Annual Report • Feb 7, 2019
Annual Report
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Today, ALK's (ALKB:DC / OMX: ALK B / AKABY / AKBLF) Board of Directors has considered and approved the 2018 annual report with the following highlights:
2018 saw strong progress for ALK's new strategy, keeping ALK on track to deliver accelerated growth of 10% in 2019 with growth across all sales regions and with SLIT-tablets as the key driver. Financial results for 2018 were in line with the recent guidance upgrade.
See page 17 and 92 in the attached report for further details on Q4.
ALK updated its full-year outlook four times in 2018, reflecting higher than expected sales and faster than expected capture of operational efficiencies and savings. Actual results were in line with the most recent update, provided on 14 December:
Free cash flow was better than anticipated with an outflow of DKK 294 million (outflow of 745). See page 14-17 in the attached report for further details on full-year performance.
ALK expects broad-based growth across all sales regions and product segments and remains committed to its ambition of delivering 10% revenue growth in 2019, despite the better than expected performance last year. Earnings and cash flow will continue to be subdued by investments to transform the company:
See page 11 in the attached report for a detailed review of the 2019 outlook.
Today, ALK is hosting a conference call at 12.30 p.m. (CET) where Management will review the results and the outlook, and answer questions. The call will be audio cast on https://ir.alk.net/investors, where the presentation will be available shortly before the call begins. Participants in the conference call are kindly requested to call in before 12.25 p.m. (CET). Danish participants should call in on tel. +45 3544 5577 and international participants should call in on tel. +44 333 300 0804 or +1 631 913 1422. Please use the following participant pin code: 31931587#
Company release No 4/2019 – 7 February 2019 ALK-Abelló A/S – Bøge Allé 6-8 – DK-2970 Hørsholm – Denmark – www.alk.net Tel +45 4574 7576 – CVR No 63 71 79 16 – LEI code: 529900SGCREUZCZ7P020 Page 1 of 96
Carsten Hellmann, President & CEO, tel. +45 4574 7576 Investor Relations: Per Plotnikof, tel. +45 4574 7527, mobile +45 2261 2525 Media: Jeppe Ilkjær, tel. +45 7877 4532, mobile +45 3050 2014
This information is information that ALK-Abelló A/S is obliged to make public pursuant to the EU Market Abuse Regulation.
ALK is a global specialty pharmaceutical company focused on allergy and allergic asthma. It markets allergy immunotherapy treatments and other products and services for people with allergy and allergy doctors. Headquartered in Hørsholm, Denmark, ALK employs around 2,300 people worldwide and is listed on Nasdaq Copenhagen. Find more information at www.alk.net.
Annual report 2018
This report contains forward-looking statements, including forecasts of future revenue, operating profit and cash flow as well as expected business-related events. Such statements are naturally subject to risks and uncertainties as various factors, some of which are beyond the control of ALK, may cause actual results and performance to differ materially from the forecasts made in this report. Without being exhaustive, such factors include, e.g., general economic and business-related conditions, including: legal issues,
uncertainty relating to demand, pricing, reimbursement rules, partners' plans and forecasts, fluctuations in exchange rates, competitive factors and reliance on suppliers. Additional factors include the risks associated with the sourcing and manufacturing of ALK's products as well as the potential for side effects from the use of ALK's existing and future products, as allergy immunotherapy may be associated with allergic reactions of differing extents, durations and severities.
A baby's immune system develops in the womb during pregnancy. The first signs of allergy may show in the first weeks or months of life.
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Letter from the CEO 2018 was a year of strong progress at ALK.
Complete and commercialise the tablet portfolio for all relevant ages 2018 saw commercial proof of concept for ALK's tablet portfolio.
ALK is a global allergy solutions company, with a wide range of treatments, products and services to meet the unique needs of allergy sufferers, their families and doctors. Headquartered in Hørsholm, Denmark, the company is listed on Nasdaq Copenhagen (ALKB:DC/OMX: ALK B)
ALK is present in 38 markets, either directly or via partnerships, and has allergy immunotherapy (AIT) manufacturing locations in five countries.
Despite the millions of people living with allergy and the potential benefits of AIT for many of them, relatively few have so far found their way to AIT treatment.
In 2017, ALK launched a new strategy designed to give the company a broader presence in the allergy segment. There are four pillars to the new strategy, which will take three years to implement. Its overall aim is to help more people to manage their allergies. ALK's financial objective is to build a new growth platform that can deliver sustainable revenue and earnings growth.
* covering AIT and anaphylaxis
Allergies occur when the body's immune system overreacts to substances that are usually considered harmless, such as various types of pollen, house dust mites, moulds and animal fur.
Insufficient sleep Allergies can impact the amount of sleep we get: 26%
of people with uncontrolled allergic rhinitis (AR) lack a good night's sleep
Allergy is also a leading cause of lost work days*, outstripping other conditions in its cost to businesses:
* Work days lost in the USA to chronic conditions
Allergies have a significant impact on quality of life and our ability to get things done:
Many people with allergy suffer in silence because the way ahead is too confusing.
By collecting information and the latest and most trusted solutions together in one place, ALK wants to make allergy surprisingly simple to manage. With 100 years of experience, nobody knows allergy like ALK, and the company continuously applies its scientific knowledge and expertise to help people take control of their life with allergy.
ALK wants to make a difference by offering solutions for everyone who is touched by allergy – through a comprehensive range of products, services and resources that offer a fast-track to a more balanced life.
ALK offers products, services and resources covering a wide range of allergies. The company also has products in related areas, including early allergy intervention, diagnosis and emergency treatment.
Injections: Subcutaneous immunotherapy (SCIT) is given as regular injections under the skin. The treatment is administered by a doctor.
Sublingual drops: Sublingual immunotherapy (SLIT) is taken in the form of drops administered under the tongue. Patients administer the drops themselves, avoiding the need for regular visits to the doctor.
Tablets: SLIT-tablets are administered by the patient at home and are available for all the most important respiratory allergies. Tabletbased AIT is the most well-documented allergy treatment.
Patients are actively seeking information, products and services to help them manage their disease.
ALK's business model is based on an in-depth understanding of allergens and how they affect the human body.
After almost 20 years of research and development work, ALK is now close to achieving a key objective of launching SLIT-tablets covering each of the five most important allergens, which are responsible for more than 80% of the world's respiratory allergies.
These products are important growth drivers for ALK and grew by 28% in 2018. Work continues on data to increase the number of countries where these products are available, and to expand the product labels to cover children and adolescents as well as new indications.
2018 was a year of strong progress at ALK as we focused our efforts and resources on establishing positive momentum for the new strategy and the future.
At the end of 2017, we saw a different picture. We announced our new strategy against a backdrop of turmoil and uncertainty, where we were spending too much time fire-fighting and not enough on building a strong future and driving long-term growth. The need for a transformational growth strategy was clear.
Changing things demanded that we challenge every assumption we had about our strengths and weaknesses, our future markets, and where we saw the path to growth.
A year on, the execution of our strategy is on track and, in many areas, delivering results that are better than expected. We have begun to see a change in the internal culture of ALK, with the entire organisation now clear about the focus and discipline required to transform ALK into a company that is relevant for many more people with allergy.
There are around 500 million people living with allergy, some of whom suffer in silence or rely on inadequate self-medication. Our strategy aims to draw upon our nearcentury of expertise to make allergy more
simple to manage. Our AIT products are the core of this offering, and in Europe and International markets, we saw commercial proof of concept for our tablets during 2018. In addition, over the past year, we have made good progress in adding other products, digital services and resources to help many more people take control of their life with allergy.
In North America, while there remains much to be done, we have confirmed that the tablets indeed represent a long-term opportunity, especially in the United States. We are working hard to bring about a paradigm shift in the allergy treatment market, fundamentally changing the mindset of allergists and asking them to embrace new practices on top of the ones that have been largely unchanged for almost 100 years. It is a challenge that we do not underestimate, but we are learning much from our early market experiences. The key focus for 2019 will be to expand the acceptance of the tablets by allergists and to establish a scalable foundation of high prescribers, as well as continuing to grow our legacy business.
A year ago, we said our ambition was to complete the tablet portfolio for all relevant ages. The filing of the tree tablet and the launch of the Japanese cedar tablet, both in 2018, bring that reality a step closer. To reflect this progress, we are updating this element of the strategy to 'complete and
commercialise the tablet portfolio...' as our efforts increasingly address the various age and market-specific studies necessary to maximise the opportunity these products represent.
Commercially we saw strong launches for ACARIZAX®, including in the key market of France, along with evidence that this product can act as a trail-blazer for the wider tablet portfolio, bringing more patients into the allergist's office – something seen most clearly in Japan.
The tablets remain central to our wider ambitions, and our efforts in patient engagement and adjacent business opportunities are a reflection of this. For a company with almost a century of allergy expertise, we are under-represented and under-recognised when it comes to the overall experience of people who live with allergy. This part of our strategy is designed to address that shortfall, placing us at the centre of disease information and education, establishing a suite of products and services that make us synonymous with allergy solutions, and ensuring that the path to AIT treatment, for those who need it, is far smoother. Products such as those offered via our consumer platform klarify.me, and instant information tools such as the klara app are key to engaging more with people with allergy.
The final component of our strategy is to optimise and reallocate. This is perhaps the most immediate test of our organisational culture and our ability to focus on what matters most. Progress in this area contributed strongly to our performance in 2018, through restored inventories and improved robustness in supply operations as well as a focus on the core strategic products, our ability to respond to increased demand for products such as Jext®, and companywide savings that had a tangible effect on overall financial performance.
Financially, 2018 was better than expected. Even as we made significant investments in support of our new strategy, we were able to revise our full-year outlook four times during 2018. This reflected several factors, including success for the tablets in Europe and International markets, improved product availability in the base business, effective sales execution, a stable price and reimbursement environment in key markets, and enhanced internal discipline when it came to spending controls and risk avoidance.
As a result of our efforts, we enter 2019 on track to transform ALK and deliver our longterm growth ambitions. We continue to fix the fundamental challenges in our business, we are making important strides towards a new organisational culture, and most importantly, we are establishing a positive momentum commercially.
All of this adds up to a much more benign risk profile for ALK in the second year of our threeyear transformation period.
In 2019, we expect growth to accelerate above the historic levels. We expect growth across all three of our regions – singledigit growth in Europe, double-digits in the important North American markets, and high double-digits from the small-but-growing International region. Tablets will continue to be the primary driver of this growth and we expect them to maintain the trajectory that was established during 2018. The ambition for 2019 is to achieve a growth of 10%. This growth outlook compares to an average growth of 5% (CAGR) over the past 10 years.
We begin 2019 with justifiable confidence that we are on the right path, encouraged by our early wins and the immediate contribution they are making to our bottomline, and relentlessly focused on our ultimate goal – that of bringing allergy solutions for life to the millions of people who suffer in silence every day.
Carsten Hellmann President & CEO
"We begin 2019 with justifiable confidence that we are on the right path, encouraged by our early wins and the immediate contribution they are making to our bottom-line, and relentlessly focused on our ultimate goal — that of bringing allergy solutions for life to the millions of people who suffer in silence every day.
Carsten Hellmann, President & CEO
growth across its sales regions and product segments. The better than expected results in 2018 and the creation of a more robust business platform will allow ALK to accelerate its investments to transform the company. As a result, earnings (EBITDA) and free cash flow will continue to be subdued.
Total revenue from ALK's existing business is expected at DKK 3.1-3.3 billion.
The mid-point of the range guidance assumes that revenue in Europe will grow in single digits, driven by strong growth in tablet sales and increasing SCIT-sales. By contrast, European topline growth is expected to be negatively
2019 expectations For 2019, ALK expects broad-based impacted by portfolio rationalisations and lower SLIT-drops sales. Meanwhile, revenue in North America is expected to increase by double digits with growth from all product categories. Revenue in International markets is projected to grow in high double digits on increased tablet income from Japan, and geographic expansion.
Globally, tablet sales are expected to grow continuously in double digits at a similar rate to 2018. Combined SCIT/SLIT-drops sales are expected to be largely unchanged based on higher SCIT sales facilitated by improved product availability, while SLIT-drops sales are projected to decrease as a consequence of product rationalisations and the expected continuing market trend in France. Sales of Other products are projected to grow around 10%.
Subject to revenue development, earnings before interest, tax, depreciation and amortisation (EBITDA) is projected at DKK 100-200 million.
Gross margin is expected to increase incrementally, while capacity costs will be impacted by a significant increase in R&D costs, prompted by the global paediatric clinical development of ACARIZAX® for children with allergic asthma and allergic rhinitis. ALK is also planning to conduct a separate allergic rhinitis trial in adolescents and a trial to pave the way for a launch in China.
Sales and marketing costs are expected to increase modestly to support the launch of the tree tablet in Europe, the continued commercialisation of tablets in the USA, international expansion and patient engagement activities. Administrative expenses are expected to show a small increase.
EBITDA is expected to be positively influenced by approximately DKK 40 million as a consequence of a change in ALK's accounting policies related to the implementation of IFRS16 (leases).
Free cash flow is expected to be negative at approximately DKK 400 million as a consequence of the subdued earnings, investments in support of strategic growth and timing of end of 2018 payments. CAPEX is projected at DKK 200-250 million with investments focused on streamlining the manufacturing footprint and further specialisation at ALK's production facilities in line with the 2018 site strategy. CAPEX investments will also be channelled into technology upgrades as well as capacity expansion.
The outlook is based on current exchange rates, causing a minor positive effect on reported revenue and an immaterial effect on reported EBTIDA. The outlook does not include any revenue from acquisitions and/or new partnerships, nor does it include any sizeable payments related to future M&A or in-licensing activity.
Revenue
2018 actuals: DKK 2.915 billion
Growth in all segments, particularly strong growth in tablet sales; minor rebound for SCIT sales; negative impact from product eliminations and SLIT-drops.
2018 actuals: DKK 136 million
Incrementally increasing gross margins, substantially higher R&D costs, increasing sales and marketing costs to support tablet launches and roll-outs, minor IFRS change.
Approximately
2018 actuals: DKK -294 million
Subdued earnings and strategic investments, including CAPEX to streamline and specialise production sites.
13 Financial highlights and key ratios for the ALK Group
14 Revenue by geography
16 Financial review of 2018
| DKK | DKK | DKK | DKK | DKK | EUR | EUR | |
|---|---|---|---|---|---|---|---|
| Amounts in DKKm/EURm** | 2018 | 2017 | 2016 | 2015 | 2014 | 2018 | 2017 |
| Income statement | |||||||
| Revenue | 2,915 | 2,910 | 3,005 | 2,569 | 2,433 | 390 | 391 |
| EBITDA | 136 | 253 | 642 | 451 | 404 | 18 | 34 |
| Operating profit/(loss) (EBIT) | (96) | (80) | 479 | 292 | 264 | (13) | (11) |
| Net financial items | (7) | (42) | 8 | 108 | 36 | (1) | (6) |
| Profit/(loss) before tax (EBT) | (103) | (122) | 487 | 400 | 300 | (14) | (16) |
| Net profit/(loss) | (170) | (158) | 270 | 344 | 181 | (23) | (21) |
| Average number of employees (FTE) | 2,341 | 2,213 | 2,010 | 1,854 | 1,809 | 2,341 | 2,213 |
| Balance sheet | |||||||
| Total assets | 4,865 | 4,958 | 4,799 | 4,252 | 3,419 | 652 | 666 |
| Invested capital | 2,968 | 2,864 | 2,353 | 2,434 | 2,214 | 397 | 385 |
| Equity | 3,179 | 3,290 | 2,875 | 2,697 | 2,354 | 426 | 442 |
| Cash flow and investments | |||||||
| Depreciation, amortisation | |||||||
| and impairment | 232 | 333 | 163 | 159 | 140 | 31 | 45 |
| Cash flow from operating activities | (95) | (387) | 405 | 183 | 320 | (13) | (52) |
| Cash flow from investing activities | (199) | (358) | (204) | (165) | (219) | (27) | (48) |
| – of which investment in tangible | |||||||
| and intangible assets | (178) | (267) | (225) | (199) | (202) | (24) | (36) |
| – of which acquisitions of | |||||||
| companies and operations | (21) | (94) | - | (12) | (24) | (3) | (13) |
| Free cash flow | (294) | (745) | 201 | 18 | 101 | (39) | (100) |
| DKK | DKK | DKK | DKK | DKK | EUR | EUR | |
|---|---|---|---|---|---|---|---|
| Amounts in DKKm/EURm** | 2018 | 2017 | 2016 | 2015 | 2014 | 2018 | 2017 |
| Information on shares | |||||||
| Proposed dividend | - | - | 51 | 51 | 51 | - | - |
| Share capital | 111 | 111 | 101 | 101 | 101 | 14.9 | 14.9 |
| Shares in thousands of DKK 10 each | 11,141 | 11,141 | 10,128 | 10,128 | 10,128 | 11,141 | 11,141 |
| Share price, at year end - DKK/EUR | 960 | 740 | 920 | 876 | 651 | 128.6 | 99.4 |
| Net asset value per share - DKK/EUR | 285 | 295 | 284 | 266 | 232 | 38.2 | 39.7 |
| Key figures | |||||||
| Gross margin – % | 56.0 | 56.4 | 66.9 | 67.5 | 69.7 | 56.0 | 56.4 |
| EBITDA margin – % | 4.7 | 8.7 | 21.4 | 17.6 | 16.6 | 4.7 | 8.7 |
| Return on equity (ROE) – % | (5.3) | (5.1) | 9.7 | 13.6 | 7.9 | (5.3) | (5.1) |
| ROIC incl. goodwill – % | (3.3) | (3.1) | 20.0 | 12.8 | 12.2 | (3.3) | (3.1) |
| Pay-out ratio – % | - | - | 18.9 | 14.8 | 28.2 | - | - |
| Earnings/(loss) per share (EPS) – DKK/EUR | (15.6) | (15.9) | 27.5 | 35.5 | 18.7 | (2.1) | (2.1) |
| Earnings/(loss) per share (DEPS), | |||||||
| diluted – DKK/EUR | (15.6) | (15.9) | 27.2 | 35.0 | 18.3 | (2.1) | (2.1) |
| Cash flow per share (CFPS) – DKK/EUR | (8.7) | (39.0) | 41.3 | 18.9 | 33.1 | (1.2) | (5.2) |
| Price earnings ratio (PE) | (61.4) | (46.5) | 33.4 | 24.8 | 34.7 | (61.4) | (46.5) |
| Share price/Net asset value | 3.4 | 2.5 | 3.2 | 3.3 | 2.8 | 3.4 | 2.5 |
| Revenue growth – % | |||||||
| Organic growth | 1 | (6) | 19 | 2 | 8 | 1 | (6) |
| Exchange rate differences | (1) | (1) | (2) | 4 | 1 | (1) | (1) |
| Acquisitions | - | 4 | - | - | - | - | 4 |
| Total growth revenue | - | (3) | 17 | 6 | 9 | - | (3) |
* Management's review comprises pages 1-43 as well as Financial highlights and key ratios for the ALK Group on page 92.
**Financial highlights and key ratios stated in EUR constitute supplementary information to the Management's review. The exchange rate used in translating from DKK to EUR is the exchange rate prevailing on 31 December 2018 (EUR 100 = DKK 747).
For definitions and reconciliation of alternative performance measures, see page 81.
(Comparative figures for 2017 are shown in brackets. Growth rates are stated in local currencies unless otherwise indicated.)
ALK's total revenue in 2018 of DKK 2,915 million was approximately DKK 200 million higher than expected at the beginning of 2018, and was in line with the most recent, updated outlook, issued on14 December. Revenue was up 1% in local currencies.
European revenue was unchanged at DKK 2,220 million (2,220) and was a key reason for the significantly better than expected performance at the beginning of the year.
SLIT-tablets performed strongly, with sales growth of 30% thanks to continued strong performances from ACARIZAX® and GRAZAX®. Sales of ACARIZAX® more than doubled, while GRAZAX® grew in the low double-digits. Overall, tablets saw solid growth in most European markets, with particularly strong sales in the region's most important market, France, as well as in the Nordic countries and the Netherlands.
Together, SCIT and SLIT-drops sales decreased by 10% which was less than originally expected. The decline was largely due to product rationalisations and the consequences of the previous year's supply constraints. Sales of Other products increased by 22%, primarily driven by 43% growth from ALK's adrenaline auto-injector (AAI), Jext®, which experienced a spike in demand due to supply issues in the AAI market.
In France, the market continues to normalise following the market disruptions of recent years, and was also affected by the phaseout of selected older products. The strong uptake of ACARIZAX® helped ALK to grow its market share among new house dust mite AIT patients, maintaining its clear market leadership there. During mid-2018, as part of its efforts to harmonise the reimbursement of AIT, the French Ministry of Health reduced reimbursement for so-called 'Named Patient' products. This change had a minimal impact on patients' access to reimbursement for AIT overall.
In Germany, despite double-digit growth from tablets, overall sales were dragged down by the phase-out of old products, a slow recovery of SCIT sales following last year's supply constraints, and a general decline in pollen AIT initiations following the unusually mild pollen season in 2017. However, by the end of 2018, there were early signs of a gradual recovery in ALK's SCIT sales. Furthermore, ALK continued to work with German health insurance funds to support the ongoing market transformation by increasing the number of patients who benefit from documented, registered products.
There were no notable changes to the pricing and reimbursement environment for AIT products in 2018, except for the 'Named
| Growth Share of |
||||||||
|---|---|---|---|---|---|---|---|---|
| DKKm | 2018 | (l.c.) | revenue | 2017 | ||||
| Europe | 2,220 | 0.3% | 76% | 2,220 | ||||
| N. America | 583 | 0.5% | 20% | 606 | ||||
| Intl. markets | 112 | 41% | 4% | 84 | ||||
| Revenue | 2,915 | 1% | 2,910 |
| Revenue by product line | Revenue by product line | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| DKKm | 2018 | Growth (l.c.) |
Share of revenue |
2017 | SCIT/SLIT-drops Other |
SLIT-tablets | ||||
| 76% | SCIT & SLIT-drops SLIT-tablets |
1,777 671 |
-7% 28% |
61% 23% |
1,917 528 |
16% | 61% | |||
| 2018 | Other Revenue |
467 2,915 |
4% 1% |
16% | 465 2,910 |
23% | 2018 |
Patient' change in France, and market conditions were largely stable.
Revenue in North America grew marginally in local currencies but exchange rates reduced reported revenue by 4% to DKK 583 million (606). The result reflected a mixed picture of increased sales from SCIT products despite the discontinuation of venom AIT products. This increase was counterbalanced by a decline in sales of tablets and other products.
SLIT-tablet sales in North America were DKK 59 million (72) and were lower as a consequence of stockpiling at wholesalers in 2017, especially in Canada. Nevertheless, tablet sales in the USA grew by 29%. In absolute terms, sales remain modest,
reflecting the nature of the US AIT market and the structural market barriers that ALK still needs to overcome (c.f. page 20 for a detailed discussion). Sales of SCIT bulk allergen extracts to specialists and clinics grew 15% to DKK 270 million (246) while sales of diagnostics and other products declined 8%.
Revenue in International markets was up 41% in local currencies at DKK 112 million (84). The growth was mainly due to the strong development in tablet sales in Japan.
(Comparative figures for 2017 are shown in brackets. Revenue growth rates are stated in local currencies unless otherwise indicated.)
ALK's 2018 financial performance was significantly better than was expected at the beginning of 2018. ALK adjusted its financial guidance four times during the year, most recently on 14 December 2018, and the actual full-year performance was in line with that most recent update.
2018 revenue increased to DKK 2,915 million (2,910) with growth in local currencies of 1%. Exchange rate fluctuations negatively impacted revenue by 2 percentage points.
Cost of sales increased 1% in local currencies to DKK 1,282 million (1,268). Gross profit of DKK 1,633 million (1,642) yielded a gross margin of 56% (56%), reflecting costs for compliance and efforts to build robustness in product supply as well as changes in the product mix.
