Actona Company A/S Annual Report for 1 July June 2015

Transcription

1 Actona Company A/S Annual Report for 1 July June 2015 CVR No The Annual Report was presented and adopted at the Annual General Meeting of the Company on 17/ Hans Ladekjær Jeppesen Chairman

2 Contents Page Management s Statement and Auditor s Report Management s Statement 1 Independent Auditor s Report on the Financial Statements 2 Management s Review Company Information 4 Group Chart 5 Financial Highlights 6 Management s Review 7 Financial Statements Income Statement 1 July - 30 June 11 Balance Sheet 30 June 12 Cash Flow Statement 1 July - 30 June 14 Notes to the Annual Report 15 Accounting Policies 23

3 Management s Statement The Executive Board and Board of Directors have today considered and adopted the Annual Report of Actona Company A/S for the financial year 1 July June The Annual Report is prepared in accordance with the Danish Financial Statements Act. In our opinion the Financial Statements give a true and fair view of the financial position at 30 June 2015 of the Company and of the results of the Company operations and cash flows for 2014/15. We recommend that the Annual Report be adopted at the Annual General Meeting. Holstebro, 17 September 2015 Executive Board Torben Skov Villadsen Board of Directors Hans Ladekjær Jeppesen Chairman Torben Skov Villadsen Ib Holm Mortensen Aksel Vesterbæk Lægsgaard Inger Susanne Jepsen Hans Martin Juul Nielsen 1

4 Independent Auditor s Report on the Financial Statements To the Shareholders of Actona Company A/S Report on the Financial Statements We have audited the Financial Statements of Actona Company A/S for the financial year 1 July June 2015, which comprise income statement, balance sheet, cash flow statement, notes and summary of significant accounting policies. The Financial Statements are prepared in accordance with the Danish Financial Statements Act. Management s Responsibility for the Financial Statements Management is responsible for the preparation of Financial Statements that give a true and fair view in accordance with the Danish Financial Statements Act, and for such internal control as Management determines is necessary to enable the preparation of Financial Statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express an opinion on the Financial Statements based on our audit. We conducted our audit in accordance with International Standards on Auditing and additional requirements under Danish audit regulation. This requires that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the Financial Statements are free from material misstatement. An audit involves performing audit procedures to obtain audit evidence about the amounts and disclosures in the Financial Statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the Financial Statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Company s preparation of 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 Financial Statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Our audit has not resulted in any qualification. Opinion In our opinion, the Financial Statements give a true and fair view of the financial position of the Company at 30 June 2015 and of the results of the Company operations and cash flows for the financial year 1 July June 2015 in accordance with the Danish Financial Statements Act. 2

5 Independent Auditor s Report on the Financial Statements Statement on Management s Review We have read Management s Review in accordance with the Danish Financial Statements Act. We have not performed any procedures additional to the audit of the Financial Statements. On this basis, in our opinion, the information provided in Management s Review is in accordance with the Financial Statements. Holstebro, 17 September 2015 PricewaterhouseCoopers Statsautoriseret Revisionspartnerselskab Poul Spencer Poulsen State Authorised Public Accountant Carsten Jensen State Authorised Public Accountant 3

6 Company Information The Company Actona Company A/S Smedegårdvej 6A Tvis DK-DK-7500 Holstebro Telephone: Facsimile: info@actonacompany.com Website: CVR No: Financial period: 1 July - 30 June Municipality of reg. office: Holstebro Board of Directors Hans Ladekjær Jeppesen, Chairman Torben Skov Villadsen Ib Holm Mortensen Aksel Vesterbæk Lægsgaard Inger Susanne Jepsen Hans Martin Juul Nielsen Executive Board Torben Skov Villadsen Auditors PricewaterhouseCoopers Statsautoriseret Revisionspartnerselskab Hjaltesvej 16 Postboks 1443 DK-7500 Holstebro Lawyers Kirk Larsen & Ascanius Bredgade 46, Skjern Bankers Sydbank A/S Dalgasgade Herning 4

