Fagron N.V. — Annual Report 2017

Oct 22, 2018

Publication

Fagron NV

Nazareth

Konzernabschluss zum Geschäftsjahr vom 01.01.2017 bis zum 31.12.2017

Consolidated financial statements

Statement

Consolidated income statement

Consolidated statement of comprehensive income

Consolidated statement of financial position

Consolidated statement of changes in equity

Consolidated cash flow statement

Notes to the consolidated financial statements

1 General information

2 Financial reporting principles

3 Risk management

4 Critical accounting estimates and judgements

5 Segment information

6 Turnover

7 Other operating income

8 Employee benefit expenses

9 Depreciation, amortisation and impairment

10 Other operating expenses

11 Financial result

12 Income taxes

13 Discontinued operations

14 Earnings per share

15 Intangible fixed assets

16 Property, plant and equipment

17 Financial fixed assets

18 Taxes, remuneration and social security

19 Inventories

20 Trade receivables, other receivables, cash and cash equivalents

21 Equity

22 Provisions

23 Pension obligations

24 Financial debt and financial instruments

25 Trade payables

26 Other current payables

27 Contingencies

28 Related parties

29 Business combinations

30 Information regarding the Statutory Auditor, his remuneration and related services

31 Significant events after the balance sheet date

32 Additional notes

33 List of the consolidated companies

Statutory Auditor's Report PwC

Statutory financial statement

Condensed stand-alone income statement Fagron NV

Condensed stand-alone balance sheet Fagron NV

Appropriation of profits Fagron NV

Alphabetical terminology list

Forward-looking statements caution

Consolidated financial statements

The Report from the Board of Directors and the Corporate Governance Statement, as reported before, constitute an integral part of the consolidated financial statements.

Statement

We declare that, to the best of our knowledge, the consolidated financial statements for the year ended 31 December 2017, prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union, and the legal and regulatory requirements applicable in Belgium, reflect a true and fair view of the equity, the financial situation and the results of the Company and the companies that are included in the consolidation, and that the Annual Report provides a true and fair view of the development and the results of the company and of the position of the Company and the companies included in the consolidation, and provides a description of the main risks and uncertainties that they face.

In the name and an behalf of the Board of Directors,

13 April 2018

Rafael Padilla, CEO

Karin de Jong, CFO

Consolidated income statement

(x 1,000 euros)	Note	2017	2016
Operating income		441,550	425,054
Turnover	6	436,934	421,839
Other operating income	7	4,616	3,215
Operating expenses		366,942	407,173
Trade goods		167,718	158,191
Services and other goods		79,858	79,218
Employee benefit expenses	8	100,700	96,801
Depreciation and amortisation	9	17,550	21,119
Impairment	9	0	48,364
Other operating expenses	10	1,116	3,480
Operating profit		74,607	17,881
Financial income	11	3,154	12,996
Financial expenses	11	-21,796	-37,242
Profit before income tax		55,965	-6,364
Taxes	12	8,918	11,748
Net result from continued operations		47,047	-18,112
Net result from discontinued operations (attributable to equity holders of the company)	13	0	-2,045
Net result		47,047	-20,157
Attributable to:
Equity holders of the company (net result)		46.658	-20,562
Non-controlling interest		389	405
Earnings (loss) per share attributable to owners of the parent entity during the period
Profit (loss) per share (in euros)	14	0.65	-0.38
From continued operations	14	0.65	-0.34
From discontinued operations	14	0.00	-0.04
Diluted profit (loss) per share (in euros)	14	0.65	-0.38
From continued operations	14	0.65	-0.34
From discontinued operations	14	0.00	-0.04

Consolidated statement of comprehensive income

(x 1,000 euros)	Note	2017	2016
Profit for the year		47,047	-20,157
Other comprehensive income
Items that will not be reclassified to profit or loss	23
• Remeasurements of post-employment benefit obligations		1,497	-599
• Tax relating to items that will not be reclassified		-374	150
Items that may be subsequently reclassified to profit or loss
• Currency translation differences		-16,534	22,077
Other comprehensive income for the year net of tax		-15,411	21,628
Total comprehensive income for the year		31,636	1,471
Attributable to:
Equity holders of the company		31,237	1,088
Non-controlling interest		399	384
Total comprehensive income for the year		31,636	1,471
Total comprehensive income for the year attributable to equity
holders of the company:
From continued operations		31,237	3,133
From discontinued operations	13	0	-2,045
Total comprehensive income for the equity holders		31,237	1,088

The unrealised currency translation differences of -16.5 million euros are primarily the result of the weakening of the Brazilian real compared to the euro as of 31 December 2017.

Consolidated statement of financial position

(x 1,000 euros)	Note	2017	2016
Non-current assets		427,617	455,707
Intangible fixed assets	15	344,495	371,006
Property, plant and equipment	16	69,535	72,879
Financial fixed assets	17	2,232	2,123
Deferred tax assets	18	11,355	9,698
Current assets		166,430	412,346
Inventories	19	62,865	60,054
Trade receivables	20	32,220	32,879
Other receivables	20	10,574	23,829
Restricted cash	20	0	220,622
Cash and cash equivalents	20	60,771	74,962
Total assets		594,047	868,053
Equity	21	184,881	152,875
Shareholders' equity (parent)		181,398	149,792
Non-controlling interest		3,483	3,083
Non-current liabilities		300,925	309,125
Provisions	22	12,476	12,776
Pension obligations	23	4,733	5,680
Deferred tax liabilities	18	198	236
Borrowings	24	283,518	290,433
Current liabilities		108,241	406,053
Borrowings	24	13,450	290,559
Trade payables	25	58,950	53,163
Taxes, remuneration and social security	18	27,168	34,977
Other current payables	26	8,673	18,825
Financial instruments	24	0	8,530
Total liabilities		409,166	715,178
Total equity and liabilities		594,047	868,053

Consolidated statement of changes in equity

(x 1,000 euros)	Note	Share capital & share premium	Other reserves	Treasury shares
Balance at 1 January 2016		345,760	-239,909	-18,823
Profit for the period		0	0	0
Other comprehensive income		0	21,650	0
Total comprehensive income for the period		0	21,650	0
Capital increase		216,092	0	0
Share-based payments		0	85	0
Reclassification		0	0	0
Balance at 31 December 2016		561,852	-218,174	-18,823
Profit for the period		0	0	0
Other comprehensive income		0	-15,422	0
Total comprehensive income for the period		0	-15,422	0
Capital increase	21	0	0	0
Share-based payments	21	0	370	0
Reclassification		-54,182	0	0
Balance at 31 December 2017		507,670	-233,226	-18,823

(x 1,000 euros)	Note	Profit carried forward	Total	Non-controlling interest	Total equity
Balance at 1 January 2016		-154,501	-67,473	2,700	-64,772
Profit for the period		-20,562	-20,562	405	-20,157
Other comprehensive income		0	21,650	-22	21,628
Total comprehensive income for the period		-20,562	1,088	384	1,471
Capital increase		0	216,092	0	216,092
Share-based payments		0	85	0	85
Reclassification		0	0	0	0
Balance at 31 December 2016		-175,063	149,792	3,083	152,875
Profit for the period		46,658	46,658	389	47,047
Other comprehensive income		0	-15,422	10	-15,411
Total comprehensive income for the period		46,658	31,236	399	31,636
Capital increase	21	0	0	0	0
Share-based payments	21	0	370	0	370
Reclassification		54,182	0	0	0
Balance at 31 December 2017		-74,223	181,398	3,483	184,881

Consolidated cash flow statement

(x 1,000 euros)	Note	2017	2016
Operating activities
Profit before income taxes from continued operations		55,965	-6,364
Profit before income taxes from discontinued operations		0	-2,422
Taxes paid		3,398	-12,831
Adjustments for financial items		18,643	24,103
Total adjustments for non-cash items		16,169	62,049
Total changes in working capital		-9,927	2,969
Total cash flow from operating activities		84,247	67,504
Investment activities
Capital expenditure		-10,032	-14,777
Proceeds from sold shareholdings		6,400	0
Investments in existing shareholdings (subsequent payments) and in new holdings		-8,109	-8,155
Total cash flow from investment activities		-11,741	-22,932
Financing activities
Capital increase		0	216,092
New borrowings	24	122,193	147,814
Reimbursement of borrowings	24	-398,023	-156,206
Interest received		3,154	2,240
Interest paid		-31,713	-38,501
Total cash flow from financing activities		-304,391	171,438
Total net cash flow for the period		-231,885	216,010
Cash and cash equivalents – start of the period (including restricted cash)		295,585	75,474
Gains (or losses) from currency translation differences		-2,929	4,100
Cash and cash equivalents – end of the period (including restricted cash)		60,771	295,585
Changes in cash and cash equivalents (including restricted cash)		-231,885	216,010
Net cash flow from discontinued operations
Total cash flow from operating activities		0	-9,279
Total cash flow from investment activities		0	-6,147
Total cash flow from financing activities		0	0
Total net cash flow from discontinued operations		0	-15,426

In April 2016, the Board of Directors decided to close Bellevue Pharmacy; consequently the cash flows from Bellevue Pharmacy were classified under discontinued operations for 2016.

The item "adjustments for financial items" relates to interest paid and received and to other financial expenses and income that are not cash flows, such as the revaluation of the financial instruments. The item "total adjustments for non-cash flow items" relates in particular to depreciation, amortisation, impairment and changes in provisions. The item "total changes in working capital" concerns movements in the inventories, trade receivables and payables, other receivables and debts and all other balance sheet elements that are part of the working capital. The aforementioned changes are adjusted as necessary for non-cash flow items as presented above, for conversion differences and for changes in the consolidation scope.

Notes to the consolidated financial statements

1 General information

Fagron is a leading global company active in pharmaceutical compounding and focused on delivering personalised pharmaceutical care to hospitals, pharmacies, clinics and patients in 34 countries worldwide.

The Belgian company Fagron NV is located at Venecoweg 20A, 9810 Nazareth, Belgium. The company's registration number is BE 0890 535 026. Fagron's operational activities are directed by the Dutch company Fagron BV. Fagron BV's headquarters is located in Rotterdam.

Fagron NV shares are listed on Euronext Brussels and Euronext Amsterdam.

These consolidated financial statements were approved for publication by the Board of Directors on 12 April 2018.

2 Financial reporting principles

The principal accounting policies applied in preparing these consolidated financial statements are detailed below. These policies have been consistently applied by all of the consolidated entities, including subsidiaries, for all of the years presented, unless stated otherwise.

The Fagron consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union (EU). The consolidated financial statements have been prepared on the basis of the historical cost convention, with the exception of derivative financial instruments and contingencies which are listed at fair value.

The consolidated financial statements for Fagron NV and its subsidiaries for 2017 as a whole have been prepared on the going concern basis, which assumes that the company will continue to be able to meet its liabilities as they become due in the foreseeable future.

IFRS developments

No new standards, new interpretations or amendments to standards have been issued or approved by the EU and are mandatory for the first time for the financial year beginning 1 January 2017.

The following amendments to standards and interpretations are mandatory for the first time for the financial year beginning 1 January 2017 but have not yet been approved by the EU.

Published, mandatory but not yet approved by the EU		Anticipated impact
Amendments to IAS 12 Income taxes 1 January 2017	These amendments clarify the accounting for deferred tax Claims arising from debt Instruments valued at fair value.	Upon final approval by the EU, Fagron will process the amendments if applicable.
Amendments to IAS 7 Statement of cash flows 1 January 2017	The amendments introduce an additional disclosure that will prompt readers of the financial statements to evaluate changes in liabilities originating from financing activities. These amendments are part of the IASB "Disclosure initiative", which has the goal of constantly seeking to improve the notes to the financial statements.	Upon final approval by the EU, Fagron will process the amendments if applicable.
Annual improvements to IFRS standards 2014-2016 1 January 2017	These improvements resulted in the adjustment to three standards: IFRS 1 "First application of International Financial Reporting Standards" regarding the short-term exceptions for the first appliers of IFRS 7, IAS 19, IFRS 10 and IAS 28 "Investments in associated participations and interests in joint ventures" regarding the valuation of associated participations and joint ventures at their actual value, which are both applicable as of 1 January 2018. These improvement also regard IFRS 12 "Explanation of interest in other entities" about the clarification of the standard's area of applicability. These adjustments must be applied retrospectively for the financial year starting on 1 January 2017.	Upon final approval by the EU, Fagron will process the amendments if applicable.

The following new standards, changes to standards and interpretations have been issued and approved by the EU, but are not yet mandatory for the first time for the financial year beginning 1 January 2017.

Issued and approved by the EU, but not yet mandatory		Anticipated impact
IFRS 9 Financial Instruments 1 January 2018	This standard, which regards financial Instruments on the asset side as well as liability side, describes the conditions for incorporation, classification and disposal of this type of Instrument, as well as the permitted valuation methods.	Fagron has established that the application of these standards will not have a material impact on the consolidated financial statements.
IFRS 15 Revenues from contracts with customers 1 January 2018	The IASB and FASB have jointly published a standard concerning the recognition of revenue from contracts with customers. The standard will improve the financial reporting of revenues and deliver a better global comparison of the revenues that are reported in the financial statements. Entities that apply IFRS are required to apply this standard.	Fagron conducted an analysis for 2017 and determined that the application of this standard only has a negative performance effect of less than one per cent of the revenue and has no effect on the operating income. Fagron will apply this change as of 1 January 2018. The comparable figures from 2017 will be adjusted in the reporting.

The following new standards, changes to standards and interpretations have been issued, not yet approved by the EU and are not yet mandatory for the first time for the financial year beginning 1 January 2017.

Published, not yet approved by the EU and not yet mandatory		Anticipated impact
IFRS 16 Lease agreements 1 January 2019	The standard replaces the current standard, IAS 17, and contains a major change to the accounting processing for lease agreements by the lessee. According to IAS 17, the lessee had to make a distinction between a financial lease (to be recognised in the balance sheet) and an operational lease (should not be recognised in balance sheet). IFRS 16, an the other hand, requires the lessee to recognize a debt in the balance sheet equal to the future lease payments and a "right-of-use asset" for virtually all leases. For lessors, the recording in the accounts remains almost entirely the same. However, the IASB has amended the definition of a lease (as well as the sections concerning the combination and segregation of contracts), which means lessors are also impacted by the new standard. According to IFRS 16, a contract contains a lease if the contract includes a right to control an identified asset for a specified period of time in exchange for compensation.	Fagron expects the new standard will have a significant impact. Fagron is currently analysing the impact an the consolidated financial statements.
Amendments to IFRS 15 Revenue from contracts with customers 1 January 2018	These amendments clarify the identification of the various performance obligations, the accounting for licenses relating to intellectual property and the differences between principal and agent relations. The amendment also contains examples for clarification.	Fagron will review the effects of these amendments and process them if applicable.
Amendments to IFRS 2 Share-based payments 1 January 2018	The amendment clarifies the valuation method for cash-settled share-based payment transactions and the accounting for adjustments of the payment transaction of cash-settled to equity-settled share-based payment transactions. The amendment also provides for deviation from the IFRS 2 principles to regard a payment transaction for which the employer must withhold part of the payment for tax reasons and must pay this to the tax authorities as an equity-settled share-based payment transaction.	Fagron has established that the application of these standards will not have a material impact on the consolidated financial statements.
IFRIC 22 Foreign currency transactions and advance payments 1 January 2018	This interpretation relates to transactions in foreign currencies or parts of transactions in foreign currencies where the advance payment is expressed in a foreign currency. The interpretation contains additional information if a single payment/receipt occurs as well as if multiple payments/receipts occur. The purpose of this interpretation is to reduce the current diversity in the processing of these transactions.	Fagron has established that the application of these standards will not have a material impact on the consolidated financial statements.
IFRIC 23 Uncertainty regarding the treatment of income taxes 1 January 2019	This interpretation clarifies the accounting treatment of uncertainties regarding income taxes. This interpretation must be applied for the determination of taxable profits (tax losses), the taxable basis, tax losses not used, tax credits and tax bases not used, in the event of any uncertainty regarding its treatment under IAS 12.	Fagron will review the effects of these amendments and process them if applicable.
Changes to IAS 28 Lang-term interests in associated entities and joint ventures 1 January 2019	Clarification with regard to the treatment of long-term interests in an associated entity or joint venture an which the equity method is not applied under IFRS 9. More specifically whether the valuation and reduction in value of such interests should have to occur using IFRS 9, IAS 28 or a combination of both.	Fagron will review the effects of these amendments and process them if applicable.

Other new standards, amendments of standards and interpretations which were published but are not yet mandatory for this financial year starting 1 January 2017, are not applicable for Fagron.