Capacity costs increased 3% in local currencies to DKK 1,756 million (1,724). R&D expenses decreased to DKK 392 million (426) due to savings and the phasing of large-scale clinical trials. R&D expenses include a one-off write-down of assets worth DKK 32 million related to the discontinuation of US development for the current European version of the adrenaline auto-injector Jext®. Instead, ALK will pursue an alternative US anaphylaxis strategy. Sales and marketing expenses increased by 8% in local currencies to DKK 1,137 million (1,067), reflecting the commercial build-up in the USA, efforts to support
| 2017 | 2018E | 2018E | 2018E | 2018E | 2018E | |
|---|---|---|---|---|---|---|
| DKK | actual | 6 February | 4 May | 15 August | 9 November | 14 December |
| Revenue | 2.9bn | ~2.7bn | >2.7bn | >2.8bn | 2.85-2.90bn | >2.9bn |
| EBITDA | 253m | ~(50)m | ~0m | ~50m | 50-100m | 125-175m |
| Free | (745)m | ~(600)m | (600)m | (550)m | (500)m | ~(400)m |
| cash flow | or better | or better | or better |
ACARIZAX® launches, as well as the cost of developing patient engagement platforms. Administrative expenses were unchanged at DKK 227 milion (231).
EBITDA of DKK 136 million (253) reflected strategic business investments in building the new growth platform, but also benefited from the capture of operational efficiencies
and savings. Exchange rates did not materially affect operating profits. EBITDA includes other operating income of DKK 27 million related to a VAT refund in Germany covering previous years. This resulted from a court decision on VAT deductibility for certain mandatory rebates.
Net financials were a loss of DKK 7 million (loss of 42), mainly due to net interest expenses. Tax on the profit/loss totalled DKK 67 million (36) and net loss was DKK 170 million (a loss of 158).
Cash flow from operating activities was an outflow of DKK 95 million (outflow of 387) and was significantly better than originally planned, reflecting the better operational performance. Cash flow from investment activities was an outflow of DKK 199 million (outflow of 358) mainly relating to maintenance and upgrades, primarily in legacy production. Free cash flow was an outflow of DKK 294 million (outflow of 745) which was better than expected. Cash flow from financing was an outflow of DKK 28 million (inflow of 620) mainly related to the settlement of incentive programmes.
At the end of December, ALK held 263,203 of its own shares or 2.4% of the share capital versus 2.6% at the end of 2017.
At the end of December, cash and marketable securities totalled DKK 396 million, versus DKK 711 million at the end of 2017. In
addition, ALK has an unused credit facility of DKK 600 million which runs until the end of 2022.
Equity totalled DKK 3,179 million (3,290) at the end of the period, and the equity ratio was 65% (65%).
| DKKm | Q4 2018 | Growth (l.c.) | Share of revenue | 2017 |
|---|---|---|---|---|
| Europe | 602 | 4% | 77% | 581 |
| North America | 161 | 3% | 20% | 154 |
| International markets | 24 | -8% | 3% | 28 |
| Revenue | 787 | 3% | 763 |
| DKKm | Q4 2018 | Growth (l.c.) | Share of revenue | 2017 |
|---|---|---|---|---|
| SCIT and SLIT-drops | 476 | -5% | 61% | 501 |
| SLIT-tablets | 182 | 17% | 23% | 159 |
| Other products and services | 129 | 23% | 16% | 103 |
| Revenue | 787 | 3% | 763 |
EBITDA margin
The impairment loss in the consolidated financial statements due to discontinuation of US development of the current European version of Jext® also leads to a significant impairment loss in the parent company financial statements which does not affect the consolidated financial statements, see note 4 to the parent company financial statements.
Four focus areas In December 2017, ALK announced a new strategy designed to broaden its presence in the global allergy market and to stimulate a new era of growth for the company.
The strategy is underpinned by a three-year transformation period, from 2018-20, and has four key elements (see right).
The overall aim is to transform ALK into a broader-based allergy company that reaches many more people who live with allergy and asthma, and which captures a greater share of this wider market by offering solutions for everyone touched by allergy through a comprehensive range of products, services and resources.
ALK's strategy implementation period spans three years, and aims to fundamentally change the company's revenue and earnings profile.
ALK is building a bestin-class consumer care business offering products, information and services to consumers, and building a much closer relationship in the process.
ALK has expanded its organisation in North America to drive the growth of SLIT-tablets and other products. Central to this strategy is developing a close partnership with allergy specialists and encouraging more people living with allergy to seek medical consultations.
In the USA, ODACTRA™ (ACARIZAX® in Canada) was launched in January, joining the already launched GRASTEK® and RAGWITEK® tablets. This product is seen as the key to establishing the US tablet franchise, however, ALK expects it will take time to develop a market where SCIT has traditionally been the dominant form of AIT. As a result, the company has modest sales expectations while it tests and refines the local business model for tablets.
Initial focus is on growing the number of ODACTRA™ prescribers, building their confidence in the product, and securing treatment access for potential patients. In line with these goals, ALK met its 2018 objective for the US market of approximately 1,500 ODACTRA™ prescribers out of the 2,000 targeted, and 5,000 treatment initiations. So far, around 10% of the prescribers have the kind of prescription depth that ALK's experience shows is necessary to gain initial market traction. Meanwhile, 74% of AITeligible patients with commercial insurance now have access to reimbursement for ODACTRA™.
As anticipated, ALK has adjusted its commercial approach to reflect market insights gained through the launch of ODACTRA™. This has meant paying close attention to the number of prescriptions per doctor and promoting the positive experiences of early adopters via peer-topeer medical speaker programmes. From Q4 through to Q1 in 2019, to build further momentum, ALK rolled out its first ever US direct-to-consumer campaign, to mobilise allergy sufferers to consult an allergist about their house dust mite allergy.
In Canada, ALK saw around 160 ACARIZAX® prescribers and approximately 3,000 treatment initiations. Where house dust mite allergy is present, 92% of AIT-eligible patients with commercial insurance now have access to reimbursement for ACARIZAX®. In Q2, ALK expanded its local distribution setup to include traditional wholesalers alongside the specialty pharmacy model adopted during the 2017 launch.
Overall, ALK North America is targeting 2019 growth of more than 10%.
ALK recognises that developing a strong, broad-based allergy solutions business in North America remains a long-term endeavour. At the end of 2018, this region represented 20% of ALK's overall sales, however, the USA in particular represents a considerable potential upside when it comes to future growth.
ALK has made progress with ODACTRA™ in securing reimbursement for patients who have commercial health insurance and continues to explore commercial strategies to increase the number of lives covered and, by inference, the number of people with easy access to ALK's tablets. During 2019, focus will remain on increasing the number of tablet prescribers, as well as increasing the number of prescriptions per doctor, with the aim of establishing a larger group of frequent tablet prescribers.
At the same time, close attention will be paid to retaining those patients who began treatment during 2018.
ALK continues to focus its efforts where they are likely to have most effect, such as the
unmet needs of both allergists and patients, and initiatives that will increase allergy consultations.
ALK also remains committed to growing the value of its legacy business in North America, which has a portfolio spanning bulk SCIT products, penicillin diagnostics and other products, including vials and diluents.
The drive for success in North America is supported by a range of R&D activities, most notably, in relation to completing the tablet portfolio (see p22).
During 2018, the US launch of ODACTRA™ was followed by preparations for the MT11 clinical trial looking at allergic asthma in children. This will involve around 600 children from 10 European countries and the USA, and patient recruitment has already begun. The FDA has also advised that a further clinical trial will be required before any US application for an allergic asthma indication.
Work progressed on the registration file for the tree tablet ahead of a 2019 submission in Canada which, subject to approval, could lead to a 2020 launch.
Sales growth from ALK North America
Sales growth across all main product categories
Increase acceptance of tablets, maintaining focus on targeted key prescribers in the USA, also increasing prescription depth
Expand penicillin business with launch of upgraded Pre-Pen® product and grow value of SCIT and related businesses
ALK continues its work to complete clinical development for, and successfully commercialise, a portfolio of SLIT-tablets covering the world's five most common respiratory allergies – house dust mite, grass, tree, ragweed and Japanese cedar – for adults, adolescents and children.
The tablet portfolio made strong progress in 2018, and now accounts for 23% of ALK's sales. Moreover, ALK confirmed commercial proof of concept for the tablets in Europe and International markets.
ALK estimates that, during 2018, approximately 80-100,000 patients were initiated onto treatment with the house dust mite tablet (branded ODACTRA™ in the USA, MITICURE™ in Japan and ACARIZAX® in other markets). In total, the product has now been launched in 18 markets and further launches are being prepared. In China, ALK entered into dialogue with the authorities with a view to fast-tracking local clinical development ahead of a potential approval there.
The US introduction in January was followed by a February launch in Europe's biggest house dust mite allergy market of France and, later, Spain, Czech Republic and Thailand. Initial uptake in France was particularly encouraging and, by the end of 2018, more than 20,000 patients had been initiated onto treatment there, making this one of the most successful launches of a SLITtablet anywhere in the world.
In Japan, ALK's partner Torii gained approval to expand the use of MITICURE™ to include children. Response to the expanded approval was positive and accelerated uptake of the product. This, together with the launch of the new CEDARCURE™ tablet – for Japanese cedar allergy – is steadily unlocking the market in Japan, with the paediatric indications for both products attracting many more patients to the treatments.
Following analysis of some of the strongest clinical trial data seen to date by ALK, and its subsequent presentation at the congress of the European Academy of Allergy and Clinical Immunology (EAACI), a regulatory filing was submitted for the tree tablet in 18 European countries in August, using Germany as the reference state.
ALK's strategy of placing ACARIZAX® at the forefront of the tablet marketing strategy is designed to create a halo-effect that will also benefit the other tablets – particularly the grass allergy tablet, GRAZAX® (GRASTEK® in North America). By the end of 2018, either ACARIZAX® or GRAZAX® was the most frequently initiated AIT treatment for house dust mite or grass allergies in 11 European markets.
One measure of long-term success will be ensuring that initiations are translated into repeat prescriptions, with patients adhering to their treatment programmes. In 2018, ALK launched a tool to help with this – the Antibody Response Test (ART) which allows doctors to show patients their own immune system's response to AIT as soon as four weeks after treatment initiation. At the end of 2018, ART was available in four markets, with more to follow.
After the end of the 2018 financial year, ALK reported that a Phase III paediatric efficacy and safety trial of the ragweed SLIT-tablet, involving more than 1,000 children, met its primary endpoint, confirming its potential in allergic rhinitis in children.
As well as further launches for ACARIZAX®, subject to approvals, the portfolio is expected to be further expanded in late 2019 with the first launches of the new tree tablet in Europe. This will mark an important milestone because, for the first time, ALK will have a tablet on the market for each of the world's five most important respiratory allergens.
After that, ALK's clinical development programme will primarily focus on expanding tablet approvals to include use in asthma, adolescents and children, as well as registration trials to support new market entries. Accordingly, the company will invest in 2019 trials to gather data for paediatric indications for ACARIZAX®/ODACTRA™, as well as an ACARIZAX® trial in China that should accelerate its approval there.
ALK will also conduct preparatory work ahead of a geographical expansion into Russia where ALK has re-acquired the rights to the tablet portfolio from Abbott. The Abbott partnership will now solely focus on the commercial build-up in South East Asia where additional launches of ACARIZAX® are planned in 2019-20, subject to approvals.
The majority of ALK's R&D efforts are directed towards supporting the completion and commercialisation of the tablet portfolio so that these assets can be fully maximised.
| HDM SLIT-tablet Europe and the USA: Paediatric allergic asthma trial | |
|---|---|
| HDM SLIT-tablet Europe and the USA: Paediatric allergic rhinitis trial | |
| HDM SLIT-tablet China: Adult allergic rhinitis trial | |
| HDM SLIT-tablet the USA: Adolescent allergic rhinitis trial | |
| Ragweed SLIT-tablet the USA: Paediatric safety trial | |
| Tree SLIT-tablet Europe: Paediatric allergic rhinitis trial | |
| Phase I | Phase II | Phase III | Filing | Marketed | |
|---|---|---|---|---|---|
| HDM SLIT-tablet Europe Adults – Allergic rhinitis and allergic asthma |
2016 | ||||
| HDM SLIT-tablet Europe Adolescents - Allergic rhinitis |
2017 | ||||
| HDM SLIT-tablet North America Adults – Allergic rhinitis |
2017/18 | ||||
| HDM SLIT-tablet Japan* Adults and children – Allergic rhinitis |
2018 | ||||
| HDM SLIT-tablet International markets** Adults - Allergic rhinitis and allergic asthma |
|||||
| HDM SLIT-tablet Europe and North America Children – Allergic asthma |
|||||
| HDM SLIT-tablet Europe and North America Children – Allergic rhinitis (HDM) |
|||||
| Grass SLIT-tablet Europe Adults and children – Allergic rhinitis |
2007 | ||||
| Grass SLIT-tablet North America Adults and children – Allergic rhinitis |
2014 | ||||
| Grass SLIT-tablet International markets** Adults and children – Allergic rhinitis |
*** | ||||
| Ragweed SLIT-tablet North America Adults – Allergic rhinitis |
2014 | ||||
| Ragweed SLIT-tablet Europe and International markets Adults – Allergic rhinitis |
|||||
| Ragweed SLIT-tablet Europe, North America and International markets Children – Allergic rhinitis |
|||||
| Tree SLIT-tablet Europe Adults – Allergic rhinitis |
|||||
| Cedar SLIT-tablet Japan* Adults and children – Allergic rhinitis |
2018 |
* Licensed to Torii for Japan
** Licensed to Abbott for South-East Asia and Seqirus for Australia/New Zealand
*** Already marketed in selected markets
Allergy is the most widespread chronic disease in the world and, while ALK is an established expert in the field, just 1% of people with allergy currently receive the AIT products that form the core of ALK's portfolio.
As a result, many in the other 99% may not be aware of the full range of treatment options available to them. Many of these people are undiagnosed, suffer in silence, or selfmanage their condition with various overthe-counter products and medicines. Those who eventually find their way to AIT often do so after many years of failed attempts to treat their allergy.
Despite these frustrations, research shows that people with allergies are highly engaged in managing their condition, and take daily decisions to mitigate its effects.
The patient engagement strategy aims to connect ALK with 'the other 99%' by building a consumer-focused ecosystem of information, services and products that complement the company's core AIT portfolio. The goal is to connect and engage with allergy sufferers
much earlier in their disease journey, using digital tools and e-commerce offerings that offer support, guidance and relief, eventually smoothing the path to AIT treatment for those who might benefit from it.
Building on the experience of small-scale pilot testing, ALK solidified its digital engagement strategy around the concept of driving traffic from ALK-hosted allergy information websites towards new e-commerce platforms. This strategy was rolled out to Germany and the UK in 2018.
ALK also launched the e-commerce website klarify.me in both countries. Meanwhile, throughout the year, ALK identified and sourced around 50 products to be sold via klarify.me, including products for drug-free relief, such as salt-inhalers, nasal filters, air purifiers and air monitoring tools.
ALK also launched the klara smartphone app in both markets. klara alerts users to the latest local pollution and pollen count data, helping them to take control of their allergies and plan the day ahead.
Progress was also made behind the scenes, with the establishment of order-taking and
fulfilment infrastructure for consumer care products and the development of marketing strategies and promotional campaigns.
Metrics across the digital platforms were encouraging. Visits to the German allergy information website were up on 2017 at almost 2 million and there was also an upswing in users taking allergy tests and searching for allergy doctors at approximately 70,000 and 35,000 respectively. Similarly, visits to klarify.me climbed monthly and totalled 1 million for the year, and there were more than 25,000 downloads of klara which, in Germany, was named the best new healthcare app of 2018.
Alongside patient engagement, ALK is committed to supporting the role of allergists and other healthcare practitioners, and is working to identify adjacent business opportunities that will further strengthen these connections.
Amongst others, in 2018 ALK struck deals with Rellergen Biotech Inc., in China, for a new hospital-based diagnostic tool, and with Bosch Healthcare Solutions for Vivatmo Pro, an easy-to-use breath measurement system, for doctors to diagnose and monitor inflamed airways.
Many patients self-medicate for years, using overthe-counter remedies before seeing a doctor. ALK's sister brand, klarify.me, offers a broad range of products for early allergy intervention, symptom alleviation and relief, such as bedding, fish oils, air purifiers and more.
ALK also evaluated its US anaphylaxis strategy and decided to discontinue US development of the current European version of the adrenaline auto-injector Jext®. Instead ALK will pursue an alternative US anaphylaxis strategy.
From a strategic point of view, ALK is already gaining a deeper insight into the reality of living with allergies. Information that is proving invaluable as it makes decisions about the shape and marketing of the future consumer care portfolio.
At the same time, ALK's engagement systems are helping to establish a proprietary 'permission marketing' platform for the company and its expanded range of allergy solutions, and 2019 priorities include the assimilation of insights gained as well as leveraging this ecosystem in support of the anticipated tree tablet launch.
ALK's R&D function plays a major role in the due diligence process that precedes any inlicensing agreement for adjacent business opportunities. Its role includes the scientific appraisal of documentation and any medical claims, the assessment of whether adequate safety and pharmacovigilance reporting measures are in place, and a quality review of any relevant regulatory approvals and marketing authorisations. Given the nature of business development discussions, much of this work never sees the light of day. Nevertheless this work plays an important role in shaping ALK's expanded portfolio and ensures the products that are added to klarify.me meet the standards expected of an ALK-endorsed or branded product.
| 2019 key metrics | |||||
|---|---|---|---|---|---|
| 20 million klarify.me messages seen |
|||||
| more than 100,000 downloads of klara | |||||
| 85,000 allergy tests taken | |||||
| 45,000 searches for an allergy doctor | |||||
Build on patient engagement platform and leverage to support tree tablet launch
In the earlier stages of the disease, the allergy market is dominated by consumer products.
ALK is rolling out a wideranging efficiency and quality improvement programme that sees savings reinvested in the pursuit of long-term growth.
The initial focus of optimise and reallocate was to improve robustness, scalability and quality within ALK's manufacturing and supply operations, along with a general move towards reducing costs and thereby improving margins over the longer term.
In 2018, ALK completed all the necessary upgrades to its Vandeuil facility, in compliance with the French health authority's requirements following its 2017 injunction.
Progress was further underlined during the year by eight inspections of ALK facilities in five countries. ALK also made significant progress to restore inventories, and delivery times for SCIT and SLIT-drops in time for the peak AIT initiation season. This followed a period of stock shortages and extended delivery times for certain products, which had temporarily affected sales of SCIT and SLIT-drops.
In response to supply issues at a major manufacturer of adrenaline auto-injectors (AAIs) – used for the emergency treatment of allergy-related anaphylaxis – ALK ramped up production of its Jext® AAI as far as possible to meet surging demand. In a further response, UK authorities approved an extension of the use of specific batches of Jext® that were already in circulation by up to four months beyond the labelled expiry date.
There was further progress on rationalising ALK's portfolio of older products. By the end of 2018, approximately 250 products had been eliminated from the portfolio as it stood in 2016. Product rationalisation decisions are determined by medical, delivery, quality and efficiency factors and, wherever possible, ALK offers alternative products to anyone affected.
Other, less visible, but nevertheless important progress was made internally, with the roll-out of a new framework of cultural beliefs, emphasising the mindset and behaviours that are required to successfully deliver ALK's growth strategy.
As a result of the work to improve stability, robustness and quality, and the restoration of inventory levels, ALK has now established a stable foundation upon which to make further improvements.
The phasing out of older, uncompetitive products will continue in parallel with upgrades to production facilities and manufacturing processes. Together these initiatives will ensure long-term production robustness and efficiency, and will boost margins generally. A major contributor to this work will be Project PASS, ALK's initiative to establish centres of manufacturing excellence, each of which is focused on fewer product variants and is therefore able to increase overall production efficiency.
Efforts to boost Jext® output to meet the current exceptional demand will continue, as will efforts to maintain the improved market position.
Similarly, internal initiatives to instil and support the necessary cultural changes at ALK will continue organisation-wide.
ALK's R&D organisation provides significant support for the portfolio rationalisation effort. This can be via demonstrating upgraded compliance standards for legacy products that will remain a part of the portfolio, or by providing additional documentation to improve the competitiveness of legacy products.
One example is a recent clinical trial for Alutard SQ®, an important SCIT product in certain European markets. This 2018 trial demonstrated the possibility of shortening the updosing regimen for Alutard SQ® from 11 doses to seven, accelerating the time to full protection and, if approved by regulators, potentially improving the competitiveness of this product significantly.
Accelerate portfolio and site strategy
Increase production yields
Improve efficiency of production processes and overall flow
Assess the potential for increased automation
Continue portfolio rationalisation programme
Maintain quality, robustness and scalability in manufacturing
Increase production efficiency to improve margins
Maintain momentum of cultural change
ALK's Board of Management is responsible for the ongoing management of risk, including risk mapping, the assessment of probabilities and potential consequences, and the introduction of risk-reducing measures.
Board of Management has established a Risk Committee to assist it in meeting its overall responsibility for risk management. The Risk Committee comprises representatives from each functional area relevant to ALK's risk profile. The Risk Committee meets twice a year or more, as required, to perform its tasks. Risks are assessed according to a twodimensional matrix, rating the impact and likelihood of each risk. A risk management report with key risks and recommended mitigation plans is submitted to the Board of Directors' audit committee on an annual basis and subsequently approved at board level.
ability to generate revenue.
| Area | Description | Risk mitigation |
|---|---|---|
| Research and development |
The future success of ALK depends on the Group's ability to maintain current products and successfully identify, develop and market new, innovative drugs, which involves significant risks. A pharmaceutical drug must be subjected to extensive and lengthy clinical trials to document aspects such as safety and efficacy before it can be approved for marketing. In the course of the development process, the outcomes of these trials is subject to significant risks. Even though substantial resources are invested in the development process, the trials may produce negative results. Delays in obtaining regulatory approvals – or failure to obtain such approvals – may also have a major impact on the ability of ALK to achieve its long-term goals. |
ALK and its collaborative partners perform thorough risk assessments of its research and development programmes throughout the development and registration processes with the objective of risk mitigation to optimise the likelihood of the products reaching the market. In 2018, the Board of Directors updated the charter for the Scientific Committee to include responsibility for other patient/product related innovation activities . The committee advises on matters relating to R&D activities and other patient/product related innovation activities, including reviewing R&D programmes and the overall R&D pipeline. |
| Regulation and price control |
ALK's products are subject to a large number of statutory and regulatory requirements with respect to issues such as safety, efficacy and production. In most of the countries in which ALK operates, prescription drugs are subject to reimbursement from, and price controls by, national authorities. This often results in major price differences between individual markets. Regulatory requirements and interventions, as well as price control measures, may therefore have a significant impact on the Group's earnings capacity. |
ALK actively engages in dialogue with the authorities aimed at securing fair pricing and reimbursement agreements. |
| Commercialisation – Market acceptance |
If ALK and its partners succeed in developing new products and obtaining regulatory approvals for them, the ability to generate revenue depends on the products being accepted by doctors and patients. The degree of market acceptance for a new product or drug candidate depends on a number of factors, including the demonstration of clinical efficacy and safety, cost-effectiveness, convenience and ease of administration, potential advantages over alternative treatment methods, competition, and marketing and distribution support. If ALK's new products fail to achieve market acceptance, this could have a significant influence on the Group's |
ALK regularly conducts extensive surveys of market conditions and similar factors and commits significant resources to providing information on its products to doctors and patients. |
| Area | Description | Risk mitigation |
|---|---|---|
| Commercialisation – Allergic reactions |
ALK's products may be associated with allergic reactions of varying extents, durations and severities. If such events occur in unexpected situations, they may have an impact on the Group's earnings and sales. |
ALK stringently monitors product quality and safety, both in clinical development and in sales and marketing activities. If, despite the high levels of quality and safety, a situation should occur in which it is necessary to recall a product, ALK has procedures in place to ensure that this can be managed swiftly and efficiently. |
| Competition and pricing | ALK operates in markets characterised by intense competition. If, for instance, a competitor launches a new and more effective treatment of allergy, it may have a material impact on ALK's sales. A competitive market may also lead to market-driven price reductions just as national and regional authorities may mandate price reductions. Both competition and price are risks that may have a material impact on ALK's ability to achieve its long-term goals. |
ALK monitors economic developments, the competitive situation and initiatives in all important markets with the aim of appropriate risk mitigation. |
| Production and quality | ALK has concentrated its key in-house production capacity at plants in Denmark, France, Spain and the USA. Although the plants are located in areas that have not historically been hit by natural disasters, this geographical spread calls for risk planning in order to avoid emergencies, such as lack of, or poor access to raw materials: for instance, pollen. Production and manufacturing processes are also subject to periodic and routine inspections by regulatory authorities as a regular part of their monitoring processes in order to ensure that all manufacturers observe the prescribed requirements and standards. Meeting these quality standards is a prerequisite for the Group's competitive strength. |
ALK conducts risk planning including for the prevention of unwanted events, and preventative inventory management, such as the build-up of contingency stocks in order to ensure an unbroken chain of production and supply. ALK's production processes and quality standards have been developed and optimised over many years. ALK invests significantly to increase the robustness and compliance of the legacy business by reducing manufacturing complexity, which involves an extensive portfolio rationalisation programme. |
| Dependencies on third parties |
ALK has partnership agreements with third parties with a view to commercialising the Group's products in a number of markets, and with parties supplying important input for key production processes. Although there are financial incentives for all of ALK's partners to fulfil their contractual obligations, there can be no assurance that they will actually do so. Moreover, reliance on suppliers and third-party manufacturers entails risks that ALK would not be subject to if the Group possessed the necessary in-house manufacturing capabilities. Such risks include but are not limited to: • Reliance on a third party for regulatory compliance and quality assurance • Possible breach of a manufacturing agreement by a third party due to factors beyond ALK's control and influence • Reliance on the ability of a third party to deliver and scale up the volume of production |
ALK manages these risks through contractual stipulations, thorough planning and monitoring, and through joint steering committees that work together with these external parties. |
| IT security | Disruption to IT systems, such as breaches of data security, may happen across the global value chain, where well-functioning IT systems and infrastructure are critical for the Group's ability to operate effectively. |
ALK manages this risk, among other ways, by having a security strategy in place to prevent intruders from causing damage to systems and gaining access to critical data and systems. Awareness campaigns, access controls, intrusion detection and prevention systems have all been implemented. |
| Area | Description | Risk mitigation |
|---|---|---|
| Business ethics | ALK's good reputation is essential for operating within the pharmaceutical industry. ALK aims to maintain its standing by acting in compliance with all applicable regulations and legislation. |
ALK strives to act professionally, honestly, and with high integrity throughout the Group in relation to stakeholders from customers, employees and shareholders, to society, suppliers and partners. ALK's Code of Conduct is updated regularly and defines ALK's high standard of ethical behaviour in relation to customers, employees, shareholders, society, suppliers and partners. Once a year, all employees are asked to sign and confirm their knowledge of the Code of Conduct and in addition, all employees were asked to take an anti-corruption online test in 2018. |
| Patents and intellectual property rights |
Patents and other intellectual property rights are important for developing and retaining ALK's competitive strength. |
The risk that ALK might infringe patents or trademark rights held by other companies, as well as the risk that other companies may attempt to infringe the patents and/or trademark rights of ALK are both monitored and, if necessary, suitable measures are taken. The Scientific Committee regularly reviews the strategy for intellectual property rights. |
| Financial reporting | If well-functioning risk management and internal controls are not implemented at ALK, there is a risk of material misstatements in the financial reporting. |
ALK's risk management and internal controls related to financial reporting are designed to effectively control the risk of material misstatements. A detailed description of ALK's internal controls and risk management system in relation to financial reporting processes is reviewed annually by the Audit Committee and is included in the Statutory Corporate Governance Statement, cf. section 107b of the Danish Financial Statement Act, and is available at the company's website: https://ir.alk.net/financial-reporting/risk management |
| Financial risks | Due to the nature of its operations, investments and financing, ALK is exposed to fluctuations in exchange rates and interest rates. |
The ALK Group's financial risks are managed centrally, based on policies approved by the Board of Directors. The objective of ALK's financial risk management is to reduce the sensitivity of earnings to fluctuations in exchange rates, interest rates, liquidity and changes in credit rating. Group policy is to refrain from active financial speculation. See note 25 of this annual report for a specification of the Group's exposure to currency, interest rate and credit risks and its use of derivative financial instruments. |
ALK has a two-tier management structure consisting of the Board of Directors and the Board of Management. The two boards are independent of each other.
