15. Fourth Quarter 2015 Report

Q4/15 Fourth Quarter 2015 Report Highlights • Navamedic posts all-time high in quarterly revenues • 5.5% revenue growth in Q4 • 11% revenue growth ...
Author: Reynold Tyler
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Q4/15 Fourth Quarter 2015 Report

Highlights •

Navamedic posts all-time high in quarterly revenues • 5.5% revenue growth in Q4 • 11% revenue growth 2015



EBITDA adjusted for Observe Medical, transaction cost and restructuring costs, in line with fourth quarter last year.



Sippi® under launch and testing now in nine European markets – Austria, Belgium, Netherlands and Switzerland distribution secured in Q4.



Expanded agreement with Aspen pharma in the Nordic markets for 2016.

Key Figures (Navamedic Group) Q4 2015 65,4 15,5 -0,1 -4,8 -10,6 -10,9

Q4 2014 61,9 14,8 5,3 2,6 -1,8 -2,2

FY 2015 248,3 60,9 8,8 -3,8 -10,3 -10,9

FY 2014 223,1 54,3 15,7 6,0 -0,1 -0,7

Gross margin (%) EBITDA Margin (%)

23,7 % -0,2 %

23,9 % 8,5 %

24,5 % 3,6 %

24,3 % 7,0 %

Assets Equity Liabilities Equity ratio (%)

275,7 118,2 157,5 42,9 %

226,4 106,7 119,7 47,1 %

275,7 118,2 157,5 42,9 %

226,4 106,7 119,7 47,1 %

(NOK mill)

Revenue Gross profit EBITDA * Operating Result (EBIT) * Result before tax (EBT) * Net result *

* 2014 figures restated, see note 16. Key Figures per Business Area (Medtech = Observe Medical) NOK mill

Revenue Gross profit Gross margin Operating costs Transaction costs Restructuring EBITDA EBITDA margin

Pharma and Healthcare Q4 15 Q4 14 65,4 61,9 15,5 14,8 23,7 % 23,9 % -11,1 -9,5 -1,8 2,6 5,3 4,0 % 8,6 %

Medtech Q4 15 Q4 14 -2,0 -0,7 -2,7

1

0 0 -

Group Q4 15 Q4 14 65,4 61,9 15,5 14,8 23,7 % 23,9 % -13,1 -9,5 -0,7 -1,8 -0,1 5,3 -0,2 % 8,6 %

Operational and Financial Update Pharma and Healthcare Products business Navamedic continues to execute on its strategy to build a strong Nordic business in Partnership Brands (representation and distribution agreements with partners), where the company leverages its regulatory, sales and marketing capabilities in the hospital and pharmacy sectors. In this business area the company today sell, market and distribute more than 80 pharma and healthcare brands from approximately 20 manufacturers and brand owners across the Nordic markets. The Partnership Brands business area had a strong fourth quarter. Sales revenues saw a 5.5% growth compared to the corresponding quarter last year, coupled with maintained gross profit margin. The sales increase was mainly driven by volume increases in Navamedic's prioritized product areas in the Nordics. Gross margin was positively affected by higher sales revenues in Medical Nutrition products and negatively affected by lower realized gross margins in Benelux in the quarter, thus ending up on the same level as last year. The Nordic markets represented 78% of Navamedic's revenues in the fourth quarter of 2015, while the remaining 22% was generated in the Benelux region. In the fourth quarter, several new Nordic partnership agreements for 2016 were signed, including: • Aspen Pharma, South Africa: the well-established pharmaceutical products Eltroxin, Lanoxin, Imuran and Zyloric • Sequenom Laboratories, USA: Non-Invasive Prenatal Test portfolio, consisting of MaterniT Genome®, MaterniT21 Plus® and VisibiliT® • Biotech Pharmacon, Norway: Woulgan®, an innovative wound care product for hard to heal wounds The Nordic consolidation by Aspen with Navamedic with the above mentioned products is estimated to contribute approximately NOK 30 million of sales revenues in 2016. The Sequenom portfolio and Woulgan® are new launches with future potential, strengthening Navamedics position as an attractive Nordic launch partner for specialized products. Navamedics prioritized product areas and brands in the Nordics accounted for 39% of Navamedics total revenues. These brands collectively grew by 9.5% vs Q4, 2014. The Ovestin brand, a hormone replacement treatment for women, is Navamedic’s main product in the Womens Health area and the single biggest product in Navamedics portfolio. The product had a strong Q4 with a 8.7% growth compared to Q4 previous year. The Medical Nutrition portfolio of products, used for rare metabolic disorders saw a sales increase in the quarter of 4.3%. Medical Nutrition is an important area for Navamedic, where the company through in-house expertise has developed a strong market share in a highly specialized segment. The company sees continued future growth opportunities in this area. One of the prioritized brands in Navamedics dermatology segment, NYDA, a head lice treatment, saw a continued strong sales growth of 11.4% compared to Q4, 2014, winning market shares in a competitive environment. The brand Uracyst, in the urology area, for treatment of painful bladder syndrome, had a weaker quarter with 0,3% growth, the brand has however grown by 14% for full year 2015 and the growth prospects moving forward continues to look good. In the Nordic markets, performance in the quarter was driven by Sweden (+8%) and Finland (+4%), mainly from Ovestin sales and favorable exchange rate effects. Norway (-14%) and Denmark (-5%) had a weaker quarter, affected by increased competition for the neurology product Epistatus in Norway and by supplier related back-orders in Denmark. The Benelux markets declined by 8% mainly driven by weaker volumes for one immuno-suppressive product. In total, sales in the Pharma and Healthcare business increased by 5.5% in the fourth quarter 2015, compared to the corresponding period last year. Sales ended at NOK 65.4 million, against NOK 61.9 million in 2014. The gross margin for the Pharma and Healthcare business was in the fourth quarter largely on the same level as previous year, 23.7% in Q4 2015 compared to 23.9%. EBITDA in the business area came in at NOK 2.6 million, compared to NOK 5.3 million last year. The EBITDA margin fell from 8.6% last year to 4% in the fourth quarter 2015.

