Mediq Holding BV Annual report 2018
1 CONTENTS
Director’s report ...... 4 Consolidated income statement ...... 11 Consolidated statement of comprehensive income ...... 12 Consolidated balance sheet ...... 13 Consolidated statement of changes in equity ...... 14 Consolidated statement of cash flows ...... 16 Notes to the consolidated financial statements ...... 18 1 Reporting entity ...... 18 2 Basis of preparation ...... 18 3 Significant accounting policies ...... 21 4 Composition of Mediq ...... 34 Notes to the consolidated income statement ...... 345 5 Net sales ...... 35 6 Other income ...... 35 7 Personnel costs ...... 36 8 Depreciation and amortisation ...... 36 9 Impairment of non-current assets ...... 37 10 Impairment of trade receivables and other operating expenses ...... 37 11 Finance income and costs ...... 37 12 Discontinued operation ...... 38 13 Income tax expense ...... 39 14 Share-based payment arrangements ...... 40 Notes to the consolidated balance sheet ...... 43 15 Property, plant and equipment ...... 43 16 Goodwill ...... 44 17 Other intangible assets ...... 46 18 Asset Held for sale and Disposal group held for sale ...... 47 19 Inventories ...... 47 20 Trade receivables ...... 47 21 Other receivables ...... 48 22 Cash and cash equivalents ...... 49 23 Share capital and share premium ...... 49 24 Reserves ...... 49 25 Borrowings and other non current liabilities ...... 50 26 Derivative financial instruments ...... 51 27 Deferred taxes ...... 51 28 Retirement and other employee benefit obligations ...... 53 29 Provisions ...... 54 30 Trade payables and other current liabilities ...... 55 Notes to the consolidated statement of cash flows ...... 56 31 Reconciliation of cash flow changes with balance sheet changes ...... 56 Other disclosures ...... 57 32 Credit facilities and security provided ...... 57 33 Rights and commitments not shown in the balance sheet ...... 57 34 Risk management and financial instruments ...... 57 35 Related party transactions ...... 63
2 36 Events after the balance sheet date ...... 63 Holding company balance sheet ...... 64 Holding company income statement ...... 64 Notes to the holding company financial statements ...... 65 Notes to the holding company balance sheet ...... 65 37 Non-current financial assets ...... 65 38 Equity ...... 66 39 Emoluments of management board and supervisory board ...... 68 40 Auditor's fees ...... 69 41 Rights and commitments not shown in the balance sheet ...... 69 Other information ...... 70 Provisions in the articles of association governing the appropriation of profit ...... 71 Independent auditor’s report ...... 71
3 DIRECTOR’S REPORT
The Management Board of the company hereby presents its financial statements for the financial year ended 31 December 2018.
GENERAL INFORMATION
Mediq Holding BV (“Mediq”, “the company” or “the group”) is an European healthcare company providing medical devices and care solutions across many countries.
Every day we are relied upon by millions of patients and the committed healthcare professionals who care for them. We bring together the health specialists and services that can provide patients with greater autonomy and care. We connect to a patient’s general practitioners (GP) and insurance companies, to their hospital and community. For the hospitals, GPs and other healthcare professionals, this means less time spent on peripheral issues. Or a greater focus on what really matters: patient care. For patients, this means their daily needs are always taken care of. From medical devices and supplementary care to education and 24-hour support. We are constantly expanding our circle of care, making new connections, developing new treatments and new e-health technologies. By creating connections along the entire value chain, we improve the outcomes and affordability of care.
Mediq Holding BV was incorporated on 14 January 2013, as holding company for the acquisition of all shares of Mediq NV. Ultimate shareholders are funds managed by Advent International Corporation.
At the end of 2018 Mediq is active in 12 countries and has around 2,500 employees.
Mediq holds the shares in Mediq BV. Mediq BV is the holding company for a large number of operating companies in various countries. Mediq has a two-tier board, with a Management Board, consisting of Mr. C.P. Wojczewski (CEO) and Mr. P.R. Hitchin (CFO) and a Supervisory Board. The Management Board is part of the Executive Committee who is responsible for managing the daily operations of Mediq.
FINANCIAL INFORMATION
The operations from Mediq in the 2018 annual accounts consist of our Direct & Institutional businesses.
In 2017 we sold our operations in the USA (Byram), our French Business and our tracheostomy business in the Netherlands. In the consolidated income statement for 2017, the results of our operations in the USA were presented as discontinued operations to show these separately from continuing operations. The results of our French Business and our tracheostomy business in the Netherlands are included in the 2017 consolidated income statement as continuing operations until closing of the transactions. In 2018, there were no acquisitions or disposals.
Overall comparable sales (excluding divestures in 2017) have remained stable in 2018, mainly due to price pressure compensated by increasing volumes. Comparable gross margin has remained fairly stable due to price pressure compensated with sourcing savings, which drove a small increase in (absolute) gross profit on a comparable basis.
Our operating result has increased by €60 million, but this increase is influenced by 2 large items in 2017 largely related to the divestures: (i) Approximately €19 million gain on sale of our French business and our tracheostomy business in the Netherlands, largely presented under Other Income in 2017; (ii) A goodwill impairment of €65 million, reflecting the lower value in use of our operations following the sale of Byram. Furthermore, changes in the discount rate and EBITDA also impacted the recoverable amount.
4 Adjusting for these 2 items and excluding the operational results of the divestures (primarily 5 months trading Mediq France in 2017) our operating result increased by approximately €14 million. This (adjusted) increase of €14 million is mainly a result of lower operating expenses. During the year we saw both lower depreciation and amortisation expenses and lower other operating costs. The lower depreciation and amortisation expense is mainly result of decreasing amortisation of customer relations. Operating expenses in 2018 were positively influenced by various optimization activities and lower non- recurring expenses.
The underlying trends for medical supplies remained overall positive. For our strategy we target long- term growth in sales and EBITDA, both organically and by acquisitions. An enabling condition in our strategy is a financing structure that maintains a balance between adequate solvency, the leverage of loan capital and sufficient available funding. We have a positive operating cash flow of € 52 million in 2018. In 2018, no dividend was repaid to our shareholders, and we repaid € 15 million of borrowings.
Our Senior Facilities Agreement (SFA) amounted to € 418 million at 31 December 2018, of which € 48 million was undrawn under the committed facilities at year-end 2018. The company therefore has credit facilities that are sufficient for the existing and expected credit requirements of the company. The risk that the financial ratios as agreed with lenders are exceeded is regularly assessed. With the present net debt position of € 296 million (according to SFA definitions), the ratio for the leverage covenant amounts to 4.42. This is within the limits agreed with the lenders of a maximum leverage of 6.25.
The solvency ratio (equity over total equity and liabilities) is 0.25 at 31 December 2018 (2017: 0.24). The liquidity ratio (current assets including cash over current liabilities) is 1.54 at 31 December 2018 (2017: 1.44). Main reason for increasing ratios is improvement of working capital and the repayment of borrowings.
RISK MANAGEMENT AND CONTROL SYSTEM
In conducting its regular business activities, Mediq is exposed to various financial and operational risks that are typical for conducting business activities in the health care sector.
We identify business risks relating to our strategic, operational and financial objectives, assess the likelihood of their occurrence and potential impact and where possible take necessary steps to manage or mitigate these risks. This approach is embedded in our organisation.
INTERNAL GUIDELINES AND EXTERNAL STANDARDS Uniform operational and financial guidelines and procedures are in place that apply to all group companies, such as guidelines for the operational design of business processes and financial reporting, investments, financing and - more generally - long-term liabilities.
We have policies in place related to information security and personal data protection, covering both the business and the ICT environment. Our procedures require reporting of incidents that could harm our patients’ health, could cause financial damage or threaten our reputation. We also have procedures in place that require reporting of breaches related to personal information of individuals.
We are bound to stringent statutory and regulatory requirements for quality and safety on the storage and delivery of our products. Our group companies are certified according to ISO standards or similar quality certifications.
ASSESSMENT The group companies are responsible for the design and operating effectiveness of the risk management and control systems in their companies, within central group guidelines. Group companies perform regular assessments of the main business risks relating to their activities and objectives. Main business
5 risks and related mitigating actions are regularly discussed with the Executive Committee. Group companies report on an annual basis on the quality of their risk management and control systems by means of a letter of representation.
Our Internal Audit department performs risk-based audits at our group companies, which contribute to assessing and where necessary further improving the design and operating effectiveness of our risk management and control systems.
RISK TOLERANCE We stimulate the pursuit of new opportunities and accept associated risks provided they contribute to the attainment of our strategic and operational objectives. The requirement we impose is that associated risks are identified and managed.
Our approach to risk is influenced by a number of internal and external factors, such as our financial results and operating cash flows, our financing options, economic developments and statutory and regulatory requirements.
We apply stringent financial criteria for acquisitions and investments. We are prepared to accept the risk associated with acquisition processes, as long as these satisfy our targets in terms of strategic direction, financial returns, management and other criteria.
INSURANCE AND TREASURY POLICY We apply a group-wide insurance policy related to business risks, with guidelines for our group companies. We prevent a substantial impact on results by means of insurance policies including policies for risks of professional, product, and general liability, business, transport, cyber risk and directors’ liability, and financial loss in respect of assets. We have a group insurance program in place, as a result of which all insurable risks are insured worldwide under the same cover and with the same acceptable limits for uninsured risks.
We apply a group-wide treasury policy for adequate management of our cash flows and financing flows and the financial risks relating to them, including (re)financing risks, currency risks and interest rate risks. Our cash pooling facilities enable us to significantly reduce the capital required for operating activities and the related interest expenses.
RISK PROFILE Doing business means taking and managing risks. The attainment of our objectives depends in part on external economic factors, market developments, local regulations and other factors.
Important risks are: Price pressure in the countries in which we operate, both from governments and payers, which we are not able to offset with sourcing savings. Potential disruptions of our business models, due to new market introductions. Inability to deliver to our customers due to business disruptions. Specific risks relate to the outcome of the ‘Brexit’ negotiations, which may cause temporary disruptions in our supply chain processes. Increasing complexity of requirements of healthcare insurers for the reimbursement of medical devices which impose tighter requirements for our administrative processes. Compliance with increasing requirements related to personal data protection and information security. Compliance with new EU requirements related to medical devices (MDR), which will become in full force as of May 2020. Use of end-of-Life ERP systems in certain business units which might result in deficiencies or failure in operations.
6 The following measures have been taken to address these risks: Offset potential negative effects of price pressure from governments and payers as much as possible based on improved sourcing conditions, and other measures to improve the operational excellence of our operations. Close monitoring of market developments in order to be able to timely address and adapt to significant (potential) changes in current business models. Implementation of business contingency plans. With respect to ‘Brexit’ related risks, we are taking measures to minimize the potential risks of disruptions, among others through building-up reserve stock where needed, and pro-active consultations with suppliers and customers. Ongoing process improvements to ensure that our business processes are performing adequately, and that reimbursement requirements of health insurers are complied with. Implementing group policies and procedures related to personal data protection and information security. Our first priority is the personal data protection of our patients, next to the protection of personal data protection of our other customers and own personnel. Action plans defined and being implemented to ensure MDR compliance. Supplier contracts and conditions are checked for compliance with MDR and amended where required. Continuous enhancements of the IT landscape at our business units, based on a multi-year lifecycle program.
For further information on risk management we refer to Note 34 in the Financial Statements.
CODE OF CONDUCT The Mediq Code of Conduct describes our company rules and outline the expected behaviour, based on the Mediq core values. We propagate its importance within the group among others via on-boarding and e-learning programs. Employees are able to report (anonymously if desired) any breaches or possible breaches under the Mediq integrity procedure.
FINANCIAL AND NON-FINANCIAL PERFORMANCE INDICATORS
For discussion of financial performance indicators, we refer to the paragraph Financial information in this report. We also measure the performance of our company via a number of non-financial indicators such as customer satisfaction and personnel related indicators as employee satisfaction, sick rates etc.
INFORMATION REGARDING FINANCIAL INSTRUMENTS AND FINANCING
For a discussion on the financial instruments and the related risks we refer to Notes 25, 26 and 34 of the Financial Statements.
RESEARCH AND DEVELOPMENT INFORMATION
We continuously look for ways to improve and innovate our services in the product-market combinations we operate in, and improve the quality of our internal operations.
INFORMATION REGARDING SOCIAL ASPECTS OF OPERATING THE BUSINESS
Mediq wants to help people to live their lives to the fullest potential. We want to improve patients’ health or to help them cope better more effectively with chronic or incidental illnesses. We help patients to correctly use their medical supplies. We also provide training to professionals, to help them optimize their service to their patients.
7 We feel responsible for the supply of safe products. The measures we take regarding quality and safety are: o Compliance with laws and regulations; o Internal guidelines and external certification schemes; o Evaluation of suppliers to ensure quality and prevent counterfeiting.
We expect our suppliers to adhere to our Mediq Code of Conduct. Suppliers of our private label products are asked to sign our Mediq Supplier Code of Conduct.
While our own operations have a relatively low impact on the environment, we are alert to opportunities to reduce our environmental impact in areas where we have the greatest influence. These have been defined as waste, and transport.
We try to create a working environment in which employees feel challenged, where they can develop their skills and competences and be successful. In our human resource policy, the following issues are key: o Diversity: We employ people in 12 different countries who come from an even wider range of nationalities. We want everybody to feel at home here and have the same opportunities, irrespective of nationality or race. o Recruitment and retention: Mediq aims to attract capable people who want to work in a company that combines healthcare and entrepreneurial drive. We seek employees who are flexible, ambitious and passionate about working in the healthcare business, and who act in alignment with our core values. o Engagement: Our ambition is to have committed and proud employees who identify with the company’s strategy. o Development: Mediq has created development programs to ensure that employees are motivated to perform well, and that talents are triggered and challenged. For very talented employees there are also international opportunities within the company. o Health and safety: All group companies have safety procedures and carry them out conscientiously. These procedures are described in handbooks and quality systems. Safety training is used to educate logistics employees. o Employee complaints: In line with our Code of Conduct we have an integrity procedure in place. Employees who do not feel free to speak with line management can file a complaint with the Management Board. This can be done via a special telephone line or the internet, if desired on an anonymous basis.
OTHER INFORMATION
We have a Management Board consisting of only 2 (male) persons, so we did not meet the criteria of a representation of at least 30% men and at least 30% women in the Management Board. No changes in the composition of the Management Board are expected.
OUTLOOK
Development of sales, gross profit, operating margins, investments and number of employees in 2019 is depending on many factors like price- and volume developments in the various markets, changes in reimbursement systems, shifts towards more tender driven markets, ageing population and potential acquisitions or divestments.
8 The company has credit facilities that are sufficient for the expected credit requirements of the company in 2019.
De Meern, 6 March 2019
Management Board
C.P. Wojczewski P.R. Hitchin
9
Financial statements
10 CONSOLIDATED INCOME STATEMENT
X € 1,000 NOTE 2018 2017
Continuing operations Net sales 5 910,598 918,682 Cost of sales 591,870 597,604 Gross profit 318,728 321,078
Other income 6 2,192 19,679
Personnel costs 7 183,636 184,653 Depreciation and amortisation 8 34,242 38,784 Impairment of goodwill 9, 16 - 65,000 Impairment loss on trade receivables 10 2,077 4,249 Other operating expenses 10 88,363 95,487 Total operating expenses 308,318 388,173
Operating profit / (loss) 12,602 -47,416
Finance income 11 3,247 22.622 Finance costs 11 -22,050 -37,425 Net finance costs -18,803 -14,803
Loss before income tax -6,201 -62,219 Income tax expense / (benefit) 13 95 -4,291 Loss for the year from continuing operations -6,296 -57,928
Discontinued operations Profit from discontinued operation, net of tax 12 - 265,518
Result for the year -6,296 207,590
Attributable to: Owners of the Company (net result) -6,435 207,426 Non-controlling interests 24 139 164 Total -6,296 207,590
The accompanying notes are an integral part of these financial statements.
11 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
X € 1,000 NOTE 2018 2017
Result for the year -6,296 207,590
Other comprehensive income Items that will never be reclassified to profit or loss: Actuarial gains and losses: Actuarial gains and losses on defined benefit pension plans -196 -107 Tax effect on actuarial gains and losses 49 27 Items that are or may be recycled to the profit and loss: Foreign currency translation differences 24 1,427 -4,696 Foreign currency differences realised through sale of subsidiaries - 4,775 Other - 16 Other comprehensive income for the period 1,280 15
Total comprehensive result for the year -5,016 207,605
Total comprehensive income attributable to: Owners of the Company -5,145 207,441 Non-controlling interests 24 129 164 Total comprehensive result for the year -5,016 207,605
The accompanying notes are an integral part of these financial statements.
