REG - Animalcare Group PLC - Proposed Acquisition of Ecuphar NV and Placing <Origin Href="QuoteRef">ANCR.L</Origin> - Part 3
23/06/2017 07:08
- Part 3: For the preceding part double click ID:nRSW9589Ib
earnings 12 1,258 (142) 660 496
Other reserves 2,518 8 161 515
Equity attributable to the owners of the parent 19,853 15,297 5,323 6,159
Non-controlling interest 12 2 2 2 1
Total equity 19,855 15,299 5,325 6,160
Non-current liabilities
Borrowings 14 24,102 2,019 3,837 4,020
Deferred tax liabilities 20.11 224 44 1 2
Derivative financial liability − 30 41
Provisions 15 216 25 8 −
Total non-current liabilities 24,542 2,088 3,876 4,063
Current liabilities
Borrowings 14 631 26,609 6,908 7,464
Trade payables 10,012 8,406 3,512 3,433
Tax payables 1,774 973 388 299
Derivative financial liability − 16 − −
Accrued charges & deferred income 16 812 286 129 228
Other current liabilities 17 2,237 1,588 2,157 1,538
Total current liabilities 15,466 37,878 13,094 12,962
Total equity and liabilities 59,863 55,265 22,295 23,185
The accompanying notes form an integral part of these consolidated special purpose financial statements.
Consolidated statements of changes in equity
Attributable to the owners of the parents
Share Share Treasury Retained Other Non- Total
controlling
in £'000 Notes capital premium shares earnings reserves Total interest equity
-------- -------- -------- -------- -------- -------- -------- --------
At 1 January 2016 7,256 8,821 (646) (142) 8 15,297 2 15,299
-------- -------- -------- -------- -------- -------- -------- --------
Net profit (loss) − − − 3,515 − 3,515 − 3,515
Other comprehensive income (loss) − − − − 2,510 2,510 − 2,510
-------- -------- -------- -------- -------- -------- -------- --------
Total comprehensive income (loss) − − − 3,515 2,510 6,025 − 6,025
-------- -------- -------- -------- -------- -------- -------- --------
External dividend − − − (1,469) − (1,469) − (1,469)
Redemption treasury shares − − 646 (646) − − − −
-------- -------- -------- -------- -------- -------- -------- --------
At 31 December 2016 7,256 8,821 − 1,258 2,518 19,853 2 19,855
Attributable to the owners of the parents
Non-
Share Share Treasury Retained Other
controlling Total
in £'000 Notes capital premium shares earnings reserves Total interest equity
-------- -------- -------- -------- -------- -------- -------- --------
At 1 January 2015 5,148 − (646) 660 161 5,323 2 5,325
-------- -------- -------- -------- -------- -------- -------- --------
Net profit (loss) − − − (694) − (694) − (694)
Other comprehensive income (loss) − − − − (153) (153) − (153)
-------- -------- -------- -------- -------- -------- -------- --------
Total comprehensive income (loss) − − − (694) (153) (847) − (847)
-------- -------- -------- -------- -------- -------- -------- --------
External dividend 12 − − − (108) − (108) − (108)
Capital increase in cash 12 2,108 8,821 − − − 10,929 − 10,929
-------- -------- -------- -------- -------- -------- -------- --------
At 31 December 2015 7,256 8,821 (646) (142) 8 15,297 2 15,299
Attributable to the owners of the parents
Non-
Share Share Treasury Retained Other
controlling Total
in £'000 Notes capital premium shares earnings reserves Total interest equity
-------- -------- -------- -------- -------- -------- -------- --------
At 1 January 2014 5,148 − − 496 515 6,159 1 6,160
-------- -------- -------- -------- -------- -------- -------- --------
Net profit (loss) − − − 896 − 896 1 897
Other comprehensive income (loss) − − − − (354) (354) − (354)
-------- -------- -------- -------- -------- -------- -------- --------
Total comprehensive income (loss) − − − 896 (354) 542 1 543
-------- -------- -------- -------- -------- -------- -------- --------
Dividend payment 13 − − − (732) − (732) − (732)
Other movement 12 − − (646) − − (646) − (646)
-------- -------- -------- -------- -------- -------- -------- --------
At 31 December 2014 5,148 − (646) 660-------- -------- -------- -------- -------- -------- -------- -------- 161 5,323 2 5,325
The accompanying notes form an integral part of these consolidated special purpose financial statements.