7 Group Chart Spizy A/S Holstebro/Denmark (no activity) Actona Company A/S Holstebro/Denmark 100% Sofa Trading Ltd. British Virgin Island SC Ambiente Furniture Ukraine Ukraine Actona Hong Kong Ltd. British Virgin Island 100% 100% Actona Sofa Corporation Ltd. China Actona Seating Ltd. China Actona Direct Ltd. China 5

8 Financial Highlights Seen over a five-year period, the development of the Company is described by the following financial highlights: 2014/ / / / /11 Key figures Profit/loss Revenue Gross profit/loss Profit/loss before financial income and expenses Net financials Net profit/loss for the year Balance sheet Balance sheet total Equity Cash flows Cash flows from: - operating activities investing activities including investment in property, plant and equipment financing activities Change in cash and cash equivalents for the year Number of employees Ratios Gross margin 13,6 % 13,7 % 13,4 % 16,3 % 15,4% Profit margin 4,3 % 3,5 % 3,4 % 5,9 % 4,1% Return on assets 11,3 % 8,0 % 7,7 % 12,3 % 8,0% Solvency ratio 43,6 % 33,0 % 30,2 % 27,8 % 22,5% Return on equity 30,5 % 12,6 % 15,5 % 31,5 % 5,3% The ratios have been prepared in accordance with the recommendations and guidelines issued by the Danish Society of Financial Analysts. For definitions, see under accounting policies. 6

9 Management s Review The Annual Report of Actona Company A/S for 2014/15 has been prepared in accordance with the provisions of the Danish Financial Statements Act applying to large enterprises of reporting class C. The Annual Report has been prepared under the same accounting policies as last year. Main activity As in previous years, the Company s main activity has consisted in design, production, trading and distribution of furniture for retailers in more than 90 different countries. Development in the year The past year and follow-up on development expectations from last year The founder, majority shareholder and managing director of Actona Company A/S Mr. Orla Dahl Jepsen died in December Torben Villadsen, whom has more than 15 years of management experience in Actona Company A/S, was appointed as new CEO. A sale of the shares in Actona Company A/S is pending approval from competition authorities and is expected to be finalized during 2015/2016. Following approval Lars Larsen Group will hold the majority of the shares with the remaining shares being held by top mangement. The Company s income statement for 2014/15 shows a profit of DKK 56,3 million, and the Company s balance sheet at 30 June 2015 shows equity of DKK 207,0 million. In the Annual Report for 2013/14, it was stated that the company expected an increase in sales and results. These expectations were fulfilled and the Board of Directors are satisfied with the achieved results. The revenue for 2014/15 was DKK million, which is an increase of 11% compared with last year. The export share remained above 80%. Due to the increased activity, cost control and better performance in the subsidiaries the net profit increased from DKK 20,0 million to DKK 56,3 million in 2014/15. Equity increased to DKK 207,0 million at 30 June 2015 compared to DKK 162,1 million last year. Besides addition of profit for the year, equity at 30 June 2015 was reduced by distribution of dividend of DKK 20 million. The equity was increased DKK 8,6 million due to adjustment of investments and adjustment of forward exchange transactions and interest rate swaps. For 2014/15, dividend distribution of DKK 45 million is proposed. Capital resources The Company s cash flows from operating activities exceed investments etc made during the year. Consequently, cash and cash equivalents increased by DKK 56,4 million in 2014/15. 7

10 Management s Review The Company s gross investments in buildings, fixtures, fittings and equipment only amounted to DKK 1,9 million in the year. Special risks - operating risks and financial risks Market risks Actona Company A/S has no specific market risks apart from normal risk from raw material price developments, freight rate adjustments and general market risks. Foreign exchange risks Due to activities in a number of different countries, results, cash flows and equity are affected by the development in exchange rates and interest rates in respect of a number of currencies. According to the Company s foreign exchange policy, efforts are made to hedge against commercial foreign exchange exposure. Hedging mainly takes place by means of forward exchange contracts to cover expected purchases. Over the years, foreign exchange fluctuations have affected the Company s financial statements to a considerable extent, both positively and negatively. Interest rate risks The Company s interest-bearing debt, calculated as debt to mortgage credit institutes and credit institutions less cash at bank and in hand, decreased from DKK 164,3 million to DKK 78,7 million during the year. The long-term loans from mortgage credit institutes, DKK 78,9 million, bear a fixed rate of interest. Based on the floating rate debt, moderate changes in the level of interest will not have any material, direct effect on earnings. Credit risks The Company endeavours to insure all its trade receivables in order to cover losses due to inability to pay. Despite this and efficient credit management, the granting of credit is, however, subject to ordinary commercial risk. Strategy and objectives Strategy Actona Company s vision is to achieve a position as one of the world s most attractive suppliers of 8

