Cosmo Pharmaceuticals S.A. Statutory Financial Statements

Transcription

1 Cosmo Pharmaceuticals S.A. Statutory Financial Statements Cosmo Pharmaceuticals S.A. 19, Rue de Bitbourg L-1273 Luxembourg Share capital EUR 3,748, Registre de Commerce et des Sociétés Luxembourg N B194800

2 Table of contents Report of the Reviseur d entreprises agree 3 Statutory Financial statements as at 31 December Notes to the Statutory Financial statements 9 2

3

4

5 Income Statement EUR 1,000 Notes Year ended 31 December Revenue 5-1,806 Other income Personnel expenses 7 (16,999) (7,384) Other operating expenses 8 (3,260) (3,706) Depreciation and amortization 9 (10) (72) Net result from disposals ,401 - Dividends and other income from investments 11 80, Impairment (losses)/reversal on investments 12 (1,444) - Operating result 192,689 (9,245) Financial income 13 3,307 1,342 Financial expenses 13 (6,143) (1,107) Profit (loss) before taxes 189,853 (9,010) Income tax expenses 14 (188) (24,003) Profit (loss) for the year 189,665 (33,013) Statement of Comprehensive Income EUR 1,000 Notes Year ended 31 December Profit (loss) for the year (A) 189,665 (33,013) Total other comprehensive income that will not be reclassified subsequently to profit or loss, net of tax (B1) - - Other comprehensive income that will be reclassified subsequently to profit or loss Gains/(Losses) on fair value of available for sale financial assets 17 (325) (128) (Gain)/Losses on disposal of available for sale financial assets reclassified through profit or loss Exchange differences on translating foreign operations Income tax - 26 Total other comprehensive income that will be reclassified subsequently to profit or loss, net of tax (B2) Total other comprehensive income, net of tax (B)=(B1+B2) Total comprehensive income (A)+(B) 189,688 (32,621) The notes form an integral part of the Statutory financial statements 5

6 Statement of Financial Position EUR 1,000 Notes As at 31 December ASSETS Non-current assets Property, plant and equipment Investments 16 44,660 20,134 Financial assets ,000 5,301 Deferred tax assets - 11 Other non-current receivables Total non-current assets 149,664 25,446 Current assets Current tax assets Other receivables and other assets Current financial assets 17 27,626 6,901 Cash and cash equivalents 20 35,868 11,700 Total current assets 63,662 18,686 TOTAL ASSETS 213,326 44,132 EQUITY Share capital 3,749 3,749 Legal reserve Other reserves 53,763 82,709 FTA reserve (54) (54) Treasury shares (28,073) (28,328) Stock option plan reserve 10,004 4,352 Available for sale financial assets reserve (324) (275) Currency translation differences 72 - Retained earnings (32,283) (26,091) Profit/(Loss) for the year 189,665 (33,013) TOTAL EQUITY ,269 3,799 LIABILITIES Total non-current liabilities - - Current liabilities Trade payables ,056 Current tax liabilities ,038 Other current liabilities 24 15,679 16,239 Total current liabilities 16,057 40,333 TOTAL LIABILITIES 16,057 40,333 TOTAL EQUITY AND LIABILITIES 213,326 44,132 The notes form an integral part of the Statutory financial statements 6

7 Cash Flow Statement EUR 1,000 Notes As at 31 December Profit (loss) before taxes 189,853 (9,010) Income taxes paid (net) (23,027) 430 Depreciation and amortization Accrual to employee benefits - 38 Share payment based expenses 7,8 3,572 2,580 Accrued interest (313) 599 Net Result from disposal of Cassiopea shareholding interests 10 (134,401) - Impairment loss on financial assets available for sale (Biomass) 1,444 - Dividend riclassification 11 (80,000) (15) (42,862) (5,306) Change in trade receivables - 8 Change in trade payables (819) 625 Change in other receivables and other assets (49) 989 Change in other current liabilities (2,685) 1,802 Change in current tax liabilities (9) (30) Payment of employee benefits - (96) Cash flows from operating activities (46,424) (2,008) Investments in property, plant and equipment (139) (90) Investments in other intangible assets - (59) Disposals of property, plant and equipment Disposals of other intangible assets - 86 Investments in subsidiaries 16 (50,203) - Investments in financial assets available for sale 17 (131,362) - Disposal of financial assets available for sales 17 12,202 52,489 Disposal of controlling interests in Cassiopea SpA ,714 - Dividend received 11 80, Cash flows from investing activities 71,212 52,654 Change in other non current receivables (875) - Purchase of treasury share - (52,126) Sale of treasury share Dividends paid - (14,255) Cash flows from financing activities (620) (66,381) Net increase/(decrease) in cash and cash equivalents 24,168 (15,735) Cash and cash equivalents at the beginning of the year 11,700 27,435 Cash and cash equivalents at the end of the year 20 35,868 11,700 Cash at hand 4 8 Bank accounts 35,864 11,692 Total cash and cash equivalents at the end of the year 35,868 11,700 The notes form an integral part of the Statutory financial statements 7