Consolidated cash flow statements
in £'000Operating activities Notes For the year ended 31 December
2016 2015 2014
Net (loss) profit for the period 3,516 (694) 896
Non-cash and operational adjustments
Depreciation of property, plant & equipment 7 326 156 154
Amortization of intangible assets 6 3,982 2,957 2,193
Loss (gain) on disposal of property, plant & equipment (1) (7) (4)
Movement in provisions 180 17 8
Movement allowance for bad debt and inventories 355 457 42
Financial income 20.10 (97) (74) (46)
Financial expense 20.9 988 668 341
Impact of foreign currencies 1,787 (136) (334)
Gain from sale of subsidiaries 4 (2,432) − −
Deferred tax expense (income) 20.11 327 (735) (53)
Income taxes 20.11 1,305 537 465
Other 31 100 31
Working capital adjustment
Increase in trade receivables and other receivables (1,447) (6,706) (156)
Decrease (increase) in inventories (890) (2,152) 512
Increase in trade payables and other payables 2,530 4,644 (1,323)
Income tax paid (1,172) (350) (396)
Net cash flow from operating activities 9,288 (1,318) 2,330
The accompanying notes form an integral part of these consolidated special purpose financial statements.
in £'000 For the year ended 31 December
Notes 2016 2015 2014
Investing activities
Purchase of property, plant & equipment 7 (463) (458) (290)
Purchase of intangible assets 6 (1,185) (781) (587)
Proceeds from the sale of property, plant & equipment (net) 74 29 57
Acquisition of subsidiaries 4 − (26,125) −
Proceeds from sale of subsidiary 4 3,211 − −
Purchase available for sale financial investments (409) − −
Net cash flow used in investing activities 1,228 (27,335) (820)
Financing activities
Proceeds from loans & borrowings and convertible debt 15,852 21,091 3,265
Repayment of loans & borrowings (23,925) (2,817) (3,245)
Proceeds from capital increase − 10,924 −
Purchase treasury shares − − (646)
Dividends paid (1,469) (108) (732)
Interest paid (663) (498) (289)
Other financial income (expense) (241) (104) (12)
Net cash flow from financing activities (10,446) 28,488 (1,659)
Net increase of cash & cash equivalents 70 (165) (149)
Cash & cash equivalents at beginning of period 11 749 966 1,154
Exchange rate differences on cash & cash equivalents 132 (52) (39)
Cash & cash equivalents at end of period 11 951 749 966
The accompanying notes form an integral part of these consolidated special purpose financial statements.
Notes to the consolidated special purpose financial statements
1 Corporate information
Ecuphar NV is a limited liability company with its registered office at Legeweg 157, bus I, 8020 Oostkamp, Belgium. The
consolidated special purpose financial statements comprise Ecuphar NV (the "Parent Company" or "Parent") and its
subsidiaries (collectively, the "Ecuphar Group"). See Note 26 for a list of subsidiaries of the Parent Company.
The Ecuphar Group is a leading provider of animal health products. Through the development of a veterinary pharmaceutical
portfolio it aims to increase market penetration in existing markets, expand into new export markets and enter into new
strategic partnerships and alliances. The Ecuphar Group sells its products in Europe, Americas and Asia.
2 Basis of preparation
The consolidated special purpose financial statements of the Ecuphar Group for the 3 years ended 31 December 2016 were
prepared for the purposes of the proposed acquisition of Ecuphar NV by Animalcare Group plc (the "Company") and the
Company's proposed readmission to AIM. These consolidated special purpose financial statements have been prepared in
accordance with the requirements of the AIM Rules for Companies, and in accordance the International Financial Reporting
Standards ("IFRS") as adopted by the European Union ("EU-IFRS"). The Ecuphar Group has applied IFRS 1, First-Time adoption
of International Financial Reporting Standards ("IFRS 1") in its adoption of IFRS. The Transition Date ("Transition Date")
for the Ecuphar Group was 1 January 2014 which is the opening balance sheet date for fiscal year 2014. The Ecuphar Group
has applied IFRS standards effective for the period ended 31 December 2016 to all years presented in these consolidated
special purpose financial statements, as if these standards had always been in effect (subject to the mandatory and
optional IFRS 1 exemptions discussed in Note 27).
