Form 6-K Grifols SA For: Feb 26

February 26, 2021 7:21 AM EST

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

 

FORM 6-K

 

REPORT OF FOREIGN ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16 OF THE
SECURITIES EXCHANGE ACT OF 1934

 

For the month February 2021

 

(Commission File No. 001-35193)

 

Grifols, S.A.

(Translation of registrant’s name into English)

 

 

 

Avinguda de la Generalitat, 152-158

Parc de Negocis Can Sant Joan

Sant Cugat del Valles 08174

Barcelona, Spain

(Address of registrant’s principal executive office)

 

 

 

Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.

 

Form 20-F x  Form 40-F ¨

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101 (b) (1):

 

Yes ¨  No x

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101 (b) (7):

 

Yes ¨  No x

 

Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.

 

Yes ¨  No x

 

If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82-         .                       .

 

 

 

 

 

Grifols, S.A.

 

TABLE OF CONTENTS

 

Item   Sequential Page Number
     
1.                         Press Release, dated February 26, 2021 1
     
2.                         Consolidated Annual Accounts for the year ended December 31, 2020   22

 

 

 

 

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1

 

 

2020 Annual Results

 

Grifols increases its revenues to 5,340 M€ and continues to demonstrate its resilience and commitment to sustainable growth

 

·Grifols increases revenues by 4.7% (6.1% cc1) driven by Bioscience and Diagnostic divisions; an increase of 6.5% (7.9% cc) excluding plasma sales to third parties. Contributions from new products represent more than 50% of its revenue growth

 

·Robust demand for plasma proteins and the launch of new products bolster Bioscience Division revenues by 6.2% (7.6% cc) to EUR 4,243 million

 

·The Diagnostic Division expands by 5.8% (7.3% cc) to EUR 776 million fueled by sales of molecular test to detect SARS-CoV-2

 

·Reported net profit total EUR 619 million, in line with the previous year. Adjusted net profit2 reaches EUR 736 million, a 6.6% increase over 2019

 

·Net operating cash flow generation reaches EUR 1,110 million. The net leverage ratio to EBITDA is 4.5x (4.2x in 2019) and 4.0x excluding COVID-19 impacts

 

·Grifols limited the COVID-19 impact on its net plasma supply to 15% in 2020. In 2021, the company is ready for a rebound in its plasma-collection levels in the wake of vaccination deployments and the easing of pandemic constraints, as well as its current expansion plan, including additional “ready-to-obtain” available plasma

 

·Grifols continues accelerating its R+D+i efforts and appoints new leadership for scientific innovation to continue executing its plan for sustained margin expansion

 

·Noteworthy is the integration of Alkahest’s pipeline, which hold significant commercial potential, through its multiple projects. The company moves forward on its pledge to make AMBAR a viable treatment for Alzheimer’s patients, with plans underway to open Reference Centers worldwide

 

·A team of nearly 24,000 people enable Grifols to continue providing its essential products and services to patients throughout these unprecedented times

 

·Grifols is recognized as one of the world’s most sustainable companies and listed on the Dow Jones Sustainability Index, Euronext Vigeo, FTSE4Good and Bloomberg Gender Equality Index

 

Barcelona, February 26, 2021.- Grifols (MCE:GRF, MCE:GRF.P, NASDAQ: GRFS) continued to demonstrate its resilience and commitment to sustainable growth in 2020. The company’s business strategy aims to drive solid financial performance by focusing on four main objectives: plasma supply, industrial excellence, global expansion and innovation.

 

Grifols closed 2020 with EUR 5,340 million in revenues, a 4.7% (6.1% cc) increase fueled by growth in the Bioscience and Diagnostic divisions. Excluding plasma sales to third parties, revenues increased by 6.5% (7.9% cc). The contribution of new products accounted for more than 50% of revenue growth.

 

The Bioscience Division, the company’s main growth driver, achieved an important milestone in 2020 by marking 10 years of quarterly sales growth. Its revenues grew by 6.2% (7.6% cc) to EUR 4,243 million driven by an upturn in immunoglobulins sales in countries including the United States and Canada; an increase in albumin sales, particularly in the United States and China; and the strong contribution of new products like Xembify®, VISTASEALTM and TAVLESSE®.

 

In the second half of 2020, the Diagnostic Division significantly increased its revenues, reporting strong sales, particularly in Spain, of its TMA (Transcription-Mediated Amplification) molecular test to detect the SARS-CoV-2 virus. The division reported EUR 776 million in sales, a 5.8% (7.3% cc) increase over the previous year.

 

 

1 Operating or constant change (cc) excludes the exchange rate variations of the year. 

2 Excludes non-recurring impacts, including the impacts of COVID-19; amortization of deferred financing costs related to refinancing, amortization of intangibles associated with acquisitions; and IFRS 16.

 

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Hospital Division revenues were impacted by COVID-19, which prompted a slowdown in certain hospital investments and treatments. Revenues totaled EUR 119 million, a 11.7% decrease (10.3% cc) compared to 2019.

 

The Bio Supplies Commercial line, which includes sales of biological products for non-therapeutic use, grew by 65.6% cc in 2020, demonstrating Grifols’ commitment to this market segment. The Bio Supplies Division achieved EUR 224 million in revenues, falling 15.9% (15.3%) from 2019, due primarily to the roll-off of specific third-party plasma sales contracts.

 

As of December 31, 2020, the gross margin was 42.2% (45.9% in 2019), including the EUR 205 million impact to adjust Grifols’ inventory value (non-cash) mainly as a result of COVID-19 effects.

 

In reflection of its commitment to prudence and profitability, Grifols implemented an operating expense containment plan with an estimated positive impact of EUR 112 million in the 2020 profit and loss account. The company is working to make a significant part of it permanent. The plan has no impact on the company’s labor force or innovation investments.

 

Grifols estimates a net impact of EUR 155 million on EBITDA as a result of COVID-19. This figure includes the negative impact on inventory value and lower fourth-quarter sales of the Bioscience Division, as well as the positive impact of the operating expense containment plan and contribution of the SARS-CoV-2 detection test.

 

All in all, reported EBITDA totaled EUR 1,324 million, representing a 24.8% margin over revenues (28.1% in 2019). Excluding the EUR 155 million COVID-19-related impact, EBITDA stands at EUR 1,479 million, a 27.4% margin on revenues.

 

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Grifols’ financial results continued to improve during the year, reaching EUR 178 million. It includes EUR 97 million reduction in net financial expenses, stemming mainly from the completion of the debt-refinancing process in November 2019; a positive EUR 18 million impact from exchange rate differences; and EUR 57 million in capital gains following the closing of the Shanghai RAAS transaction in the first quarter of 2020.

 

The reported net profit totaled EUR 619 million in 2020, a 1.1% decrease compared to the EUR 625 million reported in 2019. Adjusted net profit1 amounted to EUR 736 million (EUR 691 million in 2019).

 

In 2020, Grifols continued to promote innovation and CAPEX investments to promote its sustainable and long-term growth. Net R+D+i investments, including internal, external and investee projects, totaled EUR 298 million (EUR 329 million in 2019).

 

Grifols also moved forward with its capital investments plan, allocating EUR 308 million (EUR 332 million in 2019) to accelerate the expansion of the Bioscience Division’s production capacity and spur growth of its other divisions.

 

Grifols’ strategic investments in recent years to increase its plasma supply, combined with efforts to boost operational efficiencies, were the driving forces behind the company’s growth and robust inventory levels. The company maintained its upward growth trend in 2020 thanks to these investments and effective inventory management.

 

In 2020, Grifols was able to limit its net plasma supply impact by roughly 15% despite COVID-19-related constraints, including social distancing, mobility restrictions and lockdowns. In 2021, the company is ready for a rebound in its plasma-collection levels in the wake of wider vaccination and the easing of COVID-19 constraints. Grifols is also advancing on its efforts to increase its plasma supply through its expansion plan, comprising organic and inorganic growth.

 

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As part of this strategy, it acquired centers in the United States and Europe and three production plants in Canada. Also underway is the construction of 20 plasma centers and production facilities in Egypt, following the alliance signed with the Egyptian government, a partnership that will expand the company’s presence in the Middle East and Africa. In terms of organic growth, the company plans on opening 15 to 20 new plasma centers in 2021

 

As of December 31, 2020, Grifols’ liquidity position stands at close to EUR 1,500 million, including EUR 580 million in cash position and nearly EUR 900 million of undrawn lines of credit.

 

Grifols took additional measures to strengthen its liquidity position in the second quarter, including the upsizing of its multicurrency revolving credit facility from USD 500 million to USD 1,000 million, with maturity in November 2025. This credit facility has similar terms and conditions as those signed in November 2019 and its expansion did not increase the company’s indebtedness.

 

In a context of growth, corporate transactions and sustained levels of CAPEX and R+D investments, Grifols boasts high and sustainable levels of activity and net operating cash flow generation. The optimization of working capital management continued to strengthen Grifols’ financial performance. In 2020, the company generated EUR 1,110 million in operating cash flow (EUR 569 million in 2019), providing the necessary solvency to meet its planned investments amid a context of higher demand.

 

Excluding the impact of IFRS 163, as of December 31, 2020 Grifols’ net financial debt totaled EUR 5,714 million. The net financial debt over EBITDA ratio is 4.5x (4.2x in December 2019) and 4.0x excluding COVID-19 impacts.

 

Following the completion of the debt-refinancing process in November 2019, Grifols does not face significant maturity repayments or down payments until 2025. Optimizing and reducing its debt levels remains a priority for Grifols’ financial management.

 

Grifols is prepared to respond to the demands of the current context and remains committed to its long-term growth strategy. It will continue to monitor any potential impacts on operations and will take all necessary measures to mitigate possible effects on its supply chain.

 

 

 

3 As of December 31, 2020, the impact of IFRS 16 on debt totaled EUR 733 million. 

 

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PERFORMANCE BY DIVISION

 

 

Bioscience leads growth

 

The Bioscience Division reported EUR 4,243 million in revenues, a 6.2% (7.6% cc) increase, fueled by strong demand for the main proteins, especially immunoglobulins and albumin, and the positive performance of new product launches like Xembify®, VISTASEALTM and TAVLESSE®.

 

Immunoglobulins sales remain strong, achieving double-digit growth thanks to solid demand in markets with high per capita consumption, namely, the U.S. and Canada, and several countries in the European Union (EU) and Latin America. Grifols has a range of immunoglobulins for both intravenous and subcutaneous administration (Xembify®) to adapt to patients’ diverse needs.

 

Albumin sales also remain strong amid positive growth in the U.S., Canada and China .

 

Despite the pandemic, alpha-1 antitrypsin revenues continue to grow in the U.S. and Canada, its core markets. The company continued to enhance its portfolio in 2020, integrating new products and presentations, including the FDA-approved Prolastin®-C Liquid in 0.5-gram and 4-gram vials. Grifols currently has three presentations to offer patients more treatment alternatives.

 

In terms of new product launches, of note are the robust sales of the biological sealant, developed and manufactured by Grifols using a combination of two plasma proteins (fibrinogen and thrombin) to control surgical bleeding. Launched in the last quarter of 2019, the product is sold and distributed by Ethicon under the trade name VISTASEALTM. Also worth highlighting is the market launch of TAVLESSE® (fostamatinib) in specific European countries. Sold under an agreement with Rigel Pharmaceuticals, this product is used to treat chronic immune thrombocytopenia (ITP) in adult patients who are refractory to other treatments.

 

Diagnostic accelerates its growth

 

The Diagnostic Division achieved notable results in the second half of the year, reporting a 5.8% (7.3% cc) year-on-year increase in sales to EUR 776 million.

 

Especially noteworthy was the contribution of Grifols’ Transcription Mediated Amplification (TMA) test, used to detect SARS-CoV-2. This diagnostic test was the main driver of NAT systems (Procleix® NAT Solutions) sales, especially in Spain. TMA is a commonly used technique known for its high sensitivity and capacity to automate large sample volumes.

 

Sales of Procleix® NAT Solutions, used to analyze blood donations, were also strong in Japan, Australia, the Philippines and Bulgaria, among other countries. These systems are able to screen for a diversity of pathogens, including the human immunodeficiency virus (HIV), hepatitis viruses (A, B, C and E), West Nile virus, Zika, dengue and the causative agents of babesiosis.


The blood-typing line maintains its upward trend in the U.S. and Latin America, where sales continued to grow in countries such as Argentina. Sales include both analyzers (Erytra®, Erytra Eflexis® and Wadiana®) and reagents (DG-Gel® cards, red blood cells and anti-serums).

 

Hospital prepares its recovery

 

The Hospital Division recorded EUR 119 million in revenues, an 11.7% (10.3% cc) decrease from the previous year. The division’s main business lines were impacted by COVID-19, which caused a slowdown in certain hospital investments and treatments.

 

Grifols is a leading supplier of technology and services for hospitals, clinics and specialized centers. Its leading-edge automated compounding device (KIRO Fill®) and next-generation suite of web- and mobile-based applications (PharmacyKeeper) optimize hospital-pharmacy operations and enhance patient safety by affording greater accuracy and safety in the preparation of intravenous (IV) medications. These advancements improve patient safety and reduce reliance on manual processes.

 

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Grifols’ Pharmatech business line offers comprehensive solutions to enhance hospital pharmacy operations, including the inclusiv® product portfolio, comprised by equipment, software and solutions to improve the safety and quality of sterile compound preparations. The division also consolidated sales of its MedKeeper® and Kiro Grifols® technological solutions.

 

Bio Supplies grows significantly in biological material supply

 

The Bio Supplies Division primarily oversees the sales of biological products for non-therapeutic use and Haema and Biotest’s third-party plasma sales.

 

In 2020, this division reported EUR 224 million in revenues, decreasing by 15.9% (15.3% cc) compared to the previous year. This variation is mainly due to a drop in third-party plasma sales, stemming mainly from the roll-off of supply contracts. As planned, this will enable Grifols to increase its plasma volume to fuel growth of plasma-derived therapies.

 

The Bio Supplies Division grew by 65.5% cc in 2020, demonstrating Grifols’ commitment to this market niche.

 

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FOURTH QUARTER 2020

 

 

Revenues reached EUR 1,309 million, denoting a decline of 3.8% (an increase of 1.9% cc) in relation to the EUR 1,361 million reported for the same period in 2019.

 

The Bioscience Division recorded EUR 1,000 million in sales, a decline of 4.6% (an increase of 1.4% cc) compared to 2019 stemming from the downturn in plasma collections in Q2 and Q3 2020 as a result of COVID-19 mobility restrictions.

 

Demand for the main plasma proteins remains robust. Grifols is working to increase plasma donations, both organically and inorganically. The company’s ongoing efforts are expected to lead to a continued and progressive recovery in plasma donations which, together with plans to expand the number of plasma centers, will lead to higher sales volumes as the supply of plasma for fractionation increases.

 

The Diagnostic Division reported solid revenue growth in the fourth quarter to EUR 229 million (15.1%; 20.1% cc).

 

Grifols’ operating margins in the fourth quarter reflect its efforts to increase its plasma supply, as well as operating expenses associated with corporate transactions, including Green Cross and Alkahest.

 

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INVESTMENT ACTIVITIES: R+D+i, CAPEX, ACQUISITIONS AND CORPORATE TRANSACTIONS

 

 

R+D+i: STRATEGIC APPROACH

 

Grifols’ R+D+i strategy is based on a comprehensive approach encompassing both in-house and investee-led initiatives complementary to its core operations.

 

In 2020, Grifols continued to bolster its R+D+i efforts. Taking into account net investments and excluding equity stakes, the company allocated EUR 298 million to R+D+i, representing 5.6% of revenues. More than EUR 11.5 million were allotted for COVID-19-related research projects. More than 1,100 employees are dedicated to R+D+i.

 

Global response to combat COVID-19

 

As part of its solid commitment to society, Grifols organized a global response to combat COVID-19, leading and participating in more than 25 international research projects.

 

In this regard, the company is collaborating with researchers and health authorities in the United States, Spain and Germany on clinical trials using plasma-derived products such as hyperimmune immunoglobulin, intravenous immunoglobulin, alpha-1 antitrypsin and antithrombin III, as well as convalescent plasma inactivated with methylene blue.

 

Grifols is also spearheading the development of immunoglobulins with specific antibodies against the SARS-CoV-2 virus using plasma from recovered COVID-19 patients. In October 2020, in collaboration with diverse U.S. healthcare agencies and other entities, Grifols launched the Inpatient Treatment with Anti-Coronavirus Immunoglobulin (ITAC) clinical trial, a multicenter, randomized and double-blind study designed to test the efficacy and safety of anti-SARS-CoV-2 hyperimmune plasma in critically ill hospitalized patients.

 

In early 2021, the company initiated a new clinical trial in Spain to assess a subcutaneously administered anti-SARS-CoV-2 immunoglobulin, which would provide immediate protection against the virus. This immunoglobulin would be particularly beneficial for the elderly, healthcare professionals and immunocompromised patients, among others, for whom vaccination is not recommended.

 

Grifols also developed a specialty TMA (Transcription-Mediated Amplification) molecular test to rapidly and accurately detect the SARS-CoV-2 virus in plasma, blood and respiratory samples by generating multiple copies of unique genetic sequences specific to the virus. The test’s sensitivity is the same or even higher than other molecular tests like PCRs (polymerase chain reaction).

 

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Advancing its comprehensive Alzheimer’s strategy

 

Throughout 2020, Grifols continued to strengthen its comprehensive Alzheimer’s strategy. At the same time, Grifols moves forward with its plans to make AMBAR a viable treatment option for Alzheimer’s patients.

 

The results of Grifols’ AMBAR study (Alzheimer Management by Albumin Replacement), which demonstrates a positive impact in reducing the progression of Alzheimer's symptoms in patients treated over a 14-month period compared to untreated patients, were featured in the prestigious peer-reviewed publication Alzheimer’s & Dementia: The Journal of the Alzheimer’s Association.

 

The company is working on opening AMBAR Reference Centers as pilot facilities in collaboration with medical institutions, following the same standard clinical practices established in the AMBAR study. In addition to benefiting AD patients, this initiative would also offer a channel to collect more data and real-world evidence, reinforcing the clinical trial findings.

 

Initially, Grifols will collaborate with several AMBAR centers worldwide. Among these are the Fundació ACE in Barcelona, a key player in the study’s design and development and a Grifols collaborator since 2004, when the company launched its integral Alzheimer’s research strategy.

 

The American Society for Apheresis (ASFA) modified its previous procedure regarding its “Guidelines for Recommendations for the Use of Therapeutic Apheresis in Clinical Practice.” To this end, these will undergo a thorough review in the medium term, without releasing interim recommendations .

 

In parallel, Grifols continues working on future patient reimbursement of the AMBAR treatment, preparing Health Economics & Outcomes Research (HEOR) studies and collaborating with therapy-evaluation committees of diverse medical organizations, including neurological and apheresis associations.

 

Grifols also supports research to discover and develop new therapeutic plasma proteins through Alkahest. This biotech firm currently has four candidates, including two related to potential treatments for AD patients in the advanced stages and another for those in mild and moderate stages.

 

CAPEX

 

Grifols intensified its capital investments in 2020, allocating EUR 308 million to expand and enhance its divisions’ production facilities. This amount is included in the 2018-2022 Capital Investment Plan and reaffirms Grifols’ commitment to growth and long-term vision.

 

In May, the company announced a EUR 130 million investment for the first phase of a project to expand its Barcelona industrial complex. Grifols acquired a 47,274 m2 plot with plans to build a purification and fill-and-finish facility for a new Bioscience Division product and a new R+D+i center, as well as expand the production and logistics capacity of the Diagnostic Division.

 

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Also underway is the expansion of the fibrinogen and topical thrombin sealant production plant in Barcelona. Upon completion of the new purification and dosing facilities, this extension will increase production capacity to 3.3 million equivalent liters of plasma.

 

In the U.S., the company has plans to invest USD 350 million to build a new plasma fractionation plant, a plasma logistics warehouse and service infrastructures on its North Carolina installations. This complex recently completed the construction of a fractionation plant with a capacity to fractionate 6 million liters per year, which will launch productions this year and is expected to be fully operational in 2022.

 

Grifols also continues to advance on the world’s first purification, dosing and sterile filling plant of immunoglobulins in flexible bags, with a production capacity of 6 million equivalent liters of plasma per year. The company expects it to be operational in 2023.


Also noteworthy was the swift construction and launch of a facility dedicated to inactivating pathogens in convalescent plasma using methylene blue. The company also quickly adapted its Clayton emerging-diseases facility to produce an anti-SARS-CoV-2 immunoglobulin. These initiatives allowed the company to quickly respond to COVID-19, demonstrating once again its ability to effectively react and respond in the face of health emergencies.

 

The construction of a new albumin purification, dosing and sterile filling plant in Dublin (Ireland) also continues according to plan. The plant will have an annual production capacity of 6 million equivalent liters of plasma and incorporate a state-of-the-art sterile bag filling technology, owned by Grifols. The plant will build on the company’s efforts to boost its bag production capacity, initiated in Los Angeles (U.S.) plant in the first quarter of 2021.

 

Investments to increase its access to plasma remain a core strategic priority. In this regard, the company is working to expand its network of centers and increase the plasma-collection capacity of existing centers by incorporating more donation equipment, wherever possible. As of December 31, 2020 Grifols operates the largest plasma-center network in the world, with 312 centers.

 

At the same time, Grifols continues its plans to expand the sample testing capacity of its Austin (U.S.) laboratory. The company anticipates reaching a testing capacity of 36 million samples by 2023 thanks to its efforts to expand its U.S. and European facilities. The company is also moving forward to expand its plasma storage and logistics capacity, expecting to reach 12 million liters by 2023.

 

In 2020, the Diagnostic Division centered its efforts on expanding the manufacturing capacity of its immunohematology products, with plans to produce DG Gel® cards, red blood cells and antisera for the first time in the United States. These products will be manufactured in Grifols’ San Francisco (U.S.) facilities. Grifols has also been working on the expansion of the Diagnostic Division’s laboratory capabilities.

 

ACQUISITIONS AND CORPORATE TRANSACTIONS

 

Closing of the alliance with Shanghai RAAS to drive growth in China

 

In March 2020, Grifols and Shanghai RAAS closed a strategic alliance designed to increase the production, sale and development of plasma-derived products and leading-edge transfusion diagnostic solutions in China in adherence with international quality and safety standards.

 

Following this transaction, Grifols is now the largest shareholder in Shanghai RAAS while maintaining operating, political and economic control over its subsidiary, Grifols Diagnostic Solutions (GDS). Specifically, Grifols will have control over a 26.20% stake in Shanghai RAAS’s capital (economic and voting rights) in exchange for Shanghai RAAS having a non-majority share in Grifols Diagnostics Solutions (45% economic and 40% voting rights).

 

For Grifols, the agreement offers an opportunity to bolster its international expansion and build on its long-term, sustainable growth. At present, China is Grifols’ third-largest sales market.

 

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Grifols closes the acquisition of production facilities in Canada and 11 plasma centers in the U.S.

 

In October 2020, Grifols closed its transaction with the South Korean firm, GC Pharma (Group) to acquire a plasma fractionation plant and an immunoglobulin and an albumin purification plant in Montreal (Canada) for USD 370 million. In a separate transaction, it acquired 11 U.S.-based plasma collection centers, property of Green Cross, for USD 90 million.

 

This acquisition is aligned with Grifols’ international sustainable growth strategy aimed at increasing the company’s plasma collection and fractionation capacity. This strategic acquisition will also strengthen Grifols’ presence in Canada, building on a legacy of partnership in Canada’s blood system.

 

Once it obtains the necessary licenses and authorizations, Grifols will become the only large-scale commercial manufacturer of plasma products in Canada, with a fractionation capacity of 1.5 million liters annually. Grifols expects to launch operations in these facilities in 2023, manufacturing IVIG and albumin to supply the Canadian market.

 

Strategic alliance between Grifols and the Egyptian government to boost plasma-derived medicines in the Middle East and Africa

 

In November 2020, Grifols and the Government of Egypt, through the National Service Projects Organization (NSPO), signed a strategic agreement to further develop the Egyptian plasma-derivatives market and promote its self-sufficiency. The operation will ensure national security needs and help strengthen the healthcare system in Egypt.

 

Under this joint venture, owned by NSPO (51%) and Grifols (49%), the parties will join their industrial expertise and financial efforts for the development, construction and operation of 20 plasma collection centers throughout Egypt (with an initial capacity to collect 600,000 liters of plasma per year); manufacturing facilities, including a fractionation plant (with a capacity to fractionate up to 1 million liters of plasma per year) and a purification and fill-and-finish plant; a warehouse and an analysis laboratory. The plasma centers and manufacturing facilities are expected to be operational at the end of 2025.

 

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This partnership will position Grifols as a strategic ally of the Egyptian government and promote its commitment to helping countries reach higher levels of self-sufficiency in the manufacture and procurement of plasma-derived therapies.

 

The transaction will also bolster its presence in the Middle East and Africa, building on its already-solid presence in the United States and Europe and important inroads in China, all core areas of its growth plan.

 

Acquisition of Alkahest to enhance innovation efforts

 

In 2020, Grifols acquired Alkahest’s remaining stock for USD 146 million, bringing its ownership to 100%. The company began investing in Alkahest in 2015.

 

The Silicon Valley-based biotechnology company was founded upon research into the therapeutic use of plasma proteins in age-related diseases. To perform this research, the company is using its omic capabilities as a main discovery tool that enables a complete understanding of the human plasma proteome. In addition, Alkahest works on the clinical development of specific plasma fractions and protein inhibitors.

 

Alkahest has built a unique proteomic platform of targets that will allow the company to unlock new therapeutics and diagnostics; develop new plasma proteins; new indications for currently licensed plasma proteins; biomarkers for diagnostics, recombinant proteins and antibodies; as well as small-molecule drugs.

 

Understanding the plasma proteome is the key to Alkahest’s comprehensive discovery and development platform that delivers transformational therapeutics. Alkahest focuses on proteins with biological impact that change with age.

 

Alkahest has identified more than 8,000 separate proteins to date. Using advanced techniques of molecular analysis at the cellular level, an array of new products are expected to enter Grifols’ discovery and development pipeline and bring new therapeutic medicines to market.

 

Acquisition of remaining 49% stake in MedKeeper

 

In November 2020, Grifols acquired the remaining 49% stake in MedKeeper for USD 60 million.

 

Since 2018, Grifols has owned a 51% equity stake of this U.S.-based technology firm, dedicated to developing and commercializing mobile and web-based technology solutions that enhance quality assurance standards and operational productivity, as well as monitor and track compounding activities. 

 

With this transaction, Grifols complements and strengthens Pharmatech, the Hospital Division’s core business line, boosting its expansion and footprint in the U.S. market.

 

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WORKFORCE: COMMITMENT, EMPLOYMENT QUALITY AND CONTINUOUS TRAINING

 

 

The exceptional circumstances triggered by the COVID-19 pandemic brought out the best in Grifols’ team in 2020, especially employees working in plasma centers and production facilities. Thanks to their dedication, the company has been able to guarantee the supply of life-enhancing therapies, products and services to patients who need them.

 

Grifols’ talent pool has always been its top priority. Throughout the pandemic, the company has been – and will be in the future – fully committed to its employees. COVID-19 has transformed the way the company works and accelerated changes in how it manages its teams and talent. Guided by senior management, Grifols prioritized the safety and physical and emotional well-being of its employees and made important strides in embracing a more humane style of leadership, which has led to greater collaboration and innovation.

 

As of December 31, Grifols had a pool of 23,655 employees. Nearly 4,300 people work in Spain, more than 16,600 in the U.S. and 2,760 in other countries where the company is present (ROW).

 

In 2020, of note is that 72% of new hires and 62% of promotions are women. The company continues to make progress to ensure that women are adequately represented in all professional categories. In 2020, the representation of women on Grifols' Board of Directors is at 31%, and 36% for female directors.

 

In broad lines, Grifols talent pool includes:

 

·60% women and 40% men
·98% of employees have permanent contracts
·52% are 30-50 years old
·93% full-time employees
·88 nationalities reflected

 

Training and professional development is one of the main areas of action of Grifols’ human resource efforts. Grifols aspires to retain and develop its talent through an equal-opportunity policy with regard to remunerations, promotions, professional development and training.

 

Grifols aims to continuously develop its team to equip them with the skills and competencies they need to thrive in their roles, as well as prepare them for positions of greater responsibility. As part of this commitment, in 2009 Grifols established The Grifols Academy, which includes Professional Development Academy, the Academy of Plasmapheresis and the Academy of Transfusion Medicine.

 

Through the Grifols Academy, the company provides educational and professional development opportunities to its global workforce; reinforces its philosophy and corporate values; and provides resources and services to medical professionals dedicated to improving patient care. Grifols Academy partnered with College for America in 2015 to offer Grifols employees the chance to earn college degrees.

 

Despite the pandemic, Grifols continued to dedicate resources to the continuous development of its talent pool. Leveraging virtual platforms, Grifols workforce completed two million training hours, representing an average of 99 hours per person. Of the training hours provided, women received 64% and men received 36%. All in all, the company increased the total number of training hours on health, safety and environmental issues, imparting more than 116,000 hours in 2020, including specific initiatives to better manage and mitigate the effects of COVID-19. 

 

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ENVIRONMENT AND CLIMATE CHANGE

 

 

Grifols makes concerted efforts to minimize its environmental footprint. The company has a range of policies and guidelines to ensure an efficient use of all resources and promote sustainable development.

 

At present, 75% of Grifols’ total production is manufactured in ISO-14001-certified facilities.

 

Grifols’ environmental management is based on the concept of a circular economy. To this end, the company prioritizes waste reduction and the efficient use of material resources, water and energy, while considering the life cycles of its diverse products and services.

 

This strategy supports the transition toward a low-carbon economy to reduce the impact of climate change. Grifols’ management of climate-related risks and opportunities based on Task Force on Climate-Related Financial Disclosures (TCFD) guidelines – focus on four main areas: governance, risk management, strategy, and the establishment of objectives and metrics.

 

Despite the global challenges of 2020, Grifols allocated significant resources to environmental activities to bolster its environmental performance and advance its 2020-2022 Environmental Program objectives.

 

In addition to its environmental programs, Grifols established six main environmental commitments for 2030 as part of its core lines of action. These include reducing greenhouse gas emissions per unit of production by 40%; increasing energy efficiency per unit of production by 15% through the systematic application of eco-efficiency measures in new projects and existing facilities; and consuming 70% of electricity using renewable energies, among others.

 

The outbreak of COVID-19 provoked mobility restrictions for most of the world's population, leading to a dramatic reduction of CO2 emissions. In Grifols’ case, the pandemic significantly reduced airline travel, which fell by 72%, and increased remote connections by 369%. Overall, the implementation of work-from-home initiatives led to a 13% reduction in Grifols' total CO2 emissions in 2020.

 

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In 2020, the joint consumption and emissions of Grifols’ manufacturing plants in Spain, the U.S. and Ireland were as follows: 

 

·Energy consumption decreases by 3% in relation to sales:

-Electric consumption: 428 million kWh, a 5% increase

-Gas consumption: 421 million kWh, down by 4%

·4% reduction in water consumption to 3 million m3

·Total associated emissions: 287,992 T CO2e, down 13% compared to 2019

 

Grifols invested EUR 23 million in environmental initiatives in 2020, a 7% increase over the previous year. Forty percent (40%) was channeled to projects aimed at reducing energy consumption and atmospheric emissions. In terms of environmental expenditures, 73% relate to waste management processes in Grifols’ global facilities.

 

Including both expenses and investments, 66% of resources were allocated to waste management; 26% to water cycle resources; and the remaining 8% to efforts to reduce atmospheric emissions, energy and others.

 

In reflection of its efforts to combat climate change, Grifols participates annually in the Carbon Disclosure Project (CDP), which assesses the firm’s corporate strategy and climate change performance. Grifols improved its valuation in 2020, earning an “A-” management rating.

 

 

ABOUT THE FINANCIAL INFORMATION: The financial information enclosed in this document is part of the company’s financial information.

 

ABOUT THE NON-FINANCIAL INFORMATION: Grifols has carried out a materiality analysis to identify the most relevant economic, environmental and social impacts of the group’s value chain and its impact on stakeholders’ decisions. This information is updated annually and included in the Grifols’ Integrated Annual Report that since 2019 brings together Consolidated Directors’ Report, including financial and non-financial information.

 

All documents are available on Grifols corporate website at www.grifols.com

 

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Investor contact:

 

Investor Relations

inversores@grifols.com - investors@grifols.com

Phone number: +34 93 571 02 21

 

Media contacts:

Raquel Lumbreras raquel_lumbreras@duomocomunicacion.com
Borja Gómez borja_ gomez@duomocomunicacion.com
Duomo Comunicación Grifols PR office

Phone number: +34 91 311 92 89 - 91 311 92 90

 

 

 

 

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About Grifols

 

Grifols is a global healthcare company founded in Barcelona in 1909 committed to improving the health and well-being of people around the world. Its four divisions – Bioscience, Diagnostic, Hospital and Bio Supplies – develop, produce and market innovative solutions and services that are sold in more than 100 countries.

 

Pioneers in the plasma industry, Grifols operates a growing network of donation centers worldwide. It transforms collected plasma into essential medicines to treat rare, chronic and, at times, life-threatening conditions. As a recognized leader in transfusion medicine, Grifols also offers a comprehensive portfolio of solutions designed to enhance safety from donation to transfusion. In addition, the company supplies tools, information and services that enable hospitals, pharmacies and healthcare professionals to efficiently deliver expert medical care.

 

Grifols, with close to 24,000 employees in 30 countries, is committed to a sustainable business model that sets the standard for continuous innovation, quality, safety and ethical leadership.

 

In 2020, Grifols’ economic impact in its core countries of operation was EUR 7.5 billion. The company also generated 140,000 jobs, including indirect and induced jobs.

 

The company’s class A shares are listed on the Spanish Stock Exchange, where they are part of the Ibex-35 (MCE: GRF). Grifols non-voting class B shares are listed on the Mercado Continuo (MCE:GRF.P) and on the U.S. NASDAQ through ADRs (NASDAQ: GRFS).

 

For more information, please visit Grifols.com

 

 

LEGAL DISCLAIMER

 

The facts and figures contained in this report that do not refer to historical data are “future projections and assumptions”. Words and expressions such as “believe”, “hope”, “anticipate”, “predict”, “expect”, “intend”, “should”, “will seek to achieve”, “it is estimated”, “future” and similar expressions, in so far as they relate to the Grifols group, are used to identify future projections and assumptions. These expressions reflect the assumptions, hypotheses, expectations and predictions of the management team at the time of writing this report, and these are subject to a number of factors that mean that the actual results may be materially different. The future results of the Grifols group could be affected by events relating to its own activities, such as a shortage of supplies of raw materials for the manufacture of its products, the appearance of competitor products on the market, or changes to the regulatory framework of the markets in which it operates, among others. At the date of compiling this report, the Grifols group has adopted the necessary measures to mitigate the potential impact of these events. Grifols, S.A. does not accept any obligation to publicly report, revise or update future projections or assumptions to adapt them to events or circumstances subsequent to the date of writing this report, except where expressly required by the applicable legislation. This document does not constitute an offer or invitation to buy or subscribe shares in accordance with the provisions of the following Spanish legislation: Royal Legislative Decree 4/2015, of 23 October, approving recast text of Securities Market Law; Royal Decree Law 5/2005, of 11 March and/or Royal Decree 1310/2005, of 4 November, and any regulations developing this legislation. In addition, this document does not constitute an offer of purchase, sale or exchange, or a request for an offer of purchase, sale or exchange of securities, or a request for any vote or approval in any other jurisdiction. The information included in this document has not been verified nor reviewed by the external auditors of the Grifols group.

 

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7567-2-ba_part 1 of 5 ccaa 2020 opinion y  tablas_page_01.jpg  Audit Report on Grifols, S.A. and Subsidiaries (Together with the consolidated annual accounts and consolidated directors’ report of Grifols, S.A. and subsidiaries for the year ended 31 December 2020) (Translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails.)

 

 

 

 

7567-2-ba_part 1 of 5 ccaa 2020 opinion y  tablas_page_02.jpg KPMG Auditores, S.L. Torre Realia Plaça d’Europa, 41-43 08908 L’Hospitalet de Llobregat (Barcelona) Independent Auditor’s Report on the Consolidated Annual Accounts (Translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails.) To the Shareholders of Grifols, S.A. REPORT ON THE CONSOLIDATED ANNUAL ACCOUNTS Opinion We have audited the consolidated annual accounts of Grifols, S.A. (the "Parent") and subsidiaries (together the "Group”), which comprise the consolidated balance sheet at 31 December 2020, and the consolidated income statement, consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended, and consolidated notes. In our opinion, the accompanying consolidated annual accounts give a true and fair view, in all material respects, of the consolidated equity and consolidated financial position of the Group at 31 December 2020 and of its consolidated financial performance and consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards as adopted by the European Union (IFRS-EU) and other provisions of the financial reporting framework applicable in Spain. Basis for Opinion We conducted our audit in accordance with prevailing legislation regulating the audit of accounts in Spain. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Consolidated Annual Accounts section of our report. We are independent of the Group in accordance with the ethical requirements, including those regarding independence, that are relevant to our audit of the consolidated annual accounts pursuant to the legislation regulating the audit of accounts in Spain. We have not provided any non-audit services, nor have any situations or circumstances arisen which, under the aforementioned regulations, have affected the required independence such that this has been compromised. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. KPMG Auditores S.L., a limited liability Spanish company and a member firm of the KPMG global organization of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved. Paseo de la Castellana, 259C 28046 Madrid Reg. Mer Madrid, T. 11.961, F. 90, Sec. 8, H. M -188.007, Inscrip. 9 N.I.F. B-78510153

 

 

 

 

7567-2-ba_part 1 of 5 ccaa 2020 opinion y  tablas_page_03.jpg 2 (Translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails.) Key Audit Matters Key audit matters are those matters that, in our professional judgement, were of most significance in the audit of the consolidated annual accounts of the current period. These matters were addressed in the context of our audit of the consolidated annual accounts as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. tested the operating effectiveness of certain internal assessment process, including controls related to the disposals/recoverable amount of the Diagnostic CGU, specialized skills and knowledge, who assisted in: the Diagnostic CGU, by comparing the coherence data for comparable entities. against a discount rate range that was market data for comparable entities. Cash Flow (“DCF”) valuation methodology used Evaluation of the Diagnostic goodwill impairment analysis See notes 4 and 7 to the annual accounts Key audit matter How the matter was addressed in our audit As discussed in Notes 4 and 7 to the consolidated financial statements, the goodwill balance as of December 31, 2020 was Euros 5,332,271 thousand, of which Euros 2,433,032 thousand related to the Diagnostic cash generating unit (CGU). The Group calculates the recoverable amount of goodwill on an annual basis and whenever there is an indication that goodwill may be impaired. We identified the evaluation of the goodwill impairment analysis for the Diagnostic CGU as a key audit matter. Significant director’s judgment was required to evaluate the Company’s impairment test which was performed using a discounted cash flow model. The discounted cash flow model included assumptions related to future cash flows, the perpetual growth rate and the discount rate. Minor changes to these assumptions, particularly perpetual growth rate and the discount rate, could have a significant effect on the Company’s assessment of the carrying value of the goodwill. The primary procedures we performed to address this key audit matter included the following: - We evaluated the design and implementation and controls related the Company’s goodwill impairment determination of the fair value less costs of and the development of the perpetual growth rate and discount rate assumptions. - We have involved a valuation professional with oEvaluating the Group’s perpetual growth rate for of the estimate with publicly available market oEvaluating the discount rate by comparing it independently developed using publicly available oAnalysis of the reasonableness of the Discounted to calculate the recoverable amount. - We challenged the Group’s valuation methodology by performing sensitivity analyses over the perpetual growth rate and discount rate assumptions and comparing the results to the carrying amount. - We have evaluated the Group’s ability to forecast the cash flow projections by comparing the historical projections to actual results and the business plans approved by the Company’s governing bodies. - We have evaluated whether the disclosures in the consolidated Financial Statements meet the requirements of the financial reporting framework applicable to the Group.

 

 

 

 

7567-2-ba_part 1 of 5 ccaa 2020 opinion y  tablas_page_04.jpg 3 (Translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails.) Other Information: Consolidated Directors’ Report Other information solely comprises the 2020 consolidated directors' report, the preparation of which is the responsibility of the Parent's Directors and which does not form an integral part of the consolidated annual accounts. Our audit opinion on the consolidated annual accounts does not encompass the consolidated directors' report. Our responsibility regarding the information contained in the consolidated directors’ report is defined in the legislation regulating the audit of accounts, as follows: a)Determine, solely, whether the consolidated non-financial information statement and certain information included in the Annual Corporate Governance Report, as specified in the Spanish Audit Law, have been provided in the manner stipulated in the applicable legislation, and if not, to report on this matter. b) Assess and report on the consistency of the rest of the information included in the consolidated directors’ report with the consolidated annual accounts, based on knowledge of the Group obtained during the audit of the aforementioned consolidated annual accounts. Also, assess and report on whether the content and presentation of this part of the consolidated directors’ report are in accordance with applicable legislation. If, based on the work we have performed, we conclude that there are material misstatements, we are required to report them. Based on the work carried out, as described in the preceding paragraph, we have observed that the information mentioned in section a) above has been provided in the manner stipulated in the applicable legislation, that the rest of the information contained in the consolidated directors’ report is consistent with that disclosed in the consolidated annual accounts for 2020, and that the content and presentation of the report are in accordance with applicable legislation. Directors' and Audit Committee's Responsibility for the Consolidated Annual Accounts The Parent's Directors are responsible for the preparation of the accompanying consolidated annual accounts in such a way that they give a true and fair view of the consolidated equity, consolidated financial position and consolidated financial performance of the Group in accordance with IFRS-EU and other provisions of the financial reporting framework applicable to the Group in Spain, and for such internal control as they determine is necessary to enable the preparation of consolidated annual accounts that are free from material misstatement, whether due to fraud or error. In preparing the consolidated annual accounts, the Parent's Directors are responsible for assessing the Group's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so. The Parent's audit committee is responsible for overseeing the preparation and presentation of the consolidated annual accounts.

 

 

 

 

7567-2-ba_part 1 of 5 ccaa 2020 opinion y  tablas_page_05.jpg 4 (Translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails.) Auditor's Responsibilities for the Audit of the Consolidated Annual Accounts Our objectives are to obtain reasonable assurance about whether the consolidated annual accounts as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with prevailing legislation regulating the audit of accounts in Spain will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence economic decisions of users taken on the basis of these consolidated annual accounts. As part of an audit in accordance with prevailing legislation regulating the audit of accounts in Spain, we exercise professional judgement and maintain professional scepticism throughout the audit. We also: – Identify and assess the risks of material misstatement of the consolidated annual accounts, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. – Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group's internal control. – Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the Parent's Directors. – Conclude on the appropriateness of the Parent's Directors' use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the consolidated annual accounts or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause the Group to cease to continue as a going concern. – Evaluate the overall presentation, structure and content of the consolidated annual accounts, including the disclosures, and whether the consolidated annual accounts represent the underlying transactions and events in a manner that achieves a true and fair view. – Obtain sufficient appropriate evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated annual accounts. We are responsible for the management, supervision and performance of the Group audit. We remain solely responsible for our audit opinion.

 

 

 

 

7567-2-ba_part 1 of 5 ccaa 2020 opinion y  tablas_page_06.jpg 5 (Translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails.) We communicate with the audit committee of the Parent regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide the Parent's audit committee with a statement that we have complied with the applicable ethical requirements, including those regarding independence, and to communicate with them all matters that may reasonably be thought to bear on our independence and, where applicable, related safeguards. From the matters communicated to the audit committee of the Parent, we determine those that were of most significance in the audit of the consolidated annual accounts of the current period and which are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter. REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS European Single Electronic Format We have examined the digital files of Grifols, S.A. and its subsidiaries for 2020 in European Single Electronic Format (ESEF), which comprise the XHTML file that includes the consolidated annual accounts for the aforementioned year and the XBRL files tagged by the Group, which will form part of the annual financial report. The Directors of Grifols, S.A. are responsible for the presentation of the 2020 annual financial report in accordance with the format and mark-up requirements stipulated in the EU Delegated Regulation 2019/815 of December 17, 2018 of the European Commission (hereinafter the “ESEF Regulation”). In this regard, the Annual Corporate Governance Report has been included as a reference in the consolidated directors’ report. Our responsibility consists of examining the digital files prepared by the Directors of the Parent, in accordance with prevailing legislation regulating the audit of accounts in Spain. This legislation requires that we plan and perform our audit procedures to determine whether the content of the consolidated annual accounts included in the aforementioned digital files fully corresponds to the consolidated annual accounts we have audited, and whether the consolidated annual accounts and the aforementioned files have been formatted and marked up, in all material respects, in accordance with the requirements of the ESEF Regulation. In our opinion, the digital files examined fully correspond to the audited consolidated annual accounts, and these are presented and marked up, in all material respects, in accordance with the requirements of the ESEF Regulation. Additional Report to the Audit Committee of the Parent The opinion expressed in this report is consistent with our additional report to the Parent's audit committee dated 25 February 2021.

 

 

 

 

7567-2-ba_part 1 of 5 ccaa 2020 opinion y  tablas_page_07.jpg 6 (Translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails.) Contract Period We were appointed as auditor of the Group by the shareholders at the ordinary general meeting on 9 October 2020 for the year ended 31 December 2020. Previously, we had been appointed for a period of three years from 31 July 1990 to 1992, by consensus of the shareholders at their general meeting, and have been auditing the annual accounts since the year ended 31 July 1990. KPMG Auditores, S.L. On the Spanish Official Register of Auditors (“ROAC”) with No. S0702 (Signed on original in Spanish) David Hernanz Sayans On the Spanish Official Register of Auditors (“ROAC”) with No. 20236 25 February 2021

 

 

 

 

7567-2-ba_part 1 of 5 ccaa 2020 opinion y  tablas_page_08.jpg GRIFOLS, S.A. AND SUBSIDIARIES Consolidated Annual Accounts 31 December 2020 and 2019 SUMMARY (Free translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails) • Consolidated financial statements           Consolidated Balance Sheets Consolidated Statements of Profit and Loss Consolidated Statements of Comprehensive Income Consolidated Statements of Cash Flows Statements of Changes in Consolidated Equity • Notes (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) (12) (13) (14) (15) (16) (17) (18) (19) (20) (21) (22) (23) (24) (25) (26) (27) (28) (29) Nature, Principal Activities and Subsidiaries Basis of Presentation Business Combinations Significant Accounting Policies Financial Risk Management Policy Segment Reporting Goodwill Other Intangible Assets Leases Property, Plant and Equipment Equity-Accounted Investees Financial Assets Inventories Trade and Other Receivables Cash and Cash Equivalents Equity Earnings per Share Non-Controlling Interests Grants Provisions Financial Liabilities Trade and Other Payables Other Current Liabilities Net Revenues Personnel Expenses Expenses by Nature Finance Result Taxation Other Commitments with Third Parties and Other Contingent Liabilities Financial Instruments Balances and Transactions with Related Parties Environmental Issues Other Information COVID-19 Impact (30) (31) (32) (33) (34)

 

 

 

 

7567-2-ba_part 1 of 5 ccaa 2020 opinion y  tablas_page_09.jpg GRIFOLS, S.A. AND SUBSIDIARIES Consolidated Annual Accounts 31 December 2020 and 2019 SUMMARY (Free translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails) •Appendices   Appendix I and Others Appendix II Appendix III Appendix IV Appendix V Appendix VI Information on Group Companies, Associates           Operating Segments Changes in Other Intangible Assets Movement in Rights of Use Movement in Property, Plant and Equipment Statement of Liquidity for Distribution of Interim Dividend

 

 

 

 

7567-2-ba_part 1 of 5 ccaa 2020 opinion y  tablas_page_10.jpg GRIFOLS, S.A. AND SUBSIDIARIES Consolidated Balance Sheet at 31 December 2020 and 2019 (Expressed in thousands of Euros) (Free translation from the original Spanish. In the event of discrepancy, the Spanish-language version pre Assets 31/12/20 31/12/19 Goodwill (note 7) Other intangible assets (note8) Rights of use (note 9) Property, plant and equipment (note 10) Investment in equity-accounted investees (note 11) Non-current financial assets Non-current financial assets measured at fair value Non-current financial assets at amortized cost Total non-current financial assets (note 12) Deferred tax assets (note 28) Total non-current assets 5,332,271 1,557,650 678,696 2,324,107 1,869,020 5,507,063 1,433,534 703,858 2,159,545 114,473 3,008 7 195,149 138,923 198,157 138,930 149,921 123,024 12,109,822 10,180,427 Inventories (note 13) Trade and other receivables Trade receivables Other receivables Current income tax assets Trade and other receivables (note 14) Other current financial assets (note 12) Current financial assets measured at fair value Current financial assets at amortized cost Total current financial assets (note 12) Other current Assets Cash and cash equivalents (note 15) Total current assets 2,002,281 2,342,590 383,233 72,360 369,797 82,509 64,565 38,269 520,158 490,575 1,716,738 --11,118 12,188 11,118 51,750 1,728,926 58,111 579,647 741,982 3,164,954 5,362,184 Total assets 15,274,776 15,542,611 The accompanying notes form an integral part of the consolidated annual accounts.

 

 

 

 

7567-2-ba_part 1 of 5 ccaa 2020 opinion y  tablas_page_11.jpg GRIFOLS, S.A. AND SUBSIDIARIES Consolidated Balance Sheet at 31 December 2020 and 2019 (Expressed in thousands of Euros) (Free translation from the original Spanish. In the event of discrepancy, the Spanish-language version pre Equity and liabilities 31/12/20 31/12/19 Share capital Share premium Reserves Treasury stock Interim dividend Profit for the year attributable to the Parent Total equity 119,604 910,728 3,776,932 (43,734) --119,604 910,728 3,009,599 (49,584) (136,828) 618,546 625,146 5,382,076 4,478,665 Other comprehensive Income Translation differences Other comprehensive expenses Equity attributable to the Parent (note 16) Non-controlling interests (note 18) Total equity (1,155) (903) (272,529) 344,357 (273,684) 5,108,392 343,454 4,822,119 1,611,663 2,023,649 6,720,055 6,845,768 Liabilities Grants (note 19) Provisions (note 20) Non-current financial liabilities (note 21) Other non-current liabilities Deferred tax liabilities (note 28) Total non-current liabilities 17,008 27,271 6,602,100 16,391 11,377 8,030 6,846,068 983 556,813 463,827 7,219,583 7,330,285 Provisions (note 20) Current financial liabilities (note 21) Current debts with related companies Trade and other payables Suppliers Other payables Current income tax liabilities Total trade and other payables (note 22) Other current liabilities (note 23) Total current liabilities 11,175 424,612 --53,109 361,312 1,258 601,618 141,089 581,882 165,632 3,482 5,966 746,189 753,480 153,162 197,399 1,335,138 1,366,558 Total liabilities 8,554,721 8,696,843 Total equity and liabilities 15,274,776 15,542,611 The accompanying notes form an integral part of the consolidated annual accounts.

 

 

 

 

7567-2-ba_part 1 of 5 ccaa 2020 opinion y  tablas_page_12.jpg GRIFOLS, S.A. AND SUBSIDIARIES Consolidated Statements of Profit and Loss at December 2020, 2019 and 2018 (Expresadas en miles de Euros) (Free translation from the original Spanish. In the event of discrepancy, the Spanish-language version prevails) 31/12/20 31/12/19 31/12/18 Continuing Operations Net revenue (notes 6 and 24) Cost of sales Gross Margin Research and Development Selling, General and Administration expenses Operating Expenses 5,340,038 5,098,691 4,486,724 (3,084,873) (2,757,459) (2,437,164) 2,255,165 (294,216) 2,341,232 (276,018) 2,049,560 (240,661) (985,616) (942,821) (814,775) (1,279,832) (1,218,839) (1,055,436) Profit/(loss) of equity accounted investees with similar activity to that of the Group (note 11) Operating Result Finance income Finance costs Change in fair value of financial instruments Impairment of financial assets at amortized cost Exchange differences Finance result (note 27) Profit/(loss) of equity accounted investees (note 11) Profit before income tax from continuing operations Income tax expense (note 28) Profit after income tax from continuing operations Consolidated profit for the year Profit attributable to the Parent Loss attributable to non-controlling interest (note 18) 20,799 996,132 8,021 (249,639) 55,703 8,972 1,131,365 114,197 (342,965) 1,326 (37,666) --994,124 13,995 (293,273) --30,280 --8,246 (9,616) (8,246) (177,669) (274,724) (257,244) 60,166 (39,538) (11,038) 878,629 817,103 725,842 (169,639) (168,459) (131,436) 708,990 708,990 618,546 90,444 648,644 648,644 625,146 23,498 594,406 594,406 596,642 (2,236) Basic earnings per share (Euros) (see note 17) Diluted earnings per share (Euros) (see note 17) 0.90 0.90 0.91 0.91 0.87 0.87 The accompanying notes form an integral part of the consolidated annual accounts.

 

 

 

 

7567-2-ba_part 1 of 5 ccaa 2020 opinion y  tablas_page_13.jpg GRIFOLS, S.A. AND SUBSIDIARIES Consolidated Statements of Comprehensive Income for the years ended 31 December 2020, 2019 and 2018 (Expresadas en miles Euros) (Free translation from the original Spanish. In the event of discrepancy, the Spanish-language version prevails) 31/12/20 31/12/19 31/12/18 Consolidated profit for the year Items for reclassification to profit or loss Translation differences Equity accounted investees (note 11) / Translation differences Other 708,990 648,644 594,406 (747,221) 21,916 (252) 33,256 (4,360) (349) 268,557 (9,270) 102 Other comprehensive income for the year, after tax (725,557) 28,547 259,389 Total comprehensive income for the year Total comprehensive income attributable to the Parent (16,567) 677,191 853,795 1,408 641,772 856,598 Total comprehensive income attributable to non-controlling interests (17,975) 35,419 (2,803)

 

 

 

 

7567-2-ba_part 1 of 5 ccaa 2020 opinion y  tablas_page_14.jpg GRIFOLS, S.A. AND SUBSIDIARIES Consolidated Statements of Cash Flows for the years ended December 2020, 2019 and 2018 (Expresados en miles Euros) (Free translation from the original Spanish. In the event of discrepancy, the Spanish-language version prevails) 31/12/20 31/12/19 31/12/18 Cash flows from operating activities Profit before tax Adjustments for: Amortization and depreciation (note 26) Other adjustments: (Profit) / losses on equity accounted investments (note 11) Impairment of assets and net provision charges (Profit) / losses on disposal of fixed assets (note 8, 9 and 10) Government grants taken to income (note 19) Finance cost / (income) Other adjustments Change in operating assets and liabilities Change in inventories Change in trade and other receivables Change in current financial assets and other current assets Change in current trade and other payables Other cash flows used in operating activities Interest paid Interest recovered Income tax (paid) / received Other recovered (paid) Net cash from operating activities 878,629 409,766 321,533 88,233 (80,965) (17,148) 1,067 (1,683) 170,535 16,427 106,283 164,631 (35,429) (20,600) (2,319) (284,342) (155,788) 3,773 (131,510) 817,103 569,960 302,455 267,505 30,566 (19,518) 1,399 (1,388) 255,841 605 (481,537) (323,748) (99,374) (13,871) (44,544) (336,593) (236,179) 9,487 (107,797) 725,842 454,378 228,609 225,769 11,038 (23,657) (6,700) (1,166) 232,962 13,292 (112,639) (231,670) (13,141) (3,092) 135,264 (330,153) (225,146) 6,862 (111,585) (817) (2,104) (284) 1,110,336 568,933 737,428 Cash flows from investing activities Payments for investments Group companies, associates and business units (notes 3, 2 (b) and 11) Property, plant and equipment and intangible assets Property, plant and equipment Intangible assets Other financial assets Proceeds from the sale of investments Property, plant and equipment Other financial assets Net cash used in investing activities (858,387) (468,589) (362,560) (280,154) (82,406) (27,238) 272 272 (551,497) (119,745) (412,305) (310,383) (101,922) (19,447) 2,708 2,708 (852,536) (524,081) (307,722) (231,983) (75,739) (20,733) 70,669 550 ---- 70,119 (858,115) (548,789) (781,867) Cash flows from financing activities Proceeds from and payments for financial liability instruments Issue Redemption and repayment Dividends and interest on other equity instruments Dividends paid Dividends received Other cash flows from / (used in) financing activities Financing costs included on the amortised costs of the debt Other amounts from / (used in) financing activities Transaction with minority interests with no loss of control (note 3) Net cash from/(used in) financing activities Effect of exchange rate fluctuations on cash Net increase in cash and cash equivalents Cash and cash equivalents at beginning of the year Cash and cash equivalents at year end (243,373) 108,541 (351,914) (103,075) (113,230) 10,155 (7,953) (9,227) 1,274 (7,515) 120,079 (127,594) (234,271) (238,740) 4,469 (90,552) (84,346) (6,206) 37,418 179,350 (141,932) (275,783) (278,841) 3,058 4,661 --4,661 --(18) 386,207 (354,401) (60,155) (162,335) 741,982 579,647 (332,356) 20,402 (291,810) 1,033,792 741,982 152,503 39,207 147,271 886,521 1,033,792 The accompanying notes form an integral part of the consolidated annual accounts.