11 Management s Review furniture. We wish to be the point of reference within the business for the segment for high-quality furniture with attractive prices and a wide consumer appeal. Through large-scale advantages, Actona Company is able to offer a wide range of solutions designed to meet requirements throughout the value chain from the range of products over logistics solutions to price/quality level and services. Targets and expectations for the year ahead For the coming year, Actona Company A/S expects a single percentage sales growth and a lower result. Intellectual capital resources Readiness and adaptability are key strategic priorities of the Company. Therefore, the Company is constantly seeking to obtain new knowhow. The Company obtains its unique knowhow primarily through the Company s permanent staff and its strategic business partners within product development. Corporate social responsibility (CSR) Actona Company is aware of its role as part of society and knows that the Company s reputation is based on its behaviour and daily actions. Globalisation increases the demand on companies to act in a socially responsible manner and to overcome ethical challenges in a sensible way. This particularly applies to companies which, like Actona Company, operate globally. To ensure and document that Actona Company complies with current CSR conventions, the Company has become a member of the Business Social Compliance Initiative (BSCI) Code of Conduct, which comprises 11 principles for good corporate ethics. The areas in the Code of Conduct include human rights, labour rights, the environment and corruption. Actona Company has been a member of BSCI for 6 years, and audits of our suppliers follow the established targets. In addition to supplier follow-up according to BSCI it is also important for Actona Company, that goods are produced in respect for core labor standards based on ILO conventions and the UN Declaration of Human Rights. Actona Company has policies for health and safety, anti-corruption and human rights. For environmental and climate issues Actona Company acts according to laws in the countries where Actona Company operates, without having specific policies. 9

12 Management s Review Actona Company has adopted target figures for the underrepresented gender in the top management body and has set a target rate of at least 15% for female representation on the Board of Directors of the Company to be achieved within the coming years. Moreover, Actona Company has prepared a policy for the underrepresented gender at other management levels. Subsequent events No events materially affecting the assessment of the Annual Report have occurred after the balance sheet date. 10

13 Income Statement 1 July - 30 June Note 2014/ /14 Revenue Other operating income Purchases Other external expenses Gross profit/loss Staff expenses Depreciation, amortisation and impairment of property, plant and equipment Profit/loss before financial income and expenses Income from investments in subsidiares Financial income Financial expenses Profit/loss before tax Tax on profit/loss for the year Net profit/loss for the year Distribution of profit Proposed distribution of profit Proposed dividend for the year Retained earnings

14 Balance Sheet 30 June Assets Note Land and buildings Other fixtures and fittings, tools and equipment Tangible assets Investments in subsidiaries Financiel assets Fixed assets Inventories Trade receivables Receivables from group enterprises Other receivables Prepayments Receivables Current asset investments Cash at bank and in hand Currents assets Assets

15 Balance Sheet 30 June Liabilities and equity Note Share capital Retained earnings Proposed dividend for the year Equity Provision for deferred tax Other provisions Provisions Mortgage loans Other credit institutions Long-term debt Mortgage loans Other credit institutions Trade payables Payables to group enterprises Corporation tax Other payables Short-term debt Debt Liabilities and equity Contingent assets, liabilities and other financial obligations 12 Related parties and ownership 13 13

16 Cash Flow Statement 1 July - 30 June Note 2014/ /14 Net profit/loss for the year Adjustments Change in working capital Cash flows from operating activities before financial income and expenses Financial income Financial expenses Cash flows from ordinary activities Corporation tax paid Cash flows from operating activities Purchase of property, plant and equipment Sale of property, plant and equipment Cash flows from investing activities Repayment of mortgage loans Repayment of loans from credit institutions Repayment of payables to group enterprises Repayment of other long-term debt Dividend paid Cash flows from financing activities Change in cash and cash equivalents Cash and cash equivalents at 1 July Cash and cash equivalents at 30 June Cash and cash equivalents are specified as follows: Cash at bank and in hand Current asset investments Overdraft facility Cash and cash equivalents at 30 June