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The reduction in EBITDA in the Pharma and Healthcare Business during Q4 was largely attributable to NOK 1.8 millon of restructuring charges. Excluding these restructuring costs the EBITDA in the business area would have been NOK 4.4 million, representing an EBITDA margin of 6.7%

Medtech business About Sippi® Navamedics propriety product Sippi®, offers a new standard for urine monitoring in hospitals by enabling automated digital measurement. Safe and accurate monitoring of the patients urine production is a vital parameter for all patients in intensive care and for selected patients treated in other wards. The launch of Sippi® The product is in launch phase with initial introductions and tests carried out at multiple clinics across a growing number of markets. In the fourth quarter, distribution was secured and set-up of new test-clinics initiated in five additional countries – Austria, Belgium, Denmark, the Netherlands and Switzerland, making Sippi® now available in nine European markets. There continues to be a strong interest and positive user experiences for the system in the market. Approximately 40 hospitals in the initial countries are currently testing the concept in their intensive care wards. The launch progress continues to be in line with Navamedic's expectations. The rapid increase of markets where Sippi® is available is an expression of the strong interest from distributors to add the product to their intensive care-portfolios, recognizing the innovation and uniqueness the product represents. In Norway, the region Helse Sør-Øst published their tender for “Hourly diuresis equipment” where Sippi® was awarded the contract for the product category with the following consideration from HSØ: “….[Sippi®] achieves the highest quality score based on very good functionality/user friendliness…” The work has commenced in offering the system to the clinics within the HSØ. The continued launch of Sippi® focuses on transitioning testing clinics to wider implementations, securing additional clinics in the markets via the sales forces and continued expansion of a strong distribution network in additional markets. Sippi® - Wireless communication The development program for Sippi® wireless communication via Bluetooth Low Energy has made significant progress in the quarter. The company has successfully completed the wireless communication testing program and is scheduled for production during Q3 2016. Sippi® will be the first commercially available solution for fully digitalized fluid balance measurement. For full functionality a software connection to the hospitals Patient Data Management Systems (PDMS) is required. Navamedic announced in quarter four a collaboration with GE Healthcare on a development of the first software solution for GE’s PDMS-system Centricity®. Additional PDMS-system links will be developed in the course of 2016, focusing on systems used in major markets. Sales and Financials - Sippi® With Sippi® still in early launch phase and under ongoing evaluations in the markets, no revenues were recorded in the quarter, this is in line with Navamedics expectations for the acquisition. The Medtech Business Area operating expenses was NOK 2.0 million in the quarter. An additional NOK 0.7 million was recorded in acquisition related transaction charges in Q4. This resulted in an Medtech Business Area EBITDA of NOK -2.7 million in the last quarter.

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Group Financial update Total revenue for Navamedic in the fourth quarter 2015 was NOK 65.4 million, which is a 5.5 % sales growth from the fourth quarter 2014 revenue of NOK 61.9 million. EBITDA for the Group ended at NOK -0.1 million, compared to NOK 5.3 million in the fourth quarter 2014. The 2015 Q4 EBITDA includes Observe Medical’s result. It also includes NOK 1.8 million in restructuring and NOK 0.7 million of costs appearing in Q4 related to the acquisition of Observe Medical. Group EBITDA margin for the fourth quarter was -0.2% against 8.5% last year. Operating expenses were affected by the inclusion of Observe Medical and hiring of sales resources and new CEO during the year in the Pharma and Healthcare business. Consolidated revenue and EBITDA development, Q2 2014 - Q4 2015. 66

