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Mr. JOSÉ MARÍA FERNÁNDEZ SOUSA-FAROChairman
Mr. PEDRO FERNÁNDEZ PUENTESVice-Chairman
Mr. SANTIAGO FERNÁNDEZ PUENTESDirector
ROSP CORUNNA PARTICIPACIONES EMPRESARIALES, S.L.(Represented by Mr. JOSÉ LEYTE VERDEJO)
Director
JEFPO, S.L.(Represented by Mr. JOSÉ FÉLIX PÉREZ-ORIVE CARCELLER)
Director
EDUARDO SERRA Y ASOCIADOS, S.L.(Represented by Mr. EDUARDO SERRA REXACH)
Director
Mr. JOSÉ ANTONIO URQUIZU ITURRARTEDirector
Mr. JOSEBA AURREKOETXEA BERGARADirector
Mr. JAIME ZURITA SÁENZ DE NAVARRETEDirector
Mr. CARLOS SOLCHAGA CATALÁNDirector
Mr. JOSÉ MARÍA BERGARECHE BUSQUETDirector
Ms. MONSERRAT ANDRADE DETRELLDirector
5
Mr. JOSÉ MARÍA FERNÁNDEZ SOUSA-FAROChairman
Mr. PEDRO FERNÁNDEZ PUENTESVice-Chairman
Mr. SANTIAGO FERNÁNDEZ PUENTESDirector
ROSP CORUNNA PARTICIPACIONES EMPRESARIALES, S.L.(Represented by Mr. JOSÉ LEYTE VERDEJO)
Director
JEFPO, S.L.(Represented by Mr. JOSÉ FÉLIX PÉREZ-ORIVE CARCELLER)
Director
EDUARDO SERRA Y ASOCIADOS, S.L.(Represented by Mr. EDUARDO SERRA REXACH)
Director
Mr. JOSÉ ANTONIO URQUIZU ITURRARTEDirector
Mr. JOSEBA AURREKOETXEA BERGARADirector
Mr. JAIME ZURITA SÁENZ DE NAVARRETEDirector
Mr. CARLOS SOLCHAGA CATALÁNDirector
Mr. JOSÉ MARÍA BERGARECHE BUSQUETDirector
Ms. MONSERRAT ANDRADE DETRELLDirector
**
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Committees
EXECUTIVE AUDITREMUNERATION
AND APPOINTMENTS
** Chairman of the Committee * Member of the Committee
6
Consolidated Information
The EBITDA figure for 2011 and 2012 was adjusted by excluding operations that were discontinued in 2012.
NET SALES 123.4 153.5 152.5 138.2 141.8 149.7
TOTAL REVENUES 143.6 161.2 178.4 161.7 164.5 178.1
EBITDA (15.4) (3.9) 29.6 20.4 23.8 25.7
NET ATTRIBUTABLE INCOME (25.9) (7.4) 4.7 6.6 11.3 13.1
R&D EXPENDITURE 53.3 55.7 56.7 40.4 42.7 52.5
AVERAGE WORKFORCE 686 697 668 640 628 665
20102009 2012 20142011 2013(Millon euro)
2014 Milestones
Corporate
Total Group revenues (sales plus other revenues) •increased by 8% year-on-year, to 178 million euro.
Group net sales amounted to 149.7 million euro •(+5.5%). Yondelis® accounted for 76.8 million euro (+5.3%). Sales by the Consumer Chemicals segment amounted to 66.6 million euro, 7.6% more than in 2013.
Other revenues, mainly from licensing contracts •and royalties, amounted to 28 million euro in 2014 (+5.5 million euro).
EBITDA improved by 8%, to 25.7 million euro in •2014, compared with 23.8 million euro in 2013.The Oncology area was the main contributor to this growth, accounting for 34.6 million euro of consolidated EBITDA.
The Group generated operating cash flow of 22.1 •million euro in 2014 (20.7 million euro in 2013).
Net attributable profit increased by 16% to 13.1 •million euro.
Net debt declined by 15% with respect to 2013, •from 64.6 million euro to 54.7 million euro in 2014. The Group's net debt/EBITDA ratio was 2.1 at 31 December 2014.
On 1 December 2014, the Board of Directors of •Zeltia, S.A. approved a strategy to merge Zeltia, S.A. with its wholly-owned subsidiary Pharma Mar, S.A. The merger between Zeltia, S.A. and Pharma Mar, S.A. would be the first phase of a strategy approved by the Board, the goal of which is to directly list the Group's oncology business and to enhance flexibility to potentially undertake cor-porate transactions, such as a listing in the US, in the second phase of the strategy approved by the Board of Directors.
On 26 February 2015, the Board of Directors of •Zeltia, S.A. resolved to commence the legal pa-perwork for the merger process whereby Pharma Mar, S.A. would absorb Zeltia, S.A., which will be submitted to the Shareholders' Meeting for ap-proval.
7
Business
Oncology
PharmaMar partner Janssen Research &•Development fi led an application with the US Food and Drug Administration (FDA) to register Yondelis® for the treatment of all types of advanced soft tissue sarcoma. In February 2015, the FDA granted priority review status to that application.
PharmaMar and Chugai Pharma Marketing •signed a licensing and marketing agreement for Aplidin® in July.
PharmaMar partner Taiho Pharmaceuticals fi led •an application with the Japanese regulator (PMDA) for marketing authorisation for the treat-ment of several soft tissue sarcoma subtypes. The Japanese authorities also granted priority review status to the application.
Taiho Pharmaceuticals had previously reported •positive results from the pivotal registration trial in Japan with Yondelis® in soft tissue sarcoma at the American Society of Clinical Oncology (ASCO) Annual Meeting. Those results were the basis for the application for marketing authorisation fi led with the Japanese authorities.
PharmaMar Italia signed an agreement with GP •Pharm, S.A. for the exclusive distribution in Italy of the drug Politrate® for prostate cancer.
With regard to PM1183, overall survival data •from a Phase IIb trial in platinum-resistant ovarian cancer was presented at ASCO. A 67% response rate was reported in second-line treatment of pa-tients with small cell lung cancer.
Diagnostics
The CLART• ® CMA NRAS kit to diagnose relevant mu-tations in metastatic colon cancer was launched.
Implementation of a new business line: Analysis •of biomarkers and massive sequencing.
RNA interference (RNAi)
A new Phase IIb trial commenced with SYL040012 •(Bamosiran) for treating glaucoma and ocular hy-pertension.
Consumer chemicals
This area contributed 66.6 million euro to Group •sales, 44% of the total.
Sales outside Spain expanded by 7.6%.•
8
Group revenues
Total Group revenues Breakdown of total 2014 revenues
Sales Other operating revenues
20132012 2014
200
180
160
140
120
100
60
40
20
80
0
138.2 149.7
23.5
28.4
141.8
22.9
164.7178.1
161.7
Oncology
Paint and varnish
Diagnostics
Insecticides and air fresheners
2014
29%
9%
59%
3%
Consolidated Sales
Total sales Sales by business segment
20132012 2014
160
140
100
60
20
40
120
80
0
138.2149.7
141.8
Net sales
2012 2013 2014
100
60
40
20
80
0
72.4
64.8
79.1
61.9
82.3
66.6
Biopharmaceuticals Consumer chemicals
9
Sales by territory
Consumer chemicals
Biopharmaceuticals
Unallocated
201444% 55%
1%
Contribution to total net salesby the individual businesses
EUSpain
2012 2013 2014
160
140
120
100
60
40
20
80
0
67.1 64.8
65.5 70.5
6.4
66.7
6.85.7
Rest of world
76.2
Biopharmaceuticals Consumer chemicals
EU
Spain
Rest of world
EU
Spain
Rest of world
Segmento de Biofarmacia Segmento Química de Gran consumo
82%
15%
3%
81%
13%
6%
10
Gross income
Contribution to gross income by the individual businesses
Consolidated EBITDA
0
20
40
60
80
100
120
20142012 2013
98.4
108.9103.9
Biopharmaceuticals
Consumer chemicals
29%
71%
2014
-15
-5
-10
-15.3
29.6
23.8 25.7
20.4
0
10
5
15
20
25
30
-20
-3.9
2009 2010 2011 2012 2013 2014
11
EBITDA by business segment
Biopharmaceuticals 29.4 22.8 26.2 28.9
Consumer chemicals 8.6 4.9 3.8 5.8
Unallocated (8.4) (7.3) (6.2) (9.0)
TOTAL 29.6 20.4 23.8 25.7
2012 20142011 2013
Consolidated net profit attributable to the parent Company
Net monthly average operating cash burn/flow
-10
-25.9
4.7
13.1
6.611.3
0
10
20
-20
-30
-40
-7.3
2009 2010 2011 2012 2013 2014
-2,0
-1,5
-1,0
-0,5
0,0
0,5
1,0
2
1,5
201420132012201120102009
12
Product Pipeline
THERAPEUTICAL AREA / INDICATION CLINICAL DEVELOPMENT
ONCOLOGYPHARMAMAR PHASE I PHASE II PHASE III REGISTRATION MARKET
CLART® HPV2: Kit for detection and genotyping of 35 types of human papillomavirus (HPV), both high and low risk
CLART® Kit for detection of somatic mutations in genes involved in the response to anti-tumour therapy with monoclonal antibodies
CLART® PneumoVir: Kit for detection and simultaneous differentiation of viruses causing respiratory infections
PneumoCLART® bacteria: Kit for detection and differentiation of bacteria causing respiratory infections
CLART® Kit for detection and identification of bacteria, fungi and parasites causing urinary tract infections in humans
CLART® ENTHERPEX: Kit for detection and identification of human herpes viruses and enteroviruses
CLART® Kit for detection and differentiation of Gram-positive and Gram-negative bacteria and yeast and fungi most prevalent in patients with sepsis
CLART® Kit for detection and differentiation of the main bacteria which cause infectious diarrhoea
Autoclart: Platform for automatic processing of the CLART® technology
CLART® in vitro diagnostic kit that allows for genotyping of the principal polymorphisms involved in bone metabolism disorders
DIAGNOSTICSGENOMICA GENETIC DIAGNOSTIC KITS and DNA analysis kits
Yondelis® Trabectedin
Relapsed ovarian cancer (platinum-sensitive)
Soft tissue sarcoma 2nd/3rd line (STS)
Soft tissue sarcoma2nd/3rd line. United States
Relapsed ovarian cancer. United States
Soft tissue sarcoma
Mesothelioma. EU/Other
Aplidin® Plitidepsin
Multiple myeloma
T cell lymphoma
PM1183
Ovarian cancer (platinum-resistant)
Small-cell lung cancer (SCLC)
Non-small-cell lung cancer (NSCLC)
Combination trials
PM184
Solid tumours
OPHTHALMOLOGYSYLENTIS (RNAi)
GIaucoma
Eye discomfort
RESEARCH PRECLINICAL PHASE I PHASE II PHASE III MARKET
DEVELOPMENT
14
Letter from the Chairman
Fellow shareholder,
It my pleasure, once again, to share with you the milestones achieved by the company in the past year and tell you about the major challenges we
have set ourselves for the coming years, not to men-tion the excitement and enthusiasm with which we address the company's future.
A few years ago, we implemented a strategy that focuses primarily on oncology, the group's core busi-ness. The purpose of concentrating our resources in this way is not only to increase our enterprise value but also to transform the company into an oncology player with more than one product on the market, enabling us to treat a greater number of indications. We like to think that our success could contribute to new therapeutic alternatives for cancer patients in the years to come. In line with this strategy, the group is in the midst of a change which we believe will enable us to set a clear example of growth in the near future.
The group's financial situation continued to im-prove in 2014, in line with previous years. Net attrib-utable profit expanded by 16% to 13 million euro. Group EBITDA increased by 8% to 25.7 million euro, to which the oncology area contributed 34.5 million euro. These figures were achieved in large part due to the increase in sales in all of our business areas, but also to new licensing agreements, such as the one we signed with Chugai to market Aplidin® in some of the main European markets.
Our commitment to research and
innovation continues to be the cornerstone
of our strategy
15
It's important to note that these results were ob-tained after ramping up R&D and innovation spend-ing, to more than 52 million euro in 2014, a clear reflection of our commitment to the objective of bringing our compounds to market.
As regards new research projects, in 2014 we completed the Phase II trial with PM1183 for relapsed ovarian cancer, whose outstanding results were pre-sented to the international cancer community at the Annual Meeting of ASCO (American Society Clinical Oncology). We also carried out a Phase Ib trial last year with that compound as second line treatment in small-cell lung cancer, with very positive results. That trial is especially interesting since no new drug has been approved for this indication in the last 30 years, and PM1183 is yielding truly hopeful results. Based on the results of these two trials, we are planning to com-mence two pivotal trials with PM1183 in 2015, one in relapsed ovarian cancer and the other as second-line in small-cell lung cancer, in addition to the various tri-als we have under way in other indications, we are also performing a pivotal trial in multiple myeloma with another of our compounds, Aplidin®; recruitment is expected to conclude in the first half of 2015.
I am very pleased to announce other important milestones achieved by the company in 2014, such as the presentation to the FDA of an application to mar-ket Yondelis to treat soft tissue sarcoma, by our partner, Janssen Pharmaceutical. As a result, Yondelis may finally be available to US patients in 2015. Likewise, Taiho Phar-maceuticals presented the registration dossier for Yon-delis to Japan's Pharmaceuticals and Medical Devices Agency, with the result that this compound may also be available to treat soft tissue sarcoma in Japan in 2015.
I started out by talking about changes, so I must make mention of the major corporate changes planned by the company, which, as we announced, will lead to a merger of Zeltia and PharmaMar. In this way, our oncology business will be listed directly on the market, instead of through a holding company. Once the merger is complete, we plan to achieve one of the objectives we set years ago: listing the company on the US market. This will be a major leap for the company, and will allow for the entry of new investors, while also notably increasing our projects' visibility.
All of these events have contributed to the per-formance of Zeltia's share, which appreciated by 15.5% in 2014—especially noteworthy given that it was a complex year for the markets. It is equally impressive that the company tripled its daily trading volume compared with just two years ago.
As in previous years, on behalf of the Board of Directors of Zeltia and myself, I would like to thank our shareholders for their trust and for accompany-ing us on this journey, which has not always been as positive as it was in 2014, but which we are con-vinced will bring much happiness and satisfaction in the years to come. I would also like to thank all Zeltia group employees: without your hard work, dedication and commitment, none of this would be possible.
Very truly yours,
José María Fernández Sousa-FaroChairman of Board of Directors
18
1. Company situation
1.1. Organisational structure
Zeltia, S.A. is the holding company of a group of companies which operates in two segments: biopharmaceuticals and consumer chemicals.
The Board of Directors of the holding company, Zeltia, S.A., defines the general strategy. It has the following delegate committees: Executive Commit-tee, Audit Committee, and Remuneration and Ap-pointment Committee.
1.2. Operations: Business model, strategy
Zeltia group obtains its revenues from two main areas: biopharmaceuticals and consumer chemicals. Of those two areas, biopharmaceuticals is the main line of business and, specifically, the group's primary activity is the development and sale of marine-based antitumour drugs. Oncology is the group's fastest-growing and most strategic area.
Zeltia group operates in the oncology sector through subsidiary PharmaMar. Its business model focuses on discovering new marine-based antitu-mour molecules and developing them in preclinical and clinical trials with a view to producing new drugs with therapeutic advantages for oncology patients. The Group's strategy also includes the search for strategic alliances with partners, preferably industrial, to collaborate not only on financial aspects, but also on advancing the compounds through the various re-search phases and on subsequent marketing.
One of the distinguishing factors of our oncol-ogy business model is the capacity to discover new molecules for the pipeline, thereby generating new drug opportunities for the company. The group has several antitumour molecules in its pipeline at vari-ous stages of development, the goal being to bring new compounds to market. We also have our own sales network covering all of Europe. This not only allows us to sell our products directly, but also pro-vides scope to leverage future opportunities to sell third-party products.
In biopharmaceuticals, the group has other, small-er businesses in addition to oncology, such as the de-velopment and sale of diagnostic and DNA analysis kits, conducted through subsidiary Genomica. Sylen-tis is also conducting clinical trials in ophthalmology with the new gene silencing technology, RNAi.
In the area of consumer chemicals, Zeltia produces and distributes consumer products such as insecticides, air fresheners and household cleaning products through Zelnova, and produces and sells wood protectors, var-nishes and special-purpose paint through Xylazel.
Zeltia group concentrates R&D and innovation spending on oncology, its main strategic business. On-cology has become the main contributor to EBITDA and the area of greatest growth, and the company maintains a firm commitment to R&D to bring new drugs to market.
Zeltia Group has two main business areas: biopharmaceuticals and consumer chemicals
2. Business performance and results
2014 2013 %Net revenue
Consumer chemicals 66,583 61,876 8%
Biopharmaeuticals 82,259 79,112 4%
Unallocated 810 836 -3%
Group total 149,652 141,824 6%
Cost of sales 40,765 37,900 8%
Gross income 108,887 103,924 5%
Gross margin % 72.76% 73.28%
Other operating revenue
Consumer chemicals 348 276
Biopharmaeuticals 28,058 21,348
Unallocated 2 1.234
Group total 28,408 22,858 24.3%
TOTAL REVENUES 178,060 164,682 8%
EBITDA
Consumer chemicals 5,778 3,836
Biopharmaceuticals 28,907 26,247
Unallocated -8,985 -6,265
Group total 25,700 23,818 8%
R&D
Oncology 45,346 36,493 24%
Others 7,110 6,224 14%
Group total 52,456 42,717 23%
Marketing and commercial expenses
Consumer chemicals 19,052 18,803 1%
Biopharmaceuticals 23,110 22,426 3%
Unallocated 11 22
Group total 42,173 41,251 2%
Income for the year attributable toholders of the parent company 13,115 11,322 16%
20
Net sales
Group net revenues totalled 149.7 million euro in 2014, 5.5% more than in 2013 (141.8 million euro).
Net sales in the Biopharmaceutical business amounted to 82.3 million euro, a 4% increase with respect to 2013 (79.1 million euro). Of that figure, 76.8 million euro were from Yondelis® sales by Phar-maMar (72.9 million euro in 2013).
Yondelis® net sales increased by 10% year-on-year. Gross revenues increased by approximately 21% year-on-year. This sector accounted for 56% of Group net sales.
Net revenues at the Consumer Chemicals subsidi-aries totalled 66.6 million euro (61.9 million euro in 2013). Those companies accounted for 44% of the Group's total revenues in 2014.
Other operating revenues
This item comprises revenues from licensing agreements, including milestone and similar pay-ments, as well as royalties and subsidies.
Other operating revenues amounted to 28.4 million euro in 2014 (22.9 million euro in 2013). In 2014, PharmaMar collected 25 million dollars (18.3 million euro) under the new action plan signed in 2011 with Janssen Products LP. (Johnson & Johnson Pharmaceutical Research & Development, LLC.) to
Group EBITDA increased by 8%
22
step up development of Yondelis® in the US for soft tissue sarcoma and relapsed ovarian cancer. Part of other operating revenues consist of the proportional part of the 5 million euro upfront payment received from Chugai Pharma for the Aplidin® licensing agree-ment signed in July 2014, plus royalties on Yondelis® sales in non-EU countries, and 1 million euro from Janssen for attaining the milestone consisting of presentation to the FDA of an application to market Yondelis®. Other components were R&D subsidies and other minor items.
Total revenues and revenues from outside Spain
Group revenues (net sales plus other operating revenues) totalled 178.1 million euro in 2014 (164.7 million euro in 2013), of which 61% (109.1 million euro) came from outside Spain.
Notably, Group net sales outside Spain increased by 8% with respect to 2013.
In the Biopharmaceutical segment, international revenues (net sales plus other operating revenues) accounted for 88% of the total.
Margins: Gross margin and EBITDA
The group's gross margin remained stable with respect to 2013: 73% of revenues.
Group EBITDA from continuing activities totalled 25.7 million euro in 2014 (23.8 million euro in 2013). This 2 million euro increase was due to revenues from the new licensing agreement signed in 2014 and the milestone payments collected under previous licensing agreements (5.6 million euro more than in 2013) and the increase in sales in both business segments (7.9 million euro more than in 2013), offset by higher R&D expenditure (9.7 million euro more than in 2013).
(EBITDA: earnings before interest, taxes, depreciation
and amortisation).
23
24
R&D expenditure
R&D expenditure increased by 23% year-on-year, to 52.5 million euro in 2014 (42.7 million euro in 2013). The Oncology area spent 45.3 million euro in 2014 (36.5 million euro in 2013), while the Diagnos-tics and RNA interference area spent 6.7 million euro (6 million euro in 2013).
The increase in R&D costs in the Oncology area is due mainly to the Phase III registration trial with Ap-lidin® in multiple myeloma. Also in 2014, additional activities were performed in the preclinical area and the necessary supplementary clinical trials were per-formed to be able to present the registration dos-sier.
A number of trials with Yondelis® in combination with Caelyx were relaunched (specifically, Phase IV trials) once the Caelyx supply problems had been re-solved.
Major efforts were made in 2014 to drive the development of PM1183, specifically Phase I and II trials.
Marketing and commercial expenses
Marketing and commercial expenses amounted to 42.2 million euro in 2014 (41.3 million euro in 2013), a 2% increase that is moderate compared with the increase in revenues.
In 2014, PharmaMar established a subsidiary in France to market Yondelis® there. This new subsidi-ary, along with those established in Italy and Ger-many in previous years, are having a positive impact on the company's sales margin.
The Consumer Chemicals division registered 19.1 million euro of sales and marketing expenses (18.8 million euro in 2013), a slight increase in year-on-year terms.
Income attributable to the parent company
Income attributable to the parent company amounted to 13.1 million euro, compared with 11.3 million euro in 2013, an increase of 15.8%.
Other events that impacted the 2014 financial statements
With regard to new licensing contracts and stra-tegic agreements, in July 2014, PharmaMar and Chugai Pharma Marketing signed a licensing agree-ment by which Chugai Pharma will sell Aplidin®, a PharmaMar product, in eight European countries (France, Germany, the UK, Benelux, Ireland and Austria) if that product is approved. Aplidin® is cur-rently in Phase III clinical trials for the treatment of relapsed and refractory multiple myeloma. Under the terms of the agreement, PharmaMar collected an upfront payment of 5 million euro. The agree-ment also envisages additional payments of up to 30 million euro subject to attainment of certain milestones in connection with development of the compound and other regulatory and commercial objectives.
In November, Janssen Research & Develop-ment, PharmaMar's strategic partner for the de-velopment of Yondelis® in the US, submitted to the FDA an application to market Yondelis® to treat patients with advanced soft tissue sarcoma who have previously received chemotherapy. In February 2015, the FDA granted priority review status to that application. Priority review takes six months. The FDA grants priority review to thera-pies that may offer a significant improvement in safety or efficacy of the treatment, diagnosis or prevention of serious diseases in comparison with available treatments. PharmaMar received 1.2 mil-lion USD in December from Janssen for achieving the milestone of presenting the application to market Yondelis®.
In April, Taiho Pharmaceuticals, the Japanese partner for anti-tumour drug Yondelis® (trabecte-din), completed the pivotal Phase II registration trial in soft tissue sarcoma, with positive results. Those results were reported to the annual meeting of the American Society of Clinical Oncology. Nine months later, in January 2015, based on the clinical benefit evidenced by that trial, Taiho filed an application with the Japanese regulator (PMDA) for marketing authorisation for the treatment of several soft tissue sarcoma subtypes. The application will receive prior-ity review from the Japanese authorities as trabecte-din has been designated as an orphan drug in Japan. As a result of the presentation of the application for marketing authorisation, Taiho paid PharmaMar 1.7 million USD in 2015.
25
With respect to the two companies in the consum-er chemicals segment, total sales by Zelnova-Copyr increased by 4.1 million euro (+8.6%) year-on-year. This increase occurred in all business lines, at both Zelnova (own brands, third-party brands and exports) and Copyr (environmental hygiene, home&garden and ecological farming). Xylazel exported to 12 coun-tries, with an increase of 26%, and exports now ac-count for 10.1% of total sales. New products have been brought to market, some of them the result of in-house research and others of collaboration with leading companies in the sector, such as Rust-Oleum.
Personnel
The Group had 665 employees at year-end (628 in 2013). There were 409 employees in the biophar-maceutical segment, 200 in consumer chemicals, and 56 unassigned to either segment.
Women account for 52% of the workforce.
The bar graph below illustrates segmentation by gender and category:
0
50
100
150
200
Management Technicalprofessionals
Clericalpersonnel
Commercialpersonnel
Otheremployees
1324
168
110
68
3342
84
50
73
Women Men
The environment
The Company did not need to incur material in-vestments to protect and improve the environment during the year.
Since there were no contingencies relating to environmental protection and improvement and there are no risks that could have been transferred to other companies, it was not necessary to recog-nise any provisions for environmental actions in the year.
26
The Zeltia Group generated 22.1
million euro in operating cash flow
3. Liquidity and Capital
The net cash position (cash + cash equivalents + current financial assets) amounted to 35.5 million euro at 31 December 2014 (28.8 mil-
lion euro at 31 December 2013). Including non-cur-rent financial assets, the total was 36.5 million euro at 31 December 2014 (29.7 million euro in 2013).
The Group's total net interest-bearing debt at am-ortized cost in the last two years is detailed below:
31/12/2014 31/12/2013
Non-current debt 47,003 52,941
Bank loans 20,911 25,151
Loans from official authorities 26,092 23,790
Other loans 0 4,000
Current debt 44,466 41,327
Credit lines drawn 7,648 10,959
Discounted bills 2,172 1,836
Loans 25,873 22,648
Loans from official authorities 3,512 3,992
Interest, etc, 5,261 1,892
Total interest-bearing debt 91,469 94,268
Cash and cash equivalents plus non-currentand current financial assets 36,583 29,683
TOTAL NET DEBT -54,886 -64,585
Group net debt declined by 15% year-on-year in 2014.
The graph below shows the Group's debt, both current and non-current, in the last three years.
The graph below shows maturities of long-term debt at amortized cost:
Current Non-current
20132014 2012
120
0
44.5
54.7
62
20
40
60
80
100
47
41.3
52.9
20172016 2018 2019 andthereafter
25
15
5
20
10
0
13.2
5
20.4
8.4
The following table shows the equity and debt structure as well as the indebtedness ratio. Net debt per-formance has been very favourable in recent years. This trend is expected to continue in the coming years. It is attributable not only to the decline in debt, but also to the increase in equity resulting from the improvement in Group net income.
2014 2013
Net debt 54,928 64,585
Capital employed* 114,955 114,020
Leverage 47.8% 56.6%
In 2014, 32% of total net financial debt was at-tributable to official institutions, interest free and maturing in 10 years.
Liquidity in 2014 came from Group operations: operating cash flow totalled 22.1 million euro (20.7 million euro in 2013). Funds from operations were used to cover R&D expenditure and investments in property, plant and equipment. Loans were amor-tised in the amount of 29.8 million euro in 2014, and additional bank funding was arranged for a total of 31 million euro.
The Group did not use other sources of funding in 2014.
27
*Capital employed is equivalent to net equity plus net debt.
28
4. Primary Risks and Uncertainties
Situation risks
Competition
The chemical and pharmaceutical market is highly competitive and involves multination-als, small and medium-sized domestic players,
and generic producers.
The Zeltia Group's results may be affected by the launch of novel or innovative products, technical and technological progress, and the launch of generics by competitors.
Industrial property. Patents.
