REPORTS AND ACCOUNTS AT DECEMBER 31, 2004

Transcription

1 REPORTS AND ACCOUNTS AT DECEMBER 31, 2004 DiaSorin S.p.A. Registered Office in Saluggia (VC) Share Capital 50,000,000 Tax Code and Vercelli Companies Register No

2 I N D E X Highlights and general information Company officers and boards Page 4 Foreword Page 5 Corporate structure of the Group Page 7 Group operating and financial highlights Page 8 Report on Operations Operating and financial performance by business area Page 10 Operating and financial performance of the DiaSorin Group Page 12 Operating and financial performance of DiaSorin S.p.A. Page 18 Events in early 2005 and business outlook Page 23 Transactions with related parties Page 24 Research and Development Page 25 Other information Page 31 Conclusions proposed allocation of the net income for the year Page 32 Schedules and Notes to the Financial Statements - DiaSorin S.p.A. Balance sheet Page 34 Income Statement Page 38 Notes to the financial statements Page 40 Schedules and Notes to the Financial Statements - DiaSorin Group Balance sheet Page 63 Income statement Page 68 Notes to the financial statements Page 70 2

3 HIGHLIGHTS AND GENERAL INFORMATION 3

4 COMPANY OFFICERS AND BOARDS Board of Directors Chairman Chief Executive Officer Directors Gian Alberto Saporiti Antonio Boniolo Carlo Callieri Carlo Rosa 1 Chen Manachem Even Enrico Palandri Ezio Garibaldi Michele Denegri Paolo Bossi Board of Statutory Auditors President Standing Auditors Alternate Auditors Giorgio Ferrino Bruno Marchina Ottavia Alfano Bernardo Chiavazza Sonia Sacco Independent Auditors Deloitte & Touche S.p.A. 1 Managing director 4

5 FOREWORD Shareholders, In financial 2004, your Group achieved its pre-established growth targets, outstripping forecast profitability targets. Consolidated revenues moved up 8.1% to Euro million while the parent company DiaSorin S.p.A. posted revenues of Euro 88.7 million, of which 34 million stemming from Group undertakings, with an upswing of 15.3%. Turning to operating performance, the Group closed the year with an EBIT before non-operating amortization and depreciation of Euro 17.2 million, 16% up on financial The success achieved in 2004 was forged by achievement of marketing objectives in terms of extension of the LIAISON instrument base installed at customer sites and upgrading of the diagnostic menu offered on the same technology. The new product R&D plan launched in lived up to expectations, delivering new tests in the sector of infectiveness, auto-immunity, endocrinology and bone metabolism, considered to be strategic business areas for future development. A full-fledged suite of other activities addressing the quality of the products and instruments offered to customers was also completed during the year. As regards organizational structure, the Parent Company DiaSorin S.p.A. modified its Corporate Bylaws in order to align these with new regulations concerning Company Law and also adapted its governance structure, opting for the so-called traditional model and entrusting auditing to the Deloitte & Touche S.p.A. audit firm. During 2004, the Company also drafted an Ethical Code of Behavior and an Organization and Management Model comprising a General Part and two Special Parts (Offences against the Public Administration and Corporate Crimes). Lastly, the Supervisory Committee was also set up. Shareholders, we herewith submit to your attention the consolidated financial statements of the DiaSorin Group at and as of December 31, 2004 which close with a net income Euro 3,623 thousand after: - charging amortization and depreciation of Euro 18,056 thousand; - posting Euro 540 thousand to the allowance for bad and doubtful accounts and Euro 761 thousand to provisions for risks and charges. 5

6 We herewith submit for your approval the financial statements of DiaSorin S.p.A. at and as of December 31, 2004 which close with a net income of Euro 1,248 thousand, after: - charging amortization and depreciation of Euro 9,504 thousand; - posting Euro 539 thousand to the allowance for bad and doubtful accounts; - posting Euro 700 thousand to provisions for risks and charges; - receiving dividends of Euro 885 thousand from the German subsidiary. The Chairman (Gian Alberto Saporiti) 6

7 CORPORATE STRUCTURE OF THE DIASORIN GROUP DiaSorin S.p.A.- Italy Parent Company DiaSorin Ltd. UK Sales branch % interest: 100% DiaSorin Inc USA Production and sales branch % interest: 100% DiaSorin SA/NV Belgium Sales branch % interest: 99.99% DiaSorin AB Sweden Sales branch % interest: 100% DiaSorin SA - France Sales branch % interest: 99.99% DiaSorin S.A. C.V.- Mexico Sales branch % interest: 99.99% DiaSorin S.A. Spain Sales branch % interest: 99.99% DiaSorin GmbH Germany Production and sales branch % interest: 100% U. Kasse Germany Pension fund DiaSorin Ltda Brazil Sales branch % interest: 99.99% 7

8 OPERATING AND FINANCIAL HIGHLIGHTS OF THE DIASORIN GROUP Thousands of Euro Consolidated revenues 142, ,836 Gross margin 74,232 66,271 EBITDA 31,306 28,252 EBIT before non-operating amortization and depreciation 17,231 14,852 EBIT 13,250 10,914 Income before taxes 7,085 2,927 Parent Company s interest in net income 3,623 (680) Net financial position (62,554) (75,992) Shareholders equity 55,207 52,584 Net invested capital 117, ,576 Capital (tangible assets) 8,887 12,616 Research and development 5,851 6,084 Self-financing (net income plus amortization and depreciation) 21,680 16,658 Employees at year-end

