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Zebra A/S – Annual Report 2014 Management Commentary

Annual Report 2014

Zebra A/S TEA CUP DKK 20 Content

04 This is Tiger

07 Key figures

09 Operating and financial review 2014

15 Strategy

23 Corporate social responsibility

27 Corporate governance

31 Risk management

34 Board of Directors

37 Executive Management

39 Consolidated financial statements

69 Financial statements – Parent Company

91 Management statement

92 Independent Auditors’ opinion This is Tiger

Zebra, the parent company of the TIGER stores, is a rapidly The products are sold at affordable prices and have broad growing international variety retailer offering a broad appeal across age and income groups. range of mostly own-branded, own-designed products that are marketed internationally through the Group’s Across markets, the Scandinavian decor is a differenti- stores under the TIGER, Flying TIGER and TGR brand ating characteristic of the TIGER stores. They are bright, names. By the end of 2014 the Group operated 411 easy to navigate and designed to provide customers with stores in 26 countries. a fun and pleasant shopping experience.

Working continuously with innovative design and product Founded in 1995 and headquartered in Copenhagen, development, TIGER has a dynamic product assortment Denmark, Zebra employs more than 3,000 people world- and introduces up to 300 new products every month. wide and generated revenue of DKK 2,464m and EBITDA The assortment includes categories ranging from home, of DKK 364m in 2014. hobby and party over toys, electronics and gadgets, to food and accessories, with the products having a distinct Scandinavian design DNA and often a humorous twist.

The evolution of Tiger

Concept Danish “one dollar” Stylish international discount concept fun shopping concept

Own brand, Clearance Europe Products packaging and design

Multi round price points 10 kroner Pricing (DKK 10, 20, 30, 40, 50, 100)

2 product campaigns Products Sporadic launches per month

Brand The name of a store a growing consumer brand

1995 Today Markets and stores JAPAN 13 (+11) Existing markets 2013 New markets 2014

Total number of stores 2014 (Net new stores 2014)

ICELAND 5 (+1)

FINLAND NORWAY 23 (+2) FAROE ISLAND 26 (+4) 1 (+0) SWEEDEN 37 (+7) ESTONIA 2 (+2) SCOTLAND LATVIA 4 (+0) DENMARK LITHUANIA 5 (+0) ENGLAND 69 (+5) 6 (+0) IRELAND (+11) 36 HOLLAND POLAND 13 (+5) WALES 12 (+2) 8 (+5) 3 (+2) GERMANY BELGIUM (+7) CZECH REPUBLIC 4 (+3) 23 3 (+3) AUSTRIA FRANCE 1 (+1) 1 (+1)

ITALY PORTUGAL (+23) SPAIN 44 10 (+6) GREECE (+18) 52 9 (+2)

CYPRUS 1 (+1) 2014 Highlights

Revenue growth

44% EBITDA growth DKK 2,464 million Before special items 50% DKK 364 million Profit growth Before special items, after tax 68% DKK 196 million

MARSHMALLOWS DKK 20 Zebra A/S – Annual Report 2014 Management Commentary 7 Key figures

DKKm 2014 2013 2012 20111 20101

Income statement

Revenue 2,464.2 1,710.9 1,100.2 710.1 519.8 Gross profit 1,529.9 1,035.8 660.0 419.0 299.7 EBITDA before special items 364.2 242.3 164.9 109.6 73.0 EBIT before special items 286.5 194.3 137.6 93.1 62.4 EBIT 286.5 223.9 132.4 93.1 62.4 Profit before special items, after tax2 195.7 116.7 92.7 63.8 44.4 Profit for the year 195.7 147.7 88.8 63.8 44.4

Financial position at 31 December

Total assets 1,555.9 929.7 580.6 309.0 203.2 Net working capital 318.2 101.9 116.0 65.2 37.0 Net interest-bearing debt 155.2 12.2 27.6 (19.1) (28.9) Equity before recognition of provisions for acquisition of non-controlling interests 605.3 377.0 232.2 157.8 109.7 Provisions for acquisition of non-controlling interests 704.8 363.5 234.0 - - Equity according to IFRS (99.5) 13.5 (1.8) 157.8 109.7

Cash flow and investments

Cash flow from operating activities 65.0 139.3 74.3 62.6 34.9 Cash flow from investing activities (199.8) (148.6) (97.6) (52.0) (25.2) Free cash flow (134.8) (9.3) (23.3) 10.7 9.7

Key ratios

Revenue growth 44.0% 55.5% 54.9% 36.6% 29.0% Gross margin 62.1% 60.5% 60.0% 59.0% 57.7% EBITDA margin before special items 14.8% 14.2% 15.0% 15.4% 14.0% EBIT margin before special items 11.6% 11.4% 12.5% 13.1% 12.0% Profit margin before special items, after tax 7.9% 6.8% 8.4% 9.0% 8.5% Profit margin 7.9% 8.6% 8.1% 9.0% 8.5% Comparable store sales growth3 (1.0)% 1.0% 1.6% 4.2% 11.0% Net working capital, % 12.9% 6.0% 10.5% 9.2% 7.1% Leverage 0.4x 0.1x 0.2x (0.2)x (0.4)x Number of stores, including joint ventures 411 289 197 120 86

Proforma consolidated financial information4

Proforma revenue 2,562.8 1,735.0 - - - Proforma gross profit 1,582.9 1,049.2 - - - Proforma EBITDA before special items 371.1 245.3 - - - Proforma gross margin 61.8% 60.5% - - - Proforma EBITDA margin before special items 14.5% 14.1% - - -

1 As of 1 January 2012, accounting policies were changed to IFRS. Comparative figures for 2010-2011 are presented in accordance with the Danish Financial Statements Act. Difference between the previous accounting policies and IFRS mainly relate to the accounting for put options held over non-controlling interests, amortisation of goodwill, and valuation of residual values regarding leasehold rights. 2 Profit before special items, after tax is defined in Note 1.1. 3 Comparable store sales growth is defined in Note 1.1 and for 2010 includes Danish stores only. 4 Proforma consolidated financial information reflect a proforma proportionate consolidation of the 50% owned Japanese joint venture. TIGER OXFORD STREET NewLONDON store opened in 2014 Zebra A/S – Annual Report 2014 Management Commentary 9 Operating and financial review 2014

2014 was another year of profitable revenue growth, driven by new store openings and a strengthened corporate backbone. The expansion of the international store network – an average of more than two store openings per week in 2014 – paved the way for record revenue of DKK 2,464m, an increase of 44% compared to 2013, and profit for the year of DKK 196m. Management and the Board of Directors consider the operational and financial performance of 2014 to be satisfactory, and overall in line with expectations. The increase in net working capital (“NWC”), however, was higher than expected and consequently Management has 2014 revenue launched initiatives to reduce NWC.

Zebra opened net 122 new stores in 2014 (net 111 new stores exclud- Net Revenue Growth new ing the Japanese joint venture) and entered 5 new markets. The TIGER (DKKm) (%) stores concept was well received in all new markets. By the end of 2014, Zebra operated 411 stores in 26 countries. Denmark 564 6% 5 Italy 323 110% 23 England 317 67% 11 Based on the progress made in 2014, Zebra is well positioned to continue Spain 313 67% 18 the growth in 2015, while at the same time continuing to strengthen the Sweden 181 23% 7 organisation, processes and systems. Subtotal 1,698 41% 64 Revenue development Total revenue for 2014 was DKK 2,464m, an increase of 44% compared to Total 2,464 44% 111 2013. The increase was driven by net new store openings in 2014 and the full-year effect of stores opened in 2013, contributing each with approximately 23 percentage points of revenue growth, whereas there was a slightly negative comparable store sales growth (1.0)%.

Management launched a number of initiatives to mitigate the negative comparable store sales growth, including better product availability in the central warehouses and improved in-store operations. Overall comparable store sales growth improved throughout the year and was positive in fourth quarter. In certain markets comparable store sales growth was impacted negatively by cannibalisation as a consequence of the increasing store penetration. Management Commentary Zebra A/S – Annual Report 2014 10

In 2014, Zebra opened 103 new stores in existing markets. More than half of the new stores were opened in the Group’s top five markets, which contributed with approximately 65% of the Group’s total revenue growth. The top five markets made up approximately two thirds of the Group’s total 2014 revenue.

The Group continued to expand into new markets in 2014. In May, Zebra opened its first store in the Czech Republic. It soon proved to be a commercial success and was followed by two additional store openings in November. In October, Zebra entered the French market, opening a store in Nice. Zebra also entered new markets in Austria, Estonia and Cyprus. By the end of 2014, Zebra was present in most of the European countries. Having only limited store penetration outside Denmark, the potential for store expansion is considered to be significant.

EBITDA Development in earnings Earnings before interest, tax, depreciation and amortisation (“EBITDA”) before special items amounted to DKK 364m compared to DKK 242m in 2013. The EBITDA margin before special items increased to 14.8% – a 0.6 DKK million percentage point improvement from 2013. The margin increase was driven by a higher gross margin of 62.1% compared to 60.5% in 2013. The gross margin was positively affected by product mix.

Operating costs (staff costs and other external costs) were DKK 1,166m in 2014 compared to DKK 794m in 2013, representing 47.3% of revenue 364 in 2014 compared to 46.4% in 2013. The absolute increase was primarily in 2014 driven by the opening of new stores, full-year impact of stores opened in 2013 and investments in the corporate backbone.

Profit before special items, after tax amounted to DKK 196m compared to DKK 117m in 2013 corresponding to a 68% increase.

Free cash flow and net interest-bearing debt NWC increased significantly from DKK 102m in 2013 to DKK 318m in 2014. This was primarily a result of an increase in inventories due to the opening of new stores but partly offset by higher trade payables.

To improve inventory turnover Management is strengthening processes and tools to enhance transparency, forecasting and stock allocation between warehouses. Furthermore, the organization will be strengthened with additional resources and capabilities within supply chain management. Going forward a new ERP platform will be a key lever for improving inventory turnover.

Cash flow investing activities increased from DKK 149m to DKK 200m, primarily driven by investments related to the opening of new stores. The remaining investments related to existing stores as well as investments in the corporate backbone. Zebra A/S – Annual Report 2014 Management Commentary 11

Despite a strong EBITDA contribution from both existing and new stores, the free cash flow ended at DKK (135)m due to the increase in NWC and investments. Net interest-bearing debt was DKK 155m end of 2014, compared to DKK 12m in 2013.

Provisions for the acquisition of non-controlling interest and equity With the exception of the joint venture in Japan, local partners hold a non-controlling interest and a put option to sell their non-controlling interest to Zebra, whereas Zebra holds a call option to acquire the partners’ non-controlling interest. Under IFRS, Zebra is considered to control these partnerships which lead to full consolidation under IFRS. Accordingly, the subsidiaries are fully consolidated in the consolidated financial statements and provisions have been made for acquisition of the non-controlling interests at estimated total amounts owed to the local partners upon an exercise of the put option or the call option if Zebra has exercised its call option. The exercise prices are determined by contractually defined Equity EBITDA multiples.

The calculation of the provisions under IFRS for the put options is based DKKm 2014 2013 on the general assumption that the local partners all exercise their put Equity before recognition options at year-end 2014 with the agreed notice period of 12 months. of provisions for acquisi- It should be noted though that no local partners have currently exercised tion of non-controlling their put options. For certain of the local partners, which constitute more interests 605 377 than 80% of the total provision, Zebra may under normal circumstances Provisions for acquisition limit the number of these partners allowed to exercise their put options of non-controlling to one every financial calendar year. interests 705 364

Equity according In 2014, the provisions for acquisition of non-controlling interests, to IFRS (100) 14 non-current and current in total, increased to DKK 705m in 2014 from DKK 364m in 2013. The increase was driven by EBITDA expectations in the jointly owned local operating companies.

Equity under IFRS amounted to DKK (100)m at 31 December 2014, compared to DKK 14m at 31 December 2013 primarily as a result of the DKK 341m increase in the provisions for the acquisition of non-controlling interests offset by profit for the year of DKK 196m and comprehensive income relating to hedging instruments of DKK 40m.

Japanese joint venture Following a successful store opening of an own store in Osaka, the Japa- nese joint venture was established together with a local partner in June 2013. Unlike the partner model applied in Europe, Zebra and the partner have joint control of the operating company in Japan, which is why the Japanese joint venture is not consolidated.

The Japanese joint venture reported strong growth in 2014. Revenue grew from DKK 47m in 2013 (2013 revenue in Japan for the period before establishment of the joint venture was DKK 26m) to DKK 211m in 2014 driven by new store openings. In 2014, Zebra opened 11 new stores taking the total number of stores in the Japanese store network to 13. Management Commentary Zebra A/S – Annual Report 2014

However, following extraordinary interest during the first store openings, store traffic is now at a more normalised level. EBITDA for 2014 was DKK 14m, compared to DKK 6m in 2013 (2013 EBITDA in Japan for the period before establishment of the joint venture was DKK 5m) with corresponding margins of 6.6% and 13.1%, respectively.

NWC increased from DKK 24m in 2013 to DKK 72m in 2014. The increase was driven by new store openings. Management of the Japanese joint venture considers the inventory too high and has launched improvement initiatives to normalise inventory levels.

Proforma consolidated financial information The Group’s proforma consolidated revenue, which reflects its 50% ownership of the Japanese joint venture, was in 2014 DKK 2,563m compared to DKK 1,735m in 2013. Proforma EBITDA before special items for 2014 was DKK 371m, representing an increase of 51% compared to 2013, and Proforma corresponding to a margin of 14.5%. The proforma financials are provid- revenue ed in key figures. Organisation and Management In early 2015, Xavier Vidal joined Zebra replacing Christian Mariager as DKK million the CEO of the Group. Xavier Vidal comes from a position as Managing Director of EMEA (Europe, Middle East and Africa) of The Body Shop, the personal beauty retailer with over 2,500 stores in more than 60 countries. Xavier Vidal brings broad and international experience from the retail in- dustry, having held several leadership positions during his five years with 2,563 The Body Shop and in previous positions with Sainsbury’s and Tesco. in 2014 Outlook for 2015 In 2015, Zebra expects to continue the growth trajectory, primarily driven by store roll-outs in existing geographies and expansion into selected new geographies, while maintaining a stringent focus on comparable store sales growth. Overall, revenue and earnings are expected to grow significantly. TIGER New store openedKYOTO in 2014 ANDREAS SKOVGAARD Designer of the TEA BIRD DKK 100

Design awards Zebra A/S – Annual Report 2014 Management Commentary 15 Strategy

An integral part of the Group’s strategy is to grow market presence and make the TIGER concept and products available to an increasing number of consumers, while at the same time continuing to develop and refresh the concept to ensure the Group’s long-term success.