Consolidation criteria

The consolidated financial statements comprise Fagron and its subsidiaries. Subsidiaries are entities which the Group controls. The Group controls an entity when the Group has power over the entity and is exposed to, or has rights to, variable income from the entity and has the ability to affect the amount of variable income through its power over the entity. Subsidiaries are fully consolidated as of the date on which control is transferred to Fagron. They are no longer consolidated as of the date on which Fagron no longer has control.

Any contingent consideration to be entered into by the Group is recognised at fair value on the acquisition date. Changes to the fair value of the contingent consideration that is deemed to be an asset or liability are recognised in accordance with IAS 39 in the income statement. Contingent considerations that are classified as equity are not revalued and its subsequent settlement is accounted for within equity.

An acquisition is recognised using the purchase method. The cost price of an acquisition is defined as the fair value of the assets given, shares issued and liabilities assumed on the date of the exchange. Identifiable assets acquired and liabilities and contingencies assumed in a business combination are initially recognised at their fair value on the acquisition date. For each business combination, Fagron values any minority interest in the party acquired at fair value or at the proportional share in the identifiable net assets of the party acquired. The acquisition costs already incurred are recognised as expenses. The positive difference between the acquisition price and the fair value of the share of Fagron in the net identifiable assets of the acquired subsidiary on the date of acquisition constitutes goodwill and is recognised as an asset.

Intra-group transactions, balances and unrealised gains on transactions between companies of the Group are eliminated. Unrealised losses are also eliminated, but are considered to be an indication of an impairment. Where necessary, the accounting basis for amounts reported by subsidiaries have been adjusted in accordance with the accounting policies of Fagron.

Transactions with minority interests that do not result in loss of control are accounted for as equity transactions – that is, as transactions with shareholders in their capacity as shareholders. For purchases from minority interests, the difference between the price that was paid and the corresponding share acquired against the carrying amount of the net assets of the subsidiary is recognised in equity. Gains or losses on disposals to minority interests are also recognised in equity.

Foreign currency translation

Items included in the financial statements of all Fagron entities are measured using the currency of the primary economic environment in which the company operates ("the functional currency"). The consolidated financial statements are presented in euros, the presentation currency of Fagron. To consolidate Fagron and each of its subsidiaries, the respective financial statements are converted as follows:

•	Assets and liabilities at the year-end rate;
•	Income statement at the average exchange rate for the year;
•	Equity components at their historical exchange rates.

Exchange rate differences arising from the conversion of the net investment in foreign subsidiaries at year-end exchange rate are recognised as shareholders' equity elements under "Cumulative conversion differences".

Transactions in foreign currencies

Transactions in foreign currencies are converted to the functional currency using the exchange rates that apply on the transaction date. Profits and losses from exchange rate differences resulting from settling these transactions and from the conversion of monetary assets and liabilities in foreign currencies at exchange rates valid at year-end are recognised in the income statement.

Exchange rates of key currencies

	Balance sheet		Income statement
	2017	2016	2017	2016
---	---	---	---	---
US dollar	1.199	1.054	1.129	1.107
Brazilian real	3.973	3.431	3.603	3.859
Polish zloty	4.177	4.410	4.257	4.363
Swiss franc	1.170	1.074	1.111	1.090

Fixed assets held for sale and discontinued operations (13)

Non-current assets and disposal groups are classified as fixed assets held for sale when the carrying amount will be recovered principally through a sales transaction or through continued use of that asset.

In order to be classified as fixed asset held for sale, the following criteria must be satisfied in accordance with IFRS 5:

•	Management has committed to the sale;
•	An active programme is initiated to locate a buyer for the assets;
•	The assets (or groups of assets that will be sold) are immediately available for sale, taking into account the usual conditions for sale;
•	The sale is highly probable, expected to occur within 12 months after first classification as a fixed asset available for sale;
•	The asset is offered for sale in the market at a reasonable price; the price is in line with the fair value;
•	The actions required to complete the sale of the assets indicate that it is unlikely that the plan will significantly change or be withdrawn.

If Fagron has committed to a plan to sell a subsidiary which results in Fagron relinquishing control over a subsidiary and the aforementioned criteria are satisfied, then all of the assets and obligations from that subsidiary are classified as fixed assets held for sale and obligations related to assets held for sale, regardless of whether Fagron will retain a non-controlling interest after the sale.

Assets held for sale and obligations related to assets held for sale (or groups of assets that will be sold) are recognised at the lower of the original book value and the fair value less the costs to sell the asset.

A discontinued operation is a component of the Group that represents a separate, important operation or geographic business area, is part of a single coordination plan to dispose of a separate, important operation or geographic business area, or concerns a subsidiary that was acquired exclusively with the intention of selling it.

The classification as a discontinued operation will occur on the date when the transaction satisfies the conditions in order to be recognised as being held for sale or when an operation has been sold.

When an operation has been classified as a discontinued operation, the result from the discontinued operations over the reporting period will be presented separately in the income statement and in the statement of comprehensive income.

In addition to the requirements for the presentation in the balance sheet of groups of assets that will be sold, comparable figures are included in the income statement and in the statement of comprehensive income for the presentation of the results of discontinued operations. Furthermore, the net cash flows that can be attributed to the operating, investment and financing activities of the discontinued operations are reported separately.

Intangible fixed assets (15)

Intangible fixed assets are valued at cost price less accumulated amortisation and impairment. All intangible fixed assets are checked for impairment when there is an indication that the intangible asset may require impairment.

Goodwill

Goodwill represents the positive difference between the cost of an acquisition and the fair value of the Fagron share in the net identifiable assets of the acquired subsidiary on the acquisition date. Goodwill on acquisitions of subsidiaries is recognised under intangible fixed assets. Goodwill is checked at least once per year for impairment, but also each time a trigger event occurs. Goodwill is recognised at cost price less accumulated impairment losses. Impairment losses on goodwill are never reversed. Gains and losses on the disposal of an entity include the book value of goodwill relating to the entity sold.

Brands, licences, patents and other

Intangible fixed assets are recognised at cost, provided this cost is not higher than the reported economic value and the cost price is not higher than the recoverable value. No other intangible fixed assets with an unlimited useful life were identified. The costs of brands with a definite useful life are capitalised and amortised on a straight-line basis over a period of 5 to 7 years. When a part of the acquisition price of a business combination relates to trade names, brand names, formulas and customer files, these will be considered an intangible asset.

Research and development

Research costs related to the prospect of gaining new scientific or technological knowledge and understanding are recognised as costs at the moment they are incurred.

Development costs are defined as costs incurred for the design of new or substantially improved products and for the processes preceding commercial production or use. They are capitalised when, among other things, the following criteria are met:

•	Technical feasibility of the project;
•	Intention to complete and to use or sell the asset;
•	Ability to use or sell the asset;
•	Likelihood that the asset will generate future economic benefits;
•	Adequate resources to complete the asset;
•	Ability to measure the reliability of the costs.

Development costs are amortised using the straight-line method over the period of their expected benefit, which is currently a maximum of 5 years. Amortisation starts at the moment these assets are ready for use.

In-house development

Unique products developed in-house, including software controlled by Fagron, which are expected to generate future economic benefits, are capitalised at the cost directly related to their production. The software is depreciated over its useful life, which is currently estimated at 5 years.

Software

Acquired software is capitalised at cost price and then valued at cost price less accumulated depreciations and impairment losses.

The assets are depreciated over the useful life, which is currently estimated at 5 years.

Impairment

Assets that have an indefinite useful life are not subject to amortisation and are checked for impairment on an annual basis. Amortised assets are reviewed for impairment when events or changes in circumstances indicate that the book value may not be recoverable. An impairment loss is recognised for the amount by which the asset's book value exceeds its recoverable amount. The recoverable amount is the greater of an asset's fair value less the sale costs and its value in use. For the purpose of assessing impairment, assets are grouped at the lowest level for which there are separately identifiable cash flows (cash-generating units).

Property, plant and equipment (16)

Tangible fixed assets are valued at the acquisition value or production costs plus directly attributable costs, if applicable. Depreciation is calculated prorated in time based on the useful life of the asset in accordance with the following amortisation parameters: 3 to 20 years for equipment and machinery and between 25 and 33 years for buildings. Land is not depreciated.

In general, all assets are depreciated using the straight-line method, based on the estimated economic life. Any residual value taken into account when calculating the depreciation is reviewed on an annual basis. Assets that have been acquired in the context of financial lease agreements will be depreciated over the economic usage period. This period may exceed the duration of the lease if it is practically certain that the ownership will be acquired at the end of the lease.

Financial fixed assets (17)

Fagron classifies its non-derivative financial assets into the following categories: loans and receivables and financial assets available for sale. Management determines the investment classifications of its (non-derivative) financial assets at initial recognition and evaluates them once again at each reporting date. The Group does not have any financial fixed assets in the category that is held until maturity or any (non-derivative) financial fixed assets that are designated at fair value for which any changes in value have to be included in the income statement.

Loans and receivables

Loans and receivables are non-derivative financial fixed assets with fixed or determinable payments that are not quoted in an active market and that are not intended to be traded. Loans and receivables are included in current assets, except for those maturing more than 12 months after the balance sheet date. Loans and receivables are measured at amortised costs using the effective interest method.

Taxes, remuneration and social security (18)

Income taxes as recognised in the income statement include the income tax on the current year and deferred taxes. Current income taxes include the expected tax liabilities on Fagron's taxable income for the financial year, based on the applicable tax rates at balance sheet date, and any adjustments from previous years. Income tax due on dividends is recognised when a liability to pay the dividend is recognised.

Deferred taxes are recognised using the balance sheet liability method and are calculated on the basis of the temporary differences between the book value and the tax basis. This method is applied to all temporary differences arising from investments in subsidiaries and associates, except for differences where the timing of settling the temporary difference is controlled by Fagron and where the temporary difference is not likely to be reversed in the near future. The calculation is based on the tax rates as enacted or substantially enacted at balance sheet date and expected to apply when the related deferred tax is realised or the deferred tax liability is settled. Under this calculation method, Fagron is also required to account for deferred taxes relating to any difference between the fair value of the net acquired assets and their book value for tax purposes resulting from any acquisitions. Deferred taxes are recognised to the extent that the tax losses carried forward are likely to be offset in the foreseeable future. Deferred income tax receivables are fully written off when it ceases to be likely that the corresponding tax benefit will be realised. Fagron will offset tax assets and tax liabilities if, and only if, Fagron has a legally enforceable right to offset the recognised amounts; and either (a) intends to settle on a net basis, or (b) to realise the asset and settle the liability simultaneously.

Inventories (19)

Raw materials, auxiliary materials, and trade goods are valued at the acquisition value using the FIFO method or using the net realisable value (NRV) at the balance sheet date, whichever is lower. Work in progress and finished products are valued at production cost. In addition to the purchasing cost of raw materials and auxiliary materials, production costs and production overhead costs directly attributable to the individual product or the individual product group are included.

Trade receivables (20)

Trade receivables are initially valued at fair value. A provision for impairment relating to trade receivables is created when there is objective evidence that Fagron will not be able to collect all amounts. Subsequently, trade receivables are valued at amortised costs. Significant financial difficulties on the part of the debtor, the probability of the debtor becoming insolvent or undergoing financial restructuring, and non-payment or overdue payments are considered indicators for recognising an impairment for the trade receivable in question.

If trade receivables are transferred to a third party (through factoring), the trade receivables are taken off the balance sheet provided that (1) there is no longer a right to receive cash flows and (2) Fagron has substantially transferred all rights and risks. The factoring balance at 31 December 2017 amounted to 20.0 million euros.

Cash and cash equivalents (20)

Cash and cash equivalents include cash in hand, deposits held at call with banks and other short-term highly liquid investments with original maturities of three months or less, and are valued at acquisition at fair value and subsequently recognised at cost. Adjustments are made to the book value when at balance sheet date the realisation value is less than the book value.

Capital (21)

Ordinary shares are classified as equity. Incremental costs directly attributable to the issuance of new shares or options are recognised in the equity as a deduction, net of taxes, from the proceeds.

If a company of Fagron purchases share capital of Fagron (treasury shares), the consideration paid, including any directly attributable incremental costs (net of income taxes), is deducted from equity attributable to the shareholders of Fagron until the shares are cancelled, reissued or disposed of. If such shares are subsequently sold or reissued, any consideration received, net of any directly attributable incremental transaction costs and related income tax effects, is included in equity attributable to the shareholders of Fagron.

Provisions (22)

Provisions exist for restructuring costs, legal claims, risk of losses or costs potentially arising from personal securities or collateral constituted as guarantees for creditors or commitments to third parties, from obligations to buy or sell non-current assets, from the fulfilment of completed or received orders, technical guarantees associated with turnover or services already completed by Fagron, unresolved disputes, fines and penalties related to taxes, or compensation for dismissal. Fagron recognises a provision if:

•	Fagron has an existing legal or actual obligation as a result of past events;
•	it is more likely than not that an outflow of resources will be necessary to fulfil the obligation; and
•	the amount can be estimated reliably.

Provisions for restructuring costs comprise lease termination penalties and employee termination payments. Provisions are not recognised for future operating losses.

Provisions are recognised based on management's best estimate of the expenditure required to settle the present obligation at balance sheet date. The discount rate used to determine the present value reflects current market assessments of the time value of money and the risks specific to the liability.

Employee benefit expenses

Share-based payments (21)

Fagron operates an equity-based compensation plan, which is paid in shares. The total amount to be recognised as costs over the vesting period is determined by reference to the fair value of the warrants or options granted, excluding the impact of any non-market unconditional commitments (for example, profitability and turnover growth targets). Non-market unconditional commitments are included in the assumptions about the number of warrants or options expected to become exercisable. At each balance sheet date, Fagron revises its estimates of the number of warrants or options expected to become exercisable. Fagron recognises any impact of the revision of original estimates in the income statement, and a corresponding adjustment to equity over the remaining vesting period. The proceeds received, net of any directly attributable transaction costs, are credited to share capital (nominal value) and share premium when the warrants are exercised. The modalities of the existing plans were not changed this year.

Pension obligations (23)

The companies of Fagron operate various pension schemes. The pension schemes are funded through payments to insurance companies, determined by periodic actuarial calculations. Fagron has both defined benefit and defined contribution plans.

The liability recognised on the balance sheet in respect of defined benefit plans is the present value of the future defined benefit obligations less the fair value of the plan assets. The obligation is calculated periodically by independent actuaries using the 'projected unit credit' method. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates of high quality corporate bonds that are denominated in the currency in which the benefits will be paid, and that have terms to maturity approximating the terms of the related pension liability.

Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are recognised immediately, in the period in which they arise, being added or deducted to or from the equity via the unrealised result.

For defined contribution plans, Fagron pays contributions to insurance companies. Once the contributions have been paid, Fagron ceases to have any liabilities. Contributions to defined contribution plans are recognised as costs in the income statement at the moment they are made.

Borrowings (24)

Borrowings are initially recognised at fair value, net of transaction costs incurred. Borrowings are subsequently recognised at amortised costs; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the income statement over the period of the borrowings using the effective interest method. Borrowings are classified as current liabilities, unless Fagron has an unconditional right to defer settlement of the liability for at least 12 months after the balance sheet date. Consultancy costs for the refinancing are part of the financial costs.

Lease contracts – Operating leases (24)

Lease contracts in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments under operating leases are made on a straight-line basis over the life of the operating lease.

Lease contracts – Financial leases (24)

Lease contracts regarding property, plant and equipment whereby Fagron retains virtually all risks and rewards of ownership are classified as financial leases. Financial leases are capitalised at the inception of the lease contract at the lower of the fair value of the leased property and the present value of the minimum lease payments. Each lease payment is allocated between liability and financing costs, so as to achieve a constant amount on the outstanding financing balance.

The corresponding rental obligations, net of financing costs, are included in the non-current (payable after 1 year) and current (payable within the year) borrowings. The interest component of the financing costs is recognised in the income statement over the lease period, so as to achieve a constant periodic rate of interest on the remaining balance of the liability for each period.

The tangible fixed assets acquired under finance leases are depreciated over the useful life of the asset. This may exceed the remaining duration of the lease if it is fairly certain that the property will be acquired at the end of the lease.

Derivative financial instruments (24)

Fagron uses derivative financial instruments to limit risks relating to unfavourable fluctuations in interest rates and exchange rates.

No derivatives are employed for trade purposes.

Derivative financial instruments are recognised at fair value on the balance sheet. Fair values are derived from market prices. As the derivative contracts of Fagron do not fulfil the criteria as set in IAS 39 to be regarded as hedging instruments, changes in fair value of derivatives are recognised in the income statement.

