PLIVA 2005 Annual Report

Transcription

Corporate Headquarters
PLIVA d.d.
Ulica grada Vukovara 49
10000 Zagreb
Croatia
www.pliva.com
For further information, please contact:
Information on PLIVA’s gdr Program
Jay Berman
Deutsche Bank Depository Receipts
New York Broker Desk
Phone: + 1 212 250 9100
jay.x.berman@db.com
Zeena Patel
Deutsche Bank Depository Receipts
London Broker Desk
Phone: + 44 (0) 207 547 6500
zeena.patel@db.com
Investor or General Enquiries
Marija Mandić
Executive Director
Investor Relations and Corporate Communications
Phone: + 385 1 6160355, + 385 1 6120 909
communications@pliva.com
ir@pliva.com
Management Board
Željko Čović, President of the Management Board and ceo
Ivan Mijatović, Vice President of the Management Board and cfo
Mike Urwin, Vice President of the Management Board and Global Head of Generics
We at pliva are dedicated to
providing our customers with high quality,
affordable medicines for a better quality of life.
Supervisory Board
Massimo Armanini, Chairman2
Franjo Luković, Vice Chairman
Ettore dell’Isola, Member 1
Zdenko Adrović, Member 1
Branko Jeren, Member
Michael Unsworth, Member2
Ronald M. Freeman, Member 1
Ivan Vidaković, Member2
Slobodan Vukičević, Member
1 Audit
Committee
and Nomination Committee
2 Remuneration
Management Team
Željko Čović, President of the Management Board and ceo
Ivan Mijatović, Vice President of the Management Board and cfo
Mike Urwin, Vice President of the Management Board and Global Head of Generics
Frank Dollard, Executive Director of Global Product Supply
Zdravka Knežević, Executive Director of Global Research and Development
Cecile Miles, Executive Director of Global Business Development
Jag Ahluwalia, Executive Director of Global Regulatory Affairs
Michael Harris, General Counsel
Kurt Orlofski, Executive Director of Generics USA
Johan Swarts, Executive Director of Global Human Resources
Annual Report 2005
Lidija Štojs | Senior Analyst, Investor Relations
Paolo Bajčić | Clinical Research Coordinator, Research and Development
Lucijana Jerković | Manager, Webmedia and Communications
Michael Harris | Executive Director, Legal and ip
Tatjana Petković | Director, Research and Development Support
Blaženko Bajić | Director, api Process Development
Vladko Borić | Researcher - Process Engineer, Molecular Biology
Jacinta Vuković | Senior Director, Medical and Marketing Affairs
Stjepan Severović | Manager, Compensation and Benefits, Croatia
Johan Swarts | Executive Director, Global Human Resources
Anita Ćalušić | Researcher - Analyst, Research and Development
Sonia Sharma | Manager, Operational Excellence, usa
Mike Urwin | Vice President of the mb and Global Head of Generics
Tomislav Zorić | hr Specialist, Corporate Human Resources
Nikola Matijašević | Ass. to Director of Manufacturing, ps Zagreb
Marija Mandić | Executive Director, ir and Corporate Communications
Robert Seifried | Manager, Quality Control, Czech Republic
Zdravka Knežević | Executive Director, Global r&d
Karin Pramberger | ip Counsel, Generics ip
Kurt Orlofski | Executive Director, Generics usa
Zoran Stanković | Executive Director, Group Controlling
Frank Dollard | Executive Director, Global Product Supply
Željko Čović | President of the Management Board and ceo
Miroslav Mutak | Senior qms Specialist, Quality, Croatia
Jasna Turković | Director, Internal Audit
Marko Mutak | it Support Specialist, gbs - it
Kazimir Katičić | m&c Maint. Worker, Lab. Equipment Maintenance
Cecile Miles | Executive Director, Global Business Development
Sanja Fresl | Sustainable Development Coordinator, Communications, Croatia
Marijana Grubišić-Čabo | Manager, Corporate Investments
Miran Denac | Senior Director, Global Pharma Operations
Igor Kosec | Manager, SEE Region, dddi
Matko Bolanča | Executive Director, Generics Croatia
Barbara Majcen | Senior Director, Corporate Compliance
Ivana Ružđak | Lawyer, Legal Affairs
Jarosław Kubanski | Maintenance Chief, Main Mechanic Dpt., Poland
Ivan Mijatović | Vice President of the mb and cfo
Nataša Vidmar | Senior Director, api Global Sourcing
Patricia Hofmann | Purchasing Supervisor, Materials Mgmt., usa
Margita Tomas | Senior Director, Human Resources Croatia
Domagoj Runac | Senior Director, Biogenerics
Ante Radić | Coordinator, api Manufacturing, Azithromycin - mps
Jag Ahluwalia | Executive Director, Global Regulatory Affairs
Namik Ibrahimkadić | Senior Financial Analyst, Tax Management
Sonja Katanec | Senior Director, otc Marketing, Croatia
Vesna Jungić-Tišljar | Director, Purchasing, Croatia
Željko Topalović | Coordinator, api Manufacturing Plant
Annual Report 2005
Contents
Annual Report 2005
Key Financial Highlights | 6
Letter to Shareholders | 8
Report of the Supervisory Board | 10
Management Board | 12
PLIVA’s Principles of Corporate Governance | 14
Investor Information | 16
Risk Report | 22
Business Report | 26
Sustainable Development | 30
People | 31
Financial Report | 33
PLIVA Group Financial Highlights | 34
PLIVA Group Revenue (Revenue by Division, Revenue by Market) | 38
Profitability - Continuing Business | 41
Profitability - Discontinued Business | 42
Financial Results by Division | 43
Financial Position | 48
Consolidated Financial Statements | 53
Statement of Management Board’s Responsibilities | 55
Independent Auditor’s Report to the Shareholders of PLIVA d.d. | 57
Consolidated Income Statement | 59
Consolidated Balance Sheet | 60
Consolidated Statement of Changes in Equity | 62
Consolidated Statement of Cash Flows | 64
Notes (forming part of the consolidated financial statements) | 66
PLIVA Worldwide | 126
6
Continuing
usd m
1,197.1
1,174.1
Revenue
change from previous year
5.9%
999.3
Sales
976.3
8.9%
658.4
Gross profit*
660.1
207.1
247.9
188.7
183.7
10.55
162.7
1,657.3
-15.8%
1,046.0
-15.5%
81.3
capex
7.5%
-14.8%
1,046.0
Shareholders’ equity
-11.6%
16.6%
1,675.6
Total assets
-11.5%
-
162.8
Sales per employee (‘000)
-14.5%
-
-4.31
Earnings per share (eps) usd
1.3%
-95.4%
-75.1
Net profit
-15.4%
-10.4%
6.5
Profit before tax
4.7%
-84.9%
147.4
ebit ex restructuring
9.2%
1.4%
24.8
Earnings before interest and tax (ebit)
7
6.2%
-15.5%
67.1
-64.8%
-11.2%
*Cost of sales was aligned with industry practice and now includes
amortization of intangible assets that is directly related to goods
sold. This amortization was previously recorded in research and
development expenses. This has resulted in the reclassification of
usd 29.7m in 2005 (usd 20.5m in Proprietary division; usd 9.2m in
Generics division) and usd 15.2m in 2004 (usd 8.4m in Proprietary
and usd 6.8m in Generics) from research and development costs
to cost of sales.
pliva | annual report 2005
Key Financial Highlights
Total Group
usd m
Letter to Shareholders
Dear Shareholders,
8
PLIVA also continued to progress with its manufacturing consolidation program throughout the year, reaching its first significant
milestone with the sale of its German manufacturing facility in early
2006. These steps have put PLIVA back on track and reaffirmed our
commitment to our generics business, believing it will bring greater
value for you, our shareholders.
After reorganizing internal processes to reflect the refocused business and increase transparency, PLIVA also divided its reporting
structure between continuing and discontinued operations. Continuing operations represent PLIVA’s ongoing business, predominantly
including generics and pharma chemical operations, while discontinued operations represent the divested proprietary segment. Looking
at PLIVA’s overall performance during 2005, the generics business
showed continuous strong sales growth overall, where results were
mostly offset by restructuring costs and one time charges. Also,
over the last six years, PLIVA’s focus on its generics business has
resulted in 25% growth from usd 252m in 2000 to usd 771m in 2005.
Our US market delivered a strong performance with a growth of
16%, while at 18% PLIVA proved to be the one of the fastest growing
generics companies in Germany, while PLIVA’s sales performance
also excelled in Russia. Looking forward, we believe that PLIVA will
remain a competitive and strong player in its major markets, and
that it will further grow its established businesses through its rich
pipeline of new products.
9
2005 was probably the most difficult and challenging of years for
PLIVA, marked by significant change, restructuring and consolidation. During the year, PLIVA Group performance was strongly
challenged by the underperformance of SANCTURA®, which
precipitated a number of difficult management decisions, including the strategic refocus on generics and exit from the proprietary
business. Although a difficult task, Management is pleased to have
executed this goal in a relatively short period of time, through
the successful divestments of SANCTURA and VoSpire, as well as
that of PLIVA’s proprietary research arm PLIVA Istraživački Institut
(PLIVA Research Institute Ltd.) in Zagreb.
2005 also saw PLIVA’s number of new product approvals increase to nearly 80 molecules worldwide, with close to 100 molecules
in its pipeline. Most notable was the FDA’s
approval of PLIVA’s generic azithromycin,
next to only 2 other competitors. Following
a long and mutually beneficial relationship,
PLIVA also signed a new supply agreement
with Pfizer for bulk azithromycin, ensuring
continued supply for a period of three years.
PLIVA also made advances in its work in the area of biosimilars.
In particular, epo showed substantial progress and encouraging phase I results. However, the high clinical costs brought on by
emea guidelines and scientific advice recently received, resulted
in the termination of PLIVA’s cooperation with Mayne on epo.
Nevertheless, PLIVA continues to further scientific progress in this
area as one of lead companies in this emerging segment. PLIVA is
committed to its biosimilars program despite the more challenging regulatory environment. Both our partnership agreements on
g-csf with Barr and Mayne remain active and are important to
growing PLIVA’s biosimilars program, while we have begun seeking
alternative partners for epo.
Through the entire generics product lifecycle, PLIVA remains at par
with its peers. Through continued investment in internal employee
development programs, from Human Resource-led management
acceleration programs to the PLIVA Excellence Program (pep) based
on Six Sigma, PLIVA remains confident that the knowledge base to
support the business is healthy and strong.
Also, PLIVA has not forgotten its responsibility to the local communities in which we operate. From supporting local communities
through donation and sponsorship activities, general public health
campaigns, educative support and dedication to remaining active in
the community, PLIVA has shown that it values all of its stakeholders. This along with continued efforts in its home market of Croatia
in key sustainable development areas, as on other key markets, has
ensured PLIVA the status of a welcome corporate citizen.
Thus, despite the trials and tribulations
associated with the numerous changes that
affected PLIVA throughout 2005, I am happy to report that PLIVA exits 2005 stronger
and more determined in continuing to execute its strategy. Despite challenged 2005
operating results, we believe that positive
changes are expected in the future.
Our outlook for 2006 includes overall continuing sales growth of about 10%, based
on a 15% increase in generics sales and
40% decrease in Pharma Chemicals, with
an ebitda level of around usd 180m. Thus,
based on positive cash flow and an optimistic outlook going forward, the Board has
confirmed its proposal to issue a dividend
of 12 hrk per share for 2005.
On this positive note, I would like to thank
all of PLIVA’s stakeholders for continuing to
support PLIVA throughout this difficult
transition period. We are confident that we
will deliver upon these goals.
Željko Čović, MSc
President of the Management
Board and ceo
Report of the Supervisory Board
Appropriation of Profit
10
Supervisory Board Activities
Financial Statements
Audit Report
The Supervisory Board held seven meetings during 2005. At its
meetings, the Supervisory Board discussed annual, semi-annual
and quarterly financial results, business plans, annual budgets and
key corporate projects. Following a strategic review and evaluation
of the core activities of the Company, the Supervisory Board
supported the Management Board’s decision to exit the proprietary segment and focus operations on PLIVA’s generics business.
At its meeting held on 13 July 2005, the Supervisory Board reelected the Management Board for a new 4.5 year term, effective
from 09 December 2005 through to 30 June 2010.
The Audit Committee held eight meetings during 2005 where they
discussed 2004 consolidated financial statements, 2005 interim
results, accounting policies, internal audit issues, internal control
system, engagement of auditors and other issues within the scope
of the Audit Committee. The Audit Committee reported its conclusions to the Supervisory Board.
The Remuneration and Nomination Committee held one meeting
in 2005 to discuss the re-election of the Management Board
members for a new term as well as their compensation package
and other contractual terms. It presented its conclusions and recommendations to the Supervisory Board.
The Supervisory Board has reviewed and
approved the audited, stand alone financial
statements of the Company and the audited consolidated financial statements of
the Company and its subsidiaries (collectively “the Group”) and the Group’s interest
in associates. These financial statements
are issued according to International Financial Reporting Standards by the Management Board and are expressed in hrk - the
Company’s functional currency. Copies of
these financial statements may be obtained
from the Company.
The Supervisory Board has also reviewed
and approved the audited consolidated
financial statements of the Group presented in usd, which are in accordance with
International Financial Reporting Standards
and the operating and financial review
and other management commentary referring to those financial statements. These
usd financial statements and the accompanying operating and financial review and
other management commentary are issued
by the Management Board as part of the
Annual Report.
The Supervisory Board reviewed and did
not have any remarks regarding the report
on the status of the Company presented by
the Management Board.
The Supervisory Board has considered and
accepts the report of the Company’s auditors, ”KPMG Croatia d.o.o. za reviziju”,
on the stand alone financial statements of
the Company (prepared in hrk) and on the
consolidated financial statements of the
Group (prepared in hrk and presented in usd).
Conclusion
Having supervised the Company’s operations, the Supervisory Board has established that the Company is operating in accordance with the decisions of the General
Assembly, the Company’s by-laws and the
pertinent legislation of the Republic
of Croatia.
28 February 2006
Massimo Armanini, MBA
Chairman of the Supervisory Board
11
The Supervisory Board also accepted the Management Board’s proposal for the appropriation of profit, submitted to the General Assembly, whereby profit of hrk 33,735,839.97
(equivalent to usd 5,671,795.56 according to the average usd exchange rate for 2005)
earned by the Company for the year ended 31 December 2005 is proposed to be retained
as part of the Company’s accumulated 2005 profit. The Supervisory Board also accepted
the Management Board’s proposal for the payment of a dividend of hrk 12.00 per share
(usd 1.95 according to the Croatian National Bank’s effective usd/hrk exchange rate on 28
February 2006) to qualifying shareholders from the undistributed retained profit accumulated in the period prior to 2001.
The Supervisory Board of PLIVA d.d. (“the Company”) is of
international character and consists of nine independent members:
Massimo Armanini, Chairman; Franjo Luković, Vice Chairman;
Zdenko Adrović; Ettore dell’Isola; Ronald Freeman; Branko Jeren;
Michael Unsworth; Slobodan Vukičević and Ivan Vidaković.
The Supervisory Board members were elected by the General
Assembly on 10 June 2003 for a four year term.
Management Board
Ivan Mijatović, BSc
Vice President and cfo
Began his professional career at PLIVA in
1980. Appointed Director of Food Production in 1985 and Marketing and Sales
Director of Food in 1988. Served two years
as a Member of the Executive Council
and Secretary for Economic Affairs in the
Zagreb City Assembly from 1991 to 1993.
Served as Chairman of PLIVA’s Board of
Directors from 1993 to 1995 and appointed
President of the PLIVA Management Board
in 1995. In 1999, received the ING Barings
and Emerging Markets CEO of the Year
Award for Europe, Middle East and Africa.
During 2001 and 2002, presided over the
Croatian Employers’ Association, and from
2002 to 2005 presided over the Croatian
Competition Council.
Began his commercial career in South
Began his professional career with the
Croatian Ministry of Finance in 1996, where Africa in 1980 by joining an executive fast
track program in Edgars Stores Limited,
he became Department Head for Debt
becoming Group Finance Executive in 1984.
and Cash Management, responsible for financial and debt management strategy and A year later, took charge of the Management Information Services Division with
financial relations with international invesoverall responsibility for the group’s
tors and financial institutions on behalf of
computerization program. In 1990, moved
the Republic of Croatia. Served as Director
of Corporate Strategy at Deutsche Telekom to Great Britain working briefly as a managing consultant for PricewaterhouseCoopers.
AG in Bonn (2001-2003), responsible for
In 1991, joined Amerpharm - the predinternational and portfolio strategy and
ecessor of today’s Merck Generics Group.
for the management and coordination of
Starting as Group CFO, involved in a
strategic cooperation on behalf of the
Deutsche Telekom Group. In 1999, appoint- number of acquisitions as well as the sale of
ed Member of the PLIVA Supervisory Board. the group to Merck KgaA. In 1999, appointed CEO of Merck Generics Group.
PLIVA’s CFO and Member of the ManageIn 2004, joined PLIVA as Executive Director
ment Board since February 2003.
of Generics for the European and Rest
of World regions. Appointed to the ManNumber of shares held
agement Board in November 2004 as Vice
as at 31 December 2005: 0
President and Global Head of Generics.
Number of shares held as at 31 December
2005: 12,734 ordinary shares, out of
which 3.000 are transferred to Raiffeisenbank Austria d.d. (RBA) as collateral
Mike Urwin, BCom, CA [SA], MBA
Vice President and Global Head of Generics
Number of shares held
as at 31 December 2005: 0
Vice President of the Management
Board and cfo
Mike Urwin, CA [SA], MBA
Vice President of the Management Board
and Global Head of Generics
13
President of the Management
Board and ceo
12
President of the Management Board and ceo
PLIVA’s Principles of Corporate
Governance
The Remuneration and Nomination Committee
14
The Management Board
The role of the Management Board is to
manage the Company’s business in order to
generate value for the shareholders. As the
Company’s executive body, the Management Board represents the Company
towards all third parties. It reports regularly
to the Supervisory Board - at least quarterly on financial results and company
performance and at least annually on business policy and long-term strategy. It also
reports to the shareholders and executes
the decisions of the General Assembly.
Each member of the Management Board
has an area of business responsibility for
which he coordinates processes and activities within the business plan, coordinates
permanent rationalization and area efficacy
and makes operational decisions (with the
exception of those the Management Board
makes jointly at its meetings).
The Remuneration and Nomination Committee consists of three independent members of
the Supervisory Board. It makes recommendations to the Supervisory Board on: Management Board appointments and their performance-based remuneration packages; succession planning for the Management Board and the election of members of Supervisory
Board Committees.
The Supervisory Board
The Audit Committee
The Supervisory Board oversees the Management Board’s activities, ensuring legal compliance. It reports to the General Assembly
on this matter, as well as on the accuracy of financial reports.
The Board discusses company strategy, investment policy
and business development and also scrutinizes the systems for risk
management, internal audit and control.
As well as electing members of the Management Board, the Supervisory Board also determines their remuneration, based on the
recommendation of the Remuneration and Nomination Committee.
The Supervisory Board also proposes the appointment of auditors and gives its opinion on the Management Board’s proposal on
profit distribution.
The Audit Committee is composed of
three independent members of the Supervisory Board, to which it reports. The Committee assists the Supervisory and Management Boards in the effective discharge
of their responsibilities for corporate governance, financial reporting and corporate
control by: reviewing half-year and full-year
results; assessing audited and reviewed
financial statements; recommending the
engagement of external auditors; reviewing
accounting policies and audit procedures;
assessing the risk management system and
reviewing the system of internal control.
We are committed to
15
The General Assembly
The General Assembly of shareholders
makes decisions regarding the distribution
of profit, amendments to the Articles of
Association and changes in the Company’s
share capital. It also oversees the election and removal of Supervisory Board
members, the work of the Supervisory and
Management Boards and the appointment
of the PLIVA Group auditors.
integrity in all we do and we demand
of ourselves and others the highest ethical standards
in achieving our mission to improve health and quality of life.
PLIVA acts in accordance with the highest
standards of corporate governance in order
to ensure that it carries out its legal fiduciary duty to represent the best interests
of its shareholders. All PLIVA companies and
employees are also required to work to
the highest ethical standards and conduct
business with honesty, integrity, fairness,
due skill, care and diligence.
Investor Information
Share Price in 2005
Shares and Indices in 2005
31.12.2004 - 31.12.2005
% change
16
zagreb stock
exchange
hrk
london stock
exchange
usd
47.0%
high
447.00
15.75
cesi*
46.1%
low
300.00
10.25
ftse pharma & biotech 350
28.7%
31.12.2005
415.00
13.25
crobex
27.6%
pliva (zse)
14.0%
pliva (lse)
6.0%
ftse global pharma
4.6%
s&p 500
3.0%
*The Central European Stock Index (cesi) has been discontinued. The last day of calculation
and publication of the cesi index is 30 December 2005.
17
cetop 20
Share Listing and Trading
On 10 April 1996, PLIVA’s shares were listed on the 1st quotation of the Zagreb Stock Exchange (ZSE) as well as on the London Stock Exchange (LSE) in the form of GDRs (Global
Depository Receipts) issued by Deutsche Bank as the depository agent.
Trading Volumes of PLIVA Shares
in 2005
in thousands of shares
1800
1600
Stock Exchange Information
pliva zse
1400
pliva lse
pliva on capital markets
zagreb stock exchange
since
form
symbol
currency
1996
shares
plva-r-a
hrk
1200
plv.za (reuters)
1000
plvara cz (bloomberg)
plvd
usd
800
plvxq.l (reuters)
600
400
200
december
november
october
september
august
july
june
months 2005:
may
0
april
plvd li (bloomberg)
march
gdrs (5 gdrs: 1 share)
february
1996
january
london stock exchange
pliva lse (usd)
31 dec 2004 | 12.50
31 dec 2005 | 13.25
pliva zse (hrk)
31 dec 2004 | 364
31 dec 2005 | 415
PLIVA’s Share Price Movements in 2005
hrk
16
500
15
450
14
400
13
350
12
11
300
10
250
9
200
Dividends and Dividend Policy
Further Information
The Annual General Meeting was held on
14 June 2005, where the Supervisory Board
Report on the supervision of the Company’s 2004 operations was accepted. Resolutions were passed on appropriation of
retained profit and dividend payments and
the activities of the Management and Supervisory Boards members were approved.
At the proposal of the Supervisory Board,
KPMG Croatia d.o.o. was reappointed as the
Company auditor and general authorization was reconfirmed for the purchase of
treasury shares up to a maximum of 10% of
authorized capital.
In 2005, dividends for the financial year
2004 were paid to all shareholders registered with the Central Depository
Agency as at 14 June 2005. The total
amount paid out on 8 July 2005 was hrk
209,064,384.00, or hrk 12.00 per share,
which is equivalent to usd 0.39 per
GDR based on the effective usd/hrk exchange rate of the Croatian National Bank
on the Payout Date.
The proposed net dividend for 2005 is hrk
12.00 per share to be paid out from previous years’ retained earnings, 2000 inclusive.
The dividend will be paid out in hrk; however, for comparison purposes, this would be
equivalent to usd 0.39 per GDR based on
the Midpoint Exchange Rate of the Croatian
National Bank issued on 28 February 2006.
Given that 2005 dividends will be paid out
from retained earnings from previous years,
they are not subject to the 15% dividend
tax pursuant to the Croatian Profit Tax Act
and Income Tax Act.
The last day for acquiring the right to a
dividend payment is 09 June 2006 for both
holders of ordinary shares and GDR holders.
Dividends will be paid out on 07 July 2006
to all shareholders entered into the records
of the Central Depository Agency as at
14 June 2006.
PLIVA d.d. became a member of the Central
19
Depository Agency on 19 July 1999. Since
that date, the Agency has been responsible
for maintaining data from PLIVA’s Share
Register, as well as for the clearing and settlement of all PLIVA share transactions on
the ZSE. The term for clearing and settlement
is t+3 days on both the ZSE and the LSE.
GDR transactions concluded on the LSE are
registered with Deutsche Bank, PLIVA’s
depository agent, located at 60 Wall Street,
New York, NY 10005, or through their London
office at 33 Old Broad Street, London ec2n1hz.
