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— We help peopleachieve healthy skin
Annual Report 2012LEO Pharma A/S
Translation of the Danish Annual Report 2012
CONTENTS
MANAGEMENT’S STATEMENT AND AUDITOR’S REPORT
Management’s Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Independent Auditor’s Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
MANAGEMENT’S REVIEW 2012
Company information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 5-year financial highlights of the Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Management’s Review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
FINANCIAL STATEMENTS 1 JANUARY – 31 DECEMBER 2012
Accounting policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .29 Income statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .39 Balance sheet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .40 Cash flow statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .43 Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .45 Investments in affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .57
Presented and adopted at the Annual General Meeting of the Company on 21 March 2013
CVR 56 75 95 14
This Annual Report is an extract of the Company’s statutory annual report pursuant to Section 149 of the Danish Financial Statements Act. The statutory annual report will be submitted to the Danish Business Authority, and a copy may be obtained via the Authority’s website www.cvr.dk.
4 LEO PHARMA A NNUA L REPORT 2012 5
The Board of Directors and the Board of Executives have today considered and adopted the Annual Re-port of LEO Pharma A/S for the financial year 1 Janu-ary – 31 December 2012 .
The Annual Report has been prepared in accordance with the Danish Financial Statements Act.
In our opinion, the Consolidated Financial Statements and the Parent Company Financial Statements give a true and fair view of the assets, liabilities and financial position at 31 December 2012 of the Group and the Company and of the results of the Group’s and the
Company’s operations and consolidated cash flows for 2012.
In our opinion, Management’s Review contains a true and fair account of the development in the oper ations and financial circumstances of the Group and the Company, of the results for the year and of the financial position of the Group and the Company as well as a description of the most significant risks and elements of uncertainty facing the Group and the Company.
We recommend that the Annual Report be adopted at the Annual General Meeting.
Ballerup, 21 March 2013
MANAGEMENT’S STATEMENT
Board of Executives:
Gitte P. Aabo Lars Olsen Anders B. Spohr President, CEO
Board of Directors:
Poul Rødbroe Rasmussen Karin Attermann Jannie Kogsbøll Chairman
Lotte Hjortshøj Larsen Peder Holk Nielsen Jens Bo Olesen
Jukka Pertola Jan Rasmussen Per Håkon Schmidt
Gorm M. Thamsborg
A NNUA L REPORT 2012 7
TO ThE ShArEhOLDEr Of LEO PhArmA A/S
INDEPENDENT AUDITOR’S REPORT
Auditor’s report on the Consolidated financial State-ments and the Parent Company financial Statements
We have audited the Consolidated Financial Statements and the Parent Company Financial Statements of LEO Pharma A/S for the financial year 1 January – 31 December 2012, which comprise accounting policies, income statement, balance sheet and notes for both the Group and the Parent Company, as well as consolidated cash flow statement. The Consolidated Financial Statements and the Parent Company Financial Statements are prepared in accordance with the Danish Financial Statements Act.
management’s responsibility for the Consolidated financial Statements and the Parent Company financial Statements
Management is responsible for the preparation of Consolidated Financial Statements and Parent Company Financial Statements that give a true and fair view in accordance with the Danish Financial Statements Act, and for such internal control as Management determines is necessary to enable the preparation of Consolidated Financial Statements and Parent Company Financial Statements that are free from material misstatement, whether due to fraud or error.
Auditor’s responsibility
Our responsibility is to express an opinion on the Consolidated Financial Statements and the Parent Company Financial Statements based on our audit. We conducted our audit in accordance with International Standards on Auditing and additional requirements in accordance with Danish audit regulation. This requires that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the Consolidated Financial Statements and the Parent Company Financial Statements are free from material misstatement.
An audit involves performing audit procedures to obtain audit evidence about the amounts and disclosures in the Consolidated Financial Statements and the Parent Company Financial Statements. The audit procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of
the Consolidated Financial Statements and the Parent Company Financial Statements, whether due to fraud or error. In making those risk assessments, the audit or considers internal control relevant to the Company’s preparation of Consolidated Financial Statements and Parent Company Financial Statements that give a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by Management, as well as evaluating the overall presentation of the Consolidated Financial Statements and the Parent Company Financial Statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
The audit has not resulted in any qualification.
Opinion
In our opinion, the Consolidated Financial Statements and the Parent Company Financial Statements give a true and fair view of the assets, liabilities and financial position of the Group and the Company at 31 December 2012 and of the results of the Group’s and the Company’s operations as well as the consolidated cash flows for the financial year 1 January – 31 December 2012 in accordance with the Danish Financial Statements Act.
Statement on management’s review
We have read Management’s Review in accordance with the Danish Financial Statements Act. We have not performed any procedures additional to the audit of the Consolidated Financial Statements and the Parent Company Financial Statements. On this basis, in our opinion, the information provided in Management’s Review is consistent with the Consolidated Financial Statements and the Parent Company Financial Statements.
Kim Füchsel Lars Baungaard State Authorised Public Accountant State Authorised Public Accountant
—We help people achieve healthy skin
L EO M I S S I O N
Hellerup, 21 March 2013 PricewaterhouseCoopers Statsautoriseret Revisionspartnerselskab
MANAGEMENT’S REVIEW – 2012 MANAGEMENT’S REVIEW – 2012
8 LEO PHARMA A NNUA L REPORT 2012 9
2012 DKK million
2011* DKK million
2010* DKK million
2009* DKK million
2008* DKK million
Income statement
Revenue 8,216 7,487 7,245 6,082 5,709
Of which outside Denmark 7,969 7,238 7,033 5,763 5,400
Operating profit/loss -179 158 177 -876 2,464
Net financials 1,049 838 887 857 737
Profit/loss before tax 870 996 1,064 -19 3,201
Net profit/loss for the year 663 624 700 -167 2,528
Balance sheet
Net investment in:
Intangible assets 186 0 0 6,266 0
Property, plant and equipment 343 410 541 284 141
Fixed assets 24,695 24,600 23,486 26,560 20,761
Current assets 4,737 4,364 3,805 7,706 3,624
Total assets 29,432 28,964 27,291 34,266 24,385
Equity 21,990 21,426 20,833 20,096 20,321
ratios
Profit margin -2% 2% 2% -14% 43%
Return on assets -1% 1% 1% -3% 11%
Return on equity 4% 5% 5% 0% 17%
Solvency ratio 75% 74% 76% 59% 83%
Employees
Average number of employees 4,783 4,391 3,796 3,278 3,008
COmPANy LEO Pharma A/S Industriparken 55 2750 Ballerup Denmark Telephone: +45 44 94 58 88 Fax: +45 72 26 33 21 Website: www.leo pharma.com Email: www.leopharma.com/contact CVR No.: 56 75 95 14 Founded: 1908 Reg. office: Ballerup Financial year: 1 January – 31 December
BOArD Of DIrECTOrS Poul Rødbroe Rasmussen, Chairman Karin Attermann Jannie Kogsbøll Lotte Hjortshøj Larsen Peder Holk Nielsen Jens Bo Olesen Jukka Pertola Jan Rasmussen Per Håkon Schmidt Gorm M. Thamsborg
BOArD Of EXECUTIVES Gitte P. Aabo, President, CEO Lars Olsen Anders B. Spohr
AUDITOrS PwC Strandvejen 44 2900 Hellerup Denmark
Company information 5-year financial highlights of the Group
* As discussed in the accounting policies, the comparative figures for 2011 have been restated to reflect the presentation for 2012 with regard to revenue.
It has not been possible to procure data to restate the comparative figures for 20082010.
MANAGEMENT’S REVIEW – 2012 MANAGEMENT’S REVIEW – 2012
10 LEO PHARMA A NNUA L REPORT 2012 11
LEO Pharma’s mission is to help people achieve healthy skin. Therefore, it mainly develops, manufactures and markets products in the therapeutic area of dermatology – skin conditions. In 2012 these included psoriasis, actinic keratosis, eczema and skin infections.
LEO Pharma differentiates between strategic products, core products and wellestablished products. The strategic portfolio comprises the following products: Daivobet® (psoriasis), Xamiol® (psoriasis), Picato® (actinic keratosis) and innohep® (thrombosis). Although dermatology is LEO Pharma’s priority, innohep® for the treatment of thrombosis is also part of the strategic portfolio because it accounts for a substantial share of the Group’s sales and has great potential, as discussed later.
There was a special focus on Picato® in 2012. LEO Pharma won its first approval for Picato® for the topical treatment of actinic keratosis from the US authorities in January, and the product was launched in the USA in April with great success.
The launch and sales have gone to plan: the ambitious targets for marketing and the number of patients treated in 2012 were achieved, and the supply chain was built up. Picato® was also authorised for use in Europe, Brazil and Australia and is expected to be launched in a number of European markets (including Germany, the UK and Denmark), Brazil, Canada and Australia in 2013.
LEO Pharma is also working on getting the product approved elsewhere in the world. With Picato® LEO Pharma can offer a brandnew therapy for the benefit of millions of patients the world over, and the launch is a strategic milestone in work on building a patientcentric organisation. Picato® is also expected to have a significant impact on future sales growth.
Patient-centric organisation
LEO Pharma’s mission and vision aim to concentrate its efforts on helping people with skin conditions. This is to be achieved by meeting patients’ needs with innovative solutions, ranging from providing information on how to live with a condition to delivering safe and effective therapies directly to patients.
Developing solutions of this kind requires close contact and dialogue with the people whose skin needs treating each day. Therefore, LEO Pharma partnered with the National Psoriasis Foundation at the end of 2012 with the aim of setting up a patient panel in the
USA. The panel will provide input for the development of new and improved solutions for the treatment of psoriasis and is expected to be launched in San Francisco in early 2013.
LEO Pharma also rolled out a global patient support programme during the year under the name of QualityCare™, which comprises a range of initiatives aimed at patients and their families. The aim of the QualityCare™ concept is to help expand LEO Pharma’s offering to patients to include more than just drugs.
