Balda Medical GmbH

Stevanato Group

Piombino Dese (PD)

Konzernabschluss zum Geschäftsjahr vom 01.01.2021 bis zum 31.12.2021

MANAGEMENT REPORT OF PARENT COMPANY AND CONSOLIDATED MANAGEMENT REPORT
AS AT AND FOR THE YEAR ENDED DECEMBER 31, 2021

Management report of parent company and consolidated management report

As allowed by Italian law decree February 2, 2007, no.32, with which the EU directive 2003/51/CE has transposed in our legal system, the Company avails itself of the possibility of drawing up the Management Report of the parent company Stevanato Group S.p.A. and the Consolidated Management Report in a single document, included in the Consolidated Financial Statements. It is therefore specified that this Consolidated Management Report also contains all of the information required by Article 2428 of the Civil Code, with reference to the Financial Statements of Stevanato Group S.p.A.

It is specified that starting from the year ended December 31, 2020 the Consolidated Financial Statements of Stevanato Group has been prepared in accordance with the International Financial and Reporting Standards (IFRS) endorsed by the European Union. For information about the first-time adoption of IFRS by the Group, please refer to the paragraph "2.4 First-time adoption of IFRS" in the Accompanying Notes of Consolidated Financial Statements as at and for the year ended December 31, 2020. The Financial Statements of the parent company Stevanato Group S.p.A as at and for the year ended December 31, 2021 and 2020 instead are prepared in accordance with Italian generally accepted accounting principles ("Local GAAP") as for the previous years.

As being required to draw up the Consolidated Financial Statements, the Company avails itself of the longer time for the approval of the Financial Statements within 180 days, as allowed by Article 2364, paragraph 2, of Civil Code.

Group activities

Stevanato Group S.p.A. is headquartered in Italy and its registered office is located in via Molinella 17, Piombino Dese (Padova, Italy). The Group is active in the design, production and distribution of products and processes to provide integrated solutions for bio-pharma and healthcare, leveraging on constant investment and the selected acquisition of skills and new technologies to become a global player in the bio-pharma industry. Principal products are containment solutions, drug delivery systems, medical devices, diagnostic, analytical services, visual inspection machines, assembling and packaging machines, glass forming machines.

The Group has nine production plants for manufacturing and assembly of bio-pharma and healthcare products (in Italy, Germany, Slovakia, United States, Brazil, Mexico, and China), five plants for the production of machinery and equipment (in Italy and Denmark), two sites for analytical services (in Italy and United States) and two commercial offices (in Japan and the United States). Further, on October 4, 2021, the Group announced the start of construction of a new plant in Fishers, Indiana, United States. The Group is also continuing investment to expand production facilities in Piombino Dese, Italy, where construction of a new building is underway. The global footprint allows to sell products and provide services in more than 70 countries worldwide.

The companies of the Group share the mission to create systems, processes and services that ensure the integrity of parental drug. Patients, pharmaceutical industries and final users are the focus of Group activities with the purpose to develop specific solutions for assuring the safety of patients and to reduce the total cost of the ownership of customers.

Stevanato Group aspires to be recognized for its own excellence and intends to remain independent. The companies of Stevanato Group share these values: a) trust and respect everyone; b) be accountable; c) be ethical always; d) listen and communicate with transparency and honesty; e) deliver results.

Stevanato Group activities are organized in two segments, based on their specific products and services:

For further information, please refer to Company website: www.stevanatogroup.com.

The data reported in this document, including some percentage values, have been rounded off with respect to the value in Euro units. Consequently, some totals in the tables do not coincide with the algebraic sum of the respective addends.

Alternative performance indicators

In order to allow a better analysis about the management performance, additional economical and financial indicators are presented then those required by IFRS and by Local GAAP; these indicators have not considered as alternatives to those required by IFRS and by Local GAAP. In particular, the Non-GAAP Measures used in this report are:

Tracing of performance adjusted indicators to reported indicators

The Directors decided to isolate in the performance Group analysis the non-recurring items reported in the table below, which indicate also the tracing of reported values, as applicable, to the adjusted values, with a brief description of the non-recurring items considered.

For the year ended December 31, 2021

For the year ended December 31, 2020

During the year ended December 31, 2021, the Group recorded the following non-recurring items:

As at and for the year ended December 31, 2020, EBITDA, Operating Profit and Group Net Profit resent in particular of +some costs considered as non-recurring, about a lawsuit with Clere BSD GmbH (actor) against Balda AG (defendant), a subsidiary of the Group, for the payment of some transferred cost due for the acquisition of a patent license by the defendant, where Clere obtained EUR 3,3 million, interest and legal expenses included. The lawsuit ended in 2020. Moreover, Net Profit has positively influenced by tax saving related to step-up of some machinery in application of the so-called "Decreto Agosto"; this decree permits to step-up the fiscal value of fixed assets paying a 3% one-off tax on the higher value and deducting future depreciation at a notional rate.

Performance indicators - Adjusted

Macroeconomic trend of 2021

The recovery of the Euro Area economy continues and the labor market is improving further, thanks to the huge support of economic policies.

However, economic growth is likely to remain contained in the first quarter of 2022, given that the ongoing pandemic wave continues to weigh on economic activity. Strong uncertainty also derives from the conflict between Russia and Ukraine that broke out at the end of February 2022, the economic consequences of which are already serious despite the situation remains very fluid.

The scarcity of materials, equipment and labor still holds back production in some sectors. The high costs of energy affect household incomes and the profits of companies in the Euro Area and are likely to produce a containment of expenditure. The prices of energy and commodities, including wheat and other cereals, have risen, increasing inflationary pressures due to supply chain disruptions following the outbreak of the war in Ukraine and the persistence of the COVID-19 pandemic.

With reference to energetical sources, the existing conflict between Russia and Ukraine and the economic and financial sanctions imposed by the European Union, the United States, the United Kingdom and other countries and organizations against officials, individuals, regions and industries in Russia, Ukraine and Belarus could negatively impact the supply of gas and other hydrocarbons at reasonable prices. The evolving conflict and sanctions applied to Russia are also expected to have a substantial impact on the global economy and financial markets, with significant spillovers on other countries.

The International Monetary Fund (IMF) notes that the sanctions announced against the Central Bank of the Russian Federation will severely restrict its access to international reserves to support the monetary and financial system. The simultaneous exclusion of several banks from the Swift system has significantly disrupted Russia's ability to receive payments for exports, pay for imports and engage in cross-border financial transactions. Countries that have very close economic ties with Ukraine and Russia - the IMF continues - are particularly at risk of supply shortages and disruptions and are the hardest hit by the growing influx of refugees.

With reference to the 2021, economic activity continued to show good resilience in the fourth quarter. Robust economic growth was reported towards the end of 2021, even if the expansion of trade remained modest.

Even without new stops in port activity related to the containment of COVID-19 outbreaks, the international logistics system remains under stress.

Bottlenecks along supply chains have shown timid signs of easing, although the emergence of the Omicron variant of the coronavirus (COVID-19) and possible staff absences due to the pandemic could make them prone to further disruption and pose risks to the world economic activity in the short run. Global inflation continued to rise in the face of energy price rises and an increase in price pressures in the various sectors.

After overall inflation in the United States had already reached very high levels in the first half of 2021, inflation in the Euro Area also recorded a very rapid increase in the second half of the year, settling at 5% in December 2021, while remaining below the U.S. figure.

Energy prices continue to represent the main determinant of the high rate of inflation. The supply-side bottlenecks and world-wide increases in commodity prices, reinforced by the depreciation of the Euro, are affecting the production costs of companies that have adjusted prices more frequently than in the past to avoid margin squeezing.

In the last quarter of 2021, real GDP growth in the Euro Area slowed after two quarters of strong expansion, nevertheless reaching the pre-pandemic level at the end of 2021. Short-term indicators and published national data suggest that domestic demand made a positive contribution, against a substantially neutral contribution from net trade. Overall, GDP is estimated to have increased by 5.2% in 2021, after the 6.4% decline recorded in 2020.

Labor market conditions are further improving, although wage dynamics remain subdued overall. Over time, the economy's return to full capacity utilization should support faster wage growth.

The rates on bank credit to businesses and households continue to remain at historically low levels and the financing conditions for the economy remain favorable. The demand for loans from businesses has increased considerably in the last quarter of 2021. This increase is attributable to the higher needs for working capital, due to supply-side bottlenecks, and to the greater financing of longer-term investments.

The US economy reemerged from the recession caused by COVID-19 in a few months, and GDP recovered to pre-pandemic levels as early as mid-2021. This result was achieved thanks to the support for aggregate demand provided by fiscal measures for USD 5.3 trillion (25.4% of GDP), introduced even when the recession was already technically over (two packages for a total of USD 2.6 trillion approved between the end of 2020 and the beginning of 2021). The offer, on the other hand, was held back by bottlenecks and problems in global logistics, as well as by the failure to resume participation in the workforce. The 2022 scenario will depend on the duration and extent of excess demand and the persistence of the increase in inflation (equal to 7% in December 2021). In this phase of excess demand, wages and prices are the focus of the adjustment. The labor market is under pressure, with a shortage of manpower that slows down service activity and pushes wages up.

In China, the expansionary momentum remains fragile. In the fourth quarter of 2021, Chinese GDP growth rose to 1.6% on the previous quarter, an increase that brings growth over the twelve months in 2021 to 8.1%. Monthly indicators, however, point to a slowdown in activity economic. Retail sales remained modest towards the end of the year, underlining the difficulty of bringing consumption back to pre-pandemic levels, in the context of China's rigorous COVID-19 containment strategy. The emergence of the Omicron variant is posing risks for growth in the short term. If an intensification of the pandemic provokes an increase in contagion rates, China's zero-Covid strategy could lead to significantly stricter containment measures, which would further burden economic activity. (Source: European Central Bank).

Consolidated companies

The parent company direct or indirect (through the subsidiaries Stevanato Group International a.s. and Balda Medical GmbH) controls the following companies:

^{* Not included in minority interests as there is a put and call option for full acquisition (the minority interests would have amounted to 35%). On October 7, 2021 the Group purchased the remaining interest equal to 35% of the share capital.
** Balda Medical GmbH has fulfilled the conditions required in accordance with §§ 264 (3), 264b of the German Commercial Code (HGB) to make use of the exemption provisions and has waived the preparation as well as the disclosure of its annual financial statement documents.}

Companies consolidated with equity method:

On October 22, 2021, the Group sold its minority interest in the associate company Swissfillon AG, which since this date has not been accounted for using the equity method anymore.

Relevant facts and circumstances during the year

The Research and Innovation activity for consolidating products, technologies and services portfolio for the biopharmaceutical and diagnostic market, with reference in particular to high-value solutions and to drug delivery systems (DDS), continued regularly during 2021, without any interruption due to COVID-19.

During the year, Stevanato Group S.p.A. revised the incentive policies reserved for a limited number of executives and key resources of the Group, designing a new incentive system consistent with the growth objectives and the new public company structure. The approval of the new incentive plan, called "Restricted Stock Grant Plan 2021-2027", resulted in the simultaneous early termination of the previous plans and the consequent release to the income statement of costs previously accrued for EUR 9.9 million. The plan, valid for the period between 1 January 2021 and 31 December 2026, is divided into three two-year periods (vesting period) at the beginning of each of which the beneficiaries will be assigned a certain number of ordinary shares of Stevanato Group S.p.A. free of charge. The determination of the shares assigned isG conditional to the achievement by the end of each vesting period of specific objectives set out on the economic and financial performance of the Group. The assigned shares shall be registered to a Trustee company and shall be subject to the prohibition to sell and to the selling commitment in accordance to a one-year lock-up period. If the employment relationship with the beneficiary ceases or the objectives set out in the plan are not achieved, the recipients of the plan will be obliged to resell to Stevanato Group S.p.A. the shares assigned to them for the relevant vesting period. On the contrary, in the event that predetermined over-performance objectives are achieved, the beneficiaries will be assigned, free of charge, an additional number of shares subject to the same limitations described above.

In March 2021, the Group reached an agreement with the Italian Tax Agency regarding the so-called "Patent Box regime", with a retroactive tax saving of EUR 7.6 million for the fiscal years 2016-2020.

On July 16, 2021, Stevanato Group began trading on the New York Stock Exchange under the symbol STVN. On July 20, 2021, upon completion of the initial public offering, the Group received net proceeds for a total of EUR 367.8 million, after deducting discounts and subscription fees, other listing expenses, consultancy costs and the effects linked to the hedging derivative entered to reduce the risk of fluctuations in the EUR / USD exchange rate in connection with the repatriation of the IPO proceeds. On August 18, 2021 the underwriters purchased from the Company further n. 712,796 newly issued ordinary shares bringing the total net primary proceeds from the offer, including over-allotment, to EUR 380.1 million.

In relation to the listing operation and to reward the efforts made in the previous 12 months by employees, in consideration of the persistence of the COVID-19 pandemic, the Group paid a out-of-cycle bonus of EUR 6.5 million in the third quarter of 2021.

In order to meet to the growing demand for glass containers for pharmaceuticals, in particular for EZ-Fill® products, the Group started in 2021 the expansion of the production plants in Piombino Dese, Italy, where the construction of a new building is in progress.

On October 4, 2021, the Group announced the construction of a new EZ-Fill® hub in Fishers, Indiana, United States. The manufacturing facility, scheduled to be operational in late 2023 or early 2024, will allow the Group to be closer to biopharma customers in North America and to provide them with an additional source of supply. The facility will house production lines equipped with advanced process technologies to produce EZ-Fill® syringes and vials, which are part of the Group's high-value product suite. In line with customer demand and as a result of increased production capacity, the Group expects to better respond to customer needs with regards to biological and vaccine treatments. The Indiana hub will also house after-sales support services that will be dedicated to serving North American Engineering customers, offering technical support and maintenance for visual inspection, assembly and packaging equipment. Initial forecasts estimated the plant to have a maximum size of about 34,374 square meters and with over 230 new full-time jobs once production is fully operational.

As part of this investment project, in February 2022, the Group entered into an agreement with the Biomedical Advanced Research and Development Authority (BARDA), which is part of the United States Department of Health and Human Services through its partnership with the United States Department of Defense. Under the agreement, BARDA will make a multi-year investment of up to approximately USD 95 million to increase the production capacity of standard and EZ-Fill® vials to support national defense preparedness programs for public health emergencies, current and future of the United States. The decision to follow a modular approach in investment management will allow the Group to be flexible in modifying or changing production capacity to meet market demand.

On October 7, 2021, the sub-holding Stevanato Group International A.S. purchased the remaining 35% of the share capital of SVM Automatik A / S paying a total consideration of EUR 7 million. In the consolidated financial statements, this investment was already 100% consolidated by virtue of a put & call option in place with the minority shareholder.

On October 22, 2021, the sub-holding Stevanato Group International A.S. signed the share purchase agreement for the sale and transfer of all the shares held in the associated company Swissfillon AG for approximately CHF 15.8 million, realizing a capital gain equal to EUR 12.3 million.

In December 2021, the Group signed the contract for the acquisition of an existing facility in Zhangjiagang, China, for a new productive plant where renovations are expected to begin in the spring of 2022. The size of the facility is expected to begin of production will be approximately 31,959 square meters and it is estimated that the plant will create approximately 270 new full-time jobs.

The new plant is located near the existing headquarters in China, which will also undergo modernization works (it is planned to expand the current production of standard containment solutions in Zhangjiagang, increasing the size of the existing facility by approximately 6,968 square meters). The new plant should allow the Group to increase the capacity and production of pre-sterilized EZ-fill® syringes and vials; current estimates predict that the first EZ-fill® lines will begin production in early 2024. The new site will also house an area to produce visual inspection machines and glass forming lines. Machinery production is currently estimated to start in 2023.

In addition to the aforementioned investment agreements, on 23 February 2022 Nuova Ompi signed the preliminary contract for the purchase of a brownfield in Latina (Italy) near the existing plant for a total consideration of approximately EUR 16 million. After the renovation, the facility is expected to produce EZ-fill® syringes and vials..

During the year, internal programs for improving production efficiency (STEPS) go on, and for enforcing quality system to maintain the high reputation of Stevanato Group in the market.

Revenue trend

The Group revenues are represented through these divisions, based on the segments identified:

Consolidated revenues at effective exchange rates as at and for the year ended December 31, 2021 and 2020 split for segments are the following (in EUR million):

Revenues at constant exchange rate increase by EUR 181.9 million, or 27.5%, to EUR 843.9 million for the year ended December 31, 2021, from EUR 662.0 million in 2020. The increase is mainly due to the growing share of sales of High-value solutions for the Biopharmaceutical and Diagnostic Solutions segment, and the growing sales of the Engineering segment. For the year ended December 31, 2021, it is estimated that sales relating to COVID-19 are equal to 14.7% of total revenues against an estimate of 5.5% for the previous year (it should be noted that sales linked to COVID-19 only involved the Biopharmaceutical and Diagnostic Solutions segment).

The variance in the EUR / USD exchange rate had negative impacts during the year ended December 31, 2021. Excluding this effect, consolidated revenues at constant exchange rates increased by 28.2%

External customers' revenues in the Biopharmaceutical and Diagnostic Solutions segment increase overall by 22.9% (EUR 129.1 million) mainly due to the increase in the sales volumes of the High-value solutions, as detailed in the table below. The general increase in demand for Other containment solutions has also contributed to the growth of the segment revenues.

About the Engineering segment, the revenue increase about EUR 52.8 million (+54.3%) is due to the growth in all business lines.

Consolidated revenues at effective exchange rates at and for the year ended December 31, 2021 and 2020 split for type of product are (in EUR million):

For the year ended December 31, 2021, revenues from sale of High-value solutions increase to EUR 61.5 million (+42.0%), reflecting the Group efforts for increasing the weight of this type of products. Other containment and delivery solutions revenues grow by 16.2% (EUR 67,6 million), reflecting the increased demand for these products.

