MANAGEMENT COMMENTARY
ANNUAL REPORT 2017/18 — IC GROUP A/S 1 CONTENTS
CONTENTS
MANAGEMENT COMMENTARY PARENT COMPANY FINANCIAL STATEMENTS 3 The Group in short 3 Financial facts 2017/18 83 Income statement 5 Financial highlights and key ratios 84 Statement of financial position 6 Management letter 85 Statement of changes in equity 8 Outlook 86 Statement of cash flows 10 Strategy and Group structure 87 Notes to the parent company 12 Business segments financial statements 25 Financial review 27 Risk management 29 Corporate responsibility STATEMENTS 30 Corporate governance 31 Executives and Board of Directors 96 Statement by the Management 34 Shareholder information 96 The independent auditor’s report
CONSOLIDATED FINANCIAL STATEMENTS GROUP STRUCTURE AND KEY RATIOS
36 Consolidated income statement 99 Group structure 36 Consolidated statement of 100 Definition of key ratios comprehensive income 101 Information on the Group 37 Consolidated statement of financial position 38 Consolidated statement of changes in equity 39 Consolidated statement of cash flows 40 Notes to the consolidated financial statements
ANNUAL REPORT 2017/18 — IC GROUP A/S 2 MANAGEMENT COMMENTARY – OVERVIEW
IC GROUP
THE GROUP IN SHORT FINANCIAL FACTS 2017/18 - CONTINUING OPERATIONS Revenue per business unit IC Group operates in the apparel and fashion industry and owns a portfolio of brands 5% consisting of the three Premium brands; Tiger of Sweden, By Malene Birger and Designers 17% Remix (equity share of 51%) as well as the fast fashion brand Saint Tropez. As a portfolio 1,535 57 company, we create value through an active Revenue, DKK million EBIT, DKK million ownership of the Group brands, and we will 56% develop and invest in these brands in order to 22% maximize their future values.
We will on a continuous basis consider when it is in the best interest of the shareholders to Tiger of Sweden Saint Tropez divest these brands, and we will act 9.2% 3.7% By Malene Birger Designers Remix accordingly when the time and conditions are Decline in EBIT margin favourable for both the shareholders of IC local currency Group and the individual brands in the EBIT per business unit portfolio.
OUTLOOK FOR 2018/19 10% Flat revenue development in local currency 1,969 8.8% (40)% Free cash flow, DKK million Net working capital EBIT margin 0-1% (before non-recurring costs) relative to revenue 94% CAPITAL STRUCTURE TARGETS
Investments (% of annual revenue) 3-5% 36% Net working capital (% of revenue) 12-14% Net interest-bearing debt (at 30 June) 0 9.3% 1,873 Tiger of Sweden Saint Tropez By Malene Birger Designers Remix Max. net interest-bearing debt 3xEBITDA Return on Net bank deposits, invested capital DKK million Ordinary dividend minimum (% of profit for the year) 30%
ANNUAL REPORT 2017/18 — IC GROUP A/S 3 MANAGEMENT COMMENTARY – OVERVIEW
Please see page 12 for further information Please see page 16 for further information Please see page 19 for further information Please see page 21 for further information on Tiger of Sweden. on By Malene Birger. on Saint Tropez. on Designers Remix.
Revenue, DKK 860 million Revenue, DKK 333 million Revenue, DKK 265 million Revenue, DKK 73 million Decline in local currency 9.0% Decline in local currency 4.0% Decline in local currency 15.3% Decline in local currency 14.1% EBIT, DKK 47 million EBIT, DKK 18 million EBIT, DKK (20) million EBIT, DKK 5 million EBIT margin 5.5% EBIT margin 5.4% EBIT margin (7.5)% EBIT margin 6.8%
Breakdown of revenue Breakdown of revenue Breakdown of revenue Breakdown of revenue
3% 9% 3% 19% 19% 25%
26%
22% 59% 65% 72% 78%
Nordic region Rest of Europe Nordic region Rest of Europe Nordic region Rest of Europe Nordic region Rest of Europe Rest of the world Rest of the world Rest of the world Rest of the world
Wholesale Retail Wholesale Retail Wholesale Retail Wholesale Retail 57% 43% 66% 34% 56% 44% 70% 30%
DISCONTINUED OPERATIONS Revenue DKK 1,067 million Peak Performance was sold to Amer Sports Corporation as EBIT margin 11.9% at 29 June 2018.
ANNUAL REPORT 2017/18 — IC GROUP A/S 4 MANAGEMENT COMMENTARY – FINANCIAL HIGHLIGHTS AND KEY RATIOS
FINANCIAL HIGHLIGHTS AND KEY RATIOS DKK million 2017/18 2016/17 2015/16 2014/15 2013/14 DKK million 2017/18 2016/17 2015/16 2014/15 2013/14
INCOME STATEMENT* KEY RATIOS (%) Revenue 1,535 1,714 1,729 1,685 1,634 Revenue growth (10.4) (0.9) 2.6 3.1 9.4 Gross profit 912 1,001 1,031 959 961 Gross margin 59.4 58.4 59.6 56.9 58.8 Operating profit before depreciation and Cost ratio 55.7 57.0 51.1 50.9 49.8 amortization (EBITDA) 115 86 194 142 184 EBITDA margin 7.5 5.0 11.2 8.4 11.3 Operating profit (EBIT) 57 24 148 101 147 EBIT margin 3.7 1.4 8.6 6.0 9.0 Net financials (10) (3) (8) (14) (8) Return on equity 2.3 12.2 23.5 18.0 19.5 Profit for the year before tax 47 21 151 89 139 Equity ratio 83.3 51.9 51.2 47.5 45.3 Profit for the year of continuing operations 36 16 117 68 103 Return on invested capital, Profit for the year of discontinued operations 1,570 76 78 72 62 12 months trailing EBIT** 9.3 16.2 33.0 31.4 31.2 Profit for the year 1,606 92 195 140 165 Net working capital in proportion to 12 months trailing revenue*** 8.8 11.6 11.8 10.2 12.3 STATEMENT OF FINANCIAL POSITION Cash conversion 34.5 0.7 1.0 1.2 0.8 Total assets 2,755 1,393 1,444 1,852 1,854 Financial gearing (81.6) 2.4 3.4 9.3 6.3 Average invested capital including goodwill 614 772 736 659 708 Net working capital 135 318 314 268 314 SHARE-BASED RATIOS Total equity 2,294 723 740 884 833 Average number of shares excluding Non-controlling interest 12 10 7 5 4 treasury shares, diluted (thousands) 16,648 16,639 16,678 16,550 16,447 Net interest-bearing debt, end of year (1,873) 17 25 82 52 Share price, end of year, DKK 160.2 140.0 172.0 187.5 185.5 Earnings per share, DKK 96.3 5.3 11.6 8.5 9.9 STATEMENT OF CASH FLOWS Diluted earnings per share, DKK 96.3 5.3 11.6 8.5 9.9 Cash flow from operating activities 277 175 183 226 264 Diluted cash flow per share, DKK 16.6 10.5 11.0 13.7 18.2 Cash flow from investing activities 1,692 (88) 55 15 (91) Diluted net asset value per share, DKK 137.1 42.9 44.0 53.1 50.3 Investments in property, plant and equipment (53) (72) (81) (45) (77) Diluted price/ earnings, DKK 1.7 26.4 14.8 22.1 18.7 Free cash flow 1,969 87 238 241 173 Cash flow from financing activities (79) (79) (319) (172) (109) EMPLOYEES Net cash flow for the year 1,890 8 (81) 69 64 Number of employees, calculated as FTEs, end of year 808 1,186 1,146 1,042 1,047 *Comparative figures and key figures in the income statement have been adjusted to take into NUMBER OF STORES (OWN STORES) account Peak Performance being presented as discontinued operations. Retail stores 67 126 115 95 107 Concessions 44 43 42 42 41
**Return on invested capital has been calculated as EBIT’s share of invested capital, cf. definition of key ratios on page 100 (key figure has not been adjusted to take into account Peak Performance being presented as discontinued operations). ***Trailing 12 months revenue (key figure has not been adjusted to take into account Peak Performance being presented as discontinued operations). The key ratios have been calculated according to the recommendations set out in ”Recommendations & Financial Ratios 2017” issued by the Danish Society of Financial Analysts.