Business model

Zebra’s business model combines a retail concept with an attractive value proposition and broad appeal, a partner-based expansion model enabling Dynamic rapid and sustainable growth and a scalable corporate backbone facilita assortment ting operational leverage and solid profits.

Brand and retail concept up to The TIGER brand is all about the retail concept, from the design and packaging of products to the atmosphere in the stores and how the store personnel meets the customers. The brand is adventurous and friendly and represents all that is current and relevant with a conversational and relaxed tone of voice. 300 The retail concept is based on three core pillars – assortment, store and new products customer experience – and has proven its worth in very different geog- every month raphies and environments, helping Zebra to win a number of retailer awards in Europe in 2014.

Assortment The assortment consists primarily of own-branded products with a Scan- dinavian flavour and often a humorous twist. Most often the products are designed by Zebra’s own design department or in close cooperation with external designers. Zebra’s in-house design and development team continually optimises the product portfolio, striving to maintain a fresh product assortment that appeals to consumers by applying retail insight and monitoring new trends.

While the products are offered at affordable round price points, it is a key objective that the quality should meet or exceed the customer’s expectations as well as Zebra’s CSR requirements (see CSR section). The price range of the product offering is typically from 10 to 100 Danish kroner. The assortment includes categories ranging from home, hobby and party over toys, electronics and gadgets, to food and accessories and has a broad appeal across age and income groups. Each month the assortment is refreshed with up to 300 new products divided in two product campaigns, typically adapted to seasonal themes and/or festive occasions, e.g. summer, winter, Easter or Christmas, giving the customers a new experience every time they go into a TIGER store. Management Commentary Zebra A/S – Annual Report 2014

Store TIGER stores are located on high streets or in popular shopping malls. The typical size is between 200 and 300 m2, but there are also a number of stores between 400 and 600 m2. Across markets, the Scandinavian decor is a differentiating store characteristic.

The stores are designed to create an inviting and welcoming setting intended to make a visit to a TIGER store a fun and surprising shopping experience. The products are mainly displayed on pallet tables with discreet price signs and warm lighting creating stylish but unpretentious product presentations. The maze floor lay-out ensures that customers are guided through the store and all main product categories.

Customer experience The store personnel serves thousands of customers daily. Their dedication and commitment to the concept is critical for customers’ shopping experience and their positive perception of the brand. To sustain a positive customer experience of the TIGER concept, Zebra is critically dependent on the quality and commitment of the store staff, and is continuously working to further improve training and professional development for the staff.

Expansion model Establishing new stores is generally achieved through 50/50 owned partnerships with a local partner, which significantly increases Zebra’s organisational capacity for international expansion and reduces the risks when entering new markets.

A jointly owned local company is set up, and Zebra shares investments, costs and profits with the local partner. In other words, the cooperation is a business partnership, not a franchise operation. The local partnership is PALETTE assigned a certain territory, with the size of the territories ranging from a DKK 20 city to an entire country.

Zebra owns the concept and brand and supplies the products, while the local partner is responsible for store roll-outs and day-to-day operations including staffing, training and local marketing under specific guidelines set out by Zebra.

Partners are typically individuals or a small group of people with an en- trepreneur mindset who are appointed after a thorough selection process that involves evaluating candidates based on their understanding of the concept, retail experience, local market knowledge and managerial and financial capacity.

With the exception of the Japanese joint venture, the partnership model has a contractually defined exit-mechanism, where the local partner holds exercisable put options that grant them the right to sell their non-controlling shareholding to Zebra with redemption prices at contractually defined EBITDA multiples. At the same time, Zebra holds call options to acquire a partner’s shareholding, which are exercisable at contractually defined EBITDA multiples. Zebra A/S – Annual Report 2014 Management Commentary Strategy 17

TIGER New storeSTRATFORD opened in 2014 Management Commentary Zebra A/S – Annual Report 2014

It is part of Zebra’s strategy to take full ownership of the local operating companies when this is assessed to be more beneficial than the partner model. Today, Zebra’s operating companies in Denmark, Finland, Iceland and Scotland are all wholly owned.

Corporate backbone The rapid growth is supported by a flexible and scalable supply chain model, continuous investment in new IT infrastructure and continued strengthening of the organisation and processes.

Financial and operating model Zebra has established an operating model with a governance structure anchored with Executive Management for monitoring and reviewing the local operation’s operational and financial performance aiming to proactively address any potential disruptions in local markets and operating companies. In addition there has been taken initiatives to strengthen the process around the supply chain in order to improve working capital and thereby freeing up capital for further store expansion and partner buy- outs.

Supply chain model While the continuous work with product selection, innovation and product development is carried out by Zebra, production is outsourced to external suppliers who subscribe to Zebra’s code of conduct and work under Zebra’s supervision (see CSR section).

A large part of the logistics is outsourced to external operators facilitat- ing an asset-light and highly scalable logistics operation. Transportation is provided by external forwarders, and while the warehouse in Brøndby (DK) is operated by Zebra, the warehouses in Horsens (DK) and Thrapston ALARM CLOCK (UK) are both operated by an external partner. DKK 100 In 2014, Zebra decided to increase warehouse capacity and at the same time reorganise the warehouse footprint to reduce lead time to the stores. The warehouse in Horsens (DK) will relocate to Barcelona (ES) and the warehouses in Brøndby (DK) and Thrapston (UK) will move to larger facilities. An external partner has been selected to operate the warehouse in Barcelona and to continue operating the warehouse in the UK. The new set-up will support the expected growth going forward and is expected to be fully implemented by the end of 2015.

IT infrastructure A new, group-wide ERP platform is currently being implemented. The first stores were converted to the new system late in 2014 and in 2015 Zebra expects to begin a gradual roll-out to the store network and administrative functions. The new ERP platform will strengthen the Group’s infrastructure and support the expected growth as well as enable optimisation of the existing stores and supply chain. Zebra A/S – Annual Report 2014 Management Commentary

People People are key to the continued success and future expansion of the TI- GER concept. It is important that Zebra can continue to attract, motivate and retain highly qualified personnel at all levels of the organisation to support future growth.

At the head office creative minds are working to refresh the assortment, improve aspects of the concept, marketing and brand, while administrative staff works to enable the rapid expansion of the concept. In 2014, Zebra strengthened the creative and administrative teams by adding additional people and skills. This process will continue in 2015.

Growth levers Zebra pursues four growth levers to strengthen the Group’s market posi- Net new stores tion and to increase revenue and profit: • Increase comparable store sales growth • Increase store penetration in existing markets • Geographical expansion into new markets • Increase operating margins from scale advantages Increasing comparable store sales growth 122 Zebra designs and sells affordable products and aims to constantly improve the product portfolio to meet consumer demand. The commercial in 2014 team continuously evaluates the assortment, retiring and introducing products and designs in order to maintain an attractive, innovative and fresh product offering. This is done through the development of new innovative designs and products and by monitoring sales to consumers at product level.

Each month, Zebra introduces new products adapted to the season and with a common theme. A significant share of revenue is generated from this campaign structure, and it is considered an important growth driver. Zebra also strives to increase customers’ buying frequency and the value of average basket size by continuously improving merchandising, in-store execution, marketing and introducing products with higher price points.

Increase store penetration in existing markets Zebra has applied its partner-driven expansion model to establish new stores in multiple countries at the same time with commercial success across all countries so far. With only limited penetration in most markets outside Denmark, there is a significant potential for store expansion in existing markets.

Stores are leased to minimise upfront investment and are located on high streets and in popular shopping malls. An experienced expansion team assists the local partners in identifying and selecting locations for new stores as well as assisting in lease negotiations. Zebra has a thorough new store approval process anchored in the Executive Management to ensure a continued high quality store portfolio. Management Commentary Zebra A/S – Annual Report 2014

Geographical expansion into new markets In addition to a continued store roll-out in existing markets, it is part of Zebra’s growth strategy to expand into new territories and markets in order to facilitate future growth as existing markets gradually mature. As a result of the concept’s commercial success in new markets, Zebra is experiencing an increasing interest in partnerships from large corpo- rations and highly qualified entrepreneurs. The potential partners go through a thorough selection process before they are appointed. Zebra has developed a market entry model, and when entering new markets, the company establishes proof of concept by assessing how customers receive the first shop before making a decision on further expansion.

Increase operating margin from scale advantages While operating margin is impacted by considerable investments in the corporate backbone to position the Group for future growth, operating margin is expected to improve as a result of operational leverage of the cost structure. The Group furthermore intends to capitalise on opportunities across the supply chain as the business grows and further economies of scale are achieved.

BICYCLE BELL DKK 20 STORAGE SUITCASES DKK 50, 100 & 150 FLYING TIGER NewAMSTERDAM store opened in 2014 Zebra A/S – Annual Report 2014 Management Commentary 23 Corporate social responsibility

Policy and approach Acting responsibly is deeply engrained in the values and practices of Zebra and its employees. Zebra’s philosophy is to sell products that are safe and produced with the greatest respect for human rights and with due concern for social and environmental conditions, both in-house and at the Group’s suppliers. This naturally entails that Zebra strives to control its impact on society and on the environment.

Activities and results Based on an assessment of the Group’s existing and potential impact on environment and society, Zebra’s CSR strategy targets three focus areas: • Responsible supply chain management • Product health and safety • Environmental impact

Responsible supply chain management Zebra has more than 500 suppliers, the majority of which are located in Asia, primarily China. Approximately 80% of the purchase volume is sourced from Asia and the remaining part from Europe. All suppliers must adhere to and duly sign the “Zebra Supplier Code of Conduct” (available at www.tiger-stores.com). The code of conduct includes criteria in respect of human rights and labour rights as well as protection of the environment and anti-corruption. The code of conduct applies to all Zebra suppliers. Since a close relationship with the suppliers is an important factor in ensuring supplier compliance with the code of conduct, Zebra aims to build long-term relationships with core suppliers.

In 2014, the code of conduct and the supplier audit programme were updated to meet the requirements of the new UN Guiding Principles on Business and Human Rights.

Collaboration with suppliers and continuous improvements are central to Zebra’s responsible supply chain management efforts. Thus, Zebra will not conduct business with suppliers violating the zero tolerance policy including criteria dealing with forced labour, child labour, disciplinary practices, health and safety and protection of the environment. Management Commentary Zebra A/S – Annual Report 2014

Supplier audits Zebra does not own the factories that manufacture TIGER products and hence has no direct control of conditions at the factories. Therefore, compliance with the code of conduct is monitored through a systematic supplier audit programme. Suppliers must commit to correct any identified non-compliance issues, and they are subject to re-audits until they can demonstrate satisfactory conduct.

In China, Zebra uses auditors who are trained and employed full-time by Zebra as well as third party independent auditors. In other Asian countries, for example India, Nepal and Vietnam, where the number of suppliers is limited, audits are carried out solely by independent third party auditors. In 2014, Zebra conducted a total of 122 audits and re-audits in Asia.

Apart from serving the important purpose of providing valuable information about supplier compliance with the code of conduct, the audit programme has a strong impact on working conditions at suppliers. Re-audits reveal that Zebra’s responsible supply chain management efforts generally lead to suppliers improving their CSR standards.

The audit programme will be scaled-up in 2015 with the employment of an additional full-time auditor in China. The target for 2015 is to conduct 180 audits.

Product health and safety Zebra works systematically and proactively to ensure that all products are in full legal compliance and meet international regulatory standards, are safe to use and not detrimental to the customer’s health. Zebra strives HEART PUZZLE to ensure that health and safety issues are taken into consideration right DKK 100 from product development and in the production process. Obtaining required documentation from suppliers is an integral part of the Group’s purchasing procedures.

The size and nature of the product portfolio, including the substantial number of new products launched each year, poses a challenge to Zebra’s own control environment, and the Group relies on accredited third party laboratories for the mechanical and chemical testing of new products. Product categories such as toys, electronics, cosmetics, food containers and food are highly regulated by authorities in the countries where the Group operates, and they are subject to extensive external testing.

In 2014, Zebra focused on building in-house capacity, including strengthening quality control, internal know-how and documentation. For 2015, the goal is to further enhance internal procedures for product health and safety as well as to expand cooperation with suppliers within this field. Zebra A/S – Annual Report 2014 Management Commentary 25

Environment Due to the nature of Zebra’s business, a large part of the environmental impact of the products lies in the supply chain. Environmental concerns, e.g. chemical storage, waste handling and emissions to air, water and soil, are therefore integrated into Zebra’s supplier requirements and hence also into the supplier audit programme.

Inside the Group’s own facilities, focus is currently on environmental aspects, which are clearly within the Group’s sphere of control. In 2013, Zebra introduced a guideline requiring all new or renovated stores to use LED bulbs and FSC certified wood in store interiors. All new and renovated stores adhered to this guideline in 2014.

SPICES DKK 10 SELECTED STORE OPENINGS 2014

LERUM BOLOGNA Sweden Italy

KOBE Japan

BARCELONA VOLOS Spain Greece Zebra A/S – Annual Report 2014 Management Commentary

27 Corporate governance

Corporate Governance practices at Zebra Zebra strives to apply at all times generally accepted corporate governance principles as required under the Danish Companies Act, the Danish Financial Statements Act, IFRS as well as internal rules and procedures described in the Company’s Rules of Procedure for the Board of Directors and for the Executive Management, among others. As Zebra is controlled by a member of the Danish Venture Capital and Private Equity Associa- tion (“DVCA”), the Company applies the corporate governance guidelines issued by DVCA. These guidelines are available on www.dvca.dk.

