was made in H1 2023.

On 26 April 2022, the shareholders of PolyPeptide Group AG approved at the Annual General Meeting to pay a cash distribution of CHF 0.3 per entitled share out of the foreign capital contribution reserves. Treasury shares held by the Company at the time of the cash distribution were not entitled to the cash distribution. The distribution to shareholders of entitled shares totaled kEUR 9,671 (kCHF 9,916), which was recognized against share premium in H1 2022.

8Investment in subsidiaries

The interim consolidated financial statements include the financial statements of the Company and the subsidiaries listed below. Percentage of voting shares is equal to percentage of ownership.

9Related parties

The following transactions have been entered into with related parties:

All disclosed related parties are either related through the Esperante Investments S.à r.l. ownership structure or through managerial control. Esperante Investments S.à r.l. is a higher parent company of the Company's majority shareholder Draupnir Holding B.V.

Purchases from and amounts due to Thalamus AB relate to rental of premises.

Income from the Ferring Group and amounts due from the Ferring Group relate to sale of goods.

Purchases from Monedula AB relate to the lease of premises. Income and amounts due from Monedula relate to property management fees and recharged improvements to the premises. Amounts due to Monedula AB relate to the financial liability recognized for the lease of premises.

Income from and amounts due from Amzell B.V. relate to sale of goods.

Income from SVAR Life Science AB relates to sale of goods.

During H1 2023, no provisions for doubtful debt and no write-offs on receivables from related parties were recognized (H1 2022: nil). No guarantees were given or received for any outstanding related party balances (H1 2022: nil).

10Short-term borrowings from banks

As at 30 June 2023, the Group had been granted multiple overdraft facilities for a total amount of kEUR 76,200 (31 December 2022: kEUR 26,200).

An amount of kEUR 75,000 was granted by Danske Bank (31 December 2022: kEUR 25,000), of which kEUR 55,172 was drawn as at 30 June 2023 (31 December 2022: nil). The interest rate on the DANSKE Bank facility amounts to DANSKE BOR plus a margin of 0.80% to 1.00% (31 December 2022: 0.80%) on the amounts drawn.

The remaining kEUR 1,200 was granted by ING Bank (31 December 2022: kEUR 1,200), of which nil was drawn as at 30 June 2023 (31 December 2022: nil). The interest rate on the ING Bank credit facility amounts to EURIBOR plus a margin of 1.5% (31 December 2022: 1.5%) on the amounts drawn.

11Subsequent events

Subsequent to the end of the reporting period, the Company signed a EUR 40 million unsecured short-term credit facility with the Company's majority shareholder, Draupnir Holding B.V. The agreement is a bridge loan facility to provide the Company with short-term financing while a new long-term financing plan is finalized.

Except from the credit facility agreement, there have been no significant events subsequent to the end of the reporting period that would require additional disclosure in the interim consolidated financial statements.

The interim consolidated financial statements were approved for issue by the Board of Directors on 11 August 2023.