consolidated financial statements october 31th 2018 · 2019. 1. 31. · liabilities & equity notes...

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Consolidated Financial Statements

October 31th 2018

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Novasep Sites

Gosselies, Seneffe, BE

Lyon-Gerland, FR

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Table of Content

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CONSOLIDATED STATEMENT OF FINANCIAL POSITION ................................................................................ 5

CONSOLIDATED INCOME STATEMENT ............................................................................................................... 7

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME ....................................................................... 8

CONSOLIDATED STATEMENT OF CASH FLOWS ................................................................................................ 9

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY 2017 ...................................................................... 10

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY 2016 ...................................................................... 12

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ......................................................................... 13 1 GROUP OVERVIEW AND PERFORMANCE ..................................................................................... 13 2 ACCOUNTING METHODS AND PRINCIPLES ................................................................................. 14 3 CONSOLIDATION SCOPE ................................................................................................................... 32 4 SEGMENT INFORMATION ................................................................................................................. 33 5 DISCONTINUED OPERATIONS ......................................................................................................... 45 6 GOODWILL ........................................................................................................................................... 52 7 INTANGIBLE ASSETS (OTHER THAN GOODWILL) ...................................................................... 53 8 PROPERTY, PLANT AND EQUIPMENT ............................................................................................ 54 9 FINANCE LEASE .................................................................................................................................. 56 10 NON-CURRENT AND CURRENT FINANCIAL ASSETS ............................................................... 56 11 INVENTORY ....................................................................................................................................... 58 12 TRADE RECEIVABLES ..................................................................................................................... 59 13 FACTORING ........................................................................................................................................ 60 14 CURRENT TAX ASSETS .................................................................................................................... 60 15 OTHER ASSETS .................................................................................................................................. 61 16 LONG TERM CONSTRUCTION CONTRACTS ............................................................................... 61 17 DERIVATIVES .................................................................................................................................... 61 18 CASH AND CASH EQUIVALENTS .................................................................................................. 62 19 CURRENT AND NON-CURRENT PROVISIONS ............................................................................. 62 20 TRADE PAYABLES ............................................................................................................................ 62 21 OTHER LIABILITIES .......................................................................................................................... 63 22 EQUITY ................................................................................................................................................ 63 23 SHARE PURCHASE OPTIONS .......................................................................................................... 66 24 BUSINESS COMBINATIONS ............................................................................................................ 67 25 PENSIONS AND SIMILAR BENEFIT PROVISION ......................................................................... 67 26 LONG AND SHORT TERM DEBT ..................................................................................................... 70 27 RISKS IN TERMS OF INTEREST RATES AND EXCHANGE RATE FLUCTUATIONS .............. 72 28 DERIVATIVES: HEDGING ACTIVITY ............................................................................................ 72 29 ANALYSIS OF THE INCOME STATEMENT ................................................................................... 73 30 REMUNERATION OF MANAGEMENT BODIES ............................................................................ 78 31 CASH FLOW STATEMENT ............................................................................................................... 78 32 GROUP LIABILITIES ......................................................................................................................... 79 33 CONTINGENT LIABILITIES ............................................................................................................. 80 34 EXTERNAL AUDITORS FEES .......................................................................................................... 81

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CONSOLIDATED STATEMENT OF FINANCIAL POSITION (Amounts in euro thousands except otherwise stated)

ASSETS Notes 31/10/2018 31/12/2017 31/12/2016

Non-current assets

Goodwill 6 55,630 55,630 55,630

Intangible assets 7 7,781 10,092 10,274

Property, plant and equipment 8 153,073 136,413 122,442

Non-current financial assets 10 10,455 11,683 19,602

Deferred tax assets 29.6 12,157 11,199 1,598

Total non-current assets 239,097 225,017 209,546

Current assets

Inventory 11 54,472 43,450 36,693

Trade receivables 12 25,685 49,138 44,523

Current tax assets 14 16,033 12,157 10,712

Other current assets 15 4,539 4,567 2,926

Current financial assets 10 9,059 9,652 8,504

Cash and cash equivalents 18 41,709 35,352 54,537

Total current assets 151,498 154,317 157,895

TOTAL ASSETS 390,595 379,334 367,441

The foot notes are an integral part of the consolidated financial statements

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CONSOLIDATED STATEMENT OF FINANCIAL POSITION (conti nued) (Amounts in euro thousands except otherwise stated)

LIABILITIES & EQUITY Notes 31/10/2018 31/12/2017 31/12/2016

Equity 22

Issued capital 8,584 8,584 8,584

Consolidated reserves 92,453 92,803 95,719

Retained earnings and net income attributable to equity holders of the parent

(131,642) (111,461) (100,526)

Equity attributable to equity holders of the parent (30,605) (10,074) 3,777

Non-controlling interests 0 0

Total equity (30,605) (10,074) 3,777

Preference Shares 22.3 30,000 30,000 30,000

Total Equity and preference shares (605) 19,926 33,777

Non-current liabilities

Pension and similar benefit provisions 25 21,076 20,587 20,443

Long-term debt, net of current portion 26 249,886 210,278 188,569

Deferred tax liabilities 29.6 0 175 83

Total non-current liabilities 270,962 231,040 209,095

Current liabilities

Current provisions 19 3,401 3,369 5,180

Short-term debt and current portion of long-term debt 26 7,110 6,437 6,115

Trade payables 20 54,746 63,970 54,818

Derivatives 17 133 133 133

Other liabilities 21 54,846 54,462 58,322

Total current liabilities 120,236 128,371 124,569

TOTAL LIABILITIES & EQUITY 390,593 379,334 367,441


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CONSOLIDATED INCOME STATEMENT (Amounts in euro thousands except otherwise stated)

Notes 31/10/2018 2017 2016

REVENUE from continuing operations 235,183 281,747 270,616

Material costs, sales commissions and transportation (85,693) (107,146) (101,061)

GROSS MARGIN 149,489 174,601 169,556 % Revenue 63,6 % 62.0% 62.7%

Manufacturing Personnel costs (58,311) (62,438) (59,830)

Other manufacturing expenses (34,514) (39,550) (35,748)

Depreciation of manufacturing equipment 29.2 (12 ,462) (14,859) (14,609)

Cost of sales (190,981) (223,993) (211,248)

GROSS PROFIT 44,202 57,754 57,754

59,369 % Revenue 18.8 % 20.5% 21.9%

Selling expenses (13,474) (16,186) (15,568)

Research & development expenses (11,155) (13,359) (10,991)

Administration expenses (17,791) (19,761) (18,674)

Other operating revenues and expenses 29.3 2,450 5,702 (975)

Other depreciation 29.2 (2,779) (3,237) (2,711)

OPERATING INCOME 1,453 10,913 10,450 % Revenue 0.6 % 3.9% 3.9 %

+ depreciation 15,241 18,095 17,320 = EBITDA adjusted 16,694 29,008 27,770 % revenue 7.1 % 10.3% 10,3 %

Amortization of intangible assets recognized on

business combinations

29.2 (76) (276) (1,109)

Impairment 29.2 (2,982)

Other non-recurring income and expenses 29.4 1,560 974 (3,350)

Cost of net financial debt 29.5 (23,037) (26,532) (17,214)

Other financial income/expenses 29.5 265 (2,240) (684)

Current income tax expense 29.6 (1,774) (1,408) (,576)

Deferred tax income/(expense) 29.6 1,124 9,604 (5,756)

NET INCOME/(LOSS) from continuing operations

(20,484) (8,965) (22,220)

NET INCOME/(LOSS) from discontinued operations 5.1 583 (4,481) 25,190

NET INCOME/(LOSS) (19,901) (13,446) 2,970

* Attributable to the owners of the company (19 ,901) (13,446) 2,970

* Attributable to non-controlling interests


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CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (Amounts in euro thousands except otherwise stated)

Notes 31/10/2018 2017 2016

NET INCOME/(LOSS) FOR THE YEAR (19,901) (13,446) 2,970

Other comprehensive income

Items that will not be reclassified to profit or loss

Remeasurement of post-employment benefit obligations 25 235 (2,406)

Income tax impact on items that will not be reclassified to profit or loss 29.6 (73) 782

Sub-total 163 (1,624)

Items that may be subsequently reclassified to profit or loss

Currency translation differences (321) (240) (320)

