Advanced Medical : Interim Report – 2023

AMS is a world-leading independent developer and manufacturer of innovative tissue-healing technology, focused on quality outcomes for patients and value for payers. AMS has a wide range of surgical products including tissue adhesives, sutures, haemostats, internal fixation devices and internal sealants, which it markets under its brands LiquiBand®, RESORBA®, LiquiBandFix8® and Seal-G®. AMS also supplies wound care dressings such as silver alginates, alginates and foams through its ActivHeal® brand as well as under white label. Since 2019, the Group has made five acquisitions: Sealantis, an Israeli developer of innovative internal sealants; Biomatlante, a French developer and manufacturer of surgical biomaterials, Raleigh, a leading UK coater and converter of woundcare and bio- diagnostics materials, AFS Medical, an Austrian specialist surgical business and Connexicon, an Irish tissue adhesives specialist.

AMS's products, manufactured in the UK, Germany, France, the Netherlands, the Czech Republic

and Israel, are sold globally via a network of multinational or regional partners and distributors, as well as via AMS's own direct sales forces in the UK, Germany, Austria, the Czech Republic and Russia. The Group has R&D innovation hubs in the UK, Ireland, Germany, France and Israel. Established in 1991, the Group has more than

800 employees. For more information, please see www.admedsol.com.

Contents

01 Business Highlights

1. Chief Executive's Review

1. Financial Review

1. Condensed Consolidated Income Statement

1. Condensed Consolidated Statement of Comprehensive Income
2. Condensed Consolidated Statement of Financial Position
3. Condensed Consolidated Statement of Changes in Equity
4. Condensed Consolidated Statement of Cash Flows
5. Notes Forming Part of the Consolidated Financial Statements

Financial Highlights

Revenue (£ million)

£63.1m

H1 22: £58.3m

Reported change: +8% (+5% change at constant currency)1

Adjusted² profit before tax margin (%)

21.8%

H1 22: 23.4%

Reported change: -1.6pp

Profit before tax (£ million)

£11.8m

H1 22: £12.3m

Reported change: -5%

Diluted earnings per share (p)

4.06p

H1 22: 4.42p

Reported change: -8%

Net cash3 (£ million)

£69.1m

H1 22: £75.3m

Reported change: -8%

Adjusted² profit before tax (£ million)

£13.8m

H1 22: £13.6m

Reported change: +1%

Adjusted² diluted earnings per share (p)

4.97p

H1 22: 5.01p

Reported change: -1%

Profit before tax margin (%)

18.7%

H1 22: 21.2%

Reported change: -2.5pp

Net operating cash flow (£ million)

£4.1m

H1 22: £12.5m

Reported change: -67%

Interim dividend per share (p)

0.70p

H1 22: 0.64p

Reported change: +10%

Financial

• Revenue increased by 8% to £63.1 million (2022 H1: £58.3 million) driven by growth in non-US markets, which averaged 20% against the first half of last year.
• Gross margins reduced to 56.5% (2022 H1: 58.9%) due to temporary adverse product mix.
• Total investment in R&D increased to £6.0 million (2022 H1: £5.4 million), representing 9.5% (2022 H1: 9.3%) of revenue, as progress was made on key projects including new product development and Medical Device Regulation ("MDR").
• The Group reports a 1% increase in adjusted profit before tax to £13.8 million (2022 H1: £13.6 million) with adjusted profit before tax margin of 21.8% (2022 H1: 23.4%).
• Net cash decreased to £69.1 million from a 2022 year-end position of £82.3 million (2022 H1: £75.3 million) following the acquisition of Connexicon Medical Ltd ("Connexicon") in February.
• Surgical Business Unit revenues increased to £39.4 million (2022 H1: £35.9 million), an increase of 5% at
  constant currency.
• Woundcare Business Unit revenues increased to £23.7 million (2022 H1: £22.4 million), an increase of 4% at constant currency.
• Given the Group's strong net cash position and reflecting the Board's continued confidence in the future, the proposed interim dividend is increased to 0.70p per share (2022 H1: 0.64p).

