SOL S p A : Group 2023 annual report (without Independent Auditor's Report)

2023

S O L G R O U P

A N N U A L R E P O R T

INDEX

2 2023 MANAGEMENT REPORT SOL GROUP

1. OUTLINE ACCOUNTS AND EXPLANATORY NOTES SOL GROUP
2. Income statement
3. Statement of financial position
4. Cash flow Statement
5. Statement of changes in consolidated shareholders'
6. Notes to the Financial Statements

83 Certificate of the Consolidated financial statements pursuant to Article 154-bis of Italian Legislative Decree 58/1998

SOL Spa

Registered office Via Borgazzi, 27 20900 Monza - Italy

Share Capital

Euro 47,164,000.00 fully paid-up

Tax Code and Register of Companies of Milan, Monza Brianza, Lodi under n° 04127270157

R.E.A. n° 991655

C.C.I.A.A. Milano, Monza Brianza, Lodi

POWERS GRANTED TO THE DIRECTORS

(CONSOB Communication No. 97001574 dated February 20, 1997)

To the Chairman and Deputy Chairman: the legal representation of the Company in dealings with third parties and before the legal authorities; powers of ordinary management acting severally; powers of extraordinary management, acting jointly, it being understood that for the execution of the related acts the signature of one of the two with the written authorisation of the other is sufficient; exception is made for certain specific acts of particular importance reserved for the competence of the Board.

To Directors with special appointments: powers of ordinary administration relevant to Legal and Corporate Business (Giulio Fumagalli Romario) and the Organisation of Information Systems (Giovanni Annoni) with single signature.

MANAGEMENT REPORT

SOL GROUP

INTRODUCTION

This Annual Financial Report as at December 31, 2023 is drawn up pursuant to Article 154-ter of Italian Legislative Decree 58/1998 and prepared in accordance with the International Accounting Standards (IFRS) issued by the International Accounting Standard Board (IASB) recognised by the European Union pursuant to Regulation (EC) no. 1606/2002 of the European Parliament and of the Council of July 19, 2002, as well as with the implementation regulations set out in Article 9 of Italian Legislative Decree no. 38/2005. These IFRS principles also include all revised international accounting standards (IAS) and all of the interpretations of the International Financial Reporting Interpretation Committee (IFRIC), previously called Standing Interpretations Committee (SIC).

Translation from the Italian original version which remains the definitive one. This document is not drawn up in accordance with the provisions of the Delegated Regulation (EU) 2019/815 of the European Commission on regulatory technical standards relating to the specification of the Single Electronic Format (ESEF).

ALTERNATIVE PERFORMANCE INDICATORS AND DEFINITIONS

The Management Report and the consolidated financial statements include economic and financial indicators used by Management to monitor the Groupʹs economic and financial performance. These indicators are not defined or specified in the applicable financial reporting regulations. As the composition of these measures is not regulated by the reference accounting standards, the calculation criterion used by Management may not be consistent with the criterion used by other groups and may therefore not be comparable. The Alternative Performance Measures are constructed exclusively from the historical accounting data and are determined in accordance with the provisions of the Guidelines on Alternative Performance Measures issued by ESMA on October 5, 2015 (2015/1415) as per CONSOB Communication no. 92543 of December 3, 2015 and ESMA on 17 April 2020 are not audited ˮESMA Guidelines on Alternative Performance Measures (APMs)ˮ.

The following Alternative Performance Measures are presented in this Management Report:

• Gross Operating Margin (EBITDA): It is the difference between ˮRevenuesˮ, ˮTotal Costsˮ and ˮPayroll and rela- ted costsˮ and can be derived directly from the consolidated Income Statement. However, this measure is not defined in IFRS accounting standards; as a result, it may not be homogeneous and therefore not comparable with that of other groups.
• EBITDA margin: It is calculated as the ratio of EBITDA to ˮRevenues from sales and servicesˮ.
• Operating result: It represents the ˮOperating resultˮ that can be derived directly from the Consolidated income statement.
• Operating result margin: It is calculated as the ratio of the Operating result to ˮRevenues from sales and servicesˮ.
• Investments: They represent the sum of the investments shown in the explanatory notes to the consolidated financial statements under ˮTangible Fixed Assetsˮ less ˮOther changesˮ of the item ˮOther assets under con- struction and advancesˮ.
• Net financial position (net financial indebtedness): It is determined, in accordance with ESMA Guideline 32- 382-1138, as the sum of net current borrowing and non-current borrowing, both of which include financial payables arising from lease agreements in accordance with IFRS 16. ˮNet current borrowingˮ is the algebraic sum of cash and cash equivalents, current financial assets (such as securities held for trading) and current borrowing.