At Zebra, powers are distributed between the Board of Directors and the Executive Management in accordance with standard practices for Danish companies and are formalised by the Company’s Rules of Procedure. The Executive Management handles all day-to-day operations while the Board of Directors supervises the work of the Executive Management and approves certain types of decisions and investments. Zebra’s Board of Directors develops the Group’s overall strategies together with the Execu- tive Management and oversees that the necessary skills and qualifications are in place to support the Group’s development and strategic business objectives.

Other key tasks for the Board of Directors are to ensure that Zebra has the right management capabilities and adequate organisational structure in place, and that the Company works towards implementing efficient and transparent business procedures and responsible asset management. The Board of Directors also oversees the financial development of Zebra and related reporting and planning systems.

The content of the Board meetings is determined by the Board’s meeting schedule, which is updated and approved by the Board of Directors at the beginning of each financial year, and by on-going discussions between the Board of Directors and the Executive Management.

Board activities in 2014 The Board of Directors has seven members and held six board meetings in 2014. Each meeting lasted at least a day, ensuring enough time for dis- cussing performance, critical and strategic issues, follow-up on corporate VOLOS Greece Management Commentary Zebra A/S – Annual Report 2014

strategy, action plans and organisation, and review of internal controls and procedures. The Board holds at least one meeting every year in one of the Group’s strategically important markets and such meetings include store visits, meetings with local partners and updates on the local retail market.

Internal control system The responsibility for maintaining an adequate and efficient internal control environment in connection with financial reporting lies with the Executive Management. The Board of Directors has reviewed and assessed the Group’s control environment and concluded that it is adequate at the current stage of the Group’s development. Zebra will during 2015 continue to strengthen its control environment and processes both in local operating companies and at head office.

Ownership and capital structure EQT holds approximately 67% of the shares in Zebra A/S through Zebra Lux Holding S.a.r.l. Approximately 29% of the shares are held by Mitco ApS, which is controlled by Lennart Lajboschitz, and approximately 4% of the shares are held by the members of the Board of Directors, the Executive Management and a small number of senior Zebra employees.

Diversity Zebra aims to offer equal opportunities to men and women across its organisation, and it is company policy to promote equal opportunities re- NOTE BOOKS gardless of gender, ethnicity, race, religion and sexual orientation. When DKK 10 & 20 it comes to gender, Zebra aims at a balanced distribution among employees in leadership positions. Zebra’s Management is currently composed of 62% male and 38% female members. Relevant professional qualifications remain the key selection criteria for all positions in the Zebra organisation, but Zebra’s Management will continue to focus on diversity and will continue to evaluate the need for initiatives within this area.

The Board of Directors of Zebra is composed of 100% male members. It is the board’s ambition to increase diversity, including with regards to gender representation on the board where the target is to have at least one female member within three years. This will be done in relation with ongoing changes to the composition of the board, where special efforts will be made to ensure that female candidates are identified and partici- pate in the selection process. As the majority of the current Directors have low tenure on the board and in consideration of a desired continuity in the Board of Directors, this target will be sought achieved in relation to ongoing changes to the composition of the Board. SUNGLASSES DKK 30 FLYING TIGER NewUTRECHT store opened in 2014 Zebra A/S – Annual Report 2014 Management Commentary 31 Risk management

The Board of Directors and Executive Management are responsible for ensuring that the structure and control systems in the Group are suitable and function satisfactorily. The Board of Directors regularly assesses the overall and specific risks associated with the business and operation, and seeks to ensure that such risks are managed in a proactive and efficient manner. The Executive Management is working actively with risk management, including ongoing discussions and assessments of actual and potential risks, and through integration of risk mitigation in the Group’s ongoing activities and actions.

Financial risk The nature of Zebra’s operations, investments and financing arrangements exposes the Group to market risk by way of changes in foreign exchange rates and interest rate levels. The Group’s treasury policy is to actively address financial risk in order to mitigate the risk of material impacts on the Group’s financial position.

Currency risk Zebra’s international activities imply that the Group’s financial results, cash flows and equity are exposed to fluctuations in various foreign currencies.

The main exchange rate exposure faced by Zebra relates to the purchase of goods in foreign currency, mainly USD, and translation of the financial results and equity of the foreign subsidiaries into Danish kroner. It is the Group’s policy at least on a half-year basis to hedge foreign exchange risk for 80% of expected procurement 12 months ahead.

The exposure to exchange rate fluctuations of Zebra’s foreign subsidiaries is to some extent mitigated by the fact that both revenue and administrative costs of the individual subsidiaries are denominated in the same currencies.

For more information, see note 4.3 to the consolidated financial statements. Management Commentary Zebra A/S – Annual Report 2014 32

Interest rate risk Zebra is exposed to interest rate risk because entities of the Group borrow funds at variable rates of interest. The risk is monitored by Zebra and hedging is applied in order to maintain intended mix between fixed and floating rate borrowings in accordance with the guidelines of the management.

Credit risk The Group has limited credit risk exposure, because its sales to customers are mainly for cash, and the Group is not exposed to any major credit risks from any single customer or other party.

Operational risk Zebra has identified key operational risks within the areas of: PILLOW • Market place DKK 40 • Reputation • Infrastructure and people

Market place Competition As a retailer, Zebra is exposed to competition from other retailers with a value proposition similar to Zebra’s as well as competition from online formats.

To mitigate competition from other retailers, Zebra continues to invest and develop the TIGER concept to sustain the concept’s edge and attractive value proposition. The initiatives include continued strengthening of the Group’s creative capabilities within product design and innovation, visual merchandising, marketing and branding as well as training of the store staff in order to sustain or improve the level of service provided in the stores.

Expansion Zebra’s growth ambitions require strong performance, both in existing markets and when launching the TIGER concept in new markets. Failure to adequately address performance issues in local markets may impact the Group’s financial results. Zebra continuously works on improving its moni toring, business review and data analysis procedures, aiming to proactively address any potential disruptions in local markets and the corporate organisation has been strengthened to address in a timely manner any performance issues that may arise.

Reputation The main reputational risks Zebra faces stem from the fact that Zebra does not own the facilities in which the Group’s products are manufac- tured. If suppliers fail to comply with Zebra’s code of conduct, the Group’s Zebra A/S – Annual Report 2014 Management Commentary 33

reputation and brand may be jeopardised. Suppliers must adhere to the code of conduct and compliance is monitored through a systematic supplier audit programme. See the corporate social responsibility section for further information about Zebra’s CSR efforts and results achieved.

Infrastructure and people Implementation of ERP system and restructuring of warehouse setup Supply chain disruptions may have a negative impact on Zebra’s financial results. Such disruptions may potentially occur as a consequence of the current implementation of the new ERP system and warehouse changes being made.

To mitigate such potentially negative impact from supply chain disruptions, Zebra closely monitors the entire supply chain on an ongoing basis and continues to invest and build supply chain capabilities.

With regards to the implementation of the new logistics arrangements and ERP platform, Zebra has strengthened its project organisations and project management capabilities. In addition, Zebra has implemented governance structures anchored with the Executive Management ensuring that the departments allocate sufficient attention and resources to the projects.

Key people In order to maintain the growth trajectory, Zebra relies critically on its ability to continue to attract, motivate and retain highly qualified personnel at all levels of the organisation – from store staff and managers to creative and administrative people at head office.

In 2014, Zebra established a group HR function for the purpose of sup- porting the local operating companies. Among other initiatives, Zebra has developed and partly rolled-out a recruitment kit designed to assist in local recruitment of qualified talents for positions as store assistants, as- sistant store managers and store managers as well as a talent programme for store managers to ensure a pool of talent for future expansion.

An integral part of Zebra’s strategy is to take full ownership of local operating companies when this is assessed to be more beneficial than the partner model. The transformation process carries the risk of losing traction due to loss of key managers with in-depth local market know ledge. To ensure a continued strong financial performance in and after a transformation period, the partner model entails a put or a call notice of one year allowing Zebra to develop a detailed transfer plan together with the partner, ensure timely identification of new management and LAMP deploy various measures to ensure retention of local key personnel. DKK 100 Management Commentary Zebra A/S – Annual Report 2014

34 Board of Directors

Ole Andersen (1956) Michael Hauge Sørensen (1973) Chairman, Member since 2013 Member since 2013

Educational M.Sc. Business Administration and Educational Executive training from Stanford, IMD, background Auditing, Copenhagen Business School. background INSEAD State Authorized Public Accountant Current Position Professional Board Member Current Position Professional Board Member Other Positions Pandora A/S (Board Member) Other Positions Danske Bank A/S (Chairman) IC Group A/S (Board Member) Bang & Olufsen A/S (Chairman) Santa Fe Group A/S (Board Member) Chr. Hansen Holding A/S (Chairman) Kwintet AB (Chairman) EQT (Industrial Advisor) Michaso Holdings Ltd. (Director) NASDAQ OMX Nordic (Member of the EQT (Industrial Advisor) Nomination Committee) The Danish Committee on Corporate Governance (Member)

Manel Adell Domingo (1961) Rolf Eriksen (1944) Member since 2013 Member since 2013

Educational MBA, IMD Lausanne Educational Decorator background M.Sc., ESADE Business School Barcelona background

Current Position Professional Board Member Current Professional Board Member Position Other Positions PUIG, S.L. (Board Member) Privalia Venta Directa, S.A. (Board Other Positions Hennes & Mauritz A/S (Board Member) Member) Zebra A/S – Annual Report 2014 Management Commentary

Morten Hummelmose (1971) Lennart Lajboschitz (1959) Member since 2013 Member since 1998

Educational M.Sc. Economics, University of Current Advisor and Founder, Zebra A/S background Copenhagen Position M.Sc. Finance, University of London Other Positions Hos Fischer ApS (Board Member) Current Head of EQT Partners in Denmark Mitco ApS (Chairman) Position J.H.L. ApS (Board Member) Lajbo Holding ApS (Board Member) Other Positions Færch Plast A/S (Board Member)

Jacob Bier (1961) Member since 1998

Educational LLM, University of Copenhagen background

Current Senior Advisor, Greenhill & Co. Position International LLP

Other Positions Cruise I A/S (Chairman) Hos Fischer ApS (Board Member) Mitco ApS (Board Member) Zebra A/S – Annual Report 2014

TIGER NewMADRID store opened in 2014 Zebra A/S – Annual Report 2014 Management Commentary

37 Executive Management

Xavier Vidal (1974) Henrik Skov (1964) Chief Executive Officer Chief Financial Officer

Educational Advanced Management Program Educational M.Sc. Economics, Clemson University background (AMP), Harvard Business School background M.Sc. Marketing, Cranfield University Previous Telenor A/S (Chief Financial Officer and Previous The Body Shop (Managing Director experience other leadership positions) experience EMEA and other leadership positions) Accenture (Manager) Sainsbury’s (Business Unit Director) Tesco Plc (Category Manager) Auchan (Buyer)

Tahir Hussain (1971) International Director

Educational MBA (Strategy, Finance, HR & background Innovation), The Open University Diploma in Management (Improving Projects, Change & Performance), The Open University Certificate in Management (Managing, Finance, Customers & Quality) The Open University

Previous Dalberg (Head of Finance, Europe) experience Ditsch Ltd (Managing Director) Tate Gallery (Director of Finance & Operations) Yates Group Plc (Director of Operations) RAIN PONCHO DKK 30 Zebra A/S – Annual Report 2014 Consolidated Financial Statements 39 Consolidated financial statements

40 Income statement 42 Balance sheet 44 Statement of changes in equity 45 Cash flow statement

Basis of preparation Section 1 46 General accounting policies Note 1.1 48 Critical accounting estimates and judgments Note 1.2

Results for the year Section 2 49 Staff costs Note 2.1 50 Special items Note 2.2 50 Financial expenses Note 2.3 51 Income taxes and deferred tax Note 2.4

Operating assets and liabilities Section 3 53 Intangible assets Note 3.1 55 Property, plant and equipment Note 3.2 57 Investments in joint ventures Note 3.3 58 Inventories Note 3.4 58 Working capital changes Note 3.5 59 Guarantee commitments and contingent liabilities Note 3.6

Capital structure and financing Section 4 60 Share capital Note 4.1 61 Financial assets and liabilities Note 4.2 63 Financial instruments Note 4.3 65 Provisions for the acquisition of non-controlling interests Note 4.4

Other disclosures Section 5 66 Audit fee Note 5.1 66 Related parties Note 5.2 66 Events after the balance sheet date Note 5.3 67 List of group companies Note 5.4

Consolidated Financial Statements Zebra A/S – Annual Report 2014 40

Income statement 1 January - 31 December

DKKm Note 2014 2013

Revenue 2,464.2 1,710.9 Cost of sales (934.3) (675.1)

Gross profit 1,529.9 1,035.8

Other external expenses (531.7) (373.4) Staff costs 2.1 (634.0) (420.1)

EBITDA before special items 364.2 242.3

Amortisation and depreciation (77.7) (48.0)

Operating profit (EBIT) before special items 286.5 194.3

Special items 2.2 - 29.6

Operating profit (EBIT) 286.5 223.9

Share of profit in joint ventures 3.3 5.0 0.5 Financial income 1.8 1.2 Financial expenses 2.3 (34.0) (37.9)

Profit before tax 259.3 187.7

Tax on profit for the year 2.4 (63.6) (40.0)

Profit for the year 195.7 147.7 Zebra A/S – Annual Report 2014 Consolidated Financial Statements 41

Statement of other comprehensive income for the group

DKKm Note 2014 2013

Profit for the year (brought forward) 195.7 147.7

Items that may be reclassified subsequently to profit or loss: Foreign currency translation adjustment, foreign entities – exchange differences arising during the year 3.2 (0.3) Value adjustment of hedging instruments for the year 52.4 (12.5) Tax relating to items that may be reclassified subsequently (12.5) 3.0

Other comprehensive income 43.1 (9.8)

Total comprehensive income for the year 238.8 137.9 Consolidated Financial Statements Zebra A/S – Annual Report 2014 42

