2007 Annual Report - PrimMadariaga, 1 - 2º Tel.: 94 476 33 36 Fax: 94 475 01 09 LEVANTE 46015 Valencia Avda. Maestro Rodrigo, 89-91 Tel.: 96 348 62 69 Fax.: 96 340 54 27 FACTORY 28938

2007AnnualReport

PRIM

Annu

al Re

port

2007

PRIM

PRIM

Edition: Prim, S. A.Design and production: Primer Paso, S. L.Printing: Jomagar, S. L.Legal deposit: M-22923-2008

HEAD OFFICE28938 Móstoles (Madrid)Polígono Industrial Nº 1, Calle F, 15Tel.: 91 334 24 00Fax: 91 334 24 94

NORTH48014 BilbaoAvda. Madariaga, 1 - 2ºTel.: 94 476 33 36Fax: 94 475 01 09

LEVANTE46015 ValenciaAvda. Maestro Rodrigo, 89-91Tel.: 96 348 62 69Fax.: 96 340 54 27

FACTORY28938 Móstoles (Madrid)Polígono Industrial Nº 1, Calle C, 20Tel.: 91 334 25 20Fax: 91 334 25 62

NORTHWEST15004 La CoruñaRey Abdullah, 7-9-11Tel.: 98 114 02 50Fax: 98 114 02 46

CANARIAS35010 Las Palmas de Gran CanariaHabana, 27, BajoTel.: 928 22 03 28Fax.: 928 22 89 62

CATALUÑA 08012 BarcelonaNilo Fabra, 34-38Tel.: 93 415 58 35Fax: 93 237 91 03

ANDALUCÍA41011 SevillaJuan Ramón Jiménez, 5Tel.: 95 427 46 00Fax.: 95 428 15 64

BALEARES07008 Palma de MallorcaSan Ignacio, 77Tel.: 971 278 291Fax: 971 278 291

PRIM

www.prim.es

CONTENTS

CONSOLIDATED GROUP

CONSOLIDATED BALANCE SHEETS ............................................................... 5 CONSOLIDATED PROFIT AND LOSS ACCOUNTS CONSOLIDATED CASH FLOW STATEMENTS ................................................. 9 STATEMENTS OF CHANGES IN CONSOLIDATED EQUITY ............................ 13 NOTES TO THE FINANCIAL STATEMENTS ...................................................... 17 DIRECTORS’ REPORT ....................................................................................... 49 AUDITORS’ REPORT ......................................................................................... 59

PARENT COMPANY

BALANCE SHEET ............................................................................................... 65 PROFIT AND LOSS ACCOUNT .......................................................................... 69 NOTES TO THE FINANCIAL STATEMENTS ...................................................... 73 DIRECTORS’ REPORT ....................................................................................... 95 AUDITORS’ REPORT ......................................................................................... 101

Consolidated Balance Sheets

Consolidated Group

6

NOTES 2007 2006

ASSETS 85,754,465 82,442,201Non-current assets 30,483,298 32,543,533Intangible assets 5 111,794 148,811

Property, plant and equipment 6 10,892,412 10,941,738

Real estate assets 7 4,674,055 4,960,189

Investment in associates 8 5,727,496 5,205,359

Other non-current fi nancial assets 9 1,200,513 752,587

Goodwill 10 2,228,931 2,228,931

Long-term accounts receivable 12 5,648,097 8,305,918

Current assets 55,271,167 49,898,668Inventories 11 20,033,690 17,170,000

Trade and other accounts receivable 12 31,568,465 30,602,563

Other current fi nancial assets 274,512 94,159

Cash and cash equivalents 13 3,394,500 2,031,946

(euro)

Consolidated Balance Sheets

● At 31 December 2007 and 2006

7

NOTES 2007 2006

LIABILITIES 85,754,465 82,442,201Equity 14 48,896,411 42,324,672

Equity attributable to equity holders of the parent company 48,895,821 42,324,201

Capital stock 3,584,117 3,258,288

Share premium 1,227,059 1,227,059

Own shares (1,528,076) (405,442)

Interim dividend paid during the year (1,368,481) (1,042,652)

Revaluation reserve 1,331,172 1,331,172

Income in the year 10,060,217 7,554,947

Other reserves 35,589,813 30,400,829

Minority interest 590 471

Non-current liabilities 14,120,453 18,383,026

Interest-bearing loans 15 11,985,200 15,586,680

Other liabilities 16 1,846,456 2,406,062

Deferred tax liabilities 17 288,797 390,284

Current liabilities 22,737,601 21,734,503

Trade and other accounts payable 15,672,994 15,911,682

Interest-bearing loans 15 5,171,512 4,402,372

Corporate income tax payable 1,893,095 1,420,449

(euro)

Consolidated ProfitAnd Loss Accounts

Consolidated Group

10

Consolidated Profi t and Loss Accounts


NOTES 2007 2006

Net sales 21.1 91,630,052 90,542,332

Other revenues 1,266,211 418,349

Change in fi nished goods and work-in-process inventories (6,010) 213,106

Revenues 92,890,253 91,173,787

Cost of goods sold and other external expenses 21.2 (39,429,103) (42,797,320)

External and operating expenses 21.3 (12,204,722) (12,072,135)

Personnel expenses 21.4 (24,463,373) (22,647,997)

Depreciation and amortization expense (2,540,214) (2,390,060)

Variation in operating provisions (48,724) (497,330)

Operating expenses (78,686,136) (80,404,842)

Net operating income 14,204,117 10,768,945

Financial revenues 21.5 1,249,030 986,812

Financial expenses 21.5 (1,267,957) (757,139)

Impairment of other fi nancial assets 9 0 4,878

Share in income of companies carried by the equity method 8 380,493 399,220

Other revenues 21.1 8,378 38,555

Income before taxes 14,574,061 11,441,271

Corporate income tax 18 (4,354,619) (3,735,031)

Income for the year 10,219,442 7,706,240

Income for the year attributed to equity holders of the parent 10,060,217 7,554,947

Income attributed to minority interests 159,227 151,313

Loss attributed to minority interests (2) (20)

Earnings per share 21.6

Basic earnings per share attributable to equity holders of the parent 0.76 0.58

Diluted earnings per share attributable to equity holders of the parent 0.76 0.58

(euro)

11

Consolidated Cash Flow Statements


NOTES 2007 2006

Collections from customers and other debtors 100,274,673 94,257,584

Payments to suppliers and other creditors (58,063,023) (58,985,937)

Payments to employees (23,402,925) (21,434,159)

Net VAT settlements (2,654,875) (1,966,755)

Other taxes (506,256) (540,624)

Corporate income tax (3,946,674) (4,275,147)

Net cash from operating activities 11,700,920 7,054,962

Property, plant and equipment acquisitions (2,002,459) (1,094,337)

Intangible asset acquisitions (168,777) (144,592)

Acquisitions of other non-current fi nancial assets (524,608) (689,408)

Disposals of other current fi nancial assets (124,724) 963,180

Acquisitions of group companies net of acquired cash 10 (488,000) (136,406)

Acquisitions of associated companies (180,165) (497,632)

Deposits recovered (136,605) (107,655)

Cash subsidies received 57,386 86,832

Interest received 820,019 490,420

Net investment cash fl ow (2,747,933) (1,129,598)

Refund of share premium 0 0

Reserves 0 0

Net cash on transactions with own shares (933,263) 232,721

Cash infl ows from long-term loans and repayments (1,114,884) (2,328,671)

Cash infl ows from short-term loans and repayments (2,391,142) (1,706,986)

Dividends paid (2,990,958) (2,020,402)

Interest paid (163,993) (141,692)

Net amount drawn on credit lines 0 0

Net fi nancing cash fl ow (7,594,240) (5,965,030)

Net increase in cash and cash equivalents 1,358,747 (39,666)

Net exchange differences 3,807 412,390

Variation in cash in the year 1,362,554 372,724

Cash and cash equivalents at 31 December 13 3,394,500 2,031,946

(euro)

Consolidated Statements of Changes in Equity

Consolidated Group

14

Consolidated Statements of Changes in Equity

The composition of, and changes in, the Group’s equity at 31 December 2007 and 2006 is as follows:

● Year ended 31 December 2007

Balanceat

31.12.06

2007Interim

dividendOwn shares

Capital increase outof reserves

Income from transactions

with own shares

Other variations

Obligations with respect to holdings

Distribution of 2006 income Income for the year Balanceat

31.12.07To dividends To reserves Parent Company

Minorityinterests

Share Capital 3,258,288 325,829 3,584,117

Share premium 1,227,059 1,227,059

Parent Company shares (405,442) (1,122,634) (1,528,076)

Interim dividend (1,042,652) (1,368,481) 1,042,652 (1,368,481)


Income in the year

Equity holders of the parent company 7,554,947 (2,150,470) (5,404,477) 10,060,217 10,060,217

Minority interest 0 0

Other reserves

Legal reserve 774,104 774,104

Reserve for amortised capital 1,256,815 1,256,815

Other reserves 23,803,821 405,442 (325,829) 154,314 (196,044) 180,740 3,113,356 2,409,849 29,545,649

Reserve for own shares 405,442 (405,442) 0

Reserves at

Fully consolidated companies 3,139,064 (20,783) (3,084,728) 2,595,408 2,628,963

Equity-accounted affi liates 1,021,583 (7,893) (28,628) 399,220 1,384,282

Equity of equity holders of the parent company 42,324,201 (1,368,481) (1,122,634) 0 154,314 (224,718) 180,740 (1,107,818) 0 10,060,217 0 48,895,821

Equity of minority interests 471 119 (159,225) 159,225 590

TOTAL 42,324,672 (1,368,481) (1,122,634) 0 154,314 (224,599) 21,515 (1,107,818) 0 10,219,442 0 48,896,411

(euro)

15


Balanceat

31.12.05

2006Interim

dividend

Reserve for own shares

Capital increase outof reserves

Income from transactions

with own shares

Other variations

Obligations with respect to holdings

Distribution of 2005 income Income for the year Balanceat

31.12.06To dividends To reserves Parent Company

Minorityinterests

Share Capital 2,962,080 296,208 3,258,288

Share premium 1,227,059 1,227,059

Parent Company shares (389,319) (16,123) (405,442)

Interim dividend (710,899) (1,042,652) 710,899 (1,042,652)


Income in the year

Equity holders of the parent company 5,710,952 (1,540,282) (4,170,670) 7,554,947 7,554,947

Minority interest (118) 118 0

Other reserves


Reserve for amortised capital 1,256,815 1,256,815

Other reserves 18,970,853 (16,124) (296,208) 265,918 76,983 268,827 2,047,678 2,485,894 23,803,821

Reserve for own shares 389,318 16,124 405,442

Reserves at

Fully consolidated companies 3,839,998 (2,003,860) 1,302,926 3,139,064

Equity-accounted affi liates 534,687 148,982 (43,818) 381,732 1,021,583

Equity of equity holders of the parent company 35,896,702 (1,042,652) 0 0 265,918 209,842 268,827 (829,383) 0 7,554,947 0 42,324,201

Equity of minority interests 592 (121) (151,293) 151,293 0 471

TOTAL 35,897,294 (1,042,652) 0 0 265,918 209,721 117,534 (829,383) 0 7,706,240 0 42,324,672

(euro)

Notes to theFinancial Statements

Consolidated Group

18

NOTES TO THE FINANCIAL STATEMENTS

Cross references enable the reader to connect the information contained in these notes to Consolidated Financial Statements to the various line-items of the Profi t and Loss Account, Balance Sheet, Statement of Cash Flow and Statement of Changes in Equity.

1. Description of consolidated companies and their business activity

PRIM, S.A. has its registered offi ces at Polígono In-dustrial 1, Calle F, 15, Móstoles, Madrid, and it has six regional offi ces and a factory at the following locations:

Factory

Móstoles - Polígono Industrial nº 1; Calle C, nº 20

Regional offi ces

• Barcelona - Nilo Fabra, 38• Bilbao - Avda. Madariaga, 1• La Coruña - Rey Abdullah, 7-9-11• Sevilla - Juan Ramón Jiménez, 4• Valencia - Maestro Rodrigo, 89-91• Las Palmas de Gran Canaria - Habana, 27• Palma de Mallorca – San Ignacio, 77

Although the Parent Company’s business has been carried on since 1870, it was incorporated on 21 July 1966 by means of a public instrument executed befo-re the Madrid notary Mr. José Luis Álvarez Álvarez, with number 3.480 of his protocol, and registered at the Madrid Mercantile Register on 9 January 1967 on sheet 11.844, folio 158, tome 2.075 general 1.456 of section 3 of the Companies Book.

The Articles of Association establish that the Parent Company has indefi nite duration and that its purpo-se is to engage in all types of legal transactions of commerce or industry relating to the manufacture, sale or distribution of orthopaedic, medical, surgical or similar material, and the construction, operation and management of retirement homes and any type of real estate transaction.

On 29 June 1992, before the Madrid notary Mr. En-rique Arauz Arauz, with number 1053 of his proto-col, the Articles of Association were adapted to the New Corporations Law of 1989, and that adaptation was registered with the Madrid Mercantile Register

in Tome 3652, Folio 1, Section 8, Sheet M-61451, Inscription 36, dated 7 October 1992.

The companies owned directly or indirectly by PRIM, S.A. which form part of the consolidated group are as follows:

The stake in E.G. VALMONTE, S.L. is held through Residencial CDV-16, S.A.

The stake in ENRAF NONIUS IBERICA PORTUGAL LDA. is held through ENRAF NONIUS IBÉRICA, S.A., which owns 99.99%, and PRIM S.A., which owns 0.01%.

None of the companies directly- or indirectly-owned by PRIM, S.A. is listed on an organised se-curities market.

The dependent companies engage in the following activities:

The corporate purpose of ESTABLECIMIENTOS ORTOPÉDICOS PRIM, S.A. is to engage in all ty-pes of transactions of commerce or industry relating to the manufacture, purchase, sale, import, export, adaptation, placement and distribution of orthopae-dic, medical, surgical and similar material.

DEPENDENT COMPANIES

REGISTERED OFFICES STAKE %

Establecimientos Ortopédicos Prim, S.A.

Conde de Peñalver, 24Madrid 1,322,029 99.99

Enraf Nonius Ibérica, S.APolígono Industrial nº1, Calle F, nº 15, de Móstoles –Madrid

685,544 99.99

Mediprim, S.L. (Sociedad Unipersonal)

Polígono Industrial nº1, Calle F, nº 15, de Móstoles – Madrid-

3,035 100

Residencial CDV – 16, S.A. Romero Girón, 9 -Madrid- 4,807,637 48.68

E.G. Valmonte, S.L. Romero Girón, 9 -Madrid- 3,005 100

Network Medical Products LTD.

North YorkshireReino Unido 176,653 37.54

Inmobiliaria Catharsis S.A. (Sociedad Unipersonal)

Nilo Fabra, 34 – Barcelona- 2,494,204 100

Enraf Nonius Ibérica Portugal, LDA

Rua Aquiles Machado –Lisboa-Portugal

100,000 100

Luga Suministros Médicos, S.L.

Polígono Industrial Monte Boyal, Avda Constitución, Parcela 221, de Casarrubios del Monte –Toledo

4,189,906 70

BBE Healthcare LTD. Irlanda 586,150 29.21

19

The corporate purpose of ENRAF NONIUS IBÉRICA, S.A. is the distribution, sale and installation of pro-ducts in the area of physiotherapy, home medical care and rehabilitation.

The corporate purpose of ENRAF NONIUS IBÉRICA PORTUGAL, LDA. is the distribution, sale and insta-llation of products in the area of physiotherapy, home medical care and rehabilitation.

The corporate purpose of INMOBILIARIA CATHAR-SIS S.A. (SOCIEDAD UNIPERSONAL) is to engage in all types of real estate transactions involving the purchase and sale of rural and urban properties, ex-ploiting properties, repairing and refurbishing buil-dings, construction of industrial buildings, and the sale of properties of all types.

The corporate purpose of MEDIPRIM, S.L. (SOCIE-DAD UNIPERSONAL) is the marketing, distribution and sale of medical products.

The corporate purpose of RESIDENCIAL CDV - 16, S.A. is the operation and management of retirement homes.

The corporate purpose of NETWORK MEDICAL PRODUCTS LTD. is the marketing, distribution and sale of medical products.

The corporate purpose of GOOD BELIEF, S.L. is to engage in any transactions involving the purchase, sale, license, operation, transfer, use and enjoyment of any type of industrial and intellectual property. The performance of research and development ac-tivities and the provision of services involving the marketing and distribution of the products identifi ed by such rights.

On 13 November 2007, the notarial instrument to dissolve and liquidate GOOD BELIEF, S.L. was sig-ned before the notary, Agustín Perez-Bustamante de Monasterio. It was registered in the Madrid Mer-cantile Register in Tome 16.099, Book 0, Folio 116, Section 8, Sheet M-272658, inscription 3.

The corporate purpose of LUGA SUMINISTROS MÉDICOS, S.L. is the sale, manufacture, packa-ging, packing, sealing, import and export of all types of medical and surgical instruments, orthopaedic devices, dressings, bandages, podology equipment and materials of therapy and hygiene, podology chairs and instrumentation.

The corporate purpose of BBE HEALTHCARE LTD. is the manufacture and sale of medical and surgical equipment.

The companies forming part of the Consolidated Group ended their fi nancial year, which has a duration of one year, at 31 December 2007.

For the consolidation of RESIDENCIAL CDV-16, S.A. and its subsidiary E.G. Valmonte, S.L., the Company’s best estimates were used based on the latest fi nancial data received, which referred to 30 June 2007.

2. Basis of presentation of the Consolidated Financial Statements

2.1. Basis of presentation

The Consolidated Financial Statements were prepa-red from the Individual Financial Statements (or, whe-re they were unavailable, the latest available fi nancial information) of each of the companies comprising the PRIM group. The Consolidated Financial Statements were prepared in accordance with the current accoun-ting regulations in order to present a true and fair view of the equity, fi nancial situation and results of PRIM, S.A. and its DEPENDENT COMPANIES. The information contained in the Consolidated Financial Statements is the responsibility of the directors of the Group’s Parent Company.

The Consolidated Financial Statements were draf-ted in accordance with International Financial Re-porting Standards (hereafter “IFRS adopted by the EU”), they are presented in euro, and all fi gures are rounded to the nearest unit, except where otherwise stated.

The accounting policies applied are consistent with those of the previous year.

The following IFRS and IFRIC interpretations were adopted for the year ended 31 December 2007:

Standards and AmendmentsObligatory

application: years beginning on or after

IFRS 7 Finalcial Instruments Disclosures 1 January 2007Amendment to IAS 1

Presentation of Financial StatementsCapital Disclosures 1 January 2007

Implementation guidance to amended IFRS 4 1 January 2007

Interpretations Obligatory application: years beginning on or after

IFRIC 10 Interim fi nancial reporting and impairment 1 November 2006

20

The adoption of all these Standards, Amendments and Interpretations did not have a material impact on the consolidated fi nancial position or results of the Company in the period of initial application, but they did entail additional disclosures in these Con-solidated Financial Statements.

At the date of authorisation of these Consoli-dated Financial Statements, the following IFRS and IFRIC Interpretations had been released but were not obligatory:

(*) Borrowing costs related to qualifying assets ca-pitalised after 1 January 2009.

The Group estimates that the adoption of the Standards, Amendments and Interpretations lis-ted above will not have a material impact on the Consolidated Financial Statements in the period of initial application.

The 2007 Consolidated Financial Statements of the PRIM Group were authorised by the directors

of the Parent Company at a meeting on 27 March 2008 and are pending approval by the Sharehol-ders’ Meeting of the Parent Company. The Direc-tors of the Parent Company consider that they will be approved without any changes.

2.2. Estimates

In preparing the accompanying Consolidated Finan-cial Statements, estimates by Group Management have occasionally been used to quantify certain assets, liabilities, revenues and expenses listed in them. Those estimates refer basically to:

– Measurement of assets and goodwill to deter-mine the existence of impairment losses (see note 3.7).

– The useful life of intangible assets, property, plant & equipment, and real estate (see note 3).

– Non-current trade accounts payable that were estimated on the basis of current data about ave-rage collection periods (balances expected to be collected within more than one year are classifi ed as non-current).

– The estimate of fi nancial liabilities due to com-mitments to buy minority interests.

These estimates were based on the best available information at the time of authorisation of these Consolidated Financial Statements.

2.3. Consolidation methods

The Financial Statements of dependent com-panies ESTABLECIMIENTOS ORTOPÉDICOS PRIM, S.A., ENRAF NONIUS IBÉRICA, S.A., ENRAF NONIUS IBÉRICA PORTUGAL, LDA., INMOBILIARIA CATHARSIS S.A. (SOCIEDAD UNIPERSONAL), LUGA SUMINISTROS MÉ-DICOS, S.L. and MEDIPRIM S.L. (SOCIEDAD UNIPERSONAL) are fully consolidated in the accompanying fi nancial statements since PRIM, S.A. exercises control over those companies. In-tragroup balances, transactions and results were eliminated. Additionally, it was ascertained that the items in the individual fi nancial statements and the accounting principles applied by the indi-vidual consolidated companies were uniform.

Where the losses attributable to minority inter-ests of the dependent companies exceed their

Standards and AmendmentsObligatory application:

years beginning on or after

IAS 23 Amended Borrowing costs 1 January 2009 (*)

IAS 1 Amended Presentation of fi nancial state-ments - revised presentation 1 January 2009

IAS 32 and IAS 1 Amended

Financial Instruments with Em-bedded Put Option and Obligations Arising on Liquidation

1 January 2009

IFRS 3 Revised Business combinations 1 July 2009

IAS 27 Amended Consolidated and separate fi nan-cial statements 1 July 2009

IFRS 2 Amended Share-based payment - Vesting conditions and cancellations 1 January 2009

InterpretationsObligatory applica-

tion: years beginning on or after

IFRIC 11 Group and Treasury Share Transactions 1 March 2007

IFRIC 12 Service Concession Arrangements 1 January 2008

IFRIC 13 Customer loyalty programmes 1 July 2008

IFRIC 14IAS 19 - The Limit on a Defi ned Benefi t Asset, Minimum Funding Requirements and their Interaction

1 January 2008

21

proportional share of equity, the difference is at-tributed to the Parent Company if there are no agreements governing additional contributions by those shareholders.

The companies RESIDENCIAL CDV - 16, S.A., NETWORK MEDICAL PRODUCTS LTD. and BBE HEALTHCARE LTD. are accounted for by the equi-ty method in the accompanying consolidated fi nan-cial statements.

3. Valuation Standars

3.1. Intangible assets

Intangible assets acquired individually are carried initially at the acquisition price. After initial recog-nition, intangible assets are recorded at cost less accumulated amortisation and any impairment in value. Interest costs are expensed in the year in which they are incurred.

The useful life of these assets is assessed to determine whether it is fi nite or indefi nite. Intan-gible assets with a fi nite life-span are amortised over their economic useful life and impairment is measured whenever there is any indication that the intangible asset may have been impaired. The amortisation period and amortisation method of intangible assets with a fi nite life-span are reviewed at least once at the end of each year. Intangible assets with an indefi nite lifetime are not amortised but are measured for impairment each year. The amortisation expense of intangi-ble assets with fi nite life-spans is recognised in the Consolidated Profi t and Loss Account under depreciation and amortisation.

