CONTENTS
Summary and General Information The Boards of the Group Page 5 The DiaSorin Group Page 6 Products and Technologies Page 7 DiaSorin Group Organizational Framework Page 9 Operating and Financial Highlights Page 10
Report on Operations
Financial Statements Year ended December 31, 2005 DiaSorin S.p.A.
Consolidated Financial Statements Year ended December 31, 2005 DiaSorin Group
Other Information
Chairman’s Statement Operating and Financial Performance by Business Line DiaSorin Group Operating and Financial Performance DiaSorin S.p.A. Operating and Financial Performance Post-Balance Sheet Events and Business Outlook Related Party Transactions Research & Development Other Information In Concluding – Motion for the Allocation of Distributable Net Income
Page 13
Balance Sheet Income Statement Notes
Page 42 Page 47 Page 49
Page 15 Page 17 Page 22 Page 28 Page 29 Page 30 Page 38 Page 39
Consolidated Balance Sheet Consolidated Income Statement Notes
Page 72 Page 77 Page 79
Report of the Independent Auditors Report of the Statutory Auditors
Page 103 Page 107
SUMMARY RESULTS AND GENERAL INFORMATION
______
THE BOARDS OF THE GROUP
Board of Directors Chairman Deputy Chairman
Gian Alberto Saporiti Gustavo Denegri
Chief Executive Officer
Antonio Boniolo
Directors
Carlo Callieri Carlo Rosa 1 Chen Menachem Even Enrico Palandri Ezio Garibaldi Michele Denegri
Board of Statutory Auditors Chairman Statutory auditors Deputy auditors
Giorgio Ferrino Bruno Marchina Ottavia Alfano Bernardo Chiavazza Sonia Sacco
I n d e p e n d e n t a u d i t o r s Deloitte & Touche S.p.A.
1
General Manager
6
Pursuing since the late Sixties initiatives in the radioimmunology diagnostics field, DiaSorin S.p.A. has mastered as leader, whether in Italy or abroad, technological and sector market evolution over the years. As a consequence thereof, DiaSorin S.p.A. now stands at the forefront of applied biotechnology diagnostics across the homeland. The corporate headquarters of the DiaSorin Group are based in Saluggia (Vercelli), from which the more significant Research & Development and Marketing activities are conducted. Also based at Saluggia are the structures dedicated to the development and production of biotechnological componentry. A second production site, the DiaSorin Inc. production site, is located at Stillwater in Minnesota, USA; acquisition of BYK SANGTEC from the Altana Group in 2003 translated into a third production site located in Germany, dedicated to the production of certain LIAISONtechnology product lines. The DiaSorin Group boasts commercial branch locations in Europe (Italy, France, the U.K., Belgium/The Netherlands, Spain/Portugal, Germany and Sweden) and, not least, in the Americas (United States, Mexico and Brazil). With effect from January 1, 2006, the DiaSorin Group operates through a commercial branch location in the State of Israel. DiaSorin is represented by distributors in the rest of the world. Commercial trading footprint is seamless at the world level. DiaSorin has a proven vocation for Research & Development and for technological innovation. Indeed, the Firm firmly believes that innovative methods and assays, securing superior clinical and analytical performance, and the capability to provide upper-edge imagery and accurate information to physicians, can be achieved solely through unrelenting technological update and broader biotechnological/biological reagent control. New assays are developed in the production site at Saluggia and, not least, in the production site at Stillwater, both of which specialize in distinct application sectors (infectious disease/autoimmunity assays at Saluggia, and endocrinology/bone and mineral metabolism at Stillwater) albeit united under rigorous project management in harmonization with ISO and FDA accreditations. Concentrated at the Saluggia research center are activities focused around genetic biotechnological reagents that increasingly call for sophisticated molecular biology approaches and advanced protein chemistry.
______
PRODUCTS AND TECHNOLOGIES
The DiaSorin Group specializes in the development, production and commercialization of immunoreagents for ‘in vitro’ lab diagnostics.
The product array is diversified by pathology/application sector and encompasses assays for the determination of serological parameters in: • • • • •
Endocrinology Oncology Bone & mineral metabolism Infectious diseases Autoimmunity
The assay technologies used reflect the immuno-assay technological evolution tracked as from preliminary commercial testing onset at the end of the Sixties, from RIA (Radio Immuno Assay) to CLIA (ChemiLuminescent Immuno Assay). Mapped in the following table is the technology matrix/product line under which the DiaSorin product offering currently unfolds. PRODUCT LINE
TECNOLOGY RIA
ELISA
FIA
CLIA
Endocrinology
*
*
Oncology
*
*
Bone & mineral metabolism Infectious diseases Autoimmunity
*
*
*
*
*
*
6
*
*
Customer testing is supported by a comprehensive range of automated and compatible analyzer platforms having the capability to automate analysis in the research and clinical reference lab.
The following table places in evidence the variety of assay platforms made available to customers by DiaSorin to the service of the assay technologies: TECHNOLOGY ANALYZER PLATFORMS
RIA
ELISA
FIA
Analyzer modules
‘Gamma’ counters
Microplate piper readers and washers (ETI -SYSTEM)
Luminescent microscope
‘Open’ automated platforms (1)
RIA-MAT
ETI-LAB
AUTOFLUOR
ETI-MAX
‘Closed’ automated platforms (2)
CLIA
LIAISON
(1) As used herein, an ‘open’ analyzer platform is a platform having the capability to house reagents using the same microparticle solid phase technology (2) As used herein, a ‘closed’ platform is a platform having the capability to house stand-alone reagents
7
THE DIASORIN GROUP ORGANIZATIONAL FRAMEWORK
DiaSorin S.p.A. S.p.A.- Italia
Capogruppo
DiaSorin Ltd. Ltd. – UK Filiale commerciale % di possesso: 100%
DiaSorin Inc– Inc– USA Filiale produttiva e commerciale % di possesso: 100%
DiaSorin SA/NV – Belgio Filiale commerciale % di possesso: 99,99%
DiaSorin AB – Svezia Filiale commerciale % di possesso: 100%
DiaSorin SA - Francia Filiale commerciale % di possesso: 99,99%
DiaSorin S.A. C.V. C.V.- Messico Filiale commerciale % di possesso: 99,99%
DiaSorin S.A. – Spagna Filiale commerciale % di possesso: 99,99%
DiaSorin GmbH – Germania Filiale produttiva e commerciale % di possesso: 100%
U. Kasse – Germania Fondo pensione
DiaSorin Ltda – Brasile Filiale commerciale % di possesso: 99,99%
DiaSorin Ltd– Ltd– Israele Filiale commerciale % di possesso: 100%
8
THE DIASORIN GROUP ORGANIZATIONAL FRAMEWORK
All amounts in Euro/’000
2005
2004
Consolidated revenues Gross margin EBITDA EBIT before depreciation and amortization EBIT Profit before tax Net profit attributable to parent company
156,220 100,752 40,617 26,520 22,538 13,828 4,678
142,524 74,232 31,306 17,231 13,250 7,085 3,623
Net financial position Shareholders’ equity Net capital employed
(53,243) 63,221 116,464
(62,554) 55,207 117,761
12,990 6,817 22,989
8,887 5,851 21,680
756
698
Investment toward property, plant and equipment Research and development Internal financing (net result + depreciation and amortization) Number of employees at year-end
9
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CHAIRMAN’S STATEMENT
REPORT ON OPERATIONS (pursuant to Article 2428 of the Italian Civil Code and Article 40 of Italian legislative decree 127/1991)
10
______
CHAIRMAN’S STATEMENT
To the Shareholders: In 2005, the DiaSorin Group gained a stronger foothold throughout the global market for in-vitro diagnostics; more pointedly, the DiaSorin Group gained absolute leadership in the diagnostics of bone deficiency linked to Vitamin D. This success rebounded significantly on the Group’s financial headlines: consolidated revenues from the sale of products and services stretched forward to Euro 156.2 million, or 9.6% more than the year before, whilst sales revenue captured by DiaSorin S.p.A., the parent company, capped Euro 96.2 million, of which Euro 36.7 million Group companies, reflecting an 8.5% uplift. Looking at operating profit, the Group ended the year reporting E.B.I.T., before depreciation and amortization, in the amount of Euro 26.5 million, or 53.9% more than the year before. The success delivered in fiscal 2004 staged a replica in 2005, confirming the sound strategy carved out and implemented by Company management. The broader LIAISON analyzer base installed with customers and the efforts waged on a continuing basis by the Research & Development function, with clear focus placed on enhancing the diagnostics menù offered in respect of assay technologies, worked toward compounding consensus expectation: with bolt-on product pipeline, the DiaSorin Group has risen to the needs posed by the market, with a keen eye steered toward the sectors of infectious disease, autoimmunity, endocrinology and bone metabolism, strategic areas of business for future development. Looking at Research & Development, worthy of mention is the progress gained in the development of the NAT (Nucleic Acid Testing) technology. Also gaining momentum in calendar 2005 was the Group’s geographic reach, with bolt-on foothold gained in the Brazilian market and new branch location unveiled in Mexico and Israel, all of which in lockstep with stronger European market footprint: the regained growth reflected by the German market sets the basis for step-change expansion and represents clear indication that Company has the capability to rise to the challenges posed by a turnaround. Over the last twelve months, DiaSorin S.p.A., the parent company, also addressed the need to render its Control environment more effective. As such, seeing inception was the Internal Audit function along with the decision to adopt, Groupwide, a Code of Best Practice, in a strategic intent to create a control environment with clearly defined organization structures operating within a framework of policies and procedures covering every aspect of the business and, not least, to safeguard DiaSorin Group’s assets. Also seeing inception was a project focused around reshaping the Group’s IT and computer system infrastructure, consolidating the various operating units under one common platform. Submitted to you, the Shareholders, for your review and approval are the consolidated financial statements of the DiaSorin Group for the year ended December 31, 2005, which show net income of Euro 4,678 thousand, after: recording depreciation and amortization in the amount of Euro 18,311 thousand; setting aside provisions in the amount of Euro 935 thousand and Euro 587 thousand to the reserve for the write-down of receivables and to the reserves for risks and charges, respectively; and incurring exceptional expenses in the amount of Euro 1,415 thousand.
11
Also submitted for your approval are the financial statements of DiaSorin S.p.A. for the year ended December 31, 2005, which show net income of Euro 2,561 thousand, after: recording depreciation and amortization in the amount of Euro 9.440 thousand; and setting aside provisions in the amount of Euro 750 thousand and Euro 270 thousand to the reserve for the write-down of receivables and to the reserves for risks and charges, respectively.
Gian Alberto Saporiti Chairman
12
______ OPERATING AND FINANCIAL PERFORMANCE BY BUSINESS LINE
The consolidated revenues from sales and services reported by the DiaSorin Group for 2005 stretched forward to Euro 156.2 million, or 9.6% more than the year before, reflecting a quantum leap from budget forecasting. Also working toward the year-on-year uplift was the sharp currency appreciation waged by the Brazilian real against the European single currency. The breakdown of consolidated revenues by geographic region was substantially unchanged from the prior year: the two key markets, that is, the European market and the North American market, accounted for some 61.2% and 29.5%, respectively, of consolidated revenues. The markets served by indirect distribution accounted for the remaining 9.3%. Sales revenue captured by DiaSorin S.p.A. over the last twelve months came to Euro 96.2 million, or 8.5% more than the year before. Sale revenue from the homeland accounted for slightly more than 40%, whilst the percentage of sales revenue from the rest of the world stepped upward. From a product portfolio standpoint, Group sales reflect increasingly the move from RIA and ELISA technologies toward the LIAISON proprietary technology, which compounded, in the year under review, its percentage within the product portfolio by a further 5 percentage, thereby accounting for 36.1% of consolidated revenues. The year-on-year growth captured by the LIAISON technology is a reflection of the ongoing strategy steered toward broadening the LIAISON menù test offering and the installed analyzer base. Offered at year-end 2005 by the LIAISON menù were 92 analyzers, whilst DiaSorin Group honed the threshold of 1,500 automatic analyzers installed with customers in the year under review. LIAISON technology sales revenue from the homeland tipped Euro 25.8 million, or 18% more than the year before, an achievement of no little importance given the downsized portion of LIAISONbased products distributed indirectly due to a string of supply problems encountered on the global horizon. As a result of the foregoing, the Group captured in other countries exciting market shares in some RIA market segments and, more pointedly, in the bone metabolism and endocrinology segments. As a consequence thereof, significantly mitigated was the downward route followed by the RIA technology, which, in 2005, reflected a 5.2% fallback. Looking at the other ‘open’ technology, ELISA sales in 2005 accounted for 38.1% of the product portfolio, or 1.7% more than the year before. Powering ahead from 52.1% at year-end 2004 to 64.5% at year-end 2005 was Group gross margin. The year-on-year improvement was reflected on Group added value, which moved from Euro 68.5 million at year-end 2004 to Euro 81.5 million at year-end 2005. At the Group level, EBIT, before depreciation/amortization, finance charges and other nonrecurring expenses, came to Euro 26.5 million, or 53.9% more than the year before. Looking at the subsidiaries, mention is made to the Brazilian subsidiary. Albeit bearing the brunt of the extraordinary provision for bad recorded in the 2005 income statement due to the fraud suffered, the Brazilian subsidiary reported a year-on-year 52.8% uplift in operating profit, also owing to the sharp local currency appreciation waged against the Euro.
13
The financial activities of the Group bear the brunt of net finance charges and foreign exchange losses in the amount of Euro 3.8 million and Euro 1.1 million, respectively. The Group ends the year with a consolidated pre-tax result of Euro 13.8 million, or 95.2 % more than the year before, and net profit in the amount of Euro 4.7 million. DiaSorin S.p.A., the parent company, reports EBIT, before depreciation/amortization, finance charges and non-recurring expenses, in the amount of Euro 14.2 million, or 61.4% more than the year before. The parent company ends the year to December 31, 2005 with a pre-tax result of Euro 7.6 million and net profit in the amount of Euro 2.6 million. Looking at the Group’s capital base, consolidated net financial position at year-end 2005 was Euro 53.2 million negative, reflecting a year-on-year improvement of Euro 9.4 million. When evaluating the evolution of consolidated net financial position, account should be taken of the route followed by the US$/Euro exchange rate over the last twelve months, which affects significantly the portion of indebtedness denominated in U.S. dollars. On a constant currency basis, the parent company showed its mettle and repaid bank borrowings and financial payables to other financers in the amount of Euro 11.2 million and Euro 2.9 million, respectively. Gaining progress throughout the year were receivables ceded by the parent company, which put in place two securitization transactions pursuant to Law 130/1999 in respect of accounts receivable from the Abruzzo and Lazio Region Local Healthcare Units; as a consequence thereof, receivables have been ceded for some Euro 1.8 million. Also gaining progress in the year under review were receivables from the National Health System ceded with recourse to factoring companies.
14
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Measuring Financial Performance CONSOLIDATED INCOME STATEMENT (Accounts in Euro/’000) A.
Value of production
2005 165,339
2004 149.344
B.
Production costs
145,205
139.212
Difference between value of production and production costs (Operating result) C. Financial income/(expenses) E. Extraordinary income/(expenses)
20.134 (4,891) (1,415)
10,132 (3.124) 77
Income before income taxes 22. Income taxes
13.828 (9,150)
7,085 (3.462)
4.678
3,623
Net income attributable to the Group
Aggregate revenues for the year moved forward 10.3% from fiscal 2004, particularly as a result of LIAISON product sales, which came to Euro 56,416.7 thousand, or 27.3% more than the year before. More pointedly, underscored are the more significant results reported in the USA (+11.4% from the prior year) and in other commercial locations (+13.6% from the year before), with particular mention to Belgium (+5.2% vis-à-vis plan and +12.6% from the prior year) and France, which, insofar as reflecting a year-on-year uplift of 12.6%, steps beyond the all-time threshold of Euro 10 million. Gaining a sharp year-on-year increase was the Brazilian location (up 35.1%), also as a result of the pleasing impact waged by the BRR/Euro exchange rate. Revenues for the period came to Euro 164,206 thousand and are composed of the following: Accounts in Euro/’000 Revenues from the sale of goods and services Increase in fixed assets for internal work
Other Total
2005
2004
156,220 5,288 2,698 164,206
142,524 4,390 2,008 148,922
The differing income statement items that worked towards the result for the period are the following: Accounts in Euro/’000 Difference between the value of production and production costs Financial income/(expense) Extraordinary income/(expense) Taxation Result for the year
15
2005
2004
20,134 (4,891) (1,415) (9,150) 4,678
10,132 (3,124) 77 (3,462) 3,623
______
As mirrored in the table set out below, the operating result ended the year on a positive tone of Euro 20,134 thousand, reflecting a clear improvement from the year before: Accounts in Euro/’000 thousand
2005
2004
Value of production Purchasing costs, service costs and other operating expenses PRODUCT ADDED VALUE
165,339 (83,821) 81,518
149,344 (80,845) 68,499
Cost of labor (personnel expenses) Provision for risks and charges
(41,551) (587)
(38,803) (968)
Depreciation and write-downs Difference between the value of production and production costs (Operating result)
(19,246) 20,134
(18,596) 10,132
Product added value accounts for 49.6% of consolidated revenues, reflecting a 3.6 % improvement from the prior year. The cost of labor accounts for 25.3% of consolidated revenues (F/Y 2004: 26.1%) and 51% of added value (F/Y 2004: 56.6%). The results captured by financial activities are detailed below: Amounts in thousands of Euro Other financial income Interest and other financial charges FOREX difference Total
2005
2004
650 (4.453) (1.088) (4.891)
424 (4.628) 1.080 (3.124)
Primarily pushing the year-on-year change were foreign exchange differences arising from or relating to indebtedness denominated in U.S. dollars.
19
______
Measuring Operating Performance CONSOLIDATED BALANCE SHEET Accounts in Euro/’000 December 31, 2005 A. B.
C.
D.
DUE FROM STAKEHOLDERS FOR CAPITAL NOT PAID IN
December 31, 2004
-
-
FIXED ASSETS I. Intangible fixed assets II. Tangible fixed assets III. Financial fixed assets
54,294 35,250 60
59,330 34,913 74
CURRENT ASSETS I. Inventories II. Receivables III. Financial assets not representing fixed assets IV. Cash and cash equivalents
26,650 56,049 126 6,116
22,688 53,498 9,161
738
501
179.283
180,165
63,221 10,795
55,207 11,736
6,745 96,201 2,321 179,283
6,456 104,772 1,994 180,165
PREPAID EXPENSE AND ACCRUED INCOME
TOTAL ASSETS A. B. C.
Shareholders' equity Reserves for risks and charges Reserve for employee termination indemnities D. Payables E. Accrued expenses and deferred income TOTAL EQUITY AND LIABILITIES
20
______
CONSOLIDATED CASH FLOW STATEMENT Accounts in Euro/’000 A.
B.
C.
D. E. F.
OPENING CASH AND CASH EQUIVALENTS Profit for the year Depreciation and amortization Provision to (use of) reserves for risks and charges Net change in reserve for employee termination indemnities CASH FLOW GENERATED BY (USED IN) OPERATIONS (Increase)/Decrease in current receivables (Increase)/Decrease in inventory Increase/(Decrease) in supplier payables and other payables (Increase)/Decrease in other working capital items CASH FLOW FROM OPERATING ACTIVITIES Investment/Divestment of fixed assets: - Tangible fixed assets - Intangible fixed assets - Financial fixed assets CASH FLOW FROM INVESTING ACTIVITIES Net change in payables to banks/stakeholders/other financers Net change in interest expense on bank borrowings Net change in payables for equity investments acquired Net change in payables to ASI CASH FLOW FROM FINANCING ACTIVITIES CASH FLOW FOR THE PERIOD (B+C+D) ENDING CASH AND CASH EQUIVALENTS (A+E)
F/Y 2005 9,161 4,678 18,311 (1,061) 251
F/Y 2004 6,063 3,623 18,056 (1,250) (207)
22,179 (598) (2,840) 2,622 (231) 21,132
20,222 2,056 (476) 1,425 654 23,881
(11,073) (499) 15 (11,557) (8,679)
(9,393) (438) 4 (9,827) 6,041) (1,002) (3,000) (913) (10,956) 3,098 9,161
(3,000) (514) (12,193) (2,618) 6,543
(*) Like-for-like 2004 financial data have been reclassified in order to render then immediately comparable with 2005 financial data.