The Board of Directors defines the strategic framework for ALK's action plans and activities on the basis of objectives,
| Share capital | DKK 111,411,960 |
|---|---|
| Nominal value | DKK 10 per share |
| Number of A shares | 920,760 units with |
| 10 votes per share | |
| Number of AA shares 92,076 units with | |
| 10 votes per share | |
| Number of B shares | 10,128,360 units with |
| 1 vote per share |
|
| Stock Exchange | Nasdaq Copenhagen |
| Ticker symbol | ALK B |
| Indices | CX4500 (healthcare), |
| OMXCLCPI (LargeCap) and | |
| OMXCPI (all) | |
| ISIN | DK0060027142 |
| Bloomberg code | ALKB.DC |
| Reuters code | ALKB_CO |
| ADR ticker symbol | AKABY |
| LEI code | 529900SGCREUZCZ7P020 |
strategies and policies. Furthermore, on behalf of the shareholders, the Board of Directors supervises the organisation, monitors procedures and responsibilities and sees that the company is managed appropriately and in accordance with legislation and ALK's articles of association.
The Board of Directors appoints a Board of Management to undertake the day-to-day management of ALK. The Board of Directors sets out the terms and tasks of the Board of Management, supervises its work and seeks a constructive dialogue with the Board of Management regarding the implementation of the selected strategies and the overall development of the company.
The Board of Directors consists of nine members. Six members, including the Chairman and the Vice-Chairman, are up for re-election each year at the annual general meeting. Three members are employeeelected and are serving four-year terms. In 2018, there was a vacant position on the Board among the members elected by the annual general meeting.
ALK's Statutory Corporate Governance Statement for the financial year 2018, pursuant to section 107b of the Danish Financial Statement Act, is available at https://ir.alk.net/financial-reporting/riskmanagement
The statement provides a detailed account of ALK's management structure including the Board of Directors' composition, activities, remuneration and self-assessment. The statement furthermore describes key elements of ALK's internal controls and risk management systems relating to financial reporting processes.
As a listed company, ALK is subject to the recommendations of the Danish Committee on Corporate Governance. ALK fulfils this obligation either by complying with its recommendations or by explaining the reason for non-compliance. ALK complies with 45 of the 47 recommendations. The Board of Directors' 'comply or explain' review is available at https://ir.alk.net/corporategovernance
At the annual general meeting in March 2018, Steen Riisgaard was re-elected Chairman of the Board of Directors and Lene Skole was reelected Vice Chairman. Lars Holmqvist and Jakob Riis were re-elected as members of the Board of Directors and Gonzalo De Miquel
was elected as a new member of the Board of Directors.
As announced on 15 January 2019, the Board of Directors will propose the election of Vincent Warnery as a new member of the Board of Directors at the annual general meeting on 13 March 2019.
The aim is that the share price should offer a fair representation of ALK and reflect the company's actual and expected ability to create shareholder value. ALK would further like the share to be liquid and to have a sound foundation, allowing for efficient pricing and trading in the share.
The total share capital is divided into A shares, AA shares and B shares (cf. core data table to the left). The A shares and AA shares are not listed and are predominantly held by the Lundbeck Foundation, while all B shares are listed and freely negotiable.
At the end of 2018, ALK had 13,658 registered shareholders, versus 15,495 at the end of 2017. The registered shareholders owned 97% of the share capital (96). As of 31 December 2018, two shareholders had notified shareholdings of 5% or more: the Lundbeck Foundation had a 40.3% interest (including A shares and AA shares) and ATP had a 7.1% interest. Of the 30 largest registered shareholders, the vast majority were institutional investors — from North America, the UK and Scandinavia in particular. In the shareholder register, the international ownership was estimated at approximately 21% (19), representing 36% of the free float of the B share capital (32), excluding the Lundbeck Foundation's holding and treasury shares.
ALK's holding of its own shares was reduced following the settlement of share option and conditional share programmes. At the end of the year, ALK held 263,203 or 2.4% of its own shares (2.6% at the end of 2017) which
50.2% 40.3%
2018
2.4%
7.1%
The Lundbeck Foundation ATP ALK Other is considered sufficient to cover current obligations related to ALK's long-term incentive programmes.
ALK aims to provide long-term shareholder return through an increased share price, the paying-out of dividends and the purchase of its own shares. At the end of 2017, the share price was DKK 740 and the share closed 2018 at DKK 960.
In December 2017, ALK launched an offering of new shares at market price to finance the updated business strategy (cf. pages 18- 29). Through an accelerated bookbuilding process, ALK offered up to 92,076 new AA shares and up to 920,760 new B shares representing 10% of its registered share capital.
| Shareholder | Registered office Number of shares |
Interest | Votes | |||
|---|---|---|---|---|---|---|
| The Lundbeck Foundation | Copenhagen, Denmark | 920,720 92,072 |
A shares AA shares |
40.3% | 67.2% | |
| 3,474,827 | B shares | |||||
| ATP** | Hillerød, Denmark | 791,631 | B shares | 7.1% | 3.9% | |
| ALK – own shares | Hørsholm, Denmark | 263,203 | B shares | 2.4% | - |
* Notified shareholdings of 5% or more of the company's shares ** The Danish Labour Market Supplementary Pension
The Board of Directors considers that the proceeds from the offering, together with credit facilities, constitute a sufficient financial basis for implementing the updated strategy and funding the expected negative free cash flow during the transformation period. In support of the strategy, the Board of Directors has temporarily suspended dividend payments. In line with this decision, at the annual general meeting in March 2019, the Board of Directors proposes that no dividend be declared.
The Board of Directors will revisit the dividend policy and ALK's capital structure on an ongoing basis during the three-year transformation period.
Based on its IR policy (https://ir.alk.net/ corporate-governance/ir-policy), ALK seeks to provide timely, accurate and relevant information on matters of importance to the assessment of the share, including strategy, operations, performance, expectations, goals, pipeline, market development, and other matters. ALK continuously works to strengthen its dialogue with all financial stakeholders in accordance with good IR practice and the provisions for companies listed on Nasdaq Copenhagen.
Besides hosting regular telephone conferences, ALK representatives held approximately 250 individual meetings with analysts and investors in 2018, and also presented at various investor conferences.
During the year, ALK published 16 company announcements (40), including reports on transactions by managerial staff. All announcements are available on ALK's website together with reports, presentations, access to telephone conferences, share price information, estimates from the analysts following the share, and related information. Registered shareholders are encouraged to sign up at the InvestorPortal.
| Annual general meeting | 13 March |
|---|---|
| Three-month interim report (Q1) | 9 May |
| Six-month interim report (Q2) | 13 August |
| Nine-month interim report (Q3) | 7 November |
Visit Investor Relations at https://ir.alk.net/investors
Contact Investor Relations: Per Plotnikof Tel. +45 4574 7527
The Lundbeck Foundation is one of the largest industrial foundations in Denmark with a net wealth in excess of DKK 60 billion, and an annual spend of more than DKK 500 million in grants to support biomedical research with a special focus on the brain. Founded in 1954 by the widow of the founder of the Danish pharmaceutical company, H. Lundbeck A/S, the Foundation is the largest and controlling shareholder of ALK, owning 67% of the votes (40% of the capital). In addition, the Foundation is the majority shareholder of two other large Danish companies, Lundbeck and Falck, and manages securities of about DKK 14 billion.
The Lundbeck Foundation also invests in European and American life-science companies and supports a range of early-stage investment projects. Every year, the Foundation awards The Brain Prize, a personal research prize of EUR 1 million. The prize is awarded to one or more scientists who have distinguished themselves through an outstanding contribution to global neuroscience and who are still active in research.
For further information on the Foundation, please visit www.lundbeckfonden.com
"The Lundbeck Foundation's business activities encompass three large subsidiaries, an international portfolio of 18 venture companies, a portfolio of six biotech start-ups based on research from Danish universities, and internal management of securities of around DKK 14 billion.
www.lundbeckfonden.com
©Matheus Ferrero
ALK's Statutory Report on Corporate Social Responsibility (CSR) for the financial year 2018, pursuant to sections 99a and 99b of the Danish Financial Statements Act, is available at www.alk.net
The report provides a detailed account of the basis for CSR at ALK, namely the CSR policy and the Code of Conduct. In 2018, ALK's CSR policy was updated, integrating the company's efforts and ambitions relating to the UN Sustainable Development Goals (SDGs):
In 2018, ALK set new biannual goals and continues to support the abovementioned SDGs as an integrated part of the business and purpose of ALK.
In addition, a risk analysis of ALK's activities has been repeated for the countries in which ALK operates, in relation to the environment and climate, anti-corruption, and human and labour rights, aiming to ensure that ALK conducts business in a sustainable manner for the benefit of people and the planet and creating prosperity in return.
ALK's Code of Conduct describes the ethical requirements for all employees' behaviour
in relation to customers, employees, shareholders, society, suppliers and partners. The Code of Conduct supports and integrates the UN Global Compact's 10 principles in the areas of human and labour rights, the environment and anti-corruption. Based on the Code of Conduct, and anchored in ALK's Cultural Beliefs, the CSR policy outlines current priorities and focus areas. The policy is implemented via various policies and procedures, including Human Resources (HR) policies, Environment, Health and Safety (EHS) action plans, quality procedures and similar measures.
"Building a sustainable company for the future can only be achieved by taking action on global challenges.
Carsten Hellmann, President & CEO
The purpose of ALK's remuneration guidelines are to:
The remuneration guidelines and the guidelines for incentive pay can be found here: https://ir.alk.net/corporategovernance
The directors' base fee was unchanged in 2018 at DKK 275,000. At the annual general meeting in March 2019, the Board of Directors will propose that the remuneration be unchanged for 2019.
The members of the Board of Directors are not offered any share options, performance shares or other incentives, and only travel costs are reimbursed. Employee-elected members of the Board of Directors may take
| Board of Directors | Ownership interest in ALK | ||||||
|---|---|---|---|---|---|---|---|
| Audit Committee |
Remune ration Committee |
Scientific Committee |
Nomination Committee |
Holding as at 31 December 2018 |
Changes during the year |
||
| Steen Riisgaard, Chairman | Member | Chairman | Member | Chairman | Steen Riisgaard | 1,000 | - |
| Lene Skole*, Vice Chairman | Member | Member | Member | Lene Skole* | 1,150 | - | |
| Katja Barnkob | Katja Barnkob | 24 | - | ||||
| Lars Holmqvist* | Member | Lars Holmqvist* | 0 | - | |||
| Andreas Slyngborg Holst | Andreas Slyngborg Holst | 0 | -100 | ||||
| Jacob Kastrup | Jacob Kastrup | 18 | +10 | ||||
| Gonzalo De Miquel | Member | Chairman | Gonzalo de Miquel | 0 | - | ||
| Jakob Riis* | Chairman | Jakob Riis* | 550 | - | |||
| Total | 2,742 | -90 |
| Audit | Remuneration | Scientific | Nomination | |||||
|---|---|---|---|---|---|---|---|---|
| DKKt | Annual fee | Committee | Committee | Committee | Comittee | 2018 | 2017 | 2016 |
| Steen Riisgaard | 825 | 100 | 150 | - | - | 1,075 | 975 | 975 |
| Lene Skole* | 550 | 100 | - | - | 650 | 650 | 650 | |
| Katja Barnkob | 275 | 275 | 275 | 275 | ||||
| Lars Holmqvist* | 275 | 100 | 375 | 375 | 375 | |||
| Andreas Slyngborg Holst | 275 | 275 | 275 | 275 | ||||
| Jacob Kastrup | 275 | 275 | 275 | 275 | ||||
| Gonzalo De Miquel (joined March 2018) | 275 | 100 | 150 | 525 | ||||
| Anders Gersel Pedersen (resigned March 2018) | - | - | 525 | 525 | ||||
| Jakob Riis* | 275 | 150 | 425 | 425 | 425 | |||
| Per Valstorp (resigned March 2018) | - | - | 375 | 375 | ||||
| Total | 3,025 | 350 | 350 | 150 | - | 3,875 | 4,150 | 4,150 |
| Board of Directors |
Audit Committee |
Remuneration Committee |
Scientific Committee |
Nomination Committee |
|
|---|---|---|---|---|---|
| Chairman | 3.0 | 0.55 | 0.55 | 0.55 | 0.0 |
| Vice Chairman | 2.0 | n/a | n/a | n/a | n/a |
| Member | 1.0 | 0.36 | 0.36 | n/a | 0.0 |
* These board members are not regarded as independent in the sense of the definition contained in the Danish recommendations on Corporate Governance due to being affiliated with the Lundbeck Foundation, which owns 40.3% of ALK
part in the general incentive programmes for employees at ALK.
The Vice Chairman receives double the base fee and the Chairman gets three times the base fee. In addition, members of the Remuneration Committee, the Audit Committee and the Scientific Committee each receive a fee of DKK 100,000, with the Chairman of each committee receiving DKK 150,000.
Remuneration for Board of Management
The compensation for the CEO in 2018 totalled DKK 11.3 million, representing a decrease of 26% compared to 2017. The base salary stayed at DKK 6.25 million (55% of total compensation) and the STI cash bonus of DKK 4.0 million was 85% of maximum bonus. The bonus payout reflects a performance that exceeded the group financial targets as well as strong performance in the global sales of SLIT-tablets.
The compensation for the EVP for R&D totalled DKK 4.8 million in 2018. This represents a decrease of 18% compared to 2017. The base salary remained at DKK 2.8 million (58% of total compensation) and the STI cash bonus was DKK 1.0 million which constitutes 73% of maximum bonus. The bonus payout reflects a year with performance above expectations for the group financial goals as well as progress in completing the tablet portfolio.
The EVP for Operations received a total compensation of DKK 5.1 million in 2018 representing a decrease of 11% compared to 2017. The base salary increased by 13% to DKK 2.9 million (56% of total compensation in 2018) to reflect the additional responsibility for Product Supply from December 2017. The STI cash bonus was DKK 1.3 million which constitutes 90% of maximum bonus. The bonus payout reflects a performance exceeding expectations on the group
| CEO | EVP, R&D | EVP, Operations | CFO | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Element | 2018 | 2017 | 2018 | 2017 | 2016 | 2018 | 2017 | 2016 | 2018 | Objective | Remuneration level | Performance measure | |
| Fixed salary | 6,250 | 6,250 | 2,798 | 2,798 | 2,798 | 2,881 | 2,551 | 2,506 | 2,300 | Attract and retain qualified executives |
On par with market compared to the level in similar listed Danish companies with global reach |
n/a | |
| Short-term incentive (cash bonus) |
3,984 | 4,688 | 1,026 | 1,166 | 1,166 | 1,296 | 1,260 | 1,253 | 1,035 | Ensure a clear link between value creation and payment |
For the CEO, target is 70% and maximum is 75%. For the EVPs, target is 25% and maxumum is 50% of the base salary |
The financial targets act as qualifiers for bonus payout. The remaining targets concern the four strategic pillars. 70% of the bonus relates to the group performance and 30% to the individual performance |
|
| Sign-on bonus (cash) |
- | 1,500 | - | - | - | - | - | - | 686 | ||||
| Long-term incentive (equity-based) valued at the time of vesting in the respective year |
814 | 2,530 | 425 | 1,349 | 4,078 | 425 | 1,349 | 3,189 | n/a | Reward long-term value creation and align with shareholders' interest |
Target is 35-50% of the annual base salary at the date of grant. At vesting, the programme will be paid out at 0-200% depending on the fulfilment of the goals in the programme |
The goals relate to revenue and success in the strategic priorities |
|
| Pension incl. social security |
2 | 2 | 422 | 422 | 422 | 380 | 380 | 378 | 347 | n/a | The EVPs have a company paid pension scheme of 15% |
n/a | |
| Other benefits | 243 | 243 | 141 | 106 | 117 | 142 | 219 | 121 | 288 | ||||
| Total (DKKt) | 11,293 | 15,212 | 4,812 | 5,841 | 8,581 | 5,124 | 5,759 | 7,447 | 4,656 | ||||
| Severance pay if terminated by ALK |
30 months pay consisting of base salary during the termination period (six months) and severance pay (24 months) |
18 months pay consisting of base salary during the termination period (six months) and severance pay (12 months) |
18 months pay consisting of base salary during the termination period (six months) and severance pay (12 months) |
12 months in 2023 | 13 months pay consisting of base salary during the termination period (six months) and severance pay (seven months).The severance pay will increase by one month per year of hire until reaching a total of |
financial targets as well as a strong performance in the global SLIT-tablet sales.
The compensation for the CFO totalled DKK 4.7 million in 2018 which was his first year in ALK. The base salary amounted to DKK 2.3 million (49% of total compensation) and the STI cash bonus was DKK 1.0 million which constitutes 90% of maximum bonus. The bonus payout reflects performance above expectations on the group financial goals and progress in optimisation programmes.
The remuneration under the share-based incentive programmes consists of the value of programmes on the day they vested in 2018. The LTIP from 2015 consisting of conditional shares and share options vested on 1 March 2018, and the CEO sign-on programme vested on 1 January 2018.
The remuneration of the Board of Management is a combination of fixed and performancebased pay. In addition to a fixed salary, pension and other standard, non-monetary benefits, the members of Board of Management take part in short- and long-term incentive plans.
The short-term incentive plan is an annual cash bonus linked to the achievement of predefined financial and non-financial targets. The CEO may receive an annual bonus of up to a maximum of 75% of the annual base salary and the Executive Vice Presidents may receive an annual bonus of up to a maximum of 50% of the annual base salary.
The targets are set and evaluated annually by the Board of Directors, and the financial goals act as a bonus qualifier with a predefined threshold for the achievement of each financial target. In 2018, the weighting of the financial goals was 30% and the combined weighting of targets for the four strategic pillars was 70%. All goals were set collectively for the CEO and the EVPs.
The long-term incentive plan is an equitybased plan linked to the creation of shareholder value and to the fulfilment of the strategic goals. The Board of Directors decides on a year-to-year basis whether a plan should be established. The value of the plan must be in the range of 30-50% of the annual base salary for the member of Board of Management at the time of grant.
The total value at the date of grant is split equally between share options and performance shares. Both plans are subject to the fulfilment of economic indicators over
a three-year period, with a threshold below which there will be no payout, and with the opportunity to perform above target. Where performance is above target, a multiplier is applied that can increase the payout by up to 100%.
If a member of the Board of Management leaves ALK as a result of their own resignation or severe misconduct, all rights to the LTIPs are cancelled.
In 2018, a special incentive plan was established for the Board of Management designed to reward the implementation of ALK's growth strategy. The total value of the plan was 50% of each executive's annual base salary at the time of allocation/grant, and it was split equally among share options and performance shares.
The special incentive plan is conditional upon economic indicators being attained over a three-year period, with a threshold value below which the plan will not pay out. If the results exceed the threshold, a defined multiplier may increase the grant/allocation in ALK's special incentive plan by up to 300%. However, the overall payout on the exercise date for share options or performance shares can never exceed a total value of 300% of the recipient's annual base salary on the date of grant of the share options and allocation of the performance shares.
Share options may be exercised during the two years after they have vested. If they are not exercised within the two years, they will expire.
The performance shares will be allocated to each member of Board of Management after three years if the pre-defined criteria have been met.
If a member of the Board of Management leaves ALK as a result of their own resignation or severe misconduct, all rights to the LTIPs are cancelled.
| Shares 31.12.2018 |
Net changes during the year* |
Share options 31.12.2018 |
Net changes during the year* |
Conditional shares 31.12.2018 |
Net changes during the year* |
Performance shares 31.12.2018 |
Net changes during the year* |
|
|---|---|---|---|---|---|---|---|---|
| Carsten Hellmann | 2,040 | +1,140 | 52,590 | +17,942 | - | -1,140 | 4,592 | +3,607 |
| Henrik Jacobi | 2,133 | +595 | 20,436 | +8,863 | 466 | -595 | 2,330 | +1,781 |
| Søren Jelert | - | - | 6,525 | +6,525 | - | - | 1,311 | +1,311 |
| Søren Niegel | 2,013 | 95 | 24,469 | +990 | 466 | -595 | 2,136 | +1,606 |
| Total | 6,186 | +1,830 | 104,020 | +34,320 | 932 | -2,330 | 10,369 | +8,305 |
*The figures indicate the net movement in the course of the year, i.e., shares bought and sold and conditional shares delivered, options granted less exercised and expired options, conditional shares granted less conditional shares delivered/cancelled, as well as performance shares granted
Back row from left to right: Katja Barnkob, Jakob Kastrup, Lars Holmqvist, Gonzalo De Miquel, Steen Riisgaard and Lene Skole
Front row from left to right: Andreas Slyngborg Holst and Jakob Riis
Chairman Board member since 2011**
Chairman of the Nomination Committee Chairman of the Remuneration Committee Member of the Audit Committee
Management and board work as well as experience in research & development and sales & marketing in international companies.