Industrial property is a key asset for the Zeltia Group. Effective protection of industrial property is vi-tal for ensuring a reasonable return on investment in R&D. Industrial property can be protected by register-ing patents, trade marks, brand names, domains, etc.
Patents run for 20 years in most countries, includ-ing the USA and the European Union. The effective period of protection depends on how long drug de-velopment takes before launch. To compensate part-ly for such a long development period and the need to obtain authorization before marketing a drug, a number of markets (including the USA and the Eu-ropean Union) offer patent extensions of up to five years in certain circumstances.
Deficient protection of an invention or excessively long development times that limit the patent's useful life are risks inherent to the pharmaceutical business.
The Zeltia Group has a rigorous patent policy which seeks to protect inventions obtained through its R&D activities. In addition to the protection that can be obtained for newly-discovered active principles, we also actively pursue protection for new formulations, production processes, medical applications and even new methods of drug administration.
The Group has a system for managing its patents' life cycle, with patent departments that regularly re-view the patent situation in coordination with the regulatory affairs department. It is also vigilant to detect breaches of our patents by other companies with a view to taking legal action if necessary.
Regulation
The chemical and pharmaceutical industry is highly regulated. Regulations cover such aspects as research, clinical trials, drug registration, drug pro-duction, technical validation of production stand-ards, and even marketing. Regulatory requirements have become more stringent in recent times and this trend is expected to continue.
Pharmaceutical prices are controlled and regu-lated by the government in most countries. In recent years, prices have been reduced and reference prices have been applied.
To offset the risk of a constant flow of new legal and regulatory requirements, the Group makes its decisions and designs its business processes on the basis of an exhaustive analysis of these issues by our own experts and prestigious external experts where necessary.
Capital availability
Because the markets are not always open and Zeltia Group makes significant R&D investments each year, the group seeks a range of funding sources, in both the credit and capital markets, to finance its growth, implement its strategy and generate income in the future.
The Group has spread out its risk considerably among various credit institutions, which provides it with greater flexibility and limits the impact in the event that any of its loans are not rolled over.
Shareholders
As in the case of any listed company, there is the risk that a shareholder may consider that a decision by the Board of Directors or the Group's executives is harmful to his interests as a shareholder and file a complaint.
30
The Group has director and executive liability in-surance which covers the risk of a shareholder filing a complaint on the grounds that a decision by the Board of Directors or the Group's executives is harm-ful to his interests.
Operating risks
Commodity prices
Deviations from expected price levels and a strategy of buying and accumulating inventories of commodities expose the organization to ex-cessive production costs and to losses on inven-tories.
The Group conducts an in-depth analysis of prices at the beginning of the year and tries to obtain a closed price for the year from its suppli-
ers. The products' cost prices are set on this basis. Prices are checked on a monthly basis to detect any need for modification, although petroleum derivatives (butane, solvents, plastics, etc.).
Health and safety
Failure to provide a safe workplace for its employ-ees would expose the Group to sizeable expenses, loss of reputation and other costs.
Workplace health and safety is monitored ex-haustively in a search for continuous improve-ment.
Exposure of laboratory personnel to new com-pounds, natural or synthetic, whose possible adverse effects are unknown creates a theoretical health and safety risk in addition to the standard risk of han-dling chemicals.
31
32
The Group has implemented a workplace health and safety system, which is audited regularly to en-sure compliance.
The Company has also arranged casualty and third-party liability insurance.
One Group company, whose workforce accounts for 51% of the Group total, is certified to the OHSAS 18001 Occupational Health and Safety Management System standard.
Environmental
Environmental risks can generate potentially sig-nificant liabilities for companies. The greatest risk lies in third-party claims for harm to persons and prop-erty as a result of pollution.
The Group's production processes generally have a very low risk of environmental impact (noise, smoke, discharges, etc.) and generate almost no waste.
Waste management is outsourced to public re-cycling and waste management companies. Regular compliance checks are conducted and, where nec-essary, atmospheric emissions are monitored, water purification systems are installed and the Group has designated points for depositing separated waste for subsequent management.
Two of the Group's largest subsidiaries are certi-fied to ISO 14001, which establishes how to imple-ment an effective environmental management sys-tem allowing the company to maintain returns and minimize its environmental impact.
Product development
The Group allocates a considerable volume of resources to researching and developing new phar-maceutical products. As a result of the length of this process, the technological challenges involved, the regulatory requirements and the intense competi-tion, it is not possible to be sure that all compounds currently under development and those to be devel-oped in the future will reach the market and attain commercial success.
To maximize the effective and efficient use of our resources, the Group has implemented a transversal
working structure across the various departments, project-specific teams and reporting systems to mon-itor R&D projects internally.
Information risks
Malfunction of the Group's internal information flows poses the risk of misalignment with strategy and of erroneous or mistimed decisions.
Market disclosures
The Group is also obliged to disclose certain fi-nancial information and make other regulatory dis-closures that must be truthful, complete and timely. Failure to comply carries the risk of punishment and of a loss of credibility.
Zeltia's management and directors have inside in-formation about the Group's progress.
There are control systems in place to know who is in possession of certain information at a given time, aimed mainly at complying with the securities market legislation governing inside in-formation.
Information systems
Failure to apply proper access controls in infor-mation systems (data and software) may lead to un-authorized discovery, unauthorized access to data or the untimely delivery of same, and improper use of confidential information.
Lack of important information at a crucial time may adversely affect the continuity of the organiza-tion's critical processes and operations.
As technology progresses, the Zeltia Group adapts its physical and legal security policies in connection with the information and communica-tion systems.
The Zeltia Group has several data processing cen-tres. As far as possible, those centres use the same technology so as to minimize technological diver-sity and share services that are susceptible to use by more than one business unit (basically in the area of security, support and maintenance).
33
Access to information is controlled on a person-by-person basis using current technology, and there are redundant fault-tolerant systems in mission-crit-ical areas together with procedures to restore those systems in the shortest possible time. Data integrity is guaranteed using backup systems.
The Zeltia Group uses third-party technology in-frastructures and has service level agreements with those third parties to minimize the impact of any degradations; it also generally has redundant or du-plicate infrastructures.
Financial risks
Market risk
Price risk
The Group is exposed to price risk of available-for-sale equity instruments and of shares in listed in-vestment funds at fair value through profit or loss. As for traded commodities, the Group's consumer chemical segment's operations are affected by the price of oil.
Investments in available-for-sale equity instru-ments are securities of foreign biopharmaceutical companies. Nevertheless, the Group's volume of in-vestment in this type of asset is not material in the context of the Group's operations.
Interest rate risk on cash flows and fair values
The Group's interest rate risk arises from remu-nerated financial assets that can be converted into cash. The remunerated financial assets consist ba-sically of deposits remunerated at floating interest rates referenced to Euribor.
Floating-rate debt securities expose the Company to interest rate risk on its cash flow. Fixed-rate debt securities expose the Company to interest rate risk on the fair value.
Based on a number of scenarios, at times the Company manages the interest rate risk of its cash flow by means of floating-to-fixed interest rate swaps. The economic impact of these swaps is to convert floating-rate debt into fixed-rate debt. Under interest rate swaps, the Company undertakes to ex-
change, at regular intervals, the difference between the fixed and floating interest rates on the notional principals that are contracted.
Exchange rate risk
Exchange rate risks arise from future commercial transactions, recognized assets and liabilities, and net investments in foreign operations. The Company is exposed to exchange rate risk on transactions in foreign currencies, particularly the US dollar.
Management does not consider it necessary to establish any policy for hedging the foreign currency risk vs. the functional currency.
Credit risk
Credit risk arises from financial assets arranged with banks.
The banks and financial institutions with which the Company works generally have independent rat-ings.
34
Zeltia's directors believe the Group has liquidity to cover its research and development projects and fulfil its future commitments for the following rea-sons:
The Group's sound equity position as of 31 De-•cember 2014, net equity having improved by 22% in the year.
Positive operating income in the Group's two •main business segments.
The Group generated operating cash flow of 22.1 •million euro in 2014 (20.7 million euro in 2013).
The net debt/EBITDA ratio was 2.1 at 31 Decem-•ber 2014.
The leverage ratio improved by 9% year-on-year •at 31 December 2014. Just 47.7% of funding is in the form of debt.
The Group's ability to renegotiate its debt if it is •considered necessary; this ability has increased in view of the improvement in net debt in recent years.
The company has unused credit lines in the •amount of 26 million euro.
The Group ended the year with cash and cash •equivalents plus current financial assets of 35.5 million euro, 23% more than in 2013.
Where the Company acquires other financial as-sets, it must apply the following policies:
Acquisition of fixed-income funds that invest in •public- or private-sector debt (bonds, bills, com-mercial paper), generally secure, which pay peri-odic coupons.
Acquisition of money market funds comprising •short-term fixed-income securities (18 months maximum) where security is prioritised in ex-change for a slightly lower yield than other in-vestments.
Liquidity risk
The risk of not obtaining funds to honour debt obligations when they come due.
Prudent liquidity risk management entails having sufficient cash and marketable securities, financing via sufficient credit facilities, and the capacity to set-tle market positions. The goal of the Group's finan-cial department is to maintain flexibility in funding by having credit lines and sufficient funds in financial assets to cover obligations, particularly in the bio- pharmaceutical segment.
The Group's equity increased by 22% in 2014
36
5. Significant events after year-end
On 1 December 2014, the Board of Direc-tors of Zeltia, S.A. approved the merger of Zeltia, S.A. with its wholly-owned subsidiary,
Pharma Mar, S.A. The merger between Zeltia, S.A. and Pharma Mar, S.A. would be the first phase of the strategy approved by the Board, the objective of which is to directly list the Group's oncology busi-ness; this would also provide the resulting company with the flexibility required to undertake corporate transactions in the future, such as a possible listing in the US, the second phase of the strategy approved by the Board of Directors. The process of considering and approving the merger has been referred to the Executive Committee of Zeltia, S.A., and the details of the transaction had not been determined at that time.
On 26 February 2015, when these financial state-ments were authorised, the Board of Directors of Zeltia, S.A. resolved to commence, as from that date, the legal paperwork to complete the merger, where-by Pharma Mar, S.A. would absorb Zeltia, S.A. When the process is complete, Pharma Mar, S.A. would ac-quire, by universal succession, the equity of Zeltia, S.A., which in turn would be extinguished, and each shareholder of Zeltia, S.A. would receive the pro-portionate number of shares of Pharma Mar, S.A. to which he is entitled, and an application would be filed to list the shares, as announced previously.
On 6 January 2015, the Spanish tax authorities notified the company of plans to commence a par-tial tax audit into corporate income tax for the years 2010 to 2012, which would be confined to examin-ing revenues from certain intangible assets reported by subsidiary PharmaMar. On 20 January 2015, the company asked the tax authorities to make the audit general in scope. On the date that these financial statements were authorised, the tax audit is at a very early stage and it is impossible to make any estimate of the outcome. However, the Company's Directors do not believe that the inspection will lead to addi-tional liabilities or that the amount of assets recog-nised will decline significantly.
Some credit lines are renewed automatically and, to date, experience shows that they have been re-newed systematically with the same banks. Credit lines amounting to 4,000 thousand euro were re-newed in January and February.
In February 2015, Janssen Products LP paid Phar-ma Mar, S.A. a fifth payment amounting to 10 mil-lion US dollars for having achieved milestones based on the development plan for Yondelis®. The com-pany also received 1.4 million euro in January from Taiho Pharmaceutical as a milestone payment corre-sponding to the marketing application for Yondelis® in Japan.
No other material circumstances or events have come to light that might affect these separate and consolidated financial statements.
6. 2015 outlook
Within our main business, we will continue with the various clinical trials under way in 2015. Additionally, two pivotal regis-
tration trials in oncology are planned.
Efforts will continue to obtain new licensing agreements and/or to create new strategic alliances with other companies which can not only offer eco-nomic resources to the Group, but also strengthen our positioning as an oncology company, from a qualitative standpoint.
In 2015, as a result of the agreements reached in previous years with Janssen Pharmaceutical and Taiho Pharmaceutical, we believe Yondelis may be approved for sale in the US and Japan, two of the world's largest oncology markets, as a result of the applications presented by our partners in those countries to their respective regulatory bodies. If those approvals were to materialise, they would also have a positive impact on the Group's bottom line.
In macroeconomic terms, and in line with 2014, growth in domestic consumer spending is expected to continue in 2015, with the consequent positive impact growth on consumer chemical sales, which currently account for 44% of the Group's total sales.
7. R&D and Innovation
R&D and Innovation are a key component of the Group's strategy, and 52.5 million euro were allocated to this item in 2014.
Of that total, 45.3 million euro were allocated to R&D in oncology, 5.2 million euro to RNAi in oph-thalmology, 1.5 million euro to the diagnostic area, and 0.5 million euro to the Consumer Chemicals companies.
37
38
The main progress and results in R&D in 2014 by area of activity are as follows:
1. ONCOLOGY: PHARMA MAR, S.A.
The activities and progress for each of the group's compounds in 2014 is detailed below:
a) Yondelis®
Soft-tissue sarcoma
Recruitment continues in Japan for the Phase II trial at Japan's National Cancer Centre, sponsored by our partner Taiho, with a view to allowing access to Yondelis® on a compassionate use basis.
Regarding the observational post-authorisation trials with Yondelis® in collaboration with a number of cooperatives, recruitment continues in Italy for the TR1US trial with Yondelis® as first-line treatment in patients that cannot be given doxorubicin and/or ifosfamide and for the trial organised by the Italian Sarcoma Group using Yondelis® as neoadjuvant ther-apy in patients with myxoid liposarcoma.
Five new observational and post-authorisation trials commenced in the fourth quarter of 2014, ex-ploring the combination of Yondelis® with radiother-apy, hyperthermia, and the new drug Olaparib (Lyn-parza), which was recently approved by the EMA.
Ovarian cancer
Recruitment continues on schedule for the piv-otal clinical trial in ovarian cancer in the US, spon-sored by Janssen. This trial will form the basis of a potential registration for this indication in the US and other countries where Yondelis® is not yet approved for ovarian cancer.
Recruitment also continues satisfactorily for the Phase II trial to evaluate the efficacy of Yondelis® + bevacizumab, with and without carboplatin, which is being promoted by the Mario Negri Institute in Mi-lan.
The OvaYond observational trial continues to en-rol ovarian cancer patients being treated with Yon-delis® and PLD in actual practice in Germany.
Recruitment continues on schedule for the INOVATYON Phase II trial, organised by the MANGO cooperative, which compares treatment with PLD+Yondelis® vs. carboplatin+PLD in patients with partially sensitive ovarian cancer.
Recruitment also continues for the PROSPECTYON trial (GINECO group in France), a prospective study of the use of Yondelis® in combination with PLD in patients with platinum-sensitive ovarian cancer.
Other indications
Recruitment is continuing on schedule for the ATREUS Phase II trial promoted by the Mario Negri Institute for Pharmacological Research (IRCCS) in cooperation with the Department of Medical Oncol-ogy at San Gerardo Hospital (Monza, Italy) to evalu-ate the activity and safety of Yondelis® in malignant pleural mesothelioma (MPM).
b) Aplidin®
Multiple myeloma
The following trials are part of PharmaMar's clinical development process, which aims to obtain the necessary information to support the use of Aplidin® in various phases of treatment of multiple myeloma.
Phase III trial of Aplidin• ® in combination with dexamethasone in patients with relapsed or re-fractory multiple myeloma. All centres in this trial, located in Europe, the USA, New Zealand, Australia, Taiwan and Korea, are currently open. Patient recruitment is expected to be completed in the early months of 2015.
Combination of Aplidin• ® with bortezomib, (one of the chemotherapies of choice for the treat-ment of multiple myeloma). Patient recruitment continues as planned.
The Mass Balance trial in patients with refractory •neoplasia is in the development phase and re-cruitment is expected to begin in 2015. This trial is a regulatory requirement for approval of the drug.
39
c) PM1183
Resistant/refractory ovarian cancer
Overall Survival (OS) continues to be monitored in the Phase II randomised clinical trial in patients with resistant/refractory platinum-sensitive ovarian cancer.
The pivotal Phase III registration trial in patients with platinum-resistant ovarian cancer will begin in the first half of 2015 once design was completed and a CRO (Contract Research Organisation) had been selected. This trial will evaluate PM1183 as monotherapy vs. a control arm with topotecan or liposomal doxorubicin.
Advanced breast cancer
Recruitment continues on schedule for the Phase II clinical trial in patients with advanced breast cancer selected on the basis of the presence of mutations, known or otherwise, of the BRCA 1 or 2 genes (he-reditary cancer). Data from the first phase of the trial was presented at the Breast Cancer Symposium in San Antonio (Texas) in December.
Non-small-cell lung cancer (NSCLC)
Recruitment is continuing on schedule for the Phase II randomised trial in patients with non-small cell lung cancer. This trial was implemented after good efficacy results were obtained in the Phase I trial in combination with gemcitabine.
Following the excellent results obtained in small cell lung cancer (SCLC), in 2015 PharmaMar started a Phase III registration trial in combination with dox-orubicin as second-line treatment for small cell lung cancer which compares the aforementioned combi-nation with topotecan, the only drug currently ap-proved in the US and Europe for this indication.
Combination trials
Recruitment continues for the combination trial with doxorubicin, and the excellent preliminary ac-tivity observed has been confirmed, particularly as second-line chemotherapy in patients with small-cell lung cancer, endometrial cancer, and neuroendo-crine tumours.
Since the primary endpoint (defining the recom-mended dose in the combination trial with capecit-abine in patients with breast, colorectal or pancreatic cancer) was achieved, dose escalation continues in the new cohort of patients with an infusion pattern of one day every 3 weeks in order to optimise the dose of PM1183.
The trial in combination with paclitaxel, adminis-tered weekly with and without bevacizumab in pa-tients with selected solid tumours, is currently in the dose escalation phase. The first patient has already been recruited in the cohort exploring the addition of bevacizumab to the combination of PM1183 and paclitaxel.
Recruitment continues in Switzerland and the UK for the trial in combination with cisplatin in patients with solid tumours, which is at the dose escalation phase.
“Basket“ trial in advanced solid tumours
The protocol for the “Basket“ Phase II trial in se-lected advanced-stage solid tumours was presented to the ethics committees in Spain in December 2014. The trial will examine the activity (response measured by RECIST) of PM1183 as monotherapy in the follow-ing advanced-stage tumours: small cell lung cancer (SLCL), neuroendocrine tumours (NET), carcinoma of the head and neck (H&N), carcinoma of the bil-iary tract, endometrial carcinoma, breast carcinoma associated with BRCA1/2 mutations, carcinoma of unknown origin, germ cell tumours and Ewing sar-coma. A total of 26 centres in nine countries will par-ticipate: Spain, France, Italy, the UK, Belgium, Swe-den, Switzerland and the USA.
d) PM184
The clinical trial conducted in the US and Spain found the optimal dose for future Phase II trials. The other trial, being conducted in France and Spain, continues with active recruitment and is progressing as expected.
A Phase I trial with PM184 combined with gem-citabine has commenced at two centres, in Spain and the United States. This trial stems from the excellent results obtained with the combination in preclinical trials.
2. RNA Interference, OPHTHALMOLOGY: SYLENTIS, S.A.
The company continued to advance new R&D lines in 2014, working to develop new RNAi-based candidates to treat other eye diseases.
The most advanced product, SYL040012 (Ba-mosiran), for treating glaucoma and ocular hyper-tension, commenced a new Phase IIb clinical trial to determine the dose and the efficacy vs. timolol. In 2014, the clinical trial protocol was designed, the hospitals that will participate in the trial were selected, and the dossier was presented for ap-proval by the medicine agencies in selected coun-tries. Twenty-one hospitals have been selected, in Spain, Germany, Estonia and the US. During the third quarter of 2014, approval was obtained from the regulators and ethics committees in Spain, Es-tonia, Germany and the US, and recruitment com-
menced. Recruitment advanced as expected in the fourth quarter. The protocol and design of a phar-macokinetic trial with Bamosiran in healthy volun-teers were also developed in parallel. Recruitment for this pharmacokinetic trial commenced in No-vember 2014.
With respect to the second clinical trial under way with SYL1001, the Spanish Agency of Medicines and Medical Devices (AEMPS) authorised a pilot trial in patients with eye discomfort associated with dry eye syndrome. In January 2014, the AEMPS approved an application to change the dose in this clinical trial. Patient recruitment proceeded on schedule in 2014.
3. DIAGNOSTICS: GENOMICA
Within the area of Diagnostic Biomarkers, the CLART®CMA EGFR product for detection and
40
genetic identification of spot mutations, inser-tions and deletions in the EGFR gene associated with non-small cell lung cancer was launched in 2014.
In order to maintain a strong leading position in the markets in which it operates, in 2014 Genomica launched a plan of action that includes optimising production to manufacture our products in-house, with the consequent improvement in margins. Ad-ditionally, the company's offices and technical fa-cilities were moved to a new location in the Madrid region.
With regard to R&D, an integrated “Lab-on-a-chip“ project to identify and detect human papilloma virus infection was launched, and mass sequencing services were optimised.
41
The CLART®CMA EGFR kit to detect mutations
associated with lung cancer was launched
42
8. Acquisition and disposal of own shares
As of 31 December 2014, the Company's capital amounted to 11,110 thousand euro (11,110 thousand euro in 2013) and was represented
by 222,204,887 bearer shares (222,204,887 shares in 2013), with a par value of 0.05 euro per share, in both 2014 and 2013. All these shares were fully subscribed and paid and have the same political and economic rights.
As of 31 December 2014, the controlling compa-ny held 2,976 thousand own shares (0.88% of capi-tal), of which 771 thousand were for acquisition by employees under Share Delivery plans and had been pledged in favour of the Company until the vesting period had elapsed.
The Group acquired 1,164 thousand shares, rep-resenting 0.5% of share capital, for 3.2 million euro in 2014.
A total of 236,000 shares were delivered as part of the Share Delivery Plan in 2014.
A total of 167 thousand shares vested under the Share Delivery Plan in 2014, either due to the release of pledged shares or to other conditions set out in the plans, such as terminations.
9. Share information
General situation
The IBEX-35 ended 2014 at 10,279.2 points, an increase of 3.6%; it was the second con-secutive year of positive performance, a situ-
ation not seen since 2007. As a result, the IBEX-35 has appreciated by close to 75% since the lows of July 2012.
During 2014 the financial markets were focused on the ECB and on geopolitical tensions in various parts of the world. The year was also marked by fall-ing oil prices, and the euro ended the year at 1.22 vs. the US dollar.
With respect to monetary policy, the ECB held the markets' attention throughout the year, as the latter awaited economic stimulus packages with a view to avoiding deflation in a context of scant
growth in the Euro area. The situation reflects clear decoupling from the US economy, where signs of recovery are leading the Fed to taper its monetary stimulus policy.
In Europe, although the ECB continued to inject liquidity into the system in 2014, its eagerly awaited QE programme was not implemented. In addition to the increased liquidity, benchmark interest rates were cut to historic lows. The ECB's goal was to reactivate the economy and reverse the decline in inflation.
There were various sources of geopolitical ten-sion for the markets in 2014, such as the conflict in Russia, the delicate economic situation in Greece, and the Scottish independence referendum. Some of those tensions have not yet been resolved.
Indicadores bursátiles de Zeltia 2014
Total number of shares 222,204,887
Number of outstanding shares 219,999,453
Par value ( ) 0.05
Average daily trading (no. of shares) 645,014
Average daily trading ( �) 1,775,945
Trading days 255
Year trading low (1 September) 220,650
Year trading high (18 November) 15,665,134
Total annual trading (mill. ) 452.8
( )
Share price low (2 January) 2.35
Share price high (18 June) 3.07
Share price at 31 December 2.67
Average share price in the year 2.74
Market capitalization at 31 December (mill. ). 593.2
Source: Bloomberg
Zeltia share data in 2014
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44
Share performance
Zeltia, which celebrated its 75th anniversary in 2014, saw its share appreciate by 15.58%, with a considerable increase in liquidity. Notable events in the year includ-ed progress with clinical trials with PM1183, its most important stra-tegic product, and Yondelis®. This was reflected in an oral session at the ASCO annual meeting, where the positive results of the Phase II trial with PM1183 in relapsed ovarian cancer were presented. The result of this trial and the positive implications of this data for the development of this new drug boosted the company's share price to a high during the summer. All news from PharmaMar partners in
connection with Yondelis® was also very positive. Taiho Phar-maceutical announced very positive results from the clinical trial with Yondelis® for soft tis-sue sarcoma, which supported the presentation of the dossier to the Japanese regulator in January 2015. At the end of 2014, PharmaMar announced that Janssen had presented an application to the FDA to market Yondelis® for soft tissue sarcoma. The year ended with Zeltia's announcement about its plans to merge PharmaMar
and Zeltia prior to requesting listing in the US mar-ket. All of this news was very attractive for investors, as evidenced by the increase in the share's liquidity throughout the year.
Zeltia's share appreciated by 15.58% in 2014 and the stock's liquidity increased considerably during the year
02/0
1/20
14
14/0
1/20
14
24/0
1/20
14
05/0
2/20
14
15/0
2/20
14
27/0
2/20
14
11/0
3/20
14
21/0
3/20
14
04/0
4/20
14
16/0
4/20
14
26/0
4/20
14
09/0
5/20
14
21/0
5/20
14
31/0
5/20
14
12/0
6/20
14
24/0
6/20
14
04/0
7/20
14
16/0
7/20
14
26/0
7/20
14
07/0
8/20
14
19/0
8/20
14
29/0
8/20
14
10/0
9/20
14
20/0
9/20
14
02/1
0/20
14
14/1
0/20
14
24/1
0/20
14
05/1
1/20
14
15/1
1/20
14
27/1
1/20
14
08
/12/
2014
2.252.20
2.302.352.402.452.502.552.602.652.702.752.802.852.902.953.003.053.103.153.20
0
600,000
1,200,000
1,800,000
2,400,000
3,000,000
3,600,000
4,200,000
4,800,000
5,400,000
6,000,000
6,600,000
Trading volume (no. of shares) Price
Source: Bloomberg
Trad
ing
volu
me
Pric
e
45
Trading in Zeltia shares amounted to 452.8 million euro in 2014. Daily trading averaged 654,013 shares, peaking in November.
Trading volume (Euro)
0
15,000,000
20,000,000
10,000,000
25,000,000
5,000,000
Euro
Source: Bloomberg
48
A free translation of an auditors’ report originally issued in Spanish. In the event of a discrepancy, the Spanish language
version prevails.
INDEPENDENT AUDITORS' REPORT ON CONSOLIDATED FINANCIAL STATEMENTS
To the shareholders of Zeltia, S.A.
Report on consolidated financial statements
We have audited the accompanying consolidated financial statements of Zeltia, S.A. and subsidiaries con-sisting of the consolidated statement of financial position as of 31 December 2014, the consolidated statement of income, the consolidated statement of comprehensive income, the statement of changes in consolidated equity, the statement of consolidated cash flow, and the notes to the consolidated financial statements for the year then ended.
Directors' responsibility in connection with the consolidated financial statements
The directors of the controlling company are responsible for authorizing the accompanying consolidated fi-nancial statements such as to give a true and fair view of the equity, financial position and results of Zeltia, S.A. and subsidiaries in accordance with the International Financial Reporting Standards as adopted by the European Union and the other provisions of the financial reporting regulatory framework that are applicable to the Group in Spain, and the internal control that they deem necessary to enable the consolidated financial statements to be drawn up free of material inaccuracies due to fraud or error.