10,00%

64

8,00%

62

6,00%

60

4,00%

58

2,00%

56

0,00%

54

-2,00% Q2 14

Q3 14

Q4 14 Sales

Q1 15

Q2 15

Q3 15

Q4 15

EBITDA margin

Navamedic’s net result for the fourth quarter 2015 was NOK -10.9 million, compared to NOK -2.2 million same quarter 2014. The decrease in net result is a result of increased financing cost, amortization and transaction costs related to the Observe Medical acquisition and increased personnel and restructuring costs in the quarter. For the full year 2015, Navamedic had a 11.3 % revenue growth, from NOK 223.1 million to NOK 248.3 million. EBITDA was NOK 8.8 million (NOK 15.7 million). The Group net result for 2015 was NOK -10.9 million, against NOK -0.7 million in 2014. The effect of the revenue increase on the net result is mainly offset by increased payroll- and restructuring costs, in addition to amortization and transaction costs related to the Observe Medical acquisition. Navamedic’s full year cash flow from operations improved significantly compared to last year, Full year operational cash flow was NOK 21.6 million (NOK -10.8 million). Operational cash flow in the fourth quarter was NOK -1.9 million (NOK 0.4 million). Net cash flow for the fourth quarter was NOK 1.4 million (NOK 0.2 million) and NOK 6.1 million year to date (NOK 3.2 million). Following the OM acquisition agreement, the equity ratio was reduced from 47.1% in the previous quarter to 42.9% at the quarter end. Navamedic’s long term liabilities were NOK 60.5 million at the end of the quarter. This relates to NOK 13.3 million of borrowings from financial institutions and 27.6 million related to the OM contingent consideration. The OM contingent consideration represents a future liability towards OM’s former owners and will be paid dependent on Sippi® sales performance in the coming years. The Company was successful in reducing its inventories compared to last year. Navamedic has in Q4 capitalized a license agreement as intangible assets along with its obligations. See note 16 for detailed information and impact on and restatement of previous reported periods. Navamedic’s cash position was significantly strengthened in the quarter, available cash was NOK 12.3 million at year end (NOK 6.2 million).

The Navamedic share In October, Navamedic issued 888.100 new shares at a price of NOK 11.26 per share to the previous owners of Observe Medical AB. The number of outstanding shares after the issue is 9.450.151 shares, of which the previous owners of OM hold 9.4 %.

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Outlook The future perspectives on Sippi® are very positive as Navamedic continues to introduce the product in additional international markets. Four new European markets were added in Q4, making Sippi® now available for testing and sales in nine European countries. Negotiations are ongoing with additional markets for wider geographic coverage. The launch uptake of Sippi® measured in sales turnover is as expected low at this stage while the hospitals are testing the systems in smaller scale before making final purchasing decisions. User experiences however remain positive. During 2016 Navamedic is planning to launch Sippi® wireless communication with Patient Data Management Systems (PDMS) via Bluetooth Low Energy. This is expected to drive additional demand and uptake of the product in the year. The Navamedic Medtech Business Area is expected to have a negative impact on the overall profitability in 2016, but is expected to be cash flow positive during 2017. In Navamedic’s Pharma and Healthcare Products business area, the Company continues to emphasize focus on higher margin products to increase gross margins and taking actions to strengthen EBITDA margins over time in this business area. The discontinuation of the Partnership Brands business in Benelux will negatively affect the company’s revenues and profits in 2016, even if new Nordic launches to some extent are compensating the revenue decrease. The Company is funded to handle regular operations as well as the international launch of Sippi®. With the launch of Sippi® and stronger focus on the Nordic region in the Partnership Brands business Navamedic continues to decrease its business risk by further diversification of revenue sources and addition of future revenue potential. The company is continuously evaluating additional product or company collaboration opportunities that fits the Company’s strategic direction and its financial capabilities.

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Condensed consolidated Profit and Loss Statement (In NOK '000) Operating revenues Cost of goods sold Gross profit Gross profit % Other revenues Payroll expense Other operating cost Other (losses)/gains - net Operating costs EBITDA EBITDA % Depreciation Amortization Write offs OPERATING RESULT (EBIT) Financial income and expenses Financial income Other Financial expenses Net financial result ORDINARY RESULT BEFORE TAX Tax on ordinary result NET PROFIT Attributable to owners of Navamedic ASA Basic earnings per share (NOK per share) Diluted earnings per share (NOK per share)

Q4 2015 65 377 -49 890 15 487 23,7 % -8 757 -6 842 0 -15 599 -112 -0,2 % -111 -4 527 0 -4 751

Q4 2014 61 943 -47 116 14 827 23,9 % -5 227 -4 326 0 -9 553 5 273 8,5 % -4 -2 678 0 2 592

FY 2015 248 348 -187 448 60 901 24,5 % -26 078 -25 990 0 -52 068 8 832 3,6 % -194 -12 461 0 -3 822

FY 2014 223 068 -168 809 54 259 24,3 % -19 431 -19 104 0 -38 535 15 724 7,0 % -14 -9 697 0 6 013

1 243 -7 062 -5 818 -10 569 -354 -10 923

608 -5 012 -4 404 -1 812 -402 -2 214

2 726 -9 203 -6 477 -10 300 -632 -10 931

2 211 -8 303 -6 091 -79 -642 -721

-10 923

-2 214

-10 931

-721

-1,16 -1,15

-0,26 -0,26

-1,16 -1,15

-0,08 -0,08

Interim condensed consolidated statement of comprehensive income

Net profit Other comprehensive income that may be reclassified subsequently to profit or loss Currency translations differences Total comprehensive income for the period 1)

Q4 2015 -10 923

Q4 2014 -2 214

YTD 2015 -10 931

YTD 2014 -721

2 334 -8 589

8 785 6 570

12 592 1 661

2 163 1 442

2014 figures restated, see note 16.