ANNUAL REPORT 2017/18 — IC GROUP A/S 5 MANAGEMENT COMMENTARY – MANAGEMENT’S LETTER
MANAGEMENT’S LETTER
DECENTRALIZATION AND OPTIMIZATION during H2 2017/18, and all subsidiaries – both HIGHER FINANCIAL PERFORMANCE THAN The earnings development in Saint Tropez was During the financial year 2016/17, we sales and sourcing companies – are now EXPECTED affected by a significant revenue reduction implemented a new Group management owned by the brands to which their operations In spite of a lower than expected revenue driven by both the wholesale channel and structure to better exploit the potentials of the belong. Consequently, we do no longer have development in physical stores, the Group physical stores resulting in an operating loss three Premium brands Peak Performance, sales or sourcing companies which have announced yet another upward revision of its for the year under review. Designers Remix Tiger of Sweden and By Malene Birger. At the shared operations across the Group’s business earnings forecast for the financial year 2017/18 suffered both revenue and earnings declines same time we embarked on the units. in July 2018 due to the better than expected compared to 2016/17. decentralization of a number of corporate cost development in Tiger of Sweden as well in functions in order to make the individual Since we embarked on the decentralization of the corporate functions. DEVELOPMENT OF THE GROUP BRANDS brands more responsible for their respective the corporate functions in 2016/17, we have Tiger of Sweden development and financial performance. worked on optimizing the remaining corporate The total consolidated revenue for the financial The new CEO of Tiger of Sweden has together functions. year 2017/18 amounted to DKK 2,602 million with the rest of the new management team The decentralization has led to certain corresponding to a reduction of 3.9% made thorough research in the brand’s corporate functions being closed down, and As an example of our continuous work to measured in local currency compared to archives to seek inspiration for a redesign of new functions have been set up in the ensure cost efficiency, we would like to 2016/17. The consolidated operating profit the brand’s visual identity. Led by the new respective brands instead, while other highlight the Group’s Logistics function. During amounted to DKK 184 million corresponding to Creative Director, the brand products have functions have changed organizational set-up the financial year 2017/18, we have installed a an EBIT margin of 7.1%. also been redesigned to reflect the and reporting lines. For example, the Group’s semi-automatic sorter machine which not only revitalization of the brand’s long and proud two corporate sourcing offices in Hong Kong contributes to the efficiency but also The profit was particularly driven by Peak heritage. The new visual identity as well as the and Romania have been split up to the effect contributes to an improved volume capacity Performance which generated both higher first collections from the new Creative Director that operations and employees are now part during peak periods. The Logistics function revenue and earnings compared to last were launched in August 2018. In order to of a specific brand and no longer shared supports the distribution in all channels, and financial year. However, as described enhance the message, Tiger of Sweden has across brands. The sourcing office in Romania continuous cost efficiency remains important previously, the lower cost level in the corporate focused on strengthening its communication to has been fully transferred to Tiger of Sweden to the continued value creation. functions also had a significant impact on the the consumers through more precise and while the office in Hong Kong has been split improved operating profit. targeted editorial topics by the use of digital into brand-specific units. The optimization across all corporate channels to a far larger extent than previously. functions, which we had planned at the As expected and announced in the Group’s As a natural part of the decentralization beginning of the financial year, has all in all outlook, both revenue and earnings in Tiger of By Malene Birger process, the Group’s legal structure and been effectuated faster and more efficient Sweden were reduced whereas By Malene By Malene Birger has particularly focused on related processes have been adjusted in order than expected. This was the primary reason Birger reported significantly improved strengthening its products to the effect that the to reflect the required Group and for announcing an upward revision of the earnings in spite of a lower revenue compared products are to an even higher degree management structure. The process of earnings forecast for the financial year 2017/18 to last financial year. targeted its core consumers as well as the changing the legal structure was completed in April 2018. expansion on international markets of which England has top priority at present.
ANNUAL REPORT 2017/18 — IC GROUP A/S 6 MANAGEMENT COMMENTARY – MANAGEMENT’S LETTER
Group earnings overview binding offers from several potential buyers. Revenue, Operating profit, Following a process with parallel negotiations, DKK million Revenue growth DKK million EBIT margin the Group then announced on 30 April 2018 that it had entered into an agreement to sell Peak Growth in Performance to Amer Sports Corporation at an local Reported 2017/18 2016/17 currency growth 2017/18 2016/17 2017/18 2016/17 enterprise value of DKK 1.9 billion – a price with which the Board of Directors was most satisfied. Tiger of Sweden 860 963 (9.0)% (10.7)% 47 67 5.5% 7.0%
By Malene Birger 333 351 (4.0)% (5.1)% 18 3 5.4% 0.9% Upon approval from the relevant competition authorities, the final closing of the sale was Saint Tropez 265 315 (15.3)% (15.9)% (20) 2 (7.5)% 0.6% completed on 29 June 2018. The signed Designers Remix 73 85 (14.1)% (14.1)% 5 8 6.8% 9.4% agreement entails that IC Group continues to Reportable segments 1,531 1,714 (9.4)% (10.7)% 50 80 3.3% 4.7% provide cost-covered services to Peak Performance during a transition period of 6 to 18 Unallocated items and eliminations 4 - n.m n.m 7 (56) n.m n.m months depending on the individual services. Continuing operations 1,535 1,714 (9.2)% (10.4)% 57 24 3.7% 1.4% THE STRATEGY OF IC GROUP Peak Performance 1,067 1,035 4.8% 3.1% 127 101 11.9% 9.8% IC Group engages in active ownership, and we Total 2,602 2,749 (3.9)% (5.3)% 184 125 7.1% 4.5% will operate and invest in the Group’s brands in order to maximize their future values. Simultaneously, the share of commercial and retail operations remain important to the been marked by the sales process of the collection-independent products (best sellers) brand, however, future revenue growth is brand. At the beginning of the financial year, We will on a continuous basis consider when it has been increased to account for a larger primarily expected to derive from the we communicated that we would initiate a is in the best interest of the shareholders to share of the annual revenue and, wholesale channel. strategic review process of Peak Performance. divest these brands. consequently, minimize seasonal fluctuations. The purpose of this process was to identify Designers Remix (equity share of 51%) whether IC Group would serve as the best Saint Tropez During the financial year 2017/18, Designers future owner of the brand or whether a new At the beginning of the financial year, a new Remix has implemented several initiatives in owner would be more suitable to further CEO and a new Retail Director were appointed order to address sustainability of fashion wear