w
Our journey
towards
profitability
ANNUAL REPORT 2022
fi
Contents
3
THE BIG PICTURE
Letter from the Chair and the CEO
4
8
fi
6
Performance highlights
7
fi
OUR BUSINESS
Our people
15
13
Advancing the standard of care
10
Our strategy
11
Our innovation
25
Risk management
OUR GOVERNANCE
23
Board committees
24
21
Company information
22
Board of Directors
OUR FINANCIAL PERFORMANCE
17
Financial review and outlook
18
fi
19
fl
18
Dermatology revenue
19
Outlook
FINANCIAL STATEMENTS
27
Group
77
Parent
94
Management's Statement
95
Independent Auditor's Report
Read more about our ESG performance in our Sustainability
Report 2022, in which LEO Pharma A/S’ compliance
with Sections 99a, 99b and 99d of the Danish Financial
LEO Pharma Sustainability Report 2022
Financial turnaround
- we are progressing as planned
LETTER FROM THE CHAIR AND THE CEO
DURING 2022, we executed our growth strategy, advanced our pipeline and
simplified our organization. We are progressing as planned and aim to deliver positive
EBITDA in 2023.
Result in 2022 in line with guidance
Our financial result for 2022 was in line with the guidance provided in the Annual
Report for 2021 and was driven by revenue growth and lower costs. Revenue grew
7% vs. last year. The revenue growth in constant currency rates was 4%, which is
in line with the guidance of 3-5%. In dermatology, the 8% growth in constant
currency rates was mainly driven by the launch of Adbry™ in the U.S. and
continued launch of Adtralza
®
in rest of world. The adjusted EBITDA loss of
DKK 1,253 million was an improvement of DKK 478 million vs. last year. We
are starting to see the impact of the cost reduction measures taken and
are expecting full-year impact in 2023. We are progressing as planned and
expect to deliver positive EBITDA in 2023.
A year of simplification
Agility and competitive edge through simplification was the key objective
of the plan of actions that was announced at the beginning of 2022.
A new commercial operating model was introduced with the purpose to
simplify market operations and increase profitability. The organization is
moving away from a model with many small affiliates and many partners to
a discontinuation of our own operations in more than 20 countries and fewer,
stronger partners. The refocused commercial set-up increases organizational
efficiency and alignment across all commercial functions globally and ensures
full focus on the launch of tralokinumab across markets for future growth.
Strengthening the Global Leadership Team
With Christophe Bourdon taking the reins as CEO in April 2022, creating a simpler
and leaner Global Leadership Team was a natural next step in the transformation
Letter from the Chair and the CEO
"I am pleased to see that LEO Pharma has a strong Global Leadership
Team, fully focused on executing the strategy. In 2022, we implemented
organizational changes and gradually improved the financial discipline.
With that, the organization is on track towards becoming a sustainably
profitable company."
Jesper Brandgaard
Chair of the
Board of Directors
Contents
The big picture fi
Contents
4
EBITDA is defined on page 8
of the company. We had the pleasure of welcoming Brian Hilberdink as EVP Region
North America, Sven Hauptmann as EVP Technical Development and Supply
and Philip Eickhoff as CFO and EVP Global Finance and Business Services. The
Global Leadership Team now stands strong with significant international industry
competencies, setting us up to achieve our ambitions of growth and executing a
financial turnaround.
Reaching important milestones with tralokinumab
On the business side, we continued the global launch of tralokinumab, which is a
biologic treatment of moderate-to-severe atopic dermatitis. By the end of 2022,
the treatment was available in 13 markets, including major markets such as the U.S.,
Spain, Germany, UK and France
and we received approval
from the PMDA in Japan. We
received an extended marketing
authorization in the EU for
Adtralza
®
to include adolescents
aged 12 – 17 with moderate-to-
severe atopic dermatitis who are
candidates for systemic therapy. We continue to work with the FDA for extended
use of tralokinumab in the U.S. In 2022, the European Dermatology Forum updated
their treatment guidelines to include Adtralza
®
as recommended treatment for
atopic eczema patients who are candidates for systemic therapy in line with other
biologics.
Progressing our pipeline
In 2022, we also progressed our pipeline. We received positive topline key results
from the first Phase 3 trial with delgocitinib in chronic hand eczema (CHE), which
allows us to progress our registration plans. The key results from our anti-IL-22R
Phase 2a study showed positive efficacy and safety endpoints demonstrating a
new Mode of Action (MoA) for treatment of atopic dermatitis (AD). Across all pipeline
assets, we have explored how to maximize the value of our assets by generating
more data. The aim is to increase understanding of our assets’ usefulness in patients
and contribute to scientific exchange through publication. Moreover, additional
data has enabled us to investigate opportunities in other indications, both within
and outside dermatology, as well as the potential to expand the use of our new
products to patients in China and Japan.
On track towards our sustainability targets
Driving our sustainability performance, we made progress towards the targets set out
in our sustainability strategy. We continued to build our commitment to sustainable
healthcare, driven by our focus on advancing the standard of care for the benefit
of people with skin conditions, their families and society. In addition, our targets to
reduce our carbon emissions from our own operations by more than 50% from 2019
to 2030 and to ensure that 75% of our suppliers by emissions have set science-based
targets by 2026, were validated by the Science Based Target initiative.
2023 - a milestone year
2023 will be a milestone year for LEO Pharma. We are committed to delivering positive
EBITDA, which is a first and necessary step towards driving profitable and sustained
growth towards 2025 and beyond.
We have designed clear objectives for the 2023-2025 period, which outline our
strategic priorities for the coming years. As part of this, we will work to shape our
culture, mindset and behaviors to progress business goals. We took another
important step towards profitability in early 2023 when we announced an adjustment
of our R&D strategy with emphasis on external innovation and partnerships. We also
streamlined our Technical Development and Supply and global support functions.
We would like to thank our partners and distributors for the collaboration during
2022, healthcare professionals for helping patients and investigators for helping in
the drug development and bringing medicines to patients.
Finally, we would like to thank all colleagues in LEO Pharma who have contributed to
our transformation efforts for keeping us on track towards our growth ambitions, our
commitment to society and not least to people affected by skin diseases. 2023 will
be a year of financial turnaround and adapting our organization to the world around
us, but also with the prospect of making LEO Pharma ready for the future.
"2022 was a year characterized by growth in our dermatology
portfolio across markets and progress in our pipeline. In 2023, we
have a razor-sharp focus on delivering positive EBITDA. I would
like to thank my Global Leadership Team and all colleagues who
are or have been part of getting us to this turning point for the
company."
Christophe Bourdon
CEO
Letter from the Chair and the CEO
Contents
The big picture fi
Contents
5
Christophe Bourdon
CEO
Jesper Brandgaard
Chair of the Board of Directors
Performance highlights
Contents
6
The big picture fi
Performance highlights
5,252
AVERAGE NUMBER
OF EMPLOYEES
(2021: 5,804)
+5%
EBITDA MARGIN IMPROVEMENT
(EBITDA margin -15%
compared to -20% in 2021)
+7%
REVENUE GROWTH
(revenue growth in
constant currency
rates 4%)
+12%
DERMATOLOGY
REVENUE GROWTH
(revenue growth in constant
currency rates 8%)
International
Operations
North America
Other
Revenue
10,641
DKK million
7,176
(67.4%)
2,233
(21.0%)
941
(8.8%)
291
(2.7%)
13
LAUNCH OF
ADTRALZA
®
/
ADBRY™ IN
markets
ESG key figures 2022
We continued to manage ESG risks and opportunities
Environment Social Governance
In 2022, our climate targets were
validated by the Science Based
remained in line with our 2030 target
Report for further details on greenhouse gas
Total Scope 1 and 2 CO
2
e emissions
40k
35k
30k
25k
20k
5k
Gender distribution at management levels
Men MenWomen Women
Middle
management
Senior
management
Executive
management
22,522
Gender diversity in middle and senior
management improved in 2022 compared
global annual Code of Conduct training
elected Board member in 2022 did not
impact the gender diversity at Board
work strategically with gender diversity
and remove any bias blockers that can
have a negative impact on the gender
details on our compliance with Section 99b of
Global Code of Conduct
training completion rate
Gender diversity at Board levelLost Time Injury (LTI) rate
at manufacturing sites
5
3
2
4
20222022 2018 2019 20202020 20212021
3.7
1.3
1.9 1.9
1.7
For the fourth year in a row, we achieved
Read more about our ESG performance in our
separate Sustainability Report 2022, in which
LEO Pharma A/S’ compliance with Sections 99a,
99b and 99d of the Danish Financial Statements
0
0
LEO Pharma
Sustainability Report 2022
202220212020
29
Performance highlights
Contents
The big picture fi
Contents
The big picture fi
Key figures 2018-2022
(DKK million)
2022 EUR
milion** 2022 2021 2020 2019 2018
Income statement
Revenue 1,430 10,641 9,957 10,133 10,805 10,410
Adjusted EBITDA**** (168) (1,253) (1,731) 820 (130) 2,366
Transformation and restructuring costs (43) (321) (226) (299) - -
Operating profit/(loss)
before depreciation and
amortization (EBITDA)*** (211) (1,574) (1,957) 521 (130) 2,366
Operating profit/(loss) (EBIT) (445) (3,311) (4,156) (726) (1,313) 1,605
Net financials (105) (782) (607) (354) (363) (178)
Profit/(loss) before tax (550) (4,093) (4,763) (1,080) (1,705) 1,416
Net profit/(loss) for the year (552) (4,110) (4,868) (951) (1,287) 1,258
Financial position
Investments in intangible assets 38 279 1,139 839 4,878 1,516
Investments in property,
plant and equipment 79 590 800 1,164 1,328 478
Non-current assets 1,985 14,765 15,110 15,243 15,339 9,321
Current assets 1,098 8,167 8,585 8,610 9,421 6,963
Total assets 3,084 22,932 23,695 23,853 24,760 16,284
Equity 262 1,946 5,537 6,947 8,088 9, 5 28
Cash flow
Cash flow from operating activities (306) (2,274) (2,498) (737) (232) (101)
Free cash flow (504) (3,750) (3,869) 314 (6,797) 128
Operating net working capital 734 5,456 4,539 3,775 4,122 4,103
Net working capital 317 2,355 1,956 2,689 4,098 2,528
Invested capital* 1,511 11,233 10,405 11,816 10,866 8,168
Net interest-bearing debt 2,021 15,027 11,144 10,144 9,682 2,163
2022 2021 2020 2019 2018
Key ratios
Gross Profit (mDKK) 5,985 5,995 6,773 7,455 7,370
Gross margin 56% 60% 67% 69% 71%
Revenue growth 7% (2%) (6%) 4% (1%)
Operating profit margin (31%) (42%) (7%) (12%) 15%
Adjusted EBITDA margin (12%) (17%) 8% (1%) 23%
EBITDA margin (15%) (20%) 5% (1%) 23%
R&D costs (mDKK) 2,474 3,058 2,020 2,444 1,914
R&D costs (% of revenue) 23% 31% 21% 23% 18%
Cash conversion 91% 79% (33%) 528% 10%
Invested capital*/Revenue 106% 104% 117% 101% 78%
Effective tax rate 0% (2%) 12% 25% 11%
People
Average number of employees 5,252 5,804 5,955 5,820 5,528
Number of patients (thousand) 89,305 84,686 93,262 92,192 76,084
* Excluding intellectual property rights.
** Applied exchange rate for EUR in 2022: 7.4396 (Average) and 7.4365 (End).
*** EBITDA derived from Operating loss/EBIT DKK 3,311m + depreciation and amortization for the period of DKK 1,737m.
**** Adjusted EBITDA derived from EBITDA + transformation and restructuring costs of DKK 321m.
Performance highlights
Short-term strategic imperative with clear objectives and focus on execution
Organizing and teaming
for sustained performance
OUR STRATEGY marks the start
of a bold strategic transforma-
tion to drive innovation in medical
dermatology by leveraging our
strong legacy and leading top-
ical dermatology portfolio. This
reflects our long-standing dedi-
cation to improving the quality of
life for people suffering from skin
diseases.
In 2022, we achieved important
milestones with the launch of
Adbry™ (tralokinumab) in the U.S.
as the second biologic for pa-
tients suffering from atopic der-
matitis. The launch of Adbry™ rep-
resents an inflection point in the
transformation, which in the com-
ing years will be crystallized as a
return to operating profit and ac-
celerated growth following years
of investment in innovation.
OUR STRATEGY
Building a sustainably profitable business
High-performing organization
anchored in fit-for-purpose leadership
team and a powerful, shared culture –
tying us together as one LEO Pharma.
Deliver positive
EBITDA in 2023
Profitable growth
by 2025 and beyond
Our ambition is to provide innovative treatment options to the people who need
fi
Drive financial turnaround.
Deliver low single-digit positive
EBITDA margin in 2023.
Sustain growth journey with
innovation.
Deliver above 20% EBITDA
margin overall to pave the way
for long-term competitiveness.
Our strategy
1 2 3
Contents
Our business fi
OUR INNOVATION
Enabling health through innovation
AT LEO PHARMA, our purpose is to advance the standard of care in medical derma-
tology. With innovative treatments, we improve the quality of life and enable health.
In 2022, we made progress towards this ambition by advancing our pipeline and
further externalizing our innovation model to benefit from increased flexibility and
scaleability as we continue to strenghthen our competitiveness.
2022 R&D milestones
By end-2022, tralokinumab had been approved and launched in 13 markets - in the
U.S. under the tradename Adbry™ and with the name Adtralza
®
in other markets. The
most recent key market approval was achieved in Japan on December 23, 2022.
Delgocitinib (LP0133) - a topical pan-JAK inhibitor for the treatment of chronic hand
eczema reported key results from its first Phase 3 study, meeting primary and all sec-
ondary endpoints. This may allow delgocitinib to become the first novel treatment
specifically developed for patients with CHE.
Delgocitinib is also being investigated in frontal fibrosing alopecia in an exploratory
trial with expected top-line results in the third quarter of 2023.
The key results from our anti-IL-22R Phase 2a Proof of Concept study showed pos-
itive efficacy and safety endpoints, demonstrating a new Mode of Action (MoA) for
the treatment of atopic dermatitis (AD). Anti-IL-22R will continue in clinical develop-
ment in 2023. LEO Pharma has exercised the option to obtain the exclusive license to
ARGX-112/anti-IL-22R mAb from argenx.
In August 2022, a Phase 1 First in Human study was completed for IL-17A PPI (LP0200)
– an oral compound for the treatment of psoriasis. The study was done in healthy
volunteers to assess the safety of the compound. Due to unfavorable properties of
the front runner molecule, we have shifted focus to explore opportunities with back-
up compounds.
A Phase 2b trial combining Proof of Concept and Dose Finding in one study is ongoing for
Izuforant (LP0190) – an oral H4R antagonist for the treatment of atopic dermatitis. The
first patient was enrolled in 2021. The study is a randomized, double-blinded, placebo-
controlled, multi-site trial with 224 patients to evaluate efficacy and safety of the
oral histamine 4 receptor (H4R) antagonist in patients with moderate or severe
atopic dermatitis.
The final results from the Phase 2a trial for Anti IgE+B cell in atopic dermatitis were
available in May 2022. The trial was conducted by our partner Oneness/Microbio
Shanghai and results concluded that the primary and secondary objectives of the
trial were not met. Oneness/Microbio Shanghai continues to test the asset in a
Phase 2a trial in allergic asthma in Taiwan.
Throughout 2022, we have had a key focus on exploring how to maximize the value
of our assets across our pipeline by generating more data. The aim is to increase
understanding of our assets' usefulness in patients and contribute to scientific ex-
change through publication. Moreover, additional data has enabled us to inves-
tigate opportunities in other indications, both within and outside dermatology, as
well as the potential to expand the use of our new products to patients in China and
Japan. Investigating the potential of an asset in China and Japan is now included
as default in all our project development plans.
Delivering innovation through partnerships
In early 2023, we announced our move to a more externalized R&D model to further
strengthen our ability to source and develop the best available innovation and in-
crease flexibility in delivering therapeutics across orals, topicals and injectables as
well as focus our investments.
We embarked on this journey already in 2016 with a platform partnership with
Morphosys on monoclonal antibodies, followed by a second platform partnership
with Zymeworks on bispecific antibodies. Going forward, we will expand with more
partnerships to access both platform technologies and drug molecule assets lead-
ing to more innovative treatments across drug modalities.
Delivering innovation through partnerships has been a part of the LEO Pharma
DNA throughout the past decade. This approach has resulted in a diverse project
pipeline, including development and launch of tralokinumab and Kyntheum
®
. Other
assets – such as delgocitinib and anti-IL-22R – are externally sourced as well.
As a consequence of this approach, we have reduced our early research and de-
velopment organization. Going forward, in the short term, we will focus on support-
ing tralokinumab, delgocitinib and anti-IL-22R as well as our ongoing pre-clinical
programs. Longer term, we will seek new partnership to keep strengthening our
pipeline and secure continued launch of new treatment opportunities in medical
dermatology.
Our Innovation
Jörg Möller
Contents
Our business fi
Our clinical pipeline
Project Description Partners Phase 2 Phase 3 Launch
Adtralza
®
/Adbry™
LP0162
An IL-13 anti-inflammatory monoclonal antibody
under development for adults, adolescents
and pediatrics with atopic dermatitis.
Delgocitinib
LP0133
A topical pan-JAK inhibitor under
development for chronic hand eczema.
Delgocitinib
LP0133
A topical pan-JAK inhibitor under
development for frontal fibrosing alopecia.
Anti-LgE+B-cell
LP0201
A monoclonal antibody under
development for allergic asthma.
Anti-IL-22R
LP0145
An anti-inflammatory monoclonal antibody
under development for atopic dermatitis.
Izuforant
LP0190
A systemic anti-pruritic and anti-
inflammatory H4 receptor antagonist under
development for atopic dermatitis.
Current phaseFinalized phase
Contents
Our business fi
Pipeline
“This year’s execution of our launch strategy was pivotal to
the long-term growth of tralokinumab, which we believe will
become a major revenue driver for the company over the
next five years. As the first and only biologic treatment that
specifically neutralizes IL-13, tralokinumab brings new hope
to patients with moderate-to-severe atopic dermatitis."
About atopic dermatitis (AD):
fl
ff
ff
ous levels of severity:
Mild: Areas of dry skin, infrequent itching, with or without
Moderate: Areas of dry skin, frequent itching and redness,
Severe: Widespread areas of dry skin, incessant itching
thickening, bleeding, oozing, cracking and alteration of
OUR FOCUS
Advancing the standard of care
for atopic dermatitis patients
In 2022, LEO Pharma achieved several major mile-
stones towards advancing the standard of care
for atopic dermatitis (AD) patients worldwide. In
February, we officially launched tralokinumab in the
U.S. under the tradename Adbry™ for the treatment of
moderate-to-severe AD in adults, following approval
from the U.S. Food and Drug Administration (FDA) in
late December 2021.
Later in the year, we achieved additional regulato-
ry approvals of tralokinumab under the trade name
Adtralza
®
in Switzerland and ended the year with reg-
ulatory approval by the Japanese Ministry of Health,
Labour and Wealth (MHLW) in December 2022.
During the year, Adtralza
®
was also launched and
brought to markets across
Europe and the Middle
East, ensuring AD pa-
tients access to an alter-
native treatment option.
By the end of the year,
tralokinumab was available to patients in 13 markets:
Germany, the Netherlands, the U.S., Ireland, Canada,
United Arabic Emirates, Spain, France, Luxembourg,
Switzerland, Italy, the UK and Belgium.
In the fourth quarter of 2022, LEO Pharma obtained
approval to expand the indication for tralokinumab
to include adolescent patients aged 12-17 in the EU
and the UK. This label extension provides a new bio-
logic therapy option for younger patients living with
Becki Morison
International Operations
moderate-to-severe AD. LEO Pharma can thus ex-
pand its market share in the highly competitive AD
space in the course of 2023.
Contents
Our business fi
Our focus
AD DAYS AROUND THE WORLD
A worldwide awareness initiative in
support of the global AD community
FOR PATIENTS living with more severe forms of atopic derma-
titis (AD), the consequences of the condition are more than skin
deep. In addition to itchy and inflamed skin, patients also strug-
gle with its psychosocial and emotional consequences.
In 2022, LEO Pharma therefore launched AD
Days Around the World, a global disease
awareness campaign which highlights the
experiences of people living with AD – in
collaboration with patient advocacy or-
ganizations in France, Italy, Germany and
Spain.
A wordplay on the classic Jules Verne nov-
el – Around the World in Eighty Days – this
campaign sets out to uncover just how much
the AD community shares across borders and regions.
Hosted by global patient advocate Ashley Ann Lora, AD Days
Around the World is a series of in-depth interviews with four
strong women – Marjolaine (France), Laura (Italy), Julia (Germany)
and África (Spain) – who share how they cope and live with atopic
dermatitis.
Real patient stories, together with educational resources, high-
light that regardless of nationality or cul-
ture, there is hope to triumph over adversity,
despite common everyday challenges. As
Ashley Ann Lora herself describes it, after
returning to the U.S.:
“Being a part of this campaign, AD Days
Around the World, has truly been transfor-
mational for me. Never in my life did I think
that something that brought me so much
pain and suffering growing up, would bring
me so much purpose today.”
Visit www.ADDaysAroundTheWorld.com to watch the full video
series.
"Never in my life did I
think that something that
brought me so much pain
ff
would bring me so much
SCAN this QR code to see
the videos from the AD Days
Contents
Our business fi
Our focus
Transparency and dialogue
During LEO Pharma’s transformation, which also has
impact on positions and people, we continue to have
a strong focus on our people to ensure their well-be-
ing and engagement. In a year with significant chang-
es, strong leadership and ongoing dialogue between
leaders and employees have been more important
than ever.
Strengthened leadership forum
A significant step in our efforts has been to reorga-
nize our LEO100 senior leadership forum into a small-
er Extended Global Leadership Team, composed of
approx. 75 leaders, in order to further simplify and
support close collaboration and dialogue between
top management and other senior leaders. This team
plays an instrumental role in driving the execution of
our business objectives and transformation. They will
also support the Global Leadership Team in shaping
LEO Pharma’s strategic direction as well as work to
further strengthen leadership communication across
the organization.
OUR PEOPLE
Supporting our people through transformation
Learning and development
Leadership development matters as it directly im-
pacts LEO Pharma's ability to execute our strategy.
Through the LEO Pharma Academy, 200 new and ex-
perienced leaders got the chance to work on their
individual leadership development in 2022 in the Fit
to LEAD program, which is delivered virtually.
In business areas impacted by substantial changes,
we have trained 240 leaders in guiding organizations
through ambiguity and change. We believe that a
diverse and inclusive culture fosters innovation, en-
gagement and better decision-making. On this ba-
sis, we have rolled out dedicated training programs,
Lead Inclusively and Ignite Inclusion.
At LEO Pharma learning is something we do every day.
We develop by the 70-20-10 learning model which
is about combining 70% experience-based learning
on the job, 20% relationship-based learning through
others and 10% education-based formal learning. It is
the mix of activities which is important and the fact
that most learning occurs in the context of daily work.
Focus on attracting new talent
During times of change, it is critical for the business
to have access to the right capabilities to propel
the business forward and to fulfil the need for new
competencies required. To strengthen our ability
to attract new talent, we have implemented a new
Talent Acquisition operating model to enable rapid
access to external talent in areas with competence
gaps. This function will provide strategic sparring to
leaders, while fueling a more competitive approach
to recruitment at LEO Pharma.