8 Statement of Changes in Equity EUR1,000 Number of shares (n) Share capital Legal reserve Other reserves FTA reserve Treasury shares Stock option plan reserve Available for sale financial assets reserve Currency translation differences Retained earnings Total Net equity as at 1 January ,995,743 3,749-41,577 (54) (2,339) 30 (667) - 69, ,057 Allocation of previous year result 3,451 65,574 (69,025) - Purchase of treasury shares (12,888) (52,126) 12,888 (52,126) Cancellation of treasury shares (576,760) 39,757 (39,757) - Treasury shares put back in the withdrawal process (13,620) (13,620) Dividends payment (14,255) (14,255) Personnel cost for stock options 4,364 4,364 Stock option forfeited during the year (42) 42 - Partial riclassification of legal reserve (2,701) 2,701 - Total comprehensive income for the period 392 (33,013) (32,621) Net equity as at 31 December ,418,983 3, ,709 (54) (28,328) 4,352 (275) - (59,104) 3,799 EUR1,000 Number of shares (n) Share capital Legal reserve Other reserves FTA reserve Treasury shares Stock option plan reserve Available for sale financial assets reserve Currency translation differences Retained earnings Total Net equity as at 1 January ,418,983 3, ,709 (54) (28,328) 4,352 (275) - (59,104) 3,799 Allocation of previous year result (28,946) 28,946 - Sales of treasury shares opted in the withdrawal process Fx differences on paid to withdrawing shareholders (2,125) (2,125) Personnel cost for stock options 5,652 5,652 Total comprehensive income for the period (49) , ,688 Net equity as at 31 December ,418,983 3, ,763 (54) (28,073) 10,004 (324) , ,269 The notes form an integral part of the Statutory financial statements 8

9 Notes to the Statutory Financial Statements 1 General information Cosmo Pharmaceuticals S.p.A. was incorporated on 29 June 2006 and organized under the laws of Italy. On 18 March 2015, Cosmo Pharmaceuticals S.A. transferred the place of Its registered office and Its principal place of business from Italy to Luxembourg and changed Its name from Cosmo Pharmaceuticals S.p.A. to Cosmo Pharmaceuticals S.A. Cosmo Pharmaceuticals S.A. (the Company, "Cosmo"), legally and commercially registered in the Grand Duchy of Luxembourg, is the parent company of Cosmo Pharmaceuticals Group and it holds direct and indirect interests in the Group s principal operating companies. The Company with its subsidiaries and associated company, is a specialty pharmaceutical company: the Company s objective is to become a global leader in the field of optimized therapies for selected diseases. The Company's shares are traded on SIX Swiss Exchange under the ISIN Code LU The Company head-office is at 19, Rue de Bitbourg, L 1273 Luxembourg, and the Company is registered with the Luxembourg Register of Commerce under the number B ; the Company has a Swiss branch located in Lugano, Switzerland. The Company's stock market capitalization as at 31 December 2015 was equal to CHF 2,338,759, Basis of preparation The 2015 Statutory Financial Statements are the separate financial statements for Cosmo Pharmaceuticals S.A. They have been prepared in accordance with the International Financial Reporting Standards ( IFRS ) issued by the International Accounting Standards Board ( IASB ) and adopted by the European Union and laws and regulations in Grand Duchy in Luxembourg. The designation IFRS also includes all valid International Accounting Standards ( IAS ), as well as all interpretations of the International Financial Reporting Interpretations Committee ( IFRIC ), formerly the Standing Interpretations Committee ( SIC ). Cosmo adopted IFRS as from 1 January 2015 so these are the first set of financial statements prepared in accordance with these standards. As the prior year financial statements were prepared in accordance with the Accounting Standards issued by the Italian Accounting Board (Organismo Italiano di Contabilità - OIC), as required by the applicable regulations, the prior year comparative figures have been recalculated and restated in accordance with International Accounting Standards (IFRS). The note 29 on the Transition to International Accounting Standards contains the reconciliations required by IFRS 1, together with the effects of adopting these accounting standards. Cosmo's financial statements and notes are prepared and expressed in thousands of euros, except where otherwise stated, rounding the amounts to the nearest thousand. As parent company for Cosmo Group, Cosmo Pharmaceuticals S.A. has also prepared consolidated financial statements for the year ended 31 December The financial statements are prepared under the historical cost convention (modified where applicable for the valuation of certain financial instruments), as well as on the going concern assumption. Cosmo Group s assessment is that no material uncertainty exists (as defined in paragraph 25 of IAS 1) as to its ability to continue as a going concern. The financial statements and related classification criteria adopted for the preparation of the Company s financial statements are based on the option allowed by IAS1 Presentation of financial statements. In consideration of the activities carried out by Cosmo Pharmaceuticals S.A., presentation of the Statutory Income Statement is based on the nature of revenues and expenses. The Consolidated Income Statement for Cosmo Group is classified according to function, which is considered more representative of the format used for internal reporting and management purposes and is in 9