17 Notes to the Annual Report 1 Staff expenses 2014/ /14 Wages and salaries Pensions Other social security expenses Other staff expenses Including remuneration to the Executive Board and Board of Directors Average number of employees Depreciation, amortisation and impairment of property, plant and equipment Depreciation of property, plant and equipment Financial income Interest received from group enterprises Other financial income Foreign exchange gains Financial expenses Interest paid to group enterprises Other financial expenses Foreign exchange losses

18 Notes to the Annual Report 5 Tax on profit/loss for the year 2014/ /14 Current tax for the year Deferred tax for the year which breaks down as follows: Tax on profit/loss for the year Tax on changes in equity Tangible assets Land and buildings Other fixtures and fittings, tools and equipment Cost at 1 July Additions for the year Disposals for the year Cost at 30 June Impairment losses and depreciation at 1 July Depreciation for the year Reversal of impairment and depreciation of sold assets Impairment losses and depreciation at 30 June Carrying amount at 30 June Depreciated over 25 years 3-6 years 16

19 Notes to the Annual Report 7 Investments in subsidiaries Cost at 1 July Cost at 30 June Revaluations at 1 July Exchange adjustment Net profit/loss for the year Change in intercompany profit on inventories Revaluations at 30 June Equity investments with negative net asset value transferred to provisions Carrying amount at 30 June Investments in subsidiaries are specified as follows: Name Place of registered office Share capital Votes and ownership Actona Hong Kong Limited British Virgin Island USD % S.C. Ambiente Furniture Ukraine Ukraine EUR % Sofa Trading Limited British Virgin Island USD % Spizy A/S Denmark DKK % 8 Inventories Finished goods and goods for resale

20 Notes to the Annual Report 9 Equity Proposed Share capital Retained earnings dividend for the year Total Equity at 1 July Ordinary dividend paid Exchange adjustments relating to separate foreign legal entities Fair value adjustment of hedging instruments, end of year Tax on fair value adjustment of hedging instruments Net profit/loss for the year Equity at 30 June The share capital consists of 1 A-share of DKK 386,600, 1 A-share of DKK 113,780, 1 A-share of DKK 25,000, 1 A-share of DKK 24,000, 1 B-share of DKK 169,300, 1 B-share of DKK 168,300 and 1 B-share of DKK 79,520. The A-shares carry the right of advance distribution of dividends. There have been no changes in the share capital during the last 5 years. 10 Provision for deferred tax Property, plant, equipment and trademarks Trade reveivables Other adjustments Deferred tax has been provided at 22% corresponding to the current tax rate. 18

21 Notes to the Annual Report 11 Long-term debt Payments due within 1 year are recognised in short-term debt. Other debt is recognised in long-term debt. The debt falls due for payment as specified below: Mortgage loans After 5 years Between 1 and 5 years Long-term part Within 1 year Other credit institutions After 5 years Between 1 and 5 years Long-term part Within 1 year Other short-term debt to credit institutions Short-term part

22 Notes to the Annual Report 12 Contingent assets, liabilities and other financial obligations Security The following assets have been placed as security with mortgage credit institutes and credit institutions: Land and buildings with a carrying amount of Cash at bank and in hand Contingent liabilities The Danish enterprises of the Group are jointly and severally liable for the tax on the Group s jointly taxed income etc. The total amount is stated in the Annual Report of ODJ Holding ApS, which is the management company in the joint taxation. The Company has entered into rental contracts and leases with non-cancellable periods of up to 5 years which total DKK 16.6 million at the balance sheet date, DKK 5.8 million of which falls due for payment within 1 year. In order to hedge the exchange rate relating to the payment of purchases in foreign currencies, forward exchange contracts in USD for an amount of DKK 126,7 million, have been entered into at 30 June Compared with the forward rate at the balance sheet date, the contracts have a positiv value of DKK 16,5 million. The entire amount relates to future sales and purchases of goods and, consequently, the adjustment of the exchange adjustments has been recognised in equity. In order to hedge the payment of interest on mortgage loans of DKK 83.9 million, the Company has entered into interest rate swaps. At the balance sheet date, the contracts have a negativ value of DKK 12,8 milion that has been recognised in equity. 20