Operational

• Good progress towards establishing new US LiquiBand® distribution agreements with hospital partners and executing new route-to-market strategy. As previously reported, associated destocking was greater than expected but end- user sales were unaffected and the Board remains confident that this initiative will achieve its objective of creating the foundation for accelerated growth for LiquiBand® in the US.
• Acquisition of Connexicon completed, adding to the Group's ability to develop and commercialise innovative adhesive and sealant technologies and to offer the increased differentiation and exclusivity sought by our US partners. Integration is going well, financial performance is in line with initial expectations and its pipeline approvals are progressing well.
• Recruitment of the Seal-G® and Seal-G® MIST human clinical trials completed in July 2023 with data to be made available for a European soft launch in H2 2023. Initial data shows significant reduction in leakage rates in cases using Seal-G®.

Post Period End

• Announced 18 September, the Group has signed a US LiquiBandFIX8® commercialisation agreement with TELA Bio Inc ("TELA Bio") ahead of a September launch under the brand name LIQUIFIXTM, entering a new $200 million addressable market with a unique, differentiated product.
• The Group can confirm very good progress has been made with all the new US LiquiBand® distribution agreements and is highly confident that the new route-to-market strategy will be fully operational and driving accelerated growth by the end of 2023.

Surgical Business Unit

The Surgical Business Unit includes tissue adhesives, sutures, biosurgical devices and internal fixation devices marketed under the AMS brands LiquiBand®, RESORBA®, LiquiBandFIX8® and LIQUIFIXTM. Revenue increased by 10% on a reported basis and 5% on a constant currency basis in the Period to £39.4 million (2022 H1: £35.9 million).

Advanced Closure

LiquiBand® is a range of topical skin adhesives, incorporating medical grade cyanoacrylate in combination with purpose-built applicators. These products are used to close and protect a broad variety of surgical and traumatic wounds.

LiquiBand® revenues reduced by 5% to £17.0 million (2022 H1: £17.9 million) due to the previously announced disrupted ordering patterns and de-stocking during the Period that has occurred during the transition to our new, previously reported, strategic initiative to accelerate US LiquiBand® growth. However, this was offset by strong growth in non-US markets.

As part of its enhanced partner strategy in the US, the Group continues to have positive discussions with its partners and has made good progress with new agreements aimed at delivering stronger growth from early 2024 onwards. This process has taken longer and associated de-stocking has been greater than initially anticipated, as indicated in the 4 September trading update. Expectations for FY 2024 remain unchanged.

The Group confirms that since the end of the Period, very good progress has been made with all US LiquiBand® distribution agreements and that it is highly confident that the new route-to- market strategy will be fully operational and driving accelerated growth by the end of 2023.

The de-stocking has not affected LiquiBand® end sales demand and the pipeline of evaluations and conversions for LiquiBand® XL continues to grow strongly. As such the Board's expectations for LiquiBand® growth remain high, both short and long-term, and LiquiBand® sales forecasts for 2024 and future years remain unchanged.

The acquisition of Connexicon was completed in February and integration of the business is progressing well with its existing portfolio continuing to grow in European and ROW territories. It is also being positioned to obtain approval in China, which would be AMS' first tissue adhesive approval in this very large market. In addition, the development and approval of its new US portfolio, to support the enhanced partner strategy, is progressing well with 510(k) approvals on track for H2 2024.

Internal Fixation and Sealants

LiquiBandFIX8® is used to fix hernia meshes placed inside the body with accurately delivered individual drops of cyanoacrylate adhesive, instead of traditional tacks and staples. Revenues increased by 31% on a reported basis to £2.2 million (2022 H1: £1.6 million) and 27% on a constant currency basis due to good commercial progress, increasing volumes of hernia surgery and the annualised impact of the acquisition of AFS Medical ("AFS").

