DISTRIBUTION OF AN INTERIM DIVIDEND BY RECORDATI S.P.A. FOR THE FINANCIAL YEAR 2017 IN ACCORDANCE WITH ARTICLE 2433-BIS OF THE ITALIAN CIVIL CODE

	Page
DIRECTORS' REPORT ON THE DISTRIBUTION OF AN INTERIM DIVIDEND TO THE SHAREHOLDERS OF RECORDATI S.P.A.
- Directors' considerations on the distribution of an interim dividend	4
- Operating and financial review of Recordati S.p.A. in the first six months of 2017	6
- Cross-Border merger of Recordati SA Chemical and Pharmaceutical Company into Recordati S.p.A.	8
- Subsequent events and business outlook for Recordati S.p.A.	11
- Consolidated management review for the Recordati Group in the first half of 2017	12

INTERIM FINANCIAL STATEMENTS OF RECORDATI S.P.A. AT 30 JUNE 2017

-	Income statement	24
-	Assets	25
-	Equity and liabilities	26
-	Statement of comprehensive income	27
-	Statement of changes in shareholders' equity	27
-	Cash flow statement	28
-	Notes to the financial statements	29
	DECLARATION OF THE MANAGER APPOINTED TO PREPARE CORPORATE ACCOUNTING DOCUMENTS PURSUANT TO PARAGRAPH 2 ARTICLE 154-BIS OF LEGISLATIVE DECREE 58/1998	53

DIRECTORS' REPORT ON THE DISTRIBUTION OF AN INTERIM DIVIDEND TO THE SHAREHOLDERS OF RECORDATI S.P.A.

Directors' considerations on the distribution of an interim dividend

An interim dividend may be distributed if the conditions specified in the relative legislation (Art. 2433-bis of the Italian Civil Code) are met.

Recordati S.p.A. ("Recordati") is in possession of the requirements to exercise that right for the following reasons:

a) the financial statements are subject by law to a statutory audit in accordance with the provisions of special laws for entities of public interest;
b) payment of interim dividends is permitted by Art. 29 of the Corporate By-Laws;
c) the external auditors have issued a positive opinion on the financial statements for the previous year, which were subsequently approved by the shareholders;
d) no losses relating to the current year or to prior years have been incurred since the last financial statements were approved.

The distribution of the dividend must be approved by the Board of Directors on the basis of financial statements and a report showing that the capital, operating and financial position of the Company would allow that distribution to be made. Additionally, an opinion of the external auditors on those documents must be obtained.

Art. 2433-bis of the Italian Civil Code also states that the amount of an interim dividend cannot be greater than the lower of the net income earned at the end of the previous financial year, less the amounts allocated to the statutory or by-law reserves, and the reserves available for distribution.

In Recordati's case, the distribution of an interim dividend is based on the accounts at 30 June 2017 for the six month period ended on that date, as prepared according to the International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board and endorsed by the European Union, in force at 30 June 2017.

The available reserves resulting from the accounts at 30 June 2017 amounted to € 368,592 thousand, while the net income available at 30 June 2017 amounted to € 90,824 thousand consisting of the net income earned, since an amount equal to one fifth of the share capital had already been allocated to the statutory reserve and no other obligations for allocations to reserves existed.

A summary of the relevant data for determining the amount of the interim dividend distributable is attached in the following table:

 net income at 30 June 2017	€ 90,824 thousand
 net income available	€ 90,824 thousand
 reserves available at 30 June 2017	€ 368,592 thousand
 interim dividend distributable (maximum amount)	€ 90,824 thousand
 interim dividend per share	€ 0.42

In accordance with Art. 2433-bis, paragraph 4 of the Italian Civil Code, the interim dividend distributable cannot exceed € 90,824 thousand, corresponding to the part of the net income for the period that may be distributed on an interim basis.

Taking into account the above, and in the light of the information reported in the following pages concerning the operating, capital and financial performance of Recordati S.p.A. and the Group at 30 June 2017, the Board of Directors intends to distribute an interim dividend amounting to € 0.42 on each share outstanding on the ex dividend date on 20 November 2017, to be paid from 22 November 2017 (record date of 21 November 2017).

Milano, 26 October 2017

on behalf of the Board of Directors the Vice Chairman and Chief Executive Officer Andrea Recordati

Operating and financial review of Recordati S.p.A. in the first six months of 2017

The financial statements of Recordati S.p.A. at 30 June 2017 show net income of € 90.824 thousand.

The items in the income statement are given below with the relative percentage of revenue and the change compared with the first six months of the previous year:

€ (thousands)	First half 2017	% of revenue	First half 2016	% of revenue	Change 2017/2016	%
Revenue	186,143	100.0	177,199	100.0	8,944	5.0
Cost of sales	(76,737)	(41.2)	(74,860)	(42.3)	(1,877)	2.5
Gross profit	109,406	58.8	102,339	57.7	7,067	6.9
Selling expenses	(25,463)	(13.7)	(27,017)	(15.2)	1,554	(5.8)
R&D expenses	(11,675)	(6.3)	(13,654)	(7.7)	1,979	(14.5)
G&A expenses	(15,111)	(8.1)	(14,820)	(8.4)	(291)	2.0
Other income (expense), net	(852)	(0.5)	(2,379)	(1.3)	1,527	(64.2)
Operating income	56,305	30.2	44,469	25.1	11,836	26.6
Dividends	60,050	32.3	53,021	29.9	7,029	13.3
Financial (expense)/income, net	(3,633)	(1.9)	(2,398)	(1.3)	(1,235)	51.5
Pretax income	112,722	60.6	95,092	53.7	17,630	18.5
Provision for income taxes	(21,898)	(11.8)	(14,264)	(8.1)	(7,634)	53.5
Net income	90,824	48.8	80,828	45.6	9,996	12.4

Revenue in the first six months of 2017 was € 186,143 thousand, an increase of 5.0% compared with the same period of the previous year.

Total R&D costs came to € 11,675 thousand accounting for 6.3% of revenue.

Operating income was € 56,305 thousand, amounting to 30.2% of revenue.

Net income of € 90,824 thousand was up by € 9,996 thousand compared with the first six months of the preceding year.

NET FINANCIAL POSITION

The net financial position is set out in the following table:

Net financial position	(714,608)	(401,359)	(313,249)
Borrowings – due after one year (2)	(364,811)	(264,214)	(100,597)
Loans and receivables – due after one year	13,263	16,396	(3,133)
Net current financial position (1)	(363,060)	(153,541)	(209,519)
Short-term borrowings	(428,724)	(360,213)	(68,511)
Cash and cash equivalents and current receivables	65,664	206,672	(141,008)
€ (thousands)	30.06.2017	31.12.2016	Change 2017/2016

(1) This includes the current portion of the medium to long-term borrowings

(2) Including the recognition at fair value of derivative instruments to hedge foreign exchange rate risk (cash flow hedges).

The net financial position at 30 June 2017 is a debt of € 714.6 million compared with a debt of € 401.4 million at 31 December 2016. Dividends were distributed in the period totaling € 72.1 million and \$ 284.2 million (€ 252.8 million) were paid, net of withholding tax, for the acquisition from AstraZeneca of the European marketing rights for the products Seloken®/Seloken® ZOK (metoprolol succinate) and the fixed combination Logimax® (metoprolol succinate and felodipine).

On 31 May 2017 the Company issued bonds for € 125.0 million, privately and fully placed through the Pricoa Capital Group.

MANAGEMENT REVIEW

The "Management Review" section of the interim financial report of the Recordati Group for the first half of 2017 (pages 12 to 22 of this document) may be consulted for further information on operations and finance.

Cross-Border merger of Recordati SA Chemical and Pharmaceutical Company into Recordati S.p.A.

The terms of cross-border merger for the merger into Recordati S.p.A. (the "Acquiring Company") of the Luxembourg company Recordati S.A. Chemical and Pharmaceutical Company (the "Company Acquired"), which is wholly owned by it, was filed with the Company Registrar on 12 June 2017.

As already reported, the resolution passed by Recordati S.p.A.'s Board of Directors which approved the crossborder merger by acquisition of Recordati S.A. Chemical and Pharmaceutical Company was filed with the Milan Company Registrar on 7 April 2017, while the common draft terms of cross-border merger had been approved on 1 March 2017 by the Board of Directors of the Acquiring Company and on 27 February 2017 by the Board of Directors of the Company Acquired, each within the scope of their responsibilities and in co-operation with each other.

The merger was of the cross-border type because the two companies concerned belonged to two different member states of the European Union and it was carried out by the cancellation of all the shares issued by the Acquired Company and with no increase in the share capital of the Acquiring Company, because Recordati S.p.A. owned the entire share capital of Recordati S.A. Chemical and Pharmaceutical Company.

Furthermore, since this was a merger by acquisition in which the Acquiring Company was the direct owner of the entire share capital of the Company Acquired, "simplified" merger rules were applied in accordance with article 2505 of the Italian Civil Code, article 18 of Legislative Decree No. 108/2008, and article 278 et seq of the Luxembourg Law.

From an accounting viewpoint, the merger was carried out on the basis of the financial positions of the companies participating in the merger at 31 December 2016, as represented by the proposed separate company financial statements at and for the period ended 31 December 2016.

The elimination of the carrying amount of the investment in the Acquired Company (€ 217,586 thousand), against the equity of the latter (€ 247,399 thousand), generated a gain on the merger of € 29,813 thousand recognized in "Other Reserves" within the equity of the Acquiring Company.

The transactions of the Acquired Company have been recognized, also for income tax purposes, in the financial statements of the Acquiring Company from 1 January 2017. We underline that during the period of the financial year 2017 prior to the approval of the merger, the Acquired Company reported a loss of € 379 thousand. As a result of the merger, that loss was therefore recognized in the income statement of the Acquiring Company.