12 CONSOLIDATED BALANCE SHEET Before profit appropriation
X € 1,000 NOTE 31.12.2018 31.12.2017
Property, plant and equipment 15 41,175 43,950 Goodwill 16 327,948 327,809 Other intangible assets 17 79,380 98,627 Deferred tax assets 27 1,901 2,066 Derivative financial instruments 26 1 1,446 Other receivables 21 3,979 15,142 Other non-current assets 931 980 Non-current assets 455,315 490,020
Inventories 19 82,603 81,661 Trade receivables 20 115,232 134,506 Corporate income tax 18 4,117 Other receivables 21 25,201 26,687 Derivative financial instruments 26 1,471 28 Cash and cash equivalents 22 78,050 61,501 Current assets 302,575 308,500
Total assets 757,890 798,520
Equity Share capital and share premium 23 13,875 13,858 Reserves 24 173,120 179,938 Total equity attributable to owners of the Company 186,995 193,796 Non-controlling interests 24 409 280 Total equity 187,404 194,076
Borrowings and other non-current liabilities 25 364,578 376,225 Deferred tax liabilities 27 3,841 8,563 Retirement and other employee benefit obligations 28 3,041 2.926 Provisions 29 2,576 1,995 Derivative financial instruments 26 1,044 1,192 Non-current liabilities 375,080 390,901
Borrowings due within one year 25 696 695 Derivatives financial instruments 26 477 1,215 Trade payables and other current liabilities 30 177,374 194,164 Corporate income tax liability 558 868 Other taxes and social security charges 30 12,249 11,747 Provisions 29 4,052 4,854 Current liabilities 195,406 213,543
Total equity and liabilities 757,890 798,520
The accompanying notes are an integral part of these financial statements.
13 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
X € 1,000 2018
NOTE: 23, 24 PAID-UP SHARE RESERVE OTHER RESERVES TOTAL ATTRI- NON-CON- TOTAL SHARE PREMIUM FOR TRANS- BUTABLE TO TROLLING EQUITY CAPITAL LATION DIF- OWNERS INTERESTS FERENCES Balance at 1 January 2018 8 13,850 111 179,827 193,796 280 194,076
Opening balance adjustment IFRS 9 transition -1,782 -1,782 -1,782 Result for the year -6,435 -6,435 139 -6,296
Other comprehensive income: Actuarial gains and losses on defined benefit pension plans -196 -196 -196 Tax effect on pension actuarial gains and losses 49 49 49 Foreign currency translation differences 1,437 1,437 -10 1,427 Other comprehensive income 1,437 -147 1,290 -10 1,280
Total comprehensive income 1,437 -6,582 -5,145 129 -5,016
Transactions with owners: Paid in premium 17 17 17 Share based payments 109 109 109
Total transactions with owners of the Company - 17 - 109 126 126
Balance at 31 December 2018 8 13,867 1,548 171,572 186,995 409 187,404
The accompanying notes are an integral part of these financial statements.
14 X € 1,000 2017
NOTE: 23,24 PAID-UP SHARE RESERVE OTHER RESERVES TOTAL ATTRI- NON-CON- TOTAL SHARE PREMIUM FOR TRANS- BUTABLE TO TROLLING EQUITY CAPITAL LATION DIF- OWNERS INTERESTS FERENCES Balance at 1 January 2017 8 13,850 32 72,050 85,940 116 86,056
Result for the period 207,426 207,426 164 207,590
Other comprehensive income: Actuarial gains and losses on defined benefit pension plans -107 -107 -107 Tax effect on pension actuarial gains and losses 27 27 27 Foreign currency translation differences -4,696 -4,696 -4,696 Foreign currency differences realised through sale of subsidiaries 4,775 4,775 4,775 Other 16 16 16 Other comprehensive income 79 -64 15 15
Total comprehensive income 79 207,362 207,441 164 207,605
Transactions with owners: Dividend -99,600 -99,600 -99,600 Share based payments 15 15 15
Total transactions with owners of the Company - - - -99,585 -99,585 -99,585
Balance at 31 December 2017 8 13,850 111 179,827 193,796 280 194,076
The accompanying notes are an integral part of these financial statements.
15 CONSOLIDATED STATEMENT OF CASH FLOWS
X € 1,000 NOTE 2018 2017*
Profit for the period -6,296 207,590
Adjustments for: Net finance costs 18,803 18,422 Income tax expense 95 -5,347 Depreciation of non-current assets 11,498 13,291 Amortisation of intangible assets 28,164 33,193 Impairment losses - 65,000 Book result on sale of non-current assets - -274,691 Change in fair value of investments -50 79 Long term remuneration expenses 7 109 15
Movements in working capital and provisions: Movements in provisions -221 -1,518 Movements in inventories 31 -1,410 4,794 Movements in trade receivables and other receivables 31 17,258 13,421 Movements in trade payables and other current liabilities 31 -15,697 -13,607 Operating cash flow 52,253 60,642
Finance cost paid -22,496 -39,532 Tax paid on operating result -885 4,864 Cash flows from operating activities 28,872 25,974
Additions to non-current assets -17,842 -32,143 Acquisitions less cash and cash equivalents - - 2,215 Finance income received 6,587 26,972 Payments received from escrow account 13,382 - Disposal of group companies, net of cash disposed of - 280,043 Disposals of non-current assets 255 1,087 Cash flows from investing activities 2,382 273,744
Dividend paid - -99,600 Repayments of borrowings -15,000 -284,731 Loans repaid - 74,905 Net cash flow with minority shareholders -41 44 Cash used in financing activities -15,041 -309,382
Net cash flow 16,213 -9,664
* Cash flow statement including Discontinued operations. For Cash flow of Discontinued operations see Note 12.
The accompanying notes are an integral part of these financial statements.
16 X € 1,000 Note 2018 2017
Reconciliation with the balance sheet:
Net cash flow 16,213 -9,664 Foreign currency translation differences in net cash and cash equivalents held in foreign currency 336 -2,474 Movement in the year net cash and cash equivalents 16,549 -12,138
X € 1,000 Discontinued Continued Total operations* operations Net cash and cash equivalents at 1 January 2017 24,805 48,834 73,639 Movement in the year -24,805 12,667 -12,138 Net cash and cash equivalents at 31 December - 61,501 61,501 2017
Cash and cash equivalents - 61,501 61,501 Net cash and cash equivalents at 31 December 2017 - 61,501 61,501
Net cash and cash equivalents at 1 January 2018 - 61,501 61,501 Movement in the year - 16,549 16,549 Net cash and cash equivalents at 31 December - 78,050 78,050 2018
Cash and cash equivalents - 78,050 78,050 Net cash and cash equivalents at 31 December 2018 - 78,050 78,050
* For Cash flow of Discontinued operations see Note 12
The accompanying notes are an integral part of these financial statements.
17 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1 REPORTING ENTITY
Mediq Holding BV (‘Mediq’, “the company”, or “the group”) has its registered office in Utrecht, the Netherlands. The consolidated financial statements of the group for 2018 include the holding company and all its subsidiaries. In addition, Mediq holds interests in third parties (investments in associates). A list of the most significant associates can be found in the notes.
Mediq Holding BV was incorporated on 14 January 2013 in the Netherlands, as holding company for the acquisition of all shares of Mediq NV. Until 29 August 2014, Mediq Holding BV was named AI Garden Holding BV (AIGH). On February 1, 2013, funds managed by Advent International Corporation have via AI Garden BV (later renamed Mediq BV), a 100% subsidiary of Mediq, declared its offer for all issued and outstanding shares of Mediq as unconditional. On 28 July 2014, all remaining shares in Mediq NV were obtained via a squeeze-out procedure.
In May 2017, Mediq reached an agreement to sell its entire business in the USA. In July 2017 the transaction has received approval from the competition authorities. In the consolidated income statement for 2017 the results of our operations in the USA are presented as discontinued operation to show these separately from continuing operations.
2 BASES OF PREPARATION
The consolidated financial statements were authorised for issue by the company's board of directors on 6 March 2019. These financial statements cover the 12-month period ended 31 December 2018. The consolidated financial statements have been prepared on a going concern basis.
STATEMENT OF COMPLIANCE The 2018 consolidated financial statements have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union (EU-IFRS) and comply with section 2:362 (9) of the Netherlands Civil Code.
BASIS OF MEASUREMENT The consolidated financial statements have been prepared on the basis of the historical cost convention, except for the following material balance sheet items: Assets held with a view to re-sale resulting from a business combination are carried at fair value based on the actual sales value in the share-purchase agreement of the disposal group less cost to dispose; Derivatives (derivative financial instruments) are carried at fair value; The net defined benefit liability (asset) is measured at the fair value of plan assets, less the present value of the defined benefit obligation.
FUNCTIONAL CURRENCY AND PRESENTATION CURRENCY The financial statements are prepared in euros, Mediq’s functional and reporting currency. All financial information in euros is rounded to the nearest thousand.
USE OF ESTIMATES AND JUDGEMENTS The financial statements are prepared in accordance with EU-IFRSs. In doing so, management has to make certain assumptions and estimates that affect the value of assets and liabilities, the determination of results, and the disclosure of contingent assets and liabilities. The actual outcomes may differ from
18 those estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised prospectively.
In particular, information on the assumptions and estimation uncertainties that management judges to be the most critical to fairly present the financial position and that require subjective or complex judgement by management is included in the following sections of the notes: Note 14: Share-based payment arrangements Note 16: Goodwill Note 17: Other intangible assets Note 19: Inventories Note 20: Trade receivables Note 29 and Note 33: Provisions and contingent liabilities
CHANGES IN ACCOUNTING POLICIES
New and amended standards adopted by the group
The Group has initially applied IFRS 15 (see A) and IFRS 9 (see B) from 1 January 2018. A number of other new standards are also effective from 1 January 2018, but they do not have a material effect on the Group’s financial statements.
Due to the transition methods chosen by the Group in applying these standards, comparative information throughout these financial statements has not been restated to reflect the requirements of the new standards, except for separately presenting impairment loss on trade receivables (see B).
A. IFRS 15 Revenue from Contracts with Customers
IFRS 15 establishes a comprehensive framework for determining whether, how much and when revenue is recognised. It replaced IAS 18 Revenue, IAS 11 Construction Contracts and related interpretations. Under IFRS 15, revenue is recognised when a customer obtains control of the goods or services. Determining the timing of the transfer of control – at a point in time or over time – requires judgement.
The Group has adopted IFRS 15 using the cumulative effect method (without practical expedients), with the effect of initially applying this standard recognised at the date of initial application (i.e. 1 January 2018). Accordingly, the information presented for 2017 has not been restated – i.e. it is presented, as previously reported, under IAS 18, IAS 11 and related interpretations. Additionally, the disclosure requirements in IFRS 15 have not generally been applied to comparative information.
IFRS 15 did not have a significant impact on the Group’s accounting policies. Therefore, there is no adjustments for the effect of initially applying IFRS 15 on retained earnings and NCI at 1 January 2018. For additional information about the Group’s accounting policies relating to revenue recognition, see Note 3.
B. IFRS 9 Financial Instruments
IFRS 9 sets out requirements for recognising and measuring financial assets, financial liabilities and some contracts to buy or sell non-financial items. This standard replaces IAS 39 Financial Instruments: Recognition and Measurement. The Group has applied IFRS 9 initially on 1 January 2018.
As a result of the adoption of IFRS 9, the Group has adopted consequential amendments to IAS 1 Presentation of Financial Statements, which require impairment of financial assets to be presented in a separate line item in the income statement. Previously, the Group’s approach was to include the impairment of trade receivables in other expenses. Consequently, the Group reclassified impairment losses amounting to €4,249 thousand, recognised under IAS 39, from ‘Other operating expenses’ to
19 ‘Impairment loss on trade receivables’ in the income statement for the year ended 31 December 2017. Impairment losses on other financial assets are presented under ‘finance costs’, similar to the presentation under IAS 39, and not presented separately in the income statement due to materiality considerations. Additionally, the Group has adopted consequential amendments to IFRS 7 Financial Instruments: Disclosures that are applied to disclosures about 2018 but have not been generally applied to comparative information. The following table summarises the impact, net of tax, of transition to IFRS 9 on the opening balance of reserves, retained earnings.
Impact of adopting IFRS 9 on X € 1,000 opening balance
Increase in borrowings and other non-current liabilities +2.376 Related tax impact -594 Decrease in equity (Other reserves) -1.782
i. Classification and measurement of financial assets and financial liabilities
IFRS 9 contains three principal classification categories for financial assets: measured at amortised cost, FVOCI and FVTPL. The classification of financial assets under IFRS 9 is generally based on the business model in which a financial asset is managed and its contractual cash flow characteristics. IFRS 9 eliminates the previous IAS 39 categories of held to maturity, loans and receivables and available for sale. IFRS 9 largely retains the existing requirements in IAS 39 for the classification and measurement of financial liabilities.
The adoption of IFRS 9 has not had a significant effect on the Group’s accounting policies related to financial liabilities and derivative financial instruments.
For an explanation of how the Group classifies and measures financial instruments and accounts for related gains and losses under IFRS 9, see Note 3.
The following table and the accompanying notes below explain the original measurement categories under IAS 39 and the new measurement categories under IFRS 9 for each class of the Group’s financial assets and financial liabilities as at 1 January 2018.
The effect of adopting IFRS 9 on the carrying amounts of financial assets and liabilities at 1 January 2018 relates solely to a remeasurement of our SFA loan for a modification in 2016.
20
Trade and other receivables that were classified as loans and receivables under IAS 39 are now classified at amortised cost. The allowance for impairment over these receivables was not materially impacted on transition to IFRS 9.
ii. Impairment of financial assets
IFRS 9 replaces the ‘incurred loss’ model in IAS 39 with an ‘expected credit loss’ (ECL) model. The new impairment model applies to financial assets measured at amortised cost, contract assets and debt investments at FVOCI, but not to investments in equity instruments. Under IFRS 9, credit losses are recognised earlier than under IAS 39. The new ‘expected credit loss’ impairment model did not result in materially higher credit loss allowances for the expected lifetime credit losses.
iii. Transition
Changes in accounting policies resulting from the adoption of IFRS 9 have been applied retrospectively, except as described below.
The Group has used an exemption not to restate comparative information for prior periods with respect to classification and measurement (including impairment) requirements. The differences in the carrying amount of the SFA loan resulting from the adoption of IFRS 9 is recognised in retained earnings and reserves as at 1 January 2018. Accordingly, the information presented for 2017 does not generally reflect the requirements of IFRS 9, but rather those of IAS 39. The determination of the business model within which a financial asset is held has been made on the basis of the facts and circumstances that existed at the date of initial application.
3 SIGNIFICANT ACCOUNTING POLICIES
The main policies used in preparing the consolidated financial statements are explained below. The subsidiaries have consistently applied these policies for the period included in these consolidated financial statements, unless stated otherwise.
Following the adoption of IFRS 9 in 2018, the Group has adopted consequential amendments to IAS 1 Presentation of Financial Statements, which require impairment of financial assets to be presented in a separate line item in the income statement. For the impact refer to Note 2.
21 BASIS OF CONSOLIDATION Subsidiaries and control The consolidated financial statements include the financial information of Mediq and of investees controlled by the company. We control an investee when we are exposed, or have rights, to variable returns from our involvement with the investee and have the ability to affect those returns through our power over the investee. In general, we have power by holding more than 50% of the voting rights.
The assets, liabilities and results of these investees (‘subsidiaries’) are consolidated in full. Non-controlling interests in the consolidated results and equity are stated separately.
Business combinations Business combinations are accounted for using the acquisition method as of the date of acquisition, i.e. the date on which control is transferred to Mediq. Control is assessed as set out under ‘Subsidiaries and control’ above. Goodwill is measured as follows: the fair value of the consideration transferred; plus the recognised amount of any non-controlling interests in the acquiree; plus if the acquisition is achieved in stages, the fair value of the previously held equity interest in the acquiree; minus the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed, generally measured at fair value.
Acquisition-related costs are recognised in the income statement when incurred.
Disposals The financial information of subsidiaries that have been sold is included in the consolidation up to the date that control ends, which in general is the date of closing of the sale transaction. On the sale of a subsidiary, the difference between the sale proceeds and carrying amount, including goodwill and accumulated translation differences, is recognised in profit or loss. If the group retains an interest in the former subsidiary, the interest is recognised at fair value as from the date control ends.