10 line with international practice in the pharmaceutical sector. For the Statement of Financial Position, Cosmo has elected the current and non-current classification for the presentation of assets and liabilities. The statement of comprehensive income includes other changes in equity related to non-owner transactions as well as the profit/loss of the year, the statements of cash flows present cash flows from operating activities using the indirect method and the statement of changes in equity includes all the changes in equity. The preparation of the Company financial statements and the related notes require the use of estimates and assumptions that affect the application of accounting policies and the reported amount of assets, liabilities, income and expenses. However, as they are estimates, actual future results could differ from those included in the financial statements. The management exercises judgment in selecting and applying the accounting principles, particularly in cases where the existing IFRS standards offer alternative recognition, valuation or presentation methods. 3 Changes in accounting policies The accounting policies adopted are consistent with those of the previous financial year, as no new IFRS or IFRIC interpretations that became effective on 1 January 2015 are relevant for the Company's operations. Standards, amendments and interpretations effective from 1 January 2015 but not applicable to the Company On 20 May 2013, the IASB issued the IFRIC Interpretation 21 Levies, an interpretation of IAS 37 Provisions, Contingent Liabilities and Contingent Assets. The interpretation sets out the accounting for an obligation to pay a levy that is not income tax. The interpretation addresses what the obligating event is that gives rise to pay a levy and when a liability should be recognized. IFRIC 21 is effective for annual periods beginning on or after June In December 2013, the IASB issued Annual Improvements to IFRSs Cycle. The most important topics addressed in these amendments are, among others, the extension of the exclusion from the scope of IFRS 3 Business Combinations to all types of joint arrangements and to clarify the application of certain exceptions in IFRS 13 Fair value Measurement. The improvements are effective for annual periods beginning on or after 1 January Accounting principles, amendments and interpretations not yet applicable and not early adopted by the Company The following amendments and interpretations to existing standards have been published and are mandatory for the Company's accounting periods beginning on or after 1 January 2015 or later periods. The Company is currently assessing any effect that the adoption of these new standards, amendments and interpretations to existing standards may have on the financial statements if they are relevant for the Company operations. In November 2013, the IASB published narrow scope amendments to IAS 19 Employee benefits entitled Defined Benefit Plans: Employee Contributions. These amendments apply to contributions from employees or third parties to defined benefit plans in order to simplify their accounting in specific cases. The amendments are effective, retrospectively, for annual periods beginning on or after 1 February 2015 with earlier application permitted. In December 2013, the IASB issued Annual Improvements to IFRSs Cycle. The most important topics addressed in these amendments are, among others, the definition of vesting conditions in IFRS 2 Share-based payments, the disclosure on judgment used in the aggregation of operating segments in IFRS 8 Operating Segments, the identification and disclosure of a related party transaction that arises when a management entity provides key management personnel service to a reporting entity in IAS 24 Related Party disclosures. The improvements are effective for annual periods beginning on or after 1 February In May 2014, the IASB issued amendments to IFRS 11 Joint arrangements: Accounting for acquisitions of interests in joint operations, clarifying the accounting for acquisitions of an interest in a joint operation that constitutes a business. The amendments are effective, retrospectively, for annual periods beginning on or after January 1, 2016 with earlier application permitted. 10

11 In May 2014, the IASB issued an amendment to IAS 16 Property, Plant and Equipment and to IAS 38 Intangible Assets. The IASB has clarified that the use of revenue-based methods to calculate the depreciation of an asset is not appropriate because revenue generated by an activity that includes the use of an asset generally reflects factors other than the consumption of the economic benefits embodied in the asset. The IASB also clarified that revenue is generally presumed to be an inappropriate basis for measuring the consumption of the economic benefits embodied in an intangible asset. This presumption, however, can be rebutted in certain limited circumstances. These amendments are effective for annual periods beginning on or after January 1, 2016, with early application permitted. In May 2014, the IASB issued IFRS 15 Revenue from contracts with customers. The standard requires a company to recognize revenue upon transfer of control of goods or services to a customer at an amount that reflects the consideration it expects to receive. This new revenue recognition model defines a five step process to achieve this objective. The updated guidance also requires additional disclosures about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts. The standard is effective for annual periods beginning on or after January 1, 2018, and requires either a full or modified retrospective application. In July 2014 the IASB issued IFRS 9 Financial Instruments. The improvements introduced by the new standard includes a logical approach for classification and measurement of financial instruments driven by cash flow characteristics and the business model in which an asset is held, a single expected loss impairment model for financial assets and a substantially reformed approach for hedge accounting. The standard is effective, retrospectively with limited exceptions, for annual periods beginning on or after January 1, 2018 with earlier application permitted. In August 2014 the IASB issued an amendment to IAS 27 Equity Method in Separate Financial Statements. The amendments reinstate the equity method as an accounting option for investments in subsidiaries, joint ventures and associates in an entity's separate financial statements. Consequently, the amendments allow an entity to account for investments in subsidiaries, joint ventures and associates in its separate financial statements: - at cost, - in accordance with IFRS 9 Financial Instruments (or IAS 39 Financial Instruments: Recognition and Measurement for entities that have not yet adopted IFRS 9), or - using the equity method as described in IAS 28 Investments in Associates and Joint Ventures. The accounting option must be applied by category of investments. The amendments also clarify that when a parent ceases to be an investment entity, or becomes an investment entity, it shall account for the change from the date when the change in status occurred. The amendments are effective for annual periods beginning on or after 1 January 2016, with earlier application being permitted. In September 2014, the IASB issued narrow amendments to IFRS 10 Consolidated Financial Statements and IAS 28 Investments in Associates and Joint Ventures (2011). The amendments address an acknowledged inconsistency between the requirements in IFRS 10 and those in IAS 28 (2011), in dealing with the sale or contribution of assets between an investor and its associate or joint venture. The main consequence of the amendments are that a full gain or loss is recognized when a transaction involves a business (whether it is housed in a subsidiary or not). A partial gain or loss is recognized when a transaction involves assets that do not constitute a business, even if these assets are housed in a subsidiary. At the present the IASB has suspended the application of this amendment. In September 2014 the IASB issued the Annual Improvements to IFRSs cycle, a series of amendments to IFRSs in response to issues raised mainly on IFRS 5 Non-current assets held for sale and discontinued operations, on the changes of method of disposal, on IFRS 7 Financial Instruments: Disclosures on the servicing contracts, on the IAS 19 Employee Benefits, on the discount rate determination. The effective date of the amendments is January 1, In December 2014 the IASB issued amendments to IAS 1- Presentation of Financial Statements as part of its major initiative to improve presentation and disclosure in financial reports. The amendments make clear that materiality applies to the whole of financial statements and that the inclusion of immaterial information can inhibit the usefulness of financial disclosures. Furthermore, the amendments clarify that companies should use professional judgment in determining where and in what order information is presented in the financial disclosures. The amendments are effective for annual periods beginning on or after January 1, 2016 with early application permitted. 11