 

 

 

 

GRIFOLS, S.A. AN SUBSIDIARIES Statement of Changes in Consolidated Equity for the years ended 31 December 2020, 2019 and 2018 (Expressed in thousands of Euros) (Free translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails) Attributable to shareholders of the Parent Accumulated other comprehensive income Equity attributable to Profit attributable to Parent Other comprehensive Non-controlling interests Share Share Reserves Interim dividend Treasury Stock TranslationAvailable for sale Equity Capital Premium differences financial assets income Parent Balance at December 2017 Impact of new IFRS Balance at December 2017 adjusted 119,604 910,728 2,027,648 662,700 (122,986) (62,422) 89,537 4,926 (656) 3,629,079 4,886 3,633,965 ---- 29,562 ---- ---- (4,926) --24,636 --24,636 119,604 910,728 2,057,210 662,700 (122,986) (62,422) 89,537 --(656) 3,653,715 4,886 3,658,601 Translation differences Available for sale financial assets Other comprehensive income ---- ---- ---- ---- ---- ---- 259,854 ---- ---- --259,854 --(567) --259,287 ---- ---- ---- ---- --102 102 --102 Other comprehensive income / (expense) for the year ---- ---- ---- 259,854 --102 259,956 (567) 259,389 Profit/(loss) for the year ---- --596,642 ---- ---- --596,642 (2,236) 594,406 Total comprehensive income / (expense) for the year ---- --596,642 ---- 259,854 --102 856,598 (2,803) 853,795 Net change in treasury stock (note 16 (d)) ---- ---- --6,981 ---- --6,981 --6,981 Acquisition / Divestment of non-controlling interests (note 16 (c)) Other changes Interim dividend ---- ---- ---- (3,462) (9,437) ---- ---- ---- (136,747) ---- ---- ---- ---- ---- ---- (3,462) (9,437) (136,747) 469,010 (43) --465,548 (9,480) (136,747) Distribution of 2017 profit: Reserves Dividends Interim dividend ---- ---- ---- 539,714 (142,094) --(539,714) --(122,986) ---- 122,986 ---- ---- ---- ---- ---- ---- --(142,094) ---- ---- --(142,094) --Operations with shareholders or owners ---- 384,721 (662,700) (13,761) 6,981 ---- --(284,759) 468,967 184,208 Balance at 31 December 2018 119,604 910,728 2,441,931 596,642 (136,747) (55,441) 349,391 --(554) 4,225,554 471,050 4,696,604

 

 

 

 

 Attributable to shareholders of the Parent Accumulated other comprehensive income Equity attributable to Profit attributable to Parent Other comprehensive Non-controlling interests Share Share Reserves Interim dividend Treasury Stock TranslationAvailable for sale Equity Capital Premium differences financial assets income Parent Translation differences Other comprehensive income ---- ---- ---- 16,975 ---- 16,975 11,921 28,896 ---- ---- ---- ---- (349) (349) --(349) Other comprehensive income / (expense) for the year ---- ---- ---- 16,975 --(349) 16,626 11,921 28,547 Profit/(loss) for the year ---- --625,146 ---- ---- --625,146 23,498 648,644 Total comprehensive income / (expense) for the year ---- --625,146 ---- 16,975 --(349) 641,772 35,419 677,191 Net change in treasury stock (note 16 (d)) ---- ---- --5,857 ---- --5,857 --5,857 Acquisition / Divestment of non-controlling interests (note 16 (c)) Other changes Interim dividend ---- ---- ---- 220,976 (11,291) ---- ---- ---- (136,828) ---- --(22,009) ---- ---- ---- ---- 198,967 (11,291) (136,828) 1,517,180 ---- 1,716,147 (11,291) (136,828) Distribution of 2018 profit: Reserves Dividends Interim dividend ---- ---- ---- 459,895 (101,912) --(459,895) --(136,747) ---- 136,747 ---- ---- ---- ---- ---- ---- --(101,912) ---- ---- --(101,912) --Operations with shareholders or owners ---- 567,668 (596,642) (81) 5,857 (22,009) ---- (45,207) 1,517,180 1,471,973 Balance at 31 December 2019 119,604 910,728 3,009,599 625,146 (136,828) (49,584) 344,357 --(903) 4,822,119 2,023,649 6,845,768 Translation differences Other comprehensive income ---- ---- ---- (616,886) ---- (616,886) (108,419) (725,305) ---- ---- ---- ---- (252) (252) --(252) Other comprehensive income / (expense) for the year ---- ---- ---- (616,886) --(252) (617,138) (108,419) (725,557) Profit/(loss) for the year ---- --618,546 ---- ---- --618,546 90,444 708,990 Total comprehensive income / (expense) for the year ---- --618,546 ---- (616,886) --(252) 1,408 (17,975) (16,567) Net change in treasury stock (note 16 (d)) ---- ---- --5,850 ---- --5,850 --5,850 Acquisition / Divestment of non-controlling interests (note 16 (c)) Other changes ---- ---- 405,698 (13,453) ---- ---- ---- ---- 405,698 (13,453) (405,698) 11,687 --(1,766) Distribution of 2019 profit: Reserves Dividends Interim dividend Operations with shareholders or owners ---- ---- 488,318 (113,230) (488,318) ---- ---- ---- ---- ---- ---- (113,230) ---- --(113,230) ---- --(136,828) 136,828 ---- ---- ---- ---- --767,333 (625,146) 136,828 5,850 ---- --284,865 (394,011) (109,146) Balance at 31 December 2020 119,604 910,728 3,776,932 618,546 --(43,734) (272,529) --(1,155) 5,108,392 1,611,663 6,720,055

 

 

 

 

 

8052-1-bk_part 2 of 5 consolidated 2020_page_001.jpg GRIFOLS, S.A. AND SUBSIDIARIES Notes to the Consolidated Annual Accounts (Free translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails) (1) Nature, Principal Activities and Subsidiaries Grifols, S.A. (hereinafter the Company) was incorporated with limited liability under Spanish law on 22 June 1987. Its registered and tax offices are in Barcelona. The Company's statutory activity consists of providing corporate and business administrative, management and control services, as well as investing in assets and property. Its principal activity involves rendering administrative, management and control services to its subsidiaries. On 17 May 2006 the Company completed its flotation on the Spanish securities market, which was conducted through the public offering of 71,000,000 ordinary shares of Euros 0.50 par value each and a share premium of Euros 3.90 per share. The total capital increase (including the share premium) amounted to Euros 312.4 million, equivalent to a price of Euros 4.40 per share. The Company’s shares were floated on the Spanish stock exchange IBEX-35 index on 2 January 2008. All of the Company’s shares are listed on the Barcelona, Madrid, Valencia and Bilbao securities markets and on the Spanish Automated Quotation System (SIBE/Continuous Market). On 2 June 2011, Class B non-voting shares were listed on the NASDAQ (USA) and on the Spanish Automated Quotation System (SIBE/Continuous Market). Grifols, S.A. is the Parent of the subsidiaries listed in Appendix I of this note to the consolidated annual accounts. Grifols, S.A. and subsidiaries (hereinafter the Group) act on an integrated basis and under common management and their principal activity is the procurement, manufacture, preparation and sale of therapeutic products, especially hemoderivatives. The main factory locations of the Group’s Spanish companies are in Parets del Vallés (Barcelona) and Torres de Cotilla (Murcia), while the US companies are located in Los Angeles (California), Clayton (North Carolina), Emeryville (California), and San Diego (California). (2) Basis of Presentation The consolidated annual accounts have been prepared on the basis of the accounting records of Grifols, S.A. and of the Group companies. The consolidated annual accounts for 2020 have been prepared under International Financial Reporting Standards as adopted by the European Union (IFRS-EU) which for Grifols Group purposes, are identical to the standards as issued by the International Accounting Standard Board (IFRS-IASB) to present fairly the consolidated equity and consolidated financial position of Grifols, S.A. and subsidiaries at 31 December 2020, as well as the consolidated results from their operations, consolidated cash flows and consolidated changes in equity for the year then ended. These consolidated annual accounts for 2020 show comparative figures for 2019 and voluntarily show figures for 2018 from the consolidated statement of profit and loss, consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows and their corresponding notes thereto. For the purposes of comparing the consolidated statement of profit and loss and the consolidated balance sheet for 2020, 2019 and 2018, the effects of the application new standards described in note 2 must be taken into account. The Group adopted IFRS-EU for the first time on 1 January 2004 and has been preparing its annual accounts under International Financial Reporting Standards, as adopted by the European Union (IFRS-EU) as required by Spanish capital market regulations governing the presentation of financial statements by companies whose debt or own equity instruments are listed on a regulated market. The Board of Directors of Grifols, S.A. considers that these consolidated annual accounts for 2020 authorized for issue at their meeting held on 19 February 2021, will be approved by the shareholders without any modifications. In accordance with the provision of section 357 of the Irish Companies Act 2014, the Company has irrevocably guaranteed all liabilities of an Irish subsidiary undertaking, Grifols Worldwide Operations Limited (Ireland) (see 1

 

 

 

 

8052-1-bk_part 2 of 5 consolidated 2020_page_002.jpg GRIFOLS, S.A. AND SUBSIDIARIES Notes to the Consolidated Annual Accounts (Free translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails) Appendix I), for the financial year ended 31 December 2020 as referred to in subsection 1(b) of that Act, for the purposes of enabling Grifols Worldwide Operations Limited to claim exemption from the requirement to file their own annual accounts in Ireland. (a) Relevant accounting estimates, assumptions and judgments used when applying accounting principles The preparation of the consolidated annual accounts in conformity with IFRS-EU requires management to make judgments, estimates and assumptions that affect the application of Group accounting policies. The following notes include a summary of the relevant accounting estimates and judgments used to apply accounting policies which have the most significant effect on the amounts recognized in the consolidated annual accounts.   Assumptions used to test non-current assets and goodwill for impairment. Relevant cash generating units are tested annually for impairment. These are based on risk-adjusted future cash flows discounted using appropriate interest rates. The key assumptions used are specified in note 7. Assumptions relating to risk-adjusted future cash flows and discount rates are based on business forecasts and are therefore inherently subjective. Future events could cause a change in business forecasts, with a consequent adverse effect on the future results of the Group. To the extent considered a reasonably possible change in key assumptions could result in an impairment of goodwill, a sensitivity analysis has been disclosed to show the effect of changes to these assumptions and the effect of the cash generating unit (CGU) on the recoverable amount. Determination the fair value of assets, liabilities and contingent liabilities related to business combinations. Details of the fair value methods used by the Group are provided in note 3. Evaluation of the capitalization of development costs (see note 4(h)). The key assumption is related to the estimation of sufficient future economic benefits of the projects. Evaluation of provisions and contingencies. Key assumptions relate to the evaluation of the likelihood of an outflow of resources due to a past event, as well as to the evaluation of the best estimate of the likely outcome. These estimates take into account the specific circumstances of each dispute and relevant external advice and therefore are inherently subjective and could change substantially over time as new facts arise and each dispute progresses. Details of the status of various uncertainties involved in significant unresolved disputes are set out in note 29. The calculation of the income tax expense requires tax legislation interpretations in the jurisdictions where Grifols operates. The decision as to whether the tax authority will accept a given uncertain tax treatment and the expected outcome of outstanding litigation requires significant estimates and judgements. Likewise, Grifols recognizes deferred tax assets, mainly from tax credits and rights to deduct to the extent that it is probable that sufficient taxable income will be available against which temporary differences can be utilized, based on management assumptions regarding amount and payments of future taxable profits (see notes 4(s) and 28). Determination of chargebacks made to certain customers in the United States (see note 4 r) No changes have been made to prior year judgments relating to existing uncertainties. The Group is also exposed to interest rate and currency risks. Refer to sensitivity analysis in note 30. (b) Basis of consolidation Appendix I shows details of the percentages of direct or indirect ownership of subsidiaries by the Company at 31 December 2020, 2019 and 2018, as well as the consolidation method used in each case for preparation of the accompanying consolidated annual accounts. 2

 

 

 

 

8052-1-bk_part 2 of 5 consolidated 2020_page_003.jpg GRIFOLS, S.A. AND SUBSIDIARIES Notes to the Consolidated Annual Accounts (Free translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails) Subsidiaries in which the Company directly or indirectly owns the majority of equity or voting rights have been fully consolidated. Associates in which the Company owns between 20% and 50% of share capital and over which it has no control but does have significant influence, have been accounted for under the equity method. Although the Group holds 30% of the shares with voting rights of Grifols Malaysia Sdn Bhd, it controls the majority of the economic and voting rights of Grifols Malaysia Sdn Bhd through a contract with the other shareholder and a pledge on its shares. As a consequence, it has been fully consolidated. Grifols (Thailand) Ltd. has two classes of shares and it grants the majority of voting rights to the class of shares held by the Group. As a consequence, it has been fully consolidated. Changes in associates and jointly controlled entities are detailed in note 11. Changes in subsidiaries In 2020: Grifols Diagnostic Solutions, Inc. On 30 March 2020, Grifols closed a shares exchange agreement with Shanghai RAAS Blood Products Co. Ltd. (hereinafter SRAAS), through which Grifols delivered 90 shares of its US subsidiary Grifols Diagnostic Solutions Inc. (hereinafter GDS) (representing 45% of the economic rights and 40% of the voting rights), and in exchange received 1,766 million of SRAAS shares (representing 26.2% of the share capital). Thus, Grifols becomes the largest shareholder of SRAAS, while maintaining operational, political and economic control of GDS (see note 11). Plasmavita Healthcare GmbH On 14 April 2020, Grifols made a contribution of Euros 10 million in cash that was recognized as a shareholder contribution in Plasmavita. The equity share of 50% has remained unaffected after the contribution. However, in assessing the existence of control due to the new shareholders’ agreement signed on this date, it can be concluded that Grifols has control over Plasmavita and, therefore, it is considered part of the group and it has been fully consolidated (see note 3). Alkahest, Inc. On 2 September 2020, the Group reached an agreement with the shareholders of Alkahest Inc. (“Alkahest”) to acquire 57.55% of Alkahest’s shares for a total price of US Dollars 146 million, on a debt free basis (see note 3). Green Cross On 20 July 2020, Grifols executed share purchase arrangements with the South Korean-based GC Pharma (Group) (“GC Pharma”) and other investors for the purchase of a plasma fractionation facility and two purification facilities located in the city of Montreal, Canada, (the “Factories”) and 11 plasma collection centers located in the United States (“the “Donation Centers”), for a total consideration of US Dollars 457 million, on a debt free basis. Grifols will not require supplementary financing for this Transaction. On 1 October 2020, the transaction was closed (see note 3). VCN Biosciences, S.L. On 2 December 2020, VCN Biosciences, S.L. carried out a share capital increase of Euros 5 million. Consequently, the Group interest rises from 81.34% to 86.83%. In 2019: 3

 

 

 

 

8052-1-bk_part 2 of 5 consolidated 2020_page_004.jpg GRIFOLS, S.A. AND SUBSIDIARIES Notes to the Consolidated Annual Accounts (Free translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails) Interstate Blood Bank On 11 May 2016 Grifols acquired a 49.19% stake in Interstate Blood Bank, Inc. (IBBI), 48.97% of Bio-Blood Components, Inc. (Bio-Blood) and 48.90% of Plasma Biological Services, LLC. (PBS) (“IBBI Group”), a group based in Memphis, USA, for the price of US Dollars 100 million (Euros 88,215 thousand). The Group also entered into a call option on the remaining shares for a price of US Dollars 100 million, having agreed a payment of US Dollars 10 million (Euros 9,007 thousand) for the call option. The purchase price and the call right were paid upon signature of the contract. The principal business activity of IBBI and its affiliates is the collection of plasma for the plasma fractionation industry, with 26 plasma collection centers, 9 blood donation centers and one laboratory In April 2019, the Group exercised the call option and has completed the acquisition of the remaining shares of the IBBI companies (see note 3). Progenika Biopharma On 24 July 2019, the Group acquired 33 shares of Progenika Biopharma, S.A for an amount of Euros 4 thousand. As a result, the Group increased its interest from 99.99% to 100%. With this acquisition, the Group has the full control of Progenika Biopharma, S.A and therefore it ceased to have non-controlling interest (see notes 18 and 16 (c)). Araclon Biotech, SL On 16 April 2019 and 3 December 2019 Araclon Biotech , S.L carried out two share capital increases of Euros 16.8 million and Euros 5.9 million, respectively. After the latter capital increase Grifols’ interest rises to 75.1% (see notes 18 and 16 (c)). Instituto Grifols, S.A. With effect as of 1 January 2019, Instituto Grifols, S.A. and Gri-Cel, S.A. entered into a merger agreement. The surviving company was Instituto Grifols, S.A. In 2018: Biotest US Corporation and Haema AG On 28 December 2018, Grifols sold Biotest US Corporation and Haema AG to Scranton Enterprises B.V. for a global amount of US Dollars 538,014 thousand. Scranton is an existing shareholder of Grifols (see note 3). Biotest US Corporation On 1 August 2018, Grifols, through its subsidiary Grifols Shared Services North America, Inc. completed the acquisition of 100% of the shares in Biotest US Corporation for a price of US Dollars 286,454 thousand, after obtaining the consent of the US Federal Trade Commission (see note 3). Haema AG On 19 March 2018, Grifols entered into an agreement with Aton GmbH for the purchase of 100% of the shares of German based pharmaceutical company Haema AG, in exchange for a purchase price of Euros 220,191 thousand on a debt free basis. The closing of this transaction took place in June 2018 (see note 3). Goetech LLC On 26 January 2018, Grifols through its subsidiary Grifols Shared Services North America, Inc, subscribed a capital increase in the amount of US Dollars 98 million in the U.S company Goetech LLC, based in Denver, Colorado, trading as Medkeeper. As a result, Grifols reached a 54.76% interest in Medkeeper and a majority position on the board of directors. 4

 

 

 

 

8052-1-bk_part 2 of 5 consolidated 2020_page_005.jpg GRIFOLS, S.A. AND SUBSIDIARIES Notes to the Consolidated Annual Accounts (Free translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails) Aigües Minerals de Vilajuïga, S.A. On 12 January 2018 the Group acquired the remaining 50% of the voting rights of Aigües Minerals de Vilajuïga, S.A. and consequently Grifols held 100% of the voting rights for a total amount of Euros 550 thousand. (c) Amendments to IFRS in 2020, 2019 and 2018 In accordance with IFRS, the following should be noted in connection with the scope of application of IFRS and the preparation of these consolidated annual accounts of the Group. Effective date in 2018 M andatory ap p lication for annual p eriods beginning on or after: St andards IASB effect ive dat e EU effect ive dat e Revenue from contracts with Customers (issued on 28 M ay 2014) Clarification to IFRS15 Revenue from Contracts with Customers (issued on 12 Ap ril 2016) IFRS 15 1 January 2018 1 January 2018 IFRS 15 1 January 2018 1 January 2018 IFRS 9 Financial instruments (issued on 24 July 2014) 1 January 2018 1 January 2018 Classification and M easurement of Share-based Pay ment Transactions (issued on 20 June 2016) Ap p ly ing IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts (issued on 12 Sep tember 2016) IFRS 2 1 January 2018 1 January 2018 IFRS 4 IFRS 9 1 January 2018 1 January 2018 IFRIC 22 Interp retation: Foreign currency translations and Advance Consideration (issued on 8 December 2016) IFRIC 22 1 January 2018 1 January 2018 Amendments to IAS 40: Transfers of Investment Prop erty (issued on 8 December 2016) Annual imp rovements to IFRSs 2014 - 2016 cy cle (issued on 8 December 2016) IAS 40 1 January 2018 1 January 2018 Various 1 January 2018 1 January 2018 The application of these standards and interpretations had some impacts on the consolidated annual accounts for the year ended 31 December 2018, which are detailed below: IFRS 9 Financial Instruments IFRS 9 Financial Instruments was applied on 1 January, 2018 without any restatements of the comparative figures relative for the prior year. The impacts of the first-time adoption, recognized directly in equity, were as follows: - Classification and measurement of financial assets: In general terms, based on the analysis of the new classification based on the business model, the majority of financial assets continued to be measured at amortized cost, the main exception being equity instruments, which are measured at fair value through profit or loss. Impairment of financial assets: - 5

 

 

 

 

8052-1-bk_part 2 of 5 consolidated 2020_page_006.jpg GRIFOLS, S.A. AND SUBSIDIARIES Notes to the Consolidated Annual Accounts (Free translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails) As mentioned in Note 4k, the Group applied the simplified estimated expected loss model to estimate the impairment of “Trade and other receivables”. In this context, the Group defined a methodology to evaluate periodically (annually), firstly, if there are significant variations in the credit risk of the counterparties (commercial customers), to subsequently determine the expected credit loss during the life of the asset considering the low credit risk. At 31 of December 2018, Group management considered that the credit risk for “Trade and other receivables” was low according to the payment behavior of customers, as well as based on the historical experience of credit loss in the Group (2017: 0.19%, 2016: 0.17% and 2015: 0.13%). As a result of applying this methodology, at 31 December 2018, the amount of impairment for estimated loss estimated for “Trade and other receivables” was not significant, nor did it differ significantly from the amount recognized under the impairment model of loss incurred set out in IAS 39. Modification or exchanges of financial liabilities that do not result in derecognition of liabilities - According to the IASB's interpretation published in October 2017, when a financial liability measured at amortized cost is modified or exchanged and does not result in the derecognition of the financial liability, a gain or loss should be recognized in profit or loss, calculated as the difference between the original contractual cash flows from the liability and the new modified cash flows, discounted at the original effective interest rate of the liability. IFRS 9 must be applied retrospectively as of 1 January 2018, therefore any gains or losses from the modification of financial liabilities that arise from applying the new standard in years prior to 1 January 2018 were recognized in reserves at that date and the comparative period was not re-expressed. Grifols retrospectively calculated the impact of adopting IFRS 9 on the refinancing of its senior debt and unsecured senior corporate notes in 2014 and 2017. As a result of these new calculations, the 2014 refinancing of both debts did not cause the derecognition of the respective liabilities, therefore generating an adjustment to profit and loss in that year. Considering the retroactive adjustment generated in 2014, the 2017 refinancing of senior debt did not result in the derecognition of the financial liability either. However, the refinancing of the unsecured senior corporate notes led to derecognition of the liability as it did not pass the new quantitative test. The adoption of IFRS 9 entailed a positive impact on reserves of Euros 24,636 thousand. Details of the impacts on reserves due to the application of IFRS 9 application are follows: 6

 

 

 

 

8052-1-bk_part 2 of 5 consolidated 2020_page_007.jpg GRIFOLS, S.A. AND SUBSIDIARIES Notes to the Consolidated Annual Accounts (Free translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails) Thousand of Euros Imp act 01/01/2018 IAS 39 IFRS 9 Senior Unsecured Noted Total Debt Deferred Exp enses 853,667 1,000,000 146,333 (41,035) 105,298 Negative Imp act in reserves Thousand of Euros Imp act 01/01/2018 IAS 39 IFRS 9 Senior Secured Debt Total Debt Deferred Exp enses 3,375,157 3,226,244 (148,913) 18,979 (129,934) Positive imp act in reserves Thousand of Euros Imp act 01/01/2018 IAS 39 IFRS 9 Total Imp act Total Debt Deferred Exp enses 4,228,824 4,226,244 (2,580) (22,056) (24,636) Positive imp act in reserves IFRS 15 Revenue from Contracts with Customers IFRS 15 provides a framework that replaces the previous guides on revenue recognition. According to the new criteria, a five-step model should be used to determine the timing and amounts of revenue recognition: Step 1: Identify the contract. Step 2: Identify the performance obligations in the contract. Step 3: Determine the transaction price. Step 4: Allocate the transaction price to the performance obligations in the contract. Step 5: Recognize revenue. This new model specifies that revenue should be recognized when (or as) control of the goods or services is transferred from an entity to customers, for the amount the entity expects to be entitled to receive. Depending on whether certain criteria are met, revenue is recognized over time, reflecting that the entity has satisfied the performance obligation, or at a point in time, when control of the goods or services is transferred to customers. In order to identify the potential impacts of the application of the revenue recognition model according to IFRS15, the Group’s internal revenue recognition policies for the different types of contracts with customers (contract groups) were analyzed, identifying the performance obligations, the price of the transaction, its allocation to each performance obligation and the determination of their satisfaction schedule. The Group assessed that the contractually agreed performance obligations are independent of each other, where each one has an assigned price in the contract (and that represents the independent sale price), and whose income is recognized at the time that the control is transferred (upon of hemoderivative products; diagnostic and hospital products, and equipment) or at the time when the service is rendered. On the basis of this analysis, no performance obligations were identified whose recognition pattern differed significantly from the income pattern previously applied under IAS 18 (nor does it require new judgments for recognition), concluding that the effect on the consolidated financial statements derived from the application of IFRS 15 was not relevant. 7

 

 

 

 

8052-1-bk_part 2 of 5 consolidated 2020_page_008.jpg GRIFOLS, S.A. AND SUBSIDIARIES Notes to the Consolidated Annual Accounts (Free translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails) On the other hand, based on the application of IFRS 15, no new assets or liabilities for contracts were identified with respect to those already recognized under the previous regulations, except for those referring to commissions for gaining customers, which amounted to Euros 2,934 thousand at 31 of December 2018, and which were considered as costs of obtaining a contract (not as an asset due to a contract). Finally, it should be highlighted that no contracts with financing components were identified. Effective in 2019 M andatory ap p lication for annual p eriods beginning on or after: St andards IASB effect ive dat e EU effect ive dat e IFRS 16 IFRIC 23 Leases (Issued on 13 January 2016) Uncertainty over Income Tax Treatments (issued on 7 June 2017) Prep ay ment Features with Negative Comp ensation (issued on 12 October 2017) 1 January 2019 1 January 2019 1 January 2019 1 January 2019 IFRS 9 1 January 2019 1 January 2019 Long-term interests in Associates and Joint Ventures (issued on 12 October 2017) Annual Imp rovements to IFRS Standards 2015-2017 Cy cle (issued on 12 December 2017) Plan Amendment, Curtailment or Settlement (issued on 7 February 2018) IAS 28 1 January 2019 1 January 2019 Various 1 January 2019 1 January 2019 IAS 19 1 January 2019 1 January 2019 The application of these standards and interpretations has not had any significant impact on the consolidated annual accounts, except for IFRS 16 "Leases", as follows: IFRS 16 “Leases” IFRS 16 brings in a single model for lease accounting by lessees in the statement of financial position. A lessee recognizes a right-of-use asset representing its right to use the underlying asset and a lease liability representing its obligation to make lease payments. There are optional exemptions for short-term leases and leases of low value items. Lessor accounting remains similar to the current standard. Lessors continue to classify leases as finance or operating leases. IFRS 16 replaces existing guidance on leases, including IAS 17 Leases, IFRIC 4 Determining whether an arrangement contains a lease, SIC-15 Operating leases-Incentives and SIC-27 Evaluating the substance of transactions involving the legal form of a lease. The Group adopted IFRS 16 for the first time on 1 January 2019, but did not restated comparative figures for the 2018 reporting period, as permitted under the specific transitional provisions in the standard. The reclassifications and the adjustments arising from the new leasing rules were therefore recognized in the opening balance sheet at 1 January 2019. On 1 January 2019 there was no impact on equity due to the first-time application of IFRS 16. The main policies, estimates and criteria for the application of IFRS 16 are as follows: Scope: IFRS 16 evaluation considers all the contracts in which the Group acts as lessee, except for contracts between the Group companies and the cancelable contracts. Transition approach: The Group opted to implement IFRS 16 using the modified retrospective approach, whereby the right-of-use asset was measured at an amount equal to the lease liability, adjusted by the amount of any prepaid or accrued lease payments relating to that lease recognized in the consolidated statement of financial position immediately before the date of initial application. When applying this modified retrospective approach, the Group did not re-express the comparative information. Discount rates: under IFRS 16, a lessee discounts the future lease payments using the interest rate implicit in the lease if that rate can be readily determined. Otherwise, the lessee uses the incremental borrowing rate. 8

 

 

 

 

8052-1-bk_part 2 of 5 consolidated 2020_page_009.jpg GRIFOLS, S.A. AND SUBSIDIARIES Notes to the Consolidated Annual Accounts (Free translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails) The Group uses the incremental borrowing rate. This is the rate that a lessee would have to pay at the commencement date of the lease for a loan over a similar term, and with similar security, to obtain an asset of a similar value to the right–of-use asset. At 31 December 2020, an incremental effective interest rate has been applied and varies from 1.55% to 7.21% depending on the geographical area and the term of the lease agreement at the transition date (2.07% to 8.18% at 31 December 2019). The lease term is the non-cancellable period considering the initial term of each contract unless Grifols has a unilateral extension or termination option and there is reasonable certainty that this option will be exercised, in which case the corresponding extension term or early termination will be taken into account. The Group leases several buildings, equipment and vehicles. Leases agreements are usually made for fixed periods, as shown below: Average lease term Buildings and warehouses Donor centers PCs and hardware M achinery Vehicles 10 to 15 y ears 13 to 15 y ears 3 to 5 y ears 4 to 5 y ears 3 to 5 y ears The lease terms of the agreements are negotiated on an individual basis and contain a wide range of terms and conditions. Accounting policies applied during transition: The Group has employed the following practical expedients when applying the simplified method to leases previously carried as operating leases under IAS 17 Leases: oNon-application of IFRS 16 to agreements that were not previously deemed to contain a lease under IAS 17 and IFRIC 4 “Determining whether an arrangement contains a lease”. oExclusion of the initial direct costs from the measurement of the right-of-use asset on the date of first-time adoption. oExclusion of leases that expire within 12 months as from the date of first-time adoption. oExclusion of leases in which the underlying asset has a low value. The reconciliation of lease liabilities for buildings and warehouses in relation to leases which had previously been classified as operating leases under IAS 17 (related to non-cancelable agreements and renewals) and lease liabilities under IFRS 16 at 1 January 2019 is as follows: 01/01/2019 Thousands of Euros Op erating lease commitments existing as at 31 December 2018 Periods covered by an op tion to extend the lease by the Group Discounting using the Group 's incremental borrowing rate finance lease liabilities recognised as at 31 December 2018 Short-term leases recognised on a straight-line basis as exp ense Others 400,579 579,261 (311,116) 1,395 (4,822) (349) Lease liability recognised as at 1 January 2019 664,948 The Group’s activities as a lessor are immaterial, and therefore the application of IFRS 16 did had a significant impact on the consolidated annual accounts. 9

 

 

 

 

8052-1-bk_part 2 of 5 consolidated 2020_page_010.jpg GRIFOLS, S.A. AND SUBSIDIARIES Notes to the Consolidated Annual Accounts (Free translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails) IFRIC 23 - "Uncertainty in the treatment of income taxes” IFRIC 23 "Uncertainty in the treatment of income taxes" clarifies how to apply the recognition and measurement requirements of IAS 12 "Income taxes" when there is uncertainty as to the treatment of income taxes. In this situation, an entity reflects the effect of uncertainty when determining taxable earnings, tax bases, unused tax losses, unused tax credits and tax rates. Grifols did not identify significant uncertain tax lawsuits, and consequently the application of the criteria contained in the mentioned interpretation did not have a significant impact on Grifols for fiscal year 2019. This evaluation consisted of a review of the criteria applied to estimate income tax and the tax loss carryforwards and deductions to be offset, and it was determined that these comply substantially with the current tax regulations where Grifols operates. In this evaluation, it was considered that the deferred tax assets, mainly for tax credits for tax losses carryforwards and deductions to be offset, is the main line item that includes assumptions and uncertainties to estimate their recognition (see note 28(b)). The recognition and/or recoverability of such assets is based on the ability to generate future taxable profits. In this analysis, the following assumptions are considered: Future taxable income based on the economic plans and budgets approved for the various Grifols Group companies, Tax regulation of the different countries in which they operate, Scheduled calendar for reversal of deferred tax liabilities. In this regard, the Group estimated that of the total amount of tax credits for tax losses recognized in the balance sheet as of December 31, 2019 amounting Euros 60.7 million, about Euros 48 million will be recovered in a period of less than 5 years. In relation to the unused deductions , mainly for R&D and donations to non-profit entities, practically the entire amount will be applied in seven years. Finally, a scenario of discrepancies with the taxation authorities that imply the need to make significant adjustments to the tax result or the balances of assets and/or liabilities related to the income tax was considered unlikely based on our experience of the different tax inspections carried out in the different jurisdictions where Grifols operates. Effective in 2020 M andatory ap p lication for annual p eriods St andards EU effect ive dat e IASB effect ive dat e IAS 1 IAS 8 Definition of M aterial (issued on 31 October 2018) Amendments to references to the Concep tual Framework in IFRS Standards (issued on 29 M arch 2018) 1 January 2020 1 January 2020 Various 1 January 2020 1 January 2020 Amendment to IFRS 3 Business Combination (issued on 22 October 2018) Interest rate Benchmark Reform (issued on 26 Sep tember 2019) As a consequence of the Covid 19 - Related Rent concessions (issued on 28 M ay 2020) IFRS 3 IFRS 9 IAS 39 IFRS 7 IFRS 16 1 January 2020 1 January 2020 1 January 2020 1 January 2020 1 June 2020 1 June 2020 10

 

 

 

 

8052-1-bk_part 2 of 5 consolidated 2020_page_011.jpg GRIFOLS, S.A. AND SUBSIDIARIES Notes to the Consolidated Annual Accounts (Free translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails) Standards issued but not effective in 2020 M andatory ap p lication for annual p eriods St andards EU effect ive dat e IASB effect ive dat e Amendments to IFRS 4 Insurance Contracts - deferral to IFRS 19 (issued on 25 June 2020) Amendments on 14 M ay 2020 to: - IFRS 3 Business combinations: references to the Concep tual Framework - IAS 16 Prop erty , Plant and equiment: p roceeds before Intended Use - IAS 37 Provisions, Contigent Liabilities and Contigent Assets: Onerous contracts - Cost of Fulfilling a contract - Annual imp rovements 2018-2020: IFRS 1, IFRS 9, IFRS 16 and IAS 41 Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 Insurance Contracts (issued on 18 M ay 2017); including Amendments to IFRS 17 (issued on 25 June 2020) Classification of Liabilities as Current or Non-Current (issued on 23 January 2020) IFRS 4 Various 1 January 2021 1 January 2021 p ending 1 January 2022 Various p ending 1 January 2021 IFRS 17 p ending 1 January 2023 IAS 1 p ending 1 January 2023 The Group has not applied any of these standards or interpretations in advance of their effective date. The application of these standards and interpretations is not expected to have any significant impact on the consolidated annual accounts. (3) Business Combinations 2020 (a) Plasmavita In November 2017, Grifols established Plasmavita Healthcare GmbH (hereinafter Plasmavita), a joint venture between Grifols (50%) and two other partners (50%) for the construction and operation of 10 plasma donor centers in Germany. On 14 April 2020, Grifols made a contribution of Euros 10 million in cash that was recognized as a shareholder contribution in Plasmavita. The equity share of 50% has remained unchanged after the contribution. However, in assessing the existence of control due to new shareholder agreement signed on this date, the following has been concluded: - Grifols has a casting vote for any decision, determination and approval, with respect to the annual budget of Plasmavita and the distribution of dividends. Grifols has the power to make key business decisions. Grifols is involved in the decision-making related to exposure or rights to variable returns from the investee. Grifols has the casting vote to distribute dividends. - - Considering the above, it can be concluded that Grifols has control over Plasmavita and, therefore, it is considered part of the group and it has been fully consolidated. Details of the aggregate business combination cost, the fair value of the net assets acquired and the goodwill at the acquisition date are provided below: 11

 

 

 

 

8052-1-bk_part 2 of 5 consolidated 2020_page_012.jpg GRIFOLS, S.A. AND SUBSIDIARIES Notes to the Consolidated Annual Accounts (Free translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails) T housands of Euros Consideration paid Cash paid Total consideration paid 10,000 10,000 Fair value of the previous investment in the company 10,674 Fair value of net assets acquired Minority interest 21,374 (10,687) Goodwill (excess of the cost of the business combination over the fair value of net assets acquired) (note 7) 9,987 The amounts determined at the date of acquisition of assets, liabilities and contingent liabilities are as follows: Fair Value T housand of Euros Intangible assets (note 8) Rights of use (note 9) Prop erty , p lant and equip ment (note 10) Investment in group comp anies Non-current financial assets Inventories Trade and other receivables Other current assets Cash and cash equivalents Total assets 177 7,856 6,506 9,548 5,017 1,114 811 333 359 31,721 Deferred tax liabilities Other non current liabilites Current liabilities Total liabilities and contingent liabilities Total net assets acquired (1,364) (7,575) (1,408) (10,347) 21,374 The resulting goodwill has been allocated to the Bioscience segment, and it includes the donor data base, licenses and workforce If the acquisition had taken place on 1 January 2020, the net amount of the Group´s revenue and profit would not have differed significantly. The revenue and consolidated profit of Plasmavita between the acquisition date and 31 December 2020 are not significant for the Group. The difference between the fair value of the previous investment and the book value amounted to Euros 5,357 thousand and has been recognized as income under “Profit/(loss) of equity accounted investees with similar activity to that of the Group” in the consolidated statement of profit and loss. The minority interest’s share of the contribution made amounts to Euros 5 million and has been recognized as a loss under the same line item. (b) Alkahest, Inc. On 2 September 2020, Grifols signed an agreement to acquire all the shares of Alkahest Inc. ("Alkahest") for a total amount of Euros 123,425 thousand (US Dollars 146,000 thousand), which was subject to approval by regulatory authorities. As part of the agreement, the Group had: 12

 

 

 

 

8052-1-bk_part 2 of 5 consolidated 2020_page_013.jpg GRIFOLS, S.A. AND SUBSIDIARIES Notes to the Consolidated Annual Accounts (Free translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails) Grifols has a casting vote for any decision, determination and approval, with respect to the annual budget of Alkahest and the distribution of dividends. Grifols has the power to decide on key business decisions. Grifols is involved in the decision-making related to exposure or rights to variable returns from the investee. Considering the above, it can be concluded that Grifols has control over Alkahest and, therefore, it is considered part of the group and it has been fully consolidated. Until that date, the previous 42.45% stake in Alkahest was recorded using the equity method. The difference between the fair value of the previous investment and the book value amounted to Euros 86,743 thousand (US Dollars 102,552 thousand) and was been recognized as income under “Profit/(loss) of equity accounted investees” in the consolidated statement of profit and loss. On 15 October 2020, and as a result of the aforementioned share purchase agreement, Grifols proceeded to acquire 57.55% of the capital of Alkahest. After the transaction, the Group owns 100% of the company's share capital. Given that Grifols already had control of Alkahest, the transaction has been recorded as an agreement with the non-controlling interest, which has meant the recognition of a liability at amortized cost of Euros 121,149 thousand (US Dollars 143,706 thousand) and a decrease in "Non-controlling interests” in the amount of Euros 121,486 thousand (US Dollars 143,307 thousand), net of recorded losses and “Other reserves ”in the amount of Euros 337 thousand (US Dollars 399 thousand). At 31 December 2020, the amount payable totals Euros 100,492 thousand and is presented under the line item “Current financial liabilities”. This amount has been settled on February 1, 2021(see note 21). Details of the aggregate business combination cost, the fair value of the net assets acquired and the goodwill at the acquisition date are provided below: Thousand of US Dollars Thousand of Euros Cost of the business combination First repurchase of non-controlling interests Second repurchase of non-controlling interests (discounted amount) Total business combination cost 18,797 104,628 22,235 123,765 123,425 146,000 Fair value of the previous investment in the company Fair value of net assets acquired Goodwill (excess of the cost of the business combination over the fair value of net assets acquired) 91,023 140,076 107,671 165,696 74,372 87,975 The amounts determined at the date of acquisition of assets, liabilities and contingent liabilities are as follows: 13

 

 

 

 

8052-1-bk_part 2 of 5 consolidated 2020_page_014.jpg GRIFOLS, S.A. AND SUBSIDIARIES Notes to the Consolidated Annual Accounts (Free translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails) Fair Value Thousand of US Dollars Thousand of Euros Other Intangible Assets (note 8) Prop erty , p lant and equip ement (note 10) Other non current assets Trade and other reeceivables Other current assets Cash and cash equivalents 265,617 4,970 178 2,552 1,610 7,563 314,198 5,879 210 3,019 1,904 8,946 Total assets 282,489 334,156 Non-current financial liabilities Deferred tax liability Other non-current liabilities Trade and other p ay ables Other current liabilities (42,269) (74,372) (19,644) (1,863) (4,264) (50,000) (87,975) (23,237) (2,204) (5,044) Total Liabilities (142,413) (168,460) Fair value of net assets acquired 140,076 165,696 The resulting goodwill has been allocated to the Others segment and it mainly includes the workforce. The fair value of research and clinical development projects in process that include products for neurodegenerative disorders, neuromuscular and ophthalmologic diseases has been estimated according to an income approach based on risk-adjusted discounted free cash flows. Had the acquisition taken place on 1 January 2020, the net amount of the Group´s revenue would not have changed significantly and the net profit would have decreased by Euros 30,045 thousand. The profit of Alkahest between the acquisition date and 31 December 2020 amounted to Euros (12,317) thousand. The amount of net revenue has not changed significantly. (c) Green Cross On 20 July 2020, Grifols signed share purchase arrangements with the South Korean based GC Pharma Group and other investors for the acquisition of a plasma fractionation facility and two purification facilities located in the city of Montreal, Canada, and 11 plasma collection centers located in the United States, for a total consideration of Euros 387,917 thousand (US Dollars 457,160 thousand), on a debt free basis. On 1 October 2020, the transaction was closed. The consideration was paid with Grifols' own cash resources, and at the close of the Transaction certain equity, working capital and cash targets were guaranteed. The factories are currently in the process of obtaining the required licenses and regulatory approvals from the competent health authorities for the manufacturing of plasma-derived products. When licensed and approved, Grifols will become the only commercial manufacturer of plasma products in Canada, with a fractionation capacity of 1.5 M liters. Grifols plans to be ready to manufacture IVIG and Albumin at the factories to be able to supply the Canadian market starting in 2023. The collection centers achieved a collection volume of 350,000 liters of plasma in 2019. 14

 

 

 

 

8052-1-bk_part 2 of 5 consolidated 2020_page_015.jpg GRIFOLS, S.A. AND SUBSIDIARIES Notes to the Consolidated Annual Accounts (Free translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails) Upon the consummation of the Transaction, and by means of a plasma supply agreement, the Group has also committed to supplying certain output of plasma arising out of the collection centers to GC Pharma for a 24-month period. Details of the aggregate business combination cost, the fair value of the net assets acquired and the goodwill at the acquisition date are provided below: Thousand of Euros Thousand of US Dollars Cost of the business combination Cash paid Total business combination cost Fair value of net assets acquired 387,917 457,160 387,917 457,160 203,175 239,442 Goodwill (excess of the cost of the business combination over the fair value of net assets acquired) (note 7) 184,742 217,718 The amounts determined at the date of acquisition of assets, liabilities and contingent liabilities are as follows: Fair Value Thousand of Euros Thousand of US Dollars Other Intangible assets (note 8) Rights of Use (note 9) Property, plant and equipement (note 10) Deferred tax assets Non-current assets Inventories Trade and other receivables Other current assets Cash and cash equivalents 2,011 11,642 173,295 28,616 122 2,999 3,484 943 6,053 2,370 13,720 204,228 33,724 144 3,534 4,106 1,111 7,133 Total assets 229,164 270,070 Non-current financial liabilities Defererd Tax Liabilities Current financial liabilities Trade and other payables (13,150) (868) (797) (11,174) (15,497) (1,023) (939) (13,169) Total liabilities (25,989) (30,628) Total activos netos adquiridos 203,175 239,442 The resulting goodwill was allocated to the Bioscience segment, and it includes the donor data base, current licenses and future authorizations and workforce Had the acquisition taken place on 1 January 2020, the net amount of the Group´s revenue would have increased by Euros 31,197 thousand and the net profit would have decreased by Euros 32,423 thousand. The revenue and profit of Green Cross between the acquisition date and 31 December 2020 amounted to Euros 4,625 thousand and Euros (5,023) thousand respectively. 15

 

 

 

 

8052-1-bk_part 2 of 5 consolidated 2020_page_016.jpg GRIFOLS, S.A. AND SUBSIDIARIES Notes to the Consolidated Annual Accounts (Free translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails) 2019 (a) Acquisition of assets used in plasma donor centers On 31 May 2019 the Group, through its subsidiary Haema AG, acquired four plasma donor centers from Kedplasma, GmbH. The agreed purchase price was Euros 20,500 thousand. Aggregate details of the combination cost, fair value of the net assets acquired and goodwill at the acquisition date are as follows: Thousands of Euros Cost of the business combination Payment in cash Total business combination cost Fair value of net assets acquired Goodwill (excess of the cost of the business combination over the fair value of net assets acquired) (note 7) 20,500 20,500 1,620 18,880 The resulting goodwill was allocated to the Bioscience segment and it included the donor data base, FDA licenses and workforce. The fair value of net assets acquired mainly included property, plant and equipment amounting to Euros 1,396 thousand. (b) Acquisition of Interstated Blood Bank, Inc. Group On 11 May 2016 Grifols acquired a 49.19% stake in Interstate Blood Bank, Inc. (IBBI), 48.97% of Bio-Blood Components, Inc. (Bio-Blood) and 48.90% of Plasma Biological Services, LLC. (PBS) (“IBBI Group”), with headquarters in Memphis, USA, for the price of US Dollars 100 million (Euros 88,215 thousand). The Group also entered into a call option on the remaining shares for a price of US Dollars 100 million, having agreed a payment of US Dollars 10 million (Euros 9,007 thousand) for the call option. The purchase price and the call right were paid upon signature of the contract. The principal business activity of IBBI and its affiliates is the collection of plasma for the plasma fractionation industry, with 26 plasma collection centers, 9 blood donation centers and one laboratory. In April 2019, the Group exercised the call option and has completed the acquisition of the remaining shares of the IBBI group companies. Details of the aggregate business combination cost, the fair value of the net assets acquired and the goodwill at the acquisition date are provided below: T housands of Euros T housands of US Dollars Consideration paid Cash paid Total consideration paid 88,984 100,000 88,984 100,000 Fair value of the previous investment in the company Fair value of the call option 94,126 8,898 105,779 10,000 Fair value of net assets acquired Goodwill (excess of the cost of the business combination over the fair value of net assets acquired) (note 7) 19,345 21,744 172,663 194,035 The amounts determined at the date of acquisition of assets, liabilities and contingent liabilities are as follows: 16

 

 

 

 

8052-1-bk_part 2 of 5 consolidated 2020_page_017.jpg GRIFOLS, S.A. AND SUBSIDIARIES Notes to the Consolidated Annual Accounts (Free translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails) Fair value T housands of Euros T housands of US Dollars Intangible assets (note 8) Property, plant and equipment (note 10) Inventories Trade and other receivables Other current assets Cash and cash equivalents Total assets Non-current liabilities Current liabilities Total liabilities and contingent liabilities Total net assets acquired 77 23,724 10,271 12,080 2,015 1,961 87 26,661 11,543 13,575 2,265 2,204 50,128 (10,233) (20,550) 56,335 (11,500) (23,091) (30,783) (34,591) 19,345 21,744 The resulting goodwill was allocated to the Bioscience segment. The difference between the fair value of the previous investment and the book value amounts to Euros 4,521 thousand and was recognized as an income in section “Share of income/(losses) of equity accounted investees with group’s similar activity” in the consolidated statement of profit or loss. Had the acquisition taken place on 1 January 2019, the net amount of the Group´s revenue would have increased by Euros 10,146 thousand and profit would have decreased by Euros 1,436 thousand. IBBI’s net revenue and profit between the acquisition date and 31 December 2019 amounted to Euros 13,364 thousand and Euros 280 thousand, respectively. 2018 (a) Acquisition of assets used in centers from Kedplasma In August and December 2018, the Group, through its company Biomat USA, Inc., acquired six donor centers from Kedplasma LLC. The purchase price agreed was Euros 20,939 thousand and Euros 21,841 thousand, respectively. Aggregate details of the combination cost, fair value of the net assets acquired and goodwill at the acquisition date are as follows: Thousands of Euros Thousands of US Dollars Cost of the business combination Payment in cash Total business combination cost Fair value of net assets acquired Goodwill (excess of the cost of the business combination over the fair value of net assets acquired) 42,780 50,163 42,780 5,042 50,163 5,787 37,738 44,376 The resulting goodwill was allocated to the Bioscience segment and it included the donor data base, FDA licenses and workforce. The fair value of net assets acquired mainly included property, plant and equipment amounting to Euros 4,942 thousand. 17

 

 

 

 

8052-1-bk_part 2 of 5 consolidated 2020_page_018.jpg GRIFOLS, S.A. AND SUBSIDIARIES Notes to the Consolidated Annual Accounts (Free translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails) (b) Biotest Acquisition On 1 August 2018, Grifols, through its subsidiary Grifols Shared Services North America, Inc. completed the acquisition of 100% of the shares in Biotest US Corporation for a price of US Dollars 286,454 thousand, after obtaining the consent of the US Federal Trade Commission. Grifols acquired the shares from Biotest Divestiture Trust. Biotest USA owns a plasma collection business in the USA with 24 plasma collection centers throughout the territory. In fiscal year 2017, it obtained approximately 850,000 liters of plasma. Details of the aggregate business combination cost, the fair value of the net assets acquired and goodwill at the acquisition date are provided below: Thousands of Euros Thousands of US Dollars 245,126 114,463 286,454 133,761 Total business combination cost Fair value of net assets acquired Goodwill (excess of the cost of the business combination over the fair value of net assets acquired) 130,663 152,693 The amounts determined at the date of acquisition of assets, liabilities and contingent liabilities were as follows: Fair value Thousands of Euros Thousands of US Dollars Cash and cash equivalents Trade and other receivables Inventories Other assets Intangible assets Goodwill Property, Plant and equipment Deferred tax assets Financial assets Total assets 5,876 15,114 18,235 2,438 19,511 5,571 22,190 33,917 10,975 6,867 17,663 21,309 2,849 22,800 6,510 25,931 39,635 12,825 133,827 156,389 (5,322) (4,249) (4,878) (4,915) (6,219) (4,965) (5,700) (5,744) Trade and other payables Other liabilities Deferred tax liability Long-term liabilities (19,364) (22,628) Total liabilities and contingent liabilities Total net assets acquired Goodwill Total business combination cost 114,463 130,663 133,761 152,693 245,126 286,454 The resulting goodwill was allocated to the Bioscience segment. Had the acquisition taken place on 1 January 2018, the net amount of the Group´s revenue and profit would have increased by Euros 90,216 thousand and Euros 5,592 thousand, respectively. 18

 

 

 

 

8052-1-bk_part 2 of 5 consolidated 2020_page_019.jpg GRIFOLS, S.A. AND SUBSIDIARIES Notes to the Consolidated Annual Accounts (Free translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails) The revenue and profit of Biotest between the acquisition date and 31 December 2018 amounted to Euros 73,747 thousand and Euros 7,473 thousand, respectively. On 28 December 2018, Grifols sold Biotest US Corporation and Haema AG to Scranton Enterprises B.V. for a total of US Dollars 538,014 thousand (see note 1). Scranton is an existing shareholder of Grifols (see note 31). The sale of Biotest and Haema to Scranton took place for the same price, at the December 2018 US Dollar/Euro exchange rate, and under the same terms and conditions existing when Grifols acquired both companies. The sale of Biotest and Haema did not result in a loss of control for the Group. In assessing the existence of control, Grifols considered the potential voting rights to determine whether it had power and therefore control. The Group holds potential voting rights arising from the repurchase options of the shares and they are substantive, based on the following: The sale contract includes a call option for Grifols which grants the irrevocable and exclusive right (not an obligation) to be able to acquire the shares sold to Scranton (both at the same time) at any time from the effective date of sale. The purchase option has been negotiated jointly in the same sale agreement of the entities. The price of exercising the call option will be equal to the higher of: a) the price at which Grifols sold them plus costs incurred in the transaction and plus the increase in working capital and (b) the amount of debt that Scranton owns related to this acquisition at the date on which Grifols exercises the option (principal plus interest plus any other cost to be able to cancel said loan). Considering that the projections for the entities are for growth and an improvement in their results is expected, it is concluded that said call option is "in the money" since their market price is estimated to be higher than that agreed in the call option. Even if a nullity clause on the call option is included in the case of default by the buyer (standard clause included in financing agreements), it has been considered remote since Grifols will have the capacity to exercise said call option in the remediation period of 90 days. There are no agreements between shareholders that establish that the relevant decisions are approved in a different manner than by majority vote. There is a commitment from Grifols to provide support services in the plasma collection business of the donation centers for their subsequent sale and thus ensure that these companies will continue to operate effectively, as well as ensuring the continuity and growth of said entities. Likewise, there is a "Plasma Supply Agreement" agreement whereby the plasma to be produced by these entities will be almost entirely to meet the needs of Grifols. There is no exclusivity of sale. The aforementioned are indicators of Grifols' power over these entities, even after their sale, considering that the repurchase options are susceptible to being exercised and Grifols would have the financial capacity to carry them out. Consequently, the sale of the entities did not result in a loss of control, which is why the entities continue to consolidate, recording the sale as a transaction in equity without any impact on the consolidated statements of profit and loss. (c) Haema AG On 19 March 2018, Grifols entered into an agreement with Aton GmbH for the purchase of 100% of the shares of the German based pharmaceutical company Haema AG, in exchange for a purchase price of Euros 220,191 thousand on a debt free basis. This transaction was closed in June 2018. As a result of this acquisition Grifols acquired Haema’s business, based on the collection of plasma for fractionation, which includes 35 plasma collection centers located throughout Germany, and three more centers under construction at the acquisition date. Haema AG’s headquarters are located in Leipzig and measure 19

 

 

 

 

8052-1-bk_part 2 of 5 consolidated 2020_page_020.jpg GRIFOLS, S.A. AND SUBSIDIARIES Notes to the Consolidated Annual Accounts (Free translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails) approximately 24,000 m² (which include administration, production, storage and power station buildings) and it also has a central laboratory in Berlin. Haema AG employs about 1,100 people and collected almost 800,000 liters of plasma in the preceding financial year, coming from approximately 1 million donations. Details of the aggregate business combination cost, the fair value of the net assets acquired and goodwill at the acquisition date are provided below: Thousands of Euros Total business combination cost Fair value of net assets acquired 220,191 49,057 Goodwill (excess of the cost of the business combination over the fair value of net assets acquired) 171,134 The amounts determined at the date of acquisition of assets, liabilities and contingent liabilities were as follows: Fair value Thousands of Euros 7,727 10,321 5,535 836 1,518 25,407 Cash and cash equivalents Trade and other receivables Inventories Other assets Intangible assets Prop erty , Plant and equip ment Total assets 51,344 Trade and other p ay ables Contingent liabilities Total liabilities and contingent liabilities (1,795) (492) (2,287) 49,057 171,134 220,191 Total net assets acquired Goodwill Total business combination cost The resulting goodwill was allocated to the Bioscience segment. Had the acquisition taken place on 1 January 2018, the net amount of the Group´s revenue would have increased by Euros 39,517 thousand and the Group´s profit would not have changed significantly. The revenue and profit of Haema AG between the acquisition date and 31 December 2018 amounted to Euros 46,758 thousand and Euros 53 thousand, respectively. On 28 December 2018, Grifols sold Haema AG to Scranton Enterprises B.V (see note 3 (b) for further details). (d) Goetech, LLC Acquisition (“MedKeeper”) On 26 January 2018, Grifols through its subsidiary Grifols Shared Services North America, Inc, subscribed a capital increase for an amount of US Dollars 98 million in the U.S company Goetech LLC, with headquarters in 20

 

 

 

 

8052-1-bk_part 2 of 5 consolidated 2020_page_021.jpg GRIFOLS, S.A. AND SUBSIDIARIES Notes to the Consolidated Annual Accounts (Free translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails) Denver, Colorado, and trading as Medkeeper. As a result of this transaction, Grifols held a 51% interest in Medkeeper and also held a majority position on the board of directors. The acquisition agreement included the repurchase of own shares by Medkeeper from the non-controlling shareholder in the amount of US Dollars 14 million (in 2 business days) and US Dollars 20 million (in two years) (see note 21(d)). The agreement grants a call option to Grifols to acquire the remaining non-controlling stake for a term of three years and Medkeeper has a put option to sell this stake to Grifols, which may be executed at the end of the three-year period. As the non-controlling shareholders did not have access to the economic rewards associated with the underlying ownership interests related to shares under the put and call commitment, we the advance-acquisition method was applied. Under this method the agreement was recognized as an advance acquisition of the underlying non-controlling interest, as if the put option had already been exercised by the non-controlling shareholders. Medkeeper´s core business is the development and distribution of web and mobile-based platforms for hospital pharmacies that improve quality standards, productivity in the processes, control systems and monitoring different preparations, while increasing patient safety. This investment enhances the activity of the Grifols Hospital Division and it is part of the strategy to underpin this division into the U.S. market. Details of the aggregate business combination cost, the fair value of the net assets acquired and goodwill at the acquisition date are provided below: T housands of Euros T housands of US Dollars Cost of the business combination First rep urchase of non-controlling interests Second rep urchase of non-controlling interests (discounted amount) Purchase of remaining non-controlling interests Total business combination cost Fair value of net assets acquired Goodwill (excess of the cost of the business combination over the fair value of net assets acquired) 11,475 14,952 42,998 14,000 18,241 52,458 69,425 84,699 14,104 17,207 55,321 67,492 The amounts determined at the date of acquisition of assets, liabilities and contingent liabilities were as follows: Fair value T housands of Euros T housands of US Dollars Intangible assets Property, Plant and equipment Other non-current assets Other current assets Total assets Non-current liabilities Current liabilities Deferred tax liability Total liabilities and contingent liabilities Total net assets acquired 30,561 67 2,350 37,285 82 2,867 4,453 5,433 37,432 (2,186) (7,711) 45,667 (2,667) (9,407) (13,431) (16,386) (23,328) (28,460) 14,104 17,207 The resulting goodwill was allocated to the Hospital segment. Had the acquisition taken place on 1 January 2018, the net amount of the Group´s revenue and profit would not have changed significantly. 21

 

 

 

 

8052-1-bk_part 2 of 5 consolidated 2020_page_022.jpg GRIFOLS, S.A. AND SUBSIDIARIES Notes to the Consolidated Annual Accounts (Free translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails) The revenue and profit of Goetech LLC between the acquisition date and 31 December 2018 amounted to Euros 9,210 thousand and Euros 1,778 thousand, respectively. (e) Aigües Minerals de Vilajuïga, S.A. On 1 June 2017 the Group acquired of 50% of the voting rights in Aigües Minerals de Vilajuïga, S.A. a company based in Vilajuïga, Girona, Spain. On 12 January 2018 the Group acquired the remaining 50% of the voting rights and consequently Grifols holds 100% of the voting rights for a total amount of Euros 550 thousand. Aigües Minerals de Vilajuïga, S.A.’s principal activity is the collection and use of mineral-medicinal waters and the procurement of all necessary administrative concessions in order to facilitate the extraction of these waters and find the best way to exploit them. (4) Significant Accounting Policies (a) Subsidiaries and associates Subsidiaries are entities, including special purpose entities (SPE), over which the Group exercises control, either directly or indirectly, through subsidiaries. The Group controls a subsidiary when it has the substantive rights in force that provide the ability to manage relevant activities. The Group is exposed or has the right to variable returns for its involvement in the subsidiaries when the returns obtained vary depending on the economic performance of the subsidiaries. The income, expenses and cash flows of subsidiaries are included in the consolidated annual accounts from the date of acquisition, which is when the Group takes control. Subsidiaries are excluded from the consolidated Group from the date on which control is lost. Transactions and balances with Group companies and unrealized gains or losses have been eliminated upon consolidation. The accounting policies of subsidiaries have been adapted to those of the Group for transactions and other events in similar circumstances. The annual accounts of consolidated subsidiaries have been prepared as of the same date and for the same reporting period as the annual accounts of the Company. Associates are entities over which the Company, either directly or indirectly through subsidiaries, exercises significant influence. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over those entities. The existence of potential voting rights that are exercisable or convertible at the end of each reporting period, including potential voting rights held by the Group or other entities, are considered when assessing whether an entity has significant influence. Investments in associates are initially recognized at acquisition cost, including any cost directly attributable to the acquisition and any consideration receivable or payable contingent on future events or on compliance with certain conditions. Subsequently, investments in associates are accounted for using the equity method from the date that significant influence commences until the date that significant influence ceases. The excess of the cost of the investment over the Group’s share of the fair values of the identifiable net assets is recognized as goodwill, which is included in the carrying amount of the investment. Any shortfall, once the cost of the investment and the identification and measurement of the associate’s net assets have been evaluated, is 22

 

 

 

 

8052-1-bk_part 2 of 5 consolidated 2020_page_023.jpg GRIFOLS, S.A. AND SUBSIDIARIES Notes to the Consolidated Annual Accounts (Free translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails) recognized as income when determining the investor’s share of the profit and loss of the associate for the year in which it was acquired. The accounting policies of associates have been harmonized in terms of timing and measurement, applying the policies described for subsidiaries. The Group’s share of the profit and loss of an associate from the date of acquisition is recognized as an increase or decrease in the value of the investments, with a credit or debit to share of the profit and loss for the year of “equity-accounted investees” in the consolidated statement of profit and loss (consolidated statement of comprehensive income). The Group’s share of other comprehensive income of associates from the date of acquisition is recognized as an increase or decrease in the investments in associates with a balancing entry recognized by type in other comprehensive income. The distribution of dividends is recognized as a decrease in the value of the investment. The Group’s share of profit and loss, including impairment losses recognized by the associates, is calculated based on income and expenses arising from application of the acquisition method. When the Group's share of the losses in an investment accounted for using the equity method equals or exceeds its interest in the entity, the Group does not recognize additional losses, unless it has incurred in obligations or made payments on behalf of the other entity. The Group’s share of the profit and loss of an associate and changes in equity is calculated to the extent of the Group’s interest in the associate at year end and does not reflect the possible exercise or conversion of potential voting rights. However, the Group’s share is calculated taking into account the possible exercise of potential voting rights and other derivative financial instruments which, in substance, currently allow access to the economic benefits associated with the interests held, such as entitlement to a share in future dividends and changes in the value of associates. Information on the subsidiaries and associates included in the consolidated Group is presented in Appendix I. (b) Business combinations On the date of transition to IFRS-EU, the Group applied the exception permitted under IFRS 1 “First-time adoption of International Financial Reporting Standards”, whereby only those business combinations performed as from 1 January 2004 have been recognized using the acquisition method. Entities acquired prior to that date were recognized in accordance with accounting prevailing at that time, taking into account the necessary corrections and adjustments at the transition date. The Group applies the revised IFRS 3 “Business combinations” in transactions made subsequent to 1 January 2010. The Group applies the acquisition method for business combinations. The acquisition date is the date on which the Group obtains control of the acquiree. The cost of the business combination is calculated as the sum of the acquisition-date fair values of the assets transferred, the liabilities incurred or assumed, equity instruments issued and any additional consideration contingent on future events or the fulfilment of certain conditions, in exchange for control of the acquiree. The consideration paid excludes all amounts that do not form part of the exchange for the acquired business. Acquisition-related costs are accounted for as expenses when incurred. Share increase costs are recognized as equity when the increase takes place and borrowing costs are deducted from the financial liability when it is recognized. At the acquisition date the Group recognizes at fair value the assets acquired and liabilities assumed. Liabilities assumed include any contingent liabilities that represent present obligations arising from past events for which the fair value can be reliably measured. The Group also recognizes indemnification assets transferred by the seller at the same time and following the same measurement criteria as the item that is subject to indemnification 23

 

 

 

 

8052-1-bk_part 2 of 5 consolidated 2020_page_024.jpg GRIFOLS, S.A. AND SUBSIDIARIES Notes to the Consolidated Annual Accounts (Free translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails) from the acquired business, taking into consideration, where applicable, the insolvency risk and any contractual limit on the indemnity amount. This criterion does not include non-current assets or disposal groups of assets which are classified as held for sale, long-term defined benefit employee benefit liabilities, share-based payment transactions, deferred tax assets and liabilities and intangible assets arising from the acquisition of previously transferred rights. Assumed assets and liabilities are classified and designated for subsequent measurement in accordance with the contractual terms, economic conditions, operating or accounting policies and other factors that exist at the acquisition date, except for leases and insurance contracts. The excess between the consideration transferred and the value of net assets acquired and liabilities assumed, less the value assigned to non-controlling interests, is recognized as goodwill. Where applicable, any shortfall, after evaluating the consideration transferred, the value assigned to non-controlling interests and the identification and measurement of net assets acquired, is recognized in profit and loss. When a business combination has been provisionally determined, net identifiable assets have initially been recognized at their provisional value, and any adjustments made during the measurement period have been recorded as if they had been known at that date. Where applicable, comparative figures for the prior year have been restated. Adjustments to the provisional values only reflect information relating to events and circumstances existing at the acquisition date and which, had they been known, would have affected the amounts recognized at that date. Once this period has elapsed, adjustments are only made to initial values when errors must be corrected. Any potential benefits arising from tax losses and other deferred tax assets of the acquiree that have not been recorded as they did not qualify for recognition at the acquisition date, are accounted for as income tax revenue, provided the adjustments were not made during the measurement period. The contingent consideration is classified in accordance with underlying contractual terms as a financial asset or financial liability, equity instrument or provision. Provided that subsequent changes to the fair value of a financial asset or financial liability do not relate to an adjustment of the measurement period, they are recognized in consolidated profit and loss. The contingent consideration classified, where applicable, as equity is not subject to subsequent change, with settlement being recognized in equity. The contingent consideration classified, where applicable, as a provision is recognized subsequently in accordance with the relevant measurement standard. (c) Non-controlling interests Non-controlling interests in subsidiaries acquired after 1 January 2004 are recognized at the acquisition date at the proportional part of the fair value of the identifiable net assets. Non-controlling interests in subsidiaries acquired prior to the transition date were recognized at the proportional part of the equity of the subsidiaries at the date of first consolidation. Non-controlling interests are disclosed in the consolidated balance sheet under equity separately from equity attributable to the Parent. Non-controlling interests’ share in consolidated profit and loss for the year (and in consolidated comprehensive income for the year) is disclosed separately in the consolidated statement of profit and loss (consolidated statement of comprehensive income). The consolidated profit and loss for the year, consolidated comprehensive income and changes in equity of the subsidiaries attributable to the Group and non-controlling interests after consolidation adjustments and eliminations, is determined in accordance with the percentage ownership at year end, without considering the possible exercise or conversion of potential voting rights. However, Group and non-controlling interests are calculated taking into account the possible exercise of potential voting rights and other derivative financial instruments which, in substance, currently allow access to the economic benefits associated with the interests held, such as entitlement to a share in future dividends and changes in the value of subsidiaries. Profit and loss and each component of other comprehensive income are assigned to equity attributable to shareholders of the Parent and to non-controlling interests in proportion to their interest, although this implies a 24

 

 

 

 

8052-1-bk_part 2 of 5 consolidated 2020_page_025.jpg GRIFOLS, S.A. AND SUBSIDIARIES Notes to the Consolidated Annual Accounts (Free translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails) balance receivable from non-controlling interests. Agreements signed between the Group and the non-controlling interests are recognized as a separate transaction. The increase and reduction of non-controlling interests in a subsidiary in which control is retained is recognized as an equity instrument transaction. Consequently, no new acquisition cost arises on increases, nor is a gain recorded on reductions; rather, the difference between the consideration transferred or received and the carrying amount of the non-controlling interests is recognized in the reserves of the investor, without prejudice to reclassifying consolidation reserves and reallocating other comprehensive income between the Group and the non-controlling interests. When a Group’s interest in a subsidiary diminishes, non-controlling interests are recognized at their share of the net consolidated assets, including goodwill. (d) Joint arrangements Joint arrangements are those in which there is a contractual agreement to share the control over an economic activity, in such a way that the decisions over relevant activities require the unanimous consent of the Group and the remaining venturers. Under IFRS 11 "Joint arrangements" investments in joint arrangements are classified as joint operations or joint ventures. The classification depends on the contractual rights and obligations of each investor, rather than on the legal structure of the joint agreement. Interests in joint ventures are accounted for using the equity method, after initially being recognized at cost in the consolidated balance sheet. The acquisition cost of investments in joint arrangements is determined consistently with that established for investments in associates. (e) Foreign currency transactions and balances (i) Functional and presentation currency The consolidated annual accounts are presented in thousands of Euros, which is the functional and presentation currency of the Parent. (ii) Foreign currency transactions, balances and cash flows Foreign currency transactions are translated into the functional currency using the previous month’s exchange rate for all transactions performed during the current month. This method does not differ significantly from applying the exchange rate at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies have been translated into thousands of Euros at the closing rate, while non-monetary assets and liabilities measured at historical cost have been translated at the exchange rate prevailing at the transaction date. Non-monetary assets measured at fair value have been translated into thousands of Euros at the exchange rate at the date that the fair value was determined. In the consolidated statement of cash flows, cash flows from foreign currency transactions have been translated into thousands of Euros at the exchange rates prevailing at the dates the cash flows occur. The effect of exchange rate fluctuations on cash and cash equivalents denominated in foreign currencies is recognized separately in the statement of cash flows as “Effect of exchange rate fluctuations on cash and cash equivalents”. Exchange gains and losses arising on the settlement of foreign currency transactions and the translation into thousands of Euros of monetary assets and liabilities denominated in foreign currencies are recognized in profit and loss. 25

 

 

 

 

8052-1-bk_part 2 of 5 consolidated 2020_page_026.jpg GRIFOLS, S.A. AND SUBSIDIARIES Notes to the Consolidated Annual Accounts (Free translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails) (iii) Translation of foreign operations The translation into thousands of Euros of foreign operations for which the functional currency is not the currency of a hyperinflationary economy is based on the following criteria: Assets and liabilities, including goodwill and net asset adjustments derived from the acquisition of the operations, including comparative amounts, are translated at the closing rate at the reporting date; Income and expenses, including comparative amounts, are translated using the previous month's exchange rate for all transactions performed during the current month. This method does not differ significantly from using the exchange rate at the date of the transaction; Translation differences resulting from application of the above criteria are recognized in other comprehensive income. (f) Borrowing costs In accordance with IAS 23 “Borrowing Costs”, the Group recognizes borrowing costs directly attributable to the purchase, construction or production of qualifying assets as an increase in the value of these assets. Qualifying assets are those which require a substantial period of time before they can be used or sold. To the extent that funds are borrowed specifically for the purpose of obtaining a qualifying asset, the amount of borrowing costs eligible for capitalization is determined as the actual borrowing costs incurred, less any investment income on the temporary investment of those funds. Capitalized borrowing costs corresponding to general borrowing are calculated as the weighted average of the qualifying assets without considering specific funds. The amount of borrowing costs capitalized cannot exceed the amount of borrowing costs incurred during that period. The capitalized borrowing costs include adjustments to the carrying amount of financial liabilities arising from the effective portion of hedges entered into by the Group. The Group begins capitalizing borrowing costs as part of the cost of a qualifying asset when it incurs expenditure for the asset, interest is accrued, and it undertakes activities that are necessary to prepare the asset for its intended use or sale, and ceases capitalizing borrowing costs when all or substantially all the activities necessary to prepare the qualifying asset for its intended use or sale are complete. Nevertheless, capitalization of borrowing costs is suspended when active development is interrupted for extended periods. The remaining interest costs are recognized as an expense in the year in which they are incurred. (g) Property, plant and equipment (i) Initial recognition Property, plant and equipment are recognized at cost, less accumulated depreciation and any accumulated impairment losses. Land is not subject to depreciation. The cost of self-constructed assets is determined using the same principles as for an acquired asset, while also considering the criteria applicable to production costs of inventories. Capitalized production costs are recognized by allocating the costs attributable to the asset to “Self-constructed non-current assets” in the consolidated statement of profit and loss. (ii) Depreciation Property, plant and equipment are depreciated by allocating the depreciable amount of an asset on a systematic basis over its useful life. The depreciable amount is the cost or deemed cost of an asset, less its residual value. The Group determines the depreciation charge separately for each item for a component of property, plant and equipment with a cost that is significant in relation to the total cost of the asset. Property, plant and equipment are depreciated using the following criteria: 26

 

 

 

 

8052-1-bk_part 2 of 5 consolidated 2020_page_027.jpg GRIFOLS, S.A. AND SUBSIDIARIES Notes to the Consolidated Annual Accounts (Free translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails) Dep reciation method Rates Buildings Other p rop erty , technical equip ment and machinery Other p rop erty , p lant and equip ment Straight line Straight line Straight line 1% - 3% 4%-10% 7% - 33% The Group reviews residual values, useful lives and depreciation methods at each financial year end. Changes to initially established criteria are accounted for as a change in accounting estimates. (iii) Subsequent recognition Subsequent to initial recognition of the asset, only those costs incurred which will probably generate future profits and for which the amount may reliably be measured are capitalized. Costs of day-to-day servicing are recognized in profit and loss as incurred. Replacements of property, plant and equipment which qualify for capitalization are recognized as a reduction in the carrying amount of the items replaced. Where the cost of the replaced items has not been depreciated independently and it is not possible to determine the respective carrying amount, the replacement cost is used as indicative of the cost of items at the time of acquisition or construction. (iv) Impairment The Group tests for impairment and reversals of impairment losses on property, plant and equipment based on the criteria set out in note 4(j) below. (h) Intangible assets (i) Goodwill Goodwill is generated on the business combinations and is calculated using the criteria described in the section on business combinations. Goodwill is not amortized, but is tested for impairment annually or more frequently whenever there is an indication that goodwill may be impaired. Goodwill acquired in business combinations is allocated to the cash-generating units (CGUs) or groups of CGUs which are expected to benefit from the synergies of the business combination and the criteria described in note 7 are applied. After initial recognition, goodwill is measured at cost less any accumulated impairment losses. Gains and losses on the sale of an entity include the carrying amount of the goodwill related to the entity sold. (ii) Internally generated intangible assets Any research and development expenditure incurred during the research phase of projects is recognized as an expense when incurred. Costs related with development activities are capitalized when: The Group has technical studies that demonstrate the feasibility of the production process; The Group has undertaken a commitment to complete production of the asset, to make it available for sale or internal use; The asset will generate sufficient future economic benefits; The Group has sufficient technical and financial resources to complete development of the asset and has devised budget control and cost accounting systems that enable monitoring of budgetary costs, 27

 

 

 

 