9 REPORT ON OPERATIONS (within the meaning of Art C.C. and Art. 40 Legislative Decree No. 127/91) 9

10 OPERATING AND FINANCIAL PERFORMANCE BY BUSINESS AREA In financial 2004, DiaSorin Group revenues grew 8.1% to Euro million, in line with forecasts. However, 2004 revenues were negatively affected by the noteworthy slide in the US dollar. In fact, at constant parity, sales increased at a rate close to double digit. The geographical distribution of revenues was more or less unchanged with the two major markets, i.e. Europe and North America, contributing around 55% and 23% of sales respectively. The markets covered through indirect distribution contributed for a further 16%. DiaSorin S.p.A. posted 2004 revenues of Euro 88.7 million, 15.3% up on the 2003 figures. Sales on the Italian market accounted for just over 40% while sales for export increased their contribution. As far as the product portfolio is concerned, Group turnover reflected ever more precisely the shift from RIA and ELISA technologies to the LIAISON proprietary technology which, during the year under review, increased its swathe of the products portfolio by around 9 percentage points, accounting for more than 31% of consolidated turnover. The growth in LIAISON technology was forged, amongst others, by a strategy of constant extension of the offer of tests in the menu and of the installed instrument population. At year-end 2004, the LIAISON menu comprised 67 analytes while, during the year, the DiaSorin Group reached and considerably outstripped its target of a thousand automatic analyzers present at customer sites. On the Italian market, sales on LIAISON technology bordered on Euro 22 million, with a more than 30% upswing over the previous year and with an installed base of more than 440 instruments. With regard to the RIA and ELISA open technologies, use of the first continued to drop and this has now reached a phase of decline within its life cycle, while the second remained basically stable. Group EBIT, before non-operating amortization and depreciation, financial charges and nonrecurrent costs, was equal to Euro 17.2 million, with a year-on-year growth of 16%. Group financial performance was negatively affected by financial charges of Euro 4.6 million, partially offset by net exchange gains of close on Euro 1 million. The year closed with Group consolidated income, before taxes, of Euro 7.1 million and a net income of 3.6 million. 10

11 DiaSorin S.p.A. posted an EBIT, before non-operating amortization and depreciation, financial charges and non-recurrent costs of Euro 8.8 million, 6.6% up on The Parent Company closed financial 2004 with an income before taxes of Euro 3.2 million and a net income of Euro 1.2 million. As regards financial and investment management, the net financial position of the Group at yearend 2004 was negative for Euro 62.6 million, an improvement of Euro 13.4 million on the previous year. During the year, the Parent Company repaid financial liabilities of Euro 53.3 million to shareholders and stipulated a new loan with these for Euro 55.0 million, denominated partly in US dollars. In July, jointly with other companies operating in the sector, the Parent Company performed a securitization transaction, under Law No. 130 of 1999, of receivables from various Local Health Authorities of the Lazio Region. This transaction made it possible to unfreeze around Euro 2.2 million. Transfer under usual reserves of receivables from the National Health System to factoring companies continued during the year. 11

12 Analysis of the operating performance INCOME STATEMENT Thousands of Euro A. Value of production 149, ,104 B. Production cost 139, ,277 Net production value (operating result) 10,132 4,827 C. Financial income/(expense) (3,124) (2,205) E. Extraordinary income/(expense) Income before taxes 7,085 2, Taxes (3,462) (2,057) Net income for the year 3, Minority interests - (1,550) Group interest in net income 3,623 (680) Total revenues for the year moved up 8.1% in relation to 2003, driven in particular by sales of LIAISON products which amounted to Euro 44,325 thousand, 53% up on Revenues for the period amounted to Euro 148,922 thousand. The breakdown is as follows: Thousands of Euro Sales and service revenues 142, ,836 Increases in fixed assets produced internally 4,390 3,065 Other revenues and income 2,008 3,286 Total revenues 148, ,187 The contribution of the various business areas to the result for the period is analyzed below: Thousands of Euro Net production value 10,132 4,827 Financial income/(expense) (3,124) (2,205) Extraordinary income/(expense) Taxes (3,462) (2,057) Income for the year 3, Minority interests - (1,550) Group interest in net income for the year 3,623 (680) 12

13 Trading operations generated a net income of Euro 10,132 thousand, as set forth below: Thousands of Euro Value of production 149, ,104 Cost of materials and services and other operating expenses (80,845) (74,220) ADDED VALUE PRODUCED 68,499 63,884 Personnel costs (38,803) (40,565) Provisions for risks and charges (968) (587) Amortization, depreciation and write-downs (18,596) (17,905) Net production value (operating result) 10,132 4,827 Value added generated was equal to 46.0% of revenues, more or less unchanged in relation to the 2003 figures. The cost of labor was equal to 26.1% of revenues (compared with 29.3% in 2003) and to 56.4% of value added (63.5% in 2003). Net production value stood at Euro 10,132 thousand, a noteworthy increase on the 2003 figures that bore the brunt of non-recurrent costs incurred by the newly-acquired German and Swedish subsidiaries for the restructuring and reorganization of production amongst the manufacturing companies of the Group. The detail of financial and investment management is set forth below: Thousands of Euro Other financial income Interest and other financial expense (4,628) (4,307) Exchange rate differences 1,080 1,617 TOTAL (3,124) (2,205) The change in relation to 2003 was to be ascribed mainly to exchange differences on dollardenominated debts. 13

14 Analysis of financial position Thousands of Euro BALANCE SHEET As at As at A. RECEIVABLES FROM SHAREHOLDERS FOR CAPITAL - CONTRIBUTIONS B. FIXED ASSETS I. Intangible assets 59,330 64,622 II. Tangible assets 34,913 38,267 III. Financial assets C. CURRENT ASSETS I. Inventories 22,688 22,212 II. Accounts receivable 53,498 55,555 IV. Liquid assets 9,161 6,063 D. ACCRUED INCOME AND PREPAID EXPENSES TOTAL ASSETS 180, ,212 A. Shareholders equity 55,207 52,584 B. Reserves for risks and charges 11,736 12,986 C. Reserve for employees severance indemnities 6,456 6,663 D. Liabilities 104, ,301 E. Accrued expenses and deferred income 1,994 1,678 TOTAL LIABILITIES AND SHAREHOLDERS EQUITY 180, ,212 14