These consolidated special purpose financial statements have been prepared on a historical cost basis, except for the
assets and liabilities that have been acquired as part of a business combination which have been initially recognized at
fair value and certain financial instruments which are measured at fair value.
The consolidated special purpose financial statements are presented in thousands of pound sterling (K£ or thousands of £)
and all "currency" values are rounded to the nearest thousand (£000), except when otherwise indicated.
The preparation of financial statements in compliance with adopted IFRS requires the use of certain critical accounting
estimates. It also requires Ecuphar Group management to exercise judgment in applying the Ecuphar Group's accounting
policies. The areas where significant judgment and estimates have been made in preparing the financial statements and their
effect are disclosed in Note 3.
3 Summary of significant accounting policies
Basis for consolidation
The consolidated special purpose financial statements comprise the financial statements of the Ecuphar Group and its
subsidiaries.
Entities are fully consolidated from the date of acquisition, which is the date when the Ecuphar Group obtains control, and
continue to be consolidated until the date when such control ceases. The financial statements of the entities are prepared
for the same reporting period as the parent company, using consistent accounting policies. All intra-group balances,
transactions, unrealized gains and losses resulting from intra-group transactions and dividends are fully eliminated.
The Ecuphar Group attributes profit or loss and each component of other comprehensive income to the owners of the parent
company and to the non-controlling interest based on present ownership interests, even if this results in the
non-controlling interest having a negative balance.
A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction.
If the Ecuphar Group loses control over the subsidiary, it will derecognize the assets (including goodwill) and liabilities
of the subsidiary, any non-controlling interest and the other components of equity related to the subsidiary. Any surplus
or deficit arising from the loss of control is recognized in profit or loss. If the Ecuphar Group retains an interest in
the previous subsidiary, then such interest is measured at fair value at the date the control is lost.
The proportion allocated to the parent and non-controlling interests in preparing the consolidated special purpose
financial statements is determined based solely on present ownership interests.
The following changes to the consolidation scope occurred during the reported periods:
· Acquisition of the assets related to the Animal Health Business of Esteve SA, a Spanish pharmaceutical company,
effective on 30 April 2015 (see Note 4). As part of this acquisition, the following entities has entered to the
consolidation scope: Ecuphar Veterinaria, Ecuphar Italia, Belphar and Euracon GmbH;
· Disposal of Nutriscience Ltd., the subsidiary of the Ecuphar Group located in the Republic of Ireland, effective
on 31 October 2016 (see Note 4).
Non-controlling interests
The Ecuphar Group has the choice, on a transaction by transaction basis, to initially recognize any non-controlling
interest in the acquiree which is a present ownership interest and entitles its holders to a proportionate share of the
entity's net assets in the event of liquidation at either acquisition date fair value or, at the present ownership
instruments' proportionate share in the recognized amounts of the acquiree's identifiable net assets. Other components of
non-controlling interest such as outstanding share options are generally measured at fair value. The Ecuphar Group has not
elected to take the option to use fair value in acquisitions completed to date and currently only has minor non-controlling
interest resulting from business combinations.
Segment reporting
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating
decision-maker. The chief operating decision-maker, who is responsible for allocating resources and assessing performance
of the operating segments, has been identified as the executive committee. Operating segments are aggregated when they have
similar economic characteristics which is the case when there is similarity in terms of (a) the nature of the products and
services, (b) the nature of the production processes, (c) the type or class of customer for their products and services,
(d) the methods used to distribute their products or provide their services, and (e) if applicable, the nature of the
regulatory environment. The Ecuphar Group has two operating segments, Pharmaceutical and Wholesale.
Foreign currency translation
Functional and presentation currency
The Ecuphar Group's consolidated special purpose financial statements are presented in Pound Sterling (GBP) which is
different that the functional currency of the parent company and subsidiaries. The presentation currency is different as it
is the Ecuphar Group intention to be publicly quoted in the United Kingdom.
For each entity, the Ecuphar Group determines the functional currency, and items included in the financial statements of
each entity are measured using the functional currency. The functional currency of all entities of the Ecuphar Group is
Euro.
The statement of financial position is translated into GBP at the closing rate on the reporting date and their income
statement is translated at the average exchange rate at year-end. Differences resulting from the translation of the
financial statements of the parent and the subsidiaries are recognized in other comprehensive income as "cumulative
translation differences".