For greater ease of understanding the information below is reported in the pages that follow:

- the financial position of the Acquiring Company resulting after recognition of entries relating to the merger by acquisition of the Acquired Company calculated on the basis of the original financial positions of the two Companies at 31 December 2016;
- details of movements that occurred in the financial statements of the Acquired Company during the course of 2017 before the merger contract was filed.

ACCOUNTING ENTRIES RELATING TO THE CROSS-BORDER MERGER BY ACQUISITION OF RECORDATI SA CHEMICAL AND PHARMACEUTICAL COMPANY INTO RECORDATI S.P.A.

BALANCE SHEET ASSETS		31/12/2016 RECORDATI S.P.A.	31/12/2016 RECORDATI S.A. LUX	Initial adjustments 01/01/17	Merger adjustments 01/01/17	01/01/2017 RECORDATI S.P.A.
NON-CURRENT ASSETS
Property, plant and equipment		44,850,587	-	-	-	44,850,587
Intangible assets		25,516,643	-	-	-	25,516,643
Investments		621,143,621	355,031,276		9,918,583 (217,586,090)	768,507,390
	Investments in "Recordati S.A. Lux"	221,342,638	-		(3,756,548) (217,586,090)	-
	Investments in "Other Companies"	399,800,983	355,031,276	13,675,131	-	768,507,390
Loans and receivables		16,396,325	-	-	-	16,396,325
Deferred tax assets		3,721,972	-	-	-	3,721,972
Total Non-Current Assets		711,629,148	355,031,276		9,918,583 (217,586,090)	858,992,917
CURRENT ASSETS
Inventories		54,944,368	-	-	-	54,944,368
Trade receivables		53,100,706	65,309	-	(468)	53,165,547
Other receivables		10,556,382	190,920	-	-	10,747,302
Other current assets		539,034	-	-	-	539,034
Fair value of hedging derivatives		12,497,477	-	-	-	12,497,477
Other short-term receivables		119,856,750	12,955,621	1,352,376	(81,898,184)	52,266,563
Short-term financial investments, cash and cash equivalents		86,814,873	90,445	-	-	86,905,318
Total Current Assets		338,309,590	13,302,295	1,352,376	(81,898,652)	271,065,609
TOTAL ASSETS		1,049,938,738	368,333,571		11,270,959 (299,484,742)	1,130,058,526
		31/12/2016	31/12/2016	Initial	Merger	01/01/2017
BALANCE SHEET		RECORDATI	RECORDATI	adjustments	adjustments	RECORDATI
LIABILITIES		S.P.A.	S.A. LUX	01/01/17	01/01/17	S.P.A.

EQUITY Share capital		26,140,645	82,500,000	-	(82,500,000)	26,140,645
Additional paid-in capital		83,718,523	-	-	-	83,718,523
Treasury stock		(76,761,059)	-	-	-	(76,761,059)
Statutory reserve		5,228,129	8,250,000	-	(8,250,000)	5,228,129
Other reserves		237,931,918	145,002,980		6,438,782 (115,190,368)	274,183,312
	Other reserves	237,931,918	145,002,980	6,438,782	(145,002,980)	244,370,700
	Merger gain	-	-	-	29,812,612	29,812,612
Revaluation reserve		2,602,229	-	-	-	2,602,229
Interim dividend		(72,245,319)	-	-	-	(72,245,319)
Net income for the previous year		-	59,188	-	(59,188)	-
Net income for the year		110,102,226	11,586,534	-	(11,586,534)	110,102,226
Total equity		316,717,292	247,398,702		6,438,782 (217,586,090)	352,968,686

NON-CURRENT LIABILITIES
Loans		276,711,756	-	-	-	276,711,756
Personnel leaving indemnities		11,236,914	-	-	-	11,236,914
Other non-current liabilities Deferred tax liabilities		- -	- -	2,514,640 2,317,537	- -	2,514,640 2,317,537
Total Non-Current Liabilities		287,948,670	-	4,832,177	-	292,780,847

CURRENT LIABILITIES
Trade payables		44,515,223	47,081	-	(468)	44,561,836
Other current payables		19,567,259	654,702	-	-	20,221,961
Tax liabilities		4,396,667	-	-	-	4,396,667
Other current liabilities		788	-	-	-	788
Provisions		12,958,448	-	-	-	12,958,448
Fair value of hedging derivatives (cash flow hedges)		3,621,403	-	-	-	3,621,403
Loans - due within one year		36,818,182	-	-	-	36,818,182
Bank overdrafts and short-term loans		1,777,678	-	-	-	1,777,678
Other short-term borrowings		321,617,128	120,233,086	-	(81,898,184)	359,952,030
Total Current Liabilities		445,272,776	120,934,869	-	(81,898,652)	484,308,993
TOTAL LIABILITIES		1,049,938,738	368,333,571		11,270,959 (299,484,742)	1,130,058,526

MOVEMENTS IN 2017 IN THE FINANCIAL STATEMENTS OF RECORDATI S.A. CHEMICAL AND PHARMACEUTICAL COMPANY PRIOR TO ITS CROSS-BORDER MERGER BY ACQUISITION INTO RECORDATI S.P.A.

RECORDATI S.A. LUX BALANCE SHEET ASSETS	Movements 01/01/17 - 12/06/17
NON-CURRENT ASSETS
Investments	804,063
Total Non-Current Assets	804,063
CURRENT ASSETS
Other loans and receivables	67,044
Other short-term receivables	(400,676)
Short-term financial investments, cash and cash equivalents	(6,832)
Total Current Assets	(340,464)
TOTAL ASSETS	463,599

RECORDATI S.A. LUX BALANCE SHEET LIABILITIES	Movements 01/01/17 - 12/06/17
EQUITY
Net loss for the period	(379,285)
Total equity	(379,285)
NON-CURRENT LIABILITIES
Total Non-Current Liabilities	-
CURRENT LIABILITIES
Trade payables	20,335
Other short-term borrowings	822,549
Total Current Liabilities	842,884
TOTAL LIABILITIES	463,599
RECORDATI S.A. LUX INCOME STATEMENT	Movements 01/01/17 - 12/06/17
REVENUE
Other revenues and income	76
Total Revenue	76
Other operating expenses	(105,626)
Operating income	(105,550)

Income from investments	86,000
Financial expense, net	(359,735)
Pre-tax loss	(379,285)
NET LOSS	(379,285)

SUBSEQUENT EVENTS AND BUSINESS OUTLOOK

The Company's business performance was in line with expectations and, in the absence of events which are unforeseeable at present, no specific significant events were observed occurring subsequent to the reporting date of 30 June, which might affect the positive performance in the first six months of the year, for the achievement of the results forecast for 2017.

These results are forecast to be much greater than the interim dividend currently being approved.

The above information has been confirmed by the operating results of the Company to 30 September 2017.

Page 22 of this document may be consulted for a report and discussion of subsequent events and the business outlook for the Group.

Milan, 26 October 2017

on behalf of the Board of Directors The Vice Chairman and CEO Andrea Recordati

MANAGEMENT REVIEW HIGHLIGHTS

First half 2017

REVENUE

€ (thousands)	First half		First half		Change
	2017	%	2016	%	2017/2016	%
Total revenue	650,868	100.0	587,864	100.0	63,004	10.7
Italy	142,415	21.9	122,267	20.8	20,148	16.5
International	508,453	78.1	465,597	79.2	42,856	9.2

KEY CONSOLIDATED P&L DATA

€ (thousands)	First half 2017	% of revenue	First half 2016	% of revenue	Change 2017/2016	%
Revenue	650,868	100.0	587,864	100.0	63,004	10.7
EBITDA(1)	224,032	34.4	188,074	32.0	35,958	19.1
Operating income	203,198	31.2	170,216	29.0	32,982	19.4
Net income	146,987	22.6	122,718	20.9	24,269	19.8

(1) Operating income before depreciation, amortization and write down of both tangible and intangible assets.

KEY CONSOLIDATED B/S DATA

€ (thousands)	30 June	31 December	Change	%
	2017	2016	2017/2016
Net financial position(2)	(356,317)	(198,771)	(157,546)	79.3
Shareholders' equity	991,124	903,940	87,184	9.6

(2) Short-term financial investments, cash and cash equivalents, less bank overdrafts and loans which include the measurement at fair value of hedging derivatives.

Second quarter 2017

REVENUE

€ (thousands)	Second quarter		Second quarter		Change
	2017	%	2016	%	2017/2016	%
Total revenue	308,928	100.0	285,617	100.0	23,311	8.2
Italy	65,692	21.3	58,507	20.5	7,185	12.3
International	243,236	78.7	227,110	79.5	16,126	7.1

KEY CONSOLIDATED P&L DATA

€ (thousands)	Second quarter 2017	% of revenue	Second quarter 2016	% of revenue	Change 2017/2016	%
Revenue	308,928	100.0	285,617	100.0	23,311	8.2
EBITDA(1)	106,325	34.4	89,099	31.2	17,226	19.3
Operating income	95,927	31.1	80,061	28.0	15,866	19.8
Net income	68,472	22.2	57,240	20.0	11,232	19.6

(1) Operating income before depreciation, amortization and write down of both tangible and intangible assets.

The financial results obtained in the first half of the year underline the continued growth of the group, with revenues and profitability increasing significantly. Consolidated revenue is € 650.9 million, up by 10.7% compared to the same period of the preceding year. International sales grow by 9.2%. EBITDA, at 34.4% of sales, is € 224.0 million, an increase of 19.1% over the first half of 2016 and operating income, at 31.2% of sales, is € 203.2 million, an increase of 19.4%. Net income, at 22.6% of sales, is € 147.0 million, an increase of 19.8% over the first half of 2016.

Net financial position at 30 June 2017 records a net debt of € 356.3 million compared to net debt of € 198.8 million at 31 December 2016. During the period dividends were distributed and the acquisition of the marketing rights to the metoprolol based products from AstraZeneca was concluded for an overall disbursement of € 324.9 million. Shareholders' equity increases to € 991.1 million.