Want to know more about Diversity
and Inclusion at LEO Pharma?
Please see our Sustainability Report 2022.
Employee Share Purchase Plan
LEO Pharma’s Share Purchase Plan was
introduced in recognition of the key role that the
employees at LEO Pharma play in realizing our
strategy and driving the company’s continued
success.
2022 saw the beginning of the investment
period for those who joined the Employee Share
Purchase Plan in 2021. Just over 2,350 colleagues
opted to become co-owners of our company.
This corresponds to 44% of those eligible to join.
Dennis Schmidt Pedersen
Global People
Contents
Our business fi
Our people
Our financial
performance
fifl
our turnaround journey towards sustainable
fi
Read more about our ESG performance in
our separate Sustainability Report 2022
Contents
Our financial performance
Result for 2022
Overall revenue increased by 7% to DKK 10,641 million
in 2022. In constant currency rates, revenue increased
by 4% compared to 2021.
We delivered for 2022 a significant net loss of DKK
4,110 million vs. a net loss of DKK 4,868 million in 2021.
The result for 2022 is impacted by increased raw ma-
terial, distribution, energy and interest costs vs. 2021.
Our operating loss before depreciation and amorti-
zation (EBITDA) amounted to DKK 1,574 million in 2022
vs. DKK 1,957 million in 2021. The operating loss for
2022 was impacted by an increase in transformation
and restructuring costs from DKK 226 million in 2021 to
DKK 321 million in 2022. Adjusted EBITDA amounted
to a loss of DKK 1,253 million in 2022, resulted in an
improvement of DKK 478 million vs. 2021.
Revenue for the LEO Pharma Group
The increase in revenue for 2022 was primarily driv-
en by our dermatology portfolio, which generated
double-digit growth of 12% with a total revenue of
DKK 8,133 million in 2022. In constant currency rates
the growth was 8%. This growth was driven by skin in-
fection, eczema, other mature dermatology and the
continued launch of Adtralza
®
/Adbry™.
Financial review and outlook
fi
fifi
and must, in line with plans, be turned around to increasing positive
fi
Geographically, the increase in revenue in constant
currency rates was driven by high growth in the U.S.
(31%), China (13%) Germany (17%) and Iberia (13%).
Revenue by therapeutic area
Revenue from our psoriasis portfolio amounted to
DKK 3,912 million in 2022 which is on par with 2021.
The two strategic psoriasis products Enstilar
®
and
Kyntheum
®
continued to grow. Enstilar
®
continues to
be our best-selling product in our psoriasis portfolio,
representing 36% of our psoriasis revenue. Kyntheum
®
increased by 24% compared to 2021. With revenue of
DKK 764 million, Kyntheum
®
now accounts for 20% of
our psoriasis revenue.
Products in our eczema/skin infection portfolio in-
creased by 29% to DKK 3,633 million. Revenue for ecze-
ma increased by 45%, driven by Protopic
®
, Advantan
®
portfolio and Adtralza
®
/Adbry™. Skin Infection in-
creased by 14%, mainly driven by the Fucidin
®
portfolio.
Adtralza
®
/Adbry™ is now launched in 13 markets and is
the biggest growth driver in the dermatology portfolio.
Revenue from our acne/rosacea portfolio amounted
to DKK 328 million, which is on par with 2021. Other
mature dermatology increased by 26% to DKK 260
million in 2022. In constant currency rates, the devel-
opment is in line with 2021.
Thrombosis revenue decreased by 3% to DKK 2,233
million from DKK 2,311 million in 2021. The decrease is
primarily related to Innohep
®
declining 5% compared
to 2021 due to supply challenges on our production
site at the beginning of the year.
Dermatology
Other
REVENUE BY THERAPEUTIC AREA
(DKK MILLION)
2,233
20212022
LEO Pharma Group
10,641
DKK
MILLION
Financial review and outlook
Philip Eickhoff
ffi
Global Finance and Business Services
Contents
Our financial performance
Other revenue primarily stems from divested products
where we are operating as contract manufacturer.
The sales decreased by 29% compared to 2021 to
DKK 275 million in 2022, which is in line with plans.
Dermatology revenue
The following subsections provide an overview of our
dermatology portfolio by regional segments. During
2022 two regions were established within dermatol-
ogy. North America consists of the U.S. and Canada
and International Operations (Product Strategy and
International Operations) is rest of world.
International Operations
Revenue for International Operations increased by
10% in 2022 to DKK 7,176 million, compared to DKK 6,536
million in 2021, and represents 88% of the revenue in
dermatology. The increase was driven by increased
demand for our established brands and launch of
Adtralza
®
in 11 markets in International Operations.
Launch of Adtralza
®
is progressing as planned.
In addition to Adtralza
®
, Kyntheum
®
and Enstilar
®
continue to be the drivers of organic growth.
North America
Revenue for North America reached DKK 941 million in
2022 compared to DKK 745 million in 2021. The higher
revenue was driven by robust growth in the U.S. and
a favorable exchange rate impact. In constant cur-
rency, North America revenue increased by 13%. The
growth in North America revenue in constant currency
rates was primarily a result of the launch of Adtralza
®
/
Adbry™ in 2022.
Our authorized generic portfolio decreased by DKK
49 million, with revenue totalling DKK 55 million, re-
flecting the competitive environment in the generic
markets.
fi
Total costs amounted to DKK 14,025 million in 2022
compared to DKK 14,175 million in 2021. Total costs
were impacted by high investments in the launch of
Adtralza
®
/Adbry™, transformation and restructuring
costs related to the ongoing transformation of LEO
Pharma to become a profitable business.
Cost of sales was DKK 4,656 million in 2022, which is an
increase of 18% compared to DKK 3,962 million in 2021.
The gross margin was 56% in 2022, compared to 60%
in 2021. The key drivers of the decrease in gross margin
are the increasing production cost and price increases
of raw materials mainly for the thrombosis portfolio.
Operating costs amounted to DKK 9,304 million in
2022, compared to DKK 10,146 million in 2021, in line
with expectations.
Sales and distributions costs
The sales and distributions costs amounted to DKK
4,736 million in 2022 compared to DKK 4,698 million
in 2021. The 2022 costs are impacted by restructuring
costs of DKK 65 million in 2022 vs. DKK 156 million in
2021. Adjusting for restructuring costs, sales and dis-
tribution costs increased by 3%.
Research and development costs
During 2022, we continued the progress within re-
search and development, including the Phase 3 stud-
ies of delgocitinib, a treatment of chronic hand ec-
zema, and Izuforant, a first-in-class oral therapy for
patients with moderate-to-severe atopic dermatitis.
The research and development costs amounted to
DKK 2,474 million, or 23% of our 2022 revenue, com-
pared to a spend of 31% of revenue in 2021. Adjusted
for impairment of development projects and restruc-
turing costs and other one-time expenses, the spend
in 2021 amounted to 23% of revenue. Restructuring
costs impacted the 2022 costs with DKK 59 million vs.
DKK 35 million in 2021.
Administrative costs
Administrative costs decreased from DKK 2,390 million
in 2021 to DKK 2,094 million in 2022. The 2022 costs are
impacted by restructuring costs and impairment of
software development projects of DKK 294 million vs.
DKK 186 million in 2021.
Other
North America
International
Operations
DERMATOLOGY REVENUE
(DKK MILLION)
8,133
DKK million
Financial review and outlook
7,176
(88.2%)
941
(11.6%)
16
(0.2%)
Improvement of
amounted to a loss of
1,253
DKK
MILLION
Contents
Our financial performance
* Other mainly covers revenue where LEO Pharma acts as a contract manufacturer.
Cash flow
Cash flow from operating activities was negative
and amounted to DKK 2,274 million. Cash flow from
investment activities was negative with DKK 1,476
million, as a result of investments in production facilities
and milestone payments in 2022. Cash flow from
financing activities amounted to DKK 3,576 million,
mainly related to proceeds from borrowings of DKK
4,451 million and repayments of DKK 900 million.
Outlook
Follow-up on 2022 outlook
Revenue growth in 2022 amounted to 7%. In constant
currency rates, the growth was 4% and in line with the
guidance of 3-5% provided in our 2021 Annual Report.
We expected an operating loss (EBIT) of DKK 3.1-3.3
billion. We delivered an operating loss (EBIT) of DKK 3.3
billion.
LEO Pharma realized a significant loss for 2022. The
financial performance in 2022 is in line with our guid-
ance and expectations, however the significant loss is
not satisfactory.
2023 outlook
LEO Pharma’s key focus is to achieve profitability from
operations before depreciation, amortization, restruc-
turing and transformation costs (adjusted EBITDA) in
2023.
To deliver on our expectations, LEO Pharma anticipates
revenue growth of 6-10% in 2023, driven by increasing
revenue of Adtralza
®
/Adbry™ and growth in our strate-
gic brands.
We will continue to focus on operating profit by imple-
menting efficiencies, simplification and cost reduc-
tions. We expect to deliver a low single-digit positive
EBITDA margin*. Taking the ordinary depreciation and
amortization into account, we expect an operating
loss (EBIT) in 2023. Write-downs of intellectual property
rights can change the outlook.
Profit and loss
LEO Pharma is in a financial turnaround process and
the significant loss for 2022 is not satisfactory, but in
line with expectations.
Investments have materialized in 2022 related to the
Adtralza
®
/Adbry™ launch. The operating loss was im-
pacted by restructuring and transformation costs of
DKK 321 million and impairment of intellectual proper-
ty rights and IT development projects, which amounts
for DKK 176 million.
The 2022 operating loss before interest, tax, depre-
ciation, and amortization (EBITDA) amounted to DKK
1,574 million, compared to DKK 1,957 million in 2021.
Operating loss before interest and tax (EBIT) ended
at DKK 3,311 million, compared to a loss of DKK 4,156
million in 2021, which is in line with our expectations.
Financial items
Net financial items showed a loss of DKK 782 million,
compared to a loss of DKK 607 million in 2021. This was
mainly driven by an increase in interests to credit in-
stitutions of DKK 210 million as a result of increasing
interest rates and debt.
fl
Balance sheet
Total assets decreased from DKK 23,695 million on
December 31, 2021 to DKK 22,932 million on December
31, 2022. Intangible assets decreased by DKK 999
million primarily due to ordinary amortization and
impairment of IT development projects.
Equity has decreased by DKK 3,591 million to DKK 1,946
million since the end of 2021. The movements mainly
comprised a net loss for the year of DKK 4,110 million
and positive exchange rate, reserve for share-based
payments and value adjustments of DKK 519 million.
Financial review and outlook
Contents
Our financial performance
* EBITDA adjusted for transformation and restructuring costs.
Our
governance
including our legal structure, Board of Directors
of LEO Pharma A/S, Board committees, Global
Contents
20
fi Our governance
Company
information
LEO Pharma A/S
LEO Pharma A/S is a co-owned subsidiary of:
LEO Foundation
Through LEO Holding A/S
Lautrupsgade 7, 5th floor
2100 Copenhagen Ø, Denmark
Nordic Capital
Through Cidron Savanna 4 SARL
8 rue Lou Hemmer
1748 Luxembourg
Foundation ownership
The LEO Foundation - through LEO Holding A/S - is
the majority owner of LEO Pharma A/S. The main
objective of the foundation is to ensure the long-term
continuation and success of LEO Pharma as a global,
research-based pharmaceutical company. The LEO
Foundation also provides philanthropic support to some
of the world’s leading scientists within skin research.
www.leo-foundation.org
A transparent corporate
governance structure promotes
sustainable business behavior
OWNERSHIP STRUCTURE
Contents
fi Our governance
Board of Directors
Jannie Kogsbøll
Employee-elected Board member since 1998
Nationality: Danish
Career: Process assistant, Production
Ballerup. Joined LEO Pharma in 1985
Other board memberships:
•
A/B Stenrosen (Chair)
•
LEO Foundation
•
LEO Holding A/S
Karin Attermann
Employee-elected Board member since 2008
Nationality: Danish
Career: Sr. Compliance Manager Business Ethics,
Global Risk & Compliance; Regional Compliance
Manager, Region Europe+. Joined LEO Pharma
in 1988
Education: BA in English and German
Other board memberships:
•
LEO Pharma Social Club
“Personaleforeningen LEO” (Chair)
Franck Maréno
Employee-elected Board member since 2018
Nationality: Danish
Career: Principal Technician, Fucidin
®
API
Fermentation and FAR Project. Joined LEO
Pharma in 2008
Education: AP Graduate Laboratory and
Biotechnology “Technonome”
Other board memberships:
•
LEO Foundation
•
LEO Holding A/S
•
LEO Pharma Technicians Club (Vice Chair)
Jonas Agnblad
Board member since 2021
Nationality: Swedish
Special competencies: Corporate finance (M&A)
and private equity investments
Board committees, LEO Pharma A/S:
Remuneration & Nomination Committee
Scientific Committee
IPO Preparedness Committee
Career: Partner and Co-lead of Healthcare,
Nordic Capital
Education: MSc Economics, Finance, Stockholm
School of Economics
Elisabeth Svanberg
Board member since 2022
Nationality: Swedish
Special competencies: Biotech and
pharmaceutical industry, product development
and medical affairs
Board committees, LEO Pharma A/S:
Scientific Committee
Career: Chief Medical Officer at Kuste
Biopharma; Chief Development Officer at Ixaltis
SA; Vice President at Janssen Pharmaceuticals
Education: MD, PhD Gothenburg University,
Sweden
Other board memberships:
•
Egetis AB
•
Galapagos
•
Amolyt Pharma SAS
•
EPICs Therapeutics
Peter Haahr
Board member since 2021
Nationality: Danish
Special competencies: Strategy and operations
in life science industry, financial management
and capital markets
Board committees, LEO Pharma A/S:
Audit Committee (Chair)
Remuneration & Nomination Committee
Scientific Committee
IPO Preparedness Committee
Career: CEO, LEO Foundation; CFO, Novo Holdings;
Several national and international leadership
positions, Novo Nordisk A/S; Equity Analyst, various
financial institutions
Education: EMBA, IMD, Switzerland. MSc Finance
& Accounting, Aarhus University
Other board memberships:
•
World Diabetes Foundation
•
House of Denmark
Signe Maria Christensen
Employee-elected Board member since 2018
Nationality: Danish
Board committees, LEO Pharma A/S:
Remuneration & Nomination Committee
Scientific Committee
Career: Sr. Strategic Alliance Manager, R&D
Project and Alliance management. Joined LEO
Pharma in 2011
Education: MSc in chemical engineering and
PhD in organic chemistry, Technical University
of Denmark
Other board memberships:
•
LEO Pharma Academics Association (Vice
Chair)
Lars Green
Board member since 2021
Nationality: Danish
Special competencies: Exec. finance and
business management in healthcare and
industrial enzymes
Board committees, LEO Pharma A/S:
Audit Committee
Career: CFO & EVP, Finance, IT & Legal,
Novozymes A/S; EVP Business Services &
Compliance; SVP & Regional CFO, North America;
SVP Finance, Novo Nordisk A/S
Education: MSc Business Administration, Aarhus
School of Business, Denmark
Other board memberships:
•
LEO Foundation (Member of the Board
of Trustees)
•
LEO Holding A/S
Paul Navarre
Board member since 2022
Nationality: French
Special competencies: Board Leadership, Exec.
management in healthcare industry
Board committees, LEO Pharma A/S:
Audit Committee
Career: Professional Chairman & Board Member;
Senior advisor BCG and Private Equity funds, CEO
of Ferring Inc., President of Allergan International
and other leadership roles, Commercial
Leadership Country Roles at Procter and Gamble
Education: Insead Corporate Governance
Certification. MBA, Institut Superieur Du
Commerce in Paris
Other board memberships:
•
HTL Biotech (Chair)
•
Hallura (Vice-Chair)
Jan van de Winkel
Board member since 2017
Nationality: Dutch
Special competencies: Therapeutic antibody
creation and development, biotechnology
industry, exec. management
Board committees, LEO Pharma A/S:
Scientific Committee (Chair)
Career: Co-founder, President & CEO of
Genmab A/S; VP and Scientific Director of
Medarex Europe; Professor in Immunotherapy at
Utrecht University
Education: MSc Biology and PhD in Immunology,
University of Nijmegen, the Netherlands
Other board memberships:
•
Hookipa Pharma (Chair)
Vice Chair
Jesper Mailind
Board member since 2018
Nationality: Danish
Special competencies: Exec. management in
healthcare, medical devices and industry
Board committees, LEO Pharma A/S:
Remuneration & Nomination Committee
IPO Preparedness Committee
Career: Professional Board Member; CEO, LEO
Foundation, CEO GN Resound, RTX and SVP in
Nycomed A/S (Takeda)
Education: MBA, Insead
Other board memberships:
•
Aidian Oy (Chair)
•
RTX A/S (Vice Chair)
•
Etac AB
•
Contour Design A/S
Chair
Jesper Brandgaard
Board member since 2021
Nationality: Danish
Special competencies: Board Leadership, exec.
management in biopharmaceutical industry
Board committees, LEO Pharma A/S:
Remuneration & Nomination Committee (Char)
IPO Preparedness Committee (Chair)
Career: Professional Board Member; EVP
Biopharm & Legal Affairs; CFO & EVP, Finance,
Legal & IR; SVP Corp. Finance, Novo Nordisk A/S;
Chair of Board of Directors, Simcorp A/S; COO
& CFO, EAC Nutrition
Education: MBA, MSc Economics & Auditing,
BSc Economics & Business Administration, CBS
Other board memberships:
•
Chr. Hansen (Vice Chair)
•
WilliamDemant Invest (Vice Chair)
•
WilliamDemant Foundation
•
VækstPartner Kapital Advisory Board
Contents
22
fi Our governance
Board of Directors
The Board of Directors has established an
Audit Committee to assist the Board of
Directors in overseeing aspects related to
financial reporting, auditing, risk manage-
ment, currency and investment policies
and compliance. The Audit Committee
comprises at least three members, two
appointed by the shareholders and the
remaining members by and among the
Board of Directors.
The members possess the relevant qualifi-
cations specified in the Rules of Procedure
of the Audit Committee.
The Board of Directors has established a
Remuneration and Nomination Committee
to assist the Board of Directors in aspects re-
lated to remuneration, assessment and nom-
ination. The Remuneration and Nomination
Committee meets when required, but at
least four times a year. The Remuneration
and Nomination Committee comprises at
least three members, two appointed by the
shareholders and the remaining members by
and among the Board of Directors.
The Board of Directors has established a
Scientific Committee to assist the Board
of Directors in overseeing the Research
and Development Strategy and the R&D
pipeline. The Scientific Committee meets
when required, but at least four times a year.
The Scientific Committee comprises at least
two members appointed by the Board of
Directors.
The Scientific Committee has the following members:The Remuneration and Nomination Committee has the
following members:
The IPO Preparedness Committee has the following
members:
The Audit Committee has the following members:
The Board of Directors has established
an IPO Preparedness Committee. The
committee oversees the development and
execution of plans to secure that the finan-
cial and structural profile of LEO Pharma
matches peer benchmarks, preparing the
company for a public listing.
The IPO Preparedness Committee compris-
es at least three members, two appointed
by the shareholders and the remaining
members by and among the Board of
Directors.
Board committees
Remuneration and
Nomination Committee
Audit
Committee
Scientific
Committee
IPO Preparedness
Committee
Jesper Brandgaard
(Chair)
Jesper Brandgaard
(Chair)
Jan van de Winkel
(Chair)
Paul Navarre
Jonas Agnblad Jonas Agnblad Jonas Agnblad
Peter Haahr
Peter Haahr
(Chair)
Peter Haahr
Peter HaahrLars Green
Christian
Hedegaard*
Jesper Mailind
Jesper MailindSigne Maria
Christensen
Signe Maria
Christensen
Elisabeth Svanberg
* Non-Board member appointed by Nordic Capital
Contents
23
fi Our governance
Board committees
Joined: 2021
Nationality: German
Career: Executive Vice President, Global
Research and Development at Bayer AG.
Executive Vice President, Global Clinical
Development at Bayer AG
Education: MD, Medicine at Ruhr-
Universität Bochum, Medical School.
Management at IESE Business School
Jörg Möller
Joined: 2018
Nationality: Danish
Career: Senior Vice President, Human
Resources at Sobi. Director at Takeda and
Sanofi Genzyme
Education: Royal Danish Officers Academy
Dennis Schmidt Pedersen
Global People
Joined: 2022
Nationality: German
Career: Senior Vice President, Drug
Product Manufacturing at Roche. Vice
President, Small Molecules Manufacturing
at Roche
Education: Ph.D. in chemistry
Sven Hauptmann
Joined: 2020
Nationality: American
Career: Vice President/General Manager
at Eli Lilly and Company. Director at First
Health
Education: BA, Psychology and Religion at
Denison University
Becki Morison
International Operations
Joined: 2022
Nationality: Danish
Career: CFO at Topsoe, CFO at Atos
Medical, Regional CFO North America &
Pacific at Coloplast
Education: M.Sc., Finance & Accounting at
Copenhagen Business School
Philip Eickhoff
ffi
Global Finance and Business Services
Joined: 2022
Nationality: American
Career: Senior Vice President, sales and
commercial at Novo Nordisk. President at
Novo Nordisk Canada Inc.
Education: BA, Arts & Science at Queen’s
University
Brian Hilberdink
Region North America
Joined: 2009
Nationality: French
Career: President at Polepharma. General
Manager at Cephalon Inc.
Education: MBA at INSEAD. Executive MBA,
Business Administration and Management
at IMD. Master, Chemical engineering at
Chimie ParisTech – PSL
Guillaume Clément
Joined: 2022
Nationality: French-German
Career: CEO at Orphazyme A/S. Senior
Vice President, General Manager at
Amgen. Senior Vice President at EMEAC
Education: MBA at IMD, BA at ISG
Christophe Bourdon
ffi
Global Leadership Team
Changes in 2022
On January 31, 2022,
LEO Pharma announced the
appointment of Christophe
Bourdon as new Chief Executive
Officer as of April 1, 2022.
On February 17, 2022, LEO
Pharma announced the
appointment of Brian Hilberdink
as new EVP and President
of LEO Pharma Inc. effective
March 14, 2022.
On April 7, 2002, EVP of Global
Legal and Compliance Nathalie
Joannes left LEO Pharma.
The changes to LEO Pharma’s
commercial organization
announced in June 2022 saw
Monica Shaw, former EVP
Region Europe+, leave LEO
Pharma effective June 30, 2022.
In August, LEO Pharma
announced a change of
leadership at Global Product
Supply when former EVP
Rhonda Duffy decided to step
down and was succeeded
by Sven Hauptmann as new
EVP and head of the function
effective August 1, 2022.
As per September 15, 2022, Philip
Eickhoff was appointed Chief
Financial Officer and EVP Global
Finance and Business Services
following former CFO Anders
Kronborg’s decision to step
down to pursue other
opportunities outside
LEO Pharma.
Contents
24
fi Our governance
Risk management
Risk management program
As a global pharmaceutical company, LEO Pharma
operates in a highly complex business environment.
Through our operations, we are continuously ex-
posed to a broad array of risks. These risks may have
a significant impact on our business if not properly
identified, evaluated, managed and monitored. An
Enterprise Risk Management (ERM) program is there-
fore being implemented to enable the structured,
methodological and effective management of top
risks across our value chain.
