Fagron N.V. — Annual Report 2018

Dec 13, 2019

Publication

Fagron NV

Nazareth

Konzernabschluss zum Geschäftsjahr vom 01.01.2018 bis zum 31.12.2018

Jahres- und Konzernabschluss zum 31.12.2018

Financial Annual Report 2018

Consolidated financial statements

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 Tax on profits

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 on 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

Statutory financial statements

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 2018, 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.

12 April 2019

In the name and on behalf of the Board of Directors

Rafael Padilla, CEO

Karin de Jong, CFO

Consolidated income statement

(x 1,000 euros)	Note	2018	20171
Operating income		473,395	438,145
Turnover	6	471,679	433,529
Other operating income	7	1,716	4,616
Operating expenses		399,923	363,538
Trade goods		181,253	167,718
Services and other goods		82,144	76,454
Employee benefit expenses	8	112,573	100,700
Depreciation and amortisation	9	19,575	17,550
Other operating expenses	10	4,379	1,116
Operating profit		73,472	74,607
Financial income	11	643	3,154
Financial expenses	11	-19,279	-21,796
Profit before income tax		54,835	55,965
Taxes	12	11,553	8,918
Net profit for the year from continued operations		43,282	47,047
Net result from discontinued operations (attributable to equity holders of the company)	13	-377	0
Net result		42,905	47,047
Attributable to:
Equity holders of the company (net result)		42,486	46,658
Non-controlling interest		419	389
Earnings (loss) per share from continued and discontinued operations attributable to owners of the parent during the year
Profit (loss) per share (in euros)	14	0.59	0.65
From continued operations	14	0.60	0.65
From discontinued operations	14	-0.01	0.00
Diluted profit (loss) per share (in euros)	14	0.59	0.65
From continued operations	14	0.60	0.65
From discontinued operations	14	-0.01	0,.00

1 The 2017 figures have been adjusted for the application of IFRS 15.

Consolidated statement of comprehensive income

(x 1,000 euros)	Note	2018	2017
Net result for the financial year		42,905	47,047
Other comprehensive income
Items that will not be reclassified to profit or loss	23
• Remeasurements of post-employment benefit obligations		-352	1,497
• Tax relating to items that will not be reclassified		88	-374
Items that may be subsequently reclassified to profit or loss
• Currency translation differences		-11,647	-16,534
Other comprehensive income for the year net of tax		-11,911	-15,411
Total comprehensive income for the year		30,994	31,636
Attributable to:
Equity holders of the company		30,575	31,237
Non-controlling interest		419	399
Total comprehensive income for the year		30,994	31,636
Total comprehensive income for the year attributable to equity holders of the company:
From continued operations		30,952	31,237
From discontinued operations	13	-377	0
Total comprehensive income for the equity holders		30,575	31,237

The unrealised currency translation differences of -11.6 million euros in 2018 (2017: -16.5 million euros) are primarily the result of the weakening of the Brazilian real compared to the euro in 2018 and 2017.

Consolidated statement of financial position

(x 1,000 euros)	Note	2018	2017
Non-current assets		483,046	427,617
Intangible fixed assets	15	391,388	344,495
Property, plant and equipment	16	73,439	69,535
Financial fixed assets	17	2,158	2,232
Deferred tax assets	18	16,061	11,355
Current assets		199,726	166,430
Inventories	19	74,658	62,865
Trade receivables	20	38,289	32,220
Other receivables	20	9,200	10,574
Cash and cash equivalents	20	77,579	60,771
Total assets		682,772	594,047
Equity	21	209,716	184,881
Shareholders' equity (parent)		205,841	181,398
Non-controlling interest		3,875	3,483
Non-current liabilities		285,250	300,925
Provisions	22	13,759	12,476
Pension obligations	23	5,183	4,733
Deferred tax liabilities	18	259	198
Borrowings	24	265,917	283,518
Financial instruments	24	131	0
Current liabilities		187,806	108,241
Borrowings	24	63,955	13,450
Trade payables	25	63,918	58,950
Taxes, remuneration and social security	18	31,395	27,168
Other current payables	26	28,538	8,673
Total liabilities		473,056	409,166
Total equity and liabilities		682,772	594,047

Consolidated statement of changes in equity

(x 1,000 euros)	Note	Share capital & share premium	Other reserves	Treasury shares
Balance as of 1 January 2017		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
Declared dividends	21	0	0	0
Share-based payments	21	0	370	0
Reclassification		-54,182	0	0
Balance as of 31 December 2017		507,670	-233,226	-18,823
Profit for the period		0	0	0
Other comprehensive income		0	-11,884	0
Total comprehensive income for the period		0	-11,884	0
Declared dividends	21	0	0	0
Share-based payments	21	0	1,025	0
Reclassification		0	0	0
Balance as of 31 December 2018		507,670	-244,085	-18,823

(x 1,000 euros)	Retained earnings	Total	Non controlling interest	Total equity
Balance as of 1 January 2017	-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
Declared dividends	0	0	0	0
Share-based payments	0	370	0	370
Reclassification	54,182	0	0	0
Balance as of 31 December 2017	-74,223	181,398	3,483	184,881
Profit for the period	42,486	42,486	419	42,905
Other comprehensive income	0	-11,884	-27	-11,911
Total comprehensive income for the period	42,486	30,602	392	30,994
Declared dividends	-7,184	-7,184	0	-7,184
Share-based payments	0	1,025	0	1,025
Reclassification	0	0	0	0
Balance as of 31 December 2018	-38,921	205,841	3,875	209,716

Consolidated cash flow statement

(x 1,000 euros)	Note	2018	2017
Operating activities
Profit before income taxes from continued operations		54,835	55,965
Profit before income taxes from discontinued operations		-377	0
Taxes paid		-11,928	3,398
Adjustments for financial items		18,636	18,643
Total adjustments for non-cash items		19,837	16,169
Total changes in working capital		-7,727	-9,927
Total cash flow from operating activities		73,278	84,247
Investment activities
Capital expenditure		-15,694	-10,032
Proceeds from sold shareholdings		0	6,400
Investments in existing shareholdings (subsequent payments) and in new holdings		-38,917	-8,109
Total cash flow from investment activities		-54,611	-11,741
Financing activities
Dividends		-7,174	0
New borrowings	24	71,624	122,193
Reimbursement of borrowings	24	-44,290	-398,023
Interest received		643	3,154
Interest paid		-19,014	-31,713
Total cash flow from financing activities		1,789	-304,391
Total net cash flow for the period		20,456	-231,885
Cash and cash equivalents - start of the period		60,771	295,585
Gains (or losses) on currency translation differences		-3,648	-2,929
Cash and cash equivalents - end of the period		77,579	60,771
Changes in cash and cash equivalents		20,456	-231,885
Net cash flow from discontinued operations
Total cash flow from operating activities		-377	0
Total cash flow from investment activities		0	0
Total cash flow from financing activities		0	0
Total net cash flow from discontinued operations		-377	0

In April 2016, the Board of Directors decided to close Bellevue Pharmacy. The Bellevue Pharmacy cash flows were classified in 2018 under net cash flows from discontinued operations and are related to limited additional costs for Bellevue Pharmacy.

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 and amortisation 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, focusing on delivering personalised pharmaceutical care to hospitals, pharmacies, clinics and patients in 35 countries around the world.

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 driven by the Dutch company Fagron BV.

Fagron BV's head office 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 11 April 2019.

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 the entire year of 2018 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

The following amendments to standards and interpretations are mandatory for the first time for the financial year beginning 1 January 2018 and have been approved by the EU.

Published, mandatory and approved by the EU		Anticipated impact
IFRS 9 Financial Instruments 1 January 2018	In July 2014, the IASB Issued the final version of IFRS 9 Financial Instruments that replace IAS 39 and all previous versions of IFRS 9. IFRS 9 brings together all three aspects of the financial Instruments project: classification and valuation, impairment and hedge accounting. IFRS 9 is applicable for financial years beginning on or after 1 January 2018, with earlier application being permitted. With the exception of hedge accounting, retroactive application is required, but providing comparative information is not mandatory. For hedge accounting, the requirements are typically applied proactively, with some limited exceptions. 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 determined that the application of this standard has an effect on the classification of financial Instruments and the amortisation of financial assets. Changes related to classification do not Impact the valuation of the financial Instruments and as a result, no adjustments have been made to the opening balance. Fagron applies the IFRS 9 simplified approach method, which uses the lifetime expected loss allowance for all trade receivables, in order to value the expected credit losses. The new model has no significant impact on the methodology that is used within the Fagron Group. The comparative figures have accordingly not been adjusted.
IFRS 15 Revenue from contracts with customers 1 January 2018	The IASB and FASB have jointly published a standard regarding the recognition of turnover from contracts with customers. The standard will Improve the financial reporting of turnovers and deliver a better global comparison of the turnovers that are reported In the financial statements. Entities that apply IFRS are required to apply this standard.	Fagron conducted an analysis on the 2017 comparative figures. Only the presentation of the figures was adjusted. The turnover and operating expenses (services and other goods) were reduced by 3.4 million euros. The full retrospective method was applied after it was apparent from the analysis that specific costs for a number of contracts should be presented net of turnover.
Amendments to IFRS 15 Revenue from contracts with customers - clarification 1 January 2018	These amendments clarify the Identification of the various performance liabilities, the accounting for licenses relating to Intellectual property and the differences between principal and agent relations. The amendment also contains examples for clarification.	See IFRS 15 Revenue from contracts with customers
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.
Annual improvements to IFRS standards 2014-2016 1 January 2018	Applicable to the standards in which the changes in IFRS 1 and IAS 28 take effect as of 1 January 2018 and the changes in IFRS 12 will be applicable as of 1 January 2017. The improvements are explained in relation to the scope of IFRS 12 "Explanation of interests in other entities". These adjustments should be applied retrospectively for the financial year starting on 1 January 2017.	Fagron has determined that the application of these standards does not have any material effect on the consolidated financial statements.
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.

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 2018.

