Quarterly Report • May 4, 2017
Quarterly Report
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FIRST QUARTER 2017
| € (thousands) | First quarter | First quarter | Change | |||
|---|---|---|---|---|---|---|
| 2017 | % | 2016 | % | 2017/2016 | % | |
| Total revenue | 341,940 | 100.0 | 302,247 | 100.0 | 39,693 | 13.1 |
| Italy | 76,723 | 22.4 | 63,760 | 21.1 | 12,963 | 20.3 |
| International | 265,217 | 77.6 | 238,487 | 78.9 | 26,730 | 11.2 |
| € (thousands) | First quarter 2017 |
% of revenue |
First quarter 2016 |
% of revenue |
Change 2017/2016 |
% |
|---|---|---|---|---|---|---|
| Revenue | 341,940 | 100.0 | 302,247 | 100.0 | 39,693 | 13.1 |
| EBITDA(1) | 117,707 | 34.4 | 98,975 | 32.7 | 18,732 | 18.9 |
| Operating income | 107,271 | 31.4 | 90,155 | 29.8 | 17,116 | 19.0 |
| Net income | 78,515 | 23.0 | 65,478 | 21.7 | 13,037 | 19.9 |
(1) Operating income before depreciation, amortization and write down of both tangible and intangible assets.
| € (thousands) | 31 March | 31 December | Change | % |
|---|---|---|---|---|
| 2017 | 2016 | 2017/2016 | ||
| Net financial position(2) | (105,649) | (198,771) | 93,122 | (46.8) |
| Shareholders' equity | 996,677 | 903,940 | 92,737 | 10,3 |
(2) Short‐term financial investments, cash and cash equivalents, less bank overdrafts and loans which include the measurement at fair value of hedging derivatives.
The financial results obtained in the first quarter of the year testify to the continued growth of the group also in 2017, with revenues and profitability increasing significantly. Consolidated revenue is € 341.9 million, up by 13.1% compared to the same period of the preceding year. International sales grow by 11.2%. EBITDA, at 34.4% of sales, is € 117.7 million, an increase of 18.9% over the first quarter of 2016 and operating income, at 31.4% of sales, is € 107.3 million, an increase of 19.0%. Net income, at 23.0% of sales, is € 78.5 million, an increase of 19.9% over the first quarter of 2016.
Net financial position at 31 March 2017 records a net debt of € 105.6 million compared to net debt of € 198.8 million at 31 December 2016. Shareholders' equity increases to € 996,7 million.
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.
Net consolidated revenue in the first quarter of 2017 is € 341.9 million, up 13.1% over the same period of the preceding year, with an increase in international sales of 11.2% to € 265.2 million, which represent 77.6% of total sales. Pharmaceutical sales are € 330.3 million, up by 13.2%. Pharmaceutical chemicals sales are € 11.6 million, up by 10.4%, and represent 3.4% of total revenues. The first quarter 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 € 15.8 million. Excluding these acquisitions sales growth would have been of 7.9%.
The group's pharmaceutical business, which represents 96.6% 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 quarter of 2017 is shown in the table below.
| € (thousands) | First quarter 2017 |
First quarter 2016 |
Change 2017/2016 |
% |
|---|---|---|---|---|
| Zanidip® (lercanidipine) | 36,917 | 35,004 | 1,913 | 5.5 |
| Zanipress® (lercanidipine+enalapril) | 19,063 | 17,840 | 1,223 | 6.9 |
| Urorec® (silodosin) | 23,841 | 22,080 | 1,761 | 8.0 |
| Livazo® (pitavastatin) | 9,562 | 8,927 | 635 | 7.1 |
| Other corporate products* | 81,031 | 60,619 | 20,412 | 33.7 |
| Drugs for rare diseases | 52,133 | 46,029 | 6,104 | 13.3 |
* Include the OTC corporate products for an amount of € 29.8 million in 2017 and € 20.2 million in 2016 (+47.3%).
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.
| € (thousands) | First quarter 2017 |
First quarter 2016 |
Change 2017/2016 |
% |
|---|---|---|---|---|
| Direct sales | 18,496 | 18,714 | (218) | (1.2) |
| Sales to licensees | 18,421 | 16,290 | 2,131 | 13.1 |
| Total lercanidipine sales | 36,917 | 35,004 | 1,913 | 5.5 |
Lercanidipine direct sales are down by 1.2% mainly due to lower sales in Algeria. Sales increase mainly in Germany and in Turkey, and in Switzerland sales are made directly to the market by our subsidiary there as from September of the preceding year. Sales to licensees, which represent 49.9% of total lercanidipine sales, are up by 13.1%.
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 28 countries.
| € (thousands) | First quarter 2017 |
First quarter 2016 |
Change 2017/2016 |
% |
|---|---|---|---|---|
| Direct sales | 14,151 | 12,319 | 1,832 | 14.9 |
| Sales to licensees | 4,912 | 5,521 | (609) | (11.0) |
| Total lercanidipine+enalapril sales | 19,063 | 17,840 | 1,223 | 6.9 |
Direct sales of Zanipress® in the first quarter of 2017 are up by 14.9% mainly due to the performance of the product in Germany, Italy and France. Sales to licensees represent 25.8% of total Zanipress® sales and are down by 11.0%.
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 34 countries with sales of € 23.8 million in the first quarter of 2017, up 8.0% 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 € 9.6 million in the first quarter of 2017, up by 7.1% due to the performance of the product mainly in Spain and in Switzerland and to the launch in Turkey.
In the first quarter of 2017 sales of other corporate products totaled € 81.0 million, up by 33.7% 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 € 52.1 million in the first quarter of 2017, up by 13.3% 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 quarter 2017 |
First quarter 2016 |
Change 2017/2016 |
% |
|---|---|---|---|---|
| Italy | 74,752 | 61,542 | 13,210 | 21.5 |
| Russia, other C.I.S. countries and Ukraine | 33,741 | 19,180 | 14,561 | 75.9 |
| France | 29,932 | 28,504 | 1,428 | 5.0 |
| U.S.A. | 27,980 | 25,780 | 2,200 | 8.5 |
| Germany | 27,716 | 24,195 | 3,521 | 14.6 |
| Turkey | 22,723 | 22,482 | 241 | 1.1 |
| Spain | 19,777 | 18,359 | 1,418 | 7.7 |
| North Africa | 13,802 | 15,844 | (2,042) | (12.9) |
| Portugal | 9,975 | 9,821 | 154 | 1.6 |
| Other Western European countries | 12,790 | 8,335 | 4,455 | 53.4 |
| Other C.E.E. countries | 7,729 | 7,839 | (110) | (1.4) |
| Other international sales | 49,377 | 49,820 | (443) | (0.9) |
| Total pharmaceutical revenue | 330,294 | 291,701 | 38,593 | 13.2 |
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 quarter 2017 |
First quarter 2016 |
Change 2017/2016 |
% |
|---|---|---|---|---|
| Russia (RUB) | 1,808,489 | 1,319,596 | 488,893 | 37.0 |
| Turkey (TRY) | 84,448 | 68,932 | 15,516 | 22.5 |
| U.S.A. (USD) | 30,430 | 29,036 | 1,394 | 4.8 |
Net revenues in Russia and in Turkey exclude sales of products for rare diseases.
Sales of pharmaceuticals in Italy are up by 21.5% 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 € 13.3 million. Worth mentioning is the good performance of Urorec® and Zanipril® and the significant growth of the treatments for rare diseases.
Revenue generated in Russia, Ukraine and in the countries within the Commonwealth of Independent States (C.I.S.) is € 33.7 million, up by 75.9% compared to the same period of the preceding year and includes estimated currency exchange gains of € 7.8 million. Sales in Russia, in local currency, are RUB 1,808.5 million, up by 37.0% 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 € 4.1 million.
