annualreport2013 · 2018-04-23 · 8 group revenues total group revenues breakdown of total 2013...
TRANSCRIPT
ÍNDICE
ANNUALREPORT2013
CONTENTS
3
Board of directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5Consolidated information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6Milestones in the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6Pipeline . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12Letter from the Chairman . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14
Director’s report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17 1 . Company situation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18 2 . Business performance and results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20 3 . Liquidity and Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .26 4 . Primary Risks and Uncertainties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .28 5 . Significant events after year-end . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .36 6 . R&D and Innovation activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .36 7 . Acquisition and disposal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .42 8 . Share information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .43
Consolidated financial statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .47
CO
NTE
NTS
BOARD OF DIRECTORS
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
**
* *
*
* *
**
* **
*
Committees
EXECUTIVE AUDITREMUNERATION
AND APPOINTMENTS
** Chairman of the Committee * Member of the Committee
6
Consolidated information
Since 2011, the EBITDA figure has been adjusted by excluding operations that were discontinued in 2012 .
NET SALES 123.4 153.5 152.5 138.2 141.8
TOTAL REVENUES 143.6 161.2 178.4 161.7 164.5
EBITDA (15.4) (3.9) 29.6 20.4 23.8
NET ATTRIBUTABLE INCOME (25.9) (7.4) 4.7 6.6 11.3
R&D EXPENDITURE 53.3 55.7 56.7 40.4 42.7
AV. WORKFORCE 686 697 668 640 628
2009 2011 20132010 2012
Milestones in the period
Corporate
Group net revenues amounted to 142 million •euro, a 2 .6% increase over the previous year . Yondelis contributed 73 million euro in sales, up 10% with respect to 2012 .
Sales outside Spain accounted for 54% of the •Group's total . All business areas increased their activities outside Spain .
Group EBITDA totalled 23 .8 million euro, 16 .6% •more than in 2012 . The oncology area was the main contributor to this growth, accounting for 30 million euro of consolidated EBITDA .
Net income attributable to the Group improved •by 72%, as research spending was focused on oncology .
Operating cash flow totalled 16 .1 million euro . •Total cash flow amounted to 4 .1 million euro .
Total net debt improved by close to 20%, rein-•forcing the Group's leverage and debt coverage ratios .
Net equity increased by 28% with respect to the •previous year .
*Attributable net profit increased by 72%, due to concentrating research on oncology
7
Business areas
Oncology
PM1183 obtained excellent results in the Phase •IIb trial vs . topotecan in patients with platinum-resistant/refractory ovarian cancer .
Following the positive recommendation by the •IDMC, recruitment continues for the Phase III pivotal registration trial with Aplidin® in multiple myeloma .
Recruitment concluded for the Phase III pivotal •registration trial vs . dacarbazine in L-sarcoma, sponsored by Janssen, the aim of which is to ob-tain registration for Yondelis® in the US .
Molecular diagnostics
Genómica launched a kit to detect sexually trans-•mitted infections .
Genómica AB, a Genómica subsidiary created to •manage sales directly in Scandinavia, became op-erational .
Exports in the diagnostics area expanded by 27%, •driven by good performance in Latin America .
RNAi
The Phase Iia clinical trial with SYL040012 in •glaucoma concluded, having attained the prima-ry endpoint . The Phase IIb trial is being prepared .
Consumer chemicals
Exports accounted for 20% of this segment's to-•tal sales in 2013, up 2 .4% year-on-year .
New niche products, such as hypoallergenic •paints, were launched to help sustain sales num-bers .
*PM1183 obtained excellent results in the Phase IIb trial against topotecan in patients with platinum-resistant/refractory ovarian cancer
8
Group revenues
Total Group revenues Breakdown of total 2013 revenues
Sales Other operating revenues
20122011 2013
200
180
160
140
120
100
60
40
20
80
0
152.5 141.8
24.722.9
138.2
23.5
161.7 164.7177.2
Oncology
Paint and varnish
Diagnostics
Insecticides and air fresheners
2013
29%
9%
4%
58%
Analysis of consolidated sales
Total sales Sales by business segment
20102009 20122011 2013
160
140
100
60
20
40
120
80
0
123.4
141.8153.5 152.5
138.2
Net sales
20102009 20122011 2013
100
60
40
20
80
0
71.2 73.2
51.1
79.4 80.6
71.2 72.464.8
79.1
61.9
Biopharmaceuticals Consumer chemicals
9
Sales by territory
Consumer chemicals
Biopharmaceuticals
Unallocated
201344% 55%
1%
201247%
1%
52%
Contribution to total net sales by the individual businesses
EUSpain
2012 2013
160
140
120
100
60
40
20
80
0
67.164.8
65.5 70.5
6.45.7
Rest of world
Biopharmaceuticals Consumer chemicals
EU
Spain
Rest of world
EU
Spain
Rest of world
Segmento de Biofarmacia Segmento Química de Gran consumo
78%
18%
4%
80%
14%
6%
10
Contribution to gross income by the individual businesses
Analysis of Consolidated EBITDA
Gross income
0
20
40
60
80
100
120
20102009 20122011 2013
79.4
103.9107.5 109.5
98.4
Biopharmaceuticals Consumer chemicals
28%
72%
31%
69%
2013 2012
-15
-5
-10
-15.3
29.6
23.8
20.4
0
10
5
15
20
25
30
-20
-3.9
20102009 20122011 2013
The EBITDA figure for 2011 and subsequent years was adjusted by excluding operations that were discontinued in 2012 .
11
EBITDA by business segment
Biopharmaceuticals (20.2) (5.9) 29.4 22.8 26.2
Consumer chemicals 11.2 10 8.6 4.9 3.8
Unallocated (6.4) (8) (8.4) (7.3) (6.2)
TOTAL (15.4) (3.9) 29.6 20.4 23.8
2009 2011 20132010 2012
The EBITDA figure for 2011 and subsequent years was adjusted by excluding operations that were discontinued in 2012 .
Consolidated net profit attributable to the parent Company
Net monthly average operating cash burn/flow
-10
-25.9
4.7
11.3
6.6
0
10
20
-20
-30
-40
-7.3
20102009 20122011 2013
-2.0
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
20102009 20122011 2013
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Pipeline
ONCOLOGY
INTERFERENCERNA
Glaucoma
Dry eye syndrome
Yondelis®
Trabectedin
Aplidin®
Plitidepsin
Zalypsis®
PM1183lurbinectedin
PM060184
SYL040012
PHASE I PHASE II PHASE III REGULATORY MARKET
PHASE I PHASE II PHASE III REGULATORY MARKET
HPV2: Human papillomavirus detection and genotyping
PNEUMOVIR: Human respiratory virus detection
METABONE: Detection of bone metabolism disorders
ENTHERPEX: Detection of human herpes viruses and enteroviruses
SEPTIBAC: Detection of fungi and bacteria which cause sepsis
ENTEROBAC: Detection of bacteria which cause infectious diarrhoea
FluAvir: Human influenza virus detection and characterization
CMA KRAS, BRAF, PI3K: Detection and characterization of mutations involved in colon cancer
STIs: Detection of pathogens involved in sexually transmitted infections
PneumoCLART: Human respiratory virus detection
MOLECULARDIAGNOSTICS
GENETIC DIAGNOSTIC KITS
Diagnosticand DNAanalysis kits
THERAPEUTIC AREA INDICATION CLINICAL DEVELOPMENT
Soft-Tissue Sarcoma (STS) 2nd/3rd line
Relapsed ovarian cancer (Yondelis + Doxil) - 2nd/3rd line
Multiple myeloma
T-cell lymphoma - non-cutaneous
Multiple myeloma
Ovarian cancer (Platinum resistant)
Breast cancer
Combination trials
Leukaemia
Solid tumours
14
Letter from the Chairman
Fellow shareholder,
Once again, I have the pleasure of addressing you, to convey my satisfaction with last year's results and share the outlook for 2014 .
This year's annual report confirms that our deci-sion to focus more on oncology led to outstanding progress for the Group, reflected not only in our fi-nancial performance, but also in the positive achie-vements in our projects in 2013 . This was also reflec-ted in the share's appreciation in 2013 .
With regard to Zeltia Group's financial situation, I would highlight that net income increased by 72% in 2013, to 11 million euro . This was primarily attribu-table to increased revenues in oncology, optimal cost management and commercial efforts to expand sales in countries outside Spain . The group continued to improve its financial margins and obtained positive cash flow in 2013 .This allowed us to notably reduce net debt, which in turn improved our leverage ratios and strengthened equity and the capital structure .
As regards Zeltia Group's performance, our com-mitment to research and innovation continues to be the cornerstone of our strategy, and R&D is our main expenditure item . Investing in R&D is an investment in the future . Along these lines, our various clini-cal trials under way continued to advance in 2013, in particular the Phase III (ADMYRE) trial with Apli-din for multiple myeloma, which, having obtained
*Our commitment to research and
innovation continues to be the cornerstone
of our strategy
15
a positive recommendation from the Independent Data Monitoring Committee, is increasingly close to completing recruitment . We also obtained very po-sitive results during the year from the Phase IIb trial with PM1183 in refractory ovarian cancer . Based on the good results from that trial, we plan to begin a Phase III pivotal (registration) trial with PM1183 in that same indication in the near future . We are also planning to commence two additional pivotal trials in different indications in 2014-2015, as well as a pivotal trial with Aplidin in angioimmunoblastic T-cell lymphoma, which may begin in 2014 .
Our partners, Janssen Pharmaceuticals and Taiho Pharmaceuticals, are making considerable progress with their trials in Yondelis, and we expect the results shortly . This will be essential for obtaining approval for Yondelis in important markets such as the US and Japan . The other products in our pipeline are in preliminary phases . Their activity is being evalua-ted in both orphan and common diseases, reflecting the Group's commitment to patients with illnesses for which there is currently no treatment and to di-versifying and enhancing the existing therapeutical armamentarium .
Zeltia's share clearly responded to the Group's good performance in the financial and business spheres over the course of the year . The share appre-ciated by 92% and its liquidity increased conside-rably in 2013 . I am pleased to note that the latter effect is broadly attributable to the entry of new sha-reholders .
As Chairman of the Board of Directors, I would like to thank all the employees of Zeltia, whose ta-lent and commitment enable us to achieve our ob-jectives .
Additionally, on behalf of the Board and myself, I would also like to thank the shareholders for placing their trust in Zeltia Group .
Very truly yours,
José María Fernández Sousa-Faro
Chairman
DIRECTORS’REPORT
18
1. Company situation
1.1. Organizational structure
Zeltia, S .A . is the holding company of a group of companies which operates in two seg-ments: biopharmaceuticals and consumer
chemicals .
That 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 Com-pliance 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 discovering new drugs with therapeutic advantages for oncology patients . The Group's strategy also includes the search for strategic alliances with partners, prefer-ably industrial, to collaborate not only on financial aspects, but also on advancing the compounds through the various research phases and on subse-quent marketing .
One of the distinguishing factors of our oncology business model is the capacity to discover new mol-ecules to include in the pipeline, thereby generating new drug opportunities for the company . The group has several antitumour molecules in its pipeline in various phases 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 it also provides 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 development and sale of diagnostic and DNA analy-sis kits, conducted through subsidiary Genómica . We are also conducting clinical trials in ophthalmol-ogy with the new gene silencing technology, RNAi, through subsidiary Sylentis .
In the area of consumer chemicals, Zeltia produc-es and distributes consumer products such as insec-ticides, air fresheners and household cleaning prod-ucts through subsidiary Zelnova, and produces and sells wood protectors, varnishes and special paint through subsidiary, Xylazel .
Zeltia group concentrates R&D and innovation spending on oncology, its main strategic business . The oncology area 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: biopharmaceuticalsand consumer chemicals
2. Business performance and results
Net revenue
Consumer chemicals
Biopharmaceuticals
Unallocated
Group total
Cost of sales
Gross margin
Gross margin (%)
Other operating revenues
Consumer chemicals
Biopharmaceuticals
Unallocated
Group total
TOTAL REVENUES
EBITDA
Consumer chemicals
Biopharmaceuticals
Unallocated
Group total
R&D
Oncology
Others
Group total
Marketing and commercial expenses
Consumer chemicals
Biopharmaceuticals
Unallocated
Group total
Income for the year attributable to equity-holders of the parent company
Income from discontinuedoperations
31/12/2013
61,876
79,112
837
141,825
37,900
103,925
73.28%
276
21,348
1,234
22,858
164,683
3,836
26,247
-6,265
23,818
36,493
6,224
42,717
18,803
22,426
22
41,251
11,322
-708
31/12/2012
64,786
72,391
1,052
138,229
39,793
98,436
71.21%
8
23,536
5
23,549
161.778
4,956
22,777
-7,302
20,431
34,806
5,593
40,399
19,203
21,641
21
40,865
6,593
-10,749
%
-4.49%
9.28%
-20.44%
2.6%
-4.76%
5.58%
2.90%
3350.00%
-9.30%
-2.9%
1.80%
-22.60%
15.23%
14.20%
16.58%
4.85%
11.28%
5.74%
-2.08%
3.63%
0.94%
71.73%
20
22
Net revenue
Group net revenues totalled 141 .8 million euro in 2013, 2 .6% more than in 2012 (138 .2 million euro) .
Revenues in the Biopharmaceutical business amounted to 79 .1 million euro (72 .4 million euro in 2012): 72 .9 million euro at PharmaMar from Yonde-lis sales (66 .2 million euro in 2012) and 6 .2 million euro at Genómica (6 .2 million euro in 2012) .
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 61 .9 million euro (64 .8 million euro in 2012) . Those companies accounted for 44% of the Group's total revenues in 2013 . The 4 .5% decline in sales is due mainly to adverse weather in 2013, since cold temperatures and rain reduced sales of domestic insecticides and of paints and varnishes for outdoor use . However, sales in the second half recovered part of the ground lost in the first half of the year .
Other operating revenues
This section reflects revenues from royalties, sub-sidies, and licensing agreements, including milestone and similar payments .
Other operating revenues totalled 22 .9 million euro in 2013 (23 .5 million euro in 2012) . In 2013,
*Group EBITDA improved by 16.6%
22
23
PharmaMar collected 25 million dollars (19 million euro) under the new action plan signed in 2011 with Janssen Products LP . (Johnson & Johnson Pharma-ceutical Research & Development, LLC .) to intensify the development of Yondelis® in the US for soft tis-sue sarcoma and relapsed ovarian cancer . The other operating revenues came from royalties (1 .6 million euro), subsidies (2 .5 million euro) and other minor sources .
Total revenues and revenues from outside Spain
Group revenues (net sales plus other operating revenues) totalled 164 .7 million euro in 2013, of which 59% (97 .1 million euro) came from outside Spain .
In the Biopharmaceutical segment, sales out-side Spain accounted for 85% of the total, and 88% of oncology revenues came from other countries .
EBITDA
Group EBITDA expanded by 6% due to im-proved productivity in the consumer chemicals segment and to the impact on cost of goods sold of the sale of raw materials by PharmaMar in 2012 .The improvement in sales in the biopharmaceuti-cal segment compared with the consumer chemi-cal segment also contributed to the improvement in EBITDA, since the former division has higher margins .
Group EBITDA from ongoing activities totalled 23 .8 million euro in 2013 (20 .4 million euro in 2012) . This increase is due mainly to greater sales of Yondelis, which has a very high gross margin and, therefore, a very strong direct impact on EBITDA .
(EBITDA: earnings before interest, taxes, depre-ciation and amortization) .
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24
R&D expenditure
R&D expenditure increased by 5 .7% year-on-year, to 42 .7 million euro in 2013 (40 .4 million euro in 2012) .R&D expenditure amounted to 36 .5 million euro in Oncology (34 .8 million euro in 2012) and 6 million euro in Diagnostics and RNA interference (5 .6 million euro in 2012) .
Marketing and commercial expenses
Group marketing and commercial expenses amounted to 41 .3 million euro in 2013 (40 .9 million euro in 2012), a small (0 .9%) increase .
PharmaMar has subsidiaries in Italy and Germany which engage in direct sales, just like Spain . This had a positive impact on the sales margin, resulting in expenses in 2013 of 20 .9 million euro (20 .3 million euro in 2012) .
The Consumer Chemicals division registered 18 .8 million euro of sales and marketing expenses (19 .2 million euro in 2012), a decline of 2% year-on-year .
Income from discontinued operations
Due to the discontinuation of the Group's activities relating to the Central Nervous System (mainly Alzheimer's disease) under Noscira, earn-ings for this area are reflected in a single line item, "Income from discontinued operations", which also includes the area's earnings for 2012 . That line item amounted to -0 .7 million euro in 2013 and -10 .7 million euro in 2012 . Noscira is currently in liquidation .
Income for the year attributable to the parent company
Income attributable to the parent company amounted to 11 .3 million euro, compared with 6 .5 million euro in 2012 . This increase is due to higher sales and margins and to focusing re-search on oncology, after discontinuing research on the central nervous system (carried on through Noscira) .
26
*Zeltia Group generated
16.3 million euro in operating
cash flow
3. Liquidity and Capital
The net cash position (cash + cash equivalents + current financial assets) amounted to 28 .3 million euro at 31 December 2013 (34 .4 mil-
lion euro at 31 December 2012) .
The Group's total net interest-bearing debt at am-ortized cost in the last two years is detailed below:
Total interest-bearing debt
Bank loans 47,799 62,446
Loans from official authorities 27,782 28,754
Other loans 4,000 8,002
Credit lines drawn 10,959 13,346
Discounted bills 1,836 3,942
Accrued interest, etc. 1,892 260
Total debt 94,268 116,750
Cash and cash equivalentsplus non-current and current financial assets 29,683 37,213
CONSOLIDATED NET DEBT 64,585 79,537
2013 2012
Group net debt improved by 19% year-on-year in 2013 .
The Group expects to continue to reduce gross debt in the coming year .
The graph below reflects the Group's debt, both current and non-current, in the last three years:
The graph below reflects annual maturities of long-term debt at amortized cost:
Current Non-current
20122013 2011
150
100
50
0
161,7
41.3
52.7
52.9
83
54.7
62
20162015 2017 2018 and thereafter
30
25
15
5
20
10
0
27.4
4
13.7
8.9
The following table shows the equity and debt structure as well as the indebtedness ratio . Net debt performance has been very favourable in recent years . This is expected to continue in the coming years, not only due to the reduction in debt, but also to the increase in equity due to improvement in the Group's net earnings .
