IC GROUP ANNUAL REPORT 2016/17

Transcription

1 IC GROUP ANNUAL REPORT 2016/17

2 MANAGEMENT COMMENTARY 1 FINANCIAL HIGHLIGHTS AND KEY RATIOS 2 THE GROUP IN SHORT 3 FINANCIAL FACTS 2016/17 4 MANAGEMENT S LETTER 6 OUTLOOK 7 STRATEGY AND GROUP STRUCTURE 10 BUSINESS SEGMENTS 24 CONSOLIDATED FINANCIAL REVIEW 26 RISK MANAGEMENT 28 CORPORATE RESPONSIBILITY 29 CORPORATE GOVERNANCE 30 EXECUTIVE TEAM AND BOARD OF DIRECTORS 35 SHAREHOLDER INFORMATION CONSOLIDATED FINANCIAL STATEMENTS 38 CONSOLIDATED INCOME STATEMENT 39 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME 40 CONSOLIDATED STATEMENT OF FINANCIAL POSITION 41 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY 42 CONSOLIDATED STATEMENT OF CASH FLOWS 44 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS PARENT COMPANY FINANCIAL STATEMENTS 82 INCOME STATEMENT 82 STATEMENT OF COMPREHENSIVE INCOME 83 STATEMENT OF FINANCIAL POSITION 84 STATEMENT OF CHANGES IN EQUITY 85 STATEMENT OF CASH FLOWS 86 NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS STATEMENTS 96 STATEMENT BY THE MANAGEMENT 97 THE INDEPENDENT AUDITOR S REPORT GROUP STRUCTURE AND KEY RATIOS 100 GROUP STRUCTURE 101 DEFINITION OF KEY RATIOS

3 FINANCIAL HIGHLIGHTS AND KEY RATIOS DKK million 2016/ / / / /13 1) INCOME STATEMENT Revenue 2,749 2,665 2,638 2,563 2,424 Gross profit 1,519 1,513 1,446 1,470 1,371 Operating profit before depreciation and amortization (EBITDA) Operating profit (EBIT) Net financials (3) (7) (8) (5) (13) Profit for the year before tax Profit for the year of continuing operations Profit/loss for the year of discontinued operations - 3 (14) 5 (134) Profit for the year STATEMENT OF FINANCIAL POSITION Total assets 1,393 1,444 1,852 1,854 2,022 Average invested capital including goodwill Net working capital Total equity Non-controlling interest Net interest-bearing debt, end of year STATEMENT OF CASH FLOWS Cash flow from operating activities Cash flow from investing activities (88) (91) (167) Investments in property, plant and equipment (72) (81) (45) (77) (58) Free cash flow Cash flow from financing activities (79) (319) (172) (109) (35) Net cash flow for the year 8 (81) KEY RATIOS (%) Revenue growth Gross margin Cost ratio EBITDA margin EBIT margin Tax rate Return on equity Equity ratio Return on invested capital, 12 months trailing EBIT 2) Net working capital in proportion to 12 months trailing revenue Cash conversion Financial gearing SHARE-BASED RATIOS Average number of shares excluding treasury shares, diluted (thousands) 16,639 16,678 16,550 16,447 16,402 Share price, end of year, DKK Earnings per share, DKK Diluted earnings per share, DKK Diluted cash flow per share, DKK Diluted net asset value per share, DKK Diluted price/earnings, DKK ,220.0 EMPLOYEES Number of employees, calculated as FTEs, end of year 1,186 1,146 1,042 1,047 1,264 NUMBER OF STORES (OWN STORES) Retail stores Concessions The key ratios have been calculated according to the recommendations set out in Recommendations & Financial Ratios 2016 issued by the Danish Society of Financial Analysts. 1) Comparative figures in the income statement have been adjusted to reflect that the Mid Market division has been presented as discontinued operations. Other key ratios for 2012/13 have not been adjusted. 2) Return on invested capital is calculated as EBIT s share of invested capital, cf. definition of key ratios on page IC GROUP A/S ANNUAL REPORT 2016/17 MANAGEMENT COMMENTARY

4 IC GROUP THE GROUP IN SHORT AMBITION IC Group operates in the apparel and fashion industry. As a portfolio company, we create value through an active ownership of brands within the Premium segment. We focus on this market segment as it has historically been characterized by strong growth rates and high earnings. This segment is also characterized by a considerable degree of internationalization which is also the strategic target of all of the Group Premium brands. The ambition of the Group Premium brands is to generate revenue growth, and thereby also for the Group as a whole. Concurrently with the expected higher revenue, it is also our ambition to improve the EBIT margin. PREMIUM BRANDS Peak Performance was founded in Sweden in 1986 by passionate skiers. Today, Peak Performance is the largest brand in Scandinavia developing technical, functional sports and fashion wear. peakperformance.com With its strong roots in classic menswear confection tradition and proud tailoring skills, Tiger of Sweden has, since 1903, developed into the largest confection and fashion brand in the Nordic region distinguishing itself by offering modern apparel to men and women characterized by a different cut. tigerofsweden.com Since its foundation in 2003, By Malene Birger has been recognized as a highprofile design brand with an international appeal offering affordable luxury to fashion-conscious women. Today, the brand is one of the largest female fashion brands in the Nordic region. bymalenebirger.com Revenue and EBIT margin DKK million % Revenue and EBIT margin DKK million % Revenue and EBIT margin DKK million % 1, , , , / / / / / / / / /17 0 Revenue EBIT margin Revenue EBIT margin Revenue EBIT margin OTHER BRANDS BRAND SAINT TROPEZ DESIGNERS REMIX MARKET SEGMENT FAST FASHION FEMALE PREMIUM FEMALE EQUITY INTEREST 100% 51% REVENUE DKK MILLION 400 EBIT MARGIN 2.5% 2 IC GROUP A/S ANNUAL REPORT 2016/17 MANAGEMENT COMMENTARY

5 FINANCIAL FACTS 2016/17 THE GROUP REVENUE DKK MILLION 2,749 GROWTH IN LOCAL CURRENCY 4.3% EBIT DKK MILLION 125 EBIT MARGIN 4.5% PEAK PERFORMANCE TIGER OF SWEDEN BY MALENE BIRGER REVENUE DKK MILLION 1,035 EBIT DKK MILLION 101 GROWTH IN LOCAL CURRENCY 11.6% EBIT MARGIN 9.8% Geographic breakdown of revenue Nordic region 66% Rest of the world 3% WHOLESALE Rest of Europe 31% RETAIL FREE CASH FLOW DKK MILLION 87 RETURN ON INVESTED CAPITAL 16.2% NET WORKING CAPITAL RELATIVE TO REVENUE 11.6% NET INTEREST-BEARING DEBT, DKK MILLION 17 REVENUE DKK MILLION 963 EBIT DKK MILLION 67 WHOLESALE GROWTH IN LOCAL CURRENCY 0.6% EBIT MARGIN 7.0% Geographic breakdown of revenue Nordic region 79% Rest of the world 3% Rest of Europe 18% RETAIL 37% Revenue per business unit Peak Performance 38% By Malene Birger 12% EBIT per business unit Peak Performance 56% By Malene Birger 1% REVENUE DKK MILLION 351 EBIT DKK MILLION 3 WHOLESALE Tiger of Sweden 35% Other brands 15% Tiger of Sweden 37% Other brands 6% GROWTH IN LOCAL CURRENCY (0.4)% EBIT MARGIN 0.9% Geographic breakdown of revenue Nordic region 64% Rest of Europe 25% Rest of the world 11% RETAIL GOVERNANCE PERFORMANCE STRATEGY OVERVIEW MANAGEMENT COMMENTARY ANNUAL REPORT 2016/17 IC GROUP A/S 3

6 MANAGEMENT S LETTER Earnings development for the Group The Group s performance for the financial year 2016/17 was affected by a number of extraordinary factors relating to the structural changes implemented during H2 2016/17 which resulted in significant non-recurring costs. The financial results for the Group s three Premium brands for the financial year 2016/17 were marked by a number of factors identified in connection with the change of the Group s management structure, in particular in respect of purchase of goods and in-season selling, which needs to be addressed. This has especially been the case in Tiger of Sweden which has also showed a need for a strengthened and renewed approach in other arear of the business. We are working on solving these issues with all due care, but we acknowledge that it will take some time to rectify former practices and business principles. All three business units have worked on strengthening the business model, reinforcing the brand and improving the prerequisites for succeeding with the individual strategies a process which will continue for the coming financial year. All three Premium brands hold considerable potentials for international expansion, however, the readiness of each of the three brands is at different stages. Peak Performance has come far with the revitalization of the brand both in terms of product and distribution and has experienced a more positive development trend during the financial year 2016/17. For the financial year under review, Peak Performance realized a revenue growth rate of 11.6% measured in local currency driven by wholesale, new store openings as well as continued strong e-commerce growth. Earnings also increased, and Peak Performance realized an EBIT margin of 9.8% which is at the same level as 2015/16. Following a number of years with pronounced growth rates in Tiger of Sweden, the brand reported stagnant growth for the financial year 2016/17. We have therefore changed and reinforced the brand s management team through the recruitment of a number of strong profiles most recently, a new brand CEO who will take up his new position on 1 September Furthermore, Tiger of Sweden has been subject to a thorough review in connection with the structural changes of the Group. Consequently, the commercial principles, in particular purchase of goods and sales, have become more stringent. This has led to a negative impact on the brand s financial performance for 2016/17 and will also affect the financial year 2017/18. Considering the long lead time of the collection development process, the effect of the new management team and the more stringent commercial principles should not be expected to materialize until the financial year 2018/19. Revenue in Tiger of Sweden for the financial year 2016/17 increased by 0.6% measured in local currency whereas earnings were affected by write-downs of inventory and distribution as well as higher costs. The EBIT margin amounted to 7.0% compared to 11.1% in 2015/16. By Malene Birger has implemented a more commercial approach to its business in several areas. The production development process, collection structure and pricing structure model have been improved whereas the wholesale distribution has been strengthened focusing on large key accounts. However, revenue was reduced by 0.4% measured in local currency, and earnings were significantly impacted by distribution write-downs as well as non-recurring costs. The EBIT margin amounted to 0.9% compared to 7.3% in 2015/16. In connection with the structural changes of the Group s central functions, all three Premium brands have been working on improving the operational execution of being a Premium brand. Consequently, this has led to a strengthened business model and principles, in particular in respect of purchase of goods, inventories and discounted sales. Across all three brands, challenges have been identified within these areas, and as a consequence hereof, a number of commercial principles have become more stringent. This has led to a reduced amount of discounted sales and an increased level of inventory writedowns especially in Tiger of Sweden as well as distribution write-downs. In total, these changes had a significantly negative impact on the realized consolidated profit for 2016/17. Consolidated revenue for the financial year 2016/17 amounted to DKK 2,749 million corresponding to a growth rate of 4.3% measured in local currency compared to last financial year. Consolidated operating profit amounted to DKK 125 million corresponding to an EBIT margin of 4.5%. Both results are in line with the most recently announced outlook for 2016/17, however, it is lower than expected at the beginning of the financial year 2016/17. The lower than expected revenue growth is particularly attributable to the development in physical stores as well as in-season selling to wholesale customers, partly as a consequence of the decision to reduce the amount of discounted sales. The reduced earnings may partly be ascribed the implemented structural changes of the Group s central functions attributable to non-recurring 4 IC GROUP A/S ANNUAL REPORT 2016/17 MANAGEMENT COMMENTARY

7 costs of DKK 33 million and partly the initiatives carried out in the Group Premium brands to reduce the amount of discounted sales and to restructure the distribution. In particular, the inventory writedowns were higher compared to last financial year. Revenue growth driven by own channels Revenue increased in the Group s own distribution channels by 6.4%, thus constituting the primary contributor to the Group s revenue growth. Growth was realized through new stores primarily in Peak Performance and Tiger of Sweden increasing the total number of stores by twelve. Furthermore, growth also derived from sales in our own e-commerce channel which through a number of years has demonstrated two-digit growth rates across all three Premium brands and is close to becoming the Group s most profitable distribution channel. We are very pleased to see this development, not only due to the growth and earnings capacity, but also to a large extent because we know that the modern consumer is increasingly purchasing online or is influenced by the online media during the buying process. The Group operates an e-commerce platform utilized by all three Premium brands which is technically best-in-class, and we are continuously working on expanding the functionalities as well as improving the integration between the physical channels and e-commerce. As an example, we have, i.e., implemented an order-in-store functionality during 2016/17, which facilitates improved possibilities of meeting the consumer demands in the physical stores and minimizes the risk of lost sales. Furthermore, all brands have implemented a loyalty programme for the purpose of identifying and retaining returning customers and in return offering them certain advantages and in the long-term perspective personalized offers and contents online. Loyal and returning customers are not only less expensive to attract than new customers, in addition, sales data also indicates that returning customers in average spend 20% more per order compared to the average non-identified customer. Both order-in-store and the loyalty programmes are examples of how we continuously develop our competences and increasingly move towards a full integration between all channels. Previously, the focus was on the actual sale the transaction whereas today the focus is on the consumer. The consumer sees a brand not a channel. Consequently, the consumer expects the same brand experience irrespective of channel. This makes demands on our competences and in the way we think in all parts of the value chain. We move in the right direction and at a speed with which we are satisfied. New management structure and restructuring of central functions In accordance with the Group s portfolio strategy, the Board of Directors resolved in February 2017 to implement a new management structure as well as a new structure of the Group s central functions. In the following months, the restructuring of the central functions was implemented whereas the new management structure was determined in May The purpose of these structural changes has been to better exploit the potentials of the three Premium brands by placing a larger part of the responsibility of development and financial performance with the management of the respective brands. As a consequence of the structural changes, several central functional areas have been transferred to the three Premium and the operational involvement at corporate level has been minimized. Following this, we are now working on changing the underlying legal and financial structure of the Group which is still characterized by the multi-brand strategy pursued years ago. In the future, IC Group A/S will to a larger extent operate as a financially oriented holding company focusing on maximizing the value creation of the brand portfolio. Even though the involvement in operations at corporate level has been reduced, a number of infrastructure functions will remain centrally organized due to the fact that these functions deliver high quality services at competitive prices. This reflects the purpose of the structural changes to create the most optimum terms for our Group Premium brands in order to grow and develop their respective business. Consequently, the strategies of the three Premium brands remain unchanged. They must grow through international expansion, increase revenue and improve earnings. The readiness of each of the three brands is at different stages which is reflected in our outlook for the financial year 2017/18 however, the potential remains the same. With a changed management structure as well as Group structure, it is our ambition to realize this potential in full. Dividend for the financial year 2016/17 The Board of Directors will propose at the Annual General Meeting 2017 a resolution recommending an ordinary dividend of DKK 5.00 per eligible share corresponding to a total dividend of DKK 85 million or 92% of the consolidated profit after tax in respect of the financial year 2016/17 to be distributed to shareholders. GOVERNANCE PERFORMANCE STRATEGY OVERVIEW MANAGEMENT COMMENTARY ANNUAL REPORT 2016/17 IC GROUP A/S 5

8 OUTLOOK Realization of expectations for 2016/17 Consolidated revenue for the financial year 2016/17 amounted to DKK 2,749 million corresponding to a growth rate of 4.3% measured in local currency. The most recently announced outlook indicated a growth rate of 3-4% measured in local currency. Operating profit (EBIT) for the financial year 2016/17 amounted to DKK 125 million corresponding to an EBIT margin of 4.5%. The most recently announced outlook stated an EBIT margin of 4-5%. When adjusting for non-recurring costs of DKK 33 million (expected DKK 30 million) attributable to the implementation of the new structure of IC Group s central functions, the Group realized an EBIT margin of 5.7%. The most recently announced outlook stated an EBIT margin of 5-6%. Investments for the financial year 2016/17 amounted to DKK 89 million corresponding to 3% of revenue which is in line with the most recently announced outlook. Outlook for 2017/18 The outlook for the financial year 2017/18 is marked by a number of factors which were identified in connection with the changes to the Group s management structure during H2 2016/17 relating in particular to in-season selling, as well as the underlying principles and practices in respect of the purchase of goods forming the basis for in-season selling. The business principles in respect of purchase of goods and sales for all three Premium brands have become more stringent which will lead to a negative impact on the development of both revenue and earnings in a continued challenging retail environment. In Tiger of Sweden revenue is furthermore expected to decline as a consequence of lack of focus on innovation and product renewal over an extended period while the gross margin will be affected negatively due to a more competitive price structure. These factors combined with costs in respect of the new management team as well as increased marketing will have a significant negative impact on earnings. A moderate revenue and earnings growth is expected in Peak Performance while we expect a moderate revenue decline but significant earnings improvement in By Malene Birger. For the Group as a whole, we expect to realize a minor revenue reduction compared to the financial year 2016/17 and an EBIT margin of approx. 5%. Investments for the financial year 2017/18 are expected to be in the region of 3-4% of annual revenue. OUTLOOK Original Most recent outlook outlook Realized Outlook DKK million 2016/ / / /18 Revenue growth measured in local currency at least 6% 3-4% 4.3% minor revenue decline Revenue growth in reporting currency (%) at least 5% 2-3% 3.2% n.a. EBIT margin approx. 9% 4-5% 4.5% approx. 5% Adjusted EBIT margin* n.a. 5-6% 5.7% n.a. Investments (% of revenue) 3-5% 3-5% 3.2% 3-4% * Adjusted for non-recurring costs of DKK 33 million in relation to the implementation of the new structure in IC Group s central functions. 6 IC GROUP A/S ANNUAL REPORT 2016/17 MANAGEMENT COMMENTARY

9 STRATEGY AND GROUP STRUCTURE IC Group s mission is to create shareholder value through long-term and active ownership of Premium brands within the fashion industry. By means of our simple Group structure, we create the most optimum framework for our Group Premium brands to exploit their potentials of continued growth and international expansion. Premium-focused portfolio strategy IC Group creates value through active ownership of brands in the Premium segment. We focus on this market segment as it has historically been characterized by strong growth rates and solid earnings. Furthermore, this segment is characterized by a high degree of internationalization which also forms the strategic target of the Group Premium brands. As a Group, we hold strong competences within this segment in which we have succeeded in operating and developing brands. Historically, we have generated solid revenue growth and high earnings. Group structure All of the Group Premium brands are operated as independent business units with clearly defined strategic plans, and they are responsible of their respective earnings development. Furthermore, the Group structure comprises central functions which are shared by all Group Premium brands. These infrastructure functions count Sourcing, Logistics, IT and Financial Shared Services. The overall target of these functions is to deliver costefficient and price-competitive services supporting the operations of each Premium brand. PEAK PERFORMANCE TIGER OF SWEDEN IC GROUP Portfolio The Group s portfolio comprises the three Premium brands; Peak Performance, Tiger of Sweden and By Malene Birger which form the strategic core of the portfolio strategy. Peak Performance has been a part of the Group since the Group was formed through a merger in Tiger of Sweden was acquired in 2003, and during that same year, IC Group (former IC Companys) founded By Malene Birger in cooperation with the creative designer behind the brand name. All three Premium brands have since they became a part of IC Group generated solid revenue growth and good earnings. The three brands also have a high degree of brand awareness in their Nordic core markets and are, furthermore, considered to hold significant international growth potentials. In addition, the Group owns the two brands; Saint Tropez (wholly owned) and Designers Remix (equity share of 51%). Saint Tropez is a Fast Fashion brand whereas Designers Remix operates within the Premium segment. None of the two brands utilize the above-mentioned infrastructure functions and both brands are considered as investments. BY MALENE BIRGER OTHER BRANDS GOVERNANCE PERFORMANCE STRATEGY OVERVIEW MANAGEMENT COMMENTARY ANNUAL REPORT 2016/17 IC GROUP A/S 7

10 Strategic focus areas The three Premium brands operate within different areas of the Premium segment and have each their brand-specific strategy plans. However, especially three strategic focus areas are identical for all three brands. Internationalization forms a common corner stone of the growth plans. All three brands hold strong market positions in the Nordic region with a solid revenue and earnings base. The Nordic region remains a focus area, and both revenue and earnings should be increased to the extent possible. However, to continue growth, the international potential of all three brands must be exploited by means of international expansion. To begin with, this should primarily be achieved in focus markets in Europe and in the longterm perspective outside of Europe. The specific focus markets vary from brand to brand which is mainly due to the different brand characteristics, and thereby the differences of where the largest growth potentials lie. The specific focus markets of each brand are described in the following sections of each Premium brand, c.f. pages Enhanced distribution control is also a focus area which all three brands share. This area is crucial in order to retain and strengthen the brand positions and to protect the brand value. The distribution channels own controlled channels as well as wholesale channels are the place where the consumer meets the brand and experiences the products. A strengthened cooperation with key wholesale customers is vital, but, particularly, own stores and the e-commerce platform play decisive elements when it comes to delivering the best possible consumer experience. All three brands will gradually increase the share of own controlled distribution and will at the same time work on improved coordination of the brand experience across all distribution and communication channels in order for the consumer to always have a consistent brand experience, irrespective of channel. Full-price selling plays an essential role in respect of maintaining the consumer s brand perception and thereby the brand s longterm value, and at the same time it contributes to an improved gross margin. Higher full-price selling is not only about reducing discounted sales to the consumers and the wholesale customers but also very much about the correct amount of purchase of goods, stocking, optimization of product flow through collection structure and product depth as well as use of outlet capacity. Consequently, all three Premium brands work on a number of initiatives with one common purpose which is higher full-price selling. Long-term ambitions for growth and earnings The ambition of the Group Premium brands is to continue generating revenue growth, and thereby also for the Group as a whole. Concurrently with the expected higher revenue, it is also our ambition to improve the EBIT margin. Investments Investments will primarily be carried out for the purpose of realizing the growth strategies of each of the three Premium brands, especially including expansion and strengthening of own distribution channels (physical stores and e-commerce). Investments in the Group s infrastructure functions may also be necessary in order to retain the optimum support of the three Premium brands. The Group s future investment level will depend on the speed of which the strategic plans of each brand are executed. The investment level may thus vary year on year. Generally, we expect the Group s investments to attain a level of approx. 3-5% of the annual revenue. For the financial year 2016/17, investments accounted for 3% of the annual revenue. Working capital The Group s working capital is expected to constitute approx % of the annual revenue. At 30 June 2017, the working capital constituted 12% of the annual revenue which is elaborated further in the section Consolidated Financial Review on page 25. However, the expected revenue growth will naturally lead to working capital investments, and therefore, during periods of high growth, the working capital may exceed this level. Through efficiency improvements and strict control of the elements constituting the net working capital, we are working on continuously minimizing the tied-up working capital. 8 IC GROUP A/S ANNUAL REPORT 2016/17 MANAGEMENT COMMENTARY