DISCONTINUED OPERATION A discontinued operation is a component of the Group’s business, the operations and cash flows of which can be clearly distinguished from the rest of the Group and which: represents a separate major line of business or geographical area of operations; is part of a single co-ordinated plan to dispose of a separate major line of business or geographical area of operations; or is a subsidiary acquired exclusively with a view to re-sale; assets that meet the criteria to be classified as held for sale are measured at the lower of carrying amount and fair value less costs to sell. Classification as a discontinued operation occurs at the earlier of disposal or when the operation meets the criteria to be classified as held-for-sale. When an operation is classified as discontinued operations, the comparative income statement is re- presented as if the operation had been discontinued from the start of the comparative year.
Investments in associates An associate is an entity over whose financial and operating policies the group has significant influence, but not control, because of its equity interest in the entity. Investments in associates are recognised on the basis of the equity method, together with the goodwill on acquisition, less any impairment losses on individual assets.
22 Under the equity method, investments in associates are initially recognised at cost and adjusted thereafter for post-acquisition changes in the investor’s share of net assets in the investee. The initial cost is allocated to the underlying net assets according to the fair value of the net assets at the acquisition date and to goodwill. The subsequent valuation of the underlying net assets in the equity of the associate is determined in accordance with the group’s accounting policies.
We determine the share of profit of associates in accordance with Mediq’s accounting policies. For these interests, we present pro rata amounts in the income statement based on the equity method. Dividend distributions received from associates are set off against the carrying amounts of the investments in them.
If our share in losses exceeds the value of the interest in the associate, the carrying amount of the entity is written down to nil and no further losses are recognised, except if we have entered into a legally enforceable or constructive obligation or have made payments on behalf of an associate. Transactions with our associates are carried out at arm’s length.
Elimination of intra-group transactions Transactions, balances and unrealised income or expenses on transactions between subsidiaries are eliminated in preparing the consolidated financial statements. Unrealised profits and losses arising from transactions with associates are eliminated in proportion to the group’s interest in the investment.
Intercompany sales with Discontinued operations are eliminated from the sales of the continued operations.
FOREIGN CURRENCY TRANSLATION Transactions and balance sheet positions Trading transactions and balance sheet positions in foreign currencies are recorded by individual subsidiaries in their functional currency at the exchange rate at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated into the functional currency at the exchange rate at the reporting date. Non-monetary assets and liabilities that are measured at fair value in a foreign currency are translated into the functional currency at the exchange rate when the fair value was determined. Non-monetary items that are measured based on historical cost in a foreign currency are translated at the exchange rate at the date of the transaction. Foreign currency differences are generally recognized in profit or loss.
Subsidiaries The results and balance sheet items of all subsidiaries that report in a functional currency other than the euro are translated into euros as follows: assets and liabilities are translated into euros at the exchange rate ruling on the balance sheet date; income statement items are translated into euros at the exchange rate that approximates the exchange rate on the transaction date; gains and losses arising on the translation of the net asset value of consolidated entities are recognised directly in other comprehensive income.
On the disposal of all or part of a foreign entity resulting in a loss of control, any cumulative currency translation differences are recognised in profit or loss as part of the gain or loss on the sale.
Goodwill arising on the acquisition of an activity in a foreign currency and adjustments to its fair value is part of the investment in that foreign currency activity. They are translated into euros at the exchange rate at the balance sheet date.
23 The following exchange rates have been used in these financial statements for the main countries in which Mediq is active:
IN EUROS
BALANCE INCOME BALANCE INCOME SHEET AT STATEMENT SHEET AT STATEMENT 31.12.2018 2018 31.12.2017 2017
US dollar (USD) 100 87.33 84.76 83.38 88.63 Danish krone (DKK) 100 13.39 13.42 13.43 13.44 Norwegian krone (NOK) 100 10.05 10.37 10.16 10.71 Swedish krona (SEK) 100 9.75 9.75 10.16 10.38 Swiss franc (CHF) 100 88.74 86.76 85.46 89.96 Hungarian Florint (HUF) 10,000 31.16 31.33 32.22 32.33
STATEMENT OF CASH FLOWS The statement of cash flows is drawn up using the indirect method. The cash items in the statement of cash flows comprise cash and cash equivalents, the bank credits and money market borrowings included under current liabilities. Cash flows in foreign currencies are translated at the exchange rate at the time of the transaction.
Investments in subsidiaries are included at cost of acquisition of the equity instruments or – if applicable – capital employed, plus interest-bearing debts acquired less cash and cash equivalents held by the acquired company.
PROPERTY, PLANT AND EQUIPMENT We value property, plant and equipment at cost, less accumulated depreciation and accumulated impairment losses. Depreciation is recognised as an expense and calculated on a straight-line basis taking into account useful life and any residual value. Land is not depreciated. Buildings are depreciated over a period of between 10 and 33 years. Plant, equipment and other operating assets are depreciated over periods ranging from 3 to 10 years.
Maintenance, repairs and refurbishments are generally treated as costs in the period in which they are carried out. Major refurbishments are capitalised as part of the carrying amount of the assets to which they relate, if it is reasonable to assume that the future economic benefits will exceed the original carrying amount. They are depreciated over their residual lives but not exceeding the remaining useful lives of the respective assets concerned.
All residual values and useful lives are reviewed at the end of each year. In the case of revised expectations, the differences are treated as changes in accounting estimates.
GOODWILL Intangible assets include goodwill arising on acquisitions. Goodwill on acquisitions of associates is recognised under investments in associates. Goodwill is calculated as the difference between the fair value of the consideration transferred at the date of acquiring a business and the group’s share of the fair value of the identifiable assets and liabilities. After initial recognition, goodwill is carried at cost less accumulated impairment losses.
Upon the sale of an entity over which we have control, we derecognize an amount of goodwill in proportion to the sold entity’s share in the total value of the group of cash generating units to which it belonged.
24 OTHER INTANGIBLE ASSETS Intangible assets other than goodwill, such as software, websites and customer relationships, are valued at cost less accumulated amortisation and accumulated impairment losses. Amortisation is recognised as a cost and calculated on a straight-line basis over the asset’s expected useful life, which lies between three and seven years for software and websites, except for the amortisation period for customer relationships, which depends on the customer attrition rate estimated in advance.
FINANCIAL INSTRUMENTS
I. Recognition and initial measurement
Trade receivables and debt securities issued are initially recognised when they are originated. All other financial assets and financial liabilities are initially recognised when the Group becomes a party to the contractual provisions of the instrument.
A financial asset (unless it is a trade receivable without a significant financing component) or financial liability is initially measured at fair value plus, for an item not at FVTPL, transaction costs that are directly attributable to its acquisition or issue. A trade receivable without a significant financing component is initially measured at the transaction price.
II. Classification and subsequent measurement
Financial assets – Policy applicable from 1 January 2018
On initial recognition, a financial asset is classified as measured at: amortised cost; FVOCI – debt investment; FVOCI – equity investment; or FVTPL.
Financial assets are not reclassified subsequent to their initial recognition unless the Group changes its business model for managing financial assets, in which case all affected financial assets are reclassified on the first day of the first reporting period following the change in the business model.
A financial asset is measured at amortised cost if it meets both of the following conditions and is not designated as at FVTPL: it is held within a business model whose objective is to hold assets to collect contractual cash flows; and its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.
A debt investment is measured at FVOCI if it meets both of the following conditions and is not designated as at FVTPL: it is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets; and its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.
On initial recognition of an equity investment that is not held for trading, the Group may irrevocably elect to present subsequent changes in the investment’s fair value in OCI. This election is made on an investment-by-investment basis.
All financial assets not classified as measured at amortised cost or FVOCI as described above are measured at FVTPL. This includes all derivative financial assets (see note 26). On initial recognition, the Group may irrevocably designate a financial asset that otherwise meets the requirements to be measured at amortised cost or at FVOCI as at FVTPL if doing so eliminates or significantly reduces an accounting mismatch that would otherwise arise.
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Financial assets – Business model assessment: Policy applicable from 1 January 2018
The Group makes an assessment of the objective of the business model in which a financial asset is held at a portfolio level because this best reflects the way the business is managed, and information is provided to management. The information considered includes:
the stated policies and objectives for the portfolio and the operation of those policies in practice. These include whether management’s strategy focuses on earning contractual interest income, maintaining a particular interest rate profile, matching the duration of the financial assets to the duration of any related liabilities or expected cash outflows or realising cash flows through the sale of the assets; how the performance of the portfolio is evaluated and reported to the Group’s management; the risks that affect the performance of the business model (and the financial assets held within that business model) and how those risks are managed; the frequency, volume and timing of sales of financial assets in prior periods, the reasons for such sales and expectations about future sales activity.
Transfers of financial assets to third parties in transactions that do not qualify for derecognition are not considered sales for this purpose, consistent with the Group’s continuing recognition of the assets.
Financial assets that are held for trading or are managed and whose performance is evaluated on a fair value basis are measured at FVTPL.
Financial assets – Subsequent measurement and gains and losses: Policy applicable from 1 January 2018
Financial These assets are subsequently measured at fair value. Net gains and losses, including any assets at interest or dividend income, are recognised in profit or loss. FVTPL
Financial These assets are subsequently measured at amortised cost using the effective interest assets at method. The amortised cost is reduced by impairment losses. Interest income, foreign amortised exchange gains and losses and impairment are recognised in profit or loss. Any gain or cost loss on derecognition is recognised in profit or loss.
Financial liabilities – Classification, subsequent measurement and gains and losses
Financial liabilities are classified as measured at amortised cost or FVTPL. A financial liability is classified as at FVTPL if it is classified as held-for-trading, it is a derivative or it is designated as such on initial recognition. Financial liabilities at FVTPL are measured at fair value and net gains and losses, including any interest expense, are recognised in profit or loss. Other financial liabilities are subsequently measured at amortised cost using the effective interest method. Interest expense and foreign exchange gains and losses are recognised in profit or loss. Any gain or loss on derecognition is also recognised in profit or loss.
III. Derecognition
Financial assets
The Group derecognises a financial asset when the contractual rights to the cash flows from the financial asset expire, or it transfers the rights to receive the contractual cash flows in a transaction in which substantially all of the risks and rewards of ownership of the financial asset are transferred or in which
26 the Group neither transfers nor retains substantially all of the risks and rewards of ownership and it does not retain control of the financial asset.
Financial liabilities
The Group derecognises a financial liability when its contractual obligations are discharged, cancelled, or expire. The Group also derecognises a financial liability when its terms are modified, and the cash flows of the modified liability are substantially different, in which case a new financial liability based on the modified terms is recognised at fair value.
On derecognition of a financial liability, the difference between the carrying amount extinguished and the consideration paid (including any non-cash assets transferred or liabilities assumed) is recognised in profit or loss.
IV. Offsetting
Financial assets and financial liabilities are offset, and the net amount presented in the statement of financial position when, and only when, the Group currently has a legally enforceable right to set off the amounts and it intends either to settle them on a net basis or to realise the asset and settle the liability simultaneously.
V. Derivative financial instruments and hedge accounting
The Group holds derivative financial instruments to hedge its foreign currency and interest rate risk exposures. Derivatives are initially measured at fair value. Subsequent to initial recognition, derivatives are measured at fair value, and changes therein are recognised in profit or loss. The Group does not apply hedging accounting.
Financial and non-financial contracts may contain terms and conditions that meet the definition of derivative financial instruments. Such an agreement is separated from the host contract if its economic characteristics and risks are not closely related to the economic characteristics and risks of the host contract, a separate instrument with the same terms and conditions as the embedded derivative would meet the definition of a derivative, and the combined instrument is not measured at fair value with changes in fair value recognised in the profit and loss account.
VI. Impairment
Non-derivative financial assets: Policy applicable from 1 January 2018
Financial instruments and contract assets
The Group recognises loss allowances for ECLs on:
financial assets measured at amortised cost; and contract assets.
The Group measures loss allowances at an amount equal to lifetime ECLs, except for the following, which are measured at 12-month ECLs:
debt securities that are determined to have low credit risk at the reporting date; and other debt securities and bank balances for which credit risk (i.e. the risk of default occurring over the expected life of the financial instrument) has not increased significantly since initial recognition.
27 Loss allowances for trade receivables and contract assets are always measured at an amount equal to lifetime ECLs.
When determining whether the credit risk of a financial asset has increased significantly since initial recognition and when estimating ECLs, the Group considers reasonable and supportable information that is relevant and available without undue cost or effort. This includes both quantitative and qualitative information and analysis, based on the Group’s historical experience and informed credit assessment and including forward-looking information.
The Group assumes that the credit risk on a financial asset has increased significantly if it is more than 30 days past due.
The Group considers a financial asset to be in default when:
the borrower is unlikely to pay its credit obligations to the Group in full, without recourse by the Group to actions such as realising security (if any is held); or the financial asset is more than 90 days past due.
Lifetime ECLs are the ECLs that result from all possible default events over the expected life of a financial instrument.
12-month ECLs are the portion of ECLs that result from default events that are possible within the 12 months after the reporting date (or a shorter period if the expected life of the instrument is less than 12 months).
The maximum period considered when estimating ECLs is the maximum contractual period over which the Group is exposed to credit risk.
Measurement of ECLs
ECLs are a probability-weighted estimate of credit losses. Credit losses are measured as the present value of all cash shortfalls (i.e. the difference between the cash flows due to the entity in accordance with the contract and the cash flows that the Group expects to receive).
Credit-impaired financial assets
At each reporting date, the Group assesses whether financial assets carried at amortised cost and debt securities at FVOCI are credit-impaired. A financial asset is ‘credit-impaired’ when one or more events that have a detrimental impact on the estimated future cash flows of the financial asset have occurred.
Evidence that a financial asset is credit-impaired includes the following observable data:
significant financial difficulty of the borrower or issuer; a breach of contract such as a default or being more than 90 days past due; the restructuring of a loan or advance by the Group on terms that the Group would not consider otherwise; it is probable that the borrower will enter bankruptcy or other financial reorganisation; or the disappearance of an active market for a security because of financial difficulties.
Presentation of allowance for ECL in the statement of financial position
Loss allowances for financial assets measured at amortised cost are deducted from the gross carrying amount of the assets.
28 For debt securities at FVOCI, the loss allowance is charged to profit or loss and is recognised in OCI.
Write-off
The gross carrying amount of a financial asset is written off when the Group has no reasonable expectations of recovering a financial asset in its entirety or a portion thereof. The Group makes an assessment with respect to the timing and amount of write-off based on whether there is a reasonable expectation of recovery. The Group expects no significant recovery from the amount written off. However, financial assets that are written off could still be subject to enforcement activities in order to comply with the Group’s procedures for recovery of amounts due.
INVENTORIES Inventories are recognised at the lower of their weighted average cost and net realisable value. The average cost includes freight charges, excise duties, discounts, bonuses, and manufacturing and repackaging costs to the extent that they are directly attributable to the inventory. The net realisable value is the estimated selling price under ordinary business conditions, less the estimated costs of completion and selling expenses.
CASH AND CASH EQUIVALENTS Cash and cash equivalents comprise cash on hand and bank balances and other demand deposits. Cash and cash equivalents are carried at face value.
EQUITY For the buyout or sale of non-controlling interests in an entity over which we already have control, the difference between the fair value and carrying amount is recognised directly in equity.
The owners of the Company are entitled to dividend as adopted by the General Meeting of Shareholders. The dividend distribution is recognised as a reduction in equity in the period in which the dividend distribution is approved by the General Meeting of Shareholders.
FINANCE LEASES Lease contracts under which substantially all risks and rewards of ownership of the asset have been transferred to the group are included in the balance sheet at the commencement of the lease contract at the lower of the fair value of the asset and the present value of the minimum lease payments. The lease payments are apportioned between a repayment component and a finance charge, based on an implicit interest rate. We recognise long-term lease commitments, excluding the interest components, under long-term liabilities. Lease payments due within one year are included under current liabilities. The interest component of the lease payment is recognised in profit or loss. The corresponding assets are depreciated over their remaining useful life or, if shorter, the remaining term of the lease contract.
OPERATING LEASES We recognise lease contracts under which the risks and rewards of ownership of the asset are not substantially transferred in full to the group as operating leases. Operating lease commitments are recognised in profit or loss on a straight-line basis over the term of their respective lease contracts.
INCOME TAXES Income taxes comprise current and deferred taxation. The income tax expense is in principle recognised in the income statement. However, income taxes relating to items taken directly to equity are likewise taken directly to equity.
Current tax consists of income taxes on the taxable profit, which is calculated on the basis of tax rates enacted or substantively enacted at the end of the reporting period. In addition, adjustments to prior-year taxation can be included.
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We use the liability method when recognising a provision for deferred tax assets and liabilities relating to temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes on the one hand and the values for tax purposes on the other, and also when carry-forward tax losses are available. Deferred tax items reflecting temporary differences are calculated using the tax rates ruling at the end of the reporting year or the tax rates applicable for the next year that have already been enacted in law.