Auditor's responsibility
Our responsibility is to express an opinion on the accompanying consolidated financial statements based on our audit. We performed our audit in accordance with the regulations governing auditing in Spain. Those regulations require us to fulfil ethics requirements and to plan and execute the audit in order to obtain reason-able assurance that the consolidated financial statements are free of material inaccuracies.
An audit requires the application of procedures to obtain audit evidence in connection with the amounts and the information disclosed in the consolidated financial statements. The procedures selected depend on the auditor's judgement, including an assessment of the risks of material inaccuracies in the consolidated financial statements as a result of fraud or error. When performing that risk assessment, the auditor considers the in-ternal control that is germane to the authorization of the consolidated financial statements by the controlling company's directors in order to design the audit procedures that are appropriate to the circumstances, and not to express an opinion on the efficacy of the company's internal controls. An audit also includes an assessment of the appropriateness of the accounting policies that are applied and of the reasonableness of the account-ing estimates made by management, as well as an evaluation of the presentation of the consolidated financial statements taken as a whole.
We consider that the audit evidence that we obtained provides a sufficient and appropriate basis for our audit opinion.
49
Opinion
In our opinion, the accompanying consolidated financial statements give, in all material respects, a true and fair view of the consolidated equity and consolidated financial position of Zeltia, S.A. and subsidiaries as of 31 December 2014 and their consolidated results and consolidated cash flow in the year then ended in accordance with the International Financial Reporting Standards as adopted by the European Union and the other provi-sions of the financial reporting regulatory framework that are applicable in Spain.
Information about other legal and regulatory requirements
The accompanying consolidated directors' report for the year 2014 contains such explanations on the state of Zeltia, S.A. and subsidiaries, their business performance and other matters as the parent company's directors consider appropriate and does not form an integral part of the consolidated financial statements. We verified that the accounting information contained in the directors’ report matches the accompanying 2014 consoli-dated financial statements. Our work as auditors is limited to checking the consolidated directors’ report with the scope set out in this paragraph and it does not include the review of information not derived from the ac-counting records of Zeltia, S.A. and subsidiaries.
PricewaterhouseCoopers Auditores, S.L.
Luis Sánchez Quintana 26 February 2015
50
Zeltia Group, S.A. and subsidiaries
Consolidated Balance Sheet as of 31 December 2014 (thousand euro)
ASSETS
NON-CURRENT ASSETS
Property, plant and equipment 6 29,218 27,959
Investment property 7 6,939 6,980
Intangible assets 8 26,288 22,590
Goodwill 9 2,548 2,548
Non-current financial assets 10 1,072 848
Deferred tax assets 27 33,408 32,546
99,473 93,471
Disposable group assetsclassified as available for sale 19 0 4
CURRENT ASSETS
Inventories 17 24,404 22,232
Customer and other accounts receivable 15 36,989 38,630
Current financial assets 10 18,960 6,377
Current tax assets 16 2,685 3,847
Other current assets 16 2,327 2,351
Cash and cash equivalents 18 16,551 22,458
101,916 95,895
TOTAL ASSETS 201,389 189,370
The accompanying Notes 1 to 45 are an integral part of these consolidated financial statements
Note 31/12/14 31/12/13
51
Share capital 20 11,110 11,110
Share premium 20 323,286 323,286
Own shares 20 (8,750) (6,029)
Revaluation reserves and other reserves 6 3
Retained earnings and other reserves (261,770) (275,142)
TOTAL CAPITAL AND RESERVES ATTRIBUTABLETO EQUITY-HOLDERS OF THE PARENT COMPANY 63,882 53,228
MINORITY INTERESTS 22 (3,813) (3,793)
TOTAL EQUITY 60,069 49,435
LIABILITIES
NON-CURRENT LIABILITIES
Interest-bearing debt 26 47,003 52,941
Derivatives 14 42 95
Deferred tax liabilities 27 7,161 9,031
Non-current deferred revenues 24 3,783 3,166
Other non-current liabilities 25 705 644
58,694 65,877
CURRENT LIABILITIES
Supplier and other accounts payable 23 28,710 24,426
Interest-bearing debt 26 44,466 41,327
Provisions for other liabilities and expenses 28 6,220 5,482
Current deferred revenues 24 16 25
Other current liabilities 25 3,214 2,798
82,626 74,058
TOTAL LIABILITIES 141,320 139,935
TOTAL EQUITY AND LIABILITIES 201,389 189,370
31/12/14NoteEQUITY
The accompanying Notes 1 to 45 are an integral part of these consolidated financial statements
31/12/13
52
Zeltia Group, S.A. and subsidiaries
Consolidated income Statement as of 31 December 2014 (thousand euro)
Ordinary revenues 5 and 29 149,652 141,824
Cost of sales 5 (40,765) (37,900)
GROSS INCOME 108,887 103,924
Other operating revenues / Other net gains 33 28,408 22,858
Marketing expenses 32 (42,173) (41,251)
Administrative expenses 31 (18,658) (19,765)
Research & development expenses 30 (52,456) (42,717)
Capitalised in-house work 8 5,979 4,382
Other operating expenses 33 (9,750) (8,475)
OPERATING INCOME 20,237 18,956
Financial revenues 514 752
Financial expenses (6,399) (6,442)
Variation in fair value of financial instruments 53 104
Exchange differences 53 447
Impairment losses and income from disposal of financial instruments 17 (16)
NET FINANCIAL INCOME 36 (5,762) (5,155)
INCOME BEFORE TAXES 14,475 13,801
Income tax 27 (1,304) (1,960)
INCOME FROM CONTINUING OPERATIONS 13,171 11,841
Discontinued operations
Income from discontinued operations 19 (76) (708)
Attributable to equity-holders of the parent company (56) (519)
Attributable to non-controlling interests (20) (189)
Income for the year attributable to: 13,095 11,133
Equity-holders of the parent company 13,115 11,322
Minority interests 22 (20) (189)
EARNINGS PER SHARE FROM CONTINUING OPERATIONS AND DISCONTINUED
OPERATIONS ATTRIBUTABLE TO EQUITY HOLDERS OF THE PARENT COMPANY
(euro per share) Note
Basic earnings per share
- From continuing operations 37 0.06 0.05
- From discontinued operations (0.00) (0.00)
Diluted earnings per share
- From continuing operations 37 0.06 0.05
- From discontinued operations (0.00) (0.00)
Note 31/12/14 31/12/13
The accompanying Notes 1 to 45 are an integral part of these consolidated financial statements
53
Zeltia Group, S.A. and subsidiaries
Consolidated Statement of comprehensive income as of 31 December 2014 (thousand euro)
Statement of changes in consolidated equity (thousand euro)
31/12/2014 31/12/2013
CONSOLIDATED INCOME FOR THE YEAR (from the consolidated income statement) 13,095 11,133
ITEMS THAT MAY BE RECYCLED THROUGH PROFIT OR LOSS
Change in value of financial assets available for sale 3 2
Foreign exchange difference (1) 33
OTHER COMPREHENSIVE INCOME FOR THE YEAR, NET OF TAXES 2 35
COMPREHENSIVE INCOME FOR THE YEAR 13,097 11,168
Attributable to:
Equity-holders of the parent company 13,117 11,357
Minority interests (20) (189)
TOTAL COMPREHENSIVE INCOME FOR THE YEAR 13,097 11,168
Continuing operations 13,173 11,876
Discontinued operations (56) (519)
TOTAL COMPREHENSIVE INCOME FOR EQUITY HOLDERS: 13,117 11,357
The accompanying Notes 1 to 45 are an integral part of these consolidated financial statements
BALANCE AS OF 1 JANUARY 2013 11,110 323,286 (6,334) 1 (285,733) (3,604) 38,726
Fair value gain / (loss), gross:
- Available-for-sale financial assets (Note 12) 0 0 0 2 0 0 2
Total revenues and expensesrecognised directly in equity 0 0 0 2 0 0 2
2013 income 0 0 0 0 11,355 (189) 11,166
Total revenues and expenses recognised in 2013 0 0 0 2 11,355 (189) 11,168
Shares purchased (Note 20) 0 0 (701) 0 0 0 (701)
Shares sold (Note 20) 0 0 334 0 (193) 0 141
Share ownership plans (Note 20) 0 0 672 0 (672) 0 0
Other movements 0 0 0 0 101 0 101
BALANCE AS OF 31 DECEMBER 2013 11,110 323,286 (6,029) 3 (275,142) (3,793) 49,435
Fair value gain / (loss), gross:
- Available-for-sale financial assets (Note 12) 0 0 0 3 0 0 3
- Other revenues and expensesrecognised directly in equity 0 0 0 0 (1) 0 (1)
Total revenues and expensesrecognised directly in equity 0 0 0 3 (1) 0 2
2014 income 0 0 0 0 13,115 (20) 13,095
Total revenues and expenses recognised in 2014 0 0 0 3 13,114 (20) 13,097
Shares purchased (Note 20) 0 0 (3,159) 0 0 0 (3,159)
Shares sold (Note 20) 0 0 406 0 (152) 0 254
Share ownership plans (Note 20) 0 0 32 0 (32) 0 0
Other movements 0 0 0 0 442 0 442
BALANCE AS OF 31 DECEMBER 2014 11,110 323,286 (8,750) 6 (261,770) (3,813) 60,069
Sharecapital
Sharepremium
Ownshares
Revaluationand other
reserves
Reserves andother retained
earningsMinorityinterests
Totalequity
54
Zeltia Group, S.A. and subsidiaries
Consolidated cash flow statement as of 31 December 2014 (thousand euro)
The accompanying Notes 1 to 45 are an integral part of these consolidated financial statements
TOTAL NET OPERATING CASH FLOW Note 22,109 20,727
Income before taxes: 14,399 13,093
Income before taxes from continuing operations 14,475 13,801Income before taxes from discontinued operations (76) (708)
Adjustments for: 5,813 5,469
Depreciation and amortisation 6, 7 and 8 5,263 4,591
Impairment 15 204 270
Fair value loss/(gain) on financial assets 14 (53) (104)
Interest revenues (net accruals) 36 (514) (752)
Accrual of incentives 35 452 360
Income from sale of property, plant and equipment 0 47
Interest paid, net (monetary flows) 36 461 1,057
Changes in working capital 2,263 2,684
Inventories 17 (2,172) 1,270
Customer and other receivables 15 1,437 3,056
Other assets and liabilities (561) (2,097)
Supplier and other accounts payable 23 2,830 126
Deferred and accrued items 729 467
Reclassification from available-for-sale to property, plant and equipment 6 0 (138)
Other cash flows from operations: (366) (519)
Income tax received/(paid) (366) (201)
Other operating receipts/(payments) 0 (318)
TOTAL NET INVESTING CASH FLOW (22,312) 6,446
Investment payments: (22,986) (6,477)
Property, plant and equipment, intangible assets and investment property 6 and 8 (10,179) (6,477)
Other financial assets 13 (12,807) 0
Divestment receipts: 4 12,099
Other financial assets 13 0 11,652
Other assets 4 447
Other investing cash flow 670 824
Other investment receipts/(payments) 670 824
TOTAL NET FINANCING CASH FLOW (5,704) (23,051)
Receipts and (payments) in connection with equity instruments: (2,905) (570)
Depreciation and amortisation 0 10)
Acquisition 20 (3,159) (701)
Disposal 20 254 141
Receipts and (payments) in connection with financial liabilities: 1,309 (17,160)
Issue 26 31,068 21,726
Refund and amortisation (29,759) (38,886)
Other financing cash flow (4,108) (5,321)
Other financing receipts/(payments) (4,108) (5,321)
TOTAL NET CASH FLOW FOR THE YEAR (5,907) 4,122
Net increase / (decrease) in cash and cash equivalents (5,907) 4,122
Beginning balance of cash and cash equivalents 22,458 18,336
ENDING BALANCE OF CASH AND CASH EQUIVALENTS 16,551 22,458
31/12/14 31/12/13
56
Stake (%)
Registered offices31 December 2014
Pharma Mar, S.A.U. (1) 100% - 100% Avda. Reyes, 1 – Colmenar Viejo – Madrid, Spain
Genómica, S.A.U. (6) 100% - 100% Alcarria, 7 – Coslada – Madrid, Spain
Zelnova, S.A. (1) 100% - 100% Torneiros – Porriño – Pontevedra, Spain
Xylazel, S.A. (1) 100% - 100% Las Gándaras -Porriño –Pontevedra, Spain
Promaxsa Protección de Maderas; S.L. (2) 100% 100% Avda. Fuentemar, 16, 1º – Coslada – Madrid, Spain
Noscira, S.A. en liquidación 73.32% - 73.32% Plaza del Descubridor Diego de Ordás, 3 Planta 5ª Madrid, Spain
Pharma Mar USA (3)- - 100%* 100% Cambridge - Massachusetts – U.S.A.
Pharma Mar AG (Switzerland) (7) - 100%* 100% Aeschenvorstadt, 71- Basel –Switzerland
Pharma Mar SARL (France) - 100%* 100% 120, Av. Charles Gaulle- Neuilly-sur-Seine - France
Pharma Mar GmbH (Germany) (5) - 100%* 100% Rosenheimer Platz, 6 – Munich – Germany
Pharma Mar, S.r.L. (Italy) (8) - 100%* 100% Via Giorgio Stephenson, 29 Milan, Italy
Copyr, S.p.A. (Italy) (4) - 100%** 100% Via Giorgio Stephenson, 29 Milan, Italy
Genómica, A.B. - 100%*** 100% Ideon Science Park Sheelevage, 17 Lund, Sweden
Sylentis, S.A. (6) 100% - 100% Plaza del Descubridor Diego de Ordás, 3 Planta 5ª Madrid, Spain
(**) Pharma Mar USA is wholly owned by Pharma Mar, S.A.U., as are Pharma Mar AG, Pharma Mar SARL, Pharma Mar GmbH and Pharma Mar, S.r.L.
(**) Copyr, S.A. is wholly owned by Zelnova, S.A.
(***) Genómica, A.B. is wholly owned by GENOMICA, S.A.U.
(1) Audited by PricewaterhouseCoopers Auditores, S.L. (2) Audited by Audinvest, S.A.
(3) Audited by Walter & Suffain, P.C. (4) Audited by Trevor, S.R.L.
(5) Audited by Audalis Notax (6) Audited by KPMG Auditores, S.L.
(7) Audited by PricewaterhouseCoopers AG (8) Audited by ProreviAuditing, Srl
TotalIndirectDirect
1. General information
Zeltia, S.A., the Group's controlling company (hereinafter, “Zeltia“ or “the Company“), was incorporated as a limited company in Spain for
an indefinite period on 3 August 1939. Its registered offices are in calle Príncipe, 24, Vigo, Pontevedra.
Since then, its corporate purpose and principal activity have comprised the management, support and promotion of its subsidiaries, essentially in the chemical and biopharmaceutical sectors.
For the purposes of drafting these financial state-ments, a group is considered to exist when the con-trolling company has one or more subsidiaries over which it has control, directly or indirectly.
The company's shares are listed in the electronic market.
The detail of Zeltia's subsidiaries which, with the Company, constitute the consolidated Group (hereinaf-ter, the Group) as of 31 December 2014 is as follows:
A) Description of subsidiaries
The principal activity of those companies, all of which were fully consolidated as of 31 December 2014 and 2013, is as follows:
Pharma Mar, S.A.U. (PharmaMar): Research, de-•velopment, production and marketing of all types of bioactive products of marine origin for appli-cation in oncology. On 2 November 2009, the European Commission granted authorization for PharmaMar to commercialize Yondelis® (trabec-tedin) in combination with pegylated liposomal doxorubicin to treat relapsed platinum-sensitive ovarian cancer. In 2007, the European Commis-sion had granted authorization to market Yonde-lis® for treating soft tissue sarcoma (STS). As of 31 December 2014, PharmaMar was continuing to develop its other products and was also develop-ing Yondelis® for therapeutic uses other than soft tissue sarcoma and ovarian cancer.
Genomica, S.A.U. (Genomica): In 2014 and 2013, •it was engaged in the development and market-ing of biopharmaceutical applications, diagnosis and services related to these activities.
Zelnova, S.A. (Zelnova): In 2014 and 2013, it was •engaged in the manufacture and marketing of domestic and industrial insecticides and air fresh-eners.
Xylazel, S.A. (Xylazel): In 2014 and 2013, it was •engaged in the manufacture and sale of wood and metal protective and decorative products, paints and similar products.
Promaxsa Protección de Maderas, S.L.U. (Pro-•maxsa): Incorporated by Protección de Mad-eras, S.A.U. in 2011. In 2014 and 2013, it was engaged mainly in the provision of services for treating and protecting wood, and repairing and preserving structures, as well as insect control and disinfection.
Noscira, S.A. en liquidación (Noscira): This com-•pany is in liquidation (Note 19). On 18 December 2012, the Shareholders' Meeting of Noscira re-solved to dissolve the company and commence the period of liquidation of same, since the com-pany had an equity imbalance and was in one of the situations of dissolution established by article
363.1.e) of the Capital Companies Act as its net eq-uity had declined to less than one-half of its capital stock.
Pharma Mar USA: In 2014 and 2013, it was pri-•marily engaged in business development in the United States.
Pharma Mar AG: This company was founded by •PharmaMar, and in 2014 and 2013 it was prima-rily engaged in marketing pharmaceutical prod-ucts in the Swiss market.
Pharma Mar SARL.: This company was founded •by PharmaMar, and in 2014 and 2013 it was primarily engaged in marketing pharmaceutical products in France.
PharmaMar GmbH: This company was founded •by PharmaMar, and in 2014 and 2013 it was primarily engaged in marketing pharmaceutical products in the German market.
Pharma Mar S.r.L.: This company was founded by •PharmaMar. in 2012. In 2014 and 2013 it was primarily engaged in marketing pharmaceutical products in the Italian market.
Copyr, S.p.A. (Copyr): This company was ac-•quired by Zelnova in 2006. Domiciled in Milan, Italy. Copyr's main activity in 2014 and 2013 was the manufacture and sale of automatic aerosol dispensers under its Copyrmatic brand. Copyr also produces products for ecological farming.
Genomica, A.B.: A company incorporated by Ge-•nomica, S.A.U. in 2013. In 2014 and 2013, it was engaged mainly in marketing biopharmaceutical applications, diagnosis and services related to these activities in the Scandinavian market.
Sylentis, S.A.U. (Sylentis): Founded in 2006. •This company's main activity is the research, development, production and sale of products with therapeutic activity based on reducing or silencing gene expression, and pharmaceutical derivatives of same in a range of formulations and applied in various ways to all types of dis-eases; it does not yet have any product on the market.
57
58
B) Variations in the subsidiaries in 2014
In 2014, PharmaMar performed a capital in-crease, which was approved in October, for a total of fifteen million four hundred and eighty-six thou-sand five hundred and seven euro and ninety cent (15,486,507.90) by issuing 257,679 new registered shares with a par value of sixty euro and ten cent each and an issue premium of thirty-six euro and ninety-two cent per share, by partly offsetting a debt claim by Zeltia against PharmaMar.
Sylentis increased capital twice in 2014.The first capital increase, resolved upon in April, was for 6 million euro through the issuance of 24 million reg-istered shares of 0.01 euro (one euro cent) par value each, and a 0.24 euro (24 euro cent) issue premium, all by partly offsetting a debt claim by Zeltia against Sylentis.
The second capital increase, resolved upon in Oc-tober, was for 10 million euro through the issuance of 40 million registered shares of 0.01 euro (one euro cent) par value each, and a 0.24 euro (24 euro cent) issue premium, all by partly offsetting a debt claim by Zeltia against Sylentis.
In 2014, Pharma Mar GmbH performed a 450 thousand euro capital increase that was fully sub-scribed.
59
C) Variations in the subsidiaries in 2013
The detail of Zeltia's subsidiaries which, with the Company, constitute the consolidated Group (hereinafter, the Group) as of 31 December 2013 is as follows:
31 December 2013
Pharma Mar, S.A.U. (1) 100% - 100% Avda. Reyes, 1 – Colmenar Viejo – Madrid, Spain
Genómica, S.A.U. (6) 100% - 100% Alcarria, 7 – Coslada – Madrid, Spain
Zelnova, S.A. (1) 100% - 100% Torneiros – Porriño – Pontevedra, Spain
Xylazel, S.A. (1) 100% - 100% Las Gándaras -Porriño –Pontevedra, Spain
Promaxsa Protección de Maderas; S.L. (2) 100% - 100% Avda. Fuentemar, 16, 1º – Coslada – Madrid, Spain
Noscira, S.A. en liquidación (1) 73.32% - 73.32% Plaza del Descubridor Diego de Ordás, 3 Planta 5ª Madrid, Spain
Pharma Mar USA (3) - 100%* 100% Cambridge - Massachusetts – U.S.A.
Pharma Mar AG (Switzerland) (5) - 100%* 100% Aeschenvorstadt, 71- Basel –Switzerland
Pharma Mar SARL (France) - 100%* 100% 120, Av. Charles Gaulle- Neuilly-sur-Seine - France
Pharma Mar GmbH (Germany) - 100%* 100% Rosenheimer Platz, 6 – Munich – Germany
Pharma Mar, S.r.L. (Italy) (7) - 100%* 100% Via Giorgio Stephenson, 29 Milan, Italy
Copyr, S.p.A. (Italy) (4) - 100%** 100% Via Giorgio Stephenson, 29 Milan, Italy
Genómica, A.B. - 100%*** 100% Ideon Science Park Sheelevage, 17 Lund, Sweden
Sylentis, S.A. (6) 100% - 100% Plaza del Descubridor Diego de Ordás, 3 Planta 5ª Madrid, Spain
Registered offices
Stake (%)
(*) Pharma Mar USA is 100% owned by Pharma Mar, S.A.U., as are Pharma Mar AG, Pharma Mar SARL, Pharma Mar GmbH, Pharma Mar Ltd and Pharma Mar S.r.L.
(**) Copyr, S.A. is 100% owned by Zelnova, S.A.
(***) Genómica, A.B. is wholly owned by Genómica, S.A.U.
(1) Audited by PricewaterhouseCoopers Auditores, S.L. (2) Audited by Audinvest, S.A.
(3) Audited by Walter & Suffain, P.C. (4) Audited by Trevor, S.R.L.
(5) Audited by PriceWaterhouseCoopers AG (6) KPMG Auditores, S.L.
(7) ProreviAuditing, Srl
TotalIndirectDirect
In 2013, Promaxsa performed the capital increase that had been decided on in January, increasing capi-tal by 5 thousand euro by issuing 5,000 new shares of 1 euro par value each, with an issue premium of 100 euro per share, by partly offsetting a debt claim by Zeltia against Promaxsa.
In August 2013, Genomica increased capital by issuing 19,137 new shares of 60.1 euro par value each, with an issue premium of 160 euro per share, i.e. amounting to a total of 3,061,920 euro, by off-setting a debt claim by Zeltia against Genomica.
In January 2013, Genomica established a wholly-owned subsidiary called Genomica, A.B. with domi-
cile in Sweden, whose object is basically to market biopharmaceutical applications, diagnosis and serv-ices related to these activities. The company was incorporated with a capital stock of 5,826.63 euro, represented by 500 shares.
In 2013, Pharma Mar S.r.L. performed a 450 thousand euro capital increase that was fully sub-scribed.
The figures contained in the documents com-prising these consolidated financial statements are expressed in thousands of euro, the Group's presen-tation currency and the controlling company's func-tional currency.
60
6161
62
2. Accounting principles
Below are described the main accounting prin-ciples adopted in drafting these consolidated financial statements. Those principles were
applied on a uniform basis for all the years covered by these consolidated financial statements except where indicated otherwise.
A. Basis of presentation
These consolidated financial statements for 2014 and those for 2013 presented for comparison were prepared in accordance with the International Finan-cial Reporting Standards and IFRIC interpretations adopted for use in the European Union in accord-ance with Regulation (EC) No 1606/2002 of the European Parliament and of the Council of 19 July 2002, by virtue of which all companies governed by the law of a Member State of the European Union and whose shares are listed on a regulated market of a Member State must prepare their consolidated accounts, for annual periods beginning on or after 1 January 2005, in accordance with the IFRS adopted by the European Union.
The consolidated financial statements were pre-pared under the historical cost method although modified by the revaluation of certain land and buildings, available-for-sale financial assets, and fi-nancial assets and liabilities (including derivatives) at fair value through profit or loss.
In order to draft the financial statements under IFRS, certain critical accounting estimates must be used. Management must also use its judgement when applying the Group's accounting policies. Note 4 details the areas that require greater judgement or are more complex and the areas where significant assumptions and estimates are made for the consoli-dated financial statements.
The accounting policies applied in drawing up the consolidated financial statements as of 31 December 2014 are coherent with those used to prepare the consolidated financial statements for the year ended 31 December 2013, as described in those consolidat-ed financial statements, and no material estimates were made that are not consistent with those made in 2013.
Standards, amendments and interpretations that are obligatory for all annual periods beginning on or after 1 January 2014
The group adopted the following standards for the first time during the financial year that com-menced on 1 January 2014:
IFRS 10 “Consolidated Financial Statements“.•
IFRS 11 “Joint Arrangements“.•
IFRS 12 “Disclosure of interests in other entities“.•
IAS 27 (Amended) “Separate Financial State-•ments“.
IAS 28 (Amended) “Investments in associates and •joint ventures“.
IFRS 10 (Revised), IFRS 11 (Amendment) and IFRS •12 (Revised) “Consolidated Financial Statements, Joint Arrangements and Disclosure of Interests in Other Entities: Transition Guidance (Amendments to IFRS 10, IFRS 11 and IFRS 12)“.
IFRS 32 (Amendment): “Financial instruments: •Disclosures — Offsetting Financial Assets and Fi-nancial Liabilities“.
Amendments to IAS 36, “Recoverable amount •disclosures for non-financial assets“.
Amendment to IAS 39 “Novation of derivatives •and continuation of hedge accounting“.
The adoption of the above-mentioned stand-ards, amendments and interpretations has not had a material impact on these consolidated annual ac-counts.
Standards, amendments and interpretations that have not yet entered into force but which may be adopted before annual periods commencing on or after 1 January 2014
At the date of authorizing these consolidated financial statements, the IASB and the IFRS Inter-pretations Committee had published the standards, amendments and interpretations described below
whose application is mandatory from the year 2015, although the Group has not adopted them in advance.
IFRIC 21 “Levies“.•
Amendment to IAS 19 “Defined Benefit Plans: •employee contributions“.
Standards, amendments and interpretations of existing standards that cannot be adopted early or have not been adopted by the European Union
IFRS 9 “Financial Instruments“.•
IFRS 15 “Revenue from contracts with customers“.•
IAS 16/IAS 38 (Amendments) “Acceptable meth-•ods of depreciation and amortization“.
Amendment to IFRS 11 “Accounting for acquisi-•tions of interests in joint operations“.
The Group is assessing the impact that the new standards / amendments / interpretations may have on the Group's consolidated financial statements and it is not expected to have a material impact on the Group's consolidated financial statements.
In view of the Group's activity and structure, no other standards adopted by the European Union en-tering into force on 1 January 2015 are expected to affect the Group in the future. Moreover, the Group has not adopted in advance any standards, interpre-tations or amendments that will come into force in the future.
B. Consolidation principles
All entities over which the Group has control, in-cluding structured entities, are classified as subsidi-aries. The Group is considered to control an entity when it is exposed, or has rights, to variable income from its involvement in the investee and it can use its power over it to influence such income. Subsidiaries are consolidated on the date on which their control is transferred to the Group and are deconsolidated on the date on which control ceases.