Issued and approved by the EU, but not yet mandatory		Anticipated impact
IFRS 16 Lease agreements 1 January 2019	The standard replaces the current standard, IAS 17, and is 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, on the other hand, requires the lessee to recognise 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 regarding the combination and segregation of contracts), as a result of which 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 has determined that the application of this standard will have a material effect on the consolidated financial statements. Fagron will apply the modified retrospective method, where the lease obligation and right-of-use asset are equal. Fagron elects to use the exemptions for lease agreements, where the lease period ends within 12 months after the date of first application and lease agreements where the underlying assets have a low value. On the balance sheet date, Fagron has operational leases of 43 million euros that cannot be annulled, on which the exemptions can be partially applied. Fagron expects to recognise right-of-use assets and lease liabilities of approximately 38 million euros on 1 January 2019. The net result is expected to decrease by approximately 1 million euros as a result of the application of the new regulation. Fagron expects REBITDA to increase by approximately 7 million euros since the operational lease payments were part of the REBITDA but the depreciation and interest related to the lease obligation were not part of this.
Changes to IFRS 9 Prepayment features with negative compensation 1 January 2019	Amendment that allows companies to value certain advance payable financial assets with so-called negative compensation at amortised cost price or at fair value via unrealised results, instead of at fair value through profit or loss, as they would otherwise not pass the SPPI test. In addition, this amendment explains an aspect of the accounting treatment of a change to a financial liability.	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.

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 2018.

Published, not yet approved by the EU and not yet mandatory		Anticipated impact
Changes to IAS 28 Long-term interests in associates and joint ventures 1 January 2019	Clarification with regard to the treatment of long-term interests in an associated entity or joint venture on 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.
Changes to IAS 19 Plan amendment, containment or settlement 1 January 2019	The changes require that an entity use updated assumptions to determine the current pension costs and the net interest value allocated to the service year for the remaining period after a change, containment or settlement of the plan. In addition, an entity must include any reduction in the proceeds in the income statement as part of the pension costs of elapsed service time or as a profit or loss upon settlement, even if that excess was not previously recorded due to the impact of the asset ceiling. The changes affect any entity that modifies the terms and conditions or the membership of a defined benefit plan in such a way that there are past service pension costs or a profit or loss at the settlement.	Fagron will review the effects of these amendments and process them if applicable.
Changes to IFRS 3 Business Combinations 1 January 2020	These changes revise the definition of "a company". The new guideline provides a framework in order to evaluate when an input and substantive process are present (including start-up companies that have not yet generated any outputs). In order to be a company without output, there must now be an organised workforce. The changes in the definition of a company will likely result in more acquisitions being considered "asset acquisitions" in all sectors, but particularly in the real estate, pharmaceutical and petrochemical sectors. Application of the changes will also affect the processing of disposal operations.	Fagron will review the effects of these amendments and process them if applicable.
Changes to the definition of "material" in IAS 1 and IAS 8 1 January 2020	The changes clarify the definition of "material" and increase the consistency between the IFRS. The amendment clarifies that the reference to unclear information regards situations in which the effect is comparable to omission or misrepresentation of that information. It also states that an entity assesses materiality in the context of the financial statements as a whole. In addition, the change also clarifies the meaning of "primary users of financial statements for general purposes to whom those financial statements are directed", by defining them as "existing and potential investors, credit providers and other creditors" who must appeal to the financial statements in order to also obtain a large portion of the financial information they need. The changes are not expected to have any significant impact on the preparation of the financial statements.	Fagron has determined that the application of these changes to these standards does not have any material effect on the consolidated financial statements.
Annual improvements to IFRS standards 2015-2017 1 January 2019	▪ IFRS 3 "Business Combinations" and IFRS 11 Joint Arrangements. The amendments regarding IFRS 3 clarify that when an entity acquires control over a joint operation, previous interests in that company must be revalued. The amendments regarding IFRS 11 clarify that when an entity acquires joint control over a joint operation, the entity does not revalue the previous interests in that company.	Fagron has established that the application of these standards will not have a material impact on the consolidated financial statements.
	▪ IAS 12 Income taxes. The amendments clarify that all dividend consequences on the income taxes must be recognised in the income statement, regardless of how this tax arises.	Fagron has established that the application of these standards will not have a material impact on the consolidated financial statements.
	▪ IAS 23 "Borrowing costs". The amendments clarify that if one of the loans remains open after the relevant asset is ready for its intended use or sale, this loan will belong to the funds that an entity normally borrows for calculating capitalisation interest rate on general loans.	Fagron has established that the application of these standards will not have a material impact on the consolidated financial statements.

The other new standards, amendments of standards and interpretations that were published but are not yet mandatory for this financial year starting 1 January 2018, 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 IFRS 9 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
	2018	2017	2018	2017
---	---	---	---	---
US dollar	1.145	1.199	1.181	1.129
Brazilian real	4.444	3.973	4.306	3.603
Polish zloty	4.301	4.177	4.261	4.257
Swiss franc	1.127	1.17	1.155	1.111

Fixed assets held for sale and discontinued operations (13)

Non-current assets and groups of assets to be sold are classified as fixed assets held for sale when the book value 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 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 liabilities from that subsidiary are classified as fixed assets held for sale and liabilities related to assets held for sale, regardless of whether Fagron will retain a non-controlling interest after the sale.

Assets held for sale and liabilities 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 amortisation, the assets are grouped at the lowest level for which there are separately identifiable cash flows (cash-generating units).

Property, plant and equipment (16)

Property, plant and equipment are valued at the acquisition value or production costs plus directly attributable costs, if applicable. Depreciation is calculated pro rata based on the useful life of the asset in accordance with the following amortisation parameters: 3 to 5 years for equipment and machinery and between 25 and 33 years for buildings. Land is not depreciated.

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. Financial assets are initially valued at fair value and subsequently valued at amortised costs. Fagron does not use enforceable master netting agreements.

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 in accordance with the FIFO method or 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. Provisions are made based on the lifetime expected loss allowance for all customers based on historical payment behaviour.

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 risks and rewards.

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 liabilities 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 liabilities 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 liabilities, 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 property, plant and equipment 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. Since the Fagron derivative contracts do not satisfy the criteria as specified in IFRS 9 to be considered as hedging instruments, changes in the fair value of derivatives are recognised in the income statement.

Revenue recognition

Fagron uses the five-step model in order to recognise revenue that result from sales to customers. The revenue is recognised at the value that we expect to receive for the delivery of the goods or services. Any liabilities related to these sales will be deducted here. Contracts for the sale of goods to customers have only one performance obligation.

Sales of goods are recognised at the moment that control over the goods has transferred to the customer, the customer has accepted the goods and the related receivables are likely to be collectable. This is normally the case at the time the goods are delivered. Turnover of services is recognised in the accounting period in which the services have been provided. Turnover from the sale of software is recognised as turnover at the time of delivery. The turnovers 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 turnovers 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 operational segments based on the information that is provided internally to the Executive Committee, Fagron's decision-making body in 2018. 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.

The reporting structure and presentation of the financial results per Fagron segment are 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.

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 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 was extended until April 2021 by exercising the extension options. In August 2018, the size of the facility increased further from 220 million euros to 245 million euros.

The financial covenants were established once again in 2016 in order to give Fagron extra latitude with regard to the original levels of the financial covenants. The extra latitude in the financial covenants decreases with every six-month test period until 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. At the end of 2018, the original financial covenants will again be in force.

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.

Term Loan Facility

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.

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 EBlTDA/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 decreases with every six-month test period until 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. 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 credit facilities

Test period	Net financial debt/ REBITDA	REBITDA/net interest expenses
After 30 June 2018	Max. 3.25x	Min. 4.00x

At the end of 2018, an amount of 131 million euros had been withdrawn under the multi-currency facility (2017: 114 million euros).

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.

Fagron has a dividend policy that takes into account the profitability of the company and its underlying growth, as well as capital requirements and cash flows, where sufficient liquidity is maintained in order to follow the buy-and-build strategy. Fagron hereby expects to reinvest most of its free cash flow in the coming years and to pay out a relatively low, steady level of dividends to its shareholders.

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 liabilities.

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 liabilities 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 financial debts 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 basis points would have increased the variable interest charges of approximately 137 thousand euros before tax (2017: 167 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 regarding the Fagron entities that operate in a functional currency other than the euro involves entities that operate 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, Canadian dollars and Argentinian pesos. In 2018, these entities collectively represent 59.4% of the consolidated turnover.

Some of the Group's turnover is realised in currencies other than the euro, such as in Brazil, the United States, Poland and Switzerland. The table below shows 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 2018 and the effect on profit before tax.

	Profit before tax
(x 1,000 euros)	Strengthening	Weakening
---	---	---
US dollar	379	-463
Brazilian real	-1,567	1,916
Polish zloty	-1,190	1,454
Swiss franc	100	-123

The company also incurs indirect currency risk as a large part of its purchases in Brazil are actually transactions 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 2018, Fagron used financial derivatives in order to hedge interest and currency risks. Fagron hedged the variable interest rate for 42.5 million US dollars of financing. In accordance with IFRS, all financial derivatives are recognised either as assets or as liabilities. In accordance with IFRS 9, 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.

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.

In 2017 and 2018, 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 liabilities

The present value of the pension liabilities 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 liabilities. The gross defined benefit obligation is calculated periodically by independent actuaries.

The book value of pension liabilities as of 31 December 2018 is 5.2 million euros (2017: 4.7 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 bring these in line with the way in which the business is managed. 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 decisionmaking 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 and Australia. Fagron Europe is active in every Fagron activity category;
2.	Fagron North America encompasses all Fagron activities in the United States and Canada. Fagron North America is also active in every Fagron activity category;
3.	Fagron South America refers to all Fagron activities in Brazil and Colombia. 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 orthopaedic tools for dental and medical industry professionals.