Sub-total (321) (240) (320)

TOTAL COMPREHENSIVE INCOME FOR THE YEAR (20,222) (13,523) 1,026

Total comprehensive income attributable to:

Owners of the Company (20,222) (13,523) 1,026

Non-controlling interests


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CONSOLIDATED STATEMENT OF CASH FLOWS (Amounts in euro thousands except otherwise stated)

Notes

31/10/2018 2017 2016

OPERATING INCOME / (LOSS) FOR THE YEAR 1,453 10,913 10,450

Adjustments to reconcile Operating income to net cash provided by operations

Depreciation 29.2 15,241 18,095 17,320

Sub-total EBITDA adjusted 16,694 29,008 27,770

Other non-recurring income and expenses from operating activities 1,559 376 (3,380)

(Gain)/Loss on disposal of property, plant and equipment 36 775 156

Expense recognized in respect of equity-settled share-based payments 42 20 74

Taxes paid (1,438) (1,244) (1,822)

Movement in working capital and provision (continuing operations) 31.1 6,384 (14,656) 2,036

I. NET CASH PROVIDED BY OPERATING (CONTINUING) ACTIVITIES

23,277 14,278 24,834

Purchase of property, plant and equipment (29,710) (33,166) (21,759)

Increase/(decrease) in trade payables Capex (7,436) 7,241 (390)

Proceeds from disposal of property, plant and equipment 7 649 -

II. NET CASH USED IN INVESTING (CONTINUING) ACTIVITIES (37,140) (25,276) (22,149)

Debt Refinancing costs (102) (3,884)

Interest paid 31.3 (7,682) (10,617) (7,673)

Dividend paid 22.4 (350) (4,350) (968)

Proceeds from long-term debt, net of debt issuance costs 15,155 3,112 135

Payments of short-term debt 31.2 (1,732) (1,616) (3,772)

Other financing activities (net) 31.4 11,797 3,768 1,990

III. NET CASH PROVIDED BY (USED IN) FINANCING (CONTINUING) ACTIVITIES

17,188 (9,805) (14,172)

NET CHANGE IN CASH AND CASH EQUIVALENTS (CONTINUING ) (I + II + III) 3,326 (20,803) (11,487)

IV NET CHANGE IN CASH (DISCONTINUED) 5.2 2,293 3,649 24,971

NET CHANGE IN CASH ( I + II + III + IV) 5,619 (17,154) 13,484

Cash and cash equivalents at the beginning of the year (net of bank overdrafts) 35,352 54,537 41,547

Effect of exchange rate changes on cash 738 (2,032) (494)

Cash and cash equivalents at the end of the year (net of bank overdrafts) 41,709 35,352 54,537


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CONSOLIDATED STATEMENT OF CHANGES IN EQUITY 2017 (Amounts in euro thousands except otherwise stated)

2018 Issued capital

Premiums & Other

reserves

Equity settled

employee benefits reserve

Foreign currency

translation reserve

Retained earnings

Attributable to owners of the

parent

Non- controlling

interests Total

Balance at December 31, 2017 8,584 92 803 600 1,748 (113,809) (10,074) 0 (10,074)

Income for the year (19,901) (19,901) (19,901)

Other comprehensive income for the year (321) (321) (321)

Total comprehensive income for the year (321) (19,901) (20,222) (20,222)

Other items (1) 42 42 42

Dividends (350) (350) (350)

Share subscription warrants 0 0

Balance at October 31 2018 8,584 92 453 642 1,427 (133,711) (30,605) 0 (30,605)

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2017 Issued capital

Premiums & Other reserves

Equity settled


Foreign currency

translation reserve

Retained earnings

Attributable to owners of the

parent

Non- controlling interests Total

Balance at December 31, 2016 8,584 93,153 578 1,988 (100,526) 3,777 0 3,777

Income for the year (13,446) (13,446) (13,446)

Other comprehensive income for the year (240) 163 (77) (77)

Total comprehensive income for the year (240) (13,283) (13,523) (13,523)

Other items (1) 22 22 22

Dividends (350) (350) (350)

Share subscription warrants / / /

Balance at December 31, 2017 8,584 92,803 600 1,748 (113,809) (10,074) 0 (10,074)

(1) see note 22.2


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CONSOLIDATED STATEMENT OF CHANGES IN EQUITY 2016 (Amounts in euro thousands except otherwise stated)

2016 Issued capital

Premiums & Other Reserves

Equity settled


Foreign currency

translation reserve

Retained earnings

Attributable to owners

of the parent

Non- controlling interests Total

Balance at December 31, 2015 8,584 85,658 504 2,308 (102,660) (5,606) 788 (4,818)

Income for the year (1) 3,758 3,758 (788) 2,970

Other comprehensive income for the year (320) (1,624) (1,944) (1,944)

Total comprehensive income for the year (320) 2,134 1,814 (788) 1,026

Recognition of share-based payments (2) 74 74 74

Dividends (4,968) (4,968) (4,968)

Share subscription warrants 12,463 12,463 12,463

Balance at December 31, 2016 8,584 93,153 578 1,988 (100,526) 3,777 0 3,777

(1) Non-controlling interest: K€ (788) recorded in 2016 in Net income in discontinued operations. (2) By decision of the President, free shares were granted to certain managers of the Group on March 15, 2012, January 2014 and June

2016. These shares vest on expiry of a two-year period of continued service in the Group. The amount of the expense relative to these free shares, which has been calculated and recorded in accordance with IFRS 2, was €0.1 million for the current financial year. Note 23 provides additional information on this free share plan.


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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Amounts in euro thousands except otherwise stated)

1 GROUP OVERVIEW AND PERFORMANCE

1.1 Group overview Novasep Holding ("the Group") is a simplified joint stock company incorporated under French law and domiciled in Pompey (54), France. The consolidated financial statements of Novasep Holding SAS for the year ended October 31, 2018 include the parent company and its subsidiaries (together referred to as "the Group") and the Group's share of associates. The Group is now in a position to offer life sciences industries worldwide a rich portfolio of technologies and know-how for the outsourcing of the production of synthetic molecules and biomolecules and through its various business sectors around two complementary Business Units: - Manufacturing Solutions - Process Solutions Manufacturing Solutions offers process development and active ingredient production services for the pharmaceutical and chemical industries. Manufacturing Solutions has two business segments (called "Business Segments"):

- Synthesis which concentrates services for the production of "small" molecules from synthetic chemical reactions, and, - Biopharma which offers services for the production of "large" molecules from biochemical processes.

Process Solutions has two business areas:

- Industrial Biotechnology which offers process engineering services for the agri-food industry - Equipment that offers a range of purification equipment for the pharmaceutical industry.

It aims to support Novasep's growth by developing synergies within each of its two business models, while providing both commercial and financial benefits that complement each other through the combination of the respective service offerings. Its definitions of segments will have an impact on the financial statements for the year ended 31 December 2018, see 1.2.1.

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1.2 Significant events

1.2.1 Operational events - The Leverkusen plant reacted remarkably well to the March 2017 incident. Production has been smoothly reallocated and operations have resumed as planned, while new orders offer a solid growth outlook. The restart of the workshops affected by this fire resumed on April 1, 2018 with success. - The planned investments in the Seneffe plant for the production of organic active ingredients have become a reality, with the signing of construction and leasing contracts for buildings, with capacity reserved by our customers. The building was delivered in 2018.

2 ACCOUNTING METHODS AND PRINCIPLES

2.1 General principles and statement of compliance

The Group's financial year runs for 12 months and ends on 31 December 2018. The present situation is as at 31 October 2018, i. e. 10 months.

The main accounting methods used to prepare the consolidated financial statements are set out below. Unless otherwise indicated, these methods have been permanently applied to all financial years shown.

In accordance with the European Regulation no. 1606/2002 adopted by the European Parliament and the European Council on July 19, 2002, the Group’s consolidated financial statements for the year ending December 31, 2017 have been prepared in compliance with the IFRS (International Financial Reporting Standards), as endorsed by the European Union at the date on which these financial statements were prepared.

International accounting standards include IFRS (International Financial Reporting Standards), IAS (International Accounting Standards) and the interpretation issued by the SIC (Standing Interpretations Committee) and the IFRIC (International Financial Reporting Interpretations Committee).