In 2022, the Enterprise Risk team continued to roll out
the ERM program across the organization – focus-
ing on periodic reporting of top risks to the Global
Leadership Team (GLT) and Audit Committee (AC),
raising awareness and conducting risk management
training for key stakeholders. A network of risk coordi-
nators has also been established across LEO Pharma
to support leadership teams and better anchor the
ERM program across the organization.
Risk management governance
At LEO Pharma, the Board of Directors holds the
overall responsibility for ERM, with delegation of the
role of oversight of the ERM program to the AC.
The CEO and the GLT are responsible for ensuring
that the ERM program is implemented and for setting
the overall risk management strategy and appetite
for top risks. The CEO and the GLT ultimately own and
must manage all relevant risks in each business area.
Finally, the Enterprise Risk team in Global Ethics, Risk
and Compliance drives the implementation and
maintenance of the ERM program and execution of
the ERM process and also supports leadership teams
across the organization in fulfilling their ERM-related
roles and responsibilities.
Risk identification and evaluation
Leadership teams in the business areas identify their
top risks through a structured process that includes
risk interviews and workshops. This process is facili-
tated by the Enterprise Risk team on a quarterly ba-
sis. Identified risks are evaluated in terms of impact
(financial and reputational) and likelihood. For each
top risk, a clear scenario, a set of assumptions and
an overview of implemented mitigating measures are
developed.
Risk monitoring and reporting
Following the identification and evaluation of top
risks across the organization, the Enterprise Risk team
consolidates and prepares quarterly consolidated
top risk profiles for LEO Pharma. The consolidated top
risk profiles are shared with the CEO and the GLT and,
ultimately, the AC for their respective discussion, re-
view and evaluation. The risk profiles are also shared
with the Board of Directors on an annual basis.
This approach fosters transparency concerning top
risks and exposure across LEO Pharma’s entire global
value chain and also creates a solid foundation for
the prioritization of resources and execution of risk
mitigation activities.
For leadership teams in each business area, the
Enterprise Risk team prepares and maintains a
dedicated top risk profile which contains top area-
specific risks beyond the risks included in the consol-
idated top risk profiles prepared for the GLT and AC.
Risk Management program is being implemented
to enable the structured, methodological and
ff
Risk management
Contents
25
fi Our governance
KEY
RIS KS
Macro-economic Cyber security New product launches Market access and pricing pressure
Supply disruption and
financial commitments Third-party compliance
RISK AREA
While still recovering from the
Covid-19 pandemic, the global
economy is facing pressures from
increasing inflation and interest
rates, an energy crisis brought
about by the war in Ukraine and
stagnating global trade growth.
As a result, healthcare budgets
in countries are tight and payers
remain focused on reducing drug
spend by exercising increasing
pressure on the pharmaceutical
industry. Similarly, patients have
become more price sensitive in
view of inflation outpacing salary
increases.
Remote/flexible work prac-
tices and adoption of cloud
services are among many
factors contributing to a
record high number of cyber
attacks in 2022. Numerous
high-profile organizations
have fallen victim to some
form of cyber attack,
severely affecting their IT
infrastructure, production
and distribution. Any form of
cyber security breach may
happen anywhere along the
global LEO Pharma
value chain and across all
locations.
The success of a new product
launch depends on many
factors, some of which
are beyond our control.
Events such as authorities
requesting additional clinical
trial data or delays at the
manufacturing sites can have
serious consequences for
regulatory approval process-
es and subsequent product
launches. Moreover, results of
reimbursement negotiations
are crucial to successful
product commercialization.
Achieving an acceptable pricing
and reimbursement level for
our products is essential to our
ability to launch new innovative
treatments and commercialize our
existing portfolio. This depends
on various factors, such as com-
petition, discount demands from
private and public payers as well as
negotiations with national health
authorities. Meanwhile, due the
unfolding energy crisis and growing
inflation, healthcare budgets in
many countries are under tremen-
dous pressure, which has translated
into health authorities and payers
seeking more aggressive price con-
cessions from drug manufacturers.
LEO Pharma’s manufacturing
lines are unique. This leads to
limited flexibility to move prod-
ucts between manufacturing
lines, and in turn an increased
vulnerability to disruptions in
supply caused by natural di-
sasters or other adverse events.
Meanwhile, the unfolding global
energy crisis and ongoing
global supply chain challenges
are putting further pressure on
our manufacturing opera-
tions. Additionally, for certain
products, LEO Pharma relies on
contract manufacturer organi-
zations (CMO), which increases
the risk of exposure to product
supply shortages, quality issues
and financial commitments on
minimum ordering of products
for a certain period.
As part of its global
business activities, LEO
Pharma engages with a
broad range of third-par-
ty intermediaries, with
a significant number of
interactions taking place
in countries that have
high perceived levels of
corruption and weak law
enforcement. Under local
and global anti-corrup-
tion laws, LEO Pharma can
be held liable for corrupt
acts committed by our
intermediaries.
IMPACT
Increased cost-consciousness
of payers and patients could
increase pricing pressures on LEO
Pharma’s existing products, lead
to more challenging negotiations
for reimbursement of future
products as well as affect the vol-
ume of products used. Currently,
growing inflation also affects
prices of raw materials used in
LEO Pharma’s products, thereby
increasing the overall production
costs. As result, expected product
sales and profitability could be
impacted negatively.
Being targeted by a
cyber-attack can result in
significant business disrup-
tion, financial losses and fines
imposed by authorities. This
can have a negative impact
on expected sales and profits
and limit patients’ access to
LEO Pharma’s products.
Delay in marketing authori-
zation or non-approval of a
new product can have a
negative impact on expect-
ed sales and profits and
also limit or delay patients’
access to new innovative
treatments.
Not achieving acceptable
reimbursement and pricing levels
would limit LEO Pharma’s ability
to launch and commercialize our
products. This could have a neg-
ative impact on expected sales
and the possibility for patients
to benefit from new innovative
treatments.
Supply disruptions could lead
to LEO Pharma’s products
being out of stock in certain
markets. This would in turn
affect LEO Pharma’s ability to
serve our patients as well as
lead to lost sales and profit.
Financial commitments of
minimum ordering can im-
pact LEO Pharma’s operating
financial result.
Wrongdoings of the
third-party intermediaries
acting on LEO Pharma’s
behalf can expose us to
financial loss and reputa-
tional damage.
MITIGATING ACTIONS
LEO Pharma monitors the macro-
economic situation and is working
closely with payers and other
stakeholders to demonstrate the
value of our products. Various
strategies are being deployed to
contain increases in production
costs and other costs.
LEO Pharma has imple-
mented several mitigating
measures to manage
exposure from cyber security
threats – including, but not
limited to, conducting infor-
mation security awareness
training as well as improving
our technical capabilities to
prevent, detect and respond
to attempted attacks.
LEO Pharma works closely
with regulatory authorities to
be able to promptly respond
to their requests.
LEO Pharma closely monitors
market access and pricing
developments and requirements in
key markets, while working actively
with payers, advocacy groups and
authorities to sufficiently docu-
ment the value of our products
(e.g. through clinical trial data).
Strategies for increased
internal capability or external
sourcing are continuously eval-
uated and include monitoring
as well as upgrading manufac-
turing lines. Furthermore, safety
stock is kept compensating
for a potential breakdown.
Contracts are reviewed con-
tinuously to monitor potential
breach of minimum ordering
clauses with CMOs.
LEO Pharma conducts
anti-corruption due
diligence for selected
types of third-party
intermediaries.
Risk management
Contents
26
fi Our governance
Contents
Income statement
January 1 - December 31
(DKK million) Note 2022 2021
Revenue 2 10,641 9,957
Cost of sales 3, 10, 13 (4,656 ) (3,962 )
Gross profit 5,985 5,995
Sales and distribution costs 3, 9, 10 (4,736 ) (4,698 )
Research and development costs 3, 9, 10 (2,474 ) (3,058 )
Administrative costs
3, 4, 5, 9,
10, 11, 19 (2,094 ) (2,390 )
Other operating income 6 73 62
Other operating expenses 6 (65 ) (67 )
Operating profit/(loss) (3,311 ) (4,156 )
Financial income 7 3 19
Financial expenses 7 (785 ) (626 )
Profit/(loss) before tax (4,093 ) (4,763 )
Income tax 8 (17 ) (105 )
Net profit/(loss) for the year (4,110 ) (4,868 )
Statement of comprehensive income
January 1 - December 31
(DKK million) Note 2022 2021
Net profit/(loss) for the year (4,110 ) (4,868 )
Other comprehensive income
Remeasurement of defined benefit obligations 19 329 195
Tax on other comprehensive income 8 (52 ) (10 )
Items that will not subsequently be reclassified to
the income statement 18 277 185
Foreign exchange adjustments, subsidiaries 137 (9 )
Fair value adjustments on hedging instruments 21, 22 61 25
Tax on other comprehensive income 8 (17 ) (6 )
Items that are or may subsequently be reclassified
to the income statement 18 181 9
Total other comprehensive income/(loss) after tax 458 194
Total comprehensive income/(loss) (3,652 ) (4,674 )
Consolidated Financial Statements / Parent Company Financial Statements
Contents
Assets
(DKK million) Note 2022 2021
Goodwill 192 192
Intellectual property rights 5,595 6,155
Software 1,253 1,524
Development projects and software in progress 615 783
Intangible assets 9 7,655 8,654
Land and buildings 938 951
Plant and machinery 899 963
Other fixtures and fittings, tools and equipment 177 176
Assets under construction 2,694 2,373
Property, plant and equipment 10 4,708 4,463
Right-of-use assets 399 463
Right-of-use assets 11 399 463
Deferred tax assets 15 1,809 1,453
Pensions 19 144 -
Other financial assets 23 50 77
Other non-current assets 2,003 1,530
Non-current assets 14,765 15,110
Inventories 13 4,580 3,869
Trade receivables 12 2,136 2,254
Tax receivables 234 1,099
Other receivables 14 550 434
Prepaid expenses 16 289 360
Other financial securities 23 108 137
Cash 270 432
Current assets 8,167 8,585
Assets 22,932 23,695
Equity and liabilities
(DKK million) Note 2022 2021
Share capital 17 321 320
Reserves (107 ) (314 )
Retained earnings 1,732 5,530
Equity 1,946 5,537
Loans and credit institutions 21, 23 13,764 8,928
Deferred tax liabilities 15 39 7
Pensions 19 71 284
Provisions 20 290 352
Lease liabilities 11, 21 317 381
Tax payables 489 483
Other long-term liabilities 175 322
Non-current liabilities 15,145 10,757
Loans and credit institutions 21, 23 407 1,341
Trade payables 1,302 1,619
Provisions 20 979 890
Lease liabilities 11, 21 125 121
Tax payables 515 538
Other payables 24 2,513 2,892
Current liabilities 5,841 7,401
Liabilities 20,986 18,158
Equity and liabilities 22,932 23,695
Consolidated Financial Statements / Parent Company Financial Statements
29
Statement of changes in equity
January 1 - December 31
Note 2022 2021
Reserves Reserves
(DKK million)
Share
capital
Foreign
currency
translation
reserves
Hedging
reserves
Other
capital
reserves
Retained
earnings Total
Share
capital
Foreign
currency
translation
reserves
Hedging
reserves
Other
capital
reserves
Retained
earnings Total
Equity at January 1 320 (322 ) (1 ) 9 5,530 5,537 250 (313 ) (25 ) - 7,035 6,947
Comprehensive income
for the year:
Net profit/(loss) for the year - - - - (4,110 ) (4,110 ) - - - - (4,868 ) (4,868 )
Other comprehensive income 18 - 137 44 - 277 458 - (9 ) 25 - 179 194
Total comprehensive income/
(loss) for the year - 137 44 - (3,833 )
(3,652 )
(4,674 )
Transactions with owners:
Increase of capital 17 1 - - - 35 36 70 - - - 3,277 3,347
Transaction costs related
to capital increase
Share-based payment 4 - - - 25 - 25 - - - 9 - 9
Total transactions with owners 1 - - 25 35
Equity at December 31 321 (184 ) 43 34 1,732 1,946 320 (322 ) (1 ) 9 5,530 5,537
Contents
Consolidated Financial Statements / Parent Company Financial Statements
30
fl
January 1 - December 31
(DKK million) Note 2022 2021
Operating profit/(loss) (3,311 ) (4,156 )
Non-cash items
Depreciation, amortization and impairment losses 9, 10, 11 1,737 2,199
Adjustments for non-cash operating items etc. 25 1,668 2,224
2)
Changes in working capital 25 (785 ) (543 )
Cash items
Payment of provisions 20 (1,605 ) (1,520 )
Interests etc., received 37 19
Interests etc., paid (454 ) (556 )
2)
Income tax received/paid 439
1)
(165 )
Cash flows from operating activities (2,274 ) (2,498 )
Investments in intangible assets 9 (898 ) (394 )
Investments in property, plant and
equipment 10 (597 ) (956 )
Proceeds from sale of intangible assets 4 -
Proceeds from sale of property,
plant and equipment 3 -
Sale of subsidiaries and activities,
net of cash received 12 -
Investments in other securities - (21 )
Cash flows from investing activities (1,476 ) (1,371 )
(DKK million) Note 2022 2021
Proceeds from loans 21 4,451 10,604
Repayment of loans 21 (900 ) (10,094 )
Overdraft facilities 21 108 38
Proceeds received from exercise of warrants - 9
Proceeds from increase of share capital 36 3,347
Transaction costs related to capital increase - (92 )
Repayment of lease liabilities 11, 21 (119 ) (121 )
Cash flows from financing activities 3,576 3,691
Net cash flow for the period (174 ) (177 )
Cash and cash equivalents, January 1 432 603
Foreign exchange rate and value adjustments
of cash and cash equivalents 12 6
Cash and cash equivalents, December 31
3)
1. The main part of the
tax refund in 2022 is the
utilization of tax loss 2021
refunded by LEO Holding A/S
and the settlement of the
APA Agreement 2009-2015
between Denmark and Ireland.
2. During 2022, the
classification of realized
exchange rate adjustments
was changed from other
non-cash adjustments
to interest etc., paid.
The comparitive figures
for 2021 were restated
accordingly (DKK 138m).
3. At December 31, 2022,
DKK 21m (2021: DKK 0m)
of the cash and cash
equivalents were deposited
in restricted bank accounts.
Contents
Consolidated Financial Statements / Parent Company Financial Statements
Contents
Notes - Group
33
1 Basis of reporting
44
9 Intangible assets
72
25 fl
36
2 Revenue
47
10 Property, plant and equipment
73
26 Guarantees, contingencies and commitments
37
3ff
Management and Board of Directors
39
4
51
12
74
28 Events after the balance sheet date
49
11 Leases
74
27 Related party transactions
42
5 Fees to Auditors appointed at the Annual General Meeting
52
13 Inventories
75
29 Company overview
42
6
52
14 Other receivables
42
7
53
15
55
16
55
17 Share capital
59
20 Provisions
57
19 Pensions
56
18 Other comprehensive income
61
21 Financial risks
66
22
69
23 Financial assets and liabilities by category
72
24 Other payables
43
8
NOTES TO THE INCOME STATEMENT
NOTES TO THE BALANCE SHEET
NOTES - ADDITIONAL INFORMATION
NOTES TO THE CASH FLOW STATEMENT
Consolidated Financial Statements / Parent Company Financial Statements
32
Contents
Note 1 Basis of reporting
Basis of preparation
The consolidated financial statements have been prepared in accordance with
International Financial Reporting Standards (IFRS) as adopted by the EU, and the
additional requirements of the Danish Financial Statements Act for Class Large C
companies.
On March 7, 2023 the Board of Directors and the Executive Management considered
and approved the 2022 Annual Report of LEO Pharma A/S. The Annual Report will
be presented to the shareholders of LEO Pharma A/S for approval at the ordinary
Annual General Meeting on March 8, 2023.
The consolidated financial statements are presented in Danish kroner (DKK), which is
also the functional currency of the Parent company.
The accounting policies set out below and in the notes have been applied consistently
in respect of the financial year and for comparative figures.
Rounding
In general, rounding may cause minor variances in sums and percentages in the Annual
Report.
Global market uncertainties
The war in Ukraine has not significantly impacted LEO Pharma’s activities. Revenue
from Russia, Ukraine and Belarus amounted to 2% of the total revenue in 2022. All
revenues from these countries respect the sanctions imposed on Russia in particular.
Similar to last year we see no significant financial impact related to COVID-19, even
though lockdowns are still affecting activities in China, Hong Kong and other markets
in Asia.
Management continuously assesses the overall supply situation, increasing inflation,
increasing interest rates, and the consequences related to the higher geopolitical
uncertainties which may have impact on areas with significant accounting estimate
and/or judgment.
As of December 31, 2022, Management estimates have been updated to assess the
recoverability of the asset base, including goodwill, intellectual property rights, devel-
opment projects, deferred tax assets and trade receivables. The indirect effects of the
geopolitical uncertainties were not a triggering event for impairments in 2022.
Key accounting estimates and judgments
The Management has made certain estimates and judgments that affect the
accounting policies and the amounts reported in the consolidated financial state-
ments. Estimates are based on historical experience and assumptions that are
reasonable under the circumstances and current situation. Therefore, the actual
amounts may differ from the estimated amounts, as more detailed information
becomes available. Judgments are made when Management applies the account-
ing policies.
Reference is made to the specific notes for further information on key accounting
estimates and judgments.
Note Key accounting estimates and judgments
Estimate/
judgment
8 Income tax
Estimates regarding provisions for uncetain tax
positions
Estimate
9 Intangible assets Estimated useful lives and impairment test Estimate
9 Intangible assets Assessments of type of asset and level of control Judgment
13 Inventories Estimates of valuation of inventories Estimate
15 Deferred tax Estimates of valuation of deferred tax assets Estimate
20 Provisions
Estimates of provisions for legal disputes and sales
deductions
Estimate
Consolidated Financial Statements / Parent Company Financial Statements
33
Contents
Application of materiality
In the preparation of the consolidated financial statements, LEO Pharma aims to
focus on information that is considered to be material and relevant to the users of the
consolidated financial statements.
The consolidated financial statements are the result of aggregating large numbers of
transactions into classes of similar items, according to their nature or function. If a line
item is not individually material, it is aggregated with other items of a similar nature in
the consolidated financial statements or in the notes. IFRS contain extensive disclosure
requirements. The specific disclosures required by IFRS are provided in the consolidated
financial statements unless the information is considered immaterial to the users.
General accounting policies
Consolidation
The consolidated financial statements comprise LEO Pharma A/S and entities in which
LEO Pharma A/S directly holds more than 50% of the votes or otherwise exercises control.
The consolidated financial statements are prepared by combining the financial state-
ments of the Parent company and all subsidiaries, with subsequent elimination of inter-
company transactions, intercompany shareholdings and balances as well as unrealized
profits from intercompany transactions. The financial statements of all companies have
been prepared by applying the Group’s accounting policies.
Foreign currency translation
On initial recognition, transactions in foreign currencies are translated at the exchange
rates at the transaction date. Exchange differences arising between the rates on the
transaction dates and payment dates are recognized in financial items in the income
statement.
Receivables, payables and other monetary items in foreign currencies are translated at
the exchange rates on the balance sheet date. Any differences between the exchange
rate on the balance sheet date and the exchange rate at the time when the receivable
or the payable arises, or on recognition in the most recent financial statements, are
recognized in financial income or financial expenses in the income statement.
On consolidation of foreign subsidiaries with a functional currency other than DKK,
income statements are translated into DKK at the average exchange rates for the
period and balance sheet items are translated at the exchange rates on the balance
sheet date. The effects of the translation of the opening equity of foreign subsidiaries
at the exchange rates on the balance sheet date and the translation of the statement
of comprehensive income from average exchange rates to the exchange rates on the
balance sheet date are recognized in other comprehensive income.
Divestments
When LEO Pharma A/S ceases to have control of a subsidiary, the value of any retained
investment is remeasured at fair value, and the value adjustment is recognized in the
income statement as a gain/loss on the sale of non-current assets.
Cash flow statement
The cash flow statement is prepared according to the indirect method based on
operating profit/(loss). The statement shows cash flows from operating, investing and
financing activities as well as cash and cash equivalents at the start and end of the year.
Cash flows from operating activities are calculated as the Group’s operating profit/
(loss), adjusted for non-cash operating items such as depreciation, amortization and
impairment losses, as well as changes in working capital. Working capital comprises
inventories, trade receivables, trade payables, etc.
Cash flows from investing activities comprise payments from acquisitions and disposals of
intangible assets, property, plant and equipment as well as net investments in securities.
Cash flows from financing activities comprise payments from the raising and repayment
of short-term and long-term debt and payments to and from shareholders. Cash and
cash equivalents solely comprise cash at bank and in hand.
Implementation of new standards and interpretations
Effective from January 1, 2022, LEO Pharma implemented all new or changed accounting
standards and interpretations. The adoption had no material impact on the disclosures
or the amounts reported in the consolidated financial statements.
New and revised IFRS issued, but not yet effective, that are relevant to the Group
IASB has issued new or amended accounting standards and interpretations that have
not yet become effective. LEO Pharma expects to adopt the IFRS standards and inter-
pretations when they become mandatory. LEO Pharma does not expect adoption of
these standards will have a material impact on the consolidated financial statements
in future periods.
Note 1 Basis of reporting (continued)
Consolidated Financial Statements / Parent Company Financial Statements
34
Contents
Note 1 Basis of reporting (continued)
Definitions/Non-GAAP measures
Gross margin Gross profit/(loss)
Revenue
x 100
Revenue growth Revenue year 0 - Revenue year -1
Revenue year -1
x 100
Operating profit margin Operating profit/(loss) (EBIT)
Revenue
x 100
EBITDA margin EBITDA
Revenue
x 100
Adjusted EBITDA margin Adjusted EBITDA
Revenue
x 100
R&D costs (of revenue) R&D costs
Revenue
x 100
Cash conversion Free cash flow
Net profit/(loss) for the year
x 100
Invested capital/Revenue Invested capital
Revenue
x 100
Effective tax rate Tax on profit/(loss) for the year
Profit/(loss) before tax
x 100
EBITDA
Operating profit/(loss) before financial income and expenses, tax, depreciation and
amortization.
Adjusted EBITDA
Operating profit/(loss) before transformation and restructuring costs, financial income
and expenses, tax, depreciation and amortization.
Transformation and restructuring costs are the non-core and non-recurring costs over-
seen by the IPO Preparedness Committee to execute the strategic plans and structural
profile of LEO Pharma towards delivering sustainable profitability and potential public
listing.