Net debt 64,680 79,736
Capital employed 114,115 118,462
Leverage 56.7% 67.3%
2013 2012
Capital employed is equivalent to net equity plus net debt .
In 2013, 30% of total net financial debt was at-tributable to official institutions, interest free and maturing in 10 years .
Liquidity in 2013 came from Group operations: operating cash flow totalled 16 .3 million euro (6 .3 million euro in 2012) . Funds from operations were used to cover investments in property, plant and equipment and part of the financing cash flow . The financing cash flow was negative in 2013, as a result of 21 .7 million euro in new loans and the renegotia-tion of existing loans, while loan amortization in the
year totalled 38 .9 million euro . A total of 80% of this negative balance of 21 .8 million euro was covered with the operating cash flow and the remainder with the Company's financial assets .
The Group did not use other sources of funding in 2013 .
Expenses and capital expenditure in 2014 are expected to be in line with 2013, although R&D spending is likely to increase slightly since several Phase III clinical trials are due to commence . Funds to meet these needs in the next year will come from the Group's operating revenues, supplemented with borrowing .
27
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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 .
*Zeltia Group has a rigorous patent policy which seeks to protect inventions obtained through its R&D activities
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 vital for ensuring a reasonable return on investment in R&D . Industrial property can be protected by regis-tering patents, trade marks, brand names, domains, etc .
Patents run for 20 years in most countries, in-cluding the USA and the European Union . The effective period of protection depends on how long drug development takes before launch . To compensate partly for such a long development period and the need to obtain authorization be-fore marketing a drug, a number of markets (in-cluding the USA and the European 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 use-ful life are risks inherent to the pharmaceutical busi-ness .
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 prin-ciples, we also actively pursue protection for new formulations, production processes, medical appli-cations and even new methods of drug administra-tion .
The Group has a system for managing its pat-ents' life cycle, with patent departments that reg-ularly review 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 nec-essary .
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Regulation
The chemical and pharmaceutical industry is highly regulated . Regulations cover such aspects as research, clinical trials, drug registration, drug pro-duction, technical assessment 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 on 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
31
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 strat-egy of buying and accumulating inventories of com-modities expose the organization to excessive pro-duction costs and to losses on inventories .
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 suppliers . 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 (bu-tane, solvents, plastics, etc .) are subject to sharp vari-ations that are not always predictable .
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 enormous liabilities for companies . The greatest risk lies in third-party claims for harm to persons and property 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 recycling and waste management companies . Regular compliance checks are conducted and, where necessary, atmospheric emissions are monitored, water purification systems are in-stalled and the Group has designated points for depositing separated waste for subsequent man-agement .
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 moni- tor 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 mar-ket legislation governing inside information .
Information systems
Failure to apply proper access controls in information systems (data and software) may lead to unauthorized discovery, unauthorized access to data, or the untimely delivery 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 communication 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-criti- cal 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 re-munerated financial assets that can be converted into cash . The remunerated financial assets con-sist basically of government bonds and 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 . Un-der interest rate swaps, the Group undertakes to ex-change, at regular intervals, the difference between the fixed and floating interest rates on the notional principals that are contracted .
Credit risk
Credit risk arises from financial assets arranged with banks, other than public debt .
The banks and financial institutions with which the Company works generally have independent rat-ings .
Where the Company acquires financial assets other than government bonds, it must apply the fol-lowing policies:
Acquisition of fixed-income funds that invest in •public- or private-sector debt (bonds, bills, com-mercial paper), generally secure, which pay perio- dic coupons .
Acquisition of money market funds comprising •short-term fixed-income securities (18 months maximum) where security is given priority in ex-change for a slightly lower yield than other in-vestments .
34
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 as-sets to cover obligations, particularly in the biophar- maceutical segment .
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 2013, net equity having improved by 29% in the year .
Positive operating income in the Group's two •main business segments .
Positive operating cash flow in 2013, amounting •to 16,345 thousand euro (6,319 thousand euro in 2012), almost 10 million euro more than in 2012 .
Prospects and capacity for growth in the Biophar-•maceutical segment, since the Caelyx supply was completely restored in 2014, which should drive growth in Yondelis sales with respect to 2013, when Caelyx was only fully available for 8 months .
The Group's ability to renegotiate its debt if it is con-•sidered necessary; this ability has increased in view of the improvement in net debt in recent years .
The existence of available credit lines .•
The existence of a large volume of past-due ac-•counts receivable from European public adminis-trations which can be discounted .
Expectations of an improvement in consumer •spending in Spain, where the Group obtains 46% of revenues .
*The Group's, equity increased by 29% in 2013
36
5. Significant events after year-end
Some credit lines are renewed automatically and, to date, experience shows that they have been renewed systematically with the same
banks . In January and February, 7,070 thousand euro in banks loans were renewed .
On 30 January 2014, it was disclosed to the Na-tional Securities Market Commission that Jansen Products LP had made a fourth payment to Pharma Mar, S .A . in the amount of 25 million dollars for attaining a milestone in the Yondelis® development plan .
No other material circumstances or events have come to light that might affect these separate and consolidated financial statements .
6. R&D and Innovation activities
R&D and Innovation activities are a key com-ponent of the Group's strategy, and 42 .7 million euro were allocated to this item in
2013 .
Of that total, 36 .5 million euro was allocated for R&D in oncology, 4 .8 million euro for RNAi in oph-thalmology, 1 .2 million euro for the diagnostic area, and 0 .23 million euro for the Consumer Chemicals companies .
*In 2013, 42.7 million euro were spent on R&D, which is the cornerstone of the Group's strategy
The main progress and results in R&D in 2013 by area of activity are as follows:
1. ONCOLOGY: PHARMAMAR, S.A.
The activities and progress for each of the group's compounds in 2013 is detailed below:
a) Yondelis®
Soft-tissue sarcoma
Recruitment was completed at the end of 2013 for the Phase III pivotal multi-centre trial in L-sar-comas (leiomyosarcomas and liposarcomas), being conducted by Janssen, which seeks to obtain reg-istration for Yondelis® in the US and the rest of the world . Analysis of the results from this trial will allow Yondelis®'s efficacy to be evaluated in comparison with dacarbazine in treating L-sarcoma .
Recruitment is advancing well in the two regis-tration trials sponsored by Taiho in patients with translocation-related sarcomas, the goal of which is obtain registration for Yondelis® in Japan .
The observational and post-authorization trials with Yondelis® in cooperation with various European and American groups are also advancing on sched-ule . Specifically, recruitment is advancing in line with standard clinical practice in the Y-IMAGE prospec-tive, multi-centre observational trial to evaluate the response to treatment with Yondelis® . Recruitment of patients for the trial in Germany (GISG) with Yon-delis® in combination with gemcitabine is also ad-vancing on schedule . Recruitment has concluded for the observational trial required by the Dutch authori-ties to obtain the reimbursement of Yondelis®, and results are currently being analyzed .
The latest results of the TRUST trial, performed in cooperation with the European Organization for Research and Treatment of Cancer (EORTC) and the US Sarcoma Alliance for Research through Col-laboration (SARC), and the GEIS20 trial, performed in cooperation with the Spanish Sarcoma Research Group (GEIS) were presented at the most recent edition of the Connective Tissue Oncology Society (CTOS) Annual Meeting, in New York in November . Both trials explore the efficacy of different doses of Yondelis®+doxo as first-line treatment .
Ovarian cancer
Recruitment continues on schedule for the pivot-al clinical trial in ovarian cancer in the US, also spon-sored by Janssen .
Recruitment also continues for the Phase II trial to evaluate the efficacy of Yondelis®+bevacizumab, with and without carboplatin, undertaken by the Mario Negri Institute in Milan .
Recruitment was completed for the Phase II tri-al with Yondelis® in patients with advanced breast cancer who are carriers of the BRCA1 and BRCA2 mutations and the BRCAness phenotype . The trial is currently in the data analysis phase .
Seven new trials with Yondelis® in ovarian can-cer were presented at the 18th International Con-gress of the European Society of Gynaecological Oncology (ESGO), held in Liverpool (UK) from 19 to 22 October . A symposium on Yondelis® was also held, reflecting the opinion of prestigious experts in treating patients with platinum-sensitive ovarian cancer .
*Aplidin received a positive
recommendation from the Independent Data
Monitoring Committee in the ADMYRE
Phase III trial on multiple myeloma
37
38
Other indications
The Mario Negri Institute for Pharmacological Research, in cooperation with the Department of Medical Oncology at San Gerardo Hospital (Mon-za, Italy), continued recruitment for the ATREUS Phase II trial to evaluate the activity and safety of Yondelis® in malignant pleural mesothelioma (MPM) .
b) Aplidin®
Multiple myeloma
Following the positive recommendation by the In-dependent Data Monitoring Committee (IDMC), re-cruitment for the ADMYRE Phase III trial is advancing at an appropriate pace . Authorization for this trial was obtained in various Asian countries in the last quarter of the year .
c) Zalypsis®
Multiple Myeloma
Treatment of patients in the second stage of the Phase II trial in Zalypsis® as monotherapy for multiple myeloma was completed in 2013 .Data from all re-cruited patients is currently being analyzed .
Preclinical trials began in 2013 with Zalypsis® in combination with other products commercially avail-able treatments for multiple myeloma which had re-vealed notable synergies in lab tests .
d) PM1183
Resistant/refractory ovarian cancer
The randomized Phase IIb trial in patients with platinum-refractory/resistant ovarian cancer conclud-ed, and patients continue to be monitored for pro-gression free survival (PFS) and overall survival (OS) . The registration strategy for PM1183 in this indica-tion is being prepared and the necessary trial is being designed .
The results from that trial were presented at the European Cancer Congress (ECCO-ESMO-ES-TRO) held in Amsterdam in September . PM1183
was found to provide a median PFS of 4 .8 months (compared with 1 .7 months in patients treated with topotecan) in platinum-resistant patients, and proved superior to topotecan in terms of overall response (OR) and progression free survival (PFS) .
Advanced breast cancer
Recruitment continues on schedule for the Phase II trial in patients with advanced breast cancer, se-lected depending on the presence of BRCA1 & 2 mu-tations (hereditary cancer), known or otherwise .
Non-small-cell lung cancer (NSCLC)
Recruitment for the randomized Phase II trial in patients with NSCLC continued . This trial began following the good efficacy results obtained in this indication in the Phase I trial in combination with gemcitabine .
Advanced leukaemia
An amendment to the Phase I clinical trial with PM1183 as monotherapy to treat advanced leu-kaemia is being prepared with a view to including patients with myelodysplastic syndrome and to opti-mising the dose .
Combination trials
The combination trial with PM1183 and doxo-rubicin was reopened after confirming the excellent preliminary activity observed in patients with en-dometrial cancer, NSCLC, and neuroendocrine tu-mours . Additional hospitals in Spain were included with a view to accelerating patient recruitment . The preliminary results of this trial were presented at the European Cancer Congress (ECCO-ESMO-ESTRO) in Amsterdam .
The primary endpoint was achieved: the recom-mended dose was defined in the trial in combination with capecitabine in patients with breast, colorectal or pancreatic cancer .
The trial in combination with paclitaxel weekly, with or without bevacizamub, in patients with se-lected solid tumours is under way and is currently in the dose escalation phase . Hospitals in Madrid, New York and Switzerland are actively participating in this trial .
40
The trial with PM1183 in combination with cis-platin in patients with solid tumours will commence once it obtains approval from the ethics committees and regulatory agencies .
e) PM060184
Recruitment for the two Phase I trials in the US, France and Spain continues to advance as expected . The preliminary results of these trials, which show that the drug is active in various types of tumours, were presented at the European Cancer Congress (ECCO-ESMO-ESTRO) in Amsterdam .
2. RNA Interference, Ophthalmology: SYLENTIS, S.A.
The company continued to advance its R&D lines in 2013, working to develop new structures and formulations for RNAi-based compounds for eye diseases . The company made progress in 2013 on a new line of research to develop RNAi to treat eye al-lergies . Several RNAi have been developed for novel targets involved in this pathology and candidates were tested on an animal model of pollen-induced eye allergies, allowing for the evaluation of RNAi's effectiveness in vivo .
As regards the two compounds under clinical de-velopment, the Phase IIA clinical trial with SYL040012 (dose identification) in glaucoma was completed in 2013 . This trial, in patients with ocular hypertension and glaucoma, was performed at 11 centres in Spain,
40
41
Germany and Estonia . The 84 patients estimated in the protocol were treated and one dose (of the three tested) proved to have a statistically significant ef-fect in reducing intraocular pressure (IOP) in patients with high IOP and/or glaucoma . A new clinical trial with SYL040012 (Phase IIB) commenced at the end of 2013 to determine the dose and its efficacy vs . a control . This trial is expected to be conducted in a total of 17 hospitals in Spain, Germany, Estonia and the US . The clinical trial protocol is being designed and the hospitals selected .
With respect to the second clinical trial under way with SYL1001, we have requested authorization from the Spanish Agency of Medicines and Medical Devices (AEMPS) for a pilot trial in patients with eye discomfort associated with dry eye syndrome . Re-cruitment is under way for this trial and is expected to be completed in early 2014 .
3. DIAGNOSTICS: GENÓMICA
Two new in vitro diagnostic kits were launched in 2013: CLART® STIs A&B, for the detection and identifi-cation of bacteria, fungi and parasites causing urinary tract infections in humans, and PneumoCLART bac-teria®, for the detection and differentiation between multiple bacteria causing respiratory tract infections .
AutoClart, a new diagnostic kit reader developed by Genómica, was also launched in the year, allow-ing for the complete automation of the visualization process, which saves considerable time and decreas-es intra-assay variability .
*Zeltia Group
41
42
7. Acquisition and disposal of own shares
As of 31 December 2013, the Company's capital amounted to 11,110 thousand euro (11,110 thousand euro in 2012) and
was represented by 222,204,887 bearer shares (222,204,887 shares as of 31 December 2012), with a par value of 0 .05 euro per share, in both 2013 and 2012 . All these shares were fully sub-scribed and paid and have the same political and economic rights .
At 31 December 2013, the controlling company held 1,963 thousand own shares (0 .88% of total capital), of which 685 thousand were for acquisi-tion by employees under Share Delivery plans, which shares were pledged in favour of the Company until the vesting period had elapsed .
The Group acquired 439 thousand shares, rep-resenting 0 .21% of share capital, for 701 thousand euro in 2013 .
A total of 307 thousand shares worth 1,005 thousand euro were executed under the Share Deliv-ery Plan, either due to the release of pledged shares or to other conditions set out in the plans, such as terminations .
8. Share information
General situation
The Ibex-35 registered gains in 2013 for the first time since 2010 . The index had shed over 30% since 2010, until finally reversing in 2013
to register gains of 21% .
This good market performance is due mainly to signs of economic recovery not only in Europe, but also in Spain; to the good performance of Spanish bank restructuring; and to the consequent reduction of the risk premium .
The market was rudderless for the first half of the year, but it started to show a clear upward trend from June onwards . This was attributable in large part to liquidity injections by the central banks . The US Federal Reserve maintained its bond purchasing
programme throughout the year, although it an-nounced tapering as from the end of the year due to improvements in the US economy . Although the an-nouncement of the end of monetary stimuli was not initially well received by the markets, the response was positive in the end since it was a clear sign that the US economy was making progress . The ECB an-nounced plans to maintain its monetary policy and it reduced interest rates in Europe to a record low 0 .25% . Spain was showing clear signs of economic recovery as the country left the recession behind and the risk premium declined from almost 400bp at the beginning of the year to 222bp at 2013 year-end . The majority of Spanish companies engaged in intense deleveraging as part of their restructuring efforts . In this context, the low valuations of most listed com-panies at the beginning of 2013 led to an inflow of cash into Spanish equities . For the most part, it was foreign capital that acquired Spanish stocks, helping the Ibex 35 to be among the European indices that appreciated the most .
Indicadores bursátiles de Zeltia 2013
Total number of shares 222,204,887
Number of outstanding shares 222,204,887
Par value ( ) 0.05
Average daily trading (nº of shares) 463,619
Average daily trading (en ) 899,420
Trading days 257
Daily trading low (11 February) 81,665
Daily trading high (2 October) 4,287,284
Total annual trading (million ) 240.6
(in )
Lowest share price (8 April) 1.25
Highest share price (4 October) 2.82
Share price at 31 December 2.31
Average share price in the year 1.94
Market capitalization ta 31 December (million ) 517.7
Source: Bloomberg
Share information in 2013
43
44
Share performance
Many factors contributed to Zeltia's share appreciating by 92% in 2013 coupled with a notable increase in its liquidity . These include the end in 2013 of the shortage of Caelyx®, a drug administered in combination with Yondelis® to treat ovarian cancer . The Caelyx supply was re-established in May, which led to a clear increase in Yondelis sales . This resulted in an improvement not only in sales, but also in margins and financial income, and an increase in cash flow, which enabled the compa-
ny to continue deleveraging . The positive results with the Phase II trial with PM1183 in patients with platinum-resist-ant ovarian cancer were an-nounced in September 2013 . The result of this trial boosted the company's share price to a two-year high shortly after
summer . Short positions in Zeltia stock were also reduced during the year, from 1% in early 2013 to 0 .310% by year-end . These changes in the com-pany and positive financial and clinical results have attracted new investors, resulting in the apprecia-tion registered in 2013 .
Zeltia's share appreciated by 92% in 2013 and the stock's liquidity increased considerably during the year
*
Trading volume Price
0
200,000
400,000
600,000
800,000
1,000,000
1,200,000
1,400,000
1,600,000
1,800,000
2,000,000
1.2001.3001.4001.5001.6001.7001.8001.9002.0002.1002.2002.3002.4002.5002.6002.7002.8002.900
Trad
ing
volu
me
Pric
e
02/0
1/20
13
14/0
1/20
13
24/0
1/20
13
05/0
2/20
13
15/0
2/20
13
27/0
2/20
13
11/0
3/20
13
21/0
3/20
13
04/0
4/20
13
16/0
4/20
13
26/0
4/20
13
09/0
5/20
13
21/0
5/20
13
31/0
5/20
13
12/0
6/20
13
24/0
6/20
13
04/0
7/20
13
16/0
7/20
13
26/0
7/20
13
07/0
8/20
13
19/0
8/20
13
29/0
8/20
13
10/0
9/20
13
20/0
9/20
13
02/1
0/20
13
14/1
0/20
13
24/1
0/20
13
05/1
1/20
13
15/1
1/20
13
27/1
1/20
13
09/1
2/20
13
Source: Bloomberg
45
Trading in Zeltia shares amounted to a total of 240,632 million euro in 2013 . Daily trading averaged 463,997 shares .