Balance sheet 31 December

Assets DKKm Note 2014 2013

Intangible assets 3.1 57.3 35.9 Property, plant and equipment 3.2 296.2 209.5 Investment in joint ventures 3.3 45.5 40.7 Leasehold deposits 32.6 19.6 Deferred tax 2.4 15.9 6.1

Non-current assets 447.5 311.8

Inventories 3.4 719.1 368.7 Income tax receivables 10.3 4.5 Other receivables 67.2 21.8 Prepayments 49.4 24.9 Cash and cash equivalents 4.2 262.4 198.0

Current assets 1,108.4 617.9

Assets 1,555.9 929.7 Zebra A/S – Annual Report 2014 Consolidated Financial Statements 43

Balance sheet 31 December

Equity and liabilities DKKm Note 2014 2013

Share capital 4.1 0.5 0.5 Reserves 33.6 (9.5) Retained earnings (133.6) 22.5

Equity (99.5) 13.5

Bank debt 4.2 150.0 5.8 Provisions for the acquisition of non-controlling interests 4.4 638.5 363.5 Deferred tax 2.4 17.8 1.0

Non-current liabilities 806.3 370.3

Bank debt 4.2 239.2 187.9 Provisions for the acquisition of non-controlling interests 4.4 66.3 - Loans provided by shareholders of non-controlling interests 28.4 16.5 Trade payables 232.7 127.2 Income tax payable 50.1 28.9 Other payables 232.4 185.4

Current liabilities 849.1 545.9

Liabilities 1,655.4 916.2

Equity and liabilities 1,555.9 929.7 Consolidated Financial Statements Zebra A/S – Annual Report 2014 44

Statement of changes in equity

Share Retained DKKm capital Reserves earnings Total

2014 Equity at 01.01. 0.5 (9.5) 22.5 13.5 Profit for the year - - 195.7 195.7 Other comprehensive income for the year, net of tax - 43.1 - 43.1 Transactions with owners: Dividend paid - - (11.0) (11.0) Change in non-controlling interests' ownership share - - 0.7 0.7 New provisions for the acquisition of non-controlling interests - - (7.1) (7.1) Adjustment to provisions for the acquisition of non-controlling interests - - (334.9) (334.9) Contribution from non-controlling interests - - 0.5 0.5

Equity at 31.12. 0.5 33.6 (133.6) (99.5)

2013 Equity at 01.01. 0.5 0.3 (2.6) (1.8) Profit for the year - - 147.7 147.7 Other comprehensive income for the year, net of tax - (9.8) - (9.8) Transactions with owners: Dividend paid - - (4.6) (4.6) Change in non-controlling interests' ownership share - - (10.0) (10.0) New provisions for the acquisition of non-controlling interests - - (33.4) (33.4) Adjustment to provisions for the acquisition of non-controlling interests - - (102.9) (102.9) Share capital increase 0.0 - 28.3 28.3

Equity at 31.12. 0.5 (9.5) 22.5 13.5 Zebra A/S – Annual Report 2014 Consolidated Financial Statements 45

Cash flow statement

DKKm Note 2014 2013

Operating profit (EBIT) 286.5 223.9 Gain related to the partial sale of the Japanese business - (39.8) Depreciation, amortisation and losses from disposal of assets 77.7 47.9 Working capital changes 3.5 (215.4) (5.4) Interest income received 1.8 1.2 Interest expenses paid (31.9) (37.9) Taxes paid (53.7) (50.6)

Cash flow from operating activities 65.0 139.3

Change in non-controlling interests' ownership share - (7.1) Investment in intangible assets (27.1) (7.5) Investment in property, plant and equipment (159.7) (130.0) Investment in other non-current assets (13.0) (4.0)

Cash flow from investing activities (199.8) (148.6)

Free cash flow (134.8) (9.3)

Contribution from non-controlling interests 0.5 - Share capital increase - 28.3 Change in loans provided by shareholders of non-controlling interests 11.9 10.6 Proceeds from borrowings 195.5 68.5 Dividend paid (11.0) (4.6)

Cash flows from financing activities 196.9 102.8

Increase in cash and cash equivalents 62.1 93.5

Cash and cash equivalents at 1 January 198.0 104.5 Unrealised exchange gains/(losses) included in cash and cash equivalents 2.3 0.0

Cash and cash equivalents at 31 December 262.4 198.0 Consolidated Financial Statements Zebra A/S – Annual Report 2014 46

1.1 General accounting policies

The Consolidated Financial Statements for the Group control by virtue of other contractual agreements with have been prepared in accordance with International the entities, and these entities are thus fully consolidated Financial Reporting Standards (IFRS) as adopted by the EU in the consolidated financial statement. and Danish disclosure requirements applying to entities of reporting class C (large). When the Group loses control of a subsidiary, a gain or loss is recognised in profit or loss and is calculated as the The consolidated financial statements are presented in difference between (i) the aggregate of the fair value Danish kroner (DKK), which also is the functional currency of the consideration received and the fair value of any of the parent company. retained interest and (ii) the previous carrying amount of the assets (including goodwill), and liabilities of the The accounting policies are unchanged from last year. subsidiary and any non-controlling interests.

Presentation of accounting policies All amounts previously recognised in other comprehen- Where possible the accounting policies for an accounting sive income in relation to that subsidiary are accounted area are presented in the individual notes for that area. for as if the Group had directly disposed of the related Accounting policies not directly related to an area cov- assets or liabilities of the subsidiary. The fair value of any ered by a note are presented below. investment retained in the former subsidiary at the date when control is lost is regarded as the fair value on initial Defining materiality recognition. In the preparation of these consolidated financial statements, an evaluation of what information is considered Translation of foreign currencies relevant and useful has been performed by the Executive Foreign currency transactions are translated into the func- Management. With the aim of providing consolidated tional currency defined for each company using the ex- financial statements which enable users to more clear- change rates prevailing at the transaction date. Monetary ly focus on issues which are considered important for items denominated in foreign currencies are translated decision-making purposes, certain measures have been into the functional currency at the exchange rates prevail- undertaken to remove immaterial clutter, including: ing at the balance sheet date. • Aggregating immaterial line items on the primary statements (income statement, balance sheet and cash Receivables, payables and other monetary items denom- flow statement) inated in foreign currencies that have not been settled • Moving disaggregated items from the primary state- at the balance sheet date are translated at the exchange ments to the notes rates at the balance sheet date. The differences between • Including disclosure requirements of accounting the exchange rates at the balance sheet date and the rates standards only to the extent they are material to the at the time the receivable or payable is created or rec- Group. ognised in the latest consolidated financial statements are recognised in the income statement under net financials. Consolidation The Consolidated Financial Statements comprise the Financial statements of foreign subsidiaries are translated financial statements of the parent company Zebra A/S into the functional currency at the exchange rates prevail- and entities controlled by the parent company. ing at the balance sheet date for assets and liabilities, and at average exchange rates for income statement items. Financial statement items of controlled entities are rec- Exchange differences arising from the translation of both ognised in full in the Consolidated Financial Statements. the balance sheets and the income statements of the Non-controlling interests´ pro rata shares of the profit/ foreign subsidiaries are recognised under other compre- loss and the net assets are disclosed as separate items in hensive income. the income statement and the balance sheet, respectively, except those non-controlling interests that are fully Exchange adjustments of outstanding accounts with in- consolidated as a result of the put options in place, ref. dependent foreign subsidiaries which are considered part note 4.4. of the total investment in the subsidiary in question are classified directly as equity. Although the parent company does not own a majority of the voting rights in certain subsidiaries, ref. note 5.4, the Unrealised gains/losses relating to hedging of future cash Executive Management has assessed that the Group has flow are recognised in other comprehensive income. Zebra A/S – Annual Report 2014 Consolidated Financial Statements 47

1.1 General accounting policies (continued)

Revenue IFRS 9 Financial Instruments Revenue is measured at the fair value of the consideration In July 2014, the IASB issued the final version of IFRS 9 received or receivable. Revenue is reduced for estimated Financial Instruments, which reflects all phases of the customer returns, rebates and other similar allowances. financial instruments project and replaces IAS 39 Financial Instruments: Recognition and Measurement, and all previ- Revenue from the sale of goods is recognised when the ous versions of IFRS 9. goods are delivered and titles have passed. IFRS 9 is currently awaiting EU endorsement. The stan- Standards issued but not yet effective dards introduces new requirements for classification and The standards and interpretations which have been is- measurement, impairment and hedge accounting. IFRS sued, but are not yet effective, up to the date of issuance 9 is effective for annual periods beginning on or after 1 of the Group’s financial statements, and which are consid- January 2018, with early application permitted. ered to have an effect on the Group are disclosed below. The Group is currently assessing the impact of IFRS 9, New standards and amendments which are not yet effec- and plans to adopt the new standard on the required tive and which are not considered to have an impact on effective date. the Group are not disclosed. The Group intends to adopt these standards, if applicable, when they become effective.

Key figures and ratios The figures and ratios have been compiled based on the following definitions and formulas:

Gross profit x 100 Gross margin = Revenue

EBITDA margin EBITDA margin before special items before special items = Revenue

Bank debt + Loans provided by shareholders of non-controlling Net interest-bearing debt = interests – cash and cash equivalents

Net working capital Net working capital % = Revenue

Net interest-bearing debt Leverage = EBITDA before special items

Profit before special items, after tax = Profit for the year adjusted for special items and tax on special items

Profit before special items, after tax Profit margin before special items, after tax = Revenue

Comparable store sales growth • Comparable store sales exclude the following: • Comparable store sales include the following: If a store is closed for refurbishment, it is excluded Stores open for at least 13 full months at the reporting in the months where the store is closed plus on full date. calendar month following reopening. Stores that have been expanded but not changes If a store is relocated within the same trade area and the significantly in size. old store remains temporarily open, the old store will be Stores that are relocated but remain within the same excluded from the month where the new store opens. trade area, and not changed significantly in size. • Comparable store sales growth excludes foreign currency translation effects. Consolidated Financial Statements Zebra A/S – Annual Report 2014 48

1.2 Critical accounting estimates and judgments

The consolidated financial statements of Zebra A/S have Critical accounting estimates and judgments been prepared to give a true and fair view of the Group’s The Executive Management regards the following as the assets, liabilities and financial position at 31 December key accounting estimates and assumptions used in the 2014. The Executive Management makes various account- preparation of the Consolidated Financial Statements: ing estimates and judgments which affect the consolidated financial statements. The most significant accounting • Consolidation of entities in which the Group holds a estimates and judgments are presented below. 50% ownership interest, cf. below • Goodwill (note 3.1 and note 3.3) The judgments, estimates and assumptions made are • Provisions for the acquisition of non-controlling based on historical experience and other factors that interests (note 4.4) the Executive Management considers to be reliable, but which by their very nature are associated with uncer- Apart from these, a number of other key accounting esti- tainty and unpredictability. These assumptions may mates and assumptions have been applied. Please refer to prove incomplete or incorrect, and unexpected events the notes for further information. or circumstances may arise. The most critical judgments, estimates and assumptions for the individual items are Consolidation of entities in which the Group described below. holds a 50% ownership interest The Group considers that it controls a number of entities The Group is subject to risks and uncertainties that may (refer to note 5.4 List of Group companies) even though lead to actual results differing from these estimates, both it does not hold the majority of the voting rights in the positively and negatively. entities. The assessment of whether the Group controls an entity is based on an evaluation of whether the Group Assumptions about the future and estimation of uncer- has the current ability to direct the relevant activities of tainty on the balance sheet date are described in the the entity. The Group holds call options to acquire all notes where there is a significant risk of changes that remaining outstanding shares, including the voting rights could result in material adjustments to the carrying related to these shares. The majority of the call options amounts of assets or liabilities within the next financial are currently exercisable. Zebra A/S has also entered year. into shareholders agreements with the other investors (partners) and supply agreement etc. that give Zebra A/S substantial rights, including in connections with a dead lock situation. Accordingly, the Group considers at a balanced view that these potential voting rights and other rights in all substance give rise to the existence of control at the reporting date.

Zebra A/S – Annual Report 2014 Consolidated Financial Statements 49

2.1 Staff costs

DKKm 2014 2013

Salaries and wages 532.9 367.3 Pension contributions 23.0 21.6 Other social security costs 57.3 23.0 Other staff costs 20.8 8.2

Total 634.0 420.1

Remuneration for the Executive Management and the Board of Directors Total remuneration, Executive Management 12.9 10.7 Total remuneration, Board of Directors 1.2 1.0

Total 14.1 11.7

Remuneration for the Executive Management and the Board of Directors Salaries and wages 13.8 10.8 Pension expenses 0.3 0.9

Total 14.1 11.7

Average number of employees 3,001 1,939 Consolidated Financial Statements Zebra A/S – Annual Report 2014 50

2.2 Special items

Accounting policies adjustment, as well as gains or losses arising in this con- Special items include significant income and expenses of nection, and which are significant over time. a special non-recurring nature in terms of the Group’s revenue-generating operating activities which cannot These items are classified separately in the income state- be attributed directly to the Group’s ordinary operating ment, in order to provide a more accurate and transpar- activities. Such income and expenses relate to significant ent view of the Group’s recurring operating profit. restructuring of processes and fundamental structural

DKKm 2014 2013

Gain related to the partial sale of the Japanese business - 35.8 Costs associated with the establishment of new management team - (4.1) Costs associated with the restructuring of the Finnish business - (2.1)

Total - 29.6

2.3 Financial expenses

Accounting policies Financial expenses comprise interest payable, realised transactions in foreign currencies as well as tax surcharge and unrealised capital losses on securities, payables and and tax relief under the Danish Tax Payment Scheme.