As at December 31, 2005, capital employed was Euro 116,464 thousand, shareholders’ equity came to Euro 63,221 thousand and net financial position was Euro (53,243) thousand. Set forth below are the tables of analysis relating to the Group’s capital base and financial structure: Accounts in Euro/’000 Capital employed Shareholders' equity Net financial position
December 31, 2005
December 31, 2004
116,464 63,221 (53,243)
117,761 55,207 (62,554)
Capital employed and shareholders’ equity are composed of the following: December 31, 2005
December 31, 2004
Intangible fixed assets Tangible fixed assets Financial fixed assets FIXED ASSETS
54,294
59,330
35,250 60
34,913 74
89,604
94,317
NET WORKING CAPITAL
33,605 (6,745)
29,900 (6,456)
116,464
117,761
Accounts in Euro/’000
Reserve for employee termination indemnities Net capital employed
21
______
Accounts in Euro/’000
December 31, 2005
December 31, 2004
50,000 4,425 4,118 4,678 63,221
50,000 4,425 (2,841) 3,623 55,207
December 31, 2005
December 31, 2004
6,543 6,543 (16,836) (42,950) (59,786) (53,243)
9,161 9,161 (16,626) (55,089) (71,715) (62,554)
Share capital paid in Share premium reserve Other reserves Result attributable to Group Shareholders' equity
Net financial position is composed as follows: Amounts in thousands of Euro Cash at bank and on hand TOTAL FINANCIAL ASSETS Current financial payables (1) Non-current financial payables (2) TOTAL FINANCIAL LIABILITIES Net Financial Position
(1) including current liabilities and payables to banks, other financers and Altana Pharma; (2) including long-term bank borrowings and payables to other financers.
Of particular note, seeing repayment by the Group in the year under review was the following: - Euro 1,700 thousand relating to the Interbanca financing for the Byk Group acquisition; - Euro 4,795 thousand relating to the Interbanca financing tranche denominated in Euro contracted in relation to the Biofort business transaction part way 2004; - US$ 4,616 thousand (or Euro 3,846 thousand) relating to the Interbanca financing tranche denominated in U.S. dollars contracted in relation to the Biofort business transaction part way 2004, realizing a foreign exchange loss of Euro 458 thousand; - US$ 2,238 thousand of the loan contracted by the subsidiary DiaSorin USA; - Euro 3,800 thousand to Altana Pharma for the German and Swedish investees acquired; - US$ 700 thousand (or Euro 514 thousand) for extinguishing debt vis-à-vis ASI. As if any reminder were needed, the Interbanca financing contracted in relation to the Biofort business transaction is secured by pledge on 85% of the shares representing the share capital of DiaSorin S.p.A., the parent company. Without prior consent from the bank, moreover, no part of the business or business line thereof, property, stocks, securities, equity interests or tangible/intangible fixed assets stated in the accounts for amounts in excess of Euro 2.5 million may be divested or transferred by the company, in any one financial period. And lastly, yet again without prior consent, no medium to long-term financing or loan entailing aggregate financial exposure in excess of Euro 4.0 million may be contracted by the company, in any one financial period. The interest expense on the financing is paid on a six-monthly basis as set out below: Tranche denominated in Euro Tranche denominated in US$
01/01/2005 – 12/31/2006 EURIBOR at 6 months + 1.50 LIBOR at 6 months + 1.50
01/01/2007 – 12/31/2010 EURIBOR at 6 months + 1.25 LIBOR at 6 months + 1.25
And lastly, attaching to the Interbanca financing are covenants, the ratios of which, as reported in the following table, have been observed by the Group in 2005: Ratio Net financial charges/EBITDA Net financial position/Net equity Net financial position/EBITDA
2005 benchmark value not in excess of 0.2 not in excess of 1.3 not in excess of 2.5
22
2005 Group value 0.12 0.84 1.35
______
Measuring Financial Performance INCOME STATEMENT Accounts in Euro/’000 A. Value of production B.
Production costs
Difference between value of production and production costs (Operating result)
C. E.
Financial income/(expenses) Extraordinary income/(expense)
Income before tax 22. Income taxes Net income for the year
2005 101,998
2004 92,268
90,473
87,893
11,525 (3,931) -
4.375 (2,379) 1,247
7.594 (5,033)
3,243 (1,995)
2,561
1,248
Revenues for the period came to Euro 100,445 thousand, reflecting a 9.1% increase from 2004, and are composed of the following: Accounts in Euro/’000 Revenues from the sale of goods and services Increase in fixed assets for internal work Other revenues and income Total
2005
2004
96,238 443 3,764 100,445
88,721 406 2,939 92,066
The differing income statement items that worked towards the result for the period are the following: Accounts in Euro/’000 Difference between the value of production and production costs Financial income/(expenses) Extraordinary income/(expenses) Income taxes Result for the period
23
2005
2004
11,525 (3,931) (5,033) 2,561
4,375 (2,379) 1,247 (1,995) 1,248
______ The operating result ended the year on a positive tone of Euro 11,525 thousand, reflecting a clear improvement from the year before (F/Y 2004: Euro 4,375 thousand). Primarily pushing through the improvement were production efficiencies and the move by revenues toward products with enhanced profit margin. The operating result is analyzed as follows: Accounts in Euro/0000
2005
2004
Value of production Purchasing costs, service costs and other operating expenses PRODUCT ADDED VALUE
101,998 (63,091) 38,907
92,268 (61,429) 30,839
Cost of labor (personnel expenses) Depreciation and write-downs Difference between the value of production and production costs (Operating result)
(16,921) (10,461) 11,525
(15,720) (10,744) 4,375
Product added value accounts for 38.7% of revenues (F/Y 2004: 33.5%). The cost of labor accounts for 16.5% of revenues (F/Y 2004: 17%) and 43.5% of added value (F/Y 2004: 54.9%). The results captured by financial activities are detailed below: Accounts in Euro/’000 Dividends from subsidiary undertakings Interest and other financial income Interest and other financial charges Foreign exchange gains/(losses) Total
2005
2004
899 727 (4,413) (1,144) (3,931)
885 405 (4,320) 651 (2,379)
Dividends from subsidiary undertakings relate to the dividend pay-out declared by the subsidiary DiaSorin G.m.b.H. accounted for in accordance with the accrual basis of accounting. Foreign exchange gains/(losses) relate primarily to foreign exchange gains arising from or relating to the Interbanca financing tranche denominated in U.S. dollars.
19
______
Measuring Operating Performance BALANCE SHEET Accounts in Euro/’000 December 31, 2005
December 31, 2005
33,466 12,680 51,956
36,675 14,613 51,956
16,938 42,394
14,666 37,826
5,127 2,111
4,331 4,724
405
193
165,077
164,984
58,558 1,607
55,997 1,297
6,176 98,703 33 165,077
5,856 101,792 42 164,984
DUE FROM STAKEHOLDERS FOR CAPITAL NOT A. PAID IN B. FIXED ASSETS I. Intangible fixed assets II. Tangible fixed assets III. Financial fixed assets C. CURRENT ASSETS I. Inventories II. Receivables III. Financial assets not representing fixed assets IV. Cash and cash equivalents D. PREPAID EXPENSES AND ACCRUED INCOME TOTAL ASSETS A. Shareholders' equity B. Reserves for risks and charges C. Reserve for employee termination indemnities D. Payables E. Accrued expense and deferred income TOTAL EQUITY AND LIABILITIES
20
______
CASH FLOW STATEMENT Accounts in Euro/’000 A.
B.
OPENING CASH AND CASH EQUIVALENTS Profit for the year Depreciation and amortization Provision to (use of) reserve for risks and charges (Gain) Loss on the realization of fixed assets Net change in reserve for employee termination indemnities CASH FLOW GENERATED BY (USED IN) OPERATIONS (Increase)/Decrease in current receivables (Increase)/Decrease in inventory Increase/(Decrease) in supplier payables and other payables (Increase)/Decrease in other working capital items
F/Y 2005 9,524 2,561 9,440 310 (128) 320
F/Y 2004 8,572 1,248 9,504 766 73 205
12,503 (1,660) (2,272) 2,033 (222)
11,796 3,467 69 (3,458) (62)
10,382
11,812
D.
CASH FLOW FROM OPERATING ACTIVITIES Investment in fixed assets: - Tangible fixed assets - Intangible fixed assets Selling price or value of reimbursement of fixed assets CASH FLOW FROM INVESTING ACTIVITIES Net change in payables to banks and other financers Net change in payables for equity investments acquired Net change in payables to ASI CASH FLOW FROM FUNDING ACTIVITIES
(4,351) (267) 450 (4,168) (3,108) (1,500) (514) (5,122)
(4,300) (75) 220 (4,155) (4,387) (1,405) (913) (6,705)
E. G.
CASH FLOW FOR THE PERIOD (B+C+D) ENDING CASH AND CASH EQUIVALENTS (A+E)
1,092 10,616
952 9,524
C.
As at December 31, 2005, capital employed was Euro 115,790 thousand, shareholders’ equity came to Euro 58,558 thousand and net financial position was Euro (57,232) thousand. Net financial position reflects an improvement on a comparative basis with December 31, 2004, due to repayment for the period of loans and financing outstanding. Set forth below are the tables of analysis relating to the company’s capital base and financial structure: Accounts in Euro/’000
December 31, 2005 December 31, 2004
Capital employed Shareholders' equity Net financial position
115,790 58,558 (57,232)
21
119,440 55,997 (63,443)
______
Capital employed and shareholders’ equity are composed of the following: Accounts in Euro/’000
December 31, 2005 December 31, 2004
Intangible fixed assets
33,466
36,675
Tangible fixed assets Financial fixed assets
12,680 51,956
14,613 51,956
FIXED ASSETS
98,102
103,244
NET WORKING CAPITAL
23,864
22,052
(6,176) 115,790
(5,856) 119,440
Reserve for employee termination indemnities Net capital employed
Shareholders’ equity is composed as follows: Accounts in Euro/’000 Share capital paid in Share premium reserve, shares and other reserves Retained earnings Result for the year
December 31, 2005 December 31, 2004 50,000 50,000 4,504 4,441 1,493 308 2,561 1,248 58,558 55,997
Shareholders' equity
Net financial position is composed as follows: Accounts in Euro/’000
December 31, 2005 December 31, 2004
Non-current financial receivables (1) Current financial receivables (1) Cash at bank and on hand TOTAL FINANCIAL ASSETS Current financial payables (2) Non-current financial payables (3) TOTAL FINANCIAL LIABILITIES Net Financial Position
5,001 3,504 2,111 10,616 (29,349) (38,499) (67,848) (57,232)
4,331 469 4,724 9,524 (24,084) (48,883) (72,967) (63,443)
(1) including financial receivables from subsidiaries. (2) including current bank liabilities and payables to banks, subsidiaries and Altana Pharma. (3) including long-term bank borrowings.
Of particular note, seeing repayment by the Company in the year under review was the following: - Euro 1,700 thousand relating to the Interbanca financing for the Byk Group acquisition; - Euro 4,795 thousand relating to the Interbanca financing tranche denominated in Euro contracted in relation to the Biofort business transaction part way 2004; - US$ 4,616 thousand (or Euro 3,846 thousand) relating to the Interbanca financing tranche denominated in U.S. dollars contracted in relation to the Biofort business transaction part way 2004, realizing a foreign exchange loss of Euro 458 thousand; - Euro 2,300 thousand to Altana Pharma for the German and Swedish investees acquired; - US$ 700 thousand (or Euro 514 thousand) for extinguishing debt vis-à-vis American Standard.
22
______
In the year to December 31, 2005, Interbanca S.p.A. withdrew from the shareholder structure. As a consequence thereof, the accounts payable thereto have been reclassified from ‘stakeholder financing repayable’ to ‘bank borrowings’. As if any reminder were needed, the Interbanca financing contracted in relation to the Biofort business transaction is secured by pledge on 85% of the shares representing the share capital of DiaSorin S.p.A., the parent company. Without prior consent from the bank, moreover, no part of the business or business line thereof, property, stocks, securities, equity interests or tangible/intangible fixed assets stated in the accounts for amounts in excess of Euro 2.5 million may be divested or transferred by the company, in any one financial period. And lastly, yet again without prior consent, no medium to long-term financing or loan entailing aggregate financial exposure in excess of Euro 4.0 million may be contracted by the company, in any one financial period. The interest expense on the financing is paid on a six-monthly basis as set out below: Tranche denominated in Euro Tranche denominated in US$
01/01/2005 – 12/31/2006 EURIBOR at 6 months + 1.50 LIBOR at 6 months + 1.50
01/01/2007 – 12/31/2010 EURIBOR at 6 months + 1.25 LIBOR at 6 months + 1.25
And lastly, attaching to the Interbanca financing are covenants, the ratios of which, as reported in the following table, have been observed by the Group in 2005: Ratio Net financial charges/EBITDA Net financial position/Net equity Net financial position/EBITDA
2005 benchmark value not in excess of 0.2 not in excess of 1.3 not in excess of 2.5
23
2005 Group value 0.12 0.84 1.35
______
There are no post-balance sheet significant events to report. Looking ahead to 2006, the Group’s business plan envisages bolt-on sales revenue growth, which, based on consensus expectation, should move beyond Euro 170 million. Such growth, which should take shape seamlessly across the geographic regions, will continue to be powered by LIAISON technology, as a result of bolt-on installed analyzer base and the new assays developed in prior years being brought to the market. Also carried forward will be research focused around enhancing the Group’s direct presence in those geographic regions strategic for future development. As a result of clear focus steered on a continuing basis to proprietary technology pricing policy and, not least, the economies of scale achieved by the manufacturing units, also expected to gain momentum throughout 2006 is Group profitability. Some of the bolt-on profitability generated will be reinvested toward ambitious research and development programs and, not least, toward reshaping the operational framework to rise to the challenges posed by the upward surge in the Group’s volume of business. The capability of the Group to generate cash flow from operating activities will be focused on financing capital investments toward new instrumentation, finance charges and lastly, enhancing net financial position according to amortization schedules.
24
______
Related party transactions put in place with subsidiaries relate principally to transactions of a commercial nature entered into at fair value based on market conditions, as well as a string of services provided by the parent company on a centralized basis and recharged proportionally to each and every subsidiary pursuant to specific contract. Additionally, interest income and interest expense are recognized regularly within the centralized treasury framework. The breakdown of related party transactions by subsidiary is presented in the Notes. The following table sets out the amounts reflecting the related party transactions referred to above for the year ended December 31, 2005: SUBSIDIARIES
(All amounts in Euro/’000) INCOME STATEMENT
2005 38,621 11,052 1,288 744
- Revenues from the sale of goods and services · Purchasing costs and services provided · Interest income and other income · Interest expense and other expense (All amounts in Euro/’000) BALANCE SHEET
2004 36,087 12,071 1197 536
SUBSIDIARIES December 31, 2005
December 31, 2004
Assets
· Current commercial receivables · Current financial receivables
8,124
5,843
3,378
469
· Receivables from financial activities
5,900
5,216
1,915 16,345 1,606
1,991 11,108 3,256
December 31, 2005
December 31, 2004
3,400
5,100
43,535 46,935
49,099 54,199
Liabilities · Current commercial payables · Current financial payables · Other payables
(All amounts in Euro/’000) Interbanca 2002 financing for Byk Group acquisition Interbanca 2004 financing TOTAL
25
______
1. Significant events during 2005 In 2005, DiaSorin ploughed capital expenditure totaling Euro 6.8 million (charged wholly against the income statement) toward Research & Development in the Group’s three production sites [Saluggia (Italy), Stillwater (U.S.A.) and Dietzenbach (Germany)], 73% of which was ploughed into the Saluggia production site, at which 42 of the 65 researchers are engaged at December 31, 2005. R&D activities were focused around six fundamental trains of thought: a) Developing new LIAISON kits b) Developing new biotechnological reagents c) Enhancing certain documental, methodological and technical aspects attaching to production processes and catalogue products (programmed quality assurance) d) Researching the Nucleic Acid Testing (NAT) sector for future development potential e) Enhancing certain hardware and software aspects attaching to the LIAISON and ETIMAX analyzer platforms f) Developing new LIAISON 2 analyzer platform a) Looking at the development of new LIAISON kits, the Saluggia production site developed and made available for sale over the last twelve months the following new products: In the infectious disease sector: - LIAISON testing for Varicella-Zoster Virus (VZV) IgG antibodies - LIAISON testing for Varicella-Zoster Virus (VZV) IgM antibodies - LIAISON testing for Borrelia (liquor) IgG antibodies - New version of LIAISON Testing for the determination of avidity of IgG antibodies to Toxoplasmosis In the autoimmunity sector: - LIAISON testing for ENA screening Product development at the Stillwater and Dietzenbach production sites, which engage in the endocrinology/metabolism sector, rendered available the following new assays: - New LIAISON kit for the measurement of ACTH - New LIAISON kit for the measurement of Testosterone - New LIAISON kit for the measurement of Oestradiol Put in place over the last twelve months, also as a result of the crisis experienced by Nichols Diagnostics (NID) through which DiaSorin S.p.A. distributed, primarily in Italy, a variety of LIAISON-compatible specialty products in the endocrinology/metabolism sector, was a string of impellent projects focused around seeking a solution to the critical situation created by the NID product non-availability. All this also translated into the need to give this priority preference over certain programs in progress, suspending or slowing other projects steered toward developing new biotechnological reagents and/or enriching the infections disease sector catalog.