In general, the concept aims to ensure that patients receive relevant information about their skin condition and to help them gain better control over it. The programme will gradually be developed further together with patients, authorities, payers and health care professionals.
New structure and new business models
To help achieve its vision of being the preferred dermatology care partner improving people’s lives around the world, LEO Pharma concentrated in 2012 on building a patientcentric organisation.
A new organisation structure was presented on 17 April with the aim of bringing LEO Pharma closer to patients so that it is in a better position to develop and supply innovative new therapies that meet patients’ needs.
The organisational changes ensure greater delegation of decisions and responsibility, and include taking decisions close to patients, exchanging best practices and making more efficient use of the Group’s resources. This is being achieved by working on operational excellence throughout the organisation.
LEO Pharma’s sales and marketing organisation underwent particularly extensive restructuring in 2012. The global pharmaceutical market is changing, and the balance between patients, providers and payers is constantly evolving.
In the light of these changes, the sales structure was reorganised into five regions from 1 July 2012, and it was decided to close the regional office in Fort Lauderdale, USA.
.
Management’s Review fOr ThE BENEfIT Of PATIENTS
— We are the preferred dermatology care partner improving people’s lives around the world
L EO V I S I O N
12 LEO PHARMA A NNUA L REPORT 2012 13
USA: LEO Pharma’s largest market now has regional status.
LAmEA: This region encompasses Latin America, the Middle East and Africa and features some very different markets with similar challenges.
EU5+: This region consists of five EU member states (the UK, France, Germany, Italy and Spain) plus Canada and Australia.
ZOE: This stands for Zone of Europe and comprises the smaller European markets plus Russia.
ASIA: This region covers China, Japan, South Korea and the markets of Southeast Asia.
LEO Pharma has also identified nine focus markets that either make a major contribution to revenue or have considerable growth potential, namely the USA, Brazil, the UK, France, Germany, Russia, China, South Korea and Japan.
It was announced on 25 October 2012 that LEO Pharma would be adapting its organisation so that it
better reflects new market conditions. This includes reducing the workforce by 300 during the course of 2012 and 2013, mainly in Europe and in the traditional sales force. This process will release resources for LEO Pharma to invest in more patientcentric solutions and new business models.
fIVE rEGIONS NINE fOCUS mArKETS
MANAGEMENT’S REVIEW – 2012 MANAGEMENT’S REVIEW – 2012
14 LEO PHARMA A NNUA L REPORT 2012 15
NEw mArKETS – fUTUrE OPPOrTUNITIES
• Japan, Brazil, China and Russia gained the status of focus markets in 2012, which means higher priority for LEO Pharma’s business development in these countries in order to tap their attractive growth potential.
• LEO Pharma filed a registration application for Fucicort® with the Chinese author ities on 25 October 2012. Fucicort® Cream is used primarily in the treatment of eczema.
• Picato® was approved by the Brazilian authorities on 16 July 2012.
INNOhEP® – fULL SPEED AhEAD!
• LEO Pharma launched the clinical study CATCH in 2010. The study is ongoing, with the final patient expected to be included in 2013, and is looking at longterm innohep® therapy in cancer patients whose condition is complicated with deepvein thrombosis.
USA – yES, wE wILL!
• LEO Pharma launched Picato® for actinic keratosis in the USA in April 2012. In a survey of 250 US patients, 95% said they would ask to be prescribed Picato® again if they needed further treatment, and 75% found the product ”very easy” to use. After just eight months on the US market, Picato® accounts for more than 12% of new prescriptions.
• LEO Pharma came up against generic competition for Dovonex® Cream in the USA in 2012. It therefore partnered with Prasco LLC on the launch of Calcipotriol Cream, LEO Pharma’s own generic version of the psoriasis cream Dovonex®, in August. Due to increased competition in the US market for psoriasis products, LEO Pharma’s US subsidiary decided in June to lay off 63 employees.
• Taclonex® Topical Suspension for the treatment of body psoriasis was launched on the US market in November 2012.
To achieve its aims, LEO Pharma has identified five corporate Must-Win Battles as a basis for its key strategic activities .
First and foremost, LEO Pharma wishes to establish a firmer foothold in dermatology, in both new and established markets. It also wants to strengthen its organisation and employees. Other key goals are to tap the full potential of the product innohep® for deepvein thrombosis, and to strengthen LEO Pharma’s profile and activities in the US market.
The five corporate must-win Battles (cmwB):
GrOwING PEOPLE, GrOwING LEO
• A new organisation structure and new business models have been introduced to create a more competitive and marketoriented organisation centred around patients’ needs.
• The global management development programme launched in 2011 for 470 leaders across the Group continued in 2012, running in parallel and revolving cycles in Europe, the USA and Asia.
DErmATOLOGy – EXPANDING OUr fOOTPrINT
• LEO Pharma entered into an inlicensing agreement with US biotech company Virobay Inc. at the beginning of 2012 on the development of an oral therapy for psoriasis. The project, VBY891, advanced from preclinical development to phase I studies at the end of the year.
• Today’s patients are keen for their therapy to have the least possible impact on their busy everyday lives. This asks a lot in terms of formulations and devices that ensure rapid administration and correct dosing. To meet these patient demands, LEO Pharma has significantly reinforced its Pharmaceutical Technologies research unit.
• LEO Pharma won approval for Picato® in 2012 in the USA, Australia, Brazil and Europe – markets where actinic keratosis is widespread and the need for innovative new solutions is considerable.
• In September LEO Pharma presented some of the results of the international Burden of Psoriasis study. The aim of the study is to gain a greater insight into patients’ everyday reality in order to be able to develop solutions that create value for patients. Focusing on the isolation, stigmatisation and anxiety that many psoriasis patients experience in connection with their condition, the study is the first of its kind and consists of both qualitative and quantitative analyses based on input from 3,822 patients.
• In October LEO Pharma founded the International Institute of Dermatology and Allergy in conjunction with the Charité in Berlin, one of Europe’s oldest and largest university hospitals. The aim is to conduct exploratory studies and identify the underlying disease mechanisms behind allergic and itchy skin conditions.
Progress in LEO Pharma’s corporate Must-Win Battles in 201220
15
MANAGEMENT’S REVIEW – 2012
16 LEO PHARMA
LEO Pharma continued to step up investment in research and development in 2012. The Group ploughed DKK 1,079 million into R&D in 2011 and DKK 1,166 million in 2012. The increase of DKK 87 million was due to more extensive clinical studies. Investment in R&D as a share of revenue was unchanged at 14%. LEO Pharma’s pipeline was strengthened substantially in 2012. Actinic keratosisThree studies between phases I and III are under way worldwide. These span new chemical compounds with new mechanisms of action, improved delivery systems and product enhancements.
Psoriasis
Eight topical and systemic studies between phases I and III are under way worldwide. These span new chemical compounds with new mechanisms of action, improved delivery systems, product enhancements and global market expansion.
Various clinical activities have been initiated to increase the number of markets for Daivobet® Gel and Daivobet® Ointment for the treatment of body psoriasis.
Significant developments include the approval of Daivobet® Gel in Brazil and the completion of the phase III programme for Dovobet® Ointment in Japan.
Eczema/atopic dermatitis
Two topical studies between phases I and III are under way worldwide. These span new chemical compounds with new mechanisms of action and global market expansion.
Thrombosis
An extensive phase III study is under way to meet the need for improved treatment of deepvein thrombosis in cancer patients.
LEO Pharma’s employees form the basis for its continued success, and so Management has invested heavily in areas such as leadership development, development dialogues and workplace assessments in recent years.
The Growing LEO Leaders development programme was continued in 2012 to give participants a better understanding of LEO Pharma’s strategy, markets and patients, and to develop their skills in situational leadership, change management, communication, etc. The programme is continuing in 2013.
Alongside the development of LEO Pharma’s managers, there is also a focus on other employees. A special tool called the Personal Development Dialogue (PDD) was introduced throughout the Group in 2012 to further individual employees’ continuous development through twiceyearly sessions.
LEO Pharma also carried out a workplace assessment (WPA) in parts of the Group’s headquarters in Ballerup, Denmark, and plans to conduct its first global engagement survey in 2013.
The aim of the survey is to measure commitment and satisfaction across the workforce and create a platform for the development of initiatives to make the Group an even better place to work in the future. The plan is to carry out the global engagement survey every second year.
Basis for future earnings rESEArCh AND DEVELOPmENT hUmAN CAPITAL
MANAGEMENT’S REVIEW – 2012 MANAGEMENT’S REVIEW – 2012
18 LEO PHARMA A NNUA L REPORT 2012 19
innohep®
LEO Pharma had difficulty supplying innohep® in the first half of 2012 due to a number of production problems at the factory in France, and had to actively choose which markets to feed. The issue was resolved at the beginning of the second half.
Loss of exclusivity in the USA and cooperation agreement with Prasco LLC
LEO Pharma came up against generic competition in the US market in 2012, leading to a marked drop in sales of Dovonex® Cream, etc. from DKK 812 million in 2011 to DKK 254 million. This includes an increase in the accounting provision for returned goods of around DKK 67 million.
As 2013 is the first complete financial year with full generic competition, a further decline in sales of the product is anticipated.
LEO Pharma entered into an agreement with US company Prasco LLC in February 2012 on the distribution of LEO Pharma’s own generic version of Dovonex® Cream. The agreement was a reaction to Tolmar launching the first generic version of Dovonex® Cream through a partner on 1 August 2012. This development was anticipated, and so LEO Pharma was able to activate the agreement with Prasco LLC on 2 August 2012.
Operating earnings positive before non-recurring costs
Other external expenses climbed to DKK 3,399 million from DKK 3,341 million in 2011, and staff costs to DKK 2,948 million from DKK 2,670 million. The increases were due primarily to higher sales and marketing costs, including investments in new markets and preparations for the launch of Picato® in 2013. Staff costs in particular were also affected by the reduction in the workforce mentioned above.