Pharmaceutical sales in France are up by 5.0% due mainly to the good performance of Urorec®, methadone and Zanextra® and to the strong growth of the treatments for rare diseases.
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 quarter of 2017 are € 28.0 million, up by 8.5%. The main products are Panhematin® (haemin for injection) for the amelioration of recurrent attacks of acute intermittent porphyria, Cosmegen® (dactinomycin for injection) used mainly 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 14.6% mainly thanks to the significant sales growth of Ortoton® (methocarbamol), Zanipress®, lercanidipine, Recosyn®, Citrafleet® and Urorec®.
Sales in Turkey are up by 1.1% and include an estimated negative currency exchange effect of € 4.4 million. In local currency sales of our Turkish subsidiary grow by 22.5% thanks to the good performance of all the corporate products, in particular Urorec®, Zanipress® and Lercadip®, Procto‐Glyvenol® and Gyno Lomexin®, as well as the launch of Livazo®, and of the local products Mictonorm® (propiverine), Kreval® (butamirate) and Cabral® (phenyramidol).
In Spain sales are € 19.8 million, up by 7.7% 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 € 13.8 million, down by 12.9%, 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® in Algeria. Sales in Tunisia in the first quarter of 2017, in local currency, are up by 7.2%.
Sales in Portugal are up by 1.6% thanks mainly to the good performance of the local product Egostar®, a vitamin D3 supplement.
Sales in other countries in Western Europe, up by 53.4%, 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 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 quarter of 2017 overall sales are down by 1.4% due to the performance of the Polish subsidiary. Sales of the treatments for rare diseases in these countries are up by 11.0%.
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.
The following table shows the profit and loss accounts, including their expression as a percent of sales and change versus the first quarter of 2016:
| € (thousands) | First quarter 2017 |
% of revenue |
First quarter 2016 |
% of revenue |
Change 2017/2016 |
% |
|---|---|---|---|---|---|---|
| Revenue | 341,940 | 100.0 | 302,247 | 100.0 | 39,693 | 13.1 |
| Cost of sales | (105,809) | (30.9) | (93,701) | (31.0) | (12,108) | 12.9 |
| Gross profit | 236,131 | 69.1 | 208,546 | 69.0 | 27,585 | 13.2 |
| Selling expenses | (88,621) | (25.9) | (79,565) | (26.3) | (9,056) | 11.4 |
| R&D expenses | (23,167) | (6.8) | (22,276) | (7.4) | (891) | 4.0 |
| G&A expenses | (17,133) | (5.0) | (16,040) | (5.3) | (1,093) | 6.8 |
| Other income (expense), net | 61 | 0.0 | (510) | (0.2) | 571 | n.s. |
| Operating income | 107,271 | 31.4 | 90,155 | 29.8 | 17,116 | 19.0 |
| Financial income (expense), net | (1,784) | (0.5) | (2,524) | (0.8) | 740 | (29.3) |
| Pretax income | 105,487 | 30.8 | 87,631 | 29.0 | 17,856 | 20.4 |
| Provision for income taxes | (26,972) | (7.9) | (22,153) | (7.3) | (4,819) | 21.8 |
| Net income | 78,515 | 23.0 | 65,478 | 21.7 | 13,037 | 19.9 |
| Attributable to: | ||||||
| Equity holders of the parent | 78,505 | 23.0 | 65,471 | 21.7 | 13,034 | 19.9 |
| Minority interests | 10 | 0.0 | 7 | 0.0 | 3 | 42.9 |
Revenue for the period is € 341.9 million, an increase of € 39.7 million compared to the first quarter of 2016. For a
detailed analysis please refer to the preceding "Review of Operations".
Gross profit is € 236.1 million with a margin of 69.1% 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 € 23.2 million, up by 4.0% compared to those recorded in the first quarter of 2016 due to the advancement of development programs. G&A expenses are up by 6.8% but diminish as percent of sales to 5.0%.
Net financial charges are € 1.8 million, a decrease of € 0.7 million compared to the same period of the preceding year due to the higher currency exchange rate gains as compared to those in the first quarter of 2016.
The effective tax rate during the period is 25.6%, substantially in line with that of the same period of the preceding year.
Net income at 23.0% of sales is € 78.5 million, an increase of 19.9% over the same period of the preceding year.
The net financial position is set out in the following table:
| € (thousands) | 31 March 2017 |
31 December 2016 |
Change 2017/2016 |
% |
|---|---|---|---|---|
| Cash and short‐term financial investments | 219,767 | 138,493 | 81,274 | 58.7 |
| Bank overdrafts and short‐term loans | (17,140) | (15,689) | (1,451) | 9.2 |
| Loans – due within one year | (40,282) | (40,428) | 146 | (0.4) |
| Net liquid assets | 162,345 | 82,376 | 79,969 | 97.1 |
| Loans – due after one year (1) | (267,994) | (281,147) | 13,153 | (4.7) |
| Net financial position | (105,649) | (198,771) | 93,122 | (46.8) |
(1) Includes change in fair value of the relative currency risk hedging instruments (cash flow hedge).
At 31 March 2017 the net financial position shows a net debt of € 105.6 million compared to net debt of € 198.8 million at 31 December 2016.
Tax liabilities shown in the consolidated balance sheet at 31 March 2017 include those payable to the controlling company FIMEI S.p.A. for an amount of € 8.6 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.
The group's business continued to perform very well during April and for the full year 2017 the expectation is to achieve sales of around € 1,250 million, EBITDA of around € 425 million, EBIT of around € 380 million and net income of around € 275 million.
Milan, 4 May 2017
on behalf of the Board of Directors the Vice Chairman and Chief Executive Officer Andrea Recordati
The consolidated financial statements are presented in accordance with the International Accounting Standards (IAS) and the International Financial Reporting Standards (IFRS) issued or revised by the International Accounting Standards Board (IASB) and adopted by the European Union, and were prepared in accordance with the IAS 34 requirements for interim reporting.
CONSOLIDATED INCOME STATEMENT FOR THE PERIOD ENDED 31 MARCH 2017
| € (thousands) | First quarter | First quarter | |
|---|---|---|---|
| 2017 | 2016 | ||
| Revenue | 341,940 | 302,247 | |
| Cost of sales | (105,809) | (93,701) | |
| Gross profit | 236,131 | 208,546 | |
| Selling expenses | (88,621) | (79,565) | |
| R&D expenses | (23,167) | (22,276) | |
| G&A expenses | (17,133) | (16,040) | |
| Other income (expense), net | 61 | (510) | |
| Operating income | 107,271 | 90,155 | |
| Financial income (expense), net | (1,784) | (2,524) | |
| Pretax income | 105,487 | 87,631 | |
| Provision for income taxes | (26,972) | (22,153) | |
| Net income | 78,515 | 65,478 | |
| Attributable to: | |||
| Equity holders of the parent | 78,505 | 65,471 | |
| Minority interests | 10 | 7 | |
| Earnings per share | |||
| Basic | € 0.382 | € 0.319 | |
| Diluted | € 0.375 | € 0.313 | |
Earnings per share (EPS) are based on average shares outstanding during each year, 205,512,000 in 2017 and 205,253,629 in 2016, net of average treasury stock which amounted to 3,613,156 shares in 2017 and to 3,871,527 shares in 2016.
Diluted earnings per share is calculated taking into account stock options granted to employees.