26
______
As a consequence thereof, scheduled to be made available in first-quarter 2006 are new kits superseding NID analog products in the endocrinology/metabolism specialty sector: - LIAISON testing for the determination of hGH - LIAISON testing for the direct determination of Renin - LIAISON testing for the determination of Insulin - LIAISON testing for the determination of Calcitonin Also envisaged as part of that program toward end 2006/early 2007 are the following new products: - LIAISON testing for the determination of DHEAS - LIAISON testing for the determination of Osteocalcin - LIAISON testing for the determination of Aldosterone b) Looking at reagents, 2005 bears witness to a slowdown in the development of new reagents and research into new process technologies, to the benefit of other priorities emerging in relation to the critical situation referred to above in relation to NID products and, not least, in relation to critical issues or sale and the procurement of ‘critical’ semi-finished goods and basic materials arising as a result of the significant uplift in selling volumes. Worthy of mention at least are a couple of examples requiring particular commitment on seeking out the relevant solution: -
-
The first relates to the supply of the Cyromegalovirus antigen, purchased from a Canadian supplier finding it extremely hard to deliver batches reflecting a standard of quality in line with our production requirements. Here, other than calling for the need to protect the quality of finished product and understanding the adversities experienced by the supplier, this called for “safety net” measures aimed at seeking out, within a relatively short period of time, a reagent having the same characteristics as the reagent produced internally. The second relates to the supply, by a German firm, of certain reagents, which, although not specific for testing, enable generation of a ChemiLuminescent signal measured by LIAISON (known as Starters 1 and 2). Here too, the increase in scale required by our production volumes coincided with a clear deterioration in the qualitative characteristics of the reagent purchased from the supplier of prestigious renown. All this called for laborious product-compliance control and selection. Given the particularly critical issues attaching to the reagent, which is used in all LIAISON kits, seeing onset was a program focused around internal production starting from Saluggia where the more critical reagent (Starter 1) will be produced in small scale while the production process is studied, optimized and validated pending relocation to the Dietzenbach production site with dedicated, all-new production lines scheduled to come on steam by end 2006.
c) Some R&D activities were steered toward processing market information inflows relating to kits brought to market in prior years, analyzing non-compliance product customer complaints, and modifying certain products in order to ensure compliance with FDA requirements authorizing the relevant sale thereof in the American market. All of this has been managed and documented under ‘quality programs’ as envisaged by the prevailing 27
______ system of quality assurance, The more significant projects encompassed therein unfolded into enhancing the methodology and analytic performance of some LIAISON products, such as IgM Toxoplasmosis, total Anti HAV and IgM, HBsAg and IgG Rubella. d) Looking at the development of the NAT new technology, carried forward at Bicocca University in Milan was research into fine-tuning the OCEAN technology (One Cut Event AmplificatioN), with clear focus steered toward application in the genetic pathology sector and, not least in the virology sector, in bolt-on synergy with the market already served by the DiaSorin ELISA and LIAISON infectious disease product catalog. More pointedly, put in place was an OCEAN original combination with simultaneous pre-amplification through Polimerase Chain Reaction (PCR) in view of the imminent expiration date (2007) of certain patents that until now inhibited the related use thereof under reasonable license terms and conditions. Without prejudice to patent in-depth review, something so essential given the particularly complex issue, it is firmly believed that the combination of the two technologies enables assay development regardless of unrelated intellectual properties having the capability to measure, in terms of quantum, the presence of pathogen polynucleotide sampling subjected to DNA extraction. Related confirmation thereof might be accompanied by identification of one or more analyzer platforms having the capability to manage automatically the key steps of the method: in this way, offered to the microbiological lab, already a LIAISON typical customer, could be a valid alternative to the ‘Real Time PCR’ method currently adopted by those laboratories, more than often under a ‘home brew testing’ logic, that is, using methods not necessarily protected by quality warranties resulting from the EC branding affixed by the producer of the reagents needed to carrying out the assay testing. Submitted for filing in Italy part way December 2005 was ‘provisional’ patent application, to which further warranties and extensions will follow over the next twelve months. e) Looking at LIAISON analyzer enhancement, the more important issues for the year include the following: A. Release of a new LIAISON analyzer, i.e., the LIAISON-LAS, which can be linked to a robotized system having the capability to distribute automatically the analysis samples to the differing analyzers, whether manufactured by the one same producer or otherwise, thereby enhancing lab automation throughput and flexibility. LIAISON–LAS will enable DiaSorin to compete in market segments characterized by peer analysis volumes, whether in collaboration with synergic competitors in terms of product menú offering or otherwise. B. Research into an all-new 2.2x software version designed toward building up the precision features and level of guarantee offered by the analyzer in terms of reliability throughout critical operating protocols C. Activated for the ETI MAX 3000 instrument was research into a new 1.7 software version. The scope and purpose of the new release is to mitigate the sizeable drift on certain commercialized products that complete the microplate autoimmunity and infectious disease menú 28
______
f) Downstream to the agreement sealed with STRATEC Biomedical Systems AG, Germany, already producing the current LIAISON analyzer, seeing onset were multi-pronged projects relating to the new version, provisionally known as LIAISON 2, which sees DiaSorin creative-thinking directly engaged for the first time in system requisites, software and hardware design, system integration and validation. The project, the scope and purpose of which is to make available the new platform for 2008, once the LIAISON units brought to the market have reached, and more likely than not, tower the 2,000 mark, will be focused clearly around protecting, as far as possible, the compatibility of the kits already available with the two platforms, which will continue to coexist for the longer period. At Saluggia, the internal structure dedicated to the LACOE (Lab Automation Center of Excellence) project has been reinforced significantly over the last twelve months, and will continue to be reinforced in the year ahead in view of the surge in prototype and module testing envisaged as from second-half 2006 to end 2007.
2.
Research program for 2006 Focused around yet again the three production sites boasting development capability (Saluggia, Stillwater and Dietzenbach), the research program for 2006 unfolds into the following fundamental trains of thought: A. Product maintenance/enhancement, with a keen eye steered toward: i.Problems of scale ii.New competitive environments driven through by competitive new-entries iii.Stricter release and control criteria B. LIAISON menu enrichment through: i.Nichols catalog product replacement ii.New products C. Research into new biotechnological processes for attaining bioreagents (all-new complex antigen structures; third-generation monoclonal antibodies) having particular characteristics surpassing certain methodological restrictions posed by the LIAISON system D. LIAISON analyzer second version development E. Activation of an industrial development structure dedicated to the new NAT product line The research program envisages availability, for 2006, of the following new products: Train-of-thought A.: -
Enhanced LIAISON testing for the determination of Vitamin D Enhanced LIAISON testing for the determination of CMV IgG avidity 29
______ -
LIAISON testing for the determination of IgM antibodies against Borrelia (more sensitive version for serum/plasma with possible determination on liquor for the German market ) Critical reagent used in LIAISON testing for antibodies against Herpes Simplex I-II to be replaced an analog recombinant antigen more easily produced, already available in the DiaSorin S.p.A. GMMO bank (Genetically Modified Micro-Organisms). Enhanced LIAISON testing specificity for the determination of HBsAg. Enhanced LIAISON testing ease-of-use for the determination of total antibodies and Hepatitis A Virus (HAV) IgM antibodies.
Train-of-thought B: By the end of first-quarter 2006: - LIAISON testing for the determination of hGH - LIAISON testing for the direct determination of Renin - LIAISON testing for the determination of Insulin - LIAISON testing for the determination of Calcitonine - LIAISON testing for the determination of total antibodies against Borrelia (U.S. market version) - LIAISON testing for the determination of IgG, IgM and IgA antibodies against Cardiolipin Conversely, scheduled to end 2006/early 2007 are the following new products : - LIAISON testing for the determination of DHEAS - LIAISON testing for the determination of Osteocalcine - LIAISON testing for the determination of Aldosterone - LIAISON testing for the determination of TK (Kinase Thymidine) - LIAISON testing for the determination of Vitamin D 1-25 OH - LIAISON testing for the determination of antibodies against Herpes Simplex 2 (U.S. market version) - LIAISON testing for the determination of ‘Bone Specific Alkalin Phosphatase’ marker - LIAISON testing for the determination of IGF-1 (Insulin Growth Factor 1) Also seeing onset will be projects for the development of: -
LIAISON testing for the determination of IgG, IgA and IgM antibodies against β2glycoprotein LIAISON testing for the determination of CCP (emerging marker for the diagnosis of Rheumarthritis)
Train-of-thought C.: New bioreagent development will be steered primarily toward the priorities identified in the Two-Year Product Development Plan 2007 and 2008, which calls for the development of LIAISON/LIAISON 2 applications in that most of the componentry, already trialed for previous RIA and ELISA technologies, will not be made available as in the past, given the innovation surrounding those applications. As such, seeing development ex novo will be the necessary bioreagents, most of which will have to be engineered to reflect the specific requirements posed by the LIAISON system, which, after years of experience, are by now foreseeable. Only some of the technologies needed to develop those components are available 30
______ in-house. As a consequence thereof, some projects of research will be assigned necessarily to independent researchers, primarily international. The projects of research assigned will be steered towards assessing, on ‘pilot’ applications, the innovative approach pathways such as , for example, those of high-affinity recombinant antibodies (in collaboration with MORPHOSIS, Munich) or those of the chimerical multi-antigenic building blocks needed in assembling in a few synthetic or recombinant molecular species the complexity of the reagents present in natural antigenic preparations, frequently the cause for reproduction adversities and high replenishment costs. Scheduled to be prepared in this way will be everything needed to develop the complex applications such as new-generation Chlamydia, Mycoplasma, HIV, HCV and HBsAg testing. As discussed earlier, efforts will be steered also toward programs focused around compounding the firm’s capability to produce internally reagents currently procured from those independent suppliers finding it hard to meet the volume requirements arising from the quantum leap taken LIAISON technology product sales. Train-of-thought D: In 2006, LIAISON 2 programmed development costs will account for more than 30 % of the Group’s aggregate R&D budget. On a basis consistent with the project’s general timeline, the goal and objective to be targeted unfolds into completion, by end 2006, of breadboard wet testing (instrument’s prototype set of separate components), using the current LIAISON reagents, pending prototype completion (available in early 2007). Train-of-thought E: Scheduled for 2006 are two major initiatives in the NAT sector: a. The first initiative relates to the research work to be conducted at the research unit at Bicocca, Milan University of Study, as part of the project known as GENECORE, financed under the Fund for Base Research Investments (“FIRB”) made available by MUIR, in collaboration with the CNR Institute of Clinic Physiology Investments in Pisa, the San Raffaele Hospital in Milan and the Milan Institute of Biomedical Technology, which will contribute toward financing research expenditure in the amount of Euro 1,647,000 over a 3-year span. b. The second initiative is geared toward realizing at Saluggia a new cluster of product development and industrialization of applications in the molecular virology sector, thereby targeting the goal and objective focused around making the first commercial products available by and before first-half 2007. The products identified as priority products, also by virtue of the pathology/customer sharp synergy with the LIAISON catalog already available, unfold into the DNA quantum determination of Cytomegalovirus (CMV) and the Epstein Barr virus (EBV) with PCR-OCEAN combined technology. In parallel, Carried forward in parallel will be selection of an adequate instrumental platform having the capability to accept the operating protocols required by those methods, following in the wake of which will be drafting of a distribution agreement with the related producer thereof at the European level. As a result of the initiative, certain lab structures will be reshaped in order to accommodate new activity entries. Also prepared and put in place will be the technical procedures needed to govern and document appropriately the related engineering and industrialization stages. 31
______
3.
Regulatory Affairs – Quality Assurance Calendar 2005 saw preliminary authorization being attained for the sale of LIAISON products for the infectious disease segment in the U.S. market. Following EBV testing, envisaged in first-quarter 2006 are Toxoplasmosis, CMV, Treponema and Rubella kit filings, thereby enabling almost a full-line offering in the infectious serology sector. Stepping forward briskly were LIAISON product filings for the Chine market, preparing and putting in place all matters needed for commercialization start-up in this promising market. Looking at Quality Assurance, also reflecting a favorable outcome in 2005 were inspections conducted by Certimedica (No Non Compliance was placed in evidence by the inspection conducted in July 2005) and by the G-MED Board (No Non Compliance was placed in evidence by the inspection conducted in September 2005). No inspections have been conducted by FDA on any Group production site whatever. In terms of product and process enhancement, the more significant initiatives included: • • • •
redefining the engineering procedure, with a keen eye steered toward substantially enhancing and rendering the procedure more in line with the activities performed and compounding compliance with applicable laws and regulations: completing risk analysis of the LIAISON TOXO M production process; drafting the clinical validation procedure in such a way as to take into account all inputs as needed for, and essential to, all-comprehensive clinical validation; putting in place diverse Corporate procedures enabling control of the activities conducted outside the sphere of Saluggia.
Looking ahead to 2006, key goals and objective relate to the following: -
-
compliance with regulation 13485:2003 by DiaSorin GmbH quality assurance system and related accreditation award; ISO 9001:2000 certification for DiaSorin Spain and DiaSorin Mexico; FDA filing attained for the marketing and sale within the U.S. market of LIAISON EA G, RUBELLA G, ds DNA, Treponema Screening and ETI MAX 3000, and the related application of Hepatitis microplate kits thereon; filing attained in CHINA for the marketing and sale within the Chinese market of LIAISON Testosterone, Progesterone, Oestradiol, Prolactin LH, FSH, HCG, Anti Thyroglobulin, Thyroglobulin, Anti TPO, HBsAg, Anti-HBs, Anti-HBc, Anti-HBe, HBeAg and Toxo IgM; broadening the sphere of DiaSorin S.p.A. accreditation to NAT Annex IIB products; enhancing procedures relating to product batches release in order to streamline the approval process for non-critical products with, however, an alert system thereby picking up immediately signals requiring investigation; revisiting the risk analysis procedure so as to reflect Regulation 14971 requirements, as recently amended.
One element of particular significance in enhancing the documental system of DiaSorin S.p.A. will be represented by new software implemented for documentation operational management, 32
______ which should translate into ‘leaner’ data and information streams as yet primarily managed, at the time of writing, in hard-copy format.
33
______
Human Resources As at December 31, 2005, the DiaSorin Group employed 756 people, as analyzed below: 2005 Belgium Brazil France Germany Italy United Kingdom Spain Sweden USA Mexico Total
2004 17 24 30 93 357 9 22 10 184 10 756
16 22 28 88 335 11 25 11 162 698
As at December 31, 2005, DiaSorin S.p.A. employed 357 people employed, as analyzed below: 2005 11 263 83 357
Managers Clerks Workers Total
2004 12 238 85 335
Stock Option Schemes The Board of Directors launched part way 2004 a stock option scheme involving 17 managers from the Group companies designated in incentive programs. Personal Data Protection As required by Law 196 (the Italian Privacy Act) enacted on June 30, 2003 n. 196, the Company has appointed, as communicated formally, the relevant Privacy Officers. Additionally, the Company has obtained, as notified in advance, prior consent from employees regarding the treatment of personal data.
34
______
To the Shareholders: While inviting you, the Shareholders, to approve the financial statements of DiaSorin S.p.A as at December 31, 2005, we recommend that distributable net income for the year, Euro 2,561,298.54, be allocated as follows: -
Euro 128,064.93 .or 5% of net income, to the legal reserve; Euro 2,433,233.61, or residual net income, to retained earnings.
Gian Alberto Saporiti
Chairman
35
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43
_____ ASSETS
BALANCE SHEET
As of December 31, 2005 Sub-total
As of December 31, 2004
Total
Sub-total
Total
A. DUE FROM SHAREHOLDERS FOR -
CAPITAL NOT PAID IN
-
B. FIXED ASSETS I. 1. 3. 4. 5. 7.
INTANGIBLE FIXED ASSETS Incorporation and subsequent expenses Industrial patent and intellectual property rights Concessions, licenses, trademarks and similar rights Goodwill Other
Total Intangible fixed assets (B.I) II.
251 6.994.485 26.455.469 15.948
3.271 7.604.926 28.827.953 239.183
33.466.153
36.675.333
3.129.879 2.233.558 7.094.673 183.193 38.495
3.378.161 2.250.164 8.510.194 252.848 221.150
12.679.798
14.612.517
51.954.908 1.000
51.954.889 1.000
51.955.908
51.955.889
TANGIBLE FIXED ASSETS 1. 2. 3. 4. 5.
Land and buildings Plant and machinery Production and commercial equipment Other Tangibles in course of construction and payments on account
Total Tangible fixed assets (B.II) III. FINANCIAL FIXED ASSETS 1. Investments: a. Subsidiaries b. Associated companies Total Financial Fixed Assets (B.III)
98.101.859
TOTAL FIXED ASSETS (B)
103.243.739
C. CURRENT ASSETS I.
INVENTORIES 1. Raw materials, ancillary materials and consumables 2. Work-in-progress and semi-finished goods 3. Contract work-in-progress 4. Finished goods and goods for resale
Total Inventories (C.I.)
4.178.116
3.800.870
7.781.155 4.978.245
6.167.698 4.697.076
16.937.516
14.665.644
44
ASSETS
As of December 31, 2005 Sub-total
II.
Total
As of December 31, 2004 Sub-total
Total
RECEIVABLES 1. Trade
a. amounts falling due within next accounting period Total Trade receivables (C.II.1)
22.717.584 22.717.584
24.782.973 24.782.973
8.124.300 3.378.306 899.142 12.401.748
5.842.886 469.115 885.470 7.197.471
408.821 408.821
302.793 302.793
1.353.728 4.172.385 5.526.113
1.345.678 3.906.088 5.251.766
1.339.548 1.339.548
291.463 291.463
42.393.814
37.826.466
2. Subsidiaries a. commercial amounts falling due within next accounting period b. financial amounts falling due within next accounting period c. financial amounts falling due after next accounting period Total Receivables from subsidiaries (C.II.2)
4-bis Tax credits a. amounts falling due within next accounting period
Total Tax credits (C.II.4-bis) 4-ter Deferred tax assets a. amounts falling due within next accounting period
b. amounts falling due after next accounting period Total Deferred tax assets (C.II.4-ter) 5. Other a. amounts falling due within next accounting period
b. amounts falling due after next accounting period Total Other receivables (C.II.5) Total Receivables (C.II) III.
FINANCIAL ASSETS NOT REPRESENTING FIXED ASSETS 6. Marketable securities a. amounts falling due within next accounting period Total Financial assets not representing fixed assets (C.III.6)
126.298 126.298
-
7. Subsidiaries a. amounts falling due within next accounting period Total Financial assets not representing fixed assets (C.III.7)
5.001.248 5.001.248
4.331.527 4.331.527
Total Financial assets not representing fixed assets (C.III)
5.127.546
4.331.527
1. Bank and post-office deposits 3. Cash and valuables on hand
2.103.613 7.208
4.717.862 6.341
Total Cash at bank and on hand (C.IV)
2.110.821
4.724.203
IV.
CASH AT BANK AND ON HAND
66.569.697
TOTAL CURRENT ASSETS (C)
D. PREPAID EXPENSES AND ACCRUED INCOME 1. Accrued income 2. Prepaid expenses
59.080 345.952
TOTAL PREPAID EXPENSES AND ACCRUED INCOME (D) TOTAL ASSETS (A + B + C + D)