The revenues from Engineering segment increase by EUR 52.8 million (+54.3%), mainly for the growth in all business lines (glass forming machines, visual inspection machines, assembling and packaging machines). Revenues increase of further EUR 5.9 million due to the growth in after-sales services.

The consolidated revenues at effective exchange rates as at and for the year ended December 31, 2021 and 2020 split for geographical area are (in EUR million):

During 2021, revenues at effective exchange rates show an increase by 18.3% in North America, by 23.9% in EMEA, by 75.4% in APAC and by 17.8% in South America. Revenues increase in North America e in the APAC-zone, reflects the Group recent efforts about international expansion. It is specified that the revenues in this scheme have been exposed considering the final sale destination.

Results for operating segment

As required by IFRS 8, Group activities are divided for activities sectors. The operating segments are individuated for their specific products and services:

This division is consistent with the analytical and management instruments used by the Chief Executive Officer (the Group's "Chief Operating Decision Maker") in making strategical and for the assessment of performance, as well as aggregation criteria and quantitative threshold as per IFRS 8 - Operating Segments.

For further information about operating segments please refer to the paragraph "5. Segment Information" of Financial Statements as at and for the year ended December 31, 2021.

Group economical results for each operating segment are resumed in the table below:

Inter-segment revenues and costs are eliminated upon consolidation and reflected in the "adjustments, elimination and unallocated items" column. The most relevant adjustment in revenues relates to the sales of the Engineering's equipment to the Biopharmaceutical and Diagnostic Solutions segment.

Revenues increase by 22.8% (EUR 129,1 million) in Biopharmaceutical and Diagnostic Solutions segment is mainly driven by the growth in High-value solutions. Gross profit of this segment increases from 29.6% in 2020 to 33.1% in 2021 due to the increase in sales volume of premium priced High-value solutions and production efficiencies.

With reference to Engineering segment, the EUR 65.4 million increase in revenues (+42.6%) is due to the growth in all business lines. Gross profit of this segment decreases to 19.3% in 2021 from 20.9% in 2020 which was bolstered by highly accretive short-term projects that were completed under accelerated timeframes in the last quarter of the year.

Consolidated income statements - Reported data

As required by IAS 1, in the Consolidated Financial Statements the Income Statement is presented on Cost of Goods Sold structure, in which costs are detailed as per function (Analysis of expenses by function). According to IAS 1 requirements, the necessary details related to the nature of the costs are reported in the Accompanying Notes of the Financial Statements.

Gross profit increase by EUR 71.2 million (+36.7%), going from EUR 194,2 million for the year ended December 31, 2020 to EUR 265.4 million for the year ended December 31, 2021. This increase was mainly driven by our Biopharmaceutical and Diagnostic Solutions segment due to the sales growth of High-value solutions, to the general increase in products and services demand, partially due to the COVID-19 pandemic, and a decreased cost of sales margin on net sales as a result of the efforts for maximizing the production efficiency. The increasing of Biopharmaceutical and Diagnostic Solutions segment's gross profit has more than offset the slight decrease of margin observed for the Engineering segment.

The other operating income, which includes all revenue from customers not derived from the sale of our products, services and solutions such as revenue from feasibility studies, design, development and industrialization of new products, increase by EUR 4.2 million (79.5%), from EUR 5,2 million for the year ended December 31, 2020 to EUR 9.4 million for the year ended December 31, 2021. Other operating income represents a minor part of our income and its amount varies yearly depending on the specific business agreements in place.

Selling and marketing expenses increase by EUR 0.4 million (+2.0%), from EUR 20.0 million for the year ended December 31, 2020 to EUR 20.4 million for the year ended December 31, 2021. This increase is due mainly to the higher personnel costs to support the ongoing growth in our business as well as an increase in consultancies and marketing costs related to travels and trade fairs, partially restarted after the stop experienced in 2020 as a consequence of COVID-19 pandemic. This increase has been partially offset by the release of bad and doubtful debt provision following the improvement of some positions with external customers.

Research and development expenses increase by EUR 12.2 million (+70.3%), from EUR 17.4 million for the year ended December 31, 2020 to EUR 29.6 million for the year ended December 31, 2021. This increase, which reflects our strategy to focus on innovation and an increasingly higher mix of our "high-value" premium products and strengthen our market position. In particular, the increase for the year ended December 31, 2021 is primarily due to the expenses related to structuring our Drug Delivery Systems Department and developing our US Technology Excellence Center which became fully operational after the start-up phase in 2020, as well as an increase in personnel expenses due to new hires to sustain and progress the R&D activities launched at group level.

General and administrative expenses increase by EUR 3.6 million (+6.2%), from EUR 58.9 million for the year ended December 31, 2020 to EUR 62.5 million for the year ended December 31, 2021.

The increase is mainly due increased consultancy and insurance costs connected to being a listed company as well as the increase in depreciation and amortization for the new ERP (Enterprise Resource Planning system) release in some companies of the Group. General and administrative expenses include some non-recurring items such as the release of EUR 9.9 million accrual related to cash settled awards under incentive plans 2012-2021 and 2018-2021 (early terminated in favor of the new 2021-2027 stock grant plan ), partially offset by (i) the non-recurring out-of-cycle bonus to personnel amounting to EUR 6.5 million and by (ii) the costs relating to the listing of Stevanato Group shares on NYSE amounting to amounting to EUR 0.8 million and (iii) by start-up costs related to the new U.S. facility in Indiana amounting to EUR 0.4 million. Please refer to the paragraph "31. Employees Benefits" of the Consolidated financial statements for further details on incentive plans.

Finance expenses, net of finance income, decrease by EUR 9.8 million (-141.9%), from a net expense amounting to EUR 6.9 million for the year ended December 31, 2020 to a net income amounting to EUR 2.9 million for the year ended December 31, 2021. For the year ended December 31, 2021, net financial expense is impacted by a non-recurring gain from the sale of a minority interest in the associate Swissfillon AG amounting to EUR 12.3 million, and by a non-recurring loss amounting to EUR 4.3 million related to a derivative a derivative financial instrument entered into to reduce the risk of fluctuations in the EUR/USD exchange rate in relation to the IPO proceeds.

Income taxes increase by EUR 13.7 million (+77.6%) from EUR 17.7 million for the year ended December 31, 2020 to EUR 31.4 million for the year ended December 31, 2021. In particular, current taxes decrease by EUR 1.1 million because of the application of the so-called "Patent Box regime", resulting in a retroactive tax saving of EUR 7.6 million for the financial years 2016-2020, as per the mandatory agreement with the Italian Tax Agency. Deferred taxes show a cost amounting to EUR 2.9 million compared to the EUR 11.8 million benefit of the previous year, mainly due to the step-up in the tax value of certain assets. For the year ended December 31, 2021 the tax expense is mainly due to (i) differences in tax value compared to the book value of certain assets and liabilities for EUR 4.3 million, (ii) the non-recurring reversal of deferred tax assets amounting to EUR 4.8 million following the termination of 2012-2021 and 2018-2022 incentive plans that were replaced by new stock grant plan, (iii) the recognition of EUR (6.3) million of deferred tax assets on tax losses and (iv) deferred tax liabilities on retained earnings for EUR 0.1 million

Principal financial data

The next is the reclassified Consolidated Statement of Financial Position compared with the previous year (in EUR million):

Consolidated Statement of Financial Position - Reported data

The increase of property, plant and equipment, such as in the previous year, is related to the investments the Group continues during 2021. The increase of property, plant and equipment is EUR 116.6 million, of which 80.9% in order to sustain the growth strategy of the Group.

The increase of equity is mainly due to the listing of Stevanato Group at New York Stock Exchange, which resulted in the share capital increase from EUR 20.0 million to EUR 21.7 million and the posting of a share premium reserve amounting to EUR 389.3 million.

For more clarity, the Net working capital is set out below compared to Net sales:

Net working capital

As at December 31, 2021, Net working capital on Net Sales is substantially in line with the amount as at December 31, 2020. Despite the increase of revenues, trade receivables are in line, mainly for the reduction of expired receivables, and their incidence on sales goes from 19.3% as at December 31, 2020 to 19.6% as at December 31, 2021.

The incidence of trade payables on sales increases, goes from 17.9% as at December 31, 2020 to 19.5% as at December 21, 2021. The incidence on net sales of inventories net advances from customers decreases too, goes from 18.9% as at December 31, 2020 to 20.0% as at December 31, 2021.

The table below contains the main details about Net financial position composition as at December 31, 2021 and as at December 31, 2020.

Net financial position: details

During 2021 the Group reported an improvement in Net financial position, that becomes positive (net cash), attributed mainly to the listing of Stevanato Group shares at New York Stock Exchange following which the Group received net proceeds from IPO amounting to EUR 380.1 million.

Return on Capital Invested

As at year ended December 31, 2021 ROIC improves, going from 16.2% at previous year to 22.2%. Group management sustains this is the result of the large investments done during the years, in particular with reference to the increased EZ-fill® products production capacity established to meet the growing market demand.

Reconciliation prospectus of equity and net profit

The prospectus below is the reconciliation between equity and net profit of the parent company Stevanato Group S.p.A. and consolidated equity and net profit:

Information about risks and uncertainty as required by article 2428, paragraph 2, 6-bis, of Civil Code

Pursuant article 2428, paragraph 2, 6-bis, of Civil Code, the following is noted:

1. Credit risk

The Group is exposed to credit risk due to its commercial relationships. Where customers fail to meet payment deadlines, the Group's financial position may deteriorate. In addition, socio-political events (or country risks) and the general economic performance of individual countries or geographical regions may assume significance also in relation to this aspect. The trade receivable risk is however mitigated by consolidated commercial relations with high-standing pharma companies and Group guidelines drawn up for the selection and evaluation of the client portfolio, for the definition of bank overdraft limits, for the monitoring of expected cash flow and eventual collecting actions. These ones may require, where possible and appropriate, further guarantees from customers. Administration, Finance and Controlling function (AFC) manages and monitors Group credit risk.

2. Fluctuations foreign currency exchange rates risk

Transaction exchange risk

The Group is exposed to risk resulting from fluctuations of exchange rates of some foreign currencies in which it has business relations. In foreign currency transactions, the Group has a hedging policy, approved by the Board of Directors of Stevanato Group S.p.A., through suitable instruments and procedures and free from any speculative connotations. The hedging activity is mainly carried out at a centralized level, based on the information collected by a structured reporting system, by resources dedicated to it and using tools and policies that comply with international accounting standards. The hedging activity object is the protection, where a company operating in one currency has to make purchases or sales in other currencies - at a single company level - also based on the future revenues/costs foreseen in the budget. Despite these financial hedging transactions, sudden fluctuations in exchange rates, or incorrect forecasting of requirements, could have a negative, even if limited, impact on the Group's economic results.

Translation exchange risk

The Group holds controlling shares in companies that prepare financial statements in currencies other than the Euro. It is therefore exposed to translation risk, the risk that fluctuations in the exchange rates of some currencies with respect to the consolidation currency may have an impact on the values of the consolidated financial statements. On this risk, the Group does not engage in hedging activities.

3. Interest rate risk

This risk is linked to the existence of variable rate loans, so sudden or significant fluctuations in interest rates could have a negative impact on economic results. The monitoring of this risk is carried out at corporate level using similar structures to those used for the exchange rate risks management. The Group has hedging contracts in place for risks related to interest rate trends, which concern 76% of the financial debt contracted, and also operates in part at a fixed rate (for the 23.8% of the financial debt contracted) to mitigate the risk. Thanks to this activity, the Group has ensured an interest rate that is essentially fixed to almost the total debt contracted as at December 31, 2021 (so the financial debt at floating rate not hedged represents only 0.2%).

4. Liquidity risk and financial needing

Risks related to the lack of financial means necessary to fulfill payment obligations deriving from current business fall into this category. The Group uses medium-long term sources of financing to finance its activities in the medium-long term. In order to mitigate and manage the risk in question, the Group adopts a policy of substantially centralizing the procurement of medium and long-term financial sources on the capital market. Any covenants relating to the loans granted are carefully monitored. These measures currently widely guarantee, under normal conditions and without the occurrence of extraordinary events, the room for maneuver required by the performance of working capital, investment activities and financial flows in general.

5. Risk associated with Group's debt

The future performance of the Group will also depend on its ability to meet the needs relating to maturing payables through the flows deriving from operating cash management, available liquidity, renewal or renegotiation of bank credit lines or other sources of financing. If the Group is unable to meet its debt, negative effects on the management of the business could arise. At the moment, this eventuality is remote, seen the profitability of the Group, the structure and size of the sources of financing.

Related parties

It should be noted there are no significant transactions with related parties except for the purchase of treasury shares highlighted below and as reported in paragraph "38. Related parties disclosure" of the Accompanying Notes to the Consolidated Financial Statements as at December 31, 2021.

Treasury shares

The details of the treasury shares are reported below:

It is acknowledged that, by virtue of the "Deed of Sale of Authenticated Shares" of the Notary Roberto Agostini of Padua on November 4, 2017, no. 252 shares owned by Stevanato Group S.p.A. (corresponding to 3,432,240 ordinary shares after the second share split as of July 1, 2021) were sold to a limited number of executives and key resources, each having the same characteristics as ordinary shares and destined to serve the related cash-based incentive plan. With reference to the latter, please refer to paragraph "31. Employee benefits" of the Accompanying Notes of the Consolidated Financial Statements as of December 31, 2021 for more details.

As a consequence of the Board of Directors' approval to early terminate the incentive plan 2018-2022, on March 4, 2021 and on June 3, 2021 the Company repurchased n. 29 ordinary shares (corresponding to 394,980 ordinary share after the second share split as at July 1, 2021) and n. 850,000 ordinary shares (corresponding to 2,315,400 ordinary shares after the second share split) from the beneficiaries of the cash settled awards under the above mentioned incentive plan for EUR 1.8 million.

On June 3, 2021 the Company transferred n. 133,210 ordinary shares (corresponding to n. 362,865 ordinary shares after the second share split) to the beneficiaries of the so-called "Restricted Stock Grant Plan 2021-2027" and to some Board of Directors members for EUR 0.2 million.

Foreseeable evolution of the performance

COVID-19 emergency

At the beginning of 2020, the World Health Organization declared the existence of an international emergency following the spread of COVID-19 virus. Since the early stages of the spread of the epidemic, Stevanato Group has been strongly committed to safeguarding the health and safety of its employees, ensuring at the same time business continuity in all its premises. The company has implemented strict precautionary measures provided by national and regional regulations on personal and workplace hygiene, as well as on the organization of working life (such as reorganization of shifts) at its plants. It has adopted measures to avoid crowding, maximizing the use of remote working, allowing access to external personnel only if in compliance with current legislation. Sensitization activities about the importance of prevention, both at work and home, have been made throughout the period, and screening activities among staff have been performed when needed to increase prevention further.

Stevanato Group operates in vaccines business from decades, serving as a partner for the distribution of a variety of vaccines worldwide. In 2020, the global COVID-19 pandemic caused both governments and private organizations to implement numerous measures seeking to contain the spread of the virus. There measures impacted and are expected to continue to impact the Group business and operations in several ways.

Initial unfavorable short-term impacts of COVID-19 on production and operational capabilities included: (i) a temporary decrease in the sales of certain non-COVID-19 products as a result of traditional healthcare procedures being postponed and the diversion of our production capacity to support the rollout of the COVID 19 vaccine worldwide (ii) labor absenteeism; (ii) disruptions to production lines; (iii) delays in, and increased costs of, logistics; and (iv) increased SG&A costs related to employee bonuses to recognize and reward general efforts to ensure business continuity during the pandemic.

However, COVID-19 also provided an uplift to the Group's business with an acceleration of revenue from the sale of syringes and vials for vaccination programs globally. Stevanato Group has been supplying: (i) glass vials and syringes to approximately 90% of currently marketed vaccine programs, according to our estimates based on public information (WHO, EMA, FDA); and (ii) plastic diagnostic consumables for the detection and diagnosis of COVID-19. Going forward, the Group expects demand of syringes, vials and related products and services to remain elevated as the COVID-19vaccine and treatment programs continue to roll-out globally and as customers contemplate the transition from multi-dose formats to single-dose formats. In addition, the Group expects continued tailwinds as epidemic preparedness, including the ongoing global COVID-19 vaccine rollout, booster shot distribution, and new vaccination programs, remain a priority for governments.

Longer-term, there remains uncertainty around the magnitude of the impact of COVID-19 and the demand for our solutions. Many scientists predict that COVID-19 will eventually transition to an endemic state. While timing of this transition is difficult to predict, experts believe that the transition may likely occur over the next twelve to twenty-four months. This may result in a continued need and relatively stable demand for the Group's products and services that support COVID-19 and would be integrated into the standard vaccine business in the coming years.

Evolution

The expected market context is positive. The forecasts for 2022 are favorable for all businesses; a growth in consolidated revenues and a maintenance of more than satisfactory levels of profitability is expected.

The significant order collection which took place in 2021 brought the order book to over EUR 880 million at the end of the year. This backlog, together with the investments made to increase production capacity, constitutes an important basis for further growth in 2022 in both segments and especially in High-value solutions.

Currently the Group expects a more marked growth of revenues in the second half of 2022, compared to the first half of the year. This trend is in line with the business plans based on which the Group expects to increase the production capacity during the year 2022, in particular with reference to EZ-fill® products and High-value solutions. Together with the shift to 2022 of approximately EUR 90 million investments in production capacity (originally planned for the 2021 financial year) and the increase of the same in Italy, the Group expects a capital expenditure in 2022 of around 35-40% of total revenues. These investments are vital for growth of revenues, the increase in the mix of High-value solutions, the expansion of margins, elements considered fundamental for the creation of long-term value for shareholders.

The Group expects double-digit revenue growth for the Biopharmaceutical and Diagnostic Solutions segment supported in particular by High-value solutions. For the Engineering segment, however, high growth is expected, "high single digit", compared to 2021, the year in which the Group grew by 54.3%.

The Group continues to focus attention on its innovation platform to extend and improve its proprietary product offering. The Group maintains a constant focus on driving innovation in terms of research and development, supplying high quality products, offering technical and scientific support, and satisfying market demands.