accelerate the brand’s international growth in Saint Tropez, while a new brand CFO was which has always been an important element strategy. appointed later that year. The new to the brand. One of these initiatives is the management team has worked swiftly and product line “Preloved Remix” which is based Following the announcement regarding the goal-oriented to revise the brand strategy, on a recycling model where the consumer is strategic review process, the Group initiated the redesign its visual identity as well as redefine its encouraged to return old garments that are internal preparatory work, and at the beginning core consumer. In the short-term perspective, subsequently fully or partially recycled in new of the new year, the external work process the brand has primarily focused on its retail products. The new products are then sold on commenced in order to identify prospective operations, and in order to make a more the brand’s webpage or in own stores. buyers. A process which quickly revealed a profitable business, several stores have been large interest from many potential buyers. closed down. Furthermore, a number of SUCCESSFUL DIVESTMENT OF initiatives within marketing, visual PEAK PERFORMANCE Discussions with the most relevant potential merchandising, performance KPIs as well as For the largest Group brand; Peak buyers led to a number of indicative offers after training of staff have been implemented. The Performance, the financial year 2017/18 has which the due diligence process resulted in
ANNUAL REPORT 2017/18 — IC GROUP A/S 7 MANAGEMENT COMMENTARY – OUTLOOK
OUTLOOK
REALIZED EXPECTATIONS FOR 2017/18 Investments for the financial year 2017/18 For the financial year 2018/19, a flat revenue The line item “Unallocated items and elimi- In connection with the announcement of the amounted to DKK 61 million corresponding to development for the remaining brands in total, nations” will be negative as it will be affected Annual Report 2016/17, the Group 2.3% of revenue. measured in local currency, is expected. The negatively by changed allocation principles in communicated its outlook for the financial year EBIT margin is expected to be realized at a respect of costs in the corporate functions as 2017/18 indicating that it expected to realize a OUTLOOK FOR 2018/19 level of 0-1% prior to the above-mentioned well as idle costs in respect of the head office minor revenue reduction and an EBIT margin Following the divestment of IC Group’s largest non-recurring costs. after the divestment of Peak Performance. of approx. 5%. Investments were expected to and most profitable brand; Peak Performan- Combined, these amount to approx. DKK 30 be in the region of 3-4% of annual revenue. ce, the Board of Directors has determined to In Tiger of Sweden, revenue is expected to million. change the Company’s business model entail- increase while the nominal earnings are expe- As communicated in Company Announcement ing that IC Group will become a listed holding cted at the same level as last financial year. Investments for the financial year 2018/19 are no. 5/2017 dated 24 April 2018, the Group company owning shares in the remaining Growth will primarily be driven by internatio- expected to amount to approx. 4% of annual revised its earnings forecast to an EBIT margin brands. The Board of Directors will conti- nal wholesale revenue and e-commerce, while revenue primarily driven by Tiger of Sweden. of 6%, primarily driven by faster and more nuously consider when it is in the best interest higher costs for staff and marketing will have a efficient adjustment of the corporate functions. of the shareholders to divest these brands. negative impact on earnings. At the same time, the expected investments for the financial year 2017/18 were adjusted to The Group’s changed business model will re- In By Malene Birger, revenue is also expected approx. 2-3% of annual revenue. The sult in tasks previously undertaken by IC Group to increase while the nominal earnings are expectations for revenue were unchanged. are transferred to and performed by the expected at the same level as last financi- individual brands in the future to the effect that al year. Growth will primarily be driven by As communicated in Company Announcement these brands become independent units with pre-order revenue and e-commerce, while no. 15/2017 dated 12 July 2018, the Group their own support functions. In addition, the higher staff costs will have a negative impact revised its earnings forecast to an EBIT margin Group is also considering divesting its Logistics on earnings. of 7%. This upward revision was primarily function. attributable to lower than expected cost In Saint Tropez, revenue is expected to con- development in Tiger of Sweden as well as The transformation of IC Group is expected tinue to decline while the nominal earnings further cost savings in the Group’s corporate to be completed during the financial year are expected to improve compared to last functions. All other expectations for the 2019/20. Non-recurring costs in relation to the financial year. The lower revenue will be financial year 2017/18 remained unchanged. transformation are expected to amount to ap- driven by both the wholesale channel as well prox. DKK 55 million – approx. DKK 35 million as the retail channel where a number of stores Consolidated revenue for the financial year for the financial year 2018/19 and approx. DKK have been and will be closed. Cost-cutting 2017/18 amounted to DKK 2,602 million 20 million for the financial year 2019/20. As of measures implemented during the financial corresponding to a reductions of 5.3% and the financial year 2020/21, the annual savings year 2017/18 will have a positive impact on 3.9% measured in local currency. are expected to be in the region of DKK 25 earnings. million. The exact amounts as well as the Operating profit (EBIT) for the financial year distribution between the individual financial Finally, in Designers Remix, both revenue and 2017/18 amounted to DKK 184 million years will depend on the implementation of nominal earnings are expected to be reduced. corresponding to an EBIT margin of 7.1%. the transformation. The setback will primarily be driven by a lower wholesale revenue.
ANNUAL REPORT 2017/18 — IC GROUP A/S 8 MANAGEMENT COMMENTARY – OUTLOOK
Outlook overview (before non-recurring costs)
Original Most recent outlook outlook Realized Outlook DKK million 2017/18 2017/18 2017/18 2018/19 Revenue growth minor minor flat measured in local revenue revenue revenue currency decline decline (3.9)% development
revenue revenue revenue Tiger of Sweden decline decline (9.0)% growth
moderate moderate revenue revenue revenue By Malene Birger decline decline (4.0)% growth
significant revenue revenue Saint Tropez n.a. decline (15.3)% decline
revenue Designers Remix n.a. n.a. (14.1)% decline
EBIT margin approx. 5% approx. 7% 7.1% 0-1%
significantly significantly nominal Tiger of Sweden reduced reduced earnings at (DKK million) earnings earnings 47 same level
significant significant nominal By Malene Birger earnings earnings earnings at (DKK million) improvement improvement 18 same level
improved Saint Tropez negative nominal (DKK million) n.a. earnings (20) earnings
reduced Designers Remix nominal (DKK million) n.a. n.a. 5 earnings
Investments (in proportion to revenue) 3-4% 2-3% 2.3% approx. 4%
ANNUAL REPORT 2017/18 — IC GROUP A/S 9 MANAGEMENT COMMENTARY – STRATEGY AND GROUP STRUCTURE
STRATEGY AND GROUP STRUCTURE
IC Group’s target is to create shareholder value through active ownership of the Group brands. We thus operate and invest in the Group brands in order to maximize their future values.