Fagron's activities can be subdivided into four 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;
3.	Fagron Essentials refers to all pharmaceutical raw materials, equipment and supplies that a pharmacist needs in order to prepare medication himself/ herself in the pharmacy; and
4.	Fagron Premium Pharmaceuticals is a limited number of non-sterile drugs registered by Fagron in the Netherlands.

The segment results for continued operations for the period ending 31 December 2018 are as follows:

2018 (x 1,000 euros)	Fagron Europe	Fagron North America	Fagron South America	HL Technology	Total
Turnover	250,086	113,488	100,930	7,174	471,679
Intersegment turnover	468	248	34	0	751
Total turnover	250,554	113,736	100,964	7,174	472,430
Operating result per segment	54,862	2,366	17,259	-1,015	73,472
Financial result					-18,636
Profit before taxes					54,835
Taxes on profits					11,553
Net result from continued operations					43,282

The segment results for continued operations for the period ending 31 December 2017 are as follows: These results have been revised for the application of IFRS 15.

2017 (x 1,000 euros)	Fagron Europe	Fagron North America	Fagron South America	HL Technology	Total
Turnover	245,769	77,769	103,190	6,802	433,529
Intersegment turnover	399	138	44	0	581
Total turnover	246,168	77,906	103,234	6,802	434,111
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

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

2018 (x 1,000 euros)	Fagron Europe	Fagron North America	Fagron South America	HL Technology	Total
Depreciation and amortisation	6,549	7,218	2,126	345	16,237
Write-down on inventories	910	588	0	1,299	2,796
Write-down on receivables	68	434	39	0	542

2017 (x 1,000 euros)	Fagron Europe	Fagron North America	Fagron South America	HL Technology	Total
Depreciation and amortisation	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

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

2018 (x 1,000 euros)	Fagron Europe	Fagron North America	Fagron South America	HL Technology	Unassigned/ intersegment elimination	Total
Total assets	293,608	214,453	129,085	6,111	39,514	682,772
Total liabilities	53,752	176,495	20,101	2,466	220,242	473,056
Capital expenditure	7,005	6,251	2,916	1,506	0	17,678

2017 (x 1,000 euros)	Fagron Europe	Fagron North America	Fagron South America	HL Technology	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

The segment assets consist primarily of property, plant and equipment, intangible fixed assets, inventories, receivables and cash from operations. The difference between the aforementioned capital expenditure and the capital expenditure in the cash flow statement relates particularly to the impact of capital expenditure still to be paid at the end of 2017 and 2018 and proceeds from disposals.

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

6 Turnover

(x 1,000 euros)	2018	2017
Sale of goods	471,679	433,529
Turnover	471,679	433,529

The 2017 turnover was revised for the application of IFRS 15.

7 Other operating income

(x 1,000 euros)	2018	2017
Gain on disposal of fixed assets	267	695
Other operating income	1,449	3,920
Total other operating income	1,716	4,616

The decrease in other operating income mainly relates to higher proceeds in 2017 as a result of the sale of activities in the past.

8 Employee benefit expenses

(x 1,000 euros)	2018	2017
Wages and salaries	76,732	68,283
Social security costs	14,172	14,577
Pension costs - defined benefit plans	432	483
Pension costs - defined contribution plans	2,339	2,045
Other post-employment benefit contributions	2,168	3,451
Other employee expenses	16,731	11,863
Total employee benefit expenses	112,573	100,700

On 31 December 2018, Fagron's workforce (fully consolidated companies) for continued operations amounted to 2,488 (2017: 2,172) employees or 2,360.4 (2017: 2,053.9) 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)	2018	2017
Europe (incl. Rest of the World)	1,057	997
North America	596	379
South America	651	622
HL Technology	56	56
Total	2,360	2,054

9 Depreciation, amortisation and impairment

(x 1,000 euros)	2018	2017
Depreciation and amortisation	16,237	15,091
Write-down on inventories	2,796	2,034
Write-down on receivables	542	424
Depreciation and amortisation	19,575	17,550

Depreciation, amortisation and impairment increased in 2018, partly due to the acquisition of Humco and investments in the United States.

10 Other operating expenses

(x 1,000 euros)	2018	2017
Increase (decrease) in provisions for current liabilities	-625	-1,889
Increase (decrease) in provisions for pension liabilities	82	103
Taxes and levies (excluding income tax)	985	940
Other operating expenses	3,937	1,962
Total other operating expenses	4,379	1,116

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. This decrease was compensated in part by the creation of a provision for a tax assessment in Brazil (0.8 million euros).

The decrease in provisions for current liabilities in 2018 relates to several smaller items.

The other costs in 2017 primarily relate to the termination of a contract with a third party. Other costs in 2018 relate primarily to a settlement that was made with the former owners of JCB Laboratories in the United States.

11 Financial result

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

(x 1,000 euros)	2018	2017
Financial income	643	2,441
Revaluation of financial derivatives	0	713
Total financial income	643	3,154
Financial expenses	-4,921	-4,212
Interest expenses	-11,174	-17,124
Currency translation differences	-3,054	-461
Revaluation of financial derivatives	-131	0
Total financial expenses	-19,279	-21,796
Total financial result	-18,636	-18,643

The revaluation of financial derivatives of -0.1 million euros in 2018 (2017: 0.7 million euros) relates to the change in the market value of the interest rate hedges that are not a cash flow and cannot be presented as a hedge instrument in accordance with IFRS 9. The interest hedging instruments are valued on the basis of discounted cash flows.

The financial result, excluding the revaluation of the financial derivatives, amounts to -18.5 million euros in 2018 (2017: -19.4 million euros). This decrease was primarily due to lower interest charges as a result of a lower average interest rate (-11.2 million euros). The financial proceeds decreased by 2.5 million euros to 0.6 million euros. The negative currency translation differences increased by 2.5 million euros to -3.1 million euros.

12 Income taxes

Income taxes from continued operations are as follows:

(x 1,000 euros)	2018	2017
Current tax expenses	15,918	11,666
Deferred taxes	-4,364	-2,748
Tax on profits	11,553	8,918
Effective tax rate	21.07%	15.93%
Profit before income tax from continued operations	54,835	55,965
Tax calculated at weighted Fagron NV's statutory tax rate	16,220	19,022
Effect of rate differences compared with foreign jurisdictions	-1,350	-4,238
Income not subject to taxes	-695	-3,477
Expenses not deductible for tax purposes	1,669	1,359
Tax on profit previous years	-4	52
Other	-4,287	-3,800
Tax on profits	11,553	8,918

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 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 since 2016. Because Bellevue Pharmacy is being shut down, it has not been included as an asset or liability held for sale.

The total result for the discontinued operations and the total of cash flows from the discontinued operations are shown below. The result in 2018 relates to various costs related to Bellevue Pharmacy.

Net result from discontinued operations

(x 1,000 euros)	2018	2017
Operating income	0	0
Turnover	0	0
Other operating income	0	0
Expenses	377	0
Profit before income tax	-377	0
Attributable income taxes	0	0
Profit / (loss) from revaluation to fair value, settlement costs and costs of sale	0	0
Profit / (loss) for the year from discontinued operations
(attributable to the company's shareholders)	-377	0

Net cash flows from discontinued operations

(x 1,000 euros)	2018	2017
Total cash flow from operating activities	-377	0
Total cash flow from investment activities	0	0
Total cash flow from financing activities	0	0
Total net cash flows from discontinued operations	-377	0

14 Earnings per share

(in euros)	2018	2017
Basic earnings (loss) per share	0.59	0.65
• from continued operations	0.60	0.65
• from discontinued operations	-0.01	0.00
Diluted earnings (loss) per share	0.59	0.65
• from continued operations	0.60	0.65
• from discontinued operations	-0.01	0.00

The earnings used in the calculations are as follows:

(x 1,000 euros)	2018	2017
Profit (loss) attributable to equity holders of the company	42,486	46,658
• from continued operations	42,863	46,658
• from discontinued operations	-377	0

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)	2018	2017
Weighted average number of ordinary shares	71,740	71,740
Effect of warrants and stock options	229	137
Weighted average number of ordinary shares (diluted)	71,969	71,877

No ordinary share transactions were executed after the balance sheet date which have impacted on earnings per share. The number of warrants and stock options that do not have any dilutive impact during the period, but which could possibly have an impact in the future, is equal to 415,150. These are warrants and stock options for which the exercise price is higher than the average Fagron stock price in 2018.

15 Intangible fixed assets

(x 1,000 euros)	Goodwill	Development	Concessions & patents	Brands and customer relations	Software	Other	Total
Net book value as at 1 January 2017	342,785	3,797	1,368	Zahlformatprüfen17,447	5,610	0	371,006
Investments	0	1,328	56	49	910	17	2,360
Acquisitions	4,738	0	13	0	6	0	4,758
Transfers and disposals	-5,105	-4	-21	-1	-1	1	-5,133
Amortisation	0	-1,240	-183	-3,607	-1,745	0	-6,775
Exchange differences	-19,581	-10	-33	-1,763	-334	-2	-21,722
Net book value as at 31 December 2017	322,837	3,870	1,200	12,125	4,447	16	344,495
Gross book value	571,881	6,980	2,113	81,812	16,980	38	679,803
Accumulated amortisation	-249,043	-3,110	-913	-69,687	-12,533	-22	-335,309
Net book value	322,837	3,870	1,200	12,125	4,447	16	344,495
Net book value as at 1 January 2018	322,837	3,870	1,200	12,125	4,447	16	344,495
Investments	0	2,289	4	242	1,474	25	4,035
Acquisitions	44,404	0	0	6,087	545	0	51,036
Transfers and disposals	0	143	-2	0	736	-13	865
Amortisation	0	-1,185	-187	-4,424	-1,832	-2	-7,629
Exchange differences	-2,106	15	0	854	-176	0	-1,413
Net book value as at 31 December 2018	365,135	5,132	1,015	14,884	5,195	26	391,388
Gross book value	614,179	9,254	2,020	91,202	20,074	48	736,776
Accumulated amortisation	-249,043	-4,122	-1,005	-76,317	-14,879	-22	-345,388
Net book value	365,135	5,132	1,015	14,884	5,195	26	391,388

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 and 2018. These are mainly related to employee costs.