Revenue recognition

Revenue from the sale of goods is recognised at the moment that delivery of the products has been made to the customer, the customer has accepted the products and the related receivables are likely to be collectable. Revenue of services is recognised in the accounting period in which the services have been provided. Revenue from the sale of software is recognised as revenue at the time of delivery. The revenues from software service contracts are recognised over the term of the contract.

Segment reporting

IFRS 8 defines an operating segment as:

•	a component of an entity that engages in business activities from which it may earn revenues and incur expenses;
•	whereby the operating results are regularly reviewed by the entity's Chief Operating Decision Maker to make decisions about resources to be allocated to the segment and assess its performance; and
•	for which concrete financial information is available.

Fagron determines and presents operating segments on the basis of information that is internally provided to the Executive Committee, the body that was Chief Operating Decision Maker during 2017. An operating segment is a group of assets and activities engaged in providing products or services that are the basis of the internal reporting to Fagron's Executive Committee.

Effective the first quarter of 2017, Fagron has adjusted the reporting structure and presentation of the financial results per segment to bring these in line with the way in which the business is managed. The financial information of the Fagron segments provided to the Executive Committee is split into Fagron Europe, Fagron North America, Fagron South America and HL Technology.

Earnings per share (EPS) (14)

Fagron presents basic and diluted earnings per share (EPS) for common shares. Basic EPS is calculated by dividing the profit or loss for the period attributable to holders of common shares by the sum of the weighted average number of common shares outstanding during the period. Dividend distribution to the shareholders of Fagron is recognised as a liability in the financial statements in the period in which the dividends are approved by the shareholders.

For the purpose of calculating diluted EPS, the profit or loss for the period attributable to holders of common shares adjusted for the effects of all dilutive potential shares is divided by the sum of the weighted average number of outstanding ordinary shares used in the basic EPS calculation and the weighted average number of shares that would be issued on the conversion of all the dilutive potential ordinary shares into ordinary shares.

3 Risk management

Adequate and reliable financial reporting is essential for both the internal management reports and the external reporting. Group-wide reporting guidelines have been drawn up within Fagron to this end, based on IFRS and internal information needs.

Risk management is extremely important for Fagron in order to secure the long-term business objectives and the value creation of the company. The policy of Fagron is to focus on identifying all major risks, on developing plans to prevent and manage these risks, and on putting in place measures to contain the consequences should such risks effectively occur. Still, Fagron cannot conclusively guarantee that such risks will not occur or that there will be no consequences when they occur.

All entities periodically prepare business plans, budgets and Interim forecasts at predetermined moments. Discussions with management of the entities take place periodically on the general course of affairs, including the realisation and feasibility of the forecasts issued and strategic decisions. With regard to tax regulations, Fagron makes use of the possibilities offered by the tax laws and regulations without taking any unnecessary risks in doing so. Fagron has the support of external tax advisers in this regard.

In addition to strategic and operational risks, Fagron is also subject to various financial risks. To sustain its day-to-day operations, Fagron has the following credit facilities at its disposal.

Bonds

On 2 July 2012, Fagron NV issued bonds for an amount of 225 million euros. The nominal value of the bonds is 1,000 euros. The bonds were listed on Euronext Brussels under ISIN code 6E0002180462 on 2 July 2012. The issue price of the bonds was 101.875%. The bonds had a maturity of five years and offered a fixed annual gross interest of 4.75%. The bonds were redeemable at 100% of the nominal value on 2 July 2017. As the only covenant, Fagron had to ensure that total EBITDA, calculated as result before interest, taxes, depreciation, amortisation and impairment, of the guarantors was at least 70 per cent of the consolidated Group EBITDA.

The companies that acted as guarantors for the Fagron loans are listed in note 24. In 2017, the bonds were fully repaid.

Multi-currency facility

On 16 December 2014, Fagron NV amended and extended the existing credit facility with an originating amount of 150 million euros and a maturity date in July 2017. The amended multi-currency facility of 220 million euros was given a term until December 2019 with two one-year extension options via a consortium of existing and new international banks. In 2016, this facility, along with the long-term waiver of 5 May 2016, was renewed until April 2021 for an amount of at least 180 million euros by exercising the extension options. The financial covenants were adjusted to give Fagron extra latitude with respect to the original levels of the financial covenants. The extra latitude in the financial covenants will decrease with every six-month test period up to and including the test period ending on 30 June 2018. For every test period ending after 30 June 2018, the levels of both financial covenants revert to the original levels. The remaining test periods and accompanying levels are shown below. In addition, the total EBITDA, calculated as result before interest, taxes, depreciation and amortisation, of the guarantors should be at least 70 per cent of the consolidated Group EBITDA. In the last quarter of 2017, Fagron agreed a term loan for 80 million euros with a syndicate of banks. The term of this loan is equal to the multi-currency facility and has an expiration date in April 2021. The repayment will take place at the end of the term and the agreements on financial covenants are the same as those of the multi-currency facility.

Financial covenants

Test period	Net financial debt / REBITDA	REBITDA / net interest expenses
31 December 2017	Max. 4.09x	Min. 2.32x
30 June 2018	Max. 3.60x	Min. 2.80x
After 30 June 2018	Max. 3.25x	Min. 4.00x

At year-end 2017, an amount of 114 million euros had been withdrawn (2016: 191 million euros).

Privately placed loans (senior unsecured notes)

Fagron NV issued a series of privately placed loans pursuant to a loan agreement originally dated 15 April 2014, which includes 45.0 million US dollars 4.15% Series A Senior Notes due 15 April 2017, 22.5 million euros 3.55% Series B Senior Notes due 15 April 2017,15.0 million euros 4.04% Series C Senior Notes due 15 April 2019, 5.0 million euros Floating Rate Series D Senior Notes due 15 April 2019, 20.0 million US dollars 5.07% Series E Senior Notes due 15 April 2019 and 60.0 million US dollars 5.78% Series F Senior Notes due 15 April 2021. The Series A Senior Notes and the Series B Senior Notes were fully repaid in 2017.

The agreement dated 15 April 2014 was amended in 2016 as a result of the long-term waiver of 5 May 2016. The key covenants of this credit facility are the net financial debt/recurring EBITDA ratio and the recurring EBITDA/net interest expenses ratio. The financial covenants were adjusted to give Fagron extra latitude with respect to the original levels of the financial covenants. The extra latitude in the financial covenants will decrease with every six-month test period up to and including the test period ending on 30 June 2018. For every test period ending after 30 June 2018, the levels of both financial covenants revert to the original levels. The remaining test periods and accompanying levels are shown below. In addition, the total EBITDA, calculated as result before interest, taxes, depreciation and amortisation, of the guarantors should be at least 70 per cent of the consolidated Group EBITDA.

Financial covenants

Test period	Net financial debt / REBITDA	REBITDA / net interest expenses
31 December 2017	Max. 4.09x	Min. 2.32x
30 June 2018	Max. 3.60x	Min. 2.80x
After 30 June 2018	Max. 3.25x	Min. 4.00x

Capital management

The Group's objectives in relation to capital management are:

•	to safeguard the company's equity in order to guarantee its continuity; and
•	to maintain the best possible capital structure so as to reduce capital costs.

The amount to be paid on dividends can be adjusted by the Group (see note 21) in order to retain or adjust the capital structure. It may also issue new shares or dispose of assets in order to reduce indebtedness.

In keeping with the conditions governing the largest credit facilities, the Group is obliged to comply with the following financial covenants:

a)	a maximum net financial debt/recurring EBITDA ratio of 3.25; and
b)	a minimum interest coverage ratio of 4.0, measured by dividing the recurrent EBITDA with the consolidated net interest expenses.

The covenant levels above were temporarily relaxed by the signed waivers of 5 May 2016, after which the above levels will once again

apply. These temporary levels are reported in the chapter 'Multi currency facility' and 'Privately placed loans (senior unsecured notes)'.

The policy regarding capital management strives for continuity in business operations. The Group maintains a healthy financial structure while doing so. On the other hand, the Group also strives to provide an interesting return to shareholders. To ensure a healthy financial position, the dividend to be distributed to the shareholders can, for example, be adjusted. The company may also choose to redeem loans early or to increase external financing or equity. Fagron monitors the relevant financial covenants on a continuous basis. The company ensures that sufficient scope remains with regard to the agreements with its financiers.

Cash Pool

Fagron manages the cash and financing flows and the risks arising from these by means of a group-wide treasury policy. In order to optimise the financial position and keep the related interest charges to a minimum, the cash flows of the companies are centralised as much as possible by means of domestic and cross border cash pooling. Fagron has a total of three local cash pools in the regions of North America and Europe (the Netherlands and Belgium). These are used by the operating companies, whereby zero balancing is applied in Europe and target balancing in North America. The three local cash pools are pooled daily into one central notional cash Pool.

Liquidity risk

Liquidity risk is the risk that Fagron is unable to meet its financial obligations. The expected cash flow is assessed and analysed on a regular basis. The goal is to have sufficient financial resources available at all times to meet the liquidity needs.

Credit risk

Credit risk involves the risk that a debtor or other counterparty is unable to fulfil its payment obligations to Fagron, resulting in a loss for Fagron. Fagron has an active credit policy and strict procedures to manage and limit credit risks. No individual customers make up a substantial part of either turnover or outstanding receivables. Fagron has an active policy to reduce operational working capital. From this perspective the Group aims to reduce the accounts receivable balance.

Interest risk

Fagron regularly assesses the maintained mix of borrowings with fixed and variable interest rates. At this moment, the financing consists in part of financing with a variable interest rate ranging from 1 to 6 months. A higher Euribor rate of 10 base points would have increased the variable interest charges by approximately 167 thousand euros before tax (2016: 91 thousand euros).

Exchange rate risk

The exchange rate risk is the risk on results due to fluctuations in the exchange rates. Fagron reports its financial results in euros and is, because of the international distribution of its activities, subject to the potential impact of currencies on its profits. Exchange rate risk is the result on the one hand of several entities of Fagron operating in a functional currency other than euros and on the other hand of the circumstance that purchasing and retail prices of Fagron have foreign currencies as reference. The risk involved in entities of Fagron operating in a functional currency other than the euro concerns entities operating in US dollars, Brazilian reals, Polish zloty, Czech crowns, Swiss francs, British pounds, Danish crowns, Colombian pesos, Chinese yuan, South African rand, Australian dollars, Croatian kuna and Argentinian pesos. In 2017, these entities collectively represent approximately 55.2% of the consolidated turnover.

Some of the Group's revenue is realised in currencies other than the euro, such as in Brazil, the United States, Poland and Switzerland.

The table below sets out the hypothetical supplementary effect of the euro strengthening or weakening by 10% against the US dollar, the Brazilian real, the Polish zloty and the Swiss franc for the year 2017 and its subsequent effect on profit before tax and equity capital.

	Profit before tax			Equity
(x 1,000 euros)	Strengthening	Weakening	Strengthening	Weakening
---	---	---	---	---
US dollar	379	-463	-3,252	3,974
Brazilian real	-1,785	2,183	-9,523	11,639
Polish zloty	-1,140	1,394	-3,167	3,871
Swiss franc	-62	76	-419	512

The company also incurs indirect currency risk as a large part of its purchases in Brazil are actuallytransactions in US dollars.

This means that the Group's products become relatively more expensive to Fagron's customers each time the US dollar rises against the Brazilian real. The risk is difficult to quantify, as such price increases are directly charged to the consumer entirely or partly.

Currency risks in relation to debt in foreign currency, privately placed loans (senior unsecured notes), some of which were borrowed in US dollars, have been hedged in part with intercompany loans to the US subsidiary.

Fair value risk

In 2017, Fagron used financial derivatives to hedge interest and currency risks. Fagron hedged the variable interest rate for 70 million euros of financing. Derivatives (FX forwards) with nominal value of 157 million US dollars are used to hedge the US dollar debt. In accordance with IFRS, all financial derivatives are recognised either as assets or as liabilities. In accordance with IAS 39, financial derivatives are recognised at fair value. Changes in fair value are recognised by Fagron directly in the income statement because these are financial derivatives that do not qualify as cash flow hedging instruments. In 2017, a portion of the US dollar loans was repaid and the FX derivatives expired. The interest rate swap also expired in 2017. At the end of 2017, Fagron had no financial derivatives (2016: -8.5 million euros).

4 Critical accounting estimates and judgments

Estimates and judgments are continuously evaluated and are based on historical experience and other factors, including expectations of future events that are deemed reasonable given the circumstances.

Critical estimates and judgments

Fagron makes estimates and judgments concerning the future. The resulting estimates will, by definition, rarely match the related actual results. Those estimates and assumptions that entail a significant risk of causing the need for a material adjustment of the book value of assets and liabilities within the next financial year are discussed below.

Estimated impairment loss for goodwill and other intangible fixed assets

Fagron performs an annual goodwill impairment test in accordance with the accounting policies specified in note 15. The recoverable amount of cash flow-generating units is the higher of the asset's fair value less the costs of sales and enterprise value. These calculations require the application of estimates. Mainly as a consequence of the impact of the changes to the reimbursement system in the United States, Fagron had to recognize an impairment loss of 48.4 million euros in 2016. In 2017, no impairment loss was recognised.

Estimated deferred tax assets

Deferred tax assets are mainly accounted for by differences in depreciation rates, tax deductible losses and goodwill acquired in business acquisitions. The tax deductible losses are tested twice a year for impairment. If these losses may not be offset within a reasonable time, they will be written off A deferred tax asset is recognised when the book value of goodwill is less than the tax base and it is expected that taxable profits will arise against which the temporary differences can be utilized.

Pension obligations

The present value of the pension obligations depends on a number of actuarially determined factors based on a number of assumptions. The assumptions applied to determine net costs (net income) for pensions include expected rates for salary increases, price inflation, pension increases and the discount rate. Any changes in these assumptions will impact the book value of pension obligations. The gross defined benefit obligation is calculated periodically by independent actuaries.

The book value of pension obligations as at 31 December 2017 is 4.7 million euros (2016: 5.7 million euros).

Provisions for disputes

As stated, provisions are valued at present value of the best estimate by management of the expenditure required to settle the existing obligation at the balance sheet date. Provisions for disputes require significant professional judgment in terms of the ultimate outcome of administrative law rulings or court judgments. Estimates are always based on all available information at the moment the financial statements are prepared. However, the need for significant adjustments cannot be absolutely precluded if a ruling or judgment proves not as expected. Judgments and estimates are continuously evaluated on the basis of past experience and other factors, including projected development of future events that are regarded as reasonable given the circumstances.

Uncertain tax positions

The company is subject to tax on profits in different jurisdictions. Significant judgments must be made in determining the provision for tax on profits. There are some transactions and calculations for which the ultimate taxable amount is uncertain. When the final income tax is determined, the deviations will affect the current and deferred taxes and liabilities for the period in which the determination is made.

5 Segment information

Effective 2017, Fagron has adjusted the reporting structure and presentation of the financial results per segment to allign these with the way in which the business is managed. As a result of this change in operational segments, the comparative financial results per segment of 2016 have also been adjusted. Fagron's results are reported in the segments Fagron Europe, Fagron North America, Fagron South America and HL Technology. This structure is tailored to the various activities of Fagron and also supports effective decision-making and individual responsibility. This is in accordance with IFRS 8, which states that the operational segments must be determined on the basis of the components that the Executive Committee applies to assess the performance of the operational activities and on which the decisions are based.

Fagron is organised into four main operational segments:

1.	Fagron Europe refers to Fagron's European activities in the Netherlands, Belgium, Poland, Germany, Italy, Czech Republic, Spain, France, Denmark, Greece, Croatia and the United Kingdom as well as the activities in South Africa, Australia and China. Fagron Europe is active in every Fagron activity category;
2.	Fagron North America encompasses all Fagron activities in the United States. Fagron North America is also active in every Fagron activity category;
3.	Fagron South America refers to all Fagron activities in Brazil and Columbia. In South America, Fagron is primarily active in Fagron Brands and Fagron Essentials; and
4.	HL Technology is located in Switzerland and develops and produces innovative precision components and orthopedic tools for dental and medical industry professionals.

Fagron's activities can be subdivided into three categories:

1.	Fagron Compounding Services refers to all personalised medication that is prepared in Fagron's sterile and non-sterile facilities;
2.	Fagron Brands encompasses the innovative concepts, products and vehicles developed by Fagron, often in close cooperation with prescribers, pharmacies and universities; and
3.	Fagron Essentials refers to all pharmaceutical raw materials, equipment and supplies a pharmacist needs to prepare medication in his own pharmacy.