45
61.547.840
41.817 150.705 405.032
192.522
165.076.588
164.984.101
_____
BALANCE SHEET
EQUITY AND LIABILITIES
As of December 31, 2005 Sub-total
Total
As of December 31, 2004 Sub-total
Total
A. SHAREHOLDERS' EQUITY I. II. IV. VII. VIII. IX.
Share capital Share premium reserve Legal reserve Other reserves Retained earnings (accumulated deficit) Net income (loss) for the year
50.000.000 4.424.598 78.597 1.493.349 2.561.299
50.000.000 4.424.598 16.219 308.163 1.247.564 58.557.843
TOTAL SHAREHOLDERS' EQUITY (A)
55.996.544
B. RESERVES FOR RISKS AND CHARGES 3. Other
1.606.739
TOTAL RESERVE FOR RISKS AND CHARGES (B)
1.297.071 1.606.739
1.297.071
6.175.810
5.855.800
C. RESERVE FOR EMPLOYEE TERMINATION INDEMNITIES
D. PAYABLES 3. Stakeholder financing 9.883.182 44.315.926 54.199.108
-
a. amounts falling due within next accounting period b. amounts falling due after next accounting period
Total Stakeholder financing (D.3) 4. Banks
10.703.892 38.499.377 49.203.269
280.420 2.267.820 2.548.240
16.694.583 16.694.583
15.258.583 15.258.583
1.915.512 16.344.926 1.606.166 -
1.991.170 11.108.369 1.627.887 1.627.887
19.866.604
16.355.313
5.653.535 5.653.535
3.704.881 3.704.881
a. amounts falling due within next accounting period Total Payables to provident and social security
703.985
659.598
institutions (D.13)
703.985
659.598
6.581.561 6.581.561
6.765.909 2.300.000 9.065.909
a. amounts falling due within next accounting period b. amounts falling due after next accounting period
Total Bank borrowings (D.4) 7. Suppliers a. amounts falling due within next accounting period
Total Supplier payables (D.7) 9. Subsidiaries a. commercial amounts falling due within next accounting pe b. financial amounts falling due within next accounting perio c. other amounts falling due within next accounting period d. other amounts falling due after next accounting period
Total Payables to subsidiaries (D.9) 12. Taxes a. amounts falling due within next accounting period
Total Taxes payable (D.12) 13. Provident and social security institutions
14. Other a. amounts fallling due within next accounting period b. amounts falling due after next accounting period
Total Other payables (D.14) TOTAL PAYABLES (D)
98.703.537
E. ACCRUED EXPENSES AND DEFERRED INCOME 1. Accrued expenses
32.659
TOTAL ACCRUED EXPENSES AND DEFERRED INCOME (E)
TOTAL EQUITY AND LIABILITIES (A + B + C + D + E)
46
101.791.632 43.054
32.659
43.054
165.076.588
164.984.101
_____
INCOME STATEMENT
A. VALUE OF PRODUCTION 1. Revenues from the sale of goods and services 2. Change in work-in-progress, semi-finished goods and finished goods
3. Change in contract work-in-progress 4. Increase in fixed assets for internal work 5. Other revenues and income: b. Other
As of December 31, 2005
As of December 31, 2004
Sub-total
Sub-total
Total
96.237.907
88.721.467
1.553.666 443.067
201.308 406.391
3.763.739
2.938.907 101.998.379
TOTAL VALUE OF PRODUCTION (A)
Total
92.268.073
B. PRODUCTION COSTS 6. Raw materials, ancillary materials, consumables and 37.995.311
36.533.641
21.105.081
19.973.780
3.041.757
2.855.295
9. Personnel: a. salaries and wages b. social contributions c. employee termination indemnities e. other personnel expenses
11.984.920 3.905.569 925.096 105.405
11.121.814 3.662.541 839.713 95.894
Total Personnel expenses (B.9)
16.920.990
15.719.962
3.402.212 5.985.641 52.571
3.630.970 5.873.292
750.000
539.425
10.190.424
10.043.687
(718.206) 270.000 1.667.490
271.166 700.000 1.795.277
goods for resale
7. Service costs 8. Expenses relating to the use of third party assets
10. Depreciation and write-downs: a. Amortization of intangible fixed assets b. Depreciation of tangible fixed assets c. Write-down of intangible and tangible fixed assets d. Write-down of receivables classified under current assets and of liquid funds Total Depreciation and write-downs (B.10)
11. Change in raw materials, ancillary materials, consumables and goods for resale
12. Provision for risks 14. Other operating expenses TOTAL PRODUCTION COSTS (B)
90.472.847
87.892.808
DIFFERENCE BETWEEN THE VALUE OF PRODUCTION AND PRODUCTION COSTS (A - B)
11.525.532
4.375.265
47
As of December 31, 2005
As of December 31, 2004
Sub-total
Sub-total
Total
Total
C. FINANCIAL INCOME AND EXPENSES 15. Income from investments 1. Dividends from subsidiary undertakings
Total Dividends from subsidiary undertakings (C.15)
899.142
885.470
899.142
885.470
16. Other financial income d. Income other than that listed above: 1. Interest and commissions from subsidiaries 4. Interest and commissions from other and other income Total Income from investments (C.15)
389.165 337.730
311.907 92.804
726.895
404.711
744.353 3.668.297
536.291 3.784.415
4.412.650
4.320.706
(1.143.971)
651.125
17. interest and other financial charges: d. Interest expense and other financial charges other than that listed above: 1. From subsidiaries 2. From parent company 4. From other enterprises
Total Interest and other financial charges (C.17) 17-bis Foreign exchange gains/(losses) TOTAL FINANCIAL INCOME AND EXPENSES (C15 + C16 - C17 + C17bis)
(3.930.584)
(2.379.400)
E. EXTRAORDINARY INCOME AND EXPENSES 20. Extraordinary income: c. other
-
1.310.743 -
Total Extraordinary income (E.20)
21. Extraordinary expenses: c. other
223
Total Extraordinary expenses (E.21)
1.310.743
63.799 223
63.799
(223)
1.246.944
7.594.725
3.242.809
TOTAL EXTRAORDINARY ITEMS (E.20 - E.21) PRE-TAX RESULT
(A - B +/- C +/- D +/- E) 22. Advance, deferred and current income tax a. current income tax c. advance income tax
5.307.772 (274.346)
Total Income tax 26. Net income (loss) for the year
48
2.006.768 (11.523) 5.033.426
1.995.245
2.561.299
1.247.564
NOTES TO THE FINANCIAL STATEMENTS FOR 2005 Information about core business, significant post-balance sheet events and related party transactions can be found earlier in the Report on Operations.
FORM AND CONTENT OF THE FINANCIAL STATEMENTS The financial statements for 2005 have been drawn up in accordance with the Italian Civil Code and are represented by the balance sheet, the statement of income and these Notes, all which prepared in accordance with the formats required by the Italian Civil Code and the civil law amendments introduced by Italian legislative decree 6/2003. The Notes serve to illustrate, analyze and explain the data included in the financial statements and contain that information which is required by Article 2427 of the Italian Civil Code, by Italian legislative decree 127/1991 and by other applicable laws. Furthermore, other information required to present a true and fair view of the state of affairs and financial condition of the Group is included, even though not specifically requested by law.
ACCOUNTING POLICIES AND BASIS OF PREPARATION The accounting policies followed in the preparation of the financial statements are consistent with those recommended by the Italian Accounting Profession (Consigli Nazionali Dottori Commercialisti e dei Ragionieri) or, in the absence thereof, those issued by the International Accounting Standards Board (“IASB�), and are unchanged from the previous year. Of particular note, it is hereby confirmed that all transactions put in place by the company agree with the underlying accounting entries, and that going concern, prudence and accrual are the fundamental accounting assumptions followed in the financial statements. As unchanged from the previous year, the more significant accounting policies and measurement bases adopted when drawing up the accounts are set out below: INTABGIBLE FIXED ASSETS
Intangible fixed assets acquired from third parties are stated at purchase price. Contributed assets are stated at their respective contribution value, based on independent expert reports. The amortizable amount of an intangible asset is allocated on a systematic basis over the contractual term or period of legal right and, in all cases, on a basis consistent with the period of presumed future benefit and useful life expectancy. In the case of a permanent impairment in value, regardless of the amortization already provided, the asset is written down accordingly. If, in subsequent periods, the motives for the write-down cease to apply, the original value is reinstated. The amortization rates applied are detailed in the Note relating to the relevant items on the asset side of the balance sheet.
49
With the agreement of the Board of Statutory Auditors, incorporation and subsequent expenses and goodwill are deferred.
TANGIBLE FIXED ASSETS
Items of property, plant and equipment are stated at historic acquisition cost. Cost includes accessory expenses, as well as the portion of direct and indirect costs that can be reasonably attributed to the assets. Contributed assets are stated in the financial statements at the value attributed thereto on the basis of the value determined by independent expert reports. Ordinary maintenance expenditure is charged against the income statement in the period in which it is incurred. Subsequent expenditure on property, plant and equipment is recognized as an asset if, and only if, the expenditure improves the condition of the asset beyond its originally assessed standard of performance or extends the useful life of the related asset. An item of property, plant and equipment is eliminated from the balance sheet on disposal, or scrapped when the asset is withdrawn permanently from use and no future economic benefits are expected from its disposal. The gross carrying value of an item of property, plant and equipment is allocated on a systematic basis over the useful life of the asset during which depreciation is provided, on a systematic basis, each period at constant rates determined according to the asset’s expected utility to the enterprise and residual life expectancy. Accordingly, the net book values tend to express the amount recoverable in future periods through cash flows of an ordinary nature. The depreciation rates applied are detailed in the Note relating to tangible fixed assets In the case of a permanent impairment in value, regardless of the depreciation already provided, the asset is written down accordingly. If, in subsequent periods, the motives for the write-down cease to apply, the original value is reinstated. For assets acquired in the financial period, the annual depreciation is taken at half the regular rate owing to minor period of utilization. Depreciation starts at the moment in which the relevant asset is put into service.
FINANCIAL FIXED ASSETS
For investments held for the longer term, the value stated in the financial statements is determined on the basis of the purchase of underwriting cost, or the value attributed to the contributed assets. This cost is write-down to reflect any permanent impairment in value, when the investments have sustained losses and profit is forecast for the immediate future which might absorb the losses incurred. The original value is reinstated in future periods, when the reasons for the write-downs cease to apply.
50
RAW MATERIALS, SEMI-FINISHED GOODS, FINISHED GOODS AND WORK-IN-PROGRESS IN INVENTORY
Raw materials, semi-finished goods, work-in-progress, finished goods and goods for resale are stated at the lower of purchase or production cost and presumed realizable value based on market conditions. The costs of purchase of inventories comprise the purchase price paid to suppliers and accessory expenses incurred in bringing the inventories to their present location. Trade discounts, rebates and other similar items are deducted in determining the costs of purchase. The costs of conversion of inventories comprise costs directly related to the units of production. They also include a systematic allocation of fixed and variable production overheads that are incurred in converting materials into finished goods (fixed production overheads). The allocation of fixed production overheads to the costs of conversion is based on the normal capacity of the production facilities. The cost of raw materials, goods for resale and finished goods in inventory is assigned by using the last-in, first-out (LIFO) formula; the cost of semi-finished goods and work-in-progress in inventory is assigned by using the weighted average cost formula. Inventories are stated in the financial accounts net of the reserve for the write-down of inventories, in order to take into account obsolete or slow-moving inventories, if any. RECEIVABLES AND PAYABLES
Receivables are stated at their presumed realizable value. Payables are stated at their nominal value. ACCRUALS AND PREPAYMENTS
Accruals and prepayments include the portion of revenues and expenses covering two or more periods, in accordance with the accrual basis of accounting. RESERVES FOR RISKS AND CHARGES
Reserves for risks and charges are provided to cover certain or probable losses or liabilities for the Company for which the exact value and effective date are not determinable at the year end. The reserves represent the best estimate possible based on the information currently available. RESERVE FOR EMPLOYEE TERMINATION INDEMNITIES
The reserve for employee termination indemnities is provided to cover the full liability due to employees in conformity with current legislation, national labor contracts and additional indemnities agreed at the company level, net of indemnities advanced.
REVENUE AND EXPENSE
These are recognized in the financial statements in accordance with the principle of prudence and the accrual basis of accounting. Revenue relating to the sale of products or services is recognized at the moment that title passes or when services are rendered.
51
Research and development costs are considered to be items of expense and, as a consequence, are charged wholly against income as incurred. All commercial transactions entered into with parent companies, subsidiary undertakings or fellow companies are conducted at fair value based on normal market conditions.
DIVIDENDS
Dividends are dealt with through the income statement in the period in accordance with the accrual basis of accounting. Deferred tax is provided in respect of dividends recognized. LEASED ASSETS
As required by applicable laws and regulations, assets held under lease are capitalized in the balance sheet and the corresponding capital cost is shown as an obligation to the lessor. INCOME TAX
Provision is made in the income statement for income tax currently payable, with the corresponding balance sheet entry being tax payables based on a reasonable assessment of the income tax liability expected to be paid, taking into account unused tax losses, if any. Deferred tax assets and liabilities are determined in respect of temporary differences between the carrying amount of an asset or liability in the balance sheet and its tax base. The tax base of an asset or liability is the amount attributed to that asset or liability for tax purposes. In accordance with the principle of prudence, deferred tax assets are recognized if, and only if, it is reasonably certain that sufficient taxable profit will be available in the foreseeable future against which the related deferred tax assets can be utilized. No deferred tax is provided in respect of reserves in suspension of taxation if the conditions giving rise to their taxation are not expected to arise.
TRANSLATION CRITERIA FOR BALANCES DENOMINATED IN FOREIGN CURRENCY
Receivables and payables, other than monetary assets and liabilities, denominated in a foreign currency not adhering to the Eurozone are converted into Euro at the rate of exchange applying at year-end. The net gain or net loss resulting from translation at year-end rates of exchange of receivables and payables denominated in foreign currency, is dealt with through the income statement account line ‘foreign exchange gains/(losses)’. The net gain, if any, resulting from translation at year-end rates of exchange of items denominated in foreign currency works toward formation of the result for the year and, on approval of the financial statements, is recognized, to the extent not reduced by exchange rate movements after year-end, under a restricted equity reserve. DERIVATIVE FINANCIAL INSTRUMENTS
Derivative financial instruments are recorded at inception in the memorandum accounts at their notional contract amount. In accordance with the requirements of Italian laws and regulations, and taking into account the Pronouncements issued by the Italian Regulatory Commission for Companies and the Stock 52
Exchange (‘Consob’), International Accounting Standard IAS 39 has been applied in respect of the classification of financial instruments as “hedging instruments” or “non-hedging instruments”. The transactions put in place by the company are classified as “non-hedging transactions” insofar as not eligible for hedge accounting and, as a consequence, are valued at fair value at the balance sheet date, and the differential, whether negative or positive compared to the contractual value, is taken to the income statement for the period.
53
BALANCE SHEET
B
- FIXED ASSETS
B.I
- INTANGIBLE FIXED ASSETS
€
33,466,153
These are composed as follows: INCORPOR. AND SUBSEQUENT EXPENSES
INDUSTRIAL PATENT AND CONCESSIONS, LICENCES, TRADEMARKS INTELLECTUAL PROPERTY AND SIMILAR RIGHTS RIGHTS
GOODWILL
OTHER
TOTAL
SOFTWARE, LICENCES AND SIMILAR RIGHTS
TRADEMARKS
As of December 31, 2004: - Historic Cost
24.089
349.984
645.948
11.212.024
34.037.732
2.008.150
- Write-downs
-
(4.595)
(858)
-
-
-
(5.453)
- Amortization
(24.089)
(342.118)
(629.436)
(3.622.752)
(5.209.779)
(1.768.967)
(11.597.141)
0
3.271
15.654
7.589.272
28.827.953
239.183
36.675.333
- Additions
-
52.571
-
214.332
-
-
266.903
- Divestment (historic cost)
-
-
-
-
-
-
-
- Divestment (accumulated amortization)
-
-
-
-
-
-
-
- Write-downs
-
(3.020)
(8.005)
(795.468)
(2.372.484)
(223.235)
(3.402.212)
-
-
-
-
(52.571)
(21.300)
-
-
(21.300)
-
-
48.523.530
- Net value
48.277.927
MOVEMENT FOR THE YEAR
- Amortization
-
(52.571)
- Reclassification (historic cost)
-
-
- Reclassification (accumulated amortiz.)
-
-
As of December 31, 2005: - Historic Cost
24.089
402.555
645.948
11.405.056
34.037.732
2.008.150
- Write-downs - Amortization
-
(57.166)
(858)
-
-
-
(58.024)
(24.089)
(345.138)
(637.441)
(4.418.220)
(7.582.263)
(1.992.202)
(14.999.353)
-
251
7.649
6.986.836
26.455.469
15.948
33.466.153
- Net value
B.I.3 Industrial patent and intellectual property rights € 251 These relate primarily to expenses incurred in respect of new patent filings in progress. Amortization for year was Euro 3,020. Write-downs in the amount of Euro 52,571 were recorded in the year under review in order to reflect certain idle industrial patents as yet not fully appreciated. B.I.4 Concessions, licenses, trademarks and similar rights € 6,994,485 Encompassed herein are licenses relating to distribution rights acquired by the company from the subsidiaries DiaSorin AB (Sweden) and Diasorin Deutschland GmbH (Germany) part way 2003, the related value of which is amortized over 15 years. Amortization for the year was Euro 803,473. B.I.5 Goodwill € 26,455,469 This is represented by the net book value of goodwill arising in 2003 in respect of the incorporated undertaking Byk Diagnostica S.r.l. (Euro 1,704,308), and by the net book value of goodwill arising in 2003 from the merger of DiaSorin S.p.A. with and into Biofort S.p.A. (Euro 24,751,161). Of particular note, the goodwill, tax deductible, relating to Byk Diagnostica S.r.l. is amortized over 10 years as from second-half 2001, whilst the goodwill arising from the merger of DiaSorin S.p.A. with and into Biofort Diagnostica S.r.l. is amortized over 15 years. The differing amortization periods are justified by the diverse period of expected future benefit attaching to the items to which these related. Amortization for the year was Euro 2,372,484. B.I.7 Other intangible fixed assets € 15,948 These related the capitalized costs incurred in respect of product application software purchased for in-house use. The movement for the year reflects amortization in the amount of Euro 223,235. 54
B.II TANGIBLE FIXED ASSETS
â‚Ź 12,679,798
The balance on this account is detailed in the table below, placing in evidence the related movement for the year:
LAND AND BUILDINGS
PLANT AND MACHINERY
PRODUCTION AND COMMERCIAL EQUIPMENT
OTHER TANGIBLE FIXED ASSETS
TOTAL
TANGIBLES IN COURSE OF CONSTR. & PAY. ON ACCT
AS OF DECEMBER 31, 2004 - Historic cost
5.673.054
6.749.508
27.121.074
1.353.031
221.150
41.117.817
- Depreciation
(2.294.893)
(4.393.333)
(18.610.880)
(1.100.183)
-
(26.399.289)
- Write-downs
-
(106.011)
-
-
(106.011)
3.378.161
2.250.164
8.510.194
252.848
221.150
14.612.517
- Divestment (historic cost)
-
(67.435)
(980.011)
(27.865)
(221.150)
(1.296.461)
- Divestments (f.do ammort.)
-
60.692
891.359
25.422
-
977.473
67.445
719.554
3.504.134
42.262
17.215
4.350.610
(490)
510
-
21.280
21.300
(109.474)
-
(5.985.641)
-
-
-
- Net value MOVEMENT FOR THE YEAR
- Additions/Capitalization - Reclassificaiton (historic cost) - Reclassification (accumulated deprec.)
-
- Depreciation
(315.727)
- Write-downs
-
(728.927)
(4.831.513)
-
AS OF DECEMBER 31, 2005 - Historic cost
5.740.499
7.401.137
29.645.707
1.367.428
38.495
44.193.266
- Depreciation - Write-downs
(2.610.620) -
(5.061.568) (106.011)
(22.551.034) -
(1.184.235) -
-
(31.407.457) (106.011)
3.129.879
2.233.558
7.094.673
183.193
38.495
12.679.798
- Net value
There are no liens whatever attaching to the tangible fixed assets. Taking into account the remaining possibilities of utilizing the assets, the following economic/technical depreciation rates have been applied in the year under review: Buildings - Industrial Buildings Plant and Machinery - General plant - Specific plant - Machinery Equipment - Equipment - Equipment on free loan Other tangible fixed assets - Office machinery, furniture and fixtures - Electronic office machinery - Motor vehicles
5.5% 10% 12% 12% 40% 25% 12% 20% 20% to 25%
55
B.III FINANCIAL FIXED ASSETS
€ 51,955,908
Over the last twelve months, this balance moved forward Euro 18 due to the Israeli branch being opened. Registered office
Currency
Share capital Par value per % Number of share or share owner-ship shares or stake unit held
Historic cost
As of December 31, Net equity reported 2005 in latest approved set of accounts
Subsidiaries as of December 31, 2005
DIASORIN SA
BRUSSELS Belgium
EUR
1.674.000
6.696
99,99%
250
1.145.001
1.145.001
2.410.018
DIASORIN LTDA
SAN PAOLO Brasil
BRR
10.011.893
1
99,99%
10.011.892
2.588.027
2.588.027
5.968.254
ANTONY France
EUR
960.000
15
99,99%
62.494
1.717.500
1.717.500
1.994.760
MADRID Spain
EUR
1.453.687
6
99,99%
241.878
572.500
5.330.802
4.549.471
WOKINGHAM Great Britain
GBP
500
1
100,00%
500
572.500
572.500
244.465
DIASORIN Inc.
STILLWATER USA
USD
1
0
100,00%
100
6.297.500
30.914.849
19.919.455
DIASORIN MEXICO SA de CV
MEXICO CITY Mexico
MXP
100.000
1
99,99%
50.000
12.512
12.512
78.082
DIASORIN DEUTSCHLAND GMBH
DIETZENBACH Germany
EUR
275.000
1
100,00%
1
4.855.032
4.855.032
4.174.142
DIASORIN AB
Bromma Sweden
SEK
5.000.000
1
100,00%
1
4.818.667
4.818.667
6.481.968
DIASORIN Ltd
Rosh Haayin Israel
ILS
100
1
100,00%
100
18
DIASORIN S.A.
DIASORIN SA
DIASORIN Ltd
TOTAL Other investments CONSORZIO SOBEDIA
Saluggia Italy
EUR
5.000
20
TOTAL
1
18
18
22.579.257
51.954.908
1.000
1.000
22.580.257
51.955.908
Insofar as not deemed to be permanent in nature, investees reporting losses for the year have not been written down. As if any reminder were needed, the U.S. investee was written back part way 2003 in the amount of Euro 24,617 thousand in order to reflect the greater thereof, based on independent expert reports. C – CURRENT ASSETS C.I
- INVENTORIES
€ 16,937,516
These are composed as follows: - Raw materials - Semi-finished products - Finished products
Euro 4,178,116 Euro 7,781,155 Euro 4,978,245
The cost of raw materials, goods for resale and finished products is assigned by using the LIFO formula. The valuation of inventory at current cost would not have been significantly different from the LIFO valuation. Inventories are stated net of the reserve for the write-down of inventories amounting to Euro 1,535,921.