11 Capital structure The Group aims to maintain a low level of financial gearing since, among other things, we operate in a market sensitive to economic trends. Furthermore, the Group s operating leases represent an element of operational gearing which is not insignificant. At the end of the financial year 2016/17, operating leases amounted to DKK 368 million, cf. note 5.6 to the consolidated financial statements. In this context, please see note 1.1 to the consolidated financial statements describing a new international financial reporting standard with effect as at 1 July 2019 requiring that operating leases are recognized and measured in the statement of financial position. The implementation of this financial reporting standard is expected to have a material impact on IC Group s equity ratio. To maintain the highest possible degree of flexibility in the future, we have specifically decided to retain the level of net interestbearing debt at zero for the financial year as a whole. The Group s credit facilities will then primarily be employed to fund seasonal fluctuations in the working capital during the year. At 30 June 2017, the net interest-bearing debt amounted to DKK 17 million. CAPITAL ALLOCATION PRIORITIES VALUE-ADDING INVESTMENTS Maintenance of existing assets E-commerce projects Retail expansion /17 (DKK million) DEBT REDUCTION In case the debt exceeds the defined targets 2 To maintain a certain degree of strategic flexibility, the net interestbearing debt, including the Group s operating leases, may, calculated at 30 June, constitute a level 3 times higher than EBITDA should this be required. At 30 June 2017, this key ratio amounted to 1.8 (1.1). Capital allocation and dividend policy The Group s priorities for employing its free cash flows are clearly defined and depicted in the below table. To the extent that the free cash flows exceed the need for valueadding investments, this cash flow will then be distributed to the shareholders either through dividend distribution or share buy-backs. When distributing dividends to the shareholders, it is the Group s policy that the total distribution reflects the Group s earnings performance. ORDINARY DIVIDEND At least 30% of the consolidated profit after tax 3 EXTRAORDINARY PAYMENT Extraordinary dividend Share buy-back Investments 89 Net interest-bearing debt 17 Ordinary dividend 85 Extraordinary dividend 0 4 GOVERNANCE PERFORMANCE STRATEGY OVERVIEW MANAGEMENT COMMENTARY ANNUAL REPORT 2016/17 IC GROUP A/S 9

12 A stronger and more explicit brand DNA as well as a more simple collection structure are some of the achievements reached by Peak Performance in connection with the brand revitalization that it has been working on. The product collections appear to a far larger extent coordinated with a more coherent design expression which improves the possibility for cross selling. The markets in the Nordic region continue to be strategically important, and further growth may be generated through both the wholesale distribution and own channels. Markets in the Alps play a central role in respect of the brand s ambitions of international expansion, and in these markets Peak Performance may develop further on its strong position as a well-known brand within functional and technical sportswear. REVENUE DKK MILLION 1,035 GROWTH IN LOCAL CURRENCY 11.6% EBIT DKK MILLION 101 EBIT MARGIN 9.8%

13 PEAK PERFORMANCE Peak Performance Peak Performance is Scandinavia s largest brand of technical sports and fashion wear. The brand has its origin in alpine skiing and was founded in 1986 by passionate skiers who called for functional skiwear which at the same time was stylish and modern. Since then, Peak Performance has been among the world s leading brands when it comes to technical, functional sports and fashion wear. The strength of the brand has always been its combination of functionality and style, and when Peak Performance embarked on the revitalization of the brand in 2014/15, the target was to unleash its large potential. Peak Performance must be a vibrant, dynamic and progressive brand, and a pioneer within Sports Fashion recognized by the consumer by its clear DNA; Performance mixed with style. To Peak Performance, the Nordic markets Sweden, Denmark, Norway and Finland are strategically important. Combined, they account for the majority of revenue, and the brand holds a strong position with good growth opportunities in all of these markets. Outside the Nordic region, the markets in the Alps region are important and comprise Germany, Austria, Switzerland, France and Italy. Peak Performance has gained a strong foothold in these markets, which must be expanded with focus on strategically important regions, cities and ski resorts. Outside Europe, Peak Performance has a minor foothold in Canada which strategically has a lower priority in the short-term perspective. A key focus area in relation to the positioning of Peak Performance across all markets is increased distribution control, including a higher share of branded sales areas. This plays an essential role in order to ensure that the consumer always gets the same brand experience in all markets and in all channels. In the brand s own channels, comprising physical stores, concessions, own e-commerce as well as outlets, the consumer experience must be more exclusive, and the brand experience must be clear and unambiguous across all different product categories in the stores both in physical stores as well as online. As a consequence of the above factors, the relative revenue share from own channels is expected to increase. In the wholesale channel the cooperation with a number of key customers must be further strengthened, and the share and size of branded sales areas (soft corners and shop-in-shops) must be increased through this strengthened cooperation. peakperformance.com PEAK PERFORMANCE FINANCIAL HIGHLIGHTS AND KEY RATIOS Revenue and EBIT margin DKK million % 1,250 1, / / /17 Revenue EBIT margin Geographic breakdown of revenue Nordic region 66% Rest of the world 3% Rest of Europe 31% Distribution Wholesale customers 1,755 Franchise stores 32 Retail stores 48 Concessions 1 WHOLESALE RETAIL 63% 37% GOVERNANCE PERFORMANCE STRATEGY OVERVIEW MANAGEMENT COMMENTARY ANNUAL REPORT 2016/17 IC GROUP A/S 11

14 On 24 November 2016, Peak Performance celebrated its 30-year anniversary. This was marked by an exclusive anniversary collection which in every way illustrated how Peak Performance has always been a pioneer when it comes to technical innovation, functionality and design. The collection consisted of twelve styles (six styles dedicated to men and six styles to women) which were all designed for an active urban life while at the same time still with optimal functionality required for physically demanding skiing the perfect fusion. And a perfect example of the brand s cutting-edge skills; Performance mixed with style. Development in 2016/17 The new and more simple collection structure has provided the consumer with a more clear and coherent impression of Peak Performance and the five product collections offered by the brand; Ski, Golf, Active, Sportswear and Urban. The brand DNA Performance mixed with style is clearly visible across all collections, and the design expression is more consistent than previously. Besides the more explicit design expression, this also contributes to an improved possibility of cross selling across product collections which sales data from both the wholesale distribution and own sales channels reaffirms. During the financial year under review, Peak Performance has worked on the so-called Top Commercial Winners which are products meeting the below three criteria; they must be commercially strong and consequently have the right price points and high gross margins; they must support the desired brand positioning; and finally, they must be relevant and attractive for the consumer. By selecting a number of products meeting these criteria, the purpose is to boost growth and improve earnings while at the same time strengthen the brand positioning towards the consumers. In respect of distribution, the restructuring implemented by Peak Performance in 2015/16 contributed to a stronger wholesale customer base which constitutes a solid foundation for the desired direction of the brand. Peak Performance will continue developing its wholesale distribution through a strengthened cooperation with key customers for the purpose of a wider and better brand positioning on the square metres available. The brand has also worked on adding more fashion-focused wholesale customers to its wholesale distribution which may support the desired direction for particularly the Urban collection. This has primarily been a focus area in the Nordic region during the financial year 2016/17, however, in the future the brand will gradually place more focus on nurturing the same development in the Alps region which at present has a strong focus on the Ski and Active collections. Peak Performance has always been a strong player in the outerwear category, and the customers in the Alps region are highly aware of the brand s quality standards. Therefore, the Urban Outerwear category is essential to Peak Performance in order to engage in a more fashion-focused wholesale distribution in the Alps region. 12 IC GROUP A/S ANNUAL REPORT 2016/17 MANAGEMENT COMMENTARY

15 During the financial year under review, Peak Performance has in its own channels worked on an improved and more Premium experience in the physical stores and in its own e-commerce channel, and not least the interaction between these two channels. This interaction is most often referred to as omni-channel, and it plays a key focus area in order to ensure that Peak Performance reaches the modern consumer in the communication and sales channels used by the consumer. Several initiatives and measures have contributed to improving this interaction and providing a coherent brand experience, and not least increased the probability of an order when a consumer visits a store or shops online. During the financial year 2016/17, especially two initiatives were implemented ship-from-store and order-in-store which specifically enhance the interaction between physical retail and online. By the way, both initiatives have been implemented in the two other Group Premium brands which employ the same operational e-commerce platform. Finally, Peak Performance has, similar to the Group s other brands, worked on strengthening the principles in respect of purchase of goods and discounted sales. In general, the inventory levels have been too high which poses a risk in relation to distribution of surplus goods. Overall, discounted sales must be reduced not only to improve earnings, but in particular to protect the brand value in the long-term perspective. During the financial year 2016/17, Peak Performance expanded the number of retail stores by six of which three stores are located in key locations in Oslo, Helsinki and Stuttgart. Furthermore, two new outlets were opened in Southern Germany and Austria, respectively, meaning that the brand has improved its capacity to control the distribution of surplus products in the Alps region. PEAK PERFORMANCE EARNINGS OVERVIEW Performance for the year Peak Performance realized a revenue of DKK 1,035 million (DKK 936 million) for 2016/17 corresponding to a growth rate of 10.6% (11.6% measured in local currency) compared to last financial year driven by both the wholesale and retail channels, particularly the last-mentioned channel. Growth in the retail channel amounted to 15.1% and was driven by new store openings but also the continued high e-commerce growth. The same-store revenue increased by 9.0% driven by the high e- commerce growth. Revenue increased in all markets, but particularly in the four Nordic markets; Sweden, Denmark, Norway and Finland. The revenue growth rate amounted to 15.2% in the Nordic region. Revenue growth from Rest of Europe primarily derived from Austria and Switzerland whereas revenue growth from outside of Europe was primarily realized in Canada and Japan. Despite higher margins on sold products, the gross margin was lower compared to last financial year as a consequence of higher discounts as well as inventory write-downs. However, the cost ratio was improved in spite of increased costs for new stores and a higher level of e-commerce activity. The operating profit (EBIT) amounted to DKK 101 million compared to DKK 94 million for 2015/16 corresponding to an EBIT margin of 9.8% (10.0%) and was thus at the same level as last financial year. DKK million 2016/ /16 Change, % Revenue 1, Wholesale and franchise Retail, e-commerce and outlets Revenue growth in local currency (%) 11.6 Operating profit before depreciation and amortization (EBITDA) EBITDA margin (%) Depreciation, amortization and impairment losses (18) (17) 5.9 Operating profit (EBIT) EBIT margin (%) GOVERNANCE PERFORMANCE STRATEGY OVERVIEW MANAGEMENT COMMENTARY ANNUAL REPORT 2016/17 IC GROUP A/S 13

16 Tiger of Sweden realized a lower revenue for 2016/17 compared to last financial year primarily driven by significantly reduced in-season selling including discounted sales. The brand has reinforced its management team through new recruitments including a new brand CEO which has injected competences and experience from well-known international companies. The store portfolio has been expanded, and the number of stores in the focus market Germany has been increased by two. Finally, Tiger of Sweden has terminated its agency agreement covering England as well as the combined agency agreement for Germany, Austria and Switzerland; consequently, the brand now operates its own sales set-up in these markets. REVENUE DKK MILLION 963 GROWTH IN LOCAL CURRENCY 0.6% EBIT DKK MILLION 67 EBIT MARGIN 7.0%

17 TIGER OF SWEDEN Tiger of Sweden Tiger of Sweden was founded in 1903 in Sweden and has its foundation in the strong menswear confection tradition and solid tailoring skills, refined for more than 110 years. Today, Tiger of Sweden is a modern brand offering apparel to both men and women, including a jeans collection and accessory line. Tiger of Sweden is thereby offering a wide range of products which all differentiate by a distinctive design characterized by a different cut. During the past ten years, Tiger of Sweden has generated solid and continued revenue growth which to a large extent has been driven by the Nordic core markets; Sweden, Denmark, Norway and Finland. Combined, these markets account for the majority of the brand s revenue and form a strong foundation of the business with solid earnings and further growth opportunities, and consequently, the markets in the Nordic region are still strategically important to Tiger of Sweden. During the past few years, an increasing share of the brand s growth has been realized in European markets, in particular Germany which accounts for approx. 15% of the brand s annual revenue, but also England and France contributed. Whereas the expansion in Germany has been highly successful and stable during a number of years, Tiger of Sweden has not yet reached its targets for the expansion in England and France. However, both markets continue to be important focus markets and constitute crucial elements of the brand s internationalization strategy. On the English market, the main focus is on London, and in France, the primary focus is on Paris and a number of large cities. On all foreign focus markets, growth plans are driven by the wholesale channel, however, the brand s own e-commerce channel and physical stores play an increasingly larger role in respect of increased growth and strengthened brand awareness with the consumers. Tiger Men is the largest and leading concept in Tiger of Sweden. The remaining concepts Tiger Women, Tiger Jeans as well as accessories and shoes are well-established in the Nordic core markets but are of minor importance outside the Nordic region. Consequently, in these markets the brand s go-to-market strategy is based on Tiger Men as the spearhead of the expansion flanked by the Tiger Jeans concept which adds a certain edge to the brand compared to established competitors. Up until now, this combination has demonstrated to be very successful in Germany. At the same time, for Tiger of Sweden it is important to increase the control of the brand s position in all markets which must take place through increasing the number of branded sales areas, including shop-in-shops and physical stores as well as higher revenue deriving from own e-commerce. Similar to the Group s other Premium brands, Tiger of Sweden is working on creating an even better integration between physical stores and the e-commerce channel in order for the consumer to be presented with a consistent brand experience across all sales channels. tigerofsweden.com TIGER OF SWEDEN FINANCIAL HIGHLIGHTS AND KEY RATIOS Revenue and EBIT margin DKK million % 1, , Geographic breakdown of revenue Distribution Wholesale customers 951 Franchise stores 9 Retail stores 22 Concessions / / /17 Nordic region 79% Rest of Europe 18% WHOLESALE RETAIL Revenue EBIT margin Rest of the world 3% 60% 40% GOVERNANCE PERFORMANCE STRATEGY OVERVIEW MANAGEMENT COMMENTARY ANNUAL REPORT 2016/17 IC GROUP A/S 15

18 Development in 2016/17 During the financial year 2016/17, Tiger of Sweden has reinforced its management team through new recruitments which has injected competences and experience from established and wellknown international brands such as Hugo Boss, Ralph Lauren and Burberry. During the autumn 2016, the brand s new Chief Commercial Officer commenced work and is, in this newly created role, responsible for all sales channels as well as the strategic development of these channels. In May 2017, the brand announced the appointments of a new Head of Creative and Design and a new Product Management Director. The Head of Creative and Design has the overall responsibility of the brand s positioning and the creative design expression of the products whereas the Product Management Director has a more commercial role in respect of product development, thus being responsible for ensuring a commercial and competitive collection structure with the right price points in the different product categories. Finally, in June 2017, it was announced that Hans-Christian Meyer has been appointed as CEO of Tiger of Sweden. With his vast experience from other fashion brands in particular Ralph Lauren Hans-Christian Meyer will become a strong character heading Tiger of Sweden in a more international direction in the years to come. Furthermore, Tiger of Sweden has worked on enhancing the brand definition, its characteristics and competitive strengths during the financial year 2016/17. Tiger of Sweden has embarked on an international expansion where it is not possible to benefit as much from a high brand awareness with the consumer as in the Nordic region, and where the competitor field is different. Therefore, it is crucial to be fully aware of the characteristics of the core consumer of the brand as a whole and of each product concept. These analyses have been carried out, and the targets and sub-targets concluded from these analyses have been clearly defined. To the new management team, these analyses will serve as a solid foundation of the international direction towards which the brands is headed in the future. During 2016, Tiger of Sweden launched a new shirt programme which in a vast number of parametres is an upgrade compared to the brand s previous shirt selection. With more than 110 years of experience, Tiger of Sweden has designed a Premium shirt, perfectly complementary to a suit from which the brand has its legacy, but still suitable for more informal occasions. A shirt with the right combination of the finest yarns and style details, fit and silhouette which is in line with the brand s unique signature a different cut. In respect of distribution, the brand has strengthened the commercial principles and business model. The procedure for discounted sales has been subject to more strict measures both in own channels but in particular in the wholesale distribution where in-season selling accounts for a substantial part of revenue. In this connection, the principles for purchase of goods have become more stringent in order to reduce the risk of too large inventory levels leading to higher discounts and write-downs. The commercial principles have also led to a certain degree of wholesale distribution clean-up which has had a negative impact on the realized revenue for the financial year under review. This clean-up has been implemented to ensure that Tiger of Sweden has the right size of the wholesale customer base to support its brand positioning and contribute to continued growth and earnings in existing as well as 16 IC GROUP A/S ANNUAL REPORT 2016/17 MANAGEMENT COMMENTARY

19 new markets. The distribution restructuring has also resulted in the future strategy of Vingåker Factory Outlet being considered. Today, the business is a part of Tiger of Sweden, but it is operated separately as a multi-brand outlet. Vingåker Factory Outlet generates substantial revenue and earnings. To strengthen the control and reinforce operations in its markets, Tiger of Sweden terminated its agency agreement covering England as well as the combined agency agreement for Germany, Austria and Switzerland in December In the future, the development of these markets will take place through own sales set-up. During the financial year 2016/17, Tiger of Sweden opened two new stores in Germany, one in Berlin and one in Stuttgart, and two franchise stores located in Sweden were converted into own stores. In addition to this, one outlet store was opened in the Netherlands with a location which also to a large extent covers Western Germany. The brand closed two retail stores and one small outlet store in the Nordic region. Performance for the year During the financial year 2016/17, Tiger of Sweden realized a revenue of DKK 963 million (DKK 972 million) which is 0.9% lower compared to last financial year, but 0.6% higher measured in local currency. Revenue was affected positively by a shift in deliveries which had a positive impact of DKK 18 million on Q1 2016/17. After having adjusting for this, revenue declined by 1.3% measured in local currency. Revenue from the wholesale channel declined by 5.4% in spite of the previously mentioned positive effect of DKK 18 million. This revenue reduction is primarily attributable to lower in-season selling, partly driven by the target of reducing the amount of discounted sales as mentioned earlier. Furthermore, the revenue TIGER OF SWEDEN EARNINGS OVERVIEW from the wholesale channel was to a certain degree negatively affected by a clean-up of the order books especially in Q4 in order to improve the distribution of the brand. Revenue from the retail channel increased by 6.6% driven by new stores as well as high e-commerce growth. The same-store revenue (excluding outlets) increased by 1.4% driven by the strong e-commerce growth. Revenue from the Nordic region declined by 4.6% across all markets which is primarily attributable to the previously mentioned reduced in-season selling. However, lower exchange rates of both SEK and NOK also contributed to the revenue reduction. Revenue from Rest of Europe increased by 22.4% primarily driven by a high growth rate (28%) reported in the focus market Germany. Revenue from England was lower compared to last financial year whereas revenue from France was at the same level. Revenue from outside of Europe suffered a reduction as a consequence of the clean-up of the order books of the brand s franchise partner in South Africa. In spite of the underlying margin improvement on sold products, Tiger of Sweden realized a lower gross margin compared to last financial year. This is mainly attributable to inventory write-downs which were approx. DKK 20 million higher compared to 2015/16 of which the majority is directly related to the decision of reducing discounted sales during H2 2016/17. Costs increased due to, among others, write-downs in respect of distribution changes in France as well as store openings and start-up costs in connection with establishing own sales set-up in England and Germany during H2 2016/17. The operating profit (EBIT) amounted to DKK 67 million (DKK 108 million) corresponding to an EBIT margin of 7.0% (11.1%). DKK million 2016/ /16 Change, % Revenue* (0.9) Wholesale and franchise (5.4) Retail, e-commerce and outlets Revenue growth in local currency (%) 0.6 Operating profit before depreciation and amortization (EBITDA) (30.1) EBITDA margin (%) Depreciation, amortization and impairment losses (19) (15) (26.7) Operating profit (EBIT) (38.0) EBIT margin (%) * Revenue from Vingåker Factory Outlet AB amounted to DKK 154 million for the financial year 2016/17 (DKK 154 million). GOVERNANCE PERFORMANCE STRATEGY OVERVIEW MANAGEMENT COMMENTARY ANNUAL REPORT 2016/17 IC GROUP A/S 17

20 By Malene Birger has in a number of areas strengthened the commercial approach to its business. New collection structure principles and a new pricing structure model are some of the implemented initiatives. The markets in the Nordic region continue to be important markets whereas London has top priority outside the Nordic region. The wholesale customer base has been consolidated, and more focus will be placed on large and strategically important customers in order to ensure the right Premium distribution in the future. REVENUE DKK MILLION 351 GROWTH IN LOCAL CURRENCY (0.4)% EBIT DKK MILLION 3 EBIT MARGIN 0.9%

21 BY MALENE BIRGER By Malene Birger By Malene Birger is a Danish high-profile design brand with an international appeal offering affordable luxury to women. The brand was founded in 2003 and since then, it has enjoyed continuous progress and achieved recognition on the international fashion scene. Today, the brand is one of the largest female fashion brands in the Nordic region. By Malene Birger has always had a strong market position in a number of product categories including dresses, shirts and tops. Products under these categories as well as certain other categories, such as for example outerwear, must be strengthened further to meet consumer demands to a larger extent and to reinforce the brand s market positioning. The brand will still focus on growth in the Nordic region in which it already holds strong markets positions in Denmark, Sweden and Norway. Combined, these markets accounted for 64% of By Malene Birger s revenue in 2016/17. All three markets hold further growth opportunities especially Sweden. Besides the continued growth in the Nordic region, the target is to continue the international expansion in England more specifically London ranking with the highest priority. London represents one of the world s largest markets within fashion wear and is a global focal point in terms of international fashion. Growth in London will still take place through both the wholesale channel and own e-commerce. The focus will be on developing the customer base and ensuring that By Malene Birger is presented in the right stores and department stores. Apart from England, the Netherlands are also considered a focus market in Europe while Japan is the only strategic focus market outside of Europe at present. By Malene Birger is working on strengthening the wholesale distribution across all markets through a targeted focus on selected key accounts. In the brand s own channels the target is to improve the performance of existing stores as well as maintaining the positive e-commerce development. bymalenebirger.com BY MALENE BIRGER FINANCIAL HIGHLIGHTS AND KEY RATIOS Revenue and EBIT margin DKK million % /15 Revenue 2015/ /17 EBIT margin Geographic breakdown of revenue Nordic region 64% Rest of the world 11% Rest of Europe 25% Distribution Wholesale customers 796 Franchise stores 7 Retail stores 9 Concessions 6 WHOLESALE RETAIL 69% 31% GOVERNANCE PERFORMANCE STRATEGY OVERVIEW MANAGEMENT COMMENTARY ANNUAL REPORT 2016/17 IC GROUP A/S 19

22 By Malene Birger has for a long time had a strong reputation of designing exquisite and elegant theatre coats. However, the outerwear category holds an even larger potential especially if appealing to the modern woman-on-the-go to a far larger extent. Consequently, for its autumn collection 2017, By Malene Birger has designed a selection of jackets and coats which all have an adequate touch of functionality without compromising the exclusive and elegant look of the products. The bestselling style has been a stylish but functional down jacket which, in line with the defined target, has been a contributing factor to the outerwear category growing considerably and now accounts for a significantly larger part of the total order intake for the autumn collection Development in 2016/17 During 2016/17, By Malene Birger has implemented a number of initiatives with the aim of contributing to strengthening the brand in more competitive international markets where its brand awareness is lower compared to the Nordic region. A comprehensive brand and positioning analysis has been carried out from which a large number of focus areas and operational KPIs have arisen. The highly in-depth analysis is based on the definition of By Malene Birger s core customer. The analysis and its outcome have served as a strong input to the projects which have been initiated in order to implement a more commercial agenda in the brand. During the financial year under review, By Malene Birger has implemented new principles for the collection structure meaning that the brand s collections consist of a number of core products which are commercially oriented as well as a smaller part of products where design and branding are the principal elements. In this context, By Malene Birger has appointed a new Creative Director with experience from a number of international fashion brands, including most recently Mulberry. The new Creative Director has the overall responsibility of design and product development and will thus play an essential role of fulfilling the ambition of realizing international growth in the future. In respect of production, By Malene Birger has furthermore implemented an improved pricing model which to a far larger extent than previously combine the strategic price points in the market with the features and quality of the product. The purpose of both the collection structure and the pricing model is to achieve commercially stronger collections and an improved correlation between the price and the value experienced by the consumer. In respect of distribution, By Malene Birger has primarily focused on the Nordic region and London. In the last-mentioned location, the brand has worked on ensuring a continuously positive development of the store located on Marylebone High Street as well as the right wholesale distribution in the rest of London. In this respect, a certain degree of clean-up of the customer base has taken place. In general, this clean-up has taken place throughout the brand s wholesale distribution, since By Malene Birger has worked on ensuring the right Premium distribution on all markets during the financial year under review. In this context, the sales organization has focused on enhancing the strong relations with By Malene Birger s largest and most important customers as well as generating growth for these customers. This has resulted in a consolidation of the brand s total customer base in a manner ensuring that large and strategically important customers 20 IC GROUP A/S ANNUAL REPORT 2016/17 MANAGEMENT COMMENTARY