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Condensed consolidated statement of financial position 31 December 2015

31 December 2014

Assets Intangible assets Goodwill Deferred tax assets Tangible assets Non-current assets

65 556 85 086 9 151 531 160 324

44 151 47 684 10 900 52 102 787

Inventories Short term receivables Cash at hand, in banks Current assets

44 647 58 446 12 298 115 390

67 401 50 034 6 177 123 612

Total assets

275 714

226 399

Equity and liabilities Equity Equity Total equity

118 190 118 190

106 689 106 689

Liabilities Contingent consideration (see note 4) Long term financial liabilities Borrowings from Financial Institutions Deferred tax Non-current liabilities

27 619 15 243 13 333 4 464 60 659

15 940 6 263 22 203

Trade account payables Short term liabilities to Financial Institutions Short term financial liabilities Short term liabilities Current liabilities

55 500 22 557 4 040 14 769 96 865

60 190 27 380 1 800 8 137 97 507

Total liabilities

157 524

119 710

Total shareholders equity and liabilities

275 714

226 399

(In NOK '000)

2)

2014 figures restated, see note 16.

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Condensed consolidated Cash Flow Statement (In NOK '000)

Profit (loss) before tax Taxes paid Depreciation Changes in inventory Changes in receivables Changes in payables Changes in other current items Net cash flow from operations Cash flow from investments Purchase/disposal of intangible assets Investments in shares and acquisition Net cash flow from investments Cash flow from financing Short term liabilities to Financial Institutions Issue of shares, net of share issue cost Long term liabilities to Financial Institutions Net cash flow from financial activities Changes in currency Net change in cash Cash and cash equivalents start period Cash and cash equivalents end period

8

YTD 2014

434

YTD 2015 -10 300 -2 462 12 655 22 754 -4 577 -4 690 8 188 21 569

184 0

0 0

-860 -23 541

-813 0

184

0

-24 401

-813

1 597 205 0 1 803 1 322 1 416 10 881 12 297

-1 703 0 0 -1 703 1 466 198 5 979 6 177

-6 490 -160 15 000 8 350 603 6 120 6 177 12 297

14 897 505 0 15 402 156 3 776 2 245 6 177

Q4 2015 -10 569 711 4 639 16 350 5 152 -19 873 1 698 -1 892

Q4 2014 363 -138 2 394 -1 573 -1 140 2 891 -2 363

2 698 -2 698 8 560 -27 087 -7 021 22 051 -7 316

-10 813

Condensed consolidated statement of Changes in Equity A part of the consideration for the acquisition of OM was issue of 888,100 shares in Navamedic. These were issued on 22 October 2015, but has been included as part of equity (net of share issue cost) from the acquisition date (4 August). Paid in capital NOK 1000 Balance at 1. January 2014 Share option scheme Changes previous periods Translation difference Net profit of the period Balance at 1 January 2015 Issue of shares, net of share issue cost Translation difference Net profit of the period Balance at end period

139 112 505 139 617 9 840 149 457

Balance at 1. January 2014 Share option scheme Changes previous periods Translation difference Net profit of the period Balance at 1 January 2015 Issue of shares, net of share issue cost Translation difference Net profit of the period Balance at end period

139 112 505 139 617 9 840 149 457

Other paid Translation in capital/ differences reserves -362 12 185 2 163 -362 14 348 12 592 -362 26 940 -362 -362 -362

12 185

Retained earnings -43 677 -2 516 -721 -46 914 -10 932 -57 845

14 348

-43 677 -2 516 -721 -46 914

12 592 26 940

-10 932 -57 845

2 163

Total

107 258 505 -2 516 2 163 -721 106 689 9 840 12 592 -10 932 118 190 107 258 505 -2 516 2 163 -721 106 689 9 840 12 592 -10 932 118 190

Changes of previous periods is restated, see note 16.

Explanatory Notes to the Financial Statements General information Navamedic ASA is a public limited liability company domiciled in Norway. The business of the Group is associated with development, distribution, marketing and sales of pharmaceutical products and related technical medical equipment. The Company’s shares are listed on the Oslo Stock Exchange under the ticker NAVA. The Company’s registered office is Fornebuveien 42, 1366 Lysaker, Norway. Navamedic comprises Navamedic ASA and the and the 100% owned subsidiary Navamedic AB in Sweden and the 100% owned subsidiary Navamedic AS, Denmark and the 100% owned subsidiary Navamedic efh, Island and the 100% owned subsidiary Observe Medical International AB in Sweden.

1. Nature of operation Navamedic is a distributor of pharmaceuticals , medical device and Medtech products focusing on sales to hospitals, physicians, pharmacies and health product stores in the Nordic and Benelux regions. Today the company does not develop new pharmaceuticals, but collaborates with a number of manufacturers in bringing their products within selected therapeutic areas to the market. Navamedic aims at being the partner of choice for pharma manufacturers looking to enter the Northern European market. In the third quarter 2015 all the shares of Observe Medical International AB were acquired. Navamedic currently offers more than 80 products from 21 suppliers.

