Lundbeck Annual Report 05 60 - 61 13 carrying amount of investments in subsidiaries and equity at 1 January 2004 for the parent increased by DKK 248 million, while the profit for 2004 declined by DKK 77 million. Equity in the parent at 1 January 2005 increased by DKK 175 million. The adjustment of investments in subsidiaries at cost results in a revaluation of the investment and equity as the adjustment contains a reversal of prior years goodwill amortisation and losses in certain relatively new subsidiaries that reported losses in the first years following their inception. In accordance with the revised IAS 27, minority interests are disclosed under equity in the consolidated financial statements as a line item separated from the parent company shareholders share of equity. Previously, minority interests were disclosed as a separate line item in the balance sheet outside equity. As a result, equity at 1 January 2005 was reduced by DKK 1 million. IAS 28 Investments in associates IAS 28 requires that investments in associates are measured at cost in the parents financial statements. Lundbeck previously applied the equity method in the parents financial statements. As a result of the amendments the carrying amount of investments in associates and equity at 1 January 2004 in the parent increased by DKK 11 million, while the profit for 2004 rose by DKK 5 million. The change has had no effect on equity as at 1 January 2005. IFRS changes in 2006 An amendment to IAS 39 Financial instruments: Recognition and measurement concerning certain limitations to the possibility of measuring financial assets at fair value with value changes recognised in the income statement will take effect for the annual report for 2006. This change affects the Groups classification of certain securities and equity investments. However, the change does not affect the classification of listed Danish bonds, as this portfolio forms part of the Groups investment strategy and cash resources for the financing of share buybacks, etc. Accordingly, value changes to listed Danish bonds are still recognised in the income statement under net financials. All other securities and equity investments measured at fair value will be re-categorised as available-for-sale financial assets. Accordingly, value changes will be recognised directly in equity with the exception of exchange rate changes which will still be recognised in the income statement under net financials. In the annual report for 2006, the change is expected to affect comparative figures for 2005 for the Groups net financials and profit for the year by DKK 8 million. Equity will not be affected. Other standards and interpretations that have been issued but are not yet effective are not expected to have a material impact on the annual report for 2006. Recognition and measurement Assets are recognised in the balance sheet if it is probable that future economic benefits will flow to the Group and that the value of the asset can be measured reliably. Liabilities are recognised in the balance sheet if they are probable and can be measured reliably. On initial recognition assets and liabilities are measured at cost or fair value. Subsequently assets and liabilities are measured as described for each item below. Certain financial assets and liabilities are measured at amortised cost, implying the recognition of a constant effective rate of interest to maturity. Amortised cost is calculated as original cost less any repayments and plus/less the cumulative amortisation of the difference between cost and the nominal amount. Recognition and measurement take into consideration gains, losses and risks that arise before the time of presentation of the annual report and that confirm or invalidate matters existing at the balance sheet date. Income is recognised in the income statement as earned and includes value adjustments of financial assets and liabilities measured at fair value or amortised cost. In addition, expenses incurred to generate the income for the year are recognised, including depreciation, amortisation, impairment losses and provisions as well as reversals of amounts previously recognised in the income statement as a result of changed accounting estimates. Consolidated financial statements The consolidated financial statements comprise the parent H. Lundbeck A/S and subsidiaries controlled by the parent. Control is achieved where the parent directly or indirectly holds more than 50% of the voting rights or is otherwise able to exercise or actually exercises control. Companies in which the Group holds between 20% and 50% of the voting rights and exercises significant influence but not control are regarded as associates. The consolidated financial statements are prepared on the basis of the financial statements of the parent and the subsidiaries, which are all prepared in accordance with the Groups accounting policies. ANNUAL REPORT 2005 We improve the quality of life for