Foreign currency transactions
Transactions denominated in foreign currencies are translated into Euro at the exchange rate at the end of the previous
month-end. Monetary items in the statement of financial position are translated at the closing rate at each reporting date
and the relevant translation adjustments are recognized in financial or operating result depending on its nature.
Business combinations
Business combinations are accounted for using the acquisition method at the acquisition date, which is the date at which
the Ecuphar Group obtains control over the entity.
The cost of an acquisition is measured as the amount of the consideration transferred to the seller, measured at the
acquisition date fair value, and the amount of any non-controlling interest in the acquiree.
Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are, with limited
exceptions, measured initially at their fair values at the acquisition date. The Ecuphar Group recognizes any
non-controlling interest in the acquired entity on an acquisition-by-acquisition basis either at fair value or at the
non-controlling interest's proportionate share of the acquired entity's net identifiable assets.
The Ecuphar Group measures goodwill initially at cost at the acquisition date, being:
· the fair value of the consideration transferred to the seller, plus
· the amount of any non-controlling interest in the acquiree, plus
· if the business combination is achieved in stages, the fair value of the existing equity interest in the acquiree
re-measured at the acquisition date, less
· the fair value of the net identifiable assets acquired and assumed liabilities
Goodwill is recognized as an intangible asset with any impairment in carrying value being charged to the consolidated
income statement. Where the fair value of identifiable assets, liabilities and contingent liabilities exceed the fair value
of consideration paid, the excess is credited in full to the consolidated income statement on acquisition date.
Acquisition costs incurred are expensed and included in general and administrative expenses. Property, plant and equipment
Property, plant and equipment is stated at cost, net of accumulated depreciation and/or accumulated impairment losses, if
any. Such cost includes borrowing costs directly attributable to construction projects if the asset necessarily takes a
substantial period of time to get ready for its intended use, it is probable that they will result in future economic
benefits to the group and the cost can be measured reliably. When significant parts of property, plant and equipment are
required to be replaced at intervals, the Ecuphar Group recognizes such parts as individual assets with specific useful
lives and depreciates them accordingly. Likewise, when a major inspection is performed, its cost is recognized in the
carrying amount of the property, plant and equipment as a replacement if the recognition criteria are satisfied. All other
repair and maintenance costs are recognized in the income statement as incurred.
Depreciation is calculated on a straight-line basis over the estimated useful lives of the assets as follows:
• Equipment 5 years
• Office furniture & office equipment 3-5 years or lease term if shorter
• Leased equipment 4-5 years
• Leasehold improvements 5 years or lease term if shorter
Land is not depreciated.
A leased asset is depreciated over the useful life of the asset. However, if there is no reasonable certainty that the
Ecuphar Group will obtain ownership by the end of the lease term, the asset is depreciated over the shorter of the
estimated useful life of the asset or the lease term.
An item of property, plant and equipment and any significant part initially recognized is derecognized upon disposal or
when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the
asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in
the income statement when the asset is derecognized.
The assets' residual values, useful lives and methods of depreciation are reviewed at each financial year-end and adjusted
prospectively, if appropriate.
Leases
The determination of whether an arrangement is, or contains, a lease is based on the substance of the arrangement at the
inception date, whether fulfillment of the arrangement is dependent on the use of a specific asset or assets or the
arrangement conveys a right to use the asset, even if that right is not explicitly specified in an arrangement.
Finance leases which transfer to the Ecuphar Group substantially all the risks and benefits incidental to ownership of the
leased item, are capitalized at the commencement of the lease at the fair value of the leased item or, if lower, at the
present value of the minimum lease payments. Lease payments are apportioned between finance charges and reduction of the
lease liability so as to achieve a constant rate of interest on the remaining balance of the liability.
Finance charges are recognized as financial expenses in the consolidated income statement.
Where substantially all of the risks and rewards incidental to ownership are not transferred to the Ecuphar Group (an
"operating lease"), the total rentals payable under the lease are charged to the consolidated income statement on a
straight-line basis over the lease term. The aggregate benefit of lease incentives is recognized as a reduction of the
rental expense over the lease term on a straight-line basis.
Intangible assets
Intangible assets comprise the acquired product portfolios, in-process research and development, licensing and distribution
rights and customer acquired in connection with business combinations, product portfolios & product development costs and
capitalized software.