Depreciation, amortisation and impairment losses increased to DKK 1,357 million from DKK 955 million in 2011. Amortisation and impairment of intellectual property rights came to DKK 1,075 million of this (2011: DKK 725 million), after an impairment loss of DKK 347 million (2011: DKK 0 million) relating to the Group’s investment in the reacquisition of distribution rights in the US market in 2009, due to generic competition.
Amortisation of intellectual property rights was also affected by the Group’s reacquisition of the rights to the psoriasis portfolio in Italy and parts of the psoriasis portfolio in Germany and Austria. Amortisation on this investment came to DKK 79 million in 2012, against DKK 27 million in 2011.
The Group posted an operating loss of DKK 179 million in 2012, against a profit of DKK 158 million in 2011. Adjusted for nonrecurring costs in the form of restructuring charges of DKK 95 million (2011: DKK 46 million) and impairment losses on intellectual property rights of DKK 347 million (2011: DKK 0 million), the Group generated operating profit of DKK 263 million in 2012, against DKK 204 million in 2011.
further investment in new employees
The average number of employees in the Group grew by 392 in 2012 (2011: 595), a net increase of 9% (2011: 16%). Recruitment was primarily in research and development and production functions and in markets outside the USA and Europe.
Despite the expected reduction in the workforce of up to 300 people mentioned above, the Group anticipates further slight growth in the workforce. This growth is expected to come mainly in functions with an important role in the implementation of the Group’s business strategy, such as research and development and selected areas of sales and marketing.
LEO Pharma’s revenue increased in 2012 by 10% in Danish kroner and 7% in local currencies.
US revenue grew by 3% in US dollars. The launch of Picato® made a particular contribution to growth, while generic competition for Dovonex® caused the psoriasis portfolio to stagnate. The USA accounted for 18% of LEO Pharma’s revenue in 2012.
In the EU5+ and ZOE regions, revenue climbed by 7% in Danish kroner, or DKK 292 million. Growth in Europe was due primarily to the reacquisition of the rights to Daivobet® in Germany and Italy and further advances in sales of Daivobet® Gel and innohep®.
In the LAMEA and ASIA regions, revenue increased by 19% and 26% respectively in Danish kroner.
Revenue in the WellEstablished Products (WEP) business unit increased by 5% in Danish kroner.
LEO Pharma’s growth in 2012 was driven primarily by the strategic products Picato®, Daivobet® Ointment, Daivobet® Gel, Xamiol® and innohep®. Revenue growth in Danish kroner was 23% for the strategic psoriasis portfolio and 11% for innohep®. The Group’s mission of helping people achieve healthy skin is reflected in dermatological products now accounting for 62% of revenue.
Revenue was affected by a number of developments in 2012 as described below.
Financial results for 2012 4000
Mio. kr.
3500
3000
2500
2000
1500
1000
500
USA LAMEA EU5+ ZOE ASIA WEP HQ
USA 18%
LAMEA 12%
EU5+ 46%
ZOE 12%
ASIA 4%
WEP 8%
Average FTEs
6,000
5,000
4,000
3,000
2,000
1,000
2010 2011 2012
4000
Mio. kr.
3500
3000
2500
2000
1500
1000
500
USA LAMEA EU5+ ZOE ASIA WEP HQ
USA 18%
LAMEA 12%
EU5+ 46%
ZOE 12%
ASIA 4%
WEP 8%
rEVENUE 2012
MANAGEMENT’S REVIEW – 2012 MANAGEMENT’S REVIEW – 2012
20 LEO PHARMA A NNUA L REPORT 2012 21
Net financial incomeThe fall in interest rates in 2012 led LEO Pharma to sell its holding of mortgage bonds with a nominal coupon of 5% and its mortgage bonds with a nominal coupon of 4% expiring in 2025, as the expectation was that drawings on these bonds would be significant. The proceeds were reinvested in 4% mortgage bonds expiring in 2041 and 2044. These transactions boosted net financial income by DKK 200 million (2011: DKK 0 million).
Earnings satisfactory and up to expectations
The Group generated net profit of DKK 663 million in 2012, against DKK 624 million in 2011. The Group’s effective tax rate was 24%, which is in line with expectations.
LEO Pharma invested DKK 343 million in property, plant and equipment in 2012 (2011: DKK 410 million). These investments mainly concerned the expansion and optimisation of the Group’s production facilities in
Denmark (Esbjerg) and Australia (Southport) to ensure capacity for future growth in sales of innohep® and Picato®. Investment was also made in upgrading and expanding a large office building and the canteen in Ballerup, Denmark.
Operating activities generated a positive cash flow of DKK 1,301 million (2011: DKK 1,790 million). The Group achieved a 4% return on equity (2011: 5%) and had equity of DKK 21,990 million at the end of the year (2011: DKK 21,426 million). Based on these results, LEO Pharma entered 2013 with a solvency ratio of 75% (2011: 74%).
The market value of the Group’s bond holdings was DKK 21,329 million at the end of the year (2011: 20,421 million).
The results for 2012 are in accordance with Management’s expectations for the year and are therefore considered satisfactory.
Special business and financial risksOPErATING rISKS
LEO Pharma is continually working on ensuring a reasonable balance between risk exposure and value creation. Therefore, the Group regularly enters into longterm agreements for the supply of raw materials and other critical inputs for its production.
market risks
LEO Pharma makes considerable efforts to protect its intellectual property rights at all times, for both new and existing drugs, and to ensure that it carries on its business without infringing the rights of others.
LEO Pharma makes great efforts to develop and maintain its competences in this area, and the Group consistently defends its rights if others attempt to infringe them.
foreign exchange risks
Based on the Group’s future operating budgets, cash flows in foreign currencies are hedged on a regular basis. The greatest foreign exchange risk is associated with the following currencies: USD, GBP, CAD, AUD and SAR. These currencies together accounted for 71% of the Group’s foreign exchange position in 2012 and are hedged for the coming 1323 months’ expected cash flows. The average period for which expected future cash flows in all currencies are hedged is 17 months.
LEO Pharma does not hedge net investments in foreign affiliates. The Group’s currency hedging is centralised at the parent company.
Liquidity risks
LEO Pharma is wholly owned by the LEO Foundation, which pursues a strategy of reinvesting cash flows in the parent company. As the Group has a high solvency ratio, no significant liquidity risks are encountered.
Interest rate risks
The loan portfolio consists of both variablerate and fixedrate loans.
Credit risks
The market for pharmaceuticals in Southern Europe in particular is still being affected by the financial crisis. To avoid future bad debts, the Group has retained the tighter credit policy introduced in 2011.
There are not considered to be any material risks relating to individual customers or business partners.
The Group’s credit risks relate partly to primary financial assets and partly to derivative financial instruments with a positive market value. Credit risks relating to financial assets correspond to the values recognised in the balance sheet.
MANAGEMENT’S REVIEW – 2012
22 LEO PHARMA
LEO Pharma will continue to implement patientcentric initiatives in 2013 to sustain its revenue growth. Further progress will depend particularly on the launch of Taclonex® Topical Suspension in the USA, growth in Picato® in the USA and the launch of Picato® in Europe, Brazil, Australia and Canada. Revenue will again be affected by generic competition in the USA.
In terms of investment, LEO Pharma will begin the design phase for the implementation of a new enterprise resource planning (ERP) system and continue to invest in facilities for the production of Picato® in Southport, Australia.
LEO Pharma expects earnings in 2013 to be positive but tempered by low interest rates.
Elements of uncertainty
LEO Pharma’s results may be affected by further generic competition, price pressure due to the continued financial crisis, and low interest rates.
In addition, the launch of new products is always associated with uncertainty.
Ownership structure
LEO Pharma is wholly owned by the LEO Foundation, Industriparken 55, 2750 Ballerup, Denmark.
Post-balance-sheet events
There have been no postbalancesheet events affecting either the financial position for 2012 or expectations for 2013.
Expectations for 2013
MANAGEMENT’S REVIEW – 2012 MANAGEMENT’S REVIEW – 2012
24 LEO PHARMA A NNUA L REPORT 2012 25
Environmental and energy targets for 2015
• ISO 14001 certification of all existing production sites.
• Implementation of energysaving projects resulting in a 15% reduction in energy consumption compared with 2010.
Progress made
LEO Pharma continued to invest in property, plant and equipment in 2012, focusing particularly on production facilities. These investments help reduce environmental impact and improve occupational health and safety.
LEO Pharma’s production site in Dublin, Ireland, achieved its goal for 2012 of ISO 14001 environmental management certification. Besides implementing LEO Pharma’s Group policies for the environment and energy, the management of environmental responsibility was generally improved.
As in 2011, a number of energyefficiency initiatives were implemented. For LEO Pharma Ballerup, these led to a total annual saving of 3,256 MWh. Besides these initiatives actually implemented in Ballerup, energy assessments were made of almost all buildings, leading to a series of potential initiatives that can bring energy savings with a relatively short payback period. Many of these initiatives are expected to be implemented in the coming years.
The production site in Vernouillet, France, also assessed potential energyefficiency initiatives. If these are implemented, annual savings of 848 MWh are expected.
The production site in Dublin completed a project for inhouse electricity production from combined heating and cooling recovery. This entails annual savings
of 8,400 MWh and 3,600 tons of CO2. Other actions
taken in Dublin during the year will bring further annual savings of 277 MWh.
SOCIAL rESPONSIBILITyLEO Pharma aims to offer a healthy and safe working environment, and supports and respects the protection of internationally adopted human rights, including the fundamental workers’ rights espoused by the International Labour Organisation (ILO).
As part of the Group’s social responsibility, LEO Pharma also focuses on ethical issues associated with pharmaceutical research and development. The Group is keen to gain a better insight into disease for use in the further development of medicines and therapeutic areas, for the benefit of patients and society.
In addition, LEO Pharma focuses on ensuring ethical relations with medical professionals and ethical marketing of its products, and taking action to avoid corruption and bribery.