The going concern principle has thus been adopted for the presentation of the company's consolidated annual accounts. As detailed in § 1.3 above, the process of refinancing the external debt of the Novasep Holding SAS company is underway and the Group's management is confident of a positive outcome to this operation. In the event that the refinancing of the external debt is not completed, the accounting principle used to prepare the financial statements as at October 31, 2018, based on the going concern basis, could prove inappropriate.

2.2 Adoption of new and revised standards 2.2.1 New standards and amendments that came into force on 1 January 2017

• “Disclosure Initiative" (amendments to IAS 7) • “Recognition of deferred tax assets for unrealized losses" (amendments to IAS 12) • “Annual Improvements to IFRS - Cycle (2014-2016)" (amendments to IFRS 12) The Group has no transactions that are affected by these new amendments.

2.2.2 Standards, amendments and interpretations adopted by the European Union and early applied

by the Group None.

2.2.3 Standards, amendments and interpretations adopted by the European Union and not anticipated by the Group

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2.2.3.1 IFRS 15 "Revenue from customer contracts IFRS 15 provides the framework for determining whether, for what amount and when revenue should be recognized. As from 1 January 2018, it replaces the existing provisions on income recognition, in particular IAS 18 "Revenue", IAS 11 "Construction contracts" and IFRIC 13 "Customer loyalty programs". Sale of goods Under the provisions in effect until December 31, 2017, the sale of goods (equipment, active pharmaceutical ingredients and spare parts) is recognized when a Group entity has delivered to the buyer the risks and rewards inherent in ownership of the good, generally when the good has been delivered to a customer who has accepted it and whose collection is reasonably assured. The amount of sales is measured at the fair value of the consideration received or receivable after deduction of any commercial discounts, volume rebates and similar, commercial contributions and financial discounts. Under IFRS 15, revenue is recognized when the customer obtains control of the goods. IFRS 15 also amends the rules relating to sales for which customers have a right of return. Under IFRS 15, revenue from such contracts is recognised if it is unlikely that a significant downward adjustment in the cumulative amount of revenue recognised will occur. The analysis of these two points will be completed by 31 December 2018. This situation as at October 31, 2018 does not take into account any adjustment. Services provided Revenue from services is recognized based on the stage of completion of the transaction. Under the provisions in force until December 31, 2017, compensation is allocated between the various services on the basis of their relative fair value if, in a single contract, the services are rendered during different reporting periods. Currently, revenue is recognized using the percentage of completion method. Under IFRS 15, the consideration for service contracts is allocated to all services based on their specific selling prices, which will be determined according to the posted prices at which the Group sells the services in separate transactions. The analysis of the fair value and the specific selling price of the services will be finalised on 31 December 2018. This situation as at October 31, 2018 does not take into account any adjustment. Construction contracts Under the provisions in force until December 31, 2017, revenue from construction contracts is recognized in accordance with IAS 11. For the Group, these contracts generally involve design, construction and on-site assembly phases. When the outcome of a construction contract can be estimated reliably, the contract revenue and costs are recognised using the percentage of completion method. This is calculated in proportion to the cost incurred for the work already carried out in relation to the total estimated cost of the contract. Costs incurred during the year that relate to a future activity of a contract are excluded from the calculation of the percentage of completion.

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Contract revenue currently includes the amount originally agreed in the contract and changes in contract work and claims, to the extent that it is probable that they will give rise to revenue and can be measured reliably. When a claim or change is recognised, the measurement of the progress or price of the contract is reviewed and the cumulative position of the contract is reassessed at each balance sheet date. Under IFRS 15, claims and amendments will be included in the accounting treatment of the contract upon approval. The analysis of these points will be finalised by 31 December 2018. This situation as at October 31, 2018 does not take into account any adjustment. Commissions received The analysis of this item will be finalised by 31 December 2018. This situation as at 31 October 2018 does not take into account any possible adjustment. Non-refundable "up front" payments Certain contracts signed by the Group provide for non-refundable payments by customers (examples: installation costs, etc.). Under SFR 15, if the amount received does not reflect the transfer of a property or service, then the payment will not be recognized as revenue until the property or service has been transferred. The analysis of this item will be finalised by 31 December 2018. This situation as at 31 October 2018 does not take into account any possible adjustment. “Take or pay" contracts Certain contracts signed by the Group contain "Take or Pay" clauses under which Novasep guarantees the availability of certain products to the buyer, who in return guarantees payment of a minimum quantity, whether or not he takes delivery of them. If the buyer does not take delivery of the products, there is therefore a right not exercised by the buyer ("breakage"). The analysis of this item will be finalised by 31 December 2018. This situation as at 31 October 2018 does not take into account any adjustment. Transition The Group expects to apply IFRS 15 using the cumulative impact method and to recognise the impact of the first application of the standard on the date of first application (1 January 2018). Therefore, it will not apply IFRS 15 to the comparative period presented. 2.2.3.2 IFRS 9 "Financial Instruments” IFRS 9 "Financial Instruments" sets out the recognition and measurement requirements for financial assets, financial liabilities and certain contracts to purchase or sell non-financial assets. This standard replaces IAS 39 "Financial Instruments: Recognition and Measurement".

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i. Classification - financial assets

IFRS 9 provides a new approach to the classification and measurement of financial assets that reflects the asset management business model and the characteristics of their contractual cash flows. The standard presents three broad classes of financial assets: those measured at amortised cost, those measured at fair value through other comprehensive income and those measured at fair value through profit or loss. It deletes the categories of IAS 39 (held-to-maturity assets, loans and receivables, and available-for-sale assets). Based on its assessment, the Group does not expect the new classification requirements to have a material impact on its accounting for trade receivables, loans, debt securities and equity securities managed on a fair value basis.

ii. Impairment - Financial and contract assets

IFRS 9 replaces the "incurred losses" model in IAS 39 with the more prospective "expected credit losses" model. This requires management to exercise judgment in assessing the impact of changes in economic factors on expected credit losses, which will be determined on the basis of weighted averages. The new impairment model will apply to financial assets measured at amortised cost or fair value through other comprehensive income, except for investments in equity instruments, and assets on contracts. Under IFRS 9, value adjustments for expected credit losses will be either : • expected credit losses for the next twelve months, which correspond to possible events of

default during the twelve months following the balance sheet date; or • expected credit losses over the life of the financial instruments, which correspond to all

possible events of default during their expected life. The measurement of expected credit losses over the life of a financial asset applies if the credit risk of a financial asset at the balance sheet date has increased significantly since its initial recognition. Otherwise, the valuation is based on expected credit losses over the next twelve months. An entity may consider that the credit risk of a financial asset has not increased significantly if the asset has a low credit risk at the balance sheet date. However, the measurement of expected credit losses over the life of the contract applies in all circumstances for trade receivables and contract assets that do not include a significant financing component. The Group has chosen to use this method also for trade receivables and contract assets that include a significant financing component. The Group believes that impairment losses are unlikely to increase and are more volatile for assets falling within the scope of the IFRS 9 impairment model. iii. Classification - Financial liabilities

In general, the provisions of IFRS 9 regarding the classification of financial liabilities are identical to those of IAS 39. However, if in accordance with IAS 39 all changes in the fair value of liabilities designated at fair value through profit or loss are recognised in profit or loss, in accordance with IFRS 9 they will

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generally be presented as follows: • the amount of the change in fair value attributable to changes in the credit risk associated with

a liability will be recognised in other comprehensive income; and • the balance will be recorded in net income. The Group has not designated any financial liabilities as at fair value through profit or loss and does not intend to do so at this time. The Group's valuation did not reveal any material impact related to the classification of financial liabilities as at 1 January 2018. This situation as at October 31, 2018 does not take into account any adjustment. iv. Hedge accounting

When IFRS 9 is first applied, the Group may choose, as part of its accounting policies, to continue to apply the hedge accounting provisions of IAS 39 and not those of IFRS 9. The Group has not yet formally decided what its choice will be, given that as at 31 October 2018 there were no commitments made by the Group concerning interest rate or currency hedges. See notes 28.1 and 28.2. v. Disclosures

IFRS 9 requires extensive new disclosures, including hedge accounting, credit risk and expected credit losses. The Group's assessment includes an analysis identifying what information is required that is missing compared to what is already presented. vi. Transition

Changes in accounting policies related to the adoption of IFRS 9 will generally be applied retrospectively, except as follows. • The Group will apply the exemption allowing it not to restate comparative information for

past periods concerning changes in classification and valuation (notably depreciation). Differences in the carrying amounts of financial assets and financial liabilities resulting from the adoption of IFRS 9 will generally be recognized in retained earnings and reserves at January 1, 2018.