Concessions, patents, licenses, brands and si-milar are valued at the acquisition price. Where operating and distribution rights have a specifi c term, they are amortised on a straight-line basis over that period. Other rights are amortised on a straight-line basis over fi ve years.

Computer software is carried at acquisition cost. It is amortised on a straight-line basis over four years.

Distribution rights are carried at the acquisition or payment price and are amortised on a straight-line basis over ten years, which is their validity period.

3.2. Property, plant & equipment

Property , plant and equipment are carried at the acquisition or production cost, net of accumulated depreciation and any impairment, and include the value of legal revaluations under Royal-Decree Law 7/1996. In addition to the amount invoiced by the supplier, the acquisition price includes any additional expenses incurred up until the asset co-mes into service. Interest costs are registered as period expenses in accordance with the accoun-ting treatment allowed under IAS 23.

Depreciation is calculated using constant percenta-ges determined on the basis of the asset’s estima-ted useful life.

The depreciation rates applied by the Group, which are reviewed each year, are as follows:

Fixed asset maintenance and repair expenses are charged to income in the year in which they are in-curred unless they entail an improvement or expan-sion, in which case they are capitalised.

Leased assets where substantially all the risks and benefi ts of ownership are assumed by the Group under the contract terms are classifi ed as fi nance leases. Assets acquired under such lea-ses are carried at the lower of their fair value or the present value of the minimum payments at commencement of the lease contract, less accu-mulated depreciation and any impairment loss.

Assets Annual percentage

Buildings and other structures 2% - 3%

Machinery, fi xtures and tools 8% - 20 %

Transport equipment 16%

Furniture and fi xtures 8% - 10%

Computer hardware 25%

22

3.3. Real estate assets

Real estate assets are carried at acquisition price less accumulated depreciation and any impair-ment. In addition to the amount invoiced by the supplier, the acquisition price includes any addi-tional expenses incurred up until the asset comes into service. Interest costs are registered as pe-riod expenses in accordance with the accounting treatment allowed under IAS 23.

Depreciation is calculated using constant percenta-ges determined on the basis of the asset’s estima-ted useful life.

The depreciation rates applied by the Group are as follows:

Property asset maintenance and repair expenses are charged to income in the year in which they are incurred unless they entail an improvement or ex-pansion, in which case they are capitalised.

3.4. Goodwill

Goodwill in consolidation represents the amount by which the acquisition cost exceeds the Group’s interest in the fair value of identifi able assets and liabilities of a dependent company on the date of acquisition.

Goodwill is not amortised as from 1 January 2004; at each year-end, goodwill is measured to assess if there has been any impairment that reduced its recoverable value to below the net carrying cost, in which case it is written down.

3.5. Investment in associates

The group’s investment in associates is carried by the equity method. To this end, a company is classifi ed as an associate if the parent company has a signifi cant infl uence but it is not a dependent company.

Under the equity method, the investment in the associate is carried on the balance sheet at cost plus any post-acquisition changes in the Group’s interest in the associate’s net assets. Goodwill in an associate is include in the carrying value of the

investment and is not amortised. After applying the equity method, the Group determines if it is neces-sary to recognise additional impairment with res-pect to the Group’s net investment in the associate. The Consolidated Profi t and Loss Account refl ects the share in income from the associate. Where changes are recognised directly by the associate in its equity, the Group recognises its share in that change, disclosing it in the statement of changes in equity, if appropriate.

The Group and the associates close their ac-counts on the same date and the accounting po-licies applied by associates are in conformity with the those used by the Group for similar transac-tions and events.

The following companies are carried by the equi-ty method at 2007 year-end: RESIDENCIAL CDV-16, S. A., Network Medical Products, Ltd. and BBE Healthcare Ltd.

3.6. Financial assets

At time of initial recognition, the Prim Group classi-fi ed its fi nancial assets in four categories: fi nancial assets at fair value with change in P&L, loans and credit, investments held to maturity, and fi nancial assets available for sale. The classifi cation is revi-sed, if necessary, at each accounting close.

Financial investments with a fi xed maturity which the company has the intention and capacity (le-gal and fi nancial) not to liquidate until maturity are classifi ed as investments held to maturity and are presented as current or non-current assets depen-ding on their residual lifetime. The fi nancial assets included in this category are valued at amortised cost, applying the effective interest method, so that gains and losses are recognised in P&L at the time of settlement or value adjustment due to im-pairment, and through amortisation.

Financial investments which the company intends to hold for an indeterminate period but which can be disposed of to cover emerging liquidity needs or changes in interest rates are classifi ed as avai-lable for sale. These investments are classifi ed as non-current assets unless it is foreseeable and feasible to realise them in the next twelve mon-ths. Financial assets in this category are recog-nised at fair value. Gains or losses arising from changes in fair value at year-end are recognised in equity and are accumulated until the time of

Assets Annual Percentage

Buildings 2%

Plant 8% - 12 %

23

settlement or impairment, when they are recogni-sed in P&L. Dividends from equity holdings that are available for sale are recognised in the P&L when the Company becomes entitled to collect the amount.

Since the fair value of unlisted securities cannot be determined reliably, they are carried at the acquisition cost paid at the time of subscription or purchase, or at a lower amount if there is evi-dence of impairment.

The loans and credit category includes unlisted fi nancial assets that do not fall into the preceding categories. Items of this type are measured at their amortised cost using the effective interest method. Gains and losses are recognised in P&L at the time of settlement or value adjustment due to impairment, and through amortisation. Trade accounts receivable are recognised for the in-voice amount, and are adjusted for impairment if there is objective evidence of payment risk on the part of the debtor. The amount of the provision is calculated as the difference between the carrying value and recoverable value of the doubtful trade account receivable. Short-term trade accounts receivable are generally not discounted.

At each accounting close, fi nancial assets are measured to detect impairment. If there is objec-tive evidence of impairment of a fi nancial asset valued at amortised cost, the amount of the loss to be registered in P&L is determined as the di-fference between the net carrying value and the present value of estimated future cash fl ows (not considering future losses), discounted at the ori-ginal effective interest rate on the asset. Where there is objective evidence of impairment of a fi -nancial asset available for sale, the equity loss is recognised in P&L for the difference between the original cost (net of any reimbursements and repayments of the principal) and the fair value at that date, net of any losses already recognised in P&L in previous years.

A fi nancial assets is retired, partly or wholly, only in the following circumstances:

The rights to collect the cash fl ows associated 1. with the asset have matured.

The company has assumed the obligation to pay 2. all of the cash fl ows it receives from the asset to a third party.

The company has assigned to a third party the 3. rights to collect the cash fl ows from the assets by transferring practically all of the risks and bene-fi ts associated with the asset

3.7. Impairment losses

At the end of each year, or whenever it considers it to be necessary, the Group assesses whether there are signs of asset impairment loss. If there are any signs, or when an annual impairment test is required, the Group estimates the asset’s reco-verable value.

An asset’s recoverable amount is the greater of the market value (less the necessary cost for its sale) and the value in use, i.e. the present value of esti-mated future cash fl ows.

Where the carrying amount of an asset exceeds its recoverable amount, the asset is considered to be impaired and its carrying value is written down to its recoverable amount. When assessing the value in use, future cash fl ows are discounted to present va-lue using a discount rate before taxes that refl ects the assessment of the value of money over time in the current market and of the asset’s specifi c risks. Impairment losses are recognised in the income statement under the expense heading that corres-ponds to the function of the impaired asset.

3.8. Inventories

Inventories are valued at the average acquisition or production cost, or at net realisable value (if lower).

For these purposes, the acquisition cost of mer-chandise, raw materials and ancillary materials is taken to be that on the supplier invoice plus all addi-tional expenses incurred until the goods are in the warehouse.

The production cost of fi nished and semi-fi nished products is the acquisition cost of the raw materials and other consumables plus the costs directly allo-cable to the product and the reasonably allocable part of indirect costs, insofar as such costs corres-pond to the manufacturing period.

24

The impairment of inventories is measured at year-end, taking account of expired, obsolete or slow-moving items.

The Parent Company has licence contracts for some of the products it manufactures.

3.9. Cash and cash equivalents

Cash and cash equivalents recognised in the Consolidated Balance Sheet comprise cash on hand and at bank, demand deposits and other highly-liquid investments maturing at under three months. These items are carried at histo-rical cost, which does not differ materially from realisable value.

For the purposes of the Consolidated Cash Flow Statement, the balance of cash and cash equi-valents defi ned in the preceding paragraph is presented net of any bank overdrafts.

3.10. Financial liabilities

a) Trade and other accounts payable

These are carried at the fair value of the consideration received.

b) Interest-bearing loans

These debts are initially booked at the fair value of the consideration received, net of the costs directly attributable to the transaction. In sub-sequent measurements, they are measured at amortised cost based on the effective interest method. Any difference between the cash re-ceived (net of transaction costs) and the reim-bursement value is recognised in the P&L over the contract period. Financial debts are presen-ted as non-current liabilities when they mature at over twelve months or the Prim Group has an unconditional right to defer settlement for at least twelve months from the accounting close. Financial liabilities are retired from the balance sheet when the corresponding obligation is sett-led or cancelled or it expires. When a fi nancial liability is replaced by another in substantially different terms, the change is treated as a re-tirement of the original liability and the addition of the new liability, the difference between the respective carrying values being recognised in P&L.

c) Commitments under contractual obligations to buy out minority interests

Contractual obligations to buy minority interests are refl ected as the present value of the planned future payments. The difference between the amount payable and the value of the minority interests and any subsequent variations in the amount payable is recognised in equity attribu-table to equity holders of the parent company. Interest expenses on these liabilities are recor-ded as a fi nancial expense in the Profi t and Loss Account.

3.11. Own shares

Own equity instruments that are repurchased (own shares) are netted off equity. No gain or loss is recognised in the Consolidated Profi t and Loss account for the purchase, sale, issuance or cancellation of the Group’s own equity ins-truments; such gains and losses are recognised directly in the equity of the company which ge-nerated them.

3.12. Transactions and balances in foreign currency

Transactions in foreign currency are recorded in euro at the exchange rate in force at the transac-tion date. Exchange differences resulting from foreign currency transactions are recorded as fi nancial income in the Consolidated Profi t and Loss Account when they arise.

Accounts receivable and payable in foreign cu-rrency are valued at year-end at the exchange rate in force at the time. Exchange gains and losses that arise are recorded as fi nancial inco-me in the consolidated fi nancial statements.

3.13. Corporate income tax

Corporate income tax is recorded in the Consoli-dated Profi t and Loss Account or in equity in the Consolidated Balance Sheet depending on whe-re the gains or losses leading to it arose. Diffe-rences between the carrying value of assets and liabilities and their tax base lead to deferred tax asset or liability accounts, which are calculated using the tax rates that are expected to be in for-ce when the assets and liabilities are realised.

25

Variations during the year in deferred tax assets and liabilities not arising from business combi-nations are recorded in the Consolidated Profi t and Loss Account or in equity in the Consolida-ted Balance Sheet, as appropriate.

Deferred tax assets are recognised only when it is expected that there will be suffi cient future taxable income against which to offset the tax credits for timing differences or there are offset-ting deferred tax liabilities.

The Group companies pay tax on an individual basis.

3.14. Recognition of revenues and expenses

Revenues and expenses are generally recogni-sed in accordance with the accrual principle, i.e. when the actual related fl ow of goods and servi-ces arises. Sales are considered to be comple-ted upon physical delivery and acceptance by the customer.

3.15. Earnings per share

Basic earnings per share are calculated as the ratio between net income in the period attributa-ble to the Parent Company and the average num-ber of shares of the Parent Company that were outstanding in that period, not including shares of the Parent Company held by the Group.

The Group did not make any transactions that might lead to the diluted earnings per share di-ffering from the basic earnings per share.

4. Segment reporting

The Group’s information is reported, primarily, by business segment and, secondarily, by geo-graphical segment.

The group’s operating businesses are organised and managed separately in accordance with the nature of the products and services they sell, so that each business segment represents a strate-gic business unit offering different products and supplying different markets.

4.1. Business segments

a) Medical and orthopaedic supplies

The “medical supplies” business focuses on se-lling a number of products grouped into the fo-llowing families:

– Surgery

– Endosurgery

– Otorhinolaryngology

– Cardiovascular

– Traumatology and neurosurgery

The “orthopaedic supplies” business consists of the production and distribution of orthopae-dic products and technical aids and the sale of applied orthopaedic products and technical aids of different types, including articulated electric beds, trolleys, patient hoists, chairs, cupboards and all types of accessories and furniture, parti-cularly geriatric.

This business line also includes activities focu-sed on physiotherapy and rehabilitation, consis-ting of distributing equipment for hydrotherapy, electrotherapy, mechanotherapy, thermalism, thalassotherapy, balneotherapy, etc.

b) Real estate

The real estate business involves engaging in all types of real estate transactions involving the purchase and sale of rural and urban properties, exploiting properties, repairing and refurbishing buildings, construction of industrial buildings, and the sale of properties of all types.

The only Group-owned property in the real esta-te segment is the property owned by the parent company located at avenida Llano Castellano, 43 (Madrid). This property, which is the former headquarters of the Parent Company, was re-furbished for lease to third parties and became operational in the year ended 31 December 2006.

4.2. Geographical segments

The Group’s geographical segments are based on the customers’ location.

There are two geographical segments:

a) Spain: This includes commercial activity with customers in Spain.

b) International: This includes commercial activity with customers in European Union countries other than Spain, and in other non-EU countries.

4.3. Segments fi gures

The table below presents information about the revenues and income and certain assets and lia-bilities corresponding to the Group’s business seg-ments in the years ended 31 December 2007 and 2006.


Segment I:Medical-hospital segment

Segment II:Real estate segment


Segment I:Medical-hospital segment

Segment II:Real estate segment

26

Segment I Segment II Total

Net sales

External customers 90,454,809 87,524 90,542,332Between segments 0 0 0

Other revenues 367,957 50,392 418,349

Variation in inventories 213,106 0 213,106

Segment revenues 91,035,872 137,915 91,173,787 Segment net operating income 11,171,295 (402,350) 10,768,945

Net fi nancial income 229,673 0 229,673

Impairment of other fi nancial assets 4,878 0 4,878 Share in income of equity-accounted affi liates 399,220 0 399,220

Other revenues an expenses 38,555 0 38,555 Income before taxes 11,843,621 (402,350) 11,441,271 Corporate income tax (3,735,031)Minority interest (151,293)Income for the year attributableto the parent company 7,554,947

Segment assets and liabilitiesInvestment on associated companies 5,205,359 0 5,205,359 Other assets of the segment 72,276,653 4,960,189 77,236,842 Total assets 77,482,012 4,960,189 82,442,201 Total liabilities 40,117,529 0 40,117,529Other segment informationInvestment in assets

Intangible assets 4,592 0 144,592 Property, plant & equipment 1,094,338 0 1,094,338 Real estate assets 0 0 0

Impairment of other fi nancial assets 4,878 0 4,878 Period Amortization (2,088,990) (301,069) (2,390,060)

(euro)


Net sales

External customers 90,907,920 722,132 91,630,052 Between segments 0 0 0

Other revenues 1,094,819 171,392 1,266,211

Variation in inventories (6,010) 0 (6,010)

Segment revenues 91,996,729 893,524 92,890,253 Segment net operating income 13,863,456 340,661 14,204,117 Net fi nancial income (18,927) 0 (18,927) Impairment of other fi nancial assets 0 0 0 Share in income of equity-accounted affi liates 380,493 0 380,493

Other revenues an expenses 8,378 0 8,378 Income before taxes 14,233,400 340,661 14,574,061 Corporate income tax (4,354,619)Minority interest (159,225) Income for the year attributableto the parent company 10,060,217

Segment assets and liabilitiesInvestment on associated companies 5,727,496 0 5,727,496 Other assets of the segment 75,352,914 4,674,055 80,026,969 Total assets 81,080,410 4,674,055 85,754,465 Total liabilities 36,858,054 0 36,858,054 Other segment informationInvestment in assets

Intangible assets 168,776 0 168,776 Property, plant & equipment 2,002,459 0 2,002,459 Real estate assets 0 0 0

Impairment of other fi nancial assets 0 0 0 Period depreciation (2,254,080) (286,134) (2,540,214)

(euro)


Net salesExternal customers 80,100,441 11,529,611 91,630,052Between segments 0 0 0

Other operating revenues 1,266,211 0 1,266,211Variation in inventories (6,010) 0 (6,010)Segment revenues 81,360,642 11,529,611 92,890,253Segment assets 82,498,288 3,256,177 85,754,465Other segment informationInvestment in assetsIntangible assets 168,776 0 168,776Property, plant & equipment 2,002,459 0 2,002,459Real estate assets 0 0 0TOTAL 2,171,235 0 2,171,235

(euro)


Net Sales

External customers 71,510,000 19,032,332 90,542,332

Between segments 0 0 0

Other operating revenues 418,349 0 418,349

Variation in inventories 213,106 0 213,106

Segment revenues 72,141,445 19,032,332 91,173,787

Segment assets 78,787,495 3,654,706 82,442,201

Other segment information

Investment in assets

Intangible assets 144,592 0 144,592

Property, plant & equipment 1,094,337 0 1,094,337

Real estate assets 0 0 0

TOTAL 1,238,928 0 1,238,928

(euro)

4.4. Geographical segments

The table below presents information about the reve-nues and income and certain assets and liabilities co-rresponding to the Group’s geographical segments in the years ended 31 December 2007 and 2006.


Segment I:Spain

Segment II:Rest of European Union and other countries


Segment I:SpainSegment II:Rest of European Union and other countries

5. Intangible Assets

The variations in 2007 and 2006 are as follows:



The fully amortised items under this heading amounted to 1,244,372 euro at 31 December 2007 and 1,079,226 euro at 31 December 2006.

27

COST BALANCE31.12.06

ADDITIONS /PROVISIONS

DISPOSALS, WRITE-

DOWNS AND WRITE-OFFS

BALANCE31.12.07

Computer software 308,751 75,776 384,527Concessions, patents, licences, brands and similar

960,665 960,665

Distribution rights 703,184 703,184Other intangible assets 130,683 93,000 (130,683) 93,000

TOTAL 2,103,283 168,776 (130,683) 2,141,376

AMORTIZATION BALANCE31.12.06


DISPOSALS, WRITE-


BALANCE31.12.07

Computer software (260,064) (34,658) (294,722)Concessions, patents, licences, brands and similar

(927,672) (11,004) (938,676)

Distribution rights (636,053) (67,131) (703,184)Other intangible assets (130,683) (93,000) 130,683 (93,000)

TOTAL (1,954,472) (205,793) (130,683) (2,029,582)NET INTANGIBLE ASSETS 148,811 111,794

(euro)



DISPOSALS, WRITE-


BALANCE31.12.06

Computer software 294,842 13,909 - 308,751

Concessions, patents, licences, brands and similar

960,665 - - 960,665

Distribution rights 703,184 - - 703,184Other intangible assets 126,948 130,683 (126,948) 130,683

TOTAL 2,085,639 144,592 (126,948) 2,103,283



DISPOSALS, WRITE-


BALANCE31.12.06

Computer software (228,722) (31,405) 63 (260,064)Concessions, patents, licences, brands and similar

(916,668) (11,004) - (927,672)

Distribution rights (564,845) (71,208) - (636,053)Other intangible assets (126,948) (130,683) 126,948 (130,683)

TOTAL (1,837,183) (244,300) 127,011 (1,954,472)NET INTANGIBLE ASSETS 248,546 148,811

(euro)

28

Revaluation of cost 1,673,663

Revaluation of depreciation (301,322)

Net capital gain (before tax charge) 1,372,341

(euro)

6.1. Revaluation of tangible fi xed assets

The Parent Company availed itself of the asset revaluations allowed under Royal Decree-Law 7/1996, dated 7 June, and included the corres-ponding revaluation entries in the 1996 Consoli-dated Balance Sheet.

The increase in value or net capital gain was cal-culated using the revaluation coeffi cients depen-ding on the year of acquisition of the asset. Tho-se coeffi cients were applied to both the cost and the accumulated depreciation, and the following values were obtained:

The undepreciated amount of the revaluation was 122,977 euro at 31 December 2007 and 351,050 euro at 31 December 2006

The effect of the revaluation on the following year’s depreciation is not material.

6.2. Items under fi nance lease

The Group has certain assets under fi nance lea-se. At the expiration of each contract, the Group has the option to buy these assets at a favourable price. The value of these assets at 31 December 2007 is as follows:

The foregoing amounts relate to contracts sig-ned by LUGA SUMINISTROS MÉDICOS, S.L. in connection with the land and building where it carries on its activity and a number of vehicles. Under IFRS, those amounts are presented in the fi nancial statements on the basis of their nature, for which reason they are disclosed here under property, plant and equipment.

Future fi nance lease payments are as follows:

Cost Accum. depr. Net value

Land and structures 446,401 (65,081) 381,320

Transport equipment 11,157 (7,587) 3,570

TOTAL 457,558 (72,668) 384,890

(euro)

6. Property, Plant and Equipment






RETIREMENTS/REDUCTIONS

BALANCE31.12.06

Land an otherstructures 7,175,285 - - 7,175,285

Plant andmachinery 1,024,505 89,665 (1,866) 1,112,304

Other installations,tools and furniture 10,563,667 901,164 (3,646) 11,461,186

Other tangible fi xed assets 1,030,965 103,508 (24,192) 1,110,281

TOTAL 19,794,422 1,094,337 (29,704) 20,859,056




BALANCE31.12.06

Land an otherstructures (1,206,610) (132,451) (1,339,061)

Plant andmachinery (701,235) (79,244) 2,271 (778,208)

Other installations,tools and furniture (5,485,060) (1,524,632) (7,009,692)

Other tangible fi xed assets (687,047) (123,297) 19,987 (790,357)

TOTAL (8,079,952) (1,859,624) 22,258 (9,917,318)NET PROPERTY, PLANT AND EQUIPMENT

11,714,470 10,941,738

(euro)




BALANCE31.12.07

Land an otherstructures 7,175,285 7,175,285

Plant andmachinery 1,112,304 30,787 1,143,091

Other installations,tools and furniture 11,461,186 1,731,918 (124,842) 13,068,262

Other tangible fi xed assets 1,110,281 239,754 (63,248) 1,286,787

TOTAL 20,859,056 2,002,459 (188,090) 22,673,425




BALANCE31.12.07

Land an otherstructures (1,339,061) (121,003) (1,460,064)

Plant andmachinery (778,208) (74,947) (853,155)

Other installations,tools and furniture (7,009,692) (1,713,924) 122,671 (8,600,945)

Other tangible fi xed assets (790,357) (138,413) 61,921 (866,849)

TOTAL (9,917,318) (2,048,287) 184,592 (11,781,013)NET PROPERTY, PLANT AND EQUIPMENT

10,941,738 10,892,412

(euro)

29

The present value of the minimum net payments is as follows:

The discount rate used to obtain the present va-lue was the equivalent annual rate of each of the Group’s lease contracts.

6.3. Fully depreciated assets

The Company has a number of fully depreciated items of property, plant and equipment which are not obsolete and are still in use.

The detail of the amount is as follows:

6.4. Impairment analysis

At 31 December 2007, the Group analysed whe-ther there were any indicators of asset impairment. Since no such indicators were observed, it was not considered necessary to perform impairment tests.