Stevanato Group serves some of the fastest growing market segments and is well integrated into the drug delivery supply chain, benefiting of some favorable macro-trends, including pharmaceutical innovation, aging populations with chronic diseases, growth of biological and biosimilar products, the acceleration and expansion of vaccination programs, the self-administration of drugs and the increase of quality standards and related regulation.

CONSOLIDATED FINANCIAL STATEMENTS
AS AT AND FOR THE YEAR ENDED DECEMBER 31, 2021

Contents

Consolidated income statement for the years ended December 31, 2021 and 2020

Consolidated income statement

Consolidated statement of comprehensive income

Consolidated statement of financial position

Consolidated statement of changes in equity

Consolidated statement of cash flows

Notes to the consolidated financial statements

Consolidated income statement for the years ended December 31, 2021 and 2020

Consolidated income statement

Consolidated statement of comprehensive income

for the years ended December 31, 2021 and 2020

Consolidated statement of financial position

at December 31, 2021 and 2020

Consolidated statement of changes in equity

for the years ended December 31, 2021 and 2020

Consolidated statement of cash flows

for the years ended December 31, 2021 and 2020

Notes to the consolidated financial statements

1. Corporate information

Stevanato Group S.p.A. (herein referred to as the "Company" and together with its subsidiaries the "Group") is headquartered in Italy and its registered office is located in via Molinella 17, Piombino Dese (Padova, Italy). The Group is active in the design, production and distribution of products and processes to provide integrated solutions for bio-pharma and healthcare, leveraging on constant investment and the selected acquisition of skills of new technologies to become a global player in the bio-pharma industry. Principal products are containment solutions, drug delivery systems, medical devices, diagnostic, analytical services, visual inspection machines, assembling and packaging machines, glass forming machines.

The Group has nine production plants for manufacturing and assembly of bio-pharma and healthcare products (in Italy, Germany, Slovakia, Brazil, Mexico, China, United States), five plants for the production of machinery and equipment (in Italy and Denmark), two sites for analytical services (in Italy and United States) and two commercial offices (in Japan and the United States). Further, on October 4, 2021, the Group announced the start of construction of a new facility in Fishers, Indiana, United States. The Group is also continuing investment to expand production facilities in Piombino Dese, Italy, where construction on a new building is underway. The global footprint allows to sell products and provide services in more than 70 countries worldwide.

Stevanato Group S.p.A. is controlled by Stevanato Holding S.r.l. which holds 78.03% of its share capital.

On July 16, 2021 Stevanato Group began trading on the New York Stock Exchange under the symbol STVN.

2. Significant accounting policies

2.1 Basis of preparation

The consolidated financial statements comprised the financial statements of the Company and its subsidiaries as at and for the years ended December 31, 2021 and 2020. The consolidated financial statements were authorized for issuance by resolution of the Board of Directors on April 11, 2022.

The consolidated financial statements of the Group have been prepared in accordance with the International Financial Reporting Standards as issued by the International Accounting Standards Board (IFRS).

The accounting policies stated below have, unless otherwise stated, been applied consistently over all periods presented in the consolidated financial statements. The Group's accounting policies have been applied consistently by the Group's companies.

The consolidated financial statements are composed of a consolidated income statement, a consolidated statement of comprehensive income, a consolidated statement of financial position, a consolidated statement of changes in equity, a consolidated statement of cash flows and the accompanying notes (the "Consolidated Financial Statements").

The Group presents its consolidated statement of profit or loss using the function of expense method reflecting the practice in the industry in which the Group operates. The Group presents current and non-current assets and liabilities as separate classifications in its consolidated statements of financial position. The statement of cash flows has been prepared using the "indirect method" allowed by IAS 7 - Cash Flow statements. In the consolidated income statement, the Group also presents subtotal for Gross Profit and Operating Profit. Operating Profit distinguishes between the profit before taxes arising from operating items and those arising from financing activities, including also the share of profit of associates. Operating Profit is one of the primary measures used by the Chief Executive Officer, the Group's "Chief Operating Decision Maker" ("CODM") as defined in IFRS 8 - Operating Segments to assess performance.

The consolidated financial statements have been prepared on a historical cost basis, modified as required for the measurement of certain financial instruments at their fair value.

The consolidated financial statements are presented in Euro, the Group's presentation currency, which is also the functional currency of the Company, and all values are rounded to the nearest thousand, except when otherwise indicated.

The consolidated financial statements are prepared on a going concern basis. Management believes that there are no financial or other indicators presenting material uncertainties that may cast significant doubt upon the Group's ability to meet its obligations in the foreseeable future and in particular in the next 12 months.

2.2 Basis of consolidation

Subsidiaries

Subsidiaries are any entities over which the Group has control. The Group controls an entity when the Group is exposed to, or has the rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Power is generally presumed with an ownership of more than one-half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity. The Group re-assesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control.

The Group recognizes any non-controlling interests ("NCI") at fair value or at the non-controlling interest's share of the recognized amounts of the acquiree's identifiable net assets. Net profit or loss and each component of other comprehensive income/ (loss) are attributed to the owners of the parent and to the non-controlling interests. Total comprehensive income/ (loss) of subsidiaries is attributed to owners of the parent and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance.

Subsidiaries are fully consolidated from the date on which control is obtained by the Group. If the Group loses control over a subsidiary, it derecognizes the related assets (including goodwill), liabilities, non-controlling interest and other components of equity, while any resultant gain or loss is recognized in profit or loss. Any investment retained is recognized at fair value.

Associates

These are companies in which the Group has a significant influence over their financial and operating policies and which are neither subsidiaries nor joint ventures. The consolidated financial statements show the Group's portion of results of the associated companies, accounted for using the equity method, starting from the date when the significant influence began. Under the equity method, the investments are initially recognized at cost and adjusted thereafter to recognize the Group's share of the profit/ (loss) and other comprehensive income/ (loss) of the investee. The Group's share of the investee's profit/ (loss) is recognized in the consolidated income statement.

When significant influence over an associate is lost as a result of a full or partial disposal, the Group derecognise that associate and recognise in profit or loss the difference between, on the one hand, the sum of the proceeds received plus the fair value of any retained interest and, on the other hand, the carrying amount of the investment in the associate at the date significant influence is lost.

Consolidation of foreign companies

All the assets and liabilities of foreign companies that report in a currency other than the Euro and which fall within the scope of consolidation are translated into Euro using the exchange rate at the end of the reporting period (current exchange rate method). Income and costs are translated using average rates for the reporting period. The exchange differences arising on translation for consolidation are recognized in OCI. On disposal of a foreign operation, the component of OCI relating to that particular foreign operation is reclassified to profit or loss.

Transactions eliminated upon consolidation

All transactions and balances between Group companies and all unrealized gains and losses arising on intercompany transactions are eliminated on consolidation.

Transactions in foreign currency

Transactions in foreign currencies are initially recorded by the Group's entities at their respective functional currency spot rates at the date the transaction first qualifies for recognition. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated at the foreign currency exchange rate prevailing at that date. Exchange differences arising on the extinguishment of monetary items or their translation at different rates to those used for their translation upon initial recognition or in previous financial statements are recorded in the income statement. Exchange differences arising on monetary items that are effectively part of the Group's net investment in foreign operations are classified in net equity until the investment's disposal, at which time such differences are recognized in the income statement as income or expenses. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates at the dates of the initial transactions.

The principal foreign currency exchange rates used to translate other currencies into Euro were as follows:

2.3 Main accounting policies, estimates and assumptions

Current and non-current

The Group in its consolidated statements of financial position presents assets and liabilities as separate classifications in current and non-current.

An asset is current when it is: (i) expected to be realized or intended to be sold or consumed in the normal operating cycle; (ii) held primarily for the purpose of trading; (iii) expected to be realized within twelve months after the reporting period or (iv) cash or cash equivalent. All other assets are classified as non-current.

A liability is current when it is: (i) expected to be settled in the normal operating cycle, (ii) held primarily for the purpose of trading; (iii) due to be settled within twelve months after the reporting period or (iv) there is no unconditional right to defer the settlement of the liability for at least twelve months after the reporting period. The terms of the liability that could, at the option of the counterparty, result in its settlement by the issue of equity instruments do not affect its classification. The Group classifies all other liabilities as non-current. Deferred tax assets and liabilities are classified as non-current assets and liabilities.

Goodwill

Goodwill is initially measured at cost (being the excess of the aggregate of the consideration transferred and the amount recognized for non-controlling interests and any previous interest held over the net identifiable assets acquired and liabilities assumed in a business combination).

After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment testing, that is performed at least annually, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group's cash-generating units that are expected to benefit from the combination.

Impairment test consists in the comparison of the recoverable amount of each CGU, over which goodwill has been allocated for monitoring purposes, with their corresponding carrying amount of net assets including goodwill. The recoverable amount is the higher of an asset's fair value less costs to sell and its value in use. The fair value less costs to sell is the price that would be received from the sale of an asset or group of assets in an orderly transaction between market participants at the measurement date, less costs to sell. These values are determined on the basis of market data (stock market prices or comparison with similar listed companies, with the value attributed to similar assets or companies in recent transactions) or, in the absence of such data, on the basis of discontinued cash flows as determined by a market participant. The value in use is based on discounted future cash flows net of income taxes, calculated as follows:

These procedures are in accordance with IAS 36 - Impairment of assets, an impairment loss is recognized if the recoverable amount is lower than the carrying amount. An impairment loss recognized for goodwill cannot be reversed in a subsequent period.

Where goodwill has been allocated to a cash-generating unit (CGU) and part of the operation within that unit is disposed of, the goodwill associated with the disposed operation is included in the carrying amount of the operation when determining the gain or loss on disposal. Goodwill disposed in these circumstances is measured based on the relative values of the disposed operation and the portion of the cash-generating unit retained.

Fair Value Measurement

In accordance with IFRS 13 - Fair Value Measurement, the Group measures financial instruments such as derivatives, and non-financial assets, at fair value at each balance sheet date. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place in the principal market or, in the absence of a principal market, in the most advantageous market for the asset or liability.

The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs.

All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorized within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:

Recognition of revenues

The Group is in the business of production and distribution of products and processes to provide integrated solutions for pharma and healthcare. Revenue from contracts with customers is recognized when control of the goods or services are transferred to the customer at an amount that reflects the consideration to which the Group expects to be entitled in exchange for those goods or services. The Group has generally concluded that it is the principal in its revenue arrangements because it typically controls the goods or services before transferring them to the customer.

The Group considers whether there are other promises in the contract that are separate performance obligations to which a portion of the transaction price needs to be allocated.

Based on the five-step model introduced in IFRS 15 - Revenue from contracts with customers, the Company recognizes revenue after the following requirements have been met:

a) the parties have approved the contract (in writing, orally or in accordance with other common commercial practices) and are committed to fulfilling the respective performance obligations; an agreement between the parties which creates rights and obligations regardless of the form of the agreement has, therefore, been created;

b) the rights of each of the parties in relation to the services to be transferred can be identified;

c) the payment terms for the goods or services to be transferred can be identified;

d) the contract has commercial substance;

e) it is probable that the Company will receive the consideration to which it is entitled in exchange for the services transferred to the customer. If the consideration referred to in the contract has a variable component, the Company will estimate the amount of the consideration it will be entitled to in exchange for the services transferred to the customer.

Revenues from sale of Biopharmaceutical and Diagnostic Solution segment

Revenue from sale of Biopharmaceutical and Diagnostic Solution segment is mainly recognized at the point in time when control of the asset is transferred to the customer, generally on delivery of the products at the customer's location and generally considering applicable Incoterms.

The normal credit term is 60 to 90 days upon delivery.

The Group enters in certain contracts whereby it provides customer with the right to access certain intellectual properties for a defined short period of time. These contracts do not result in additional performance obligations for the Group and have been assessed to result in revenue to be recognized over the time the customer can benefit from the access to the intellectual property.

In determining the transaction price for the sale of glass and plastic products, both part of the Biopharmaceutical and Diagnostic Solution segment, the Group considers the effects of variable consideration, existence of a significant financing component, non-cash consideration, and consideration payable to the customer. If the consideration in a contract includes a variable amount, the Group estimates the amount of consideration to which it will be entitled in exchange for transferring the goods to the customer. The variable consideration is estimated at contract inception and constrained until it is highly probable that a significant revenue reversal in the amount of cumulative revenue recognized will not occur when the associated uncertainty with the variable consideration is subsequently resolved. The Group estimates the impact of potential returns from customers based on the Group's right of return policies and practices along with historical data on returns, in order to determine the amount of variable consideration that can be included in the transaction price and recognized as revenue. A refund liability is recognized for the goods that are expected to be returned. There are no post-delivery obligations other than product warranties, if required by local law; these warranties do not represent a separate performance obligation and are accounted for applying IAS 37 - Provisions, Contingent Liabilities and Contingent Assets. Any advance payments or deposits from customers are not recognized as revenue until the control of the relevant good is transferred to the customer.

Biopharmaceutical and Diagnostic Solution segment also develops, contracts for and sells to customers molds, tools and equipment necessary to produce plastic products. If the tooling is highly customized with no alternative use to the Group, and the Group has an enforceable right to payment for performance completed to date, revenue is recognized over time by measuring progress towards completion using the input method based on costs incurred relative to total estimated costs to completion consistently with transfer of control. Otherwise, revenue for the molds, tools and equipment is recognized at the point in time when the performance obligations are satisfied by transferring of control.

Revenue from sale of Engineering segment

Revenue from sale of Engineering segment is recognized at the point in time or over the time, accordingly to terms and conditions of the customer's contract.

The Group recognizes revenues from customer-specific construction contracts of the engineering system division over the time as the performance does not create an asset with an alternative use and the Group has an enforceable right to payment for performance completed to date. When it is not possible to consider the enforceable right to payment for performance completed to date, revenue is recognized at a point in time.

For revenue recognized over time, revenue is recognized by applying a method of measuring progress toward complete satisfaction of the related performance obligation. When selecting the method for measuring progress, the Group select the method that best depicts the transfer of control of goods or services promised to customers. Engineering revenue is recorded under an input method, which recognizes revenue on the basis of efforts or inputs to the satisfaction of a performance obligation (for example, resources consumed, labor hours expended, costs incurred, time elapsed, or machine hours used) relative to the total expected inputs to the satisfaction of that performance obligation. The input method that we use is based on costs incurred, using the percentage of completion method (or expected cost plus a margin approach). The Group determines the applicable stage of completion based on the portion of contract costs incurred for work performed to date relative to the estimated total contract costs (cost to cost method).

Engineering revenue can be generated from contracts with multiple performance obligations. When a sales agreement involves multiple performance obligations, each obligation is separately identified, and the transaction price is allocated based on the amount of consideration the Group expect to be entitled in exchange for transferring the promised good or service to the customer.

If the stage of completion of a customer-specific contract cannot be estimated reliably, contract revenue is recognized to the extent of contract costs incurred that are likely to be recoverable.

Engineering's revenues also include after-sales services, those mainly consists in the supply of spare parts to customers for machinery and equipment sold, other than maintenance activity on the machines sold. Such revenues is recognized at a point in time.

Contract costs are recognized in profit or loss as incurred unless they create an asset which generates or enhances resources that will be used in satisfying (or in continuing to satisfy) performance obligations in the future. When it is probable that total contract costs will exceed total contract revenue, the expected loss is recognized as an expense immediately in the consolidated income statement following requirements on onerous contracts in IAS 37.

Trade receivables

A receivable is the entity's right to consideration that is unconditional. A right to consideration is unconditional if the passage of time is required before payment of that consideration is due.

Contract assets

The entity's right to consideration in exchange for goods or services that the entity has transferred to a customer when that right is conditioned on something other than the passage of time.

Contract liabilities

A contract liability is the entity's obligation to transfer goods or services to a customer for which the entity has received consideration.

Presentation of Contract assets and liabilities

Contract assets and liabilities are determined at the contract level and not at the performance obligation level. As such, an asset or liability for each performance obligation within a contract is not separately recognized, but they are aggregated into a single contract asset or liability. Contract asset or contract liability positions are determined for each contract on a net basis.

Cost of sales

Cost of sales comprises expenses incurred in the manufacturing and distribution of products. The remaining costs principally include depreciation, amortization and transportation costs.

Listing fees

In accordance with IAS 32 - Financial instrument: presentation, the transaction costs of an equity transaction are accounted for as a deduction from equity, to the extent they are incremental costs directly attributable to the equity transaction that otherwise would have been avoided. Transaction costs relate jointly to offering of share and stock exchange listing of new share have been allocated to those transactions using a basis of allocation that is rational and consistent with similar transactions.

Income (and deferred) taxes

Income taxes include all the taxes calculated on taxable profits of the Group. Income taxes are recorded in the income statement, except to the extent that they relate to a business combination, or items recognized directly in equity or in other comprehensive income.

Current taxes are calculated on the basis of the tax laws enacted or substantially enacted at the reporting date in the countries where the Group operates and generates taxable income. Current tax receivables and payables are measured at the amount expected to be recovered or paid to the tax authorities.

Italian Regional Income Tax ("IRAP") is recognized within income tax expense. IRAP is calculated on a measure of income defined by the Italian Civil Code as the difference between operating revenues and costs, before financial income and expense, and in particular before the cost of fixed-term employees, credit losses and any interest included in lease payments, for the Italian components of the Group only. IRAP is applied on the tax base at 3.9% for the years ended December 31, 2020 and December 31, 2021.

Deferred tax is provided using the liability method on temporary differences between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes at the reporting date.

Deferred tax liabilities are recognized for all taxable temporary differences, except:

Deferred tax assets are recognized for all deductible temporary differences, the carry forward of unused tax credits and any unused tax losses. Deferred tax assets are recognized to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry forward of unused tax credits and unused tax losses can be utilized, except:

The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilized. Unrecognized deferred tax assets are re-assessed at each reporting date and are recognized to the extent that it has become probable that future taxable profits will allow the deferred tax asset to be recovered.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date.