23 now account for a larger revenue share. To this end, a new International Key Account function has been established which is to service the brand s largest and most important customers across all markets. In the brand s own channels, focus has been on improving the performance in existing stores. In this connection, the brand s store in Paris has been closed. During the financial year under review, By Malene Birger opened an outlet store in Sweden for the purpose of controlling the distribution of surplus products in the growing and strategically important Swedish business segment. Performance for the year By Malene Birger realized a revenue of DKK 351 million (DKK 357 million) corresponding to a reduction of 1.7% (reduction of 0.4% measured in local currency). The reduced revenue is primarily attributable to the lower wholesale revenue but also the retail channel was negatively impacted by the development in physical stores during H1 2016/17. The same-store revenue (excluding outlets) increased by 0.6% driven by solid e-commerce growth which was diluted by the development in the physical stores. BY MALENE BIRGER EARNINGS OVERVIEW Revenue from the Nordic region increased by 2.3% primarily driven by a positive development in Sweden and Norway whereas revenue in Denmark was at the same level as last financial year. Revenue from Rest of Europe was 4.4% lower compared to last financial year, however, with variations from market to market. Outside of Europe, Japan reported revenue reduction whereas all other markets reported revenue increases, and consequently revenue declined in total by 13.0% In spite of the underlying margin improvement on sold products, the realized gross margin was lower compared to last financial year primarily due to higher discounts and returns. Costs were significantly higher in 2016/17 compared to last financial year which is largely attributable to the comprehensive brand and positioning analysis, strengthening of the management team as well as write-downs in the distribution in France and England. Operating profit (EBIT) amounted to DKK 3 million (DKK 26 million) corresponding to an EBIT margin of 0.9% (7.3%). DKK million 2016/ /16 Change, % Revenue (1.7) Wholesale and franchise (1.6) Retail, e-commerce and outlets (1.8) Revenue growth in local currency (%) (0.4) Operating profit before depreciation and amortization (EBITDA) (48.5) EBITDA margin (%) Depreciation, amortization and impairment losses (14) (7) (100.0) Operating profit (EBIT) 3 26 (88.5) EBIT margin (%) GOVERNANCE PERFORMANCE STRATEGY OVERVIEW MANAGEMENT COMMENTARY ANNUAL REPORT 2016/17 IC GROUP A/S 21

24 OTHER BRANDS The Group portfolio of brands also includes the two brands Saint Tropez and Designers Remix of which Saint Tropez is wholly owned whereas Designers Remix is owned by a 51% equity share. None of the two brands utilize the Group s central infrastructure functions. Other brands Besides the three Premium brands, the Group portfolio of brands also includes the two brands Saint Tropez and Designers Remix which both operate exclusively within female fashion. Saint Tropez is a brand in the Fast Fashion segment whereas Designers Remix is a Premium brand. Performance for the year Revenue from Other brands increased by 0.5% compared to the financial year 2015/16 (0.6% measured in local currency). Growth was driven by Designers Remix which reported a revenue increase whereas the revenue development in Saint Tropez was unsatisfactory. Saint Tropez is wholly owned by IC Group whereas the Group has an equity share of 51% in Designers Remix. The remaining 49% equity share is held by Niels and Charlotte Eskildsen, CEO and Chief Designer of the brand, respectively. None of the two brands utilize the Group s central infrastructure functions, and in all material respects both brands operate independently. The two brands may be divested and are thus considered as investments. Growth was realized in the wholesale channel whereas the development in the retail channel was negative in respect of both brands. E-commerce revenue increased by almost 10%, however, the nominal value of this channel only accounts for a small part of the total revenue of Other brands. Designers Remix reported revenue increases in all markets whereas revenue from Saint Tropez particularly declined in the brand s domestic market Denmark where most of its physical stores are located. The same-store revenue (excluding outlets) declined by 8.6% compared to 2015/16. The operating profit (EBIT) amounted to DKK 10 million (DKK 20 million) corresponding to an EBIT margin of 2.5% (5.0%). The reduced margin was driven by Saint Tropez where an improved gross margin was not able to compensate the significantly worse cost ratio caused by the higher capacity costs. The development may be ascribed a combination of new stores, higher staff costs and increased depreciation, amortization and impairment losses. OTHER BRANDS EARNINGS OVERVIEW DKK million 2016/ /16 Change, % Revenue Wholesale and franchise Retail, e-commerce and outlets (4.9) Revenue growth in local currency (%) 0.6 Operating profit before depreciation and amortization (EBITDA) (29.6) EBITDA margin (%) Depreciation, amortization and impairment losses (9) (7) (28.6) Operating profit (EBIT) (50.0) EBIT margin (%) IC GROUP A/S ANNUAL REPORT 2016/17 MANAGEMENT COMMENTARY

25

26 CONSOLIDATED FINANCIAL REVIEW Revenue improved by 4.3% to DKK 2,749 million measured in local currency (DKK 2,665 million). The gross margin was negatively impacted by higher inventory write-downs in Q4 2016/17 as well as higher discounts throughout the financial year under review. Costs increased particularly as a consequence of the implemented restructuring of the Group s central functions, but also store openings as well as distribution adjustments in certain brands contributed to this cost development. The operating profit (EBIT) amounted to DKK 125 million (DKK 243 million) corresponding to an EBIT margin of 4.5% (9.1%). Profit for the year amounted to DKK 92 million (DKK 195 million). Revenue Consolidated revenue amounted to DKK 2,749 million (DKK 2,665 million) corresponding to an increase of 3.2% (4.3% measured in local currency). The increased revenue was primarily driven by the retail channel where store openings, especially in Peak Performance, as well as high e-commerce growth contributed to the growth rate of 6.4% in this channel. In total, the Group opened 19 new stores and outlets whereas 7 were closed. The total same-store revenue increased by 1.7% driven by e-commerce growth. The moderate growth rate reported in the wholesale channel was driven by higher preorder revenue, mainly in Peak Performance, whereas in-season selling was lower compared to last financial year. As described earlier, the lower in-season selling is primarily attributable to Tiger of Sweden where a part of the reduction is driven by the decision to reduce the amount of discounted sales. Revenue from the wholesale channel increased by 1.3%. Gross margin Consolidated gross profit of continuing operations amounted to DKK 1,519 million (DKK 1,513 million). The gross margin declined by 1.5 percentage points to 55.3% (56.8%) in spite of a significant improvement of the underlying margin on sold products across all brands. Consequently, the development of the gross margin is attributable to higher discounts and returns during the financial year under review as well as higher inventory write-downs particularly in Tiger of Sweden and Peak Performance during Q4 2016/17. Capacity costs Capacity cost increased by DKK 124 million to DKK 1,394 million for 2016/17, and the cost ratio increased by 3.0 percentage points to 50.7% (47.7%). Non-recurring costs attributable to the structural changes of the Group s central functions amounted to DKK 33 million. Furthermore, costs attributable to impairment of assets in the distribution, primarily in respect of By Malene Birger and Tiger of Sweden, amounted to DKK 11 million. In addition to this, a large part of the cost development is attributable to new stores and higher e-commerce activity while strengthening of management teams in some of the Group Premium brands also contributed to this development. Revenue development (DKK million) Capacity cost development (DKK) million 99 (9) (6) 2 (2) 2, ,394 1, , /16 Peak Performance Tiger of Sweden By Malene Birger Other brands Unallocated 2016/ /16 Non-recurring costs for restructurings Distribution write-downs Distributionrelated costs Other costs 2016/17 24 IC GROUP A/S ANNUAL REPORT 2016/17 MANAGEMENT COMMENTARY

27 Operating profit (EBIT) Operating profit of continuing operations amounted to DKK 125 million (DKK 243 million) corresponding to an EBIT margin of 4.5% (9.1%). The reduced profit compared to 2015/16 is primarily attributable to the development of capacity costs as described above. After having adjusted for the non-recurring costs in respect of the structural changes of the Group s central functions, the EBIT margin for 2016/17 would have been 5.7%. Profit for the year Consolidated profit for 2016/17 amounted to DKK 92 million (DKK 195 million). The consolidated profit for 2015/16 was affected positively by the proceeds from the sale of shares in DK Company A/S amounting to approx. DKK 9 million recognized in income from investments in associates as well as a profit of DKK 3 million from discontinued operations in respect of the divested Mid Market division. Net working capital The working capital amounted to DKK 318 million which is at the same level as last financial year. The gross value of the Group s inventories was at the same level as 2015/16, however, the carrying amount of the inventories declined due to higher inventory write-downs primarily driven by Tiger of Sweden and Peak Performance. Trade receivables were essentially at the same level as 2015/16 while trade payables mainly declined due to timing differences of payments compared to the same period last financial year. The working capital constituted 11.6% of the trailing 12 months revenue compared to 11.8% for the same period last financial year. Operating profit development (EBIT), DKK million /16 7 (41) Peak Performance Tiger of Sweden (23) By Malene Birger (10) Other brands (51) Unallocated costs and eliminations /17 Cash flow and net interest-bearing debt Consolidated free cash flow amounted to an inflow of DKK 87 million (inflow of DKK 238 million). Cash flow from operating activities was reduced by DKK 8 million whereas cash flow from investing activities declined by DKK 143 million primarily as a consequence of the sale of the head office located Raffinaderivej 10, Copenhagen, and the shares in DK Company A/S which contributed positively by DKK 144 million to the cash flow in 2015/16. Investments in both intangible assets and property, plant and equipment, primarily for investments in new stores, amounted to DKK 89 million and were consequently at the same level as last financial year. See chapter 4 in the consolidated financial statements for further information. Cash flow from financing activities amounted to an outflow of DKK 79 million (outflow of DKK 319 million). This change is primarily attributable to extraordinary dividend paid during the financial year 2015/16 which amounted to DKK 244 million (net). Following this, the net interest-bearing debt amounted to DKK 17 million (DKK 25 million). Changes in equity and equity ratio Equity at 30 June 2017 amounted to DKK 723 million (DKK 740 million). This reduction was driven by ordinary dividend payment of DKK 83 million (net) partly offset by the positive comprehensive income for the year. Consequently, the equity ratio at 30 June 2017 amounted to 51.9% (51.2%). Development in net interest-bearing debt, DKK million /16 (248) 9 Operating profit Working capital investments 64 Tax paid 89 Non-current assets investments (5) Other 83 Dividend paid /17 GOVERNANCE PERFORMANCE STRATEGY OVERVIEW MANAGEMENT COMMENTARY ANNUAL REPORT 2016/17 IC GROUP A/S 25

28 RISK MANAGEMENT Due to the Group s activities, IC Group is exposed to a number of risks all inherent in the apparel and fashion industry. The Management considers efficient risk management as an integrated part of all Group activities and works continously to minimize uncertainty. Furthermore, the Management regularly assesses the risks in order to determine whether the risks have changed or the risk control measures are adequate or relevant. No significant changes have taken place during the financial year under review compared to the financial year 2015/16. The Group creates stakeholder value by managing and minimizing uncertainty within the core activities. The Group s processes are set up in such a manner that risks are controlled efficiently based on the experiences and competences achieved over time by the Group. Where deemed possible, it is the Group s policy to take out insurance coverage to hedge against inherent risks. The Board of Directors reviews the Group s insurance annually to ensure that coverage is adequate. The below risks and uncertainties are those which the Management considers to be most significant at the present. RISK OVERVIEW Financial impact MINIMAL SIGNIFICANT CONSIDERABLE LARGE UNLIKELY MINIMAL POSSIBLE PROBABLE Probability of occurance 26 IC GROUP A/S ANNUAL REPORT 2016/17 MANAGEMENT COMMENTARY

29 RISKS Macroeconomic trends, changed market conditions or changed consumer behaviour which have a negative impact on particularly raw material prices, production costs as well as the consumer demand Risk of loss of brand value through negative publicity in the media or changed brand perception with the core customers Purchase and sale in own stores, including risk of too high inventory levels and consequently the risk of increased discounted sales Fashion and collection risks as a consequence of continuously changing fashion trends Loss of key employees Political risks, including particularly China and Romania which account for 43% (43%) and 18% (22%) of the Group s sourcing, respectively Logistics and order handling, including the risk of late, faulty or non-delivery IT risks, including unauthorized access, cybercrime and system downtime Financial risks, including in particular foreign currency exposure risk Suppliers, including risk of errors and omissions of ordered products as well as being dependent of few key suppliers MONITORING AND COVERAGE Increased internationalization and diversity on different geographical markets contribute to spreading the risk The development of the Group s primary supplier markets is monitored closely in order to plan relocation of production well in advance Adjustment of capacity costs to the extent that it is not deemed to have a negative impact on the long-term strategy execution of the Group brands Strong control of quality level during the collection development process Pro-active corporate responsibility policy as well as guidelines and stringent requirements for the product development process. Distribution channels are adjusted and developed on an on-going basis to support the brand value in the best possible way Significant internal resources are allocated to brand building and marketing All Group brands work with Sales and Operations Planning in order to optimize purchase of goods to own sales channels A network of outlets to where surplus products are channelled and are sold continuously reduces the need for periods with discounted sales in the stores and capacity in this network is increased or reduced as required Commercial and facts-based approach to collection development where sales statistics and analyses of market trends are compared to current fashion trends A certain level of diversification at Group level due to the number of different and independent brands in the Group portfolio Through the Group s work on HR, guidelines, tools, processes and training are being developed and updated, and an annual employee survey is conducted to retain and develop employees Continuously monitoring of the political conditions of the global sourcing markets Geographic relocation of sourcing may take place if deemed necessary The Group s logistics function is continuously working to optimize order handling and enhance the planning systems. Timely delivery to own stores, consumers and wholesale customers is a key focus area The Group s IT function manages these risks by continuous maintenance of systems, using IT security technologies and keeping back-up of critical data The Group monitors, hedges and controls all financial risks centrally through the finance function in the Parent Company in accordance with the Finance Policy as adopted by the Board of Directors. See note 5.3 to the consolidated financial statements for further information on the Group s financial risks Compliance control of the Group s business and ethical standards through a systematic scoring of all suppliers The Group has a total of 148 (148) suppliers of which the 10 largest suppliers account for 45% (49%) of the total production value. The largest individual supplier accounts for 13% (11%) of the total production value, and the Group is thus not dependent of one individual supplier GOVERNANCE PERFORMANCE STRATEGY OVERVIEW MANAGEMENT COMMENTARY ANNUAL REPORT 2016/17 IC GROUP A/S 27

30 THE GROUP S WORK WITH CORPORATE RESPONSIBILITY As part of the global apparel and fashion industry, IC Group is committed to being a responsible company working with integrity and sustainability. We strive at creating stakeholder value by addressing and solving the different challenges which any company of the apparel and fashion industry faces. Corporate Responsibility Policy We are part of an industry with many corporate responsibility challenges, and we take these issues seriously. IC Group has joined the UN Global Compact, and our corporate responsibility efforts are grounded in the UN Global Compact s 10 principles which are based on internationally adopted declarations and conventions on human rights, labour rights, environmental protection and anti-corruption. Together, the UN Global Compact and the UN Guiding Principles constitute the overall framework to guide corporate responsibility policies and implementation processes in the Group. By joining the UN Global Compact, we have pledged to work proactively internally as well as externally in cooperation with our suppliers to promote compliance with these principles. We strive at making a positive difference and setting up due diligence processes to avoid non-compliance issues. To read IC Group s Corporate Responsibility Policy and our specific policies, go to our corporate website at: icgroup.net/ responsibility/our-policy Diversity IC Group has signed Recommendation for more women on supervisory boards, and it is the Group s policy, over the coming years, to work consistently to recruit more female managers in the Company in general. Pursuant to section 99b of the Danish Financial Statement Act, the Group s gender diversity targets and its actual gender distribution are set out below. The proportionate share of females in IC Group s Board of Directors constituted 14% at 30 June 2017, and the Group works continuously to recruit and develop new female managers. The Group s specific target is to increase the percentage of female board members to 33% within a time span of not more than 2 years i.e., by 30 June 2019 at the latest. This target must be reached through a continues dialogue within the Board of Directors on how to ensure optimum diversity in the composition of the Board of Directors and in the recruitment pool of new board candidates. In the Annual Report 2015/16, it was reported that the target for female board members was set at 33% within a time span of 3 years. We did not achieve this which is primarily attributable to the recruitment base not allowing for this target to be fulfilled. The representation of male and female managers is distributed equally at all other organizational levels in the Group. The complete Statutory Corporate Responsibility Report for the financial year 2016/17, cf. section 99a of the Danish Financial Statements Act, is available on the corporate website at: icgroup.net/responsibility/corporate-responsibility-report/ 28 IC GROUP A/S ANNUAL REPORT 2016/17 MANAGEMENT COMMENTARY

31 THE GROUP S WORK ON CORPORATE GOVERNANCE Corporate governance is considered to be an inherent and decisive factor in achieving the Group s strategic targets. Consequently, continuous development of the Group Management and follow-up on their performance is an on-going process to ensure an efficient, appropriate and sound management of the Company which is in compliance with the Recommendations on Corporate Governance. Managing shareholders interests The Board of Directors considers it its primary task to promote the long-term interests of the Group and thus of all shareholders. To undertake this task, the Board of Directors holds 5 regular board meetings a year, and the Chairmanship engages in an on-going dialogue with the Executive Board. As expressed in the Group s Statutory Annual Corporate Governance Statement, the Board of Directors has reviewed the Group s relationship with its stakeholders and environment as well as the tasks of the Board of Directors and the Executive Board and their interaction with each other. The corporate governance statement describes the framework for the Management s working procedures which are intended to ensure efficient, appropriate and sound management of IC Group. This framework has been prepared within the scope of IC Group s Articles of Association as well as the prevailing legislation and rules applicable for Danish listed companies. To read IC Group s Articles of Association, go to the corporate website at: icgroup.net/investors/corporategovernance/articles-of-association/ Board of Directors and board committees The Board of Directors is composed with emphasis on extensive experience within general management, retail and the fashion industry. It is furthermore emphasized that the Board of Directors collectively has a professional broad spectrum, extensive experience and documented strategic and managerial competences to the effect that the Board of Directors can perform their tasks in the best possible way. All board members are elected for one-year terms. In compliance with the recommendations from NASDAQ OMX Copenhagen, the Board of Directors has assessed the need for establishing special, permanent board committees. As a result of this, the Board of Directors has appointed an Audit Committee, a Remuneration Committee and a Nomination Committee. Furthermore, the Board of Directors will on an on-going basis assess the need for establishing other specific ad hoc committees. For further information on the Board of Directors and the individual board committees, go to the corporate website at: icgroup.net/investors/corporate-governance/board-committees/ Remuneration Policy and incentive pay With the purpose of promoting common interests between shareholders, the Executive Board and other executives and creating a working environment where focus is on meeting the Group s targets, IC Group has established bonus and sharebased incentive programmes. Members of the Board of Directors are not included in the incentive programmes. For further information on IC Group s Remuneration Policy and incentive pay, go to the corporate website at: icgroup.net/ investors/corporate-governance/remuneration-policy/ Information on remuneration to the Board of Directors and the Executive Board is presented in note 6.1 to the consolidated financial statements, whereas details on warrants and performance shares granted to a number of members of the Executive Board and other executives are presented in note 6.2 to the consolidated financial statements. Ownership structure and takeover bids A description of the Group s ownership structure is provided in the section Shareholders Information and Share Performance on page 35. In the event of any takeover bids, no significant agreements will be affected. CORPORATE GOVERNANCE RECOMMENDATIONS With 2 exceptions, IC Group complies with all Recommendations on Corporate Governance issued by NASDAQ OMX Copenhagen (which are based on the Recommendations from the Committee on Corporate Governance). The complete Statutory Annual Corporate Governance Statement for the financial year 2016/17, cf. section 107b of the Danish Financial Statements Act, is available on the corporate website at: icgroup.net/investors/corporate-governance/statutory-report/ GOVERNANCE PERFORMANCE STRATEGY OVERVIEW MANAGEMENT COMMENTARY ANNUAL REPORT 2016/17 IC GROUP A/S 29

32 EXECUTIVE TEAM ALEXANDER MARTENSEN-LARSEN* CEO, IC Group (2017), (Born 1975) Alexander Martensen-Larsen holds a BSc in International Business from Copenhagen Business School and has earned an MBA from IMD Business School. Previously, Alexander Martensen-Larsen served as Director in Corporate Business Development at TDC and as a Financial Analyst at Morgan Stanley Investment Banking in London. Former Group CFO and member of the Executive Board since Chairman of the Board of Directors of Designers Remix A/S. No. of shares: 5,000 (5,000) No of performance shares: 14,920 (6,575) NICOLAS WARCHALOWSKI CEO, Peak Performance (2014), (Born 1971) Nicolas Warchalowski holds a BSc in Business Administration from Jönköping International Business School in Sweden and has also lived and studied in the UK. Before Nicolas joined Peak Performance, he served as CEO of the Swedish sportswear brand Haglöfs. Previously, Nicolas worked as Managing Director of Red Bull s Carpe Diem division in North America and as Business Team Leader of Proctor & Gamble Nordic. He has lived and worked in the USA and Austria and is now based in Stockholm. No. of shares: nil (nil) No of performance shares: 9,999 (4,505) HANS-CHRISTIAN MEYER CEO, Tiger of Sweden (2017), (Born 1970), starts 1 September 2017 Since Hans-Christian Meyer completed his education in Aarhus, Denmark, he has lived abroad and worked in Germany, Sweden and the UK for a number of years. Most recently in London as President Retail, EMEA, as well as part of the Global Management Team in Ralph Lauren. Before this, Hans-Christian Meyer was Senior Vice President and Managing Director of Ralph Lauren in Scandinavia and the Baltic region. Hans-Christian has also worked for the Danish companies Sand and Red//Green. No. of shares: nil No of performance shares: nil MORTEN LINNET CEO, By Malene Birger (2015), (Born 1970) Morten has served as Vice President of Corporate HR in IC Group where he has worked on various business projects since Morten holds a B.Com. in Business Finance and has previously held positions with Nordea, GN Store Nord and Mars Inc. No. of shares: nil (nil) No of performance shares: 9,988 (4,471) * The Executive Board of IC Group A/S 30 IC GROUP A/S ANNUAL REPORT 2016/17 MANAGEMENT COMMENTARY