23 Notes to the Annual Report 13 Related parties and ownership Basis Controlling interest ODJ Holding ApS, Holstebro Parent company Ownership The following shareholders are recorded in the Company's register of shareholders as holding at least 5% of the votes or at least 5% of the share capital: AC Invest ApS, Holstebro ODJ Holding ApS, Holstebro Torben Villadsen Holding ApS, Herning Dahlholm Holding ApS, Holstebro Consolidated Financial Statements The Company is included in the Group Annual Report of ODJ Holding ApS, Holstebro, CVR-nr The Group Annual Report of ODJ Holding ApS, Holstebro, CVR-nr may be obtained at the following address: ODJ Holding ApS Brotorvet 1, 1 tv. DK-7500 Holstebro 21

24 Notes to the Annual Report 14 Cash flow statement - adjustments 2014/ /14 Financial income Financial expenses Depreciation, amortisation and impairment losses, including losses and gains on sales Income from investments in subsidiares Tax on profit/loss for the year Other adjustments Cash flow statement - change in working capital Change in inventories Change in receivables Change in trade payables, etc Fair value adjustments recognised in equity

25 Accounting Policies Basis of Preparation Financial Statements of Actona Company A/S for 2014/15 has been prepared in accordance with the provisions of the Danish Financial Statements Act applying to large enterprises of reporting class C. The accounting policies applied remain unchanged from last year. Financial Statements for 2014/15 are presented in. Recognition and measurement The Financial Statements have been prepared under the historical cost method. Revenues are recognised in the income statement as earned. Furthermore, value adjustments of financial assets and liabilities measured at fair value or amortised cost are recognised. Moreover, all expenses incurred to achieve the earnings for the year are recognised in the income statement including depreciation, amortisation, impairment losses and provisions as well as reversals due to changed accounting estimates of amounts that have previously been recognised in the income statement. Assets are recognised in the balance sheet when it is probable that future economic benefits attributable to the asset will flow to the Company, and the value of the asset can be measured reliably. Liabilities are recognised in the balance sheet when it is probable that future economic benefits will flow out of the Company, and the value of the liability can be measured reliably. Assets and liabilities are initially measured at cost. Subsequently, assets and liabilities are measured as described for each item below. Certain financial assets and liabilities are measured at amortised cost, which involves the recognition of a constant effective interest rate over the maturity period. Amortised cost is calculated as original cost less any repayments and with addition/deduction of the cumulative amortisation of any difference between cost and the nominal amount. In this way, capital losses and gains are allocated over the maturity period. Recognition and measurement take into account predictable losses and risks occurring before the presentation of the Annual Report which confirm or invalidate affairs and conditions existing at the balance sheet date. Danish kroner is used as the measurement currency. All other currencies are regarded as foreign currencies. 23