Occupational health and safety
LEO Pharma strives actively to improve occupational health and safety in accordance with international standards. Work on implementing the Group’s health and safety policy and related activities and results have concentrated initially on the production sites.
The Group has prepared a plan for the certification of its production sites under the occupational health and safety standard OHSAS 18001. The management systems are based on the Group’s health and safety policy and help guide and continuously develop work in this area. The aim is a uniform approach to the management of occupational health and safety responsibility at the production sites.
LEO Pharma aims to be a responsible corporate citizen wherever the Group operates. Its mission, policies and values have always set the tone, and the aim of its activities is to produce new therapies for the benefit of both patients and society.
The business ensures its social responsibility by having all managers and other employees comply with its fundamentals, policies, values and the LEO Code of Conduct in their work. The aim is for all employees to be in a position to communicate values and guidelines to patients, business partners, patient organisations, authorities, health care professionals and other stakeholders.
LEO Code of Conduct
The implementation of the LEO Code of Conduct involved compulsory training for all employees in 2012. In future, all new recruits will receive training within two months of starting.
whistleBlower
LEO Pharma is in the process of establishing a WhistleBlower scheme covering the whole Group. Approval from the Danish data protection authorities is expected to be received in 2013.
Under the WhistleBlower scheme, employees and others associated with LEO Pharma will be able to report criminal acts such as bribery, fraud, embezzlement and the falsification of documents, as well as serious breaches of rules on health, safety and the environment, labour rights and human rights.
Internal Audit
A newly established department, Internal Audit, will help ensure compliance with existing and future Group policies and guidelines and the LEO Code of Conduct.
Business partners
In 2013 LEO Pharma will sharpen its focus on ensuring that its business partners adhere to relevant ethical standards.
UN Global Compact
LEO Pharma complies with the UN Global Compact’s principles for human rights, labour, the environment and anticorruption in accordance with the LEO value of Inte-grity. This means, for example, that LEO Pharma offers competitive medicinal products to patients and society on the basis of economic, environmental and social responsibility.
ECONOmIC rESPONSIBILITy
LEO Pharma’s primary economic contribution to society is the result of its investments and production, taking due account of sustainable social, environmental and economic development. This includes profits generated and taxes and duties paid. In this way LEO Pharma makes a positive contribution to sustainable economic growth in the countries in which it operates.
ENVIrONmENTAL rESPONSIBILITy
LEO Pharma aims to protect the environment, prevent pollution and promote efficient energy use. In general, the Group aims to minimise its environmental impact through a programme focusing on continuous improvement. This is set out in the Group’s new environmental and energy policy, which was rolled out in 2012 both in Denmark and at the other production sites.
Uniform and standardised approach
LEO Pharma is working actively and professionally on improving the environment in accordance with international standards and has drawn up a plan for the introduction of certified environmental management systems. The aim of these systems is to ensure that all production sites have a uniform, standardised and proactive approach to the management of environmental responsibility. The management systems are based on the Group’s environmental and energy policy, and the plan also covers systematic knowledge sharing between environmental officers at the different production sites.
Corporate social responsibility
This report represents the Group’s compliance with Section 99a of the Danish financial Statements Act
PRODUCTION SITE ISO 14001 (ENVIRONMENT)
Ballerup and Esbjerg (DK) 2013
Cork (IE) 2013
Dublin (IE) Certified
Vernouillet (fr) Certified
Southport (AU) 2014
NOTE: All existing production sites will be ISO 14001certified by 2015. Production in Dublin is also certified under the en
ergy management standard EN 16001, and the Cork production site plans to be certified under the same standard
in 2014. The remaining production sites intend to integrate energy management into ISO 14001.
Economic responsibility
Corporate social responsibility
Environmental responsibility
Social responsibility
MANAGEMENT’S REVIEW – 2012 MANAGEMENT’S REVIEW – 2012
26 LEO PHARMA A NNUA L REPORT 2012 27
and UV radiation. The conference resulted in a report presenting the latest research results and comments from a number of politicians. Some of the Group’s affiliates have since followed up on the conference and its messages.
Ethical marketing
LEO Pharma is keen for its relations with health care professionals and the marketing of its products to comply with international standards. This is ensured partly by updating existing guidelines and drawing up new ones.
LEO Pharma drafted a general policy for relations with health care professionals in 2012. The policy is being rolled out across the Group through training for all employees, and compliance is being followed up through internal auditing.
LEO Pharma has also started up a project to ensure transparency in its relations with health care professionals across national borders.
Anti-corruption and bribery
LEO Pharma actively opposes corruption and bribery, as they go against the its values and ethical standards.
An anticorruption and bribery programme was developed in 2012 for all employees in the Group in ac cordance with the LEO Code of Conduct. The programme has been built around a general Group policy and more detailed Group guidelines that supplement the guidance on combating corruption already provided in the LEO Code of Conduct.
Training began in 2013 together with an internal information campaign and aims to strengthen all LEO employees’ skills in this area.
Occupational health and safety targets for 2015
• OHSAS 18001 certification of all existing production sites.
• Losttime injuries (accidents resulting in more than one day’s absence) in line with best practice in the pharmaceutical industry by the end of 2015.
LEO Pharma’s production site in Cork, Ireland, gained OHSAS 18001 certification in 2012.
Other initiatives in 2012 included seminars for a high percentage of health and safety representatives at headquarters with the aim of raising general levels of understanding of the psychosocial working environment.
An employee engagement survey will be rolled out across the Group in 2013. The results of the survey will provide a basis for new health and safety initiatives.
research and production
LEO Pharma complies with all GxP rules, comprising Good Laboratory Practice (GLP), Good Clinical Practice (GCP), Good Manufacturing Practice (GMP), Good Distribution Practice (GDP) and Good Pharmacovigilance Practice (GPvP), and the Group’s quality assurance systems ensure compliance with the latest rules and other requirements for the development and manufacture of medicines.
For example, around 1,100 employees at the Group’s production sites were given training in GMP in 2012, and the goal remains to train all relevant employees in GxP.
LEO Pharma’s animal welfare policy sets out guidelines for animal testing. Research using animals must be based on the principle of the 3Rs: replace, reduce, refine. Business partners, such as contract research organisations (CROs) and universities, have a similar obligation to comply with the approach and principles set out in LEO Pharma’s animal welfare policy.
Animal tests are audited by the Group’s internal Animal Welfare Council and by the Danish authorities.
The Council has an internal advisory function but also discusses external matters relating to CROs. The veterinary surgeon at LEO Pharma responsible for animal testing has the authority to intervene at CROs and other partners in the event of infringements.
In 2012 LEO Pharma worked with the Center for Applied Laboratory Animal Research (CALAR) with the aim of improving the welfare of animals and humans in research contexts.
LEO Pharma works with various CROs on clinical trials. This work follows set procedures to safeguard both data quality and patients’ rights and safety. LEO Pharma worked on consolidating these procedures in 2012 to ensure consistency across the Group.
Knowledge and insight
LEO Pharma works with a number of patient organisations to obtain and share important information about patients’ lives and the challenges they face due to their condition. This information is crucial for developing not only medicines but also support initiatives rooted in patient needs.
The Group aims for transparency in its dialogue with patient organisations, and regular reports are published on its website.
LEO Pharma was one of the driving forces behind a scientific conference in 2012 which highlighted the growing number of people affected by skin cancer as a result of changes in the climate, the ozone layer
PRODUCTION SITE OHSAS 18001 (OCCUPATIONAL HEALTH AND SAFETY)
Ballerup and Esbjerg (DK) Certified
Cork (IE) Certified
Dublin (IE) 2013
Vernouillet (fr) 2014
Southport (AU) 2014
NOTE: All existing production sites will be OHSAS 18001certified by 2015.
ACCOUNTING POLICIES – 2012
A NNUA L REPORT 2012 29
The Annual Report of LEO Pharma A/S for 2012 has been prepared in accordance with the provisions of the Danish Financial Statements Act applying to large enterprises of reporting class C.
The accounting policies applied remain unchanged from last year.
restatement of comparative figures concerning revenue
In the course of the past year the Group has implemented a project with the aim of creating greater insight into the various elements recognised under the Group’s revenue and other external expenses such as discounts, takeback obligations, etc. The project has resulted in a change to the comparative figures for 2011, with discounts and returned goods totalling DKK 254 million being reclassified from other external expenses to revenue. The restatement carried out has no impact on profit/loss or equity. It has not been possible to procure data to restate the comparative figures for 20082010.
recognition and measurement
Revenues are recognised in the income statement as earned. Furthermore, value adjustments of financial assets and liabilities measured at fair value or amortised cost are recognised. Moreover, all expenses are recognised in the income statement, including depreciation, amortisation and impairment losses.
Assets are recognised in the balance sheet when it is probable that future economic benefits will flow to the Company, and the value of the asset can be measured reliably.
Liabilities are recognised in the balance sheet when it is probable that future economic benefits will flow out of the Company, and the value of the liability can be measured reliably.
Assets and liabilities are initially measured at cost. Subsequently, assets and liabilities are measured as described for each item below.
Certain financial assets and liabilities are measured at amortised cost, which involves the recognition of a constant effective interest rate over the maturity period. Amortised cost is calculated as original cost less any repayments and with addition/deduction of the cumulative amortisation of any difference between cost and the nominal amount.
Recognition and measurement take into account predictable losses and risks occurring before the presentation of the Annual Report which confirm or refute circumstances existing at the balance sheet date.
Danish kroner are used as the measurement currency. All other currencies are regarded as foreign currencies.
Consolidated financial Statements
The Consolidated Financial Statements comprise the Parent Company LEO Pharma A/S and affiliates in which LEO Pharma A/S directly or indirectly holds more than 50% of the votes or otherwise exercises control.
The Consolidated Financial Statements are prepared by combining the Financial Statements of the Parent Company and all affiliates with subsequent elimination of intercompany transactions, intercompany shareholdings and balances as well as unrealised profits from intercompany transactions. The Financial Statements of all companies have been prepared according to the same accounting policies.