• The determination of the economic model for holding a financial asset must also be based on

the facts and circumstances at the date of first application. 2.2.3.3 IFRS 16 "Leases". IFRS 16 replaces existing lease standards, including IAS 17 "Leases", IFRIC 4 "Determining whether an Arrangement Contains a Lease", SIC-15 "Benefits under an Operating Lease" and SIC-27 "Measurement of the Substantiality of Transactions in the Legal Form of a Lease". The standard is effective for annual periods beginning on or after January 1, 2019. Earlier application is permitted for entities that also apply IFRS 15 at that date. IFRS 16 introduces a single model for the lessee to recognise leases in the balance sheet. The lessee

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recognizes a "right of use" asset that represents its right to use the underlying asset, and a rental liability in respect of its obligation to pay the rent. The standard provides exemptions for short-term contracts or contracts for items of low value. On the lessor's side, accounting remains similar to the current standard: leases are always classified either as finance leases or operating leases. The Group has not yet made a detailed assessment of the potential impact of this new standard on its consolidated financial statements. The impact of the adoption of IFRS 16 on its financial statements during the first-time adoption period will depend on future economic conditions, including the Group's borrowing rate at January 1, 2019, the composition of its lease portfolio, its latest assessment regarding the possible exercise of lease renewal options and its choices regarding the application of simplification measures and accounting exemptions. In addition, the nature of the expenses related to these leases will change, as IFRS 16 replaces the straight-line recognition of lease expense with amortization expense for "right of use" assets and interest expense for lease liability. The Group is currently analysing the impact of the application of the new standard on its finance leases. 2.2.3.4 Other Standards The following interpretations and amendments to standards are not expected to have a material impact on the Group's consolidated financial statements. • “Annual Improvements to IFRS - Cycle (2014-2016)" (amendments to IFRS 1 and IAS 28) • “Classification and measurement of share-based payment transactions" (amendments to IFRS

2) • “Transfers of investment property” (amendments to IAS 40) • “Sale or contribution of assets between an investor and an associate or joint venture"

(amendments to IFRS 10 and IAS 28) • IFRIC 22 "Foreign currency transactions and prepayment". • IFRIC 23 "Uncertainty regarding tax treatment".

2.2.4 Standard not yet applicable because not yet approved by the European Union as of October 31, 2018 The Group is currently analyzing the impacts and practical consequences of the application of these Standards and Interpretations.

2.3 Accounting policies used for the preparation of consolidated financial statements

2.3.1 Measurement bases used in preparing the financial statements on October 31th 2018 The functional and presentation currency for the financial statements is the Euro. All figures set out in the financial statements are rounded to the nearest thousand Euros.

The financial statements have been prepared using the historical cost convention.

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2.3.2 Presentation of the financial statements The Group sets out its financial statements in accordance with the principles contained in IAS 1, “Presentation of financial statements”.

The Group segments its assets and liabilities down into current and non-current assets and liabilities.

• Assets and liabilities which constitute the working capital requirement and are part of the normal operating cycle of the business in question and which are expected to be realized or settled within 12 months of the balance sheet date are presented as current assets or liabilities

• Fixed assets are presented as non-current assets • Financial assets are broken down into current and non-current financial assets • Financial liabilities due to be settled within 12 months of the balance sheet date are presented

as current liabilities. Conversely, financial liabilities which are due in more than 12 months are presented as non-current liabilities

• Provisions entering into the normal operating cycle of the business in question, and any proportion of other provisions for liabilities and charges which is due in less than one year, are presented as current liabilities. Provisions not meeting these criteria are presented as non-current liabilities

• Deferred taxes are recorded in full under non-current assets and liabilities.

2.3.3 Changes in the presentation of the financial statements

No change in presentation has been made in the financial statements compared to 31 December 2017.

2.3.4 Use of estimates and judgments In order to prepare its financial statements, the Group is required to make certain estimates and assumptions with respect to the value of assets and liabilities, income and expense items, and information given in the notes to the financial statements.

Management has made these estimates and assumptions on the basis of its past experience and other factors deemed reasonable. Amounts appearing in subsequent financial statements may differ materially from these estimates should the assumptions change or if actual conditions are different.

These estimates mainly relate to goodwill, intangible assets, employee benefits, deferred taxes, provisions and revenue recognition in respect to long-term contracts.

2.3.5 Consolidation method Subsidiaries, over which the Group exercises control, either directly or indirectly, are fully consolidated. Control is presumed to exist where the Group holds more than 50% of voting rights or where, in cases where the Group holds up to half of an entity’s voting rights, it has:

• Power over more than half of voting rights by virtue of agreements with other investors; • Power to govern the entity’s financial and operational policies by virtue of a regulatory text or

contract; • Power to appoint or remove the majority of members of the Board of Directors or equivalent

management body, where control of the entity is exercised by such a Board or body; • Power to bring together the majority of voting rights in meetings of the Board of Directors or

equivalent management body, where control of the entity is exercised by such a Board or body.

Companies over which the Group exercises significant influence, which is presumed to be the case where the Group’s interest is greater than 20%, are classified as investments in associates and are consolidated using the equity accounting method.

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Investments in companies that meet the above mentioned criteria but that are not consolidated are disclosed as non-current financial assets and recognized in accordance with IAS 39. These non-consolidated investments are booked at their fair value and are subject to an impairment test on a regular basis. The criteria generally used are share of equity and profitability prospects.

Non-controlling interests refer to any share in the profit or loss and net assets of a subsidiary which is attributable to interests not held by the parent company either directly or indirectly via its subsidiaries.

Subsidiaries’ accounts are all closed as of December 31st each year. If the accounting methods used by the subsidiaries and associated companies differ from those used by the Group, the necessary changes are made to their financial statements to make them compliant with the Group’s accounting principles, as described in note 2. All material intra-group transactions and balances are eliminated.

2.3.6 Business combinations In accordance with IFRS 3 revised, business combinations are accounted for using the purchase method. The cost of an acquisition is based on the fair value of the assets acquired, instruments of issued equity, and liabilities incurred or assumed at the date of the combination, to which are added the costs directly attributable to the combination.

Fair value adjustments arising from business combinations are recorded in the corresponding assets and liabilities, together with any non-controlling interests and not only for the share acquired by the Group. The residual difference between the purchase price (including acquisition-related costs) and the Group’s share in the fair value of the underlying net assets acquired is treated as goodwill.

If the acquisition cost is lower than the Group’s share in the acquired subsidiary’s net assets at the fair value, the difference is recorded directly in the income statement.

Corrections should be applied to goodwill within the 12 months following the acquisition date in order to take into account definitive estimates of the fair value of assets and liabilities acquired. Once this 12-month period has expired, fair value adjustments are recorded in profit or loss.

2.3.7 Investments in associates The Group’s investments in associates are recognized using the equity accounting method. Associates are entities over which the Group exercises significant influence in terms of operational and financial policy, but which it does not control.

The balance sheet value of equity-accounted shares includes the acquisition cost of the shares plus or minus changes in the Group’s share in the associate’s net assets with effect from the acquisition date. The Group’s share in the profit or loss of associates is reflected in the income statement.

2.3.8 Non-current assets held for sale, discontinued operations and operations in the process of being sold

2.3.8.1 Non-current assets held for sale Non-current assets (or groups of assets intended for sale) are classified as being “held for sale” where their carrying amount is principally recovered through a sale transaction rather than through continuing use. This classification implies that the assets (or groups of assets intended for sale) are available for immediate sale and that this is highly likely to occur in the short term (12 months).

Non-current assets (or groups of assets intended for sale) classified as being “held for sale” are measured at the lower of their carrying amount and fair value less costs to sell. Any reduction in the

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value of assets (or groups of assets intended for sale) at fair value less costs to sell is recognized in the income statement

2.3.8.2 Discontinued operations and operations in the process of being sold A discontinued operation or an operation in the process of being sold is a component of the Group which has been separated off from the Group (by being sold or otherwise) or which is being held in view of a sale. Discontinued operations and operations in the process of being sold are clearly distinguished from the rest of the Group in both operating and financial reporting terms, and represent primary, distinct business lines or geographical regions, form part of a single, coordinated disposal or withdrawal plan or are subsidiaries acquired solely for the purpose of resale.