56
C.II RECEIVABLES
€ 42,393,814
As of December 31, 2005
As of December 31, 2004
22.717.584
24.782.973
12.401.748
7.197.471
408.821
302.793
1.353.728 4.172.385
1.345.678 3.906.088
1.339.548 42.393.814
291.463 37.826.466
C.II.1 Trade a –amounts falling due within next accounting period C.II.2 Parent company a –amounts falling due within next accounting period C.II.4-bis Tax credits a –amounts falling due within next accounting period C.II.4-ter Deferred tax assets a –amounts falling due within next accounting period b –amounts falling due after next accounting period C.II.5 Other a –amounts falling due within next accounting period Total
Set forth below is the breakdown of accounts receivable denominated in foreign currency and expressed at the rate of exchange prevailing at December 31, 2005: As of December 31, 2005 U.S. dollar
As of December 31, 2004
Currency
Euro
Currency
Euro
1.809.904
1.506.851
4.355.090
3.337.167
The breakdown of receivables is analyzed below by geographic region: Receivables Trade Subsidiaries Associated companies Parent company Taxes Tax prepayments Other Total
Italy 16.807.822
408.821 5.526.113 1.339.548 24.082.304
EU countries, excluding Italy Rest of Europe 1.725.808 234.416 6.567.405
8.293.213
Rest of the world 3.949.538 5.834.343
234.416
C.II.1 Trade receivables
9.783.881
Total 22.717.584 12.401.748 0 0 408.821 5.526.113 1.339.548 42.393.814
€ 22,717,584
The allowance for doubtful accounts amounts to Euro 3,549,780 including therein use for the period in the amount of Euro 828,509 and provision thereto in the amount of Euro 750,000. The company has put in place factoring transactions involving receivables ceded with recourse. Receivables ceded over the last twelve months came to Euro 29,315 thousand.
C.II.2 Receivables from subsidiaries
€ 12,401,748
a. amounts due within next accounting period – commercial receivables
€ 8,124,300
These relate to goods supplied and services provided to other Group companies. The detail thereof is set forth below:
57
D iaSorin D iaSorin D iaSorin D iaSorin D iaSorin D iaSorin D iaSorin D iaSorin D iaSorin D iaSorin Total
A s of D ecem ber 31, 2005 1.596.146 564.789 2.692.007 1.061.469 91.885 816.536 1.010.046 230.461 35.089 25.872 8.124.300
IN C . (U nited States) S.A.. (Spain) LT D A (B razil) S.A.. (France) SA.N V . (B elgium) LT D (G reat B ritain) D eutschland (G ermany) AB (Sweden) SA. D e CV . (M exico) LT D (Israel)
b. amounts due after next accounting period – financial receivables These relate to Group centralized treasury management in respect of: D iaSorin D iaSorin D iaSorin D iaSorin T otal
€ 3,378,306
A l 31/12/2005 1.564.210 332.166 1.180.600 301.330 3.378.306
S.A .. (Spain) S.A .. (France) SA. D e C V . (M exico) LT D (Israel)
c. amounts due within next accounting period – other receivables € 899,142 These relate to accounts receivable from DiaSorin Deutschland GmbH (Germany) by way of distributions of profits (dividend payout). C.II.4-bis Receivable/recoverable from taxation authorities € 408,821 These relate primarily to tax credits arising from or relating to tax withholdings paid and tax prepayments.
C.II.4-ter Deferred tax assets € 5,526,113 The deferred tax credit has been determined applying the tax rates expected to apply at the moment in which the related tax benefits will be used. Deferred tax assets provided in the year amounts to Euro 1,384,050 and relates to the amortization of goodwill written down in prior periods, entertainment expenses solely in respect of the period from 2006 to 2011, and FOREX differences not deductible/taxable unless realized. Deferred tax assets have been provided on the basis of the business plans currently available from which emerge the existence of future taxable profits not inferior to the differences that will be reversed. Deferred tax assets have been used in the amount of Euro 750,076, relating primarily to goodwill amortization pertaining to the period (Euro 626,636). Of particular note, encompassed within the amount under review are deferred tax assets resulting from temporary differences arising from the changed tax deductibility of goodwill amortization, now amortized over 18 years with effect from fiscal 2005. Analyzed below are the deferred tax assets recognized in the financial statements:
58
As of December 31, 2005 "Irap" regional "Ires" corporation tax effect (33% tax tax effect (4.25% tax rate) rate)
Temporary differences
Prepaid tax . Write-down of intangible fixed assets to reflect impairment loss other than temporary . Reserves for risks and charges . Entertainment expenses . Unrealized foreign exchange gains/(losses), Net . Fees to Directors . Other costs deductible in future periods Total
10.128.511 1.535.921 358.068 1.820.078 130.000 1.085.114 15.057.692
3.342.409 506.854 118.162 600.626 42.900 358.087 4.969.038
430.462 65.277 15.218 46.117 557.074
Total tax effect
3.772.871 572.131 133.380 600.626 42.900 404.204 5.526.112
Deferred tax assets have not been provided on temporary differences reversing beyond 2011 or for which the reversal period is unknown, the related amount of which equates Euro 2,806 thousand. C.II.5 Other receivables These are analyzed as follows:
€
As of December 31, 2005 242.925 69.744 991.758 35.121 1.339.548
Advances toward supplies Advances to employees Due from third parties in respect of receivables ceded Guarantee deposits and other Total
1,339,548
As of December 31, 2004 189.646 57.675 44.142 291.463
Encompassed within Other receivables are accounts receivable, in the amount of Euro 940 thousand, from FIRA S.p.A. (Finanziaria Regionale della Regione Abruzzo) as a result of ASL trade receivables from the Abruzzo Region being ceded thereto. Albeit seeing formal execution in December 2005, the receivables ceded will be collected part way 2006. C.III – FINANCIAL ASSETS NOT REPRESENTING FIXED ASSETS
€
5,127,546
C.III.6 Marketable securities € 126,298 These relate to the fair value measurement of derivative contracts entered into during the year in respect of cash surpluses denominated in U.S. dollars vis-à-vis Euro-denominated cash requirements. On December 15, 2005, the company put in place a transaction involving the sale of U.S. dollars (US$ 10 million, or Euro 8,326 thousand) and, at the same time, entered into two currency option contracts, with due-date December 15, 2006, the benchmark values of which are summarized below: - purchase of call US$/put Euro, strike 1.221 Plain Vanilla; nominal value 8,190,008.19; - sale of put US$/call Euro, strike 1.221 Plain Vanilla; nominal value 8,190,008.19. C.III.7 Subsidiaries € 5,001,248 These relate to the residual portion of the call financing provided to the U.S. subsidiary, for an amount totaling US$ 5,900,000. C.IV CASH AT BANK AND ON HAND
€
2,110,821
The balance on this line is represented exclusively by bank and post-office A/Cs, including therein the Group centralized treasury management account. Cash and valuables on hand amount to Euro 7,208. 59
D. – PREPAID EXPENSES AND ACCRUED INCOME These relate primarily to insurance and lease/hire rental prepaid expenses.
60
€
405,032
A.
SHAREHOLDERS’ EQUITY
€ 58,557,843
The movement for the year on shareholders’ equity is set out below: CHANGE IN SHAREHOLDERS' EQUITY As of December 31, 2004 Allocated to the legal reserve Allocated to retained earnings Profit for the year As of December 31, 2005
Share capital
Legal reserve
50.000.000
Share premium reserve 4.424.598
Profit (loss) carried forward 16.219 308.163 62.378 1.185.186
50.000.000
4.424.598
78.597
1.493.349
Profit (loss) for the year 1.247.564 (62.378) (1.185.186) 2.561.299
Patrimonio netto d’esercizio 55.996.544 2.561.299 58.557.843
2.561.299
Share capital as at December 31, 2005, fully subscribed and paid up, is represented by 50 million shares with a par value of Euro 1.00 each. Analyzed below is the composition of shareholders’ equity as at December 31, 2005: As of December 31, 2005
Distributable Status
Distributable portion
50.000.000 4.424.598
---A,B
---100%
78.597 1.493.349 2.561.299
---A,B,C A,B,C
---100% 95%
Equity reserves . Share capital . Share premium reserve Reserve formed out of earnings . Legal reserve . Retained earnings (accumulated deficit) . Profit (loss) for the year
A: for share capital increase B: for financing losses C: for distributions of profits (dividends) to stakeholders
B.
RESERVES FOR RISKS AND CHARGES
B.3 Other Other reserves are composed of the following:
€ 1,606,739 € 1,606,739
Reserve for Agents’ Indemnities This amounts to Euro 436,739 and represents the liability, if any, due to Company agents on contract termination for reason or cause attributable to the Company. Reserve for litigation This amounts to Euro 970,000 and relates to potential disputes commercial or fiscal in nature. Reserve for warranty risk This amounts to Euro 200,000 and has been formed to cover, based on past experience, the liability arising in future periods from product warranties attaching to sales recorded in prior years.
61
C. RESERVE FOR EMPLOYEE TERMINATION INDEMNITIES
€
6,175,810
The movement for the period is set out in the table below: As of December 31, 2004 Increases: - provision for the period Decreases: - use for the period As of December 31, 2005
Euro
5.855.800
"
925.096
" Euro
(605.086) 6.175.810
D. PAYABLES The year-end balance on payables is set forth in the table below:
€ 98,703,537
As of December 31, 2005
As of December 31, 2004
-
9.883.182 44.315.926
10.703.892 38.499.377
280.420 2.267.820
16.694.583
15.258.583
1.915.512 16.344.926 1.606.166 -
1.991.170 11.108.369 1.627.887 1.627.887
5.653.535
3.704.881
703.985
659.598
6.581.561 98.703.537
6.765.909 2.300.000 101.791.632
D.3 Stakeholder financing repayable a - amounts falling due within next accounting period b - amounts falling due after next accounting period
D.4 Banks a - amounts falling due within next accounting period b - amounts falling due after next accounting period
D.7 Suppliers a - amounts falling due within next accounting period
D.9 Subsidiaries abcd-
commercial amounts falling due within next accounting period financial amounts falling due within next accounting period other amounts falling due within next accounting period other amounts due falling after next accounting period
D.12 Taxes a - amounts falling due within next accounting period
D.13 Payables to Provident and social security institutions a - amounts falling due within next accounting period
D.14 Other a - amounts falling due within next accounting period
b – amounts falling due after next accounting period Total
As a result of Interbanca S.p.A. withdrawing from the stakeholder structure part way March 2005, the balance on stakeholder financing repayable has been reclassified at December 2005 to bank borrowings. The breakdown of payables by geographical area is set out in the table below: Payables Banks Suppliers Subsidiaries Taxation authorities Social and provident institutions Other Total
Italy 49.203.269 9.207.735 5.653.535 703.985 6.581.561 71.350.085
62
EU countries, excluding Italy
Rest of Europe Rest of the world
4.201.634 10.185.355
202.883
14.386.989
202.883
3.082.331 9.681.249
0 12.763.580
Total 49.203.269 16.694.583 19.866.604 5.653.535 703.985 6.581.561 98.703.537
D.4 Due to banks Bank borrowings are detailed in the table below: Lending institution Interbanca 2004 denominated in US$ Interbanca 2004 denominated in Euro Interbanca 2002 for Byk Group acquisition CRT Unicredit for 2000 Flood damage Total
€ 49,203,269
December 31, 2004 20,330,598 28,768,510 5,100,000 2,548,240 56,747,348
Repayments for the period (3,846,658) (4,794,750) (1,700,000) (280,420) (10,621,828)
FOREX difference 3,077,749 3,077,749
December 31, 2005 19,561,689 23,973,760 3,400,000 2,267,820 49,203,269
As if any reminder were needed, the Interbanca financing contracted in relation to the Biofort business transaction is secured by pledge on 85% of the shares representing the share capital of DiaSorin S.p.A., the parent company. Without prior consent from the bank, moreover, no part of the business or business line thereof, property, stocks, securities, equity interests or tangible/intangible fixed assets stated in the accounts for amounts in excess of Euro 2.5 million may be divested or transferred by the company, in any one financial period. And lastly, yet again without prior consent, no medium to long-term financing or loan entailing aggregate financial exposure in excess of Euro 4.0 million may be contracted by the company, in any one financial period. The interest expense on the financing is paid on a six-monthly basis as set out below:
Tranche denominated in Euro Tranche denominated in US$
01/01/2005 – 12/31/2006 EURIBOR at 6 months + 1.50 LIBOR at 6 months + 1.50
01/01/2007 – 12/31/2010 EURIBOR at 6 months + 1.25 LIBOR at 6 months + 1.25
And lastly, attaching to the Interbanca financing are covenants, the ratios of which, as reported in the following table, have been observed by the Group in 2005: D.7 Due to suppliers
€ 1,694,583
Financial ratios
2005 Benchmark value less than 0.2 less than 1.3 less than 2.5
Net financial charges/EBITDA Net financial position/Net equity Net financial position/EBITDA
2005 Group value 0,12 0,84 1,35
Supplier payables, all of which falling due within next accounting period, are commercial in nature. Supplier payables denominated in currency other than the Euro are analyzed below at historic exchange rate:
U.S. dollar Swedish crown Pound sterling Canadian dollar Israelian shekel
As of December 31, 2005 Currency Euro 1.290.961 1.117.044 1.291.092 136.799 28.420 41.529 33.000 5.899
63
As of December 31, 2004 Currency Euro 1.553.045 1.140.184 1.050.081 116.410 5.369 7.616 1.362 829 -
D.9 Due to subsidiaries a. amounts due within next accounting period – commercial
€ 19,866,604 € 1,915,512
These relate to goods supplied and services provided by subsidiaries. Accounts payable to subsidiaries are analyzed as follows: As of December 31, 2005 351.159 100.000 115.505 7.883 1.189.236 148.019 3.710 1.915.512
DiaSorin INC. (United States) DiaSorin S.A.. (Spain) DiaSorin S.A.. (France) DiaSorin SA.NV. (Belgium) DiaSorin Deutschland (Germany) DiaSorin AB (Sweden) DiaSorin LTD (Israel) Total
b. amounts due within next accounting period – financial payables € 16,344,926 These relate to Group centralized treasury management, as analyzed in the table below: As of December 31, 2005 9.325.694 833.615 298.927 5.878.967 7.723 16.344.926
DiaSorin INC. (United States) DiaSorin SA.NV. (Belgium) DiaSorin Deutschland (Germany) DiaSorin AB (Sweden) DiaSorin LTD (Great Britain) Total
c. due within next accounting period – other payables
€
1,606,166
These relate to the portion falling due in 2005 of accounts payable to DiaSorin Deutschland GmbH (Euro 1,073,600) and DiaSorin AB (Euro 532,566) in respect of distribution rights and production licenses purchased.
D.12 Taxes payable
€
5,653,535
These relate primarily to VAT payable on sales in suspension of taxation (Euro 2,032,165) and taxes pertaining to the period (Euro 5,194,766), less tax prepayments (Euro 2,044,680).
D.13 Amounts due to Provident and Social Security Institutions
€
703,985
These are composed as follows: As of December 31, 2005 604.787 66.613 32.585 703.985
INPS ASSIDIM/FONCHIM/FASI/FASCHIM/INAIL ENASARCO Total
64
2004 544.980 83.098 31.520 659.598
D.14 Other payables These are composed as follows:
â‚Ź
6,581,561
As of December 31, 2005 As of December 31, 2004 2.300.000 4.600.000 513.912 3.947.779 3.305.197 132.343 184.971 22.967 271.204 178.472 190.625 6.581.561 9.065.909
Due to Altana Pharma Due to ASI Due to employees Due to taxation authorities for VAT Germany Due to Farmafactoring Other amounts due Total
Amounts due to Altana Pharma relate to: - in the amount of Euro 1,500,000 to the account payable in relation to the equity interest acquired at end 2002, repaid in the year under review in the amount of Euro 1,500 thousand; - in the amount of Euro 800,000 to the financial payable acquired part way 2003 from DiaSorin Deutschland GmbH. Both accounts payable will be settled in the year ahead.
E. ACCRUED EXPENSES AND DEFERRED INCOME These are represented primarily by accrued interest expense.
65
â‚Ź
32,659
MEMORANDUM ACCOUNTS The memorandum accounts disclose commitments and guarantees provided by the Company to third parties, and are composed of the following: As of December 31, 2005 1.701.644 3.887.920 35.736.848
Guarantees given to unrelated parties Endorsements for guarantees received Other memorandum accounts Composed as follows : Assets belonging to the Company with Third Parties Goods belonging to the Company with Third Parties Contractual commitments Third party merchandize Collection orders in circulation Total
25.806.707 3.893 9.124.634 21.054 780.560
As of December 31, 2004 1.302.810 8.190.059 27.072.992 23.909.975 2.195 2.287.276 16.616 856.930
41.326.412
36.565.861
“Guarantees given to third parties” relate to Italian Market public tenders. The balance on the line “Endorsements for guarantees received” relates primarily to guarantees provided by INTERBANCA (equating Euro 3,000,000 and Euro 800,000) correlated to endorsement credit made available by way of financial support in the acquisition of the diagnostics business line of the Altana Pharma Group. The endorsement credit will be extinguished in the year ahead. Encompassed within “Other memorandum accounts” is the value of instruments and tools on free loan at customers. Also included therein are contract commitments relating to US$ 10,000,000 repurchased forward, as part of the U.S. currency forward contract agreed part way December, with maturity date December 2006. The accounting practice followed for assets held under lease conforms with the civil law practice ruling in Italy and involves accounting for lease installments already paid in the income statement. Adopting the finance method would have involved accounting for the interest on the principal financed and for the depreciation of the items purchased under lease, in line with the remaining possibility of utilizing the assets themselves, as well as reporting the remaining liability in the balance sheet. The effects of such a recalculation are not material on net income as of December 31, 2005 and shareholders’ equity for the year then ended.
66
INCOME STATEMENT
A. VALUE OF PRODUCTION The value of production is composed of the following:
€ 101,998,379
A.1 Revenues from sales and services € 96,237,907 Set forth below is the breakdown of revenues from sales and services by geographic region: Accounts in Euro/''000
Italy 2005 39.180
Rest of the world 2005 57.058
Total 2005 96.238
A.4 Increase in fixed assets for internal work € 443,067 The balance on this line is represented by costs capitalized in respect of assets restored beyond their originally assessed standard of performance and the spare parts used in the process thereof. A.5.b Other revenues and income The balance on this line is composed of the following:
€ 2005 2.125.371 127.015 190.275 40.970 392.743 414.992 472.373 3.763.739
Service costs recharged to subsidiary undertakings Royalty income Gain on fixed asset disposals Legal expenses recharged to customers following legal action Costs recharged to unrelated enterprises Contract penalty income Other revenues and income Total
3,763,739 2004 2.173.992 53.361 96.534 48.625 114.454 451.941 2.938.907
Service costs recharged to subsidiaries relate to Group corporate management centralized service costs recharged, on a basis proportionate to the services used by the relevant subsidiaries. Costs recharged to unrelated enterprises are represented, in the amount of Euro 184,882, by costs recharged to FIN2001 (Group assignor in the Biofort 2004 transaction) arising from or relating to the optional adjustment to the tax returns of the Brazilian branch, which amounted to Brazilian Real 929,626.70. As required by the agreement dated June 13, 2003 sealed with seller FIN2001, the liability, less franchise amounting to Euro 100,000.00, was recharged to the stakeholders of the assignor (FIN 2001 S.A.), guarantor in the fiscal period subject to assessment in respect of DiaSorin S.p.A. and its subsidiaries. And lastly, encompassed within contract penalty income is compensation envisaged by contract resulting from disruption in the supply of those commercialized products that account for a significant share of DiaSorin sales revenue.
67
B. PRODUCTION COSTS These are composed of the following:
€ 90,472,847
B.6 Raw materials, ancillary materials, consumable and goods for resale € 37,995,311 These include costs for purchases from subsidiaries in the amount of Euro 8,505,676.