Free cash flow
Cash flow from operating activities less cash flow from investing activities
Operating working capital
Inventories and trade receivables (before provision for bad debt) less trade payables
Net working capital
Current assets less current liabilities used in, or necessary for, the Group’s operations
Invested capital
Total assets excluding intellectual property rights, interest-bearing assets and minority
investments less interest-bearing liabilities
Net interest-bearing debt
The market value of interest-bearing liabilities (financial liabilities) less the
market value of cash at bank and in hand and other easily convertible
interest-bearing current assets
Average number of full-time employees
The average number of employees is calculated as the average of the number of
permanent employees at the end of each month
Consolidated Financial Statements / Parent Company Financial Statements
35
Contents
(DKK million) 2022 2021
Revenue by region
1)
International Operations 9,266 8,960
North America 1,117 918
Other 258 79
Total 10,641 9,9 5 7
Revenue by therapeutic area
Dermatology
Psoriasis 3,912 3,905
Skin infection 1,664 1,460
Eczema 1,969 1,359
Acne/Rosacea 328 328
Other Mature Dermatology 260 207
Total Dermatology
8,133 7, 2 59
Thrombosis 2,233 2,311
CMO/Divested 275 387
Total 10,641 9,9 5 7
Revenue by category
Products 10,527 9,837
Sales-based royalties 60 103
Other 54 17
Total 10,641 9,9 5 7
Note 2 Revenue
Accounting policies
Revenue from the sale of goods for resale and finished goods is recognized
in the income statement when control has been transferred at a point in
time – generally, this is when delivery and transfer of risk have taken place.
For sales delivered on a consignment basis, control is transferred when the
products are sold to the end-customer.
Revenue is measured at fair value, which corresponds to the amount of
consideration to which the Group expects to be entitled to in exchange
for transferring the goods. Revenue is recognized exclusive of VAT and net
of sales deductions, including product returns, as well as discounts and
rebates.
Revenue includes license income and sales-based royalties from out-
licensed products as well as milestone payments and other revenue in
connection with partnerships. These revenues, except for royalties, are
recognized when the performance obligation is satisfied, i.e. when trans-
ferred to the customer. For sales-based royalties, revenue is recognized
when the subsequent sale occurs.
Change to revenue segments
As part of the commercial reorganization, the segment structure by region
has changed. The segments have been changed to Product Strategy &
International Operations ("International Operations"), "North America" and
"Other", to support our strategic focus simplifying our operating model. The
comparative figures for 2021 have been restated accordingly.
Timing of revenue recognition
Revenue totaling to DKK 10,641m (2021: DKK 9,957m) comprised goods transferred at a
point in time of DKK 10,637m (2021: DKK 9,952m) and services transferred over time of
DKK 4m (2021: DKK 5m).
1. Revenue by region covers
our revenue segments
Dermatology, Thrombosis
and CMO/Divested.
Consolidated Financial Statements / Parent Company Financial Statements
36
1. Total staff expenses are
impacted by DKK 248m
as a consequence of the
restructuring of LEO Pharma
announced on June 2, 2022
and January 12, 2023 due to
organzational changes of
R&D, commercial and support
functions. The restructuring
costs are recognized in the
income statement and
classified as cost of sales DKK
64m, sales and distribution
costs DKK 65m, research
and development costs
DKK 59m and administrative
costs DKK 60m.
2. Total staff expenses are
impacted by DKK 226m
as a consequence of the
restructuring of LEO Pharma
announced to the Public
on January 19, 2022. The
restructuring costs are
recognized in the income
statement and classified
as sales and distribution
costs DKK 156m, research
and development costs
DKK 35m and administrative
costs DKK 35m.
Contents
Accounting policies
Wages, salaries, social security expenses, annual leave and sick leave,
bonuses and non-monetary benefits are recognized in the year in which
the associated services are rendered by employees of the Group. Where
the Group provides long-term employee benefits, the costs are accrued to
match the rendering of the services by the employees concerned.
Contract balances
Generally, billing occurs subsequent to revenue recognition, resulting in trade receiv-
ables. The Group’s payment terms are typically between 45 - 90 days. However, the
Group sometimes receives upfront payments related to various sales and distribution
rights where the upfront payments are recognized over time, resulting in contract
liabilities. Contract liabilities are recognized as revenue in line with fulfillment of the
contract obligation.
Unsatisfied performance obligations
The Group’s remaining performance obligation expected to be recognized in subse-
quent year as of December 31, 2022 is DKK 33m (2021: DKK 26m), which will be recog-
nized in 2023. The obligations comprise contracts where the Group has an obligation
to deliver goods and services that has not yet been satisfied.
Note 2 Revenue (continued) Note 3ff
Management and Board of Directors
(DKK million) 2022 2021
Wages and salaries 3,614 3,829
Hereof capitalized staff expenses (54) (180)
Pensions – defined benefit plans 8 10
Pensions – defined contribution plans 269 323
Share-based payment 45 16
Social security expenses 349 376
Other employee expenses 253 270
Total staff expenses 4,484
1)
4,644
2)
Staff expenses included in:
Cost of sales 780 744
Sales and distribution costs 2,050 2,156
Research and development costs 826 849
Administrative costs 828 895
Total staff expenses 4,484 4,644
Average number of full-time employees 5,252 5,804
Consolidated Financial Statements / Parent Company Financial Statements
Contents
(DKK million) Salaries Bonus
1)
Pensions
Share-based
payments
2)
Severance
payments
3)
Total
remuneration
2022
Registered members of the
Executive Management 10 13 1 14 12 50
Other members of Executive
Management
4)
29 22 4 13 22 90
Board of Directors 5 - - 2 - 7
Total 44 35 5 29 34 147
2021
Registered members of the
Executive Management 12 12 2 0 25 51
Other members of Executive
Management
4)
26 19 4 8 - 57
Board of Directors 5 - - 1 - 6
Total 43 31 6 9 25 114
1. Members of the Executive Management participate in
short- and long-term incentive programs that provide a
bonus for the achievement of predetermined targets.
2. Reference is made to note 4 for detailed information
on the Group’s share-based payments.
3. The severance payments relate to former Executive Management
members who left the company during 2022 and 2021.
4. Reference is made to page 24 "Global Leadership Team". Other
members of the Executive Management are current members
and former members who have left LEO Pharma during 2022.
Remuneration to the Executive Management and Board of Directors
Note 3ff
Consolidated Financial Statements / Parent Company Financial Statements
Reconciliation of outstanding employee awards
Contents
Note 4
Accounting policies
For equity-settled share-based payment arrangements, the warrants and
shares are measured at fair value at the grant date and recognized as
a staff cost over the vesting period with the balance on equity. On initial
recognition, an estimate is made of the number of awards expected to vest.
Subsequently, the amount recognized is adjusted to reflect the number of
awards for which the service and non-market performance conditions are
expected to be met and awards expected to vest.
For cash-settled share-based payment arrangements, the awards are
measured at fair value at grant date and recognized as staff cost over the
vesting period with the balance on liability. The liability is remeasured at
each reporting date and at settlement date at fair value. Any changes in the
liability are recognized in profit or loss.
Description of share-based payment arrangements
To incentivize management and employees in realizing our strategy and
drive LEO Pharma's continued success, share-based payment incentive
plans have been established. At December 31, 2022, the Group had the
following share-based payment arrangements.
Employee Share Purchase Plan
In 2022, the Group had launched a voluntary employee shares-based program (ESPP).
The program gave employees the opportunity to buy shares (“Employee shares”) as
part of their gross salary. Each quarter during 2022, LEO Pharma A/S executed a capital
increase and enrolled employees as shareholders at a market valuation of LEO Pharma.
For every share purchased the employee receives a right to an additional share match-
ing which 50% vest after three years and 50% vest in the event of a potential listning. To
achieve this, the employee must remain employed by LEO Pharma (or resign as good
leaver) until exercise of the matching shares and the fair value of LEO Pharma must
increase to at least 1.5 times the subscription price.
The program also exists in a cash-settled phantom version (EPSPP – employee phantom
share purchase plan). The below details are only relating to the matching share program.
Measurement of fair value of Employee Share Purchase Plan
The fair value of granted awards is estimated using a bionomial valuation model of
market conditions considering the terms and conditions upon which the awards were
granted. The inputs used in the measurement of the fair values at grant date of
the share-based payment plans were as follows:
2022
Number of matching shares
ESPP
(equity settled)
EPSPP
(cash settled)
Outstanding January 1 - -
Granted 861,392 62,920
Forfeited (120,472) (17,416)
Outstanding at December 31 740,920 45,504
Fair value at grant (DKK) 30.40 30.40
Current fair value (DKK) 30.71 30.71
2022
ESPP
(equity settled)
Grant date
January 1, 2022
EPSPP
(cash settled)
Measurement date
December 31, 2022
Fair value of shares at grant date 47.72 47.72
Expected volatity (weigthed-average) 26.4% 26.5%
Expected life (weigthed-average) 4.9 3.9
Expected dividend - -
Risk-free interest rate
(based on governance bonds) -0.57% to 0.08% 2.39% to 2.56%
Consolidated Financial Statements / Parent Company Financial Statements
39
Contents
Note 4
Management Incentive Program (MIP)
Equity-settled share agreements
Executive Management receives warrants as a part of their long-term incentive program.
The warrants are vesting in four or five equal tranches. The first tranche vests on grant
date and the remaining vest over four years. All warrants vest upon a successful listing
or other exit. The members of Executive Management must remain employed by the
Group until the vesting date. Furthermore, exercise of the warrants is subject to a fair
value increase in LEO Pharma shares of at least 1.5 times the subscription price and an
exercise cap of three times the subscription value. In case of a listing, 50% of warrants
can be exercised. The remaining 50% can be exercised 12 months after the listing. In
case of non-listing, the warrants become exercisable after seven years and will be
cash-settled.
In addition, members of the Board of Directors have been granted the opportunity to
purchase warrants on same terms and conditions as the MIP, except for the following:
The warrants can be exercised only upon a listing and can only be settled in shares.
The warrants vest unconditionally after two years or in connection with an IPO, if earlier,
subject to the warrant holder still being a member of the Board. The Chair has been
granted warrants free of charge, identical to the warrants granted under the MIP, except
that these warrants vest over two years.
Reconciliation of outstanding cash-settled awards
Reconciliation of outstanding equity-settled awards
Number of phantom shares
Phantom Share
Agreement 2021
Phantom Share
Agreement 2022
Outstandig at January 1 - 3,504,684
Instruments granted 3,504,684 2,063,864
Forfeited during the year - (467,298)
Outstanding at December 31 3,504,684 5,101,250
Fair value at grant date (DKK) 7.38 7.58
Initial expected total cost (DKK) 25,848,797 38,046,330
Instruments for which it is expected to vest 3,504,684 5,101,250
Current fair value (DKK) 7.38 7.9 7
Total expected settlement 25,848,797 40,634,290
Liability at December 31 (DKK) 9,668,856 30,415,227
Number of warrants Total 2021 Total 2022
Outstanding at January 1 - 3,010,678
Granted during the year 3,010,678 2,031,923
Forfeited during the year - (25,763)
Outstanding at December 31 3,010,678 5,016,838
Exercisable at December 31 - -
Fair value at grant 7.14 7.58
Average exercise share price 47.72 47.72
Phantom Share Agreement (cash-settled)
Follows the same terms and conditions as the Management Incentive Program but is
pre-determined to be settled in cash.
Consolidated Financial Statements / Parent Company Financial Statements
40
Contents
Note 4
Cash-settled share-based payment arrangements
The input used in the measurement of the fair values at grant date of the cash-settled
share-based payment plans were as follows:
Measurement of fair value
Equity-settled share-based payment arrangements
The fair value of granted awards is estimated using a bionomial valuation model of
market conditions taking into account the terms and conditions upon which the awards
were granted. The input used in the measurement of the fair values at grant date of
the equity-settled share-based payment plans was as follows:
Expected volatility has been based on an evaluation of the historical volatility of
comparable companies’ share prices. This was based on a standard deviation of weekly
returns over a five-year period. The expected term of the instruments has been based
on projected exit date and their probabilities and estimates assessed by Management.
Financial impact
At December 31, 2022, the total carrying amounts of liabilities arising from the share-
based payment transactions amounts to DKK 31m (2021: DKK 10m). The intrinsic value
at December 31, 2022 of liability related to vested phantom shares was DKK 16m (2021:
DKK 5m).
Total expense recognized in 2022 from share-based payment transactions recognized
in the income statement amounts to DKK 45m (2021: DKK 16m), of which DKK 25m (2021:
DKK 6m) arises from equity-settled share-based payment transactions.
Grant date
December 1, 2021
Grant date
July 8, 2022
Fair value of shares at grant date (DKK) 47.72 47.72
Expected volatility (weighted average) 26.4% 26.0%
Expected life (weighted average) 4.4 years 4.2 years
Expected dividend - -
Risk-free interest rate (based
on government bonds) -0.57% to 0.08% 0.88% to 1.43%
Measurement date
December 31, 2021
Measurement date
December 31, 2022
Fair value of shares at grant date (DKK) 47.72 47.72
Expected volatility (weighted average) 26.4% 26.5%
Expected life (weighted average) 4.3 years 3.7 years
Expected dividend - -
Risk-free interest rate (based
on government bonds) -0.57% to 0.08% 2.43% to 2.56%
Grant date
December 1, 2021
Grant date
July 8, 2022
Fair value of shares at grant date (DKK) 47.72 47.72
Expected volatility (weighted-average) 26.4% 26.0%
Expected life (weighted-average) 4.4 years 4.2 years
Expected dividend - -
Risk-free interest rate (based
on government bonds) -0.57% to 0.08% 0.88% to 1.43%
Consolidated Financial Statements / Parent Company Financial Statements
Contents
1. Gain from sale of
assets mainly relates
to the sale of assets to
Aqilion AB of DKK 13m.
2. Loss from sale of assets
mainly relates to the sale of
Studies&Me A/S of DKK 8m.
3. Related to accounting
loss on onerous contracts
in 2021 of DKK 41m.
4. Foreign exchange gains
amount to DKK 700m (2021:
DKK 732m) and foreign
exchange losses amount
to DKK 769m (2021: DKK
798m) for the Group.
5. Other financial expenses
primarily comprise
commitment fees related
to our current Syndicated
facility agreement (2021:
Bank charges, other fees
etc. and a payment of a
bank guarantee related to
the associated company
PellePharm of DKK 131m)
Note 5 Fees to Auditors appointed at the Annual General
Meeting
(DKK million) 2022 2021
Statutory audit 9 8
Tax and VAT advice 2 1
Non-audit services 2 8
Total 13 17
Accounting policies
Other operating income and expenses comprise items of a secondary
nature to the Group’s primary activities, i.e. gains and losses on divestments
of intellectual property rights and on sale of property, plant and equipment.
Note 6
(DKK million) 2022 2021
Gain from sale of assets 14
1)
-
Other operating income 59 62
Other operating income 73 62
Royalty expenses 52 18
Loss from sale of assets 9
2)
-
Other operating expenses 4 49
3)
Other operating expenses 65 67
(DKK million) 2022 2021
Interest income 3 14
Share of profit on associates - 4
Other financial income - 1
Financial income 3 19
Interest expenses, related parties 233 223
Interest expenses, credit institutions 319 109
Interest expenses, lease liabilities 11 11
Loss arising on financial assets designated
at fair value through profit and loss 15 -
Foreign exchange loss, net
4)
69 66
Other financial expenses
5)
138 217
Financial expenses 785 626
Accounting policies
Financial income and expenses comprise interests, realized and unreal-
ized exchange rate adjustments and market value adjustments of financial
assets. Market value adjustments of currency derivatives that have not been
entered into for hedging purposes are presented as financial income and
expenses.
Note 7
Consolidated Financial Statements / Parent Company Financial Statements
42
1. For a specification of tax
on other comprehensive
income, reference is
made to the statement of
comprehensive income.
Contents
Note 8
Accounting policies
Tax for the year, which consists of the year’s current tax, the change in
deferred tax and adjustments in respect of previous years, is recognized in
the income statement at the amount that can be attributed to the profit
or loss for the year, and in other comprehensive income at the amount that
can be attributed to items in other comprehensive income. The change in
deferred tax as a result of changed income tax rates or tax rules is recog-
nized in the income statement. Interest on tax cases that are ongoing or
have been settled during the year is reported under financial items.
Current tax for the year is calculated on the basis of the income tax rates
and rules applicable at the balance sheet date.
The Parent company, Danish subsidiaries and LEO Holding A/S are jointly
taxed.
Uncertain tax positions
As a global company, the Group will from time to time have tax audits
and discussions with tax authorities in various countries regarding tax
issues within transfer pricing, direct and indirect taxes. In the opinion of
the Management, appropriate estimates have been made in the financial
statements for current tax audits and exposures related to uncertain tax
positions.
The estimates are based on expected value or the most likely amount,
whichever method best predicts the resolution of the uncertainty, and the
effects thereof are recognized as part of tax receivables/payables and
deferred tax.
Due to the uncertainty associated with the outcome and timing, it will be
possible that, on the conclusion of open tax matters at a future date, the
final outcome may differ significantly from the amounts recognized.
(DKK million) 2022 2021
Current tax (421) (181)
Prior-year adjustments, current tax 13 40
Prior-year adjustments, deferred tax (87) (17)
Change in deferred tax 409 37
Total tax income/(expense) for the year (86) (121)
Tax for the year is included in
Tax on profit/(loss) for the year (17) (105)
Tax on other comprehensive income
1)
(69) (16)
Total tax income/(expense) for the year (86) (121)
Explanation of the Group’s effective tax rate relative to the Danish corporate income tax rate
2022 2021
DKK million % DKK million %
Profit/(loss) before tax (4,093) (4,763)
Calculated tax, 22% 900 22.0% 1,048 22.0%
Tax effect of:
Differences in the income tax
rates of foreign subsidiaries
compared to the Danish
corporate income tax rate
232 5.7%
173 3.6%
Non-deductible expenses/
non-taxable income and
other permanent differences
(45) (1.1)%
(25) (0.5%)
Other taxes
(6) (0.1)%
(8) (0.2%)
Change in deferred tax
as a result of changes
in income tax rates
(13) (0.3)%
17 0.4%
Change in valuation
of net tax assets
(1,011) (24.7)%
(1,333) (28.0%)
Prior-year tax adjustments
(74) (1.8)%
23 0.5%
Effective tax/tax rate for the
year
(17) (0.4)%
(105) (2.2%)
Consolidated Financial Statements / Parent Company Financial Statements
43
Contents
Note 9 Intangible assets
Impairment testing
Goodwill and intangible assets under construction are tested for impairment annually
or whenever there is an indication of impairment. Intangible assets with definite useful
lives measured at cost are assessed if there is an indication of impairment. If a write-
down is required, the carrying amount is written down to the higher of net selling price
and value in use.
On assessing value in use, the estimated future cash flows are discounted to their
present value using a pre-tax discount rate that reflects current market assessments
of the time value of money and the risks specific to the asset for which the estimates
of future cash flows have not been adjusted.
The Group has conducted an analysis of the sensitivity of changes in the key assump-
tions in the impairment test. Management believes that any reasonably possible
change in the key assumptions would not cause the carrying amount to exceed the
recoverable amount.
Accounting policies
Goodwill
At initial recognition, goodwill is recognized in the balance sheet at cost.
Subsequently, goodwill is measured at cost less accumulated impairment losses.
Goodwill is not amortized.
Intellectual property rights
Intellectual property rights are measured at cost less accumulated amortization
and impairment losses. Amortization is provided on a straight-line basis over the
expected useful lives of the assets. Amortization of intellectual property rights is
recognized in sales and distribution costs and research and development costs.
Costs relating to the maintenance of patents, etc. are expensed in the income
statement as incurred.
Software
IT software purchased or internally developed is measured at cost less accumu-
lated amortization and impairment losses. Amortization is provided on a straight-
line basis over the expected useful lives. Amortization and impairment losses are
recognized in the income statement as administrative costs.
Development projects and software in progress
Development projects and software in progress are recognized as intangible
assets if the recognition criteria are met:
• the projects are clearly defined and identifiable;
• the Group intends to use the projects once completed;
• the future earnings from the projects are expected to cover the development
and administrative costs;
• and the cost can be reliably measured.
The costs of development projects include direct salaries, materials and other
direct costs attributable to a development project. Milestone payments related to
clinical development projects are capitalized only when payments of milestones
become probable and the intention is to manufacture, market or use the project
and when it is probable that future earnings can cover production, sales and
distribution costs, administrative costs and development costs. Other develop-
ment costs are recognized in the income statement as incurred.
Development projects are assessed on an ongoing basis with due account
of development progress, expected approvals and commercial utilization.
Development projects are not amortized, as the assets are not available for use.
In line with industry practice, internal and subcontracted development costs are
expensed as they are incurred, due to significant regulatory uncertainties and
other uncertainties inherent in the development of new products. After market-
ing approval by a regulatory authority is obtained or considered highly probable,
costs are capitalized as intangible assets.
Useful lives are determined at the acquisition date and reassessed annually. The
expected useful lives are as follows:
Intellectual property rights 5-15 years
Software 3-10 years
Consolidated Financial Statements / Parent Company Financial Statements
44
Contents
Note 9 Intangible assets (continued)
Key accounting estimates
Estimated useful lives
Useful life is estimated individually in each case and is initially assessed when the
assets are acquired or brought into use. The Management assesses intangible
assets for changes in useful lives and impairment on an annual basis.
Impairment test and valuation
Irrespective of whether there is an indication of impairment, intangible assets in
progress and goodwill are tested for impairment annually. Intangible assets in
use with definite useful lives are tested for impairment if there is any indication of
impairment.
Indications of impairment can constitute the following:
- Changes in patent and license rights
- Changes to expected future cash inflows to the Group
- Research and development results
- Technological changes
- Development of competing products
To determine the value in use, the discounted cash flow approach is applied. The
expected future cash flows are based on budgets and target plans for the patent
period or other applicable period for marketable products (up to 15 years for
licenses). The budgets and target plans are based on the Management’s expec-
tations of current market conditions and future growth expectations. The key
factors used in calculating the value are revenue, costs of goods sold, operating
expenses, EBITDA, working capital, capital expenditures and discount rate.
The Group has identified capitalized software relating to the ERP system as corpo-
rate assets. The Management has considered the recoverability of the assets. The
expected future performance in core business areas supports the carrying value
of the assets.
Key accounting judgments
Assessment of type of asset and level of control
When entering into agreements, the Management exercises judgment of the level
of control gained by the Group and the substance of the acquired assets, i.e. license
agreement, intellectual property rights to be capitalized, or prepaid research and
development costs to be expensed over the development period.
Impairment in 2022
Impairment losses of DKK 15m are recognized under research and development costs
and impairment losses of DKK 161m are recognized under administration costs. No
reversals of impairment losses from prior periods have been recorded in 2022.
The impairment recognized under administration cost of DKK 161m comprises several
individual software development projects which have been cancelled during 2022.
Consequently, the recoverable amount is determined at DKK 0m.
Impairment in 2021
Based on the impairment tests prepared at year-end 2021, it was deemed necessary
to impair DKK 681m. Impairment loss of DKK 517m is recognized under research and
development costs, impairment loss of DKK 151m is recognized under administration
costs and impairment loss of DKK 13m is recognized as sales and distribution costs. No
reversals of impairment losses from prior periods have been recorded in 2021.
The impairment recognized under research and development costs comprises two
individual development projects; Patidegib DKK 435m and other DKK 82m, where the
projects have not shown the expected commercial result to continue the development.
Consequently, the recoverable amount is determined at DKK 0m.
The impairment recognized under administration cost comprises several individual
software development assets. Impairment of DKK 35m relates to assets where the
recoverable amount is determined by fair value less cost to sell. For the remaining
impairment of DKK 116m, the recoverable amount has been determined at
DKK 0m based on future outlooks for the development assets.
The impairment recognized under sales and distribution costs comprises an intellectual
property right where the recoverable amount is determined by value in use, which
resulted in an impairment loss of DKK 13m.