Net profit or loss from discontinued and sold operations and those in the process of being sold is shown in a separate line in the income statement.

Cash flows relating to these operations are shown separately from cash flows from continuing operations in the cash flow statement.

2.3.9 Revenue recognition The Group’s activities include the following:

• Sale of equipment, active product ingredient intermediates and spare parts • Provision of services including construction contracts

2.3.9.1 Sales of products

Sales revenue is recognized if it is probable that the economic benefits associated with the transactions will flow to the Group and if the amount of revenue and costs incurred or to be incurred on the transaction can be measured reliably.

For more information c.f. note 2.2.3.1.

2.3.9.2 Delivery of services Total service costs already incurred on contracts, plus profits/losses recorded on each contract, are compared with interim billings at the balance sheet date. When these costs plus profits/losses exceed interim billings, the net balance is included in trade receivables and related accounts. Otherwise, the net balance is recorded in other current liabilities. Advances invoiced for future services are not included in the above calculation, but are included in other current liabilities.

For more information c.f. note 2.2.3.1.

2.3.10 Finance and operating leases

2.3.10.1 Finance leases Assets acquired under finance leases are recognized on the balance sheet when the lease contract transfers substantially all the risks and rewards incidental to ownership to the Group. Criteria used to assess whether a contract should be classified as a finance lease include:

• the term of the lease compared with the estimated useful life of the asset, • total future lease payments compared with fair value of the asset financed, • whether or not ownership of the asset is transferred at the end of the lease term, • existence of a purchase option favorable to the lessee, • type of asset leased.

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Upon initial recognition the leased asset is measured at an amount equal to the lower of its fair value and the present value of the minimum lease payments. Subsequent to initial recognition, the asset is accounted for in accordance with the accounting policy applicable to that asset.

2.3.10.2 Operating leases Operating leases are lease contracts that are not classified as finance leases. Rental payments are recognized as expenses when they are incurred.

2.3.11 Grant Grants are not recognized until there is reasonable assurance that the Group will comply with the conditions attaching to them and that the grants will be received. The benefit of a government loan at a below-market rate of interest is treated as a government grant, measured as the difference between proceeds received and the fair value of the loan based on prevailing market interest rates. Government grants whose primary condition is that the Group should purchase, construct or otherwise acquire non-current assets are presented in the financial statements by deducting the grant received from the carrying amount of the asset and transferred to profit or loss on a ratably basis over the useful lives of the related assets.

Other government grants are recognized as revenue over the periods necessary to match them with the costs for which they are intended to compensate, on a systematic basis. Government grants that are receivable as compensation for expenses or losses already incurred or for the purpose of giving immediate financial support to the Group with no future related costs are recognized in profit or loss in the period in which they become receivable.

2.3.12 Foreign currencies The individual financial statements of each group entity are presented in the currency of the primary economic environment in which the entity operates (its functional currency). For the purpose of the consolidated financial statements, the results and financial position of each group entity are expressed in euro, which is the functional currency of the Company and the presentation currency for the consolidated financial statements.

In preparing the financial statements of the individual entities, transactions in currencies other than the entity’s functional currency (foreign currencies) are recognized at the rates of exchange prevailing at the dates of the transactions. At the end of each reporting period, monetary items denominated in foreign currencies are retranslated at the rates prevailing at that date. Non-monetary items carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing at the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.

Exchange differences are recognized in profit or loss in the period in which they arise except for: • exchange differences on foreign currency borrowings relating to assets under construction for

future productive use, which are included in the cost of those assets when they are regarded as an adjustment to interest costs on those foreign currency borrowings;

• exchange differences on transactions entered into in order to hedge certain foreign currency risks (see Note 2.3.27 below for hedging accounting policies); and

• exchange differences on monetary items receivable from or payable to a foreign operation for which settlement is neither planned nor likely to occur (therefore forming part of the net investment in the foreign operation), which are recognized initially in other comprehensive income and reclassified from equity to profit or loss on disposal or partial disposal of the net investment.

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For the purpose of presenting consolidated financial statements, the assets and liabilities of the Group’s foreign operations are expressed in Euros using exchange rates prevailing at the end of the reporting period. Income and expense items are translated at the average exchange rates for the period, unless exchange rates fluctuated significantly during that period, in which case the exchange rates at the dates of the transactions are used. Exchange differences arising, if any, are recognized in other comprehensive income and accumulated in equity (attributed to non-controlling interests as appropriate).

On the disposal of a foreign operation (i.e. a disposal of the Group’s entire interest in a foreign operation, or a disposal involving loss of control over a subsidiary that includes a foreign operation, loss of joint control over a jointly controlled entity that includes a foreign operation, or loss of significant influence over an associate that includes a foreign operation), all of the accumulated exchange differences in respect of that operation attributable to the Group are reclassified to profit or loss. Any exchange differences that have previously been attributed to non-controlling interests are derecognized, but they are not reclassified to profit or loss.

In the case of a partial disposal (i.e. no loss of control) of a subsidiary that includes a foreign operation, the proportionate share of accumulated exchange differences are re-attributed to non-controlling interests and are not recognized in profit or loss. For all other partial disposals (i.e. of associates or jointly controlled entities not involving a change of accounting basis), the proportionate share of the accumulated exchange differences is reclassified to profit or loss.

Goodwill and fair value adjustments arising on the acquisition of a foreign operation are treated as assets and liabilities of the foreign operation and translated at the closing rate.

2.3.13 Post-employment benefits and similar obligations Depending on laws and practices of the countries in which the Group operates, employees may be entitled to compensation when they retire or to a pension following their retirement. The liability corresponding to the employees’ future rights is covered by:

• contributions to independent organizations (insurance companies) responsible for paying the pensions or other benefits;

• Provisions recorded in the balance sheet.

2.3.13.1 Defined contribution schemes Defined contribution schemes are funded by contributions to organizations in full discharge of the employer’s liability, with these organizations being responsible for paying any amounts due to employees. This means that, once contributions have been paid, no liabilities are recorded in the Group’s balance sheet.

These contributions are recognized in expenses at the time they are paid.

2.3.13.2 Defined benefit schemes Defined benefit schemes are post-employment benefit schemes other than defined contribution schemes. For these plans, the Group’s obligation is estimated by external actuaries using the projected unit credit method. Under this method, each period of service gives rise to an additional unit of benefit entitlement and each unit is accounted for separately to build up the final obligation.

The final amount of the obligation is then discounted. The main assumptions used to calculate the obligation are:

• discounting rate; • inflation rate; • future salary increases; • employee turnover.

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The Group’s obligation is estimated annually for all plans.

Actuarial gains and losses may arise as a result of changes in actuarial assumptions or experience adjustments (differences between the previous actuarial assumptions and what has actually occurred) to the Group’s obligation or the plan’s assets. These gains and losses are directly recognized as a component of comprehensive income and charged to shareholders' equity.

When plan benefits are improved (further to a legal or contractual change), the share of additional benefits relating to past services rendered by employees is recognized directly in the income statement for the year.

2.3.13.3 Other long-term benefits The Group’s net liability with respect to long-term benefits other than pension schemes is equal to the value of future benefits acquired by employees in exchange for services rendered during the current period and prior periods. The amount of the liability is calculated using the projected unit credit method and discounted.

2.3.14 Free shares and share subscription warrants Free share plans and share subscription warrants are granted to certain managers and employees of the Group. In accordance with IFRS 2 “Share-based payments”, these plans are measured at their fair value on the date of grant. The fair value is expensed in personnel costs on a straight-line basis over the vesting period (period from the date of grant to maturity of the plan) with a corresponding increase in equity.

At each closing date, the Group re-examines the number of options likely to become exercisable. If applicable, the impact of the review of the estimates is recognized in profit and loss with a corresponding adjustment to equity.

2.3.15 Income tax The tax expense shown in the income statement consists in tax payable for the current period and any other deferred tax income or expenses.

Deferred taxes are calculated using the balance sheet liability method on temporary differences between the carrying amount of assets and liabilities and their tax value, and on tax losses carried forward.