Impairment

Goodwill is tested at least once per year for impairment, but also each time a trigger event occurs. In 2017 and 2018, this did not lead to an 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 2018	December 2017
Fagron Europe Essentials and Brands	112.5	113.4
Fagron Europe Compounding Services and Premium Pharmaceuticals	58.7	58.7
Fagron United States Essentials and Brands	76.3	27.2
Fagron Sterile Services	16.8	16.1
AnazaoHealth	30.1	28.7
Fagron Brazil Essentials and Brands	63.1	70.6
Fagron Rest of the World	7.6	8.2
Total	365.1	322.8

The increase in goodwill relates primarily to the acquisition of Humco in the United States.

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 model 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, turnover and expenses, capital expenditures and working capital.
•	For the following years, an estimate of the perpetual growth is used. For the main cash flow-generating units, the following long-term growth rates were used: 2% for Fagron Europe Compounding Services and Premium Pharmaceuticals, Fagron Europe Essentials and Brands, Fagron United States Essentials and Brands, Fagron Sterile Services and AnazaoHealth and 7% for Fagron Brazil Essentials and Brands. The same growth rates were used in 2017.
•	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 flow-generating units, the following weighted average cost of capital was used: 8.9% (pre-tax: 11.3%) for Fagron Europe Compounding Services and Premium Pharmaceuticals, 8.9% (pre-tax: 11.3%) for Fagron Europe Essentials and Brands, 10.3% (pre-tax: 12.5%) for Fagron United States Essentials and Brands, 10.3% (pre-tax: 13.2%) for Fagron Sterile Services, 10.3% (pre-tax: 12.4%) for AnazaoHealth and 16.3% (pre-tax: 21.9%) for Fagron Brazil Essentials and Brands.
•	The corporate assets and goodwill have been allocated on the basis of the turnover to the cash flow-generating units Fagron Europe Compounding Services and Premium Pharmaceuticals 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 flow-generating units, Fagron United States Essentials and Brands has the smallest relative difference between the net book value of the asset and its enterprise value. The difference is estimated at 26.2 million euros and 52.4 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 (basis points)	Increase in discount rate (basis points)	Decrease in long-term growth (basis points)	Decrease in gross margin (basis points)
Fagron United States Essentials and Brands	1,544	242	353	389
Fagron Brazil Essentials and Brands	2,090	574	973	737

The outcome of the impairment test for Fagron Europe Compounding Services and Premium Pharmaceuticals, Fagron Europe Essentials and Brands, Fagron Sterile Services, AnazaoHealth and Fagron Brazil Essentials and Brands 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	Other tangible assets	Assets under construction	Total
Net book value as at 1 January 2017	38,485	16,587	4,713	153	2,915	10,026	72,879
Investments	872	2,568	1,149	26	248	2,383	7,247
Acquisitions	2,448	274	50	105	0	16	2,894
Transfers and disposals	4,782	324	-50	0	-438	-6,724	-2,107
Depreciation	-2,993	-3,378	-1,453	-77	-414	0	-8,316
Exchange differences	-1,164	-1,079	-289	-14	-70	-446	-3,062
Net book value as at 31 December 2017	42,431	15,297	4,120	192	2,241	5,255	69,535
Gross book value	60,286	41,979	15,724	322	6,749	5,255	130,315
Accumulated depreciation	-17,855	-26,682	-11,604	-131	-4,508	0	-60,780
Net book value	42,431	15,297	4,120	192	2,241	5,255	69,535
Net book value as at 1 January 2018	42,431	15,297	4,120	192	2,241	5,255	69,535
Investments	3,376	4,972	1,769	0	143	3,383	13,643
Acquisitions	544	324	144	0	0	0	1,012
Transfers and disposals	-1,269	2,210	587	413	28	-3,879	-1,910
Depreciation	-2,791	-3,719	-1,474	-233	-390	0	-8,608
Exchange differences	-82	181	-148	-235	17	34	-233
Net book value as at 31 December 2018	42,209	19,264	4,998	137	2,039	4,793	73,439
Gross book value	62,640	52,953	18,234	316	7,049	4,793	145,985
Accumulated depreciation	-20,431	-33,689	-13,236	-179	-5,010	0	-72,546
Net book value	42,209	19,264	4,998	137	2,039	4,793	73,439

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 property, plant and equipment have no restrictions on the title of ownership. These assets have also not been pledged as security for liabilities, with the exception of the buildings owned by HL Technology and Fagron Services BV, 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 2017	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
Investments	0	76	76
Transfers and disposals	-271	144	-127
Other movements	0	-22	-22
Net book value as at 31 December 2018	943	1,216	2,158

The assets available for sale consist primarily of a minority participation of 0.8 million euros, where the fair value through P&L method is used. However, this asset is valued at cost due to the lack of reliable information about its fair value.

An analysis of the aforementioned assets showed that none of these assets needs to be impaired in 2017 and 2018.

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)	2018	2017
Tax liabilities for the current year	9,454	6,984
Other current tax and VAT payable	8,418	9,320
Remuneration and social security payable	13,522	10,863
Current taxes, remuneration and social security	31,395	27,168

In particular, the increase in tax liabilities related to the current year regards the increased profitability in Europe. The increase in employee remuneration and social charges to be paid can be explained by the FTE increase.

b) Deferred tax assets

(x 1,000 euros)	Differences in depreciation rates	Employee benefits	Provisions	Tax losses	Other	Total
Balance on 1 January 2017	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
Result	-672	-1,194	539	4,160	1,713	4,546
Change in scope of consolidation	160	0	0	0	0	160
Impairment	0	0	0	0	0	0
Balance on 31 December 2018	761	85	879	15,322	-986	16,061

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 projection for one year in the region with the most significant deferred tax asset will result in its increase by approximately 4.9 million euros.

Based on the impairment test in 2018 on tax losses, no impairment occurred.

At the end of 2018, the tax losses came to 269.9 million euros, of which 67.0 million euros were assessed, resulting in a deferred tax asset of 15.3 million euros.

c) Deferred tax liabilities

(x 1,000 euros)	Differences in depreciation rates	Other	Total
Balance on 1 January 2017	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
Result	61	0	61
Change in scope of consolidation	0	0	0
Discontinued operations	0	0	0
Balance on 31 December 2018	3,013	-2,754	259

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. In addition, due to a change in tax legislation in Belgium starting 1 January 2018, corporate income tax is no longer due on intercompany dividends received. The unvalued deferred tax liability is nil.

19 Inventories

(x 1,000 euros)	2018	2017
Raw materials	27,146	17,881
Work in progress	369	1,086
Finished goods	15,199	9,416
Trade goods	31,944	34,482
Inventories	74,658	62,865

The increase in inventories is primarily explained by the increased product availability in Brazil and the Humco acquisition. 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)	2018	2017
Trade receivables	40,989	34,761
Provision for impairment of receivables	-2,701	-2,541
Total trade receivables	38,289	32,220
Other receivables	9,200	10,574

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 (nil in 2018,1.9 million euros in 2017). 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. Fagron uses factoring. The factoring balance on 31 December 2018 amounted to 22.2 million euros.

	Carrying amount	Of which not overdue at year-end			Of which due at year-end
(x 1,000 euros)			Less than 30 days	Between 31 and 90 days	Between 91 and 150 days	More than 150 days
---	---	---	---	---	---	---
Trade receivables at 31 December 2018	38,289	24,311	9,799	3,189	618	372
Trade receivables at 31 December 2017	32,220	21,222	6,673	3,124	827	374

(x 1,000 euros)	Provision for impairment of receivables
Balance as of 1 January 2017	-2,496
Additions:
• Through business combinations	0
• Other	-429
Amounts used	192
Sale of operations	16
Other	176
Balance as of 31 December 2017	-2,541
Additions:
• Through business combinations	-191
• Other	-506
Amounts used	589
Sale of operations	0
Other	-51
Balance as of 31 December 2018	-2,701

There is no major depreciation on trade receivables that have not expired.

Cash and cash equivalents

(x 1,000 euros)	2018	2017
Investments with a maturity of less than three months	2,505	855
Cash and cash equivalents	75,074	59,916
Cash and cash equivalents	77,579	60,771

The increase in cash and cash equivalents is explained primarily by the positive cash flow from operations.

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). The authorised capital authorisation was not used during the 2018 financial year.

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. No treasury shares were bought back in 2018 (2017: nil). As of 31 December 2018, Fagron NV owned 103,627 treasury shares (2017: 103,627).

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 warrant plans in 2018 (2017: nil). The nominal number of shares on 31 December 2018 was 71,843,904 (2017: 71,843,904). The total number of outstanding shares on 31 December 2018 was 71,740,277 (2017: 71,740,277).

	2018		2017
Number of ordinary shares and the equity value thereof	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	507,670	71,844	507,670
Issue of shares in relation to capital increases	0	0	0	0
Issued shares as at 31 December	71,844	507,670	71,844	507,670
Treasury shares as at 31 December	104	18,823	104	18,823
Shares outstanding as at
31 December	71,740	488,847	71,740	488,847

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 of 31 December 2018 (2017: 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 and managers/consultants of Fagron NV and/or its subsidiaries, where this decision was ratified by resolution of the Extraordinary General Meeting of 1 July 2016 in the presence of Civil-law Notary, Liesbet Degroote, where it was resolved to issue 1,000,000 warrants. In 2016, there were 983,091 warrants granted at an exercise price of 7.38 euros.

On 13 April 2018, the Company's Board of Directors approved the Warrant Plan 2018 for employees and managers/consultants of Fagron NV and/or its subsidiaries, where this decision was ratified by resolution of the Extraordinary General Meeting of 14 May 2018 in the presence of Civil-law Notary, Liesbet Degroote, where it was resolved to issue 1,300,000 warrants. In 2018, there were 1,294,500 warrants granted at an exercise price of 13.94 euros and 5,500 warrants granted at an exercise price of 16.31 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 on grant date and are spread over the vesting period of the warrants. The costs are incorporated in other employee benefit expenses and amount to 1.0 million euros for the 2018 financial year and 1.0 million euros for the 2017 financial year.