26 Accounting Policies Translation policies Transactions in foreign currencies are translated at the exchange rates at the dates of transaction. Gains and losses arising due to differences between the transaction date rates and the rates at the dates of payment are recognised in financial income and expenses in the income statement. Where foreign exchange transactions are considered hedging of future cash flows, the value adjustments are recognised directly in equity. Receivables, payables and other monetary items in foreign currencies that have not been settled at the balance sheet date are translated at the exchange rates at the balance sheet date. Any differences between the exchange rates at the balance sheet date and the transaction date rates are recognised in financial income and expenses in the income statement. Fixed assets acquired in foreign currencies are measured at the transaction date rates. Derivative financial instruments Derivative financial instruments are initially recognised in the balance sheet at cost and are subsequently remeasured at their fair values. Positive and negative fair values of derivative financial instruments are classified as Other receivables and Other payables, respectively. Changes in the fair values of derivative financial instruments are recognised in the income statement unless the derivative financial instrument is designated and qualify as hedge accounting, see below. Hedge accounting Changes in the fair values of financial instruments that are designated and qualify as fair value hedges of a recognised asset or a recognised liability are recognised in the income statement as are any changes in the fair value of the hedged asset or the hedged liability related to the hedged risk. Changes in the fair values of derivative financial instruments that are designated and qualify as hedges of expected future transactions are recognised in retained earnings under equity as regards the effective portion of the hedge. The ineffective portion is recognised in the income statement. If the hedged transaction results in an asset or a liability, the amount deferred in equity is transferred from equity and recognised in the cost of the asset or the liability, respectively. If the hedged transaction results in an income or an expense, the amount deferred in equity is transferred from equity to the income statement in the period in which the hedged transaction is recognised. The amount is recognised in the same item as the hedged transaction. Changes in the fair values of financial instruments that are designated and qualify as hedges of net investments in independent foreign subsidiaries or associates are recognised directly in equity as regards the effective portion of the hedge, whereas the ineffective portion is recognised in the income statement. 24

27 Accounting Policies Income Statement Revenue Revenue from the sale of goods for resale and finished goods is recognised in the income statement when delivery and transfer of risk to the buyer have been made before year end. Revenue is recognised exclusive of VAT and net of discounts relating to sales. Purchases Purchases comprise the raw materials and consumables consumed to achieve revenue for the year. Other external expenses Other external expenses comprise indirect production costs and expenses for premises, sales and distribution as well as office expenses, etc. Staff expenses Staff expenses comprise wages and salaries as well as payroll expenses other than production wages. Amortisation, depreciation and impairment losses Amortisation, depreciation and impairment losses comprise amortisation, depreciation and impairment of property, plant and equipment. Other operating income and expenses Other operating income and other operating expenses comprise items of a secondary nature to the core activities of the enterprise, including gains and losses on the sale of intangible assets and property, plant and equipment. Income from investments in subsidiaries and associates The items Income from investments in subsidiaries and Income from investments in associates in the income statement include the proportionate share of the profit for the year less goodwill amortisation. Financial income and expenses Financial income and expenses comprise interest, financial expenses in respect of finance leases, realised and unrealised exchange adjustments, price adjustment of securities, amortisation of mortgage loans as well as extra payments and repayment under the onaccount taxation scheme. 25

28 Accounting Policies Tax on profit/loss for the year Tax for the year consists of current tax for the year and deferred tax for the year. The tax attributable to the profit for the year is recognised in the income statement, whereas the tax attributable to equity transactions is recognised directly in equity. The tax recognised in the income statement is classified as tax on ordinary activities and tax on extraordinary items, respectively. Any changes in deferred tax due to changes to tax rates are recognised in the income statement. The Company is jointly taxed with the parent company ODJ Holding ApS and other Danish group companies. ODJ Holding ApS acts as management company for the joint taxation. The tax effect of the joint taxation with the subsidiaries is allocated to Danish enterprises showing profits or losses in proportion to their taxable incomes (full allocation with credit for tax losses). The jointly taxed enterprises have adopted the on-account taxation scheme. Balance Sheet Tangible assets Tangible assets are measured at cost less accumulated depreciation and less any accumulated impairment losses. Cost comprises the cost of acquisition and expenses directly related to the acquisition up until the time when the asset is ready for use. Depreciation based on cost reduced by any residual value is calculated on a straight-line basis over the expected useful lives of the assets, which are: Buildings Other fixtures and fittings, tools and equipment 25 years 3-6 years Assets costing less than DKK 12,800 are expensed in the year of acquisition. Impairment of fixed assets The carrying amounts of intangible assets and property, plant and equipment are reviewed on an annual basis to determine whether there is any indication of impairment other than that expressed by amortisation and depreciation. If so, the asset is written down to its lower recoverable amount. 26