01/12/05
01/11/05
01/10/05
01/09/05
01/08/05
01/07/05
01/06/05
01/05/05
01/04/05
01/03/05
01/02/05
8
The 2005 Annual General Meeting
Share Capital and Shares
PLIVA’s share capital amounts to hrk 1,859,264,800.00 and consists of 18,592,648 shares. These are ordinary registered shares conferring
equal rights. Each ordinary share carries the right to one vote at the General Shareholders Meeting. A portion of PLIVA shares was converted into Global Depositary Receipts (GDRs), with each share representing 5 GDRs. GDRs are traded on the London Stock Exchange and
all GDR transactions are registered with the depository bank (Deutsche Bank Trust Company Americas, hereinafter ‘Deutsche Bank’).
PLIVA Ownership Structure
As at 31 December 2005
institutional investors (gdr holders) | 58.2%
treasury shares | 6.2%
other private shareholders | 12.9%
croatian privatization fund | 0.5%
croatian pension fund | 16.8%
ebrd | 5.4%
In all our activities,
we pursue innovation
and are open to new ideas which ensure
added value for all our stakeholders.
usd
01/01/05
18
pliva lse
pliva zse
2005 Major News and Press Releases
20
2005 Conferences
14 january 2005
pliva presents at merrill lynch’s global pharmaceutical biotechnology & medical device conference
pliva in germany: awd.pharma supports victims of the tsunami in southeast asia
14 january 2005
pliva presents at abn amro’s global generics conference
10 march 2005
22 february 2005
pliva presents at caib’s emerging europe conference
10 march 2005
pliva announces fy 2004 results
02 march 2005
pliva presents at iir global generic strategy summit
22 march 2005
pliva and barr sign agreement to develop and market generic version of g-csf in united states and canada
30 march 2005
pliva presents at erste’s investor conference - croatian capital markets
pliva and mayne enter biogeneric partnership
09 february 2005
28 april 2005
pliva announces q1 2005 results
05 may 2005
pliva presents at bank of america’s healthcare conference
17 may 2005
pliva announces agenda of its annual general meeting
05 may 2005
pliva presents at ubs’ annual cee conference
18 may 2005
pliva to exit proprietary business and divest sanctura®
15 may 2005
pliva presents at ubs’ global pharmaceuticals conference
24 may 2005
pliva receives euromoney magazine award: best company in croatia
23 may 2005
pliva presents at merrill lynch’s pharma conference
14 september 2005
pliva announces results of its annual general meeting
14 june 2005
pliva presents at caib’s international markets investors’ conference
15 september 2005
pliva registers generic epo in croatia
21 june 2005
pliva presents at erste’s cee investor conference
pliva completes divestment of sanctura®
04 july 2005
pliva presents at cibc world markets’ annual healthcare conference
08 november 2005
new mandate for pliva’s management board
14 july 2005
pliva presents at european generic medicines association’s “ensuring a competitive environment for generic medicines in europe”
22 november 2005
pliva presents at merrill lynch’s first european generics conference
24 november 2005
pliva pharma ltd donates almost one million pounds of medicines to international relief efforts
24 august 2005
11 october 2005
07 september 2005
pliva signs new bulk azithromycin supply agreement with pfizer
26 september 2005
pliva to divest vospire from us proprietary portfolio
28 september 2005
pliva in the usa - pliva, inc. makes donation in response to hurricane relief efforts
29 september 2005
pliva announces approval for citalopram hydrobromide tablets
04 november 2005
last day for acquiring dividend rights
09 june 2006
pliva announces tentative approval for zolpidem tartrate tablets
04 november 2005
ex-dividend date
12 june 2006
pliva completes divestment of vospire
08 november 2005
record date
14 june 2006
09 november 2005
dividend pay out date
07 july 2006
pliva announces approval for azithromycin tablets
15 november 2005
pliva announces approval for ondansetron hydrochloride odt
21 november 2005
annual general meeting
14 june 2006
pliva launches generic azithromycin tablets in the us
14 december 2005
announcement of q1 2006 results
11 may 2006
pliva announces tentative approval for sertraline hydrochloride tablets
23 december 2005
announcement of q2 and h1 2006 results
07 september 2006
announcement of q3 and 9m 2006 results
09 november 2006
Calendar of Upcoming Events*
zse /lse
*As at the publication date of the 2005 Annual Report
21
pliva donation for tsunami and earthquake victims
Risk Report
Influence of Particular Products
on Performance
22
Regulatory Compliance
National regulatory authorities administer a vast number of laws and regulations governing
the testing, approval, manufacturing, importing, exporting, labeling and marketing of
drugs and also review the safety and efficacy of pharmaceutical products. Pharmaceutical
companies are exposed to the possibility that national regulatory authorities will not approve or will withdraw approval for pharmaceutical products and processes. An inability
to obtain approval for its pharmaceutical products and processes or the withdrawal of any
such approval could have an adverse effect on PLIVA’s business, financial position, and
operations and prospects.
These regulatory requirements are a major factor in determining whether a substance can
be developed into a marketable product and can also determine the amount of time and
expense associated with such developments. Registration is a time-consuming and
expensive process which does not have a guaranteed outcome and, in practice, may have
an inhibiting effect on new product launches. PLIVA is aware that there is a general trend
throughout Central and Eastern European and CIS countries to work towards meeting
EU standards in the area of drug registration and related regulation. Should any of PLIVA’s
larger CEE markets accelerate the introduction of EU-based regulations on the registration
and sales of drugs (without reasonable transitionary rules), PLIVA’s sales on such markets
could be adversely affected.
The pharmaceuticals business is also characterized by substantial investments in r&d,
which meanwhile are a significant generator of the company’s future growth and development. The outcome of r&d efforts is always uncertain, as is the time and effectiveness of
obtaining authorization for a new product and approval for targeted prices.
Pharmacovigilance
The socio-economic transition of the Central and Eastern European states and the accelerated process of globalization have inevitably resulted in the rapid elimination of barriers that had for years protected the position of local
market leaders in all industrial sectors. Furthermore, with the harmonization of legal systems of candidate-states
to the EU “acquis communautaire”, new standards and norms are gradually being set, removing the last obstacles to
free competition. These processes have now exposed local companies to European and global competition, while
at the same time bringing new business opportunities through quick and direct access to foreign markets.
The pharmaceuticals industry is becoming increasingly price-competitive, especially in the segment of generics and
bulk pharmaceuticals, which may influence future revenues and profitability of pharmaceutical operations worldwide. In most countries, pharmaceuticals pricing is rarely the outcome of free market dynamics without some form
of government intervention, such as price or profit controls, budgets, reimbursement lists, patient contribution
requirements or other forms of limitations or restrictions. Such intervention may negatively affect PLIVA’s sales
and profitability levels. There can furthermore be no assurance that the level of subsidies or number of reimbursed
drugs in markets where PLIVA operates will not be reduced should government healthcare expenditures be further
restricted or controlled. Foreign pharmaceutical companies may provide increasing competition to PLIVA and
apply greater cost pressures, however, PLIVA believes that its understanding of the international markets in which
it operates, as well as competitive costs in production and drug development, provides it with a competitive advantage for the distribution of its products vis-à-vis its peers.
When a drug is taken, the risk of developing adverse reactions is always present; therefore each pharmaceutical
company must have a pharmacovigilance system in place to be able to quickly detect, assess, understand
and prevent adverse reactions and other safety issues throughout the entire lifecycle of a drug. It is the legal and
ethical obligation of a company to perform continuous monitoring of the risk-benefit ratio for all its products.
In order to prevent drug-induced human suffering, the field of pharmacovigilance is very strictly regulated by a
large number of different regulatory reporting requirements. Possible regulatory actions due to non-compliance
with the existing rules may include inspections and re-inspections, warnings, public naming of non-compliant
companies, formal caution, prosecution and may end with a withdrawal of the marketing authorization. In addition
to possible quality problems, there are risks of product recalls and withdrawals due to unexpected adverse reactions. These however, are more likely to occur with new innovative products on the market as not all safety issues
are detected during the pre-marketing phase, i.e. in clinical trials. On the other hand, generic products usually
exist on the market for a longer period of time, which is the reason why their use is well established and safety
risks are less likely to occur.
In order to maximize the safety of its products, PLIVA’s Pharmacovigilance system is based on the highest standards and continuous monitoring of the safety of products marketed by the Group in accordance with regulations.
This is also applied to the products still under development. PLIVA’s goal is to recognize potential risks as early
as possible in order to initiate suitable preventive measures.
23
The material in PLIVA’s 2005 Annual Report may contain certain
“forward-looking statements”, relating to the Group’s business,
which can be identified by the use of forward-looking terminology
such as “will”, “planned”, “expectations”, “forecast” or similar expressions, or by discussions of strategy, plans or intentions.
Such statements include descriptions of new products expected
to be introduced or that have been introduced by the Group companies as well as anticipated consumer demand for such products.
Such statements reflect the current views of the Group with respect to future events and are subject to certain risks, uncertainties and assumptions. Many factors could cause the actual results,
performance or achievements of the Group to be materially different from any future results that may be expressed or implied by
such forward-looking statements.
Companies that are largely dependent on
one type of product are considered to be
exposed to a relatively higher degree of
risk than companies with a diversified product portfolio. In 2005, approximately 20%
of PLIVA’s revenues resulted from royalties and bulk sales of azithromycin, which is
expected to significantly decrease following
expiry of the US azithromycin patent in
November 2005. With the exception of the
aforementioned, no other product represented more than 5% of total revenues in
2005. Despite this fact, PLIVA cannot
reasonably foresee nor assess the impact
of potential price cuts and aggressive price
cutting and discount tactics of competitors
in the generics marketplace.
Product Liability
24
Quality, Environmental Protection
and Safety
Pharmaceuticals manufacturing processes
may generate hazardous and non-hazardous wastes, effluents and emissions
into the environment. Pharmaceuticals
operations are subject to various laws and
regulations relating to human health, safety
and the protection of the environment.
In addition, the manufacturer is required to
obtain and comply with appropriate licenses
for all operations that cause emissions or
discharges of pollutants, water extraction,
waste treatment and disposal. All PLIVA
production facilities are obliged to conduct
business under the above mentioned
regulations. In case of deviations from the
regulations, appropriate actions are taken
in order to manage and mitigate the regulatory risks and risks to the environment,
safety and human health. Furthermore, as
environmental laws and regulations become
more complex, it is possible that additional
time and investments will be required to
ensure compliance with such laws, regulations, relevant permits and licenses.
It is not uncommon for companies involved
in the pharmaceuticals and related industries with long-established sites to experience soil and groundwater contamination
on occasion. Under the laws and regulations
of some countries in which PLIVA operates,
a current or previous owner or operator of
a property may be held liable for the
costs of removal or disposal of hazardous
substances situated on, under, or in its
property, regardless of whether the owner
or operator was aware of, or caused the
presence of the contaminants and regardless of whether the actions that caused
contamination were legal at the time they
occurred. It is impossible to predict the
likelihood or potential effect of application
of these laws and regulations on PLIVA’s
business operations. To the best of our
knowledge, PLIVA does not believe that the
potential presence or discovery of such
contaminants would materially prevent the
full availability of production capacity at
relevant sites.
PLIVA continues to develop its global strategy for addressing further developments
and improvements in the identification and
management of health, safety and environmental risks across the PLIVA Group.
Occupational Safety and Health Risks
Financial Risk Factors
The pharmaceutical industry is a sector with a number of risks for occupational safety and
health and working environments. These risks arise primarily from mechanical hazards,
noise, utilities and hazardous radiation, which may lead to occupational injuries and diseases.
There is also a risk of dangerous substances/bulk pharmaceuticals that may cause allergies
in low exposure quantities, regardless of implemented safety measures. After prolonged/
repeated exposure, these allergies may lead to permanent damage to health or occupational diseases in more susceptible employees. Depending on their properties, dangerous
substances may be toxic to reproduction (teratogenic), cause heritable genetic damage
(mutagenic) or induce cancer (carcinogenic).
The objective of all occupational safety and health activities is to ward off and reduce risks
in line with state regulations and international and PLIVA standards. For this purpose, PLIVA
has established a risk management system, which comprises a number of preventive
measures, the most important of which are: risk assessment; integration of occupational
safety and health standards during design/reconstruction of facilities or product introduction/transfer; training in workplace safety; control and maintenance of work equipment
and premises in good repair; informing employees of risks to life and health; internal audits;
health examinations of employees; active medical vacations; occupational safety and
health reports with draft measures for OSH improvements, etc. These preventive measures have resulted in a continuous decrease of occupational injuries.
PLIVA’s business is exposed to a variety of
financial risks, including foreign exchange
risk, interest rates risk, credit risk and
liquidity and solvency risks. PLIVA’s new
organizational structure integrates risk
management of the above risks within the
Group, with an aim to minimize potential
adverse effects on the Company’s performance. PLIVA does not transfer all of its
risks to the market, but actively manages
them within defined limits on a Group level,
which results in reduced costs and increased efficiency.
We proactively share data, experience,
Business Operations Risks
PLIVA’s business operations risks refer to
the risks to which every company is
exposed in its daily operations and is determined by the risk of the particular industrial
sector and the company’s own business
processes. Such risks might include poor
operational performance of a particular
business segment, uncontrolled cost levels,
bad debts, price cuts, underperforming
business investments and/or changes to
legislature.
best practices, knowledge and ideas, in order for us all
to make firm decisions, change effectively and move quickly
for the benefit of all our stakeholders.
25
Product liability is a commercial risk for all
pharmaceutical companies. Although PLIVA
has substantially increased coverage for
product and public liability insurance at the
global level, there can be no assurance that
this might not lead to significant claims.
The liability of Directors and Officers (d&o)
is a legal risk, mainly known for high claims
in the United States. Employment Practices Liability (epl) can be included as part
of a d&o policy or as a standalone policy.
PLIVA recently purchased two separate
policies: for d&o and epl, doubling coverage for potential claims. In addition to legal
risks, PLIVA has also insured itself against
so called hazard risks. Through its Property
Damage (pd) policy, PLIVA has insured its
property against all risks including natural
hazards (such as earthquakes) and Business
Interruption (bi).
Besides the above mentioned risks, PLIVA
also has cargo (or goods in transport)
insurance covered by global policy. All intragroup sales and sales to direct customers
are covered, as well as PLIVA’s consignment
warehouses throughout the world.
Business Report
26
During 2005, PLIVA completed a strategic
investment cycle in its r&d center in Krakow,
increasing PLIVA’s generics development
capacities to support an increased number
of filings for both the EU and USA. The
center in Brno saw new investment into the
oral cytostatics facility, an investment cycle
that should be completed during the first
half of 2006, while the Zagreb center
increased resources to focus on generics
development and continued to act as
the headquarters for all PLIVA r&d activities.
These centers proved successful in 2005,
giving generics r&d over 10 new patent submissions, with 2 patents granted in the USA.
In addition to these three centers, PLIVA also
invested in a new bio-study center in India
in 2005. This center is expected to cover
PLIVA’s bioequivalence study requirements
in-house and is scheduled to open in
April 2006, further increasing PLIVA’s competitiveness in this ever-demanding field.
During the course of the year, r&d also
reaffirmed its commitment to developing
select APIs together with PLIVA’s Pharma
Chemicals Division. This saw the Company’s
vertical integration process redefined and
consolidated, resulting in 5 new drug master
files (DMFs) approved for active pharmaceutical ingredients, primarily in the USA, a
level that is expected to continue over the
upcoming period.
honest, fair
trustworthy
27
Although difficult and challenging, the past year has marked a significant milestone for PLIVA. With the announcement of the
decision to exit the proprietary business in May 2005 and the expiry
of its azithromycin patent in November, it can be said that PLIVA
confronted two major hurdles head on. Fully focusing on generic
pharmaceuticals, PLIVA firmly decided to concentrate on only one
line of business - a realignment of strategy that is expected to yield
long-term rewards. Committed to executing this strategy, PLIVA’s
Management Board was reappointed to a new four-year term.
With PLIVA’s reaffirmation to focus solely on generics, the Company has in large part consolidated its resources and as promised,
quickly exited the proprietary business. The divestment of US
proprietary products SANCTURA® and VoSpire ER and the early
2006 announcement of the sale of its proprietary r&d research
to GlaxoSmithKline once again confirmed PLIVA’s commitment to
exiting the proprietary business.
The sale of its proprietary r&d does not however bring an end to
PLIVA’s r&d activities. PLIVA will maintain its generics r&d arm,
which will capitalize on the Company’s wealth of scientific expertise and azithromycin blockbuster past and will continue to invest
in the development of a broad range of generics. With up to
150 projects in various phases of development, the generics r&d
team continues to operate in 3 different centers of excellence:
Zagreb (Croatia), Krakow (Poland) and Brno (Czech Republic), each
of which continues to support various areas of product development, from active pharmaceutical ingredients (APIs) and commodities to value-added generics including biosimilars and cytostatics.
We are committed to being
and
in all our
activities and we constantly strive to provide
products and services which are above the expectations of all our
internal and external costumers.
28
In 2005, PLIVA also continued to grow its
product portfolio with 61 different molecules submitted for registration, of which
53 for Central and Eastern Europe (CEE),
21 for Western Europe and 8 for the USA.
Nearly 900 different product files submitted are still pending for just over 90
molecules globally, with over 80 molecules
still pending registration in the CEE, nearly
50 in WE and over 10 in the USA, where
4 molecules have been submitted as
Paragraph iv filings. During the year, 28 new
molecules were launched across PLIVA’s key
markets, bringing total new product sales
from 2004/2005 launches to almost 10%
of total generics sales, which showed
growth of 13% over the previous year. The
strong growth trend across all Western
European markets continued throughout
the period with PLIVA outperforming local
markets in both Germany and Spain. German healthcare reforms, which are expected to introduce price cuts from q2 2006,
will slow growth across the board, while
PLIVA’s other key markets are expected to
continue their strong growth trend, with
Italy and Spain expecting to see
positive returns in 2006. PLIVA’s CEE sales
fared moderately well, with Russia delivering yet another exceptional performance
and growth in Poland increasing slightly.
Sales force restructuring effects in Poland
are expected to show results by the second
half of 2006, with improved overall
performance. Croatian sales teams also
delivered a stable performance in a market
where PLIVA holds over a 20% market
share, a trend that is expected to continue
into 2006.
In 2005, in the area of Global Product Supply, management followed through on earlier
promises to consolidate manufacturing and reduce the number of manufacturing sites.
PLIVA completed its intensive negotiations with the Menarini Group at the start of 2006,
announcing the sale of its awd plant in Germany, a testament of PLIVA’s commitment
to focus on its cost-competitive CEE manufacturing sites. The transfer of awd products is
underway to PLIVA’s Eastern facilities in Poland and Croatia, with savings expected from
2007 and the transfer process to be completed by 2008. With PLIVA’s manufacturing
processes being put to the test during this product transfer process, PLIVA continued with
its implementation of the Six Sigma model, known as the PLIVA Excellence Process (PEP),
which aims to reduce costs and increase synergy within product manufacturing cycles.
This program has seen a new wave of black belts trained in Six Sigma methodology,
focused on total management commitment, excellence, customer focus, process improvement and rules of measurement, using the dmaic approach: Define, Measure, Analyze,
Improve and Control. PEP is already showing positive effects in PLIVA’s manufacturing
processes and cycle times, leading to savings of over usd 9m.
Also, in September 2005, PLIVA signed a new bulk azithromycin supply agreement with
Pfizer for a three-year period starting from 2006, representing a continuation of PLIVA and
Pfizer’s long and mutually beneficial relationship with respect to azithromycin in effect
since 1986. PLIVA’s Pharma Chemicals Division not only remains a strong exporter of APIs to
the USA and Western Europe, but is also a vital part of PLIVA’s internal supply process,
which jointly with r&d actively develops vertically integrated APIs. PLIVA has 15 new vertically integrated APIs in various stages of development, with over 5 APIs in late stages
of process development and scale-up. PLIVA strongly believes that by vertically integrating
much of its pipeline portfolio with its own APIs it will be able to significantly improve profitability in the future.
Overall, despite a trying year, a number of difficult decisions were made, bringing the
Company one step closer towards its vision of becoming an integrated and leading global
generic pharmaceuticals group, which, based on operational and r&d excellence, will continue to grow and bring long-term and sustainable growth for the Company.
29
PLIVA’s r&d also continued to make strong scientific advancement in its biosimilars program. In early 2005, PLIVA forged its first biosimilars partnerships with Mayne Pharma of
Australia and Barr Laboratories of the USA, a testament to the Company’s strong development capabilities and expertise in this highly attractive field. PLIVA’s program for biosimilar filgrastim (G-CSF), a generic version of Amgen’s Neupogen®, is successfully moving
forward in both of these partnerships and is expected to soon enter the clinical phase for
Europe, with second generation biosimilars also being considered for development.
Substantial progress has also been made with biosimilar erythropoietin (epo), a generic
version of Janssen-Cilag’s Eprex® (epoetin-alfa), which has shown very encouraging phase
i results. However, Mayne and PLIVA have agreed to terminate joint development on
this program due to the recent guidelines and scientific recommendations received from
the European Medicines Agency (EMEA), which have significantly increased clinical program costs beyond the scope of the original agreement. PLIVA is currently discussing new
partnership opportunities for epo in Europe with a number of companies, and all options
remain open. During 2005, PLIVA also registered epo on the Croatian market, which it
expects to launch during 2006. PLIVA is confident in its position as a leader in the development of biosimilars and hopes to work on pushing the approval of biosimilars forward in
Europe, in turn setting the groundwork for biosimilars for the US market.
PLIVA’s US overall sales growth strongly
rebounded, despite substantial price
cuts which occurred at the end of the q3
2004 period. Five products were launched
during the year, including carboplatin,
PLIVA’s first cytostatic developed for the
US market, and azithromycin, which
was launched at the end of the year. Owing
to its r&d capabilities, PLIVA is among a
limited number of top generics companies
which has been able to successfully develop
and secure FDA approval for this product
and thus vie for market share on this lucrative market. Despite a later launch,
PLIVA is confident that owing to its originator status for this product, it will prove
highly competitive and successful in gaining
its fair share of sales for this product.
Sustainable Development
People
The Development of PLIVA’s Learning
Philosophy
30
In its home market of Croatia, where PLIVA’s api manufacturing
facilities are concentrated and where a key Final Dosage Forms
manufacturing site and its r&d’s headquarters are located,
PLIVA regularly issues a Sustainable Development Report. This
report, issued in line with Global Reporting Initiative (gri) standards,
focuses on social responsibility, manufacturing and quality issues,
natural resources, as well as human resources.
The restructuring process was accompaThe Human Resources (hr) department
nied by a renewed dedication to lifelong
played a fundamental role in PLIVA’s busilearning, personal development and
ness activities in 2005, through human
employability, both within and outside PLIVA.
resource planning and changes related to
Continued investment in global education
the divestment of the proprietary business
through training programs, which focused
and consolidation of PLIVA’s production
on blended learning solutions, were created
sites. Furthermore, through PLIVA’s
in partnership with Erasmus University
Learning Center, an emphasis was placed
of Rotterdam and its international network
on PLIVA’s learning philosophy, career
of business schools and universities.
development and leadership development
Through this program, the PLIVA Learning
opportunities. This has reflected PLIVA’s
Center aims to:
commitment to developing a highly motivated, educated workforce with increased • develop, share, exchange and apply strategic knowledge, skills and key competencies
employability and learning opportunities.
to encourage internal promotions, and
• accelerate corporate change and growth by
developing a strong workforce by way of
leadership development.
PLIVA’s desire to work towards achieving
its vision led to an emphasis in 2005 on
leadership development activities focused
on a group of Senior Executives and a
select group of employees belonging to
PLIVA’s Acceleration Pool. Both groups actively participated in PLIVA Learning Center
educational programs that have been
tailored to PLIVA’s business needs. These
courses will ensure that these employees
acquire the skill set required for taking
on new, more demanding roles within the
Company, while enabling succession planning from within.
In 2005, almost usd 1m was set aside for donations and sponsorships
in Croatia, with over 60% related to health projects, where PLIVA
directly contributed to the renovation of three hospital facilities.
Outside of its home market, PLIVA follows the principle - think globally, act locally - having each of its subsidiary companies focus
on local community needs. This varies from donations to the Pharmaceutical Museum in Krakow, Poland to the donation of medicine
to hurricane relief efforts in New Orleans. For this effort, as well
as the tsunami relief efforts in Southeast Asia, PLIVA donated a value
of nearly usd 2.5m in medication.
We work
closely together, requiring us all to learn
from each other, and to share our skills and resources
for the benefit of all our stakeholders.