8052-1-bk_part 2 of 5 consolidated 2020_page_028.jpg GRIFOLS, S.A. AND SUBSIDIARIES Notes to the Consolidated Annual Accounts (Free translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails) modifications and the expenditure actually attributable to the different projects. The cost of internally generated assets by the Group is calculated using the same criteria established for determining production costs of inventories. The production cost is capitalized by allocating the costs attributable to the asset to self-constructed non-current assets in the consolidated statement of profit and loss. Expenditure on activities that contribute to increasing the value of the different businesses in which the Group as a whole operates is expensed when incurred. Replacements or subsequent costs incurred on intangible assets are generally recognized as an expense, except where they increase the future economic benefits expected to be generated by the assets. Development costs previously recognized as an expense are not recognized as an asset in a subsequent period. (iii) Other intangible assets Other intangible assets are carried at cost, or at fair value if they arise on business combinations, less accumulated amortization and impairment losses. Intangible assets with indefinite useful lives are not amortized but tested for impairment at least annually. (iv) Intangible assets acquired in business combinations The cost of the identifiable intangible assets acquired in Biotest's business combination includes the fair value of the current contracts. The cost of identifiable intangible assets acquired in the business combination of Hologic includes the fair value of the R&D projects and the Intellectual Property-Patents. The cost of identifiable intangible assets acquired in the business combination of Novartis includes the fair value of the existing royalty agreements. The cost of identifiable intangible assets acquired in the Progenika business combination includes the fair value of currently marketed products sold and which are classified under “Other intangible assets” and “Research and Development”. The cost of identifiable intangible assets acquired in the Talecris business combination includes the fair value of currently marketed products sold and which are classified under “Other intangible assets”. (v) Useful life and amortization rates The Group assesses whether the useful life of each intangible asset acquired is finite or indefinite. An intangible asset is regarded as having an indefinite useful life when there is no foreseeable limit to the period over which the asset will generate net cash inflows. Intangible assets with finite useful lives are amortized by allocating the depreciable amount of an asset on a systematic basis over its useful life, by applying the following criteria: Amortisation method Rates Develop ment exp enses Concessions, p atents, licences, trademarks and similar Comp uter software Currently marketed p roducts Straight line Straight line Straight line Straight line 10% 4% - 20% 33% 3% - 10% 28

 

 

 

 

8052-1-bk_part 2 of 5 consolidated 2020_page_029.jpg GRIFOLS, S.A. AND SUBSIDIARIES Notes to the Consolidated Annual Accounts (Free translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails) The depreciable amount is the cost or deemed cost of an asset, less its residual value. The Group does not consider the residual value of its intangible assets to be material. The Group reviews the residual value, useful life and amortization method for intangible assets at each financial year end. Changes to initially established criteria are accounted for as a change in accounting estimates. (i) Leases The Group changed its accounting policies in relation to leases when it is a lessee as a result of adopting IFRS 16. The new policy is described in note 2(c) and the impact of the change in note 2 (c) and 9. (i) Definitions Lease contracts A lease contract is a contract that fulfills the following conditions: There is an identified asset explicitly specified in the contract or implicitly specified when it is made available for use by the Group. When the asset is a portion of an asset’s capacity it could also be an identified asset if it is physically distinct (a floor of a building, a storage location in a warehouse) or the Group has the right to receive substantially all its of capacity. The lessee has the right to direct the use of the identified asset that means the right to determine how and for what purpose the asset will be used. The lessee has the right to obtain all the economic benefits from that use throughout the period of use. Non-lease contracts Even if an asset is specified in the contract, if the lessor has a substantive substitution right throughout the period of use, the asset is not identified and the contract does not contain a lease. When the lessee does not have the right to control the use of the asset, the contract does not contain a lease. Non-lease contracts are not under this policy and the accounting treatment will be that of a service contract (usually recognized as an expense). (ii) Accounting policies Lease contracts, where the Group acts as lessee, will be recognized at inception of the contract as: A lease liability representing its obligation to make future lease payments and, A right of use representing its right to use the identified asset. Exception: lease contracts that fulfill any of the following conditions will be recognized as monthly expense over the lease term: For lease contracts where the lease term is 12 months or less at the commencement date. For lease contracts where the value of the leased asset (individually), when new, is lower than US Dollars 5,000 or its equivalent in another currency. Lease liability Initial measurement The lease liability corresponds to the present value of the lease payments during the lease term using the interest rate implicit in the lease or, if this cannot be readily determined, the incremental borrowing lending rate, as follows: 29

 

 

 

 

8052-1-bk_part 2 of 5 consolidated 2020_page_030.jpg GRIFOLS, S.A. AND SUBSIDIARIES Notes to the Consolidated Annual Accounts (Free translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails) Lease payments Only lease components included in the lease contract are part of the liability calculation: - Fixed payments, less any lease incentives receivable; - Variable lease payments that depend on a known index or a rate; - The exercise price of the purchase option if the lessee is reasonably certain to exercise that option; - Any amount already paid at the contract commencement date must not be included. Non-lease components that could be included in a lease contract (e.g. maintenance services, electricity, water, gas and other services such as surveillance, cleaning, etc.) are not part of the lease liability and must be recognized as an expense as soon as the service is rendered to Grifols using the corresponding account according to its nature. Lease term The lease term is the non-cancellable period considering the initial term of each contract unless Grifols has a unilateral option to extend or terminate the lease and there is reasonable certainty that this option will be exercised, in which case the corresponding extension term or early termination will be taken into account. The lease liability is calculated at the present value of the future lease payments during the lease term, using an incremental discount rate, except for those contracts in which the implicit interest rate is used because it is specifically mentioned in the contract. Discount rate Under IFRS 16, a lessee shall discount the future lease payments using the lease implicit interest rate if this can be reliably determined. Otherwise, the lessee shall use the incremental borrowing rate. The Group uses the incremental borrowing rate. This is the rate that a lessee would have to pay at the commencement date of the lease for a loan of a similar term, and with a similar security, to obtain an asset of similar value to the right-of-use asset in a similar economic environment. The incremental borrowing rate is determined considering the following criteria: - - - - - Geographical areas Financial terms Lease contracts terms Reference rate: Risk free rate Financing spread Subsequent measurement Subsequently, the lease financial liability will be increased by the interest on the lease liability and reduced by the payments made. The liability will be remeasured if there are changes in the amounts payable and the lease terms. Lease liabilities will: Increase the carrying amount to interest on the lease liability; Reduce the carrying amount to reflect the lease payments made; and Remeasure (increase or reduce) the carrying amount to reflect any reassessment or lease modifications. The balancing entry will be a lease expense for retrospective lease payments or right-of-use-assets for future lease payments. The discount rate to be used depends on the event causing the reassessment or modification. 30

 

 

 

 

8052-1-bk_part 2 of 5 consolidated 2020_page_031.jpg GRIFOLS, S.A. AND SUBSIDIARIES Notes to the Consolidated Annual Accounts (Free translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails) Right-of-use asset (ROU asset) Initial measurement ROU assets are initially measured at cost, which comprises: The amount of the initial measurement of the lease liability, Any lease payments made to the lessor at or before the commencement date, Estimated costs to dismantle or to remove the underlying asset, Less any discount or incentive received from the lessor. Subsequent measurement The ROU asset is measured at cost, less any accumulated depreciation and any accumulated impairment losses. Net book value of the ROU asset must be adjusted as for any re-measurement of the lease liability. Depreciation method and useful life Depreciation method: straight-line basis. Depreciation starts at the lease commencement date (when the asset is available for use). Useful life: If the purchase option is reasonably certain to be exercised: Useful life of the underlying asset. Otherwise: The earlier of the end of the useful life of the right-of-use asset or the end of the lease term. (j) Impairment of goodwill, other intangible assets and other non-financial assets subject to depreciation or amortization The Group evaluates whether there are indications of possible impairment losses on non-financial assets subject to amortization or depreciation, to verify whether the carrying amount of these assets exceeds the recoverable amount. The Group tests goodwill, intangible assets with indefinite useful lives and intangible assets with finite useful lives that are not available for use for potential impairment at least annually, irrespective of whether there is any indication that the assets may be impaired. The recoverable amount of the assets is the higher of their fair value less costs of disposal and their value in use. An asset’s value in use is calculated, where applicable, based on an estimate of the future cash flows expected to derive from the use of the asset, expectations about possible variations in the amount or timing of those future cash flows, the time value of money, the price for bearing the uncertainty inherent in the asset and other factors that market participants would reflect in pricing the future cash flows deriving from the asset. Negative differences arising from comparison of the carrying amounts of the assets with their recoverable amounts are recognized in the consolidated statement of profit and loss. Recoverable amount is determined for each individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. If this is the case, recoverable amount is determined for the cash-generating unit (CGU) to which the asset belongs. Impairment losses recognized for cash-generating units are first allocated to reduce, where applicable, the carrying amount of goodwill allocated to the CGU and then to the other assets of the CGU pro rata on the basis of the carrying amount of each asset. The carrying amount of each asset may not be reduced below the highest of its fair value less costs of disposal, its value in use and zero. 31

 

 

 

 

8052-1-bk_part 2 of 5 consolidated 2020_page_032.jpg GRIFOLS, S.A. AND SUBSIDIARIES Notes to the Consolidated Annual Accounts (Free translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails) At the end of each reporting period the Group assesses whether there is any indication that an impairment loss recognized in prior periods may no longer exist or may have decreased. Impairment losses on goodwill are not reversible. Impairment losses on other assets are only reversed if there has been a change in the estimates used to calculate the recoverable amount of the asset. A reversal of an impairment loss is recognized in consolidated profit and loss. The increased carrying amount of an asset attributable to a reversal of an impairment loss may not exceed the carrying amount that would have been determined, net of depreciation or amortization, had no impairment loss been recognized. A reversal of an impairment loss for a CGU is allocated to the assets of each unit, except goodwill, pro rata with the carrying amounts of those assets. The carrying amount of an asset may not be increased above the lower of its recoverable amount and the carrying amount that would have been disclosed, net of amortization or depreciation, had no impairment loss been recognized. (k) Financial instruments (i) Classification of the financial instruments Financial instruments are classified at the time of their initial recognition as a financial asset, a financial liability or an equity instrument, in accordance with the economic substance of the contractual agreement and with the definitions of financial assets, financial liabilities or equity instruments indicated in IAS 32 “Financial instruments: Presentation”. For purposes of its valuation, the Group classifies financial instruments in the categories of financial assets and financial liabilities at fair value through profit or loss, separating those initially designated from those held for trading or mandatorily measured at fair value through profit or loss, financial assets and financial liabilities valued at amortized cost and financial assets measured at fair value through other comprehensive income, separating the equity instruments designated as such, from other financial assets. The classification depends on the Group's business model to manage the financial assets and the contractual terms of the cash flows. The Group classifies a financial asset at amortized cost if it is held in the framework of a business model whose objective is to hold financial assets to obtain contractual cash flows and the contractual terms of the financial asset give rise, on specified dates, to cash flows which are only principal and interest payments on the outstanding principal amount (OPIP). The Group classifies a financial asset at fair value through changes in other comprehensive income, if it is maintained in the framework of a business model whose objective is achieved by obtaining contractual cash flows and selling financial assets and the contractual conditions of the financial asset give rise to, at specified dates, to cash flows that are OPIP. The business model is determined by the key personnel of the Group and at a level that reflects the way in which they jointly manage groups of financial assets to achieve a specific business objective. The Group's business model represents the way in which it manages its financial assets to generate cash flows. Financial assets that are part of a business model whose objective is to hold assets to receive contractual cash flows are managed to generate cash flows in the form of contractual collections during the life of the instrument. The Group manages the assets held in the portfolio to receive these specific contractual cash flows. To determine whether cash flows are obtained through the collection of contractual cash flows from financial assets, the Group considers the frequency, value and timing of sales in prior years, the reasons for those sales and expectations in relation to with the future sales activity. However, the sales themselves do not determine the business model and, therefore, cannot be considered in isolation. Instead, it is the information on past sales and future sales expectations that provides indicative data on how to achieve the stated objective of the Group with respect to the management of financial assets and, more specifically, the way where cash flows are obtained. 32

 

 

 

 

8052-1-bk_part 2 of 5 consolidated 2020_page_033.jpg GRIFOLS, S.A. AND SUBSIDIARIES Notes to the Consolidated Annual Accounts (Free translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails) For assets measured at fair value, losses and gains will be recognized in profit or loss or other comprehensive income. For investments in equity instruments that are not held for trading, it will depend on whether the Group has made an irrevocable election at the time of initial recognition to account for investments in equity at fair value through other comprehensive income (COCI). The Group reclassifies investments in debt when and only when its business model to manage those assets changes. (ii) Measurement At the time of initial recognition, the Group values a financial asset at its fair value plus, in the case of a financial asset that is not at fair value through profit or loss, the costs of the transaction that are directly attributable to the acquisition. The transaction costs of financial assets at fair value through profit or loss are taken to results. In order to determine the fair value of financial assets or liabilities, the Group uses market data as much as possible. Based on the factors used for the measurement, the fair values are hierarchized based on the following levels: Level 1: quoted prices (unadjusted) within current markets for assets or liabilities identical to those under consideration. Level 2: factors other than the prices considered in Level 1 that come directly from the asset or liability in question, such as those that may derive directly from the price. Level 3: factors not based on data directly from the market. In the event that the factors used to determine the fair value of an asset or liability are included in different levels of hierarchy, the fair value will be determined in its entirety based on the significant component located at the lowest level of hierarchy. (iii) Offsetting principles A financial asset and a financial liability are offset only when the Group has the legally enforceable right to set off the recognized amounts and intends either to settle on a net basis, or to realize the asset and settle the liability simultaneously. (iv) Financial assets and liabilities at fair value through profit or loss Financial assets or liabilities at fair value through profit or loss are those that are classified as held for trading or have been designated from the moment of initial recognition. A financial asset or liability is classified as held for trading if: • It is acquired or incurred mainly for the purpose of selling it or repurchasing it in the near term. • On initial recognition it is part of a portfolio of identified financial instruments that are managed together and for which there is evidence of a recent pattern of short-term profit-taking, or • It is a derivative, except for a derivative that is a financial guarantee contract or a designated and effective hedging instrument. Financial assets and liabilities at fair value through profit or loss are initially recognized at fair value. Transaction costs directly attributable to the purchase or issue are recognized as an expense as incurred. After initial recognition, they are recognized at fair value through profit or loss. The fair value is not reduced by the transaction costs that may be incurred by their eventual sale or disposal by other means. 33

 

 

 

 

8052-1-bk_part 2 of 5 consolidated 2020_page_034.jpg GRIFOLS, S.A. AND SUBSIDIARIES Notes to the Consolidated Annual Accounts (Free translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails) The Group does not reclassify any financial asset or liability to or from this category as long as it is recognized in the consolidated statement of financial position. (v) Financial assets at amortized cost Financial assets at amortized cost are initially recognized at their fair value, including the transaction costs incurred, and are subsequently measured at amortized cost, using the effective interest method. (vi) Debt instruments The subsequent valuation of the debt instruments depends on the Group's business model to manage the asset and the characteristics of the cash flows of the asset. The Group's debt instruments consist mainly of trade and other receivables, which the Group classifies as financial assets at amortized cost. Financial assets at amortized cost are assets that the Group holds for the collection of contractual cash flows when these cash flows represent only payments of principal and interest, and are valued at amortized cost. Interest income from these financial assets is included in finance income in accordance with the effective interest rate method. (vii) Equity instruments The Group holds financial assets owned, mainly equity instruments, which are measured at fair value. When Group management has chosen to present the gains and losses on the fair value of the equity investments in other comprehensive income, after the initial recognition, the equity instruments are measured at fair value, recognizing the loss or gain in other comprehensive income. The amounts recognized in other comprehensive income are not subject to reclassification to profit or loss, without prejudice to reclassification to reserves at the time when the instruments are derecognized. Dividends from such investments continue to be recognized in income for the year as other income when the Group's right to receive payments is established. (viii) Impairment As of 1 January 2018, the Group evaluates, on a prospective basis, the expected credit losses associated with its debt instruments recorded at amortized cost. The Group uses the practical expedients permitted by IFRS 9 to assess the expected credit losses related to commercial accounts using a simplified approach, eliminating the need to evaluate when there has been a significant increase in credit risk. The simplified approach requires that the expected losses be recorded from the initial recognition of receivables, so that the Group determines expected credit losses as a probability-weighted estimate of such losses over the expected life of the financial instrument. The practical expedient applied is the use of a provision matrix based on the segmentation into groups of homogeneous assets, applying the historical information of percentages of non-payment for said groups and applying reasonable information about the future economic conditions. The percentage of non-payment is calculated according to the current experience of non-payment during the last year, as it is a very dynamic market and is adjusted for the differences between current and historical economic conditions and considering projected information, which is reasonably available. (ix) Derecognition of financial assets The Group applies the criteria for the derecognition of financial assets to a part of a financial asset or to a part of a group of similar financial assets or to a financial asset or a group of similar financial assets. Financial assets are derecognized when the rights to receive cash flows related to them have expired or have been transferred and the Group has substantially transferred the risks and rewards derived from their ownership. 34

 

 

 

 

8052-1-bk_part 2 of 5 consolidated 2020_page_035.jpg GRIFOLS, S.A. AND SUBSIDIARIES Notes to the Consolidated Annual Accounts (Free translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails) (x) Financial liabilities at amortized cost Financial liabilities, including trade payables and other accounts payable, that are not classified at fair value through profit or loss, are initially recognized at their fair value, less, if applicable, the transaction costs that are directly attributable to the issue. Subsequent to the initial recognition, liabilities classified under this category are valued at amortized cost using the effective interest rate method. (xi) Derecognition and modification of financial liabilities The Group derecognizes a financial liability or part thereof when it has complied with the obligation contained in the liability, or is legally exempt from the main liability contained in the liability, either by virtue of a judicial process or by the creditor. The Group considers that the conditions are substantially different if the present value of the discounted cash flows under the new conditions, including any commission paid net of any commission received, and using the original effective interest rate to make the discount, differs at least at 10 percent of the discounted present value of the cash flows that still remain of the original financial liability. If the exchange is recorded as a cancellation of the original financial liability, the costs or commissions are recognized in consolidated results forming part of the result of the same. Otherwise, the costs or commissions adjust the carrying amount of the liability and are amortized by the amortized cost method during the remaining life of the modified liability. The Group recognizes the difference between the carrying amount of the financial liability or a part of it that is canceled or assigned to a third party and the consideration paid, including any assigned asset different from the cash or liability assumed in profit or loss. (l) Equity instruments The Group’s acquisition of equity instruments of the Parent is recognized separately at cost of acquisition in the consolidated balance sheet as a reduction in equity, regardless of the motive of the purchase. Any gains or losses on transactions with treasury equity instruments are not recognized in consolidated profit and loss. The subsequent redemption of Parent shares, where applicable, leads to a reduction in share capital in an amount equivalent to the par value of such shares. Any positive or negative difference between the cost of acquisition and the par value of the shares is debited or credited to reserves. Transaction costs related with treasury equity instruments, including issue costs related to a business combination, are accounted for as a reduction in equity, net of any tax effect. (m) Inventories Inventories are measured at the lower of cost and net realizable value. The cost of inventories comprises all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition. The costs of conversion of inventories include costs directly related to the units of production and a systematic allocation of fixed and variable production overheads that are incurred in converting materials into finished goods. The allocation of fixed indirect overheads is based on the higher of normal production capacity or actual production. The raw material used to produce hemoderivatives is human plasma, which is obtained from our donation centers using the plasmapheresis method. The cost of inventories includes the amount paid to plasma donors, or the amount billed by the seller when purchased from third parties, as well as the cost of products and devices used in the collection process, rental expenses and storage. This plasma has to be stored before use, which is an essential part of the production process. During the storage period, the plasma undergoes various virological tests and should be kept in quarantine in accordance with FDA and European Medicines Agency regulations, in order to guarantee that all the plasma is suitable for use in the production process. 35

 

 

 

 

8052-1-bk_part 2 of 5 consolidated 2020_page_036.jpg GRIFOLS, S.A. AND SUBSIDIARIES Notes to the Consolidated Annual Accounts (Free translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails) To the extent that plasma storage costs are necessary to the production process, they are included as cost of inventories. Indirect costs such as general management and administration costs are recognized as expenses in the period in which they are incurred. The cost of raw materials and other supplies and the cost of merchandise are allocated to each inventory unit on a weighted average cost basis. The transformation cost is allocated to each inventory unit on a FIFO (first-in, first-out) basis. The Group uses the same cost model for all inventories of the same nature and with a similar use. Volume discounts extended by suppliers are recognized as a reduction in the cost of inventories when it is probable that the conditions for discounts to be received will be met. Discounts for prompt payment are recognized as a reduction in the cost of the inventories acquired. When the cost of inventories exceeds net realizable value, materials are written down to net realizable value, which is understood to be: For raw materials and other supplies, replacement cost. Nevertheless, raw materials and other supplies are not written down below cost if the finished goods into which they will be incorporated are expected to be sold at or above cost of production; Merchandise and finished goods, estimated selling price less costs to sell; Work in progress, the estimated selling price of related finished goods, less the estimated costs of completion and the estimated costs necessary to make the sale. The previously recognized write-down is reversed against profit and loss when the circumstances that previously caused inventories to be written down no longer exist or when there is clear evidence of an increase in net realizable value because of changed economic circumstances. The reversal of the write-down is limited to the lower of the cost and revised net realizable value of the inventories. Write-downs may be reversed with a credit to “Cost of sales”. (n) Cash and cash equivalents Cash and cash equivalents include cash on hand and demand deposits in financial institutions. They also include other 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. An investment normally qualifies as a cash equivalent when it has a maturity of less than three months from the date of acquisition. The Group classifies cash flows relating to interest received and paid as operating activities, and dividends received and distributed are classified under investing and financing activities, respectively. (o) Government grants Government grants are recognized when there is reasonable assurance that they will be received and that the Group will comply with the conditions attached. (i) Capital grants Outright capital grants are initially recognized as deferred income in the consolidated balance sheet. Income from capital grants is recognized in the consolidated statement of profit and loss in line with the depreciation of the corresponding financed assets. 36

 

 

 

 

8052-1-bk_part 2 of 5 consolidated 2020_page_037.jpg GRIFOLS, S.A. AND SUBSIDIARIES Notes to the Consolidated Annual Accounts (Free translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails) (ii) Operating grants Operating grants received to offset expenses or losses already incurred, or to provide immediate financial support not related to future disbursements, are recognized in the consolidated statement of profit and loss. (iii) Interest rate grants Financial liabilities comprising implicit assistance in the form of below-market interest rates are initially recognized at fair value. The difference between this value, adjusted where necessary for the issue costs of the financial liability and the amount received, is recognized as a government grant based on the nature of the grant awarded. (p) Employee benefits (i) Defined contribution plans The Group recognizes the contributions payable to a defined contribution plan in exchange for a service in the period in which contributions are accrued. Accrued contributions are recognized as an employee benefit expense in the corresponding consolidated statement of profit and loss in the year that the contribution was made. (ii) Termination benefits Termination benefits are recognized at the earlier of the date when the Group can no longer withdraw the offer of those benefits and when the Group recognizes costs for a restructuring that involves the payment of termination benefits. For termination benefits payable as a result of an employee's decision to accept an offer of benefits, the time when the Group can no longer withdraw the offer of termination benefits is the earlier of when the employee accepts the offer and when a restriction on the Group's ability to withdraw the offer takes effect. For termination benefits payable as a result of the Group's decision to make an employee redundant, the Group can no longer withdraw the offer when it has informed the affected employees or union representatives of the plan and the actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made. The plan must identify the number of employees to be made redundant, their job classifications or functions and their locations and the expected completion date. The plan must also establish the termination benefits that employees will receive in sufficient detail that employees can determine the type and amount of benefits they will receive when their employment is terminated. If the Group expects to settle the termination benefits in full more than twelve months after year end, the liability is discounted using the market yield on high quality corporate bonds. (iii) Short-term employee benefits The Group recognizes the expected cost of short-term employee benefits in the form of accumulating compensated absences when the employees render service that increases their entitlement to future compensated absences. In the case of non-accumulating compensated absences, the expense is recognized when the absences occur. The Group recognizes the expected cost of profit-sharing and bonus plans when it has a present legal or constructive obligation to make such payments as a result of past events and a reliable estimate of the obligation can be made. 37

 

 

 

 

8052-1-bk_part 2 of 5 consolidated 2020_page_038.jpg GRIFOLS, S.A. AND SUBSIDIARIES Notes to the Consolidated Annual Accounts (Free translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails) (iv) Restricted Share Unit Retention Plan (RSU) The Group gives share-based payments to certain employees who render services to the Company. The fair value of the services received is determined based on the estimated fair value of the shares given at the grant date. Because the equity instruments granted do not vest until the employees complete a specified period of service, those services are accounted for during the vesting period in the statement of profit and loss as an expense for the year, with the corresponding increase in equity. The amount recognized corresponds to that settled once the agreed terms have been met and it will not be adjusted or revalued during the accrual period, as the commitment is settled in the form of shares. The total amount recognized is calculated based on the incentive payable in shares, increasing in line with percentages agreed by the Group. If an employee decides to leave his/her job prior to the end of the accrual period, he/she will only receive the agreed incentive in the form of shares and the Company will be able to choose whether to settle in cash or using equity instruments. (q) Provisions Provisions are recognized when the Group has a present obligation (legal or implicit) as a result of a past event; it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation; and a reliable estimate can be made of the amount of the obligation. No provisions are recognized for future operating losses. The amount recognized as a provision is the best estimate of the expenditure required to settle the present obligation at the end of the reporting period, taking into account all risks and uncertainties surrounding the amount to be recognized as a provision and, where the time value of money is material, the financial effect of discounting provided that the expenditure to be made each period can be reliably estimated. The discount rate used to determine the present value is a pre-tax rate that reflects the evaluations that the current market is making of the time value of money and the specific risks of the obligation. The increase in the provision due to the passage of time is recognized as an interest expense. If it is not probable that an outflow of resources embodying economic benefits will be required to settle the obligation, the provision is reversed against the consolidated statement of profit and loss item where the corresponding expense was recognized. (r) Revenue recognition Revenue from the sale of goods or services is recognized at an amount that reflects the consideration that the Group expects to be entitled to receive in exchange for transferring goods or services to a customer, at the time when the customer obtains control of the goods or services rendered, this means when the customer has the ability to direct the use of the asset. The consideration that is committed in a contract with a client can include fixed amounts, variable amounts, or both. The amount of the consideration may vary due to discounts, reimbursements, incentives, performance bonuses, penalties or other similar items. Contingent consideration is included in the transaction price when it is highly probable that the amount of revenue recognized is not subject to future significant reversals. Revenue is presented net of the value added tax and any other amount or tax, which in substance corresponds to amounts received on behalf of third parties. (i) Sale of goods Revenue from the sale of goods is recognized when the Group meets the performance obligation by transferring the assets committed to the customer. An asset is transferred when the customer obtains control of that asset. When evaluating the satisfaction of the performance obligation, the Group considers the following indicators of the transfer of control, which include, but are not limited to the following: The Group has a present right to payment for the asset The customer has the legal right to the asset The Group has transferred the physical possession of the asset The customer has the significant risks and rewards of ownership of the asset 38

 

 

 

 

8052-1-bk_part 2 of 5 consolidated 2020_page_039.jpg GRIFOLS, S.A. AND SUBSIDIARIES Notes to the Consolidated Annual Accounts (Free translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails) The customer has accepted the asset The nature of the assets that the Group is committed to transfer is mainly: sale of goods, sale of equipment, fragmentation agreements, maintenance and technical support, training, licenses, royalties and know-how and engineering projects among others. Transaction price is set under the assumption that goods and/or services are transferred in accordance with the contract terms. The committed consideration to customers can include fixed amounts, variable amounts or both. The transaction price must be estimated taking into account the effect of the variable compensation (when applicable) related to returns, chargeback discounts, volume discounts or other incentives, as long as it is highly probable. The Group participates in the government-managed Medicaid programs in the United States, accounting for Medicaid rebates by recognizing an accrual at the time a sale is recorded for an amount equal to the estimated claims for Medicaid rebates attributable to the sale. Medicaid rebates are estimated based on historical experience, legal interpretations of the applicable laws relating to the Medicaid program and any new information regarding changes in the program regulations and guidelines that would affect rebate amounts. Outstanding Medicaid claims, Medicaid payments and inventory levels are analyzed for each distribution channel and the accrual is adjusted periodically to reflect actual experience. While rebate payments are generally made in the following or subsequent quarter, any adjustments for actual experience have not been material. As is common practice in the sector, the purchase contracts signed by some customers with the Group entitle these customers to price discounts for a minimum purchase volume, volume discounts or prompt payment discounts. The Group recognizes these discounts as a reduction in sales and receivables in the same month that the corresponding sales are invoiced based on the customer’s actual purchase figures or on past experience when the customer’s actual purchases will not be known until a later date. In the USA, the Group enters into agreements with certain customers to establish contract pricing for the products, which these entities purchase from the authorized wholesaler or distributor (collectively, wholesalers) of their choice. Consequently, when the products are purchased from wholesalers by these entities at the contract price which is less than the price charged by the Group to the wholesaler, the Group provides the wholesaler with a credit referred to as a chargeback. The Group records the chargeback accrual at the time of the sale. The allowance for chargebacks is based on Group’s estimate of the wholesaler inventory levels, and the expected sell-through of the products by the wholesalers at the contract price based on historical chargeback experience and other factors. The Group periodically monitors the factors that influence the provision for chargebacks, and makes adjustments when it considers that actual chargebacks may differ from established allowances. These adjustments occur in a relatively short period of time. As these chargebacks are typically settled within 30 to 45 days of the sale, adjustments for actual experience have not been material. The amount at closing related to other discounts is settled during the following year within a period of 90 to 180 days depending on the type of provision. (ii) Services rendered Revenues associated with the rendering of service transactions are recognized by reference to the stage of completion at the consolidated balance sheet date when the outcome of the transaction can be estimated reliably. The outcome of a transaction can be estimated reliably when revenues, the stage of completion, the costs incurred and the costs to complete the transaction can be estimated reliably and it is probable that the economic benefits derived from the transaction will flow to the Group. When the outcome of the transaction involving the rendering of services cannot be estimated reliably, revenue is recognized only to the extent of costs incurred that are recoverable. (s) Income tax 39

 

 

 

 

8052-1-bk_part 2 of 5 consolidated 2020_page_040.jpg GRIFOLS, S.A. AND SUBSIDIARIES Notes to the Consolidated Annual Accounts (Free translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails) The income tax expense or tax income for the year comprises current tax and deferred tax. Current tax is the amount of income taxes payable or recoverable in respect of the consolidated taxable profit or consolidated tax loss for the year. Current tax assets or liabilities are measured at the amount expected to be paid to or recovered from the taxation authorities, using the tax rates and tax laws that have been enacted or substantially enacted at the reporting date. Deferred tax liabilities are the amounts of income taxes payable in future periods in respect of taxable temporary differences, whereas deferred tax assets are the amounts of income taxes recoverable in future periods in respect of deductible temporary differences, the carryforward of unused tax losses, and the carryforward of unused tax credits. Temporary differences are differences between the carrying amount of an asset or liability in the balance sheet and its tax base. Current and deferred tax are recognized as income or an expense and included in profit and loss for the year, except to the extent that the tax arises from a transaction or event which is recognized, in the same or a different year, directly in equity, or from a business combination. Grifols periodically evaluates the positions taken in the tax declarations regarding the situations in which the applicable tax regulations are subject to interpretation and establishes provisions, if necessary, based on the amounts expected to be paid to the taxation authorities, whose provision is reflected in the tax gain (loss). (i) Taxable temporary differences Taxable temporary differences are recognized in all cases except where: They arise from the initial recognition of goodwill or an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither accounting profit nor taxable income; They are associated with investments in subsidiaries over which the Group is able to control the timing of the reversal of the temporary difference and it is not probable that the temporary difference will reverse in the foreseeable future. (ii) Deductible temporary differences Deductible temporary differences are recognized provided that: It is probable that sufficient taxable income will be available against which the deductible temporary difference can be utilized, unless the differences arise from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither accounting profit nor taxable income; The temporary differences are associated with investments in subsidiaries to the extent that the difference will reverse in the foreseeable future and sufficient taxable income is expected to be generated against which the temporary difference can be offset. Tax planning opportunities are only considered when assessing the recoverability of deferred tax assets and if the Group intends to use these opportunities or it is probable that they will be utilized. (iii) Measurement Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the years when the asset is realized or the liability is settled, based on tax rates and tax laws that have been enacted or substantively enacted. The tax consequences that would follow from the manner in which the Group expects 40

 

 

 

 

8052-1-bk_part 2 of 5 consolidated 2020_page_041.jpg GRIFOLS, S.A. AND SUBSIDIARIES Notes to the Consolidated Annual Accounts (Free translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails) to recover or settle the carrying amount of its assets or liabilities are also reflected in the measurement of deferred tax assets and liabilities. At year end the Group reviews the fair value of deferred tax assets to write down the balance if it is not probable that sufficient taxable income will be available to apply the tax asset. Deferred tax assets which do not meet the above conditions are not recognized in the consolidated balance sheet. At year end the Group assesses whether deferred tax assets which were previously not recognized now meet the conditions for recognition. (iv) Offset and classification The Group only offsets current tax assets and current tax liabilities if it has a legally enforceable right to set off the recognized amounts and intends either to settle on a net basis, or to realize the asset and settle the liability simultaneously. The Group only offsets deferred tax assets and liabilities where it has a legally enforceable right, where these relate to income taxes levied by the same taxation authority and where the taxation authority permits the entity to settle on a net basis, or to realize the asset and settle the liability simultaneously for each of the future years in which significant amounts of deferred tax assets or liabilities are expected to be settled or recovered. Deferred tax assets and liabilities are recognized in the consolidated balance sheet under non-current assets or liabilities, irrespective of the expected date of recovery or settlement. (t) Segment reporting An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur expenses, whose operating results are regularly reviewed by the Group’s chief operating decision maker to make decisions about resources to be allocated to the segment, assess its performance and, based on which, differentiated financial information is available. (u) Classification of assets and liabilities as current and non-current The Group classifies assets and liabilities in the consolidated balance sheet as current and non-current. Current assets and liabilities are determined as follows: Assets are classified as current when they are expected to be realized or are intended for sale or consumption in the Group’s normal operating cycle, they are held primarily for the purpose of trading, they are expected to be realized within twelve months after the reporting date or are cash or a cash equivalent, unless the assets may not be exchanged or used to settle a liability for at least twelve months after the reporting date. Liabilities are classified as current when they are expected to be settled in the Group's normal operating cycle, they are held primarily for the purpose of trading, they are due to be settled within twelve months after the reporting date or the Group does not have an unconditional right to defer settlement of the liability for at least twelve months after the reporting date. Financial liabilities are classified as current when they are due to be settled within twelve months after the reporting date, even if the original term was for a period longer than twelve months, and an agreement to refinance, or to reschedule payments, on a long-term basis is completed after the reporting date and before the consolidated annual accounts are authorized for issue. 41

 

 

 

 

8052-1-bk_part 2 of 5 consolidated 2020_page_042.jpg GRIFOLS, S.A. AND SUBSIDIARIES Notes to the Consolidated Annual Accounts (Free translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails) (v) Environmental issues The Group takes measures to prevent, reduce or repair the damage caused to the environment by its activities. Property, plant and equipment acquired by the Group for long-term use to minimize the environmental impact of its activity and protect and improve the environment, including the reduction and elimination of future pollution from the Group’s operations, are recognized as assets applying the measurement, presentation and disclosure criteria described in note 4(g). (5) Financial Risk Management Policy (a) General The Group is exposed to the following risks associated with the use of financial instruments: Credit risk Liquidity risk Market risk: includes interest rate risk, currency risk and other price risks. This note provides information on the Group’s exposure to each of these risks, the Group’s objectives and procedures to measure and mitigate this risk, and the Group’s capital management strategy. More exhaustive quantitative information is disclosed in note 30 to the consolidated annual accounts. The Group’s risk management policies are established to identify and analyze the risks faced by the Group, define appropriate risk limits and controls and to control risks and comply with limits. Risk management policies and procedures are reviewed regularly so that they reflect changes in market conditions and the Group's activities. The Group’s management procedures and rules are designed to create a strict and constructive control environment in which all employees understand their duties and obligations. The Group’s Audit Committee supervises how management controls compliance with the Group’s risk management procedures and policies and reviews whether the risk management policy is suitable considering the risks to which the Group is exposed. This committee is assisted by Internal Audit which acts as supervisor. Internal Audit performs regular and ad hoc reviews of the risk management controls and procedures and reports its findings to the Audit Committee. Credit risk Credit risk is the risk to which the Group is exposed in the event that a customer or counterparty to a financial instrument fails to discharge a contractual obligation, and mainly results from trade receivables and the Group’s investments in financial assets. Trade receivables The Group does not predict any significant insolvency risks as a result of delays in receiving payment from some European countries due to their current economic situation. The main risk in these countries is that of late payments, which is mitigated through the possibility of claiming interest as foreseen by prevailing legislation. No significant bad debt or late payment issues have been detected for sales to private entities. The Group recognizes impairment based on its best estimate of the expected losses on trade and other receivables. The main impairment losses recognized are due to specific losses relating to individually identified risks. At year end, these impairment losses are immaterial. 42

 

 

 

 

8052-1-bk_part 2 of 5 consolidated 2020_page_043.jpg GRIFOLS, S.A. AND SUBSIDIARIES Notes to the Consolidated Annual Accounts (Free translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails) Concentration of credit risk For trade receivables the Group uses the simplified approach, estimating lifetime expected credit losses, while for all other financial assets the Group uses the general approach for calculating expected credit losses. In both cases, due to the customers' credit rating, as well as the internal classification systems currently in place for new customers, and considering that collection periods are mostly under 30 days, there is no significant impact for the Group. In this context, Grifols made an assessment of possible changes in the credit risk through the estimation of the expected credit loss model, to ensure that it is reflecting the global economic impact of COVID-19. This assessment took into consideration available information on past events, the current situation and future economic forecasts having a potential impact on the credit risk. The update of the model mainly entailed the application of an incremental coefficient to the historical default rate to reflect the greater uncertainty regarding future economic scenarios and its impact on the expected credit loss. Based on the available information, it was concluded that there is no significant impact on the credit portfolio impairment as a result of the economic consequences of COVID-19. In addition, at 31 December 2020, no significant changes were observed in the payment profile of the main customers with which Grifols holds outstanding balances that are not subject to receivable sales and purchases with financial institutions. Details of exposure to credit risk are disclosed in note 30. Liquidity risk Liquidity risk is the risk that the Group cannot meet its financial obligations as they fall due. The Group’s approach to managing liquidity is to ensure where possible, that it always has sufficient liquidity to settle its obligations at the maturity date, both in normal conditions and in times of tension, to avoid incurring unacceptable losses or tarnishing the Group’s reputation. The Group manages liquidity risk on a prudent basis, based on availability of cash and sufficient committed unused long-term credit facilities, enabling the Group to implement its business plans and carry out operations using stable and secure sources of financing. On 7 May 2020, the Group concluded the upsize of the multi-currency revolving credit facility from US Dollars 500 million to US Dollars 1,000 million with maturity in November 2025. On 15 November 2019 the Group concluded the refinancing process of its senior secured debt for approximately Euros 5,800 million. The new financing includes a Term Loan B for US Dollars 2,500 million and Euros 1,360 million, both aimed at institutional investors; the issue of two bonds for Euros 1,675 million (Senior Secured Notes); and the extension of a multi-currency revolving credit facility up to US Dollars 500 million. In September 2018 the Group received an additional non-current loan from the European Investment Bank totaling Euros 85,000 thousand. The loan will be used to support certain investments in R&D which are mainly focused on searching for new therapeutic for plasmatic proteins. Financial terms include a fixed interest rate for a period of 10 years with a grace period of two years. At 31 December 2020, the carrying amount of the loans obtained from the European Investment Bank is Euros 212,500 thousand (Euros 233,750 thousand at 31 December 2019). At 31 December 2020 the Group has total cash and cash equivalents of Euros 579,647 thousand (Euros 741,982 thousand at 31 December 2019). The Group also has approximately Euros 922,553 thousand in unused credit facilities (Euros 532,169 thousand at 31 December 2019), including Euros 817,394 thousand on the revolving credit facility (Euros 445,434 thousand at 31 December 2019). As in previous years, the Group continues with its quarterly program for optimization of working capital, which is mainly based on contracts to sell receivables without recourse. Market risk 43

 

 

 

 

8052-1-bk_part 2 of 5 consolidated 2020_page_044.jpg GRIFOLS, S.A. AND SUBSIDIARIES Notes to the Consolidated Annual Accounts (Free translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails) Market risk comprises the risk of changes in market prices, for example, exchange rates, interest rates, or the prices of equity instruments affecting the Group’s revenues or the value of financial instruments it holds. The objective of managing market risk is to manage and control the Group’s exposure to this risk within reasonable parameters at the same time as optimizing returns. (i) Currency risk The Group operates internationally and is therefore exposed to currency risk when operating with foreign currencies, especially with regard to the US Dollar. Currency risk is associated with future commercial transactions, recognized assets and liabilities, and net investments in foreign operations. The Group holds significant investments in foreign operations, the net assets of which are exposed to currency risk. The conversion risk affecting net assets of the Group’s foreign operations in US Dollars is mitigated primarily through borrowings in this foreign currency. The Group’s main exposure to currency risk is with regard to the US Dollar, which is used in a significant percentage of transactions in foreign functional currencies. Details of the Group’s exposure to currency risk at 31 December 2020 and 2019 of the most significant financial instruments are shown in note 30. (ii) Interest rate risk The Group’s interest rate risks arise from current and non-current borrowings. Borrowings at variable interest rates expose the Group to cash flow interest rate risks. Fixed-rate borrowings expose the Group to fair value interest rate risk. The objective of the management of interest rate risk is to achieve a balance in the structure of the debt, keeping part of the external resources issued at a fixed rate and covering part of the variable rate debt through hedges. A significant part of the financing obtained accrues interest at fixed rates. This fixed interest debt (Senior Notes) amounts to Euros 2,675 million, which represents approximately 63% of the Group’s total debt in Euros. The additional loans of Euros 212,500 thousand received from the European Investment Bank represent approximately 5% of the Group’s total debt in Euros. Senior debt in Euros represents approximately 40% of the Group’s total Senior debt at 31 December 2020 (38% at 31 December 2019). Total fixed-interest debt represents 46% of total debt at 31 December 2020 (45% at 31 December 2019). (iii) Market price risk Price risk affecting raw materials is mitigated by the vertical integration of the hemoderivatives business in a highly-concentrated sector. (b) Capital management The directors’ policy is to maintain a solid capital base in order to ensure investor, creditor and market confidence and sustain future business development. The board of directors defines and proposes the level of dividends paid to shareholders. The directors consider various arguments to calculate capital structure: 44

 

 

 

 

8052-1-bk_part 2 of 5 consolidated 2020_page_045.jpg GRIFOLS, S.A. AND SUBSIDIARIES Notes to the Consolidated Annual Accounts (Free translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails) The directors control capital performance using rates of returns on equity (ROE). In 2020 the ROE stood at 12% (13% in 2019). The ROE is calculated by dividing profit attributable to the Parent by the equity attributable to the Parent. Thousand of Euros 2020 2019 618,546 5,108,392 625,146 4,822,119 Profit attributable to the p arent Equity attributable to the Parent ROE 12% 13% In accordance with the senior secured debt contract, the Group is subject to compliance with some covenants. At 31 December 2020 and 2019, the Group complies with the covenants in the contract. Consideration of the Company's credit rating (see note 21 (d)). The Parent held Class B treasury stock equivalent to 0.4% of its capital at 31 December 2020 (0.5% at 31 December 2019). The Group does not have a formal plan for repurchasing shares. (6) Segment Reporting In accordance with IFRS 8 “Operating Segments”, financial information for operating segments is reported in the accompanying Appendix II, which forms an integral part of this note to the consolidated annual accounts. Group companies are divided into four areas: companies from the industrial area, companies from the commercial area, companies from the services area and companies from the research area. Within each of these areas, activities are organized based on the nature of the products and services manufactured and marketed. Assets, liabilities, income and expenses for segments include directly and reliably attributable items. Items which are not attributed to segments by the Group are: Balance sheet: equity, cash and cash equivalents and loans and borrowings. Statement of profit and loss: finance result and income tax. (a) Operating segments The operating segments defined by the steering committee are as follows: Bioscience: including all activities related with products derived from human plasma for therapeutic use. Hospital: comprising all non-biological pharmaceutical products and medical supplies manufactured by Group companies earmarked for hospital pharmacy. Products related with this business which the Group does not manufacture but markets as supplementary to its own products are also included. Diagnostic: including the marketing of diagnostic testing equipment, reagents and other equipment, manufactured by Group or other companies. Bio Supplies: groups together all transactions related to biological products for non-therapeutic use, Kedrion production agreements, and third-party plasma sales channeled through Haema and Biotest. Others: including the rendering of manufacturing services to third party companies and other investing activities. 45

 

 

 

 

8052-1-bk_part 2 of 5 consolidated 2020_page_046.jpg GRIFOLS, S.A. AND SUBSIDIARIES Notes to the Consolidated Annual Accounts (Free translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails) The net revenue from the sale of goods and services by groups of products for 2020, 2019 and 2018 is as follows: Thousands of Euros 31/12/2020 31/12/2019 31/12/2018 Bioscience Haemoderivatives Diagnostic Transfusional medicine Other diagnostic Hosp ital Fluid therap y and nutrition Hosp ital sup p lies Bio sup p lies Others 4,242,502 3,993,462 3,516,704 714,164 27,630 680,766 19,937 650,180 19,797 41,359 58,303 224,090 31,990 47,677 67,489 266,540 22,820 52,574 58,014 167,004 22,451 Total 5,340,038 5,098,691 4,486,724 At December 31, 2020, 97.2% of the income from the sale of goods and services has been recognized at point-in-time (97.2% in 2019 and 97.3% in 2018). The Group has concluded that hemoderivative products are sufficiently alike to be considered as a whole for the following reasons: All these products are human plasma derivatives and are manufactured in a similar way. The customers and methods used to distribute these products are similar. All these products are subject to the same regulations regarding production and the same regulatory environment. (b) Geographical information Geographical information is grouped into four areas: United States of America and Canada Spain Rest of the European Union Rest of the world The definition of these four segments is mainly due to the geographical level that Group management sets to manage its revenue as they respond to specific economic scenarios. The main framework of the Group is consistent with this geographical segment grouping, including the monitoring of its commercial operations and its information systems. The financial information reported for geographical areas is based on sales to third parties in these markets as well as the location of assets. (c) Main customers In 2020, the revenue of one Bioscience segment customer represents approximately 10.38% of the Group’s gross revenues. In 2019, there were no customers representing more than 10% of the Group’s gross revenue. In 2018, the revenue of one Bioscience segment customer represented approximately 10.06% of the Group’s gross revenues. (7) Goodwill 46

 

 

 

 

8052-1-bk_part 2 of 5 consolidated 2020_page_047.jpg GRIFOLS, S.A. AND SUBSIDIARIES Notes to the Consolidated Annual Accounts (Free translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails) Details of and movement in this caption of the consolidated balance sheet at 31 December 2019 were as follows: Thousands of Euros B al an ce at Business T ranslat ion B al an ce at S e gm e n t 31/12/2018 Combinat ion differences 31/12/2019 Net value Grifols UK.Ltd. (UK) Grifols Italia.S.p .A. (Italy ) Biomat USA, Inc.(USA) Grifols Australia Pty Ltd. (Australia) / M edion Diagnostics AG (Switzerland) Grifols Therap eutics, Inc. (USA) Araclon Biotech, S.L. (Sp ain) Progenika Biop harma, S.A. (Sp ain) Grifols Diagnostic (Novartis & Hologic) (USA, Sp ain and Hong Kong) Kiro Grifols S.L. (Sp ain) Goetech LLC (USA) Haema AG (Germany ) Bioscience Bioscience Bioscience 7,682 6,118 255,114 ---- (4,278) 425 --5,060 8,107 6,118 255,896 Diagnost ic 9,271 --201 9,472 Bioscience Diagnost ic Diagnost ic 1,940,776 6,000 40,516 ---- --38,902 ---- 1,979,678 6,000 40,516 Diagnost ic 2,550,256 --50,694 2,600,950 Hospit al Hospit al Bioscience 24,376 58,945 171,134 139,042 ---- --18,880 10,943 172,663 --1,181 --2,963 199 24,376 60,126 190,014 152,948 172,862 BPC Plasma, Inc. (formerly Biotest Pharma Corp ; USA) Bioscience Bioscience Interstate Blood Bank, Inc. (USA) 5,209,230 198,208 99,625 5,507,063 (See not e 3) Details of and movement in this caption of the consolidated balance sheet at 31 December 2020 are as follows: Thousands of Euros B al an ce at Business T ranslat ion B al an ce at Disposals Combinat ion differences S e gm e n t 31/12/2019 31/12/2020 Net value Grifols UK.Ltd. (UK) Grifols Italia.S.p .A. (Italy ) Biomat USA, Inc.(USA) Grifols Australia Pty Ltd. (Australia) / M edion Diagnostics AG (Switzerland) Grifols Therap eutics, Inc. (USA) Araclon Biotech, S.L. (Sp ain) Progenika Biop harma, S.A. (Sp ain) Grifols Diagnostic (Novartis & Hologic) (USA, Sp ain and Hong Kong) Kiro Grifols S.L. (Sp ain) Goetech LLC (USA) Haema AG (Germany ) Bioscience Bioscience Bioscience 8,107 6,118 255,896 ---- ---- ---- (433) --(21,105) 7,674 6,118 234,791 Diagnost ic 9,472 ---- 66 9,538 Bioscience Diagnost ic Diagnost ic 1,979,678 6,000 40,516 ---- ---- ---- (163,274) ---- 1,816,404 6,000 40,516 Diagnost ic 2,600,950 --(12,902) (211,070) 2,376,978 Hospit al Hospit al Bioscience 24,376 60,126 190,014 152,948 172,862 ---- ---- ---- ---- --9,987 74,372 133,443 51,299 ---- ---- ---- ---- ---- (4,959) --(12,614) (14,383) --(2,462) 1,126 (1,883) 24,376 55,167 190,014 140,334 158,479 9,987 71,910 134,569 49,416 BPC Plasma, Inc. (formerly Biotest Pharma Corp ; USA) Bioscience Interstate Blood Bank, Inc. (USA) Plasmavita Healthcare GmbH (Germany ) Alkahest, Inc (USA) Green Cross Biotherap eutics, Inc. (Canada) Green Cross America Inc.(USA) Bioscience Bioscience Ot hers Bioscience Bioscience 5,507,063 269,101 (12,902) (430,991) 5,332,271 (See not e 3) Impairment testing: 47

 

 

 

 

8052-1-bk_part 2 of 5 consolidated 2020_page_048.jpg GRIFOLS, S.A. AND SUBSIDIARIES Notes to the Consolidated Annual Accounts (Free translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails) As a result of the acquisition of Talecris in 2011, and for impairment testing purposes, the Group combines the CGUs allocated to the Bioscience segment, grouping them together at segment level, because substantial synergies were expected to arise on the acquisition of Talecris, and due to the vertical integration of the business and the lack of an independent organized market for the products. Because the synergies benefit the Bioscience segment globally they cannot be allocated to individual CGUs. The Bioscience segment represents the lowest level to which goodwill is allocated and is subject to control by Group management for internal control purposes. As a result of the acquisition of Novartis’ Diagnostic business unit in 2014, the Group decided to combine Araclon, Progenika, Australia and Hologic’s share of NAT (later acquired) donor screening unit acquisition into a single CGU for the Diagnostic business as the acquisition is supporting not only the vertically integration business but also cross-selling opportunities. In addition, for management purposes, the Group’s management is focused on the business more than geographical areas or individual companies. Due to the acquisition of an additional 40% stake in Kiro Grifols S.L. and a 51% stake in Goetech LLC (Medkeeper), the Group decided to group Kiro Grifols S.L., Laboratorios Grifols S.A. and Medkeeper into a single CGU for the Hospital business since the acquisitions are supporting cross-selling opportunities. The CGUs established by management are: Bioscience Diagnostic Hospital The COVID-19 pandemic has caused unprecedented turmoil in the global economy, the breadth and duration of which remain unknown. While some industries and companies may be more vulnerable than others, the effects of the pandemic have affected social and economic behavior, increasing the overall uncertainty. Our products from Bioscience CGU are considered lifesaving and have been identified as a strategic industry for most governments and therefore are prevented from being suspended. However, at the preparation date of the financial statements, Grifols has estimated a temporary impact derived from COVID-19 (see note 34). The recoverable amount of the Bioscience CGU and Hospital CGU has been calculated based on its value in use calculated as the present value of the future cash flows approved by the management discounted at a discount rate considering the related inherent risk. In the current uncertain environment, the recoverable amount calculations of the Bioscience and Hospital CGU use expected cash flow projections for five and six years respectively, based on two different scenarios considered in respect of COVID-19 impact (base case and worst case) and the assigned weighting of these scenarios according to the following details: M ain assump tion Assigned weighting Base case Worst case Gradual recovery in 2021 Total recovery in 2022 70% 30% The recoverable amount of the Diagnostic CGU has been calculated based on its fair value less costs of disposal calculated as the present value of the future cash flows for five years approved by the management discounted at a discount rate considering the related inherent risk. In 2019, the fair value less costs of disposal was calculated considering the EBITDA multiple, defined as Operating Result before Interests, Tax and Amortization and Depreciation, used in connection with the agreement for the acquisition of a 45% stake in Grifols Diagnostic Solutions, Inc. by Shanghai RAAS blood products Co, Ltd. In contrast to the Bioscience and Hospital CGUs, new opportunities have arisen from the COVID-19 pandemic which have offset the potential negative impact deriving therefrom. Therefore, the recoverable amount of the Diagnostic CGU has not been calculated using expected cash flow projections based on different scenarios considered in respect of the COVID-19 impact since the different resulting scenarios would be similar in terms of figures. 48

 

 

 

 

8052-1-bk_part 2 of 5 consolidated 2020_page_049.jpg GRIFOLS, S.A. AND SUBSIDIARIES Notes to the Consolidated Annual Accounts (Free translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails) Management has determined the gross margin based on past experience and the current situation derived from the COVID-19 pandemic, investments in progress which would imply significant growth in production capacity and its forecast international market development. Cash flows estimated as of the year in which stable growth in the CGU has been reached are extrapolated using the estimated growth rates indicated below. Perpetual growth rates are consistent with the forecasts included in industry reports. The key assumptions used in impairment testing of the CGUs for 2019 were as follows: Perp et ual Growt h rat e Pre-t ax discount rat e EBITDA mult ip le Bioscience Diagnostic Hosp ital 2% --1.50% 8.80% --10.80% --14.5x --The key assumptions used in impairment testing of the CGUs for 2020 have been as follows: Perp et ual Growt h rat e Pre-t ax discount rat e Bioscience Diagnostic Hosp ital 1.9% 1.9% 1.4% 8.9% 9.5% 10.8% The discount rate used reflects specific risks relating to the CGUs and the countries in which they operate. The main assumptions used for determining the discount rate are as follows: • • • • Risk free rate: normalized government bonds at 10 years Market risk premium: premium based on market research Unlevered beta: average market beta Debt to equity ratio: average market ratio In 2020, the reasonably possible changes considered for the Bioscience, Diagnostic and Hospital CGUs are a variation in the discount rate, as well as in the estimated perpetual growth rate, as follows: Perp et ual Growt h rat e Pre-t ax discount rat e Bioscience Diagnostic Hosp ital +/-50 bp s +/-50 bp s +/-100 bp s +/-50 bp s +/-50 bp s +/-100 bp s In 2019, the reasonably possible changes considered for the Bioscience, Diagnostic and Hospital CGUs are a variation in the discount rate, as well as in the estimated perpetual growth rate, as follows: Perp et ual Growt h rat e Pre-t ax discount rat e EBITDA M argin Bioscience Diagnostic Hosp ital +/-50 bp s - +/-50 bp s +/-50 bp s - +/-50 bp s - +/-250 bp s - The reasonably possible changes in key assumptions considered by management in the calculation of the Bioscience and Diagnostic CGU’s recoverable amount would not cause the carrying amount of the respective CGU to exceed its recoverable amount. The reasonably possible changes in key assumptions considered by management in the calculation of the Hospital CGU’s recoverable amount would cause the carrying amount to exceed its recoverable amount as follows: 49

 

 

 

 

8052-1-bk_part 2 of 5 consolidated 2020_page_050.jpg GRIFOLS, S.A. AND SUBSIDIARIES Notes to the Consolidated Annual Accounts (Free translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails) Perp etual Growth rate Pre-tax discount rate -100bp s +100bp s Potential imp airment 3.5% 11.7% At 31 December 2020 Grifols’ stock market capitalization totals Euros 14,207 million (Euros 18,831 million at 31 December 2019). (8) Other Intangible Assets Details of other intangible assets and movement during the years ended 31 December 2020 and 2019 are included in Appendix III, which forms an integral part of these notes to the consolidated annual accounts. Intangible assets acquired from Talecris mainly include currently marketed products. Identifiable intangible assets correspond to Gamunex and have been recognized at fair value at the acquisition date of Talecris and classified as currently marketed products. Intangible assets recognized comprise the rights on the Gamunex product, its commercialization and distribution license, trademark, as well as relations with hospitals. Each of these components is closely linked and fully complementary, are subject to similar risks and have a similar regulatory approval process. Intangible assets acquired from Progenika mainly include currently marketed products. Identifiable intangible assets correspond to blood, immunology and cardiovascular genotyping. These assets have been recognized at fair value at the acquisition date of Progenika and classified as currently marketed products. The cost and accumulated amortization of currently marketed products acquired from Talecris and Progenika at 31 December 2019 was as follows: Thousands of Euros Balance at Translation Balance at 31/12/2018 Addit ions differences 31/12/2019 Cost of currently marketed p roducts - Gamunex Cost of currently marketed p roducts - Progenika 1,048,035 23,792 ---- 21,007 --1,069,042 23,792 Accumulated amortisation of currently marketed p roducts - Gamunex Accumulated amortisation of currently marketed p roducts - Progenika (264,920) (35,661) (5,284) (305,865) (13,875) (2,379) --(16,254) Carry ing amount of currently marketed p roducts 793,032 (38,040) 15,723 770,715 The cost and accumulated amortization of currently marketed products acquired from Talecris and Progenika at 31 December 2020 is as follows: Thousands of Euros Balance at Translation Balance at 31/12/2019 Addit ions differences 31/12/2020 Cost of currently marketed p roducts - Gamunex Cost of currently marketed p roducts - Progenika 1,069,042 23,792 ---- (88,169) --980,873 23,792 Accumulated amortisation of currently marketed p roducts - Gamunex Accumulated amortisation of currently marketed p roducts - Progenika Carry ing amount of currently marketed p roducts (305,865) (35,360) 27,890 (313,335) (16,254) (2,379) 0 (18,633) 770,715 (37,739) (60,279) 672,697 50

 

 

 

 

8052-1-bk_part 2 of 5 consolidated 2020_page_051.jpg GRIFOLS, S.A. AND SUBSIDIARIES Notes to the Consolidated Annual Accounts (Free translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails) The estimated useful life of the currently marketed products acquired from Talecris is considered limited, has been estimated at 30 years on the basis of the expected life cycle of the product (Gamunex) and is amortized on a straight-line basis. At 31 December 2020 the residual useful life of currently marketed products is 20 years and 5 months (21 years and 5 months at 31 December 2019). The estimated useful life of the currently marketed products acquired from Progenika is considered limited, has been estimated at 10 years on the basis of the expected life cycle of the product and is amortized on a straight-line basis. At 31 December 2020 the residual useful life of currently marketed products acquired from Progenika is 2 years and 2 months (3 years and 2 months at 31 December 2019). (a) Self – constructed intangible assets At 31 December 2020 the Group has recognized Euros 32,548 thousand as self-constructed intangible assets (Euros 48,797 thousand at 31 December 2019). (b) Purchase commitments At 31 December 2020 the Group has intangible asset purchase commitments amounting to Euros 9 thousand (Euros 381 thousand at 31 December 2019). (c) Intangible assets with indefinite useful lives and other intangibles in progress At 31 December 2020 the Group recognizes plasma center licenses with indefinite useful lives under intangible assets for a carrying amount of Euros 27,351 thousand (Euros 29,960 thousand at 31 December 2019). The Group has also an amount of Euros 350,626 thousand as development costs in progress (Euros 223,161 thousand at 31 December 2019). In 2019, Grifols reached an agreement with the US biotech company Rigel Pharmaceuticals to exclusively commercialize fostamatinib disodium hexahydrate in all potential future indications in Europe and Turkey. Under terms of the agreement, Grifols made an initial payment of US Dollars 30 million and an additional payment of US Dollars 17.5 million related to compliance with certain regulatory milestones. The Group recognized these payments as an intangible asset in accordance with IAS 38 . This asset has not begun to be commercialized and amortized until 2020, as soon as it has been available for use, that is, after the final approval of the regulator. (d) Results on disposal of intangible assets No profit on disposal and sale of intangible assets has been recognized in 2019 or 2020. (e) Impairment testing Indefinite-lived intangible assets have been allocated to the cash-generating unit (CGU) of the Bioscience segment. These assets have been tested for impairment together with goodwill (see note 7). Impairment testing has been analyzed for each of the intangible assets in progress by calculating its recoverable amount based on their fair value. 51

 

 

 

 

8052-1-bk_part 2 of 5 consolidated 2020_page_052.jpg GRIFOLS, S.A. AND SUBSIDIARIES Notes to the Consolidated Annual Accounts (Free translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails) (9) Leases Details of leases in the consolidated balance sheet at 31 December 2020 and 2019 are as follows: Right-of-use assets Thousands of Euros 31/12/2020 31/12/2019 Land and Buildings M achinery Comp uter equip ment Vehicles 665,002 3,671 3,588 6,435 685,405 4,469 4,324 9,660 678,696 703,858 Lease liabilities Thousands of Euros 31/12/2020 31/12/2019 690,857 42,642 Non-current Current 696,285 44,405 733,499 740,690 Details by maturity are as follows: M aturity : Thousands of Euros 31/12/2020 31/12/2019 42,642 40,961 158,032 491,864 44,464 41,444 155,300 499,482 Up to one y ear Two y ears Between 3 and 5 y ears M ore than 5 y ears 733,499 740,690 At 31 December 2020, the Group has recognized an amount of Euros 75,077 thousand related to additions of right-of-use assets (Euros 747,843 thousand at 31 December 2019, of which Euros 664,948 thousand corresponded to the initial additions). Movements at 31 December 2020 and 2019 are included in Appendix IV, which forms an integral part of these notes to the consolidated annual accounts. At 31 December 2020 and 2019, the amounts recognized in the consolidated statement of profit and loss related to lease agreements are: 52

 

 

 

 

8052-1-bk_part 2 of 5 consolidated 2020_page_053.jpg GRIFOLS, S.A. AND SUBSIDIARIES Notes to the Consolidated Annual Accounts (Free translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails) Right-of-use dep reciation Thousands of Euros 31/12/2020 31/12/2019 52,774 1,588 3,012 5,206 49,786 1,768 2,204 4,613 Buildings M achinery Comp uter equip ment Vehicles 62,580 58,371 Thousands of Euros 31/12/2020 31/12/2019 Finance lease exp enses (note 27) 35,205 34,558 35,205 34,558 Thousands of Euros 31/12/2020 31/12/2019 3,569 11,254 13,353 7,397 12,850 12,988 Exp enses related to short-term agreements Exp enses related to low-value agreements Other op erating lease exp enses 28,176 33,235 At 31 December 2020, the Group has paid a total of Euros 79,037 thousand related to lease contracts (Euros 73,785 thousand at 31 December 2019). The total amount recognized in the balance sheet corresponds to lease contracts in which the Group is the lessee. (10) Property, Plant and Equipment Details of property, plant and equipment and movement in the consolidated balance sheet at 31 December 2020 and 2019 are included in Appendix V, which forms an integral part of this note to the consolidated annual accounts. Property, plant and development under construction at 31 December 2020 and 2019 mainly comprise investments made to extend the companies’ equipment and to increase their productive capacity. In 2020, the Group has capitalized interests for a total amount of Euros 16,606 thousand (Euros 14,894 thousand in 2019) a) Insurance Group policy is to contract sufficient insurance coverage for the risk of damage to property, plant and equipment. At 31 December 2020 the Group has a combined insurance policy for all Group companies, which more than adequately covers the carrying amount of all the Group’s assets. b) Losses on disposal of property, plant and equipment Total losses incurred on disposals of property, plant and equipment for 2020 amount to Euros 150 thousand (losses of Euros 1,408 thousand in 2019). 53

 

 

 

 

8052-1-bk_part 2 of 5 consolidated 2020_page_054.jpg GRIFOLS, S.A. AND SUBSIDIARIES Notes to the Consolidated Annual Accounts (Free translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails) c) Self – constructed property, plant and equipment At 31 December 2020 the Group has recognized Euros 85,691 thousand as self -constructed property, plant and equipment (Euros 102,229 thousand at 31 December 2019). d) Purchase commitments At 31 December 2020 the Group has property, plant and equipment purchase commitments amounting to Euros 44,007 thousand (Euros 52,519 thousand at 31 December 2019). (11) Equity-Accounted Investees Details of this caption in the consolidated balance sheet for equity accounted investees with similar activity to that of the Group at 31 December 2020 and 2019 are as follows: Thousands of Euros Thousands of Euros % ownership 31/12/2020 % ownership 31/12/2019 Access Biologicals LLC Plasmavita HealthCare Shanghai RAAS Blood Products Co., Ltd. 49.00% 50.00% 26.20% 46,782 --1,800,578 49.00% 50.00% --49,922 10,368 --1,847,360 60,290 Movement in the investments in equity-accounted investees with similar activity to that of the Group for the years ended 31 December 2020 and 2019 is as follows: Thousands of Euros 2020 2019 Balance at 1 January 60,290 --Acquisitions Transfer accounted investees with similar activity to that of the Group Transfers Share of p rofit / (losses) Share of other comp rehensive income / translation differences Collected dividends 1,807,351 --(10,674) 20,799 (20,250) (10,156) --147,289 (94,127) 8,972 2,624 (4,468) Balance at 31 December 1,847,360 60,290 Shanghai RAAS Blood Products Co. Ltd. In March 2019, Grifols entered into a share exchange agreement with Shanghai RAAS Blood Products Co. Ltd. (hereinafter SRAAS), through which Grifols would deliver 90 shares of its US subsidiary Grifols Diagnostic Solutions Inc. (hereinafter GDS) (representing 45% of the economic rights and 40% of the voting rights), and in exchange would receive 1,766 million of SRAAS shares (representing 26.2% of the share capital). Therefore, such transaction does not entail a cash flow movement nor has it required any external financing. The exchange ratio determined on that date, was estimated using different valuation methods, among others the stock price for SRAAS and discounted cash flows and market multiples for GDS. 54