The segment results for continued operations for the reporting period ending 31 December 2017 are as follows:

2017

(x 1,000 euros)	Fagron Europe	Fagron North America	Fagron South America	HL Technology	Total
Turnover	249,082	77,769	103,282	6,802	436,934
Intersegment turnover	399	138	44	0	581
Total turnover	249,481	77,906	103,326	6,802	437,515
Operating result per segment	53,859	3,763	17,541	-556	74,607
Financial result					-18,643
Profit before taxes					55,965
Taxes on profits					8,918
Net result from continued operations					47,047

The segment results for continued operations for the reporting period ending 31 December 2016 are as follows:

2016

(x 1,000 euros)	Fagron Europe	Fagron North America	Fagron South America	HL Technology	Total
Turnover	246,904	76,147	91,130	7,659	421,839
Intersegment turnover	269	441	61	0	772
Total turnover	247,173	76,588	91,191	7,659	422,611
Operating result per segment	55,330	-49,415	15,406	-3,440	17,881
Financial result					-24,245
Profit before taxes					-6,364
Taxes on profits					11,748
Net result from continued operations					-18,112

Other segmented items recognised in the income statement for continued operations are as follows:

2017

(x 1,000 euros)	Fagron Europe	Fagron North America	Fagron South America	HL Technology	Total
Depreciation, amortisation and impairment	6,792	5,210	2,560	528	15,091
Write-down on inventories	512	291	421	810	2,034
Write-down on receivables	-7	303	128	0	424

2016

(x 1,000 euros)	Fagron Europe	Fagron North America	Fagron South America	HL Technology	Total
Depreciation, amortisation and impairment	7,368	55,351	2,245	1,579	66,543
Write-down on inventories	509	953	144	826	2,432
Write-down on receivables	5	430	64	9	508

The assets and liabilities, and the capital expenditure (investments) are as follows:

2017

(x 1,000 euros)	Fagron Europe	Fagron North America	Fagron South America	HLTechnology	Unassigned/ intersegment elimination	Total
Total assets	290,159	126,423	133,786	5,507	38,172	594,047
Total liabilities	78,687	90,653	25,800	897	213,130	409,166
Capital expenditure	4,054	2,502	2,603	447	0	9,607

2016

(x 1,000 euros)	Fagron Europe	Fagron North America	Fagron South America	HLTechnology	Unassigned/ intersegment elimination	Total
Total assets	303,807	148,817	157,108	7,105	251,216	868,053
Total liabilities	82,936	258,088	24,634	2,759	346,761	715,178
Capital expenditure	7,248	3,708	2,533	118	0	13,606

Segment assets consist primarily of property, plant and equipment, intangible fixed assets, inventories, receivables and cash from operations.

Fagron has a broad customer base in which no customer accounts for more than 10% of the turnover of Fagron.

6 Turnover

(x 1,000 euros)	2017	2016
Sale of goods	436,934	421,839
Turnover	436,934	421,839

7 Other operating income

(x 1,000 euros)	2017	2016
Gain an disposal of fixed assets	695	219
Other operating income	3,920	2,995
Total other operating income	4,616	3,215

The other operating income in both 2016 and 2017 related mainly to income from the sale of activities in the past. The increase in other operating income mainly relates to higher income in 2017 as a result of the sale of activities in the past and the sale of assets in Switzerland.

8 Employee benefit expenses

(x 1,000 euros)	2017	2016
Wages and salaries	68,283	65,882
Social security costs	14,577	14,042
Pension costs – defined benefit plans	483	58
Pension costs – defined contribution plans	2,045	2,242
Other post-employment benefit contributions	3,451	2,527
Other employee expenses	11,863	12,050
Total employee benefit expenses	100,700	96,801

At 31 December 2017, Fagron's workforce (fully consolidated companies), for continued operations, comprised 2,172 (2016: 2,106) employees or 2,053.9 (2016: 1,990.7) full-time equivalents. The distribution of the number of full-time equivalents per operating segment is as follows:

Full-time equivalents (rounded to one unit)	2017	2016
Europa (incl. Rest of the World)	997	1,042
North America	379	313
South America	622	575
HL Technology	56	61
Total	2,054	1,991

9 Depreciation, amortisation and impairment

(x 1,000 euros)	2017	2016
Depreciation, amortisation and impairment	15,091	18,179
Impairment	0	48,364
Write-down an inventories	2,034	2,432
Write-down an receivables	424	508
Total depreciation, amortisation and impairment	17,550	69,483

Depreciation, amortisation and impairments decreased in 2017, partly as a result of accelerated depreciation in the United States and Switzerland in 2016.

Fagron recognised an impairment of 48.4 million euros in 2016, mainly as a result of the changed reimbursement system for non-sterile compounding in the United States and the consequences of this change for the profitability of Freedom Pharmaceuticals. Further details involving the impairment loss are stated in note 15.

10 Other operating expenses

(x 1,000 euros)	2017	2016
Increase (decrease) in provisions for current liabilities	-1,889	-4,022
Increase (decrease) in provisions for pension liabilities	103	109
Taxes and levies (excluding income tax)	940	1,101
Other operating expenses	1,962	6,292
Total other operating expenses	1,116	3,480

The decrease in provisions for current liabilities in 2017 mainly relates to a release of a provision relating to the lapsing of social and tax risks and the use for loss-making contracts in the United States. An amount of 4.4 million euros of the decrease in provisions for current liabilities in 2016 relates to a release of a provision following a settlement with Henry Schein concerning a dispute an the sale of several companies in 2013. This decrease was compensated in part by the creation of a provision for a tax assessment in Brazil (0.8 million euros).

In 2016, the line 'Other operating expenses' includes 5.3 million euros relating to the settlement with Henry Schein. In 2017, the line 'Other operating expenses' primarily relates to the termination of a contract with a third party.

11 Financial result

The financial results are presented in the consolidated income statement as follows:

(x 1,000 euros)	2017	2016
Financial income	2,441	11,713
Revaluation of financial derivatives	713	1,284
Total financial income	3,154	12,996
Financial expenses	-4,212	-7,994
Interest expenses	-17,124	-29,714
Currency translation differences	-461	467
Total financial expenses	-21,796	-37,242
Total financial result	-18,643	-24,245

The positive revaluation of financial derivatives of 0.7 million euros in 2017 (2016:1.3 million euros) relates to the change in the market value of the interest rate hedges that are not a cash flow and do not qualify for hedge accounting in accordance with IAS 39.

The interest hedging instruments are valued on the basis of discounted cash flows. These instruments expired in 2017.

The financial result, excluding the revaluation of the financial derivatives, amounts to -19.4 million euros in 2017 (2016: -25.5 million euros). This decrease is mainly caused by lower interest expenses as a result of lower average net debt and a lower interest rate (-12.6 million euros). In addition, the costs related to the refinancing in 2016 were not recurring in 2017 (-4.5 million euros). Financial income decreased by 9.3 million euros to 2.4 million euros. This decrease is mainly caused by the one-off recognition of revenue amounting to 10 million euros in 2016 as a result of the waivers that resulted in a change in the expected cash flows.

12 Income taxes

Income taxes from continued operations are as follows:

(x 1,000 euros)	2017	2016
Current tax expenses	11,666	7,939
Deferred taxes	-2,748	3,809
Tax on profits	8,918	11,748
Effective tax rate	15.93%	-184.59%
Profit before income tax from continued operations	55,965	-6,364
Tax calculated at weighted Fagron NV's statutory tax rate	19,022	-2,163
Effect of rate differences compared with foreign jurisdictions	-4,238	-3,959
Income not subject to taxes	-3,477	1,177
Expenses not deductible for tax purposes	1,359	960
Tax on profit previous years	52	-571
Effect of impairment	0	16,439
Other	-3,800	-135
Tax on profits	8,918	11,748

The 'Tax calculated based on Fagron NV's statutory tax rate' is the taxes expected based on the Belgian statutory rate. The 'Effect of rate differences compared with foreign jurisdictions' pertains to the impact of the statutory rates to which the entities in the Group are subject compared to the Belgian statutory rate.

The 'Income not subject to taxes' concerns the exempt income and expenses and is mainly related to ICMS in Brazil.

The 'Expenses not deductible for tax purposes' are all costs that are not tax-deductible and relate mainly to non-deductible intercompany expenses and other non-deductible expenses.

The 'Tax on profit previous years' is a reflection of all adjustments to earlier estimates for taxes.

The 'Effect of impairment' concerns the impact of the impairments. In 2016, this concerns the impairment on Fagron United States Essentials & Brands. The impairment is not tax-deductible.

The item 'Other' concerns all other movements that impact the effective tax rate. This primarily pertains to the use of tax losses that were not recognised earlier as a deferred tax claim and tax losses in the current year which have not been recognised because of insufficient expected future tax profits.

13 Discontinued operations

Fagron announced in April 2016 it would be closing Bellevue Pharmacy. The changed reimbursement system in the United States had a major Impact on the turnover and profitability of Bellevue Pharmacy. After the impairment on Bellevue Pharmacy at the end of 2015 and the losses in the first quarter of 2016, the Group decided to close Bellevue Pharmacy. Bellevue was included in the discontinued operations for 2016. Because Bellevue Pharmacy is being shut down, it has not been included as an asset or liability held for sale. In 2017, no entities were included under discontinued operations.

The combined results of the discontinued operations included in the profit for the year and cash flows are set out below.

Net result from discontinued operations

(x 1,000 euros)	2017	2016
Operating income	0	4,340
Turnover	0	4,192
Other operating income	0	148
Expenses	0	6,762
Profit before taxes	0	-2,422
Attributable income taxes	0	3,317
Profit / (loss) from fair value revaluation, settlement costs and selling costs	0	-2,940
Profit / (loss) for the year from discontinued operations (attributable to the company's shareholders)	0	-2,045

Net cash flows from discontinued operations

(x 1,000 euros)	2017	2016
Total cash flow from operating activities	0	-9,279
Total cash flow from investment activities	0	-6,147
Total cash flow from financing activities	0	0
Total net cash flows from discontinued operations	0	-15,426

14 Earnings per share

(in euros)	2017	2016
Basic earnings (loss) per share	0.65	-0.38
• from continued operations	0.65	-0.34
• from discontinued operations	0.00	-0.04
Diluted earnings (loss) per share	0.65	-0.38
• from continued operations	0.65	-0.34
• from discontinued operations	0.00	-0.04

The earnings used in the calculations are as follows:

(x1.000 euros)	2017	2016
Profit (loss) attributable to equity holders of the company	46,658	-20,562
• from continued operations	46,658	-18,518
• from discontinued operations	0	-2,045

The diluted earnings are equal to the 'basic' earnings.

The weighted average number of shares used in the calculations is as follows:

(number of shares x 1.000)	2017	2016
Weighted average number of ordinary shares	71.740	53,957
Effect of warrants and stock options	137	0
Weighted average number of ordinary shares (diluted)	71.877	53,957

The increase in the weighted average of the number of ordinary shares was the result of the capital increases in May 2016 and July 2016.

No ordinary share transactions were executed after the balance sheet date which have impacted an earnings per share. The number of warrants and stock options that are anti-dilutive for the period, but which could dilute basic earnings per share in the future is 419,650. These are warrants and stock options with an exercise price higher than the average stock price of Fagron in 2017.

15 Intangible fixed assets

(x 1,000 euros)	Goodwill	Development	Concessions & patents	Brands and customer relations
Net book value as at 1 January 2016	373,608	2,302	1,392	25,163
Investments	0	2.215	97	89
Acquisitions	0	0	0	0
Transfers and disposals	371	215	13	-1,515
Amortization	0	-960	-164	-6,677
Impairment	-48,364	0	0	0
Exchange differences	17,169	25	29	387
Net book value as at 31 December 2016	342,785	3,797	1,368	17,447
Gross book value	591,828	5,678	2,117	89.324
Accumulated amortization	-249,043	-1,881	-749	-71.877
Net book value	342,785	3,797	1,368	17,447
Net book value as at 1 January 2017	342,.785	3,797	1,368	17,447
Investments	0	1.328	56	49
Acquisitions	4,738	0	13	0
Transfers and disposals	-5,105	-4	-21	-1
Amortization	0	-1.240	-183	-3,607
Impairment	0	0	0	0
Exchange differences	-19,581	-10	-33	-1,763
Net book value as at 31 December 2017	322,837	3.870	1,200	12,125
Gross book value	571,881	6,980	2,113	81,812
Accumulated amortization	-249,043	-3,110	-913	-69,687
Net book value	322,837	3,870	1,200	12,125

(x 1,000 euros)	Software	Other	Total
Net book value as at 1 January 2016	8,136	0	410,601
Investments	635	0	3,035
Acquisitions	0	0	0
Transfers and disposals	644	0	-271
Amortization	-4,245	0	-12,046
Impairment	0	0	-48,364
Exchange differences	439	0	18,050
Net book value as at 31 December 2016	5,610	0	371,006
Gross book value	17,159	22	706,128
Accumulated amortization	-11,549	-22	-335,122
Net book value	5,610	0	371,006
Net book value as at 1 January 2017	5,610	0	371,006
Investments	910	17	2,360
Acquisitions	6	0	4,758
Transfers and disposals	-1	1	-5,133
Amortization	-1,745	0	-6,775
Impairment	0	0	0
Exchange differences	-334	-2	-21,722
Net book value as at 31 December 2017	4,447	16	344,495
Gross book value	16,980	38	679,803
Accumulated amortization	-12,533	-22	-335,309
Net book value	4,447	16	344,495

The intangible fixed assets have not been encumbered with collateral.

The category 'Development' consists mainly of unique software developed in-house in full control of Fagron. The development costs were fully capitalised in 2017. These are mainly related to employee costs.

Impairment

Goodwill is tested at least annually for impairment and consistently when a trigger event occurs.

The negative impact of the changed reimbursement system in the United States on the turnover and profitability of Fagron United States Essentials & Brands emerged to be greater and more structural than initially estimated. This resulted in 2016 in an impairment of the goodwill (48.4 million euros). In 2017, this did not lead to a further impairment of the goodwill.

Goodwill

Goodwill acquired in business mergers and acquisitions is allocated to cash-generating units or groups of cash-generating units which are expected to have future economic benefits following the merger or acquisition. Goodwill is recognised at cost price less accumulated impairment losses.

The net book value of goodwill was attributed as follows to the cash-generating units:

(x million euros)	December 2017	December 2016
Fagron Europe Essentials and Brands	113.4	111.6
Fagron Europe Compounding Services	58.7	63.8
Fagron United States Essentials and Brands	27.2	30.9
JCB Laboratories	16.1	18.3
AnazaoHealth	28.7	32.7
Fagron Brazil Essentials and Brands	70.6	76.7
Fagron Rest of the World	8.2	8.8
HL Technology	0.0	0.0
Total	322.8	342.8

The decrease in goodwill relates to the sale of a non-sterile compounding facility in Paris (France) and to exchange differences.

Goodwill impairment test

The methodology for testing impairment is in accordance with IAS 36. Goodwill is tested at least annually for impairment with respect to cash-generating units and consistently when a trigger event occurs during the year which may result in an impairment loss. When the goodwill impairment test is conducted, the realisable value, being the value in use, is calculated per cash-generating unit.

The key judgments, estimates and assumptions that are commonly used are as follows:

―	The first year of the mode) is based on detailed financial budgets approved by management and the Board of Directors.
―	The year-one budget figures are extrapolated for the years two to five, taking into account an internal growth rate or using a business plan. The figures take into account economic assumptions and historical experience of market share, revenue and expenses, capital expenditures and working capital.
―	For the following years, an estimate of the perpetual growth is used. For the main cash-generating units, the following long-term growth rates are used: 2% for Fagron Europe Compounding Services, Fagron Europe Essentials and Brands, Fagron United States Essentials and Brands, JCB Laboratories and AnazaoHealth, and 7% for Fagron Brazil Essentials and Brands. The same growth rates were used in 2016.
―	Projections made for Brazil and the United States are done in their functional currency unit and are discounted at the weighted average capital cost of the unit. For the main cash-generating units, the following weighted average cost of capital is used: 9.3% (pre-tax: 11.8%) for Fagron Europe Compounding Services, 9.3% (pre-tax: 11.9%) for Fagron Europe Essentials and Brands, 10.3% (pre-tax: 12.5%) for Fagron United States Essentials and Brands, 10.3% (pre-tax: 12.6%) for JCB Laboratories, 10.3% (pre-tax: 12.3%) for AnazaoHealth, and 17.5% (pre-tax: 23.9%) for Fagron Brazil Essentials and Brands.
―	The corporate assets and goodwill have been allocated on the basis of turnover to the cash-generating units Fagron Europe Compounding Services and Fagron Europe Essentials and Brands. It would have no material Impact on the results if the assets and goodwill were allocated to all cash-generating units.

