Virbac. Half-yearly financial report. At June 30, 2016

Transcription

1 Virbac Half-yearly financial report At June 30, 2016 Virbac : NYSE Euronext - compartiment A - code ISIN : FR / MNEMO : VIRP Direction financière : tél finances@virbac.com - Site :

2 HALF YEARLY MANAGEMENT REPORT FIRST HALF 2016 SIGNIFICANT EVENTS In the United States, the resumption of the manufacturing, release and commercial activities of the legacy products continued in the first half of At the same time, the Virbac group continued to invest and set up the necessary changes in the quality system of St. Louis site to ensure full compliance with the cgmp (current Good manufacturing practices) and prepare at best the new inspection. As a result of these efforts, the operating margin (before amortisations of acquistions and R&D) of the US subsidiary improved by more than 16 points in percentage of sales. This was achieved through an increase of the margin by $5.3 million (related to an increase in sales of legacy products) as well as through a variation of the provision on inventories and destructions of inventories of $5.7 million. Moreover, the variation of the provisions for risks had a positive impact of $2.2 million. Note that the consultancy fees incurred in connection with improving the quality system are slightly lower in the first half 2016 compared to the first half The results of the impairment tests performed on the assets of Virbac US are shown in note A2. SIGNIFICANT EVENTS FOR THE PERIOD In the United States, as a follow-up of the inspection initiated in December 2014, the FDA (Food and drug administration) has inspected the manufacturing site of St. Louis from August 9 to September 7, Following this inspection, the FDA has provided the company Virbac Corporation with a 483 report containing five observations. In accordance with standard procedures, the FDA did not make any comment, at this stage, regarding the suspension or not of the warning letter received in December Virbac has now fifteen days after the receipt of the 483 report to answer to the FDA, which will then decide on the consequences of this inspection within a period that usually ranges from two to six months. REVIEW OF THE FINANCIAL SITUATION AND RESULTS Consolidated number in million Euros First half 2016 First half 2015 Change 2016 / 2015 Revenue from ordinary activities % Growth at constant exchange rates + 3.6% Pro-forma growth at constant exchange rates + 3.5% Current operating profit - adjusted * % Operating profit from ordinary activities % As a % of revenue 7.3% 4.1% Operating result % Result for the period attributable to the owners of the parent company Result for the period attributable to the noncontrolling interests % % * For the sake of clarity of its economic performance, the Group decided to isolate, as of June 30, 2015, the impact of the depreciations of intangible assets arising from acquisitions. Indeed, this one is significant given the latest business combinations operated by the Group. Consequently, the income statement shows an operating result adjusted from this impact.

3 The condensed consolidated financial statements of Virbac for the period from January 1 to June 30, 2016 have been reviewed by the auditors and are available on website. First half sales have reached million compared to million in the same period of 2015, with an overall evolution of - 0.5%. Excluding the unfavorable impact of exchange rates, growth would be +3.6%. Organic growth reached +3.5% in the first half, mainly thanks to the good performance of companion animal products in Europe and food producing animal ranges in the emerging countries. The operating profit from ordinary activities is growing. It amounts to 31.5 million compared to 17.8 million last year, an increase of +76.8% and +3.2 points as a percentage of sales. This result includes 8.2 million of amortisation expenses related to intangible rights from acquisitions, compared to 9.6 million as of June 30, The current operating profit adjusted from these items amounts to 39.7 million as of June 30, 2016, an increase of +44.8% compared to last year. This positive evolution is partly due to the improvement of the US subsidiary results. Globally, in the first half, the US subsidiary registered a positive operational contribution (excluding R&D) of $2.2 million ( 2.0 million) compared to $-10.8 million ( -9.7 million) in 2015, notably thanks to a margin improvement and a decrease of one-off expenses. Outside the United States, the adjusted current operating profit increases by +6.1 million at constant exchange rates given the good performances in Europe, Asia-Pacific and in Latin America excluding Chili, penalised by the sanitary situation. Finally, exchange rates had a negative impact on the adjusted current operating profit of -6.9 million. The operating result amounts to 31.5 million, no other non-current incomes or expenses have been recorded in the first half. The result for the period attributable to the owners of the parent company amounts to 13.1 million after deduction of interest and tax expenses, a strong increase compared to last year ( -3.8 million). The result for the period attributable to the non-controlling interests, which reflect mainly the share of minority interests in Centrovet, amounted to 2.1 million. Financial situation In the first half, the Group s net debt increased by +1.8 million compared to December 31, 2015 and reached million. In the past, the Group recorded a significant increase in financing needs in the first half, resulting from the seasonal increase of working capital. The stability of the first half of 2016 is due to several factors such as : no payment of dividend by Virbac SA in respect of 2015 results, a strict control of working capital needs and the implementation of operational financing solutions (factoring in certain European subsidiaries of the Group and mobilisation of the research tax credit receivables). In April 2015, two new funding instruments were put in place and include a financial covenant compliance clause that requires the borrower to adhere to financial ratios, which are based on the consolidated financial statements and reflect net consolidated indebtedness for the period considered on the consolidated Ebitda for the same test period. A definition of these indicators is available in note A10. Following discussions with creditors initiated by the end of the third quarter of 2015, the initial financial ratio has been relaxed as follows : this ratio must not exceed 7 as at June, ; this ratio must not exceed 4.5 as at December, As at June 30, 2016, the ratio is below 7. The main features of these two funding instruments are as follows: a syndicated loan of 420 million, drawn in euros and dollars, contracted with a pool of banks and repayable in full upon maturity in April 2020, with the option to extend the term to April 2022; Schuldschein contracts of 160million and $99 million consisting of eight instalments, with maturities of five, six, seven and ten years, at variable and fixed rates. As at June, , the position of the new funding instruments was as follows: the drawn credit facility amounted to $345 million and 53 million; the market-based contracts amounted to $37 million and 65 million. Finally, in May 2016 a new financing offer of 15 million was concluded with the BPI (Banque publique d investissement). As at June 30, 2016, bilateral loans and BPI financing, were drawn for an amount of 72 million. Annual outlook To take into account the new elements, in particular the market conditions in Chili and in the United States (increased competition on Sentinel) as well as the unfavorable evolution of exchange rates, and to reflect a residual variability in the manufacturing and commercial activities in the US by the end of December, the Group has decided to update its outlooks as follows : organic sales growth is expected to range between 4.5% to 6.5% ; adjusted EBIT is expected to be above 10% at constant exchange rates ; net debt will improve by approximately 50 million in 2016 ; the net debt to EBITDA ratio is expected to be around 4.5 at constant exchange rates.