Deferred tax assets and liabilities within the same fiscal unit are netted only if Mediq has an enforceable right to do so and intends to settle them on a net basis. We recognise deferred tax assets, including those relating to tax losses carried forward, if it is probable that future profits will be realised to enable us to utilise the temporary differences. They are valued at the statutory tax rate at the time when realisation is expected to take place. A provision for deferred tax is recognised for temporary differences arising on investments in subsidiaries, where the fair value of the assets and liabilities acquired differs from their carrying amounts.
Deferred tax items are carried at nominal value.
RETIREMENT AND OTHER EMPLOYEE BENEFIT OBLIGATIONS The group has defined contribution plans as well as defined benefit plans.
Defined contribution plans Defined contribution plans are post-employment benefit plans for which the group has no legal or constructive obligation to pay further contributions if the pension fund does not hold sufficient assets to pay all employee benefits relating to employee service. Obligations for contributions to defined contribution plans are recognised in profit or loss for the period in which they arise. Under such plans, fixed contributions are paid to a pension fund or insurance company.
Defined benefit plans If a pension plan does not qualify as a defined contribution plan, it is deemed a defined benefit plan. All obligations under these plans in relation to the current and prior periods are included in the balance sheet. The pension obligations are determined by qualified actuaries using the Projected Unit Credit Method. The defined benefit liability is calculated using a discount rate based on the market yields at the end of the reporting period of high-quality corporate bonds whose terms are comparable to that of the pension obligation. The fair value of the investment portfolio held by the pension fund to cover the pension obligations is deducted from the total value of these obligations, resulting in the net defined benefit liability on our balance sheet. The actuarial valuations are requested at least once a year, and in any event for the year-end values.
The pension expense for defined benefit plans includes (current and past) service costs and the net interest on the net defined benefit liability. Remeasurements of the net defined benefit liability (actuarial gains and losses and investment returns above or below the discount rate) are recognised in other comprehensive income.
Other employee benefits Obligations relating to early retirement and future service anniversary payments are determined on the basis of actuarial calculations. The expected costs of these benefits are allocated to the period of service, using the same valuation principles as for the defined benefit plans. Actuarial differences arising from changes in assumptions are taken directly to the income statement.
30 Termination benefits Termination benefits are expensed at the earlier of when the Group can no longer withdraw the offer of those benefits and when the Group recognises costs for a restructuring. If benefits are not expected to be settled wholly within 12 months of the end of the reporting period, then they are discounted.
PROVISIONS Provisions are defined as constructive or legally enforceable obligations arising as a result of a past event for which it is probable that an outflow of resources will be necessary and management can make a reliable estimate of the size of the obligation. If the impact is material, provisions are carried at the present value of the expected expenditure required to settle the obligation. We treat the increase in the provision over time as an interest expense and present it under finance income and costs.
A provision for onerous contracts is measured at the present value of the lower of the expected cost of terminating the contract and the expected net cost of continuing with the contract. Before a provision is established, the Group recognises any impairment loss on the assets associated with that contract.
NET SALES
The Group has initially applied IFRS 15 from 1 January 2018. The effect of initially applying IFRS 15 is described in Note 2.
Net sales represent the income from the supply of goods and services, after deduction of discounts, credit notes and the like, taxes levied on revenue, and elimination of intra-group sales.
Revenue is measured based on the consideration specified in a contract with a customer. The Group recognises revenue when it transfers control over a good or service to a customer.
The following table provides information about the nature and timing of the satisfaction of performance obligations in contracts with customers and the related revenue recognition policies.
Nature and timing of Revenue recognition Revenue recognition under Type of product/ satisfaction of performance under IFRS 15 (applicable IAS 18 (applicable before service obligations from 1 January 2018) 1 January 2018)
Delivery of Mediq delivers medical devices Revenue is recognised at Revenue was recognised when goods and pharmaceuticals. the point in time when the the goods were delivered to Customers obtain control of goods are delivered to customers, which was the point in goods when the goods are customers. time at which the goods and the delivered to customers. Invoices related risks and rewards of are generated at that point in ownership transferred. time.
Rendering of Mediq renders services related Revenue is recognised over Revenue was recognised in services to the delivery of goods as well time as the services are proportion to the stage of as distribution services. provided. completion of the transaction at Invoices for services are issued the reporting date. on a periodic basis.
Construction In 2018, Mediq has entered into Revenue is recognised over Mediq has not entered into contracts a contract for the construction of time based on the cost-to- construction contracts prior to rooms in a hospital. cost method. The related 2018. costs are recognised in profit or loss when they are incurred.
Leases Mediq rents out medical devices Lease income is governed by IAS 27 - Leases. Mediq’s leases and other assets. qualify as operational leases. Lease income is recognised over the lease term on a straight-line basis.
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Payment terms and warranty and return contract provisions are not considered to have a material impact on revenue recognition.
The presentation of revenue from distribution arrangements is based on the analysis of the detailed operational aspects of the contracts involved. The classification of contracts as giving rise to gross or net revenue is based on the evaluation of a number of criteria and can be a judgemental area. Besides being based on the terms of the contracts it is also based on the substance of the contracts and the compliance to contract terms.
Net sales are adjusted for credit notes issued to customers and/or payers related to returned goods, and for price differences between amounts claimed and reimbursed by payers.
COST OF SALES Cost of sales represents the purchase price of trade inventories, including additional costs such as incoming freight, handling and other charges directly attributable to the purchase of the goods, and write- downs of inventories. The purchase price is net of supplier bonuses and purchase and payment discounts.
FINANCE INCOME Finance income comprises the interest received from credit institutions on temporary debit balances. This item also includes exchange differences on foreign currency transactions and positive changes in the fair value of derivative financial instruments. Income from interest-bearing receivables is calculated using the effective interest method.
FINANCE COSTS Finance costs represent the interest owed on debts calculated using the effective interest method, the interest portion of the finance lease payments, exchange differences on foreign currency transactions and negative changes in the fair value of derivative financial instruments.
SHARE OF PROFIT OF ASSOCIATES Share of profit of associates represents the group’s share, calculated pro rata, of the net result of non- consolidated interests in associates and gains and losses on the sale of associates over whose policy the group exercises significant influence, net of the applicable taxes.
SHARE-BASED COMPENSATION- LONG TERM PERSONNEL COSTS The grant-date fair value of equity-settled share-based payment awards granted to employees is generally recognised as an expense, with a corresponding increase in equity, over the vesting period of the awards. The amount recognised as an expense is adjusted to reflect the number of awards for which the related service and non-market performance conditions are expected to be met, such that the amount ultimately recognised is based on the number of awards that meet the related service and non- market performance conditions at the vesting date. For share-based payment awards with non-vesting conditions, the grant-date fair value of the share-based payment is measured to reflect such conditions and there is no true-up for differences between expected and actual outcomes.
The fair value of the amount payable to employees in respect of share appreciation rights (‘SARs’), which are settled in cash, is recognised as an expense with a corresponding increase in liabilities, over the period during which the employees become unconditionally entitled to payment. The liability is remeasured at each reporting date and at settlement date based on the fair value of the share appreciation rights. Any changes in the liability are recognised in profit or loss.
NEW RELEVANT STANDARDS AND INTERPRETATIONS NOT YET ADOPTED A number of new standards, amendments to standards and interpretations are effective for annual periods beginning after 31 December 2018, and have not been applied in preparing these consolidated
32 financial statements. Those which may be relevant to the Group are set out below. The Group does not plan to adopt these standards early.
IFRS 16 Leases The Group is required to adopt IFRS 16 Leases from 1 January 2019. The Group has assessed the estimated impact that initial application of IFRS 16 will have on its consolidated financial statements, as described below. The actual impacts of adopting the standard on 1 January 2019 may change because:
the group has not finalised the testing and assessment of controls over its new IT systems; and the new accounting policies are subject to change until the Group presents its first financial statements that include the date of initial application.
IFRS 16 introduces a single, on-balance sheet lease accounting model for lessees. A lessee recognises a right-of-use asset representing its right to use the underlying asset and a lease liability representing its obligation to make lease payments. There are recognition exemptions for short-term leases and leases of low-value items. Lessor accounting remains similar to the current standard – i.e. lessors continue to classify leases as finance or operating leases.
IFRS 16 replaces existing leases guidance, including IAS 17 Leases, IFRIC 4 Determining whether an Arrangement contains a Lease, SIC-15 Operating Leases – Incentives and SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease.
Leases in which the Group is a lessee
The Group will recognise new assets and liabilities for its operating leases. The nature of expenses related to those leases will now change because the Group will recognise a depreciation charge for right- of-use assets and interest expense on lease liabilities. Previously, the Group recognised operating lease expense on a straight-line basis over the term of the lease, and recognised assets and liabilities only to the extent that there was a timing difference between actual lease payments and the expense recognised. In addition, the Group will no longer recognise provisions for operating leases that it assesses to be onerous as described in Note 29. Instead, the Group will include the payments due under the lease in its lease liability.
No significant impact is expected for the Group’s finance leases.
Based on the information currently available, the Group estimates that it will recognise additional lease liabilities of EUR 56 million as at 1 January 2019. IFRS 16 does not impact the Group’s loan covenant described in Note 34 as the Group will continue to report on its covenant based on frozen GAAP (i.e. IAS 17), as required by the Senior Facility Agreement.
Leases in which the Group is a lessor
The Group reassessed the classification of sub-leases in which the Group is a lessor. Based on the information currently available, the Group expects that it will not reclassify any of its sub-leases as a finance lease.
No significant impact is expected for other leases in which the Group is a lessor.
Other standards The following amended standards and interpretations are not expected to have a significant impact on the Group’s consolidated financial statements. — IFRIC 23 Uncertainty over Tax Treatments. — Prepayment Features with Negative Compensation (Amendments to IFRS 9).
33 — Long-term Interests in Associates and Joint Ventures (Amendments to IAS 28). — Plan Amendment, Curtailment or Settlement (Amendments to IAS 19). — Annual Improvements to IFRS Standards 2015–2017 Cycle – various standards. — Amendments to References to Conceptual Framework in IFRS Standards. — IFRS 17 Insurance Contracts.
HOLDING COMPANY INCOME STATEMENT FORMAT As the 2018 income statement of the holding company is incorporated in the consolidated financial statements, a condensed income statement of Mediq is presented in accordance with Section 402 of Part 9, Book 2 of the Dutch Civil Code.
4 COMPOSITION OF MEDIQ
ACQUISITIONS AND DISPOSALES IN 2018
No acquisitions or disposals took place in 2018
MATERIAL SUBSIDIARIES
Set out below is a list of material subsidiaries of the group (excluding discontinued operations):
Principal place of Ownership Ownership business interest in 2018 interest in 2017 Mediq Nederland BV Netherlands 100% 100% Medeco BV Netherlands 100% 100% Caypa Holding AG Switzerland 100% 100% Mediq Suisse AG Switzerland 100% 100% SIA Mediq Latvija Latvia 100% 100% UAB Mediq Leituva Lithuania 100% 100% Mediq Eesti OU Estonia 100% 100% Mediq Deutschland GmbH Germany 100% 100% Mediq Norge AS Norway 100% 100% Mediq Holding Denmark ApS Denmark 100% 100% Mediq Holding Sverige AB Sweden 100% 100% Mediq Holding Suomi Oy Finland 100% 100% Medeco NV Belgium 100% 100% Mediq Direct Ltd. Hungary 81.62% 81.62% Aeger Klinieken B.V. Netherlands 100% 100% Aeger Service B.V. Netherlands 100% 100% Aeger Zorg B.V. Netherlands 100% 100%
ACQUISITIONS AFTER BALANCE SHEET DATE
There have been no acquisitions since balance sheet date.
34 NOTES TO THE CONSOLIDATED INCOME STATEMENT
5 NET SALES
The group generates revenues from the sale of medical supplies, pharmaceuticals and related services to patients at home or to hospitals and nursing homes (Direct & Institutional).
The effect of initially applying IFRS 15 on the Group’s revenue from contracts with customers is described in Note 2. Due to the transition method chosen in applying IFRS 15, comparative information has not been restated to reflect the new requirements.
In the following tables, revenue from contracts with customers is disaggregated by customer segment and by primary geographical markets.
Net sales by customer segment X € 1,000 2018 2017
Direct 495,450 501,697 Institutional 415,148 416.985 Total net sales 910,598 918,682
Net sales by geographical area X € 1,000 2018 2017
Benelux 454,687 450.757 Nordics & Baltics 307,689 307.892 DACH & Hungary (and France in 2017) 148,222 160.033 Total net sales 910,598 918,682
The disaggregation of revenue by material geographical area is based on the location of the subsidiary. The customers of our subsidiaries are predominantly established in the country where the subsidiary is established.
6 OTHER INCOME
X € 1,000 2018 2017
Services 278 306 Book gain on sale of assets 645 18,269 Miscellaneous income 1,269 1,104 Total 2,192 19,679
Income from services relates to various income received from third parties such as rental income, co- payments for promotion costs and storage services.
Book gain on the sale of assets in 2018 mainly relates to the sale of Byram in 2017. In 2018 the final calculation on working capital was settled with positive effect of approximately €1 million, and some additional costs in relation to this settlement and other transaction related costs were incurred.
Book gain on the sale of assets in 2017 comprise €18.3 million in relation to the sale of our Dutch tracheostomy business per the end of April 2017 and our French operations per the end of May 2017.
35 7 PERSONNEL COSTS
X € 1,000 2018 2017
Wages and salaries 121,282 122,248 Social security charges 17,805 18,433 Cost of temporary staff 23,168 24,435 Charges for defined contribution plans 8,968 8,922 Charges for defined benefit plans 137 215 Long-term remuneration 169 15 Other personnel costs 12,107 10,385 Total 183,636 184,653
The long-term remuneration costs represent expenses attributed to the reporting period from share- based payment arrangements with members of Key management personnel and certain senior managers of the Group. The expense in respect of rights granted and future entitlements is based on service in the current reporting period and is amortised over the period in which the performance is assessed. Details of these arrangements are included in note 14.
Other personnel costs comprise lease car cost, training costs, recruitment costs, canteen costs etc.
The remuneration of Key management personnel is disclosed in the note on related parties (see note 35).
NUMBER OF EMPLOYEES
IN FTES
YEAR-END YEAR-END AVERAGE AVERAGE 2018 2017 2018 2017 Direct & Institutional 2,368 2,419 2,421 2,486 Other 91 107 97 118 Total 2,459 2,526 2,518 2,604
The number of employees in fulltime equivalents working outside the Netherlands at year-end 2018 was 1,407, with an average of 1,530 (2017: 1,455, with an average of 1,508).
8 DEPRECIATION AND AMORTISATION
X € 1,000 2018 2017
Property, plant and equipment 6,078 6,546 Intangible assets 28,164 32,238 Total 34,242 38,784
Insulin pumps and their depreciation are included under Property, Plant and equipment (note 15). In the profit and loss account, depreciation of insulin and other pumps amounting to € 5.5 million (2017: € 4.8 million) is included in cost of sales. These pumps are placed with customers and as such generate rental income included in sales. The related depreciation cost are considered part of the gross profit.
Amortisation of intangible assets includes € 15.5 million (2017: € 20.7 million) in respect of the amortisation of customer relationships.
36 9 IMPAIRMENT OF NON-CURRENT ASSETS
The impairment test performed at year-end 2018 has not resulted in a goodwill impairment charge. See note 16 for a discussion of the assumptions applied. In 2017, a € 65 million impairment was recognised on goodwill.
10 IMPAIRMENT LOSS ON TRADE RECEIVABLES AND OTHER OPERATING EXPENSES
X € 1,000 2018 2017
Impairment loss on trade receivables 2,077 4,249
Other operating expenses Selling expenses 39,296 41,082 Accommodation costs 20,053 18,677 Costs of licences and minor purchases 11,689 13,509 General expenses 17,325 22,219 Total other operating expenses 88,363 95,487
11 FINANCE INCOME AND COSTS
X € 1,000 2018 2017
Finance costs Interest expense on borrowings measured at amortised cost and -18,346 -26,255 related derivatives Amortisation fees -1,982 -7,748 Exchange differences on foreign currency transactions (net) - -332 Change in fair value of financial instruments (net) -1,102 - Interest expense on current accounts (net) -376 - Other finance costs -244 -3,091 Subtotal - 22,050 - 37,425
Finance income Interest income on current accounts (net) - 4,352 Change in fair value of financial instruments (net) - 18,067 Exchange differences on foreign currency transactions (net) 3,103 - Other finance income 144 203 Subtotal 3,247 22,622
Total finance income and costs - 18,803 - 14,803
Interest income in 2017 mainly relates to accrued interest on the loan to an affiliate (see note 21).