PORTFOLIO STRATEGY 2002, and during that same year Designers The Group structure comprises corporate The Group’s future investment level will IC Group creates value through active Remix was formed through a joint venture. A functions which are utilized by Tiger of Sweden depend on the speed by which the strategy ownership of the Group brands, and we will year later in 2003, Tiger of Sweden was and By Malene Birger. These functions count plans of each brand are executed. The develop and invest in the these brands in order acquired and By Malene Birger was founded Logistics, IT and Financial Shared Services. The investment level may thus vary year-on-year. to maximize their future values. Active in cooperation with the creative designer overall target of these functions is to deliver ownership is managed through continuous behind the brand name. cost-efficient and price-competitive services Generally, we expect the Group’s investments follow-up of the individual brands’ financial supporting the operations of each of the two to attain a level of approx. 3-5% of the annual performance as well as their long-term The Premium brand Peak Performance, which brands. revenue. For the financial year 2017/18, strategy plans. IC Group will on a continuous has been a part of IC Companys since the investments were lower and accounted for basis consider when it is in the best interest of Group was formed through a merger in 2001, LONG-TERM AMBITIONS 2.3% of the annual revenue. The relatively the shareholders to divest these brands, and IC was divested during the financial year under With the overall target of maximizing the value lower level of investments is attributable to a Group will act accordingly when the time and review, and the sales transaction was of the Group’s portfolio of brands, each of the reduced level of store openings across all conditions are favourable for both the completed on 29 June 2018. Group brands develops their respective brands in 2017/18. shareholders of IC Group and the individual strategy plans. brands in the portfolio. While By Malene Birger and Tiger of Sweden WORKING CAPITAL utilize the Group’s corporate functions, INVESTMENTS In the future the Group’s working capital is PORTFOLIO Designers Remix and Saint Tropez operate Investments will primarily be carried out for expected to constitute approx. 12-14% of the The Group’s future portfolio comprises the independently on their own infrastructure the purpose of realizing the strategies of each annual revenue (previously 10-12%) measured three Premium brands; Tiger of Sweden, By functions. of the Group brands, especially in Tiger of at the end of the financial year. At 30 June Malene Birger and Designers Remix (equity Sweden and By Malene Birger where in 2018, the working capital constituted 8.8% of share of 51%) as well as the fast fashion brand GROUP STRUCTURE particular strengthening of the e-commerce the annual revenue which is elaborated further Saint Tropez. All of the Group brands are operated as channel and integration to the physical stores in the section Financial Review on page 25. independent business units with clearly defined as well as increased digitalization are key The difference in the expected future working All these brands have been acquired as strategic plans, and they are responsible of focus areas. capital level compared to previous financial strategic development prospects of the their respective earnings development. years is attributable to the fact that Peak Group’s portfolio. Saint Tropez was acquired in
ANNUAL REPORT 2017/18 — IC GROUP A/S 10 MANAGEMENT COMMENTARY – STRATEGY AND GROUP STRUCTURE
Performance no longer forms part of the 1 July 2019 requiring that operating leases are CAPITAL ALLOCATION AND Furthermore, in respect of distributing the total Group and that Peak Performance, due to recognized and measured in the statement of DIVIDEND POLICY net proceeds of DKK 1.75 billion deriving from seasonal fluctuations, generally had a financial position. The implementation of this The Group’s priorities for employing its free the divestment of Peak Performance, the relatively low tied-up working capital at the financial reporting standard is expected to have cash flows are clearly defined and depicted in Board of Directors has decided, in accordance end of the financial year. a material impact on IC Group. the table below. with the authorization granted at the last annual general meeting, to initiate a buy-back However, revenue growth will naturally lead to To maintain the highest possible degree of To the extent that the free cash flows exceed of up to 1,709,085 shares corresponding to 10% working capital investments, and therefore, flexibility in the future, we have specifically the need for value-adding investments, this of the Company’s total share capital. For during periods of high growth, the working decided to retain the level of net interest- cash flow will then be distributed to the further information on the share buy-back capital may exceed the above-mentioned bearing debt at zero for the financial year as a shareholders – either through dividend programme, please see separate Company level. Through efficiency improvements and whole. The Group’s credit facilities will then distribution or share buy-backs. Announcement no. 18/2018. The Board of strict control of the elements constituting the primarily be employed to fund seasonal Directors expects to propose to have all of the net working capital, we are working on fluctuations in the working capital during the When distributing dividends to the Company’s treasury shares cancelled through continuously minimizing the tied-up working year. At 30 June 2018, the net bank deposit shareholders, it is the Group’s target that the a capital reduction at the Company’s next capital. amounted to DKK 1,873 million as a total distribution reflects the Group’s earnings annual general meeting. Immediately after the consequence of the net proceeds in respect of performance. expected completion of the share buy-back CAPITAL STRUCTURE the divestment of Peak Performance. programme, the remaining net proceeds from The Group aims to maintain a low level of DIVIDEND FOR THE FINANCIAL YEAR the divestment of Peak Performance will be financial gearing since, among other things, To maintain a certain degree of strategic 2017/18 determined in order to distribute it as we operate in a market sensitive to economic flexibility, the net interest-bearing debt, The Board of Directors will propose at the extraordinary dividend to the shareholders. trends. Furthermore, the Group’s operating including the Group’s operating leases, may, Annual General Meeting 2018 a resolution The exact amount of the expected leases represent an element of operational calculated at 30 June, constitute a level 3 times recommending a total ordinary dividend of DKK extraordinary dividend will be communicated gearing which is not insignificant. At the end of higher than EBITDA should this be required. At 83 million in respect of the financial year 2017/18. in a company announcement at the same time the financial year 2017/18, operating leases 30 June 2018, this key ratio amounted to 0.4 As no dividend is paid on the Company’s as announcement of the result of the share amounted to DKK 179 million. In this context, (1.8). When calculating this key ratio, the treasury shares, the dividend corresponds to at buy-back programme. Payment of the please see note 1.1 to the consolidated financial proceeds from the divestment of Peak least DKK 5.00 per eligible share depending on extraordinary dividend is expected to be statements describing a new international Performance have not been included. the result of the announced share buy-back effectuated on 20 September 2018. financial reporting standard with effect as at programme, cf. Company Announcement no. 18/2018 dated 28 August 2018. Capital allocation priorities and results for 2017/18
• Maintenance of 1 • In case the debt existing assets 2 3 • At least 30% of the 4 • Extraordinary dividend VALUE-ADDING exceeds the defined • E-commerce projects DEBT ORDINARY consolidated profit EXTRAORDINARY • Share buy-back INVESTMENTS REDUCTION targets DIVIDEND PAYMENT • Retail expansion after tax
Extraordinary dividend and Investments of DKK 61 million Net bank deposit of DKK 1,873 million Ordinary dividend of DKK 83 million share buy-back of DKK 1,750 million
ANNUAL REPORT 2017/18 — IC GROUP A/S 11 MANAGEMENT COMMENTARY – TIGER OF SWEDEN
TIGER OF SWEDEN
KEY RATIOS The financial year 2017/18 marked a new era for Tiger of Sweden. A new management team with international experience embarked on a Revenue, significant redesign of the visual identity and 860 DKK million design expression based on the brand’s heritage. Furthermore, a number of initiatives have been implemented, both in respect of marketing and distribution, which has had an impact on the financial performance for the financial year 2017/18. Tiger of Sweden will Decline focus on continuing the initiated 9.0% in local internationalization of the brand as well as the currency development of the distribution with particular focus on e-commerce interacting with physical retail as well as leading department stores and other key customers.