Of the main cash-generating units, Fagron United States Essentials and Brands and Fagron Brazil Essentials and Brands have the smallest relative difference between the net book value of the asset and its enterprise value. The difference is estimated at 4.6 million euros and 23.0 million euros, respectively. The following changes in assumptions could individually decrease the enterprise value to its net book value.

	Increase in maintenance capex as % of sales	Increase in discount rate	Decrease in long-term growth	Decrease in gross margin
	(basis points)	(basis points)	(basis points)	(basis points)
---	---	---	---	---
Fagron United States Essentials and Brands	730	105	143	189
Fagron Brazil Essentials and Brands	918	248	377	365

The outcome of the impairment test for Fagron Europe Compounding Services, Fagron Europe Essentials and Brands, JCB Laboratories and AnazaoHealth shows that a reasonable change in the assumptions used will not lead to an impairment.

16 Property, plant and equipment

(x 1,000 euros)	Land and buildings	Machinery and installations	Furniture and vehicles	Leasing and other similar rights
Net book value as at 1 January 2016	35,119	15,694	6,119	719
Investments	1,000	1,359	1,183	0
Acquisitions	0	0	0	0
Transfers and disposals	5,308	2,843	-242	7
Depreciation	-4,423	-3,553	-2,599	-580
Other movements	0	-326	-49	0
Exchange differences	1,482	571	301	7
Net book value as at 31 December 2016	38,485	16,587	4,713	153
Gross book value	54,420	40,746	15,903	6,572
Accumulated depreciation	-15,935	-24,159	-11,190	-6,420
Net book value	38,485	16,587	4,713	153
Net book value as at 1 January 2017	38,485	16,587	4,713	153
Investments	872	2,568	1,149	26
Acquisitions	2,448	274	50	105
Transfers and disposals	4,782	324	-50	0
Depreciation	-2,993	-3,378	-1,453	-77
Other movements	0	0	0	0
Exchange differences	-1,164	-1,079	-289	-14
Net book value as at 31 December 2017	42,431	15,297	4,120	192
Gross book value	60,286	41,979	15,724	322
Accumulated depreciation	-17,855	-26,682	-11,604	-131
Net book value	42,431	15,297	4,120	192

(x 1,000 euros)	Other tangible assets	Assets under construction	Total
Net book value as at 1 January 2016	3,504	9,978	71,133
Investments	310	6,719	10,571
Acquisitions	0	0	0
Transfers and disposals	2,857	-6,516	4,257
Depreciation	-3,756	-460	-15,371
Other movements	,0	0	-375
Exchange differences	-1	305	2,666
Net book value as at 31 December 2016	2,915	10,026	72,879
Gross book value	8,018	10,026	135,686
Accumulated depreciation	-8,103	0	-62,807
Net book value	2,915	10,026	72,879
Net book value as at 1 January 2017	2,915	10,026	72,879
Investments	248	2,383	7,247
Acquisitions	0	16	2,894
Transfers and disposals	-438	-6,724	-2,107
Depreciation	-414	0	-8,316
Other movements	0	0	0
Exchange differences	-70	-446	-3,062
Net book value as at 31 December 2017	2,241	5,255	69,535
Gross book value	6,749	5,255	130,315
Accumulated depreciation	-4,508	0	-60,780
Net book value	2,241	5,255	69,535

The Group's liability regarding financial leasing is guaranteed on account of the lessor holding the legal property title to the leased assets. The other tangible fixed assets have no restrictions on the title of ownership. Nor have these assets been pledged as security for obligations, with the exception of the buildings owned by HL Technology, Fagron Services BV and ABC Chemicals SA, see note 32: additional notes.

17 Financial fixed assets

(x 1,000 euros)	Financial fixed assets available for sale	Loans and receivables	Total
Net book value as at 1 January 2016	1,540	4,319	5,859
Investments	3	822	825
Transfers and disposals	-272	-4,304	-4,576
Other movements	0	16	16
Net book value as at 31 December 2016	1,271	853	2,123
Investments	26	442	467
Transfers and disposals	-83	-234	-229
Other movements	0	-42	-130
Net book value as at 31 December 2017	1,214	1,018	2,232

The assets available for sale mainly consist of a minority interest participation of 1.1 million euros. This asset is stated at cost due to the unavailability of reliable information on its fair value.

An analysis of the assets above showed that none of these assets needs to be impaired in 2017 and 2016.

Loans and receivables concern receivables with different due dates. The book value approximates the fair value.

18 Taxes, remuneration and social security

a) Current taxes, remuneration and social security

(x 1,000 euros)	2017	2016
Tax liabilities for the current year	6,984	7,333
Other current tax and VAT payable	9,320	12,767
Remuneration and social security payable	10,863	14,876
Current taxes, remuneration and social security	27,168	34,977

b) Deferred tax assets

(x 1,000 euros)	Difference in depreciation rates	Employee benefits	Provisions	Tax losses	Other	Total
Balance at 1 January 2016	7,915	1,221	155	9,019	-4,369	13.942
Result	12,426	-269	1,193	59,838	2,102	75.291
Change in scope of consolidation	0	0	0	0	0	0
Impairment	-18,620	0	0	-60,914	0	-79.534
Balance at 31 December 2016	1,721	952	1,348	7,943	-2.266	9,698
Result	-448	327	-1,008	4,893	-433	3,330
Change in scope of consolidation	0	0	0	0	0	0
Impairment	0	0	0	-1,673	0	-1,673
Balance at 31 December 2017	1,273	1,279	340	11,162	-2.699	11,355

The category 'Other' mainly concerns netting with deferred tax liabilities.

An impairment test on tax losses is performed twice per year. If it becomes clear that the losses cannot be offset within a reasonable time, they are written off This calculation is based on result projections with a five-year forecast horizon, based on detailed financial budgets approved by the management for the first year and an extrapolation of these figures for the second through fifth year. Extending the result projections for one year will result in the deferred taxes increasing by 3.1 million euros.

In 2016, goodwill was impaired at Fagron United States Essentials and Brands for an amount of 48.4 million euros. For tax purposes, the goodwill can be amortised as a result of which the related deferred tax asset further increased. lt is expected that limited future taxable profits are derived, as a result of which the deferred tax asset has been impaired for 18.6 million euros. No impairment occurred in 2017.

Based on the impairment test in 2017 on tax losses, an impairment occurred amounting to 1.7 million euros (2016: 60.9 million euros). This is related to deferred tax claims for tax losses of the current year not being assessed, or the (further) write-down of deferred tax claims for losses of previous years. This concerns, among others, Fagron Italia SrL, Fagron Compounding Services NV and HL Technology SA. At year-end 2017, the tax losses came to 259.6 million euros, of which 46.5 million euros have been assessed, resulting in a deferred tax claim of 11.2 million euros.

The impact of the changes in the set tax rates as a result of changing tax regulations in Belgium and the United States lower the deferred tax assets of the Fagron Group by 4.3 million euros.

c) Deferred tax liabilities

(x 1,000 euros)	Differences in depreciation rates	Other	Total
Balance at 1 January 2016	8,148	-6,629	1,519
Result	-5,469	4,186	-1,283
Change in scope of consolidation	0	0	0
Discontinued operations	0	0	0
Balance at 31 December 2016	2,679	-2,443	236
Result	273	-311	-38
Change in scope of consolidation	0	0	0
Discontinued operations	0	0	0
Balance at 31 December 2017	2,952	-2,754	198

Dfferences in

The category 'Other' mainly concerns netting with deferred tax assets.

On the balance sheet date, the Group has not included any deferred tax liability for taxes payable as the result of any dividend payment. The Group has not included any deferred tax liability because no adopted intercompany dividend policy applies, and an autonomous decision can therefore be made as to when a dividend will be paid and in what amount. The deferred tax liability not assessed amounts to 2.2 million euros. There were no indications an the balance sheet date that these deferred tax liabilities would materialise.

19 Inventories

(x 1,000 euros)	2017	2016
Raw materials	17,881	19,609
Work in Progress	1,086	1,690
Finished goods	9,416	9,441
Trade goods	34.482	29,314
Inventories	62,865	60,054

The increase in inventories is primarily explained by the higher product availability in Brazil. The inventories are not encumbered with collateral.

20 Trade receivables, other receivables, cash and cash equivalents

a) Trade receivables and other receivables

(x 1,000 euros)	2017	2016
Trade receivables	34,761	35,375
Provision for impairment of receivables	-2,541	-2,496
Total trade receivables	32,220	32,879
Other receivables	10,574	23,829

There is no concentration of credit risk with respect to trade receivables, as a large number of Fagron's customers are internationally dispersed. If there are indications that trade receivables will be uncollectible, a provision has been made.

The decrease in the other receivables is mainly attributable to the receipt of a large part of the income taxes that can be claimed back in the United States (1.9 million euros in 2017, 15.2 million euros in 2016). Other receivables also include value-added tax, prepayments and various smaller receivables.

Fagron applies a strict credit policy with regard to its customers, ensuring that the company controls and minimises credit risk. No individual customers make up a substantial part of either turnover or outstanding receivables.

		Of which			Of which due at year-end
(x 1,000 euros)	Carrying amount	not overdue at year-end	Less than 30 days	Between 31 and 90 days	Between 91 and 150 days	More than 150 days
---	---	---	---	---	---	---
Trade receivables at 31 December 2017	32,220	21,222	6,673	3,124	827	374
Trade receivables at 31 December 2016	32,879	25,588	4,377	1,837	486	591

(x 1,000 euros)	Provision for impairment of receivables
Balance at 1 January 2016	-2,133
Additions:
• Through business combinations	0
• Other	-982
Amounts used	684
Sale of operations	0
Other	-65
Balance at 31 December 2016	-2,496
Additions:
•Through business combinations	0
• Other	-429
Amounts used	192
Sale of operations	16
Other	176
Balance at 31 December 2017	-2,541

b) Cash and cash equivalents

(x 1,000 euros)	2017	2016
Investments with a maturity of less than three months	855	1,668
Cash and cash equivalents	59,916	73,294
Restricted cash	0	220,622
Cash and cash equivalents	60,771	295,585

The decrease in cash and cash equivalents is mainly explained by the decrease in restricted cash. These were used to repay the 4.15% Series A Notes (45.0 million US dollars), the 3.55% Series B notes (22.5 million euros) and the bond loan (225.0 million euros) in 2017 as agreed in the waivers concluded on 5 May 2016.

The majority of the cash comprises cash and cash equivalents in bank accounts and cash. The cash and cash equivalents are centralised as much as possible in a cash pool, held in accounts with banks that mostly have an A-rating. All new bank accounts are only opened with banks awarded at least an A-rating.

Trade receivables, other receivables and cash and cash equivalents are generally within a close range of their maturities. Therefore, the carrying amount approximates their fair value.

21 Equity

Authorised capital

The Extraordinary General Meeting decided on 14 May 2012 to renew the Board of Director's authorisation to increase the authorised share capital, such within the limits of the existing authorisation as set out in Article 5bis of the Articles of Association, in one or more rounds by a maximum amount of 320,023,050.35 euros, such within a period of five years from the date of announcing such a decision in the Annexes of the Belgian Bulletin of Acts, Orders and Decrees. This proxy to increase the capital may be exercised only subject to the approval of at least three fourths (3/4) of the directors present or lawfully represented.

On 29 June 2015, 224,133 new shares were issued in the context of the authorised capital. The number of voting securities of Fagron amounted to 31,667,794. The total number of voting rights (denominator) amounted to 31,667,794. The authorised capital amounted to 322,217,493.06 euros in order to increase the capital by 2,297,363.25 euros in the context of the authorised capital by contribution in kind upon the issue of new shares bringing it to 324,514,856.31 euros.

On 4 August 2015,444,033 new shares were issued in the context of the authorised capital. The number of voting securities of Fagron amounted to 32,111,827. The total number of voting rights (denominator) amounted to 32,111,827. The authorised capital amounted to 324,514,856.31 euros in order to increase the capital by 4,551,338.25 euros in the context of the authorised capital by contribution in kind upon the issue of new shares bringing it to 329,066,194.56 euros.

Since the granting of the authorised capital authorisation to the Board of Directors, the Company's capital was therefore increased by 6,848,701.50 euros (on 29 June 2015 and 4 August 2015). No use was made during the 2017 financial year of the authorised capital authorisation.

If the capital is increased within the limits of the authorised capital, then the Board of Directors will be competent to request payment of a share premium. If the Board of Directors adopts this decision, then this share premium will be deposited into a blocked account, the balance of which may only be reduced or transferred on the basis of a resolution adopted by a General Meeting of Shareholders in accordance with the clauses governing an amendment of the Articles of Association.

This power of the Board of Directors will apply to capital increases that are subscribed to in cash or in kind, or that result from capitalisation of reserves with or without the issue of new shares. The Board of Directors is permitted to issue convertible bonds or warrants within the limits of the authorised capital.

Statement of changes in the capital and in the number of shares

The movements in this balance sheet item are presented in the statement of changes in equity. During 2017, no treasury shares were bought back (2016: nil). As at 31 December 2017, Fagron NV owned a total of 103,627 treasury shares (2016:103,627). 622,627 In accordance with IFRS, these shares are deducted from equity and do not affect the income statement. No new shares were issued in the context of the warrant plans in 2017 (2016: nil). The nominal number of shares issued at 31 December 2017 is 71,843,904 (2016: 71,843,904). The nominal number of shares issued at 31 December 2017 is 71,740,277 (2016: 71,740,277).

	2017		2016
Number of ordinary shares and the equity value there of	Number of shares x 1,000	x 1,000 euros	Number of shares x 1,000	x 1,000 euros
---	---	---	---	---
Issued shares as at 1 January	71,844	561,852	32,112	345,760
Issue of shares in relation to capital increases	0	0	39,732	216,092
Issued shares as at 31 December	71,844	561,852	71,844	561,852
Treasury shares as at 31 December	104	18,823	104	18,823
Shares outstanding as at 31 December	71,740	543,29	71,740	543,029

All ordinary shares are fully paid. The ordinary shares have no nominal value denotation but have an accounting par value of 1/71,843,904th of the capital as at 31 December 2017 (2016: 1/71,843,904th). Each ordinary share carries one vote and a right to dividends.

Share-based payments

On 3 June 2014, the company's Board of Directors approved the Warrant Plan 2014 for employees, directors and consultants of the company and/or its subsidiaries. The warrants were issued in response to the decision taken by the Board of Directors dated 2 September 2014 in the presence of notary Luc De Ferm. In total 2,140,000 warrants were issued. In 2015 50,000 warrants were granted at an exercise price of 38.06 euros.

On 13 June 2016, the company's Board of Directors approved the Warrant Plan 2016 for employees, directors and consultants of the company and/or its subsidiaries. The warrants were issued in response to the decision taken by the Board of Directors dated 1 September 2016 in the presence of notary Liesbet Degroote. In total 1,000,000 warrants were issued. In 2016, 983,091 warrants were granted at an exercise price of 7.38 euros.

The condition for vesting warrants for employees is that they still have an employment contract with the company; for directors and consultants the condition is that their relationship with the company has not been terminated. The costs of the warrants have been determined at the warrants' real value an grant date and are spread over the vesting period of the warrants. The costs are recognised under the item 'Other employee benefits expenses' for the amount of 1.0 million euros for the 2017 financial year and 1.4 million euros for the 2016 financial year. A release of 0.6 million euros occurred in 2017 (2016: 1.3 million euros) for forfeited warrants, however. The warrants are settled via equity instruments.

No shares were issued in 2017 (2016: nil) as a result of the exercise of warrants under the Warrant Plan 2014 or Warrant Plan 2016. The number of Fagron shares with voting rights is currently 71,843,904 (2016: 71,843,904). The total number of voting rights (denominator) is currently 71,843,904 (2016: 71,843,904). The authorised capital amounts to 494,192,221.68 euros (2016: 494,192,221.68 euros).

The movements in the number of outstanding warrants under Warrant Plan 2014 and Warrant Plan 2016 and their related weighted average exercise prices are as follows:

	Average exercise price in euros	Number of warrants
Outstanding as at 1 January 2016	39.04	622,627
Granted	7.38	983,091
Forfeited	10.25	-1,750
Forfeited	7.77	-2,752
Forfeited	8.11	-125
Forfeited	39.37	-80,000
Forfeited	38.06	-50,000
Forfeited	7.38	-15,000
Outstanding as at 31 December 2016	18.10	1,456,091
Forfeited	39.37	-73,000
Forfeited	7.38	-578,091
Outstanding as at 31 December 2017	23.87	805,000

The weighted average exercise price per share at year-end amounted to 23.87 euros in 2017 (2016: 18.10 euros).