4 SALES PERFORMANCE By segment Consolidated number in million Euros First half 2016 First half 2015 Change (%) Change at constant rate and scope Companion animals % + 6.6% Food producing animals % - 0.6% Others activities % + 3.3% TOTAL % + 3.5% Companion animals Sales in the companion animals segment have increased globally by +4.0%, of which +6.6% at constant rate and scope, reflecting a good overall evolution of product ranges such as dermatology, hygiene, external and internal parasiticides and dentals. Food producing animals Business in the food producing animal segment recorded a -6.5% evolution in total, of which -0.6% at constant rates and perimeter. The evolution of this segment is strongly impacted by the negative effect of exchange rates of the countries in Asia Pacific and Latin America. At constant rates and perimeter, the bovine sector is growing, while that of industrial (swine and poultry) remains stable. The aquaculture sector contracted sharply during the period, and continues to suffer from a particular sanitary situation in Chile, related to mortality of salmon caused by algae blooms, and a perception of lower efficiency of the vaccines. Other businesses These activities, which represent no more than 1% of sales registered a slight decrease. They correspond to the markets of lesser strategic importance for the Group and mainly include contract manufacturing in the United States and Australia. By geographic region Consolidated number in million Euros First half 2016 First half 2015 Change (%) Change at constant rate and scope France % + 7.3% Europe excluding France % + 5.6% North America % + 0.7% Latin America % - 2.9% Africa & Middle East % + 4.7% Asia % + 9.0% Pacific % + 2.1% TOTAL % + 3.5% In the United States, sales for the first half showed a slight organic growth at + 0.7%, thanks to the gradual resumption of deliveries of Iverhart Plus and the good performance on the dermatology and dental ranges. Conversely, sales of the Sentinel range were down compared to the same period of the previous year, mainly because of the change in the commercial strategy of distribution made early 2015 as well as an increased competition. Outside of the United States, the Group achieved a good first half showing a +4.1% organic growth. This positive trend is due to the ramp-up of products launched recently in Europe, in particular the parasiticides for companion animals, and to the good performance of products used for food producing animals in the emerging markets. Europe recorded a good overall growth +6.1% at constant exchange rates, thanks to a strong activity in the UK, Southern Europe, and France (including favorable base effect due to the negative impact of a new regulation Loi d Avenir on antibiotic sales early 2015). In the other regions of the world, with the exception of Chile, which is in sharp decline over the period, organic growth continues to be strong in emerging countries, driven in particular by the good dynamic of countries like India, China and Brazil.

5 MAIN SOURCES OF RISKS AND UNCERTAINTY FOR THE NEXT SIX MONTHS OF THE YEAR The risk factors to which the Group is exposed, are mentioned in the 2015 Annual report of Virbac, available on the website The nature of these risks has not changed significantly in the first half of These risks are likely to occur in the second half of 2016 or during subsequent years. OPERATIONS WITH RELATED PARTIES Information on related parties is detailed in Note A18 of 2016 condensed half yearly financial statements. No changes or significant impact have appeared in the first half of 2016.