31
As a good corporate citizen, PLIVA is well aware of its responsibility to the community and as such supports numerous projects
focused on healthcare, healthy living and environmental protection.
PLIVA continues to actively promote health initiatives and acts as
sponsor to many worthy local causes on each of the markets in
which it operates.
Financial Report & Highlights
Financial Report
PLIVA Group Financial Highlights
total group
34
total group
continuing
usd m
2004
usd m
2005
usd m
2004
1,197.1
1,130.1
1,174.1
1,105.8
5.9%
4.9%
6.2%
4.2%
999.3
918.1
976.3
893.7
8.9%
6.5%
9.2%
5.7%
658.4
649.3
660.1
630.5
1.4%
-1.5%
4.7%
-2.0%
ebit
24.8
164.5
207.1
244.7
-84.9%
-13.1%
-15.4%
1.2%
147.4
164.5
247.9
244.7
ebit margin (%)
-10.4%
-26.3%
1.3%
-11.2%
ebit ex-restructuring margin (%)
6.5
140.6
188.7
220.7
profit before tax margin (%)
-95.4%
-16.0%
-14.5%
0.4%
-75.1
127.5
183.7
-
-13.2%
-4.31
usd m
2005
usd m
2004
415.00
364.00
13.25
12.50
17,424,739
17,400,937
average number of employees
6,137
6,574
-6.6%
-4.3%
gross profit margin (%)
55.0%
57.5%
2.1%
14.6%
12.3%
14.6%
0.5%
12.4%
net profit margin (%)
-6.3%
11.3%
207.7
roe (%)
-6.6%
11.2%
-11.5%
4.2%
roic (%)
-5.5%
8.4%
7.33
10.55
11.93
debt/equity ratio
31.3%
35.2%
-
-13.5%
-11.6%
3.7%
2.5%
17.7%
1.95
1.96
1.95
1.96
-0.7%
-19.8%
-0.7%
-36.7%
1 usd (average) = hrk
5.9480
6.0355
sales per employee in usd 000
162.8
139.7
162.7
151.4
1 usd (31 december) = hrk
6.2336
5.6369
16.6%
11.3%
7.5%
19.5%
1 eur (average) = hrk
7.4002
7.4952
total assets
1,675.6
1,967.4
1,657.3
1,967.4
1 eur (31 december) = hrk
7.3756
7.6712
-14.8%
20.8%
-15.8%
20.8%
1,046.0
1,237.5
1,046.0
1,237.5
-15.5%
16.0%
-15.5%
16.0%
81.3
230.9
67.1
75.7
-64.8%
160.8%
-11.2%
-14.5%
revenue
sales
gross profit
profit before tax
net profit
earnings per share (eps) in usd
dividend per share (dps)* in usd
shareholders’ equity
capex
*On 28 February 2006, the Management Board proposed a dividend in respect of 2005 of hrk 12.00 per share, which
amounts to usd 1.95 according to the Croatian National Bank effective exchange rate on 28 February 2006.
share price (31 december) hrk
gdr price (31 december) usd
weighted average number of shares
net debt to equity (gearing)
35
usd m
2005
PLIVA Group Financial Highlights - Historical Overview
usd m
36
2000
2001
2002
2003
2004
587.6
599.8
632.2
815.5
1,077.7
1,130.1
1,197.1
4.5%
2.1%
5.4%
29.0%
32.1%
4.9%
5.9%
sales
443.7
448.0
470.4
656.5
862.1
918.1
999.3
-4.2%
1.0%
5.0%
39.6%
31.3%
6.5%
8.9%
ebit*
190.2
171.1
188.1
197.1
189.2
164.5
24.8
13.9%
-10.0%
9.9%
4.8%
-9.1%
-13.1%
-84.9%
ebit* (ex restructuring)
190.2
171.1
188.1
197.1
223.2
164.5
147.4
13.9%
-10.0%
9.9%
4.8%
13.3%
-26.3%
-10.4%
net profit
122.2
137.3
131.4
160.6
146.8
127.5
-75.1
12.8%
12.4%
-4.3%
22.2%
-8.6%
-13.2%
n/a
total assets
915.9
926.1
967.6
1,382.0
1,628.9
1,967.4
1,675.6
7.0%
1.1%
4.5%
42.8%
17.9%
20.8%
-14.8%
capex
87.1
91.6
62.1
79.2
88.5
230.9
81.3
26.4%
5.2%
-32.2%
27.4%
11.8%
160.8%
-64.8%
66
61
65
92
125
140
163
-4.3%
-7.5%
5.9%
42.9%
36.0%
11.3%
16.6%
earnings per gdr (usd)
1.24
1.39
1.38
1.85
1.69
1.47
-0.86
revenue
sales per employee (‘000)
*earnings before interest and tax (ebit)
12.6%
14.5%
-28.8%
-4.2%
n/a
10.6%
-1.1%
16.3%
n/a
37
PLIVA Group’s 2005 financial performance was marked by numerous restructuring activities related to its strategic
intent to completely focus on generics operations and exit the proprietary business as announced in May 2005.
As a result of this decision, the first and most significant step was completed through the divestment of Odyssey’s US sales licence for SANCTURA® in July, followed by that of VoSpire in November. PLIVA successfully completed this exit process by early 2006, when it reached an agreement with GlaxoSmithKline (GSK) for the sale of
the PLIVA - Istraživački Institut d.o.o. (PLIVA - Research Institute Ltd.).
In line with the requirements of International Financial Reporting Standards, PLIVA presents its 2005 results, split
between continuing and discontinued operations, where discontinued operations include the results of Research
Institute’s operations together with divested US proprietary products SANCTURA® and VoSpire. This discontinued
business decreased PLIVA Group’s 2005 operating profit by usd 182m, with a further usd 77m reported as a loss
on sale of this business, thus additionally negatively impacting the Group’s net income. This business is expected
to have a minor impact on PLIVA Group’s 2006 performance, as the closing of the transaction for the Research
Institute is expected during April 2006.
Continuing business performance was driven by growth in the Generics division, which was partially offset by results of the Continuing Proprietary division, resulting in a 6% growth in revenue. Following the decision to exit the
proprietary segment, on 01 August 2005 PLIVA entered into an agreement with Legacy Pharma for the sale of its
CNS franchise, including Antabuse®, Vivactil® and Surmontil®. However, due to Legacy’s inability to fulfil the financial terms and contractual obligation, the transaction was cancelled, leaving PLIVA to benefit from the non-refundable usd 5m down-payment. PLIVA subsequently decided to retain this profitable portfolio as it does not require the
support of a dedicated sales team, incorporating it into its continuing proprietary segment. From 2006, however,
these products will be reported as part of the generics division.
Following on from cost control programs started in 2004, management also decided to rationalize its manufacturing base by focusing production in the most cost efficient locations and improving capacity utilisation materially.
In January 2006, PLIVA completed the first milestone in its manufacturing consolidation program through the divestment of its German production plant. This transaction had a strong impact on the performance of Continuing
business in 2005, contributing usd 22m of mainly related asset impairment charges to total restructuring costs of
usd 41m. Although the expected cash proceeds of usd 5m are not significant, it is important to note that by selling
the plant, PLIVA managed to avoid the potentially significant cash costs of plant closure. PLIVA has begun transferring production to its Eastern European facilities, which is expected to result in improved production utilization
rates, while in Germany it will continue to invest only in its sales and marketing activities. The further usd 19m of
restructuring costs recorded were related to optimization of the remaining asset base and severance payments.
In addition, the year 2005 was marked by the expiry of PLIVA’s US azithromycin patent on 01 November 2005. Given
the q4 patent expiry, 2005 royalty revenue was only mildly affected at usd 160m. However, given the strong contribution of US royalties in the past, this will have a significant impact on both top and bottom line performance in
2006, while royalty rights on other markets predominantly expire in 2006 [Japan (November 2006), major Western
European markets (April 2006) and Italy (April 2009)].
cagr
2005 1999-2005
1999
PLIVA Group Revenue
Group Revenue by Division
usd m
38
2005
2004 % change
%
%
amount
%
%
05/04
770.5
64.4
77.1
681.2
60.3
74.2
13.1
proprietary
42.8
3.6
4.3
55.5
4.9
6.0
-22.9
continuing
19.8
1.6
2.0
31.1
2.8
3.4
-36.6
discontinued
23.0
1.9
2.3
24.4
2.2
2.7
-5.5
pharma chemicals
126.5
10.6
12.7
123.6
10.9
13.5
2.4
non-core business
56.3
4.7
5.6
53.6
4.7
5.8
5.1
other sales
3.2
0.3
0.3
4.3
0.4
0.5
-25.3
total sales
999.3
83.5
100.0
918.1
81.2
100.0
8.9
continuing sales
976.3
81.6
97.7
893.7
79.1
97.3
9.2
research-royalties
160.3
13.4
169.8
15.0
-5.6
37.5
3.1
42.3
3.7
-11.2
generics
other income
PLIVA Group revenues increased 6% to usd 1,197m with an insignificant contribution from the discontinued business.
During the year, total sales increased 9% to usd 999m, driven for the most part by the Generics division where sales
increased by 13% to usd 771m.
Pharma Chemicals sales increased modestly by 2%, despite slightly decreased bulk azithromycin sales, which were
compensated for by increased sales of other products.
Continuing proprietary sales dropped by 37% to usd 20m as a result of limited sales and marketing efforts dedicated
to this business during 2005. From 2006, this portfolio will be reported within the generic business and sales are
expected to return to 2004 levels. Royalty revenue also decreased 6% from 2004 to usd 160m, following expiry of
PLIVA’s US azithromycin patent. As such, total proprietary revenue was down 8% to usd 208m (2004: usd 225m) or
down 8% to usd 185m on a continuing basis.
Non-core business delivered a slightly improved performance with a sales of usd 56m, up 5% over 2004. Other
income decreased by 11% compared to the previous year, consisting of out-licensing income and various exceptional
items, including the usd 5m upfront payment received from Barr Pharmaceuticals and usd 5m exclusivity fee from
Legacy Pharma.
Revenue by Market
usd m
2005
amount
pliva group revenues
1,197.1
100.0
1,130.1
100.0
5.9
croatia
pliva group continuing revenues
1,174.1
98.1
1,105.8
97.8
6.2
international markets
%
181.2
39
amount
2004 % change
%
amount
15.1
191.3
%
%
05/04
16.9
-5.3
1,015.9
100.0
84.9
938.8
100.0
83.1
8.2
north america
473.4
46.6
39.5
467.3
49.8
41.4
1.3
western europe
242.9
23.9
20.3
206.4
22.0
18.3
17.7
other cee*
299.6
29.5
25.0
265.1
28.2
23.5
13.0
100.0
1,130.1
100.0
5.9
2005 Sales Structure by Division
proprietary | 4%
total
pharma chemicals | 13%
*including row (rest of world)
non-core business | 6%
other sales | 0%
generics | 77%
1,197.1
Profitability - Continuing Business
Profit Structure
usd m
2005 Revenue by Markets
40
2005
2004
% change 05/04
total ex royalty
total
amount
%
ex royalty
%
total
amount
%
ex royalty
%
revenue
1,174.1
100.0
100.0
1,105.8
100.0
100.0
6.2
8.3
north america | 40%
gross profit
660.1
56.2
49.3
630.5
57.0
49.2
4.7
8.5
western europe | 20%
ebitda
318.9
27.2
15.6
344.1
31.1
18.6
-7.3
-9.0
other cee* | 25%
ebitda ex restructuring
336.3
28.6
17.4
344.1
31.1
18.6
-2.2
1.0
ebit
207.1
17.6
4.6
244.7
22.1
8.0
-15.4
-37.5
247.9
21.1
8.6
244.7
22.1
8.0
1.3
17.1
ebt
188.7
16.1
2.8
220.7
20.0
5.4
-14.5
-44.1
net income
183.7
15.7
2.3
207.7
18.8
4.0
-11.5
-38.0
*including row (rest of world)
The USA remains the single largest market for the Group, although revenue growth slowed in 2005 on account
of lower royalty income and decreased Pharma Chemicals sales of azithromycin. The Generics division, however,
showed a strong rebound achieving 14% growth on this market.
The major growth driver in Central and Eastern Europe was the Russian generics market with 46% growth in 2005.
While the Polish market showed only moderate growth of 5%, sales of usd 91m ranked this as PLIVA’s third largest
international market. Sales in Croatia were stable at usd 132m, although under pressure of continued regulatory and
market activities related to the rationalization of healthcare sector costs and price cuts.
Growth in Western Europe continued to outpace other markets, reaching a 20% share in Group revenues by the end
of 2005, driven by a 26% generics sales increase. The highest growth was achieved in Spain, Italy and the United
Kingdom, where sales were up 45%, 37% and 35% respectively.
Strong sales growth achieved on the Western European, as well as US and Russian generics markets, coupled with a
greater contribution from the Pharma Chemicals’ operating results, were the strongest drivers of PLIVA’s continuing
operations performance. However, these positive influences were contrasted with the effects of decreased royalties, restructuring costs of usd 41m and lower other income and continuing proprietary sales.
Gross profit of usd 660m grew 5%, reflecting a stable ex-royalty margin of 49% since improved efficiencies in PLIVA’s product supply chain did not manage to fully compensate the effect of decreased royalties and other income,
decreased continuing proprietary sales, lower generics prices and the first phase of product transfer costs from
Germany to Croatia and Poland.
Sales and distribution costs (s&d) of usd 218m and Research and Development costs (r&d) of usd 74m were only
slightly above 2004 levels when measured in relation to ex-royalty revenue. General and administrative (g&a) costs
of usd 121m however, slightly decreased in absolute terms, partially due to the ifrs change in accounting treatment
for goodwill, where goodwill is no longer amortizatized but subject to an annual impairment test. This was partially
offset by increased Paragraph iv related litigation costs incurred in line with PLIVA’s strategy to become more aggressive in filing these types of ANDAs in the USA.
Excluding 2004 goodwill amortization, regular depreciation and amortization in 2005, excluding impairment, was
flat, just below usd 90m. In addition to this, Group earnings also included an impairment loss of usd 23m (booked
within restructuring costs), mainly related to the divestment of the awd production facility.
As a result, overall performance of the continuing business was stable with ebit ex-restructuring up to usd 248m,
1% above the previous year.
Earnings before tax (ebt) amounted to usd 189m, decreasing from usd 221m in 2004. Following an effective tax rate
of only 3%, which remains at very low levels primarily due to research and development tax incentives in Croatia, net
income amounted to usd 184m, down 12% against that in 2004 resulting in epgdr of usd 2.11.
41
croatia | 15%
Profitability - Discontinued Business
Profit Structure
usd m
42
Financial Results by Division
2004
amount
% change
05/04
revenue
23.0
24.4
-5.5
gross profit
-1.7
18.8
-
-128.0
-76.2
68.1
-85.1
-76.2
11.6
ebit
-182.3
-80.2
-
-100.5
-80.2
25.3
76.5
0.0
-
-258.8
-80.2
-
ebitda
ebitda ex restructuring
loss on sale of discontinued operations
net income
Discontinued business results include the costs of PLIVA’s proprietary r&d operations as well as the operating performance of Odyssey’s divested proprietary products, SANCTURA® and VoSpire.
SANCTURA®, a novel drug approved for the treatment of overactive bladder, was acquired by PLIVA in April 2004.
As a new product facing strong competition, it required significant investments into marketing and promotional
activities, resulting in a strong increase in 2005 s&d costs to usd 65m. High s&d costs, next to a low sales contribution, resulting from the accounting practice of recording sales based on the number of prescriptions written, a total
of usd 13m in amortization of product rights, together with proprietary r&d costs of usd 24m, all contributed to the
usd 100m operating loss when excluding restructuring charges.
Restructuring costs of usd 82 m were brought on by the decision and follow-through of exiting the proprietary
business, with usd 32m related to the divestment of SANCTURA® and a further usd 39m related to impairment and
write-offs caused by the termination of various proprietary development projects not included in the agreement
with GlaxoSmithKline plc. An additional usd 11m related to severance payments, consulting fees and accruals for
already committed costs related to the terminated projects.
Following the announcement of its intent to exit the proprietary business, PLIVA began the divestment process of
the largest part of its proprietary business, including SANCTURA®, VoSpire and the Research Institute in Zagreb.
The divestment of SANCTURA® was successfully completed in June 2005, resulting in a loss on sale of discontinued
operations of usd 100m reported below the ebit line. The loss was calculated based on proceeds in the amount of
usd 45m received in July 2005. VoSpire was subsequently divested in November 2005, resulting in a gain on sale
of usd 23m, which decreased the total loss on sale of discontinued operations to usd 77m. The gain was calculated
based on proceeds of usd 32m received in November 2005. PLIVA is entitled to further potential payments of up
to usd 95m for SANCTURA® and up to usd 36m for VoSpire in future periods based on the achievement of certain
sales milestones and other events. Due to the inherent uncertainties related to these contingent receipts, however,
they have not been recognized as income in 2005.
The sale of PLIVA’s proprietary research arm represented the final step in exiting the proprietary business. The
agreement with GlaxoSmithKline plc (“GSK”) was signed on 14 February 2006 under which GSK will take on all employees and gain full ownership of the subsidiary, including all assets, intellectual property and know-how. PLIVA will
receive a total potential cash consideration of up to usd 50m for this transaction, consisting of an upfront payment
of usd 35m and up to usd 15m contingent upon the entry of certain early stage projects into clinical development.
In addition, PLIVA will receive contingent royalty-based consideration pending commercialization of certain assets.
The closing of the transaction is expected to occur in April 2006 and should result in a respective gain of about usd
20m, with no impact on PLIVA’s results for 2005.
PLIVA’s internal organizational structure in 2005 consisted of the following divisions:
43
• Generics (in 2004 reported within the Pharmaceuticals division and certain development costs reported within the
Research division);
• Proprietary (in 2004 royalties and research costs reported within the Research division, while commercial operations reported within Pharmaceuticals. The continuing part of Proprietary operations will be reported within the
Generics division from 2006, except for royalties that will not be allocated to any division);
• Pharma Chemicals includes sales of bulk azithromycin and other active pharmaceutical ingredients, and
• Non-core [includes dddi (diagnostics, disinfectants, dialysis, and infusions) and Animal Health and Agrochemicals].
Segmental operating results do not include the allocation of corporate overheads (administrative expenses of corporate support functions), goodwill impairment, or certain other income and expense items, which are not directly
attributable to the reported business segment. Furthermore, information on interest income, interest expense, and
income taxes is not provided on a segment level as the segments are reviewed based on operating profit.
Generics
usd m
2005
amount
2004
amount
% change
04/05
revenue
795.7
704.1
13.0
sales
770.5
681.2
13.1
ebit excluding restructuring costs
51.6
37.7
37.1
ebit margin excluding restructuring costs
6.5%
5.4%
-
ebit
22.4
37.7
-40.6
ebit margin
2.8%
5.4%
-
generics division
The Generics division continued with strong growth achieving sales of usd 771m, 13% more than in 2004 and contributing 77% to total Group sales (vs. 74% in 2004).
This growth was supported by the launch of 28 new molecules in PLIVA’s key markets, of which 31 were launched in
CEE, 43 in WE and 5 in the USA. New products launched during 2004 and 2005 contributed usd 73m or 9% of total
Generics sales.
The difference between Sales and Revenue in the Generics division rests in other income (including provision of services, sale of fixed assets and materials, out-licensing and other) that result from other than sale of PLIVA products.
2005
amount
Pharma Chemicals
usd m
44
The USA
The USA remains PLIVA’s largest market with sales of usd 176m, representing a 14% increase from the 2004 level
of usd 154m. Strong performance was achieved despite the negative impact of lower prices that were more than
compensated for with higher sales volume.
Western European Region
PLIVA continued to grow rapidly on its Western European markets, achieving sales of usd 199m or 26% more than
in 2004. Double digit growth was realized on all key WE markets, with Germany leading the region with sales of usd
121m, taking its place as the third largest market for the entire PLIVA Group.
Sales growth of 18% in Germany in local currency terms was a result of several important co-marketing agreements
accomplished during the year. The UK, with sales of usd 25m, remained slightly ahead of Italy and Spain, growing
37% over 2004 in local currency terms. This represents a continuation of the growing trend from previous years and
is attributable primarily to successful strengthening of the sales team and numerous promotional activities.
PLIVA realized usd 24m of sales on the Italian market representing 38% growth over 2004 in local currency terms.
After slowed sales growth on the Spanish market a year ago, in 2005 PLIVA achieved sales growth of 43% in local
currency terms arriving to total sales of usd 21m. Management change and internal restructuring led to better performance with further improvements expected in 2006.
Due to an impressive sales increase of usd 89m in relation to the Generics division, the ebit excluding restructuring increased 37% above last year reflecting the results of cost controls, despite increased marketing activities in
Western Europe and Russia, as well as higher Paragraph iv litigation costs.
2005
amount
2004
amount
% change
04/05
revenue
126.7
123.6
2.5
sales
126.5
123.6
2.4
53.7
49.7
8.1
42.4%
40.2%
-
47.9
49.7
-3.6
37.8%
40.2%
-
pharma chemicals division
ebit
ebit margin
With sales of usd 127m, the Pharma Chemicals division recorded growth of 2%. Despite lower annual sales of bulk
azithromycin (usd 86m in 9m 2005), the division achieved a solid ebit excluding restructuring of usd 54m with a
42% margin mainly as a result of a strong performance of the remainder of the portfolio. During the year, PLIVA
also signed a new three-year supply agreement for bulk azithromycin with Pfizer, which continues to position PLIVA
as their main supplier of the product. Given the expiry of PLIVA’s US azithromycin patent and original agreements
with Pfizer, however, terms of the new agreement are expected to contribute to lower divisional performance in
comparison to previous years.
45
Central and Eastern European Region
CEE sales increased 7% over the last year to usd 396m, or 4% excluding the impact of foreign exchange movements.
This remains by far the largest region for PLIVA with 51% of total Generics sales, although this was down from 54%
in 2004 as a result of the much faster growth realized in Western Europe and the USA.
Croatia remained the most significant market within the region. Total sales of usd 132m represented a mild 2% decline in
local currency terms, where pricing and regulation issues are intensifying. During the year, Government led initiatives
in healthcare savings were supplemented with a new co-payment regulation, which lowered the number of doctor
visits and in turn the demand for drugs. The reimbursement list with an emphasis on lower pricing was introduced
in January 2005, whilst the new one, announced for the end of the year, was postponed to the beginning of 2006.
Regional growth was driven by the Russian market, which was up 46% to usd 65m. High growth over the previous
year was achieved due to good results from the introduction of the Federal Reimbursement Program, which accounted for 17% of local sales, intensive promotional and field activities and improvements in internal organization
and competences. With such growth, Russia was the fastest growing market for PLIVA in 2005 and continued
growth it is expected.
Poland, with sales of usd 91m, remained the second largest market within the region, although reporting a sales
decline of 7% in local currency terms. Such sales results were influenced by delays in new product launches due to
local regulatory issues as well as by price reductions created with the introduction of the new reimbursement list.
With a new management team in place and significant internal reorganization implemented in the second half of
2005, PLIVA expects a significant turnaround on the Polish market from the second half of 2006.
Proprietary Division
usd m
46
% continuing continuing
change
2005
2004
05/04 amount amount
%
change
05/04
total
2004
amount
208.1
225.3
-7.7
185.0
201.0
-7.9
42.8
55.5
-22.9
19.8
31.1
royalties
160.3
169.8
-5.6
160.3
ebit
-11.3
100.8
-
-
44.8%
70.5
2005
amount
2004
amount
% change
04/05
revenue
57.4
55.3
3.8
-36.6
sales
56.3
53.6
5.1
169.8
-5.6
dddi
22.7
21.4
5.8
171.0
180.4
-5.2
animal health & agrochemicals
33.6
32.2
4.6
-
92.4%
89.8%
-
0.9
-1.4
162.3
100.8
-30.1
171.0
180.4
-5.2
1.6%
-2.6%
-
33.9%
44.8%
-
92.4%
89.8%
-
ebit
0.6
-1.4
142.1
-171.6
-69.0
-
10.7
10.6
0.7
ebit margin
1.1%
-2.6%
-
-
-
-
43.2%
34.1%
-
ebit excluding restructuring costs and royalty
-89.8
-69.0
-
10.7
10.6
0.7
ebit margin excluding restructuring costs and royalty
-
-
-
43.2%
34.1%
-
proprietary division
revenue
sales
ebit margin
ebit excluding royalty
ebit margin excluding royalty
The continuing Proprietary business evidenced a significant sales decrease, reflecting the outcome of reduced marketing and promotional activities dedicated to cns products (Vivactil®, Antabuse®, Surmontil®) which were subject to
sale to Legacy Pharma Limited Partnership. However, due to Legacy’s inability to satisfy the closing conditions, PLIVA
terminated the agreement and retained the usd 5m commitment fee received upon signing. This fee and lower s&d
costs neutralized the negative impact of decreased sales, leaving ebit excluding royalty at the same level as last year.