In assessing the feasibility of the realization of deferred tax assets, management considers whether it is probable that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible and the tax loss carried forwards are utilized. Estimating future taxable income requires estimates about matters that are inherently uncertain and requires significant management judgment, and different estimates can have a significant impact on the outcome of the analysis.

Changes in the assumptions and estimates related to future taxable income, tax planning strategies and scheduled reversal of deferred tax liabilities could affect the recoverability of the deferred tax assets. If actual results differ from such estimates and assumptions the Group financial position and results of operation may be affected.

Deferred tax relating to items recognized outside profit or loss is recognized outside profit or loss. Deferred tax items are recognized in correlation to the underlying transaction either in OCI or directly in equity. The Group offsets deferred tax assets and deferred tax liabilities if and only if it has a legally enforceable right to set off current tax assets and current tax liabilities and the deferred tax assets and deferred tax liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities which intend either to settle current tax liabilities and assets on a net basis, or to realize the assets and settle the liabilities simultaneously, in each future period in which significant amounts of deferred tax liabilities or assets are expected to be settled or recovered.

Any uncertainty regarding tax treatments is considered in the tax calculation in accordance with the recommendations of IFRIC 23 - Uncertainty over Income Tax Treatments that requires an entity to consider whether it is probable that a taxation authority will accept an uncertain tax treatment. If the Group concludes that the position is not probable of being accepted, the effect of uncertainty is reflected in the income taxes.

Dividend

The Company recognizes a liability to pay a dividend when the distribution is authorized and the distribution is no longer at the discretion of the Company. As per the corporate laws of Italy, a distribution is authorized when it is approved by the shareholders. A corresponding amount is recognized directly in equity.

Other intangible assets

Intangible assets, other than goodwill, acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination is their fair value at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortization and accumulated impairment losses. Internally generated intangibles, excluding capitalized development costs, are not capitalized and the related expenditure is reflected in profit or loss in the period in which the expenditure is incurred. The useful lives of intangible assets are assessed as either finite or indefinite. Intangible assets with finite lives are amortized over the useful economic life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortization period and method for an intangible asset with a finite useful life are reviewed at the end of each reporting period. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are considered to modify the amortization period or method and are treated as changes in accounting estimates. The amortization expense on intangible assets with finite lives is recognized in the income statement in the expense category that is consistent with the function of the intangible assets.

Developments costs for the production of new products or parts, like requested as IAS 38 - Intangible Assets, are recognized as assets only if the costs can be reliably determined; the Group has the intention and resources to complete them, the technical feasibility of completing them is such that they will be available for use; the Group has the intention to complete and the ability and intention to use or sell the asset; the asset will generate future economic benefits; there is availability of resources to complete the asset and the ability to measure reliably the expenditure during development. Capitalized development costs include only those expenses that can be directly attributed to the development process and are amortized on a systematic basis, starting from the commencement of production and lasting the length of the product or process's estimated life, generally ranging between three and five years. Research costs are expensed as incurred.

Industrial patents and intellectual property rights, and licenses are valued at purchase or production cost and amortized, if they have a finite life, on a straight-line basis over their estimated useful life, generally between three and five years.

Other intangible assets mainly relate to the registration of trademarks and have been recognized in accordance with IAS 38 - Intangible Assets, where it is probable that the use of the asset will generate future economic benefits for the Group and where the cost of the asset can be measured reliably. Other intangible assets are measured at cost less any impairment losses and amortized on a straight-line basis over their estimated life, which is generally between three and five years.

The amortization period and the amortization method for an intangible asset with a finite useful life are reviewed at least at the end of each reporting period. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are considered to modify the amortization period or method, as appropriate, and are treated as changes in accounting estimates.

An intangible asset is derecognized upon disposal (i.e., at the date the recipient obtains control) or when no future economic benefits are expected from its use or disposal. Any gain or loss arising upon derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the statement of profit or loss.

Property, plant and equipment

Plant and equipment are recorded at purchase or production cost and systematically depreciated over their residual useful lives and accumulated impairment losses, if any. The land pertaining to buildings is not depreciated. Such cost includes the cost of replacing part of the plant and equipment and borrowing costs for long-term construction projects if the recognition criteria are met.

When significant parts of plant and equipment are required to be replaced at intervals, the Group depreciates them separately based on their specific useful lives. Likewise, when a major inspection is performed, its cost is recognized in the carrying amount of the plant and equipment as a replacement if the recognition criteria are satisfied. All other repair and maintenance costs are recognized in profit or loss as incurred. The present value of the expected cost for the decommissioning of an asset after its use is included in the cost of the respective asset if the recognition criteria for a provision are met. Property, plant and equipment transferred from customers are initially measured at fair value at the date on which control is obtained. Construction in progress is stated at cost, net of accumulated impairment losses, if any.

The useful lives, estimated by the Group for its various categories of property, plant and equipment, are as follows:

Land is not depreciated. The residual values, useful lives and methods of depreciation of property, plant and equipment are reviewed at each financial year end and adjusted prospectively, if appropriate.

An item of property, plant and equipment and any significant part initially recognized is derecognized upon disposal (i.e., at the date the recipient obtains control) or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the statement of profit or loss when the asset is derecognized.

Leases

The Group assesses at contract inception whether a contract is, or contains, a lease. That is, if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.

According to IFRS 16 - Leases, the Group applies a recognition and measurement approach for each lease, except for short-term leases and leases of low-value assets. The Group applies the short-term lease recognition exemption to its short-term leases (i.e., those leases that have a lease term of 12 months) and applies the lease of low-value assets recognition exemption to leases of that are considered to be low value. Lease payments on short-term leases and leases of low-value assets are recognized as expense on a straight-line basis over the lease term.

The Group recognizes lease liabilities representing obligations to make lease payments and Right of Use assets representing the Right of Use the underlying assets.

The Group recognizes Right of Use assets at the commencement date of the lease and it is measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any remeasurement of lease liabilities. Right of Use assets are measured at cost comprising the following: (i) the amount of the initial measurement of lease liability; (ii) any lease payments made at or before the commencement date less any lease incentives received; (iii) any initial direct costs and, if applicable, (iv) restoration costs. Right of Use assets are depreciated on a straight-line basis over the shorter of the lease term and the estimated useful lives of the assets.

At the commencement date of the lease, the Group recognizes lease liabilities measured at the present value of lease payments to be made over the lease term, of the following: (i) fixed lease payments less any lease incentives receivable, (ii) variable lease payments that are based on an index or a rate and, if applicable, (iii) amounts expected to be payable under residual value guarantees, and (iv) the exercise price of a purchase option if the lessee is reasonably certain to exercise that option. 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. Lease payments are discounted using the interest rate implicit in the lease. If that rate cannot be determined, the Group's incremental borrowing rate is used, being the rate that the Group would have to pay to borrow the funds necessary to obtain an asset of similar value in a similar economic environment with similar terms and conditions. Each lease payment is allocated between the principal liability and interest expense. Interest expense is charged to the income statement over the lease period using the effective interest rate method.

Inventories

Inventories of raw materials, semi-finished and finished products are valued at the lower of cost and net realizable value. Inventories are valued at the lower of cost and net realizable value. Costs incurred in bringing each product to its present location and condition are accounted for, as follows:

Allowances for obsolete and slow-moving goods are calculated for materials and finished products, taking into account their future expected use and realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated costs necessary to make the sale.

Financial instruments

A financial instrument is a contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity. Current financial assets include trade receivables, derivative financial instruments, other current financial assets and cash and cash equivalents. Investments and other financial assets include investments accounted for using the equity method and non-current financial assets. Financial liabilities include debt and borrowings from banks, trade payables and other financial liabilities, which mainly include derivative financial instruments.

Financial assets

Financial assets are classified on the basis of the impairment model introduced by IFRS 9 - Financial instruments, at initial recognition, as subsequently measured at amortized cost, fair value through other comprehensive income (OCI), and fair value through profit or loss. The Group initially measures a financial asset at its fair value plus transaction costs, in the case of a financial asset not at fair value through profit or loss. With the exception of trade receivables that do not contain a significant financing component or for which the Group has applied a simplified approach in calculating ECLs (Expected Credit Loss). Therefore, the Group does not track changes in credit risk, but instead recognizes a loss allowance based on lifetime ECLs at each reporting date, based on its historical credit loss experience, adjusted for forward-looking factors specific to the debtors and the economic environment. The amount of receivables is reported in the statement of financial position net of the relevant bad debt provisions. The impairment losses reported pursuant to IFRS 9 (including reversals of impairment losses or impairment gains) are recognized in the consolidated income statement within the line item Selling and Marketing expenses.

Financial assets are derecognized when the rights to receive cash flows from the instrument have expired and the Group has transferred substantially all risks and rewards of ownership.

Financial assets measured at amortized cost

This category includes financial assets that meet the following requirements: (i) the financial asset is held within a business model whose objective is to hold financial assets to collect their contractual cash flows; and (ii) the contractual terms of the financial asset give rise to cash flows that are solely payments of principal and interest on the principal amount outstanding.

Financial assets at amortized cost are subsequently measured using the effective interest (EIR) method and are subject to impairment. Gains and losses are recognized in profit or loss when the asset is derecognized, modified or impaired.

Financial assets at fair value through OCI (debt instruments)

For debt instruments at fair value through OCI, interest income, foreign exchange revaluation and impairment losses or reversals are recognized in the statement of profit or loss and computed in the same manner as for financial assets measured at amortized cost. The remaining fair value changes are recognized in OCI. Upon derecognition, the cumulative fair value change recognized in OCI is recognized in profit or loss.

Financial assets at fair value through consolidated profit or loss (FVTPL)

Financial assets at fair value through profit or loss are carried in the statement of financial position at fair value with net changes in fair value recognized in the statement of profit or loss. This category includes financial assets not classified in any of the previous categories and derivative instruments and equity investments which the Group has not irrevocably elected to classify at fair value through OCI.

Financial liabilities

Financial liabilities are classified, at initial recognition, as financial liabilities at fair value through profit or loss, loans and borrowings, payables, or as derivatives designated as hedging instruments in an effective hedge, as appropriate. All financial liabilities are recognized initially at fair value and, in the case of loans and borrowings and payables, net of directly attributable transaction costs. The Group's financial liabilities include trade and other payables, loans and borrowings including bank overdrafts, and derivative financial instruments.

For purposes of subsequent measurement, financial liabilities are classified in financial liabilities at fair value through profit or loss and financial liabilities at amortized cost (loans and borrowings).

Financial liabilities at fair value through profit or loss include financial liabilities held for trading and financial liabilities designated upon initial recognition as at fair value through profit or loss. The Group has not designated any financial liability as at fair value through profit or loss.

Financial liabilities at amortized cost is the category most relevant to the Group. After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortized cost using the EIR method. Gains and losses are recognized in profit or loss when the liabilities are derecognized as well as through the EIR amortization process.

Amortized cost is calculated by considering any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortization is included as interest expense in the statement of profit or loss.

A financial liability is derecognized when the obligation under the liability is discharged or cancelled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as the derecognition of the original liability and the recognition of a new liability. The difference in the respective carrying amounts is recognized in the income statement.

Borrowings are classified among current liabilities, unless the Group has an unconditional right to defer their payment for at least twelve months after the reporting date.

Derivative financial instruments are accounted for in accordance with IFRS 9. At the inception of the contract, derivative instruments are initially recognized at fair value as financial assets at FVTPL when the fair value is positive, or financial liabilities at FVTPL when the fair value is negative.

When a derivative financial instrument is designated as a hedge of the exposure to variability in future cash flows or highly probable forecasted transactions, the effective portion of the gain or loss on the hedging instrument is recognized in OCI in the cash flow hedge reserve, while any ineffective portion is recognized immediately in the statement of profit or loss. The Group uses IRS contract (Interest Rate Swap) as hedges of its exposure to financial interest of loans. The cash flow hedge reserve is adjusted to the lower of the cumulative gain or loss on the hedging instrument and the cumulative change in fair value of the hedged item.

The Group uses forward currency and collar contracts as hedges of its exposure to foreign currency risk in forecast transactions and firm commitments, for its exposure to volatility of exchange rates. The ineffective portion is recognized in financial income or expenses.

Impairment of non-financial assets

The Group tests whether there is an indication that an asset may be impaired. If there is evidence of impairment, book value is written down to the related recoverable amount. An asset's recoverable amount is the higher of an asset's or CGU's fair value less costs of disposal and its value in use. If it is not possible to estimate the recoverable amount of an individual asset, the Group assesses whether the cash-generating unit to which it belongs is impaired. When the carrying amount of an asset or CGU exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount.

For assets excluding goodwill, an assessment is made at each reporting date to determine whether there is an indication that previously recognized impairment losses no longer exist or have decreased. If such indication exists, the Group estimates the asset's or CGU's recoverable amount. A previously recognized impairment loss is reversed only if there has been a change in the assumptions used to determine the asset's recoverable amount since the last impairment loss was recognized.

Cash and cash equivalents

Cash and cash equivalents in the statement of financial position comprise cash on hand and at bank, carried at nominal amount, equal to fair value. Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.

Equity

Retained earnings and other reserves include undistributed earnings of the Group, the accumulated amount of items recognized in other comprehensive income (such as actuarial gains and losses, cash-flow hedge reserves, etc.) and other reserves (translation differences). Dividends are deducted from equity when they are approved by the Shareholders' Meeting.

Non-controlling interests represent the portion of the net assets and net profit of a consolidated entity that is not attributable to the Group, directly or indirectly.

Provisions

Provisions for risks are recognized when (i) the Group has a present obligation, legal or constructive, as a result of a past event; (ii) it is probable that the outflow of resources will be required; (iii) the amount of the obligation can be reliably estimated. Provisions are determined by the Group based on facts and circumstances, historical risk data and the information available at the balance sheet date. When the Group expects some or all of a provision to be reimbursed, for example, under an insurance contract, the reimbursement is recognized as a separate asset, but only when the reimbursement is virtually certain. Where the effect of the time value of money is material and the date of extinguishing the liability can be reasonably estimated, provisions are stated at the present value of the expected expenditure, using a discount rate that reflects current market assessments of the time value of money and the risks specific to the liability. When discounting is used, the increase in the provision due to the passage of time is recognized as an interest expense. Contingencies for which the probability of a liability is remote are disclosed in the notes, but no provision is recognized.

Employee benefits

Employee severance indemnity, mandatory for Italian companies pursuant to Article 2120 of the Italian Civil Code, is deferred compensation and is based on the employees' years of service and the compensation earned by the employee during the service period. Under IAS 19 - Employee Benefits, the employee severance indemnity as calculated is considered a "Defined benefit plan" and the related liability recognized in the statement of financial position (Employees Benefits) is determined by actuarial calculations.

The remeasurements of actuarial gains and losses are recognized in other components of the Consolidated Statements of Comprehensive income. Service cost of Italian companies that employ less than 50 employees, as well as interest expenses related to the "time value" component of the actuarial calculations (the latter classified as Finance expenses), are recognized in the separate consolidated income statements.

Starting from January 1, 2007, Italian Law gave employees the choice to direct their accruing indemnity either to supplementary pension funds or leave the indemnity as an obligation of the Company. Companies that employ at least 50 employees should transfer the employee severance indemnity to the "Treasury fund" managed by INPS, the Italian Social Security Institute. Consequently, the Group's obligation to INPS and the contributions to supplementary pension funds take the form, under IAS 19, of a "Defined contribution plan".

Net interest is calculated by applying the discount rate to the net defined benefit liability or asset. The Group recognizes the following changes in the net defined benefit obligation under expenses in the consolidated statement of profit or loss:

Other long-term employee benefit obligations

The Group also has liabilities for cash-settled awards based on Group's performance indicators that are not expected to be settled wholly within 12 months after the end of the period in which the employees and directors render the related service. These obligations are therefore measured as the present value of expected future payments to be made in respect of services provided by employees and directors up to the end of the reporting period, using the projected unit credit method. Expected future payments are discounted using market yields at the end of the reporting period of high-quality corporate bonds with terms and currencies that match, as closely as possible, the estimated future cash outflows. Remeasurements as a result of experience adjustments and changes in actuarial assumptions are recognized in profit or loss.

Stock Grant Plan

The Group recognizes incentives made up of a stock grant plan to certain senior management members and beneficiaries who hold key positions in the Group. The stock grant plan is a type of equity settled plan, where the beneficiary is entitled to receive shares of Stevanato Group S.p.A. at the beginning of the vesting period. In case the targets provided for the vesting period in relation to which the shares are assigned should not be totally or partially achieved, the beneficiaries are bound to re-sell the shares to Stevanato Group S.p.A. at a determined price. In the event certain over-performances with respect to the financial targets have been met, beneficiaries will be granted, free of charge an additional number of Stevanato Group S.p.A. shares related to that vesting period in which the targets were exceeded.

The value corresponding to the consideration that Stevanato Group S.p.A. has to pay in case of re-purchase of the shares is recorded on the income statement among personnel costs at the grant date and a liability for employee benefits is registered. For the "equity settled" performance plan, the fair value is recorded on the income statement among personnel costs over the period between the assignment date and the expiry date (vesting period), and a reserve of shareholder's equity is recorded. Fair value is determined at the assignment date, reflecting the market conditions prevailing at the date in question.

At each reporting date, the Group checks the assumptions about the number of shares expected to be accrued and recognizes the effect of any change in the estimate to the income statement, adjusting the corresponding equity reserve.

Trade payables and other payables

Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Trade payables are classified as current liabilities if payment is due within one year or less from the reporting date. If not, they are presented as non-current liabilities. Trade payables are initially recognized at fair value and subsequently measured at amortized cost.

Other current and non-current liabilities

Other current and non-current liabilities include, among the others, liabilities related to put options over non-controlling interests and other liabilities related to financial investments.