Under1 year

1 to 5years

Over 5 years TOTAL

At 31 December 2006 48,573 134,171 0 182,744

At 31 December 2007 48,060 87,971 0 136,031

(euro)

Under1 year

1 to 5years

Over 5 years TOTAL

At 31 December 2006 47,256 118,312 0 165,568

At 31 December 2007 46,539 78,034 0 124,573

(euro)

2007 2006

Structures 422,685 422,685

Installations, machinery, tools and furniture 3,916,069 2,887,850

Other tangible fi xed assets 90,914 84,797

TOTAL 4,429,668 3,395,332

(euro)

7. Real estate assets




The Group’s real estate assets correspond to a building in Avenida de Llano Castellano nº 43 (Madrid) that is for lease to third parties.

The latest available appraisal valued that proper-ty at 20,133 thousand euro and there are no indi-cations of any loss in value since that date.

In 2003, the Parent Company arranged a mortga-ge loan for 12,020,240 euro using that property as collateral (see note 15).

BALANCE31.12.06



BALANCE31.12.07

COST

Land and other structures 4,235,065 4,235,065

Other installations,tools and furniture 1,722,895 1,722,895

TOTAL 5,957,960 5,957,960

AMORTIZATION

Land and other structures (372,057) (79,558) (451,615)

Other installations,tools and furniture (625,714) (206,576) (832,290)

TOTAL (997,771) (286,134) (1,283,905)

REAL ESTATEASSETS 4,960,189 4,674,055

(euro)

BALANCE31.12.05



BALANCE31.12.06

COST


Other installations,tools and furniture 1,722,895 1,722,895

TOTAL 5,957,960 5,957,960

AMORTIZATION

Land and other structures (292,500) (79,557) (372,057)

Other installations,tools and furniture (419,138) (206,576) (625,714)

TOTAL (711,638) (286,133) (997,771)

REAL ESTATEASSETS 5,246,322 (286,133) 4,960,189

(euro)

30

At 31 December 2007, the Group analysed whe-ther there were any indications of impairment of these assets. Since no such indicators were ob-served, it was not considered necessary to per-form impairment tests.

8. Investment in associates

The detail of the Group’s associates, carried by the equity method, and the variations in 2007 and 2006 are as follows:


The increase in the “Other” balance for Residencial CDV-16, S.A. is due basically to the increase in the percentage stake in that company in 2007 (from 47.64% to 48.68%); the decrease at BBE Health-care Ltd. is due to a reduction of its equity in 2007 as a result of the distribution of dividends. The reti-rement of Good Belief, S.L. is due to its dissolution in 2007.


The increase in the “Other” balance for Residen-cial CDV-16, S.A. is due basically to the increase in the percentage stake in that company; the decrea-se at BBE Healthcare Ltd. is due to a reduction of its equity in 2006 as a result of the distribution of dividends.

COMPANY Balance 31.12.05

Income for the year Other Balance

31.12.06

Residencial CDV-16, S. A. 3,364,991 357,091 648,684 4,370,766

Network Medical Products, Ltd 214,590 1,240 (46) 215,784

Good Belief, S. L. 8,067 1,413 0 9,480

BBE Healthcare, Ltd 615,695 39,476 (45,842) 609,329

TOTAL 4,203,343 399,220 602,796 5,205,359

(euro)

The main information about the associates is as follows:



At year-end, the Group analysed whether there were any indications of asset impairment. Since no such indications were observed, it was not considered necessary to perform impairment tests.

9. Other non-current fi nancial assets


Available-for-sale fi nancial assets basically refer to the Parent Company’s holding in INTERAC-TIF DEVELOPMENT, S.A., over which it does not have a signifi cant infl uence. That company is a Belgian holding company. The cost of this investment is 1,253,333 euro at 31 December 2007, the same as at 31 December 2005. INTE-RACTIF DEVELOPMENT, S.A. is the majority shareholder of EUROSURGICAL, S.A., a French

Investments available for sale

Loans andreceivables

Impairmentadjustments Total

Balance at 31.12.05 1,262,864 53,719 (1,253,404) 63,179

Additions/Provisions 165,929 523,408 71 689,408

Disposals, write-downs and write-offs 0

Balance at 31.12.06 1,428,793 577,127 (1,253,333) 752,587

Additions/Provisions 306,450 141,475 0 447,925

Disposals, write-downs and write-offs

Balance at 31.12.07 1,735,244 718,602 (1,253,333) 1,200,513

(euro)

COMPANY Balance 31.12.06

Income for the year Other Balance

31.12.07

Residencial CDV-16, S. A. 4,370,766 335,120 178,907 4,884,793

Network Medical Products, Ltd 215,784 26,181 (1,478) 240,487

Good Belief, S. L. 9,480 0 (9,480) 0

BBE Healthcare, Ltd 609,329 19,192 (26,305) 602,216

TOTAL 5,205,359 380,493 141,644 5,727,496

(euro)

Residencial CDV-16, S.A.

BBEHealthcare, Ltd

Assets 12,848,275 636,330

Liabilites 3,400,602 71,449

Income fo the year 688,414 65,704

Revenues 642,604 1,064,512

(euro)

Residencial CDV-16, S.A.

BBEHealthcare, Ltd

Assets 12,898,137 597,933

Liabilites 3,739,291 98,698

Income fo the year 399,588 135,147

Revenues 1,151,342 1,023,309

(euro)

31

company which manufactures spinal column and neurosurgery products with which PRIM, S.A. has an exclusive distribution contract running un-til 31 December 2010. The business associated with this contract, which was signed at the same time as the share acquisition, justifi es the diffe-rence between the cost of the investment and its carrying value. Because of the risk of a pending court decision, this investment was fully provisio-ned in 2006 and 2005.

The increase in this item in 2007 is due for the most part to the investment by the controlling company, Choice Therapeutics, Inc, for 305,250 euro.

The impairment adjustments were recorded in the Consolidated Profi t and Loss Account in 2006 under “Impairment of other fi nancial assets”. The-re have been no impairment adjustments as of 31 December 2007.

The loans and receivables are long-term deposits and guarantees provided by different companies within the Group, primarily Prim, S.A. and Esta-blecimientos Ortopédicos Prim, S.A.

This item also includes loans provided during the year by Prim, S.A. (4 years, 4.5% interest) and by Enraf Nonius Ibérica, S.A. (10 years, at an inter-est rate referenced to Euribor).

10. Goodwill and business combinations

The detail of goodwill in the various cash-gene-rative units to which it is assigned, and the varia-tions in 2007, are as follows:

The goodwill relates entirely to the company Luga Suministros Médicos, S.L., which was acquired at the end of 2005.

The premium paid for the stake in Luga Sumi-nistros Médicos, S.L. could not be assigned to specifi c assets and liabilities of that company and

Balance31.12.06 Additions Balance

31.12.07Luga Suministros Médicos, S,L, 2,228,931 2,228,931

GOODWILL 2,228,931 2,228,931

(euro)

is justifi ed by the synergy that is expected to be obtained. That synergy is due basically to:

Luga Suministros Médicos, S.L. has commer-• cial relations basically with Prim, S. A. and Es-tablecimientos Ortopédicos Prim, S.A.

They engage in activities that are expected to • be complementary in the future.

They share many customers, both actual and • potential.

Additionally, the Parent Company made a com-mitment to buy the other 40% of Luga. Under the conditions established in the share purcha-se agreement, the Parent Company is obliged to buy those shares if the sellers exercise their put option within the established times and limits, which are as follows:

The price at which the option can be exercised is determined by the previous year’s income and the net asset position at year-end of Luga Sumi-nistros Médicos, S. L.

In 2007, the company acquired 10% of the share capital of Luga Suministros Médicos, S.L.

At year-end, an impairment test of that goodwill was performed by estimating its value in use from projections of cash fl ow based on the operating results and business projections of Luga Sumi-nistros Médicos, S.L.The future operating cash fl ow is estimated assuming a growth rate of 4% in the fi rst three years and 0% thereafter. Those cash fl ows were discounted using the weighted average cost of capital (WACC), 7%, based on market interest rates and the risk premium asso-ciated with the company’s business.

Period maximum % of capital thatcan be sold in the period

From 1.1.2007 to 30.6.2007 10%

From 1.1.2008 to 30.6.2008 10%

From 1.1.2009 to 30.6.2009 10%

From 1.1.2010 to 30.6.2010 10%

TOTAL 40%

32

11. Inventories

The detail of this caption at 31 December 2007 and 2006 is as follows:

The variation in the inventory value adjustments was included in the Consolidated Profi t and Loss Account under “Variation in operating provisions”.

12. Trade an other accounts receivable


The “Trade receivables for sales and services” item contains the collection rights arising from the group’s commercial activity. Customer recei-vables generally do not earn interest. Neverthe-less, where public entities signifi cantly delay the settlement of their debts, interest is claimed, in accordance with current legislation, and is collec-ted in execution of court decision.

The amount of “Customer receivables for sales and services” under non-current assets is an es-timate by the company at year-end of the amount

Balance 31.12.07

Balance 31.12.06

Commercial inventories 19,277,400 16,394,618

Raw materials and other purchases 1,748,110 1,632,201

Semi-fi nished products and “Work-in-process” 524,914 747,691

Finished products 1,076,265 859,498

Supplier advances 345,704 634,555

Value adjustments (2,938,703) (3,098,563)

TOTAL 20,033,690 17,170,000

(euro)

Balance 31.12.07

Balance 31.12.06

Trade receivables for sales and services 5,648,097 8,305,918

Total non-current 5,648,097 8,305,918

Trade receivables for sales and services 32,848,079 31,919,949

Other receivables 57,394 47,095

Personnel receivables 118,726 87,432

Receivables from public administrations 89,406 204,363

Value adjustments (1,545,140) (1,656,276)

Total current 31,568,465 30,602,563

TOTAL 37,216,562 38,908,481

(euro)

of trade accounts receivable that it expects to co-llect more than twelve months after 31 December 2007. These estimates are based on statistical techniques using available past fi gures.

13. Cash and cash equivalents


14. Equity

14.1. Share capital

All the shares are listed on the Madrid Stock Ex-change; they have also been listed on the Valen-cia Stock Exchange since 8 February 2005.

On 14 March 2005, the National Securities Mar-ket Commission (CNMV) notifi ed Prim that it had decided that Prim’s shares will be traded by the fi xing mechanism. The change of trading method took effect on 1 April 2005.

On 1 June 2005, PRIM, S.A.’s shares commen-ced trading on the electronic market.

On 22 December 2005, the Board of Directors of the Parent Company, among other decisions, de-clared an interim dividend out of 2005 earnings

Balance 31.12.07

Balance 31.12.06

Cash on hand in domestic currency 54,902 52,326

Cash on hand in foreign currency 1,877 2,791

Cash at banks in domestic currency 997,749 573,671

Cash at banks in foreign currency 2,339,972 1,403,158

TOTAL 3,394,500 2,031,946

(euro)

33

of 0.12 euro gross per share, amounting to a to-tal of 710,899 euro. That dividend was paid on 17 January 2006. In order to comply with the provisions of article 216 of the Consolidated Cor-porations Law, the mandatory report set out be-low was drafted:

On 31 January 2006, the Special Shareholders’ Meeting of Prim, S.A. authorised a 2-for-1 stock split, in which each holder of an existing share, with a par value of 0.50 euro, received two sha-res with a par value of 0.25 euro each.

The Board of Directors was authorised to apply for the new shares to be listed on the Madrid and Valencia Stock Exchanges and the electronic market (Sistema de Interconexión Bursátil Espa-ñol).

On 17 May 2006, the Board of Directors agreed to call a Shareholders’ Meeting to increase ca-pital out of reserves. This capital increase was approved by the Shareholders’ Meeting on 24 June 2006, which approved a 1-for-10 bonus issue charged to reserves, in which 1,184,832 shares were issued and distributed free of char-ge to existing shareholders with a total value of 296,208 euro.

The decision was formally adopted by the Board of Directors on 7 November 2006, upon comple-tion of the free allocation period, resulting in a re-duction in unrestricted reserves and an increase in capital stock of 296,208 euro.

On 21 December 2006, the Board of Directors of the controlling company declared two interim dividends out of the income for the year ended 31 December 2006:

Cash and cash equivalents at 22 December 2005 248,049

Balance available in credit lines 5,921,688

Projected collections less projected payments in the period 708,845

Cash and cash equivalents at 22 December 2006 6,878,582

Proposed dividend 710,899

Income obtained since the last year (January to November 2005) 6,861,743

Estimated tax payable on that income (2,401,610)

TOTAL 4,460,133


(euro)

A dividend of 0.040 euro gross per share to • each of the 13,033,152 shares outstanding at that time, to be paid on 10 January 2007.

A dividend of 0.040 euro gross per share to • each of the 13,033,152 shares outstanding at that time, to be paid on 10 April 2007.

In order to comply with the provisions of article 216 of the Consolidated Corporations Law, the mandatory report set out below was drafted:

On June 30 2007 the Ordinary Shareholders’ Meeting unanimously approved:

The Financial Statement and Directors’ Report • for the Company and Consolidated Group for 2006, as well as the distribution of income con-sisting of the distribution of a gross dividend of 2,150,470.80 euro, the remainder being allo-cated to voluntary reserves.

A 1-for-10 bonus issue out of unrestricted reser-• ves in the amount of 325,828.75 euro through the issuance of 1,303,315 new shares with a par value of 0.25 euro each, on the basis of the Company’s Balance Sheet as of 31 December 2006, audited by ERNST & YOUNG, S.L. in accordance with article 157.2 of Spanish Cor-porations Law.

21 December 2006 to 21 December 2007

· Cash and cash equivalents at 21 December 2006 1,163,468.44

+ Balance available in credit lines 7,938,570.79

+ Projected collections less projected payments in the period 1,304,035.43

· Cash and cash equivalents at 21 December 2007 (1) 10,406,074.66

(1) Includes balance available in credit lines

Proposed dividend 1,042,652.16

Based on those estimates, the distribution of this dividend will not impair the company’s operations since:

I. There is suffi cient liquidity to attend to the projected payments in the short term.

II. Below is a table detailing compliance with the limits established by article 216 of the Spanish Corporations Law with regard to distributing dividends:

· Income obtained since the last year (January to November 2006) 8,611,678.00

- Prior years’ losses 0.00 €

- Allocation to reserves required by law 0.00 €

- Allocations to reserves required by the Articles of Association 0.00 €

- Estimated tax payable on that income (3,014,087.30)

Limit imposed by article 216 of the Spanish Corporations Law 5,597,590.70

Proposed dividend 1,042,652.16

Accounting statement of projected liquidity (euro)

34

Below is a summary of the main agreements adopted by the Board of Directors in 2007:

26 September 2007•

– An agreement was reached regarding an in-terim dividend out of 2007 earnings of 0.05 euro gross per share to the 13,033,152 shares outstanding at that date. It was agreed to pay the dividend on 10 October 2007. In order to comply with the provisions of article 216 of the Consolidated Corporations Law, the manda-tory report set out below was drafted:

25 October 2007•

– All 1,303,315 new shares issued under a Board of Directors agreement in June 2007 are consi-dered to be distributed upon completion of the free allocation period; they have a nominal va-lue of 0.25 euro each.

– The transfer of 325,828.75 euro to the capi-tal stock account out of unrestricted reserves is declared offi cial, and the latter’s balance is subsequently reduced by the aforementioned amount.

– As a result, Prim, S.A.’s capital stock is increa-sed by 325,828.75 euro through the issue of 1,303,315 new shares of the same series and with the same rights as outstanding shares at that date, with a nominal value of 0.25 euro each, which were fully subscribed and paid.

26 December 2007 •

– A dividend of 0.05 euro gross per share to each of the 14,336,467 shares outstanding at that time was declared. It was agreed to pay the di-vidend on 10 January 2008. In order to comply

Cash and cash equivalents at 2 October 2007 2,340,816





Income obtained since the last year (January to September 2007) 8,380,876


TOTAL 5,657,091


(euro)

with the provisions of article 216 of the Conso-lidated Corporations Law, the mandatory report set out below was drafted:

As of 31 December 2007 the capital stock of Prim, S.A. amounted to 3,584,116.75 euro, re-presented by 14,336,467 shares of 0.25 euro par value each, all of which were fully paid and had the same rights and obligations. The shares are represented by book entries.

14.2. Reserve for amortised capital

In compliance with current legislation, the Group has recorded reserves for the amount by which capital has been reduced in preceding years. Un-der current legislation, this reserve is restricted. The detail of the reserve, in terms of the years in which it was recorded, is as follows:

14.3. Legal reserve

This reserve has reached the required level of 20% of capital stock. In accordance with the con-solidated text of the Spanish Corporations Law, the balance of this reserve may only be used to offset losses in the Profi t and Loss Account if the-re are no other unrestricted reserves available for this purpose, and to increase capital stock provi-ded that its balance is not reduced to less than 10% of the increased amount of capital stock.

14.4. Revaluation reserve

The balance of this item is the Revaluation Re-serve under Royal Decree-Law 7/1996, dated 7



Projected collections less projected payments in the period 1,394,922



Income obtained since the last year (January to December 2007) 13,687,586


TOTAL 10,188,795


(euro)

1997 774,104

2001 362,861

2002 119,850

TOTAL 1,256,815

Year of capital reduction (euro)

35

June, which was included in the 1996 Consolida-ted Balance Sheet and is the result of revaluing the Parent Company’s property, plant and equi-pment in accordance with the regulations gover-ning those transactions, less the 3% tax charge applied to the revaluations.

The detail of the Revaluation Reserve is as follows:

The revaluation entries and the balance of this reserve were approved by the tax inspection au-thorities on 24 November 1998. From the date of approval of the reserve, it may be used to offset book losses, increase capital stock at the com-pany, or, from 31 December 2006 (ten years after the date of the balance sheet disclosing the re-valuation), it may be transferred to unrestricted reserves. The balance of the reserve may not be distributed, directly or indirectly, unless the capi-tal gain has been fully realised through the sale or full depreciation of the revalued assets.

14.5. Own shares



The shares received in capital increases relate to the capital increase approved by the Sharehol-ders’ Meeting on 30 June 2007; a summary of the decisions can be found in note 14.1.

Revaluation of property, plant and equipment (note 6) 1,372,341

Tax charge - 3% of the revaluation (41,169)

TOTAL 1,331,172

(euro)

Number of shares Cost

Situation at 31 December 2006 32,604 405,442

Acquisitions 217,889 3,217,750

Increase in own shares due to stock split 320 0

Decreases (139,912) (2,095,116)

Situation at 31 December 2007 110,901 1,528,076

(euro)


The increase in own shares as a result of the stock split is the result of the split decided by the Shareholders’ Meeting on 31 January 2006. At the time, the controlling company held 20,000 own shares with a par value of 0.50 euro each. After the split, Prim held 40,000 shares with a par value of 0.25 euro each.

Own shares represented the following percenta-ges of total outstanding shares at 31 December 2007 and 2006:

In accordance with current legislation, the appropriate reserve has been recorded for own shares.

Number of shares Cost


Acquisitions 69,323 1,010,611

Increase in own shares due to stock split 20,000 0

Decreases (76,719) (994,487)


(euro)

31.12.2007 31.12.2006Nº of treasury shares 110,901 32,604

Total nº of outstanding shares 14,336,467 13,033,152

Treasury shares as % of total 0.77% 0.25%

(euro)

36

14.6. Reserves at fully consolidated companies

The detail of this item for the years ended 31 December 2007 and 2006 is as follows:



Establecimientos Ortopédicos

Prim

Enraf Nonius Ibérica Mediprim

Enraf Nonius Ibérica

Portugal

Luga Suministros

Médicos

Inmobiliaria Catharsis Total

Legal reserve 102,170 79,334 607 6,398 1,202 23,642 213,353

Other reserves 187,841 2,480,333 570,219 121,569 (1,071,202) 126,850 2,415,610

TOTAL 290,011 2,559,667 570,826 127,967 (1,070,000) 150,492 2,628,963

(euro)

Establecimientos Ortopédicos

Prim

Enraf Nonius Ibérica Mediprim

Enraf Nonius Ibérica

Portugal

Luga Suministros

Médicos

Inmobiliaria Catharsis Total

Legal reserve 102,170 79,334 607 4,015 1,202 23,642 210,969

Other reserves 391,501 2,480,454 574,210 76,287 (721,202) 126,844 2,928,095

TOTAL 493,671 2,559,788 574,817 80,302 (720,000) 150,486 3,139,064

(euro)

14.7. Distribution of income for the year attributed to equity holders of the parent

The Parent Company will propose that its Share-holders’ Meeting approve the following distribution of income:

15. Interest-bearing Loans

15.1. Non-current liabilities

The detail of, and net changes in, the non-current loans during 2007 and 2006 are as follows:


Distribution Basis Distribution

Income for the year 10,060,217 Dividends 3,000,000

Voluntary reserve 7,060,217

TOTAL 10,060,217 10,060,217

(euro)


15.1.1. Credit lines

These are credit lines in euro arranged with va-rious banks, which accrue interest at Euribor plus a spread.

The total amount not drawn against these credit lines was 6,044,340 euro at 31 December 2007 and 8,150,644 euro at 31 December 2006.

At 31 December 2007, the total limit of the credit lines is 7,302,530 euro, which will be reduced ac-cording to the following schedule:

31.12.2006 Additions Decresase Businesscombinations 31.12.2007

Creditlines 2,403,385 17,149,444 (18,294,639) 1,258,190

Mortgageloans 7,643,355 0 (1,119,164) 6,524,191

Otherloans 5,539,940 10,772 (1,347,892) 4,202,819

TOTAL 15,586,680 17,160,216 (20,761,695) 0 11,985,200

(euro)

2009 3,602,530

2010 2,700,000

2011 and thereafter 1,000,000

TOTAL 7,302,530

Year

Reserves at fully consolidated companies include the legal reserve of fully consolidated companies, which cannot be treated as unrestricted.

31.12.2005 Additions Decrease Businesscombinations 31.12.2006

Creditlines 3,153,748 30,955,961 (31,706,324) 2,403,385

Mortgageloans 8,462,311 285,184 (1,104,140) 7,643,355

Otherloans 8,401,460 158,338 (3,019,859) 5,539,940

TOTAL 20,017,519 31,399,483 (35,830,322) 0 15,586,680

(euro)

37

15.1.2. Mortgage loan

On 31 July 2001, the Parent Company arranged a mortgage loan for 7,212,145.25 euro, provi-ding the building described in Note 7 as collate-ral. That loan was expanded by 4,808,095 euro in January 2003, which is also secured by that property, so that the available limit increased to 12,020,240 euro.

Other signifi cant features of the loan are as follows:

The detail of maturity of this loan at 31 December 2007 is as follows:

15.1.3. Other non-current interest-bearing loans

In 2005, this liability item in the Consolidated Ba-lance Sheet was increased considerably as Prim, S.A. arranged two loans, for 4,500,000 euro each, with different banks, to fi nance operations.

In 2006, Loan I was repaid in accordance with its repayment schedule and loan II was cancelled early since the company had spare cash.

The detail of these payments made during the year and the amounts payable in future years is as follows:

Repayment period

- The repayment deadline is 147 months after the date of signature, with a grace period from that date until 31 October 2003.

- Repayment is to be in 40 quarterly instalments from 31 October 2003.

Interests

- The interest rate in the fi rst year was 3,517% per annum.