CONSOLIDATED BALANCE SHEET AT 31 MARCH 2017
| € (thousands) | 31 March | 31 December |
|---|---|---|
| 2017 | 2016 | |
| Non‐current assets | ||
| Property, plant and equipment | 107,517 | 110,202 |
| Intangible assets | 274,085 | 279,884 |
| Goodwill | 555,144 | 556,566 |
| Other investments | 25,071 | 19,199 |
| Other non‐current assets | 5,426 | 5,428 |
| Deferred tax assets | 36,218 | 37,231 |
| Total non‐current assets | 1,003,461 | 1,008,510 |
| Inventories | 158,147 | 158,800 |
|---|---|---|
| Trade receivables | 244,272 | 205,988 |
| Other receivables | 26,627 | 30,974 |
| Other current assets | 8,337 | 5,481 |
| Fair value of hedging derivatives (cash flow hedge) | 12,223 | 12,497 |
| Short‐term financial investments, | ||
| cash and cash equivalents | 219,767 | 138,493 |
| Total current assets | 669,373 | 552,233 |
| Total assets | 1,672,834 | 1,560,743 |
|---|---|---|
CONSOLIDATED BALANCE SHEET AT 31 MARCH 2017
| € (thousands) | 31 March | 31 December |
|---|---|---|
| 2017 | 2016 | |
| Shareholders' equity | ||
| Share capital | 26,141 | 26,141 |
| Additional paid‐in capital | 83,719 | 83,719 |
| Treasury stock | (61,108) | (76,761) |
| Hedging reserve (cash flow hedge) | (5,820) | (7,420) |
| Translation reserve | (81,046) | (78,309) |
| Other reserves | 39,118 | 35,295 |
| Retained earnings | 989,293 | 756,004 |
| Net income for the year | 78,505 | 237,406 |
| Interim dividend | (72,245) | (72,245) |
| Group shareholders' equity | 996,557 | 903,830 |
| Minority interest | 120 | 110 |
| Shareholders' equity | 996,677 | 903,940 |
| Non‐current liabilities | ||
| Loans – due after one year | 280,217 | 293,644 |
| Staff leaving indemnities | 21,734 | 21,675 |
| Deferred tax liabilities | 29,788 | 27,659 |
| Other non‐current liabilities | 2,515 | 2,515 |
| Total non‐current liabilities | 334,254 | 345.493 |
| Current liabilities | ||
| Trade payables | 133,834 | 124,644 |
| Other payables | 80,386 | 77,957 |
| Tax liabilities | 38,678 | 20,432 |
| Other current liabilities | 786 | 562 |
| Provisions | 27,624 | 27,977 |
| Fair value of hedging derivatives (cash flow hedge) | 3,173 | 3,621 |
| Loans – due within one year | 40,282 | 40,428 |
| Bank overdrafts and short‐term loans | 17,140 | 15,689 |
| Total current liabilities | 341,903 | 311,310 |
| Total equity and liabilities | 1,672,834 | 1,560,743 |
STATEMENT OF COMPREHENSIVE INCOME FOR THE PERIOD ENDED 31 MARCH 2017
| € (thousands) | First quarter 2017 |
First quarter 2016 |
|---|---|---|
| Net income for the period | 78,515 | 65,478 |
| Gains/(losses) on cash flow hedges | 1,600 | (941) |
| Gains/(losses) on translation of foreign financial statements |
(2,737) | (5,355) |
| Other gains/(losses) | 3,834 | (2,264) |
| Income and expense for the period recognized directly in equity |
2,697 | (8,560) |
| Comprehensive income for the period | 81,212 | 56,918 |
| Attributable to: | ||
| Equity holders of the parent | 81,202 | 56,911 |
| Minority interests | 10 | 7 |
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
| € (thousands) | Share capital |
Additional paid‐in capital |
Treasury stock |
Hedging reserve |
Translation reserve |
Other reserves |
Retained earnings |
Net income for the period |
Interim dividend |
Minority Interest |
Total |
|---|---|---|---|---|---|---|---|---|---|---|---|
| Balance at 31.12.2015 | 26,141 | 83,719 (35,061) | (3,290) | (66,918) | 42,543 | 685,587 | 198,792 (61,606) | 85 | 869,992 | ||
| Allocation of 2015 net income: |
|||||||||||
| ‐ Retained earnings | 198,792 | (198,792) | |||||||||
| Change in the reserve for share based payments |
454 | 8 | 462 | ||||||||
| Purchase of own shares | (10,918) | (10,918) | |||||||||
| Disposal of own shares | 136 | (52) | 84 | ||||||||
| Other changes | (6) | (6) | |||||||||
| Comprehensive income for the year |
(941) | (5,355) | (2,264) | 65,471 | 7 | 56,918 | |||||
| Balance at 31.3.2016 | 26,141 | 83,719 (45,843) | (4,231) | (72,273) | 40,733 | 884,329 | 65,471 (61,606) | 92 | 916,532 | ||
| Balance at 31.12.2016 | 26,141 | 83,719 (76,761) | (7,420) | (78,309) | 35,295 | 756,004 | 237,406 (72,245) | 110 | 903,940 | ||
| Allocation of 2016 net income: |
|||||||||||
| ‐ Retained earnings | 237,406 | (237,406) | |||||||||
| Change in the reserve for share based payments |
(11) | 1,001 | 990 | ||||||||
| Disposal of own shares | 15,653 | (5,093) | 10,560 | ||||||||
| Other changes | (25) | (25) | |||||||||
| Comprehensive income for the year |
1,600 | (2,737) | 3,834 | 78,505 | 10 | 81,212 | |||||
| Balance at 31.3.2017 | 26,141 | 83,719 (61,108) | (5,820) | (81,046) | 39,118 | 989,293 | 78,505 (72,245) | 120 | 996,677 |
CONSOLIDATED CASH FLOW STATEMENT FOR THE PERIOD ENDED 31 MARCH 2017
| € (thousands) | First quarter | First quarter | |
|---|---|---|---|
| Operating activities | 2017 | 2016 | |
| Cash flow | |||
| Net Income | 78,515 | 65,478 | |
| Depreciation of property, plant and equipment | 3,575 | 2,982 | |
| Amortization of intangible assets | 6,861 | 5,838 | |
| Total cash flow | 88,951 | 74,298 | |
| (Increase)/decrease in deferred tax assets | 507 | 1,181 | |
| Increase/(decrease) in staff leaving indemnities | 59 | 162 | |
| Increase/(decrease) in other non‐current liabilities | 91 | 237 | |
| 89,608 | 75,878 | ||
| Changes in working capital | |||
| Trade receivables | (38,284) | (45,279) | |
| Inventories | 653 | 4,466 | |
| Other receivables and other current assets | 1,491 | 2,504 | |
| Trade payables | 9,190 | 8,754 | |
| Tax liabilities | 18,246 | 13,007 | |
| Other payables and other current liabilities | 2,653 | 5,980 | |
| Provisions | (353) | 50 | |
| Changes in working capital | (6,404) | (10,518) | |
| Net cash from operating activities | 83,204 | 65,360 | |
| Investing activities | |||
| Net (investments)/disposals in property, plant and equipment | (2,535) | (4,807) | |
| Net (investments)/disposals in intangible assets | (755) | (443) | |
| Net (increase)/decrease in other non‐current receivables | 2 | 89 | |
| Net cash used in investing activities | (3,288) | (5,161) | |
| Financing activities | |||
| Medium/long term loans granted | 30 | 28 | |
| Re‐payment of loans | (10,728) | (6,231) | |
| Increase in treasury stock | 0 | (10,918) | |
| Decrease in treasury stock | 10,560 | 84 | |
| Effect on shareholders' equity of application of IAS/IFRS | 990 | (239) | |
| Other changes in shareholders' equity | (25) | (6) | |
| Change in translation reserve | (920) | (4,776) | |
| Net cash from/(used in) financing activities | (93) | (22,058) | |
| Changes in short‐term financial position | 79,823 | 38,141 | |
| Short‐term financial position at beginning of year * | 122,804 | 215,676 | |
| Short‐term financial position at end of period * | 202,627 | 253,817 |
* Includes cash and cash equivalents net of bank overdrafts and short‐term loans.