 

 

 

 

8052-1-bk_part 2 of 5 consolidated 2020_page_055.jpg GRIFOLS, S.A. AND SUBSIDIARIES Notes to the Consolidated Annual Accounts (Free translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails) At 30 September 2019, Grifols obtained the authorization from the US agency, “Committee on Foreign Investment in the United States” (CFIUS) and on 13 November 2019, Shanghai RAAS Blood Products, Co. Ltd. obtained the authorization from the Chinese Securities Regulatory Commission (CRSC). At 31 December 2019, Grifols delivered 90 shares of its subsidiary GDS in exchange for a contractual right to receive equity instruments in an associate (equivalent to 1,766 million of SRAAS shares), because at that date no shares of SRAAS were received. As a consequence, at 31 December 2019, SRAAS was the minority shareholder owner of 45% of GDS. Such contractual right meets the definition of a financial asset under IFRS 9 – Financial Instruments and was classified as a financial asset at fair value through profit or loss as it did not comply with the principal and interest payment criteria (because shares in SRAAS would be received ). Grifols registered the aforementioned contractual right for the fair value of the GDS shares delivered and subsequently, the right was measured based on its fair value through profit or loss. The delivery of GDS shares had no impact on the consolidated results of the Grifols Group for 2019 in accordance with IFRS 10 – Consolidated Financial Statements, since it is considered a transaction with non-controlling interest where Grifols retained control over GDS. The impact in the consolidated balance sheet at 31 December 2019 resulted in an increase in the following items: Other current financial assets amounting to Euros 1,717 million (note 12); Equity attributable to non-controlling interests amounting to Euros 1,511 million (note 18); Reserves amounting to Euros 227 million (note 16), a decrease in translation differences for an amount of Euros 22 million and a profit in the consolidated statement of profit and loss for 2019 amounting to Euros 1 million due to the change in the contractual right value (note 27). On 30 March 2020, the share exchange agreement was closed and Grifols received SRAAS shares corresponding to 26.2% of its share capital. Therefore, Grifols becomes the largest shareholder of SRAAS, while maintaining operational, political and economic control of GDS. Consequently, the consolidated balance sheet at 31 December 2020, no longer shows any financial asset related to the contractual right, but the interest in SRAAS has been registered as an investment in an associate company because the Group exercises significant influence in accordance with the criteria established in IAS 28 – Investment in Associates and Joint Ventures. SRAAS’ equity-accounted investment has been recognized at the value of the shares at the closing date of the transaction. The difference between the contractual right value recognized at 31 December 2019 and SRAAS quoted value at 30 March 2020 has been Euros 56,526 thousand which has been recognized as finance income in the consolidated statement of profit and loss (see note 27). The impact on the consolidated statement of profit and loss related to the equity method result is included in the Operating Result under “Profit/(loss) of equity accounted investees with similar activity to that of the Group”, since SRAAS is a company dedicated to the plasma product sector. The transaction costs have been recognized as part of the investment value and totaled Euros 34,088 thousand. Movement in SRAAS’ equity-accounted investment for the year ended 31 December 2020 is as follows: Thousand of Euros 31/12/2020 Balance at 1 January --Acquisitions Share of p rofit / (losses) Share of other comp rehensive income / translation differences Collected dividends 1,807,351 11,531 (16,090) (2,214) 1,800,578 Balance at 31 December 55

 

 

 

 

8052-1-bk_part 2 of 5 consolidated 2020_page_056.jpg GRIFOLS, S.A. AND SUBSIDIARIES Notes to the Consolidated Annual Accounts (Free translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails) At 31 December 2020, the quoted value of SRAAS shares was CNY 7.4. In accordance with IAS 28 – Investments in associates and joint ventures, possible indications of losses have been analyzed without detecting objective evidence of impairment in the investment. Plasmavita Healthcare GmbH In 2017, Grifols established PLASMAVITA GmbH, a joint venture between Grifols (50%) and two European partners (50%). On 14 April 2020, Grifols made a contribution of Euros 10 million in cash that was recognized as a shareholder contribution in Plasmavita. The equity share of 50% has remained unchanged after the contribution. However, in assessing the existence of control due to the new shareholder agreement signed on that date, it can be concluded that Grifols has control over Plasmavita and, therefore, it is considered part of the group and it has been fully consolidated (see note 3 (a)). Access Biologicals LLC. On 12 January 2017, the group announced the acquisition of 49% of the voting rights in Access Biologicals LLC, a company based in San Diego, California, USA, for the amount of US Dollars 51 million. Grifols entered into an option agreement to purchase the remaining 51% voting rights in five years, in 2022. Grifols also signed a supply agreement to sell biological products not meant for therapeutic use to Access Biologicals. The principal business activity of Access Biologicals is the collection and manufacturing of an extensive portfolio of biological products. Combined with closed-loop material sourcing, it provides critical support for various markets such as in-vitro diagnostic manufacturing, biopharmaceutical, cell culture and diagnostic research & development. Movement in Access Biological LLC’s investment for the years ended 31 December 2020 and 2019 are as follows: Thousand of Euros 31/12/2020 31/12/2019 Balance at 1 January 49,922 47,742 Share of p rofit / (losses) Share of other comp rehensive income / translation differences Collected dividends 8,962 (4,160) (7,942) 3,938 967 (2,725) 46,782 49,922 Balance at 31 December Details of this caption in the consolidated balance sheet for the rest of equity accounted investees at 31 December 2020 and 2019 are as follows: Thousands of Euros Thousands of Euros % ownership 31/12/2020 % ownership 31/12/2019 Alkahest, Inc. Albajuna Therap eutics, S.L GigaGen, Inc M ecwins, S.A. M edcom Advance, S.A 100.00% 49.00% 43.96% 24.99% 45.00% --3,378 15,677 2,605 --47.58% 49.00% 43.96% 24.99% 45.00% 14,708 5,228 23,997 2,338 7,912 21,660 54,183 56

 

 

 

 

8052-1-bk_part 2 of 5 consolidated 2020_page_057.jpg GRIFOLS, S.A. AND SUBSIDIARIES Notes to the Consolidated Annual Accounts (Free translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails) Movement in the investments in the rest of equity-accounted investees at 31 December 2020, 2019 and 2018 is as follows: Thousands of Euros 2020 2019 2018 Balance at 1 January 54,183 79,616 219,009 Acquisitions Transfers Share of p rofit / (losses) Share of other comp rehensive income / translation differences Losses for Imp airment Collected dividends --(91,023) 68,078 (1,666) (7,912) --12,369 --(19,744) 1,736 (19,794) --12,222 500 (11,038) 9,270 --(3,058) Balance at 31 December 21,660 54,183 226,905 Alkahest, Inc. On 2 September 2020, Grifols signed an agreement to acquire all the shares of Alkahest Inc. ("Alkahest") for a total amount of Euros 123,425 thousand (US Dollars 146,000 thousand), which was subject to approval by regulatory authorities. Likewise, as a result of agreements between shareholders, Grifols obtained control of Alkahest on 2 September 2020. Until that date, the previous 42.45% stake in Alkahest was equity accounted. The difference between the fair value of the previous stake and the book value is Euros 86,743 thousand (US Dollars 102,552 thousand), recognizing a profit for such amount under "Profit/(loss) of equity accounted investees" in the statement of profit and loss. As from this date, Alkahest was incorporated into the Group's consolidation perimeter by the full consolidation method. Movement in Alkahest’s equity-accounted investment for the years ended 31 December 2020 and 2019 is as follows: Thousand of Euros 31/12/2020 31/12/2019 Balance at 1 January 14,708 28,336 Transfers Share of p rofit / (losses) Share of other comp rehensive income / translation differences (91,023) 76,414 (99) --(14,218) 590 Balance at 31 December 0 14,708 Medcom Advance, S.A. In February 2019, the Group completed the acquisition of 45% of the shares in Medcom Advance, S.A. for an amount of Euros 8,602 thousand. Medcom Advance, S.A. is a company dedicated to research and development with a view to create proprietary patents using nanotechnology. The company is equity-accounted. At 31 December 2020, this investment is fully impaired. Mecwins, S.A. 57

 

 

 

 

8052-1-bk_part 2 of 5 consolidated 2020_page_058.jpg GRIFOLS, S.A. AND SUBSIDIARIES Notes to the Consolidated Annual Accounts (Free translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails) On 22 October 2018 Grifols allocated Euros 2 million to the capital increase of Mecwins through Progenika Biopharma, reaching 24.99% of the total capital. Mecwins is a spin-off of the Institute of Micro and Nanotechnology of the Center for Scientific Research (CSIC), specialized in the development of innovative nanotechnological analysis tools for the diagnosis and prognosis of diseases. Mecwins has developed ultrasensitive optical reading immunoassay technology from nanosensors for the detection of protein biomarkers in blood. This technology has potential applications in fields such as oncology, cardiovascular and infectious diseases. The injection of capital, in which CRB Inverbio also participated with an additional Euros 2 million, will enable Mecwins to start developing pre-commercial prototypes of this technology and for Grifols to position itself in the field of nanotechnology applied to diagnosis. GigaGen Inc. On 5 July 2017, Grifols through its 100% subsidiary Grifols Innovation and New Technologies Limited (“GIANT”) acquired a 43.96% shareholding in GigaGen, Inc., a company based in San Francisco (USA) for the amount of US Dollars 35 million. GIANT and GigaGen entered into a Research and Collaboration Agreement whereby in exchange of a collaboration fee of US Dollars 15 million in the aggregate, GigaGen will commit to carry out research activities to develop recombinant polyclonal immunoglobulin therapies derived from human B cells for the treatment of human diseases. Movement in Gigagen’s investment for the years ended 31 December 2020 and 2019 is as follows: Thousand of Euros 31/12/2020 31/12/2019 Balance at 1 January 23,997 28,363 Share of p rofit / (losses) Share of other comp rehensive income / translation differences (6,725) (1,595) (5,002) 636 15,677 23,997 Balance at 31 December Singulex, Inc. On 17 May 2016 Grifols subscribed and paid a capital increase for an amount of US Dollars 50 million (Euros 44,107 thousand) in the US company Singulex, Inc. (“Singulex”). As a result, Grifols held a 19.33% common stock interest in Singulex on a fully diluted basis at a pre-money valuation of US Dollars 200 million. Grifols was entitled to appoint a director to serve the board of directors of Singulex. As a result, Singulex granted Grifols an exclusive worldwide license for the use and sale of Singulex’ technology for the blood donor and plasma screening which has ensured the safety of blood and plasma products. During the second half of 2019, Singulex announced the cease of all its operations, after entering bankruptcy. Therefore, the Group impaired both the investment made and loans granted by Grifols to this company. Movement in Singulex, Inc.’s investment for the year ended 31 December 2019 is as follows: 58

 

 

 

 

8052-1-bk_part 2 of 5 consolidated 2020_page_059.jpg GRIFOLS, S.A. AND SUBSIDIARIES Notes to the Consolidated Annual Accounts (Free translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails) T housand of Euros 31/12/2019 Balance at 1 January 19,256 Share of other comp rehensive income / translation differences Losses for Imp airment 538 (19,794) Balance at 31 December 0 Interstate Blood Bank, Inc. (IBBI) On 11 May 2016 Grifols acquired a 49.19% stake in Interstate Blood Bank, Inc. (IBBI), 48.97% of Bio-Blood Components, Inc. (Bio-Blood) and 48.90% of Plasma Biological Services, LLC. (PBS) (“IBBI Group”), with headquarters in Memphis, USA, for the price of US Dollars 100 million (Euros 88,215 thousand). The Group also entered into a call option on the remaining shares for a price of US Dollars 100 million, having agreed a payment of US Dollars 10 million (Euros 9,007 thousand) for the call option. The purchase price and the call right were paid upon signature of the contract. The principal business activity of IBBI and its affiliates is the collection of plasma for the plasma fractionation industry, with 26 plasma collection centers, 9 blood donation centers and one laboratory. In April 2019, the Group exercised the call option and completed the acquisition of the remaining shares of the IBBI group companies (see note 3). Movement in Interstate Blood Bank, Inc., Bio-blood Components, Inc. and Plasma Biological Services, LLC.’s investment for the year ended 31 December 2019 is as follows: Thousands of Euros 31/12/2019 IBBI Bio-Blood PBS TOTAL 2019 Balance at 1 January 29,595 38,223 21,809 89,627 Transfers Share of p rofit / (losses) Share of other comp rehensive income / translation differences Collected dividend (31,453) 6,853 (3,251) (1,744) (38,606) (2,543) 2,926 --(24,068) 276 1,983 --(94,127) 4,586 1,658 (1,744) Balance at 31 December 0 0 0 0 The last financial statements available of the main equity-accounted investments of Grifols are the following: Thousand of Euros Access Biologicals S RAAS GigaGen Non-current assets Current assets Cash and cash equivalents Non-current liabilities Non-current financial liabilities Current liabilities Current financial liabilities Net assets 2,617,024 402,876 250,073 (5,074) --(29,088) (969) 2,795 19,619 4,178 (1,497) --(3,670) (1,486) 1,488 5,610 13,483 (8,208) (98) (3,096) (609) 3,234,842 19,939 8,570 59

 

 

 

 

8052-1-bk_part 2 of 5 consolidated 2020_page_060.jpg GRIFOLS, S.A. AND SUBSIDIARIES Notes to the Consolidated Annual Accounts (Free translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails) Thousand of Euros Access Biologicals S RAAS GigaGen Net revenue Profit for the y ear 259,429 139,459 50,093 17,221 1,577 (9,030) (12) Financial Assets Details of non-current financial assets on the consolidated balance sheet at 31 December 2020 and 2019 are as follows: Thousands of Euros 31/12/2020 31/12/2019 3,008 7 Financial investments in shares with stock market Total Non-current financial assets measured at fair value 3,008 7 Non-current guarantee dep osits Other non-current financial assets (a) Non-current loans to related p arties (see note 31) Non-current loans to associates (b) (see note 31) Total Non-current financial assets measured at amortized cost 6,268 108,030 80,851 --5,433 29,504 86,363 17,623 195,149 138,923 Details of current financial assets on the consolidated balance sheet at 31 December 2020 and 2019 are as follows: Thousands of Euros 31/12/2020 31/12/2019 --1,716,738 Other current financial assets (c) (see note 30) Total Non-current financial assets measured at fair value --1,716,738 Thousands of Euros 31/12/2020 31/12/2019 Dep osits and guarantees Other current financial assets (a) Current loans to third p arties Current loans to associates (b) (see note 31) Total other current financial assets 162 10,861 95 --713 10,691 65 719 11,118 12,188 (a) Other financial assets The closing balance is mainly related to balances with other related parties (see note 31). (b) Loans to associates During fiscal year 2018, the Group granted a credit line of US Dollars 100 million to Alkahest, which bears interest at an annual rate of 5% and matures in 2021. At 31 December 2019, Alkahest drew down an amount of US Dollars 20 million (Euros 18,342 thousand). As from 2 September 2020, Alkahest is considered part of the group and has 60

 

 

 

 

8052-1-bk_part 2 of 5 consolidated 2020_page_061.jpg GRIFOLS, S.A. AND SUBSIDIARIES Notes to the Consolidated Annual Accounts (Free translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails) been incorporated into the Group’s consolidation perimeter by the full consolidation method instead of the equity method (see notes 3 and 11). (c) Other current financial assets At 31 December 2019, Grifols delivered 90 shares of its subsidiary GDS in exchange for a contractual right resulting in an investment in an associate (equivalent to 1,766 million of SRAAS shares), because at that date no shares of SRAAS were received. As a consequence, at 31 December 2019, SRAAS was the minority shareholder owner of 45% of GDS. Such contractual right meets the definition of a financial asset under IFRS 9 – Financial Instruments and was classified as a financial asset at fair value through profit or loss as it did not comply with the principal and interest payment criteria (because shares in SRAAS would be received). Grifols recognised the aforementioned contractual right for the fair value of the GDS shares delivered and subsequently this right was measured based on its fair value through profit or loss. This asset amounted to Euros 1,717 million (see notes 11 and 30). (13) Inventories Details of inventories at 31 December 2020 and 2019 are as follows: Thousands of Euros 31/12/2020 31/12/2019 Goods for resale Raw materials and sup p lies Work in p rogress and semi-finished goods Finished goods 158,049 595,392 654,724 594,116 139,738 766,089 921,240 515,523 2,002,281 2,342,590 Movement in the inventory provision was as follows: Thousands of Euros 31/12/2020 31/12/2019 31/12/2018 Balance at 1 January 104,251 48,840 35,764 Net charge for the y ear Cancellations for the y ear Translation differences 42,255 (189) (23,704) 42,096 (118) 13,433 10,398 (558) 3,236 Balance at 31 December 122,613 104,251 48,840 (14) Trade and Other Receivables 61

 

 

 

 

8052-1-bk_part 2 of 5 consolidated 2020_page_062.jpg GRIFOLS, S.A. AND SUBSIDIARIES Notes to the Consolidated Annual Accounts (Free translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails) Details at 31 December 2020 and 2019 are as follows: Thousands of Euros 31/12/2020 31/12/2019 Trade receivables Receivables from associates (note 31) Imp airment losses (note 30) 404,771 1,447 (22,985) 390,205 1,883 (22,291) Trade receivables Other receivables (note 30) Personnel Advance p ay ments (note 30) Taxation authorities, VAT recoverable Other p ublic entities O ther receivables Current income tax assets Total trade and other receivables 383,233 8,324 822 16,053 38,747 8,414 369,797 8,403 2,163 20,864 46,561 4,518 72,360 64,565 82,509 38,269 520,158 490,575 Other receivables During 2020, 2019 and 2018 the Grifols Group has sold receivables without recourse to some financial institutions (factors), to which the risks and benefits inherent to the ownership of the assigned credits are substantially transferred. Also, the control over the assigned credits, understood as the factor's ability to sell them to an unrelated third party, unilaterally and without restrictions, has been transferred to the factor. The main conditions of these contracts include the advanced collection of the assigned credits that vary between 70% and 100% of the nominal amount and a percentage of insolvency risk coverage on the factor side that varies between 90% and 100% of the nominal of the assigned credits. These contracts have been considered as without recourse factoring and the amount advanced by the factors has been derecognized from the balance sheet Likewise, in financial year 2020, some receivables assignment contracts were signed with a financial institution, in which Grifols retains the risks and benefits inherent to the ownership of the assigned credits. These contracts have been considered as with resource and the assigned amount remains in the consolidated balance sheet at 31 December 2020 and a short-term debt has been recognized for an amount equal to the consideration received from the factor for the assignment. The amount recognized is Euros 18,264 thousand at 31 December 2020 (see note 21). Total receivables without recourse sold to financial institutions through the aforementioned contracts in 2020 amount to Euros 2,735,973 thousand (Euros 1,593,260 thousand in 2019 and Euros 1,188,216 thousand in 2018). The finance cost of these operations for the Group totals approximately Euros 10,964 thousand which has been recognized under finance costs in the consolidated statement of profit and loss for 2020 (Euros 9,171 thousand in 2019 and Euros 6,053 thousand in 2018) (see note 27). Details of balances with related parties are shown in note 31. (15) Cash and Cash Equivalents 62

 

 

 

 

8052-1-bk_part 2 of 5 consolidated 2020_page_063.jpg GRIFOLS, S.A. AND SUBSIDIARIES Notes to the Consolidated Annual Accounts (Free translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails) Details of this caption of the consolidated balance sheet at 31 December 2020 and 2019 are as follows: Thousands of Euros 31/12/2020 31/12/2019 Current dep osits Cash in hand and at banks 134,875 444,772 63 741,919 Total cash and cash equivalents 579,647 741,982 (16) Equity Details of consolidated equity and movement are shown in the consolidated statement of changes in equity. (a) Share capital At 31 December 2020 and 2019, the Company’s share capital amounts to Euros 119,603,705 and comprises: Class A shares: 426,129,798 ordinary shares of Euros 0.25 par value each, subscribed and fully paid and of the same class and series. Class B shares: 261,425,110 non-voting preference shares of 0.05 Euros par value each, of the same class and series, and with the preferential rights set forth in the Company’s by-laws. The main characteristics of the Class B shares are as follows: Each Class B share entitles its holder to receive a minimum annual preferred dividend out of the distributable profits at the end of each year equal to Euros 0.01 per Class B share provided that the aggregate preferred dividend does not exceed the distributable profits of that year and a distribution of dividends has been approved by the Company’s shareholders. This preferred dividend is not cumulative if sufficient distributable profits are not obtained in the period. Each Class B share is entitled to receive, in addition to the above-mentioned preferred dividend, the same dividends and other distributions as for one Grifols ordinary share. Each Class B share entitles the holder to its redemption under certain circumstances, if a takeover bid for all or part of the shares in the Company has been made, except if holders of Class B shares have been entitled to participate in the bid on the same terms as holders of Class A shares. The redemption terms and conditions reflected in the Company’s by-laws limit the amount that may be redeemed, requiring that sufficient distributable reserves be available, and limit the percentage of shares to be redeemed in line with the ordinary shares to which the bid is addressed. In the event the Company were to be wound up and liquidated, each Class B share entitles the holder to receive, before any amounts are paid to holders of ordinary shares, an amount equal to the sum of (i) the par value of the Class B share, and (ii) the share premium paid for the Class B share when it was subscribed. In addition to the Class B liquidation preference amount, each holder is entitled to receive the same liquidation amount that is paid for each ordinary share. These shares are freely transferable. Since 23 July 2012 the ADSs (American Depositary Shares) representing Grifols’ Class B shares (non-voting shares) have had an exchange ratio of 1:1 in relation to Class B shares, ie.1 ADS represents 1 Class B share. The previous rate was 2 ADS per 1 Class B share. 63

 

 

 

 

8052-1-bk_part 2 of 5 consolidated 2020_page_064.jpg GRIFOLS, S.A. AND SUBSIDIARIES Notes to the Consolidated Annual Accounts (Free translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails) The Company’s knowledge of its shareholders is based on information provided voluntarily or in compliance with applicable legislation. According to the information available to the Company, there are no interests representing more than 10% of the Company’s total capital at 31 December 2020 and 2019. At 31 December 2020 and 2019, the number of outstanding shares is equal to the total number of Company shares, less treasury stock. Movement in outstanding shares during 2019 is as follows: Class A shares Class B shares Balance at 1 January 2019 (Acquisition) / disp osal of treasury stock (note 16 (d)) Balance at 31 December 2019 426,129,798 --257,606,659 403,399 426,129,798 258,010,058 Movement in outstanding shares during 2020 is as follows: Class A shares Class B shares Balance at 1 January 2020 (Acquisition) / disp osal of treasury stock (note 16 (d)) Balance at 31 December 2020 426,129,798 258,010,058 --402,888 426,129,798 258,412,946 (b) Share premium Movement in the share premium is described in the consolidated statement of changes in equity, which forms an integral part of this note to the consolidated annual accounts. (c) Reserves The drawdown of accumulated gains is subject to legislation applicable to each of the Group companies. At 31 December 2020, Euros 40,362 thousand equivalent to the carrying amount of development costs pending amortization of certain Spanish companies (Euros 12,891 thousand at 31 December 2019) (see note 8) are, in accordance with applicable legislation, restricted reserves which cannot be distributed until these development costs have been amortized. In June 2018, Grifols made the decision to divest in TiGenix and participated in the takeover bid made by Takeda in the first half of 2018. This divestment generated a positive impact on reserves of Euros 4,900 thousand and a negative impact of Euros 4,900 thousand in "Other comprehensive income". In June 2018, Grifols executed the purchase option for 6.41% of the shares of Progenika owned by Ekarpen Private Equity, S.A. for an amount of Euros 5,300 thousand. As a result, the Group increased its interest from 90.23% to 96.64%. The difference between the acquisition carried out by the Group and the non-controlling interest was recognized in reserves. In September 2018, the Group acquired 41,387 shares of Progenika Biopharma, S.A for an amount of Euros 4,333 thousand. As a result, the Group increased its interest from 96.64% to 99.99%. The difference between the acquisition carried out by the Group and the non-controlling interest was recognized against reserves. 64

 

 

 

 

8052-1-bk_part 2 of 5 consolidated 2020_page_065.jpg GRIFOLS, S.A. AND SUBSIDIARIES Notes to the Consolidated Annual Accounts (Free translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails) In June 2019, Kiro Grifols, S.L. increased capital by an amount of Euro 7,500 thousand. The Group continues to hold a 90% interest, with an increase in non-controlling interest that corresponds to 10% of the capital increase (see note 18). In July 2019, the Group acquired 33 shares of Progenika Biopharma, S.A for an amount of Euros 4 thousand. As a result, the Group increased its interest from 99.99% to 100%. With this acquisition, the Group has the full control of Progenika Biopharma, S.A and therefore it ceased to have non-controlling interest (see note 18). In April 2019 and December 2019 the Group subscribed two share capital increases in Araclon Biotech, S.L of Euros 16.8 million and Euros 5.9 million, respectively. After the latter capital increase Grifols’ interest rises to 75.1% (see note 18). At 31 December 2019, Grifols delivered 90 shares of its subsidiary Grifols Diagnostic Solutions, Inc. in exchange fora contractual right to receive equity instruments in an associate (equivalent to 1,766 million of SR shares), because at that date no shares of Shanghai RAAS Blood Products Co. Ltd. were received. This transaction generated an impact on reserves of Euros 227 million (see note 11). On 30 March 2020, the share exchange agreement was closed and Grifols received SRAAS shares corresponding to 26.2% of its share capital. Therefore, Grifols becomes the largest shareholder of SRAAS, while maintaining operational, political and economic control of GDS (see notes 11 and 18). This transaction generated an impact in reserves of Euros 408 million. On 14 April 2020, Grifols made a contribution of Euros 10 million in cash that was recognized as a shareholder contribution in Plasmavita. The equity share of 50% has remained unchanged after the contribution. However, with the new shareholder agreement signed on this date, it can be concluded that Grifols has control over Plasmavita and, therefore, it is considered part of the group and it has been fully consolidated (see note 3 (a), notes 11 and 18). On 2 September 2020, Grifols signed an agreement to acquire all the shares of Alkahest Inc. ("Alkahest") for a total amount of Euros 123,425 thousand (US Dollars 146,000 thousand). Likewise, as a result of agreements between shareholders, Grifols obtained control of Alkahest on 2 September 2020. As from this date, Alkahest is considered a group company and it is fully consolidated (see notes 3, 11 and 18). In December 2020 the Group subscribed a share capital increase in VCN Biosciences, S.L. of Euros 5 million. After this capital increase Grifols’ interest rises to 86.827% (see note 18). In December 2020, Kiro Grifols, S.L. increased capital by an amount of Euro 10,000 thousand. The Group continues to hold a 90% interest, with an increase in non-controlling interest that corresponds to 10% of the capital increase (see note 18). At 31 December 2020 and 2019 reserves include the IFRS-EU first-time adoption revaluation reserves and legal reserve of certain Group companies. Legal reserve Companies in Spain are obliged to transfer 10% of each year‘s profits to a legal reserve until this reserve reaches an amount equal to 20% of share capital. This reserve is not distributable to shareholders and may only be used to offset losses if no other reserves are available. Under certain conditions it may be used to increase share capital provided that the balance left on the reserve is at least equal to 10% of the nominal value of the total share capital after the increase. At 31 December 2020 and 2019 the legal reserve of the Company amounts to Euros 23,921 thousand which corresponds to 20% of the share capital. Distribution of the legal reserves of Spanish companies is subject to the same restrictions as those of the Company and at 31 December 2020 and 2019 the balance of the legal reserve of other Spanish companies amounts to Euros 2,066 thousand. 65

 

 

 

 

8052-1-bk_part 2 of 5 consolidated 2020_page_066.jpg GRIFOLS, S.A. AND SUBSIDIARIES Notes to the Consolidated Annual Accounts (Free translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails) Other foreign Group companies have a legal reserve amounting to Euros 3,677 thousand at 31 December 2020 (Euros 892 thousand at 31 December 2019). (d) Treasury stock At 31 December 2020 and December 2019 the Company does not have any Class A treasury stock. Movement in Class B treasury stock during 2019 was as follows: No. of Class B shares Thousands of Euros 3,818,451 55,441 Balance at 1 January 2019 Disp osal Class B shares (403,399) (5,857) 3,415,052 49,584 Balance at 31 December 2019 Movement in Class B treasury stock during 2020 is as follows: No. of Class B shares Thousands of Euros 3,415,052 49,584 Balance at 1 January 2020 Disp osal Class B shares Balance at 31 December 2020 (402,888) (5,850) 3,012,164 43,734 In March 2020 the Group delivered 402,888 treasury stocks (Class B shares) to eligible employees as compensation for the Restricted Share Unit Retention Plan (see note 29). In March 2019 the Group delivered 403,399 treasury stocks (Class B shares) to eligible employees as compensation for the Restricted Share Unit Retention Plan (see note 29). The Parent held Class B treasury stock equivalent to 0.4% of its capital at 31 December 2020 (0.5% at 31 December 2019). (e) Distribution of profit The profits of Grifols, S.A. and subsidiaries will be distributed as agreed by respective shareholders at their general meetings. The proposed distribution of profit of the Parent Grifols, S.A. for the years ended 31 December 2020, and the distribution of profit approved for 2019, presented at the general meeting held on 8 October 2020, is as follows: Thousands of Euros 31/12/2020 31/12/2019 Voluntary reserve Dividends Profit of the Parent 62,134 2,614 1,380,207 250,058 64,748 1,630,265 66

 

 

 

 

8052-1-bk_part 2 of 5 consolidated 2020_page_067.jpg GRIFOLS, S.A. AND SUBSIDIARIES Notes to the Consolidated Annual Accounts (Free translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails) Likewise, the Parent Company will propose a distribution of dividends charged to voluntary reserves for and amount of Euros 247,520 thousand. The following dividends were paid in 2019: 31/12/2019 % of p ar value Euros p er share Thousands of Euros Ordinary shares Non-voting shares Non-voting shares (p referred dividend) 58% 290% 20% 0.15 0.15 0.01 61,850 37,448 2,614 Total dividends p aid 101,912 31/12/2019 % of p ar value Euros p er share Thousands of Euros Ordinary shares (interim dividend) Non-voting shares (interim dividend) 80% 400% 0.20 0.20 85,226 51,602 Total interim dividends p aid 136,828 The following dividends were paid in 2020: 31/12/2020 % of p ar value Euros p er share Thousands of Euros Ordinary shares Non-voting shares Non-voting shares (p referred dividend) Total dividends p aid During 2020 no interim dividend has been paid. 65% 323% 20% 0.16 0.16 0.01 68,859 41,757 2,614 113,230 At the meeting held on 25 October, 2019, the Board of Directors of Grifols approved the distribution of interim dividend for 2019, of Euros 0.20 for each Class A and B share, recognizing a total of Euros 136,828 thousand as interim dividend. These amounts to be distributed did not exceed the profits generated by the Company since the end of the last reporting period, less the estimated income tax payable on these profits, in accordance with article 277 of the Revised Spanish Companies Act. The Statement of Liquidity for Distribution of Interim Dividend of Grifols, S.A. prepared in accordance with legal requirements and which shows the existence of sufficient liquidity to be able to distribute the aforementioned interim dividend is provided in Appendix VI. At a general meeting held on 8 and 9 October 2020 the shareholders of Grifols S.A. approved the distribution of a preferred dividend of Euros 0.01 for every Class B non-voting share. The distribution of the profit for the years ended 31 December 2019 and 2020 is presented in the consolidated statement of changes in equity. (f) Restricted Share Unit Retention Plan 67

 

 

 

 

8052-1-bk_part 2 of 5 consolidated 2020_page_068.jpg GRIFOLS, S.A. AND SUBSIDIARIES Notes to the Consolidated Annual Accounts (Free translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails) The Group has set up a Restricted Share Unit Retention Plan (hereinafter RSU Plan) for certain employees (see note 29). This commitment will be settled using equity instruments and the cumulative accrual amounts to Euros 13,880 thousand at 31 December 2020 (Euros 12,498 thousand at 31 December 2019). (17) Earnings Per Share The calculation of basic earnings per share is based on the profit for the year attributable to the shareholders of the Parent divided by the weighted average number of ordinary shares in circulation throughout the year, excluding treasury stock. Details of the calculation of basic earnings per share are as follows: Thousands of Euros 31/12/2020 31/12/2019 31/12/2018 Profit for the y ear attributable to shareholders of the Parent (thousands of Euros) Weighted average number of ordinary shares outstanding 618,546 625,146 596,642 685,515,740 685,115,836 684,709,377 Basic earnings p er share (Euros p er share) 0.90 0.91 0.87 The weighted average of the ordinary shares outstanding (basic) is as follows: Number of shares 31/12/2020 31/12/2019 31/12/2018 Issued shares outstanding at 1 January Effect of shares issued Effect of treasury stock 685,198,238 --317,502 684,794,839 --320,997 684,346,294 --363,083 Average weighted number of ordinary shares outstanding (basic) at 31 December 685,515,740 685,115,836 684,709,377 Diluted earnings per share are calculated by dividing profit for the year attributable to shareholders of the Parent by the weighted average number of ordinary shares in circulation considering the diluting effects of potential ordinary shares. The RSU Plan granted by the Group and payable in shares, assumes the existence of dilutive potential shares. Diluted earnings per share have been calculated as follows: Thousands of Euros 31/12/2020 31/12/2019 31/12/2018 Profit for the y ear attributable to shareholders of the Parent (thousands of Euros) Weighted average number of ordinary shares outstanding (diluted) Diluted earnings p er share (Euros p er share) 618,546 625,146 596,642 685,142,749 684,719,195 684,686,164 0.90 0.91 0.87 The weighted average number of ordinary shares outstanding diluted has been calculated as follows: 68

 

 

 

 

8052-1-bk_part 2 of 5 consolidated 2020_page_069.jpg GRIFOLS, S.A. AND SUBSIDIARIES Notes to the Consolidated Annual Accounts (Free translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails) Number of shares 31/12/2020 31/12/2019 31/12/2018 Issued shares outstanding at 1 January Effect of RSU shares Effect of shares issued 685,198,238 (372,991) --684,794,839 (396,641) --684,346,294 (23,213) --Effect of treasury stock 317,502 320,997 363,083 Average weighted number of ordinary shares outstanding (diluted) at 31 December 685,142,749 684,719,195 684,686,164 (18) Non-Controlling Interests Details of non-controlling interests and movement at 31 December 2019 are as follows: Thousands of Euros Business combinations / Perimeter Balance at 31/12/2018 Translation differences Balance at 31/12/2019 Additions Disp osals addit ions Grifols (Thailand) Pte Ltd Grifols M alay sia Sdn Bhd Araclon Biotech, S.A. Progenika Biop harma, S.A. VCN Bioscience, S.L Kiro Grifols , S.L. Haema AG BPC Plasma, Inc (formerly Biotest US Corp oration) Grifols Diagnostic Solutions, Inc. 3,935 1,735 (3,488) 9 140 (352) 220,190 248,881 193 380 (1,975) --(292) (374) 5,881 19,685 ---- --(9) ---- ---- ---- 5,892 ---- 750 ---- 421 56 ---- ---- --11,444 4,549 2,171 429 0 (152) 24 226,071 280,010 --1,510,547 ---- --1,510,547 471,050 1,534,045 (9) 6,642 11,921 2,023,649 Details of non-controlling interests and movement at 31 December 2020 are as follows: Thousands of Euros Business combinations / Perimeter Balance at 31/12/2019 Translation differences Balance at 31/12/2020 Additions addit ions Grifols (Thailand) Pte Ltd Grifols M alay sia Sdn Bhd Araclon Biotech, S.A. VCN Bioscience, S.L Kiro Grifols , S.L. Haema AG BPC Plasma, Inc (formerly Biotest US Corp oration) Grifols Diagnostic Solutions, Inc. Plasmavita Healthcare (see note 3) Alkahest, Inc. 4,549 2,171 429 (152) 24 226,071 221 932 (1,517) (235) (426) 5,213 ---- 0 703 1,000 --(432) (180) ---- ---- 4,338 2,923 (1,088) 316 598 231,284 280,010 19,032 --(24,047) 274,995 1,510,547 ---- 69,520 (22) (2,274) (408,675) 10,687 2,274 (83,760) ---- 1,087,632 10,665 0 2,023,649 90,444 (394,011) (108,419) 1,611,663 69

 

 

 

 

8052-1-bk_part 2 of 5 consolidated 2020_page_070.jpg GRIFOLS, S.A. AND SUBSIDIARIES Notes to the Consolidated Annual Accounts (Free translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails) At 31 December 2020 and 2019, the summary financial information on the non-controlling interests of Haema AG and BPC Plasma, Inc., is as follows: Thousands of Euros Thousands of Euros 31/12/2020 31/12/2019 BPC Plasma, Inc Haema AG (formerly Biotest US Corporation) BPC Plasma, Inc (formerly Biotest US Corporation) Haema AG Non-current assets Current assets Total Assets 249,806 336,321 244,107 299,045 31,237 43,750 32,576 60,099 281,043 380,071 276,683 359,144 Non-current liabilities Current liabilities Total Liabilities 27,123 52,977 22,226 56,425 22,636 52,099 28,386 22,709 49,759 105,076 50,612 79,134 Total equity 231,284 274,995 226,071 280,010 At 31 December 2020 and 2019, the summary financial information on the non-controlling interests of GDS Group is as follows: T housands of Euros T housands of USD T housands of Euros T housands of USD 31/12/2020 31/12/2020 31/12/2019 31/12/2019 Non-current assets Current assets Total Assets 3,393,188 4,151,227 3,416,366 3,834,871 277,834 339,902 273,259 306,734 3,671,022 4,491,129 3,689,625 4,141,605 Non-current liabilities Current liabilities Total Liabilities 256,244 313,489 224,635 252,153 131,754 161,187 108,220 121,478 387,998 474,676 332,855 373,631 Total equity 3,283,024 4,016,453 3,356,770 3,767,974 (19) Grants Details are as follows: Thousands of Euros 31/12/2020 31/12/2019 Cap ital grants Interest rate grants (p reference loans) (See note 21 (d)) 16,509 499 10,785 592 17,008 11,377 Interest-rate grants (preference loans) reflect the implicit interest on loans extended by the Spanish Ministry of Science and Technology as these are interest free. Grants totaling Euros 1,683 thousand have been recognized in the consolidated statement of profit and loss for the year ended 31 December 2020 (Euros 1,388 thousand for the year ended 31 December 2019). (20) Provisions 70

 

 

 

 

8052-1-bk_part 2 of 5 consolidated 2020_page_071.jpg GRIFOLS, S.A. AND SUBSIDIARIES Notes to the Consolidated Annual Accounts (Free translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails) Details of provisions at 31 December 2020 and 2019 are as follows: Thousands of Euros Non-current provisions (a) 31/12/2020 31/12/2019 Provisions for p ensions and similar obligations Other p rovisions 6,767 20,504 5,991 2,039 Non-current p rovisions 27,271 8,030 T housands of Euros Current provisions (b) 31/12/2020 31/12/2019 Trade p rovisions 11,175 53,109 Current p rovisions 11,175 53,109 (a) Non-current provisions At 31 December 2020, 2019 and 2018 provisions for pensions and similar obligations mainly comprise a provision made by certain foreign subsidiaries in respect of labor commitments with certain employees. Movement in provisions during 2018 was as follows: Thousands of Euros Balance at 31/12/2017 Translation differences Balance at 31/12/2018 Net charge Cancellations Reclassifications Non-current p rovisions 5,763 635 (565) 277 4 6,114 5,763 635 (565) 277 4 6,114 Movement in provisions during 2019 was as follows: Thousands of Euros Balance at 31/12/2018 Translation differences Balance at 31/12/2019 Net charge Cancellations Reclassifications Non-current p rovisions 6,114 1,467 (30) 464 15 8,030 6,114 1,467 (30) 464 15 8,030 Movement in provisions during 2020 is as follows: Thousands of Euros Balance at 31/12/2019 Translation differences Balance at 31/12/2020 Net charge Cancellations Reclassifications Non-current p rovisions 8,030 414 (175) 20,527 (1,525) 27,271 8,030 414 (175) 20,527 (1,525) 27,271 71

 

 

 

 

8052-1-bk_part 2 of 5 consolidated 2020_page_072.jpg GRIFOLS, S.A. AND SUBSIDIARIES Notes to the Consolidated Annual Accounts (Free translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails) (b) Current provisions Movement in trade provisions during 2018 was as follows: Thousands of Euros Balance at 31/12/2017 Translation differences Balance at 31/12/2018 Net charge Cancellations Trade p rovisions 106,995 (30,668) (290) 4,018 80,055 106,995 (30,668) (290) 4,018 80,055 Movement in trade provisions during 2019 was as follows: Thousands of Euros Balance at 31/12/2018 Translation differences Balance at 31/12/2019 Net charge Cancellations Trade p rovisions 80,055 (25,249) (3,142) 1,445 53,109 80,055 (25,249) (3,142) 1,445 53,109 Movement in trade provisions during 2020 is as follows: Thousands of Euros Balance at 31/12/2019 Business combination Translation differences Balance at 31/12/2020 Net charge Cancellations Reclassifications Trade p rovisions 53,109 954 (21,998) (247) (20,059) (584) 11,175 53,109 954 (21,998) (247) (20,059) (584) 11,175 (21) Financial Liabilities This note provides information on the contractual conditions of the Group’s financial liabilities, which are measured at amortized cost. For further information on exposure to interest rate risk, currency risk and liquidity risk and the fair values of financial liabilities, please refer to note 30. Details at 31 December 2020 and 2019 are as follows: 72

 

 

 

 

8052-1-bk_part 2 of 5 consolidated 2020_page_073.jpg GRIFOLS, S.A. AND SUBSIDIARIES Notes to the Consolidated Annual Accounts (Free translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails) T housands of Euros Fi nanci al l i abi l i ti e s 31/12/2020 31/12/2019 Non-current obligations (a) Senior secured debt (b) Other loans (b) Other non-current financial liabilities (d) Non-current lease liabilities (note 9) Loan transaction costs 2,675,000 3,335,415 183,771 10,272 690,857 (293,215) 2,675,000 3,551,300 216,686 59,981 696,285 (353,184) Total non-current financial liabilities 6,602,100 6,846,068 Current obligations (a) Senior secured debt (b) Other loans (b) Other current financial liabilities (d) Current lease liabilities (note 9) Loan transaction costs 125,843 34,035 170,730 105,041 42,642 (53,679) 111,378 35,872 184,164 41,768 44,405 (56,275) Total current financial liabilities 424,612 361,312 On 7 May 2020, the Group concluded the upsize of the multi-currency revolving credit facility from US Dollars 500 million to US Dollars 1,000 million with maturity in November 2025. On 15 November 2019 the Group concluded the refinancing process of its senior secured debt for Euros 5,800 million. The new financing includes a Term Loan B for US Dollars 2,500 million and Euros 1,360 million, both aimed at institutional investors; the issue of two bonds for Euros 1,675 million (Senior Secured Notes); and the extension of a multi-currency revolving credit facility up to US Dollars 500 million. Grifols calculated the impact of the IFRS 9 in the new financing process concluding that it did not result in a derecognition of the liability as it has not passed the 10% quantitative test. According to the IASB’s interpretation, when a financial liability measured at amortized cost is modified or exchanged and does not result in the derecognition of the financial liability, a gain or loss should be recognized in profit or loss, calculated as the difference between the original contractual cash flows from the liability and the modified cash flows, discounted at the original effective interest rate of the liability. Following the standard, the Group recognized an income of Euros 97,850 thousand in the 2019 statement of profit and loss (see note 27). In September 2018, Grifols obtained a new non-current loan from the European Investment Bank totaling Euros 85,000 thousand that will be used by Grifols to support its investments in R&D, mainly focused on the search for new therapeutic indications for plasma-derived protein therapies. The financial terms include a fixed interest rate, a maturity of 10 years with a grace period of 2 years. On 5 December 2017 and 28 October 2015, the Group arranged loans with the same entity and with the same conditions for amounts of Euros 85,000 thousand and Euros 100,000 thousand, respectively. At 31 December 2020, the carrying amount of the loans obtained from the European Investment Bank amounts to Euros 212,500 thousand (Euros 233,750 thousand at 31 December, 2019). (a) Senior Notes On 15 November 2019, as part of its refinancing process, Grifols, S.A. issued Euros 1,675 million of Senior Secured Notes segmented in two notes of Euros 770 million and Euros 905 million. These notes will mature in 2027 and 2025 and will bear annual interest at a rate of 2.25% and 1.625%, respectively. On 15 November 2019 the notes were admitted to listing on the Irish Stock Exchange. 73

 

 

 

 

8052-1-bk_part 2 of 5 consolidated 2020_page_074.jpg GRIFOLS, S.A. AND SUBSIDIARIES Notes to the Consolidated Annual Accounts (Free translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails) On 18 April 2017, Grifols, S.A., issued Euros 1,000 million of Senior Unsecured Notes that will mature in 2025 and will bear annual interest at a rate of 3.20%. On 2 May 2017 the Notes were admitted to listing on the Irish Stock Exchange. There has been no movement regarding the Senior Notes in 2020. Details of movement in the Senior Notes at 31 December 2019 are as follows: Thousands of Euros Op ening outstanding Closing outstanding balance 01/01/19 Refinancing balance 31/12/19 Senior Unsecured Notes (nominal amount) Senior Secured Notes (nominal amount) Total 1,000,000 ---- 1,675,000 1,000,000 1,675,000 1,000,000 1,675,000 2,675,000 At 31 December 2020 and 2019 the current obligations caption includes the issue of bearer promissory notes to Group employees, as follows: 31/12/2019 Promissory Interest Nominal amount of p romissory notes (Euros) Buy back (Thousands of Euros) notes subscribed (Thousands of p ending accrual (Thousands of M aturity date Interest rate Issue date Euros) Euros) Issue of bearer p romissory notes 05/05/19 04/05/20 3,000 5.00% 103,122 (1,170) (1,686) 31/12/2020 Promissory notes subscribed (Thousands of Interest p ending accrual (Thousands of Nominal amount of p romissory notes (Euros) Buy back (Thousands of Euros) M aturity date Interest rate Issue date Euros) Euros) Issue of bearer p romissory notes 04/05/20 04/05/21 3,000 3.00% 116,352 (3,612) (1,118) 74

 

 

 

 

8052-1-bk_part 2 of 5 consolidated 2020_page_075.jpg GRIFOLS, S.A. AND SUBSIDIARIES Notes to the Consolidated Annual Accounts (Free translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails) (b) Loans and borrowings Details of loans and borrowings at 31 December 2020 and 2019 are as follows: Thousands of Euros 31/12/2020 31/12/2019 Credit Currency Interest rate Date awarded M aturity date Amount extended Carry ing amount Amount extended Carry ing amount Senior debt - Tranche B Senior debt - Tranche B Total senior debt Euros US Dollars Euribor + 2.25% Libor + 2.00% 15/11/2019 15/11/2019 15/11/2027 15/11/2027 1,360,000 2,227,171 1,332,800 2,002,615 1,360,000 2,227,171 1,346,400 2,204,900 3,587,171 3,335,415 3,587,171 3,551,300 EIB Loan EIB Loan EIB Loan Total EIB Loan Euros Euros Euros 2.40% 2.02% 2.15% 20/11/2015 22/12/2017 25/09/2018 20/11/2025 22/12/2027 25/09/2028 100,000 85,000 85,000 42,500 63,750 74,375 100,000 85,000 85,000 53,125 74,375 85,000 270,000 180,625 270,000 212,500 Revolving Credit Total Revolving Credit US Dollars Libor + 1.5% 15/11/2019 15/11/2025 817,394 --445,434 --817,394 --445,434 --Other non-current loans Euros 1.93% 21/11/2014 30/09/2024 10,000 3,146 10,000 4,186 Loan transaction costs --(223,944) --(266,214) Non-curre nt loans and borrowings 4,684,565 3,295,242 4,312,605 3,501,772 75

 

 

 

 

8052-1-bk_part 2 of 5 consolidated 2020_page_076.jpg GRIFOLS, S.A. AND SUBSIDIARIES Notes to the Consolidated Annual Accounts (Free translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails) Thousands of Euros 31/12/2020 31/12/2019 Interest rate Date awarded M aturity date Amount extended Carry ing amount Amount extended Carry ing amount Credit Currency Senior debt - Tranche B Senior debt - Tranche B Total senior debt Euros US Dollars Euribor + 2.25% Libor + 2.00% 15/11/2019 15/11/2019 15/11/2027 15/11/2027 (*) (*) 13,600 20,435 (*) (*) 13,600 22,271 --34,035 --35,871 Euros Euros 2.40% 2.02% EIB Loan EIB Loan 20/11/2015 22/12/2017 20/11/2025 22/12/2027 (*) (*) 10,625 21,250 (*) (*) 10,625 10,625 Total EIB Loan --31,875 --21,250 0.10% - 4.06% Other current loans 241,895 138,855 239,782 162,914 Loan transaction costs --(35,209) --(34,068) Curre nt loans and borrowings (*) See amount granted under non-current debt 241,895 169,556 239,782 185,967 76

 

 

 

 

8052-1-bk_part 2 of 5 consolidated 2020_page_077.jpg GRIFOLS, S.A. AND SUBSIDIARIES Notes to the Consolidated Annual Accounts (Free translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails) Current loans and borrowings include accrued interest amounting to Euros 7,262 thousand at 31 December 2020 (Euros 6,266 thousand at 31 December 2019). On 15 November 2019 the Group refinanced its Senior Secured Debt with the existing lenders. The new senior debt consists of a Term Loan B (“TLB”), which amount US Dollars 2,500 million and Euros 1,360 million with a 2.00% margin pegged to Libor and a 2.25% margin pegged to Euribor respectively, maturity in 2027 and quasi-bullet repayment structure. The borrowers of the total senior debt are Grifols, S.A. and Grifols Worldwide Operations USA, Inc. The present value discounted from cash flows under the new agreement, including any fees paid and discounted using the original effective interest rate differed by less than 10% of the present value discounted from cash flows remaining in the original debt, whereby it was considered that the debt instrument was not been substantially modified. The costs of refinancing the senior debt have amounted to Euros 84.4 million. Based on an analysis of the quantitative and qualitative factors, the Group concluded that the renegotiation of the terms of the senior debt did not imply a derecognition of the liability. According to the IASB’s interpretation published in October 2017, when a financial liability measured at amortized cost is modified or exchanged and does not result in the derecognition of the financial liability, a gain or loss should be recognized in profit or loss, calculated as the difference between the original contractual cash flows from the liability and the modified cash flows, discounted at the original effective interest rate of the liability. Following the standard, the Group recognized income of Euros 97,850 thousand in the statement of profit and loss for the year 2019 (see note 27). The terms and conditions of the senior secured debt are as follows: Tranche B: eight-year loan divided into two tranches: US Tranche B and Tranche B in Euros: o ▪ Tranche B in US Dollars: Original principal amount of US Dollars 2,500 million. Applicable margin of 200 basis points (bp) pegged to US Libor. Quasi-bullet repayment structure. Maturity in 2027. ▪ Tranche B in Euros: Original principal amount of Euros 1,360 million. Applicable margin of 225 basis points (bp) pegged to Euribor. Quasi-bullet repayment structure. Maturity in 2027. Details of Tranche B by maturity at 31 December 2020 are as follows: US Tranche B Tranche B in Euros Amortization in thous ands of US Dollars Amortization in thous ands of Euros Amortization in thousands of Euros Currency Currency Maturity 2021 2022 2023 2024 2025 2026 2027 US Dollars US Dollars US Dollars US Dollars US Dollars US Dollars US Dollars 25,000 25,000 25,000 25,000 25,000 25,000 2,325,000 20,435 20,435 20,435 20,435 20,435 20,435 1,900,441 Euros Euros Euros Euros Euros Euros Euros 13,600 13,600 13,600 13,600 13,600 13,600 1,264,800 Total US Dollars 2,475,000 2,023,051 Euros 1,346,400 77

 

 

 

 

8052-1-bk_part 2 of 5 consolidated 2020_page_078.jpg GRIFOLS, S.A. AND SUBSIDIARIES Notes to the Consolidated Annual Accounts (Free translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails) o US Dollar 1,000 million senior revolving credit facility: On 7 May 2020, the Group concluded the upsize of the multi-currency revolving credit facility from US Dollars 500 million to US Dollars 1,000 million with maturity in November 2025 and an applicable margin of 150 basis points (bp) pegged to US Libor. At 31 December 2020 no amount has been drawn down on this facility. The costs of refinancing of the revolving credit facility have amounted to Euros 9.3 million Both the Senior Term Loans and the Revolving Loans are secured by Grifols, S.A. and certain significant subsidiaries of Grifols, S.A., which together with Grifols, S.A., represent, in the aggregate, at least 70% of the consolidated EBITDA of the Group. The Notes have been issued by Grifols S.A. and are guaranteed on a senior secured basis by subsidiaries of Grifols, S.A. that are guarantors and co-borrower under the New Credit Facilities. The guarantors are Grifols Worldwide Operations Limited, Biomat USA, Inc., Grifols Biologicals Inc., Grifols Shared Services North America, Inc., Talecris Plasma Resources, Inc.., Grifols Therapeutics, Inc., Instituto Grifols, S.A., Grifols Worldwide Operations USA, Inc., Grifols USA, Llc. and Grifols International, S.A. (c) Credit rating In December 2020 and December 2019 Moody’s Investors Service confirmed the ‘Ba3’ corporate family rating, ‘Ba2’ rating to the senior secured bank debt that was used to refinance the existing debt structure. The outlook is downgraded to negative (stable in December 2019). The credit rating of the senior unsecured notes is B2. In December 2020 and December 2019 Standard & Poor’s has confirmed its ‘BB’ rating on Grifols and has assigned 'BB+ ratings to Grifols' senior secured debt that was used to refinance the existing debt structure. The outlook for the rating is stable. The credit rating of the senior unsecured notes is B+. (d) Other financial liabilities At 31 December 2020 “other financial liabilities” include interest-free loans extended by governmental institutions amounting to Euros 12,060 thousand (Euros 14,787 thousand at 31 December 2019). The portion of the loans considered a grant and still to be taken to profit and loss amounts to Euros 499 thousand (Euros 592 thousand at 31 December 2019) (see note 19). At 31 December 2020 “other current financial liabilities” include mainly the amount payable relating to the Alkahest, Inc. acquisition amounting to Euros 100,492 thousand (see note 3). At 31 December 2019, it mainly included the purchase option of Goetech, LLC amounting to US Dollars 20 million and an outstanding balance with a related party. Details of the maturity of other financial liabilities are as follows: T housands of Euros 31/12/2020 31/12/2019 M aturity at: Up to one y ear Two y ears Three y ears Four y ears Five y ears Over five y ears 105,041 3,945 1,976 1,580 1,141 1,630 41,768 50,585 2,977 1,870 1,420 3,129 115,313 101,749 78

 

 

 

 

8052-1-bk_part 2 of 5 consolidated 2020_page_079.jpg GRIFOLS, S.A. AND SUBSIDIARIES Notes to the Consolidated Annual Accounts (Free translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails) (e) Changes in liabilities derived from financing activities Thousand of Euros Senior Secured debt & Other Finance lease Other financial Obligations Total liabilities liabilities loans Book value at January 1, 2019 1,102,978 5,165,765 12,885 95,217 6,376,845 New financing Refunds Bear of interests Other movements (note 2) Collection / Pay ment of interests Business combination (note 3) Foreign exchange differences 1,778,218 (100,215) 37,095 (108,874) (32,000) ---- (1,522,466) (145,261) 171,535 24,121 (204,179) 10,233 187,991 --(73,785) 34,558 761,682 ---- 5,350 12,249 (8,152) 1,166 ---- --1,269 268,001 (327,413) 244,354 676,929 (236,179) 10,233 194,610 Balance at December 31, 2019 2,677,202 3,687,739 740,690 101,749 7,207,380 New financing Refunds Bear of interests Other movements Collection / Pay ment of interests Business combination (note 3) Foreign exchange differences 116,352 (105,564) 81,880 --(60,355) ---- --(66,047) 124,840 (10,468) (95,433) --(172,246) --(79,037) 35,084 88,867 ---- (52,105) --(22,681) 2,073 4,837 --34,778 (5,443) 116,352 (273,329) 243,877 83,236 (155,788) 34,778 (229,794) Balance at December 31, 2020 2,709,515 3,468,385 733,499 115,313 7,026,712 79

 

 

 

 

8052-1-bk_part 2 of 5 consolidated 2020_page_080.jpg GRIFOLS, S.A. AND SUBSIDIARIES Notes to the Consolidated Annual Accounts (Free translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails) (22) Trade and Other Payables Details are as follows: Thousands of Euros 31/12/2020 31/12/2019 S uppliers 601,618 581,882 VAT p ay able Taxation authorities, withholdings p ay able Social security p ay able Other p ublic entities 11,694 6,829 32,640 89,926 9,999 26,839 15,150 113,644 Other payables 141,089 165,632 Current income tax liabilities 3,482 5,966 746,189 753,480 Suppliers Details of balances with related parties are shown in note 31. The Group’s exposure to currency risk and liquidity risk associated with trade and other payables is described in note 30. In accordance with the second final provision of Law 31/2014 that amends Law 15/2010 of 5 July, for fiscal years 2020 and 2019 information concerning the average payment period to suppliers is included. Day s 31/12/2020 31/12/2019 Average p ay ment p eriod to sup p liers Paid invoices ratio Outstanding invoices ratio 71.56 72.5 65.7 72.9 74.0 65.3 T housands of Euros 31/12/2020 31/12/2019 Total invoices p aid Total outstanding invoices 635,214 96,121 577,017 85,550 (23) Other Current Liabilities Details at 31 December are as follows: Thousands of Euros 31/12/2020 31/12/2019 Salaries p ay able Other p ay ables Deferred income Advances received Other current liabilities 121,972 1,046 22,934 7,210 175,079 847 9,791 11,682 153,162 197,399 80

 

 

 

 

8052-1-bk_part 2 of 5 consolidated 2020_page_081.jpg GRIFOLS, S.A. AND SUBSIDIARIES Notes to the Consolidated Annual Accounts (Free translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails) (24) Net Revenues Net revenues are mainly generated from the sale of goods. The distribution of net consolidated revenues for 2020, 2019 and 2018 by segment is as follows: Thousands of Euros 31/12/2020 31/12/2019 31/12/2018 Bioscience Diagnostic Hosp ital Bio sup p lies Others Intersegments 4,242,502 775,889 118,675 224,090 31,989 (53,107) 3,993,462 733,604 134,441 266,540 22,820 (52,176) 3,516,704 702,265 119,454 167,004 22,451 (41,154) 5,340,038 5,098,691 4,486,724 The geographical distribution of net consolidated revenues is as follows: Thousands of Euros 31/12/2020 31/12/2019 31/12/2018 USA and Canada Sp ain Europ ean Union Rest of the world Consolidated 3,599,746 339,169 495,323 905,800 3,390,811 268,287 588,375 851,218 2,974,429 264,913 535,361 712,021 5,340,038 5,098,691 4,486,724 Details of discounts and other reductions in gross income are as follows: Thousands of Euros 31/12/2020 31/12/2019 31/12/2018 Gross sales 6,806,005 6,429,762 5,588,257 Chargebacks Cash discounts Volume rebates M edicare and M edicaid Other discounts Net sales (1,247,153) (68,912) (57,858) (61,089) (30,955) (1,119,540) (70,340) (56,426) (50,442) (34,323) (923,023) (62,518) (46,922) (40,343) (28,727) 5,340,038 5,098,691 4,486,724 81

 

 

 

 

8052-1-bk_part 2 of 5 consolidated 2020_page_082.jpg GRIFOLS, S.A. AND SUBSIDIARIES Notes to the Consolidated Annual Accounts (Free translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails) Movement in discounts and other reductions in gross income during 2018 were as follows: Thousands of Euros Cash Volume M edicare / Other Chargebacks Total discount s rebat es M edicaid discount s Balance at 31 December 2017 105,890 5,114 17,991 16,204 10,143 155,342 Current estimate related to sales made in current and p rior y ear (Actual returns or credits in current p eriod related to sales made in current p eriod) (Actual returns or credits in current p eriod related to sales made in p rior p eriods) 923,023 62,518 46,922 40,343 28,727 1,101,533 (1) (957,695) (56,568) (24,648) (21,324) (26,493) (1,086,728) (2) --(4,909) (16,384) (13,232) (3,781) (38,306) (3) Translation differences 3,957 286 916 950 241 6,350 Balance at 31 December 2018 75,175 6,441 24,797 22,941 8,837 138,191 Movement in discounts and other reductions to gross income during 2019 was as follows: Thousands of Euros Cash Volume M edicare / Other Chargebacks Total discount s rebat es M edicaid discount s Balance at 31 December 2018 75,175 6,441 24,797 22,941 8,837 138,191 Current estimate related to sales made in current and p rior y ear (Actual returns or credits in current p eriod related to sales made in current p eriod) (Actual returns or credits in current p eriod related to sales made in p rior p eriods) 1,119,540 70,340 56,426 50,442 34,323 1,331,071 (1) (1,104,493) (64,523) (28,014) (34,486) (22,490) (1,254,006) (2) 275 (6,385) (25,050) (20,375) (5,652) (57,187) (3) Translation differences (9) 24 546 389 53 1,003 Balance at 31 December 2019 90,488 5,897 28,705 18,911 15,071 159,072 Movement in discounts and other reductions to gross income during 2020 was as follows: 82

 

 

 

 

8052-1-bk_part 2 of 5 consolidated 2020_page_083.jpg GRIFOLS, S.A. AND SUBSIDIARIES Notes to the Consolidated Annual Accounts (Free translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails) Thousands of Euros Cash discounts Volume rebates M edicare / M edicaid Other discounts Chargebacks Total Balance at 31 December 2019 90,488 5,897 28,705 18,911 15,071 159,072 Current estimate related to sales made in current and p rior y ear (Actual returns or credits in current p eriod related to sales made in current p eriod) (Actual returns or credits in current p eriod related to sales made in p rior p eriods) Translation differences 1,247,153 68,912 57,858 61,089 30,955 1,465,966 (1) (1,033,053) (61,387) (27,798) (34,564) (30,509) (1,187,311) (2) (97,504) (6,030) (26,481) (14,526) (3,615) (148,156) (3) (16,215) (597) (2,614) (2,459) (139) (22,023) Balance at 31 December 2020 190,869 6,795 29,670 28,451 11,763 267,548 (1) Net imp act in income statement: estimate for the current y ear p lus p rior y ears' adjustments. Adjustments made during the y ear corresp onding to p rior y ears' estimates have not been significant. (2) Amounts credited and p osted against p rovisions for current p eriod (3) Amounts credited and p osted against p rovisions for p rior p eriod (25) Personnel Expenses Details of personnel expenses by function are as follows: Thousands of Euros 31/12/2020 31/12/2019 31/12/2018 Cost of sales Research and develop ment Selling, general & administration exp enses 1,058,132 110,682 988,689 106,472 810,512 93,817 383,851 382,472 345,224 1,552,665 1,477,633 1,249,553 Details by nature are as follows: T housands of Euros 31/12/2020 31/12/2019 31/12/2018 Wages and salaries Contributions to p ension p lans Other social charges Social Security 1,234,761 33,226 27,462 1,178,527 29,941 28,785 1,000,682 21,363 29,055 (see note 29) 257,216 240,380 198,453 1,552,665 1,477,633 1,249,553 83

 

 

 

 

8052-1-bk_part 2 of 5 consolidated 2020_page_084.jpg GRIFOLS, S.A. AND SUBSIDIARIES Notes to the Consolidated Annual Accounts (Free translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails) The average headcount during 2020 and 2019, by department, was approximately as follows: Average headcount 31/12/2020 31/12/2019 M anufacturing R&D - technical area Administration and others General management M arketing Sales and Distribution 17,697 1,050 1,550 288 205 17,027 994 1,405 252 187 1,305 1,282 22,095 21,147 The headcount of the Group employees and the Company’s directors at 31 December 2019, by gender, was as follows: 31/12/2019 Total number of M ale Female emp loy ees Directors M anufacturing Research&develop ment - technical area Administration and others General management M arketing Sales and Distribution 9 7,303 406 887 157 75 4 12,380 623 587 157 120 13 19,683 1,029 1,474 314 195 682 626 1,308 9,519 14,497 24,016 The headcount of the Group employees and the Company’s directors at 31 December 2020, by gender, is as follows: 31/12/2020 Total number of M ale Female emp loy ees Directors M anufacturing Research&develop ment - technical area Administration and others General management M arketing Sales and Distribution 9 7,169 427 992 145 89 4 11,880 688 669 156 130 13 19,049 1,115 1,661 301 219 691 619 1,310 9,522 14,146 23,668 (26) Expenses by Nature (a) Amortization and depreciation Expenses for the amortization and depreciation of intangible assets, right of use assets and property, plant and equipment, incurred during 2020, 2019 and 2018 classified by functions are as follows: 84

 

 

 

 