Following the PMA approval for LiquiBandFIX8® in June 2023, and the earlier completion of a 284-patient US clinical study, AMS announced on 18 September an agreement for TELA Bio to market and distribute LiquiBandFIX8® across the United States under the brand name LIQUIFIXTM. The signing of this agreement successfully concludes a comprehensive selection process involving a number of potential partners with a broad range of strengths and marketing strategies. During this process, it became clear that TELA Bio brings the right combination of strengths and attributes, with a vision and ambition that is closely aligned with and complements AMS' strategy and aspirations. TELA Bio is a specialist medical technology company that designs, develops and markets innovative tissue reinforcement materials to address unmet needs in soft tissue reconstruction. It has an established and fast-growing footprint in the US market with products that focus on addressing the shortcomings of existing reinforcement materials in hernia repair, abdominal wall reconstruction and plastic reconstructive surgery.

TELA Bio's specialist representative sales force are now undergoing training ahead of launch in September 2023 at the American Hernia Society Annual Meeting. As the first product of its kind in the US, its less invasive application is expected to reduce pain and other post-operative complications and to provide tangible benefits to patients and payors. This represents a significant commercial opportunity for AMS as it enters a new addressable market estimated at $200 million.

Seal-G® MIST (laparoscopic surgery) and Seal-G® (open surgery) are novel, internal, biological sealants used to seal tissue during gastrointestinal surgery to reduce leakage of fluid. Enrolment for the first Seal-G® clinical study, comprising 160 patients, was successfully completed in July 2023 and a small number of end- user commercial orders have been received for devices ahead of the European soft launch in Q4 2023 that will utilise data from the study. An initial analysis of the data indicates a significant reduction in the number of serious clinical leaks that required re-operation. Although not a randomised controlled trial, the Seal-G® study reported serious leakages of only 1.25% which is significantly lower than the 4.2%-4.7% leakage rate reported in DICA (Diverticular Inflammation and Complication) data and in published studies.

Planning and study design for follow-on clinical trials is progressing well as AMS assesses the optimum pathway to build evidence for both colon and other surgical procedures whilst giving consideration to our medium-term goal of Pre-Market Approval in the large and lucrative US market.

Traditional Closure

RESORBA® branded Absorbable and Non-Absorbable Suture ranges are used in general surgery and a wide range of surgical specialties including dental and ophthalmic surgery. Revenue increased by 18% to £9.4 million and by 12% at constant currency (2022 H1: £8.0 million) with a steady performance from its more established European markets. The Group's ongoing strategy to increase its penetration of other geographies also drove growth, such as in the US, where increasing dental suture sales made a significant contribution to Traditional Closure growth.

Biosurgical Devices

The Biosurgical Devices category comprises antibiotic-loaded collagen sponges, collagen membranes and cones, oxidised cellulose, synthetic bone substitutes and bio-absorbable screws. Revenue increased by 7% to £8.3 million (2022 H1: £7.7 million) and by 3% at constant currency.

End user demand for AMS' collagens remains strong but timing of orders and despatches resulted in uneven phasing with stronger revenues and growth anticipated in the second half of 2023. AMS remains confident in the growth potential of its innovative Biosurgical portfolio via its specialist partner network as it continues to expand its distribution network into new territories.

The Group's strategy to market Biomatlante's bone substitutes under the RESORBA® brand continues to progress well with growth in an increasing number of European countries in the Period and the initial pilot US launch via an independent rep model in the second half of 2023.

Other Distributed Products

The Other Distributed category comprises products distributed by AFS, including minimally invasive access ports and laparoscopic instruments, following its acquisition in April 2022. This category excludes sales of LiquiBandFIX8® which are recorded within the Internal Fixation and Sealants category. Predominantly driven

by annualisation, revenue increased by 267% on a reported basis and 252% on a constant currency basis to £2.5 million (2022 H1 £0.7 million).