RECORDATI S.p.A. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 MARCH 2017
The consolidated financial statements at 31 March 2017 comprise Recordati S.p.A. (the Company) and subsidiaries controlled by the Company. The companies included in the consolidated accounts, the consolidation method applied, their percentage of ownership and a description of their activity are set out in attachment 1. During the period ended 31 March 2017 the consolidation perimeter remained unchanged. The recognition in the accounts of the companies acquired in 2016, the Italian company Italchimici S.p.A. and the Swiss company Pro Farma AG with its Austrian subsidiary Pro Farma GmbH, is not yet definite, as allowed by IFRS3.
These financial statements are presented in euro (€) and all amounts are rounded to the nearest thousand euro unless otherwise stated.
The first quarter consolidated financial statements were prepared in accordance with the IAS 34 requirements for interim reporting. The statements do not include the full information required for the annual financial statements and must therefore 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 adopted by the European Union.
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 disclosure of contingent assets and liabilities at the date of the interim financial statements. If in the future such estimates and assumptions, which are based on management's best judgment at the date of the interim financial statements, deviate from the actual circumstances, the original estimates and assumptions will be modified as appropriate in the period in which the circumstances change. Valuation exercises, in particular complex calculations such as those required to identify impairment loss, are carried out in depth only for the preparation of the year‐end consolidated 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.
Disclosure of the net financial position and of events subsequent to the end of the period are included under the preceding management review.
Net revenue for the first quarter 2017 is € 341.9 million (€ 302.2 million in the same period of the preceding year) and can be broken down as follows:
| € (thousands) | First quarter 2017 |
First quarter 2016 |
Change 2017/2016 |
|---|---|---|---|
| Net sales | 339,269 | 297,500 | 41,769 |
| Royalties | 1,310 | 1,404 | (94) |
| Up‐front payments | 389 | 2,410 | (2,021) |
| Other revenue | 972 | 933 | 39 |
| Total revenue | 341,940 | 302,247 | 39,693 |
Overall operating expenses in the first quarter 2017 are € 234.7 million, an increase as compared to the € 212.1 million in the same period of the preceding year and are analyzed by function. Personnel costs are € 68.8 million and include a cost for stock options of € 1.0 million. Total depreciation and amortization charges are € 10.4 million, an increase of € 1.6 million over those of the first quarter 2016.
Other income (expense) comprises non‐recurring events, operations and matters which are not often repeated in the ordinary course of business. In the first quarter of 2017 the net amount is other income of € 0.1 million.
In the first quarter of 2017 and in the same period of 2016 financial items record a net expense of € 1.8 million and € 2.5 million respectively and are comprised as follows:
| € (thousands) | First quarter 2017 |
First quarter 2016 |
Change 2017/2016 |
|---|---|---|---|
| Currency exchange gains (losses) | 913 | 118 | 795 |
| Interest expense on loans | (2,127) | (1,955) | (172) |
| Net interest income (expense) on short‐term | |||
| financial position | (523) | (620) | 97 |
| Interest cost in respect of defined benefit plans | (47) | (67) | 20 |
| Total financial income (expense), net | (1,784) | (2,524) | 740 |
The composition and variation of property, plant and equipment are shown in the following table:
| € (thousands) | Land & buildings |
Plant & machinery |
Other equipment |
Advances/ construction in progress |
Total |
|---|---|---|---|---|---|
| Cost | |||||
| Balance at 31 December 2016 | 79,409 | 223,397 | 64,871 | 7,007 | 374,684 |
| Additions | 219 | 622 | 669 | 1,027 | 2,537 |
| Disposals | 0 | (2) | (37) | 0 | (39) |
| Other changes | (710) | 2,194 | 877 | (4,226) | (1,865) |
| Balance at 31 March 2017 | 78,918 | 226,211 | 66,380 | 3,808 | 375,317 |
| Accumulated depreciation | |||||
| Balance at 31 December 2016 | 39,286 | 175,238 | 49,958 | 0 | 264,482 |
| Depreciation for the period | 645 | 1,959 | 971 | 0 | 3,575 |
| Disposals | 0 | (2) | (35) | 0 | (37) |
| Other changes | (13) | (168) | (39) | 0 | (220) |
| Balance at 31 March 2017 | 39,918 | 177,027 | 50,855 | 0 | 267,800 |
| Carrying amount at | |||||
| 31 March 2017 | 39,000 | 49,184 | 15,525 | 3,808 | 107,517 |
| 31 December 2016 | 40,123 | 48,159 | 14,913 | 7,007 | 110,202 |
The additions during the period are € 2.5 million and refer mainly to investments in the Italian plants and in the headquarters building (€ 1.2 million).
The composition and variation of intangible assets are shown in the following table:
| € (thousands) | Patent rights and marketing authorizations |
Distribution, license, trademark and similar rights |
Other | Advance payments |
Total |
|---|---|---|---|---|---|
| Cost | |||||
| Balance at 31 December 2016 | 331,194 | 190,565 | 18,221 | 16,732 | 556,712 |
| Additions | 9 | 526 | 51 | 169 | 755 |
| Disposals | (48) | 0 | 0 | 0 | (48) |
| Other changes | 512 | 724 | 75 | (1,033) | 278 |
| Balance at 31 March 2017 | 331,667 | 191,815 | 18,347 | 15,868 | 557,697 |
| Accumulated amortization | |||||
| Balance at 31 December 2016 | 141,883 | 118,577 | 16,368 | 0 | 276,828 |
| Amortization for the period | 4,096 | 2,653 | 112 | 0 | 6,861 |
| Disposals | (48) | 0 | 0 | 0 | (48) |
| Other changes | 74 | 24 | (127) | 0 | (29) |
| Balance at 31 March 2017 | 146,005 | 121,254 | 16,353 | 0 | 283,612 |
| Carrying amount at | |||||
| 31 March 2017 | 185,662 | 70,561 | 1,994 | 15,868 | 274,085 |
| 31 December 2016 | 189,311 | 71,988 | 1,853 | 16,732 | 279,884 |
Net goodwill at 31 March 2017 amounts to € 555.1 million, a decrease of € 1.4 million as compared to that at 31 December 2016, and is attributed to the operational areas, which represent the same number of cash generating units:
The recognition in the accounts of the goodwill associated with the companies acquired in 2016, the Italian company Italchimici S.p.A. and the Swiss company Pro Farma AG with its Austrian subsidiary Pro Farma GmbH, is not yet definite, as allowed by IFRS3.
Goodwill related to acquisitions made in countries outside the European Monetary Union is calculated in local currency and converted into Euro at the period‐end exchange rate. Conversion at 31 March 2017 resulted in an overall net decrease of € 1.4 million, compared to that at 31 December 2016, to be attributed to the acquisitions in Turkey (decrease of € 3.1 million), Russia (increase of € 1.1 million) and Poland (increase of € 0.6 million).
In compliance with IFRS 3 goodwill is no longer amortized. Instead, it shall be tested for impairment on an annual basis or more frequently if specific events or circumstances indicate a possible loss of value. During the period no events or circumstances arose to indicate possible value loss related to any of the abovementioned items.
At 31 March 2017 other investments amount to € 25.1 million and increase by € 5.9 million compared to those at 31 December 2016.
The main investment is that made in the U.K. company PureTech Health plc, specialized in investment in start‐ up companies dedicated to innovative therapies, medical devices and new research technologies. Starting 19 June 2015 the shares of the company were admitted to trading on the London Stock Exchange. At 31 March 2017 the overall fair value of the 9.554.140 shares held is of € 12.9 million. The € 0.3 million decrease in value compared to that at 31 December 2016 is booked as a loss for the period recognized directly in equity, net of the relative tax effect, and shown on the statement of comprehensive income.
This account also comprises € 12.1 million relative to an investment made during 2012 in Erytech Pharma S.A., a late development stage French biopharmaceutical company focused on orphan oncology and rare diseases.
The investment, originally structured as a non‐interest bearing loan, was converted into 431,034 shares of the company in May 2013. As compared to 31 December 2016 the value of the investment was increased by € 6.2 million to bring it in line with its fair value. This amount, net of its tax effect, is booked to equity and shown on the statement of comprehensive income.