63
64
The Group uses the acquisition method for rec-ognizing business combinations. Consideration for the acquisition of a subsidiary is measured as the fair value of the transferred assets, the liabilities incurred with the previous owners of the acquiree, and the equity instruments issued by the Group. The consid-eration will also include the fair value of any asset or liability which arises from any contingent considera-tion agreement. The identifiable assets and liabilities acquired and the liabilities and contingent liabilities assumed in a business combination are carried ini-tially at their fair value on the acquisition date. For each business combination, the Group may elect to measure non-controlling interests at fair value or at the proportionate share of the recognized amounts of the acquiree's identifiable net assets.
Acquisition-related costs are recognized in profit or loss in the years that they are incurred.
If the business combination takes place in stages, the acquisition-date carrying amount of the acquir-er's previously-held equity interest in the acquiree is re-measured at acquisition-date fair value through profit or loss.
Any consideration is recognized at acquisition-date fair value. Subsequent changes in the fair value of contingent consideration considered as an asset or liability are recognized in accordance with IAS 39 in profit or loss or as a change in other comprehen-sive income. Contingent consideration classified as equity is not re-measured and its subsequent settle-ment is recognized in equity. Acquired non-control-ling interests are measured at the combination date either at fair value or at the value of the attributable net assets.
The excess of the consideration transferred, the amount of any non-controlling interest in the ac-quiree and the acquisition-date fair value of any previously-held equity interest in the acquiree with respect to the fair value of the identifiable net as-sets acquired is recognized as goodwill. If the total of the consideration transferred, the recognized non-controlling interest and previously-held equity inter-est is lower than the fair value of the net assets of a dependent company acquired in very advantageous conditions, the difference is recognized directly in profit or loss.
If the dependent company is fully consolidated, intercompany transactions, balances, and revenues
and expenses on transactions between Group com-panies are eliminated. Also eliminated are gains and losses on intragroup transactions recognized as as-sets. The accounting policies of the dependent com-panies have been modified where necessary to en-sure uniformity with the Group's policies.
Note 1 details the identification data of the sub-sidiaries that are consolidated.
The financial year of all the subsidiaries is the cal-endar year.
Transactions and non-controlling interests
The Group books transactions with minority in-terests as transactions with holders of Group equity. In acquisitions of minority interests, the difference between the price paid and the related proportion of the carrying value of the subsidiary's net assets is recognized in equity. Gains or losses resulting from the sale of minority interests are also recognized in equity.
C. Segment reporting
Operating segments are presented coherently with the internal information presented to the chief oper-ating decision maker (CODM). The CODM is respon-sible for allocating resources to operating segments and for evaluating their performance. The Board of Directors has been identified as the CODM.
D. Foreign currency transactions
(a) Functional and presentation currency
The items in the financial statements of each Group entity are measured in the currency of the main economic environment in which the entity op-erates. Pharma Mar USA, the US dependent com-pany, has the euro as its functional currency, mainly because of its financing sources and its activity.
Regarding Pharma Mar AG, the Swiss subsidi-ary, and Genomica, AB, the Swedish subsidiary, their functional currencies in 2014 and 2013 were the Swiss franc and the Swedish krona, respectively, as they have begun marketing pharmaceuticals and
65
their sales are in local currency. The impact of trans-lation to euro is not material given the small volume which their transactions represent with respect to the Group.
The consolidated financial statements are present-ed in thousands of euro, the Company's functional currency and the Group's presentation currency.
(b) Transactions and balances
Foreign currency transactions are translated to the functional currency at the exchange rates rul-ing on the transaction dates, or the measurement dates in the case of revalued items. Exchange gains or losses arising on the settlement of those transac-tions and on translating monetary assets and liabili-ties denominated in foreign currency at the year-end exchange rate are recognized in profit or loss, except when deferred in other comprehensive income as a qualifying cash flow hedge or qualifying net invest-ment hedge.
Exchange gains and losses on loans and cash and cash equivalents are recognized in profit and loss un-der “Revenues and expenses“.
Changes in the fair value of available-for-sale fi-nancial assets denominated in foreign currency are analysed considering the exchange differences re-sulting from changes in the amortized cost of the in-strument and other changes in the security's carrying amount. Exchange differences related to changes in the amortized cost are recognized in profit and loss and other changes to the net carrying value are rec-ognized in comprehensive income.
Exchange differences on non-monetary items, such as equity instruments at fair value through prof-it or loss, are recognized in the income statement as a component of that gain or loss in fair value. Exchange differences on non-monetary items, such as available-for-sale equity instruments, are included in other comprehensive income.
(c) Group entities
The income and financial position of all the Group undertakings having a functional currency other than the presentation currency are translated to the pres-entation currency as follows:
Assets and liabilities on each balance sheet are •translated at the closing exchange rate on the balance sheet date.
Revenues and expenses in each income statement •are translated at the average exchange rates.
All resulting exchange differences are recognized •in other comprehensive income.
Goodwill and fair value adjustments arising on the acquisition of a foreign undertaking are treated as assets and liabilities of the foreign undertaking and translated at the exchange rate applicable at the accounting close. The resulting exchange differences are recognized in other comprehensive income.
E. Property, plant and equipment
The property comprises mainly the buildings and installations of the subsidiaries in Colmenar Viejo, Madrid (PharmaMar), and Porriño and Pontevedra (Zelnova and Xylazel). Items of property, plant & equipment are recognized at cost less any accumu-lated depreciation and impairment losses, except in the case of land, which is presented net of impair-ment losses.
The historical cost includes expenses directly at-tributable to the acquisition of the items.
Subsequent costs are included in the asset's car-rying amount or recognized as a separate asset only when it is probable that future economic benefits as-sociated with the item will flow to the Group and
the cost of the item can be measured reliably. Other repairs and maintenance are expensed as incurred.
Land is not depreciated. Other assets are depre-ciated under the straight-line method to assign the difference between the cost and residual value over their estimated useful lives:
Structures 17-50
Machinery and installations 5-10
Tools and equipment 3-10
Furniture and fixtures 3-10
Vehicles 4-7
Computer hardware 4-7
Other assets 7-15
Years of useful life
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The residual value and the useful life of an asset are reviewed, and adjusted if necessary, at each bal-ance sheet date.
When the carrying amount of an asset exceeds its estimated recoverable amount, its value is written down immediately to the recoverable amount.
Gains and losses on the sale of property, plant & equipment, calculated by comparing the proceeds with the carrying amount, are recognized in profit and loss.
F. Investment property
The Group classifies as “investment property“ the land and structures held to earn rent or for capi-tal appreciation, or both, which are not occupied by the Group.
Some of those properties were revalued at fair value under IFRS 1 on 1 January 2004 and the al-
located value was considered as the cost for subse-quent measurement. Although the Group uses the cost method, this property's carrying amount was not changed since its value has not depreciated or been impaired.
G. Intangible assets
a) Goodwill
Goodwill is the amount by which the cost of an acquisition exceeds the fair value of the Group's in-terest in the identifiable net assets of the acquired dependent company on the acquisition date. Good-will recognized separately is measured for impair-ment each year and carried at its cost less accumu-lated impairment losses. Impairment of goodwill is not recoverable. Gains and losses on the sale of an undertaking include the carrying amount of the goodwill related to the sold undertaking.
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For the purposes of impairment tests, goodwill acquired in a business combination is allocated to the cash-generating units or groups of cash-gen-erating units that are expected to benefit from the synergies in the combination. Each unit or group of units to which goodwill is assigned represents the lowest level within the undertaking at which good-will is monitored for internal management purposes. Goodwill is monitored at operating segment level.
Goodwill is measured for impairment on an an-nual basis, or more frequently if events or changes in circumstances indicate a potential impairment loss. The carrying amount of goodwill is compared with the recoverable amount, i.e. the higher of the fair value less the cost of sale or the value in use. Impair-ment losses are recognized immediately in profit or loss and are not reversed subsequently.
b) Trademarks and licences
These assets are carried at historical cost. The Group considers that trademarks acquired from third parties have an indefinite life; therefore, they are capitalized at their acquisition cost and not amor-tized, so an impairment test is performed at the end of each year.
c) Computer programs
Acquired computer software licences are capi-talized based on the costs incurred to acquire and prepare them for using the specific program. Those costs are amortized over their estimated useful lives (mainly 5 years).
Computer program maintenance costs are recog-nized in profit or loss as incurred. Development ex-penses directly attributable to the design and testing of computer programs that are identifiable, unique and susceptible to being controlled by the Group are recognized as intangible assets when the following conditions are met:
It is technically possible to complete production •of the intangible asset so that it may be available for use or sale.
Management intends to complete the intangible •asset in question for use or sale.
There is the capacity to use or sell the intangible •asset.
The form in which the intangible asset will gener-•ate likely economic benefits in the future is de-monstrable.
Sufficient technical, financial and other resources •are available to complete development and to use or sell the intangible asset.
The cost attributable to the intangible asset dur-•ing development can be measured reliably.
H. Research & development expenses
Research and development expenses are ex-pensed as incurred. Development project costs (de-sign and testing of new and improved products) are recognized as intangible assets when it is prob-able that the project will be successful, based on its technical and commercial viability; specifically, they are capitalized when the following requirements are met: (i) it is technically possible to complete production of the intangible asset so that it may be available for use or sale; (ii) management intends to complete the intangible asset in question for use or sale; (iii) there is the capacity to use or sell the intangible asset; (iv) the form in which the intangi-ble asset will generate likely economic benefits in the future is demonstrable; (v) sufficient technical, financial and other resources are available to com-plete development and to use the intangible asset; and (vi) the cost attributable to the intangible as-set during development can be measured reliably. Since most of the Group's development expenses are related to drug development, it is considered that marketing approval by a prestigious interna-tional or Spanish regulator is a pre-requisite for capitalization.
Development costs with finite useful lives that are recognized as an asset are amortized from the start of the product's commercial production on a straight-line basis over the period in which income is expected to be generated. Other development ex-penses are expensed as incurred.
Development costs that were previously ex-pensed are not capitalized as an intangible asset in
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a subsequent year. For this reason, the commercial authorization for Yondelis® granted to subsidiary PharmaMar, as detailed in Note 1, did not entail capitalization of the development expenses in-curred for that therapeutic use prior to the authori-zation dates. It is possible to capitalize development expenses for supplementary trials for a therapeutic use for which the regulatory authority has already given commercialization approval. The other pro-grammes for Yondelis® for other therapeutic uses and for the other products are still at various stages of clinical trials.
To date, PharmaMar has received authorization from the European regulatory authorities to com-mercialize Yondelis® in Europe for two therapeutic uses: soft tissue sarcoma and ovarian cancer.
I. Impairment losses on non-financial assets
Assets with indefinite useful lives are not depre-ciated. Instead, they are measured for impairment each year.
Assets that are subject to depreciation are as-sessed for impairment only when there are events or circumstances which indicate that their net car-rying amount exceeds their recoverable amount. An impairment loss is recognized for the amount by which the carrying amount exceeds the recoverable amount.
Intangible assets that have an indefinite useful life or intangible assets that are not capable of be-ing used are not amortized and are tested annually for impairment losses. The assets that are amortized are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognized for the amount by which the asset's carrying amount exceeds the recoverable amount. The recoverable amount is determined as the fair value less the cost of sale, or the value in use, which-ever is higher. To perform the impairment tests, the assets are grouped at the lowest level of separately identifiable cash flows (cash-generating units). Pre-existing impairment losses on non-financial assets (other than goodwill) are measured at each report-ing date to consider the possibility of reversing the impairment.
J. Financial assets
a) Classification
The Group classifies its financial assets as follows: financial assets at fair value through profit or loss, loans and receivables, and available-for-sale financial assets. The classification depends on the purpose for which the financial assets were acquired. Management clas-sifies financial assets upon initial recognition.
Financial assets at fair value through profit or loss.•
These are financial assets held for trading which were acquired primarily to realize a gain as a re-sult of fluctuations in their value. The assets in this category are classified as current assets if they are expected to be realized within 12 months from the balance sheet date. Derivatives are also clas-sified as available for sale unless designated as hedges.
Loans and receivables.•
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are in-cluded in current assets, except for those matur-ing at over 12 months as from the balance sheet date, which are classified as non-current assets. The Group's loans and receivables include mainly the customer and other accounts receivable and the cash and cash equivalents in the balance sheet.
Available-for-sale financial assets.•
Available-for-sale financial assets are non-deriva-tive financial assets that are designated as avail-able for sale or are not classified in any of the other categories. They are included in non-cur-rent assets unless management plans to sell them within 12 months from the balance sheet date. Changes are recognized through equity (revalua-tion reserves).
b) Recognition and measurement
Habitual acquisitions or disposals of investments are recognized on the trade date, i.e. the date on
which the Group undertakes to acquire or sell the asset. In the case of financial assets not at fair val-ue through profit or loss, investments are initially recognized at fair value plus transaction costs. Fi-nancial assets at fair value through profit or loss are recognized initially at their fair value, and the transaction costs are recognized in profit or loss. Financial assets are derecognized when the rights to receive the investments' cash flows have ex-pired or have been transferred and the Group has transferred substantially all the risks and rewards of ownership. Available-for-sale financial assets and financial assets at fair value through profit or loss are subsequently carried at fair value. Loans and receivables are carried at amortized cost using the effective interest method.
Gains or losses arising from fair value changes in “financial assets at fair value through profit or loss“ are recognized in profit or loss under “fair value chang-es in financial assets“ in the year in which they arise. Dividend revenues from financial assets at fair value through profit or loss are recognized as other revenue when the Group becomes entitled to collect them.
Fair value changes in available-for-sale monetary and non-monetary financial assets are recognized in other comprehensive income.
When available-for-sale securities are sold or im-paired, accumulated adjustments in the fair value through equity are recognized in profit or loss as “gains or losses on investment securities“.
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Interest on instruments available for sale, cal-culated by the effective interest method, is recog-nized in profit or loss under other revenues. Divi-dends from equity instruments available for sale are recognized in profit and loss under other rev-enues when the Group becomes entitled to collect them.
At the end of each accounting period, the Group assesses whether there is objective evi-dence that a financial asset or group of financial assets has been impaired. In the case of invest-ments in equity instruments classified as avail-able for sale, a material or prolonged decline in the fair value of the instrument below its cost is also considered to be evidence of impairment. If
such evidence exists for available-for-sale finan-cial assets, the accumulated loss— measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognized in profit or loss—is eliminated in equity and is recognized in profit or loss. Impairment losses recognized in consolidated profit or loss on net equity in-struments are not reversed through consolidated profit or loss. If, in a subsequent period, the fair value of a debt instrument classified as available for sale increases and the increase can be objec-tively attributed to an event occurring after the impairment loss was recognized in profit or loss, the impairment loss is reversed through consoli-dated profit or loss.
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c) Offset of financial instruments
Financial assets and financial liabilities are offset and presented net on the balance sheet when the Group has a legally enforceable right to offset the amounts recognized and intends to settle them at their net amounts or to realize the asset and settle the liability simultaneously. The legally enforceable right should not be contingent upon future events and should be enforceable in the normal course of business and in the event of default, insolvency or bankruptcy of the company or the counterparty. The Group does not consider there to be material net-table assets and liabilities.
K. Derivatives
The derivatives arranged by the Group do not qualify for hedge accounting; they are initially rec-ognized at fair value on the contract date and sub-sequently measured at fair value. Fair value changes are recognized immediately in profit or loss under “fair value changes in financial assets“.
L. Leases
Leases of property, plant and equipment in which the Group acts as lessor and has substantially all the risks and rewards incidental to ownership of the as-sets are classified as finance leases. Finance leases are capitalized at the start of the lease term at the fair value of the leased property or the present value of the minimum lease payments, whichever is lower. Each lease payment is apportioned between the re-duction of the outstanding liability and the finance charge so as to produce a constant interest rate on the outstanding balance of the liability. The payment liability arising from the lease, net of the finance charge, is recognized in long-term liabilities, and the part payable in the next twelve months, in current liabilities. The interest part of the finance charge is expensed during the lease term so as to produce a constant periodic interest rate on the outstanding balance of the liability in each period.
Leases where the lessor retains a significant por-tion of the risks and rewards incidental to ownership are classified as operating leases. Operating lease payments (net of any incentive received from the les-sor) are expensed on a straight-line basis during the lease term.
M. Inventories
Inventories are measured at the lower of cost or net realizable value. Net realisable value is the esti-mated selling price in the ordinary course of business less the variable costs necessary to make the sale.
The cost price is obtained as follows:
Commercial inventories, raw materials and other •supplies: weighted average cost price.
Finished and semi-finished products and prod-•ucts in process: weighted average cost of the raw and ancillary materials used, plus the applicable amount of direct labour and general manufactur-ing expenses (based on normal production capac-ity).
Inventories acquired and/or produced for the pur-pose of marketing pharmaceuticals are capitalized when it is determined there is a strong likelihood that they will be sold; in practice to date, that moment is the time when the competent authorities recom-mend granting the corresponding authorization or the date of presentation of a registration application for a new therapeutic use of a drug that has already been authorized. Inventories are impaired up to that point, and the impairment charge is reversed once the strong probability of marketing is demonstrable.
N. Trade receivables
Trade receivables are recognized initially at fair value and subsequently at amortized cost based on the effective interest method, minus the impairment loss provision. An impairment loss provision is recog-nized for trade receivables when there is objective evidence that the Group will not be able to collect all the outstanding amounts in accordance with the original terms of the receivables. Significant finan-cial difficulties at the debtor, the probability that the debtor may be declared bankrupt or go into finan-cial reorganization, and failure or delays in payment are considered to be indicators of impairment of the account receivable. The provision amount is the dif-ference between the asset's carrying amount and the present value of the estimated future cash flow, discounted at the effective interest rate. The carrying amount of the asset is written down as the provision account is used, and the loss is recognized in profit and loss. When an account receivable becomes un-
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collectible, it is adjusted against the bad debt provi-sion.
Part of the sales by the group companies is instru-mented in the form of commercial bills and certifica-tions, accepted by the customers or otherwise. In the accompanying consolidated balance sheets, the bal-ances of customer accounts and commercial drafts receivable include the bills and certifications which had been discounted but had not yet matured as of 31 December, on which the Group has bad debt risk, and the same amount is recorded as a contra-item under bank loans.
O. Cash and cash equivalents
Cash and cash equivalents include cash on hand, demand deposits at banks, and short-term, highly-liquid investments with an initial maturity of three months or less, and bank overdrafts. Bank overdrafts are classified as financial debt under current liabilities in the balance sheet.
P. Share capital and distribution of dividends
Ordinary shares are classified as equity. Incremen-tal costs directly attributable to the issuance of new shares and options are shown in equity as a deduc-tion, net of tax, from the proceeds obtained.
When any Group company acquires shares of the Company (treasury shares), the consideration paid, including any directly attributable incremental costs (net of income taxes), is deducted from equity at-tributable to the Company's equity holders until can-cellation, re-issuance or disposal. Where such shares are subsequently sold or re-issued, any consideration received, net of any directly attributable incremental transaction costs and the related income tax effects, is included in equity attributable to the Company's equity holders.
Dividends on ordinary shares are recognized in liabilities in the year that they are approved by the Company's shareholders.
Q. Government grants
Government grants are recognized at fair value when there is reasonable assurance that the grants
will be received and the Group will comply with all the conditions attached to them. The grants are rec-ognized under non-current or current deferred rev-enues, depending on their maturity.
Government grants related to the acquisition of fixed assets are included under non-current liabilities as deferred official subsidies and are recognized in profit or loss on a straight-line basis over the expect-ed life of those assets.
Grants, whether repayable or otherwise, are rec-ognized as liabilities and are recognized in revenues on a systematic, rational basis correlated with the ex-penses connected to the subsidy.
For these purposes, a subsidy is considered to be non-repayable when there is an individual agreement to grant the subsidy, all the conditions established for granting it have been fulfilled, and there are no reasonable doubts that it will be collected.
Monetary subsidies are recognized at the fair val-ue of the amount granted and non-monetary subsi-dies at the fair value of the received asset, at the time of recognition in both cases.
Non-repayable subsidies related to the Group's research and development projects are recognized in profit or loss in proportion to the amortization of the intangible assets or when the asset is disposed of, impaired or derecognized. Non-repayable subsi-dies related to specific expenses are recognized in profit or loss in the year in which the correspond-ing expenses accrue, and those granted to offset an operating deficit are recognized in the year in which they are granted, except where they are allocated to offset operating deficits in future years, in which case they are recognized in those years.
R. Trade accounts payable
Trade accounts payable are obligations to pay for goods or services acquired from suppliers in the ordinary course of business. Accounts payable are classified as current if the payments mature in one year or less (or within the normal operating cycle, if longer). Otherwise, they are presented as non-current liabilities. Trade accounts payable are recognized initially at fair value and subsequently at amortized cost based on the effective interest method.
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S. Financial debt
Financial debt is initially recognized at fair value, net of the transaction costs incurred. Subsequently, debt is measured at amortized cost based on the effective inter-est method. The difference between the funds obtained (net of the necessary costs to obtain them) and the re-imbursement value is recognized in profit or loss over the debt term based on the effective interest method.
Financial debt is classified under current liabilities unless the Group has an unconditional right to de-fer the liability settlement for at least twelve months from the balance sheet date.
Where a loan is renegotiated, its retirement or otherwise as a financial liability is considered on the basis of paragraphs 40-42 and AG62 of IAS 39.
T. Current and deferred taxes
The income tax expense includes both current and deferred taxes. The tax is recognized in profit or loss except to the extent that it refers to items recognized directly in other comprehensive income or directly in equity. In that case, the tax is also rec-ognized in other comprehensive income or directly in equity, respectively.
The current tax expense is calculated on the basis of tax law enacted or substantively enacted on the balance sheet date. Management regularly evaluates positions adopted in connection with tax returns re-garding situations where the tax laws are open to interpretation, and recognizes any necessary provi-sions on the basis of the amounts expected to be paid to the tax authorities.
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Deferred taxes are measured on the basis of the timing differences arising between the tax base of the assets and liabilities and their carrying amounts in these consolidated financial statements. However, deferred taxes arising from the initial recognition of an asset or liability in a transaction other than a business combi-nation that does not affect the accounting result or the taxable gain or loss at the transaction date are not recognized. The deferred tax is determined by applying the tax rates (and regulations) enacted or substantially enacted on the balance sheet date and which will be applicable when the corresponding deferred tax asset is realized or the deferred tax liability is settled.
Deferred tax assets are recognized when it is probable that there will be future taxable income to offset the timing differences.
Deferred tax assets are recognized for tax-de-ductible timing differences arising from investments in dependent companies, associates and joint agree-ments only to the extent that the timing difference is likely to be reversed in the future and a sufficient tax-able profit is expected to be obtained against which to offset the timing difference.
Deferred tax assets and liabilities are offset if, and only if, there is a legally acknowledged right to offset current tax assets against current tax liabili-ties and when the deferred tax assets and liabilities arise from the tax on income levied by the same tax authority on the same entity or taxable subject, or on different entities or taxable subjects wishing to settle current tax assets and liabilities for their net amount.
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U. Employee benefits
a) Pensions and similar obligations
Some Group companies have been recogniz-ing supplementary pensions for certain employees. These supplementary pensions are hedged depend-ing on the commitments that have been made:
Defined contribution plans.•
Coverage via a system of insurance policies ar-ranged with an insurance company. The annual premium to the insurance company is recognized in profit or loss.
Defined contributions to a fund on the basis of a plan established in the regulation governing the fund. Annual contributions to the fund are treated as a period expense.
b) Share-based payments
The Group has share-based equity-settled em-ployee incentive plans which vest after employees have worked at the Group for a specific period.
The fair value of the services provided by the em-ployees in exchange for the shares is recognized as a personnel expense as the services are provided, and a reserve for the incentive plans is recognized simul-taneously in equity for the same amount.
The fair value of the services to be provided by those employees is determined with respect to the fair value of the shares granted. That amount is rec-ognized in profit or loss during the vesting period. The Group regularly reviews its assumptions and ad-justs any deviation arising from employee rotation.
c) Termination indemnities
Termination indemnities are paid to employees as a result of the Group's decision to terminate the em-ployment contract before the normal retirement age or when the employee agrees to resign voluntarily in exchange for those benefits. The group recognizes these benefits on the following dates, whichever is earlier: (a) when the Group can no longer withdraw the offer of such indemnities, or (b) when the entity
recognizes the costs of a restructuring in the scope of IAS 37 which entails the payment of termination indemnities. When an offer to encourage voluntary termination by employees is made, termination in-demnities are measured on the basis of the number of employees expected to accept the offer. Benefits that are not to be paid in the twelve months follow-ing the balance sheet date are discounted to their present value.
V. Provisions
Provisions for environmental restoration, and restructuring and litigation costs are recognized when: (i) the group has a present obligation, legal or implicit, as a result of past events; (ii) a cash out-flow is likely to be needed to settle the obligation; and (iii) the amount has been estimated reliably. Restructuring provisions include lease cancellation penalties and employee termination indemnities. No provisions are recognized for future operating losses.
Where there are a number of similar obligations, the probability of the need for a cash outflow to settle them is determined considering the obliga-tions as a whole. A provision is recognized even if the probability of an outflow in connection with any item contained in the same class of obligations is low.
Provisions are calculated at the present value of the disbursement expected to be needed to settle the obligation, using a pre-tax rate that reflects cur-rent market measurements of the time value of mon-ey and the specific risks attached to the obligation. An increase in the provision due to the passage of time is recognized as an interest expense.
W. Revenue recognition
Revenue is measured at the fair value of the goods and services sold, net of value-added tax, re-turns and discounts, after eliminating sales between Group companies.
Revenue is recognized only when there is suffi-cient evidence of an agreement with other parties, the products have been delivered or the services have been provided, the fees have been established, and collection is reasonably assured.
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The Group recognized revenue from total sales of products marketed in 2014 and 2013 at nomi-nal value and claimed any applicable default interest from public authorities. Buyers are entitled to return sold goods. Based on past experience with similar sales, the Group considers that the return rate will not be material and, accordingly, considers that the conditions for recognizing ordinary revenue are met.
Revenues recognized for the provision of services are for treating and protecting wood, repairing and preserving structures, and clinical analysis services.
Regarding the licensing and co-development contracts signed by the companies in the biophar-maceuticals segment, which are recognized under “Other operating revenues/Other net gains“, the Group uses the revenue recognition method indi-cated in Note 4.
The Group's other revenues are recognized as fol-lows:
Interest revenues: recognized using the effective •interest method.
Dividends: recognized when the Group’s right to •receive payment is established.
X. Non-current assets classified as held for sale and discontinued operations
a) Non-current assets classified as held for sale
Non-current assets are classified as held for sale if it is considered that their carrying amount will be recovered principally through a sale transaction rather than through ongoing use. This condition is considered to be met only where the sale is highly probable, the asset is available for immediate sale in its present condition, and the sale is expected to be completed within one year from the date of classifi-cation. The total amount of such assets is presented in a single line-item and they are measured at their carrying amount and fair value less the necessary costs for the sale, whichever is lower depreciation and amortization cease to be taken from the time the assets are classified as available for sale.
b) Discontinued operations
Discontinued operations are those that have been sold or otherwise disposed of or which have been classified as available for sale and represent a significant segment of the consolidated Group, or form part of a single plan or constitute a subsidiary acquired exclusively for the purposes of resale. In-come from discontinued operations, both in the cur-rent year and in those presented with it, are present-ed net of taxes in a specific line-item in the income statement identified as “Income from discontinued operations“.