Trading volume (Euro)
0
5,000,000
10,000,000
15,000,000
20,000,000
25,000,000
30,000,000
35,000,000
40,000 000
Euro
Source: Bloomberg
AUDITORS’ REPORT ON CONSOLIDATED FINANCIAL STATEMENTS
at 31 December 2013
with
CONSOLIDATED FINANCIAL STATEMENTS
48
A free translation of an auditors’ report originally issued in Spanish . In the event of a discrepancy, the Spanish language
version prevails .
AUDITORS' REPORT ON CONSOLIDATED FINANCIAL STATEMENTS
To the shareholders of Zeltia, S .A .
We have audited the consolidated financial statements of Zeltia, S .A . (the "Company") and subsidiaries (the "Group") consisting of the consolidated balance sheet as of 31 December 2013 and the consolidated state-ment of income, the consolidated statement of comprehensive income, the statement of changes in consoli-dated equity, the consolidated statement of cash flow, and the notes to the consolidated financial statements for the year then ended . As indicated in note 2 in the accompanying notes to financial statements, the direc-tors are responsible for authorizing the Group's financial statements in accordance with 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 . Our responsibility is to express an opinion on those consolidated financial statements taken as a whole, based on work performed in accordance with the auditing regulations in force in Spain, which require the examination, by selective tests, of the evidence supporting the consolidated financial statements and the evaluation of whether their presentation, the accounting principles and standards applied and the estimates made are in conformity with the applicable financial reporting regula-tory framework .
In our opinion, the accompanying 2013 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 2013 and the consolidated results of their operations, and their consolidated cash flows in the year then ended 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 .
The accompanying consolidated directors' report for the year 2013 contains such explanations on the state of the Group's affairs, business performance and other matters as the Directors of Zeltia, S .A . consider appro-priate and does not form an integral part of the consolidated financial statements . We verified that the financial information contained in the consolidated directors' report matches that in the 2013 consolidated 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 accounting records of Zeltia, S .A . and subsidiaries .
PricewaterhouseCoopers Auditores, S .L .Luis Sánchez QuintanaPartner - Auditor
28 February 2014
50
Grupo Zeltia, S.A. and subsidiaries
Consolidated Balance Sheet at 31 December 2013 (thousand euro)
ASSETS
NON-CURRENT ASSETS
Property, plant and equipment
Investment property
Intangible assets
Goodwill
Non-current financial assets
Deferred tax assets
Disposable group assets
classified as available for sale
CURRENT ASSETS
Inventories
Customer and other accounts receivable
Current financial assets
Current tax assets
Other current assets
Cash and cash equivalents
TOTAL ASSETS
Notes 1 to 45 are an integral part of these Consolidated Financial Statements
6
7
8
9
10
27
19
17
15
10
16
16
18
Note
27,959
6,980
22,590
2,548
848
32,546
93,471
4
22,232
38,630
6,377
3,847
2,351
22,458
95,895
189,370
31/12/13
29,794
6,014
19,744
2,548
2,785
32,063
92,948
451
23,502
41,956
16,092
3,817
2,728
18,336
106,431
199,830
31/12/12
51
Share capital
Share premium
Own shares
Revaluation reserves and other reserves
Retained earnings and other reserves
TOTAL CAPITAL AND RESERVES ATTRIBUTABLE TO EQUITY-HOLDERS OF THE PARENT COMPANY
NON-CONTROLLING INTERESTS
TOTAL EQUITY
11,110
323,286
(6,029)
3
(275,142)
53,228
(3,793)
31/12/13
20
20
20
22
NoteEQUITY
LIABILITIES
Notes 1 to 45 are an integral part of these Consolidated Financial Statements
NON-CURRENT LIABILITIES
Interest-bearing debt
Derivatives
Deferred tax liabilities
Non-current deferred revenues
Other non-current liabilities
CURRENT LIABILITIES
Supplier and other accounts payable
Interest-bearing debt
Provisions for other liabilities and expenses
Current deferred revenues
Other current liabilities
TOTAL LIABILITIES
23
26
28
24
25
TOTAL EQUITY AND LIABILITIES
24,426
41,327
5,482
25
2,798
74,058
139,935
189,370
52,941
95
9,031
3,166
644
65,877
11,110
323,286
(6,334)
1
(285,733)
42,330
(3,604)
31/12/12
25,703
54,734
5,007
33
1,878
87,355
161,104
199,830
62,016
199
8,548
2,472
514
73,749
26
14
27
24
25
49,435 38,726
52
Grupo Zeltia, S.A. and subsidiaries
Consolidated income Statement at 31 December 2013 (thousand euro)
Ordinary revenues
Cost of sales
GROSS INCOME
Other operating revenues / Other net gains
Marketing expenses
Administrative expenses
Research & development expenses
Capitalized in-house work
Other operating expenses
OPERATING INCOME
Financial revenues
Financial expenses
Variation in fair value of financial instruments
Exchange differences
Impairment losses and income from disposal of financial instruments
NET FINANCIAL INCOME
INCOME BEFORE TAXES
Income tax
INCOME FROM CONTINUING OPERATIONS
Discontinued operations
Income from discontinued operations
Attributable to equity-holders of the parent company
Attributable to non-controlling interests
Income for the year
Attributable to:
Equity-holders of the parent company
Non-controlling interests
EARNINGS PER SHARE FROM CONTINUING OPERATIONS AND FROM DISCONTINUED
OPERATIONS ATTRIBUTABLE TO EQUITY HOLDERS OF THE PARENT COMPANY
(euro per share)
Basic earnings per share
- From continuing operations
- From discontinued operations
Diluted earnings per share
- From continuing operations
- From discontinued operations
Note
37
37
5
33
32
31
30
8
33
36
27
19
22
Note
0.05
(0.00)
0.05
(0.00)
141,824
(37,900)
103,924
22,858
(41,251)
(19,765)
(42,717)
4,382
(8,475)
18,956
752
(6,442)
104
447
(16)
(5,155)
13,801
(1,960)
11,841
(708)
(519)
(189)
11,133
11,322
(189)
31/12/13
0.03
(0.22)
0.03
(0.22)
138,229
(39,793)
98,436
23,549
(40,865)
(21,083)
(40,399)
3,403
(8,474)
14,567
1,036
(6,092)
(22)
(44)
(19)
(5,141)
9,426
5,048
14,474
(10,749)
(7,881)
(2,868)
3,725
6,593
(2,868)
31/12/12
Notes 1 to 45 are an integral part of these Consolidated Financial Statements
5 and 29
53
Grupo Zeltia, S.A. and subsidiaries
Consolidated Statement of comprehensive income at 31 December 2013 (thousand euro)
Statement of changes in consolidated equity (thousand euro)
CONSOLIDATED INCOME FOR THE YEAR (from the consolidated income statement)
ITEMS THAT MAY SUBSEQUENTLY BE RECLASSIFIED TO PROFIT OR LOSS
Change in value of financial assets available for sale
Foreign exchange losses/(gains)
OTHER COMPREHENSIVE INCOME, NET OF TAXES
COMPREHENSIVE INCOME FOR THE YEAR
Attributable to:
Equity-holders of the parent company
Non-controlling interests
TOTAL COMPREHENSIVE INCOME FOR THE YEAR
Continuing operations
Discontinued operations
TOTAL COMPREHENSIVE INCOME TO EQUITY-HOLDERS:
31/12/13
11,133
2
33
35
11,168
11,357
(189)
11,168
11,876
(519)
11,357
31/12/12
3,725
0
0
0
3,725
6,593
(2,868)
3,725
14,474
(7,881)
6,593
Notes 1 to 45 are an integral part of these Consolidated Financial Statements
BALANCE AT 1 JANUARY 2012
2012 income
Total revenues and expenses recognized in 2012
Shares purchased (Note 19)
Shares sold (Note 19)
Share ownership plans (Note 19)
Other transactions with shareholders and owners (Note 21)
Other movements
BALANCE AT 31 DECEMBER 2012
Fair value gain / (loss), gross:
- Available-for-sale financial assets (Note 12)
Total revenues and expenses recognized
directly in equity
2013 income
Total revenues and expenses recognized in 2013
Shares purchased (Note 19)
Shares sold (Note 19)
Share ownership plans (Note 19)
Other movements
BALANCE AT 31 DECEMBER 2013
11,110
0
0
0
0
0
0
0
11,110
0
0
0
0
0
0
0
0
11,110
Sharecapital
323,286
0
00
0
0
0
0
0
323,286
0
0
0
0
0
0
0
0
323,286
Sharepremium
Ownshares
(6,872)
0
00
(1,584)
0
2,122
0
0
(6,334)
0
0
0
0
(701)
334
672
0
(6,029)
Revaluationand other
reserves
1
0
(5)0
0
0
0
0
0
1
2
2
0
2
0
0
0
0
3
Reserves andother retained
earnings
(287,972)
6,593
6,593
0
0
(417)
(2,947)
(990)
(285,733)
0
0
11,355
11,355
0
(193)
(672)
101
(275,142)
Non-controllinginterests
(5,051)
(2,868)
(2,868)
0
0
0
4,315
0
(3,604)
0
0
(189)
(189)
0
0
0
0
(3,793)
Totalequity
34,502
3,725
3,725
(1,584)
0
1,705
1,368
(990)
38,726
2
2
11,166
11,168
(701)
141
0
101
49,435
54
Grupo Zeltia, S.A. and subsidiaries
Consolidated cash flow statement at 31 December 2013 (thousand euro)
Notes 1 to 45 are an integral part of these Consolidated Financial Statements
TOTAL NET OPERATING CASH FLOW
Income before taxes
Income before taxes from continuing operationsIncome before taxes from discontinued operations
Adjustments for:
Depreciation and amortization
Impairment
Capitalized R&D expenses
Fair value loss/(gain) on financial assets
Interest revenues (net accruals)
Accrual of incentives
Income from sale of property, plant and equipment
Interest paid, net (monetary flows)
Cash flow from discontinued operations
Changes in working capital
Inventories
Customer and other accounts receivable
Other assets and liabilities
Supplier and other accounts payable
Deferred and accrued items
Reclassification from available-for-sale to property, plant and equipment
Other cash flows from operations:
Income tax received/(paid)
Other operating receipts/(payments)
TOTAL NET INVESTING CASH FLOW
Investment payments:
Property, plant and equipment, intangible assets and investment property
Divestment receipts:
Other financial assets
Other assets
Other investing cash flow
Other investment receipts/(payments)
TOTAL NET FINANCING CASH FLOW
Collections and (payments) in connection with equity instruments:
Issuance of equity instruments other than of the parent company
Depreciation and amortization
Acquisition
Disposal
Collections and (payments) in connection with financial liabilities:
Issue
Refund and amortization
Other financing cash flow
Other financing receipts/(payments)
TOTAL NET CASH FLOW FOR THE YEAR
Net increase / (decrease) in cash and cash equivalents
Beginning balance of cash and cash equivalents
ENDING BALANCE OF CASH AND CASH EQUIVALENTS
31/12/13
16,345
13,093
13,801(708)
1,087
4,591
270
(4,382)
(104)
(752)
360
47
1,057
0
2,684
1,270
3,056
(2,097)
126
467
(138)
(519)
(201)
(318)
10,828
(2,095)
(2,095)
12,099
11,652
447
824
824
(23,051)
(570)
0
(10)
(701)
141
(17,160)
21,726
(38,886)
(5,321)
(5,321)
4,122
4,122
18,336
22,458
31/12/12
6,319
(1,323)
9,426(10,749)
4,376
5,906
308
(3,507)
23
(1,036)
663
313
876
830
3,524
1,807
8,177
(2,801)
(4,022)
363
0
(258)
(308)
50
311
(2,029)
(2,029)
2,229
2,229
0
111
111
(18,675)
321
1,368
(33)
(1,584)
570
(13,990)
16,715
(30,705)
(5,006)
(5,006)
(12,045)
(12,045)
30,381
18,336
6 and 8
15
8
14
36
35
36
17
15
23
6
6 and 8
10
22
20
20
Note
56
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 detail of Zeltia's subsidiaries which, with the Company, constitute the consolidated Group (here-inafter, the Group) as of 31 December 2013 is as follows:
*Notes to the Consolidated Financial Statements of Zeltia, S.A. and subsidiaries as of 31 December 2013
Stake (%)
Registered offices31 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
Genomica, A.B. - 100% *** 100% Ideon Science Park, Scheelevägen, 17 Lund, Sweden
Sylentis, S.A. (6) 100% - 100% Plaza del Descubridor Diego de Ordás, 3 Planta 5ª Madrid, Spain
(*) 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.
(***) Genomica, A.B. is a wholly-owned subsidiary of 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) Audited by KPMG Auditores, S.L.
(7) Audited by Prorevi Auditing, Srl.
Total IndirectDirect
A) Description of subsidiaries
The principal activity of those companies, all of which were fully consolidated as of 31 December 2013 and 2012, is as follows:
Pharma Mar, S .A .U . (Pharma Mar): 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 authorisation for PharmaMar to commercialise Yondelis® (trabec-tedin) in combination with pegylated liposomal doxorubicin to treat relapsed platinum-sensitive ovarian cancer . In 2007, the European Commis-sion had granted authorisation to market Yonde-lis® for treating soft tissue sarcoma (STS) . As of 31 December 2013, Pharma Mar was continuing to develop its other products and was also develop-ing Yondelis® for therapeutic uses other than soft tissue sarcoma and ovarian cancer (Note 2 .I) .
Genómica, S .A .U . (Genómica): In 2013 and 2012, •it was engaged in the development and market-ing of biopharmaceutical applications, diagnosis and services related to these activities .
Genomica, A .B .: A company incorporated by •Genómica, S .A .U . in 2013 . In 2013, it was en-gaged mainly in marketing biopharmaceutical applications, diagnosis and services related to these activities in the Scandinavian market .
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 .d) of the Capital Companies Act as its net equity had declined to less than one-half of its capital stock .
Sylentis, S .A .U . (Sylentis): Founded in 2006 . This •company's main activity is the research, develop-ment, production and sale of products with ther-apeutic 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 diseases; it does not yet have any product on the market .
Pharma Mar USA: In 2013 and 2012, it was pri-•marily engaged in business development in the US .
PharmaMar AG: This company was founded by •Pharma Mar, and in 2013 and 2012 it was prima-rily engaged in marketing pharmaceutical prod-ucts in the Swiss market .
PharmaMar GmbH: This company was founded •by Pharma Mar, and in 2013 and 2012 it was primarily engaged in marketing pharmaceutical products in the German market .
PharmaMar S .r .L .: This company was founded by •Pharma Mar in 2012 . In 2013 and 2012 it was primarily engaged in marketing pharmaceutical products in the Italian market .
PharmaMar SARL .: This company was founded •by Pharma Mar, and in 2013 and 2012 it was primarily engaged in marketing pharmaceutical products in France .
Xylazel, S .A . (Xylazel): In 2013 and 2012, it was •engaged in the manufacture and sale of wood and metal protective and decorative products, paints and similar products .
Zelnova, S .A . (Zelnova): In 2013 and 2012, it was •engaged in the manufacture and marketing of domestic and industrial insecticides and air fresh-eners .
Copyr, S .p .A . (Copyr): This company was acquired •by Zelnova in 2006 . It is domiciled in Milan, Italy . Copyr's main activity in 2013 and 2012 was the manufacture and sale of automatic aerosol dis-pensers under its Copyrmatic brand . Copyr also produces products for ecological farming .
Protección de Maderas, S .A .U . (Protección de •Maderas): In 2012, it ceased to form part of the consolidable group due to being merged into Zeltia .
Promaxsa Protección de Maderas, S .L .U . (Pro-•maxsa): Incorporated by Protección de Mad-eras, S .A .U . in 2011 . In 2013 and 2012 it was involved mainly in the provision of services for treating and protecting wood, and repairing and preserving structures, as well as insect con-trol and disinfection .
57
58
B) Variations in the subsidiaries in 2013
In 2013, Promaxsa performed the capital in-crease that had been decided on in January, increas-ing capital 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, i .e . amounting to a total of 500,000 euro, by offsetting an account payable to Zeltia by Promaxsa .
In August 2013, Genómica increased capital by 1,150,133 .70 euro 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 offsetting an account payable to Zeltia .
In January 2013, Genómica, S .A .U . established a wholly-owned subsidiary called Genómica, A .B . with domicile in Sweden, whose object is basically to market biopharmaceutical applications, diag-nosis and services 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 Srl performed a 450 thousand euro capital increase that was fully sub-scribed .
*Description of subsidiaries
59
C) Variations in the subsidiaries in 2012
The detail of Zeltia's subsidiaries which, with the Company, constitute the consolidated Group (hereinafter, the Group) as of 31 December 2012 is as follows:
31 December 2012
Pharma Mar, S.A.U. (1) 100% - 100% Avda. Reyes, 1 – Colmenar Viejo – Madrid, Spain
Genómica, S.A.U. (2) 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
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 – Basilea – Switzerland
Pharma Mar SARL (France) - 100% * 100% 120, Av. Charles Gaulle – Neuilly Sur Seine – France
Pharma Mar GMBH (Germany) - 100% * 100% Rosenheimer Platz, 6 – München – Germany
Pharma Mar Ltd (UK) - 100% * 100% 90 High Holborn , 7 Floor – London – U.K.
Pharma Mar, S.r.L. (Italy) - 100% * 100% Via Giorgio Stephenson, 29 Milan, Italy
Copyr, S.p.A. (Italy) (4) - 100% ** 100% Via Giorgio Stephenson, 29 Milan, Italy
Promaxsa Protección de Maderas; S.L. (2) 100% 100% Avda. Fuentemar, 16, 1º – Coslada – Madrid, Spain
Sylentis, S.A. (2) 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.
(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.