6 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FINAN- HALF YEARLY CONSOLIDATED FINANCIAL STATEMENTS Statement of financial position Notes 30/06/ /12/2015 Goodwill A1 327, ,488 Intangible assets A2 346, ,912 Tangible assets A3 232, ,083 Other financial assets 12,110 12,072 Share in companies accounted for by the equity method A4 2,492 1,889 Deferred tax assets 22,443 17,606 Non-current assets 943, ,050 Inventories and work in progress A5 199, ,314 Trade receivables A6 143, ,907 Other financial assets Other receivables A7 74, ,355 Cash and cash equivalents 60,161 51,163 Assets classified as held for sale - - Current assets 477, ,500 Assets 1,420,797 1,430,550 Share capital 10,573 10,573 Reserves attributable to the owners of the parent company 432, ,837 Equity attributable to the owners of the parent company 443, ,410 Non-controlling interests 45,946 43,880 Equity 488, ,290 Deferred tax liabilities 43,069 41,321 Provisions for employee benefits 17,504 15,425 Other provisions A9 2,484 2,986 Other financial liabilities A10 554, ,562 Other payables Non-current liabilities 618, ,183 Other provisions A ,001 Trade payables A8 92, ,026 Other financial liabilities A10 112, ,305 Other payables 108, ,745 Current liabilities 313, ,077 Liabilities 1,420,797 1,430,550

7 Income statement Notes 30/06/ /06/2015 Change Revenue from ordinary activities A11 429, , % Purchases consumed -142, ,599 External costs -95,940-98,223 Personnel costs -135, ,375 Taxes and duties -6,706-6,728 Depreciations and provisions -11,811-14,583 Other operating income and expenses A12 2,238-4,325 Adjusted operating profit from ordinary activities 39,742 27, % Depreciations of intangible assets arising from acquisitions -8,226-9,620 Operating profit from ordinary activities 31,516 17, % Other non-current income and expenses A13 0-7,855 Operating result 31,516 9, % Financial income and expenses A14-6,992-9,853 Profit before tax 24, % Income tax Share from companies' result accounted for by the equity method A15-9, A Result for the period 15, % attributable to the owners of the parent company 13,098-3, % attributable to the non-controlling interests 2,081 3, % Profit attributable to the owners of the parent company, per share Profit attributable to the owners of the parent company, diluted per share A % A % For the sake of clarity of its economic performance, the Group decided to isolate, as of June 30, 2015, the impact of the depreciations of intangible assets arising from acquisitions. Indeed, this one is significant given the latest business combinations operated by the Group. Consequently, the income statement shows an operating result adjusted from this impact.

8 Comprehensive income statement Result for the period Conversion gains and losses Effective portion of gains and losses on hedging instruments Items subsequently reclassifiable to profit and loss (before tax) Actuarial gains and losses Items not subsequently reclassifiable to profit and loss (before tax) 30/06/ /06/2015 Change 15, % -2,549 20,159-2, ,175 20, % -1, , % Other items of comprehensive income (before tax) -6,694 21, % Tax on items subsequently reclassifiable to profit and loss Tax on items not subsequently reclassifiable to profit and loss Comprehensive income attributable to the owners of the parent company attributable to the non-controlling interests ,912 20, % 5,509 16, % 4,403 4, % Statement of change in equity Share capital Share premiums Reserves Conversion reserves Result for the period Equity attributable to the owners of the parent company Noncontrolling interests Equity Restated equity as at 31/12/ ,573 6, ,867-11,228 63, ,342 50, , allocation of net income , , Distribution of dividends , ,013-7,851-23,864 Treasury shares Changes in scope , , ,471 Other variations Comprehensive income ,711 9,405 24, ,875 Equity as at 31/12/ ,573 6, ,886 3,012 9, ,410 43, , allocation of net income - - 9, , Distribution of dividends ,337-2,337 Treasury shares Changes in scope Other variations Comprehensive income ,719-4,871 13,098 5,509 4,403 9,912 Equity as at 30/06/ ,573 6, ,670-1,859 13, ,017 45, ,963 The ordinary shareholders meeting of June 24, 2016 decided to pay no dividend on the result of fiscal year 2015.

9 Cash flow statement Notes 30/06/ /06/2015 Result for the period 15, Elimination of share from companies profit accounted for by the equity method A Elimination of depreciations and provisions 20,430 25,311 Elimination of deferred tax change -2,261 - Elimination of gains and losses on disposals Other income and expenses with no cash impact 2,102 7,397 Cash flow 35,165 32,973 Effect of net change in inventories A5-17,296-10,874 Effect of net change in trade receivables A6 7,668-10,972 Effect of net change in trade payables A8-13,617 13,571 Effect of net change in other receivables and payables 11,087-47,932 Effect of change in working capital requirements -12,158-56,207 Net financial interests paid A14 9,288 6,523 Net cash flow generated by operating activities 32,295-16,711 Acquisitions of intangible assets A2-3,181-2,659 Acquisitions of tangible assets A3-A8-16,898-18,532 Disposals of intangible and tangible assets Change in financial assets -2,684-2,667 Change in debts relative to acquisitions - - Acquisitions of subsidiaries or activities ,749 Disposals of subsidiaries or activities - - Dividends received - - Net cash flow allocated to investing activities -22, ,972 Dividends paid to the owners of the parent company - -16,013 Dividends paid to the non-controlling interests -2,337-7,853 Change in treasury shares Increase/decrease of capital - - Cash investments 669 1,728 Debt issuance A10 907, ,573 Repayments of debt A10-900, ,876 Net financial interests paid A14-9,288-6,523 Net cash flow from financing activities -5,050 70,448 Change in cash position 4, ,235