33

34 BOARD OF DIRECTORS HENRIK HEIDEBY Chairman (Born 1949) Henrik Heideby has acquired extensive national and international management experience and skills in financing, risk management, etc., from his previous roles as Group CEO of PFA Pension, Alfred Berg Bank and FIH Erhvervsbank and as a member of the Board of Directors of other businesses. Chairman of the Board of Directors of Carlsberg Byen P/S, Kirk & Thorsen Invest A/S, Blue Equity Management A/S and Greystone Capital Partners A/S. Deputy Chairman of the Board of Directors of FIH A/S and TK Development A/S. Member of the Board of Directors of Ahpla ApS Member of the Board of Directors: 2005 Chairman of the Board of Directors: 2014 Member of the Audit Commitee: 2009 Chairman of the Remuneration Committee: 2014 Chairman of the Nomination Committee: 2016 Considered a non-independent member of the Board of Directors No. of shares: 12,500 (12,500) PETER THORSEN Deputy Chairman (Born 1966) CEO, Kirk & Thorsen A/S As former CEO of Louis Poulsen, Chairman of BoConcept as well as a number of other businesses, Peter Thorsen has extensive experience in management, strategy, retail operations, business development and optimization of business models. Chairman of the Board of Directors of TK Development, Genan Holding, Investeringsselskabet af 24. februar 2015 A/S, Droob ApS as well as Sct. Maria Hospice. Member of the Board of Directors of Kirk & Thorsen Invest A/S, Kirk & Thorsen A/S as well as ET 1 ApS Member of the Board of Directors: 2016 Deputy Chairman of the Board of Directors: 2017 Chairman of the Audit Commitee: 2016 Considered an independent member of the Board of Directors No. of shares: 191,556 (nil) ANDERS COLDING FRIIS Board Member (Born 1963) CEO, PANDORA A/S Anders Colding Friis has acquired extensive national and international management experience from his current role as CEO of PANDORA A/S (former CEO of Scandinavian Tobacco Group A/S) and as a member of the Board of Directors of other businesses Committee and Central Board of the Confederation of Danish Industry (DI) Member of the Board of Directors: 2005 Member of the Remuneration Committee: 2011 Member of the Nomination Committee: 2016 Considered a non-independent member of the Board of Directors No. of shares: 6,925 (6,925) Deputy Chairman of Industrial Employers in Copenhagen. Member of the Executive NIELS MARTINSEN Board Member (Born 1948) CEO of Friheden Invest A/S As the founder of InWear and long-time CEO of InWear Group A/S, later IC Companys A/S, Niels Martinsen has acquired extensive national and international management experience and solid knowledge of the international fashion industry. Niels Martinsen also has experience as a member of the Board of Directors of other businesses. Chairman of the Board of Directors of A/S Sadolinparken and A/S Rådhusparken. Member of the Board of Directors of Friheden Invest A/S Member of the Board of Directors: 2001 Member of the Audit Commitee: 2009 Member of the Remuneration Committee: 2011 Member of the Nomination Committee: 2016 Considered a non-independent member of the Board of Directors No. of shares: 7,566,128 (7,191,128) through Friheden Invest A/S controlled by Niels Martinsen 32 IC GROUP A/S ANNUAL REPORT 2016/17 MANAGEMENT COMMENTARY

35 MICHAEL HAUGE SØRENSEN Board Member (Born 1973) Michael Hauge Sørensen has acquired extensive national and international management experience from a closely related industry and therefore has strong business know-how and knowledge in all areas of the value chain, including product development and marketing, international sales, retail and production. CONNY KALCHER Board Member (Born 1957) VP, Brand Development and Marketing Management, LEGO Group Conny Kalcher has throughout her career in the LEGO Group acquired strong competences within branding and marketing in particular online channels. Conny has held several executive positions within the LEGO Group where she has developed and had the responsibility of implementing the group s global marketing and brand strategies. JÓN BJÖRNSSON Board Member (Born 1968) CEO, Festi Iceland Jón Björnsson has acquired long and extensive experience within retail thus holding strong competences within merchandizing and optimized operations as well as e-commerce. Furthermore, Jón has over 20 years of retail management experience from several executive positions including, among others, CEO of Magasin du Nord. Chairman of the Board of Directors of Fristad Kansas AB, TOP-TOY A/S, TT Holding II A/S and TT Holding III A/S. Member of the Board of Directors of Zebra A/S, Michaso Holdings Limited, Elevate Global Limited and Santa Fe Group A/S. Member of the Board of Directors: 2014 Considered an independent member of the Board of Directors No. of shares: 1,350 (1,350) Member of the Council of Danish-UK Chamber of Commerce and member of Bain s NPS Client Group, Consumer Advocacy. Member of the Board of Directors: 2017 Considered an independent member of the Board of Directors No. of shares: 2,857 (nil) Member of the Board of Directors of Åhlens and Boozt Fashion. Member of the Board of Directors: 2017 Considered an independent member of the Board of Directors No. of shares: nil (nil) GOVERNANCE PERFORMANCE STRATEGY OVERVIEW MANAGEMENT COMMENTARY ANNUAL REPORT 2016/17 IC GROUP A/S 33

36

37 SHAREHOLDER INFORMATION AND SHARE PERFORMANCE We aim to maintain a high and consistent information level and engage in an open and active dialogue with investors, analysts and other stakeholders. By doing this, we contribute to providing the optimum conditions for an effective pricing of the IC Group share. Share capital and share performance IC Group is listed on NASDAQ OMX Copenhagen and forms part of the MidCap index. Share capital 17.1 million shares Nominal value per share DKK 10 Closing price at 30 June 2016 DKK Closing price at 30 June 2017 DKK Change during the financial year (18.6)% Highest closing price during the financial year (23 August 2016) DKK At the end of the financial year 2016/17, the market capitalization of IC Group amounted to DKK 2.4 billion. Treasury shares At 30 June 2017, the Group owned 442,572 (442,572) shares. This number of shares corresponds to 2.6% of the total number of issued shares and is at the same level as at 30 June SHARE PERFORMANCE (1 JULY 2016 = INDEX 100) Index Jun 16 Aug 16 Oct 16 Dec 16 Feb 17 Apr 17 Jun 17 IC Group A/S NASDAQ OMX MidCap NASDAQ OMX C20 Ownership structure At 30 June 2017, IC Group had 6,040 registered shareholders who combined held 97.2% of the total share capital. The Group has one share class, and the share of votes is equivalent to the share capital of the Group s shareholders. The breakdown of shareholders is set out in the table below. Investor relations The Group aims to maintain a high and consistent information level in order to contribute to an effective pricing of the IC Group share. To maintain a good dialogue with shareholders, analysts and other stakeholders in respect of the Group s performance, we host webcasts following the announcements of our interim and annual reports, and the Management regularly participates in road shows and investor seminars. Furthermore, we set up meetings with individual investors and financial analysts on a regular basis. For further information on the Group s Investor Relations Policy, financial statements, company announcements, financial calendar, etc., go to the corporate website at: icgroup.net/investors/ SHAREHOLDERS AT 30 JUNE 2017 Number Share DKK million of shares capital Friheden Invest A/S* (Hørsholm, DK) 7,566, % Hanssen Holding (Daugård, DK) 1,820, % ATP (Hillerød, DK) 1,219, % Other Danish institutional investors 3,686, % Danish private investorer 1,216, % Foreign institutional investors 591, % Foreign private investors 58, % Treasury shares 442, % Non-registered shareholders 488, % Total 17,090, % * Friheden Invest A/S is controlled by Niels Martinsen, member of the Group s Board of Directors. GOVERNANCE PERFORMANCE STRATEGY OVERVIEW MANAGEMENT COMMENTARY ANNUAL REPORT 2016/17 IC GROUP A/S 35

38 INTRODUCTION TO THE FINANCIAL STATEMENTS The consolidated financial statements and the parent company financial statements for the financial year 2016/17 have been prepared in accordance with the International Financial Reporting Standards (IFRS) as adopted by the EU and additional disclosure requirements pursuant to the Danish Financial Statements Act. The consolidated financial statements have been divided into 8 sections: primary financial statements, basis for preparation, profit for the year, working capital, invested capital, capital structure, governance as well supplementary notes. Each note to the consolidated financial statements provides information on accounting policies and any accounting estimates. Furthermore, symbols have been used in the financial statements to provide a clear picture of the interrelation between the different chapters of the consolidated financial statements. The symbols stated below have been used in the notes as reference to the primary financial statements. INCOME STATEMENT STATEMENT OF FINANCIAL POSITION STATEMENT OF CASH FLOWS ACCOUNTING POLICIES ACCOUNTING ESTIMATES INFORMATION REFERENCE TO SUPPLEMENTARY INFORMATION IN THE ANNUAL REPORT REFERENCE TO WEB PAGE

39 CONSOLIDATED FINANCIAL STATEMENTS PRIMARY FINANCIAL STATEMENTS CONSOLIDATED INCOME STATEMENT 38 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME 39 CONSOLIDATED STATEMENT OF FINANCIAL POSITION 40 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY 41 CONSOLIDATED STATEMENT OF CASH FLOWS 42 CHAPTER 1. BASIS FOR PREPARATION 44 CHAPTER 2. PROFIT FOR THE YEAR 2.1 SEGMENT INFORMATION STAFF COSTS TAX 51 CHAPTER 3. WORKING CAPITAL 3.1 INVENTORIES TRADE RECEIVABLES WORKING CAPITAL OTHER ADJUSTMENTS, STATEMENT OF CASH FLOWS 57 CHAPTER 4. INVESTED CAPITAL 4.1 INTANGIBLE ASSETS PROPERTY, PLANT AND EQUIPMENT 61 CHAPTER 5. CAPITAL STRUCTURE 5.1 EQUITY NET INTEREST-BEARING DEBT FINANCIAL RISKS AND DERIVATIVE FINANCIAL INSTRUMENTS FAIR VALUE MEASUREMENT OF FINANCIAL INSTRUMENTS FINANCIAL INCOME AND COSTS OPERATING LEASES 70 CHAPTER 6. GOVERNANCE 6.1 REMUNERATION TO THE EXECUTIVE BOARD AND BOARD OF DIRECTORS SHARE-BASED REMUNERATION RELATED PARTIES FEE TO AUDITORS ELECTED AT THE ANNUAL GENERAL MEETING 75 CHAPTER 7. SUPPLEMENTARY NOTES 7.1 RETIREMENT BENEFIT OBLIGATIONS PROVISIONS CONTINGENT LIABILITIES EVENTS AFTER THE REPORTING PERIOD 79

40 CONSOLIDATED INCOME STATEMENT 1 JULY - 30 JUNE Note DKK million 2016/ / Revenue 2,749 2,665 Cost of sales (1,230) (1,152) Gross profit 1,519 1,513 Other external costs (674) (626) 2.2 Staff costs (640) (587) Other operating income and costs - 6 Operating profit before depreciation and amortization (EBITDA) , 4.2 Depreciation, amortization and impairment losses (80) (63) Operating profit (EBIT) Income from investments in associates Financial income Financial costs (11) (16) Profit before tax Tax on profit for the year of continuing operations (30) (55) Profit for the year of continuing operations Profit for the year of discontinued operations * - 3 Profit for the year Profit allocation: Shareholders of IC Group A/S Non-controlling interests 3 2 Profit for the year Earnings per share, DKK Diluted earnings per share, DKK Earnings per share of continuing operations, DKK Diluted earnings per share of continuing operations, DKK * This figure includes income of DKK nil and costs of DKK nil (2015/16: Income of DKK 4 million and costs of DKK 1 million). 38 IC GROUP A/S ANNUAL REPORT 2016/17 FINANCIAL STATEMENTS

41 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME 1 JULY - 30 JUNE Note DKK million 2016/ /16 Profit for the year OTHER COMPREHENSIVE INCOME Items to be reclassified to the income statement when certain conditions are met: Other comprehensive income from associates - (2) Hedging transactions: Fair value adjustments, gains/loss on financial instruments related to cash flow hedges (18) 27 Reclassification to the income statement, gains/loss on financial instruments related to realized cash flow hedges (11) (61) Tax on items which may be reclassified to the income statement 6 7 Foreign currency translation adjustments: Foreign currency translation adjustments, foreign subsidiaries and intercompany loans (6) (9) Items which cannot be reclassified to the income statement: Actuarial adjustments 1 - Other comprehensive income after tax (28) (38) Total comprehensive income Allocation of comprehensive income for the year: Shareholders of IC Group A/S Non-controlling interests 3 2 Total SUPPLEMENTARY NOTES GOVERNANCE CAPITAL STRUCTURE INVESTED CAPITAL WORKING CAPITAL PROFIT FOR THE YEAR BASIS FOR PREPARATION OVERVIEW FINANCIAL STATEMENTS ANNUAL REPORT 2016/17 IC GROUP A/S 39

42 CONSOLIDATED STATEMENT OF FINANCIAL POSITION AT 30 JUNE Note DKK million ASSETS NON-CURRENT ASSETS 4.1 Intangible assets Property, plant and equipment Financial assets Deferred tax Total non-current assets CURRENT ASSETS 3.1 Inventories Trade receivables Tax receivable Other receivables Prepayments Cash Total current assets TOTAL ASSETS 1,393 1,444 Note DKK million EQUITY AND LIABILITIES EQUITY 5.1 Share capital Reserve for hedging transactions (9) 14 Translation reserve (68) (62) Retained earnings Equity attributable to shareholders of the Parent Company Equity attributable to non-controlling interests 10 7 TOTAL EQUITY LIABILITIES 7.1 Retirement benefit obligations Deferred tax Provisions 11 6 Total non-current liabilities Current liabilities to credit institutions Trade payables Tax payable Other liabilities Provisions Total current liabilities Total liabilities TOTAL EQUITY AND LIABILITIES 1,393 1, IC GROUP A/S ANNUAL REPORT 2016/17 FINANCIAL STATEMENTS

43 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY 1 JULY - 30 JUNE 2017 Reserve Equity for owned by Equity hedging- Trans-- share- owned by Share trans- lation Retained Proposed holders of non-cont. Total DKK million capital actions reserve earnings dividend ICG A/S interests equity Equity at 1 July (62) Profit for the year Other comprehensive income after tax - (23) (6) 1 - (28) - (28) Total comprehensive income - (23) (6) Transactions with owners: Dividend on treasury shares (2) (2) - (2) Ordinary dividend paid (83) (83) - (83) Exercise of warrants Changes in equity during 2016/17 - (23) (6) 9 - (20) 3 (17) Equity at 30 June (9) (68) Reserve Equity for owned by Equity hedging- Trans-- share- owned by Share trans- lation Retained Proposed holders of non-cont. Total DKK million capital actions reserve earnings dividend ICG A/S interests equity Equity at 1 July (53) Profit for the year Other comprehensive income after tax - (27) (9) (2) - (38) - (38) Total comprehensive income - (27) (9) Transactions with owners: Dividend on treasury shares (2) Ordinary dividend paid (66) (66) - (66) Extraordinary dividend paid (244) - (244) - (244) Share-based payments Exercise of warrants Changes in equity during 2015/16 1 (27) (9) (128) 17 (146) 2 (144) Equity at 30 June (62) ACCOUNTING POLICIES Reserve for hedging transactions Reserve for hedging transactions comprises the accumulated net change of the fair value of hedging transactions which qualify for recognition as cash flow hedges, and where the hedged transaction has not yet been realized, less tax. Translation reserve The translation reserve comprises the shareholders of the Parent Company s share of foreign exchange differences arising in connection with the translation of foreign subsidiaries financial statements as well as intercompany loans reported in their functional currency into the IC Group s reporting currency (DKK). SUPPLEMENTARY NOTES GOVERNANCE CAPITAL STRUCTURE INVESTED CAPITAL WORKING CAPITAL PROFIT FOR THE YEAR BASIS FOR PREPARATION OVERVIEW FINANCIAL STATEMENTS ANNUAL REPORT 2016/17 IC GROUP A/S 41

44 CONSOLIDATED STATEMENT OF CASH FLOWS 1 JULY - 30 JUNE Note DKK million 2016/ /16 CASH FLOW FROM OPERATING ACTIVITIES 2.1 Operating profit, continuing operations Operating profit, discontinued operations - 3 Operating profit Other adjustments Change in working capital (9) (61) Cash flow from ordinary operating activities Financial income received 4 3 Financial costs paid (5) (6) Cash flow from operating activities Tax paid (64) (65) Total cash flow from operating activities CASH FLOW FROM INVESTING ACTIVITIES 4.1 Investments in intangible assets (17) (10) 4.2 Investments in property, plant and equipment (72) (81) Sale of associate and operations Change in other financial assets 1 2 Total cash flow from investing activities (88) 55 Total free cash flow CASH FLOW FROM FINANCING ACTIVITIES Repayment of non-current liabilities - (17) 5.1 Dividends paid (83) (310) Exercise of warrants 4 8 Total cash flow from financing activities (79) (319) Net cash flow for the year 8 (81) CASH AND CASH EQUIVALENTS Cash and cash equivalents at 1 July (25) 58 Foreign currency translation adjustments of cash and cash equivalents at 1 July - (2) Net cash flow for the year 8 (81) Cash and cash equivalents at 30 June (17) (25) DKK million Cash and cash equivalents in the statement of cash flows comprise: Cash Current liabilities to credit institutions (86) (109) Cash and cash equivalents, cf. statement of cash flows (17) (25) 42 IC GROUP A/S ANNUAL REPORT 2016/17 FINANCIAL STATEMENTS

45 ACCOUNTING POLICIES Statement of cash flows The statement of cash flows shows the cash flows from operating, investing and financing activities for the year, and the net cash flows for the year as well as cash and cash equivalents at the beginning and at the end of the financial year. The statement of cash flows presents cash flow from operating activities indirectly based on the operating profit. Cash flow from operating activities is calculated as operating profit adjusted for non-cash operating items, provisions, financials paid, change in working capital as well as taxes paid. Cash flow from investing activities includes payments regarding acquisition and sale of non-current assets and securities, including investments in businesses. Cash flow from financing activities includes payments to and from shareholders as well as the raising and repayment of mortgage loans and other non-current liabilities not included in working capital. Cash and cash equivalents comprise cash and net short-term bank loans that are an integral part of the Group s cash management. SUPPLEMENTARY NOTES GOVERNANCE CAPITAL STRUCTURE INVESTED CAPITAL WORKING CAPITAL PROFIT FOR THE YEAR BASIS FOR PREPARATION OVERVIEW FINANCIAL STATEMENTS ANNUAL REPORT 2016/17 IC GROUP A/S 43

46 CHAPTER 1 BASIS FOR PREPARATION This chapter describes the significant accounting policies for the Group as a whole. Significant accounting policies which relate to a primary statement, specific accounting item or note are described in the relevant note. Furthermore, this chapter contains a description of the new IFRS standards and interpretations, and how these are expected to affect the Group s financial position and performance SIGNIFICANT ACCOUNTING POLICIES The consolidated financial statements and the parent company financial statements for the financial year 2016/17 have been prepared in accordance with the International Financial Reporting Standards (IFRS) as adopted by the EU and additional disclosure requirements pursuant to the Danish Financial Statements Act.

47 The consolidated financial statements comprise many complex transactions which are classified according to nature or function. If an item in itself is not deemed material, it will be consolidated with other items of a uniform nature in the consolidated financial statements or in the notes. The disclosure requirements provide specific information on the requirements under IFRS, unless such information is considered to be insignificant to the financial decision-making of the users of these statements or considered irrelevant. Minor reclassifications and adjustments of the comparative figures have been made. The accounting policies applied in this Annual Report are unchanged as compared to the accounting policies applied in the Annual Report 2015/16 except from the below-mentioned exceptions. Implementation of new IFRS standards and interpretations IASB has issued, and the EU has adopted, a number of new standards, interpretations (IFRIC) and has revised some of the existing standards, including IFRS improvement projects for as well as amendment to IAS 1. IC Group A/S has implemented the standards with effect from the financial year beginning 1 July 2016, and these have not had any material impact on the financial statements of IC Group A/S. New IFRS standards issued, but not yet effective IASB has issued and the EU has adopted IFRS 9 Financial Instruments which is effective for annual periods beginning on or after 1 January IFRS 9 forms part of IASB s project to replace IAS 39, and with this new standard, classification and measurement of financial instruments as well as hedging requirements will be changed. IC Group has assessed the impact of this new standard on financial instruments, and the implementation is not expected to have any material impact on the consolidated financial statements. Similarly, the implementation is not expected to have any material impact on the impairment model for financial assets. IC Group will implement the standard for the financial year 2018/19. IASB has issued and the EU has adopted IFRS 15 Revenue from Contracts with Customers which is effective for annual periods beginning on or after 1 January IFRS 15 forms part of a joint project with FASB to replace IAS 18 and IAS 11 as well as interpretations. The new standard provides detailed framework definitions of revenue recognition and requires that revenue is recognized when or as control is transferred to the customer whether it is transferred over time or at a point in time in contrast to the existing standards where revenue is recognized when or as risks and rewards are transferred. The time for recognition of revenue may restrictedly, in isolated cases, be changed. In addition, IFRS 15 requires that provisions for return of products must be presented gross in the statement of financial position under inventories and provisions, respectively. IC Group is currently assessing the impact of IFRS 15. IC Group will implement the standard for the financial year 2018/19. IASB has issued IFRS 16 Leases which is effective for annual periods beginning on or after 1 January The standard has not been adopted by the EU yet. IFRS 16 forms part of IASB s project to replace IAS 17, and with this new standard, recognition and measurement of leases will be changed significantly. IC Group is currently assessing the impact of this new standard on leases. Pursuant to this new standard, a lease asset and a lease liability must be recognized for all contracts with a lease term more than 12 months, except for small assets with a low value. At present, IC Group has not assessed the impact on the income statement, the statement of financial position and the classification of cash flow when implementing this standard. However, the Group expects that particularly the lease terms will have an impact on the income statement, cash flow as well as statement of financial position when lease assets and lease liabilities are recognized. In addition, IC Group s key ratios will be affected, in particular EBITDA as a consequence of reclassification of rent payments to depreciation and interest payments on the recognized liability to financial costs. The free cash flow will be positively impacted as the repayment of the lease liability is classified as cash flow from financing activities instead of cash flow from operating activities. At 30 June 2017, an amount of DKK 368 million (DKK 324 million) was disclosed as operating leases in respect of cars and stores. See note 5.6 for further information of the Group s operating leases. The list below specifies the notes that include detailed accounting policies. ACCOUNTING POLICIES The significant accounting policies deemed by Management to be material for the understanding of the consolidated financial statements are listed in the statement of changes in equity, statement of cash flows as well as below where they are described in more detail in the relevant notes: 2.1 Segment information 2.2 Staff costs 2.3 Tax 3.1 Inventories 3.2 Trade receivables 4.1 Intangible assets 4.2 Property, plant and equipment 5.1 Equity 5.2 Net interest-bearing debt 5.3 Financial risks and derivative financial instruments 5.5 Financial income and costs 5.6 Operating leases 6.2 Share-based remuneration 7.1 Retirement benefit obligations 7.2 Provisions 7.3 Contingent liabilities SUPPLEMENTARY NOTES GOVERNANCE CAPITAL STRUCTURE INVESTED CAPITAL WORKING CAPITAL PROFIT FOR THE YEAR BASIS FOR PREPARATION OVERVIEW FINANCIAL STATEMENTS ANNUAL REPORT 2016/17 IC GROUP A/S 45