8052-1-bk_part 2 of 5 consolidated 2020_page_085.jpg GRIFOLS, S.A. AND SUBSIDIARIES Notes to the Consolidated Annual Accounts (Free translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails) Thousands of Euros 31/12/2020 31/12/2019 31/12/2018 Cost of sales Research and develop ment Selling, general & administration exp enses 198,310 32,814 90,409 193,081 22,471 86,903 146,530 19,836 62,243 321,533 302,455 228,609 (b) Other operating income and expenses Other operating income and expenses incurred during 2020, 2019 and 2018 by function are as follows: Thousands of Euros 31/12/2020 31/12/2019 31/12/2018 Cost of sales Research and develop ment Selling, general & administration exp enses 500,415 156,994 499,218 467,705 166,177 457,921 432,803 152,670 410,753 1,156,627 1,091,803 996,226 Details by nature are as follows: Thousands of Euros 31/12/2020 31/12/2019 31/12/2018 Changes in trade p rovisions Professional services Commissions Sup p lies and auxiliary materials Op erating leases (note 9) Freight Rep air and maintenance exp enses Advertising Insurance Roy alties Travel exp enses External services R&D Exp enses Other Other operating income&expenses (14,059) 265,539 27,147 187,370 28,176 137,466 147,039 55,073 30,776 40,634 23,005 71,240 101,410 55,811 (19,811) 244,355 32,178 170,021 33,235 130,663 136,377 59,063 25,647 10,674 61,346 64,099 103,053 40,903 (23,125) 211,305 21,941 149,831 84,299 112,340 107,806 44,659 22,632 10,726 51,428 53,391 100,889 48,104 1,156,627 1,091,803 996,226 85

 

 

 

 

8052-1-bk_part 2 of 5 consolidated 2020_page_086.jpg GRIFOLS, S.A. AND SUBSIDIARIES Notes to the Consolidated Annual Accounts (Free translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails) (27) Finance Result Details are as follows: Thousands of Euros 31/12/2020 31/12/2019 31/12/2018 Finance income 8,021 114,197 13,995 Finance cost from Senior Unsecured Notes Finance cost from senior debt (note 21 (b)) Finance cost from sale of receivables (note 14) Cap italized interest (note 10) Finance lease exp ense (note 9) Other finance costs Finance costs (85,182) (119,140) (10,964) 16,606 (35,205) (15,754) (41,920) (262,797) (9,171) 14,894 (34,558) (9,413) (35,471) (247,646) (6,053) 8,955 --(13,058) (249,639) (342,965) (293,273) --(37,666) 30,280 Imp airment and gains / (losses) on disp osal of financial instruments Change in fair value of financial instruments (note 11) Exchange differences Finance result 55,703 8,246 1,326 (9,616) --(8,246) (177,669) (274,724) (257,244) 2019 finance income from senior debt includes an income of Euros 97,850 thousand related to the refinancing effect (see note 21). During 2020 the Group has capitalized interest at a rate of between 3.72% and 4.70% based on the financing received (between 5.34% and 5.46% during 2019) (see note 4 (f)). “Change in fair value of financial instruments” includes the difference between the contractual right value recognized at 31 December 2019 and SRAAS quoted value at 30 March 2020 for an amount of Euros 56,526 thousand (see note 11). At 31 December 2019, as part of the share exchange agreement with Shanghai RAAS Blood Products Co. Ltd., Grifols delivered 90 shares of its subsidiary Grifols Diagnostic Solutions, Inc. in exchange for a contractual right to receive equity instruments in an associate, which generated a profit related to the measurement of the contractual right amounting to Euros 1 million at 31 December 2019 (see note 11). (28) Taxation Grifols, S.A. is authorized to file consolidated tax returns in Spain with Grifols Movaco, S.A., Laboratorios Grifols, S.A., Instituto Grifols, S.A., Biomat, S.A., Grifols Viajes, S.A., Grifols International, S.A., Grifols Engineering, S.A., Gripdan Invest, S.L., Araclon Biotech, Aigües Minerals de Vilajuiga, S.A. and VCN Biosciences, S.L. Grifols, S.A., in its capacity as Parent, is responsible for the filing and settlement of the consolidated tax return. Under prevailing tax law, Spanish companies pay 25% tax, which may be reduced by certain deductions. The North American company Grifols Shared Services North America, Inc. is also authorized to file consolidated tax returns in the USA with Grifols Biologicals Inc., Grifols USA, LLC., Biomat USA, Inc., Grifols Therapeutics Inc., Talecris Plasma Resources, Inc, Interstate Blood Bank, Inc. and Goetech, LLC.. The profits of the companies domiciled in the USA, determined in accordance with prevailing tax legislation, are subject to tax of approximately 22% of taxable income, which may be reduced by certain deductions. 86

 

 

 

 

8052-1-bk_part 2 of 5 consolidated 2020_page_087.jpg GRIFOLS, S.A. AND SUBSIDIARIES Notes to the Consolidated Annual Accounts (Free translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails) Grifols assesses the effect of uncertain tax treatments and recognizes the effect of the uncertainty on taxable earnings. At 31 of December 2020, the potential obligations deriving from tax claims are properly covered. There are no lawsuits or uncertain tax treatments that are individually material. (a) Reconciliation of accounting and taxable income Details of the income tax expense and income tax related to profit for the year are as follows: Thousands of Euros 31/12/2020 31/12/2019 31/12/2018 Profit before income tax from continuing op erations 725,842 878,629 817,103 Tax at 25% Permanent differences Effect of different tax rates Tax credits (deductions) Prior y ear income tax exp ense Other income tax exp enses/(income) Total income tax exp ense 181,461 (2,000) (29,543) (18,226) 381 (637) 219,657 (7,181) (30,686) (14,980) 517 2,312 204,276 6,104 (22,564) (12,702) (3,722) (2,933) 169,639 168,459 131,436 Deferred tax Current tax Total income tax exp ense (21,189) 152,625 43,138 126,501 58,275 110,184 169,639 168,459 131,436 The effect of the different tax rates is basically due to a change of country mix in profits (b) Deferred tax assets and liabilities Details of deferred tax assets and liabilities are as follows: 87

 

 

 

 

8052-1-bk_part 2 of 5 consolidated 2020_page_088.jpg GRIFOLS, S.A. AND SUBSIDIARIES Notes to the Consolidated Annual Accounts (Free translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails) Thousands of Euros Tax effect 31/12/2020 31/12/2019 31/12/2018 Assets Provisions Inventories Tax credits (deductions) Tax loss carry forwards Other 3,942 59,129 57,896 53,063 11,004 6,228 51,838 61,476 36,066 6,531 7,936 41,029 57,357 32,769 8,611 Subtotal, assets 185,034 162,139 147,702 Goodwill Fixed assets, amortisation and dep reciation Intangible assets (30,040) (3,011) (2,062) (27,721) (2,821) (8,573) (24,691) (3,922) (6,550) Subtotal, net liabilities Deferred assets, net (35,113) (39,115) (35,163) 149,921 123,024 112,539 Liabilities Goodwill Intangible assets Fixed assets Debt cancellation costs (215,907) (270,145) (78,325) (66,720) (194,964) (214,993) (88,498) (65,967) (150,644) (220,752) (99,819) (42,319) Subtotal, liabilities (631,097) (564,422) (513,534) Tax loss carry forwards Inventories Provisions Other 12,024 1,673 36,663 23,924 24,734 2,408 39,366 34,087 20,833 5,644 53,290 29,369 Subtotal, net assets Net deferred Liabilities 74,284 100,595 109,135 (556,813) (463,827) (404,398) Movement in deferred tax assets and liabilities is as follows: Thousands of Euros Deferred tax assets and liabilities 31/12/2020 31/12/2019 31/12/2018 Balance at 1 January M ovements during the y ear Business combination (note 3) Translation differences Balance at 31 December (340,803) (43,138) (47,988) 25,037 (291,859) (58,275) --9,331 (322,755) 21,189 21,328 (11,621) (406,892) (340,803) (291,859) 88

 

 

 

 

8052-1-bk_part 2 of 5 consolidated 2020_page_089.jpg GRIFOLS, S.A. AND SUBSIDIARIES Notes to the Consolidated Annual Accounts (Free translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails) Detail of assets and liabilities by jurisdiction at 31 December 2020 are as follows: US A S pain Other Total 31/12/2020 31/12/2020 31/12/2020 31/12/2020 Net deferred tax Tax credit rigths Tax loss carry forwards (466,961) --(36,298) 57,861 (26,616) 35 (529,875) 57,896 21,277 4,928 38,882 65,087 (445,684) 26,491 12,301 (406,892) Detail of assets and liabilities by jurisdiction at 31 December 2019 are as follows: US A S pain Other Total 31/12/2019 31/12/2019 31/12/2019 31/12/2019 Net deferred tax Tax credit rigths Tax loss carry forwards (392,040) 54,340 (35,117) 5,162 (35,921) 1,297 (463,078) 60,799 --61,476 --61,476 (337,700) 31,521 (34,624) (340,803) Detail of assets and liabilities by jurisdiction at 31 December 2018 are as follows: US A S pain Other Total 31/12/2018 31/12/2018 31/12/2018 31/12/2018 Net deferred tax Tax credit rigths Tax loss carry forwards (353,116) 46,722 (34,441) 5,669 (15,260) 1,210 (402,817) 53,601 --57,357 --57,357 (306,394) 28,585 (14,050) (291,859) The Spanish companies have opted to apply accelerated depreciation to certain additions to property, plant and equipment, which has resulted in the corresponding deferred tax liability. The remaining assets and liabilities recognized in 2020, 2019 and 2018 were recognized in the statement of profit and loss. Estimated net deferred tax assets to be reversed in a period of less than 12 months amount to Euros 89,750 thousand at 31 December 2020 (Euros 26,840 thousand at 31 December 2019). The majority of the tax deductions pending application from Spanish companies related mainly to research and development, mature in 18 years. Likewise, the Group estimates that practically the entire amount will be applied in 5 years. Tax loss carryforwards pending to be offset derived from the US companies are available for 20 years from their date of origin whilst tax losses carryforwards pending to be offset from Spanish companies registered in the Basque Country are available for 15 years and there is no maturity date for other remaining Spanish companies. The Group estimates that of the total amount of tax credits for tax losses recognized in the balance sheet at 31 December 2020 for an amount of Euros 65,087 thousand, approximately Euros 42,363 thousand will be recovered in a period of less than 5 years. 89

 

 

 

 

8052-1-bk_part 2 of 5 consolidated 2020_page_090.jpg GRIFOLS, S.A. AND SUBSIDIARIES Notes to the Consolidated Annual Accounts (Free translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails) The Group has not recognized as deferred tax assets the tax effect of the unused tax loss carryforwards of Group companies, which amount to Euros 93,585 thousand (Euros 66,364 thousand at 31 December 2019). The commitments from Spanish companies from the reversal of deferred tax related to provisions of investments in subsidiaries are not significant. (c) Years open to inspection Under prevailing legislation, taxes cannot be considered to be definitively settled until the returns filed have been inspected by the taxation authorities, or the prescription period has elapsed. The main tax audits currently open in the Group are as follows: Grifols Shared Services North America, Inc. and subsidiaries: In 2020 notification of an inspection was received relating to the State Income Tax for the fiscals year 2017 and 2018. Grifols, S.A., Grifols Movaco, S.A., Diagnostic Grifols, S.A. and Instituto Grifols, S.A: In 2019 notification of an inspection has been received from 2014 to 2016 for corporate income tax and from 2015 to 2016 for VAT and withholding tax. Group management does not expect any significant liability to derive from these inspections. Based on its experience of the different tax inspections in the different jurisdictions in which Grifols operates, the Group considers it unlikely that there will be a scenario of discrepancy with the taxation authorities that will require significant adjustments to be made to the tax result or to the asset and/or liability balances relating to corporate income tax. (29) Other Commitments with Third Parties and Other Contingent Liabilities (a) Guarantees The Group has no significant guarantees extended to third parties. (b) Guarantees committed with third parties The Group has no significant guarantees extended to third parties, except for those described in note 21. (c) Obligations with personnel The Group’s annual contribution to defined contribution pension plans of Spanish Group companies for 2020 has amounted to Euros 896 thousand (Euros 833 thousand for 2019). In successive years this contribution will be defined through labor negotiations. In the event that control is taken of the Company, the Group has agreements with 57 employees/directors whereby they can unilaterally rescind their employment contracts with the Company and are entitled to termination benefits ranging from 2 to 5 years’ salary. The Group has contracts with five executives entitling them to termination benefits ranging from one to four years of their salary in different circumstances. Restricted Share Unit Retention Plan For the annual bonus, the Group established a Restricted Share Unit Retention Plan (RSU Plan), for eligible employees. Under this plan, employees can choose to receive up to 50% of their yearly bonus in non-voting 90

 

 

 

 

8052-1-bk_part 2 of 5 consolidated 2020_page_091.jpg GRIFOLS, S.A. AND SUBSIDIARIES Notes to the Consolidated Annual Accounts (Free translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails) Class B ordinary shares (Grifols Class B Shares) or Grifols American Depositary Shares (Grifols ADS), and the Group will match this with an additional 50% of the employee’s choice of RSUs. Grifols Class B Shares and Grifols ADS are valued at grant date. These RSU’s will have a vesting period of 2 years and 1 day and, subsequently, the RSU's will be exchanged for Grifols Class B Shares or Grifols ADS (American Depositary Share representing 1 Class B Share). If an eligible employee leaves the Company or is terminated before the vesting period, he/she will not be entitled to the additional RSU’s. At 31 December 2020, the Group has settled the RSU plan of 2017 for an amount of Euros 7,552 thousand (Euros 8,546 thousand at 31 December 2019 corresponding to the RSU plan of 2016). This commitment is treated as equity instrument and the amount totals Euros 13,880 thousand at 31 December 2020 (Euros 12,498 thousand at 31 December 2019). Savings plan and profit-sharing plan The Group has a defined contribution plan (savings plan), which qualifies as a deferred salary arrangement under Section 401 (k) of the Internal Revenue Code (IRC). Once eligible, employees may elect to contribute a portion of their salaries to the savings plan, subject to certain limitations. The Group matches 100% of the first 4% of employee contributions and 50% of the next 2%. Group and employee contributions are fully vested when contributed. The total cost of matching contributions to the savings plan was US Dollars 32.2 million in 2020 (US Dollars 29.4 million in 2019). Other plans The Group has a defined benefit pension plan for certain former Talecris Biotherapeutics, GmbH employees in Germany as required by statutory law. The pension cost relating to this plan is not material for the periods presented. (d) Purchase commitments Details of the Group’s raw material purchase commitments s at 31 December 2020 are as follows: Thousands of Euros 2021 2022 2023 2024 2025 M ore than 5 y ears 182,710 113,555 77,385 1,033 1,033 603 91

 

 

 

 

8052-1-bk_part 2 of 5 consolidated 2020_page_092.jpg GRIFOLS, S.A. AND SUBSIDIARIES Notes to the Consolidated Annual Accounts (Free translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails) (e) Judicial procedures and arbitration Details of legal proceedings in which the Company or Group companies are involved are as follows: ORTHO-CLINICAL DIAGNOSTICS, INC., GRIFOLS DIAGNOSTIC SOLUTIONS, INC. adv. SIEMENS HEALTHCARE DIAGNOSTICS, INC. Served: 20 November 2018 Contract Dispute Ortho-Clinical Diagnostics, Inc. ("Ortho") and Grifols Diagnostic Solutions, Inc. ("GDS") dispute with Siemens Healthcare Diagnostics, Inc. ("Siemens") regarding sales and commissions under the Supply and Agency Agreement. NEXT ACTION: Dispute Resolution initiated per the Supply and Agency Agreement. Common Interest and Joint Defense Agreement entered between Ortho and GDS. Several meetings with executives and counsel took place in June, September and October 2019. Notice of arbitration filed on 4 December 2019. Siemens filed counterclaims on 10 December 2019. Arbitration panel selected and schedule established. Expert reports are due to be filed and expert discovery concluded by mid-February. Motion practice to limit arguments also underway and expected to be heard in March. ABBOTT LABORATORIES v. GRIFOLS DIAGNOSTIC SOLUTIONS INC., GRIFOLS WORLDWIDE OPERATIONS LIMITED AND NOVARTIS VACCINES AND DIAGNOSTICS, INC. Served: 8 October 2019 US District Court, Northern District of Illinois Patent Infringement, Civil Action No. 1:19-cv-6587 Abbott Laboratories (“Abbott”), GDS, GWWO and Novartis Vaccines and Diagnostics, Inc. are in dispute over unpaid royalties payable by Abbott to GDS and Ortho-Clinical Diagnostics (“Ortho”) under an HIV License and Option agreement dated 16 August 2019 (the “HIV License”). On 12 September 2019, GDS and Ortho filed Notice of Arbitration. On 3 October 2019, Abbott terminated the HIV License and filed for Declaratory Relief seeking to invalidate the licensed patent. GDS filed Motions to Dismiss and to Compel Arbitration, but the Court continued all pending Motions and referred the parties to a magistrate for a mandatory settlement conference. On 5 February 2020 the parties attended a Mandatory Settlement Conference ordered by the District Judge, with the Magistrate Judge presiding. No satisfactory settlement was reached. On 16 March , 2020, Grifols and Ortho filed an answer and counterclaim to the litigation, while simultaneously pursuing arbitration for the pre-termination amount owed by Abbot. The arbitration hearing was 15-16 June, 2020. As a result, the arbitrator awarded Grifols/Ortho US Dollars 4 Million. The court litigation is continuing. Abbott’s Motion to Dismiss was denied on 1 December, 2020. Discovery is now underway. 92

 

 

 

 

8052-1-bk_part 2 of 5 consolidated 2020_page_093.jpg GRIFOLS, S.A. AND SUBSIDIARIES Notes to the Consolidated Annual Accounts (Free translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails) (30) Financial Instruments Classification Disclosure of financial instruments by nature, category and fair value is as follows: T housand of Euros 31/12/2019 Carrying amount Fair Value Financial assets at amortised costs Financial assets at FV to profit or loss Financial liabilities at amortised costs Financial assets at FV to OCI Other financial liabilities Total Level 1 Level 2 Level 3 Total Non-current financial assets Current Financial derivatives Trade receivables Financial assets measured at fair value Non-current financial assets Other current financial assets Trade and other receivables Cash and cash equivalents Financial assets not measured at fair value ---- 7 1,716,738 ---- ---- ---- 7 1,716,738 7 ---- ---- 298,346 --1,716,738 --7 1,716,738 298,346 ---- 298,346 ---- 298,346 --1,716,745 298,346 ---- 2,015,091 138,923 12,188 153,960 ---- ---- ---- ---- ---- ---- 138,923 12,188 153,960 741,982 ---- ---- 741,982 1,047,053 ---- ---- 1,047,053 ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- --(2,576,935) (100,267) (3,286,889) (400,850) (740,690) (101,749) (1,258) --(747,514) ---- ---- ---- --(983) --(2,576,935) (100,267) (3,286,889) (400,850) (740,690) (101,749) (1,258) (983) (747,514) (2,749,557) ---- (2,749,557) Senior Unsecured Notes Promissory Notes Senior secured debt Other bank loans Finance lease p ay ables Other financial liabilities Debts with associates Other non-current debts Trade and other p ay ables Other current liabilities Financial liabilities not measured at fair value --(3,623,233) --(3,623,233) ---- ---- (197,399) (197,399) ---- --(7,956,152) (198,382) (8,154,534) 1,047,053 1,716,745 298,346 (7,956,152) (198,382) (5,092,390) The Group does not provide details of the fair value of certain financial instruments as their carrying amount is very similar to their fair value because of its short term. 93

 

 

 

 

8052-1-bk_part 2 of 5 consolidated 2020_page_094.jpg GRIFOLS, S.A. AND SUBSIDIARIES Notes to the Consolidated Annual Accounts (Free translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails) Thousand of Euros 31/12/2020 Carrying amount Fair Value Financial assets at amortised Financial assets at FV to profit or Financial liabilities at amortised Financial assets at FV Other financial Total Level 1 Level 2 Level 3 Total to OCI liabilities costs l oss costs Non-current financial assets Trade receivables Financial assets measured at fair value Non-current financial assets Other current financial assets Trade and other receivables Cash and cash equivalents Financial assets not measured at fair value Senior Unsecured & Secured Notes Promissory Notes Senior secured debt Other bank loans Lease liabilities Other financial liabilities Other non-current debts Trade and other p ay ables Other current liabilities Financial liabilities not measured at fair value --1,128 1,880 ---- 3,008 1,128 ---- 308,485 1,880 --3,008 308,485 ---- 308,485 ---- 308,485 --1,128 310,365 ---- 311,493 195,149 11,118 147,108 ---- ---- ---- ---- ---- ---- 195,149 11,118 147,108 579,647 ---- ---- 579,647 933,022 ---- ---- 933,022 ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- (2,601,479) (111,622) (3,110,298) (354,501) (733,499) (115,313) --(742,707) ---- ---- ---- (16,391) --(2,601,479) (111,622) (3,110,298) (354,501) (733,499) (115,313) (16,391) (742,707) (2,705,437) ---- (2,705,437) --(3,358,729) --(3,358,729) ---- ---- (153,162) (153,162) ---- --(7,769,419) (169,553) (7,938,972) 933,022 1,128 310,365 (7,769,419) (169,553) (6,694,457) The Group does not provide details of the fair value of certain financial instruments as their carrying amount is very similar to their fair value because of its short term. 94

 

 

 

 

8052-1-bk_part 2 of 5 consolidated 2020_page_095.jpg GRIFOLS, S.A. AND SUBSIDIARIES Notes to the Consolidated Annual Accounts (Free translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails) Credit risk (a) Exposure to credit risk The carrying amount of financial assets represents the maximum exposure to credit risk. At 31 December 2020 and 2019 the maximum level of exposure to credit risk is as follows: Thousands of Euros Carry ing amount Note 31/12/2020 31/12/2019 Non-current financial assets Other current financial assets Trade receivables Other receivables Cash and cash equivalents 12 12 14 14 198,157 11,118 383,233 24,377 138,930 1,728,926 369,797 29,267 15 579,647 741,982 1,196,532 3,008,902 The maximum level of exposure to risk associated with receivables at 31 December 2020 and 2019, by geographical area, is as follows. Thousands of Euros Carry ing amount 31/12/2020 31/12/2019 Sp ain EU countries United States of America Other Europ ean countries Other regions 62,358 84,962 157,395 10,525 58,363 44,887 171,345 13,485 92,370 110,984 407,610 399,064 (b) Impairment losses A breakdown of the trade and other receivables net of the bad debt provision by ageing as of 31 December 2019 is as follows: T housands of Euros Total net trade receivable third party Total gross carrying amount ECL Rate Provision Not matured Past due 0-30 day s Past due 31-60 day s Past due 61-90 day s Past due 91-180 day s Past due 181-365 day s M ore than one y ear Customers with objective evidence of imp airment 0.19% 0.19% 0.62% 2.03% 3.01% 8.52% 100.00% 285,942 48,212 15,831 10,364 8,606 2,216 3,056 17,861 (585) (57) (101) (156) (243) (232) (3,056) (17,861) 285,357 48,155 15,730 10,208 8,363 1,984 ---- 392,088 (22,291) 369,797 95

 

 

 

 

8052-1-bk_part 2 of 5 consolidated 2020_page_096.jpg GRIFOLS, S.A. AND SUBSIDIARIES Notes to the Consolidated Annual Accounts (Free translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails) A breakdown of the trade and other receivables net of the bad debt provision by seniority at 31 December 2020 is as follows: T housands of Euros Total net trade Provision receivable third Total gross carrying ECL Rate amount party Not matured Past due 0-30 day s Past due 31-60 day s Past due 61-90 day s Past due 91-180 day s Past due 181-365 day s M ore than one y ear Customers with objective evidence of imp airment 0.19% 0.19% 0.62% 2.03% 3.01% 8.52% 100.00% 283,612 34,282 9,157 6,155 16,546 34,768 4,861 (515) (54) (57) (125) (211) (325) (4,861) 283,097 34,228 9,100 6,030 16,335 34,443 --16,837 (16,837) --406,218 (22,985) 383,233 Unimpaired receivables that are past due mainly relate to public entities. Movement in the bad debt provision was as follows: Thousands of Euros 31/12/2020 31/12/2019 31/12/2018 Op ening balance Net charges for the y ear Net cancellations for the y ear Transfers Translation differences Closing balance 22,291 2,436 (124) (29) (1,589) 20,531 4,971 (3,142) (19) (50) 19,706 6,443 (5,650) --32 22,985 22,291 20,531 An analysis of the concentration of credit risk is provided in note 5 (a). 96

 

 

 

 

8052-1-bk_part 2 of 5 consolidated 2020_page_097.jpg GRIFOLS, S.A. AND SUBSIDIARIES Notes to the Consolidated Annual Accounts (Free translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails) Liquidity risk The management of the liquidity risk is explained in note 5. Details of the contractual maturity dates of financial liabilities including committed interest calculated using interest rate forward curves are as follows: Thousands of Euros Carrying Note amount at Contractual 6 months 6 - 12 1-2 More than Carry ing amount 2-5 years flows or less months years 5 years 31/12/19 Financial liabilities Bank loans Other financial liabilities Bonds and other marketable securities Finance lease p ay ables Debts with associates Pay able to sup p liers Other current liabilities 3,687,739 101,749 204,851 21,000 100,083 20,708 183,525 50,646 715,443 7,416 3,622,384 1,979 21 21 4,826,286 101,749 2,677,202 740,690 1,258 581,882 22,320 128,606 22,334 --581,867 21,612 32,016 22,130 1,258 15 708 64,031 41,444 ---- --2,137,772 155,300 ---- --804,650 499,482 ---- --21 21 31 22 23 3,167,075 740,690 1,258 581,882 22,320 Total 7,812,840 9,441,260 980,270 176,918 339,646 3,015,931 4,928,495 Thousands of Euros Carrying amount at 31/12/20 Contractual flows 6 months or less 6 - 12 months 1-2 years More than 5 years Carry ing amount Note 2-5 years Financial liabilities Bank loans Other financial liabilities Bonds and other marketable securities Lease liabilities Pay able to sup p liers Other current liabilities 3,464,799 115,313 4,176,075 115,314 190,659 103,397 89,704 1,645 134,789 3,372 502,605 5,515 3,258,318 1,385 21 21 2,713,101 3,119,194 144,756 32,016 64,031 2,091,066 787,325 21 21 22 23 733,499 601,618 31,190 733,499 601,618 31,190 21,896 601,585 30,369 20,746 33 821 40,961 ---- 158,032 ---- 491,864 ---- Total 7,659,520 8,776,890 1,092,662 144,965 243,153 2,757,218 4,538,892 Currency risk 97

 

 

 

 

8052-1-bk_part 2 of 5 consolidated 2020_page_098.jpg GRIFOLS, S.A. AND SUBSIDIARIES Notes to the Consolidated Annual Accounts (Free translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails) The Group’s exposure to currency risk is as follows: T housands of Euros 31/12/2019 Euros (*) Dollars (**) Trade receivables Receivables from Group comp anies Loans to Group comp anies Cash and cash equivalents Trade p ay ables Pay ables to Group comp anies Loans from Group comp anies Bank loans Balance sheet exp osure 4,978 101,685 16,053 (8,603) (18,908) (75,435) (42,388) (63,750) 29,022 3,829 595 1,698 (13,826) (93,713) (4,151) --(86,368) (76,546) (*) Balances in Euros in subsidiaries with US Dollars functional currency (**) Balances in US Dollars in subsidiaries with Euros functional currency T housands of Euros 31/12/2020 Euros (*) Dollars (**) Trade receivables Receivables from Group comp anies Loans to Group comp anies Cash and cash equivalents Trade p ay ables Pay ables to Group comp anies Loans from Group comp anies Bank loans 1,468 112,442 221,135 35,034 (46,318) (61,421) (18,391) (53,125) 19,938 6,140 55 416 (10,822) (72,693) (1,726) --Balance sheet exp osure 190,824 (58,692) (*) Balances in Euros in subsidiaries with US Dollars functional currency (**) Balances in US Dollars in subsidiaries with Euros functional currency The most significant exchange rates applied at 2020 and 2019 year ends are as follows: Closing exchange rate Euros 31/12/2020 31/12/2019 US Dollars 1.2234 1.1225 A sensitivity analysis for foreign exchange fluctuations is as follows: Had the US Dollar strengthened by 10% against the Euro at 31 December 2020, equity would have increased by Euros 750,646 thousand (Euros 799,565 thousand at 31 December 2019) and profit due to foreign exchange differences would have increased by Euros 13,213 thousand (would have decreased by Euros 16,291 thousand at 31 December 2019). This analysis assumes that all other variables are held constant, especially that interest rates remain constant. A 10% weakening of the US Dollar against the Euro at 31 December 2020 and 2019 would have had the opposite effect for the amounts shown above, all other variables being held constant. Interest rate risk 98

 

 

 

 

8052-1-bk_part 2 of 5 consolidated 2020_page_099.jpg GRIFOLS, S.A. AND SUBSIDIARIES Notes to the Consolidated Annual Accounts (Free translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails) (a) Interest-rate profile To date, the profile of interest on interest-bearing financial instruments is as follows: Thousands of Euros 31/12/2020 31/12/2019 Fixed-interest financial instruments Financial liabilities (2,887,500) (2,908,750) (2,887,500) (2,908,750) Variable-interest financial instruments Financial liabilities (3,369,451) (3,587,171) (3,369,451) (3,587,171) (6,256,951) (6,495,921) (b) Sensitivity analysis If the interest rate had been 100 basis points higher at 31 December 2020, the interest expense would have increased by Euros 36,153 thousand. As the Group does not have any hedging derivatives in place, the net effect on cash interest payments would have increased by the same amount. If the interest rate had been 100 basis points higher at 31 December 2019, the interest expense would have increased by Euros 51,412 thousand. As the Group does not have any hedging derivatives in place, the net effect on cash interest payments would have increased by the same amount. (31) Balances and Transactions with Related Parties Details of balances with related parties are as follows: Thousands of Euros 31/12/2020 31/12/2019 Receivables from associates (note 14) Trade payables associates Loans to associates (note 12) Loans to other related parties (note 12) Other financial assets with other related parties Debts with associates Debts with key management personnel Payables to members of the board of directors Payables to other related parties Other financial liabilities with other related parties 1,447 (133) --80,851 114,825 --(5,934) --(6,613) --1,883 (114) 18,342 86,363 34,367 (1,258) (4,005) --(4,878) (13,000) 184,443 117,700 Payables are included in trade and other payables (see note 22). (a) Group transactions with related parties Group transactions with related parties during 2018 were as follows: 99

 

 

 

 

8052-1-bk_part 2 of 5 consolidated 2020_page_100.jpg GRIFOLS, S.A. AND SUBSIDIARIES Notes to the Consolidated Annual Accounts (Free translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails) Thousands of Euros Key management Other related Board of directors Associates p ersonnel p art ies of t he Comp any Net sales Purchases Other service exp enses Op erating lease exp ense Remuneration R&D agreements Sale of investments (note 3) Finance income Finance cost 5,846 (97,941) (21,065) ---- (50) --3,951 (579) ---- ---- (16,070) ---- ---- ---- (4,282) (5,469) ---- 469,881 ---- ---- (844) --(5,848) ---- ---- (109,838) (16,070) 460,130 (6,692) Group transactions with related parties during 2019 were as follows: Thousands of Euros Key management p ersonnel Other related p arties Board of directors of the Comp any Associates Net sales Purchases Other service exp enses Remuneration Pay ments for rights of use Finance income Finance cost 10,196 (48,300) (25,638) ---- 2,265 (158) ---- --(16,795) ---- ---- --(5,586) --(7,104) ---- ---- (220) (5,517) ---- --(61,635) (16,795) (12,690) (5,737) Group transactions with related parties during 2020 are as follows: Thousands of Euros Key management Other related Board of directors Associates p ersonnel p art ies of t he Comp any Net sales Purchases Other service exp enses Remuneration Pay ments for rights of use Purchase of p rop erty , p lant and equip ment Finance income 10,522 (459) (15,010) ---- ---- --(17,164) ---- --(10,344) --(5,137) ---- --(4,966) ---- --(13,500) --10,939 ---- --5,992 (17,164) (28,981) (4,966) Every year the Group contributes 0.7% of its profits before tax to a non-profit organization. 100

 

 

 

 

8052-1-bk_part 2 of 5 consolidated 2020_page_101.jpg GRIFOLS, S.A. AND SUBSIDIARIES Notes to the Consolidated Annual Accounts (Free translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails) “Other service expenses” include contributions to non-profit organizations totaling Euros 10,344 thousand in 2020 (Euros 5,586 thousand in 2019 and Euros 4,282 thousand in 2018). During 2011 one of the Company’s directors signed a three-year consulting services contract. The director received annual fees of US Dollars 1 million for these services and an additional bonus of US Dollars 2 million for complying with certain conditions. In the years 2014, 2015, 2017 and 2018 the contract was renewed and the amount of the fees corresponded to US Dollars 1 million per year. The contract expired on 31 March 2019 and during 2019 the fees amounted to US Dollars 250 thousand. On 28 December 2018, the Group sold Biotest and Haema to Scranton Enterprises B.V (shareholder of Grifols) for US Dollars 538,014 thousand (see note 3). For the payment of the mentioned amount of the sale, Scranton signed a loan contract dated 28 December 2018 for an amount of US Dollars 95,000 thousand (Euros 82,969 thousand) with Grifols Worldwide Operations Limited. The compensation is 2%+EURIBOR and due on 28 December 2025. Directors representing shareholders´ interests have received remuneration of Euros 965 thousand in 2020 (Euros 1,501 thousand in 2019). The Group has not extended any advances or loans to the members of the board of directors or key management personnel nor has it assumed any guarantee commitments on their behalf. It has also not assumed any pension or life insurance obligations on behalf of former or current members of the board of directors or key management personnel. In addition, certain Company directors and key management personnel have termination benefit commitments (see note 29 (c)). (b) Conflicts of interest concerning the directors The Company’s directors and their related parties have not entered into any conflict of interest that should have been reported in accordance with article 229 of the revised Spanish Companies Act. (32) Environmental Issues The most significant systems, equipment and fixtures for the protection and improvement of the environment at 31 December 2019 were as follows: Thousands of Euros Accumulated dep reciation Project Cost Net value Waste water treatment Waste management Reduction of electricity consump tion Reduction of water consump tion Energy Other 10,588 4,189 14,172 13,887 300 6,763 (3,038) (1,860) (5,135) (4,329) (6) (1,155) 7,550 2,329 9,037 9,558 294 5,608 49,899 (15,523) 34,376 101

 

 

 

 

8052-1-bk_part 2 of 5 consolidated 2020_page_102.jpg GRIFOLS, S.A. AND SUBSIDIARIES Notes to the Consolidated Annual Accounts (Free translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails) The most significant systems, equipment and fixtures for the protection and improvement of the environment at 31 December 2020 are as follows: Thousands of Euros Accumulated dep reciation Project Cost Net value Waste water treatment Waste management Reduction of electricity consump tion Reduction of water consump tion Energy Other 10,646 4,735 14,247 14,664 374 7,798 (3,673) (2,098) (6,181) (5,164) (23) (1,673) 6,973 2,637 8,066 9,500 351 6,125 52,464 (18,812) 33,652 Expenses incurred by the Group for protection and improvement of the environment during 2020 totaled approximately Euros 20,495 thousand (Euros 19,521 thousand during 2019 and Euros 15,474 thousand during 2018). The Group considers that the environmental risks are adequately controlled by the procedures currently in place. The Group has not received environmental grants during 2020, 2019 and 2018. (33) Other Information Audit fees: KPMG Auditores, S.L. has invoiced the following fees for professional services during 2020 and 2019: Thousands of Euros 31/12/2020 31/12/2019 Audit services Audit-related services 1,644 572 1,615 880 2,216 2,495 Amounts included in table above, includes the total amount of fees related to services incurred during 2020 and 2019 without considering the invoice date. Other assurance services in 2020 and 2019 include limited reviews of the interim financial statements, the audit of the consolidated financial statements under PCAOB, the audit of the consolidated financial statements of Grifols Diagnostic solutions and agreed-upon procedures. Other entities affiliated to KPMG International have invoiced the Group for the following fees for professional services during 2020 and 2019: 102

 

 

 

 

8052-1-bk_part 2 of 5 consolidated 2020_page_103.jpg GRIFOLS, S.A. AND SUBSIDIARIES Notes to the Consolidated Annual Accounts (Free translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails) Thousands of Euros 31/12/2020 31/12/2019 Audit services Audit-related Tax advisory fees Other services 3,044 706 11 105 3,036 200 53 87 3,866 3,376 Other audit firms have invoiced the Group for the following fees for professional services during 2020 and 2019: Thousands of Euros 31/12/2020 31/12/2019 Audit services 58 62 58 62 (34) COVID-19 Impact In 2020, Grifols has continued to demonstrate its resilience and commitment to sustainable growth during the COVID-19 pandemic. Grifols keeps its plasma centers, production facilities and the supply of products and services operational. In addition, to continue strengthening its commitment to society, Grifols works through its talent pool, R&D projects and capital expenditures to continue helping to fight the pandemic. Due to these unprecedented times and in accordance to IAS 2 “Inventories”, Grifols recognized a total estimated impact of Euros 205 million to adjust Grifols’ inventory value primarily during the COVID-19 pandemic in the second quarter of the year. In addition, in line with its prudence and commitment to profitability, Grifols has implemented an operating expense containment plan to yield a positive impact of Euros 112 million in the statement of profit and loss for 2020. The plan has no impact on the company’s labor force or innovation investments. Noteworthy is the contribution mainly in Spain of the specific diagnostic test developed by Grifols for the detection of SARS-CoV-2.With all this, Grifols estimates that the net impact on operating result caused by the COVID-19 pandemic amounts to Euros 155 million. This figure includes the negative impact on inventory value and the reduced revenues from the Bioscience Division, and the positive impact of the operating expense containment plan and the contribution of the molecular test for the detection of the SARS-CoV-2 virus. At 31 December, 2020 Grifols’ liquidity position stands at close to Euros 1,500 million, including Euros 580 million corresponding to the cash position and nearly Euros 900 million of undrawn lines of credit. The company is equipped to respond to the demands of the current context and remains committed to its long-term growth strategy. Grifols will continue to monitor any potential impacts on operations and will take all necessary actions to mitigate any potential effect on its supply chain. 103

 

 

 

 

 

7567-2-bc_part 3 of 5 2020 appendices fs_page_01.jpg APPENDIX I GRIFOLS, S.A. AND SUBSIDIARIES Information on Group Companies, Associates and others for the years ended 31 December 2020, 2019 and 2018 (Free translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails) 31/12/2020 31/12/2019 31/12/2018 Acquisition / Incorporation date Registered Office % shares % shares % shares Name Activity Statutory Activity Direct Indirect Direct Indirect Direct Indirect Fully Consolidated Companies Polígono Levante Calle Can Guasch, s/n 08150 Parets del Vallès (Barcelona) Spain Diagnostic Grifols, S.A. 1987 Industrial Development and manufacture of diagnostic equipment, instruments and reagents. ---100.000% ---100.000% ---100.000% Polígono Levante Calle Can Guasch, s/n 08150 Parets del Vallès (Barcelona) Spain Instituto Grifols, S.A. 1987 Industrial Plasma fractioning and the manufacture of haemoderivative pharmaceutical products. 99.998% 0.002% 99.998% 0.002% 99.998% 0.002% Polígono Levante Calle Can Guasch, s/n 08150 Parets del Vallès (Barcelona) Spain Grifols Worldwide Operations Spain, S.A (formerly Logister, S.A.) Merged with Grifols International in 2018 Manufacture, sale and purchase, commercialisation and distribution of all types of computer products and materials. 1987 Services ------------------Polígono Levante Calle Can Guasch, s/n 08150 Parets del Vallès (Barcelona) Spain Production of glass-and plastic-packaged parenteral solutions, parenteral and enteral nutrition products and blood extraction equipment and bags. Laboratorios Grifols, S.A. 1989 Industrial 98.600% 1.400% 98.600% 1.400% 98.600% 1.400% Polígono Levante Calle Can Guasch, s/n 08150 Parets del Vallès (Barcelona) Spain Analysis and certification of the quality of plasma used by Instituto Grifols, S.A. It also provides transfusion centres with plasma virus inactivation services (I.P.T.H). Biomat, S.A. 1991 Industrial 99.900% 0.100% 99.900% 0.100% 99.900% 0.100% Polígono Levante Calle Can Guasch, s/n 08150 Parets del Vallès (Barcelona) Spain Design and development of the Group’s manufacturing installations and part of the equipment and machinery used at these premises. The company also renders engineering services to external companies. Grifols Engineering, S.A. 2000 Industrial 99.950% 0.050% 99.950% 0.050% 99.950% 0.050% 2410 Lillyvale Avenue Los Angeles (California) United States Biomat USA, Inc. 2002 Industrial Procuring human plasma. ---100.000% ---100.000% ---100.000% 5555 Valley Boulevard Los Angeles (California) United States Grifols Biologicals LLC. 2003 Industrial Plasma fractioning and the production of haemoderivatives. ---100.000% ---100.000% ---100.000% Unit 5/80 Fairbank Clayton South Victoria 3149 Australia Distribution of pharmaceutical products and the development and manufacture of reagents for diagnostics. Grifols Australia Pty Ltd. 2009 Industrial 100.000% ---100.000% ---100.000% ---Bonnstrasse,9 3186 Dügingen Switzerland Medion Grifols Diagnostic AG 2009 Industrial ---55.000% ---55.000% ---100.000% Development and manufacturing activities in the area of biotechnology and diagnostics. 4101 Research Commons (Principal Address), 79 T.W. Alexander Drive, Research Triangle Park, North Carolina 277709, United States Grifols Therapeutics LLC. 2011 Industrial Plasma fractioning and the production of haemoderivatives. ---100.000% ---100.000% ---100.000% 4101 Research Commons (Principal Address), 79 T.W. Alexander Drive, Research Triangle Park, North Carolina 277709, United States Talecris Plasma Resources, Inc. 2011 Industrial ---100.000% ---100.000% ---100.000% Procurement of human plasma. Grange Castle Business Park, Grange Castle , Clondalkin, Dublin 22, Ireland Grifols Worldwide Operations Limited Packaging, labelling, storage, distribution, manufacture and development of pharmaceutical products and rendering of financial services to Group companies. 2012 Industrial 100.000% ---100.000% ---100.000% ---Parque Tecnológico de Vizcaya, Edificio 504 48160 Derio (Vizcaya) Spain Parque Tecnológico de Vizcaya, Edificio 504 48160 Derio (Vizcaya) Spain Progenika Biopharma, S.A. 2013 Industrial Development, production and commercialisation of biotechnological solutions. 91.880% 8.120% 91.880% 8.120% 99.998% ---Coordination, representation, management and promotion of the common interests of associated companies, in addition to contributing to the development, growth and internationalisation of its associates and of the biosciences sector in the Basque Country. Asociación I+D Progenika 2013 Industrial ---------------99.998% 4560 Horton Street 94608 Emeryville, California United States Grifols Diagnostics Solutions Inc (formerly G-C Diagnostics Corp.) 2013 Industrial Manufacture and sale of blood testing products ---55.000% ---55.000% 100.000% ---This appendix forms an integral part of note 2 to the consolidated annual accounts.

 

 

 

 

7567-2-bc_part 3 of 5 2020 appendices fs_page_02.jpg APPENDIX I GRIFOLS, S.A. AND SUBSIDIARIES Information on Group Companies, Associates and others for the years ended 31 December 2020, 2019 and 2018 (Free translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails) 31/12/2020 31/12/2019 31/12/2018 Acquisition / Incorporation date Registered Office % shares % shares % shares Name Activity Statutory Activity Direct Indirect Direct Indirect Direct Indirect Fully Consolidated Companies 13111 Temple Avenue, City of Industry, California 91746-1510 Estados Unidos Grifols Worldwide Operations USA Inc. 2014 Industrial The manufacture, warehousing, and logistical support for biological products. ---100.000% ---100.000% ---100.000% 501 Orchard Road nº20-01 238880 Wheelock Place, Singapore Grifols Asia Pacific Pte, Ltd 2003 Commercial Distribution and sale of medical and pharmaceutical products. 100.000% ---100.000% ---100.000% ---Polígono Levante Calle Can Guasch, s/n 08150 Parets del Vallès (Barcelona) Spain Distribution and sale of reagents, chemical products and other pharmaceutical specialities, and of medical and surgical materials, equipment and instruments for use by laboratories and health centres. Grifols Movaco, S.A. 1987 Commercial 99.999% 0.001% 99.999% 0.001% 99.999% 0.001% Rua de Sao Sebastiao,2 Zona Industrial Cabra Figa 2635-448 Rio de Mouro Portugal Grifols Portugal Productos Farmacéuticos e Hospitalares, Lda. Import, export and commercialisation of pharmaceutical and hospital equipment and products, particularly Grifols products. 1988 Commercial 0.010% 99.990% 0.010% 99.990% 0.010% 99.990% Avda. Americo Vespucio, 2242 Comuna de Conchali Santiago de Chile Chile Development of pharmaceutical businesses, which can involve the import, production, commercialisation and export of related products. Grifols Chile, S.A. 1990 Commercial 99.000% ---99.000% ---99.000% ---2410 Lillyvale Avenue Los Angeles (California) United States Grifols USA, LLC. 1990 Commercial Distribution and marketing of company products. ---100.000% ---100.000% ---100.000% Bartolomé Mitre 3690/3790, CPB1605BUT Munro Partido de Vicente Lopez Argentina Clinical and biological research. Preparation of reagents and therapeutic and diet products. Manufacture and commercialisation of other pharmaceutical specialities. Grifols Argentina, S.A. 1991 Commercial 95.010% 4.990% 95.010% 4.990% 95.010% 4.990% Calle Zitna,2 Prague Czech Republic Grifols s.r.o. 1992 Commercial Purchase, sale and distribution of chemical-pharmaceutical products, including human plasma. 100.000% ---100.000% ---100.000% ---191 Silom Complex Building, 21st Follor, Silom Road, Silom, Bangrak 10500 Bangkok Thailand Level 18, The Gardens North Tower, Mid Valley City, Lingkaran Syed Putra 59200 Kuala Lumpur Malaysia Grifols (Thailand) Ltd 2003 Commercial Import, export and distribution of pharmaceutical products. ---48.000% ---48.000% ---48.000% Grifols Malaysia Sdn Bhd 2003 Commercial Distribution and sale of pharmaceutical products. ---30.000% ---30.000% ---30.000% Polígono Levante Calle Can Guasch, s/n 08150 Parets del Vallès (Barcelona) Spain Coordination of the marketing, sales and logistics for all the Group’s subsidiaries operating in other countries. Grifols International, S.A. 1997 Commercial 99.998% 0.002% 99.998% 0.002% 99.998% 0.002% Via Carducci, 62d 56010 Ghezzano Pisa, Italy Grifols Italia S.p.A 1997 Commercial Purchase, sale and distribution of chemical-pharmaceutical products. 100.000% ---100.000% ---100.000% ---Gregory Rowcliffe & Milners, 1 Bedford Row, London WC1R 4BZ United Kingdom Grifols UK Ltd. 1997 Commercial Distribution and sale of therapeutic and other pharmaceutical products, especially haemoderivatives. 100.000% ---100.000% ---100.000% ---Rua Umuarama, 263 Condominio Portal da Serra Vila Perneta CEP 83.325-000 Pinhais Paraná, Brazil Import and export, preparation, distribution and sale of pharmaceutical and chemical products for laboratory and hospital use, and medical-surgical equipment and instruments. Grifols Brasil, Lda. 1998 Commercial 100.000% 0.000% 100.000% 0.000% 100.000% ---Arteparc, Rue de la Belle du Canet, Bât. D, Route de la Côte d'Azur, 13590 Meyreuil France Grifols France, S.A.R.L. 1999 Commercial Commercialisation of chemical and healthcare products. 99.990% 0.010% 99.990% 0.010% 99.990% 0.010% Grzybowska 87 street00-844 Warsaw, Poland Grifols Polska Sp.z.o.o. 2003 Commercial Distribution and sale of pharmaceutical, cosmetic and other products. 100.000% ---100.000% ---100.000% ---Calle Eugenio Cuzin, nº 909-913 Parque Industrial Belenes Norte 45150 Zapopán Jalisco, Mexico Logística Grifols, S.A. de C.V. 2008 Commercial 99.990% 0.010% 99.990% 0.010% 99.990% 0.010% Manufacture and commercialisation of pharmaceutical products for human and veterinary use. This appendix forms an integral part of note 2 to the consolidated annual accounts.

 

 

 

 

7567-2-bc_part 3 of 5 2020 appendices fs_page_03.jpg APPENDIX I GRIFOLS, S.A. AND SUBSIDIARIES Information on Group Companies, Associates and others for the years ended 31 December 2020, 2019 and 2018 (Free translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails) Acquisition / Incorporation date 31/12/2020 % shares 31/12/2019 % shares 31/12/2018 % shares Registered Office Name Activity Statutory Activity Direct Indirect Direct Indirect Direct Indirect Fully Consolidated Companies Calle Eugenio Cuzin, nº 909-913 Parque Industrial Belenes Norte 45150 Zapopán Jalisco, Mexico Production, manufacture, adaptation, conditioning, sale and purchase, commissioning, representation and consignment of all kinds of pharmaceutical products and the acquisition of machinery, equipment, raw materials, tools, movable goods and property for the aforementioned purposes. Grifols México, S.A. de C.V. 1993 Commercial 99.980% 0.020% 99.980% 0.020% 99.980% 0.020% Lochamer Schlag, 12D 82166 Gräfelfing Germany Medion Diagnostics GmbH 2009 Commercial Distribution and sale of biotechnological and diagnostic products. ---------------100.000% Sveavägen 166 11346 Stockholm Sweden Research and development, production and marketing of pharmaceutical products, medical devices and any other asset deriving from the aforementioned activities. Grifols Nordic, AB 2010 Commercial 100.000% ---100.000% ---100.000% ---Carrera 7 No. 71 52 Torre B piso 9 Bogotá. D.C. Colombia Sale, commercialisation and distribution of medicines, pharmaceutical (including but not limited to haemoderivatives) and hospital products, medical devices, biomedical equipment, laboratory instruments and reagents for diagnosis and/or healthcare software. Grifols Colombia, Ltda 2010 Commercial 99.990% 0.010% 99.990% 0.010% 99.990% 0.010% Procurement of the official permits and necessary approval for the production, commercialisation and distribution of products deriving from blood plasma, as well as the import, export, distribution and sale of reagents and chemical and pharmaceutical products, especially for laboratories and health centres and surgical and medical equipment and instruments. Lyoner Strasse 15, D-60528 Frankfurt am Main Germany Grifols Deutschland GmbH 2011 Commercial 100.000% ---100.000% ---100.000% ---5060 Spectrum Way, Suite 405 (Principal Address) Mississauga, Ontario L4W 5N5 Canada Grifols Canada, Ltd. 2011 Commercial Distribution and sale of biotechnological products. ---100.000% ---100.000% ---100.000% Unit 901-902, Tower 2, No. 1539, West Nanjing Rd., Jing’an District, Shanghai 200040 China Grifols Pharmaceutical Technology (Shanghai) Co., Ltd. (formerly Grifols Pharmaceutical Consulting (Shanghai) Co., Ltd.) Pharmaceutical consultancy services (except for diagnosis), technical and logistical consultancy services, business management and marketing consultancy services. 2013 Commercial 100.000% ---100.000% ---100.000% ---Steinengraben, 5 40003 Basel Switzerland Research, development, import and export and commercialisation of pharmaceutical products, devices and diagnostic instruments. Grifols Switzerland AG 2013 Commercial 100.000% ---100.000% ---100.000% ---Units 1505-7 BerKshire House, 25 Westlands Road Hong Kong Grifols (H.K.), Limited 2014 Commercial Distribution and sale of diagnostic products. ---100.000% ---100.000% ---100.000% Hilton Plaza West Office Tower, 19th floor. 2-2, Umeda 2-chome, Kita-ku Osaka-shi Japan Research, development, import and export and commercialisation of pharmaceutical products, devices and diagnostic instruments. Grifols Japan K.K. 2014 Commercial 100.000% ---100.000% ---100.000% ---Regus Business Centre Pvt.Ltd.,Level15,Dev Corpora, Plot No.463,Nr. Khajana East.Exp.Highway,Thane (W), Mumbai - 400604, Maharashtra India Grifols India Healthcare Private Ltd 2014 Commercial Distribution and sale of pharmaceutical products. 99.984% 0.016% 99.984% 0.016% 99.984% 0.016% 8F., No.367, Fuxing N. RD., Songshang Dist., Taipei City 10543, Taiwan Grifols Diagnostics Equipment Taiwan Limited 2016 Commercial Distribution and sale of diagnostic products. 100.000% ---100.000% ---100.000% ---Can Guasch, 2 08150 Parets del Vallès Barcelona, Spain Grifols Viajes, S.A. 1995 Services 99.900% 0.100% 99.900% 0.100% 99.900% 0.100% Travel agency exclusively serving Group companies. The Metropolitan Building, 3rd Fl. James Joyce Street, Dublin Ireland Squadron Reinsurance Designated Activity Company (formerly Squadron Reinsurance Ltd.) 2003 Services Reinsurance of Group companies’ insurance policies. ---100.000% ---100.000% ---100.000% 2410 Lillivale Avenue 90032 Los Angeles, California United States Grifols Shared Services North America, Inc. (formerly Grifols Inc.) Support services for the collection, manufacture, sale and distribution of plasma derivatives and related products. 2011 Services 100.000% ---100.000% ---100.000% ---Avenida Diagonal 477 Barcelona, Spain Gripdan Invest, S.L 2015 Services Rental of industrial buildings 100.000% ---100.000% ---100.000% ---Avenida de la Generalitat 152 Sant Cugat del Valles (Barcelona) Spain Research and development in the field of regenerative medicine, awarding of research grants, subscription to collaboration agreements with entities and participation in projects in the area of regenerative medicine. Gri-Cel, S.A. (merged with Instituto Grifols, S.A. in 2019) 2009 Research ------------0.001% 99.999% This appendix forms an integral part of note 2 to the consolidated annual accounts.

 

 

 

 

7567-2-bc_part 3 of 5 2020 appendices fs_page_04.jpg APPENDIX I GRIFOLS, S.A. AND SUBSIDIARIES Information on Group Companies, Associates and others for the years ended 31 December 2020, 2019 and 2018 (Free translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails) Acquisition / Incorporation date 31/12/2020 % shares 31/12/2019 % shares 31/12/2018 % shares Registered Office Name Activity Statutory Activity Direct Indirect Direct Indirect Direct Indirect Fully Consolidated Companies Paseo de Sagasta, 17 2º izqda. Zaragoza, Spain Creation and commercialisation of a blood diagnosis kit for the detection of Alzheimer's and development of effective immunotherapy (vaccine) against this disease. Araclon Biotech, S.L. 2012 Research ---75.100% ---75.100% ---73.220% Avenida de la Generalitat 152 Sant Cugat del Valles (Barcelona) Spain Research and development of therapeutic approaches for tumours for which there is currently no effective treatment. VCN Bioscience, S.L. 2012 Research ---86.830% ---81.340% ---81.340% Grange Castle Business Park, Grange Castle , Clondalkin, Dublin 22, Ireland Grifols Innovation and New Technologies Limited 2016 Research Biotechnology research and development ---100.000% ---100.000% ---100.000% 2711 Centerville Road Suite 400, Wilmington, Delaware, New Castle County United States Engage in any lawful act or activity for which corporations may be organized under the DGCL (Delaware Code) 2016 Services ---------------100.000% PBS Acquisition Corp. (merged with IBBI in 2019) Polígono Bainuetxe, 5, 2º planta, Aretxabaleta, Guipúzcoa Spain 2711 Centerville Road Suite 400, Wilmington, Delaware, New Castle County, United States Kiro Grifols S.L (formerly Kiro Robotics S.L) Development of machines and equipment to automate and control key points of hospital processes, and hospital pharmacy processes. 2014 Research 90.000% ---90.000% ---90.000% ---Engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law of the State of Delaware, as amended from time to time (the "DGCL"). Chiquito Acquisition Corp. 2017 Corporate ---100.000% ---100.000% ---100.000% Collection and use of mineral-medicinal waters and obtainment of all necessary administrative concessions for the optimum and widest use of these. Carrer Sant Sebastià, 2, 17493 Vilajuïga, Girona Aigües Minerals de Vilajuiga, S.A. 2017 Industrial 99.990% 0.010% 99.990% 0.010% 100.000% ---7600 Grandview Avenue, Suite 2 10, Arvada, CO 80002, United States Goetech LLC (D/B/A Medkeeper) 2018 Industrial Development and distribution of web and mobile-based platforms for hospital pharmacies ---100.000% ---54.760% ---54.760% 5700 Pleasantville Road Memphis, Tennessee United States Interstate Blood Bank, Inc. 2016 Industrial Procuring human plasma. ---100.000% ---100.000% ------LandsteinerstraBe 1, 04103 Leipzig - Germany 901 Yamato Rd., Suite 101, Boca Raton FL 33431 - USA Haema, AG 2018 Industrial Procurement of human plasma. ------------------BPC Plasma, Inc (formerly Biotest Pharma Corp) 2018 Industrial Procurement of human plasma. ------------------3500 South DuPont Hwy, Dover, County of Kent United States Development novel plasma-based products for the treatment of cognitive decline in aging and disorders of the central nervous system (CNS). Alkahest, Inc. 2015 Research ---42.450% ------------Colmarer Strasse 22, 60528 Frankfurt am Main - Germany Plasmavita Healthcare GmbH 2018 Industrial Procurement of human plasma. ---50.000% ------------Garnisongasse 4/12, 1090 Vienn a, Austria Plasmavita Healthcare II GmbH 2019 Industrial Procurement of human plasma. ---50.000% ------------2911 Avenue Marie Curie, Arrondissement de Saint-Laurent, Quebec Canada Green Cross Biotherapeutics 2020 Industrial Conducting business in Pharmceuticals and Medicines Industry ---100.000% ---------1561 E Orangethorpe Ave #205, Fullerton, CA 92831 USA Green Cross America Inc. 2020 Industrial Procurement of human plasma. ---100.000% ---------Corporation Trust Center, 1209, Orange Street, Wilmington, New Castle Country, Delaware, 19801 Estados Unidos 302 Teheran-ro, Gangnam-gu, Seoul (Yeoksam-dong) To engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware Grifols Laboratory Solutions, Inc 2020 Services ---100.000% ---------Grifols Korea Co., Ltd. 2020 Commercial Import, export of diagnostic in vitro products and solutions. 100.000% ------------Korea This appendix forms an integral part of note 2 to the consolidated annual accounts.

 

 

 

 

7567-2-bc_part 3 of 5 2020 appendices fs_page_05.jpg APPENDIX I GRIFOLS, S.A. AND SUBSIDIARIES Information on Group Companies, Associates and others for the years ended 31 December 2020, 2019 and 2018 (Free translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails) 31/12/2020 31/12/2019 31/12/2018 % shares % shares % shares Acquisition / Incorporation date Name Registered Office Activity Statutory Activity Direct Indirect Direct Indirect Direct Indirect Equity-accounted investees and others 3929 Point Eden Way Hayward, California United States Development and commercialisation of drugs delivered by inhalation for the prevention and treatment of severe respiratory diseases. Aradigm Corporation 2013 Research ---35.130% ---35.130% ---35.130% Romeinse straat 12 bus 2, 3001 Leuven, Belgium TiGenix N.V. 2013 Research Research and development of therapies based on stem cells taken from adipose tissue. ------------------Avenida Fernandos Casas Novoa, 37 Santiago de Compostela Spain 3500 South DuPont Hwy, Dover, County of Kent United States Hospital Germans Trias i Pujol, carretera de Canyet, s/n, Badalona Spain Mecwins, S.L. 2013 Research Research and production of nanotechnological, biotechnological and chemical solutions. ---24.990% ---24.990% ---24.990% Development novel plasma-based products for the treatment of cognitive decline in aging and disorders of the central nervous system (CNS). Alkahest, Inc. 2015 Research ---------47.580% ---47.580% Albajuna Therapeutics, S.L 2016 Research Development and manufacture of therapeutic antibodies against HIV. ---49.000% ---49.000% ---30.000% 5700 Pleasantville Road Memphis, Tennessee United States 2016 Industrial ---------------49.190% Interstate Blood Bank, Inc. Procurement of human plasma. 5700 Pleasantville Road Memphis, Tennessee United States Bio Blood Components Inc. 2016 Industrial Procurement of human plasma. ---------------48.972% 5700 Pleasantville Road Memphis, Tennessee United States Plasma Biological Services, LLC 2016 Industrial Procurement of human plasma. ---------------48.900% 4041 Forest Park Avenue St. Louis, Missouri United States Development of the Single Molecule Counting (SMC™) technology for clinical diagnostic and scientific discovery. Singulex, Inc. 2016 Research ---19.330% ---19.330% ---19.330% Manufacture of biological products, including specific sera and plasma-derived reagents, which are used by biotechnology and biopharmaceutical companies for in-vitro diagnostics, cell culture, and research and development in the diagnostic field. 995 Park Center Dr, Vista, CA 92081, USA 2017 Industrial ---49.000% ---49.000% ---49.000% Access Biologicals, LLC. Manufacture of biological products, including specific sera and plasma-derived reagents, which are used by biotechnology and biopharmaceutical companies for in-vitro diagnostics, cell culture, and research and development in the diagnostic field. 995 Park Center Dr, Vista, CA 92081, USA Access Biologicals IC-DISC, Inc. 2017 Industrial ---49.000% ---49.000% ---49.000% Manufacture of biological products, including specific sera and plasma-derived reagents, which are used by biotechnology and biopharmaceutical companies for in-vitro diagnostics, cell culture, and research and development in the diagnostic field. 995 Park Center Dr, Vista, CA 92081, USA Access Cell Culture, LLC. 2017 Industrial ---49.000% ---49.000% ---49.000% Manufacture of biological products, including specific sera and plasma-derived reagents, which are used by biotechnology and biopharmaceutical companies for in-vitro diagnostics, cell culture, and research and development in the diagnostic field. 995 Park Center Dr, Vista, CA 92081, USA Access Manufacturing, LLC. 2017 Industrial ---------------49.000% Manufacture of biological products, including specific sera and plasma-derived reagents, which are used by biotechnology and biopharmaceutical companies for in-vitro diagnostics, cell culture, and research and development in the diagnostic field. 995 Park Center Dr, Vista, CA 92081, USA 2017 Industrial ---49.000% ---49.000% ---49.000% Access Plasma, LLC. 407 Cabot Road South San Francisco, CA 94080, USA Engage in any lawful act or activity for which corporations may be organized under General Corporation Law. GigaGen Inc. 2017 Industrial ---43.960% ---43.960% ---43.960% Colmarer Strasse 22, 60528 Frankfurt am Main - Germany Plasmavita Healthcare GmbH 2018 Industrial Procurement of human plasma. ---------50.000% ---50.000% Av. Roma, 35 Entresuelo 1, 08018 Barcelona; Spain Medcom Advance, S.A 2019 Research Research and development of nanotechnological solutions. ---45.000% ---45.000% ------This appendix forms an integral part of note 2 to the consolidated annual accounts.

 

 

 

 

7567-2-bc_part 3 of 5 2020 appendices fs_page_06.jpg APPENDIX I GRIFOLS, S.A. AND SUBSIDIARIES Information on Group Companies, Associates and others for the years ended 31 December 2020, 2019 and 2018 (Free translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails) 31/12/2020 31/12/2019 31/12/2018 % shares % shares % shares Acquisition / Incorporation date Name Registered Office Activity Statutory Activity Direct Indirect Direct Indirect Direct Indirect Equity-accounted investees and others Garnisongasse 4/12, 1090 Vienna, Austria Plasmavita Healthcare II GmbH 2019 Industrial Procurement of human plasma. ---------50.000% ------2009 Wangyuan Road, Shanghai RAAS Blood Products Co. Ltd. Fengxian District, Shanghai Introducing advanced and applicable technologies, instruments and scientific management systems for manufacturing and diagnosis of blood products, in order to raise the production capacity and enhance quality standards of blood products to the international level. 2020 Industrial 26.200% ---------------This appendix forms an integral part of note 2 to the consolidated annual accounts.