When a put option is granted to non-controlling shareholders of a subsidiary, if the option provides for settlement in cash, a liability is recognized for the present value of the exercise price of the option. This liability is classified as non-current financial liabilities or current financial liabilities in the consolidated statement of financial position based on its due date. Subsequent changes in the liability's fair value are recognized through profit or loss.

The Group recognizes liabilities from other taxes and social security and other non-financial liabilities at amount payable on the maturity date. Pre-payments received on orders as well as the liability balance from constructions contracts are reported as contract liabilities.

Climate change

Climate change and potential climate change legislation may present risks to Stevanato Group operations, including business interruption, significantly increased costs and/or other adverse consequences to the Group's business. Some of the potential impacts of climate change to the business include physical risks to the Group's facilities, water and energy supply limitations or interruptions, disruptions to supply chain and impairment of other resources. In addition, if legislation or regulations are enacted or promulgated in the U.S., Europe or Asia or any other jurisdictions in which the Group does business that limit or reduce allowable greenhouse gas emissions and other emissions, such restrictions could have a significant effect on the Group operating and financial decisions, including those involving capital expenditures to reduce emissions, and the results of operations. Manufacturing operations may not be able to operate as planned if Stevanato Group is not able to comply with new legal and regulatory legislation around climate change, or it may become too costly to operate in a profitable manner. Additionally, suppliers' added expenses could be passed on to the Group in the form of higher prices and the Group may not be able to pass on such expenses to our customers through price increases.

With the impacts of climate change already manifesting themselves, and some degree of further global warming inevitable, Stevanato Group is keen to protect the environment, to operate business at global level under the principles of sustainability including principles related to climate-change, to include EHS management as integral part of business processes with the commitment to reduce energy and natural resources consumption.

In preparing the Consolidated Financial Statements, management has considered the impact of climate change in the context of the disclosures. These considerations did not have a material impact on the financial reporting judgements and estimates, consistent with the assessment that climate change is not expected to have a significant impact on the Group's going concern assessment to December 2022.

Use of estimates

The Consolidated Financial Statements are prepared in accordance with IFRS which require Management's use of estimates and assumptions that may affect the carrying amount of assets, liabilities, income and expenses in the financial statements, as well as the disclosures in the notes concerning contingent assets and liabilities at the balance sheet date. Uncertainty about these assumptions and estimates could result in outcome that require a material adjustment to the carrying amount of assets or liabilities affected in future periods.

Estimates are based on historical experience and other factors. The resulting accounting estimates could differ from the related actual results. Estimates are periodically reviewed and the effects of each change are reflected in the consolidated statement of profit or loss or in the consolidated statement of comprehensive income in the period in which the change occurs.

Revenue Recognition

The Group operates in several jurisdictions and assesses whether contracts with customers provide it with the right to consideration for the performance fulfilled based on legal assessment of applicable contracts and other source of enforceable rights and obligations (i.e. local regulations). As regards revenue from contracts with customers for contract work and contract assets and liabilities, application of the cost-to-cost method requires a prior estimate of the entire lifetime costs of individual projects, updating them at each balance sheet date. This requires assumptions, those can be affected by multiple factors, such as the time over which some projects are developed, their high level of technology and innovative content, the possible presence of price variations and revisions, and machinery performance guarantees, including an estimate of contractual risks, where applicable. These facts and circumstances make it difficult to estimate the projects' costs to complete and, consequently, to estimate the value of contract work in progress at the balance sheet date. The Group estimates variable considerations to be included in the transaction price for the sale of products with rights of return and volume rebates. The Group forecasts sales returns using the historical return data to come up with expected return percentages. These percentages are applied to determine the expected value of the variable consideration. The Group also receives amounts from third parties that may or may not be collected in a seller-customer relationship. The Group assesses whether these amounts represent consideration for goods or services that have been or will be provided and accordingly identifies the pattern of recognition of revenue.

Recoverable amount of goodwill

The impairment test on goodwill is carried out by comparing the carrying amount of cash-generating units and their recoverable amount. The recoverable amount of a cash-generating unit is the higher of fair value, less costs to sell, and its value in use. This complex valuation process entails the use of methods such as the discounted cash flow method which uses assumptions to estimate cash flows. The recoverable amount depends significantly on the discount rate used in the discounted cash flow model as well as the expected future cash flows and the growth rate used for the extrapolation. The key assumptions used to determine the recoverable amount for the different cash-generating units, including a sensitivity analysis, are detailed in the Note 16.

Development costs

The amortization of development costs requires management to estimate the lifecycle of the related product. Any changes in such assumptions would impact the amortization charge recorded and the carrying amount of capitalized development costs. The periodic amortization charge is derived after determining the expected lifecycle of the related product. Increasing an asset's expected lifecycle or its residual value would result in a reduced amortization charge in the consolidated income statement. The useful lives of our development costs are determined by management at the time of capitalization and reviewed annually for appropriateness and recoverability.

Employee benefit liabilities

Employee benefit liabilities: employee benefits, especially the provision for employee severance indemnities and other long term incentives, are calculated using actuarial assumptions; changes in such assumptions could have a material impact on such liabilities.

Leases

The Group cannot readily determine the interest rate implicit in the lease, therefore, it uses its incremental borrowing rate (IBR) to measure lease liabilities. The IBR is the rate of interest that the Group would have to pay to borrow over a similar term, and with a similar security, the funds necessary to obtain an asset of a similar value to the right-of-use asset in a similar economic environment. The IBR therefore reflects what the Group 'would have to pay', which requires estimation when no observable rates are available (such as for subsidiaries that do not enter into financing transactions) or when they need to be adjusted to reflect the terms and conditions of the lease (for example, when leases are not in the subsidiary's functional currency). The Group estimates the IBR using observable inputs (such as market interest rates) when available and is required to make certain entity-specific estimates (such as the subsidiary's stand-alone credit rating). The Group determines the lease term as the non-cancellable term of the lease, together with any periods covered by an option to extend the lease if it is reasonably certain to be exercised, or any periods covered by an option to terminate the lease, if it is reasonably certain not to be exercised. The Group applies judgement in evaluating whether it is reasonably certain whether or not to exercise the option to renew or terminate the lease. That is, it considers all relevant factors that create an economic incentive for it to exercise either the renewal or termination.

Provision for expected credit losses of trade receivables and contract assets

The Group uses a simplified approach in calculating ECLs for trade receivables and contract assets, initially based on the Group's historical observed default rates. The Group will adjust the historical credit loss experience with forward-looking information. At every reporting date, the historical observed default rates are updated and changes in the forward-looking estimates are analyzed. The assessment of the correlation between historical observed default rates, forecast economic conditions and ECLs is a significant estimate. The amount of ECLs is sensitive to changes in circumstances and of forecast economic conditions. The Group's historical credit loss experience and forecast of economic conditions may also not be representative of customer's actual default in the future.

Income tax expense (current and deferred)

The Group is subject to different tax jurisdictions. The determination of tax liabilities for the Group requires the use of assumptions with respect to transactions whose fiscal consequences are not yet certain at the end of the reporting period. Calculation of taxes on a global scale requires the use of estimates and assumptions based on the information available at the balance sheet date. The deferred tax assets realization is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible and the tax loss carried forwards are utilized. Estimating future taxable income requires estimates about matters that are inherently uncertain and requires significant management judgment, and different estimates can have a significant impact on the outcome of the analysis.

3. Changes in accounting policies and disclosures

New accounting standards

The principles and standards utilized in preparing these consolidated financial statements have been consistently applied through all periods presented, with the exception of the new standards and interpretations that are effective for reporting periods beginning on January 1, 2021, described below.

New endorsed standards, amendments and interpretations

The Group adopted the following amendments and interpretations and effective for annual periods beginning on January 1, 2021 but did not require changes to accounting policies or retrospective adjustments.

The amendments aim at helping companies to provide investors with useful information about the effects of the reform on those companies' financial statements. These amendments focus on the effects on financial statements when a company replaces the old interest rate benchmark with an alternative benchmark rate as a result of the reform. The new amendments relate to:

These amendments had no impact on the consolidated financial statements of the Group.

New standards, amendments and interpretations not yet effective

Amendments to IAS 1 - Classification of Liabilities as Current or Non-current

In January 2020, the IASB issued amendments to paragraphs 69 to 76 of IAS 1 to specify the requirements for classifying liabilities as current or non-current. The amendments clarify:

The amendments are effective for annual reporting periods beginning on or after January 1, 2023 and must be applied retrospectively. The Group is currently assessing the impact the amendments will have on current practice, monitoring the IFRS Interpretations Committee and IASB's discussions, and whether existing loan agreements may require renegotiation.

Amendments to IFRS 3 - Reference to the Conceptual Framework

In May 2020, the IASB issued Amendments to IFRS 3 - Business Combinations - Reference to the Conceptual Framework. The amendments are intended to replace a reference to the Framework for the Preparation and Presentation of Financial Statements, issued in 1989, with a reference to the Conceptual Framework for Financial Reporting issued in March 2018 without significantly changing its requirements. The Board also added an exception to the recognition principle of IFRS 3 to avoid the issue of potential 'day 2' gains or losses arising for liabilities and contingent liabilities that would be within the scope of IAS 37 or IFRIC 21 - Levies, if incurred separately. At the same time, the Board decided to clarify existing guidance in IFRS 3 for contingent assets that would not be affected by replacing the reference to the Framework for the Preparation and Presentation of Financial Statements. The amendments are effective for annual reporting periods beginning on or after January 1, 2022 and apply prospectively.

Amendments to IAS 16 - Property, Plant and Equipment: Proceeds before Intended Use

In May 2020, the IASB issued IAS 16 - Property, Plant and Equipment - Proceeds before Intended Use, which prohibits entities deducting from the cost of an item of property, plant and equipment, any proceeds from selling items produced while bringing that asset to the location and condition necessary for it to be capable of operating in the manner intended by management. Instead, an entity recognizes the proceeds from selling such items, and the costs of producing those items, in profit or loss. The amendment is effective for annual reporting periods beginning on or after 1 January 2022 and must be applied retrospectively to items of property, plant and equipment made available for use on or after the beginning of the earliest period presented when the entity first applies the amendment. The amendments are not expected to have a material impact on the Group.

Amendments to IAS 37 - Onerous Contracts - Costs of Fulfilling a Contract

In May 2020, the IASB issued amendments to IAS 37 to specify which costs an entity needs to include when assessing whether a contract is onerous or loss-making. The amendments apply a "directly related cost approach". The costs that relate directly to a contract to provide goods or services include both incremental costs and an allocation of costs directly related to contract activities. General and Administrative costs do not relate directly to a contract and are excluded unless they are explicitly chargeable to the counterparty under the contract. The amendments are effective for annual reporting periods beginning on or after January 1, 2022. The Group will apply these amendments to contracts for which it has not yet fulfilled all its obligations at the beginning of the annual reporting period in which it first applies the amendments.

Amendments to IAS 8 - Accounting Policies, Changes to Accounting Estimates and Errors

On 12 February 2021, the IASB issued amendments to IAS 8 Accounting Policies, Changes to Accounting Estimates and Errors, in which it introduces a new definition of 'accounting estimates'. The amendments are designed to clarify the distinction between changes in accounting estimates and changes in accounting policies and the correction of errors. The amendments become effective for annual reporting periods beginning on or after 1 January 2023 and apply to changes in accounting policies and changes in accounting estimates that occur on or after the start of that period. The amendments are not expected to have a material impact on the Group.

Amendments to IAS 1 - Presentation of Financial Statements

In February 2021, the IASB issued amendments to IAS 1 Presentation of Financial Statements in which it provides guidance and examples to help entities apply materiality judgements to accounting policy disclosures. The IASB also issued amendments to IFRS Practice Statement 2 Making Materiality Judgements (the PS) to support the amendments in IAS 1 by explaining and demonstrating the application of the 'four-step materiality process' to accounting policy disclosures. The amendments aim to help entities provide accounting policy disclosures that are more useful by replacing the requirement for entities to disclose their 'significant' accounting policies with a requirement to disclose their 'material' accounting policies and adding guidance on how entities apply the concept of materiality in making decisions about accounting policy disclosures. The amendments to IAS 1 are applicable for annual periods beginning on or after 1 January 2023. The amendments are not expected to have a material impact on the Group.

Amendments to IAS 12 - Deferred Tax related to Assets and Liabilities arising from a Single Transaction

In May 2021, the IASB issued amendments to IAS 12 Deferred Tax related to Assets and Liabilities arising from a Single Transaction, that clarify the accounting of deferred tax on transactions such as leases and decommissioning obligations. The main change in Deferred Tax related to Assets and Liabilities arising from a Single Transaction (Amendments to IAS 12) is an exemption from the initial recognition exemption provided in IAS 12.15(b) and IAS 12.24. Accordingly, the initial recognition exemption does not apply to transactions in which equal amounts of deductible and taxable temporary differences arise on initial recognition (this is also explained in the newly inserted paragraph IAS 12.22A). The amendments to IAS 12 are applicable for annual periods beginning on or after 1 January 2023. The amendments are not expected to have a material impact on the Group.

4. Scope of consolidation

Stevanato Group S.p.A. is the parent company of the Group and it holds, directly and indirectly, interests in the Group's main operating companies. The Group's scope of consolidation at December 31, 2021 and 2020 is as follows:

Subsidiaries and associate

The consolidated financial statement of the Group includes the following list of company directly or indirectly controlled:

^{* Not included in minority interests as there is a put and call option for full acquisition (the minority interests would have amounted to 35%).
** Balda Medical GmbH has fulfilled the conditions required in accordance with §§ 264 (3), 264b of the German Commercial Code (HGB) to make use of the exemption provisions and has waived the preparation as well as the disclosure of its annual financial statement documents.}

Non-controlling interests

The non-controlling interests as at December 31, 2021 and the net profit attributable to non-controlling interests for the years ended December 31, 2020 and 2021 relate to Ompi of Japan Co., Ltd. and Medical Glass a.s.. For further details refer to Note 37.

5. Segment Information

Stevanato Group business operations are organized into two reportable segments, based on their specific products and services:

In 2021, Stevanato Group generated 82% of total sales from the Biopharmaceutical and Diagnostic Solutions segment (85% in 2020), and 18% from the Engineering segment (15% in 2020).

Biopharmaceutical and Diagnostic Solutions Segment deals mainly with the design and production of glass containers and packaging solutions, based on sophisticated technical and industrial processes, which involve the use of heavy equipment. The production of Drug Containment Systems (DCS) accounts for more than 50% of total sales and represents the Group core business. Glass manufacturing process is particularly complex as it is based on multiple sophisticated industrial processes, to form, treat, inspect and package drug containment and delivery products. The critical phases of Stevanato Group business model are managed internally while only the production of glass tubes (which serve as the starting point of the internal production process) and the sterilization process for the final products are outsourced to a trusted network of third parties' suppliers. Drug Containment Systems includes ampoules, vials, ready-to-fill containers, cartridges and pre-fillable syringes.

Within the same segment there is also the production of In-Vitro Diagnostic (IVD) Solutions and Drug Delivery Systems (DDS). This sector is particularly complex as it requires constant cooperation with each customer for the development of the specific products they need. The production of plastic products requires development of specific molds based on each customer's requirements and specifications, which molds are then used for stamping of the final product. The product portfolio is highly diversified and includes different products for pharmaceutical, medical and diagnostic industries.

Additionally, the Group has recently entered the drug delivery system business offering pen injectors, dry powder inhalers, auto-injectors and wearable injectors.

Stevanato Group provides also analytical services and regulatory support exclusively to its customers, as ancillary services to the supply of DCS. Stevanato Group analytical testing facilities in Piombino Dese, Italy, and Boston, Massachusetts focus on investigating physic-chemical properties of primary packaging materials and components and studying the interactions between drug containment systems and drugs. The Analytical Services provided include chemical analysis, surface characterization, container performance and interaction, testing on drug delivery systems and customized testing based on the specific need of each client.

Engineering Segment deals with the design, development and production of equipment and machinery for both in-house use and sale to customers (which include some of Stevanato Group competitors). Stevanato Group is driving continuous technological advancements so that its equipment can consistently meet the client's stringent specification requirements. The Group assembles equipment and machinery and develops the software necessary for its functioning beyond working closely with the customers to install the machinery and equipment in their production sites, ensuring they are correctly calibrated and properly functioning. Engineering products include glass converting machinery, visual inspection machinery, assembly platforms, secondary packaging machinery. The after-sales services, mainly consists in the provision of spare parts for our machinery and equipment other than maintenance activity on the machines sold.

The Group also provides professional project management services, supporting its customers in designing their plant layout for the production of bulk and ready-to-use pharmaceutical primary packaging.

The criteria applied to identify the operating segments are consistent with the information reviewed by the Chief Executive Officer (the Group's "Chief Operating Decision Maker") in making decisions regarding the allocation of resources and to assess performance.

Inter-segment revenues and costs are eliminated upon consolidation and reflected in the "adjustments, elimination and unallocated items" column. The most relevant adjustment in revenues relates to the sales of the Engineering's equipment to the Biopharmaceutical and Diagnostic Solutions.

The reconciliation from total segments Operating Profit to consolidated Profit Before Tax is as follows:

As of December 31, 2021 and 2020, no external customer exceeds 10% of group's revenue. As of December 31, 2021, Biopharmaceutical and Diagnostic Solution Segment and the Engineering Segment have one customer each that individually represent more than 10% of segment's revenue.

Revenues increase by 22.8% (EUR 129,145 thousand) in Biopharmaceutical and Diagnostic Solutions segment is due both to the increase in sales volume of premium priced high-value solutions and to a general increase in demand for the other containment and delivery solutions, partially due to the COVID-19 impact on our industry. Gross profit margin of this segment increases from 29.6% in 2020 to 33.1% in 2021 due to the shift of revenues towards more accretive high value solutions and increased production efficiencies. Biopharmaceutical and Diagnostic Solutions segment operating profit margin increases from 18.1% for the year ended December 31, 2020 to 21.4% for the year ended December 31, 2021.