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3. Financial risk management
3.1. Financial risk factors
The Group's activities are subject to a number of financial risks: market risk (including ex-change rate risk, interest rate risk, fair value
risk and price risk), credit risk, and liquidity risk. The Group's overall risk management programme focus-es on the uncertainty of the financial markets and tries to minimize the potential adverse effects on the Group's returns. The Group uses financial derivatives to hedge certain risk exposures.
Zeltia's Finance Department is responsible for risk management in accordance with the Board of Direc-tors' guidelines. That Department identifies, evalu-ates and hedges the financial risks in close coopera-tion with the Group's operating units. The Board establishes guidelines for overall risk management and for specific areas such as exchange rate risks, interest rate risks, liquidity risks, the use of deriva-tives and non-derivatives, and investment of surplus liquidity.
a) Market risk
i) Exchange rate risk
Some of the Group's operations are conducted outside the euro area and, consequently, it is exposed to exchange rate risk on transactions in foreign cur-rencies, particularly the Swiss franc (the functional currency of Pharma Mar AG since 2011), the US dol-lar (because of the transaction described in Note 33), and the Swedish krona (the functional currency of Genomica AB). Exchange rate risks arise from future commercial transactions, recognized assets and li-abilities, and net investments in foreign operations.
As of 31 December 2014 and 2013 and dur-ing the years ended on those dates, the consumer chemicals segment did not have balances and had not performed transactions in foreign currencies for material amounts (purchases amounting to 1,918 thousand euro in 2014 and 2,524 thousand euro in 2013); accordingly, Group Management did not consider it necessary to establish a specific policy for hedging exchange rate risk, and it evaluates the need for hedges specifically on the basis of projected transactions. Consequently, as of 31 December 2014 and 2013, this segment did not have any type of exchange rate risk hedge in force.
The biopharmaceuticals segment engages in ma-terial transactions in foreign currencies. Although the amounts recognized on the balance sheet are not material, the volume of transactions in currencies other than the euro is material. Specifically, transac-tions in US dollars amounted to 23,493 thousand euro in 2014 (22,146 thousand euro in 2013). Ad-ditionally, transactions in Swiss francs amounted to 1,021 thousand euro in 2014 (1,634 thousand euro in 2013), transactions in pounds sterling amounted to 4,555 thousand euro in 2014 (2,995 thousand euro in 2013), and transactions in Swedish krona amounted to 631 thousand euro in 2014 (524 thou-sand euro in 2013). Group management did not con-sider it necessary to establish any policy for hedging in 2014 or 2013.
The Group has several investments in companies in other countries whose net assets are exposed to exchange rate risk, although the amounts are non-material in the context of the Group's operations.
If, as of 31 December 2014, the euro had ap-preciated by 5% with respect to the US dollar while all other variables remained constant, income after taxes for the year would have been lower by 298 thousand euro (565 thousand euro in 2013), mainly as a result of translation into euro of customer and other accounts receivable and debt denominated in US dollars. If, as of 31 December 2014, the euro had depreciated by 5% with respect to the US dollar while all other variables remained constant, income after taxes for the year would have been higher by 1,116 thousand euro (1,007 thousand euro in 2013). The material impact of variations in the dollar as of 31 December 2014 is due mainly to the amounts in dollars collected in both years, detailed in Note 33, and not to the Group's current activities.
ii) Price risk
The Group is exposed to price risk of available-for-sale equity instruments and of shares in listed investment funds at fair value through profit or loss. As for traded commodities, the Group's con-sumer chemical segment's operations are affected by the price of oil.
Investments in available-for-sale equity instru-ments are securities of foreign biopharmaceutical companies. Nevertheless, the Group's volume of investment in this type of asset is not material in the context of the Group's operations (Note 12).
The Group's policy with regard to financial as-sets is to place cash obtained in capital increases in low-risk financial assets in order to ensure the availability of funds as they are needed for research and development operations in the biopharmaceu-tical segment.
Some of the products of the consumer chemi-cals segment have a large petroleum component. As a result, this segment's operating costs and in-come are influenced by oil prices. Group policy is to pass increases in these costs through into its sale prices. Nevertheless, if the average oil price had in-creased by 25% in 2014, while keeping all other variables constant, income after taxes for the year would have decreased by 229 thousand euro (225 thousand euro in 2013).
iii) Interest rate risk on cash flows and fair values
The Group's interest rate risk arises from remu-nerated financial assets recognized at amortized cost and from long-term financial debt.
Remunerated financial assets consist basically of government bonds, bank commercial paper and time deposits remunerated at floating interest rates, generally referenced to Euribor.
Floating-rate debt exposes the Group to interest rate risk on its cash flow. Fixed-rate debt securities expose the Group to interest rate risk on the fair value.
The Group analyses its exposure to interest rate risk dynamically. It simulates a number of scenarios considering refinancing, roll-overs, alternative fi-
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nancing and hedging. Based on those scenarios, the Group calculates the effect on income of a given variation in interest rates. In a given simulation, it assumes the same change in interest rates in all cur-rencies. The scenarios are applied only to the largest interest-bearing assets and liabilities.
Based on the scenarios, the Group manages the interest rate risk of its cash flow by means of variable-to-fixed interest rate swaps. The economic impact of these swaps is to convert floating-rate debt into fixed-rate debt. Under interest rate swaps, the Group undertakes, vis-à-vis the counterparties, to exchange at regular intervals (generally each quarter) the dif-
ference between the fixed and floating interest rates on the notional amounts of principal established in the swaps. In 2011, the Group arranged an interest rate hedge contract which was still in force at 2014 year-end (Note 14).
If, as of 31 December 2014, the interest rates on the interest-bearing debt and remunerated assets had been 100 basis points higher, while all other variables remained constant, income after taxes for the period would have been lower by 72 thousand euro (194 thousand euro in 2013), mainly as a result of higher interest expenses on floating-rate loans in comparison with revenues from remunerated assets.
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b) Credit risk
Credit risk is managed in groups. Credit risk arises on deposits, time deposits and commercial paper ar-ranged with banks and financial institutions, debt held through mutual funds in which the Group in-vests, cash and cash equivalents, and customer ac-counts receivable (Note 11).
The banks and financial institutions with which the Group works generally have independent ratings.
Where customers are independently rated, that rating is used. Otherwise, the Group assesses the risk
on the basis of the customer's financial position, past experience and other factors. Where there is no doubt about a customer's solvency, no credit limits are set.
As indicated in Note 3.1.a) ii) on price risk, the Group has holdings in mutual funds (currently non-material) whose value is affected by incidents in the solvency of the underlying securities. The policies of the funds in which the Group holds investments are as follows:
Fixed-income funds that invest in sovereign or pri-•vate sector debt (bonds, bills, commercial paper), generally secured, which pay periodic coupons.
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Money market funds comprising short-term fixed-•income securities (18 months maximum), where security is given priority in exchange for a slightly lower yield than other investments.
The credit quality of the financial assets and of customers with which the Group had balances as of 31 December 2014 and 2013 is set out in Note 11. The composition of the Group's financial assets is set out in Notes 12, 13 and 15.
Regarding credit risk concentration, as of 31 De-cember 2013, the Group had government bonds and bank products at 3 credit institutions amounting to 24,883 thousand euro (16,698 thousand euro in 2013).
In relation to credit risk with public authorities, management analyses the credit quality and recov-erability of outstanding balances and claims default interest when the average collection period exceeds 365 days (see Note 15).
c) Liquidity risk
Prudent liquidity risk management entails having sufficient cash and marketable securities, financing via sufficient credit facilities, and the capacity to set-tle market positions. The goal of the Group's finan-cial department is to maintain flexibility in funding by having credit lines and sufficient funds in financial assets to cover obligations, particularly in the biop-harmaceutical segment.
The net cash position—defined as cash and cash equivalents, plus current financial assets (35,511 thousand euro in 2014, 28,835 thousand euro in 2013) minus short-term financial debt (44,466 thousand euro in 2014, 41,327 thousand euro in 2013)—was negative in the amount of 8,955 thou-sand euro at the end of 2014 (-12,492 thousand euro in 2013).
Long-term debt amounted to 47,003 thousand euro (52,941 thousand euro in 2013), of which 26,092 thousand euro (23,790 thousand euro in 2013) was in the form of research and development loans from of-ficial bodies which are repayable over 10 years, inter-est free, with a three-year grace period.
Additionally, as at 31 December 2014, net con-solidated cash flow was negative in the amount
of 5,907 thousand euro (positive in the amount of 4,122 thousand euro at 31 December 2013). Zeltia's directors believe the Group has liquidity to cover its research and development projects and fulfil its future commitments for the following rea-sons:
A sound equity position of the Group as of 31 •December 2013, net equity having increased by 22% in 2014.
Positive operating income in the Group's two •main business segments.
The Group generated operating cash flow •amounting to 22,109 thousand euro in 2014 (16,345 thousand euro in 2013).
As of 31 December 2014, the Group's net debt/•EBITDA ratio was 2.1 (2.4 at 2013 year-end). EBITDA is defined as earnings before interest, taxes, depreciation and amortization.
As of 31 December 2014, the leverage ratio had •improved by 9% with respect to the end of the previous year. Only 47.7% of funding is in the form of debt.
The Group's ability to renegotiate its debt if it is •considered necessary; this ability has increased in view of the improvement in net debt in recent years.
There are unused credit lines amounting to •25,994 thousand euro.
The Group ended the year with cash and cash •equivalents plus current financial assets amount-ing to 35,511 thousand euro, 23% more than the previous year.
The table below shows an analysis of the Group's financial liabilities grouped by maturity based on the period remaining between the bal-ance sheet date and the contractual maturity date, including the corresponding interest. The amounts in the table are the contractual cash flows, which have not been discounted. Since those amounts have not been discounted, and they include fu-ture interest, they are not comparable with the amount of financial debt, derivatives and supplier and other accounts payable recognized in the bal-ance sheet.
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As indicated in Note 1, sales in the biopharma-ceutical segment commenced in the fourth quarter of 2007 for one of the products, and they gained in strength with the marketing approval for a sec-ond therapeutic use in the second half of 2009; the other products are still at the development phase. As in prior years, this segment is dependent upon the funds generated by the Group either through credit transactions, capital-raising or, to a lesser extent, funds generated by other segments of the Group, and on the Group's capacity to obtain new sources of finance on the market. This dependency will decline as the segment's revenues increase, both from sales and from licence agreements, particularly since the segment's investments are now focused on oncology, following the decision in 2012 to dis-continue investments in connection with the central nervous system (Alzheimer’s disease). The Group regularly monitors liquidity projections on the basis of expected cash flows, particularly in this segment, and Management considers that it has sufficient cash, tradeable securities and credit lines available
to meet its liquidity needs within the time horizon that is considered to be necessary. As of 31 Decem-ber 2014, the Group had 25,994 thousand euro in unused credit lines (15,321 thousand euro as of 31 December 2013).
3.2. Capital management
To date, the Group's objectives with regard to capital have been to safeguard its capacity to con-tinue as a going concern and to raise sufficient liquid funds to finance operations, basically in the biophar-maceutical segment, having regard to the projected timelines for product launches in the market, each project's cash needs, and the costs of the various sources of funding.
To maintain or adjust the capital structure, the Group may adjust the amount of dividends payable to shareholders, refund capital to shareholders, issue new shares, or sell assets to reduce debt.
Less than1 year
31 December 2014(Thousand euro)
LIABILITIES ON BALANCE SHEET
Bank debt and otherinterest-bearing debt 42,389 10,625 7,279 4,863 65,156
Debt to official authorities 4,248 4,523 14,159 13,147 36,077
Derivatives 0 42 0 0 42
Suppliers / Accounts payable 26,070 0 0 0 26,070
Other accounts payable 2,640 0 0 0 2,640
75,347 15,190 21,438 18,010 129,985
Over 5years Total
1 to 2years
2 to 5years
Less than1 year
LIABILITIES ON BALANCE SHEET
Bank debt and otherinterest-bearing debt 39,221 24,763 5,505 0 69,489
Debt to official authorities 4,052 4,209 12,590 12,911 33,762
Derivatives 0 0 95 0 95
Suppliers / Accounts payable 22,364 0 0 0 22,364
Other accounts payable 2,062 0 0 0 2,062
67,699 28,972 18,190 12,911 127,772
31 December 2013(Thousand euro)
Over 5years Total
1 to 2years
2 to 5years
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The group monitors its capital on the basis of the leverage ratio. This is calculated as net debt divided by total capital. Net debt is calculated as total bor-rowings (including current and non-current borrow-
ings, as shown in the balance sheet) less cash and cash equivalents and financial assets. Capital is cal-culated as net equity, per the consolidated financial statements, plus net debt.
Long-term interest-bearing debt 47,045 53,036
Short-term interest-bearing debt 44,466 41,327
Cash and cash equivalents (16,551) (22,458)
Non-current and current financial assets (20,032) (7,225)
Equity 60,069 49,435
TOTAL CAPITAL 114,997 114,115
LEVERAGE 48% 57%
(Thousand euro) Balance as of 31/12/14 Balance as of 31/12/13
ASSETS
FINANCIAL ASSETS AT FAIR VALUETHROUGH PROFIT OR LOSS
- Term financial assets (Note 10) 18 19,245 19,263
AVAILABLE-FOR-SALE FINANCIALASSETS
- Equity securities, net (Note 10) 19 0 19
TOTAL ASSETS 37 19,245 19,282
LIABILITIES
LIABILITIES AT FAIR VALUE THROUGHPROFIT OR LOSS
- Trading derivatives (Note 14) 0 42 42
TOTAL LIABILITIES 0 42 42
31 December 2014 (Thousand euro) Level 1 TotalLevel 2
The good trend in leverage is attributable not only to the increase in the balance of cash and cash equivalents but also, to a lesser extent, to the reduc-tion in interest-bearing debt coupled with the im-provement in net equity.
3.3. Fair value estimates
Financial instruments are classified as follows on the basis of the valuation method:
Level 1. Quoted prices in active markets for iden-•tical assets or liabilities.
Level 2. Observable inputs for the instrument, ei-•ther direct (prices) or indirect (price-based).
Level 3. Inputs not based on observable market •data.
The table below presents the Group's assets and liabilities at fair value as of 31 December 2014:
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Level 1
ASSETS
FINANCIAL ASSETS AT FAIR VALUE THROUGHPROFIT OR LOSS
- Term financial assets (Note 10) 26 4,486 2,110 6,622
AVAILABLE-FOR-SALE FINANCIALASSETS
- Equity securities, net (Note 10) 14 0 0 14
TOTAL ASSETS 40 4,486 2,110 6,636
LIABILITIES
LIABILITIES AT FAIR VALUE THROUGHPROFIT OR LOSS
- Trading derivatives (Note 14) 0 95 0 95
TOTAL LIABILITIES 0 95 0 95
31 December 2013 (Thousand euro) TotalLevel 2 Level 3
The fair value of financial instruments that are trad-ed in an active market is determined by the market price on the balance sheet date. A financial instrument is considered to be quoted in an active market if quot-ed prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing serv-ice or regulatory agency, and those prices represent actual and regularly occurring market transactions on an arm’s-length basis. The quoted market price used for financial assets held by the Group is the current bid price. These instruments are included in level 1.
The fair value of financial instruments that are not traded in an active market (e.g. over-the-counter de-rivatives) is determined by using measurement tech-niques. Measurement techniques make the maxi-mum use of available observable market data and are based as little as possible on specific estimates by the entities. If all material data items required to
measure an instrument's fair value are observable, the instrument is classified as Level 2.
If one or more of the significant items of data is not based on observable market data, the instru-ment is classified as level 3.
An instrument is classified on the basis of the lowest level input that is significant to the measure-ment of fair value in its entirety.
The fair value of unquoted fixed-rate debt securi-ties is the price at which the internal rate of return matches the market yields in the government bond market at any given time, plus a spread or margin determined at the time of measurement.
The table below shows the variations in Level 3 instruments in the year ended 31 December 2014:
BEGINNING BALANCE 2,110 2,208
Recognition 0 500
Derecognition 0 -600
Reclassification -2,110 8
Gains and losses throughprofit or loss 0 -6
ENDING BALANCE 0 2,110
2014 2013
The table below presents the Group's assets and liabilities at fair value as of 31 December 2013:
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4. Accounting estimates and judgements
The assumptions and estimates are reviewed periodically and are based on past experience and other factors, including future expecta-
tions or future events that are considered to be rea-sonable in certain circumstances. The outcome of those events may differ from the initial projections.
Revenue recognition
Since one of the Group's business is biopharma-ceuticals, the Group is likely to sign licensing agree-ments. Those agreements generally include many factors and the associated revenues must be matched with the costs and considerations to be paid by the Group.
Specifically, the Group receives revenues as a re-sult of a licensing and co-development agreement between one of its subsidiaries, PharmaMar, and Ortho Biotech Products L.P. (OBP), a subsidiary of US group Johnson & Johnson. That agreement includes certain payments to Pharma Mar, S.A.U., includ-ing an upfront payment and certain milestone pay-ments regarding the development of Yondelis® (the product covered by the agreement). Those amounts (upfront and milestone payments), which were col-
lected irrevocably once the corresponding dates and milestones were attained, are recorded initially as deferred revenues and recognized as a revenue dur-ing the term of the contract signed with OBP, which includes two distinct phases: development and mar-keting. The upfront and milestone payments dur-ing the development phase are recognized as rev-enue based on the degree of development and the project's total estimated costs. As of 31 December 2014, the Group did not have any amounts pend-ing recognition at year-end since all the necessary expenses had already been incurred. The payments during the marketing phase are recognized on a straight-line basis once marketing commences and during its estimated duration. The Group does not recognize revenues in excess of the total amount collected.
The commitments assumed by the Group as a result of the agreement include basically the follow-ing:
Co-development of Yondelis• ® from the date of signature of the agreement up to marketing, and financing of a percentage of total development costs incurred by the two parties.
Assignment to OBP of the future marketing rights •for the United States and the rest of the world except Europe (retained by the Zeltia Group). For this assignment, the Group will collect royalties based on OBP's sales.
The Group retains the exclusive right to manufac-•ture the active ingredient, which will be supplied to OBP on a cost-plus basis.
The Group will retain the patents associated with Yondelis® and is responsible for complying with the administrative requirements relating to maintaining the patents and any other requirements that may ap-ply for their effective use.
In 2011, the Company signed another coop-eration agreement with Janssen Pharmaceuticals, a subsidiary of US group Johnson & Johnson, by virtue of which the initial payment was treated as revenue in the year, since it was a milestone that was not linked to future performance (Note 33). Subsequent payments correspond to the attainment of specific milestones linked to the development of Yondelis® and are recognized as revenues when they are at-tained.
In 2014, PharmaMar signed a licence contract with Chugai Pharmaceutical Co. to market Aplidin@ for the treatment of multiple myeloma in eight Euro-pean countries. Under the terms of the agreement, PharmaMar received an upfront payment of 5 million euro for signing the agreement, which also includes additional payments of up to more than 30 million euro subject to attainment of certain milestones in connection with development of the compound and other regulatory and commercial objectives. Phar-maMar will retain exclusive production rights and will sell the product to Chugai for sale in the territo-ries covered in the agreement.
The upfront payment under the contract was rec-ognized as revenue in the year since it is linked to completion of the Phase III trial in multiple myeloma and, consequently, is directly related to the number of patients enrolled in that trial to date. Subsequent payments will correspond to the attainment of spe-cific milestones linked to the development of Apli-din® and other regulatory and commercial objectives and will be recognized as revenues when they are fulfilled.
In 2009, PharmaMar signed a licensing agree-ment with Taiho Pharmaceutical Co. for development and commercialization of Yondelis® in the Japanese market. PharmaMar collected one billion yen upon signature of that agreement. The agreement envis-ages additional payments by Taiho upon attainment of development and commercialization milestones for Yondelis and the payment of royalties to PharmaMar on any sales by Taiho once authorization is obtained to market the drug in Japan.
In January 2015, Taiho filed an application to mar-ket Yondelis for the treatment of several subtypes of soft tissue sarcoma with the Japanese regulator (PMDA).
Deferred tax assets
Under IAS 12, the Group recognizes deferred tax assets and tax credits when it is probable that they will lead to lower income tax payments in the fu-ture.
For the purpose of the 2014 financial statements, Group Management re-estimated the projections of revenues and expenses for the subsidiaries included within tax planning. Consequently, as a result of
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recently measuring those companies and based on Management's best estimates about their current and foreseeable activity and the economic situation, the Group adjusts the amount which, at this date, can be considered as probable for the purposes of quantifying the deferred tax assets to recognize. Net deferred tax assets increased by 2,732 thousand euro in 2014 (there was no increase in 2013).
Net deferred tax assets amounted to 26,247 thousand euro (23,515 thousand euro in 2013). The deferred tax assets were recognized since they are considered to be recoverable on the basis of the Group's ability to generate taxable income in the fu-ture (Note 27).
Changes in Management assumptions about the future results of subsidiaries that have been consid-ered and, fundamentally, the occurrence of future events in relation to the Group companies' biophar-maceutical business may significantly affect the de-ferred tax asset amounts recognized by the Group. Note 27 details the assets recognized by the Group as of 31 December 2014 and 2013, and the assets not recognized by application of this approach.
Intangible assets
When intangible assets are acquired from third parties, they are capitalized insofar as the require-ments for asset recognition are met. Certain trade-marks acquired by the Group for 9,786 thousand euro are not amortized and are subject to an im-pairment test every year since Group Management considers that they have an indefinite life. Those trademarks were acquired in previous years and re-fer to chemical products, specifically cleaning prod-ucts and insecticides with a long-established pres-ence in the market. The impairment test is based on discounting future cash flow using the appropriate discount rates, in line with industry practices. Future cash flow is based on company projections and, therefore, involves a judgement. Future events may impair those assets, which would have a negative effect on Group earnings.
The principal types of asset to be recovered that are shown in the consolidated financial statements are as follows:
Brands with a carrying amount of 9,786 thousand •euro. The recovery of the brands is considered to
be assured by their value in use or, otherwise, through disposal or another form of disposition (Note 8).
Goodwill with a carrying amount of 2,548 thou-•sand euro. As described in Note 9, the recovery of the goodwill is considered to be assured in the current context of growth and profitability of the cash-generative unit comprising Zelnova and Copyr (consumer chemicals segment).
Due from public authorities. The Group recog-•nized revenue from total sales of products mar-keted in 2014 and 2013 at nominal value and claimed any applicable default interest from pub-lic authorities. See detail of balances with public authorities.
Subsidized loans
By application of IAS 20, loans from public au-thorities that are interest-free or at a subsidized in-terest rate are recognized initially at fair value, deter-mined by applying, to the repayments to be made, the yield curve in force on the date of receipt of the advance plus the spread normally paid by the Group on loans.
Pursuant to IAS 20, the difference arising as a re-sult of measuring the amount received at fair value is recognized under liabilities as deferred revenues and subsequently at amortized cost.
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5. Segment reporting
Management has determined the operating segments based on the reports submitted to the Board of Directors which are used for
strategic decision-making.
As of 31 December 2014 and 2013, the Group had two main business segments:
1. Biopharmaceuticals.• This segment comprises Group companies whose object is the research, development and marketing of antitumour drugs (PharmaMar and its investees), the development and marketing of diagnosis kits (Genomica and its subsidiary) and the development of therapies based on reducing or silencing gene expression (Sylentis). In 2012, Zeltia decided to discontinue the research, development and marketing of drugs for the central nervous system (Noscira) within the biopharmaceutical segment, as the shareholders of that company had voted to dis-solve it.
2. Consumer chemicals.• This segment comprises Group companies that produce and market in-secticides and air fresheners for household use, household products, wood treatment and deco-ration products, paints, and similar products. The subsidiaries that operate in this segment are Zel-nova, Xylazel and Copyr.
3.• The amounts that have not been allocated cor-respond primarily to management of the Group by Zeltia, plus the parent company's assets and li-abilities that finance the rest of the activities. The provision of services consists primarily of repair and upkeep of structures.
The segments' income, assets and liabilities in the year ended 31 December 2014 are as follows:
Consolidated income statement for the year 2014, including the impact of classifying one of the companies in the biopharmaceutical
segment (Noscira) as a discontinued operation in accordance with IFRS 5.
Net revenue 82,259 66,583 810 149,652
Cost of sales (5,008) (35,123) (634) (40,765)
Other operating revenues /Other net gains 28,058 348 2 28,408
R&D expenses (51,972) (484) 0 (52,456)
Capitalised in-housework 5,979 0 0 5,979
Other expenses (34,543) (26,634) (9,404) (70,581)
NET OPERATING INCOME 24,773 4,690 (9,226) 20,237
NET FINANCIAL INCOME (4,163) (760) (839) (5,762)
INCOME BEFORE TAXES 20,610 3,930 (10,065) 14,475
Income tax expense 2,081 (765) (2,620) (1,304)
INCOME FROM CONTINUINGOPERATIONS 22,691 3,165 (12,685) 13,171
DISCONTINUED OPERATIONS:INCOME FROM DISCONTINUEDOPERATIONS
(76) 0 0 (76)
Attributable to equity-holders of theparent company (56) 0 0 (56)
Attributable to non-controllinginterests (20) 0 0 (20)
INCOME FOR THE YEAR ATTRIBUTABLE TO: 22,614 3,165 (12,685) 13,095
Equity-holders of the parent company 22,634 3,165 (12,685) 13,115
Minority interests (20) 0 0 (20)
(Thousand euro)Consumerchemicals
Biopharmaceuticals GroupUnallocated
(Thousand euro)Consumerchemicals
Biopharmaceuticals GroupUnallocated
Non-current assets 68,363 22,369 8,741 99,473
Current assets 59,357 29,229 13,330 101,916
Non-current liabilities 46,519 4,324 7,851 58,694
Current liabilities 60,177 11,029 11,420 82,626
Investment in fixed assets 9,620 836 63 10,519
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Net revenue 79,111 61,876 837 141,824
Cost of sales (4,516) (32,810) (574) (37,900)
Other operating revenues /Other net gains 21,348 276 1,234 22,858
R&D expenses (42,483) (234) 0 (42,717)
Capitalised in-housework 4,382 0 0 4,382
Other expenses (35,027) (26,462) (8,002) (69,491)
NET OPERATING INCOME 22,815 2,646 (6,505) 18,956
NET FINANCIAL INCOME (3,230) (758) (1,167) (5,155)
INCOME BEFORE TAXES 19,585 1,888 (7,672) 13,801
Income tax expense (4,144) (880) 3,064 (1,960)
INCOME FROM CONTINUINGOPERATIONS 15,441 1,008 (4,608) 11,841
DISCONTINUED OPERATIONS: INCOME FROM DISCONTINUEDOPERATIONS
(708) 0 0 (708)
Attributable to equity-holders of
the parent company (519) 0 0 (519)
Attributable to non-controllinginterests (189) 0 0 (189)
Income for the year attributable to: 14,731 1,010 (4,608) 11,133
Equity-holders of the parent company 14,920 1,010 (4,608) 11,322
Minority interests (189) 0 0 (189)
(Thousand euro)Consumerchemicals
Biopharmaceuticals GroupUnallocated
(Thousand euro)Consumerchemicals
Biopharmaceuticals GroupUnallocated
Non-current assets 60,672 22,260 10,539 93,471
Current assets 54,151 30,573 11,171 95,895
Disposable group assets classifiedas available for sale 4 0 0 4
Non-current liabilities 46,473 5,864 13,540 65,877
Current liabilities 54,299 11,841 7,918 74,058
Investment in fixed assets 5,761 602 52 6,415
The segments' income, assets and liabilities in the year ended 31 December 2013 are as follows:
Consolidated income statement for the year 2013, including the impact of classifying one of the companies in the biopharmaceutical
segment (Noscira) as a discontinued operation in accordance with IFRS 5.
