FINANCIAL PERFORMANCE

The 2022 results were impacted by the challenging financial markets. The Group however saw growth in revenue and operating profit when adjusted for Falck’s COVID-19 antigen testing activities in Denmark.

Ahead of the Foundation’s expectations, Group revenue amounted to DKK 35,426m, largely thanks to Lundbeck, which delivered record revenue of DKK 18,246m.

Research and development (R&D) costs were level with 2021, at DKK 4,476m.

Revenue (DKKm)

35,426

Operating profit (DKKm)

3,427

Net wealth (DKKm)

51,608

Furthermore, and in line with expectations, Group operating profit amounted to DKK 3,427m. When adjusted for profit from Falck’s public antigen testing contracts in Denmark, which ran from late-2020 until March 2022, operating profit was up 22%.

Operating Activities

Revenue for the year was DKK 35,426m (DKK 35,403m). Revenue at Lundbeck was DKK 18,246m, corresponding to an increase of 12% on 2021.

Revenue at ALK increased by DKK 595m, or 15%, while revenue at Falck decreased by DKK 2,526m, or 17%. The decline in Falck’s revenue was driven by the discontinuation of COVID-19 antigen testing activities. Excluding testing activities, Falck’s revenue increased by DKK 313m, or 3%.

Gross profit was DKK 19,521m, versus DKK 18,771m in 2021. The increase was attributable to Lundbeck and ALK, where gross profits increased by DKK 1,644m and DKK 395m, respectively. Gross profit at Falck decreased by DKK 1,209m, primarily due to the ending of COVID-19 testing activities, in March 2022.

The Group’s gross margin was 55%, up from 53% in 2021.

Overall sales and distribution costs increased to DKK 8,400m (DKK 7,542m), driven by higher costs at Lundbeck and ALK of DKK 725m and DKK 147m, respectively. Overall sales and distribution costs represented 24% of total revenue in 2022 (21%).

Overall administration costs amounted to DKK 3,166m (DKK 2,946m), with the increase largely attributable to Lundbeck.

The Foundation’s own net administration and operational costs amounted to DKK 170m, versus DKK 123m in 2021. The increase was mainly caused by one-off costs.

Operational costs in total thus amounted to DKK 16,042m, versus DKK 14,971m in 2021. The increase was primarily attributable to the DKK 858m increase in sales and distribution costs.

Other operating items, net, amounted to an expense of DKK 52m (income of DKK 72m) and included a DKK 113m impairment to the goodwill of Falck’s activities in the USA. In 2021, other operating items, net, included a change in the valuation of biological assets and related land, amounting to an income of DKK 74m.

Operating profit decreased to DKK 3,427m (DKK 3,872m). Adjusted for the previously mentioned antigen testing activities, operating profit increased by DKK 584m, or 22%. The improvement was attributable to Lundbeck and ALK, which saw increases of DKK 842m and DKK 178m, respectively.

Meanwhile, the Foundation’s BioCapital portfolio delivered a net loss totalling DKK 565m (net loss of DKK 141m).

Tax

The effective tax rate amounted to 31% in 2022, compared to 11% in 2021.

The effective tax rate increased significantly compared to 2021, primarily driven by the Foundation - according to what is stated in the accounting policy - not recognising deferred tax. In 2021, the effective tax rate was below the Danish income tax rate due to deductible grants recognised directly in equity.

Net Results And Grants

Overall, 2022 profit for the Foundation Group was DKK 1,211m (DKK 6,928m). The Foundation’s share of Group profit was DKK -126m (DKK 5,880m).

Operating Profit

During 2022, the Foundation awarded a total of DKK 550m in grants (DKK 803m).

Assets

Total assets at 31 December 2022 amounted to DKK 77,489m, versus DKK 78,022m at the end of 2021.

Equity And Liabilities

Total equity of the Group at 31 December 2022 amounted to DKK 50,164m (DKK 49,422m), reflecting an increase of DKK 742m during 2022. The Foundation’s share of the equity decreased to DKK 41,571m (DKK 41,621m).

At 31 December 2022, total debt to financial institutions etc., including lease liabilities, increased to DKK 9,669m (DKK 9,310m). Consequently, net interest-bearing debt, excluding the Foundation’s financial assets, amounted to DKK 5,060m (DKK 4,989m).