CORPORATE DEVELOPMENT NEWS

In January the European Union Commission granted the European marketing authorization for its orphan medicinal product Cystadrops® 3.8mg/mL. Cystadrops® is the first eye-drop solution containing cysteamine hydrochloride approved in the European Union for "the treatment of corneal cystine crystal deposits in adults and children from 2 years of age with cystinosis". The European Commission had granted Cystadrops® orphan drug designation in November 2008. Cystadrops® eye-drop solution was developed specifically for cystinosis patients by Orphan Europe (Recordati Group). Cystinosis is a rare congenital lysosomal storage disorder recognized as a severe life threatening condition. It is characterized by an accumulation of cystine crystals which negatively affects all organs in the body, especially the kidneys and eyes. Cystinosis benefits from systemic treatment with cysteamine orally administered. However, oral cysteamine does not adequately address ocular cystinosis because of the non-vascularization of cornea. Without a proper, continued, local eye treatment, cystine crystals accumulate in the cornea, leading to severe consequences and possibly to blindness in the long term.

In February an exclusive worldwide licensing agreement covering the know-how developed by the Meyer Hospital in Florence (Italy) for the development of a treatment for pre-term babies affected by retinopathy of prematurity (ROP) was signed. The treatment is currently being investigated in a phase II clinical trial by the Meyer Hospital, while Recordati will complete the clinical development and the regulatory steps necessary to obtain the marketing approval for the drug. Retinopathy of prematurity (ROP) is a potentially blinding eye disorder that primarily affects premature infants weighing about 1.25 kg or less that are born before 31 weeks of gestation. This disorder, which usually develops in both eyes, is a rare condition, however presenting as one of the most common causes of visual loss in childhood that can lead to lifelong vision impairment and blindness. Furthermore, within the deal, Recordati shall support other Meyer projects in the rare disease area over a period of three years based on a mutually agreed plan. This collaboration between public and private institutions recognizes the important results obtained by the internal research conducted by the pediatric hospital in Florence.

In May Recordati signed an agreement with AstraZeneca for the acquisition of the rights to Seloken®/Seloken® ZOK (metoprolol succinate) and associated Logimax® fixed dose combination (metoprolol succinate and felodipine) treatments in Europe. The transaction was successfully concluded on 30 June (on 10 July for part of the transaction related to Romania). The consideration for the acquisition of the assets is of \$ 300 million (€ 267 million). In addition, royalties for the use of the existing product brands will be due to AstraZeneca for an agreed period. Overall net sales in Europe in 2016 of the brands object of the transaction are of around € 100 million. Metoprolol succinate is a beta-blocker mainly indicated for the control of a range of conditions including hypertension, angina pectoris, disturbances of cardiac rhythm, maintenance treatment after myocardial infarction, and functional heart disorders with palpitations. It is a widely used drug in all European countries which will enable us to reinforce our product portfolios in a number of our European subsidiaries, in particular

in Poland, France and Germany. Furthermore, existing sales of the metoprolol brands will provide the base to enter new markets and thus complete our European geographical footprint. Recordati has significant experience in the marketing of treatments for cardiovascular disease with an existing portfolio of medicines for hypertension and related conditions as well as an established salesforce across European markets.

On May 31, 2017, Recordati S.p.A. issued and privately placed a bond for a total of € 125.0 million with Pricoa Capital Group. The main terms and conditions provide for a 2.07% fixed interest rate and a duration of 15 years with repayment in annual installments starting on 31 May 2025. The transaction, the object of which is to provide the necessary liquidity to support the growth of the group, was able to take advantage of the favorable market conditions.

In June Recordati signed an exclusive license agreement with MimeTech, an Italian development stage company founded by scientists from the University in Florence, for the development and subsequent commercialization on a global basis of a low molecular weight peptidomimetic of human nerve growth factor (NGF) for the treatment of neurotrophic keratitis, which already received an Orphan Drug Designation in the EU. Additional indications linked to NGF defects are also contemplated in the scope of the partnership. Under the terms of the agreement Recordati made an upfront payment upon signature of the contract and further milestone payments shall be linked to the development process and commercial performance. Neurotrophic keratitis is a rare degenerative corneal disease which in its more severe forms affects less than one person out of 10,000 worldwide, and is initiated by an impairment of trigeminal nerve. Impairment or loss of corneal sensory innervation is responsible for corneal epithelial defects, ulcer, and perforation. The most common causes of loss of corneal innervation are: viral infection (herpes simplex and herpes zoster keratoconjunctivitis), chemical burns, physical injuries, and corneal surgery. Neuroma, meningioma, and aneurysms may also determine a compression of the trigeminal nerve or ganglion and produce an impairment of corneal sensitivity. Furthermore, systemic diseases such as diabetes, multiple sclerosis, and leprosy may decrease sensory nerve function or damage sensory fibers compromising corneal sensitivity. The corneal epithelium is the first cell layer of the disease showing changes and defects, with poor predisposition to self-healing. The progression of the disease may lead to corneal ulcers, melting, and perforation leading to dramatic impairment to patients' sight.

REVIEW OF OPERATIONS

Net consolidated revenue in the first half of 2017 is € 650.9 million, up 10.7% over the same period of the preceding year, with an increase in international sales of 9.2% to € 508.5 million, which represent 78.1% of total sales. Pharmaceutical sales are € 627.7 million, up by 10.8%. Pharmaceutical chemicals sales are € 23.1 million, up by 9.3%, and represent 3.6% of total revenues. The first half 2017 revenues include those generated by the Italian company Italchimici S.p.A. and the Swiss company Pro Farma AG, acquired in 2016 and consolidated respectively as from 1 June and 1 July of that year, for an amount of € 25.2 million. Excluding these acquisitions sales growth would have been of 6.4%.

The group's pharmaceutical business, which represents 96.4% of total revenue, is carried out in the main European markets, including Central and Eastern Europe, in Russia, Turkey, North Africa, the United States of America, Canada, Mexico and in some South American countries through our own subsidiaries and in the rest of the world through licensing agreements with pharmaceutical companies of high standing.

The performance of products sold directly in more than one country (corporate products) during the first half of 2017 is shown in the table below.

€ (thousands)	First half 2017	First half 2016	Change 2017/2016	%
Zanidip® (lercanidipine)	69,191	63,677	5,514	8.7
Zanipress® (lercanidipine+enalapril)	36,318	34,959	1,359	3.9
Urorec® (silodosin)	46,510	42,721	3,789	8.9
Livazo® (pitavastatin)	19,438	17,747	1,691	9.5
Other corporate products*	144,681	119,012	25,669	21.6
Drugs for rare diseases	104,115	95,300	8,815	9.2

* Include the OTC corporate products for an amount of € 54.5 million in 2017 and € 40.3 million in 2016 (+35.3%).

Zanidip® is a specialty containing lercanidipine, Recordati's original calcium channel blocker for the treatment of hypertension. Our lercanidipine based products are sold directly to the market by our own marketing organizations in Europe, including Central and Eastern Europe, in Russia, in Turkey and in North Africa. In the other markets they are sold by licensees, and in some of the above co-marketing agreements are in place.

Direct sales	37,186	33,258	3,928	11.8
Sales to licensees	32,005	30,419	1,586	5.2
Total lercanidipine sales	69,191	63,677	5,514	8.7

Lercanidipine direct sales are up by 11.8% mainly due to the sales in Switzerland which are made directly to the market by our subsidiary there as from September of the preceding year. Sales increase mainly in Germany and

in France, where the brand Lercan® is now sold directly by our subsidiary following the termination of the license agreement with Pierre Fabre. Sales to licensees, which represent 46.3% of total lercanidipine sales, are up by 5.2%.

Zanipress® is an original specialty also indicated for the treatment of hypertension developed by Recordati which consists of a fixed combination of lercanidipine with enalapril. This product is successfully marketed directly by Recordati and/or by its licensees in 29 countries.

€ (thousands)	First half 2017	First half 2016	Change 2017/2016	%
Direct sales	28,509	24,924	3,585	14.4
Sales to licensees	7,809	10,035	(2,226)	(22.2)
Total lercanidipine+enalapril sales	36,318	34,959	1,359	3.9

Direct sales of Zanipress® in the first half of 2017 are up by 14.4% mainly due to the performance of the product in Germany, France and Switzerland. Sales to licensees represent 21.5% of total Zanipress® sales and are down by 22.2%.

Urorec® (silodosin) is a specialty indicated for the treatment of symptoms associated with benign prostatic hyperplasia (BPH). Currently the product has been successfully launched in 35 countries with sales of € 46.5 million in the first half of 2017, up 8.9% mainly due to the good performance of the product in Italy, France and Russia.

Sales of Livazo® (pitavastatin), a statin indicated for the reduction of elevated total and LDL cholesterol, in Spain, Portugal, Ukraine, Greece, Switzerland, Russia and Turkey, are € 19.4 million in the first half of 2017, up by 9.5% due to the performance of the product mainly in Spain, Greece and Switzerland and to the launch in Turkey.

In the first half of 2017 sales of other corporate products totaled € 144.7 million, up by 21.6% compared to the same period of the preceding year. These comprise both prescription and OTC products and are: Lomexin® (fenticonazole), Urispas® (flavoxate), Kentera® (oxybutynin transdermal patch), TransAct® LAT (flurbiprofen transdermal patch), Rupafin®/Wystamm® (rupatadine), Lopresor® (metoprolol), Procto-Glyvenol® (tribenoside), Tergynan® (fixed association of anti-infectives) as well as CitraFleet®, Casenlax®, Fleet enema, Phosphosoda®, Ruflor®/Reuteri® (lactobacillus Reuteri) and Lacdigest® (tilactase), gastroenterological products, Polydexa®, Isofra® and Otofa®, ENT anti-infective products, the Hexa line of products indicated for seasonal disorders of the upper respiratory tract, Abufene®, a product for menopausal symptoms, Muvagyn® a topical product for gynecological use and Virirec® (alprostadil), a topical product for erectile dysfunction.