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The assets in other countries refer primarily to the group's offices in Italy. Almost all the investment in property, plant and equipment, intangible assets and investment property in 2014 and 2013 was concen-trated in Spain.
Group net revenues totalled 149,652 thousand euro in 2014, 5.5% more than in 2013 (141,824 thousand euro).
Revenues in the Biopharmaceutical business amounted to 82,259 thousand euro (79,111 thousand euro in 2013): 76,772 thousand euro at PharmaMar from Yondelis sales (72,920 thousand euro in 2013), and 5,487 thousand euro at Genomica (6,191 thou-sand euro in 2013). This sector accounted for 54.97% of Group net revenues (55.78% in 2013).
Revenues of companies in the consumer chemical sector amounted to 66,583 thousand euro (61,876 thousand euro in 2013), of which 51,379 thousand
euro correspond to the insecticides/home care divi-sion (47,286 thousand euro in 2013) and 15,204 thousand euro to the wood treatment/paint division (14,590 thousand euro in 2013). Those companies accounted for 44.49% of the Group's revenues in 2014 (43.63% in 2013).
Other operating revenues, amounting to 28,408 thousand euro (22,858 thousand euro in 2013), refer mainly to amounts collected for attaining milestones under the agreement with Janssen Pharmaceuticals, LP in connection with a new plan of action to rein-force the development of Yondelis® in the US (Note 33), which amounted to 18,266 thousand euro in 2014. Additionally, the agreement signed in 2014 with Chugai Pharmaceutical, Co. provided revenues amounting to 5,000 thousand euro. Another mile-stone payment of 1 million euro was collected upon filing with the FDA of the registration document to apply for permission to market Yondelis® in the United States to treat soft tissue sarcoma. Further-
(Thousand euro)
Spain 66,655 64,852
Rest of the European Union 76,174 70,548
United States and rest of the world 6,823 6,424
149,652 141,824
2014 2013Sales
(Thousand euro)
Spain 61,307 56,843
Rest of the European Union 1,138 686
62,445 57,529
2014 2013
Assets
In 2014 and 2013, there were no material trans-actions between segments and no goodwill impair-ment losses were recognized.
In 2014 and 2013, the Group recognized losses due to impairment of inventories and trade accounts receivable amounting, respectively, to 204 thousand euro and 270 thousand euro, mainly in the consum-er chemicals segment in both years.
Most of the Group's sales are in Spain and other European Union countries. The euro area ac-counted for 95.4% of total sales in 2014 (95.5% in 2013).
The following tables show net revenues and non-current assets (property, plant and equipment, and intangible assets) of the Group, by geographical area:
more, royalties were collected on sales of that drug in countries outside the European Union, and R&D subsidies were received from national and European public organizations.
R&D expenditure increased by 22.8% year-on-year. A total of 52,456 thousand euro was spent on research and development in 2014 (42,717 thousand euro in 2013), broken down as follows: PharmaMar 45,346 thousand euro (36,493 thousand in 2013), Sylentis 5,166 thousand euro (4,794 thousand euro in 2013), Genomica 1,460 thousand euro (1,197 thousand euro in 2013), Zelnova 357 thousand euro (121 thousand euro in 2013), and Xylazel 127 thou-sand euro (112 thousand euro in 2013).
Marketing and commercial expenses amounted to 42,173 thousand euro in 2014 (41,251 thousand euro in 2013), a 2.2% increase. The breakdown by segment
is as follows: Within the biopharmaceutical segment, expenditure in 2013 amounted to 23,110 thousand euro (22,426 thousand euro in 2013), of which 21,474 thousand euro correspond to PharmaMar (20,974 thousand euro in 2013) and 1,636 thou-sand euro relate to Genomica (1,452 thousand euro in 2013). Marketing expenditure in the consumer chemical segment amounted to 19,052 thousand euro in 2014 (18,803 thousand euro in 2013), of which 14,933 thousand euro correspond to the insecticides/home care division (14,846 thousand euro in 2013) and 4,119 thousand euro to the wood treatment/paint division (3,957 thousand euro in 2013).
Income for the year from discontinued operations in 2014 refers to the activities that the Group discon-tinued in the year, amounting to 76 thousand euro (708 thousand euro in 2013). See Note 19.
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6. Property, plant and equipment The breakdown of, and changes in, this caption in 2014 and 2013 are as follows:
(Thousand euro)
Land and structures 25,923 222 0 0 0 26,145
Technical installations and machinery 26,692 1,844 (1,375) 180 1 27,342
Other installations, tools and furniture 16,731 13 (10) (529) 0 16,205
Advances & construction in progress 132 1,940 (3) (283) 0 1,786
Other property, plant & equipment 7,104 316 (264) (3) 0 7,153
Provisions (84) 0 0 0 0 (84)
Cost 76,498 4,335 (1,652) (635) 1 78,547
Structures (7,589) (619) 0 0 0 (8,208)
Technical installations and machinery (20,243) (1,456) 1,036 220 0 (20,443)
Other installations, tools and furniture (15,538) (221) 10 210 0 (15,539)
Other property, plant & equipment (5,169) (439) 264 205 0 (5,139)
Accumulated depreciation (48,539) (2,735) 1,310 635 0 (49,329)
PROPERTY, PLANT AND EQUIPMENT 27,959 1,600 (342) 0 1 29,218
Balanceas of
31/12/14
Balanceas of
31/12/13Recognitions Derecognitions
Reclassificationsand
transfers
Exchangerate
effect
(Thousand euro)
Land and structures 27,382 44 0 (1,503) 25,923
Technical installations and machinery 25,456 998 (15) 253 26,692
Other installations, tools and furniture 16,593 40 0 98 16,731
Advances & construction in progress 168 176 0 (212) 132
Other property, plant & equipment 6,493 448 (5) 168 7,104
Provisions 0 (18) 0 (66) (84)
Cost 76,092 1,688 (20) (1,262) 76,498
Structures (7,522) (627) 0 560 (7,589)
Technical installations and machinery (18,818) (1,456) 31 0 (20,243)
Other installations, tools and furniture (15,265) (308) 0 35 (15,538)
Other property, plant & equipment (4,693) (421) 3 (58) (5,169)
Accumulated depreciation (46,298) (2,812) 34 537 (48,539)
PROPERTY, PLANT AND EQUIPMENT 29,794 (1,124) 14 (725) 27,959
Balanceas of
31/12/13
Balanceas of
31/12/12Recognitions Derecognitions
Reclassificationsand transfers
The additions in 2014 are basically acquisitions of plant as well as supplier advances and construction in progress. Of the plant added in 2014, approxi-mately 79% were acquisitions by the biopharmaceu-tical companies; the remainder were in the consumer chemical segment; derecognitions in the year were concentrated in the biopharmaceutical segment (approximately 82%). The increase in supplier ad-vances and construction in progress relate entirely to the biopharmaceutical companies, mainly the new fermentation plant at PharmaMar (1,661 thousand euro) and in-house work performed by Genomica (279 thousand euro). Derecognitions of plant and equipment in 2014 were due to Genomica's move to new installations.
Since the Group chose to prepare the income statement by function, the depreciation charge for property, plant and equipment is distributed as fol-lows: the 2,735 thousand euro depreciation charge (2,812 thousand euro in 2013) includes cost of goods sold amounting to 708 thousand euro (766 thou-sand euro in 2013), marketing expenses amounting to 345 thousand euro (295 thousand euro in 2013), administration expenses amounting to 598 thousand euro (602 thousand euro in 2013), research and de-velopment expenses amounting to 1,062 thousand euro (1,087 thousand euro in 2013), and other oper-
ating expenses amounting to 22 thousand euro (62 thousand euro in 2013).
Of the additions in 2013, approximately 71% were basically acquisitions of plant by the biophar-maceutical companies; the remainder were in the consumer chemical segment; derecognitions in the year were not material. As a result of the process to liquidate Noscira that commenced at the end of 2012, some of its property, plant and equipment were reclassified as available for sale, in the amount of 139 thousand euro, and others were sold to third parties. In particular, the building where Noscira's facilities were located, recognized at a net value of 966 thousand euro, was reclassified from land and structures to investment property.
Xylazel revalued its property, plant and equip-ment in accordance with Royal Decree 2607/1996, dated 20 December, which approved the rules for balance sheet revaluation regulated in article five of Royal Decree Law 7/1996, dated 7 June, by applying the maximum coefficients established in that Royal Decree. That revaluation was treated as an attributed cost on the date of transition to IFRS.
There are a number of assets under finance leas-es: plant, machinery, tools and furniture with a net
96
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carrying amount of 178 thousand euro in 2014 (296 thousand euro in 2013).
One building is collateral for one of the bank loans. It is a building owned by PharmaMar (bi-opharmaceutical segment) in Colmenar Viejo, Madrid province, with a net carrying amount of 11,184 thousand euro as of 31 December 2014
(11,673 thousand euro as of 31 December 2013). The original financial liability was cancelled in 2014 and a new financial liability was recognized subsequently. The initial amount of the transac-tion, signed in 2014, is 9,000 thousand euro, ma-turing in 2024. As of 31 December 2014, the un-amortized balance of the loan amounted to 8,618 thousand euro.
7. Investment property The changes in this caption in 2014 and 2013 are as follows:
(Thousand euro)
Beginning balance 6,980 6,014
Transfers 0 1,007
Depreciation (41) (41)
INVESTMENT PROPERTY 6,939 6,980
Balance as of31/12/14
Balance as of31/12/13
Investment property
In 2013, the Group-owned property where Noscira carried on its business until its liquidation was transferred from land and structures for an amount of 1,007 thousand euro. As of 31 December 2014, the Group had not decided what use to put this building to.
Based on internal measurements, the Company has estimated that the fair value of these properties
does not differ materially from the carrying amount at year-end.
Since the Group chose to prepare the income statement by function, the depreciation charge for investment property was distributed to administra-tion expenses.
98
In 2014, 5,979 thousand euro of R&D expenses were capitalized (4,382 thousand euro in 2013) cor-responding to the following trials:
Y-IMAGE: • Prospective multi-centre observation-al trial with Yondelis® to assess the therapeutic analysis methods used in standard clinical prac-
tice in patients with advanced soft tissue sarcoma treated with trabectedin in accordance with the posology approved for that drug.
TRASTS: • A Phase I-II prospective multi-centre open trial to explore the combination of Yonde-lis® and radiotherapy in sarcoma patients.
8. Intangible assets The breakdown of, and changes in, this caption in 2014 and 2013 are as follows:
R&D expenses 13,949 5,979 0 19,928
Concessions, patents & trade marks 10,765 0 0 10,765
Computer software 4,908 205 (70) 5,043
Advances on intangible assets 38 0 0 38
Cost 29,660 6,184 (70) 35,774
R&D expenses (2,464) (1,985) 0 (4,449)
Concessions, patents & trade marks (662) (133) 0 (795)
Computer software (3,944) (368) 70 (4,242)
Accumulated amortisation (7,070) (2,486) 70 (9,486)
INTANGIBLE ASSETS 22,590 3,698 0 26,288
Recognitions Derecognitions(Thousand euro)
Balance as of31/12/14
Balance as of31/12/13
R&D expenses 9.567 4.382 0 0 13.949
Concessions, patents & trade marks 10.780 0 0 (15) 10.765
Computer software 5.053 345 (388) (102) 4.908
Advances on intangible assets 38 0 0 0 38
Cost 25.438 4.727 (388) (117) 29.660
R&D expenses (1.187) (1.277) 0 0 (2.464)
Concessions, patents & trade marks (557) (120) 0 15 (662)
Transfer rights (144) 0 0 144 0
Computer softwares (3.806) (382) 388 (144) (3.944)
ACCUMULATED AMORTISATION (5.694) (1.779) 388 15 (7.070)
INTANGIBLE ASSETS 19.744 2.948 0 (102) 22.590
Balance as of31/12/13
Balance as of31/12/12
Recognitions Derecognitions Reclassificationsand transfers(Thousand euro)
NIS-ROC: • A European non-interventional multi-centre prospective trial to assess the efficacy of Trabectedin plus PLD in treating patients with relapsed ovarian cancer despite prior use of an antiangiogenic.
TSAR:• Randomized Phase III trial to compare Yondelis® against best supportive care in patients with soft tissue sarcoma.
PROSPECTYON:• Prospective trial in patients with platinum-sensitive relapsed ovarian cancer to eval-uate the combination of Yondelis® with Caelyx®.
OVAYOND:• Observational multi-centre open trial conducted in Germany with Yondelis®+PLD in platinum-sensitive patients with relapsed ovarian cancer.
YONSAR:• Non-interventional trial to investigate the efficacy and safety of Yondelis® in patients with advanced soft tissue sarcoma.
YONLIFE:• Quality of life trial in patients with soft tissue sarcoma treated with trabectedin.
HYPERTHERMIA:• Trial with the combination of trabectedin and localized hyperthermia as sec-ond-line treatment for patients with advanced soft tissue sarcoma.
ATREUS:• Phase II clinical trial to assess trabected-in's activity in malignant biphasic or sarcomatoid pleural mesothelioma patients who are either chemotherapy naïve or pretreated.
TR1US:• Prospective Phase II trial to evaluate the safety and efficacy of Trabectedin as first-line treatment in patients with advanced soft tissue sarcoma who cannot receive standard treatment.
TRAVELL:• Phase II trial of trabectedin in patients with advanced retroperitoneal leiomyosarcoma and liposarcoma.
TOMAS:• Phase 1B trial of trabectedin with ola-parib in treating inoperable advanced/metastatic soft tissue sarcoma.
PR Trab Pt:• Reintroduction of platinum-based treatment after treatment with Trabectedin in platinum-resistant relapsed ovarian cancer pa-tients.
GEICO 1402-R:• Retrospective post-authorization multi-centre trial to analyze the efficacy and safety of the combination of trabectedin with pegylated liposomal doxorubicin (PLD) for treat-ing platinum-sensitive patients with relapsed ovarian cancer (ROC) according to data sheet.
There are no signs of impairment in the capital-ized R&D expenses as of 31 December 2014 since re-search is advancing in accordance with the planned milestones and the results expected at the beginning of the plan are being attained. Moreover, sales of Yondelis® are advancing as expected in the indica-tions for which it has been approved.
Since the Group chose to prepare the income statement by function, the amortization charge for intangible assets is distributed as follows: 2,486 thou-sand euro in depreciation charges (1,779 thousand euro in 2013), administration expenses amounting to 106 thousand euro (116 thousand euro in 2013), research and development expenses amounting to 2,101 thousand euro (1,515 thousand euro in 2013), other operating expenses amounting to 279 thou-sand euro (148 thousand euro in 2013).
Trademarks comprise practically the entire bal-ance of this caption. The trademarks belong to one of the consumer chemical companies and were ac-quired from third parties. They are measured at the price paid on acquisition (in 1994 and 2003, fun-damentally) and, since they are considered to have an indefinite life, they are not amortized. They are assessed for impairment each year with the goodwill referred to in the next note. The net carrying amount of the brands under assets is currently 9,786 thou-sand euro. The impairment test is based on projected future revenues of the cash-generative unit compris-ing Zelnova and Copyr. The five-year impairment test assumes a gross margin of 53-59% (53-58% in 2013), an annual growth rate of 3% (the same as in 2013), and a discount rate of 9% before taxes (the same as in 2013). Assuming a gross margin of 22-27% (22.5-25% in 2013), 0% annual growth (the same as in 2013) and a 9% discount rate before tax (the same as in 2013), and considering only the cash flows in the first five years, the recoverable amount of the brands and the goodwill would not suffer any impairment.
Computer software is mainly licences for office, communication and management programs ac-quired from third parties.
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9. Goodwill
Subsidiary Zelnova, within the Group's consum-er chemicals division, acquired 100% of the shares of Copyr from third parties in 2006. The
operation cost a total of 1,972 thousand euro, includ-ing 112 thousand euro in direct transaction costs. At the date of taking control, the assets and liabili-ties acquired by the Group, after converting Copyr's accounts to IFRS, were carried at close to their fair value since they were current assets (basically inven-tories and receivables) and current liabilities (bank debt and supplier accounts payable). Consequently, there were no material differences between the car-rying amount and fair value of the acquired assets. By comparison with the net fair value of the acquired assets and liabilities (net liabilities amounting to 576 thousand euro), the Group recognized 2,548 thou-sand euro of goodwill.
Copyr contributed 15,384 thousand euro in rev-enues in 2014 (12,310 thousand euro in 2013) and 419 thousand euro in income, net of taxes (213 thousand euro in 2013). The business of the acquired company, which is very similar to that of Zelnova, consists of selling automatic aerosol dispensers, air fresheners and insecticides, and treatments for eco-logical agriculture. The factors contributing to the cost of the transaction, which led to the recognition of goodwill, include the possibility of taking advan-tage of Copyr's potential as an independent unit, the promotion of Zelnova's range of consumer products in the Italian and other European markets (mainly in the Mediterranean area) where Copyr operates, and synergies in the procurement costs of raw materials and in production costs between Zelnova and Copyr. For that reason, the goodwill arising in this business combination was assigned to the cash-generative unit consisting of Copyr and Zelnova.
The goodwill assigned to the cash-generative unit comprising those two companies was measured for impairment at 31 December. The impairment test was conducted jointly with the brands, using the as-sumptions and sensitivity analysis detailed in Note 8.
102
10. Financial instruments by category The accounting policies with respect to finan-cial instruments were applied to the sections detailed below:
ASSETS ON BALANCE SHEET
Non-current financial assets
Held for trading (Note 13) 0 320 0 320
Available for sale (Note 12) 0 0 19 19
Accounts receivable 733 0 0 733
Current financial assets
Customer receivables (Note 15) 36,218 0 0 36,218
Accounts receivable (Note 15) 677 0 0 677
Supplier advances (Note 15) 94 0 0 94
Current financial assets (Note 13) 17 18,943 0 18,960
Cash and cash equivalents (Note 18) 16,551 0 0 16,551
54,290 19,263 19 73,572
LIABILITIES ON BALANCE SHEET
Non-current borrowings (Note 26) 47,003 0 0 47,003
Current borrowings (Note 26) 44,466 0 0 44,466
Supplier and other accounts payable (Note 23) 28,710 0 0 28,710
Derivatives (Note 14) 0 42 0 42
120,179 42 0 120,221
31 December 2014(Thousand euro)
Loans andaccounts
receivable / payableTotal
Assets/liabilities atfair value through
profit or loss
Available-for-sale
assets
103
Loans andaccounts
receivable / payable
ACTIVOS EN BALANCE
Non-current financial assets
Held for trading (Note 13 0 320 0 320
Available for sale (Note 12) 0 0 14 14
Accounts receivable 514 0 0 514
Current financial assets
Customer receivables (Note 15) 37,833 0 0 37,833
Accounts receivable (Note 15) 717 0 0 717
Supplier advances (Note 15) 80 0 0 80
Current financial assets (Note 13) 75 6,302 0 6,377
Cash and cash equivalents (Note 18) 22,458 0 0 22,458
61,677 6,622 14 68,313
LIABILITIES ON BALANCE SHEET
Non-current borrowings (Note 26) 52,941 0 0 52,941
Current borrowings (Note 26) 41,327 0 0 41,327
Supplier and other accounts payable (Note 23) 24,426 0 0 24,426
Derivatives (Note 14) 0 95 0 95
118,694 95 0 118,789
31 December 2013(Thousand euro)
Total
Assets/liabilities atfair value through
profit or loss
Available-for-sale
assets
104
11. Credit quality of financial assets The credit quality of the financial assets that
have not yet matured and have not suffered impairment losses can be assessed on the ba-
sis of credit ratings provided by bodies external to the Group or by the past history of default:
(Thousand euro)
ACCOUNTS RECEIVABLE:
Customers without an external credit rating
Group 1 493 429
Group 2 22,607 21,507
Group 3 846 889
Customers with an external credit rating 12,272 15,008
TOTAL ACCOUNTS RECEIVABLE 36,218 37,833
Cash and cash equivalents plus non-current
and current financial assets:
Moody's rating
A1 14 0
A2 0 647
A3 325 0
B1 653 2
Ba1 93 17,993
Ba2 11,918 29
Ba3 10,344 7,242
Baa1 202 3
Baa2 802 180
Baa3 7,703 1,459
BBB+ 0 740
B3 0 54
B1u 764 4
Caa1 225 0
Unrated 3,540 1,330
36,583 29,683
Group 1 - New customers (under 6 months)Group 2 - Existing customers (over 6 months) with no bad debt historyGroup 3 - Existing customers (over 6 months) with bad debt history All receivables were ultimately collected,
2014 2013
None of the unmatured financial assets was renegotiated during the year. See credit quality of accounts receivable from public authorities, in Note 15.
12. Financial assets available for sale
Available-for-sale financial assets include secu-rities traded on official markets that are de-nominated in US dollars. All of the financial
assets available for sale consist of shares listed on the US market, all of them in the biopharmaceuti-cal sector. Their fair value matches their published
market price: 19 thousand euro (14 thousand euro in 2013).
Marking these securities to market in 2014 on the basis of their official quoted prices led to a posi-tive change of 5 thousand euro (2 thousand euro in 2013) in other comprehensive income.
13. Financial assets at fair value through profit or loss
(Thousand euro)
NON-CURRENT
Unlisted financial assets 320 320
320 320
CURRENT
Unlisted financial assets 18,925 6,276
Listed financial assets 18 26
18,943 6,302
Balance as of31/12/14
Balance as of31/12/13
STARTING DATE
8 July 2011 5,000,000 8 July 7.90% euribor 180 + Quarterly 42 95
2016 5%
2014FrequencyNotionalamount
Maturitydate
Fixedinterest rate
Floatinginterest rate 2013
Fair value as of 31 December
14. Derivative financial instruments
One of the floating-rate loan contracts has an associated derivative financial instrument to hedge floating interest rate risk at a fixed
rate, with the characteristics shown in the table be-low (Note 3.1.iii):
The Group's hedge does not qualify for hedge accounting. There were no exchange rate hedge contracts as of 31 December 2014 or 2013. In 2014, that derivative generated a gain of 53 thousand euro (104 thousand euro in 2014) in financial income (Note 36).
105
Unlisted current financial assets at fair value through profit or loss as of 31 December 2014 included mainly bank commercial pa-
per yielding 0.3%-0.74% (0.75%–1.25% in 2013)
and fixed-term bank deposits with a yield of 0.2%-0.84% (1%–1.49% in 2013) maturing between January and March.
106
15. Customer and other accounts receivable
(Thousand euro)
Customer receivables for sales and services 37,617 39,392
Provisions (1,399) (1,559)
Net 36,218 37,833
Other receivables 677 717
Supplier advances 94 80
TOTAL 36,989 38,630
Balance as of31/12/14
Balance as of31/12/13
(Thousand euro)
3-6 months 2,445 4,656
Over 6 months 2,804 6,063
TOTAL 5,249 10,719
Balance as of31/12/14
Balance as of31/12/13
Customer receivables discounted with credit in-stitutions totalled 2,172 thousand euro as of 31 De-cember 2014 (1,836 thousand euro in 2013). Those discounts were recognized as secured loans since the Group retains the default and late payment risk.
As of 31 December 2014, accounts receivable amounting to 5,249 thousand euro were past due (10,719 thousand euro in 2013), but there had been no impairment loss. The analysis of those accounts receivable by age is as follows (thousand euro):
The past-due accounts that had not been pro-visioned as of 31 December 2014 and 2013 are mainly due from public hospitals in Spain's National Health System and from distributors of vials for the two therapeutic uses which have been approved. The average collection period for the Spanish Na-tional Health System does not exceed one year. The Group does not provision past-due receivables and expects to recover the total amount due plus any default interest that it claims. The average collection period for other public authorities is not more than one year.
The fair value of accounts receivable does not differ materially from their respective carrying amount.
The other amounts relate to a number of inde-pendent customers in the consumer chemicals seg-ment with no recent history of default.
As of 31 December 2014, an impairment loss on accounts receivable was recognized amounting to 204 thousand euro (270 thousand euro in 2013).
The detail of this caption as of 31 December 2014 and 2013 is as follows:
107
In 2014, as in 2013, no provision was recog-nized for impairment of debts between three and six months past due. The provision of 204 thousand euro (270 thousand euro in 2013) was for debts over six months past due. Additionally, 364 thousand euro
in reserves recognized in prior years in the consum-er chemicals segment were reversed (71 thousand euro in 2013) and not recognized as uncollectable in 2014 (32 thousand euro in 2013). The changes were as follows:
(Thousand euro)
BEGINNING BALANCE (1,559) (1,328)
Provision (204) (270)
Reversal 364 71
Bad debts 0 (32)
ENDING BALANCE (1,399) (1,559)
Balance as of31/12/14
Balance as of31/12/13
Euro 36,666 38,389
Other currencies 323 241
TOTAL 36,989 38,630
Balance as of31/12/14
Balance as of31/12/13
Balance as of31/12/14
Balance as of31/12/13(Thousand euro)
Spain 2,583 3,406
Austria 735 448
Belgium 345 301
France 772 676
Germany 2,766 1,157
United Kingdom 345 143
The Netherlands 31 78
Monaco 0 4
Ireland 0 0
Italy 3,008 7,728
Luxembourg 18 90
Portugal 1,669 977
TOTAL 12,272 15,008
The provision for impairment of accounts receiva-ble was included under “Other operating expenses“ in profit or loss.
The carrying amount of the Group's trade and other accounts receivable is denominated in the fol-lowing currencies, although amounts in currencies other than the euro are not material:
The breakdown as of 31 December 2014 and 2013 of receivables from public authorities for sales and services, by geography, is as follows:
108
As of 31 December 2014 and 2013, the credit rating of the accounts receivable from public authorities, by geography, is as follows:
Creditrating
Balance as of31/12/14(Thousand of euro)
Andalusia Ba1 245
Aragon BBB 112
Asturias BBB 18
Balearic Islands BBB 33
Basque Country Baa1 22
Canary Islands BBB- 111
Cantabria BBB 71
Castilla la Mancha Ba2 128
Castilla y León Baa2 245
Catalonia Ba2 60
Ceuta and Melilla 295
Extremadura Baa3 76
Galicia Baa2 92
Madrid BBB 721
Murcia Ba2 66
Navarra A- 18
Valencia Ba2 268
Austria Aaa 735
Belgium Aa3 345
France Aa1 772
Germany Aaa 2,766
Ireland Baa1 0
Italy baa2 3,008
Luxembourg A2 18
Monaco NA 0
Others ----- 2
Portugal Ba1 1,669
The Netherlands Aaa 31
United Kingdom Aa1 345
TOTAL 12,272
Creditrating
Balance as of31/12/13
Andalusia Ba2 568
Aragon BBB- 169
Asturias BBB 16
Balearic Islands BBB- 84
Basque Country Baa2 10
Canary Islands BBB- 201
Cantabria BBB 66
Castilla la Mancha Ba3 343
Castilla y León Baa3 215
Catalonia Ba3 558
Extremadura Ba1 49
Galicia Baa3 137
Madrid Baa3 623
Murcia Ba3 74
Navarra BBB+ 20
Valencia B1 273
Austria Aaa 448
Belgium Aa3 301
France Aa1 676
Germany Aaa 1,157
Ireland Ba1 0
Italy BBB 7,728
Luxembourg A3 90
Monaco NA 4
Others ----- 0
Portugal Ba3 977
The Netherlands Aaa 78
United Kingdom Aaa 143
TOTAL 15,008
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The Group considers each country and autono-mous region as a separate undertaking, since it han-dles each one separately and considers it to be inde-pendent from the others.