Deferred taxes on tax losses carried forward are not recognized as assets when the consumption of these losses cannot be assessed with sufficient probability because of the economic prospects and uncertainties on the future.

Deferred taxes are calculated using the tax rates that have been enacted or substantively enacted at each balance sheet date.

All amounts arising from changes in tax rates are recognized in the income statement in the year in which the rate change is voted or to be imminently voted. In addition, the impact may also be recognized in equity where it relates to items previously recognized in equity.

Deferred tax assets and liabilities are not discounted and are recorded on the balance sheet under non-current assets and liabilities.

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2.3.16 Tangible assets In accordance with IAS 16, expenditure by Group companies on property, plant and equipment is recognized in assets where it meets the following criteria:

• It is expected that future economic benefits associated with the asset will flow to the Group • The cost of the asset can be reliably measured

Property, plant and equipment are recognized at cost less the cumulative amount of depreciation and any impairment. Borrowing costs incurred during construction of a qualifying asset are incorporated into the value of the asset. The various components of an item of property, plant or equipment are recognized separately where their estimated useful lives, and therefore their depreciation periods, are significantly different. Given its non-material impact, this component-based approach has only been applied to constructions.

The Group calculates depreciation on property, plant and equipment on a straight-line basis, based on the cost of acquisition or production less any residual value, over a period corresponding to the useful life of each category of assets.

The useful life applied to each main type of asset is as follows:

Buildings 15-32 years

Equipment and developments on land 7-17 years

Technical facilities, equipment and tools 4-9 years

Office furniture 2-5 years

Transport equipment 3-7 years

Computer equipment 2-5 years

Maintenance and repair costs are recognized in expenses in the year in which they are incurred.

Tangible assets are tested for impairment when an indication of impairment is identified. Where an asset’s recoverable value is less than its carrying amount, an impairment charge is recorded against the asset.

2.3.17 Goodwill Goodwill arising from business combination is not amortized but is tested for impairment annually, or more frequently where events or changes in circumstances indicate that an asset may be impaired.

For the purpose of these tests, goodwill is allocated to Cash-Generating Units (“CGUs”) benefitting from the business combination or to a group of CGUs liable to benefit from synergies arising from business combinations.

The method to determine these impairments is developed in the note “Impairment of assets”.

Where an impairment loss is recognized against a cash-generating unit, it is firstly recorded as a reduction in the carrying amount of any goodwill allocated to that cash-generating unit, and then as a reduction in the carrying amount of the other assets in the cash-generating unit on a pro rata basis in proportion to the carrying amount of each asset in the unit.

Impairment losses on goodwill are recognized in the income statement and are not reversible.

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2.3.18 Intangible assets (other than goodwill) Intangible assets (excluding goodwill) are accounted for at cost, less cumulative amortization and any impairment loss.

Intangible assets with a finite useful life are amortized over a period corresponding to their estimated useful lives defined by the Group. Amortization periods are determined depending on the type of asset concerned.

Intangible assets with an indefinite useful life are not amortized but tested annually for impairment.

In accordance with IAS 38, development costs are capitalized as intangible assets when the Group can demonstrate the following:

• That it has the intention as well as the financial and technical means to see the development project through to its conclusion

• That the intangible asset is expected to generate future economic benefits • That the cost of the asset can be reliably measured throughout the development phase

The main research and development projects are reviewed based on information available from research departments, in order to identify and analyze projects in progress which may have entered the development phase. The useful life applied to each main type of assets is as follows:

Concessions, patents and other rights 3-20 years Software 3-5 years

Brand Indefinite

Intellectual property rights 10 years

Customer lists 7-12 years

2.3.19 Impairment of assets

2.3.19.1 Impairment tests and definition of Cash Generating Units (CGU) A cash-generating unit is the smallest identifiable group of assets whose continuing use generates cash inflows. These cash inflows are largely independent of cash inflows generated by other assets or groups of assets.

According to IAS 36, these tests are performed for each CGU or group of CGUs liable to benefit from synergies arising from business combinations, within a business segment or geographical area.

2.3.19.2 Recoverable value Impairment testing consists of comparing a CGU’s carrying amount with its recoverable amount. Recoverable amount is the higher of fair value less costs to sell and value in use.

Fair value less costs to sell is the amount obtainable from the sale of an asset or cash-generating unit in an arm’s length transaction between knowledgeable, willing parties, less the costs of disposal.

Value in use is the present value of the future cash flows expected to be derived from continuing use of an asset or cash-generating unit and its ultimate disposal. These cash flows are determined considering the following economic and regulatory assumptions:

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• Future discounted cash flows after tax are calculated based on five-year forecast business plans prepared by Group senior management

• The terminal value is calculated by discounting cash flows out to infinity, on the basis of standard cash flows and a stable growth rate

• Cash flows are discounted based on the average cost of capital

2.3.20 Borrowing costs Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale.

Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalization.

All other borrowing costs are recognized in profit or loss in the period in which they are incurred.

2.3.21 Inventory Inventory is valued at the lower of cost and net realizable value. Net realizable value represents the estimated sale price in the normal course of business, less any estimated completion costs and sales costs.

The cost of raw materials, commodities and other supplies is made up of the purchase price excluding VAT less any reductions, discounts and rebates, plus incidental purchase costs (shipping, unloading costs, customs costs, commissions on purchases, etc.). These inventories are valued using the weighted average unit cost method.

The cost of work in progress, intermediate products and finished products consists of acquisition and transformation costs and other costs incurred in bringing the inventories to their current location and state, excluding financial costs. Production costs include raw materials, supplies, labour costs incurred in production and direct and indirect industrial overheads attributable to the transformation and production processes, based on normal levels of activity.

2.3.22 Provisions A provision is recognized when, at the period end, the Group has a present obligation as a result of past events where it is likely that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Provisions are measured using the best estimates of forecast expenditure at the closing date. Long-term contracts expected to result in an eventual loss are covered by provisions for losses on completion, recorded in balance sheet liabilities in relation with long term contracts balances. Losses are fully provisioned when they are known and can be reliably estimated regardless of the percentage of completion.

The Group measures environmental risks on a case-by-case basis, in accordance with applicable legal requirements, and recognizes provisions based on the best available information, where such information enables probable losses to be identified and reliably estimated.

A restructuring provision is recognized when the Group has developed a detailed formal plan for the restructuring and has raised a valid expectation in those affected that it will carry out the restructuring by starting to implement the plan or announcing its main features to those affected by it. The

29

measurement of a restructuring provision includes only the direct expenditures arising from the restructuring, which are those amounts that are both necessarily entailed by the restructuring and not associated with the ongoing activities of the entity.

Provisions are discounted where the effect of the time value of money is material (e.g. in the case of provisions for environmental risks). The Group uses a discount rate that represents the current assumptions of markets and the inherent risks of the provision. Any increase in provisions linked to the passing of time is recognized in financial expenses.

2.3.23 Financial assets Financial assets mainly consist of shares held in non-consolidated investments, loans and long-term receivables or deposits.

The Group classifies financial assets in four categories:

• held for trading (assets that are bought and held principally for the purpose of selling them in the near term)

• held-to-maturity (assets with fixed or determinable payments and fixed maturity that the Group has a positive intent and ability to hold to maturity)

• loans and receivables (assets with fixed or determinable payments that are not quoted in an active market)

• available-for-sale (all other assets). The classification depends on the purpose for which the financial assets were acquired. The classification is determined at initial recognition.

All financial assets are reviewed for impairment on an annual basis to assess if there is any indication that the asset may be impaired.

Purchases and sales of all financial assets are accounted for at trade date.

2.3.23.1 Financial assets held for trading Trading investments are measured at fair value with gains and losses recorded as financial profits or expenses. Assets in this category are classified as current assets.

2.3.23.2 Held-to-maturity investments Financial assets that are designated as held-to-maturity are measured at amortized cost, in accordance with the effective interest rate method.

2.3.23.3 Loans and long-term receivables Loans and long-term receivables accounted for at amortized cost are measured in accordance with the effective interest rate method.

2.3.23.4 Available-for-sale financial assets Shares held in equity securities are classified as available-for-sale financial assets and are initially recognized and subsequently measured at fair value.