COWI Holding A/S, Chairman Xellia Pharmaceutical A/S, Chairman Novo A/S, Vice Chairman The Villum Foundation, Vice Chairman The Novo Nordisk Foundation VKR Holding A/S Aarhus University Corbion N.V., the Netherlands
The Lundbeck Foundation, CEO and directorships at two subsidiaries
Vice Chairman Board member since 2014**
Member of the Audit Committee Member of the Nomination Committee
Experience in management, financial and economic expertise, experience in strategy and communication in international companies.
Falck A/S, Vice Chairman H. Lundbeck A/S, Vice Chairman Ørsted A/S, Vice Chairman Tryg Forsikring A/S Tryg A/S
Professional board member
Board member since 2015**
Member of the Remuneration Committee
Experience in management, finance, sales and marketing in international life science companies, including med-tech and pharmaceutical companies.
The Lundbeck Foundation H. Lundbeck A/S Tecan AG, Switzerland Vitrolife AB, Sweden BPL Holdings, UK
Chief Medical Officer and EVP of Development, Vectura Ltd
Board member since 2018**
Chairman of the Scientific Committee Member of the Remuneration Committee
Experience in research & development within the pharmaceutical industry, a strong international mindset and significant global drug development experience.
Ventaleon Ltd
Falck A/S, President & CEO
Board member since 2013**
Chairman of the Audit Committee
Competences Experience in management, sales & marketing in the international healthcare industry.
Falck Health Care Holding A/S Copenhagen Institute of Interaction Design, Chairman Copenhagen Capacity
Senior CMC Project Manager, ALK-Abelló A/S
Board member since 2011
Employee-elected
Competences Experience in global drug development in the pharmaceutical industry.
Director, EU QPPV, Head of QPPV Office, Global Pharmacovigilance, ALK-Abelló A/S
Board member since 2015
Employee-elected
Experience in sales & marketing and drug safety in the international pharmaceutical industry
Facility Manager, ALK-Abelló A/S
Board member since 2011
Employee-elected
Experience in management, operations and buildings maintenance.
* These board members are not regarded as independent in the sense of the definition contained in the Danish recommendations on Corporate Governance due to being affiliated with the Lundbeck Foundation, which owns 40.3% of ALK
**All members elected by the annual general meeting are up for re-election each year
Board of Directors and Board of Management
President & CEO
Executive management experience in global health care and biopharmaceutical companies.
Directorships
Coloplast A/S
Executive Vice President, Research & Development
Experience in management, innovation, and research & development in the pharmaceutical industry.
Executive Vice President & CFO
Experience in management, financial and economic expertise in the pharmaceutical industry and other sectors.
Executive Vice President, Commercial operations
Experience in management as well as global production and sales & marketing within the pharmaceutical industry.
The Board of Directors and the Board of Management have today considered and approved the annual report of ALK-Abelló A/S for the financial year 1 January to 31 December 2018.
The consolidated financial statements are presented in accordance with International Financial Reporting Standards as adopted by the EU. The parent financial statements are presented in accordance with the Danish Financial Statements Act. Further, the annual report is prepared in accordance with Danish disclosure requirements for listed companies.
In our opinion, the consolidated financial statements and the parent financial statements give a true and fair view of the Group's and the Parent's financial position at 31 December 2018 as well as of the results of their operations and cash flows for the financial year 1 January to 31 December 2018.
In our opinion, the management review contains a fair review of the development of the Group's and the Parent's business and financial matters, the results for the year and of the Parent's financial position and the financial position as a whole of the entities included in the consolidated financial statements, together with a description of the principal risks and uncertainties that the Group and the Parent face.
We recommend the annual report for adoption at the annual general meeting.
| Carsten Hellmann |
|---|
| President & CEO |
Henrik Jacobi Søren Jelert Søren Niegel Executive Vice President, Executive Vice President Executive Vice President, Research & Development & CFO Commercial operations
Steen Riisgaard Lene Skole Katja Barnkob Chairman Vice Chairman Lars Holmqvist Andreas Slyngborg Holst Jacob Kastrup Gonzalo De Miquel Jakob Riis
Hørsholm, 7 February 2019
We have audited the consolidated financial statements and the parent financial statements of ALK-Abelló A/S for the financial year 1 January to 31 December 2018, which comprise the income statement, balance sheet, statement of changes in equity and notes, including a summary of significant accounting policies, for the Group as well as the Parent, and the statement of comprehensive income and the cash flow statement of the Group. The consolidated financial statements are prepared in accordance with International Financial Reporting Standards as adopted by the EU and additional requirements of the Danish Financial Statements Act, and the parent financial statements are prepared in accordance with the Danish Financial Statements Act.
In our opinion, the consolidated financial statements give a true and fair view of the Group's financial position at 31 December 2018, and of the results of its operations and cash flows for the financial year 1 January to 31 December 2018 in accordance with International Financial Reporting Standards as adopted by the EU and additional requirements under the Danish Financial Statements Act.
Further, in our opinion, the parent financial statements give a true and fair view of the Parent's financial position at 31 December 2018, and of the results of its operations for the financial year 1 January to 31 December 2018 in accordance with the Danish Financial Statements Act.
Our opinion is consistent with our audit book comments issued to the Audit Committee and the Board of Directors.
We conducted our audit in accordance with International Standards on Auditing (ISAs) and the additional requirements applicable in Denmark. Our responsibilities under those standards and requirements are further described in the Auditor's responsibilities for the audit of the consolidated financial statements and the parent financial statements section of this auditor's report. We are independent of the Group in accordance with the International Ethics Standards Board of Accountants' Code of Ethics for Professional Accountants (IESBA Code) and the additional requirements applicable in Denmark, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
To the best of our knowledge and belief, we have not provided any prohibited non-audit services as referred to in Article 5(1) of Regulation (EU) No 537/2014.
We were first elected auditors for ALK-Abelló A/S before 1995. We have been re-elected
annually at the general meeting resolution for a total continuous period of more than 24 years up to and including the 2018 financial year.
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the consolidated financial statements and the parent financial statements for the financial year 1 January to 31 December 2018. These matters were addressed in the context of our audit of the consolidated financial statements and the parent financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
At 31 December 2018, inventories of the Group amount to DKK 993 million (31 December 2017: DKK 875 million) comprising raw materials, work in progress and manufactured goods and goods for resale. Inventories are measured at cost determined by applying the FIFO method or net realisable value where this is lower. The net realisable value of the ALK product portfolio is contingent on forecasting of future sales, the ability to successfully commercialise the brand and obtain the required regulatory approvals, and is therefore to a wide extent based on assumptions and judgement made by Management. Consequently, there is a risk that inventories will be impaired if the future cash flows and other assumptions do not meet Management's expectations.
We also refer to notes 2 and 15 in the consolidated financial statements.
Based on our risk assessment, we have tested the Group's costing setup, including which costs are included as indirect production costs, the allocation of direct and indirect production costs between the Group's products and the process for identifying cost variances. We have also tested the Group's model for eliminating internal unrealised profit in the consolidated financial statements. Finally, we have obtained the Group's inventory valuation model and tested the reasonableness of the key assumptions, in particular future revenue projections, impact of expiry dates and probability of obtaining required regulatory approvals. We have assessed and challenged Management's assumptions and judgement used in the costing setup and inventory valuation model, including:
allocation of direct and indirect production between products
At 31 December 2018, a deferred tax asset in Denmark related to tax losses carried forward of DKK 331 million has been recognised in the balance sheet (31 December 2017: DKK 255 million). The utilisation of the deferred tax asset is based on Management's expectations that ALK-Abelló A/S and the companies in the Danish joint taxation scheme will generate
significant future taxable profits in Denmark within the next five years.
Judgement is therefore required in assessing the most significant accounting estimates, i.e. the probability of realising the significant future taxable profits in Denmark.
We also refer to notes 2, 9 and 14 in the consolidated financial statements.
Based on our risk assessment, we tested the appropriateness of the Group's model for measurement of deferred tax assets.
We reviewed and challenged the documentation prepared by Management on the deferred tax assets, including Management's best estimate of the probability of realising the significant future taxable profits in Denmark.
We tested the applied assumptions to the budget and forecasts as approved by the Board of Directors of ALK-Abelló A/S as well as to information about expected future taxable profits in Denmark for the companies in the Danish joint taxation scheme for the next five years (2019-2023).
We have involved tax specialists in our review of Management's tax computation to ensure compliance with relevant tax requirements.
We also evaluated the financial statements disclosures related to deferred tax assets.
Management is responsible for the management review.
Our opinion on the consolidated financial statements and the parent financial statements does not cover the management review, and we do not express any form of assurance conclusion thereon.
In connection with our audit of the consolidated financial statements and the parent financial statements, our responsibility is to read the management review and, in doing so, consider whether the management review is materially inconsistent with the consolidated financial statements and the parent financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated.
Moreover, it is our responsibility to consider whether the management review provides the information required under the Danish Financial Statements Act.
Based on the work we have performed, we conclude that the management review is in accordance with the consolidated financial statements and the parent financial statements and has been prepared in accordance with the requirements of the Danish Financial Statements Act. We did not identify any material misstatement of the management review.
Management is responsible for the preparation of consolidated financial statements that give a true and fair view in accordance with International Financial Reporting Standards as adopted by the EU and additional requirements of the Danish Financial Statements Act as well as the preparation of parent financial statements that give a true and fair view in accordance with the Danish Financial Statements Act, and for such internal control as Management determines is necessary to enable the preparation of consolidated financial statements and parent financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the consolidated financial statements and the parent financial statements, Management is responsible for assessing the Group's and the Parent's ability to continue as a going concern, for disclosing, as applicable, matters related to going concern, and for using the going concern basis of accounting in preparing the consolidated financial statements and the parent financial statements unless Management either intends to liquidate the Group or the Entity or to cease operations, or has no realistic alternative but to do so.
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements and the parent financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs and the additional requirements applicable in Denmark will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements and these parent financial statements.
As part of an audit conducted in accordance with ISAs and the additional requirements applicable in Denmark, we exercise professional judgement and maintain professional scepticism throughout the audit. We also:
• Identify and assess the risks of material misstatement of the consolidated financial statements and the parent financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk
of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause the Group and the Entity to cease to continue as a going concern.
We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.
From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements and the parent financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor's report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.
Copenhagen, 7 February 2019
Statsautoriseret Revisionspartnerselskab Business Registration No 33 96 35 56
State-Authorised State-Authorised Public Accountant Public Accountant
Sumit Sudan Martin Norin Faarborg MNE no mne33716 MNE no mne29395
| Consolidated financial statements | |
|---|---|
| Income statement | 51 |
| Statement of comprehensive income | 51 |
| Cash flow statement | 52 |
| Balance sheet | 53 |
| Statement of changes in equity | 54 |
| Notes | 55 |
| Definitions | 81 |
| 1 | Accounting policies | 55 |
|---|---|---|
| 2 Significant accounting estimates and judgements | 60 | |
| 3 | Revenue and segment information | 61 |
| 4 | Staff costs | 62 |
| 5 | Share-based payments | 62 |
| 6 | Depreciation, amortisation and impairment | 65 |
| 7 | Other operating income | 65 |
| 8 | Financial income and expenses | 65 |
| 9 | Tax on profit/(loss) for the year | 66 |
| 10 | Adjustments for non-cash items | 66 |
| 11 | Acquisition of companies and operations | 66 |
| 12 | Intangible assets | 67 |
| 13 | Property, plant and equipment | 68 |
| 14 | Deferred tax | 69 |
| 15 | Inventories | 70 |
| 16 | Trade receivables | 70 |
| 17 | Share capital and earnings per share | 71 |
|---|---|---|
| 18 | Pensions and similar liabilities | 71 |
| 19 | Mortgage debt, bank loans and financial loans | 73 |
| 20 | Other provisions | 73 |
| 21 | Changes in working capital | 74 |
| 22 | Contingent liabilities and commitments | 74 |
| 23 | Operating lease liabilities | 74 |
| 24 | Finance lease liabilities | 74 |
| 25 Financial risks, liquidity risks and | ||
| the use of derivative financial instruments | 75 | |
| 26 | Fees to the ALK Group's auditors | 78 |
| 27 | Related parties | 79 |
| 28 | Events after the reporting period | 79 |
| 29 | Approval of financial statements | 79 |
| 30 | List of companies in the ALK Group | 80 |
| Amounts in DKKm | Note | 2018 | 2017 |
|---|---|---|---|
| Revenue | 3 | 2,915 | 2,910 |
| Cost of sales | 4-6,15 | 1,282 | 1,268 |
| Gross profit | 1,633 | 1,642 | |
| Research and development expenses | 4-6 | 392 | 426 |
| Sales and marketing expenses | 4-6 | 1,137 | 1,067 |
| Administrative expenses | 4-6 | 227 | 231 |
| Other operating income | 7 | 27 | 2 |
| Operating profit/(loss) (EBIT) | (96) | (80) | |
| Financial income | 8 | 24 | 17 |
| Financial expenses | 8 | 31 | 59 |
| Profit/(loss) before tax (EBT) | (103) | (122) | |
| Tax on profit/(loss) | 9 | 67 | 36 |
| Net profit/(loss) | (170) | (158) | |
| Earnings/(loss) per share (EPS) | 17 | ||
| Earnings/(loss) per share (EPS) | (15.64) | (15.93) | |
| Earnings/(loss) per share (DEPS), diluted | (15.64) | (15.93) |
| Amounts in DKKm | Note | 2018 | 2017 |
|---|---|---|---|
| Net profit/(loss) | (170) | (158) | |
| Items that will subsequently not be reclassified to the income statement: |
|||
| Actuarial gains/(losses) on pension plans | 18 | 3 | 18 |
| Tax related to actuarial gains/(losses) on pension plans | (1) | (6) | |
| 2 | 12 | ||
| Items that will subsequently be reclassified to the income statement, when specific conditions are met: |
|||
| Foreign currency translation adjustment of foreign affiliates Tax related to other comprehensive income, that will subsequently |
45 | (109) | |
| be reclassified to the income statement | (6) | 15 | |
| Total | 41 | (82) | |
| Total comprehensive income/(loss) | (129) | (240) |
| Amounts in DKKm | Note | 2018 | 2017 |
|---|---|---|---|
| Net profit/(loss) | (170) | (158) | |
| Adjustments | |||
| Adjustments for non-cash items | 10 | 320 | 412 |
| Changes in working capital | 21 | (74) | (282) |
| Net financial items, paid | (17) | (10) | |
| Income taxes, paid | (154) | (349) | |
| Cash flow from operating activities | (95) | (387) | |
| Acquisitions of companies and operations | 11 | (21) | (94) |
| Additions, intangible assets | 12 | (52) | (27) |
| Additions, tangible assets | 13 | (126) | (240) |
| Sale of non-current assets | - | 3 | |
| Cash flow from investing activities | (199) | (358) | |
| Free cash flow | (294) | (745) | |
| Dividend paid to shareholders of the parent | - | (49) | |
| Sale of treasury shares | 8 | 3 | |
| Exercise of share options | 5 | (18) | (5) |
| Repayment of borrowings | (18) | (17) | |
| Emission of shares | - | 688 | |
| Cash flow from financing activities | (28) | 620 | |
| Net cash flow | (322) | (125) | |
| Cash beginning of year | 162 | 292 | |
| Marketable securities beginning of year | 549 | 548 | |
| Cash and marketable securities beginning of year | 711 | 840 | |
| Unrealised gain/(loss) on cash held in foreign currency and | |||
| financial assets carried as cash and marketable securities | 7 | (4) | |
| Net cash flow | (322) | (125) | |
| Cash year end | 296 | 162 | |
| Marketable securities year end | 100 | 549 | |
| Cash and marketable securities year end | 396 | 711 |
The consolidated statement of cash flow is compiled using the indirect method. As a result, the individual figures in the cash flow statement cannot be reconciled directly to the income statement and the balance sheet.
| 31 Dec. | 31 Dec. | ||
|---|---|---|---|
| Amounts in DKKm | Note | 2018 | 2017 |
| Assets | |||
| Non-current assets | |||
| Intangible assets | |||
| Goodwill | 12 | 465 | 461 |
| Other intangible assets | 12 | 260 | 291 |
| 725 | 752 | ||
| Tangible assets | |||
| Land and buildings | 13 | 878 | 750 |
| Plant and machinery | 13 | 382 | 378 |
| Other fixtures and equipment | 13 | 52 | 53 |
| Property, plant and equipment in progress | 13 | 272 | 397 |
| 1,584 | 1,578 | ||
| Other non-current assets | |||
| Securities and receivables | 9 | 7 | |
| Deferred tax assets | 14 | 548 | 466 |
| 557 | 473 | ||
| Total non-current assets | 2,866 | 2,803 | |
| Current assets | |||
| Inventories | 15 | 993 | 875 |
| Trade receivables | 16 | 328 | 326 |
| Receivables from affiliates | 27 | 28 | 25 |
| Income tax receivables | 58 | 65 | |
| Other receivables | 113 | 73 | |
| Prepayments | 83 | 80 | |
| Marketable securities | 100 | 549 | |
| Cash | 296 | 162 | |
| Total current assets | 1,999 | 2,155 | |
| Total assets | 4,865 | 4,958 |
| Amounts in DKKm | Note | 31 Dec. 2018 |
31 Dec. 2017 |
|---|---|---|---|
| Equity and liabilities | |||
| Equity | |||
| Share capital | 17 | 111 | 111 |
| Currency translation adjustment | (42) | (87) | |
| Retained earnings | 3,110 | 3,266 | |
| Total equity | 3,179 | 3,290 | |
| Liabilities | |||
| Non-current liabilities | |||
| Mortgage debt | 19 | 276 | 293 |
| Bank loans and financial loans | 19 | 449 | 448 |
| Pensions and similar liabilities | 18 | 227 | 220 |
| Other provisions | 20 | 2 | 20 |
| Deferred tax liabilities | 14 | 6 | 21 |
| 960 | 1,002 | ||
| Current liabilities | |||
| Mortgage debt | 19 | 17 | 17 |
| Trade payables | 135 | 121 | |
| Income taxes | 9 | 6 | |
| Other provisions | 20 | 26 | 39 |
| Other payables | 539 | 483 | |
| 726 | 666 | ||
| Total liabilities | 1,686 | 1,668 | |
| Total equity and liabilities | 4,865 | 4,958 |
| Amounts in DKKm | Share capital |
Currency translation adjustment |
Retained earnings |
Total equity |
|---|---|---|---|---|
| 2018 | ||||
| Equity at 1 January 2018 | 111 | (87) | 3,266 | 3,290 |
| Net profit/(loss) | - | - | (170) | (170) |
| Other comprehensive income/(loss) | - | 45 | (4) | 41 |
| Total comprehensive income/(loss) | - | 45 | (174) | (129) |
| Share-based payments | - | - | 20 | 20 |
| Share options settled | - | - | (18) | (18) |
| Sale of treasury shares | - | - | 8 | 8 |
| Tax related to items recognised directly in equity | - | - | 8 | 8 |
| Other transactions | - | - | 18 | 18 |
| Equity at 31 December 2018 | 111 | (42) | 3,110 | 3,179 |
| Currency | ||||
|---|---|---|---|---|
| Share | translation | Retained | Total | |
| Amounts in DKKm | capital | adjustment | earnings | equity |
| 2017 | ||||
| Equity at 1 January 2017 | 101 | 22 | 2,752 | 2,875 |
| Net profit/(loss) | - | - | (158) | (158) |
| Other comprehensive income/(loss) | - | (109) | 27 | (82) |
| Total comprehensive income/(loss) | - | (109) | (131) | (240) |
| Share-based payments | - | - | 21 | 21 |
| Share options settled | - | - | (5) | (5) |
| Sale of treasury shares | - | - | 3 | 3 |
| Tax related to items recognised directly in equity | - | - | (3) | (3) |
| Dividend paid | - | - | (51) | (51) |
| Dividend on treasury shares | - | - | 2 | 2 |
| Emission of shares (proceeds) | 10 | - | 689 | 699 |
| Emission of shares (costs) | - | - | (11) | (11) |
| Other transactions | 10 | - | 645 | 655 |
| Equity at 31 December 2017 | 111 | (87) | 3,266 | 3,290 |
The consolidated financial statements for the period 1 January to 31 December 2018 have been prepared in accordance with the International Financial Reporting Standards (IFRS) as adopted by the EU and in accordance with Danish disclosure requirements for listed companies. Additional Danish disclosure requirements for annual reports are imposed by the Statutory Order on Adoption of IFRS issued under the Danish Financial Statements Act.
The consolidated financial statements are presented in Danish kroner (DKK), which is considered the primary currency of the ALK Group's activities and the functional currency of the parent company.
The consolidated financial statements are presented on a historical cost basis, apart from certain financial instruments, which are measured at fair value. Otherwise, the accounting policies are as described below.
The ALK Group has implemented all new and amended standards and interpretations (IFRIC) which are effective for the financial year 2018. Apart from the below, such implementation has not had any impact on the ALK Group.
The ALK Group has applied IFRS 15 Revenue from Contracts with Customers from 1 January 2018 using the modified retrospective method. IFRS 15 introduces a 5-step approach to revenue recognition. Far more prescriptive guidance has been added in IFRS 15 to deal with specific scenarios. The ALK Group follows this approach and guidance for its revenue recognition in relation to the nature of the activities of the ALK Group. The application of IFRS 15 has had no impact on the
ALK Group's Consolidated Financial Statement and thus no retrospective numbers have been adjusted or disclosed. The ALK Group's revenue streams are described in more details in the accounting policies for income statement. Revenue numbers are disclosed in note 3.
The ALK Group has applied IFRS 9 Financial instruments (as revised in July 2014) from 1 January 2018. As allowed in the transition provisions of IFRS 9, the ALK Group has not restated comparatives. The new disclosure requirements in IFRS7 Financial instruments, that relate to IFRS9, were also adopted.
The ALK Group has assessed its existing financial assets and liabilities in terms of the requirements in IFRS 9 based on the facts and circumstances that existed on 1 January 2018. It has been assessed whether a financial asset meets the business model test for amortised cost or fair value. The initial application of IFRS 9 had the following impact on the ALK Group´s financial assets as regards to their classification and measurement:
Marketable securities contain holdings in investment funds which invest in bonds and other similar securities. The marketable securities are, not held for investing reasons, but purely for temporary placement of cash. The business model is "other", which means that the adjustment of fair value is still recognised through profit/loss, also under IFRS 9.
Financial assets and liabilities previously measured at amortised cost under IAS 39 continue to be measured at amortised cost under IFRS 9, as the business model is to collect the contractual cash flows and these cash flows consist solely of payments of principal and interest on the principal amount outstanding.
IFRS 9 requires an expected credit loss model (ECL) in comparison to an incurred credit loss model under IAS 39. The expected credit loss model requires the ALK Group to account for expected credit losses and changes in those expected credit losses at each reporting date to reflect changes in credit risk since initial recognition. The ALK Group applies the simplified approach for measuring loss allowance for trade receivables. Based on low historical loss on trade receivables, the application of IFRS 9 has resulted in insignificant additional loss allowances.
The changes in IFRS 9 in relation to hedge accounting are not relevant for the ALK Group since hedge accounting was not applied in 2017 and 2018.
A number of IFRS standards, amended standards and IFRIC interpretations, which are effective on or after 1 January 2019, have not been implemented. Based on a preliminary assessment it is estimated that these standards and interpretations will have no material impact on the consolidated financial statements for 2018 and in the coming years apart from the effects of IFRS 16 Leases.
IFRS16 Leases is effective for financial years beginning on or after 1 January 2019. Applying IFRS 16 includes management judgements and accounting estimates, including discount rates, lease terms etc.
The ALK Group has considered the new standard and have assessed the impact on the ALK Group. The most material estimate for ALK relates to the lease of land and buildings in Denmark where the length of lease has been adjusted compared to previous assumptions.
The recent assessment of the ALK Group shows, based on present leasing agreements, that the new requirements will lead to recognition of right of use assets of approx. DKK 210-230 million as well as a positive effect on the income statement of approx. DKK 9 million on EBIT and approx. DKK 40 million on EBITDA.
The consolidated financial statements comprise the financial statements of ALK-Abelló A/S (the parent company) and companies (subsidiaries) controlled by the parent company. The parent company is considered to control a subsidiary when it holds, directly or indirectly, more than 50% of the voting rights, or is otherwise able to exercise or actually exercises a controlling influence.
The consolidated financial statements are prepared based on the financial statements of ALK-Abelló A/S and its subsidiaries. The consolidated financial statements are prepared as a consolidation of items of a uniform nature. The financial statements used for consolidation are prepared in accordance with the ALK Group's accounting policies.
On consolidation, intra-group income and expenses, intra-group balances and dividends, and gains and losses arising on intra-group transactions are eliminated.