A release of 0.6 million euros occurred in 2017 for expired warrants. The warrants are settled via equity instruments.

In 2018, no shares (2017: nil) were issued as a result of the exercise of warrants under the Warrant Plan 2014 or the Warrant Plan 2016. The number of Fagron shares with voting rights is currently 71,843,904 (2017: 71,843,904). The total number of voting rights (denominator) is currently 71,843,904 (2017: 71,843,904). The authorised capital amounts to 494,192,221.68 euros (2017: 494,192,221.68 euros).

The movements in the number of outstanding warrants under Warrant Plan 2014, Warrant Plan 2016, Warrant Plan 2018 and their related weighted average exercise prices are as follows:

	Average exercise price in euros	Number of warrants
Outstanding as at 1 January 2017	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
Granted	13.94	1,294,500
Granted	16.31	5,500
Forfeited	13.94	-14,500
Forfeited	39.37	-10,000
Outstanding as at 31 December 2018	17.67	2,080,500

The weighted average exercise price per share at year-end amounted to 17.67 euros in 2018 (2017: 23.87 euros). All warrants are equity settled plans.

As of 31 December 2018, the total number of warrants not yet exercised that could give cause to the issuance of the same number of Company shares amounted to 2,080,500. Their average exercise price amounts to 17.67 euros. Outstanding warrants at year-end have the following expiry dates and exercise prices:

Expiry date	Average exercise price in euros	Number of warrants
2019 - March (Warrant Plan 2014)	39.37	405,000
2019 - November (Warrant Plan 2016)	7.38	270,000
2020 - November (Warrant Plan 2016)	7.38	60,000
2021 - July (Warrant Plan 2016)	7.38	60,000
2021 - May (Warrant Plan 2018)	13.94	640,000
2021 - May (Warrant Plan 2018)	16.31	2,750
2022 - May (Warrant Plan 2018)	13.94	640,000
2022 - May (Warrant Plan 2018)	16.31	2,750
	17.67	2,080,500

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 2018.

During the financial years 2017 and 2018, the following number of options expired with their corresponding average exercise price:

	Average exercise price in euros	Number of stock options
Outstanding as at 1 January 2017	14.19	192,150
Forfeited	13.73	-187,500
Outstanding as at 31 December 2017	32.82	4,650
Outstanding as at 31 December 2018	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
2019 - April	32.82	3,488
2020 - April	32.82	1,163
	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.

Dividends

A dividend of 7.2 million euros was made payable in 2018 (2017: nil). A gross dividend of 0.12 euros per share will be proposed for 2018 at the Annual General Meeting of 13 May 2019, which represents a total dividend of 8.6 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 noncontrolling interest	Remeasurements of post-employment benefit obligations	Share-based payments	Total
Balance as of 1 January 2017	-195,967	-32,222	-377	-1,996	12,387	-218,174
Other comprehensive income	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 as of 31 December 2017	-195,967	-48,766	-377	-873	12,757	-233,226
Other comprehensive income	0	-11,647	0	-264	0	-11,911
Share-based payments	0	0	0	0	1,025	1,025
Change in non-controlling interest	0	27	0	0	0	27
Balance as of 31 December 2018	-195,967	-60,386	-377	-1,137	13,782	-244,085

22 Provisions

(x 1,000 euros)	Taxes	Disputes	Other	Total
Balance as of 1 January 2017	991	1,426	10,359	12,776
Additions:
• Through business combination	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 as of 31 December 2017	3,731	390	8,356	12,476
Additions:
• Through business combination	0	0	0	0
• Other	1,746	4	0	1,750
Amounts used	-3	-211	-369	-583
Release	0	0	-50	-50
Currency translation differences	-51	-23	240	166
Balance as of 31 December 2018	5,423	160	8,177	13,759

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 currently in discussion with the American government in order to reach a settlement. Despite the fact that these conversations occur, there is currently no certainty regarding the effective outcome of these discussions. Any settlement with the American government could have an important impact on the Fagron group's financial position.

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 the end of 2018, the provision is 7.3 million euros, which is our best estimate at the balance sheet date. It is expected that this provision will be used further in 2019. The same expectation applies for the other long-term provisions.

23 Pension obligations

Pension obligations and costs

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

(x 1,000 euros)	2018	2017
Defined benefit pension plans	4,229	3,880
Defined benefit pension plans	954	853
Pension obligations	5,183	4,733

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

In accordance with IAS19, defined benefit liabilities 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 liabilities.

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)	2018	2017
Present value of defined benefit obligations	20,218	20,725
Fair value of plan assets	-15,989	-16,845
Present value of net defined benefit obligations	4,229	3,880
Net liability arising from defined benefit obligations	4,229	3,880

Movements in the present value of the defined benefit liabilities 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 as of 1 January 2017	21,644	-16,739	4,905
Pension costs attributed to the year of service
Interest expense (income)	428	-330	98
Remeasurements:
• Return on plan assets (excluding interest income)	0	-261	-261
• Actuarial (gains)/losses arising from changes in demographic assumptions	0	0	0
• Actuarial (gains)/losses arising from changes in financial assumptions	-862	0	-862
• Actuarial differences as a result of adjustments in experience	0	0	0
Employer contributions
Plan contribution	-485	485	0
Balance as of 31 December 2017	20,725	-16,845	3,880
Pension costs attributed to the year of service
Interest expense (income)	449	-364	85
Remeasurements:
• Return on plan assets (excluding interest income)	0	827	827
• Actuarial (gains)/losses arising from changes in demographic assumptions	-203	0	-203
• Actuarial (gains)/losses arising from changes in financial assumptions	-209	0	-209
• Actuarial differences as a result of adjustments in experience	-151	0	-151
Employer contributions
Plan contribution	-393	393	0
Balance as of 31 December 2018	20,218	-15,989	4,229

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 2018	31 December 2017
Weighted average discount rate	2.20%	2.20%
Expected rate of salary increase	N/A	N/A
Expected rate of price inflation	N/A	N/A
Future rate of pension increases actives	1.75%	2.00%

The life expectancy is determined on the basis of the AG2018 Forecast Table.

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 2018	31 December 2017
Interest expense	85	98
Pension costs defined benefit plans recognised in the income statement	85	98
Remeasurement on the present value of unfunded liabilities:
Return on plan assets (excluding interest income)	827	-261
Actuarial (gains)/losses arising from changes in demographic assumptions	-203	0
Actuarial (gains)/losses arising from changes in financial assumptions	-209	-862
Actuarial differences as a result of adjustments in experience	-151	0
Pension costs defined benefit plans recognised in other comprehensive income	264	-1,123
Total defined benefit costs	349	-1,025

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 2018 are 0.1 million euros and only concern interest costs.

Sensitivity analysis

The sensitivity analysis shows the sensitivity of the defined benefit obligation on 31 December 2018 and the "Pension costs attributed to the year of service" compared to the principal actuarial assumptions.

The following table shows the defined benefit obligation on 31 December 2018 for each principal actuarial assumption compared to the corresponding amounts if the actuarial assumption of the relevant scenarios would be applied. Salary increases are not included in the sensitivity analysis.

	Base scenario	Increase in base scenario	Decrease in base scenario
Weighted average discount rate	2.20%	2.70%	1.70%
Defined benefit obligation	20,218	18,416	22,297
Inflation increase	1.75%	2.25%	1.25%
Defined benefit obligation	20,218	20,647	19,823
Life expectancy	+/- 0 year	+ 1 year	- 1 year
Defined benefit obligation	20,218	20,726	19,703

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 was established in 2015 as follows:

•	The employer must continue to guarantee a minimum return of 3.75% on employee contributions and 3.25% on 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 on the development of the average interest on 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 benefit contribution plans should therefore be classified 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 of 31 December 2018. Based on this estimation, it has been established that there are no substantive liabilities. The 2018 employer contribution for these Belgian pension plans amounts to 0.1 million euros (2017: 0.1 million euros). The employee contribution for 2018 is nil (2017: nil), the employee contribution was stopped in 2014. The total amount of the fund investments as of 31 December 2018 amounts to 1.0 million euros (2017: 1.0 million euros).

24 Financial debt and financial instruments

(x 1,000 euros)	2018	2017
Non-current
Financial lease liabilities	35	74
Bank borrowings	265,682	283,344
Other borrowings	201	100
Total non-current	265,917	283,518
Current
Financial lease liabilities	66	65
Bank borrowings	63,889	13,386
Total current	63,955	13,450
Total financial debts	329,872	296,968

	2018		2017
(x 1,000 euros)	Financial leases	Bank borrowings	Financial leases	Bank borrowings
---	---	---	---	---
Non-current borrowings by term
More than 1 year but less than 5 years	35	261,558	74	282,113
More than 5 years	0	2,163	0	1,331
Total non-current borrowings	35	265,883	74	283,444

		Cash flow	Non-cash change
(x 1,000 euros)	2017	from financing activities	Acquisitions	Exchange rates	2018
---	---	---	---	---	---
Non-current
borrowings	283,518	-21,933	0	4,333	265,917
Current borrowings	13,450	49,267	0	1,238	63,955
Total borrowings	296,968	27,334	0	5,570	329,872

a. Bank borrowings and financial instruments

The book value of the bank borrowings is expressed in euros. The effective interest rate on the balance sheet date on 31 December 2018 was 2.80% (2017: 3.32%).

The increase in the loans (in total) is due to higher drawdowns on the multicurrency facility. The decrease in long-term loans is due to a shift from private USPP loans to current liabilities.

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 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. In August 2018, the size of the facility increased further from 220 million euros to 245 million euros.

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 EBlTDA/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 decreases with every six-month test period until 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. At the end of 2018, the original financial covenants will again be in force. In addition, the total EBITDA, calculated as being the result before interest, taxes, depreciation and impairment of the guarantors should be at least 70 percent of the consolidated EBITDA of the total Group.