29 Accounting Policies Investments in subsidiaries and associates Investments in subsidiaries and associates are recognised and measured under the equity method. The items Investments in subsidiaries and Investments in associates in the balance sheet include the proportionate ownership share of the net asset value of the enterprises calculated on the basis of the fair values of identifiable net assets at the time of acquisition with deduction or addition of unrealised intercompany profits or losses and with addition of any remaining value of positive differences (goodwill) and deduction of any remaining value of negative differences (negative goodwill). The total net revaluation of investments in subsidiaries and associates is transferred upon distribution of profit to "Reserve for net revaluation under the equity method" under equity. The reserve is reduced by dividend distributed to the Parent Company and adjusted for other equity movements in subsidiaries and associates. Subsidiaries and associates with a negative net asset value are recognised at DKK 0. Any legal or constructive obligation of the Parent Company to cover the negative balance of the enterprise is recognised in provisions. Inventories Inventories are measured at the lower of cost under the FIFO method and net realisable value. The cost of goods for resale, raw materials and consumables equals landed cost. Receivables Receivables are measured in the balance sheet at the lower of amortised cost and net realisable value, which corresponds to nominal value less provisions for bad debts. Provisions for bad debts are determined on the basis of an individual assessment of each receivable, and in respect of trade receivables, a general provision is also made based on the Company s experience from previous years. Current asset invest ments Current asset invest ments, which consist of listed bonds and shares, are measured at their fair values at the balance sheet date. Fair value is determined on the basis of the latest quoted market price. Prepayments Prepayments comprise prepaid expenses concerning rent, insurance premiums, subscriptions and interest. 27

30 Accounting Policies Equity Dividend Dividend distribution proposed by Management for the year is disclosed as a separate equity item. Deferred tax assets and liabilities Deferred income tax is measured using the balance sheet liability method in respect of temporary differences arising between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes on the basis of the intended use of the asset and settlement of the liability, respectively. Deferred tax assets, including the tax base of tax loss carry-forwards, are measured at the value at which the asset is expected to be realised, either by elimination in tax on future earnings or by set-off against deferred tax liabilities within the same legal tax entity. Deferred tax is measured on the basis of the tax rules and tax rates that will be effective under the legislation at the balance sheet date when the deferred tax is expected to crystallise as current tax. Any changes in deferred tax due to changes to tax rates are recognised in the income statement. Current tax receivables and liabilities Current tax liabilities and receivables are recognised in the balance sheet as the expected taxable income for the year adjusted for tax on taxable incomes for prior years and tax paid on account. Extra payments and repayment under the on-account taxation scheme are recognised in the income statement in financial income and expenses. Financial debts Loans, such as mortgage loans and loans from credit institutions, are recognised initially at the proceeds received net of transaction expenses incurred. Subsequently, the loans are measured at amortised cost; the difference between the proceeds and the nominal value is recognised as an interest expense in the income statement over the loan period. Other debts are measured at amortised cost, substantially corresponding to nominal value. Deferred income Deferred income comprises payments received in respect of income in subsequent years. Cash Flow Statement The cash flow statement shows the Company s cash flows for the year broken down by operating, investing and financing activities, changes for the year in cash and cash equivalents as well as the Company s cash and cash equivalents at the beginning and end of the year. 28

31 Accounting Policies Cash flows from operating activities Cash flows from operating activities are calculated as the net profit/loss for the year adjusted for changes in working capital and non-cash operating items such as depreciation, amortisation and impairment losses, and provisions. Working capital comprises current assets less short-term debt excluding items included in cash and cash equivalents. Cash flows from investing activities Cash flows from investing activities comprise cash flows from acquisitions and disposals of intangible assets, property, plant and equipment as well as fixed asset investments. Cash flows from financing activities Cash flows from financing activities comprise cash flows from the raising and repayment of long-term debt as well as payments to and from shareholders. Cash and cash equivalents Cash and cash equivalents comprise Cash at bank and in hand and Current asset investments together with overdraft facility which is included in Credit institutions under short-term debt. Current asset investments consist of short-term securities with an insignificant risk of value changes that can readily be turned into cash The cash flow statement cannot be immediately derived from the published financial records. Financial Highlights Explanation of financial ratios Gross margin Profit margin Return on assets Solvency ratio Return on equity Gross profit x 100 Revenue Profit before financials x 100 Revenue Profit before financials x 100 Total assets Equity at year end x 100 Total assets at year end Net profit for the year x 100 Average equity 29