15 Thousands of Euro CASH FLOW STATEMENT Financial 2004 Financial 2003 A. NET LIQUID ASSETS AT THE BEGINNING OF THE PERIOD 6,063 - Net income 3,623 (680) Amortization and depreciation 18,056 17,453 Accruals/(Utilization) of provisions for risks and charges (1,250) 2,462 Net change in reserve for severance indemnities (207) 773 CASH FLOW FROM TRADING OPERATIONS 20,222 20,008 (Increase)/Decrease in current receivables 2,056 (2,727) (Increase)/Decrease in inventories (476) 891 Increase/(Decrease) in trade payables and other liabilities 1,425 (5,238) (Increase)/Decreasein other items of current assets 1, B. CASH FLOW FROM OPERATING ACTIVITIES 24,460 12,954 Investment/Divestments: - tangible assets (8,887) (12,952) - intangible assets (523) (48,535) - financial assets 4 2,359 C. CASH FLOW FROM INVESTING ACTIVITIES (9,406) (59,128) Net change in payables to banks/shareholders/other providers (6,041) 41,460 Net ffichange in payables to controlling company - (2,854) Net change in payables to banks for interest (1,002) 1,002 Liability for purchase of shareholdings (3,000) (3,000) Liability to ASI (913) (621) Changes in shareholders equity (1,000) 7,972 D. CASH FLOW FROM FINANCING ACTIVITIES (11,956) 43,959 E. CASH FLOW FOR THE PERIOD (B+C+D) 3,098 (2,215) F. LIQUID ASSETS DERIVING FROM THE CHANGE IN CONSOLIDATION - 8,278 G. NET LIQUID ASSETS AT THE END OF THE PERIOD (A+E+F) 9,161 6,063 At December 31, 2004, invested capital amounted to Euro 117,761 thousand, own capital to Euro 55,207 thousand and the net financial position was negative for Euro 62,554 thousand. 15

16 The detailed schedules of the items of Group financial management are set forth below: Thousands of Euro Invested capital Own capital Net financial position As at 31 december 2004 As at 31 december , ,576 55,207 52,584 (62,554) (75,992) Invested capital and own capital comprise: Thousands of Euro As at 31 december 2004 As at 31 december 2003 Intangible assets 59,330 64,622 Tangible assets 34,913 38,267 Financial assets INVESTED CAPITAL 94, ,967 NET WORKING CAPITAL 29,900 32,272 Indemnity reserve (6,456) (6,663) Net invested capital 117, ,576 Thousands of Euro Paid-in share capital Share premium account Other reserves Group interest in net income for the year Own capital At December At December ,000 50,000 4,425 4,425 (2,841) (1,161) 3,623 (680) 55,207 52,584 The breakdown of the net financial position is as follows: Thousands of Euro At December At December Liquid assets 9,161 6,063 TOTAL FINANCIAL ASSETS 9,161 6,063 Short-term financial payables (1) (16,626) (57,854) Medium-term financial payables (2) (55,089) (24,201) TOTAL FINANCIAL LIABILITIES (71,715) (82,055) Net financial position (62,554) (75,992) (1) include the short term portion of payables to banks, American Standard and Altana Pharma; (2) include the long term portion of payables to banks and Altana Pharma. On January 28, 2004, the Parent Company repaid its liabilities to Interbanca for Euro 47,000 thousand and $7,889 thousand respectively (for a total of Euro 53,268 thousand). At the same time, it stipulated a new loan of Euro 55 million with Interbanca. Part of such loan (US$30 million) has been issued in dollars in order to balance positive cash flows resulting from transactions in this currency with payments of interest and capital to serve the same loan. Interest is paid on a six-monthly basis applying Euribor (to the part in Euro) or Libor (to the part in US$) increased by the spread detailed below: 16

17 Up to 31/12/04 1/1/05-31/12/06 1/1/07-31/12/10 Tranche in Euro Euribor 6M+1.75 Euribor 6M+1.50 Euribor 6M+1.25 Tranche in $ Libor 6M+1.75 Libor 6M+1.50 Libor 6M+1.25 The loan is guaranteed by a pledge consisting of 85% of the shares forming the share capital. Furthermore, without prior consent, the company may not dispose of its business or branches thereof, of movable and immovable property, of shareholdings or any tangible/intangible assets exceeding the amount of Euro 2.5 million relating to the carrying value for each company year. Lastly, the company may not, without prior consent, contract any medium-term loan that may result in total exposure of more than Euro 4.0 million for each company year. The loan, which expires in December 31, 2010, will be repaid through payment of 26 deferred sixmonthly installments of which 13 relating to the tranche in Euro and 13 to the tranche in US$. The first two installments were repaid in December Interest for the year amounted to Euro 2,256 thousand. It should be noted that covenants exist in relation to the aforementioned loan that the Group complied with in 2004 as set forth in the table below: Index Reference value Group value Net financial expense/ebitda Less than Net financial position/shareholders equity Less than Net financial position /EBITDA Less than

18 OPERATING AND FINANCIAL PERFORMANCE OF DIASORIN S.P.A. Analysis of operating performance INCOME STATEMENT Thousands of Euro A. Value of production 92,268 81,735 B. Production cost 87,893 81,646 Net production value (operating result) 4, C. Financial income/(expense) (2,379) (735) E. Extraordinary income/(expense) 1, Income before taxes 3, Taxes (1,995) 125 Net income for the year 1, Revenues for the period amounted to Euro 92,066 thousand. The detail is as follows: Thousands of Euro Sales and service revenues 88,721 76,897 Increases in assets produced internally Other revenues and income 2,939 3,824 Total revenues 92,066 80,802 Revenues for the year moved up 15.4% in relation to 2003, spurred in particular by sales of LIAISON technology products which amounted to Euro 35,889 thousand, 64% up on the 2003 data. The results of the various management areas which make up the result for the period are as follows: Thousands of Euro Net production value 4, Financial income/(expense) (2,379) (735) Extraordinary income/(expense) 1, Taxes (1,995) 125 Net income for the year 1, Extraordinary items reflect income of Euro 1,311 thousand stemming from the net alignment of items in foreign currency for the part referring to past years, following the change in the accounting standard due to reform of accounting procedures. 18