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2. Basis of preparation These condensed interim financial statements have been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU. The interim financial statements should be read in conjunction with the consolidated financial statements for the year ended 31 December 2014 (the Annual Financial Statements), as they provide an update of previously reported information. The accounting policies used are consistent with those used in the Annual Financial Statements. The interim report has not been subject to an audit. Navamedic’s Board of Directors approved the interim financial statements on 17 February 2015. NOK is Navamedic ASA’s functional currency and the presentation currency for the consolidated financial statements. In the absence of any statement to the contrary, all financial information is reported in whole thousands. As a result of rounding adjustments, the figures in the financial statements and notes may not add up to the totals.

3. Summary of significant accounting policies In previous quarters, up to the third quarter 2015, the line item other gains (losses) – net, which represents net currency gains/losses were included as part of operating costs. These have been reclassified and included in net financial result, to be consistent with the presentation in the annual financial statements. The accounting policies applied and the presentation of the interim condensed consolidated financial information are consistent with the financial statement for the year ended 31 December 2014. A number of new standards, amendments to standards and interpretations are not effective for the company for the period ending 31 December 2015, and have not been applied in preparing these consolidated financial statements: • IFRS 9 Financial instruments become mandatory for the group's 2018 consolidated financial statements, but is not yet approved by the EU. The new standard can change the classification and measurement of financial assets. The group does not plan to adopt this standard early and the extent of the impact has not been determined. • IFRS 14 Regulatory Deferral Accounts becomes mandatory for the group's 2016 consolidated financial statements. The new standard does not expect to have any material effects of the financial statement. • IFRS 15 Revenues from contract with customers was issued in May 2014, but is not yet approved by the EU. The standard is effective from January 2018. The new standard is expected to impact Navamedic financial statement however the extent to which the standard will impact Navamedic revenue and profit recognition has not yet been assessed. • IFRS 16 Leasing was issued in January 2016, but is not yet approved by the EU. The standard is effective from January 2019. The impact of the new standard is has not yet been assessed. 4. Business combination On 3 August 2015, Navamedic ASA signed an agreement to acquire all the shares and voting rights in Observe Medical International AB (OM). The purchase price was NOK 35 million in form of cash (NOK 25 million) and issuance of shares (888,100 shares with a total fair value at the acquisition date of NOK 10 million), with additional payments (contingent considerations) dependent on performance in the coming years. The contingent consideration was valued at NOK 25.6 million (corrected from NOK 29.5 million reported in the third quarter) at the acquisition date, making the acquisition date fair value of the consideration NOK 60.6 million. The fair value of the contingent consideration includes a discounting of the expected future payments. The discounting has been made based on the same discount rate (18.3 %) as used for the intangible assets identified. The maximum contingent consideration is as follows: •

A 7 % sales royalty based on annual Sippi® sales above NOK 7.5 million, increasing to 15 % on sales exceeding NOK 100 million per year, will be paid to the former shareholders of Observe Medical for the years 2016-2023.



Furthemore, six milestone payments based on set sales targets for the product will be paid to former shareholders. These sales targets need to be reached within end of 2023, with the last within end of 2026. Total possible milestone payment will over the next 11 years potentially reach a maximum of NOK 125 million, in addition to royalties. The six potential milestone payments will be triggered as follows: a) NOK 6 million upon accumulated sales in excess of NOK 50 million b) Additional NOK 6 million upon accumulated sales in excess of NOK 75 million c) Additional NOK 6 million upon accumulated sales in excess of NOK 100 million d) Additional NOK 13 million upon accumulated sales in excess of NOK 300 million e) Additional NOK 34 million upon accumulated sales in excess of NOK 600 million f) Additional NOK 60 million upon accumulated sales in excess of NOK 900 million

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The acquisition date was 4 August 2015. Through the acquisition, Navamedic is expanding into a new business area, adding substantial market opportunities in other geographies and positioning Navamedic for future growth. See segment information below for more information on OM and the primary reasons for the acquisition. Based on a preliminary purchase price allocation (PPA) performed by an external party, the total consideration has primarily been allocated to patented and unpatented technology and goodwill. The acquisition of Observe Medical International AB (Group) had the following impact on the Group's assets and liabilities at the acquisition date 1): (in NOK ‘000) Goodwill Deferred tax assets

Carrying values 1 028 224

Technology rights Fixed assets Current assets Cash and cash equivalents Long term liabilities Accounts payable Other short term liabilities Net assets and consideration paid