For equity securities listed on an active market, fair value is quoted price. In absence of active market, fair value is generally determined according to the most appropriate financial criteria in each case (comparable transactions, multiples for comparable companies, discounted present value of future cash flows, estimated selling price). If such fair value cannot be reliably measured, equity securities are accounted for at cost.

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Gains and losses arising from changes in their fair value are recognized directly in equity (“Other Reserves”). When the security is disposed of, the cumulative gain or loss previously recognized in equity is included in the statement of income for the period (Finance income/costs).

The Group assesses at the end of each reporting period whether there is any objective evidence that its equity securities are impaired which would lead, if this were to be the case, to recognize in the statement of income the cumulative loss previously recognized in equity.

In accordance with IAS, such impairment cannot be subsequently reversed.

2.3.24 Trade receivables and other current assets Trade receivables are initially measured at fair value, which usually corresponds to the invoiced amount. When including favorable terms for the counterparty (e.g. extended payment terms) or any material discount effect, these loans and receivables are recognized at the present value of future cash flows, discounted using the market rate. They are subsequently valued at amortized cost.

Trade receivables are classified as doubtful as soon as legal proceedings or enforced recovery procedures are initiated. Impairment is assessed on a case-by-case basis depending on the age of the receivable and the situation of the customer. An impairment loss is also recognized where receivables are significantly in arrears and a risk of litigation is detected.

Current assets are tested for impairment as soon as there is any indication that their recoverable value may be less than their balance sheet value, and tested at least once at each balance sheet date. Impairment losses are recorded in the income statement.

2.3.25 Cash and cash equivalents Cash corresponds to bank account balances (cash and banking facilities) and cash in hand.

They are recorded under “Cash” in the balance sheet assets. Bank overdrafts are recorded under “Short term debt and current portion of long term debt” in the balance sheet liabilities.

Cash equivalents are mutual funds which correspond to highly liquid short-term investments that can be readily converted into known amounts of cash and which are not exposed to any material risk of impairment.

In accordance with IAS 39, negotiable securities are measured at fair value at each balance sheet date. Changes in fair value are recognized in the income statement.

2.3.26 Financial liabilities Upon initial recognition, borrowing is recognized at fair value, to which are added any directly attributable transaction costs. Subsequently they are measured at amortized cost using the effective interest method.

In compliance with this principle, any issue or redemption premiums are recognized as loans in the balance sheet and are amortized in net financial income/expenses over the term of the loans.

Other financial and operating debts are initially recognized in the balance sheet at fair value. For short-term debts, this usually corresponds to the invoiced amount.

2.3.27 Derivatives The Group may use interest rate hedges to manage its interest rate risk and reduce its overall debt costs without incurring speculative risk. It may also hedge against exchange rate risk linked to changes in currency values. These derivatives are traded with financial institutions.

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Under IAS 39, financial instruments may only be classified as hedges when the Group can demonstrate and document the effectiveness of the hedging relationship at inception and throughout the life of the hedge. The effectiveness of the hedge is determined by reference to changes in the value of the derivative instrument and the hedged item. The ratio must remain within 80% to 125%.

Derivative financial instruments are recognized under “Derivatives” in the balance sheet at their market value on the reporting date. Changes in fair value are recognized as follows:

• cash flow hedges: the portion of the gain or loss on the financial instrument that is determined to be an effective hedge is recognized directly in equity, with corresponding entries under “Derivatives” and “Deferred taxes” under balance sheet assets and liabilities. The ineffective portion is recognized in profit or loss under “Financing costs”;

• fair value hedges and financial instruments not designated as hedges: changes in fair value are recognized in profit or loss under “Other operating income and expenses”.

Market value is the price quoted by independent financial institutions.

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3 CONSOLIDATION SCOPE

Company Location Head Office Activity Method Interests rate

Novasep Holding SAS France Pompey Holding FC 100.00%

Groupe Novasep SAS France Pompey Holding FC 100.00%

Dynamit Nobel GmbH Explosivstoff- und Systemtechnik Germany Leverkusen Synthesis FC 100.00%

Novasep Deutschland GmbH Germany Leverkusen Synthesis FC 100.00%

Séripharm SAS France Le Mans Synthesis FC 100.00%

Finorga SAS France Chasse sur Rhône Synthesis FC 100.00%

Novasep Process SAS France Pompey Process FC 100.00%

Novasep LLC USA Boothwyn (PA) Process FC 100.00%

Novasep Americas, Inc USA Boothwyn (PA) Process FC 100.00%

Novasep Asia Co Ltd China Shanghai Process FC 100.00%

Novasep Trading Co. Ltd China Shanghai Process FC 100.00%

Henogen SA Belgium Gosselies Process FC 100.00%

Novasep Process Engineering Services PCT LTD India Bangalore Process FC 100.00%

Troisdorf Genehmigungshaltergesellschaft mbH Germany Troisdorf Other Not consolidated 3.00%

EEBIC SA (ex : Eurobiotech SA) Belgium Anderlecht Other Not consolidated 1.33%

(Key: FC= full consolidation / EM = equity method)

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4 SEGMENT INFORMATION

4.1 Segments and relevant accounting methods

4.1.1 Determination of segments In accordance with IFRS 8, Operating segments, the information presented hereafter by operating segment is the same as that reported to the Chief Operating Decision Maker (the Chief Executive Officer) for the purposes of making decisions about allocating resources to the segment and assessing its performance. Since 2013 and until 31 December 2017, the Group has been organised around three operating sectors: Industrial Biotech, Biopharma and Synthesis. Each is managed separately with specific capital requirements and a distinct marketing strategy

A review of the segments was carried out as from 1 January 2018 and will only be effective from the consolidated financial statements as at 31 December 2018. The Group is now organized into four operational business segments: Process Industrial, Process Equipment, Manufacturing Biopharmaceuticals, Manufacturing Synthesis.

4.1.2 Industrial Industrial Biotechnology's activities cover the large-scale production of (i) food ingredients such as purified sugar, sweeteners and dairy products, (ii) functional ingredients such as antioxidants, vitamins, prebiotics and pharmaceutical excipients and (iii) bio-industrial and white biotechnology products such as bulk fermentation products (including amino acids), organic acids and antibiotic precursors, bio-mass products and chemicals (including synthetic amino acids and other components).

It is supported by a central engineering platform comprising the teams of Saint-Maurice-de-Beynost (France) and Shanghai (China) and three regional business and technical centers based in France, China and the United States to serve the three regions of Europe, Asia and America respectively. In addition, the sales and engineering teams have been organized around two main offers: the design and supply of individual units (SU) and combined units (CU) on the one hand, and complete process lines (CPL) on the other hand, which are much larger projects.

4.1.3 Biopharma Biopharma's activities cover the supply of global development and manufacturing solutions for a range of biopharmaceutical ingredients, such as viral vectors and viruses, Mabs, recombinant proteins and extracted biomolecules. This allows us to meet the different needs of our customers in the development and procurement of bulk biopharmaceutical APIs or formulated and "ready to inject" pharmaceutical products for the preclinical, clinical and commercial phases.

It is based on sites based in Gosselies and Seneffe (Belgium), Boothwyn (PA - USA) and Pompey (France).

4.1.4 Synthesis

The Synthesis activities

- covers the development needs of custom manufacturing processes for patented molecules for pharmaceutical companies at each stage of production, from early (preclinical) development to clinical procurement and finally to the commercial stage of production.

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- has expertise in three high entry barrier synthesis technologies, which are: (i) chiral and multi-step synthesis, (ii) hazardous chemistry and (iii) the manufacture of very powerful substances, used mainly for the manufacture of HPAPIs.

4.1.5 Equipment The Equipment activities cover:

- the supply of preparative chromatography equipment and systems for the pharmaceutical industry for the separation and purification of APIs and other synthetic molecules with high added value.

- the design, construction and use of preparative chromatography systems and its innovative technologies ranging from small-scale laboratory to pharmaceutical and industrial biopharmaceutical purification.

4.1.6 Accounting policies applied to segments Performance in terms of financing activities and cash (including Financing costs net) and Income tax are monitored at the Group Consolidated level and are not allocated to Segments.

The accounting policies applied to segment earnings comply with those described in the Note 2. Inter-Segments transactions are concluded at fair market conditions and prices.