19 The amount consists of extraordinary realized exchange gains of Euro 2,767 thousand, net of extraordinary unrealized exchange gains of Euro 1,456. Trading operations closed with a net income of Euro 4,375 thousand as set out below: Thousands of Euro Production value 92,268 81,735 Cost of materials and services and other operating expenses (61,429) (56,988) ADDED VALUE PRODUCED 30,839 24,747 Personnel costs (15,720) (14,718) Amortization, depreciation and write-downs (10,744) (9,940) Net production value (operating income) 4, Value added represented 33.5% of revenues compared with 30.6% in The cost of labor was equal to 17% of revenues (18.2% in 2003) and 51% of value added (59.5% in 2003). The commentary on financial and investment management is set out below: Thousands of Euro Income on equity investments 885 1,951 Interest and other financial income Interest and other financial expense (4,320) (4,057) Exchange gains/(losses) Total (2,379) (735) Income on equity investments refers to the distribution of dividends by the DiaSorin G.m.b.H. subsidiary, stated according to the accruals principle. Exchange differences refer principally to active exchange differences on the new loan stipulated with Interbanca for 30 million dollars. 19

20 Analysis of financial position Thousands of Euro BALANCE SHEET As at As at A. RECEIVABLES FROM SHAREHOLDERS FOR CAPITAL CONTRIBUTIONS - - B. FIXED ASSETS I. Intangible assets 36,675 40,231 II. Tangible assets 14,613 16,471 III. Financial assets 51,956 51,956 C. CURRENT ASSETS I. Inventories 14,666 14,735 II. Receivables 37,826 41,191 III. Financial assets not constituting fixed assets 4,331 6,289 IV. Liquid assets 4,724 1,916 D. ACCRUED INCOME AND PREPAID EXPENSES TOTAL ASSETS 164, ,978 A. Shareholders equity 55,997 54,749 B. Reserves for risks and charges 1, C. Reserve for employees severance indemnities 5,856 5,651 D. Liabilities 101, ,944 E. Accrued income and prepaid expenses 43 1,103 TOTAL LIABILITIES AND SHAREHOLDERS EQUITY 164, ,978 20

21 Thousands of Euro CASH FLOW STATEMENT Financial 2004 Financial 2003 A. NET LIQUID ASSETS AT BEGINNING OF PERIOD 8,572 16,392 Net income for the year 1, Amortization and depreciation 9,504 9,490 Additions to/(utilization) of provisions for risks and charges 766 (114) (Gains)/losses on the disposal of investments Net change in reserve for severance indemnities 205 (239) CASH FLOW FROM TRADING OPERATIONS 11,796 9,698 (Increase)/Decrease in receivables stated under current assets 3,467 (3,996) (Increase)/Decrease in inventories 69 (2,197) Increase/(Decrease) in payables to suppliers and others (3,458) (1,178) (Increase)/Decrease in other items of current assets (62) 98 B. CASH FLOW FROM OPERATIONS 11,812 2,425 Investments in: - tangible assets (4,300) (5,679) - intangible assets (75) (39,496) - financial assets 0 (16,773) Proceeds from sale or redemption value of fixed assets 220 1,487 C. CASH FLOW FROM INVESTING ACTIVITIES (4,155) (60,461) Net change in payables to banks and other providers of finance (4,387) 45,539 Net change in payables for the purchase of equity investments (1,405) (1,500) Net change in payables to ASI (913) (622) Change in shareholders equity 0 6,799 D. CASH FLOW FROM FINANCING ACTIVITIES (6,705) 50,216 E. CASH FLOW FOR THE PERIOD (B+C+D) 952 (7,820) G. NET LIQUID ASSETS AT THE END OF THE PERIOD (A+E) 9,524 8,572 At December 31, 2004, invested capital amounted to Euro 119,440 thousand, shareholders equity (own capital) to Euro 55,997 thousand and the net financial position was negative for Euro 63,443 thousand. It should be noted that the change in invested capital in relation to 2003 is to be ascribed principally to ordinary investment activities, offset by the reduction in fixed assets with regard to the amortization and depreciation for the year. The improvement in the net financial position was driven by repayment of portions for the year of existing loans. The following tables show a breakdown of the above-mentioned items: Thousands of Euro Invested capital Own capital Net financial position As at 31 december 2004 As at 31 december , ,848 55,997 54,749 (63,443) (70,099) 21

22 Invested capital and own capital: the detail is as follows: Thousands of Euro As at 31 december 2004 As at 31 december 2003 Intangible assets 36,675 40,231 Tangible assets 14,613 16,471 Financial assets 51,956 51,956 INVESTED CAPITAL 103, ,658 NET WORKING CAPITAL 22,052 21,841 Reserve for severance indemnities (5,856) (5,651) Net invested capital 119, ,848 The breakdown of own capital is as follows: Thousands of Euro Paid-in share capital Share premium and other reserves Retained earnings Net income for the year Own capital As at 31 december 2004 As at 31 december ,000 50,000 4,441 4, , ,997 54,749 The net financial position is made up as follows: Thousands of Euro As at December As at December Medium-term financial receivables (1) Short-term financial receivables (1) Liquid assets TOTAL FINANCIAL ASSETS Short-term financial payables (2) Medium-term financial payables (3) TOTAL FINANCIAL LIABILITIES Net financial position (1) include financial receivables from subsidiaries (2) include the short-term portion of payables to banks, subsidiaries, American Standard and Altana Pharma; (3) include the long-term portion of payables to banks, American Standard and Altana Pharma. 4,331 6, ,724 1,916 9,524 8,572 (24,084) (61,208) (48,883) (17,463) (72,967) (78,671) (63,443) (70,099) On January 28, 2004, DiaSorin S.p.A. repaid its debts to Interbanca for Euro 47,000 thousand and $7,889 thousand respectively (for a total of Euro 53,268 thousand). At the same time, it stipulated a new loan of Euro 55 million with Interbanca. Part of such loan (US$30 million) is denominated in dollars in order to balance positive cash flows resulting from transactions in this currency with payments of interest and capital to serve the same loan. For a more detailed description of the transaction, reference should be made to the commentary on the financial performance of the DiaSorin Group. 22