Consolidated Financial Statements / Parent Company Financial Statements
45
1. Additions consist of
capitalized milestone
payment from approval of
Adtralza
®
by the Japanese
Ministry of Health, Labor and
Welfare in December 2022.
2. Additions consist of
DKK 41m (2021: DKK 36m)
related to R&D development
projects and DKK 95m (2021:
DKK 370m) related to the
development of IT projects.
3. Impairment loss recognized
mainly due to IT development
projects cancelled during
2022 of DKK 161m.
4. Total development projects
and software in progress DKK
615m (2021: DKK 783m) consist
of software in progress DKK
323m (2021: DKK 500m), and
R&D development projects
DKK 292m (2021: DKK 283m).
5. In July 2021, Adtralza
®
was launched in Germany
and in December the FDA
approval was received
for Adbry™ i.e. subsequent
milestone payments of DKK
712m have been accrued.
Contents
Note 9 Intangible assets (continued)
2022 2021
(DKK million) Goodwill
Intellectual
property rights Software
Development
projects and
software in
progress
Total
intangible
assets Goodwill
Intellectual
property rights Software
Development
projects and
software in
progress
Total
intangible
assets
Cost at January 1 192 13,928 2,498 2,629 19,247 192 12,432 1,922 4,150 18,696
Exchange rate adjustment - 5 - - 5 - 2 - - 2
Additions during the year - 143
1)
- 136
2)
279 - 715
5)
18 406
2)
1,139
Disposals during the year - - - (274) (274) - - (11) (548) (559)
Transfers - - 96 (111) (15) - 779
5)
569 (1,379) (30)
Cost at December 31 192 14,076 2,594 2,380 19,242 192 13,928 2,498 2,629 19,247
Amortization and impairment
losses at January 1 - (7,772) (974) (1,847) (10,593) - (7,170) (587) (1,711) (9,468)
Exchange rate adjustment - (1) - - (1) - - - - -
Amortization for the year - (708) (367) - (1,075) - (589) (381) (1) (971)
Impairment for the year - - - (176)
3)
(176) - (13) (8) (661) (681)
Disposals during the year - - - 258 258 - - 11 518 528
Transfers - - - - - - - (9) 9 -
Amortization and impairment
losses at December 31 - (8,481) (1,341) (1,765) (11,587) - (7,772) (974) (1,847) (10,593)
Carrying amount at December 31 192 5,595 1,253 615
4)
7,655 192 6,155 1,524 783
4)
8,654
Consolidated Financial Statements / Parent Company Financial Statements
46
Contents
Note 9 Intangible assets (continued)
Research and development costs
In 2022, research and development costs recognized in the income statement amounted
to DKK 2,474m (2021: DKK 3,058m), including impairment charges of DKK 15m (2021: DKK
517m).
Research and development costs primarily comprise internal and external costs related
to studies, employee costs, materials, depreciation, impairment losses and other directly
attributable costs.
R&D development projects
At December 31, 2022, R&D development projects comprise of Izuforant DKK 109m
(2021: DKK 109m), delgocitinib DKK 66m (2021: DKK 66m) and other minor development
projects DKK 117m (2021: DKK 108m).
Intellectual property rights
At December 31, 2022, intellectual property rights primarily comprise the dermatology
portfolio (mainly Skinoren
®
, Advantan
®
, Travocort
®
and Travogen
®
) with a carrying
amount of DKK 3,081m (2021: DKK 3,345m), Protopic
®
and Pimafucort
®
with a carrying
amount of DKK 798m (2021: DKK 1,018m), Adtralza
®
/Adbry™ with a carrying amount of
DKK 1,430m (2021: DKK 1,431m), and Kyntheum
®
with a carrying amount of DKK 157m
(2021: DKK 192m).
(DKK million) 2022 2021
Amortization and impairment losses are specified as follows:
Cost of sales - 2
Sales and distribution costs 564 554
Research and development costs 161 564
Administrative costs 526 533
Total 1,251 1,653
Note 10 Property, plant and equipment
Accounting policies
Property, plant and equipment are measured at cost less accumulated
depreciation and impairment losses. Cost comprises the acquisition price
and other directly attributable costs until the date on which the asset is
available for use. For self-constructed assets, cost comprises the direct
costs of materials, subsuppliers and salaries, etc. The total cost of an asset
is broken down into components that are depreciated separately if the
expected useful life of the individual components are not the same.
Depreciation is provided on a straight-line basis from the date of acquisi-
tion, or from when the asset is available for use, over the expected useful
life. Reassessment is performed once a year to ascertain that the deprecia-
tion profile reflects the expected useful lives and future residual values of the
assets. Land is not depreciated.
The expected useful lives are as follows:
Buildings 10-50 years
Plant and machinery 5-10 years
Other fixtures and fittings, tools and equipment 3-10 years
Leasehold improvements Depreciated over
the term of lease
Impairment testing
The carrying amount of property, plant and equipment is reviewed in order
to determine whether there is any indication of impairment losses.
If the recoverable amount of an asset is estimated to be less than the carry-
ing amount, an impairment loss is recognized. For 2022, impairment losses of
DKK 23m were recognized (2021: DKK 113m).
Consolidated Financial Statements / Parent Company Financial Statements
1. Fixed assets under
construction are mainly
related to the construction of
a new plant in Denmark with a
carrying amount of DKK 1,619m
(2021: DKK 1,399m), expansion
of an existing plant in Ireland
with a carrying amount of
DKK 245m (2021: DKK 251m),
construction of a new plant
in Ireland with a carrying
amount of DKK 327m (2021:
DKK 199m) and an expansion
of an existing plant in France
DKK 424m (2021: DKK 314m).
2. Assets pledged as collateral
for loans amount to DKK
2,575m (2021: DKK 2,414m)
3. Impairment in 2021 of a
production line related to
two onerous contracts.
Contents
2022 2021
(DKK million)
Land and
buildings
Plant and
machinery
Other fixtures
and fittings,
tools and
equipment
Assets under
construction
1)
Total
property,
plant and
equipment
Land and
buildings
Plant and
machinery
Other fixtures
and fittings,
tools and
equipment
Assets under
construction
1)
Total
property,
plant and
equipment
Cost at January 1 2,555 3,137 604 2,373 8,669 2,537 3,015 552 2,025 8,129
Exchange rate adjustment 3 1 - 1 5 4 (1) 5 (1) 7
Additions during the year 1 20 33 536 590 7 1 36 756 800
Disposals during the year (14) (13) (24) - (51) (23) (241) (33) - (297)
Transfers 57 136 37 (216) 14 30 363 44 (407) 30
Cost at December 31 2,602 3,281 650 2,694
9,227
2,555 3,137 604 2,373 8,669
Depreciation and impairment
losses at January 1 (1,604) (2,174) (428) -
(4,206)
(1,550) (2,117) (404) - (4,071)
Exchange rate adjustment (1) - (2) - (3) (1) 1 (3) - (3)
Disposals during the year 13 13 22 - 48 22 241 33 - 296
Depreciation for the year (69) (205) (61) - (335) (65) (196) (54) - (315)
Impairment loss for the year (3) (16) (4) - (23) (10) (103)
3)
- - (113)
Depreciation and impairment
losses at December 31 (1,664) (2,382) (473) -
(4,519)
(1,604) (2,174) (428) - (4,206)
Carrying amount at December 31 938 899 177 2,694 4,708
2)
951 963 176 2,373 4,463
2)
Note 10 Property, plant and equipment (continued)
(DKK million) 2022 2021
Depreciation and impairment losses are specified as follows:
Cost of sales 248 331
Sales and distribution costs 14 14
Research and development costs 26 24
Administrative costs 70 59
Total 358 428
Consolidated Financial Statements / Parent Company Financial Statements
Contents
Note 11 Leases
Accounting policies
The right-of-use asset and corresponding lease liability are recognized at the
commencement date, i.e. the date on which the underlying asset is ready for
use. Right-of-use assets are measured at cost, corresponding to the lease liabil-
ity recognized, adjusted for any lease prepayments, including dismantling and
restoration costs. The lease liabilities are measured at the present value of lease
payments to be made over the lease term. The lease payments are discounted
using the borrowing rate stated in the contract.
Depreciation follows the straight-line method over the lease term or the useful life
of the right-of-use asset, whichever is shortest.
The lease payments include fixed payments less any lease incentives receivable
and variable lease payments that depend on an index or a rate. If the contract
holds an option to purchase, extend or terminate a lease and it is reasona-
bly certain to be exercised by the Group, the lease payment will include those
elements. The variable lease payments that do not depend on an index or a rate
are recognized as expenses in the period in which the event or condition that
triggers the payment occurs.
The Group applies the short-term lease recognition exemption to lease contracts
that, at the commencement date, have a lease term of 12 months or less for all
classes of underlying asset, and the exemption for lease contracts for which the
underlying asset is of low value. Lease payments on short-term leases and leases
of low-value assets are recognized as expenses on a straight-line basis over the
lease term.
For land and buildings classes of assets, non-lease components, i.e. the service
element, will not be separated from the lease components and will thereby form
part of the right-of-use asset and lease liability recognized in the balance sheet.
Lease assets are depreciated over the lease term which are:
Buildings 5-10 years
Cars etc. 3-5 years
Judgments on determining the lease term
For contracts with a rolling term (evergreen leases), the lease term is estimated to
five years. Buildings of a strategic importance are estimated based on the time
frame necessary to vacate the premises. The estimated lease term is reassessed
at each reporting date.
Consolidated Financial Statements / Parent Company Financial Statements
49
Contents
(DKK million)
Land and
buildings Cars etc. Total
2022
Cost at January 1 562 155 717
Exchange rate adjustment 10 3 13
Additions/remeasurements during the year 19 34 53
Disposals during the year (16) (42) (58)
Cost at December 31 575 150 725
Depreciation and impairment
losses at January 1 (184) (70) (254)
Exchange rate adjustment - 1 1
Depreciation for the year (73) (43) (116)
Impairment for the year (12) - (12)
Disposals during the year 16 39 55
Depreciation and impairment
losses at December 31 (253) (73) (326)
Carrying amount at December 31 322 77 399
Note 11 Leases
(DKK million) 2022 2021
Lease liabilities at January 1 502 491
Additions/remeasurements during the year 47 126
Payments (119) (110)
Exchange rate adjustments 12 (5)
Lease liabilities at December 31 442 502
Of which classified as:
Non-current liabilities 317 381
Current liabilities 125 121
Lease liabilities at December 31 442 502
(DKK million) 2022 2021
The following are the amounts recognized
in the income statement:
Depreciation expense of right-of-use assets
(included in administrative costs) (116) (118)
Impairment for the year (included in administrative costs) (12) -
Interest expense on lease liabilities (11) (11)
Total amount recognized in the income statement (139) (129)
The amounts recognized impact the operating cash outflow by DKK 11m (2021: DKK
11m) as well as the cash outflow from financing activities by DKK 119m (2021: DKK 121m).
(DKK million)
Land and
buildings Cars etc. Total
2021
Cost at January 1 526 150 676
Exchange rate adjustment 22 1 23
Additions/remeasurements during the year 70 56 126
Disposals during the year (56) (52) (108)
Cost at December 31 562 155 717
Depreciation and impairment
losses at January 1 (140) (76) (216)
Exchange rate adjustment (1) (1) (2)
Depreciation for the year (75) (43) (118)
Disposals during the year 32 50 82
Depreciation and impairment
losses at December 31 (184) (70) (254)
Carrying amount at December 31 378 85 463
Consolidated Financial Statements / Parent Company Financial Statements
50
Contents
Note 12
Accounting policies
Trade receivables are expected to be realized within 12 months from the
balance sheet date and are classified as trade receivables and presented
as current assets.
On initial recognition, trade receivables are measured at transaction price,
and subsequently at amortized cost, which usually corresponds to the
nominal value less write-downs to counter the risk of losses. Write-downs are
calculated using the ‘full lifetime expected credit losses’ method, whereby
the likelihood of non-fulfilment throughout the lifetime of the financial asset
is taken into consideration.
(DKK million) 2022 2021
Trade receivables 2,178 2,289
Allowances for expected credit losses (42) (35)
Trade receivables at December 31 2,136 2,254
The following table details the risk profile for trade receivables based on the Group’s
provision matrix. The Group’s historical credit losses do not show different patterns for
customer segments. Historical credit losses are assessed by country of incorporation.
Maturity analysis of Trade receivables
(DKK million)
Expected
credit loss rate
Trade
receivables Write-downs Total
2022
Not past due date 0% 1,984 0 1,984
Overdue by up to 3 months 3% 98 (3) 95
Overdue by 3-6 months 11% 44 (5) 39
Overdue by 6-12 months 26% 19 (5) 14
Overdue by more
than 12 months 89% 33 (29) 4
Trade receivables at
December 31 2,178 (42) 2,136
2021
Not past due date 0% 2,113 0 2,113
Overdue by up to 3 months 1% 76 (1) 75
Overdue by 3-6 months 1% 43 (0) 43
Overdue by 6-12 months 12% 26 (3) 23
Overdue by more
than 12 months 83% 31 (31) 0
Trade receivables at
December 31 2,289 (35) 2,254
Movements in write-downs,
which is included in Trade receivables
(DKK million) 2022 2021
Carrying amount January 1 35 47
Write-down recognized 32 8
Realized losses (13) (13)
Write-down reversals (12) (7)
Write-downs at December 31 42 35
Consolidated Financial Statements / Parent Company Financial Statements
Contents
Note 13 Inventories
(DKK million) 2022 2021
Raw materials and consumables 885 331
Work in progress 2,426 2,583
Finished goods and goods for resale 1,269 955
Total 4,580 3,869
Write-down, provision end of the period 340 327
Cost of goods sold included under cost of sales 3,428 3,196
Accounting policies
Inventories are measured at the lower of costs under the first-in-first-out
basis and net realizable value.
Finished goods and work in progress comprise the cost of raw materials,
consumables, direct labor and indirect production costs. Indirect produc-
tion costs comprise indirect consumables and labor, as well as maintenance
and depreciation of the machinery, factory buildings and equipment used
in the manufacturing process, and the costs of factory administration and
management.
The net realizable value of inventories is calculated as the sales price less
the costs of completion and the expenses incurred to effect the sale, and
is determined allowing for marketability, obsolescence and development in
expected sales price. Obsolete goods, including slow-moving goods, are
written down.
Key accounting estimates
Valuation of inventories
The Management performs a yearly assessment of whether the standard
cost of inventories is at approximately the same level as the actual costs.
The standard cost is adjusted if there are significant deviations.
Indirect production overheads are calculated on the basis of relevant
assumptions concerning capacity utilization, production time and other
relevant factors and allocated on the basis of the normal production
capacity.
Note 14 Other receivables
(DKK million) 2022 2021
Receivable VAT & duties 288 278
Deposits 19 45
Financial derivatives 160 29
Other 83 82
Total 550 434
Consolidated Financial Statements / Parent Company Financial Statements
52
Contents
Note 15
Accounting policies
Deferred tax is recognized on all temporary differences between the carry-
ing amounts of assets and liabilities and their tax bases, except for temporary
differences arising on initial recognition of a transaction that is not a business
combination, and with the temporary difference ascertained at the time of initial
recognition affecting neither the financial result nor the taxable income.
Deferred tax is measured on the basis of the income tax rates and tax rules
enacted in the respective countries at the balance sheet date. The effect of
exchange rate differences on deferred tax is recognized in the balance sheet as
part of the movement in deferred tax.
Deferred tax assets, including the tax assets on tax loss carry forwards, are recog-
nized in the balance sheet at the value at which the assets are expected to be
utilized.
Deferred tax assets and liabilities are offset if the Group has a legal right to offset
these and intends to settle these on a net basis or to realize the assets and settle
the liabilities simultaneously.
Key accounting estimates
Valuation of deferred tax assets
The Management’s estimate of future income according to budgets, forecasts,
business plans and initiatives scheduled for the coming years supports the utili-
zation of the deferred tax assets within the foreseeable future. A forecast period
of five years is applied to the estimated utilization of deferred tax assets for LEO
Pharma A/S and the companies under the joint taxation.
A significant assumption in the recognized deferred tax asset is both the ability
to meet the objectives in the strategy for the next five years, as well as the return
from the investment portfolio within the joint taxation group. The return from the
investment portfolio is sensitive towards the general market fluctuations.
The recognized deferred tax assets in the Parent company LEO Pharma A/S as of
December 31, 2022 was assessed to DKK 785m (2021: DKK 785m). The assessment
takes into account the taxable loss in 2022 in joint taxation.
The remaining deferred tax asset in LEO Pharma A/S was subject to valuation
allowance of DKK 1,011m in 2022 (2021: DKK 1,333m).
The unused tax loss carried forward relates to LEO Pharma A/S, does not expire.
Consolidated Financial Statements / Parent Company Financial Statements
53
1. Driven by loss before
tax in LEO Pharma A/S.
2. Prior year adjustments
primarily derive from tax
return 2021 true up in
LEO Pharma A/S, mainly
regarding capitalization of
minor additions on property,
plant and equipment.
Contents
Note 15
2022 2021
(DKK million)
Balance at
January 1
Effect of
foreign
currency
exchange
differences
Adjustment of
deferred tax
at beginning
of year
Movements
during
the year
Balance at
December 31
Balance at
January 1
Effect of
foreign
currency
exchange
differences
Adjustment of
deferred tax
at beginning
of year
Movements
during
the year
Balance at
December 31
Intangible assets 820 (0) 22 229 1,071 260 - 120 440 820
Property, plant and equipment 530 (1) (109) 13 433 418 - (175) 287 530
Inventories 463 (2) - 401 862 501 - - (38) 463
Provisions 169 0 (10) (6) 153 137 8 2 22 169
Other items 101 5 (7) (38) 61 106 3 (4) (4) 101
Special tax credits - - 25 62 87 - - - - -
Tax loss carry forwards
1)
965 - 3 759 1,727 260 2 40 663 965
Valuation allowances on
deferred tax assets (1,602) - (11) (1,011) (2,624) (269) - - (1,333) (1,602)
Total temporary differences 1,446 2 (87)
2)
409 1,770 1,413 13 (17) 37 1,446
Deferred tax assets 1,453 2 (89) 443 1,809 1,430 13 (17) 27 1,453
Deferred tax liabilities 7 0 (2) 34 39 17 - - (10) 7
Deferred tax
assets/(tax liabilities) 1,446 2 (87) 409 1,770 1,413 13 (17) 37 1,446
Consolidated Financial Statements / Parent Company Financial Statements
54
Contents
Note 16
Accounting policies
Prepaid expenses include advance payments made to vendors that will be
incurred and expensed in subsequent financial reporting periods. When the
period for full expense recognition is longer than one year from the balance
sheet date, the portion to be expensed subsequent to one year is classified
as non-current.
Number of shares 2021 A-shares B-shares Total
Number of shares at January 1 170 80 250
Share split 124,999,830 124,999,920 249,999,750
Total after split 125,000,000 125,000,000 250,000,000
Capital increase - 70,145,071 70,145,071
Number of shares at December 31 125,000,000 195,145,071 320,145,071
Number of shares 2022 A-shares B-shares Total
Number of shares at January 1 125,000,000 195,145,071 320,145,071
Capital increase - 740,920 740,920
Number of shares at December 31 125,000,000 195,885,991 320,885,991
Note 17 Share capital
2022
The share capital comprises 320,885,991 shares for a nominal value of DKK 1. The share
capital is divided into 125,000,000 A-shares and 195,885,991 B-shares. Each A-share
carries 10 votes, where B-shares carries 1 vote per share.
During 2022, capital increases related to the share-based payments were carried out,
increasing the share capital by 740,920 shares, amounting to DKK 36m, including share
premium. Please refer to note 4.
No shares or shareholders have any additional special rights.
2021
With effect as of July 13, 2021, a share split of LEO Pharma shares with a ratio 1:1,000,000
and a capital increase of 70,145,071 shares was carried out. Consequently, each share
of nominally DKK 1,000,000 was split into one million new shares of nominally DKK 1.
The share capital comprises 320,145,071 shares. The share capital is divided into
125,000,000 A-shares and 195,145,071 B-shares. Each A-share carries 10 votes, where
B-shares carry 1 vote per share.
(DKK million) 2022 2021
Prepaid clinical trials 180 258
Prepaid IT expenses 58 56
Other prepaid expenses 51 46
Total 289 360
Consolidated Financial Statements / Parent Company Financial Statements
55
Contents
Note 18 Other comprehensive income
2022 2021
(DKK million)
Foreign
currency
translation
reserve
Hedging
reserve
Retained
earnings
Other
comprehensive
income
Foreign
currency
translation
reserve
Hedging
reserve
Retained
earnings
Other
comprehensive
income
Other comprehensive income
Items that will not subsequently be reclassified to the
income statement:
Remeasurement of defined benefit
pension obligations - - 329 329 - - 195 195
Tax on other comprehensive income - - (52) (52) - - (10) (10)
Items that will not subsequently be reclassified to the
income statement - - 277 277 - - 185 185
Items that are or may subsequently be reclassified to
the income statement:
Foreign exchange adjustments subsidiaries 137 - - 137 (9) - - (9)
Value adjustments of hedging instruments for the year - 61 - 61 - 25 - 25
Tax on other comprehensive income - (17) - (17) - - (6) (6)
Items that are or may subsequently be reclassified to
the income statement: 137 44 - 181 (9) 25 (6) 9
Other comprehensive income/loss for the year 137 44 277 458 (9) 25 179 194
Consolidated Financial Statements / Parent Company Financial Statements
56
Contents
Note 19 Pensions
Defined contribution plans
The Group operates a number of pension plans for certain groups of employees
throughout the world. These plans are externally funded through payments of premi-
ums to insurance companies and pension funds that are legally separated from the
Group. The Group’s responsibility towards current or former employees is limited to the
payment of the premiums.
Defined benefit plans
In a few countries, the Group operates defined benefit plans. In defined benefit plans,
the Group is under an obligation to pay a defined benefit on retirement. The most
significant of these are in Ireland and the UK. The defined benefit plans expose the
Group to actuarial risks, such as longevity, interest rate, salary, market and currency risks.
The plans in Ireland and the UK are funded and constituted under a trust whose assets
are legally separated from those of the Group. Under the scheme-funding regime
introduced by the UK Pensions Act 2004, the trustees are required to undertake regular
scheme-funding valuations for the plans and to establish a schedule of contribu-
tions and a recovery plan when there is a shortfall in the plans. The plans entitle the
employees to an annual pension on retirement based on service and salary level up
to retirement.
Sensitivity analysis
The discount rate is the most significant assumption used in the calculation of the
obligation concerning defined benefit plans. The sensitivity analysis indicates what
the development in the obligation would be on any change in the individual discount
rate. However, the discount rate will most likely be correlated and consequently result
in a different fair value of plan assets as well.
A 0.25% decrease in the discount rate would result in an increase in the net obligation
of approximately 3.7% or DKK 50m (2021: 4.6% or DKK 96m).
Accounting policies
Defined contribution plans
Payments to defined contribution plans are recognized in the income state-
ment for the period to which they relate, and any amounts payable are
recognized as other payables under current liabilities in the balance sheet.
Defined benefit plans
In defined benefit plans, the Group has an obligation to pay a defined
benefit on retirement. The actuarially calculated present value less the fair
value of any plan assets is in the balance sheet recognized under pensions.