10 Statement of change in cash position 30/06/ /06/2015 Cash and cash equivalents 51, ,912 Bank overdraft -12,098-7,845 Accrued interests not yet matured Opening net cash position 39, ,043 Cash and cash equivalents 60,161 49,423 Bank overdraft -17,170-12,297 Accrued interests not yet matured Closing net cash position 42,946 37,126 Impact of currency conversion adjustments ,318 Impact of changes in scope - Net change in cash position 4, ,235 NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS General information note Virbac is an independent global pharmaceutical laboratory exclusively dedicated to animal health and markets a full range of products designed for companion animals and food producing animals. Virbac is a public limited company under French law with an executive board and a supervisory board. Its trading name is Virbac. The company was established in 1968 in Carros. The lifetime of the company was extended until June 17, The head office is located at 1 ère avenue 2 065m LID, Carros. The company is registered on the Grasse Trade registry under the number RCS Grasse. The Virbac share is listed on the Paris stock exchange in section A of Euronext. The 2016 condensed half-year consolidated financial statements were approved by the executive board on September 5, The explanatory notes below support the presentation of the consolidated accounts and form an integral part of them. Significant events for the period Resumption of manufacturing operations in the St. Louis facility In the United States, the resumption of the manufacturing, release and commercial activities of the legacy products continued in the first half of At the same time, the Virbac group continued to invest and set up the necessary changes in the quality system of St. Louis site to ensure full compliance with the cgmp (current Good manufacturing practices) and prepare at best the new inspection. As a result of these efforts, the operating margin (before amortisations of acquistions and R&D) of the US subsidiary improved by more than 16 points in percentage of sales. This was achieved through an increase of the margin by $5.3 million (related to an increase in sales of legacy products) as well as through a variation of the provision on inventories and destructions of inventories of $5.7 million. Moreover, the variation of the provisions for risks had a positive impact of $2.2 million. Note that the consultancy fees incurred in connection with improving the quality system are slightly lower in the first half 2016 compared to the first half The results of the impairment tests performed on the assets of Virbac US are shown in note A2. Implementation of a factoring scheme in Europe In order to improve its cash position, the Group implemented a receivables factoring programme to which many European affiliates subscribed. This factoring scheme engendered as at June 30, 2016, the derecognition of about 15 million receivables into these entities.

11 Significant events after the closing date On-site inspection of the Food and drug administration In the United States, as a follow-up of the inspection initiated in December 2014, the FDA (Food and drug administration) has inspected the manufacturing site of St. Louis from August 9 to September 7, Following this inspection, the FDA has provided the company Virbac Corporation with a 483 report containing five observations. In accordance with standard procedures, the FDA did not make any comment, at this stage, regarding the suspension or not of the warning letter received in December Virbac has now fifteen days after the receipt of the 483 report to answer to the FDA, who will then decide on the consequences of this inspection within a period that usually ranges from two to six months. Scope of consolidation The condensed consolidated financial statements as at June 30, 2016 include the financial statements of the companies that Virbac controls indirectly or directly, in law and in fact. The list of consolidated companies is provided in note A19. Main accounting principles applied The Virbac group s consolidated financial statements were drawn up in line with the international accounting standards as adopted by the European Union (accounting basis available on the ec.europa.eu website). The international accounting standards include the IFRS (International financial reporting standards), the IAS (International accounting standards) and their interpretations SIC (Standards interpretations committee) and IFRIC (International financial reporting interpretations committee). The half-year condensed financial statements as of June 30, 2016, are presented and have been prepared in accordance with standard IAS 34 Interim financial reporting. The condensed interim financial statements do not include the whole information required by the IFRS reference system. They should be analysed with the consolidated statements of the previous year s balance sheet date, as of December 31, The accounting principles applied to the condensed consolidated financial statements are identical to those applied to the preparation of the consolidated statements of the previous year s balance sheet date, as of December 31, For the presentation of the condensed consolidated financial statements as of June 30, 2016, the Group applied all the standards and interpretations in force at European level applicable for fiscal years beginning on January 1, These standards and interpretations are as follows: amendments to IAS 1 disclosure initiative, applicable to periods beginning on or after January 1, 2016; amendments to IAS 16 and IAS 38, acceptable methods of depreciation and amortisation, applicable to periods beginning on or after January 1, 2016; amendments to IAS 19, defined benefit plans - employees contributions, applicable to periods beginning on or after February 1, 2015; amendments to IAS 27, equity method in separate financial statements, applicable to periods beginning on or after January 1, 2016; amendments to IFRS 11 accounting for acquisitions of interests in joint operations, applicable to periods beginning on or after January 1, 2016; amendments to IAS 16 and IAS 41, bearer plants, applicable to periods beginning on or after January 1, 2016; amendments to IFRS 10, IFRS 12 and IAS 28, investment entities applying the consolidation exception ; annual improvements ( cycle), annual improvements to IFRS published in December 2013, applicable to periods beginning on or after January 1, 2016; annual improvements ( cycle), annual improvements to IFRS published in September 2014, applicable to periods beginning on or after January 1, Application of these new standards has not had a significant impact on half-year condensed consolidated financial statements as of June 30, On the end date of these consolidated accounts, the following standards and interpretations were submitted by IASB (International accounting standards board) but still not adopted by the European Union or not applicable by anticipation: IFRS 9 financial instruments ; IFRS 15 revenue from contracts with customers ; IFRS 16 leases ; amendments to IAS 16 and IAS 38, acceptable methods of depreciation and amortisation, applicable to periods beginning on or after January 1, 2016; amendments to IAS 7, statement of cash flows ; amendments to IAS 12, recognition of deferred tax assets for unrealised losses ; amendments to IFRS 2, classification and measurement of share-based payment transactions. The Group is currently performing an analysis on the practical consequences of these new texts and the effects of their application on the accounts. Where necessary, the Group will apply these standards in its financial statements when adopted by the European Union.