1 647 625 1 872 1 459 -822 -1 626 -2 025 2 382

of which paid in cash Cash acquired Net cash paid •

Adjustments in Values recognized the PPA at acquisition 29 540 30 568 224 28 631

30 278

58 171

625 1 872 1 459 -822 -1 626 -2 025 60 553

25 000 -1 459 23 541

The purchase price allocation is preliminary

The preliminary PPA identifies intangible asset of NOK 30,278 thousand, based on a relief from royalty calculation. It is inherent in the recognition of an asset that its carrying amount will be recovered in the form of economic benefits that flow to the entity in future periods. When the carrying amount of the asset exceeds its tax base, the amount of taxable economic benefits will exceed the amount that will be allowed as a deduction for tax purposes. This difference is a taxable temporary difference and the obligation to pay the resulting income taxes in future periods is a deferred tax liability. As the entity recovers the carrying amount of the asset, the taxable temporary difference will reverse and the entity will have taxable profit. This makes it probable that economic benefits will flow from the entity in the form of tax payments. The estimated deferred tax liability related to the increased value of the intangible assets amounted to NOK 6.7 million at the acquisition date (based on the tax rate in Denmark). Observe Medical Aps had at the acquisition date unused tax losses carried forward amounting to DKK 50 million, giving rise to potential deferred tax assets of DKK 11.75 million. As the sales related to the intangible asset has yet to materialize, management do not believe it has convincing evidence to fulfil the recognition criteria in IAS 12, except to an amount equaling the deferred tax liability of the intangible asset. The taxable income to recover the intangible asset is expected to materialize in the same entity that has the tax losses carried forward. Consequently, NOK 6.7 million of the deferred tax asset related to tax losses carried forward is recognized and offset to the deferred tax liability on the intangible asset. Recognized goodwill of NOK 30.6 million relates to the assembled workforce, organization, further product development/spin offs and future customer relationships. Goodwill acquired as part of the acquisition is not tax deductible. Observe Medical has been consolidated from 4 August 2015, and has contributed NOK 0.1 million to the Group's revenues and NOK -3.1million to the result before tax up to 31 December. In addition come acquisition related costs

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that were expensed by NOK 3.2 million in the third and fourth quarter 2015, and increased borrowing costs to finance parts of the consideration paid.

5. Earnings per share Earnings per share (EPS) are calculated on the basis of net profit (loss) (result allocated to shareholders of the company). This result is divided by a weighted average number of outstanding shares over the year, reduced by acquisition of treasury shares. Earnings per share NOK 1000 Result allocated to shareholders Weighted average of outstanding shares Earnings per share

Q4 2015 -10 923 9 450 -1,16

Q4 2014 -2 214 8 554 -0,26

2015 -10 931 9 450 -1,16

2014 -721 8 579 -0,08

Diluted earnings per share: NOK 1000 Result allocated to shareholders Weighted average of outstanding shares Earnings per share

Q4 2015 -10 923 9 500 -1,15

Q4 2014 -2 214 8 579 -0,26

2015 -10 931 9 500 -1,15

2014 -721 8 579 -0,08

A part of the consideration for the acquisition of OM was 888,100 shares in Navamedic ASA. These were issued on 22 October 2015, but has been included in the weighted average number of shares from the acquisition date (4 August) The diluted earnings per share is calculated by adjusting the average number of outstanding shares by the number of employee options that can be exercised without any consideration. Anti-dilution effects are not taken into consideration.

6. Segment information Navamedic’s financial reporting will going forward display two business areas: Medtech business and Pharma and Healthcare Products business. The reporting structure reflects the Company’s business and product composition. The Pharma and Healthcare Products business is a continuation of the operation prior to the acquisition of Observe Medical and represents the product areas Pharma Products, Medical Nutrition and Consumer care.

For the sake of comparison key figures for these products groups will be included in the notes in 2015. Medtech business – Sippi® Navamedic is by acquiring Obseve Medical expanding into a new business area. After the acquisition Navamedic is the productand IPR-owner of a product with global potential. Observe Medical has developed an automated, digital urine meter Sippi® that saves time for healthcare personnel, may improve accuracy and patient safety, compared to today’s method. Sippi® has been under development since 2009, and has received approval for hospital use in Europe and the United States. Navamedic aims at establishing the Sippi® product line as the global niche leader, through building a network of distributors in key markets by utilising existing commercialization capabilities and strong relationships with hospitals throughout the Nordic markets. Medtech business – Sippi sales and profit (NOK mill) Revenue EBITDA

Q4 15 0,1 -2,7

Q4 14 0,0 0,0

12

2 015 0,1 -6,3

2 014 0,0 0,0

Pharma and Healthcare Products business Consumer care The consumer care area consists of a large variety of non-prescription drugs, pharmaceuticals, and health care products mainly sold via pharmacies and drugstores. It consist of several strong own and in-licensed brand names in our respective knowledge areas. Some important Consumer product brands are: • NYDA (Dermatology) • Ovestin and Vitakalk, (Female Care) • Bifolac and Importal, (Gastroenterology) • Aftamed, Gelerovoice and Dentofix , (Oral Medicin) Consumer care sales and profit (NOK mill) Revenue EBITDA EBITDA margin (%)

Q4 15 14,4 0,4 2,8 %

Q4 14 12,6 1,1 8,7 %

2 015 52,2 3,0 5,7 %

2 014 41,5 2,4 5,8 %

Medical Nutrition Nordic distributor for the UK based Company Vitaflo International ltd, a subsidiary of Nestlé, with more than 30 years of experience in producing specialist nutritional products for inborn errors of metabolism (IEM). Navamedic can offer a complete range of products for over 8 different metabolic disorders (for example Phenylketonuria, Tyrosinemia, Maple Sirup Urine Disease, Homocystinuria, Methylmalonic Acidemia (MMA), Propionic Acidemia (PA), Glutaric Aciduria Type 1 (GA1). The product range also includes products within carbohydrate metabolism, fat metabolism (MCT products) and renal disease.