Newly acquired or newly established companies or operations are recognised in the consolidated financial statements from the date of acquisition or establishment. The date of acquisition is the date when control of the company actually passes to the ALK Group. Companies sold or discontinued are recognised in the consolidated income statement up to the date of disposal. The date of disposal
is the date when control of the company actually passes to a third party.
Acquisitions are accounted for using the purchase method, according to which the identifiable assets, liabilities and contingent liabilities of companies acquired are measured at fair value at the date of acquisition. However, non-current assets held for sale are measured at fair value less expected costs to sell.
Restructuring costs are only recognised in the takeover balance sheet if they represent a liability to the acquired company. The tax effect of revaluations is taken into account.
The cost of a company is the fair value of the consideration paid. If the final determination of the consideration is conditional on one or more future events, these are recognised at their fair value as of the acquisition date.
Costs that can be attributed directly to the transfer of ownership are recognised in the income statement when they are incurred. As a general rule, adjustments to estimates of conditional consideration are recognised directly to the income statement.
If the fair value of the acquired assets or liabilities subsequently proves different from the values calculated at the acquisition date, cost is adjusted for up to 12 months after the date of acquisition.
Any excess of the cost of an acquired company over the fair value of the acquired assets, liabilities and contingent liabilities (goodwill) is recognised as an asset under intangible assets and tested for impairment at least once a year.
Gains or losses on disposal of subsidiaries are stated as the difference between the disposal
amount and the carrying amount of net assets including goodwill at the date of disposal, accumulated foreign exchange adjustments recognised in other comprehensive income, and anticipated disposal costs. The disposal amount is measured as the fair value of the consideration received.
On initial recognition, transactions denominated in currencies other than DKK are translated at average exchange rates, which are an approximation of the exchange rates at the transaction date. Receivables and debt and other monetary items not settled at the balance sheet date are translated at the closing rate.
Exchange rate differences between the exchange rate at the date of the transaction and the exchange rate at the date of payment or the balance sheet date, respectively, are recognised in the income statement under financial items. Tangible assets and intangible assets, inventories and other nonmonetary assets acquired in foreign currency and measured based on historical cost are translated at the exchange rates at the transaction date.
On recognition in the consolidated financial statements of subsidiaries whose financial statements are presented in a functional currency other than DKK, the income statements are translated at average exchange rates for the respective months, unless these deviate materially from the actual exchange rates at the transaction dates. In that case, the actual exchange rates are used. Balance sheet items are translated at the exchange rates at the balance sheet date. Goodwill is considered to belong to the acquired company in question and is translated at the exchange rate at the balance sheet date.
Exchange rate differences arising on the translation of foreign subsidiaries' opening balance sheet
items to the exchange rates at the balance sheet date and on the translation of the income statements from average exchange rates to exchange rates at the balance sheet date are recognised in other comprehensive income.
Foreign exchange rate adjustment of receivables or debt to subsidiaries which are considered part of the parent company's overall investment in the subsidiary in question are also recognised in other comprehensive income in the consolidated financial statements.
Derivative financial instruments are measured at fair value on initial recognition. Subsequently, they are measured at fair value at the balance sheet date.
Changes in the fair value of derivative financial instruments designated as and qualifying for recognition as fair value hedges of a recognised asset or a recognised liability are recognised in the income statement together with any changes in the value of the hedged asset or hedged liability.
Changes in the fair value of derivative financial instruments designated as and qualifying for recognition as effective hedges of future transactions are recognised in other comprehensive income. When the hedged transactions are realised, cumulative changes are recognised as part of the cost of the transactions in question. Changes in the fair value of derivative financial instruments used to hedge net investments in foreign subsidiaries are recognised in other comprehensive income to the extent that the hedge is effective. On disposal of the foreign subsidiary in question, the cumulative changes are transferred to the income statement.
For derivative financial instruments that do not qualify for hedge accounting, changes in fair value are recognised as financial items in the income statement as they occur.
Share-based incentive plans (equity-settled sharebased payments), which comprise share option plans, conditional share plans and performance shares, are measured at the grant date at fair value and recognised in the income statement under the respective functions over the vesting period and offset in equity.
The fair value of share options is determined using the Black & Scholes model.
The ALK Group settles the share-based equity settled incentive plans in shares. However, the share option agreement entitles the ALK Group to demand cash settlement of the options. The ALK Group recognises share options, in case of cash settlement, as other liabilities and adjusts to fair value as from the time when the ALK Group has an obligation to settle in cash. The ALK Group recognises subsequent adjustment to fair value in the income statement under financial income or financial expenses.
Tax on the profit for the year comprises the year's current tax and changes in deferred tax. The tax expense relating to the profit/loss for the year is recognised in the income statement, and the tax expense relating to items recognised in other comprehensive income and directly in equity, respectively, is recognised in other comprehensive income or directly in equity. Exchange rate adjustments of deferred tax are recognised as part of the adjustment of deferred tax for the year.
Current tax payable and receivable is recognised in the balance sheet as the expected tax on the taxable income for the year, adjusted for tax paid on account.
The current tax charge for the year is calculated based on the tax rates and rules enacted at the balance sheet date.
Deferred tax is measured using the balance sheet liability method on all temporary differences between the carrying amount and the tax base of assets and liabilities. However, deferred tax is not recognised on temporary differences relating to the initial recognition of goodwill or the initial recognition of a transaction, apart from business combinations, and where the temporary difference existing at the date of initial recognition affects neither profit/loss for the year nor taxable income. Deferred tax is calculated based on the planned use of each asset and settlement of each liability, respectively. Deferred tax is measured using the tax rates and tax rules that, based on legislation enacted or in reality enacted at the balance sheet date, are expected to apply in the respective countries when the deferred tax is expected to crystallise as current tax. Changes in deferred tax as a result of changed tax rates or rules are recognised in the income statement, in other comprehensive income or in equity, depending on where the deferred tax was originally recognised. Deferred tax related to equity transactions is recognised in equity.
Deferred tax assets, including the tax value of tax loss carry-forwards, are recognised in the balance sheet at the value at which the asset is expected to be realised, either through a set-off against deferred tax liabilities or as net assets to be offset against future positive taxable income. At each balance sheet date, it is reassessed whether it is likely that there will be sufficient future taxable income for the deferred tax asset to be utilised.
The parent company is included in a joint Danish taxation scheme with the Lundbeck Foundation (Lundbeckfond Invest A/S) and its Danish
subsidiaries. The tax charge for the year is allocated among the jointly taxed companies in proportion to the taxable incomes of individual companies, taking into account taxes paid.
The ALK Group has revenue from sale of ownmanufactured goods and goods for resale. Revenue is recognised in the income statement when delivery and transfer of control of a product to the customer have taken place. Revenue is recognised by the ALK Group at a point in time.
Revenue is measured as the fair value of the consideration received or receivable.
Revenue is measured exclusive of VAT, taxes etc. charged on behalf of third parties and less any commissions and discounts in connection with sales.
Furthermore, revenue includes licence income and royalties from outlicensed products as well as up-front payments, milestone payments and services in connection with partnerships. These revenues are recognised in accordance with the agreements and when it is probable that future economic benefits will flow to the ALK Group and these benefits can be measured reliably. Nonrefundable payments that are not attributable to subsequent research and development activities are recognised when the related right is obtained, whereas payments attributable to subsequent research and development activities are recognised over the term of the activities. When combined contracts are entered into, the elements of the contracts are identified and assessed separately for accounting purposes.
The item comprises cost of sales and production costs incurred in generating the revenue for the year. Costs for raw materials, consumables, goods for resale, production staff and a proportion of production overheads, including maintenance and depreciation, amortisation and impairment of tangible assets and intangible assets used in production as well as operation, administration and management of factories are recognised in cost of sales and production costs. In addition, the costs and write-down to net realisable value of obsolete and slow-moving goods are recognised.
The item comprises research and development expenses, including expenses incurred for wages and salaries, amortisation, impairment of capitalised development projects in progress, and other overheads as well as costs relating to research partnerships. Research expenses are recognised in the income statement when incurred. Due to the long development periods and significant uncertainties in relation to the development of new products, including risks regarding clinical trials and regulatory approvals, it is the assessment that most of the ALK Group's development expenses do not meet the capitalisation criteria in IAS 38, Intangible Assets. Consequently, development expenses are generally recognised in the income statement when incurred. Development expenses relating to individual minor development projects running for short-term periods and subject to limited risk are capitalised under other intangible assets.
The item comprises selling and marketing expenses, including salaries and expenses relating to sales staff, advertising and exhibitions, depreciation, amortisation and impairment losses on tangible assets and intangible assets used in
the sales and marketing process as well as other indirect costs.
The item comprises expenses incurred for management and administration, including expenses for administrative staff and management, office expenses and depreciation, amortisation and impairment losses on tangible assets and intangible assets used in administration.
Other operating income and other operating expenses comprise income and expenses of a secondary nature relative to the principal activities of the ALK Group.
Financial items comprise interest receivable and interest payable, the interest element of finance lease payments, realised and unrealised gains and losses on securities, cash and marketable securities, liabilities and foreign currency transactions, mortgage amortisation premium/ allowance etc. and supplements/provisions under the on-account tax scheme.
Interest income and expenses are accrued based on the principal and the effective rate of interest. The effective rate of interest is the discount rate to be used on discounting expected future payments in relation to the financial asset or the financial liability so that their present value corresponds to the carrying amount of the asset or liability, respectively.
On initial recognition, goodwill is measured and recognised as the excess of the cost of the acquired company over the fair value of the acquired assets, liabilities and contingent liabilities, as described under 'Business combinations'.
On recognition of goodwill, the goodwill amount is allocated to those of the ALK Group's activities that generate separate cash flows (cash-generating units). The determination of cash-generating units is based on the ALK Group's management structure and internal financial management and reporting.
Goodwill is not amortised, but is tested for impairment at least once a year, as described below.
Acquired intellectual property rights in the form of patents, brands, licenses, software, customer base and similar rights are measured at cost less accumulated amortisation and impairment.
Interest expenses on loans to finance the development of intangible assets are included in cost if they relate to the production period. Other borrowing costs are charged to the income statement.
The cost of software includes costs of instalment and direct salaries.
Such acquired intellectual property rights are amortised on a straight-line basis over the contract period, not exceeding 10 years. If the actual useful life is shorter than either the remaining life or the contract period, the asset is amortised over this shorter useful life. Acquired intellectual property rights are written down to their recoverable amount where this is lower than the carrying amount, as described below.
Individual minor development projects running for short-term periods which fulfil the requirement in IFRS are capitalised under other intangible assets as described under 'Research and development expenses' and are measured at cost less accumulated amortisation and impairment.
Intangible assets with indeterminable useful lives are not amortised, but are tested for impairment at least once a year. To the extent that the carrying amount of the assets exceeds the recoverable amount, the assets are written down to this lower amount, as described below.
Land and buildings, plant and machinery and other fixtures and equipment are measured at cost less accumulated depreciation and impairment. Land is not depreciated.
Cost comprises the purchase price and any costs directly attributable to the acquisition and any preparation costs incurred until the date when the asset is available for use.
The cost of assets held under finance leases is determined as the lower of the fair value of the assets and the present value of future minimum lease payments.
Interest expenses on loans to finance the manufacture of tangible assets are included in cost if they relate to the production period. Other borrowing costs are taken to the income statement.
The depreciation base is cost less the estimated residual value at the end of the useful life. The residual value, estimated at the acquisition date and reassessed annually, is determined as the
amount the company expects to obtain for the asset less costs of disposal.
The cost of an asset is divided into smaller components that are depreciated separately if such components have different useful lives.
Assets are depreciated on a straight-line basis over their estimated useful lives as follows:
| Buildings | 25-50 years |
|---|---|
| Plant and machinery | 5-10 years |
| Other fixtures and equipment | 5-10 years |
Depreciation methods, useful lives and residual values are reassessed once a year. Tangible assets are written down to the recoverable amount, if lower, as described below.
The carrying amounts of tangible assets and intangible assets with determinable useful lives are reviewed at the balance sheet date to determine whether there are any indications of impairment. If such indications are found, the recoverable amount of the asset is calculated to determine any need for an impairment write-down and, if so, the amount of the write-down. For intangible assets with indeterminable useful lives and goodwill, the recoverable amount is calculated annually, regardless of whether any indications of impairment have been found.
If the asset does not generate any cash flows independently of other assets, the recoverable amount is calculated for the smallest cashgenerating unit that includes the asset.
The recoverable amount is calculated as the higher of the fair value less costs to sell and the value in use of the asset or the cash-generating unit, respectively. In determining the value in use, the
estimated future cash flows are discounted to their present value, using a discount rate reflecting current market assessments of the time value of money as well as risks that are specific to the asset or the cash-generating unit and which have not been taken into account in the estimated future cash flows.
If the recoverable amount of the asset or the cash-generating unit is lower than the carrying amount, the carrying amount is written down to the recoverable amount. For cash-generating units, the write-down is allocated in such a way that goodwill amounts are written down first, and any remaining need for write-down is allocated to other assets in the unit, although no individual assets are written down to a value lower than their fair value less costs to sell.
Impairment write-downs are recognised in the income statement. If write-downs are subsequently reversed as a result of changes in the assumptions on which the calculation of the recoverable amount is based, the carrying amount of the asset or the cash-generating unit is increased to the adjusted recoverable amount, not, however, exceeding the carrying amount that the asset or cash-generating unit would have had, had the write-down not been made. Impairment of goodwill is not reversed.
On initial recognition, marketable securities are measured at cost, corresponding to fair value. They are subsequently measured at fair value at the balance sheet date, and changes to the fair value are recognised under net financials in the income statement.
On initial recognition, investments and other financial assets are measured at cost, corresponding to fair value. They are subsequently measured at cost or amortised cost at the balance sheet date.
Inventories are measured at cost determined under the FIFO method or net realisable value where this is lower.
Cost comprises raw materials, goods for resale, and direct payroll costs as well as fixed and variable production overheads. Variable production overheads comprise indirect materials and payroll costs and are allocated based on predetermined costs of the goods actually produced. Fixed production overheads comprise maintenance of and depreciation on the machines, factory buildings and equipment used in the manufacturing process as well as the cost of factory management and administration. Fixed production overheads are allocated based on the normal capacity of the production plant.
The net realisable value of inventories is calculated as the expected selling price less completion costs and costs incurred in making the sale.
On initial recognition, receivables are measured at fair value, subsequently at amortised cost.
Expected credit losses are measured based on historical data adjusted by forward-looking information. Forward-looking information includes assessment of the probability of default as well as consideration of various external sources of actual and economic information that is reasonable and supportable without undue cost or effort.
An impairment gain or loss is recognised in the income statement.
Receivables are written down when information indicates severe financial difficulties and that there is no reasonable expectation of recovery. Financial assets written off may still be subject to enforcement activities. Any recoveries made are recognised in the income statement.
Prepayments are recognised as an asset and comprise incurred costs relating to subsequent financial years. Prepayments are measured at cost.
Dividend is recognised as a liability when adopted by the shareholders at the annual general meeting.
Acquisition and sales sums arising on the purchase and sale of treasury shares and dividends on treasury shares are recognised directly in retained earnings under equity.
The ALK Group has entered into pension agreements and similar agreements with some of the ALK Group's employees.
In respect of defined contribution plans, the ALK Group pays in fixed contributions to independent pension funds etc. The contributions are recognised in the income statement during the period in which the employee renders the related service. Payments due are recognised as a liability in the balance sheet.
In respect of defined benefit plans, the ALK Group is required to pay an agreed benefit in connection with the retirement of the employees covered by the plan, e.g. in the form of a fixed amount or a percentage of the salary at retirement.
For defined benefit plans, an annual actuarial assessment is made of the net present value of future benefits to which the employees have earned the right through their past service for the ALK Group and which will have to be paid under the
plan. The Projected Unit Credit Method is applied to determine net present value.
The net present value is calculated based on assumptions of the future development of salary, interest, inflation, mortality and disability rates.
The net present value of pension liabilities is recognised in the balance sheet, after deduction of the fair value of any assets attached to the plan, as either plan assets or pension liabilities, depending on whether the net amount is an asset or a liability, as described below.
If the assumptions made with respect to discount factor, inflation, mortality and disability are changed, or if there is a discrepancy between the expected and realised return on plan assets, actuarial gains or losses occur. These gains and losses concerning previous financial years are recognised in other comprehensive income.
Provisions are recognised when, as a consequence of a past event during the financial year or previous years, the ALK Group has a legal or constructive obligation, and it is likely that settlement of the obligation will require an outflow of the company's financial resources.
Provisions are measured as the best estimate of the costs required to settle the obligations at the balance sheet date. Provisions with an expected term of more than a year after the balance sheet date are measured at present value.
Mortgage debt is recognised on the raising of a loan at cost, equalling fair value of the proceeds received, and net of transaction costs incurred. Subsequently, mortgage debt is measured at amortised cost.
Lease liabilities regarding assets held under finance leases are recognised in the balance sheet as liabilities and measured at the inception of the lease at the lower of the fair value of the leased asset and the present value of future lease payments.
On subsequent recognition, lease liabilities are measured at amortised cost. The difference between the present value and the nominal value of lease payments is recognised in the income statement over the term of the lease as a finance charge.
Lease payments regarding operating leases are recognised in the income statement on a straightline basis over the term of the lease.
Other financial liabilities, including bank and financial loans, trade and other payables, are on initial recognition measured at fair value. The liabilities are subsequently measured at amortised cost.
Deferred income comprises income received relating to subsequent financial years. Deferred income is measured at cost.
The cash flow statement of the ALK Group is presented using the indirect method and shows cash flows from operating, investing and financing activities as well as cash and marketable securities at the beginning and at the end of the financial year.
The cash effect of acquisitions and divestments is shown separately under cash flows from investing activities. In the cash flow statement, cash flows concerning acquired companies are recognised from the date of acquisition, while cash flows concerning divested companies are recognised until the date of divestment.
Cash flows from operating activities are stated as net profit, adjusted for non-cash operating items and changes in working capital, less the income tax paid and plus net financial items.
Cash flows from investing activities comprise payments in connection with acquisition and divestment of companies and financial assets as well as purchase, development, improvement and sale of intangible and tangible assets.
Cash flows from financing activities comprise changes to the parent company's share capital and related costs as well as the raising and repayment of loans, instalments on interest-bearing debt, purchase of treasury shares, and settlement of share options and payment of dividends.
Cash flows in currencies other than the functional currency are recognised in the cash flow statement using average exchange rates for the individual
months if these are a reasonable approximation of the actual exchange rates at the transaction dates. If this is not the case, the actual exchange rates for the specific days in questions are used.
Cash and marketable securities comprise cash and short-term securities subject to an insignificant risk of changes in value less any overdraft facilities that are an integral part of the ALK Group's cash management.
Based on the internal reporting used by the Board of Management to assess the results of operations and allocation of resources, the ALK Group has identified one operating segment 'Allergy treatment', which is in accordance with the way the activities are organised and managed. In addition, the disclosures in the financial statements include a breakdown of revenue by product line and a geographical breakdown of revenue and noncurrent assets.
The key ratios have been calculated in accordance with generally accepted financial ratios applied by financial analysts. Definitions are shown on page 81.
In the preparation of the consolidated financial statements according to IFRS, Management is required to make certain estimates as many financial statement items cannot be reliably measured, but must be estimated. Such estimates comprise judgements made on the basis of the most recent information available at the reporting date.
It may be necessary to change previous estimates as a result of changes to the assumptions on which the estimates were based or due to supplementary information, additional experience or subsequent events. Similarly, the value of assets and liabilities often depends on future events that are somewhat uncertain. In that connection, it is necessary to set out e.g. a course of events that reflects Management's assessment of the most probable course of events. In the consolidated financial statements for 2018, Management considers the following estimates and related judgements material to the assets and liabilities recognised in the consolidated financial statements.
The assessment of whether goodwill is impaired requires a determination of the value in use of the cash-generating unit to which the goodwill amounts have been allocated. The determination of the value in use requires estimates of the expected future cash flow of the cash-generating unit and a reasonable discount rate. At 31 December 2018, the carrying amount of goodwill is DKK 465 million (2017: DKK 461 million).
The valuation of inventories includes Management's assessment of the saleability of the finished goods, and the quality of raw materials to be used in production process.
If the expected sales price less any completion costs and costs to execute sales (net realizable value) of inventories is lower than the carrying amount, the inventories are written down to net realizable value.
Further, Work in progress and Manufactured goods and goods for resale are measured at cost including indirect production costs. The indirect production costs are assessed on an ongoing basis to ensure reliable measurement of employee costs, capacity utilization, cost drivers and other relevant factors. Changes in these parameters may have an impact on the gross margin and the overall valuation of Work in progress and Manufactured goods and goods for resale. In 2018, ALK has updated and refined models and estimates used in inventory valuation. The indirect production costs capitalized under inventories amounted to DKK 355 million at the end of 2018 (2017: DKK 369 million).
At 31 December 2018, the carrying amount of inventories is DKK 993 million (31 December 2017: DKK 875 million).
Management is required to make an estimate in the recognition of deferred tax assets and liabilities. The ALK Group recognises deferred tax assets including the tax value of tax losses if it is probable that it can be utilized against future taxable income within a foreseeable future (5 years). This includes an assessment of the possibilities to utilize tax losses in the joint Danish taxation scheme with the Lundbeck Foundation (Lundbeckfond Invest A/S) and based on forecasts with positive results for the coming years in relation to the joint taxation. At 31 December 2018, the value of the total deferred tax asset is DKK 542 million (2017: DKK 445 million). It includes a deferred tax asset in Denmark related to tax losses carried forward of DKK 331 million (2017: DKK 255 million).
Based on the internal reporting which Management uses to assess profit and allocation of resources, the ALK Group has identified one operating segment "Allergy treatment" which is in compliance with the organisation and management of the activities. Even though revenue within the operating segment "Allergy treatment" can be divided by product lines and markets, the main part of the activities within production, research and development, sales and marketing and administration are shared by the ALK Group as a whole.
| Europe | North America | International markets | Total | |||||
|---|---|---|---|---|---|---|---|---|
| Amounts in DKKm | 2018 | 2017 | 2018 | 2017 | 2018 | 2017 | 2018 | 2017 |
| SCIT/SLIT-drops | 1,464 | 1,627 | 270 | 246 | 43 | 44 | 1,777 | 1,917 |
| SLIT-tablets | 558 | 430 | 59 | 72 | 54 | 26 | 671 | 528 |
| Other products and services | 198 | 163 | 254 | 288 | 15 | 14 | 467 | 465 |
| Total revenue | 2,220 | 2,220 | 583 | 606 | 112 | 84 | 2,915 | 2,910 |
| Sale of goods | 2,895 | 2,899 | ||||||
| Royalties | 11 | 4 | ||||||
| Services | 9 | 7 | ||||||
| Total revenue | 2,915 | 2,910 |
Of total revenue, DKK 70 million (2017: DKK 57 million) is derived from Denmark.
The ALK Group's non-current tangible and intangible assets are distributed among the following geographical markets:
| Europe | North America | International markets | Total | |||||
|---|---|---|---|---|---|---|---|---|
| Amounts in DKKm | 2018 | 2017 | 2018 | 2017 | 2018 | 2017 | 2018 | 2017 |
| Non-current tangible and intangible assets | 1,564 | 1,601 | 740 | 722 | 5 | 7 | 2,309 | 2,330 |
Of total non-current tangible and intangible assets, DKK 1,209 million are assets in Denmark (2017: DKK 1,250 million). The geographical information on assets is based on asset location.
| Amounts in DKKm | 2018 | 2017 |
|---|---|---|
| Wages and salaries | 1,218 | 1,211 |
| Pensions, cf. note 18 | 103 | 96 |
| Other social security costs, etc. | 175 | 171 |
| Share-based payments, cf. note 5 | 20 | 21 |
| Total | 1,516 | 1,499 |
| Staff costs are allocated as follows: | ||
| Cost of sales | 587 | 566 |
| Research and development expenses | 207 | 228 |
| Sales and marketing expenses | 509 | 485 |
| Administrative expenses | 182 | 176 |
| Included in the cost of assets | 31 | 44 |
| Total | 1,516 | 1,499 |
| Remuneration to Board of Management:* | ||
| Salaries | 15 | 18 |
| Cash bonuses | 8 | 9 |
| Pensions | 1 | 2 |
| Termination benefits | - | 2 |
| Expensed costs regarding share-based payments, cf. note 5 | 6 | 10 |
| Total | 30 | 41 |
| Remuneration to Board of Directors:** | ||
| Remuneration to Board of Directors | 4 | 4 |
| Employees | ||
| Average number (FTE) | 2,341 | 2,213 |
| Number year end (FTE) | 2,379 | 2,302 |
* In 2017, total remuneration to the Board of Management included a sign on fee for the new CEO, which was approved at the Annual General Meeting on 15 March 2017. The sign on fee had a total value of DKK 10.8 million and comprised a cash bonus of DKK 1.5 million and share based payments with a value of DKK 9.3 million.