12 Consolidation rules Consolidation methods The accounts of companies under exclusive control are consolidated by global integration. Those companies over which Virbac exercises joint control or significant influence are accounted for by the equity method. All companies have been consolidated on the basis of financial statements using 30 June, 2016 as their balance sheet date. Conversion of financial statements The functional currency in the Group's foreign subsidiaries is the current local currency with the exception of the company Santa Elena in Uruguay whose functional currency is US dollar. The financial statements of foreign companies for which the functional currency is not the euro are converted according to the following principles: the balance sheet items are converted at the rate in force at the close of the period. The conversion difference resulting from the application of a different exchange rate on opening equity is shown as equity in the consolidated balance sheet; the income statements are converted at the average rate for the period. The conversion difference resulting from the application of an exchange rate different from the balance sheet rate is shown as equity on the consolidated balance sheet. Elimination of inter-company transactions All reciprocal transactions between the Group's companies consolidated by overall inclusion are eliminated. Regarding the other intra-group transactions: the benefits included in the inventories and fixed assets bought from other companies in the Group are eliminated; the intra-group dividends received are recorded in the reserves on a gross basis. Transfer prices charged for transactions between Group s affiliates are the same as the ones that would have been determined in an arm s length transaction with third party. Estimations The drawing up of consolidated financial statements prepared in accordance with international accounting standards implies that the Group makes a number of estimates and assumptions believed to be realistic and reasonable. Certain facts and circumstances could lead to changes in estimates and assumptions, which could affect the value of assets, liabilities, equity and Group income. Acquisition prices Some acquisition contracts relating to business combinations or the purchase of intangible assets, include a clause likely to change the price of the acquisition, depending on the objectives associated with financial income, the obtainment of marketing authorisation, or results of efficacy testing. In this case, the Group should estimate, at the close of the fiscal year, the acquisition price based on the most realistic assumptions for achieving these objectives. Tax charge The Group tax charge is calculated on the basis of the effective tax rate estimated for the fiscal year 2016, and applied to the result before tax as at June 30, This annual effective tax rate was estimated based on the tax rates (and tax regulations) in force or substantially adopted at the end of June 2016.

13 A1. Goodwill Gross value as at 31/12/2015 Impairment value as at 31/12/2015 Book value as at 31/12/2015 Increases Sales Impairment of value Conversion gains and losses Book value as at 30/06/2016 Italy 1,585-1, ,585 Denmark 4,643-4, ,643 Leishmaniosis vaccine 5,421 5, ,421 Greece 1,359-1, ,359 Colombia 1,837-1, ,943 India 15,727-15, ,145 United States 236,563-3, , , ,319 Australia 3, , ,050 Peptech 3,241-3, ,233 New Zealand 15, , ,099 Chile 30,614-30, ,537 32,151 Uruguay 4,370-4, ,285 SBC 7,555-7, ,462 Other CGUs 4,206-1,710 2, ,501 Goodwill 336,466-5, , , ,195 The variation of this item is due to exchange rate fluctuations.

14 A2. Intangible assets Concessions, patents, licences and brands Other intangible assets Intangible assets in progress Intangible assets Indefinite life Finite life Gross value as at 31/12/ , ,425 46,482 6, ,159 Acquisitions and other increases ,264 3,182 Disposals and other decreases Changes in scope Transfers ,738-2, Conversion gains and losses 1, Gross value as at 30/06/ , ,910 49,187 6, ,191 Depreciation as at 31/12/ ,727-39, ,248 Depreciation expense - -8,697-1, ,590 Impairment losses (net of reversals) Disposals and other decreases Changes in scope Transfers Conversion gains and losses Depreciation as at 30/06/ ,338-41, ,564 Net value as at 31/12/ , ,698 6,749 6, ,912 Net value as at 30/06/ , ,572 7,505 6, ,627 Impairment tests as at June 30, 2016 The Group performs impairment tests on the net book value of the assets at least annually, for year-end closing. At half-year closing, the Group assesses if there is objective evidence that an asset is impaired, based on qualitative and quantitative criteria, and, when appropriate, proceeds to an impairment test. At the end of June 2016, the Group re-examined the value of its CGU Chile and United States. Nevertheless, the conclusion of the test did not conduct in neither case, Virbac to recognize an impairment at June, 30. The tests performed at June 30,2016 are based on business plans validated by the management and the key assumptions used for these tests are stated below: Net book value as at 30/06/2016 Discount rate Perpetual growth rate Goodwill Intangible assets Chile 32,150 76, % 3.00% United States 228, , % 2.00% Total value 260, ,965 Sensitivity tests Sensitivity testing involves changing the key assumptions as following: increasing discount rate by +2.0 points; reducing the perpetual growth rate by -2.0 points. Moreover, the Group proceeds to additional sensitivity tests corresponding to the calculation of the break-even point, that is the discount rate combined with a zero perpetual growth rate, on the basis of which the Group would have to recognize an impairment.