The present value is calculated on the basis of assumptions relating to future
developments in salary, interest rates, inflation, mortality and other factors.
The present value is calculated solely for the benefits to which the employees
have earned a right through their employment by the Group. Plan assets are
recognized to the extent that the Group is able to obtain future economic
benefits in the form of reimbursement from the pension scheme or reduction
of future payments. Pension costs for the year are recognized in the income
statement on the basis of actuarial estimates and financial expectations at
the beginning of the year. Actuarial gains and losses are recognized in other
comprehensive income. Past service costs are recognized in the income
statement as incurred.
Estimates of valuation of defined benefit plans
The value of the defined benefit plans is based on valuations from exter-
nal actuaries. The valuation is based on a number of actuarial assumptions,
including discount rates, expected return on plan assets, expected growth
in wages and salaries, mortality and retirement benefits. The discount rate
is the most significant assumption used in the calculation of the obligation
concerning defined benefit plans.
Consolidated Financial Statements / Parent Company Financial Statements
Contents
2022 2021
(DKK million) Ireland UK Other
1)
Total
Ireland UK Other
1)
Total
Present value of defined benefit plans:
Present value of defined benefit plans at January 1 1,026 834 213 2,073 1,073 894 247 2,214
Effect of exchange rate adjustment (1) (35) 1 (35) (1) 59 - 58
Current service costs - - 8 8 - - 10 10
Interest expenses 15 16 2 33 11 11 2 24
Actuarial (gains)/losses from changes in demographic assumptions - (0) 1 1 - - (15) (15)
Actuarial (gains)/losses from changes in financial assumptions (315) (298) (52) (665) (39) (52) (13) (104)
Actuarial (gains)/losses from experience adjustments 12 0 2 14 8 - 1 9
Benefits paid to employees (29) (37) (17) (83) (26) (78) (19) (123)
Present value of defined benefit obligation at December 31 708 480 158 1,346 1,026 834 213 2,073
Fair value of plan assets:
Fair value of plan assets at January 1 916 758 115 1,789 880 727 119 1,726
Effect of exchange rate adjustment (1) (35) 1 (35) (1) 50 - 49
Actuarial gains/(losses) from return on plan assets (186) (130) (5) (321) 49 37 (1) 85
Interest income 13 13 1 27 9 9 1 19
Benefits paid to employees (29) (37) (4) (70) (26) (79) (4) (109)
Employer contributions 10 19 - 29 5 14 - 19
Fair value of plan assets at 31 December 723 588 108 1,419 916 758 115 1,789
Net retirement benefit obligations/(asset) at December 31 (15) (108) 50 (73) 110 76 98 284
Recognized as:
Other non-current assets 15 108 21 144 - - - -
Non-current liabilities - - 71 71 110 76 98 284
Net retirement benefit obligations/(asset) at 31 December (15) (108) 50 (73) 110 76 98 284
Specification of amount recognized in the Statement of
comprehensive income:
Actuarial gains and (losses) 117 168 44 329 80 89 26 195
Total 117 168 44 329 80 89 26 195
Note 19 Pensions (continued)
1. Other includes Germany,
France and Italy
Consolidated Financial Statements / Parent Company Financial Statements
Contents
Note 20 Provisions
Accounting policies
Provisions are recognized when the Group has a legal or a constructive obligation
as a result of past events, it is probable that there may be an outflow of economic
resources to settle the obligation, and the obligation can be measured reliably.
Provisions are measured as the best estimate of the costs required to settle the
liabilities at the balance sheet date.
Provisions for sales deductions and product returns are recognized at the time
that the related revenue is recognized. Unsettled deductions and returns are
recognized as provisions when the timing or amount is uncertain. Where absolute
amounts are known, the deductions are recognized as other liabilities.
Staff-related provisions include employee benefits such as long-term incen-
tive programs and long-service awards as well as provisions for restructuring.
Provisions for restructuring cost are recognized when a constructive obligation
exist, when detailed restructuring plans are in place and when a valid expectation
of those affected has been raised.
Other provisions consist of different types of other provisions, including provisions
for legal disputes, onerous contracts and other restructuring provisions. A provi-
sion for onerous contracts is recognized when the benefits expected to be derived
by the Group from a contract are lower than the unavoidable costs of meeting its
obligations under the contract.
Key accounting estimates
Provisions for legal disputes
Provisions for legal disputes consist of various types of provisions linked to ongo-
ing legal disputes. The Management makes judgments and estimates about
provisions and contingencies, including the probability of pending and potential
future litigation outcomes, which, by their very nature, are dependent on inher-
ently uncertain future events. On determining likely outcomes of litigation, etc.,
the Management considers the input of external counsel in each case as well as
known outcomes in case law.
Provisions for sales deductions
Sales discounts and rebates are predominantly issued in the U.S. in connection
with the U.S. Federal and State Government Healthcare programs, primarily as
commercial rebates, Copay programs, Medicare and Medicaid.
The Management’s estimate of sales discounts and rebates is based on a calcu-
lation that includes a combination of historical utilization data, combined with
expectations in relation to the development in sales and utilization. Furthermore,
specific circumstances regarding the different programs are considered. The obli-
gations concerning sales discounts and rebates are incurred at the time that the
sale is recorded. However, the actual discount or rebate related to a specific sale
may be invoiced six to twelve months later.
The Group considers the provisions recognized for sales discounts and rebates
to be reasonable and appropriate based on currently available information.
However, the actual amounts of discounts and rebates may differ from the
amounts estimated by the Management, as more detailed information becomes
available.
Consolidated Financial Statements / Parent Company Financial Statements
59
1. Addition and reversals
consist of net DKK 248m
related to the restructuring
due to organzational changes
of R&D, commercial and
global support functions.
Addition of DKK 70m
is related to long-term
incentive programs.
2. The restructuring provision
utilized amounts to DKK
238m. The remaining part
is expected to be utilized
during 2023 and 2024.
3. Addition of DKK 69m
is related to one onerous
contract, recognized as
part of cost of goods sold.
4. Transferred from
other payables.
5. Addition of DKK 111m
is related to two onerous
contracts, of which DKK 41m
is recognized as part of
Other operating expenses
and the remaining part of
DKK 70m is recognized as
part of cost of goods sold.
Contents
Note 20 Provisions (continued)
(DKK million)
Sales
deductions
Product
returns
Staff-related
provisions
Other
provisions Total
2022
Provisions at January 1 385 173 468 216 1,242
Exchange rate adjustment 16 7 - 1 24
Additions during the year 1,224 57
368
1)
168
3)
1,817
Utilization during the year (1,151) (91)
(293)
2)
(70) (1,605)
Reversals during the year (21) (25)
(70)
1)
(93) (209)
Transfer - - 8 (8) -
Provisions at December 31 453 121 481 214 1,269
Of which classified as:
Non-current liabilities 1 54 167 68 290
Current liabilities 452 67 314 146 979
Provisions at December 31 453 121 481 214 1,269
(DKK million)
Sales
deductions
Product
returns
Staff-related
provisions
Other
provisions Total
2021
Provisions at January 1 344 236 541 130 1,251
Exchange rate adjustment 20 17 2 1 40
Additions during the year 1,088 67
330
133
5)
1,618
Utilization during the year (1,060) (103) (317) (40) (1,520)
Reversals during the year (7) (44) (109) (8) (168)
Transfer - -
21
4)
- 21
Provisions at December 31 385 173 468 216 1,242
Of which classified as:
Non-current liabilities - 60 230 62 352
Current liabilities 385 113 238 154 890
Provisions at December 31 385 173 468 216 1,242
Consolidated Financial Statements / Parent Company Financial Statements
60
1. This is mainly as a
consequence of the changes
in fair value of derivative
instruments designated
as cash flow hedges.
Contents
Financial risks
As a consequence of the Group's operations, investments and financing, the Group is
exposed to a variety of financial risks:
- Market risks, i.e. currency risk, interest rate risk, etc.
- Credit risk
- Liquidity risk
The Group’s overall risk management programs focus on the unpredictability of financial
markets and seek to minimize the potential adverse effects on the Group’s performance.
The Group uses derivative financial instruments to hedge certain risk exposures.
Risk management is undertaken by a central finance department, subject to objectives
and policies approved by the Executive Management. Those objectives and policies
are outlined in the internal Treasury Policy, which incorporates cash flow hedges of
highly probable forecasted sales and purchase transactions. Furthermore, it consists of
the Foreign Exchange Policy and the Investment Policy as well as the Policy Regarding
Credit Risk on Financial Counterparties and includes a description of the permitted use
of financial instruments. The Group only hedges commercial exposures and, conse-
quently, does not enter into derivative transactions for trading or speculative purposes.
The Group uses a fully integrated Treasury Management System to manage all financial
positions.
Currency risk
As a global company with DKK as its presentation currency, the Group undertakes trans-
actions denominated in foreign currencies, and foreign exchange risk, therefore, has a
significant impact on the income statement, balance sheet and cash flow statement.
The overall objective of foreign exchange risk management is to reduce the short-term
impact of exchange rate fluctuations on earnings and cash flow.
The Group is mainly exposed to USD, CNY, CAD, GBP, BRL, RUB and AUD either through
direct sales to and purchases from third parties or indirect sales through a subsidiary.
Currency risk arises due to imbalances between income and costs in each individual
currency and because the Group has more assets than liabilities in foreign currencies,
in connection with its global operations.
The Group hedges future expected cash flows on an 18-month rolling basis. The Group's
forward foreign exchange policy is described in note 22.
Foreign currency sensitivity analysis
The sensitivity analysis below shows the estimated impact on net profit/(loss) of a
change in DKK versus the key currencies to which the Group was exposed on December
31, 2022. The increase in exchange rates is based on the observed 12 months implied
volatility. The analysis shows the impact of foreign currency exchange differences on
the Group’s monetary assets and liabilities and foreign exchange forward contracts
at the end of the year. A similar negative change in exchange rates would have an
equivalent opposite effect on net profit/(loss).
Note 21 Financial risks
Foreign currency
sensitivity analysis 2022 2021
(DKK million)
Increase in
exchange rates
Profit/(loss)
for the year
Other comprehensive
income
1)
Increase in
exchange rates
Profit/(loss)
for the year
Other comprehensive
income
1)
USD
7.9 % (10) 45
6.0% (39) 36
GBP
7. 6% (11) (16)
6.8% (20) (14)
CAD
7.7% 5 (28)
7. 3% 3 (16)
JPY
10.2% 11 (5)
7. 3% 9 (6)
RUB
35.0% (16) -
14.4% (2) (1)
CNY/CNH
7. 5% 12 (26)
6.0% 3 (2)
BRL
18.7% 9 -
17.3% (1) (3)
SAR
8.2% 2 (2)
6.4% - (1)
AUD
9. 4% 2 (7)
6.4% - (6)
Consolidated Financial Statements / Parent Company Financial Statements
Contents
Note 21 Financial risks (continued)
Interest rate risk
Interest rate risk is the risk of interest rate fluctuations resulting in changed costs related
to floating-rate loans. Long-term funding at floating interest rates is mitigated by enter-
ing into interest rate CAPS and Collars as hedge instruments. Hedging of interest rate
risk is approved by the Executive Management, and hedge effectiveness is assessed
on a regular basis. No ineffectiveness was observed in 2022 or 2021.
The table below shows the current loans with our banking partners.
The current loans with our banking partners at December 31 are:
2021
(DKK million) Currency Expiry of commitment Fixed/ floating
Weighted avg. effective
interest rate % Amortized Cost Nominal value Fair value
Term loans
1)
DKK 2027 Floating 3.05 2,583 2,625 2,625
Loans RCF USD 2024 Floating 1.38 63 63 63
Loans RCF DKK 2027 Floating 3.25 1,278 1,278 1,278
Mortgage loans DKK 2038 Fixed 5Y 0.23 1,183 1,200 1,206
Total 5,107 5,166 5,172
2022
(DKK million) Currency Expiry of commitment Fixed/ floating
Weighted avg. effective
interest rate % Amortized Cost Nominal value Fair value
Term loans
1)
DKK 2027 Floating 6.32 2,590 2,625 2,625
Loans RCF DKK 2027 Floating 6.10 3,902 3,918 3,918
Loans RCF USD 2027 Floating 6.84 50 50 50
Mortgage loans DKK 2038 Fixed 4m 1.47 1,185 1,200 1,187
Mortgage loans DKK 2042 Fixed 4.7y 4.80 1,049 1,065 1,053
Total 8,776 8,858 8,833
1. Floating rate is currently
fixed via CAPS and Collars
hedging instruments.
Reference is made to the
tabel below and the following
page, disclosing the current
hedging instruments.
Consolidated Financial Statements / Parent Company Financial Statements
62
Contents
Note 21 Financial risks (continued)
Interest rate sensitivity analysis
One percentage point increase in interest rates would reduce profit for the year by DKK
55m (2021: DKK 13m) and increase other comprehensive income by DKK 96m (2021: DKK
24m), based on interest-bearing debt at December 31 with floating rate not hedged
and the change in fair value of the interest hedging instruments.
The calculation method applied in the sensitivity analysis is based on the current
duration of interest-bearing debt as of December 31 and the change in fair value of
the interest hedging instruments.
Credit risk
The Group’s products are primarily sold to pharmacies, wholesalers and hospitals,
both publicly and privately owned. Historically, realized losses sustained on trade
receivables have been insignificant, which was also the case in both 2022 and 2021,
referring to note 12.
The Group has no significant concentration of credit risk related to trade receivables, as
the exposure is spread over a large number of counterparties and customers. As such,
the Group has no significant reliance on any specific customer. The Group continues to
monitor the credit exposure on all customers, both new and existing, following principles
delineated by the credit policy adopted in December 2020. The COVID-19 pandemic
and Ukraine war have not significantly impacted the Group’s trade receivables, with
only a few singular cases of delayed payments, mainly in the Middle East.
The Group recognizes a loss allowance for expected credit losses and writes off trade
receivables when there is information indicating that the debtor is in severe financial
difficulty and there is no realistic prospect of recovery. The write-down amount is
recognized in the income statement under sales and distribution costs. Subsequent
recovery of amounts previously written down is credited against sales and distribution
costs.
During 2022, the Group further extended the non-recourse factoring program
implemented in 2020 for selected global customers to optimize working capital. At
year-end, the Group has derecognized Trade receivables, without recourse, having
due dates after December 31, amounting to DKK 425m in 2022 (2021: DKK 141m).
To manage credit risk on financial counterparties, the Group only enters into derivative
financial instruments with financial counterparties possessing a satisfactory long-
term credit rating assigned by at least one out of the three international credit rating
agencies: Standard and Poor’s, Moody’s and Fitch. If a counterparty has a rating below
Investment Grade, the Group minimizes the risk by maintaining the lowest possible
bank balance, or by spreading the risk between several banks. At year-end, the bank
balances with a rating below Investment Grade are low, and therefore, the credit risk
is considered to be low. Furthermore, the credit risk on bond investments is limited, as
investments are in highly liquid bonds with solid credit ratings, such as Investment Grade.
(DKK million)
Notional
principal value
Change in fair
value recognized
in other
comprehensive
income
Fair value
assets
(liabilities)
Average fixed
interest rate
2022
CAP - Syndicated facility 1,500 62 65 0.10%
Collar - Syndicated facility 6,000 6 48 1.63% - 3.75%
Total 68 113
2021
CAP on Term Loan A 1,125 - - 0.03%
CAP on Term Loan B 1,500 5 3 0.10%
Total 5 3
At December 31, 2022, the fair value of DKK 113m (2021: DKK 3m) is recognized in other receivables.
In the below table, the current hedging instruments are presented on the basis of the
average fixed interest rate used.
Consolidated Financial Statements / Parent Company Financial Statements
63
Contents
Note 21 Financial risks (continued)
Liquidity risk
It is of great importance that the Group maintains a financial reserve to cover the
Group's obligations, explore investment opportunities and to provide the capital
necessary to offset changes in the Group's liquidity due to changes in the cash flow
from operating activities.
The Group manages liquidity risk by maintaining adequate reserves, banking facilities
and reserve borrowing facilities by continuously monitoring forecast and actual cash
flows, and by matching the maturity profiles of financial assets and liabilities.
Cash resources and financing facilities
The Group established new mortgage loans in the fourth quarter of 2022. The facilities
are linked to the premises in Ballerup, Denmark, and in particular linked to the final
stage of completing a new plant for Fucidin
®
production.
The nominal value of the new mortgage loans are DKK 1,065m, bringing the total mort-
gage portfolio up to a nominal value of DKK 2,265m.
Loan covenants are included in the Group’s financial agreements and consist of a mix
of financial and ESG requirements. No financial covenant breaches were encountered
during the year.
The Group has access to financing facilities of DKK 4,783m (2021: DKK 7,687m) of which
unused and secured overdraft facilities amounted to DKK 4,505m (2021: DKK 7,162m) as
of the reporting date. The remaining amount of DKK 278m (2021: DKK 525m) primarily
consists of cash and cash equivalents.
Other obligations are met from operating cash flows and proceeds from maturing
financial assets.
The below table discloses cash as well as non-cash changes in borrowings.
1. Other non-cash items
mainly comprises interest
expenses and exchange
rate adjustments.
2. New/disposed/
remeasured leases.
2022 2021
(DKK million)
Borrowings
January 1
Proceeds from
borrowings
Repayments
of borrowings
Other non-
cash items
1)
Borrowings
December 31
Borrowings
January 1
Proceeds from
borrowings
Repayments
of borrowings
Other non-
cash items
1)
Borrowings
December 31
Loan from LEO Holding A/S 4,161 - - 209 4,370 3,965 - - 196 4,161
Loan from the LEO Foundation 1,000 - - 25 1,025 1,000 - - - 1,000
Bank and mortgage loans 5,108 4,559 (900) 9 8,776 4,713 10,604 (10,210) - 5,108
Lease liabilities 502 - (119) 59
2)
442 491 - (110) 121
2)
502
Total borrowings 10,771 4,559 (1,019) 302 14,613 10,169 10,604 (10,320) 317 10,771
Of which classified as:
Non-current 14,081 9,309
Current 532 1,462
Total 14,613 10,771
Consolidated Financial Statements / Parent Company Financial Statements
64
1. Repayment of the loan from
LEO Holding A/S is expected
to commence in 2030.
Contents
Maturity of contractual cash flows
2022 2021
(DKK million)
Contractual
amount
Less than 1
year 1-3 years 4-5 years
More than 5
years
Contractual
amount
Less than 1
year 1-3 years 4-5 years
More than 5
years
Financial liabilities at amortized
cost
Floating interest rate bank debt 7,735 708 528 6,499 - 4,144 1,393 61 61 2,629
Fixed interest rate bank debt 3,158 91 300 296 2,471 1,330 18 162 184 966
Fixed interest rate loan,
LEO Holding A/S
1)
6,681 - - - 6,681 6,687 - - - 6,687
Fixed interest rate loan,
the LEO Foundation 1,148 25 49 1,074 - 1,149 25 50 50 1,024
Trade and other payables 3,777 3,777 - - - 4,481 4,481 - - -
Financial derivatives at fair value
Interest hedging instruments (47) (30) (17) - - (3) - (3) - -
Forward contracts used as
hedging instruments 50 50 - - - 4 3 1 - -
Total contractual cash flow at
December 31 22,502 4,621 860 7, 8 69 9,152 17,792 5,920 271 295 11,306
Note 21 Financial risks (continued)
The below table analyzes the Group’s financial liabilities in relevant maturity groupings,
based on their contractual maturities for all financial liabilities at amortized cost, and
financial derivatives at fair value for which the contractual maturities are essential for
the understanding of the timing of the cash flows.
Consolidated Financial Statements / Parent Company Financial Statements
65
Contents
Note 22
Forward foreign exchange contracts
It is the policy of LEO Pharma to enter into either forward foreign exchange contracts
or currency options in order to hedge the forecasted sales and purchase transactions
based on gradually reducing the hedge ratio from 80% to 20% during a time horizon of
18 months. Concerning the hedging of highly probable forecast sales and purchases,
as the critical terms (i.e. the notional amount, life and underlying value) of the forward
foreign exchange contracts and their corresponding hedged items are the same,
LEO Pharma makes a qualitative assessment of effectiveness. It is expected that the
value of the forward contracts and the value of the corresponding hedged items will
change systematically in opposite directions in response to movements in the under-
lying exchange rates. The Executive Management has chosen to classify the result of
cash flow hedging activities as part of financial items and not in the same line as the
hedged item.
LEO Pharma has entered into forward foreign exchange contracts to hedge the
exchange rate risk arising from the expected future sales transactions that will take
place during the next 18 months, at which time the amount deferred in equity will
be reclassified to a gain or loss under financial items. The following table shows the
outstanding forward contracts classified as cash flow hedges at the end of the year.
Forward foreign exchange contract assets and liabilities are presented as either other
receivables or as other payables in the balance sheet (reference is made to note 23,
table ‘Financial assets and liabilities by category’).
Accounting policies
Derivative financial instruments
Derivative financial instruments are used to manage the exposure to interest rate
and foreign exchange rate risk. None of the derivative financial instruments are
held for trading. On initiation of the contract, LEO Pharma designates each deriv-
ative financial contract as either a hedge of the fair value of a recognized asset or
liability (fair value hedge) or as a hedge of a future transaction (cash flow hedge).
All contracts are initially recognized at fair value and subsequently remeasured
at fair value at the end of the reporting period. The resulting gain or loss is recog-
nized in the income statement immediately, unless the derivative is designated
and effected as a cash flow hedging instrument. In this case the timing of the
recognition in the income statement depends on the nature of the hedge rela-
tionship.
Hedge accounting
LEO Pharma designates certain derivatives as hedging instruments in respect of
foreign currency risk as either cash flow or fair value hedges, and certain deriva-
tives as hedging instruments in respect of interest rate risk as cash flow hedges.
The fair value adjustment on qualifying hedging instruments is recognized in the
income statement when the hedging instrument is designated as a fair value
hedge. Value adjustments of the effective part of cash flow hedges are recog-
nized in equity through other comprehensive income (OCI). The cumulative value
adjustment of these contracts is transferred from other comprehensive income
(OCI) to the income statement in the same period and on the same line as the
hedged item.
In general, LEO Pharma does not hedge EUR positions as Executive Management
expects that the official Danish fixed exchange-rate policy against the EUR will
continue. In addition, the Chinese yuan traded offshore (CNH) is used as a proxy
when hedging the CNY currency exposure of the Group.
Discontinuance of cash flow hedging
When a hedging instrument expires or is sold, but the hedge still meets the criteria
for hedge accounting, any cumulative gain or loss existing in equity at that time
remains in equity and is recognized when the forecast transaction is ultimately
recognized in the income statement.
When a forecast transaction is no longer expected to occur, the cumulative gain
or loss that was reported in equity is transferred to the income statement immedi-
ately under financial income or financial expenses.