48 Basis of consolidation The consolidated financial statements consist of the financial statements of IC Group A/S (the Parent Company) and its subsidiaries in which the Company s voting rights directly or indirectly exceed 50%, or in which the Company is able to exercise a controlling interest in any other way. The consolidated financial statements are prepared on the basis of the parent company financial statements and the individual subsidiaries by consolidating items of a uniform nature. Equity interests, intercompany transactions, intercompany balances, unrealized intercompany gains on inventories and dividends are eliminated. The items of the financial statements of subsidiaries are fully consolidated in the consolidated financial statements. The proportionate share of the income from non-controlling interests and associates is recognized in the consolidated income statement for the year. The proportionate share of associates equity is recognized in the statement of financial position under non-current assets. Foreign currency Functional currency For each of the reporting entities in the Group, a functional currency is determined. The functional currency is the currency in the primary economic environment in which the individual reporting entity operates. Transactions in currencies other than the functional currency are transactions denominated in foreign currencies. The consolidated financial statements and the parent company financial statements are reported in Danish Kroner (DKK). DKK is considered the primary currency of the Group s operations and the functional currency of the Parent Company Foreign currency translation On initial recognition, transactions denominated in foreign currencies are translated into the functional currency at the exchange rate ruling at the transaction date. Foreign exchange differences arising between the exchange rates at the transaction date and the date of payment are recognized in the income statement under financial income or costs, respectively. Foreign exchange differences arising on the translation of foreign subsidiaries opening equity using the exchange rates ruling at the end of the reporting period as well as on the translation of the income statements using average exchange rates at the end of the reporting period are recognized under other comprehensive income. Prepayments, assets Prepayments recognized under assets comprise costs incurred relating to the following financial year, including collection samples, rent, insurance, etc. Prepayments are measured at cost SIGNIFICANT ACCOUNTING ESTIMATES In the preparation of the consolidated financial statements of IC Group A/S, Management makes various significant accounting estimates and assumptions that may affect the reported values of assets, liabilities, income, costs, cash flow and related information at the reporting date. The accounting estimates are based on past experience and other factors deemed reasonable in the circumstances. By their nature, such estimates are subject to some uncertainty and the actual results may deviate from these estimates. The estimates are continuously evaluated and the effect of any changes is recognized in the relevant period. The significant accounting estimates and assumptions deemed by Management to be material for the preparation and understanding of the consolidated financial statements are listed below and described in more detail in the relevant notes: SIGNIFICANT ACCOUNTING ESTIMATES 2.3 Tax 3.1 Inventories 3.2 Trade receivables 4.1 Intangible assets 4.2 Property, plant and equipment 7.2 Provisions Receivables, payables and other monetary items denominated in foreign currencies are translated into the functional currency at the exchange rates ruling at the end of the reporting period. The difference between the exchange rate ruling at the end of the reporting period and the exchange rate at the date when the receivable or payable arose or was recorded in the most recent annual report is recognized in the income statement under financial income or costs. Property, plant and equipment and intangible assets, inventories and other non-monetary assets acquired in foreign currencies and measured based on historical cost are translated at the exchange rates ruling at the transaction date. Translation in the consolidated financial statements The statements of financial position of foreign subsidiaries are translated into DKK at the exchange rate ruling at the end of the reporting period, while income statements are translated into DKK at monthly average exchange rates during the year. 46 IC GROUP A/S ANNUAL REPORT 2016/17 FINANCIAL STATEMENTS

49 CHAPTER 2 PROFIT FOR THE YEAR CONTENTS 2.1 SEGMENT INFORMATION 2.2 STAFF COSTS 2.3 TAX This chapter provides a specification of the consolidated operating profit. The Group segments are based on the 3 Premium brands; Peak Performance, Tiger of Sweden and By Malene Birger. All three brands are operated as independent business units, each with their own well-defined strategy plan and they are responsible for their financial performance. The financial performance of the individual segments is presented in note 2.1. IC Group generated a consolidated revenue of DKK 2,749 million (DKK 2,665 million) and an operating profit (EBIT) of DKK 125 million (DKK 243 million) for 2016/17. Combined, the Group s three Premium brands accounted for 85% of the Group s revenue and 94% of EBIT of reportable segments which is at the same level as last financial year. IC Group operates within a global tax platform due to its international operations. The Group s tax strategy is to optimize its tax practice proactively both in respect of payment of indirect and direct taxes while operating at all times in accordance with applicable law. The Group s effective tax rate amounted to 24% for 2016/17 (22%).

50 FINANCIAL KEY RATIOS REVENUE GROWTH (local currency) 4.3% Revenue growth in reported currency amounted to 3.2% OPERATING PROFIT DKK million 125 Corresponding to an EBIT margin of 4.5%. Revenue development (DKK million) CAGR: 3.2 % 2,638 2,665 2,563 2, , / / / / /17 Revenue EBIT margin 2.1 SEGMENT INFORMATION Business segments Reporting to the Executive Board, which is considered to be the Chief Operating Decision Maker, is based on the Group s three core business segments; Peak Performance, Tiger of Sweden and By Malene Birger. Other brands comprise Saint Tropez and Designers Remix. Unallocated items and eliminations In all material respects, unallocated items and eliminations include; income and costs in Group functions which are not allocated to the Group s business segments; intercompany eliminations; and any differences arising between costs invoiced to Group brands and realized costs in the Group s Premium service functions. Geographic information Revenue is allocated to the geographic areas based on the customer s geographic location. Allocation of assets is made based on the geographic location of the assets. In all material aspects, geographic breakdowns of Group revenue and assets are as follows: Geographic breakdown of revenue (%) Geographic breakdown of reportable assets (DKK million)* / / /17 DKK 395 million 2015/16 DKK 394 million Denmark Norway Rest of Europe Denmark Norway Rest of Europe Sweden Rest of Nordic region Rest of the world Sweden Rest of Nordic region Rest of the world * Reportable assets consist of non-current assets excluding financial assets and deferred tax. 48 IC GROUP A/S ANNUAL REPORT 2016/17 FINANCIAL STATEMENTS

51 Segment information Peak Tiger of By Malene Premium Other Performance Sweden Birger brands brands Group DKK million 2016/ / / / / /17 Total revenue 1, , ,749 Wholesale and franchise ,690 Retail, e-commerce and outlets ,059 Growth compared to 2015/16 (%) 10.6 (0.9) (1.7) Growth in local currency compared to 2015/16 (%) (0.4) Operating profit before depreciation and amortization (EBITDA) EBITDA margin (%) Depreciation, amortization and impairment losses (18) (19) (14) (51) (9) (60) Operating profit (EBIT) EBIT margin (%) Reconciliation of segment information Operating profit (EBIT), reportable segments 181 Unallocated items and eliminations* (56) Operating profit (EBIT) 125 Financial income 8 Financial costs (11) Profit before tax 122 Tax on profit for the year (30) Profit for the year 92 * Including non-recurring costs of DKK 33 million attributable to the implementation of the new structure in the Group s central functions. Peak Tiger of By Malene Premium Other Performance Sweden Birger brands brands Group DKK million 2015/ / / / / /16 Total revenue , ,663 Wholesale and franchise , ,668 Retail, e-commerce and outlets Operating profit before depreciation and amortization (EBITDA) EBITDA margin (%) Depreciation, amortization and impairment losses (17) (15) (7) (39) (7) (46) Operating profit (EBIT) EBIT margin (%) Reconciliation of segment information of continuing operations Operating profit (EBIT), reportable segments 248 Unallocated items and eliminations (5) Operating profit (EBIT) 243 Income from investments in associates 11 Financial income 9 Financial costs (16) Profit before tax 247 Tax on profit for the year (55) Profit for the year of continuing operations 192 DKK million 2016/ /16 Segment revenue (reportable segments) 2,749 2,663 Unallocated items and eliminations - 2 Total revenue, cf. income statement 2,749 2,665 SUPPLEMENTARY NOTES GOVERNANCE CAPITAL STRUCTURE INVESTED CAPITAL WORKING CAPITAL PROFIT FOR THE YEAR BASIS FOR PREPARATION OVERVIEW FINANCIAL STATEMENTS ANNUAL REPORT 2016/17 IC GROUP A/S 49

52 ACCOUNTING POLICIES Segment information Segment information has been prepared in accordance with the Group s applied accounting policies and is consistent with the Group s internal reporting to the Executive Board. The Executive Board evaluates operating profits of business segments separately in order to make decisions in relation to resource allocation and performance measurement. The segment results are evaluated on the basis of operating results, which are calculated by the same methods as in the consolidated financial statements. Financial income, costs and corporate taxes are calculated at Group level and are not allocated to the business segments. Segment income and costs comprise income and costs that are directly attributable to the individual segment and the items that can be allocated to the individual segment on a reliable basis. No material trade or other transactions take place between the business segments. Revenue from external customers, which is reported to Management, is measured by the same methods as in the income statement. Cost allocation between business segments is made on an individual basis. No individual customer accounts for more than 10% of revenue. No information has been provided as to the segments share of items concerning financial position or cash flows as the Executive Board does not use this segmentation in the internal reporting. Management has concluded that Saint Tropez and Designers Remix meet the criteria for aggregation as set out in IFRS 8, since the two segments have similarities in the nature of the products, the production processes, the type or class of customers, the methods used to distribute products and the nature of the level of earnings. Revenue Revenue from the sale of goods is recognized in the income statement when delivery and transfer of risk to the buyer have taken place and if the income can be reliably measured and is expected to be received. Revenue is measured excluding VAT, indirect taxes and less expected returns and discounts related to sales. See note 7.2 for further information on accounting estimates concerning returns and discounts. Revenue is measured at the fair value of the consideration received or receivable. Cost of sales Cost of sales includes direct costs incurred when generating the revenue for the year. The Company recognizes cost of sales as revenue is earned. Other external costs Other external costs comprise other purchase and selling costs and administrative costs, agents commissions to external sales agents, bad debts, etc. Lease costs relating to operating lease agreements are recognized by using the straight-line method over the term of the lease in the income statement under other external costs. 2.2 STAFF COSTS DKK million 2016/ /16 Total salaries, remuneration, etc. may be specified as follows: Remuneration to the Board of Directors, cf. note Salaries and remuneration Defined contribution plans, cf. note Defined benefit plans, cf. note Other social security costs Share-based payments - 1 Other staff costs Total staff costs Average number of Group employees 1,187 1,110 Geographic breakdown of average number of employees /17 1,187 employees 2015/16 1,110 employees Denmark Sweden Norway Rest of Nordic region Rest of Europe Rest of the world 50 IC GROUP A/S ANNUAL REPORT 2016/17 FINANCIAL STATEMENTS

53 ACCOUNTING POLICIES Staff costs include salaries, remuneration, retirement benefit schemes, share-based payments and other staff costs to the Group s employees, including to the members of the Executive Board and Board of Directors. Staff costs are recognized in the financial year in which the employee renders the related service. Costs related 2.3 TAX Tax for the year to long-term employee benefits, e.g., share-based payments, are allocated and recognized in the period to which they relate. See note 6.1 for further information on remuneration to the Executive Board and the Board of Directors and note 6.2 for further information on the Group s share-based incentive programmes. DKK million 2016/ /16 Current tax Current tax for the year Prior-year adjustments, current tax 1 27 Foreign non-income dependent taxes 1 1 Total current tax Deferred tax Change in deferred tax (10) (10) Prior-year adjustments, deferred tax* 1 (23) Adjustments regarding changes in tax rates, deferred tax 1 - Total deferred tax (8) (33) Tax for the year * Primarily relates to the release of tax allocation reserves in some of the Group s Swedish companies. DKK million 2016/ /16 Recognized as follows: Tax on profit for the year of continuing operations Tax on other comprehensive income (6) (7) Tax for the year Net tax receivable at 1 July 5 19 Tax payable on profit for the year (31) (80) Tax paid during the year Foreign currency translation adjustments, etc. 1 1 Net tax receivable at 30 June 39 5 Recognized as follows: Tax receivable Tax payable (10) (52) Net tax receivable at 30 June 39 5 SUPPLEMENTARY NOTES GOVERNANCE CAPITAL STRUCTURE INVESTED CAPITAL WORKING CAPITAL PROFIT FOR THE YEAR BASIS FOR PREPARATION OVERVIEW FINANCIAL STATEMENTS ANNUAL REPORT 2016/17 IC GROUP A/S 51

54 Breakdown on tax on profit for the year of continuing operations is as follows: DKK million 2016/ /16 Calculated tax on profit before tax, 22% Effect of other non-taxable income and other non-deductible costs - (1) Effect of adjustment regarding changes in tax rates, deferred tax 1 - Foreign non-income dependent taxes 1 1 Prior-year adjustments 1 4 Revaluation of tax losses, etc - (3) Total tax on profit for the year Effective tax rate for the year (%) Tax on other comprehensive income Fair value adjustment on financial instruments held as cash flow hedges 6 7 Total tax on other comprehensive income 6 7 Deferred tax DKK million Deferred tax at 1 July Prior-year adjustments (1) 23 Adjustments regarding changes in tax rates (1) - Disposal in connection with sale - (2) Deferred tax on other comprehensive income 6 7 Change in deferred tax on profit for the year 3 5 Foreign currency translation adjustments, etc. 1 - Net deferred tax at 30 June Recognized as follows: Deferred tax assets Deferred tax liabilities (7) (12) Net deferred tax at 30 June Breakdown of deferred tax at 30 June is as follows: Gross deferred tax assets and liabilities Unrecognized tax assets (43) (49) Net deferred tax at 30 June Temporary differences and changes during the year are specified as follows: Recognized Net deferred Recognized Disposal in in other Net deferred tax at in profit for connection comprehensive tax at DKK million 1 July 2016 the year with sale income 30 June 2017 Intangible assets and property, plant and equipment 38 (8) Inventories and receivables 7 (2) Provisions and other liabilities Financial instruments (2) Tax losses Unrecognized tax assets (49) (43) Total Recognized Net deferred Recognized Disposal in in other Net deferred tax at in profit for connection comprehensive tax at DKK million 1 July 2015 the year with sale income 30 June 2016 Intangible assets and property, plant and equipment (2) - 38 Inventories and receivables Provisions and other liabilities (22) Financial instruments (10) (2) Tax losses 71 (23) Unrecognized tax assets (61) (49) Total (2) IC GROUP A/S ANNUAL REPORT 2016/17 FINANCIAL STATEMENTS

55 Unrecognized tax assets relate to tax losses that are assessed not to be sufficiently likely to be utilized in the foreseeable future. ACCOUNTING POLICIES Tax for the year Tax for the year consists of current tax for the year and adjustments in deferred tax. Tax for the year relating to the profit/loss for the year is recognized in the income statement, and tax for the year relating to items recognized under other comprehensive income or directly in equity is recognized under other comprehensive income or directly in equity, respectively. Foreign currency translation adjustments of deferred tax are recognized as part of the adjustment of deferred tax for the year. Deferred tax is measured using the tax rates and tax rules that, based on legislation in force or in reality in force at the end of the reporting period, are expected to apply in the respective SIGNIFICANT ACCOUNTING ESTIMATES Deferred tax assets, including the tax base of deferrable tax losses, are recognized at the expected value of their utilization of future taxable income and are set off against deferred tax liabilities within the same legal entity and jurisdiction. If deferred tax is an asset, it is included in non-current assets based on an assessment of the potential for future realization. Tax losses are recognized when it is likely that these will be utilized in the foreseeable future. Deferred tax is calculated based on the planned use of each asset and settlement of each liability, respectively. In all material respects, the unrecognized tax losses are not limited in time. countries when the deferred tax is expected to crystallize as current tax. Changes in deferred tax as a result of changed tax rates or tax rules are recognized in the income statement unless the deferred tax is attributable to transactions which have been recognized previously under other comprehensive income or directly in equity. The Parent Company is taxed jointly with all consolidated wholly owned Danish subsidiaries. The current tax expense is allocated among the companies of the Danish tax pool in proportion to their taxable income (full absorption with refunds for tax losses). The jointly taxed companies pay tax under the Danish on-account tax scheme. IC Group is subject to tax legislation in the countries in which it operates. Any significant accounting estimates relating to the statements of current tax, deferred tax and pending tax matters in the individual countries have been provided. Risks relating to transfer pricing, disagreement(s) with local tax authorities, etc. arise as a result of global activity. Based on an assessment and review of the outcome of pending matters, Management considers that the provisions made for uncertain tax positions recognized in payable and deferred tax are adequate. SUPPLEMENTARY NOTES GOVERNANCE CAPITAL STRUCTURE INVESTED CAPITAL WORKING CAPITAL PROFIT FOR THE YEAR BASIS FOR PREPARATION OVERVIEW FINANCIAL STATEMENTS ANNUAL REPORT 2016/17 IC GROUP A/S 53

56 CHAPTER 3 WORKING CAPITAL CONTENTS 3.1 INVENTORIES 3.2 TRADE RECEIVABLES 3.3 WORKING CAPITAL 3.4 OTHER ADJUSTMENTS, STATEMENT OF CASH FLOWS This chapter specifies the tied-up working capital which represents the assets and liabilities supporting the dayto-day operations of the Group. The working capital is defined as current assets less current liabilities excluding the net interestbearing items, provisions and financial instruments, which are ensuring the working capital. It is our ambition that the working capital constitutes approx % of the annual revenue, however, it may during periods with high growth exceed this level.

57 FINANCIAL KEY RATIOS Change in working capital (DKK million) 314 (31) Working capital 2015/ INVENTORIES (7) Inventories Trade receivables Short-term Working capital receivables and 2016/17 current liabilities Working capital in precentage of revenue / / / / /17 Net working capital (DKK million) Working capital/revenue (%) DKK million Raw material and consumables Finished goods and goods for resale Goods in transit Total inventories, gross Changes in inventory write-downs: Inventory write-downs at 1 July Write-downs for the year, addition (recognized in the income statement) Write-downs for the year, reversal (utilized) (23) (26) Total inventory write-downs Total inventories, net Write-downs (%) Inventories recognized at net realizable value amounted to DKK 91 million (DKK 63 million) at 30 June ACCOUNTING POLICIES Inventories are measured at cost using the FIFO method. Inventories are written down to the net realizable value if this is lower than cost. The cost of raw materials and consumables includes the purchase price and direct costs to take delivery of the products. The cost of finished products includes the cost SIGNIFICANT ACCOUNTING ESTIMATES of raw materials, consumables, external production costs and costs to take delivery of the products. The net realizable value of finished products is determined as the expected selling price less costs incurred to execute the sale. By nature, product collections have a limited life-span. If the right products are not available in the stores at the right time, this may result in lost revenues or a potential higher amount of returned and surplus products leading to write-downs. The measurement of inventories is based on an individual assessment of season and age and on the realization risk assessed to exist for individual product items. SUPPLEMENTARY NOTES GOVERNANCE CAPITAL STRUCTURE INVESTED CAPITAL WORKING CAPITAL PROFIT FOR THE YEAR BASIS FOR PREPARATION OVERVIEW FINANCIAL STATEMENTS ANNUAL REPORT 2016/17 IC GROUP A/S 55

58 3.2 TRADE RECEIVABLES DKK million Not yet due Due, 1 60 days Due, days 4 6 Due more than 120 days Total trade receivables, net Change in write-downs of trade receivables for the year: Trade receivables write-downs at 1 July Change in write-downs for the year 11 2 Realized loss for the year (8) (15) Total trade receivables write-downs During the financial year 2016/17, a loss of DKK 4 million has been recognized in respect of a wholesale customer in Sweden. The most significant write-down for bad debt in 2015/16 is attributable to a franchise partner in Switzerland. In general, the receivables do not carry interest until between 30 and 60 days after the invoice date. After this date, interest is charged on the outstanding amount. The Group has recognized DKK 2 million (DKK 2 million) in connection with interest on overdue trade receivables for 2016/17. ACCOUNTING POLICIES On initial recognition, receivables are measured at fair value and subsequently at amortized cost which usually corresponds to the nominal value less provision for bad debts. Receivables are written down to net realizable value corresponding to the amount of expected future net payments received on the receivables. Write-downs are calculated on the basis of individual assessments of the receivables. SIGNIFICANT ACCOUNTING ESTIMATES Loss on trade receivables is written down by Management as a result of expected inability to pay by customers. When assessing whether Group write-downs are adequate, Management makes an analysis of the age distribution, past payment behaviour and customers credit worthiness and any change of customer terms and conditions of payment. Credit periods vary according to customs of the individual markets. 3.3 WORKING CAPITAL DKK million Inventories Trade receivables Other receivables excluding derivative financial instruments Prepayments Total assets Trade payables Other liabilities excluding derivative financial instruments Total liabilities Working capital Operating working capital* Other items (77) (78) Working capital * Operating working capital consists of inventories, trade receivables as well as trade payables. 56 IC GROUP A/S ANNUAL REPORT 2016/17 FINANCIAL STATEMENTS

59 DKK million 2016/ /16 Change in inventories 31 (75) Change in receivables excluding derivative financial instruments 1 29 Change in current liabilities excluding derivative financial instruments (36) - (4) (46) Foreign currency translation adjustments (5) (15) Total change in working capital (9) (61) 3.4 OTHER ADJUSTMENTS, STATEMENT OF CASH FLOWS DKK million 2016/ /16 Reversed depreciation and impairment losses and gains/loss on sale of non-current assets Share-based payments recognized in profit and loss - 1 Provisions 33 (25) Other adjustments Total other adjustments SUPPLEMENTARY NOTES GOVERNANCE CAPITAL STRUCTURE INVESTED CAPITAL WORKING CAPITAL PROFIT FOR THE YEAR BASIS FOR PREPARATION OVERVIEW FINANCIAL STATEMENTS ANNUAL REPORT 2016/17 IC GROUP A/S 57

60 CHAPTER 4 INVESTED CAPITAL CONTENTS 4.1 INTANGIBLE ASSETS 4.2 PROPERTY, PLANT AND EQUIPMENT This chapter describes the operating assets forming the basis of the Group s business. The future investment level must support the growth strategies of our Premium brands. Investments will primarily be prioritized for especially expansion and strengthening of own distribution channels (e-commerce and physical stores). Depending on the speed of executing these plans, the investment level may vary year on year. In the long-term perspective, we expect that the Group s investments will attain a level of 3 5% of the annual revenue. For the financial year 2016/17, IC Group A/S invested a total of DKK 89 million (3%) (DKK 91 million (3%)) primarily for store openings in the Nordic region. In total, 19 stores were opened in 2016/17 (23 stores).