With reference to Engineering segment, the EUR 65,428 thousand increase in revenues (42.6%) is mainly due to the growth in all business lines of the segment, glass converting, visual inspection machinery, assembly platforms and packaging machinery sales, as well as after sales services. Engineering gross profit margin decreases to 19.3% in 2021 from 20.9% in 2020 which was bolstered by highly accretive short-term projects that were completed under accelerated timeframes in the last quarter of the year. Engineering segment operating profit margin decreases from 10.8% for the year ended December 31, 2020 to 10.5% for the year ended December 31, 2021.

Unallocated assets increase from EUR 2,396 thousand to EUR 279,342 thousand mainly due to the proceeds from IPO received by Stevanato Group S.p.A. For further detail refer to Note 26. Unallocated liabilities decrease from EUR 217,890 thousand to EUR 77,603 thousand mainly due to the decrease in employee benefits liabilities following the early termination of the 2012-2021 and 2018-2022 incentive plans and the decrease in financial liabilities following the early repayment of the existing floating rate bank loans by Stevanato Group S.p.A.. For further details refer to Note 31 and Note 29 respectively.

6. Revenues from contract with customers

Disaggregated revenue information

The table below shows the disaggregation of the Group's revenue from contracts with external customers:

The Group revenues are divided into two main segments:

Consolidated revenues at current exchange rates increase by EUR 181,883 thousand, or 27.5%, to EUR 843,920 thousand for the year ended December 31, 2021, compared to EUR 662,037 thousand for the year ended December 31, 2020. Currency movements in USD had a negative impact in 2021. Excluding this effect, consolidated revenues at constant currency exchange rates increase by 28.2%.

With reference to Biopharmaceutical and Diagnostic Solutions segment, revenues in high-value solution increase from EUR 146,332 thousand in 2020 to EUR 207,815 thousand in 2021 (+42.0% or EUR 61,483 thousand), while revenues in other containment and delivery solution increased from EUR 418,599 thousand in 2020 to EUR 486,223 thousand in 2021 (+16.2% or EUR 67,624 thousand).

Engineering segment revenues from contracts with external customers increase to EUR 149,882 thousand compared to EUR 97,106 thousand in 2020 (+54.3% or EUR 52,776 thousand).

Revenues show an increase in all the geographic market with the higher growth in the APAC market (+75.4%). Revenues increase by 18.3% in North America, by 17.8 % in South America and by 23.9% in EMEA, the Group traditional market.

Revenues related to goods and services transferred over time increase by EUR 15,179 thousand, or 136.2%, in the In-Vitro Diagnostic business. Revenues recognized over time increase also in the Engineering segment by EUR 55,716 thousand, or 94.9%, mainly due to the increasing progress on orders where enforceable right is ensured by contractual conditions.

Contract balances

The following table provides information on contractual asset from contracts with customer:

The contract assets mainly relate to the Group's right to consideration for productions from construction contract not yet invoiced as of the balance sheet date. The amount recognized as contract assets are reclassified to trade receivable as soon as the Groups has an unconditional right to consideration.

Revenue recognized in the current reporting period relates to carried-forward contract liabilities amount to EUR 11,736 thousand in 2021 (EUR 19,765 in 2020). As of December 31, 2021, the aggregate amount of the transaction price allocated to the remaining performance obligation is EUR 74,996 thousand (EUR 56,417 thousand in 2020) and the Group will recognize this revenue as projects are completed, which is expected to occur over the next 12-18 months.

7. Cost of sales

Cost of sales are detailed as follows:

Cost of sales for the year ended December 31, 2021 amounts to EUR 578,515 thousand (EUR 467,861 thousand in 2020), consisting mainly in the cost of materials, components and labor expense related to the production and distribution of goods and services. Cost of sales also include depreciation and amortization of EUR 46,258 thousand (EUR 45,296 thousand in 2020).

All Cost of sales items increase in the year ended December 31, 2021 as a result of the significant growth in sales volumes. In particular, the increase in other costs of sales is the direct consequence of the growing revenues in the Engineering Segment that brings to higher industrial overhead for additional facilities as well as to increase of subcontracting work to cope the additional workload with external resources.

Nevertheless, the overall Cost of sales increased by 23.7%, less than proportionally to revenues mainly due to efficiency maximization in production process and better absorption of industrial overheads.

8. Other operating income

Other operating income for the year ended December 31, 2021 amounts to EUR 9,386 thousand (EUR 5,230 thousand in 2020), of which EUR 9,210 thousand are related to (i) contributions from customers for pre-feasibility and feasibility study, development and customization of SG proprietary products; (ii) design and samples activities to perform and improve feasibility study on customized containment solutions; (iii) development and validation activities such as closure validation relating to the last project milestones that allow products industrialization; (iv) post development and validation analysis performed on containment and drug delivery solutions to assure safety and quality; (v) manual samples preparation and packaging (vi) contract cancellation fees and (vii) other recharges. As of December 31, 2020 this type of operating income amounted to EUR 4,958 thousand.

For the year ended December 31, 2021 other operating income include also EUR 176 thousand related to grants received by Ompi Pharma Packaging Tech. Co Ltd and Nuova Ompi of which:

- EUR 106 thousand as grant for machinery technical renovation to support implementation of intelligent manufacturing projects;

- EUR 28 thousand as tax credit for sanification connected to COVID-19.

For the year ended December 31, 2020 the grants received by Nuova Ompi amounted to EUR 272 thousand are broken down as follows:

- EUR 244 thousand from the so-called Sustainable Growth Fund promoted by the Ministry for Productive Activities, in relation to an innovative research project for the development of a series of prototype solutions of innovative glass containers (called Alba) for the primary packaging of parental drugs characterized by the presence of an internal coating;

- EUR 28 thousand as tax credit for sanification connected to COVID-19.

9. Expenses

Expenses are detailed as follows:

For the year ended December 31, 2021 Selling and Marketing expenses amount to EUR 20,448 thousand (EUR 20,044 thousand in 2020). These expenses are mainly related to personnel expenses for sales organizations. They include also depreciation for EUR 787 thousand (EUR 844 thousand in 2020) and release of the provision for bad and doubtful debts for EUR (933) thousand (EUR 1,084 thousand accrual in 2020) of which EUR (936) thousand as release of the provision for expected credit loss and EUR 3 thousand as write off (respectively EUR 1,079 thousand accrual and EUR 5 thousand in 2020).

Selling and Marketing expenses slightly increase by EUR 404 thousand is due to the higher personnel cost to support the ongoing growth in the business as well as an increase in consultancies and marketing costs linked to travel and trade fairs, partially restarted after the stop in 2020 due to COVID-19 pandemic. This increase has been partially offset by the release of bad and doubtful debt provision following the improvement of some positions with external customers.

Research and Development expenses amounting to EUR 29,616 thousand (EUR 17,390 thousand in 2020) include costs for research and development activities to support the innovation of product range and components and include amortization of capitalized development costs for EUR 3,353 thousand (EUR 2,580 thousand in 2020).

Research and Development expenses increase by EUR 12,226 thousand is primarily due to the structuring of the Drug Delivery Systems Department and to the US Technology Excellence Center which became fully operational after the start-up phase in 2020, as well as an increase in personnel expenses due to new hires to sustain and progress the R&D activities launched at group level.

General and Administrative expenses amount to EUR 62,502 thousand (EUR 58,863 thousand in 2020) and mainly comprise personnel expenses for administrative functions, consultancies, directors compensation, rental fees as well as, depreciation and amortization for EUR 5,985 thousand (EUR 5,383 thousand in 2020), of which amortization of fair value adjustments from purchase price allocations amount to EUR 1,039 thousand (EUR 1,039 thousand in 2020).

General and Administrative expenses increase by EUR 3,639 thousand mainly due to the increase in consultancy and insurance costs connected to being a listed company as well as to the increase in depreciation and amortization for the new ERP (Enterprise Resource Planning system) release in some companies of the group. General and administrative expenses include non-recurring accrual reversal amounting to EUR 9,884 thousand related to cash settled awards under incentive plans 2012-2021 and 2018-2022 (early terminated in favor of the new stock grant plan 2021-2027) partially off-set by the non-recurring out of cycle bonus to personnel amounting to EUR 6,526 thousand and by the costs relating to the listing of Stevanato Group shares on NYSE amounting to EUR 794 thousand. Please refer to Note 31 for further details on incentive plans.

10. Other information by nature

The breakdown of the Selling, Research & Development and Administrative expenses by nature is as follows:

Depreciation and amortization can be broken down as follows:

For further details on amortization and depreciation, reference should be made to the movements in property, plant and equipment, intangible assets and right of use assets. (Note 17 - 18 - 36).

11. Finance income

Finance income are as follows:

For the year ended December 31, 2021 the Group realized EUR 12,258 thousand gain from the sale of the entire share capital of Swissfillon AG, of which the sub holding Stevanato Group International held the 26.94% of the share capital. Please refer to Note 19 for more details.

12. Finance expense

Finance expense are as follows:

Finance expenses include bank interest on the Group's financial debt (recalculated using the amortized cost method) and interest on leases about the portion of financial expenses payable matured in the reporting period on the liabilities, recognized in accordance with IFRS 16 - Leases.

Foreign exchange differences are realized, and unrealized gains and losses incurred on transactions in currencies other than the functional currency of the Group; the net foreign currency exchange impact, given by the sum of gains and losses, amounts to EUR (2,584) thousand as of December 31, 2021 and EUR (448) thousand as of December, 31 2020.

Foreign currency exchange losses are affected by non-recurring loss amounting to EUR 4,280 thousand related to a derivative financial instrument entered into to reduce the risk of fluctuations in the EUR/USD exchange rate in relation to the IPO proceeds.

13. Employee benefits expense

Employee benefits expense are detailed as follows:

For the year ended December 31, 2021 personnel costs amount to EUR 211,635 thousand (EUR 194,484 thousand in 2020) including non-recurring accrual reversal of EUR (9,884) thousand related to cash settled awards under incentive plans 2012-2021 and 2018-2022 (early terminated in favor of the new stock grant plan 2021-2027). For the year ended December 31, 2020 the expenses related to cash settled awards amounted to EUR 2,394 thousand. In the consolidated statement of profit or loss, cash settled awards expenses as well as the stock grant expenses, are mainly included into the General and Administrative line item.

Personnel costs increase by EUR 17,151 thousand and are mainly included in Cost of Sales as a consequence of the new hires to support business growth. Personnel costs increase also in Research and Development due to the significant increase in total number of headcounts and related seniority and geographical allocation of new hires needed to support the new organizational structure of the area. The increase in personnel costs included in General and Administrative expenses is mainly due to the non-recurring out of cycle bonus to personnel amounting to EUR 6,526 thousand which partially off-set the above mentioned cash settled award release.

The average size of the Group's workforce during the year is as follows:

14. Income tax

Income tax expense is as follows:

The table below provides a reconciliation between actual income tax expense and the theoretical income tax expense, calculated on the basis of the applicable corporate tax rate in effect in Italy.

Effective group's tax rate slightly increase in 2021, is mainly due to several non-recurring items that affected the income tax expense:

Unrecognized tax losses as at December 31, 2021 and as at December 31, 2020 amounts to EUR 3,800 thousand and to EUR 8,794 thousand respectively. Deferred tax assets have not been recognized in respect of such tax losses carry-forwards because it is not probable that future taxable profit will be available against which the Group can use the benefits therefrom.

The breakdown on the timing of tax losses carry-forwards is as follows:

The analysis of deferred tax assets and deferred tax liabilities as at December 31, 2021 and 2020 is as follows:

Deferred taxes are calculated based on the global allocation criteria, taking into account the cumulative amount of all the temporary differences, based on the average expected rates in force when these temporary differences reverse.

Deferred tax assets are recorded if there is the reasonable certainty that the temporary differences will reverse in future years against assessable income not lower than the differences that will be reversed. In assessing the realizability of deferred tax assets, management considers whether it is probable that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible and the tax loss carry-forwards are utilized.

The reconciliation of net deferred tax assets is as follows:

The other effect movement includes foreign exchange differences and minor reclassification.

15. Earnings per Share

Basic earnings per share (EPS) is calculated by dividing into the profit attributable to equity holders of the parent by the weighted average number of common shares issued net of the treasury shares held by the Group and the vested awards under the 2012-2021 incentive plan (as of December 31, 2020).

As of December 31, 2021 the weighted average number of shares for diluted earnings per share was increased to take into consideration the theoretical effect of potential ordinary shares that would be assigned to the beneficiaries based on the Group's equity incentive plans (see Note 31 for further details on the equity incentive plans). There is no dilution impact as of December 31, 2020, resulting in basic and diluted earnings per share being the same.

The Shareholder's meetings held on March 4, 2021 and on July 1, 2021 approved respectively, two different share splits, as explained also in Note 27. The number of ordinary shares outstanding has been retrospectively adjusted as if such events had occurred at the beginning of the earliest period presented.

The following table reflects the income and share data used in the basic and diluted EPS calculation:

16. Goodwill

In accordance with IAS 36 - Impairment of assets, Goodwill is tested for impairment annually, or more frequently if facts or circumstances indicate that the asset may be impaired. Impairment testing is performed by comparing the carrying amount and the recoverable amount of the CGU to which it is allocated. The recoverable amount of the CGU is the higher of its fair value less costs of disposal and its value in use.

Stevanato Group is organized in two main operating segments: Biopharmaceutical and Diagnostic Solutions and Engineering. Each segment comprehends different legal entities:

For impairment test on goodwill purposes, the Management has identified two different cash-generating units (CGUs) within the Biopharmaceutical and Diagnostic Solutions segment, the Drug Containment Systems (DCS) and the In-Vitro Diagnostic (IVD) consumables & Drug Delivery Systems (DDS) CGU, while within the ESD segment Stevanato Group's Management has not identified multiple CGUs.

Drug containment systems offering includes a comprehensive portfolio of glass containers, pen and dental cartridges, vials for liquid and lyophilized drugs and ampoules. Syringes, cartridges and vials are produced both in bulk and sterilized formats. Furthermore, the Group offers a full range of analytical and testing services focused on investigating the physio-chemical properties of primary packaging materials and studying the interactions between drug containment system and drugs. DCS has been considered as a CGU even if glass production plants are located in 5 different countries, because the production planning, marketing and selling is managed at a central level.

In-vitro diagnostic consumables & drug delivery systems offers CDMO and CMO to customer in the pharma, diagnostic and medical markets. The Group's business line provides integrated solutions from early development to launched combination product. It offers a broad range of services, capabilities and technologies that are suited to support the device needs of biopharma companies. In-vitro diagnostic consumables & drug delivery systems has been considered as a CGU even if the group has two plants in two countries in the IVD & DDS, because the production is interchangeable: the Group can undertake the same production processes and plants/organizations cooperate in projects in order to provide the customer the same offering worldwide.

Engineering System Division - ESD offers machinery from the pharma sector including machinery for the transformation of glass tubing into containers, machinery for packaging and assembly of medical devices and machinery for inspection of pharmaceutical products. Engineering has been considered as a CGU because the product lines inside the engineering operations are strongly tied: shared teams work together in Italy and Denmark to produce the same machinery. Glass converting machines adopts packaging and assembly technologies to deliver the finished product. Furthermore, the three different types of machinery that the Group has in its product portfolio can be combined and offered to the customer as one single solution.

For the purpose of impairment testing, goodwill is allocated by CGU (cash generating unit) as follows:

The objective of the impairment test is to compare the recoverable amount of each CGU with their corresponding carrying amount of net assets including goodwill. The recoverable amount is the higher of an asset's fair value less costs to sell and its value in use. The Group determines the value in use of the CGU to which the goodwill refers, meaning the present value of the future cash flows expected to be derived from continuous use of the assets; any cash flows arising from extraordinary events are therefore ignored.

In particular, value in use is determined by applying the Discounted Cash Flow ("DCF") method. This method has been applied with a two-stage approach, the first corresponding to the explicit forecast period (2022-2027) and the second corresponding to a terminal value derived with inertial criteria for the period after 2027. The explicit period corresponds with the horizon of the plans prepared by the management assuming realistic scenarios on the information available at the reporting date.

The growth rate in terminal value used for projecting beyond the explicit planning period (2022-2027) is 1% for all the CGUs, deemed representative of a precautionary growth rate in terminal values, given the potential future competition within the sector and the discount factor considered.

The principal assumptions adopted by the management in drawing up the projections relates mainly to a growth in volumes of products and a different products mix, shifting to high-value solutions sales, expanding SG EZ-fill® industrial footprint to address customer proximity and reshoring needs Volumes and sales mix used for estimating the future cash flows are based on assumptions that are considered reasonable and sustainable and represent the best estimate of expected conditions regarding market trends for the CGU over the period considered.

The cash flows and discount rate were determined net of tax. Future cash flows are discounted using the weighted average cost of capital (WACC); this is estimated with a beta factor derived on the basis of a peer group. The discount rate, 6.30% for DCS and for IVD & DDS and 6.20% for ESD, used for the CGUs, reflects therefore current market assessments and the time value of money and takes account of the risks specific to the sector. The discount rates used in the previous year were respectively 6.40% for DCS and for IVD & DDS and 6.70% for ESD.

Recoverable amounts obtained through the value in use were however subject to sensitivity analysis, in order to establish how the value in use may alter based on a change in the profitability parameters utilized in the future cash flows or in the discount rate applied to such cash flows, considering each factor individually. Following these analyses, CGU's present expected cash flows would absorb normal changes in the parameters of the commonly used sensitivity analyses performed.

Finally, has been identified which discount rate and which alteration to the forecast EBITDA at Continuing Value within the impairment test would allow a value in use equal to the carrying amount of the net assets of the respective CGU's. This further sensitivity analysis resulted in the identification of breakeven for the DCS CGU with a WACC of 17.07%, or an average contraction of EBITDA at Continuing Value (everything else equal) of 44.61%. The same indicators for the IVD & DDS CGU were respectively 9.37% for the WACC and 20.52% for EBITDA at CV. With regards to the ESD CGU, these indicators equated to a reduction in the EBITDA at CV of 59.15% and a WACC of 19.58%.