B.7 Service costs These are composed of the following:
€ 21,105,081
2005 31.922 2.955.369 2.640.490 7.933.603 1.990.615 2.905.604 2.544.119 103.359 21.105.081
Healthcare Industrial expenses Outsourced services Selling expenses Overhead Expert consultancy Intercompany services Bank charges and expenses Total
2004 43.997 2.981.209 2.356.784 7.128.641 1.793.953 1.977.354 3.518.515 173.327 19.973.780
Intercompany service costs include recharged service costs relating to services provided by the Swedish and German subsidiaries pursuant to service agreements. Consultancy service costs relate, in the amount of Euro 972 thousand, to consultancy provided in respect of the LIAISON 2 project, as examined and discussed earlier in the Report on Operations. B.8 Expenses relating to the use of third party assets € 3,041,757 These relate to property rental expenses and related accessory charges, industrial patent royalty expense and lease/hire rentals attaching to equipment, motor vehicles and other. B.9 Personnel expenses € 16,920,990 Average headcount for 2005 was the following: Managers: 11 – Clerks: 233.6 – Workers: 84.9 giving an average headcount of 330.5 employees. B.10 Depreciation and write-downs € 10,190,424 The information by the sub-headings required is presented in the statement of income. B.12 Provisions for risks € These relate to provisions set aside to cover contingent tax and commercial litigation.
270,000
B.14 Other operating expenses € 1,667,490 These relate to membership fees, losses on fixed asset disposals, entertainment expenses, advertising slots, books, newspapers, journals, taxes and duties (other than income taxes) and outof-period expenses.
68
C. FINANCIAL INCOME (EXPENSES)
€ (3,930,584)
C.15 Income from investments € 899,142 This relates to dividends paid by the investee DiaSorin G.m.b.H. accounted for on accrual basis. C.16
Other financial income
€
726,895
C.16.d.1 From subsidiaries € 389,165 This relates, in the amount of Euro 301,886, to financing outstanding with the subsidiary DiaSorin Inc. and, in the amount of Euro 87,279, to centralized treasury management vis-à-vis other subsidiaries. C.16.d.4 Other The balance on this line is composed of the following:
€
2005 202.000 135.730 337.730
Interest income-Banks Other income Total
337,730
2004 69.456 23.348 92.804
Encompassed within other income is the net gain arising from the fair value measurement of derivative contracts, as discussed earlier. C.17 Interest and other financial charges
€ 4,412,650
C.17.d.1 From subsidiaries € 744,353 This relates to interest expense accrued at market rates on financial payables to operational subsidiaries, arising from centralized treasury management, as examined and discussed earlier. C.17.d.4 Other This is composed of the following:
€ 3.668.297
2005 2.362.905 1.067.124 55.815 182.453 3.668.297
Interest expense-Banks Factoring commission expense Financial guarantee commision expense Interest expense-Other Total
2004 2.387.094 974.900 148.476 273.945 3.784.415
The balance on “interest expense-banks” includes Euro 2,251 thousand relating to interest expense on loans provided by Interbanca. C.17.bis Foreign exchange gains/(losses) € ( 1,143,971) These relate to the net foreign exchange gain, of a financial and commercial nature, whether realized on credit or debit transactions concluded in the year under review or unrealized on credit or debit transactions outstanding valued at year-end rates of exchange. More pointedly, the realized net foreign exchange gain for the period amounts to Euro 721 thousand, whilst the unrealized portion is represented by a foreign exchange loss of Euro 1,865 thousand.
69
E. EXTRAORDINARY INCOME (EXPENSES)
€
(223)
E.21 Extraordinary expenses These relate to the equity investment loss in Sobedia Consortia.
€
(223)
E.22 Income taxes
€ 5,033,426
Income taxes for fiscal 2005 are detailed in the table below: Income tax currently payable of which "Irap" regional tax Advances Income tax, Net
2005 5.307.772 1.367.551 (274.346) 5.033.426
2004 2.006.768 981.564 (11.523) 1.995.245
Advance income tax is shown on a net basis, that is, less advance income tax provided in prior years and used (Euro 750 thousand). Set forth in the table below is reconciliation of income tax expense as per financial statements to theoretical income tax expenses: F/Y 2005 Taxable base 7,594,725
Pre-tax result as per financial statements Theoretical tax expense Upward temporary differences Downward temporary differences Permanent differences Taxable base ‘Ires’ corporation tax as per financial statements ‘Irap’ regional tax as per financial statements Total
Tax 2,506,259
5,045,915 (3,140,909) 2,440,333 11,940,064 3,940,221 1,367,551 5,307,772
In order to ensure a better understanding of the reconciliation of income tax expense as per financial statements to theoretical tax expenses, no account has been taken of ‘Irap’ regional tax insofar as the related taxable base thereof differs from the taxable base applicable to the pre-tax result. As such, theoretical tax expense has been determined applying the currently prevailing tax rate only (33% ‘Irap’ regional tax rate in 2004) al to the pre-tax result. Having regard to the reconciliation reported above, it may be noted that the permanent differences include the tax effect on costs not deductible relating to amortization of the goodwill arising from the Biofort merger, Euro 2,062,610.
70
C CO ON N SS O OL L II D DA AT TE ED D FF II N NA AN NC C II A AL L SS T TA AT TE EM ME EN NT T SS Y Y ee aa rr ee nn dd ee dd D D ee cc ee m m bb ee rr 33 11 ,, 22 00 00 55 D R II N N G GR RO OU U PP D II A A SS O OR •• C C oo nn ss oo ll ii dd aa tt ee dd B B aa ll aa nn cc ee SS hh ee ee tt •• C m ee nn tt C oo nn ss oo ll ii dd aa tt ee dd II nn cc oo m m ee SS tt aa tt ee m
Accounts in Euro/'000
ASSETS
As of December 31, 2005
As of December 31, 2005
Sub-total
Sub-total
Total
A. DUE FROM STAKEHOLDERS FOR CAPITAL NOT PAID IN
Total -
-
B. FIXED ASSETS I. 1. 3. 4. 5. 6. 7. 8.
INTANGIBLE FIXED ASSETS Incorporation and subsequent expenses Industrial patent and intellectual property rights
87
Concessions, licenses, trademarks and similar rights
Goodwill Consolidation differences Intangibles in progress and payments on account Other
Total Intangible fixed assets (B.I) II. 1. 2. 3. 4. 5.
TANGIBLE FIXED ASSETS Land and buildings Plant and machinery Production and commercial equipment Other Tangibles in course of construction and payments on account
Total Tangible fixed assets (B.II) III.
2.
FINANCIAL FIXED ASSETS 1. Investments: a. subsidiaries b. associated companies c. other Receivables d. Other
Total Financial fixed assets (B.III)
7.860 29.041 16.752 123 431
234 3 8.407 31.626 18.152 1 907
54.294
59.330
10.411 2.839 21.061 724 215
10.428 2.911 20.676 657 241
35.250
34.913
26
39
1
1
33
34
60
74
TOTAL FIXED ASSETS (B)
89.604
94.317
C. CURRENT ASSETS I.
INVENTORIES 1. Raw materials, ancillary materials and consumables 2. Work -n-progress and semi-finished goods 3. Contract work-in-progress 4. Finished goods and goods for resale 5. Advances
Total Inventories (C.I.)
72
6.089
5.714
10.298 10.230 33
8.294 8.639 41
26.650
22.688
Accounts in Euro/'000
ASSETS
As of December 31, 2005
As of December 31, 2004
Sub-total
Sub-total
Total
Total
II.
RECEIVABLES 1. Trade a. Amounts due within next accounting period Total Trade receivables (C.II.1)
43.504 43.504
2. Subsidiaries a. Amounts due within next accounting period Total Receivables from subsidiaries (C.II.2)
325 325
-
4-bis Receivable/Recoverable from taxation authorities a. Amounts due within next accounting period Total Receivable/Recoverable from taxation authorities (C.II.4 bis)
621 621
635 635
4-ter Deferred tax assets a. Amounts due within next accounting period a. Amounts due after next accounting period Total Deferred tax assets (C.II.4 ter)
9.267 9.267
8.384 8.384
5. Other a. Amounts due within next accounting period Total Other receivables (C.II.5)
2.332 2.332
1.256 1.256
56.049
53.498
Total Receivables (C.II)
III.
43.223 43.223
FINANCIAL ASSETS NOT REPRESENTING FIXED ASSETS
5. Marketable securities Total Financial assets not representing fixed assets (C.III.6)
126 126
-
Total Financial assets not representing fixed assets (C.III)
126
-
a. Amounts due within next accounting period
IV.
CASH AND CASH EQUIVALENTS 1. Bank and post-office deposits 3. Cash and valuables on hand
Total Cash and cash equivalents (C.IV)
6.104 12
9.149 12
6.116
9.161
TOTAL CURRENT ASSETS (C)
88.941
85.347
D. PREPAID EXPENSE AND ACCRUED INCOME 1. Accrued income 2. Prepaid expense
55 683
TOTAL PREPAID EXPENSE AND ACCRUED INCOME (D)
TOTAL ASSETS (A + B + C + D)
73
80 421 738
501
179.283
180.165
Accounts in Euro/'000
EQUITY AND LIABILITIES
As of December 31, 2005 Sub-total
Total
As of December 31, 2004 Sub-total
Total
A. SHAREHOLDERS' EQUITY I. II. IV. V. VIII. IX. X.
Share capital Share premium reserve Legal reserve Consolidation reserve Cumulative translation adjustment
50.000 4.425 79 867 308 2.864 4.678
Retained earnings (accumulated deficit)
Profit (loss) for the year
SHAREHOLDERS' EQUITY BEFORE MINORITY INTERESTS Minority interests
50.000 4.425 16 867 (3.028) (696) 3.623 63.221
-
-
SHAREHOLDERS' EQUITY AFTER MINORITY INTERESTS (A) B. RESERVES FOR RISKS AND CHARGES 1. Reserves for severance indemnities and similar obligations 2. Taxation reserves, including reserve for deferred taxation 3. Other
55.207
63.221 7.782 586 2.427
TOTAL RESERVES FOR RISKS AND CHARGES (B) C. RESERVE FOR EMPLOYEE TERMINATION INDEMNITIES
55.207 8.548 1.727 1.461
10.795
11.736
6.745
6.456
D. PAYABLES 3. Stakeholder financing repayable a. Amounts due within next accounting period b. Amounts due after next accounting period Total Stakeholder financing repayable (D.3)
-
9.883 44.316 54.199
4. Banks a. Amounts due within next accounting period b. Amounts due after next accounting period Total Due to banks (D.4)
11.024 40.159 51.183
455 5.450 5.905
5. Other financers a. Amounts due within next accounting period b. Amounts due after next accounting period Total Due to other financers (D.5)
2.012 2.791 4.803
1.746 1.750 3.496
52 52
74 74
20.159 20.159
18.257 18.257
6. Advances Total Advances (D.6) 7. Suppliers a. Amounts due within next accounting period Total Supplier payables (D.7)
74
Accounts in Euro/'000
LIABILITIES
As of December 31, 2005 Sub-total
12. Taxes a. Amounts due within next accounting period Total Taxes payable (D.12)
Total
As of December 31, 2004 Sub-total
6.951 6.951
6.949 6.949
13. Provident and social security institutions a. Amounts due within next accounting period Total Due to provident and social security institutions (D.13)
1.098
1.089
1.098
1.089
14. Other a. Amounts due within next accounting period b. Amounts due after next accounting period Total Other payables (D.13)
11.955 11.955
4.657 10.146 14.803
TOTAL PAYABLES (D)
96.201
Total
104.772
E. ACCRUED EXPENSE AND DEFERRED INCOME 2. Accrued expense and deferred income
2.321
TOTAL ACCRUED EXPENSE AND DEFERRED INCOME (E) TOTAL EQUITY AND LIABILITIES (A + B + C + D + E)
75
1.994 2.321
1.994
179.283
180.165
Accounts in Euro/'000
MEMORANDUM ACCOUNTS
As of December 31, 2005
As of December 31, 2004
Sub-total
Sub-total
Total
1.702 4.419 40.582
Guarantees provided to other enterprises Endorsements for guarantees received Other memorandum accounts
1.303 8.190 29.866 46.703
Total
76
Total
39.359
_____ C O N S O L I D A T E D I N C O M E S T A T E M E N T Accounts in Euro/'000 F/Y 2005 Sub-total A. VALUE OF PRODUCTION 1. Revenues from the sale of goods and services 2. Change in work-in-progress, semi-finished goods and finished goods
4. Increase in fixed assets for internal work 5. Other revenues and income: b. Other
F/Y 2005 Total
Sub-total
156.220
142.524
1.133 5.288
422 4.390
2.698
2.008
TOTAL VALUE OF PRODUCTION (A)
165.339
B. PRODUCTION COSTS 6. Raw materials, ancillary materials, consumables and goods for resale 7. Service costs 8. Expenses relating to the use of third party assets 9. Personnel a. Salaries and wages b. Social contributions c. Employee termination indemnities d. Severance and similar charges e. Other personnel expenses Total Personnel expenses (B.9)
Total
149.344
44.411 30.995 6.077
44.492 28.365 4.622
31.625 7.293 1.236 1.078 319
29.801 6.875 1.211 612 304
41.551
38.803
5.658 12.600 53
5.815 12.241 -
935
540
19.246
18.596
10. Depreciation and write-downs: a. Amortization of intangible fixed assets b. Depreciation of tangible fixed assets c. Write-down of intangible and tangible fixed assets d. Write-down of receivables included in current assets and
of liquid funds Total Depreciation and write-downs (B.10) 11. Change in raw materials, ancillary materials, consumables and goods for resale
(910) 305 282 3.248
12. Provision for risks and charges 13. Other provisions 14. Other operating expenses TOTAL PRODUCTION COSTS (B) DIFFERENCE BETWEEN THE VALUE OF PRODUCTION AND PRODUCTION COSTS (A - B)
77
532 761 207 2.834 145.205
139.212
20.134
10.132
Accounts in Euro/'000 F/Y 2005 Sub-total
F/Y 2004 Total
Sub-total
Total
C. FINANCIAL INCOME AND EXPENSES 16. Other financial income a. From receivables classified under fixed assets - Other d. Income other than that listed above 4. Interest and commission from other and other income
-
1
650
423
650
424
(55)
(56)
(4.398)
(4.572)
Total Interest and other financial charges (C.17)
(4.453)
(4.628)
17-bis Foreign exchange gains/(losses)
(1.088)
1.080
Total Other financial income (C.16) 17. Interest and other financial charges a. Subsidiaries c. Parent company d. Interest and financial charges other than that listed above 4. Other
TOTAL FINANCIAL INCOME AND EXPENSES (C15 + C16 - C17+C17-bis)
(4.891)
(3.124)
E. EXTRAORDINARY INCOME AND EXPENSES 20. Extraordinary income: a. Gains on disposals c. Other extraordinary income
196
Total Extraordinary income (E.20)
-
21. Extraordinary expenses: b. Taxes relative to prior periods c. Other extraordinary expenses
(55) (64)
(1.415)
Total Extraordinary expenses (E.21)
196
(1.415)
(119)
TOTAL EXTRAORDINARY ITEMS (E.20 - E.21)
(1.415)
77
PROFIT BEFORE TAX (A - B +/- C +/- D +/- E)
13.828
7.085
9.150
3.462
4.678
3.623
-
-
4.678
3.623
22. Advance, deferred and current income tax NET PROFIT FOR THE YEAR 23 Minority interests GROUP NET PROFIT FOR THE YEAR
78
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR 2005 Information about the business activity pursued by the Group and significant post-balance sheet events can be found in the Report on Operations. Of particular note, in order to conform with civil law amendments introduced by Italian legislative decree 6/2003 relating to the presentation format required for consolidated balance sheets and consolidated income statements and, moreover, to ensure year-on-year consistent comparison, the like-for-like balances reported the year before have been duly reclassified. FORM AND CONTENT OF THE FINANCIAL STATEMENTS The consolidated financial statements for 2005 have been prepared in accordance with Italian legislative decree 127/1991 and are represented by the consolidated balance sheet, the consolidated statement of income and these Notes to the consolidated financial statements. The Notes serve to illustrate, analyze and explain the data included in the consolidated financial statements and contain that information which is required by Article 38 of Italian legislative decree 127/1991 and by other applicable laws. Furthermore, other information required for presenting a true and fair view of the state of affairs and financial condition of the Group is included, even though not specifically requested by law. The consolidated financial statements comprise the accounts of DiaSorin S.p.A., the parent company, and of all Italian and foreign subsidiaries that constitute the DiaSorin Group, in which DiaSorin S.p.A. holds more than 50% of voting capital at December 31, 2005. Those accounts are included in the consolidation on a line-by-line basis pursuant to Article 26 of the aforementioned Italian legislative decree 127/91. Non-operational subsidiaries, or subsidiaries not meaningful at the Group level, are accounted for under the cost method. Set out below is the list of companies included in the consolidation on a line-by-line basis: Company DiaSorin S.p.A. DiaSorin Inc. DiaSorin S.A./N.V. DiaSorin S.A. DiaSorin Ltd. DiaSorin Ltda DiaSorin S.A. DiaSorin Deutschland GmbH DiaSorin AB DiaSorin SA de CV
Location Italy U.S.A. Belgium Spain Great Britain Brazil France Germany Sweden Mexico
% ownership Parent company 100,00% 99,99% 99,99% 100,00% 99,99% 99,99% 100,00% 100,00% 99,99%
Included in the scope of consolidation for 2005 was the Mexican subsidiary, whilst accounted for under the cost method, insofar as not yet operational, was Diasorin L.t.d., held wholly, with registered office in Israel. The consolidated financial statements have been prepared from the statutory financial statements approved or prepared by the Boards of Directors for approval by the shareholders of the individual 79
consolidated companies, adjusted, where applicable, to conform with Group accounting policies, and to eliminate tax-driven adjustments. The Group’s accounting policies conform with the requirements contemplated by applicable laws and regulation, interpreted and integrated by the accounting principles pronounced by the Italian Accounting Profession (Consiglio Nazionale dei Dottori Commercialisti e dei Ragionieri) and, in the absence thereof, and not in conflict thereto, the international accounting standards issued by the International Accounting Standards Board (I.A.S.B.) Italy. The statement reconciling net income and net equity as per the financial statements of DiaSorin S.p.A. as at December 31, 2005 to consolidated net income and consolidated net equity for the year then ended is presented in the Note relating to consolidated net equity. Set out as an attachment hereto are summary schedules reporting the aggregate and consolidated data taken from the financial statements used for the consolidation. PRINCIPLES OF CONSOLIDATION AND TRANSLATION ACCOUNTS DENOMINATED IN FOREIGN CURRENCY
CRITERIA
FOR
The principles of consolidation applied in the preparation of the consolidated financial statements are set out below: The assets, liabilities, revenues and expenses of the companies consolidated on a line-by-line basis are included in the consolidated financial statements after eliminating the carrying value of the investments against the related shareholders’ equity at the consolidated balance sheet date. The differences arising on elimination of the investments against the related shareholders’ equity of the subsidiaries are allocated, if possible, to the assets and liabilities of the undertaking being consolidated. The residual value, if positive, is capitalized as an asset under “consolidation difference” and amortized over fifteen years or, if negative, recorded as a component of consolidated equity under “consolidation reserve”. Intercompany receivables, payables, revenues and expenses arising on transactions between consolidated companies that have not been realized with third parties are eliminated. Intercompany profits and losses arising on transactions between companies included in the consolidation are eliminated. The balance sheets of foreign subsidiaries denominated in currencies other than the Euro, the functional currency for the consolidated financial statements, are converted into Euro applying the exchange rates in effect at year-end. The income statements of foreign subsidiaries are converted applying the applicable average exchange rate for the year. Exchange differences resulting from the translation of opening shareholders’ equity at current exchange rates and the exchange rates used at the end of the prior year, as well as differences between net income expressed at average exchange rate and that expressed at year-end exchange rate, are reflected appropriately in consolidated shareholders’ equity. The exchange rates applied for fiscal 2005 to convert into Euro the financial statements denominated in foreign currency are set out below: Currency
Exchange rate at 12/31/2005 1,1797 0,6853 2,7432 9,3885 5,4692
U.S. dollar Pound sterling Brazilian real Swedish crown Israelian shekel
80
Exchange rate at 12/31//2004 1,3621 0,705 3,6729 9,0206 -
ACCOUNTING POLICIES AND BASIS OF PREPARATION The accounting policies, which are unchanged from the previous year, are the following:
INTANGIBLE FIXED ASSETS
Intangible fixed assets acquired from third parties are stated at purchase price. Contributed assets are stated at their respective contribution value, based on independent expert reports. The amortizable amount of an intangible asset is allocated on a systematic basis over the contractual term or period of legal right and, in all cases, on a basis consistent with the period of presumed future benefit and useful life expectancy within the Group. The depreciation rates applied are detailed in the Note relating to intangible fixed assets The goodwill stated in the individual financial statements included in the consolidation is amortized over a period ranging from 10 years to 15 years, whilst the consolidation differences is amortized over 15 years, based on in-house valuations and analysis, development plans and programmed return on operations. In the case of a permanent impairment in value, regardless of the amortization already provided, the asset is written down accordingly. If, in subsequent periods, the reasons for the write-down cease to apply, the original value is reinstated.