23 EVENTS IN EARLY 2005 AND BUSINESS OUTLOOK On January 23, DiaSorin S.p.A. was informed that the Ministry for Education, the University and Research has accepted its application for a loan within the framework of the Research Grants Fund under Laws Nos. 46/82 and 346/88. For 2005, Group operating plans envisage a further increase in sales revenues that are expected to exceed the Euro 150 million mark. This increase (which is expected to be distributed evenly in the various geographical areas of business) will, yet again, be spearheaded by LIAISON technology, driven by the upswing in the installed instrument population and launching on the market of new tests developed during 2004 and New actions to reinforce distribution in geographical areas considered to be strategic for future Group development are also being investigated. Gross revenues of the Group are expected to increase during Part of this upswing will be reinvested in order to cater to ambitious R&D plans steered towards extending the menu of available tests on LIAISON technology and to initiating development of the second generation analyzer. The Group s ability to generate cash flows from operations will be directed towards financing expenditure towards fixed assets for the purchase of new instrumentation, to pay financial charges and also to improve the net financial position according to depreciation plans. 23

24 TRANSACTIONS WITH RELATED PARTIES Relationships with subsidiaries consist mainly of commercial transactions and of various centralized services provided by the Parent Company that are charged to each subsidiary on a proquota basis according to specific contracts. Income interest and expense is paid regularly at normal market conditions as part of centralized cash management services. A breakdown of the related amounts by subsidiary can be found in the Notes to the financial statements. The 2004 amounts of the aforementioned relationships are set out in the table below: (Thousands of Euro) INCOME STATEMENT Sales and service revenues 36,087 29,855 Purchasing costs and services provided 12,071 21,882 Interest and other income 1, Interest expense and other expenses (Amounts in thousands of Euro) SUBSIDIARIES SUBSIDIARIES BALANCE SHEET At December At December Assets Current trade receivables 5,843 5,594 Current financial receivables Receivables on financial assets 5,216 8,240 Liabilities Current trade payables 1,991 6,438 Current financial payables 11,108 4,794 Other payables 3,256 6,019 At December 31, 2004, the Company also had debts of a financial nature with the Interbanca S.p.A. shareholder, as set forth below: (Thousands of Euro) At December At December Interbanca 2000 loan for acquisition of the DiaSorin Group - 9,033 from ASI Interbanca 2002 loan for acquisition of the Byk Group 5,100 6,800 Interbanca 2003 loan for Biofort S.p.A. transaction - 47,000 Interbanca 2004 loan 49,099 - TOTAL 54,199 62,833 24

25 R E S E A R C H A N D D E V E L O P M E N T 1. Significant events in financial 2004 In 2004, DiaSorin R&D channeled investments into three Group sites Saluggia (Italy), Stillwater (USA) and Dietzenbach (Germany) for a total of Euro 5.4 million (charged entirely to income), 73% of which at the Saluggia site alone where 37 of a total of 56 operatives were concentrated at December 31, To promote the development of applied research projects, during 2004 DiaSorin S.p.A incurred direct personnel and other R&D-related costs of Euro 3,015,793. The structure addressed five mains lines of activity: a) Development of new LIAISON kits b) Development of new biotechnological reagents c) Improvement of certain aspects of production process and catalogue product documentation, methods and techniques (quality plans) d) Improvement of the hardware and software of the LIAISON instrumental platform e) Research in the genetic tests sector which has a future development potential A. As regards development of new LIAISON kits, in 2004 the following new products were developed at the Saluggia site: In the infectivity sector: - LIAISON test for IgG anti Borrelia anti-bodies (Lyme disease) - LIAISON test for IgM anti Borrelia anti-bodies (Lyme disease) - LIAISON test for screening of anti Treponema Pallidum anti-bodies In the new sector of auto-immunity: - LIAISON test for screening of anti-nuclear anti-bodies (ANA screen) - LIAISON test for Anti Double Stranded DNA anti-bodies (DS-DNA) - LIAISON test for anti transglutaminase anti-bodies (celiac disease) With regard to improvements to assistance and technical support - A kit for standardization and automation of a weekly cleaning procedure for hardware parts in contact with serums and reagents (LIAISON Cleaning kit) With regard to improving the current range of products: - New LIAISON kit to determine the quantity of anti Toxoplasma anti-bodies - New ELISA kit to search for anti HCV anti-bodies ( EC-mark quality standard, only for patent free uses) As a result of product development at the Stillwater site, the first tests for small molecules became available in the endocrinology/metabolism sector: - New LIAISON kit for measurement of PTH - New LIAISON kit for measurement of Vitamin D (EC marking and FDA approved) - New LIAISON kit for measurement of Progesterone (CE marked) - New LIAISON kit for measurement of Cyclosporine 25