GENERAL CONTEXT

The SOL Group is primarily engaged in production, applied research and distribution activities pertaining to industrial, pure and medicinal gases, in door-to-door medical care, as well as in the supply of related medical equipment in Italy, presently active in 24 other European Countries, in Turkey, in Morocco, in India, in Brazil, in China, in Ecuador and in Peru. The products and services of companies belonging to the Group are used in the chemical, electronics, iron and steel, engineering and foodstuff industries, as well as in sectors such as environmental protection, research and health.

2023 was characterised by a global political and economic environment of considerable uncertainty following the continuation of the war in Ukraine and, since October, the outbreak of a new conflict in the Middle East. This situation also had economic repercussions, leading to a slowdown in growth especially in Europe, where the rate of development was just above zero.

Central bank policies have also contributed to this, as they have continued to raise interest rates in an attempt to reduce inflation, resulting in a cooling of the economy in several countries.

It should be noted that in 2023, natural gas and energy prices decreased from the abnormal values reached in 2022. Inflation was on a downward trend compared with the previous year, although it was still high compared to the desired levels.

This situation will lead to a continuation of high interest rates also in 2024, with a gradual downward trend starting in the second half of the year.

With regard to the technical gas sector, the decrease in the cost of energy led to a gradual reduction in sales prices, partly offset by increases linked to the inflationary trend.

In terms of quantities sold, there was a slight decrease compared to 2022, especially in the second half of the year. Growth in the home care services sector also performed well as a result of the resumption of prescriptions for new patients.

With regard to 2024, economic growth is expected to be low in almost all Countries and inflation is expected to slow down, leading to an easing of restrictive monetary policies.

SUMMARY RESULTS

Within the afore-mentioned context, we believe that the results achieved by the SOL Group during 2023 were very positive.

The net sales achieved by the SOL Group in 2023 were equal to Euro 1,487.1 million (+7.8% compared to those of 2022 and +5.3% on a like-for-like basis).

The gross operating margin was Euro 382.2 million, equating to 25.7% of sales, up by 16.4% when compared to 2022 (Euro 328.3 million, or 23.8% of sales).

The operating result came to Euro 227.1 million, equating to 15.3% of sales, up by 18.0 million compared to the figure for the same period of 2022 (Euro 192.5 million, or 14.0% of sales).

The net profit amounted to Euro 145.7 million, up 9.0% from 133.7 million euro in 2022.

The cash flow amounted to Euro 297.5 million (20.0% of sales), up by 11.6% compared to 2022 (equal to Euro 266.5 million).

The technical investments carried out in 2023 amounted to Euro 165.6 million (Euro 121.3 million in 2022). The Group's net financial indebtedness was equal to Euro 415.8 million (Euro 389.7 million as at December 31, 2022).

The average number of employees as at December 31, 2023 amounted to 6,125 (5,374 as at December 31, 2022).

The application of IAS 29, Financial Reporting in Hyperinflationary Economies, had no material impact on the consolidated financial statements of the SOL Group.

MANAGEMENT TREND

During 2023, the technical gas sector showed an increase in sales of 1.9% when compared with the previous year achieving a turnover from third-party customers equating to Euro 776.6 million.

The low growth is mainly due to lower sales prices as a result of the decrease in the cost of electricity, to which they are indexed.

The home-care business reported a growth by 15.2%, both in Italy and outside of Italy, with sales to third-party customers of Euro 710.5 million.

The sector is growing due to the recovery of new patient prescriptions.