Cash Flow

Total cash flow from operating activities amounted to DKK 3,974m, versus DKK 4,569m in 2021. The decrease was primarily driven by working capital changes.

Total cash flow from investment activities amounted to an outflow of DKK 2,096m (outflow of DKK 1,368m), of which, the strategic investment in Ferrosan Medical Devices at the end of 2022 amounted to DKK 874m.

Excluding the purchase and sale of financial assets, cash flow from investment activities was an outflow of DKK 1,494m, which was on par with 2021. Of this, acquisition and

Investment Activities

The Foundation’s investment activities saw a loss of DKK 1,995m compared to a gain of DKK 4,467m in 2021.

The investment portfolio in Invest generated a loss of DKK 1,430m, versus a gain of DKK 4,608m in 2021. The return was 7 percentage-points better than the benchmark.

Intangible assets amounted to DKK 27,952m at 31 December 2022 (DKK 28,738m), of which, product rights amounted to DKK 16,741m (DKK 17,361m). Amortisation and impairment of product rights amounted to DKK 1,483m (DKK 1,299m). Goodwill at year-end amounted to DKK 10,037m (DKK 10,060m).

The Foundation’s financial assets at 31 December 2022 amounted to DKK 22,422m (DKK 25,129m), equivalent to a decrease of DKK 2,707m compared with the end of 2021.

Cash and bank balances at 31 December 2022 amounted to DKK 4,609m (DKK 4,321m).

51,608 divestment of businesses, net, accounted for an outflow of DKK 81m (outflow of DKK 599m).

In 2022, the total cash flow from grants paid and dividends paid to non-controlling interests, amounted to an outflow of DKK 1,410m (outflow of DKK 670m). Repayment of debt to financial institutions etc., amounted to a net outflow of DKK 87m (net outflow of DKK 3,912m).

Net cash flow in 2022, amounted to an inflow of DKK 268m (outflow of DKK 1,639m). At the end of 2022, the Group’s cash balance totalled DKK 4,609m, versus DKK 4,321m at the end of 2021.

Net Wealth

At 31 December 2022, the Group’s net wealth amounted to DKK 51,608m (DKK 67,114m). Net wealth was significantly affected by decreases in ALK’s and Lundbeck’s share prices, which had a negative effect of DKK 6,772m and DKK 5,374m, respectively.

Outlook

The three subsidiaries’ contributions to net wealth differed from the contribution recognised and measured in accordance with the accounting policies of the Lundbeck Foundation Group. The fair value of the Foundation’s net assets is based on market prices, where available - for ALK and Lundbeck - and, for Falck, an estimated fair value based on a tradingmultiple model.

The financial performance of the Group depends upon developments in the commercial activities of Lundbeck, ALK and Falck, as well as returns generated by the Foundation’s investment activities, including the biotech portfolio. Returns provided by the investment activities largely depend on the overall performance of the financial markets, whereas returns from the biotech portfolio also depend on the development of products and similar factors at the portfolio companies.

For 2023, revenue is expected to reach between DKK 35bn and DKK 37bn. Group operating profit is expected to be between DKK 3.6bn and DKK 4.3bn. The expected increase in Group revenue and operating profit compared to 2022 is primarily related to expected sales growth at Lundbeck and ALK.

Based on the financial strength of the Foundation, the expenditure on grants is expected to remain on a high level of at least DKK 500m.

These expectations are based on the exchange rates prevailing at the end of January 2022.

Please refer to the respective annual reports of Lundbeck, ALK and Falck for further details about the companies’ individual expectations.

LUNDBECK FOUNDATION (PARENT ENTITY)

The Foundation’s profit for the year amounted to DKK 1,297m, versus DKK 2,195m in 2021. The 2022 result was negatively affected by a net financial loss of DKK 809m (gain of DKK 1,130m). The dividends from Lundbeckfond Invest A/S amounted to DKK 2,192m (DKK 1,140m).

In total, grants awarded in 2022 amounted to DKK 550m, versus DKK 803m in 2021. Net grants amounted to DKK 539m (DKK 792m) in 2022, as grants of DKK 11m (DKK 11m) were reversed or repaid during the year. Subsequently, the carrying equity at 31 December 2022 amounted to DKK 10,323m (DKK 9,565m).

Figures for 2021 are shown in brackets