15 The conclusions of the sensitivity tests and the calculation of the break-even point for the CGU Chile and United States at June 30, 2016, are shown below: increasing discount rate by +2.0 points Net book value of CGU as at 30/06/2016 Key assumption discount rate +2.0 points Key assumption growth rate Depreciation Chile 178, % 3.00% 11,288 United States 452, % 2.00% - reducing the perpetual growth rate by -2.0 points Net book value of CGU as at 30/06/2016 Key assumption discount rate Key assumption growth rate -2.0 points Depreciation Chile ,00% 1,00% - United States ,00% 0,00% - break-even point Net book value of CGU as at 30/06/2016 Discount rate, combined into a zero perpetual growth rate, from which impairment is established Chile 178, % United States 452, %

16 A3. Tangible assets Land Buildings Technical facilities, materials and industrial equipment Other tangible assets Tangible assets in progress Tangible assets Gross value as at 31/12/ , , ,465 30,261 33, ,288 Acquisitions and other increases ,542 1,667 10,840 15,804 Disposals and other decreases Changes in scope Transfers - 1,736 1, ,737-1,447 Conversion gains and losses ,246 Gross value as at 30/06/ , , ,688 31,846 39, ,614 Depreciation as at 31/12/ ,850-89,216-19, ,205 Depreciation expense - -3,476-5,564-1, ,798 Impairment losses (net of reversals) Disposals and other decreases Changes in scope Transfers ,500 Conversion gains and losses Impairment as at 30/06/ ,776-94,058-19, ,700 Net value as at 31/12/ ,345 89,385 74,249 11,122 33, ,083 Net value as at 30/06/ ,317 88,196 72,630 11,979 39, ,913 The increase in this caption, including tangible assets in progress, is mainly related to: continued investments in the plant of St. Louis in the United States, aimed at transferring the production of the Sentinel Spectrum range; continued compliance upgrades in the St. Louis facility; recurring investments in Carros. A4. Share in companies accounted for by the equity method Company's individual accounts using equity method Consolidated financial statements Balance sheet total Equity Sales Result Share of equity Share of result AVF N/A N/A N/A N/A 2, Share in companies accounted for by the equity method 2,

17 A5. Inventory and work in progress Raw materials and supplies Work in progress Finished products and goods for resale Inventories and work in progress Gross value as at 31/12/ ,060 12, , ,894 Variations 8,969 1,922 5,804 16,694 Changes in scope Transfers Conversion gains and losses Gross value as at 30/06/ ,985 14, , ,532 Depreciation as at 31/12/2015-8, ,983-16,579 Allowances -1, ,361-3,670 Reversals 1, ,707 4,272 Changes in scope Transfers Conversion gains and losses Depreciation as at 30/06/2016-8, ,779-16,053 Net value as at 31/12/ ,535 12,282 96, ,314 Net value as at 30/06/ ,807 14, , ,479 The increase of inventory on first half-year is partly due to a seasonality effect on some ranges of products, as parasiticides in Europe. In the United States, the increase of the inventories is linked to the resumption of manufacturing operations in St. Louis facility and the restocking of finished goods, combined with an extension of the release period of the products. The increase of inventory is also explained by business growth in other countries (Brazil ) A6. Trade receivables Trade receivables Gross value as at 31/12/ ,362 Variations -7,693 Changes in scope - Transfers -25 Conversion gains and losses 1,212 Gross value as at 30/06/ ,856 Depreciation as at 31/12/2015-3,455 Allowances -45 Reversals 70 Changes in scope - Transfers -1,155 Conversion gains and losses 9 Depreciation as at 30/06/2016-4,575 Net value as at 31/12/ ,907 Net value as at 30/06/ ,281

