Individual financial statement as of 31 December 2017 BIOTON S. A.

Transcription

1 INDIVIDUAL FINANCIAL STATEMENT FOR THE PERIOD 1 JANUARY DECEMBER 2017 PREPARED IN ACCORDANCE WITH INTERNATIONAL FINANCIAL REPORTING STANDARDS ADOPTED BY THE EUROPEAN UNION - 1 -

2 CONTENTS Introduction to the individual financial report of BIOTON S.A. 3 Individual profit and loss account 21 Individual statement on total income 21 Individual balance sheet 22 Individual cash flow statement 23 Changes in individual equity 24 Explanatory notes to individual financial statement

3 1.1 INDIVIDUAL FINANCIAL STATEMENT OF BIOTON S.A. AS OF 31 DECEMBER 2017 WITH COMPARATIVE DATA AS OF 31 DECEMBER 2016 PREPARED IN ACCRODANCE WITH INTERNATIONAL STANDARDS OF FINANCIAL REPORTING AS APPROVED BY THE EUROPEAN UNION. INTRODUCTION TO THE INDIVIDUAL FINANCIAL STATEMENT OF BIOTON S.A Company s data BIOTON Spółka Akcyjna (the Company) with its seat in Warsaw, Starościńska str. 5, registered under number in District Court for the capital city of Warsaw in Warsaw, XIII Economic Division of the National Court Register. The basic business activity of the Company, according to Polish Classification of Activity, is: - manufacturing of medicines and pharmaceutical preparations (PCA 21.2), - manufacturing of pharmaceutical substances (PCA 21.1) Periods covered by financial statement and comparative financial data The financial statement covers the period from to Comparative financial data covers period between 1 January 2016 and 31 December Financial statement was approved for publication by the Management Board of BIOTON on 6 April Management and Supervisory Board of BIOTON S. A. Management of BIOTON S. A.: Current composition of the Board: o Mr. Robert Neymann (from 15 May 2017) o Mr. Marek Dziki (Member of the Board), o Mr. Bogusław Kociński (Member of the Board from 12 December 2017), o Mr. Adam Polonek (Member of the Board). Below is a history of changes in the composition of the Management Board between 1 January 2017 and the date of publication of the financial statement. On 15 May 2017 Mr. Jubo Liu resigned with immediate effect from the function of President of the Board. On 15 May 2017 the Supervisory Board appointed Mr. Robert Neymann as President of the Board. On 12 December 2017 the Supervisory Board appointed Mr. Bogusław Kociński as Member of the Board. Composition of Supervisory Board of BIOTON S. A.: Current composition of Supervisory Board: o Mr. Jubo Liu (President of the Supervisory Board from 15 May 2017) o Mr. Dariusz Trzeciak (Vice-president of the Supervisory Board from 15 May 2017) o Mr. Vaidyanathan Viswanath (Vice-president of the Supervisory Board from 22 March 2018), o Mr. Mark Ming-Tso Chiang (Member of the Supervisory Board from 15 May 2017) o Mr. Paweł Borowy (Member of the Supervisory Board from 29 September 2017), o Mr. Qi Bo (Member of the Supervisory Board from 29 September 2017), o Mr. Gary He (Member of the Supervisory Board from 29 September 2017)

4 Below is a history of changes in the composition of the Supervisory Board between 1 January 2017 and the date of publication of the financial statement. On 07 February 2017 Mr. Marcin Dukaczewski, Vice-president of the Supervisory Board, resigned from the position of the Member of Supervisory Board. On 28 March 2017 the Supervisory Board appointed Mr. Yu Liang Huang for the position of Vice-president of the Supervisory Board. On 12 May 2017 Mr. David Martin Comberbach, Vice-president of the Supervisory Board of the Company, resigned from the position of the Member of Supervisory Board of the Company. On 15 May 2017 Mr. Sławomir Ziegert, Member of the Supervisory Board of the Company, resigned from the position of the Member of Supervisory Board of the Company with immediate effect. On 15 May 2017 Extraordinary Shareholders Meeting recalled the following Members of the Supervisory Board: o Mr. Yu Liang Huang, o Mr. Dariusz Trzeciak. On the same day Extraordinary Shareholders Meeting of the Company appointed the following persons: o Mr. Dariusz Trzeciak (as Member of the Board meeting requirements under 18 section 1 pts 2-4 of the Articles of Association of the Company), o Mr. Jubo Liu, o Mr. Mark Ming-Tso Chiang, o Mr. Tomasz Siembida. On 15 May 2017 the Supervisory Board appointed Mr. Jubo Liu as the President of the Supervisory Board, Mr. Tomasz Siembida and Mr. Mariusz Trzeciak as Vice-presidents of the Supervisory Board. On 28 June 2017 the Supervisory Board received from Mr. Tomasz Siembida, the Vice-president of the Board, notification on his resignation from function of Member of the Supervisory Board with immediate effect. On 29 September Extraordinary Sharehloders Meeting of the Company appointed the following persons as Members of the Supervisory Board: o Mr. Paweł Borowski - Member of the Supervisory Board (as Member of the Board meeting requirement set out in w 18 section 1 pt. 2-4 of the Articles of Association); o Mr. Qi Bo Member of the Supervisory Board; o Mr. Gary He Member of the Supervisory Board. On 02 October 2017 Mr. Alejandro Gomez Blanco, Member of the Supervisory Board of the Company, resigned from the function of Member of the Supervisory Board of the Company. On 22 March 2018 the Supervisory Board appointed Mr. Vaiyanathan Viswanath for the position of Vice-president of the Supervisory Board