Royalty income decreased by usd 10m to usd 160m following the expiration of PLIVA’s US royalty rights in November. Royalty rights on other markets predominantly expire in 2006 [Japan (November 2006), major Western
European markets (April 2006) and Italy (April 2009)].
Discontinued proprietary operations had a total negative impact on proprietary performance bringing the total
divisional ebit to a loss of usd 11m.
non-core business
Total sales in the Non-core business increased 5% with equal contributions from both dddi and Animal Health and
Agrochemicals, representing 6% of total Group sales and an immaterial improved ebit ex-restructuring of usd 1m.
47
total
2005
amount
Non-Core Business
usd m
Financial Position
Reclassified Balance Sheet
usd m
Balance Sheet
usd m
31-dec-05
48
31-dec-04
% of change
31-dec-05
31-dec-04
% of change
%
amount
%
05/04
fixed assets
775.2
1,123.7
-31.0
non - current assets
775.2
46.3
1,123.7
57.1
-31.0
other operating assets
603.5
675.8
-10.7
current assets
900.4
53.7
843.7
42.9
6.7
non-interest bearing liabilities
-297.2
-289.2
+2.8
1,675.6
100.0
1,967.4
100.0
-14.8
1,081.5
1,510.2
-28.4
cash and liquid investments
296.9
168.0
+76.8
assets
net operating assets
long - term liabilities
250.2
14.9
281.9
14.3
-11.3
debt
-327.3
-435.1
-24.8
current liabilities
374.4
22.3
442.3
22.5
-15.4
net debt
-30.4
-267.1
-88.6
total liabilities
624.6
37.3
724.3
36.8
-13.8
net assets
1,051.1
1,243.2
-15.4
1,046.0
62.4
1,237.5
62.9
-15.5
5.1
0.3
5.7
0.3
-9.6
1,046.0
1,237.5
-15.5
1,675.6
100.0
1,967.4
100.0
-14.8
5.1
5.7
-9.6
1,051.1
1,243.2
-15.4
minority interests
total liability & shareholder equity
minority interest
financing of net assets
The total value of PLIVA Group assets decreased by 15% to usd 1,676m, primarily resulting from the divestment of
SANCTURA® and related assets (nbv of usd 158m at 31 December 2004) and VoSpire and related assets (nbv of usd
10m at 31 December 2004). Exchange rate movements which reflected a strengthening of the US dollar vis-à-vis
the euro and euro-linked currencies decrease in non-current assets by usd 67m.
Impairment losses of usd 62m related to other restructuring further impacted Group assets.
Significant declines in inventory and receivables levels resulted from the optimization of inventory levels and improved receivables collection.
Shareholders’ equity decreased by 16% to usd 1,046m as a result of decreases in translation reserves and retained
earnings. With 22,387 shares sold through option plans, the number of treasury shares held by the Company decreased to 1,149,493, representing 6% of total shares issued.
Interest bearing debt decreased by usd 108m to usd 327m, causing leverage to decrease (interest bearing debt to
equity ratio) from 35% to 31%.
PLIVA’s net operating assets decreased from usd 1,510m to usd 1,082 as a result of the sale of Proprietary products
SANCTURA® and VoSpire as well as lower levels of inventory and receivables in comparison to 31 December 2004.
Proceeds from the sale of discontinued operations, together with proceeds from working capital lowered net debt
to only usd 30m compared to usd 267m as at 31 December 2004.
49
amount
Cash Flow
usd m
50
2004
cash flow from operating activities continuing
358.8
310.2
cash flow from operating activities discontinuing
-134.2
-76.1
cash flow from operating activities total
224.6
234.0
cash flow from investing activities continuing
-39.8
-64.6
cash flow from investing activities discontinuing
68.9
-150.0
cash flow from investing activities total
29.1
-214.6
cash flow from financing activities continuing
-107.2
10.7
0.0
0.0
-107.2
10.7
-17.4
11.0
129.0
41.2
cash flow from financing activities discontinuing
cash flow from financing activities total
effects of change in fx rates
net change in cash and cash equivalents
The net cash flow from operating activities amounted to usd 225m, slightly below the usd 234m recorded last year.
This decrease was caused by the increased cash burn of the discontinued business, specifically related to SANCTURA®. The net cash flow from operating activities of the continuing business showed an increase of usd 49m sourced
by improved working capital management and income tax refunds.
The positive net cash flow from investing activities was a result of the proceeds received from the divestments of
SANCTURA® (usd 38m) and VoSpire (usd 32m). Although continuing capital expenditures of usd 67m were usd 9m
below 2004 levels, the time lag between the actual cash outflow and receipt of these new assets, together with the
proceeds from the sale of subsidiary (usd 8m) and collection of long-term receivables, resulted in lower net cash
outflow from continuing investment activities.
The net cash flow from financing activities reflected decreases in the Company’s debt in accordance with PLIVA’s
strategy to decrease its leverage exposure.
51
2005
Consolidated Financial Statements
31 December 2005
Contents
54
Statement of Management Board’s responsibilities | 55
The Management Board is responsible for the preparation of consolidated financial statements for each financial
year, which give a true and fair view of the consolidated financial position of the Group and of the results of its operations and cash flows for that year. In preparing those consolidated financial statements, the Management Board
should have due regard to:
Consolidated Income Statement | 59
Consolidated Balance Sheet | 60
Consolidated Statement of Changes in Equity | 62
Consolidated Statement of Cash Flows | 64
Notes (forming part of the consolidated financial statements) | 66
• selecting suitable accounting policies to comply with International Financial Reporting Standards and Croatian accounting law and then apply them consistently,
• making judgements and estimates that are reasonable and prudent,
• stating whether applicable accounting standards have been followed,
• preparing the financial statements on the going concern basis unless it is inappropriate to presume that the Company and the Group will continue in business.
The Management Board is responsible for maintaining proper accounting records which disclose with reasonable
accuracy at any time the financial position of the Company and of the Group and which enable it to ensure that
the consolidated financial statements comply with Croatian accounting law. The Management Board has general
responsibility for taking such steps as are reasonably open to it to safeguard the assets of the Company and of the
Group and to prevent and detect fraud and other irregularities.
55
Independent Auditor’s Report to the Shareholders of PLIVA d.d. | 57
Statement of Management
Board’s Responsibilities
Independent Auditor’s Report to the
Shareholders of pliva d.d.
56
We conducted our audit in accordance with International Standards on Auditing. Those Standards require that we
plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements give a true and fair view of the financial position of the Company as of 31 December 2005, and of the results of its operations and its cash flows for the year then ended in
accordance with International Financial Reporting Standards.
KPMG Croatia d.o.o. za reviziju
Registered Auditors, Zagreb
Centar Kaptol
Nova Ves 11
10000 Zagreb
Croatia
28 February 2006
57
We have audited the accompanying consolidated balance sheet of PLIVA d.d. (“the Company”) as of 31 December
2005, and the related consolidated statements of income, changes in equity and cash flows for the year then ended.
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is
to express an opinion on these financial statements based on our audit.
Consolidated Income Statement
For the year ended 31 December 2005
2004 | restated
2005
note
58
continuing discontinued
usd’000
usd’000
total
usd’000
usd’000
usd’000
total
usd’000
976,313
23,013
999,326
893,711
24,363
918,074
royalties
160,257
-
160,257
169,798
-
169,798
other revenue
5
37,514
-
37,514
42,261
-
42,261
total revenue
3
1,174,084
23,013
1,197,097
1,105,770
24,363
1,130,133
(514,003)
(24,668)
(538,671)
(475,296)
(5,520)
(480,816)
660,081
(1,655)
658,426
630,474
18,843
649,317
general and administrative expenses
(120,577)
(10,164)
(130,741)
(123,603)
(16,111)
(139,714)
research and development expenses
(73,563)
(23,897)
(97,460)
(66,157)
(33,746)
(99,903)
(218,050)
(64,757)
(282,807)
(196,051)
(49,140)
(245,191)
(40,814)
(81,797)
(122,611)
-
-
-
207,077
(182,270)
24,807
244,663
(80,154)
164,509
7
(19,084)
-
(19,084)
(23,696)
-
(23,696)
13
754
-
754
(220)
-
(220)
188,747
(182,270)
6,477
220,747
(80,154)
140,593
(5,091)
-
(5,091)
(12,970)
-
(12,970)
183,656
(182,270)
1,386
207,777
(80,154)
127,623
-
(76,542)
(76,542)
-
-
-
183,656
(258,812)
(75,156)
207,777
(80,154)
127,623
183,748
(258,812)
(75,064)
207,658
(80,154)
127,504
21
92
-
92
(119)
-
(119)
- basic (usd)
10
10.54
(14.85)
(4.31)
11.94
(4.61)
7.33
- diluted (usd)
10
10.46
(14.70)
(4.24)
11.83
(4.56)
7.27
- basic (usd)
10
2.11
(2.97)
(0.86)
2.39
(0.92)
1.47
- diluted (usd)
10
2.09
(2.94)
(0.85)
2.36
(0.91)
1.45
cost of sales
gross profit
selling and distribution expenses
restructuring costs
6
operating profit/(loss)
net financial expenses
share of profit/(loss) of associate
profit/(loss) before tax
income tax expense
9
profit after tax (before loss on sale of discont. operations)
4
profit/(loss) for the year
attributable to
pliva d.d. shareholders
minority interest
earnings per share
earnings per gdr
The consolidated financial statements were approved for issue by the Management Board on 28 February 2006.
President of the Management Board
Chief Financial Officer
The accompanying notes form an integral part of these consolidated financial statements.
59
sales
Consolidated Balance Sheet
Consolidated Balance Sheet
note
31 december 2005
assets
usd’000
60
31 december 2004
restated
usd’000
note
31 december 2005
equity and liabilities
usd’000
31 december 2004
restated
usd’000
61
equity
non-current assets
11
510,559
638,181
share capital
intangible assets
12
214,091
422,968
share premium
investment in associate
13
9,824
11,386
other investments
14
903
2,107
receivables
15
4,369
8,302
deferred tax assets
16
35,478
40,748
775,224
1,123,692
total non-current assets
359,862
359,862
10,151
9,406
(15,626)
(15,988)
legal and other reserves
24,551
18,578
translation reserve
16,087
98,668
3,443
2,201
132
89
647,364
764,658
1,045,964
1,237,474
treasury shares
equity share options issued
fair value reserve: available-for-sale financial assets
retained earnings
current assets
equity attributable to pliva d.d. shareholders
inventories
17
214,224
251,327
equity attributable to minority interest
21
5,129
5,676
trade and other receivables
18
364,704
407,614
total equity
20
1,051,093
1,243,150
2,843
16,495
3,392
321
liabilities
2
109
non-current liabilities
19
296,897
167,853
interest bearing loans and borrowings
22
223,536
262,489
4
18,356
-
employee benefits
23
15,552
16,481
900,418
843,719
provisions
24
5,891
2,117
5,017
89
193
759
250,189
281,935
income tax receivable
other investments
14
bank deposits
cash and cash equivalents
assets classified as held for sale
total current assets
other non-current liabilities
total assets
1,675,642
1,967,411
deferred tax liabilities
16
total non-current liabilities
current liabilities
trade and other payables
25
234,240
255,509
interest bearing loans and borrowings
22
103,784
172,572
3,261
3,873
25,985
7,838
4,492
2,534
2,598
-
total current liabilities
374,360
442,326
total liabilities
624,549
724,261
1,675,642
1,967,411
employee benefits
provisions
24
income tax payable
liabilities classified as held for sale
total equity and liabilities
4
property, plant and equipment
Consolidated Statement of
Changes in Equity
62
share
premium
treasury
shares
usd’000
note 20(i)
usd’000
359,862
fair value reserve: afs financial assets
translation
reserve
- restated
usd’000
note 20(iv)
equity share
options issued
- restated
usd’000
fair value reserve:
afs financial
assets - restated
usd’000
retained
earnings
- restated
usd’000
equity attributable
to pliva d.d. shareholders - restated
usd’000
equity
attributable to
minority interest
usd’000
note 21
total equity
- restated
usd’000
note 20(ii)
legal and
other
reserves
usd’000
note 20(iii)
8,490
(17,005)
19,013
12,305
-
-
684,442
1,067,107
4,488
1,071,595
-
-
-
-
-
580
-
(591)
(11)
-
(11)
-
-
-
-
-
-
54
(54)
-
-
-
359,862
8,490
(17,005)
19,013
12,305
580
54
683,797
1,067,096
4,488
1,071,584
transfer to reserves
-
-
-
509
42
-
-
(551)
-
-
-
other movements
-
-
-
(944)
(69)
-
-
-
(1,013)
-
(1,013)
-
-
-
-
(1)
-
35
-
34
-
34
profit for the year (restated)
-
-
-
-
-
-
-
127,504
127,504
119
127,623
exchange differences
-
-
-
-
86,400
-
-
-
86,400
1,069
87,469
total recognised income for 2004
-
-
-
(435)
86,372
-
35
126,953
212,925
1,188
214,113
sale/grant of treasury shares (note 20(v))
-
916
1,017
-
-
-
-
-
1,933
-
1,933
equity share options issued (note 27)
-
-
-
-
(9)
1,621
-
-
1,612
-
1,612
dividends declared (note 20 (vi))
-
-
-
-
-
-
-
(46,092)
(46,092)
-
(46,092)
-
916
1,017
-
(9)
1,621
-
(46,092)
(42,547)
-
(42,547)
359,862
9,406
(15,988)
18,578
98,668
2,201
89
764,658
1,237,474
5,676
1,243,150
share
capital
share
premium
treasury
shares
translation
reserve
usd’000
note 20(ii)
fair value
reserve: afs
financial assets
usd’000
usd’000
equity attributable to pliva d.d.
shareholders
usd’000
equity
attributable to
minority interest
usd’000
note 21
total
equity
usd’000
equity share
options
issued
usd’000
retained
earnings
usd’000
note 20(i)
legal and
other
reserves
usd’000
note 20(iii)
359,862
9,406
(15,988)
18,578
98,668
2,201
89
764,658
1,237,474
5,676
1,243,150
transfer to reserves
-
-
-
5,973
(404)
-
-
(5,569)
-
-
-
-
-
-
-
-
-
43
-
43
-
43
loss for the year
-
-
-
-
-
-
-
(75,064)
(75,064)
(92)
(75,156)
-
-
-
-
(82,177)
-
-
-
(82,177)
(455)
(82,632)
total recognised income for 2005
-
-
-
5,973
(82,581)
-
43
(80,633)
(157,198)
(547)
(157,745)
sale of treasury shares (note 20(v))
-
745
362
-
-
-
-
-
1,107
-
1,107
equity share options issued (note 27)
-
-
-
-
-
1,242
-
-
1,242
-
1,242
dividends declared (note 20 (vi))
-
-
-
-
-
-
-
(36,661)
(36,661)
-
(36,661)
-
745
362
-
-
1,242
-
(36,661)
(34,312)
-
(34,312)
359,862
10,151
(15,626)
24,551
16,087
3,443
132
647,364
1,045,964
5,129
1,051,093
at 1 january 2004 (before restatement)
restated at 1 january 2004
at 31 december 2004 (restated)
restated at 1 january 2005
at 31 december 2005
usd’000
note 20(iv)
usd’000
usd’000
63
share
capital
Consolidated Statement of Cash Flows
note
64
cash flow from operating activities
2004 - restated
usd’000
24,807
164,509
adjustments for:
cash flow from investing activities
2005
usd’000
2004 - restated
usd’000
purchase of property, plant and equipment
(32,267)
(53,798)
purchase of intangible assets
(37,091)
(177,100)
76,147
9,768
7,917
-
8,054
966
(3,298)
(126)
9,670
5,657
(39,816)
(64,633)
68,948
(150,000)
29,132
(214,633)
1,107
1,933
-
88,962
note
depreciation
11
68,022
66,788
proceeds from sale of property, plant and equipment and intangible assets
amortisation
12
35,841
36,882
proceeds from sale of subsidiary
impairment
6
62,195
-
(1,646)
(1,903)
(4,277)
-
6,099
5,642
1,760
1,746
11,819
16,523
204,620
290,187
decrease/(increase) in inventories
30,545
(49,748)
decrease/(increase) in receivables
54,194
(163)
(decrease)/increase in payables
(21,081)
12,130
impact on working capital of foreign exchange rate changes
(29,003)
34,397
profit on sale of property, plant and equipment and intangible assets
profit on sale of subsidiary
30
inventory provision
share options given
other non-cash income and expenses
operating profit before working capital changes
27
30
change in loans given
net purchase of marketable securities and investments
interest and other income received
net cash used in investing activities (continuing activities)
net cash from/(used in) investing activities (discontinued activities)
net cash from/(used in) investing activities (total)
cash flow from financing activities
proceeds from sale of treasury shares
20 (v)
bonds issued
cash generated by operations
income taxes received/(paid)
interest and other financial charges paid
net cash from operating activities (continuing activities)
net cash used in operating activities (discontinued activities)
net cash from operating activities (total)
239,275
286,803
proceeds/(repayment) of long-term interest bearing loans and borrowings
36,549
(63,406)
15,224
(27,721)
(repayment)/proceeds of short-term interest bearing loans and borrowings
(108,243)
29,312
(29,934)
(25,065)
(36,661)
(46,070)
358,773
310,162
net cash used in/from financing activities (continuing activities)
(107,248)
10,731
(134,208)
(76,145)
net cash from financing activities (discontinued activities)
-
-
224,565
234,017
net cash used in/from financing activities (total)
(107,248)
10,731
effects of foreign exchange rate changes on cash and cash equivalents
(17,405)
11,046
net increase in cash and cash equivalents
129,044
41,161
cash and cash equivalents at the beginning of the year
167,853
126,692
296,897
167,853
dividends paid
cash and cash equivalents at the end of the year
19
65
operating profit
2005
usd’000
Notes
Notes
(forming part of the consolidated financial statements)
(continued)
1 General
2.3 Principles and Methods of Consolidation
1.1 Introduction
66
2 Significant Accounting Policies
2.1 Statement of Compliance
The consolidated financial statements have been prepared in accordance with International Financial Reporting
Standards (“ifrs”).
2.2 Basis of Preparation
These financial statements are presented in usd, rounded to the nearest thousand. Functional currency of the Company is Croatian kuna (“hrk”).
These financial statements are prepared on the historical cost basis, except that:
• the following assets and liabilities are stated at their fair value: derivative financial instruments, investments held for
trading and investments classified as available-for-sale (except for those which are not traded in active markets, in
which case they are measured at cost less impairment),
• non-current assets and disposal groups held for sale are stated at the lower of carrying amount and fair value less
costs to sell.
The preparation of financial statements in conformity with ifrs requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income
and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the
judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual
results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are
recognised in the period in which the estimate is revised if the revision affects only that period or in the period of
revision and future periods if the revision affects both current and future periods.
Judgements made by management in the application of accounting policies that have significant effect on the
amounts recognised in the financial statements are discussed in Note 32. Key assumptions concerning the future on
which significant estimates are based, and other key sources of estimation uncertainty, which involve a significant
risk of causing a material adjustment to the carrying value of assets and liabilities within the next financial year are
also disclosed in Note 32.
The accounting policies set out below have been applied consistently to all periods presented in these consolidated
financial statements. The accounting policies have been applied consistently by all Group entities.
The financial statements are prepared on a going concern basis.
(i) Subsidiaries
Subsidiaries are entities in which the Company has the power, directly or indirectly, to exercise control over their
operations. Control is achieved where a company has the power to govern the financial and operating policies of an
entity so as to obtain benefit from its activities. Subsidiaries are consolidated from the date on which control commences and are no longer consolidated from the date that control ceases. Subsidiaries are listed in Note 29.
(ii) Associates
Investments in associates are accounted for by the equity method of accounting. Under this method the Company’s
share of profits or losses of associates is recognised in the income statement from the date that significant influence commences until the date that significant influence ceases. The investment is initially recognised at cost and
adjusted thereafter for the post-acquisition change in the investor’s share of net assets of the investee. Unrealised
profits on transactions with associates are eliminated to the extent of the investor’s interest in the associate. The
cumulative movements are adjusted against the cost of the investment. Associates are entities in which the Group
has significant influence, but which it does not control. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over those policies. When the
Group’s share of losses in an associate equals or exceeds its interest in the associate, the Group does not recognise
further losses, unless the Group has incurred obligations or made payments on behalf of the associate.
(iii) Transactions Eliminated on Consolidation
All intra-group transactions, balances and unrealised gains on transactions between Group entities are eliminated
in preparing the consolidated financial statements; unrealised losses are also eliminated but only to the extent that
there is no evidence of impairment.
Unrealised gains arising from transactions with associates are eliminated to the extent of the Group’s interest in the
associate. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is
no evidence of impairment.
2.4 Foreign Currencies
(i) Transactions and Balances
In preparing the financial statements of the individual entities, foreign currency transactions are translated into
the functional currency using the exchange rates prevailing at the dates of the transactions. Monetary assets and
liabilities denominated in foreign currency at the balance sheet date are translated into the functional currency at
the foreign exchange rate ruling at that date. Foreign exchange gains and losses resulting from the settlement of
such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies are
recognised in the income statement.
Non-monetary assets and items that are measured in terms of historical cost of a foreign currency are not retranslated.
Non-monetary assets and liabilities denominated in foreign currencies that are stated at fair value are translated
into the functional currency at foreign exchange rates ruling at the dates the values were determined.
67
These financial statements for the year ended 31 December 2005 comprise the consolidated financial statements of
PLIVA d.d. (“the Company”), a company incorporated and domiciled in Croatia and its subsidiaries (together referred
to as “the Group”) and the Group’s interest in associates. The Company is the ultimate parent company of the Group.
The registered head office of the Company is in Zagreb, Croatia.
The Group manufactures and supplies a wide range of pharmaceutical products as its core business. Non-core businesses consist of the manufacture and supply of animal health and agrochemical products and dddi (diagnostics,
disinfectants, dialysis, and infusions).
Notes
Notes
(continued)
(continued)
2 Significant Accounting Policies (continued)
2.6 Intangible Assets
2.4 Foreign Currencies (continued)
68
(iii) Net Investment in Group Companies
Exchange differences arising from the translation of the net investment in foreign operations are taken to equity.
When a foreign operation is sold, such exchange differences are released in the income statement as part of the
gain or loss on sale.
2.5 Property, Plant and Equipment
(i) Owned Assets
Items of property, plant and equipment are stated at cost less accumulated depreciation and impairment losses
(refer to accounting policy 2.10). Cost includes all costs directly attributable to bringing the asset to working condition for its intended use, including the proportion of the related borrowing costs for property, plant and equipment
incurred during the period of their construction.
(ii) Subsequent Expenditure
Subsequent expenditure is capitalised only when it increases the future economic benefits embodied in the item of
property, plant and equipment and those benefits will flow to the Group. All other expenditure is recognised in the
income statement as an expense as incurred.
(iii) Depreciation
Depreciation is charged to the income statement on a straight-line basis over the estimated useful lives of each part
of an item of property, plant and equipment. Land and assets in the course of construction are not depreciated. The
estimated useful lives are as follows:
(i) Goodwill
Goodwill arising on acquisition represents the excess of the cost of business acquisition over the fair value of the
Group’s share of the net identifiable assets of the acquired subsidiary or associate at the date of acquisition.
Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities
of the foreign entity and translated at the closing rate. Goodwill is expressed in the functional currency of the foreign operation and is translated each year using the exchange rate at the balance sheet date. In respect of associates, the carrying amount of goodwill is included in the carrying amount of the investment in the associate.
Goodwill is stated at cost less any accumulated impairment losses. Goodwill is allocated to cash-generating units
and is no longer amortised but is tested annually for impairment (refer to accounting policy 2.10). The allocation is
made to those cash generating units expected to benefit from the business combination in which the goodwill arose.