At 31 March 2017 deferred tax assets are € 36.2 million, a net decrease of € 1.0 million compared to those at 31 December 2016. Deferred tax liabilities are € 29.8 million, an increase of € 2.1 million compared to those at 31 December 2016, mainly due to the tax effect on the increase in value attributed to Erytech Pharma S.A..
Shareholders' Equity at 31 March 2017 is € 996.7 million, an increase of € 92.7 million compared to that at 31 December 2016 for the following reasons:
The Italian subsidiary of Orphan Europe is 99% owned giving rise to a minority interest of € 120.0 thousand.
As at 31 March 2017 the Company has two stock option plans in favor of certain group employees in place, the 2010‐2013 plan, under which options were granted on 9 February 2011, on 8 May 2012, on 17 April 2013 and on 30 October 2013 and the 2014‐2018 plan under which options were granted on 29 July 2014 and on 13 April 2016. The strike price of the options is the average of the parent company's listed share price during the 30 days prior to the grant date. Stock options are vested over a period of five years and those 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. Stock options outstanding at 31 March 2017 are analyzed in the following table.
| Strike price (€) |
Options outstanding at 1.1.2017 |
Options granted during 2017 |
Options exercised during 2017 |
Options cancelled or expired |
Options outstanding at 31.3.2017 |
|
|---|---|---|---|---|---|---|
| Date of grant | ||||||
| 9 February 2011 | 6.7505 | 597,500 | ‐ | (65,000) | ‐ | 532,500 |
| 8 May 2012 | 5.3070 | 1,425,000 | ‐ | (112,500) | ‐ | 1,312,500 |
| 17 April 2013 | 7.1600 | 120,000 | ‐ | (25,000) | ‐ | 95,000 |
| 30 October 2013 | 8.9300 | 155,000 | ‐ | ‐ | ‐ | 155,000 |
| 29 July 2014 | 12.2900 | 4,530,000 | ‐ | (375,000) | (25,000) | 4,130,000 |
| 13 April 2016 | 21.9300 | 3,973,000 | ‐ | (216,000) | ‐ | 3,757,000 |
| Total | 10,800,500 | ‐ | (793,500) | (25,000) | 9,982,000 |
At 31 March 2017, 3,097,762 own shares are held as treasury stock, a decrease of 793,500 shares as compared to those at 31 December 2016. The change is to be attributed to the disposal of 793,500 shares for an overall value of € 10.6 million to service the exercise of stock options issued under the stock option plans. The overall purchase cost of the shares held in treasury stock is € 61.1 million with an average unit price of € 19.73.
At 31 March 2017 medium and long‐term loans are € 320.5 million. The net reduction of € 13.6 million compared to those at 31 December 2016 is determined by reimbursements during the period for an amount of € 10.7 million and by a decrease of € 2.9 million arising from the conversion of loans in foreign currency.
The main long‐term loans outstanding are:
the debt at 31 March 2017 gave rise to a reduction of € 0.1 million compared to 31 December 2016 due to the devaluation of the Turkish Lira and the overall equivalent value of the debt is € 1.5 million.
The above conditions are amply fulfilled.
The above conditions are amply fulfilled.
• the ratio of consolidated operating income to consolidated net interest expense (for a period of twelve consecutive months) must exceed 3.00 to 1.00.
The above conditions were amply fulfilled.
g) Privately placed guaranteed senior notes privately placed by the Parent company on 30 September 2014 for an amount of \$ 75 million in two tranches: \$ 50 million at a fixed interest rate of 4,28% to be reimbursed bi‐annually as from 30 March 2022 through 30 September 2026, and \$ 25 million at a fixed interest rate of 4.51% to be reimbursed bi‐annually as from 30 March 2023 through 30 September 2029. The conversion of the loan into euros at 31 March 2017 resulted in a reduction of the liability by € 1.0 million as compared to that at 31 December 2016 due to the devaluation of the U.S. dollar. The loan was simultaneously covered with two currency rate swaps transforming the overall debt to € 56.0 million, of which € 37.3 million at a fixed interest rate of 2.895% on the 12‐year tranche and € 18.7 million at a fixed interest rate of 3.15% on the 15‐year tranche. At 31 March 2017 the measurement at fair value of the hedging instruments generated an overall positive amount of € 11.6 million recognized directly to equity and stated as an increase of the 'Fair value of hedging derivatives (cash flow hedge)' under current assets (see Note 17).
The note purchase agreement covering the senior guaranteed notes issued by Recordati S.p.A. includes covenants which, if not met, could lead to a request for immediate repayment of the loan. The financial covenants are the following:
The above conditions were amply fulfilled during the period.
The above conditions are amply fulfilled.
i) Senior guaranteed notes issued by Recordati Rare Diseases Inc. privately placed with U.S. investors on 13 June 2013 to fund the acquisition of a portfolio of products for the treatment of rare and other diseases sold mainly in the United States of America. The loan comprises two series of notes for a total of \$ 70 million, of which \$ 40 million ten‐year bullet and 4.55% coupon and \$ 30 million twelve‐year bullet and 4.70% coupon. The conversion of the loan into euros at 31 March 2017 resulted in a decrease of the liability by € 0.9 million as compared to that at 31 December 2016 due to the devaluation of the U.S.
dollar. The note purchase agreement covering the senior guaranteed notes issued by Recordati Rare Diseases Inc. includes covenants which, if not met, could lead to a request for immediate repayment of the loan. The financial covenants are the following:
The above conditions were amply fulfilled during the period.
The above conditions were amply fulfilled during the period.
The staff leaving indemnity fund at 31 March 2017 is of € 21.7 million and is measured as prescribed by IAS 19.
Other non‐current liabilities at 31 March 2017 are € 2.5 million and refer entirely to the debt for the acquisition of a further 10% of the share capital of Opalia Pharma which, in line with the put and call options in the purchase agreement, is expected to be settled not before the next 12 months.
Inventories are € 158.1 million, a decrease of € 0.7 million compared to those stated at 31 December 2016.
Trade receivables at 31 March 2017 are € 244.3 million, an increase of € 38.3 million compared to that at 31 December 2016 due to the significant increase in sales. Trade receivables are stated net of a € 15.6 million provision for doubtful accounts which reflects the collection risk connected with certain customers and geographic areas. Days sales outstanding are 58.
Other receivables, at € 26.6 million, decrease by € 4.3 million compared to those at 31 December 2016 mainly due to the reduction of tax receivable.
Other current assets are € 8.3 million and refer mainly to prepaid expenses.
Trade payables, which include the accrual for invoices to be received, are € 133.8 million.
Other payables are € 80.4 million, an increase of € 2.4 million compared to those at 31 December 2016, and relate mainly to amounts owed to personnel and social security institutions. This account also includes:
Tax payables are € 38.7 million, an increase of € 18.2 million compared to those at 31 December 2016.
Provisions are € 27.6 million, a decrease of € 0.4 million compared to those at 31 December 2016.
At 31 March 2017 the fair value of hedging derivatives recognized under current assets is of € 12.2 million.
The cross currency swaps covering the cash flows related to the notes issued and privately placed on 30 September 2014, for an amount of \$ 75 million, measured at fair value at 30 September 2016 give rise to a € 11.6 million asset recognized under current assets as 'Fair value of hedging derivatives (cash flow hedge)'. This amounts represents the potential benefit of a lower value in euros of the future dollar denominated capital and interest flows, in view of the revaluation of the foreign currency subsequent to the moment in which the loan and hedging instrument were negotiated. In particular, the change in fair value of the hedging instrument covering the \$ 50 million tranche of the loan, provided by Mediobanca, was positive for an amount of € 7.8 million, and that covering the \$ 25 million tranche of the loan, provided by UniCredit, yielded a € 3.8 million positive value change.