Accounts receivable that were past-due as of 31 December 2012 amounting to 5,300 thousand euro were collected in 2013 under the “Supplier Plan“ implemented by the Spanish government.
In 2014, the Company collected 10,066 thou-sand euro of debt owed by various public admin-istrations in Spain and Italy for which it had signed non-recourse factoring agreements with institutions
specialized in this type of transaction (2,491 thou-sand euro in 2013).
Past-due debt as of 31 December 2014 totalled 273 thousand euro (3,244 thousand euro in 2013), and no impairments had been recognized on those amounts. Claims have been issued to the corre-sponding public agencies for the default interest ac-crued on these debts.
Spain 3,541 112 3,429
Italy 6,525 255 6,270
10,066 367 9,699
InterestDiscounted Total received
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17. Inventories
The Group classifies inventories as follows:
(Thousand euro)
Prepaid expenses 1,054 693
Balances with public authorities 1,273 1,658
TOTAL 2,327 2,351
Balance as of31/12/14
Balance as of31/12/13
Balance as of31/12/14
Balance as of31/12/13(Thousand euro)
VAT 1,263 1,645
Income tax 2 0
Others 8 13
TOTAL 1,273 1,658
Balance as of31/12/14
Balance as of31/12/13(Thousand euro)
Trade inventories 806 643
Raw materials and other supplies used 3,787 3,653
Semi-finished products and products in process 12,242 10,235
Finished products 7,375 7,533
By-products, residues and recovered materials 194 168
TOTAL 24,404 22,232
The volume of products in process and semi-fin-ished products is due broadly to the need to have sufficient inventories to market the drug Yondelis®.
The cost of inventories recognized as an expense and included under cost of goods sold amounted to 33,726 thousand euro in 2014 (28,943 thousand euro in 2013).
No material impairment losses were recorded for inventories in 2014 and 2013.
No inventories have been committed as a col-lateral for obligations or debt.
16. Other current assets and current tax assets The breakdown of the Group's other current
assets as of 31 December 2014 and 2013 is as follows:
The detail of the balance with public authorities as of 31 December 2014 and 2013 is as follows:
The “current tax assets“ item refers mainly to tax re-ceivables for double taxation under corporate income tax
amounting to 2,685 thousand euro as of 31 December 2014 (3,847 thousand euro as of 31 December 2013).
111
18. Cash and cash equivalents
This caption contains the following amounts, which include mainly investments in deposits and other types of investments, such as bank commercial pa-
per with a maturity of not more than 3 months be-tween the acquisition date and maturity.
Balance as of31/12/14
Balance as of31/12/13(Thousand euro)
Cash on hand and at banks 3,802 5,980
Cash equivalents 12,749 16,478
TOTAL 16,551 22,458
Cash equivalents as of 31 December 2014 in-clude mainly investments in bank commercial pa-per yielding between 0.30% and 0.74% (between 0.97% and 1.25% in 2013) and fixed-term deposits yielding between 0.2% and 0.84% (between 1%
and 1.25% in 2013) maturing between January and March 2015.
There were no bank overdrafts at the closing date.
112
As described in Note 1, in 2012 the Group dis-continued its activities in connection with ill-nesses of the central nervous system within
the biopharmaceutical segment.
As indicated in Note 2.X, Accounting Policies, property, plant and equipment and intangible assets of Noscira were recognized in the consolidated bal-ance sheet as assets available for sale amounting to
zero euro in 2014 (4 thousand euro in 2013). The other assets and liabilities are recognized under their corresponding category.
The consolidated income statement groups in-come in the year from discontinued operations in a single line item. That income and the items compris-ing it are detailed in the following table.
2014 2013
Purchases 0 (6)
Other operating revenues 146 8
Personnel expenses (26) (208)
Other operating expenses (117) (436)
Recognition of subsidies for non-financial assets and other 0 19
Impairment losses and income from disposal of fixed assets (4) 0
Other income (1) 94
OPERATING INCOME (2) (529)
Financial revenues 9 20
Financial expenses (82) (200)
Exchange differences (1) 1
FINANCIAL INCOME (74) (179)
INCOME BEFORE TAXES (76) (708)
Income tax 0 0
(Loss)/Income after taxes from discontinued operations (76) (708)
2014 2013
Operating cash flow (124) (1,241)
Financing cash flow (11) (528)
TOTAL CASH FLOW (135) (1,769)
The consolidated cash flow statement contains the amounts relating to Noscira as if it had not been discontinued. The following table details the cash
flow statement for the discontinued activity sepa-rately.
19. Assets classified as held for sale and discontinued operations
113
20. Capital The changes in the capital, share premium and own shares accounts in 2014 and 2013 are as follows:
(Thousand euro) / Shares No. of sharesOwn
sharesShare
premiumShare
capital
BALANCE AS OF 1 JANUARY 2013 220,373 11,110 323,286 (6,334)
Sale of own shares 101 0 0 334
Purchase of own shares (439) 0 0 (701)
Share ownership plans 207 672
BALANCE AS OF 1 JANUARY 2014 220,242 11,110 323,286 (6,029)
Sale of own shares 118 0 0 406
Purchase of own shares (1,164) 0 0 (3,159)
Share ownership plans 32 0 0 32
BALANCE AS OF 31 DECEMBER 2014 219,228 11,110 323,286 (8,750)
DIRECT STAKE
No. of shares %
INDIRECT STAKE
No. of shares %
TOTAL STAKE
%
José Mª Fernández Sousa - Faro (1) 14,269,511 6.422% 10,254,841 4.615% 11.037%
As of 31 December 2014, the Company's capi-tal amounted to 11,110 thousand euro (11,110 thousand euro in 2013) and was represented by 222,204,887 bearer shares (222,204,887 shares as of 31 December 2013), with a par value of 0.05 euro per share in both 2014 and 2013. All these shares were fully subscribed and paid and have the same political and economic rights. The amounts and numbers of shares include own shares held by the company and shares delivered to employees under share-ownership plans which, under the conditions of those plans, are subject to lock-up and may not be disposed of by the employees to whom they have been granted.
Own shares
The number of shares outstanding at 31 Decem-ber 2014 was 219,228 thousand (220,242 thousand in 2013). The reduction in the capital and share pre-mium as a result of the shares treated as not out-
standing is reflected in the own shares account. As of 31 December 2014, the controlling company held 2,976 thousand own shares (1,963 in 2013), of which 771 thousand were for acquisition by employ-ees under incentive plans (685 thousand in 2013) (Note 39).
In 2014, the Group acquired 1,164 thousand own shares (439 thousand in 2013) for 3,158 thousand euro (701 thousand euro in 2013), and it retired 135 thousand own shares at a loss of 152 thousand euro (101 thousand shares in 2013). Also, a total of 32 thousand own shares vested under stock ownership plans in 2014 (217 thousand in 2013) for an amount of 81 thousand euro (699 thousand euro in 2013).
According to information in the official registers of the National Securities Market Commission as of 31 December 2014, holders of significant stakes in Zeltia, S.A., either directly or indirectly, amounting to over 10% of which the Company is aware are as follows:
(1) Indirect stake held through his spouse, Ms Montserrat Andrade Detrell.
114
21. Availability and restrictions on reserves and retained earnings
Under article 274 of the Capital Companies Act, companies must transfer 10% of in-come for each year to the legal reserve un-
til it amounts to at least 20% of capital stock. The legal reserve (2,222 thousand euro) can be used to increase capital provided that the remaining balance of the reserve is no less than 10% of the resulting amount of capital. Except for that purpose, until the legal reserve exceeds 20% of capital stock, it can only be used to offset losses, provided that sufficient other reserves are not available for this purpose.
The share premium may be used for the same purposes as the Company's voluntary reserves, in-cluding conversion into capital stock, there being no restrictions as to its use or distribution.
As of 31 December 2014, restricted retained earnings amounted to 10,449 thousand euro (9,252 thousand euro in 2013), including legal reserves at Zeltia, S.A. and subsidiaries.
The proposed distribution of 2014 income and other reserves to be submitted to the Shareholders' Meeting for approval, and the distribution approved for 2013, are as follows:
(Thousand euro) 2014 2013
BASIS OF DISTRIBUTION
Income for the year 5,087 2,033
5,087 2,033
DISTRIBUTION
Offset of prior years' losses 5,087 2,033
5,087 2,033
The only restriction on distribution of dividends refers to the legal reserve.
Dividends to shareholders are distributed by Zeltia. The dividends that the Company distributes are subject to the limitations and restrictions envis-aged in the Capital Companies Act. In accordance with current legislation, the maximum amount to be distributed and the applicable limitations and restrictions are based on the amounts presented by the Company in its separate financial state-ments drafted under Spanish GAAP.
22. Non-controlling interests
There were no changes in 2014 or 2013 in the non-controlling interests at Noscira, the only Group company in which there are minority
shareholders.
The changes in non-controlling interests in 2014 and 2013 are as follows:
(Thousand euro) Non-controlling interests
BALANCE AS OF 1 JANUARY 2013 (3,604)
2013 income (189)
BALANCE AS OF 1 JANUARY 2014 (3,793)
2014 income (20)
BALANCE AS OF 31 DECEMBER 2014 (3,813)
Noscira reported a net loss of 76 thousand euro in 2014 (708 thousand euro in 2013), of which 20 thousand euro corresponded to non-controlling in-terests (189 thousand euro in 2013), in line with their 26.7% stake in the company.
23. Supplier and other accounts payable
The composition of this caption is as follows:
Balance as of31/12/14
Balance as of31/12/13(Thousand euro)
Payable for purchases and services received 26,070 22,364
Debts to related parties 921 946
Advances received for orders 660 660
Other accounts payable 1,059 456
TOTAL 28,710 24,426
All payables mature within 12 months from the closing date of each year. Debts to related parties re-fer mainly to accrued outstanding bylaw-mandated allocations to members of Zeltia's Board and fees for membership of Zeltia committees that have accrued but are outstanding (827 thousand euro as of 31 De-
cember 2014, 852 thousand euro as of 31 December 2013), and accrued outstanding allocations to direc-tors of Genomica and Noscira who are also directors of Zeltia (20 thousand euro and 74 thousand euro, re-spectively, as of 31 December 2014, and 20 thousand euro and 74 thousand euro, respectively, in 2013).
115
116
In compliance with the disclosure requirement with regard to deferral of payments to suppliers established under Additional Provision 3 “Dis-closure obligation“ of Act 15/2010, of 5 July, amending Act 3/2004, of 29 December, which
establishes measures to combat late payment in commercial transactions, the payments made in the years ended 31 December 2014 and 2013 and the payments outstanding on those dates are as follows:
Balance as of 31/12/14
Amount %
Balance as of 31/12/13
Amount %(Thousand euro)
Within the maximum legal period 67,709 77.30% 68,307 79.12%
Remainder 19,887 22.70% 18,029 20.88%
Total payments in the year 87,596 100% 86,336 100%
Weighted average delay in payment (days) 20 19
Deferrals in excess of the legal
limit on the closing date 3,439 1,440
24. Deferred revenues
The breakdown as of 31 December 2014 and 2013 is as follows:
Non-current deferred revenues refer to subsidies recognized under this heading to finance property, plant and equipment for R&D projects in the biop-harmaceutical segment. The directors consider that all the conditions for their recognition have been ful-filled. The subsidies detailed below consist mostly of subsidized interest rates.
(Thousand euro)
Balance as of31/12/14
Balance as of31/12/13
Subsidies 3,783 3,166
TOTAL 3,783 3,166
(Thousand euro)
Balance as of31/12/14
Balance as of31/12/13
Subsidies 9 18
Other deferred revenues 7 7
TOTAL 16 25
Current deferred revenues refer to the short-term part of the aforementioned subsidies:
The supplier payment lag in the year between 1 January and 31 December 2014 was 41.3 days.
The foregoing disclosure refers only to companies domiciled in Spain.
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25. Other non-current and current liabilities
Other non-current liabilities, amounting to 705 thousand euro (644 thousand euro in 2013), include retirement benefit obligations
as well as deposits and sureties received. Retirement benefit obligations amounted to 471 thousand euro (425 thousand euro in 2013).
Other current liabilities, amounting to 3,214 thou-sand euro (2,798 thousand euro in 2013), refer basi-cally to balances owed to public authorities for per-sonal income tax withholdings amounting to 1,262 thousand euro (1,123 thousand euro in 2013), social security contributions amounting to 951 thousand euro (667 thousand euro in 2013), other balances with public authorities amounting to 152 thousand euro (22 thousand euro), and 849 thousand euro (986 thousand euro in 2013) corresponding to group sub-sidiaries domiciled elsewhere in the European Union.
(Thousand euro)
Balance as of31/12/14
Balance as of31/12/13
Bank debt 20,911 25,151
Interest-bearing debt to official authorities 26,092 23,790
Other interest-bearing debt 0 4,000
TOTAL 47,003 52,941
The breakdown of the Group's non-current and current interest-bearing debt as of 31 Decem-ber 2014 and 2013 is as follows:
Breakdown of non-current interest-bearing debt:
26. Interest-bearing debt
Breakdown of current interest-bearing debt:
(Thousand euro)
Balance as of31/12/14
Balance as of31/12/13
Bank debt 36,836 36,528
Interest-bearing debt to official authorities 3,512 3,992
Finance lease liabilities 118 0
Other interest-bearing debt 4,000 807
TOTAL 44,466 41,327
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a) Bank debt
All non-current bank debt is in the form of bank loans. As of 31 December 2014, this item included the long-term unmatured balances of three loans granted to Zeltia amounting to 1,570 thousand euro at that date and maturing in 2016 and 2017. PharmaMar has eighteen loans from financial insti-tutions totalling 17,550 thousand euro maturing through 2017, including a mortgage loan amount-ing to 7,831 thousand euro, maturing in 2024. That loan was arranged in 2014, involving cancellation of the original financial liability and subsequent recog-nition of a new financial liability as provided in para-graphs 40-42 and AG62 of IAS 39, as referred to in Note 6. Genomica has received three loans amount-ing to 948 thousand euro maturing in 2019. Zelnova has received a loan of 843 thousand euro maturing in 2016.
Current bank debt is composed of bank loans, the balance drawn against credit lines, and discount-ed bills. As of 31 December 2014, this balance of 2,161 thousand euro consisted of the short-term component of the three loans granted to Zeltia in the past plus the amount drawn against credit lines (1,851 thousand euro) and other balances with banks (14 thousand euro). PharmaMar has the fol-lowing maturities: loans amounting to 22,383 thou-sand euro, credit lines amounting to 5,207 thousand euro, discounted bills amounting to 1,545 thousand euro, and other balances with banks amounting to 1,056 thousand euro. Genomica has the following maturities: loans amounting to 255 thousand euro, and 576 thousand euro drawn against credit lines. Zelnova has obtained a loan of which 1,075 thou-sand euro matures in 2015, credit lines against which it has drawn 15 thousand euro, and other bal-ances with banks amounting to 35 thousand euro. Xylazel has discounted bills amounting to 627 thou-sand euro and other balances with banks amounting to 35 thousand euro.
Zeltia has also classified as current, under Oth-er financial debt, a loan from a non-financial en-tity related to a member of the Board of Directors which amounts to 4,000 thousand euro, maturing in 2015.
Of the loan obtained by PharmaMar for an original amount of 50,000 thousand euro from the EIB (whose tranche amounted to 30,000 thousand
euro) and ICO (20,000 thousand euro), maturing in nine years (ten years, prior to the novation on 11 December 2012), with a three-year grace pe-riod, 12,515 thousand euro are outstanding and are classified under current liabilities (10,710 thou-sand euro as of 31 December 2013). The loan was granted on 7 May 2007 and the guarantors are Zeltia, S.A. and Xylazel, S.A. It was subsequently novated twice, on 17 June 2010 and 11 December 2012. As of 31 December 2014, the amount out-standing to EIB was 7,905 thousand euro (13,935 thousand euro as of 31 December 2013) and the amount outstanding to ICO was 5,006 thousand euro (9,290 thousand euro as of 31 December 2013).
That loan is subject to covenants that require at-tainment by the Group and Xylazel of specific ratios (EBITDA, EBIT/financial expenses, debt/EBITDA) linked to the Group's consolidated financial statements and the financial statements of Xylazel, S.A.
Those covenants were not complied with as of 31 December 2014. At the date of authorization of these consolidated financial statements, a waiver had been obtained from the lenders. All of the debt is classified as current. As a result of breach of the covenants, Xylazel, S.A. may not make distributions out of 2014 income.
The EIB/ICO loan is subject to a clause on change of control in the event of a takeover bid.
As of 31 December 2013, the balance of non-current debts included the long-term unmatured balances of two loans granted to Zeltia amount-ing to 2,363 thousand euro and 524 thousand euro and maturing in 2016. PharmaMar has been granted a loan jointly by the European Invest-ment Bank (7,509 thousand euro) and Instituto de Crédito Oficial (5,006 thousand euro) that matures in 2016; nine loans by a number of institutions that total 6,451 thousand euro, maturing in 2015; and a mortgage loan amounting to 1,137 thou-sand euro maturing in 2015 (referred to in Note 6). Genomica has received two loans amounting to 248 thousand euro maturing in 2018. Zelnova has received a loan of 1,913 thousand euro maturing in 2016.
As of 31 December 2013, the balance of cur-rent bank debt included 3,038 thousand euro
119
corresponding to the short-term component of the four loans granted to Zeltia plus the amount drawn against credit lines (1,870 thousand euro) and other balances with banks (24 thousand euro). In 2013, PharmaMar had the following maturi-ties: loans amounting to 18,507 thousand euro, drawn credit lines amounting to 7,382 thousand euro, discounted bills amounting to 1,439 thou-sand euro, and other balances with banks amount-ing to 977 thousand euro. Genomica had the fol-lowing maturities in 2013: loans amounting to 69 thousand euro and discounted bills amounting to 213 thousand euro. Zelnova has obtained a loan of which 1,023 thousand euro matures in 2014, cred-it lines against which it has drawn 1,495 thousand euro, and other balances with banks amounting to 53 thousand euro. Xylazel has discounted bills amounting to 397 thousand euro and other bal-ances with banks amounting to 30 thousand euro. In 2013, Noscira had a loan of 11 thousand euro maturing in 2014.
The repayment schedule for non-current bank debt is as follows:
(Thousand euro)
Balance as of31/12/14
Balance as of31/12/13
2015 0 19,826
2016 9,936 5,221
2017 4,378 61
2018 1,120 43
2019 and thereafter 5,477 0
TOTAL 20,911 25,151
(Thousand euro)
Balance as of31/12/14
Balance as of31/12/13
Bank loans 25,873 22,648
Credit lines 7,686 10,959
Unmatured discounted bills and certifications 2,172 1,836
Interest payable 1,105 1,085
TOTAL 36,836 36,528
Current bank debt is broken down as follows:
120
Some credit lines are renewed automatically and, to date, experience shows that they have been re-newed systematically with the same banks. As of 31 December 2014, the Group had 34 credit lines (29 as of 31 December 2013) with a total limit of 33,680 thousand euro (26,280 thousand euro in 2013).
At the date of authorization of these consolidated financial statements, the Group had signed agree-ments which extend the maturity of 4,000 thousand euro of current debt (7,070 thousand euro in 2013).
The vast majority of the loans and credit lines are at floating interest rates consisting of Euribor plus a spread of between 2% and 6.4% (between 2% and 7% in December 2013). The fair values are based on discounting cash flow at a rate of Euribor plus a spread of 3.7% for 2014 (3.6% for 2013).
The effective interest rates at 31 December are:
Balance as of31/12/14
Balance as of31/12/13
Bank overdrafts 29.00% 29.00%
Bank loans 5.85% 6.47%
Credit lines 4.58% 4.38%
Discounted notes 3.40% 3.97%
The Group's exposure to bank debt at floating rates is 38,938 thousand euro as of 31 December 2014 (50,482 thousand euro in 2013), indexed mainly to three-month Euribor.
The carrying amount and fair value of the Group's non-current and current interest-bearing debt as of 31 December 2014 and 2013 are as follows:
(Thousand euro) 2014
Fair value
2013 2014
Carrying amount
2013
Non-current
Bank loans 20,911 29,710 20,911 25,151
Due to official authorities 31,829 25,179 26,092 23,790
Other debt 0 4,000 0 4,000
TOTAL 52,740 58,889 47,003 52,941
Current
Bank loans 25,873 22,828 25,873 22,648
Credit lines 7,648 10,959 7,648 10,959
Bank overdrafts 0 289 0 289
Unmatured discounted bills and certifications 2,172 1,836 2,172 1,836
Interest payable 1,091 1,055 1,091 1,055
Due to official authorities 4,248 4,052 3,512 3,992
Other debt 4,170 548 4,170 548
TOTAL 45,202 41,567 44,466 41,327
All the bank loans are arranged in euro.
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b) Financial debt to public authorities
This item refers mainly to funding from govern-ment agencies consisting of loans and interest-free grants repayable in seven years, after a three-year grace period, which finance research and develop-ment projects.
As of 31 December 2014, the Group had debt balances with official authorities for a total of 29,604
thousand euro (27,782 thousand euro in 2013), of which 26,092 thousand euro were non-current (23,790 thousand euro in 2013) and 3,512 thousand euro were current (3,992 thousand euro in 2013).
The repayment schedule of non-current govern-ment aid is as follows:
(Thousand euro)
Balance as of31/12/14
Balance as of31/12/13
2015 0 3,609
2016 3,274 3,643
2017 4,033 3,742
2018 3,881 3,757
2019 and thereafter 14,904 9,039
TOTAL 26,092 23,790
Research &development expenses
Others
Deferred tax assets(Thousand euro)
Deferred tax liabilities(Thousand euro)
Revaluation ofinvestment
property
Revaluation of brands with
indefinite useful lives
Capitalsubsidies
TOTALOthers
TOTAL
AS OF 1 JANUARY 2013 29,380 2,683 32,063
Recognised in profit or loss (4,223) 4,706 483
AS OF 31 DECEMBER 2013 25,157 7,389 32,546
Recognised in profit or loss 858 4 862
Reclassification 1,727 (1,727) 0
AS OF 31 DECEMBER 2014 27,742 5,666 33,408
AS OF 1 JANUARY 2013 (1,452) (2,421) (4,675) 0 (8,548)
Recognised in profit or loss 0 (52) (430) (1) (483)
AS OF 31 DECEMBER 2013 (1,452) (2,473) (5,105) (1) (9,031)
Recognised in profit or loss 240 369 1,262 (1) 1,870
AS OF 31 DECEMBER 2014 (1,212) (2,104) (3,843) (2) (7,161)
The fair value of these zero-interest loans and repayable grants, calculated by discounting cash flow at Euri-bor plus a spread based on the Group's exposure, was 29,604 thousand euro as of 31 December 2014 (27,782 thousand euro in 2013).
The breakdown of debt to official authorities is as follows:
27. Deferred taxes and income tax
Deferred taxes
The change in the year in deferred tax assets and liabilities was as follows:
(Thousand euro) Non-current
2014
Current Non-current
2013
Current
CDTI 15,235 1,519 11,650 1,479
PROFIT 10,431 1,971 11,068 2,513
INNPACTO 426 22 1,072 0
TOTAL 26,092 3,512 23,790 3,992
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As of 31 December 2014, unrecognized deferred tax assets in relation to research & development ex-penses amounted to 69,342 thousand euro (85,425 thousand euro in 2013). At the same date, there were also unallocated tax losses and tax credits amounting to 27,207 thousand euro (34,460 thousand euro in 2013) and 158,257 thousand euro (138,954 thou-sand euro in 2013), respectively, which were not rec-ognized in the balance sheet. Those differences were
not recognized in relation to deferred tax assets at 2014 and 2013 year-end as a result of the analysis made by the Group as described in Note 4 (Account-ing estimates and judgements).
The following table shows the validity dates of timing differences, tax losses and tax credits for which deferred tax assets had not been recognized as of 31 December 2014:
Tax creditsgenerated by:
Taxlosses 27,207 0 0 0 0 0 245 3,069 7,557 3,487 1,901 1,477 4,119 5,351 0 0
Unused R&Dtax credits 152,063 0 2,149 4,478 4,890 12,522 13,383 9,776 11,012 10,854 10,118 11,469 9,809 9,452 9,342 32,810
Other unusedtax credits 6,195 0 5,291 353 168 384 0 0 0 0 0 0 0 0 0 0
R&D activities(*) (Note 4) 69,342 4,542 5,547 6,735 5,529 5,497 5,497 5,497 5,634 5,634 5,634 5,634 3,908 3,092 363 600
TOTAL 254,806 4,542 12,986 11,565 10,587 18,403 19,125 18,341 24,203 19,975 17,652 18,580 17,836 17,895 9,705 33,410
Tota
lam
ount
2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028
2029
and
ther
eafte
r
The following table shows the validity dates of the de-ferred tax assets recognized as of 31 December 2014:
Tax credits generated by:
R&D activities (**)(Note 4) 27,742 4,823 1,433 1,740 1,428 1,420 1,420 1,420 1,633 2,647 1,467 1,455 1,009 799 94 4,954
Others 5,666 949 569 530 519 505 505 505 504 504 504 0 0 0 0 72
TOTAL 33,408 5,772 2,001 2,270 1,948 1,925 1,925 1,925 2,138 3,151 1,971 1,455 1,009 799 94 5,026
Tota
lam
ount
2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028
2029
and
th
erea
fter
(**) Corresponds to the part of the timing differences generated by the different accounting treatment of research and devel-
opment expenses in the consolidated and separate financial statements of the companies in the biopharmaceutical segment.
Research &development expenses
Others
Deferred tax assets(Thousand euro)
Deferred tax liabilities(Thousand euro)
Revaluation ofinvestment
property
Revaluation of brands with
indefinite useful lives
Capitalsubsidies
TOTALOthers
TOTAL
AS OF 1 JANUARY 2013 29,380 2,683 32,063
Recognised in profit or loss (4,223) 4,706 483
AS OF 31 DECEMBER 2013 25,157 7,389 32,546
Recognised in profit or loss 858 4 862
Reclassification 1,727 (1,727) 0
AS OF 31 DECEMBER 2014 27,742 5,666 33,408
AS OF 1 JANUARY 2013 (1,452) (2,421) (4,675) 0 (8,548)
Recognised in profit or loss 0 (52) (430) (1) (483)
AS OF 31 DECEMBER 2013 (1,452) (2,473) (5,105) (1) (9,031)
Recognised in profit or loss 240 369 1,262 (1) 1,870
AS OF 31 DECEMBER 2014 (1,212) (2,104) (3,843) (2) (7,161)
(*) Corresponds to the part of the timing differences generated by the different accounting treatment of research and develop-
ment expenses in the consolidated and separate financial statements of the companies in the biopharmaceutical sector, which was
not recognized in accordance with the recoverability analysis detailed in Note 4.