- For the remainder of the loan period, the interest rate is established at the one-year interbank referen-ce rate in euro plus 0.5 points.

2009 1,176,923

2010 1,237,664

2011 1,301,540


TOTAL 6,524,190

Year (euro)

Loan I Loan II Total

Initial principal 4,500,000 4,500,000 9,000,000

Starting date 27,10,2005 22,11,2005

Maturity date 27,10,2012 22,11,2010

Instalments Quarterly Half-yearly

Interest rate Euribor plus a spread

Euribor plus a spread

2006 584,595 1,687,500 2,272,095

2007 583,877 703,125 1,287,002

I. Amount cancelled 1,168,472 2,390,625 3,559,097

2008 604,910 703,125 1,308,035

II. Maturing in the short term 604,910 703,125 1,308,035

2009 634,159 703,125 1,337,284

2010 664,822 703,125 1,367,947

2011 696,968 0 696,968

2012 and thereafter 730,669 0 730,669

III. Maturing in the long term 2,726,618 1,406,250 4,132,868

TOTAL (I+II+III) 4,500,000 4,500,000 9,000,000

(euro)

Therefore, at 31 December 2007, the “Interest-bearing loans” item under non-current liabilities included 2,726,618 euro relating to loan I and 1,406,250 euro relating to loan II, making a to-tal of 4,132,868 euro. These amounts are shown under “III. Maturing in the long term” in the pre-ceding table.

At 31 December 2006, the “Interest-bearing loans” item under non-current liabilities included 3,325,701 euro relating to loan I and 2,109,375 euro relating to loan II, making a total of 5,435,076 euro.

15.2. Current debts

This item basically includes the amounts matu-ring in the short term of the aforementioned loans and unmatured discounted bills.

The amount not drawn on short-term credit lines was 4,682,336 euro at 31 December 2007 and 1,895,859 euro at 31 December 2006.

The interest accrued but not matured on bank loans amounted to 114,958 euro at 31 December 2007 and 56,917 euro at 31 December 2006, and is classifi ed under “Interest-bearing loans” under current liabilities.

38

16. Other non-current liabilities

The detail of, and changes in, this caption in 2007 and 2006 are as follows:

16.1. Other liabilities

The balance at 31 December 2007 (368,625 euro) is the debt to a third party for the acquisi-tion of distribution rights by a group company; it matures in at most 10 years from the date of the agreement (17 November 1997).

Additionally, 54,090 euro are owed under a loan from Centro de Desarrollo Tecnológico Industrial. It will be repaid in 2 annual instalments of 20,194 euro each in January 2008 and 2009, plus a sin-gle payment of 13,702 euro in 2010. This loan does not accrue interest.

In 2007 there were no signifi cant additions in the Other liabilities heading.

16.2. Future payments for the purchase of shares

The balance of this item is the estimated present value of the payments to be made between 2008 and 2010 under the minority shareholders’ put option on 30% of Luga Suministros Médicos, S.L. (see note 10).

At year-end, the present value of those payments was estimated using the conditions established in the purchase contract for the holding and a discount rate equivalent to the Group’s cost of fi nance.

17. Non-current deferred tax liabilities

This caption refers to outstanding corporate inco-me tax which has been deferred under the regula-tions governing the reinvestment of capital gains on the disposal of intangible assets and fi nancial investments in 1996, 1997 and 1999.

In accordance with the applicable tax legislation, future payments of this deferred debt to the Admi-nistration will be made in accordance with the de-preciation of the assets in which the gains were reinvested, in some cases, and by an increase of one-seventh on the originally deferred amount, in other cases. It is estimated that approximately 101,487 euro will be paid next year.

18. Tax situation

The corporate income tax expense is calculated as follows:

Balance at 31.12.05 531,904

Additions

Decreases (141,620)

Balance at 31.12.06 390,284

Additions

Decreases (101,487)

Balance at 31.12.07 288,797

31.12.07 31.12.06

Income before taxes 14,574,060 11,441,271

Permanent differences at the individual companies (28,627) (43,818)

Permanent consolidation differences 1,842,420 1,198,675

Losses at individual companies 21,204 207,671

Tax losses offset by the individual companies (431)

Taxable income at the individual companies 16,408,626 12,803,799

Tax: 32.5% of taxable income (1) (35% in 2006) 5,326,836 4,474,585

Tax credits (961,740) (742,466)

Other variations (2) (10,477) 2,912

Consolidated corporate income tax expense 4,354,619 3,735,031

Otherliabilities

Future paymentsfor the purchase

of sharesTotal

Balance at 31.12.05 541,190 2,345,221 2,886,411

Additions 109,192 217,550 326,742

Decreases (58,264) (748,827) (807,091)

Balance at 31.12.06 592,118 1,813,944 2,406,062

Additions 30,312 30,312

Decreases (80,404) (509,514) (589,918)

Balance at 31.12.07 542,026 1,304,430 1,846,456

(euro)

(euro)

(euro)

39

The tax rate in 2007 was 32.5% for all com-1. panies except ENRAF NONIUS IBÉRICA PORTUGAL, LDA, which was subject to tax at 25%, applied to a taxable base (at that company) of 79,559 euro. In 2006, the tax rate was 35% for all companies except EN-RAF NONIUS IBÉRICA PORTUGAL, LDA, which was subject to tax at 25%, applied to a taxable base (at that company) of 67,436 euro.

Positive adjustments were made to deferred 2. taxes as a result of reduction of the tax rate in 2007 from 32.5% to 30%.

The detail of permanent differences in consolida-tion is as follows:

18.1. Deferral due to reinvestment

The Parent Company has availed itself of the de-ferral of corporate income tax on extraordinary gains obtained on the disposal of intangible as-sets and fi nancial assets in 1996, 1997 and 1999. Under the applicable tax regulations, there are certain investment commitments relating to the capital gains on those disposals, as shown be-low:

Under current legislation, the assets in which the investments were made must remain in the Company’s balance sheet for seven years.

18.2. Years open for review

Under current legislation, tax settlements cannot be considered fi nal until they have been audited by the tax authorities or the four-year statute of limitations period has elapsed.

The Group companies pay tax on an individual basis. At 31 December 2007, the last four years (counted from the date of fi ling the tax returns) were open for review by the tax authorities for all applicable taxes.

18.3. Tax losses at individual companies

Additionally, the current legislation establishes that tax losses may be offset against taxable in-come in the following fi fteen years. At 31 Decem-ber 2007, the unused tax losses were as follows:

19. FInancial risk management objectives and policies

The Group’s main fi nancial instruments are bank loans, demand deposits and short-term deposits. The main purpose of these fi nancial instruments is to fi nance the Group’s operations. The Group has other fi nancial assets and liabilities, such as trade accounts receivable and payable, which arise directly in its operations.

31.12.07 31.12.06

Equity-accounted affi liates (380,493) (399,220)

Variation in portfolio provision for group companies (456,455) (781,929)

Income on disposal of own shares (203,757) 265,918

Dividends received from group companies 2,883,125 2,047,678

Dividends received from associates 0 42,836

Intragroup fi nancial revenues and expenses 0 23,392

TOTAL 1,842,420 1,198,675

(euro)

Capitalgains

Amount reinvested

through 31.12.98

Amountreinvested

in 1999

Not yet invested

Obtained in 1996 1,568,641 1,568,641

Obtained in 1997 3,629,398 1,870,698 1,758,700

Obtained in 1999 506,178 506,178

TOTAL 5,704,217 3,439,339 2,264,878

(euro)

Year Amount(euro) Expires in

ESTABLECIMIENTOS ORTOPÉDICOS PRIM, S.A.

1995 25,409 2010

1996 709,340 2011

1997 195,860 2012

2004 386,373 2019

2005 31,705 2020

2006 203,679 2021

2007 21,204 2022

1,573,570

MEDIPRIM, S .L. (SOCIEDAD UNIPERSONAL)

2005 6,119 2020

2006 3,991 2021

10,110

(euro)

40

The general risk policy commits all the Group’s capacities to appropriately identify, measure, ma-nage and control the risks of all types based on the following principles:

Separation of functions, at operating level, bet-• ween the areas of decision-making, on the one hand, and analysis, control and supervision, on the other.

Assurance of short- and long-term business • and fi nancial stability by maintaining an appro-priate balance between risk, value and profi t.

Compliance with the current legislation regar-• ding control, management and supervision of risks.

Transparency in reporting on the Group’s risks • and the working of its risk control systems.

Group policy, which was maintained in 2007 and 2006, is not to negotiate fi nancial instruments.

The main risks deriving from the Group’s fi nan-cial instruments are the interest rate risk of cash fl ows, liquidity risk, exchange rate risk, and credit risk. The directors review and agree upon poli-cies for managing these risks, which are summa-rised below.

19.1. Interest rate risks on cash fl ows

The Group is exposed to the risk of changes in the market interest rate, since its loans are at fl oating rates (see note 15).

The reference index of these bank loans is the in-terbank market rate plus a spread. That referen-ce index has not changed signifi cantly in recent years and, consequently, it is not considered that such changes will have a material impact on the Group’s Consolidated Profi t and Loss Account.

The debt structure as of 31 December 2007 and 2006 is as follows:

The sensitivity of earnings and equity to varia-tions in interest rates (is as follows: assuming a variation of +/-25% with respect to current refe-rence indices)

19.2. Exchange rate risk

The Group makes sales and purchases in cu-rrencies other than the euro. Nevertheless, most foreign currency transactions are made in cu-rrencies whose fl uctuations against the euro are small, and with short collection or payment pe-riods; consequently, the potential impact of this risk on the Consolidated Profi t and Loss Account is not material.

The main transactions in 2007 and 2006 in cu-rrencies other than the euro are the purchases from suppliers, mainly of raw materials and mer-chandise as detailed below:

31.12.2006 31.12.2007 Interestrate Benchmark

Long-term debts

Long-term credit lines 2,403,385 1,258,190 Floating Euribor

Mortgage loan 7,643,355 6,524,191 Floating Interbankmarket

Other loans 5,539,940 4,202,819 Floating Euribor

15,586,680 11,985,200

Short-term debts

Short-term credit lines 1,198,317 1,331,894 Floating Euribor

Mortgage loan 1,104,140 1,119,164 Floating Interbank market

Discounted bills 699,107 1,193,920 Floating Euribor 1 month


4,336,325 5,056,554

(euro)

+ 25% -25% + 25% -25%

Effect income Effect on equity

31.12.2006 31.12.2007 31.12.2006 31.12.2007

Long-term debts

Long-term credit lines (15,005) 15,005 - -

Mortgage loan (72,626) 72,626 - -

Other loans (54,475) 54,475 - -

(142,106) 142,106 - -

Short-term debts

Short-term credit lines (9,130) 9,130 - -

Mortagage loan (11,397) 11,397 - -

Discounted bills (15,046) 15,046 - -

Other loans (15,115) 15,115 - -

(50,689) 50,689 - -

(euro)

41

The following items may be affected by exchange rate risk:

– Bank current accounts in currencies other than the local or functional currency of the Prim Group companies: The balance of the group’s foreign currency current accounts was 1,403,158 euro at 31 December 2006 and 2,339,972 euro at 31 December 2007. Those balances in both years were entirely in US dollars.

– Payments for supplies or services in currencies other than the euro Foreign currency payments by the the Group amounted to 7,770,556 euro in 2007 and 6,388,206 in 2006.

The main non-euro currency in which the Prim Group operates is the US dollar. The sensitivity of the Prim Group’s earnings and equity to va-riations in the euro/dollar exchange rate is as fo-llows:

There are no fi nancial debts in non-euro currencies.

19.3. Credit risk

The Group’s main customers are public and pri-vate entities of acknowledged solvency. Any cus-tomer wishing to buy on credit is screened using the Group’s procedures for assessing solvency. Additionally, accounts receivable are monitored continuously, analysing customer balances and trends by customer type and region. As a result of intensive receivable management, the Group’s doubtful accounts receivable are not material.

At 31 December 2007, the Prim Group did not have a signifi cant concentration of credit risk.

The analysis of fi nancial assets by age at 31 De-cember 2007 and 2006 is as follows:



Much of the debt is from the health departments of Spain’s Autonomous Regional Governments. Although invoices are generally paid in 90 days, some regions regularly delay payment by over two years. This does not represent a bad debt risk as practically all the amount past-due is re-covered. Moreover, interest is payable on debts more than one year past-due, and this interest is normally collected by court order after the princi-pal has been collected.

19.4. Liquidity risk

The Group’s goal is to strike a balance between continuity and fl exibility in fi nancing, mainly by using bank loans.

The maturity of those fi nancial instruments coin-cides in time with the cash fl ows generated by the Group’s ordinary activities, which minimises the liquidity risk and ensures the continuity of ope-rations.

19.5. Capital management

The Board of Directors of Prim, S.A., which is res-ponsible for managing the Group’s capital, consi-ders the following aspects to be vital for determi-ning the consolidated Group’s capital structure:

Consideration of the cost of capital at all times, • in search of an optimal balance between debt and equity to optimise the cost of capital.

Equivalent value in euro

Purchases from suppliers 2007 2006

Total purchases in foreign currency 7,653,718 7,037,081

(euro)

Euros

Changes in the dollar/euro exchange rate

Effect on income before taxes

Effect on equity before taxes

2007 +5% 328,826 -

-5% (363,439) -

2006 +5% 304,775 -

-5% (336,857) -

(euro)

Customer type No yet matured

Under 90 90 - 180 180-360 Over

360 Total

Long-term customer receivables 726,446 2,257,703 889,439 644,968 1,129,541 5,648,097

Short-term customer receivables 5,788,565 12,944,731 5,112,793 3,686,679 5,315,311 32,848,079

(euro)

Customer type No yet matured

Under 90 90 - 180 180-360 Over

360 Total

Long-term customer receivables 1,068,289 3,320,108 1,307,982 948,470 1,661,069 8,305,918

Short-term customer receivables 5,860,290 12,712,727 4,948,473 3,560,679 4,835,223 31,917,392

(euro)

42

Maintaining a level of working capital and a le-• verage ratio that enables Prim, S.A. to obtain and maintain the desired credit rating over the medium term, making the obtainment of cash fl ow compatible with other alternative uses that may arise from time to time in pursuit of busi-ness growth.

The equity/debt ratio rose from 1.06 in 2006 to • 1.33 in 2007, and this is considered appropria-te to cover the structural and operating needs that have been detected. As a result, all of the assets are fi nanced. In this connection, fi xed assets amount to around 40% and current as-sets to around 60%, thus achieving the desired structure in connection with working capital.

These objectives are completed with other factors that the directors take into consideration when determining the Company’s fi nancial structure, such as managing collections from government agencies, tax effi ciency, and the use of a range of short- and long-term fi nancial liabilities.

20. Financial Instruments

Below is a comparison of the carrying and mar-ket values of all the fi nancial assets and liabilities disclosed in the Group’s consolidated fi nancial statements.

No differences were detected between the market and carrying values of the fi nancial instruments in assets and liabilities.

21. Revenues and expenses

The detail of the principal line items of the Con-solidated Profi t and Loss Account for 2007 and 2006 is as follows:

21.1. Net sales

Sales were broken down as follows:

All sales were made in the Medical and Hospital Supplies business. The revenues from real es-tate are entered under “Other Revenues” in the Consolidated Profi t and Loss Account and are not part of Net Sales.

The Other operating revenues item includes sub-sidies received, as follows:

There are no contingencies related to the fore-going subsidies, and the conditions required to collect them have been complied with.

21.2. Consumables and other external expenses

2007 2006

Carryingvalue

Marketvalue

Carryingvalue

Marketvalue

Non-current assetsTrade and other accounts receivable 5,648,097 5,648,097 8,305,918 8,305,918

Other fi nancial assets 1,200,513 1,200,513 752,587 752,587 Current assetsTrade and other accounts receivable 31,568,465 31,568,465 30,602,563 30,602,563

Other current fi nancial assets 274,512 274,512 94,159 94,159

Cash and cash equi-valents 3,394,500 3,394,500 2,031,946 2,031,946

Non-current liabilities

Interest-bearing loans 11,985,200 11,985,200 15,586,680 15,586,680

Other liabilities 1,846,456 1,846,456 2,406,062 2,406,062 Current liabilitiesTrade and other accounts payable 15,672,994 15,672,994 15,911,682 15,911,682

Interest-bearing loans 5,171,512 5,171,512 4,402,372 4,402,372

(euro)

2007 2006

Sales 90,438,384 89,292,863

Services provided 1,403,127 1,344,144

Returns and volume discounts (211,459) (94,675)

TOTAL 91,630,052 90,542,332

(euro)

2007 2006

National Market 80,100,441 71,510,000

Exports 11,529,611 19,032,332

TOTAL 91,630,052 90,542,332

(euro)

2007 2006

Merchandise consumed 34,836,420 38,105,194

Raw and other material consumed 4,226,533 4,267,389

Other current operating expenses 366,150 424,737

Total consumablesan other external expenses 39,429,103 42,797,320

(euro)

Balance 31.12.07

Balance 31.12.06

Training 37,959 35,090

Export subsidies 5,848

Operating subsidies 1,608

TOTAL 45,415 35,090

(euro)

43

21.3. External and operating expenses

21.4. Personnel expenses

Employee welfare expenses consist mainly of employer social security payments by the group companies. There are no commitments relating to pensions or similar.

The Group’s average workforce, by category, is as follows:

21.5. Financial revenues and expenses

The detail of fi nancial revenues is as follows:

The other fi nancial revenues include basically default interest on long-standing accounts recei-vable from a number of government agencies.

The detail of fi nancial expenses is as follows:

21.6. Earnings per share

The amount of basic earnings per share is calcu-lated by dividing net income for the year attribu-table to equity holders of the parent company by the weighted average number of ordinary shares outstanding in that year. Outstanding shares are those which are tradeable on an organised mar-ket; accordingly, shares of the parent company held by the parent itself or any of its dependent companies are excluded.

The amount of diluted earnings per share is cal-culated by dividing the net income for the year attributable to shareholders by the weighted ave-rage number of ordinary shares in that year (ad-justing for the effect of any options and conver-tible bonds). At year-end, no bonds convertible into shares had been issued, so the basic ear-nings per share is equal to the diluted earnings per share.

The table below shows the income and share numbers used to calculate basic and diluted ear-nings per share:

On 31 January 2006, the Special Shareholders’ Meeting of Prim, S.A. authorised a 2-for-1 stock split, in which each holder of an existing share, with a par value of 0.50 euro, received two sha-res with a par value of 0.25 euro each.

No transactions affecting ordinary shares arose between the closing date to the date on which these Financial Statements were completed.

2007 2006

Outside services 11,753,970 11,642,883

Taxes other than income tax 173,383 161,094

Other current operating expenses 277,369 268,159

TOTAL 12,204,722 12,072,135

(euro)

2007 2006

Wages, salaries and similar 20,378,356 18,834,239

Employee welfare expenses 4,085,017 3,813,758

TOTAL 24,463,373 22,647,997

(euro)

2007 2006

Men Women Total Men Women Total

Sales and technical staff 128 41 169 116 40 156

Clerical staff 53 93 146 61 86 148

Operators 83 94 177 77 94 171

TOTAL 264 228 492 254 220 474

2007 2006

Revenues from shareholdings 0 40

Other fi nancial revenues 804,384 461,748

Exchange gains 444,646 525,023

FINANCIAL REVENUES 1,249,030 986,812

(euro)

2007 2006

Financial expenses 828,902 679,044

Exchange losses 439,055 78,095

FINANCIAL EXPENSES 1,267,957 757,139

(euro)

Balance 31.12.07

Balance 31.12.06

Net income attributable to equityholders of the parent 10,060,217 7,554,947

Weighted average number of ordinary shares(excluding own shares) 13,207,985 12,975,887

Earnings per share

Basic 0.76 0.58

Diluted 0.76 0.58

(euro)

44

22. Balances and transactionswith related parties

22.1. Directors’ remuneration and other information

The remuneration of the Directors of the Parent Company arises from their functions as managers of the functional areas within the Group for which they are responsible.

The Directors of the Parent Company have noti-fi ed the Company that they own the following hol-dings in companies whose activity is the same as, or similar or analogous to, that of the Company’s corporate purpose.

Neither the Directors of the Parent Company nor persons acting on their behalf performed transac-tions with the Parent Company (or other companies in its Group) other than in the normal course of bu-siness or other than on an arm’s-length basis.

The Directors of the Parent Company have also confi rmed the following in connection with hol-ding positions or functions in companies whose activity is the same as, similar or analogous to, that of the Company’s corporate purpose, or with the performance, for their own account or that of third parties, of the same, similar or analogous activity as that constituting the Company’s corpo-rate purpose.

22.2. Information about the shareholders

There were no transactions with shareholders or related parties apart from the declared dividends. At year-end, the trade and other accounts paya-ble account included 716,823.35 euro in outstan-ding dividends.

22.3. Information about associates

There were no material transactions with associates.

22.4. Senior management remuneration

The remuneration of the members of the Board of Directors arising from their status as heads of the various functional areas for which they are responsible amounted to 635,899.27 euro, while senior management remuneration amounted to 280,094.91 euro. In 2006, the combined amount of this remuneration was 843,922 euro.

There is also a provision of 556,000 euro for members of the Board of Directors as a share in Company income. That provision amounted to 420,000 euro in 2006.

Director Investee % Stake Position

Victoriano Prim González Enraf Nonius Ibérica, S.A 0.01 Chairman

Victoriano Prim González EstablecimientosOrtopédicos Prim, S.A. 0.01 Chairman

Director Position/Funtion Company

Victoriano Prim González Joint and SeveralAdministrator

ENRAF NONIUS IBÉRICA, S.A.

Victoriano Prim González Joint and SeveralAdministrator

ESTABLECIMIENTOS ORTOPÉDICOS

PRIM, S.A

Victoriano Prim González Director ENRAF NONIUS I. PORTUGAL LDA

Victoriano Prim González Chairman LUGA SUMINISTROS MÉDICOS, S. L.

Carlos José Rodríguez Alvarez

Joint and SeveralAdministrator

ESTABLECIMIENTOS ORTOPÉDICOS

PRIM, S.A.Carlos José Rodríguez Alvarez

Joint and SeveralAdministrator



Representative of Prim, S.A. (sole administrator)

MEDIPRIM, .S.L. (SOCIEDAD UNIPERSONAL)


Representative of Prim, S.A.(sole administrator)

INMOBILIARIA CATHARSIS, S.A

(SOCIEDAD UNIPERSONAL). Carlos José Rodríguez Alvarez Director BBE HEALTHCARE,

LTDCarlos José Rodríguez Alvarez Director NETWORK MEDICAL

PRODUCTS, LTDCarlos José Rodríguez Alvarez Director and Secretary LUGA SUMINISTROS

MÉDICOS, S. L.

José Luis Meijide García Director BBE HEALTHCARE, LTD

José Luis Meijide García CEO LUGA SUMINISTROS MÉDICOS, S. L.

31.12.07 31.12.06

Remuneration 915,994 843,922

Share in income 556,000 420,000

TOTAL 1,471,994 1,263,922

(euro)

45

31.12.07 31.12.06

Lease of structures 554,902 553,452

Lease of vehicles 890,543 834,279

Lease of furniture 19,297 31,529

Lease of offi ce equipment 20,765 22,128

Other leases 158,089 178,631

TOTAL 1,643,595 1,620,020

(euro)

23. Guarantees to third parties

23.1. Sureties

At 31 December 2007, the Group had provided sureties to third parties in guarantee of supplies (government tenders) for a total of 1,003,407.22 euro at Prim, S.A. (1,023,158 euro at 31 Decem-ber 2006), 191,847.69 euro at Enraf Nonius Ibé-rica, S.A. (198,291 euro at 31 December 2006), and 128,723.28 euro at Establecimientos Ortopé-dicos Prim, S.A. (122,832 euro at 31 December 2006).