those suffering from psychiatric and neurologi 2005 IN BRIEF Financial ratios DKKm Revenue by geography, DKKm 9,070 1,782 2,170 1,589 7.11 2.10 20 4 CONTENTS Overskrift Financial performance Financial forecast and targets Europe ­ Lundbecks large Lundbeck Annual Report 05 2-3 5 lundbeck.com Financial figures in Excel On Lundbecks website you 6 Financial performance in 2005 2005 was an eventful and financially satisfactory year for Lundbec Lundbeck Annual Report 05 4-5 7 1,488 million, corresponding to 16% of revenue. Depreciation and 8 lundbeck.com Annual reports going back 10 years In 1996, Lundbeck generated revenue of DKK 2,326 Lundbeck Annual Report 05 6-7 9 Financial forecast and targets Lundbeck deviates from previously 10 lundbeck.com Partner relationship Lundbeck collaborates with a number of partners both in the fi Lundbeck Annual Report 05 8-9 11 Europe ­ Lundbecks largest business area Revenue from our Europ 12 ! Facts on Cipralex® Cipralex® is the third-most prescribed original antidepressant in Europe. L Lundbeck Annual Report 05 10 - 11 13 14 Since CHMPs (Committee for Medicinal Products for Human Use, under EMEA) temporary suspension of Lundbeck Annual Report 05 12 - 13 15 The US market ­ a strategic opportunity Representing 45% of 16 Lexapro® website Forest Laboratories has set up a website for everyone who wishes to know more a Lundbeck Annual Report 05 14 - 15 17 A market share of 22.5% makes Zoloft® the current market lea 18 ! Partnership with Merck Lundbeck formed its alliance with Merck in February 2004 to develop and Lundbeck Annual Report 05 16 - 17 19 Under the terms of the agreement, Lundbeck will start buildi 20 International Markets ­ long-term potential Revenue from markets outside Europe and the USA ­ I Lundbeck Annual Report 05 18 - 19 21 In 2005, the International Markets were characterised by inc 22 ! Ebixa® for specialists Lundbeck has prepared a special website for GPs and specialists who wis Lundbeck Annual Report 05 20 - 21 23 Conditions in International Markets The protection of intell 24 Developing new pharmaceuticals Lundbecks long-term goal is to become the worlds leader in the f Lundbeck Annual Report 05 22 - 23 ! CNSforum Read more about research and development in drugs in 26 Bifeprunox is a new compound (a D2 and 5-HT1A partial agonist) in phase III clinical development Lundbeck Annual Report 05 24 - 25 27 lundbeck.com Research literature Lundbecks employees have au 28 Launched pharmaceuticals in the market First Approved, registration no of countries 2001 82 Com Lundbeck Annual Report 05 26 - 27 29 Corporate governance Control is good, trust is better The p 30 Corporate governance Corporate governance at Lundbeck On 6 October 2005, the Copenhagen Stock E Lundbeck Annual Report 05 lundbeck.com Position on corporate governance Lundbecks Supervisory Board 32 Supervisory Board Flemming Lindeløv Chairman Elected at the 1998 General Meeting Born 20 August Lundbeck Annual Report 05 30 - 31 33 Remuneration of and shares held by members of the Supervisor 34 Remuneration of and shares held by members of the Executive Management Remuneration paid to the Lundbeck Annual Report 05 32 - 33 35 Organisation 36 Risk management In the individual business units, Lundbeck takes a systematic approach to monit Lundbeck Annual Report 05 34 - 35 37 4. Risks associated with foreign currency, interest rate and 38 Developing global competencies Human resources (HR) play a key strategic role at Lundbeck. Duri Lundbeck Annual Report 05 36 - 37 ! Lundbeck sought after Lundbecks HR department received almost 40 International career Lundbeck has subsidiaries and representative offices in 55 countries around Lundbeck Annual Report 05 38 - 39 41 New health, safety and environment strategy successfully imp 42 show that actual emissions have been reduced. Accordingly, the higher figures for Valby reflect Lundbeck Annual Report 05 40 - 41 43 Other initiatives enhanced efficiency in Lundbecks health, s 44 A Strategy for Health, Safety & Environment Read more about Lundbeck Health, Safety & En Lundbeck Annual Report 05 42 - 43 45 Overview of strategic objectives 2005-2010, target status 20 46 Lundbeck Annual Report 05 44 - 45 47 Focus on creating shareholder value Lundbecks shares are li 48 ! Annual General Meeting Lundbecks Annual General Meeting will be held on 24 April 2006 at 4 pm Lundbeck Annual Report 05 46 - 47 49 Releases from H. Lundbeck A/S in 2005 No. Date 50 lundbeck.com Archive of financial information The Lundbeck website provides announcements to the FINANCIAL REPORT 2005 51 2 Summary for the Group 2001-2005 Income statement (DKKm) Revenue Profit before research and devel Lundbeck Annual Report 05 12 - 13 50 - 51 3 Share data Average number of shares (millions) Earnin 4 Lundbeck Annual Report 05 12 - 13 52 - 53 5 Income statement for the year ended 31 December 2005 6 Balance sheet at 31 December 2005 Assets Parent 2004 DKKm Parent 2005 DKKm Notes Group 2005 D