EBIT, 47 DKK million
5.5% EBIT margin
ANNUAL REPORT 2017/18 — IC GROUP A/S 12 MANAGEMENT COMMENTARY – TIGER OF SWEDEN
TIGER OF SWEDEN
ABOUT THE BRAND rates, and with the set-up of its own sales FINANCIAL HIGHLIGHTS AND KEY RATIOS Tiger of Sweden was founded in 1903 in organization, it is the ambition to strengthen Sweden and has its foundation in the strong this development as well as include the Geographic breakdown of revenue Distribution menswear confection tradition and solid markets Switzerland and Austria under this tailoring skills, refined for more than 110 years. sales organization which will cover the entire Wholesale customers 880 In 1997, Tiger of Sweden launched a women’s DACH region. Up until now, the development in 3% line and, in 2000, the brand’s Jeans line “Tiger the markets England and France has not met 19% Franchise stores 9 Jeans” was introduced. Today, Tiger of Sweden the growth ambitions. Consequently, Tiger of Retail stores 18 is a modern brand offering apparel to both Sweden established its own sales organization Concessions 19 men and women, including a jeans collection in England in 2017, while going forward France and accessory line. will be developed through the brand’s head office in Stockholm, Sweden, focusing on the Wholesale Retail During the past ten years, Tiger of Sweden has most important key customers in the country. 7 increased its revenue from approx. DKK 450 Both markets represent important focus Nordic region 78% million to a level of approx. DKK 900 million. markets of the brand’s internationalization Rest of Europe This development has to a large extent been strategy. On the English market, the main focus Rest of the world driven by the Nordic core markets; Sweden, is on London, and in France, the primary focus Denmark, Norway and Finland which account is on Paris and a number of large cities. On all Revenue and EBIT margin for the majority of the brand’s revenue and still foreign focus markets, growth plans are form a strong foundation of the business. In primarily driven by department stores and DKK million % the future, the markets in the Nordic region will large key customers, including in particular still remain strategically important to Tiger of third party e-commerce. However, the brand’s 1000 15 Sweden and offer opportunities of continued own e-commerce channel and its interaction 950 12 revenue growth. with physical stores is expected to play an increasingly larger role in the future in respect 900 9 However, the next crucial step of Tiger of of increased growth and strengthened brand Sweden’s growth ambitions is to focus on awareness with the consumers. 850 6 Central Europe and England. The largest 800 3 market outside the Nordic region is Germany, The future target is to achieve a more coherent 2013/14 2014/15 2015/16 2016/17 2017/18 which accounts for approx. 16% of the brand’s brand experience across the different concepts revenue today. During a number of years, the – Men, Women and Jeans, etc. The consumer Revenue EBIT margin brand has realized high and solid growth should thus have the same brand experience
ANNUAL REPORT 2017/18 — IC GROUP A/S 13 MANAGEMENT COMMENTARY – TIGER OF SWEDEN
whether the consumer is male or female. DEVELOPMENT IN 2017/18 However, Tiger Men remains the largest and in The financial year 2017/18 marked a new era many aspects the leading concept of Tiger of for Tiger of Sweden. A new management team Sweden. The remaining concepts; Tiger with international experience embarked on a Women, Tiger Jeans as well as accessories and significant redesign of the brand’s visual shoes are well-established in the Nordic core identity as well as the design expression of the markets but have had minor market shares products based on the brand’s heritage which outside the Nordic region up until now. has its origin back from the foundation of the Consequently, the brand’s go-to-market brand in 1903 in Borås, Sweden. The creative strategy is based on Tiger Men as the team has made thorough research in the spearhead of the expansion flanked by the brand’s archives to retrieve the original brand Tiger Jeans concept which adds an edge to the DNA and utilize this in a revitalization of the brand compared to established competitors brand identity. Most significantly, this has within menswear. This combination has resulted in a redesign of the brand logo which demonstrated to be very successful in will become a pivotal element in Tiger of Germany. In the long-term perspective, Tiger Sweden’s future visual identity. Women and accessories should also play a larger role of the internalization strategy. Seen from a commercial aspect, particularly e-commerce has been a key focus area. First For Tiger of Sweden it is an important part of and foremost, the brand’s webpage now the strategy plan to increase the control of the reflects the redesigned visual identity, while the brand’s position in all markets. This must take platform itself has been optimized in respect place through increasing the number of of mobile devices. The consumers still shop branded sales areas, including shop-in-shops increasingly more through their smartphones and physical stores as well as higher revenue which is also reflected in the traffic data as all deriving from own e-commerce. In this growth in traffic on the brand’s webpage now context, the integration between the physical is attributable to smartphones. In order to get distribution and the e-commerce channel is maximum value out of this development, it is particularly important. The omni-channel thus crucial that the consumer experience on integration is a key focus area for Tiger of the mobile device is optimized and that the Sweden in order to ensure that the consumer is buying process is made as easy and accessible presented with a consistent brand experience as possible. The process must be as trouble- across all sales and communication channels. free as possible for the consumer in order for him/her to find and compare products, see the By the end of the financial year 2017/18, Tiger selected products in the basket and in Tiger of Sweden’s redesigned logo is a tribute to its visionary founders and the development of Sweden had 37 own stores – primarily in particular complete the purchase. which the brand has went through for the last 115 years in order to become the well-known inter- Sweden. national fashion brand it is today. The brand’s new logo is based on the original print of the tiger from 1920 combined with a typography from the 1960s which tells the story of the brand’s legacy In respect of physical retail, the most important and proud traditions which to this very day constitute the brand’s foundation. tigerofsweden.com future KPI is conversion of store traffic. In a market where traffic to physical stores is
ANNUAL REPORT 2017/18 — IC GROUP A/S 14 MANAGEMENT COMMENTARY – TIGER OF SWEDEN
constantly challenged by e-commerce growth, compared to last financial year (9.0% outside of Europe was at the same level as last it is essential that the store traffic is converted measured in local currency). financial year. into sales – whether directly in the store or through the e-commerce channel (order-in- The revenue development is primarily The gross margin increased compared to last store). Therefore, the brand has implemented attributable to lower order intake in the financial year. However, it should be extensive training programmes for its store wholesale channel while the in-season selling mentioned that higher than normal inventory staff and rolled out a KPI model in order to increased. Revenue from the wholesale write-downs had a negative impact on the make measurement and follow-up on channel declined by 14.9%. Revenue from the gross margin for 2016/17. After having adjusted conversion of store traffic a more integrated retail channel declined by 4.4% as a for this, the gross margin was at the same level part of the store staff’s working day. As this consequence of lower traffic in physical stores. as last financial year. Costs for 2017/18 optimization has been the main focus area of The same-store revenue decreased by 7.5% remained at the same level as 2016/17 when the retail operations, no new stores were driven by the physical stores while the adjusting for the non-recurring costs opened during the financial year 2017/18. To e-commerce revenue increased marginally. recognized in 2016/17 in respect of the contrary, the brand closed down its Tiger The total number of stores was reduced by 4 management changes as well as distribution Jeans pop-up store located in Copenhagen, stores during the financial year 2017/18. write-downs. Denmark, as well as a retail store in Stockholm, Sweden. Additionally, two small Geographically, the revenue development was The cost ratio increased as a consequence of outlet concessions located in Sweden have primarily driven by the Nordic region, but the lower revenue compared to 2016/17. also been closed down. During the financial market segment Rest of Europe also reported year 2018/19, the brand is planning on a roll- reduced revenue. Particularly, amended trade The operating profit (EBIT) amounted to DKK out of a new store concept in selected stores agreements with two department store chains 47 million (DKK 67 million) corresponding to an based on the brand’s new visual identity, just in France have led to reduced numbers of EBIT margin of 5.5% (7.0%). as opening of new stores might be an option concessions (shop-in-shops). Revenue from again. Earnings overview
Tiger of Sweden has made a certain degree of clean-up in the wholesale distribution. During DKK million 2017/18 2016/17 Change, % this process it has been crucial to retain a Revenue* 860 963 (10.7) strong cooperation with customers who can Wholesale and franchise 492 578 (14.9) and will support Tiger of Sweden’s desired Retail, e-commerce and outlets 368 385 (4.4) positioning of its retail space. As mentioned earlier, Tiger of Sweden now operates its own Revenue growth/decline in local currency (%) (9.0) 0.6 sales organization in England as well as Operating profit before depreciation and Germany covering the DACH region as a amortization (EBITDA) 71 86 (17.4) whole. Tiger of Sweden has terminated its EBITDA margin (%) 8.3 8.9 agency agreement in South Africa, and a new Depreciation, amortization and impairment losses (24) (19) 26.3 agent has been appointed. Operating profit (EBIT) 47 67 (29.9)
PERFORMANCE FOR THE YEAR EBIT margin (%) 5.5 7.0 Tiger of Sweden realized a revenue of DKK 860 million for 2017/18 (DKK 963 million) *Revenue from Vingåker Factory Outlet (multi-brand outlet) amounted to DKK 154 million for the financial year corresponding to a reduction of 10.7% 2017/18 (DKK 154 million).