12 In January 2016 the IASB issued IFRS 16- Leases -. The new standard has developed a new approach to lease accounting that require a lessee to recognise assets and liabilities for the rights and obligations created by the lease. The standard replaces IAS 17 Leases and is effective for annual periods beginning on or after January 1, Early application is permitted for companies that also apply IFRS 15 Revenue from Contracts with Customers. 4 Accounting policies The most significant accounting policies and measurement criteria applied to prepare the financial statements are summarized below. Property, plant and equipment Property, plant and equipment are stated at cost including related expenses, less accumulated depreciation (see below) and impairment losses. Subsequent expenditures are capitalized only if they increase the future economic benefits embodied in the related item of property, plant and equipment. All other expenditures are expensed as incurred. Property, plant and equipment that are being constructed or developed for future use are classified as Assets under construction and stated at cost until construction is complete, at which time they are reclassified as property, plant and equipment. Depreciation is recognized starting from the month in which the asset is available for use or potentially able to provide the economic benefits associated therewith on a systematic basis, whereby the assets are depreciated over their useful lives or, in the event of disposal, until their final month of use. Residual amounts, useful lives and the depreciation methods are reviewed at the end of every accounting period. The depreciation rates applied to the items of property, plant and equipment are the following: Buildings owned buildings Buildings leasehold - improvements Plant and machinery general Plant and machinery specific Industrial and commercial equipment Other tangible assets office equipment electronics Other tangible assets office equipment furniture Other tangible -assets means of internal -transportation 33 years At the lower of the useful life of the improvement and the residual term of the lease 10 years 8 years 3 years 5 years 8 years 5 years Appurtenance land related to own buildings or purchased through finance leases is stated separately and is not depreciated. Improvements to third-party assets are classified under property, plant and equipment depending on the nature of the asset to which it refers. The depreciation period is based on the lower of the asset s remaining useful life and the residual duration of the lease of the principal asset. If specific events indicate that impairment of an item of property, plant and equipment may have taken place, the item s recoverability is assessed by comparing its carrying amount with its recoverable amount, represented by the higher of the fair value net of disposal costs and value in use, as defined in the paragraph Impairment of property, plant and equipment and intangible assets. Assets held under finance leases, which provide the Group with substantially all the risks and rewards of ownership, are recognized as assets of the Group at their fair value or, if lower, at the present value of the minimum lease payments. The corresponding liability to the lessor is included in the financial statements as financial liabilities. Leases where the lessor retains 12