TANGIBLE FIXED ASSETS
Tangible fixed assets are stated at historic acquisition cost. Cost includes accessory expenses, as well as the portion of direct and indirect costs that can be reasonably attributed to the assets. Contributed assets are stated in the consolidated financial statements at the value attributed thereto on the basis of the value determined by independent expert reports. Ordinary maintenance expenditure is charged against the consolidated income statement in the period in which it is incurred. Subsequent expenditure on property, plant and equipment is recognized as an asset if, and only, the expenditure improves the condition of the asset beyond its originally assessed standard of performance or extends the useful life of the related asset. An item of property, plant and equipment is eliminated from the consolidated balance sheet on disposal, or scrapped when the asset is permanently withdrawn from use and no future economic benefits are expected from its disposal. The gross carrying value of an item of property, plant and equipment is allocated on a systematic basis over the useful life of the asset during which depreciation is provided, on a systematic basis, each period at constant rates determined according to the asset’s expected utility to the enterprise and residual life expectancy. Accordingly, the net book values tend to express the amount recoverable in future periods through cash flows of an ordinary nature. The depreciation rates applied are detailed in the Note relating to tangible fixed assets 81
In the case of a permanent impairment in value, regardless of the depreciation already provided, the asset is written down accordingly. If, in subsequent periods, the motives for the write-down cease to apply, the original value is reinstated. For assets acquired in the financial period, the annual depreciation is taken at half the regular rate owing to minor period of utilization. Assets as yet to enter into service are not depreciated. Certain Group companies use assets financed under leasing arrangements (finance leases, which are accounted for in accordance with the finance method required by international accounting standards.
FINANCIAL FIXED ASSETS
Equity investments not included in the consolidation on a line-by-line basis are carried at cost, as written down to reflect any permanent impairment in value. If, in subsequent periods, the reasons for the write-down cease to apply, the original value is reinstated.
RAW MATERIALS, SEMI-FINISHED GOODS, FINISHED GOODS AND WORK-IN-PROGRESS IN INVENTORY
Raw materials, semi-finished goods, work-in-progress, finished goods and goods for resale are stated at the lower of purchase or production cost and presumed realizable value based on market conditions. The costs of purchase of inventories comprise the purchase price paid to suppliers and accessory expenses incurred in bringing the inventories to their present location. Trade discounts, rebates and other similar items are deducted in determining the costs of purchase. The costs of conversion of inventories comprise costs directly related to the units of production. They also include a systematic allocation of fixed and variable production overheads that are incurred in converting materials into finished goods (fixed production overheads). The allocation of fixed production overheads to the costs of conversion is based on the normal capacity of the production facilities. The cost of raw materials, goods for resale and finished goods in inventory is assigned primarily by using the last-in, first-out (LIFO) formula; the cost of semi-finished goods and work-inprogress in inventory is assigned by using the weighted average cost formula. Inventories are stated in the consolidated accounts net of the reserve for the write-down of inventories, in order to take into account obsolete or slow-moving inventories, if any. RECEIVABLES AND PAYABLES
Receivables are stated at their presumed realizable value. Payables are stated at their nominal value. ACCRUALS AND PREPAYMENTS
82
Accruals and prepayments include the portion of revenues and expenses covering two or more periods, in accordance with the accrual basis of accounting. RESERVES FOR RISKS AND CHARGES
Reserves for risks and charges are provided to cover certain or probable losses or liabilities for the Group. The reserves represent the best estimate possible based on the information currently available. RESERVE FOR EMPLOYEE TERMINATION INDEMNITIES
The reserve for employee termination indemnities is provided to cover the full liability due to employees in conformity with current legislation, national labor contracts and additional indemnities agreed at the company level, net of indemnities advanced. REVENUE AND EXPENSE
These are recognized in the consolidated financial statements in accordance with the principle of prudence and the accrual basis of accounting. Revenue relating to the sale of products or services is recognized at the moment that title passes or when services are rendered. Research and development costs are considered to be items of expense and, as a consequence, are charged wholly against income as incurred.
INCOME AND DEFERRED TAXES
Income taxes currently payable are determined on the basis of estimated taxable income pursuant to the tax laws and tax rates enacted in the countries in which the Group companies operate. The consolidated financial statements include provision for deferred income taxes relating to certain temporary differences between the carrying amount of an asset or liability in the consolidated balance sheet and its tax base. The tax base of an asset or liability is the amount attributed to that asset or liability for tax purposes. In accordance with the principle of prudence, deferred tax assets are recognized if, and only if, it is reasonably certain that sufficient taxable profit will be available in the foreseeable future against which the related deferred tax assets can be utilized. No deferred tax is provided in respect of reserves in suspension of taxation if the conditions giving rise to their taxation are not expected to arise. In addition, deferred tax liabilities or deferred tax assets relating to the more significant consolidation adjustments are determined. Deferred tax assets and deferred tax liabilities are set off if they relate to the same enterprise. The related balance resulting therefrom, if an asset, is taken to “Other receivables” among current assets or, if a liability, to the “Reserve for deferred taxation”.
83
TRANSLATION CRITERIA FOR BALANCES DENOMINATED IN FOREIGN CURRENCY
Receivables and payables denominated in a foreign currency not adhering to the Eurozone are converted into Euro at the rate of exchange applying at year-end.; the foreign exchange gains or losses resulting from the translation at year-end exchange rates of receivables and payables denominated in foreign currency are dealt with through the consolidated income statement under “financial income” or “financial expenses”, respectively. DERIVATIVE FINANCIAL INSTRUMENTS
Derivative financial instruments are recorded at inception in the memorandum accounts at their notional contract value. In accordance with the requirements of Italian laws and regulations, and taking into account the Pronouncements issued by the Italian Regulatory Commission for Companies and the Stock Exchange. (“Consob”), International Accounting Standard IAS 39 has been applied in respect of the classification of financial instruments as “hedging instruments” or “non-hedging instruments”. The transactions put in place by the Group are classified as “non-hedging transactions” insofar as not eligible for hedging accounting and, as a consequence, are valued at fair value at the consolidated balance sheet date, and the differential, whether negative or positive compared to the contractual value, is taken to the consolidated income statement for the period.
84
CONSOLIDATED BALANCE SHEET B – FIXED ASSETS Set out as an attachment hereto are statements reporting the movement for the period on intangible, tangible and financial fixed assets. B.I – INTANGIBLE FIXED ASSETS € 54,294 thousand The movement for the period on intangible fixed assets is set out as an attachment hereto under Appendix No. 1. € 87 thousand B.I.1 – Incorporation and subsequent expenses These relate primarily to expenses associated with the formation of the Group subsidiaries and are depreciated over 5 years.
B.I.4 – Concessions, licenses and similar rights € 7,860 thousand These relate to distribution and production rights purchased the year before. Concessions and licenses are amortized over the term of the underlying contract. Trademarks are depreciated over 5 years. B.I.5 – Goodwill € 29,041 thousand The goodwill recognized in the consolidated financial statements stems primarily from the merger transactions put in place in Italy (net book value of the relevant goodwill as at December 31, 2005 was Euro 26,455 thousand) and in Germany (net book value of the relevant goodwill as at December 31, 2005 was Euro 2,551 thousand). The goodwill recognized in the financial statements of the parent company is represented by the net book value of the goodwill relating to the incorporated enterprise Byk Diagnostica S.r.l. (Euro 1,704 thousand), and by the net book value of the goodwill arising from the merger of DiaSorin S.p.A. with and into Biofort S.p.A. (Euro 24,751 thousand). Of particular note, the goodwill relating to Byk Diagnostica S.r.l. is amortized over 10 years with effect from second-half 2001 and is, moreover, tax deductible, whilst the items of goodwill arising from the merger between Biofort S.p.A. and DiaSorin S.p.A. and between the German investees are amortized over 15 years. The differing amortization periods are justified by the diverse useful life expectancy attaching to the products to which these relate. The goodwill value and related amortization period attaching thereto are supported by Group results and by future development programs. € 16,752 thousand B.I.6 – Consolidation difference This equates the greater value between the cost of acquisition recorded by the parent company visà-vis the respective net equity of the investees at their acquisition date. As thus determined, the amount is amortized over a period of 15 years, on a basis consistent with the expected duration and development of the Group products and activities, and applying the same criteria as that followed for goodwill.
B.I.7 – Intangibles in progress and payments on account These relate primarily to software projects currently in progress.
€
123 thousand
B.I.8 – Other intangible fixed assets These relate primarily to software and are amortized over 5 years.
€
431 thousand
85
B.II – TANGIBLE FIXED ASSETS
€ 35,250 thousand
The movement for the year is set out as an attachment hereto under Appendix No. 2. Taking into account the remaining possibilities of utilizing the assets, the following economic/technical depreciation rates have been applied in the year: Buildings - Industrial Buildings Plant and Machinery - General plant - Specific plant - Machinery Equipment - Equipment - Equipment on free loan Other tangible fixed assets - Office machinery, furniture and fittings - Electronic office machinery - Motor vehicles
5.5% 10% 12% 12% 40% 25% 12% 20% 20% to 25%
Additions for the year relate primarily to commercial instrumentation and equipment.
B.III – FINANCIAL FIXED ASSETS
€
B.III 1) a) – Investments in subsidiaries
60 thousand
€
26 thousand
These relate to investments in the ‘Ukasse’ German pension fund, which is not included in the consolidation on a line-by-line basis insofar as immaterial.
B.III 2) d) – Third party receivables
€
33 thousand
These relate to guarantee deposits.
C – CURRENT ASSETS
C.I – INVENTORIES
€ 26,650 thousand
These are stated net of the reserve for the write-down of inventories, which amounts to Euro 2,497 thousand. The inventory breakdown is set out as an attachment to the consolidated financial statements.
86
C.II – RECEIVABLES
€ 56,049 thousand
Receivables are comprised of the following: As of December 31, 2005
As of December 31, 2004
Trade receivables Receivables from subsidiaries Receivable/recoverable from taxation authorities Deferred tax assets
43.504 325 621 9.267
43.223 635 8.384
Other receivables Total
2.332 56.049
1.256 53.498
C.II.1 – Trade receivables € 43,504 thousand Trade receivables, net, relate, in the amount of Euro 36,563 thousand, to the domestic markets of the companies included in the consolidation. Of particular note, amounts receivable from homeland government agencies amount to Euro 20,158 thousand. The breakdown of receivables by geographic region is set out in the table below: As of December 31, 2005
As of December 31, 2004
16.808 13.318 9.127 4.251 43.504
21.107 9.650 7.509 4.957 43.223
Italy Europe U.S., Canada and South America Other Total
C.II.4-bis Receivable/recoverable from taxation authorities
€
621 thousand
These relate primarily to tax withholdings paid and tax prepayments. C.II.4-ter Deferred tax assets
€ 9,267 thousand
The deferred tax asset has been determined applying the tax rates expected to apply at the moment in which the related tax benefits will be used. Analyzed below are the deferred tax assets recognized in the consolidated financial statements: Temporary differences Advance taxation . Write-down of intangible fixed assets to reflect permanent impairment in value . Reserves for risks and charges . Entertainment expenses . Unrealized foreign exchange gains/(losses) . Elimination of intercompany profits . Other expenses deductible in future periods Total
10.538 3.911 358 1.820 8.209 1.185 26.021
87
Total
tax effect
3.925 1.457 133 601 2.709 442 9.267
C.II.5 Other receivables
€ 2,332 thousand
These are analyzed as follows: As of December 31, 2005
As of December 31, 2004
256 168 449 992 467 2.332
190 172 364 530 1.256
Advances to suppliers Advances to employees Indirect taxes, Net, recoverable Due from third parties in relation to receivables ceded Guarantee deposits and other Total
C.III – FINANCIAL ASSETS NOT REPRESENTING FIXED ASSETS C.III.6 Marketable securities
€ 126 thousand € 126 thousand
These relate to the fair value measurement of derivative contracts entered into during the year in respect of cash surpluses denominated in U.S. dollars vis-à-vis Euro-denominated cash requirements. On December 15, 2005, the company put in place a transaction involving the sale of U.S. dollars (US$ 10 million, or Euro 8,326 thousand) and, at the same time, entered into two currency option contracts, with due-date December 15, 2006, the benchmark values of which are summarized below: - purchase of call US$/put Euro, strike 1.221 Plain Vanilla; nominal value 8,190,008.19; - sale of put US$/call Euro, strike 1.221 Plain Vanilla; nominal value 8,190,008.19. D. – PREPAID EXPENSES AND ACCRUED INCOME These relate primarily to insurance and lease/hire rental prepaid expense.
88
€ 738 thousand
A. – SHAREHOLDERS’ EQUITY
€ 63,221 thousand
€ 50,000 thousand Share capital as at December 31, 2005, fully subscribed and paid up, is represented by 50 million bearer shares with a par value of Euro 1 each. Share capital
€ 867 thousand The consolidation reserve reflects the negative differences arising on elimination of the carrying value of the equity investments against the related shareholders’ equity. Consolidation reserve
€ 308 thousand This reserve reflects the cumulative translation adjustment of the respective net equity of the companies included in the consolidation on a line-by-line basis arising as a result of the conversion at year-end exchange rates of the financial statements denominated in a currency other than the Euro. Cumulative translation adjustment
The movement on shareholders’ equity for the year is set out in the table below: c SHAREHOLDERS' EQUITY
Share capital
Share premium reserve
Legal reserve
As of December 31, 2004 Allocation to legal reserve Allocation to retained earnings Cumulative translation adjustment Profit for the year As of December 31, 2005
50.000
4.425
16 63
50.000
4.425
79
Consolidation Cumulative Retained Net income Shareholders' reserve translation earnings (loss) equity for adjustment(accumulated deficit) the year 867 (3.028) (696) (680) 55.207 (16) 3.560 696 3.336 3.336 4.678 4.678 867 308 2.864 4.678 63.221
Reconciliation of net income and shareholders’ equity as per DiaSorin S.p.A. financial statements as at December 31, 2005 to consolidated net income and consolidated shareholders’ equity for the year then ended (all amounts in thousands of Euro): F/Y 2005 net profit
F/Y 2005 net equity
F/Y 2004 net profit
As per financial statements of DiaSorin S.p.A. Effect of combining results of consolidated companies and difference between the carrying amount of consolidated companies and related net equity Effect of eliminating unrealized intragroup profits, net of related tax effect Effect of adjustments recorded to conform with Group accounting policy (translation criteria) Effect of eliminating intragroup dividends
2.561
58.558
1.248
55.997
54.749
3.805
8.943
4.707
2.688
2.482
(789)
(3.381)
(569)
(2.593)
(2.024)
(899)
(899)
(878) (885)
(885)
878 (1.951)
As per consolidated financial statements of the DiaSorin Group
4.678
63.221
3.623
55.207
52.584
B. – RESERVES FOR RISKS AND CHARGES
F/Y 2004 F/Y 2003 net equity net equity
€ 10,795 thousand
€ 7,782 thousand These are represented by employee severance indemnities accrued pursuant to payroll agreements or law and relate primarily to the German and Swedish subsidiaries.
B.1 – Reserves for severance indemnities and similar obligations
€ 586 thousand These are represented by deferred tax liabilities, net of deferred tax assets, where offsettable, emerging at the individual consolidated companies. B.2 – Taxation reserves, including reserve for deferred taxation
89
B.3 – Other € 2.427 thousand Other reserves include amounts set aside to cover the tax assessment conducted in respect of the Brazilian subsidiary (Euro 679 thousand) and Euro 1,607 thousand referred to the parent company, relating to: Reserve for Agents’ Indemnities This amounts to Euro 437 thousand and represents the liability, if any, due to Company agents on contract termination for reason or cause attributable to the Company. Reserve for litigation This amounts to Euro 970 thousand and relates to litigation outstanding commercial or fiscal in nature. Reserve for warranty risk This amounts to Euro 200 thousand and has been formed to cover, based on past experience, the liability arising in future periods from product warranties attaching to sales recorded in prior years. C – RESERVE FOR EMPLOYEE TERMINATION INDEMNITIES € 6,745 thousand This relates primarily to the parent company. The movement for the period is set out in the table below: 2005 6.456 1.230 (941) 6.745
Opening balance Provision Use/Other As of December 31, 2005
D. – PAYABLES
€
The year-end balance on payables is set forth in the table below:
90
2004 6.663 1.211 (1.418) 6.456
96,201 thousand
As of December 31, 2005 As of December 31, 2004 Stakeholder financing repayale a. amounts due within next accounting period b. amounts due after next accounting period Bank borrowings a. amounts due within next accounting period b. amounts due after next accounting period Payables to other financers a. amounts due within next accounting period b. amounts due after next accounting period Advances a. amounts due within next accounting period Supplier payables a. amounts due within next accounting period Taxes payables a. amounts due within next accounting period Payables to provident and social security institutions a. amounts due within next accounting period Other payables a. amounts due within next accounting period b. amounts due after next accounting period Total
-
9.883 44.316
11.024 40.159
455 5.450
2.012 2.791
1.746 1.750
52
74
20.159
18.257
6.951
6.949
1.098
1.089
11.955 96.201
4.657 10.146 104.772
As a result of Interbanca S.p.A. withdrawing from the stakeholder structure part way March 2005, the balance on stakeholder financing repayable has been reclassified at December 31, 2005 to bank borrowings. D.4 – Due to banks € 51,183 thousand These relate to the parent company and to the U.S. subsidiary, as detailed in the table below:
Interbanca 2004 loan denominated in US$ Interbanca 2004 loan denominated in Euro Interbanca 2002 loan relating to Byk Group acquisition Well Fargo Bank (LU.S. loan) CRT Unicredit relating to 2000 Flood Damage loan Total
Currency
Current portion
Non-current portion
Total
$ or € Euro Euro $ or € Euro
4.616 3.913 4.795 1.700 377 319 297 11.024
18.461 15.649 19.179 1.700 1.958 1.660 1.971 40.159
23.077 19.562 23.974 3.400 2.335 1.979 2.268 51.183
Seeing repayment by the Group in the year under review was the following: - Euro 1,700 thousand relating to the Interbanca financing for the Byk Group acquisition; - Euro 4,795 thousand relating to the Interbanca financing tranche denominated in Euro contracted in relation to the Biofort business transaction part way 2004; - US$ 4,616 thousand (or Euro 3,846 thousand) relating to the Interbanca financing tranche denominated in U.S. dollars contracted in relation to the Biofort business transaction part way 2004, realizing a foreign exchange loss of Euro 458 thousand; - US$ 2,238 thousand of the Well Fargo loan contracted by the subsidiary DiaSorin USA; - Euro 3,800 thousand to Altana Pharma for the German and Swedish investees acquired; - US$ 700 thousand (or Euro 514 thousand) for extinguishing debt vis-à-vis American Standard. 91
As if any reminder were needed, the Interbanca financing contracted in relation to the Biofort business transaction is secured by pledge on 85% of the shares representing the share capital of DiaSorin S.p.A., the parent company. Without prior consent from the bank, moreover, no part of the business or business line thereof, property, stocks, securities, equity interests or tangible/intangible fixed assets stated in the accounts for amounts in excess of Euro 2.5 million may be divested or transferred by the company, in any one financial period. And lastly, yet again without prior consent, no medium to long-term financing or loan entailing aggregate financial exposure in excess of Euro 4.0 million may be contracted by the company, in any one financial period. The interest expense on the financing is paid on a six-monthly basis as set out below: Tranche denominated in Euro Tranche denominated in US$
01/01/2005 – 12/31/2006 EURIBOR at 6 months + 1.50 LIBOR at 6 months + 1.50
01/01/2007 – 12/31/2010 EURIBOR at 6 months + 1.25 LIBOR at 6 months + 1.25
And lastly, attaching to the Interbanca financing are covenants, the ratios of which, as reported in the following table, have been observed by the Group in 2005: Financial ratios
2005 Benchmark value less than 0.2 less than 1.3 less than 2.5
Net financial charges/EBITDA Net financial position/Net equity Net financial position/EBITDA
2005 Group value 0,12 0,84 1,35
Attaching to the Well Fargo loan are covenants at the local levels, the ratios of which have been observed by the subsidiary DiaSorin Inc. D.5 – Due to other financers € 4,803 thousand These relate to leasing arrangements (finance leases) accounted for in accordance with the finance method required by international accounting standards. Accounts payable to other financers are analyzed below by due-date (in years): DiaSorin S.A. (Spain) DiaSorin S.A./N.V. (Belgium) DiaSorin S.A. (France) DiaSorin S.p.A. (Italy) Total
2006
2007
2008
943 616 297 156 2,012
451 406 443 124 1,424
368 208 451 124 1,151
D.12 – Due to taxation authorities This balance is detailed in the table below:
€
VAT payable Tax witholdings payable Income tax Total
Beyond
Total
216 216
1,762 1,230 1,191 620 1,762
6,951 thousand
As of December 31, 2005
As of December 31, 2004
2.326 960 3.665 6.951
2.610 664 3.675 6.949
D.13 – Due to Provident and Social Security Institutions € 1,098 thousand This balance represents payables due at the end of the year to these institutions for both the companies and the employee share relating to the December salaries and wages, as required by applicable laws and regulations.