As at 31 December 2017, the total number of warrants not yet exercised which could prompt the issue of the same number of shares of the Company amounted to 805,000. Their average exercise price amounts to 23.87 euros. Outstanding warrants at year-end have the following expiry dates and exercise prices:

Expiry date	Average exercise price in euros	Number of warrants
2018 – March	39.37	306,750
2019 – March	39.37	108,250
2019 – November	7.38	195,000
2020 – November	7.38	97,500
2021 – July	7.38	97,500
	23.87	805,000

Stock option plan

On 27 October 2011, the company's Board of Directors approved the Stock Option Plan 2011 for consultants and employees of Fagron NV and/or its subsidiaries, such under the suspensive condition of approval by the General Meeting. The Stock Option Plan 2011 was approved by the Annual General Meeting of 14 May 2012. In 2012, the procedure of Article 523 of the Belgian Companies Code was applied.

In June 2012, 250,000 stock options were granted at an exercise price of 13.73 euros. The options are settled via equity Instruments. In 2014,4,650 stock options were granted at an exercise price of 32.82 euros. No new stock options were granted in 2017.

During the financial years 2016 and 2017, the following number of options were forfeited, including their corresponding average exercise price:

	Average exercise price in euros	Number of stock options
Outstanding as at 1 January 2016	14.17	199,650
Forfeited	13.73	-7,500
Outstanding as at 31 December 2016	14.19	192,150
Forfeited	13.73	-187,500
Outstanding as at 31 December 2017	32.82	4,650

Outstanding stock options at year-end have the following theoretical expiry dates and exercise prices:

Theoretical expiry date	Average exercise price in euros	Number of stock options
2018 – April	32.82	2,325
2019 – April	32.82	1,163
2020 – April	32.82	1,162
	32.82	4,650

Fair value

The fair value of the warrants and stock options was determined using the 'Black & Scholes' valuation model at grant date. The main data used in the model were the share price at grant date, the above-mentioned exercise price, the standard deviation of Fagron share price returns during option life and expected dividend, the option life specified above, and the annual risk-free interest rate.

Dividend

No dividend was made payable in 2017 (2016: nil). A gross dividend for 2017 of 0.10 euros per share will be proposed at the Annual General Meeting of 14 May 2018, representing a total dividend of 7.184 million euros. This dividend is not included in this financial statement.

A further explanation of the equity is included in the Corporate Governance Statement.

Other reserves

(x 1,000 euros)	Consolidated reserves	Cumulative conversion differences	Transactions with non-controlling interest	Remeasurements of post-employment benefit obligations	Share-based payments	Total
Balance at 1 January 2016	-195,967	-54,321	-377	-1,547	12,302	-239,909
Other comprehensive result	0	22,077	0	-449	0	21,628
Share-based payments	0	0	0	0	85	85
Change in non-controlling interest	0	22	0	0	0	22
Balance at 31 December 2016	-195,967	-32,222	-377	-1,996	12,387	-218,174
Other comprehensive result	0	-16,534	0	1,123	0	-15,411
Share-based payments	0	0	0	0	370	370
Change in non-controlling interest	0	-10	0	0	0	-10
Balance at 31 December 2017	-195,967	-48,766	-377	-873	12,757	-233,226

22 Provisions

(x 1,000 euros)	Taxes	Disputes	Other	Total
Balance at 1 January 2016	252	1,236	14,499	15,987
Additions:
• Through business combinations	0	0	0	0
• Other	881	14	2,214	3,109
Amounts used	0	-108	-6,165	-6,273
Release	-282	0	-485	-767
Currency translation differences	140	284	296	720
Balance at 31 December 2016	991	1,426	10,359	12,776
Additions:
• Through business combinations	0	0	0	0
• Other	2,855	96	0	2,951
Amounts used	0	-50	-938	-988
Release	0	-991	0	-991
Currency translation differences	-115	-92	-1,066	-1,273
Balance at 31 December 2017	3,731	390	8,356	12,476

The US government is conducting an investigation into the pricing of pharmaceutical products in the period primarily prior to the acquisition of Bellevue Pharmacy and Freedom Pharmaceuticals. The investigation relates to the sector as a whole. In order to limit the uncertainty and further attorneys' fees and (internal) investigation costs, Fagron is considering reaching a settlement with the government. The opening balance sheet of Bellevue Pharmacy included a provision of 10 million US dollars for costs arising from this investigation. The provision is an estimate of the legal and (internal) research costs and the costs of a possible settlement with the government and will be further evaluated in relation to new facts. At year-end 2017, the provision amounts to 6.9 million euros. lt is expected that this provision will be further used between 2018 and 2019. The same expectation applies for the other long-term provisions.

The additions to the provision for taxes relate to a reclassification of short-term taxes to the provision for taxes, because it is expected that these will not be settled in the short term. The release of the provision for disputes relates in particular to the lapsing of social and tax risks. The use of the other provisions mainly relates to provisions for loss-making contracts in the United States.

23 Pension obligations

Pension obligations and costs

The amounts recognised in the balance sheet are determined as follows:

(x 1,000 euros)	2017	2016
Defined benefit pension plans	3,880	4,905
Other defined benefit pension plans	853	775
Pension obligations	4,733	5,680

The category 'Defined benefit obligations' include Fagron's Dutch defined benefit plans held by Fagron Services BV and Spruyt Hillen BV. The 'Other defined benefit obligations' include multiple smaller defined benefit plans, which are not further disclosed due to their limited size.

In accordance with IAS19, defined benefit obligations are estimated using the Projected Unit Credit method. Under this method, each participant's benefits under the plan are attributed to years of service, taking into consideration future salary increases and the plan's benefit allocation formula. Thus, the estimated total pension to which each participant is expected to become entitled at retirement is broken down into units, each associated with a year of past or future credited services. If an employee's service in later years will lead to a materially higher level of benefit than in earlier years, these benefits are attributed on a straight-line basis.

All defined benefit plans are final salary pension plans paid on a monthly basis. The amounts pertaining to post-employment medical plans are included in the liability but are not significant. There are no informal constructive obligations.

The amounts recognised regarding the Dutch defined benefit plans held by Fagron Services BV and Spruyt Hillen BV are determined as follows:

(x 1,000 euros)	2017	2016
Present value of defined benefit obligations	20,725	21,644
Fair value of plan assets	-16,845	-16,739
Present value of net defined benefit obligations	3,880	4,905
Net liability arising from defined benefit obligations	3,880	4,905

Movements in the present value of the defined benefit obligations and the fair value of the plan assets were as follows:

(x 1,000 euros)	Present value of defined benefit obligations	Fair value of plan assets	Total
Balance at 1 January 2016	18,988	-14,630	4,358
Service costs	0	0	0
Interest expense (income)	490	-392	98
Remeasurements:
• Return on plan assets (excluding interest income)	0	-2,000	-2,000
• (Gains)/losses arising from changes in demographic assumptions	-54	0	-54
• (Gains)/losses arising from changes in financial assumptions	2,503	0	2,503
Employer contributions	0	0	0
Benefit payments from plan	-283	283	0
Balance at 31 December 2016	21,644	-16,739	4,905
Service costs
Interest expense (income)	428	-330	98
Remeasurements:
• Return on plan assets (excluding interest income)	0	-261	-261
• (Gains)/losses arising from changes in demographic assumptions	0	0	0
• (Gains)/losses arising from changes in financial assumptions	-862	0	-862
Employer contributions
Benefit payments from plan	-485	485	0
Balance at 31 December 2017	20,725	-16,845	3,880

The assets comprise qualifying insurance policies and are not part of the in-house financial instruments of Fagron. The pension insurer fully invested the assets in Aegon Strategic Allocation Fund 80/20. This fund has a market quotation.

Actuarial assumptions

The principal actuarial assumptions used for the actuarial valuations are:

	31 December 2017	31 December 2016
Weighted average discount rate	2.20%	2.00%
Expected rate of salary increase	N/A	N/A
Expected rate of price inflation	N/A	N/A
Future rate of pension increases actives	2.00%	2.00%

The life expectancy is based on the 'Prognosetafel AG2016'.

Realised and unrealised result

The amounts recognised in the realised and unrealised result in respect of these defined benefit plans are as follows:

(x 1,000 euros)	31 December 2017	31 December 2016
Interest expense	98	98
Defined benefit plan costs recognised in the income statement	98	98
Remeasurements an the present value of non-funded liabilities:
Return an plan assets (excluding interest income)	-261	-2,000
(Gains)/losses arising from changes in demographic assumptions	0	-54
(Gains)/losses arising from changes in financial assumptions	-862	2,503
Defined benefit plan costs recognised in other comprehensive income	-1,123	449
Total defined benefit costs	-1,025	547

There were no new entrants to the defined benefit plan; further accrual only takes place in a defined contribution plan. New employees are offered a defined contribution plan.

The expected defined benefit costs for 2017 are 0.1 million euros and only concern interest costs.

Sensitivity analysis

The sensitivity analysis shows the sensitivity of the defined benefit Obligation as at 31 December 2017 and the 'Pension costs attributed to the year of service' compared to the principal actuarial assumptions.

The following table sets out the defined benefit Obligation as at 31 December 2017 for each principal actuarial assumption compared to the corresponding amounts if the actuarial assumption of the various scenarios are applied. Salary increases are not included in the sensitivity analysis.

	Base scenario	Increase base scenario	Decrease base scenario
Weighted average discount rate	2.20%	2.70%	1.70%
Defined benefit obligation	20,725	18,780	22,984
Inflation increase	+2.00%	+2.50%	+1.50%
Defined benefit obligation	20,725	21,671	19,855
Life expectancy	+/- 0 jaar	+ 1 jaar	- 1 jaar
Defined benefit obligation	20,725	21,212	20,230

Pension plans in Belgium

Fagron has nine pension plans in place in Belgium which are legally structured as defined contributions plans. Because of a previous legislative amendment in Belgium applicable to 2nd pillar pension plans (the Supplementary Pensions Act), all Belgian Defined Contribution plans have to be considered as defined benefit plans under IFRS. The Supplementary Pensions Act stated that in the context of defined contribution plans, the employer must guarantee a minimum return of 3.75% an employee contributions and 3.25% an employer contributions. This law was amended in 2015 as follows:

•	The employer must continue to guarantee a minimum return of 3.75% an employee contributions and 3.25% an employer contributions made until 31 December 2015;
•	As of 2016, the employer must guarantee a minimum return ranging between 1.75% and 3.75% for all contributions, depending an the development of the average interest an OLO 10 years over a period of 24 months. The current guaranteed minimum return is 1.75%.

Because of this minimum guaranteed return for defined contributions plans in Belgium, the employer is exposed to a financial risk. The employer has a legal Obligation to pay further pension contributions in the financing fund if the fund does not hold sufficient assets to pay all current and future pension commitments. These Belgian defined contributions plans should therefore be classified and accounted for as defined benefit plans under IAS 19.

In the past, Fagron did not apply the defined benefit accounting for these plans because higher discount rates were applicable and the return on plan assets provided by insurance companies was sufficient to cover the minimum guaranteed return. As a result of continuous low interest rates on the European financial markets, the employers in Belgium effectively assumed a higher financial risk related to the pension plans with a minimum fixed guaranteed return than in the past. As a result, these plans need to be considered defined benefit plans.

Management made an estimate of the potential additional liabilities as at 31 December 2017. Based on this estimation, it has been established that there are no substantive obligations. The 2017 employer contribution for these Belgian pension plans amounts to 0.1 million euros (2016: 0.1 million euros). The employee contribution for 2017 is nil (2016: nil), the employee contribution was stopped in 2014. The total amount of the plan assets as per 31 December 2017 amounts to 1.0 million euros (2016: 0.9 million euros).

24 Financial debt and financial instruments

(x 1,000 euros)	2017	2016
Non-current
Financial lease liabilities	74	184
Bank borrowings	283,344	290,149
Other borrowings	100	100
Total non-current	283,518	290,433
Current
Financial lease liabilities	65	84
Bank borrowings	13,386	290,475
Total current	13,450	290,559
Total financial debts	296,968	580,992

	2017		2016
(x 1,000 euros)	Financial leases	Bank borrowings	Financial leases	Bank barrowings
---	---	---	---	---
Non-current borrowings by term
More than 1 year but less than 5 years	74	282,113	184	288,730
More than 5 years		1,331		1,519
Total non-current borrowings	74	283,444	184	290,249

			Non-cash change
(x 1,000 euros)	2016	Cash flow from financing activities	Acquisitions	Exchange rates	2017
---	---	---	---	---	---
Non-current borrowings	290,433	901	1,417	-9,234	283,518
Current borrowings	290,559	-276,732	236	-613	13,450
Total borrowings	580,992	-275,831	1,653	-9,846	296,968

a. Bank borrowings and financial instruments

The book value of the bank borrowings is expressed in euros. The effective interest rate at balance sheet date on 31 December 2017 was 3.32% (2016: 4.50%). The decline in bank borrowings is mainly due to the repayments that took place in 2017.

On 2 July 2012, Fagron NV issued bonds for an amount of 225 million euros. The nominal value of the bonds was 1,000 euros. The bonds had a maturity of five years and offered a fixed annual gross interest of 4.75%. The bonds were redeemable at 100% of the nominal value on 2 July 2017. The total EBITDA, calculated as result before interest, taxes, depreciation and amortisation, of the guarantors is at least 70 per cent of the consolidated Group EBITDA. This loan was fully repaid at the end of the term.

On 15 April 2014, Fagron NV issued a series private loans comprising of 45.0 million US dollars 4.15% Series A Senior Notes due 15 April 2017, 22.5 million euros 3.55% Series B Senior Notes due 15 April 2017,15.0 million euros 4.04% Series C Senior Notes due 15 April 2019, 5.0 million euros Floating Rate Series D Senior Notes due 15 April 2019, 20.0 million US dollars 5.07% Series E Senior Notes due 15 April 2019 and 60.0 million US dollars 5.78% Series F Senior Notes due 15 April 2021. Both the Series A and Series B notes were fully repaid at maturity. The total EBITDA, calculated as result before interest, taxes, depreciation and amortisation, of the guarantors is at least 70 per cent of the consolidated Group EBITDA.

On 16 December 2014, Fagron NV amended and extended the existing credit facility with an originating amount of 150 million euros and a maturity date in July 2017. The amended multi-currency facility of 220 million euros was given a term until December 2019 with two one-year extension options via a consortium of existing and new international banks. In 2016, this facility, along with the long-term waiver of 5 May 2016, was renewed until April 2021 by exercising the extension options. The total EBITDA, calculated as result before interest, taxes, depreciation and amortisation, of the guarantors is at least 70 per cent of the consolidated Group EBITDA.

In the last quarter of 2017, Fagron agreed a term loan for 80 million euros with a syndicate of banks. The term of this loan is equal to the multi-currency facility and has an expiration date in April 2021. The repayment will take place at the end of the term and the agreements on financial covenants are the same as those of the multi-currency facility.

The key covenants of the credit facilities are the net financial debt/recurring EBITDA ratio and the recurring EBITDA/net interest expenses ratio. The financial covenants were adjusted in 2016 to give Fagron extra latitude with respect to the original levels of the financial covenants. The extra latitude in the financial covenants will decrease with every six-month test period up to and including the test period ending on 30 June 2018. For every test period ending after 30 June 2018, the levels of both financial covenants revert to the original levels. The remaining test periods and accompanying levels are shown below.

		Financial covenants
Test period	Net financial debt/ REBITDA	REBITDA/net interest expenses
---	---	---
31 December 2017	Max. 4.09x	Min. 2.32x
30 June 2018	Max. 3.60x	Min. 2.80x
After 30 June 2018	Max. 3.25x	Min. 4.00x

In 2016 and part of 2017, the interest risk relating to 70 million euros of these loans was hedged with financial derivatives. The currency risk relating to 157 million US dollars was also hedged using financial derivatives. These instruments were valued in accordance with a Level 2 method. This implies that the valuation was based on inputs other than the listed prices in active markets such as included in Level 1. The fair values of all derivatives held for hedging purposes were based on valuation methods. These methods maximise the use of detectable market data where available, and minimise the impact of the company's estimates and projections. The interest hedging instruments are valued on the basis of discounted cash flows. The parameters used for these models are those applicable as at year-end and are therefore classified as Level 2. The valuation was calculated using the discounted cash flows of the nominal value and interest flows.

The fair value of financial derivatives at year-end 2017 was nil (2016: -8.5 million euros). In 2017, the financial instruments relating to the hedging of the interest rate and foreign currency risks have decreased as a result of the settlement of these financial derivatives. Fagron has no other financial derivatives.