61 FINANCIAL KEY RATIOS Development in invested capital Average invested capital including goodwill (DKK million) 4.1 INTANGIBLE ASSETS / / / / / Return on invested capital (%) Breakdown of property, plant and equipment and intangible assets (DKK million) 2017 Software Other Total and IT Leasehold intangible intangible DKK million Goodwill systems rights assets assets Cost at 1 July Foreign currency translation adjustments (3) - (2) - (5) Addition Disposal - - (1) - (1) Cost at 30 June Accumulated amortization and impairment losses at 1 July (63) (26) (1) (90) Foreign currency translation adjustments - - (1) - (1) Amortization and impairment losses for the year - (16) (8) (1) (25) Amortization and impairment losses on disposals Accumulated amortization and impairment losses at 30 June (79) (34) (2) (115) Carrying amount at 30 June Software Other Total and IT Leasehold intangible intangible DKK million Goodwill systems rights assets assets Cost at 1 July Foreign currency translation adjustments (4) - (1) - (5) Reclassification - (4) Addition Disposal - (23) - - (23) Cost at 30 June Accumulated amortization and impairment losses at 1 July (74) (23) - (97) Foreign currency translation adjustments - 2 (1) - 1 Amortization and impairment losses for the year - (14) (2) (1) (17) Amortization and impairment losses on disposals Accumulated amortization and impairment losses at 30 June (63) (26) (1) (90) Carrying amount at 30 June /17 DKK 395 million Goodwill Software Leasehold rights Leasehold improvements /16 DKK 394 million Equipment and furniture Other SUPPLEMENTARY NOTES GOVERNANCE CAPITAL STRUCTURE INVESTED CAPITAL WORKING CAPITAL PROFIT FOR THE YEAR BASIS FOR PREPARATION OVERVIEW FINANCIAL STATEMENTS ANNUAL REPORT 2016/17 IC GROUP A/S 59

62 Allocation of goodwill Goodwill on business combinations is allocated at the acquisition date to the cash-generating units expected to achieve economic benefits from the acquisition. The carrying amount of goodwill is allocated to the respective cash-generating units as follows: Allocation of goodwill (DKK million) /17 DKK 192 million 2015/16 DKK 195 million Tiger of Sweden Peak Performance Saint Tropez ACCOUNTING POLICIES Goodwill On initial recognition, goodwill is measured and recognized as described under the section Business combinations (se below). Subsequently, goodwill is measured at cost less accumulated impairment losses. Goodwill is not amortized but tested at least once a year for impairment. The carrying amount of goodwill is allocated to the Group s cash-generating units at the date of acquisition. The determination of cash-generating units is based on the management structure and the internal financial management. Business combinations Newly acquired or newly established businesses are recognized in the consolidated financial statements from the acquisition date or incorporation date, respectively. The acquisition date is the date when control of the business actually passes to the Group. Acquisitions are accounted for using the acquisition method, under which the identifiable assets, liabilities and contingent liabilities of businesses acquired are measured at fair value at the acquisition date. Acquired non-current assets held-for-sale are measured at fair value less expected costs to sell, however. Restructuring costs are only recognized in the acquisition s statement of financial position if they represent a liability to the acquired business. The tax effect of revaluations is taken into account. The cost of a business is the fair value of the consideration paid. If the final determination of the consideration is conditional on one or more future events, these adjustments are recognized at fair value from the acquisition date. Costs directly attributable to acquisitions are recognized directly in the income statement from the date of payment. Any excess (goodwill) of the cost of an acquired business, the value of the non-controlling interest in the acquired business and the fair value of previously acquired capital interests over the fair value of the acquired assets, liabilities and contingent liabilities is recognized as an asset under intangible assets and tested annually for impairment each year as a minimum. If the carrying amount of an asset exceeds its recoverable amount, the asset is written down to the lower recoverable amount. In case of negative differences (negative goodwill), the calculated fair values and the calculated cost of the business, the value of the non-controlling interest in the acquired business and the fair value of previously acquired capital interests are reassessed. If the difference is still negative following the reassessment, the difference is then recognized as income in the income statement. Acquisition of non-controlling interests in subsidiaries is recognized in the consolidated financial statements as an equity transaction, and the difference between the acquisition price and the carrying amount is allocated to the Parent Company s share of equity. Leasehold rights Payments to take over leases ( key money ) are classified as leasehold rights. Leasehold rights are amortized over the lease term or the useful life if this is shorter. The basis of amortization is reduced by any write-downs. Leasehold rights with an indefinite useful life are not amortized, but tested for impairment annually. Leasehold rights with indefinite useful life comprise key money in retail stores where the value is not impaired due to the location as well as the general demand of leasehold with prime locations. Software and IT Software and IT development are amortized over the useful life of 3-7 years. Cost includes the acquisition price as well as costs arising directly in connection with the acquisition and until the point of time where the asset is ready for use. Amortization is provided on a straight-line basis over the expected useful life. 60 IC GROUP A/S ANNUAL REPORT 2016/17 FINANCIAL STATEMENTS

63 SIGNIFICANT ACCOUNTING ESTIMATES Impairment test Goodwill The recoverable amounts of the individual cash-generating units to which the goodwill amounts have been allocated are calculated based on the unit s present value, i.e. the expected discounted future cash flows, compared with the carrying amounts. Impairment tests of the carrying amount of goodwill have been conducted for the financial years 2016/17 and 2015/16. The impairment test indicated a significant increase in value compared to the carrying amount of all units, consequently meaning that there is no need for impairment. The most significant parametres and assumptions are explained below. The estimate of the net present value is based on a detailed budget planning and strategy process for 2017/18 and onwards taking into account the present market situation and business initiatives. The process is conducted annually for all business units (segments) and approved by the Board of Directors. The most significant parametres for calculating the net present value are as follows: Revenue development is based on the expected order intake of the business units collections as well as the expected samestore development and growth in the distribution channels (retail, outlet and e-commerce). The estimates are based on past experience, internal as well external benchmarks and statistics, Management s expectations for the market development, market trends and initiated projects in general. The applied growth rate for financial years after 2017/18 is 0%. When indications of impairment are identified, these are further analyzed and growth rates are applied based on the above. 4.2 PROPERTY, PLANT AND EQUIPMENT Gross margin The expected gross margin is based on both improved efficiency as well as changing margins due to changes in the distribution channels sales mix. A stable gross margin is assumed for the financial years after 2017/18. Cost ratio assumed to be stable Discount rate The discount rate reflects the actual market evaluations of the specific risks of each cash-generating unit. A discount rate of 10.47% before tax/8.17% after tax using a risk-free interest rate and with added interest based on the Company s business areas has been applied. The discount rate was at the same level as 2015/16. Expected investments are set at an amount corresponding to the depreciation of the year under review which are estimated to be necessary in order to retain the existing capital base. Consequently, investments are not included in order to improve the total earnings capacity. Management estimates that the underlying assumptions and estimates are appropriate. However, the assumptions may subsequently be affected by changed macroeconomic trends and market conditions or consumer behavior which may result in the need for impairment of goodwill. Leasehold rights Impairment tests have been conducted, and it was assessed that it was necessary to write down the Group s leasehold rights by DKK 7 million (DKK 0 million) as the recoverable amount was lower than the carrying amount. Intangible assets with indefinite useful life Intangible assets which are not amortized consist of key money and amounted to DKK 20 million (DKK 25 million) Total Leasehold Equip- Assets property, Land and improve- ment and under con- plant and DKK million buildings ments furniture struction equipment Cost at 1 July Foreign currency translation adjustments - (2) (3) - (5) Reclassification (13) - Addition Disposal - (22) (22) (1) (45) Cost at 30 June Accumulated depreciation and impairment losses at 1 July 2016 (9) (142) (180) - (331) Foreign currency translation adjustments Depreciation and impairment losses for the year (1) (21) (33) - (55) Depreciation and impairment losses on disposals Accumulated depreciation and impairment losses at 30 June 2017 (10) (139) (189) - (338) Carrying amount at 30 June SUPPLEMENTARY NOTES GOVERNANCE CAPITAL STRUCTURE INVESTED CAPITAL WORKING CAPITAL PROFIT FOR THE YEAR BASIS FOR PREPARATION OVERVIEW FINANCIAL STATEMENTS ANNUAL REPORT 2016/17 IC GROUP A/S 61

64 2016 Total Leasehold Equip- Assets property, Land and improve- ment and under con- plant and DKK million buildings ments furniture struction equipment Cost at 1 July Foreign currency translation adjustments 1 (4) (5) - (8) Addition Disposal (1) (11) (19) - (31) Cost at 30 June Accumulated depreciation and impairment losses at 1 July 2015 (10) (135) (177) - (322) Foreign currency translation adjustments Depreciation and impairment losses for the year - (20) (26) - (46) Depreciation and impairment losses on disposals Accumulated depreciation and impairment losses at 30 June 2016 (9) (142) (180) - (331) Carrying amount at 30 June ACCOUNTING POLICIES Property, plant and equipment primarily consist of leasehold improvements and equipment, which are measured at cost less accumulated depreciation and impairment losses. Cost comprises the acquisition price and costs directly related to the acquisition until the time when the asset is ready for use. The net present value of estimated costs in respect of demounting and disposal of the asset and of restoring the place where the asset was used is added to cost. The difference between cost and the expected scrap value is depreciated on a straight-line basis over the expected economic lives of the assets. Gains and losses on disposal of property, plant and equipment are computed as the difference between the selling price less costs to sell and the carrying amount at the date of disposal. Gains and losses are recognized in the income statement under other operating income or costs. Property, plant and equipment are written down to the recoverable amount if this is lower than the carrying amount. SIGNIFICANT ACCOUNTING ESTIMATES The depreciation period is determined on the basis of Management s experience in the Group s business area, and Management believes the following estimates to be the best estimate of the economic lives of the assets: Leasehold improvements up to 12 years Buildings years Equipment and furniture 3-5 years If the depreciation period or the scrap values are changed, the effect on depreciation going forward is recognized as a change in accounting estimates. Impairment test Property, plant and equipment in stores The Group s property, plant and equipment, which are located in Group stores, are tested together with any leasehold rights for impairment when indication of impairment is identified. The recoverable amounts of the individual stores (cash-generating units) are calculated based on the store s net present value. Future cash flows are based on the individual store s budget for a period corresponding to the average expected useful life of the store s assets. The most important parameters in the calculation of the net present value are revenue, EBITDA, store investments, the value of leasehold rights as well as the applied discount rate. The business plans are based on Management s specific assessment of the stores expected performance during the strategy period. A discount rate of 10.47% before tax/8.17% after tax using a risk-free interest rate and with added interest based on the Company s business areas has been applied. For the financial year 2015/16 the applied discount rate was 10.23% before tax/7.98% after tax, which is at the same level as 2016/17. The applied growth rate has been 0%. When indications of impairment are identified, these are further analyzed and growth rates based on growth reported from the stores and the brands in question may be applied. A total amount of DKK 3 million (DKK 1 million) has been written down for the financial year 2016/17. The total carrying amount of property, plant and equipment in respect of own stores amounted to DKK 76 million (DKK 61 million). 62 IC GROUP A/S ANNUAL REPORT 2016/17 FINANCIAL STATEMENTS

65 CHAPTER 5 CAPITAL STRUCTURE CONTENTS 5.1 EQUITY 5.2 NET INTEREST-BEARING DEBT 5.3 FINANCIAL RISKS AND DERIVATIVE FINANCIAL INSTRUMENTS 5.4 FAIR VALUE MEASUREMENT OF FINANCIAL INSTRUMENTS 5.5 FINANCIAL INCOME AND COSTS 5.6 OPERATING LEASES This chapter specifies the Group s capital structure, including cash flow and related financial risks. The capital structure forms a solid foundation for executing the corporate strategy which pursues the target of generating growth and increasing earnings through international expansion. The Group aims at maintaining low financial gearing, since we, among others, operate in a market which is sensitive to economic fluctuations. To maintain the highest possible degree of flexibility in the future and thereby support the growth strategies pursued in the Group s Premium brands in the best possible way, we have specifically decided to retain the level of net interest-bearing debt at zero for the financial year as a whole. IC Group is partly financed by equity and partly by external financing. The ratio between these two elements is expressed through the equity ratio which amounted to 51.9% at 30 June 2017 (51.2%). Furthermore, the Group has significant operating leases primarily in respect of store leases. At 30 June 2017, total operating leases amounted to DKK 368 million (DKK 324 million) as specified in note 5.6.

66 FINANCIAL KEY RATIOS Change in net interest-bearing debt / / / / /17 Net interest-bearing debt (DKK million) Capital structure target Our target is to retain the level of net interest-bearing debt at zero. During a financial year seasonal fluctuations may arise as a consequence of the tied-up working capital To maintain strategic flexibility, we allow the net interest-bearing debt including operating leases to attain a level 3 times higher than EBITDA. At 30 June 2017, this key ratio amounted to 1.8 (1.1) Development in dividend payments, gross* / / / / /17 Capital allocation and dividend policy Value-adding investments e.g., maintaining assets as well as retail expansion Reducing the net interest-bearing debt if the level exceeds the agreed target Dividend distribution to the Group s shareholders Extraordinary dividend (DKK million) Ordinary dividend (DKK million) * Dividends are stated under the year of payment 5.1 EQUITY Number Share capital at 1 July ,007,657 Share capital increase 48,590 Share capital at 1 July ,056,247 Share capital increase 34,611 Share capital at 30 June ,090,858 The share capital consists of 17,090,858 shares (17,056,247) with a nominal value of DKK 10 each. No shares carry any special rights. The share capital is fully paid up. As stated in Company Announcement no. 17/2016, the share capital was increased by 34,611 shares due to exercise of warrants. Pursuant to a resolution passed by the shareholders at the Company s general meeting, the Company may acquire treasury shares equivalent to a maximum of 10% of the share capital. The Company has not engaged in any share buy-back for the financial year 2016/17. The number of treasury shares amounts to 442,572 corresponding to 2.6% of the share capital. There has been no changes to the number of treasury share during 2016/17 and 2015/16. The value of the Company s treasury shares at market price at 30 June 2017 amounted to DKK 62 million (DKK 76 million). Dividend See note 16 to the parent company financial statements. Earnings per share DKK million/1,000 shares 2016/ /16 Profit for the year: Profit for the year attributable to shareholders of IC Group A/S IC Group A/S profit share of continuing operations Average number of shares Number of issued shares 17,082 17,044 Treasury shares (443) (443) Average number of outstanding shares 16,639 16,601 Diluted effect of share-based remuneration - 77 Number of shares excluding treasury shares, diluted 16,639 16, IC GROUP A/S ANNUAL REPORT 2016/17 FINANCIAL STATEMENTS

67 Diluted effect DKK million/1,000 shares 2016/ /16 Earnings per share (EPS) Earnings per share, DKK Diluted earnings per share, DKK* Earnings per share of continuing operations, DKK Diluted earnings per share of continuing operations, DKK* * When calculating diluted earnings per share, 128,624 (129,532), performance shares and warrants have not been included as they are out-of-the-money, but they may, however, dilute earnings per share in the future. ACCOUNTING POLICIES Dividends Proposed dividends are recognized as a liability at the time of adoption by the shareholders at the annual general meeting. 5.2 NET INTEREST-BEARING DEBT Treasury shares The acquisition and sale of treasury shares and dividends thereon are taken directly to equity under retained earnings. DKK million Net interest-bearing debt comprises: Current liabilities to credit institutions Gross interest-bearing debt Cash Net interest-bearing debt Current liabilities to credit institutions The Group s total current liabilities to credit institutions comprise Danish and foreign overdraft facilities. Current liabilities are repayable on demand, and therefore the carrying amount corresponds to the fair value. Current liabilities to credit institutions are denominated in the currencies as follows: ACCOUNTING POLICIES Financial liabilities On initial recognition, financial liabilities, including bank loans and mortgage loans, are measured at fair value. In subsequent periods, financial liabilities are measured at amortized cost, applying the effective interest method, to the effect that the dif- 5.3 FINANCIAL RISKS AND DERIVATIVE FINANCIAL INSTRUMENTS Foreign exchange risk The Group s foreign exchange risk (transaction risk) is handled centrally by the Group s Finance Department. The Parent Company s functional currency is DKK, and foreign exchange positions are generally hedged vis-à-vis DKK. The Group s subsidiaries are not exposed to any significant foreign exchange risks. The Group s primary transaction risk relates to the buying and selling of goods in foreign currencies. The main part of the Group s sourcing is made in Asia and denominated in HKD, USD and USD-related currencies while the main part of the revenues Current liabilities per currency (%) / DKK SEK EUR Other currencies /16 ference between the proceeds and the nominal value is recognized in the income statement as financial costs over the term of the loan. and capacity costs are denominated in DKK, SEK, NOK, EUR and other European currencies. During the financial year 2016/17, the Group has also started to hedge against the foreign exchange risk of CNH (sourcing). The natural currency hedge in the Group s transactions is thus limited. Hedge accounting as well as hedging of operational risks take place by means of forward contracts and/or options. The foreign exchange risk of EUR is deemed to be insignificant since the Danish Krone is pegged to EUR. Other foreign exchange positions are hedged at 30 June SUPPLEMENTARY NOTES GOVERNANCE CAPITAL STRUCTURE INVESTED CAPITAL WORKING CAPITAL PROFIT FOR THE YEAR BASIS FOR PREPARATION OVERVIEW FINANCIAL STATEMENTS ANNUAL REPORT 2016/17 IC GROUP A/S 65

68 The hedging of the Group s transaction exposure is made from an estimate of the cash flow demand for the future months. As a general rule, cash flows in all important currencies are hedged except from EUR. Foreign exchange contracts only relate to hedging of selling and buying of goods as well as costs pursuant to the Group s policy hereto. At 30 June 2017, the Group s risks for the coming 0-21 months may be specified as follows: Average At 30 June 2017 Expected Expected Hedges Hedges Hedges Hedges hedging Million (local currency) inflow outflow 0-6 m m m m. rate USD 4 (160) HKD - (205) CNH 2 (16) SEK 1,012 (5) (370) (257) (335) (45) 77 NOK (180) (175) (163) (30) 79 GBP 7 - (3) (2) (2) CHF 17 - (7) (3) (6) (1) 688 CAD 11 - (4) (3) (3) (1) 501 Average At 30 June 2016 Expected Expected Hedges Hedges Hedges Hedges hedging Million (local currency) inflow outflow 0-6 m m m m. rate USD 7 (131) HKD - (165) SEK 739 (52) (321) (248) (72) (46) 80 NOK 427 (10) (157) (168) (62) (30) 79 GBP 5 - (1) (2) (1) (1) 985 CHF 14 - (7) (4) (2) (1) 694 CAD 7 - (2) (3) (1) (1) 502 Hedge accounting of future cash flows Net outstanding foreign exchange contracts of the Group and the Parent Company designated and qualifying as hedge accounting of future cash flow are as follows: fair value fair value adjustments adjustments recognized recognized in statement in statement of other of other Notial compr. Maturity Notial compr. Maturity DKK million principal * income in months principal * income in months USD 149 (25) HKD 192 (7) CNH SEK (1,007) (687) NOK (548) (417) (1) 0-21 Other currencies (35) (26) Total at 30 June (12) 17 Tax 3 (3) Reserve for hedging transactions at 30 June, after tax (9) 14 * Positive principal amounts on foreign exchange contracts indicate a purchase of the currency in question. Negative principal amounts indicate a sale No net costs relating to ineffective cash flow hedges have been recognized in the income statement for 2016/17 (net cost of DKK 2 million). Ineffective cash flow hedges are recognized in the income statement under financial income/costs. Ineffective cash flow hedges arise when no transactions have taken place. Foreign exchange hedges of recognized assets and liabilities Open foreign exchange contracts of the Group and the Parent Company qualifying as hedges of recognized assets and liabilities are as follows: 66 IC GROUP A/S ANNUAL REPORT 2016/17 FINANCIAL STATEMENTS

69 DKK million fair value fair value adjustments adjustments recognized recognized Notial in income Maturity Notial in income Maturity principal * statement in months principal * statement in months USD HKD Total at 30 June 1 2 * Positive principal amounts on foreign exchange contracts indicate a purchase of the currency in question. Negative principal amounts indicate a sale. Fair value adjustments in respect of realized hedge transactions have been recognized in the consolidated income statement. The fair values have been calculated based on current interest rate curves and foreign exchange rates at 30 June Neither the Group nor the Parent Company has any open foreign exchange contracts that do not qualify for hedge accounting at 30 June 2017 or at 30 June The recognized positive/negative market values under equity have been treated in accordance with the rules for hedging of future cash flows and are closed/adjusted during the year according to the hedge accounting principles. The net position of the Group will as a maximum result in a loss of DKK 3 million (DKK 15 million) in the income statement and DKK 124 million in the statement of changes in equity (DKK 87 million). The calculation is made by using a change of 1%/(1)% in the EUR exchange rate and a change of 10%/(10)% for other currencies. The existing categories of financial assets and liabilities are as follows: DKK million Unlisted shares and bonds recognized under non-current assets (shares) 8 7 Financial assets at fair value recognized in the income statement 8 7 Derivative financial instruments for hedging of recognized assets and liabilities, recognized under current assets (other receivables) 1 2 Derivative financial instruments for hedging of future cash flows, recognized under current assets (other receivables) Financial assets for hedging purposes Deposits (financial assets) Trade receivables Other receivables Cash Loans and receivables Total financial assets Liabilities to credit institutions (current liabilities) Trade payables Share of other liabilities recognized at amortized cost (current liabilities) Financial liabilities measured at amortized cost Derivative financial instruments for hedging of future cash flows, recognized under current liabilities (other liabilities) 32 1 Financial liabilities for hedging purposes 32 1 Total financial liabilities Liquidity risk IC Group secures a sufficient liquidity reserve by a combination of liquidity control and non-guaranteed credit facilities. Please see below for maturity profiles on financial assets and liabilities. At 30 June 2017, the Group s total credit facilities amounted to DKK 803 million (DKK 817 million) in terms of withdrawal rights. Of this amount, DKK 86 million has been drawn in relation to current and non-current liabilities to credit institutions and DKK 213 million has been drawn in relation to trade finance facilities and guarantees. Accordingly, undrawn credit facilities thus amounted to DKK 504 million (DKK 493 million). All credit facilities are standby credits which may be drawn and terminated on short notice. Management considers the short-term credit facilities to be sufficient for hedging of the Group s liquidity risks. SUPPLEMENTARY NOTES GOVERNANCE CAPITAL STRUCTURE INVESTED CAPITAL WORKING CAPITAL PROFIT FOR THE YEAR BASIS FOR PREPARATION OVERVIEW FINANCIAL STATEMENTS ANNUAL REPORT 2016/17 IC GROUP A/S 67

70 Re-assessment/maturity profile More than Fixed Effective At 30 June 2017 in DKK million 0-1 year 1-5 years 5 years interest rate interest rate Trade receivables No 2-24% Trade payables No - Current liabilities to credit institutions No 0.99% More than Fixed Effective At 30 June 2016 in DKK million 0-1 year 1-5 years 5 years interest rate interest rate Trade receivables No 2-24% Trade payables No - Non-current liabilities to credit institutions No 1.00% Interest rate risk The Group s interest rate risk is continuously monitored by the Finance Department in accordance with Group policies. The Group employs matching of the maturities of each individual assets/ liabilities. The typical neutral maturity for the Group is 2 months. Potential interest rate risks are hedged by means of FRAs and/or interest rate swaps. The Group did not have any non-current liabilities to credit institutions for 2016/17 and 2015/16 and thereby no significant interest rate risk on the current liabilities. Default on loans The Group has not defaulted any loan during the year under review or last financial year. Credit risk The Group solely uses internationally recognized banks with a high credit rating. The credit risk on forward contracts and bank deposits is consequently deemed to be low. In respect of trade receivables, the Group typically uses credit insurance in countries in which the credit risk is deemed to be high and where credit insurance is feasible. This primarily applies to export markets in which IC Group is not represented through an independent sales company. The credit insurance covering trade receivables constituted DKK 37 million at 30 June 2017 (DKK 37 million). Beyond this, the credit risk regarding trade receivables and other receivables is limited since the Group has no material credit risk as the exposure is spread on a large amount of counter-parties and customers in many different markets. Capital structure The Company s Management considers on a regular basis whether the Group s capital structure is in the best interest of the Company and its shareholders. The general target is to ensure a capital structure which supports long-term financial growth and at the same time increases the return on investment for the Group s stakeholders by optimizing the ratio between equity and debt. The Group s capital structure consists of debt which includes financial liabilities such as bank loans and cash and equity which includes share capital, other reserves as well as retained earnings. To maintain the highest possible degree of flexibility in the future and thereby support the growth strategies in the Group s core business in the best possible way, the Group has decided to retain the level of net interest-bearing debt at zero for the financial year as a whole. The Group s credit facilities will then primarily be employed to fund seasonal fluctuations in the working capital. At 30 June 2017, the net interest-bearing debt amounted to DKK 17 million (DKK 25 million). To maintain a certain degree of strategic flexibility, the Group has decided that the net interest-bearing debt, adjusted for seasonal fluctuations and including its operating leases, may constitute a level 3 times higher than EBITDA should such measures be required. At 30 June 2017, this key ratio amounted to 1.8 (1.1). When distributing dividends to the shareholders, it is the Group s policy that the total distribution reflects the Group s earnings performance. In concrete terms, this means that, as a minimum, 30% of the consolidated profit after tax will be distributed as an ordinary dividend in connection with the annual general meeting. Any additional surplus liquidity will then be distributed to the shareholders through share buy-backs or extraordinary dividends during the financial year. During the past 4 years, the Group has distributed extraordinary dividends totalling the amount of approx. DKK 450 million (including dividend on treasury shares). 68 IC GROUP A/S ANNUAL REPORT 2016/17 FINANCIAL STATEMENTS