 

 

 

 

7567-2-bc_part 3 of 5 2020 appendices fs_page_07.jpg APPENDIX II GRIFOLS, S.A. AND SUBSIDIARIES Operating Segments for the years ended 31 December 2020, 2019 and 2018 (Expressed in thousands of Euros) (Free translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails) Bioscience 2019 Hospital 2019 Diagnostic 2019 Bio Supplies 2019 Others 2019 Intersegments 2019 Consolidated 2019 2020 2018 2020 2018 2020 2018 2020 2018 2020 2018 2020 2018 2020 2018 Revenues from external customers 4,242,502 3,993,462 3,516,704 118,675 134,441 119,454 775,889 733,604 702,265 224,090 266,540 167,004 31,989 22,820 22,451 (53,107) (52,176) (41,154) 5,340,038 5,098,691 4,486,724 Total operating income 4,242,502 3,993,462 3,516,704 118,675 134,441 119,454 775,889 733,604 702,265 224,090 266,540 167,004 31,989 22,820 22,451 (53,107) (52,176) (41,154) 5,340,038 5,098,691 4,486,724 Profit/(Loss) for the segment 949,989 1,079,216 902,402 (12,504) (8,674) (12,587) 215,793 215,828 215,990 19,871 16,246 36,824 2,241 1,279 19,788 4,428 (3,094) (5,764) 1,179,818 1,300,801 1,156,653 Unallocated expenses Operating profit/(loss) Finance result (183,686) (169,436) (162,529) 996,132 (177,669) 1,131,365 (274,724) 994,124 (257,244) Share of profit/(loss) of equity-accounted investee Income tax expense Profit for the year after tax ---- 2,839 ---- ---- (19,794) (10,975) ---- 3,039 60,166 (19,744) (5,941) ---- 60,166 (39,538) (11,038) (169,639) (168,459) (131,436) 708,990 648,644 594,406 Segment assets Equity-accounted investments Unallocated assets 7,975,667 ---- 8,416,922 10,368 --6,928,220 99,547 --257,360 ---- 274,250 ---- 250,543 ---- 3,371,125 ---- 3,676,011 ---- 3,526,136 19,256 --251,551 46,782 --226,814 49,922 --117,673 47,742 --383,981 1,822,238 --77,501 54,183 --54,363 60,360 --(26,773) ---- (32,892) ---- (29,281) ---- 12,212,911 1,869,020 1,192,845 12,638,606 114,473 2,789,532 10,847,654 226,905 1,402,487 Total assets 15,274,776 15,542,611 12,477,046 Segment liabilities Unallocated liabilities 1,222,664 --1,371,352 --764,377 --32,179 --53,441 --32,767 --372,461 --351,799 --230,517 --120,787 --126,289 --6,427 --121,334 --35,581 --34,698 ---- ---- ---- --1,869,425 6,685,296 1,938,462 6,758,381 1,068,786 6,711,656 Total liabilities 8,554,721 8,696,843 7,780,442 Other information: Allocated amortisation and depreciation 201,087 196,335 156,893 12,443 11,686 10,819 63,053 52,224 44,030 21,846 20,415 5,656 2,820 2,147 1,941 ---- --301,249 282,807 219,339 Unallocated amortisation and depreciation ---- ---- ---- ---- ---- ---- ---- ---- ---- 20,284 19,648 9,270 Allocated expenses that do not require cash payments 38,955 43,524 172,648 529 (289) 297 (21,335) (22,873) (27,651) 3 393 28 (2,977) ---- ---- --15,175 20,755 145,322 Unallocated expenses that do not require cash payments ---- ---- ---- ---- ---- ---- ---- ---- ---- 4,924 2,416 1,339 Allocated additions for the year of property, plant & equipment, intangible assets and rights of use 289,062 868,103 220,531 11,548 62,298 15,354 34,516 103,911 58,064 10,915 65,448 2,050 1,150 1,768 883 ---- --347,191 1,101,528 296,882 Unallocated additions for the year of property, plant & equipment, intangible assets and rights of use ---- ---- ---- ---- ---- ---- ---- ---- ---- 107,178 73,544 19,795 This appendix forms an integral part of note 6 to the consolidated annual accounts. 1 of 2

 

 

 

 

7567-2-bc_part 3 of 5 2020 appendices fs_page_08.jpg APPENDIX II GRIFOLS, S.A. AND SUBSIDIARIES Reporting by geographical area for the years ended 31 December 2020, 2019 and 2018 (Expressed in thousands of Euros) (Free translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails) Spain 2019 Rest of European Union 2019 USA + Canada 2019 Rest of World 2019 Consolidated 2019 2020 2018 2020 2018 2020 2018 2020 2018 2020 2018 Net Revenue 339,169 268,287 264,913 495,323 588,375 535,361 3,599,746 3,390,811 2,974,429 905,800 851,218 712,021 5,340,038 5,098,691 4,486,724 Assets by geographical area 1,117,647 2,764,054 898,599 2,927,198 3,425,874 3,177,781 9,138,360 9,059,674 8,133,108 2,091,571 293,009 267,558 15,274,776 15,542,611 12,477,046 Other information: Additions for the year of property, plant & equipment, intangible assets and rights of use 93,787 183,891 70,639 92,873 181,736 69,534 253,442 787,586 166,353 14,267 21,859 10,151 454,369 1,175,072 316,677 This appendix forms an integral part of note 6 to the consolidated annual accounts. 2 of 2

 

 

 

 

7567-2-bc_part 3 of 5 2020 appendices fs_page_09.jpg APPENDIX III GRIFOLS, S.A. AND SUBSIDIARIES Changes in Other Intangible Assets for the year ended 31 December 2020 (Expressed in thousands of Euros) (Free translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails) Balance at 31/12/2019 Business combinations Translation differences Balance at 31/12/2020 Additions Transfers Disposals --(6) Development costs Concessions, patents, licenses brands & similar Computer software Currently marketed products Other intangible assets 435,339 229,997 258,597 1,092,834 178,359 35,301 16,174 265,571 5 ---- (34,821) (18,147) 701,390 228,023 279,651 1,004,665 156,644 27,939 --3,118 2,229 ---- 3,963 --(399) (11) --(10,233) (13,066) (88,169) (14,201) Total cost of intangible assets 2,195,126 82,532 267,805 3,558 (10,244) (168,404) 2,370,373 Accum. amort. of development costs Accum. amort of concessions, patents, licenses, b Accum. amort. of computer software Accum. amort. of currently marketed products Accum. amort. of other intangible assets (103,531) (43,656) (143,806) (322,119) (80,836) (23,810) (8,221) (19,198) (37,739) (6,844) ---- ---- ---- (1,732) (9,833) --9,389 ---- 12 --214 1,466 2,412 5,701 27,890 6,647 (125,875) (51,197) (167,124) (331,968) (71,430) Total accum. amort intangible assets Impairment of other intangible assets (693,948) (67,644) (95,812) (2,977) ---- (2,176) --226 --44,116 5,492 (747,593) (65,130) Carrying amount of intangible assets 1,433,534 (16,257) 267,805 1,382 (10,018) (118,796) 1,557,650 (See note 3) This appendix forms an integral part of note 8 to the consolidated annual accounts. 1 of 2

 

 

 

 

7567-2-bc_part 3 of 5 2020 appendices fs_page_10.jpg APPENDIX III GRIFOLS, S.A. AND SUBSIDIARIES Changes in Other Intangible Assets for the year ended 31 December 2019 (Expressed in thousands of Euros) (Free translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails) Balance at 31/12/2018 Business combinations Translation differences Balance at 31/12/2019 Additions Transfers Disposals ---- Development costs Concessions, patents, licenses brands & similar Computer software Currently marketed products Other intangible assets 377,312 196,410 234,423 1,071,827 174,768 53,847 26,222 21,846 --8 -591 --4,771 4,485 2,934 21,007 3,437 435,339 229,997 258,597 1,092,834 178,359 2,587 17 ---365 293 -518 --516 -105 ---5 Total cost of intangible assets 2,054,740 101,923 2,239 291 (701) 36,634 2,195,126 Accum. amort. of development costs Accum. amort of concessions, patents, licenses, b Accum. amort. of computer software Accum. amort. of currently marketed products Accum. amort. of other intangible assets (90,107) (36,760) (126,653) (278,795) (70,553) (13,357) (6,386) (15,963) (38,040) (8,144) ---- ---- ---- --(278) --(763) ---- 60 ---- (67) (510) (972) (5,284) (1,376) (103,531) (43,656) (143,806) (322,119) (80,836) Total accum. amort intangible assets Impairment of other intangible assets (602,868) (66,335) (81,890) ---- --(1,041) --60 --(8,209) (1,309) (693,948) (67,644) Carrying amount of intangible assets 1,385,537 20,033 2,239 (750) (641) 27,116 1,433,534 (See note 3) This appendix forms an integral part of note 8 to the consolidated annual accounts. 2 of 2

 

 

 

 

7567-2-bc_part 3 of 5 2020 appendices fs_page_11.jpg APPENDIX IV GRIFOLS, S.A. AND SUBSIDIARIES Movement in Rights of Use for the year ended 31 December 2020 (Expressed in thousands of Euros) (Free translation from the original in Spanish. In the event of any discrepancy, the Spanish-language version prevails) Balance at 31/12/2019 Business combinations Translation differences Balance at 31/12/2020 Additions Transfers Disposals Land and buildings 734,846 68,172 19,424 --(10,935) (52,387) 759,120 Machinery 6,167 1,775 --(1,846) (59) (130) 5,907 Computer equipment 6,504 2,449 --(37) (347) (341) 8,228 Vehicles 14,030 2,681 74 (10) (1,914) (709) 14,152 Total cost of rights of use 761,547 75,077 19,498 (1,893) (13,255) (53,567) 787,407 Accum. amort. of land and buildings (49,441) (52,774) --(2) 2,341 5,758 (94,118) Accum. amort of machinery (1,698) (1,588) --955 55 40 (2,236) Accum. amort. of computer equipment (2,180) (3,012) --37 347 168 (4,640) Accum. amort. of vehicles (4,370) (5,206) --7 1,529 323 (7,717) Total accum. amort of rights of use (57,689) (62,580) --997 4,272 6,289 (108,711) Carrying amount of rights of use 703,858 12,497 19,498 (896) (8,983) (47,278) 678,696 This appendix forms an integral part of note 9 to the consolidated annual accounts. 1 de 2

 

 

 

 

7567-2-bc_part 3 of 5 2020 appendices fs_page_12.jpg APPENDIX IV GRIFOLS, S.A. AND SUBSIDIARIES Movement in Rights of Use for the year ended 31 December 2019 (Expressed in thousands of Euros) (Free translation from the original in Spanish. In the event of any discrepancy, the Spanish-language version prevails) Balance at 31/12/2018 Business combinations Translation differences Balance at 31/12/2019 Additions Transfers Disposals Land and buildings --728,246 --381 (531) 6,750 734,846 Machinery --1,957 --4,209 --1 6,167 Computer equipment --3,324 --3,156 (4) 28 6,504 Vehicles --14,346 --20 (371) 35 14,030 Total cost of rights of use --747,873 --7,766 (906) 6,814 761,547 Accum. amort. of land and buildings --(49,786) ---- 287 58 (49,441) Accum. amort of machinery --(1,768) --69 1 (1,698) Accum. amort. of computer equipment --(2,204) --21 3 --(2,180) Accum. amort. of vehicles --(4,613) ---- 231 12 (4,370) Total accum. amort of rights of use --(58,371) --90 521 71 (57,689) Carrying amount of rights of use --689,502 --7,856 (385) 6,885 703,858 This appendix forms an integral part of note 9 to the consolidated annual accounts. 2 de 2

 

 

 

 

7567-2-bc_part 3 of 5 2020 appendices fs_page_13.jpg APPENDIX V GRIFOLS, S.A. AND SUBSIDIARIES Movement in Property, Plant and Equipment for the year ended 31 December 2020 (Expressed in thousands of Euros) (Free translation from the original in Spanish. In the event of any discrepancy, the Spanish-language version prevails) Balances at Translation Balances at Business 31/12/2019 Additions combination Transfers Disposals differences 31/12/2020 Cost: Land and buildings Plant and machinery Fixed Assets under construction 807,195 2,141,611 497,164 19,843 50,825 226,092 14,964 48,408 121,399 (6,050) 103,594 (99,616) (211) (23,830) --(55,561) (120,179) (40,457) 780,180 2,200,429 704,582 3,445,970 296,760 184,771 (2,072) (24,041) (216,197) 3,685,191 Accumulated depreciation: Buildings (108,638) (17,974) --(3,826) 171 7,319 (122,948) Plant and machinery (1,175,075) (145,167) --5,412 22,590 56,757 (1,235,483) (1,283,713) (163,141) --1,586 22,761 64,076 (1,358,431) Impairment of other property, plant and equipment (2,712) 21 ---- --38 (2,653) 2,159,545 133,640 184,771 (486) (1,280) (152,083) 2,324,107 Carrying amount (See note 3) This appendix forms an integral part of note 10 to the consolidated annual accounts. 1 of 2

 

 

 

 

7567-2-bc_part 3 of 5 2020 appendices fs_page_14.jpg APPENDIX V GRIFOLS, S.A. AND SUBSIDIARIES Movement in Property, Plant and Equipment for the year ended 31 December 2019 (Expressed in thousands of Euros) (Free translation from the original in Spanish. In the event of any discrepancy, the Spanish-language version prevails) Balance at Translation Balance at Business combination 31/12/2018 Additions Transfers Disposals differences 31/12/2019 Cost: Land and buildings Plant and machinery Fixed assets under construction 726,412 1,984,853 345,391 30,209 55,957 239,111 30,346 19,079 926 10,866 68,107 (91,788) (2,078) (13,892) (55) 11,440 27,507 3,579 807,195 2,141,611 497,164 3,056,656 325,277 50,351 (12,815) (16,025) 42,526 3,445,970 Accumulated depreciation: Buildings (89,378) (18,108) (23,288) 23,111 657 (1,632) (108,638) Plant and machinery (1,012,735) (144,086) --(17,402) 11,901 (12,753) (1,175,075) (1,102,113) (162,194) (23,288) 5,709 12,558 (14,385) (1,283,713) Impairment of other property, plant and equipment (2,560) (113) ---- --(39) (2,712) 1,951,983 162,970 27,063 (7,106) (3,467) 28,102 2,159,545 Carrying amount (See note 3) This appendix forms an integral part of note 10 to the consolidated annual accounts. 2 of 2

 

 

 

 

7567-2-bc_part 3 of 5 2020 appendices fs_page_15.jpg APPENDIX VI GRIFOLS, S.A. AND SUBSIDIARIES Statement of Liquidity for Distribution of Interim Dividend 2019 (Expressed in thousands of Euros) (Free translation from the original in Spanish. In the event of any discrepancy, the Spanish-language version prevails) Thousands of Euros Forecast distributable profit for 2019: Projected profit after tax until 31/12/2019 Less, provision required to legal reserve 827,684 --827,684 Estimated distributable profit for 2019 136,828 Interim dividends distributed Forecast cash for the period 25 October 2019 to 25 October 2020: Cash balances at 25 October 2019 Projected collections Projected payments, including interim dividend --1,157,200 557,000 600,200 Projected cash balances at 25 October 2020 This appendix forms an integral part of note 16 to the consolidated annual accounts.

 

 

 

 

 

7998-1-mm_part 4 of 5 2020 consolidated directors' report_part1_page_01.jpg CONSOLIDATED DIRECTORS’ REPORT 2020

 

 

 

 

7998-1-mm_part 4 of 5 2020 consolidated directors' report_part1_page_03.jpg A CENTURY-OLD COMPANY RECOGNIZED AMONG THE WORLD’S MOST SUSTAINABLE COMPANIES THAT CONTINUES TO ADVANCE ITS MISSION OF HELPING PEOPLE LIVE LONGER AND BETTER LIVES, INCLUDING IN THE FIGHT AGAINST COVID-19 2021

 

 

 

 

7998-1-mm_part 4 of 5 2020 consolidated directors' report_part1_page_04.jpg INTRODUCTION I CHAIRMAN LETTER I 5 2020 CONSOLIDATED DIRECTORS’ REPORT Grifols’ Board of Directors and workforce, led by its co-CEOs, successfully managed an exceptionally challenging year, while achieving notable corporate objectives. For this reason, I would first like to express my sincerest thanks, admiration and pride for each and every one of the nearly 24,000 people who form part of the Grifols team. Working together, from all of our countries of operation, you ensured that we were able to continue supplying life-saving medicines and products to patients and healthcare professionals. At the same time, my appreciation and thoughts also go to those who are no longer with us. who have recovered from the disease can serve as an effective treatment in the fight against SARS-CoV-2. a heightened awareness of the need to increase their self-sufficiency of plasma and plasma-derived medicines. We will continue to work in this direction, always acting in an ethical and responsible manner in accordance with our mission. Accordingly, we are focusing our efforts in several different ways: collaborating in campaigns and appeals to collect plasma; inactivating convalescent plasma for its use in direct transfusions; developing specialty plasma-derived medicines; and financing promising research projects and initiatives. Guided by this sense of responsibility, Grifols continues to place sustainability as a core strategic pillar. In 2020, Grifols was distinguished as one of the world’s most sustainable countries by the most important global indices. We also created a Sustainability Committee delegated by the Board of Directors to reinforce our actions as a responsible company, that is transparent in our interactions and committed to creating value for our diverse stakeholders. We have also made significant advancements in other high-impact research projects, most notably the AMBAR (Alzheimer Management by Albumin Replacement) study. We marked an amazing milestone in 2020, when the prestigious scientific journal Alzheimer’s & Dementia: The Journal of the Alzheimer’s Association published the results of this clinical trial. We continue to move forward with our plan to make this treatment a reality and are setting up centers of excellence in several countries. In the current climate of uncertainty, I would like to send a message of hope and optimism to everyone on the outstanding team that makes Grifols possible: a project launched in 1909 with the proven capacity to emerge stronger from challenging situations, driven by a spirit of excellence and innovation that defines us as a company. At Grifols, our capacity to progress and innovate grows in the face of difficulties. Over the last year, we mobilized significant human and economic resources to find solutions to this new challenge, in alignment with our mission to promote the health and wellbeing of patients and society as a whole. Ethics, health and the environment are tightly interconnected, which is why we strive to ensure our operations are consistent with the needs of society and sustainable in their approach, even in such difficult times as the ones we are living in. SINCE 1909 GRIFOLS HAS DEMONSTRATED ITS PROVEN CAPACITY TO EMERGE STRONGER FROM CHALLENGING SITUATIONS, DRIVEN BY A SPIRIT OF EXCELLENCE AND INNOVATION THAT DEFINES US AS A COMPANY. Meanwhile, we continue to drive plasma science by fostering scientific knowledge on the proteome of human plasma and supporting research to explore its full potential through Alkahest, addition to other studies to combat age-related diseases and other pathologies. Thank you for your continued support. VÍCTOR GRÍFOLS ROURA CHAIRMAN Even before the pandemic was declared, we began collaborating with governments and healthcare authorities to put all of our expertise and experience at their disposal. As a pioneer in the development of plasma-derived therapies with a vocation and capacity to respond to health emergencies, as evidenced during the Ebola epidemic, we believe plasma from people In 2020, society as a whole became more aware of the word “plasma” and the critical importance of donations and donors in the production of life-saving plasma-based medicines. We have also made progress at an institutional level, in the European Union and other regions, to ensure COMMITMENT, INNOVATION AND A SPIRIT OF EXCELLENCE

 

 

 

 

7998-1-mm_part 4 of 5 2020 consolidated directors' report_part1_page_05.jpg INTRODUCTION I CEOs LETTER I 6 2020 CONSOLIDATED DIRECTORS’ REPORT Ethics, responsibility, commitment, and resilience driven by a great team is what guided our leadership in 2020, and has allowed us to continue strengthening our growth as a company in a sustainable manner. Similarly, we also signed a strategic alliance with the Egyptian government, entailing the development of 20 plasma centers and the construction of new manufacturing facilities. Offering an extraordinary bridge for collaboration, this partnership will reinforce Egypt’s healthcare system by promoting the country’s self-sufficiency in plasma-based therapies, while widening Grifols’ presence in the Middle East and Africa. At Grifols, we continue to do our best to move forward in an environment of immense challenges and uncertainty imposed by COVID-19. Thanks to our exceptional workforce, we were able to overcome adversity, adapt to change, ensure a continuous supply of our essential medicines, products and services, and count on each and every one of our employees to promote our core mission of enhancing the health and well-being of people. We also reinforced our operations in China by closing a strategic alliance with Shanghai RAAS. China holds tremendous growth potential for plasma products and transfusion diagnostic solutions. Working hand in hand with our strategic partner, we look forward to forging a solid presence in the Chinese market. We are proud of our response as a company and pleased by the increased focus on plasma and plasma donors whose generosity is more relevant today than ever before. While their generosity has always been critical to saving lives, it now has even greater meaning. The pandemic has heightened the need for broadscale scientific collaboration to find a joint and global solution against COVID-19. At Grifols, we were able to rapidly deploy resources to develop a SARS-CoV-2 detection test in record time, as well as a range of potential treatments based on the therapeutic properties of hyperimmune plasma and specific antibodies concentrated in immunoglobulins, in addition to other plasma-based therapies. At present, we are leading and participating in more than 25 research initiatives and projects to address this urgent social need. For this reason, we also remain steadfast in our pursuit to expand our network of plasma donation centers, as well as forge strategic alliances to boost other countries’ self-sufficiency in plasma-derived medicines. To reflect these aims, in 2020 we acquired centers in the U.S. and Europe and three production facilities in Canada. WE HAVE BOTH THE CAPACITY AND THE WILL TO MAKE A POSITIVE DIFFERENCE IN SOCIETY AND WE FIRMLY BELIEVE IN DEVELOPING OUR BUSINESS MODEL SUSTAINABLY ETHICS, RESPONSIBILITY, RESILIENCE AND A LONG-TERM VISION

 

 

 

 

7998-1-mm_part 4 of 5 2020 consolidated directors' report_part1_page_06.jpg INTRODUCTION I CEOs LETTER I 7 2020 CONSOLIDATED DIRECTORS’ REPORT In 2020, we upheld our R+D+i investment levels by allocating close to EUR 300 million. We also enhanced our innovation ecosystem by integrating companies like Alkahest, with which we began collaborating in 2015. All of these accomplishments and more are highlighted throughout this report, which underscores our unwavering quest to drive sustainable and long-term growth. And, as mentioned earlier, this stems directly from a vision of responsible leadership and the dedicated efforts of Grifols’ talent pool, made up of close to 24,000 employees from 88 nationalities. Without any doubt, our team is our greatest asset. Grifols further contributes to the Sustainable Development Goals through an array of initiatives, combining economic gain with social and environmental value creation. We believe business investment can serve as a powerful driver for positive social change, since corporate investments and positive social impact are not a zero-sum game. In 2020, Grifols was recognized as one of the world’s most sustainable companies by highly prestigious indices including Dow Jones Sustainability Index, Euronext Vigeo, FTSE4Good and Bloomberg Gender-Equality Index, which assess corporate performances on the basis of environmental, social and corporate governance criteria. These awards undoubtedly encourage us to continue working in the same direction. Their research will lead to greater knowledge of the human plasma proteome and enable us to promote innovative therapies for age-related diseases, among others, while contributing to scientific plasma progress. In the coming years, the impact of a deeper understanding of the human proteome in the field of bioscience could be as great as the discovery of the human genome sequence. To this end, in 2020 we decided to quantify the total socioeconomic impact generated by our operations in the U.S., Spain, Germany and Ireland in terms of job creation and GDP contribution, which totaled EUR 7,500 million. We also measured the social value generated by our U.S. plasma donation centers for the first time: more than EUR 6,200 million of impact was generated for donors, patients and local communities where the centers are based. In this regard, our progress to promote greater diversity, equality and talent development is indeed a source of pride. We continue to make progress on gender pay equality, female leadership and anti-harassment policies and campaigns to support women, among others. The new Diversity and Inclusion Plan will help us to continue to make progress in this area. For yet another year, we remained true to our values, our principles and our long-term vision. We truly appreciate your continued support. As a result of our innovation strategy, in 2020 we had a significant contribution to revenue growth from new products. Of note are Xembify® in the U.S. market, our subcutaneous immunoglobulin to treat primary immunodeficiencies; VistsealTM, a biological sealant developed in collaboration with Ethicon to control surgical bleeding; and Tavlesse® (fostamatinib), a therapeutic alternative for chronic immune thrombocytopenia (ITP) patients who are refractory to other treatments, following the agreement with Rigel Pharmaceutical. RAIMON GRÍFOLS ROURA CO-CEO VÍCTOR GRÍFOLS DEU CO-CEO In terms of economic results, we attained close to EUR 5,400 million in revenues. Our financial performance and business strategy provided the necessary strength to meet our planned capital investments, as well as expand and strengthen our cash position. In addition, we maintained our manufacturing operations while advancing on our 2030 environmental objectives, with the aim of minimizing our impact. We have both the capacity and the calling to make a positive difference in the society and firmly believe in developing our business model in a sustainable manner. We also continued to support various programs to promote health and wellness, education, environment and local community development, both directly and through our foundations. In 2020, we allocated EUR 41 million towards these programs. Beyond plasma-derived products, Grifols is also fostering innovation to offer more treatment options for patients and healthcare professionals in specific therapeutic areas, such as hematology, immunology, pulmonology, autoimmune diseases and neurodegenerative disorders. Our new sustainability policy outlines the primary principles and commitments regarding our social and environmental responsibility and offers a framework to integrate them globally and unequivocally into our business model.

 

 

 

 

7998-1-mm_part 4 of 5 2020 consolidated directors' report_part1_page_07.jpg INTRODUCTION I OUR COMMITMENT DURING COVID-19 I 8 2020 CONSOLIDATED DIRECTORS’ REPORT z OUR RESPONSIBILITY TO OUR EMPLOYEES z OUR COMMITMENT TO DONORS AND PATIENTS z COLLABORATION WITH HEALTHCARE AUTHORITIES z INNOVATION IN RESPONSE TO COVID-19 z SOLID FINANCIAL MANAGEMENT Grifols has done everything possible to protect its employees and guarantee their health and safety. Serving patients and society are core Since the outbreak of COVID-19, Grifols has been working closely with healthcare authorities in its main countries of Grifols is leading a number of projects to discover new treatments. It developed a TMA molecular test to detect the SARS-CoV-2 virus in plasma, blood and respiratory samples. In 2020, Grifols took all necessary measures to further bolster its already-solid financial position. As of December 31, 2020, Grifols’ treasury positions stood at EUR 580 million, which, when added to the EUR 1,000 million in undrawn lines of credit, brings its liquidity position to roughly EUR 1,500 million. priorities for Grifols, whose life-enhancing products and services are essential for patients and healthcare professionals around the world. The company is doing everything within its reach to increase its plasma supply, plasma-derived therapies, SARS-CoV-2 tests and other products to make sure patients continue to receive the treatment and healthcare they require. operation, including the United Spain and China, among others. States, The company was determined to retain its workforce and took no measures, temporary or permanent, reduce headcount. Grifols has shared its broad knowledge and technology about plasma inactivation for transfusions and convalescent plasma (antibody-rich plasma from recovered COVID-19 patients) to develop and produce a potential immunoglobulin-based treatment. Among its current initiatives is the development of immunoglobulins with anti-SARS-CoV-2 antibodies produced from plasma recovered from COVID-19 patients. It also promotes and collaborates with clinical trials that allow the use of inactivated convalescent plasma, along with additional trials to assess the potential benefits of other plasma-derived products. Grifols’ intense process of digital transformation in recent years was key to ensuring the continuity of its operations. Consequently, the company implemented a remote-work policy and reached flexibility agreements in order to sustain its manufacturing operations. In November 2019, Grifols optimized its financial structure with the completion of its debt refinancing process, which extended average maturity to seven years and provided greater flexibility in cov-lite terms. The company is also reinforcing its long-term commitment to donors, who play a fundamental role in the production of plasma-derived medicines. . . More details on Grifols’ management, impact and measures relating to COVID-19 are highlighted in every chapter of this report. OUR COMMITMENT DURING COVID-19

 

 

 

 

7998-1-mm_part 4 of 5 2020 consolidated directors' report_part1_page_08.jpg INTRODUCTION I PLASMA: AN ESSENTIAL ASSET TO ENSURING PATIENTS’ QUALITY OF LIFE I 9 2020 CONSOLIDATED DIRECTORS’ REPORT PATIENTS’ QUALITY OF LIFE During these unprecedented times, Grifols continues working hard to minimize supply chain delays in its products and services, which are critical for patients and healthcare professionals around the world. plasma as a raw material in the manufacture of plasma-derived treatments; as well as hyperimmune or convalescent plasma from people who have recovered from COVID-19, which is rich in anti-SARS-CoV-2 antibodies. In recent years, Grifols has forged a global network of 312 plasma centers in the U.S. and Europe, allowing it to expand and diversify its access to plasma. The company will continue its global efforts to raise awareness on the need for plasma. Grifols continues to stress the strategic relevance of plasma-derived medicines to guarantee people’s health and well-being worldwide as part of its efforts to raise awareness of plasma and its potential to treat COVID-19. In this regard, the company added its voice to the plea made by the Protein Therapeutics Association (PPTA) urging European healthcare authorities to take decisive action to encourage more plasma donations. Grifols has joined forces with diverse healthcare authorities and organizations to encourage people to donate plasma, including several outreach, educational and promotional campaigns on the importance of GRIFOLS LEADS VARIOUS EFFORTS TO RAISE AWARENESS ON THE ESSENTIAL ROLE OF PLASMA TO PRODUCE LIFE-SAVING MEDICINES PLASMA: AN ESSENTIAL ASSET TO ENSURING

 

 

 

 

7998-1-mm_part 4 of 5 2020 consolidated directors' report_part1_page_09.jpg INTRODUCTION I HIGHLIGHTS I 10 2020 CONSOLIDATED DIRECTORS’ REPORT HIGHLIGHTS GROWTH INVESTMENT AND INNOVATION NET REVENUE NET INCOME INVESTMENTS CAPEX 308 M€ I+D NET INVESTMENT 298 M€ 5.6% of net revenue 619 M€ 5,340 M€ EBITDA PLASMA CENTERS +6.1% cc* 312 1,324 M€ U.S. 264 Europe 48 PATENTS & TRADE MARKS 3,600 +7.1% cc NORTH AMERICA 834 +4.5% cc EU 906 +3.4% cc ROW 6,505 North America 470 Europe 2,691 ROW 3,344 * At constant currency.

 

 

 

 

7998-1-mm_part 4 of 5 2020 consolidated directors' report_part1_page_10.jpg INTRODUCTION I HIGHLIGHTS I 11 2020 CONSOLIDATED DIRECTORS’ REPORT TALENT AND DIVERSITY RESPONSIBILITY HUMAN CAPITAL 23,655 6,421 27% EU ENVIRONMENTAL COST & INVESTMENTS COMMUNITY INVESTMENTS 23 M€ 41 M€ 16,604 70% NORTH AMERICA 630 3% ROW ECONOMIC IMPACT JOBS CREATED 7,500 M€ 140,000 EQUAL OPPORTUNITY 98% PERMANENT CONTRACTS SOCIAL VALUE 14,142 60% WOMEN 9,513 40% MEN 88 NATIONALITIES 6,200 M€

 

 

 

 

7998-1-mm_part 4 of 5 2020 consolidated directors' report_part1_page_11.jpg INTRODUCTION I 2020 MILESTONES I 12 2020 CONSOLIDATED DIRECTORS’ REPORT APRIL • Start of the hyperimmune plasma campaign in the U.S. to develop and produce an anti-SARS-CoV-2 immunoglobulin as a potential treatment • Launch of a new format of HyperRAB®, a high-potency anti-rabies immunoglobulin for rabies postexposure prophylaxis JANUARY • The European Commission approves TAVLESSE® (fostamatinib) to treat immune thrombocytopenia (ITP) in adult patients who are refractory to other treatments MARCH • Grifols and Shanghai RAAS close their strategic alliance to promote the growth of plasma-derived products and diagnostic solutions in China • The FDA authorizes the sale of a second QSmart hemostasis analyzer • Multilateral agreement signed with diverse U.S. health authorities to develop the first treatment aimed specifically at combating COVID-19 with hyperimmune plasma JUNE MAY • Grifols R&D receives an “excellent” rating in the Profarma Program, spearheaded by the Spanish Ministry of Industry, Trade and Tourism • Completion of the development of a high-sensitivity molecular test to detect the SARS-CoV-2 virus in plasma, blood and respiratory samples • Start of the production of a hyperimmune immunoglobulin as a potential passive immunotherapy against COVID-19 FEBRUARY • Voluntary disclosure of transfers of value made in 2019 to European healthcare professionals and organizations • Liquidity position strengthened by the expansion of multicurrency revolving credit line, from USD 500M to 1,000M • The PharmacyKeeper application earns the top award for innovation from KLAS Research, an independent healthcare IT data and insights company • “The Sustainability Yearbook 2020,” published by S&P Global, includes Grifols among the 10 most sustainable biotech companies • The FDA approves Procleix® Panther® with Automation Ready Technology (ART) for blood screening 2020 MILESTONES

 

 

 

 

7998-1-mm_part 4 of 5 2020 consolidated directors' report_part1_page_12.jpg INTRODUCTION I 2020 MILESTONES I 13 2020 CONSOLIDATED DIRECTORS’ REPORT OCTOBER • Closing of acquisition of assets in the U.S. and Canada. Grifols becomes the only large-scale manufacturer of plasma-derived products in Canada AUGUST • The FDA grants emergency use authorization for convalescent plasma to treat patients with COVID-19 • Start of the clinical trial of anti-SARS-CoV-2 hyperimmune immunoglobulin in COVID-19 patients, with Grifols participation • During its Annual Shareholders’ Meeting, Grifols joins the PPTA’s global appeal for the need to increase plasma donations • Plasmavita opens its first center in the German state of Saarland JULY SEPTEMBER • Delivery of the first batch of anti-SARS-CoV-2 hyperimmune immunoglobulin for use in clinical trials • Agreement to acquire the remaining stake in Alkahest to boost Grifols’ R&D efforts • Strategic agreement reached to acquire manufacturing facilities in Canada and 11 plasma centers in the U.S. from Green Cross (GC Pharma) NOVEMBER DECEMBER • Feature article on AMBAR findings in the scientific journal Alzheimer’s & Dementia: The Journal of the Alzheimer’s Association • Strategic alliance between Grifols and the Egyptian government to promote self-sufficiency of plasma-derived medicines in the Middle East and Africa • Grifols creates a Sustainability Committee to strengthen its corporate governance structure and long-term sustainable growth model • Expansion of product portfolio with the European market launch of TAVLESSE® • The Dow Jones Sustainability Index recognizes Grifols as one of the world’s most sustainable companies • Grifols is included for the first time in the Euronext Vigeo Europe 120 and Euronext Vigeo Eurozone 120 indices

 

 

 

 

7998-1-mm_part 4 of 5 2020 consolidated directors' report_part1_page_13.jpg Grifols is a centenary company that has fostered innovation since its origins, building its business on solid values and ethical principles with the aim of enhancing people’s health and well-being. The company’s commitment to society is grounded on a long-term business model that creates value in alignment with the Sustainable Development Goals. This social dimension has enabled it to advance on its path of growth, while earning the distinction as one of the world’s most sustainable firms. GRIFOLS ESTABLISHED 1909 BUSINESS AREAS 4 divisions

 

 

 

 

7998-1-mm_part 4 of 5 2020 consolidated directors' report_part1_page_14.jpg ABOUT GRIFOLS

 

 

 

 

7998-1-mm_part 4 of 5 2020 consolidated directors' report_part1_page_15.jpg ABOUT GRIFOLS I A CENTURY-OLD COMPANY I 16 2020 CONSOLIDATED DIRECTORS’ REPORT First plasma fractionation plant in Spain begins operations. 1958 1973 Grifols opens its new production facility in Barcelona. 1909 1943 Production of the first single-donor lyophilized plasma in continental Europe. Grifols patents this process in Spain and develops a lyophilizer and complementary devices to later inject plasma as a therapy. Dr. Josep Antoni Grífols i Roig sets up Instituto Central de Análisis Clínicos, Bacteriológicos y Químicos in Barcelona, prior to Laboratorios Grifols. 1995 Led by Dr. Víctor Grífols i Lucas, Grifols becomes the first non-U.S. company to obtain an FDA establishment license and an FDA licence for a biological product (albumin). 1945 Grifols opens the first private blood bank in Spain. 1940 Dr. Grífols i Roig, and his sons Josep Antoni and Víctor Grífols i Lucas, establish Laboratorios Grifols in Barcelona, a company specialized in clinical analyses and the preparation of lyophilized plasma. 1951 Dr. Josep Antoni Grífols i Lucas develops the plasmapheresis technique. A CENTURY-OLD COMPANY

 

 

 

 

7998-1-mm_part 4 of 5 2020 consolidated directors' report_part1_page_16.jpg ABOUT GRIFOLS I A CENTURY-OLD COMPANY I 17 2020 CONSOLIDATED DIRECTORS’ REPORT Grifols acquires the assets of Alpha Therapeutic Corporation-Mitsubishi, including its plasma therapy manufacturing plant in Los Angeles, California. Acquisition of Hologic’s share of NAT donor screening unit. 2003 2019 2016 Latest findings released from the AMBAR clinical trial in the fight against Alzheimer’s FDA grants approval for immunoglobulin Barcelona plant (IVIG). 2006 Strategic alliance with Shanghai RAAS in China Grifols is listed on the Spanish stock exchange. 2002 2020 Grifols closes the acquisition of a fractionation plant in Canada and 11 plasma centers in the U.S. from Green Cross. Grifols acquires Talecris Biotherapeutics to become the third-largest global manufacturer of plasma-derived protein therapies. Grifols acquires the U.S.-based company SeraCare, currently Biomat USA, along with its 43 donor centers. 2011 Acquisition of the remaining capital of Alkahest to enhance discovery, research and development to identify innovative therapies based on the understanding of the human plasma proteome. Grifols is listed on the NASDAQ stock exchange. 2014 Strategic agreement to develop the plasma derivatives market with the opening of 20 plasma centers and the construction of production facilities in Egypt. Acquisition of the transfusional diagnostic assets from Novartis.

 

 

 

 

7998-1-mm_part 4 of 5 2020 consolidated directors' report_part1_page_17.jpg ABOUT GRIFOLS I OUR SUSTAINABLE BUSINESS MODEL I 18 2020 CONSOLIDATED DIRECTORS’ REPORT z GRIFOLS BUILDS ON SOLID VALUES z RECOGNIZED AS ONE OF THE MOST SUSTAINABLE COMPANIES IN THE WORLD Grifols’ corporate values underline the importance of teamwork, responsibility, innovation, sustainability, strategic vision and long-term value creation. Grifols’ history reflects these values, the commitments they represent and a pioneering spirit to lead in scientific progress. In 2020, Grifols was included for the first time ever in the Dow Jones Sustainability Index (DJSI) and the DJSI Europe. These core values form the basis of Grifols’ sustainable growth model and overarching mission to improve the well-being of people worldwide. The company aspires to create value for its diverse stakeholders by generating stable employment, driving leading-edge research, promoting economic development, and building trust among its shareholders and investors. Our Sustainability Policy outlines the firm’s fundamental principles and commitments regarding its social and environmental responsibility and offers a framework to solidly integrate them throughout the business model. Grifols was listed on the Euronext Vigeo Europe 120 and Euronext Vigeo Eurozone 120 indices for the first time in 2020 following an assessment by Vigeo Eiris. Grifols has been listed on FTSE4Good Global, FTSE4Good Europe and FTSE4Good Ibex since 2018. For the first time, Grifols is included in the 2021 Bloomberg Gender-Equality Index (GEI), demonstrating Grifols’ commitment to addressing gender inequality. 2021 Grifols improved its score to “A-“ on the Carbon Disclosure Project (CDP), in recognition of its leadership in reducing emissions and for its solid climate-change strategy. GRIFOLS IS GUIDED BY THE PRINCIPLES OF BIOETHICS In reflection of its ongoing quest to advancing scientific and social progress, Grifols believes science must be firmly committed to life, in all its facets, shapes and dimensions. By definition, scientific progress aims to improve the quality of life of human beings and humanity as a whole. Part of Grifols’ DNA since its origins has been the fundamental tenets of bioethics, which guide the development, production and marketing of all Grifols’ products to ensure the safety and dignity of patients and donors, while serving as a beacon to effectively address the ethical issues raised by healthcare advancements. Inspired by this philosophy, the Víctor Grífols i Lucas Foundation was created in 1998 to encourage cross-disciplinary debate and dialogue on bioethics among healthcare companies, organizations and professionals. The Foundation serves as a vibrant platform for new ideas, insights and perspectives on the ethics of life. OUR SUSTAINABLE BUSINESS MODEL

 

 

 

 

7998-1-mm_part 4 of 5 2020 consolidated directors' report_part1_page_18.jpg ABOUT GRIFOLS I OUR SUSTAINABLE BUSINESS MODEL I 19 2020 CONSOLIDATED DIRECTORS’ REPORT VERTICAL INTEGRATION GUIDED BY ITS CORE VALUES, GRIFOLS SERVES SOCIETY SUSTAINABLY AND ETHICALLY A VERTICALLY INTEGRATED BUSINESS MODEL PROMOTES GLOBAL EXPANSION AND COMPLEMENTARY PRODUCTS AND SERVICES SDG GLOBAL EXPANSION GRIFOLS’ BUSINESS MODEL IS ALIGNED WITH THE UNITED NATIONS SUSTAINABLE DEVELOPMENT GOALS AND FOCUSED TOWARD VALUE CREATION VALUE CREATION RECONOCIDO INTERNACIONALMENTE P N

 

 

 

 

7998-1-mm_part 4 of 5 2020 consolidated directors' report_part1_page_19.jpg ABOUT GRIFOLS I OUR SUSTAINABLE BUSINESS MODEL I 20 2020 CONSOLIDATED DIRECTORS’ REPORT z GRIFOLS’ BUSINESS MODEL SUPPORTS SUSTAINABLE DEVELOPMENT GOALS WE ACTIVELY PROMOTE EFFORTS TO ACHIEVE SDGs Grifols first identified and prioritized SDGs to evaluate its potential contributions, enabling it to pinpoint where it could create the most value and offer solutions based on its operations, industry and geographical scope. Adopted by the United Nations in 2015, the 2030 Agenda for Sustainable Development offers a shared global vision to promote peace and prosperity for people and the planet. The Agenda advocates 17 Sustainable Development Goals, which together promote a holistic approach to address and manage critical global challenges, including the eradication of hunger and poverty, access to high-quality education, gender equality, decent work opportunities and the fight against climate change. The SDGs have been broken down into 169 concrete and measurable targets to enable their implementation. Grifols carried out a materiality analysis to rank the objectives, identifying five SDGs where it could have the greatest impact, and four additional SDGs where it could make significant contributions. Grifols also supports SDG17 – Partnerships for the Goals – by collaborating with different interest groups (social and educational institutions, governments, organizations, entities and other companies) to jointly spearhead initiatives in the education, innovation and healthcare domains, among others. Grifols recognizes the vital role companies play on the path toward sustainable development. For this reason, it partners with and supports the actions of numerous agents engaged in this global pursuit, reflecting its commitment to making a positive impact on society. The numerous actions by which Grifols supports these concrete SDGs are highlighted throughout this report.

 

 

 

 

7998-1-mm_part 4 of 5 2020 consolidated directors' report_part1_page_20.jpg ABOUT GRIFOLS I OUR SUSTAINABLE BUSINESS MODEL I 21 2020 CONSOLIDATED DIRECTORS’ REPORT Sustainable activity. With SDG 3 and SDG 10 as the main focuses of attention, the Foundation’s objective is to improve the health of the most vulnerable Goals Year program started 2012 2018 2010 2010 2020 Countries where the programs are Spain/ impact on objectives 1, 2, 4, 6, 7, 8, 9 and 17. Spain Spain 11 countries 41 countries Throughout 2020, Probitas promoted health and nutrition programs from a variety of sources, including through to provide adequate and predictable means for 4 4 4 4 4 It has also collaborated with research centers, hospitals, foundations and other partners in the field of mental health, providing services countries, to implement programmes and policies agreed targets on stunting and wasting in children providing funding, the foundation has also coordinated, directed and trained various local collaborators so that they can be self-sufficient 4 needs of adolescent girls, pregnant and lactating 4 4 efficiency and advanced and cleaner fossil-fuel PROBITAS FOUNDATION’S CONTRIBUTION TO THE SUSTAINABLE DEVELOPMENT GOALS The Probitas Foundation is aligned with the general guidelines set by the World Health Organization (WHO) and contributes to the achievement of the Sustainable Development Goals (SDG) with its Development populations around the world, although its actions also have an implemented Senegal 1.a Ensure significant mobilization of resources to improve the well-being of vulnerable children and young people.enhanced development cooperation, in order developing countries, in particular least developed not included in the public health system. In 2020, the foundation alsoto end poverty in all its dimensions endorsed international sustainable health projects and programs that 2.2 By 2030, end all forms of malnutrition, target the most vulnerable populations. Furthermore, rather than just including achieving, by 2025, the internationally under 5 years of age, and address the nutritional in the near future. women and older persons 6.b Support and strengthen the participation of local communities in improving water and44 sanitation management 7.a By 2030, enhance international cooperation to facilitate access to clean energy research and technology, including renewable energy, energy technology, and promote investment in energy infrastructure and clean energy technology To learn more about Probitas and its core programs, please visit http://www.fundacionprobitas.org

 

 

 

 

7998-1-mm_part 4 of 5 2020 consolidated directors' report_part1_page_21.jpg ABOUT GRIFOLS I OUR SUSTAINABLE BUSINESS MODEL I 22 2020 CONSOLIDATED DIRECTORS’ REPORT GRIFOLS’ PRIORITIZATION OF SDGs Sustainable Development Goals Outstanding contributions in 2020 - Grifols leads more than 25 international initiatives dedicated to research potential COVID-19 diagnosis and treatment with plasma-derived medicines - Production of plasma-derived medicines to treat patients with diseases such as primary immunodeficiencies (PID), coagulation disorders and alpha-1 antitrypsin deficiency (AATD). FDA approves Prolastin®-C Liquid in 0,5g and 4g vial format for the treatment of AATD - Progression in the clinical trials for the use of albumin to treat cirrhosis (ph. III PRECIOSA) and acute-on-chronic liver failure (ph. III APACHE) - Market launch of new product formulations and indications that address patients and healthcare professionals’ needs (Xembify®, HyperRAB® or Veraseal®) and TAVLESSE® in certain European countries - AMBAR’s efficacy in slowing down the progression of Alzheimer’s disease in patients with mild-to-moderate AD is confirmed and publication of the clinical trial results in the scientific journal Alzheimer’s & Dementia: The Journal of the Alzheimer’s Association - New diagnostic test to increase the safety of blood transfusions. Procleix Panther System with Automation Ready Technology (ART) receives FDA approval to be used in conjunction with tests approved for screening Zika virus, HIV and hepatitis viruses - Grifols and Shanghai RAAS close a strategic agreement which will help to increase transfusion safety standards of donation centers in China - Development of new molecular diagnostic tests and immunoassays for in vitro diagnostics, prognosis, response prediction and monitorization of biologic drugs for respiratory diseases, oncology, autoimmunity, cardiovascular medicine, and neurodegeneration - Alkahest acquisition to enhance research projects focused on treating age-related diseases and to bolster the development of innovative therapies based on the knowledge of the human plasma proteome - Economic impact of EUR 7,500 million and creation of 140,000 jobs in the U.S., Spain, Germany and Ireland - In response to COVID-19, commitment to employment stability, prioritization of employees’ health, safety and well-being, and implementation of prevention measures (teleworking, flexibility agreements, contingency and de-escalation plans, COVID tests for Spanish employees, free external psychological care services, etc.) - Commitment to stable and quality employment: 98% of permanent contracts and 93% full-time - Reinforcement of a diverse and discrimination-free talent pool to drive value creation: more than 88 nationalities, 52% of staff are 30-50 years old and 599 employees with some type of disability - Implementation of a strategic plan in 2021 to further promote diversity and inclusion - New “People Experience Hub” area established by HHRR to boost employee commitment and motivation and extending work-life balance measures to different countries - Commitment to the well-being of all employees reflected on the increase in training hours on safety, health, and environmental issues (>116,000 hours) and on the launch of health and wellness initiatives - Launch of two global surveys: one specific to COVID-19 sent to 7,858 employees and another general survey, sent to 22,217 employees - More than EUR 16.8 million in R+D+i resources and more than 30 people dedicated to the R&D of COVID-19 treatments and screening tests - R+D+i investment totaling EUR 298 million, representing 5.6% of revenues and denoting an innovation intensity 4 times greater than the European average - Employees dedicated to R+D+i increase to more than 1,100 people - More than USD 10 million allocated over the last 5 years to pre-clinical and clinical research projects through the ISR program - More than EUR 14 million allocated over the last 5 years to drive research projects on liver disease under the umbrella of the Grifols Chair - Promotion of scientific dissemination by allocating EUR 4 million to scientific awards, investigation, and education in 2020 - More than EUR 308 million to improve production facilities - Completion of the projects related to the Beyond Trust software, which allows secure remote access to immunohematology instruments, and the BT Manager software, which allows the remote management of tests and results - Strategic agreement with National Service Projects Organization (NSPO) for the construction and operation of 20 plasma collection centers and other production facilities. - Strategic acquisition of production facilities in Canada to produce immunoglobulin and albumin to supply the Canadian market starting from 2023 - EUR 23.2 million allocated to environmental initiatives (+6.9% compared to 2019) - Boosting circular economy in all phases of the life cycle - 3% reduction in energy intensity compared to 2019 thanks to the implementation of energy efficiency measures - 4% reduction in water consumption compared to 2019 and roll-out of savings measures in 75% of production centers - Maintenance of the Gold Certification in the “Zero Waste to Landfill” program (first pharmaceutical company in the U.S. to receive it in 2019) - Prioritization of waste revalorization, preventing 98% of waste generated in U.S. (Clayton, NC) facilities from reaching landfills - Waste recovery: 74% in production facilities and 6% in other facilities including donation centers - Goal of increasing recycling volumes by 500 tons more per year; achieved 100% by 2020. - 2030 commitment to enhance energy efficiency by 15% per production unit through the systematic application of eco-efficiency measures - Measurement and disclosure of carbon footprint in scopes 1, 2 and 3 in accordance with the GHG Protocol - Application of TCFD recommendations to identify and disclose risks and opportunities stemming from climate change - Significant progress towards achieving the 2030 target of reducing greenhouse gas emissions per unit of production by 40%: reduction of 8.1% CO emissions per unit of sale (scopes 1 and 2) in 2020 2 - Progress on energy decarbonization to achieve the goal of consuming 70% of energy from renewable sources by 2030: construction of a photovoltaic plant (nominal power output 100kW) in Murcia (Spain) and purchase renewable energy. - Total emissions reduced by 12.9% in 2020 due to the increase of teleworking and the reduction of business trips arising from the COVID-19 pandemic - 15.8% savings in primary energy and reduction of 3,840 tons of CO emissions from the Bioscience Division’s cogeneration plant. 2 - Distinction of level “Two Green Globes” of the Green Globe Certification in the new Clayton fractionation plant. - Objective to reduce CO e by 1,860 tons per year through eco-efficiency projects in new facilities 2 - Diagnostic Division has launched the “Secure Remote Support” project (full deployment planned by 2021) which enables to remotely solve customer claims and thus lower emissions from the use of different means of transport PRIORITY GOALS

 

 

 

 

7998-1-mm_part 4 of 5 2020 consolidated directors' report_part1_page_22.jpg ABOUT GRIFOLS I OUR SUSTAINABLE BUSINESS MODEL I 23 2020 CONSOLIDATED DIRECTORS’ REPORT Sustainable Development Goals Outstanding contributions in 2020 - More than 2 million training hours in 2020, an average of 99 hours per employee. - Major commitment to online training during COVID-19: 6,400 hours of telematic training through the Grifols Academy (Professional Development), adapting on-site courses to a virtual format; virtual sessions delivered by experts to help deal with the situation; creation of an internal global portal with a wide range of resources available, etc. - More than 1.7 million training hours for employees to bolster their career paths - More than 13,400 collaborators and professionals received training and professional development through Grifols Academy programs and initiatives - Reinforcement of strategic alliances to promote education, including the executive leadership program for senior managers in collaboration with ESADE Business School (Barcelona) and the University of Georgetown’s McDonough School of Business (Washington, D.C.) - Since 2013, 86 Grifols employees have graduated and 59 are in the process of earning a degree thanks to the collaboration with Southern New Hampshire University’s College for America program - More than 30% of the Board of Directors are women, following CNMV recommendations for 2020. Grifols is working to increase this percentage. - Progress on female representation in professional categories with executive duties: 36% of women in Director roles and 26% of women in Executive roles - 98% of female employees have permanent contracts and 92% work full-time - Design of plans to increase employment of women and members of minority groups, with 83 action measures in place in 2020 (106 in 2019). - Adjusted salary gap stands at 2.2% in the U.S.,3.1% in Spain and 1.3% in Germany. Significant progress has been made in the salary gap study and in the identification of possible causes for wage inequality; development of action measures that will be included in the Global Diversity Plan 2021 – 2023 - Within the COVID-19 framework: organization of food and personal protection equipment campaigns; technical and logistical support to hospitals; 1,000 economically vulnerable families receive an assortment of food and other products thanks to the “Donate your Christmas basket to Twin Families” campaign - Community investments of more than EUR 41 million - Donation of more than 43 million IU of clotting factors and a commitment to donate more than 200 million from 2014 to 2021 - More than 2,000 social initiatives in communities where Grifols’ plasma centers are located - Average of 1,900 employees in Grifols plasma donation centers took part in non-profit fundraising and volunteering activities, dedicating more than 10,000 hours - EUR 6.3 million donation to the Probitas Foundation to promote the healthy development of children and young people at risk of social exclusion, as well as their physical, psychological and emotional well-being, offering one meal a day. Support for various sustainable health projects aimed at the most vulnerable populations and countries. - No known cases of corruption - Increase in communication and development activities related to anticorruption, reaching 92% of at risk employees - Review of 3,044 interactions between employees and public servants or other professionals, focusing on higher risk operations - Reinforcement of transparency: disclosure of transfers of value in Europe and the U.S. (in accordance with the EFPIA Disclosure Code and U.S. Open Payments Program) and contributions made in the U.S. according to the Lobbying Disclosure Act - Member of the European Union’s Lobby Transparency Register - More than 30 public, public-private, academic, and civil society partnerships to promote and enhance access to health, and to research and develop new medicines that contribute to extend and enhance patients’ quality of life - Important alliance with the Egyptian government to boost self-sufficiency of plasma-derived medicines in the Middle East and Africa - Contribution to the use of surplus plasma from blood donations in various countries. Estimated savings of EUR 67 million for the Spanish public healthcare system arising from the industrial hospital-plasma fractionation service - Generation of alliances and synergies, notably in the health sector, through memberships in more than 20 companies and other associations - More than 15 private and public partnerships with the objective of minimizing the negative impact of Grifols’ activities in the environment - More than 10 partnerships to promote access and quality of education in general, and more specifically in the biopharmaceutical sector - Promoting multisectoral alliances to improve the living conditions of groups at risk of exclusion by reducing inequalities. Promoting their social and economic inclusion by driving diversity and inclusion into the corporate culture CROSS-CUTTING GOALS RELEVANT GOALS

 

 

 

 

7998-1-mm_part 4 of 5 2020 consolidated directors' report_part1_page_23.jpg ABOUT GRIFOLS I OUR SUSTAINABLE BUSINESS MODEL I 24 2020 CONSOLIDATED DIRECTORS’ REPORT z A BUSINESS MODEL FOCUSED ON SUSTAINABLE VALUE CREATION Grifols’ value creation is driven by its four main divisions and ongoing pursuit to offer cross-cutting services that enhance organizational dynamics and generate new opportunities. BIOSCIENCE DIAGNOSTIC HOSPITAL BIO SUPPLIES Leaders in the production of plasma-derived medicines Leaders in cutting-edge diagnostic solutions to analyze blood and plasma, including the development and production of reagents and medical devices Pharmaceutical specialty products for hospital use and innovative technology, software and service solutions to optimize hospital pharmacy operations. Biological products for non-therapeutic use 79% OF REVENUES 15% OF REVENUES 2% OF REVENUES 4% OF REVENUES GRIFOLS ENGINEERING Since its origins, Grifols has focused its efforts on in-house engineering as a lever to innovate and continuously improve its industrial productivity. Grifols Engineering is dedicated to designing and constructing specialty machinery, as well as providing specialized engineering solutions to optimize biotech processes and manufacturing systems. GRIFOLS TRAVEL AGENCY As an international company with a strong U.S. presence and subsidiaries in 30 countries, Grifols decided to establish its own travel agency – Grifols Viajes – in order to better manage the global mobility of its workforce. Grifols Viajes offers employees the flexibility they need to plan their trips and optimize work-life balance.

 

 

 

 

7998-1-mm_part 4 of 5 2020 consolidated directors' report_part1_page_24.jpg ABOUT GRIFOLS I OUR SUSTAINABLE BUSINESS MODEL I 25 2020 CONSOLIDATED DIRECTORS’ REPORT GRIFOLS’ VERTICALLY INTEGRATED BUSINESS MODEL GUARANTEES MAXIMUM QUALITY AND CONTROL IN ALL OF ITS DIVISIONS INNOVATION DONORS AND PATIENTS ARE AT THE CORE OF GRIFOLS’ VALUE CHAIN WE TRANSFORM DONORS’ GENEROSITY INTO LIFE-SAVING TREATMENTS FOR PATIENTS AROUND THE WORLD INNOVATION

 

 

 

 

7998-1-mm_part 4 of 5 2020 consolidated directors' report_part1_page_25.jpg ABOUT GRIFOLS I GRIFOLS CREATES VALUE BEYOND ITS FINANCIAL PERFORMANCE I 26 2020 CONSOLIDATED DIRECTORS’ REPORT GRIFOLS’ SOCIOECONOMIC IMPACT IN 2020 TOTAL ECONOMIC IMPACT TOTAL JOB CREATION 7,500 M€ 140,000 GRIFOLS’ DIRECT 40% OF GRIFOLS’ IMPACT GRIFOLS GENERATES 60% OF JOBS ARE LINKED ECONOMIC IMPACT STEMS FROM ITS PLASMA 140,000 JOBS IN TOTAL, TO GRIFOLS’ PLASMA AMOUNTS TO EUR 4,000 CENTERS NETWORK INCLUDING 115,000CENTERS NETWORK MILLION. ADDITIONALLY,INDIRECT AND INDUCED GRIFOLS GENERATES AN JOBS INDIRECT AND INDUCED IMPACT OF EUR 3,500GRIFOLS GENERATES MILLION 5.2 JOBS FOR EVERY 1 JOB IT CREATES GRIFOLS CREATES VALUE BEYOND ITS FINANCIAL PERFORMANCE

 

 

 

 

7998-1-mm_part 4 of 5 2020 consolidated directors' report_part1_page_26.jpg ABOUT GRIFOLS I GRIFOLS CREATES VALUE BEYOND ITS FINANCIAL PERFORMANCE I 27 2020 CONSOLIDATED DIRECTORS’ REPORT GRIFOLS GENERATES 2.9 JOBS IN MULTIPLER IMPACT GRIFOLS GENERATES 2.9 JOBS MULTIPLER IMPACT More information on Grifols’ sustainability markers, see Corporate Stewardship Reports | Grifols SOCIOECONOMIC IMPACT IN IRELAND ECONOMIC IMPACT JOB CREATION 210 M€ 930 x2.0 x3.9 IN THE IRISH ECONOMY FOR EVERY 1 JOB IT CREATES SOCIOECONOMIC IMPACT IN GERMANY ECONOMIC IMPACT JOB CREATION 330 M€ 3,500 72% FROM PLASMA CENTERS x1.9x2.3 MULTIPLER IMPACT GRIFOLS GENERATES 1.3 JOBS IN THE GERMAN ECONOMY FOR EVERY 1 JOB IT CREATES SOCIOECONOMIC IMPACT IN SPAIN ECONOMIC IMPACT JOB CREATION 1,500 M€ 16,000 x2.1x3.9 THE SPANISH ECONOMY FOR EVERY 1 JOB IT CREATES SOCIOECONOMIC IMPACT IN THE UNITED STATES ECONOMIC IMPACT JOB CREATION 6,100 M$ 120,000 49% FROM PLASMA CENTERS x1.9x7.1 MULTIPLER IMPACT GRIFOLS GENERATES 6.1 JOBS IN THE U.S. ECONOMY FOR EVERY 1 JOB IT CREATES

 

 

 

 

7998-1-mm_part 4 of 5 2020 consolidated directors' report_part1_page_27.jpg ABOUT GRIFOLS I GRIFOLS CREATES VALUE BEYOND ITS FINANCIAL PERFORMANCE I 28 2020 CONSOLIDATED DIRECTORS’ REPORT z SOCIAL RETURN ON INVESTMENT (SROI) In 2020, Grifols concluded its first SROI analysis to measure and quantify its contribution towards enhancing social welfare. This method provides Grifols’ leadership team and investors with a framework for evaluation and decision making. Measuring its social value allows Grifols to boost its awareness of how its operations impact key stakeholders, as well as gain insight to better serve their needs. The SROI focused on measuring the social value generated in 2019 by its 252 U.S. plasma centers by analyzing and quantifying their impact on donors, patients and the local communities where they are based. To this end, Grifols used the Social Return on Investment (SROI) methodology, a process which entails understanding, measuring and communicating the social, environmental and economic values created by a company. More information on the main sustainability markers, see Corporate Stewardship Reports | Grifols GRIFOLS MEASURED THE SOCIAL VALUE GENERATED BY ITS U.S. PLASMA CENTERS ACROSS ITS DONORS, PATIENTS AND LOCAL COMMUNITIES

 

 

 

 

7998-1-mm_part 4 of 5 2020 consolidated directors' report_part1_page_28.jpg ABOUT GRIFOLS I GRIFOLS CREATES VALUE BEYOND ITS FINANCIAL PERFORMANCE I 29 2020 CONSOLIDATED DIRECTORS’ REPORT IMPROVEMENT DONOR PSYCHOLOGICAL AWARENESS LIFE EXPENSES STABILITY LIVES SOCIAL VALUE CREATED BY GRIFOLS TOTAL IMPACT 6.2B€ TOTAL SROI 2.1x DONORS LOCAL COMMUNITIES PATIENTS 1,828 M€ 722 M€ 3,636 M€ ECONOMIC PHYSICAL AND EDUCATIONAL FINANCIAL HEALTHIERHEALTHCAREIMPACT IN IN QUALITY OF WELLBEINGCOMMUNITIES

 

 

 

 

7998-1-mm_part 4 of 5 2020 consolidated directors' report_part1_page_29.jpg ABOUT GRIFOLS I GRIFOLS AROUND THE WORLD  I 30 2020 CONSOLIDATED DIRECTORS’ REPORT U.S. PLASMA CENTERS 264 Montreal San Carlos Emeryville Los Angeles San Diego Denver Raleigh-Durham Clayton Memphis Brazil Melbourne l GRIFOLS AFFILIATES l PRESENCE THROUGH DISTRIBUTORS Corporate Headquarters 1 Industrial Facilities 16 R&D Centers Bioscience Division Centers 6 Diagnostic Division Centers 8 Hospital Division Centers 3 Bio Supplies Division Centers 2 10 GRIFOLS AROUND THE WORLD

 

 

 

 

7998-1-mm_part 4 of 5 2020 consolidated directors' report_part1_page_30.jpg ABOUT GRIFOLS I GRIFOLS AROUND THE WORLD  I 31 2020 CONSOLIDATED DIRECTORS’ REPORT REVENUES U.S. AND CANADA EU ROW 3,600 M€ 67% of total 834 M€ 16% of total 906 M€ 17% of total CHINA PLASMA CENTERS THROUGH SHANGHAI RAAS 22 EUROPEAN PLASMA CENTERS 48 Leipzig San Sebastián Zaragoza Murcia Barcelona Bilbao Dublín Düdingen

 

 

 

 

7998-1-mm_part 4 of 5 2020 consolidated directors' report_part1_page_31.jpg ABOUT GRIFOLS I FUTURE STRATEGY  I 32 2020 CONSOLIDATED DIRECTORS’ REPORT Grifols’ core strategic pillar is the pursuit of sustainable growth to promote long-term corporate success. Guided by solid corporate governance, the company aspires to turn risks into opportunities while addressing critical social and environmental challenges, especially climate change, through an organization-wide approach. Grifols has pursued a long-term sustainable growth strategy since its creation more than 110 years ago. Thanks to this vision, Grifols today stands at the forefront of innovation and global efforts to enhance the ethical, technical and safety standards of plasma-derived medicines, blood transfusions and healthcare solutions. IN NEW MARKETABLE proteins; develop biomarkers for diagnostics, recombinant proteins and antibodies, and small-Aware of the need for multifaceted, transversal solutions to addressing these complex issues, Grifols has established several efforts throughout the organization to promote a long-term sustainable future aligned with its founding values. GRIFOLS STRENGTHENS ITS EFFORTS IN INNOVATION In 2020, Grifols signed an agreement to acquire the remaining equity in Alkahest, which the company has been investing in since 2015, for USD 146 million, bringing its ownership to 100%. ALKAHEST HAS Headquartered in Silicon Valley, this biotechnology company was founded with the aim of exploring IDENTIFIED MORE THAN the therapeutic use of plasma proteins in combating age-related diseases. In addition to the 8,000 PROTEINS FROM clinical development of specific plasma fractions and protein inhibitors, Alkahest is also focused on developing a complete understanding of the human plasma proteome. THE HUMAN PLASMA PROTEOME, SOME OF Alkahest has generated a unique proteomic platform of targets to: unlock new therapies and WHICH COULD RESULT diagnostics; develop new plasma proteins and new indications for currently licensed plasma molecule drugs. MEDICINES Understanding the plasma proteome is the key to Alkahest’s comprehensive discovery and development platform delivering transformational therapeutics. The firm will focus its efforts on proteins with a biological impact that change with age. To date, more than 8,000 proteins have been identified by Alkahest and, using advanced molecular analysis techniques at the cellular level, are expected to enter Grifols’ discovery and development pipeline and bring new therapeutic medicines to the market. More information on Alkahest is available in Chapters 2. Sustainable Growth and 5. Innovation FUTURE STRATEGY

 

 

 

 

7998-1-mm_part 4 of 5 2020 consolidated directors' report_part1_page_32.jpg ABOUT GRIFOLS I FUTURE STRATEGY  I 33 2020 CONSOLIDATED DIRECTORS’ REPORT BUSINESS OPTIMIZATION CUSTOMER CENTRICITY INNOVATION Enhance organization-wide focus on meeting and exceeding customer needs to build sustainable competitive advantage Identify opportunities to improve productivity and optimize value Enhance portfolio of differential products through in-house and investee projects TALENT PROMOTION TRANSFORMATION EXPANSION Strengthen HR policy focused on recruiting and retaining the best talent Build digital capabilities to deliver better outcomes Accelerate global expansion through a strategic focus on high-growth markets like China Corporate governance, social, environmental and climate change “ONE GRIFOLS” SUSTAINABLE GROWTH

 

 

 

 

7998-1-mm_part 4 of 5 2020 consolidated directors' report_part1_page_33.jpg Since 1909, Grifols has created value and employment by investing in innovation and production installations with a long-term vision. A robust business strategy and responsible approach has bolstered the company’s resilience and capacity to respond to exceptional challenges like COVID-19. Grifols’ solid financial management also reinforced its economic performance, generating growth, profitability and trust with its main stakeholders. TAINABLE GROWTH REVENUES 5,340 M€ INVESTMENT EFFORTS +600 M€ in R+D+i and CAPEX

 

 

 

 

7998-1-mm_part 4 of 5 2020 consolidated directors' report_part1_page_34.jpg SUSTAINABLE GROWTH

 

 

 

 

7998-1-mm_part 4 of 5 2020 consolidated directors' report_part1_page_35.jpg SUSTAINABLE GROWTH  I COMMITMENT TO SUSTAINABLE GROWTH AND INNOVATION I 36 2020 CONSOLIDATED DIRECTORS’ REPORT Grifols’ business strategy aims to achieve solid financial results around four main objectives: plasma supply, industrial excellence, global expansion and innovation. In the second half of 2020, the Diagnostic Division significantly increased its revenues thanks to strong sales, especially in Spain, of its TMA (Transcription Mediated Amplification) test, used to detect the SARS CoV-2 virus. The division reported EUR 776 million in sales, a 5.8% (-7.3% cc) increase over the previous year. with an estimated positive impact of EUR 112 million in the 2020 profit and loss account. The company is working to make a significant part of it permanent. The plan has no impact on the company’s labor force or innovation investments. Grifols continued with its expansion plans for its plasma donation centers. This included the acquisition of plasma centers in the United States and Europe and three production plants in Canada. The construction of 20 plasma centers and production facilities in Egypt is also underway following the alliance signed with the Egyptian government, which will contribute to strengthening the company’s presence in the Middle East and Africa. In 2020, Grifols has continued to demonstrate its resilience and commitment to sustainable growth during 2020. The company closed the financial year with revenues of EUR 5,340 million, representing an increase of 4.7% (+6.1% cc 1), driven by the Bioscience and Diagnostic Divisions. Excluding plasma sales to third parties, revenues increased by 6.5% (+7.9% cc). The contribution of new products accounted for more than 50% of the revenue growth. With regards to COVID-19 impacts, Grifols estimates a net impact on EBITDA of EUR 155 million. This figure includes the negative impact on inventory value and the limited sales growth of the Bioscience Division, and the positive impact of the operating expense containment plan and the contribution of the molecular test for the detection of the SARS-CoV-2 virus. All in all, the reported EBITDA reached EUR 1,324 million, representing a margin of 24.8% on revenues (28.1% in 2019). Excluding the EUR 155 million COVID-19 net impact, EBITDA amounted to EUR 1,479 million, a 27.4% margin on revenues. Hospital Division revenues were impacted by COVID-19, which caused a slowdown in certain investments and treatments in hospitals. Revenues totaled EUR 119 million, representing a 11.7% decrease (-10.3% cc). The Bio Supplies Commercial Division, which includes sales of biological products for non-therapeutic use, grew by 65.6% cc during 2020, demonstrating Grifols’ commitment to this niche market. The Bio Supplies Division achieved EUR 224 million in revenues, a 15.9% (-15.3%) decrease from 2019, primarily due to the roll-off of specific third-party plasma sales contracts. In 2020, the company was able to limit its net plasma supply decline by 15% despite COVID-19-related constraints, including social distancing, mobility restrictions and lockdowns. Plasma collections are expected to return to normal as long as transmissions ease and vaccination plans are deployed. The Bioscience Division marks a milestone, delivering 10 years of quarterly sales growth, and continues to be Grifols’ main growth engine. Its revenues have increased by 6.2% (+7.6% cc) to EUR 4,243 million due to the dynamism of immunoglobulins in countries such as the United States and Canada; as well as the growth of albumin, particularly in the United States and China; and the strong contribution of new products such as Xembify®, VISTASEALTM and TAVLESSE®. In parallel, Grifols’ efforts to increase its plasma supply are reflected on its expansion program, which includes both organic and inorganic growth. As part of its organic efforts, the company plans to open between 15 and 20 new plasma centers in 2021. In 2020, Grifols continued to promote innovation and CAPEX investments as leverage for its sustainable and long-term growth. Net total investments in R+D+I amounted to EUR 298 million, including internal, external and investee projects. Grifols also advanced on its expected capital investments plan. A total of EUR 308 million was allocated to accelerate the expansion of the Bioscience Division’s production capacity and to the growth of the other divisions. As of December 31, 2020, the gross margin was 42.2% (45.9% in 2019). This figure includes the total estimated impact of EUR 205 million to adjust Grifols’ inventory value (non-cash) mainly due to COVID-19 impacts. In addition, in line with its prudence and commitment to sustainable growth, Grifols has implemented an operating expense containment plan Net profit amounted to EUR 619 million, in line with the previous year. Adjusted net profit2 amounted to EUR 736 million, increasing a +6.6% compared to 2019. (1) Operating and constant currency (cc) excludes exchange rate fluctuations over the period. (2) Excludes non-recurring impacts, including the impacts of COVID-19; amortization of deferred financing costs related to refinancing, amortization of intangibles associated with acquisitions; and IFRS 16 COMMITMENT TO SUSTAINABLE GROWTH AND INNOVATION

 

 

 

 

7998-1-mm_part 4 of 5 2020 consolidated directors' report_part1_page_36.jpg SUSTAINABLE GROWTH  I COMMITMENT TO SUSTAINABLE GROWTH AND INNOVATION I 37 2020 CONSOLIDATED DIRECTORS’ REPORT OPERATING SALES GROWTH IN ALL GEOGRAPHICAL AREAS In millions of euros except % and EPS 2020 2019 % Var NET REVENUES 5,340.0 5,098.7 4.7% ROW 3.4% NORTH AMERICA +7.1% EU 4.5% EBITDA REPORTED 1,324.0 1,433.8 -7.7% % Net revenues 24.8% 28.1% GROUP PROFIT 618.5 625.1 -1.1% % Net revenues 11.6% 12.3% ADJUSTED(1) GROUP PROFIT 736.4 690.9 6.6% % Net revenues 13.8% 13.6% CAPEX 308.1 332.2 -7.3% R&D NET INVESTMENT 298.3 329.0 -9.3% INVESTMENT EFFORTS PERSIST EARNINGS PER SHARE (EPS) REPORTED 0.90 0.91 -1.1% MORE THAN December 2020 December 2019 % Var TOTAL ASSETS 15,274.8 15,542.6 -1.5% 600 M€ TOTAL EQUITY 6,720.1 6,845.8 -1.8% CASH & CASH EQUIVALENTS 579.6 742.0 -21.9% LEVERAGE RATIO 4.52 (4.63cc) (2) 4.17/(4.14cc) (2) FOR R+D+i AND CAPEX INVESTMENTS (1) Excludes non-recurring items, including COVID-19 impacts; amortization of deferred expenses associated to the refinancing, amortization of intangible assets related to acquisitions and IFRS 16. (2) Constant currency (cc) excludes exchange rate fluctuations over the period. SOLID FINANCIAL RESULTS DESPITE COVID-19 TOTAL REVENUES BIOSCIENCE DIVISION DIAGNOSTIC DIVISION 5,340 M€ +4.7% / +6.1% cc 4,243 M€ +6.2% / +7.6% cc 776 M€ +5.8% / +7.3% cc

 

 

 

 

7998-1-mm_part 4 of 5 2020 consolidated directors' report_part1_page_37.jpg SUSTAINABLE GROWTH  I COMMITMENT TO SUSTAINABLE GROWTH AND INNOVATION I 38 2020 CONSOLIDATED DIRECTORS’ REPORT z THE BIOSCIENCE DIVISION LEADS GROWTH Revenues for the Bioscience Division totaled EUR 4,243 million. The division’s revenue growth was underpinned by a strong demand for key proteins, especially immunoglobulins and albumin, coupled with the solid progress of new product launches such as Xembify®, VISTASEALTM and TAVLESSE®. Albumin sales also remain on trend, driven by growth in the U.S., Canada and China. proteins (fibrinogen and thrombin). Launched in the last quarter of 2019, the product is sold and distributed by Ethicon under the trade name VISTASEALTM. The market launch of TAVLESSE® (fostamatinib) in certain European countries is also worth highlighting. Included within Grifols’ agreement with Rigel Pharmaceuticals, this product is used to treat chronic immune thrombocytopenia (ITP) in adult patients who are refractory to other treatments. PLASMA PROTEINS HAVE DEMONSTRATED THERAPEUTIC POTENTIAL AGAINST COVID-19 Despite the pandemic, alpha-1 antitrypsin revenues continued to grow in its main markets: the U.S. and Canada. The company has continued to make progress in offering new products and presentations and in 2020, the FDA approved Prolastin®-C Liquid in 0.5g and 4g vials. Grifols currently has three presentations that adapt treatments to patients’ needs. Demand for immunoglobulins remains very solid, supported by markets with the highest per capita consumption, including the U.S. and Canada; and and several countries in the European Union (EU) and Latin America. It reported double-digit growth. To adapt to patients’ needs, Grifols has a range of immunoglobulins for both intravenous and subcutaneous administration (Xembify®). REVENUES 4,243 M€ In terms of new product launches, of note are the sales of Grifols’ biological sealant, developed and manufactured by the company as a surgical bleeding-control solution using a combination of two plasma GRIFOLS’ FIRST PLASMA PROTEIN-BASED BIOSURGERY SOLUTION VISTASEALTM is a fibrin sealant developed by Grifols for bio surgical bleeding-control and is marketed and distributed by Ethicon as the result of a strategic collaboration. VISTASEALTM is the result of Grifols’ innovation aimed to expand the potential of plasma proteins into new fields. VISTASEALTM combines human fibrinogen and thrombin and is administered through an innovative Ethicon device. XEMBIFY®: GRIFOLS’ SUBCUTANEOUS IMMUNOGLOBULIN IN THE U.S. In 2020, Grifols launched its 20% concentration subcutaneous immunoglobulin (Xembify®), developed to respond to the needs of patients and healthcare professionals. In 2019, Xembify® obtained U.S. Food and Drug Administration (FDA) approval for the treatment of primary immunodeficiencies. Grifols is currently working with health authorities to obtain approval in Europe and other global markets. START OF TAVLESSE® COMMERCIALIZATION IN EUROPE TAVLESSE® (fostamatinib), used to treat chronic immune thrombocytopenia (ITP) in adult patients refractory to other treatments, is already available in selected countries in Europe. Grifols Bioscience Division’s first non-plasma oral therapy allows the company to expand and diversify its product portfolio to benefit patients and offer more therapeutic options through licensing agreements with third parties.