13 substantially all the risks and rewards of ownership of the assets are classified as operating leases. Operating lease expenditures are expensed on a straight-line basis over the lease terms. Investments Investments in subsidiaries and associates are recognized at cost and adjusted for any impairment losses. Any positive difference, arising on acquisition, between the purchase cost and fair value of net assets acquired in an investee company is included in the carrying amount of the investment. Investments in subsidiaries and associates are tested annually for impairment, or more frequently if evidence of impairment exists. Where an impairment loss exists, it is recognized immediately through the income statement. If the Company s share of losses of the investee exceeds the carrying amount of the investment and if the Company has an obligation or intention to cover those losses, the investment is written down to zero and a liability is recognized for the Company s share of any additional losses. If an impairment loss is subsequently reversed, the increase in carrying amount (up to a maximum of purchase cost) is recognized through the income statement. Financial assets Financial assets within the scope of IAS 39 are classified as financial assets at fair value through profit or loss, loans and receivables, held-to-maturity investments, or available-for-sale financial assets, as appropriate. When financial assets are recognized initially, they are measured at fair value, plus, in the case of investments not at fair value through profit or loss, directly attributable transaction costs. The Company determines the classification of its financial assets on initial recognition and, where allowed and appropriate, re-evaluates this designation at the end of each financial year. All regular way purchases and sales of financial assets are recognized on the trade date, which is the date that the Company commits to purchase the asset. Regular-way purchases or sales are purchases or sales of financial assets that require delivery of assets within the period generally established by regulation or convention in the marketplace. Available-for-sale financial assets are those non-derivative financial assets that are designated as available for sale or are not classified in any of the three preceding categories. After initial measurement, available-for-sale financial assets are -measured at fair value, at the close of business on the balance sheet date, with unrealized gains or losses recognized directly in equity until the investment is derecognized or determined to be impaired, at which time the cumulative gain or loss previously recorded in equity is recognized in profit or loss. The fair values of listed investments are based on current market prices. If the market for a financial asset is not active and for unlisted securities, the Company establishes fair values by using valuation techniques. These include the use of recent arm slength transactions, reference to other instruments that are substantially the same, discounted cash flow analysis, and optionpricing models refined to reflect the Company s specific circumstances. At each balance sheet date, the Company assesses whether a financial asset or group of financial assets is impaired. If an available-for-sale financial asset is impaired, an amount comprising the difference between its cost (net of any principal payment and amortization) and its current fair value, less any impairment loss previously recognized in profit or loss, is transferred from equity to profit or loss. Foreign currency transactions Transactions in foreign currency are translated into Euros using the exchange rate ruling on the transaction date. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated into Euros at the foreign exchange rate ruling at that date. Foreign exchange differences arising on translation are recognized in the income statement. Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction. Non-monetary assets and liabilities denominated in foreign currencies that are stated at fair value are translated into Euros at foreign exchange rates ruling at the dates the fair value was determined. Trade and other receivables and payables Trade and other receivables are stated at amortized cost net of impairment losses. The impairment loss is calculated on the basis of recovery assessments by analysing each receivable considered unlikely to be collected and the overall risk of non-recovery of the receivables. When the payment of the sum due is postponed beyond normal credit terms offered to customers, it is necessary to discount the receivable. Trade and other payables are measured at amortized cost which reflects the effective interest rate in the income statement and represents the rate used to discount the expected future cash flows to the carrying value of the assets to which they relate. 13

14 They are included in current assets or liabilities, except for maturities greater than 12 months after the balance sheet date. Cash and cash equivalents Cash and cash equivalents comprises cash balances and call deposits. Advances on invoices and bank overdrafts that are repayable on demand and form an integral part of the Company s cash management are included as a component of cash and cash equivalents for the purpose of the statement of cash flows. Employee benefits Obligations for contributions to defined contribution pension plans are recognized as an expense in the income statement as incurred. Forms of remuneration involving participation in stock capital (stock option plans) The Company grants additional benefits to the Board and senior management and key employees through stock option plans. Pursuant to IFRS 2, Share-based payment, these plans represent a form of remuneration for the beneficiaries. The cost is equal to the fair value as calculated on the date the option rights are granted and is recorded in the income statement on a straight-line basis over the vesting period, i.e., the date between the date the stock option plan was granted and the date the rights matured. The corresponding entry is made directly to shareholders equity. Changes in fair value after the grant date do not have an effect on the initial valuation. At each balance sheet date, the Group revises its estimate of the number of options that are expected to become exercisable. It recognizes the impact of the revision to original estimates, if any, in the income statements, with a corresponding adjustment to equity. The proceeds received net of any directly attributable transaction costs are credited to share capital (nominal value) and share premium when the options are exercised. The compensation component from stock option plans based on Cosmo Pharmaceuticals S.A. shares relating to employees of other Group companies is recognized as a capital contribution to the subsidiaries which employ the beneficiaries of the stock option plans, in accordance with IFRS 2 and, as a result, is recorded as an increase in the carrying amount of the investment, with a balancing entry recognized directly in equity. Treasury shares Treasury shares are presented as a deduction from equity. The purchase cost of treasury shares and the sales proceeds of any subsequent sale are presented as movements in equity. Dividends received Dividends from investees are recognized in the income statement when the right to receive the dividend is established. Revenue Revenue is recognized when it is probable that economic benefits associated with a transaction will flow to the Company and the amount can be reliably measured. Revenue is presented net of any adjusting items. Income tax The tax charge for the period is determined on the basis of prevailing laws and regulations. Taxes on income are recognized in the income statement except to the extent that they relate to items directly charged or credited to equity, in which case the related income tax effect is recognized in equity. Deferred tax assets and liabilities are determined on the basis of all the temporary differences between the carrying amount of an asset or liability in the statement of financial position and its corresponding tax basis. Deferred tax assets resulting from unused tax losses and temporary differences are recognized to the extent that it is probable that future taxable profit will be available against which they can be utilized. Current and deferred income taxes and liabilities are offset when there is a legally enforceable right to offset. Deferred tax assets and liabilities are measured at the substantively enacted tax rates that are expected to apply to taxable income in the periods in which temporary differences will be reversed. Until 31 December 2014, Cosmo Pharmaceuticals S.p.A. (now S.A.) and its Italian subsidiaries, have elected to take part in the domestic tax consolidation program pursuant to Articles 117/129 of the Consolidated Income Tax Act (TUIR). Cosmo Pharmaceuticals S.p.A. has acted as the consolidating company in this program and has calculated a single taxable base for the group of companies taking part, thereby enabling benefits to be realized from the offsetting of taxable income and 14