Change in fair value of financial instruments in 2017 is mainly the result of gains on currency exchange forward contracts in relation to the US dollar cash proceeds relating to the disposal of Byram.
37 12 DISCONTINUED OPERATION
In May 2017, Mediq reached agreement to sell its entire business in the USA. In July 2017 the transaction has received approval from the competition authorities. The operations in the USA were not previously classified as held for sale or as a Discontinued operation. As per 1 May 2017 the assets and liabilities of Byram were reclassified as Discontinued operations. In the consolidated income statement for 2017, the results of our operations in the USA are presented as discontinued operation to show these separately from continuing operations. Result of operating activities and net cash flow for 2017 contain 7 months of trading of Byram.
A. Result of discontinued operation
X € 1,000 Byram
2018 2017
Revenue - 238,316 Expenses - 228,243 Result from operating activities - 10,073 Income tax - 976 Result from operating activities, net of tax - 9,097 Gain on sale of Discontinued operation, net of tax - 256,421 Total result of discontinued operation - 265,518 Attributable to: Owners of the Company (net result) - 265,518 Non-controlling interests - - Total - 265,518
B. Cash flow from (used in) discontinued operation
X € 1,000 Byram
2018 2017 Cash and cash equivalents - 24,805 Credit institutions - - Net cash and cash equivalents at beginning of - 24,805 period Net cash from operating activities - 7,790 Net cash used in investing activities - -1,757 Net cash used in financing activities - -30,838 Net cash flow for the year - -24,805 Net cash and cash equivalents at end of period --
C. Effect on disposal on the financial position of the Group
X € 1,000 Note 2018 2017
Property. Plant and equipment - -2.724 Intangible assets - -37,217 Deferred tax assets (net) - -8,722 Inventories 31 - -12,423 Trade and other receivables 31 - -39,189 Cash and cash equivalents - -21,385 Borrowings - 25,570 Trade and other payables 31 - 62,433 Net assets and liabilities - -33,657
38 13 INCOME TAX EXPENSE
X € 1,000 2018 2017
Current tax Current tax expense for current financial year 5,734 3,633 Current tax income for prior financial years -1,689 -4,057 4,045 -424 Deferred tax Recognition and reversal of temporary differences -4,330 -5,349 Income from changes in tax loss carry-forward positions 843 1,438 (Reduction) / increase in tax rate -463 44 -3,950 -3,867
Total 95 -4,291
In the table below, we show the reconciliation between the average nominal and effective corporate income tax rates for the group, together with the corresponding amounts. This is based on the profit before income tax for continued operations, excluding the sale of Byram.
X € 1,000
RATES AMOUNT 2018 2017 2018 2017
Weighted average corporate income tax rate 28.9% 25.5% -1,790 -15,827 Effects of: non-deductible costs -25.0% -3.3% 1,552 2,029 Goodwill impairment -% -26.1% - 16,250 tax-exempt income 2.3% 10.0% -149 -6,197 tax on prior year results 11.4% 1.0% -707 -631 changes in corporate income tax rate 7.5% -0.1% -463 44 other -26.6% -0.1% 1,652 41 Total effective tax rate -1.5% 6.9% 95 -4,291
The higher weighted average income tax rate vs statutory rate is mainly a result of operating losses in certain jurisdictions. The non-deductible costs relate to recurring non-deductible costs. The changes in corporate income tax rate relate to the tax rate reductions in The Netherlands as of 2020. The Other tax mainly relates to partial non-recognition of the deferred tax asset regarding tax losses and the partial release of tax provisions.
The amount of deferred taxes included in the income statement consists of the following items:
X € 1,000 2018 2017
Property, plant and equipment -249 -530 Intangible assets -4,075 -5,067 Goodwill 56 58 Financial assets -472 311 Trade receivables -11 7 Inventories 55 -12 Tax losses 905 1,438 Other assets - - Retirement and other employee benefits -152 -26 Provisions -207 -676 Other liabilities 200 628 Total -3,950 -3,867
39 Deferred tax in respect of intangible assets primarily relates to customer relationships acquired as part of a business combination, which are recognised and amortised under IFRS but not for tax purposes.
14 SHARE-BASED PAYMENT ARRANGEMENTS
(a) Description of share-based payment arrangements
At 31 December 2018, the Group had the following share-based payment arrangements.
(i) Share option programmes (equity settled)
On 13 February 2013 the Group established a share option program that entitles certain senior employees to purchase shares in the Company, via a holding company. Under this program, holders of vested options are entitled to purchase shares at the strike price established at the grant date. Currently, these programs are limited to key management personnel and other senior employees.
The key terms and conditions related to the grants under this programme are as follows:
the options are to be settled in cash or in physical delivery of shares, at discretion of the Management Board of the company; vesting in equal annual instalments over a 4-year period (i.e. 25% per year) calculated from grant date. In the event of an effective change in control or listing of the company, prior to the 4th anniversary, the option will vest in full.
No share options were granted in 2018 or 2017.
(ii) 2013 Share purchase plan (equity-settled)
On 13 February 2013 the Group established a Management Equity Plan (2013 MEP) that entitles key management personnel and certain senior employees to purchase shares in the Company, via a holding company. To participate in this plan, employees are required to purchase Ordinary shares in a holding company of the Company, and indirectly invest in so called Hurdle-shares. The acquisition price of the Ordinary shares is based on the fair market value at the date of the investment. Hurdle shares are shares that must first reach a certain ‘hurdle’ before returns can be generated.
The MEP investment is subject to a ‘vesting’ schedule. Technically it is not a vesting schedule as the shares are owned by employees as of grant/purchase date, but the vesting sees to the right to realise value increases within a certain period after acquisition of shares. Based on the vesting schedule the MEP investment will ‘vest’ in 4 equal annual instalment years calculated from the purchase date. In the event of an effective change in control or listing of the company, prior to the 4th anniversary, the shares will vest in full.
There were no grants under the 2013 MEP in 2018 or 2017.
(iii) 2018 Share purchase plan (equity-settled)
In January 2018, the Group extended the 2013 Management Equity Plan (2018 MEP) that entitles key management personnel and certain senior employees to purchase shares in the Company, via a holding company. To participate in this plan, employees are required to purchase Ordinary shares in a holding company of the Company, and indirectly invest in so called Hurdle-shares. The acquisition price of the Ordinary shares is based on the fair market value at the date of the investment. To fund part of the investments in ordinary shares, participants are offered a loan by the holding company at 5% interest per year. Hurdle shares are shares that must first reach a certain ‘hurdle’ before returns can be generated.
40 The MEP investment is subject to a ‘vesting’ schedule. Technically it is not a vesting schedule as the shares are owned by employees as of grant/purchase date, but the vesting sees to the right to realise value increases within a certain period after acquisition of shares. Based on the vesting schedule the MEP investment will ‘vest’ in 4 equal annual instalment years calculated from the agreed effective date. In the event of an effective change in control or listing of the company, prior to the 4th anniversary, the shares will vest in full. Vesting is subject to continued services.
(iv) 2018 Stock Appreciation Right plan (cash-settled)
In October 2018, the Group established a new Stock Appreciation Right plan (SARs plan) that entitles the Group to grant Stock Appreciation Rights (“SARs”) to key management personnel and certain senior employees. Participants that have been offered SARs are entitled to the pay-out in cash of the value increase of the underlying hurdle share at the moment of an effective change in control or listing of the company.
The SAR investment is subject to a ‘vesting’ schedule. There are two SARs groups (‘SARs A’ and ‘SARs B’). For SARs A, the SAR investment will ‘vest’ in 4 equal annual instalment years calculated from the grant date and vesting is subject to continued services. In the event of an effective change in control or listing of the company, prior to the 4th anniversary, the SARs will vest in full. For SARs B, the SAR investment vests in full at the moment of an effective change in control or listing of the company, subject to continued services.
Details of the liabilitiy arising from the SARs were as follows (included in other current liabilities, see Note 30).
X € 1,000 31.12.2018 31.12.2017 Total carrying amount of liability for SARs 61 -
(b) Measurement of fair values
The fair value of the 2018 grants under the 2018 MEP (see (a)(iii)) and the 2018 SARs (see (a)(iv)) are valued with the aid of the ‘Monte Carlo’ simulation model and the Black-Scholes formula respectively. Service conditions and non-market conditions are taken into account in determining the fair value.
The inputs used in the measurement of the fair vales at grant date of 2018 grants were as follows:
41 2018 SAR (CASH 2018 MEP (EQUITY SETTLED) SETTLED)
ORDINARY ORDINARY SHARE SHARE HURDLE SAR A SAR B INCL. €1.54 INLC. €2.54 SHARE LOAN LOAN
Fair value at grant date per award €2.00 €1.31 €2.62 €3.82 €2.46
Investment per award €1.90 €1.00 €1.00 - -
IFRS 2 fair value per award - €0.31 €1.62 €3.82 €2.46
Expected volatility 21.3% 21.3% 21.3% 21.3% 21.3% Expected life (in years) 3.25 3.25 3.25 3.25 3.25 Expected dividends Nil Nil Nil Nil Nil Risk-free interest rate (based on -0.368% -0.368% -0.368% -0.368% -0.368% government bonds)
Expected volatility was measured based on the average historical annualised equity and enterprise value volatility of selected comparable companies. The expected term of the instruments has been based on expected exit strategy of the company.
At 31 December 2018, a total amount of € 0.9 million (2017: € 0 million) was invested by participants in the 2018 MEP.
(c) Reconciliation of outstanding share options
The number and weighted-average exercise price of share options under the 2013 share option programme (see (a) (i) ) were as follows:
NUMBER OF WEIGHTED AVERAGE NUMBER OF WEIGHTED AVERAGE OPTIONS EXERCISE PRICE OPTIONS EXERCISE PRICE
IN THOUSANDS OF OPTIONS 2018 2018 2017 2017 Outstanding at 1 January 33 €1,80 35 €1,80 Forfeited during the year - €1.80 2 €1,80 Outstanding at 31 December 33€1,80 33 €1,80 Exercisable at 31 December - - - - Weighted average remaining contractual life (in months) - - - -
All options have an exercise price of €1.80. During 2018 and 2017, no options were exercised or have expired.
(d) Expense recognised in profit or loss
For details on related employee benefit expenses, see Notes 7 and 35.
42 NOTES TO THE CONSOLIDATED BALANCE SHEET
15 PROPERTY, PLANT AND EQUIPMENT
X € 1,000 2017
LAND AND PLANT AND OTHER PROPERTY, PLANT TOTAL PROPERTY, BUILDINGS EQUIPMENT AND EQUIPMENT PLANT AND UNDER EQUIPMENT CONSTRUCTION Carrying amount at 1 January 2017 8,747 10,858 17,947 2,601 40,154
Acquisitions - 67 145 - 212 Additions 102 3,056 7,467 9,835 20,460 Disposals -12 -319 - -36 -366 Depreciation- continued operations -1,071 -1,826 -8,487 - -11,384 Depreciation- discontinued operations - -18 -846 - -864 Foreign currency translation effects -3 -147 -763 - -913 Other reclassifications 112 -8,705 8,681 122 211 Assets taken into use - 130 1,807 -2,120 -182 Reclassification as Discontinued operation - -231 -3,139 -3 -3,373 Carrying amount at 31 December 2017 7,874 2,864 22,812 10,400 43,950
Cost 21,767 18,554 55,964 10,400 106,685 Accumulated depreciation -13,893 -15,690 -33,152 - -62,735 Carrying amount at 31 December 2017 7,874 2,864 22,812 10,400 43,950
X € 1,000 2018
LAND AND PLANT AND OTHER PROPERTY, PLANT TOTAL PROPERTY, BUILDINGS EQUIPMENT AND EQUIPMENT PLANT AND UNDER EQUIPMENT CONSTRUCTION Carrying amount at 1 January 2018 7,874 2,864 22,812 10,400 43,950
Acquisitions - - - - - Additions 16 1,214 6,493 2,811 10,534 Disposals - - -255 - -255 Depreciation -1,022 -1,647 -8,827 - -11,496 Foreign currency translation effects -4 -2 -49 -1 -56 Other reclassifications - 7,923 274 -9,699 -1,502 Assets taken into use - 1,258 2,004 -3,262 - Carrying amount at 31 December 2018 6,864 11,610 22,452 249 41,175
Cost 21,779 28,948 64,431 249 115,407 Accumulated depreciation -14,915 -17,338 -41,979 - -74,232 Carrying amount at 31 December 2018 6,864 11,610 22,452 249 41,175
The depreciation rates applied are as follows:
Land 0% Buildings 3% - 10% Plant and equipment 10% - 33% Other assets 10% - 33%
The fair value of all property plant and equipment does not differ from the carrying amount. Nearly all tangible assets have been pledged as security for liabilities.
43 The net reclassification of €1,5 million relates to reclassification to other intangible assets.
The carrying amount of assets under finance leases is € 1.4 million (2017: € 1.1 million). These assets are classified as plant and equipment. Virtually all property has been pledged as security for obligations under the financing agreements.
Other assets mainly comprise IT-related hardware, insulin pumps and other equipment for patients.
16 GOODWILL
X € 1,000 2018 2017
Carrying amount at 1 January 327,809 441,781
Acquisitions - 138 Reclassification as discontinued operations - -33,333 Disposals - -11,403 Adjustments to prior year goodwill calculations - 229 Currency translation difference 139 -4,603 Impairment - -65,000 Carrying amount at 31 December 327,948 327,809
Cost 392,948 392,809 Accumulated impairments -65,000 -65,000 Carrying amount at 31 December 327,948 327,809
For the purpose of goodwill impairment testing, we allocate goodwill to the level of an operating segment at the moment that goodwill arises from a business combination. This is the lowest level at which we monitor goodwill for internal management purposes, both from a strategic and operational perspective. In line with this approach, an operating segment before aggregation is treated as a single unit for the purpose of impairment testing. After the sale of our Dutch Pharmacies in 2016 we only have one remaining operating segment, this is the Cash Generating Unit (CGU), which is Direct & Institutional (D&I).
ASSUMPTIONS The framework for tests of impairment comprises the existing activities excluding results on future acquisitions and/or disposals. In addition, we assume an increase in market volume (due to population ageing and rising consumption) and take into account the growing market pressure on prices, government-induced or otherwise. This basis is valid in the long term for our activities in all countries where we operate.
In the impairment tests performed, value in use is determined by calculating the present value of expected future cash flows. The expected cash flows for each of the next five years are estimated separately. The budget for 2019 plus the outlook for 2020 and 2021 is the starting point for the cash flow projections. The cash flows for subsequent years 2022 and 2023 are based on an extrapolation of the outlook for 2021, taking into account the assessment of the responsible management and applying the below main assumptions. The cash flows for the sixth and subsequent years are based on those for 2023. In our opinion, this leads to the best possible estimates of future developments at the present time.
The tests are carried out in euro. The discount rate is based on the weighted average cost of capital after tax that is relevant to the operating segment being tested. In determining the discount rate, no account is taken of specific market risks per country, because these specific risks (caused for instance by countries, regulatory risks, prices etc.) are included in the estimations of future cash flows.
44 The main assumptions in the calculations are as follows:
2018 2017
Discount rate before income tax 9.1 % 9.1 % Expected average net sales growth rate for year 2-5 2,4% 2,0% Expected terminal growth rate 0.6% 0.7%
SENSITIVITY TO CHANGES IN ASSUMPTIONS An impairment test of goodwill is carried out at least once a year or when required because of changed circumstances. Any test of impairment inevitably involves factors that have to be estimated. The recoverable amount is influenced by factors such as our prognosis for future economic conditions and expectations regarding market developments and operations. The estimates made for these factors may change over time, which could lead to an impairment recognized in profit or loss. The recoverable amount also depends on the discount rate used, which is based on our estimate of the weighted average cost of capital for the operating segment concerned.
It is inherent in the method of computation used that a change in assumptions (which contains estimation uncertainty) may lead to a different conclusion on the impairment required. The following provides an indication of the sensitivity of our impairment test to changes in key assumptions used: If the discount rate were assumed to be 1,8 percentage points higher, so at 10.9% pre-tax, while maintaining the other assumptions, a limited impairment would arise. If net sales growth for year 2-5 were set 5 percentage points lower, so a negative growth of 2.6% per year in that period, while maintaining the other assumptions, a limited impairment would arise. If terminal growth were set 2 percentage point lower, so at negative 1.4%, while maintaining the other assumptions, a limited impairment would arise.
Management notes that the severity of the effects disclosed above may be reduced by the estimated fair value less cost of disposal.