Negative goodwill arising on acquisition is recognised directly in the income statement.
When the Group disposes of an operation within a cash-generating unit, the goodwill associated with the operation
disposed of is:
• included in the carrying amount of the operation when determining the gain or loss on disposal, and
• measured on the basis of the relative values at the date of disposal of the operation disposed of and the portion of
the cash-generating unit retained.
(ii) Patents, Licences and Similar Rights
Where patents, licences and similar rights are acquired by the Group from third parties the costs of acquisition
are capitalised to the extent that future economic benefits are probable and will flow to the Group. Licences to
compounds in development are amortised over their estimated useful lives, but not exceeding 10 years. Estimated
useful lives are reviewed annually and impairment reviews are undertaken if events occur which call into question
the carrying values of the assets (refer to accounting policy 2.10).
(iii) Subsequent Expenditure
Subsequent expenditure on capitalised intangible assets is capitalised only if it is probable that it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure is recognised in the
income statement as an expense as incurred.
(iv) Amortisation
Amortisation is charged to the income statement on a straight-line basis over the estimated useful lives of intangible assets other than goodwill, unless such lives are indefinite. Goodwill and intangible assets with indefinite useful
lives are tested for impairment annually, at balance sheet date. Other intangible assets are amortised from the date
on which they are available for use.
2.7 Investments
buildings
10 - 40 years
equipment
4 - 20 years
Depreciation methods and useful lives, as well as residual values, are reassessed annually.
(i) Classification
Investments that are acquired principally for the purpose of generating a profit from short-term fluctuations in
price are classified as financial assets at fair value through profit or loss (that is, held for trading) and included in
current assets. These include debt securities and derivative instruments, which do not qualify for hedge accounting.
They are stated at fair value with any resultant gain or loss recognised in the income statement.
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted
in an active market, other than those that the Group plans to sell immediately or in the near term.
Non-derivative financial assets with fixed or determinable payment for which the Group has a positive intent and the
ability to hold to maturity are classified as held-to-maturity and are included in assets based on their remaining maturity.
69
(ii) Group Companies
Items included in the financial statements of each of the Group’s entities are measured using the currency of the
primary economic environment in which the entity operates (“the functional currency”). The consolidated financial
statements are presented in usd, which differs from the Company’s functional currency, Croatian kuna (“hrk”). Having regard to the requirements of international investors, the Management Board of the Company has determined
that the operations of the Group should most appropriately be presented in usd, for inclusion in the Annual Report.
The underlying Group financial statements are also expressed in hrk and separately published.
Income and expense items and cash flows of foreign operations that have a functional currency different from the
presentation currency are translated into the Company’s presentation currency at rates approximating the foreign
exchange rates ruling at the dates of transactions (average exchange rates for the month) and their assets and liabilities are translated at the exchange rates ruling at the year end. All resulting exchange differences are recognised
in a separate component of equity.
Notes
Notes
(continued)
(continued)
70
2.9 Receivables
Other investments, which may be sold in response to needs for liquidity, and all equity investments (other than
subsidiaries and associates) are classified as available-for-sale; these are included in non-current assets unless
management has the express intention of holding the investment for less than 12 months from the balance sheet
date, in which case they are included in current assets.
Trade receivables are initially measured at fair value and subsequently stated at amortised cost less impairment
losses (refer to accounting policy 2.10).
2.10 Impairment
(ii) Recognition
All financial assets classified as at fair value through profit or loss, held-to-maturity and available-for-sale are recognised on the trade date, which is the date that the Group commits to purchase the asset. Loans and receivables
are recognised on the day they are transferred to the Group.
(iii) Measurement
Financial instruments are measured initially at fair value including transaction costs for financial assets and liabilities
not measured at fair value through profit or loss. Transaction costs directly attributable to financial assets classified
as at fair value through profit or loss are expensed immediately.
Financial instruments classified as available-for-sale are subsequently measured at fair value (except for equity
instruments which are not traded and for which it is not possible to determine fair value), with any resultant gain or
loss recognised directly in equity, except for impairment losses and, in case of monetary items such as debt securities, foreign exchange gains and losses.
The fair value of financial assets classified as at fair value through profit or loss and available-for-sale is their quoted
bid price at the balance sheet date.
Loans and receivables and held-to-maturity assets are subsequently measured at amortised cost less impairment
(refer to accounting policy 2.10). Amortised cost is calculated using the effective interest rate method.
Realised and unrealised gains and losses arising from changes in the fair value of financial assets at fair value through
profit or loss are included in the income statement in the period in which they arise. When these investments are
interest bearing, interest calculated using the effective interest method is recognised in the income statement.
(iv) Derecognition
A financial asset is derecognised when the Group loses the contractual rights that comprise that asset. This occurs
when the rights are realised, expire or are surrendered. A financial liability is derecognised when it is extinguished.
Financial assets at fair value through profit or loss, available-for-sale assets and held-to-maturity instruments that
are sold are derecognised and corresponding receivables from the buyer for the payment are recognised as of the
date the Group commits to sell the assets. The Group uses the specific identification method to determine the gain
or loss on derecognition.
Loans and receivables are derecognised on the day that they are transferred by the Group.
When available-for-sale investments are derecognised, the cumulative gain or loss previously recognised in equity
is recognised in the income statement.
2.8 Inventories
Inventories are stated at the lower of cost and net realisable value. Net realisable value is the estimated selling price
in the ordinary course of business less the estimated costs of completion and selling expenses. Raw materials and
packaging materials are valued based on purchase price, using the weighted average cost principle. Cost of work
in progress and finished goods includes materials, direct labour and an appropriate proportion of variable and fixed
overhead costs.
The carrying amounts of the Group’s assets, other than inventories (refer to accounting policy 2.8) and deferred tax
assets (refer to accounting policy 2.22) are reviewed at each balance sheet date to determine whether there is any
indication of impairment. If any such indication exists, the asset’s recoverable amount is estimated.
For goodwill, intangible assets that have an indefinite useful life and intangible assets that are not yet available for
use, the recoverable amount is estimated at each balance sheet date.
Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount may not be recoverable.
An impairment loss is recognised whenever the carrying amount of an asset or its cash-generating unit exceeds its
recoverable amount. Impairment losses are recognised in the income statement.
Impairment losses recognised in respect of cash-generating units are allocated first to reduce the carrying amount
of any goodwill allocated to the cash-generating unit (or group of units) and then, to reduce the carrying amount
of the other assets in the unit (or group of units) on a pro rata basis.
When a decline in the fair value of an available-for-sale financial asset has been recognised directly in equity and
there is objective evidence that the asset is impaired, the cumulative loss that is recognised in profit or loss is the
difference between the acquisition cost and current fair value, less any impairment loss on that financial asset previously recognised in the income statement.
(i) Calculation of Recoverable Amount
The recoverable amount of the Group’s investment in held-to-maturity securities and receivables carried at amortised cost is calculated as the present value of estimated future cash flows, discounted at the original effective interest rate (that is, the effective interest rate computed at initial recognition of these financial assets). Receivables
with a short duration are not discounted.
The recoverable amount of other assets is the greater of their fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount
rate that reflects current market assessments of the time value of money and the risks specific to the asset. For an
asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cashgenerating unit to which the asset belongs.
(ii) Reversal of Impairment
An impairment loss in respect of a held-to-maturity security or receivable carried at amortised cost is reversed if
the subsequent increase in recoverable amount can be related objectively to an event occurring after the impairment loss was recognised.
An impairment loss in respect of an investment in an equity instrument classified as available-for-sale is not reversed
through the income statement. If the fair value of a debt instrument classified as available-for-sale increases, and
the increase can be related objectively to an event occurring after the impairment loss was recognised in the income
statement, then the impairment loss is reversed, with the amount of the reversal recognised in the income statement.
An impairment loss in respect of goodwill is not reversed.
In respect of other assets, an impairment loss is reversed when there is an indication that the impairment loss may
no longer exist and there has been a change in the estimates used to determine the recoverable amount.
An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount
that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.
71
2.7 Investments (continued)
Notes
Notes
(continued)
(continued)
2.16 Employee Benefits
2.11 Cash and Cash Equivalents
72
2.12 Share Capital
Share capital consists of ordinary shares. External costs directly attributable to the issue of new shares, other than
on a business combination, are shown as a deduction from the proceeds in equity. Share issue costs incurred directly in connection with a business combination are included in the cost of acquisition.
Where the Company purchases its own equity share capital, the consideration paid including any attributable transaction costs (net of income taxes) is deducted from total equity as treasury shares until they are cancelled. Where
such shares are subsequently sold or reissued, any consideration received, net of directly attributable transaction
costs, is included in equity.
2.13 Interest Bearing Loans and Borrowings
Interest bearing loans and borrowings are recognised initially at fair value of the proceeds received, less attributable
transaction costs. In subsequent periods, interest bearing loans and borrowings are stated at amortised cost using
the effective interest method. Any difference between proceeds (net of transaction costs) and the redemption
value is recognised in the income statement over the period of the borrowings on an effective interest basis.
2.14 Provisions
A provision is recognised when the Group has a present legal or constructive obligation as a result of a past event,
it is probable that an outflow of resources will be required to settle the obligation, and a reliable estimate of the
amount can be made. Provisions are determined by discounting the expected future cash flows at a pre-tax rate
that reflects current market assessments of the time value of money and, where appropriate, the risks specific to
the liability. Where the Group expects a provision to be reimbursed, the reimbursement is recognised as a separate
asset but only when the reimbursement is virtually certain.
(i) Restructuring Provision
A restructuring provision is recognised when the Group has approved a detailed and formal restructuring plan, and the
restructuring has either commenced or has been announced publicly. Future operating costs are not provided for.
(i) Pension Obligations and Post-Retirement Benefits
Some Group companies provide, variously, defined benefit plans, defined contribution plans and other post-retirement benefits to employees.
The Group’s net obligation in respect of defined benefit pension plans is calculated separately for each plan by estimating the amount of future benefit that employees have earned in return for their service in the current and prior
periods. The benefit is discounted to determine its present value. Discount rates are based on the market yields of
high-quality corporate bonds in the country concerned. The calculation is performed by a qualified actuary using
the projected unit credit method. Differences between assumptions and actual experiences and the effects of
changes in actuarial assumptions are allocated over the estimated average remaining working lives of employees,
where these differences exceed a defined corridor. Past service costs are allocated over the average period until
the benefits become vested. Expenses from defined benefit plans are charged to staff costs.
For defined contribution plans, the company pays contributions to publicly or privately administered pension insurance plans on a mandatory, contractual or voluntary basis. Once the contributions have been paid, the company has
no further payment obligations. The regular contributions constitute net periodic costs for the year in which they
are due and as such are included in staff costs.
(ii) Share-Based Payment Transactions
Share options are granted to the Management Board and key employees. Options are exercisable at varying dates
from vesting, at prices determined at the grant date and are settled by the sale of treasury shares (for equity settled transactions) or payment in cash (for cash settled transactions).
(a) Employee services settled in equity instruments
The fair value of the employee services received in exchange for the grant of options or shares is recognised as an
expense. The total amount to be expensed over the vesting period is determined by reference to the fair value of
the options or shares determined at the grant date. Service vesting conditions are included in assumptions about
the number of options that are expected to vest or the number of shares that the employee will ultimately receive.
This estimate is revised at each balance sheet date and the difference is charged or credited to the income statement, with a corresponding adjustment to equity. The proceeds received on exercise of the options net of any directly attributable transaction costs are credited to equity, with the nominal value being credited to treasury shares
and the balance to share premium.
(b) Employee services settled in cash instruments
Employee services received in exchange for cash-settled share based payments are recognised at the fair value of
the amount payable to the employee. The liability is re-measured at each balance sheet date and the settlement
date to its fair value, with all changes recognised immediately in the income statement as employee costs.
(iii) Termination Benefits
Termination benefits are payable whenever an employee’s employment is terminated before the normal retirement
date or whenever an employee accepts voluntary redundancy in exchange for these benefits.
2.15 Trade and Other Payables
Trade and other payables are initially measured at fair value and then subsequently at amortised cost.
(iv) Bonus Plans
A liability for employee benefits is recognised in provisions based on the Group’s formal plan and when past practice
has created a valid expectation by the Management Board/key employees that they will receive a bonus and the
amount can be determined before the time of issuing the financial statements.
Liabilities for bonus plans, other than equity compensation benefits described above, are expected to be settled within 12 months of the balance sheet date and are measured at the amounts expected to be paid when they are settled.
Shares are also granted from treasury shares to the Management Board and key employees instead of cash as part
of bonus arrangements.
73
Cash and cash equivalents, for the purpose of the balance sheet and the statement of cash flows, consist of cash in
hand and balances with banks, and highly liquid investments with insignificant risk of changes in value and original
maturities of three months or less from the date of acquisition.
Notes
Notes
(continued)
(continued)
74
2.21 Net Financial Expenses
Immediately before classification as held for sale, the measurement of the assets (and all assets and liabilities in a
disposal group) is brought up to date in accordance with applicable ifrs. Then, on initial classification as held for sale,
non-current assets and disposal groups are recognised at the lower of carrying amount and fair value less costs to sell.
Impairment losses on initial classification as held for sale are included in the income statement, even for assets
measured at fair value, as are gains and losses on subsequent measurement.
A discontinued operation is a component of the Group’s business that represents a separate major line of business
or geographical area of operations or is a subsidiary acquired exclusively with a view to resale.
Classification as a discontinued operation occurs upon disposal or when the operation meets the criteria to be classified as held for sale, if earlier.
Net financial expenses comprise interest payable on borrowings calculated using the effective interest rate method,
interest receivable on funds invested, dividend income, foreign exchange gains and losses and gains and losses on
hedging instruments, derivatives and other financial instruments that are recognised in the income statement (refer
to accounting policy 2.25).
Interest income is recognised in the income statement as it accrues, taking into account the effective yield on the asset.
Dividend income is recognised in the income statement on the date that Group’s right to receive payments is established.
2.18 Revenue Recognition
Revenue from the sale of goods is recognised in the income statement when the significant risks and rewards of ownership are transferred to the buyer. Revenues are stated net of taxes, discounts and volume rebates. Provisions for
rebates to customers are recognised in the same period that the related sales are recorded, based on contract terms.
Revenue arising from licence and royalty fees is recognised on an accrual basis in accordance with the substance of
the relevant agreements.
Revenue from services is recognised in the period in which services are provided in proportion to the stage of completion of the transaction at the balance sheet date.
2.19 Research and Development Costs
Research costs are charged against income as incurred.
Internal development costs are capitalised as intangible assets when the criteria specified in International Accounting Standard 38 Intangible Assets (“IAS 38”) are satisfied and when it is probable that future economic benefits will
flow to the Group.
In-process research and development assets acquired either through in-licensing arrangements, business combinations or separate purchases are capitalised as intangible assets (in the amount of payments made by Group
companies to third parties and associates). Such intangible assets are stated at cost less accumulated amortisation
and impairment losses. They are amortised on a straight-line basis over the period of the expected benefit, and are
reviewed for impairment at each balance sheet date (refer to accounting policy 2.10).
2.22 Income Tax
Corporate income taxes are computed on the basis of reported income under the laws and regulations of the country in which the respective Group company is registered.
Income tax on the profit or loss for the year comprises current and deferred tax. Income tax is recognised in the
income statement except to the extent that it relates to items recognised directly to equity, in which case it is
recognised in equity.
Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantially
enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years.
Deferred tax is provided using the balance sheet liability method, providing for temporary differences between
the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation
purposes. The following temporary differences are not provided for: the initial recognition of assets or liabilities that
affect neither accounting nor taxable profit, and differences relating to investments in subsidiaries to the extent
that they will probably not reverse in the foreseeable future. No temporary differences are recognised on the initial
recognition of goodwill. The amount of deferred tax provided is based on the expected manner of realisation or
settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantially enacted at the
balance sheet date.
A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available
against which the asset can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable
that the related tax benefit will be realised.
2.23 Dividends
Dividends are recognised in the statement of changes in equity and recorded as liabilities in the period in which they
are approved by the Company’s shareholders.
2.20 Operating Lease Payments
2.24 Segment Information
Payments made under operating leases are recognised in the income statement on a straight-line basis over the
period of the lease.
A segment is a distinguishable component of the Group that is engaged either in providing products or services
(business segment) or in providing products or services in a particular economic environment (geographical segment) which is subject to risks and rewards that are different from those of other segments.
The Group’s primary format for segment reporting is business segments and the secondary format is geographical
segments. The risks and returns of the Group’s operations are strongly affected by both differences in the products
it produces and by differences in the geographical areas in which it operates. This is reflected by the Group’s divisional management and organisational structure and the Group’s internal financial reporting systems.
75
2.17. Non-Current Assets Held for Sale and Discontinued Operations
Notes
Notes
(continued)
(continued)
2.25 Accounting for Derivative Financial Instruments and Hedging Activities
76
Share-Based Payment Transactions
IFRS 2 Share-based Payments, which became effective from 1 January 2005, requires the fair value of equity instruments granted to employees to be recognised as an expense. Under the Group’s previous accounting policy to 31
December 2004, no expenses were recorded, and therefore, no charge against operating income was recognised in
the Group’s consolidated financial statements. From 1 January 2005, PLIVA calculates the fair value of granted options
using the trinomial valuation model. As required by IFRS 2, PLIVA has restated the prior-period comparative to reflect:
• the cost of grants awarded after 7 November 2002 and which remain unvested at 1 January 2005 (for equity settled
share based payments),
• the cost of grants for which there is a liability outstanding as at 1 January 2005 (for cash settled share based payments).
previously
reported
usd’000
impact on restated
2004 result
usd’000
restated
137,968
1,746
139,714
- basic (usd)
7.43
(0.10)
7.33
- diluted (usd)
7.37
(0.10)
7.27
- basic (usd)
1.49
(0.02)
1.47
- diluted (usd)
1.47
(0.02)
1.45
impact of applying ifrs 2
2004
usd’000
earnings per share
earnings per gdr
Business Combinations
IFRS 3, amongst other matters, requires that amortisation of goodwill cease from the date of implementation (in
the Group’s case, 1 January 2005). Goodwill will continue to be tested for impairment. The standard requires prospective application. Had this standard been applied in 2004, then goodwill amortisation expenses of usd 13,368
thousand for continuing businesses and usd 560 thousand for discontinued businesses would not have been recorded. No additional impairment would have been necessary.
2.26 Change in Accounting Policies
In late 2003 the International Accounting Standards Board (“IASB”) published a revised version of 15 existing standards applicable from 1 January 2005. In the first quarter of 2004 the IASB published IFRS 2 Share-based Payments
(applicable from 1 January 2005), IFRS 3 Business Combinations (applicable in part from 31 March 2004 and in part
from 1 January 2005), IFRS 5 Non-current Assets Held for Sale and Discontinued Operations (applicable from 1 January 2005) and further amendments to IAS 39 (applicable from 1 January 2005).
The Group adopted these effective from 1 January 2005. A description of these changes and their effect on the
consolidated financial statements is given below.
Revised IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors, amongst other matters, requires that
changes in accounting policies that arise from the application of new or revised standards and interpretations are applied
retrospectively, unless otherwise specified in the transitional requirements of the particular standard or interpretation.
Financial Instruments
Amongst other matters, IAS 39 requires that financial instruments classified as available-for-sale are stated at fair
value (except for equity instruments which are not traded and for which it is not possible to determine fair value),
with any resultant gain or loss recognised directly in equity. The standard requires retrospective application.
impact of applying ias 39
2004
net financial expenses
earnings per share
previously
reported
usd’000
impact on restated
2004 result
usd’000
restated
(23,661)
(35)
(23,696)
usd’000
none
77
Derivative financial instruments are entered into for the purpose of hedging the Group’s exposure to foreign exchange
and interest rate risk. The Group’s treasury policies currently do not allow holding of derivative instruments for trading
purposes. However, derivatives that do not qualify for hedge accounting are accounted for as trading instruments.
Derivative financial instruments are recognised initially at fair value. Gains or losses on subsequent remeasurement
of fair value are recognised immediately in the income statement.
Any resulting gain or loss on derivative financial instruments accounted for as trading instruments is recorded in the
income statement. However, any resulting gain or loss on derivative financial instruments where hedge accounting
is applied is recognised based on the nature of the item being hedged.
On the date on which a derivative contract is entered into, the Group designates certain derivatives as either: (1) a
hedge of the fair value of a recognised asset or liability (fair value hedge); or (2) a hedge of a forecast transaction
or of a firm commitment (cash flow hedge); or (3) a hedge of a net investment in a foreign entity.
The fair value of interest rate swaps is the estimated amount that the Group would receive or pay to terminate
the swap at the balance sheet date, taking into account current interest rates and the current creditworthiness of
the swap counterparties. The fair value of forward exchange contracts and forward rate contracts is their quoted
market price at the balance sheet date, being the present value of the quoted forward price.
Changes in the fair value of derivatives that are designated and qualify as fair value hedges and that are highly
effective, are recorded in the income statement, along with any changes in the fair value of the hedged asset or
liability that is attributable to the hedged risk.
Changes in the fair value of derivatives that are designated and qualify as cash flow hedges and that are highly effective, are recognised in equity. Where the forecast transaction or firm commitment results in the recognition of
an asset or of a liability, the gains and losses previously deferred in equity are transferred from equity and included
in the initial cost or carrying value of the asset or liability. Otherwise, amounts deferred in equity are transferred to
the income statement and classified as revenue or expense in the same periods during which the hedged firm commitment or forecast transaction affects the income statement. The ineffective part of any gain or loss is recognised
immediately in the income statement.
The Group documents at the inception of the transaction the relationship between hedging instruments and hedged
items, as well as its risk management objective and strategy for undertaking various hedge transactions. This process includes linking all derivatives designated as hedges to specific assets and liabilities or to specific firm commitments or forecast transactions. The Group also documents its assessment, both at the hedge inception and on an
ongoing basis as to whether the derivatives that are used in hedging transactions are highly effective in offsetting
changes in fair values or cash flows of hedged items.
Notes
Notes
(continued)
(continued)
2.26 Change in Accounting Policies (continued)
Presentation of Financial Statements
previously
reported
usd’000
ifrs 2
ias 39
restated
usd’000
other
changes
usd’000
usd’000
total revenue
1,130,133
-
-
-
1,130,133
gross profit
664,519
-
-
(15,202)
operating profit
166,255
(1,746)
-
profit before tax
142,374
(1,746)
profit after tax
129,404
(1,746)
previously
reported
usd’000
minority
interest
usd’000
non-current assets
1,123,692
649,317
current assets
-
164,509
total assets
(35)
-
140,593
(35)
-
127,623
minority interest
129,285
(1,746)
(35)
-
127,504
(119)
-
-
-
(119)
restated
usd’000
-
-
-
1,123,692
786,654
-
-
57,065
843,719
1,910,346
-
-
57,065
1,967,411
non-current liabilities
285,663
-
146
(3,874)
281,935
current liabilities
381,387
-
-
60,939
442,326
total liabilities
667,050
-
146
57,065
724,261
1,237,620
5,676
(146)
-
1,243,150
5,676
(5,676)
-
-
-
total equity
minority interest
earnings per share
- basic (usd)
7.43
(0.10)
-
-
7.33
- diluted (usd)
7.37
(0.10)
-
-
7.27
- basic (usd)
1.49
(0.02)
-
-
1.47
- diluted (usd)
1.47
(0.02)
-
-
1.45
earnings per gdr
ifrs 2
79
other
changes
usd’000
usd’000
attributable to
pliva d.d. shareholders
Presentation of balance sheet
The new and revised standards result in significant changes to the format and the content of the balance sheet.
In addition the Group has made certain presentational changes to present certain balances more appropriately.
• Certain accruals that were previously reported as deductions to Trade and Other Receivables are now reported
within Trade and Other Payables. There was no impact on net income or equity from this reclassification.
• These changes have been applied retrospectively. The restatement of the balance sheet at 31 December 2004 for
these changes is summarised below.
Presentation of Income Statement
The new and revised standards result in significant changes to the format and content of the income statement.
In addition the Group has made certain presentational changes to improve further the comparability of its results
to those of other companies as follows:
• cost of sales was aligned with industry practice and now includes amortisation of intangible assets directly related
to goods sold. This amortisation was previously recorded in research and development expenses,
• the restatement of the income statement for the year ended 31 December 2004 for these changes is summarised below,
• these changes have been applied retrospectively.