Our specialties indicated for the treatment of rare and orphan diseases, marketed directly throughout Europe, in the Middle East, in the U.S.A., Canada, Mexico and in some South American countries and through partners in other parts of the world, generated sales of € 104.1 million in the first half of 2017, up by 9.2% due to the good performance of the business in all areas.

The pharmaceutical sales of the Recordati subsidiaries, which include the abovementioned product sales, are shown in the following table.

€ (thousands)	First half 2017	First half 2016	Change 2017/2016	%
Italy	138,749	117,952	20,797	17.6
France	60,063	57,202	2,861	5.0
Russia, other C.I.S. countries and Ukraine	56,407	35,708	20,699	58.0
U.S.A.	54,709	52,845	1,864	3.5
Germany	54,341	48,052	6,289	13.1
Turkey	45,706	45,110	596	1.3
Spain	40,197	37,568	2,629	7.0
North Africa	23,144	26,692	(3,548)	(13.3)
Portugal	20,378	19,791	587	3.0
Other Western European countries	25,606	16,845	8,761	52.0
Other C.E.E. countries	16,519	16,158	361	2.2
Other international sales	91,907	92,761	(854)	(0.9)
Total pharmaceutical revenue	627,726	566,684	61,042	10.8

Both years include sales as well as other income.

Sales in countries affected by currency exchange oscillations are shown hereunder in their relative local currencies.

Local currency (thousands)	First half 2017	First half 2016	Change 2017/2016	%
Russia (RUB)	2,958,631	2,337,402	621,229	26.6
Turkey (TRY)	169,152	138,269	30,883	22.3
U.S.A. (USD)	60,987	60,233	754	1.3

Net revenues in Russia and in Turkey exclude sales of products for rare diseases.

Sales of pharmaceuticals in Italy are up by 17.6% compared to those of the same period of the preceding year thanks to the revenues generated by Italchimici S.p.A., consolidated as from 1 June 2016, for a total of € 20.4 million. Worth mentioning is the good performance of Urorec® and Cardicor® (bisoprolol) and the significant growth of the treatments for rare diseases.

Pharmaceutical sales in France are up by 5.0% due mainly to the good performance of Urorec®, methadone and Zanextra®, in addition to the sales of Lercan® (lercanidipine) which is now sold directly by our subsidiary following the termination of the license agreement with Pierre Fabre. The treatments for rare diseases are also growing strongly.

Revenue generated in Russia, Ukraine and in the countries within the Commonwealth of Independent States (C.I.S.) is € 56.4 million, up by 58.0% compared to the same period of the preceding year and includes estimated currency exchange gains of € 9.3 million. Sales in Russia, in local currency, are RUB 2,958.6 million, up by 26.6% over the same period of the preceding year thanks to the growth of all the main products including the corporate products Procto-Glyvenol®, Urorec®, Zanidip®, Tergynan®, Polydexa® and Isofra®. Sales generated in Ukraine and in the C.I.S. countries, mainly Kazakhstan and Belarus, are growing and have reached € 8.1 million.

The group's pharmaceutical business in the U.S.A. is dedicated to the marketing of products for the treatment of rare diseases. Sales in the first half of 2017 are € 54.7 million, up by 3.5%. The main products are Panhematin® (haemin for injection) for the amelioration of recurrent attacks of acute intermittent porphyria, Cosmegen® (dactinomycin for injection) used in the treatment of three rare cancers and Carbaglu® (carglumic acid), indicated for the treatment of acute hyperammonaemia associated with NAGS deficiency.

In Germany sales are up by 13.1% mainly thanks to the significant sales growth of Zanipress®, Ortoton® (methocarbamol), lercanidipine, Citrafleet®, Recosyn® and Urorec®.

Sales in Turkey are up by 1.3% and include an estimated negative currency exchange effect of € 8.5 million. In local currency sales of our Turkish subsidiary grow by 22.3% thanks to the good performance of all the corporate products, in particular Lercadip®, Urorec®, Procto-Glyvenol®, Zanipress® and Gyno Lomexin®, as well as the launch of Livazo®, and of the local products Mictonorm® (propiverine), Kreval® (butamirate), Pankreoflat® (pancreatin, dimeticone) and Cabral® (phenyramidol).

In Spain sales are € 40.2 million, up by 7.0% mainly due to the performance of Virirec®, Livazo®, Urorec® and Casenlax®. Sales of treatments for rare diseases are also growing significantly.

Sales in North Africa are € 23.1 million, down by 13.3%, and comprise both the export sales generated by Laboratoires Bouchara Recordati in these territories, in particular in Algeria, and sales generated by Opalia Pharma, the group's Tunisian subsidiary. The sales reduction is due mainly to lower sales of Zanidip® and Calperos® (calcium, vitamin D3) in Algeria. Sales in Tunisia in the first half of 2017, in local currency, are up by 13.1%.

Sales in Portugal are up by 3.0% thanks mainly to the good performance of the local product Egostar®, a vitamin D3 supplement.

Sales in other countries in Western Europe, up by 52.0%, comprise sales of products for the treatment of rare diseases by Orphan Europe in these countries and sales generated by the Recordati subsidiaries in the United Kingdom, Ireland, Greece and Switzerland. The increase in sales is to be attributed mainly to the revenues generated by the Swiss company Pro Farma which was consolidated as from 1 July 2016, and to direct sales in the market of the corporate products Zanidip®, Zanipress® and Urispas® which were previously sold by licensees. Worth mentioning is the good performance of the Greek subsidiary.

Sales in other Central and Eastern European countries include the sales of Recordati subsidiaries in Poland, the Czech Republic, Slovakia and Romania, in addition to sales generated by Orphan Europe in this area. In the first half of 2017 overall sales are up by 2.2% thanks to the good performance of the subsidiaries in Romania and the Czech Republic. Sales of the treatments for rare diseases in these countries are up by 26.2%.

Other international sales are substantially stable and comprise the sales to, and other revenues from, our licensees for our corporate products, Laboratoires Bouchara Recordati's and Casen Recordati's export sales, Orphan Europe's exports worldwide excluding the U.S.A., and Recordati Rare Diseases exports.

FINANCIAL REVIEW

INCOME STATEMENT

The following table shows the profit and loss accounts, including their expression as a percent of sales and change versus the first half of 2016:

€ (thousands)	First half 2017	% of revenue	First half 2016	% of revenue	Change 2017/2016	%
Revenue	650,868	100.0	587,864	100.0	63,004	10.7
Cost of sales	(196,742)	(30.2)	(180,472)	(30.7)	(16,270)	9.0
Gross profit	454,126	69.8	407,392	69.3	46,734	11.5
Selling expenses	(168,521)	(25.9)	(155,215)	(26.4)	(13,306)	8.6
R&D expenses	(47,152)	(7.2)	(41,626)	(7.1)	(5,526)	13.3
G&A expenses	(33,841)	(5.2)	(31,798)	(5.4)	(2,043)	6.4
Other income (expense), net	(1,414)	(0.2)	(8,537)	(1.5)	7,123	(83.4)
Operating income	203,198	31.2	170,216	29.0	32,982	19.4
Financial income (expense), net	(6,991)	(1.1)	(5,978)	(1.0)	(1,013)	16.9
Pretax income	196,207	30.1	164,238	27.9	31,969	19.5
Provision for income taxes	(49,220)	(7.6)	(41,520)	(7.1)	(7,700)	18.5
Net income	146,987	22.6	122,718	20.9	24,269	19.8
Attributable to:
Equity holders of the parent	146,967	22.6	122,704	20.9	24,263	19.8
Minority interests	20	0.0	14	0.0	6	42.9

Revenue for the period is € 650.9 million, an increase of € 63.0 million compared to the first half of 2016. For a detailed analysis please refer to the preceding "Review of Operations".

Gross profit is € 454.1 million with a margin of 69.8% on sales, an increase over that of the same period of the preceding year due to the further growth of products with higher margins.

Selling expenses increase less than sales and are therefore down as a percent of revenue compared to the same period of the preceding year thanks to the increased efficiency of the group's commercial organizations.

R&D expenses are € 47.2 million, up by 13.3% compared to those recorded in the first half of 2016 due to the initiation of new development programs and, in particular, the agreement with MimeTech for the development and subsequent marketing on a global basis of a new compound for the treatment of neurotrophic keratitis, for which an amount of € 7.0 million was due up-front at the signing of the contract.

G&A expenses are up by 6.4% but diminish as percent of sales to 5.2%.

Net other expense is significantly reduced as compared to that of the same period of the preceding year due to the extraordinary costs incurred in the first half of 2016 following the acquisition of the Italian company Italchimici S.p.A..

Net financial charges are € 7.0 million, an increase of € 1.0 million compared to the same period of the preceding year due to the higher currency exchange rate losses.

The effective tax rate during the period is 25.1%, substantially in line with that of the same period of the preceding year.

Net income at 22.6% of sales is € 147.0 million, an increase of 19.8% over the same period of the preceding year.

NET FINANCIAL POSITION

The net financial position is set out in the following table:

€ (thousands)	30 June 2017	31 December 2016	Change 2017/2016	%
Cash and short-term financial investments	85,759	138,493	(52,734)	(38.1)
Bank overdrafts and short-term loans	(19,925)	(15,689)	(4,236)	27.0
Loans – due within one year	(41,579)	(40,428)	(1,151)	2.8
Net liquid assets	24,255	82,376	(58,121)	(70.6)
Loans – due after one year (1)	(380,572)	(281,147)	(99,425)	35.4
Net financial position	(356,317)	(198,771)	(157,546)	79.3

(1) Includes change in fair value of the relative currency risk hedging instruments (cash flow hedge).