At 31 December 2007, the Company had posted a bond of 47,107 euro with the Madrid Central Economic-Administrative Tribunal for appeals against tax assessments (the same amount as at 31 December 2006).

On 25 September 2003, the Shareholders’ Mee-ting resolved, among other matters, to provide a surety of at most 40,000 pounds sterling to the company Network Medical Products Ltd. This su-rety remained in force on 31 December 2007.

23.2. Operating leases

The Group has operating leases on certain ve-hicles and items of computer hardware. Those leases have an average term of 3-5 years and the contracts do not contain renewal clauses. The lessee is not subject to any restrictions in arranging those leases.

Additionally, the Group has certain premises, which are used as sales offi ces, under operating lease.

The operating lease payments recognised as ex-penses in the year are as follows:

The payments in the foregoing table do not inclu-de payments between companies in the Group.

Because the leases of structures represent large amounts, the following tables detail the minimum future payments to be made under those opera-ting leases (both discounted and undiscounted). (This information is not disclosed for the other classes of lease since an individual lease con-tract is signed for each leased vehicle, leading to such a large number of contracts as to render it impractical to detail the future payments and present value of net minimum payments for lease contracts other than those for structures).

Future payments for leases of structures are as follows:

The present value of the minimum net payments is as follows:

The present value of the net minimum payments was calculated using a 3% nominal annual dis-count rate.

Under1 year

1 to 5years

Over5 years TOTAL

At 31 December 2006 312,100 650,990 18,744 981,834

At 31 December 2007 398,577 954,775 568,939 1,922,291

(euro)

Under1 year

1 to 5years

Over5 years TOTAL

At 31 December 2006 307,365 603,347 15,681 926,393

At 31 December 2007 392,215 883,299 457,932 1,733,446

(euro)

46

The main operating lease contracts in force are as follows:

Company Location

Prim, S. A Avenida Madariaga, 1 - Bilbao

Prim, S. A. Islas Timor, 22 - Madrid

Prim, S. A. Juan Ramón Jiménez, 4 – Sevilla

Prim, S. A. Maestro Rodrigo, 89-91 – Valencia

Prim, S. A. Habana, 27 - Las Palmas de Gran Canaria

Prim, S. A. San Ignacio, 77 – Palma de Mallorca

Establecimientos Ortopédicos Prim, S. A. Conde de Peñalver, 24 – Madrid

Establecimientos Ortopédicos Prim, S. A. Rey Abdullah, 7-9-11 - La Coruña

Establecimientos Ortopédicos Prim, S. A. Manuel Tovar, 19 – Madrid

Establecimientos Ortopédicos Prim, S. A. Don Ramón de la Cruz, 83 – Madrid

Establecimientos Ortopédicos Prim, S. A. Zamora, 94 – Vigo

Establecimientos Ortopédicos Prim, S. A. Cruceiro Quebrado, 10 – Orense

Establecimientos Ortopédicos Prim, S. A. Fernando III El Santo, 32 - Santiago de Compostela

Establecimientos Ortopédicos Prim, S. A. Antonio Robles, 4 Locales 2 y 3 – Madrid

Establecimientos Ortopédicos Prim, S. A. Avenida de Córdoba, 10 – Madrid

Enraf Nonius Iberica Portugal, Lda Aquiles Machado 5-J - Lisboa – Portugal

Apart from the foregoing contracts, specifi c lea-ses are arranged for premises at which presenta-tions of our products are given. Because of their nature, those leases are not predictable and the-re are no future commitments in connection with them.

24. Environmental aspects

During the year, the Group did not incorporate systems, equipment or installations and did not record material expenses in connection with en-vironmental protection and improvement.

The accompanying Consolidated Balance Sheet does not contain any provisions for environmen-tal matters since the Directors of the Parent Com-pany consider that, at year-end, there were no liabilities to be settled in the future arising from actions to prevent, abate or repair damage to the environment, and that any such liabilities would be non-material.

25. Auditor’s fees

The fees paid to the main auditor for the audit of the Consolidated Financial Statements for 2007 and 2006, which include the parent company and the dependent companies, amounted to 86,200 euro and 82,707 euro, respectively.

This document was authorised by the Board of Directors on 27 March 2008.

The composition of the Company’s Board of Directors is as follows:

MR. VICTORIANO PRIM GONZÁLEZ Chairman

BARTAL INVERSIONES, S.L. represented byMR. ANDRÉS ESTAIRE ÁLVAREZ Vice-Chairman

MR. CARLOS J. RODRÍGUEZ ÁLVAREZ Director and Secretary

MR. JUAN J. PÉREZ DE MENDEZONA Director

MR. JOSE LUIS MEIJIDE GARCÍA Director and Vice-Secretary

MR. FRANCISCO FERNÁNDEZ-FLORES FUNES Director

47

Directors’Report

Consolidated Group

50

2007 Change 2006

Net revenues

Continuing operations 91,630,052 1.20% 90,542,332

Discontinued operations 0 0.00% 0

TOTAL 91,630,052 1.20% 90,542,332

Net operating income 14,204,117 10,768,945

Period depreciation and amortization 2,540,214 2,390,060

Variation in operating provisions 48,724 497,330

EBITDA 16,793,055 22.97% 13,656,335

Consolidated income before taxes

Continuing operations 14,574,061 11,441,271

Discontinued operations 0 0

TOTAL 14,574,061 27.38% 11,441,271

Income for the year atributed to

Parent company 10,060,217 33.16% 7,554,947

Minority interests 159,225 151,293

Equity

Atributable to equity holders of the parent company 48,895,821 15.53% 42,324,201

Minority interests 590 25.27% 471

Group average work force in the year

Sales and technical 169 8.33% 156

Clerical 146 (1.35%) 148

Operators 177 3.51% 171

TOTAL 491 3.59% 474

Earnings per share (*)

Income for the year 10,060,217 33.16% 7,554,947

Number of shares 13,207,985 1.79% 12,975,887

Basic earnings per share 0.76 30.82% 0.58

Income for the year 10,060,217 33.16% 7,554,947

Number of shares 13,207,985 1.79% 12,975,887

Diluted earnings 0.76 31.03% 0.58

(*) Number of shares calculated in accordance with IAS 33regarding earnings per share,

Indebteness ratio

Total equity 36,858,054 (8.12%) 40,117,529

Total assets 85,754,465 4.02% 82,442,201

0.43 (12.24%) 0.49

Leverage

Long-term interest-bearing debt 11,985,200 (23.11%) 15,586,680

Short-term interest bearing debt 5,171,512 17.47% 4,402,372

Total interest-bearing debt 17,156,712 (14.17%) 19,989,052

Total assets 85,754,465 4.02% 82,442,201

0.20 (17.48%) 0.24

(euro)

1. Signifi cant fi gures and business perfomance

1.1. Signifi cant fi gures

51

1.2. Business performance and changes in the economic environment

In 2007, there were no signifi cant changes in the economic environment in which the Group ope-rates.

Group revenues increased by 1.20% in 2007 to 91,630,052 euro (90,542,332 euro in 2006). Of that amount, the parent company’s revenues totalled 63,932,197 euro, 14.19% more than in 2006, while the revenues of Enraf Nonius Ibérica, S.A. amounted to 18,463,734 euro, a 29.36% reduction with respect to the previous year. The latter reduction was the result of 8 million euro in revenues in 2006 on contracts to supply Latin American countries which did not recur in 2007.

Signifi cantly, consolidated EBITDA increased by 22.97% to 16,793,055 euro (13,656,335 euro in 2006).

Income before taxes increased by 27.38%.

1.3. Segment reporting

Below is a summary of the changes in the main fi gures relating to the identifi ed business seg-ments, which are the principal segments identi-fi ed for drafting the consolidated fi nancial state-ments.

2007 Change 2006

Total segment revenues

Medical-hospital segment 91,996,729 1.06% 91,035,872

Real estate segment 893,524 0.00% 137,915

92,890,253 1.88% 91,173,787

Segment operating income


Real estate segment 340,661 (402,350)

14,204,117 31.90% 10,768,945

Total assets


Real estate segment 4,674,055 (5.77%) 4,960,189

85,754,465 4.02% 82,442,201

(euro)

Note 4 to the Consolidated Financial Statements provides detailed information about the business and geographical segments.

1.4. Taxes

The corporate income tax expense is analysed in note 18 to the Consolidated Financial State-ments. The table below analyses the variation in the effective tax rate.

1.5. Capital remuneration

In 2007, the Company distributed 0.165 euro per share out of 2006 income and 0.05 euro per share on account of 2007 income, totalling 0.215 euro per share (0.86% of par value).

1.6. Liquidity and capital

The Consolidated Cash Flow Statement shows a variation of 1,362,554 euro in cash and cash equivalents in the year ended 31 December 2007 (372,724 euro in 2006).

1.7. Leverage and indebtedness

The calculation of leverage does not include non-interest-bearing liabilities.

The Group’s leverage is within the acceptable limits established by management; as shown in the table at the beginning of this report, levera-ge declined from 0.24 in 2006 to 0.20 in 2007, a 17.48% reduction.

The table also shows that Consolidated Group indebtedness declined from 0.49 in 2006 to 0.43 in 2007, a 12.24% decrease, while remaining wi-thin the limits which Consolidated Group mana-gement considers to be acceptable.

Effective tax rate 2007 Change 2006

Consolidated tax rate 14,574,061 27.38% 11,441,271

Corporate income tax 4,354,619 16.59% 3,735,031

Effective tax rate 29.88% (8.47%) 32.65%

(euro)

52

2. Research and development

PRIM, S.A. maintains ongoing relations with the R&D departments of the manufacturers whose products it distributes in Spain and other coun-tries in order to exchange feedback and sugges-tions.

3. Transactions with own shares

The Company had 32,604 own shares at 1 January 2007.

During the year, it purchased and sold own sha-res, ending the year with 110,901 shares, i.e. 0.77% of capital stock.

4. Subsequent events

On 4 January 2008, the Board of Directors sche-duled the Shareholders’ Meeting for 27 February 2008 in order to:

Increase capital stock out of reserves and, • consequently, amend article 5 of the Articles of Association.

On 10 March, the Board of Directors scheduled a meeting of the Shareholders’ Meeting for 15 April 2008 in order to:

Approve the parent company Balance Sheet • as of 31 December 2007

Ratify the decision to increase capital out of • reserves in the proportion of 1 new share with a par value of 0.25 euro per 10 existing sha-res, which was approved by the Shareholders’ Meeting on 27 February 2008. This will entail the issuance of 1,433,646 shares and is part of the Board of Directors’ policy to take the necessary measures to enhance the shares’ liquidity. Following the decision, capital stock will amount to 3,942,528.25 euro, represented by 15,770,113 shares of 0.25 euro par value each.

5. Disclosures under article 116 bis of the Securities Market Law

5.1. Capital structure

Capital stock is represented by 14,336,467 shares of 0.25 euro par value each, all of which are fully paid and have the same rights and obligations; accordingly, the total par value is 3,584,116.75 euro. The shares are represented by book en-tries.

5.2. Restrictions on share transfer

There are no legal restrictions on the acquisition or transfer of shares in capital.

5.3. Signifi cant holdings in capital, bothdirect and indirect

In accordance with the information reported by the CNMV, the signifi cant holdings in the capital of Prim, S.A. are as follows:

Andrés Estaire Alvaréz’s indirect holding is through the company Bartal Inversiones, S.L. (a director of Prim, S.A.), which directly owns 7.568% of Prim, S.A.

5.4. Restrictions on voting rights

There no restrictions on shareholders’ voting rights under either the law or the Articles of As-sociation.

5.5. Shareholders agreements

There are no shareholder agreements.

5.6. Rules governing the appointment and removal of members of the Board of Directors and amendments to its Articles of Association

Shareholder % Direct % Indirect % Total

Estaire Álvarez, Andres (1) 1.134 7.568 8.702

González de la Fuente, Mª Dolores 8.685 0.000 8.685

Herederos de Pedro Prim Alegría C. B. 12.215 0.000 12.215

Herencia de Ignacio Prim Alegría 8.685 0.000 8.685

Ruiz de Alda, Francisco Javier 4.519 0.000 4.519

53

5.6.1. Rules governing the appointmentand removal of members of theBoard of Directors

There must be at least 4 and at most 10 directors.

The Board of Directors makes proposals to the Shareholders’ Meeting for the appointment and removal of directors and their number, based on the Company’s circumstances. The Board of Di-rectors determines, at any given time, the pro-cedures for appointing, re-appointing, evaluating and removing directors.

Under article 13 of the Board of Directors Regula-tion, directors’ duties include the obligation to re-sign if their continuance on the Board might jeo-pardise the Board’s operations or the Company’s credit and reputation.

There is no age limit for directors in either the Articles of Association or the Board of Directors Regulation. There are no term limits.

One of the members of Board of Directors has a golden handshake clause in the event of re-moval. Such clauses require authorisation by the Board of Directors but the Shareholders’ Meeting need not be notifi ed.

5.6.2. Rules governing amendmentsto the Articles of Association

Article 13 of the Articles of Association provides that the Ordinary or Extraordinary Shareholders’ Meeting may validly decide to issue bonds, in-crease or decrease capital, change the company’s corporate form or merge or demerge it and, ge-nerally, any other amendment to the Articles of Association; in general, to make any amendment to the Articles of Association, the meeting must be attended at fi rst call by at last 50% of the subs-cribed voting capital.

At second call, 25% will suffi ce although, if the shareholders in attendance represent less than 50% of the subscribed voting stock, the resolutions referred to in this paragraph may only be validly adopted with the favourable vote of two-thirds of the capital present or represented at the Meeting.

Article 11.3 of the Shareholders’ Meeting Re-gulation establishes that, if any items in the agenda require a special majority and that ma-jority is not present, the agenda will be redu-ced to the items which do not require such a majority.

Also, article 11.14 establishes that the Chair-man may put motions that have been debated in the Shareholders’ Meeting to the vote, voting being cast individually for each motion. And ar-ticle 11.15 establishes that votes may be cast by shareholders of record by any of the elec-tronic or postal means that may be accepted in the future for the purpose of voting.

5.7. Powers of the members of the

Board of Directors, particularly with respect to the issuance and repurchase of shares.

On 30 June 2007, the Shareholders’ Meeting authorised the Board of Directors and subsidia-ries to acquire own shares within the limits and subject to the requirements set out in article 75 and first additional provision 2 of the Corpora-tions Law (LSA) and other matching provisions, by any legally permissible means. The maxi-mum number of shares to be acquired was set at 5% of capital stock, at a price of at least 1 euro and at most 50 euro. That authorisation was valid for 18 months from the date of the Shareholders’ Meeting.

Regarding the Board’s power to issue shares, it is subservient to the Shareholders’ Meeting as provided in article 13 of the Articles of As-sociation, which is reproduced above in section 5.6.2 (Rules governing amendments to the Arti-cles of Association).

6. Information under Royal Decree 1362/2007

Article 8.b).1 of Royal Decree 1362/2007 makes it obligatory to t the risks and uncertainties fa-cing the company.

54

The Group’s main fi nancial instruments are bank loans, demand deposits and short-term deposits. The main purpose of these fi nancial instruments is to fi nance the Group’s operations. The Group has other fi nancial assets and liabilities, such as trade accounts receivable and payable, which arise directly in its operations.

The general risk policy commits all the Group’s capacities to appropriately identify, measure, ma-nage and control the risks of all types based on the following principles:


Assurance of short- and long-term business • and fi nancial stability by maintaining an appro-priate balance between risk, value and profi t.

Compliance with the current legislation regar-• ding control, management and supervision of risks.

Transparency in reporting on the Group’s risks • and the working of its risk control systems.

Group policy, which was maintained in 2007 and 2006, is not to negotiate fi nancial instruments.

The main risks deriving from the Group’s fi nan-cial instruments are the interest rate risk of cash fl ows, liquidity risk, exchange rate risk, and credit risk. The directors review and agree upon poli-cies for managing these risks, which are summa-rised below.


The Group is exposed to the risk of changes in the market interest rate, since its loans are at fl oating rates (see note 15).

The reference index of these bank loans is the in-terbank market rate plus a spread. That referen-ce index has not changed signifi cantly in recent years and, consequently, it is not considered that such changes will have a material impact on the Group’s Consolidated Profi t and Loss Account.


The sensitivity of earnings and equity to varia-tions in interest rates (is as follows: assuming a variation of +/-25% with respect to current refe-rence indices.)


The Group makes sales and purchases in cu-rrencies other than the euro. Nevertheless, most foreign currency transactions are made in cu-rrencies whose fl uctuations against the euro are small, and with short collection or payment pe-riods; consequently, the potential impact of this risk on the Consolidated Profi t and Loss Account is not material.

The main transactions in 2007 and 2006 in cu-rrencies other than the euro are the purchases from suppliers (mainly of raw materials and mer-chandise as detailed below):

Long-term debt 31.12.2006 31.12.2007 Interestrate Benchmark


Mortgage loan 7,643,355 6,524,191 Floating Interbankrate


15,586,680 11,985,200

Short-term debt

Short-term credit lines 1,198,317 1,331,894 Floating Euribor

Mortgage loan 1,104,140 1,119,164 Floating Interbankrate



4,336,325 5,056,554

(euro)

+ 25% -25% + 25% -25%

Effect on income Effect on equity

31.12.2006 31.12.2007 31.12.2006 31.12.2007

Long-term debtLong-term credit lines (15,005) 15,005 - -Mortgage loan (72,626) 72,626 - -Other loans (54,475) 54,475 - -

(142,106) 142,106 - -Short-term debtShort-term credit lines (9,130) 9,130 - -Mortgage loan (11,397) 11,397 - -Discounted bills (15,046) 15,046 - -Other loans (15,115) 15,115 - -

(50,689) 50,689 - -

(euro)

55

Equivalent value in euro

Purchases from suppliers 2007 2006Total purchases in foreign currency 7,653,718 7,037,081

(euro)


Bank current accounts in currencies other • than the local or functional currency of the Prim Group companies. The balance of the group’s foreign currency current accounts was 1,403,158 euro at 31 December 2006 and 2,339,972 euro at 31 December 2007. Those balances in both years were entirely in US do-llars.

Payments for supplies or services in currencies • other than the euro Foreign currency payments by the the Group amounted to 7,770,556 euro in 2007 and 6,388,206 in 2006.

Prim mitigates this risk by arranging most of its economic fl ows in euro and by hedging foreign currency transactions within the approved limits.

The main non-euro currency in which the Prim Group operates is the US dollar. The sensitivity of the Prim Group’s earnings and equity to va-riations in the euro/dollar exchange rate is as fo-llows:


6.3. Credit risk

The Group’s main customers are public and private entities of acknowledged solvency. Any customer wishing to buy on credit is screened using the Group’s procedures for assessing solvency. Additionally, accounts receivable are monitored continuously, analysing customer ba-lances and trends by customer type and region. As a result of intensive receivable management, the Group’s doubtful accounts receivable are not material.

At 31 December 2007, the Prim Group did not have a signifi cant concentration of credit risk.

The analysis of fi nancial assets by age at 31 De-cember 2007 and 2006 is as follows:



Much of the debt is from the health departments of Spain’s Autonomous Regional Governments. Although invoices are generally paid in 90 days, some regions regularly delay payment by over two years. This does not represent a bad debt risk as practically all the amount past-due is re-covered. Moreover, interest is payable on debts more than one year past-due, and this interest is normally collected by court order after the princi-pal has been collected.

6.4. Liquidity risk

The Group’s goal is to strike a balance between continuity and fl exibility in fi nancing, mainly by using bank loans.

Euro

Change in dollar/euroexchange rate

Effect on incomebefore taxes

Effect on equitybefore taxes

2007 +5% 328,826 --5% (363,439) -

2006 +5% 304,775 --5% (336,857) -

(euro)

Customer type Not yetmatured

Under 90 90-180 180-360 Over

360 Total

Long-term customerreceivables 726,446 2,257,703 889,439 644,968 1,129,541 5,648,097

Short-term customerreceivables 5,788,565 12,944,731 5,112,793 3,686,679 5,315,311 32,848,079

(euro)


Under 90 90-180 180-360 Over

360 Total

Long-term customerreceivables 1,068,289 3,320,108 1,307,982 948,470 1,661,069 8,305,918


(euro)

56

The maturity of those fi nancial instruments coin-cides in time with the cash fl ows generated by the Group’s ordinary activities, which minimises the liquidity risk and ensures the continuity of ope-rations.

6.5. Capital Management

The Board of Directors of Prim, S.A., which is res-ponsible for managing the Group’s capital, consi-ders the following aspects to be vital for determi-ning the consolidated Group’s capital structure:

– Consideration of the cost of capital at all times, in search of an optimal balance between debt and equity to optimise the cost of capital.

– Maintaining a level of working capital and a le-verage ratio that enables Prim, S.A. to obtain and maintain the desired credit rating over the

medium term, and enables it to combine cash fl ow with other alternative uses that may arise from time to time in pursuit of business growth.

– The equity/debt ratio rose from 1.06 in 2006 to 1.33 in 2007, and this is considered appropria-te to cover the structural and operating needs that have been detected. As a result, all of the assets are fi nanced. In this connection, fi xed assets amount to around 40% and current as-sets to around 60%, thus achieving the desired structure in connection with working capital.

These objectives are completed with other factors that the directors take into consideration when determining the Company’s fi nancial structure, such as managing collections from government agencies, tax effi ciency, and the use of a range of short- and long-term fi nancial liabilities.

57









Auditors’Report

Consolidated Group

A free translation of an auditors’ report originally issued in Spanish. In the event of a discrepancy, the Spanish language version prevails.

AUDITORS’ REPORT ON CONSOLIDATED FINANCIAL STATEMENTS

To the Shareholders of PRIM, S.A.

1. We have audited the consolidated fi nancial statements of PRIM, S.A. and Sub-sidiaries (the Group), consisting of the consolidated balance sheet as at 31 Dec-ember 2007 and the consolidated statement of income, consolidated statement of cash fl ow, statement of changes in consolidated equity and the notes to the con-solidated fi nancial statements for the year then ended, the preparation of which is the responsibility of the directors of the Parent Company. Our responsibility is to express an opinion on those consolidated fi nancial statements taken as a whole, based on work performed. Apart from the exception referred to in paragraph 3, the work was performed in accordance with auditing standards generally accep-ted in Spain, which require the examination, by selective tests, of the evidence supporting the consolidated fi nancial statements and the evaluation of their pre-sentation, the accounting principles applied and the estimates made Our work did not include the examination of the 2007 fi nancial statements of Luga Suministros Médicos, S.L., in which PRIM, S.A. has a 70% interest and whose assets and net income represent 3.0% and 5.3%, respectively, of the corresponding conso-lidated fi gures. The fi nancial statements of Luga Suministros Médicos, S.L. were examined by audit fi rm BDO Audiberia Auditores, S.L. and our opinion expressed in this report on the consolidated fi nancial statements of PRIM, S.A. is based so-lely on the report of that auditor where the holding in Luga Suministros Médicos, S.L. is concerned.