5 1.1.4 Information on annual consolidated financial statement of BIOTON S.A. Capital Group As of 31 December 2017 BIOTON S.A. has the following structure of the Capital Group: (a) Direct subsidiaries of BIOTON S.A. BIOTON MARKETING AGENCY Sp. z o. o. BIOTON S.A. is the owner of 100% of shares in the share capital of BIOTON MARKETING AGENCY Sp. z o. o., which entitle it to 100% of votes at the shareholders meeting of that company. On 11 April 2012 the company changed its name from BIOTON Trade Sp. z o. o. to BIOTON MARKETING AGENCY Sp. z o. o. BIOTON S.A. acquired control over BIOTON MARKETING AGENCY Sp. z o. o. on 1 July General information on BIOTON MARKETING AGENCY Sp. z o. o.: Business name and legal form: Registered seat and address: Object of business activity: BIOTON MARKETING AGENCY Spółka z ograniczoną odpowiedzialnością (previously BIOTON Trade Sp. z o. o.) Poznańska str. 12, Macierzysz, Ożarów Mazowiecki Advertising activity - 5 -

6 SciGen Ltd BIOTON S.A. is the owner of 95.57% of shares in the share capital of SciGen Ltd, which entitle it to % of votes at the shareholders meeting of that company. BIOTON S.A. acquired control over SciGen Ltd on 20 March General information on SciGen Ltd: Business name and legal form: SciGen Limited Registered seat and address: 152 Beach Road, #26-07/08 Gateway East, Singapore Object of business activity: Wholesale of medicinal products (including biotechnological ones) Biopartners Holdings AG BIOTON S.A. is the owner of 100% of shares in the share capital of Biopartners Holdings AG, which entitle it to 100% of votes at the shareholders meeting of that company. BIOTON S.A. acquired control over Biopartners Holdings AG on 9 March General information on Biopartners Holdings AG: Business name and legal form: Biopartners Holdings AG Registered seat and address: Object of business activity: Lindenstrasse 10, 6340, Baar, Switzerland Development, manufacturing and sales of medicinal products. Mindar Holdings Ltd BIOTON S.A. is the owner of 100% of shares in the share capital of Mindar Holdings Ltd, which entitle it to 100% of votes at the shareholders meeting of that company. Purchase of shares of Mindar and acquiring control took place on 30 March General information on Mindar Holdings Ltd: Business name and legal form: Registered seat and address: Object of business activity: Mindar Holdings Limited 2-4 Arch. Makarios III Avenue. Capital Center, 9 floor, 1065 Nikosia, Cyprus Consulting services, company management - 6 -

7 Germonta Holdings Ltd BIOTON S.A. Ltd is the owner of 100% of shares in the share capital of Germonta Holdings Ltd, which entitle it to 100% of votes at the shareholders meeting of that company. Purchase of shares of Germonta Holdings Ltd and acquiring control over the company took place on 29 December General information on Germonta Holdings Ltd: Business name and legal form: Registered seat and address: Object of business activity: Germonta Holdings Limited 2-4 Arch. Makarios III Avenue. Capital Center, 9 floor, 1065 Nikosia, Cyprus Consulting services, company management TRICEL S.A. Purchase of 100% of shares of TRICEL S.A. and acquiring control over this company took place on 29 February On 27 April 2017 BIOTON S.A. and Medwise Pharmaceutical Limited signed documentation required for transferring ownership of shares and assignment of liabilities of TRICEL S.A. for the amount of 3,250, EUR. Pursuant to the transaction, BIOTON S.A. sold 100% of shares of TRICEL S.A. BIOLEK Sp. z o. o. BIOTON S.A. is the owner of 100% of shares in the share capital of BIOLEK Sp. z o. o., which entitle it to 100% of votes at the shareholders meeting of that company. BIOTON S.A. acquired control over BIOLEK Sp. z o. o. on 19 October General information on BIOLEK Sp. z o. o.: Business name and legal form: BIOLEK Sp. z o. o. Registered seat and address: Object of business activity: Macierzysz, Poznańska str. 12, Ożarów Mazowiecki Manufacturing basic pharmaceutical substances and medicines, and other pharmaceutical products. (b) Indirect subsidiaries through SciGen Ltd SciGen Australia PTY Ltd SciGen Ltd is the owner of 100% of shares in the share capital of SciGen Australia PTY Ltd, which entitle it to 100% of votes at the shareholders meeting of that company. BIOTON Group acquired control over SciGen Australia PTY Ltd as a result of acquiring control over SciGen Ltd on 20 March General information on SciGen Australia PTY Ltd: Business name and legal form: SciGen Australia PTY Limited Registered seat and address: Suite 1, 13B Narabang Way, Belrose, NSW 2085 Object of business activity: Wholesale of medicinal products (biotechnological products) - 7 -