ANNUAL REPORT 2017/18 — IC GROUP A/S 15 MANAGEMENT COMMENTARY – BY MALENE BIRGER
BY MALENE BIRGER
KEY RATIOS Headed by a new creative director, By Malene Birger has strengthened its brand profile and products to better target its defined core Revenue, consumers. The collections have gained a more 333 DKK million international appeal and at the same time the commercial products account for a larger share of the brand’s annual product range in order to reduce the seasonal fluctuations. The performance of the physical stores has improved significantly which is attributable to stronger products, Decline improved purchasing procedures as well as higher 4.0% in local focus on converting store traffic currency
EBIT, 18 DKK million
5.4% EBIT margin
ANNUAL REPORT 2017/18 — IC GROUP A/S 16 MANAGEMENT COMMENTARY – BY MALENE BIRGER
BY MALENE BIRGER
ABOUT THE BRAND In respect of production, By Malene Birger, FINANCIAL HIGHLIGHTS AND KEY RATIOS By Malene Birger is a Danish high-profile headed by a new creative director, is working design brand with an international appeal on targeting its core consumers even better as Geographic breakdown of revenue Distribution offering affordable luxury to women. The well as gaining an even stronger foothold on brand was founded in 2003 and since then, it the international markets. Specifically, this Wholesale customers 775 has enjoyed continuous progress and achieved entails developing clothes for the woman who 9% recognition on the international fashion scene. wants a life where career, family life and Franchise stores 5 leisure are balanced equally and a wardrobe Retail stores 9 By Malene Birger is a strong brand with a solid which reflects these aspects of her life at the 26% Concessions 6 market position in the Nordic region – in same time while still radiating elegance and particular in Denmark. The brand continues to femininity. This is embedded in the brand’s focus on growth in the Nordic region with updated slogan; “be powerful, be desired”. Wholesale Retail Denmark, Sweden and Norway as its primary 65% markets. The brand’s international growth bymalenebirger.com Nordic region strategy is primarily targeted at selected Rest of Europe European markets such as, in particular, Rest of the world Germany and England. Continued growth in DEVELOPMENT IN 2017/18 certain markets outside Europe still remains a During 2017/18, By Malene Birger has Revenue and EBIT margin part of the brand’s growth strategy, including implemented a number of initiatives the USA and Japan in particular. originating from the comprehensive brand DKK million % and positioning analysis which was carried out Increased sales to the largest and most well- during the financial year 2016/17. This analysis, 400 12 established department stores as well as large among others, led to a clear-cut definition of 350 9 key customers, including in particular third the By Malene Birger core consumer. Precisely party e-commerce, play a pivotal role of the the consumer has been far more integrated 300 6 brand’s strategy. In addition to this, both the into the business procedures and the general e-commerce channel as well as physical retail brand development. This applies to, i.e., the 250 3 must contribute to growth. And, as is the case product development where a feedback-loop 200 0 with the Group’s other brands, the integration from focus groups has now become an 2013/14 2014/15 2015/16 2016/17 2017/18 between physical retail and e-commerce is an integrated part of the development process of increasingly high priority for By Malene Birger each of the brand’s quarterly collections. Revenue EBIT margin in the future.