2. As required by corporate legislation, for comparison purposes the directors of the Parent Company present the fi gures for 2006 in addition to the fi gures for 2007 for each item in the consolidated balance sheet, consolidated income sta-tement, consolidated cash fl ow statement, statement of changes in consolidated equity and notes to the consolidated fi nancial statements. Our opinion refers only to the consolidated fi nancial statements for 2007. On 2 April 2007, we issued our auditors’ report on the 2006 consolidated fi nancial statements, in which we ex-pressed a favourable opinion.

3. The “Holdings in associated companies” item includes a 48.68% stake in Re-sidencial CDV-16, S.A. carried by the equity method, with a carrying amount of 4,884 thousand euro. Since we did not have access to the audited fi nancial state-ments of that investee as at 31 December 2007, we were unable to determine the reasonableness of the valuation of that investment as at 31 December 2007 and of the information disclosed in note 8, in accordance with International Financial Reporting Standards. 2

4. In our opinion, based on our audit work and the report by BDO Audiberia Audi-tores, S.L., and except for the effects of the adjustments that might be considered necessary had we had access to the auditors’ report on the fi nancial statements of Residencial CDV-16, S.A. as at 31 December 2007, the accompanying con-solidated fi nancial statements for the year 2007 give, in all material respects, a true and fair view of the consolidated equity and consolidated fi nancial position of PRIM, S.A. and Subsidiaries as at 31 December 2007 and the consolidated results of their operations, their consolidated cash fl ow and the changes in con-solidated equity in the year then ended, and contain the necessary and suffi -cient information for an adequate interpretation and understanding in accordance with the International Financial Reporting Standards as adopted by the European Union, which were applied on a basis consistent with that of the previous year.

5. The accompanying consolidated directors’ report for 2007 contains such expla-nations on the state of PRIM, S.A. and its Subsidiaries’ affairs, the performance of their businesses and other matters as the directors of the Parent Company con-sider appropriate and does not form an integral part of the consolidated fi nancial statements. We verifi ed that the fi nancial information contained in that consolida-ted directors’ report is consistent with the 2007 consolidated fi nancial statements. Our work as auditors is limited to checking the consolidated directors’ report with the scope described in this paragraph and does not include the verifi cation of in-formation not derived from the consolidated companies’ accounting records.

ERNST & YOUNG, S.L.(Registered in the Offi cial Register of

Auditors with number S0530)

Original in Spanish signed byAntonio Barranco García

1 April 2008

BalanceSheet

Individual Society

66

ASSETS 2007 2006

FIXED ASSETS

Intangible fixed assets

Concessions, patents and licences

Brands and similar 960,665 960,665

Computer software 304,674 281,940

Other intangible assets 93,000 130,683

Amortization (1,301,160) (1,305,859)

Total intangible assets 57,179 67,429

Tangible fixed assets

Land and buildings 8,432,498 8,432,498

Plant and machinery 758,198 740,851

Other installations, tools and furniture 13,201,570 11,656,091

Other tangible fixed assets 976,827 826,875

Amortization (10,930,178) (8,933,710)

Total tangible fi xed assets 12,438,915 12,722,605

Financial investments

Holdings in Group companies 8,694,818 8,206,818

Holdings in associated companies 5,570,440 5,392,275

Long-term securities portfolio 1,734,483 1,428,033

Other loans 245,400 120,000

Long-term deposits and guarantees 254,522 123,552

Provisions (2,491,717) (2,035,263)

Total fi nancial investments 14,007,946 13,235,415

Long-term trade accounts receivable 5,648,097 8,305,918

TOTAL FIXED ASSETS 32,152,137 34,331,367

CURRENT ASSETS

INVENTORIES

Commercial inventories 14,084,626 11,449,249

Raw materials and other supplies 1,047,519 1,025,844

Work-in-process and semi-fi nished products 289,532 459,139

Finished products 851,687 784,619

Advances 258,589 603,968

Provisions (1,855,075) (1,921,914)

Accounts receivable

Customer receivables for sales and services 24,919,825 22,371,425

Receivable from Group companies 237,529 265,105

Sundry accounts receivable 54,774 51,683

Personnel receivables 77,244 22,483

Receivable from public administrations 68 397

Provisions (820,932) (931,915)

Short-term own shares

Short-term own shares 1,528,076 405,443

Provision for depreciation of own shares (1,148,542) (296,542)

Cash 2,693,883 1,651,184

TOTAL CURRENT ASSETS 42,218,803 35,940,168

TOTAL ASSETS 74,370,940 70,271,535

(euro)

Balance Sheet


67

LIABILITIES 2007 2006

Shareholders’ equity

Subscribed capital 3,584,117 3,258,288

Share premium 1,227,059 1,227,059


Reserves:


Reserve for amortized capital 1,256,815 1,256,815

Other reserves 28,175,840 25,107,194

Reserves for own shares 379,534 108,901

Income for the year 10,088,856 6,309,508

Interim dividend (1,368,481) (1,042,652)

TOTAL SHAREHOLDERS’ EQUITY 45,449,016 38,330,389

LONG-TERM DEBT

Bank debt 11,708,081 14,578,318

Other accounts payable

Other debt 462,198 459,329

TOTAL LONG-TERM DEBT 12,170,279 15,037,647

CURRENT LIABILITIES

Bank debt

Loans and other debt 4,475,501 3,991,681

Interest payable 112,228 56,461

Liabilities with Group and associated companies

Liabilities with Group companies 413,400 1,539,400

Trade accounts payable

Payable for purchases and services 6,415,903 6,318,337

Payable for purchases from Group companies 200,413 40,665

Other non-trade payables

Payable to public administrations 1,906,635 1,528,760

Other debt 492,357 1,242,900

Compensation payable 2,735,208 2,185,295

TOTAL CURRENT LIABILITIES 16,751,645 16,903,499

TOTAL LIABILITIES 74,370,940 70,271,535

(euro)

Profit and LossAccount

Individual Society

70

DEBIT 2007 2006

EXPENSES

Purchases

Merchandise consumed 22,375,652 19,722,358

Consumption of merchandise from Group companies 348,183 202,275

Consumption of raw materials and other supplies 2,654,633 2,848,997

Consumables - -

Other external expenses 299,009 416,597

Personnel expenses

Wages, salaries and similar 14,711,952 13,685,963

Employee welfare expenses 2,695,874 2,622,458

Period depreciation and amortization 2,297,803 2,152,313

Variation in operating provisions

Variation in provisions for inventories 66,838 223,062

Variation in provisions for, and loss on, bad debts (49,531) 33,679

Other operating expenses

Outside services 8,618,636 8,308,453

Outside services from Group companies 205,430 199,804

Taxes other than income tax 129,848 119,224

Other operating expenses 273,839 261,524

54,628,166 50,796,707

OPERATING INCOME 11,173,484 6,688,560

Financial and similar expenses

On debts to Group companies 59,059 42,836

On debts to third parties and similar expenses 783,914 568,714

Losses on fi nancial investments 3,744

Variation in provisions for fi nancial investments 484 (4,878)

Exchange losses 432,078 22,915

1,275,535 633,331

FINANCIAL GAINS 2,792,963 2,290,942

INCOME FROM ORDINARY ACTIVITIES 13,966,447 8,979,502

Variation in provisions for intangible assets, 455,971 781,930

Tangible fi xed assets and control portfolio 87

Loss on disposal of fi xed assets 410,531

Loss on transactions with own shares and bonds 4,708

EXTRAORDINARY GAINS - -

INCOME BEFORE TAX 13,528,789 8,549,216

CORPORATE INCOME TAX 3,439,933 2,239,708

NET INCOME FOR THE YEAR 10,088,856 6,309,508

(euro)

Profi t and Loss Account


71

CREDIT 2007 2006

REVENUES

Net sales

Sales 63,154,744 55,354,292

Sales to Group companies 501,187 365,924

Services provided 315,949 340,876

Sales returns and volume discounts (39,683) -

Increase in inventories of

Work-in-process and semi-fi nished products (102,539) (74,734)

Other operating revenues

Other sundry current operating revenues 722,132 246,258

Other sundry current operating revenues from Group companies 1,192,476 1,223,595

Subsidies 57,384 29,056

65,801,650 57,485,267

OPERATING LOSSES - -

Revenues from equity holdings 2,883,126 2,047,678

Other interest and similar expenses

From Group companies -

From associated companies -

Other interest 774,242 433,715

Exchange gains 411,130 442,880

4,068,498 2,924,273

FINANCIAL LOSSES - -

LOSS FROM ORDINARY ACTIVITIES - -

Gain on disposal of intangible and tangible fi xed assets and control portfolio 7,119 -

Gain on transactions with own shares and bonds 206,774 265,918

Prior years’ revenues and income 684 39,077

Extraordinary revenues 214,267 51,444

EXTRAORDINARY LOSS 437,658 430,286

(euro)

Notes to the Financial Statements

Individual Society

74

1. Business description

PRIM, S.A. has its registered offi ces at Polígono Industrial 1, Calle F, 15, Móstoles, Madrid, and it has seven regional offi ces and a factory at the following locations:

Factory

• Móstoles - Polígono Industrial nº 1; Calle C, nº 20

Delegaciones

• Barcelona - Nilo Fabra, 38• Bilbao - Avda. Madariaga, 1• La Coruña - Rey Abdullah, 7-9-11• Sevilla - Juan Ramón Jiménez, 4• Valencia - Maestro Rodrigo, 89-91• Las Palmas de Gran Canaria - Habana, nº 27• Palma de Mallorca - San Ignacio, 77

Although the company’s business has been ca-rried on since 1870, it was incorporated in 1966 by means of a public instrument executed before the Madrid notary Mr. José Luis Alvarez Alvarez, with number 3.480 of his protocol, and registered at the Madrid Mercantile Register on 9 January 1967 on sheet 11.844, folio 158, tome 2.075 ge-neral 1.456 of section 3 of the Companies Book.

The Articles of Association establish that the Company has indefi nite duration and that its pur-pose is to engage in all types of legal transactions of commerce or industry relating to the manufac-ture, sale or distribution of orthopaedic, medical, surgical or similar material, and the construction, operation and management of retirement homes and any type of real estate transaction.

On 29 June 1992, before the Madrid notary Mr. Enrique Arauz Arauz, with number 1053 of his protocol, the Articles of Association were adapted to the New Corporations Law of 1989, and that adaptation was registered with the Madrid Mer-cantile Register in Tome 3652, Folio 1, Section 8, Sheet M-61451, Inscription 36, dated 7 October 1992.

2. Basis of Presentation of the Financial Statements

True and fair view

The fi nancial statements were prepared in accor-dance with the accounting regulations establis-

hed in Spanish law in order to present a true and fair view of the net worth, fi nancial situation and results of the Company.

Comparative information

For comparison purposes, the 2006 fi gures are presented alongside the corresponding fi gures for 2007 in the balance sheet, income statement and statement of changes in fi nancial position in accordance with the structure established in the Spanish National Accounting Plan.

Monetary unit

The amounts contained in the documents com-prising these fi nancial statements are expressed in euro.

3. Distribution of Income

The Board of Directors of PRIM, S.A. has pro-posed the following distribution of income to the Shareholders’ Meeting:

DISTRIBUTION BASIS DISTRIBUTION

Income forthe year 10,088,856 Dividends 3,000,000

Voluntaryreserves 7,088,856

TOTAL 10,088,856 TOTAL 10,088,856

(euro)

75

4. Valuation standars

The Financial Statements were drafted in accor-dance with the accounting principles and stan-dards established in mercantile law; in particular, the following valuation methods were applied.

4.1. Intangible assets

Concessions, patents, licenses, brands and si-milar are valued at the acquisition price. Where operating and distribution rights have a specifi c term, they are amortised on a straight-line basis over that period. Other rights are amortised on a straight-line basis over fi ve years.

Computer software is valued at acquisition cost and amortised on a straight-line basis over fi ve years.

The “Other intangible assets” item contains other expenses for their acquisition cost or payment; they are amortised in the year they are incurred.

4.2. Tangible fi xed assets

Tangible fi xed assets are valued at the acquisition or production cost, net of accumulated deprecia-tion, and include the value of legal revaluations under Royal-Decree Law 7/1996. In addition to the amount invoiced by the supplier, the acquisi-tion price includes any additional expenses incu-rred up until the asset comes into service.

Depreciation is calculated on a straight-line basis using constant percentages determined on the basis of the asset’s estimated useful life.

The depreciation rates applied by the Group are as follows:

Buildings and other structures 2% - 3%

Machinery, installations and tools 8% - 20%

Vehicles 16%

Furniture and fi ttings 8% - 10%

Computer hardware 25%

Fixed asset maintenance and repair expenses are charged to income in the year in which they are incurred unless they entail an improvement or expansion, in which case they are capitalised.

Capitalised in-house work on fi xed assets inclu-des the costs of material and personnel expenses incurred, calculated on the basis of hours directly used, which are valued at the Group’s standard hourly rates.

4.3. Financial investments

Holdings in group and associated companies’ equity and other securities are valued at the acquisition cost paid at the time of subscription or purchase.

Provisions are recorded to adjust the book value to the market value or the net book value, ad-justed for unrealised capital gains, per the latest available fi nancial statements, if lower.

Dividends are recognised as revenues when en-titlement to collect them arises.

4.4 Own shares

These are listed marketable securities, which are valued at year-end at acquisition price, market price or underlying book value based on the net equity of the group headed by Prim, S.A., whi-chever is lowest, the appropriate provision being recorded as needed.

The market price is the lower of the following:

- Average market price in the last quarter of the year, or

- Market price on the balance sheet date or, if not available, on the immediately preceding day.

4.5. Inventories

Inventories are valued at the average acquisition or production cost, or at market value (if lower). For these purposes, the acquisition cost of mer-chandise, raw materials and ancillary materials is taken to be that on the supplier invoice plus all additional expenses incurred until the goods are in the warehouse.

76

The production cost of fi nished and semi-fi nished products is the acquisition cost of the raw ma-terials and other consumables plus the costs di-rectly allocable to the product and the reasonably allocable part of indirect costs, insofar as such costs correspond to the manufacturing period.

The Company records a provision to write off ex-pired, obsolete and slow-moving inventories.

The Company has licence contracts for some of the products it manufactures.

4.6. Classifi cation of debt

Debts maturing in less than 12 months from year-end are classifi ed as short term; those maturing at over 12 months are classifi ed as long term.

4.7. Trade accounts payable and receivable

Trade accounts payable and receivable, both short- and long-term, are recorded for their nomi-nal value. The necessary provisions are recorded to cover the bad debt risk.

4.8. Non-trade payables and receivables

Non-trade receivables, both short- and long-term, are recorded for the amount delivered. Interest is recognised in the year in which it accrues, by the interest method, and is recorded as interest re-ceivable on the asset side of the balance sheet. The appropriate provisions are recorded for bad debts.

Non-trade debts are recorded on the Balance Sheet at their repayment value.

Credit accounts are shown for the amount drawn.

4.9. Transactions and balances in foreign currency

Current transactions and balances in foreign cu-rrency are translated to euro at the offi cial ex-change rate on the day they were arranged.

Accounts receivable and payable are valued at year-end at the exchange rate in force at the time. Minor unrealised losses are charged to in-come and minor unrealised gains are recorded as deferred revenues on the liabilities side of the balance sheet.

4.10. Revenues and expenses

Revenues and expenses are recorded in accor-dance with the accrual principle, i.e. when the actual related fl ow of goods and services arises, regardless of the date of collection or payment.

Nevertheless, in accordance with the prudence principle, gains are only recorded at year-end whereas foreseeable risks and losses, including possible losses, are recorded as soon as they become known. Default interest arising by court order is recorded only when it is collected.

77

4.11. Corporate income tax

The corporate income tax expense is calculated on the basis of the income for the year, having re-gard to the timing and permanent differences bet-ween the book income and tax result (tax base) for the purpose of determining the tax which ac-crued in the year.

Differences between the corporate income tax payable and the corporate income tax expense are registered as prepaid or deferred income tax, as the case may be.

4.12. Environment

Environmental expenses correspond to the company’s environmental activities and are re-gistered under “Other operating expenses” in the accompanying Profi t and Loss Account under the accrual principle.

Environmental assets are recorded at acquisi-tion price or production cost, and are depreciated over their useful lives.

5. Intangible assets

The variations in the year were as follows:

BEGINNINGBALANCE

ADDITIONS /PROVISIONS RETIREMENTS ENDING

BALANCE

COST

Concesions, patents, licences, brands and similar

960,665 960,665

Computersoftware 281,940 22,734 304,674

Other intangibleassets 130,683 93,000 (130,683) 93,000

TOTAL 1,373,288 115,734 (130,683) 1,358,339

AMORTIZATION

Concesions, patents, licences, brands and similar

(927,672) (11,004) (938,676)

Computersoftware (247,504) (21,980) (269,484)

Other intangibleassets (130,683) (93,000) 130,683 (93,000)

TOTAL (1,305,859) (125,984) 130,683 (1,301,160)

NETINTANGIBLEASSETS

67,429 (10,250) 57,179

(euro)

The fully amortised items under this heading amounted to 1,235,537 euro at 31 December 2007 and 1,209,908 euro at 31 December 2006.

78

6. Tangible fi xed assets

In 2003, the Company signed a mortgage loan for 12,020,240 euro, of which 7,643,355 euro are outstanding at 31 December 2007, which is secu-red by the land and buildings located at avenida de Llano Castellano no. 43 (see Note 12), whose net book value is 3,783,450 euro.

The additions in the year are due mainly to acqui-sition of new tools.

The retirements in the year are due mainly to items in disuse.

Revaluation of tangible fi xed assets

The Company availed itself of the asset revalua-tions allowed under Royal Decree-Law 7/1996, dated 7 June, and included the corresponding re-valuation entries in the 1996 balance sheet.

The increase in value or net capital gain was cal-culated using the revaluation coeffi cients depen-ding on the year of acquisition of the asset. Tho-se coeffi cients were applied to both the cost and the accumulated depreciation, and the following values were obtained:

COST BEGINNING BALANCE ADDITIONS/PROVISIONS RETIREMENTS/REDUCTIONS TRANSFERS ENDING BALANCE


Plant and machinery 740,851 17,347 758,198

Other installations, tools and furniture 11,656,091 1,670,320 (124,841) 13,201,570

Other tangible fi xed assets 826,875 202,870 (52,918) 976,827

TOTAL 21,656,315 1,890,537 (177,759) 23,369,093

DEPRECIATION

Land and other structures (1,531,906) (170,071) (1,701,977)

Plant and machinery (482,379) (52,880) (535,259)

Other installations, tools and furniture (6,284,929) (1,852,676) 122,831 (8,014,774)

Other tangible fi xed assets (634,496) (96,192 52,520 (678,168)

TOTAL (8,933,710) (2,171,819) 175,351 (10,930,178)

NET TANGIBLE FIXED ASSETS 12,722,605 12,438,915

(euro)

The changes during the year in the various tangible fi xed asset accounts and in the related accumulated depreciation are as follows:

Revaluation of cost 1,673,663

Revaluation of depreciation (301,322)

Net capital gain (before tax charge) 1,372,341

(euro)

The undepreciated amount of the revaluation at 31 December 2007 was 122,977 euro.

The effect of the revaluation on the following year’s depreciation is not material.

Fully depreciated assets

At 31 December 2007, the Company had insta-llations, machinery, tools and furniture with a cost of 3,270,596 euro which were fully depreciated and still in use.

79

7. Financial investments

The variations in 2007 were as follows:

The holdings in the various companies were notifi ed to them appropriately.

Holdings in Group companies

The holdings in group companies at 31 Decem-ber 2007 are represented by the investment in the following unlisted companies.

Information about Group companies

The principal details of the aforementioned inves-tees is as follows:

● INMOBILIARIA CATHARSIS, S.A. (Sociedad Unipersonal)

At 31 December 2007, the Company owned 1,967 shares of INMOBILIARIA CATHARSIS, S.A., re-presenting 100% of its capital.

BEGINNINGBALANCE

ADDITIONS/PROVISIONS REDUCTIONS ENDING

BALANCE

ASSETS

Holdings in Group companies

8,206,818 488,000 8,694,818

Holdings in associatedcompanies

5,392,275 180,165 (2,000) 5,570,440

Long-termsecuritiesportfolio

1,428,033 306,450 1,734,483

Other debt-claims 120,000 125,400 245,400

Long-term depositsand guaranteesprovided

123,552 130,970 254,522

Provisions (2,035,263) (456,454) (2,491,717)

TOTAL 13,235,415 774,531 (2,000) 14,007,946

(euro)

Enraf Nonius Ibérica, S.A. 685,544

Establecimientos Ortopédicos Prim, S.A. 1,322,029

Mediprim, S.L. (Soc. Unipersonal) 3,035

Enraf Nonius I. Portugal Lda 100

Inmobiliaria Catharsis, S.A. (Soc. Unipersonal) 2,494,204

Luga Suministros Médicos, S.L 4,189,906

NET VALUE 8,694,818

(euro)

Domiciled in Barcelona at C/ Nilo Fabra no. 38, this company was constituted in 1964 and its cor-porate purpose is to engage in all types of real estate transactions involving the purchase and sale of rural and urban properties, exploiting pro-perties, constructing, repairing and refurbishing buildings, construction of industrial buildings, and the sale of properties of all types.

The main fi gures for this company at 31 Decem-ber 2007 are as follows:

The higher value of this company’s assets justi-fi es the difference between the cost of the inves-tment and its underlying book value.

During 2007, Prim, S.A. collected 85,186 euro in dividends from Inmobiliaria Catharsis, S.A.

● ENRAF NONIUS IBÉRICA, S.A.

At 31 December 2007, the Company owned 65,999 shares of ENRAF NONIUS IBÉRICA, S.A., representing 99.99% of its capital.

ENRAF NONIUS IBÉRICA, S.A. has its registe-red offi ces at Polígono Industrial 1, Calle F, 15, Móstoles, Madrid; its corporate purpose is the distribution, sale and installation of products in the fi eld of physiotherapy, home medical care and rehabilitation.

The main fi gures for this investee at 31 Decem-ber 2007 are as follows:

Capital Stock 118,217

Share premium 649,746

Legal reserve 23,642

Other reserves 43,143

2007 income after taxes 95,324

TOTAL 930,072

INMOBILIARIA CATHARSIS, S.A.(Soc. Unipersonal) (euro)

Capital Stock 396,660


Other reserves 2,769,543

2007 income after taxes 1,311,935

TOTAL 4,557,471

ENRAF NONIUS IBÉRICA, S.A. (euro)

80

During 2007, Prim, S.A. collected 2,299,313 euro in dividends from Enraf Nonius Ibérica, S.A.

● ESTABLECIMIENTOS ORTOPÉDICOS PRIM, S.A

At 31 December 2003, the Company owned 16,999 shares of ESTABLECIMIENTOS ORTO-PÉDICOS PRIM, S.A., representing 99.99% of its capital.

ESTABLECIMIENTOS ORTOPEDICOS PRIM, S.A. has its domicile in C/ Conde de Peñalver, 24, Madrid and its corporate purpose is to en-gage in all types of transactions of commerce or industry relating to the manufacture, purchase, sale, import, export, adaptation, placement and distribution of medical, surgical and similar ma-terial.