71 ACCOUNTING POLICIES Derivative financial instruments On initial recognition in the statement of financial position, derivative financial instruments are measured at their fair value. Positive and negative fair values of derivative financial instruments are recognized under other receivables and other liabilities, respectively, as unrealized gain on financial instruments and unrealized loss on financial instruments, respectively. Changes in the fair value of derivative financial instruments designated as and qualifying for recognition as cash flow hedges are recognized under other comprehensive income. Gains and losses relating to such hedge transactions are reclassified from other comprehensive income on realization of the hedged item and recognized in the same line item as the hedged item. For derivative financial instruments not qualifying as hedges, changes in the fair value are recognized in the income statement under financial income or costs. Financial assets Deposits etc. are part of the category loans and receivables which are financial assets with fixed or definable payments and 5.4 FAIR VALUE MEASUREMENT OF FINANCIAL INSTRUMENTS Fair value measurement Financial instruments measured at fair value in the statement of financial position must be categorized in one of the 3 levels below: Level 1 Listed prices in active markets for identical instruments. which are not listed on an active market nor derivative financial instruments. Other financial assets are measured at cost or at fair value at the end of the reporting period if this is lower. Other receivables On initial recognition, financial receivables are measured at fair value and subsequently at amortized cost which usually corresponds to the nominal value less write-downs for bad debts. All other receivables are due for payment within 1 year and primarily relate to VAT and duties, financial contracts, etc. Other liabilities On initial recognition, financial liabilities are measured at fair value less any transaction costs. Subsequently, other liabilities are measured at amortized cost. The nominal value of amounts payable under other liabilities corresponds in all material respect to the fair value of the liabilities. Other liabilities primarily relate to VAT and duties, staff obligations, other costs payable as well as loss on derivative financial instruments. Level 2 Listed prices in an active markets for identical assets and liabilities or other methods of measurement where all substantial inputs are based on market observables. Level 3 Method of measurement where substantial inputs may not be based on market observables DKK million Item Level 1 Level 2 Level 3 Level 1 Level 2 Level 3 Unlisted shares and bonds Financial assets Financial assets at fair value recognized in the income statement Financial assets used for hedging purposes Other receivables Financial liabilities used for hedging purposes Other liabilities Derivative financial instruments The fair value of derivative financial instruments is calculated based on market observables by using generally accepted methods. Internally calculated fair values are used and these are compared to externally calculated fair values on a monthly basis. SUPPLEMENTARY NOTES GOVERNANCE CAPITAL STRUCTURE INVESTED CAPITAL WORKING CAPITAL PROFIT FOR THE YEAR BASIS FOR PREPARATION OVERVIEW FINANCIAL STATEMENTS ANNUAL REPORT 2016/17 IC GROUP A/S 69

72 5.5 FINANCIAL INCOME AND COSTS DKK million 2016/ /16 Financial income: Interest on bank deposits 2 1 Interest on receivables 2 2 Other interest income 1 - Interest income from financial assets not measured at fair value 5 3 Fair value adjustments on financial assets - 1 Realized gain on ineffective derivative financial instruments 3 5 Total financial income 8 9 Financial costs: Interest on liabilities to credit institutions (5) (3) Interest on mortgage loans - (1) Other interest costs (1) (3) Interest costs from financial liabilities not measured at fair value (6) (7) Realized loss on ineffective derivative financial instruments (3) (7) Net loss on foreign currency translation (2) (2) Total financial costs (11) (16) Net financials (3) (7) ACCOUNTING POLICIES Financial income and costs include interest, realized and unrealized foreign currency translation adjustments, fair value adjustments of derivative financial instruments which do not qualify for hedge accounting and supplements, deductions and allowances relating to the payment of tax. Interest income and costs are accrued based on the principal and the effective rate of interest. The effective rate of interest is the discount rate to be used in discounting expected future payments in relation to the financial asset or the financial liability so that their present value corresponds to the carrying amount of the asset or liability, respectively. 5.6 OPERATING LEASES DKK million Store leases and other land and buildings: 0 1 year years More than 5 years Total Operating equipment, etc.: 0 1 year years 9 7 Total Total operating leases An amount of DKK 188 million (DKK 168 million) relating to operating leases has been recognized in the consolidated income statement for 2016/17. A number of the store leases contain a rent level based on turnover amounting to DKK 60 million (DKK 55 million) for 2016/17. ACCOUNTING POLICIES Lease costs are recognized using the straight-line method over the term of the lease starting from the date the lease enters into force. The Group leases properties under operating leases. The lease term is typically between 3-5 years with an option to extend upon expiry. Many of the lease contracts contain terms regarding revenue -ased lease. The Group leases cars and other operating equipment under operating leases. The lease term is typically between 3-5 years with an option to extend upon expiry. 70 IC GROUP A/S ANNUAL REPORT 2016/17 FINANCIAL STATEMENTS

73 CHAPTER 6 GOVERNANCE CONTENTS 6.1 REMUNERATION TO THE EXECUTIVE BOARD AND BOARD OF DIRECTORS 6.2 SHARE-BASED REMUNERATION 6.3 RELATED PARTIES 6.4 FEE TO AUDITORS ELECTED AT THE ANNUAL GENERAL MEETING This chapter contains governance-related information, including remuneration to the Executive Board and the Board of Directors as well as share-based remuneration to Group employees. Furthermore, this chapter contains information on transactions with related parties and fee to auditors elected at the annual general meeting.

74 6.1 REMUNERATION TO THE EXECUTIVE BOARD AND BOARD OF DIRECTORS Remuneration package for the Executive Board and the Board of Directors Board of Executive Comments in respect Remuneration Directors Board of top management Fixed remuneration/annual salary Remuneration in respect of committee work Bonus payments Company car and usual other benefits Severance payment Retirement contributions Share-based payment The Executive Board has a notice period of 12 months The statement of remuneration to the Executive Board and the Board of Directors is prepared pursuant to the Company s Remuneration Policy. The overall composition of the Executive Board s remuneration is in general expected to be unchanged for 2017/18. Please see the Company s Remuneration Policy on the corporate website: icgroup.net/investors/corporate-governance/ remuneration-policy/ Other executives comprise members of the Executive Team, Senior Vice Presidents, Vice Presidents and brand CEOs. Other executives are together with the Executive Board responsible for planning, executing and supervising the operations of the Group. 12 employees were defined as other executives (11 employees) in 2016/17 of which 3 employees resigned during the financial year under review. See page 102 for a complete list of other executives. Remuneration to the Board of Directors, Executive Board and other executives is as follows: Board of Executive Other Board of Executive Other Directors Board Executives Total Directors Board Executives Total DKK 1, / / / / / / / /16 Remuneration to the Board of Directors 3, ,252 3, ,200 Remuneration to the Audit Committee Remuneration to the Remuneration Committee Remuneration to the Operations Committee Remuneration to the Nomination Committee Salaries and remuneration - 8,628 19,232 27,860-8,044 20,044 28,088 Severance payments - 8,389 5,386 13,775-2,019 5,106 7,125 Bonus payments - - (278) (278) ,069 1,340 Retirement contributions - - 1,076 1, ,669 1,669 Share-based payments (252) (81) ,084 Total 4,285 17,188 25,164 46,637 4,190 11,219 28,087 43,496 Total remuneration to the Board of Directors DKK 1, / /16 Henrik Heideby (Chairman) 1,236 1,195 Peter Thorsen (Deputy Chairman) (appointed to the Board of Directors on 28 September 2016) Niels Martinsen Anders Colding Friis Ole Wengel (resigned from the Board of Directors on 28 September 2016) Michael Hauge Sørensen Annette Brøndholt Sørensen (resigned from the Board of Directors on 29 March 2017) Conny Kalcher (appointed to the Board of Directors on 29 March 2017) 80 - Jón Björnsson (appointed to the Board of Directors on 29 March 2017) 80 - Total remuneration to the Board of Directors 4,285 4,190 The board fees to the Chairman and Deputy Chairman of the Board of Directors have been increased by a factor 3 and a factor 2 compared to the basic fee, respectively. 72 IC GROUP A/S ANNUAL REPORT 2016/17 FINANCIAL STATEMENTS

75 Hereof remuneration distributed on Committees Audit Remun. Oper. Nom. Audit Remun. Oper. Nom. Com. Com. Com.* Com.** Total Com. Com. Com. Com. Total DKK 1, / / / / / / / / / /16 Henrik Heideby Peter Thorsen Niels Martinsen Anders Colding Friis Ole Wengel Michael Hauge Sørensen Annette Brøndholt Sørensen Conny Kalcher Jón Björnsson Total , * The Operations Committee was closed down by the end of April ** The Nomination Committee was established in connection with the Annual General Meeting Total remuneration to the Executive Board DKK 1, / /16 Alexander Martensen-Larsen (CEO, IC Group) 2,848 2,100 Peter Thorsen (Interim Group CEO) 2,100 - Former members of the Executive Board * 12,240 9,119 Total 17,188 11,219 * Former members of the Executive Board consist of the former Group CEO, Mads Ryder. In 2015/16, the former Group CFO, Rud Trabjerg Pedersen, was included. 6.2 SHARE-BASED REMUNERATION Warrant programme The warrant programme is offered to the Group s Executive Board and other executives. The size of the specific grants is determined by the Company s Board of Directors. The warrants granted represent the right, against payment in cash, to subscribe for a number of new shares equivalent to the warrants granted. The new shares may be acquired following the Company s announcement of its annual report 3, 4 or 5 years, respectively, after the warrant grant date. In case a member of the Executive Board or an employee chooses to resign from IC Group A/S, the warrants granted become void if they are not exercisable at the date of resignation. The pending programme concerns warrants granted in August 2014 to former members of the Group s Executive Board. The warrants granted are exercisable for the first time following the announcement of the Annual Report 2016/17. Other executives/ former members Average exercise Executive of the Executive Total price per Board (no.) Board (no.) (no.) warrant (DKK) Outstanding warrants at 1 July , , , Transferred (12,649) 12, Exercised - (48,590) (48,590) 155 Expired/void - (85,430) (85,430) 264 Outstanding warrants at 30 June , , , Number of warrants exercisable at 30 June , , Outstanding warrants at 1 July , , , Transferred (25,299) 25, Exercised - (34,611) (34,611) 128 Expired/void - (77,254) (77,254) 158 Outstanding warrants at 30 June ,948 37, Number of warrants exercisable at 30 June Warrants 34,611 warrants have been exercised in 2016/17 (48,590) and the average weighted share price on the exercise date amounted to DKK 170 (DKK 203). The average weighted term to maturity for outstanding warrants is approx. 2.2 year (1.0 years). SUPPLEMENTARY NOTES GOVERNANCE CAPITAL STRUCTURE INVESTED CAPITAL WORKING CAPITAL PROFIT FOR THE YEAR BASIS FOR PREPARATION OVERVIEW FINANCIAL STATEMENTS ANNUAL REPORT 2016/17 IC GROUP A/S 73

76 Performance shares October 2015 programme Pursuant to the authorization in the Remuneration Policy as adopted at the Annual General Meeting on 30 September 2015, the Board of Directors of IC Group A/S decided to initiate a programme granting performance shares to members of the Group s Executive Team as well as other selected executives. The programme was offered to a total number of 23 participants at the grant date. The participants opportunity for receiving performance shares is dependent on the achievement of specific goals in respect of the Group s financial results achieved in those financial years during which the programme runs ( Performance Period ). 25% of the performance shares granted is calculated based on the realized revenue growth whereas 75% of the performance shares granted is calculated based on realized earnings growth (EBIT). The Performance Period covers the financial years 2015/16, 2016/17, 2017/18, and, consequently, the grant may, at the earliest, take place following the announcement of the Annual Report 2017/18. The grant of performance shares is free of charge. The number of shares granted is based on meeting the set criteria. Therefore, the total number of performance shares granted under the programme may vary from 0 to 61,113. The members of the Group s Executive Team may, as a maximum, be granted a number of performance shares corresponding to 50% of their fixed annual salary (based on the monthly salary on 1 October 2015) calculated by using the average closing price of the share of the 5 previous trading days before 1 October 2015 deducted expected dividends. The remaining participants of the programme may, as a maximum, be granted a number of performance shares corresponding to 25% of their fixed annual salary calculated by using the same method. October 2016 programme Pursuant to the authorization in the Remuneration Policy as adopted at the Annual General Meeting on 28 September 2016, the Board of Directors of IC Group A/S decided to initiate a programme granting performance shares to members of the Group s Executive Team as well as other selected executives. The programme was offered to a total number of 29 participants at the grant date. The participants opportunity for receiving performance shares is dependent on the achievement of specific goals in respect of the Group s financial results achieved in those financial years during which the programme runs ( Performance Period ). 50% of the performance shares granted is calculated based on the realized revenue growth whereas 50% of the performance shares granted is calculated based on realized earnings growth (EBIT). The Performance Period covers the financial years 2016/17, 2017/18, 2018/19, and, consequently, the grant may, at the earliest, take place following the announcement of the Annual Report 2018/19. The grant of performance shares is free of charge. The number of shares granted is based on meeting the set criteria. Therefore, the total number of performance shares granted under the programme may vary from 0 to 79,901. The members of the Group s Executive Team may, as a maximum, be granted a number of performance shares corresponding to 50% of their fixed annual salary (based on the monthly salary on 26 October 2016) calculated by using the average closing price of the share of the 5 previous trading days before 26 October 2016 deducted expected dividends. The remaining participants of the programme may, as a maximum, be granted a number of performance shares corresponding to 15% or 25% of their fixed annual salary calculated by using the same method. Other executives / former members of Executive the Executive Total Board (no.) Board (no.) (no.) Outstanding performance shares at 1 July Granted 19,725 41,388 61,113 Expired/void - (4,385) (4,385) Outstanding performance shares at 30 June ,725 37,003 56,728 Number of performance shares exercisable at 30 June Outstanding performance shares at 1 July ,725 37,003 56,728 Granted 24,701 55,200 79,901 Expired/void (29,506) (16,447) (45,953) Outstanding performance shares at 30 June ,920 75,756 90,676 Number of performance shares exercisable at 30 June The average weighted term to maturity for outstanding performance shares is approx. 1.8 years (2.2 years). The market value of IC Group A/S incentive programmes is calculated by using the so-called Black-Scholes model for valuation of options. The assumptions applied at the grant date (performance shares) are stated in the table below: DKK million 2016/ /16 Black-Scholes value Share price Exercise price - - Expected volatility 32% 25% Expected dividend rate in proportion to the share price 5.7% 4.6% Risk-free interest (based on Danish government bonds in respect of maturity) (0.5)% 0.06% Maturity 3 years 3 years 74 IC GROUP A/S ANNUAL REPORT 2016/17 FINANCIAL STATEMENTS

77 The exercise price is determined as the higher of either the closing price of the IC Group A/S share on the grant date or the average closing price of the preceding 5 trading days The volatility is calculated based on the daily closing prices during the past 3 financial years. The calculation term corresponds to the minimum term to maturity of the performance shares granted. The expected dividend rate is estimated on the basis of the historical, ordinary and extraordinary dividend payments. ACCOUNTING POLICIES With the purpose of motivating and retaining other executives and members of the Executive Board, IC Group has established incentive programmes consisting of performance shares and warrants. Furthermore, these programmes are to ensure common interest between the employees and the shareholders. 6.3 RELATED PARTIES Friheden Invest A/S is a related party with controlling influence in IC Group A/S. IC Group A/S related parties with significant influence include the related parties board of directors, executive boards and other executives as well as their related family members. Related parties also comprise businesses in which the individuals mentioned above have control or joint control. In 2015/16, the Group provided services amounting to DKK 1 million to DK Company A/S which was considered an associate during the financial year 2015/16. The risk-free interest rate is determined on the basis of 3-year (4-year) Danish government bonds. Based on previous experience, the date of exercise is assumed to be during the first window opening for trading during the exercise period, and maturity is therefore assumed to be 3 years (3 years). The total fair value of the performance shares granted in 2016/17 amounted to DKK 11 million at the grant date (DKK 10 million). The Group applies IFRS 2, pursuant to which the fair value of the incentive programmes granted on the grant date is recognized as costs in the income statement during the earnings period. Such costs represent the calculated value of the incentive programmes granted and are not to be considered cash costs. An equivalent amount is recognized in equity as the incentive programmes are classified as an equity-based scheme. The obligation regarding the performance share programmes is partly settled by IC Group s holding of treasury shares. Board of Directors, the Executive Board and other executives At 30 June 2017, the Group accepted a loan from one of its executives amounting to DKK 2 million (DKK 2 million). Besides this, no transactions with the Board of Directors, the Executive Board and other executives have taken place other than payment of ordinary remuneration. Please see note FEE TO THE AUDITORS ELECTED AT THE ANNUAL GENERAL MEETING DKK million 2016/ /16 Statutory audit 3 4 VAT and tax consultancy 2 2 Other services 1 1 Total fee to the auditors elected at the annual general meeting 6 7 SUPPLEMENTARY NOTES GOVERNANCE CAPITAL STRUCTURE INVESTED CAPITAL WORKING CAPITAL PROFIT FOR THE YEAR BASIS FOR PREPARATION OVERVIEW FINANCIAL STATEMENTS ANNUAL REPORT 2016/17 IC GROUP A/S 75

78 CHAPTER 7 SUPPLEMENTARY NOTES CONTENTS 7.1 RETIREMENT BENEFIT OBLIGATIONS 7.2 PROVISIONS 7.3 CONTINGENT LIABILITIES 7.4 EVENTS AFTER THE REPORTING PERIOD Chapter 7 contains other statutory notes considered to be less significant to the overall understanding of IC Group s Annual Report.

79 7.1 RETIREMENT BENEFIT OBLIGATIONS The Group has used external and independent actuaries for the statement of retirement benefit obligations. DKK million 2016/ /16 Recognized in profit and loss: Contributions for defined contributions plans Total amount recognized for defined benefit plans - 1 Total recognized obligations in profit and loss The retirement benefit obligations are specified as follows: DKK million Present value of defined benefit plans Fair value of the assets of the plans (49) (54) Total net retirement benefit obligations 1 2 Other retirement benefit obligations, cf. below 7 7 Total retirement benefit obligations 8 9 The development of the present value of defined benefit plans is specified as follows: DKK million Retirement benefit obligations at 1 July Recognized in profit and loss: Retirement benefit obligations for the year 1 1 Calculated interest on obligations 1 1 Actuarial gains/losses (other comprehensive income): Demographic changes recognized in other comprehensive income (3) - Economic changes recognized in other comprehensive income (5) 11 Present value of defined benefit plans Furthermore, an amount of DKK 7 million (DKK 7 million) attributable to retirement benefit obligations in one of the Group companies has been included which has been hedged by shares recognized under financial assets. The development of the fair value of the assets of the plans is specified as follows: DKK million Retirement benefit assets at 1 July (54) (42) Recognized in profit and loss: Calculated interest on assets of the plans (2) (1) Actuarial gains/losses (other comprehensive income) 7 (11) Fair value of the assets of the plans (49) (54) SUPPLEMENTARY NOTES GOVERNANCE CAPITAL STRUCTURE INVESTED CAPITAL WORKING CAPITAL PROFIT FOR THE YEAR BASIS FOR PREPARATION OVERVIEW FINANCIAL STATEMENTS ANNUAL REPORT 2016/17 IC GROUP A/S 77

80 ACCOUNTING POLICIES Obligations relating to defined contribution plans are recognized in the income statement in the period in which the employees render the related service, and contributions due are recognized in the statement of financial position under other liabilities. For defined benefit plans, an annual actuarial assessment is made of the net present value of future benefits to be paid under the plan. The net present value is calculated based on assumptions of the future developments of, e.g., salary, interest, inflation and mortality rates. The net present value is only calculated for those benefits to which the employees have earned the right through their past service for the Group. The actuarial calculation of the net present value less the fair value of any assets related to the plan is included in the statement of financial position as retirement benefit obligations, however, please see below. Differences between the expected development of assets and liabilities in connection with retirement benefit schemes and the realized values are termed actuarial gains or losses. Subsequently, all actuarial gains or losses are recognized in the comprehensive income. If a retirement plan represents a net asset, the asset is only recognized to the extent that it offsets future contributions from the plan, or it will reduce future contributions to the plan. The assumptions used for the actuarial calculations and valuations may vary from country to country due to local, economic and social differences. The average assumptions for the actuarial calculations at the end of the reporting period were as follows: Stated in % Average discount rate applied Expected future pay increase rate PROVISIONS Provisions primarily include provisions for expected discounts, claims and return of products. Furthermore, provisions for the implemented structural changes of the Group s central functions are also included which primarily relates to severance payments and loss-making contracts. Other provisions primarily relate to restoration obligations in respect of the Group s store leases as well as court litigations of various kinds in which the Group is involved from time to time. Management considers that pending litigation poses no significant financial risks Provisions for expected discounts, claims and Provisions for Other Total DKK million return of products restructurings provisions provisions Provisions at 1 July Provisions utilized for the year (22) (13) - (35) Provisions for the year Reversed provisions - (1) - (1) Provisions at 30 June Provisions specified in the statement of financial position are as follows: Non-current liabilities Current liabilities Provisions at 30 June Provisions for expected discounts, claims and Provisions for Other Total DKK million return of products restructurings provisions provisions Provisions at 1 July Provisions utilized for the year (22) (4) (15) (41) Provisions for the year Reversed provisions (1) - (6) (7) Provisions at 30 June Provisions specified in the statement of financial position are as follows: Non-current liabilities Current liabilities Provisions at 30 June IC GROUP A/S ANNUAL REPORT 2016/17 FINANCIAL STATEMENTS