Plymouth facility expansion

The construction phase of the Plymouth facility expansion is now largely complete, significantly increasing the manufacturing capacity for Seal-G, Fix8® and LiquiBand® and providing additional R&D laboratory space.

Woundcare Business Unit

The Woundcare Business Unit is comprised of the Group's multi-product portfolio of advanced woundcare dressings sold under its partners' brands and the ActivHeal® label, plus a portfolio of specialist medical bulk materials and multi-layer woundcare products.

The Woundcare Business Unit delivered growth in the Period, due to higher ordering from OEM partners and increased sales of ActivHeal® overseas. Revenue increased by 6% in the Period to £23.7 million (2022 H1: £22.4 million) and by 4% on a constant currency basis.

Infection and Exudate Management

Infection Management revenue increased by 8% on a reported basis and by 5% on a constant currency basis to £7.7 million (2022 H1: £7.2 million) and Exudate Management revenue increased by 10% on a reported and 8% on a constant currency basis to £12.2 million (2022 H1: £11.1 million).

Key initiatives driving growth in the Period and expected to drive future growth include:

• Expanding the distribution network for our own ActivHeal® range of dressings as newly signed distributors and new market registrations make an impact. The Group expects ActivHeal® to continue to be a key contributor to Woundcare growth in future periods.
• Commercial success with Raleigh's pipeline of new products of special medical materials.

Other Woundcare

Other Woundcare comprises royalties, fees and woundcare sealants. Revenue reduced by 8% at reported currency and by 11% at constant currency to £3.8 million (2022 H1: £4.1 million) as a result of lower royalty income from the Group's licensing arrangement with Organogenesis.

As announced on 4 September, Organogenesis has recently indicated that changes to US reimbursement coverage have created uncertainty regarding the revenue outlook for some of its key products, including those utilising AMS patents. Given that Organogenesis withdrew its own guidance and that AMS has no control of, and minimal insight into its sales, AMS removed this royalty in its entirety from Q4 2023 guidance onwards.

Regulatory

AMS continues to make good progress in meeting the requirements for the new Medical Devices Regulation (MDR) and is well placed to obtain certifications for all its products well before the extended 2027/2028 deadlines.

Supply chain and inflation

AMS continues to take proactive steps to address the ongoing global supply chain challenges and has continued to increase inventory levels during the Period while setting up alternative suppliers where feasible. As a result, shortages of material have not had a significant impact on the Group's ability to supply products to its customers.

Inflationary pressures continue in some areas but the Group continues to strive to recover a significant proportion of this impact from its customers through price review negotiations.

Board changes

As part of the ongoing plan to refresh the Non-Executive Directors, given that Peter Allen has completed 10 years service, he will retire from the Board once a successor has been appointed. The Group is progressing with a thorough, external selection process for a new Chair that is now close to completion. A further announcement will be made in due course.

Environmental, Social & Governance

AMS continues to make positive progress on its ESG activities, building on the foundations reported in its FY22 Annual Report. Since that report, we have further developed our Net Zero Strategy and Pathway and have agreed key targets that will drive this activity, for example: to be Net Zero by 2045.

AMS has also strengthened its preparations for the Task Force on Climate-related Financial Disclosures (TCFD) and in conjunction with its ESG consultants will continue to progress this area in advance of its FY23 reporting in April 2024.

In addition, numerous and wide ranging ESG activities continue to take place across the Group driven by employee suggestions and actions, as well as Board and ESG Committee initiatives.

Stakeholders

On behalf of the Board, I would like to thank the Group's committed staff, partners and other stakeholders, without whose help and commitment the achievements during the Period would not have been possible.

Summary and Outlook

In the first half of 2023, many parts of the business delivered strong growth to offset the temporary shortfall in ordering of LiquiBand® in the US and drive overall growth for the Group.