DKKm 2014 2013

Bank charges 11.2 20.4 Interests 20.7 12.0 Exchange rate adjustments 2.1 5.5

Total 34.0 37.9 Zebra A/S – Annual Report 2014 Consolidated Financial Statements 51

2.4 Income taxes and deferred tax

Accounting policies Deferred tax is measured on the basis of the tax rules Corporate income tax for the year, which consists of the and the tax rate in force in the respective countries on year’s current tax and the change in deferred tax, is rec- the balance sheet date. Changes in deferred tax due to ognised in the income statement as regards the amount tax rate changes are recognised in the income statement, that can be attributed to the net profit or loss for the except to the extent that they relate to items recognised year and under other comprehensive income as regards either in other comprehensive income or directly in Share- the amount that can be attributed to items under other holders’ equity. comprehensive income. Accounting estimates and judgments Deferred tax is recognised on temporary differences be- The Group recognises deferred tax assets including the tween the carrying amount of assets and liabilities in the expected tax value of tax loss carryforwards, if the Exec- consolidated financial statements and the corresponding utive Management assesses that these tax assets can be tax bases used in the computation of taxable profit. No offset against positive taxable income in the foreseeable deferred tax is recognised for goodwill, unless amortisa- future and liabilities. The Executive Management assesses tion of goodwill for tax purposes is allowed. tax assets and liabilities at least annually based on dia- logue with tax advisors, business plans for the coming years, including other planned commercial initiatives.

DKKm 2014 2013

Current tax 68.4 39.9 Adjustment to current tax concerning previous years 0.7 0.1 Change in deferred tax (1.4) 0.5 Adjustment to deferred tax concerning previous years (4.1) (0.5)

Total 63.6 40.0

Reconcilation of tax rates: Percentage 2014 2013

Danish income tax rate 24.5 25.0 Difference in tax rates of non-Danish entities from Danish income tax rates 1.4 (1.1) Effect from partial sale of the Japanese business - (4.7) Effect from adjustment to current tax concerning previous years 0.2 0.1 Effect from adjustment to deferred tax concerning previous years (1.6) 2.0

Average effective tax rate 24.5 21.3 Consolidated Financial Statements Zebra A/S – Annual Report 2014 52

2.4 Income taxes and deferred tax (continued)

Deferred tax DKKm 2014 2013

Deferred tax assets 15.9 6.1 Deferred tax liabilities (17.8) (1.0)

Total (1.9) 5.1

Realised in other Deferred Realised in compre- Deferred tax profit hensive tax DKKm 01.01 and loss income 31.12

2014 Intangible assets (2.3) (3.4) - (5.7) Property, plant and equipment (3.7) (2.1) - (5.8) Inventories 1.8 7.8 - 9.6 Provisions etc. 6.1 (0.2) - 5.9 Cash flow hedging 3.0 - (12.5) (9.5) Tax losses to be carried forward 2.2 0.7 - 2.9 Other (2.0) 2.7 - 0.7

Temporary differences 5.1 5.5 (12.5) (1.9)

Realised in other Deferred Realised in compre- Deferred tax profit hensive tax DKKm 01.01 and loss income 31.12

2013 Intangible assets (1.9) (0.4) - (2.3) Property, plant and equipment (2.7) (1.0) - (3.7) Inventories 4.1 (2.3) - 1.8 Provisions etc. 2.6 3.5 - 6.1 Cash flow hedging - - 3.0 3.0 Tax losses to be carried forward 0.3 1.9 - 2.2 Other (0.3) (1.7) - (2.0)

Temporary differences 2.1 0.0 3.0 5.1 Zebra A/S – Annual Report 2014 Consolidated Financial Statements 53

3.1 Intangible assets

Accounting policies Critical accounting estimates and judgments Goodwill Goodwill Goodwill represents the excess of the cost of an acquisi- Goodwill relates primarily to acquisition of a number of tion over the fair value of the identifiable net assets of Danish stores in 2006 to 2011. the acquired business. Goodwill is tested annually for impairment. The recover- Other intangible assets able amount is calculated as the present value of future Leasehold rights are measured at cost less accumulated net cash flows (value in use) from the activity to which amortisation and impairment losses. the goodwill is allocated.

Development and implementation of software and IT The estimate of the future free net cash flows is based systems are capitalised and amortised over their expected on budgets and business plans for 2015 and on projec- useful lives. tions for 2016. Key parameters are revenue development, profit margins, proposed capital expenditure and Trademarks are recognised at cost and amortised over growth expectations for the following years. Key factors their expected useful lives. that could trigger an impairment test include a macro economy down-scaling and changes to the competitive Amortisation is carried out systematically over the expect- environment. ed useful lives of the assets: The discount rate used to calculate recoverable amounts • Leasehold rights 20 years is the weighted average cost of capital before tax. • Trademarks 5-20 years • Licenses and software 5 years Development projects in progress For development projects in progress, the Executive Man- Intangible assets in progress are measured at cost less agement estimates on an ongoing basis whether each impairment losses. project is likely to generate future economic benefits for the Group in order to qualify for recognition. The development projects are evaluated on technical as well as commercial criteria. Consolidated Financial Statements Zebra A/S – Annual Report 2014 54

3.1 Intangible assets (continued)

Intangible Leasehold Licenses and assets in DKKm Goodwill rights Trademarks software progress Total

2014 Cost 01.01. 12.5 33.8 - - - 46.3 Exchange rate adjustment - (0.7) - - - (0.7) Additions - 9.4 1.1 6.9 9.7 27.1 Transfer - - - 8.5 (8.5) - Disposals - (0.5) - - - (0.5)

Cost 31.12. 12.5 42.0 1.1 15.4 1.2 72.2

Amortisation 01.01. - (10.4) - - - (10.4) Exchange rate adjustment - 0.3 - - - 0.3 Amortisation - (4.2) - (0.8) - (5.0) Disposals - 0.2 - - - 0.2

Amortisation 31.12. - (14.1) - (0.8) - (14.9)

Carrying amount 31.12. 12.5 27.9 1.1 14.6 1.2 57.3

2013 Cost 01.01. 12.5 27.3 - - - 39.8 Exchange rate adjustment - (0.7) - - - (0.7) Additions - 9.6 - - - 9.6 Disposals - (2.4) - - - (2.4)

Cost 31.12. 12.5 33.8 - - - 46.3

Amortisation 01.01. - (8.1) - - - (8.1) Exchange rate adjustment ------Amortisation - (3.4) - - - (3.4) Disposals - 1.1 - - - 1.1

Amortisation 31.12. - (10.4) - - - (10.4)

Carrying amount 31.12. 12.5 23.4 - - - 35.9

No impairment losses on intangible assets have been recognised in 2014 (2013: No impairment losses recognised). Zebra A/S – Annual Report 2014 Consolidated Financial Statements 55

3.2 Property, plant and equipment

Accounting policies Accounting estimates and judgments Property, plant and equipment is measured at cost less If there is any indication that an asset may be impaired, accumulated depreciation and impairment losses. the value in use of the asset is estimated and compared with the current value. The value in use calculation is Cost comprises the acquisition price, costs directly at- based on the discounted cash flow method using esti- tributable to the acquisition, and preparation costs of mates of future cash flows from the continuing use of the the asset until the time when it is ready to be put into asset. The key parameters are expected utilisation of the operation. asset, expected growth in sales of products produced by the asset, expected growth in cash flow in the terminal The basis of depreciation is cost less estimated residual period etc. All these parameters are based on estimates value after the end of useful life. Straight-line depreci- of the future and may give rise to changes in future ation is made on the basis of the following estimated accounting periods. useful lives of the assets:

• Leasehold improvements 6 years • Store furniture 4 years • Other fixtures and equipment 3-4 years

Profits and losses from the sale of property, plant and equipment are calculated as the difference between selling price minus selling costs and carrying amount at the time of sale. Consolidated Financial Statements Zebra A/S – Annual Report 2014 56

3.2 Property, plant and equipment (continued)

Leasehold Store Other DKKm improvements furniture equipment Total

2014 Cost 01.01. 123.1 134.5 52.6 310.2 Exchange rate adjustment 1.4 (1.9) 0.8 0.3 Additions 71.2 65.4 23.1 159.7 Disposals (5.1) (5.1) (2.2) (12.4)

Cost 31.12. 190.6 192.9 74.3 457.8

Depreciation 01.01. (36.7) (38.9) (25.1) (100.7) Exchange rate adjustment (0.2) 0.3 0.4 0.5 Depreciation (23.4) (35.6) (12.6) (71.6) Disposals 4.1 4.0 2.1 10.2

Depreciation 31.12. (56.2) (70.2) (35.2) (161.6)

Carrying amount 31.12. 134.4 122.7 39.1 296.2

2013 Cost 01.01. 78.4 76.3 34.0 188.7 Exchange rate adjustment 0.2 (1.8) (2.0) (3.6) Additions 49.1 61.9 21.3 132.3 Disposals (4.6) (1.9) (0.7) (7.2)

Cost 31.12. 123.1 134.5 52.6 310.2

Depreciation 01.01. (25.8) (21.3) (17.5) (64.6) Exchange rate adjustment - 0.3 0.2 0.5 Depreciation (14.1) (19.1) (8.1) (41.3) Disposals 3.2 1.2 0.3 4.7

Depreciation 31.12. (36.7) (38.9) (25.1) (100.7)

Carrying amount 31.12. 86.4 95.6 27.5 209.5

Gains and (losses) on property, plant and equipment amounts to DKK 1.1m (2013: DKK 3.2m). Zebra A/S – Annual Report 2014 Consolidated Financial Statements 57

3.3 Investments in joint ventures

Accounting policies Critical accounting estimates and judgments Investments in joint ventures are accounted for using the The carrying amount of the investment (including good- equity method of accounting. Under the equity method, will) is tested for impairment on an annually basis. Any the investment in joint ventures is initially recognised at impairment loss recognised forms part of the carrying cost, and the carrying amount is increased or decreased amount of the investment. The estimate of the future to recognise Zebra´s share of profit or loss of the investee free cash flows is based on business plans, budget for after the date of acquisition. The Group´s investment in 2015 and projections for subsequent years. The discount joint ventures includes goodwill identified on acquisition. rate used to calculate recoverable amounts is the weighted average cost of capital before tax. When a group entity transacts with a joint venture of the Group, profits and losses resulting from the transactions The Group discontinues the use of the equity method with the joint ventures are recognised in the Group´s con- from the date when the investment ceases to be a joint solidated financial statements only to the extent of inter- venture, or when the investment is classified as held for ests in the joint venture that are not related to the Group. sale.

Investments in joint DKKm ventures

2014 Cost 01.01. 40.2 Additions -

Cost 31.12. 40.2

Adjustment 01.01. 0.5 Exchange rate adjustment (0.2) Share of profit for the year after tax 5.0

Adjustment 31.12. 5.3

Carrying amount 31.12. 45.5

2013 Cost 01.01.2013 - Additions 40.2

Cost 31.12.2013 40.2

Adjustment 01.01. - Share of profit for the year after tax 0.5

Adjustment 31.12. 0.5

Carrying amount 31.12. 40.7

No impairment losses on goodwill have been recognised in 2014 (2013: No impairment losses recognised). Consolidated Financial Statements Zebra A/S – Annual Report 2014 58

3.3 Investments in joint ventures (continued)

Summarised financial information in respect of the in the joint venture´s financial statements prepared in ac- Group´s joint venture is set out below. The summarised cordance with the IFRS adjusted by the Group for equity financial information below represents amounts shown accounting purposes:

DKKm 2014 20132 Revnue1 98.6 24.1 Profit for the period1 5.0 0.5 Other comprehensive income 5.0 0.5

Non-current assets 67.3 6.4 Current assets 128.9 72.8 Current liabilities 148.1 40.8 Equity 48.1 38.4

Net working capital 71.9 24.3 Number of stores 13 2

1 Share of profit and loss in joint venture using the equity method. 2 The Group´s portion of the profit in Zebra Japan K.K. from the establishment of the joint venture in 1 June 2013.

3.4 Inventories

Accounting policies Inventories are measured at the lower of cost using the The net realisable value of inventories is calculated as the FIFO method and net realisable value. Cost of goods sold estimated selling price less costs incurred to execute sale. consists of purchase price plus delivery costs as well as freight and handling costs.

DKKm 2014 2013

Finished goods 725.5 372.5 Write-down to net realizable value (6.4) (3.8)

Total 719.1 368.7

3.5 Working capital changes

DKKm 2014 2013

Change in inventories (350.4) (115.8) Change in other receivables 7.0 (2.8) Change in prepayments (24.5) 2.8 Change in trade payables 105.5 58.3 Change in other payables 47.0 52.1

Total (215.4) (5.4) Zebra A/S – Annual Report 2014 Consolidated Financial Statements 59

3.6 Guarantee commitments and contingent liabilities

Accounting policies The aggregate benefit of any lease incentives is recognised Operating lease payments are recognised as an expense as a reduction of rental expense on a straight-line basis on a straight-line basis over the lease term. Contingent over the lease term. rentals arising under operating leases are recognised as an expense in the period in which they are incurred.

DKKm 2014 2013

Non-cancellable operating lease commitments Not later than 1 year 343.6 206.0 1-5 years 681.8 454.4 Later than 5 years 165.8 59.9

Total 1,191.2 720.3

Operating leases relate to leases of stores and equipment with lease terms of between 1 and 10 years. The majority of leases contain no contingent rents.

Litigation Bank debt is secured by a mortgage of DKK 25m nominal A few legal proceedings are pending which are not esti- deposited by the Parent on assets, including the Parent’s mated to inflict losses on the Group other than what has goodwill, leasehold rights, furniture, including store fur- been provided for in the financial statements. niture, in the Parent’s stores (2013: DKK 25m).

Other guarantees The foreign-owned companies’ bank debt is secured by The Group has provided a bank guarantee to HRMC, mortgages on their movable property and inventory of a UK which amounts to DKK 29m. The Group has provided total nominal amount of DKK 38m (2013: DKK 21m). a bank guarantee to the Japanese joint venture´s bank which amounts to DKK 54m. The carrying amount of the above-mentioned pledged assets is stated below: Pledged assets A letter of indemnity (company charge) of DKK 30m nominal (2013: DKK 30m) has been deposited by the parent as security for the parent’s bank debt.

DKKm 2014 2013

Pledged assets Leasehold rights 11.7 12.5 Goodwill 12.5 12.7 Leasehold improvements 22.6 37.6 Other equipment 10.1 9.9 Store furniture 17.5 24.4 Inventories 547.5 274.5 Other receivables 5.1 6.8

Total 627.0 378.4 Consolidated Financial Statements Zebra A/S – Annual Report 2014 60

4.1 Share capital

The share capital consists of shares at DKK 0.1 or multiples thereof. The shares have been divided into classes:

Class A 3,361,220 Class B 894,920 Class C 894,920 Class D 0

Special economical rights and special voting rights apply to the different share classes.