Overall, in the healthcare sector, the Group's sales amounted to Euro 885 million, or 59.5% of total turnover. The gross operating margin increased by Euro 53.9 million or 16.4% compared to 2022.

The operating result increased by Euro 34.7 million compared to 2022, up 18.0%.

The Group's net indebtedness increased by only Euro 26.1 million, compared to December 31, 2022, against technical and intangible investments and acquisitions of Euro 232.5 million made in 2023.

The debt ratios remain very solid, with a debt/equity ratio of 0.42 and a cash flow cover of 1.09. During 2023, technical gas reserves remained within the safety levels.

In 2023, the SOL Groupʹs work force increased by 621 people, from 5,751 to 6,372. Personnel training and qualification activities, aimed at improving the qualities of our people committed to pursuing the Groupʹs development objectives, continued on a regular basis.

SHARE PERFORMANCE ON THE STOCK EXCHANGE

SOL stock opened 2023 with a price of Euro 17.88 and closed as at December 29, 2023 at Euro 27.80. During the year, the stock achieved a maximum price of Euro 29.15, while the minimum came to Euro 17.52.

QUALITY, SAFETY, HEALTH AND ENVIRONMENT

The focus on issues of quality, health, safety and environment was constantly active throughout 2023 with an intense internal auditing activity and with checks by third parties, both by Notified Bodies for Certification and by the Auditing Bodies of the Public Administration.

All of these checks have always had a positive outcome.

Overall, the certifications obtained over the years pursuant to international standards ISO 9001, ISO 14001, ISO 13485, ISO 45001, ISO 22000 - FSSC 22000, ISO 50001, ISO 27001, ISO 22301, ISO 17025 and ISO 17034 were not only renewed, but extended to new activities (ISO 9001) as well as operational sites of the Group. Outside Italy, for example, PALLMED, which operates in Poland in the field of HC activities, extended its ISO 9001 and ISO 27001 certification to all its sites in 2023.

With regard to the ISO 9001 certification for the technical gases area, we extended the scope to include 3 ser- vices, provided in the production/GMP area and to customer activities.

The certification status was also confirmed for the enforcement of the PED directive in the internal production of vaporisers and of the 93/42 Directive for the production of medical devices.

Always during 2023, the accreditation according to ISO 17025 was confirmed for the analytical methods applied in the laboratory of SGPM, of GTS (Albania), of SOL Serbia and of STERIMED (Italy - company specialised in services and solutions for health and the environment), companies that therefore maintained the status of a Testing Laboratory approved and accredited by the ACCREDIA accreditation body.

At the end of 2023, the Group has:

• 145 Marketing Authorisations for medical gases filed in 25 countries (18 EU and 7 non-EU).
• 63 Pharmaceutical Workshops, of which 61 are gas production workshops, plus the SITEX workshop (pro- duction of Galenic drugs) and the DIATHEVA workshop (production of API from Biotechnology and sterile expe- rimental drugs in small volume packaging).
  There are 15 gas production workshops in the home care area (of which 5 in Italy), and 46 in the technical gas area (of which 17 in Italy).
  In 2023, 16 GMP inspections of gas production workshops were carried out by the relevant national agencies.

Medical regulatory activities focused on the national registration phases of VIVISOLʹS icodextrin-based peritoneal dialysis solutions and related market access activities.

A major effort was also made to support the registration of the nitric oxide compound ˮNeophyrˮ, owned by SOL Spa, in countries outside Europe.

The year 2023 saw a strong commitment of the Medical Device Regulatory Service in the follow-up of the evaluation to MDR of the 4 Gas Technical Files, of which SOL Spa is the manufacturer, as well as in the support of the registration of Nitric Oxide Dispensing Medical Devices (of which SOL Group Lab is the manufacturer) in non-European countries.