78
usd’000
Notes
Notes
(continued)
(continued)
3 Segment Information
2.26 Change in Accounting Policies (continued)
previously
reported
usd’000
minority
interest
usd’000
359,862
ifrs 2
restated
usd’000
other
changes
usd’000
-
-
-
359,862
9,406
-
-
-
9,406
(15,988)
-
-
-
(15,988)
legal and other reserves
18,578
-
-
-
18,578
translation reserve
98,678
-
(9)
(1)
98,668
-
-
2,201
-
2,201
-
-
-
89
89
767,084
-
(2,338)
(88)
764,658
1,237,620
-
(146)
-
1,237,474
-
5,676
-
-
5,676
1,237,620
5,676
(146)
-
1,243,150
share capital
share premium
treasury shares
retained earnings
equity attributable to pliva d.d. shareholders
minority interest
total equity
usd’000
Business segments are Generics (in 2004 Pharmaceuticals excluding sales of proprietary products and related
costs and including development costs related to generic products previously reported within Research segment),
Proprietary [in 2004 Research excluding development costs related to generic products (reported under Generics
segment) and including royalty revenues and sales of proprietary products and related costs], Pharma Chemicals
which includes sales of Azithromycin and other active pharmaceutical ingredients, and non-core [which includes
dddi (diagnostics, disinfectants, dialysis, and infusions) and Animal Health and Agrochemicals].
The segments are managed separately due to the differences in marketing strategies and in production technologies. Segment information is based on internal management accounts. Inter-segment sales from Pharma Chemicals
to Generics of usd 12,231 thousand (2004: usd 7,454 thousand) has been excluded from Pharma Chemical’s revenue.
These sales are made at standard cost price, which reflects direct costs and manufacturing overheads allocated at
normal level of production.
The segmental operating result does not include corporate overheads (administrative expenses of corporate support functions), goodwill impairment, or certain items of income, which are not directly attributable to the reported
business segments. Information about interest income and expense, and income taxes is not provided on a segment
level as the segments are reviewed based on operating profit.
Geographical reporting segments are secondary to business segments. Geographical revenue information is based
on the geographical location of customers.
Discontinued operations is discussed in Note 4.
usd’000
propripharma
etary (a) chemicals
usd’000
usd’000
795,694
208,059
138,893
57,392
9,290
1,209,328
-
-
(12,231)
-
-
(12,231)
total revenue
795,694
208,059
126,662
57,392
9,290
1,197,097
gross profit
398,942
170,761
63,480
19,959
5,284
658,426
22,385
(11,310)
47,873
606
(34,747)
24,807
net financing expenses
-
-
-
-
-
(19,084)
share of profit of associate
-
-
-
-
-
754
profit before tax
-
-
-
-
-
6,477
income tax expense
-
-
-
-
-
(5,091)
profit after tax before loss on sale of discontinued operations
-
-
-
-
-
1,386
-
-
-
-
-
(76,542)
loss for the year
-
-
-
-
-
(75,156)
depreciation (note 11)
50,551
2,284
11,710
2,941
536
68,022
amortisation (note 12)
14,864
20,774
-
23
180
35,841
impairment – restructuring (note 6)
21,018
38,823
2,354
-
-
62,195
for the year ended 31 december 2005
gross segment sales
intersegment sales
Standards, Interpretations and Amendments to Published Standards That are Not Yet Effective
The Group is currently assessing the potential impact of the new and revised standards in issue that will be effective
from 1 January 2006 or later periods.
Effective from 1 January 2006 the Group will apply the Amendment to IAS 21 The Effects of Changes in Foreign Exchange Rates - Net Investment in a Foreign Operation. The Amendment clarifies in which circumstances a loan may
form part of a reporting entity’s net investment in a foreign operation, and the currency in which such an item may
be denominated. The Amendment requires retrospective application. The Group does not expect that this Amendment will result in a material restatement of the 2005 figures as the amount of loans which would be affected by
the Amendment is not significant.
The Group will also apply the Amendment to IAS 19 Employee Benefits effective from 1 January 2006. This amendment introduces the option of an alternative recognition approach for actuarial gains and losses. It may impose
additional recognition requirements for multi-employer plans where insufficient information is available to apply
defined benefit accounting. It also adds new disclosure requirements. As the Group does not intend to change the
accounting policy adopted for recognition of actuarial gains and losses and does not participate in any multi-employer plans, adoption of this amendment will only impact the format and extent of disclosures presented in the
accounts. The Group will apply this amendment from annual periods beginning 1 January 2006.
The Group does not expect that the other new and revised standards and interpretations will have a significant effect on the Group’s results and financial position, although they will expand the disclosures in certain areas.
81
Presentation of Statement of Changes in Equity
The effect of the retrospective application of the changes described above on the statement of changes in equity
for the year ended 31 December 2004 is summarised below.
80
generics
nonnoncore allocated
usd’000
usd’000
group
usd’000
other segment information
Notes
Notes
(continued)
(continued)
3 Segment Information (continued)
82
proprietary(a)
usd’000
usd’000
pharma
chemicals
usd’000
704,126
225,322
131,014
55,311
21,814
1,137,587
-
-
(7,454)
-
-
(7,454)
total revenue
704,126
225,322
123,560
55,311
21,814
1,130,133
gross profit
346,793
208,330
59,007
18,997
16,190
649,317
37,674
100,832
49,664
(1,438)
(22,223)
164,509
net financing expenses
-
-
-
-
-
(23,696)
share of loss of associate
-
-
-
-
-
(220)
profit before tax
-
-
-
-
-
140,593
income tax expense
-
-
-
-
-
(12,970)
profit for the year
-
-
-
-
-
127,623
restated
gross segment sales
noncore
usd’000
nonallocated
usd’000
usd’000
group
Continuing operations include:
• royalty income from Pfizer for the sale of Zithromax (Azithromycin) on the US and international markets in the
amount of usd 160,257 thousand (2004: usd 169,798 thousand). PLIVA was entitled to receive royalty income from
the US market from the sale of Zithromax until November 2005. The royalty rights on other markets expire between 2006 and 2009. Royalty income from the sale of Zithromax (Azithromycin) on the US market represented
84% (31 December 2004: 82%) of the total royalty revenue, and
• revenue from a small number of remaining proprietary products that will not be divested.
Discontinued operations are discussed in Note 4.
revenue by geographical destination
83
intersegment sales
generics
2004
2005
usd’000
%
usd’000
%
181,211
15.1
191,342
16.9
north america
473,359
39.5
467,315
41.3
western europe
242,909
20.3
206,392
18.3
central and eastern europe
289,124
24.2
251,586
22.3
other
10,494
0.9
13,498
1.2
total international
1,015,886
84.9
938,791
83.1
total revenue
1,197,097
100.0
1,130,133
100.0
croatia
international
other segment information
depreciation (note 11)
47,155
4,085
11,013
2,998
1,537
66,788
amortisation (note 12)
14,457
8,376
-
16
14,033
36,882
(a) Proprietary Business Segment - Continuing and Discontinued Operations
for the year ended
31 december 2004 - restated
31 december 2005
usd’000
usd’000
total
usd’000
continuing
usd’000
discontinued
usd’000
total
usd’000
total revenue
185,046
23,013
208,059
200,959
24,363
225,322
gross profit
172,416
(1,655)
170,761
189,487
18,843
208,330
170,960
(182,270)
(11,310)
180,426
(79,594)
100,832
Notes
Notes
(continued)
(continued)
3 Segment Information (continued)
Segment Assets and Liabilities
84
proprietary
non-core
group
usd’000
pharma
chemicals
usd’000
usd’000
usd’000
usd’000
979,910
139,427
96,481
64,602
1,280,420
non-segment assets
The table below shows the carrying amount of segment assets and additions to property, plant and equipment
and intangible assets by geographical area in which the assets are located.
total assets
usd’000
2005
additions
usd’000
total assets
usd’000
2004
additions
usd’000
croatia
765,673
37,981
878,309
37,955
131,657
north america
318,593
6,056
548,195
162,215
492,892
western europe
328,415
17,344
250,542
13,525
central and eastern europe
262,241
18,874
289,448
16,636
other
720
1,050
917
567
total
1,675,642
81,305
1,967,411
230,898
395,222
1,675,642
total assets
total segment liabilities
95,122
20,732
5,370
10,433
non-segment liabilities
624,549
total liabilities
restated
total segment assets
generics
proprietary
usd’000
992,406
non-core
group
usd’000
pharma
chemicals
usd’000
usd’000
usd’000
430,988
138,437
64,644
1,626,475
non-segment assets
340,936
1,967,411
total assets
total segment liabilities
146,349
55,408
11,242
11,535
85
224,534
non-segment liabilities
499,727
total liabilities
724,261
Segment assets consist primarily of property, plant and equipment, receivables and inventories.
Segment liabilities consist of trade accounts payable.
Non-segment assets and liabilities consist of assets and liabilities which cannot be reasonably attributed to the
reported business segment such as deferred tax, financial assets and liabilities, cash, marketable securities, other
investments and debt.
total segment assets
generics
Notes
Notes
(continued)
(continued)
4 Non-Current Assets Classified as Held for Sale and
Discontinued Operations
86
Assets Held for Sale
As at 31 December 2005, assets held for sale comprise Research Institute related assets (discontinued operations)
and production related assets in AWD.pharma GmbH & Co. KG, PLIVA’s subsidiary in Germany (continuing operations). See Note 33 - Subsequent events.
An impairment loss of usd 17,012 thousand on the measurement of the assets held for sale (in relation to the divestment of production related assets) to fair value less cost to sell has been recognised and is included in restructuring
expenses in the continuing operations column of the income statement.
No gain or loss arose on the measurement to fair value less costs to sell of the Research Institute’s related assets
has been recognised, as the carrying value does not exceed fair value less costs to sell.
The disposal groups comprised the following assets and liabilities (net of loss recognised on measurement of the
assets held for sale to fair value less cost to sell):
2005
usd’000
The total net carrying amount, net of impairment, of the disposal group at 31 December 2005 is usd 15,758 thousand.
Assets held for sale relating to the continuing business are reported in the Generics segment and the disposal group
held for sale relating to discontinuing business is reported in Proprietary segment.
effect of the disposal on individual assets and liabilities of the group
intangible assets
inventories
net identifiable assets and liabilities
consideration received, satisfied in cash
cash disposed of
net cash inflow
3,413
147,846
2,283
153,542
77,000
77,000
87
Discontinued Operations
Following an in-depth strategic review and evaluation of its core activities PLIVA’s management decided to exit the
Proprietary business segment and focus operations on its generic business and production of Active Pharmaceutical Ingredients (“api”). The related assets and liabilities were either reflected in the calculation of the gain or loss on
disposal (for the transactions that were completed during 2005) or classified as held for sale at 31 December 2005
(for the transaction that is expected to be completed in 2006).
The first step in exiting the Proprietary business was divestment of the exclusive licence for the sale of SANCTURA®
(trospium chloride) in the USA. This was completed in June 2005, resulting in a loss of usd 99,980 thousand recognised in the income statement for the six-month ended 30 June 2005 (reported as loss on sale of discontinued
operations). The loss was calculated based on proceeds in the amount of usd 45,000 thousand received in July
2005. Of that amount, usd 6,750 thousand was paid to an escrow account and will be available after a twelve month
period provided that all indemnification obligations are met. Management believes that the Group will meet all indemnification requirements and, accordingly, the total usd 45,000 thousand was recognised in net proceeds from
the disposal. The Group may be entitled to a further maximum of usd 95,000 thousand in future periods as part of
a royalty/licence arrangement based on the achievement of certain sales milestones.
The next important milestone in exiting the Proprietary business was the sale of VoSpire that was completed in
November 2005, resulting in gain of usd 23,438 thousand (reported within loss on sale of discontinued operations).
The gain was calculated based on proceeds of usd 32,000 thousand received in November 2005. The Group may be
entitled to a further maximum of usd 35,000 thousand in future periods conditional on the occurrence of certain
events and based on the achievement of certain sales milestones.
Given the uncertainty in occurrence of the events and sales milestones that would entitle PLIVA to the conditional proceeds related to SANCTURA® and VoSpire, management has not recognised any of these amounts in the net proceeds.
Consequently, these transactions generated a pre-tax loss of usd 76,542 thousand (reported as loss on sale of
discontinued operations). Due to uncertainty of the recoverability of the related deferred tax asset of usd 26,789
thousand, this asset has not been recognised resulting in the after-tax loss being equal to the pre-tax loss.
The sale of PLIVA’s Research Institute represented the last step in exiting the Proprietary business. See Note 33
for details of this transaction, which is expected to occur in April of 2006. Since the transaction is expected to be
realised in 2006, no gain or loss on sale has been reported in 2005. However, transactions related to the Research
Institute’s activities have been presented as discontinued operations in PLIVA’s consolidated profit and loss account
(see “Assets held for sale” below).
Discontinued operations are classified in the business segment “Proprietary”.
2005
usd’000
continuing
2005
usd’000
discontinued
2005
usd’000
total
4,739
9,204
13,943
112
1,837
1,949
receivables (note 15)
-
1,385
1,385
current assets (notes 17 and 18)
-
1,079
1,079
4,851
13,505
18,356
current liabilities (note 25)
-
2,598
2,598
total carrying amount
-
2,598
2,598
asset classified as held for sale
disposal groups classified as held for sale
property, plant and equipment (note 11)
intangible assets (note 12)
total carrying amount
liabilities classified as held for sale
Notes
Notes
(continued)
(continued)
5 Other Revenue
88
6 Restructuring Costs
2004
usd’000
profit from sale of subsidiary (note 30)
4,277
-
commitment fee for cns products
5,000
-
non-refundable upfront payment (note 32)
5,000
-
down payments from out-licencing
2,062
2,474
profit from sale of assets
1,646
1,903
proceeds from litigations
-
13,986
other revenue
19,529
23,898
total
37,514
42,261
As partly explained in Note 4, during 2005 PLIVA continued its efforts to streamline its operations and to concentrate on its generics business and api production. These efforts included two major transactions, namely exit
from the Proprietary business segment (see Notes 33 and 4 for more details) and divestment of the manufacturing
plant in Germany (see Note 33 for more details). However, they also included several smaller projects such as the
streamlining of PLIVA’s Pharma Chemicals operations (api production), Generics manufacturing operations and
other operations in the Czech Republic.
Restructuring costs caused by the exit from the Proprietary business segment amounted to usd 81,797 thousand.
Out of that, usd 32,121 thousand related to the sale of the exclusive licence for the sale of SANCTURA® and included
severance payments in the amount of usd 8,425 thousand and other expenses in relation to the sale of SANCTURA® in the amount of usd 23,696 thousand. A further usd 36,945 thousand related to impairments caused by the
termination of various proprietary development projects and usd 12,731 thousand related to severance payments,
consulting fees, impairment of equipment used in proprietary projects and accruals for already committed costs
related to the terminated projects.
Divestment of the manufacturing plant in Germany resulted in usd 22,237 thousand of restructuring costs, primarily
related to the asset impairments.
Streamlining of Pharma Chemicals operations in Croatia and other operations in the Czech Republic will result in
the delisting of a number of smaller products and closure of part of the production plant producing those products.
Related restructuring costs amounted to usd 8,948 thousand, out of which usd 4,534 thousand relates to asset
impairments and usd 4,414 thousand to various cash charges for severance payments and site restoration.
Streamlining of Generics manufacturing operations resulted in downsizing causing severance payments of about
usd 5,218 thousand.
Various other projects resulted in restructuring costs of usd 4,411 thousand bringing the total restructuring costs for
2005 to the amount of usd 122,611 thousand.
89
2005
usd’000
2005
usd’000
continuing
2005
usd’000
discontinued
2005
usd’000
total
2004
usd’000
total
severance payments
13,001
9,980
22,981
-
asset impairment
23,421
38,774
62,195
-
4,392
33,043
37,435
-
40,814
81,797
122,611
-
other restructuring expenses
total
Out of this amount usd 24,928 thousand is included in the restructuring provisions as at 31 December 2005 (see Note 24).
Notes
Notes
(continued)
(continued)
7 Net Financial Expenses
9 Income Tax Expense
2005
usd’000
90
2004
usd’000
restated
interest:
current tax expense
7,029
4,270
expense
(17,190)
(13,791)
net foreign exchange gains/(losses)
(11,030)
(12,647)
2,107
(1,528)
reversal of previously recognised deferred tax assets
total income tax expense in income statement
total
(19,084)
790
15,836
(1,067)
(6,214)
5,368
3,348
4,301
(2,866)
5,091
12,970
deferred tax expense
origination and reversal of temporal differences
other financial expenses (net)
2004
usd’000
restated
(23,696)
A reconciliation of tax expense as reported in the income statement and taxation at the statutory rate is detailed
in the table below:
2005
usd’000
2004
usd’000
restated
profit before tax
6,477
140,593
tax calculated at croatian statutory rate of 20%
1,295
28,119
expenses not allowable for income tax purposes
7,885
6,208
(1,374)
(1,631)
r&d and education - double deduction
(12,777)
(13,421)
tax losses utilised (previously not recognised)
(4,044)
(816)
(profit)/loss incurred by companies exempt from income tax
7,818
(181)
reversal of previously recognised deferred tax assets
5,368
3,348
920
(8,656)
5,091
12,970
78.60%
9.23%
8 Staff Costs
2005
usd’000
2004
usd’000
restated
268,965
246,813
907
2,388
1,242
1,621
518
125
other
4,620
3,800
total
276,252
254,747
wages and salaries
severance
equity settled transactions (note 27)
cash settled transactions (note 27)
As at 31 December 2005 the number of employees in the Group was 6,137 (2004: 6,654).
income tax expense
income not subject to tax
effects of different tax rates in other countries
total income tax expense
effective tax rate
Effective tax rate increased primarily as a result of not recognising deferred tax asset on net losses incurred on sale
of SANCTURA® and VoSpire (as explained in Note 4).
91
income
2005
usd’000
Notes
Notes
(continued)
(continued)
10 Earnings Per Share and gdr
Weighted average number of shares is arrived at as follows:
2004 | restated
2005
92
total
usd’000
continuing
usd’000
discontinued
usd’000
total
usd’000
basic
10.54
(14.85)
(4.31)
11.94
(4.61)
7.33
diluted
10.46
(14.70)
(4.24)
11.83
(4.56)
7.27
basic
2.11
(2.97)
(0.86)
2.39
(0.92)
1.47
diluted
2.09
(2.94)
(0.85)
2.36
(0.91)
1.45
earnings per gdr
shares outstanding excluding treasury shares at 1 january
effect of treasury shares purchased, sold or granted in year
weighted average number of shares (basic)
effect of conversion of loan notes
effect of share options on issue
weighted average number of shares (diluted)
Basic earnings per share are calculated by dividing the net profit of the Group for the year by the weighted average
number of shares outstanding, calculated as set out below.
Diluted earnings per share are calculated by dividing the adjusted net profit of the Group for the year by the adjusted weighted average number of shares outstanding, calculated as set out below.
The Company’s shares are traded on the Zagreb Stock Exchange, and on the London Stock Exchange in the form of
Global Depositary Receipts (“gdr’s”). Five gdr’s are equivalent to one share; accordingly the earnings per gdr are
calculated by dividing earnings per share by five.
Adjusted net profit is arrived at as follows:
2004 | restated
2005
usd’000
usd’000
profit for the year (basic)
after tax effects of interest on convertible bank loan
adjusted profit for the year (diluted)
total
usd’000
continuing
usd’000
discontinued
usd’000
total
usd’000
183,748
(258,812)
(75,064)
207,658
(80,154)
127,504
390
-
390
200
-
200
184,138
(258,812)
(74,674)
207,858
(80,154)
127,704
2004
number of shares
17,420,768
17,358,110
3,971
42,827
17,424,739
17,400,937
135,593
135,593
51,694
36,888
17,612,026
17,573,418
93
usd’000
usd’000
earnings per share
2005
number of shares
Notes
Notes
(continued)
(continued)
11 Property, Plant and Equipment
94
usd’000
544,896
557,878
36,998
1,139,772
31
2,343
51,424
53,798
12,318
44,779
(57,097)
-
(25,843)
(49,735)
(1,379)
(76,957)
other movements
(1,013)
-
-
(1,013)
effects of foreign exchange movements
51,001
54,274
3,523
108,798
581,390
609,539
33,469
1,224,398
at 1 january 2004
additions
transfer from assets in course of construction
disposals
at 31 december 2004
equipment
total
usd’000
assets in course
of construction
usd’000
usd’000
181,195
358,569
959
540,723
17,760
49,028
-
66,788
(23,257)
(47,596)
(846)
(71,699)
15,675
34,558
172
50,405
at 31 december 2004
191,373
394,559
285
586,217
at 1 january 2005
191,373
394,559
285
586,217
17,762
50,260
-
68,022
disposals
(1,058)
(10,999)
-
(12,057)
disposal of subsidiary (note 30)
(2,301)
(502)
-
(2,803)
transfer to assets held for sale (note 4)
(13,115)
(27,660)
(41)
(40,816)
accumulated depreciation and impairment losses
at 1 january 2004
charge for the year
disposals
charge for the year
at 1 january 2005
land and
buildings
usd’000
equipment
total
581,390
609,539
33,469
1,224,398
564
5,698
37,952
44,214
transfer from assets in course of construction
16,400
20,392
(36,792)
-
disposals
(1,767)
(14,617)
(1,363)
(17,747)
impairment
2,818
2,680
3,740
9,238
disposal of subsidiary (note 30)
(5,381)
(627)
-
(6,008)
measurement to fair value less costs to sell (asset held for sale)
9,608
6,967
42
16,617
(15,861)
(38,800)
(98)
(54,759)
(15,970)
(38,530)
(198)
(54,698)
(50,927)
(56,072)
(2,820)
(109,819)
at 31 december 2005
189,117
376,775
3,828
569,720
at 31 december 2005
524,418
525,513
30,348
1,080,279
at 1 january 2004
363,701
199,309
36,039
599,049
at 31 december 2004
390,017
214,980
33,184
638,181
at 1 january 2005
390,017
214,980
33,184
638,181
at 31 december 2005
335,301
148,738
26,520
510,559
additions
carrying amount
Borrowing Costs
No borrowing costs have been capitalised during 2005 and 2004.
Transfer from Property, Plant and Equipment to Assets Held for Sale
As explained in Note 33, in January 2006 PLIVA signed the agreement for the divestment of its manufacturing plant
in Germany. Consequently, relevant assets were classified as assets held for sale and measured at the lower of fair
value (less costs to sell) and carrying amount. This resulted in an impairment charge of usd 16,617 thousand that was
recorded within restructuring expense in the continuing business. The assets are held for sale and not depreciated.
Asset in Course of Construction
Assets in course of construction include works on existing production facilities in the amount of usd 4,684 thousand
(2004: usd 15,095 thousand) and on new production facilities in the amount of usd 6,607 thousand.
95
usd’000
assets in course
of construction
usd’000
cost
land and
buildings
usd’000
Notes
Notes
(continued)
(continued)
12 Intangible Assets
96
cost
additions
transfer from development
disposals
at 31 december 2004
at 1 january 2005
goodwill
usd’000
development
costs and
advances
usd’000
total
patents, licences
and similar
rights (1)
usd’000
goodwill
usd’000
development
costs and
advances
usd’000
usd’000
accumulated amortisation and impairment losses
164,080
195,229
15,544
374,853
at 1 january 2004
162,861
-
14,239
177,100
charge for the year
4,613
-
(4,613)
-
usd’000
47,731
53,467
-
101,198
22,954
13,928
-
36,882
(10,246)
-
-
(10,246)
(14,705)
-
(51)
(14,756)
3,139
5,466
-
8,605
6,440
13,696
2,074
22,210
at 31 december 2004
63,578
72,861
-
136,439
323,289
208,925
27,193
559,407
at 1 january 2005
63,578
-
-
63,578
charge for the year
35,841
-
-
35,841
(15,692)
-
-
(15,692)
(1,544)
-
-
(1,544)
13,342
-
26,782
40,124
395
-
-
395
disposals
total
323,289
136,064
27,193
486,546
13,697
-
23,394
37,091
9,138
-
(9,138)
-
(158,605)
(7,004)
(391)
(166,000)
(1,810)
(1,683)
-
(3,493)
(9,996)
(8,997)
(3,361)
(22,354)
(5,000)
-
(3)
(5,003)
at 31 december 2005
175,713
118,380
37,697
331,790
at 31 december 2005
90,920
-
26,779
117,699
at 1 january 2004
116,349
141,762
15,544
273,655
at 31 december 2004
259,711
136,064
27,193
422,968
at 1 january 2005
259,711
136,064
27,193
422,968
at 31 december 2005
84,793
118,380
10,918
214,091
additions
transfer from development
disposals
disposals
impairment
measurement to fair value less costs to sell (asset held for sale)
carrying amount
(1)
Patents, licences and similar rights relate primarily to externally purchased product rights (or product rights acquired
through business combinations) related to approved or marketed products.