Changes in share capital in the past five financial years: DKK'000

Share capital at 1 January 2009 550 Capital reduction 2012 (45) Capital increase 2013 10

Share capital at 31 December 2014 515 Zebra A/S – Annual Report 2014 Consolidated Financial Statements 61

4.2 Financial assets and liabilities

Accounting policies Other debt is recognised at amortised costs. However, Loans and receivables derivative financial instruments are recognised as other Loans and receivables are measured at amortised cost receivables/payables and measured at fair value. Refer, using the effective interest method, less any impairment. note 4.3.

Loans and receivables are assessed for indicators of im- Accounting estimates and judgments pairment at the end of each reporting period. The maturity analysis is based on all undiscounted cash flows, including estimated interest payments, which are Bank debt and other financial liabilities estimated based on the current market conditions. The Bank debt and other financial liabilities are initially undiscounted cash flows from derivative financial instru- recognised at fair value less transaction costs and subse- ments are presented in gross amounts. The contractual quently measured at amortised cost using the effective cash flows for the acquisition of non-controlling interests interest method. The difference between proceeds and are based on estimated redemption amounts, as set out the nominal value is recognised as a financial expense in note 4.4. over the term of the loan.

Due Due between Due Total within 1 1 and 5 after contractual Carrying DKKm year year 5 year cash flows amount

2014 Financial assets Other receivables 67.2 - - 67.2 67.2 Cash and cash equivalents 262.4 - - 262.4 262.4

Total 329.6 - - 329.6 329.6

Financial liabilities Bank debt 239.2 152.1 - 391.3 389.2 Loans provided by shareholders of non-controlling interests 28.4 - - 28.4 28.4 Trade payables 232.7 - - 232.7 232.7 Other payables 232.4 - - 232.4 232.4 Provisions for the acquisition of non-controlling interests 74.3 755.6 - 829.9 704.8

Total 807.0 907.7 - 1,714.7 1,587.5 Consolidated Financial Statements Zebra A/S – Annual Report 2014 62

4.2 Financial assets and liabilities (continued)

Due Due between Due Total within 1 1 and 5 after contractual Carrying DKKm year year 5 year cash flows amount

2013 Financial assets Other receivables 21.8 - - 21.8 21.8 Cash and cash equivalents 198.0 - - 198.0 198.0

Total 219.8 - - 219.8 219.8

Financial liabilities Bank debt 187.9 6.4 - 194.3 193.7 Loans provided by shareholders of non-controlling interests 16.5 - - 16.5 16.5 Trade payables 127.2 - - 127.2 127.2 Other payables - - - - - Provisions for the acquisition of non-controlling interests - 431.3 - 431.3 363.5

Total 331.6 437.7 - 769.3 700.9

Financial risk management The Group’s general policy with respect to financial risks The nature of the Group’s operations, investment and is that they should be ad-dressed in order to exclude the financing exposes the Group to market risks in the form risk of material impacts to the financial situation of the of changes in foreign exchange rates and interest levels Group, which could negatively influence the operations. as well as credit risks and liquidity risks. It is the Group’s policy not to engage in active speculation in financial risks. Zebra A/S – Annual Report 2014 Consolidated Financial Statements 63

4.3 Financial instruments

Accounting policies Derivatives not fulfilling the conditions for treatment as It is the Group´s policy to manage currency and inter- hedging instruments are considered trading portfolios est rate risks. Derivative financial instruments are not and measured at their fair values, with fair value ad- used speculatively. On initial recognition, derivatives are justments being recognised, on an ongoing basis, in the measured at their fair values at the settlement date. After income statement. initial recognition, derivatives are measured at their fair values at the balance sheet date. The positive or negative Foreign currency risk fair values of derivatives are recognised as separate items At 31 December 2014 and 31 December 2013, the Group in the balance sheet. Forward exchange contracts and in- had not entered into financial instruments to hedge risk terest swaps are measured based on current market data of financial assets or liabilities. and by use of commonly recognised valuation methods. It is the Group’s policy to hedge foreign currency risk Any changes in fair values of derivatives classified as and regarding 80% of expected procurement. Open foreign satisfying the conditions for effective hedging of future exchange contracts at 31 December 2014 can be seen as transactions are recognised in other comprehensive in- follows (the remaining maturities reflect the period for come. The ineffective portion is recognised directly in the which the hedged cash flows are expected to be realised): income statement. On realisation of the hedged transactions, the accumulated changes are recognised together with the particular transactions.

Fair value adjustment recognised in other Fair compre- Contract value hensive DKKm Remaining maturity value adjustment income

2014 Forward exchange contracts - USD 0-12 months 727.3 54.1 54.1

Total 727.3 54.1 54.1

Fair value adjustment recognised in other Fair compre- Contract value hensive DKKm Remaining maturity value adjustment income

2013 Forward exchange contracts - USD 0-12 months 469.4 (9.4) (9.4) Foreign exchange options - USD 0-6 months 163.7 (3.3) (3.1)

Total 633.1 (12.7) (12.5) Consolidated Financial Statements Zebra A/S – Annual Report 2014 64

4.3 Financial instruments (continued)

The Group’s most material exchange rate risk is the expo- ings, and by the use of interest rate swap contracts and sure to USD purchases. The Group’s foreign subsidiaries’ forward interest rate contracts. Hedging activities are exposure to currency fluctuations are to some extent evaluated regularly to align with interest rate views and mitigated by the fact that both revenue and administra- defined risk appetite, ensuring that the most cost-effective costs of the individual subsidiaries are denominated tive hedging strategies are applied. in the same currencies. The income statement is affected to a minor extent by The Group’s interest-bearing financial assets are limited changes in exchange rates, as the profit of foreign sub- to cash holdings. sidiaries is translated into Danish kroner using average exchange rates. Interest-bearing financial liabilities relate to bank loans and borrowings, as set out in notes 4.2. Interest rate risk The Group is exposed to interest rate risk because entities Interest rate swaps are used for cash flow hedging, where in the Group borrow funds at variable interest rates. The the underlying floating interest rates are hedged. At 31 risk is monitored by the Group in order to maintain an December 2014, the outstanding interest swaps had the appropriate mix between fixed and floating rate borrow- following market value:

Gain/(loss) Recognised Contract at 31 in fair value DKKm amount December reserve

2014 Interest rate swaps, expiry December 2016 150.0 (1.7) (1.7)

Total 150.0 (1.7) (1.7)

At 31 December 2013, there were no outstanding interest rate swaps.

The sensitivity analysis below has been determined based The Group’s liquid reserves consist of cash holdings and on the exposure to interest rates for financial instruments undrawn credit facilities. The availability of cash and at the end of the reporting period. For floating rate liabil- cash equivalents held in subsidiaries that are less than ities, the analysis is prepared assuming that the amount 100% owned by the Group is restricted to the extent that of the outstanding liability at the end of the reporting non-controlling interests in the respective subsidiaries period was outstanding for the whole year. hold dividend rights over available liquidity.

A change in interest levels will impact the Group’s cash Credit risk holdings, bank debt and borrowings that are subject to The Group’s sales to customers are mainly cash sales, variable interest rates. An increase in interest levels of 1 which limits the credit risk in the Group. percentage point annually compared to the interest rates at 31 December 2014 would have a negative impact of Optimising the capital structure DKK 2.7m on the Group’s profit for the year and equity The Group manages its capital to ensure that entities (2013: DKK 2.1m). A corresponding decrease in interest in the Group will be able to continue as going concern levels would mean a correspondingly positive impact on while maximising the return to stakeholders through the profit for the year and equity. optimisation of the debt and equity balance.

Liquidity risk The capital structure of the Group consists of net inter- It is the Group’s policy in connection with securing financ- est-bearing debt and equity of the Group, comprising ing to ensure the maximum flexibility via use of bank issued capital, reserves and retained earnings. deposits with banks with the highest credit rating and treasury bills. The Group is not subject to any externally imposed capital requirements.

Zebra A/S – Annual Report 2014 Consolidated Financial Statements 65

4.4 Provisions for the acquisition of non-controlling interests

Accounting policies ed on realised financial figures for two financial years. Provisions for the acquisition of non-controlling interests The calculation of the provisions for the put options are are stated at fair value. The value is determined by means based on the general assumption that the local partners of the estimated present value of the expected cash out- all exercise their put options at year-end in the current flows to settle the put option liability, based on projected financial year (31 December 2014) with the contractually results and agreed EBITDA multiples and assuming that determined notice period of 12 months. None of the local the put options are exercised by the non-controlling in- partners has at year-end 2014 exercised their put options terests at 31 December 2014. It should however be noted and it should also be noted that Zebra for certain of the that at 31 December 2014, Zebra A/S has not received local partners under the terms of these put options under notice of exercise of any put options. normal circumstances has the opportunity to limit the number of these partners allowed to exercise their put In line with the nature of the put option, the liability is options to one every financial calendar year. classified as long term except for called options to be paid within a year, which are classified as short term liabilities. In accordance with IFRS, the put option over sharehold- Changes in the value of these liabilities as well as differ- ings held by non-controlling interest is included as a pro- ences upon settlement between the actual cash outflow vision in the financial statements, reflecting the estimated and the expected cash outflows, are accounted for as a present value of the expected cash outflows to settle the transaction directly in equity. liability based on projected results and based on the mentioned general assumption on collective exercise at 31 Subsidiaries whose non-controlling shareholdings are December 2014. As such, the actual cash outflows in the subject to put options are fully consolidated, with no regard might materially vary from the valuation of the recognition of a non-controlling interest. provisions for the acquisition of non-controlling interests if the timing of the actual acquisition of the non-con- Critical accounting estimates and judgments trolling shareholders differs from the assumptions The Group has entered into put and call options with applied, if the additional ownership interest is acquired non-controlling interests of certain Group entities. via exercise of the aforementioned call option rather than The put option gives the non-controlling shareholder the non-controlling shareholders´ respective put option or the right to sell its non-controlling interest to the Group if the results of the respective subsidiary companies vary at a defined exercise price that reflects EBITDA multi- from the Executive Management´s projections. ples. At the same time, Zebra A/S has call options over the non-controlling shareholdings with defined exercise The discount rate of 12% applied in discounting the prices reflecting EBITDA multiples that differ from those expected cash outflows is based on an interest rate that relevant for the aforementioned put options. reflects the current market assessment of the time value of money, taking into account the expected settlement of The exercise prices are determined by contractually these liabilities. defined EBITDA multiples for the put options calculat-

DKKm 2014 2013

Balance 01.01. 363.5 234.0 New provision 7.1 33.4 Reduction of provisions due to acquisition of non-controlling interests (0.7) (6.8) Changes in value 332.3 113.3 Foreign exchange adjustment 2.6 (10.4)

Balance 31.12. 704.8 363.5 Consolidated Financial Statements Zebra A/S – Annual Report 2014 66

5.1 Audit fee

DKKm 2014 2013

EY (2013: Deloitte) Statutory audit of financial statements 2.1 1.3 Other assurance engagements 0.1 0.1 Tax advisory services 1.0 0.1 Other services 1.7 2.5

Total 4.9 4.0

5.2 Related parties

Zebra A/S is subject to controlling influence by Zebra Lux Management Holding S.à.r.l., 23 rue Aldringen, L-1118, Luxembourg, Related parties in Zebra A/S with significant influence which holds 67% of the share capital. include the Group’s Executive Management and Board of Directors and their close relatives. Related parties Zebra A/S has registered the following shareholders who also comprise companies in which these individuals have hold 5% or more of the share capital: material interests.

- Zebra Lux Holding S.à.r.l., 23 rue Aldringen, L-1118 Other than remuneration as set out in note 2.1, there Luxembourg has been no trading with members of key management - Mitco ApS, c/o Piaster Revisorerne, Abildgårdsparken 8A, personnel or their close relatives. 3460 Birkerød. Joint Ventures During 2014 and 2013 there were no transactions with The related parties of Zebra A/S also include the joint ven- these related parties. ture in which the company participates, Zebra Japan K.K.

Balances and transactions between the Company and During the year, the Group received royalty and service its subsidiaries, which are related parties of the Compa- fee in the amount of DKK 13.7m from joint venture com- ny, have been eliminated on consolidation and are not panies (2013: DKK 3.4m). disclosed in this note. Details of transactions between the Group and other related parties are disclosed below. At 31 December 2014, joint venture companies owed the Group DKK 1.8m (2013: DKK 0.8m). All amounts outstanding are unsecured and will be settled in cash.

