Medartis : Halbjahresbericht 2023 (ENG)

Half-year 2023 Key Financials

Number of headcounts

103.3million

+20.8% growth at CER

+16.1% internal sales growth1

Double-digit growth in EMEA, US and LATAM; US momentum increased

14.8million

Underlying EBITDA margin reaches 14.3%

Underlying gross profit margin decreased to 77.7%

858people

Headcount increases 3.1%

+36 jobs created in Switzerland

Two US entities centralised in Warsaw, Indiana, following the NSI acquisition

PP = Percentage points.

1. "Internal growth" denotes the increase in sales at constant exchange rates (CER), excluding the impact of mergers, acquisitions, and divestments. The NSI's contract manufacturing business is of no strategic significance and is therefore excluded from this calculation. Internal growth serves as a crucial performance indicator for management.
2. The one-off costs in 2023 are related to the costs of remediating the IT attack. In 2022, the one-off costs for the NSI acquisition and the discontinued China business are excluded to facilitate the underlying operational performance.

In the first half of 2023, Medartis generated sales of CHF 103.3 million, representing growth of 20.8% at CER. Internal growth amounted to 16.1% at CER. The EMEA business made the largest contribution to this growth with an increase of 17.7%, bolstering its competitive position. The US improved sequentially and was the fastest growing territory in H1 (internal growth: +21.1%). An IT attack at the end of May temporarily affected the company, but Medartis is on track to meet its annual targets.

The reported EBITDA in H1 2023 reached CHF 13.1 million, corresponding to a margin of 12.6%. At the end of May, Medartis became the target of an IT attack, which was resolved relatively quickly. Additional one-off costs to remedy the incident reduced the EBITDA margin by 1.7 PP. The company estimates that the incident reduced its H1 revenue by approx. 3 PP.

Double-digit sales growth and cost control helped offset part of the temporary decline in gross margin, which was due to a higher 3rd party custom manufacturing and trading products, inventory optimisation, and elevated energy and logistics costs. The (reported) net result was CHF -0.8 million, but would have been CHF +0.9 million without the effects of the IT attack.

KeriMedical's hand solutions. In the UK and Poland, the company made significant strides, thus expanding its market position. The youngest subsidiary, Spain, continued its impressive growth trajectory and almost doubled its sales again, demonstrating promising potential in an attractive market. Switzerland and France, growth was below expectations due to the mild winter, which affected trauma cases. The company also benefited from its efforts to expand its presence in Eastern Europe and the MENA countries, which it has traditionally accessed through external distributors.

1. "Internal growth" denotes the increase in sales at constant exchange rates
   (CER), excluding the impact of mergers, acquisitions, and divestments. For strategic purposes, NSI's 3rd party custom manufacturing business is not taken into consideration and is consequently excluded from this calculation. Internal growth serves as a crucial performance indicator for management.

hand, wrist and lower extremities indicate the acceptance and endorsement in the company's offerings. Subsequent to the release of the 'Lapidus Cut Guide' in 2022, the second solution for hallux valgus bunionectomy named 'LapiPrep' was introduced in Q2. Positive customer reactions to the product have reaffirmed its potential to become a growth driver in the future. Furthermore, the product line from Field Orthopaedics, introduced in Q4 of 2022, has gained traction in the market and has helped the company to win share in the hand segment.

In June, the Medartis' National Account Team has signed a multi- year contract with one of the Top 5 GPOs (group purchasing organisations). This agreement extends access to a significantly larger network of healthcare facilities, encompassing 1,600 hospitals and 2,000 ambulatory service centres. The agreement also simplifies the registration process of new accounts for its independent agent sales network.

APAC: Impact of mandatory price adjustments

In the APAC region, sales increased by 5.6% (CER) in H1 and reached CHF 15.8 million. Sales in the important Australian market experienced only mid-single-digit growth. This was due primarily to implant price adjustments mandated by the authorities in the private market segment, which were implemented in H2 2022. In

REGIONAL PERFORMANCE

EMEA: Strong performance

The largest region EMEA has performed very strongly across almost all markets and business segments and achieved year-on- year growth of 17.7% at CER. Medartis benefited from a positive market environment. Germany played an important role and contributed one-third of regional growth, driven by strong demand for screw and plate products launched in recent years as well as

US: Positive development of internal sales growth

Medartis' US business grew by 42.9% (CER) and generated sales of CHF 25.5 million in H1, including CHF 5.6 million from contract manufacturing orders for third-party customers. Internal sales growth developed positively and increased sequentially from 9.8% in the first half and 15.5% in the second half of 2022 to 21.1% in the first half of 2023. Portfolio expansion, higher sales productivity of existing agents and the onboarding of new independent sales agencies contributed to this acceleration. The strong growth in

the same period, however, sales volume increased by 15%. Medartis' Japanese subsidiary reported strong growth in its lower extremity foot & ankle business, but the distributor sales growth eased, partly due to the strong equipment orders from the new CMF distributor in the previous year. Distributor markets in the ASEAN countries grew in-line with expectations.