Total IndirectDirect
Noscira increased capital twice in 2012 . The first capital increase, decided in March, was launched for a total amount of 11 million euro at an issue price equivalent to the par value of the share, i .e . one euro, so as to issue 11 million shares . The book was fi-nally closed with subscriptions for 8,230,333 shares, of which 7,004,202 were subscribed and paid for by Zeltia, S .A ., which attained a 70 .8% stake, com-pared with 63 .67% before the increase .
The second capital increase, decided in July, was launched for a total amount of 3 million euro at an issue price equivalent to the par value of the share, i .e . one euro, so as to issue 3 million shares . The book was finally closed with subscriptions for 2,865,924 shares, of which 2,724,010 were subscribed and
paid for by Zeltia, S .A ., which thereby increased its stake in Noscira to 73 .32% .
In October 2012, Noscira's largest clinical devel-opment project, the ARGO Phase II trial in Alzheim-er’s disease, concluded without attaining its primary or secondary endpoints . As a result, Noscira derec-ognized its capitalized R&D expenses . Consequently, the company was in a position in which it is required by law to be dissolved (article 363 .1 .d of the Capital Companies Act), since net equity had been reduced to less than one-half of capital stock . On 18 Decem-ber, the shareholders voted to dissolve and liquidate Noscira . Consequently, Zeltia recognized impairment of its investment in that subsidiary in the amount of 40,213 thousand euro .
In 2011, Noscira had retired two projects: NP-61 in Alzheimer’s disease, on the grounds that NP-61 did not have a novel mechanism of action, and Tideglusib/Zentylor, for treating Progressive Supranu-clear Palsy, since the trial failed to attain its primary endpoint . As a result, Zeltia recognized 4 .042 million euro in impairment to adjust the carrying amount to the recoverable value .
Following the aforementioned events, Noscira is classified under discontinued operations .
In March 2012, Protección de Maderas, S .A .U . performed a spin-off to Promaxsa Protección de Maderas, S .L . The recipient company received, from Protección de Maderas, S .A .U ., all of the assets and liabilities constituting the business of wood treat-ment, protection and restoration, both structural and ornamental, and disinfection and insect and rodent control, which was transferred en bloc by universal
succession through spinning off that business from Protección de Maderas, S .A .U . to the beneficiary, Promaxsa Protección de Maderas, S .L . The spin-off, which was incorporated into the beneficiary's equity, amounted to 315 thousand euro .
After the spin-off, Protección de Maderas, S .A .U . was merged into Zeltia and was consequently extin-guished without being liquidated due to the transfer en bloc of its entire equity to the surviving company . That merger was registered with the Mercantile Reg-ister in August 2012 . As a result of the merger, Zeltia became the direct owner of 100% of PharmaMar .
Sylentis performed two capital increases in 2012 . The first capital increase, performed in March, was for 120,000 euro by the issuance of 12,000,000 shares of 0 .01 euro (one euro cent) par value each, and 0 .24 euro (24 euro cent) issue premium, all by offsetting accounts payable by Sylentis to Zeltia .
60
61
The second capital increase, agreed upon on 18 December 2012, was for 120,000 euro by the issu-ance of 12,000,000 shares of 0 .01 euro (one euro cent) par value each, and 0 .24 euro (24 euro cent) issue premium, all by offsetting accounts payable by Sylentis to Zeltia . That capital increase was reg-istered with the Mercantile Register on 17 January 2013 .
In May 2012, Pharma Mar, S .A .U . incorporated a 100%-owned subsidiary called Pharma Mar, S .r .L . (Italia) with the object basically of marketing phar-maceutical products . The new company's capital stock is 50,000 euro, represented by one share .
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 .
61
*Pharma Mar has established subsidiaries
in Germany and Italy, Genómica
in Sweden
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. Bases of presentation
These consolidated financial statements for 2013 and those for 2012 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 2013 are coherent with those used to prepare the consolidated financial statements for the year ended 31 December 2012, as described in those consolidat-ed financial statements, and no material estimates were made that are not consistent with those made in 2012 .
Standards, amendments and interpretations that are obligatory for all annual periods beginning on or after 1 January 2013
The group adopted the following standards for the first time during the financial year that com-menced on 1 January 2013:
IAS 1 (Revised) "Presentation of Financial State-•ments - Presentation of Items of Other Compre-hensive Income" .
IAS 19 (Revised) "Employee Benefits" .•
IFRS 13 "Fair value measurement" .•
Improvement project 2009-2011:•
- IFRS 1 "First-time Adoption of IFRS" .
- IAS 1 "Presentation of Financial Statements" .
- IAS 16 "Property, Plant and Equipment" .
- IAS 32 "Financial Instruments: Presentation" .
- IAS 34 "Interim Financial Reporting" .
IFRS 7 (Amendment) "Asset and liability offset-•ting" .
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 2013
At the date of signing these consolidated finan-cial statements, the IASB and the IFRS Interpreta-tions Committee had published the standards, amendments and interpretations described below whose application is mandatory from the year 2014, although the Group has not adopted them in advance .
IFRS 10 "Consolidated Financial Statements" . •
IFRS 11 "Joint Arrangements" .•
IFRS 12 "Disclosure of interests in other enti-•ties" .
IAS 27 (Amended) "Separate Financial State-•ments" .
IAS 28 (Amended) "Investments in associates and •joint ventures" .
IAS 32 (Amendment) "Offsetting Financial Assets •and Financial Liabilities" .
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) .
IAS 36 (Amendment) "Recoverable amount disclo-•sures for non-financial assets" .
The Group is assessing the impact that the new standard / amendment / interpretation 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 2014 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
Subsidiaries are all the undertakings (including special purpose undertakings) over which the Group has the power to govern the financial and operating policies, generally accompanied by more than half of the voting rights . When assessing whether or not the Group controls a company, the existence and effect of potential voting rights that are currently exercis-able or convertible are considered . The Group also considers that a situation of control exists when it does not hold more than 50% of the voting rights but is able to direct financial and operating policies through de facto control . This de facto control may arise in circumstances where the Group's number of voting rights compared with the number and disper-sion of the holdings of other shareholders gives the Group the power to direct the financial and operat-ing policies .
63
64
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 .
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 in-curred with the previous owners of the acquiree, and the equity instruments issued by the Group . The consideration will also include the fair value of any asset or liability which arises from any contin-gent consideration agreement . The identifiable as-sets and liabilities acquired and the liabilities and contingent liabilities assumed in a business combi-nation are carried initially at their fair value on the acquisition date . For each business combination, the Group may elect to measure non-controlling in-terests at fair value or at the proportionate share of 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 fair value of the acquirer's previ-ously-held equity interest in the acquiree is re-meas-ured at acquisition-date fair value through profit or loss .
Any transferred consideration and the value of the non-controlling interest are recognized at acqui-sition-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 com-prehensive income . Contingent consideration classi-fied as equity is not re-measured and its subsequent settlement is recognized in equity .
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 subsidiary is fully consolidated, intercompany transactions, balances, and revenues and expenses on transactions between Group companies are eliminat-ed . Also eliminated are gains and losses on intragroup transactions recognized as assets . The accounting poli-cies of the subsidiaries have been modified where nec-essary to ensure uniformity with the Group's policies .
Note 1 details the identification data of the sub-sidiaries that are in the scope of consolidation .
The financial year of all the subsidiaries is the cal-endar year .
Transactions and non-controlling interests
The Group books transactions with non-control-ling interests as transactions with holders of Group equity . In acquisitions of non-controlling interests, the difference between the price paid and the related proportion of the carrying amount of the subsidiary's net assets is recognized in equity . Gains or losses re-sulting from the sale of non-controlling 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 subsidiary, has the euro as its functional currency, mainly because of its financing sources and its activity .
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Regarding Pharma Mar AG, the Swiss subsidiary, Pharma Mar Ltd, the UK subsidiary, and Genomica, AB, the Swedish subsidiary, their functional curren-cies in 2013 and 2012 were the Swiss franc, the Pound sterling and the Swedish krona, respectively, as they have begun marketing pharmaceuticals and their sales are in local currency . The impact of this change 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 ruling on the transaction dates or, in the case of revalued items, the measurement dates . Exchange gains or losses arising on the settlement of those transactions and on translating monetary assets and liabilities de-nominated in foreign currency at the year-end ex-change 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 on cash and cash equivalents are recognized in profit and loss under "Financial revenues and expenses" .
Changes in the fair value of available-for-sale financial assets denominated in foreign currency are analysed considering the exchange differences resulting from changes in the amortized cost of the instrument 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 carry-ing amount are recognized in other 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 fair value gain or loss . Ex-change 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 .
Adjustments to goodwill and fair value 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 (Pharma Mar), 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 carrying amount or recognized as a separate as-
set only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably . Other repairs and maintenance are ex-pensed 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 is reviewed, and adjusted if necessary, at each balance 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 property held to earn rent or for capital appreciation, or both, which is not occupied by the Group .
This property was revalued at fair value un-der IFRS 1 on 1 January 2004 and the allocated
value was considered as the cost for subsequent 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 subsidiary on the acquisition date . Goodwill recog-nized separately is measured for impairment each year and carried at cost less accumulated impair-ment losses . Impairment of goodwill is not recover-able . 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 goodwill is monitored for internal management purposes . Goodwill is monitored at operating seg-ment level .
Goodwill is measured for impairment on an annual basis, or more frequently if events or changes in circumstances indicate a potential im-pairment 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 . Impairment losses are recognized immediately in profit or loss and are not reversed subsequently .
b) Concessions, patents and trade marks
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 software
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 development and mainte-nance costs are expensed as incurred .
H. Research & development expenses
Research and development expenses are expensed as incurred . Development project costs (design and testing of new and improved products) are recog-nized as intangible assets when it is probable that the project will be successful, based on its technical and commercial viability; specifically, they are capital-
ized 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 intan-gible 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 intangible asset will generate likely economic benefits in the future is demonstrable; (v) sufficient technical, financial and other resources are available to complete development and to use the intangible asset; and (vi) the cost attributable to the intangible asset during development can be meas-ured reliably . Since most of the Group's development expenses are related to drug development, it is con-sidered that marketing approval by a prestigious in-ternational 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 a subsequent year . For this reason, the commercial authorisation for Yondelis® granted to subsidiary Pharma Mar, as detailed in Note 1, did not entail capitalization of the development expenses in-curred for that therapeutic use prior to the authori-sation dates . It is possible to capitalize development expenses for supplementary trials for a therapeutic use for which the regulatory authority has already given commercialisation approval . The other pro-grammes for Yondelis® in other therapeutic uses and for the other products are still at various stages of clinical trials .
Pharma Mar has now received authorisation from the European regulatory authorities to commercialise Yondelis in Europe for two therapeutic uses: soft tis-sue 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 .
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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 . Manage-ment classifies financial assets upon initial recogni-tion .
Financial assets at fair value through profit or •loss .
These are financial assets held for trading which were acquired primarily to realise 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 availa-ble for sale or are not classified in any of the other categories . They are included in non-current assets unless management plans to sell them within 12 months from the balance sheet date . The changes are through equity (revaluation 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 value through profit or loss, investments are initially recog-nized at fair value plus transaction costs . Financial as-sets 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 invest-ments' cash flows have expired or have been trans-ferred 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 changes 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" .
Interest on instruments available for sale, calcu-lated by the effective interest method, is recognized in profit or loss under other revenues . Dividends from equity instruments available for sale are recognized in profit and loss under other revenues when the Group becomes entitled to collect them .
At the end of each accounting period, the Group as-sesses whether there is objective evidence that a finan-cial asset or group of financial assets has been impaired .
For debt instruments, the Group uses the approach de-scribed in (a) above . In the case of investments in equity instruments classified as available for sale, a material or prolonged decline in the fair value of the instrument below its cost is also considered to be evidence of im-pairment . If such evidence exists for available-for-sale financial assets, the accumulated loss— measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that fi-nancial 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 instruments 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 objectively at-tributed to an event occurring after the impairment loss was recognized in profit or loss, the impairment loss is was reversed through consolidated profit or loss .
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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 substan-tially all the risks and rewards incidental to owner-ship of the assets are classified as finance leases . Fi-nance 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 appor-tioned between the reduction 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 inter-est 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 li-ability 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 .
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M. Inventories
Inventories are measured at the lower of cost or net realisable 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 authorisation or the date of presentation of a registration application for a new therapeutic use of a drug that has already been authorised . 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 reorganisation, 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-
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, 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
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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 amortisation 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 .
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 ef-fective interest method . The difference between the funds obtained (net of the necessary costs to obtain them) and the reimbursement value is recognized in profit or loss over the debt term based on the effec-tive 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 is measured as a financial liability, or not, 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 .
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 the 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 .
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Deferred taxes are based on tax rates that have been enacted or substantively enacted by the bal-ance sheet date and which are expected to apply to the period when the 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 .
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 .•
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Coverage via a system of insurance policies arran-•ged with an insurance company . The annual pre-mium paid to the insurance company is recorded as a period expense .
Defined contributions to a fund on the basis of a •plan established in the regulation governing the fund . Annual contributions to the fund are trea-ted 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 adjusts any deviation arising from employee rota-tion .
c) Termination indemnities
Termination indemnities are paid to employees as a result of the Group's decision to terminate the employment contract before the normal retire-ment 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 indem-nities, 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 termina-tion by employees is made, termination indemni-ties 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 fol-lowing 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 .
The Group recognized revenue from total sales of products marketed in 2013 and 2012 at nomi-nal value and claimed any applicable default inter-est 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, consid-ers that the conditions for recognizing ordinary revenue are met .
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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, the Group uses the revenue recognition method indicated 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 available for sale and discontinued operations
a) Non-current assets available 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 the lower of their carrying amount and fair value less the necessary costs for the sale; depreciation and amorti-sation 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 signifi-cant segment of the consolidated Group, or form part of a single plan or constitute a subsidiary acquired exclusively for the purposes of resale . Income from discontinued operations, both in the current year and in those presented with it, are presented net of taxes in a specific line-item in the income statement identi-fied 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 minimise 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 PharmaMar AG since 2011) and the US dollar (because of the transaction described in Note 33), and the Swedish krona, the functional currency of Genómica AB . Exchange rate risks arise from fu-ture commercial transactions, recognized assets and liabilities, and net investments in foreign operations .
As of 31 December 2013 and 2012 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 2,524 thousand euro in 2013 and 1,648 thousand euro in 2012); 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 2013
and 2012, 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 22,146 thousand euro in 2013 (22,895 thousand euro in 2012) . Ad-ditionally, transactions in Swiss francs amounted to 1,634 thousand euro in 2013 (1,926 thousand euro in 2012), transactions in pounds sterling amounted to 2,995 thousand euro in 2013 (4,014 thousand euro in 2012), and transactions in Swedish krona amounted to 524 thousand euro in 2013 . Group management did not consider it necessary to estab-lish any policy for hedging in 2013 or 2012 .
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 2013, 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 565 thousand euro (540 thousand euro in 2012), 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 2013, 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 1,007 thousand euro (1,090 thousand euro in 2012) . The material impact of variations in the dollar as of 31 December 2013 is due mainly to the amount 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 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 (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 avail-ability of funds as they are needed for research and development operations in the biopharmaceutical segment . Purchased mutual funds are fixed-income; as a result, their price fluctuation is non-material, al-though their value is affected by variations in the sol-vency of the bonds in which they are invested . The Group's current balance of investments in mutual funds is non-material .
Some of the products of the consumer chemicals segment have a large petroleum component . As a result, this segment's operating costs and income 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 increased by 25% in 2013, while keeping all other variables constant, income after taxes for the year would have decreased by 225 thousand euro (332 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, al-ternative financing and hedging . Based on those scenarios, the Group calculates the effect on in-come of a given variation in interest rates . In a given simulation, it assumes the same change in interest rates in all currencies . The scenarios are applied only to the largest interest-bearing assets and liabilities .
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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 2013 year-end (Note 14) .
If, as of 31 December 2013, 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 194 thousand euro (234 thousand euro in 2012), mainly as a result of higher interest expenses on floating-rate loans in comparison with revenues from remunerated assets .
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 .
80
81
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 .
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 2013 and 2012 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 4 credit institutions amounting to 16,698 thousand euro (8,367 thousand euro in 2012) .
81
82
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 (28,835 thousand euro in 2013, 34,428 thousand euro in 2012) minus short-term financial debt (41,327 thousand euro in 2013, 54,734 thousand euro in 2012)—was negative in the amount of 12,492 thousand euro at the end of 2013 (-20,306 thou-sand euro in 2012) . Long-term debt amounted to 52,941 thousand euro (62,016 thousand euro in 2012), of which 23,790 thousand euro (23,997 thousand euro in 2012) was in the form of research and development loans from official bodies which are repayable over 10 years, interest free, with a three-year grace period .
Additionally, as of 31 December 2013, net con-solidated cash flow was positive in the amount of 4,122 thousand euro (negative in the amount of 12,045 thousand euro as of 31 December 2012) . Zeltia's directors consider that the Group has liquid-ity to cover its research and development projects and fulfil its future commitments for the following reasons::
A sound equity position of the Group as of 31 •December 2013, net equity having increased by 29% in 2013 .
Positive operating income in the Group's two •main business segments (Note 5) .
Positive operating cash flow in 2013, amounting •to 16,345 thousand euro, over 10 million euro more than the previous year (6,319 thousand euro in 2012) .
Prospects and capacity for growth in the Bio- •pharmaceutical segment, considering that the Caelyx supply is back to normal in 2014, which should drive growth in Yondelis sales with respect to 2013, when it was fully available for only 8 months .
The Group's ability to renegotiate its debt if it is •considered necessary, which capacity has increased greatly because of the improvement in net debt in recent years .
The existence of unused credit lines .•
The existence of a large volume of past-due ac-•counts receivable from European public adminis-trations which can be discounted .
Prospects of an improvement in consumer spending •in Spain, which accounts for 46% of Group sales .
The following table shows an analysis of the Group's financial liabilities grouped by maturity based on the period remaining between the balance sheet date and the contractual maturity date, includ-ing 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 future interest, they are not comparable with the amount of financial debt, derivatives and supplier and other accounts payable recognized in the balance sheet .
83
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 2013, the Group had 15,321 thousand euro in unused credit lines (13,734 thousand euro as of 31 December 2012) .
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 .