Enterprises acquired during the year and newly formed enterprises are included in the consolidation as from the date of acquisition or formation. Enterprises that are sold or wound up during the year are included in the consolidated income statement up until the date of disposal or until the business was wound up. Comparative figures are not restated for newly acquired, sold or woundup enterprises.
foreign currency translation
On recognition, transactions in foreign currencies are translated at the exchange rates at the transaction dates. Exchange differences arising between the transaction date rates and the rates at the payment dates are recognised in financial income and expenses in the income statement.
Receivables, payables and other monetary items in foreign currencies are translated at the exchange rates at the balance sheet date. Any differences between the exchange rates at the balance sheet date and the rate at the time when the receivable or the payable arises, or at recognition in the most recent Financial Statements, are recognised in financial income and expenses in the income statement.
On recognition of foreign affiliates, income statements are translated at the average exchange rates of the period, and balance sheet items are translated at the exchange rates at the balance sheet date.
Exchange adjustments arising on the translation of the opening equity of foreign affiliates at the exchange rates at the balance sheet date and on the translation of the income statement from average exchange rates to the exchange rates at the balance sheet date are recognised directly in equity.
ACCOUNTING POLICIES0 1 2 3 4 5 6 7 8 9 + ÷
ACCOUNTING POLICIES – 2012 ACCOUNTING POLICIES – 2012
30 LEO PHARMA A NNUA L REPORT 2012 31
and where it is the intention to manufacture, market or use the project, are recognised as intangible assets. This applies if sufficient certainty exists that the value in use of future earnings can cover the cost of production, sales and administrative expenses involved as well as the development costs.
Development projects that do not meet the criteria for recognition in the balance sheet are recognised as expenses in the income statement as incurred.
Development projects, patents, trademarks and rights are measured at cost less accumulated impairment losses and amortisation. Amortisation is charged systematically over expected useful life, between 3 and 20 years. The amortisation profile is on a straightline basis adjusted for the risk relating to the underlying asset, so that up to 33% of the amortisation is brought forward from the second half of the asset’s expected useful life to the first half.
Other costs relating to the maintenance of patents, etc. are expensed.
Projects are assessed on an ongoing basis considering development progress, expected approvals and commercial utilisation.
Property, plant and equipment
Property, plant and equipment are measured at cost less accumulated depreciation and less any accumulated impairment losses. Cost comprises expenses for materials, subsuppliers and labour for fixed assets produced. The total cost of an asset is broken down into components which are depreciated separately if the expected useful lives of the individual components are not the same. Any interest and other borrowing expenses are not included in cost.
Gains and losses on the sale of property, plant and equipment are calculated as the difference between the sales price less selling expenses and the carrying amount at the time of sale. Gains and losses are rec
ognised in the income statement under other operating income or other operating expenses.
The carrying amounts of intangible assets and property, plant and equipment are reviewed on an annual basis to determine whether there is any indication of a decrease in value other than that expressed by amortisation and depreciation. If so, an impairment test is carried out to determine whether the recoverable amount is lower than the carrying amount, and the asset is written down to its lower recoverable amount. This impairment test is carried out on an annual basis for development projects in progress, irrespective of there being any indications of a decrease in value.
The recoverable amount of the asset is calculated as the higher of net selling price and value in use. Where a recoverable amount cannot be determined for the individual asset, the assets are assessed in the smallest group of assets for which a reliable recoverable amount can be determined based on a total assessment.
Leases
Leases under which the Group assumes substantially all the risks and rewards of ownership (finance leases) are recognised in the balance sheet at the lower of the fair value of the leased asset and the net present value of the lease payments computed by applying the interest rate implicit in the lease or an approximated value as the discount rate. Assets acquired under finance leases are depreciated and written down for impairment under the same policy as determined for the other fixed assets of the Group.
The remaining lease obligation is capitalised and recognised in the balance sheet under debt, and the interest element on the lease payments is charged to the income statement over the lease term.
All other leases are considered operating leases. Payments made under operating leases are recognised in the income statement on a straightline basis over the lease term.
Derivative financial instruments
Derivative financial instruments are recognised in the balance sheet at cost and are subsequently measured at their fair values. Positive and negative fair values of derivative financial instruments are recognised in prepayments and deferred income respectively.
Changes in the fair values of derivative financial instruments that are designated and qualify as fair value hedges of a recognised asset or a recognised liability are recognised in the income statement as are any changes in the fair value of the hedged asset or the hedged liability.
Changes in the fair value of financial and derivative financial instruments that are designated and qualify as hedges of future assets or liabilities are recognised as prepayments/deferred income and as financial hedges in equity. Income and expenses relating to such hedging transactions are transferred from equity on realisation of the hedged item and recognised as financial income and expenses.
revenue
Revenue from the sale of goods for resale and finished goods is recognised in the income statement when the sale is considered effected based on the following criteria:
• Delivery and transfer of risk have taken place before yearend.
• There is a binding sales agreement.• The sales price has been determined and payment
has been received or may with reasonable certainty be expected to be received.
Revenue is recognised exclusive of VAT and net of discounts relating to sales.
Consumption of raw materials, consumables and goods for resale
Expenses for raw materials, consumables and goods for resale comprise the raw materials, consumables and goods for resale used to achieve the revenue for the year.
Other external expenses
Other external expenses comprise indirect production costs and expenses for premises, sales and distribution as well as office expenses, etc.
Other external expenses also include research and development costs – excluding staff expenses – that do not qualify for capitalisation.
Staff expenses
Staff expenses comprise wages and salaries as well as payroll expenses.
Amortisation, depreciation and impairment losses
Amortisation, depreciation and impairment losses comprise amortisation, depreciation and impairment of intangible assets and property, plant and equipment.
Other operating income
LEO Pharma’s licence income is recognised on the basis of licence holders’ sales for the financial year and is stated as other operating income.
Other operating income includes nonrecurring income from the sale of rights and gains on the sale of fixed assets, etc. as well as other operating income of a secondary nature to the core activities of the Group.
As a main rule, the sale of rights, etc. is recognised as income at the time of sale. If the sale results in an obligation for the LEO Group, the income is accrued over the duration of the obligation, and in the case of sales where the income is dependent on future events, the amount is recognised as income when the event occurs.
financial income and expenses
Financial income and expenses comprise interest, realised and unrealised exchange adjustments, price adjustment of securities as well as extra payments and repayment under the onaccount taxation scheme.
Tax on profit/loss for the year
Tax for the year consists of current tax for the year and deferred tax for the year. The tax attributable to the profit for the year is recognised in the income statement, whereas the tax attributable to equity transactions is recognised directly in equity.
Any changes in deferred tax due to changes to tax rates are recognised in the income statement.
Intangible assets
Intangible assets, including development projects, are measured at cost.
Costs of development projects comprise salaries, amortisation and other expenses directly or indirectly attributable to the Company’s development activities.
Development projects that are clearly defined and identifiable and in respect of which technical feasibility, sufficient resources and a potential future market or development opportunity in the enterprise can be demonstrated,
DEPRECIATION IS CALCULATED ON A STRAIGHT-LINE BASIS OVER EXPECTED USEFUL LIFE
Buildings 10 – 25 years
Plant and machinery 5 – 10 years
Other fixtures and fittings, tools and equipment 3 – 10 years
Leasehold improvements 0 – 10 years
ACCOUNTING POLICIES – 2012
A NNUA L REPORT 2012 33
fIXED ASSET INVESTmENTS
Parent Company’s investments in affiliates
In the Annual Report of the Parent Company, investments in affiliates are measured under the equity method. This means that the affiliates are measured in the balance sheet at the proportionate share of their net asset value, and that the Parent Company’s share of the profit for the year of the affiliates is recognised in the income statement less unrealised intercompany profits.
Securities
The holding of bonds that are held to maturity is classified as a fixed asset investment. The bonds are initially recognised in the balance sheet at cost. Subsequently, the holding is measured at amortised cost, which includes revaluation/writedown of the holding of bonds at par over the term of the individual series of bonds.
Inventories
Raw materials and packing materials are measured at the lower of cost under the FIFO method and net realisable value.
Work in progress and finished goods are measured at cost. The cost of finished goods and work in progress comprises the cost of raw materials, consumables, direct labour and indirect production costs. Indirect production costs comprise indirect materials and labour as well as maintenance and depreciation of the machinery, factory buildings and equipment used in the manufacturing process and costs of factory administration and management.
The net realisable value of inventories is calculated as sales price with deduction of costs of completion and expenses incurred to effect the sale and is determined allowing for marketability, obsolescence and development in expected sales price.
Obsolete goods, including slowmoving goods, are expensed.
receivables
Receivables are measured at amortised cost, which usually corresponds to nominal value less potential bad debts. Based on an individual assessment of each trade receivable, writedowns have been made where this is considered necessary.
Exchange adjustments of intercompany balances with affiliates which are considered part of the total net investment in the affiliate are recognised directly in equity.
Prepayments and deferred income
Prepayments include prepaid expenses incurred re
lating to rent, insurance premiums, subscriptions and interest.
Deferred income includes payments received in respect of income in subsequent financial years.
Provisions
Provisions are recognised when – in consequence of an event that occurred before or on the balance sheet date – the Group has a legal or constructive obligation and it is probable that economic benefits must be given up to settle the obligation. Provisions are not discounted.
Pensions
Payments into defined contribution plans are recognised in the income statement in the period to which they relate, and any amounts payable are recognised in other payables in the balance sheet.
In respect of defined benefit plans an annual actuarial calculation is made of the value in use of future payments under the scheme. The value in use is calculated on the basis of assumptions relating to future developments in pay levels, interest rates, inflation and mortality. The value in use is calculated only for the benefits to which the employees have earned a right through their employment with the Group. The actuarially determined value in use less the market value of any plan assets is recognised in pension obligations in the balance sheet. Plan assets are recognised to the extent the Group is able to obtain future economic benefits in the form of reimbursement from the pension scheme or reduction of future payments.