8 SciGen Korea Ltd SciGen Ltd is the owner of 100% of shares in the share capital of SciGen Korea Ltd, which entitle it to 100% of votes at the shareholders meeting of that company. BIOTON Group acquired control over SciGen Korea Ltd as a result of acquiring control over SciGen Ltd on 20 March General information on SciGen Korea Ltd: Business name and legal form: SciGen Korea Limited Registered seat and address: 3rd Hyepsueng Building, Dogok-Dong, Gangnam-Gu, Seoul , Korea Object of business activity: Manufacturing and sales of medicinal products (including biotechnological ones). SciGen (Beijing) Biotechnology Company Ltd SciGen Ltd is the owner of 100% of shares in the share capital of SciGen (Beijing) Biotechnology Company Ltd, which entitle it to 100% of votes at the shareholders meeting of that company. The Company was established on 6 June 2006 and on this day it started to be controlled by BIOTON Group. General information on SciGen (Beijing) Biotechnology Company Ltd: Business name and legal form: Registered seat and address: Object of business activity: SciGen (Beijing) Biotechnology Company Ltd Room 602, 6th Floor JINMA Hotel, No. A38 Xueyuan Road, Haidian District, Pekin, People s Republic of China Registration of products (c) Indirect subsidiaries through Biopartners Holdings AG Biopartners GmbH (Switzerland) Biopartners Holdings AG is the owner of 100% of shares in the share capital of Biopartners GmbH (Switzerland), which entitle it to 100% of votes at the shareholders meeting of that company. BIOTON Group acquired control over Biopartners GmbH (Switzerland) as a result of acquiring control over Biopartners Holdings AC on 9 March General information Biopartners GmbH (Switzerland): Business name and legal form: Registered seat and address: Object of business activity: Biopartners GmbH (Switzerland) Lindenstrasse 10, 6340, Baar, Switzerland Development, manufacturing and sales of medicinal products

9 Biopartners GmbH (Germany) Biopartners Holdings AG is the owner of 100% of shares in the share capital of Biopartners GmbH (Germany), which entitle it to 100% of votes at the shareholders meeting of that company. BIOTON Group acquired control over Biopartners GmbH (Germany) as a result of acquiring control over Biopartners Holdings AC on 9 March General information on Biopartners GmbH (Germany): Business name and legal form: Registered seat and address: Object of business activity: Biopartners GmbH (Germany) Kaiserpassage 11, D Reutlingen, Germany Development, manufacturing and sales of medicinal products. (d) Indirect subsidiaries through TRICEL S.A. Pharmatex Italia S.r.l. BIOTON Group acquired control over Pharmatex Italia S.r.l as a result of acquiring control over TRICEL S.A. on 29 February As a result of selling 100% of shares in TRICEL S.A. on 27 April 2017, BIOTON Group lost control over Pharmatex Italia S.r.l. Fisiopharma S.r.l. BIOTON Group acquired control over Fisiopharma S.r.l. as a result of acquiring control over TRICEL S.A. on 29 February As a result of selling 100% of shares in TRICEL S.A. on 27 April 2017, BIOTON Group lost control over Fisiopharma S.r.l. (e) Indirect subsidiaries through Germonta Holdings Ltd BIOTON International GmbH As of the balance sheet date, Germonta Holdings Ltd was the owner of 100% of shares in the share capital of BIOTON International GmbH (previously: until 29 October 2013 Actavis BIOTON GmbH, until 25 January 2012 PLCH GmbH), which entitled it to 100% voted on the meeting of shareholders of that company. BIOTON Group acquired control over BIOTON International GmbH as a result of its purchase by Germonta Holdings Ltd on 23 December On 30 January 2012 BIOTON Group sold 50% of shares in BIOTON International GmbH to the company Actavis Holding NWE B.V. On 13 May 2013 BIOTON Group repurchase 50% of shares in BIOTON International GmbH from Actavis Holding NWE B.V. which resulted from termination of JV agreement with Actavis group. General information on BIOTON International GmbH: Business name and legal form: Registered seat and address: Object of business activity: BIOTON International GmbH Lindenstrasse 10, 6340 Baar, Switzerland Development and commercialization of medicinal products, in particular holding rights to register, distribute and sell them and to selected intellectual property rights