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Income tax
The reconciliation of the difference between apply-ing a 30% tax rate to the income before taxes and
the recognized tax expense is shown in the following table:
2014 2013
Income before taxes 14,476 13,801
Tax rate (30%) (4,343) (4,140)
Tax effect of:
- Permanent differences 3,798 3,158
- Tax expense that did not generate deferred taxes (1,155) 1,113
- Change in tax rate (462) 0
Adjustment for recognition of net deferred taxes 858 (2,091)
TAX EXPENSE (1,304) (1,960)
The 1,304 thousand euro recognized as tax ex-pense comprises current tax (4,036 thousand euro) and deferred tax (2,732 thousand euro). The ex-pense of 1,960 thousand euro in 2013 was entirely comprised of current tax.
In the foregoing table, permanent differences relate mainly to 50% of revenues received from other coun-tries for the use of patents. The tax expense that did not generate deferred taxes refers to the results of Pharma Mar USA, Pharma Mar AG, Copyr and Noscira. Except for Copyr, these companies reported non-material in-come on a separate basis in the year, did not generate tax credits, and are taxed on an individual basis. This item also reflects the different tax rates applicable to foreign subsidiaries. It also includes adjustments for conversion to IFRS for which no tax impact was recognized (mainly period R&D expenses). With regard to the adjustment in recognition of net deferred taxes, as indicated in note 4 of these consolidated financial statements, in order to determine the maximum amount that the Group can recognize in connection with deferred taxes and tax credits, Group management considers only the esti-mated future results of the subsidiaries which are clearly on the path to profits and for which sufficiently reliable estimates can be made. As a result of tax planning for 2014, net deferred taxes recognized on the balance sheet increased by 858 thousand euro in 2014 (they de-creased by 2,091 thousand euro in 2013).
In 2014 and 2013, the corporate income tax return was filed on a group basis by the tax group headed by Zeltia, S.A. and comprising the following group com-panies: Pharma Mar, S.A.; Genomica; Zelnova; Xyla-zel; Sylentis and Promaxsa Protección de Maderas.
The tax rate applicable to the Group is gener-ally the standard tax rate in Spain (30%), except for Copyr, whose earnings are taxed in Italy at approx-imately 42%. The tax rate applicable to the other subsidiaries located outside Spain is not material.
Law 27/2014 on Corporate Income Tax, enacted on 28 November 2014, applies to tax periods begin-ning on or after 1 January 2015. The main change in this tax is the reduction in the general rate, from 30% to 28% for tax periods commencing on or after 1 January 2015, and to 25% for tax periods com-mencing on or after 1 January 2016.
This will also affect deferred tax assets and liabilities, and is estimated to have a net negative impact amount-ing to 462 thousand euro as of 31 December 2014.
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28. Provisions for other contingencies and expenses
As of 31 December 2014 and 2013, this caption in-cludes outstanding remuneration to Group employ-ees in relation to bonuses that had accrued and were
outstanding, and estimated bonuses accrued and outstanding at year-end, based on the compensation systems agreed by the Group with employees.
Balance as of31/12/14
Balance as of31/12/13
Product sales 167,913 156,359
Provision of services 966 1,348
Returns, rebates and volume discounts (19,227) (15,883)
TOTAL 149,652 141,824
(Thousand euro)
30. Research and development expenses
Group expenditure on R&D amounted to 52,456 thousand euro in 2014, i.e. an increase on the 42,717 thousand euro spent in 2013. Of that figure, PharmaMar spent 45,346 thousand euro (36,493 thou-sand in 2013), Genomica 1,459 thousand euro (1,198 thousand euro in 2013), Sylentis 5,166 thousand
euro (4,794 thousand euro in 2013), Zelnova 357 thousand euro (120 thousand euro in 2013), and Xylazel 127 thousand euro. PharmaMar capitalized 5,979 thousand euro of development expenses (4,382 thousand euro in 2013) (Note 8).
31. General and administration expenses
The consolidated figure was 18,658 thousand euro, 5.6% less than in 2013, when general and adminis-tration expenses amounted to 19,765 thousand euro.
32. Marketing expenses
Commercial and marketing expenses increased by 2.2% with respect to 2013; this item increased in both of the Group's main business segments, to a total of 42,173 thousand euro in 2014 (41,251 thousand euro in 2013). This item amounted to 23,110 thousand euro in the biopharmaceutical segment (22,426
thousand euro in 2013), which is a small increase in comparison with the increase in revenues. The consumer chemicals division accounted for 19,052 thousand euro in 2014 (18,803 thousand euro in 2013).
29. Net revenues The breakdown of revenue from sales and serv-ices, which is broken down by segment and geographic region in Note 5, is as follows:
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33. Other operating revenues / other net gains and other operating expenses
Other operating revenues/other net gains amounting to a total of 28,408 thousand euro (22,858 thousand euro in 2013) include
18,266 thousand euro in revenue (18,451 thousand euro in 2013) under an agreement with Janssen Products LP, part of Janssen Pharmaceutical Com-panies, in relation to a new action plan to promote the development of Yondelis® in the United States. Under that agreement, PharmaMar received an up-front payment of 25 million US dollars in late 2011, and will receive another 85 million dollars as mile-stones based solely on the Yondelis® development plan are attained in 2012-2015 (25 million US dollars each in 2012, 2013 and 2014, and 10 million US dollars in 2015). These milestones are in addition to those envisaged in the original licensing agreement, under which 1,012 thousand euro were collected in 2014 for attainment of the milestone consisting of the presentation to the FDA by Janssen of the dos-sier to apply for marketing approval. This account
also includes royalties paid by Johnson & Johnson on sales of Yondelis® in the countries where it has the marketing licence, in the amount of 1,872 thousand euro (1,660 thousand euro in 2013). Additionally, an upfront payment amounting to 5,000 thousand euro was collected from Chugai Pharma for the Aplidin® licensing agreement signed in July 2014. The “Other operating expenses/Other net gains“ item also includes 1,903 thousand euro of capital grants transferred to income for the year (2,478 thousand euro in 2013).
The “Other operating expenses“ item refers in particular to expenses not directly assigned to the other functions.
34. Breakdown of expenses by type
The breakdown of operating expenses by type is as follows:
Balance as of31/12/14
Balance as of31/12/13
Changes in finished product and product-in-process inventories 1,849 (1,699)
Raw materials and other supplies used 31,877 30,480
Employee benefit expenses 45,870 42,224
Depreciation and amortisation 5,263 4,591
Impairment charges and other provisions 500 288
Transport 4,184 4,040
Marketing expenses 22,219 21,040
Other expenses 52,040 49,144
TOTAL 163,802 150,108
(Thousand euro)
Other expenses include services received, communica-tions, utilities, travel, security, and directors’ remuneration.
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The average number of employees by category is as follows:
The average number of employees by professional category and gender is as follows:
Balance as of31/12/14
Balance as of31/12/13
Salaries and wages 35,617 33,139
Indemnities 988 368
Social security 7,347 6,786
Pension cost 98 98
Share ownership plans 452 360
Other welfare expenses 1,368 1,473
TOTAL 45,870 42,224
(Thousand euro)
31/12/14 31/12/13
Management 37 40
Technical professionals 278 259
Clerical personnel 101 103
Commercial personnel 126 114
Other employees 123 112
TOTAL 665 628
31/12/14 31/12/13
Management 24 26
Technical professionals 110 96
Clerical personnel 33 34
Commercial personnel 84 78
Other employees 73 66
TOTAL 324 300
(Men)
31/12/14 31/12/13
Management 13 14
Technical professionals 168 163
Clerical personnel 68 69
Commercial personnel 42 36
Other employees 50 46
TOTAL 341 328
(Women)
35. Employee benefit expenses The breakdown of employee benefit expenses
is as follows:
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The average number of employees by gender is as follows:
31/12/14 31/12/13
Men 324 300
Women 341 328
TOTAL 665 628
Balance as of31/12/14
Balance as of31/12/13
FINANCIAL EXPENSES
On debts to third parties and similar expenses 6,399 6,442
Losses on financial assets 0 16
Exchange loss 244 83
6,643 6,541
FINANCIAL REVENUES
Revenues from other tradeable securities and loans to other companies 220 502
Other interest and similar revenues from other companies 293 250
Gains on financial assets 17 0
Fair value changes in financial assets 53 104
Exchange gains 298 530
881 1,386
TOTAL NET FINANCIAL INCOME (5,762) (5,155)
(Thousand euro)
As of 31 December 2014, one of the twelve mem-bers of the Board of Directors was a woman (one in 2013). Of Zeltia's eight executives, including executive directors at the closing date (as defined in Note 38), two were women (two in 2013).
The consolidated Group companies have an aver-age of nine employees with disability greater than or equal to 33% (ten in 2013).
36. Net financial income
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37. Earnings per share
Basic earnings per share are calculated by divid-ing income attributable to equity holders of the parent company by the weighted average
number of shares outstanding during the year.
The basic earnings per share in 2014 and 2013 were as follows:
Diluted earnings per share are calculated by ad-justing the weighted average number of ordinary shares outstanding to reflect conversion of all poten-tially-dilutive ordinary shares.
The diluted earnings per share in 2014 and 2013 were as follows:
2014 2013Earnings per share (basic)
Income attributable to equity-holders of the parent company (thousand euro) 13,115 11,841
Weighted average number of outstanding
ordinary shares (thousand) 219,857 220,345
Basic earnings per share (euro) 0,06 0,05
Earnings per share (basic) 2014 2013
Income from discontinued operations (76) (707)
Weighted average number of outstanding
ordinary shares (thousand) 219,857 220,345
Basic earnings per share (euro) (0,00) (0,00)
Earnings per share (diluted) 2014 2013
Income attributable to equity-holders of the parent company (thousand euro) 13,115 11,841
Weighted av. no. of ordinary shares for diluted
earnings per share (thousand shares) 220,636 221,039
Diluted earnings per share (euro) 0,06 0,05
Earnings per share (diluted) 2014 2013
Income from discontinued operations (76) (707)
Weighted av. no. of ordinary shares for diluted
earnings per share (thousand shares) 220,636 220,345
Diluted earnings per share (euro) (0,00) (0,00)
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38. Transactions with related parties
For the purposes of this note, the controlling Company's significant shareholders, directors and executives, the close relatives of all of
them and the companies over which any of those persons may have a significant influence are classi-fied as related parties of the Group.
Significant shareholders are those who own over 3% of Company capital. Employees who report to the Chairman, who is the Company's Chief Execu-
tive, are classified as executives even if they have an ordinary employment contract (not a senior man-agement contract in accordance with Royal Decree 1382/85).
Board of Directors
In 2014, the remuneration accrued by the mem-bers of the Board of Directors amounted to 3,165 thousand euro (2,454 thousand euro in 2013), bro-ken down as follows:
Remuneration item 2014 2013
Fixed remuneration (executive directors) 755 633
Variable remuneration (executive directors) 630 148
Attendance fees 460 346
Bylaw-mandated remuneration 1,296 1,303
Life insurance premiums (*) 24 24
(Thousand euro) 3,165 2,454
The Attendance fees and Bylaw-mandated remu-neration include not only the amounts paid by Zeltia, S.A. but also amounts collected by several members of the Board of Directors for membership of the Boards of other Group companies.
The detail of the Bylaw-mandated remuneration is as follows:
2014 2013
Board of Directors 746 766
Executive Committee 181 181
Audit Committee 71 73
Remuneration and Appointments Committee 60 66
Boards of Directors of other Group undertakings 238 217
(Thousand euro) 1,296 1,303
2014 2013
Board of Directors of Zeltia 239 146
Executive Committee of Zeltia 19 19
Audit Committee of Zeltia 32 32
Remuneration and Appointments Committee of Zeltia 20 24
Boards of Directors of other Group undertakings 150 125
(Thousand euro) 460 346
The detail of attendance fees is as follows:
(*) Premiums for death benefit and life insurance policies for the members of the Executive Committee, which pay benefits
upon the insured parties' death or retirement.
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As of 31 December, the advances and loans granted by the Group to the members of the Board of Directors in 2014 amounted overall to 45 thou-sand euro (45 thousand euro in 2013), on which in-terest is not earned in accordance with the transitory provisions of the Personal Income Tax Act.
Companies related to the directors and executives and their close relatives
Transactions with companies related to directors and executives of the company and their close rela-tives in 2014 and 2013 were not material, formed part of the normal business of the Company or its subsidiaries, and were performed on an arm's-length basis.
Two companies related, respectively, to two members of the Board of Directors of Zeltia provided services to the company amounting to 30 thousand euro and 21 thousand euro. The latter also provided services to some group companies that brought the total amount of services provided by it to 24 thou-sand euro. Those amounts are not material in the context of the transactions by that subsidiary and the Group.
In 2009, a company related to a member of the Board of Directors granted Zeltia a loan for a initial amount of 8,000 thousand euro with an initial ma-turity of two years. The transaction was arranged at market rates in line with other financing transac-tions offered to the Company at the same time, and without additional collateral. The original contract has been renewed on two occasions. At present, 4,000 thousand euro are outstanding and mature in 2015. The interest accrued on this loan in 2014 amounted to 297 thousand euro (442 thousand euro in 2013).
A member of the Board of Directors of Zeltia was appointed Honorary Director at the Shareholders' Meeting of Zeltia on 12 June 2013. The Board of Directors unanimously resolved to establish that per-son's remuneration as Honorary Director at 62 thou-sand euro per twelve-month period starting from the date of appointment and until the fourth anniversary thereof. That amount is fixed and will not be revised in the aforementioned period. A total of 62 thou-sand euro were accrued in 2014.
Transactions with executives of the controlling Company
The executives received an aggregate total of 1,243 thousand euro in 2014 (1,297 thousand euro in 2013). One of those executives is a director at one of the Group undertakings and collected 19 thou-sand euro under this heading in 2014 (19 thousand euro in 2013), which are not included in the forego-ing aggregate figure.
39. Share-based payments
At the end of 2014, Zeltia and its Group un-dertakings had five incentive plans for Group employees and executives (not including Di-
rectors of Zeltia, S.A.) who receive annual variable remuneration, have an indefinite contract, have passed the trial period and attained at least 50% of the objectives set for the year, excepting the Stock Ownership Plan approved by Zeltia's Shareholders' Meeting on 12 June 2013 and implemented by a decision of the Board of Directors on 28 February 2014 for which the threshold was raised to 60%. With regard to the Stock Ownership Plan approved by Zeltia's Shareholders' Meeting on 27 May 2014, at the time this report was authorized, the Com-pany's Board of Directors had not resolved to im-plement it or established the specific conditions for executing it.
As regards the Stock Ownership Plans executed up to the date of authorization of these financial statements, below is a description of the essential terms and conditions approved by the Company's Board of Directors at the time of execution under powers granted specifically for this purpose by the Shareholders' Meeting. To date, at the start of each year, each of the Group undertakings that has decid-ed to apply the Stock Ownership Plan has provided Zeltia's Board of Directors with a list of beneficiar-ies, i.e. employees who meet the conditions set out in the resolution of the Zeltia Shareholders' Meet-ing, detailing each beneficiary's degree of attain-ment of the objectives set for the year just ended. Since participation in the Plans has been voluntary to date, those lists have included only employees and executives who have opted to participate and allocate part of their variable remuneration to those Plans. Based on that information, Zeltia's Board of
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Directors has resolved each year that those benefi-ciaries be granted, by their respective employers, the amount in shares set out in that list (in no case exceeding 12,000 euro per beneficiary per year), which also includes for each beneficiary a coeffi-cient based on each beneficiary's level of responsi-bility and performance during the past year (on the basis of which the amount in shares is calculated). The number of shares to be delivered to each ben-eficiary is determined by dividing the corresponding amount by the value assigned to the share, which is normally established, depending on the case, as either the weighted average price of the share in the electronic market on the execution date or the average of the weighted average price of the share in the month prior to execution.
Employee participation to date in these Plans has been voluntary; if the employee decides not to par-ticipate, his/her variable remuneration is delivered entirely in cash; however, no multiplier is applied to the cash amount. The beneficiaries have the politi-cal and economic rights deriving from ownership of all the shares from the time the shares are actually delivered to them, although they are under a lock-up agreement. In the five Stock Ownership Plans that were in force at 2014 year-end, the lock-up (vesting) period is 4 years from the date of delivery of the shares; nevertheless, 18 months after the de-livery of the shares, some of the shares will be un-locked: specifically, the number of shares resulting from dividing the total number of shares that were delivered by the coefficient established in the list plus one. The delivery of those shares, which must remain locked up for the above-mentioned 4-year period, is subject to a condition subsequent which is understood to be met in the event of voluntary severance or fair dismissal of the beneficiary. In the event of cessation of employment due to a cause other than those two, the shares are deemed to have vested.
Year 2011 (Incentive Plan approved by the Ordinary Shareholders' Meeting on 29 June 2010)
On 29 June 2010, the Shareholders' Meeting ap-proved another plan for the delivery of shares free of charge; it was executed in April 2011. The company allocated 350,000 own shares under this plan.
A total of 303 beneficiaries were granted 349,839 shares in 2011, at a value of 2.8413 euro per share.
In 2012, 118,447 shares vested under this plan.
Year 2012 (Incentive Plan approved by the Ordinary Shareholders' Meeting on 15 June 2011)
On 15 June 2011, the Shareholders' Meeting ap-proved another plan for the delivery of shares free of charge; it was executed in April 2012. The company allocated 350,000 own shares under this plan.
A total of 249 beneficiaries were granted 349,880 shares in 2011, at a value of 1.4258 euro per share.
In 2013, 90,906 shares vested under this plan.
Year 2013 (Incentive Plan approved by the Ordinary Shareholders' Meeting on 13 June 2012)
On 13 June 2012, the Shareholders' Meeting approved a new plan for the delivery of shares free of charge; it was executed in March 2013. The company allocated 350,000 own shares under this plan.
A total of 234 beneficiaries were granted 349,866 shares in 2013, at a value of 1.3244 euro per share.
In 2014, 88,812 shares were released under this Plan.
Year 2014 (Incentive Plan approved by the Ordinary Shareholders' Meeting on 12 June 2013)
On 12 June 2013, the Shareholders' Meeting approved a new plan for the delivery of shares free of charge; it was executed in March 2014. The company allocated 500,000 own shares under this plan.
Under this plan, a total of 196 beneficiaries were granted 236,070 shares in 2014, at a value of 2.7292 euro per share.
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Year 2015 (Incentive Plan approved by the Ordinary Shareholders' Meeting on 27 May 2014)
The Shareholders' Meeting on 27 May 2014 ap-proved a new plan for the delivery of shares free of charge with a double objective, as in previous years: to reward employees and executives whose performance in 2014 was satisfactory, and to in-centivize beneficiaries to stay in the Group. The Meeting capped the number of own shares that can be allocated for the execution of this Plan at 600,000, which shares will be taken from treasury stock held by the Company at the time the plan is implemented. The Shareholders' Meeting deter-
mined the Plan's beneficiaries as Group employees and executives (excluding Directors of Zeltia, S.A.) who have a permanent contract and had completed any trial period and collect variable remuneration in 2015 relating to attainment of objectives in 2014, provided that they attained over 50% of the targets established by their Department head or hierarchi-cal superior. The Shareholders' Meeting empowered the Board of Directors to determine the other terms and conditions of the Plan. At the date of author-izing these consolidated financial statements, the Plan was pending execution, and Zeltia's Board of Directors had yet to establish the conditions of same under the powers granted specifically for this pur-pose by the Shareholders' Meeting.
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The changes in 2014 and 2013 and the total balance of shares delivered under the various incentive plans are shown below:
The following table shows the number of shares that had not vested under each plan as of 31 December 2014:
Fair valueat grant date
No. ofshares
2014
Fair valueat grant date
No. ofshares
2013
BALANCE AS OF 1 JANUARY 1,259,153 684,965 1,731,491 644,275
Granted 322,258 118,078 341,808 258,085
Cancelled (58,283) (32,071) (41,029) (19,436)
Vested 0 0 (773,116) (197,959)
BALANCE AS OF 31 DECEMBER 1,523,129 770,972 1,259,153 684,965
Sharespurchased
by employees
Sharescontributed
by theCompany
No. ofshares
Fair valueof share Vesting
Plan (Grant date)
Plan 10: June 2010 (Granted April 2011) 0 199,800 199,800 2,84 Apr. '15
Plan 11: June 2011 (Granted April 2012) 0 216,152 216,152 1,43 Apr. '16
Plan 12: June 2012 (Granted March 2013) 0 240,496 240,496 1,32 Mar. '17
Plan 13: June 2013 (Granted March 2014) 114,442 114,524 228,966 2,73 Mar. '18
770,972
40. Duty of loyalty
Director conflicts of interest
Based on the disclosures presented by each of the Company's directors, they and, to the best of their knowledge and belief,
their related parties abstained from incurring in the situations of conflict of interest envisaged in article 229.1 of the Consolidated Text of the Capi-tal Companies Act, except in the case of related-party transactions authorized by the Company's Board of Directors or its Committees, which are disclosed in Note 23 to the Separate Financial Statements, Note 38 to the Consolidated Financial Statements, and section D.3 of the Annual Cor-porate Governance Report for the year ended 31 December 2014, which forms part of these Finan-cial Statements.
41. Contingencies
a) Contingent liabilities
Under current legislation, tax returns cannot be deemed definitive until they have been in-spected by the tax authorities or the statute
of limitations period has elapsed. The Group has the last four years open for review for the main taxes applicable to it (five years in the case of corporate income tax).
The Company's directors do not anticipate that, in the event of inspection, additional liabilities would arise or the amount of recognized assets might be reduced such as to have a material effect on these consolidated financial statements.
b) Contingent assetsThe Group did not have contingent assets as of 31
December 2014 (or 2013).
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42. Commitments
a) Operating lease commitments
The minimum future non-cancellable operating lease payments are as follows:
(Thousand euro)
Balance as of31/12/14
Balance as of31/12/13
Under 1 year 2,043 1,983
1 to 5 years 3,043 2,918
TOTAL 5,086 4,901
b) Contractual obligations
The loan granted by EIB and ICO (Note 26) to PharmaMar is subject to compliance by the Group and Xylazel with specific ratios (EBITDA, EBITA/finan-cial expenses, debt/EBITDA) linked to the Group's consolidated financial statements and the financial statements of Xylazel, S.A. Those financial ratios were not met as of 31 December 2014, and a waiver had been obtained from the lenders as of the date of authorization of these financial statements. The total amount of the debt is classified as current. Also, as a result of failing to attain the ratios, Xylazel will not distribute any dividends out of 2014 income.
The EIB loan is subject to a clause on change of control in the event of a takeover bid.
c) Share-based incentive plans
Under the tenth plan (June 2010) for delivery of •shares free of charge, as of 31 December 2014, 199,800 shares delivered and subject to lock-up will vest in April 2015.
Under the eleventh plan (June 2011) for delivery •of shares free of charge, as of 31 December 2014, 216,152 shares delivered and subject to lock-up will vest in April 2016.
Under the twelfth plan (June 2012) for delivery of •shares free of charge, as of 31 December 2014, 240,496 shares delivered and subject to lock-up vest in March 2017.
Under the thirteenth plan (June 2013) for deliv-•ery of shares free of charge, as of 31 December 2014, 114,442 shares delivered and subject to lock-up vest in September 2015 and 114,524 in March 2018.
43. Auditors' fees
The fees accrued by PricewaterhouseCoopers Auditores, S.L. in 2013 for auditing the finan-cial statements totalled 168 thousand euro in
2014 (178 thousand euro in 2013), plus 19 thousand euro for other verification services for Zeltia Group companies (13 thousand euro in 2013).
The fees accrued during the year by other compa-nies in the PwC network amounted to 13 thousand euro for tax advisory services in 2014 (11 thousand euro in 2013), while no other advisory services were provided to the Group in 2014 (31 thousand euro in 2013).
The fees accrued during the year by other audi-tors of subsidiaries amounted to 46 thousand for au-dit services in 2014 (47 thousand euro in 2013) and 28 thousand euro for other verification services in 2014 (29 thousand euro in 2013).
Part of the fees billed by those auditors are for confirming investments in research consortia under programmes promoted by the CDTI which are led by Group companies and are passed on to the rest of the consortium members; no such amount was passed on in 2014 (8 thousand euro in 2013).
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44. Environment
In 2010, the Company did not need to incur sig-nificant investments to protect and improve the environment. Environmental protection expenses
amounted to 400 thousand euro in 2014 (372 thou-sand euro in 2013).
Since there were no contingencies relating to en-vironmental protection and improvement and there are no risks that could have been transferred to other companies, it was not necessary to recognize any provisions for environmental actions in the year.
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45. Subsequent events
The Group renewed 4,000 thousand euro in credit lines in February.
On 1 December 2014, the Board of Direc-tors of Zeltia, S.A. approved a strategy that envis-ages merging Zeltia, S.A. with wholly-owned sub-sidiary Pharma Mar, S.A. The merger of Zeltia, S.A. and Pharma Mar, S.A. would be the first step in a strategy approved by the Board of Directors whose ultimate goal is to list the Group's oncology business directly and to provide flexibility to undertake other corporate transactions, such as applying for a listing in the US, the second stage of the strategy approved by the Board of Directors. The Board of Directors en-trusted the Executive Committee of Zeltia, S.A. with examining and approving the merger; the details of the transaction have not yet been decided upon.
After closing, on 26 February 2015, the date on which these financial statements were author-ized, the Board of Directors of Zeltia, S.A. resolved to commence, on that date, the legally established proceedings for merging Zeltia, S.A. into Pharma Mar, S.A. If this process is culminated, Pharma Mar, S.A. will acquire the net worth of Zeltia, S.A. by uni-versal succession and the latter will be extinguished; upon completion of the merger, each shareholder of Zeltia, S.A. would receive the proportionate number of shares of Pharma Mar, S.A. to which he/she is entitled, and, as set out in the prior communiqué, an application would be made to list the shares of Pharma Mar, S.A.
On 22 January 2015, Group company Promax-sa Protección de Maderas, S.L, resolved to increase capital by 707,000 euro by issuing 7,000 new shares with one euro par value each and an issue premium of 100 euro per share. The capital increase will take place by partly offsetting a debt claim held by Zeltia against that company. At the date of authorization of these financial statements, the capital increase
was in the process of being registered with the Mer-cantile Registry.
On 4 February 2015, in the framework of the li-censing agreement for the development and com-mercialization of Yondelis® between Pharma Mar, S.A. and Taiho Pharmaceutical Ltd. (Taiho) signed in March 2009, Pharma Mar, S.A. collected from Taiho a payment of 1,485,633 euro (200 million yen) as a result of presentation by Taiho to the PMDA (Japan's regulator) in January of an application to market Yondelis® (trabectedin) for the treatment of several subtypes of soft tissue sarcoma.
On 5 February 2015, the company collected a fifth payment, amounting to 10 million dollars, in the framework of the agreement reached with Janssen Products LP, of Janssen Pharmaceutical Companies, for attaining a milestone in the Yondelis® develop-ment plan.
On 6 January 2015, notice was served by Spain's tax authorities of the initiation of a partial audit of corporate income tax for the years 2010 to 2012, confined to checking the reduction in revenues from certain intangible assets that was reported by subsid-iary PharmaMar. On 20 January 2015, the company applied to the tax authorities for the partial tax audit to be converted into a general tax audit. At the date of authorization of these financial statements, the tax audit is at a very early phase and it is impossible to estimate what its outcome may be. Nevertheless, the Company's directors do not anticipate the recog-nition of additional liabilities or of a reduction in the recognized assets by a material amount.
Between year-end and the authorization of these financial statements, no other significant events occurred that affect the content of these financial statements and there were no other events of sig-nificance.