The impairment test for the goodwill did not result in any need for impairment.

17. Intangible assets

Changes in intangible assets for the year ended December 31, 2021 are as follows:

Development costs are referred to costs for the study, design and prototype development for products which have been or are expected to be commercialized and for which is probable that the expected future economic benefits will flow to the entity. Development expense is recognized in the consolidated income statement as Research and Development expenses.

Industrial patents and intellectual property rights increase in EUR 1,298 thousand due to the acquisition of licenses for IT Systems and the capitalization of costs associated with upgrading the enterprise resource planning system (ERP).

Concessions, licenses, trademarks and similar rights with a total carrying amount of EUR 11,375 thousand (EUR 12,552 thousand in 2020) mainly includes the tradenames related to Balda Group companies.

Intangible fixed assets in process and advances refer to ongoing projects which shall conclude in the subsequent years. Intangible fixed assets and advances increase in EUR 3,688 thousand mainly due to the integration of our business divisions into the cloud-based enterprise resource planning system. The Group performed an analysis on such cloud computing arrangements for identifying whether they provided a resource identifiable as intangible assets and established that the Group has the power to obtain the future economic benefits flowing from the underlying resources and to restrict the access of others to those benefits. In particular, the analysis was aimed at identifying whether (i) the Group has the contractual right to take possession of the software during the hosting period without significant penalty and (ii) it is feasible for the Group to run the software on its own hardware or contract with another party unrelated to the supplier to host the software.

No impairment indicators have been identified for intangible assets and therefore no impairment losses have been accounted for. No changes in the useful life of intangible assets have occurred in all periods presented.

18. Property, plant and equipment

Changes in items of property, plant and equipment in 2021 are as follows:

The Group's property, plant and equipment mainly include:

The yearly increase in property, plant and equipment amounts to EUR 116,631 thousand, of which 80.9% to support the Group growth strategy.

Increase in Land and buildings principally concerns the construction of new industrial facilities mainly in the Mexican production plant and the renovation of the new Spami plant near the Headquarter premises in Piombino Dese, Italy. With reference to the Mexican plant, the overall increase amounting to about EUR 4.5 million (considering both the yearly additions and the reclassification from assets under construction) is related to the expansion of the production facility.

The overall increases in Plant and machinery, considering both the yearly additions and the reclassification from assets under construction, amount to EUR 71,238 thousand and mainly refer to the purchase of new production equipment necessary to guarantee a high product quality standard and a high production capacity, characteristics necessary to consolidate the company's position in the biopharmaceutical market.

Assets under construction, amounting to EUR 89,946 thousand as at December 31, 2021 and EUR 61,293 thousand as at December 31, 2020, includes investments in production lines and machines for syringes, vials and cartridges production which have not yet been completed but are expected to enter into use in the coming year. This category also includes investments for the construction of new clean rooms in Balda C. Brewer plant, the investment for the new EZ-fill® hub in China, a new building in Piombino Dese that will host both corporate offices and production areas and the investments for the construction of the new U.S. facility in Fishers, Indiana. This latter is expected to be operational in 2023 and will enable Stevanato Group to be in closer proximity to its North America pharmaceutical customers and to provide an additional supply source for its mission critical products to serve customers better. The plant, which was initially expected to be up to 34,374 square meters in size, will support the expansion and production of Stevanato Group's EZ-Fill® solutions, pre-sterilized drug containment systems for bio-pharmaceutical use. The decision to follow a modular approach allows the Group to be flexible in modifying or changing the capacity to meet market demand. The facility is expected to house state-of-the-art production lines equipped with advanced process technologies to produce EZ-Fill® syringes and vials. Stevanato Group's EZ-Fill® solutions offer significant benefits to bio-pharmaceutical companies by reducing time to market, lowering the overall total cost of ownership and reducing supply chain risk. In addition, Stevanato Group plans to use the new facility as a center for after-sales support dedicated to serving its North America Engineering customers, offering technical support as well as maintenance for visual inspection, assembly and packaging equipment.

At the year end, no impairment indicators have been identified and furthermore no need to reassess useful life of property, plants and equipment.

19. Investments in an associate

As of December 31, 2020 the Group had a 26.94% interest in Swissfillon AG, located in Switzerland, which is involved in sterile filling services. That company is not listed on any public stock exchange. The Group's interest in Swissfillon AG was accounted for using the equity method in the consolidated financial statements. On October 22, 2021, the sub holding Stevanato Group International signed the shares purchase agreement for the sale and the transfer of all the owned shares in Swissfillon AG for approximately CHF 15.8 million, realizing a gain equal to EUR 12,258 thousand as disclosed in Note 11. The Group therefore derecognized this associate and recognized in profit or loss the difference between the sum of the proceeds received and any retained interest, and the carrying amount of the investment in the associate at the date significant influence was lost.

Summarized financial information relating to Swissfillon AG for the year ended December 31, 2020:

20. Financial assets - investments FVTPL

Financial assets amount to EUR 1,084 thousand at December 31, 2021 (EUR 760 thousand at December 31, 2020), primarily include the investment in Biologix Partners LP, which is measured at fair value through profit or loss and amounts to EUR 1,024 thousand at December 31, 2021 (EUR 745 thousand at December 31, 2020). Additional disclosures on fair value measurement has been included on Note 30.

21. Financial assets

The following table details the composition of financial assets:

Receivables from financing activities assets include financial loan amounting to EUR 447 thousand as at December 31, 2021 in favour of a restricted number of key manager in connection with the stock grant plan. The decrease in receivables from financing activities is mainly due to the reimbursement of the financial loan granted to some of the beneficiaries of the incentive plan 2012-2021, which was early terminated in 2021, and to the reimbursement of the loan granted to the former associate Swissfillon AG.

Other securities include guaranteed investment funds managed by Société Générale SA, which are measured at fair value. The decrease in other securities is due to the redemption of part of the insurance policies in 2021.

22. Inventories

Inventories, shown net of an allowance for obsolete and slow-moving goods, can be analyzed as follows:

The accrual of the provision for slow moving and obsolete inventories recognized within cost of sales for the years ended December 31, 2021 and 2020 is EUR 1,878 thousand and EUR 2,109 thousand respectively. Changes in the provision for slow moving and obsolete inventories are as follows:

23. Trade receivables and contract assets

Trade receivables and contract assets are analyzed as follows:

Trade receivables are non-interest bearing and are generally on term of 60 to 90 days. The Group is not exposed to significant concentration of third-party credit risk.

Trade receivables breakdown by geographical area is shown below:

Trade receivables are stated net of an allowance for expected credit losses which has been determined in accordance with IFRS 9 amounting to EUR 6,544 thousand and EUR 7,696 thousand for 2021 and 2020 respectively:

Contract assets Contract assets relate to ongoing customer-specific construction contracts of the Engineering segment and from the In-vitro diagnostic business. As such, the balances of this account vary and depend on the number of ongoing construction contracts at the end of the year. The Group has contract assets of EUR 62,133 thousand as at December 31, 2021 (EUR 39,430 thousand as at December 31, 2020). Contract assets gross amounts to EUR 138,854 thousand (EUR 86,905 thousand as at December 31, 2020), net of invoices issued of EUR 76,721 thousand (EUR 47,476 thousand as at December 31, 2020).

24. Tax receivables and tax payables

The breakdown in the account is as follows:

As of December 31, 2021 the Group re-assessed the classification of VAT receivables and payables in its consolidated statement of financial position. These items were previously reported as tax receivables and payables and are now being reported as other receivables and payables in accordance with IAS 12. The Group applied such reclassification retrospectively that resulted in the decrease of tax receivable and payables, respectively, of EUR 10,845 thousand and EUR 583 thousand at December 31, 2020 with a corresponding increase in other receivables and payables. The reclassification has no impact on the profit/(loss) and basic and diluted earnings per share of the Group for the years ended December 31, 2020.

Tax receivables amount increase significantly compared to the previous year mainly due to increased CIT advance payments (EUR 9,577 thousand in 2021, EUR 5,658 thousand in 2020), credit for tax grants (EUR 8,687 thousand in 2021, EUR 4,887 thousand in 2020), Patent Box credit not yet offset (EUR 3,191 thousand in 2021).

Tax liabilities slightly increase compared to 2020, mainly due to increased CIT liabilities.

25. Other receivables

Other receivables are disclosed as follows:

26. Cash and cash equivalents

This balance consists of bank current accounts and other cash equivalents.

As at December 31, 2021, the Group has Cash and cash equivalents of EUR 411,039 thousand compared to EUR 115,599 thousand in the previous year. On July 20, 2021, the Group completed its initial public offering, at completion of which it received aggregate net proceeds of EUR 367,810 thousand, after deducting underwriting discounts and commissions, offering expenses and considering the hedging instrument entered into to reduce the risk of fluctuations in the EUR/USD exchange rate in relation to the IPO proceeds. On August 18, the underwriters further purchased 712,796 additional newly issued shares from the Company to cover over-allotments driving the total primary net proceeds of the offering, including the overallotment, to EUR 380,090 thousand.

27. Equity

The main objective of the Group's capital management is to guarantee maintenance of a solid credit rating and adequate financial ratios with a view to supporting business activity and maximizing value for the shareholders.

Movements in the equity accounts are reported in the Consolidated Statements of Changes in Equity; comments on the main components and their changes are provided below.

Share capital

As of December 31, 2021 the company paid-in share capital amounts to EUR 21,698 thousand and is divided into 295,540,036 shares without any nominal value.

In particular, on March 4, 2021, the extraordinary Shareholders' meeting approved the elimination of the indication of the EUR 1,000 nominal value of the 20,002 existing issued shares and the issuance of additional 99,989,998 ordinary shares with no par value to be allocated free of charge to shareholders in proportion to the shares held by each of them without giving rise to changes in the amount of the share capital.

On July 1, 2021 the Shareholder's meeting approved a further share split following which all the existing 100,010,000 shares have been split into a total of 272,427,240 shares in the ratio of 2,724 new shares post-split for each share outstanding prior to the share split.

Lastly, the Shareholder's meeting resolved to increase the share capital by issuing a maximum of 40,000,000 ordinary shares with the exclusion of the option right as a service of the trading of ordinary shares on the New York Stock Exchange (NYSE). The Shareholder's meeting further resolved to adopt the new Company bylaws which contain the partition of the share capital into two categories of shares, ordinary shares and Class A multiple voting shares, the latter not being listed.

On completion of the listing process, the subscription collected involved 23,112,796 ordinary shares with an increase of the share capital amounting to EUR 1,696 thousand.

Share Premium Reserve

The share premium reserve includes the additional paid-in capital raised during the Initial Public Offering net of the listing costs pertaining to the public subscription offer to the extent they are incremental costs directly attributable to the equity transaction that otherwise would have been avoided. As of December 31, 2021 the share premium reserve amounts to EUR 389,312 thousand.

Treasury shares

Following the resolution of the Board of Directors to early terminate the incentive plan 2012-2021 and to revoke incentive plan 2018-2022, on March 4, 2021 and on June 3, 2021 the Company repurchased a total of n. 29 ordinary shares (corresponding to 394,980 ordinary shares after the second share split) and a total of n. 850,000 ordinary shares (corresponding to 2,315,400 ordinary shares after second share split), respectively, from the beneficiaries of the cash settled awards under the above mentioned incentive plans for EUR 1,791 thousand.

On June 3, 2021 the Company transferred a total of 133,210 ordinary shares (corresponding to 362,865 ordinary shares after the second share split) to the beneficiaries of the so called "Restricted Stock Grant Plan 2021-2027" and to certain members of the Board of Directors for a total value of EUR 240 thousand.

As of December 31, 2021 a total of 30,840,555 of Company's A shares are held in treasury for a total cost of EUR (27,740) thousand. The amount of ordinary shares (prior to the conversion in A shares) held in treasury as of December 31, 2020 has been retroactively adjusted to reflect the share split occurred later on July 1, 2021 resulting in a total of 28,493,040 Company's share for a total cost of EUR (26,189) thousand.

Cash flow hedge reserve

Cash flow hedge reserve reflects the negative change in fair value of derivatives financial instruments, designated as cash flow hedges to hedge highly probable forecast transactions. As of December 31, 2021 cash flow hedge reserve amounts to EUR (1,277) thousand compared to EUR (3,345) thousand as of December 31, 2020.

Reserve for actuarial gains/losses

Reserve for actuarial gains/losses includes actuarial gains and losses on the net defined employees benefits liability and on the agents termination plans. As of December 31, 2021 the reserve for actuarial gains/losses amounts to EUR (745) thousand compared to EUR (675) thousand as of December 31, 2020.

Currency translation reserve

The currency translation reserve includes the cumulative foreign currency translation differences arisen from the translation of financial statements denominated in currencies other than Euro; as of December 31, 2021 it amounts to EUR (22,680) thousand compared to EUR (34,911) thousand as of December 31, 2020. The decrease is mainly due to the appreciation against Euro of the Chinese Renminbi, the Mexican Peso, and the US Dollar occurred in 2021, currencies in which the net assets of some of the companies belonging to the Group are denominated.

Retained earnings and other reserves

Retained earnings and other reserves include:

Net profit attributable to equity holders of the parent

Net Profit attributable to equity holders of the parent amount to EUR 134,321 thousand as of December 31, 2021 (EUR 78,513 thousand as of December 31, 2020).

Non-controlling interests

Non-controlling interests amount to EUR (415) thousand as of December 31, 2021 (EUR (355) thousand as of December 31, 2020). For further detail refer to Note 37.

Capital Management

The Group's objectives when managing capital are to create value for shareholders as a whole, safeguard business continuity and support the sustainable growth of the Group. As a result, the Group endeavors to maintain a satisfactory economic return for its shareholders and guarantee economic access to external sources of funds.

28. Dividends

On January 20, 2021 Stevanato Group shareholder's meeting approved the distribution of EUR 11,200 thousand dividends (EUR 0.63 thousand per common share) from "other reserves".

Following approval of the annual accounts by the shareholders at the Annual General Meeting of the Shareholders on June 11, 2020 a dividend distribution of EUR 0.50 thousand per common share was approved, corresponding to a dividend paid in of EUR 8,900 thousand in 2020. The distribution was made partially from the "other reserve" and from "retained earnings".

29. Financial liabilities

Total financial liabilities are EUR 248,491 thousand and EUR 375,358 thousand as of December 31, 2021 and as of December 31, 2020 respectively; the balances in financial debt are as follows:

Financial liabilities mainly include bank loans (current and non-current portion), lease liabilities (current and non-current portion) and notes. On April 16, 2020 Stevanato Group entered into a note purchase and private shelf agreement with PGIM, Inc. and certain of its affiliates, pursuant to which, for a period of three years following the date of the agreement, Stevanato may issue, and PGIM, Inc. or certain of its affiliates may purchase, up to USD 69,540 thousand of Stevanato notes. Additionally, on the same date, Stevanato Group issued EUR 50,000 thousand of Senior Notes, Series A, due April 16, 2028 to PGIM, Inc. Repayment of the Notes is required to be made in two tranches, EUR 25,000 thousand on April 16, 2027, and the remainder at the expiration of the notes. Pursuant to the agreement, Nuova Ompi s.r.l. provided to PGIM, Inc. and its affiliates a subsidiary guarantee, guaranteeing the repayment of the notes.

As of December 31, 2021 the current and non-current portion of bank loans amount respectively to EUR 36,195 thousand and EUR 134,367 thousand (respectively EUR 61,905 thousand and EUR 224,365 thousand as of December 31, 2020). The significant decrease in bank loans, besides the ongoing reimbursement plan, is due to the early repayment of the existing floating rate loans.

As of December 31, 2020, other current financial liabilities included both the liability of EUR 6,706 thousand recognized in relation to the put option granted to non-controlling shareholders of SVM Automatik A/S and the liability of EUR 1,221 thousand referred to the unpaid amount of the purchase of the residual shares of Medirio SA due in 2021. On October 07, 2021, the sub holding Stevanato Group International purchased the remaining 35% of the share capital in SVM Automatic A/S at a price of EUR 7,000 thousand. These liabilities were settled in 2021.

The following table shows maturities and average interest rates for liabilities to banks and other lenders:

As at December 31, 2021

As at December 31, 2020

Financial liabilities are recognized according to the amortized cost method and require compliance with certain financial covenants on the Group consolidated figures, more specifically the following ratios are monitored: Net Financial Debt on EBITDA, Net Financial Debt on Equity, EBITDA on Financial Charges.

As at December 31, 2021 and as at December 31, 2020, all financial covenants are complied with.

Some short-term payables are subject to secured guarantee, please refer to Note 39.

Other current financial assets and other financial liabilities relates to foreign exchange derivatives. The following table sets further the analysis of derivative assets and liabilities at December 31, 2021 and December 31, 2020.

Derivatives on currency risk have not been designated as hedging instruments and reflect the change in the fair value of those foreign exchange forward contracts that are not designated in hedge relationships, but are, nevertheless, intended to reduce the level of foreign currency risk for expected sales.

Derivatives designated as hedging instruments reflect the change in fair value of the interest rate swap contract, designated as cash flow hedges to hedge fluctuations in variable interest rate on loans. The amount recorded in the cash flow hedge reserve will be recognized in the consolidated income statement according to the timing of the cash flows of the underlying transaction.

30. Fair Value Measurement

IFRS 13 establishes a hierarchy that categorizes into three levels the inputs to the valuation techniques used to measure fair value by giving the highest priority to quoted prices (unadjusted) in active markets for identical assets and liabilities (level 1 inputs) and the lowest priority to unobservable inputs (level 3 inputs). In some cases, the inputs used to measure the fair value of an asset or a liability might be categorized within different levels of the fair value hierarchy. In those cases, the fair value measurement is categorized in its entirety in the same level of the fair value hierarchy at the lowest level input that is significant to the entire measurement.