All financial Instruments are valued at amortised cost except for derivative financial Instruments and contingent considerations for acquisitions, which are valued at fair value. The fair value of the financial Instruments valued at the amortised cost price approximates the carrying amount.

As do the borrowing companies, Fagron NV and Fagron Capital NV, the following companies serve as guarantors for the bank loan and bond loan concluded by Fagron:

Company name of guarantors
ACA Pharma NV	Fagron Poland Sp. z o.o.
Arseus Belgie NV	Freedom Pharmaceuticals Inc.
B& B Pharmaceuticals Inc.	GMP Apotheek Mierlo-Hout BV
Fagron België NV	Pharma Cosmetic K.M. Adamowicz Sp. z o.o.
Fagron GmbH & Co KG	SM Empreendimentos Farmaceuticos Ltda
Fagron Inc.	Spruyt hillen BV
Fagron Nederland BV	Pharmaline BV
Galfarm Sp. z o.o.

b. Financial leases

Property, plant and equipment include the following amounts where Fagron is a lessee under a financial lease.

(x 1,000 euros)	2017	2016
Cost-capitalised financial leases	322	6,572
Accumulated depreciation	-131	-6,420
Net amount of assets in leasing	192	153

The Group's liability regarding financial leasing is guaranteed on account of the lessor holding the legal property title to the leased assets. The fair values of the bank borrowings and financial leasing liabilities have been calculated based on the present value of the future payments associated with the debt.

The net amount of the financial leases concerns the following investments:

(x 1,000 euros)	2017	2016
Machinery and installations	124	150
Furniture and vehicles	68	2
Net amount of assets in leasing	192	153

Financial lease liabilities – minimum lease payments:

(x 1,000 euros)	2017	2016
Within 1 year	71	91
More than 1 year but less than 5 years	93	228
Total	164	319
Future financing costs an financial leases	25	51
Present value of future financial leases	139	268

c. Operating leases

(x 1,000 euros)	2017	2016
Within 1 year	4,302	4,690
More than 1 year but less than 5 years	10,841	12,226
More than 5 years	5,635	11,930
Total	20,777	28,846

Most of the lease contracts relate to buildings of the US entities. The decline in operational leases in 2017 is reinforced by the exchange rate development of, primarily, the US dollar against the euro.

25 Trade payables

(x 1,000 euros)	2017	2016
Trade payables	58,205	50,292
Investment payables	745	2,871
Total trade payables	58,950	53,163

Trade payables generally have due dates that are close to each other. The reported values approximate their fair values. The increase compared to the previous year can mainly be explained by the increased product availability in Brazil.

26 Other current payables

(x 1,000 euros)	2017	2016
Prepayments	11	30
Other payables	2,763	7,615
Accrued expenses	5,899	11,180
Other current payables	8,673	18,825

The due date for all other current payables is in 2018.

The decrease compared to 2016 mainly relates to the settlement of customer bonuses.

The accrued expenses include an amount of 2.1 million euros (2016: 8.6 million euros) related to interest still to be paid.

The remainder of this item concerns various accruals and deferrals. The decrease compared to 2016 mainly relates to the lower interest due to the lower debt position.

The debts generally have due dates that are close to each other. The reported values approximate their fair values. All other current payables are expected to be paid in 2018.

27 Contingencies

Fagron runs certain risks for which no provision has been made (such as the possible tax liabilities with regard to ICMS in Brazil or VAT in Poland) because it is unlikely that these risks will have a negative impact for the group. ICMS is a business tax incentive programme called Produzir for companies based in the Brazilian state of Goiás. This is contested by several Brazilian states. In Poland, a VAT audit was started in 2017 at two subsidiaries. The VAT percentage applied to almost all the products sold by the Polish subsidiaries is being questioned by the Polish tax authority. We are contesting this assertion. At one of the subsidiaries an assessment of 4 million Polish zloty was issued for the February 2017 period. Fagron objected to the imposed assessment. At the other company, the audit is ongoing for the period February 2017 and March 2017.

Fagron is also involved in a number of claims, disputes and legal proceedings within the normal conduct of its business. Management is of the opinion that it is unlikely that these claims, disputes and lawsuits will have a negative Impact on the financial situation at Fagron. A provision has been made for claims where it is deemed probable that they will lead to a payment, and for which a reliable estimate can be made (see note 22).

28 Related parties

The overall remuneration package for members of the Executive Committee and the CEO individually, as well as the non-executive directors, for the 2017 and 2016 financial years is as follows:

(x 1,000 euros)	Fixed remuneration component1	Variable remuneration component	Other remuneration components2
2016 financial year
Hans Stols, CEO	600	720	36
Executive Committee, including the CEO	2,171	1,053	152
Non-executive members of the Board of Directors	266	0	0
2017 financial year
Hans Stols, CEO until 24 November 2017	550	0	33
Rafael Padilla, CEO as of 27 November 2017	35	0	2
Executive Committee, including the CEO	1,824	155	165
Non-executive members of the Board of Directors	334	0	0
Severance pay Hans Stols	1,303	0	0

1 Costs incurred by Fagron, i.e. the gross amount including any social security contributions.

2 Includes costs for pensions, insurances and the cash value of the other benefits in kind.

The variable remuneration component for the 2017 financial year is the bonus effectively paid out in 2018. The Nomination and Remuneration Committee annually prepares proposals for the remuneration policy and/or other benefits for members of the Executive Committee and the CEO.

In 2017, no warrants or stock options were granted to the members of the Executive Committee, in the composition in effect on 31 December 2017. Mr. Stols, Mr. Padilla and the other members of the Executive Committee exercised no stock options or warrants in 2017. In 2017, 363,091 stock options and warrants belonging to Mr. Stols, 7,500 stock options and warrants belonging to Mr. Padilla and 80,000 stock options and warrants belonging to the other members of the Executive Committee were forfeited. The members of the Executive Committee, in the composition in effect on 31 December 2017, together hold 440,000 stock options and warrants. Mr. Stols holds 150,000 stock options and warrants.

29 Business combinations

Fagron completed two acquisitions in the 2017 financial year. The acquisition of Kemig d.o.o. was completed early August 2017. Kemig d.o.o. is a leading supplier of pharmaceutical raw materials and packaging materials to pharmacies and wholesalers in Croatia and Bosnia Herzegovina. Early October 2016, Fagron announced the acquisition of All Chemistry do Brasil Ltda. All Chemistry do Brasil Ltda is a renowned supplier of pharmaceutical raw materials for compounding pharmacies in Brazil.

Fair value of the acquired assets and liabilities

The acquisitions involved a payment of approximately 7.6 million euros, representing an increase in goodwill of 4.7 million euros.

The goodwill is expected to not be tax-deductible. The provisional fair value of the acquired assets and liabilities is detailed below.

(x 1,000 euros)
Intangible fixed assets	19
Property, plant and equipment	2,894
Other non-current assets	10
Deferred tax assets	13
Inventories	1,323
Trade receivables	1,472
Other receivables	558
Cash and cash equivalents	293
Total assets	6,584
Borrowings	1,653
Trade payables	1,083
Other current payables	942
Total liabilities	3,678
Net acquired assets	2,906
Goodwill	4,738
Total acquisition amount	7,644

The fair value of the acquired assets and liabilities has been provisionally determined for the activities acquired in 2017. The fair values indicated are provisional, because the integration process of the acquired entity and their activities is still ongoing.

The provisional fair values of the intangible and tangible fixed assets, deferred taxes and working capital may still change when the acquired assets and liabilities have been definitively determined.

At year-end, the Group had an amount of approximately 1.0 million euros in contingencies. These fees payable to former shareholders were determined on the basis of business plans at the time of acquisition and have due dates in 2018, 2019 and 2020.

The contingencies relate to Brazil, Croatia and Colombia.

The contingency ranges from 0 euros to a maximum of 1.0 million euros. The considerations are measured at the fair value at the moment of acquisition. This is estimated based on the maximum compensation if the conditions are met.

30 Information on the Statutory Auditor, his remuneration and related services

The Statutory Auditor of the Company is PricewaterhouseCoopers Bedrijfsrevisoren BCVBA, represented by Mr. Peter Van den Eynde.

(x 1,000 euros)	2017	2016
Audit fee for the Group audit
Fagron Group	450	474
Audit fee for PricewaterhouseCoopers Bedrijfsrevisoren	263	236
Audit fee for parties linked to PricewaterhouseCoopers Bedrijfsrevisoren	187	237
Remuneration for additional services rendered by the Statutory Auditor to Fagron
Other audit assignments	5	14
Other non-auditing assignments	3	342
Remuneration for additional services rendered by parties linked to the Statutory Auditor
Tax advisory assignments	33	131
Other non-auditing assignments	35	38

In 2016, the other non-auditing assignments mainly related to special reports, including in the context of the capital increase. In 2017, these mainly relate to special reports in the context of the compliance certificate, guarantor coverage schedule and EMIR.

31 Significant events after the balance sheet date

Acquisition of Humco

On 3 April 2018, Fagron announced the acquisition of Humco, a leading developer, manufacturer and supplier of patented vehicles (dosage forms) and pharmaceutical brand products to more than 45,000 pharmacies in the United States (US). The acquisition price for Humco amounts to 47.5 million US dollars (approximately 38.6 million euros) in cash with the possibility of a performance-related earn-out of a maximum of 22.5 million US dollars (approximately 18.3 million euros) in cash over a period of two years. The total acquisition fee has been capped at 70.0 million US dollars (approximately 56.9 million euros). The transaction includes all technologies, scientific data and patents and trademarks, as well as Humco's manufacturing facility in Texas (US).

Settlement with former owners of JCB Laboratories

In 2016, the former owners of JCB Laboratories ('JCB') started a lawsuit against Fagron in which they claimed to be entitled to the full earn-out payment for 2015. Fagron contested this allegation and lodged a counterclaim. In the first quarter of 2018, Fagron and the former owners ofJCB reached a settlement regarding the lawsuit. The confidential settlement agreement includes a payment by Fagron that is significantly lower than the 6 million US dollars claimed.

32 Additional notes

1. Off-balance sheet rights and liabilities – collateral:

HL Technology SA has a current liability in the amount of 0.8 million euros (1.0 million Swiss francs), the initial mortgage loan amounts to 1.8 million Swiss francs. Fagron Services BV has a liability in the amount of 0.6 million euros, the initial mortgage loan amounts to 2.0 million euros. ABC Chemicals SA has a liability in the amount of 0.3 million euros, the initial pledge on the commercial property fund amounts to 1.9 million euros. The Group does not have any material obligations to purchase fixed assets at the moment.

2. Fagron NV signed a liability statement an behalf of a number of Dutch subsidiaries, specifically:

	Fagron Brazil Holding BV
	Fagron BV
	Fagron Nederland BV
	Fagron Services BV
	Fagron Steriele Bereidingsapotheek BV
	GMP Apotheek Mierlo-Hout BV
	Hoogeveen Bereidingsapotheek BV
	Panoramix Holding BV
	Pharmaline BV
	Pharma Assist BV
	Spruyt Hillen BV
	Twipe BV

3. Exemption from a German subsidiary:

Fagron GmbH & Co KG in Barsbuttel (Germany) is exempt from the obligation to set up its financial statements and financial report according to §264b of the German commercial code, and to audit and publish these in line with the applicable regulations for businesses.

33 List of the consolidated companies

Name	Address	Ownership
ABC Chemicals NV	Venecoweg 20A, 9810 Nazareth (Belgium)	100.0%
ABC Dental & Pharmaceutical Consultancy NV	Venecoweg 20A, 9810 Nazareth (Belgium)	100.0%
ACA Pharma NV	Venecoweg 20A, 9810 Nazareth (Belgium)	100.0%
All Chemistry Do Brasil Ltda	Rua Cocais 300 – Jardim Oriental, 04347-170 São Paulo (Brazil)	100.0%
AnazaoHealth Inc.	5710 Hoover Boulevard, 33634 Tampa, Florida (United States)	100.0%
ApodanNordic PharmaPackaging A/S	Kigkurren 8M 2. Sal, 2300 Copenhagen (Denmark)	100.0%
APPEG SA	Rue de la Sam bre 6, 6032 Charleroi (Belgium)	100.0%
Arseus Belgie NV	Venecoweg 20A, 9810 Nazareth (Belgium)	100.0%
Arseus Capital NV	Venecoweg 20A, 9810 Nazareth (Belgium)	100.0%
Arseus Dental Solutions SAS	37 Rue Helene Muller, 94320 Thiais (France)	100.0%
B& B Pharmaceuticals Inc.	17200 East Ohio Drive, 80017 Aurora, Colorado (United States)	100.0%
Belgophar NV	Venecoweg 20A, 9810 Nazareth (Belgium)	100.0%
Coast Quality Pharmacy LLC	5710 Hoover Boulevard, 33634 Tampa, Florida (United States)	100.0%
DPI Inc.	5967 S. Garnett Rd., 74146 Tulsa, Oklahoma (United States)	100.0%
Ducere LLC	5710 Hoover Boulevard, 33634 Tampa, Florida (United States)	100.0%
Dynaceutica Is Ltd	5514th Avenue, Northcliff, Gauteng (South Africa)	100.0%
Euphaco NV	Hillestraat 12, 8800 Roeselare (Belgium)	100.0%
Fagron a.s.	Holická 1098/31M, 77900 Olomouc (Czech Republic)	73.1%
Fagron Academy LLC	1111 Brickell Avenue, Suite 1550, 33131 Miami, Florida (United States)	100.0%
Fagron Belgie NV	Venecoweg 20A, 9810 Nazareth (Belgium)	100.0%
Fagron Brazil Holding BV	Lichtenauerlaan 182, 3062 ME Rotterdam (The Netherlands)	100.0%
Fagron BV	Lichtenauerlaan 182, 3062 ME Rotterdam (The Netherlands)	100.0%
Fagron Colombia SAS	Calle 95 47A-28 Bogota (Colombia)	100.0%
Fagron Com pounding Services LLC	8710 E. 34th St. N., 67226 Wichita, Kansas (United States)	100.0%
Fagron Com pounding Services NV	Woestijnstraat 53, 2880 Bornem (Belgium)	100.0%
Fagron Com pounding Services SAS	37 Rue Helene Muller, 94320 Thiais (France)	100.0%
Fagron Com pounding Su pplies Australia Pty Ltd	Atkinson Road 2/16, Taren Point, 2229 Sydney (Australia)	100.0%
Fagron GmbH & Co KG	Von-Bronsart-Straße 12, 22885 Barsbüttel (Germany)	100.0%
Fagron Hellas A.B.E.E.	12 km NR, 42100 Trikala-Larissa (Greece)	100.0%
Fagron Holding USA LLC	2400 Pilot Knob Road, SS120 St. Paul, Minnesota (United States)	100.0%
Fagron I berica SAU	Carrer de Josep Tapiolas 150, 08226 Terrassa (Spain)	100.0%
Fagron Inc.	2400 Pilot Knob Road, 55120 St. Paul, Minnesota (United States)	100.0%
Fagron Kalla SrL	Via Lazzari 4-6, 40057 Granarolo Dell'Emilia, Quarto Inferiore (Italy)	100.0%
Fagron Lékárna Holding s.r.o.	Holická 1098/31M, 77900 Olomouc (Czech Republic)	100.0%
Fagron Ltd	2315 Ocean Tower, 550 Yan An East Road, 200001 Shanghai, (China)	100.0%
Fagron Nederland BV	Venkelbaan 101, 2908 KE Capelle aan den IJssel (The Netherlands)	100.0%
Fagron Nordic A/S	Kigkurren 8M 2. Sal, 2300 Copenhagen (Denmark)	100.0%
Fagron NV	Venecoweg 20A, 9810 Nazareth (Belgium)	100.0%
Fagron Poland Sp. z o.o.	UI. Pasternik 26, 31354 Krakau (Poland)	100.0%
Fagron Sarl	Intendente Neyer 924, B1643 Beccar (Argentina)	100.0%
Fagron SAS	37 Rue Helene Muller, 94320 Thiais (France)	100.0%
Fagron Services BV	Molenwerf 13, 1911 DB Uitgeest (The Netherlands)	100.0%
Fagron Services BVBA	Industrieweg 2, 2850 Boom (Belgium)	100.0%
Fagron South Africa Ltd	5514th Avenue, Northcliff, Gauteng (South Africa)	100.0%
Fagron Steriele Bereidingsapotheek BV	Siemensstraat 4, 7903 AZ Hoogeveen (The Netherlands)	100.0%
Fagron Technologies Ltda	Avenida 9 de Julho 3575, 13208-056 Jundiai (Brazil)	100.0%
Fagron UK Ltd	4B Coquet Street, NE1 2QB Newcastle upon Tyne (United Kingdom)	100.0%
Flores e Ervas Comercio Farmaceutico Ltda	Estrada Vicente Bellini 175, 13427-225 Piracicaba City (Brazil)	100.0%
Freedom Pharmaceuticals Inc.	801 W. New Orleans Street, 74011 Broken Arrow, Oklahoma (United States)	100.0%
GMP Apotheek Mierlo-Hout BV	Steenovenweg 15, 5708 HN Helmond (The Netherlands)	100.0%
HL Technology SA	Rue Jardiniere 153, 2300 La Chaux-de-Fonds (Switzerland)	100.0%
Hoogeveen Bereidingsapotheek (HBA) BV	Lichtenauerlaan 182, 3062 ME Rotterdam (The Netherlands)	100.0%
JCB Laboratories LLC	3510 N. Ridge Road. STE.900, 67205 Wichita, Kansas (United States)	100.0%
Jupiter Health Holding LLC	Millwell Drive 212, Maryland Heights, 63043 Missouri (United States)	100.0%
Kernig d.o.o.	Donjozelinska ul. 114, 10382 Donja Zeline (Croatia)	100.0%
Liberty Rx LLC	Millwell Drive 212, Maryland Heights, 63043 Missouri (United States)	100.0%
Link Medical LLC	Millwell Drive 212, Maryland Heights, 63043 Missouri (United States)	100.0%
Mar-Kern Ltd	Main Road 20, Knysna, 6570 George (South Africa)	100.0%
Mercury Innovations LLC	Millwell Drive 212, Maryland Heights, 63043 Missouri (United States)	100.0%
Midwest Rx LLC	Millwell Drive 212, Maryland Heights, 63043 Missouri (United States)	100.0%
Northern Rx LLC	Millwell Drive 212, Maryland Heights, 63043 Missouri (United States)	100.0%
Panoramix Holding BV	Munsterstraat 4, 7575 ED Oldenzaal (The Netherlands)	100.0%
Pharma Assist BV	Dieselstraat 3, 7903 AR Hoogeveen (The Netherlands)	100.0%
Pharma Cosmetic K.M. Adamowicz Sp. z o.o.	Ul. Pasternik 26, 31354 Krakau (Poland)	100.0%
Pharma Services SAS	37 Rue Helene Muller, 94320 Thiais (France)	100.0%
Pharmacy Services Inc.	Millwell Drive 212, Maryland Heights, 63043 Missouri (United States)	100.0%
Pharmaline BV	Munsterstraat 4, 7575 ED Oldenzaal (The Netherlands)	100.0%
PPH Galfarm Sp. z o.o.	Ul. Przemystowa, 12, 30701 Krakow (Poland)	100.0%
PSI Services Inc.	Millwell Drive 212, Maryland Heights, 63043 Missouri (United States)	100.0%
Rausa Kem Pharmacy Ltd	Clarendon Street 61, Parow Valley, 7S00 Kaapstad (South Africa)	100.0%
SM Empreendimentos Farmaceuticos Ltda	Rua Jurupari, 803 – Jardim Oriental, 04348-070 São Paulo (Brazil)	100.0%
Southern Rx LLC	Millwell Drive 212, Maryland Heights, 63043 Missouri (United States)	100.0%
Spruyt hillen BV	Tinbergenlaan 1, 3401 MT IJsselstein (The Netherlands)	100.0%
Texas Southern Rx LLC	MilIwell Drive 212, Maryland Heights, 63043 Missouri (United States)	100.0%
Twipe BV	Tinbergenlaan 1, 3401 MT IJsselstein (The Netherlands)	100.0%