Financial covenants credit facilities

	Financial covenants
Test period	Net financial debt/REBITDA	REBITDA/ net interest expenses
---	---	---
After 30 June 2018	Max. 3.25x	Min. 4.00x

In 2018, the interest risk relating to 42.5 million dollars of the loans has been hedged with 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 term to maturity of the financial derivatives runs until March 2021.

The fair value of financial derivatives at the end of 2018 was -0.1 million euros (2017: nil). In 2018, the financial instruments relating to the hedging of the interest risk 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	Freedom Pharmaceuticals Inc.
Arseus Belgie NV	Galfarm Sp. Z.o.o,
B&B Pharmaceuticals Inc.	Infinity Pharma BV
Fagron Belgie NV	Pharma Cosmetic K,M, Adamowicz Sp. Z.o.o.
Fagron GmbH & Co KG	Pharmaline BV
Fagron Inc.	SM Empreendimentos Farmaceuticos Ltda
Fagron Nederland BV	Spruyt hillen BV
Fagron 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)	2018	2017
Acquisition value - leasing and similar rights	316	322
Accumulated depreciation	-179	-131
Net amount of assets in leasing	137	192

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)	2018	2017
Machinery and installations	122	124
Furniture and vehicles	14	68
Net amount of assets in leasing	137	192

Financial lease liabilities - minimum lease payments:

(x 1,000 euros)	2018	2017
Within 1 year	72	71
More than 1 year but less than 5 years	43	93
Total	115	164
Future financing costs on financial leases	14	25
Present value of future financial leases	101	139

c. Operating leases

Operating lease liabilities - minimum lease payments:

(x 1,000 euros)	2018	2017
Within 1 year	7,824	7,423
More than 1 year but less than 5 years	23,657	22,666
More than 5 years	11,446	8,478
Total	42,928	38,567

Most of the lease agreements relate to buildings in the United States and Benelux. The increase in the operational leases in 2018 is caused by the acquisition of Humco.

25 Trade payables

(x 1,000 euros)	2018	2017
Trade payables	62,701	58,205
Investment payables	1,217	745
Total trade payables	63,918	58,950

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 be explained, in particular, by the acquisition of Humco.

26 Other current payables

(x 1,000 euros)	2018	2017
Prepayments	77	11
Other payables	22,995	2,763
Accrued expenses	5,467	5,899
Other current payables	28,538	8,673

The other debts relate to amounts still to be paid for existing participations (subsequent payments) for 20.0 million euros (2017: 1.0 million euros). This explains the increase compared to 2017.

The accrued expenses include an amount of 1.9 million euros (2017: 2.1 million euros) related to interest still to be paid. The remainder of this item concerns various accruals and deferrals.

The debts generally have due dates that are close to each other. The reported values approximate their fair values.

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 Goias. 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 PLN 4 million was issued for the February 2017 period. Fagron objected to the imposed assessment, which was rejected in January 2019. Fagron appealed to the administrative court in February 2019 against this pronouncement. An assessment of 3.6 million PLN was imposed at the other company. Fagron will object to the imposed assessment.

Fagron received a tax assessment of 15.4 million euros in July 2018 regarding the amortisation of goodwill due to mergers in Brazil. We are disputing this assessment. Fagron objected to the imposed assessment and has not made any provision in this regard.

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, is shown below for the financial years 2018 and 2017:

(x 1,000 euros)	Fixed remuneration component	Variable remuneration component	Other remuneration components1
2017 financial year
Hans Stols, CEO until 24 November 2017	550	0	33
Rafael Padilla, CEO as from 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
2018 financial year
Rafael Padilla, CEO	458	270	14
Executive Committee, including the CEO	968	369	75
Non-executive members of the Board of Directors	369	0	0

1 Includes costs for pensions, Insurance and the cash value of the other benefits In kind.

The variable remuneration component regards the bonus realised over 2018 that is paid out in 2019. 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 2018, there were 400,000 warrants and no stock options granted to the members of the Executive Committee, in the composition in effect on 31 December 2018. Mr Padilla and the other members of the Executive Committee did not exercise any stock options or warrants in 2018. None of the stock options and warrants owned by Mr Padilla and the other members of the Executive Committee expired in 2018. The members of the Executive Committee, in the composition in effect on 31 December 2018, together hold 840,000 stock options and warrants.

29 Business combinations

Fagron completed one acquisition in the 2018 financial year. Fagron announced the acquisition of Humco at the beginning of April 2018. Humco is a leading developer, manufacturer and supplier of patented vehicles (means of administering) and pharmaceutical brand products to more than 45,000 pharmacies in the United States (US).

Fair value of the acquired Humco assets and liabilities

The acquisitions were paid with approximately 57.6 million euros of cash and cash equivalents, representing an increase in goodwill of 44.4 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	6,632
Property, plant and equipment	993
Deferred tax assets	160
Inventories	4,626
Trade receivables	3,137
Other receivables	293
Cash and cash equivalents	996
Total assets	16,837
Trade payables	2,153
Other current payables	1,483
Total liabilities	3,636
Net acquired assets	13,201
Goodwill	44,410
Total acquisition amount	57,611

Humco was included in the consolidated figures as of April 2018. The fair value of the acquired assets and liabilities has been provisionally determined for the activity acquired in 2018. 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 property, plant and equipment, deferred taxes and working capital may still change when the acquired assets and liabilities have been definitively determined. Currently, we do not expect any substantial changes in the acquired assets and liabilities.

Fair value of the acquired assets and liabilities of other companies

The limited activities acquired in 2017 in Brazil and Croatia were paid with approximately 7.6 million euros of cash and cash equivalents, representing an increase in goodwill of 4.7 million euros. The goodwill is expected to not be tax-deductible. The final fair value of the acquired assets and liabilities is detailed below.

(x 1,000 euros)	2018	2017
Intangible fixed assets	19	19
Property, plant and equipment	2,913	2,894
Other non-current assets	10	10
Deferred tax assets	13	13
Inventories	1,323	1,323
Trade receivables	1,472	1,472
Other receivables	558	558
Cash and cash equivalents	293	293
Total assets	6,602	6,584
Borrowings	1,653	1,653
Trade payables	1,096	1,083
Other current payables	942	942
Total liabilities	3,691	3,678
Net acquired assets	2,912	2,906
Goodwill	4,732	4,738
Total acquisition amount	7,644	7,644

The final determination of the fair value of assets and liabilities acquired through the minor acquisitions in 2017 mentioned earlier did not result in any adjustment of goodwill.

At the end of the year, the Group had an amount of approximately 20.0 million euros in liabilities outstanding to former shareholders, which were determined on the basis of business plans at the time of acquisition, see also Note 26.

The increase compared to 2017 is due primarily to the acquisition of Humco in the United States.

The retrospective payments for business combinations relate to Brazil, Croatia and the United States. It is expected that these will be paid in 2019 and 2020.

The retrospective payments for business combinations range from 0 euros to a maximum of 20.0 million euros. The retrospective payments are valued at fair value at the moment of acquisition. This is estimated based on the maximum compensation if the conditions are met. The current expectation is that the remunerations will be paid on the expiration dates.

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

The Company's Statutory Auditor is PricewaterhouseCoopers Bedrijfsrevisoren CVBA, represented by Mr Peter Van den Eynde.

(x 1,000 euros)	2018	2017
Audit fee for the Group audit
Fagron Group	476	450
Audit fee for PricewaterhouseCoopers Bedrijfsrevisoren	287	263
Audit fee for parties linked to PricewaterhouseCoopers
Bedrijfsrevisoren	189	187
Remuneration for additional services rendered by the
Statutory Auditor to Fagron
Other audit assignments	13	5
Other non-auditing assignments	8	3
Remuneration for additional services rendered by parties
linked to the Statutory Auditor
Tax advisory assignments	48	33
Other non-auditing assignments	108	35

The other audit assignments outside of the strictly financial auditing work in 2017 relate primarily to special reports in the context of the compliance certificate, guarantor coverage schedule and EMIR. In 2018, these relate to reports in the context of due diligence work.

31 Significant events after the balance sheet date

No significant events occurred after the balance sheet date.

32 Additional notes

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

HL Technology SA has a current liability in the amount of 1.7 million euros (1.9 million Swiss francs), the initial mortgage loan amounts to 2.0 million Swiss francs. Fagron Services BV has a liability in the amount of 0.5 million euros, the initial mortgage loan amounts to 2.0 million euros. The Group does not have any material liabilities to purchase fixed assets at the moment.