**The total remuneration to the Board of Directors includes remuneration for participation in the Audit Committee DKK 350,000 (2017: DKK 350,000), the Remuneration Committee DKK 350,000 (2017: DKK 350,000) and the Scientific Committee DKK 150,000 (2017: DKK 150,000).
| Amounts in DKKm | 2018 | 2017 |
|---|---|---|
| Cost of share-based payments | 20 | 21 |
| Total | 20 | 21 |
| Cost for the year regarding share-based payments is recognised as follows: |
||
| Cost of sales | 2 | 4 |
| Research and development expenses | 4 | 3 |
| Sales and marketing expenses | 6 | 3 |
| Administrative expenses | 6 | 11 |
| Financial expenses | 2 | - |
| Total | 20 | 21 |
In 2018 the total cost of share-based payments included a financial expense of DKK 2 million due to the exercise and cash settlement of share options plans (2017: DKK 0). An adjustment of DKK 0 related to the number of conditional shares expected to vest is included in the cost of share based payments (2017: DKK 1 million).
ALK's special incentive plan is a one-time scheme designed to implement ALK's growth strategy and consists of both share options and performance shares. The value of the plan may not exceed 50% of the Executive's 2018 annual base salary on the grant/allocation date. The special incentive plan is conditional upon strategic key performance indicators being attained, with a threshold value below which the plan will not pay out. If the result exceeds the threshold, a defined multiplier may increase the grant/allocation in ALK's special incentive plan by up to 300%. However, the overall payout of the plan on the vesting date for the performance shares and on the exercise date for the share options can never exceed a total value of 300% of the recipient's 2018 annual base salary. The special incentive plan was adopted at the annual general meeting on 12 March 2018.
The ALK Group has established share option plans for the Board of Management and a number of key employees as part of a retention programme. Each share option entitles the holder to acquire one existing B share of DKK 10 nominal value in the company. The exercise of options is conditional upon certain targets being met. The target achievement is met upon the holder of the option not having resigned at the time of exercise.
In the 2017 and 2018 plans, the share option programme is further subject to the fulfilment of strategic key performance indicators with a threshold below which there will be no payout, and with the opportunity to perform above target. In case of performance above target, a multiplier is used that can increase the payout up to 100%. For a limited number of share options (47.806) the payout can be increased by 300%.
The options can be exercised in the trading windows following the release of annual and interim reports. Share options are considered sufficiently covered by treasury shares.
Specification of outstanding options:
| 2018 | Board of Management units |
Other key personnel units |
Total units |
Weighted average exercise price DKK |
|---|---|---|---|---|
| Outstanding options at 1 January | 69,700 | 90,585 | 160,285 | 797 |
| Additions | 41,320 | 35,159 | 76,479 | 793 |
| Exercised | (7,000) | (27,775) | (34,775) | 605 |
| Expired | - | (3,000) | (3,000) | 379 |
| Cancellations | - | (100) | (100) | 776 |
| Outstanding at 31 December | 104,020 | 94,869 | 198,889 | 841 |
At 31 December 2018, the total number of vested share options amounted to 82,068 units.
The Board of Directors decided for one trading window in 2018 that share options were to be settled by cash settlement and a total of 18,575 share options were exercised and total cash payments amounted to DKK 7 million. For three trading windows the Board of Directors decided that share options were to be settled by shares and a total of 16,200 options were exercised.
| Board of Management units |
Other key personnel units |
Total units |
Weighted average exercise price DKK |
|
|---|---|---|---|---|
| 2017 | ||||
| Outstanding options at 1 January | 43,795 | 102,775 | 146,570 | 743 |
| Additions | 45,321 | 10,900 | 56,221 | 944 |
| Exercised | - | (17,775) | (17,775) | 660 |
| Expired | - | (1,000) | (1,000) | 410 |
| Cancellations | (19,416) | (4,315) | (23,731) | 938 |
| Outstanding at 31 December | 69,700 | 90,585 | 160,285 | 797 |
At 31 December 2017, the total number of vested share options amounted to 65,000 units.
In 2017, two trading windows were settled by cash settlement and a total of 12,575 share options were exercised and total cash payments amounted to DKK 5 million. For one trading window share options were settled by shares and a total of 5,200 options were exercised.
Outstanding options have the following characteristics:
| Weighted average |
||||
|---|---|---|---|---|
| Options | exercise price | Vested | Exercise | |
| units | DKK | as per | period | |
| 2012 Plan | 3,150 | 469 | 1 May 2015 | 1 May 2015-1 May 2019 |
| 2013 Plan | 10,925 | 487 | 1 Mar 2016 | 1 Mar 2016-1 Mar 2020 |
| 2014 Plan | 24,725 | 776 | 1 Mar 2017 | 1 Mar 2017-1 Mar 2021 |
| 2015 Plan | 26,200 | 846 | 1 Mar 2018 | 1 Mar 2018-1 Mar 2022 |
| 2016 Plan | 21,120 | 1,087 | 1 Mar 2019 | 1 Mar 2019-1 Mar 2023 |
| 2017 Sign on plan, CEO | 17,068 | 924 | 1 Jan 2018 | 1 Jan 2018-1 Jan 2024 |
| 2017 Plan | 19,222 | 1,025 | 1 Mar 2020 | 1 Mar 2020-1 Mar 2022 |
| 2018 Plan | 31,973 | 793 | 1 Mar 2021 | 1 Mar 2021-1Mar 2023 |
| 2018 Plan - one-time | 44,506 | 793 | 1 Mar 2021 | 1 Mar 2021-1 Mar 2023 |
| Outstanding at | ||||
| 31 December | 198,889 |
| 2018 | 2017 | |
|---|---|---|
| Average remaining life of outstanding share options at year end (years) | 4.3 | 3.7 |
| Exercise prices for outstanding share options at year end (DKK) | 462-1,127 | 370-1,127 |
The calculated market price at the grant date is based on the Black & Scholes model for valuation of options.
The assumptions for the calculation of the market price of share options at the grant date are as follows:
| 2018 Plans |
2017 Plan |
2017 Sign on plan, CEO |
|
|---|---|---|---|
| Average share price (DKK) | 745 | 952 | 924 |
| Expected exercise price (DKK)* | 802 | 1,025 | 924 |
| Expected volatility rate | 29% p.a. | 31% p.a. | 34% p.a. |
| Expected option life | 4 years | 4 years | 4 years |
| Expected dividend per share | - | 5 | 5 |
| Risk-free interest rate | -0.16% p.a. -0.29% p.a. -0.38% p.a. | ||
| Calculated fair value of granted share options (DKK) | 150 | 192 | 230 |
* The exercise price is equivalent to the average market price of the share for the five trading days immediately preceding the date of grant and is increased by 2.5% p.a. and reduced by dividends paid.
The expected volatility rate is based on the historical volatility.
The ALK Group has established conditional and, from 2017, performance share programmes for the Board of Management and a number of key employees as part of a retention programme. The final transfer of ownership of the shares takes place three years after the grant, provided that the ALK Group achieves the targets for vesting.
From 2017, the performance share programme is subject to the fulfilment of strategic key performance indicators with a threshold below which there will be no payout, and with the opportunity to perform above target. In case of performance above target, a multiplier is used that can increase the payout up to 100%. For a limited number of performance shares (14.067) the payout can be increased by 300%.
| Board of | Other key | |
|---|---|---|
| Management | personnel | Total |
| units | units | units |
| at 31 December | 11,301 | 30,546 | 41,847 |
|---|---|---|---|
| Outstanding conditional and performance shares | |||
| Settled | (2,330) | (4,173) | (6,503) |
| Additions | 8,305 | 17,144 | 25,449 |
| Outstanding conditional and performance shares at 1 January | 5,326 | 17,575 | 22,901 |
| Outstanding conditional and performance shares at 1 January | 6,644 | 13,705 | 20,349 |
|---|---|---|---|
| Additions | 5,404 | 10,475 | 15,879 |
| Settled | (2,340) | (3,498) | (5,838) |
| Cancellations | (4,382) | (3,107) | (7,489) |
| Outstanding conditional and performance shares | |||
| at 31 December | 5,326 | 17,575 | 22,901 |
The performance shares have been granted at the average market price of the share for the five trading days immediately preceding the date of grant. The performance shares have been granted at DKK 745 per share (2017: DKK 952 per share). Conditional shares and performance shares are considered sufficiently covered by treasury shares.
Outstanding conditional shares and performance shares have the following characteristics:
| Conditional shares units |
Vested as per |
|
|---|---|---|
| 2016 Plan (conditional shares) | 4,359 | 1 Mar 2019 |
| 2017 Plan (performance shares) | 12,039 | 1 Mar 2020 |
| 2018 Plan (performance shares) | 16,507 | 1 Mar 2021 |
| 2018 Plan one-time (performance shares) | 8,942 | 1 Mar 2021 |
| Outstanding at 31 December |
41,847 |
In 2015, Board of Directors decided to grant Restricted Stock Units to all employees not included in the conditional shares plan. The programme granted 10 Restricted Stock Units to employees permanently employed at the ALK Group as of 31 March 2015. A Restricted Stock Unit (RSU) is a right to receive one share or the value of one share in ALK upon vesting.
The programme ran for three years and was fully settled and paid out 31 March 2018. The costs of the programme amounted to DKK 11 million over the vesting period.
| Amounts in DKKm | 2018 | 2017 |
|---|---|---|
| Depreciation, amortisation and impairment allocation: | ||
| Cost of sales | 140 | 272 |
| Research and development expenses | 39 | 7 |
| Sales and marketing expenses | 26 | 27 |
| Administrative expenses | 27 | 27 |
| Total | 232 | 333 |
Impairment amounts to DKK 39 million in 2018 (2017: DKK 152 million), of which DKK 7 million relate to tangible assets (2017: DKK 85 million) and DKK 32 million relate to intangible assets (2017: DKK 67 million). Impairment of intangible assets is related to capitalised development in progress and caused by the discontinuation of US development for the current EU version adrenaline auto-injector Jext®. The impairment is based on an individual assessment of the net recoverable amount of the individual asset. As the ALK Group believes there is no recoverable value for some of the assets, the full carrying value of the assets has been impaired. For the assets where the ALK Group estimates that there is a recoverable amount, such amount was determined based on the fair value less cost to sell or the value in use of the respective asset.
In the income statement for 2018 the impairment of intangible assets is recognised as research and development expenses and the impairment of tangible assets is recognised as cost of sales.
Other operating income for 2018 is DKK 27 million (2017: DKK 2 million) and includes refund of VAT in Germany related to previous years caused by a court decision about VAT deductibility for certain rebates.
| Amounts in DKKm | 2018 | 2017 |
|---|---|---|
| Interest income | 9 | 10 |
| Financial income from financial assets measured at amortised cost in the income statement |
9 | 10 |
| Interest income on marketable securities | 3 | 7 |
| Currency gains, net | 12 | - |
| Total financial income | 24 | 17 |
| Interest expenses | 25 | 16 |
| Financial expenses relating to financial liabilities measured | 25 | 16 |
| at amortised cost in the income statement | ||
| Fair value adjustment on marketable securities | 6 | 7 |
| Currency losses, net | - | 36 |
| Total financial expenses | 31 | 59 |
| Amounts in DKKm | 2018 | 2017 |
|---|---|---|
| Current income tax | 167 | 144 |
| Adjustment of deferred tax | (104) | (109) |
| Prior year adjustments | 4 | 1 |
| Total | 67 | 36 |
| Profit/(loss) before tax | (103) | (122) |
| Income tax, tax rate of 22% (2017: 22%) | (23) | (27) |
| Effect of deviation of foreign subsidiaries' tax rate | ||
| relative to Danish tax rate | 64 | 59 |
| Non-taxable income | (9) | (4) |
| Non-deductible expenses | 19 | 14 |
| Currency adjustment | - | - |
| Adjustment of deferred tax due to coming year change of tax rate | 3 | 1 |
| Other taxes and adjustments | 9 | (8) |
| Prior year adjustments | 4 | 1 |
| Tax on profit/(loss) for the year | 67 | 36 |
Tax related to equity and other comprehensive income comprises DKK 1 million (2017:DKK 6 million).
| Amounts in DKKm | 2018 | 2017 |
|---|---|---|
| Tax on profit/(loss) | 67 | 36 |
| Financial income and expenses | 4 | 42 |
| Share-based payments | 20 | 21 |
| Reversal of accounting gain on sale of non-current assets | - | (2) |
| Depreciation, amortisation and impairment | 232 | 333 |
| Other adjustments | (3) | (18) |
| Total | 320 | 412 |
No companies or operations were acquired in 2018.
In 2017, the ALK Group acquired the operating assets in Allergy Laboratory of Oklahoma Inc. and Crystal Labs LLC for a total cash consideration of USD 20 million of which USD 6.6 million is a contingent consideration, depending on meeting certain requirements by the US Food and Drug Administration's Center for Biologics Evaluation and Research (CBER). The two companies had previously been under the same private ownership and produce allergen extracts and other material used in allergy immunotherapy treatments. Allergy Laboratory of Oklahoma, Inc. and Crystal Laboratory LLC had a combined staff of around 100.
Consolidated fair values of acquisitions:
| Amounts in DKKm | 2017 |
|---|---|
| Customer relations | 27 |
| Property, plant and equipment | 13 |
| Inventories | 50 |
| Cash and bank debt | - |
| Liabilities | - |
| Acquired net assets | 90 |
| Goodwill | 50 |
| Acquisition cost | 140 |
| Contingent considerations and deferred payments | 46 |
| Acquired cash and bank debt | - |
| Cash acquisition cost | 94 |
The allocation of fair values is final. The transaction is on a debt and cash free basis. The contingent consideration is limited to DKK 46 million and is expected to be fully paid. In 2018, the ALK Group paid DKK 21 million in contingent consideration.
Recognised revenue related to the acquisition amounted to DKK 117 million in 2017. In 2017, the acquisition had a minor positive effect on earnings for the ALK Group.
The transaction costs related to the acquisition amounted to approximately DKK 1 million.
Goodwill relates to the expected synergies between the US entities and to the ALK Group gaining control of a critical sourcing supply. Goodwill is tax deductable.
| Patents, | |||||
|---|---|---|---|---|---|
| Amounts in DKKm | Goodwill | Software | trademarks and rights |
Other | Total |
| 2018 | |||||
| Cost beginning of year | 484 | 347 | 255 | 186 | 1,272 |
| Currency adjustments | 4 | 3 | 1 | 1 | 9 |
| Additions | - | 6 | - | 46 | 52 |
| Disposals | - | (18) | - | (68) | (86) |
| Transfer to/from other groups Cost year end |
- 488 |
33 371 |
- 256 |
(33) 132 |
- 1,247 |
| Amortisation and impairment | |||||
| beginning of year | 23 | 238 | 153 | 106 | 520 |
| Currency adjustments | - | - | 1 | - | 1 |
| Amortisation for the year Amortisation and impairment |
- | 18 | 24 | 11 | 53 |
| on disposals | - | (18) | - | (66) | (84) |
| Impairment for the year, cf. note 6 | - | - | - | 32 | 32 |
| Amortisation and impairment | |||||
| year end | 23 | 238 | 178 | 83 | 522 |
| Carrying amount year end | 465 | 133 | 78 | 49 | 725 |
| 2017 | |||||
| Cost beginning of year | 444 | 337 | 236 | 167 | 1,184 |
| Currency adjustments | (10) | 1 | (7) | 2 | (14) |
| Additions | - | 4 | 1 | 22 | 27 |
| Acquisitions of companies | |||||
| and operations Disposals |
50 - |
- (2) |
27 (2) |
- - |
77 (4) |
| Transfer to/from other groups | - | 7 | - | (5) | 2 |
| Cost year end | 484 | 347 | 255 | 186 | 1,272 |
| Amortisation and impairment | |||||
| beginning of year | 22 | 232 | 132 | 34 | 420 |
| Currency adjustments Amortisation for the year |
1 - |
(7) 15 |
- 23 |
(1) 6 |
(7) 44 |
| Amortisation on disposals | - | (2) | (2) | - | (4) |
| Impairment for the year, cf. note 6 | - | - | - | 67 | 67 |
| Amortisation and impairment | |||||
| year end | 23 | 238 | 153 | 106 | 520 |
| Carrying amount year end | 461 | 109 | 102 | 80 | 752 |
Goodwill has been subject to an impairment test, which has been submitted to the Audit Committee for subsequent approval by the Board of Directors. The impairment test performed in 2018 revealed no need for impairment of goodwill.
Goodwill has been tested at an aggregated level. The ALK Group is considered as one CGU as the individual companies and business units in the ALK Group cannot be evaluated separately because the value-adding processes are generated across corporations and entities.
In the calculation of the value in use of cash-generating unit, future free net cash flow is estimated based on Board of Directors-approved financial forecast in line with the ALK Group's strategy.
The budget and the strategy plans are based on specific future business initiatives for which the risks relating to key parameters have been assessed and recognised in estimated future free cash flows. The key parameters in the calculation of the value in use are revenue, earnings, working capital, capital expenditure, discount rate and the preconditions for the terminal value. Estimates are based on historical data and expectations on future changes in the markets and products. These expectations are based on a number of assumptions including expected product launches, volume forecasts, price information and profitability of both the ALK Group's business as well as geographical expansions.
For financial years after the forecast period (2019-2025), the cash flows in the most recent period have been extrapolated adjusted for a growth factor of 1.5% during the terminal period. The forecast period is longer than 5 years in line with the ALK Group's long-term strategic planning horizon.
The calculated value-in-use shows that future earnings and cash flows fully support the book value of total net assets, including goodwill.
The discount rate used is pre-tax 11% and after tax 8%, (2017: pre-tax 11% and after tax 8%).
Other intangible assets cover minor finished development projects and development projects in progress including software development projects.
| Amounts in DKKm | Land and buildings* |
Plant and machinery |
Other fixtures and equipment |
Property, plant and equipment in progress |
Total |
|---|---|---|---|---|---|
| 2018 | |||||
| Cost beginning of year | 1,162 | 830 | 259 | 482 | 2,733 |
| Currency adjustments | 17 | 8 | 2 | 12 | 39 |
| Additions | 7 | 16 | 11 | 92 | 126 |
| Disposals | (3) | (10) | (37) | (1) | (51) |
| Transfer to/from other groups | 156 | 59 | 6 | (221) | - |
| Cost year end | 1,339 | 903 | 241 | 364 | 2,847 |
| Depreciation and impairment beginning of year Currency adjustments Depreciation for the year Depreciation of disposals Impairment for the year, cf. note 6 Depreciation and impairment year end |
412 3 48 (2) - 461 |
452 - 75 (6) - 521 |
206 1 17 (35) - 189 |
85 - - - 7 92 |
1,155 4 140 (43) 7 1,263 |
| Carrying amount year end | 878 | 382 | 52 | 272 | 1,584 |
| of which financing costs of which assets held under finance leases Value of land and buildings subject to mortgages |
- 82 221 |
* Land and buildings in Denmark include buildings on land leased from Scion DTU A/S, Hørsholm. The lease period for this land is unlimited.
| Amounts in DKKm | Land and buildings* |
Plant and machinery |
Other fixtures and equipment |
Property, plant and equipment in progress |
Total |
|---|---|---|---|---|---|
| 2017 | |||||
| Cost beginning of year | 1,153 | 812 | 255 | 389 | 2,609 |
| Currency adjustments | (38) | (29) | (8) | (21) | (96) |
| Additions | 12 | 15 | 8 | 205 | 240 |
| Acquisitions of companies | |||||
| and operations | - | 9 | 4 | - | 13 |
| Disposals | (7) | (16) | (8) | - | (31) |
| Transfer to/from other groups | 42 | 39 | 8 | (91) | (2) |
| Cost year end | 1,162 | 830 | 259 | 482 | 2,733 |
| Depreciation and impairment beginning of year |
379 | 400 | 203 | - | 982 |
| Currency adjustments | (9) | (9) | (5) | - | (23) |
| Depreciation for the year | 45 | 76 | 16 | - | 137 |
| Depreciation of disposals | (3) | (15) | (8) | - | (26) |
| Impairment for the year, cf. note 6 | - | - | - | 85 | 85 |
| Depreciation and impairment | |||||
| year end | 412 | 452 | 206 | 85 | 1,155 |
| Carrying amount year end | 750 | 378 | 53 | 397 | 1,578 |
| of which financing costs | - | ||||
| of which assets held under | |||||
| finance leases | 86 | ||||
| Value of land and buildings | |||||
| subject to mortgages | 230 |
* Land and buildings in Denmark include buildings on land leased from Scion DTU A/S, Hørsholm. The lease period for this land is unlimited.
| Tax losses | ||||||
|---|---|---|---|---|---|---|
| Amounts in DKKm | Intangible assets |
Tangible assets |
Current assets |
Liabilities | carried forward |
Total |
| 2018 | ||||||
| Carrying amount beginning of year | 73 | (40) | 120 | 32 | 260 | 445 |
| Adjustment to prior years' deferred tax | (22) | (1) | (30) | 36 | 8 | (9) |
| Adjustment of deferred tax due to coming year change of tax rate | - | (1) | 1 | (2) | - | (2) |
| Recognised in the income statement, net | (20) | (4) | 66 | (18) | 82 | 106 |
| Recognised in other comprehensive income, net | - | - | - | (7) | - | (7) |
| Recognised in equity, net | - | - | 9 | - | - | 9 |
| Carrying amount year end | 31 | (46) | 166 | 41 | 350 | 542 |
| 2017 | ||||||
| Carrying amount beginning of year | 95 | (26) | 84 | 8 | 164 | 325 |
| Adjustment to prior years' deferred tax | 5 | (14) | 10 | (4) | 9 | 6 |
| Currency adjustments | - | 1 | (3) | 3 | (2) | (1) |
| Adjustment of deferred tax due to coming year change of tax rate | (2) | 7 | (11) | 5 | - | (1) |
| Recognised in the income statement, net | (25) | (8) | 40 | 14 | 89 | 110 |
| Recognised in other comprehensive income, net | - | - | - | 9 | - | 9 |
| Recognised in equity, net | - | - | - | (3) | - | (3) |
| Carrying amount year end | 73 | (40) | 120 | 32 | 260 | 445 |
Deferred tax at 31 December 2018 consists of deferred tax related to assets of DKK 501 million (2017: DKK 413 million) and deferred tax related to liabilities of DKK 41 million (2017: DKK 32 million).
The ALK group recognises deferred tax assets including the tax value of tax losses if it is probable that it can be utilized against future taxable income within a foreseeable future (5 years). This includes an assessment of the possibilities to utilize tax losses in the joint Danish taxation scheme with the Lundbeck Foundation (Lundbeckfond Invest A/S). See note 2.
| Amounts in DKKm | 2018 | 2017 |
|---|---|---|
| Raw materials | 220 | 163 |
| Work in progress | 372 | 342 |
| Manufactured goods and goods for resale | 401 | 370 |
| Total | 993 | 875 |
| Amount of write-down of inventories during the year | 44 | 39 |
| Amount of reversal of write-down of inventories during the year* | 2 | 5 |
The total cost of materials included in cost of sales amounted to DKK 300 million (2017: DKK 296 million).
The net book value of inventory not being sold in 2019 is estimated at DKK 117 million.
* Reversal of provision for slow moving items, sold in 2018.
| Amounts in DKKm | 2018 | 2017 | ||||
|---|---|---|---|---|---|---|
| Days past due | ||||||
| Not due | <180 days | 180-360 | >360 days | Total | Total | |
| Expected credit loss rate* | 0% | 6% | 40% | 71% | ||
| Trade receivables (gross) | 277 | 50 | 5 | 7 | 339 | 338 |
| Loss allowance | 1 | 3 | 2 | 5 | 11 | 12 |
| Trade receivables (net) | 276 | 47 | 3 | 2 | 328 | 326 |
| Loss allowance: | ||||||
| Balance beginning of year | 12 | 12 | ||||
| Change in allowances during the year | 3 | 1 | ||||
| Realised losses during the year | (4) | (1) | ||||
| Loss allowance, year end | 11 | 12 |
Loss allowance for doubtful trade receivables is based on an individual assessment of the receivables. In 2018, a forward-looking expected credit-loss model (ECL) is introduced under IFRS 9.