10 1.1.5 Description of selected significant accountancy principles (a) Statement of compliance This financial statement was prepared in compliance with International Standards of Financing Reporting (ISFR) approved by the European Union as of 31 December 2017 and in the scope not covered by the above mentioned standards, in compliance with the requirements of the Law of 29 September 1994 on accounting (Journal of Laws of 2016 item 1047, uniform text with amendments) and executive provisions issued on the base of this law. Starting from 1 January 2005 amendment of the Law on accounting (article 45 sections 1a-1c of the Law on accounting) imposed on the Company obligation of preparing financial statements in accordance with ISFR, which were approved by the European Union. As of the date of publication of this financial statement, taking into account process of adaptation of ISFR by the European Union, there are no significant differences in the scope of accountancy principles adopted by the Company in accordance with ISFR and ISFR approved by the European Union. The Company did not use the possibility of earlier application of new standards and interpretations, which were already published and approved by the European Union or provided for approval in the nearest future and which will enter into force after the balance sheet date. Changes in the existing standards applied for the first time in the financial statement of the Company for the year 2017 The following amendments to existing standards and interpretation issued by the International Accounting Standards Board (IASB) and approved for use in the EU for the first time become effective in the financial statement of the Company for the year 2017: Amendments to IAS 7 Statement of Cash Flows - initiative referring to disclosures - approved in the EU on 6 November 2017 (applicable to annual periods starting on 1 January 2017 or after that day), Amendments to IAS 12 Income Taxes - recognizing assets under deferred tax on outstanding losses - approved in the EU on 6 November 2017 (applicable to annual periods starting on 1 January 2017 or after that day), The above mentioned amendments to standards did not have significant impact on the financial statement of the Company for New standards and amendments to existing standards already issued by the IASB and approved by the EU, but not yet in force Upon the approval of this financial statement, the following new standards were issued by the IASB and approved for application in the EU, however they have not yet entered into force: ISFR 9 Financial Instruments - approved by the EU on 22 November 2016 (applicable to annual periods starting on 1 January 2018 or after that day) see note 35, ISFR 15 Revenue from Contracts with Customer and amendments to ISFR 15 Effective date - approved by the EU on 22 September 2016 (applicable to annual periods starting on 1 January 2018 or after that day). ISFR 16 Leasing - approved by the EU on 31 October 2017 (applicable to annual periods starting on 1 January 2019 or after that day) see note 35, Amendments in ISFR 4 Insurance Contracts - Application of ISFR 9 Financial instruments together with ISFR 4 Insurance instruments - approved by the EU on 3 November 2017 (applicable to annual periods starting on 1 January 2018 or after that day or upon first application of ISFR 9 Financial instruments for the first time), Amendments to ISRF 15 Revenue from Contracts with Customers - Explanations to ISFR 15 Revenue from Contracts with Customers - approved by the EU on 31 October 2017 (applicable to annual periods starting on 1 January 2018 or after that day), see note 35. The Company decided not to use the possibility of earlier application of the above mentioned new standards and amendments to existing standards. Impact of amendments resulting from application of ISFR 9, ISFR 15 and ISFR 16 is presented in note

11 New standards and amendments to existing standards already issued by the IASB and approved by the EU, but not yet approved for application ISFR as approved by the EU are currently not significantly different from regulations approved by the International Accounting Standards Boards (IASB), except for new standards listed below and amendments to standards, which by the day of publication of the consolidated financial statement have not been yet approved to apply in the EU (effective dates listed below refer to full versions of standards): ISFR Regulatory Deferral Accounts (applicable to annual periods starting on 1 January 2016 or after that day) - the European Commission decided not to initiate the process of approving this temporary standard for application in the EU until issue of the final version of IFSR 14, ISFR 17 Insurance agreements (applicable to annual periods starting on 1 January 2021 or after that day), Amendments to ISFR 2 Share-based Payment - classification and valuation of share-based payments (applicable to annual periods starting on 1 January 2018 or after that day), Amendments to ISFR 9 Financial instruments - characteristics of prepayment options with negative compensation (applicable to annual periods starting on 1 January 2019 or after that day), Amendments to ISFR 10 Consolidated Financial Statements and IAS 28 Investments in Associates and Joint Ventures - sales or contribution of assets between the investor and its associate or joint venture and later amendments (effective date was deferred until completion of research works over the equity method), Amendments to IAS 28 Investments in Associates and Joint Ventures - long-term shares in associates and joint ventures (applicable to annual periods starting on 1 January 2019 or after that day). IAS 40 Investment property - transfer of investment properties (applicable to annual periods starting on 1 January 2018 or after that day), Amendments to various standards Amendments to ISFR ( ) - amendments introduced within the procedure of introduction of annual amendments to ISFR (ISFR 1, ISFR 12 and ISFR 28) directed mainly at solving incompatibilities and clarification of vocabulary (amendments to ISFR 12 apply to annual periods starting on 1 January 2017 or after that day, and amendments to ISFR 1 and ISFR 28 apply to annual periods starting on 1 January 2018 or after that day), Amendments to various standards Amendments to ISFR ( ) - amendments introduced within the procedure of introduction of annual amendments to ISFR (ISFR 3, ISFR 11, ISFR 12 and ISFR 23) directed mainly at solving incompatibilities and clarification of vocabulary (amendments apply to annual periods starting on 1 January 2019 or after that day), IFRC 22 Foreign Currency Transactions and Advance Consideration (applicable to annual periods starting on 1 January 2018 or after that day), ISFR 23 Uncertainty over Income Tax Treatments (applicable to annual periods starting on 1 January 2019 or after that day). According to estimates of the Company, the above mentioned new standards, amendments to existing standards and interpretations would not have significant impact on the financial statement if they were applied by the Group in the balance sheet date. Hedge accounting of portfolio of assets and financial liabilities still remain outside the scope of provisions adopted by the EU, as respective principles have not been approved to apply in the EU. According to the estimates of the Company, application of hedge accounting of portfolio of assets or financial liabilities according to IAS 39 Financial Instruments: Recognition and Measurement would not have significant impact on the consolidated financial statement if it was applied in the balance sheet date