At 30 June 2017 the net financial position shows a net debt of € 356.3 million compared to net debt of € 198.8 million at 31 December 2016. During the period dividends were distributed for a total of € 72.1 million and an amount of \$ 284.2 million (€ 252.8 million), net of withholding tax, was paid for the acquisition from AstraZeneca of the European marketing rights to the products Seloken®/Seloken® ZOK (metoprolol succinate) and associated Logimax® fixed dose combination (metoprolol succinate and felodipine).

RELATED PARTY TRANSACTIONS

Tax liabilities shown in the consolidated balance sheet at 30 June 2017 include those payable to the controlling company FIMEI S.p.A. for an amount of € 3.4 million. This amount refers to tax liabilities computed by the parent Recordati S.p.A. based on estimated taxable income and transferred to the controlling company consequent to the participation in a tax consolidation grouping under tax laws in Italy.

Except for the above, to our knowledge, no transactions or contracts have been entered into with related parties that can be considered significant, in value or conditions, or which could in any way materially affect the accounts.

SECOND QUARTER 2017 REVIEW

The following table shows the profit and loss accounts, including their expression as a percent of sales and change versus the second quarter of 2016:

€ (thousands)	Second quarter 2017	% of revenue	Second quarter 2016	% of revenue	Change 2017/2016	%
Revenue	308,928	100.0	285,617	100.0	23,311	8.2
Cost of sales	(90,933)	(29.4)	(86,771)	(30.4)	(4,162)	4.8
Gross profit	217,995	70.6	198,846	69.6	19,149	9.6
Selling expenses	(79,900)	(25.9)	(75,650)	(26.5)	(4,250)	5.6
R&D expenses	(23,985)	(7.8)	(19,350)	(6.8)	(4,635)	24.0
G&A expenses	(16,708)	(5.4)	(15,758)	(5.5)	(950)	6.0
Other income (expense), net	(1,475)	(0.5)	(8,027)	(2.8)	6,552	(81.6)
Operating income	95,927	31.1	80,061	28.0	15,866	19.8
Financial income (expense), net	(5,207)	(1.7)	(3,454)	(1.2)	(1,753)	50.8
Pretax income	90,720	29.4	76,607	26.8	14,113	18.4
Provision for income taxes	(22,248)	(7.2)	(19,367)	(6.8)	(2,881)	14.9
Net income	68,472	22.2	57,240	20.0	11,232	19.6
Attributable to:
Equity holders of the parent	68,462	22.2	57,233	20.0	11,229	19.6
Minority interests	10	0.0	7	0.0	3	42.9

Net revenue is € 308.9 million, up by 8.2% over the second quarter 2016. Pharmaceutical sales are € 297.4 million, up by 8.2%. Pharmaceutical chemical sales are € 11.5 million, up by 8.1%.

Gross profit is € 218.0 million with a margin of 70.6% on sales, an increase over that of the same period of the preceding year due to the further growth of products with higher margins.

R&D expenses are € 24.0 million, up by 24.0% compared to those recorded in the second quarter of 2016 due to the initiation of new development programs and, in particular, the agreement with MimeTech for the development and subsequent marketing on a global basis of a new compound for the treatment of neurotrophic keratitis, for which an amount of € 7.0 million was due up-front at the signing of the contract.

G&A expenses are up by 6.0% but diminish as percent of sales to 5.4%.

Net other expense is significantly reduced as compared to that of the same period of the preceding year due to the extraordinary costs incurred in the second quarter of 2016 following the acquisition of the Italian company Italchimici S.p.A..

Net financial charges are € 5.2 million, an increase of € 1.8 million compared to the same period of the preceding year due to the higher currency exchange rate losses.

Net income at 22.2% of sales is € 68.5 million, an increase of 19.6% over the same period of the preceding year.

SUBSEQUENT EVENTS AND BUSINESS OUTLOOK

During July Gedeon Richter Plc. was granted marketing authorization from the European Commission for Reagila® (cariprazine), a novel antipsychotic for the treatment of schizophrenia in adult patients, valid for all European Union Member States. In August 2016 Richter and Recordati signed an exclusive license agreement to commercialize cariprazine in Western Europe, Algeria, Tunisia and Turkey.

The group's business continued to perform very well during July and for the full year 2017, including the consolidation as from this month of the sales of the metoprolol based products acquired from AstraZeneca, the expectation is to achieve sales of between € 1,290 and 1,300 million, EBITDA of between € 450 and 460 million, EBIT of between € 400 and 410 million and net income of between € 290 and 295 million.

INTERIM FINANCIAL STATEMENTS OF RECORDATI S.P.A. AT 30 JUNE 2017

RECORDATI S.p.A. INCOME STATEMENTS FOR THE PERIODS ENDED 30 JUNE 2017 AND 30 JUNE 2016

Income statement

Amounts in euro	Notes	First half 2017	First half 2016
Revenue	3	186,046,253	177,162,628
Other revenues and income	4	369,548	496,886
Total revenue		186,415,801	177,659,514
Raw materials costs	5	(51,662,147)	(49,611,317)
Personnel costs	6	(41,139,796)	(42,871,195)
Amortization	7	(4,922,355)	(4,741,901)
Other operating expenses	8	(33,749,873)	(35,014,829)
Changes in inventories	9	1,363,481	(951,055)
Operating income		56,305,111	44,469,217
Income from investments	10	60,050,000	53,021,232
Financial expense, net	11	(3,633,142)	(2,398,009)
Pre-tax income		112,721,969	95,092,440
Provision for income taxes	12	(21,898,000)	(14,264,000)
Net income for the period		90,823,969	80,828,440

Earnings per share
Basic	0.441	0.394
Diluted	0.434	0.387

Basic earnings per share is calculated on average shares outstanding in the relative periods, consisting of 205,984,391 shares in 2017 and 205,297,564 in 2016. The figures are calculated net of average treasury stock held, which amounted to 3,140,765 shares in 2017 and 3,827,592 shares in 2016.

Diluted earnings per share is calculated taking into account new shares authorized but not yet issued.

RECORDATI S.p.A. BALANCE SHEETS at 30 JUNE 2017 and at 31 DECEMBER 2016

Assets Amounts in euro Notes 30 June

Non-current assets
Property, plant and equipment	13	43,972,803	44,850,587
Intangible assets	14	194,971,294	25,516,643
Investments	15	770,782,031	621,143,621
Loans and receivables	16	13,262,954	16,396,325
Deferred tax assets	17	391,974	3,721,972
Total non-current assets		1,023,381,056	711,629,148

2017

31 December

2016

Current assets

Inventories	18	56,307,849	54,944,368
Trade receivables	19	74,462,291	53,100,706
Other receivables	20	7,887,909	10,556,382
Other current assets	21	3,013,867	539,034
Fair value of hedging derivatives (cash flow hedges)	22	8,128,996	12,497,477
Other short-term receivables	23	35,645,754	119,856,750
Short-term financial investments, cash and cash
equivalents	24	30,017,824	86,814,873
Total current assets		215,464,490	338,309,590
Non-current assets held for sale	25	87,166,857	0
Total assets		1,326,012,403	1,049,938,738

RECORDATI S.p.A. BALANCE SHEETS at 30 JUNE 2017 and at 31 DECEMBER 2016

Equity and Liabilities

Amounts in euro	Notes	30 June	31 December
		2017	2016
Equity
Share capital	26	26,140,645	26,140,645
Additional paid-in capital	26	83,718,523	83,718,523
Treasury stock	26	(25,047,986)	(76,761,059)
Statutory reserve	26	5,228,129	5,228,129
Other reserves	26	220,128,503	237,931,918
Revaluation reserve	26	2,602,229	2,602,229
Interim dividend	26	0	(72,245,319)
Net income for the period	26	90,823,969	110,102,226
Total equity		403,594,012	316,717,292

Non-current liabilities
Loans	27	372,940,413	276,711,756
Personnel leaving indemnities	28	10,947,302	11,236,914
Other non-current liabilities	29	2,514,640	0
Total non-current liabilities		386,402,355	287,948,670

Current liabilities
Trade payables	30	38,547,961	44,515,223
Other current payables	31	21,982,924	19,567,259
Tax liabilities	32	22,675,599	4,396,667
Other current liabilities	33	0	788
Provisions	34	18,398,549	12,958,448
Fair value of hedging derivatives (cash flow hedges)	35	5,687,370	3,621,403
Loans – due within one year	36	36,818,182	36,818,182
Bank overdrafts and short-term loans	37	1,846,759	1,777,678
Other short-term borrowings	38	390,058,692	321,617,128
Total current liabilities		536,016,036	445,272,776

		1,326,012,403 1,049,938,738

RECORDATI S.p.A. STATEMENT OF COMPREHENSIVE INCOME FOR THE PERIODS ENDED 30 JUNE 2017 AND 30 JUNE 2016

€ (thousands)	First half 2017	First half 2016
Net income for the period	90,824	80,828
Gains on cash flow hedges	3,089	173
Income for the year recognized directly in equity	3,089	173
Comprehensive income for the period	93,913	81,001

RECORDATI S.p.A. STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY

€ (thousands)	Share capital	Addition al paid-in capital	Treasury stock	Statutory reserve	Sundry reserves	Other reserves Fair value hedging instrument reserve	IAS comp liance reserve	Revaluat ion reserves	Interim dividend	Net (loss)/ income for the period	Total
Balance at 31 December 2015	26,141	83,718	(35,061)	5,228	147,599	(3,289)	98,723	2,602		(61,605) 125,515 389,571
Allocation of 2015 net income as per shareholders' resolution of 13.4.2016:
to reserves					2,425					(2,425)	0
dividends to shareholders									61,605	(123,090) (61,485)
Sales of treasury stock			18,734		(4,385)						14,349
Purchase of treasury stock			(10,918)								(10,918)
Comprehensive income for
the period						173				80,828	81,001
Stock Options							1,561				1,561
Balance at 30 June 2016	26,141	83,718	(27,245)	5,228	145,639		(3,116) 100,284	2,602	0		80,828 414,079