81 ACCOUNTING POLICIES Provisions are recognized when, as a consequence of a past event during the financial year or previous years, the Group has a legal or constructive obligation, and it is likely that settlement of the obligation will require an outflow of the Company s financial resources. Provisions are measured as the best estimate of the costs required to settle the liabilities at the end of the reporting period. ACCOUNTING ESTIMATES The accounting estimates applied in respect of provisions are based on Management s best estimates of assumptions and judgments. The majority of the provisions are expected to be settled within one year. Due to uncertainty in the settlement process, these estimates may be affected significantly by changes in these assumptions and judgments applied. 7.3 CONTINGENT LIABILITIES Provisions with an expected term of more than a year at end of the reporting period are measured at present value. In connection with planned restructurings of the Group, provisions are only made for liabilities relating to restructurings that have been set out in a specific plan at the end of the reporting period and where the parties affected have been informed of the overall plan. IC Group A/S makes provisions to cover expected discounts, claims and return of products. These estimates are based on existing contractual obligations and past experience. Based on the information available, IC Group A/S considers the provisions to be adequate. DKK million Guarantees and other collateral security The Group has entered into binding agreements with suppliers on the delivery of collections until 31 December 2017 of which the majority is tied to sales orders entered into with wholesale customers. At 30 June 2017, the Group was not involved in ACCOUNTING POLICIES 7.4 EVENTS AFTER THE REPORTING PERIOD No material events have taken place after the reporting period that have not been recognized or included in this Annual Report. any pending litigation which may have a material effect on the Group s financial position. Contingent liabilities comprise potential liabilities which have not yet been confirmed as to whether these will cause an outflow of the Group s resources or actual liabilities which are not possible to measure with sufficient reliability. SUPPLEMENTARY NOTES GOVERNANCE CAPITAL STRUCTURE INVESTED CAPITAL WORKING CAPITAL PROFIT FOR THE YEAR BASIS FOR PREPARATION OVERVIEW FINANCIAL STATEMENTS ANNUAL REPORT 2016/17 IC GROUP A/S 79

82

83 PARENT COMPANY FINANCIAL STATEMENTS PRIMARY FINANCIAL STATEMENTS INCOME STATEMENT 82 STATEMENT OF COMPREHENSIVE INCOME 82 STATEMENT OF FINANCIAL POSITION 83 STATEMENT OF CHANGES IN EQUITY 84 STATEMENT OF CASH FLOWS 85 1 BASIS FOR PREPARATION 86 NOTES INCOME STATEMENT 2 REVENUE 86 3 FEE TO AUDITORS ELECTED AT THE ANNUAL GENERAL MEETING 86 4 STAFF COSTS 86 5 OTHER OPERATING INCOME AND COSTS 87 6 FINANCIAL INCOME AND COSTS 87 7 TAX 88 NOTES STATEMENT OF FINANCIAL POSITION 8 INTANGIBLE ASSETS 89 9 PROPERTY, PLANT AND EQUIPMENT INVESTMENTS IN SUBSIDIARIES FINANCIAL ASSETS INVENTORIES TRADE RECEIVABLES NET INTEREST-BEARING DEBT SHARE CAPITAL DIVIDENDS PROVISIONS OPERATING LEASES WORKING CAPITAL OTHER ADJUSTMENTS, STATEMENT OF CASH FLOWS 94 NOTES SUPPLEMENTARY INFORMATION 21 CONTINGENT LIABILITIES FINANCIAL RISKS AND DERIVATIVE FINANCIAL INSTRUMENTS RELATED PARTIES EVENT AFTER THE REPORTING PERIOD 94

84 INCOME STATEMENT 1 JULY 30 JUNE Note DKK million 2016/ /16 2 Revenue 1,126 1,070 Cost of sales (978) (956) Gross profit Other external costs (89) (70) 4 Staff costs (132) (125) 5 Other operating income and costs Operating profit before depreciation and amortization (EBITDA) , 9 Depreciation, amortization and impairment losses (21) (17) Operating loss (EBIT) (17) (2) 10 Income from investments in subsidiaries and associates Financial income Financial costs (17) (26) Profit before tax Tax on profit for the year (6) 4 Profit for the year Profit allocation: 16 Proposed dividend Retained earnings Profit for the year STATEMENT OF COMPREHENSIVE INCOME 1 JULY - 30 JUNE Note DKK million 2016/ /16 Profit for the year OTHER COMPREHENSIVE INCOME Items to be reclassified to the income statement when certain conditions are met: Hedging transactions: Fair value adjustments, gains/loss on financial instruments related to cash flow hedges (18) 27 Reclassification to income statement, gains/loss on financial instruments related to realized cash flow hedges (11) (61) Tax on items which may be reclassified to the income statement 6 7 Total other comprehensive income after tax (23) (27) Total comprehensive income IC GROUP A/S ANNUAL REPORT 2016/17 FINANCIAL STATEMENTS

85 STATEMENT OF FINANCIAL POSITION AT 30 JUNE Note DKK million ASSETS NON-CURRENT ASSETS 8 Intangible assets Property, plant and equipment Investments in subsidiaries 1,407 1, Financial assets Deferred tax Total non-current assets 1,495 1,524 PARENT COMPANY FINANCIAL STATEMENTS CURRENT ASSETS 12 Inventories Trade receivables 4 10 Receivables from subsidiaries Tax receivable 3 30 Other receivables Prepayments Cash Total current assets TOTAL ASSETS 2,032 2,134 Note DKK million EQUITY AND LIABILITIES EQUITY 15 Share capital Reserve for hedging transactions (12) 11 Retained earnings 1,321 1,162 TOTAL EQUITY 1,480 1,344 LIABILITIES 17 Provisions 4 1 Total non-current liabilities Current liabilities to credit institutions Trade payables Payables to subsidiaries Other liabilities Provisions 20 2 Total current liabilities Total liabilities TOTAL EQUITY AND LIABILITIES 2,032 2,134 FINANCIAL STATEMENTS ANNUAL REPORT 2016/17 IC GROUP A/S 83

86 STATEMENT OF CHANGES IN EQUITY 1 JULY 30 JUNE 2017 Reserve for Share hedging Retained Proposed Total DKK million capital transactions earnings dividend equity Equity at 1 July , ,344 Profit for the year Other comprehensive income after tax - (23) - - (23) Total comprehensive income - (23) Transactions with owners: Dividend on treasury shares (2) (2) Dividend paid (83) (83) Exercise of warrants Changes in equity during 2016/17 - (23) Equity at 30 June (12) 1, , Reserve for Share hedging Retained Proposed Total DKK million capital transactions earnings dividend equity Equity at 1 July ,167 Profit for the year Other comprehensive income after tax - (27) - - (27) Total comprehensive income - (27) Transactions with owners: Dividend on treasury shares (2) - Dividend paid (66) (66) Extraordinary dividend paid - - (244) - (244) Share-based payments Exercise of warrants Changes in equity during 2015/16 1 (27) Equity at 30 June , , IC GROUP A/S ANNUAL REPORT 2016/17 FINANCIAL STATEMENTS

87 STATEMENT OF CASH FLOWS 1 JULY 30 JUNE Note DKK million 2016/ /16 CASH FLOW FROM OPERATING ACTIVITIES Operating loss (17) (2) 20 Other adjustments 63 (14) 19 Change in working capital (272) (290) Cash flow from ordinary operating activities (226) (306) Financial income received 1 8 Financial costs paid (5) (10) Cash flow from operating activities (230) (308) 7 Tax paid/recovered 32 (1) Total cash flow from operating activities (198) (309) PARENT COMPANY FINANCIAL STATEMENTS CASH FLOW FROM INVESTING ACTIVITIES 8 Investments in intangible assets (1) (3) 9 Investments in property, plant and equipment (6) (14) Sale of subsidiaries and operations Dividend received, proceeds in connection with liquidation, etc Total cash flow from investing activities Total free cash flow CASH FLOW FROM FINANCING ACTIVITIES Repayment of non-current liabilities - (17) Dividend paid (83) (310) Exercise of share options and warrants 4 8 Total cash flow from financing activities (79) (319) Net cash flow for the year (29) 24 CASH AND CASH EQUIVALENTS Cash and cash equivalents at 1 July (28) (52) Net cash flow for the year (29) 24 Cash and cash equivalents at 30 June (57) (28) DKK million Cash and cash equivalents in statement of cash flows comprise: Cash Current liabilities to credit institutions (90) (56) Cash and cash equivalents, cf. statement of cash flows (57) (28) FINANCIAL STATEMENTS ANNUAL REPORT 2016/17 IC GROUP A/S 85

88 NOTES 1. BASIS FOR PREPARATION Basis for preparation The parent company financial statements are expressed in Danish Kroner (DKK) which is the functional currency of the Parent Company. Few reclassifications and adjustments of the comparative figures have been made. Changes in accounting policies The accounting policies for the Parent Company are consistent with those used in the previous financial year. The accounting policies for the Parent Company are the same as those applied for the Group with the exception of the items stated in the below notes. Please see note 1.1. to the consolidated financial statements for further information on accounting policies Foreign currency Foreign exchange adjustments of receivables in foreign subsidiaries that are considered to be part of the overall investment in subsidiaries are recognized under other comprehensive income in the consolidated financial statements and in the income statement of the parent company financial statements. New IFRS standards and interpretations IASB has issued amendment to IAS 27 Equity Method in Separate Financial Statements which is effective for the financial year beginning on or after 1 January This amendment makes it possible to use the equity method as an accounting option for investments in subsidiaries and associates in the parent company financial statements. IC Group s investments in subsidiaries and associates are measured at cost and will continue to be measured at cost. As stated in note 1.1 to the consolidated financial statements, the IFRS 9 Financial Instruments is expected to be implemented for the financial year 2018/19. IC Group has assessed the impact of this new standard on financial instruments, and the implementation is not expected to have any material impact on the parent financial statements. Significant accounting estimates Please see note 1.2 to the consolidated financial statements. 2. REVENUE DKK million 2016/ /16 Sale of goods to subsidiaries Sale of goods to non-group related parties Total revenue 1,126 1, FEE TO AUDITORS ELECTED AT THE ANNUAL GENERAL MEETING DKK million 2016/ /16 Statutory audit 3 3 Tax consultancy 2 2 Other services - 1 Total fee to auditors elected at the annual general meeting STAFF COSTS DKK million 2016/ /16 Total salaries, remuneration, etc., may be specified as follows: Remuneration to the Board of Directors 4 4 Salaries and remuneration Defined contribution plans 8 6 Share-based payments - 1 Other staff costs 5 8 Total staff costs Average number of employees of the Parent Company IC GROUP A/S ANNUAL REPORT 2016/17 FINANCIAL STATEMENTS

89 Remuneration to the Board of Directors and the Executive Board of the Parent Company as well as share-based incentive programmes for the Executive Board and other executives are 5. OTHER OPERATING INCOME AND COSTS disclosed in notes 6.1 and 6.2 to the consolidated financial statements. DKK million 2016/ /16 Services provided to subsidiaries Sales proceeds and other operating income and costs 1 18 Total other operating income and costs Administration fees paid by subsidiaries to the Parent Company covering their share of the Group s overheads are recognized as other operating income under other operating income and costs. PARENT COMPANY FINANCIAL STATEMENTS ACCOUNTING POLICIES Other operating income and costs comprise items of a secondary nature in respect of the main activities, including gains and losses on sale of intangible assets and property, plant and equipment. 6. FINANCIAL INCOME AND COSTS DKK million 2016/ /16 Financial income: Interest on bank deposits 2 1 Interest on receivables from subsidiaries 11 9 Interest income from financial assets not measured at fair value Fair value adjustments on financial assets - 1 Realized gain on ineffective derivative financial instruments 3 5 Net gain on foreign currency translation - 3 Total financial income Financial costs: Interest on liabilities to credit institutions (5) (2) Interest on payables to subsidiaries (7) (14) Other interest costs - (3) Interest costs from financial liabilities not measured at fair value (12) (19) Realized loss on ineffective derivative financial instruments (3) (7) Net loss on foreign currency translation (2) - Total financial costs (17) (26) Net financials (1) (7) FINANCIAL STATEMENTS ANNUAL REPORT 2016/17 IC GROUP A/S 87

90 7. TAX Tax for the year DKK million 2016/ /16 Current tax Current tax for the year (4) (9) Prior-year adjustments, current tax (1) - Total current tax (5) (9) Deferred tax Change in deferred tax (5) (6) Prior-year adjustments, deferred tax* 4 4 Revaluation of tax losses, etc. 6 - Total deferred tax 5 (2) Tax for the year - (11) Recognized as follows: Tax on profit for the year 6 (4) Tax on other comprehensive income (6) (7) Tax for the year - (11) Net tax receivable at 1 July Tax payable on profit for the year 5 9 Tax recovered/paid during the financial year (32) 1 Net tax receivable at 30 June 3 30 Recognized as follows: Tax receivable 3 30 Net tax receivable at 30 June 3 30 * Including re-allocation of used losses under joint taxation of Danish entities. Breakdown of tax on profit for the year of continuing operations is as follows: DKK million 2016/ /16 Calculated tax on profit before tax, 22% Effect of other non-taxable income and non-deductible costs (58) (115) Prior-year adjustments 4 4 Revaluation of tax losses, etc. 6 (3) Total 6 (4) Effective tax rate for the year (%) 2.4% neg. Deferred tax DKK million Deferred tax at 1 July Prior-year adjustments* (4) (4) Revaluation of tax losses, etc. (6) - Deferred tax on other comprehensive income 6 7 Change in deferred tax on profit for the year (1) (1) Net deferred tax at 30 June Recognized as follows: Deferred tax Net deferred tax at 30 June Breakdown of deferred tax at 30 June is as follows: Gross deferred tax Unrecognized tax assets (10) (10) Net deferred tax at 30 June * Including re-allocation of used losses under joint taxation of Danish entities. 88 IC GROUP A/S ANNUAL REPORT 2016/17 FINANCIAL STATEMENTS

91 Changes to temporary differences during the year are as follows: Recognized Net deferred Recognized in other Net deferred tax at in profit/loss comprehensive tax at DKK million 1 July 2016 for the year income 30 June 2017 Intangible assets and property, plant and equipment 21 (8) - 13 Provisions Financial instruments (3) Tax losses 15 (3) - 12 Unrecognized tax assets (10) - - (10) Total 25 (11) 6 20 Recognized Net deferred Recognized in other Net deferred tax at in profit/loss comprehensive tax at DKK million 1 July 2015 for the year income 30 June 2016 Intangible assets and property, plant and equipment Provisions 8 (6) - 2 Financial instruments (11) 1 7 (3) Tax losses 23 (8) - 15 Unrecognized tax assets (13) 3 - (10) Total 23 (5) 7 25 PARENT COMPANY FINANCIAL STATEMENTS Unrecognized tax assets relate to tax losses that are assessed not to be sufficiently likely to be utilized in the foreseeable future. The unrecognized tax losses are not limited in time. 8. INTANGIBLE ASSETS 2017 Total Software and intangible DKK million IT systems assets Cost at 1 July Addition 1 1 Cost at 30 June Accumulated amortization and impairment losses at 1 July 2016 (61) (61) Amortization and impairment losses for the year (15) (15) Accumulated amortization and impairment losses at 30 June 2017 (76) (76) Carrying amount at 30 June Total Software and intangible DKK million IT systems assets Cost at 1 July Addition 3 3 Disposal (23) (23) Cost at 30 June Accumulated amortization and impairment losses at 1 July 2015 (70) (70) Amortization and impairment losses for the year (14) (14) Amortization and impairment losses on disposals Accumulated amortization and impairment losses at 30 June 2016 (61) (61) Carrying amount at 30 June FINANCIAL STATEMENTS ANNUAL REPORT 2016/17 IC GROUP A/S 89

92 9. PROPERTY, PLANT AND EQUIPMENT 2017 Total property, Leasehold Equipment Assets under plant and DKK million improvements and furniture construction equipment Cost at 1 July Reclassification 6 2 (8) - Addition Disposal (1) (1) - (2) Cost at 30 June Accumulated depreciation and impairment losses at 1 July 2016 (2) (22) - (24) Depreciation and impairment losses for the year (1) (5) - (6) Depreciation and impairment losses on disposals Accumulated depreciation and impairment losses at 30 June 2017 (2) (26) - (28) Carrying amount at 30 June Total property, Leasehold Equipment Assets under plant and DKK million improvements and furniture construction equipment Cost at 1 July Addition Disposal - (7) - (7) Cost at 30 June Accumulated depreciation and impairment losses at 1 July 2015 (1) (27) - (28) Depreciation for the year (1) (2) - (3) Depreciation and impairment losses on disposals Accumulated depreciation and impairment losses at 30 June 2016 (2) (22) - (24) Carrying amount at 30 June INVESTMENTS IN SUBSIDIARIES 2017 DKK million Subsidiaries Cost at 1 July ,707 Disposal (10) Cost at 30 June ,697 Write-downs at 1 July 2016 (290) Addition - Disposal - Write-downs at 30 June 2017 (290) Carrying amount at 30 June , DKK million Subsidiaries Cost at 1 July ,725 Reclassification (8) Disposal (10) Cost at 30 June ,707 Write-downs at 1 July 2015 (299) Reclassification 8 Addition (15) Disposal 16 Write-downs at 30 June 2016 (290) Carrying amount at 30 June , IC GROUP A/S ANNUAL REPORT 2016/17 FINANCIAL STATEMENTS

93 An overview of the Group s subsidiaries is available on page 100 in this Annual Report. Income from investments in subsidiaries amounted to net DKK 264 million (income of DKK 499 million) and comprises dividends ACCOUNTING POLICIES Investments in subsidiaries and associates are measured at cost. An impairment test is conducted when the carrying amount of the investments exceeds the carrying amount of the from subsidiaries deducted write-downs of investments and receivables for the year. For the financial year 2016/17 an amount of DKK 7 million was recognized in the income statement regarding prior-year write-downs of investments and short-term receivables from subsidiaries (write-downs of DKK 16 million). net assets recognized in the consolidated financial statements. Where the recoverable amount is lower than cost, the investments are written down to such lower value. 11. FINANCIAL ASSETS Long-term Total receivables financial DKK million from subsidiaries Deposits, etc. Other assets PARENT COMPANY FINANCIAL STATEMENTS Carrying amount at 30 June Net additions, disposals and foreign currency translation adjustments for the year - 1 (12) (11) Carrying amount at 30 June Net additions, disposals and foreign currency translation adjustments for the year Carrying amount at 30 June All intercompany loans are interest-bearing. ACCOUNTING POLICIES On initial recognition, receivables from subsidiaries in the parent company financial statements are measured at fair value and subsequently at amortized cost which usually corresponds to the nominal value less write-downs for bad debts. No security has been received for the loans. The carrying amount of the financial assets corresponds to the fair value. 12. INVENTORIES DKK million Finished goods and goods for resale Goods in transit Total inventories, gross Changes in inventory write-downs for the year: Inventory write-downs at 1 July Write-downs for the year, addition Write-downs for the year, reversal (10) (12) Total inventory write-downs Total inventories, net Write-downs (%) 10 5 Inventories recognized at net realizable value amounted to DKK 33 million at 30 June 2017 (DKK 21 million). FINANCIAL STATEMENTS ANNUAL REPORT 2016/17 IC GROUP A/S 91

94 13. TRADE RECEIVABLES DKK million Not yet due - - Due, 1-60 days 4 9 Due, days - - Due more than 120 days - 1 Total trade receivables, net 4 10 Changes in trade receivables write-downs for the year: Trade receivables write-downs at 1 July 1 2 Change in write-downs for the year (1) (1) Total trade receivables write-downs - 1 In all material respect, the carrying amounts of trade receivables correspond to their fair values. In general, trade receivables do not carry interest until between 30 and 60 days after the invoice date. After this date, interest is charged on the outstanding amount. 14. NET INTEREST-BEARING DEBT DKK million Net interest-bearing debt comprises: Current liabilities to credit institutions Gross interest-bearing debt Cash Net interest-bearing debt SHARE CAPITAL For information on the share capital distribution on number of shares, etc., please see note 5.1 to the consolidated financial statements 16. DIVIDENDS Dividends from investments in subsidiaries are recognized in the income statement for the financial year in which the dividends are declared. IC Group A/S distributed to its shareholders DKK 85 million (DKK 68 million) in ordinary dividend in respect of the financial year 2015/16. IC Group A/S did not distributed any extraordinary dividend to its shareholders during the financial year 2016/17 (DKK 250 million). The Board of Directors has resolved to recommend a total ordinary dividend of DKK 85 million corresponding to DKK 5.00 per eligible share in respect of the financial year 2016/17 (an ordinary dividend of DKK 85 million was distributed in respect of the financial year 2015/16 corresponding to DKK 5.00 per ordinary share) pursuant to the Company s dividend policy. 17. PROVISIONS 2017 Provisions for expected discounts, claims Provisions and return for restruc- Other Total DKK million of products turings provisions provisions Provisions at 1 July Provisions utilized for the year (2) (13) - (15) Provisions for the year Reversed provisions - (1) - (1) Provisions at 30 June Provisions specified in the statement of financial position are as follows: Non-current liabilities Current liabilities Provisions at 30 June IC GROUP A/S ANNUAL REPORT 2016/17 FINANCIAL STATEMENTS

95 2016 Provisions for expected discounts, claims Provisions and return for restruc- Other Total DKK million of products turings provisions provisions Provisions at 1 July Provisions utilized for the year (3) (3) (17) (23) Provisions for the year Reversed provisions - - (9) (9) Provisions at 30 June Provisions specified in the statement of financial position are as follows: Non-current liabilities Current liabilities Provisions at 30 June PARENT COMPANY FINANCIAL STATEMENTS Please see note 7.2 to the consolidated financial statements. 18. OPERATING LEASES DKK million Store leases and other land and buildings 0-1 year years Total Lease of equipment and furniture, etc. 0-1 year - 1 Total - 1 Total operating leases The Parent Company leases properties under operating leases. The lease term is typically between 3-5 years with an option to extend upon expiry. An amount of DKK 22 million (DKK 16 million) relating to operating leases has been recognized in the income statement of the Parent Company for 2016/17. In addition, the Parent Company leases cars and other operating equipment under operating leases. 19. WORKING CAPITAL DKK million Inventories Trade receivables 4 10 Receivables from subsidiaries Other receivables 4 5 Prepayments 9 14 Total assets Trade payables Payables to subsidiaries Other liabilities Total liabilities Working capital 74 (198) Operating working capital* Other items (129) (426) Working capital 74 (198) * Operating working capital consists of inventories, trade receivables as well as trade payables. FINANCIAL STATEMENTS ANNUAL REPORT 2016/17 IC GROUP A/S 93

96 DKK million 2016/ /16 Change in inventories 26 (49) Change in net payables to subsidiaries excluding dividends receivable (315) (221) Change in receivables excluding derivative financial instruments 12 3 Change in current liabilities excluding tax and derivative financial instruments 5 (23) Total change in working capital (272) (290) 20. OTHER ADJUSTMENTS, STATEMENT OF CASH FLOWS DKK million 2016/ /16 Reversed depreciation and impairment losses and gain/loss on sale of non-current assets Share-based payments recognized in profit and loss - 1 Provisions 22 (19) Other adjustments 20 (13) Total other adjustments 63 (14) 21. CONTINGENT LIABILITIES DKK million Guarantees and other collateral security in respect of subsidiaries The Parent Company has issued letters of comfort in respect of certain subsidiaries. IC Group A/S (administration company) is taxed jointly with all Danish subsidiaries and is consequently jointly and severally liable for corporate and witholding taxes through the joint taxation. 22. FINANCIAL RISKS AND DERIVATIVE FINANCIAL INSTRUMENTS Please see note 5.3 to the consolidated financial statements. 23. RELATED PARTIES Please see note 6.3 to the consolidated financial statements The Parent Company s transactions with subsidiaries are disclosed in the relevant notes to the parent company financial statements. 24. EVENTS AFTER THE REPORTING PERIOD Please see note 7.4 to the consolidated financial statements. 94 IC GROUP A/S ANNUAL REPORT 2016/17 FINANCIAL STATEMENTS

97