12 (b) The basis for preparing financial statement Individual financial statement is presented in Polish zloty (PLN), which is the functional currency of the Company, and all the amounts, unless otherwise stated, are given in thousands PLN. Individual financial statement was prepared in accordance with historical cost principle, except for financial instruments which are valued at fair price. The Company makes estimates for the purposes of tests for the loss of value. Detailed principles of revision write-downs of the value of assets are described in principles f and t. Preparing financial statement in accordance with IFRS EU requires, on the part of the Management, opinions, estimates and assumptions which affect applied principles and presented values of assets, liabilities, incomes and costs. Estimates and associated assumptions are based on the historical experience and other factors which are deemed rational under given circumstances, and their results give rise to opinions on the balance sheet value of assets and liabilities, which does not result directly from other sources. Real value may differ from estimated value. Estimates and associated assumptions are subject to ongoing revision. Change of accounting estimates is recognized in the period in which this change was made or in current and future periods if the change of estimate concerns both current and future periods. Individual financial statement was prepared with the assumption that the economic business activity of the Company is continued in the foreseeable future. There are no circumstances indicating threats for the continuation of its activity. In the course of 12 months of 2017 the Company has noted significant increase in the value of sales income from 188,000,000 PLN to 241,000,000 PLN, which is over 28% increase as compared to the previous period. Following the increase of value of consolidated sales income there was an increase of gained profit at the level of consolidated gross margin on sales to the amount of 126,000,000 PLN (as compared to 87,000,000 PLN in the previous year), and, what is most important, increase in consolidated gross profit from operational activity to the level of 14,000,000 PLN, which, in comparison with 17,000,000 PLN loss from the comparable period indicated improvement of operational indexes and profits from operational activity. The achieved net loss was in turn mainly influenced by a revision write-down (non-cash value) of the value of investment of BIOTON S.A. in SciGen Ltd in the amount of 177,000,000 PLN made on the basis of reports prepared by KPMG Advisory sp. z o. o. sp. k. General Meetings of Shareholders of BIOTON S.A. on 30 September 2017 and 12 January 2018 adopted resolutions on the continuity of existence of BIOTON S.A. company acting pursuant to article 397 of the Code of Commercial Companies, with recognition of presented justification to the above mentioned resolutions, which were associated with: (i) (ii) The fact that balance sheet prepared by the Management Board as of 30 June 2017 subject to review by the auditor, showed accumulated loss (including loss from previous years) in the amount of 627,898, PLN, i.e. loss exceeding the sum of supplementary and reserve capitals and one third of the share capital by 6,074, PLN, while the major factor that had adverse impact on the financial result of BIOTON S.A. were the recognized unrealized exchange differences resulting from strengthening of Polish currency (PLN) to dollar (USD), which (i) results from external macroeconomic situation and is independent of BIOTON S.A. and (ii) in case of further strengthening of the PLN/USD exchange rate - may lead to sustaining in BIOTON S.A. loss exceeding capitals in future accounting periods. Making a revision write-down of the value of investment made by BIOTON S.A. in SciGen Ltd group, in the amount of 185,258, PLN, which lead to demonstration of accumulated loss in the amount of 819,490, PLN, i.e. loss exceeding sum of supplementary and reserve capitals and one third of the share capital by 197,666, PLN, while the major factor that had adverse impact on the financial result of BIOTON S.A. was the revision of valuation of BIOTON S.A. investment in SciGen Ltd company, made on the basis of reports prepared by KPMG Advisory sp. z o. o. sp. k. The valuation recognized current financial condition of SciGen Ltd and capacity to pay obligations of SciGen Ltd towards BIOTON S.A. under granted loans. The write-down is one-time and non-cash in nature and it will not affect current financial liquidity of BIOTON S.A. The USD/PLN currency exchange rate was established as of 1 December Actions and plans of the Management Board are aimed at gradual improvement of operational results of the Company and the Capital Group, mainly with actions aimed at developing export sales markets, developing product portfolio in the country and abroad, and also introducing changes in organizational processes in order to improve efficiency of use of working capital of the

13 Company and of the Capital Group. The main activities aim at improving achieved operational results, improving margins on all levels, which is also associated with optimization of manufacturing processes aimed at reducing manufacturing costs, and control of operational costs, which will also affect reconstruction of the level of equity of the Company and of the Capital Group. As of the day of publication on the balance sheet date, all financial covenants indicated in terms of loan agreements were fulfilled or the Company received approval of respective financial institutions to breach them, which resulted in recognizing values stated in the loan agreements as short-term liabilities, however the due dates were not changed and account for next 2 and 3 years. In the course of 2017 the Company has paid off its loan to the shareholder and at the same time undertook the obligation in the Bank of China in the amount of 13,000,000 EUR for the period of next year and negotiates prolonging the loan agreement for subsequent periods. The Company also negotiates changes in / prolongations of duration of short-term agreements with financing institutions. At the same time, all the liabilities of the Company resulting from schedules of payment of loan agreements are paid in due dates. Therefore, it is assumed that preparing annual individual financial statement based on the GCA is justified. In individual financial statement the Company applied the same accounting principles as described in individual financial statement as of 31 December (c) Tangible assets Tangible assets include fixed assets and expenditures on fixed assets under construction, which the company intends to be using for its activity and for administrative purposes for over 1 year, and which in the future will result in economic benefits for the company. Expenditures on fixed assets include incurred investment expenditures. Fixed assets include significant specialized spare parts which function as elements of fixed assets. Fixed assets and fixed assets under construction are initially recognized at purchase price or production cost. Significant components are recognized as separate fixed assets items. Fixed assets under construction which are implemented for manufacturing purposes, lease or administrative purposes are presented in the financial condition report at the manufacturing cost less by recognized write-downs on the loss of value (principle t). Manufacturing costs included fees and, where applicable, costs of external financing, capitalized in accordance with accounting principles applied in the Company (principle y). Depreciation concerning those fixed assets begins with their first use, in accordance with principles concerning other fixed assets of the Company. Depreciation of fixed assets is done at rates reflecting their estimated use period. Estimates of the use period are revised annually. The linear depreciation method is used for the purposes of depreciation of fixed assets. Use periods for particular fixed assets are as follows: Generic group Depreciation period (in years) Buildings and premises Civil and water engineering objects Boilers and power machines Machines, devices and apparatus for general use 3-28 Specialized machines, devices and apparatus 7-28 Technical devices Means of transport 4-14 Tools, instruments, chattels and equipment Assets maintained pursuant to a financial leasing agreement are depreciated in the period of their predicted economic use under the same terms as own assets, however not beyond the leasing period