* The expected credit loss rate is the average expected credit loss rate.
| Amounts in DKKm | 2018 | 2017 |
|---|---|---|
| Share capital | ||
| The share capital consists of: | ||
| A shares | 9 | 9 |
| AA shares B shares |
1 101 |
1 101 |
| Total nominal value | 111 | 111 |
| Each A and AA share carries 10 votes, whereas each B share carries 1 vote. | ||
| Treasury shares Treasury shares beginning of year (B-shares), units |
285,806 | 296,844 |
| Purchase of treasury shares, units | - | - |
| Sale of treasury shares, units | (22,603) | (11,038) |
| Treasury shares year end (B-shares), units | 263,203 | 285,806 |
| Proportion of share capital year end | 2.4% | 2.6% |
| Nominal value year end | 2.6 | 2.9 |
| Market value year end | 253 | 211 |
| Earnings per share | ||
| The calculation of earnings per share is based on the following: | ||
| Net profit/(loss) | (170) | (158) |
| Number in units: | ||
| Average number of issued shares | 11,141,196 | 10,212,763 |
| Average number of treasury shares | (274,695) | (291,503) |
| Average number of shares used for calculation | ||
| of earnings/(loss) per share | 10,866,501 | 9,921,260 |
| Average number of dilutive shares | 10,909,156 | 9,962,750 |
| Earnings/(loss) per share (EPS) | (15.64) | (15.93) |
| Earnings/(loss) per share, diluted (DEPS) | (15.64) | (15.93) |
According to a resolution passed by the parent company at the annual general meeting, the parent company is allowed to purchase treasury shares, equal to 10% of the share capital. The parent company has purchased treasury shares in connection with the issuance of share-based benefit programmes.
At year end 2018 the amount of A shares was 920,760 (2017: 920,760), AA shares 92,076 (2017: 92,076) and B shares 10,128,360 (2017: 10,128,360). All shares have a nominal value of DKK 10.
The ALK Group has entered into defined contribution plans as well as defined benefit plans.
In defined contribution plans, the ALK Group is obliged to pay a certain contribution to a pension fund or the like but bears no risks regarding the future development in interest, inflation, mortality, disability rates etc. regarding the amount to be paid to the employee.
The ALK Group sponsors defined benefit plans for qualifying employees of its subsidiaries in Germany and Switzerland. The ALK Group bears the risks regarding the future development in interest, inflation, mortality, disability rates etc. regarding the amount to be paid to the employee. In 2017, a defined benefit plan in The Netherlands curtailed and a defined contribution plan was established. The outstanding payments related to this plan were recognized in other payables at 31 December 2017.
| Amounts in DKKm | 2018 | 2017 |
|---|---|---|
| Costs related to defined contribution plans | 94 | 91 |
| Costs related to defined benefit plans | 9 | 5 |
| Total | 103 | 96 |
| Present value of funded pension obligations | 15 | 14 |
| Fair value of plan assets | (11) | (10) |
| Funded pension obligations, net | 4 | 4 |
| Present value of unfunded pension obligations | 182 | 177 |
| Pension obligations | 186 | 181 |
| Anniversary liabilities | 11 | 11 |
| Pension related to bonus | 28 | 26 |
| Indemnity fund | 1 | 1 |
| Other liabilities | 1 | 1 |
| Pension obligations and similar liabilities, year end | 227 | 220 |
Plan assets consist of assets placed in pension companies. Assets are placed in investments classified as other assets than shares, bonds and property by the pension companies, and are not measured at quoted prices.
The weighted average duration of the pension obligations is 19.95 years (2017: 20.6 years).
| Amounts in DKKm | 2018 | 2017 |
|---|---|---|
| The principal assumptions used for the actuarial valuations | ||
| Discount rate range of 1.0% - 1.9% (weighted average rate) | 1.9% | 1.9% |
| Expected future rate of salary increase range of 1% - 3% | ||
| (weighted average rate) | 3.0% | 3.0% |
| Assumed life expectations on retirement age for current pensioners | ||
| (years based on weighted average)* | ||
| Males | 20.4 | 20.3 |
| Females | 24.0 | 24.0 |
| Assumed life expectations on retirement age for current employees | ||
| (future pensioners) (years based on weighted average)*: | ||
| Males | 22.0 | 22.0 |
| Females | 26.9 | 26.9 |
| Sensitivity analysis: | ||
| Significant actuarial assumptions for determining the | ||
| defined benefit obligation | ||
| Discount rate, effect in case of increase in range of 0.5% - 1%** | (33) | (33) |
| Discount rate, effect in case of decrease in range of 0.5% - 1%** | 43 | 43 |
| Salary, effect in case of 0.5% increase | 4 | 4 |
| Salary, effect in case of 0.5% decrease | (3) | (4) |
| Life expectancy, effect in case of increase by 1 year* | 8 | 7 |
| Life expectancy, effect in case of decrease by 1 year* | (8) | (7) |
| Movements in the present value of the defined benefit obligation | ||
| in the current year | ||
| Opening defined benefit obligation | 14 | 75 |
| Current service costs | 1 | 4 |
| Interest costs | - | 1 |
| Actuarial gains / losses from changes in financial assumptions Contribution from plan participants |
(1) - |
(1) 1 |
| Benefits paid | - | 3 |
| Currency translation adjustment | 1 | - |
| Curtailment of plan*** | - | (69) |
| Closing defined benefit obligation | 15 | 14 |
| Amounts in DKKm | 2018 | 2017 |
|---|---|---|
| Movements in the fair value of the plan assets in the current year | ||
| Opening fair value of plan assets | 10 | 66 |
| Interest income | - | 1 |
| Contribution from plan participants | 1 | 3 |
| Benefits paid | - | 3 |
| Currency translation adjustment | - | (1) |
| Curtailment of plan*** | - | (62) |
| Closing fair value of plan assets | 11 | 10 |
| Movements in present value of unfunded pension obligations | ||
| in the current year | ||
| Opening present value of unfunded pension obligations | 177 | 189 |
| Current service costs | 4 | 5 |
| Interest costs | 3 | 3 |
| Actuarial gains / losses from changes in financial assumptions | - | (5) |
| Actuarial gains / losses arising from experience adjustments | (3) | (10) |
| Actuarial gains / losses arising from demographic adjustments | 2 | (2) |
| Benefits paid | (1) | (1) |
| Currency translation adjustment | - | (2) |
| Closing present value of unfunded pension obligations | 182 | 177 |
| Amount recognised as staff expenses in the income statement | ||
| Current service costs | 5 | 9 |
| Net interest expense | 3 | 3 |
| Past service cost related to curtailment of plan*** | - | (7) |
| Total | 8 | 5 |
| Amount recognised in comprehensive income in respect of defined benefit plans |
||
| Actuarial (gains)/losses | (3) | (18) |
| Total | (3) | (18) |
| The expected contribution for 2019 for the defined benefit plans is DKK 8 million (2018: DKK 9 million). |
The most recent actuarial valuations of the defined benefit liability were carried out by external independent actuary agents at 31 December 2018.
* Based on national statistics for mortality.
** Based on actuarial reports with different rates.
***Curtailment of plan in The Netherlands in 2017.
| Carrying amount | Fair value | |||
|---|---|---|---|---|
| Amounts in DKKm | 2018 | 2017 | 2018 | 2017 |
| Debt to mortgage credit institutions secured by real property |
||||
| Mortgage debt is due as follows*: | ||||
| Within 1 year | 17 | 17 | 18 | 17 |
| From 1-5 years | 71 | 70 | 73 | 73 |
| After 5 years | 205 | 223 | 211 | 232 |
| Total | 293 | 310 | 302 | 322 |
| Bank loans and financial loans Bank loans and financial loans are due as follows: |
||||
| Within 1 year | - | - | - | - |
| From 1-5 years | 449 | 448 | 449 | 448 |
| After 5 years | - | - | - | - |
| Total | 449 | 448 | 449 | 448 |
| Mortgage debt, bank loans and financial loans are recognised accordingly: Non-current liabilities Current liabilities |
725 17 |
741 17 |
Fair value for mortgage debt is measured by level 1 input (quoted prices in active markets) from the fair value hierarchy and fair value for bank loans is measured by level 2 input (inputs other than quoted markets that are observable) from the fair value hierarchy.
Beginning of 2018 the ALK Group extended its financial resources with a DKK 600 million credit facility which runs until the end of 2022. By the end of 2018 none of this resource was drawn upon.
* Change in mortgage debt from beginning of year 2018 (DKK 310 million) to end of year 2018 (DKK 293 million) is cash flows from financing activities of DKK 17 million (2017: DKK 17 million).
| Amounts in DKKm | 2018 | 2017 |
|---|---|---|
| Other provisions beginning of year | 59 | 37 |
| Provisions made during the year | 1 | 53 |
| Used during the year | (26) | (15) |
| Reversals during the year | (6) | (16) |
| Other provisions, year end | 28 | 59 |
| Other provisions are recognised as follows: | ||
| Non-current liabilities | 2 | 20 |
| Current liabilities | 26 | 39 |
| Other provisions, year end | 28 | 59 |
The change in other provisions in 2018 is mainly related to the contingent consideration for the 2017 acquisition, see note 11.
| Amounts in DKKm | 2018 | 2017 |
|---|---|---|
| Change in inventories | (102) | (179) |
| Change in receivables | (39) | (109) |
| Change in short-term payables | 67 | 6 |
| Cash flow from changes in working capital | (74) | (282) |
The Board of Management assesses that the outcome of pending claims and other disputes will have no material impact on the ALK Group's financial position.
The ALK Group operates in a wide variety of jurisdictions, in some of which the tax law is subject to varying interpretations and potentially inconsistent enforcement. As a result, there can be practical uncertainties in applying tax legislation to the ALK Group's activities. Whilst the ALK Group considers that it operates in accordance with applicable tax law, there are potential tax exposures in respect of its operations, the impact of which cannot be reliably estimated, but could be material.
Liabilities relating to research and development projects are estimated at DKK 0 at 31 December 2018 (31 December 2017: DKK 5 million).
ALK-Abelló A/S is included in a joint Danish taxation scheme with the Lundbeck Foundation (Lundbeckfond Invest A/S) and its Danish subsidiaries. The Danish companies are joint and several liable for the joint taxation liability. The joint taxation liability covers income taxes and withholding taxes on dividends, royalties and interest. The joint taxation liability is capped at an amount equal to the share of the capital of the company directly or indirectly owned by the ultimate parent company.
Land and buildings provided as security vis-à-vis for mortgage debt amount to DKK 221 million (2017: DKK 230 million) out of mortgage debt of DKK 293 million (2017: DKK 310 million).
| Amounts in DKKm | 2018 | 2017 |
|---|---|---|
| Lease payments recognised in the income statement | 64 | 68 |
| Total minimum future lease payments: | ||
| Within 1 year | 58 | 59 |
| From 1-5 years | 170 | 172 |
| After 5 years* | 151 | 46 |
| Total | 379 | 277 |
* After analysis, the leasing period for lease of land and buildings in Denmark was adjusted in comparison to 2017.
| Amounts in DKKm | 2018 | 2017 |
|---|---|---|
| Finance lease liabilities are due as follows: | ||
| Within 1 year | - | - |
| From 1-5 years | 1 | 1 |
| After 5 years | - | - |
| Total | 1 | 1 |
| Amortisation premium for future expensing | - | - |
| Present value of finance lease liabilities | 1 | 1 |
Finance lease concerns lease of other fixtures and equipment.
As a result of operations, investments and financing, the ALK Group is exposed to exchange and interest rate changes. ALK-Abelló A/S manages the ALK Group's financial risks centrally and coordinates the ALK Group's cash management, including the raising of capital and investment of excess cash. The ALK Group complies with a policy, approved by the Board of Directors, to maintain a low risk profile, ensuring that the ALK Group is only exposed to foreign exchange rate risk, liquidity risk, interest rate risk, and credit risk in connection with its commercial activities.
The ALK Group manages its capital to ensure that all entities will be able to continue as going concern while maximising the return to stakeholders through the optimisation of the debt and equity balances. The capital structure of the ALK Group consists of net debt and equity.
The ALK Group's Risk Committee reviews the capital structure annually. As a part of this review, the committee considers the cost of capital and the risks associated with each class of capital.
Foreign exchange rate risk arises due to imbalances between revenue and expenses in each individual currency. Foreign exchange rate exposure relating to future transactions and assets and liabilities is evaluated and hedged through matching of payments received and paid in the same currency and through forward exchange rate contracts and currency options. This serves to limit the impact on the financial results of any exchange rate fluctuations. The exchange rate exposure relating to net investments in foreign subsidiaries is not hedged by forward exchange contracts. The ALK Group hedges significant exchange rate exposures regarding future sales and purchase of goods in the coming six months in accordance with the ALK Group's policy.
The general objective of the ALK Group's foreign exchange risk management is to limit and delay any adverse impact of exchange rate fluctuations on earnings and cash flows and thus increase the predictability of the financial results. The most significant financial risk relates to exchange rate fluctuations. The greatest exposure is to USD and in 2018, 19% of the revenue was denominated in USD. The sales are not deemed to be exposed to EUR due to Denmark's participation in the European Exchange Rate Mechanism.
The ALK Group is exposed to exchange rate risks when intercompany balances and net assets of foreign subsidiaries are translated into DKK. In accordance with the ALK Group's accounting policies, such currency translation adjustments are recognised in the income statement and in other comprehensive income, respectively.
The ALK Group had no open exchange rate hedging contracts at 31 December 2018 or 31 December 2017.
The table below shows the estimated effect of a 10% increase in the USD exchange rate on revenue, EBITDA and equity levels, respectively.
| Amounts in DKKm Revenue EBITDA |
Equity |
|---|---|
| USD | approx. +70 |
approx. 0 | approx. +35 |
|---|---|---|---|
| 31 December 2017 |
| USD | approx. +60 | approx. | -5 | approx. +30 |
|---|---|---|---|---|
A decrease in the exchange rates will have a corresponding adverse effect.
| Net positions | |||||
|---|---|---|---|---|---|
| Cash and marketable |
Amount | Net | |||
| Amounts in DKKm | securities | Receivables | Liabilities | hedged | position |
| 31 December 2018 |
|||||
| DKK | 84 | 76 | (512) | 0 | (352) |
| USD | 71 | 96 | (117) | 0 | 50 |
| EUR | 181 | 288 | (1,000) | 0 | (531) |
| GBP | 2 | 13 | (9) | 0 | 6 |
| SEK | 8 | 14 | (12) | 0 | 10 |
| Other | 50 | 49 | (36) | 0 | 63 |
| Total | 396 | 536 | (1,686) | 0 | (754) |
| 31 December 2017 |
|||||
| DKK | 550 | 70 | (527) | 0 | 93 |
| USD | 32 | 77 | (128) | 0 | (19) |
| EUR | 74 | 264 | (957) | 0 | (619) |
| GBP | 8 | 9 | (7) | 0 | 10 |
| SEK | 10 | 15 | (8) | 0 | 17 |
| Other | 37 | 61 | (41) | 0 | 57 |
| Total | 711 | 496 | (1,668) | 0 | (461) |
In connection with the ALK Group's ongoing financing of operations, including refinancing, efforts are made to ensure adequate and flexible liquidity. This is guaranteed by placing free funds in creditworthy, liquid, interest bearing instruments of relatively short durations in accordance with the ALK Group's policy.
The liquidity risk is considered to be minimal due to the ALK Group's current capital structure.
| Revaluation/payment date | ||||||
|---|---|---|---|---|---|---|
| Carrying | Total | Within | From | After | ||
| Amounts in DKKm | amount | cash flow* | 1 year | 1-5 years | 5 years |
| Mortage debt, bank loans | |||||
|---|---|---|---|---|---|
| and financial loans | 742 | 807 | 29 | 556 | 222 |
| Trade payables | 135 | 135 | 135 | - | - |
| Other financial liabilities | 548 | 548 | 548 | - | - |
| Financial liabilities | 1,425 | 1,490 | 712 | 556 | 222 |
| Financial liabilities | 1,368 | 1,440 | 638 | 560 | 242 |
|---|---|---|---|---|---|
| Other financial liabilities | 489 | 489 | 489 | - | - |
| Trade payables | 121 | 121 | 121 | - | - |
| Mortage debt, bank loans and financial loans |
758 | 830 | 28 | 560 | 242 |
* Total cash flow includes interests.
The ALK Group does not hedge its interest rate exposure, as this is not considered to be financially viable.
Concerning the ALK Group's financial assets and financial liabilities, the earlier of the contractual revaluation and redemption date is applied. Effective interest rates are stated on the basis of the current level of interest rates on the balance sheet date.
| Carrying | Fixed/ | Effective | |||
|---|---|---|---|---|---|
| Amounts in DKKm | amount | Currency | Expiry date | floating | interest rate |
| Cash and marketable securities | 396 | Various | Floating | (1.15)-4.4 | |
|---|---|---|---|---|---|
| Interest - bearing assets | 396 | ||||
| Mortgage debt | 293 | DKK | 2035 Fixed/Floating | 1.2 | |
| Leasing debt | 1 | EUR, USD 2020-2023 | Fixed | 4.2-6.6 | |
| Other bank loans and financial loans | 448 | EUR | 2022 | Fixed | 1.8 |
| Interest - bearing liabilities | 742 | - | - | - | - |
| Cash and marketable securities | 711 | Various | Floating | (1.7)-3.2 | |
|---|---|---|---|---|---|
| Interest - bearing assets | 711 | ||||
| Mortgage debt | 310 | DKK | 2035 Fixed/Floating | 1.2 | |
| Leasing debt | 1 | EUR, USD | 2021 | Fixed | 4.2-6.6 |
| Other bank loans and financial loans | 447 | EUR | 2022 | Fixed | 1.5 |
| Interest - bearing liabilities | 758 | - | - | - | - |
An increase in the interest rate of 1 percentage point on mortgage debt, bank loans and financial loans would reduce net profit and equity by approximately DKK 6 million (2017: less than DKK 1 million). An increase in the interest of 1 percentage point on cash and marketable securities would increase net profit and equity by approximately DKK 2 million (2017: Decrease of DKK 4 million).
The ALK Group's primary credit exposure is related to trade receivables, cash and marketable securities. The ALK Group has no major exposure relating to one single customer or business partner. According to the ALK Group's policy for assuming credit exposure, all customers and business partners are credit rated regularly. Trade receivables are monitored at the local level and are distributed across a number of markets and customers. Therefore, the credit risk is considered to be low.
The credit exposure in connection with financial instruments is managed by contracting only with institutions with satisfactory credit-worthiness, in Denmark as well as abroad. In accordance with ALK's credit-risk policy, such institutions must have an acknowledged credit rating.
The ALK Group has made a systematic review of contracts that might contain terms that would make the contract or parts thereof a derivative financial instrument. The review did not lead to recognition of derivative financial instruments relating to the contracts.
| Amounts in DKKm | 2018 | 2017 | |
|---|---|---|---|
| Categories of financial instruments | |||
| Financial assets | |||
| Financial assets measured at fair value through profit or loss (FVTPL) | |||
| Marketable securities | 100 | 549 | |
| Total | 100 | 549 | |
| Financial assets measured | |||
| at amortised cost | Impairment method | ||
| Receivables from affiliates | 12m ECL | 28 | 25 |
| Securities and receivables | 12m ECL | 9 | 7 |
| Trade receivables | Lifetime ECL (simplified approach) | 328 | 326 |
| Other receivables | 12m ECL | 113 | 73 |
| Cash Total |
296 774 |
162 593 |
|
| Financial liabilities | |||
| Financial liabilities measured at amortised cost | |||
| Mortgage debt | 293 | 310 | |
| Bank loans and financial loans | 449 | 448 | |
| Trade payables | 135 | 121 | |
| Other payables | 539 | 483 | |
| Total | 1,416 | 1,362 |
All financial assets and liabilities, except for marketable securities, are measured at cost or amortised cost. The carrying amounts for these approximate fair value.
Marketable securities are measured at fair value on unadjusted quoted prices in active markets for items identical to the asset being measured (level 1 input).
There are no financial derivatives used in 2018 or 2017.
| Amounts in DKKm | 2018 | 2017 |
|---|---|---|
| Fees to the auditors, Deloitte, appointed at the annual general meeting: |
||
| Audit services | 3 | 3 |
| Tax advisory services | 1 | 1 |
| Other services | 2 | 1 |
| Total | 6 | 5 |
The fee for non-audit services delivered by Deloitte Statsautoriseret Revisionspartnerselskab to the ALK Group amounts to DKK 1.6 million and consists of review of tax returns, review of other tax related matters and other general financial accounting matters.
Party exercising control is ALK-Abelló A/S' majority shareholder, the Lundbeck Foundation (Lundbeckfond Invest A/S).
Other related parties comprise ALK's Board of Management and Board of Directors, companies in which the majority shareholder exercises control, and such companies' subsidiaries, in this case H. Lundbeck A/S and Falck A/S and their subsidiaries.
Transactions and balances with the parent company's majority shareholder:
Transactions with key management personnel consist of remuneration and exercise of share options, see notes 4 and 5 of the Consolidated Financial Statements.
No other transactions have taken place during the year with Board of Directors, Board of Management, major shareholders or other related parties.
No events have occured after the reporting period, that influence the evaluation of the Consolidated Financial Statements.
The financial statements were approved by the Board of Directors and authorised for issue on 7 February 2019.