45 17 OTHER INTANGIBLE ASSETS
X € 1,000 2017
SOFTWARE AND SOFTWARE AND CUSTOMER PATENTS & TOTAL WEBSITES WEBSITES RELATIONSHIPS TRADEMARK UNDER CONSTRUCTION
Carrying amount at 1 January 2017 51,898 5,731 68,123 122 125,874
Acquisitions - - 1,962 - 1.962 Additions 595 11,050 - 38 11,683 Disposals - -19 -1,793 - -1,812 Amortisation and impairments- continued operations -11,532 - -20,692 -13 -32,237 Amortisation and impairments- discontinued operations -307 - -648 -956 Foreign currency translation effect -645 -1 -758 - -1,404 Reclassifications 63 -240 -35 - -212 Assets taken into use 9,406 -9,224 - - 182 Reclassification as discontinued operations -1,333 -5 -3,118 - -4,456 Carrying amount at 31 December 2017 48,145 7,293 43,042 147 98,627
Cost 80,052 7,293 248,518 160 336,023 Accumulated amortisation -31,908 - -205,476 -13 -237,396 Carrying amount at 31 December 2017 48,145 7,293 43,042 147 98,627
X € 1,000 2018
SOFTWARE AND SOFTWARE AND CUSTOMER PATENTS & TOTAL WEBSITES WEBSITES RELATIONSHIPS TRADEMARK UNDER CONSTRUCTION
Carrying amount at 1 January 2018 48,145 7,293 43,042 147 98,627 Acquisitions - - - - - Additions 2,205 5,104 - - 7,309 Disposals - - - - - Amortisation and impairments -12,672 - -15,476 -16 -28,164 Foreign currency translation effect -11 -8 182 - 163 Reclassifications 2,919 -1,474 - - 1,445 Assets taken into use 10,183 -10,183 - - - Carrying amount at 31 December 2018 50,769 732 27,748 131 79,380
Cost 95,349 732 248,700 160 344,941 Accumulated amortisation -44,580 - -220,952 -29 -265,561 Carrying amount at 31 December 2018 50,769 732 27,748 131 79,380
The item software and websites comprises intangible assets with a limited useful life. They are amortised between 14.3% and 33% per annum.
The net reclassification of €1,4 million mainly relates to reclassification from tangible assets.
The item customer relationships comprise intangible assets with a limited useful life. The value of a customer relationship on acquisition is mainly determined by logistics performance, products and services provided and accessibility via internet and telephone. These factors jointly determine the value of the expected customer relationships based on characteristics that motivate them to remain a customer. The amortisation rate depends on the customer attrition rate estimated in advance.
46 18 ASSET HELD FOR SALE AND DISPOSAL GROUP HELD FOR SALE
Not applicable in 2017 and 2018.
19 INVENTORIES
X € 1,000 31.12.2018 31.12.2017
Finished products 90,145 88,197 Less: provision for obsolescence -7,542 -6,536 Total 82,603 81,661
We carry a limited portion of the inventories at a net realisable value lower than the weighted average cost. The net realisable value of this portion of inventories is € 7.5 million lower (2017: € 6.5 million lower) than the weighted average cost. In 2018, a charge of € 2.3 million (2017: € 2.5 million) was recognised in the income statement for the write-down of inventories.
The large majority of the inventories are pledged as security for borrowings.
The cost of the inventories included in the income statement under cost of sales amounted to € 591,9 million (2017: € 597.6 million).
20 TRADE RECEIVABLES
X € 1,000 31.12.2018 31.12.2017
Trade receivables 111,434 125,811 Less: provision for doubtful debts -4,519 -3,955 Less: accrued discounts to customers -1,234 -1,243 Plus: unbilled revenue 11,051 15,745 Less: allowance for unbilled revenue -1,498 -1,852 Total 115,232 134,506
The provision for doubtful debts provides a good reflection of the risk of uncollectability at the balance sheet date. Accordingly, the carrying amount of the trade receivables is approximately equal to their fair value. The provision has been recognised at nominal value, given its current nature.
BREAKDOWN OF TRADE RECEIVABLES BY AGE X € 1,000 31.12.2018 31.12.2017
Not overdue 90,873 102,395 Past due < 30 days 10,635 14,129 Past due > 30 < 60 days 1,933 1,062 Past due > 60 < 90 days 857 1,035 Past due > 90 days 7,136 7,191 Provision for doubtful debts -4,519 -3,955 Accrued discounts to customers -1,234 -1,243 Unbilled revenue 11,051 15,745 Less: allowance for unbilled revenue -1,499 -1,852 Total 115,232 134,506
The working capital tied up in trade receivables is expressed in terms of days by means of DSO (Days of Sales Outstanding). The average DSO for 2018, measured on the basis of a 13-point average, was 35.6 days (2017: 38.0 days).
47 At the balance sheet date, € 20.6 million (2017: € 23.4 million) of trade receivables was not settled on the contractually agreed due date. For further disclosure on the allowance for doubtful debtors see note 34.
The movement in the allowance for impairment in respect of trade receivables during the year was as follows. Comparative amounts for 2017 represent the allowance account for impairment losses under IAS 39. The transition to IFRS 9 – Financial instruments at 1 January 2019, did not have a material impact on the provision for doubtful debts.
PROVISION FOR DOUBTFUL DEBTS
X € 1,000 2018 2017
Balance at 1 January 3,955 5,909 Addition 2,387 4,425 Use -1,513 - 4,200 Release -309 -176 Foreign currency translation effects -1 -346 Reclassification as discontinued operation - -1,937 Other movements - 280 Balance at 31 December 4,519 3,955
In the 2018 financial year, a net amount of € 2.1 million (2017: € 4.2 million) was charged to profit or loss. See note 34 for further details on credit concentration and credit risks.
21 OTHER RECEIVABLES
X € 1,000 31.12.2018 31.12.2017
Prepayments 4,924 4,041 Bonus and discounts receivable 2,250 2,050 Other taxes and social security charges 534 358 Credit notes to be received 394 2,223 Loan to affiliate - - Escrow in relation to discontinued operation 17,014 29,184 Other 4,064 3.973 Total other receivables 29.180 41,829
Breakdown of Other receivables
X € 1,000 31.12.2018 31.12.2017
Non-current 3,979 15,142 Current 25,201 26,687 Total 29.180 41,829
The escrow (initially USD 35 million) relates to the part of the sales proceed of Byram that has been put on a third-party account to cover claims in relation to the sale transaction. An amount of USD 15.7 million has been released in August 2018, followed by another release of USD 14.9 million in February 2019. The remaining USD 4.5 million remains in escrow.
The fair value of the other receivables is equal to their carrying amount, due to the mostly short-term nature.
48 22 CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist mainly of current accounts held at banks and time deposits with short maturities. Virtually all balances are pledged as security for borrowings but are not restricted otherwise and are at the free disposal of the group.
23 SHARE CAPITAL AND SHARE PREMIUM
See the consolidated statement of changes in equity for information on the composition, amount and changes of equity.
Details of the share capital and share premium are set out below. Information on other elements of equity (reserves) is set out in note 24.
X € 1,000
NUMBER OF SHARES PAID-UP SHARE SHARE PREMIUM TOTAL IN FULLY PAID-UP CAPITAL SHARE CAPITAL AND EQUIVALENTS SHARE PREMIUM (X 1,000 SHARES)
Balance at 1 January 2018 800 8 13,850 13,858 Movements - - 17 17 Balance at 31 December 2018 800 8 13,867 13,875
PAID-UP SHARE CAPITAL AND SHARE PREMIUM As at 31 December 2018, 800,000 shares (with a nominal value of € 0.01) had been issued and fully paid up.
The increase in share premium in 2018 relates to a contribution in kind consisting of the shares in the capital of AI Garden New Finance S.a r.l by the shareholder AI Garden & Cy S.C.A. AI Garden New Finance S.a r.l was subsequently liquidated in 2018.
24 RESERVES
Direct changes in equity are recognised net of tax effects. Transactions with holders of non-controlling interests comprise the differences between the carrying amounts and the fair values of buy-outs or sales of non-controlling interests in entities over which we have control.
NON-CONTROLLING INTERESTS The non-controlling interest for the continued operations relates to minority shareholdings in our legal entity in Hungary.
RESERVE FOR TRANSLATION DIFFERENCES The reserve for translation differences comprises all cumulative translation differences arising from the translation of the financial statements of activities in currencies other than the euro. The reserve is not freely distributable.
The reserve for translation differences as at 31 December 2018 amounted to € 1.5 million positive (2017: €0.1 million positive). Translation differences included in other comprehensive income for 2018 were € 1.4 million positive (2017: € 0.1 million positive).
49 OTHER RESERVES The other reserves comprise statutory reserves not freely distributable of € 31.0 million (2017: € 38.5 million) for retained earnings of subsidiaries whose distribution cannot be effected without limitation by Mediq.
PROPOSED RESULT APPROPRIATION Pursuant to Article 22 of the Articles of Association of the company, the Management Board will propose the appropriation of the net result for the year to the Other Reserves for approval by the General Meeting of Shareholders.
25 BORROWINGS AND OTHER NON-CURRENT LIABILITIES
X € 1,000 31.12.2018 31.12.2017
Borrowings from banks 362,804 373,297 Other non-current liabilities 2,470 3,623 365,274 376,920 Less: portion of other non-current liabilities within one year 696 695 Total 364,578 376,225
All non-current liabilities are dominated in Euros
BORROWINGS Borrowings amounting to € 362,8 million (2017: € 373.3 million) from banks relate to the Senior Facilities Agreement. The SFA is the central financing arrangement for Mediq Holding BV and runs to February 2022. In February 2019, Mediq has submitted a notice for the voluntary prepayment on the SFA of € 11.7 million to be effective 28 February 2019. For further maturity information see note 34.
The fair market value of the borrowings as at 31 December 2018 is approximately equal to the carrying amount.
The average interest rate on the bank and non-bank borrowings in 2018 was 4.5%. The borrowings have variable interest rates, of which 76% has been hedged by means of an interest cap.
As security for the obligations under the SFA, assets have been pledged by many Group entities, covering virtually all assets of the Group (excluding intangible assets). The SFA is subject to the following ratios: a maximum leverage of 6.25 This ratio changes over time.
At 31 December 2018, the leverage amounted to 4.42.
MOVEMENTS IN BORROWINGS FROM BANKS
X € 1,000 Borrowings from banks
Balance at 1 January 373,297 IFRS 9 retrospective opening balance adjustment 2,376 Repayment of borrowings -15,000 Amortisation of IFRS 9 retrospective impact -576 Amortisation of separated embedded derivative 725 Amortisation of capitalised borrowings costs 1,982 Balance at 31 December 362,804
The 2018 repayment of €15 million, is the only movement in borrowings from banks, resulting in a cash flow arising from financing activities in the cashflow statement in 2018. For the movement in equity see Consolidated statement of changes in equity.
50
26 DERIVATIVE FINANCIAL INSTRUMENTS
X € 1,000 31.12.2018 31.12.2017
Current assets relating to derivative financial instruments 1,471 28 Non-current assets relating to derivative financial instruments 1 1,446 Current liabilities relating to derivative financial instruments -477 -1,215 Non-current liabilities relating to derivative financial instruments -1,044 -1,192 Total -50 -933
The table below shows derivatives classified by type:
CARRYING CARRYING AMOUNT AT AMOUNT AT 31.12.2018 31.12.2017 Interest rate caps 1 53 Embedded derivatives -1,044 -1,192 Forward currency contracts 993 206 Total -50 -933
The carrying amounts of the various derivatives at 31 December 2018 were equal to their fair values.
We use an interest rate cap and forward currency contracts to manage interest rate and currency risks. Receivables and payables arising from derivatives are presented in non-current and current assets and liabilities.
The embedded derivative relates to a 0% Euribor floor that is part of the terms and conditions of the SFA loan. This Euribor floor is required by the Lenders and is a common market practice. The value of this embedded derivative is €1.0 million (credit) per 31 December 2018 (2017: € 1.2 million).
An interest rate cap for the SFA loan is in place until 2020. The nominal amount of this interest rate cap is € 280 million bringing the total hedged amount to 76%.
Forward exchange contracts hedge the risk of volatility of future trade activities in foreign currencies. The amount disclosed relates mainly to positions in USD-EUR and USD-NOK.
See note 34 for more information on risk management and financial instruments. We do not apply hedge accounting for derivative financial instruments.
27 DEFERRED TAXES
We only net deferred tax assets and liabilities within the same fiscal unit if the group has an enforceable right to do so and intends to settle them on a net basis.
The positions are provided below:
X € 1,000 31.12.2018 31.12.2017
Net deferred tax assets 1,901 2,066 Net deferred tax liabilities -3,841 -8,563 Total net deferred tax liability -1,941 -6,497
51 Terms X € 1,000 31.12.2018
TOTAL < 1 YEAR 1 - 2 YEARS 3 - 5 YEARS MORE THAN 5 YEARS Deferred tax assets 7,288 1,087 890 3,450 1,861 Deferred tax liabilities -9,229 -3,031 -2,356 -2,418 -1,424 Net deferred tax assets / (liabilities) -1,941 -1,944 -1,466 1,032 437
The changes in net deferred tax assets and liabilities can be broken down as follows:
X € 1,000 31.12.2018 31.12.2017
Balance at 1 January -6,497 -2,113
Acquisitions and sales of subsidiaries - 230 Recorded in profit and loss statement 3,950 3,867 Reclassification as discontinued operations - -8,353 Taken/charged to equity 604 2 Foreign currency translation effect 2 -130 Balance at 31 December -1,941 -6,497
The deferred tax assets and liabilities relate to the following items:
X € 1,000
DEFERRED TAX ASSETS DEFERRED TAX LIABILITIES
2018 2017 2018 2017 Property, plant and equipment 1,496 1,481 -794 -1,043 Intangible assets 189 188 -5.893 -9,967 Goodwill 242 297 -1,182 -1,183 Financial assets 864 867 -991 -1,466 Trade receivables 11 11 -58 -67 Inventories 42 101 -48 -28 Tax losses 2.472 3,358 - - Other assets 523 - - - Employee benefit obligations 299 157 5 -9 Provisions 743 1,061 -160 -160 Other liabilities 407 63 -108 -158 Deferred tax assets/liabilities 7.288 7,584 -9,229 -14,081 Netting of deferred tax items -5,388 -5,518 5,388 5,518 Net deferred tax assets/liabilities 1,901 2,066 -3,841 -8,563
Deferred tax assets are recognised if it is probable that they will be realised. In determining this, we take into account various factors such as future taxable income, tax planning and possible adjustments to prior years’ tax returns.
The deferred tax liability mainly relates to customer relationships which have been recorded on the balance sheet (gross) for IFRS purposes and amortised for IFRS. As no amortisation is possible for tax purposes, a corresponding deferred tax liability is recorded, which is subsequently released over the amortisation period (also relating to previous acquisitions).
Given that the offsetting of tax losses against future tax profits is uncertain and that such loss relief may be possible only in the long term, tax losses in the Netherlands, Denmark, Sweden, Norway, Luxembourg and Germany for a non-discounted amount of € 82.5 million (2017: € 29.4 million) have not been recognised as deferred tax assets. The movement in 2018 is driven by an increase in tax losses in
52 Luxembourg due to a value decrease for local statutory purposes in a subsidiary of the Luxembourg company.
The non-recognized losses expire as follows:
X € 1,000
TOTAL < 1 YEAR 1 - 2 YEARS 2 - 5 YEARS MORE THAN 5 YEARS Tax losses not recognised 82,499 - - 12,875 69,624
28 RETIREMENT AND OTHER EMPLOYEE BENEFIT OBLIGATIONS
The retirement and other employee benefit obligations include the obligations under defined benefit plans and other employee benefits. The other employee benefits relate to early retirement and a provision for future service anniversary benefits.
DEFINED BENEFIT PLANS
Net obligation at balance sheet date
X € 1,000 2018 2017
Present value of funded obligations 2, 822 2,705 Fair value of plan assets - - Net retirement benefit obligation 2,822 2,705 Other employee benefits 219 221 Balance at end of period 3,041 2,926
The net retirement benefit obligation relates to partial defined benefit obligations in Norway and Sweden. Because the obligations under defined benefit plans are relatively immaterial, additional disclosures are not included.
The current portion of the balance at the end of 2018 is € 0.2 million.
DEFINED CONTRIBUTION PLANS The employees of the company in the Netherlands have a pension scheme which is administered by PMA pension fund. The pension scheme is classified as a defined-benefit agreement under the Pensions Act, but under IFRS this can be considered as defined contribution.
Norway operates a pension plan based on government-regulated pension accrual. In connection with this plan, the company includes a provision for pensions in its balance sheet. In Sweden, part of the employees participate in a supplementary pension arrangement in addition to the state pension.