Balance at 31 December 2016	26,141	83,718	(76,761)	5,228	142,842		(7,419) 102,509	2,602		(72,245) 110,102 316,717
Allocation of 2016 net income as per shareholders' resolution of 11.4.2017:
dividends to shareholders										72,245 (110,102) (37,857)
to reserves					(34,280)						(34,280)
Merger gain					29,813						29,813
Sales of treasury stock			51,713		(25,128)						26,585
Purchase of treasury stock											0
Comprehensive income for
the period						3,089				90,824	93,913
Stock Options							1,980				1,980
Reserve for adjustments to financial instruments							5,986				5,986
Recordati SA Lux IAS reserve							737				737
Balance at 30 June 2017	26,141	83,718	(25,048)	5,228	113,247		(4,330) 111,212	2,602	0		90,824 403,594

RECORDATI S.p.A. CASH FLOW STATEMENTS FOR THE PERIODS ENDED 30 JUNE 2017 AND 30 JUNE 2016

€ (thousands)	First half 2017	First half 2016
Operating activities
Net income for the period	90,824	80,828
Income from investments	(60,050)	(53,021)
Depreciation of property, plant and equipment	3,320	3,206
Amortization of intangible assets	1,602	1,536
(Increase)/decrease in deferred tax liabilities	37	453
Increase/(decrease) in personnel leaving indemnities	(290)	(63)
Other provisions	5,440	88
Dividends received	60,050	21
Trade receivables	(21,297)	(14,634)
Other receivables and other current assets	385	(2,623)
Inventories	(1,363)	951
Trade payables	(6,014)	208
Other payables and other current liabilities	1,760	(743)
Tax liabilities	18,279	4,629
Net cash from operating activities	92,683	20,836
Investing activities
Net (investments)/disposals in property, plant and equipment	(2,442)	(3,094)
Net (investments)/disposals in intangible assets	(171,057)	(938)
Net (increase)/decrease in equity investments	(971)	(105,000)
Net (increase)/decrease in other non-current assets	3,133	3,120
Net (increase)/decrease for the merger pursuant to Art. 2505 of Civil Code of Recordati
S.A. Chemical and Pharmaceutical Co.	(105,834)	0
Net (increase)/decrease in assets held for sale	(87,166)	0
Net cash used in investing activities	(364,337)	(105,912)
Financing activities
Loans – due after one year	124,964	0
Dividends distributed	(72,137)	(61,485)
(Purchase)/sale of treasury stock	26,585	3,431
Effect on shareholders' equity of application of IAS/IFRS	959	811
Repayment of loans	(18,236)	(14,501)
Net cash from/(used in) financing activities	62,135	(71,744)
CHANGE IN SHORT-TERM FINANCIAL POSITION	(209,519)	(156,820)

Short-term financial position at beginning of year * (116,723) (931) Short-term financial position at end-of-year * (326,242) (157,751)

* Includes the total of other short term loans, short-term financial investments and cash and cash equivalents, bank overdrafts and other short-term borrowings excluding the current portion of medium and long-term loans.

RECORDATI S.p.A. NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD ENDED 30 JUNE 2017

1. GENERAL

These separate interim financial statements at 30 June 2017 comprise the income statement, the balance sheet, the statement of comprehensive income, the statement of changes in shareholders' equity, the cash flow statement and these notes to the interim financial statements.

The presentation adopted by the Company for the income statement in these interim financial statements classifies revenues and expenses by nature. The distinction between the principle of current and non-current was adopted for the presentation of assets and liabilities in the balance sheet.

These interim financial statements are presented in euro (€) and all amounts in the notes to the statements are rounded to the nearest thousand euro unless otherwise stated.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

These interim financial statements at 30 June 2017 have been prepared in condensed form, in compliance with IAS 34 "Interim financial reporting". The interim financial statements do not therefore include all the information required of annual financial statements and must be read together with the annual report for the full year ended 31 December 2016, prepared in accordance with the International Financial Reporting Standards (IFRS), issued by the International Accounting Standards Board (IASB), and endorsed by the EU in accordance with Regulation No. 1606/2002.

The preparation of the interim financial statements requires management to make estimates and assumptions that affect the reported amounts of revenues, expenses, assets, liabilities and the disclosure of contingent assets and liabilities at the reporting date of the interim financial statements. If in the future such estimates and assumptions, which are based on management's best judgment, deviate from the actual circumstances, they will be modified in accordance with the changes in the circumstances.

These measurement activities, and especially the more complex calculations such as those required to identify impairment loss, are carried out in depth only for the preparation of the year-end financial statements, except when there is an indication that an asset has suffered an impairment loss which would require an immediate estimate of the loss.

3. REVENUE

Revenue came to € 186,046 thousand in the first six months of 2017 (€ 177,163 thousand in the same period of 2016) and was composed as follows:

€ (thousands)	First six months 2017	First six months 2016	Change 2017/2016
Net sales	180,774	174,221	6,553
Royalties and up-front payments	389	506	(117)
Revenue from services	4,883	2,436	2,447
Total revenue	186,046	177,163	8,883

4. OTHER REVENUES AND INCOME

Other revenues in the first six months of 2017 amounted to € 370 thousand compared with € 497 thousand in the first six months of 2016. It includes employees charges for the use of hired cars, other indemnities, non-recurring income, exceptional receivables and gains on the sale of non-current assets.

5. RAW MATERIALS COSTS

Costs for raw materials amounted to € 51,662 thousand in the first six months of 2017 (€ 49,611 thousand in the same period of 2016) and were composed as follows:

€ (thousands)	First six months 2017	First six months 2016	Change 2017/2016
Raw materials and goods for resale	44,432	42,986	1,446
Packaging materials	4,218	3,590	628
Others and consumables	3,012	3,035	(23)
Total	51,662	49,611	2,051

6. PERSONNEL COSTS

Personnel costs amounted to € 41,140 thousand (€ 42,871 thousand in the same period of 2016) and were composed as follows:

€ (thousands)	First six months 2017	First six months 2016	Change 2017/2016
Wages and salaries	28,918	28,677	241
Social security costs	9,092	9,085	7
Salary resulting from stock option plans	989	811	178
Other costs	2,141	4,298	(2,157)
Total personnel costs	41,140	42,871	(1,731)

The expense for stock option plans is a result of the application of IFRS 2, which requires the valuation of those options as a component of the wages of the beneficiaries and recognition of the cost determined in that manner in the income statement.

Other costs include the portions of the leaving indemnity charges for the period destined to pension funds in accordance with the legislation introduced by Law 296 of 27 December 2006.

7. DEPRECIATION AND AMORTIZATION

Depreciation and amortization amounted to € 4,922 thousand in the first six months of 2017 (€ 4,742 thousand in the same period of 2016) and was composed as reported below:

Amortization of intangible assets

€ (thousands)	First six months 2017	First six months 2016	Change 2017/2016
Patent rights and marketing authorizations Distribution, license, trademark and similar	208	209	(1)
rights	1,394	1,327	67
Total	1,602	1,536	66

Depreciation of property, plant and equipment

€ (thousands)	First six months 2017	First six months 2016	Change 2017/2016
Industrial buildings	553	558	(5)
General plant	257	238	19
Accelerated depreciation machinery	1,242	1,223	19
Normal depreciation machinery	577	504	73
Miscellaneous laboratory equipment	417	373	44
Office furnishings and machines	23	20	3
Electronic equipment	239	278	(39)
Vehicles for internal transport	12	12	0
Total	3,320	3,206	114

8. OTHER OPERATING EXPENSES

Other operating expenses amounted to € 33,750 thousand in the first six months of 2017 (€ 35,015 thousand in the same period of 2016). They were composed as follows:

Total	33,750	35,015	(1,265)
Sundry expenses	5,679	7,325	(1,646)
Provisions	0	106	(106)
Lease expenses	1,419	1,511	(92)
Services	26,652	26,073	579
€ (thousands)	First six months 2017	First six months 2016	Change 2017/2016

Other operating expenses include the following:

the item services mainly includes costs incurred for scientific meetings and publications, market research, expenses for medical and scientific communications, advertising, clinical and drugs trials and professional advice;
the item lease expenses is composed mainly of car hire expenses;
expenses consisting of "pay-back" costs.

9. CHANGES IN INVENTORIES

Changes in inventories recorded a net decrease of € 1,363 thousand in the first six months of 2017 (an increase of € 951 thousand in the same period of 2016). The item was composed as follows:

€ (thousands)	First six months 2017	First six months 2016	Change 2017/2016
Raw materials	942	2,671	(1,729)
Supplies	386	(1,135)	1,521
Intermediates and work-in-process	1,691	(883)	2,574
Finished goods	(1,656)	(1,604)	(52)
Total	1,363	(951)	2,314

10. INCOME FROM INVESTMENTS

Income from investments amounted to € 60,050 thousand (€ 53,021 thousand in the same period of 2016) and related to dividends declared by subsidiaries.

11. FINANCIAL INCOME (EXPENSE), NET

Net financial income (expense) showed net expense of € 3,633 thousand for the first six months of 2017 (€ 2,398 thousand in the same period of 2016). The main items are summarized in the table below.

€ (thousands)	First six months 2017	First six months 2016	Change 2017/2016
Losses for elimination of investments	(43)	0	(43)
Foreign exchange gains (losses)	(889)	(134)	(755)
Interest income from subsidiaries	548	1,023	(475)
Interest expense payable to subsidiaries	(1,340)	(234)	(1,106)
Interest expense on loans	(2,152)	(2,083)	(69)
Net interest on short-term financial positions	634	(591)	1,225
Bank charges	(329)	(289)	(40)
Interest cost in respect of defined benefit plans (IAS 19)	(62)	(90)	28
Total	(3,633)	(2,398)	(1,235)

Interest income from subsidiaries relates to interest of € 412 thousand on loans granted to subsidiaries and to € 136 thousand from the centralized cash pooling treasury system in operation at the Parent Company since 2007 on the basis of which monthly interest receivable and payable is recognized at market rates.