Pension costs for the year are recognised in the income statement based on actuarial estimates and financial expectations at the beginning of the year.
Any differences between expected developments in plan assets and pension obligations and realised values calculated at the beginning of the year are considered actuarial gains or losses. Actuarial gains and losses are recognised in income or expenses based on a corridor of 0%. Calculated gains and losses are recognised over the expected average remaining employment period of the employees covered by the pension scheme. Pension costs relating to previous years are distributed over the average period until the benefits have vested.
Tax
The corporation tax recognised in the income statement consists of current tax for the year, changes in provisions for deferred tax and adjustments to previous years. Tax attributable to equity transactions is recognised directly in equity.
20052006 2007200820092010 20112012 201320142015
ACCOUNTING POLICIES – 2012
34 LEO PHARMA
Deferred tax is provided under the liability method and comprises all temporary differences between the carrying amount and tax base of assets and liabilities. Deferred tax is also included to cover recapture of tax deductible losses in foreign affiliates which are expected to become relevant as a consequence of future earnings of previously jointly taxed foreign affiliates.
The tax bases of tax losses carried forward and tax incentives carried forward are included in the calculation of deferred tax to the extent these values are likely to be utilised in future taxable income.
Deferred tax relating to potential gains and losses on investments in affiliates is not included unless the shares are expected to be sold within a short period of time, in which case the shareholdings are transferred to current assets.
Deferred tax is calculated at the expected tax rate for the enterprise concerned. Tax payable includes current tax calculated on the basis of the expected taxable income for the year as well as any adjustment for taxes payable for previous years.
The Parent Company is jointly taxed with its Danish affiliates. The jointly taxed Danish enterprises have adopted the onaccount taxation scheme. Current tax for the year of the jointly taxed enterprises and tax on recaptured income are recognised in the Parent Company. The jointly taxed Danish enterprises settle the tax with the Parent Company.
Extra payments and repayments relating to the payment of corporation tax are classified as financial income and expenses and are not included in tax provisions or in the adjusted income tax.
Definition of key figures
Segment reporting
Revenue is broken down geographically and by business area.
Cash flow statement
The cash flow statement is prepared according to the indirect method based on profit before tax. The statement shows cash flows from operating, investing and financing activities as well as cash and cash equivalents at the end of the year.
Cash flows from operating activities are calculated as the Group’s profit/loss for the year before extraordinary items and tax adjusted for noncash operating items such as depreciation, amortisation and impairment losses as well as changes in working capital. Working capital comprises inventories, trade receivables and trade payables, etc.
Cash flows from investing activities comprise payments from acquisitions and disposals of intangible assets, property, plant and equipment as well as fixed asset investments.
Cash flows from financing activities comprise payments from the raising and repayment of shortterm and longterm debt and payments to and from shareholders.
Cash and cash equivalents only comprise cash at bank and in hand.
Average number of employees
Average number of full-time equivalent employees
Profit marginOperating profit
Revenuex 100
return on assetsOperating profit Average assets
x 100
return on equityProfit before tax Average equity
x 100
Solvency ratioEquity Assets
x 100
Page — 36
LEO Pharma A/S | Financial Statements
FINANCIAL STATEMENTS – 2012
A NNUA L REPORT 2012 39
INCOME STATEMENT
revenue (1) 8 216 7 487 6 344 5 681
Change in inventories of finished goods
produced and work in progress 40 412 44 106
8 256 7 899 6 388 5 787
Other operating income 79 97 381 441
8 335 7 996 6 769 6 228
Consumption of raw materials, consumables and goods for resale 771 862 3 391 2 805
Other external expenses (2) 3 399 3 341 2 040 2 063
Staff expenses (3) 2 948 2 670 1 027 1 027
Depreciation, amortisation and impairment losses (4) 1 357 955 1 099 749
Other operating expenses 39 10 5 0
OPErATING PrOfIT/LOSS -179 158 -793 -416
Income from investments in
affiliates after tax (10) 0 0 481 366
Financial income (5) 1 120 917 1 129 856
Financial expenses (6) 71 79 82 106
PrOfIT/LOSS BEfOrE TAX 870 996 735 700
Tax on profit/loss for the year (7) 207 372 72 76
NET PrOfIT/LOSS fOr ThE yEAr 663 624 663 624
Proposed to be distributed as follows:
Proposed dividend for the year 0 130
Net revaluation reserve 295 0
Retained earnings 368 494
663 624
GrOUP PArENT COmPANy
2012 2011 2012 2011
Note DKK million DKK million DKK million DKK million
FINANCIAL STATEMENTS – 2012 FINANCIAL STATEMENTS – 2012
40 LEO PHARMA A NNUA L REPORT 2012 41
ASSETS GrOUP PArENT COmPANy
2012 2011 2012 2011
Note DKK million DKK million DKK million DKK million
fIXED ASSETS
Intangible assets
Rights 1 006 1 816 1 006 1 816
Trademarks 25 0 25 0
Development projects 291 426 0 0
Total (8) 1 322 2 242 1 031 1 816
Property, plant and equipment
Land and buildings 1 074 1 006 526 532
Leasehold improvements 53 43 0 0
Plant and machinery 676 638 342 307
Other fixtures and fittings, tools and equipment 97 97 79 78
Fixed assets under construction 224 274 64 170
Total (9) 2 124 2 058 1 011 1 087
fixed asset investments
Investments in affiliates (10) 0 0 3 614 2 119
Other securities (11) 20 109 19 728 20 109 19 728
Deferred tax assets (14) 1 140 572 0 0
Total 21 249 20 300 23 723 21 847
TOTAL fIXED ASSETS 24 695 24 600 25 765 24 750
CUrrENT ASSETS
Inventories
Raw materials and consumables 235 221 100 111
Work in progress 934 679 315 326
Finished goods and goods for resale 123 353 233 177
Total 1 292 1 253 648 614
receivables
Trade receivables 1 743 1 803 592 608
Receivables from affiliates 0 0 2 890 2 393
Other receivables 447 871 359 754
Prepayments 97 83 11 14
Total 2 287 2 757 3 852 3 769
Cash at bank and in hand 1 158 354 708 8
TOTAL CUrrENT ASSETS 4 737 4 364 5 208 4 391
TOTAL ASSETS 29 432 28 964 30 973 29 141
EQUITy
Share capital (12) 250 250 250 250
Net revaluation, affiliates 0 0 295 0
Retained earnings 21 740 21 046 21 445 21 046
Proposed dividend 0 130 0 130
TOTAL EQUITy (13) 21 990 21 426 21 990 21 426
PrOVISIONS
Deferred tax (14) 432 506 61 502
Pension obligations (15) 23 31 0 0
Other provisions (15) 548 483 46 50
TOTAL PrOVISIONS 1 003 1 020 107 552
LIABILITIES
Short-term liabilities
Credit institutions 4 810 4 658 4 809 4 612
Trade payables 350 384 156 215
Payables to affiliates 100 2 3 587 1 855
Corporation tax 129 440 0 30
Deferred income 0 50 0 50
Other payables 1 050 984 324 401
TOTAL LIABILITIES 6 439 6 518 8 876 7 163
TOTAL EQUITy AND LIABILITIES 29 432 28 964 30 973 29 141
Contingencies (16)
Financial instruments (17)
Related parties (18)
BALANCE SHEET AT 31 DECEMBER BALANCE SHEET AT 31 DECEMBER
EQUITy AND LIABILITIES GrOUP PArENT COmPANy
2012 2011 2012 2011
Note DKK million DKK million DKK million DKK million
FINANCIAL STATEMENTS – 2012
A NNUA L REPORT 2012 43
GrOUP
2012 2011
DKK million DKK million
CASH FLOW STATEMENT
CASh fLOwS frOm OPErATING ACTIVITIES
Profit before tax 870 996
Adjustments:
Depreciation, amortisation and impairment losses 1 357 955
Unrealised exchange adjustments 6 -9
Exchange adjustment, securities -232 -13
Corporation tax paid -707 -173
Pension obligations -8 -39
Other provisions 101 204
Other adjustments -37 -20
Change in working capital:
Change in inventories and receivables -72 -326
Change in trade payables and other payables 23 215
1 301 1 790
CASh fLOwS frOm INVESTING ACTIVITIES
Investments in intangible assets, net -186 0
Investments in property, plant and equipment, net -343 -410
Fixed asset investments, net -148 -1 355
-677 -1 765
CASh fLOwS frOm fINANCING ACTIVITIES
Dividend distributed -130 0
Debt, affiliates 100 0
Change in bank debt 210 112
180 112
TOTAL ChANGE IN CASh AND CASh EQUIVALENTS 804 137
Cash and cash equivalents at 1 January 354 217
Cash and cash equivalents at 31 December 1 158 354
The figures in the cash flow statement cannot be directly derived from the figures in the Consolidated Financial Statements .
Page — 44
LEO Pharma A/S | Notes
NOTES TO THE FINANCIAL STATEMENTS 2012
46 LEO PHARMA A NNUA L REPORT 2012 47
NOTES TO THE FINANCIAL STATEMENTS 2012
Note 1 – revenue
Segmentation – geographical
Sales in Denmark 247 249 247 249
Sales outside Denmark 7 969 7 238 6 097 5 432
Total revenue 8 216 7 487 6 344 5 681
Segmentation – business area
Health Care 8 216 7 487 6 344 5 681
Total revenue 8 216 7 487 6 344 5 681
Note 2 – Other external expenses
fee to auditors appointed at the general meeting:
Statutory audit of the Financial Statements 6 6 2 2
Other assurance engagements 0 1 0 0
Tax assistance 8 7 2 3
Other services 6 3 2 2
20 17 6 7
Note 3 – Staff expenses
Wages, salaries and remunerations 2 491 2 287 937 956
Pensions 251 205 92 85
Other social security payments 222 198 14 6
Of which capitalised -16 -20 -16 -20
2 948 2 670 1 027 1 027
Average number of employees for the year 4 783 4 391 1 626 1 533
Remuneration to the Board of Directors amounted to DKK 4 million
(2011: DKK 4 million) . Remuneration to the Board of Executives
amounted to DKK 19 million (2011: DKK 20 million) .