LATAM: Continued geographic expansion

H1 sales in the LATAM region amounted to CHF 10.5 million, which

represents an increase of 17% (CER) compared to the same period one year ago. Dynamic growth in Mexico, fuelled primarily by successful participation in new public tenders, combined with a solid performance in Brazil and in the distribution markets led to this result. Medartis has seen steady growth of its CMF Modus product line in Brazil and a strong uptake in Argentina following the recent launch of the Modus 2 line.

In line with its strategy to expand its market presence, Medartis has continued its geographic expansion efforts in Brazil and Mexico. By collaborating with new distributors, the company has successfully covered previously untapped areas. Despite overall positive growth, Medartis experienced a slight slowdown in its sales momentum mainly due to a temporary gap in the registration of new products and a period of uncertainty during the transition of government in Brazil.

PERFORMANCE BY PRODUCT CATEGORY

Table: Revenue development by products and year-on-year changes

1. "Internal growth" denotes the increase in sales at constant exchange rates
   (CER), excluding the impact of mergers, acquisitions, and divestments. For strategic purposes, NSI's 3rd party custom manufacturing business is not taken into consideration and is consequently excluded from this calculation. Internal growth serves as a crucial performance indicator for management.

Broken down by product category, lower extremities growth of 33.3% outperformed the other two categories, which recorded internal sales growth in the low tens. Strong sales of the ankle

trauma set, expansion in the forefoot as well as cannulated CCS screws were the main growth drivers in lower extremities. The continuous development of the screw implant portfolio and the strategic advancement into important indications in the ankle area over the last three years is yielding positive results. Growth in EMEA and the US were the most pronounced. 'LapiPrep' was rolled out in Q2 and made an initial, albeit small, contributions to the results. The NSI legacy technology represents a comprehensive system for correcting hallux valgus, effectively converting tedious traditional "bunionectomies" into guided procedures with consistent and reproducible outcomes.

Upper extremities, which accounts for two-thirds of sales, grew by 13.1%. Medartis achieved healthy growth in shoulder, hand and wrist. In addition to the existing products, the company made inroads with distal ulna, wrist spanning, and forearm shaft plates. These products complement the current portfolio well and enhance the company's offerings in the market. For 2023, the company has established several focus areas with one of the main topics being the market share expansion in its stronghold indication "distal radius". The primary objective is to gain market share in geographies where the company currently holds a relatively small market presence. KeriMedical's sales nearly doubled year-on-year, constituting a quarter of the growth in upper extremities. This achievement is noteworthy considering that Medartis distributes the products in a limited number of countries.

Growth in 'cranio-maxillofacial (CMF) and other products' was 43.8% and includes the contribution of the NSI custom- manufacturing business. Internal growth excluding this 3rd party business amounted to 14.4%. and was primarily driven by the EMEA and LATAM regions, with the latter leading the charge. The demand for 'Modus 1' sets in Latin America continues to be very pleasing. By contrast, sales in the APAC region experienced a decline, primarily due to the strong comparative quarter in the previous year, which was lifted by distributor stocking. Broken

down by indication, double-digit growth in orthognathic and mandible were the main performance driver. The demand for the CMX digital planning service also developed positively.

In H1 2023, Medartis further expanded its global workforce by 3%, from 832 to 858 employees. Most of the new jobs were created in the areas of manufacturing, sales and marketing. In Switzerland, where Medartis has its headquarters and main production facility, 36 jobs were created, mainly in manufacturing and IT. After the acquisition of NSI and the subsequent centralisation of the two US companies in Warsaw, Indiana, the organisation underwent a reorganisation aimed at enhancing operational efficiency and improving the region's profitability.

FINANCIAL PERFORMANCE

The gross margin in H1 2023 decreased to 77.2% owing to a confluence of various factors. The 3rd party custom manufacturing business of NSI had a large impact of 1.1 PP on the decline. The low-margin manufacturing business exhibited stronger growth in H1 than anticipated and was consolidated in H1 2023 for the entire period, instead of just two months as was the case in the same period a year ago. The expanding proportion of distributed products within Medartis' portfolio, including KeriMedical and Field Orthopaedic, led to an additional 0.4 PP reduction in the margin.

The company also faced challenges from higher energy costs, which were exacerbated by the ramp-up of its new energy- intensive clean room for inhouse sterile packaging. Driven by considerations of capital efficiency, management also made the decision to temporarily curb production volumes with the aim of reducing inventories, which led to an underutilisation. Furthermore, the company had additional production costs of approx. 0.5 PP due to the one-week production interruption during the IT attack.