The main fi gures for this investee at 31 December 2007 are as follows:

The provision for depreciation at year-end amoun-ted to 83,134 euro.

Capital stock 510,850




Prior years’ losses (621,758)

2007 income after taxes (21,204)

TOTAL 1,238,895

ESTABLECIMIENTOS ORTOPÉDICOS PRIM, S.A. (euro)

● MEDIPRIM, S.L. (Sociedad Unipersonal)

At 31 December 2007, the Company owned 101 shares of MEDIPRIM, S.L., representing 100% of its capital.

MEDIPRIM, S.A. has its registered offi ces at Polí-gono Industrial 1, Calle F, 15, Móstoles, Madrid. Its corporate purpose is the distribution and sale of medical products.


During 2007, Prim, S.A. did not collect a dividend from Mediprim, S.L. (Sociedad Unipersonal).

● LUGA SUMINISTROS MÉDICOS, S.L.

The registered offi ces of LUGA SUMINISTROS MÉDICOS, S.L. are at Polígono Industrial Monte Boyal, Avenida Constitución, parcela 221, Ca-sarrubios del Monte (Toledo), and its corporate purpose is the sale, manufacture, packaging, packing, sealing, import and export of all types of medical and surgical instruments, orthopaedic devices, dressings, bandages, podology equip-ment and materials of therapy and hygiene, and podology chairs and instrumentation.


Capital stock 3,035

Legal reserve 607


Prior years’ losses (10,110)

2007 income after taxes 431

TOTAL 11,636

MEDIPRIM, S.L. (Sociedad Unipersonal) (euro)

Capital stock 6,010

Legal reserve 1,202


Prior years’ profi ts 747,746


TOTAL 1,469,453

LUGA SUMINISTROS MÉDICOS, S.L. (euro)

81

A total of 470,000 euro in dividends were collected in the year.

The provision for depreciation at year-end amoun-ted to 1,155,251 euro.

At the time of acquiring control, the Company granted the sellers a put option on the other 40% of Luga Suministros Médicos, S.L. Under the conditions established in the share purchase agreement, the Company was obliged to buy tho-se shares if the sellers exercised their put option within the established times and limits, which are as follows:

The price at which the option can be exercised is determined by the previous year’s income and the net asset position at year-end.

In 2007, the sellers exercised their put option and sold 10% of Luga Suministros Médicos, S.L., thus increasing Prim, S.A.’s stake from 60% to 70% for a payment of 488,000 euro.

Holdings in associated companies.

● RESIDENCIAL CDV – 16, S.A.

The company owns 560,951 shares of RESIDEN-CIAL CDV – 16, S.A., representing 48.68% of its capital, with a net book value of 4,807,637 euro.

In 2007, the Company increased its holding in RESIDENCIAL CDV – 16, S.A from 47.64% to 48.68%, with the result that it owned 560,951 shares at 31 December 2007. That additional in-vestment cost 180,165 euro.

RESIDENCIAL CDV – 16, S.A. has its domicile in C/ Romero Girón no. 9, Madrid, and its corpora-te purpose is to operate and manage retirement homes.

Period maximum % of capital that canbe sold in the period

From 1.1.2007 to 30.6.2007 10%

From 1.1.2008 to 30.6.2008 10%

From 1.1.2009 to 30.6.2009 10%

From 1.1.2010 to 30.6.2010 10%

TOTAL 40%

LUGA SUMINISTROS MÉDICOS, S.L. (euro)


This data matches with the Company’s best es-timates based on the latest fi nancial data recei-ved, which referred to 30 June 2007.

RESIDENCIAL CDV-16, S.A., owns a stake in the following company:

● E.G. VALMONTE, S.L.

On 31 December 2007, the stake in E.G. VAL-MONTE, S.L. represented 100% of its capital , its net book value being 3,005 euro.

E.G. VALMONTE, S.L. is domiciled in Madrid and its corporate purpose is to provide assistance and social services in retirement homes.

The main fi gures for E.G. VALMONTE, S.L. at 31 December 2007 are as follows:

Capital stock 3,005

Legal reserve 601

Other reserve 51,912


TOTAL 73,269

E.G. VALMONTE, S.L. (euro)

Capital Stock 6,925,763



Other reserves 1,208,406


TOTAL 9,447,672

RESIDENCIAL CDV - 16, S.A. (euro)

82

● BBE HEALTHCARE LTD.

The company owns 37,733 shares of BBE HEALTHCARE LTD, representing 29.21% of its capital, with a net book value of 586,150 euro.

The registered offi ces of BBE HEALTHCARE LTD. are in Ireland and its corporate purpose is the manufacture and sale of medical and surgical equipment.


During 2007, Prim, S.A. collected 28,628 euro in dividends from BBE HEALTHCARE LTD.

● NETWORK MEDICAL PRODUCTS LTD.

The company owns 37.54% of NETWORK ME-DICAL PRODUCTS LIMITED, with a net book value of 176,653 euro.

The registered offi ces of NETWORK MEDICAL PRODUCTS LIMITED are in England and its cor-porate purpose is the sale of medical products.

The latest fi gures for this investee at 30 April 2007 are as follows:





TOTAL 564,881

BBE HEALTHCARE LTD. (euro)


Share premium 1,487

Prior years’ income 176,197

Income after taxes at 30.4.2007 69,741

TOTAL 710,356

NETWORK MEDICAL PRODUCTS LTD. (euro)

Long-term securities portfolio

On 15 December 2005, the Company acquired 1,474 new shares of INTERACTIF DEVELOP-MENT, S.A. for 53,333 euro, with the result that its total cost of ownership at 31 December 2007 was 1,253,333.

The company owns 22.93% of INTERACTIF DE-VELOPMENT, S.A., but it does not exert a signi-fi cant infl uence on its management. Its net book value is 0 euro.

INTERACTIF DEVELOPMENT, S.A. is a holding company domiciled in Belgium.

INTERACTIF DEVELOPMENT, S.A. is the ma-jority shareholder of EUROSURGICAL, S.A., a French company that manufactures spinal column and neurosurgery products with which PRIM, S.A. has an exclusive distribution contract running until 31 December 2010. The business associated with this contract, which was signed at the same time as the share acquisition, jus-tifi ed the difference between the cost of the in-vestment and its carrying value. Because of the risk of an adverse court decision for Eurosurgical, S.A. in litigation with a distributor in the US, this investment has been fully provisioned.

On 23 October 2006, the company acquired 10% of French company SAS SAFE TEE FIXE. It acquired 830 shares at a cost of 166,000 euro.

On 15 March 2007, the company acquired 4.8% of US company Choice Therapeutics, Inc. It acqui-red 200,000 shares at a cost of 305,250 euro.

On 29 May 2007, the company acquired 3% of French company Hesperis Chirurgical. That in-vestment cost 1,200 euro.

Long-term deposits and guarantees provided

The increase in 2007 was due to the long-term deposits provided in the year for lease contracts signed by the company.

83

8. Long term trade accountsreceivable

These long-term receivables are the Company’s best estimate based on the balance due from various public health services; experience has shown that these debts are collected at more than one year from the balance sheet date.

The estimated collection period varies between two and three years.

9. Own shares

The variations in 2007 were as follows:

In accordance with current legislation, the appro-priate reserve has been recorded for own shares, as described in Note 11 “Shareholders’ equity”.

Own shares are provisioned to refl ect the value of equity as disclosed in the Consolidated Financial Statements.

In 2007, the provision for own shares increased by 852,000 euro; 358,071 against income due to share performance and 493,929 against reserves

Number of shares Cost Provision Total

Situation at 31.12.06 32,604 405,443 (296,542) 108,901

Acquisitions/Provisions 217,889 3,217,750 3,217,750

Decreases (139,912) (2,095,117) (2,095,117)

Capital Increase 320 0 0

Value adjustments (852,000) (852,000)

Situation at 31.12.07 110,901 1,528,076 (1,148,542) 379,534

(euro)

on the basis of its carrying value determined from the consolidated group’s equity.

10. Group companies

The detail of the balances with group companies included in this heading at 31 December 2007 is as follows:

TRADEACCOUNTS

RECEIVABLE

NON-TRADEACCOUNT

RECEIVABLE

TRADEACCOUNTS

PAYABLE

NON-TRADEACCOUNTS

PAYABLE

Enraf Nonius Ibérica, S.A. 40,514 177,408

Establecimientos Ortopédicos Prim, S.A. 156,159 6,074

Mediprim, S.L (Soc. Unipersonal). 9,000

Luga Suministros Médicos, S.L. 17,709 16,931

Inmobiliaria Catharsis, S.A. (Soc .Unipersonal) 404,400

Enraf Nonius Ibérica Portugal, Lda 23,147

TOTAL 237,529 200,413 413,400

(euro)

84

SUBSCRIBEDCAPITAL

SHARE PREMIUM

LEGALRESERVE

REVALUATIONRESERVE

VOLUNTARYRESERVE

RESERVE FOR AMORTIZED

CAPITAL

RESERVE FOR OWN

SHARES

INTERIMDIVIDEND

INCOME2006 2007

SHAREHOLDERS’EQUITY

BALANCE AT 31.12.06 3,258,288 1,227,059 774,104 1,331,172 25,107,194 1,256,815 108,901 (1,042,652) 6,309,508 38,330,389

Capital increase 325,829 (325,829) 0

Reserve forown shares (270,623) 270,623 0

Provisions ofown shares (493,929) -

379,534493,929

-

Distribution of2006 income -

- Transfer to reserves 4,159,037 (4,159,037) -

- Dividend payments 1,042,652 (2,150,471) (1,107,819)

2007 income 10,088,856 10,088,856

Interim dividend (1,368,481) (1,368,481)

BALANCE AT 31.12.07 3,584,117 1,227,059 774,104 1,331,172 28,175,840 1,256,815 379,534 (1,368,481) 0 10,088,856 45,449,016

(euro)

11. Shareholders’ equity

The variations in the “Shareholders’ equity” accounts in the year ended 31 December 2007 were as follows:

11.1. Capital stock at 31 December 2007

All the shares are listed on the Madrid Stock Ex-change; they have also been listed on the Valen-cia Stock Exchange since 8 February 2005.

On 14 March 2005, the National Securities Mar-ket Commission (CNMV) notifi ed Prim that it had decided that Prim’s shares will be traded by the fi xing mechanism. The change of trading method took effect on 1 April 2005.

On 1 June 2005, PRIM, S.A.’s shares commen-ced trading on the electronic market.

On June 30 2007 the Ordinary Shareholders’ Meeting unanimously approved:

the fi nancial statement and directors’ report • for the Company and consolidated Group for 2006, as well as the distribution of income con-sisting of the distribution of a gross dividend of

2,150,470.80 euro, the remainder being allo-cated to voluntary reserves.

A 1-for-10 bonus issue out of unrestricted • reserves in the amount of 325,828.75 euro through the issuance of 1,303,315 new sha-res with a par value of 0.25 euro each, on the basis of the Company’s balance sheet as of 31 December 2006, audited by ERNST & YOUNG, S.L. in accordance with article 157.2 of Spanish Corporations Law.

Below is a summary of the main agreements adopted by the Board of Directors in 2007:

● 26 September 2007

An agreement was reached regarding an interim dividend out of 2007 earnings of 0.05 euro gross per share to the 13,033,152 shares outstanding at that date. In order to comply with the provi-sions of article 216 of the Consolidated Corpo-rations Law, the mandatory report set out below was drafted:

85

● 25 October 2007

– All 1,303,315 new shares issued under a Board of Directors agreement in June 2007 are consi-dered to be distributed upon completion of the free allocation period; they have a nominal va-lue of 0.25 euro each.

– The transfer of 325,828.75 euro to the capi-tal stock account out of unrestricted reserves is declared offi cial, and the latter’s balance is subsequently reduced by the aforementioned amount.

– As a result, Prim, S.A.’s capital stock is increa-sed by 325,828.75 euro through the issue of 1,303,315 new shares of the same series and with the same rights as outstanding shares at that date, with a nominal value of 0.25 euro each, which were fully subscribed and paid.

● 26 December 2007

A dividend of 0.05 euro gross per share to each of the 14,336,467 shares outstanding at that time was declared. It was agreed to pay the dividend on 10 January 2008. In order to comply with the provisions of article 216 of the Consolidated Cor-porations Law, the mandatory report set out be-low was drafted:

As of 31 December 2007 the capital stock of Prim, S.A. amounted to 3,584,116.75 euro, re-presented by 14,336,467 shares of 0.25 euro par




Cash and cash equivalents and creditavailable at 2 October 2008 10,980,402


Income obtained since the last year(January to September 2007) 8,380,876


TOTAL 5,657,091


(euro)

value each, all of which were fully paid and had the same rights and obligations. The shares are represented by book entries.

11.2. Reserve for amortised capital

In compliance with current legislation, the Com-pany has recorded reserves for the same amount by which capital has been reduced in preceding years. As provided by the applicable legislation, this reserve is restricted until fi ve years after the date of publication of the reduction unless all the Company’s debts incurred prior to the date upon which the capital reduction became effective vis-à-vis third parties are discharged before then. The detail of the reserve, in terms of the years in which it was recorded, is as follows:

11.3. Legal reserve

This reserve has reached the required level of 20% of capital stock. In accordance with the con-solidated text of the Spanish Corporations Law, the balance of this reserve may only be used to offset losses in the Profi t and Loss Account if the-re are no other unrestricted reserves available for this purpose, or to increase capital stock, provi-ded that its balance is not reduced to less than 10% of the increased amount of capital stock.

1997 774,104

2001 362,861

2002 119,850

TOTAL 1,256,815

Year of capital reduction (euro)



Projected collections less projectedpayments in the period 1,394,922

Cash and cash equivalents and creditavailable at 26 December 2008 13,701,965


Income obtained since the last year(January to December 2007) 13,687,586


TOTAL 10,188,795


(euro)

86

11.4. Revaluation reserve

The balance of this item is the Revaluation Reserve under Royal Decree-Law 7/1996, da-ted 7 June, which was included in the 1996 Consolidated Balance Sheet and is the result of revaluing the tangible fixed assets in accor-dance with the regulations governing those transactions, less the 3% tax charge applied to the revaluations.

The detail of the Revaluation Reserve is as fo-llows:

The revaluation entries and the balance of this reserve were approved by the tax inspection au-thorities on 24 November 1998. From that appro-val date, the reserve may be used to offset book losses, increase capital stock at the company, or, from 31 December 2006 (ten years after the date of the balance sheet disclosing the revaluation), it may be transferred to unrestricted reserves. The balance of the reserve may not be distribu-ted, directly or indirectly, unless the capital gain has been fully realised through the sale or full de-preciation of the revalued assets.

11.5. Reserve for own shares

Own shares were acquired in 2007. On 31 Dec-ember 2007, PRIM, S.A. held 110,901 shares, re-presenting 0.77% of capital stock. These shares were acquired for a total of 1,528,076 euro; that amount is registered in the balance sheet, minus a provision for depreciation that the Company bo-oked at year-end, and a restricted reserve for the net book value of those shares, 379,534 euro, is recorded under Shareholders’ equity.

12. Bank debt

● Long-term debt

The composition and net changes during the year in the long-term debt accounts are as follows:

Revaluation of tangible fi xed assets (Note 6) 1,372,341

Tax charge - 3% of the revaluation (41,169)

TOTAL 1,331,172

(euro)

● Credit lines

These are credit lines in euro arranged with va-rious banks, which accrue interest at Euribor plus a spread. A total of 5,348,977 euro of these credit lines was undrawn at 31 December 2007.

The total limit of the credit lines is 6,400,000 euro, which will be reduced according to the following schedule:

● Mortgage loans

On 31 July 2001, the Company arranged a mort-gage loan for 7,212,145.25 euro which is secu-red by the construction performed in the building described in Note 6. That loan was expanded by 4,808,095 euro in January 2003, secured by the additional refurbishment and extension work performed on that premises, so that the available limit amounts to 12,020,240 euro.

Other signifi cant features of the loan are as follows:

CREDITLINES

MORTGAGELOAN

OTHERLOANS TOTAL

Balance at 31.12.06 1,499,887 7,643,355 5,435,076 14,578,318

Additions 13,384,481 5,827 13,390,308

Decreases (13,833,345) (1,119,165) (1,308,035) (16,260,545)

Balance at 31.12.07 1,051,023 6,524,190 4,132,868 11,708,081

(euro)

2009 2,700,000

2010 2,700,000


TOTAL 6,400,000

Year (euro)

Repayment period

– The repayment deadline is 147 months after the date of signature, with a grace period from that date until 31 October 2003.

– Repayment is to be in 40 quarterly instal-ments from 31 October 2003.

Interest

– The interest rate in the fi rst year was 3.517% per year.

– For the remainder of the loan period, the interest rate is established at the one-year interbank reference rate in euro plus 0.5 points.

(euro)

87

This loan matures as follows:

● Other loans

The balance of other loans relates to two loans to fi nance the Company’s operations; the details are as follows:

● Current liabilities

The variations in the year were as follows:

A total of 3,631,201 euro of these credit lines was undrawn at 31 December 2007.

The Company had 1,078,503 euro in unmatured discounted notes at 31 December 2007.

The interest accrued but not yet matured on bank debt amounted to 112,228 euro at 31 December 2007 and is classifi ed as a current liability.

2009 1,176,923

2010 1,237,664

2011 1,301,540


TOTAL 6,524,190

Year (euro)

Loan I Loan II Total

Initial Capital 4,500,000 4,500,000 9,000,000

Starting date 27,10,2005 22,11,2005

Maturity date 27,10,2012 22,11,2010

Instalments Quarterly Half-yearly

Interest Euribor+0.5% Euribor+0.45%

Maturities

2009 634,159 703,125 1,337,284

2010 664,822 703,125 1,367,947

2011 696,968 696,968

2012 and thereafter 730,669 - 730,669

TOTAL 2,726,618 1,406,250 4,132,868

(euro)

Creditlines

Mortgageloan

Other loan TOTAL

Balance at 31.12.06 1,092,366 1,104,140 1,292,829 3,489,335

Additions 0 15,024 15,206 30,230

Decreases (122,567) 0 0 (122,567)

Balance at 31.12.07 969,799 1,119,164 1,308,035 3,396,998

(euro)

13. Other long-term debt

The variations in this account in 2007 were as follows:

● Other debts

The ending balance of “Other debts” in the above table refers to:

Outstanding corporate income tax amounting to 288,797 euro which has been deferred under the regulations governing the reinvestment of capital gains on the disposal of intangible assets and fi -nancial investments in 1996, 1997 and 1999.

In accordance with the applicable tax legislation, future payments of this deferred debt to the Admi-nistration will be made in accordance with the de-preciation of the assets in which the gains were reinvested, in some cases, and by an increase of one-seventh on the originally deferred amount, in other cases. It is estimated that approximately 94,237 euro will be paid in the next year; that amount is classifi ed as a current liability. The difference (288,797 euro) is classifi ed as Other long-term debt.

The outstanding amounts for a loan from Centro de Desarrollo Tecnológico. The loan, amounting to 54,090 euro, does not accrue interest. It will be repaid in 2 annual instalments of 20,194 euro each in January 2008 and 2009, plus a single pa-yment of 13,703 euro in 2010. The “Other long-term debt” caption contains 33,897 euro payable in 2009 and 2010.

This balance sheet caption also contains long-term deposits received for the operating leases on structures that were arranged in 2007. Those deposits amount to 139,504 euro.

14. Balances with public administrations

The balances with public administrations at 31 December 2007 are as follows:

Beginning balance Increases Decreases Ending

Balance

Other debts 459,329 109,107 (106,238) 462,198

TOTAL 459,329 109,107 (106,238) 462,198

(euro)

88

● Years open for review



ACCOUNTS PAYABLE

Deferred taxes 0

Personal income tax payable 433,939

Other taxes (VAT, IGIC) payable 112,922

Social security payable 242,296

2007 corporate income tax payable 1,117,478

TOTAL 1,906,635

(euro) 15. Tax situation

The reconciliation between book income before taxes and the corporate income tax base, and the calculation of the corporate income tax, are as follows:

The tax credits are as follows:

– Double taxation (927,712)– Training (1,498)– Exports (11,160)Total (940,730)

● Deferral due to reinvestment

The Company has availed itself of the deferral of corporate income tax on extraordinary gains obtai-ned on the disposal of intangible assets and fi nan-cial investments in 1996, 1997 and 1999. Under the applicable tax regulations, there are certain investment commitments relating to the capital gains on those disposals, as shown below:

Book income before tax 13,528,789

Permanent differences (28,628)

Timing differences (deferral due to reinvestment)

Arising in previous years 289,961

Taxable income 13,790,122

Tax: 32,5% of taxable income 4,481,789

Tax credits (940,370)

Withholdings and pre-paid taxes (2,423,941)

Net tax payable 1,117,478

(euro)

Calculation of the corporate income tax expense

Book income plus permanent differences 13,500,161

32,5% of book income plus permanent differences 4,387,552

Tax credits (940,370)

Corporate income tax expense accrued in 2007 3,447,182

Adjusment for change in tax rate from 35% to 32,5% (7,249)

Corporate income tax expense booked in 2007 3,439,933

(euro)

Capitalgains

Amount reinvested

through31.12.98

Amountreinves-

ted in 1999

Pending

Obtained in 1996 1,568,641 1,568,641 - -

Obtained in 1997 3,629,398 1,870,698 1,758,700 -

Obtained in 1999 506,178 - 506,178 -

TOTAL 5,704,217 3,439,339 2,264,878 -

(euro)

89

Under current legislation, the assets in which the investments were made must remain in the Company’s balance sheet for seven years.

16. Revenues and expenses

16.1 Breakdown of net sales

The breakdown of the Company’s net sales in its ordinary activities is as follows:

All of net sales are obtained in the medical and hospital supplies business.

16.2. Other operating revenues

Revenues amounting to 722,132 euro were re-gistered on the lease of a premises in Avenida Llano Castellano.

16.3. Employee welfare expenses

This item contains no contribution or provision for pensions or similar obligations; the entire amount relates to social security payments and other mi-nor payments (training, etc.).

16.4. Purchases

The composition of the “Merchandise consumed” and “Raw and other materials consumed” ac-counts in 2007 is as follows:

National Market 57,277,305

Exports 6,654,892

TOTAL 63,932,197

(euro)

Merchandise consumed

Merchandise purchased 25,157,910

Variation in invetories (2,372,387)

Volume discounts and returns of purchases (61,688)

TOTAL 22,723,835

Raw and other materials consumed

Purchases 2,678,291

Volume discounts on purchases (1,983)

Variation in inventories (21,675)

TOTAL 2,654,633

(euro)

16.5. Variation in provisions for,and loss on, bad debts.

The detail of the “Variation in provisions for, and loss on, bad debts” in 2007 is as follows:

16.6. Other interest and similar revenues

This account contains 612,792 euro of default interest on old accounts receivable from public authorities which was collected by court order.

16.7. Average workforce

The average workforce in 2007 was 326, distribu-ted as follows:

17. Transactions with group companies

Bad debts 61,451

Variation in provisions for bad debts (110,982)

TOTAL (49,531)

(euro)

Sales staff 80 28 108

Clerical staff 38 65 103

Plant staff 41 74 115

TOTAL EMPLOYEES 159 167 326

Men Women Total

Revenues

Sales 501,187

Services provided 1,021,084

Expenses

Purchases 348,183

Services provided 205,430

Interest 59,059

(euro)

90

18. Information about the Directors

The remuneration of the members of the Board of Directors arising from their status as heads of the various functional areas for which they are responsible amounted to 635,899.27 euro, while senior management remuneration amounted to 280,094.91 euro.