97
at 1 january 2004
patents, licences
and similar
rights (1)
usd’000
Notes
Notes
(continued)
(continued)
12 Intangible Assets (continued)
98
Impairment
Of the total impairment in the year, usd 36,945 thousand relates to the impairment of previously capitalised proprietary products, as explained in Note 6.
Goodwill
Goodwill has been allocated to cash-generating units. Pursuant to the discontinuance of the Proprietary business
segment, a portion of goodwill that relates to the discontinued operations was calculated on the basis of the relative
values of the operations disposed of and the portion of the cash-generating unit retained.
A portion of goodwill relating to Proprietary business attributable to the divestment of the exclusive licence for the
sale of SANCTURA® (trospium chloride) in the USA and VoSpire (usd 7,004 thousand) was included in the calculation
of loss on sale. For additional details, refer to Note 4.
A portion of goodwill attributable to assets held for sale was reclassified from intangible assets to assets held for sale.
Amortisation Charge and Impairment
The amortisation charge for patents, licences and similar rights was recorded in following positions in the income
statement:
2005
usd’000
2004
usd’000
restated
30,343
16,610
3,173
4,147
1,301
1,070
selling and distribution expenses
1,024
1,127
35,841
22,954
cost of sales
total
In accordance with ifrs 3 Business Combinations goodwill is no longer amortised from 1 January 2005. The amortisation charge for goodwill for the previous period was recorded in the following position in the income statement:
2005
usd’000
2004
usd’000
restated
-
13,928
Impairment was recorded in following positions in the income statement:
99
2005
usd’000
2004
usd’000
3,179
-
restructuring expenses
36,945
-
total
40,124
-
2005
usd’000
2004
usd’000
generics
89,494
96,397
pharma chemicals
24,840
26,756
4,046
12,911
118,380
136,064
Impairment Test for Cash-Generating Units Containing Goodwill
The following units have significant carrying amounts of goodwill:
proprietary
total
The recoverable amount of all three units is based on value in use calculations.
Generics and Pharma Chemicals Units
The value in use calculations use cash flow projections based on a three-year business plan approved by senior management. A pre-tax discount rate of 9% was used in discounting the projected cash flows. The recoverable amount
of cash-generating units exceed their carrying amount.
The movement in goodwill between 31 December 2004 and 31 December 2005 relates solely to foreign exchange
movements.
Proprietary Unit
The value in use calculations use cash flow projections based on a three-year business plan and terminal value
calculated using a negative 10% growth rate, in line with PLIVA’s decision to exit Proprietary business. A pre-tax discount rate of 15%, reflecting the higher risk related to proprietary products, was used in discounting the projected
cash flows. The recoverable amount of the cash-generating unit exceeds its carrying amount.
The movement in goodwill between 31 December 2004 and 31 December 2005 relates to:
• portions of goodwill related to SANCTURA® and VoSpire that were divested during 2005 (see Note 4),
• classification of goodwill in the amount of usd 1,683 thousand as part of a disposal group held for sale, and
• foreign exchange movements.
Disposals
Of the total disposals in the year, usd 140,842 thousand relates to divestment of previously capitalised proprietary
products. See Note 4 for details. The majority of this amount related to the carrying amount of SANCTURA® at the
time of its divestment (usd 137,500 thousand).
Notes
Notes
(continued)
(continued)
12 Intangible Assets (continued)
13 Investment in Associate
Key assumptions used in value in use calculation of Generics unit are:
100
how determined
launches of new products generating significant sales and profit
based on patent expiry data for individual products and
development status of these products in pliva’s development
significant sales from newly launched products
current market value for proprietary products, estimated
number of generic competitors, price drop after patent expiry
based on previous experience
low single digit drop in existing product sales
based on historical experience
lower production costs
based on successful rationalization of manufacturing sites
Key assumptions used in value in use calculation of Pharma Chemicals unit are:
assumption
how determined
significant drop in sales due to azithromycin (the most important
product) patent expiry
based on the fact that the us patent expired in november 2005
and that, even though the previous patent owner continued to
purchase azithromycin from pliva, due to the entrance of
generic competition both volumes and prices are expected to
drop significantly compared to 2005 and previous years
significant internal sales to generics unit
since pliva launched generic azithromycin in the usa, together
with a small number of other generic competitors, it is expected
that the pharma chemicals unit will compensate part of the
above-stated sales drop with growth in internal sales
continuation of sales of the remaining pharma chemicals product
portfolio (non-azithromycin)
based on management assessment of future market for these
products
drop in gross margins in 2006 with slow recovery from 2007
based on the above stated drop in sales followed by successful
rationalisation of manufacturing sites
usd’000
at 1 january 2005
11,386
share of profit of associate
754
elimination of unrealised profit on sale of inventories
(1,226)
foreign exchange movements
(1,090)
at 31 december 2005
9,824
On 31 December 2005, PLIVA d.d. had a 24.71% ownership interest in Medika d.d. (2004: 24.71%). Medika d.d. is a
wholesaler that supplies pharmacies, hospitals and other health institutions with a wide range of medical merchandise. The fair value of the investment was usd 10,112 thousand (based on the closing bid price quoted on the Zagreb
Stock Exchange on 30 December 2005).
Share of profit of associate is not reported in any segment, while elimination of unrealised profit on sale of goods is
reported in segment “Generics”.
14 Other Investments
2005
usd’000
2004
usd’000
70
1,208
available-for-sale investments (i)
423
312
held-to-maturity investments
410
587
total non-current portion
903
2,107
3,392
-
-
321
3,392
321
non-current portion:
other investments
Key assumptions used in value in use calculation of Proprietary unit are:
current portion:
assumption
how determined
sales of remaining proprietary products
based on historical experience and assessment of future market
potential of these products, that will from 2006 be integrated
into generics division
fair value through profit or loss
available-for-sale investments (i)
total current portion
(i) Available-for-sale investments are carried at fair value except for those which are not traded in active markets,
in which case they are measured at amortised cost less impairment.
101
assumption
Notes
Notes
(continued)
(continued)
15 Receivables
102
16 Deferred Tax Assets and Liabilities
2004
usd’000
secured housing loans to employees (i)
2,817
3,017
other loans and advances (ii)
1,552
5,285
total
4,369
8,302
The movement in deferred tax assets and liabilities (prior to offsetting of balances within the same jurisdiction)
during the year relates to the temporary differences as follows:
provisions
and accruals
usd’000
depreciation
other
total
usd’000
usd’000
usd’000
at 1 january 2005
34,828
1,742
8,011
44,581
(charged)/credited to net profit
(7,240)
(701)
7,544
(397)
write off of previously recognised deferred tax assets
(1,161)
(554)
(3,653)
(5,368)
(94)
(69)
(640)
(803)
at 31 december 2005
26,333
418
11,262
38,013
(1,484)
(1,775)
(1,333)
(4,592)
1,345
221
(102)
1,464
149
155
96
400
at 31 december 2005
10
(1,399)
(1,339)
(2,728)
deferred tax assets
(i) Secured housing loans to employees are granted for the purchase of housing. These loans bear interest at favourable rates and have an original maturity of up to 30 years and are carried at amortised cost using market rates
for discounting. usd 498 thousand relating to secured housing loans for employees of the Research Institute were
classified as part of a disposal group held for sale.
(ii) Loans bear interest at rates of 0% to 6% per annum and are measured at amortised cost using market rates for
discounting. usd 887 thousand of such loans was classified as part of a disposal group held for sale.
103
at 1 january 2005
(charged)/credited to net profit
Deferred income tax assets and liabilities are offset when there is a legally enforceable right to set off current tax
assets against current tax liabilities and when the deferred income taxes relate to the same tax authority. The following amounts, determined after appropriate offsetting, are shown in the consolidated balance sheet:
deferred tax assets
2005
usd’000
2004
usd’000
35,478
40,748
(193)
(759)
35,285
39,989
2005
usd’000
Notes
Notes
(continued)
(continued)
16 Deferred Tax Assets and Liabilities (continued)
104
18 Trade and Other Receivables
usd’000
2004
usd’000
restated
337,811
389,339
trade receivables – impairment
(19,815)
(24,698)
trade receivables – net
317,996
364,641
1,484
1,312
25,459
20,739
trade receivables - gross
receivables from employees
31 december 2006
79,426
receivables from state
31 december 2007
79,426
prepaid expenses
7,840
8,280
31 december 2008
79,418
current portion of long-term receivables
1,047
1,964
31 december 2009
77,613
fair value of derivative instruments (note 26)
577
2,134
31 december 2010
72,699
other receivables
10,301
8,544
31 december 2011 to 31 december 2015
69,215
31 december 2016 to 31 december 2025
67,690
364,704
407,614
thereafter
total
2,638
usd 620 thousand of trade and other receivables were classified as part of a disposal group held for sale (refer to
Note 4). Trade receivables impairment is recorded under selling and distribution expenses.
17 Inventories
2005
usd’000
2004
usd’000
raw materials
57,299
74,433
work in progress
37,665
32,842
finished goods
68,027
96,672
merchandise
47,379
39,696
inventory payments on account
349
1,249
inventories in transit
930
2,542
other
2,575
3,893
total
214,224
251,327
usd 459 thousand relating to inventories in the Research Institute was classified as part of a disposal group held for
sale (refer to Note 4).
19 Cash and Cash Equivalents
2005
usd’000
2004
usd’000
72,682
64,352
203
-
deposits
224,012
103,501
total
296,897
167,853
cash with banks
bills of exchange
105
Tax losses of usd 79,426 thousand (2004: usd 34,875 thousand) have not been recognised within deferred tax assets as it is not probable that future taxable profit will be available against which the Group can utilise the benefits
therefrom. Unrecognised tax losses are available as follows:
2005
usd’000
Notes
Notes
(continued)
(continued)
20 Equity
106
2005
usd’000
2004
usd’000
5,676
4,488
(92)
119
(455)
1,069
at 31 december
5,129
5,676
2005
usd’000
2004
usd’000
1,909
5,000
unsecured bank loans (iii)
133,571
156,404
bonds issued
87,538
100,487
518
598
223,536
262,489
-
1,345
commercial paper
-
115,833
5,674
20,000
97,948
35,037
-
2
162
355
at 1 january
share of (loss)/profit for the year in pliva krakow and lachema
(ii) The treasury shares comprise the nominal value of the Company’s own shares held by the Group. At 31 December
2005 the Group held 1,149,493 (2004: 1,171,880) of the Company’s shares.
(iii) At 31 December 2005 the amount of legal reserves included within legal and other reserves was usd 21,937
thousand (2004: usd 18,340 thousand). The transfer to legal reserves in the year of usd 3,322 thousand (2004: usd
500 thousand) was based on local company law requirements. Legal reserves are generally not distributable.
The remaining balance of legal and other reserves consists of capital reserves totalling usd 2,614 thousand (2004:
usd 238 thousand).
22 Interest Bearing Loans and Borrowings
(iv) The translation reserve comprises all foreign exchange differences arising from the translation of the financial
statements of foreign operations whose functional currency differs from usd, the presentation currency.
long-term interest bearing loans and borrowings
(v) During 2005, PLIVA d.d. sold or granted 22,387 (2004: 62,655) treasury shares, with a total nominal value of
usd 362 thousand (2004: usd 1,017 thousand) for usd 1,107 thousand (2004: usd 1,933 thousand). The difference
between the sale price and nominal values of these shares is recorded in the share premium reserve. All of these
shares (2004: 42,230) were sold under the option plan (Note 27 - Share based payments).
secured bank loans (ii)
(vi) On 14 June 2005 the General Assembly approved a dividend in respect of 2004 of hrk 12.00 (usd 2.10) per share
totalling usd 36,661 thousand, after adjusting to exclude treasury shares (2004: hrk 16.00 per share (usd 2.62), totalling usd 46,092 thousand in respect of 2003). The dividend was paid on 8 July 2005 from pre 2001 retained earnings.
On 28 February 2006 the Management Board proposed a dividend in respect of 2005 of hrk 12.00 per share, which
amounts to usd 1.95 according to the Croatian National Bank mid-exchange rate effective on 28 February 2006. The
dividend will be paid out from retained earnings after approval by the General Assembly.
Until 1 January 2005 (foreign individuals) and 2 August 2005 (for foreign entities) dividends paid out of profits realised in the years preceding 2001 were generally not subject to withholding tax or dividend tax. Dividends paid out of
profits realised in the years 2001 to 2004 were generally subject to withholding tax. Dividend payments to foreign
individuals and foreign entities were generally subject to 15% withholding tax (subject to double tax treaties) whilst
dividend payments to domestic individuals were subject to 15% dividend tax.
From 1 January 2005 dividends paid to foreign individuals (and from 2 August 2005 to foreign entities) are not subject to withholding tax.
due on fl ats sold by instalment (iv)
(vii) As at 31 December 2005 distributable reserves of the Company were hrk 5,830,826 thousand (usd 935,386
thousand using hrk/usd exchange rate applicable at 31 December 2005).
current interest bearing loans and borrowings
current portion of long-term interest bearing loans and borrowings
secured bank loans (ii)
finance lease liabilities
total interest bearing loans and borrowings
103,784
172,572
327,320
435,061
107
(i) At 31 December 2005 the authorised, issued and paid-up share capital comprised 18,592,648 ordinary shares
(2004: 18,592,648). All shares have a par (nominal) value of hrk 100. The nominal value of shares in the remaining
part of this note has been expressed in usd and has been computed based on the hrk/usd exchange rates in effect
for the relevant transaction.
The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to
one vote per share at meetings of the Company.
21 Minority Interest
Notes
Notes
(continued)
(continued)
22 Interest Bearing Loans and Borrowings (continued)
interest rates and terms of repayment
108
interest
rate (i)
%
total
usd’000
less than
1 year
usd’000
1-2
years
usd’000
23 Employee Benefits
2-5
years
usd’000
more than
5 years
usd’000
secured bank loans
2004
usd’000
restated
long-term employee benefits (i)
5,965
6,918
8,949
9,417
638
146
15,552
16,481
2.96 – 4.98
5,000
5,000
-
-
-
defined pension plan benefits (ii)
4.6
2,583
674
1,909
-
-
cash settled transaction liability (note 27)
usd 145,636 (iii)
2.96 – 5.17
145,636
36,349
63,991
45,296
-
total
eur 72,295
2.84 – 3.57
85,539
61,515
20,086
3,938
-
nil
99
82
17
-
-
-
245
2
-
243
-
usd 5,000 (ii)
hrk 16,100
unsecured bank loans
czk 2,427
other
(i) Long-term employee benefits comprise early retirement and post-retirement benefits, accruals for estimated
bonuses, and the long-term portion of management incentive plans.
(ii) The defined benefit pension plan mainly relates to one subsidiary, AWD.pharma GmbH & Co. KG.
bonds issued (vi)
eur 75,000
at 31 december 2005
5.75
87,538
-
-
-
87,538
-
680
162
162
356
-
327,320
103,784
86,165
49,833
Movement in net liability for defined benefit obligations recognised in the balance sheet:
87,538
net liability for defined benefit obligations at 1 january
expense recognised in the income statement
(i) The majority of long-term loans have variable interest rates based on Libor and Euribor. The interest rates included in the table above represent range of interest rates for 2005. The effect of certain variable to fixed interest
rate swaps is disclosed in Note 26 - Financial instruments.
effect of foreign exchange rate changes
net liability for defined benefit obligations at 31 december
2005
usd’000
2004
usd’000
9,417
8,473
800
862
(1,268)
82
8,949
9,417
(ii) Loan is secured by the Azithromycin royalty revenue stream.
The amounts recognised in the income statement relating to the defined benefit pension plan are as follows:
(iii) Unsecured bank loans include a loan of usd 10,000 thousand, which contains the right to convert into shares of
PLIVA d.d. at an effective rate of usd 73.75 per share until 1 December 2006 (2004: usd 73.75 per share) at the option of the lender. As conversion of this loan is unlikely, the fair value of the equity component is zero.
(iv) Amounts due on flats sold by instalment include loans granted to employees for the purchase of flats and other
funds, representing 65% of the value of flats and receivables arising from loans granted for flats sold by instalment
under applicable regulations.
2005
usd’000
2004
usd’000
current service cost
264
273
interest cost
476
457
60
132
800
862
2005
%
2004
%
discount rate
5.25
5.25
future salary increase
2.75
2.75
future pension increase
1.25
1.25
deferred compensation
(v) Under the terms of loan agreements concluded between PLIVA d.d. and its various bankers, the Group is obliged
to maintain specific financial covenants, which have been complied with.
total
(vi) In May 2004, PLIVA d.d. launched a eur 75 million fixed rate bond issue from which proceeds of eur 73.69 million
were received. The bonds will mature in 2011. The bonds carry a fixed interest rate of 5.75% p.a. payable every six
months. The fair value of the bond is eur 84,821 thousand.
The principal actuarial assumptions used were as follows:
109
2005
usd’000
Notes
Notes
(continued)
(continued)
24 Provisions
25 Trade and Other Payables
environmental
and legal matters
usd’000
110
restructuring
other
total
usd’000
usd’000
usd’000
long term
2004
usd’000
restated
trade payables
76,199
92,083
24,031
22,660
at 1 january 2005
1,775
-
342
2,117
amounts due to employees
increase made during the year
2,858
534
864
4,256
contributions and taxes
8,134
9,494
reversal of provisions
(93)
-
(247)
(340)
fair value of derivative instruments (note 26)
1,701
1,138
(42)
(44)
(56)
(142)
advances received
782
431
4,498
490
903
5,891
82,572
81,744
666
20,149
40,155
27,810
234,240
255,509
at 31 december 2005
provision for sales deduction
deferred revenue
other liabilities and accrued charges
current
at 1 january 2005
1,023
4,115
2,700
7,838
782
59,882
781
61,445
provisions used during the year
(954)
(40,707)
(2,559)
(44,220)
(109)
1,148
(117)
922
742
24,438
805
25,985
increase made during the year
at 31 december 2005
total
usd 2,598 thousand of trade and other payables were classified as part of disposal group held for sale (refer to Note 4).
Environmental and Legal
This provision includes usd 3,784 thousand for environmental matters and usd 1,456 thousand for legal matters.
Restructuring
As described in Note 4, programmes started during the year with the intention to streamline operations of the
Group and to concentrate on generics business and api production will materially change the scope of business undertaken by the Group or the manner in which business is conducted. Provision includes only the costs necessarily
entailed by the restructuring which are not associated with the recurring activities of the Group.
26 Financial Instruments
Financial Risk Management
(i) Financial Risk Factors
The Group’s activities expose it to a variety of financial risks, including the effects of: changes in market prices, foreign currency exchange rates and interest rates. The Group’s overall risk management programme focuses on the
unpredictability of financial markets and seeks to minimise potential adverse effects on the financial performance
of the Group. Risk management is carried out by a central treasury department (Group Treasury) under policies
approved by the Management Board.
(ii) Foreign Exchange Risk
The Group operates internationally and is exposed to foreign exchange risk arising from various currencies. Additionally, the Company has a number of investments in foreign subsidiaries, whose net assets are exposed to currency translation risk. Current Group policies do not include active hedging, but the Group has used some forward
and option contracts to hedge its exposure to foreign currency risk.
111
2005
usd’000
Notes
Notes
(continued)
(continued)
26 Financial Instruments (continued)
Fair Value Hedge of Interest Rate Risk
112
(iv) Liquidity and Credit Risk
The Group’s liquidity risk management includes maintaining sufficient cash and working capital, and availability of
funding through an adequate amount of committed credit facilities.
Credit risk with respect to loan receivables is limited due to their dispersion among various customers. The Group
has no significant concentrations of credit risk.
Derivative Instruments
In May 2004, PLIVA d.d. launched a eur 75 million fixed rate bond bearing a fixed interest rate of 5.75% per annum
payable every six months. In order to hedge its exposure to interest rate risk, PLIVA d.d. entered into an interest rate
swap under which it pays a floating rate and receives a fixed rate. As hedge accounting is applied, interest from the
interest rate swap is presented together with interest payable on the bonds. The fair value of the interest rate swap
is netted against fair value of the interest part of the bonds. Any net effect is included in the income statement as
gains and losses from non-trading instruments.
notional amount, remaining life
2005
derivative instruments accounted for as
fair value hedges of interest rate risk
interest rate swaps
Operating cash flows denominated in a foreign currency are in part economically hedged using foreign currency
forward contracts. At the year end, the Group’s exposure to interest rate risk attributable to certain borrowings
bearing variable interest rate were partially economically hedged using interest rate swap contracts and forward
rate agreements. These derivatives are accounted for as trading instruments.
Additionally, the Group entered into an interest swap agreement to hedge its interest rate risk arising from fixed
interest bonds issued during 2004. This transaction is accounted for as a fair value hedge of interest rate risk.
Gains and losses on the fair value of derivative instruments accounted for as trading instruments are recognised in
the income statement. The table below summarises the contractual amount of these derivative instruments, their
fair values at 31 December 2005 and remaining periods to maturity:
notional amount, remaining life
fair values
up to 3
months
usd’000
3-12
months
usd’000
1-5 years
total
assets
liabilities
usd’000
usd’000
usd’000
usd’000
349,478
2,434
-
351,912
-
1,630
interest rate swaps
-
-
49,580
49,580
20
-
forward rate agreement
-
441,220
-
441,220
557
71
349,478
443,654
49,580
842,712
577
1,701
171,165
6,682
-
177,847
1,997
519
8,044
17,425
20,000
45,469
32
611
-
93,044
75,000
168,044
105
8
179,209
117,151
95,000
391,360
2,134
1,138
2005
derivative instruments accounted for
as trading instruments (otc products):
foreign exchange forward contracts
total
2004
foreign exchange forward contracts
interest rate swaps
forward rate agreement
total
up to 3
months
usd’000
3-12
months
usd’000
1-5 years
-
-
fair values
total
assets
liabilities
usd’000
more than
5 years
usd’000
usd’000
usd’000
usd’000
-
-
88,740
88,740
3,502
-
-
-
102,067
102,067
3,638
-
2004
interest rate swaps
Floating rates are based on rates implied in the yield curve at 31 December 2005. These may change significantly,
affecting future cash flows.
Derivatives Accounted For as Trading Instruments (otc Products)
113
2005
2004
88,740
102,067
average pay rate (%)
3.80%
3.81%
average receive rate (%)
5.75%
5.75%
pay-floating swap – notional amount (usd´000)
Estimation of Fair Values
Investments
Fair value is based on quoted market prices at the balance sheet date.
Derivatives
Forward exchange contracts are marked to market using listed market prices. For interest rate swaps market quotes
are used. Those quotes are back tested using pricing models or discounted cash flow techniques. Where discounted
cash flow techniques are used, estimated future cash flows are based on management’s best estimates and the
discount rate is a market related rate for a similar instrument at a balance sheet date. Where other pricing models
are used, inputs are based on market related data at the balance sheet date.
Interest Bearing Loans and Borrowings
Fair value is calculated based on discounted expected future principal and interest cash flows.
Trade and Other Receivables/Payables
For receivables/payables with a remaining life of less than one year, the notional amount is deemed to reflect the
fair value. All other receivables/payables are discounted to determine the fair value.
(iii) Interest Rate Risk
The Group’s income and operating cash flows are dependent on changes in market interest rates. The majority of
the Group’s borrowings are stated at variable rates. Group treasury policies include use of interest rate swaps and
forward rate agreements for hedging of future interest payments.