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

	Fagron Brazil Holding BV Fagron BV
	Fagron Nederland BV Fagron Services BV
	Fagron Steriele Bereidingsapotheek BV
	Infinity Pharma BV
	Fagron Holding NL 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 Sâo 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%
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.	8591 Prairie Trail Drive, 80112 Englewood, Colorado (United States)	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%
Dynaceuticals Ltd	55 14th Avenue, Northcliff, Gauteng (South Africa)	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 Belgium 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 Canada Inc.	1 Place Ville-Marie, Porte 1300, H3B 0E6, Montréal, Quebec (Canada)	100.0%
Fagron Colombia SAS	Calle 90 19A-49 Bogota (Colombia)	100.0%
Fagron Compounding Services LLC	8710 E. 34th St. N., 67226 Wichita, Kansas (United States)	100.0%
Fagron Compounding Services NV	Woestijnstraat 53,2880 Bornem (Belgium)	100.0%
Fagron Compounding Supplies Australia Pty Ltd	Atkinson Road 2/16, Taren Point, 2229 Sydney (Australia)	100.0%
Fagron Essentials Holding LLC	2400 Pilot Knob Road, 55120 St. Paul, Minnesota (United States)	100.0%
Fagron Genomics S.L.U.	Carrer de Josep Tapiolas 150,08226 Terrassa (Spain)	100.0%
Fagron GmbH & Co KG	Von-Bronsart-StraBe 12,22885 Barsbüttel (Germany)	100.0%
Fagron Hellas A.B.E.E.	12km NR, 42100 Trikala-Larissa (Greece)	100.0%
Fagron Hrvatska d.o.o.	Donjozelinska ul. 114,10382 Donja Zeline (Croatia)	100.0%
Fagron Holding NL BV	Lichtenauerlaan 182,3062 ME Rotterdam (The Netherlands)	100.0%
Fagron Holding USA LLC	2400 Pilot Knob Road, 55120 St. Paul, Minnesota (United States)	100.0%
Fagron Iberica 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 Italia 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)	73.1%
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 Sarl	Intendente Neyer 924, B1643 Beccar (Argentina)	100.0%
Fagron SAS	37 Rue Helene Muller, 94320 Thiais (France)	100.0%
Fagron Services Brazil Ltda	Via Primaria 5D, Daia, 75132-120 Anapolis (Brazil)	100.0%
Fagron Services BV	Molenwerf 13,1911 DB Uitgeest (The Netherlands)	100.0%
Fagron SH Ltd	2315 Ocean Tower, 550 Yan An East Road, 200001 Shanghai, (China)	100.0%
Fagron South Africa Ltd	55 14th Avenue, Northcliff, Gauteng (South Africa)	100.0%
Fagron Sp. z o.o	Ul. Pasternik 26,31354 Krakau (Poland)	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%
Fagron Verwaltungsgesellschaft mbH	Von-Bronsart-StraBe 12,22885 Barsbüttel (Germany)	100.0%
Florien Fitoativos 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%
Galfarm Sp. z.o.o.	Ul. Przemystowa, 12,30701 Krakow (Poland)	100.0%
HL Technology SA	Rue Jardiniere 153,2300 La Chaux-de-Fonds (Switzerland)	100.0%
Humco Holding Group Inc.	201 W. 5th Street, 12th floor, 78701 Austin, Texas (United States)	100.0%
Humco Qsub 1 Inc.	7400 Alumax Drive, 75501 Texarkana, Texas (United States)	100.0%
Infinity Pharma BV	Steenovenweg 15,5708 HN Helmond (The Netherlands)	100.0%
JCB Laboratories LLC	7335 W. 33rd Street. North, 67205 Wichita, Kansas (United States)	100.0%
Jupiter Health Holding LLC	Millwell Drive 212, Maryland Heights, 63043 Missouri (United States)	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-Kem 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%
Pharma Assist BV	Dieselstraat 3,7903 AR Hoogeveen (The Netherlands)	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%
Pierson Laboratories Inc.	7400 Alumax Drive, 75501 Texarkana, Texas (United States)	100.0%
PSI Services Inc.	Millwell Drive 212, Maryland Heights, 63043 Missouri (United States)	100.0%
Rausa Kern Pharmacy Ltd	Clarendon Street 61, Parow Valley, 7500 Kaapstad (South Africa)	100.0%
SM Empreendimentos Farmaceuticos Ltda	Rua Olimpiadas 66,7th floor - Vila Olimpia, 04555-010 Sâo 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	Millwell 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 to the General Shareholders' Meeting on the consolidated accounts for the year ended 31 december 2018

of the company Fagron NV

We present to you our statutory auditor's report in the context of our statutory audit of the consolidated accounts of Fagron NV (the "Company") and its subsidiaries (jointly "the Group"). This report includes our report on the consolidated accounts, as well as the other legal and regulatory requirements.

This forms part of an integrated whole and is indivisible.

We have been appointed as statutory auditor by the general meeting d.d. 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 annual accounts for the year ended 31 December 2018. We have performed the statutory audit of the consolidated accounts of Fagron NV for 12 consecutive years.

Report on the consolidated accounts

Unqualified opinion

We have performed the statutory audit of the Group's consolidated accounts, which comprise the consolidated statement of financial position as at 31 December 2018, the consolidated income statement and statement of comprehensive income, 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 682.8 million and a profit for the year of EUR 42.5 million.

In our opinion, the consolidated accounts give a true and fair view of the Group's net equity and consolidated financial position as at 31 December 2018, 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 unqualified opinion

We conducted our audit in accordance with International Standards on Auditing (ISAs) as applicable in Belgium. Furthermore, we have applied the International Standards on Auditing (ISAs) as approved by the IAASB for the years ending as from 31 December 2018, which are not yet approved at the national level.

Our responsibilities under those standards are further described in the "Statutory auditor's responsibilities for the audit of the consolidated accounts" 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 accounts 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 accounts of the current period. These matters were addressed in the context of our audit of the consolidated accounts as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

Litigation and claims - note 22

Key audit matter

Fagron holds provisions for an amount of EUR 13.8 million, among others in respect of the ongoing US government investigation and legal proceedings. 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 the 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. We draw your attention to Note 22 (Provisions) of the consolidated financial statements in which management describes the state of affairs regarding a possible outcome of the discussions aiming for a settlement in the ongoing investigation.

Any settlement with the US government could have an important impact on the Fagron Group's financial position.

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

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

Key audit matter

As per 31 December 2018, the amount of goodwill and other intangible fixed assets amounts to EUR 391.4 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 future results.

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 US Essentials and Trademarks cash generating unit, which has a goodwill carrying value of EUR 76.3 million. The 2018 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.

Responsibilities of the board of directors for the preparation of the consolidated accounts

The board of directors is responsible for the preparation of consolidated accounts 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 accounts that are free from material misstatement, whether due to fraud or error.

In preparing the consolidated accounts, 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 intends 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 accounts

Our objectives are to obtain reasonable assurance about whether the consolidated accounts as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with 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 accounts.

In performing our audit, we comply with the legal, regulatory and normative framework applicable to the audit of the consolidated accounts in Belgium.

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

•	Identify and assess the risks of material misstatement of the consolidated accounts, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
•	Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group's internal control.
•	Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the 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 accounts or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our 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 accounts, including the disclosures, and whether the consolidated accounts 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 board of directors and the audit committee 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 board of directors and the audit committee 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 board of directors and the audit committee, we determine those matters that were of most significance in the audit of the consolidated accounts 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.

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 accounts, 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 in 2018) 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 accounts, the separate report on non-financial information and the other information included in the annual report and to report on these matters.

Aspects related to the directors' report on the consolidated accounts 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 accounts, this report is consistent with the consolidated accounts 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 accounts, we are also responsible for considering, in particular based on the knowledge acquired resulting from the audit, whether the directors' report on the consolidated accounts and the other information included in the annual report on the consolidated accounts 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.

The non-financial information required by virtue of article 119, §2 of the Companies' Code is included in the directors' report on the consolidated accounts.

The Company has prepared the non-financial information without the use of a recognized reference framework.

Statement related to independence

•	Our registered audit firm and our network did not provide services which are incompatible with the statutory audit of the consolidated accounts, and our registered audit firm remained independent of the Group in the course of our mandate.
•	The fees for additional services which are compatible with the statutory audit of the consolidated accounts referred to in article 134 of the Companies' Code are correctly disclosed and itemized in the notes to the consolidated accounts.

Other statements

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

Antwerp, 12 April 2019

*The statutory auditor

PwC Bedrijfsrevisoren CVBA*

Represented by

Peter Van den Eynde, Réviseur d'Entreprises/Bedrijfsrevisor

Condensed stand-alone income statement

Fagron NV

(x 1,000 euros)	2018	2017
Operating income	5,611	4,133
Turnover	0	0
Other operating income	5,611	3,833
Non-recurring operating income	0	300
Operating expenses	6,355	4,807
Trade goods, raw and auxiliary materials	0	0
Services and other goods	3,264	3,240
Employee benefit expenses	3,012	571
Depreciation and amortisation	12	28
Provisions for risks and costs	-8	-8
Other operating expenses	1	3
Non-recurring operating expenses	74	972
Operating result	-744	-674
Financial result	15,862	1,770
Recurring financial result	15,862	1,770
Non-recurring financial result	0	0
Profit for the financial year before taxes	15,118	1,095
Tax on the result	0	1
Net result for the financial year	15,118	1,094

Condensed stand-alone balance sheet

Fagron NV

(x 1,000 euros)	2018	2017
Non-current assets	498,076	423,407
Formation expenses	0	0
Intangible fixed assets	4	16
Property, plant and equipment	0	0
Financial fixed assets	498,072	423,391
Current assets	225,129	503,960
Debtors due after one year	0	0
Inventories and orders in progress	0	0
Debtors due within one year	194,161	470,392
Investments	1,480	1,183
Cash and cash equivalents	28,264	31,396
Other receivables	1,224	990
Total assets	723,205	927,367
Equity	503,178	496,681
Capital	494,192	494,192
Share premiums	0	0
Legal reserves	1,124	368
Unavailable reserves	1,480	1,183
Available reserves	6,382	938
Profit carried forward	0	0
Provisions and deferred tax	5	13
Provision for other risks	5	13
Liabilities	220,022	430,673
Creditors due after one year	52,402	86,706
Creditors due within one year	166,365	341,592
Other current payables	1,255	2,375
Total liabilities	723,205	927,367

Appropriation of profits

Fagron NV

(x 1,000 euros)	2018	2017
Profit to be appropriated	15,118	1,094
Profit for the year to be appropriated	15,118	1,094
Profit carried forward from the previous year	0	0
Transfers from capital and reserves	0	6,145
From the capital and share premiums	0	0
From the reserves	0	6,145
Addition to capital and reserves	6,497	55
To the legal reserves	756	55
To the other reserves	5,741	0
Profit to be carried forward	0	0
Profit to be carried forward	0	0
Profit to be distributed as dividends	8,621	7,184
Dividend	8,621	7,184

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 on the Fagron NV statutory financial statements for the 2018 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 profit	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', Proft (loss) from operating activities plus depreciations and amortisations, including write-downs on inventories and receivables
Financial result	Net financing costs, balance of financing income and financing costs
Net operational capex	Net capital expenditures, intangible assets and property, plant and equipment (excluding acquisitions) that have been acquired and manufactured, 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 this annual report, the latter prevails.