Consolidated Financial Statements / Parent Company Financial Statements
66
Contents
Note 22
Financial derivatives – Cash flow hedges
(DKK million) Average hedge rate
Notional value
in foreign currency Contract value DKK
Carrying amount of the
hedging instrument
assets
Carrying amount of the
hedging instrument
liabilities
Fair value adjustment
recognized in other
comprehensive income
2022
Forward foreign exchange contracts
Bought USD 7. 3 3 97 711 - 40 (49)
Sold USD 7.01 15 105 2 - 2
Sold CAD 5.31 71 378 15 1 23
Sold GBP 8.56 25 214 6 - 10
Sold CNY 1.00 350 350 - 1 3
Sold SAR 1.90 16 30 1 - 1
Sold SEK 0.69 51 35 1 - 1
Sold JPY 0.05 870 44 - 1 (1)
Sold AUD 4.75 15 71 1 - 2
Sold other currencies N/A N/A 171 - 3 1
Cash flow hedges at December 31 2,109 26 46 (7)
2021
Forward foreign exchange contracts
Bought USD 6.40 90 573 15 1 55
Sold CAD 4.96 43 214 - 8 (14)
Sold GBP 8.61 22 193 - 5 (5)
Sold CNY 0.92 34 31 - 3 (7)
Sold BRL 1.06 14 14 - 1 -
Sold RUB 0.08 84 7 - 1 (11)
Sold PLN 1.61 17 27 - - (1)
Sold AUD 4.64 14 66 - 2 3
Sold THB 0.20 53 11 - - (2)
Sold other currencies N/A N/A 191 3 3 2
Cash flow hedges at December 31 1,327 18 24 20
Consolidated Financial Statements / Parent Company Financial Statements
Contents
Note 22 (continued)
Financial derivatives – Fair value hedges
(DKK million)
Contracted amount
based on agreed rates Fair value Maturity end date
2022
Forward foreign exchange contracts
Sold USD 543 8 07/07/2023
Bought GBP 112 (3) 18/01/2023
Sold CAD 54 3 10/03/2023
Sold JPY 185 3 31/08/2023
Sold BRL 28 (1) 22/02/2023
Sold KRW 17 (1) 28/02/2023
Bought EUR 45 4 26/05/2023
Bought/sold other currencies (net) 151 1 19/04/2023
Fair value hedges at December 31 1,135 14
2021
Forward foreign exchange contracts
Bought USD 331 - 30/06/2022
Sold GBP 17 1 21/01/2022
Sold CAD 153 1 07/10/2022
Sold JPY 144 (2) 29/12/2022
Sold SAR 24 - 24/02/2022
Sold CNY 103 1 10/03/2022
Bought/sold other currencies (net) 231 1 31/08/2022
Fair value hedges at December 31 1,003 2
The financial contracts are expected to impact the income statement for the next
18 months when the cash flow hedges mature and the fair value is transferred to
either financial income or financial expenses. A loss of DKK 16m has been deferred for
recognition until 2023 (2021: a loss of DKK 9m was deferred until 2022 and 2023). No
ineffectiveness was observed in 2022.
The fair value gain on forward foreign exchange contracts of DKK 14m at the
end of 2022 is recognized in the income statement under Foreign exchange
loss, net (2021: gain of DKK 2m recognized in Foreign exchange loss, net).
Consolidated Financial Statements / Parent Company Financial Statements
Contents
Accounting policies
Financial instruments
Financial assets and financial liabilities are recognized when
LEO Pharma becomes a party to the contractual provisions of
the instrument. Financial assets other than trade receivables are
initially measured at fair value. Transaction costs that are directly
attributable to the acquisition or issue of the financial assets and
financial liabilities (other than financial assets and financial liabili-
ties at fair value through profit and loss) are added to or deducted
from the fair value of the financial assets or financial liabilities, as
appropriate, on initial recognition.
Financial assets
All recognized financial assets are required to be measured subse-
quently at amortized cost or fair value on the basis of the busi-
ness model for managing the financial assets and the contractual
cash flow characteristics of the financial assets. Financial secu-
rities primarily consist of bonds. Investments in bonds that are
held within a business model of which the objective is to collect
the contractual cash flows are subsequently measured at amor-
tized cost. Investments that are held within a business model of
which the objective is both to collect the contractual cash flows
and to sell are subsequently measured at fair value through other
comprehensive income. All other investments, including equity
investments, are subsequently measured at fair value through
profit and loss. Other securities, which comprise listed bonds and
shares, are classified as current assets and measured at fair value
through profit and loss. Securities that are subsequently measured
at amortized cost or at fair value through other comprehensive
income are subject to impairment.
Financial liabilities
All financial liabilities are subsequently measured at amortized
cost using the effective interest method.
Financial instruments measured at fair value
Financial instruments measured at fair value can be divided into
three categories:
Level 1 - Quoted prices (unadjusted) in active markets for identical
assets or liabilities;
Level 2 - Inputs other than quoted prices included within level 1
that are observable for the asset or liability, either directly
(i.e. prices) or indirectly (i.e. derived from prices);
Level 3 - Inputs for assets or liabilities that are not based on
observable market data.
Fair value of financial instruments carried at amortized cost
The fair value of the short-term financial assets and other finan-
cial liabilities carried at amortized cost is not materially different
from the carrying amount. In general, fair value is determined
primarily on the basis of the present value of expected future cash
flows. Where the market price is available, however, this is deemed
to be the fair value.
Note 23 Financial assets and liabilities by category
Consolidated Financial Statements / Parent Company Financial Statements
69
Contents
Note 23 Financial assets and liabilities by category (continued)
Categories of financial assets and financial liabilities
Carrying
amount Fair value
Carrying
amount Fair value
(DKK million) 2022 2022 2021 2021
Carried at amortized cost
Cash and bank balances
270 270
432 432
Trade and other receivables
2,528 2,528
2,659 2,659
Other financial assets
50 50
69 69
Financial assets at amortized cost
2,848 2,848
3,160 3,160
Carried at fair value through profit/(loss) (FVTPL)
Financial securities (bonds)
108 108
137 137
Derivative instruments in designated fair value hedging relationships
19 19
8 8
Financial assets at fair value through profit/(loss)
127 127
145 145
Carried at fair value through other comprehensive income
Derivative instruments in designated cash flow hedging relationships
139 139
21 21
Financial assets at fair value through other comprehensive income
139 139
21 21
Total financial assets
3,114 3,114
3,326 3,326
Carried at amortized cost
Trade and other payables
3,764 3,764
4,481 4,481
Bank loans (current and non-current)
6,542 6,593
3,924 3,966
Mortgage loans
2,234 2,240
1,183 1,206
Loan from LEO Holding A/S
4,370 3,238
4,161 3,686
Loan from the LEO Foundation
1,025 882
1,000 944
Lease liabilities (current and non-current)
442 454
502 524
Financial liabilities at amortized cost
18,377 17,171
15,252 14,807
Carried at fair value through profit/(loss) (FVTPL)
Derivative instruments in designated fair value hedging relationships
5 5
6 6
Financial liabilities at fair value through profit/(loss) (FVTPL)
5 5
6 6
Carried at fair value through other comprehensive income
Derivative instruments in designated cash flow hedging relationships
46 46
24 24
Financial liabilities at fair value through other comprehensive income
46 46
24 24
Total financial liabilities
18,428 17,222
15,282 14,837
Consolidated Financial Statements / Parent Company Financial Statements
Contents
Fair value measurements
The fair value of derivative financial instruments is measured on the basis of the
quoted market prices of financial instruments traded in active markets (Level 1 input).
If an active market exists, the fair value is based on the most recently observed
market price at the end of the year. If a financial instrument is quoted in a market
that is not active, LEO Pharma bases its valuation on the most recent transaction
price. Adjustment is made for subsequent changes in market conditions, for instance
by including transactions in similar financial instruments assumed to be motivated
by normal business considerations.
If an active market does not exist, the fair value of standard and simple finan-
cial instruments, such as forward foreign exchange contracts, interest rate swaps,
currency swaps and unlisted bonds, is measured according to generally accepted
valuation techniques (Level 2 input). Market-based parameters are used to measure
the fair value.
Valuation methods where possible input is not based on observable market data
(Level 3 input).
Note 23 Financial assets and liabilities by category (continued)
2022
(DKK million) Level 1 Level 2 Level 3 Total
Financial assets:
Danish mortgage bonds 108 - - 108
Derivative instruments - 158 - 158
Total 108 158 - 266
Financial liabilities:
Bank loans - 6,593 - 6,593
Mortgage loans - 2,240 - 2,240
Loan from LEO Holding A/S - 3,238 - 3,238
Loan from the LEO Foundation - 882 - 882
Lease liabilities - - 454 454
Derivative instruments - 51 - 51
Total - 13,004 454 13,458
2021
(DKK million) Level 1 Level 2 Level 3 Total
Financial assets:
Danish mortgage bonds 137 - - 137
Derivative instruments - 29 - 29
Total 137 29 - 166
Financial liabilities:
Bank loans - 3,966 - 3,966
Mortgage loans - 1,206 - 1,206
Loan from LEO Holding A/S - 3,686 - 3,686
Loan from the LEO Foundation - 944 - 944
Lease liabilities - - 524 524
Derivative instruments - 30 - 30
Total - 9,83 2 524 10,356
Fair value hierarchy of financial assets and liabilities measured or disclosed at fair
value at December 31:
Consolidated Financial Statements / Parent Company Financial Statements
1. Accrued milestone
payment from approval of
Adtralza
®
by the Japanese
Ministry of Health, Labor and
Welfare in December 2022.
2. Accrued milestone
payments are related to
the EMA and FDA approval
of Adtralza
®
/Adbry™.
3. Other consists of accrued
expenses related to core
business activities, contingent
consideration such as
mandatory deductions
typically set by medical
or other governmental
authorities etc.
4. Other non-cash
adjustments primarily
consist of remeasurement of
defined benefit obligations
of DKK 329m (2021: write-off
of prepayment of DKK
273m and remeasurement
of defined benefit
obligation of DKK 195m).
Contents
Note 24 Other payables
(DKK million) 2022 2021
Employee-related accruals 898 878
Accrued milestone payments 143
1)
712
2)
Accrued clinical trial expenses 272 178
Sales deduction accruals 327 157
Accrued promotion fee 69 82
Public authorities (VAT) 47 66
Financial derivatives 50 30
Other 707
3)
789
Total 2,513 2,892
Accounting policies
Other payables comprise amounts owed to employees, including wages,
salaries, holiday pay, salary/wages relating items; amounts owed in
connection with purchase of development projects; amounts owed related
to clinical trials; amounts owed related to sales deduction and promotion
fee; amounts owed to the public authorities such as VAT; accrued deriva-
tives and other such as distributor expenses, promotional tax and product
listing agreements, etc.
Clinical trials can take several years to complete. Therefore, the Management
is required to make estimates based on the progress and costs incurred
to date for the ongoing trials. Judgments are made on determining the
amount of costs to be expensed during the period or recognized as prepaid
expenses or other payables on the balance sheet.
Note 25fl
(DKK million) 2022 2021
Other non-cash adjustments:
Gain/loss on sale of non-curent assets etc. (6) -
Changes in provisions 1,632 1,471
Change in provision for defined benefit plans (357) (213)
Change in inventory write-downs 13 192
Change in provisions for bad debt 7 (12)
Other non-cash adjustments
4)
379 786
Total 1,668 2,224
Change in Working capital
Change in inventories (724) (1,198)
Change in receivables, prepaid expenses etc. 181 568
Change in current liabilities (242) 87
Total (785) (543)
Consolidated Financial Statements / Parent Company Financial Statements
Contents
The commitments related to intangible assets comprise milestone payments concern-
ing the development of new products and intellectual property rights from acquisitions.
Commercial milestones, royalties and other payments based on a percentage of sales
generated from sale of goods following marketing approval are excluded from the
contractual commitments because of their contingent nature, related to future sales.
The commitments regarding property, plant and equipment relate primarily to two
major expansions of production facilities. One project relates to the construction of a
new plant in Denmark, while the other project relates to the expansion of an existing
plant in Ireland. The amounts are not risk-adjusted or discounted.
Pending lawsuits
At the end of 2022, there were pending patent lawsuits filed by and against LEO
Pharma concerning rights related to products in LEO Pharma’s portfolio. LEO Pharma
does not expect these or other pending cases to have any significant effect on the
Group’s financial position.
LEO Pharma is involved in a number of legal proceedings. In the opinion of Manage-
ment, the outcome of these proceedings are currently assessed not to have a material
impact on the financial position or cash flows. Such proceedings will, however, develop
over time, and new proceedings may occur which could have a material impact on LEO
Pharma’s financial position and/or cash flows.
Tax
As a global business, LEO Pharma will from time to time have tax audits and discussions
with tax authorities in various countries regarding tax issues, including transfer pricing and
indirect taxes. Please refer to the description of uncertain tax positions in note 8.
(DKK million) 2022 2021
Intangible assets 333 2,119
Property, plant and equipment 137 334
Total 470 2,453
Note 26 Guarantees, contingencies and commitments
Guarantees
The total guarantee commitments for LEO Pharma amount to DKK 136m at December
31, 2022 (2021: DKK 86m)
Contractual obligations and commitments
The table below shows contractual obligations, not recognized in the consolidated
financial statements.
Consolidated Financial Statements / Parent Company Financial Statements
Contents
Note 27 Related party transactions
LEO Pharma A/S’ related parties comprise:
•
The controlling owner, LEO Holding A/S, and the ultimate Parent of the Group, the
LEO Foundation
•
The associate, Skinvision B.V.
•
Members of the LEO Foundation’s Board of Trustees and Executive Board, and of LEO
Pharma A/S’ and LEO Holding A/S’ Board of Directors and Executive Management,
as well as close relatives of these persons
Other owners with significant influence:
•
Nordic Capital (Through - Cidron Savanna 4 SARL)
Transactions and balances with the LEO Foundation:
•
Loan of DKK 1,025m (2021: DKK 1,000m)
•
Interest expenses of DKK 25m (2021: DKK 25m)
•
Income of DKK 0m (2021: DKK 0m)
•
Payables of DKK 0m (2021: Payables of DKK 0m)
Transactions and balances with LEO Holding A/S:
•
Tax settlement of DKK 356m (2021: DKK 238m)
•
Loan of DKK 4,370m (2021: DKK 4,161m)
•
Interest expenses of DKK 208m (2021: DKK 198m)
•
Receivables regarding joint taxation of DKK 0m (2021: DKK 370m)
Transactions and balances with Nordic Capital:
•
Capital increase of DKK 0m (2021: DKK 3,347m)
Transactions and balances with the members of the Board
of Directors or the Executive Management:
Selected members of the Board of Directors have purchased warrants as part of the
Management Incentive Program, totaling DKK 1m (2021: DKK 3m).
There were no other transactions with the Board of Directors or the Executive Manage-
ment or their relatives besides remuneration. For information concerning remuneration,
please refer to note 3.
The LEO Pharma Group is included in the consolidated financial statements of the
LEO Foundation.
Note 28 Events after the balance sheet date
No significant events after the balance sheet date have occurred.
Consolidated Financial Statements / Parent Company Financial Statements
Contents
Activities
Country Share of ownership % Sales and distribution Production Marketing & services Other
Parent company
LEO Pharma A/S Denmark
● ▲ ◆ ▼
Subsidiaries
SARL LEO Pharma Algeria 100
◆
LEO Pharma Pty Ltd Australia 100
●
LEO Pharma GmbH Austria 100
●
LEO Pharma N.V. Belgium 100
●
LEO Pharma LTDA Brazil 100
●
LEO Pharma Inc. Canada 100
●
LEO Pharma Consultancy Company Ltd. China 100
◆
LEO Pharma Trading Company Ltd. China 100
●
LEO Pharma s.r.o. Czech Republic 100
◆
Løvens Kemiske Fabriks Handelsaktieselskab Denmark 100
▼
LEO Ventures A/S Denmark 100
▼
LEO Pharma OY Finland 100
●
Laboratoires LEO S.A.S France 100
● ▲
LEO Pharma GmbH Germany 100
●
LEO Pharmaceutical Hellas S.A. Greece 100
●
DKLEO Pharma Private Limited India 100
▼
LEO Laboratories Ltd. Ireland 100
● ▲
Wexport Ltd. Ireland 100
▲
LEO Pharma Holding Ltd. Ireland 100
▼
LEO Pharma Manufacturring Italy S.R.L. Italy 100
▲
LEO Pharma S.p.A. Italy 100
●
Note 29 Company overview
Consolidated Financial Statements / Parent Company Financial Statements
1. Under liquidation
Contents
Activities
Country Share of ownership % Sales and distribution Production Marketing & services Other
LEO Pharma K.K. Japan 100
●
LEO Pharmaceuticals, S. de R.L. de C.V. Mexico 100
●
LEO Pharma LLC Morocco 100
◆
LEO Pharma BV Netherlands 100
●
LEO Pharma Ltd. New Zealand 100
●
LEO Pharma AS Norway 100
●
LEO Pharma Sp. z o.o. Poland 100
◆
LEO Pharma Global Business
Service Center Sp. z o.o.
Poland 100
▼
LEO Farmacêuticos Lda. Portugal 100
●
LEO Pharmaceutical Products LLC Russia 100
●
LEO Pharma Asia PTE Ltd. Singapore 100
◆
LEO Pharma Yuhan Hoesa South Korea 100
●
Laboratorios LEO Pharma S.A. Spain 100
●
LEO Pharma AB Sweden 100
●
LEO Pharmaceutical Products Sarath Ltd. Switzerland 100
●
LEO Pharma SARL
1)
Tunisia 100
●
LEO Laboratories Ltd. United Kingdom 100
●
LEO Pharma Inc. USA 100
●
LEO Spiny Merger Sub. Inc. USA 100
▼
LEO US Holding Inc. USA 100
▼
Associates
PellePharm Inc. USA 17
▼
SkinVision B.V Netherlands 22
▼
Note 29 Company overview (continued)
During 2022, LEO Pharma has divested the subsidiaries Omhu A/S and Studies&Me A/S.
LEO Pharma İlaç Ticaret A.Ş (Turkey) has been liquidated during 2022.
Consolidated Financial Statements / Parent Company Financial Statements
Contents
Income statement
January 1 - December 31
(DKK million) Note 2022 2021
Revenue 2 12,935 9,9 63
Cost of sales 3, 11 (9,525) (8,360)
Gross profit 3,410 1,603
Sales and distribution costs 3, 10, 11 (3,929) (3,137)
Research and development costs 3, 10, 11 (2,328) (2,892)
Administrative costs 3, 4, 5, 10, 11, 17 (1,751) (1,882)
Other operating income 6 60 17
Other operating expenses 6 (76) (61)
Operating profit/(loss) (4,614) (6,352)
Income from investment in subsidiaries 12 1,189 1,733
Financial income 7 41 39
Financial expenses 7 (777) (607)
Profit/(loss) before tax (4,161) (5,188)
Income tax 8 13 308
Net profit/(loss) for the year (4,148) (4,880)
/ Parent Company Financial Statements
Contents
Assets
(DKK million) Note 2022 2021
Goodwill 149 162
Intellectual property rights 5,471 6,026
Software 1,253 1,524
Development projects and software in progress 609 761
Intangible assets 10 7, 4 8 2 8,473
Land and buildings 493 509
Plant and machinery 448 493
Other fixtures and fittings, tools and equipment 122 130
Assets under construction 1,641 1,494
Property, plant and equipment 11 2,704 2,626
Investment in subsidiaries 12 11,030 9, 4 76
Deferred tax assets 13 785 785
Pensions 17 21 -
Other financial assets 50 78
Other non-current assets 11,886 10,338
Non-current assets 22,072 21,437
Inventories 15 2,952 2,326
Trade receivables 522 527
Loans to subsidiaries 1,487 570
Receivables from subsidiaries 1,994 2,087
Tax receivables 27 391
Other receivables 14 332 259
Prepaid expenses 16 245 332
Other financial securities 108 136
Cash 4 83
Current assets 7, 67 1 6,711
Assets 29,743 28,148
Equity and liabilities
(DKK million) Note
2022
2021
Share capital
321
320
Net revaluation, subsidiaries
9, 659
7,881
Reserves
1,232
1,571
Retained earnings
(9,270)
(4,153)
Equity
1,942
5,619
Loans and credit institutions 19
13,764
8,928
Pensions 17
-
7
Provisions 18
101
56
Tax payables
489
496
Other long-term liabilities
175
322
Total non-current liabilities
14,529
9,809
Loans and credit institutions 19
369
1,181
Trade payables
752
1,083
Provisions 18
285
217
Loans from subsidiaries
7,0 3 6
5,829
Payables to subsidiaries
3,133
2,247
Tax payables
447
453
Other payables 20
1,250
1,710
Current liabilities
13,272
12,720
Liabilities
27,801
22,529
Equity and liabilities
29,743
28,148
/ Parent Company Financial Statements
Contents
Reserves
(DKK million) Share capital
Net revaluation,
subsidiaries
Reserve for currency
hedging
Other
Capital reserve
Reserve for
development projects
Retained
earnings
Total
2022
Equity at January 1 320 7,881 (1) 9 1,563 (4,153) 5,619
Net profit/(loss) for the year - 1,189 - - - (5,337) (4,148)
Foreign exchange rate adjustment, subsidiaries - 137 - - - - 137
Other movements on subsidiaries
1)
- 200 - - - (248) (48)
Capitalized development costs, net - - - - (408) 408 -
Value adjustments of hedging instruments - - 61 - - - 61
Remeasurement of defined benefit
pension obligations - 302 - - - 27 329
Tax on changes in equity - (50) (17) - - (2) (69)
Transactions with owners
Increase of capital
2)
1 - - - - 35 36
Share-based payments - - - 25 - - 25
Total transactions with owners 1 - - 25 - 35 61
Equity at December 31 321 9, 6 59 43 34 1,155 (9,270) 1,942
2021
Equity at January 1 250 6,106 (25) - 1,568 (881) 7,017
Net profit/(loss) for the year - 1,733 - - - (6,613) (4,880)
Capitalized development costs, net - - - - (5) 5 -
Deferred gains/losses on financial instruments - - 25 - - 5 30
Dividend received from subsidiaries - (149) - - - 149 -
Foreign exchange rate adjustment, subsidiaries - 51 - - - - 51
Other movements - 141 - - - 2 143
Tax on changes in equity - - (1) - - (6) (7)
Transactions with owners
Increase of capital
1)
70 - - - - 3,277 3,347
Transaction cost related to capital increase - - - - - (92) (92)
Share-based payments - - - 9 - - 9
Total transactions with owners 70 - - 9 - 3,185 3,264
Equity at December 31 320 7,881 (1) 9 1,563 (4,153) 5,619
The Company’s total share capital of 320,885,992 is divided into 125.000.000 A-shares and 195,885,992 B-shares of DKK 1 each. Each A-share carries 10
votes, where B-shares carries 1 vote per share. Reference is made to note 17 in the consolidated financial statements.
1. Reference is made to note 12.
2. Reference is made to
note 17 in the consolidated
financial statements.
/ Parent Company Financial Statements
Contents
Notes - Parent Company
82
1 Accounting policies
89
13
84
4
89
16
85
7
92
19 Loans and credit institutions
87
10 Intangible assets
93
22 Guarantees, contingencies and commitments
83
2 Revenue
89
14 Other receivables
85
5 Fees to Auditors appointed at the Annual General Meeting
90
17 Pensions
86
8
92
20 Other payables
88
11 Property, plant and equipment
93
23 Other notes
83
3 ff
89
15 Inventories
85
6
91
18 Provisions
86
9 fi
92
21 Contractual obligations
89
12 Investment in subsidiaries
NOTES TO THE INCOME STATEMENT
NOTES TO THE BALANCE SHEET
NOTES - ADDITIONAL INFORMATION
/ Parent Company Financial Statements
Contents
Note 1 Accounting policies
The Parent company’s financial statements are presented in accordance with the
Danish Financial Statements Act for companies in reporting class large C.