Notes
Notes
(continued)
(continued)
27 Share Based Payments
Share Option Scheme
PLIVA d.d. has four share-based payment arrangements with Group employees. Details of the arrangements are
described below:
114
arrangement
vesting conditions
vesting period
exercise period
settlement
share options
management board
share options
directors
share appreciation rights
management board
directors
share options
management
board
share
options
directors
grant of share
options
grant of share
options
share appreciation
rights
share appreciation
rights
granted after
7 november 2002
granted after
7 november 2002
employment at
date of vesting
there are no
market conditions
associated with
the share options
granted
employment at
date of vesting
there are no
market conditions
associated with
the share options
granted
employment at
date of vesting
there are no
market conditions
associated with the
share appreciation
rights granted
employment at
date of vesting
there are no market
conditions associated with the share
appreciation rights
granted
at 1 january 2005
50,735
granted during the year
three years
the first upcoming
1st of january
following two full
years after the date
of grant or such
other date specified
by the management
board at the
date of grant
three years
the first upcoming
1st of january
following two full
years after the date
of grant or such
other date specified
by the management
board at the
date of grant
from march 2005:
four years
previously:
two to three years
seven years
shares
cash
seven years
shares
valuation model
volatility (%) – based on historic volatility
risk free interest rate (%) – government
bonds with similar maturity
dividend yield
departures – based on historic data on
options forfeited
valuation model
23.519% - 49.371%
3.524% - 6.157%
from march 2005:
four years
previously:
two to three years
cash
management board
directors
81,807
-
15,487
22,400
9,290
-
14,450
-
(563)
-
(235)
at 31 december 2005
73,135
90,534
-
29,702
exercisable at 31 december 2005
13,000
26,200
-
1,476
outstanding at 1 january 2005
-
-
15,000
30,000
granted during the year
-
-
93,150
270,000
at 31 december 2005
-
-
108,150
300,000
-
-
-
-
granted before
7 november 2002
granted before
7 november 2002
at 1 january 2005
20,669
39,665
exercised during the year
(8,669)
(13,718)
at 31 december 2005
12,000
25,947
12,000
25,947
number of options
forfeited during the year
number of options (in gdrs)
number of options
up to 4.10%
4%
trinomial
According to the Principles of Corporate Governance of the Company, the Remuneration and Nomination Committee makes recommendations to the Supervisory Board on the Company’s framework for Management Board remuneration. The elements of remuneration should ensure that the interests of the Management Board members correspond to shareholders’ interests. In this way significant part of remuneration is linked to the results of the Group.
Therefore, the Group grants options and share appreciation rights to members of the Management Board and other
senior management. The options and share appreciation rights are issued for no consideration.
Under the current plan, options and share appreciation rights vest at earliest on the first upcoming 1st of January
following two full years after the Date of Grant and expire after two to seven years from the vesting date.
115
nature of the arrangement
Reconciliation of Movement in the Number of Options:
Notes
Notes
(continued)
(continued)
27 Share Based Payments (continued)
116
Terms of Options Outstanding at 31 December:
exercise price
(usd)
2005
number of options
55.65 – 64.86
28,560
31 december 2006
42.41 – 65.45
16,063
31 december 2007
51.87 – 65.45
31,889
31 december 2008
56.94 – 63.14
41,113
8 december 2011
57.46
18,000
31 december 2011
42.99 – 58.37
17,838
8 december 2012
64.86
15,800
8 december 2013
60.38 – 61.06
19,255
8 december 2014
59.52
20,400
8 december 2015
47.92
22,400
expiry date - options
3 may 2006
231,318
exercise price
(usd)
2005
number of gdr s
31 december 2010
14.23 – 14.29
45,000
31 december 2011
9.12 – 12.48
270,000
8 december 2014
13.45
8,150
8 december 2015
12.56
85,000
expiry date - gdrs
408,150
Exercise prices on outstanding options have been translated at the closing hrk/usd rate at 31 December 2005 (except for the options that are defined in usd, that are included in the above table at the contracted amount).
The amount recognised in the financial statements (before taxes) for share based payment transactions
with Group employees can be summarised as follows:
2005
usd’000
2004
usd’000
share options granted to members of management board
560
427
share options granted to directors
682
1,194
33
10
485
115
1,760
1,746
43
10
share appreciation rights granted to directors
595
136
total liability
638
146
expense
equity settled arrangements
cash settled arrangements
share appreciation rights granted to members of management board
share appreciation rights granted to directors
total expense
liability for cash settled arrangements
share appreciation rights granted to members of management board
117
Rights to receive options or share appreciation rights are defined in contracts. Options and share appreciation
rights are granted annually. Number of options and share appreciation rights granted depends on the performance of individuals and/or Group. Each option entitles them to acquire PLIVA d.d. shares (one share per option) at
a predetermined exercise price and share appreciation rights give right to receive cash in the gross amount of the
difference in prices at the exercise date.
The weighted average share price at the date of exercise for share options exercised during the year was
usd 70.34.
Notes
Notes
(continued)
(continued)
28 Commitments and Contingencies
29 Subsidiaries
All subsidiaries are wholly owned unless otherwise stated below:
118
intangible assets
total
2005
usd’000
2004
usd’000
12,054
1,658
454
12,789
12,508
14,447
Operating Lease Commitments – where a Group company is the lessee
The future aggregate minimum lease payments under non-cancellable operating leases are as follows:
pliva hrvatska d.o.o. , croatia
pliva slovakia s.r.o., slovakia
pliva – istraživački institut d.o.o., croatia
mixis genetics ltd., great britain
mixis france s.a., france - 99.92%
not later than 1 year
later than 1 year and not later than 5 years
later than 5 years
total
2004
usd’000
5,780
7,287
16,096
19,835
8,145
16,682
30,021
43,804
pliva finance b.v., netherlands
pam hungary kft, hungary
awd.pharma gmbh&co.kg, germany
acceddo arzneimittel gmbh, germany
pliva - istraživanje i razvoj d.o.o., croatia
awd.pharma sp.z.o.o., poland
globalni poslovni servisi - it d.o.o., croatia
asta medica spol.s.r.o., slovakia
pharmaing d.o.o., croatia
awd.pharma gmbh&co.kg, armenia
pliva esop d.o.o., croatia
pliva pharma s.p.a., italy
pliva zdravlje d.o.o., croatia
pliva pharma sas, france
punctum studio d.o.o., croatia
pliva pharma iberia s.a., spain
pliva rus ltd, russia
2005
usd’000
pliva pharma holding b.v., netherlands
veterina d.o.o., croatia
veterina polska d.o.o., poland
pliva ljubljana d.o.o., slovenia
pliva sarajevo d.o.o., bosnia and herzegovina
laboratories edigen s.a., spain
awd.pharma beteiligungs-gmbh, germany
pliva pharma gmbh, germany
sia awd.pharma, latvia
uab vokišku vaistu didmena, lithuania
pliva skopje d.o.o.e.l., macedonia
pliva hungaria kft., hungary
pharmazug ag, switzerland
pliva-lachema a.s., czech republic - 96.92%
pliva international ag, switzerland
pliva cz s.r.o., czech republic
europharma d.o.o., croatia
lachema s.r.o., czech republic
During 2005, usd 12,655 thousand was recognised as an expense in the income statement in respect of operating
leases (2004: usd 10,408 thousand).
pliva pharma uk ltd, great britain
Contingencies
A United States subsidiary of PLIVA d.d., PLIVA Inc., along with a number of other companies, is a defendant in a
number of lawsuits pending in the United States in which the plaintiffs claim to have sustained personal injuries as
a result of using products containing phenylpropanolamine (“ppa”). PLIVA Inc., which was acquired by a subsidiary of
PLIVA d.d. in 2002, terminated its manufacture of ppa products in the first quarter of 2001. PLIVA Inc. was a contract
manufacturer of products containing ppa and two of such customers have sought indemnification from PLIVA Inc.
with respect to ppa-related personal injury claims that have been asserted against them. PLIVA Inc. has insurance
available and the insurer has been funding the defence costs incurred by PLIVA Inc. and the settlement costs of
those litigation cases which have been settled. PLIVA Inc. also has certain contractual indemnification rights against
the former owner of PLIVA Inc. PLIVA Inc. intends to defend the actions vigorously. PLIVA d.d. also has been named
as a defendant in several of these actions, and believes that it has meritorious defences to the claims that have
been asserted.
pliva usa, inc., usa
pliva pharma ltd., great britain
pliva london ltd., great britain
pliva global finance ag, switzerland
pam property management kft., hungary
pam usa inc., usa
pliva inc., usa
odyssey pharmaceuticals inc, usa
pliva-lachema diagnostika s.r.o., czech republic
lachema international, russia
pliva krakow sa, poland - 96.79%
pliva research india private ltd., india
119
Capital Commitments
The purchase costs of property, plant and equipment and intangible assets as contracted with suppliers but not
settled at 31 December are as follows:
Notes
Notes
(continued)
(continued)
30 Disposal of Subsidiary
31 Related Party Transactions
Associate
Effects of Disposal
The disposal had the following effect on the Group’s assets and liabilities:
acquisition
2005
usd’000
disposal
2005
usd’000
acquisition
2004
usd’000
disposal
2004
usd’000
non-current assets (note 11)
-
(3,205)
-
-
current assets
-
(134)
-
-
cash and cash equivalents
-
(301)
-
-
net identifiable assets
-
(3,640)
-
-
The following transactions were carried out with Medika d.d.:
121
2005
usd’000
2004
usd’000
sales of goods and services:
47,557
50,284
year-end receivables:
23,245
25,661
10
16
-
12
purchases of goods and services:
year-end liabilities:
Transactions with Medika d.d. are carried out on an arm’s length basis.
Management Board
consideration received, satisfied in cash
-
7,917
-
-
cash disposed of
-
(301)
-
-
net cash inflow
-
7,616
-
-
Short-Term Employee Benefits
During 2005, remuneration in the amount of usd 1,446 thousand (2004: usd 2,617 thousand) was paid to the Management Board.
Equity Compensation Benefits
During 2005, the Management Board members exercised 8,669 share options at usd 415 thousand representing
shares with market value of usd 589 thousand (2004: 9,510 share options at usd 486 thousand representing shares
with a market value of usd 806 thousand).
Details on share based payments are given in Note 27.
Supervisory Board
During 2005, remuneration in the amount of usd 513 thousand (2004: usd 519 thousand) was paid to the Supervisory Board.
In June 2005, the company sold its subsidiary Velaris d.o.o. for a consideration of usd 7,917 thousand, which was
received in cash during 2005.
120
Notes
Notes
(continued)
(continued)
32 Significant Accounting Estimates and Judgements
Critical Accounting Judgements in Applying the Group’s Accounting Policies
122
Provision tor Committed Costs Related to Project in Development
PLIVA decided to terminate all the activities related to several proprietary products in development and to recognize full impairment loss of usd 36,945 thousand on all such products where development costs were previously
capitalised. It has also recognised a provision of usd 5,490 thousand for committed development costs since these
will bring no further benefit to PLIVA. However, for one particular product, there is an indication that PLIVA may be
able to sign a deal with an independent third party for the purchase of this product in exchange for future royalties
based on sales. This party would also potentially accept to cover all committed development costs as well as any
additional costs that would be required to complete the development. At the time of preparation of these financial
statements, management was of the opinion that it was reasonably uncertain that the deal would be signed and,
consequently, have decided to record the provision for committed costs.
Critical Accounting Estimates and Sources
Estimation Uncertainty
The key assumptions concerning the future and other key sources of estimation uncertainty at the balance sheet
date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities
within the next financial year are discussed below:
Impairment of Goodwill, Other Intangible Assets and Property, Plant and Equipment
The Group determines whether goodwill is impaired at least on an annual basis. This requires an estimation of the
value in use of the cash-generating units to which the goodwill is allocated. Estimating the value in use requires the
Group to make an estimate of the expected future cash flows from the cash-generating unit and also to choose a
suitable discount rate in order to calculate the present value of those cash flows. The carrying amount of goodwill
at 31 December 2005 was usd 118,380 thousand (2004: usd 136,064 thousand). More details are given in Note 12.
As disclosed in the Notes 11 and 12, the Group has significant carrying values of property, plant and equipment (usd
510,559 thousand) and intangible assets (usd 95,711 thousand), other than goodwill, that are also reviewed annually
for impairment.
These impairment reviews are based on the expected future cash flows that are estimated by the Group and actual
outcomes could vary significantly from such estimates. Factors such as closure of facilities or changes in their utilisation or lower than projected sales of products with capitalised rights could result in impairment.
Revenue Recognition
At 31 December 2005 Group has accrued for expected sales returns, chargebacks and other sales deductions in
the amount of usd 82,572 thousand (refer to Note 25). Such estimates are based on analyses of existing contractual
obligations, historical trends and the Group’s experience. Management believes that the accruals for sales deductions are adequate, based upon currently available information. As these deductions are based on management
estimates, they may be subject to change as better information becomes available. Such changes could impact
accruals recognised in the balance sheet in future periods and consequently the level of sales recognised in the
income statement in future periods.
In addition to this, other income includes usd 5 million of non-refundable upfront payment received from Barr
Pharmaceuticals Inc. when PLIVA entered into a development, supply and marketing agreement for the generic
biopharmaceutical Granulocyte Colony Stimulating Factor (g-csf). Management believes that it is appropriate to
recognise the total amount as income in 2005.
Deferred Tax Asset
The Group is subject to income taxes in numerous jurisdictions. Significant judgment is required in determining the
worldwide provision for income taxes. As at 31 December 2005, the Group has recognised usd 35,478 thousand of
deferred tax assets based on projected profitability of PLIVA’s subsidiaries in various jurisdictions. This projected
profitability is dependant on a number of internal and external factors such as, but not limited to, the success of new
product launches or changes in the local regulatory framework. If the projected profitability of PLIVA’s subsidiaries
is not met, this may result in the impairment of part of the deferred tax assets.
Future Milestones/Royalties
As explained in Note 4, PLIVA is entitled to a significant amount of proceeds related to the divestment of SANCTURA® and VoSpire which is conditional on certain future events and achievement of sales milestones. These
conditional proceeds have not been taken into account in calculating loss on sale of the discontinued business as
management believes there is not sufficient certainty in realising relevant conditions.
123
In the process of applying the Group’s accounting policies, management has made the following judgements, apart
from those involving estimations, which have the most significant effect on the amounts recognised in the financial
statements:
Notes
(continued)
33 Subsequent Events
124
Divestment of Manufacturing Plant in Germany
On 26 January 2006 PLIVA announced that its German subsidiary AWD.pharma GmbH & Co. KG (“AWD”) signed an
agreement with the Menarini Group of Italy, for the divestment of its manufacturing plant in Dresden, Germany.
The sale of the German facility reflects a key step in the process of optimising PLIVA’s manufacturing asset base
and consolidation of production.
The closing of the transaction is expected to occur within the following six months and is subject to the completion
of specific terms and conditions. Restructuring charges of usd 22 million, mainly related to asset impairment, are
reflected in the 2005 results. PLIVA has already started transferring production from the AWD plant to its Eastern
European facilities during 2005. Following divestment of the manufacturing plant, AWD will continue its sales and
marketing activities in Germany.
Both events are also explained in Note 4.
Acquisition of Uso Racional S.L.(“UR”)
On 15 February 2006 PLIVA signed an agreement with Novartis’ generics division, Sandoz, for the purchase of a
100% share in its Spanish subsidiary Uso Racional S.L. for a total cash consideration of eur 21.5 million. The Group is
in the process of allocating the purchase cost of the business combination to the assets and liabilities acquired.
125
Divestment of Research Institute
On 13 February 2006 PLIVA signed an agreement with GlaxoSmithKline plc (“GSK”), a world leading research-based
pharmaceutical company, for the purchase of PLIVA’s proprietary r&d arm in Zagreb, the PLIVA Research Institute Ltd.
Under the terms of the agreement, PLIVA will receive a total potential cash consideration of up to usd 50 million,
consisting of an upfront payment of usd 35 million and up to usd 15 million contingent upon the entry of certain
early stage projects into clinical development. PLIVA will also receive royalties on net product sales of successful
projects in the range of 2.5% to 11%. As part of the agreement, GSK will take on all 130 employees and will also gain
full ownership of the company, including all assets, intellectual property and know-how.
The closing of the transaction is expected to occur during the first quarter of 2006.
PLIVA Worldwide
126
Headquarters:
Subsidiaries:
PLIVA croatia Ltd.
PLIVA hrvatska d.o.o.
10000 Zagreb, Croatia
Phone: +385 1 37 20 000
Fax: +385 1 61 11 835
www.pliva.com
PLIVA - research and development Ltd.
PLIVA - istraživanje i razvoj d.o.o.
Prilaz baruna Filipovića 29
Phone: +385 1 37 20 600
Fax: +385 1 37 20 699
www.pliva.com
global business services - it Ltd.
globalni poslovni servisi - it d.o.o.
Prilaz baruna Filipovića 25
Phone: +385 1 3722 029
Fax: +385 1 3722 862
e-mail: info@gbs-it.com
www.gbs-it.com
PLIVA Krakow s.a.
80 Mogilska Str.
31 546 Krakow, Poland
Phone: +48 12 617 80 00
Fax: +48 12 617 413 2593
e-mail: pliva@pliva.krakow.pl
www.pliva.pl
PLIVA Pharma, Ltd.
Vision House, Bedford Road
Petersfield, Hampshire GU32 3QB, UK
Phone: +44 1730 710900
Fax: +44 1730 710901
e-mail: info@pliva-pharma.co.uk
www.pliva.co.uk
PLIVA Research (India) Private, Limited
Plot Number 24/1-D-1, Mologa De Orora
Corlim Village, Tiswadi, Goa 403 110, India
Phone: +91 832 564 0566;
+91 832 564 0564
Fax: +91 832 564 0565
e-mail: bejoy@plivaresearchindia.com
PLIVA - Lachema Diagnostika s.r.o.
Karásek 1/1767
621 33 Brno, Czech Republic
Phone: +420 541 127 440
Fax: +420 541 127 637
e-mail: diagnostics@lachema.cz
www.lachema.cz
PLIVA London, Ltd.
Vision House, Bedford Road
Petersfield, Hampshire GU32 3QB,UK
Phone: +44 1730 710951
Fax: +44 1730 710955
e-mail: info@pliva-pharma.co.uk
www.pliva.co.uk
PLIVA Ljubljana d.o.o.
Pot k sejmišču 35
1231 Ljubljana-Črnuče, Slovenia
Phone: +386 1 5890 390
Fax: +386 1 5890 399
e-mail: info@pliva.si
www.pliva.si
PLIVA CZ s.r.o.
Holečkova 777/39
150 00 Praha 5, Czech Republic
Phone: +420 257 327 544
Fax: +420 257 328 949
e-mail: pliva@pliva.cz
www.pliva.cz
PLIVA USA, Inc.
72 Eagle Rock Ave.
P.O.Box 371
East Hanover, NJ 07936, USA
Phone: +1 973 428 0042
Fax: +1 973 428 0067
e-mail: apanovic@plivausa.com
PLIVA Skopje d.o.o.
Nikole Parapunova b.b.
91000 Skopje, Macedonia
Phone: +389 2 30 63 414
Fax: +389 2 30 64 727
e-mail: pliva@mol.com.mk
PLIVA Inc.
72 Eagle Rock Ave.
Phone: +1 973 386 55 66
Fax: +1 973 386 92 80
e-mail: administrator@plivainc.com
www.plivainc.com
PLIVA Pharma SpA.
Via T. Cremona 10
20092 Cinisello Balsamo, Milan, Italy
Phone: +39 02 6111 301
Fax: +39 02 6129 3592
www.pliva.it
Odyssey Pharmaceuticals, Inc.
72 Eagle Rock Ave.
Phone: +1 973 884 5300
Fax: +1 973 952 1250
www.odysseypharma.com
AWD.pharma GmbH & Co. KG
Leipziger Str. 7-13
01097 Dresden, Germany
Phone: +49 351 834 0
Fax: +49 351 834 2199
e-mail: info@awd-pharma.com
www.awd-pharma.com
PLIVA Pharma Holding b.v.
Prins Hendriklaan 26, 2nd floor
1075 BD Amsterdam, The Netherlands
Phone: +31 20 471 2707
Fax: +31 20 471 2700
e-mail: lotte.klaver@pliva.hr
PLIVA Pharma Iberia sa & Edigen s.a.
Chile, 8-2a planta-oficina 203
28290 Las Matas, Madrid, Spain
Phone: +34 91 630 8280
Fax: +34 91 630 8281
www.edigen.es
PLIVA Hungaria Kft.
Galagonya u.5
1036 Budapest, Hungary
Phone: +36 1 250 2450
Fax: +36 1 350 24 60
e-mail: pliva.hungary@pliva.hu
www.pliva.hu
PLIVA International ag
Industriestrasse 47
CH-6300 Zug, Switzerland
Phone: +41 41 727 5290
Fax: +41 41 727 5291
PLIVA Slovakia s.r.o.
Plynarenska 7/A
82109 Bratislava, Slovakia
Phone: +4212 5825 2862
Fax: +4212 5825 2852
SIA AWD.pharma
Brivibas iela 183-6
Riga, Latvia
Phone: +37 17 37 1788
Fax: +37 17 37 1789
e-mail: pliva@post.5ci.lt
Bucharest
Bvd. Eroilor 18 - Sector 5
Bucharest, Romania
Phone: +402 1 411 91 44,
Fax: +402 1 411 91 85
e-mail: pliva@pliva.ro
PLIVA Rus Ltd.
61 Novocheremushkinskaya Street
Moscow 117418, Russia
Phone: +7 095 937 23 20
Fax: +7 095 937 23 21
e-mail: meremina@pliva.ru
Mumbai
301 Omega, Hiranandani Gardens,
Main Street, Powai
Mumbai - 400076, India
Phone: +91 22 570 5681/82
Fax: +91 22 570 5684
e-mail: plivaindia@vsnl.net
UAB Vokiškuvaistu didmena
Vilnius, Šeimyniškiu 1a
09312 Vilnius, Lithuania
Phone: +37 05 27 30 925
Fax: +37 05 2730 933
e-mail: pliva@post.5ci.lt
Veterina d.o.o.
Svetonedeljska 2
Kalinovica, 10436 Rakov Potok, Croatia
Phone: +385 1 33 88 888
Fax: +385 1 33 88 600
e-mail: veterina-info@pliva.hr
www.veterina.hr
Beijing
Beijing Diyang Tower, Room 705
No.h2 Dongsanhuanbeilu, Chaoyang District,
Beijing 100027, PR China
Phone: +86 10 8 45 36 858;
+86 10 8 45 36 885
Fax: +86 10 8 45 36 885
e-mail: pliva@pliva.com.cn
Minsk
Engels str. 34a, office 524
220030 Minsk, Belarus
Phone: +375 17 22 06 60 44
Fax: +375 17 22 27 53 03
e-mail: minsk.office@pliva-by.com
Representative Offices:
Moscow
Novocheremushkinskaya ul. 61
117418 Moscow, Russia
Phone: +70 95 937 2320
Fax: +70 95 937 2321
e-mail: pliva@dol.ru
www.pliva.ru
Kiev
Patrisa Lumumbi Srt. 15, office 12
01042 Kiev, Ukraine
Phone: +380 44 247 40 24,
+ 380 44 247 40 25
Fax: +380 44 252 92 32
e-mail: kiev@pliva.com.ua
Almaty
Abai Ave. 153-21
480009 Almaty, Kazakhstan
Phone: +7 3272 416 106
Fax: +7 3272 414 277
e-mail: pliva_int@nursat.kz
Sarajevo
Trg heroja 10
71000 Sarajevo, Bosnia and Herzegovina
Phone: +387 33 651 133
Fax: +387 33 653 986
e-mail: pliva@pliva.ba
www.pliva.ba
127
PLIVA d.d.
Phone: +385 1 61 20 999
Fax: +385 1 61 11 011
e-mail: info@pliva.com
www.pliva.com
PLIVA - Lachema a.s.
Karasek 1
621 33 Brno, Czech Republic
Phone: +420 5 41 127 111
Fax: +420 5 41 127 634
e-mail: lachema@lachema.cz
www.lachema.cz
Publisher:
PLIVA d.d.
Investor Relations and Corporate Communications, Zagreb
Editor-in-chief:
Marija Mandić
Editorial Team:
Lucijana Jerković
Sandra Kovačić-Vešligaj
Lidija Štojs
Lidija Cerin-Šnidarić
Proofreader:
Zanella Translation Services, Zagreb
Production:
BBDO Zagreb
Concept and design:
Studio Dogan, Zagreb
Photography:
Dag Šola Oršić, Zagreb
Prepress:
Studio Dogan, Zagreb
BBDO Zagreb
Printed:
Kratis, Sveta Nedelja

PLIVA 2005 Annual Report

Transcription

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