Lundbeck Annual Report 05 12 - 13 54 - 55 7 Balance sheet at 31 December 2005 Equity and liabilit 8 Statement of changes in equity at 31 December 2005 Group 2004 Equity at 31.12.2003 Effect of IFR Lundbeck Annual Report 05 12 - 13 56 - 57 9 Statement of changes in equity at 31 December 2005 Pa 10 Lundbeck Annual Report 05 12 - 13 58 - 59 58 11 Cash flow statement for the year ended 31 Decembe 12 Note 1 1. Accounting policies The annual report of H. Lundbeck A/S is presented in accordance w Lundbeck Annual Report 05 60 - 61 13 carrying amount of investments in subsidiaries and equity at 14 Note 1 The consolidated financial statements are prepared by adding together uniform items and Lundbeck Annual Report 05 62 - 63 15 Derivative financial instruments Forward exchange contracts 16 Note 1 Research and development costs Research and development costs comprise expenses incurred Lundbeck Annual Report 05 64 - 65 17 protected by intellectual property rights, the maximum amort 18 Note 1 Investments in associates in the consolidated financial statements Investments in associ Lundbeck Annual Report 05 66 - 67 19 Share-based incentive programmes in which employees receive 20 Notes 1-3 Debt Mortgage debt and debt to credit institutions are recognised at the time of the Lundbeck Annual Report 05 68 - 69 21 2. Revenue Parent 2004 DKKm Parent 2005 DKKm Group 2005 DKKm 22 Note 3 3. Staff costs, continued Employees Parent 2004 Parent 2005 Group 2005 Group 2004 1,985 Lundbeck Annual Report 05 12 - 13 70 - 71 23 3. Staff costs, continued Warrant scheme for the Exe 24 Notes 3-4 3. Staff costs, continued Share price based plan for employees in foreign subsidiarie Lundbeck Annual Report 05 12 - 13 72 - 73 25 3. Staff costs, continued Executive Management Numbe 26 Notes 5-7 5. Audit fees Parent 2004 DKKm Parent 2005 DKKm Group 2005 DKKm Group 2004 DKKm 1.7 Lundbeck Annual Report 05 12 - 13 74 - 75 27 7. Tax on profit for the year Parent 2004 DKKm Paren 28 Note 8 8. Property, plant and equipment and intangible assets Group Land and buildings DKKm Pla Lundbeck Annual Report 05 12 - 13 76 - 77 29 Goodwill DKKm Patent rights DKKm Product rights DK 30 Note 8 8. Property, plant and equipment and intangible assets, continued Parent Land and buildi Lundbeck Annual Report 05 12 - 13 78 - 79 31 Goodwill DKKm Patent rights DKKm Product rights DK 32 Notes 8-9 8. Property, plant and equipment and intangible assets, continued Goodwill impairmen Lundbeck Annual Report 05 12 - 13 80 - 81 33 9. Investments in subsidiaries, continued Share of 34 Notes 10-11 10. Investments in associates 2005 Parent Parent Accumulated revaluation/ impairmen Lundbeck Annual Report 05 12 - 13 82 - 83 35 10. Investments in associates, continued Financial h 36 Notes 12-15 12. Inventories Parent 2004 DKKm Parent 2005 DKKm Group 2005 DKKm Group 2004 DKKm Lundbeck Annual Report 05 12 - 13 84 - 85 37 15. Provisions for pensions and similar liabilities 38 Notes 15-16 15. Provisions for pensions and similar liabilities, continued Furthermore, the Gro Lundbeck Annual Report 05 12 - 13 86 - 87 39 16. Provision for deferred tax Group Temporary diffe 40 Notes 16-18 16. Provision for deferred tax, continued Parent Temporary differences between asse Lundbeck Annual Report 05 12 - 13 88 - 89 41 17. Other provisions Parent 2004 DKKm Parent 2005 DK 42 Note 18 18. Mortgage and bank debt, continued Group Weighted average effective interest rate Fi Lundbeck Annual Report 05 12 - 13 90 - 91 43 18. Mortgage and bank debt, continued Parent 2004 DK 44 Notes 19-21 19. Treasury shares Parent and Group Shares of DKK 5 nom. Number Nominal value DKKm Lundbeck Annual Report 05 12 - 13 92 - 93 45 20. Contractual obligations, continued Other purchas 46 Note 22 22. Financial instruments Currency risks Net forward exchange contracts outstanding for Lundbeck Annual Report 05 12 - 13 94 - 95 47 22. Financial instruments, continued Trading part Ma 48 Note 22 22. Financial instruments, continued Credit risks The primary financial instruments sho Lundbeck Annual Report 05 12 - 13 96 - 97 49 22. Financial instruments, continued Interest rate r 50 Notes 23-24 23. Related parties Lundbecks related parties are - The companys principal sharehol Lundbeck Annual Report 05 12 - 13 98 - 99 51 23. Related parties, continued Transactions and bala 52 Notes 25-28 25. Earnings per share 2005 2004 Profit for the year (DKKm) Minority interests (DK Lundbeck Annual Report 05 100 - - 13 12 101 53 27. Working capital changes Parent 2004 DKKm Paren 54 Management statement We have today presented the annual report of H. Lundbeck A/S for 2005. The Lundbeck Annual Report 05 102 - - 13 12 103 55 Auditors report To the shareholders of H. Lundbec Lundbeck worldwide Parent company Denmark H. Lundbeck A/S Synthesis factories Denmark H. Lundbeck Design: Bysted A/S Photo: Thomas Busk Print: Quickly Tryk A/S March 2006 The specialist in psychiatry and pioneer in neurology H. Lundbeck A/S Ottiliavej 9 DK-2500 Copenhag