14 Tangible assets and tangible assets under construction meeting the criteria for being qualified as held for sale or recognized in the group for sale are valued in accordance with principles set out in point aa. Profit or loss resulting from sales / liquidation or cease to use items under intangible assets are calculated as difference between sales income and balance sheet value of those items, and recognized in the profit and loss account. As of the balance sheet date, fixed assets and fixed assets under construction are values at net book value. Net book value denotes initial value, i.e. purchase price or the cost of production less by cancellation and impairment write-offs. Expenditures on repairs that do not result in improvement or extending the time of use of a fixed asset are recognized as costs at the moment in which they are incurred. Otherwise, they are capitalized. (d) Intangible assets (i) Research and development Costs incurred at the stage of research works aimed at gaining new scientific or technical knowledge are recognized in profit and loss account at the moment of incurring those costs. Expenditures on development works the results of which are applied in the process of developing or creating new or significantly improved product are activated if the creation of new product (or process) is technically feasible and economically justified, and the Company disposes of technical, financial or other means to complete development works. Costs subject to activation include: costs of materials, salaries of workers directly involved in development works and reasonable part of indirect costs associated with manufacturing intangible asset in question. Other costs of development works are recognized in the profit and loss account at the moment of incurring those costs. Cost of development works are recognized as intangible assets and are subject to depreciation write-downs (see below) as well as revision impairment write-offs (principle t). (ii) Other intangible assets Other intangible assets are recognized at purchase price or costs incurred with regard to their manufacturing reduced by currently made depreciation write-downs and impairment write-offs (principle t). (iii) Depreciation Intangible assets are depreciated according to linear method in the predicted time of their use. Estimated times of use are as follows: - perpetual usufruct up to 33 years, - know how 20 years, - development works costs 5-20 years, - software, integrated IT system 10 years, - other intangible assets 5 years, Intangible assets meeting criteria for assets held for sale or recognized in the group held for sale, are valued in accordance with principles set out in point aa. Profit or loss resulting from sales / liquidation or cease to use items under intangible assets are calculated as difference between sales income and balance sheet value of those items, and recognized in the profit and loss account. As of the balance sheet date, intangible assets are valued at cost less by depreciation write-downs and potential impairment writeoffs. (e) Liquid assets and their equivalents Liquid assets and their equivalents include liquid assets in banks and in cash register, short-term deposits

15 (f) Financial assets (i) Loans and receivables Trade receivables, loans and other receivables of fixed or negotiable terms of payment which do not constitute subjects of trading on active market are classified as loans and receivables. They are valued at depreciated cost, with the effective rate valuation with regard for the loss of value (principle vi). Interest income is recognized at the effective interest rate, except for short-term receivables, for which recognition of interest would be insignificant. Calculated interest is recognized in financial income in respective period. (ii) Financial assets valued at fair value through financial result Short-term financial assets valued at fair value through financial result include assets purchased in order to obtain economic profit resulting from short-term changes in prices. Short-term financial assets are initially recognized at purchase price and valued as of the balance sheet date at fair value. Profit or loss from valuation of financial assets are recognized in profit and loss account as income or financial costs. (iii) Financial assets available for sale Financial assets available for sale are the financial assets that are not derivatives and that were qualified as available for sale or that were not qualified into other category of financial assets. Financial assets available for sale are recognized in books at purchase price and valued as of the balance sheet day at fair value. Outstanding profits and losses are recognized in the revaluation capital. In case of debt instruments bearing interest in this category, interest is calculated based on the effective rate valuation and referred to the profit and loss account. (iv) Investments in subsidiaries, associated and co-controlled entities The Company values investment in subsidiaries, associated and co-controlled entities at purchase price reduced by impairment write-offs (principle t). (v) Removing financial instruments from the balance sheet Financial instruments are removed from balance sheet when the Company loses control over contractual rights constituting financial instrument in question. This usually takes place in case of selling the instrument or when all cash flows associated with given instrument are transferred to independent third party. (vi) Loss of value of financial assets Financial assets, apart from those valued at fair value by financial result, are assessed for the loss of value for each balance sheet day. Financial assets lose their value if there are objective premises to confirm that events occurring after initial recognition of a given item had an adverse impact on the related estimated future cash flows. In case of shares listed on the stock exchange classified as available for sale, significant or long-term decrease in price of shares constitutes an objective proof of the loss of value. In case of some categories of financial assets, e.g. trade receivables, individual assets assessed as not expired are jointly examined for the loss of value. Objective proofs of the loss of value for the portfolio include the Company s experience in the process of debt collection; increase in the number of overdue payments exceeding on the average 90 days, as well as observable changes in the situation in domestic or local economy which are associated with instances of overdue payment of receivables. In case of financial recognized at depreciated costs, the amount of impairment write-off is the difference between balance sheet value of assets and current value of estimated future cash flows discounted on the basis of effective interest rate of the financial asset