15 tax losses in a single tax return. Each company participating in the consolidation has transferred its taxable income or tax loss to the consolidating company. Cosmo Pharmaceuticals S.p.A. has recognized receivables from companies contributing taxable incomes, corresponding to the amount of IRES (corporate income tax) paid on its behalf. In the case of a company bringing a tax loss into the consolidation, Cosmo Pharmaceuticals S.p.A. has recognized a payable to that company for the amount of the loss settled off at a group level. Dividend distribution Dividend distribution to the company s shareholders is recognized as change in equity in the period in which the dividends are approved by the Company s shareholders. Critical accounting estimates, assumptions and judgments The statutory financial statements are prepared in accordance with IFRS, which require the use of judgments, estimates and assumptions that affect the carrying amount of assets and liabilities, the disclosure of contingent assets and liabilities and income and expense for the period. However, as they are estimates, actual future results could differ from those included in the financial statements. Such estimates and assumptions are based on accumulated experience and on other factors deemed to be appropriate in the calculation of the carrying amounts of assets and liabilities that cannot be measured on the basis of other sources. Revisions to accounting estimates are recognized in the period in which the estimate is revised and any future period affected. Accounting estimates that require the more subjective judgment of the Management in making assumptions or estimates regarding the effects of matters that are inherently uncertain and for which changes in conditions may significantly affect the results reported in the consolidated financial statements, are reported below. Impairment of property, plant and equipment, investments and financial assets The Management reviewed the carrying amount of property, plant and equipment, Investments and financial assets at balance sheet date to determine whether there was any indication of impairment and determined that such an indication did not exist. For financial assets available for sale the Management concludes that an available-for-sale financial asset is impaired if its fair value falls either significantly or for a prolonged period below its cost, less any impairment loss previously recognized in profit or loss. The Management takes the volatility and the market environment (if applicable) of the specific asset into account when assessing the significance of the asset s reduction in fair value. Financial assets available for sale for which the reduction in fair value is more than 30% of the initial measurement and for which the reduction is observed for a continuous period of 12 or more consecutive months are usually tested for impairment. Share-based compensation expenses The Company has granted stock options to some of its employees and Directors. Since there is no market for trading stock options, the Management must use a fair value method to value the stock options. Fair value methods require the Management to make several assumptions, the most significant of which are the selection of a fair value model, stock price volatility and the average life of an option. The fair value of the stock options is determined separately by an external appraiser. Estimates have been based on Company history or market data where appropriate. There is no certainty that the results of a fair value method would be the value at which the stock options would be traded for cash. Should different assumptions be used, the expenditure recognized could be different. Additional information is reported in Accounting policies Employee benefits Forms of remuneration involving participation in stock capital (stock option plans). 5 Revenue Revenue can be split as follows: EUR 1,000 Year ended 31 December Revenue from services rendered to group companies - 1,806 Total revenue - 1,806 15

16 Revenues from services rendered to group companies relate to services rendered by Cosmo Pharmaceuticals S.A. to the principal companies in the Group. 6 Other income Other income comprises the following: EUR 1,000 Year ended 31 December Sale of business to group company - 90 Other 1 6 Total other income 1 96 Sale of business to group company in 2014 refers to the goodwill earned by the sale of the business concerning the activities of administration and finance and information technologies to Cosmo Spa. 7 Personnel expenses This item, which includes the cost of the entire staff, comprises the following: EUR 1,000 Year ended 31 December Salaries and wages 13,485 4,999 Social security contributions Employee benefits - 38 Stock options 3,114 2,109 Other costs 4 8 Total personnel expenses 16,999 7,384 In 2015 and 2014 personnel expenses include the accrued monetary bonus calculated on the 2015 and 2014 Group's consolidated profit before taxes according to the existing Group's incentive plan. In 2015 the expense for the value of employees and Directors services exchanged for stock options amounted to EUR 3,114 thousand (in 2014 EUR 2,109 thousand) and it refers to the cost accounted in relation to the options granted by the Board of Directors on 26 March The average numbers of the entire staff for the years ended 31 December 2015 and 2014 are the following: No. of people Year ended 31 December Managers Junior managers Employees Total average number

17 The entire staff as at 31 December 2015 and 2014 is shown by category here below: No. of people Year ended 31 December Managers 7 3 Junior managers 2 - Employees 4 - Total number Other operating expenses Other operating expenses comprises the following: EUR 1,000 Year ended 31 December Service costs 2,861 3,155 Operating lease expenses Other operating costs Total other operating expenses 3,260 3,706 Service costs primarily consists of support and consulting services in the administrative, financial and legal areas, as well as IT systems, investor relations and travel costs. Service costs in 2015 also include EUR 458 thousand for the Stock option plan (SOP) to the non-executive directors (EUR 471 thousand in 2014). EUR 1,000 Year ended 31 December External consultancy services Maintenance Investor relations and web site maintenance Technical assistance Utilities, electrical power,gas and heating 1 21 Premises cleaning 19 9 Utilities, telephone, internet Insurance Non executive directors Stock options non executive directors Statutory auditors - 36 Auditing Travel expenses 1,166 1,250 Other costs 9 59 Total service costs 2,861 3,155 Operating lease expenses increase in 2015 for the lease of new offices in relation to the transfer of seat. EUR 1,000 Year ended 31 December Rent Other rentals Total operating lease expenses