 

 

 

 

7998-1-mm_part 4 of 5 2020 consolidated directors' report_part1_page_38.jpg SUSTAINABLE GROWTH  I COMMITMENT TO SUSTAINABLE GROWTH AND INNOVATION I 39 2020 CONSOLIDATED DIRECTORS’ REPORT z THE DIAGNOSTIC DIVISION ACCELERATES ITS GROWTH The Diagnostic Division achieved notable results in the second half of the year, which contributed to a 5.8% (+7.3% cc) year-on-year increase in sales to EUR 776 million. Sales of Procleix® NAT Solutions, used to analyze blood donations, were also strong in Japan, Australia, the Philippines and Bulgaria, among other countries. These systems are able to screen for a diversity of pathogens, including the human immunodeficiency virus (HIV), hepatitis viruses (A, B, C and E), West Nile virus, Zika, dengue and the agents that cause babesiosis. THE MOLECULAR TEST FOR SARS-COV-2 DETECTION BOOSTS DIVISION’S GROWTH Especially noteworthy was the contribution of the Transcription Mediated Amplification (TMA) test, used to detect SARS CoV 2, developed by Grifols. This diagnostic test was the main driver of NAT system sales (Procleix® NAT Solutions), especially in Spain. TMA is a commonly used technique known for its high sensitivity and capacity to automate large sample volumes. The blood-typing line maintains its positive trend in the U.S. and Latin America, where sales have continued to grow in countries such as Argentina. Sales include both analyzers (Erytra®, Erytra Eflexis® y Wadiana®) and reagents (DG-Gel® cards, red blood cells and anti-serums). REVENUES 776 M€ INNOVATION EFFORTS ENABLED THE DEVELOPMENT AND PRODUCTION OF A NAT-TECHNOLOGY MOLECULAR DETECTION TEST FOR SARS-COV-2 IN RECORD TIME TRANSFUSION DIAGNOSTICS AT THE SERVICE OF EMERGING VIRUS DETECTION: SARS-COV-2 Grifols continues to lead in transfusion medicine. Its vast experience in molecular NAT-based diagnostic systems fueled the development of a SARS CoV-2 detection test in record time. Grifols’ systems leverage TMA, whose sensitivity and specificity is similar to that of other molecular tests such as PCRs.

 

 

 

 

7998-1-mm_part 4 of 5 2020 consolidated directors' report_part1_page_39.jpg SUSTAINABLE GROWTH  I COMMITMENT TO SUSTAINABLE GROWTH AND INNOVATION I 40 2020 CONSOLIDATED DIRECTORS’ REPORT z THE HOSPITAL DIVISION PREPARES TO GET BACK TO NORMAL The Hospital Division recorded EUR 119 million in revenues, a decrease of 11.7% (-10.3% cc) from the previous year. The division’s main business lines were impacted by the slowdown in certain investments and treatments in hospitals as a result of COVID-19. greater accuracy and safety in the preparation of intravenous (IV) medications. These advancements improve patient safety and reduce reliance on manual processes. THE PHARMATECH LINE STRENGHTENS AS HOSPITAL INVESTMENTS RECOVER Grifols’ Pharmatech business line offers comprehensive solutions to enhance hospital pharmacy operations, including the Inclusiv® product portfolio, comprised by equipment, software and solutions to improve the safety and quality of sterile compound preparations. The Division also consolidated sales of its MedKeeper® and Kiro Grifols® technological solutions. Grifols is a leading supplier of technology and services for hospitals, clinics and specialized centers. The launch of its leading-edge system for automated compounding of intravenous treatments (KIRO Fill®) and software enhancements to the workflow platform for intravenous preparations (PharmacyKeeper) optimize hospital-pharmacy operations by affording REVENUES 119 M€ COVID-19 IMPACTED SALES PERFORMANCE IN 2020 GRIFOLS STRENGHTENS THE PHARMATECH LINE Grifols maintains its international expansion of the Hospital Division by growing its U.S. presence. Although the pandemic hindered hospital investments, the division continued to reinforce its Pharmatech solutions, its main business line, by acquiring the remaining capital of MedKeeper. This company offers specialty equipment and technology solutions that automate and control key points in hospital processes, increasing the safety and patients and healthcare professionals.

 

 

 

 

7998-1-mm_part 4 of 5 2020 consolidated directors' report_part1_page_40.jpg SUSTAINABLE GROWTH  I COMMITMENT TO SUSTAINABLE GROWTH AND INNOVATION I 41 2020 CONSOLIDATED DIRECTORS’ REPORT z THE BIO SUPPLIES DIVISION GROWS SIGNIFICANTLY IN BIOLOGICAL MATERIAL SUPPLY In 2020, revenues of the Bio Supplies Division amounted to EUR 224 million, decreasing by 15.9% (-15.3% cc) in comparison to the previous year. This variation is due to the decline experienced in plasma sales to third parties, mainly due to the roll-off of supply contracts. As planned, this will enable Grifols to manage additional plasma volume to fuel growth of plasma-derived therapies. REMARKABLE INCREASE IN SALES OF BIOLOGICS FOR NON-THERAPEUTIC USE The Bio Supplies Division Commercial, which includes sales of biological products for non-therapeutic use, grew by 65.6% cc during 2020, demonstrating Grifols’ commitment to this niche market. REVENUES 224 M€ ADDITIONAL PLASMA FOR GRIFOLS FOLLOWING THE ROLL-OFF OF SUPPLY CONTRACTS SUPPLY OF BIOLOGICAL MATERIALS TO DRIVE RESEARCH The Bio Supplies Division provides biological materials for life sciences research, clinical trials and the manufacture of pharmaceutical and diagnostic products, such as reagents and controls.

 

 

 

 

7998-1-mm_part 4 of 5 2020 consolidated directors' report_part1_page_41.jpg SUSTAINABLE GROWTH  I COMMITMENT TO SUSTAINABLE GROWTH AND INNOVATION I 42 2020 CONSOLIDATED DIRECTORS’ REPORT NET REVENUE BY DIVISION In thousands of euros 12M 2020 % of Net Revenues 12M 2019 % of Net Revenues % Var % Var cc* Bioscience 4,242,502 79.5% 3,993,462 78.3% 6.2% 7.6% Diagnostic 775,889 14.5% 733,604 14.4% 5.8% 7.3% Hospital 118,675 2.2% 134,441 2.6% (11.7%) (10.3%) Bio Supplies 224,090 4.2% 266,540 5.2% (15.9%) (15.3%) Others 31,989 0.6% 22,820 0.5% 40.2% 40.4% Intersegments (53,107) (1.0%) (52,176) (1.0%) 1.8% (2.7%) TOTAL 5,340,038 100.0% 5,098,691 100.0% 4.7% 6.1% NET REVENUE BY REGION In thousands of euros 12M 2020 % of Net Revenues 12M 2019** % of Net Revenues % Var % Var cc* U.S. + CANADA 3,599,746 67.4% 3,390,811 66.5% 6.2% 7.1% EU 834,492 15.6% 799,460 15.7% 4.4% 4.5% ROW 905,800 17.0% 908,420 17.8% (0.3%) 3.4% TOTAL 5,340,038 100.0% 5,098,691 100.0% 4.7% 6.1% * Constant currency (cc) excludes exchange rate fluctuations over the period. ** For comparison purposes, 2019 UK figures have been reclassified from EU to ROW.

 

 

 

 

7998-1-mm_part 4 of 5 2020 consolidated directors' report_part1_page_42.jpg SUSTAINABLE GROWTH  I COMMITMENT TO SUSTAINABLE GROWTH AND INNOVATION I 43 2020 CONSOLIDATED DIRECTORS’ REPORT z SOLID BALANCE SHEET As of December 31, 2020, Grifols had a solid balance sheet totaling EUR 15,302 million (EUR 15,543 million in December 2019). With regard to the group’s Spanish subsidiaries, the average payment period to suppliers was 71.6 days, similar to last year’s 72.9 days. EQUITY OPERATING CASH FLOW GENERATION OF EUR 1,110 MILLION IN 2020 The company’s equity was EUR 6,720,055 million as of December 31, 2020. The share capital includes 426,129,798 common shares (Class A), with a nominal value of EUR 0.25 per share, and 261,425,110 non-voting shares (Class B), with a nominal value of EUR 0.05 per share. Strategic investments in recent years to boost plasma procurement and the increased efforts to improve operations have been the most relevant factors in strengthening the group’s growth and increasing inventory levels. These investments, coupled with inventory management, enabled the Group to maintain a significant growth volume throughout the 2020 financial year. As of December 31, 2020, Grifols’ liquidity position stands at close to EUR 1,500 million, including EUR 580 million corresponding to the cash position (EUR 742 million in 2019) and nearly EUR 900 million of undrawn lines of credit. The Group continues to have high and sustainable levels of activity and operating cash generation in the scope of growth, the closing of corporate transactions and the continuity of capital expenditures and R&D. Grifols’ ordinary shares (Class A) are listed on the Spanish Stock Market and are part of the Ibex-35, while its non-voting shares (Class B) are traded on both the Spanish Stock Exchange (GRF.P) and the U.S. NASDAQ exchange (GRFS) via ADRs (American Depositary Receipts). GRIFOLS MAINTAINS ITS PAY-OUT AT 40% OF THE GROUP’S CONSOLIDATED NET PROFIT The optimization of working capital management has continued to act as a leverage for improving the Group’s financial strength. Operating cash flow generation reached EUR 1,110 million. The EUR 1,110 million reported in 2020 (EUR 569 million in 2019) enabled the company to allocate to its CAPEX investments EUR 308 million (EUR 332 million in 2019) and to net R+D+i investments EUR 298 million (EUR 329 million in 2019). The company remains firmly committed to sustainable growth and its long-term strategic vision. In the fourth quarter of 2020, the second dividend payment, totaling EUR 111 million related to the 2019 fiscal year, was distributed. Grifols remains committed to compensating its shareholders with dividends. OVER THE LAST FIVE YEARS, GRIFOLS HAS ALLOCATED MORE THAN EUR 1,200 MILLION TO DIVIDENDS IN LINE WITH ITS COMMITMENT TO GENERATING SHAREHOLDER VALUE Inventory levels decreased to EUR 2,002 million with a turnover of 237 days compared to 310 days at the end of December 2019, as a result of the COVID-19 impact on plasma volumes collected during the year. Average collection and payment periods remained stable at 27 days (26 days in 2019) and 62 days (60 days in 2019), respectively.

 

 

 

 

7998-1-mm_part 4 of 5 2020 consolidated directors' report_part1_page_43.jpg SUSTAINABLE GROWTH  I COMMITMENT TO SUSTAINABLE GROWTH AND INNOVATION I 44 2020 CONSOLIDATED DIRECTORS’ REPORT z LIQUIDITY AND CAPITAL RESOURCES Grifols meets its liquidity and capital requirements using resources generated from its operating activities and long-term external financing. As of December 31, 2020, Grifols’ cash position was EUR 580 million and its liquidity position was close to EUR 1,500 million. CASH FLOWS FROM OPERATING ACTIVITIES CASH FLOW FROM INVESTMENT ACTIVITIES CASH FLOW FOR FINANCING ACTIVITIES In 2020, net cash flows from operating activities amounted to EUR 1,110 million. The main impact on working capital, which increased by EUR 159 million, was due to the decrease in stock levels by EUR 165 million as the result of the use of inventories built up strategically over the last few years, which were drawn down to respond to patients’ needs during the ongoing COVID-19 pandemic. Cash flow from investment activities totaled EUR 858 million. The most important variations were due to the following operations: • Acquisition of the remaining 49% equity interest in the MedKeeper technology company for USD 60 million. Cash flow for financing activities totaled EUR 354 million in 2020, primarily consisting of EUR 243 million debt payment and dividend payouts of EUR 103 million. • Closing the acquisition of a plasma fractionation plant, an immunoglobulin purification plant and an albumin purification plant in Montreal (Canada) for USD 370 million from the South Korean GC Pharma (Group), as well as, in a separate transaction, 11 plasma centers in the U.S. owned by Green Cross for USD 90 million. • Capital investments (CAPEX) totaling EUR 308 million mainly focused on new production facilities in the Bioscience Division. These include a new fractionation plant in Clayton; a new immunoglobulin purification plant in Clayton; a new albumin purification plant in Dublin, Ireland; openings of new plasma centers; the expansion, renovation and relocation of existing centers; IT investments; and digitization. • Initial payment of USD 20 million as part of the closing of the transaction to acquire the remaining shares of Alkahest, Inc. (approximately 55%) for a total amount of USD 146 million.

 

 

 

 

7998-1-mm_part 4 of 5 2020 consolidated directors' report_part1_page_44.jpg SUSTAINABLE GROWTH  I COMMITMENT TO SUSTAINABLE GROWTH AND INNOVATION I 45 2020 CONSOLIDATED DIRECTORS’ REPORT CAPITAL RESOURCES AND CREDIT RATINGS GRIFOLS DOES NOT FACE SIGNIFICANT MATURITY REPAYMENTS OR DOWN PAYMENTS UNTIL 2025 Excluding the impact of IFRS 162, as of December 31, 2020, Grifols’ net financial debt totaled EUR 5,714 million. The net debt leverage ratio is at 4.5x. Excluding COVID-19 impact, the ratio stands at 4.0x. Grifols’ liquidity position stands at close to EUR 1,500 million as of December 31, 2020, including EUR 580 million corresponding to the cash position and nearly EUR 900 million of undrawn lines of credit. After the refinancing process closed in November 2019, Grifols does not face significant maturity repayments or down payments until 2025. The company is equipped to respond to the demands of the current context and remains committed to its long-term growth strategy. Grifols will continue to monitor any potential impacts on operations and will take all necessary actions to mitigate any potential effect on its supply chain. During the second quarter of the year, Grifols took additional measures to strengthen its liquidity position, which included the upsizing of its multicurrency revolving credit facility from USD 500 million to USD 1,000 million, with maturity in November 2025. The expansion of this credit facility has not increased the company’s indebtedness and its terms and conditions are in line with the ones signed in November 2019. Optimizing and reducing debt levels continues to be a priority for Grifols’ financial management. In order to meet this objective, the company maintains sustainable levels of operating activity and strong net operating cash flow generation. The reported EUR 858 million enabled the company to undertake investment THE COMPANY HAS DEMONSTRATED ITS RESILIENCE AND CAPACITY TO RESPOND TO COVID-19 CHALLENGES activities in order to continue expected growth in demand. responding to the CREDIT AGENCIES MAINTAIN THEIR CREDIT RATINGS Moody’s Standard & Poor’s Corporate rating Ba3 BB Senior secured debt Ba2 BB+ Senior unsecured debt B2 B+ Outlook Negative Stable (2) As of December 31, 2020, the impact of the application of IFRS 16 on the amount of debt amounts to 733 million euros.

 

 

 

 

7998-1-mm_part 4 of 5 2020 consolidated directors' report_part1_page_45.jpg SUSTAINABLE GROWTH  I CAPEX AND INDUSTRIAL ACTIVITY  I 46 2020 CONSOLIDATED DIRECTORS’ REPORT In 2020, Grifols intensified its capital expenditures and allocated EUR 308 million to expand and enhance its divisions’ production facilities. This amount is included in the Capital Investment Plan for 2018-2022 and reaffirms Grifols’ commitment to growth and its long-term vision. BIOSCIENCE DIVISION BIOSCIENCE DIVISION: LARGER CAPACITY FOR PROTEIN FRACTIONATION AND PURIFICATION INVESTMENT TO INCREASE ACCESS TO PLASMA In May, the Group announced an investment of EUR 130 million in the first phase of the expansion of its Barcelona industrial complex. Grifols acquired a 47,274 m2 plot of land on which it plans to build, among others, a purification and fill-and-finish facility for a new Bioscience Division product, a new R+D+i center, as well as expanding the production and logistics capacity of the Diagnostic Division. Construction of a new plasma fractionation plant on the North Carolina (U.S.) complex continues as planned. With a fractionation capacity of 6 million liters per year, the construction of the fractionation plant has been completed, and it is expected to start production this year and to be fully operational by 2022. The facilities will include two parallel plasma fractionation and grouping lines to maximize flexibility and efficiency. Clayton emerging disease-specific facility to produce an anti-SARS-CoV-2 immunoglobulin. This isolated facility was initially designed and built for the Ebola outbreak. As of December 31, 2020, Grifols operated the largest plasma center network in the world, with 312 centers. Throughout the year, the Group worked to add more centers to the network, as well as to increase the plasma collection capacity of its existing centers by incorporating more donation equipment, where possible. The construction of a new albumin purification, dosing and sterile filling plant in Dublin (Ireland) continues according to plan. The plant will have an annual production capacity of 6 million equivalent liters of plasma and incorporate a state-of-the-art sterile bag filling technology, owned by Grifols. This will expand the bag production capacity that, as of the first quarter of 2021, has been initiated at the Los Angeles facility. In addition, an investment of more than USD 350 million is planned in the North Carolina (U.S.) complex for the construction of a new plasma fractionation plant, a plasma logistics warehouse and service infrastructures. At the same time, plans to expand the sample testing capacity of the Austin laboratory are being pursued. The company anticipates that the expansion of facilities in both the U.S. and Europe will enable the company to reach a testing capacity of 36 million samples by 2023. Plans to expand plasma storage and logistics capacity are also ongoing, expecting to reach 12 million liters by 2023. Construction of the world’s first purification, dosing and sterile filling plant of immunoglobulins in flexible bags also moves forward. The plant will have an annual production capacity of 6 million equivalent liters of plasma and is expected to be operational by 2023. Investment highlights in 2020 include the following: Expansion of the fibrinogen and topical thrombin sealant production plant is also underway at the Barcelona industrial complex. Upon completion of the new purification and dosing facilities, this extension will increase production capacity to 3.3 million equivalent liters of plasma. Also noteworthy is the swift construction and set-up of a facility for the inactivation of pathogens in convalescent plasma using methylene blue, which has enabled Grifols to quickly respond to COVID-19, demonstrating its commitment to health emergencies. In this respect, the Group has rapidly adapted its CAPEX AND INDUSTRIAL ACTIVITY

 

 

 

 

7998-1-mm_part 4 of 5 2020 consolidated directors' report_part1_page_46.jpg SUSTAINABLE GROWTH  I CAPEX AND INDUSTRIAL ACTIVITY  I 47 2020 CONSOLIDATED DIRECTORS’ REPORT HOSPITAL DIVISION DIAGNOSTIC DIVISION In 2020, the company focused its efforts on expanding its production capacity for immunohematology products. For the first time it will produce them in the U.S., using the company’s existing facilities in San Francisco (U.S.) to manufacture DG-Gel cards, red blood cells and antisera. This Division’s capital investments are focused on increasing capacity and productivity of its intravenous solutions, manufactured in its industrial complexes in Barcelona and Murcia. These improvements will enable the Division to meet expected growth in this product segment, as outlined in its internationalization plan.

 

 

 

 

7998-1-mm_part 4 of 5 2020 consolidated directors' report_part1_page_47.jpg SUSTAINABLE GROWTH  I ACQUISITIONS AND CORPORATE TRANSACTIONS  I 48 2020 CONSOLIDATED DIRECTORS’ REPORT z CLOSING OF THE STRATEGIC ALLIANCE WITH SHANGHAI RAAS TO DRIVE GROWTH IN CHINA z GRIFOLS CLOSES THE ACQUISITION OF PRODUCTION FACILITIES IN CANADA AND 11 PLASMA CENTERS IN THE U.S. In March 2020, Grifols and Shanghai RAAS closed their strategic alliance in China, a transaction that will increase the production, sales and development of plasma-derived products and the latest transfusion diagnostic solutions in China, in adherence with international quality and safety standards. In October 2020, Grifols closed its transaction with the South Korean firm GC Pharma (Group) to acquire a plasma fractionation plant, an immunoglobulin plant and an albumin purification plant in Montreal (Canada) for USD 370 million, and, in a separate transaction, 11 plasma collection centers in the United States, property of Green Cross for USD 90 million. Following this transaction, Grifols is now the largest shareholder in Shanghai RAAS while maintaining operating, political and economic control over its subsidiary, Grifols Diagnostic Solutions (GDS). More specifically, Grifols controls over a 26.20% stake in Shanghai RAAS’s capital (economic and voting rights) in exchange for Shanghai RAAS having a non-majority share in Grifols Diagnostics Solutions (45% economic and 40% voting rights). This acquisition is aligned with Grifols’ international sustainable growth strategy aimed at increasing the company’s plasma collection and fractionation capacity to ensure safe access to life-sustaining plasma-derived medicines for patients around the world. This strategic acquisition will also strengthen Grifols’ presence in Canada, building on a legacy of partnership in Canada’s blood system. For Grifols, the agreement offers an opportunity to bolster its international expansion and build on its long-term, sustainable growth. At present, China is Grifols’ third-largest sales market. For more than three decades, Grifols has been a fractionator of Canadian plasma under contract manufacturing services, providing trusted plasma-derived medicines for Canadian patients and their healthcare providers based on firsthand knowledge of the country’s healthcare system. This transaction further highlights Grifols’ commitment to support countries to attain self-sufficiency of essential plasma-derived medicines. Once it obtains the necessary licenses and authorizations, Grifols will become the only large-scale commercial manufacturer of plasma products in Canada, with a fractionation capacity of 1.5 million liters annually. Grifols expects to launch operations in these facilities in 2023, manufacturing IVIG and albumin. ACQUISITIONS AND CORPORATE TRANSACTIONS

 

 

 

 

7998-1-mm_part 4 of 5 2020 consolidated directors' report_part1_page_48.jpg ACQUISITIONS AND CORPORATE TRANSACTIONS SUSTAINABLE GROWTH  I ACQUISITIONS AND CORPORATE TRANSACTIONS  I 49 z STRATEGIC ALLIANCE BETWEEN GRIFOLS AND THE EGYPTIAN GOVERNMENT z GRIFOLS ACQUIRES THE REMAINING 49% STAKE OF MEDKEEPER z GRIFOLS ACQUIRES 10% STAKE IN BLOODBUY In November 2020, Grifols and the Government of Egypt, through the National Service Projects Organization (NSPO), signed a strategic agreement (Master Joint Venture Agreement) to further develop the Egyptian plasma-derivatives market and promote its self-sufficiency. The operation will ensure national security needs and help strengthen the healthcare system in Egypt. In November 2020, Grifols acquired the remaining 49% stake in MedKeeper for USD 60 million. In July 2020, Grifols acquired 10% of Bloodbuy (BloodSolutions, LLC), a cloud-based marketplace that facilitates the buying and selling of blood components in the U.S. Bloodbuy’s proprietary technology platform and computer-based algorithms enable regional blood-collection centers to expand their customer base across the U.S., while providing hospitals and other healthcare providers greater access to vital blood components in an efficient and efficacious manner connecting supply and demand. Since 2018, Grifols had already owned a 51% equity stake of this U.S.-based technology firm, dedicated to developing and commercializing mobile and web-based technology solutions that enhance quality assurance standards and operational productivity, as well as monitor and track compounding activities. Under this joint venture, owned by NSPO (51%) and Grifols (49%), the parties will join their industrial expertise and financial efforts for the development, construction and operation of 20 plasma collection centers throughout Egypt (with an initial capacity to collect 600,000 liters of plasma per year); manufacturing facilities, including a fractionation plant (with a capacity to fractionate up to 1 million liters of plasma per year) and a purification and fill-and-finish plant; a warehouse and an analysis laboratory. The plasma centers and manufacturing facilities are expected to be operational at the end of 2025. Along with this equity investment, Grifols will obtain a seat on the Bloodbuy Board of Directors where it will be able to not only contribute to Bloodbuy’s growth but also closely analyze the blood-component-product marketplace, potentially allowing the company to make further investments in the digital healthcare space. With this transaction, Grifols continues to move forward with its strategic plans to drive long-term sustainable growth in all of its divisions. MedKeeper’s attributes complement and strengthen Pharmatech, the Hospital Division’s core business line. The transaction also boosts the division’s international expansion and footprint in the U.S. market. Bloodbuy’s cloud-based marketplace is available across the United States for all qualified hospitals, medical centers, integrated delivery networks, and blood collection centers. Bloodbuy’s current participants include some of the most prestigious medical institutions in the country, as well as nearly 30 independent blood collection centers. Through this agreement, Grifols will become a strategic ally of the Egyptian government, while building on its commitment to help countries reach higher self-sufficiency levels in the manufacture and procurement of plasma-derived therapies. The transaction supports Grifols’ globally focused, long-term sustainable growth strategy, whose core objectives include increasing the company’s supply of plasma and reinforcing its global expansion. The transaction will allow Grifols to bolster its presence in the Middle East and Africa after establishing a solid presence in the United States and Europe and making important inroads in China, all core areas of its growth plan.

 

 

 

 

7998-1-mm_part 4 of 5 2020 consolidated directors' report_part1_page_49.jpg SUSTAINABLE GROWTH  I ADDITIONAL INFORMATION  I 50 2020 CONSOLIDATED DIRECTORS’ REPORT z TREASURY STOCK z FORESEEABLE DEVELOPMENTS OF THE GROUP z ANNUAL CORPORATE GOVERNANCE REPORT The operations carried out with the treasury stock during the fiscal year 2020 are described in the consolidated annual accounts. Grifols continues its roadmap to drive, explore and leverage its wealth of collective knowledge and innovative spirit to continue improving patient care and further support healthcare professionals. To reach this overriding objective, the company centers its efforts on business optimization, globalization, innovation, digitalization, talent development, outstanding customer service and sustainability. successfully address the evolving needs of global healthcare professionals and patients; continued global expansion, especially in the U.S. as a key market and emerging markets like China; corporate growth, via organic growth and corporate transactions amid an increasingly competitive market; a robust human resources strategy focused on talent development and on-going training, and the continuous quest for knowledge and innovation through value-creating activities and transversal teams; and the drive for sustainability, to continue bolstering a long-term business model that recognizes and fosters an environmental, social and corporate governance (ESG) approach. z SUBSEQUENT EVENTS There were no subsequent events relevant to 2020. The Grifols 2020 Annual Corporate Governance Report forms part of the Integrated Annual Report. It is available on Grifols’ corporate website and the Comisión Nacional del Mercado de Valores (Spanish Stock Exchange Commission) website from the date of publication of Grifols’ consolidated financial statements. The company is committed to a path of sustainable growth. The cornerstones of its five-year strategic plan are innovation, in order to continue developing a differential product portfolio; enhanced customer centricity, to ADDITIONAL INFORMATION

 

 

 

 

SUSTAINABLE GROWTH  I ADDITIONAL INFORMATION  I 50 2020 CONSOLIDATED DIRECTORS’ REPORT z TREASURY STOCK z FORESEEABLE DEVELOPMENTS OF THE GROUP z ANNUAL CORPORATE GOVERNANCE REPORT The operations carried out with the treasury stock during the fiscal year 2020 are described in the consolidated annual accounts. Grifols continues its roadmap to drive, explore and leverage its wealth of collective knowledge and innovative spirit to continue improving patient care and further support healthcare professionals. To reach this overriding objective, the company centers its efforts on business optimization, globalization, innovation, digitalization, talent development, outstanding customer service and sustainability. successfully address the evolving needs of global healthcare professionals and patients; continued global expansion, especially in the U.S. as a key market and emerging markets like China; corporate growth, via organic growth and corporate transactions amid an increasingly competitive market; a robust human resources strategy focused on talent development and on-going training, and the continuous quest for knowledge and innovation through value-creating activities and transversal teams; and the drive for sustainability, to continue bolstering a long-term business model that recognizes and fosters an environmental, social and corporate governance (ESG) approach. z SUBSEQUENT EVENTS There were no subsequent events relevant to 2020. The Grifols 2020 Annual Corporate Governance Report forms part of the Integrated Annual Report. It is available on Grifols’ corporate website and the Comisión Nacional del Mercado de Valores (Spanish Stock Exchange Commission) website from the date of publication of Grifols’ consolidated financial statements. The company is committed to a path of sustainable growth. The cornerstones of its five-year strategic plan are innovation, in order to continue developing a differential product portfolio; enhanced customer centricity, to ADDITIONAL INFORMATION

 

 

 

 

 

7998-1-mo_part 4 of 5 2020 consolidated directors' report_part2_page_01.jpg SUSTAINABLE GROWTH  I TAXES IN 2020: CONTRIBUTIONS, PRINCIPLES AND GOOD PRACTICES  I 51 2020 CONSOLIDATED DIRECTORS’ REPORT z COMMITMENT TO GOOD TAX PRACTICES z GOVERNANCE Grifols upholds its commitment to contributing toward economic, social and industrial development through rigorous compliance with the tax laws in force in each jurisdiction and paying its fair share in those jurisdictions where it creates value. Its diverse operations generate direct and collected taxes, which are paid to tax authorities, and the group’s tax strategy is guided by ethical principles which are reflected in its contributions. Grifols uses corporate structures based on commercial and industrial grounds, aligned with its business activity and having real substance. Grifols has no operations in territories qualified as tax havens. other parts of the company involved in routine and non-routine tasks. The Board of Directors has the competence of approving the Control and Management of Risk Policy, which sets forth the main principles and overall framework for action for the identification, evaluation, control and management of risks, of all nature, including tax risks, which the company and the companies of its Group encounters. • To provide a guarantee in relation to management of risk processes and the correct evaluation of the same, and To the extent possible, the company seeks to develop cooperative relationships with tax authorities based on respect, transparency and mutual trust. In this regard, on October 26, 2018, Grifols’ Board of Directors adhered to Spain’s Code of Good Tax Practices, reaffirming the company’s unequivocal commitment to transparency, good faith and cooperation with the tax agency. • To evaluate management of risk processes, including the overseeing of controls and procedures. The Corporate Risk Committee oversees management’s responsibilities for assessing, managing and controlling risks and the integration of risk management at Grifols, through the Company’s risk management process. The company’s Audit Committee supervises the efficiency and reviews the company’s internal control, internal audit and management of risk systems, including those related to tax matters, so that any principal risks are identified, dealt with and adequately recognized. In alignment with its commitment to transparency, Grifols does its utmost to provide information on its tax strategy and taxes paid. The company also reports and details disputes and possible litigations in tax matters, if any, in the Consolidated Financial Statements and in the 20F required by the SEC. Grifols’ Tax Policy establishes the principles governing Grifols’ tax management. The Audit Committee is assisted by the Internal Audit Department in these functions. The activities inherent to the Internal Audit Department in relation to the company’s management of risk systems are: As a core element of corporate responsibility, taxation, including the approval, regular monitoring of the group’s Tax Policy and its alignment with the reality of the business and its commitment to sustainability, is overseen by Grifols’ Board of Directors. The development of the tax strategy and tax compliance framework are the responsibility of senior management, under the supervision of the Board of Directors. Nonetheless, implementation may implicate . TAXES IN 2020: CONTRIBUTIONS, PRINCIPLES AND GOOD PRACTICES

 

 

 

 

7998-1-mo_part 4 of 5 2020 consolidated directors' report_part2_page_02.jpg SUSTAINABLE GROWTH  I TAXES IN 2020: CONTRIBUTIONS, PRINCIPLES AND GOOD PRACTICES  I 52 2020 CONSOLIDATED DIRECTORS’ REPORT z REGULATORY COMPLIANCE z TAX CONTRIBUTION z PUBLIC GRANTS Grifols complies with the tax laws in force in each jurisdiction and in line with OECD Guidelines for Multinational Enterprises. In the U.S., the company submits the Tax Control Framework Questionnaire (2019) developed by the U.S. Treasury Department (IRS). This initiative complements the OECD Model Control of Task Risks standard by including a self-assessment component of the company’s tax risk management and control systems. The principles of Grifols’ risk management and control system are applicable to tax risks, embedded in the legal and regulatory risks category. Grifols’ diverse operations generate direct collected taxes, which are paid to tax authorities. and States generate approximately 81% of the group’s global revenues, as the main industrial and R+D+i facilities are located in these countries. Grants received correspond mainly to employee-training and retention of workers efforts. The Group’s tax strategy is guided by ethical principles which are reflected in its contributions. Thousands of euros Subsidies In Spain, EUR 17.2 million was paid in the 2020 fiscal year as a result of anticipated tax payments. Spain 458 Grifols is taxed on the profits generated in the United States 438 territories where it operates. Spain and the United CONTRIBUTION BY GEOGRAPHIC AREA Million of euros Profit * Taxes paid ** Spain 115.4 10.0 United States 414.9 64.3 Ireland (158.3) 1.2 Rest of the world 23.4 12.7 * After-tax profits in 2020 excluding dividends and impairments ** Net tax payable related to fiscal year 2020

 

 

 

 

7998-1-mo_part 4 of 5 2020 consolidated directors' report_part2_page_03.jpg SUSTAINABLE GROWTH  I TAXES IN 2020: CONTRIBUTIONS, PRINCIPLES AND GOOD PRACTICES  I 53 2020 CONSOLIDATED DIRECTORS’ REPORT z GRIFOLS’ FISCAL POLICY • For Grifols, tax compliance is a core element, as well as a pillar of its economic contribution and social commitment. To this end, it has a policy of compliance and good practices in tax matters, which is publicly available on its website. The payment of required taxes fully aligns with the economic activities in all jurisdictions where the Group operates. Grifols has no operations in territories qualified as tax havens. Its commercial operations with third parties based in such territories, or any others, are carried out as part of its ordinary industrial or commercial activity. In line with international taxation principles and recommendations by the OECD Committee on Tax Matters, Grifols rejects artificially shifting results to such territories or taking advantage of the information opacity that these territories may offer. Transparency in tax-related matters is a cornerstone of Grifols’ tax policy. Grifols’ system of internal information and control procedures significantly mitigates fiscal risk which allows the management of tax matters with expertise and in an orderly manner. • Grifols’ tax policy is guided by a reasonable and prudent interpretation of the tax regulations in force in each jurisdiction. The company consults with reputable independent tax advisors before making business decisions that could have a tax impact. Grifols follows a transfer pricing policy for all operations with related parties that aligns with the principles of the main competent international organizations. This policy is reviewed on an annual basis to avoid any deviation from these principles. Grifols understands and supports tax contributions that adequately correlate with the structure and location of its activities, resources and human resources, as well as materials and business risks assumed. Grifols does not use artificial structures unrelated to its activity to reduce the tax burden or for profit-shifting. Grifols fosters a cooperative and fluid relationship with tax authorities based on respect for the law, trust, good faith, reciprocity and cooperation. • Grifols collaborates with the competent tax authorities to seek solutions to achieve certainty and stability in the fiscal criteria to be applied by the administration and to give priority to non-litigious dispute resolution channels. In alignment with its commitment to transparency, Grifols does its utmost to provide complete information and documentation requested by tax administrations in the shortest timeframe possible. On October 26, 2018, the Board of Directors of Grifols adhered to the Code of Good Tax Practices. GRIFOLS ADHERES TO THE GOOD TAX PRACTICES CODE • • • GRIFOLS HAS NO PRESENCE IN TERRITORIES CLASSIFIED AS TAX HAVENS. ALL ITS OPERATIONS ARE REPORTED IN ITS ORDINARY INDUSTRIAL AND COMMERCIAL ACTIVITY • • • • • • •

 

 

 

 

7998-1-mo_part 4 of 5 2020 consolidated directors' report_part2_page_04.jpg SUSTAINABLE GROWTH  I OUR COMPETITIVE ADVANTAGES  I 54 2020 CONSOLIDATED DIRECTORS’ REPORT 1. SYNERGIES ACROSS DIVISIONS 3. VERTICAL INTEGRATION 2. MANUFACTURING EFFICIENCY A LEADER IN PROMOTING COMPLEMENTARY PRODUCTS AND SERVICES PLASMA-DERIVED MEDICINES CAN BE PRODUCED INTERCHANGEABLY IN PLANTS IN SPAIN AND IN THE U.S. CONTROLLING THE VALUE CHAIN ENSURES QUALITY, SAFETY AND SUPPLY GRIFOLS’ COMPETITIVE ADVANTAGES ENABLE IT TO RESPOND TO CURRENT CHALLENGES Over the years, Grifols has been an industry reference for its capacity to successfully leverage synergies among its divisions’ products and services. Keenly aware of the potential of its global workforce, the company has progressively promoted cross-functional work teams that collaborate to identify needs and promote new initiatives. Most Grifols’ protein fractionation, purification and dosing plants are licensed by diverse regulators, including the FDA, offering the company the flexibility to perform these processes interchangeably in any one of them. The result is a leading-edge production system aimed at maximizing efficiency and optimizing profitability per liter of plasma, while guaranteeing the highest standards of quality and safety. Grifols’ vertically integrated business model guarantees quality and control at every stage of its divisions’ value chain. This model also adds value by ensuring continuity of supply and reducing transactional costs, among other benefits. Grifols is a leading global manufacturer of plasma-derived medicines, with a solid reputation built on its ability to compete in dynamic, fast-paced environments. OUR COMPETITIVE ADVANTAGES

 

 

 

 

7998-1-mo_part 4 of 5 2020 consolidated directors' report_part2_page_05.jpg SUSTAINABLE GROWTH  I OUR COMPETITIVE ADVANTAGES I 55 2020 CONSOLIDATED DIRECTORS’ REPORT 5. EXPERIENCE IN INTEGRATING COMPANIES 4. IN-HOUSE ENGINEERING 6. INNOVATION 7. SCALABILITY GRIFOLS ENGINEERING, ON THE CUTTING EDGE OF INNOVATION ADDING TALENT TO MULTIPLY RESULTS AN ESSENTIAL COMPONENT OF GRIFOLS’ DNA SINCE 1909 PREPARED FOR CONTINUED GROWTH The production process to obtain plasma products requires advanced technology and ongoing innovation.The company relies on Grifols Engineering to spearhead its diverse manufacturing projects and facilities. Specialized in engineering solutions for pharmaceutical and biotechnology processes, this company represents a differential value in terms of costs, project execution and the quality of integrated innovations, including trailblazing technologies to reduce environmental impact. Inorganic growth has been a cornerstone of Pioneers pave the way and actively create processes that drive change. This quest for ongoing innovation has formed part of Grifols’ DNA since 1909. In alignment with its pioneering spirit, the company is committed to exploring the therapeutic properties of blood, plasma and proteins; serving as an industry leader; and supporting science, scientific projects and those who make them possible. For this reason, Grifols’ R+D+i strategy is far-reaching, encompassing both internal and external resources to address innovation based on specific therapeutic areas such as hematology, immunology, pneumology, and autoimmune and neurodegenerative diseases Grifols has the necessary infrastructure and experience in planning future needs to maintain a path of sustainable growth based on continuous improvement and the optimization of processes and costs. Its solid manufacturing presence in the United States, Spain, China and Germany has enabled a scaled global dimension with a distinctly global dimension. Today, the company markets its products in more than 100 countries, with plans to bolster its presence in China, Canada, the Middle East and Africa through its alliances and strategic partners. Grifols’ success. Since its origins, the company has successfully integrated acquisitions as drivers of its corporate growth, providing access to new markets, expanding production and supply capabilities, promoting innovation and offering new technologies. The company has also proven experience in integrating people. By promoting teamwork, Grifols has been able to instill a robust corporate team and capitalize on its global talent pool. The acquisitions of Talecris (2011), Novartis transfusion diagnostic divisions (2014), Hologic (2017), Haema and Biotest (2018), IBBI (2019) and the Shanghai RAAS strategic alliance (2020) are examples of this pioneering strategy.

 

 

 

 

7998-1-mo_part 4 of 5 2020 consolidated directors' report_part2_page_06.jpg Since its origins, Grifols has believed in the power of “doing things right” to generating corporate value. Led by a diverse, professional and independent board of directors, the company’s corporate governance structure strives to continue creating long-term, sustainable value. Honesty, ethics, integrity, independence, respect for human rights and regulatory compliance form the pillars of Grifols’ business model. Every day, the company works to ensure these values permeate the entire organization. CORPORATE GOVERNANCE FEMALE BOARD MEMBERS 31% INDEPENDENT DIRECTORS 54%

 

 

 

 

7998-1-mo_part 4 of 5 2020 consolidated directors' report_part2_page_07.jpg CORPORATE GOVERNANCE

 

 

 

 

7998-1-mo_part 4 of 5 2020 consolidated directors' report_part2_page_08.jpg 2020 CONSOLIDATED DIRECTORS’ REPORT CORPORATE GOVERNANCE I SOLID AND STRATEGIC CORPORATE GOVERNANCE I 58 For global organizations, a robust corporate governance structure with a strategic vision is crucial to generating long-term value for stakeholders and society. At Grifols, integrity, honesty, transparency and compliance with the highest ethical standards form the cornerstones of its organizational culture and corporate governance framework. specifically include the option of attending the General Shareholders’ Meeting by telematic means to facilitate the participation of shareholders and their representatives in the future. interests. As of January 1, 2017, the group’s top executive and management responsibilities are shared by co-CEOs Raimon Grífols Roura and Víctor Grífols Deu. The Board of Directors is Grifols’ highest decision-making body except for matters that are the exclusive competence of the General Shareholders’ Meeting. The Board of Directors establishes general policies, corporate strategy and basic management guidelines, as well as supervises and monitors the actions of Grifols’ management to ensure the company attains its objectives and meets stakeholder expectations. Every year, Grifols publishes its Corporate Governance Report, which is subject to approval by the Board of Directors. This report outlines Grifols’ ownership The General Shareholders’ Meeting serves as Grifols’ governing body and is the final decision-making authority in all matters that correspond to it. Grifols encourages all shareholders to participate, requiring no minimum number of shares to attend the meeting. structure, management framework, related parties transactions, risk control systems, General Shareholders’ Meeting, internal control and risk management systems regarding the disclosure of financial information (SCIIF), degree of compliance with corporate governance recommendations and other relevant information. In light of the COVID-19 pandemic and in accordance with the law, Grifols held its 2020 Ordinary General Shareholders’ Meeting exclusively by telematic means on October 9, without the physical presence of shareholders or their representatives, through a remote connection and live broadcasting on the company’s corporate website. The meeting’s participants reflected 73.6% of stock capital with voting rights. The votes delegated to the Board represented 78.3% of the quorum and 57.6% of the share capital. Among the issues approved, the shareholders agreed to amend the company’s articles of association to In 2020, Grifols continued to reinforce its corporate governance bodies with the creation of the Sustainability Committee, delegated by the Board of Directors. This newly formed committee will advance Grifols’ efforts as a company renowned for its sense of responsibility, transparency and commitment to stakeholders. The roles of the President and CEO are separated at Grifols. Víctor Grifols Roura holds the role of non-executive chairman, offering his strategic vision and vast experience to ensure shareholders’ long-term More information on Grifols’ corporate governance: www.grifols.com SOLID AND STRATEGIC CORPORATE GOVERNANCE

 

 

 

 

7998-1-mo_part 4 of 5 2020 consolidated directors' report_part2_page_09.jpg 2020 CONSOLIDATED DIRECTORS’ REPORT CORPORATE GOVERNANCE I SOLID AND STRATEGIC CORPORATE GOVERNANCE I 59 STATUTORY OR CONCERTED ACTIONS EUR 0.25, listed on the Barcelona, Madrid, Valencia and Bilbao stock exchanges Class A, 62% and Management LEGAL FRAMEWORK As a listed company in Spain and the United States, Grifols complies with all applicable legislation in both countries. The company periodically reviews its regulations to incorporate new guidelines and best practices into its regulatory frameworks. External regulatory frameworkInternal regulatory framework • Companies Act (Ley de Sociedades de Capital), Securities • Articles of association Market Act (Ley del Mercado de Valores) and other applicable • Regulations of the Board of Directors Spanish regulations • Internal codes and regulations (see section) • Spain’s National Securities Market Commission’s (CNMV)• Corporate policies (see section) Good Governance Code of Listed Companies • CNMV’s 3/2017 Technical Guide on Audit Committees at Public-Interest Entities • CNMV’s Technical Guide 1/2019 on Nomination and Remuneration Committees at Public-Interest Entities • U.S. Securities and Exchange Commission (SEC) guidelines • NASDAQ Guidelines on Corporate Governance • U.S. 2002 Sarbanes-Oxley Act A LISTED COMPANY, WITH NO EXTRA-The share capital of Grifols S.A. currently stands at EUR 119,603,705, represented by: • Class A shares: 426,129,798 ordinary shares with voting rights and par value of and Continuous Market (SIBE). • Class B shares: 261,425,110 shares with non-voting rights with some economic preferential rights and par value of EUR 0.05, listed on the Barcelona, Madrid, Valencia and Bilbao stock exchanges and Continuous Market (SIBE). These shares have a preferred dividend of EUR 0.01 per share. Grifols has two American Depository Receipt (ADR) programs in the U.S: Level I ADR for its Class A Shares and Level III ADR for Class B Shares. Level I ADR trade in U.S. dollars on OTC markets and Level III ADRs are traded in U.S. dollars on the NASDAQ exchange. In addition, Grifols’ articles of association provide that, in order to protect the rights of the Class B shares, corporate resolutions on specific “Extraordinary Matters”, such as any resolution or amendment to the company’s bylaws that directly or indirectly undermine or adversely affect the rights, preferences or privileges of Class B shares, require, in addition to their approval in accordance with the bylaws’ Article 17 provisions (adoption of resolutions by simple majority of the capital present and/ or represented), the approval of the majority of currently outstanding Class B shares. There are no extra-statutory agreements or concerted actions between shareholders. Furthermore, there are no restrictions (statutory, legislative or otherwise) on the transferability of securities and/or any restriction on voting rights. SHAREHOLDER STRUCTURE Free Float, Class B, 38% 59.1% Related or Associated Shareholders and Board of Directors, 30.8% Treasury Stock, 0.4% Blackrock, Inc, 4.5% Capital Research Company, 3.0% Fidelity International Limited, 2.2% Source: 2020 Annual Corporate Governance Report.

 

 

 

 

7998-1-mo_part 4 of 5 2020 consolidated directors' report_part2_page_10.jpg 2020 CONSOLIDATED DIRECTORS’ REPORT CORPORATE GOVERNANCE I SOLID AND STRATEGIC CORPORATE GOVERNANCE I 60 z COMPLIANCE AND CHARACTER: OUR ETHICAL APPROACH Mere legal compliance is not enough for Grifols, which is why it goes a step further by integrating the highest standards of integrity, honesty and transparency in its corporate governance structure. This framework is embodied within our internal codes and regulations which are routinely reviewed and updated to adapt to the company’s changing reality. INTERNAL CODES AND REGULATIONS Grifols’ Code of Ethics, Code of Conduct, Crime Prevention Policy and Anti-Corruption Policy are the central components of its global compliance program, which is complemented by additional policies and procedures regarding specific legal domains, compliance risks and country-specific requirements. GRIFOLS CODE OF ETHICS GRIFOLS CODE OF CONDUCT CORPORATE POLICIES In 2020, Grifols’ Board of Directors further reinforced its corporate governance with the approval of a Sustainability Policy and a Policy on Communications and Contacts with shareholders, institutional investors and proxy advisors. • Governs the behavior of all Grifols employees, senior-level executives and administrative bodies Explicitly endorsed and signed every year by board members, executives, managers and area/ division heads The breach of any of Grifols’ ethical principles could result in disciplinary measures, including dismissal • Adhered to in writing by all employees, including senior executives and board members New hires receive specific training The code is public and accessible to the entire workforce via Grifols’ corporate website and the employee portal Any breach of the Code of Conduct by any member of the Grifols’ workforce will be considered as a serious violation of their duties to the company and could be motivation for disciplinary action, including dismissal Grifols’ organization-wide corporate policies serve to communicate its ethical principles: • • • • Sustainability Policy (previously known as “Corporate Social Responsibility Policy”) Policy on Communication and Contacts with stakeholders, institutional investors and proxy advisors Internal Code of Conduct for matters relating to the stock markets Tax Compliance and Best Practices Risk Control and Management Policy Board of Directors Remuneration Policy Crime Prevention Policy Anti-Corruption Policy Policy on Director Diversity in the Composition of the Board of Directors (previously known as “Selection Policy for Directors and Diversity on the Board of Directors”) Environmental Policy Energy Policy • • ETHICAL PRINCIPLES • Grifols’ operations and stakeholder commitments • are built on honesty, ethics, transparency, integrity and legal compliance, all deeply rooted values in the company’s history. The Board of Directors and senior management team actively promote these principles and lead by example. • • • • • • • • More information on Grifols’ internal codes and regulations: www.grifols.com More information on Grifols’ corporate policies: www.grifols.com

 

 

 

 

7998-1-mo_part 4 of 5 2020 consolidated directors' report_part2_page_11.jpg 2020 CONSOLIDATED DIRECTORS’ REPORT CORPORATE GOVERNANCE I SOLID AND STRATEGIC CORPORATE GOVERNANCE I 61 and non-financial ESG (environmental, social and governance) criteria. COMMITTEE SUSTAINABILITY AS A STRATEGY SUSTAINABILITY COMMITTEE Firmly committed to creating value for its stakeholders and improving its economic, social, environmental and corporate governance performance, Grifols bolstered its corporate governance structure in 2020 with the creation of a Sustainability Committee to show Grifols’ dedication in being a responsible and transparent company. Delegated by Grifols’ Board of Directors, the Sustainability Committee will outline the firm’s core principles and commitments regarding its environmental and social responsibility, as well as the inclusion of financial The establishment of this committee, integrated into the business model to amplify value-creation and the positive impact of its global operations, is a clear testament to Grifols’ commitment to long-term sustainability and its staunch support of the United Nations Sustainable Development Goals (SDGs). The Sustainability Committee includes three members: Thomas Glanzmann (Chairman), Íñigo Sánchez-Asiaín Mardones and Enriqueta Felip Font. Núria Martín Barnés serves as the committee’s non-member secretary. SUSTAINABILITY POLICY Grifols’ Board of Directors also approved a new Sustainability Policy to reinforce the firm’s fundamental principles and commitments regarding its environmental and social responsibility and to provide a framework for their integration into Grifols’ business model. CORPORATE GOVERNANCE STRUCTURE GENERAL SHAREHOLDERS MEETING CO-CEOS DIRECTOR APPOINTMENTS AUDIT SUSTAINABILITY & REMUNERATION COMMITTEE COMMITTEE EXECUTIVE TEAM LEAD BOAR D OF INDEPENDENT DIREC TORS

 

 

 

 

7998-1-mo_part 4 of 5 2020 consolidated directors' report_part2_page_12.jpg 2020 CONSOLIDATED DIRECTORS’ REPORT CORPORATE GOVERNANCE I SOLID AND STRATEGIC CORPORATE GOVERNANCE I 62 z GRIFOLS LEADERSHIP: A WELL-BALANCED BOARD OF DIRECTORS LEAD INDEPENDENT DIRECTOR BELÉN VILLALONGA MORENÉS CARINA SZPILKA LÁZARO ÍÑIGO SÁNCHEZ-ASIAÍN MARDONES MARLA E. SALMON JAMES COSTOS CHAIRPERSON CHAIRPERSON RAIMON GRÍFOLS ROURA Co-CEO VÍCTOR GRÍFOLS ROURA CHAIRMAN NON-EXECUTIVE VÍCTOR GRÍFOLS DEU Co-CEO CHAIRPERSON SECRETARY / NON-MEMBER SECRETARY / NON-MEMBER THOMAS GLANZMANN TOMÁS DAGÁ GELABERT RAMÓN RIERA ROCA ENRIQUETA FELIP FONT STEVEN F. MAYER VICE CHAIRMAN NON-EXECUTIVE VICE-SECRETARY NURIA MARTÍN BARNÉS EXECUTIVE DIRECTOR INDEPENDENT DIRECTOR SECRETARY / NON-MEMBER PROPIETARY DIRECTOR OTHER EXTERNAL DIRECTOR The Ordinary General Shareholders’ Meeting, held on October 9, 2020, was notified of the non-reelection of Luis Isasi Fernández de Bobadilla as board member due to the expiry of his term of office, as well as the appointment of James Costos as an independent board member. In addition, Víctor Grífols Deu, Thomas Glanzmann and Steven F. Mayer were all re-elected as board members. NON DIRECTOR AUDIT COMMITTEE APPOINTMENTS & REMUNERATION COMMITTEE SUSTAINABILITY COMMITTEE More information on Grifols’ board of directors and their roles: www.grifols.com

 

 

 

 

7998-1-mo_part 4 of 5 2020 consolidated directors' report_part2_page_13.jpg 2020 CONSOLIDATED DIRECTORS’ REPORT CORPORATE GOVERNANCE I SOLID AND STRATEGIC CORPORATE GOVERNANCE I 63 DIVERSITY OF GENDER, AGE AND NATIONALITIES DIVERSITY OF EXPERIENCE AND AREAS OF EXPERTISE NATURE OF THE POSITION EFFECTIVENESS 7 of 13 INDEPENDENT DIRECTORS 54% 3 of 13 OTHER EXTERNAL DIRECTORS 23% 1 of 13 PROPRIETARY DIRECTORS 8% 2 of 13 EXECUTIVE DIRECTORS 15% 4 of 13 FEMALE BOARD MEMBERS 31% 4 of 13 AMERICAN 31% 1 of 13 40-50 YEARS OLD 8% 5 of 13 50-60 YEARS OLD 38% 7 of 13 >60 YEARS OLD 54% 13 of 13 IN GLOBAL EXPANSION 100% 5 of 13 IN HEALTH AND SCIENCE 38% 5 of 13 IN FINANCE 38% 5 of 13 IN MANAGEMENT 38% 2 of 13 IN DIGITALIZATION 15% 2 of 13 IN LEGAL ISSUES 15% 4 of 13 IN SUSTAINABILITY 31% BOARD 10 MEETINGS 99% ATTENDANCE AUDIT COMMITTEE 6 MEETINGS 94% ATTENDANCE APPOINTMENTS & REMUNERATION COM-MITTEE 5 MEETINGS 100% ATTENDANCE A DIVERSE AND WELL-BALANCED BOARD IN TERMS OF EXPERTISE, BACKGROUNDS, EXPERIENCES, NATIONALITIES, AGE AND GENDER. MEMBERS REFLECT DIVERSE PROFESSIONAL PROFILES AND INDUSTRIES, INCLUDING THE FINANCIAL, HEALTHCARE, SCIENTIFIC AND LEGAL SECTORS, AMONG OTHERS

 

 

 

 

7998-1-mo_part 4 of 5 2020 consolidated directors' report_part2_page_14.jpg 2020 CONSOLIDATED DIRECTORS’ REPORT CORPORATE GOVERNANCE I SOLID AND STRATEGIC CORPORATE GOVERNANCE I 64 INDEPENDENCE OF THE BOARD OF DIRECTORS BOARD OF DIRECTORS PROFILE ANNUAL ASSESSMENT OF THE BOARD OF DIRECTORS AND COMMITTEES GRIFOLS STRIVES TO INCREASE THE PRESENCE OF WOMEN ON ITS BOARD OF DIRECTORS • Separation of Chairman and CEO roles since 2016. Existence of a Lead Independent Director All board committees are formed by non-executive directors, with at least two independent directors. • Diverse and balanced board in terms of expertise, backgrounds, experiences, nationalities, age and gender. Members reflect diverse professional profiles, including financial, healthcare, scientific and legal sectors. The company complies with good-governance recommendations and in 2020 more than 30% of board members are women, with plans to increase this percentage. In 2020, the Board of Directors in full evaluated the quality and effectiveness of its operations, the performance of the company’s chairman and co-CEOs, and the performance of board committees. In addition to carrying out an annual performance review, the Board of Directors assesses its performance on a continuous basis in order to incorporate any necessary improvements as promptly. In 2020, this assessment was performed internally by Grifols’ Board of Directors with the support of the Appointments and Remunerations Committee and the Secretary of the Board. • • • • Furthermore, in accordance with the Companies Act and the Good Governance Code of Listed Companies, an independent expert is hired every three years to carry out the performance assessment. Prior to the last board meeting of the year, board committees also conduct their own assessments by stating their satisfaction or dissatisfaction with the performance of each committee and communicating whether they require additional resources to carry out their functions. More information on Grifols’ corporate governance evaluation processes: https://www.grifols.com/ documents/51507592/1023162936/iagc-2019-es. pdf/97d42f0e-a6c5-471b-be2b-aa42a3dd6d85

 

 

 

 

7998-1-mo_part 4 of 5 2020 consolidated directors' report_part2_page_15.jpg 2020 CONSOLIDATED DIRECTORS’ REPORT CORPORATE GOVERNANCE I SOLID AND STRATEGIC CORPORATE GOVERNANCE I 65 CONTRACT TERMS. VARIABLE RETRIBUTION The co-CEOs’ contracts are standard, with no special conditions for this type of agreement. Notwithstanding this, they do include clauses by virtue of which, in the event of a corporate takeover, the co-CEOs have the option of remaining in the company or finalizing their contractual relationship. The latter case would entitle them to severance payments equivalent to five years’ salary. Severance in the case of termination –either at the company’s discretion or due to a change in general management – would entitle the co-CEOs to the equivalent of two years’ salary, which is in line with indemnity agreements in analogous companies. The co-CEOs’ contracts also establish a post-contractual non-compete clause. According to this agreement, they are unable to provide services in companies similar to Grifols for one year following the finalization of their contracts. In parallel, the co-CEOs’ contracts establish that the company will be entitled to demand the reimbursement of previously paid variable remuneration in two concrete cases: (1) if payment does not adhere to the performance conditions or results required for their accrual, or (2) if payment was made on the basis of data which later proved to be manifestly misstated. Severance payments in the event of a corporate takeover are calculated on a five-year basis, which is lower (in absolute terms) than other companies, many of which offer two-year severance agreements that nonetheless yield higher total severance payments. This discrepancy stems from Grifols’ lower-than-average executive compensation, which is less than the mean offered in Ibex-35 companies. The unique characteristics of the plasma derivatives industry, with few major players, led Grifols to opt for a specific compensation policy.