The accounting policies of the Parent company are consistent with the accounting
policies of the Group, except for IFRS16 leases and the treatment of goodwill. In addition,
the policies described below are implemented for the Parent company.
Royalty income relates to the primary activities and is recognized as revenue. Compar
-
atives for 2021 have been restated as royalty income was recognized as other operating
income in previous years. Beside this change, the accounting policies remain unchanged
from the previous year.
General Information
In accordance with the exemption clause in Section 86(4) of the Danish Financial State-
ments Act, no separate cash flow statement has been prepared for the Parent company.
Goodwill
Goodwill is measured at cost less accumulated amortization and impairment. Amor-
tization is calculated using the straight-line method over the expected useful life,
estimated at 15 years. This estimate was made on the basis of estimated useful lives of
the other assets acquired in the transaction.
Investments in subsidiaries
In the Parent company’s financial statements, investments in subsidiaries and associates
are recognized according to the equity method. The share of the results of subsidi-
aries less unrealized intra-group gains is recognized in the Parent company’s income
statement. Net revaluation of investments in subsidiaries and associates exceeding
the dividend declared by such companies is recognized in equity as reserve for net
revaluation according to the equity method.
Tax
The Parent company is jointly taxed with all of its Danish subsidiaries. The Parent
company and its Danish subsidiaries settle the tax with its owner and the administra-
tion company LEO Holding A/S. The current Danish tax is allocated between the jointly
taxed companies in proportion to their taxable income.
Equity
Reserve for development costs
The reserve for internal development costs comprises capitalized development costs. This
reserve cannot be used for dividends or distributions, or to cover losses. If the recognized
development costs are sold or otherwise excluded from the company’s operations, the
reserve will be dissolved and transferred directly to the distributable reserves under equity.
If the recognized development costs are written down, the part of the reserve corre-
sponding to the write-down of the development costs will be reserved. If a write-down
of development costs is subsequently reserved, the reserve will be re-established. The
reserve is reduced by amortization of capitalized development costs on an ongoing basis.
The reserve is reduced by dividends distributed to the Parent company.
/ Parent Company Financial Statements
Contents
Note 2 Revenue
(DKK million) 2022 2021
Revenue by market
International Operations 10,100 9,118
North America 2,581 773
Other 254 72
Total 12,935 9,9 63
(DKK million) 2022 2021
Revenue by category
Products 12,514 9,513
Sales-based royalties 421 445
1)
Other - 5
Total 12,935 9,9 63
Note 3ff
(DKK million) 2022 2021
Wages and salaries 1,596 1,696
Hereof capitalized staff expenses (42) (136)
Pensions 141 173
Share-based payment
2)
29 16
Social security expenses 19 22
Other employee expenses 59 61
Total staff expenses 1,802
3)
1,832
4)
Staff expenses included in:
Cost of sales 326 311
Sales and distribution costs 243 252
Research and development costs 633 619
Administrative costs 600 650
Total staff expenses 1,802 1,832
Average number of full-time employees 1,897 2,145
For a description of the Parent company’s remuneration to the Executive Management
and the Board of Directors, please refer to note 3 of the consolidated financial
statements.
Change to revenue segments
As part of the commercial reorganization, the segment structure by region has changed.
The segments have been changed to Product Strategy & International Operations
("International Operations"), "North America" and "Other" to support our strategic
focus on simplifying our operating model. The comparative figures for 2021 have been
restated accordingly.
1. Royality income of DKK
357m has been reclassified
in 2021 from other operating
income to revenue as
the income is related
to primary activities.
2. Reference is made to note 4.
3. Total staff expenses are
impacted by DKK 164m
as a consequence of the
restructuring of LEO Pharma
announced on June 2, 2022
and January 12, 2023 due to
organzational changes of
R&D, commercial and support
functions. The restructuring
costs are recognized in
the income statement
and classified as cost of
sales DKK 37m, sales and
distribution costs DKK 50m,
research and development
costs DKK 48m and
administrative costs DKK 29m.
4. Total staff expenses are
impacted by DKK 43m
as a consequence of the
restructuring of LEO Pharma
announced to the public
on January 19, 2022. The
restructuring costs are
recognized in the income
statement and classified
as sales and distribution
costs DKK 20m, research
and development costs
DKK 18m and administrative
costs DKK 5m.
/ Parent Company Financial Statements
Contents
Note 4
Description of share-based payment arrangements
Terms and conditions, measurement of grant date fair value etc. for share-based
payment arrangements in LEO Pharma A/S are the same as for the Group. We refer
to note 4 in the consolidated financial statements.
Reconciliation of outstanding employee awards
2022
Number of matching shares
ESPP
(equity settled)
EPSPP
(cash settled)
Outstanding January 1 - -
Granted 555,296 15,832
Forfeited (90,280) (4,512)
Outstanding at December 31 465,016 11,320
Fair value at grant (DKK) 30.40 30.40
Current fair value (DKK) 30.71 30.71
Reconciliation of outstanding cash-settled awards
Reconciliation of outstanding equity-settled awards
Number of phantom shares
Phantom Share
Agreement 2021
Phantom Share
Agreement 2022
Outstandig at January 1 - 2,141,750
Instruments granted 2,141,750 2,063,864
Forfeited during the year - (311,532)
Outstanding at December 31 2,141,750 3,894,082
Fair value at grant date (DKK) 7.38 7.58
Initial expected total cost (DKK) 25,848,797 29,142,862
Instruments for which it is expected to vest 2,141,750 3,894,082
Current fair value (DKK) 7.38 7.9 7
Total expected settlement 25,848,797 31,035,834
Liability at December 31, 2022 (DKK) 9,668,856 23,060,322
In number of warrants Total 2021 Total 2022
Outstanding at January 1 - 2,815,973
Granted during the year 2,815,973 1,153,104
Forfeited during the year - (25,763)
Outstanding at December 31 2,815,973 3,943,314
Exercisable at December 31 - -
Fair value at grant 7.14 7.58
Average exercise share price 47.72 47.72
Financial impact
At December 31, 2022, the total carrying amounts of liabilities arising from the share-
based payment transactions amounts to DKK 23m (2021: DKK 10m). The intrinsic value
at December 31, 2022 of liability related to vested phantom shares was DKK 12m (2021:
DKK 5m).
Total expense recognized in 2022 from share-based payment transactions recognized
in the income statement amounts to DKK 29m (2021: DKK 16m), of which DKK 15m (2021:
DKK 6m) arises from equity-settled share-based payment transactions.
/ Parent Company Financial Statements
Contents
Note 5 Fees to Auditors appointed at the Annual General
Meeting
(DKK million) 2022 2021
Statutory audit 5 4
Non-audit services 2 7
Total 7 11
Note 6
(DKK million) 2022 2021
Gain from sale of assets 14
1)
-
Other operating income 46 17
Other operating income
2)
60 17
Royalty expenses 52 18
Loss from sale of assets 9
3)
-
Other operating expenses 15 43
4)
Other operating expenses 76 61
Note 7
(DKK million) 2022 2021
Interest income, related parties 40 20
Other interest income 1 1
Share of profit on associates - 4
Other financial income - 14
Total financial income 41 39
Interest expenses, related parties 246 223
Interest expenses, credit institutions 310 106
Other interest - 3
Foreign exchange rate losses, net
5)
53 69
Financial assets write-down 15 -
Other financial expenses
6)
153 206
Total financial expenses 777 607
1. Gain from sale of
assets mainly relates
to the sale of assets to
Aqilion AB of DKK 13m.
2. Royality income of DKK
357m has been reclassified
in 2021 from other operating
income to revenue as
the income is related
to primary activities.
3. Loss from sale of assets
mainly relates to the sale of
Studies&Me A/S of DKK 8m.
4. Related primarily to
accounting loss on an
onerous contract, DKK 41m.
5. Foreign exchange gains
amount to DKK 705m (2021:
DKK 717m) and foreign
exchange losses amount to
DKK 758m (2021: DKK 786m).
6. Other financial expenses
primarily comprise of
commitment fees related
to our current Syndicated
facility agreement (2021:
bank charges, other fees
etc. and a payment of a
bank guarantee related to
the associated company
PellePharm of DKK 131m)
/ Parent Company Financial Statements
Contents
Note 8
(DKK million) 2022 2021
Current tax (15) 296
Prior-year adjustments, current tax 9 5
Prior-year adjustments, deferred tax (76) (17)
Change in deferred tax 76 17
Total tax income/(expense) for the year (6) 301
Tax on profit/(loss) for the year 13 308
Tax on changes in equity (19) (7)
Total tax income/(expense) for the year (6) 301
Note 9fi
year
(DKK million) 2022 2021
Net revaluation, subsidiaries 1,189 1,733
Retained earnings (5,337) (6,613)
Total (4,148) (4,880)
/ Parent Company Financial Statements
Contents
(DKK million) 2022 2021
Amortization and impairment losses are specified as follows:
Cost of sales - 2
Sales and distribution costs 652 542
Research and development costs 63 563
Administrative costs 541 507
Total 1,256 1,614
1. Additions consist of
capitalized milestone
payment from approval of
Adtralza
®
by the Japanese
Ministry of Health, Labor and
Welfare in December 2022.
2. Additions consist of
DKK 41m (2021: DKK 38m)
related to R&D development
projects, and DKK 95m (2021:
DKK 355m) related to the
development of IT projects.
3. Impairment for the year
consists of impairment of
IT projects of DKK 161m and
impairment of development
projects of DKK 17m (2021:
Impairment of Patidegib
DKK 435m, termination of
a development agreement
with an external partner
DKK 82m, and impairment
of IT projects DKK 128m)
4. Total development projects
and software in progress DKK
609m (2021: DKK 761m) consist
of software in progress DKK
316m (2021: DKK 493m), and
R&D development projects
DKK 293m (2021: DKK 268m).
5. In July 2021, Adtralza
®
was launched in Germany
and in December the FDA
approval was received
for Adbry™ i.e. subsequent
milestone payments of DKK
712m have been accrued.
Note 10 Intangible assets
2022 2021
(DKK million) Goodwill
Intellectual
property
rights Software
Development
projects and
software in
progress
Total
intangible
assets Goodwill
Intellectual
property rights Software
Development
projects and
software in
progress
Total
intangible
assets
Cost at January 1 192 13,769 2,498 879 17,338 192 12,276 1,922 2,388 16,778
Additions during the year - 143
1)
- 136
2)
279 - 712
5)
18 393
2)
1,123
Disposals during the year - - - (250) (250) - - (11) (524) (535)
Transfers - - 96 (110) (14) - 781
5)
569 (1,378) (28)
Cost at December 31 192 13,912 2,594 655 17,353 192 13,769 2,498 879 17,338
Amortization and impairment
losses at January 1 (30) (7,743) (974) (118) (8,865) (17) (7,155) (587) (21) (7,780)
Amortization for the year (13) (698) (367) - (1,078) (13) (575) (381) - (969)
Impairment for the year - - - (178)
3)
(178) - (13) (8) (624) (645)
3)
Disposals during the year -
-
- 250 250 - - 11 518 529
Transfer - - - - - - - (9) 9 -
Amortization and impairment
losses at December 31 (43) (8,441) (1,341) (46) (9,871) (30) (7,743) (974) (118) (8,865)
Carrying amount at December 31 149 5,471 1,253 609
4)
7, 4 8 2 162 6,026 1,524 761
4)
8,473
/ Parent Company Financial Statements
Contents
Note 11 Property, plant and equipment
2022 2021
(DKK million)
Land and
buildings
Plant and
machi nery
Other fixtures
and fittings,
tools and
equipment
Assets under
construction
1)
Total
property,
plant and
equipment
Land and
buildings
Plant and
machi nery
Other fixtures
and fittings,
tools and
equipment
Assets under
construction
1)
Total
property,
plant and
equipment
Cost at January 1 1,204 1,471 465 1,494 4,634 1,185 1,472 430 1,260 4,347
Exchange rate adjustment - - (2) 1 (1) 1 0 1 - 2
Additions during the year - - 20 244 264 - 0 22 467 490
Disposals during the year (1) (12) (13) - (26) (4) (206) (23) - (232)
Transfers 14 81 19 (98) 16 22 204 34 (233) 28
Cost at December 31 1,217 1,540 489 1,641 4,887 1,204 1,471 465 1,494 4,634
Depreciation and impairment
losses at January 1 (695) (978) (335) - (2,008) (668) (990) (317) - (1,975)
Exchange rate adjustment - (1) 1 - - (0) - (1) - (2)
Disposals during the year 1 12 11 - 24 4 206 22 - 232
Depreciation for the year (28) (113) (40) - (181) (26) (101) (39) - (165)
Impairment loss for the year (2) (12) (4) - (18) (5) (93)
3)
(0) - (98)
Depreciation and impairment at
December 31 (724) (1,092) (367) - (2,183) (695) (978) (335) - (2,008)
Carrying amount at December 31 493 448 122 1,641 2,704
2)
509 493 130 1,494 2,626
2)
(DKK million) 2022 2021
Depreciation and impairment losses are specified as follows:
Cost of sales 135 205
Sales and distribution costs 2 2
Research and development costs 20 18
Administrative costs 42 38
Total 199 263
1. Fixed assets under
construction are mainly
related to the construction of
a new plant with a carrying
amount of DKK 1,619m
(2021: DKK 1,399m). The
new plant is expected to
start production in 2024.
2. Assets pledged as collateral
for loans amount to DKK
2,522m (2021: DKK 2,358m)
3. Impairment in 2021 of a
production line related to
two onerous contracts.
/ Parent Company Financial Statements
Contents
Note 12 Investment in subsidiaries
(DKK million) 2022 2021
Cost at January 1 1,595 1,583
Additions during the year 1 12
Disposals during the year (232) -
Other movements 7 -
Cost at December 31 1,371 1,595
Value adjustment at January 1 7,881 6,106
Exchange rate adjustment 137 11
Share of profit/(loss) for the year 1,189 1,733
Dividend (32) (149)
Disposals during the year 173 -
Other movements 311 180
Value adjustment at December 31 9, 659 7,881
Carrying amount at December 31 11,030 9, 47 6
Reference is made to Note 29 in the consolidated financial statements.
Note 13
(DKK million) 2022 2021
Deferred tax assets/(liabilities) at January 1 785 785
Adjustment relating to previous years (76) (17)
Deferred tax on equity (19) (7)
Deferred tax on profit for the year 95 24
Deferred tax assets/(tax liabilities) at December 31 785 785
For description of basis for recognition of deferred tax assets, reference is made to note 15 in the consolidated
financial statements.
Deferred tax assets 785 785
Deferred tax liabilities - -
Deferred tax assets/(tax liabilities) 785 785
Note 14 Other receivables
(DKK million) 2022 2021
Receivable VAT & duties 133 168
Deposits 2 3
Financial derivatives 160 29
Other 37 59
Total 332 259
Classified as follows:
Note 16
Note 15 Inventories
(DKK million) 2022 2021
Raw materials and consumables 653 131
Work in progress 1,358 1,282
Finished goods and goods for resale 941 913
Total 2,952 2,326
(DKK million) 2022 2021
Prepaid clinical trials 180 258
Prepaid IT expenses 58 56
Other prepaid expenses 7 18
Total 245 332
/ Parent Company Financial Statements
Contents
Note 17 Pensions
Defined benefit plans
LEO Pharma A/S aquired a defined benefit plan in Germany through the acquisition
of Bayer’s prescription dermatology business on July 1, 2019. The plan is funded and
covered under a contractual trust agreement (“Metzler”) whose assets are legally
separated from those of LEO Pharma A/S. The plans are defined by different work
council agreements and entitle the employees to an annual pension on retirement
based on the service and salary level upon retirement.
(DKK million) 2022 2021
Present value of defined benefit plans:
Present value of defined benefit plans at January 1 123 142
Exchange rate adjustments (2) -
Interest expenses 1 1
Actuarial (gains)/losses from changes in financial assumptions (34) (6)
Actuarial (gains)/losses from experience adjustments 2 1
Payments from the plan (4) (15)
Present value of defined benefit plans at December 31 86 123
Fair value of plan assets
Present value of plan assets at January 1 116 120
Effect of exchange rate adjustment (1) -
Actuarial gains/(losses) from return on plan assets (5) (1)
Interest income 1 1
Benefits paid to employees (4) (4)
Fair value of plan assets at December 31 107 116
Net retirement benefit obligations/(assets) at December 31 (21) 7
Recognized as:
Financial assets 21 -
Non-current liabilities - 7
Net retirement benefit obligations/(assets) at December 31 (21) 7
Specification of amount recognized in the Equity
Actuarial (gains)/losses (27) (4)
Total (27) (4)
Sensitivity analysis
The discount rate is the most significant assumption used in the calculation of the
obligation for defined benefit plans. The sensitivity analysis indicates what the
development in the obligation would be as a result of a change in the individual
assumption. However, the assumptions will most likely be correlated and consequently
result in a different obligation.
A 0.25% decrease in the discount rate would result in an increase in the obligation of
approximately 3.0% or DKK 3m (2021: 4.0% or DKK 5m).
/ Parent Company Financial Statements
90
Contents
Note 18 Provisions
(DKK million)
Staff-related
provisions
Other
provisions
Sales
deductions Total
2022
Provisions at January 1 130 135 8 273
Exchange rate adjustment 1 - - 1
Additions during the year 221
1)
167
3)
2 390
Utilization during the year (124)
2)
(70) (5) (199)
Reversals during the year (28)
1)
(48) (3) (79)
Provisions at December 31 200 184 2 386
Of which classified as:
Non-current liabilities 62 39 - 101
Current liabilities 138 145 2 285
Provisions at December 31 200 184 2 386
(DKK million)
Staff-related
provisions
Other
provisions
Sales
deductions Total
2021
Provisions at January 1 229 43 11 283
Exchange rate adjustment 0 0 - 0
Additions during the year 88 122
4)
7 217
Utilization during the year (150) (30) (8) (188)
Reversals during the year (33) - (2) (35)
Transfer (4) - - (4)
Provisions at December 31 130 135 8 273
Of which classified as:
Non-current liabilities 41 15 - 56
Current liabilities 89 120 8 217
Provisions at December 31 130 135 8 273
1. Addition and reversals
consist of net DKK 164m
related to restructuring due to
organzational changes of R&D
and commercial and global
support functions. Addition
of DKK 28m is related to
long-term incentive programs.
2. The restructuring provision
utilized amounts to DKK
109m. The remaining part
is expected to be utilized
during 2023 and 2024.
3. Addition of DKK 69m
is related to one onerous
contract, recognized as a
part of cost of goods sold.
4. Addition of DKK 111m
is related to two onerous
contracts, of which DKK 41m
is recognized as part of
Other operating expenses
(reference is made to note
6), and the remaining part
of DKK 70m is recognized as
part of Cost of goods sold.
/ Parent Company Financial Statements
Contents
Note 20 Other payables
(DKK million) 2022 2021
Employee related accruals 404 457
Accrued milestone payments 143
1)
712
2)
Accrued clinical trials expenses 272 178
Sales deductions accruals 128 71
Financial derivatives 50 30
Other 253 262
Total 1,250 1,710
Note 19 Loans and credit institutions
(DKK million) 2022 2021
Mortgage loans 2,234 1,183
Bank loans 6,505 3,765
Debt to related parties 5,394 5,161
Total 14,133 10,109
Falling due in:
Less than one year 369 1,181
Between one and five years 7,487 295
After five years 6,277 8,633
Total 14,133 10,109
Note 21 Contractual obligations
Operating lease obligations
The Parent company has lease obligations of DKK 35m (2021: DKK 48m) of which DKK
23m is related to lease for office premise from subsidiary (2021: DKK 22m).
Cash resources and financing facilities
The Parent company established new mortgage loans in the fourth quarter of 2022.
The facilities are linked to the premises in Ballerup, Denmark, and in particular linked to
the final stage of completing of a new plant for Fucidin
®
production.
The nominal value of the new mortgage loans is DKK 1,065m, bringing the total mortgage
portfolio up to a nominal value of DKK 2,265m.
1. Accrued milestone
payment from approval of
Adtralza
®
by the Japanese
Ministry of Health, Labor and
Welfare in December 2022.
2. Accrued milestone
payments are related to
the EMA and FDA approval
of Adtralza
®
/Adbry™.
/ Parent Company Financial Statements
92
Contents
(DKK million) 2022 2021
Intangible assets 333 2,119
Property, plant and equipment 60 162
Total 393 2,281
Note 22 Guarantees, contingencies and commitments
Note 23 Other notes
Guarantees
The total guarantee commitment for the Parent company amounts to DKK 476m (2021:
DKK 438m) at December 31, 2022.
As of December 31, 2022, LEO Pharma has issued guarantees to subsidiaries of DKK
357m (2021: DKK 363m), of which DKK 252m (2021: DKK 265m) is related to pension obli-
gations. In addition to the guarantees for subsidiaries, the Parent company has issued
guarantees related to various commercial activities.
Contractual obligations and commitments
Contracted for but not provided in the financial statements:
For financial risks, please refer to note 21 in the consolidated financial statements.
For related party transactions, please refer to note 27 in the consolidated financial
statements.
For disclosures on assets measured at fair value, please refer to note 23 in the consol-
idated financial statements.
For events after the balance sheet date, please refer to note 28 in the consolidated
financial statements.
Tax
The Parent company is jointly taxed with all its Danish subsidiaries and its owner LEO
Holding A/S. The Parent company is jointly and severally liable with the other compa-
nies in the joint taxation scheme for Danish corporate taxes and withholding taxes on
dividends, interest and royalties within the joint taxation scheme.
LEO Pharma A/S is jointly registered for VAT purposes with LEO Holding A/S, Løvens
Kemiske Fabriks Handelsaktieselskabet A/S and is jointly liable for the payment thereof.
As a global business, LEO Pharma will from time to time have tax audits and discussions
with tax authorities in various countries regarding tax issues, including transfer pricing
and indirect taxes issues. Please refer to the description of uncertain tax positions in
note 8 in the consolidated financial statements.
The commitments related to intangible assets comprise milestone payments concerning
the development of new products and intellectual property rights from acquisitions.
Commercial milestones, royalties and other payments based on a percentage of sales
generated from sale of goods following marketing approval are excluded from the
contractual commitments because of their contingent nature related to future sales.
The commitments regarding property, plant and equipment relate primarily to the
construction of a new plant in Denmark. The amounts are not risk-adjusted or discounted.
Pending lawsuits
At the end of 2022, there were pending patent lawsuits filed by and against LEO
Pharma A/S concerning rights related to products in LEO Pharma’s portfolio. LEO
Pharma A/S does not expect the pending cases to have any significant effect on the
Parent company’s financial position. LEO Pharma A/S is involved in a number of legal
proceedings. In the opinion of Management, the outcome of these proceedings will
not have a material impact on the financial position or cash flows. Such proceedings
will, however, develop over time, and new proceedings may occur which could have a
material impact on LEO Pharma’s financial position and/or cash flows.
/ Parent Company Financial Statements
93
Management’s Statement
Executive Management:
Board of Directors:
Contents
/ Parent Company Financial Statements
94
Independent Auditor's Report
Contents
/ Parent Company Financial Statements
95
CVR No. 339 63556
Identification No (MNE) mne33716
Identification No (MNE) mne21358
Contents
/ Parent Company Financial Statements
96