As announced in its 4 September trading statement, reduced royalty expectations, following recent US reimbursement changes, and higher than anticipated de-stocking by US partners have impacted FY23 and consequently AMS expects revenues of approximately £124-£127 million and adjusted pre-tax profit of approximately £25-£27 million for the year. With the exception of the royalty adjustment (impacting Q4 2023 to Q3 2026), there were no changes to the expectations for future years.

The Board anticipates accelerated LiquiBand® growth from 2024 with the new US partner strategy taking effect and other key initiatives, such as the imminent US launch of LIQUIFIXTM and the soft launch of Seal-G® in Europe, now in place and setting the foundation for strong growth and improving margins for the Group in 2024 and beyond.

IFRS reporting

To provide the clearest possible insight into our performance, the Group uses alternative performance measures. These measures are not defined in International Financial Reporting Standards (IFRS) and, therefore, are considered to be non-GAAP (Generally Accepted Accounting Principles) measures. Accordingly, the relevant IFRS measures are also presented where appropriate. AMS uses such measures consistently at the half-year and full-year and reconciles them as appropriate. The measures used in this statement include constant currency revenue growth, adjusted operating margin and profit, adjusted profit before tax and adjusted earnings per share, allowing the impacts of exchange rate volatility, exceptional items, amortisation and the movement in long-term acquisition liabilities to be separately identified. Net cash is an additional non-GAAP measure used.

Overview

Revenue increased by 8% at reported currency to £63.1million (2022 H1: £58.3 million) and increased by 5% at constant currency as summarised in the Chief Executive's Review.

Gross profit increased to £35.7 million (2022 H1: £34.4 million)

but gross margin decreased to 56.5% (2022 H1: 58.9%) due to adverse product mix relating to the temporary impact of the US LiquiBand® strategic initiative and to reduced royalty income from Organogenesis.

Administration expenses increased to £25.0 million (2022 H1: £21.6 million) inclusive of adverse foreign exchange movements which adversely affected the Group by £1.9 million in the first half of the year when compared to the first half of 2022. The acquisition of AFS in April 2022 has had an annualising effect in the first half of 2023, adding £1.0 million of administration expenses and the acquisition of Connexicon added £0.2 million of operating administration costs, £0.6 million of amortisation of acquired intangible assets and £0.2 million of one-off professional fees relating to the acquisition. The Group also continued to invest in its sales and marketing teams as well as new product development and regulatory team to support the Group's continuing growth.

The Group incurred £6.0 million of gross R&D spend in the Period (2022 H1: £5.4 million), representing 9.5% of sales

(2022 H1: 9.3% of sales). This reflects the Group's continued investment in innovation as demonstrated by the PMA approval of LiquiBandFIX8® in the Period as well as investment to meet increased regulatory standards. The acquisition of Connexicon has further added to the Group's R&D capabilities in the period, in particular the Group's ability to develop and launch innovative and sealant technologies. As shown in the table below, elements of this cost are capitalised and amortised over 5 to 10 years.

Amortisation of acquired intangible assets increased to £2.4 million (2022 H1: £1.6 million) following the acquisition of Connexicon.

Adjusted operating profit, which excludes amortisation of acquired intangibles, decreased by 7% to £12.8 million (2022 H1: £13.8 million) whilst the adjusted operating margin decreased by 340 bps to 20.3% (2022 H1: 23.7%) due to the decrease in the gross margin in addition to the Group's continued investment in future growth opportunities.

Movement in long-term acquisition liabilities of Sealantis, AFS and Connexicon resulted in a net credit of £0.4 million (2022 H1: £0.3 million).

Despite adverse sales mix impacts, the Group delivered increased adjusted profit before tax of £13.8 million (2022 H1: £13.6 million). Reported profit before tax was £11.8 million (2022 H1: £12.3 million).

The Group's effective corporation tax rate, reflecting the blended tax rates in the countries where we operate and including UK patent box relief, increased to 24.1% (2022 H1: 21.6%) as a result of the increase in the UK Corporation tax rate to 25%, effective 1 April 2023 (2022: 19%).