16 In case of financial assets recognized at their cost, the amount of impairment write-off is the difference between the balance sheet value of the asset and current value of estimated future cash flows discounted based on the current market return rate for similar financial assets. Balance sheet value of financial assets is reduced by impairment write-off directly for all assets of this type, except for trade receivables, that balance sheet value of which is reduced with the use of account revising their initial value. If a trade receivable is deemed irrecoverable, it is recognized in revision write-down account. Whereas, if previously written-down amounts are recovered later, a corresponding recognition is made on revision write-down account. Changes in the balance sheet value of the account of a write-down is recognized in the profit and loss account under financial income and costs. In case of debt instruments classified as available for sale, if in the next accounting period the amount under the loss of value is reduced, and the reduction may be reasonable referred to an event that took place after recognition of the loss of value, previously recognized impairment write-off in the profit and loss account. In case of capital instruments classified as available for sale, impairment write-offs previously recognized through financial results are not subject to reversal through this account. Any increase in the fair value after the occurrence of the loss of value is recognized directly in equity. In case of capital instruments not listed on the stock exchange, impairment write-offs are never subject to reversal. (g) Transactions in foreign currencies Functional currency (currency of valuation) and currency of the financial statement of the Company is Polish zloty (PLN). Business operations expressed in foreign currencies are recognized in the accounting books as of the day of their execution at, accordingly: sale or purchase currency exchange rate applied by the bank in which the Company settles given transaction - for sale or purchase of currencies, average currency exchange rate of the National Bank of Poland as of the day preceding the operation, unless in the customs declaration or other document binding for the Company different currency exchange rate is set out - for other operations. Profit or loss on currency exchange rate resulting from conversion of assets and liabilities expressed in foreign currencies or resulting from the settlement of receivables or liabilities expressed in foreign currency are posted as financial income or costs in the profit and loss accounts. As of the balance sheet date, the Company values assets and liabilities in foreign currencies at average currency exchange rates of the National Bank of Poland. (h) Stocks Stocks are assets held for sale in the course of regular business activity which are in the course of manufacturing held for sale and in the form of materials or raw materials used in the manufacturing process or in the course of providing services. Stocks include materials, goods, finished products and ongoing production. Materials and goods are valued at weighed average. As of the balance sheet date, valuation of materials and goods is done with the application of principles of prudent valuation, i.e. these categories are valued at purchase price or sale price possible to obtain, whichever is lower. Finished products and products in the course of manufacturing are initially valued at real cost of manufacturing. As of the balance sheet date, valuation of finished products and products in the course of manufacturing is done with the application of principles of prudent valuation. Stock depletion value - is established at weighed average, in case of semi-finished goods and finished goods with detailed identification of series

17 (i) Equities (ii) Initial capital Equity of the Company is recognized at nominal value of registered shares stated in the Company s articles of association and entry in the National Court Register. (iii) Capital from issue of shares above their nominal value Capital from sale of shares above their nominal value is created from issue of shares and is reduced by costs of issue (with regard for income tax). (iv) Supplementary capital Supplementary capital includes accumulated profit/loss transferred from retained earnings in accordance with resolutions of the Shareholders Meeting of BIOTON S.A. (v) Reserve capital Reserve capitals include the equivalent of payment costs in the form of securities recognized in accordance with ISFR 2, capital part of bonds convertible into shares and differences from the settlement of share purchase. (vi) Retained earnings Retained earnings constitute accumulated profits/loss, which were not divided by the General Meeting. (j) Taxation Income tax of entity covers current due tax and deferred tax. (i) Current tax Current tax burden is calculated on the basis of tax result (tax basis) for a given financial year. Tax profit (loss) differs from accounting net profit (loss) because of excluding taxable income and costs other that deductible income cost and those of costs and income items that will never be subject to taxation. Tax burden is calculated based on tax rates effective in a given financial year. (ii) Deferred tax Deferred tax is calculated with the accounting method as tax due or subject to refund in the future based on differences between balance sheet values of assets and liabilities and corresponding tax values used to calculate tax basis. Reserve for deferred tax is created from all positive interim differences subject to taxation, while assets under deferred tax are recognized to the amount by which it is likely to reduce future tax income by recognized negative interim differences and tax losses of tax reliefs to which the Group is entitled. Asset or reserve for deferred tax item is not created if the interim difference is created under initial recognition of other assets or obligation in transaction that does not affect the tax result nor the accounting result. Value of assets under deferred tax is subject to analysis for each balance sheet day, and in expected future tax profits are not sufficient to implement the asset or its part, the asset or its part are subject to a write-down. Deferred tax is calculated at tax rates that will be effective when the asset item is implemented or when the obligations becomes due. In the financial condition report income tax is recognized after compensating in the scope defined by obligation due to the same tax office. The Company does not recognize deferred tax on interim differences resulting from conversion into functional currency of loans granted to subsidiaries in foreign currencies, which are treated as long-term investments. The Company compensates assets and reserve for deferred income tax for presentation purposes