In November 2016, following two loan agreements undersigned by the U.S. company Recordati Rare Diseases and the Parent for a nominal total of \$ 70 million (corresponding to the two tranches of the notes issued by Recordati Rare Diseases in 2013), two cross currency swaps were provided by Unicredit which effectively convert the loan into a total of € 62.9 million, of which € 35.9 million at a fixed interest rate of 1.56% per year corresponding to the tranche expiring in 2023 and € 27.0 million at a fixed interest rate of 1.76% per year for the tranche expiring in 2025. At 31 March 2017 the fair value of the hedging instruments is of € 0.6 million, recognized directly in equity.
The measurement at fair value of the interest rate swaps covering the cash flows related to medium and long‐ term loans gave rise to a net € 3.2 million liability at 31 March 2017 recognized under current liabilities as 'Fair value of hedging derivatives (cash flow hedge)'. This amount represents the unrealized opportunity of paying the current expected future rates instead of the rates agreed. The amount refers to the interest rate swaps to cover the interest rate risk associated with the loans granted by Centrobanca (€ 1.9 million), Banca Nazionale
del Lavoro (€ 0.2 million), ING Bank (€ 0.5 million), UniCredit (€ 0.5 million), Intesa Sanpaolo (€ 0.05 million) and Banca Nazionale del Lavoro covering the new loan of € 25 million (€ 0.05 million).
Short term financial investments, cash and cash equivalents at 31 March 2017 are € 219.8 million, an increase of € 81.3 million compared to those at 31 December 2016. They are mostly denominated in Euro, U.S. Dollars and Pounds Sterling and comprise mainly current accounts and short‐term deposits.
Bank overdrafts and short‐term loans are € 17.1 million at 31 March 2017 and are comprised mainly of temporary use of lines of credit, current account overdrafts and interest accrued on existing loans. At 31 March 2017 a total of 20 million Turkish Lira, for an equivalent amount of € 5.1 million, were drawn down on the revolving line of credit obtained in July 2015 by Recordati Ilaç, the subsidiary in Turkey, for a maximum amount of 40 million Turkish Lira. This short‐term financing instrument, which has 24 months maximum duration, provides flexibility by combining the fact that it's non‐revocable with the variability of the draw‐downs based on specific financial needs. The agreement contains financial covenants in line with those already in place for other loans.
The financial information reported by line of business and by geographical area, in compliance with IFRS 8 – Operating segments, is prepared using the same accounting principles and reporting standards used for the preparation and disclosure of the Group consolidated financial statements. Following the acquisition of Orphan Europe two main business segments can be identified, the pharmaceutical segment and the orphan drugs segment.
The following table shows financial information for these two business segments as at 31 March 2017 and includes comparative data.
| € (thousands) | Pharmaceutical segment* |
Orphan drugs segment |
Non‐allocated | Consolidated accounts |
|---|---|---|---|---|
| First quarter 2017 | ||||
| Revenues | 289,807 | 52,133 | ‐ | 341,940 |
| Expenses | (206,099) | (28,570) | ‐ | (234,669) |
| Operating income | 83,708 | 23,563 | ‐ | 107,271 |
| First quarter 2016 | ||||
| Revenues | 256,218 | 46,029 | ‐ | 302,247 |
| Expenses | (186,669) | (25,423) | ‐ | (212,092) |
| Operating income | 69,549 | 20,606 | ‐ | 90,155 |
* Includes the pharmaceutical chemicals operations
| € (thousands) | Pharmaceutical segment* |
Orphan drugs segment |
Non‐allocated ** |
Consolidated accounts |
|---|---|---|---|---|
| 31 March 2017 | ||||
| Non‐current assets | 780,603 | 197,787 | 25,071 | 1,003,461 |
| Inventories | 139,082 | 19,065 | ‐ | 158,147 |
| Trade receivables | 208,123 | 36,149 | ‐ | 244,272 |
| Other current assets | 30,976 | 3,988 | 12,223 | 47,187 |
| Short‐term investments, cash and | ||||
| cash equivalents | ‐ | ‐ | 219,767 | 219,767 |
| Total assets | 1,158,784 | 256,989 | 257,061 | 1,672,834 |
| Non‐current liabilities | 48,422 | 3,163 | 282,669 | 334,254 |
| Current liabilities | 236,836 | 44,472 | 60,595 | 341,903 |
| Total liabilities | 285,258 | 47,635 | 343,264 | 676,157 |
| Net capital employed | 873,526 | 209,354 | ||
| 31 December 2016 | ||||
| Non‐current assets | 788,083 | 201,228 | 19,199 | 1,008,510 |
| Inventories | 140,939 | 17,861 | ‐ | 158,800 |
| Trade receivables | 174,540 | 31,448 | ‐ | 205,988 |
| Other current assets | 32,782 | 3,673 | 12,497 | 48,952 |
| Short‐term investments, cash and | ||||
| cash equivalents | ‐ | ‐ | 138,493 | 138,493 |
| Total assets | 1,136,344 | 254,210 | 170,189 | 1,560,743 |
| Non‐current liabilities | 48,602 | 2,926 | 293,965 | 345,493 |
| Current liabilities | 213,723 | 37,848 | 59,739 | 311,310 |
| Total liabilities | 262,325 | 40,774 | 353,704 656,803 |
* Includes the pharmaceutical chemicals operations.
** Non‐allocated amounts include: other equity investments, short‐term investments, cash and cash equivalents, loans, hedging instruments, bank overdrafts and short‐term loans.
The pharmaceutical chemicals operations are considered part of the pharmaceutical segment as they are prevalently dedicated to the production of active ingredients for this business, both from a strategic and organizational point of view.
The parent company and some subsidiaries are party to certain legal actions, the outcomes of which are not expected to result in any significant liability.
On 29 September 2006 the Company received a notice of tax assessment from the Internal Revenue Service stating certain additional taxes for the fiscal year 2003 in the amount of: corporate tax of € 2.3 million, IRAP of € 0.2 million and VAT of € 0.1 million and additional tax liabilities of € 2.6 million. The Company believed no amount was due as it considered the assessment flawed both from a legitimacy as well as a substantive point of view, and was supported in its position by professional opinion. An appeal was therefore filed with the Provincial Tax Commission of Milan. The first degree judgement before the Provincial Tax Commission was concluded partially in the Company's favour with decision n. 539/33/07 dated 11 October 2007, filed on 16 October 2007. An appeal was filed against that judgment with the Regional Tax Commission of Milan firstly by the Milan office of the Tax Authorities with notice served on 8 November 2008 and secondly by the Company
with notice served on 7 January 2009. With a decision dated June 10, 2009 n. 139/32/09, filed on November 27, 2009 the Regional Tax Commission of Milan rejected the interlocutory appeal presented by the Company and accepted the principal appeal of the Agenzia delle Entrate di Milano (Inland Revenue of Milan). On the basis of that decision, the claims included in the above mentioned tax assessment for the year 2003 have been essentially fully confirmed and the Company has paid all amounts due. On 26 May 2010 the Company appealed that decision before the Corte Suprema di Cassazione (Supreme Court of Cassation). On 20 April 2017 the hearing for the discussion of the appeal was held.
On 24 September 2014 the Italian Tax Police (Guardia di Finanza) visited Recordati S.p.A. as part of the general tax inspection regarding IRES (corporate income tax) and IRAP (regional value added tax) for the years 2010 through 2012. The 2010 inspection was concluded with a formal notice of assessment issued on 23 September 2015 in which the tax inspectors considered a cost item for services rendered for an amount of € 50,000 not to be sufficiently documented and therefore not deductible for income tax purposes. On 19 October 2015 the Company applied for a voluntary assessment procedure, which ended with the payment of the taxes and penalties owed by the Company.