The large UK corporation tax increase has had a significant adverse impact on earnings per share resulting in adjusted diluted earnings per share reducing by 1% to 4.97p (2022 H1: 5.01p), diluted earnings per share reducing by 8% to 4.06p (2022 H1: 4.42p), adjusted basic earnings per share reducing by 1% to 5.04p (2022 H1: 5.07p) and basic earnings per share reducing by 8% to 4.12p (2022 H1: 4.47p).

The Board intends to pay an interim dividend of 0.70p per share on 27 October 2023 to shareholders on the register at the close of business on 29 September 2023. This is a 10% increase on the interim dividend paid in respect of the first half of 2022 reflecting the Board's ongoing confidence in the future growth in the Group.

4 Adjusted for amortisation of acquired intangible assets.

Table is reconciled to statutory information in Note 5 of the financial information.

Surgical

Surgical revenues increased by 10% to £39.4 million (2022 H1: £35.9 million) at reported currency and increased by 5% to £38.3 million (2022 H1: £36.2 million) at constant currency. Adjusted operating margin decreased by 420 bps to 25.6% (2022 H1: 29.8%) due to temporarily adverse sales mix, the impact of inflation and increased investment in regulatory affairs, and research and development.

Woundcare

Woundcare revenues increased by 6% to £23.7 million (2022 H1: £22.4 million) at reported currency and increased by 4% to £23.1 million (2022 H1: £22.1 million) at constant currency. Adjusted operating margin decreased by 180 bps to 14.1% (2022 H1: 15.9%) predominately due to lower royalty income from Organogenesis.

Currency

The Group hedges significant currency transaction exposure by using forward contracts and aims to hedge approximately 80% of its estimated transactional exposure for the next 12 to 18 months. In the first half of the year, approximately one third of sales were invoiced in Euros and approximately one quarter were invoiced in US Dollars.

The Group estimates that a 10% movement in the £:US$ or £:€ exchange rate will impact Sterling revenues by approximately

2.6% and 4.0% respectively and in the absence of any hedging this would have an impact on the Group operating margin of 2.0% and 0.7% percentage points respectively.

Cash Flow

Net cash inflow from operating activities decreased by 67% to £4.1 million (2022 H1: £12.5 million) due to increased working capital as explained below.

At the end of the Period, net cash had reduced to £69.1 million (31 December 2022: £82.3 million) due to working capital increases and acquisition related payments of €10m for the acquisition and initial earnout of Connexicon, and €0.5 million for the achievement of AFS' FY22 EBITDA milestone.

In the first half of 2023, receivables increased by £3.2 million (2022 H1: £0.9 million increase) due to increased sales volumes, the impact of favourable hedging contracts, and the addition of Connexicon. Debtor days reduced to 41 from the 44 days at year-end (2022 H1: 43 days) as a result of lower US sales, which are typically on longer payment terms. Creditor days were in line with December 2022 at 37 days (2022 H1: 35 days). Total payables were inflated by the addition of Connexicon and the associated contingent consideration and increased by £4.0 million (2022 H1: £5.5 million increase). Planned inventory increases to fulfil anticipated commercial demand and to continue to build resilience resulted in inventories growing by £3.9 million to 6.7 months of supply in comparison to 6.2 months at December 2022 (2022 H1: 5.5 months).

In the Period, £4.8 million was invested in capital equipment, R&D and regulatory costs (2022 H1: £4.3 million) including investment in additional freezer dryer capacity in Germany to improve production efficiency and an extension at Plymouth which is now substantially complete.

Tax payments increased to £1.4 million (2021 H1: £0.8 million) which is £1.5 million lower than tax in the income statement. Payments in the prior period were particularly low due to a refund of taxes received.

In June 2023, the Group paid its final dividend for the year ended 31 December 2022 of £3.3 million (2022 H1: £3.0 million).

The Group retains strong support from its two banks, NatWest and HSBC, and is confident in its ability to raise necessary funds to complete further acquisitions as and when opportunities arise.