Levels used in the hierarchy are as follows:

Assets and liabilities that are measured at fair value on a recurring basis

The following table shows the fair value hierarchy for financial assets and liabilities that are measured at fair value on a recurring basis at December 31, 2021:

As at December 31, 2020:

The fair value of current financial assets and other financial liabilities is measured by taking into consideration market parameters at the balance sheet date, using valuation techniques widely accepted in the financial business environment.

The fair value of foreign currency derivatives (forward contracts, currency swaps and options) and interest rate swaps is determined by considering the prevailing foreign currency exchange rate and interest rates, as applicable, at the balance sheet date.

The value of cash and cash equivalents usually approximates fair value due to the short maturity of these instruments, which consist of bank current accounts.

The fair value of other financial assets is measured through other unobservable input in accordance with IFRS 13, detailed in Note 20. The fair value of Liabilities measured at amortized cost include bank loans; in 2020 Stevanato Group has issued the following debt securities:

No borrowings of the Group are listed debt.

There are no transfers between Level 1, Level 2 and Level 3 during 2021 and 2020.

The fair value of the loans accounted for at amortized cost approximates their carrying amounts as of December 31, 2021 and 2020.

31. Employee benefits

Employee benefits are analyzed as follows:

Defined benefit obligations - Italian employee severance indemnity (TFR)

Trattamento di fine rapporto or "TFR" relates to the amounts that employees in Italy are entitled to receive when they leave the company and is calculated based on the period of employment and the taxable earnings of each employee. Under certain conditions the entitlement may be partially advanced to an employee during the employee's working life.

The Italian legislation regarding this scheme was amended by Law 296 of 27 December 2006 and subsequent decrees and regulations issued in the first part of 2007. Under these amendments, companies with at least 50 employees are obliged to transfer the TFR to the "Treasury fund" managed by the Italian state-owned social security body ("INPS") or to supplementary pension funds. Prior to the amendments, accruing TFR for employees of all Italian companies could be managed by the company itself. Consequently, the Italian companies' obligation to INPS and the contributions to supplementary pension funds take the form, under IAS 19 revised, of "Defined contribution plans" whereas the amounts recorded in the provision for employee severance pay retain the nature of "Defined benefit plans". Accordingly, the provision for employee severance indemnity in Italy consists of the residual obligation for TFR until December 31, 2006. This is an unfunded defined benefit plan as the benefits have already been almost entirely earned, with the sole exception of future revaluations. Since 2007 the scheme has been classified as a defined contribution plan, and the Group recognizes the associated cost, being the required contributions to the pension funds, over the period in which the employee renders service.

Jubilee benefits

Jubilee benefits scheme are applicable to companies incorporated in Germany. Upon retirement, employees are eligible to receive a sum payment depending on the number of years of service within the group.

Other post-employment plans

Other post-employment plan granted by the Group are "Beneficios por Retiro, Prima de Antigüedad y Beneficios por Terminación" for Mexican companies and severance payment provision for Slovak companies.

A major assumption taken into account in the valuation of pension and other post-employment benefit obligations is the discount rate. In accordance with IAS 19 - Employee Benefits, the rates were determined by currency areas and by reference to the return on high-quality private bonds with a maturity equal to the term of the plans or the return on government bonds when the private market has insufficient liquidity. The return on plan assets is determined based on the allocation of the assets and the discount rates used.

Defined benefits obligation

The Group's liabilities for employee benefits are as follows:

The principal assumptions used for determining the obligations under the plan described are as follows:

As at December 31, 2021

As at December 31, 2020

The discount rates used for the measurement of the pension plan obligation (including Italian TFR obligation) are based on yields of high-quality (AAA rated for Mexico and AA rated for other countries) fixed income securities for which the timing and amounts of payments match the timing and amounts of the projected benefit payments. The main variation is due to Italian TFR, whose average duration is approximately 15.0 years. Retirement or employee leaving rates are developed to reflect actual and projected Group experience and legal requirements for retirement.

A quantitative sensitivity analysis for significant assumptions impacting defined benefits obligation as at December 31, 2021 and December 31, 2020 is reported as follows:

The above sensitivity analysis on TFR is based on reasonable changes in key assumptions occurring at the end of the reporting period, keeping all other assumptions constant.

Such analysis may not be representative of an actual change in the defined benefit obligation as it is unlikely that changes in assumptions would occur in isolation from one another.

Long-term Incentive plan

In order to align the interests of management with those of the Shareholders over the medium/long-term by establishing a strong link between remuneration and performance the CEO approved a medium/long-term plan called the "Long-term Incentive plan" for the 2020-2023 four-year period and involving a select number of Senior Management (Top Management and/or Key People) of the Companies of the Group and based on the meeting of the long-term industrial plan objectives.

The Group's liability for the Long-term Incentive plan is as follows:

^{*According to IAS 19, Actuarial Gains and Losses are recognized in profit or loss}

The discount rates used for the measurement of the "Long-term Incentive plan" are based on yields of high-quality (AA rated). For these plans, the single weighted average discount rate that reflects the estimated timing and amount of the scheme future benefit payments is equal to -0.17% for 2021 and to -0.27% for 2020 respectively. The main impact considered as actuarial gain and losses relates to the experience adjustment; it has been accounted together with the current service cost by function as part of personnel costs.

Cash settled awards

Cash settled awards are incentive plans aimed at a limited number of executives and key resources of the Group. The 2012-2021 incentive plan and the 2018-2022 incentive plans were approved by the Board of Directors on February 9, 2021 and on September 12, 2018 respectively.

The plans provided for the free assignment to the Group's employees of non-transferable options to subscribe shares at a pre-determined exercise price. The right to the assignment of options, to be exercised only during the exercise period, was acquired during the vesting period only if the turnover targets indicated in the business plan, based on EBITDA (earnings before interest, tax, depreciation and amortization) and net financial position, were achieved.

In order to concentrate in a single new plan the incentive mechanism that could more concretely and effectively contribute to the achievement of the redefined Company's growth objectives, Stevanato Group proceeded with the early conclusion of the 2012-2021 incentive plan and with the revocation of 2018-2022 incentive plan.

On March 4, 2021 and June 3, 2021, the Company exercised a call option to buy back n. 995,000 shares from the beneficiaries of the 2012-2021 incentive plan and irrevocably and unconditionally waived its rights to exercise the call option on n. 215,000 shares (number of shares as before the second share split). The parties also mutually agreed to close the 2018-2022 incentive plan; the net impact of such transactions led to a reduction in cash settled award liabilities.

The following table summarize the components of the cash settled awards obligation expense recognized in the statement of profit or loss and amounts recognized in the statement of financial position:

^{*According to IAS 19, Actuarial Gains and Losses are recognized in profit or loss}

Restricted Stock Grant Plan 2021-2027

The Shareholders' Meeting of Stevanato Group S.p.A. on March 4, 2021 resolved to approve a share-based incentive plan, named "Restricted Stock Grant Plan 2021-2027" with the aim to involve people playing a strategic role in the economic and strategic development of Group, aligning their interests to those of the shareholders and other stakeholders of the Company, during the period between January 1, 2021 and December 31, 2026.

The Stock Grant Plan provides for three two-years periods included, respectively, between January 1, 2021 and December 31, 2022 (First Vesting Period), January 1, 2023 and December 31, 2024 (Second Vesting Period), January 1, 2025 and December 2026 (Third Vesting Period), at the beginning of which a certain number of Stevanato Group ordinary shares - linked with the achievement within the end of each Vesting Period of specific targets in terms of consolidated revenues and EBITDA - will be assigned free of charge to the beneficiaries. The assigned shares shall be registered to a Trustee company and shall be subject to the prohibition to sell and to the selling commitment in accordance to a one-year lock-up period.

The transfer of ownership of the shares will be finalized after signing with each beneficiary of an agreement which binds the beneficiaries to re-sell to Stevanato Group, fully or partially, the Shares assigned to them in case the targets provided for the vesting period in relation to which the shares were assigned should not be totally or partially achieved. A similar obligation is provided if, within the end of each vesting period, the employment relationship terminates.

In the event that certain over-performances with respect to the financial targets have been met, beneficiaries will be granted, free of charge, an additional number of Stevanato Group shares related to the Vesting Period in which the target were exceeded and such shares additional assigned will be subject to the time-limited prohibition to sell.

On June 3, 2021 a total of n. 236,988 ordinary shares, which were previously held in treasury, were assigned to the participants of the plan.

The fair value measurement of the stock grant plan consists of the following components:

-a first IAS 19 component linked to the cash settlement of the amount equal to the consideration already determined at which Stevanato Group S.p.A. will repurchase the shares in the cases provided for by the regulation. This component is immediately vested at the time of the assignment of the shares. It generates expenses counterbalanced in the employee benefits liability;

-a second IFRS 2 component related to the benefit associated with the value of the stock. It is valued as stock option with a strike price equal to the value corresponding to the consideration the employees give up in cash when the stock option is exercised. It generated expenses counterbalanced in a dedicated equity reserve among "other reserves".

The following table summarize the IAS 19 components of the obligation expense recognized in the statement of profit or loss and amounts recognized in the statement of financial position:

32. Provisions

The balances as of December 31, 2021 are detailed below:

The warranty provision represents the best estimate of commitments given by the Group for contractual, legal, or constructive obligations arising from product warranties given for a specified period of time. Such provisions are recognized on shipment of the goods to the customers. The warranty provision is estimated on the basis of the Group's past experience and contractual terms. Related costs are recognized within cost of sales.

The provision for legal proceeding and sundry risks represents management's best estimate of the expenditures expected to be required to settle on otherwise resolve legal proceeding and disputes. As of March 31, 2021 a potential claim with a customer was identified which led to an accrual of about EUR 4 million. As of December 31, 2021 the situation has evolved positively thus leading to the release of the provisioned amount.

33. Other non-current liabilities

Other non-current liabilities as of December 31, 2021 and December 31, 2020 amount to EUR 1,808 thousand respectively EUR 1,808 thousand and are mainly related to holiday pay of Danish companies' employees following the transition to the new Danish Holiday Act started in 2019.

34. Trade payables and other current liabilities

Trade payables and other current liabilities are detailed as follows:

The book value of trade payables is approximately equal to their fair value. Terms and condition of the above financial liabilities:

Other current liabilities include customer returns that reflect the improved estimate on expected liabilities against future expected returns regarding revenues recognized in the current or in previous years, estimated on the basis of past experience.

In 2018 the Group launched the "Confirming program", a web-based and pay-per-use Supply Chain Finance solution, that allows Group suppliers to anticipate their receivables. The main benefits for the Group are an improvement of supply chain financial stability and a simplification in payment management cycle. As of December 31, 2021 the total amount of accounting payables related to the Confirming program equals to EUR 3,900 thousand.

35. Contract liabilities and advances from customers

Contract liabilities and advances from customers are as follows:

Contract liabilities relate to ongoing customer-specific construction contracts of the Engineering System Division and of the In-vitro diagnostic business. The Group has contract net liabilities of EUR 18,771 thousand and EUR 5,031 thousand as at December 31, 2021 and December 31, 2020 respectively. Contract assets gross amounts to EUR 27,504 thousand (EUR 10,828 thousand in 2020), net of invoices issues of EUR 46,275 thousand (EUR 15,859 thousand in 2020).

Advances from customers relate to sales whose revenues are recognized at point in time.

36. Leases

The Group has lease contracts for various items of plant, machinery, vehicles and other equipment used in its operations. Leases of plant and machinery generally have lease terms between 3 and 15 years, while vehicles and other equipment generally have lease terms between 3 and 5 years. There are several lease contracts that include extension and termination options.

The Group also has certain leases of machinery, industrial equipment and vehicles with lease terms of 12 months or less and leases of office equipment with low value. The Group applies the 'short-term lease' and 'lease of low-value assets' recognition exemptions for these leases.

Movements in the leased Right of Use assets in 2021 are shown below:

Set out below are the carrying amounts of lease liabilities (included under interest-bearing loans and borrowings) and the movements during the period:

The following are the amounts recognized in profit or loss:

37. Subsidiaries with material non-controlling interest

The Stevanato Group comprises the following subsidiaries with material non-controlling interest:

Changes in non-controlling interests are shown in the consolidated statement of changes in equity.

The tables below show the summarized income statement for the year ended December 31, 2021:

The tables below show the summarized income statement for the year ended December 31, 2020:

The tables below show the summarized financial position as at December 31, 2021:

^{*Net financial position is determined as the algebraic sum of cash and cash equivalent, other current financial assets, non-current financial liabilities and current financial liabilities}

The tables below show the summarized financial position as at December 31, 2020:

^{*Net financial position is determined as the algebraic sum of cash and cash equivalent, other current financial assets, non-current financial liabilities and current financial liabilities}

38. Related party disclosures

According to IAS 24, the related parties of the Group are entities and individuals capable of exercising control, joint control or significant influence over the Group and its subsidiaries, companies belonging to the Stevanato Group S.p.A. the controlling company Stevanato Holding S.r.l., unconsolidated subsidiaries of the Group and associates. In addition, members of Stevanato Group's Board of Directors and executives with strategic responsibilities and their families are also considered related parties. The Group carries out transactions with related parties on commercial terms that are normal in the respective markets, considering the characteristics of the goods or services involved.

Note 4 provide information about the Group's structure, including details of the subsidiaries and the holding company.

Transaction with related parties refer to:

The amounts of transactions with related parties recognized in the consolidated income statement and the related assets and liabilities are as follows:

For the year ended and as at December 31, 2021

^{* Costs include cost of sale, selling, general administrative costs and other expenses net}

Loan from/to related parties

For the year ended and as at December 31, 2021

For the year ended and as at December 31, 2020

^{* Costs include cost of sale, selling, general administrative costs and other expenses net}

Loan from/to related parties

For the year ended and as at December 31, 2020

Emoluments to Directors and Key Management

The fees of the Directors of Stevanato Group S.p.A. are as follows:

For the year ended December 31, 2021

(1) Pensions expense related to Trattamento Fine Mandato accrued on the year
(2) Long term benefits related to cash settled awards early terminated in 2021
(3) Shares assigned to board members

For the year ended December 31, 2020

(1) Pensions expense related to Trattamento Fine Mandato accrued on the year
(2) Long term benefits related to cash settled awards

The aggregate compensation for members of the Senior Management Team (excluding the Chairman and including the CEO) in 2021 and in 2020 is as follows:

For the year ended December 31, 2021

(1) Fringe benefits related to car and insurance benefits
(2) Variable remuneration related to MBO and LTI
(3) Pensions expense related to Trattamento Fine Rapporto accrued on the year
(4) Long term benefits related to cash settled awards early terminated in 2021
(5) Share-based compensation awarded under stock grant plan

For the year ended December 31, 2020

(1) Fringe benefits related to car and insurance benefits
(2) Variable remuneration related to MBO
(3) Pensions expense related to Trattamento Fine Rapporto accrued on the year
(4) Long term benefits related to cash settled awards

39. Fees paid to independent registered public accounting firm

The following table represents aggregate fees billed to us for professional services rendered by our independent registered public accounting firm (EY S.p.A.) for the fiscal year ended December 31, 2021 and 2020 respectively.

Audit fees consist of the aggregate fee earned by Ernst & Young Entities for the audit of our consolidated annual financial statements, reviews of interim financial statements and attestation services that are provided in connection with statutory and regulatory filings or engagements. Fees for the year ended December 31, 2021 also include the fees related to audit activities conducted in connection to the IPO and under PCAOB standards.

Other fees consist of some minor consultancy services provided by Ernst & Young Entities.

40. Commitments and contingencies

Commitments, guarantees and contingent liabilities can be described as follows:

As at December 31, 2021 the main commitments and risks assumed by the Stevanato Group are as follows:

Secured guarantees for EUR 4,707 thousand (EUR 4,704 thousand in 2020) concern the floating charge on the Danish companies against short-term credit lines.

The guarantees provided by credit institutions and insurance companies on behalf of Group companies in favor of third parties amount to EUR 39,907 thousand (EUR 28,710 thousand in 2020) and mainly comprise advance payment and performance bond issued in favor of clients in the Engineering division and of Balda Medical GmbH.

41. Qualitative and quantitative information of financial risks

The Group is exposed to the following financial risks connected with its operations:

These risks could significantly affect the Group's financial position, results of operations and cash flows, and for this reason the Group identifies and monitors these risks, in order to detect potential negative effects in advance and take the necessary action to mitigate them, primarily through its operating and financing activities and if required, through the use of derivative financial instruments.

The following section provides qualitative and quantitative disclosures on the effect that these risks may have upon the Group. The quantitative data reported in the following section does not have any predictive value.

Financial market risks

Due to the nature of the Group's business, the Group is exposed to a variety of market risks, including foreign currency exchange rate risk and to a lesser extent, interest rate risk.

The Group's exposure to foreign currency exchange rate risk arises from our global footprint (both in terms of productions and commercialization), as in some cases we sell our products in the currencies of the destination markets, which may differ from the currency of the countries the Group operates in.

The Group's exposure to interest rate risk arises from the need to fund certain activities and the possibility to deploy surplus funds. Changes in market interest rates may have the effect of either increasing or decreasing the Group's net profit/ (loss), thereby indirectly affecting the costs and returns of financing and investing transactions.

These risks could significantly affect the Group's financial position, results of operations and cash flows, and for this reason they are identified and monitored, in order to detect potential negative effects in advance and take the necessary actions to mitigate them.

The Group has in place various risk management policies, which primarily relate to foreign exchange, interest rate and liquidity risks.

In particular, to manage foreign exchange rate risk, the Group has adopted a hedging policy, approved by the Board of Directors of Stevanato Group S.p.A.. Hedging activities are mainly executed at central level, based on the information provided by the reporting system and utilizing instruments and policies conforming to IFRS. Hedging is undertaken to ensure protection in case an entity has transactions in currencies other than the one in which it primarily does business, taking account also of budgeted future revenues/costs. Despite hedging operations, sudden movements in exchange rates or erroneous estimates may result in a negative impact, although limited, on Group results.

Information on foreign currency exchange rate risk

The Group is exposed to risk resulting from fluctuations in foreign currency exchange rates, which can affect its earnings and equity. In particular: