Annual report 2010/11

Transcription

1 The following is a translation of an original Danish document. The original Danish document is the governing document for all purposes, and in case of any discrepancy, the Danish wording will be applicable.

2 Contents Statement by the Executive Board and the Board of Directors 2 Independent auditors' report 3 Management commentary 4 Company details 4 Financial highlights for the Group 5 Operating review 6 the period 1 April March Statement of comprehensive income 14 Statement of financial position 15 Statement of changes in equity 17 Cash flow statement 19 Summary of notes to the consolidated and parent company financial statements

3 Statement by the Executive Board and the Board of Directors The Executive Board and the Board of Directors have today discussed and approved the annual report of MHolding A/S for the financial year 1 April March The annual report has been prepared in accordance with International Financial Reporting Standards as adopted by the EU and the disclosure requirements of the Danish Financial Statements Act. In our opinion, the consolidated financial statements and the parent company financial statements give a true and fair view of the Group's and the Company's financial position at 31 March 2011 and of the results of the Group's and the Company's operations and cash flows for the financial year 1 April March In our opinion, the Management commentary includes a fair review of the development in the Group's and the Company's operations and financial conditions, the results for the year and the Company's financial position, and the position as a whole for the entities included in the consolidated financial statements, as well as a description of the more significant risks and uncertainty factors that the Group and the Company face. We recommend that the annual report be approved at the annual general meeting. Allerød, 31 August 2011 Executive Board: Terje List CEO Anders T. Skole-Sørensen CFO Board of Directors: Søren Vestergaard-Poulsen Chairman Christoffer Helsengreen Sjøqvist Peter Georg Edvard Törnquist Lars Frederiksen Mads Pilgren 2

4 Independent auditors' report To the shareholders of MHolding A/S We have audited the consolidated financial statements and the parent company financial statements of MHolding A/S for 2010/11, pages The consolidated financial statements and the parent company financial statements comprise statement of comprehensive income, statement of financial position, cash flow statement, statement of changes in equity and notes for the Group and the Company, respectively. The consolidated financial statements and the parent company financial statements are prepared in accordance with International Financial Reporting Standards as adopted by the EU and the disclosure requirements of the Danish Financial Statements Act. In addition to our audit, we have read the Management commentary and provided a statement hereon. Management's responsibility Management is responsible for the preparation and presentation of consolidated financial statements and parent company financial statements that give a true and fair view in accordance with International Financial Reporting Standards as adopted by the EU and the disclosure requirements of the Danish Financial Statements Act. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and presentation of consolidated financial statements and parent company financial statements that give a true and fair view free from material misstatement, whether due to fraud or error; selecting and using appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. Management is also responsible for the preparation of a Management commentary that includes a fair review in accordance with the disclosure requirements of the Danish Financial Statements Act. Auditors' responsibility and basis of opinion Our responsibility is to express an opinion on the consolidated financial statements and the parent company financial statements based on our audit. We conducted our audit in accordance with Danish Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the consolidated financial statements and the parent company financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements and the parent company financial statements. The procedures selected depend on the auditors' judgment, including the assessment of the risks of material misstatement of the consolidated financial statements and the parent company financial statements, whether due to fraud or error. In making those risk assessments, the auditors consider internal control relevant to the Company's preparation and presentation of consolidated financial statements and parent company financial statements that give a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by Management, as well as evaluating the overall presentation of the consolidated financial statements and the parent company financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Our audit has not resulted in any qualification. Opinion In our opinion, the consolidated financial statements and the parent company financial statements give a true and fair view of the Group's and the Company's financial position at 31 March 2011 and of the results of the Group's and the Company's operations and cash flows for the financial year 1 April March 2011 in accordance with International Financial Reporting Standards as adopted by the EU and the disclosure requirements of the Danish Financial Statements Act. Statement on the Management commentary Pursuant to the Danish Financial Statements Act, we have read the Management commentary. We have not performed any further procedures in addition to the audit of the consolidated financial statements and the parent company financial statements. On this basis, it is our opinion that the information provided in the Management commentary is consistent with the consolidated financial statements and the parent company financial statements. Copenhagen, 31 August 2011 KPMG Statsautoriseret Revisionspartnerselskab Niels Erik Borgbo State Authorised Public Accountant Søren Christiansen State Authorised Public Accountant 3

5 Management commentary Company details MHolding A/S Rørmosevej 1 DK-3450 Allerød Telephone: Fax: Website: CVR no.: Established: 1 July 2006 Registered office: Allerød Financial year: 1 April 31 March Board of Directors Søren Vestergaard-Poulsen (chairman) Christoffer Helsengreen Sjøqvist Peter Georg Edvard Törnquist Lars Frederiksen Mads Pilgren Executive Board Terje List, CEO Anders T. Skole-Sørensen, CFO Auditors KPMG Statsautoriseret Revisionspartnerselskab Borups Allé 177 DK-2000 Frederiksberg Annual general meeting The annual general meeting is to be held on 31 August

6 Management commentary Financial highlights for the Group DKK million 2010/ / / / /07 Key figures Revenue 2, , , , Gross profit 1, , , , Operating profit Loss from financial income and expenses Profit/loss for the year Total assets 5, , , , ,323.0 Investment in property, plant and equipment 0.4 Equity, including minority interests 1, , , , Cash flows from operating activities Net cash flows from investing activities ,978.9 Cash flows from financing activities ,242.2 Total cash flows , Financial ratios Operating margin 13.3% 11.8% 10.4% 9.4% 1.0% Gross margin 45.0% 45.0% 43.4% 41.9% 33.7% Equity ratio 33.2% 28.2% 17.2% 19.3% 3.2% Return on equity 8.0% 2.1% -3.2% -18.3% -16.7% Number of employees 1,996 2,089 2,164 2,087 1,862 The financial ratios are calculated in accordance with the Danish Society of Financial Analysts' guidelines on the calculation of financial ratios "Recommendations and Financial Ratios 2010". 5

7 Management commentary Operating review Principal activities The MHolding Group's principal activity is to own and operate a number of retail shops within the Matas chain, including activities related to the sale of products and services, mainly within personal care, health and household goods. Development in activities and financial matters The Group Revenue for the year amounted to DKK 2,991.6 million against DKK 2,947.9 million in 2009/10. Profit after tax amounted to DKK million against DKK 27.6 million in 2009/10. During the financial year, group revenue increased slightly. According to Management's assessment, in a continued weak retail market, the MHolding Group has been able to maintain the position of the Matas chain within its most significant product ranges and even strengthen its position within some product ranges. It is also the assessment of Management that in the financial year, for all product ranges taken as a whole, the Group has been able to maintain its market share in a continued competitive market. During the financial year, underlying sales recorded a sizeable increase within the medium price segment for personal care products, while sales within the high-end cosmetics products were more modest increasing only slightly. Sales of over the counter drugs and related goods increased considerably over the financial period, while the household goods area recorded a small growth in sales. In general, the development in sales was positive in the first quarter of the financial year, while the second and third quarters as well as Christmas trade did not live up to expectations. However, in the last couple of months of the financial year sales showed once again signs of growth. In the financial year, the logistics department has worked satisfactorily and all start-up problems following the upgrade to the new operating system and organisation have been solved. The financial year was also characterised by a considerable effort in connection with an upgrade of the Group's central IT systems. In the shops, the financial year was characterised by the implementation of a new IT system to manage purchasing and inventories at shop level. This major project was concluded in the financial year and caused a number of minor start-up problems which in particular have contributed to the fact that the development in inventories at shop level has not met expectations at the start of the financial year. Moreover, the financial year has been characterised by a continued effort to implement efficiency improvements, cost and structural adjustments at the head office as well as in the shops on an ongoing basis. 6

8 Management commentary Operating review The implementation of a new IT-system at shop level resulted in a temporary interruption of the continued efforts to reduce the Group's working capital. Centrally, focus on the continued improvement of payment terms was maintained, just as continued emphasis was put on offering a more tailored product range across the shops in the chain based on size and the mix of customers of the individual shops. Moreover, at central level, the Group has succeeded in reducing the capital tied up in inventory by improving the purchasing process in connection with forecasting campaigns. In the shops, the introduction of the new IT system did not result in a reduction in capital tied up in inventory, but Management assesses that in the coming financial year the Group will see the benefits of the new system and achieve the wanted reduction in capital tied up in inventory at shop level. In the financial year, the Group introduced with great success a new loyalty programme, Club Matas, with club benefits for the customers of the Matas chain. Club Matas was launched at the end of August 2010 and membership totalled 500,000 at the end of the financial year ended 31 March Based on a modest sales growth and continued efficiency measures, structural adjustments and focused efforts to improve gross profit, the Group has succeeded in significantly improving the operating income compared to the previous financial year. Thus, Management considers the results for the financial year 2010/11 to be satisfactory. The Group's equity at 31 March 2011 after transfer of profit for the year amounted to DKK 1,877.0 million compared to DKK 1,701.0 million at 31 March The parent company The parent company's profit before tax, which amounts to DKK 0.0 (2009/10: loss of DKK 0.4 million), is as expected. Investments During the financial year 2010/11, the Group invested DKK 41.5 million in total, primarily in connection with the rebuilding and expansion of a number of existing Matas shops as well as the opening of three new Matas shops, one of which is a large new shop in the centre of Copenhagen. Also in the financial year, investments were made to strengthen the Group's security at shop level as well as an ongoing renewal of the Group's IT infrastructure was carried out and IT-related investments were made in connection with the introduction of Club Matas. Events after the closing of the financial year No events have occurred after the date of the statement of financial position that materially affect the Company's or the Group's future financial position. 7

9 Management commentary Operating review Outlook In the coming financial year, the Group expects growth within the primary product ranges as well as for the Group overall. Growth is expected to be higher than in the last financial year, but due to the continued slow growth in private spending and the wait-and-see attitude of consumers in general, growth will remain at a relatively low level. At the same time, sharp competition from supermarkets within a number of the Matas chain's product ranges is expected to continue. Investments in both new shops and in rebuilding and expansion of existing shops will continue in the coming financial year. Furthermore, the coming financial year will see investments in the continued development of Club Matas and the internet platform and e- commerce solution of the Matas chain. For the 2011/12 financial year, a slight increase in the Group's revenue is expected and the result after tax is expected to improve. Particular risks General risks The Group is not assessed to have any significant operating risks due to the Matas chain's strong market position. Furthermore, the Group's suppliers are assessed to be stable. Financial risks Interest rate risks The Group's total interest rate risk over a 12-month period in connection with an increase in the rate of interest of 1 percentage point amounts to DKK 17 million as the interest rate of 40% of the total net interest bearing debt has been fixed. Currency risks The Group is only to a limited extent exposed directly to changes in foreign currencies as the Group's sales and purchase are almost exclusively conducted in Danish kroner. Credit risks The majority of the Group's revenue is generated in cash. Accordingly, the Group has no significant risks regarding one specific customer or partner. 8

10 Management commentary Operating review Capital structure Management assesses on a regular basis whether the MHolding Group's' capital structure is adequate. At 31 March 2011, the Company's net interest-bearing debt constitutes a total of DKK 2,467.9 million (31 March 2010: DKK 2,631.5 million), which is assessed to be a reasonable level compared to the actual need for financial flexibility. No changes to the Group's guidelines and procedures for management of the capital structure and the administration hereof were made in the financial period. In connection with the acquisition of the MHolding Group in 2007 by CVC, Materialisternes Invest ApS and MLI Holding A/S, part of the acquisition price was financed by a syndicated loan facility with Unicredit as agent. The remaining debt on this loan constitutes DKK 2,838.3 million at 31 March The amount is placed in MHolding 3 A/S. The Group has unused credit facilities totalling DKK million. Staff The Group maintains its strong focus on training and development of both executives and employees. Competency development plans are prepared for each individual permanent employee as well as for each individual shop in the chain. Performance management reviews are conducted on an on-going basis, and employee satisfaction analyses are carried out twice a year. During the financial year, approximately DKK 6.1 million was used on both internal as well as external training of employees compared to DKK 4.8 million in 2009/10. The increase is primarily due to changes in the rules governing the state's reimbursement for adult supplementary training and a reduction hereof. During the financial year, the number of employees in the Group has been increased from the equivalent of 2,030 full-time employees (FTE) at the beginning of the year to 2,078 at year-end. The increase is attributable to an increase in the number of apprentices, and a slight increase in the number of employees at Matas A/S due to increased activities, primarily in connection with the introduction of Club Matas. Less than 30 FTE in the Company are employed outside Denmark. In the financial year, no changes in the Group's top management have taken place. It is assessed that the Group in the coming financial period will be able to attract a sufficient number of qualified employees. It is also assessed that the Group will have the necessary competencies in order to be able to extend its market position in the coming financial year and carry out the strategic tasks and projects that are necessary for a continued extension of the Group's market position. Corporate Social Responsibility The Group is still very active in protecting the environment and in addition Matas has increased its focus on other areas within CSR. However, no written CSR strategy has been prepared and no formalised monitoring systems have been put into place. 9

11 Management commentary Operating review Matas' CSR efforts are described in detail on the Matas website under the front page icon "Miljø & Etik". Matas is the only retail chain which on its own initiative collects and ensures recycling of empty packaging of goods purchased in the chain's shops. Furthermore, Matas Miljøfond establishes green playgrounds at daycare centres. The customers returned 19 tons plastic packaging for recycling in Matas during the financial year. Matas also ensured the recycling of the packaging which is used to transport the goods from suppliers to the Matas shops. For the financial year, the total was 32.8 tons film wrapping and 498 tons cardboard. Matas Miljøfond planted up playgrounds at a great number of daycare centres, and up to and including March 2011 the fund has provided support to 1,662 daycare centres, of which 127 were planted up during the financial year. Matas has continued its close relations to the Danish Society for the Conservation of Nature (Danmarks Naturfredningsforening) who is also represented in the Matas Miljøfond committee. During the financial year, the cooperation has developed further and now includes fundraising for the society's campaign for clean drinking water. The Group has continued its efforts to improve all the chain's private brand products in accordance with the latest knowledge of chemical substances' influence on the environment and health to ensure that these products remain at the forefront in relation to the environment, health and quality. In the financial year, Matas has ensured that all Matas' private brand products sold in the shops are completely free of all parabens. The Matas chain is still the largest provider of swan-marked products within personal care. The swan is an official Nordic eco-label which is only allocated to products which are particularly gentle to the environment and health. During the financial year, the Group has continued its close relations to the Danish Cancer Society (Kræftens Bekæmpelse) to ensure that the public obtains better sun protection in order to minimise the risk of skin cancer, which is the most common form of cancer in Denmark. Moreover, the Group has cooperated with the Danish Heart Foundation (Hjerteforeningen) with the aim of reducing the risk that women develop cardiovascular diseases. Today, one in four women dies of a cardiovascular disease. Matas is the largest contributor to the Danish Heart Foundation's campaign "Elsk Hjertet" (Love the Heart). Until and including March 2011, Matas has contributed DKK 6.6 million to the campaign, hereof DKK 1.6 million in the financial year. The contributions are raised through fundraising. In the financial year, the Group entered into co-operation with Astma-Allergi Danmark (the Danish asthma and allergy association) to among other things raise awareness about sensitivity disorders. The goal is to raise funds for specific projects with Astma-Allergi Danmark. In the financial year, all Matas sun protection products for children were awarded Astma-Allergi Danmark's certification "Den Blå Krans". So did the entire Matas product line for children, which was also awarded certification by EcoCert, the organic certification organisation. 10

12 Management commentary Operating review Research and development activities The Group does not carry out traditional research and development activities. Development of product range The Group has continued its development of new own products within the categories "Cosmetics", "Herbalist medicine" and "Strong vitamins and minerals". Within the cosmetics area, the range of Matas' well-known "stribe brand" has been extended and renewed during the financial year. The development of "Herbalist medicine" and "Strong vitamins and minerals" is regulated by the Danish Medicines Agency (Lægemiddelstyrelsen) who requires significant documentation concerning the quality of the products, which the Group fully fulfils. Corporate Governance The Executive Board and the Board of Directors of MHolding A/S constantly seek to ensure that the Group's management structure and control systems are appropriate and work satisfactorily. The basis for planning Management's tasks is e.g. the Danish Companies Act, the Danish Financial Statements Act, the Company's articles of association and good practice for companies of the same size as the MHolding Group. As a private equity fund owned company, the Company complies with the guidelines for responsible ownership and good company management. On this basis, a number of internal procedures have been developed in order to ensure an active, safe and profitable management of the Group. Procedures are updated on an on-going basis. Ownership The Board of Directors assesses on an on-going basis whether the Company's capital structure is in accordance with the Company's and its partners' interests. The overall aim is to ensure a capital structure which supports a long-term profitable growth. The Company's articles of association contain no limits for ownership or voting rights. If an offer for acquisition of the Company's assets is set forth, the Board of Directors will respond to it in accordance with existing legislation. The parent company is a 66.1% owned subsidiary of Svenska MHolding 1 AB, Sweden. The MHolding Group is included in the consolidated financial statements of the ultimate parent company, MHoldings Sárl, Luxembourg. The consolidated financial statements can be obtained at the Company's address. Other shareholders of MHoldingn A/S are Materialisternes Invest ApS (28.9%) and Management (5.0%). CVC is represented at Partner level on the Board of Directors of the ultimate Danish holding company (MHolding A/S) by Søren Vestergaard and Peter Törnquist. 11

13 Management commentary Operating review Members of MHolding A/S' Board of Directors are nominated as follows: CVC: Søren Vestergaard-Poulsen, Christoffer Helsengreen Sjøqvist and Peter Georg Edvard Törnquist Materialisternes Invest ApS: Lars Frederiksen and Mads Pilgren. The Board of Directors' work The Boards of Directors of the parent company MHolding A/S and its subsidiaries ensure that the Executive Boards comply with the Boards of Directors' aims, strategies and business procedures. Information from the Executive Boards of the individual companies is given systematically at meetings and through written and oral reporting. This reporting e.g. comprises the development in the Company's surroundings, the Company's development and profitability and the development in the Company's financial position. The Board of Directors of MHolding A/S meets according to a fixed schedule at least nine times a year, and in addition to this extraordinary meetings are held if necessary. Normally, one annual strategic seminar is held with a broad selection from the Company's Management where the Company's long-term goals and strategies are discussed and adapted according to the expected development. The Board of Directors receives monthly written information on the development in the Group as well as monthly written information on the Group's financial position. In the financial year, the Board of Directors held 10 meetings of which one was a strategic seminar. The members of the Board of Directors do not receive remuneration. The Board of Directors can appoint committees in relation to special assignments, but so far it has not been necessary to appoint actual committees. Remuneration to the Executive Board and Management In order to attract and maintain the Group's managerial qualifications, the members of the Executive Board and executive employees' remuneration is set according to their tasks, the value they create for the Group and terms in comparable companies. A number of specific incentive programmes are included in the remuneration in order to ensure an alignment of interests between the Company's management and the shareholders. Furthermore, Management's ownership ensures a long-term alignment of interests between the Management and the other shareholders. Dividend policy Distribution of dividend shall take place in consideration of the need to consolidate the equity as basis for the Group's continued expansion. The Board of Directors recommends that no dividend be distributed for the financial year 2010/11 at the annual general meeting. 12

14 Management commentary Operating review The partners The MHolding Group seeks to develop and maintain good relations with its stakeholders on an on-going basis as such good relations are assessed to have a significant positive effect on the Group's development. On this basis, the Group has formulated a number of policies for different key areas such as staff, environmental matters and responsibility towards customers and the surrounding society as a whole. Through relevant procedures, the Group ensures that important information reaches the employees, the authorities and the public in accordance with adopted rules and agreements. Together with the Company's Management, the Board of Directors ensures that the relevant policies and procedures are adapted on an on-going basis in accordance with the development in the Company and the surrounding society. Recommendations for active ownership and good company management for private equity funds In June 2008, the Danish Venture And Private Equity Association ("DVCA") issued guidelines for responsible ownership and good company management for private equity funds and companies controlled by private equity funds. For more information on these guidelines, please go to the DVCA website The recommendations contain guidelines for the description of a number of matters in the Management commentary, including corporate governance, financial risks, employee matters and strategy. In general, MHolding A/S' company management, as described above, follows DVCA guidelines. 13

15 Statement of comprehensive income DKK million Note Consolidated Parent company 2010/ / / /10 Revenue 3 2, , Cost of goods sold 4-1, , Gross profit 1, , Other operating income Other external costs Staff costs Depreciation, amortisation and impairment losses Other operating costs Operating profit/loss Financial income Financial expenses Profit/loss before tax Tax on the profit/loss for the year Profit/loss for the year Other comprehensive income Foreign exchange adjustments on translation of foreign entities Value adjustments of hedging instruments for the year Tax on value adjustment of hedging instruments Other comprehensive income after tax Total comprehensive income Proposed distribution of profit: Proposed dividends Retained earnings

16 Statement of financial position DKK million Note Consolidated Parent company 2010/ / / /10 ASSETS Non-current assets Intangible assets Goodwill 3, , Trademarks and trade names Shares in co-operative dwellings Other intangible assets , , Property, plant and equipment 14 Land and buildings Other plant and machinery and inventory Leasehold improvements Other non-current assets Investments in subsidiaries , ,888.1 Amounts owed by group enterprises Deferred tax Deposits Other securities and investments , ,889.4 Total non-current assets 4, , , ,889.4 Current assets Inventories Trade receivables Amounts owed by group enterprises Corporation tax Other receivables Prepayments Cash and cash equivalents Total current assets 1, , TOTAL ASSETS 5, , , ,

17 Statement of financial position DKK million Note Consolidated Parent company 2010/ / / /10 EQUITY AND LIABILITIES Equity Share capital Share premium 1, , , ,786.4 Hedging reserve Translation reserve Retained earnings Total equity 1, , , ,887.5 Liabilities Non-current liabilities Deferred tax Subordinated loan capital Amounts owed to banks, etc. 24 2, , Other payables Total non-current liabilities 2, , Current liabilities Amounts owed to banks, etc Prepayments from customers Amounts owed to group enterprises Trade payables Other payables Corporation tax Total current liabilities Total liabilities 3, , TOTAL EQUITY 5, , , ,

18 Statement of changes in equity Consolidated DKK million Share capital Share premium Hedging reserve Translation reserve Retained earnings Equity at 31 March , ,020.3 Equity movements in 2009/10 Foreign exchange adjustments Value adjustment, hedging instruments Tax on value adjustment of hedging instruments Other comprehensive income Profit for the year Total comprehensive income Capital increase (conversion of debt) Equity at 31 March , ,701.0 Equity movements in 2010/11 Foreign exchange adjustments Value adjustment, hedging instruments Tax on value adjustment of hedging instruments Other comprehensive income Profit for the year Total comprehensive income Equity at 31 March , ,877.0 Total 17

19 Statement of changes in equity Parent company DKK million Share capital Share premium Retained earnings Equity at 31 March , ,255.2 Equity movements in 2009/10 Profit/loss for the year Total comprehensive income Capital increase (conversion of debt) Total equity movements in 2009/ Equity at 31 March , ,887.5 Equity movements in 2010/11 Profit for the year Total comprehensive income Equity at 31 March , ,887.8 Total 18

20 Cash flow statement DKK million Note Consolidated Parent company 2010/ / / /10 Profit/loss before tax Adjustment for non-cash operating items, etc.: Depreciation, amortisation and impairment losses Other non-cash operating entries, net Financial income Financial expenses Cash generated from operations (operating activities) before changes in working capital 530,7 482,7-0,1-0,1 Changes in working capital Cash generated from operations (operating activities) 531,4 526,6 34,2-45,3 Dividend received from subsidiaries Interest received Interest paid Corporation tax paid Cash flows from operating activities 249,5 264,8 25,5-45,6 Acquisition of intangible assets Disposal of intangible assets Acquisition of property, plant and equipment Disposal of property, plant and equipment Disposal of other securities and investments Acquisition of subsidiaries and activities Cash flows from investing activities -37,5-159,1 1,3 0,0 External financing: Raising/settlement of debt to banks, etc Employee bonds Cash flows from financing activities ,5 0,0 0,0 Net cash flows from operating, investing and financing activities Cash and cash equivalents at 1 April Foreign exchange adjustment of cash and cash equivalents Cash and cash equivalents at 31 March ,3 568,

21 Summary of notes to the consolidated and parent company financial statements Note Note 1 Accounting policies 18 Inventories 2 Accounting estimates and 19 Trade receivables judgements 3 Revenue 20 Other receivables 4 Cost of goods sold, etc. 21 Share capital 5 Other operating income and costs 22 Deferred tax 6 Fees to auditors appointed at the 23 Subordinated loan capital annual general meeting 7 Staff costs 24 Amounts owed to banks, etc. 8 Impairment of non-current assets 25 Other payables 9 Financial income 26 Changes in working capital 10 Financial expenses 27 Acquisition of subsidiaries and activities 11 Tax 28 Cash and cash equivalents 12 Intangible assets 29 Contingent assets, liabilities and security 13 Impairment test 30 Financial risks and financial instruments 14 Property, plant and equipment 31 Operating leases 15 Investments in subsidiaries 32 Related parties 16 Amounts owed by group enterprises 33 Events after the date of the statement of financial position 17 Other securities and investments 34 New financial reporting regulation 20

22 1 Accounting policies MHolding A/S is a public limited company domiciled in Denmark. The annual report for the period 1 April March 2011 comprises both the consolidated financial statements of MHolding A/S and its subsidiaries (the Group) and separate parent company financial statements. The annual report of MHolding A/S for 2010/11 has been prepared in accordance with International Financial Reporting Standards as adopted by the EU and the Danish statutory order on the adoption of IFRS by enterprises subject to the Danish Financial Statements Act. In addition, the annual report has been prepared in compliance with the International Financial Reporting Standards (IFRS) issued by the IASB. Basis of preparation The annual report has been presented in DKK millions. The annual report has been prepared on the historical cost basis except for derivative financial instruments, which are measured at fair value. Non-current assets and disposal groups classified as held for sale are measured at the lower of the carrying amount before the changed classification and fair value less costs to sell. The accounting policies set out below have been used consistently in respect of the financial year and to comparative figures. For standards implemented prospectively, comparative information is not restated. Changes in accounting policies With effect from the financial year 2010/11, MHolding A/S has implemented the standards and interpretations that have come into force for 2010/11. None of these have affected the recognition and measurement in 2010/11 or are expected to affect MHolding A/S with the current activities. 21

23 1 Accounting policies (continued) Description of accounting policies Consolidated financial statements The consolidated financial statements comprise the parent company MHolding A/S and subsidiaries in which MHolding A/S has control, i.e. the power to govern the financial and operating policies so as to obtain benefits from its activities. Control is obtained when the Company directly or indirectly holds more than 50% of the voting rights in the subsidiary or which it, in some other way, controls. When assessing whether MHolding A/S exercises control or significant influence, potential voting rights which are exercisable at the date of the statement of financial position are taken into account. The consolidated financial statements have been prepared as a consolidation of the parent company's and the individual subsidiaries' financial statements prepared according to the Group accounting policies. On consolidation, intra-group income and expenses, shareholdings, intra-group balances and dividends, and realised and unrealised gains on intra-group transactions are eliminated. Unrealised losses are eliminated in the same way as unrealised gains to the extent that impairment has not taken place. The subsidiaries' entries are included 100% in the consolidated financial statements. Business combinations Enterprises acquired or formed during the year are recognised in the consolidated financial statements from the date of acquisition or formation. Enterprises disposed of are recognised in the consolidated income statement until the date of disposal. The comparative figures are not restated for acquisitions. For acquisitions of new enterprises in which MHolding A/S is able to exercise control over the acquired enterprise, the purchase method is used. The acquired enterprises' identifiable assets, liabilities and contingent liabilities are measured at fair value at the acquisition date. Identifiable intangible assets are recognised if they are separable or arise from a contractual right. Deferred tax on revaluations is recognised. The acquisition date is the date when MHolding A/S effectively obtains control of the acquired enterprise. 22

24 1 Accounting policies (continued) Any excess of the consideration transferred over the fair value of the identifiable assets, liabilities and contingent liabilities acquired (goodwill) is recognised as goodwill under intangible assets. Goodwill is not amortised but is tested annually for impairment. The first impairment test is performed within the end of the acquisition year. Upon acquisition, goodwill is allocated to the cash-generating units, which subsequently form the basis for the impairment test. Goodwill and fair value adjustments in connection with the acquisition of a foreign entity with another functional currency than the presentation currency used in the MHolding Group's financial statements are treated as assets and liabilities belonging to the foreign entity and upon initial recognition translated into the foreign entity's functional currency at the exchange rate at the transaction date. Negative differences (negative goodwill) is recognised in the income statement at the acquisition date. The consideration transferred by a business consists of the fair value of the agreed consideration in the form of assets transferred, liabilities assumed and equity instruments issued. Costs attributable to business combinations are recognised directly in profit or loss when incurred. If uncertainties regarding identification or measurement of acquired assets, liabilities or contingent liabilities, initial recognition will take place on the basis of provisional values. If subsequently it becomes apparent that the identification or measurement of the purchase consideration, acquired assets, liabilities or contingent liabilities was incorrect on initial recognition, the statement is adjusted retrospectively, including goodwill, until 12 months after the acquisition, and comparative figures are restated. Hereafter, goodwill is not adjusted. Gains or losses on disposal of subsidiaries are stated as the difference between the sales amount and the carrying amount of net assets including goodwill at the date of disposal less cost of disposal. Foreign currency translation For each of the reporting enterprises in the Group, a functional currency is determined. The functional currency is the currency used in the primary financial environment in which the reporting enterprise operates. Transactions denominated in other currencies than the functional currency are considered transactions denominated in foreign currencies. On initial recognition, transactions denominated in foreign currencies are translated to the functional currency at the exchange rates at the transaction date. Foreign exchange differences arising between the exchange rates at the transaction date and at the date of payment are recognised in the income statement as financial income or financial expenses. 23

25 1 Accounting policies (continued) Receivables and payables and other monetary items denominated in foreign currencies are translated to the functional currency at the exchange rates at the date of the statement of financial position. The difference between the exchange rates at the date of the statement of financial position and at the date at which the receivable or payable arose or was recognised in the latest annual report is recognised in the income statement as financial income or financial expenses. On recognition in the consolidated financial statements of enterprises with another functional currency than DKK, the income statements are translated at the exchange rates at the transaction date and the statement of financial positions items are translated at the exchange rates at the date of the statement of financial position. An average exchange rate for the month is used as the exchange rate at the transaction date to the extent that this does not significantly distort the presentation of the underlying transactions. Foreign exchange differences arising on translation of the opening balance of equity of such enterprises at the exchange rates at the date of the statement of financial position and on translation of the income statements from the exchange rates at the transaction date to the exchange rates at the date of the statement of financial position are recognised directly in equity under a separate translation reserve. Foreign exchange adjustments of loans or payables which are considered part of the total net investment in foreign operations with another functional currency than DKK are recognised in the consolidated financial statements directly in equity under a separate translation reserve. Correspondingly, foreign exchange gains and losses on the part of loans and derivative financial instruments which are designated as hedges of investments in foreign operations and effectively hedge against foreign exchange gains and losses on the investment in the foreign operation are also recognised directly in a separate translation reserve in equity. On complete or partial disposal of a foreign operation or on repayment of balances which constitute part of the net investment in the foreign operation, the share of the cumulative amount of the exchange differences recognised directly in equity relating to that foreign operation is recognised in the income statement when the gain or loss on disposal is recognised. Derivative financial instruments Derivative financial instruments are recognised at the date a derivative contract is entered into and measured in the statement of financial position at fair value. Positive and negative fair values of derivative financial instruments are included in other receivables and payables, respectively, and set-off of positive and negative values is only made when the Company has the right and the intention to settle several financial instruments net. Fair values of derivative financial instruments are computed on the basis of current market data and generally accepted valuation methods. 24