The useful life of the intangible assets is as follows:
• Capitalized software: 5 years;
• Patents, distribution rights and licenses: 7-12 years;
• Product portfolios & product development: 10 years;
• In Process Research and Development 10 years;
• Goodwill Not amortized
Intangible assets acquired separately
Intangible assets with finite useful lives which are acquired separately are carried at cost less accumulated amortization
and accumulated impairment losses. Intangible assets with finite lives are amortized over their useful economic life and
assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortization period
and the amortization method for an intangible asset with a finite useful life are reviewed at least at the end of each
reporting period. The amortization expense on intangible assets with finite lives is recognized in the consolidated income
statement based on its function which may be "cost of sales", "sales & marketing expenses", "research & development
expenses" and "general and administrative expenses".
Intangible assets with indefinite useful lives that are acquired separately are carried at cost less accumulated impairment
losses.
Goodwill
Goodwill is not amortized but it is tested for impairment annually, or more frequently if events or changes in
circumstances indicate that it might be impaired, and is carried at cost less accumulated impairment losses. Gains and
losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold.
Goodwill is allocated to cash-generating units for the purpose of impairment testing. The allocation is made to those
cash-generating units or groups of cash-generating units that are expected to benefit from the business combination in
which the goodwill arose. The units or groups of units are identified at the lowest level at which goodwill is monitored
for internal management purposes, being the operating segments.
Internally generated intangible assets - research and development expenditures
Research and development includes the costs incurred by activities related to the development of software solutions (new
products, updates and enhancements), guides and other products. Expenditures in research and development activities are
recognized as an expense in the period in which they are incurred.
Development activities involve the application of research findings or other knowledge to a plan or a design of new or
substantially improved (software) products before the start of the commercial use.
Internal development expenditures on an individual project are recognized as an intangible asset when the Ecuphar Group can
demonstrate:
· the technical feasibility of completing the intangible asset so that the asset will be available for use or sale;
· its intention to complete and its ability to use or sell the asset;
· how the asset will generate future economic benefits;
· the availability of resources to complete the asset;
· the ability to measure reliably the expenditure during development.
Internal development expenditures not satisfying the above criteria and expenditures on the research phase are recognized
in the consolidated income statement as incurred.
Subsequent to initial recognition internally generated intangible assets are reported at cost less accumulated amortization
and accumulated impairment losses, on the same basis as intangible assets which are acquired separately.
Intangible assets acquired in a business combination
Intangible assets acquired in a business combination and recognized separately from goodwill are initially recognized at
their fair value at the acquisition date (which is regarded as their cost). Subsequent to initial recognition intangible
assets acquired in a business combination are measured at cost less accumulated amortization and accumulated impairment
losses, on the same basis as intangible assets which are acquired separately.
Impairment of non-financial assets
Impairment tests on goodwill and other intangible assets with indefinite useful economic lives are undertaken annually at
the financial year end. Other non-financial assets are subject to impairment tests whenever events or changes in
circumstances indicate that their carrying amount may not be
recoverable. Where the carrying value of an asset exceeds its recoverable amount (i.e. the higher of value in use and fair
value less costs to sell), the asset is written down accordingly.
Where it is not possible to estimate the recoverable amount of an individual asset, the impairment test is carried out on
the smallest group of assets to which it belongs for which there are separately identifiable cash flows; its cash
generating units ("CGUs"). Goodwill is allocated on initial recognition to each of the Ecuphar Group's CGUs that are
expected to benefit from the synergies of the combination giving rise to the goodwill.
The Ecuphar Group bases its impairment calculation on detailed budgets and forecast calculations, which are prepared
separately for each of the Ecuphar Group's CGUs to which the individual assets are allocated. These budgets and forecast
calculations generally cover a period of five years. For longer periods, a long-term growth rate is calculated and applied
to future cash flows projected after the fifth year.
Impairment charges are included in profit or loss, except, where applicable, to the extent they reverse gains previously
recognized in other comprehensive income. An impairment loss recognized for goodwill is not reversed.
Where goodwill forms part of a cash-generating unit and part of the operation within that unit is disposed of, the goodwill
associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or
loss on disposal of the operation. Goodwill disposed of in this circumstance is measured based on the relative values of
the operation disposed of and the portion of the cash-generating unit retained.