On 26 July 2016, on the basis of the same tax audit of the Company above mentioned, the Italian Tax Police issued a Tax Audit Report for the 2011 tax year, and subsequent notice of assessment issued by the Internal Revenue Service, which, based on the issues raised in the Tax Audit Report, disallowed costs for services rendered for an amount of € 50,000 ‐ an issue with regard to which a notice of assessment was already issued for 2010 ‐ being not sufficiently documented. On 15 December 2016 the Company settled the dispute by accepting the remark in the notice of assessment without any challenging.
In December 2015 the same Italian Tax Police (Guardia di Finanza) notified the Company of their intention to commence a general income tax inspection covering the years 2009 through 2014 involving the group companies which reside in Ireland and in Luxembourg, Recordati Ireland Ltd and Recordati S.A. Chemical and Pharmaceutical Company respectively. The declared intention of the inspection is to evaluate the operational context of the foreign companies in order to verify whether said companies are in reality only formally localized abroad but are substantially managed/administered from Italy. After having analysed the documents and completed the investigation process, the Italian Tax Police preliminarily revealed to Recordati Ireland Ltd., on 13 February 2017, their reasons for considering the Irish company subject to tax in Italy for corporate tax purposes in the reference period, resulting in an assessment of taxes allegedly owed to Italy, in the amount of € 95 million, against taxes of € 44 million already paid in Ireland. Similarly, the Italian Tax Police preliminarily revealed to Recordati S.A. Chemical and Pharmaceutical Company, on 22 February 2017, their reasons for considering the Luxembourg company subject to tax in Italy for corporate tax purposes in the reference period, resulting in an assessment of taxes allegedly owed to Italy, in the amount of € 5.5 million. On 28 February 2017 the Italian Tax Police (Guardia di Finanza) prescribed the extension of the income tax inspection to include the year 2015. The Company, supported in its position by professional opinion, maintains that the companies under inspection operate in such a way as to justify the correctness of the fiscal policy adopted. Therefore, no provisions are made in the consolidated accounts as a result of the above mentioned inspections, also in consideration of available information at this stage of the activity.
SUBSIDIARIES INCLUDED IN THE CONSOLIDATED ACCOUNTS AT 31 MARCH 2017
| Consolidated Companies | Head Office | Share Capital | Currency | Consolidation Method |
|---|---|---|---|---|
| RECORDATI S.P.A. Development, production, marketing and sales of pharmaceuticals and pharmaceutical chemicals |
Italy | 26,140,644.50 | Euro | Line‐by‐line |
| INNOVA PHARMA S.P.A. Marketing and sales of pharmaceuticals |
Italy | 1,920,000.00 | Euro | Line‐by‐line |
| CASEN RECORDATI S.L. Development, production, marketing and sales of pharmaceuticals |
Spain | 238,966,000.00 | Euro | Line‐by‐line |
| RECORDATI S.A. Chemical and Pharmaceutical Company Holding company |
Luxembourg | 82,500,000.00 | Euro | Line‐by‐line |
| BOUCHARA RECORDATI S.A.S. Development, production, marketing and sales of pharmaceuticals |
France | 4,600,000.00 | Euro | Line‐by‐line |
| RECORDATI PORTUGUESA LDA Dormant |
Portugal | 24,940.00 | Euro | Line‐by‐line |
| RECORDATI RARE DISEASES COMERCIO DE MEDICAMENTOS LTDA Dormant, holds pharmaceutical marketing rights in Brazil |
Brazil | 166.00 | BRL | Line‐by‐line |
| RECORDATI RARE DISEASES INC. Development, production, marketing and sales of pharmaceuticals |
U.S.A. | 11,979,138.00 | USD | Line‐by‐line |
| RECORDATI IRELAND LTD Development, production, marketing and sales of pharmaceuticals |
Ireland | 200,000.00 | Euro | Line‐by‐line |
| RECORDATI S.A. Marketing and sales of pharmaceuticals |
Switzerland | 2,000,000.00 | CHF | Line‐by‐line |
| LABORATOIRES BOUCHARA RECORDATI S.A.S. Development, production, marketing and sales of pharmaceuticals |
France | 14,000,000.00 | Euro | Line‐by‐line |
| RECORDATI PHARMA GmbH Marketing and sales of pharmaceuticals |
Germany | 600,000.00 | Euro | Line‐by‐line |
| RECORDATI PHARMACEUTICALS LTD Marketing and sales of pharmaceuticals |
United Kingdom | 15,000,000.00 | GBP | Line‐by‐line |
| RECORDATI HELLAS PHARMACEUTICALS S.A. Marketing and sales of pharmaceuticals |
Greece | 10,050,000.00 | Euro | Line‐by‐line |
| JABA RECORDATI S.A. Marketing and sales of pharmaceuticals |
Portugal | 2,000,000.00 | Euro | Line‐by‐line |
| JABAFARMA PRODUTOS FARMACÊUTICOS S.A. Marketing of pharmaceuticals |
Portugal | 50,000.00 | Euro | Line‐by‐line |
| BONAFARMA PRODUTOS FARMACÊUTICOS S.A. Marketing of pharmaceuticals |
Portugal | 50,000.00 | Euro | Line‐by‐line |
| RECORDATI ORPHAN DRUGS S.A.S. Holding company |
France | 57,000,000.00 | Euro | Line‐by‐line |
| ORPHAN EUROPE SWITZERLAND GmbH Marketing and sales of pharmaceuticals |
Switzerland | 20,000.00 | CHF | Line‐by‐line |
| ORPHAN EUROPE MIDDLE EAST FZ LLC Marketing and sales of pharmaceuticals |
United Arab Emirates |
100,000.00 | AED | Line‐by‐line |
| ORPHAN EUROPE NORDIC A.B. Marketing and sales of pharmaceuticals |
Sweden | 100,000.00 | SEK | Line‐by‐line |
| ORPHAN EUROPE PORTUGAL LDA Marketing and sales of pharmaceuticals |
Portugal | 5,000.00 | Euro | Line‐by‐line |
| ORPHAN EUROPE S.A.R.L. Development, production, marketing and sales of pharmaceuticals |
France | 320,000.00 | Euro | Line‐by‐line |
| ORPHAN EUROPE UNITED KINGDOM LTD Marketing and sales of pharmaceuticals |
United Kingdom | 50,000.00 | GBP | Line‐by‐line |