SOL GROUP INVESTMENTS

During the 2023 financial year, technical investments and investments in intangible assets were made for Euro

1. million in the ˮtechnical gasesˮ sector, of which Euro 30.5 million by the parent company SOL Spa, and Euro

1. million in the ˮhome careˮ sector. The main investments made were as follows:
   • in Burago, Italy, work on the construction of VIVISOL Srlʹs new logistics centre was completed;
   • in Belgium, the extension of the VIVISOL B warehouse in Lessines was completed;
   • in Burgbrohl, Germany, the carbon dioxide production plant of SOL KOHLENSÄURE WERK was modernised
   • DOLBY MEDICALʹS new headquarters in Crawley, England, is up and running;
   • the new medical oxygen branch was established in Kosovo;
   • in Greece, work began on the new SOL HELLAS air fractionation plant in Thessaloniki;
   • in Florina, Greece, work on upgrading TAEʹs carbon dioxide production plant of SOL HELLAS WAS COMPLETED;
   • in India, work continued on the construction of a new air fractionation plant for the production of oxygen, nitrogen and argon in Ranipet (Tamil Nadu);
   • the project to expand the capacity of BHORUKA GASESʹ ultra-pure gas plant in Indapur (India) is underway;
   • the programme for the improvement and modernisation of primary production plants of technical gases continued. This activity concerned the units of Feluy, Augusta e Mantua, in particular;
   • the programme for the improvement, modernisation and rationalisation of secondary production plants of technical and medical gases continued. This activity concerned in particular the units in Catania and Padua in Italy and Thessaloniki in Greece.
   • a number of on-site industrial and medical systems were built and launched in Italy as well as abroad (of particular note are the pure nitrogen gas plants in Italy and Greece) , and means of transport, distribution and product sales have been enhanced with the purchase of cryogenic tanks, cryogenic liquid distribution reservoirs, cylinders, dewars and electrical medical devices, all to sustain the group's development in all sec- tors of activity and geographic areas investments continued to implement IT systems for both the technical gas and home-care sectors.

MAJOR CORPORATE TRANSACTIONS

During 2023, several acquisitions were made, both in Italy and abroad. The most important ones are highlighted below:

• AIRSOL Srl acquired a majority stake in SWISSGAS DEL ECUADOR Sa, based in Guayaquil (Ecuador), and ICP - INDUSTRIAS CRIOGENICAS DEL PERU Sac, based in Lima (Peru), both of which operate in the technical gas sector.
• AIRSOL Srl purchased 100% of ANAPNOI IKE of Thessaloniki (Greece), a company active in the home-care sector.
• AIRSOL Srl acquired a 15% stake in SOMNOMEDICS GmbH (Germany), a global leader in the field of sleep diagnostics.
• AIRSOL Srl acquired a majority stake in WONSAK KOHLENSÄURE-SERVICE GmbH, based in Hamburg (Ger- many) and operating in the technical gas sector.
• VIVISOL DEUTSCHLAND GmbH acquired 100% of SOMNOmedics PATIENTENBETREUUNG GmbH (Germany), operating in the home-care sector. Following the acquisition, this company was merged into VIVISOL DEUT- SCHLAND GmbH.
• FRANCE OXYGENE Sarl acquired 100% of MIDIPERF SANTE FRANCE Sas, a home-care company based in Vendargues, France.
• PALLMED spzoo acquired 100% of MAGNUS OPIEKA DOMOWA spzoo in Chorzów (Poland), which operates in the home-care sector.

RESEARCH AND DEVELOPMENT ACTIVITIES

Research activities, which characterise and support the Group's development, continued during the year; these activities mainly comprise research associated with the development of new production and distribution tech- nologies, with the promotion of new applications for technical gases and with the development of new services in health and home care.

SHARES OF THE PARENT COMPANY HELD

BY GROUP COMPANIES

As at December 31, 2023, the Parent Company SOL Spa did not own treasury shares. The other companies of the Group did not own shares of the parent company SOL Spa

During the 2023 reporting year, no SOL shares were purchased or sold either by the Parent Company itself or by other Group Companies.

INTRA-GROUP TRANSACTIONS AND TRAN-

SACTIONS WITH RELATED PARTIES

Transactions carried out with related parties, including intra-group transactions, cannot be considered as atypical or unusual, as they are part of the normal activities of Group companies. These transactions are settled at arm's length, taking into account the characteristics of the supplied goods and services.

Information concerning relations with related parties, including those requested by the Consob communication dated July 28, 2006, is presented in our Consolidated Financial Statements as at December 31, 2023.