There is also a provision of 556,000 euro for members of the Board of Directors as a share in Company income.

The directors have notifi ed the Company that they own the following holdings in companies whose corporate purpose is the same as, or similar or analogous to, that of the Company.

The directors have also confi rmed the following in connection with holding positions or functions in companies whose corporate purpose is the same as, or similar or analogous to, that of the Com-pany, or the performance, for their own account or that of third parties, of an activity that is the same as, or similar or analogous to, that constitu-ting the Company’s corporate purpose.

Director Investee Ownership interest % Position

Victoriano Prim González Enraf Nomius Ibérica, S.A 0.01

Joint and Several Administrator

Victoriano Prim GonzálezEstablecimientos

Ortopédicos Prim, S.A.

0.01 Joint and Several Administrator

Director Position/Function Company

Victoriano Prim González Joint and Several Administrator


Victoriano Prim González Joint and Several Administrator

ESTABLECIMIENTOS ORTOPÉDICOS PRIM, S.A

Victoriano Prim González Director ENRAF NONIUS I. PORTUGAL LDA

Victoriano Prim González Chairman LUGA SUMINISTROS MÉDICOS, S. L.



ESTABLECIMIENTOS ORTOPÉDICOS PRIM, S.A.






MEDIPRIM, .S.L.(SOCIEDAD UNIPERSONAL)



INMOBILIARIA CATHARIS, S.A. (SOCIEDAD UNIPERSONAL)

Carlos José Rodríguez Alvarez Director BBE HEALTHCARE, LTD

Carlos José Rodríguez Alvarez Director NETWORK MEDICAL

PRODUCTS, LTDCarlos José Rodríguez Alvarez Director and Secretary LUGA SUMINISTROS

MÉDICOS, S. L.José Luis Meijide García Director BBE HEALTHCARE, LTD

José Luis Meijide García CEO LUGA SUMINISTROS MÉDICOS, S. L.

Neither the directors nor persons acting for their account performed transactions with the Com-pany (or other companies in its Group) other than in the normal course of business or other than at arm’s length.

19. Transactions in foreign currency

The Company made purchases in foreign curren-cy for a total of 7,165,155 euro in 2007.

20. Guarantees to third parties

At 31 December 2007, the Company had provided sureties to third parties in guarantee of supplies (government tenders) for a total of 1,003,407.22 euro.

At 31 December 2007, the Company had posted a bond of 47,107 euro with the Madrid Central Economic-Administrative Tribunal for appeals against tax assessments.

On 25 September 2003, the Board of Directors resolved, among other matters, to provide a su-rety of at most 40,000 pounds sterling to the com-pany Network Medical Products Ltd.

21. Enviromental aspects

During the year, the Company did not incorporate systems, equipment or installations, and did not record material expenses, in connection with en-vironmental protection and improvement.

91

The accompanying Balance Sheet does not con-tain any provisions for environmental matters sin-ce the directors of the Company consider that, at year-end, there were no liabilities to be settled in the future arising from actions by the Company to prevent, abate or repair damage to the envi-ronment, and that any such liabilities would be non-material.

22. Information about the ConsolidatedFinancial Statements

In accordance with current legislation, the Company presents Consolidated Financial Statements separately from its individual fi nan-cial statements.

23. Auditors’ fees

The fees paid to the main auditor in 2007 amoun-ted to 86,200 euro; they relate to the controlling company and the dependent companies.



Approve the Company’s Separate Balance • Sheet as of 31 December 2007.

Ratify the decision to increase capital out of • reserves in the proportion of 1 new share with a par value of 0.25 euro per 10 existing sha-res, which was approved by the Shareholders’ Meeting on 27 February 2008. As a result, 1,433,646 shares will be issued; this measu-re is in line with the Board of Directors’ policy to adopt the necessary actions to increase the share’s liquidity. Following the resolution, the capital stock totalled 3,942,528.25 euro, repre-sented by 15,570,113 shares with a par value of 0.25 euro each.

25. Statement of changes in fi nancial position

Funds applied 2007 2006 Funds obtained 2007 20061. Fixed asset acquisitions: 1. Funds from operations 12,895,150 9,243,838a) Intangible assets 115,734 140,191 2. Long-term debt: 0b) Tangible fi xed assets 1,890,537 1,007,209 a) Borrowings and other similar libialies 13,496,546 24,799,452c) Financial investments 1,230,985 1,030,430 0

0 02. Long-term debt 0 3,370,415 2. Long-term debt 2,657,8213. Cancellation or transfer to short term of: 0 3. Disposal of fi xed assets: 0a) Borrowings and other similar liabilities 16,363,914 29,971,551 a) Intangible assets 0b) Other debt 0 b) Tangible fi xed assets 9,527 5,289

0 c) Financial investiments 2,000

4. Interim payments 1,368,481 1,042,652 4. Cancellation or transfer to short termoffi nancial investiments 0

6. Dividend payments 1,107,819 829,383 07. Provision for own shares 493,929 33,498 0TOTAL FUNDS APPLIED 22,571,399 37,425,329 TOTAL FUNDS OBTAINED 29,001,888 34,048,579FUNDS OBTAINED IN EXCESS OF FUNDS APPLIED(Increase in working capital) 6,430,489 FUNDS APPLIED IN EXCESS OF FUNDS OBTAINED

(Decrease in working capital) 3,376,750

(euro) (euro)

2007 2006

Book income 10,088,856 6,309,508

+ Fixed assets depreciation and amortisation 2,297,803 2,152,313

+ Period provision for own shares 0 87

- Gain on disposal of fi xed assets (7,119) 0

+ Variation in provision for fi xed assets 456,454 781,930

TOTAL FUNDS FROMOPERATIONS 12,835,994 9,243,838

ANALYSIS OF FUNDS FROM OPERATIONS (euro) 2007 2006

Increases Decreases Increases Decreases

Inventories 2,275,973 573,356Accounts receivable 2,689,330 2,065,034Accounts payable 151,854 3,011,501Short-term fi nancial investments 10,365Cash 1,042,699 1,154,168Own Shares 270,633 17,374Accurual adjustmentsTOTAL 6,430,489 1,727,524 5,104,274INCREASE (DECREASE) INWORKING CAPITAL 6,430,489 3,376,750

VARIATION IN WORKING CAPITAL (euro)

92









93

Directors’Report

Individual Society

96

1. Business perfomance

The Company increased sales by 14.04% with respect to 2006; the hospital supplies division was the best performer. Net profi t increased by 59.90% in 2007.

2. Research and development

In 2007, we worked on developing the necessary moulding and machinery to manufacture neck bra-ces, which we aim to begin selling in 2008.

The Camp 21 line was also revised and updated, and sales began in February.

3. Transactions with own shares

The Company had 32,604 own shares at the be-ginning of the year. During the year, it purchased and sold own shares, ending the year with 110,901 shares, i.e. 0.77% of capital stock.


On 4 January 2008, the Board of Directors schedu-led the Shareholders’ Meeting for 27 February 2008 in order to:

Increase capital stock out of reserves and, con-• sequently, amend article 5 of the Articles of As-sociation.


Approve the Separate Balance Sheet as of 31 • December 2007.

Ratify the decision to increase capital out of re-• serves in the proportion of 1 new share with a par value of 0.25 euro per 10 existing shares, which was approved by the Shareholders’ Mee-ting on 27 February 2008. As a result, 1,433,646 shares will be issued; this measure is in line with the Board of Directors’ policy to adopt the neces-sary actions to increase the share’s liquidity. Fo-llowing the resolution, the capital stock totalled 3,942,528.25 euro, represented by 15,570,113 shares with a par value of 0.25 euro each.

5. Information under article 116 bisof the Securities Market Law.

5.1. Capital structure

Capital stock is represented by 14,336,467 shares of 0.25 euro par value each, all of which are fully paid and have the same rights and obligations; ac-cordingly, the total par value is 3,584,116.75 euro. The shares are represented by book entries.

5.2. Restrictions of the transfer of securities

There are no legal restrictions on the acquisition or transfer of shares in capital.

5.3. Signifi cant direct and indirectstakes in capital

In accordance with the information reported by the CNMV, the signifi cant holdings in the capital of Prim, S.A. are as follows:

Andrés Estaire Alvarez’s indirect stake is held through the company Bartal Inversiones, S.L. (a director of Prim, S.A.), which has a direct stake in Prim, S.A. of 7.568%.

5.4. Restrictions on voting rights

There no restrictions on shareholders’ voting rights under either the law or the Articles of Association.

5.5. Shareholder agreements

No shareholder agreements have been signed.

5.6. Regulations applicable to the appointment and replacement of members of the Board of Directors and amendments to the Company’s Articles of Association

5.6.1. Regulations applicable to the appointment and replacement of members of the Board of Directors.

There must be at least 4 and at most 10 directors.

The Board of Directors makes proposals to the Share-holders’ Meeting for the appointment and removal of

Shareholder Direct Indirect Total

Estaire Álvarez, Andres (1) 1.134 7.568 8.702

González de la Fuente, Mª Dolores 8.685 0.000 8.685

Herederos de Pedro Prim Alegría C. B. 12.215 0.000 12.215

Herencia de Ignacio Prim Alegría 8.685 0.000 8.685

Ruiz de Alda , Francisco Javier 4.519 0.000 4.519

%

97

directors and their number, based on the Company’s circumstances. The Board of Directors determines, at any given time, the procedures for appointing, re-appointing, evaluating and removing directors.

Under article 13 of the Board of Directors Regula-tion, directors’ duties include the obligation to resign if their continuance on the Board might jeopardise the Board’s operations or the Company’s credit and reputation.

There is no age limit for directors in either the Arti-cles of Association or the Board of Directors Regu-lation. There are no term limits.

One of the members of Board of Directors has a golden handshake clause in the event of removal. Such clauses require authorisation by the Board of Directors but the Shareholders’ Meeting need not be notifi ed.

5.6.2. Regulations applicable to the amendment of the Company’s Articles of Association.

Article 13 of the Articles of Association provides that the Ordinary or Extraordinary Shareholders’ Mee-ting may validly decide to issue bonds, increase or decrease capital, change the company’s corpora-te form or merge or demerge it and, generally, any other amendment to the Articles of Association; in general, to make any amendment to the Articles of Association, the meeting must be attended at fi rst call by at last 50% of the subscribed voting capital.

At second call, 25% will suffi ce although, if the sha-reholders in attendance represent less than 50% of the subscribed voting stock, the resolutions referred to in this paragraph may only be validly adopted with the favourable vote of two-thirds of the capital present or represented at the Meeting.

Article 11.3 of the Shareholders’ Meeting Regulation establishes that, if any items in the agenda require a special majority and that majority is not present, the agenda will be reduced to the items which do not require such a majority.

Also, article 11.14 establishes that the Chairman may put motions that have been debated in the Shareholders’ Meeting to the vote, voting being cast individually for each motion. And article 11.15 establishes that votes may be cast by shareholders of record by any of the electronic or postal means that may be accepted in the future for the purpose of voting.

5.6.3. Powers of the members of the Board of Directors, particularly with respect to the issuance and repurchase of shares.

On 30 June 2007, the Shareholders’ Meeting au-thorised the Board of Directors and subsidiaries to acquire own shares within the limits and subject to the requirements set out in article 75 and fi rst addi-tional provision 2 of the Corporations Law (LSA) and other matching provisions, by any legally per-missible means. The maximum number of shares to be acquired was set at 5% of capital stock, at a price of at least 1 euro and at most 50 euro. That authorisation was valid for 18 months from the date of the Shareholders’ Meeting.

Regarding the Board’s power to issue shares, it is subservient to the Shareholders’ Meeting as provided in article 13 of the Articles of Association, which is reproduced above in section 5.6.2 (Rules governing amendments to the Articles of Association).

6. Disclosures under Royal Decree 1362/2007

Article 8.b).1 of Royal Decree 1362/2007 makes it obligatory to disclose the risks and uncertainties fa-cing the company.

The main fi nancial instruments used by the Group are bank loans, demand deposits and short-term deposits. The main purpose of these fi nancial ins-truments is to fi nance the Group’s operations. Prim, S.A. has other fi nancial assets and liabilities, such as trade accounts receivable and payable, which arise directly in its operations.

Under the general risk policy, all of the Company’s capabilities are deployed so as to properly identify, measure, manage and controls risk of all types in line with the following principles:


Assurance of short- and long-term business and • fi nancial stability by maintaining an appropriate balance between risk, value and profi t.

Compliance with the current legislation regarding • control, management and supervision of risks.

Transparency regarding risks and the functioning • of control systems.

98

Company policy, which was maintained in 2007 and 2006, is not to negotiate fi nancial instruments.

The main risks deriving from the Company’s fi nancial instruments are the interest rate risk of cash fl ows, liquidity risk, exchange rate risk, and credit risk. The directors review and agree upon policies for mana-ging these risks, which are summarised below.


The Company is exposed to the risk of changes in the market interest rate, since its loans are at fl oa-ting rates (see Note 12).

The reference index of these bank loans is the in-terbank market rate plus a spread. That referen-ce index has not changed signifi cantly in recent years and, consequently, it is not considered that such changes will have a material impact on the Company’s Consolidated Profi t and Loss Account.


The sensitivity of earnings and equity to variations in interest rates is (as follows: analysis considering a change of +/-25% over current benchmark indices.)


The Company makes sales and purchases in cu-rrencies other than the euro. Nevertheless, most fo-reign currency transactions are made in currencies whose fl uctuations against the euro are small, and with short collection or payment periods; conse-quently, the potential impact of this risk on the Con-solidated Profi t and Loss Account is not material.

Main transactions in 2007 and 2006 in currencies other than the euro were purchases from suppliers as follows:


Bank current accounts in a currency other than • the local currency or the Company’s functional currency: the company’s balance in bank current accounts totalled 1,307,786 euro at 31 Decem-ber 2006 and 2,151,791 euro at 31 December 2007. Those balances in both years were entirely in US dollars.

Payments for supplies or services in currencies • other than the euro Payments in foreign currency by the Group totalled 6,131,460 euro in 2007 and 5,246,546 euro in 2006

Aside from the euro, the currency in which the Com-pany most often deals is the US dollar. The sensi-tivity of the Company’s consolidated earnings and equity to changes in the euro/dollar exchange rate is as follows:


6.3. Credit risk

The Company’s main customers are public and pri-vate entities of acknowledged solvency. Any custo-

Equivalent value in euroPurchases from suppliers 2007 2006Total purchases in foreign currency 7,163,999 6,465,234

EuroChanges in the

dollar/euro exchange rate

Effect on incomebefore taxes

Effect on equitybefore taxes

2007 +5% 308,821 --5% (341,329) -

2006 +5% 280,238 --5% (309,736) -

(euro)

Long-term debt 31.12.2006 31.12.2007 Interestrate Benchmark


Mortgage loan 7,643,355 6,524,191 Floating Interbankmarket

Other loans 5,539,940 4,202,819 Floating Euribor15,586,680 11,985,200

Short-term debtShort-term credit lines 1,198,317 1,331,894 Floating Euribor

Mortgage loan 1,104,140 1,119,164 Floating Interbank market


Other loans 1,334,761 1,411,576 Floating Euribor4,336,325 5,056,554

(euro)

+ 25% -25% + 25% -25%Effect income Effect on equity

31.12.2006 31.12.2007 31.12.2006 31.12.2007Long-term debtLong-term credit lines (15,005) 15,005 - -Mortgage loan (72,626) 72,626 - -Other loans (54,475) 54,475 - -

(142,106) 142,106 - -Short-term debtShort-term credit lines (9,130) 9,130 - -Mortagage loan (11,397) 11,397 - -Discounted bills (15,046) 15,046 - -Other loans (15,115) 15,115 - -

(50,689) 50,689 - -

(euro)

99

mer wishing to buy on credit is screened using the Company’s procedures for assessing solvency. Additionally, accounts receivable are monitored continuously, analysing customer balances and trends by customer type and region. As a result of intensive receivable management, the Company’s doubtful accounts receivable are not material.

At 31 December 2007 there was no signifi cant cre-dit concentration for the Company.

The analysis of fi nancial assets by age at 31 Dec-ember 2007 and 2006 is as follows:



Much of the debt is from the health departments of Spain’s Autonomous Regional Governments. Although invoices are generally paid in 90 days, some regions regularly delay payment by over two years. This does not represent a bad debt risk as practically all the amount past-due is recovered. Moreover, interest is payable on debts more than one year past-due, and this interest is normally co-llected by court order after the principal has been collected.

6.4. Liquidity risk

The Company’s goal is to strike a balance between continuity and fl exibility in fi nancing, mainly by using bank loans.

The maturity of those fi nancial instruments coinci-des in time with the cash fl ows generated by the Company’s ordinary activities, which minimises the liquidity risk and ensures the continuity of opera-tions.

6.5. Capital management

The Board of Directors of Prim, S.A., which is res-ponsible for the management of Company capital, considers the following aspects to be key in deter-mining the Company’s capital structure:

Consideration of the cost of capital at all times, in • search of an optimal balance between debt and equity to optimise the cost of capital.

Maintaining a level of working capital and a leve-• rage ratio that enables Prim, S.A. to obtain and maintain the desired credit rating over the me-dium term, and enables it to combine cash fl ow with other alternative uses that may arise from time to time in pursuit of business growth.

The equity/debt ratio increased from 1.20 in 2006 to 1.57 in 2007, which is considered to be appropria-te to cover the structural and operating needs that have been identifi ed. As a result, all of the assets are fi nanced. Fixed assets represent approximately 46% and current assets approximately 54%, the-reby achieving the desired structure in relation to working capital.

The Directors also consider other factors when de-termining the company’s fi nancial structure, such as debt collection from public authorities, tax effi ciency, and the use of a range of short- and long-term fi nan-cial liabilities.


Under 90 90-180 180-360 Over

360 Total

Long-term customerreceivables 726,446 2,257,703 889,439 644,968 1,129,541 5,648,097


(euro)


Under 90 90-180 180-360 Over

360 Total

Long-term customerreceivables 1,068,289 3,320,108 1,307,982 948,470 1,661,069 8,305,918

Short-term customesreceivables 2,877,365 8,942,485 3,522,961 2,554,639 4,473,975 22,371,425

(euro)









Auditors’Report

Individual Society

A free translation of an auditors’ report originally issued in Spanish. In the event of a dis-crepancy, the Spanish language version prevails.

AUDITORS’ REPORT ON FINANCIAL STATEMENTS

To the Shareholders of PRIM, S.A.

1. We have audited the fi nancial statements of PRIM, S.A., consisting of the balance sheet as at 31 December 2007 and the statement of income and the notes to the con-solidated fi nancial statements for the year then ended, the preparation of which is the responsibility of the directors of the Company. Our responsibility is to express an opinion on those fi nancial statements taken as a whole, based on work performed. Apart from the exception referred to in paragraph 3, our work was performed in accordance with auditing standards generally accepted in Spain, which require the examination, by selective tests, of the evidence supporting the fi nancial statements and the evaluation of their presenta-tion, the accounting principles applied and the estimates made The fi nancial assets inclu-de a holding of 70% in the capital of Luga Suministros Médicos, S.L. at its net book value, which is 3,034 thousand euro. The fi nancial statements of that holding were examined by audit fi rm BDO Audiberia Auditores, S.L. and our opinion expressed in this report on the fi nancial statements of PRIM, S.A. is based solely on the report of that auditor where the holding in Luga Suministros Médicos, S.L. is concerned.

2. As required by corporate legislation, for comparison purposes the directors present the fi gures for 2006 in addition to the fi gures for 2007 for each item in the balance sheet, income statement and statement of changes in fi nancial position. Our opinion refers only to the fi nancial statements for 2007. On 2 April 2007, we issued our auditors’ report on the 2006 fi nancial statements, in which we expressed a favourable opinion.

3. The fi nancial assets include a holding of 48.68% in the capital of Residencial CDV-16, S.A. at its cost value, which is 4,807 thousand euro. Since we did not have access to the audited fi nancial statements of that investee, we were unable to determine the reasona-bleness of the valuation of that investment and of the information disclosed in note 7, in accordance with generally accepted accounting principles.

4. In our opinion, based on our audit work and the report by BDO Audiberia Auditores, S.L., and except for the effects of the adjustments that might be considered necessary had we had access to the auditors’ report on the fi nancial statements of Residencial CDV-16, S.A. as at 31 December 2007, the accompanying fi nancial statements for the year 2007 give, in all material respects, a true and fair view of the equity and fi nancial position of PRIM, S.A. as at 31 December 2007 and the results of its operations, and funds obtained and applied by it in the year then ended, and contain the necessary and suffi cient information for an adequate interpretation and understanding in accordance with generally accepted accounting principles, which were applied on a basis consistent with that of the previous year.

5. The accompanying directors’ report for 2007 contains such explanations on the state of PRIM, S.A.’s affairs, the performance of its business and other matters as the directors consider appropriate and does not form an integral part of the fi nancial statements. We verifi ed that the fi nancial information contained in that directors’ report is consistent with the 2007 fi nancial statements. Our work as auditors is limited to checking the directors’ report with the scope described in this paragraph and does not include the verifi cation of information not derived from the company’s accounting records.

ERNST & YOUNG, S.L.(Registered in the Offi cial Register of

Auditors with number S0530)Original in Spanish signed byAntonio Barranco García

1 April 2008

106

Notes

Edition: Prim, S. A.Design and production: Primer Paso, S. L.Printing: Jomagar, S. L.Legal deposit: M-22923-2008

HEAD OFFICE28938 Móstoles (Madrid)Polígono Industrial Nº 1, Calle F, 15Tel.: 91 334 24 00Fax: 91 334 24 94

NORTH48014 BilbaoAvda. Madariaga, 1 - 2ºTel.: 94 476 33 36Fax: 94 475 01 09

LEVANTE46015 ValenciaAvda. Maestro Rodrigo, 89-91Tel.: 96 348 62 69Fax.: 96 340 54 27

FACTORY28938 Móstoles (Madrid)Polígono Industrial Nº 1, Calle C, 20Tel.: 91 334 25 20Fax: 91 334 25 62

NORTHWEST15004 La CoruñaRey Abdullah, 7-9-11Tel.: 98 114 02 50Fax: 98 114 02 46

CANARIAS35010 Las Palmas de Gran CanariaHabana, 27, BajoTel.: 928 22 03 28Fax.: 928 22 89 62

CATALUÑA 08012 BarcelonaNilo Fabra, 34-38Tel.: 93 415 58 35Fax: 93 237 91 03

ANDALUCÍA41011 SevillaJuan Ramón Jiménez, 5Tel.: 95 427 46 00Fax.: 95 428 15 64

BALEARES07008 Palma de MallorcaSan Ignacio, 77Tel.: 971 278 291Fax: 971 278 291

PRIM

www.prim.es

2007AnnualReport

PRIMAn

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PRIM

PRIM

Documents

2007 Annual Report - PrimMadariaga, 1 - 2º Tel.: 94 476 33 36 Fax: 94 475 01 09 LEVANTE 46015 Valencia Avda. Maestro Rodrigo, 89-91 Tel.: 96 348 62 69 Fax.: 96 340 54 27 FACTORY 28938