26 Other kit development projects that are expected to become available in early 2005 also continued during the year: - LIAISON test for IgG anti Borrelia anti-bodies (procedure for liquor) - New kit for determination of the avidity of the anti Toxoplasma anti-bodies (Toxo IgG Quant-Avidity) - LIAISON test for IgG Anti Varicella Zoster (VZV) anti-bodies - LIAISON test for IgM anti Varicella Zoster (VZV) anti-bodies - LIAISON test for screening of anti-bodies that can be extracted from the anti nucleus (ENA screening) and, as regards the Stillwater site: - LIAISON test for measurement of Testosterone - LIAISON test for measurement of Extradiol B. As regards reagents, in 2004 work focused on the program directed towards enriching the collection of new recombined antigens of Epstein Barr virus (EBV), to servicing projects for improvement of existing kits in order to protect DiaSorin s technological and market leadership in this segment. In particular, a recombining assay (of the P18 antigen of EBV) has been developed that could be incorporated in the related LIAISON EBV kits in order to further increase their clinical performance while at the same time offering an suite of advantages also as regards simplification of production processes. New recombined antigens have also been developed to replace extractive type biological materials that are particularly difficult to procure, such as the proteins S-100 and NSE, essential components of the two exclusive kits of the LIAISON system menu. During 2005, attention will be dedicated to qualifying these reagents. Also, following in the wake of cooperation with the Bicocca University of Milan in 2003, attention was dedicated to acquiring further in-depth knowledge of the system of expression of yeast-based heterological proteins. In particular, problems regarding growth of the cells were addressed and solved with fermentation technology ( upstream ) and those regarding extraction and purification of the proteins ( downstream ). The application on which expression technology was tested included construction of arrays deriving from the Hepatitis C virus and the expression of human transglutaminase. Drawing on the knowledge acquired during 2004, the R&D Group is able to undertake development programs of difficult to express recombining proteins. A typical example of this class of protein is the HBsAg antigen for which activation of a specific development program is planned in Programs directed towards obtaining the monoclonal anti-bodies necessary to construct chemical reagents for control serums for orphan application of natural serums and to facilitate purification of biological materials through immuno-affinity chromatography, returned less satisfactory results. The reactivity obtained from the reagents developed was not sufficient to solve the technological problem which is still a major issue due to the difficulties often encountered in procuring natural human serums and which are expected to increase with the entrance of new specialty products in human infectivity. For this reason, research efforts will continue throughout 2005, reinforced also by investigations in the sector of human monoclonals. 26

27 C. Part of R&D activities addressed the processing of market feedback regarding kits sold in previous years some of which required various modifications, considered necessary to correct various aspects that emerged during use in field or to address problems tied to the increased scale of production processes. These projects have been managed and documented as quality plans as envisaged by the current quality system. Major projects of this type included improvement of the specific nature of certain LIAISON products such as Rosolia IgM, Anti HBc, HBsAg and IgM anti CMV to which the related modifications were made in Continuing plans already launched in 2003, the project for improving the methodological approach to design was completed. This project is intended to promote application of a standardized approach to design amongst the various Project Leaders and to guarantee maximum sturdiness of new products, attempting to anticipate any critical aspects and the stress that may affect the product during its market cycle already at the optimization stage: operating procedures for design, analytical and clinical assessment of new products and new reagents and analysis of risks have been completely revamped. new product validation plans have been introduced as moments for real-life checking, intended to assess the new product in the non- optimized context of customers routine and with regard to the effective sample populations analyzed (not selected and therefore without potential bias ) new models have been created for the directions for use which provide much more information than in the past and are more precisely aligned with customers increased attention and more sophisticated quality systems Pre-launch information including the technical-scientific description of the product, its competitive positioning (Product Information Package, PIP) and guides for training and customer support (Frequently Asked Questions, FAQ; Troubleshooting Guides, TG) have been included in project deliverables. This detailed attention dedicated to approach is expected to guarantee availability of a set of stable references that are as homogenous as possible within the Group and particularly useful in helping new Researchers apply a strict, effective approach to developing many of the new products envisaged in the Plan, and also to facilitate introduction on the market of new products that, from now on, will be increasingly required to measure up to new analytical-clinical issues for the Company and its operators. 27

28 A. With regard to improvement of the LIAISON system, major aspects addressed during the year included: a. Upgrading of the installed base to the new 2.07 software version b. Tuning of project requirements for restyling of the LIAISON system that is expected to be ordered at the start of 2005 with forecast availability of the new analyzer by c. Optimization of service policies on machines installed in parallel, with a systematic plan of improvement of reliability of more critical parts. d. Development, in cooperation with an Italian engineering company (INPECO Srl) and the LIAISON manufacturing company (STRATEC GmbH) of a modified version of the instrument that can be connected to a robot-controlled system able to manage automatic distribution of samples to be analyzed to different analyzers (even of different vendors) thereby enhancing flexibility and throughput of laboratory automation. B. The research activities of the Group operating in molecular diagnostics at the Bicocca University of Milan have generated initial indications of feasibility regarding the possibility of identifying punctiform mutations of DNA (SNPs) using OCEAN (One Cut Event AmplificatioN) technology which, in the meantime, has been patented in the United States. OCEAN technology has been applied successfully to identify SNPs in genes that code proteins involved in coagulation of the blood. Further feasibility tests on the possibility of typization of bacteria associated to tooth caries have also been carried out. At the moment, the technology still requires pre-amplification of the sample via PCR; however, it is characterized by a number of competitive leading edges in relation to the current technological benchmark, consisting in: a. the possibility of identifying more than one SNP in a single reaction (multiplexing) b. isothermia of the enzymatic reaction research program The 2005 research program is part of the three-year plan that involves the three sites equipped with development capacity (Saluggia, Stillwater and Dietzenbach) and comprises the following main lines of development: A. Further enhancement of the LIAISON menu in the sector of human infectiveness (Saluggia) B. Completion of the LIAISON menu in fertility/endocrinology with development of test for small steroid molecules (Stillwater) and other hormones of interest in the sector of hypertension and diabetes (Saluggia). C. Enrichment of the LIAISON menu in the sector of metabolic specialties and in monitoring of Pharmaceutical products (Stillwater, Dietzenbach) D. Enrichment of the LIAISON menu in the auto-immunity sector (Saluggia) E. Enrichment of the LIAISON menu in the oncology/central nervous system sector (Stillwater) 28