53 29 PROVISIONS
X € 1,000
LEGAL ISSUES MISCELLANEOUS TOTAL
Balance at 31 December 2016 87 16,657 16,744
Addition 1,261 7,689 8,950 Use - - 1,432 - 1,432 Release - -7,610 -7,610 Foreign currency translation effect - -1,128 -1,128 Reclass to discontinued operations - -8,675 -8,675 Balance at 31 December 2017 1,348 5,501 6,849
Addition 1,354 3,048 4,402 Use -42 -3,467 -3,509 Release -5 -965 -970 Foreign currency translation effect - 8 8 Reclass to short term liabilities - -152 -152 Balance at 31 December 2018 2,655 3,973 6,628
BREAKDOWN OF THE PROVISION
X € 1,000 2018 2017
Non-current 2,576 1,995 Current 4,052 4,854 Total 6,628 6,849
Legal issues Legal provisions include provisions for pending claims, disputes and settlements. While the outcome of these claims, disputes and settlements cannot be predicted with certainty, we believe, based upon legal advice and information received, that the final outcome will not materially affect our consolidated financial position but could be material to our results of operations or cash flows in any one accounting period.
The 2018 year-end balance relates to a number of claims and disputes with health insurers.
Miscellaneous The Miscellaneous provisions include provisions for redundancy costs (year-end 2018: €0.1 million; year-end 2017: € 2.1 million), a provision formed in 2015 for an onerous contract with respect to the lease of Mediq headquarter premises in Utrecht (Netherlands) and the move in 2016 to De Meern (Netherlands) and the notification for the termination of another lease sent in 2018. Wherever possible, provisions are supported by the opinion of internal or external experts or by the use of other sources. Ultimately the assumptions are inevitably partly based on management’s judgement.
54 30 TRADE PAYABLES AND OTHER CURRENT LIABILITIES
X € 1,000 31.12.2018 31.12.2017
Trade payables 110,793 121,314 Accrued fixed allowances and holiday entitlements 12,340 10,603 Interest payable 2,240 2,300 Other 52,001 59,947 Total 177,374 194,164
The working capital tied up by trade payables is expressed in days by means of DPO (Days of Payables Outstanding). The average DPO for 2018, which is measured on the basis of a 13-point average, was 47.5 days (2017: 47.4 days).
The other current liabilities relate mainly to accrued expenses for rent, facility, projects and personnel, and to payments received in advance or by mistake from customers or insurance companies.
OTHER TAXES AND SOCIAL SECURITY CHARGES
X € 1,000 2018 2017
VAT 7,813 7,409 Payroll and national insurance 3,262 3,143 Other 1,174 1,195 Total 12,249 11,747
55 NOTES TO THE CONSOLIDATED STATEMENT OF CASH FLOWS
31 RECONCILIATION OF CASH FLOW CHANGES WITH BALANCE SHEET CHANGES
The statement of cash flows is drawn up using the indirect method, based on the result for the financial year. Operating cash flow is then adjusted for non-cash components in the result, and for components relating to capital expenditure. For most of the components of the statement of cash flows, direct references are included to the notes to the consolidated income statement or the notes to the consolidated balance sheet.
Additional information is set out below for other material components for which further details can improve the understanding of our cash flows.
CASH FLOW FROM OPERATING ACTIVITIES The change of the provisions included in the statement of cash flows relates to retirement and other employee benefit obligations and other provisions. The change relates on the one hand to the application of the provision and the payment of pension contributions (cash flows) and on the other to an adjustment of the operating result for additions or releases taken through profit or loss (non-cash changes).
The changes relating to working capital can be reconciled as follows with the balance sheet items relating to them:
X € 1,000
INVENTORIES TRADE TRADE PAYABLES RECEIVABLES AND AND OTHER OTHER CURRENT RECEIVABLES * LIABILITIES Balance at 1 January 2018 81,661 146,601 -203,611 Foreign currency translation differences -468 -2,023 520 Cash flow movements 1.410 -17,258 15,697 Balance at 31 December 2018 82,603 127,320 -187,394
* Excluding short term part of Byram escrow amount
CASH FLOW FROM INVESTING ACTIVITIES The item acquisitions is determined on the basis of consideration paid for the shares, net of cash and cash equivalents and bank overdrafts acquired. The above likewise applies to the item sale of subsidiaries and interests.
Disposals of non-current assets relate to the sale of assets carried under property, plant and equipment, investment property, intangible assets, investments and assets held for sale.
56 OTHER DISCLOSURES
32 CREDIT FACILITIES AND SECURITY PROVIDED
We manage the SFA centrally. At year-end 2018, we satisfied the conditions under the SFA. See Notes 25 and 34 for further discussion of the conditions and securities provided.
33 RIGHTS AND COMMITMENTS NOT SHOWN IN THE BALANCE SHEET
The lease, rental commitments and other financial commitments not shown in the balance sheet amounted to € 60 million at 31 December 2018 and can be broken down as follows:
X € 1,000,000 31.12.2018 31.12.2017
Lease, rental and other financial commitments Due within one year 16 17 Due between one and five years 35 40 Due after more than five years 9 13 Total 60 70
At 31 December 2018 Mediq had issued bank guarantees and standby letters of credit for third parties for an amount of € 3.9 million (2017: € 5.8 million). None of the bank guarantees are in respect of legal disputes (2017: € 0 million).
CONTINGENT LIABILITIES Mediq or certain of its subsidiaries are involved in a number of legal cases and ongoing disputes or potential legal proceedings. Where necessary, sufficient provisions have been formed for legal issues (see note 29 for more information). Based on a review of these issues, the Management Board considers that further additions or specific additional disclosures are not necessary.
34 RISK MANAGEMENT AND FINANCIAL INSTRUMENTS
GENERAL For our strategy we target long-term growth in net sales and EBITDA. In addition, we set financial targets for return on average capital employed (based on the operating result). An enabling condition in our policy is a healthy financing structure that maintains a balance between adequate solvency, the leverage of loan capital and sufficient available funding. Our cash flows are strong. This enables us to continue to grow through acquisitions.
As a result of its activities, Mediq is exposed to various financial risks. We apply a group-wide treasury policy for adequate management of our cash flows and financing flows and the financial risks relating to them, including (re)financing risks, currency risks and interest rate risks.
A summary is provided below of the main financial risks relating to our objectives, categorised as liquidity risks, currency risks, interest rate risks and credit risks. We also state how we manage these risks.
LIQUIDITY RISK Liquidity risk is the risk that Mediq is unable at the required time to meet its financial obligations. Liquidity management is based on the principle that sufficient liquidity is maintained in the form of credit facilities or cash and cash equivalents to meet the obligations in both normal and exceptional circumstances. Cash flows are forecasted within the group on a regular basis and the extent is determined to which the group has sufficient liquidity for the operating activities while maintaining sufficient credit facilities (headroom).
57
Our SFA amounted to € 418.3 million as at 31 December 2018, of which € 48.3 million undrawn under the committed facilities at year-end 2018. The company therefore has credit facilities that are sufficient for the existing and expected credit requirements of the group.
The extent of the risk that the ratios agreed with lenders are exceeded is regularly determined. With the present net debt position of € 296 million (according to SFA definitions), the leverage ratio is 4.42. This is within the limit agreed with the various lenders of a maximum debt cover of 6.25.
A 10% fall in our operating result (defined for this purpose as operating result before depreciation of property, plant and equipment and amortisation of intangible assets and impairments, or EBITDA) would increase leverage by 0.49 points. The agreed maximum leverage of 6.25 would be reached if the operating result fell by 29%.
The expected cash flows of the financial obligations as at 31 December 2018 are as follows:
X € 1,000 Contractual cash flows
CARRYING EXPECTED CASH MORE THAN AMOUNT FLOW < 1 YEAR 1 – 2 YEARS 2 – 3 YEARS 3 – 4 YEARS 4 – 5 YEARS 5 YEARS
CF related to Borrowings from banks before amortized (362,804) (368,331) - - - (368,331) - - financing costs CF related to Interest Payments - (54,964) (17,604) (17,604) (17,604) (2,152) - - from Loans CF related to other non-current (2,470) (1.304) (295) (295) (295) (70) (70) (278) liabilities CF related to trade payables (177,374) (177,374) (177,374) - - - - - and other current liabilities (542,648) (601,973) (195,273) (17,899) (17,899) (370,553) (70) (278) Derivative financial liabilities CF related to Forward exchange contracts used for 993 993 993 - - - - - hedging
The expected cash flows as presented in the table above are not expected to occur significantly earlier than presented.
CURRENCY RISKS Mediq is subject to currency risks on sales, purchases and loans denominated in currencies other than the functional currency of the Mediq entity concerned. Currency risks relate mainly to purchasing in US dollar.
Our policy is aimed at systematic hedging of currency risks arising from trade transactions or intercompany loans in currencies other than the own currency of the subsidiary concerned, often by means of forward currency transactions. We continuously roll over our forward rate contracts whereby we permanently cover our foreign exchange exposure. Foreign exchange differences due to intercompany borrowings (and their related interest cash flows) by subsidiaries denominated in a different currency than the reporting currency are fully hedged by FX swaps. The currency exposure within the group from trade activities is very limited. Cash flows arising from the operation of forward currency contracts match as far as possible but offset those of the hedged position. No hedge accounting is applied for these derivatives.
58 In addition to the above-mentioned transaction related currency risk, Mediq is also subject to translation related currency risk as a result of consolidation of business units with different functional currencies. The translation related currency risks are not hedged by means of derivatives. The sensitivity of the operating result of 2018 in respect of the currency risk of our positions outside the euro area to a 10% change in the exchange rate of the euro is € 0.4 million (2017: € 0.3 million).
Within the operating result, the negative impact of appreciated foreign currencies on cost of goods sold (transaction impact) are offset by the positive impact of appreciated foreign currencies in translating the operating result of non-EUR business (translation impact).
Gains or losses on forward currency contracts (reported in financial result, so below operating result) offset the currency risk from purchasing contracts in foreign currencies from a cash and net profit perspective.
INTEREST RATE RISKS We use various financial instruments within the group to manage interest rate risks. The cash flows of the subsidiaries are centralised by the use of cash pools to reduce the capital required from operating activities and the related interest expense. The risk policy is aimed at limiting the short-term impact of interest rate fluctuations on results and at locking in the interest rate for the long term. We do not apply hedge accounting for interest rate instruments. To avoid exposure to market fluctuations, a cap protects against rising interest rates. This way we have very limited interest rate exposure. Any fair value adjustments in the interest rate cap run through our profit- and loss statement. The borrowings from banks (under the Senior Facilities Agreement) are at 3-month variable interest rates (Euribor) plus a margin. The 3-month interest payments are partially hedged by means of an interest rate cap which provides protection against a rise of variable interest rates above 2.0%. The payment dates under the interest rate cap match the interest payment dates of the borrowings under the Senior Facilities Agreement.
As per 31 December 2018, 76% of total SFA loans has been hedged by means of the interest rate cap.
The schedule of interest payments on the SFA loan is taken into account for the interest rate cap used to prevent interest rate risks.
On the basis of the financing position as at year-end 2018, we estimate that an increase of 1 percentage point in the euro money market interest rates will have an effect of approximately € 2.4 million (2017: € 2.6 million) on net finance costs. Fluctuations in long-term interest rates had no effect on the result in 2018, as the interest rate terms related to the group’s borrowings are not connected to long-term interest rates but tied to short-term euro money market interest rates.
CREDIT RISKS Credit risk is the risk of financial loss if a customer or counterparty in a financial instrument fails to meet its contractual obligations. The risk for Mediq arises mainly from trade receivables and cash on bank accounts, for which credit concentration is limited however.
The carrying amounts of financial assets and contract assets represent the maximum credit exposure.
Impairment losses on financial assets recognised in profit or loss only relate to trade receivables and were € 2,1 million in 2018 (2017: €4.2 million).
59 Trade receivables
The Group’s exposure to credit risk is influenced mainly by the individual characteristics of customers. However, management also considers the factors that may influence the credit risk of its customer base, including the default risk associated with the industry and country in which customers operate. Details of concentration of revenue are included in Notes 5.
The Group has established a credit policy under which new customers are analysed for creditworthiness before the Group’s standard payment and delivery terms and conditions are offered. The Group limits its exposure to credit risk from trade receivables by establishing maximum payment periods and by only concluding contracts with respected parties.
The Group does not require collateral in respect of trade and other receivables. The group does not have trade receivable for which no loss allowance is recognised because of collateral.
At 31 December 2018, the exposure to credit risk for trade receivables by geographic region was as follows.
X € 1,000 2018 2017
Benelux 54,292 69,589 Nordics & Baltics 40,888 43,573 DACH & Hungary 20,053 21,344 Total trade receivables 115,233 134,506
In terms of risk management for trade receivables outstanding the analysis of Days of Sales Outstanding (DSO) is an important measure of items outstanding. In the past year average DSO amounted to 35.6 days (2017: 38.0 days). The analysis of the DSO is a standard performance indicator in the monthly results to be reported by subsidiaries. These provide the most senior management with a continuous insight into the relative capital tied up in, and the velocity of, debtors.
Trade receivables of our direct activities in the Netherlands often relate to receivables with healthcare insurers. The receivables due from the four largest healthcare insurers in the Netherlands account for 13% (2017:14%) of the trade receivables. The largest party has a share of 5% (2017: 4%). The healthcare insurers are subject to supervision by the Dutch Central Bank. We consider the credit risk with these parties to be limited.
The Group uses an allowance matrix to measure the ECLs of trade receivables from individual customers, which comprise a very large number of small balances.
Loss rates are calculated using a ‘roll rate’ method based on the probability of a receivable progressing through successive stages of delinquency to write-off. Roll rates are calculated separately for exposures in different geographic regions and customer segments.
Loss rates are based on actual credit loss experience over past periods, adjusted for current conditions and the Group’s view of economic conditions over the expected lives of the receivables.
60 Cash and cash equivalents and derivatives
For cash and derivatives, credit risk (on financial counterparties) is managed within pre-approved limits. These limits are determined based on S&P and Moody’s credit ratings.
Impairment on cash and cash equivalents and derivatives has been measured on a 12-month expected loss basis and reflects the short maturities of the exposures. The Group considers that its cash and cash equivalents and derivatives have low credit risk based on the external credit ratings of the counterparties. The amount of credit allowances recognized for cash and cash equivalents and derivatives at 31 December 2018 is nil.
CAPITAL MANAGEMENT Mediq’s policy is to maintain a strong capital base so as to maintain investor, creditors and market confidence and to sustain future development of the business.
The Management Board seeks to maintain a balance between the higher returns that might be possible with higher levels of borrowings and the advantages and security afforded by a sound capital position. Mediq’s target is to keep the leverage ratio (Net debt over EBITDA) below 6.0x EBITDA.
FINANCIAL INSTRUMENTS BY CATEGORY The table below sets out the carrying amount of the various financial instruments by IFRS 9 category as at the balance sheet date.
61 METHOD FOR FAIR VALUE MEASUREMENT OF FINANCIAL INSTRUMENTS We use a three-level fair value hierarchy: Level 1: fair value is determined by reference to quoted prices in active markets for identical assets and liabilities; Level 2: fair value is determined on the basis of other inputs than quoted prices that are observable (direct and indirect sources); Level 3: fair value is determined on the basis of inputs that are not based on observable market data.
Level 1 The financial asset at fair value through profit or loss is measured by reference to quoted prices in an active market. At the end of 2018 Mediq had no assets in this category.
Level 2 As there are no external market prices on which to base the value of receivables, borrowings and commitments relating to derivatives, including embedded derivatives, their fair value is determined from generally accepted valuation models. The value determined in this way is equal to the price at which the derivative can be sold in a transparent market. We set the values regularly in consultation with accepted external market parties.
We calculate the fair value of the interest rate cap as the present value of the future cash flows from the derivative, using discount rates in line with the interest rate curve based on the risk-free yields (i.e. the zero-coupon curve) at the balance sheet date. For the valuation of forward currency contracts, the future cash flows in the contract currency are discounted at a rate based on the term and contract currency. The present value at the balance sheet date in the contract currency is translated at the closing exchange rate ruling on the same day.
The fair value of all currency and interest rate swaps is reviewed independently based on the specific characteristics of the contracts concluded. The review did not indicate any reason to adjust the fair value calculated by the group.
The embedded derivatives (0% Euribor floors) can be viewed as an option with a strike price (0% Euribor). The fair value of these embedded derivatives is calculated based on the interest rate curve (and implied forward rates) and the implied volatility of the interest curve.
Level 3 Financial instruments carried at fair value determined by reference to input that is not based on observable market data do not apply to Mediq.