18 Other operating costs are detailed as follows: EUR 1,000 Year ended 31 December Representation expenses Donation - 11 Stationery and consumables 6 15 Newspapers and magazines 1 1 Fuel and Oil 5 12 Tax, other than income tax - 5 Club memberships 1 5 Other costs Total other operating costs Depreciation and amortization The item comprises the following: EUR 1,000 Year ended 31 December Depreciation of property, plant and equipment Amortization of other intangible assets - 15 Total depreciation and amortization Net result from disposals EUR 1,000 Year ended 31 December Disposal of controlling interests in Cassiopea 142,416 - Costs for the transaction (8,015) - Net result from disposals 134,401 - It refers to the net result from the disposal of controlling interests in Cassiopea S.p.A.: through a secondary public offering of shares, successfully concluded on 30 June 2015, Cosmo has sold its majority-owned interests in Cassiopea, reducing its ownership interests from 97% to 49%. Furthermore, on 6 July 2015 after the exercise of the over-allotment the interest in Cassiopea was reduced to 45.09% 11 Dividends and other income from investments EUR 1,000 Year ended 31 December Dividend from group companies 80,000 - Capital repayment from group companies - 15 Dividends and other income from investments 80, In 2015, dividend consists of dividend from Cosmo Technologies Ltd. 18

19 12 Impairment (losses)/reversal on investments EUR 1,000 Year ended 31 December Impairment losses: Granell Strategic Investment Fund Ltd (1,444) Total impairment losses (1,444) - Reversal of impairment losses: Total reversal of impairment losses - - Impairment (losses)/reversal on investments (1,444) - In 2015 an impairment charge of EUR 1,444 thousand on the investment in the subsidiary Granell Strategic Investment Fund Ltd was primarily attributable to the significant losses reported in 2015 attributable to the impairment in a financial asset available for sale of the subsidiary. 13 Financial income/expenses The item comprises the following: EUR 1,000 Year ended 31 December Financial income: Interest and gain on financial assets available for sales 941 1,131 Foreign exchange gains 2, Other Total financial income 3,307 1,342 Financial expenses: Loss on financial assets available for sale 433 1,086 Foreign exchange losses 5,656 5 Other Total financial expenses 6,143 1,107 Financial income (expense), net (2,836) Income tax expenses The item comprises the following: EUR 1,000 Year ended 31 December Corporation taxes 177 (836) Exit Tax - 24,814 Current income tax ,978 Deferred tax assets Deferred tax liabilities - - Deferred tax Total income tax expenses ,003 19

20 At year ended 31 December 2014 it also includes the Exit Tax due in relation to the transfer of the registered office of Cosmo Pharmaceuticals S.p.A./S.A. to Luxembourg. Until 31 December 2014 Cosmo Pharmaceuticals S.p.A. and its Italian subsidiaries had elected to take part in the domestic tax consolidation program pursuant to Articles 117/129 of the Consolidated Income Tax Act (TUIR). 15 Property, plant and equipment The composition and variation of property, plant and equipment are shown in the following tables: EUR 1,000 Plant and machinery Other fixed assets Total Cost Balance at 1 January Additions Balance at 31 December Accumulated depreciation Balance at 1 January Depreciation charge for the year Balance at 31 December Net book value as at 31 December EUR 1,000 Plant and machinery Other fixed assets Total Cost Balance at 1 January Additions Disposals (97) (455) (552) Balance at 31 December Accumulated depreciation Balance at 1 January Depreciation charge for the year Disposals (32) (307) (339) Net book value as at 31 December Other fixed assets increased in 2015, in relation to the investments in fittings and furniture for the new offices. Depreciation of property, plant and equipment is recognized in the income statement under other operating costs (Note 9). 16 Investments At 31 December 2015, investments totalled EUR 44,660 thousand comprises the following: 20

21 EUR 1,000 As at 31 December Cosmo Spa 4,080 2,548 Cosmo Technologies Ltd 3,196 3,030 Cosmo R&D Srl 1, Cristoforo Colombo Real Estate Srl 13,144 13,144 Cassiopea Spa (Cosmo Dermatos Srl) 22, Cosmo Technologies (Two) Ltd - * Granell Strategic Investment Fund Ltd Investments 44,660 20,134 *Less than EUR 1 thousand Investments in subsidiaries and associates and changes during the year were as follows: Reclassification Impairment EUR 1,000 % 31 December and other (losses)/ 31 December % interest 2014 Increases Decreases changes reversals 2015 interest Cosmo S.p.a ,548 1,532 4, Gross carrying amount 2,548 1,532 4,080 - Accumulated impairment losses - - Cosmo Technologies Ltd , , Gross carrying amount 3, ,196 - Accumulated impairment losses - - Cosmo R&D Srl , Gross carrying amount ,047 - Accumulated impairment losses - - Cristoforo Colombo Real Estate S.r.l ,144 13, Gross carrying amount 13,144 13,144 - Accumulated impairment losses - - Cassiopea S.p.a. (Cosmo Dermatos S.r.l) ,403 22, Gross carrying amount ,403 (26,313) 22,837 - Accumulated impairment losses - - Cosmo Technologies (Two) Ltd * (*) Gross carrying amount * (*) - - Accumulated impairment losses - - Granell Strategic Investment Fund Ltd , Gross carrying amount - 1,800 1,800 - Accumulated impairment losses - (1,444) (1,444) Total Investments 20,134 44,660 *Less than EUR 1 thousand 21