Inventories
Inventories are valued at the lower of cost and net realizable value.
Costs incurred in bringing each product to its present location and condition are accounted for as follows:
· Raw materials: purchase cost on a first in, first out basis;
· Goods purchased for resale: purchase cost on a first in, first out basis.
Net realizable value is the estimated selling price in the ordinary course of business, less estimated costs of completion
and the estimated costs necessary to make the sale.
Financial assets
Financial assets include loans, deposits, receivables measured at amortized cost and available for sale financial
investments measured at fair value.
Financial assets measured at amortized cost
The Ecuphar Group has loans and receivables that are measured at amortized cost.
The Ecuphar Group's loans and receivables comprise trade and other receivables, other financial assets and cash and cash
equivalents in the consolidated statement of financial position.
Cash and cash equivalents includes cash in hand, deposits held at call with banks, other short term highly liquid
investments with original maturities of three months or less, and - for the purpose of the statement of cash flows - bank
overdrafts. Bank overdrafts are shown within loans and borrowings in current liabilities on the consolidated statement of
financial position.
Financial assets that are classified as loans and receivables are initially measured at fair value plus transaction costs
and subsequently at amortized cost using the effective interest rate method (EIR). Amortized cost is calculated by taking
into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR
amortization is included under financial income in the consolidated income statement. The losses arising from impairment
are
recognized in the consolidated income statement under other operating expenses or financial expenses.
Available-for-sale financial assets measured at fair value
Available-for-sale financial assets relate to investments that are not initially acquired in view of a short term sale
(shares and securities) and that are nor fully consolidated nor equity consolidated. Assets in this category are measured
at fair value with the resulting gains and losses being directly recognized in other comprehensive income (equity).
Assets in this category are measured at cost when there is no price input available in an active market and the fair value
cannot be measured reliable by applying alternative valuation methods.
Impairment of financial assets
The Ecuphar Group assesses at each reporting date whether there is any objective evidence that a financial asset or a group
of financial assets is impaired. A financial asset or a group of financial assets is to be impaired if there is objective
evidence of impairment as a result of one or more events that has occurred after the initial recognition of the asset (an
incurred 'loss event') and that loss event has an impact on the estimated future cash flows of the financial asset or the
group of financial assets that can be reliably estimated.
In case of available-for-sale financial assets, objective evidence would include a significant or prolonged decline in the
fair value of the investment below its cost.
If there is objective evidence that an impairment loss has been incurred, the amount of the loss is measured as the
difference between the asset's carrying amount and the present value of estimated future cash flows (excluding future
expected credit losses that have not yet been incurred) or its current fair value, in case of available-for-sale financial
assets. The present value of the estimated future cash flows is discounted at the financial asset's original effective
interest rate. If a loan has a variable interest rate, the discount rate for measuring any impairment loss is the current
effective interest rate.
The carrying amount of the asset is reduced through the use of an allowance account and the amount of loss is recognized in
the income statement. In the event of an impairment loss for available-for-sale financial assets, the accumulated
impairment loss is removed from other comprehensive income and recognized in the consolidated statement of profit or loss.
Impairment losses on available-for-sale financial assets are not reversed. Financial liabilities
The Ecuphar Group has financial liabilities measured at amortized cost which include loans and borrowings, trade payables
and other payables and financial liabilities resulting from an interest rate swap (classified as held for trading).
Financial liabilities at amortized cost
Those financial liabilities are recognized initially at fair value plus directly attributable transaction costs and are
measured at amortized cost using the effective interest rate method. Gains and losses are recognized in the income
statement when the liabilities are derecognized as well as through the effective interest rate method amortization
process.
Derivative financial liabilities
The Ecuphar Group uses derivative financial instruments to hedge the exposure to changes in interest rates, however the use
of derivatives is limited and does not represent significant amounts. Derivative financial instruments are initially
measured at fair value. After initial recognition the financial instruments are measured at fair value on the balance sheet
date.
Such hedging transactions do not qualify for hedge accounting criteria, although they offer economic hedging according to
the Ecuphar Group's risk policy. Changes in the fair value of such instruments are recognized directly in the consolidated
statement of profit or loss.
Derecognition
A financial liability is derecognized when the obligation under the liability is discharged or cancelled or expires.