39,221
4,052
0
22,364
2,062
67,699
Less than1 year
LIABILITIES ON BALANCE SHEET
Bank debt and other interest-bearing debt
Debt to official authorities
Derivatives
Suppliers / Accounts payable
Other accounts payable
31 December 2013(Thousand euro)
0
12,911
0
0
0
12,911
Over5 years
69,489
33,762
95
22,364
2,062
127,772
Total
24,763
4,209
0
0
0
28,972
1 to2 years
5,505
12,590
95
0
0
18,190
2 to5 years
51,922
4,803
0
23,782
1,921
82,428
Less than1 year
LIABILITIES ON BALANCE SHEET
Bank debt and other interest-bearing debt
Debt to official authorities
Derivatives
Suppliers / Accounts payable
Other accounts payable
31 December 2012(Thousand euro)
0
8,488
0
0
0
8,488
Over5 years
91,490
32,105
199
23,782
1,921
149,497
Total
21,118
5,728
0
0
0
26,846
1 to2 years
18,450
13,086
199
0
0
31,735
2 to5 years
84
The group monitors its capital on the basis of the leverage ratio . This is calculated as net debt di-vided by total capital . Net debt is calculated as total borrowings (including current and non-current bo-
rrowings, as shown in the balance sheet) less cash and cash equivalents and financial assets . Capital is calculated as net equity, per the consolidated finan-cial statements, plus net debt .
Long-term interest-bearing debt 53,036 62,215
Short-term interest-bearing debt 41,327 54,734
Cash and cash equivalents (22,458) (18,336)
Non-current and current financial assets (7,225) (18,877)
Equity 49,435 38,726
TOTAL CAPITAL 114,115 118,462
LEVERAGE 57% 67%
(Thousand euro) Balance at 31/12/13 Balance at 31/12/12
ASSETS
FINANCIAL ASSETS AT FAIRVALUE THROUGH PROFIT OR LOSS
- Term financial assets (Note 10)
AVAILABLE-FOR-SALEFINANCIAL ASSETS
- Equity securities, net (Note 10)
TOTAL ASSETS
LIABILITIES
LIABILITIES AT FAIR VALUETHROUGH PROFIT OR LOSS
- Trading derivatives (Note 14)
TOTAL LIABILITIES
31 December 2013 (Thousand euro)
26
14
40
0
0
Level 1
6,622
14
6,636
95
95
Total
4,486
0
4,486
95
95
Level 2
2,110
0
2,110
0
0
Level 3
The good trend in leverage is due basically to the reduction in interest-bearing debt coupled with the improvement 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 2013:
85
34
11
45
0
0
Level 1
ASSETS
FINANCIAL ASSETS AT FAIRVALUE THROUGH PROFIT OR LOSS
- Term financial assets (Note 10)
AVAILABLE-FOR-SALEFINANCIAL ASSETS
- Equity securities, net (Note 10)
TOTAL ASSETS
LIABILITIES
LIABILITIES AT FAIR VALUETHROUGH PROFIT OR LOSS
- Trading derivatives (Note 14)
TOTAL LIABILITIES
31 December 2012 (Thousand euro)
16,859
11
16,870
199
199
Total
14,617
0
14,617
199
199
Level 2
2,208
0
2,208
0
0
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 quo- ted 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 significant data items required to
measure an instrument's fair value are available, the instrument is classified as Level 2 .
If one or more of the significant data items is not based on observable market data, the instrument 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 2013:
BEGINNING BALANCE 2,208 1,926
Recognitions 500 310
Derecognitions -600 0
Reclassifications 8 -7
Gains and losses throughprofit or loss -6 -21
ENDING BALANCE 2,110 2,208
2013 2012
The table below presents the Group's assets and liabilities at fair value as of 31 December 2012:
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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, Pharma Mar, and
Ortho Biotech Products L .P . (OBP), a subsidiary of US group Johnson & Johnson . That agreement in-cludes certain payments to Pharma Mar, S .A .U ., in-cluding an upfront payment and certain milestone payments regarding the development of Yondelis® (the product covered by the agreement) . Those amounts (upfront and milestone payments), which are collected irrevocably once the corresponding dates and milestones are attained, are recognized initially as deferred revenues and then recognized as a revenue during the term of the contract signed with OBP, which includes two distinct phases: de-velopment and marketing . The upfront and mile-stone payments during the development phase are recognized as revenue based on the degree of development and the project's total estimated costs . As of 31 December 2013, the Group did not have any amounts pending 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 market-ing 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 a revenue in the year, since it was a milestone that was not linked to future performance (Note 33) . Subsequent payments correspond to the attain-ment of specific milestones linked to the develop-ment of Yondelis® and are recognized as revenues when they are attained .
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 2013 financial statements, Group Management re-estimated the projections of revenues and expenses for those subsidiaries . Conse-quently, as a result of recently measuring those com-panies 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 as-sets to recognize . No increase in net deferred tax as-sets was recognized in 2013 (an increase of 4,977 thousand euro in 2012) .
Net deferred tax assets amounted to 23,515 thousand euro (23,515 thousand euro in 2012) . 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 2013 and 2012, 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 impair-ment test every year since Group Management con-siders that they have an indefinite life . Those trade-marks were acquired in previous years and refer to chemical products, specifically cleaning products and insecticides, with a long-established presence in the market . The impairment test is based on discount-ing future cash flow using the appropriate discount rates, in line with industry practices . Future cash flow is based on company projections and, therefore, in-volves 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 2013 and 2012 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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88
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 2013 and 2012, 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 (Pharma Mar and its investees), the development and marketing of diagnosis kits (Genómica 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 2013 are as follows:
Consolidated income statement for the year 2013, including the impact of classifying one of the companies in the bi-
opharmaceutical segment (Noscira) as a discontinued operation in accordance with IFRS 5 .
Net revenue
Cost of sales
Other operating revenues /Other net gains
R&D expenses
Capitalizedin-house work
Other expenses
NET OPERATING INCOME
NET FINANCIAL INCOME
INCOME BEFORE TAXES
Income tax expense
INCOME FROM CONTINUINGOPERATIONS
DISCONTINUED OPERATIONS:INCOME FROMDISCONTINUED OPERATIONS
Attributable to equity-holdersof the parent company
Attributable tonon-controlling interests
INCOME FOR THE YEAR ATTRIBUTABLE TO:
Equity-holders of the parent company
Non-controlling interests
(Thousand euro)
61,876
(32,810)
276
(234)
0
(26,462)
2,646
(758)
1,888
(880)
1,008
0
0
0
1,010
1,010
0
Consumerchemicals
79,111
(4,516)
21,348
(42,483)
4,382
(35,027)
22,815
(3,230)
19,585
(4,144)
15,441
(708)
(519)
(189)
14,731
14,920
(189)
Biopharmaceuticals
141,824
(37,900)
22,858
(42,717)
4,382
(69,491)
18,956
(5,155)
13,801
(1,960)
11,841
(708)
(519)
(189)
11,133
11,322
(189)
Group
837
(574)
1,234
0
0
(8,002)
(6,505)
(1,167)
(7,672)
3,064
(4,608)
0
0
0
(4,608)
(4,608)
0
Unallocated
(Thousand euro)Consumer
chemicalBiopharmaceuticals 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 classified as 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
89
90
Net revenue
Cost of sales
Other operating revenues /Other net gains
R&D expenses
Capitalizedin-house work
Other expenses
NET OPERATING INCOME
NET FINANCIAL INCOME
INCOME BEFORE TAXES
Income tax expense
INCOME FROMCONTINUING OPERATIONS
DISCONTINUED OPERATIONS:INCOME FROMDISCONTINUED OPERATIONS
Attributable to equity-holdersof the parent company
Attributable tonon-controlling interests
INCOME FOR THE YEAR ATTRIBUTABLE TO:
Equity-holders of the parent company
Minority interest
(Thousand euro)
64,786
(34,557)
7
(9)
0
(26,531)
3,696
(950)
2,746
(1,088)
1,658
0
0
0
1,659
1,659
0
Consumerchemicals
72,391
(4,510)
23,536
(40,390)
3,403
(35,936)
18,494
(2,884)
15,610
7,402
23,012
(10,749)
(7,881)
(2,868)
12,263
15,131
(2,868)
Biopharmaceuticals
138,229
(39,793)
23,549
(40,399)
3,403
(70,422)
14,567
(5,141)
9,426
5,048
14,474
(10,749)
(7,881)
(2,868)
3,725
6,593
(2,868)
Group
1,052
(726)
6
0
0
(7,955)
(7,623)
(1,307)
(8,930)
(1,266)
(10,196)
0
0
0
(10,197)(10,197)
0
Unallocated
(Thousand euro)Consumerchemicals
Biopharmaceuticals GroupUnallocated
Non-current assets 62,856 22,522 7,570 92,948
Current assets 53,752 37,006 15,673 106,431
Disposable group assets classified as available for sale
451 0 0 451
Non-current liabilities 62,357 6,999 4,393 73,749
Current liabilities 54,476 12,114 20,765 87,355
Investment in fixed assets 4,472 714 350 5,536
The segments' income, assets and liabilities in the year ended 31 December 2012 are as follows:
Consolidated income statement for the year 2012, including the impact of classifying one of the companies in the bio-
pharmaceutical segment (Noscira) as discontinued operations in accordance with IFRS 5 .
91
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 2013 and 2012 was concen-trated in Spain .
Group net revenues totalled 141,824 thousand euro in 2013, 2 .6% more than in 2012 (138,229 thousand euro) .
Revenues in the Biopharmaceutical business amounted to 79,111 thousand euro (72,391 thou-sand euro in 2012): 72,920 thousand euro at Phar-maMar from Yondelis sales (66,185 thousand euro in 2012), and 6,191 thousand euro at Genómica (6,206 thousand euro in 2012) . This sector accounted for 55 .78% of Group net revenues (52 .37% in 2012) .
Revenues of companies in the consumer chemical sector amounted to 61,876 thousand euro (64,786 thousand euro in 2012), of which 47,286 thousand euro correspond to the insecticides/home care divi-
sion (49,095 thousand euro in 2012) and 14,590 thousand euro to the wood treatment/paint division (15,691 thousand euro in 2012) . Those companies accounted for 43 .63% of the Group's revenues in 2013 (46 .87% in 2012) .
Other operating revenues, amounting to 22,858 thousand euro (23,549 thousand euro in 2012), refer mainly to payments for attaining milestones under the agreement with Janssen Pharmaceuti-cals, LP in connection with a new plan of action to reinforce the development of Yondelis® in the US (Note 33), which amounted to 19 million dollars in both 2013 and 2012, plus royalties on sales of the drug outside of the European Union and subsidies for R&D from public authorities in Spain and else-where in Europe .
R&D expenditure increased by 5 .74% year-on-year . A total of 42,717 thousand euro was spent on research and development in 2013 (40,399 thousand euro in 2012), broken down as follows:
(Thousand euro)
Spain 64,852 67,055
Rest of the European Union 70,548 65,513
United States and rest of the world 6,424 5,661
141,824 138,229
2013 2012Net revenues
(Thousand euro)
Spain 56,843 54,938
Rest of the European Union 686 614
57,529 55,552
2013 2012
Non-current assets
In 2013 and 2012, there were no material trans-actions between segments and no goodwill impair-ment losses were recognized .
In 2013 and 2012, the Group recognized losses due to impairment of inventories and trade accounts receivable amounting, respectively, to 270 thousand euro and 228 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 .5% of total sales in 2013 (95 .9% in 2012) .
The following tables show net revenues and non-current assets (property, plant and equipment, and intangible assets) of the Group, by geographical area:
PharmaMar 36,493 thousand euro (34,807 thou-sand in 2012), Sylentis 4,794 thousand euro (4,045 thousand euro in 2012), Genómica 1,197 thousand euro (1,538 thousand in 2012), Zelnova 121 thou-sand euro (9 thousand euro in 2012), and Xylazel 112 thousand euro .
Marketing and commercial expenses amounted to 41,251 thousand euro in 2013 (40,865 thousand euro in 2012), a 0 .9% increase . The breakdown by segment is as follows: Within the biopharmaceu-tical segment, expenditure in 2012 amounted to 22,426 thousand euro (21,641 thousand euro in 2012), of which 20,974 thousand euro correspond to PharmaMar (20,280 thousand euro in 2012) and
1,452 thousand euro relate to Genómica (1,361 thousand euro in 2012) . Expenditure in the con-sumer chemical segment in 2013 amounted to 18,803 thousand euro (19,203 thousand euro in 2012), of which 14,846 thousand euro correspond to the insecticides/home care division (15,003 thousand euro in 2012) and 3,957 thousand euro to the wood treatment/paint division (4,200 thou-sand euro in 2012) .
Income for the year from discontinued opera-tions in 2013 refers to the activities that the Group discontinued in the year, amounting to 708 thou-sand euro (10,749 thousand euro in 2012) . See Note 19 .
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93
6. Property, plant and equipment The breakdown of, and changes in, this caption in 2013 and 2012 are as follows:
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 and amortization (46,298) (2,812) 34 537 (48,539)
PROPERTY, PLANT AND EQUIPMENT 29,794 (1,124) 14 (725) 27,959
Balance at31/12/13
Balance at31/12/12
Recognitions Derecognitions Reclassificationsand transfers
Thousand euro
Land and structures 27,380 2 0 0 27,382
Technical installations and machinery 28,264 826 (835) (2,799) 25,456
Other installations, tools and furniture 17,321 88 0 (816) 16,593
Advances & construction in progress 95 219 0 (146) 168
Other property, plant & equipment 6,404 386 (187) (110) 6,493
Provisions 0 (500) 0 500 0
Cost 79,464 1,021 (1,022) (3,371) 76,092
Structures (6,885) (637) 0 0 (7,522)
Technical installations and machinery (19,727) (1,955) 624 2,240 (18,818)
Other installations, tools and furniture (14,521) (1,459) 0 715 (15,265)
Other property, plant & equipment (4,469) (437) 88 125 (4,693)
Accumulated depreciation and amortization (45,602) (4,488) 712 3,080 (46,298)
PROPERTY, PLANT AND EQUIPMENT 33,862 (3,467) (310) (291) 29,794
Balance at31/12/12
Balance at31/12/11
Recognitions Derecognitions Reclassificationsand transfers
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 .
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 2,812 thousand euro depreciation charge (4,488 thousand euro in 2012) includes cost of goods sold amounting to 766 thousand euro (866 thou-sand euro in 2012), marketing expenses amounting to 295 thousand euro (323 thousand euro in 2012), administration expenses amounting to 602 thousand euro (1,058 thousand euro in 2012), research and development expenses amounting to 1,087 thou-sand euro (1,863 thousand euro in 2012), and other operating expenses amounting to 62 thousand euro (67 thousand euro in 2012) .
Of the additions in 2012, approximately 73% were basically acquisitions of plant by the biophar-maceutical companies; the remainder were in the consumer chemical segment; derecognitions in the year were mainly in the biopharmaceutical segment . As a result of the process commenced at the end of 2012 to liquidate Noscira, its property, plant and equipment were reclassified as available for sale . Be-fore that reclassification, a provision for impairment amounting to 500 thousand euro was recognized for that property, plant and equipment (Note 19) . An-other Group company recognized 66 thousand euro in impairment on machinery .
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 Act 7/1996, dated 7 June; the com-pany applied 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 carrying amount of 296 thousand euro in 2013 (zero euro in 2012) .
94
95
One building is collateral for one of the bank loans . It is a building owned by Pharma Mar (biopharmaceuti-cal segment) in Colmenar Viejo, Madrid province, with a net carrying amount of 11,673 thousand euro as of 31 December 2013 (12,161 thousand euro in 2012) . The initial amount of the loan, arranged in 2002, was 12,600 thousand euro . The loan matures in 2015 and initially had a 3-year grace period . As of 31 December 2013, the unamortized balance of the loan amounted to 2,608 thousand euro (4,029 thousand euro in 2012) .
7. Investment property
The changes in this item in 2013 are due to re-classification of 966 thousand euro from land and structures corresponding to the building
owned by the Group where Noscira carried on its activities until it was liquidated . At 31 December 2013, the Group had not decided what use to put this building to .
96
In 2013, 4,382 thousand euro of R&D expenses were capitalized (3,507 thousand euro in 2012) cor-responding to the following trials:
Multi-centre Phase II clinical trial with Yondelis• ®, whose endpoint is to determine the efficacy of trabectedin+doxorubicin as a first-line treatment
in patients with inoperable metastatic (uterine or soft tissue) leiomyosarcoma .
Multi-centre international randomized Phase IIb/•III clinical trial with Yondelis®, whose endpoint is to compare the efficiency of trabectedin admin-istered in 3h or 24h infusions with doxorubicin in
8. Intangible assets The breakdown of, and changes in, this caption in 2013 and 2012 are as follows:
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 software (3,806) (382) 388 (144) (3,944)
Accumulated depreciation and amortization (5,694) (1,779) 388 15 (7,070)
INTANGIBLE ASSETS 19,744 2,948 0 (102) 22,590
Balance at31/12/13
Balance at31/12/12
Recognitions DerecognitionsReclassifications
and transfersThousand euro
Reclassificationsand transfers
Balance at31/12/12
RecognitionsBalance at
31/12/11Thousand euro
R&D expenses 6,060 3,507 0 9,567
Concessions, patents & trade marks 10,882 0 (102) 10,780
Computer software 4,795 491 (233) 5,053
Advances on intangible assets 102 17 (81) 38
Provisions 0 (19) 19 0
Cost 21,839 3,996 (397) 25,438
R&D expenses (426) (761) 0 (1,187)
Concessions, patents & trade marks (449) (193) 85 (557)
Transfer rights 0 (144) 0 (144)
Computer software (3,640) (320) 154 (3,806)
Accumulated depreciation and amortization (4,515) (1,418) 239 (5,694)
INTANGIBLE ASSETS 17,324 2,578 (158) 19,744
patients with advanced or metastatic soft tissue sarcoma that have not been previously treated .
Multi-centre Phase I dose scaling trial to evaluate •the efficacy of the combination of gemcitabine and trabectedin in patients with metastatic and/or advanced leiomyosarcoma or liposarcoma .
Observational multi-centre trial with Yondelis• ® in patients with advanced soft tissue sarcoma where anthracyclines and/or ifosfamide have failed or who are unable to be treated with those drugs . This trial was required by the Dutch authorities for reimbursement .
Prospective multi-centre observational trial with •Yondelis® to assess the therapeutic analysis meth-ods used in standard clinical practice in patients with advanced soft tissue sarcoma treated with trabectedin in accordance with the posology ap-proved for that drug .