Note 4 – Depreciation, amortisation and impairment losses
Rights 939 626 939 626
Trademarks 5 0 5 0
Development projects 131 99 0 0
Land and buildings 100 87 48 45
Leasehold improvements 13 8 0 0
Plant and machinery 140 103 83 51
Other fixtures and fittings, tools and equipment 29 32 24 27
1 357 955 1 099 749
Note 5 – financial income
Interest income on bonds 848 818 848 818
Interest income from affiliates 0 0 10 8
Exchange gains 232 68 232 0
Other financial income 40 31 39 30
1 120 917 1 129 856
Note 6 – financial expenses
Interest expenses to affiliates 1 0 16 19
Exchange losses 0 0 0 13
Other financial expenses 70 79 66 74
71 79 82 106
Note 7 – Tax on profit/loss for the year
Current tax for the year 637 566 330 1
Change in deferred tax -426 -194 -258 79
Adjustment relating to previous years -4 0 0 -4
207 372 72 76
Tax on changes in equity -4 4 -4 4
GrOUP PArENT COmPANy
2012 2011 2012 2011
DKK million DKK million DKK million DKK million
GrOUP PArENT COmPANy
2012 2011 2012 2011
DKK million DKK million DKK million DKK million
Tax in affiliates totalled DKK 135 million (2011: DKK 296 million) .
NOTES TO THE FINANCIAL STATEMENTS 2012 NOTES TO THE FINANCIAL STATEMENTS 2012
48 LEO PHARMA A NNUA L REPORT 2012 49
(DKK million) Rights Trademarks
Development
projects
Total
intangible assets
Note 8 – Intangible assets
Cost at 1 January 2012 4 884 9 1 717 6 610
Exchange adjustment 0 0 -26 -26
Additions for the year 156 30 0 186
Disposals for the year 0 -6 0 -6
Total cost at 31 December 2012 5 040 33 1 691 6 764
Amortisation at 1 January 2012 3 068 9 1 291 4 368
Exchange adjustment 0 0 -22 -22
Reclassified in the balance sheet 27 0 0 27
Amortisation for the year 592 5 131 728
Impairment losses for the year 347 0 0 347
Amortisation and impairment losses on disposals for the year 0 -6 0 -6
Total amortisation at 31 December 2012 4 034 8 1 400 5 442
CArryING AmOUNT AT 31 DECEmBEr 2012 1 006 25 291 1 322
Cost at 1 January 2011 4 884 9 1 678 6 571
Exchange adjustment 0 0 39 39
Total cost at 31 December 2011 4 884 9 1 717 6 610
Amortisation at 1 January 2011 2 442 9 1 151 3 602
Exchange adjustment 0 0 41 41
Amortisation for the year 626 0 99 725
Total amortisation at 31 December 2011 3 068 9 1 291 4 368
CArryING AmOUNT AT 31 DECEmBEr 2011 1 816 0 426 2 242
(DKK million) Rights Trademarks
Total
intangible assets
Note 8 – Intangible assets
Cost at 1 January 2012 4 884 6 4 890
Additions for the year 156 30 186
Disposals for the year 0 -6 -6
Total cost at 31 December 2012 5 040 30 5 070
Amortisation at 1 January 2012 3 068 6 3 074
Reclassified in the balance sheet 27 0 27
Amortisation for the year 592 5 597
Impairment losses for the year 347 0 347
Amortisation and impairment losses on disposals for the year 0 -6 -6
Total amortisation at 31 December 2012 4 034 5 4 039
CArryING AmOUNT AT 31 DECEmBEr 2012 1 006 25 1 031
Cost at 1 January 2011 4 884 6 4 890
Total cost at 31 December 2011 4 884 6 4 890
Amortisation at 1 January 2011 2 442 6 2 448
Amortisation for the year 626 0 626
Total amortisation at 31 December 2011 3 068 6 3 074
CArryING AmOUNT AT 31 DECEmBEr 2011 1 816 0 1 816
GROUP PARENT COMPANY
NOTES TO THE FINANCIAL STATEMENTS 2012 NOTES TO THE FINANCIAL STATEMENTS 2012
50 LEO PHARMA A NNUA L REPORT 2012 51
GROUP PARENT COMPANY
(DKK million)
Land and
buildings
Leasehold
improvements
Plant and
machinery
Other fixtures
and fittings,
tools and
equipment
Fixed assets
under
construction
Total property,
plant and
equipment
Note 9 – Property, plant and equipment
Cost at 1 January 2012 2 177 56 2 056 621 274 5 184
Exchange adjustment 6 0 4 0 0 10
Additions for the year 166 27 179 33 277 682
Disposals for the year -178 -4 -42 -114 -327 -665
Total cost at 31 December 2012 2 171 79 2 197 540 224 5 211
Depreciation and impairment losses at 1 January 2012 1 171 13 1 418 524 3 126
Exchange adjustment 3 0 2 0 5
Depreciation and impairment losses on disposals for the year -177 0 -39 -110 -326
Depreciation for the year 100 13 115 29 257
Impairment losses for the year 0 0 25 0 25
Total depreciation and impairment losses at 31 December 2012 1 097 26 1 521 443 3 087
CArryING AmOUNT AT 31 DECEmBEr 2012 1 074 53 676 97 224 2 124
Cost at 1 January 2011 1 853 26 1 829 612 479 4 799
Exchange adjustment 0 0 -2 0 0 -2
Additions for the year 332 36 229 22 247 866
Disposals for the year -8 -6 0 -13 -452 -479
Total cost at 31 December 2011 2 177 56 2 056 621 274 5 184
Depreciation and impairment losses at 1 January 2011 1 089 7 1 317 505 2 918
Exchange adjustment 2 1 -2 0 1
Depreciation and impairment losses on disposals for the year -7 -3 0 -13 -23
Depreciation for the year 87 8 103 32 230
Total depreciation and impairment losses at 31 December 2011 1 171 13 1 418 524 3 126
CArryING AmOUNT AT 31 DECEmBEr 2011 1 006 43 638 97 274 2 058
(DKK million) Land and buildings
Plant and
machinery
Other fixtures and
fittings, tools and
equipment
Fixed assets under
construction
Total property,
plant and
equipment
Note 9 – Property, plant and equipment
Cost at 1 January 2012 1 094 1 069 499 170 2 832
Additions for the year 43 119 27 129 318
Disposals for the year -126 -40 -109 -235 -510
Total cost at 31 December 2012 1 011 1 148 417 64 2 640
Depreciation and impairment losses at 1 January 2012 562 762 421 1 745
Depreciation and impairment losses on disposals for the year -125 -39 -107 -271
Depreciation for the year 48 58 24 130
Impairment losses for the year 0 25 0 25
Total depreciation and impairment losses at 31 December 2012 485 806 338 1 629
CArryING AmOUNT AT 31 DECEmBEr 2012 526 342 79 64 1 011
Cost at 1 January 2011 937 965 488 276 2 666
Additions for the year 158 104 11 151 424
Disposals for the year -1 0 0 -257 -258
Total cost at 31 December 2011 1 094 1 069 499 170 2 832
Depreciation and impairment losses at 1 January 2011 518 711 394 1 623
Depreciation and impairment losses on disposals for the year -1 0 0 -1
Depreciation for the year 45 51 27 123
Total depreciation and impairment losses at 31 December 2011 562 762 421 1 745
CArryING AmOUNT AT 31 DECEmBEr 2011 532 307 78 170 1 087
NOTES TO THE FINANCIAL STATEMENTS 2012 NOTES TO THE FINANCIAL STATEMENTS 2012
52 LEO PHARMA A NNUA L REPORT 2012 53
Note 10 – Investments in affiliates
Cost at 1 January 2 248 2 035
Additions for the year 1 071 213
Total cost at 31 December 3 319 2 248
Value adjustment at 1 January -129 -6
Transfer 21 0
Share of profit/loss for the year 481 366
Dividend -90 -448
Exchange adjustments -21 166
Exchange adjustment on equity-equivalent loans 33 -207
Total value adjustment at 31 December 295 -129
CArryING AmOUNT AT 31 DECEmBEr 3 614 2 119
Note 11 – Other securities
Cost at 1 January 19 686 18 321 19 686 18 321
Additions for the year 11 508 3 346 11 508 3 346
Disposals for the year -11 109 -1 981 -11 109 -1 981
Total cost at 31 December 20 085 19 686 20 085 19 686
Value adjustment at 1 January 42 40 42 40
Value adjustment for the year 6 6 6 6
Value adjustment on disposals for the year -24 -4 -24 -4
Total value adjustment at 31 December 24 42 24 42
Carrying amount at 31 December 20 109 19 728 20 109 19 728
Market value on the balance sheet date 21 329 20 421 21 329 20 421
GrOUP PArENT COmPANy
2012 2011 2012 2011
DKK million DKK million DKK million DKK million (DKK million) Share capital Net revaluations
Retained
earnings
Proposed
dividend Total
Note 13 – Consolidated equity 2012
Equity at 1 January 250 21 046 130 21 426
Exchange adjustments 0 -21 0 -21
Tax on changes in equity 0 4 0 4
Exchange adjustment on equity-equivalent loans 0 20 0 20
Adjustment of financial instruments 0 28 0 28
Dividend distributed 0 0 -130 -130
Net profit/loss for the year 0 663 0 663
Equity at 31 December 250 21 740 0 21 990
Note 13 – Parent Company equity 2012
Equity at 1 January 250 0 21 046 130 21 426
Transfer 0 21 -21 0 0
Exchange adjustments 0 -21 0 0 -21
Tax on changes in equity 0 0 4 0 4
Exchange adjustment on equity-equivalent loans 0 33 -13 0 20
Profit/loss from affiliate after tax 0 352 129 0 481
Dividend received 0 -90 90 0 0
Dividend distributed 0 0 0 -130 -130
Profit/loss in Parent Company 0 0 182 0 182
Adjustment of financial instruments 0 0 28 0 28
Equity at 31 December 250 295 21 445 0 21 990
Note 12 – Share capital
The share capital comprises 250 shares with a nominal value of DKK 1 million. The share capital is divided into 170 A shares and 80 B shares. Holders of A shares have preemption rights if the share capital is increased. Holders of B shares can only vote in connection with alterations to the articles of association, cf. Section 107 of the Danish Companies Act. No shares or shareholders have any additional special rights. With the exception of an increase in share capital of 100 shares of a nominal amount of DKK 1 million per share in 2009, the nominal share capital has been unchanged for the last five years.