ANNUAL REPORT 2017/18 — IC GROUP A/S 17 MANAGEMENT COMMENTARY – BY MALENE BIRGER
By Malene Birger’s branding and marketing development of the conversion of store traffic Particularly, the Nordic region was efforts are, to a far larger extent than resulting in a positive development of the accountable for the revenue reduction, while previously, being targeted at the consumer same-store revenue. During the financial year revenue from Rest of Europe was at the same with more frequent, relevant and editorial under review, By Malene Birger opened one level as last financial year. Revenue from topics. Consequently, the marketing efforts will store in Gothenburg, Sweden, and closed outside of Europe declined primarily driven by be more diversified, planned in details as well down one small store in Paris, France. Japan where the discontinued cooperation as more focused on digital media. with a former agent had a negative impact on Focus in the wholesale distribution has been revenue compared to 2016/17. In respect of product development, By Malene on strengthening the cooperation as well as Birger has generally worked on providing the increasing sales to By Malene Birger’s largest The gross margin was improved which is products with a more international appeal as and most important customers. Consequently, attributable to lower discounts as well as a well as strengthening certain product groups this has resulted in a consolidation of the larger share of sales through own channels. specifically. The outerwear category is an brand’s total customer base in a manner The costs were reduced at a proportionally example of this where the products, to a far ensuring that large and strategically important higher level than revenue resulting in a cost larger extent than previously, are being customers now account for a larger revenue ratio decline compared to last financial year. developed with functional features without share. At the end of the financial year 2017/18, The financial year 2016/17 was negatively compromising on the design expression. The By Malene Birger terminated its agency affected by non-recurring costs for the target has been to support the core agreement with its distributor in Japan who did mentioned brand and positioning analysis as consumer’s need for “a life on the go”, and the not fulfill the brand’s expectations. In the well as distribution write-downs in France and result has manifested itself in increased sales future, the brand will operate and develop this England. in this category accounting for approx. 10% of market itself from its head office in sales from the 2017 autumn collection which is Copenhagen, Denmark. Operating profit (EBIT) amounted to DKK 18 significantly higher compared to previous million (DKK 3 million) corresponding to an years. Furthermore, By Malene Birger has PERFORMANCE FOR THE YEAR EBIT margin of 5.4% (0.9%). implemented a product programme featuring By Malene Birger realized a revenue of DKK so-called “essentials” which are commercial 333 million for 2017/18 (DKK 351 million) products that always stay relevant and never corresponding to a reduction of 5.1% (reduction Earnings overview are on discount. Essentials accounted for 10% of 4.0% measured in local currency). of revenue from physical stores and approx. DKK million 2017/18 2016/17 Change, % 6% from e-commerce, and the target is to The reported growth rate of 3.6% in the retail Revenue 333 351 (5.1) increase this share in order for the essential channel was not able to compensate for the Wholesale and franchise 219 241 (9.1) product to have an even larger dampening revenue reduction in the wholesale channel effect on seasonal fluctuations. driven by lower order intake and in-season Retail, e-commerce and outlets 114 110 3.6 selling. The positive development in the retail Revenue decline in local currency (%) (4.0) (0.4) In respect of distribution, the main focus has channel was partly driven by physical stores Operating profit before depreciation and primarily been on improving performance in where both the reported traffic and conversion amortization (EBITDA) 26 17 52.9 physical stores. Stronger products have ratio had improved and partly by continued EBITDA margin (%) 7.8 4.8 demonstrated to be a good starting point, but e-commerce growth. Consequently, the same- in particular improved purchasing procedures store revenue increased by 5.2%. Depreciation, amortization and impairment losses (8) (14) (42.9) in the stores as well as visual merchandising Operating profit (EBIT) 18 3 n.m have contributed to a significant, positive EBIT margin (%) 5.4 0.9
ANNUAL REPORT 2017/18 — IC GROUP A/S 18 MANAGEMENT COMMENTARY – SAINT TROPEZ
SAINT TROPEZ
Saint Tropez was founded in 1986 as a dynamic fast fashion brand for women. The brand has been fully owned by IC Group since 2002, but it is not integrated into the Group’s operational platform. During the financial year 2017/18, a new management team was appointed which has revised the brand strategy and has started to implement a number of changes in respect hereto.
ABOUT THE BRAND In the future, Saint Tropez will focus on growth Saint Tropez was founded in 1986 in Denmark in the wholesale channel – in particular in the as a dynamic fast fashion brand. The brand Nordic region and Germany. Furthermore, a develops female fashion, and it is the brand’s larger part of the wholesale revenue must be ambition through its 6 collections and 10 generated through third party e-commerce. In so-called express collections a year to always respect of the brand’s own stores, it is the offer fashion wear in line with the latest fashion target to regain profitable businesses which is trends. why a review of the brand’s store portfolio has been completed. As a consequence hereto, Saint Tropez is fully owned by IC Group, but it certain locations have been closed during the is not integrated into the Group’s operational financial year under review, however, platform. additional store closures will also be necessary in the future. Physical retail will remain an The majority of Saint Tropez’ revenue is important channel to the brand both in respect generated in the Nordic region, in particular in of revenue as well as to the brand’s positioning Denmark. The brand has a certain towards the consumer. geographical distribution outside the Nordic region primarily counting the European During the financial year 2017/18, Saint Tropez markets Germany, the Netherlands and closed down 8 stores in total, and as at 30 June England. 2018, the brand had 44 stores and concessions of which most of them were located in Saint Tropez remains the one of the Group Denmark. brands with the largest share of sales through own controlled channels, and physical retail sainttropez.com accounts for almost half of the brand’s annual revenue.
ANNUAL REPORT 2017/18 — IC GROUP A/S 19 MANAGEMENT COMMENTARY – SAINT TROPEZ
DEVELOPMENT IN 2017/18 shelves and hangers. The new visual identity, Earnings overview During the financial year 2017/18, a new including the new logo, is expected to be management team was appointed in Saint rolled out to the brand’s remaining stores DKK million 2017/18 2016/17 Change, % Tropez consisting of a new CEO, CFO as well during the financial year 2018/19. Revenue 265 315 (15.9) as a new Retail Director. The management team has revised the brand strategy which PERFORMANCE FOR THE YEAR Wholesale and franchise 149 168 (11.3) includes a redesign of the brand and its visual Saint Tropez realized a revenue of DKK 265 Retail, e-commerce and outlets 116 147 (21.1) identity, including a new logo as well as a million for 2017/18 (DKK 315 million) Revenue decline in local currency (%) (15.3) (1.4) more clear-cut definition of the core consumer. corresponding to a reduction of 15.9% (15.3% Operating profit/loss before depreciation and The brand’s core consumer is a woman in her measured in local currency). amortization (EBITDA) (14) 10 n.m. thirties who most likely has a job where she EBITDA margin (%) (5.3) 3.2 can also wear her everyday clothes at work. Revenue from the wholesale channel declined She is interested in fashion, but she does not by 11.3% whereas the retail channel reported a Depreciation, amortization and impairment losses (6) (8) (25) necessarily keep up with the latest fashion reduction of 21.1%. The retail revenue was Operating profit/loss (EBIT) (20) 2 n.m. trends. She cares about getting value for negatively affected by store closures as well as money when she is shopping, which she most a same-store revenue which was 16.9% lower EBIT margin (%) (7.5) 0.6 often does in physical stores but also online. compared to last financial year.
The redesigned brand image as well as Revenue from the Nordic region declined, implemented product adjustments have been while the market segment Rest of Europe well-received by the brand’s wholesale reported higher revenue driven in particular by customers. During the financial year under the Benelux countries. Revenue deriving from review, the management of Saint Tropez has outside Europe also increased. focused on strengthening the cooperation with large and strategically important customers, in The gross margin was lower compared to particular large online retailers. 2016/17 as a consequence of negative channel mix effects as well as higher discounts. In spite The roll-out of the new visual identity has been of the non-recurring costs in respect of initiated in the physical stores and, by now, it changes to the management team, the cost has been completed in certain of the brand’s level was reduced by general cost-saving own stores. However, the consumers will still measures as well as store closures. In spite of experience the new brand identity in all of the the reduced cost level, the cost ratio increased brand stores as the more strict guidelines in due to the lower revenue. respect of the amount of products per square metre as well as visual merchandising (space Saint Tropez generated an operating loss management and navigation through the (EBIT) of 20 million for the financial year store) have provided the stores with a more 2017/18 (profit of DKK 2 million) corresponding light expression with less products on the to a negative EBIT margin of 7.5% (EBIT margin of 0.6%).
ANNUAL REPORT 2017/18 — IC GROUP A/S 20 MANAGEMENT COMMENTARY – DESIGNERS REMIX
DESIGNERS REMIX
Designers Remix is a well-known Premium brand with a certain distribution share in the Nordic region as well as selected international markets. The brand develops female fashion and in addition to this, it also has a small collection of children’s wear. IC Group holds a 51% equity share in Designers Remix, and the brand is not integrated into the Group’s operational platform.