International multi-centre randomized Phase III •clinical trial with Yondelis® to compare the com-bination of trabectedin + pegylated liposomal doxorubicin (PLD) with the combination of car-boplatin + PLD in patients with partially platinum sensitive recidivist ovarian cancer (progression-free interval of 6-12 months) .
Phase II trial with Yondelis• ® to assess the efficacy of trabectedin on patients with advanced ovarian cancer who have the BRCA1 or BRCA2 mutations or the BRCAness phenotype .
Phase II clinical trial to assess trabectedin's activity •in malignant biphasic or sarcomatoid pleural mes-othelioma patients who are either chemotherapy naïve or pretreated .
Observational multi-centre open trial with •Yondelis®+PLD in platinum-sensitive patients with relapsed ovarian cancer .
There are no signs of impairment in the capital-ized R&D expenses as of 31 December 2013 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 .
Since the Group chose to prepare the income statement by function, the amortisation charge for
intangible assets is distributed as follows: 1,779 thou-sand euro in depreciation charges (1,488 thousand euro in 2012), administration expenses amounting to 116 thousand euro (576 thousand euro in 2012), research and development expenses amounting to 1,515 thousand euro (649 thousand euro in 2012), other operating expenses amounting to 148 thou-sand euro (144 thousand euro in 2012) and cost of goods sold (10 thousand euro in 2012) .
Trademarks comprise practically the entire bal-ance of this caption . They are trademarks belong-ing to one of the consumer chemical companies that were acquired from third parties . They are meas-ured at the price paid on acquisition (in 1994 and 2003, fundamentally) 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 carry-ing amount of the brands in assets is currently 9,786 thousand euro . The impairment test is based on pro-jected future revenues of the cash-generative unit comprising Zelnova and Copy, given the enormous synergy between those two companies' businesses . The impairment test assumes a gross margin of 53-58% (52-60% in 2012), an annual growth rate of 3% (the same as in 2012), and a discount rate of 9% (the same as in 2012) . Assuming a gross mar-gin of between 22 .5% and 25% (23-26% in 2012), 0% annual growth (the same as in 2012) and a 9% discount rate (the same as in 2012), and considering only the cash flows in the first five years, the recover-able 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 12,310 thousand euro in revenues in 2013 (13,366 thousand euro in 2011) and 213 thousand euro in income, net of taxes in 2013 (321 thousand euro in 2012) . The business of the acquired company, which is very similar to that of Zelnova, consists of selling automatic aero-sol dispensers, air fresheners and insecticides, and treatments for ecological agriculture . The factors contributing to the cost of the transaction, which led to the recognition of goodwill, include the pos-sibility of taking advantage 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 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 as of 31 December . The impairment test was conducted jointly with the brands, using the assumptions and sensitivity analysis described in Note 8 .
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10. Financial instruments by category The accounting policies with respect to finan-cial instruments were applied to the items de-tailed below:
Loans andaccounts
receivable /payable
ASSETS ON BALANCE SHEET
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/liabilitiesat fair value
through profitor loss
Available-for-sale
assets
101
Loans andaccounts
receivable / payable
ASSETS ON BALANCE SHEET
Non-current financial assets
Held for trading (Note 13) 0 2,216 0 2,216
Available for sale (Note 12) 0 0 11 11
Accounts receivable 558 0 0 558
Current financial assets
Customer receivables (Note 15) 41,153 0 0 41,153
Accounts receivable (Note 15) 730 0 0 730
Supplier advances (Note 15) 73 0 0 73
Current financial assets (Note 13) 1,441 14,651 0 16,092
Cash and cash equivalents (Note 18) 18,336 0 0 18,336
62,291 16,867 11 79,169
LIABILITIES ON BALANCE SHEET
Non-current borrowings (Note 26) 62,016 0 0 62,016
Current borrowings (Note 26) 54,734 0 0 54,734
Supplier and other accounts payable (Note 23) 25,703 0 0 25,703
Derivatives (Note 14) 0 199 0 199
142,453 199 0 142,652
31 December 2012(Thousand euro)
Total
Assets/liabilitiesat fair
value throughprofit or loss
Available-for-sale
assets
102
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 1 429 613
Group 2 36,515 39,883
Group 3 889 657
Total accounts receivable 37,833 41,153
Cash and cash equivalents plus non-currentand current financial assets:
BBB+ 0 1,668
Moody's rating
A2 647 249
A3 0 13
Aa1 0 728
Aa2 0 1,308
B1 2 0
Ba1 17,993 24,993
Ba2 29 909
Ba3 7,242 0
Baa1 3 4
Baa2 180 811
Baa3 1,459 3,003
BBB+ 740 1,314
B3 54 0
B1u 4 0
Unrated 1,330 2,213
29,683 37,213
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,
2013 2012
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: 14 thousand euro (11 thousand euro in 2012) .
Marking these securities to market in 2013 on the basis of their official quoted prices led to a posi-tive change of 2 thousand euro (no change in 2012) in other comprehensive income .
13. Financial assets at fair value through profit or loss
(Thousand euro)
NON-CURRENT
Unlisted financial assets 320 2,216
320 2,216
CURRENT
Unlisted financial assets 5,486 14,617
Listed financial assets 816 34
6,302 14,651
Balance at31/12/13
Balance at31/12/12
STARTING DATE
8 July 2011 5,000,000 8 July 2016 7.90% euribor 180 + Quarterly 95 199
5%
2013FrequencyNotionalamount
Maturitydate
Fixedinterest rate
Floatinginterest rate 2012
Fair value at 31 December
Unlisted current financial assets at fair value through profit or loss as of 31 December 2013 included mainly government bonds
yielding between 0 .75% and 1 .25% (1 .18–3 .54% in 2012) and fixed-term bank deposits with a yield of between 1% and 1 .49% (2 .16-2 .85% in 2012) maturing between January and April .
14. Derivative financial instruments
One of the floating-rate contracts has an as-sociated derivative financial instrument to hedge interest rate risk, with the character-
istics shown in the table below (Note 3 .1 .iii):
The Group's hedge does not qualify for hedge ac-counting . There were no exchange rate hedge con-tracts as of 31 December 2013 or 2012 .In 2013, that derivative generated a gain of 104 thousand euro (a loss of 22 thousand euro in 2012) in financial income (Note 36) .
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104
15. Customer and other accounts receivable
(Thousand euro)
Customer receivables for sales and services 39,392 42,481
Provisions (1,559) (1,328)
Net 37,833 41,153
Other receivables 717 730
Supplier advances 80 73
TOTAL 38,630 41,956
Balance at31/12/13
Balance at31/12/12
(Thousand euro)
3-6 months 4,656 5,155
Over 6 months 6,063 11,655
TOTAL 10,719 16,810
Balance at31/12/13
Balance at31/12/12
(Thousand euro)
3-6 months 0 132
Over 6 months 270 96
TOTAL 270 228
Balance at31/12/13
Balance at31/12/12
Customer receivables discounted with credit in-stitutions totalled 1,836 thousand euro as of 31 De-cember 2013 (3,942 thousand euro in 2012) . Those discounts were recognized as secured loans since the Group retains the default and late payment risk .
As of 31 December 2013, accounts receivable amounting to 10,719 thousand euro were past due (16,810 thousand euro in 2012), 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 provi-sioned as of 31 December 2013 and 2012 since they had not suffered impairment losses 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 National 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 in other countries is not more than one year .
The other amounts relate to a number of inde-pendent customers in the consumer chemicals seg-ment with no recent bad debt history .
As of 31 December 2013, an impairment loss on accounts receivable was recognized amounting to 270 thousand euro (228 thousand euro in 2012) . The age and movements of those accounts is as fol-lows (thousand euro):
The detail of this caption as of 31 December 2013 and 2012 is as follows:
105
In 2013, no impairment was recognized on receiva-bles between three and six months past-due (132 thou-sand euro in 2012), while 270 thousand euro were over six months past-due (96 thousand euro in 2012) . Ad-
ditionally, 71 thousand euro in allowances recognized in prior years in the consumer chemicals segment were reversed (646 thousand euro in 2012) and 32 thousand euro were reclassified as uncollectable .
(Thousand euro)
BEGINNING BALANCE (1,328) (1,746)
Provision (270) (228)
Reversal 71 646
Bad debts (32) 0
ENDING BALANCE (1,559) (1,328)
Saldo al31/12/13
Saldo al31/12/12
Euro 38,389 41,610
Other currencies 241 346
TOTAL 38,630 41,956
Balance at31/12/13
Balance at31/12/12
Balance at31/12/13
Balance at31/12/12(Thousand euro)
Spain 3,406 7,826
Austria 448 226
Belgium 301 279
France 676 1,056
Germany 1,157 905
United Kingdom 143 334
The Netherlands 78 112
Monaco 4 7
Ireland 0 4
Italy 7,728 8,360
Luxembourg 90 43
Portugal 977 857
TOTAL 15,008 20,009
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 2013 and 2012 of receivables from public authorities for sales and services, by geography, is as follows:
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As of 31 December 2013, the credit rating of the accounts receivable from public authorities, by geography, is as follows:
Financialrating
Balance at31/12/13(Thousand euro)
Andalusia Ba2 568
Madrid Baa3 623
Valencia B1 273
Basque Country Baa2 10
Castilla la Mancha Ba3 343
Galicia Baa3 137
Murcia Ba3 74
Catalonia Ba3 558
Aragon BBB- 169
Canary Islands BBB- 201
Balearic Islands BBB- 84
Asturias BBB 16
Extremadura Ba1 49
Cantabria BBB 66
Castilla y León Baa3 215
Navarra BBB+ 20
Austria Aaa 448
Belgium Aa3 301
France Aa1 676
Germany Aaa 1,157
United Kingdom Aaa 143
The Netherlands Aaa 78
Monaco N/D 4
Ireland Ba1 0
Italy BBB 7,728
Luxembourg A3 90
Portugal Ba3 977
Others ----- 0
TOTAL 15,008
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As of 31 December 2012, the credit rating of the accounts receivable from public authorities, by geography, is as follows:
Financialrating
Balance at31/12/12(Thousand euro)
Andalusia Ba2 2,118
Madrid Baa3 1,463
Valencia B1 795
Basque Country Baa2 29
Castilla la Mancha Ba3 419
Galicia Baa3 505
Murcia Ba3 254
Catalonia Ba3 473
Aragon BBB- 452
Canary Islands BBB- 156
Balearic Islands BBB- 197
Asturias BBB 14
Extremadura Ba1 149
Cantabria BBB 285
Castilla y León Baa3 478
Navarra BBB+ 10
Austria Aaa 226
Belgium Aa3 279
France Aa1 1,056
Germany Aaa 905
United Kingdom Aaa 334
The Netherlands Aaa 112
Monaco N/D 7
Ireland Ba1 4
Italy BBB 8,360
Luxembourg A+ 43
Portugal Ba3 857
Others ----- 29
TOTAL 20,009
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 .
In 2013, the Company collected 5,300 thou-sand euro of debt owed by various public admin-
istrations which was past-due at 31 December 2012 by arranging non-recourse factoring con-tracts with financial institutions . Accounts receiv-able that were past-due as of 31 December 2011 amounting to 7,500 thousand euro were collected in 2012 under the "Supplier Plan" implemented by the Government .
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17. Inventories
The Group classifies inventories as follows:
(Thousand euro)
Prepaid expenses 693 864
Balances with public administrations 1,658 1,864
TOTAL 2,351 2,728
Balance at31/12/13
Balance at31/12/12
Balance at31/12/13
Balance at31/12/12(Thousand euro)
VAT 1,645 1,828
Others 13 36
TOTAL 1,658 1,864
Balance at31/12/13
Balance at31/12/12(Thousand euro)
Trade inventories 643 428
Raw materials and other supplies used 3,653 3,457
Semi-finished products and products in process 10,235 11,870
Finished products 7,533 7,597
By-products, residues and recovered materials 168 150
TOTAL 22,232 23,502
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 amounts to 28,943 thousand euro in 2013 (29,305 thousand euro in 2012) .
No material impairment losses were recorded for inventories in 2013 and 2012 .
No inventories have been committed as collat-eral 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 2013 and 2012 is as follows:
The detail of the balance with public authorities as of 31 December 2013 and 2012 is as follows:
The "current tax assets" item refers to corporate income tax receivable amounting to 3,847 thousand
euro as of 31 December 2013 (3,817 thousand euro as of 31 December 2012) .
109
18. Cash and cash equivalents
This caption contains the following amounts, which include mainly investments in government bonds, deposits and other types of investments, such as
bank commercial paper with a maturity of not more than 3 months between the acquisition date and maturity .
Cash on hand and at bank 5,980 10,116
Cash equivalents 16,478 8,220
TOTAL 22,458 18,336
Balance at31/12/13
Balance at31/12/12
2013 2012
Property, plant and equipment 4 418
Intangible assets 0 33
TOTAL 4 451
Cash equivalents as of 31 December 2013 in-clude mainly investments in bank commercial pa-per yielding between 0 .97% and 1 .25% (between 1 .18% and 3 .54% in 2012) and fixed-term deposits yielding between 1% and 1 .25% (between 2 .16%
and 2 .85% in 2012) maturing between January and March 2014 .
There were no bank overdrafts at the closing date .
19. Non-current assets classified as available for sale and discontinued activities
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, Accounting Policies, in the consolidated balance sheet, the property,
plant and equipment and intangible assets of Noscira were recognized as assets available for sale amounting to 4 thousand euro (451 thou-sand euro in 2012) . The other assets and liabili-ties are recognized under their corresponding category . That amount is detailed in the follow-ing table .
110
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 .
2013 2012
0 (1,533)
8 25
(208) (3,867)
(442) (6,464)
0 (350)
19 2,243
0 (519)
94 0
(529) (10,465)
20 29
(200) (302)
1 (10)
0 (1)
(179) (284)
(708) (10,749)
0 0
(708) (10,749)
Purchases
Other operating revenues
Personnel expenses
Other operating expenses
Depreciation and amortization
Recognition of subsidies for non-financial assets and other
Impairment losses and income from disposal of fixed assets
Other income
OPERATING INCOME
Financial revenues
Financial expenses
Exchange differences
Impairment losses and income from disposal of financial instruments
FINANCIAL INCOME
INCOME BEFORE TAXES
Income tax
(Loss)/Income before taxes from discontinued operations
2013 2012
(1,241) (12,392)
0 (2)
(528) 12,904
(1,769) 510
Operating cash flow
Investing cash flow
Financing cash flow
TOTAL CASH FLOW
Before the reclassification as assets available for sale, in 2012 the Company recognized 519 thou-sand euro in impairment of the property, plant and equipment and intangible assets .
The consolidated cash flow statement contains the amounts relating to Noscira as if it had not been dis-continued . The following table details the cash flow statement for the discontinued activity separately .
111
20. Capital The changes in the capital, share premium and own shares accounts in 2013 and 2012 are as follows:
Thousand euro/Shares No. of sharesOwn
sharesShare
premiumOrdinary
shares
BALANCE AT 1 JANUARY 2012 221,166 11,110 323,286 (6,872)
Own shares sold 117 0 0 570
Own shares purchased (1,178) 0 0 (1,584)
Share ownership plans 268 1,552
BALANCE AT 1 JANUARY 2013 220,373 11,110 323,286 (6,334)
Own shares sold 101 0 0 334
Own shares purchased (439) 0 0 (701)
Share ownership plans 207 0 0 672
BALANCE AT 31 DECEMBER 2013 220,242 11,110 323,286 (6,029)
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 2013, the Company's capi-tal amounted to 11,110 thousand euro (11,110 thousand euro in 2012) and was represented by 222,204,887 bearer shares (222,204,887 shares as of 31 December 2012), with a par value of 0 .05 euro per share, in both 2013 and 2012 . 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 as of 31 De-cember 2013 was 220,242 thousand (220,373 thou-sand in 2012) . The reduction in the capital and share premium as a result of the shares treated as not
outstanding is reflected in the own shares account . As of 31 December 2013, the controlling company held 1,963 thousand own shares (1,832 in 2012), of which 685 thousand were for acquisition by employ-ees under incentive plans (644 thousand in 2012) (Note 39) .
In 2013, the Group acquired 439 thousand own shares (1,178 thousand in 2012) for 701 thousand euro (1,584 thousand euro in 2012), and it retired 101 thousand euro own shares at a loss of 193 thou-sand euro (417 thousand euro in 2012) . Also, a to-tal of 217 thousand own shares vested under stock ownership plans in 2013 (268 thousand in 2012) for an amount of 699 thousand euro (2,122 thousand euro in 2012) .
According to information in the official registers of the National Securities Market Commission as of 31 December 2013, holders of significant stakes in Zeltia, S .A ., either directly or indirectly, amounting to over 10% are as follows:
(1) Indirect stake held through his spouse, Ms Montserrat Andrade Detrell .
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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 2013, restricted retained earnings amounted to 9,252 thousand euro (8,273 thousand euro in 2012), including legal reserves at Zeltia, S .A . and subsidiaries .
The proposed distribution of 2013 income and other reserves to be submitted to the Shareholders' Meeting for approval, and the distribution approved for 2012, are as follows:
Thousand euro 2013 2012
BASIS OF DISTRIBUTION
Income for the year 2,033 (45,860)
2,033 (45,860)
DISTRIBUTION
Prior years' losses 0 (45,860)
Offset of prior years' losses 2,033 0
2,033 (45,860)
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 restric-tions are based on the amounts presented by the Company in its separate financial statements drafted under Spanish GAAP .
22. Minority interests
There were no changes in 2013 in the non-con-trolling interests at Noscira, the only Group com-pany in which there are minority shareholders .
Noscira increased capital twice in 2012 . In the first transaction, a total of 8,230,333 new shares were is-sued, of which 1,226,131 were acquired by third parties .
Zeltia acquired the other 7,004,202 shares, increasing its stake in Noscira by 7 .13%, to 70 .8% . In the second transaction, a total of 2,865,924 new shares were issued, of which 141,914 were acquired by third parties . Zeltia acquired the other 2,724,010 shares, raising its stake in Noscira by 2 .52% to 73 .32% .