Medical Nutrition sales and profit (NOK mill) Revenue EBITDA EBITDA margin (%)

Q4 15 8,2 1,2 14,6 %

Q4 14 7,3 1,3 17,8 %

2 015 29,9 4,9 16,4 %

2 014 28,5 4,8 16,8 %

Pharma Products Navamedic’s Pharma products include subscription pharmaceuticals sold in pharmacies as well as hospital pharmaceuticals. It consist of several strong in-licensed brand names. Some important Pharma product brands are: • Puri-Nethol brand, used for the treatment of acute leukemia • Alkeran, cancer treatment • Lanoxin, treatment for hard failure • Uracyst, a product for the treatment of Painful Bladder Syndrome Pharma sales and profit (NOK mill) Revenue EBITDA EBITDA margin (%)

Q4 15 42,7 0,7 1,6 %

Q4 14 42,1 1,6 3,8 %

2 015 166,1 7,0 4,2 %

2 014 153,1 6,0 3,9 %

7. Related party transactions In connection with the acquisition of Observe Medical , the following Board members have invoiced the company for services: Masha Stømme, NOK 257 thousand, Johan Reinsli, NOK 350 thousand.

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8. Credit risk and foreign currency risk Credit risk Navamedic trades only with recognized, creditworthy third parties, of whom most companies are large, profitable pharmaceutical companies and wholesalers. Receivable balances are monitored on an ongoing basis with the result that the company’s exposure to bad debts is not significant. As per 31 December 2015, there is no provision for bad debt. Maturity profile on short-term receivables as per 31 December 2015:

Short tem receivables NOK 1000 Trade receivables Other receivables Total receivables

Not due 35 320 9 706 45 025

Less than 3 months 11 983

3 to 12 months 1 438

11 983

1 438

Total 48 740 9 706 58 446

Foreign currency risk Navamedic has transactional currency exposure arising from sales and purchases in currencies other than the functional currencies (NOK, SEK and DKK). Purchases of products from manufacturers are made in several currencies; mainly EUR, but also USD, CAD and GBP. Sales are made in Scandinavian currencies and EUR. The net impact of currency fluctuations on Navamedic’s financial results is currently at a level which in the Company’s opinion does not call for currency hedging mechanisms.

9. Tangible assets Tangible assets NOK 1000 Carrying value at the beginning of the period Acquisition Additions/disposal (-) Depreciation in the period Exchange differences Carrying value at the end of the period

Q4 2015 634 -111 8 531

Q4 2014 3 52 -3 52

2015 52 626 -194 47 531

2014 14

Q4 2015 158 731 -3 940 -184 -4 527 562 150 642

Q4 2014 86 334 -2 678 8 179 91 835

2015 91 835 60 936 860 -12 461 9 472 150 642

2014 98 442 813 -9 698 2 278 91 835

52 -14 52

10. Intangible assets and goodwill 1) Intangible assets NOK 1000 Carrying value at the beginning of the period Acquisition Additions/disposal (-) Amortization in the period Exchange differences Carrying value at the end of the period

1) Adjusted for restatement, see note 16

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11. Deferred tax and deferred tax assets Deferred tax assets 1) Deferred Tax Assets NOK 1000 Carrying value at the beginning of the period Acquisition Income statement charge Exchange differences Carrying value at the end of the period

1)

Q4 2015 9 499 224 -356 -216 9 151

Q4 2014 13 420 -2 520 10 900

2015 10 900 224 -1 996 23 9 151

2014 13 584 -2 684 10 900

Q4 2015 5 864 -476 -924 4 464

Q4 2014 5 848 -935 1 350 6 263

2015 6 263 -1 815 16 4 464

2014 8 026 -2 216 453 6 263

Adjusted for correction of error, see note 16

Deferred Tax NOK 1000 Carrying value at the beginning of the period Income statement charge Exchange differences Carrying value at the end of the period

Deferred income tax assets and liabilities are offset when there is legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income tax relates to the same fiscal authority.

12. Share options As per 31 December 2015, the company has 50 000 Share options outstanding. All options are equity settled and fair valued at the date of award. This fair value is expensed over the vesting period, which is three years. The exercise price of the granted options is equal to the market price on the date of the grant.

13. Bank arrangement and credit facility To finance part of the acquisition of OM, the Company entered into a 3 year term loan of SEK 15 million in October 2015, to be repaid in monthly instalments with 8 months free amortization, interest 4% p.a. In addition, the company has other bank agreements and credit facilities of NOK 60 million to cover credits and guarantees, an increase from NOK 45 million at 30 June 2015. NOK 22.6 million of the credit facility was utilized at the end of the fourth quarter. Towards a selected group of suppliers, the company has issued letter of credit of a total of NOK 0.3 million. This standby letter of credit is issued as security for the applicant's payment obligations under distribution agreements. The borrowing agreements have the following covenants as of 31.12 2015; EBITDA above NOK 7 million in 2015 and above NOK 15 million in 2016.