5.3 Events after the balance sheet date

No events have occurred after the balance sheet date that have a material impact on the financial position of the Group. Zebra A/S – Annual Report 2014 Consolidated Financial Statements 67

5.4 List of group companies

Investment in subsidiary companies comprise the following at 31 December 2014 and 31 December 2013, unless otherwise indicated. Year of Ownership Name Home establisment interest

Tiger Ísland ehf. Reykjavík, Iceland 2001 100% Tiger Retail Ltd. London, England 2005 50% Tiger Deutschland GmbH Flensburg, Germany 2007 50% Tiger Stores Nederland B.V. Utrecht, the Netherlands 2008 50% Tiger Stores Spain, S.L. Madrid, Spain 2008 50% TZ-shops South Sweden AB Malmö Sweden 2008 50% SIA Tiger Shop Riga, Latvia 2009 50% Tiger Shop UAB Vilnius, Lithuania 2010 50% Tiger Hellas S.A. Thessaloniki, Greece 2010 50% TP Stores AB Segelstorp, Sweden 2011 50% Tiger Italia 1, S.r.l. Turin, Italy 2011 50% Tiger Warsaw Sp. Z.o.o. Warszawa, Poland 2011 50% Tiger Retail Ireland Ltd. Dublin, Ireland 2011 50% TGR Norge AS Oslo, Norway 2011 50% TZ Stores Ltd. Dunblane, Scotland 2011 100% Tiger Stores OY Espoo, Finland 2011 100%1 Zebra Japan K.K. Tokyo, Japan 2011 50%2 Tiger Trading GmbH Berlin, Germany 2012 50% HK China Trading Holding Ltd. Hong Kong 2012 100% HK Beijiang Retail Holding Ltd. Hong Kong 2012 100% HK Japan Holding Ltd. Hong Kong 2012 100% Tiger Forum ApS Copenhagen, Denmark 2012 100% Tiger Italy 2, S.r.l. Rome Italy 2012 50% Tiger Stores (NI) Ltd. Newry, Northern Ireland 2012 50% Tiger Portugal S.A. Carneca, Portugal 2012 50% Tiger Carnarias, S.L. Las Palmas, Spain 2013 50% Tiger South Spain, S.L. Malaga, Spain 2013 50% Tiger Italy 3, S.r.l. Mascalucia, Italy 2013 50% Tiger Stores North West Spain, S.L. La Coruña, Spain 2013 50% Tiger Cardiff Ltd. Newport, Wales 2013 50% Tiger Stores Spain 6, S.L. Madrid, Spain 2013 50% Tiger U.K. (Midlands) Ltd. Glostershire, England 2013 50% Tiger Stores Belgium, BVBA Antwerp, Belgium 2013 50% Sp/f Tiger Førorar Saltangará, Faroe Islands 2013 100% Zebra (Beijing) Trading Co., Ltd. Beijing, China 2013 100% Tiger Stores Austria GmbH Wien, Austria 2014 50% Tiger Stores Belgium 2 SPRL Chénée, Belgium 2014 50% Tiger Stores Cyprus Limited Nicosia, Cyprus 2014 50% Tiger Czech Republic s.r.o. Prague, Czech Republic 2014 50% Tiger Stores OU Estonia Tallinn, Estonia 2014 50% Tiger Stores Spain 5, S.L. Bilbao, Spain 2014 50% Tiger Stores France SAS Nice, France 2014 50% Tiger Poland 2 Sp. z. o. o. Poznan, Poland 2014 50% Tiger Magazacilik Ticaret Anonim Sirketi Istanbul, Turkey 2014 100% Tiger Retail Germany 03 GmbH Munich, Germany 2014 100% Tiger Retail Germany 04 GmbH Munich, Germany 2014 100% Tiger Retail Germany 05 GmbH Munich, Germany 2014 100% Tiger Stores Spain 7, S.L. Barcelona, Spain 2014 100% Tiger Stores France 2 SAS Paris, France 2014 100% Tiger Stores France 3 SAS Paris, France 2014 100% Zebra US Holding, Inc. Delaware, United States 2014 100% Tiger Retail East Coast, LLC New York, United States 2014 100% Tiger Stores Slovakia S.R.O. Bratislava, Slovakia 2014 50%

1 (75% until 31.12.2013) 2 (100% until 31.05.2013) The voting interest correspond to ownership interests. Please refer to note 1.2 regarding consolidation of 50% ownership interests. READING GLASSES DKK 30 Zebra A/S – Annual Report 2014 Financial Statements – Parent Company 69 Financial statements – Parent Company

70 Income statement 72 Balance sheet 74 Statement of changes in equity 75 Cash flow statement

Basis of preparation Section 1 76 General accounting policies Note 1.1 77 Critical accounting estimates and judgments Note 1.2

Results for the year Section 2 78 Revenue Note 2.1 78 Staff costs Note 2.2 79 Special items Note 2.3 79 Financial expenses Note 2.4 80 Income taxes and deferred tax Note 2.5

Operating assets and liabilities Section 3 81 Intangible assets Note 3.1 82 Property, plant and equipment Note 3.2 83 Investments in subsidiaries and joint ventures Note 3.3 84 Receivables from subsidiaries Note 3.4 84 Working capital changes Note 3.5 85 Guarantee commitments and contingent liabilities Note 3.6

Capital structure and financing Section 4 86 Share capital Note 4.1 86 Bank debt Note 4.2 86 Financial instruments Note 4.3

Other disclosures Section 5 87 Audit fee Note 5.1 87 Related parties Note 5.2 88 Events after the balance sheet date Note 5.3 Financial Statements – Parent Company Zebra A/S Annual Report 2014

Income statement – Parent 1 January - 31 December

DKKm Note 2014 2013

Revenue 2.1 1,455.0 1,068.1 Cost of sales (968.0) (659.8)

Gross profit 487.0 408.3

Other external expenses (165.0) (147.0) Staff costs 2.2 (225.9) (175.1)

EBITDA before special items 96.1 86.2

Amortisation and depreciation (15.8) (15.4)

Operating profit (EBIT) before special items 80.3 70.8

Special items 2.3 - 31.7

Operating profit (EBIT) 80.3 102.5

Income from investments in subsidiaries 8.5 4.6 Financial income 2.3 2.7 Financial expenses 2.4 (20.6) (28.4)

Profit before tax 70.5 81.4

Tax on profit for the year 2.5 (17.4) (9.4)

Profit for the year 53.1 72.0

Proposed appropriation of profit for the year: Retained earnings 53.1 72.0

53.1 72.0 Zebra A/S – Annual Report 2014 Financial Statements – Parent Company 71

Statement of other comprehensive income – Parent

DKKm Note 2014 2013

Profit for the year (brought forward) 53.1 72.0

Items that may be reclassified subsequently to profit or loss: Value adjustment of hedging instruments for the year 52.4 (12.5) Tax relating to items that may be reclassified subsequently (12.5) 3.0

Other comprehensive income 39.9 (9.5)

Total comprehensive income for the year 93.0 62.5 Financial Statements – Parent Company Zebra A/S – Annual Report 2014

Balance sheet – Parent 31 December

Assets DKKm Note 2014 2013

Intangible assets 3.1 40.4 24.9 Property, plant and equipment 3.2 35.3 35.2 Investment in subsidiaries and joint ventures 3.3 72.6 71.7 Receivables from subsidiaries 3.4 60.6 44.8 Leasehold deposits 8.6 8.1 Deferred tax 2.5 - 3.7

Non-current assets 217.5 188.4

Inventories 545.9 259.5 Receivables from subsidiaries 118.5 101.8 Receivables from joint ventures 1.8 0.8 Other receivables 56.5 14.7 Prepayments 10.1 3.1 Cash and cash equivalents 8.2 25.1

Current ssets 741.0 405.0

Assets 958.5 593.4 Zebra A/S – Annual Report 2014 Financial Statements – Parent Company 73

Balance sheet – Parent 31 December

Equity and liabilities DKKm Note 2014 2013

Share capital 4.1 0.5 0.5 Reserves 30.4 (9.5) Retained earnings 340.0 286.9

Equity 370.9 277.9

Bank debt 4.2 150.0 - Deferred tax 2.5 13.6 -

Non-current liabilities 163.6 -

Bank debt 4.2 177.5 161.7 Trade payables 180.3 77.4 Amounts payable to subsidiaries 4.2 - Other payables 51.3 68.8 Income tax payable 10.7 7.6

Current liabilities 424.0 315.5

Liabilities 587.6 315.5

Equity and liabilities 958.5 593.4 Financial Statements – Parent Company Zebra A/S – Annual Report 2014

Statement of changes in Equity – Parent

Share Retained DKKm capital Reserves earnings Total

2014 Equity at 01.01. 0.5 (9.5) 286.9 277.9 Profit for the year - - 53.1 53.1 Other comprehensive income for the year, net of tax - 39.9 - 39.9

Equity at 31.12. 0.5 30.4 340.0 370.9

2013 Equity at 01.01. 0.5 - 187.0 187.5 Profit for the year - - 72.0 72.0 Other comprehensive income for the year, net of tax - (9.5) - (9.5) Adjustment - - (0.4) (0.4) Transactions with owners: Share capital increase 0.0 - 28.3 28.3

Equity at 31.12. 0.5 (9.5) 286.9 277.9 Zebra A/S – Annual Report 2014 Financial Statements – Parent Company 75

Cash flow statement – Parent

DKKm Note 2014 2013

Operating profit (EBIT) 80.3 102.5 Gain related to the partial sale of the Japanese business - (39.8) Depreciation, amortisation and losses from disposal of assets 15.8 15.5 Working capital changes 3.5 (210.9) (71.6) Interest income received 2.3 2.7 Interest expenses paid (20.6) (28.4) Income taxes, including surcharge paid (9.5) (28.5)

Cash flows from operating activities (142.6) (47.6)

Investment in intangible assets (16.2) (2.5) Investment in property, plant and equipment (15.2) (20.7) Investment in other non-current assets (1.4) (9.7) Loans to subsidiaries (18.3) (4.1) Income from investments in subsidiaries 11.0 4.6

Cash flow from investing activities (40.1) (32.4)

Free cash flow (182.7) (80.0)

Share capital increase - 28.4 Proceeds from borrowings 165.8 58.1

Cash flows from financing activities 165.8 86.5

Increase in cash and cash equivalents (16.9) 6.5

Cash and cash equivalents at 1 January 25.1 18.6

Cash and cash equivalents at 31 December 8.2 25.1 Financial Statements – Parent Company Zebra A/S – Annual Report 2014

1.1 General accounting policies

Accounting policies Income tax The consolidated financial statements for Zebra A/S have The Parent is jointly taxed with all Danish subsidiaries and been prepared in accordance with International Financial serves as the administration company in the joint taxation Reporting Standards as adopted by the EU and Danish arrangement. The current Danish income tax is allocated disclosure requirements applying to companies of report- among the jointly taxed entities proportionally to their ing class C (large). Please see the Danish Executive Order taxable income. on IFRS adoption issued in accordance with the Danish Financial Statements Act. Zebra A/S is a public limited Balances calculated pursuant to the rule on interest de- company registered in Denmark. duction limitation of the Danish Corporation Tax Act have been allocated among the jointly taxed entities under the The Parent generally applies the same accounting policies joint taxation arrangement entered into. Deferred tax li- for recognition and measurement as the Group. Cases in abilities in respect of these balances are recognised in the which the Parent´s accounting policies differ from those balance sheet, whereas deferred tax assets are recognised of the Group are described below. For a detailed specifi- only if they qualify for recognition as deferred tax assets. cation of the Parent´s accounting policies, please see note 1.1 to the consolidated financial statements. Investment in subsidiaries and joint ventures in the parent financial statements Cases in which the Parent´s accounting polices Investments in subsidiaries and joint ventures are mea- differ from those of the Group sured at cost in the parent financial statements. If cost Foreign currency translation exceeds the recoverable amount of the investments, the Currency adjustments of receivables from or payables investments are written down to such lower amount. to subsidiaries which are considered part of the Parent´s total investment in the relevant subsidiary are recognised In connection with sale of investments in subsidiaries and in profit or loss in financial income or financial expenses. joint ventures, profits or losses are calculated as the dif- In the consolidated financial statements, the currency ference between the carrying amount of the investments adjustment is recognised in other comprehensive income. sold and the fair value of the sales proceeds.

Options held to acquire non-controlling interests in Effect of new and revised accounting standards not subsidiaries yet effective Put and call options held for the acquisition of non-con- Please refer to note 1.1 to the consolidated financial trolling interests in subsidiaries are accounted for as statements. derivatives over the Company at fair value through profit and loss. Zebra A/S – Annual Report 2014 Financial Statements – Parent Company 77

1.2 Critical accounting estimates and judgments

The Executive Management regards the following as the If dividends distributed exceed the comprehensive income key accounting estimates and assumptions used in the of the relevant entity in the period for which dividend preparation of the parent financial statements: is distributed, this is considered an indication of impairment. If, in the consolidated financial statements, write- Options on non-controlling interests in certain down of goodwill attributable to a subsidiary or a joint subsidiaries venture is recognised, this is also considered an indication The parent company holds call options and the non-con- of impairment. At the balance sheet date, it has been trolling interests (the local partners) hold put options assessed that there are no indicators of impairment and over the remaining ownership interests in certain local no impairment losses have been recognised. subsidiaries. These options are measured at fair value through profit or loss unless the fair value cannot be de- Other significant accounting estimates, assump- termined reliably. As the call options and the put options tions and uncertainties are based on equity instruments for subsidiaries that do For a description of other material accounting estimates, not have a quoted price in an active market and due to assumptions and uncertainties, please refer to note 1.2 to the impact of the contractual arrangements between the the consolidated financial statements. parent company and the subsidiaries, it is believed that the fair value of these options cannot be determined reliably. Consequently, the options are measured at cost which based on the initial assessment at conclusion of the options amounts to a net amount of DKK 0.