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4.2 Segment revenues, results, assets and liabilities

36

2018

31 October 2018

Industrial Biotech

Equipment Cumul Process Solution

Biopharma

Synthesis

Cumul Manufacturing Solution

Corporate

Eliminations

Total

Profit & Loss

Revenue from external customers 42,126 31,590 73,526 38,493 123,116 161,657 235,183

Revenue from transactions w/other segments

190 190 / 5 5 4,455 (4,649)

Total revenue 42,126 31,780 73,716 38,493 123,121 161,661 4,455 (4,649) 235 ,183

Material costs, sales commissions and transportation

(27,120)

(19,248)

(46,179) (9,470) (30,132)

(39,650) (97) (85,693)

GROSS MARGIN (CM1) 15,005 12,532 27,538 29,023 92,989 122,011 4,455 (4,553) 149,489

% CM1 35,6% 39,4 % 37,4 % 75,4% 75,5% 75,5 % 100 % 97,9 % 63,6%

Other Recurring Expenses (15,172) (9,414) (24,586) (24,770) (80,386) (105,157) (7,550) (4,538) (132,795)

EBITDA adjusted (167) 3,118 2,951 4,253 12,602 16,855 (3,095) (17) 16,694

% revenue 0.4% 9,8 % 4.0 % 11.0% 10.2% 10,4 % (69,5%) 0,4 % 7.1%

Depreciation (494) (790) (1,284) (3,183) (10,061) (13,244) (843) 130 (15,241)

OPERATING INCOME (661) 2,328 1,668 1,070 2,541 3,611 (3,938) 113 1,453

% Revenue (1.6)% 7,3 % 2.3 % 2,8% 2.1% 2.2 % 0.6%

Other information

Capital expenditure (b)(a) NC1 NC NC NC NC NC NC NC NC State of financial situation

Segment assets (c) (e) (f) NC NC NC NC NC

Unallocated assets (d) NC NC NC NC NC

1 NC = not communicated

38

2017 new

31 December 2017

Industrial Biotech

Equipement Process Solutions

Biopharma

Synthesis

Manufacturing solution

Corporate

Eliminations

Total

Profit & Loss

Revenue from external customers 63,710 35,983 99,364 43,634 139,244 182,383 281,747

Revenue from transactions w/other segments 329 329 9 9 11,170 (11,509)

Total revenue 63,710 36,312 99,693 43,634 139,253 182,392 11,170 (11,509) 281,747


(40,239)

(19,619)

(59,529) (13,845) (34,495)

(47,846) (723) (107,146)

GROSS MARGIN (CM1) 23,472 16,693 40,164 29,789 104,758 134,547 11,170 (10,785) 174,601

% CM1 36,8% 46.0 % 40,3 % 68.3% 75.2% 73.8 % 62,0%

Other Recurring Expenses (18,380) (11,203) (29,583) (23,239) (89,629) (112,868) (14,395) 10,759 (145,593)

EBITDA adjusted 5,092 5,489 10,581 6,550 15,129 21,679 (3,225) (28) 29,008

% revenue 8.0% 15.1 % 8.9 % 15.0% 10.9% 11.9 % (28.9%) 0.2% 10.3%

Depreciation (749) (1,000) (1,748) (3,848) (11,862) (15,710) (840) 480 (18,095)

OPERATING INCOME 4,343 4,489 8,833 2,702 3,267 5,970 (4,065) 452 10,913 % Revenue 6.8% 12.4 % 8.9 % 6,2% 2.3% 3.3 % 3.9%

Other information

Capital expenditure (b)(a) 1,257 1,307 2,564 12,218 17,049 29,267 1,362 (27) 33,167

State of financial situation

Segment assets (c) (e) (f) 132,441 171,165 46,381 (60,863) 90,079 379,203

Unallocated assets (d) 132

Total assets 379,334

Segment current and non-current liabilities (c) 43,834 111,449

220,848 (40,805) 43,833 359,159

Unallocated equity and liabilities (d) 175

Total equity and liabilities 379,335

40

(a) Elimination of the intercompany margin on stock or fixed assets. (b) Capital expenditure is an indicator used by the Chief Operating Decision Maker to allocate resources between segments. Leasing expenses are included in this item. (c) The "Eliminations" column mainly concerns the elimination of inter-segment current accounts, dividends and inter-segment current receivables and payables. (d) Mainly deferred tax assets (unallocated assets), hedging instruments, derivative financial instruments, deferred tax liabilities, preference shares and shareholders' equity (unallocated liabilities). (e) Excluding investments in associates consolidated in the financial statements. (f) Included Goodwill

41

2017 old

Year ended December 31, 2017

Industrial Biotech

Biopharma

Synthesis

Corporate

Eliminations

Total

Profit & Loss

Revenue from external customers 63,710 78,793 139,244 281,747


824 9 4,856 (5,689)

Total revenue 63,710 79,617 139,253 4,856 (5,689) 281,747


(40,239) (33,135) (34,495) 723 (107,146)

GROSS MARGIN (CM1) 23,472 46,481 104,758 4,856 (4,966) 174,601

% CM1 36,8% 58,4% 75,2% 62,0%

Other Recurring Expenses (18,380) (34,443) (89,629) (8,080) 4 ,940 (145,592)

EBITDA adjusted 5,092 12,039 15,129 (3,224) (28) 29,008

% revenue 8.0% 15.1% 10.9% 10.3%

Depreciation (210) (5,386) (11,862) (840) 203 (18,095)

OPERATING INCOME 4,882 6,653 3,267 (4,064) 175 10,913

% Revenue 7.7% 8,4% 2.3% 3.9%

Other information

Capital expenditure (b)(a) 1,257 13,526 17,049 1,362 (27) 33,167


Segment assets (c) (e) (f) 132,441 88,614 171,165 36,779 (60,863) 368,136

Unallocated assets (d) 11,199


Segment current and non-current liabilities (c)

43,834 43,834 111,449 220,848 (60,863) 359,102

Unallocated equity and liabilities (d) 20,233


(a) Elimination of inter-segment margin on inventory or capex (b) Capital expenditure is an indicator used by the Chief Operating Decision Maker to allocate resources. It includes all acquisitions

financed through a finance lease. (c) Eliminations mainly concern cash pooling balances, intergroup dividends and current receivable/payable balances (d) Deferred taxes assets for the unallocated assets and equity, deferred tax liabilities preference shares, hedging instruments and

derivative instruments for the unallocated equity and liabilities (e) “Corporate” assets are netted of investments in affiliated companies (f) Including goodwill

42

Segments revenues, results, assets and liabilities (continued)

2016

Year ended December 31, 2016

Industrial Biotech

Biopharma

Synthesis

Corporate

Eliminations

Total

Profit & Loss

Revenue from external customers 66,553 63,550 140,512 270,616


1,896 490 5,180 (7,566)

Total revenue 66,553 65,446 141,002 5,180 (7,566) 270,616


(43,301) (24,234) (35,838) 2,312 (101,061)

GROSS MARGIN (CM1) 23,252 41,212 105,164 5,180 (5,254) 169,555

% CM1 34.9% 63.0% 74.6% 62.7%

Other Recurring Expenses (17,748) (32,330) (88,841) (8,158) 5,290 (141,786)

EBITDA adjusted 5,504 8,883 16,324 (2,977) 36 27,770

% revenue 8.3% 13.6% 11.6% 10.3%

Depreciation (210) (5,796) (10,920) (570) 176 (17,320)

OPERATING INCOME 5,294 3,087 5,404 (3,548) 213 10,450

% Revenue 8.0% 4.7% 3.8% 3.9%

Other information

Capital expenditure (b)(a) 741 3,883 16,394 778 (38) 21,758


Segment assets (c) (e) (f) 123,442 76,726 164,636 57,876 (56,837) 365,843

Unallocated assets (d) 1,598


Segment current and non-current liabilities (c)

38,181 38,181 106,385 207,536 (56,837) 333,447

Unallocated equity and liabilities (d) 33,994


(a) Elimination of inter-segment margin on inventory or capex (b) Capital expenditure is an indicator used by the Chief Operating Decision Maker to allocate resources. It includes all acquisitions

financed through a finance lease. (c) Eliminations mainly concern cash pooling balances, intergroup dividends and current receivable/payable balanc

consolidated financial statements october 31th 2018 · 2019. 1. 31. · liabilities & equity notes...

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