Offsetting of financial instruments
Financial assets and financial liabilities are offset and the net amount is reported in the consolidated statement of
financial position if there is a currently enforceable legal right to offset the recognized amounts and there is an
intention to settle on a net basis, or to realize the assets and settle the liabilities simultaneously.
Share capital
Financial instruments issued by the Ecuphar Group are classified as equity only to the extent that they do not meet the
definition of a financial liability or financial asset. The Ecuphar Group's ordinary shares are classified as equity
instruments.
Dividends
Dividends paid are recognized within the statement of changes in equity only when an obligation to pay the dividends arises
prior to the year end.
Provisions
Provisions are recognized when the Ecuphar Group has a present obligation (legal or constructive) as a result of a past
event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation
and a reliable estimate can be made of the amount of the obligation.
Employee benefits
Short-term employee benefits
The Ecuphar Group has short-term employee benefits which are recognized when the service is performed as a liability and
expense. The short-term employee benefit is the undiscounted amount expected to be paid.
Management incentive plans
The Ecuphar Group has implemented an incentive plan for some of its employees. The liability recognized is the undiscounted
amount expected to be paid.
Post-employment benefits
The Ecuphar Group has a defined contribution obligation where the Ecuphar Group pays contributions based on salaries to an
insurance company, in accordance with the laws and agreements in each country.
The Belgian defined contribution pension plans are by law subject to minimum guaranteed rates of return, currently 3.25% on
employer contributions and 3.75% on employee contributions. These rate have been modified by the law of 18 December 2015
and effective for contribution paid as from 2016 to a new variable minimum return based on the Belgian government bonds,
with a minimum of 1.75% and a maximum of 3.75%.
These plans quality as a defined benefit plan as from 1 January 2016 considering the modified law. Previously, the Ecuphar
Group has adopted a retrospective approach whereby the net liability recognized in the statement of financial position is
based on the sum of the positive differences,
determined by individual plan participant, between the minimum guaranteed reserves and the benefits accrued at the closing
date based on the actual rates of return.
The impact of the defined contribution plans accounted for as a defined benefit plan is not material.
Contributions are recognized as expenses for the period in which employees perform the corresponding services. Outstanding
payments at the end of the period are shown as other current liabilities.
Revenue recognition Sales of goods
Revenue is measured at the fair value of the consideration received or receivable, and represents amounts receivable for
goods supplied, stated net of discounts, returns and value added taxes.
Revenue from the sale of goods is recognized when all the following 5 conditions are met:
· The Ecuphar Group transfers to the buyer the significant risks and rewards of ownership of the goods;
· The Ecuphar Group retains neither continuing managerial involvement to the degree usually associated with
ownership nor effective control over the goods sold;
· The Ecuphar Group can measure reliably the amount of revenue;
· It is probable that the economic benefits associated with the transaction flow to the Ecuphar Group; and
· The Ecuphar Group can measure reliably the costs incurred or to be incurred in respect of the transaction.
Trade goods include goods produced for the purpose of sale and goods purchased for resale.
The Ecuphar Group bases its estimate of return on historical results, taking into consideration the type of customer, the
type of transaction and the specifics of each arrangement.
Sales of services
When the outcome of a transaction involving the rendering of services is estimated reliably, revenue associated with the
transaction is recognized when the services are rendered. The outcome of a transaction is estimated reliably when all the
following four conditions are satisfied:
· The amount of revenue is measured reliably;
· It is probable that the economic benefits associated with the transaction will flow to the Ecuphar Group;
· The stage of completion of the transaction at the balance sheet date can be measured reliably; and
· The costs incurred for the transaction and the costs to complete the transaction are measured reliably.
In general, these services are invoiced as they are performed and the amounts directly recognized in the income statement
and do not require the measurement of the stage of completion.
Up-front income received in relation to long-term service contracts is deferred and subsequently recognized over the life
of the relevant contracts.
Interest income
For all financial instruments measured at amortized cost, interest income is recorded using the effective interest rate,
which is the rate that exactly discounts the estimated future cash payments or receipts over the expected life of the
financial instrument or a shorter period, where appropriate, to the net carrying amount of the financial asset or
liability. Interest income is included under financial income in the income statement.