29 F. Start of development of the second version of the LIAISON analyzer in cooperation with an engineering Company; this is expected to be available by the end of For 2005, the plan envisages availability of the following new products: In sector A: LIAISON test for IgG anti Borrelia anti-bodies (procedure for liquor) New kit for determination of the avidity of anti Toxoplasma anti-bodies (Toxo IgG Quant-Avidity) LIAISON test for IgG Anti Varicella Zoster anti-bodies (VZV) LIAISON test for IgM anti Varicella Zoster anti-bodies (VZV) New procedures for determination in the liquor of IgG anti Rosolia, Herpes simplex, Citomegalovirus and Varicella Zoster and IgM anti Borrelia anti-bodies Explorative projects to assess feasibility/complexity of developing a new kit for antimumps and anti-measles anti-bodies have also been started. In sector B: LIAISON test for measurement of Testosterone LIAISON test for measurement of Extradiol Projects have also started for development of tests for active Renine, aldosterone, HGH and Insulin In sector C: LIAISON test for measurement of ACTH LIAISON test for measurement of Cyclosporine LIAISON test for measurement of Everolimus Projects have also been launched for development of Vitamin D 1,25 OH, Calcitonine, Osteocalcine, Bone specific Alkaline Phosphatase, In sector D: LIAISON test for ENA screening Projects are also underway for development of tests for anti-phospholipid anti-bodies (cardiolipine, β2 Glicoproteina) Issue of new products in sector E is not planned for 2005 but projects will be activated that, in the long term, will make available CA 72-4, Tymidin Kynase and GFAP markers. 29

30 3. Regulatory Affairs Quality System Regulatory activities aimed at obtaining registration of a first array of LIAISON products by the American FDA were particularly intense throughout Although the times originally calculated have been extended by at least six months, we expect to obtain the registrations and therefore to start sale in the USA of some ten products, mainly in the infective serology sector (EBV, Toxoplasma, CMV, Rosolia, Treponema). As regards the quality system, Certimedica audits were once again positive in 2004 (only one minor non-conformity was detected) and also the audits carried out by the G-MED Notified Body (with also in this case only a single non-conformity). As regards process and product improvement, the more significant actions were as follows: - Activation of numerous quality plans intended to solve problems highlighted by postmarket surveillance in the case of certain products or tied to the considerable increase in the volume of LIAISON products that made it necessary to review the scale of production processes. - Stepping-up of study, documentation and validation activities of a number of production processes that extended to production carried out at the Dietzenbach site, in particular of components common to productions of the entire Group. - Start-up of a new system of Group procedures for management of notifications and complaints from the market and concurrent activation of a new Customer Care Group equipped with its own laboratory at DiaSorin SpA, dedicated to managing product troubleshooting, processing of customers notifications and training of market specialists. The considerable success of the 2004 zero backorders corporate project should also be noted; this is intended to eliminate delays in product availability caused by logistic and/or quality problems, now reduced to physiological level and such as not to cause problems on the market. Major objectives for 2005, on the regulatory front, refer to obtaining 510(k) authorizations from the FDA to sell the first set of infectivity products in the USA and continuation of registration activities of various products in China. With regard to improvement of the quality system, resources dedicated to validation of critical batches of reagents, of production processes and laboratory data management and processing software will be increased. 30

31 OTHER INFORMATION Human resources At December 31, 2004, there were 698 employees on the Group payroll divided as follows: Belgium Brasil France Germany Italy United Kingdom Spain Sweden USA DiaSorin S.p.A. employed 335 persons distributed as follows: Managers White collar workers Blue collar workers Total Stock option plans During the year, the Board of Directors launched a stock option plan involving 17 managers of Group companies included in incentivation programs. Treatment of Personal Data In compliance with Legislative Decree No. 196 of June 30, 2003 regarding the new Code on the protection of personal data ( Consolidated Privacy Act ), the company has appointed the controllers and persons responsible for data processing with formal communications. The Company has also acquired the consent of employees to treatment of their data after distributing an informative document. 31

32 CONCLUSIONS - PROPOSED ALLOCATION OF THE NET INCOME FOR THE YEAR Shareholders, Together with the request to approve the 2004 financial statements, it is proposed that the net income of DiaSorin S.p.A. of Euro 1,247, be allocated as follows: - 5% equal to Euro 62, to the legal reserve; - carrying forward the remaining sum of Euro 1,185, The Chairman (Gian Alberto Saporiti) 32

33 F II N A N C II A L S T A T E M E N T S D II A S O R II N S. P. A. B a l a n cc ee ss h ee ee tt II n cc o m ee ss tt a tt ee m ee n tt 33

34 B A L A N C E S H E E T ASSETS At 31/12/2004 At 31/12/2003 Partial Total Partial Total A. RECEIVABLES FROM SHAREHOLDERS FOR CAPITAL CONTRIBUTIONS - - B. FIXED ASSETS I. INTANGIBLE ASSETS 1. Formation and expansion costs - 3. Industrial patent and intellectual property rights 3, , Concessions, licenses, trademarks and similar rights 7,604, Goodwill 28,827,95 8,432,737 31,200, Other intangible assets 239, ,085 Total intangible assets (B.I) 36,675,333 40,231,659 II. TANGIBLE ASSETS 1. Lands and buildings 3,.378, Plant and machinery 2,250,164 3,668,634 2,871, Industrial and commercial equipment 8,.510, Other assets 252,848 9,.585, , Current assets and advances 221,150 - Total tangible assets (B.II) 14,612,517 16,470,617 III. FINANCIAL ASSETS 1. Investments in: a. subsidiaries 51,954,889 51,954,889 b. other businesses 1,000 1,000 Total financial assets (B.III) 51,955,889 51,955,889 TOTAL FIXED ASSETS (B) 103,243, ,658,165 C. CURRENT ASSETS I. INVENTORIES 1. Raw materials, consumables and goods for resale 3,800,870 3,520, Work in progress and semifinished products 6,167,698 6,.372, Contract work in progress Finished products and goods 4,697,07 4,842,210 Total inventories (C.I.) 14,665,644 14,735,502 34