Interest expense paid to subsidiaries relates to loans granted by subsidiaries and amounted to € 1,089 thousand and to the centralized cash pooling system amounting to € 251 thousand.

Interest expense in respect of personnel leaving indemnities (Italian trattamento fine rapporto scheme) relates to the interest cost component of the adjustment to the relative provision in compliance with IAS 19.

12. TAXES

Taxes recognized in the income statement in the first six months of 2017 amounted to € 21,898 thousand (€ 14,264 thousand in the same period of 2016). They were composed as follows:

€ (thousands)	First six months 2017	First six months 2016	Change 2017/2016
Current taxation:
IRES (corporate income tax)	19,536	11,967	7,569
IRAP (regional tax on production)	2,325	1,844	481
Total current taxation	21,861	13,811	8,050
Deferred taxation:
Movement in deferred tax assets/liabilities, net	(92)	(98)	6
Use of prior years deferred tax assets/liabilities	129	551	(422)
Total deferred tax (assets)/liabilities	37	453	(416)
Total	21,898	14,264	7,634

Provisions for taxes were made on the basis of estimated taxable income.

13. PROPERTY, PLANT AND EQUIPMENT

Property plant and equipment, net of accumulated depreciation, at 30 June 2017 and at 31 December 2016 amounted to € 43,973 thousand and € 44,851 thousand respectively. Changes in this item are given below.

€ (thousands)	Property and buildings	Plant and machinery	Other fixtures	Construction in progress	Total property, plant and equipment
Cost of acquisition
Balance at 31.12.16	38,387	155,491	35,854	6,549	236,281
Additions	152	577	180	1,622	2,531
Disposals	(77)	(679)	(670)	0	(1,426)
Reclassifications	307	3,338	965	(4,610)	0
Balance at 30.06.17	38,769	158,727	36,329	3,561	237,386
Accumulated depreciation
Balance at 31.12.16	28,973	131,671	30,786	0	191,430
Depreciation for the period	553	2,077	691	0	3,320
Disposals	(57)	(612)	(669)	0	(1,338)
Reclassifications	0	0	0	0	0
Balance at 30.06.17	29,469	133,136	30,808	0	193,413
Carrying amount
at 30 June 2017	9,300	25,591	5,521	3,561	43,973
at 31 December 2016	9,414	23,820	5,068	6,549	44,851

Depreciation for the period amounted to € 3,320 thousand and was calculated on all depreciable assets using rates which are held to be representative of the estimated useful life of the assets.

14. INTANGIBLE ASSETS

Intangible assets, net of accumulated amortization, at 30 June 2017 and at 31 December 2016 amounted to € 194,971 thousand and € 25,517 thousand respectively. Changes in this item are given below.

€ (thousands)	Patent rights and marketing authorizations	Distribution, license, trademark and similar rights		Other Assets under construction and advances	Total intangible assets
Cost of acquisition
Balance at 31.12.16	30,575	41,468	13,234	2,099	87,376
Additions	0	6	0	171,051	171,057
Disposals	0	0	0	0	0
Reclassifications	0	717	0	(717)	0
Balance at 30.06.17	30,575	42,191	13,234	172,433	258,433
Accumulated amortization Balance at 31.12.16	26,964	21,661	13,234	0	61,859
Amortization for the					1,602
period	208	1,394	0	0
Disposals	0	0	0	0	0
Reclassifications	0	0	0	0	0
Balance at 30.06.17	27,172	23,055	13,234	0	63,461
Carrying amount
at 30 June 2017	3,403	19,136	0	172,433	194,971
at 31 December 2016	3.611	19.807	0	2.099	25.517

All intangible assets have a defined useful life and are amortized over a period not exceeding 20 years. An agreement was concluded with AstraZeneca during the period for the acquisition of the European marketing rights for the products Seloken®/Seloken® ZOK (metoprolol succinate) and the fixed combination Logimax® (metoprolol succinate and felodipine). Metoprolol succinate is a beta-blocker for the control of hypertension, angina pectoris and cardiac insufficiency.

The cost for the acquisition of the brands was € 258.1 million, of which € 87.1 million was classified as assets held for sale in accordance with IFRS 5 (note 25).

15. INVESTMENTS

Investments amounted to € 770,782 thousand at 30 June 2017 (€621,144 at 31 December 2016). Movements in the item are shown in the table in Attachment 1.

The percentage of ownership and the number of shares or quotas possessed are reported in Attachment 2.

The change is due to the following:

the cross-border merger by acquisition of the former subsidiary Recordati S.A. Chemical and Pharmaceutical Company, as a result of which the amount for investments increased by € 137,445 thousand;
an increase of € 992 thousand due to the application of IFRS 2 which requires an increase in the value of investments corresponding to the cost of stock options granted to the employees of subsidiaries;
an increase of € 312 thousand in the value of the investment in the United States concern Puretech Ventures as a result of its valuation at 30 June 2017;
increases in the value of the investments in Opalia Pharma and Puretech Ventures, amounting to € 1,927 thousand and € 7,991 thousand respectively, following initial adjustments made to balances resulting from the aforementioned merger;
acquisition of an investment in the Canadian subsidiary Recordati Rare Diseases Canada Inc amounting to € 245 thousand;
an increase in the investment in Recordati Rare Diseases Mexico amounting to € 804 thousand;
disposal of the investment in Recordati Portuguesa LDA amounting to € 78 thousand.

16. LOANS AND RECEIVABLES (non-current)

Non-current loans and receivables amounted to € 13,263 thousand at 30 June 2017 (€ 16,396 thousand at 31 December 2016) and related mainly to a long-term loan granted to Casen Recordati S.L. in 2014, due in 2020, with a remaining balance at 30 June 2017 of € 12,000 thousand. We also report a long-term loan to Opalia Pharma S.A. due in 2019, with a remaining balance at 30 June 2017 of € 1,081 thousand.

17. DEFERRED TAX ASSETS

At 30 June 2017 these amounted to € 392 thousand (€ 3,722 thousand at 31 December 2016), a decrease of € 3,330 thousand.

18. INVENTORIES

Inventories at 30 June 2017 and at 31 December 2016 amounted to € 56,308 thousand and € 54,944 thousand respectively, as shown in the following table:

€ (thousands)	30.06.2017	31.12.2016	Change 2017/2016
Raw materials, ancillary materials,
consumables and supplies	12,818	11,490	1,328
Intermediates and work-in-process	13,784	12,093	1,691
Finished goods	29,706	31,361	(1,655)
Total	56,308	54,944	1,364

19. TRADE RECEIVABLES

Trade receivables at 30 June 2017 and at 31 December 2016 amounted to € 74,463 thousand and € 53,101 thousand respectively as shown below:

Total trade receivables	74,463	53,101	21,362
Allowance for doubtful accounts	(1,161)	(1,193)	32
less:
	75,624	54,294	21,330
Abroad	7,833	7,014	819
Italy	39,604	28,460	11,144
Trade receivables from others:
Trade receivables from subsidiaries	28,187	18,820	9,367
€ (thousands)	30.06.2017	31.12.2016	Change 2017/2016

20. OTHER RECEIVABLES

Other receivables at 30 June 2017 amounted to € 7,888 thousand (€ 10,556 thousand at 31 December 2016). The composition is given in the following table:

€ (thousands)	30.06.2017	31.12.2016	Change 2017/2016
Tax income	758	1,426	(668)
From parent companies	7	19	(12)
From subsidiaries	3,143	744	2,399
Advances to employees and agents	1,254	6,556	(5,302)
Others	2,726	1,811	915
Total other receivables	7,888	10,556	(2,668)

21. OTHER CURRENT ASSETS

Other current assets amounted to € 3,014 thousand (€ 539 thousand at 31 December 2016) and related mainly to prepaid expenses. More specifically, these consisted of premiums paid in advance to insurance companies for policies and advance payments for various services, as well as the payment made in June of the annual payback quota based on the negotiated agreement concluded with AIFA (Italian Medicines Agency) on 29/9/2015.

22. FAIR VALUE OF HEDGING DERIVATIVES (CASH FLOW HEDGES) (current assets)

The market value (fair value) at 30 June 2017 of the currency rate swaps, entered into by the Company to hedge a bond issued for \$ 75 million on 30 September 2014, totaled € 8,129 thousand (€ 12,497 thousand at 31 December 2016). That value represents the potential benefit resulting from a lower value in euro of the future cash flows in United States dollars in terms of principal and interest, due to an appreciation of the foreign currency with respect to the time of finalizing the loan and acquiring the hedge instruments. More specifically, the fair value of the derivative to hedge the \$ 50 million tranche of the loan granted by Mediobanca was positive by € 5,449 thousand, while that of the instrument to hedge the \$ 25 million tranche of the loan granted by Unicredit was positive by € 2,680 thousand.

23. OTHER SHORT-TERM RECEIVABLES

Other short-term receivables amounted to € 35,646 thousand (€ 119,857 thousand at 31 December 2016), and all consisted of amounts due from subsidiaries.

These receivables are mainly attributable to a cash pooling treasury system in operation at the Parent Company and to loans granted to some Group companies. Interest is paid on these receivables at shortterm market rates.

The decrease is mainly due to the elimination of loans to and receivables from the former subsidiary Recordati S.A. Chemical and Pharmaceutical Company, following the cross-border merger by acquisition of that subsidiary, which had amounted to € 21,000 thousand for loans granted and to € 49,174 thousand of receivables relating to the cash pooling scheme.

24. SHORT-TERM FINANCIAL INVESTMENTS, CASH AND CASH EQUIVALENTS

Short-term financial investments and cash and cash equivalents amounted to € 30,018 thousand at 30 June 2017 (€ 86,815 thousand at 31 December 2016) and consisted of current account and short-term bank deposits.

Adequate funding was maintained in order to support the growth strategies of the Group.