Recoverable amount of investments in subsidiaries and joint ventures All subsidiaries and joint ventures of the Group are considered independent cash-generating entities. If there is any indication of the carrying amount (cost) of investments in subsidiaries or joint ventures being impaired, any impairment loss is determined based on the calculation of the value-in-use of the relevant entity. Financial Statements – Parent Company Zebra A/S – Annual Report 2014

2.1 Revenue

DKKm 2014 2013

Retail sale 546.2 525.9 Wholesale, mainly foreign subsidiaries 908.8 542.2

Total 1,455.0 1,068.1

2.2 Staff costs

DKKm 2014 2013

Salaries and wages 202.4 158.0 Pension contributions 15.7 9.8 Other social security costs 1.2 2.8 Other staff costs 6.6 4.5

Total 225.9 175.1

Remuneration for the Executive Management and the Board of Directors Total remuneration, Executive Management 12.9 10.7 Total remuneration, Board of Directors 1.2 1.0

Total 14.1 11.7

Remuneration for the Executive Management and the Board of Directors Salaries and wages 13.8 10.7 Pension expenses 0.3 1.0

Total 14.1 11.7

Average number of employees 505 420 Zebra A/S – Annual Report 2014 Financial Statements – Parent Company 79

2.3 Special items

DKKm 2014 2013

Gain related to the partial sale of the Japanese business - 35.8 Costs associated with establishment of new management team - (4.1)

Total - 31.7

2.4 Financial expenses

DKKm 2014 2013

Bank charges 5.6 17.0 Interests 14.0 8.0 Exchange rate adjustments 1.0 3.4

Total 20.6 28.4 Financial Statements – Parent Company Zebra A/S – Annual Report 2014

2.5 Income taxes and deferred tax

DKKm 2014 2013

Current tax 11.9 13.1 Adjustment to current tax concerning previous years 0.7 - Change in deferred tax 4.8 (3.7)

Total 17.4 9.4

Reconciliation of tax rates: Percentage 2014 2013 Danish income tax rate 24.5 25.0 Permanent differences, disposal of subsidiary and non-taxable dividends (1.0) (13.4) Other items, including prior-year adjustments 1.2 -

Average effective tax rate 24.7 11.6

Deferred tax DKKm 2014 2013 Deferred tax assets - 3.7 Deferred tax liabilities (13.6) -

Total (13.6) 3.7

Realised in other Realised Deferred Realised compre- directly Deferred tax in profit hensive within tax 2014, DKKm 01.01 and loss income equity 31.12

Intangible assets (2.4) (3.6) - - (6.0) Property, plant and equipment (0.7) 0.5 - - (0.2) Provisions 3.7 (1.7) - - 2.0 Cash flow hedging 3.1 - (12.5) - (9.4)

Temporary differences 3.7 (4.8) (12.5) - (13.6)

Realised in other Realised Deferred Realised compre- directly Deferred tax in profit hensive within tax 2013, DKKm 01.01 and loss income equity 31.12

Intangible assets (1.9) - - (0.5) (2.4) Property, plant and equipment (0.7) - - - (0.7) Provisions - 3.7 - - 3.7 Cash flow hedging - - 3.1 - 3.1

Temporary differences (2.6) 3.7 3.1 (0.5) 3.7 Zebra A/S – Annual Report 2014 Financial Statements – Parent Company 81

3.1 Intangible assets

Intangible Licenses and assets in DKKm Goodwill Leasehold Trademarks software progress Total

2014 Cost 01.01. 12.5 18.1 - - - 30.6 Additions - - 1.1 5.4 9.7 16.2 Transfer - - - 8.5 (8.5) - Disposals ------

Cost 31.12. 12.5 18.1 1.1 13.9 1.2 46.8

Amortisation 01.01. - (5.7) - - - (5.7) Amortisation - (0.7) - - - (0.7) Disposals ------

Amortisation 31.12. - (6.4) - - - (6.4)

Carrying amount 31.12. 12.5 11.7 1.1 13.9 1.2 40.4

2013 Cost 01.01. 12.5 16.7 - - - 29.2 Additions - 3.9 - - - 3.9 Disposals - (2.5) - - - (2.5)

Cost 31.12. 12.5 18.1 - - - 30.6

Amortisation 01.01. - (5.9) - - - (5.9) Amortisation - (1.0) - - - (1.0) Disposals - 1.2 - - - 1.2

Amortisation 31.12. - (5.7) - - - (5.7)

Carrying amount 31.12. 12.5 12.4 - - - 24.9 Financial Statements – Parent Company Zebra A/S – Annual Report 2014

3.2 Property, plant and equipment

Leasehold Other improve- Store equip- DKKm ments funiture ment Total

2014 Cost 01.01. 36.1 24.6 22.0 82.7 Additions 4.9 6.3 4.0 15.2 Disposals (4.1) (2.6) (0.4) (7.1)

Cost 31.12. 36.9 28.3 25.6 90.8

Depreciation 01.01. (19.1) (13.3) (15.1) (47.5) Depreciation (5.1) (5.3) (4.4) (14.8) Disposals 3.8 2.6 0.4 6.8

Depreciation 31.12. (20.4) (16.0) (19.1) (55.5)

Carrying amount 31.12. 16.5 12.3 6.5 35.3

2013 Cost 01.01. 33.5 18.2 16.9 68.6 Additions 6.5 8.1 5.3 19.9 Disposals (3.9) (1.7) (0.2) (5.8)

Cost 31.12. 36.1 24.6 22.0 82.7

Depreciation 01.01. (17.6) (10.3) (11.7) (39.6) Depreciation (4.6) (4.1) (3.5) (12.2) Disposals 3.1 1.1 0.1 4.3

Depreciation 31.12. (19.1) (13.3) (15.1) (47.5)

Carrying amount 31.12. 17.0 11.3 6.9 35.2

Gains and (losses) on property, plant and equipment comprises to DKK 0.3m (2013: DKK 1.5m). Zebra A/S – Annual Report 2014 Financial Statements – Parent Company 83

3.3 Investments in subsidiaries and joint ventures

Invest- Investments ments in in joint DKKm subsidiaries ventures Total

2014 Cost 01.01. 31.6 40.1 71.7 Additions 3.5 - 3.5 Disposals (0.1) - (0.1)

Cost 31.12. 35.0 40.1 75.1

Impairment losses 01.01. - - - Impairment losses (2.5) - (2.5)

Impairment losses 31.12. (2.5) - (2.5)

Carrying amount 31.12. 32.5 40.1 72.6

2013 Cost 01.01. 22.8 - 22.8 Additions 9.1 40.1 49.2 Disposals (0.3) - (0.3)

Cost 31.12. 31.6 40.1 71.7

See note 5.4 to the consolidated Financial Statements for a list of Group companies. Financial Statements – Parent Company Zebra A/S – Annual Report 2014

3.4 Receivables from subsidiaries

DKKm 2014 2013

Due between 1 and 5 years Loans to subsidiaries 60.6 44.8

Total 60.6 44.8

3.5 Working capital changes

DKKm 2014 2013

Change in inventories (286.4) (83.0) Change in receivables from subsidiaries (16.7) - Change in receivables from joint ventures (1.0) (44.3) Change in other receivables 10.6 (1.5) Change in prepayments (7.0) 5.0 Change in trade payables 102.9 36.2 Change in payable to subsidiaries 4.2 - Change in other payables (17.5) 16.0

Total (210.9) (71.6) Zebra A/S – Annual Report 2014 Financial Statements – Parent Company 85

3.6 Guarantee commitments and contingent liabilities

Operating lease arrangements DKKm 2014 2013

Non-cancellable operating lease commitments Not later than 1 year 36.5 32.8 1-5 years 39.1 40.3 Later than 5 years 8.3 1.2

Total 83.9 74.3

Operating leases relate to leases of stores and equipment with lease terms of between 1 and 10 years. The majority of leases contain no contingent rents.

Litigation Group and is under an unlimited and joint liability regime A few legal proceedings are pending which are not esti- for all Danish tax payments and withholding taxes on mated to inflict losses on the Parent other than what has dividends, interests and royalties from the jointly taxed been provided for in the financial statements. entities.

Other guarantees and contingent liabilities Pledged assets The Parent has guaranteed or provided a bank guarantee A letter of indemnity (company charge) of DKK 30m nom- for banking facilities, etc. for subsidiaries at a total of inal (2013: DKK 30m) has been deposited by the Parent as DKK 44m (2013: DKK 52m). security for the parent’s bank debt.

The Parent has provided a bank guarantee to HRMC, Bank debt is secured by a mortgage of DKK 25m nominal UK which amounts to DKK 29m. The Parent has provid- deposited by the Parent on assets, including the Parent’s ed a bank guarantee to the joint venture´ bank which goodwill, leasehold rights, furniture, including store furni- amounts to DKK 54m. ture, in the Parent’s stores (2013: DKK 25m).

With respect to a grant received from the Icelandic gov- The foreign entities’ bank debt is secured by mortgages on ernment, the Parent has repayment obligations should the their movable property and inventory of a total nominal Company dispose its investments in Iceland before 2017. amount of DKK 38m (2013: DKK 21m).

Zebra A/S is the administration company of the joint The carrying amount of the above-mentioned pledged taxation arrangement with the Danish subsidiaries in the assets is stated below:

DKKm 2014 2013

Pledged assets Leasehold rights 11.7 12.4 Goodwill 12.5 12.5 Leasehold improvements 16.5 17.0 Other equipment 6.5 6.9 Store furniture 12.3 11.3 Inventories 545.9 259.5 Other receivables 185.0 108.4

Total 790.4 428.0 Financial Statements – Parent Company Zebra A/S – Annual Report 2014

4.1 Share capital

The share capital consists of shares at DKK 0.1 or multiples thereof. The shares have been divided into classes:

Class A 3,361,220 Class B 894,920 Class C 894,920 Class D 0

Special economical rights and special voting rights apply to the different share classes.

Changes in share capital in the past five financial years:

DKK'000

Share capital at 1 January 2009 550 Capital reduction 2012 (45) Capital increase 2013 10

Share capital at 31 December 2014 515

4.2 Bank debt

Due Due between Due within 1 1 and 5 after DKKm year year 5 year

2014 Bank debt 177.5 150.0 -

Total 177.5 150.0 -

4.3 Financial instruments

Options on non-controlling interests in certain tions are measured at cost which is a net amount of DKK subsidiaries 0m (2013: DKK 0). As further described in note 1.2, put and call options for the acquisition of non-controlling interests in certain sub- Other derivative financial instruments and financial sidiaries are accounted for at fair value. At the balance risks sheet date, is assessed that the fair value of these options Please refer to note 4.3 in the consolidated financial cannot be determined reliably and consequently the op- statements for more information regarding other derivative financial instruments and financial risks. Zebra A/S – Annual Report 2014 Financial Statements – Parent Company 87

5.1 Audit fee

DKKm 2014 2013

EY (2013: Deloitte) Statutory audit of financial statements 0.5 0.5 Other assurance engagements - - Tax advisory services 0.6 0.1 Other services 1.4 2.5

Total 2.5 3.1

5.2 Related parties

Please refer to note 5.2 to the consolidated financial In addition to the payment of dividends, the Parent has statements for information on related parties. had the following transactions with related parties:

Subsidiaries and associated companies Refer to note 5.4 to the consolidated financial statements for a list of subsidiaries and investments in joint ventures.

Joint DKKm Subsidiaries ventures Total

2014 Sale of goods 895.1 - 895.1 Royalty and service fee - 13.7 13.7 Dividends received 11.0 - 11.0

2013 Sale of goods 536.6 - 536.6 Royalty and service fee - 3.4 3.4 Dividends received 4.6 - 4.6

There have been no transactions with the controlling shareholder and companies owned or otherwise controlled by EQT. Remuneration paid to key management personnel are included in note 2.2. Financial Statements – Parent Company Zebra A/S – Annual Report 2014

5.2 Related parties (continued)

Amounts receivable/payable with related parties, parent

DKKm 2014 2013 Current loans: Receivables from subsidiaries, long term 60.6 44.8 Receivables from subsidiaries, short term 118.5 101.8 Receivables from joint ventures 1.8 0.8

Total 180.9 147.4

The amounts outstanding are unsecured and will be settled in cash. No guarantees have been given or received. No expense has been recognised in the current or prior years for bad or doubtful debts in respect of the amounts owed by related parties.

5.3 Events after the balance sheet date

No events have occurred after the balance sheet date that have a material impact on the financial position of the parent company. HANGER DKK 10 PARTY PROPS DKK 20 Zebra A/S – Annual Report 2014 Management statement 91 Management statement

The Board of Directors and the Executive Management have today discussed and approved the annual report of Zebra A/S for the financial year 2014.

The annual report has been prepared in accordance with International Financial Reporting Standards as adopted by the European Union and further disclosure requirements required according to the Danish Financial Statements Act.

It is our opinion that the consolidated financial statements and the parent company financial statements give a true and fair view of the Group’s and the Parent Company’s financial position at 31 December 2014, the results of the Group and Parent Company’s operations and cash flows for the financial year 1 January – 31 December 2014.

In our opinion, the Management review includes a fair review of the development in the Group’s and the Parent Company’s operations and financial conditions, the results for the year, cash flows and financial position as well as a description of the most significant risks and uncertainty factors that the Group and the Parent Company face.

We recommend that the annual report be approved at the annual general meeting.

Copenhagen, 29 April 2015

Executive Management

Xavier Vidal Henrik Skov Tahir Hussain CEO CFO International Director

Board of Directors

Ole Andersen Michael Hauge Sørensen Manel Adell Domingo Rolf Eriksen Chairman

Morten Hummelmose Lennart Lajboschitz Jacob Bier Independent Auditors’ opinion Zebra A/S – Annual Report 2014 92 Independent Auditors’ opinion

To the shareholders of Zebra A/S

Report on the consolidated financial statements and the parent company financial statements

We have audited the consolidated financial statements and the parent company financial statements of Zebra A/S for the financial year 1 January – 31 December 2014. The consolidated financial statements and the parent company financial statements comprise income statement, statement of comprehensive income, balance sheet, statement of changes in equity, cash flow statement and notes, including a summary of significant accounting policies for the Group as well as for the parent company. 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 additional disclosure requirements in the Danish Financial Statements Act.

Management’s responsibility for the consolidated financial statements and the parent company financial statements Management is responsible for the preparation 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 additional disclosure requirements in the Danish Financial Statements Act and for such internal control that Management determines is necessary to enable the preparation of consolidated financial statements and parent company financial statements that are free from material misstatement, whether due to fraud or error.

Auditors’ responsibility 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 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 as to whether the consolidated financial statements and the parent company financial statements are free from material misstatement. Zebra A/S – Annual Report 2014 Independent Auditors’ opinion

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’ judgement, 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 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 appropri- ateness 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 parent company’s financial position at 31 December 2014 and of the results of the Group’s and the parent company’s operations and cash flows for the financial year 1 January – 31 Decem- ber 2014 in accordance with International Financial Reporting Standards as adopted by the EU and additional disclosure requirements in the Danish Financial Statements Act.

Statement on the Management’s review Pursuant to the Danish Financial Statements Act, we have read the Management’s review. 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 Manage- ment’s review is consistent with the consolidated financial statements and the parent company financial statements.

Copenhagen, 29 April 2015 ERNST & YOUNG Godkendt Revisionspartnerselskab

Torben Bender Thomas Bruun Kofoed State Authorised State Authorised Public Accountant Public Accountant BALLOONS DKK 10 Zebra A/S Raadhuspladsen 59, 3 floor DK-1550 Copenhagen V Denmark Central Business Registration No: 15 69 04 88 www.tiger-stores.com