Statutory Auditor's Report PwC

Statutory auditor's report to the General Shareholders' Meeting of the company Fagron NV on the consolidated financial statements for the year ended 31 December 2017

We present to you our statutory auditor's report in the context of our statutory audit of the consolidated financial statements of Fagron NV (the "Company") and its subsidiaries (jointly "the Group"). This report includes our report on the audit of the consolidated financial statements, as well as the report on other legal and regulatory requirements. These reports form part of an integrated whole and are indivisible.

We have been appointed as statutory auditor by the general meeting dd. 9 May 2016, following the proposal formulated by the board of directors and following the recommendation by the audit committee. Our mandate will expire on the date of the general meeting which will deliberate on the consolidated financial statements for the year ended 31 December 2018. We have performed the statutory audit of the consolidated financial statements of Fagron NV for eleven consecutive years.

Report on the audit of the consolidated financial statements

Unqualified Opinion

We have performed the statutory audit of the Group's consolidated financial statements, which comprise the consolidated income statement as at 31 December 2017, the consolidated statement of comprehensive income, the consolidated statement of financial position, the consolidated statement of changes in equity and the consolidated cash flow statement for the year then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies and other explanatory information, and which is characterised by a consolidated statement of financial position total of EUR 594.0 million and the consolidated income statement shows a profit for the year attributable to the shareholders of EUR 46.7 million.

In our opinion, the consolidated financial statements give a true and fair view of the Group's net equity and consolidated financial position as at 31 December 2017, and of its consolidated financial performance and its consolidated cash flows for the year then ended, in accordance with International Financial Reporting Standards as adopted by the European Union and with the legal and regulatory requirements applicable in Belgium.

Basis for our unqualified opinion

We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the "Statutory auditor's responsibilities for the audit of the consolidated financial statements" section of our report. We have fulfilled our ethical responsibilities in accordance with the ethical requirements that are relevant to our audit of the consolidated financial statements in Belgium, including the requirements related to independence.

We have obtained from the board of directors and Company officials the explanations and information necessary for performing our audit.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Key audit matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

Impairment assessment of goodwill and other intangible fixed assets - Note 15

Key audit matter

As per 31 December 2017, the goodwill and other intangible fixed assets amounts to EUR 344.5 million. Goodwill and other intangible assets are tested annually for impairment at the level of cash generating units. The key judgements are the discount rate, the long-term growth rate, the gross margin growth rate and earnings expectations.

We consider the annual impairment test of goodwill and other intangible assets as a key audit matter because of the complexity and the fact that a high level of management judgement is involved. Considering the material size of these financial statement line items, a potential impairment might have a significant Impact on the annual accounts.

We focused our impairment assessment on the Fagron United States Essentials and Brands cash generating unit, which has a goodwill carrying value of EUR 27.2 million. The impairment assessment performed in 2015 and 2016 resulted in an impairment charge on goodwill and other intangible assets by EUR 224.8 million and EUR 48.4 million respectively. The 2017 impairment assessment did not result in an additional impairment.

How our audit addressed the key audit matter

Our audit procedures consisted of the evaluation of the impairment methodology, testing of the key assumptions and the supporting calculations. Supported by valuation specialists, we compared the key assumptions to external market data (for example growth expectations) and own independent considerations (for example the discount rate). We have reconciled the data to the approved budget and internal forecasts and assessed the historical accuracy of management's estimates and internal forecasts. We also assessed the adequacy of the disclosures (Note 15) in the financial statements. We further focused on the sensitivity by evaluating whether a reasonably possible change in assumptions could cause the carrying amount to exceed its recoverable amount and thus result in an impairment.

As a result of our testing, we found that management's assertion, that no impairments are required, is supported by reasonable assumptions and that the disclosures in the financial statements are appropriate.

Disputes and claims (refer to Note 22)

Key audit matter

Fagron holds provisions for an amount of EUR 12.5 million, among others in respect of the ongoing US government investigation and legal proceedings linked to previous acquisitions. Disclosures have been made in Note 22 in relation to these provisions.

We considered the provisions, including the ongoing US government investigation, to be a key audit matter, because the position taken by management is based on judgement and estimates. Any new developments in the ongoing investigation might have a significant Impact on the financial statements of Fagron Group.

How our audit addressed the key audit matter

We discussed pending claims and legal proceedings with management and Fagron's general counsel. We assessed the completeness by reading the minutes of meetings of the Board of Directors and by obtaining and reviewing the external lawyer confirmations.

We also discussed the latest status in the US government investigation with management and Fagron's external company lawyer. We assessed the reasonableness of managements' position and the provision accounted for as per 31 December 2017, taking into account the information known to date.

As a result of our testing, we found the judgements, estimates and provisions reasonable and the disclosures appropriate.

Responsibilities of the board of directors for the consolidated financial statements

The board of directors 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 European Union and with the legal and regulatory requirements applicable in Belgium, and for such internal control as the board of directors determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the consolidated financial statements, the board of directors is responsible for assessing the Group's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the board of directors either intend to liquidate the Group or to cease operations, or has no realistic alternative but to do so.

Statutory auditor's responsibilities for the audit of the consolidated financial statements

Our objectives are to obtain reasonable assurance about whether the consolidated 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 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.

As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional scepticism throughout the audit. We also:

•	Identify and assess the risks of material misstatement of the consolidated 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.
•	Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group's internal control.
•	Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the board of directors.
•	Conclude on the appropriateness of the board of directors' use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our statutory auditor's report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our statutory auditor's report. However, future events or conditions may cause the Group to cease to continue as a going concern.
•	Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
•	Obtain sufficient and appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the Group audit. We remain solely responsible for our audit opinion.

We communicate with the audit committee and the board of directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide the audit committee and the board of directors 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 the audit committee and the board of directors, we determine those matters that were of most significance in the audit of the consolidated 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.

Report on other legal and regulatory requirements

Responsibilities of the board of directors

The board of directors is responsible for the preparation and the content of the directors' report on the consolidated financial statements, the separate report on non-financial information and the other information included in the annual report.

Statutory auditor's responsibilities

In the context of our mandate and in accordance with the Belgian standard (Revised) which is complementary to the International Standards on Auditing (ISAs) as applicable in Belgium, our responsibility is to verify, in all material respects, the directors' report on the consolidated financial statements and the other information included in the annual report and to report on these matters.

Aspects related to the directors' report on the consolidated financial statements and to the other information included in the annual report

In our opinion, after having performed specific procedures in relation to the directors' report on the consolidated financial statements and to the other information included in the annual report, this report is consistent with the consolidated financial statements for the year under audit, and it is prepared in accordance with article 119 of the Companies' Code.

In the context of our audit of the consolidated financial statements, we are also responsible for considering, in particular based on the knowledge acquired resulting from the audit, whether the directors' report on the consolidated financial statements and the other information included in the annual report on the consolidated financial statements is materially misstated or contains information which is inadequately disclosed or otherwise misleading. In light of the procedures we have performed, there are no material misstatements we have to report to you. We do not express any form of assurance conclusion on this annual report.

The non-financial information is included in a separate report. The report of non-financial information contains the information required by virtue of article 119 §2 of the Companies' Code, and agrees with the consolidated financial statements for the same year. The non-financial information has not been prepared based on a specific reference framework. We do not express assurance on individual elements included in this non-financial information.

Statement related to independence

•	We did not provide services which are incompatible with the statutory audit of the consolidated financial statements and we remained independent of the Company in the course of our mandate.
•	The fees for additional services which are compatible with the statutory audit of the consolidated financial statements referred to in article 134 of the Companies' Code are correctly disclosed and itemized in the notes to the consolidated financial statements.

Other statements

This report is consistent with the additional report to the audit committee and the board of directors referred to in article 11 of the Regulation (EU) N° 537/2014.

Antwerp, 13 April 2018

**The statutory auditor

PwC Bedrijfsrevisoren bcvba**

Represented by

Peter Van den Eynde, Réviseur d'Entreprises / Bedrijfsrevisor

Statutory Financial Statement

Condensed stand-alone income statement

Fagron NV

(x 1,000 euros)	2017	2016
Operating income	4,133	14,314
Turnover	0	0
Other operating income	3,833	8,407
Non-recurring operating income	300	5,907
Operating expenses	4,807	13,344
Trade goods, raw and auxiliary materials	0	0
Services and other goods	3,240	3,135
Employee benefit expenses	571	1,412
Depreciation and amortization	28	51
Provisions for risks and costs	-8	-58
Other operating expenses	3	4,312
Non-recurring operating expenses	972	4,492
Operating result	-674	970
Financial result	1,770	5,296
Recurring financial result	1,770	-1,351
Non-recurring financial result	0	6,647
Profit for the financial year before taxes	1,095	6,265
Tax an the result	1	0
Net result for the financial year	1,094	6,265

Condensed stand-alone balance sheet

Fagron NV

(x 1,000 euros)	2017	2016
Non-current assets	423,407	460,398
Formation expenses	0	0
Intangible fixed assets	16	43
Property, plant and equipment	0	2
Financial fixed assets	423,391	460,354
Current assets	503,960	396,228
Debtors due after one year	0	123,274
Inventories and orders in progress	0	0
Debtors due within one year	470,392	25,746
Investments	1,183	221,629
Cash and cash equivalents	31,396	23,818
Other receivables	990	1,761
Total assets	927,367	856,626
Equity	496,681	502,772
Capital	494,192	494,192
Share premiums	0	0
Legal reserves	368	313
Unavailable reserves	1,183	1,007
Available reserves	938	7,260
Profit carried forward	0	0
Provisions and deferred tax	13	21
Provision for other risks	13	21
Liabilities	430,673	353,833
Creditors due after one year	86,706	284,327
Creditors due within one year	341,592	67,082
Other current payables	2,375	2,424
Total liabilities	927,367	856,626

Appropriation of profits

Fagron NV

(x 1,000 euros)	2017	2016
Profit to be appropriated	1,094	-102,119
Profit for the year to be appropriated	1,094	6,265
Profit carried forward from the previous year	0	-108,385
Transfers from capital and reserves	6,145	108,385
From the capital and share premiums	0	73,384
From the reserves	6,145	35,000
Transfers to capital and reserves	55	6,265
To the statutory reserves	55	313
To the other reserves	0	5,952
Profit to be carried forward	0	0
Profit to be carried forward	0	0
Profit to be distributed as dividends	7,184	0
Dividend	7,184	0

Accounting policies

The accounting policies used for the stand-alone Statutory financial statements of Fagron NV are in accordance with the KB of 31.01.2001 implementing the Belgian Companies Code.

Statutory financial statements of Fagron NV

As required under Article 105 of the Belgian Companies Code, this annual report is a condensed version of the Statutory financial statements of Fagron NV. The annual report and the Statutory Auditor's report will be filed and will be available for inspection at the company's registered office.

The Statutory Auditor has expressed its unqualified opinion an the statutory financial statements of Fagron NV for the 2017 financial year.

Alphabetical terminology list

In addition to the terms as defined in IFRS, this annual report also includes other terms. These 'alternative performance indicators' are defined below. The IFRS terminology is in italics.

Operating result	Result of operating activities, EBIT ('Earnings Before Interests and Taxes')
Gross margin	Turnover less acquired trade goods, raw and auxiliary materials and adjusted for changes in inventories and work in progress as a percentage of turnover
EBIT	'Earnings Before Interests and Taxes', Profit (loss)from operating activities
EBITDA	'Earnings Before Interests, Taxes, Depreciations and Amortisations', Profit (loss)from operating activities plus depreciations and amortisations, including write-downs an inventories and receivables
Financial result	Net financing costs, balance of financing income and financing costs
Net operational capex	Net capital expenditure, intangible assets and property, plant and equipment that have been acquired or produced (excluding acquisitions), less assets sold
Net financial debt	Non-current and current financial liabilities, less cash and cash equivalents (excluding financial instruments)
Non-recurring items	One-off revenue and expenses not related to ordinary operations
Net result	Profit (loss)for the reporting period, consolidated result
Operational working capital	Inventories + Trade receivables – Trade payables
REBITDA	'Recurring Earnings Before Interests, Taxes, Depreciations and Amortisations', Profit (loss) from operating activities plus depreciations and amortisations and adjusted for all non-recurring items
Recurrent net profit	Profit (loss)for the reporting period, adjusted for non-recurring items

Forward-looking statements caution

This annual report may contain forward-looking statements. Forward-looking statements are statements that are not historical facts, containing information such as, but not limited to, communications expressing or implying beliefs, expectations, intentions, forecasts, estimates or predictions (and the assumptions on which they are based) on the part of Fagron. Forward-looking statements by definition involve risks and uncertainties. The actual future results or circumstances may therefore differ materially from those expressed or implied in forward-looking statements. Such a difference may be caused by a range of factors (such as, but not limited to, evolving statutory and regulatory frameworks within which Fagron operates, claims in the areas of product liability, currency risk, etcetera).

Any forward-looking statements contained in this annual report are based on information available to the management of Fagron at date of publication. Fagron cannot accept any obligation to publish a formal notice each time changes in said information occur or if other changes or developments occur in relation to forward-looking statements contained in this annual report.

In the event of differences between the English translation and the Dutch original of the annual report, the latter prevails.