18 (k) Reserves Reserves are created if the Company is under existing obligation, either legal or customary, resulting from past events and if it is probable that fulfilling this obligation will make it necessary to spend resources embodying economic benefits and it is possible to make a reliable estimate of the amount of this obligation, when the amounts or dates pertaining to that obligation are uncertain. The recognized amount of the reserve reflects possible most precise estimate of the amount required to settle obligation current on the balance sheet day, taking into account risk and uncertainty related with that obligation. In case of valuation of the reserve with the method of estimated cash flows necessary to settle a current obligation, its balance sheet value corresponds to the current value of those cash flows. Whenever it is probable that some or all economic advantages required to settle a reserve can be retrieved from a third party, such receivable is recognized as asset if the probability is high enough and the receivable may be reliably valued. (i) Services giving rise to obligations Current liabilities under contracts giving rise to obligations are recognized in reserves. Contract giving rise to obligations refers to contract signed by the Company which necessitates inevitable costs associated with carrying out contractual obligations the value of which exceeds economic value provided for in that contract. (ii) Restructuring Restructuring reserve is recognized only when the Company has prepared a detailed and official restructuring plan and notified all stakeholders of its intention to implement such plan or of its main assumptions. Valuation of restructuring reserve covers only direct costs of restructuring, i.e. amounts necessary to carry out restructuring and not associated with current activity of the subject. (l) Employee benefits The Company pays contributions to state pension scheme with defined contributions. The government program is financed on the basis of current payments principle, which means that the Company is obliged to pay contributions only when they become due, and if it ceases to employ people included in the system, they will not be obliged to pay any additional benefits except for those to which the employees were entitled in the past. Contributions to the pension scheme with defined contributions are recognized in the profit and loss account in the respective period. The employees of the Company are entitled to retirement severance payments. Retirement severance payments are paid one time, upon retiring. The amount of retirement severance payments is set out in the Labor Code. The Company creates a reserve for future retirement severance payments in order to organize the costs according to the periods to which they refer. The amount of liabilities of the Company under retirement benefits is the current value of benefits that the employees of the Group will receive upon their retirement for being employed in the companies of the Group in current and previous periods. Value of the obligation is based on the projected entity credit method. (m) Bank loans and credits bearing interest Initially, all bank loans and credits are recognized at fair value less by costs associated with obtaining the loan or credit. Next, loans and credits bearing interest are valued at depreciated purchase price, with the use of effective rate valuation. (n) Trade liabilities and liabilities of other type Trade liabilities and liabilities of other type are recognized at depreciated cost, except for derivatives, which are valued at fair value. (o) Revenue from future periods and recognizing received grants Revenue from future periods includes grants received within Sectoral Operational Program Improvement of Competitiveness of Enterprises from the European Fund for Regional Development for co-financing of new investments and new workplaces, and also grants from the National Fund for Environmental Protection and Water Management for co-financing of sewage treatment plant. (See note 27)

19 Grants received are recognized as income from future periods if it is certain enough that they are received and the Company meets all conditions associated therewith. Government grants received as reimbursement of costs of assets recognized by the Group and associated with co-financing of new workplaces are recognized in the balance sheet as income from future periods, and then systematically recognized as other operational income in the profit and loss account while the asset in question is used, or - in case of new workplaces - while the cofinanced amount is subject to settlement. (p) Accruals The Company applies active accruals if the costs incurred refer to periods after the period in which they were incurred. Active accruals include costs incurred which in the future periods will be recognized as operational of financial costs. Passive accruals referring to operational and financial costs include costs incurred in a given period, commensurate with income from that period. Passive accruals regarding operational costs include, but are not limited to, reserve for unused leaves. (r) Income (i) Sale of finished products and goods Sales income include due or received payments for sales of finished products and goods (reduced by returns and discounts) and are recognized as net value, i.e. reduced by due tax (VAT). Income on sales of products and goods are recognized, if significant risk and benefits pursuant to the ownership right to products and goods were transferred onto the buyer and the amount of income may be established in a reliable manner. (ii) Interest Interest income is recognized in the period to which it relates (at effective rate valuation). (iii) Dividends Dividends are recognized when the shareholders rights to receive them are established. (s) Financial leasing Leasing agreements under which the Company bears the entire risk and of is the exclusively benefits from possessing the assets are classified as financial leasing agreements. Assets held by the Company under leasing agreements are recognized initially at their fair value or current value of minimum leasing fees, whichever is lower. Initial value of assets used pursuant to financial leasing agreements is then reduced by depreciation write-downs and impairment write-offs. If it is uncertain that the lessee obtains ownership rights before the end of lease period, assets in question used pursuant to financial leasing agreements is depreciated in the leasing period or period of economic usability, whichever is shorter. In other cases, the Company applies depreciation periods applicable to fixed assets. Leasing fees are divided into capital part and interest part with the use of internal turnover rate, the interest part is recognized in the profit and loss account in the time of the agreement. (t) Impairment write-offs For each balance sheet day, the Company s assets, except for stocks (principle n), assets under deferred income tax (principle j) and financial assets (principle f), to which different valuation procedures apply, are analyzed for the occurrence of premises for the loss of value. Upon the occurrence of such premise the Company estimates a recoverable value (fair value less by sales costs or use value, whichever is greater). Use value denotes sum of discounted future economic advantages arising from given asset. If the balance sheet value of given assets exceeds its recoverable value, loss of value is recognized and revisions write-down is made on its value to the level of recoverable amount. Revision write-downs are recognized in the profit and loss account. For each balance sheet day, the Company assesses if there are premises indicating that write-down made in previous statement periods is redundant or too high. In such case, the write-down or its part is reversed and value of given asset is restored to amount that would be recognized if there was no write-down revising the amount (with the account of remission). Reversal of a revision write-down is recognized in the profit and loss account