35 Partial Total Partial Total II. ACCOUNTS RECEIVABLE 1. Trade a. falling due within 12 months 24,782,973 26,073,.821 Total trade receivables (C.II.1) 24,782,973 26,073, From subsidiaries a. falling due within 12 months - trade 5,842,886 5,593,774 b. falling due within 12 months - financial 469, ,367 c. falling due within 12 months year - other 885,470 1,950,843 Total receivables from subsidiaries (C.II.2) 7,197,471 7,911, bis Receivables from the Tax Authorities a. falling due within 12 months 302, ,660 Total receivables from the Tax Authorities (C.II.4 bis) 302, , ter Deferred tax assets a. falling due within 12 months 1,345, ,377 b. falling due beyond 12 months 3,.906,088 4,.304,866 Total deferred tax assets (C.II.4 ter) 5,251,766 5,240, From others a. falling due within 12 months 291,463 1,443,662 b. falling due beyond 12 months - Total receivables from others (C.II.5) 291,463-1,443,662 Total accounts receivable (C.II) 37,826,466 41,191,370 III. FINANCIAL ASSETS NOT CONSTITUTING FIXED ASSETS 7. subsidiaries a. falling due within 12 months. 4,.331,52 6,.289,09 b. falling due beyond 12 months - - Total financial assets(c.iii.7) 4,331,527 6,289,091 Total financial assets (C.III) 4,331,527 6,289,091 IV. ASSETS At 31/12/2004 As at 31/12/2003 LIQUID ASSETS 1. Bank and Post Office deposits 4,717,862 1,.911, Cash on hand 6,341 4,353 Total liquid assets (C.IV) 4,724,203 1,915,652 TOTAL CURRENT ASSETS (C) 61,547,840 64,131,615 D. PREPAID EXPENSES AND ACCRUED INCOME 1. Prepaid expenses 41,817 34, Accrued income 150, ,350 TOTAL PREPAID EXPENSES AND ACCRUED INCOME (D) 192, ,682 TOTAL ASSETS (A + B + C + D) 164,984, ,978,462 35

36 B A L A N C E S H E E T LIABILITIES At 31/12/2004 At 31/12/2003 A. SHAREHOLDERS EQUITY Partial Total Partial Total I. Share capital 50,000,000 50,000,000 II. Share premium reserve 4,424,598 4,424,598 IV. Legal reserve 16,219 VII. Other reserves - - VIII. Retained earnings/(accummulated losses) 308,163 IX. Net income/(loss) for the period 1,247, ,382 TOTAL SHAREHOLDER S EQUITY (A) 55,996,544 54,748,980 B. RESERVES FOR RISKS AND CHARGES 3. Other 1,297, ,255 TOTAL RESERVES FOR RISKS AND CHARGES (B) 1,297, ,255 C. RESERVE FOR EMPLOYEES SEVERANCE INDEMNITIES 5,855,800 5,651,017 D. LIABILITIES 3. Due to shareholders for loans a. falling due within 12 months 9,883,182 53,216,465 b. falling due beyond 12 months 44,315,926 9,616,465 Total liabilities towards shareholders (D.3) 54,199,108 62,832, Due to Banks a falling due within 12 months 280, ,637 b. falling due beyond 12 months 2,267,820 2,533,542 Total liabilties to banks (D.4) 2,548,240 2,813, Trade accounts payable a. falling due within 12 months 15,258,583 14,390,420 Total trade accounts payable (D.7) 15,258,583 14,390, Due to subsidiaries a. falling due within 12 months trade 1,991,170 6,437,692 b. falling due within 12 months financial 11,108,369 4,793,948 c. falling due within 12 months - other 1,627,887 2,766,078 d. falling due beyond 12 months - other 1,627,887 3,253,395 Total liabilities towards subsidiaries (D.9) 16,355,313 17,251, Due to the Tax Authorities a. falling due within 12 months 3,704,881 2,161,260 Total liabilities towards the Tax Authorities (D.12) 3,704,881 2,161, Due to social security institutions a. falling due within 12 months 659, ,002 Total liabilities towards social security institutions (D.13) 659, , Other liabilities a. falling due withion 12 months 6,765,909 5,600,622 b. falling due beyond 12 months 2,300,000 5,313,264 Total other liabilities (D.14) 9,065,909 10,913,886 TOTAL LIABILITIES (D) 101,791, ,943,790 E. ACCRUED EXPENSES AND DEFERRED INCOME 1. Prepaid expenses 43,054 1,103,420 TOTAL ACCRUED EXPENSES AND DEFERRED INCOME (E) 43,054 1,103,420 TOTAL LIABILITIES (A + B + C + D + E) 164,984, ,978,462 36

37 As at 31/12/2004 As at 31/12/2003 Partial Total Partial Total MEMORANDUM ACCOUNTS Guarantees given to other companies 1,302, ,855 Sureties for guarantees received 8,190,059 16,308,472 Other memorandum accounts 27,072,992 22,726,866 TOTAL MEMORANDUM ACCOUNTS 36,565,861 40,003,193 37

38 INCOME STATEMENT Financial year 2004 Financial year 2003 Partial Total Partial Total A. VALUE OF PRODUCTION 1. Sales and service revenues 88,721,467 76,896, Changes in inventories of work in progress semi-finished and finished products 201, , Changes in contract work in progress Increases in fixed assets produced internally 406,391 81, Other revenues and income: b. other revenues and income 2,938,907 3,823,627 TOTAL VALUE OF PRODUCTION (A) 92,268,073 81,734,931 B. PRODUCTION COST 6. Raw materials, consumables and goods for resale 36,533,641 34,447, Services 19,973,780 21,149, Use of third party assets 2,855,295 1,638, Personnel: a. wages and salaries 11,121,814 10,437,150 b. social security contributions 3,662,541 3,346,130 c. severance indemnities 839, ,643 e. other personnel costs 95,894 99,444 Total cost of personnel (B.9) 15,719,962 14,718, Amortization, depreciation and write-downs: a. amortization of intangible assets 3,630,970 3,656,218 b. depreciation of tangible assets 5,873,292 5,719,302 c. other write-downs of fixed assets 114,886 d. write-down of receivables included in current assets and of liquid assets 539, ,000 Total amortization, depreciations and write-downs (B.10) 10,043,687 9,940, Change in inventories of raw materials, consumables and goods for resale 271,166 (1,657,134) 12. Reserves for risks and charges 700, Miscellaneous operating expenses 1,795,277 1,408,344 TOTAL PRODUCTION COST (B) 87,892,808 81,645,597 NET PRODUCTION VALUE (A - B) 4,375,265 89,334 38