Report of the Board of Directors on the consolidated financial statements

Consolidated income statement

Fagron's total turnover in 2018 was 471.679 million euros, an increase of 8.8% compared to 433.529 million euros in 2017. The turnover growth was carried by all of the regions where Fagron is active.

Fagron Europe (including RoW)

The Europe segment turnover increased by 1.8% in 2018 (+1.7% at constant exchange rates) to 250.086 million euros. Corrected for the acquisition of Kemig (Croatia) and the divestment of the compounding facility in Paris (France), the organic turnover growth was 2.7% (+2.7% at constant exchange rates). In the second half of 2018, organic turnover growth at constant exchange rates was 3.5%, compared to 1.9% in the first half of 2018. The REBITDA amounted to 63.313 million euros. REBITDA as a percentage of the turnover decreased by 50 basis points to 25.3%.

In 2018, the organic turnover growth and profitability of the Europe segment was held back by the decision to temporarily reduce the capacity at one of the sterile compounding facilities in the Netherlands in order to be able to invest in further improving the quality of the facility and the processes. As a result, the negative impact on the turnover in 2018 was 4.0 million euros. The compounding facility is expected to be fully operational again in the course of the second half of 2019.

The focus on Brands has led to strong turnover growth in this segment in 2018. Almost 11% of the turnover in Europe in 2018 was realised with Brands, compared to 8.4% in 2017.

Essentials showed healthy organic growth in 2018. The decline in Compounding Services turnover was the result of the temporary reduction in capacity at the compounding facility in the Netherlands, the sale of a compounding facility in France in July 2017 and the strategic decision to register a limited number of non-sterile compounds in the Netherlands (Premium Pharmaceuticals).

Fagron South America

The South America segment turnover increased in 2018 by 16.6% at constant exchange rates. The organic turnover growth was 12.7% at constant exchange rates. This growth in turnover was mainly driven by the strong growth of the compounding market in Brazil, good product availability and the focus on the development and introduction of innovative and distinctive Brands. However, the further weakening of the Brazilian real has had a negative impact on the reported turnover (in euros). Turnover decreased by 2.2% to 100.930 million euros.

In the fourth quarter of 2018, the Compounding Services activities in Colombia continued the strong growth of the third quarter. This turnover growth was 14.4% in 2018 at constant exchange rates. The strong growth in turnover in Colombia gives us an increasingly clear picture of the very interesting compounding market in Central America, which offers opportunities for further growth.

The REBITDA decreased by 3.4% to 20.107 million euros. The REBITDA as a percentage of the turnover decreased by 30 basis points to 19.9%.

Fagron North America

The North America segment turnover increased by 45.9% in 2018 (+52.7% at constant exchange rates) to 113.488 million euros. Adjusted for the acquisition of Humco, the organic turnover growth was 19.5% (+25.1% at constant exchange rates). The REBITDA increased by 29.5% to 14.847 million euros. The REBITDA margin decreased by 160 basis points to 13.1% compared to 2017. This margin decrease was the result of the growth in the workforce at the sterile compounding operations in Wichita in order to be able to accelerate the expansion of the sterile compounding offerings.

The Fagron (Compounding Services) sterile activities in the United States performed in line with expectations, realising a 24.2% growth in turnover in 2018 (+30.0% at constant exchange rates). In the second half of 2018, the turnover increased at constant exchange rates by 32.6%, a clear acceleration compared to 27.5% in the first half of 2018. The turnover growth of the sterile compounding facilities in Wichita was 65.2% (+72.8% at constant exchange rates) in 2018, on track for realising the turnover target.

The strong growth in Wichita was driven by the further expansion of the product range and the increase in the number of customers.

The sales of Brands and Essentials increased by 112.3% in 2018 (+122.1% at constant exchange rates) compared to 2017. The organic growth, excluding the Humco acquisition in April 2018, amounted to 5.7% (+10.6% at constant exchange rates). The integration of Humco is on track.

HL Technology

The HL Technology segment turnover increased by 5.5% in 2018 (+9.7% at constant exchange rates) to 7.174 million euros. The REBITDA increased 0.641 million euros to 0.791 million euros.

The consolidated gross margin (the difference between turnover on the one hand and trade goods on the other) amounted to 290.735 million euros in 2018. This represents 61.6% of the turnover compared to a gross margin of 61.5% in 2017.

The total operational costs, defined as services and various goods, personnel costs and other operational costs minus other operating income, were 197.379 million euros, an increase of 13.7% compared to 2017. The cost coverage, defined as operational costs versus gross margin, was 68.0% in 2018.

Depreciation and amortisation increased by 11.5% from 17.550 million euros in 2017 to 19.575 million euros in 2018.

The operating profit amounted to 73.472 million euros in 2018, a decrease of 1.5% or 1.135 million euros compared to 2017.

The financial result amounted to -18.636 million euros, which is at the same level as in 2017.

The result before taxes amounted to 54.835 million euros, a decrease of 1.130 million euros compared to 2017. The effective tax rate as a percentage of the profit before taxes was 21.1% in 2018 compared to 15.9% in 2017. Taxes increased in 2018 to 11.553 million euros compared to 8.918 million euros in 2017.

The net result is 42.905 million euros, a decrease of 4.142 million euros or 8.8% compared to 2017.

Consolidated statement of financial position

The consolidated balance sheet total increased by 14.9% from 594.047 million euros in 2017 to 682.772 million euros in 2018.

Assets

Total non-current assets were 483.046 million euros, an increase of 55.429 million euros compared to 2017.

Intangible fixed assets increased by 46.893 million euros to 391.388 million euros. This increase was mainly caused by the recognition of goodwill as a result of the acquisition of Humco in the United States.

Property, plant and equipment increased by 3.904 million euros to 73.439 million euros.

The net operational capex amounted to 15.694 million euros or 3.3% of the turnover in 2018. The net operational capex consist primarily of investments in facilities in the United States and Brazil and automation of logistics processes and software implementations. In addition, approximately 1.5 million euros were invested in the start-up of Fagron Genomics and in a Dutch sterile compounding facility in order to further improve the quality of the facility and the processes.

The financial fixed assets, consisting of financial fixed assets and other fixed assets available for sale, amounted to 2.158 million euros in 2018, a decrease of 0.074 million euros compared to 2017.

Deferred tax assets represented a value of 16.061 million euros.

The total current assets amount to 199.726 million euros in 2018 compared to 166.430 million euros in 2017, an increase of 33.296 million euros. Inventories increased by 11.793 million euros, trade receivables increased by 6.069 million euros, the other receivables were 1.374 million euros less, while cash and cash equivalents increased by 16.808 million euros.

Equity and liabilities

Total equity amounted to 209.716 million euros. This is an increase of 24.835 million euros compared to 2017. This increase was caused by the 2018 result (30.994 million euros), the dividend made payable (7.184 million euros) and share-based payments (1.025 million euros).

Total liabilities increased from 409.166 million euros in 2017 to 473.056 million euros in 2018. This is an increase of 63.890 million euros.

Provisions increased by 1.283 million euros to 13.759 million euros.

Pension obligations in 2018 were 5.183 million euros, an increase of 0.450 million euros compared to 2017.

Deferred tax liabilities relate to, among other things, temporary differences between reporting and tax accounting at the local entities. These amounted to 0.259 million euros in 2018 compared to 0.198 million euros in 2017.

Non-current interest-bearing financial liabilities (long-term borrowings) amounted to 265.917 million euros in 2018, a decrease of 17.601 million euros compared to 2017. Current interest-bearing financial liabilities (short-term loans) amounted to 63.955 million euros in 2018, an increase of 50.505 million euros compared to 2017.

At 31 December 2018, the net financial debt (total current and non-current interest-bearing financial liabilities plus other long-term liabilities less cash and cash equivalents) amounted to 252.294 million euros, compared to 236.197 million euros at end of year 2017.

The short-term trade payables were 4.968 million euros higher than in 2017 and amounted to 63.918 million euros.

Current tax on profit, remuneration and social security amounted to 31.395 million euros, an increase of 4.227 million euros compared to 2017.

Other (current) debt amounted to 28.538 million euros in 2018 compared to 8.673 million euros in 2017.

Consolidated cash flow statement

The consolidated cash flow statement begins with the result before taxes of 54.458 million euros.

This amount is decreased by the outgoing cash flows before taxes of 11.928 million euros. Subsequently, the elements from operating activities not having a cash flow effect or not directly related to operating activities are reintroduced. This was a total of 38.473 million euros. This amount is made up of depreciations and impairments on tangible and intangible non-current assets, interest paid and changes in provisions and deferred taxes. The changes in working capital are then adjusted in the cash flow statement (a negative effect of 7.727 million euros). The total cash flow from operating activities amounted to 73.278 million euros, a decrease of 13.0% compared to 84.247 million euros in 2017.

Total cash flows from investment activities produced an outflow of 54.611 million euros related to net investments of 15.694 million euros and payments for existing (subsequent payments) and new holdings of 38.917 million euros.

The total of cash flows from financing activities represented an inflow of 1.789 million euros. The recognised financing resulted in an inflow of 71.624 million euros. The outgoing cash flows consisted of the payment of interest on loans and other financial elements such as financial discounts of 18.371 million euros, the payment of the dividend (7.174 million euros) and the repayment on loans of 44.290 million euros.

In total, the cash and cash equivalents increased in 2018 by 20.456 million euros: from 60.771 million euros at the start of the period to 77.579 million euros at the end of the period.

The difference of 3.648 million euros between the changes in cash and cash equivalents of 77.579 million euros and the increase in cash and cash equivalents of 16.808 million euros was caused by currency translation differences.

Significant events after balance sheet date

For significant events after the balance sheet date, see Note 31 as included in the Notes to the consolidated financial statements.

Description of risk management

See Note 3 as included in the Notes to the consolidated financial statements.

Non-financial information

The non-financial information is included in the chapter "Non-financial information and information regarding diversity".