22 Significant changes to investments in subsidiaries during the year were as follows: - capital contributions to Cosmo S.p.A., Cosmo Technologies Ltd., Cosmo R&D S.r.l. in relation to Cosmo's ESOP relating to the employees of the subsidiaries; - capital increase to Cassiopea S.p.A. to fund its ongoing clinical trials up to the end of 2017 and subsequent disposal of controlling interests through a secondary public offering of shares: Cosmo has sold its majority-owned interests in Cassiopea, reducing its ownership interests to 45.09% - Incorporation of Granell Strategic Investments Fund Ltd. and subsequent impairment attributable to the significant losses reported in 2015 attributable to the impairment in a financial assets available for sale of the subsidiary. During 2014, changes in investments were as follows: Reclassification Impairment EUR 1,000 % 31 December and other (losses)/ 31 December % interest 2013 Increases Decreases changes reversals 2014 interest Cosmo Spa , , Gross carrying amount 1, ,548 - Accumulated impairment losses - - Cosmo Technologies Ltd , , Gross carrying amount 2, ,030 - Accumulated impairment losses - - Cosmo R&D Srl * Gross carrying amount * 670 (5) Accumulated impairment losses - - Cristoforo Colombo Real Estate Srl ,144 13, Gross carrying amount 13,144 13,144 - Accumulated impairment losses - - Cassiopea Spa (Cosmo Dermatos Srl) Gross carrying amount Accumulated impairment losses - - Cosmo Technologies (Two) Ltd - - * * Gross carrying amount - * * - Accumulated impairment losses - - Total Investments 18,350 20,134 *Less than EUR 1 thousand 22

23 As at 31 December 2015 investments are as follows: Investments in subsidiaries Name Registered Country Currency Share Profit(loss) Equity %interest Office capital for the period held Cosmo S.p.A. Lainate (MI) Italy Eur 2,300,000 4,498,724 25,429, % Cosmo Technologies Ltd Dublin Ireland Eur 250,000 15,186,790 75,255, % Cosmo R&D Srl Lainate (MI) Italy Eur 100,000 (180,435) 2,139, % Cristoforo Colombo Real Estate Srl Lainate (MI) Italy Eur 106,892 32, , % Granell Strategic Investment Fund Ltd Dublin Ireland Eur 100,000 (1,447,221) (1,347,221) % Investments in associates Name Registered Country Currency Share Profit(loss) Equity %interest Office capital for the period held Cassiopea S.p.A. Lainate (MI) Italy Eur 10,000,000 (6,451,206) 47,180, % 17 Financial assets The item is detailed as follows: a) Non-current EUR 1,000 As at 31 December Financial assets available for sale - investment securities 104,000 5,301 Non current financial assets 104,00 5,301 b) Current EUR 1,000 As at 31 December Other financial assets available for sale - current investment securities 27,626 6,901 Current financial assets 27,626 6,901 Non-current investment securities consist of listed bonds; current investment securities consist of short term or marketable securities which represent temporary investments, but which do not satisfy all the requirements for being classified as cash equivalents: gains and losses arising from the adjustment to the fair value, were recognized in the comprehensive income. 18 Other non current receivables EUR 1,000 As at 31 December Receivables from group companies Total other non-current receivables

24 It refers to the amount receivables from Cristoforo Colombo Real Estate S.r.l. in relation to an interest-free loan in the amount of EUR 1,000 thousand, maturing on 31 December 2017 and partially repaid by the subsidiary. 19 Other receivables and other assets The item comprises the following: EUR 1,000 As at 31 December Other receivables from group companies - 20 VAT receivables 89 4 Other receivables 6 1 Prepaid expenses 8 17 Other prepaid Total other receivables and other assets Cash and cash equivalents The item comprises the following: EUR 1,000 As at 31 December Cash at hand 4 8 Bank accounts 35,864 11,692 Total cash and cash equivalents 35,868 11,700 Bank accounts include availability on current bank accounts and short-term time deposit bank contracts. 21 Total share holders equity The item comprises the following: EUR 1,000 As at 31 December Share capital 3,749 3,749 Legal reserve Other reserves 53,763 82,709 FTA reserve (54) (54) Treasury shares (28,073) (28,328) Stock option plan reserve 10,004 4,352 Available for sale financial assets reserve (324) (275) Currency translation differences 72 - Retained earnings (32,283) (26,091) Profit/(Loss) for the year 189,665 (33,013) TOTAL EQUITY 197,269 3,799 24