The changes in non-controlling interests in 2013 and 2012 are as follows:
(Thousand euro) Non-controlling interest
BALANCE AT 1 JANUARY 2012 (5,051)
Capital increase 1,368
Increase in controlling interest 2,947
2012 income (2,868)
BALANCE AT 1 JANUARY 2013 (3,604)
2013 income (189)
BALANCE AT 31 DECEMBER 2013 (3,793)
Noscira reported a net loss of 708 thousand euro in 2013 (10,749 thousand euro in 2012), of which 189 thousand euro corresponded to non-controlling interests (2,868 thousand euro in 2012), 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 at31/12/13
Balance at31/12/12(Thousand euro)
Payable for purchases and services received 22,364 23,782
Debts to related parties 946 929
Advances received for orders 660 660
Other accounts payable 456 332
TOTAL 24,426 25,703
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 (852 thousand euro as of 31 De-
cember 2013, 836 thousand euro as of 31 December 2012), and accrued outstanding allocations to direc-tors of Genómica and Noscira who are also directors of Zeltia (20 thousand euro and 74 thousand euro, re-spectively, as of 31 December 2013, and 20 thousand euro and 73 thousand euro, respectively, in 2012) .
113
114
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, modifying Act 3/2004, of 29 December, which
establishes measures to combat late payment in commercial transactions, it is disclosed that the payments made in 2013 and 2012 and those out-standing at 31 December 2013 corresponding to the year then ended are as follows:
Balance at 31/12/2013
Amount %
Balance at 31/12/2012
Amount %(Thousand euro)
Within the maximum legal period 68,307 79,12% 85,973 83,48%
Remainder 18,029 20,88% 17,014 16,52%
Total payments in the year 86,336 100% 102,987 100%
Weighted average delay in payment (days) 19 11
Deferrals in excess of the legal
limit on the closing date 1,440 810
24. Deferred revenues
The breakdown as of 31 December 2013 and 2012 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 bio- pharmaceutical segment . The directors consider that all the conditions for their recognition have been ful-filled .
(Thousand euro)
Balance at31/12/13
Balance at31/12/12
Capital subsidies 3,166 2,472
TOTAL 3,166 2,472
(Thousand euro)Balance at
31/12/13Balance at
31/12/12
Capital subsidies 18 27
Other deferred revenues 7 6
TOTAL 25 33
Current deferred revenues refer to the short-term part of the aforementioned subsidies:
The foregoing disclosure refers only to companies domiciled in Spain .
115
25. Other non-current and current liabilities
Other non-current liabilities, amounting to 644 thousand euro (514 thousand euro in 2012) include retirement benefit obligations
as well as deposits and sureties received . Retirement benefit obligations amounted to 425 thousand euro (414 thousand euro in 2012) .
Other current liabilities, amounting to 2,798 thou-sand euro (1,878 thousand euro in 2012), refer basi-cally to balances owed to public authorities for per-sonal income tax withholdings amounting to 1,123 thousand euro (1,166 thousand euro in 2012), social security contributions amounting to 667 thousand euro (606 thousand euro in 2012), other balances with public authorities amounting to 22 thousand euro (3 thousand euro), and 986 thousand euro (101 thousand euro in 2012) corresponding to group sub-sidiaries domiciled elsewhere in the European Union .
(Thousand euro)
Balance at31/12/13
Balance at31/12/12
Bank loans 25,151 38,018
Interest-bearing debt to official authorities 23,790 23,998
Other interest-bearing debt 4,000 0
TOTAL 52,941 62,016
(Thousand euro)
Balance at31/12/13
Balance at31/12/12
Bank loans 36,528 41,976
Interest-bearing debt to official authorities 3,992 4,756
Other interest-bearing debt 807 8,002
TOTAL 41,327 54,734
The breakdown of the Group's non-current and current interest-bearing debt as of 31 Decem-ber 2013 and 2012 is as follows:
Breakdown of non-current interest-bearing debt:
26. Interest-bearing debt
Breakdown of current interest-bearing debt:
116
a) Bank debt
All non-current bank debt is in the form of bank loans . As of 31 December 2013, this item included the long-term unmatured balances of two loans granted to Zeltia amounting to 2,363 and 524 thousand euro at this date 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 thousand euro maturing in 2015 (referred to in Note 6) . Genómica 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 .
Zeltia has also classified as non-current, under Other 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 .
Current bank debt is composed of bank loans, the balance drawn against credit lines, and discounted bills . As of 31 December 2013, this balance of 3,038 thousand euro consisted of the short-term com-ponent 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 has the following ma-turities: loans amounting to 18,507 thousand euro, credit lines amounting to 7,382 thousand euro, dis-counted bills amounting to 1,439 thousand euro, and other balances with banks amounting to 977 thousand euro . Genómica has the following maturi-ties 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 2013, credit lines against which it has drawn 1,495 thousand euro, and oth-er balances with banks amounting to 53 thousand euro . Xylazel has discounted bills amounting to 397 thousand euro and other balances with banks amounting to 30 thousand euro . Noscira has a loan for 11 thousand euro maturing in 2013 .
Of the loan obtained by PharmaMar for an origi-nal 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 Decem-
ber 2012), with a three-year grace period, 23,225 thousand euro are outstanding, of which 12,515 thousand euro are classified under non-current liabili-ties (23,225 thousand euro as of 31 December 2012) and 10,710 under current liabilities (8,925 thousand euro as of 31 December 2012) . The loan was grant-ed 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 2013, the amount outstanding to EIB was 13,935 thousand euro (19,290 thousand euro as of 31 December 2012) and the amount outstanding to ICO was 9,290 thousand euro (12,860 thousand euro as of 31 December 2012) .
That loan is subject to compliance by the Group and Xylazel with specific ratios (EBITDA, EBIT/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 De-cember 2013, and a waiver had been obtained from the lenders . Also, as a result of failing to attain the ratios, Xylazel, S .A . will not make any distribution out of 2013 income .
As noted above, in 2012 the terms of the loan were amended; the repayment calendar was brought forward one year and the overall interest rate was increased by 2 .5% . The change in the conditions of that financial instrument led to a 3 .58% change in the present value of future cash flows between the new and old contracts . The renegotiation was treat-ed for accounting purposes as a continuation of the initial financial instrument .
As of 31 December 2012 and as a result of no-vation dated 11 December 2012, the application of financial ratios was suspended until 31 December 2013 and Xylazel, S .A . was authorized to make dis-tributions up to that date .
The EIB/ICO loan is subject to a clause on change of control in the event of a takeover bid .
As of 31 December 2012, the balance of non-current debts included the long-term unmatured bal-ances of a loan granted to Zeltia amounting to 3,856 thousand euro and maturing in 2016 . PharmaMar has been granted a loan jointly by the European In-vestment Bank (13,935 thousand euro) and Instituto de Crédito Oficial (9,290 thousand euro) that ma-
117
tures in 2016; seven loans by a number of institutions that total 5,246 thousand euro, maturing between 2014 and 2015; and a mortgage loan amounting to 2,608 thousand euro maturing in 2015 (referred to in Note 6) . Genómica has received a loan amounting to 115 thousand euro maturing in 2017 . Zelnova has received a loan for 2,955 thousand euro maturing in 2016 . Noscira has a loan for 14 thousand euro maturing in 2014 .
Current debt to credit institutions as of 31 De-cember 2012 included a balance of 7,786 thousand euro, i .e . the short-term component of the nine loans granted to Zeltia plus the amount drawn against credit lines (2,529 thousand euro) . In 2013, PharmaMar had the following maturities: loans amounting to 15,523 thousand euro, credit lines amounting to 9,389 thou-sand euro, and discounted bills amounting to 2,049 thousand euro . Genómica had the following maturi-ties in 2013: loans amounting to 60 thousand euro and discounted bills amounting to 337 thousand euro . Zelnova had a loan amounting to 945 thou-sand euro in 2013 as well as 1,091 thousand euro drawn against credit lines . Xylazel has discounted bills amounting to 1,893 thousand euro . Noscira has two loans, with 76 thousand euro maturing in 2013 .
The repayment schedule for non-current bank debt is as follows:
(Thousand euro)
Balance at31/12/13
Balance at31/12/12
2014 0 18,907
2015 19,826 16,438
2016 5,221 2,655
2017 61 18
2018 and thereafter 43 0
TOTAL 25,151 38,018
(Thousand euro)
Balance at31/12/13
Balance at31/12/12
Bank loans 22,648 24,353
Credit lines 10,959 13,346
Unmatured discounted bills and certifications 1,836 3,942
Interest payable 1,085 335
TOTAL 36,528 41,976
Current bank debt is broken down as follows:
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Some credit lines are renewed automatically and, to date, experience shows that they have been renewed systematically with the same banks . As of 31 December 2013, the Group had 29 credit lines (28 as of 31 December 2012) with a total limit of 26,280 thousand euro (27,080 thousand euro in 2012) .
At the date of authorisation of these consolidated financial statements, the Group had signed agree-ments which extend the maturity of 7,070 thousand euro of current debt .
The vast majority of the loans and credit lines are at floating interest rates consisting of Euribor plus a spread of between 2% and 7% (between 1% and 4% in December 2012) . Considering the interest rates at which they were arranged, the Group estimates that there are no material differences between the carrying amount and fair value of both current and non-current loans from those financial institutions . The fair values are based on discounting cash flow at a rate of Euribor plus a spread of 3 .6% for 2013 (3 .5% for 2012) .
The effective interest rates as of 31 December are:
Balance at31/12/13
Balance at31/12/12
Bank overdrafts 29.00% 29.00%
Bank loans 6.47% 6.31%
Credit lines 4.38% 4.26%
Discounted notes 3.97% 3.58%
The Group's exposure to bank debt at floating rates is 50,482 thousand euro as of 31 December 2013 (61,278 thousand euro in 2012) .
The carrying amount and fair value of the Group's non-current and current interest-bearing debt as of 31 December 2013 and 2012 are as follows:
(Thousand euro) 2013
Carrying amount
2012 2013
Fair value
2012
Non-current
Bank loans 29,710 38,018 25,151 37,912
Due to official authorities 25,179 23,998 23,790 23,998
Other debt 4,000 0 4,000 0
TOTAL 58,889 62,016 52,941 61,910
Current
Bank loans 22,828 24,353 22,648 24,398
Credit lines 10,959 13,346 10,959 13,346
Bank overdrafts 289 0 289 0
Unmatured discounted bills and certifications 1,836 3,942 1,836 3,942
Interest payable 1,055 297 1,055 297
Due to official authorities 4,052 4,756 3,992 4,756
Other debt 548 8,040 548 8,041
TOTAL 41,567 54,734 41,327 54,780
All the bank loans are arranged in euro .
119
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 2013, the Group had debt balances with official authorities for a total of 27,782
thousand euro (28,754 thousand euro in 2012), of which 23,790 thousand euro were non-current (23,998 thousand euro in 2011) and 3,992 thou-sand euro were current (4,756 thousand euro in 2012) .
The repayment schedule of the non-current gov-ernment aid is as follows:
(Thousand euro)
Balance at31/12/13
Balance at31/12/12
2014 0 5,124
2015 3,609 4,708
2016 3,643 3,781
2017 3,742 10,385
2018 and thereafter 12,796 0
TOTAL 23,790 23,998
Research &development expenses
Others
Deferred tax assets(Thousand euro)
Deferred tax liabilities(Thousand euro)
Revaluationof investment
property
Revaluationof brands
with indefiniteuseful lives
Capitalsubsidies
TOTALOthers
TOTAL
AS OF 1 JANUARY 2012 24,775 1,599 26,374
Recognized in profit or loss 4,605 1,084 5,689
AS OF 31 DECEMBER 2012 29,380 2,683 32,063
Recognized in profit or loss (4,223) 4,706 483
AS OF 31 DECEMBER 2013 25,157 7,389 32,546
AS OF 1 JANUARY 2012 (1,452) (2,369) (4,015) 0 (7,836)
Recognized in profit or loss 0 (52) (660) 0 (712)
AS OF 31 DECEMBER 2012 (1,452) (2,421) (4,675) 0 (8,548)
Recognized in profit or loss 0 (52) (430) (1) (483)
AS OF 31 DECEMBER 2013 (1,452) (2,473) (5,105) (1) (9,031)
The fair value of these zero-interest loans and re-payable grants, calculated by discounting cash flow at Euribor plus a spread based on the Group's risk,
was 25,648 thousand euro as of 31 December 2013 (28,888 thousand euro in 2012) .
27. Deferred taxes and income tax
Deferred taxes
The change in the year in deferred tax assets and liabilities was as follows:
120
As of 31 December 2013, unrecognized deferred tax assets in relation to research & development ex-penses amounted to 85,425 thousand euro (83,564 thousand euro in 2012) . At the same date, there were also unused tax losses and tax credits amount-ing to 34,460 thousand euro (40,732 thousand euro in 2012) and 138,954 thousand euro (133,573 thou-sand euro in 2012), respectively, which were not rec-ognized in the balance sheet . Those differences were
not recognized in relation to deferred tax assets at 2013 and 2012 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 2013:
Tax creditsgenerated by:
Taxlosses
Unused R&Dtax credits
Other unusedtax credits
R&D activities (*) (Note 4)
TOTAL
Tota
lam
ount
2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027
2028
and
th
erea
fter
34,460 0 0 0 0 0 0 294 5,035 9,222 4,186 2,281 1,773 4,943 6,726 0
138,050 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 8,128 10,668
904 0 353 168 383 0 0 0 0 0 0 0 0 0 0 0
85,425 5,382 7,437 8,015 8,269 6,798 6,798 6,798 6,798 6,703 6,703 6,703 4,176 2,855 1,990 0
258,839 7,531 12,268 13,073 21,174 20,181 16,574 18,104 22,687 26,043 22,358 18,793 15,401 17,140 16,844 10,668
(*) Corresponds to the part of the timing differ-ences generated by the different accounting treat-ment of research and development expenses in the consolidated and separate financial statements of the companies in the biopharmaceutical sector,
which has not been recognized in accordance with the recoverability analysis detailed in Note 4 .
The following table shows the validity dates of the de-ferred tax assets recognized as of 31 December 2013:
Tax creditsgenerated by:
R&D activities (**)(Note 4)
Others
TOTAL
Tota
l am
ount
2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027
2028
and
ther
eafte
r
29,101 1,128 6,428 1,680 1,734 1,425 1,425 1,425 1,425 2,337 2,683 1,418 876 599 418 4,100
3,445 59 379 357 342 319 319 319 319 318 318 317 0 0 79 0
32,546 1,187 6,807 2,037 2,076 1,744 1,744 1,744 1,744 2,655 3,001 1,735 876 599 497 4,100
(*) Corresponds to the part of the timing differences generated by the different accounting treatment of research and development expenses in the consolidated and separate financial statements of the companies in the biopharmaceutical sector .
121
Income tax
The reconciliation of the difference between ap-plying a 30% tax rate to the income before taxes and the recognized tax expense is shown in the fol-lowing table:
2013 2012
Income before taxes 13,801 9,426
Tax rate (30%) (4,140) (2,828)
Tax effect of:
- Permanent differences 3,158 3,002
- Tax expense that did not generate deferred taxes 1,113 3,202
Adjustment for recognition of net deferred taxes (2,091) 1,671
TAX EXPENSE (1,960) 5,048
The 1,960 thousand euro recognized as tax ex-pense (5,048 thousand in 2012) relates to current tax (71 thousand euro at December 2012), and the remainder to deferred tax .
In the foregoing table, permanent differences re-late mainly to 50% of revenues received from other countries for the use of patents . The tax expense line that does not generate deferred taxes refers to the results of Pharma Mar USA, Pharma Mar AG, Copyr and Noscira . Except for Copyr, these companies re-ported losses in the year that did not generate tax credits, they are taxed on an individual basis, and incurred recurrent losses in recent years . This item also reflects the different tax rate at Copyr . It also in-cludes adjustments for conversion to IFRS for which no tax impact was recognized (mainly period R&D expenses) . With regard to the adjustment in recog-nition 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 estimated future results of the subsidiaries which are clearly on the path to profits and for which suffi-ciently reliable estimates can be made . At this date, those subsidiaries are basically in the consumer chemicals segment . As a result of tax planning for 2013, net deferred taxes did not change in 2013 (they increased by 4,977 thousand euro in 2012) .
In 2013 and 2012, 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 companies: Pharma Mar; Genómica; Zelnova; Xylazel; Sylentis and Promaxsa Protección de Mad-eras .
The tax rate applicable to the Group is generally the standard tax rate in Spain (30%), except for Cop-yr, whose earnings are taxed in Italy at approximately 42% . The tax rate applicable to the other subsidiar-ies located outside Spain is not material .
122
28. Provisions for other contingencies and expenses
As of 31 December 2013 and 2012, this cap-tion includes outstanding remuneration to Group employees 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 at31/12/13
Balance at31/12/12
Product sales 156,359 146,196
Provision of services 1,348 1,883
Returns, rebates and volume discounts (15,883) (9,850)
Total 141,824 138,229
(Thousand euro)
30. Research and development expenses
Group expenditure on R&D amounted to 42,717 thousand euro in 2013, only marginally higher than in 2012 (40,399 thousand euro) . Of that figure, Pharma Mar spent 36,943 thousand euro (34,806 thousand euro in 2012), Genómica spent 1,198 thousand euro (1,539 thousand euro
in 2012), Sylentis 4,794 thousand euro (4,045 thousand euro in 2012), Zelnova 120 thousand euro (9 thousand euro in 2012) and Xylazel 112 thousand euro . Pharma Mar capitalized 4,382 thousand euro of development expenses (3 .403 thousand euro in 2012) (Note 8) . As indicated in Note 19 on discontinued operations, Noscira had no R&D expenditure in 2013 since it was in liquidation (it spent 7,907 thousand euro in 2012) .
31. General and administration expenses
The consolidated figure was 19,765 thousand euro, 6 .3% less than in 2012, when general and adminis-tration expenses amounted to 21,083 thousand euro .
32. Marketing expenses
Commercial and marketing expenses increased by 0 .9% with respect to 2012; the increase in this item in the biopharmaceutical segment was offset by a reduction in the consumer chemicals segment; as a re-sult, marketing expenses amounted to 41,251 thousand euro in 2013 (40,865 thousand euros in 2012) .
A total of 22,426 thousand euro (21,641 thousand euro in 2012) were spent in 2013, mainly to develop the Yondelis sales network in Europe . The Consumer Chemicals division accounted for 18,803 thousand euro in 2012 (19,203 thousand euro in 2012) .