 

 

 

 

7998-1-mo_part 4 of 5 2020 consolidated directors' report_part2_page_16.jpg 2020 CONSOLIDATED DIRECTORS’ REPORT CORPORATE GOVERNANCE I SOLID AND STRATEGIC CORPORATE GOVERNANCE I 66 BOARD REMUNERATION NO INCREASE IN BOARD COMPENSATION WAS APPROVED IN 2020 A REMUNERATION THAT RECOGNIZES THEIR COMMITMENT TO CREATING LONG-TERM VALUE Grifols’ remuneration policy for board members aspires to generate value for the company, while seeking sound and prudent risk management, alignment with shareholder interests and strict compliance with best practices and regulations regarding the remuneration of directors of listed companies. In 2020, the remuneration policy in force was the one approved during the 2017 Ordinary General Shareholders’ Meeting, valid until the end of 2020. As a result, the remunerations policy approved in the Ordinary General Shareholders’ Meeting on October 9, 2020, is essentially the same one ratified in 2017, up to and including 2020. It will be in force for the three fiscal years following its approval (up to and including 2023), unless expressly amended by the General Shareholders’ Meeting. The policy, among other principles and rationale, aims to compensate directors based on their dedication, qualifications and specific roles and responsibilities, while not undermining their independence. The remuneration of Grifols directors in their capacity as such includes a fixed cash allowance based on their role and responsibility, amounting to EUR 100,000 per year for each member of the Board of Directors. In addition, directors who serve as a member or chair a board committee receive additional remuneration, as does the lead independent director. Under no circumstances will a non-executive director receive more than EUR 150,000 per year in compensation for the performance of his or her duties. Board members who render remunerated professional services to the company or group will not receive additional compensation for their role as directors or executive directors. Remuneration systems for non-executive directors are not based on Grifols’ shares, unless they retain shares until they no longer serve as directors on the board. The annual variable remuneration of executive directors is tied to the fulfillment of certain annual objectives, following normal practices in comparable firms. Targets are linked to Grifols’ overall performance based on EBIT – widely accepted as one of the most important management indicators – as a reference point. Reflecting the firm’s evolution as a whole, EBIT is calculated by adding earnings from all business units before subtracting interest and taxes, as is considered the best metric for evaluating the executive directors’ operational management. It should be noted that the 2019 Annual Remuneration Report, approved by Grifols’ Board of Directors in February 2020, mentioned addressing a possible increase in compensation paid to Grifols’ directors – including directors in their capacity as such, those who chair the various board committees, the lead independent director and the non-executive chairman – at the 2020 General Shareholders’ Meeting. Of its own accord as an exercise of prudence and in view of the uncertainty generated by COVID-19, the Board of Directors ultimately resolved not to submit this proposal to the General Shareholders’ Meeting. Consequently, the company maintained its current remuneration levels, with no compensation increases approved for Grifols’ directors. This policy takes into account Grifols’ long-term This parameter is published every quarter to facilitate transparency in the variable-compensation system. Variable payments require a 90% degree of compliance with the objectives set forth. In order to determine the applicable percentage, various ranges of variable remuneration have been established based on the attainment of EBIT-related objectives. These range from 0% to 65% of the annual fixed salary. economic and management objectives to mitigate exposure to excessive risk, and therefore provides for the possibility of including a variable in the annual remuneration of its senior managers and executive directors. Executive directors’ compensation is based on the recommendations of the Appointments and Remuneration Committee, using remunerations for similar positions in similar companies and a comparative analysis done by Grifols’ Human Resources Department as benchmarks.

 

 

 

 

7998-1-mo_part 4 of 5 2020 consolidated directors' report_part2_page_17.jpg 2020 CONSOLIDATED DIRECTORS’ REPORT CORPORATE GOVERNANCE I SOLID AND STRATEGIC CORPORATE GOVERNANCE I 67 This variable remuneration system aligns with IBEX-35 practices. According to the CNMV’s 2019 Annual Report on the Remuneration of Directors of Listed Companies, all IBEX-35 companies have formal short-term (annual) variable remuneration plans for executive directors. These plans are generally based on internal parameters such as the evolution of the company’s net profit or operating results. along with their clear desire to remain shareholders, ensures alignment with corporate interests and a firm commitment to continue creating long-term value for all Grifols stakeholders, including investors and shareholders. On the other hand, the remuneration allocated to the Chairman of the Board of Directors differs from that of other directors based on his involvement and proven experience as a director and CEO; his vast knowledge of the company and the sector in which it operates; and the specific functions he performs in his capacity as non-executive chairman. taken into account, in addition to other legal edicts established by the Companies Act for the position of chairman of the Board of Directors. More information: CNMV Annual Report on Remunerations of Directors of Listed Companies More information: Board of directors remuneration policy Grifols’ internal analysis that was carried used comparable IBEX-35 companies as benchmarks, taking into account their size, global reach and core characteristics, as well as firms operating in the plasma sector. Based on these findings, Grifols’ remuneration is considered moderate and appropriate, especially when compared within stock market capitalization. The remuneration of the non-executive chairman consists solely of a fixed annual allowance equivalent to the fixed amount received during the 2016 fiscal year, with no variable compensation. When determining this remuneration, the additional functions performed were Grifols does not have a longer-term remuneration system because its executive directors already hold a significant number of shares in the company. This fact, SUMMARY OF GRIFOLS BOARD MEMBERS’ REMUNERATIONS Remuneration for participation on board committees Short-term variable remuneration Fixed remuneration 2020 total 2019 total Tomás Dagá Gelabert - - - - - Thomas Glanzmann 100 - - 100 320 Raimon Grífols Roura 895 - 276 1,171 1,107 Ramon Riera Roca 100 - - 100 100 Víctor Grífols Roura 965 - - 965 965 Víctor Grífols Deu 895 - 276 1,171 1,038 Belén Villalonga Morenés 100 25 - 125 125 Luis Isasi Fernández de Bobadilla 75 19 - 94 125 Carina Szpilka Lázaro 100 50 - 150 150 Marla Elizabeth Salmon 100 50 - 150 150 Steven Mayer 100 25 - 125 125 Íñigo Sánchez-Asiaín Mardones 100 50 - 150 150 Enriqueta Felip Font 100 - - 100 50 James Costos 25 6 - 31 - *The short-term variable remuneration of Grifols’ two executive directors corresponds with the fulfillment of 2019 objectives and was paid in 2020.

 

 

 

 

7998-1-mo_part 4 of 5 2020 consolidated directors' report_part2_page_18.jpg 2020 CONSOLIDATED DIRECTORS’ REPORT CORPORATE GOVERNANCE I SOLID AND STRATEGIC CORPORATE GOVERNANCE I 68 z RESPONSIBLE OVERSIGHT The senior leadership team’s main responsibility is to manage the company in accordance with the strategy approved by the Board of Directors. This includes a continuous quest for long-term growth, value creation for stakeholders, and maintaining effective risk management structures and robust internal controls. Name Position Robert Jagt President, Hospital Commercial Division Matthew Murawski VP Innovation Oper & Analytics Maria Teresa Rioné Llano VP, Corporate Communications Joel Edward Abelson President, Bioscience Commercial Division Javier Sueiras Gil Chief IT Officer Grifols’ top-tier leadership boasts broad experience in driving organic growth, as well as a proven track of identifying opportunities and integrating successful acquisitions, which have been key to transforming Grifols into a global healthcare player. Luis Twose Garçon Managing Director Laboratorios Grifols Albert Grifols Coma-Cros President, GWWO Lafmin Cleofus Morgan Chief Commercial Officer Alfredo Arroyo Guerra Chief Financial Officer Nuria Pascual Lapeña VP, Corp Treasury & Investors Relations Alberto Grifols Roura President Bio Supplies Division The team convenes mainly around the Executive Management Board, which holds at least one meeting per month led by Grifols’ co-CEOs. In 2020, Grifols’ executive board convened 11 times. Miguel Pascual Montblanch President, Commercial Operations Management Eduardo Raimundo Herrero Jiménez President Bioscience Industrial Group Vicente Blanquer Torre VP, Quality & Regulatory Affairs Mateo Florencio Borras Humbert Chief Human Resources Officer Daniel Fleta Coit Chief Industrial Officer David Bell Chief Innov. Officer & Gen. Counsel NA Antoni Jauma Fages President, Diagnostic Manufacturing Operations Antonio Martínez Martínez President, Diagnostic Scientific & R&D Fernando Sebastián Rodríguez Haro VP Corporate Planning & Control Sergio Roura Adell President, Commercial Tech Support Chris Healey President NA Corporate Affairs COVID-19 CRISIS MANAGEMENT COMMITTEE Even before the WHO declared a state of emergency, Grifols created a specific committee to monitor, evaluate and manage the scope and impact of the coronavirus crisis on its operations, keeping Grifols’ Board of Directors informed at all times. The COVID-19 Crisis Committee, comprised by members of the Executive Committee and driven by Grifols’ CEOs, works to: guarantee the supply of essential products and medicines for patients who need them; promote agile measures to safeguard the health of Grifols’ workforce; and strengthen relations with the main national and international health and scientific institutions by contributing to the search for potential treatments and offering its vast know-how and experience on the therapeutic benefits of plasma. During the most difficult weeks of the crisis and confinement, Grifols’ efforts to maintain its activities and protect the group from operational risks tested its contingency plans and the continuity of its operations. This committee continues to work to bolster the resilience of the company and the group in the short, medium and long term.

 

 

 

 

7998-1-mo_part 4 of 5 2020 consolidated directors' report_part2_page_19.jpg 2020 CONSOLIDATED DIRECTORS’ REPORT CORPORATE GOVERNANCE I CORE PILLARS OF GRIFOLS’ CORPORATE GOVERNANCE I 69 z HUMAN RIGHTS A deep-seated respect for human dignity and human rights underpins all Grifols’ operations. The fundamental principles of bioethics guide the company’s research, development, production and marketing of its products in order to guarantee the safety and dignity of everyone involved in the value chain. At the same time, they ensure the company’s efforts to advance the healthcare sector through an ethical approach. A range of regulations, declarations and codes – among them, the Universal Declaration of Human Rights (1948), the Helsinki Declaration (1964) and UNESCO’s Universal Declaration on Bioethics and Human Rights (2005) – form the foundation of these principles. z DRIVEN BY ETHICS AND INTEGRITY The Grifols Ethics Helpline allows employees and outside collaborators to confidentially raise their concerns of possible legal non-compliance or misconduct. All allegations follow a standard operating procedure to make sure they are adequately investigated, resolved and closed. The Ethics Ombudsperson plays a key role in the process by reviewing all submissions and ensuring compliance-related allegations and complaints are properly channeled and investigated. Grifols does not tolerate retaliation of any kind against those who in good faith report possible violations of applicable laws, rules and regulations or non-compliance with internal policies and procedures. Retaliation could result in disciplinary action, including dismissal. The company aims to encourage and preserve the welfare of all communities in which it operates. Grifols promotes corporate responsibility and human rights in all of its activities, using international references as a starting point (United Nations Global Impact, OECD Guidelines for Multinational Enterprises, UN Human Rights, and ILO Tripartite Declaration of Principles Concerning Multinational Companies), including the refusal of any child or form of forced labor in the entire value chain. In 2020, the Grifols Ethics Helpline received 169 allegations (226 allegations in 2019), mostly reported in North America (152), in addition to thirteen (13) in Europe and four (4) in other countries. The company encourages the use of the Grifols Ethics Helpline in all of its countries of operation. GRIFOLS ETHICS HELPLINE In this regard, Grifols’ Code of Conduct governs the activities of all employees and collaborators and upholds strict compliance with the legislation applicable to its operations and activities. The company also offers employees and third-party collaborators a communication channel to confidentially report any concerns of potential legal non-compliance or improper conduct (Grifols Ethics Helpline). 2020 2019 2018 General concern 24% 20% 31% Workplace harassment 20% 23% 22% Misconduct or inappropriate behavior 11% 11% 14% Improper employment or disciplinary action 6% 5% 3% Discrimination 8% 11% 5% Conflict of interest 0% 2% 2% Health, safety and environment 10% 5% 2% Lack of compliance quality, legislation or quality standards 1% 1% 1% Sexual harassment 2% 3% 4% Others 18% 19% 16% More information on the Grifols Ethics Helpline: http://grifols.ethicspoint.com CORE PILLARS OF GRIFOLS’ CORPORATE GOVERNANCE

 

 

 

 

7998-1-mo_part 4 of 5 2020 consolidated directors' report_part2_page_20.jpg 2020 CONSOLIDATED DIRECTORS’ REPORT CORPORATE GOVERNANCE I CORE PILLARS OF GRIFOLS’ CORPORATE GOVERNANCE I 70 z AGAINST CORRUPTION AND BRIBERY CRIME PREVENTION POLICY AND CRIMINAL RISK MANAGEMENT SYSTEM ANTI-COMPETITIVE PRACTICES MONEY LAUNDERING Grifols has a Crime Prevention Policy to reinforce its unequivocal rejection of the commission of crimes, criminal acts or other types of unethical behavior and to do everything in its power to prevent them. Developed by the Crime Risk Management System (CRMS), the Crime Prevention Policy is available to all employees and third parties on the corporate website. Grifols’ Code of Conduct underlines the company’s commitment to free competition to promote social welfare and compliance with free-market regulations in all its countries of operation. The company forbids the participation in agreements – both written and verbal – that violate competition laws including, but not limited to, price-setting; discounts or preferential terms of sale; division of markets, clients or geographic regions; and boycotting or refusal to do business with third parties. Grifols has mechanisms, procedures and policies in place to prevent money laundering and address any possible breaches detected in the course of its business operations. and prevent future occurrences. Grifols also collaborates with the competent authorities in each country to combat money laundering and the financing of terrorist activities, providing all information requested in accordance with current legislation and reporting any suspicious transactions. • Prevention: The Code of Ethics and Code of Conduct include measures to prevent money laundering, serving as critical guideposts for the entire organization and its employees. As part of the CMRS criminal risk analysis, Grifols assesses its exposure to the risk of money laundering and terrorist financing by identifying activities with higher risk and identifying the risk-control mechanisms in place. The CRMS serves to assure public administrations, judicial and administrative bodies and third parties that Grifols effectively supervises, monitors and controls its board members, executives, employees, subsidiaries and other individuals regarding its crime-prevention measures. The company prohibits conduct that impedes the development and maintenance of effective competition, including tied selling, abusive pricing, market restrictions and price pressure. For Grifols, holding a dominant market position is a responsibility, not merely an advantage. The CRMS is subject to review by an independent expert to make sure it complies with current legislation and includes sufficient control measures, both in terms of its design and operational effectiveness, to prevent and detect crime. • Detection: The CRMS carries out routine controls to detect the risk of money laundering. The company offers employees and third parties a communication channel to confidentially report any concerns of possible ethical misconduct (Grifols Ethics Helpline). The Crime Risk Management System includes the identification and evaluation of potential risk scenarios related to anti-competitive practices. In 2020, Grifols had no confirmed incidents of anti-competitive practices in the markets in which it operates. • Reaction and response: Grifols has a reaction-and-response protocol and a sanctions system to address any claims of unethical behavior or irregularities, take corrective actions if necessary

 

 

 

 

7998-1-mo_part 4 of 5 2020 consolidated directors' report_part2_page_21.jpg 2020 CONSOLIDATED DIRECTORS’ REPORT CORPORATE GOVERNANCE I CORE PILLARS OF GRIFOLS’ CORPORATE GOVERNANCE I 71 ANTI-CORRUPTION POLICY The company’s Anti-Corruption Policy applies to all employees of Grifols, S.A., its subsidiaries and investee companies, as well as external collaborators. Several review processes are in force to ensure compliance with this policy as part of Grifols Global Anticorruption Program. Training sessions are designed and delivered with different content, formats and media to tailor them to each audience’s culture and language, as well as to the different business divisions and functions. In this regard, employees who work in the Grifols U.S. sales and marketing department receive specific training on the Code of Conduct and Anti-Corruption Policy as part of the firm’s training and education programs on regulatory compliance in the health sector. Additionally, Grifols’ Internal Audit department routinely audits departments and business units, including the review and monitoring of anticorruption policy compliance when applicable. This process entails identifying process improvements carried out in the ethics and compliance domain and in other departments; the review of third-party contracts and agreements related to Grifols’ international operations; the performance of due diligence of third parties and their certifications assuring compliance with Grifols’ anti-corruption policy; and the performance of sample testing of expense accounts related to international transactions. External and independent audits are also conducted to review and evaluate different aspects of the Grifols Anti-Corruption Program. GRIFOLS ENFORCES A “ZERO-TOLERANCE” APPROACH TO ACTS OF BRIBERY AND CORRUPTION Available to all employees and third parties via the corporate website, the policy outlines appropriate standards of conduct for interactions with public officials or public organizations, as well as with individuals and entities operating in the private sector. It also sets forth the ethical standards that Grifols expects from its third-party business and commercial partners. Compliance with the Anti-Corruption Policy is also reinforced through various review processes, managed by the Global Compliance Department according to the type of interaction. With particular attention given to higher-risk operations, compliance reviews analyze interactions with government officials, public agencies, healthcare professionals and/or healthcare organizations to discern potential conflicts of interest. The review processes aim to cover the whole range of Grifols’ activities in the market: those aimed at promoting Grifols’ products, services and name; those that relate to Grifols R+D+i projects; those which purpose is to support the continuous education and knowledge of healthcare professionals; Grifols’ relation with patient advocacy groups and public authorities. THE COMPANY HAD NO CONFIRMED INCIDENTS OF CORRUPTION IN 2020 To ensure compliance with its anti-corruption policies and procedures, the company routinely offers training sessions for both new and current employees, as well as supplementary training for employees whose roles entail frequent interactions with the market or who carry out functions related to the promotion of Grifols products or services. The Global Compliance Review Board (GCRB) supports the Board of Directors Audit Committee in overseeing Grifols’ Global Anti-Corruption Program by providing senior management oversight. The GCRB also supports the compliance function by offering cross-functional input and resources regarding the suitability and effectiveness of the Anti-Corruption Program, as well as by helping to foster an ethics-driven culture throughout the organization, from management to everyone on staff. In 2020, 3,044 interactions between employees and public officials or other individuals mentioned were subject to review.

 

 

 

 

7998-1-mo_part 4 of 5 2020 consolidated directors' report_part2_page_22.jpg 2020 CONSOLIDATED DIRECTORS’ REPORT CORPORATE GOVERNANCE I CORE PILLARS OF GRIFOLS’ CORPORATE GOVERNANCE I 72 In the case of a potential incident of corruption, an internal investigation is launched with the involvement of the Internal Audit Department and/or Grifols Legal Advisors, as applicable. All internal investigations entail all relevant stakeholders and are managed thoroughly and cursorily. They conclude with an appropriate action plan, including corrective measures if deemed necessary. ANTI-CORRUPTION TRAINING IN 2020 As of December 31, 2020, more than 92% of employees whose roles and responsibilities increase their likelihood of witnessing acts of corruption (full and part-time employees) had received special training on Grifols Anti-Corruption Policy and other internal controls that support it. Roughly 60% received training in 2020. In addition to its ongoing education efforts, Global Compliance is in permanent contact with Grifols employees to update them on any changes or novelties regarding policies and procedures, as well as relevant resolutions made by public authorities such as the U.S. Department of Justice and the Spanish courts. These initiatives contribute to continuously fostering ethical conduct within the organization. Number of top management members informed on anti-corruption policies and procedures Employees with a higher probability of exposure to acts of corruption who received specific anti-corruption training Grifols enforces a “zero-tolerance” approach to acts of bribery and corruption. At Grifols, bribery and corruption are unacceptable in all circumstances, no matter how small the infraction. Likewise, Grifols does not tolerate retaliation of any kind against those who in good faith report a potential violation of applicable laws, rules and regulations, or noncompliance with internal policies and procedures. As described in internal procedures, violations of Grifols’ Anti-Corruption Policy may result in disciplinary actions. To this end, the company has an internal procedure in place with a listing of disciplinary measures of any breaches detected, including the possibility of dismissal. Informed before 2020 Informed during 2020 Trained before Trained during Total Total 2020 2020 l North America l Europe l Rest of the world Grifols had no confirmed incidents of corruption in 2020. Employees with a higher probability of exposure to acts of corruption informed on anti-corruption policies and procedures Informed before 2020 Informed during 2020 TOTAL 1.9% l Executives 3 21 24 7.7% l Directors 10 94 104 8.7% l Senior management 31 177 208 l Management 44 18 49 163 348 193 207 366 242 16.4% Informed during 2020 l Senior professionals lProfessional staff Administrative staff / Manufacturing workers l 28 83 111 32.3% Total 183 1,079 1,262 37 26 16 12 11 172 486 209 522 477 277

 

 

 

 

7998-1-mo_part 4 of 5 2020 consolidated directors' report_part2_page_23.jpg 2020 CONSOLIDATED DIRECTORS’ REPORT CORPORATE GOVERNANCE I CORE PILLARS OF GRIFOLS’ CORPORATE GOVERNANCE I 73 ANTI-CORRUPTION MEASURES FOR THIRD-PARTY COLLABORATORS All Grifols’ commercial and business partners undergo a verification process before any transactions are conducted. The third party anti-corruption management program includes various control mechanisms for outside parties with whom Grifols intends to establish commercial or business relationships. In addition, Grifols requires its distributors to provide an annual certification of applicable anti-corruption regulations. These contracts also include a clause authorizing Grifols to perform audits and terminate commercial relations in the case of non-compliance with anti-corruption norms. MORE THAN 92% OF STAFF WITH A HIGHER PROBABILITY OF WITNESSING ACTS OF CORRUPTION HAVE RECEIVED SPECIFIC TRAINING. BUSINESS PARTNERS MUST ALSO COMPLY WITH GRIFOLS’ ANTI-CORRUPTION POLICY Before entering any commercial relationship with Grifols, third parties are subject to a thorough two-part verification process: Grifols first establishes the legitimacy of the potential commercial transaction, and second, performs due diligence, including an in-depth analysis of the third party’s organizational structure, key employees, business approach and corporate reputation, among other aspects. In addition to the aforementioned and the violation-alert system for authorized third-party collaborators, Grifols’ employees are required to continuously monitor the day-to-day activities of the third parties they manage. This ongoing monitoring system allows the company to stay abreast of the third party’s internal organization, market position and commercial activities related to Grifols’ products and services. Both the violation-alert system and continuous monitoring process are made to detect possible red flags, which Grifols addresses as expeditiously and effectively as possible. Subsequent third-party contracts also include current anti-corruption obligations, as well as an annex with a summary of Grifols’ Anti-Corruption Policy. At least once a year, they are required to certify full compliance with these ethical standards. In some cases, third-party collaborators, such as international distributors, are also required to complete online training periodically on anti-corruption issues, for instance, the U.S. Foreign Corrupt Practices Act (FCPA).

 

 

 

 

7998-1-mo_part 4 of 5 2020 consolidated directors' report_part2_page_24.jpg 2020 CONSOLIDATED DIRECTORS’ REPORT CORPORATE GOVERNANCE I TRANSPARENCY AS A VALUE, OBLIGATION AND COMMITMENT  I 74 z INTERACTIONS WITH HEALTHCARE ORGANIZATIONS AND PROFESSIONALS As a pioneer in the healthcare sector, Grifols has vast experience and expertise in patient behavior and disease management. Its ongoing interactions with healthcare organizations and professionals serve as a continual source of new knowledge, ideas and insights. Leveraging this expertise is crucial to guide the industry and enhance the quality of patient care and treatment options. These interactions should be grounded in integrity and transparency. and transfers of value made to certain healthcare organizations and professionals, such as physicians and teaching hospitals. Additionally, under the PPS Act, manufacturers and group purchasing organizations must disclose if a physician has ownership interests in said companies. Every June, the Centers for Medicare and Medicaid Services (CMS) publishes information extracted from these reports, including the amounts transferred and names of reported healthcare practitioners and organizations. long as their qualifications and expertise respond to a specific need, they are paid fair-market value and their relationship with the company is formalized via a written contract. MORE THAN 70% OF TOTAL TRANSFERS OF VALUE REPORTED IN THE U.S. AND EUROPE ARE RELATED TO R&D Grifols also complies with all local regulations. In accordance with California’s Health and Safety Code, Sections 119400-119402, Grifols has a total fixed annual limit of USD 1,500 for promotional materials, jpgts, and other items or activities that it may provide to an individual healthcare professional who practices in the state of California. The Grifols Global Compliance Program establishes internal processes and procedures regarding transfers of value to healthcare professionals and organizations, including their approval on behalf of the pertinent committees. Grifols has a specific policy and procedure in place that describes how it implements its transparency program to ensure compliance with U.S. federal and state reporting obligations. In the United States, the Sunshine Act (PPS Act) – also known as the Open Payment Program or Transparency Reports and Reporting of Physician Ownership or Investment Interests – requires manufacturers and group purchasing organizations of pharmaceuticals, biologicals, medical devices and medical supplies to itemize all information relating to payments In the U.S., Grifols also adheres to the Pharmaceutical Research and Manufacturers of America Code (Code)1. Updated in 2019, the Code reinforces ethical standards and principles when research-based pharmaceutical and biotechnology companies interact with the healthcare community. Grifols can also hire healthcare professionals as consultants or advisors as (1) More details on the code are available on www.grifols.com (2) The following countries are included within the scope of the EFPIA Code: Austria, Belgium, Bosnia-Herzegovina, Bulgaria, Croatia, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Iceland, Italy, Latvia, Lithuania, Malta, North Macedonia, Norway, the Netherlands, Poland, Portugal, Romania, Russia, Serbia, Slovakia, Slovenia, Spain, Sweden, Switzerland, Turkey, Ukraine and United Kingdom. Grifols’ corporate website includes a methodology note and specific reports on transfers of value to healthcare professionals and organizations in concrete countries: www.grifols.com TRANSPARENCY AS A VALUE, OBLIGATION AND COMMITMENT

 

 

 

 

7998-1-mo_part 4 of 5 2020 consolidated directors' report_part2_page_25.jpg 2020 CONSOLIDATED DIRECTORS’ REPORT CORPORATE GOVERNANCE I TRANSPARENCY AS A VALUE, OBLIGATION AND COMMITMENT  I 75 In 2019, the company rolled out a new transparency-training program for new and current employees whose roles include regular interactions with healthcare organizations and professionals. The company also established a quarterly sub-certification process to promote data integrity, facilitate compliance with external transparency requirements, and enhance the certification of decision-makers to ensure accountability is evenly and globally extended throughout the organization. AGGREGATE SUM OF TRANSFERS OF VALUE In 2019, Grifols distributed EUR 15.7 million in transfers of value in accordance with the EFPIA Code. This reflects a 27% increase since 2018 as a result of a 28% upturn in R+D expenditures, which totaled EUR 11.3 million in 2019 and accounted for 72% of total transfers of value. Spain generated 55% of total transfers of value in Europe in 2019 and 64% to R+D related transfers. registered in 2018. This decline is the result of fewer R+D-related activities, which represents 71% of the total reported. Under the Open Payment Program, Grifols’ transfers of value in the U.S. in 2019 amounted to USD 5.9 million, a 36% drop compared to the USD 9.3 million In Europe2, Grifols voluntarily adopted practices outlined in Chapter 5 of the European Federation of Pharmaceutical Industries and Associations (EFPIA) Code and made them extensive to all corporate divisions and operations in 2015. In 2020, for the fifth consecutive year, Grifols disclosed all payments and transfers of value to healthcare organizations and professionals in the diverse European countries defined within the scope of EFPIA. The company also has policies and procedures describing how it carries out its transparency program to comply with this initiative. In addition, as a member of MedTech Europe, Grifols also integrates its transparency guidelines in its Code of Ethical Business Practice, alongside the ‘Training Grants’ carried out in 2019. In addition, Grifols discloses all information related to country-specific transfers of value in compliance with local regulations. Transfers of value by type in Europe1 2019 2018 2017 Euros % Euros % Euros % Services 1,113,493 7% 1,082,272 9% 1,090,373 9% Contribution toward cost of events HCD 436,741 3% 311,021 3% 651,981 6% Contribution toward cost of events HCP 2,361,468 15% 1,737,080 14% 1,392,537 12% Donations 409,521 3% 363,957 3% 236,007 2% R+D collaboration with third parties2 11,339,366 72% 8,849,275 72% 8,344,765 71% TOTAL 15,660,589 100% 12,343,606 100% 11,715,663 100% (1) Transfers of value in Europe in accordance with the definition of the EFPIA code. (2) Includes research grants. Research data is included in accordance with the definition of the Code of EFPIA, but does not reflect the total amount invested by Grifols in R+D. Transfers of value by type in the U.S. 2019 2018 2017 USD % USD % USD % Services 1,017,565 17% 979,471 11% 1,378,315 10% Contribution toward cost of events HCP 671,040 11% 631,180 7% 754,160 6% Grants 15,000 - 99,000 1% 63,500 0% R+D collaboration with third parties 3,890,209 66% 7,373,724 79% 10,844,688 80% Investigator sponsored research 355,383 6% 201,882 2% 545,497 4% TOTAL 5,949,196 100% 9,285,257 100% 13,586,160 100%

 

 

 

 

7998-1-mo_part 4 of 5 2020 consolidated directors' report_part2_page_26.jpg 2020 CONSOLIDATED DIRECTORS’ REPORT CORPORATE GOVERNANCE I TRANSPARENCY AS A VALUE, OBLIGATION AND COMMITMENT  I 76 z MANAGEMENT OF PUBLIC AFFAIRS Advocacy is a legitimate and essential part of the democratic process that allows interest groups to share their perspectives and concerns with them. For Grifols, this entails educating them about the unique nature of plasma medicines and the importance of unrestricted access for patients to all products in all appropriate sites of services. The Grifols Code of Conduct and Anti-Corruption Policy offer guidelines and standards of interaction between Grifols and public officials. 2019 2018 2017 Lobbying Expenditures in the U.S. as Reported Under the LDA. These amounts reference lobbying expenses, not political campaign contributions. Grifols does not make political campaign contributions in the U.S. USD 510,000 USD 550,000 USD 560,000 Estimated annual costs related to activities covered by the European Transparency Register EUR 50,000-99,000 EUR 50,000-99,000 - In Europe, Grifols allocates two employees – one on a part-time basis and another on a quarter-time basis, equivalent to an 80% full-time employee – to take part in EU events on these issues. In the U.S., the team includes four employees who engage in advocacy as part of their work portfolio. In the U.S., Grifols complies with all federal, state and local regulations. This includes submitting regular transparency filings to the U.S. Congress as required by the Lobbying Disclosure Act (LDA). As of October 15, 2019, Grifols is also a voluntary member of the European Union Lobbying Transparency Register, integrating the principles governing the rules of conduct for EU institutions in its Code of Conduct. In this regard, the company’s main focus is on European legislation and policies related to blood and plasma. Additionally, the company is also a voluntary member of three other organizations listed on the European Union Transparency Register: the Plasma Protein Therapeutics Association (PPTA), the European Confederation of Pharmaceutical Entrepreneurs (EUCOPE) and MedTech Europe.

 

 

 

 

7998-1-mo_part 4 of 5 2020 consolidated directors' report_part2_page_27.jpg 2020 CONSOLIDATED DIRECTORS’ REPORT CORPORATE GOVERNANCE I PRIVACY AND PERSONAL DATA PROTECTION  I 77 Technological advances open up countless opportunities, while at the same time pose challenges to ensure the protection and privacy of personal data. The company processes the personal data of numerous stakeholders as an essential part of its scientific research, talent management and interactions with donors and patients, among others. Transparency with regard to the processing of personal data is fundamental to strengthening relationships based on trust with all our stakeholders. For Grifols, guaranteeing the privacy and protection of our stakeholders’ personal data, as well as preventing data breaches and IT system failures, are of utmost importance. The company has rigorous security measures, both technical and organizational, as well as insurance policies to protect the organization’s assets and users in a cyber-environment. Personal data and medical information collected at plasma donation centers and during clinical trials are protected to maintain their confidentiality. GRIFOLS COMPLIES WITH ALL DATA PROTECTION LAWS AND HAS RIGOROUS CYBER-PROTECTION SYSTEMS The company has numerous processes and systems in place to protect against the loss, unauthorized access, improper use or alteration of personal information of its plasma donors and clinical trial subjects. All clinical trials adhere to the guidelines established by the European Medicines Agency’s Good Clinical Practice ICH E6 (R2) and U.S. Food and Drug Administration. In addition, audits performed on both clinical trials and pharmacovigilance procedures include a compliance review of applicable privacy regulations. Grifols complies with all applicable data protection laws and only works with suppliers that offer sufficient guarantees of data protection integrity. Grifols has a global privacy and data protection policy, which is mandatory for all employees. This policy establishes a framework for the processing of personal data in the diverse regions where Grifols operates and outlines the relevant principles with regard to personal data protection and security, as well as their implementation. Grifols offers the possibility of receiving training on the Global Privacy and Data Protection Policy to the entire staff and also gives specific training to employees whose roles require them to process personal data on a regular basis. PRIVACY AND PERSONAL DATA PROTECTION

 

 

 

 

7998-1-mo_part 4 of 5 2020 consolidated directors' report_part2_page_28.jpg 2020 CONSOLIDATED DIRECTORS’ REPORT CORPORATE GOVERNANCE I CYBERSECURITY I 78 Grifols has an internal security and cybersecurity policy implemented through a regulatory framework, decision-making and control bodies, internal cybersecurity and cyber risk management functions, as well as specialized external services aimed at effectively managing the security of the information handled by its IT systems and the assets involved in its processes, ensuring the correct operation of the company at all times. The policy’s core principles are as follows: guarantee that Grifols’ information and telecommunications systems have acceptable levels of cybersecurity and resilience; strengthen the company’s capacity for prevention, detection, reaction, analysis, recovery, response, research and coordination in the face of new threats; and raise awareness of cybersecurity risks among all employees, collaborators and third parties. Grifols’ cybersecurity management model is based on international and national regulations, using all the means possible in proportion to detected threats. In this regard, the company has the necessary resources to ensure its corporate environment aligns with its business objectives and cybersecurity goals. Therefore, it has rigorous procedures, tools, the latest technology and insurance policies in place to protect the organization’s assets and users in a cyber environment. The risk arising from the use of third-party or cloud-based services is managed through a program of periodic reviews with defined requirements for security, privacy and compliance with applicable regulations. As preventative measures, Grifols also has a robust IT-cybersecurity incident-response system, which includes the development of specific contingency plans to guarantee, at all times, the continuity of its operations in the event of an attack. GRIFOLS’ INFORMATION AND TELECOMMUNICATIONS SYSTEMS GUARANTEE OPTIMAL LEVELS OF CYBERSECURITY AND RESILIENCE CYBERSECURITY

 

 

 

 

7998-1-mo_part 4 of 5 2020 consolidated directors' report_part2_page_29.jpg 2020 CONSOLIDATED DIRECTORS’ REPORT CORPORATE GOVERNANCE I RISK CONTROL AND MANAGEMENT I 79 z PRINCIPLES OF GRIFOLS’ RISK CONTROL AND MANAGEMENT SYSTEM Grifols’ risk management system extends to all companies in the group, including investee firms. Approved by the Board of Directors, Grifols’ risk control and management policy is designed to provide greater security to patients, donors, employees, shareholders, customers, suppliers and other stakeholders through the prevention, control and management of risks to which Grifols is exposed. This policy is firmly integrated in a comprehensive risk control and management system, based on the principles of the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The system includes the following elements: governance and culture; strategy and objectives; performance; review; information, communication and reporting. The risk control and management system is based on the following principles: At Grifols, categories: risks are grouped into the following • Environmental, Social and Governance risks (ESG): environmental, social, and governance-related risks that may impact the organization, including climate change, 2 human capital and breaches of laws, regulations, internal standards, ethical value and contracts. Governance risks also include fraud and corruption risks. 1. Establishment of a risk appetite framework, with the levels of risk the Company deems acceptable. These levels of risk are consistent with the Grifols objectives. • Strategic Company’s risks: risks that can impact the business strategy and strategic objectives; including market risks uncertainties, such as socio-political, and reputational risks. 2. Leadership of management, who will provide the necessary resources. • Financial risks: risks that can impact cash flows if not effectively managed, leading to a loss in revenue, shareholder value or the overall stability of the organization. Financial risks also include contingent liabilities and other off-balance sheet risks. • Legal and Regulatory risks: risks arising from new or modified legislation, regulation and interpretation. 3. Integration in management processes, especially those related to strategy and planning. At the date of preparing its consolidated annual 4. Segregation of duties between the business areas and the areas of supervision and assurance. accounts, Grifols has adopted the measures it considers necessary to mitigate any possible effects arising from the aforementioned events. The Board of Directors, through the Audit Committee, oversees the effectiveness of the risk control and management system to ensure the company reaches its corporate and strategic objectives and meets stakeholder expectations. The Corporate Risk Committee oversees management’s responsibilities to evaluate, manage and control risks and the integration of risk management at Grifols via the risk management process. • Operational risks: risks related to direct or 5. Comprehensive and harmonized management, so that all risks are managed through a common process for identification, assessment and treatment. indirect economic losses resulting from inadequate internal procedures, technical failures, human error, or certain external events. Operational risks also include information technologies. 6. Continuous improvement through periodic reviews of the suitability and efficiency of applying the system and the best practices and recommendations in the area of risks. • Cybersecurity risks: risk of breaches of or attacks on information systems by malicious insiders and outsiders. RISK CONTROL AND MANAGEMENT

 

 

 

 

7998-1-mo_part 4 of 5 2020 consolidated directors' report_part2_page_30.jpg Our quality and safety standards, based on policies and procedures, go beyond strict legal requirements. They are core values for the company and are part of our corporate identity. For this reason, we have continuous supplier evaluation processes, we ensure control at all stages of our value supply chain and we promote quality management systems, audits and inspections that generate confidence in our products and services among patients and healthcare professionals. S AND QUALITY OBLIGATORY RECALL OF PRODUCTS OR INCIDENTS 0 AUDITS AND INSPECTIONS 675

 

 

 

 

7998-1-mo_part 4 of 5 2020 consolidated directors' report_part2_page_31.jpg SAFETY AND QUALITY

 

 

 

 

7998-1-mo_part 4 of 5 2020 consolidated directors' report_part2_page_32.jpg 2020 CONSOLIDATED DIRECTORS’ REPORT SAFETY AND QUALITY  I SAFETY AND QUALITY  I 82 As a company which operates in the health sector, patients and healthcare professionals are at the heart of Grifols’ operations. Guaranteeing maximum safety and quality of products is part of Grifols’ commitment which, driven by senior management and ratified in the Code of Ethics for Grifols executives, applies to the entire company and is extended to the entire organization through the Code of Conduct. world. The core tenets of Grifols’ Code of Conduct, including the adoption of anti-competitive practices; the anticorruption policy, which promotes internal processes and third-party management principles; and in-house measures to ensure complete alignment with Grifols’ ethical commitment, are also reflected in this policy. The favorable results of audits and inspections by health authorities and international organizations in 2020 reflect this commitment to quality and safety. Throughout the year, Grifols reported no cases of regulatory non-compliance, warnings or non-compliance with voluntary codes. FOR GRIFOLS, ENSURING SAFETY AND QUALITY IS MORE THAN JUST A LEGAL REQUIREMENT Grifols outlines all key legal and regulatory procedures in its Consolidated Annual Accounts. Grifols’ quality-assurance methods encompass all corporate operations and include training policies and continuous-development initiatives to ensure employees are able to successfully fulfill their responsibilities while meeting the company’s rigorous quality and safety standards. Safety and quality is more than just a legal requirement. Each division has robust policies and procedures to guarantee maximum levels of quality, safety and efficacy throughout the value chain. The Bioscience Division adheres to the Industrial Quality Policy, which outlines both the safety and quality criteria and legal regulations applicable to all companies that develop, manufacture and market plasma-derived medicines. Furthermore, Grifols’ vertically integrated business model allows for additional control over the manufacturing process. At the same time, diverse quality-control committees routinely evaluate quality systems and processes in order to monitor key performance indicators (KPIs), control markers and compliance with good manufacturing practices (GMP). In this regard, Grifols routinely assesses corporate objectives based on these evaluations to assure excellence in the production, supply and timely delivery of its products. These objectives are established on an annual basis in accordance with corporate policy. In addition, Grifols Commercial Division with its Global Quality Policy establishes guidelines to assure the highest levels of quality, safety and efficacy in the sale and distribution of Grifols’ products around the More information: https://www.grifols.com/documents/51507592/51526409/quality-policy-commercial-division-es. pdf/4047432b-db41-4898-9f15-10bbe46c3206 SAFETY AND QUALITY

 

 

 

 

7998-1-mo_part 4 of 5 2020 consolidated directors' report_part2_page_33.jpg 2020 CONSOLIDATED DIRECTORS’ REPORT SAFETY AND QUALITY  I SAFETY AND QUALITY  I 83 z MANAGEMENT FROM THE SOURCE: SUPPLIER RELATIONS Each Grifols’ division has its own qualified suppliers whose technical, management and control expertise have been assessed and approved by the quality-assurance department. In time, more social and environmental benchmarks will be integrated into Grifols’ vendor-evaluation process. In accordance with corporate policy, all suppliers whose products or services could impact the value chain must be previously qualified. Qualifications are granted for a specific material or service, with concrete criteria established for each. With regard to the logistics and distribution of finished products, Grifols’ global quality policy provides a framework to efficiently manage and monitor international suppliers and distributors, ensuring solid measures are in place to guarantee that the suppliers and distributors fulfill the established requirements. the plan will integrate additional criteria related to ethical, social, environmental and data-privacy issues. These benchmarks are also integrated into the new Sustainability Policy, which outlines the core principles and commitments related to environmental and social responsibility as seen throughout Grifols’ business model. IN 2020, GRIFOLS WORKED TO INTEGRATE SOCIAL AND ENVIRONMENTAL REQUIREMENTS IN ITS SUPPLIER CONTRACTS At the end of 2019, Grifols began developing a consolidated supplier-policy plan with global guidelines to assess the degree of risk and participation throughout the supply chain. In addition to ensuring compliance with the strictest quality standards, In 2020, Grifols worked to redefine the contractual framework for suppliers and integrate social and environmental requirements into its supplier contracts, as well as in other initiatives like the virtual-communication program. These efforts will significantly advance the company’s aim of evaluating suppliers based on ESG factors. (technical specifications) if applicable contract allocation receipts PURCHASING MANAGEMENT PROCESS Request> Supplier qualification,> Negotiation/ > Formalization > Orders/> Invoices> Follow-up / audits

 

 

 

 

7998-1-mo_part 4 of 5 2020 consolidated directors' report_part2_page_34.jpg 2020 CONSOLIDATED DIRECTORS’ REPORT SAFETY AND QUALITY  I SAFETY AND QUALITY  I 84 The company is also working on a comprehensive procurement-management model. Based on a global structure with a local focus, this model will enhance the communication and coordination with international and alignment with specific needs of its diverse business lines. As part of these efforts, Grifols created a new Global Procurement Organization model to optimize purchasing processes and identify opportunities and synergies among the Group’s various departments and companies. Reporting directly to Grifols’ CEOs, the procurement officer is responsible for managing direct and indirect procurements and improving operational efficiencies, such as the smooth integration of new acquisitions. 2021. The company is also considering the creation of a specific Code of Conduct for suppliers that aligns with its own internal code. THE GLOBAL PROCUREMENT ORGANIZATION WILL COVER 100% OF GRIFOLS’ ACTIVITIES BY THE END OF 2021 The Global Procurement Organization will be rolled out in phases across the Group’s various companies and is expected to be fully implemented by the end of

 

 

 

 

7998-1-mo_part 4 of 5 2020 consolidated directors' report_part2_page_35.jpg 2020 CONSOLIDATED DIRECTORS’ REPORT SAFETY AND QUALITY  I SAFETY AND QUALITY  I 85 CONTINUOUS EVALUATION PROCEDURES Grifols has continuous evaluation procedures in place to evaluate suppliers according to the level of risk of the material or service they provide and its impact on the value chain. New suppliers undergo regular audits as part of the evaluation and monitoring process. Audits of suppliers of raw materials and services focus on the quality and safety of the products and services provided, as well as specific environmental criteria. In this regard, all transportation agents are assessed by Grifols Commercial Division following concrete environmental parameters (ISO 14001, biodiesel and next-generation fuel certifications). The supplier-selection process uses the ISO 14001 standard as a guidepost, among other criteria, to factor in environmental issues. Summary of 2020 Audits Division / Area Type of supplier Results Pending evaluation and final report No. of quality audits Favorable Not favorable Raw material suppliers 260 251 0 9 Bioscience Division Service suppliers 76 72 1 3 Raw material suppliers 18 18 0 0 Diagnostic Division Service suppliers 5 5 0 0 Raw material suppliers 11 11 0 0 Hospital Division Service suppliers 0 0 0 0 Raw material suppliers 0 0 0 0 Distributors 41 23 2 16 Grifols global subsidiaries Transport companies 12 11 1 0 Service suppliers 12 10 1 1 Raw material suppliers 4 1 0 3 Others (Grifols Engineering, GWWO, KIRO) As part of Grifols’ quality-audit system, suppliers are required to document and deliver a solid and continuous-development program. Service suppliers 74 74 0 0 Grifols continues working on integrating environmental certifications in its supplier assessment process, including ISO 14001 (environmental management systems) and OSHAS (Occupational Health and Safety Management) as part of its supplier selection and qualification process. *It includes the number of inspections by health authorities and accredited institutions, as well as the number of internal audits. EVOLUTION OF ANNUAL AUDITS AND INSPECTIONS INCIDENTS PRODUCT 202020192018 WITHDRAWALS 00675 685 705

 

 

 

 

7998-1-mo_part 4 of 5 2020 consolidated directors' report_part2_page_36.jpg 2020 CONSOLIDATED DIRECTORS’ REPORT SAFETY AND QUALITY  I SAFETY AND QUALITY  I 86 z CUSTOMER RELATIONS: PATIENTS AND HEALTHCARE PROFESSIONALS The company’s manufacturing and distribution processes are subject to a rigorous regulatory framework in order to promote the quality, safety and availability of Grifols plasma-derived medicines and healthcare products. Grifols has made a commitment to comply with all applicable laws and regulations and is especially transparent in its interactions with healthcare professionals and organizations. HEALTH, SAFETY AND PHARMACOVIGILANCE MEASURES Furthermore, Grifols has a Pharmacovigilance System in place to monitor adverse reactions derived from the administration of its plasma-derived medicines, as well as a Surveillance System to monitor negative reactions derived from the use of its medical devices. Within the framework of these essential programs, the company has a system to report suspected adverse reactions and safety incidents. Moreover, all three main divisions have claims systems to register and assess all notifications received from healthcare centers, patients or users in association with assessments of possible defects of Grifols products. In conjunction with this, Grifols performs regular in-house audits in accordance with its quality control systems. Both systems are also subject to outside inspections by competent healthcare authorities. Within the framework of Grifols’ Quality and Safety Policy, the company identifies the critical attributes of its products, carrying out comprehensive controls to ensure the highest levels of quality and safety of its raw materials, manufacturing process and finished products. In accordance with the quality-assurance management department, this information is compiled and robust procedures are considered to make sure that all products manufactured by Grifols comply with pre-established quality and safety criteria. This system also enables the company to detect, register and manage any issues that could impact the products’ life cycles. All medical devices are evaluated in adherence to the REACH (Registration, Evaluation, Authorization and Restriction of Chemicals) regulation and safety data sheets are available to all clients who request them. MANUFACTURING AND DISTRIBUTION PROCESSES OF MEDICINES AND MEDICAL DEVICES ARE SUBJECT TO A RIGOROUS REGULATORY FRAMEWORK All activities and requirements of the Pharmacovigilance System and Surveillance System for Medical Devices are outlined in Grifols’ standard operating procedures and updated on a regular basis. Measures applied by division Pharmacovigilance system Medical device surveillance system Division / area Type of product Bioscience Division Medicines Applicable Not applicable Diagnostic Division Medical devices Not applicable Applicable Hospital Division Medicines and medical devices Applicable Applicable See Chapter 3 on Corporate Governance for more information on Grifols’ commitment to transparency with healthcare providers and organizations

 

 

 

 

7998-1-mo_part 4 of 5 2020 consolidated directors' report_part2_page_37.jpg 2020 CONSOLIDATED DIRECTORS’ REPORT SAFETY AND QUALITY  I SAFETY AND QUALITY  I 87 PHARMACOVIGILANCE SYSTEM FOR MEDICINES SURVEILLANCE SYSTEM FOR MEDICAL DEVICES Pharmacovigilance includes all activities related to the detection, assessment, understanding and prevention of adverse effects or any other complications related to the use of medicines. Each division has a qualified manager responsible for implementing and maintaining this system. This role requires availability 24 hours a day to receive healthcare inspections or respond to consultations regarding Grifols’ pharmacovigilance and the safety of its medicines. Medical device manufacturers are required to establish and maintain procedures to identify and monitor any adverse effects related to the use of their products. Grifols appoints qualified personnel or technical managers to maintain this system in its business divisions where applicable. Grifols does not outsource the core activities of its pharmacovigilance or medical-device surveillance systems to third parties. All employees involved in Grifols’ pharmacovigilance system are adequately trained on pharmacovigilance procedures, including the proper identification and reporting of adverse effects, among other aspects, in alignment with the system’s continuous development processes.

 

 

 

 

7998-1-mo_part 4 of 5 2020 consolidated directors' report_part2_page_38.jpg 2020 CONSOLIDATED DIRECTORS’ REPORT SAFETY AND QUALITY  I SAFETY AND QUALITY  I 88 LABELLING AND PRODUCT INSERTS CLAIMS SYSTEM Grifols’ three main divisions have a complaints system to record and evaluate all notifications received by healthcare centers, patients or users related to consumer appraisals of possible defects in product quality. The information contained in product leaflets and labels complies with the standards and regulations applicable in each country where Grifols products are distributed, including Directive 2001/83/EC for medicines marketed in Europe and Title 21 Code of Federal Regulations (CFR) in the United States, in addition to local regulations applicable in other markets. In each division, a trained professional or technical director is appointed to assess any and all claims, carry out the relevant inquiries, implement corrective and preventative measures, notify healthcare authorities if necessary, and communicate with the client regarding the conclusions of the claims process. In the case of medical devices, labels and product leaflets also include any mitigating measures identified through risk analysis activities, performed in accordance with the application of risk management to medical devices (EN ISO 14971:2012 Medical Devices) or other requirements communicated by health authorities following the review stage of the product-licensing process. Complaints received Division 2020 2019 Bioscience Division 1 for every 74,669 units distributed 1 for every 94,030 units distributed Diagnostic Division 1 for every 656.212 diagnostic tests N/A* Hospital Division (Medicines) 1 for every 4,611,814 units distributed 1 for every 1,888,014 units distributed Hospital Division (Medical Devices) 1 for every 120,123 units distributed 1 for every 112,321 units distributed * Ratio not applicable for the type of product manufactured by the Diagnostic Division

 

 

 

 

7998-1-mo_part 4 of 5 2020 consolidated directors' report_part2_page_39.jpg 2020 CONSOLIDATED DIRECTORS’ REPORT SAFETY AND QUALITY  I SAFETY AND QUALITY  I 89 PRODUCT RECALL SYSTEM RESPONSIBLE MARKETING: TRUTHFULNESS AND RIGOR IN PROMOTIONAL AND EDUCATIONAL MATERIALS Each division has a product recall system. The claims and recall systems are outlined in Grifols’ standard operating procedures and internally audited to corroborate their effectiveness and compliance with current legislation. They are also subject to inspections by the competent healthcare authorities. The product claims and recall systems include As part of its commitment to responsible marketing and sales practices, the company ensures all of its promotional and educational materials comply with applicable laws and regulations; align with industry policies and codes voluntarily adopted by the company; adequately address the target audience and end users; and contain information that is truthful, accurate, comprehensive, clear and balanced. The approval process for marketing materials consists of several review stages and the participation of decision makers from diverse corporate areas, including the legal, medical affairs, regulatory and communication departments. In 2019, a new and improved tool for electronic review and approval of materials was implemented through the GRP system. The material and content are solely approved for specific uses and countries, and can only be used without any alterations. All promotional and educational materials are reviewed on a regular basis to ensure their content is valid and complies with current standards and codes. procedures to notify healthcare authorities, patient associations, patients and healthcare professionals regarding the potential risks of the recalled product. Reflecting its overriding commitment to transparency, Grifols has a customer service call center and dedicated webpages for specific products to communicate potential risks. The company also prohibits the use of any recalled product in clinical trials. Grifols had no product recalls, either mandatory or voluntary, in 2020. The company’s product recall system goes beyond legal compliance and includes the voluntary withdrawal of products that fail to meet its safety and quality standards. All Grifols teams involved in possible product recalls, whether voluntary or mandatory, receive specific training to adequately manage possible incidents and additionally, Grifols periodically runs product-recall drills to make sure all crisis-management procedures and protocols work smoothly and to identify any areas for improvement. Grifols has a standard operating procedure – the Grifols Review Process or GRP – that defines the activities and responsibilities related to the approval, review and control of promotional and educational materials used to communicate Grifols’ products and services to external audiences. Appropriate training is provided on responsible marketing and sales practices in line with Grifols Code of Conduct and Anti-corruption Policy. 2020 2019 Materials reviewed 3,731 4,247 Materials approved 3,637 3,949 GRIFOLS HAD NO PRODUCT RECALLS, EITHER MANDATORY OR VOLUNTARY, IN 2020

 

 

 

 

7998-1-mo_part 4 of 5 2020 consolidated directors' report_part2_page_40.jpg 2020 CONSOLIDATED DIRECTORS’ REPORT SAFETY AND QUALITY  I SAFETY AND QUALITY IN THE BIOSCIENCE DIVISION I 90 DONATION INVENTORY HOLD • WHO: recommendations for the production, control and regulation of human plasma for fractionation (WHO Technical Report Series, No. 941) • Directive 2002/98/CE that sets the standards for the quality and safety for the collection, testing, processing, storage and distribution of human blood and blood components • EMA Guideline on Plasma-Derived Medicinal Products • 21CFR Part 640: additional standards for human blood and blood components • Local regulations in countries where hemoderivatives are distributed • PPTA standards adhered to voluntarily by Grifols • European Pharmacopoeia DONOR SELECTION All plasma units that pass the initial viral testing are subject to a 60-day inventory hold before being released into production. The results of the hold sample are verified against the new donation to reconfirm the absence of viruses and pathogens. During the pandemic, the FDA reduced the required inventory hold from 60 to 45 days to guarantee sufficient supply of plasma-derived medicines. Grifols has applied the new regulation, under exceptional circumstances, for a limited amount of plasma in order to help guarantee the supply of plasma medicines while maintaining the same levels of safety and quality. Grifols only uses plasma from qualified donors collected in centers approved by competent health authorities. Donors are subject to annual medical exams and routine health screenings before every donation. The company does not discriminate against potential donors on the basis of ethnicity, gender or socioeconomic status. Only donors who are committed to the donation process, have a permanent local residence and meet rigorous health and safety criteria are accepted. Grifols plasma centers are subject to regular inspections. ANALYSIS OF DONATED PLASMA All units of donated plasma are analyzed in laboratories licensed by the FDA, EMA and other healthcare authorities. More than 10 analyses are performed on each unit of plasma, including tests for hepatitis A, B and C, HIV and parvovirus B19, using highly sensitive techniques such as NAT (Nucleic Amplification Techniques) and ELISA (Enzyme-Linked Immunosorbent Assay) to detect viral antigens, antibodies or pathogens. Once the plasma units are in production, every batch is tested at various stages during the production process. In total, 18 different analyses are performed depending on the type of plasma. See Chapter 6 on Donors for more information. SAFETY AND QUALITY IN THE BIOSCIENCE DIVISION

 

 

 

 

7998-1-mo_part 4 of 5 2020 consolidated directors' report_part2_page_41.jpg 2020 CONSOLIDATED DIRECTORS’ REPORT SAFETY AND QUALITY  I SAFETY AND QUALITY IN THE BIOSCIENCE DIVISION I 91 POST-SALES PRODUCTION PRODUCT TRACKING AND TRACEABILITY Before releasing any plasma-derived medicine, Grifols labels product vials with a unique code, which includes a laser etching of the lot number to ensure traceability. Moreover, all products include a holographic seal to verify their inviolability and authenticity. A robust Pharmacovigilance System is just another reflection of the company’s safety pledge. QUALITY MANAGEMENT SYSTEMS IN ALL PRODUCTION FACILITIES Additionally, Grifols voluntarily rolled out the PEDIGRI® system, which provides healthcare professionals detailed information on the plasma used to manufacture a specific unit of product, as well as a certificate of the testing performed. For more than 20 years, Grifols has been the only company to offer information on the source and traceability of its plasma STERILE FILLING After plasma has been approved for production, the manufacturing process begins. This process primarily entails the fractionation or protein separation process; purification; specific viral-inactivation processes; sterile filling; and secondary packaging. All operations are carried out in accordance with Good Manufacturing Practices (GMP). All of Grifols’ manufacturing plants have a Pharmaceutical Quality System and a rigorous quality-control system. The production processes are also subject to a strict internal quality control program that ensures the quality, safety and efficacy of each manufactured batch. Additionally, the competent authorities carry out their own corresponding controls in accordance with the regulations in force in each country before any commercialization. Grifols’ production facilities have never been closed due to non-compliance with regulations. ELIMINATION OF VIRUSES AND OTHER PATHOGENS After purification, the product is sterilized using a proprietary sterile-filling process developed in-house by Grifols Engineering. Grifols’ sterilization process is used as a reference within the industry. During the production phase, approved plasma undergoes rigorous testing and purification processes, including several pathogen-elimination steps, viral inactivation and virus-removal techniques to guarantee the highest possible levels of safety. Depending on the product, the manufacturing process may include heat, pasteurization, solvent/detergent and/or nanofiltration treatments. • Good Pharmacovigilance Practices, EMA • 21 CFR 50 • Local regulations in countries where hemoderivatives are distributed • Good Pharmacovigilance Practices, EMA • Code of Federal Regulations (CFR): 21 CFR 11, 21 CFR 210, 21 CFR 211, 21 CFR 600, 601, 610, 630 and 640 • Local regulations in countries where hemoderivatives are distributed • Good Manufacturing Practices, Pharmaceutical Inspection Co-operation Scheme (PIC/S) • European Pharmacopoeia • American Pharmacopoeia • Local regulations in countries where hemoderivatives are distributed

 

 

 

 

7998-1-mo_part 4 of 5 2020 consolidated directors' report_part2_page_42.jpg 2020 CONSOLIDATED DIRECTORS’ REPORT SAFETY AND QUALITY  I SAFETY AND QUALITY IN THE BIOSCIENCE DIVISION I 92 z SAFETY AND QUALITY MANAGEMENT INTERNAL CONTROL FRAMEWORK EXTERNAL CERTIFICATIONS SUPPLIER CONTROL SYSTEM IN-HOUSE AND EXTERNAL QUALITY AUDITS • Certifications of Good Business Manufacturing Practices of the European Union, the United States and other countries, where required. Grifols’ Supplier Qualification Management System ensures that all raw materials – including plasma from outside providers as well as non-plasma supplies – follow a strict qualification process. The company runs a robust program of routine supplier audits to assure compliance with GMP norms and quality standards. In 2020, 336 audits were carried out as part of the qualification or evaluation processes, compared to 188 in 2019. Audits performed on suppliers of raw materials and services focus on the quality and safety of their offerings. Grifols’ rigorous safety system for its plasma-derived products depends on the dedication of its highly trained staff; a robust process and product design; leading-edge technologies developed in-house by Grifols Engineering; and full traceability from plasma donation to the final product. Throughout the value chain, the diverse materials and procedures that intervene in the production process are monitored by Grifols quality-assurance managers. This supervision includes controls in both manufacturing processes and final products to ensure the quality, safety and efficacy of each lot. It also involves the review and follow-up of production processes to guarantee compliance with best manufacturing practices and promote ongoing improvements. Systems to scale relevant events and take appropriate actions through Grifols’ Quality Committees are also in place to evaluate key performance indicators (KPIs) and quality markers. • Grifols’ senior management implements and maintains an effective organization-wide quality management system. Internal auditors regularly inspect plasma centers, laboratories, manufacturing and storage facilities to ensure compliance with GMP regulations and quality standards. • IQPP & QSEAL Certifications of the Plasma Protein Therapeutics Association (PPTA). • International Quality Plasma Program (IQPP) Certification, a voluntary standards program that includes the management of donors and plasma centers. • The independent corporate auditing department conducts routine reviews of collected plasma, manufacturing records and other quality-related documentation, in addition to independently overseeing and verifying the company’s operational processes. More information: https://www. pptaglobal.org/safety-quality/standards/iqpp Breakdown available in “MANAGEMENT FROM THE SOURCE: SUPPLIER RELATIONS” section • The U.S. (FDA) and European (EMA) health authorities, among others, periodically inspect all plasma donation centers, production plants, warehouses, laboratories and transport centers. The PPTA regularly inspects Grifols’ collection centers and fractionation facilities. • Quality Standards of Excellence, Assurance and Leadership Certification (QSEAL) that apply to the manufacture of plasma-derived medicines, with voluntary certification and adhesion to the program. Grifols also forms part of the National Donor Deferral Registry (NDDR), a voluntary self-regulating initiative to guarantee the quality and safety of plasma that applies to all U.S. donors. This database makes certain that all U.S. donors who test positive for the viral agents for HIV, HBV, and HCV are permanently prohibited from donating any sources. Despite the pandemic and mobility restrictions, high levels of both in-house and external audits and inspections were maintained in 2020. More information: https://www.pptaglobal.org/safety-quality/standards/qseal) Breakdown main indicators on page 97 More information: https://www.pptaglobal.org/safety-quality/national-donor-deferral-registry

 

 

 

 

7998-1-mo_part 4 of 5 2020 consolidated directors' report_part2_page_43.jpg 2020 CONSOLIDATED DIRECTORS’ REPORT SAFETY AND QUALITY  I SAFETY AND QUALITY IN THE BIOSCIENCE DIVISION I 93 ENSURING THE SAFETY AND QUALITY OF PLASMA-DERIVED MEDICINES IN TIMES OF COVID CORONAVIRUS DOES NOT that form part of the production of plasma-derived Grifols plasma donation centers are not only clean, essential services; prioritize PPE (masks, gloves, etc.) UNDERMINE THE SAFETY OF medicines. These include the use of solvent-detergent, highly controlled and supervised places but they are for plasma centers the same way as hospitals; and PLASMA-DERIVED MEDICINES low pH incubation, pasteurization, nanofiltration and also subject to strict regulations to guarantee rigorous establish plasma-contingency plans, among other fractionation processes, etc. Furthermore, COVID-19health, quality and safety standards, methods that weremeasures. As soon as the SARS-CoV-2 outbreak in China andis a respiratory virus, with no evidence of viralalready in place before the pandemic. Nonetheless, its potential to expand globally made headlines, transmission through the blood or blood components, further actions were taken to further the safety of In addition, U.S. and European healthcare authorities the hemoderivatives sector in general and Grifols in including plasma and plasma-derived medicines. plasma-center employees and donors, including issued public appeals to increase plasma donations particular took all necessary measures to continuously increased efforts to disinfect contact zones, shorter to guarantee the regular production of plasma-monitor, analyze and evaluate its possible impact on DONORS AND THEIR SAFETY ARE waiting times for donors, and enhanced ventilation and derived medicines, in addition to the use plasma the safety and quality of plasma-derived medicines. A PRIORITY FOR GRIFOLS social-distancing measures. from convalescent COVID-19 patients as a potential treatment against the virus. In December 2019, the Pathogen Safety SteeringSince the onset of the pandemic, plasma donations PLASMA, DONORS AND PLASMA Committee (PSSC) of the Plasma Protein Therapeutic have remained safe and there have been no reported CENTERS ARE CATEGORIZED AS A STRICT CONTROL AND Association (PPTA) confirmed SARS-CoV-2 was cases of coronavirus transmissions resulting from ESSENTIAL SERVICES SUPERVISORY FRAMEWORK not a safety threat for plasma-derived medicines. blood or plasma donations. DURING THE PANDEMIC This notification was communicated to the foremost On March 28, 2020, the U.S. Department of national and international public healthcare authorities, Grifols decided to take additional prevention and Homeland Security classified plasma donation Grifols’ plasma centers and manufacturing facilities including the World Health Organization (WHO), the safety measures by preventing people with COVID-19 centers and production facilities as essential and continued to enforce robust internal controls and European Centre for Disease Prevention and Control symptoms from donating plasma in order to protect critical infrastructure, designating related personnel supervision since the beggining of the pandemic. As (ECDC) and the U.S. Centers for Disease Control and donor health and guarantee plasma quality during the as essential workers. Thus, Grifols’ centers have a result of mobility restrictions, organisms like the Prevention (CDC), among others. pandemic. Meanwhile, pre-donation questionnaires remained operatio