The other receivables, borrowings and commitments are carried at amortised cost. The fair value of the long-term borrowings and other items do not materially differ from their carrying amounts.
62 35 RELATED PARTY TRANSACTIONS
The following related parties of the group can be distinguished: parent company (Advent International Corporation), subsidiaries, associates, Key management personnel including close family members and pension funds.
Key management personnel transactions
The total compensation of Key management personnel (13 persons) (2017: 12 persons) can be broken down as follows: X € 1,000 2018 2017
Key personnel Wages and salaries 4,709 4,369 Social charges 89 88 Pension charges 345 425 Long-term remuneration 146 5 Termination benefits 631 1,843 Total 5,921 6,730
The composition of the Key management personnel has changed in 2018. In 2018 there have been no transactions between the Group and close family members of Key management personnel.
Long-term remuneration relates to the costs for share-based payment arrangements (see note 14). To fund part of the investments for the 2018 grants, loans in an amount of € 0,1 million have been granted to key management personnel by a holding company of the group.
Other related party transactions
There have been no transactions with related parties that were not on a commercial basis. During 2018, the Company charged € 1.7 million of fees to its subsidiaries. Our main shareholder Advent International Corporation charged €0.2 million of fees to the company in 2018.
Group companies were involved into intra-group sales in 2018. These transactions were at arm’s length and are comparable to similar transactions with third parties. No expense has been recognized in the current year or prior year for bad of doubtful debts in respect of amounts owed by related parties.
There have been no transactions or outstanding balances, other than for the management fee described above, with the Parent company during 2018. In 2017, The Company paid out in total €99.6 million to its shareholders, and a loan of €64.9 million (including accrued interest) was repaid by the shareholders (see note 21).
36 EVENTS AFTER THE BALANCE SHEET DATE
There have not been any significant events after the balance sheet date.
63 HOLDING COMPANY BALANCE SHEET Before profit appropriation
X € 1,000 NOTE 31.12.2018 31.12.2017
Non-current assets Interests in group companies 37 186,963 296,865 186,963 296,865
Current assets Taxes and social security charges 593 521 Other receivables 146 - Cash and cash equivalents - 2 739 523
Total assets 187,702 297,388
Equity 38 Share capital and share premium 13,875 13,858 Reserve for translation differences 1,548 111 Other reserves 178,007 -27,601 Profit for the period -6,435 207,426 186,995 193,796
Current liabilities Taxes and social security charges 604 16 Amounts owed to group companies - 103,572 Other payables, current liabilities 103 5 707 103,593
Total equity and liabilities 187,702 297,388
HOLDING COMPANY INCOME STATEMENT
X € 1,000 2018 2017
Results of group companies after tax -6,112 209,206 Other income and expense after tax -323 -1,780 Net result -6,435 207,426
64 NOTES TO THE HOLDING COMPANY FINANCIAL STATEMENTS
ACCOUNTING POLICIES FOR THE HOLDING COMPANY FINANCIAL STATEMENTS
GENERAL The company financial statements of Mediq are prepared in accordance with the statutory provisions of Part 9, Book 2 of the Dutch Civil Code. We utilise the option allowed by Section 362(8) of Book 2 of the Dutch Civil Code to apply the accounting policies used for the consolidated financial statements to the holding company financial statements. The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union (EU- IFRSs). The policies include those covering the presentation of financial instruments as equity or loan capital.
DETAILS OF ACCOUNTING POLICIES The accounting policies for the holding company financial statements are the same as those for the consolidated financial statements. If an accounting policy is not set out in detail, please refer to the corresponding accounting policies as included in the notes to the consolidated financial statements.
INTEREST IN GROUP COMPANIES We include investments in group companies on the balance sheet based on the equity method. On the acquisition of a group company, its individual assets, liabilities and contingent liabilities are measured at fair value on the date of acquisition. If the cost of acquisition is higher than the fair value of the group’s share in the separately identifiable net assets, the excess is allocated as goodwill included within the carrying amount of investments in group companies. After initial recognition, such goodwill is carried at cost less accumulated impairment losses. If the acquisition price is lower than the net fair value of the identifiable net assets, we recognise the difference directly in profit or loss. On the sale of a group company, we recognise the difference between the sale proceeds and carrying amount, including goodwill and accumulated translation differences, in profit or loss.
NOTES TO THE HOLDING COMPANY BALANCE SHEET
37 NON-CURRENT FINANCIAL ASSETS
INTERESTS IN GROUP COMPANIES
X € 1,000 2018 2017
Balance at 1 January 296,865 86,355 Share of result -6,112 209,206 Foreign currency translation effects 1,437 80 Repayment of capital - - Dividend received -103,300 - Opening balance adjustment IFRS 9 transition -1,782 - Other equity movements in group companies -145 1,224 Balance at 31 December 186,963 296,865
Interests in group companies are measured on the basis of the equity method.
65 38 EQUITY
X € 1,000 2018
NOTE: 23, 24 PAID-UP SHARE RESERVE OTHER LEGAL OTHER RESERVES TOTAL ATTRI- PROFIT FOR TOTAL SHARE PREMIUM FOR TRANS- RESERVES BUTABLE TO THE PERIOD EQUITY CAPITAL LATION DIF- OWNERS FERENCES
Opening balance at 1 January 2018 8 13,850 111 38,520 33,481 85,970 107,826 193,796
Appropriation of prior year result 107,826 107,826 -107,826 - Opening balance adjustment for IFRS 9 transition -1,782 -1.782 -1.782 Result for the period -6,435 -6,435
Other comprehensive income: Actuarial gains and losses on defined benefit pension plans -196 -196 -196 Tax effect on pension actuarial gains and losses 49 49 49 Foreign currency translation differences 1,437 1,437 1,437
Other -- - Other comprehensive income 1,437 -147 1,290 1,290
Total comprehensive income 1,437 -147 1,290 -6,435 -5,145
Transactions with owners: Paid in share premium 17 17 17 Share based payments 109 109 109 Total transactions
with owners of the 17 109 126 126 Company Transfer to Legal reserve -7,475 7,475 -
Balance at 31 December 2018 8 13,867 1,548 31,045 146,962 193,430 -6,435 186,995
66 X € 1,000 2017
NOTE: 23, 24 PAID-UP SHARE RESERVE OTHER LEGAL OTHER RESERVES TOTAL ATTRI- PROFIT FOR TOTAL SHARE PREMIUM FOR TRANS- RESERVES BUTABLE TO THE PERIOD EQUITY CAPITAL LATION DIF- OWNERS FERENCES
Opening balance at 1 January 2017 8 13,850 32 42,760 -266,175 -209,525 295,465 85,940
Appropriation of prior year result 295,465 295,465 -295,465 -
Result for the period 207,426 207,426
Other comprehensive income: Actuarial gains and losses on defined benefit pension plans -107 -107 -107 Tax effect on pension actuarial gains and losses 27 27 27 Foreign currency translation differences -4,696 -4,696 -4,696 Translation differences realised on sale of subsidiaries 4,775 4,775 4,775
Other 16 16 16 Other comprehensive income 79 -64 15 15
Total comprehensive income 79 -64 15 207,426 207,441
Transactions with owners: Dividends -99,600 -99,600 Share based payments 15 15 15 Total transactions
with owners of the 15 15 -99,600 -99,585 Company
Transfer to Legal reserve -4,240 4,240 -
Balance at 31 December 2017 8 13,850 111 38,520 33,481 85,970 107,826 193,796
67 X € 1,000
NUMBER OF SHARES PAID-UP SHARE SHARE PREMIUM TOTAL IN FULLY PAID-UP CAPITAL SHARE CAPITAL AND EQUIVALENTS SHARE PREMIUM (X 1,000 SHARES) Balance at 1 January 2018 800 8 13,850 13,858 Movements - 17 17 Balance at 31 December 2018 800 8 13,867 13,875
PAID-UP SHARE CAPITAL As at 31 December 2018, 800,000 shares (with a nominal value of € 0.01) had been issued and fully paid up.
SHARE PREMIUM The increase in share premium in 2018 relates to a contribution in kind consisting of the shares in the capital of AI Garden New Finance S.a r.l by the shareholder AI Garden & Cy S.C.A. AI Garden New Finance S.a r.l was subsequently liquidated in 2018.
OTHER LEGAL RESERVES This reserve relates to retained earnings of investments in group companies whose distribution cannot be effected by Mediq without limitation.
In 2018 an amount of €7.5 million is released from the statutory reserve for investments in associates in relation to capitalised development cost for an ERP system in the subsidiary of the company. The release is due to the decreasing carrying value of the capitalised development costs following regular depreciation.
We refer to the consolidated statement of changes in equity for information on the composition, amount and changes of equity.
OTHER CURRENT LIABILITIES Other current liabilities included in 2017 an amount of €103 million payable to Mediq BV mainly in relation to a short-term loan provided for dividend distribution. This loan has been repaid in 2018 via dividend pay-out from Mediq BV to Mediq Holding BV.
39 EMOLUMENTS OF MANAGEMENT BOARD AND SUPERVISORY BOARD
The emoluments, including pension costs as referred to in Section 2:383(1) of the Netherlands Civil Code, charged in the financial year to the company and group companies amounted to € 1.8 million for managing directors, and € 0.4 million for supervisory directors and former supervisory directors.
The emoluments granted by the company to the managing and supervisory directors include an amount of € 0.1 million related to the long-term remuneration (see note 14).
68 40 AUDITOR'S FEES
The fees of KPMG Accountants amounted to € 1.0 million in 2018 (2017: € 1.1 million). They are included in full in general expenses and comprised the following:
X € 1,000 2018 2017
KPMG OTHER TOTAL KPMG OTHER TOTAL ACCOUNTANTS KPMG KPMG ACCOUNTANTS KPMG KPMG NV NETWORK NV NETWORK Audit of financial statements 602 329 943 653 459 1,112 Other audit services 12 - - - 4 4 Tax advisory services - - - - 6 6 Other non-audit services 8 - 8 8 11 19 Total 622 329 951 661 480 1,141
41 RIGHTS AND COMMITMENTS NOT SHOWN IN THE BALANCE SHEET
GUARANTEES AND COMMITMENTS Mediq Holding BV is a guarantor under the Senior Facility Agreement. As such, Mediq Holding BV is also liable for the debt of its subsidiaries. In addition, Mediq Holding BV has issued a 403 statement for Mediq BV, its only direct subsidiary. Mediq Holding BV does not have any commitments which are not shown in the balance sheet.
FISCAL UNIT Mediq and virtually all its wholly-owned subsidiaries in the Netherlands form as of April 2013 a fiscal unit for corporate income tax and VAT purposes. The group and its group companies forming part of this fiscal unit are jointly and severally liable for each other’s debts in respect of corporate income tax and VAT.
De Meern, 6 March 2019
Management Board C.P. Wojczewski P.R. Hitchin
Supervisory Board C. de Jong E. Thyssen T.A. Allen B.W.B. Grimmelt P.H.J.M. Visée
69 OTHER INFORMATION
PROVISIONS IN THE ARTICLES OF ASSOCIATION GOVERNING THE APPROPRIATION OF PROFIT
Under article 22 of the Company’s Articles of Association, the profit is at the disposal of the General Meeting, which can allocate said profit either wholly or partly to the formation of – or addition to – one or more general or special reserve funds.
70 INDEPENDENT AUDITOR’S REPORT
To: the General Meeting and Supervisory board of Mediq Holding B.V. REPORT ON THE ACCOMPANYING FINANCIAL STATEMENTS OUR OPINION We have audited the financial statements 2018 of Mediq Holding B.V., based in Utrecht. The financial statements include the consolidated financial statements and the company financial statements. In our opinion: — the accompanying consolidated financial statements give a true and fair view of the financial position of Mediq Holding B.V. as at 31 December 2018 and of its result and its cash flows for 2018 in accordance with International Financial Reporting Standards as adopted by the European Union (EU- IFRS) and with Part 9 of Book 2 of the Dutch Civil Code; — the accompanying company financial statements give a true and fair view of the financial position of Mediq Holding B.V. as at 31 December 2018 and of its result for 2018 in accordance with Part 9 of Book 2 of the Dutch Civil Code. The consolidated financial statements comprise: 1. the consolidated balance sheet as at 31 December 2018; 2. the following consolidated statements for 2018: the income statement, the statements of comprehensive income, changes in equity and cash flows; and 3. the notes comprising a summary of the significant accounting policies and other explanatory information. The company financial statements comprise: 1. the company balance sheet as at 31 December 2018; 2. the company income statement for 2018; and 3. the notes comprising a summary of the accounting policies and other explanatory information.
BASIS FOR OUR OPINION We conducted our audit in accordance with Dutch law, including the Dutch Standards on Auditing. Our responsibilities under those standards are further described in the ‘Our responsibilities for the audit of the financial statements’ section of our report. We are independent of Mediq Holding B.V. in accordance with the Wet toezicht accountantsorganisaties (Wta, Audit firms supervision act), the ‘Verordening inzake de onafhankelijkheid van accountants bij assurance-opdrachten’ (ViO, Code of Ethics for Professional Accountants, a regulation with respect to independence) and other relevant independence regulations in the Netherlands. Furthermore, we have complied with the ‘Verordening gedrags- en beroepsregels accountants’ (VGBA, Dutch Code of Ethics). We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Report on the other information included in the annual report In addition to the financial statements and our auditor’s report thereon, the annual report contains other information that consists of: — director's report; — other information pursuant to Part 9 of Book 2 of the Dutch Civil Code; Based on the following procedures performed, we conclude that the other information: — is consistent with the financial statements and does not contain material misstatements; — contains the information as required by Part 9 of Book 2 of the Dutch Civil Code.
71 We have read the other information. Based on our knowledge and understanding obtained through our audit of the financial statements or otherwise, we have considered whether the other information contains material misstatements. By performing these procedures, we comply with the requirements of Part 9 of Book 2 of the Dutch Civil Code and the Dutch Standard 720. The scope of the procedures performed is less than the scope of those performed in our audit of the financial statements. The Management Board is responsible for the preparation of the other information, including the director's report, in accordance with Part 9 of Book 2 of the Dutch Civil Code, and other information pursuant to Part 9 of Book 2 of the Dutch Civil Code. Description of the responsibilities for the financial statements Responsibilities of the Management Board and the Supervisory Board for the financial statements The Management Board is responsible for the preparation and fair presentation of the financial statements in accordance with EU-IFRS and Part 9 of Book 2 of the Dutch Civil Code. Furthermore, the Management Board is responsible for such internal control as the Management Board determines is necessary to enable the preparation of the financial statements that are free from material misstatement, whether due to errors or fraud. As part of the preparation of the financial statements, the Management Board is responsible for assessing the company’s ability to continue as a going concern. Based on the financial reporting frameworks mentioned, the Management Board should prepare the financial statements using the going concern basis of accounting unless the Management Board either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so. The Management Board should disclose events and circumstances that may cast significant doubt on the company’s ability to continue as a going concern in the financial statements. The Supervisory Board is responsible for overseeing the company’s financial reporting process. Our responsibilities for the audit of the financial statements Our objective is to plan and perform the audit assignment in a manner that allows us to obtain sufficient and appropriate audit evidence for our opinion. Our audit has been performed with a high, but not absolute, level of assurance, which means we may not have detected all material errors and fraud during our audit. Misstatements can arise from fraud or errors and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements. The materiality affects the nature, timing and extent of our audit procedures and the evaluation of the effect of identified misstatements on our opinion. We have exercised professional judgement and have maintained professional scepticism throughout the audit, in accordance with Dutch Standards on Auditing, ethical requirements and independence requirements. Our audit included e.g.: — identifying and assessing the risks of material misstatement of the financial statements, whether due to errors or fraud, designing and performing audit procedures responsive to those risks, and obtaining audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from errors, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control; — obtaining an understanding of internal control relevant to the audit 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; — evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the Management Board; — concluding on the appropriateness of management’s use of the going concern basis of accounting and based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s ability to continue as a going
72 concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the company ceasing to continue as a going concern; — evaluating the overall presentation, structure and content of the financial statements, including the disclosures; and — evaluating whether the financial statements represents the underlying transactions and events in a manner that achieves fair presentation. Because we are ultimately responsible for the opinion, we are also responsible for directing, supervising and performing the group audit. In this respect we have determined the nature and extent of the audit procedures to be carried out for group entities or operations. Decisive were the size and/or the risk profile of the group entities or operations. On this basis, we selected group entities or operations for which an audit or review had to be carried out on the complete set of financial information or specific items. We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant findings in internal control that we identify during our audit. Rotterdam, 6 March 2019 KPMG Accountants N.V.
A.H. Gardien RA
73