18 The decrease of this item mainly comes from the factoring scheme implemented in Europe, which resulted into the derecognition of account receivables for a total amount of 15 million. The amount reported on the line transfers corresponds to a reclassification into the item Other provisions (see note A9). A7. Other receivables 31/12/2015 Variations Changes in scope Transfers Conversion gains and losses 30/06/2016 Income tax receivables 18,124-36,986-24, ,001 Social receivables Other receivables to the State 27,231-2, ,919 Advances and prepayments on orders 3, ,287 Depreciation on various other receivables Prepaid expenses 7,687 2, ,820 Deferred charge on debt issuance 1, ,222-0 Other various receivables 41,929 14, , ,256 Other receivables 100,355-24, ,222-1,008 74,028 The decrease of this item is mainly due to the assignment of the receivables relating to the tax credit research of the years 2013, 2014 and 2015 for a total amount of 21,577 thousand. It is also explained by the reimbursement of the tax carry-back receivable which was accounted for by Virbac US up to 15,026 thousand in 2015 year end accounts. A8. Trade payables 31/12/2015 Variations Changes in scope Transfers Conversion gains and losses 30/06/2016 Current trade payables 114,778-13, , ,050 Payables of intangible assets Payables of tangible assets 248-1, Trade payables 115,026-14, , ,171 The amount reported into the column Transfers corresponds to accounts payables relating to customer loyalty programmes and rebates. A9. Other provisions 31/12/2015 Allowances Reversals Changes in scope Transfers Conversion gains and losses 30/06/2016 Trade disputes and industrial tribunals 1, ,842 Fiscal disputes Various risks and charges 1, Other non-current provisions 2, , ,484 Trade disputes and industrial tribunals 1, , Fiscal disputes Various risks and charges Other current provisions 2, , Other provisions 4, , ,866

19 Other provisions mainly relate to commercial or social risks. Previous provisions that were reversed have been used for the purpose for which they were intended. The amount reported into the column transfers relates to a current provision which was reclassified as provision on trade receivables. No provision is recognised if the company considers that the liability is contingent (as defined by IAS 37). This is the case in particular of a claim lodged in 2014 by a competitor of the Group in reparation of alleged damage relating to a method to use patent. The company considers that claim to be both legally unfounded and quantitatively disproportionate in view of the low level of revenue earned by the product in question. It is therefore a contingent liability, with a low probability of leading to a significant outflow. Virbac has been subject to a tax control of fiscal years 2011 to 2013, and it resulted in a tax reassessment proposal received on July 27, Virbac accrued a provision for 0.4 million in 2015 year-end accounts. The main amount of this proposal, that is 3.5 million, has been disclosed into the notes to the annual financial statements as contingent liabilities. Virbac brought administrative proceedings to contest the amount of this proposal. Discussions with tax administrations ended with a revised reassessment of 0.7 million (including the 0.4 million previously accrued). A10. Other financial liabilities Change in other financial liabilities 31/12/2015 Increase Decrease Changes in scope Transfers Conversion gains and losses 30/06/2016 Loans 515, , , ,832-3, ,423 Bank overdrafts Accrued interests not yet matured Debt relating to leasing contracts 4, , ,156 Employee profit sharing Currency and interest rate derivatives 2,726 4, ,973 Other Other non-current financial liabilities 523, , , ,296-3, ,556 Loans 117,950 26,218-53, ,295 92,029 Bank overdrafts 12,098 5, ,169 Accrued interests not yet matured Debt relating to leasing contracts 3, ,833-1, ,052 Employee profit sharing Currency and interest rate derivatives Other Other current financial liabilities 133,306 31,533-55,437-1,659 1, ,358 Other financial liabilities 656, , , ,637-2, ,914 The main features of the two funding instruments put in place in April 2015 are as follows: a syndicated loan of 420 million, drawn in euros and dollars, contracted with a pool of banks and repayable in full upon maturity in April 2020, with the option to extend the term to April 2022; market-based contracts (Schuldschein) of 160 million and $99 million consisting of eight instalments, with maturities of five, six, seven and eight years, at variable and fixed rates. As at June 30, 2016, the position of these funding instruments was as follows: the drawn credit facility amounted to $345 million and 53 million; the market-driven contracts amounted to $37 million and 65 million. These fundings include a financial covenant compliance clause that requires the borrower to adhere to the following financial ratio, which is based on the consolidated financial statements and reflects net consolidated indebtedness for the period considered on the consolidated Ebitda (Earnings before interests, taxes, depreciation and amortisation) for the same test period. Net consolidated indebtedness corresponds to the total of the other financial liabilities (current and non-current), as follows: loans, bank overdrafts, accrued interests not yet matured, debt relating to leasing contracts, employee profit-sharing, currency

20 and interest rate derivatives, and others; less : cash and cash equivalents, fixed-term deposits, and currency and interest rate derivatives as shown into the consolidated statements. Consolidated Ebitda corresponds to the operating result of the considered period plus the allowances to amortisations and provisions net from releases, and dividends received from non-consolidated entities. As a result of the discussions led with the creditors during the third quarter of fiscal year 2015, the initial ratio was relaxed till the end of 2016 as follows: the ratio should not exceed 7 at June 30, 2016; the ratio should not exceed 4.5 at December 31,2016. As at June 30, 2016, the ratio is below 7. Bilateral loans previously put in place were drawn for an amount of 57 million as at June 30, Additionally, a new financing offer amounting to 15 million, has been put in place with BPI (Banque publique d investissement) in May Other financial liabilities by maturity Payments Total less than 1 year from 1 to 5 years more than 5 years Loans 92, ,533 90, ,453 Bank overdrafts 17, ,169 Accrued interests not yet matured Debt relating to leasing contracts 3,052 4,156-7,209 Employee profit sharing Currency and interest rate derivatives - 6,973-6,973 Other Other financial liabilities 112, ,666 90, ,914 A11. Revenue from ordinary activities 30/06/ /06/2015 Change Sales of finished goods and merchandise 480, , % Services % Additional income from activity % Royalties paid % Gross sales 481, , % Discounts, rebates and refunds on sales -40,195-35, % Expenses deducted from sales -8,692-6, % Financial discounts -1,986-1, % Provision for returns , % Expenses deducted from sales -51,684-45, % Revenue from ordinary activities 429, , % Sales globally decreased by -0.5% during the first half, a period showing a negative foreign exchange impact. At constant rates, the growth amounts to +3.6%, driven by good performances in all areas, except in Chile.