29. Net revenues The breakdown of revenue from sales and serv-ices is as follows:
123
33. Other operating revenues / other net gains and other operating expenses
Other operating revenues/other net gains amounting to a total of 22,858 thousand euro (23,549 thousand euro in 2012) include
18,451 thousand euro in revenue (18,770 thousand euro in 2012) under an agreement with Janssen Products LP, part of Janssen Pharmaceutical Compa-nies, in relation to a new action plan to promote the development of Yondelis in the United States . Under the agreement, Janssen will conduct a pivotal Phase III trial with Yondelis® in recurrent ovarian cancer (ROC); the trial design will be submitted to the FDA in the near future . Janssen will also complete the Phase III trial in L-sarcoma that commenced at the beginning of the year . Under that agreement, Phar-maMar received an upfront payment of 25 million us dollars in late 2011, and will receive another 85 million dollars as milestones based solely on the yon-delis® development plan are attained in 2012-2015 (25 million us dollars each in 2012, 2013 and 2014,
and 10 million us dollars in 2015) . The milestones are supplementary to those already envisaged in the original licensing contract . This account also includes capital grants transferred to profit or loss amount-ing to 2,478 thousand euro (3,122 thousand euro in 2012), and royalties paid by johnson & johnson on sales of yondelis in the countries where it has the marketing licence in the amount of 1,660 thousand euro (1,619 thousand euro in 2012) . As indicated in note 19, on discontinued operations, Noscira did not recognize any capital grants in 2013 (2,243 thou-sand euro in 2012) .
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 at31/12/13
Balance at31/12/12
Changes in finished product and product-in-process inventories (1,699) (2,282)
Raw materials and other supplies used 30,480 31,460
Employee benefit expenses 42,224 39,537
Depreciation and amortization 4,591 5,556
Impairment charges and other provisions 288 347
Transport 4,040 4,310
Marketing expenses 21,040 24,115
Other expenses 49,144 47,571
TOTAL 150,108 150,614
(Thousand euro)
Other expenses include services received, communica-tions, utilities, travel, security, and directors’ remuneration .
124
The average number of employees by category is as follows:
The average number of employees by professional category and gender is as follows:
Balance at31/12/13
Balance at31/12/12
Salaries and wages 33,139 31,080
Indemnities 368 255
Social security 6,786 6,285
Pension cost 98 98
Share ownership plans 360 633
Other welfare expenses 1,473 1,186
TOTAL 42,224 39,537
(Thousand euro)
31/12/13 31/12/12
Management 40 44
Technical professionals 259 283
Clerical personnel 103 109
Commercial personnel 114 91
Other employees 112 113
TOTAL 628 640
31/12/13 31/12/12
Management 26 27
Technical professionals 96 116
Clerical personnel 34 39
Commercial personnel 78 68
Other employees 66 68
TOTAL 300 318
(Men)
31/12/13 31/12/12
Management 14 18
Technical professionals 163 166
Clerical personnel 69 70
Commercial personnel 36 23
Other employees 46 45
TOTAL 328 322
(Women)
35. Employee benefit expenses The breakdown of employee benefit expenses
is as follows:
125
The average number of employees by gender is as follows:
31/12/13 31/12/12
Men 300 318
Women 328 322
TOTAL 628 640
Balance at31/12/13
Balance at31/12/12
FINANCIAL EXPENSES
On debts to third parties and similar expenses 6,442 6,092
Losses on financial assets 16 19
Fair value changes in financial assets 0 22
Exchange loss 83 205
6,541 6,338
FINANCIAL REVENUES
Revenues from other tradeable securities and loans to other companies 502 553
Other interest and similar revenues from other companies 250 379
Fair value changes in financial assets 104 0
Exchange gains 530 161
Capitalized financial expenses 0 104
1,386 1,197
TOTAL NET FINANCIAL INCOME (5,155) (5,141)
(Thousand euro)
As of 31 December 2012, one of the twelve members of the Board of Directors was a woman (two in 2012) . Of Zeltia's nine executives, including executive directors at the closing date (as defined in Note 38), two were women (two in 2012) .
The consolidated Group companies have an aver-age of ten employees with disabilities greater than or equal to 33% (eleven in 2012) .
36. Net financial income
126
37. Earnings per share
Basic earnings per share are calculated by dividing income attributable to equity hold-ers of the parent company by the weighted
average number of shares outstanding during the year .
The basic earnings per share in 2013 and 2012 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 2013 and 2012 were as follows:
2013 2012Earnings per share (basic)
Income attributable to equity-holders of the parent company (Thousand euro) 11,841 6,593
Weighted av. no. of ordinary shares
for basic earnings per share (thousand shares) 220,345
220,784
Basic earnings per share (euro) 0.05 0.03
Earnings per share (basic) 2013 2012
Income from discontinued operations (707) (49,424)
Weighted av. no. of ordinary shares
for basic earnings per share (thousand shares) 220,345
220,345
Basic earnings per share (euro) (0.00) (0.22)
Earnings per share (diluted) 2013 2012
Income attributable to equity-holders of the parent company (thousand euro) 11,841 6,593
Weighted av. no. of ordinary shares for basic earnings per share (thousand shares) 221,039 221,461
Basic earnings per share (euro) 0.05 0.03
Earnings per share (diluted) 2013 2012
Income from discontinued operations (707) (49,424)
Weighted av. no. of ordinary sharesfor basic earnings per share (thousand shares) 220,345 220,345
Basic earnings per share (euro) (0.00) (0.22)
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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 that 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 2013, the remuneration accrued by the mem-bers of the Board of Directors amounted to 2,454 thousand euro (2,541 thousand euro in 2012), bro-ken down as follows:
Remuneration item 2013 2012
Fixed remuneration 633 634
Variable remuneration 148 139
Attendance fees 346 390
Bylaw-mandated remuneration 1,303 1,354
Life insurance premiums (*) 24 24
(Thousand euro) 2,454 2,541
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 .
(*) Premiums for death benefit and life insurance policies for the members of the Executive Commit-tee, which pay benefits upon the insured party's death or retirement .
The detail of attendance fees is as follows:
2013 2012
Board of Directors of Zeltia 146 166
Executive Committee of Zeltia 19 19
Audit Committee of Zeltia 32 23
Remuneration and Appointments Committee of Zeltia 24 39
Boards of Directors of other Group companies 125 143
(Thousand euro) 346 390
2013 2012
Board of Directors 766 778
Executive Committee 181 186
Audit Committee 73 82
Remuneration and Appointments Committee 66 75
Boards of Directors of other Group companies 217 233
(Thousand euro) 1,303 1,354
The detail of the Bylaw-mandated remuneration is as follows:
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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 2013 amounted overall to 45 thou-sand euro (45 thousand euro in 2012), 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 2013 and 2012 were not material, formed part of the normal business of the Company or its subsidiaries, and were performed on an arm's-length basis .
A company in which a member of Zeltia's Board of Directors has equity interests provided services to Zeltia, S .A . totalling 29 thousand euro (31 thou-sand euro in 2012) . That company invoiced 37 thousand euro of services rendered to all the group companies . 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 2-year loan for an initial amount of 8,000 thousand euro (4,000 thousand euro in 2013) . The transaction was ar-ranged at market rates in line with other financing transactions 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 2013 amounted to 442 thousand euro (595 thou-sand euro in 2012) .
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 31 thou-sand euro were accrued in 2013 .
Transactions with executives of the controlling Company
The executives received an aggregate total of 1,297 thousand euro in 2013 (1,286 thousand euro in 2012) . One of those executives is a director at one of the Group undertakings and, consequently, col-lected 19 thousand euro under this heading in 2013 (19 thousand euro in 2012), which are not included in the foregoing aggregated figure .
Transactions with significant shareholders
One of the Company's significant shareholders was an executive of the Company for the first half of 2012 and collected 39 thousand euro in total re-muneration .
39. Share-based payments
At the end of 2013, Zeltia and its Group un-dertakings had four 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, for which the threshold was raised to 60% .With regard to the Stock Owner-ship Plan approved by Zeltia's Shareholders' Meet-ing on 12 June 2013, at the time this report was drafted, the Company's Board of Directors had still not established the specific conditions for executing that plan .
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 . To date, at the start of each year, each of the Group under-takings that has decided to apply the Stock Own-ership Plan has provided Zeltia's Board of Directors with a list of beneficiaries, i .e . employees who meet the conditions set out in the resolution of the Zeltia Shareholders' Meeting, detailing each beneficiary's degree of attainment of the objectives set for the year just ended . Since participation in the Plans has been voluntary to date, those lists have included only
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employees and executives who have opted to partici-pate and allocate part of their variable remuneration to those Plans . Based on that information, Zeltia's Board of Directors has resolved each year that those beneficiaries be granted, by their respective em-ployers, 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 co-efficient based on each beneficiary's level of respon-sibility 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 aver-age 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 four Stock Ownership Plans that were in force at 2013 year-end, the lock-up (vest-ing) period is 4 years from the date of delivery of the shares; nevertheless, 18 months after the delivery of the shares, some of the shares will be unlocked: spe-cifically, 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 2010 (Incentive Plan approved by the Ordinary Shareholders' Meeting in June 2009)
On 22 June 2009, the Shareholders' Meeting ap-proved a new plan for the delivery of shares free of charge; it was executed in March 2010 . The com-pany allocated 325,000 own shares under this plan .
In executing this incentive plan, 318 beneficiaries were granted 324,835 shares in 2010, at a value of 4 .03 euro per share .
In 2011, 103,051 shares were released under this Plan .
This plan vested in 2013 since the three-year lock-up period had expired, and the shares that were un-der lock-up were released . In total, 191,013 shares vested under this Plan .
Year 2011 (Incentive Plan approved by the Ordinary Shareholders' Meeting in 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 in 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 in 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 .
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Year 2014 (Incentive Plan approved by the Ordinary Shareholders' Meeting in June 2013)
The Shareholders' Meeting on 12 June 2013 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 per-formance in 2013 was satisfactory, and to incentiv-ize beneficiaries to stay in the Group . The Meeting capped the number of own shares that can be allo-cated for the execution of this Plan at 500,000 . As in previous years, 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 2014 relating to attainment of objectives in 2013, provided that they attained over 60% of the targets established by their Department head or hierarchi-cal superior . The Shareholders' Meeting empow-ered the Board of Directors to determine the other terms and conditions of the Plan . At the date of au-thorising these consolidated financial statements, the Plan was pending execution, and Zeltia's Board of Directors had yet to establish the conditions of same . Without prejudice to establishment of the terms and conditions by the Board, the Company's Remuneration and Appointments Committee plans to propose to the Board to set the vesting period at 4 years .
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Shares delivered
The changes in 2013 and 2012 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 2013:
Fair valueat grant
dateNo. ofshares
2013
Fair valueat grant
dateNo. ofshares
2012
BALANCE AT 1 JANUARY 1,731,491 644,275 2,176,617 660,165
Granted 341,808 258,085 359,300 251,999
Cancelled (41,029) (19,436) (197,710) (68,311)
Vested (773,116) (197,959) (606,717) (199,578)
BALANCE AT 31 DECEMBER 1,259,153 684,965 1,731,491 644,275
Sharespurchased
by employees
Sharescontributed by
the CompanyNo. ofshares
Fair valueof share
Vestingperiod
Plan (Grant date)
Plan 10 June 2010 (Granted April 2011) 0 206,155 206,155 2.84 abr-15
Plan 11 June 2011 (Granted April 2012) 0 227,742 227,742 1.43 abr-16
Plan 12 June 2012 (Granted March 2013 88,812 251,068 339,880 1.32 mar-17
684,965
DIRECTOR Company Line of business Stake Function/position
(1) Total of direct and indirect stakes.(2) BIOFABRI, S.L. is owned 93% by CZ VETERINARIA, S.A.
Fernández Puentes, Santiago INSTITUTO BIOMAR, S.A. Research 2.31% _
Fernández Puentes, Pedro CZ VETERINARIA, S.A. Veterinary medicine 45.25% (1) Chairman of Board of Directors
Fernández Puentes, Pedro BIOFABRI, S.L. (2) Pharmaceuticals -�-� Chairman of Board of Directors
40. Duty of loyalty
As provided in articles 229 et seq . the Consoli-dated Text of the Capital Companies Act, the following is disclosed:
A) Based on disclosures by the individual members of the Board of Directors of Zeltia, S .A ., there fol-lows a list of the companies, other than those in the Zeltia Group, whose object is the same as, or similar or complementary to, that of ZELTIA, S .A . and in which the directors owned equity holdings as of 31 December 2013, as well as any offices they held in such companies:
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B) Additionally, in accordance with article 229 .2 of the Capital Companies Act, a number of directors have disclosed that their related parties held the following direct or indirect stakes in the capital of companies, other than companies in the Zeltia Group, whose object is the same as, or similar or complementary to, that of ZELTIA and the follow-ing offices or functions in those companies as of 31 December 2013:
Mr . José María Bergareche Busquet disclosed that •Berquet, S .P .E —a company in which he and his siblings together own 98%—has a 0 .793% hold-ing in Histocell, S .L .
Mr . José Luis Fernández Puentes, the brother of •directors Mr . Santiago Fernández Puentes and Mr . Pedro Fernández Puentes, owns 17 .52% of Instituto Biomar, S .A .
Also, since the directors Mr . Santiago Fernández Puentes and Mr . Pedro Fernández Puentes are broth-ers, each one has referred to the other's disclosure as director of Zeltia, S .A . since they are related per-sons .
C) The directors not listed in the preceding two sec-tions have presented negative declarations to the Company with respect to themselves and their related parties, as defined in the Capital Compa-nies Act .
D) The list of members of the Board of Directors of Zeltia, S .A . who were also directors of other Group undertakings and/or who had stakes in them as of 31 December 2013, and the percent-age of their stake, is as follows:
Directors
Mr. José MªFernándezSousa - Faro
PedroFernández Puentes
José Antonio Urquizu Iturrarte
JEFPO. S.L. (2)
Rosp CorunnaParticipacionesEmpresariales. S.L.
SantiagoFernández Puentes
Ms. MontserratAndrade Detrell
Zeltia. S.A.Pharma Mar.
S.A.U.Genómica.
S.A.U. %Sylentis.
S.A.U. %Noscira. S.A.
en Liquidación %Zelnova.
S.A. %Xylazel.
S.A. %% (*)
(*) Information disclosed to the National Securities Market Commission (CNMV).(1) As representative of Zeltia, S.A.(2) Either JEFPO, S.L. or José Félix Pérez-Orive Carceller, in his personal capacity (he is the person representing JEFPO, S.L. on the Board of Directors of Zeltia, S.A.)
%
X 11 X -� X X� -� -� - X(1) 0.00049 -� 0.04
X 4.5 X -� - X� -� -� - X 0.00049 -� 0.04
X 0.18 - -� - -� -� -� 0.07 X - X� -
X 0 X -� X -� -� -� - X - X -
X 5 X -� - -� -� -� 2.85 - - - -
X 1.38 - -� - -� -� -� - - - X -
X 4.62 - -� - -� -� -� - - - -� -
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E) Additionally, and in accordance with article 229 .1 of the Capital Companies Act, below is a disclo-sure of the conflicts of interest reported in 2013 by Directors to the Board of Directors and which were the cause of abstention when debating and voting on motions by the Board .
CK CORPORACION KUTXA-KUTXA KORPORAZI-•OA S .L . Unipersonal abstained from the debate and vote on the Board resolution to propose, to the Company's Shareholders' Meeting, the ap-pointment of KUTXABANK, S .A . as a director of the Company .
José Luis Fernández Puentes abstained from the •debate and vote on the Board resolution to pro-pose that the Shareholders' Meeting appoint him as Honorary Director .
KUTXABANK, S .A . also abstained from the de-•bate and vote on the Board resolution to appoint KUTXABANK, S .A . as a member of the Audit Committee .
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 assets
The Group did not have contingent assets as of 31 December 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 at31/12/13
Balance at31/12/12
Under 1 year 1,983 2,011
1 to 5 years 2,918 3,393
Total 4,901 5,404
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, EBITDA/fi-nancial 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 2013, and a waiver had been obtained from the lenders . Also, as a result of failing to attain the ratios, Xylazel, S .A . will not distribute any dividends out of 2013 income .
As of 31 December 2012 and as a result of no-vation dated 11 December 2012, the application of financial ratios was suspended from the date of the novation until 31 December 2013 and Xylazel was authorized to distribute dividends up to that date .
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 2013, 206,155 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 2013, 227,742 shares delivered and subject to lock-up will vest in April 2016 .
Under the eleventh plan (June 2012) for deliv-•ery of shares free of charge, as of 31 December 2013, 88,812 shares delivered and subject to lock-up will vest in October 2014 and 251,068 in March 2016 .
43. Auditors' fees
The fees accrued by PricewaterhouseCoopers Auditores, S .L . in 2013 for auditing the finan-cial statements totalled 178 thousand euro in
2013 (183 thousand euro in 2012), plus 13 thousand euro for other verification services for Zeltia Group companies (19 thousand euro in 2012) .
The fees accrued during the year by other compa-nies in the PwC network amounted to 11 thousand euro for tax advisory services in 2011 (11 thousand euro in 2013), and for advisory services to the Group (31 in 2012) .
The fees accrued during the year by other audi-tors of subsidiaries amounted to 47 thousand for au-dit services in 2013 (24 thousand euro in 2012) and 29 thousand euro for other verification services in 2013 (50 thousand euro in 2012) .
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; they are passed on to the rest of the consortium members and amounted to 8 thou-sand euro in 2014 (12 thousand euro in 2012) .
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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 expen-
ses amounted to 372 thousand euro in 2013 (383 thousand euro in 2012) .
Since there were no contingencies relating to envi-ronmental protection and improvement and there are no risks that could have been transferred to other com-panies, it was not necessary to recognize any provisions for environmental actions in the year .
45. Subsequent events
Some credit lines are renewed automatically and, to date, experience shows that they have been renewed systematically with the same
banks . In January and February, 7,070 thousand euro in banks loans were renewed .
On 30 January 2014, it was disclosed to the National Securities Market Commission that Janssen Products LP had made a fourth payment to Pharma Mar, S .A . in the amount of 25 million dollars for attaining a milestone in the Yondelis® development plan .
No other material circumstances or events have come to light that might affect these consolidated finan-cial statements .
ÍNDICE