The share capital is wholly owned by the LEO Foundation.
The Consolidated Financial Statements for the LEO Foundation may be obtained at the following address: Industriparken 55, 2750 Ballerup, Denmark.
NOTES TO THE FINANCIAL STATEMENTS 2012 NOTES TO THE FINANCIAL STATEMENTS 2012
54 LEO PHARMA A NNUA L REPORT 2012 55
(DKK million) Share capital
Net
revaluations
Retained
earnings
Proposed
dividend Total
Note 13 – Consolidated equity 2011
Equity at 1 January 250 20 583 0 20 833
Exchange adjustments 0 166 0 166
Tax on changes in equity 0 -4 0 -4
Exchange adjustment on equity-equivalent loans 0 -165 0 -165
Adjustment of financial instruments 0 -28 0 -28
Proposed dividend for the financial year 0 -130 130 0
Net profit/loss for the year 0 624 0 624
Equity at 31 December 250 21 046 130 21 426
Note 13 – Parent Company equity 2011
Equity at 1 January 250 20 583 0 20 833
Exchange adjustments 0 166 0 166
Tax on changes in equity 0 -4 0 -4
Exchange adjustment on equity-equivalent loans 0 -165 0 -165
Profit/loss from affiliate after tax 0 366 0 366
Profit/loss in Parent Company 0 258 0 258
Adjustment of financial instruments 0 -28 0 -28
Proposed dividend for the financial year 0 -130 130 0
Equity at 31 December 250 21 046 130 21 426
Note 14 – Deferred tax (net)
Deferred tax at 1 January 66 -132 -502 -427
Adjustments relating to previous years 248 4 215 4
Reclassifications -32 0 -32 0
Deferred tax on profit/loss for the year 426 194 258 -79
Deferred tax at 31 December 708 66 -61 -502
The deferred tax relates to current assets, licences, fixed assets and losses relating to previously jointly taxed foreign affiliates, intercompany profits, indirect production costs, etc .
In the Group’s balance sheet, DKK 1,140 million (2011: DKK 572 million) has been recognised in fixed asset investments and DKK 432 million (2011: DKK 506 million) in provisions .
Note 15 – Pension obligations and other provisions
Pension obligations
Provision for pension obligations at 1 January 31 68 0 0
Exchange adjustment, beginning of year 1 1 0 0
Adjustment for the year -9 -38 0 0
Provision for pension obligations at 31 December 23 31 0 0
The Group’s companies in Ireland, the UK, the Netherlands, France and Norway operate defined benefit plans .
Deficits relating to pension schemes at 31 December 2012 totalled DKK 514 million (2011: DKK 417 million) .
Other provisions
The Group’s other provisions at 31 December 2012 totalled DKK 548 million (2011: DKK 483 million) . In the Parent Company, other provisions totalled DKK 46 million (2011: DKK 50 million) . Other provisions are specified below .
Staff-related items 102 133 43 47
Take-back obligations 228 125 0 0
Discounts 188 200 0 0
Other provisions 30 25 3 3
Other provisions at 31 December 548 483 46 50
GrOUP PArENT COmPANy
2012 2011 2012 2011
DKK million DKK million DKK million DKK million
A NNUA L REPORT 2012 57
NOTES TO THE FINANCIAL STATEMENTS 2012
56 LEO PHARMA
Note 16 – Contingencies
The Parent Company’s security provided and guarantee commitments totalled DKK 249 million at 31 December 2012 (2011: DKK 240 million). The amount relating to the Group totalled DKK 270 million at 31 December 2012 (2011: DKK 241 million).
Guarantees issued relating to the Group’s Irish companies comprised all liabilities of the companies. At 31 December 2012, the companies had total liabilities of DKK 160 million (2011: DKK 131 million).
The Parent Company had lease obligations of DKK 42 million (2011: DKK 37 million). Of this DKK 30 million relates to affiliates (2011: DKK 24 million). Lease obligations relating to the Group totalled DKK 318 million (2011: DKK 311 million).
As security for a bank loan and overdraft facilities at a carrying amount totalling DKK 4,810 million (2011: DKK 4,658 million), as well as the establishment of guarantee commitments at a value of DKK 16 million (2011: DKK 16 million), LEO Pharma A/S had pledged bonds at a carrying amount of DKK 4,967 million (2011: DKK 4,692 million). The amount relating to the Group also totalled DKK 4,967 million (2011: DKK 4,692 million).
At the end of 2012, there were several pending patent lawsuits filed by and against LEO Pharma concerning rights related to products in LEO Pharma’s psoriasis portfolio in both the USA and Europe. LEO Pharma does not consider the probability that the pending cases will have a significant effect on the financial position of the Group to be such that their anticipated outcome should be allowed for in the report.
Note 17 – financial instruments
The Group and the Parent Company use both option and forward contracts as part of managing foreign exchange risks.
At 31 December 2012, there were outstanding forward contracts in: AUD, CAD, CHF, CNY, EUR, GBP, HKD, JPY, KRW, MXN, MYR, NOK, PHP, RON, SAR, SEK, SGD, THB, TRY and USD. The contract amount at 31 December 2012 totalled DKK 2,509 million (2011: DKK 325 million).
At 31 December 2012, there were no outstanding option contracts. The contract amount at 31 December 2011 totalled DKK 1,815 million.
At 31 December 2012, the Group and the Parent Company also had option contracts in EUR. At 31 December 2012, the contract amount totalled DKK 2,439 million (2011: DKK 4,455 million) in the following currencies: AUD, CAD, CHF, CNY, EUR, GBP, JPY, NOK, SEK and USD.
Note 18 – related parties
LEO Pharma A/S’s related parties with significant influence comprise the Company’s Board of Directors, Board of Executives, the LEO Foundation and affiliates of LEO Pharma A/S.
LEO Pharma has had related party transactions, all of which have been settled on an arm’s length basis.
Nominal capital ‘000reg. office
Ownership interest Currency
INVESTMENTS IN AFFILIATES
Løvens kemiske Fabriks Handelsaktieselskab Denmark 100% DKK 30 000
QSI Pharma A/S Denmark 100% DKK 1 250
Aktieselskabet af 30 . april 2003 Denmark 100% DKK 3 500
SARL LEO Pharma Algeria 100% DZD 2 000
PBL Australia Pty Ltd Australia 100% AUD 112 804
PRE Australia Pty Ltd Australia 100% AUD 0
BIO Australia Pty Ltd Australia 100% AUD 0
Peplin Operations Pty Ltd Australia 100% AUD 24 000
LEO Pharma Pty Ltd Australia 100% AUD 5 500
LEO Pharma NV Belgium 100% EUR 273
LEO Pharma LTDA . Brazil 100% BRL 4 500
LEO Pharma Inc . Canada 100% CAD 8 400
LEO Laboratories Ltd . UK 100% GBP 12 000
LEO Pharma OY Finland 100% EUR 151
Laboratoires LEO S .A . France 100% EUR 9 000
LEO Pharmaceutical Hellas S .A . Greece 100% EUR 28 600
LEO Pharma BV Netherlands 100% EUR 227
LEO Laboratories Ltd . Ireland 100% EUR 30 394
Wexport Ltd . Ireland 100% EUR 2 600
LEO Pharma Holding Ltd . Ireland 100% EUR 100
Peplin Ireland Limited Ireland 100% EUR 22 239
LEO Pharma S .p .A . Italy 100% EUR 620
LEO Pharma K .K . Japan 100% JPY 10 000
LEO Pharma Consultancy Company Limited China 100% USD 1 500
LEO Pharma LLC Morocco 100% MAD 100
LEO Pharmaceuticals, S . de R .L . de C .V . Mexico 100% MXN 0
LEO Pharma Ltd . New Zealand 100% NZD 85
LEO Pharma AS Norway 100% NOK 3 000
LEO Pharma Sp . z o .o . Poland 100% PLN 95
LEO Farmacêuticos Lda . Portugal 100% EUR 626
LEO Pharmaceutical Products Sarath Ltd . Switzerland 100% CHF 50
LEO Pharma Asia PTE Ltd . Singapore 100% SGD 100
Laboratorios LEO Pharma S .A . Spain 100% EUR 1 214
LEO Pharma AB Sweden 100% SEK 1 000
Lövens Läkemedel AB Sweden 100% SEK 100
LEO Pharma s .r .o . Czech Republic 100% CZK 350
LEO Pharma SARL Tunisia 100% TND 10
LEO Pharma İlaç Ticaret Anonim Şirketi Turkey 100% TRY 1 300
LEO Pharma GmbH Germany 100% EUR 750
LEO Pharma Inc . USA 100% USD 2 500
Peplin Inc . USA 100% USD 15
Neosil Inc . USA 100% USD 1
Peplin Operations USA Inc . USA 100% USD 1
LEO Pharma GmbH Austria 100% EUR 76
LEO Pharma A/SIndustriparken 552750 BallerupDenmark
Tel . +45 4494 5888Fax +45 7226 3323www .leo-pharma .com
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