21 A12. Other operating income and expenses 30/06/ /06/2015 Change Royalties paid -1,943-2, % Grants received (including research tax credit) 3,960 4, % Allowances for depreciation of receivables % Reversals of depreciation of receivables % Bad debts and net depreciation of receivables % Net result on disposed assets % Income from disposals of assets % Other operating income and expenses 329-5, % Other current income and expenses 2,238-4, % Other operating expenses at June 30, 2015, includes to a large extend the payment done during the first part of the year, in order to settle a dispute with a competitor related to the use of a trademark in France, as well as costs related to the acquisition of the Sentinel products in the US. A13. Other non-current income and expenses Into the accounts closed as at June 30, 2015, the amount recorded under this item corresponds to the impact of the disposal, during the first semester 2015, of the finished goods of the Sentinel range that Virbac US acquired and which was reassessed at fair value. This impact amounted to $8,757 thousand ( 7,855 thousand). A14. Financial income and expenses 30/06/ /06/2015 Change Gross cost of financial debt -10,011-7, % Income from cash and cash equivalents 723 1, % Net cost of financial debt -9,288-6, % Foreign exchange gains and losses 6,248-1, % Changes in foreign currency derivatives and interest rate -3,869-1, % Other financial charges % Other financial income % Other financial income and expenses 2,296-3, % Financial income and expenses -6,992-9, % The evolution of financial result reflects the increase of the gross cost of financial debt, in relation with additional charges linked to the approval of the waiver at the end of 2015, and the increase of the rates between both periods. A15. Income tax In accordance with IAS 34, in the financial statements at June 30, 2016, the tax charge was determined by applying to the profit before tax for the period the average tax rate estimated for the year 2016.

22 A16. Result per share 30/06/ /06/2015 Profit attributable to the owners of the parent company 13,098,252-3,824,129 Total number of shares 8,458,000 8,458,000 Impact of dilutive instruments - - Number of treasury shares 33,677 30,719 Outstanding shares 8,424,323 8,427,281 Profit attributable to the owners of the parent company, per share Profit attributable to the owners of the parent company, diluted per share Treasury shares Virbac holds treasury shares mainly intended to supply plans to award performance shares, and the market-making contract. The amount of these shares is recorded as a reduction of equity. As at June 30, 2016, the number of shares amounted to 33,677 (against 30,719 shares as at June 30, 2015) for a total of 4,708 thousand. A17. Operating segments In accordance with IFRS 8, the Group provides information on operating segments as used internally by the executive board, considered as the chief operating decision maker. The segment reporting of the Group is the geographical area. The breakdown by geographic area covers seven sectors, according to the location of the assets of the Group: France; Europe (excluding France); Latin America; North America; Asia; Pacific; Africa & Middle East. The Group's operations are organised and managed separately according to the nature of the markets. There are two marketing segments that are companion animals and food producing animals. These can not be considered as a segment information for the reasons listed below: nature of products: most therapeutic segments are common to companion and food producing animals (antibiotics, pesticides...); production processes: the production lines are common to both segments and there is no significant differentiation of supply sources; type or category of customers: the distinction is made between the ethical sector (veterinarians) and OTC (Over the counter); internal organisation: the management structures of the Virbac Group are organised by geographical areas. There is no responsibility for marketing segment at Group level; distribution methods: the main distribution channels are more dependent on countries that segment marketing. The sales force may be, in some cases, common to both segments marketing; nature of the regulatory environment means the bodies authorising the placing on the market are the same regardless of the segment. In the information presented below, the areas correspond to geographical areas (areas of implementation of the Group's assets).

23 As at June 30, 2016 France Europe (excluding France) Latin America North America Asia Pacific Africa & Middle East Total Revenue from ordinary activities 70, ,237 66,975 72,363 60,696 42,395 9, ,960 Operating income 6,409 7,055 10,887-5,282 8,721 10,766 1,187 39,742 Profit attributable to the owners of the parent company 2,588 5,008 2,768-11,128 6,199 6, ,098 Non-controlling interests 4 0 2, ,081 Consolidated profit 2,592 5,008 4,845-11,128 6,199 6, ,179 A18. Information on related parties Transactions between the Group and related parties mainly concern: Compensation and assimilated benefits granted to the members of the administrative and management bodies In the first half of the year 2016, there is no significant transaction concluded between the Group and a member of the management body or a shareholder exercising a significant influence on the company. Throughout the first half of the year 2016, no performance-related stock grants were awarded. Transactions with companies on which Virbac exercises a significant influence or a joint control Transactions between related parties are arm s length operations. There is no major change in the nature of the transactions with related parties throughout the first half of the year 2016.