26 1 Accounting policies (continued) Fair value hedge Changes in the fair value of derivative financial instruments designated as and qualifying for recognition as a fair value hedge of recognised assets and liabilities are recognised in the income statement together with changes in the value of the hedged asset or liability as far as the hedged portion is concerned. Cash flow hedge Changes in the portion of the fair value of derivative financial instruments designated as and qualifying as a cash flow hedge that is an effective hedge of changes in future cash flows are recognised in equity under a separate hedging reserve until the hedged cash flows affect the income statement. If the hedged transaction results in gains or losses, amounts previously recognised in equity are transferred to the same item as the hedged item. If the hedging instrument does no longer qualify for hedge accounting, the hedge will cease to be effective. The accumulated change in value recognised in equity is transferred to the income statement when the hedged cash flows affect the income statement. If it is no longer expected that the hedged cash flows will be realised, the accumulated change in value is transferred to the income statement immediately. The portion of the derivative financial instrument that is not included in a hedge is presented in profit or loss under financial items. Other derivative financial instruments For derivative financial instruments that are not classified and/or do not qualify for hedge accounting, changes in fair value are recognised in the income statement as financial income or financial expenses. Income statement Revenue Revenue from the sale of goods for resale and finished goods is recognised in the income statement provided that transfer of risk to the buyer has taken place before year end and that the income can be reliably measured and is expected to be received. Revenue is measured at the fair value of the agreed consideration ex. VAT and taxes charged on behalf of third parties. All discounts granted are recognised in revenue. 25

27 1 Accounting policies (continued) Cost of goods sold Cost of goods sold comprises costs for purchase of goods for the year plus deviations in inventories in generating the revenue for the year. Cost of goods sold is recognised after deduction of supplier discounts and bonuses. Other external costs Other external costs comprise administrative expenses and other costs to operation and maintenance. Staff costs Staff costs comprise wages, salaries, pensions and other staff costs. Other operating income and costs Other operating income and costs comprise items secondary to the principal activities of the enterprises, including gains and losses on ongoing disposal and replacement of intangible assets and property, plant and equipment and royalty income. Gains and losses on disposal of intangible assets and property, plant and equipment are determined as the sales price less selling costs and the carrying amount at the selling date. Financial income and expenses Financial income and expenses comprise interest income and expense, gains and losses on securities and impairment of securities, payables and transactions denominated in foreign currencies, amortisation of financial assets and liabilities, including finance leases, as well as surcharges and refunds under the on-account tax scheme. Furthermore, changes in the fair value of derivative financial instruments which cannot or are not designated as hedging instruments are included. Dividends from investments in subsidiaries are recognised in the parent company's income statement at the date when they are declared. 26

28 1 Accounting policies (continued) Tax on the profit/loss for the year The parent company and its Danish subsidiaries are subject to the Danish rules on mandatory joint taxation of the MHolding A/S Group. MHolding A/S is the administrative company under the joint taxation and accordingly pays all corporation taxes to the tax authorities. On payment of joint taxation contributions, the current Danish corporation tax is allocated between the jointly taxed companies in proportion to their taxable income. Companies with tax losses receive joint taxation contributions from other companies that have used the tax losses to reduce their own taxable profit (full absorption). Tax for the year comprises current tax, joint taxation contributions and changes in deferred tax for the year, including changes as a result of a change in the tax rate. The tax expense relating to the profit/loss for the year is recognised in the income statement, and the tax expense relating to changes directly recognised in equity is recognised directly in equity. Statement of financial position Intangible assets Goodwill Goodwill is initially recognised in the statement of financial position at cost as described under "Business combinations". Subsequently, goodwill is measured at cost less accumulated impairment losses. Goodwill is not amortised. Trademarks and trade names Trademarks and trade names acquired in business combinations are measured at cost less accumulated amortisation and impairment losses. Trademarks and trade names are amortised at a straight-line basis over 15 years. Shares in co-operative dwellings Shares in co-operative dwellings are initially recognised in the statement of financial position at cost. Subsequently, shares in co-operative dwellings are measured at cost less accumulated impairment losses. Shares in co-operative dwellings are not amortised as their useful lives cannot be determined. 27