Nieuwegein
31 December 2018 (wholly owned unless otherwise stated). Nominal capital in 1,000.
| Denmark | France | Spain | Canada | ||||
|---|---|---|---|---|---|---|---|
| ALK-Abello A/S (parent) CVR no. 63 71 79 16 Horsholm |
DKK 111,412 | ALK-Abello S.A. Varennes-en-Argonne |
EUR 160 | ALK-Abello S.A. Madrid |
EUR 4,671 | ALK-Abello Pharmaceuticals, Inc. Mississauga, Ontario |
CAD 3,000 |
| ALK-Abello Nordic A/S | DKK 1,000 | Germany | Italy | China | |||
| CVR no. 31 50 12 96 Horsholm ALK e-com A/S |
DKK 500 | ALK-Abello Arzneimittel GmbH Hamburg |
EUR 1,790 | ALK-Abello S.p.A. Milan Wholly owned by ALK-Abello S.A. |
EUR 2,000 | ALK-Abello A/S (branch) Hong Kong |
|
| CVR no. 39 26 68 81 Horsholm |
Austria | Poland | ALK Medical Consulting Services Company Limited Shanghai |
CNY 500 | |||
| Sweden | ALK-Abello Allergie-Service GmbH Linz |
EUR 73 | ALK-Abello Sp. z o.o. Krakow |
PLN 325 | Slovakia | ||
| ALK-Abello Nordic A/S (branch) Kungsbacka |
Switzerland | USA | ALK Slovakia s.r.o. Bratislava |
EUR 5 | |||
| Norway | ALK-Abello AG Volketswil |
CHF 100 | ALK-Abello, Inc. Austin, Texas |
USD 50 | Czech Republic | ||
| ALK-Abello Nordic A/S (branch) Oslo |
ALK AG Volketswil in Liquidation |
CHF 1,000 | ALK-Abello, Source Materials, Inc. Spring Mills, Pennsylvania |
USD 329 | ALK Slovakia s.r.o. – od šteˇpny´ zavod (branch) Prague |
||
| Finland | Turkey | OKC Allergy Supplies Inc. Oklahoma City, Oklahoma |
USD 1 | Jordan | |||
| ALK-Abello Nordic A/S (branch) Helsinki |
ALK ilaç ve Alerji Ürünleri Ticaret Anonim S¸irketi |
TRY 50 | Wholly owned by ALK-Abello Inc. OKC Crystal Laboratory Inc. |
USD 1 | ALK-Abello A/S (Branch) Amman |
||
| United Kingdom | Istanbul | Oklahoma City, Oklahoma Wholly owned by ALK-Abello, |
|||||
| ALK-Abello Ltd. | GBP 1 | Netherlands | Source Materials, Inc. | ||||
| Reading | ALK-Abello B.V. | EUR 23 |
| Term | Definitions |
|---|---|
| Gross margin – % | Gross profit x 100 / Revenue |
| EBITDA margin – % | EBITDA x 100 / Revenue |
| Net asset value per share | Net asset value / Number of shares end of period |
| Invested capital | Intangible assets, tangible assets, inventories and current receivables reduced by liabilities except for mortgage debt, bank loans and financial loans |
| Return on equity (ROE) – % | Net profit/(loss) for the period x 100 / Average equity |
| Pay-out ratio – % | Proposed dividend x 100 / Net profit/(loss) for the year |
| Earnings/(loss) per share (EPS) |
Net profit/(loss) for the period / Average number of outstanding shares |
| Earnings/(loss) per share diluted (DEPS) |
Net profit/(loss) for the period / Average number of outstanding shares diluted |
| Cash flow per share (CFPS) | Cash flow from operating activities / Average number of outstanding shares |
| ROIC incl. goodwill – % | Operating profit x 100 / Average invested capital incl. goodwill |
| Price earnings ratio (PE) | Share price / Earnings per share |
| Markets | Geographical markets (based on customer location): • Europe comprises the EU, Norway and Switzerland • North America comprises the USA and Canada • International markets comprise Japan, China and all other countries |
The definitions are aligned with generally accepted financial ratios applied by financial analysts. The definitions are part of the Management's review.
| Amounts in DKKm | 2018 | 2017 |
|---|---|---|
| EBITDA reconciliation to net profit | ||
| Net profit / (loss) for the year | (170) | (158) |
| Tax | 67 | 36 |
| Financial income | (24) | (17) |
| Financial expenses | 31 | 59 |
| Depreciation, amortisation and impairment | 232 | 333 |
| EBITDA | 136 | 253 |
| Net asset value | ||
| Equity | 3,179 | 3,290 |
| Net asset value | 3,179 | 3,290 |
| Invested capital reconciliation | ||
| Intangible assets | 725 | 752 |
| Tangible assets | 1,584 | 1,578 |
| Inventories | 993 | 875 |
| Trade receivables | 328 | 326 |
| Receivables from affiliates | 28 | 25 |
| Income tax receivables | 58 | 65 |
| Other receivables | 113 | 73 |
| Prepayments | 83 | 80 |
| Pensions and similar liabilities | (227) | (220) |
| Other provisions (non-current) | (2) | (20) |
| Deferred tax liabilities | (6) | (21) |
| Trade payables | (135) | (121) |
| Income taxes | (9) | (6) |
| Other provisions (current) | (26) | (39) |
| Other payables | (539) | (483) |
| Invested capital | 2,968 | 2,864 |
| Parent company financial statements | ||||
|---|---|---|---|---|
| Income statement | 83 | |||
| Balance sheet | 84 | |||
| Statement of changes in equity | 85 | |||
| Notes | 86 | |||
| Notes | ||
|---|---|---|
| 1 | Accounting policies | 86 |
| 2 | Revenue and segment information | 87 |
| 3 | Staff costs | 87 |
| 4 | Impairment | 87 |
| 5 | Financial income and expenses | 88 |
| 6 | Tax on profit/(loss) for the year | 88 |
| 7 | Intangible assets | 88 |
| 8 | Property, plant and equipment | 89 |
| 9 | Deferred tax | 89 |
| 10 | Investments in subsidiaries | 90 |
| 11 | Inventories | 90 |
| 12 | Mortgage debt, bank loans and financial loans | 90 |
| 13 | Operating lease liabilities | 90 |
| 14 | Contingent liabilities and commitments | 91 |
| 15 | Related parties | 91 |
| 16 | Fees to ALK-Abelló A/S' auditors | 91 |
| 17 | Proposed appropriation of net profit/(loss) | 91 |
| 18 | Events after the reporting period | 91 |
| Amounts in DKKm | Note | 2018 | 2017 |
|---|---|---|---|
| Revenue | 2 | 925 | 1,088 |
| Cost of sales | 3,4 | 729 | 817 |
| Gross profit | 196 | 271 | |
| Research and development expenses | 3 | 350 | 378 |
| Sales and marketing expenses | 3,4 | 829 | 251 |
| Administrative expenses | 3,16 | 104 | 94 |
| Operating profit/(loss) (EBIT) | (1,087) | (452) | |
| Income from investments in subsidiaries | 10 | 37 | 18 |
| Financial income | 5 | 79 | 43 |
| Financial expenses | 5 | 28 | 118 |
| Profit/(loss) before tax (EBT) | (999) | (509) | |
| Tax on profit/(loss) | 6 | (227) | (118) |
| Net profit/(loss) | 17 | (772) | (391) |
| 31 Dec. | 31 Dec. | ||
|---|---|---|---|
| Amounts in DKKm | Note | 2018 | 2017 |
| Assets | |||
| Non-current assets | |||
| Intangible assets | |||
| Goodwill | 7 | - | 643 |
| Intangible assets | 7 | 138 | 167 |
| 138 | 810 | ||
| Tangible assets | |||
| Land and buildings | 8 | 304 | 318 |
| Plant and machinery | 8 | 209 | 207 |
| Other fixtures and equipment | 8 | 16 | 16 |
| Property, plant and equipment in progress | 8 | 152 | 158 |
| 681 | 699 | ||
| Other non-current assets | |||
| Investment in subsidiaries | 10 | 729 | 729 |
| Receivables from affiliates | 1,512 | 1,084 | |
| Securities and receivables | 5 | 5 | |
| Deferred tax assets | 9 | 357 | 156 |
| 2,603 | 1,974 | ||
| Total non-current assets | 3,422 | 3,483 | |
| Current assets | |||
| Inventories | 11 | 359 | 351 |
| Trade receivables | 2 | 4 | |
| Receivables from affiliates | 473 | 541 | |
| Other receivables | 49 | 49 | |
| Prepayments | 48 | 38 | |
| 931 | 983 | ||
| Cash | 130 | 58 | |
| Marketable securities | 100 | 549 | |
| Total cash and marketable securities | 230 | 607 | |
| Total current assets | 1,161 | 1,590 | |
| Total assets | 4,583 | 5,073 |
| 31 Dec. | 31 Dec. | ||
|---|---|---|---|
| Amounts in DKKm | Note | 2018 | 2017 |
| Equity and liabilities | |||
| Equity | |||
| Share capital | 111 | 111 | |
| Retained earnings | 1,498 | 2,269 | |
| Capitalized development costs | 15 | 6 | |
| Total equity | 1,624 | 2,386 | |
| Liabilities | |||
| Mortgage debt | 12 | 276 | 293 |
| Bank loans and financial loans | 12 | 448 | 447 |
| Non-current liabilities | 724 | 740 | |
| Mortgage debt | 12 | 17 | 17 |
| Trade payables | 42 | 47 | |
| Payables to affiliates | 1,971 | 1,685 | |
| Other payables | 205 | 198 | |
| Current liabilities | 2,235 | 1,947 | |
| Total liabilities | 2,959 | 2,687 | |
| Total equity and liabilities | 4,583 | 5,073 |
| Amounts in DKKm | Share capital |
Retained earnings |
Reserve for capitalised development costs |
Proposed dividend |
Total equity |
|---|---|---|---|---|---|
| 2018 | |||||
| Equity at 1 January 2018 | 111 | 2,269 | 6 | - | 2,386 |
| Appropriated from net profit | - | (772) | - | - | (772) |
| Share-based payments | - | 20 | - | - | 20 |
| Share options settled | - | (18) | - | - | (18) |
| Sale of treasury shares | - | 8 | - | - | 8 |
| Transfer to legal reserves | - | (9) | 9 | - | - |
| Other transactions | - | (771) | 9 | - | (762) |
| Equity at 31 December 2018 | 111 | 1,498 | 15 | - | 1,624 |
Please refer to note 17 in the consolidated financial statements for information on treasury shares.
The financial statements of the parent company ALK-Abelló A/S for the period 1 January – 31 December 2018 have been prepared in accordance with the Danish Financial Statements Act for large reporting class D enterprises.
The financial statements are presented in Danish kroner (DKK), which is also the functional currency of the company.
The accounting policies are unchanged from last year. The accounting policies are as described below.
The parent company's accounting policies for recognition and measurement are in accordance with the ALK Group's accounting policies with the following exceptions:
Dividends from investments in subsidiaries are recognised in the parent company's financial statements when the right to the dividend finally vests, typically at the date of the company's approval in general meeting of the dividend of the company in question less any write-downs at the investments.
Acquisition of activities from subsidiaries is accounted for using the purchase method. On initial recognition, goodwill is measured and recognised as the excess of the consideration transferred exceeding the fair value of the net assets acquired at the acquisition date.
Goodwill is measured at cost less accumulated amortisation and impairment. Amortisation is calculated using the straight-line method over the expected useful life, estimated at 10 years. This estimate was made on the basis of estimated useful lives of the assets acquired.
Investments in subsidiaries are measured at cost.
Where the recoverable amount of the investments is lower than cost, the investments are written down to this lower value.
In addition, cost is written down to the extent that dividends distributed exceed the accumulated earnings in the company since the acquisition date. In the event of indications of impairment, an impairment test is performed of investments in subsidiaries.
A reserve for capitalisation of development costs net of tax is recognised in the statement of equity. The reserve contains development costs capitalised since 1 January 2016.
As allowed under section 86 (4) of the Danish Financial Statements Act, no cash flow statement is presented, as this is included in the consolidated cash flow statement.
| Amounts in DKKm | 2018 | 2017 |
|---|---|---|
| Sale of goods | 905 | 1,077 |
| Royalties | 11 | 4 |
| Milestone and upfront payments | - | - |
| Services | 9 | 7 |
| Total revenue | 925 | 1,088 |
| Europe | 868 | 1,007 |
| North America | - | 49 |
| International markets | 57 | 32 |
| Total revenue | 925 | 1,088 |
| Amounts in DKKm | 2018 | 2017 |
|---|---|---|
| Wages and salaries | 549 | 559 |
| Pensions | 51 | 51 |
| Other social security costs, etc. | 20 | 23 |
| Share-based payments | 13 | 18 |
| Total | 633 | 651 |
| Staff costs are allocated as follows: | ||
| Cost of sales | 290 | 285 |
| Research and development expenses | 181 | 198 |
| Sales and marketing expenses | 48 | 48 |
| Administrative expenses | 92 | 92 |
| Included in the cost of assets | 22 | 28 |
| Total | 633 | 651 |
See note 4 and 5 in the consolidated financial statements
| Average number (FTE) | 796 | 775 |
|---|---|---|
| Number year end (FTE) | 804 | 787 |
Impairment amounts to DKK 606 million in 2018, of which DKK 599 million relate to intangible assets and DKK 7 million relate to tangible assets. In the income statement for 2018, impairment of DKK 599 million is recognised as sales and marketing expenses and DKK 7 million as cost of sales.
DKK 598 million, of the total DKK 599 million of impairment of intangible assets, relate to the discontinuation of the US development for the current European version of the adrenaline auto-injector Jext®. Instead, ALK will pursue an alternative US anaphylaxis strategy. The impairment is based on an individual assessment of the net recoverable amount of the individual asset. As ALK believes there is no recoverable value for some of the assets, the full carrying value of the assets has been impaired. For the assets where ALK estimates that there is a recoverable amount, such amount was determined based on the fair value less cost to sell or the value in use of the respective asset.
| Amounts in DKKm | 2018 | 2017 |
|---|---|---|
| Interest on receivables from affiliates | 40 | 26 |
| Other interest income | 7 | 17 |
| Currency gain, net | 32 | - |
| Total financial income | 79 | 43 |
| Other interest expenses | 28 | 18 |
| Currency loss, net | - | 100 |
| Total financial expenses | 28 | 118 |
| Amounts in DKKm | 2018 | 2017 |
|---|---|---|
| Current income tax | (22) | (25) |
| Adjustment of deferred tax | (194) | (90) |
| Prior year adjustments | (11) | (3) |
| Total | (227) | (118) |
| Profit/(loss) before tax | (999) | (509) |
| Income tax, tax rate of 22% | (220) | (112) |
| Non-taxable income | (6) | (6) |
| Non-deductible expenses | 3 | 3 |
| Prior year adjustments | (11) | (3) |
| Other taxes and adjustments | 7 | - |
| Tax on profit/(loss) for the year | (227) | (118) |
| Software | ||||||
|---|---|---|---|---|---|---|
| Patents, | Develop- | and | ||||
| trademarks | ment | assets in | ||||
| Amounts in DKKm | Goodwill* | and rights | cost** | progress | 2018 | 2017 |
| Cost beginning of year | 867 | 89 | 21 | 314 | 1,291 | 1,254 |
| Additions | - | - | 6 | 32 | 38 | 40 |
| Disposals | - | - | - | (54) | (54) | (3) |
| Cost year end | 867 | 89 | 27 | 292 | 1,275 | 1,291 |
| Amortisation and | ||||||
| impairment beginning | ||||||
| of year | 224 | 38 | 4 | 215 | 481 | 337 |
| Amortisation for the year | 87 | 7 | 1 | 16 | 111 | 106 |
| Amortisation on disposals | - | - | - | (54) | (54) | (3) |
| Impairment for the year*** | 556 | 42 | - | 1 | 599 | 41 |
| Amortisation and | ||||||
| impairment year end | 867 | 87 | 5 | 178 | 1,137 | 481 |
| Carrying amount | ||||||
| year end | - | 2 | 22 | 114 | 138 | 810 |
* Goodwill from the transfer of all adrenaline activities from the ALK Group's Swiss subsidiary to the Danish parent company in 2015 was fully impaired end of 2018.
** The capitalised development cost relates to development of medical devices in relation to allergy treatment. The ALK Group expects that the medical devices will generate ecomomic benefits in the coming years.
*** See note 4 in the parent company financial statements.
| Value of land and buildings subject to mortgages | 221 | 230 | ||||
|---|---|---|---|---|---|---|
| of which assets held under finance leases | 82 | 86 | ||||
| Carrying amount year end |
304 | 209 | 16 | 152 | 681 | 699 |
| Depreciation and impairment year end |
272 | 318 | 5 | 85 | 680 | 648 |
| Impairment for the year** | - | - | - | 7 | 7 | 78 |
| Depreciation of disposals | (1) | (4) | (31) | - | (36) | (7) |
| Depreciation for the year | 18 | 38 | 5 | - | 61 | 65 |
| Depreciation and impairment beginning of year |
255 | 284 | 31 | 78 | 648 | 512 |
| Cost year end | 576 | 527 | 21 | 237 | 1,361 | 1,347 |
| other groups | 1 | 41 | 1 | (43) | - | - |
| Transfer to/from | ||||||
| Disposals | (1) | (5) | (31) | (1) | (38) | (9) |
| Cost beginning of year Additions |
573 3 |
491 - |
47 4 |
236 45 |
1,347 52 |
1,281 75 |
| Amounts in DKKm | buildings* | machinery | equipment | in progress | 2018 | 2017 |
| Land and | Plant and | Other fixtures and |
Property, plant and equipment |
* Land and buildings in Denmark include buildings on land leased from Scion DTU A/S, Hørsholm. The lease period for this land is unlimited.
**See note 4 in the parent company financial statements.
| Amounts in DKKm 2018 |
Intangible assets |
Tangible assets |
Current assets |
Liabilities | Tax losses carried forward |
Total |
|---|---|---|---|---|---|---|
| Carrying amount beginning of year Adjustment to prior years Recognised in the income statement, net |
(54) - 120 |
(27) - (2) |
(19) (1) 8 |
1 - - |
255 8 68 |
156 7 194 |
| Carrying amount year end |
66 | (29) | (12) | 1 | 331 | 357 |
| 2017 Carrying amount beginning of year Adjustment to prior years Recognised in the income statement, net |
(48) - (6) |
(25) - (2) |
(25) - 6 |
2 - (1) |
142 20 93 |
46 20 90 |
| Carrying amount year end |
(54) | (27) | (19) | 1 | 255 | 156 |
ALK-Abelló A/S is included in a joint Danish taxation scheme with the Lundbeck Foundation (Lundbeckfond Invest A/S) and its Danish subsidiaries.
ALK-Abelló A/S recognises deferred tax assets including the tax value of tax losses if it is probable that it can be utilized against future taxable income within a foreseeable future (5 years). This includes an assessment of the possibilities to utilize tax losses in the joint Danish taxation scheme with the Lundbeck Foundation (Lundbeckfond Invest A/S).
| Carrying amount year end | 729 | 729 |
|---|---|---|
| Write-down year end | 176 | 176 |
| Write-down during the year | - | - |
| Write-down beginning of year | 176 | 176 |
| Cost year end | 905 | 905 |
| Cost beginning of year | 905 | 905 |
| Amounts in DKKm | 2018 | 2017 |
Income from investments in subsidiaries is dividends, which amounts to DKK 37 million (2017: DKK 18 million).
For an overview of all subsidiaries see note 30 in the consolidated financial statements.
| Amounts in DKKm | 2018 | 2017 |
|---|---|---|
| Raw materials | 70 | 84 |
| Work in progress | 273 | 242 |
| Manufactured goods and goods for resale | 16 | 25 |
| Total | 359 | 351 |
| Amount of write-down of inventories during the year | 11 | 11 |
| Amount of reversal of write-down of inventories during the year | 2 | 2 |
| Amounts in DKKm | 2018 | 2017 |
|---|---|---|
| Debt to mortgage credit institutions secured by real property | ||
| Mortgage debt is due as follows: | ||
| Within 1 year | 17 | 17 |
| From 1-5 years | 71 | 70 |
| After 5 years | 205 | 223 |
| Total | 293 | 310 |
| Bank loans and financial loans | ||
| Bank loans and financial loans are due as follows: | ||
| Within 1 year | - | - |
| From 1-5 years | 448 | 447 |
| After 5 years | - | - |
| Total | 448 | 447 |
| Amounts in DKKm | 2018 | 2017 |
|---|---|---|
| Lease payments recognised in the income statement | 13 | 14 |
| Total minimum future lease payments: | ||
| Within 1 year | 14 | 13 |
| From 1-5 years | 51 | 48 |
| After 5 years* | 120 | - |
| Total | 185 | 61 |
* After analysis, the leasing period for lease of land and buildings in Denmark was adjusted in comparison to 2017.
For information on contingent liabilities and commitments, see note 22 in the consolidated financial statements.
ALK-Abelló A/S is included in the consolidated financial statements of the Lundbeck Foundation.
ALK-Abelló A/S has had transactions with susidiaries during 2018. All subsidiaries are owned 100%. The transactions are eliminated in the consolidated financial statements.
Transactions with the majority shareholder are disclosed in note 27 in the consolidated financial statements. No other transactions have taken place during the year with Board of Directors, Board of Management, major shareholders or other related parties.
For information on remuneration and exercise of share options for the ALK Group's Board of Directors and Board of Management, see notes 4 and 5 in the consolidated financial statements.
| Amounts in DKKm | 2018 | 2017 |
|---|---|---|
| Fees to the auditors, Deloitte, appointed at the annual general meeting: | ||
| Audit services | 1 | 1 |
| Tax advisory services | - | 1 |
| Other services | 1 | - |
| Total | 2 | 2 |
Other services comprise various deliveries including compliance and advisory services.
| Amounts in DKKm | 2018 | 2017 |
|---|---|---|
| Proposed dividend | - | - |
| Retained earnings | (772) | (391) |
| Total | (772) | (391) |
No events have occured after the reporting period, that influence the evaluation of the parent company financial statements.
| Q4 | Q3 | Q2 | Q1 | ||
|---|---|---|---|---|---|
| Amounts in DKKm | 2018 | unaudited | unaudited | unaudited | unaudited |
| Income statement | |||||
| Revenue | 2,915 | 787 | 661 | 715 | 752 |
| Cost of sales | 1,282 | 353 | 288 | 329 | 312 |
| Research and development expenses | 392 | 140 | 84 | 86 | 82 |
| Sales and marketing expenses | 1,137 | 337 | 264 | 276 | 260 |
| Administrative expenses | 227 | 65 | 50 | 61 | 51 |
| Other operating income | 27 | 27 | 0 | 0 | 0 |
| Operating profit/(loss) (EBIT) | (96) | (81) | (25) | (37) | 47 |
| Net financial items | (7) | (2) | (2) | 18 | (21) |
| Profit/(loss) before tax (EBT) | (103) | (83) | (27) | (19) | 26 |
| Net profit/(loss) | (170) | (146) | (31) | (17) | 24 |
| EBITDA | 136 | 10 | 24 | 10 | 92 |
| Average number of employees (FTE) | 2,341 | 2,375 | 2,347 | 2,306 | 2,296 |
| Revenue | |||||
| (Growth in revenue in local currency %) | |||||
| Europe | 2,220 (0) |
602 (4) |
498 (-3) | 519 (2) |
601 (-2) |
| – SCIT/SLIT-drops | 1,464 (-10) | 406 (-4) | 320 (-16) | 324 (-10) | 414 (-10) |
| – SLIT-tablets | 558 (30) | 147 (20) | 115 (45) | 143 (36) | 153 (26) |
| – Other products and services | 198 (22) | 49 (45) | 63 (30) | 52 (13) | 34 (-1) |
| North America | 583 (1) |
161 (3) |
143 (6) |
148 (-5) | 131 (-2) |
| – SCIT/SLIT-drops | 270 (15) | 73 (9) |
75 (20) | 64 (16) | 61 (14) |
| – SLIT-tablets | 59 (-14) | 12 (-44) | 15 (346) | 19 (-31) | 13 (-18) |
| – Other products and services | 254 (-8) | 76 (13) | 45 (-21) | 65 (-11) | 57 (-12) |
| International markets | 112 (41) | 24 (-8) | 20 (4) |
48(228) | 20 (2) |
| – SCIT/SLIT-drops | 43 (5) |
-3(-120) | 9 (52) | 22 (138) | 15 (-11) |
| – SLIT-tablets | 54 (108) | 23 (79) | 8 (-29) | 21(n/a) | 2 (168) |
| – Other products and services | 15 (22) | 4 (0) |
3 (30) | 5 (28) | 3 (41) |
| Total revenue | 2,915 (1) |
787 (3) |
661 (-1) | 715 (5) |
752 (-2) |
| – SCIT/SLIT-drops | 1,777 (-7) | 476 (-5) | 401 (-11) | 410 (-3) | 490 (-7) |
| – SLIT-tablets | 671 (28) | 182 (17) | 138 (46) | 183 (36) | 168 (22) |
| – Other products and services | 467 (4) |
129 (23) | 122 (1) |
122 (0) |
94 (-7) |
| Q4 | Q3 | Q2 | Q1 | ||
|---|---|---|---|---|---|
| Amounts in DKKm | 2018 | unaudited | unaudited | unaudited | unaudited |
| Balance sheet | |||||
| Total assets | 4,865 | 4,865 | 4,861 | 4,945 | 4,922 |
| Invested capital | 2,968 | 2,968 | 3,156 | 3,044 | 2,904 |
| Equity | 3,179 | 3,179 | 3,289 | 3,306 | 3.287 |
| Cash flow and investments | |||||
| Depreciation, amortisation and impairment | 232 | 91 | 49 | 47 | 45 |
| Cash flow from operating activities | (95) | 119 | (106) | (70) | (38) |
| Cash flow from investing activities | (199) | (59) | (47) | (56) | (37) |
| – of which investment in tangible | |||||
| and intangible assets | (178) | (59) | (33) | (56) | (30) |
| Free cash flow | (294) | 60 | (153) | (126) | (75) |
| Information on shares | |||||
| Dividend | - | - | - | - | - |
| Share capital | 111 | 111 | 111 | 111 | 111 |
| Shares in thousands of DKK 10 each | 11,141 | 11,141 | 11,141 | 11,141 | 11,141 |
| Share price, end period – DKK | 960 | 960 | 1,072 | 1,066 | 757 |
| Net asset value per share – DKK | 285 | 285 | 295 | 297 | 295 |
| Key figures | |||||
| Gross margin – % | 56 | 55 | 56 | 54 | 59 |
| EBITDA margin – % | 5 | 1 | 4 | 1 | 12 |
| Earnings/(loss) per share (EPS) – DKK | (15.6) | (16.7) | (1.7) | 0.6 | 2.2 |
| Earnings/(loss) per share diluted (DEPS) – DKK | (15.6) | (16.7) | (1.7) | 0.6 | 2.2 |
| Cash flow per share (CFPS)– DKK | (8.7) | 11.0 | (9.8) | (6.4) | (3.5) |
| Share price/Net asset value | 3.4 | 3.4 | 3.6 | 3.6 | 2.6 |
* Management's review comprises this page as well as pages 1-43 and Financial highlights and key ratios for the ALK Group on page 13.
Definitions: see page 81.
ALK-Abelló A/S • Bøge Allé 6-8 • DK-2970 Hørsholm, Denmark • CVR no. 63 71 79 16 • Tel. +45 45 74 75 76 • www.alk.net
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