14. Material events subsequent to the end of the reporting period To Navamedic’s knowledge, there are no events subsequent to the end of the reporting period that would have influence on the financial statements included in this report.

15. Shareholder Information Navamedic signed on 3 August 2015 an agreement to acquire 100% of the outstanding shares in Observe Medical AB (see note 4). The initial purchase price is NOK 35 million, with additional payments dependent on performance in the coming years. Of the NOK 35 million initial payment, NOK 25 million is a cash consideration, while NOK 10 million was paid through the issue of new Navamedic shares. Share consideration of NOK 10 million is through the issue of 888,100 new shares in the Company at a subscription price of NOK 11.26. As given in the transaction agreement, the share price for the new shares has been determined based on the volume-weighted average price of the Company's shares in a 30 days period from 15 days prior to the announcement of the

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transaction until 15 days after the announcement. The new shares were issued on 22 October through use of the board of directors' authorization to issue shares granted by the Company's annual general meeting for 2015. As of 31 December 2015 the Company had 538 shareholders, compared to 545 at the end of 2014. The total numbers of outstanding shares were 9 450 151. CEO Tom Rönnlund owns 40 000 shares. The largest shareholders per 31 December 2015 were:

1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20.

Shareholder Nobelsystem Scandinavia Seed Capital Lavin AB Danske Invest Norge Harding Invest Advance Invest & Consulting Sandvold Shipping Kraeber Verwaltung Direct Marketing Invest Lid Olav Tarjei Hiorth Salto Media AS MP Pensjon PK Ro Lars Rosenfonn Investering Silan Invest Storvestre Rikard Røttingsnes Bernt Olav Nordnet Bank Eileraas Karl Anskar JGB Eiendom

Shares 2 110 000 462 887 292 598 262 660 244 400 234 600 216 000 214 850 206 844 175 000 151 203 149 708 130 000 129 162 120 594 109 800 109 141 106 775 105 000 101 011

Ownership 22,3% 4,9% 3,1% 2,8% 2,6% 2,5% 2,3% 2,3% 2,2% 1,9% 1,6% 1,6% 1,4% 1,4% 1,3% 1,2% 1,2% 1,1% 1,1% 1,1%

20 largest shareholders

5 632 233

59,6 %

16. Restatement of prior period In 2012, the company entered into a license agreement that granted Navamedic an exclusive right to commercialize several products in a given geographical area during the term of the agreement. Payments under the license agreement are based on gross margins realized, with minimum installments, of which two in 2016 (total EUR 420 thousand) and EUR 220 thousand in the middle of each of the subsequent eight years. In connection with payment of a first installment in January 2016, the company has concluded that the license agreement represents an intangible asset that should have been capitalized in 2012. The estimated cash price equivalent of the fixed installments is capitalized as an intangible asset and a financial liability. The company has estimated its useful life to twelve years, with start of amortization from the beginning of 2013. Any subsequent variable payments in excess of the minimum payments will be recognized in the relevant period as an operating expense. The implicit interest of 2.1% is recognized as interest expense and added to the liability. The minimum payments will be recognized as reduction to the liability. The carrying value of the liability will vary with changes in the EUR/NOK currency rate, with the corresponding effects recognized as a currency gain or loss (financial item) in the profit and loss statement. The accumulated currency loss was NOK 4.44 million as of 31 December 2015 (NOK 3.27 million as of 31 December 2014). Equity as of 1 January 2014 has been adjusted, as well as the financial statements subsequent to this date.

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Impact on the condensed consolidated profit and loss statement and comprehensive income (Increase positive, decrease negative amounts) (In NOK '000) YTD Q3 2015 Q4 2014 Year 2014 Amortization -864 -288 -1 152 OPERATING RESULT (EBIT) -864 -288 -1 152 Interest expense -274 -87 -340 Currency gain (loss) -980 -1 796 -1 285 ORDINARY RESULT BEFORE TAX -2 118 -2 172 -2 776 Tax on ordinary result 572 586 750 Net profit and total comprehensive income -1 546 -1 585 -2 027 Basic earnings per share (NOK per share) -0,17 -0,17 -0,21 Diluted earnings per share (NOK per share) -0,17 -0,17 -0,21 Impact on the condensed consolidated statement of financial position (Increase positive, decrease negative amounts) (In NOK '000) 01.01.2014 31.12.2014 Intangible assets 12 669 11 517 Deferred tax assets 931 1 680 Total assets 13 599 13 197 Total equity -2 516 -4 543 Financial liabilites 16 115 17 740 Total shareholders equity and liabilities 13 599 13 197 The error did not have an impact on the Group's statement of other comprehensive income, or operating, investing and financing cash flows.

Fornebu, 17 February 2016

Johan Reinsli (sign) Chairman

Kari Stenersen (sign) Board Member

Synne H. Røine (sign) Board Member

Svein Erik Nicolaysen (sign)

Patrik Hellström (sign)

Tom Rönnlund (sign)

Board Member

Board Member

CEO

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Navamedic ASA Fornebuveien 42 PO Box 107 1325 Lysaker Telephone +47 67 11 25 40 E-mail [email protected] www.navamedic.com

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