| ORPHAN EUROPE GERMANY GmbH Germany 25,600.00 Euro Line‐by‐line Marketing and sales of pharmaceuticals ORPHAN EUROPE SPAIN S.L. Spain 1,775,065.49 Euro Line‐by‐line Marketing and sales of pharmaceuticals ORPHAN EUROPE ITALY S.R.L. Italy 40,000.00 Euro Line‐by‐line Marketing and sales of pharmaceuticals ORPHAN EUROPE BENELUX BVBA Belgium 18,600.00 Euro Line‐by‐line Marketing and sales of pharmaceuticals FIC MEDICAL S.A.R.L. France 173,700.00 Euro Line‐by‐line Marketing of pharmaceuticals HERBACOS RECORDATI s.r.o. Czech Republic 25,600,000.00 CZK Line‐by‐line Development, production, marketing and sales of pharmaceuticals RECORDATI SK s.r.o. Slovakia 33,193.92 Euro Line‐by‐line Marketing and sales of pharmaceuticals RUSFIC LLC Russian Federation 3,560,000.00 RUB Line‐by‐line Marketing and sales of pharmaceuticals RECOFARMA ILAÇ Ve Hammaddeleri Sanayi Ve Ticaret L.Ş. Turkey 10,000.00 TRY Line‐by‐line Marketing of pharmaceuticals RECORDATI ROMÂNIA S.R.L. Romania 5,000,000.00 RON Line‐by‐line Marketing and sales of pharmaceuticals RECORDATI İLAÇ Sanayi Ve Ticaret A.Ş. Turkey 120,875,367.00 TRY Line‐by‐line Development, production, marketing and sales of pharmaceuticals RECORDATI POLSKA Sp. z o.o. Poland 4,500,000.00 PLN Line‐by‐line Marketing and sales of pharmaceuticals ACCENT LLC Russian Federation 20,000.00 RUB Line‐by‐line Holds pharmaceutical marketing rights RECORDATI UKRAINE LLC Ukraine 1,031,896.30 UAH Line‐by‐line Marketing of pharmaceuticals CASEN RECORDATI PORTUGAL Unipessoal Lda Portugal 100,000.00 Euro Line‐by‐line Marketing and sales of pharmaceuticals OPALIA PHARMA S.A. Tunisia 8,738,000.00 TND Line‐by‐line Development, production, marketing and sales of pharmaceuticals OPALIA RECORDATI S.A.R.L. Tunisia 20,000.00 TND Line‐by‐line Marketing of pharmaceuticals RECORDATI RARE DISEASES S.A. DE C.V. Mexico 50,000.00 MXN Line‐by‐line Marketing of pharmaceuticals RECORDATI RARE DISEASES COLOMBIA S.A.S Colombia 150,000,000.00 COP Line‐by‐line Marketing of pharmaceuticals ITALCHIMICI S.p.A. (1) Italy 7,646,000.00 EUR Line‐by‐line Marketing of pharmaceuticals PRO FARMA AG (1) Switzerland 3,000,000.00 CHF Line‐by‐line Marketing of pharmaceuticals |
Consolidated Companies | Head Office | Share Capital | Currency | Consolidation Method |
|---|---|---|---|---|---|
| PRO FARMA GmbH (1) Austria 35,000.00 EUR Line‐by‐line Marketing of pharmaceuticals |
(1) Acquired in 2016
| PERCENTAGE OF OWNERSHIP | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Consolidated companies | Recordati S.p.A. (Parent) |
Recordati S.A. (Lux) |
Recordati Pharma GmbH |
Bouchara Recordati S.A.S. |
Casen Recordati S.L. |
Recordati Orphan Drugs S.A.S. |
Orphan Europe S.A.R.L. |
Herbacos Recordati s.r.o. |
Recordati Ilaç A.Ş. |
Opalia Pharma S.A. |
Pro Farma AG |
Total |
| INNOVA PHARMA S.P.A. | 100.00 | 100.00 | ||||||||||
| CASEN RECORDATI S.L. | 68.447 | 31.553 | 100.00 | |||||||||
| RECORDATI S.A. Chemical and Pharmaceutical Company |
100.00 | 100.00 | ||||||||||
| BOUCHARA RECORDATI S.A.S. | 99.94 | 0.06 | 100.00 | |||||||||
| RECORDATI PORTUGUESA LDA | 98.00 | 2.00 | 100.00 | |||||||||
| RECORDATI RARE DISEASES COMERCIO DE MEDICAMENTOS LTDA |
99.398 | 0.602 | 100.00 | |||||||||
| RECORDATI RARE DISEASES INC. | 100.00 | 100.00 | ||||||||||
| RECORDATI IRELAND LTD | 100.00 | 100.00 | ||||||||||
| RECORDATI S.A. | 100.00 | 100.00 | ||||||||||
| LABORATOIRES BOUCHARA RECORDATI S.A.S. |
100.00 | 100.00 | ||||||||||
| RECORDATI PHARMA GmbH | 55.00 | 45.00 | 100.00 | |||||||||
| RECORDATI PHARMACEUTICALS LTD |
3.33 | 96.67 | 100.00 | |||||||||
| RECORDATI HELLAS PHARMACEUTICALS S.A. |
0.95 | 99.05 | 100.00 | |||||||||
| JABA RECORDATI S.A. | 100.00 | 100.00 | ||||||||||
| JABAFARMA PRODUTOS FARMACÊUTICOS S.A. |
100.00 | 100.00 | ||||||||||
| BONAFARMA PRODUTOS FARMACÊUTICOS S.A. |
100.00 | 100.00 | ||||||||||
| RECORDATI ORPHAN DRUGS S.A.S. |
90.00 | 10.00 | 100.00 | |||||||||
| ORPHAN EUROPE SWITZERLAND GmbH |
100.00 | 100.00 | ||||||||||
| ORPHAN EUROPE MIDDLE EAST FZ LLC |
100.00 | 100.00 | ||||||||||
| ORPHAN EUROPE NORDIC A.B. | 100.00 | 100.00 | ||||||||||
| ORPHAN EUROPE PORTUGAL LDA |
100.00 | 100.00 | ||||||||||
| ORPHAN EUROPE S.A.R.L. | 100.00 | 100.00 | ||||||||||
| ORPHAN EUROPE UNITED KINGDOM LTD |
100.00 | 100.00 | ||||||||||
| ORPHAN EUROPE GERMANY GmbH |
100.00 | 100.00 | ||||||||||
| ORPHAN EUROPE SPAIN S.L. | 100.00 | 100.00 | ||||||||||
| ORPHAN EUROPE ITALY S.R.L. | 99.00 | 99.00 |
| PERCENTAGE OF OWNERSHIP | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Consolidated companies | Recordati S.p.A. (Parent) |
Recordati S.A. (Lux) |
Recordati Pharma GmbH |
Bouchara Recordati S.A.S. |
Casen Recordati S.L. |
Recordati Orphan Drugs S.A.S. |
Orphan Europe S.A.R.L. |
Herbacos Recordati s.r.o. |
Recordati Ilaç A.Ş. |
Opalia Pharma S.A. |
Pro Farma AG |
Total |
| ORPHAN EUROPE BENELUX BVBA |
99.46 | 0.54 | 100.00 | |||||||||
| FIC MEDICAL S.A.R.L. | 100.00 | 100.00 | ||||||||||
| HERBACOS RECORDATI s.r.o. | 0.08 | 99.92 | 100.00 | |||||||||
| RECORDATI SK s.r.o. | 100.00 | 100.00 | ||||||||||
| RUSFIC LLC | 100.00 | 100.00 | ||||||||||
| RECOFARMA ILAÇ Ve Hammaddeleri Sanayi Ve Ticaret L.Ş. |
100.00 | 100.00 | ||||||||||
| RECORDATI ROMÂNIA S.R.L. | 100.00 | 100.00 | ||||||||||
| RECORDATI İLAÇ Sanayi Ve Ticaret A.Ş. |
100.00 | 100.00 | ||||||||||
| RECORDATI POLSKA Sp. z o.o |
100.00 | 100.00 | ||||||||||
| ACCENT LLC | 100.00 | 100.00 | ||||||||||
| RECORDATI UKRAINE LLC | 0.01 | 99.99 | 100.00 | |||||||||
| CASEN RECORDATI PORTUGAL Unipessoal Lda |
100.00 | 100.00 | ||||||||||
| OPALIA PHARMA S.A. | 90.00 | 90.00 | ||||||||||
| OPALIA RECORDATI S.A.R.L. |
1.00 | 99.00 | 100.00 | |||||||||
| RECORDATI RARE DISEASES S.A. DE C.V. |
99.998 | 0.002 | 100.00 | |||||||||
| RECORDATI RARE DISEASES COLOMBIA S.A.S. |
100.00 | 100.00 | ||||||||||
| ITALCHIMICI S.p.A. (1) | 100.00 | 100.00 | ||||||||||
| PRO FARMA AG (1) | 100.00 | 100.00 | ||||||||||
| PRO FARMA GmbH (1) | 100.00 | 100.00 |
(1) Acquired in 2016
The manager responsible for preparing the company's financial reports Fritz Squindo declares, pursuant to paragraph 2 of Article 154‐bis of the Consolidated Law on Finance, that the accounting information contained in this report corresponds to the document results, books and accounting records.
Milan, 4 May 2017
Signed by Fritz Squindo Manager responsible for preparing the Company's financial reports
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