Financing costs
Financing costs relate to interests and other costs incurred by the Ecuphar Group related to the borrowing of funds. Such
costs mostly relate to interest charges on short- and long-term borrowings as well as the amortization of additional costs
incurred on the issuance of the related debt. Financing costs are recognized in profit and loss of the period or
capitalized in case they are related to a qualifying asset.
Other financial income and expenses
Other financial income and expenses include mainly foreign currency gains or losses on financial transactions and bank
related expenses.
Taxes
Current income tax
Income tax assets and liabilities for the current period are measured at the amount expected to be recovered from or paid
to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or
substantively enacted, at the reporting date.
Current income tax relating to items that are recognized directly in equity is recognized in equity and not in the income
statement. Management periodically evaluates positions taken in the tax returns with respect to situations in which
applicable tax regulations are subject to interpretation and establishes provisions where appropriate.
Deferred tax
Deferred tax is calculated using the liability method on temporary differences at the reporting date between the tax bases
of assets and liabilities and their carrying amounts for financial reporting purposes.
Deferred tax liabilities are recognized for all taxable temporary differences. Deferred tax assets are recognized for all
deductible temporary differences, carry forward of unused tax credits and unused tax losses, to the extent that it is
probable that taxable profit will be available against which the deductible temporary differences, and the carry forward of
unused tax credits and unused tax losses can be utilized.
The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no
longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be
utilized. Unrecognized deferred tax assets are reassessed at each reporting date and are recognized to the extent that it
has become probable that future taxable profits will allow the deferred tax asset to be recovered.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is
realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at
the reporting date.
Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists to set off current tax
assets against current income tax liabilities and the deferred taxes relate to the same taxable entity and the same
taxation authority.
Fair value measurements
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. The fair value measurement is based on the presumption that the
transaction to sell the asset or transfer the liability takes place either in the principal market for the asset or
liability or in the absence of a principal market, in the most advantageous market for the asset or liability. The
principal or the most advantageous market must be accessible by the Ecuphar Group. The fair value of an asset or a
liability is measured using the assumptions that market participants would use when pricing the asset or liability,
assuming that market participants act in their economic best interest.
All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorized within
the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value
measurement as a whole:
· Level 1 - Quoted (unadjusted) market prices in active markets for identical assets or liabilities
· Level 2 - Valuation techniques for which the lowest level input that is significant to the fair value measurement
is directly or indirectly observable
· Level 3 - Valuation techniques for which the lowest level input that is significant to the fair value measurement
is unobservable
Events after balance sheet date
Events after the balance sheet date which provide additional information about the parent company's position as at the
balance sheet date (adjusting events) are reflected in the financial statements. Events after the balance sheet date which
are not adjusting events are disclosed in the notes if material.
New and revised standards not yet adopted
The standards and interpretations that are issued, but not yet effective, up to the closing date of the Ecuphar Group's
financial statements are disclosed below.
IFRS 9 Financial Instruments and subsequent amendments
On 24 July 2014 the IASB published the complete version of IFRS 9, Financial instruments, which replaces most of the
guidance in IAS 39. This includes amended guidance for the classification and measurement of financial assets by
introducing a fair value through other comprehensive income category for certain debt instruments. It also contains a new
impairment model which will result in earlier recognition of losses. No changes were introduced for the classification and
measurement of financial liabilities, except for the recognition of changes in own credit risk in other comprehensive
income for liabilities designated at fair value through profit or loss. IFRS 9 also includes a new hedging guidance. It
will be effective for annual periods beginning on or after 1 January 2018. The Ecuphar Group has yet to undertake a
detailed assessment but no significant impact is expected.
IFRS 15 Revenue from Contracts with Customers
IFRS 15 specifies how and when a company will recognize revenue as well as requiring such entities to provide users of
financial statements with more informative, relevant disclosures. The standard provides a single, principles based five
step model to be applied to all contracts with customers as follows:
· Identify the contract(s) with a customer;
· Identify the performance obligations in the contract;
· Determine the transaction price;
· Allocate the transaction price to the performance obligations in the contract; and
· Recognize revenue when (or as) the entity satisfies a performance obligation.
IFRS 15 was issued in May 2014 and replaces IAS 11-Construction Contracts, IAS 18-Revenue, IFRIC 13-Customer Loyalty
Programmes, IFRIC 15-Agreements for the Construction of Real Estate, IFRIC
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