92
D.14 – Other payables These are detailed in the table below:
€ 11,955 thousand
As of December 31, 2005
As of December 31, 2004
3.800 7.203 952 11.955
7.600 514 5.571 1.117 14.802
Due to Altana Pharma Due to American Standard Due to employees Other Total
Amounts due to Altana Pharma relate to: - in the amount of Euro 3,000 thousand to the account payable in relation to the equity interest acquired at end 2002; - in the amount of Euro 800 thousand to the financial payable acquired by the parent company from DiaSorin Deutschland GmbH. Both accounts payable will be settled in the year ahead. D. – ACCRUED EXPENSES AND DEFERRED INCOME
€ 2,321 thousand
These are presented wholly by accrued expenses, primarily accrued insurance expense and accrued interest expense.
93
MEMORANDUM ACCOUNTS The memorandum accounts disclose commitments and guarantees provided by the Firm to third parties and are composed of the following: As of December 31, 2005 Guarantees provided to other enterprises Endorsements for guarantees received Other memorandum accounts
1.702 4.419 40.582
- Assets belonging to the Group with Third Parties - Goods belonging to the Group with Third Parties - Contractual commitments - Leasing installments falling due - Goods belonging to third parties deposited with the Group #NOME? Total
As of December 31, 2004 1.303 8.190 29.866
25.807 4 9.166 4.803 21 781
23.909 2 2.304 2.777 17 857 46.703
39.359
“Guarantees given to third parties” relate to Italian Market public tenders. The balance on line “Endorsements for guarantees received” relates primarily to: - two guarantees provided by INTERBANCA (equating Euro 800,000 and Euro 3,000,000) correlated to endorsement credit made available by way of financial support in the acquisition of the diagnostics business line of the Altana Pharma Group. The endorsement credit will be extinguished in the year ahead. Encompassed within “Other memorandum accounts” is the value of instruments and tools on free loan at customers. Also included therein are contract commitments relating to US$ 10,000 thousand repurchased forward, as part of the U.S. currency forward contract agreed part way December, with maturity date December 2006. The gains/losses resulting from the fair value measurement of the derivative instrument are accounted for under financial income/(expenses) in the consolidated income statement.
94
CONSOLIDATED INCOME STATEMENT
A. VALUE OF PRODUCTION
€ 165,339 thousand
A.1 Revenues from sales and services
€ 156,220 thousand
Set forth below is the breakdown of revenues from sales and services by geographic region: Revenues from Europe Revenues from Europe, of which Italy Revenues from the Americas (United States, Canada and Brazil) Revenues from rest of the world Total
2005 95.678 39.180 46.075 14.467 156.220
2004 87.607 36.270 41.388 13.529 142.524
Set forth below is the breakdown of revenues from sales and services by type of product: Diagnostics kits using radioactive techniques Diagnostics kits using techniques other than radioactive techniques Diagnostics kits specific to LIAISON instruments Diagnostics instruments and other minor items Total
A.4 Increase in fixed assets for internal work
2005 26.169 59.564 56.417 14.070 156.220
2004 27.600 58.564 44.325 12.035 142.524
€ 5,288 thousand
The balance on this line is represented by costs capitalized in respect of asset restored beyond their originally assessed standard of performance and the spare parts used in the process thereof.
A.5.b Other revenues and income These are detailed in the table below:
€ 2,698 thousand
2005 653 282 125 595 393 415 235 2.698
Recovery of freighting costs Gain on fixed asset disposals Royalties Out-of-period income Costs recharged to unrelated enterprises Contract penalty income Other revenues and income Total
2004 562 436 41 405 114 450 2.008
Costs recharged to unrelated enterprises are represented, in the amount of Euro 184,882, by costs recharged to FIN2001 (Group assignor of the Biofort 2004 transaction) arising from or relating to the optional adjustment to the tax returns of the Brazilian branch, which amounted to Brazilian Real 929,626.70. As required by the agreement dated June 13, 2003 sealed with seller FIN2001, the liability, less franchise amounting to Euro 100,000.00, was recharged to the stakeholders of the assignor (FIN 2001 S.A.), guarantor in the fiscal period subject to assessment in respect of DiaSorin S.p.A. and its subsidiaries.
95
And lastly, encompassed within contract penalty income is compensation envisaged by contract resulting from disruption in the supply of those commercialized products that account for a significant share of DiaSorin sales revenue. B. PRODUCTION COSTS
€ 145,205 thousand
B.6 Raw materials, ancillary materials, consumable and goods for resale € 44,411 thousand These are represented by: B.7 Service costs These are represented primarily by:
€ 30,995 thousand
2005 5.742 4.075 1.213 2.526 1.041 4.950 2.303 5.862 732 610 1.941 30.995
Freighting costs Commission expense on sales Maintenance expenditure Consultancy expenses Consultancy expenses - special projects Travel expenses Technical support expenses General and administration expenses IT and computer system service costs Insurance costs Other costs Total
B.8 Expenses relating to the use of third party assets These are represented by:
€ 6,077 thousand
2005 3.157 1.930 475 515 6.077
Royalty expense Motor vehicle and equipment rentals Leasehold property rentals Other Total
2004 4.575 3.325 1.283 2.405 1.596 3.858 2.263 5.324 566 659 2.511 28.365
2004 1.925 1.712 554 431 4.622
B.9 Personnel expenses € 41,551 thousand The breakdown of this balance is presented in the consolidated income statement. Average headcount for 2005 came to 727 full-time equivalents, as reported below by employee category: -
managers clerks workers
35 558 134
B.10 Depreciation and write-downs The balance on this line is detailed in the Appendixes 1 and 2.
€ 19,246 thousand
B.12 Provisions for risks and € 305 thousand These relate to provisions set aside to cover contingent tax and commercial litigation.
96
B.14 Other operating expenses These are represented by:
€ 3,248 thousand
Entertainment and advertising expenses Taxes and duties (other than income taxes) Out-of-period expenses Loss on fixed asset disposals Contractual penalty expense Other Total
2005 377 1.048 916 158 267 482 3.248
2004 295 658 778 223 442 438 2.834
C. FINANCIAL INCOME (EXPENSES)
€ (4,891) thousand
C.16.d – Other This is represented primarily bank interest income.
€
C.17 – Interest and other financial charges
€ 4,453 thousand
C.17.a – From subsidiaries This relates to interest expense from the subsidiary UKASSE.
€
650 thousand
55 thousand
C.17.d – Other € 4,398 thousand This relates, in the amount of Euro 2,938 thousand, to bank interest expense on financing and, in the amount of Euro 1,067 thousand, to financing commission expense attaching to the receivables ceded to factoring companies by DiaSorin S.p.A. Also encompassed therein is interest expense in the amount of Euro 393 thousand attaching to finance leases accounted for under the finance method required by international accounting standards. C.17-bis- Foreign exchange gains/(losses) € (1,088) thousand These relate to the net foreign exchange gain, of a financial and commercial nature, whether realized on credit or debit transactions concluded in the year under review or unrealized on credit or debit transactions outstanding valued at year-end rates of exchange.
E. EXTRAORDINARY INCOME (EXPENSES)
€ (1,415) thousand
E.21 c – Other extraordinary expenses € 1,415 thousand These relate to inexistent trade receivables resulting from a fraud suffered by the Brazilian subsidiary, As yet in progress are appropriate investigations and legal actions in connection thereto.
22 – Income taxes € 9,150 thousand These are represented by income tax currently payable, Euro 10,006 thousand, and prepaid taxes, Euro 856 thousand. Set forth below is the statement reconciling income tax expense as per consolidated financial statements to theoretical income tax, as determined according to the theoretical tax rates currently prevailing in Italy.
97
F/Y 2005 Theoretical tax . Tax losses used . Tax effect of permanent differences . Deferred tax assets not provided
4.563
. Tax effect resulting from foreign tax rates differing from Italian theoretical tax rates . Other differences Income tax recorded in the financial statements "Irap" regional tax recorded in the financial statements Total Advance, deferred and current income tax
212 493 7.783 1.367 9.150
2.127 388
In order to ensure a better understanding of the reconciliation of income tax expense as per financial statements to theoretical tax expenses, no account has been taken of ‘Irap’ regional tax insofar as the related taxable base thereof differs from the taxable base applicable to the pre-tax result. As such, theoretical tax expense has been determined applying the currently prevailing tax rate only (33% ‘Irap’ regional tax rate in 2004) al to the pre-tax result. Having regard to the reconciliation reported above, it may be noted that the permanent differences include the tax effect on costs not deductible relating to amortization of the goodwill arising from the Biofort merger (as examined and discussed earlier), Euro 3,458 thousand.
98
APPENDICES TO THE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS These appendices contain information in addition to that disclosed in the Notes, of which they form an integral part. This information is contained in the following appendices: 1.
Statement of changes in intangible fixed assets for the year ended December 31, 2005.
2.
Statement of changes in tangible fixed assets for the year ended December 31, 2005.
3.
Summary consolidation schedules
99
Appendix 1. Statement of changes in intangible assets in the year ended December 31, 2005 INCORPORATION AND SUBSEQUENT EXPENSES OPENING BALANCE AT 01/01/05 Gross value Write-downs /Revaluation FOREX difference Reclassificaitons Delta Amortization Net value MOVEMENT FOR THE YEAR INCREASE DUE TO: Intangibles fully amortized Additions Other (mergers/acquisitions) Reclassifications FOREX difference MOVEMENT FOR THE YEAR DECREASE DUE TO: Divestment/Disposals Write-down /Decrease Amortization Reclassifications FOREX difference ENDING BALANCE AT 12/31/2005 Gross value Write-down Other (mergers/acquisitions) Reclassifications FOREX difference Amortization Net value
INDUSTRIAL PATENTS AND INTELLECTUAL PROPERTY RIGHTS
769 (535) 234
CONCESSIONS, LICENSES, TRADEMARKS AND SIMILAR RIGHTS
673 (290) (380) 3
CONSOLIDATION DIFFERENCE
GOODWILL
16.712 (1.700) (6.605) 8.407
70.594 (25.065) (13.903) 31.626
0 419 (26) (80)
2
INCOMPLETE INT. OTHER ASSETS & INTANGIBLE ADVANCES FIXED ASSETS
20.899 (2.747) 18.152
(67)
-
-
(165) 85
(3) -
(21) (1.044) 205
(2.587) -
(1.396) (4) -
769 18 (700) 87
673 (290) (383) 0
17.131 (1.721) (26) 125 (7.649) 7.860
70.594 (25.065) 2 (16.490) 29.041
20.899 (4) (4.143) 16.752
6 0 (5) 1
3.315 (118) (2.290) 907
122 -
9 (21)
128 (5) 123
(464) 3.324 (118) (21) (2.754) 431
Appendix 2. Statement of changes in tangible fixed assets for the year ended December 31, 2005 TANGIBLES IN COURSE
LAND AND BUILDINGS Opening balance at 01/012005 Gross value Write-down /Revaluation Reclassification FOREX difference Depreciation Net value MOVEMENT FOR THE PERIOD INCREASE DUE TO: Annual depreciation Additions Reclassifications FOREX difference MOVEMENT FOR THE PERIOD DECREASE DUE TO: Divestment/Disposals Write-downs/Revaluation Depreciation Reclassifications FOREX difference Ending balance at 12/31/2005 Gross value Write-down /Revaluation Reclassification FOREX difference Depreciation Net value
PRODUCTION AND OTHER OF CONSTRUCTION AND COMMERCIAL TANGIBLE PAYMENTS ON FIXED ASSETS EQUIPMENT ACCOUNT
PLANT AND MACHINERY
TOTAL
14.953 3.979 (1.141) (7.363) 10.428
9.377 101 2 (39) (6.530) 2.911
61.461 1.818 (67) (1.040) (41.496) 20.676
2.354 307 (6) (66) (1.932) 657
242 (1) 241
88.387 6.205 (71) (2.287) (57.321) 34.913
180 688
61 739 25
2.207 10.341 149 2.946
50 269 47 113
168 21 6
2.318 11.697 217 3.778
(741) (144)
(67) (820) (10)
(2.632) (10.770) (157) (1.699)
(57) (269) (25) (61)
(221) -
(2.977) (12.600) (182) (1.914)
15.133 3.979 (597) (8.104) 10.411
10.049 101 2 (24) (7.289) 2.839
69.170 1.818 (75) 207 (50.059) 21.061
2.566 307 16 (14) (2.151) 724
189 21 5 215
97.107 6.205 (36) (423) (67.603) 35.250
100
Appendix 3 – Summary consolidation schedules
ASSETS
Diasorin Spain
Diasorin Belgium
Diasorin Mexico
Diasorin Brazil
Diasorin U.K.
Diasorin France
Diasorin Diasorin Diasorin USA Germany Sweden
Diasorin Italy
Elimination Consolidated and adjustment
Total
(Accounts in Euro/'000) B. FIXED ASSETS I. Intangible fixed assets II. Tangible fixed assets III. Financial fixed asseta TOTAL FIXED ASSETS (B)
1.898 1.898
1.627 1 1.628
613 613
183 3.706 3.889
34 507 71 612
59 1.686 25 1.770
649 7.430 8.079
3.151 6.012 26 9.189
213 541 754
33.466 12.680 56.956 103.102
37.542 36.373 57.620 131.534
16.752 (1.123) (57.560) (41.931)
54.294 35.250 60 89.603
352 6.178
581 2.935
158 340
899 3.578
247 554
808 2.217
6.713 16.201
3.279 4.935
98 6.404
16.938 41.794
292 6.822
364 3.880
50 548
556 5.033
112 913
203 3.228
1.089 24.003
600 8.814
141 6.643
2.836 61.568
30.073 85.136 6.243 121.452
(3.423) (29.088) (32.511)
26.650 56.048 6.243 88.941
21
25
13
3
53
75
54
34
55
405
738
8.741
5.533
1.174
8.925
1.578
5.073
32.136
18.037
7.452
165.075
253.725
(74.442)
179.283
Diasorin U.K.
Diasorin France
C. CURRENT ASSETS I. Inventories II. Receivables III. Financial assets not representing fixed assets IV. Cash and cash equivalents TOTAL CURRENT ASSETS (C) D. PREPAID EXPENSE AND ACCRUED INCOM TOTAL ASSETS (A + B + C + D)
Diasorin Spain
EQUITY AND LIABILITIES
Diasorin Belgium
Diasorin Mexico
Diasorin Brazil
738
Diasorin Diasorin Diasorin USA Germany Sweden
Diasorin Italy
Total aggregate
(Accounts in Euro/'000) A. SHAREHOLDERS' EQUITY I. II. IV. V. VI. VII. VIII. IX. X.
Share capital Share premium reserve Legal reserve Consolidation reserve Statutory reserve Other reserves Cumulative translation adjustment Retained earnings (accumulated deficit) Net income (loss) for the year
TOTAL SHAREHOLDERS' EQUITY (A)
1.454 2.787 183 845 497 (692)
1.674 32 25 791 567
8 (10) 7 (126)
2.733 (297) 1.026 646 363
1 482 16 (229) 29
960 1.567 46 107 (1.549) (376)
4.354 1.307 9.275 5.114
275 4.119 (72) 728
551 126 (134) 3.338 201
50.000 4.425 78 1.494 2.561
57.656 13.133 465 845 4.436 2.205 14.198 8.369
5.074
3.089
(121)
4.471
299
755
20.050
5.050
4.082
58.558
101.308
B. RESERVES FOR RISKS AND CHARGES
-
52
-
679
(27)
147
304
6.027
2.280
1.607
11.069
C. RESERVE FOR EMPLOYEE TERMINATION INDEMNITIES
-
-
-
150
-
179
-
241
200
6.176
6.946
3.636
2.390
1.295
3.625
1.167
3.981
11.386
5.446
456
98.703
132.085
32
3
-
-
139
12
396
1.273
433
33
2.321
8.742
5.534
1.174
8.925
1.578
5.074
32.136
18.037
7.451
165.077
253.729
D. PAYABLES E. ACCRUED EXPENSES AND DEFERRED INCOME TOTAL EQUITY AND LIABILITIES (A + B + C + D + E)
INCOME STATEMENT
Diasorin Spain
Diasorin Belgium
Diasorin Mexico
Diasorin Brazil
Diasorin U.K.
Diasorin France
Diasorin Diasorin Diasorin USA Germany Sweden
DiaSorin Italy
Total aggregate
Elimination and adjustment
(Accounts in Euro/'000) A. VALUE OF THE PRODUCTION
8.541
9.023
516
10.706
3.214
10.377
47.858
24.244
2.376
101.998
218.853
(53.514)
B. PRODUCTION COSTS
9.098
8.069
699
8.664
3.226
10.552
38.928
22.912
2.867
90.472
195.487
(50.282)
DIFFERENCE BETWEEN THE VALUE OF THE PRODUCTION AND PRODUCTION COSTS
(557)
954
(183)
2.042
(12)
(175)
8.930
1.332
(491)
11.526
23.366
(3.232)
C. FINANCIAL INCOME/(EXPENSE)
(135)
(59)
52
665
41
(172)
(751)
(94)
541
(3.931)
(3.844)
(1.047)
E. EXTRAORDINARY INCOME/(EXPENSE) PRE-TAX RESULT (A - B +/- C +/- D +/- E) 22 INCOME TAX NET PROFIT (LOSS) FOR THE YEAR
-
-
5
(1.760)
-
(3)
-
(30)
195
-
(1.593)
178
(692)
895
(126)
947
29
(350)
8.179
1.208
245
7.595
17.929
(4.101)
-
328
-
584
-
26
3.065
480
44
5.033
9.560
(410)
(692)
567
(126)
363
29
(376)
5.114
728
201
2.561
8.369
(3.691)
101
102