25. NON-CURRENT ASSETS HELD FOR SALE

In accordance with the provisions of IFRS 5, part of the international marketing rights purchased from AstraZeneca amounting to € 87,166 thousand, which will be sold to a Group company before the end of the year, have been recognized within non-current assets held for sale.

26. SHAREHOLDERS' EQUITY

A summary of the changes in the shareholders' equity accounts is reported in the relative statement. In accordance with Legislative Decree No. 6/2003, which amended the Italian Civil Code, the table contained in Attachment 3 has been provided which gives the composition of reserves on the basis of availability for use and distribution.

Share capital - The share capital at 30 June 2017 amounting to € 26,140,644.50 was fully paid up and consists of 209,125,156 ordinary shares with a par value of € 0.125 each. It remained unchanged over the first six months of 2017.

At 30 June 2017 the Company had two stock option plans in place in favor of certain Group employees, the 2010-2013 plan with options granted on 9 February 2011, 8 May 2012, 17 April 2013 and 30 October 2013 and the 2014-2018 plan with options granted on 29 July 2014 and 13 April 2016. The exercise price of the options is the average of the company's listed share price during the 30 days prior to the grant date. The options vest over a period of five years and options not exercised within the eighth year of the date of grant expire. Options cannot be exercised if the employee leaves the Company before they are vested.

	Strike price (€)	Options outstanding at 1.1.2017	Options granted during 2017	Options exercised during 2017	Options cancelled and expired	Options outstanding at 30.6.2017
Grant date
9 February 2011	6.7505	597,500	-	(360,500)	-	237,000
8 May 2012	5.3070	1,425,000	-	(760,000)	-	665,000
17 April 2013	7.1600	120,000	-	(47,500)	(5,000)	67,500
30 October 2013	8.9300	155,000	-	(50,000)	-	105,000
29 July 2014	12.2900	4,530,000	-	(1,187,500)	(137,500)	3,205,000
13 April 2016	21.9300	3,973,000	-	(216,000)	(180,000)	3,577,000
Total		10,800,500	-	(2,621,500)	(322,500)	7,856,500

Details of stock options outstanding at 30 June 2017 are given in the table below:

Additional paid-in capital

Additional paid-in capital at 30 June 2017 amounted to € 83,718,523 and was unchanged compared with 31 December 2016.

The adoption of international accounting standards resulted in the elimination of revaluation reserves amounting to € 68,644 thousand. The tax obligation on these (untaxed – taxation suspended) was transferred to the additional paid-in capital reserve.

Treasury stock

At 30 June 2017 treasury shares held in portfolio numbered 1,269,762 down by 2,621,500 compared with 31 December 2016. The change is due to the sale of 2,621,500 shares for valuable consideration of € 26,585 thousand in order to allow the exercise of stock options granted to employees as part of stock option plans. The expense incurred for the purchase of treasury shares held in portfolio totaled € 25,048 thousand at an average price per share of € 19.73.

Statutory reserve

This amounted to € 5,228 thousand and was unchanged compared with 31 December 2016.

Other reserves

Other reserves totaled € 220,129 thousand. Details are as follows:

€ (thousands)	30.06.2017	31.12.2016	Change 2017/2016
Merger gain	29,813	0	29,813
Extraordinary reserve	61,995	121,403	(59,408)
Reserve under Art. 13 Par. 6 of Legislative
Decree 124/1993	99	99	0
Extraordinary VAT concession reserve	517	517	0
Research and investment grants	17,191	17,191	0
Non-distributable reserve for investments in
southern Italy	3,632	3,632	0
International accounting standards reserve	111,212	102,509	8,703
Total	224,459	245,351	(20,892)
Fair value derivative instruments	(4,330)	(7,419)	3,089
Total other reserves	220,129	237,932	(17,803)

Merger gain

Following the merger by acquisition of the former subsidiary, Recordati S.A. Chemical and Pharmaceutical Company, as already reported in the relative section, a merger gain was recognized in "other reserves" within equity, amounting to € 29,813 thousand.

Extraordinary reserve

This amounted at 30 June 2017 and 31 December 2016 to € 61,995 thousand and € 121,403 thousand respectively. The reserve decreased by a total of € 59,408 thousand. On the one hand, a shareholders' resolution dated 11 April 2017 declared a dividend consisting of the profit for the year and € 34,280 from the extraordinary reserve. On the other hand, following the allotment of treasury stock to Group employees who exercised their option rights under stock option schemes, a difference was generated between the amount paid by employees and the carrying amount of the treasury stock recognized in

the balance sheet amounting to € 25,128 thousand, which was charged as a decrease to the extraordinary reserve in accordance with international accounting standards.

Reserve under Art. 13, paragraph 6 of Legislative Decree 124/1993 This amounted to € 99 thousand at 30 June 2017 and was unchanged compared with 31 December 2016.

Extraordinary VAT concession reserve

This reserve (Laws 675/1977, 526/1982, 130/1983 and 64/1986), amounting to € 517 thousand, relates to special VAT allowances on investments and is unchanged compared with 31 December 2016.

Research and investment grants

These amounted to € 17,191 thousand, unchanged compared with 31 December 2016. The grants are subject to taxation if they are used for purposes other than to cover losses, which, however, is not planned by the Company. The assets corresponding to the grants received from the Ministry of Industry and Commerce (formerly Asmez) have been mainly fully depreciated.

Non-distributable reserve for investments in southern Italy This amounted to € 3,632 thousand and was unchanged compared with 31 December 2016.

International accounting standards reserve

This amounted to € 111,212 thousand (€ 102,509 thousand at 31 December 2016) and is composed as follows:

Total	111,212	102,509	8,703
Financial instrument adjustment reserve	5,986	0	5,986
company
Reserve to adjust entries for the merged	737	0	737
Adjustment to investments for stock options	7,722	6,733	989
Stock options	13,451	12,460	991
Personnel leaving indemnities	(680)	(680)	0
Inventories	463	463	0
Revaluation of investments	43,054	43,054	0
Reversal of fixed asset revaluations	40,479	40,479	0
€ (thousands)	30.06.2017	31.12.2016	Change 2017/2016

With regard to those items on which movements occurred in 2017 the amount of € 13,451 thousand relates to the personnel expense for stock options issued and granted after 7 November 2002 valued in accordance with IFRS 2.

The "reserve to adjust entries for the merged company", amounting to € 737 thousand, originated as a result of the following two transactions:

an increase in the value of the investment in the 90% controlled subsidiary Opalia Pharma S.A., in order to take account of the option to purchase the remaining 10% from non-controlling shareholders, with a consequent decrease in equity reserves and an increase in other noncurrent liabilities;
a decrease in interest payable to the merged company Recordati S.A. Chemical and Pharmaceutical Company, following the alignment of the intercompany balances between the two companies, with a consequent increase in equity reserves.

The "Financial instrument adjustment reserve", amounting to € 5,986 thousand, arose from the adjustment at the value date of the investment in Puretech Ventures, acquired as a result of the aforementioned merger.

Revaluation reserve

This amounted to € 2,602 thousand (unchanged compared with 31 December 2016) and consisted of revaluation balances within the meaning of Law 413/1991.

27. LOANS

The composition of medium to long-term loans at 30 June 2017 and 31 December 2016 is shown below:

€ (thousands)	30.06.2017	31.12.2016	Change 2017/2016
Bond subscribed by the investor Pricoa Capital Group (Prudential)	65,720	71,151	(5,431)
Loan granted by Unicredit at a floating interest rate repayable in semi-annual installments by 2020.	30,000	35,000	(5,000)
Loan granted by Ing Bank at a floating interest rate repayable in semi-annual installments by 2020.	22,500	26,250	(3,750)
Loan granted by BNL at a floating interest rate repayable in semi annual installments by 2018.	18,750	25,000	(6,250)
Loan granted by Centrobanca (now UBI Banca) at a floating interest rate repayable in semi-annual installments by 2022	37,500	40,909	(3,409)
Loan granted by BNL at a floating interest rate repayable in semi annual installments by 2020.	25,000	25,000	0
Loan granted by Banca Intesa at a floating interest rate repayable in semi-annual installments by 2021.	25,000	25,000	0
Loan granted by Recordati Rare Diseases at a fixed interest rate repayable in semi-annual installments by 2025.	61,339	66,407	(5,068)
Bond subscribed in euro with the investor Pricoa Capital Group (Prudential)	125,000	0	125,000
Total amortized cost of loans	410,809	314,717	96,092
Portion due within one year	(36,818)	(36,818)	0
Portion due after one year	373,991	277,899	96,092
Expenses relating to loans	(1,051)	(1,187)	136
Total	372,940	276,712	96,228

On 30 September 2014 the Company subscribed a bond for a total of \$ 75 million, divided into two tranches: \$ 50 million at a fixed rate of 4.28% per annum, repayable semi-annually from 30 March 2022 and maturing on 30 September 2026; and \$ 25 million at a fixed rate of 4.51% per annum, repayable semi-annually from 30 March 2023 and maturing on 30 September 2029.

The conversion of the debt at 30 June 2017 determined a reduction in the liability of € 5,431 thousand compared with 31 December 2016, due to the depreciation of the United States dollar against the euro.

The loan was hedged at the same time by two currency rate swap transactions, which involved transformation of the debt into a total of € 56.0 million, at a fixed interest rate of 2.895% per annum for the tranche maturing in 12 years and at a fixed interest rate of 3.15% per annum for that maturing in 15 years. The measurement of the hedging instruments at fair value at 30 June 2017, was positive on aggregate by € 8,129 thousand and was recognized directly as an increase in equity and an increase in the asset item "Fair value of hedging derivatives – cash flow hedges" (see note 22).

The bond loan is subject to covenants and failure to comply with them may result in the immediate call of the loan.

The financial covenants are as follows:

the ratio of consolidated net debt to consolidated EBITDA (for a period of twelve consecutive months) must be less than 3.00 to 1.00;
the ratio of consolidated EBIT to consolidated net interest expense (for a period of twelve consecutive months) must exceed 3.00 to 1.00.