ABOUT THE BRAND The majority of the brand’s revenue is However, revenue from the market segment Designers Remix was founded in 2002 by IC generated in the wholesale channel whereas Rest of Europe increased, while revenue from Companys and was later converted into a joint the brand’s own stores and concessions Rest of the world was at the same level as last venture between IC Companys and Niels and account for a minor revenue share. financial year. Charlotte Eskildsen (CEO and Chief Designer of the brand, respectively). Today, IC Group holds As at 30 June 2018, Designers Remix had 14 The operating profit (EBIT) amounted to DKK 5 an equity share of 51% in Designers Remix stores and retail concessions which is at the million (DKK 8 million) corresponding to an whereas the remaining 49% equity share is same level as last financial year. EBIT margin of 6.8% (9.4%). The reduced held by Niels and Charlotte Eskildsen. margin was primarily driven by a higher cost designersremix.com ratio compared to 2016/17. Designers Remix develops female fashion characterized by abstract minimalism and PERFORMANCE FOR THE YEAR elegance. In addition to the female collection, Designers Remix realized a revenue of DKK 73 Earnings overview the brand also has a collection of children’s million for 2017/18 (DKK 85 million) wear named “Little Remix” which accounts for corresponding to a reduction of 14.1% DKK million 2017/18 2016/17 Change, % a minor share of the total revenue. compared to last financial year (14.1% Revenue 73 85 (14.1) measured in local currency). This revenue Wholesale and franchise 51 56 (8.9) Since the brand’s foundation, it has developed reduction was driven by both the wholesale into a well-known brand in the Nordic region channel as well as the retail channel, in Retail, e-commerce and outlets 22 29 (24.1) where it has its largest presence, however, the particular the last-mentioned channel due to Revenue growth/decline in local currency (%) (14.1) 9.0 brand also has a certain distribution share in lower revenue from physical stores and Operating profit before depreciation and other international markets within Europe, Asia concessions. The same-store revenue declined amortization (EBITDA) 6 9 (33.3) and North America. For the financial year by 25.1% compared to 2016/17 driven by both EBITDA margin (%) 8.2 10.6 2017/18, the Nordic region accounted for 59% physical stores and e-commerce. of the revenue whereas 22% of the revenue Depreciation, amortization and impairment losses (1) (1) - derived from other European markets such as The revenue reduction was primarily driven by Operating profit (EBIT) 5 8 (37.5) Belgium and Germany. 19% of the revenue was the Nordic region where Denmark and EBIT margin (%) 6.8 9.4 realized on markets outside Europe. Norway constituted the two largest markets.
ANNUAL REPORT 2017/18 — IC GROUP A/S 21 MANAGEMENT COMMENTARY – DISCONTINUED OPERATIONS
PEAK PERFORMANCE
KEY RATIOS Since the financial year 2014/15, Peak Performance has completed a brand revitalization resulting in visible improvements Revenue, of the brand profile, the products’ design 1,067 DKK million expression as well as distribution quality. Furthermore, the positive development, which the brand has been through, has also had an impact on the financial performance where both revenue and earnings have increased significantly since 2014/15. At the beginning of Growth the financial year 2017/18, a strategic review 4.8% in local process of the brand was initiated which currency resulted in a divestment of Peak Performance to Amer Sports Corporation in Q4 2017/18 at a price of DKK 1.9 billion.
EBIT, 127 DKK million
11.9% EBIT margin
ANNUAL REPORT 2017/18 — IC GROUP A/S 22 MANAGEMENT COMMENTARY – DISCONTINUED OPERATIONS
PEAK PERFORMANCE
ABOUT THE BRAND Outside the Nordic region, the markets in the FINANCIAL HIGHLIGHTS AND KEY RATIOS Peak Performance is Scandinavia’s largest Alps region are important and comprise brand within technical sports and fashion Germany, Austria, France, Switzerland and Geographic breakdown of revenue Distribution wear. The brand has its origin in alpine skiing Italy. Peak Performance has gained a strong and was founded in 1986 by passionate skiers foothold on these markets. Wholesale customers 1,670 who called for functional skiwear which at the 3% same time was stylish and modern. Since then, peakperformance.com Franchise stores 29 Peak Performance has been among the 29% Retail stores 50 world’s leading brands when it comes to Concessions 1 technical, functional sports and fashion wear.
The strength of the brand has always been its 68% Wholesale Retail combination of functionality and style. When 1 Peak Performance embarked on the Nordic region revitalization of the brand in 2014/15, the Rest of Europe target was to unleash its large potential. Peak Rest of the world Performance must be a vibrant, dynamic and progressive brand, and a pioneer within Sports Revenue and EBIT margin Fashion recognized by the consumer by its clear DNA; “Performance mixed with style”. DKK million %
To Peak Performance, the Nordic markets 1100 15 Sweden, Denmark, Norway and Finland are 1050 12 strategically important. Combined, they account for the majority of revenue, and the 1000 9 brand holds a strong position with good growth opportunities on all of these markets. 950 6 900 3 2013/14 2014/15 2015/16 2016/17 2017/18
Revenue EBIT margin
ANNUAL REPORT 2017/18 — IC GROUP A/S 23 MANAGEMENT COMMENTARY – DISCONTINUED OPERATIONS
DIVESTMENT OF PEAK PERFORMANCE products as well as a distribution channel PERFORMANCE FOR THE YEAR The revenue growth was driven by the Nordic The revitalization of the brand, which was supporting the brand in a better way. The Peak Performance realized a revenue of DKK region which reported a revenue increase of initiated in 2014/15, primarily comprised financial performance also indicated a more 1,067 million for 2017/18 (DKK 1,035 million) 6% driven by Sweden and Norway. The market products and distribution changes. positive trend reflecting substantial revenue corresponding to a growth rate of 3.1% (4.8% segments Rest of Europe and Rest of the world growth and solid earnings. measured in local currency) compared to last suffered revenue declines compared to In respect of the products, this revitalization financial year. 2016/17. entailed a more simple product structure, During the financial year 2017/18, as elimination of certain product lines as well as communicated in Company Announcement no. Revenue from the wholesale channel The gross margin was improved by 2.4 changes to the collection structure on certain 22/2017 on 5 October 2017, the Board of increased by 0.8% compared to 2016/17 as the percentage points to 52.4% due to improved of the brand’s collections. However, the most Directors initiated a strategic review process of lower pre-order revenue was more than margins on sold products. Costs increased by decisive change has been a strengthened and Peak Performance for the purpose of compensated by the higher in-season selling. DKK 19 million driven by the full-year effect more coherent design expression across all of identifying whether IC Group would serve as The revenue growth was primarily driven by from openings of new store as well as the five main product collections providing the the best future owner of the brand. the retail channel where revenue increased by increased costs for staff and marketing. The consumer with a more coherent brand 7.0% due to the effect of new stores as well as cost ratio increased to 40.5% (40.3%). expression leading to a higher share of cross Following this announcement, the Group higher sales through outlets and high selling between the different product initiated the internal preparatory work, and at e-commerce growth. The same-store revenue The operating profit (EBIT) amounted to DKK collections. the beginning of the new year, the external increased marginally compared to last 127 million compared to DKK 101 million for work process commenced in order to identify financial year driven by the high e-commerce 2016/17 corresponding to an EBIT margin of In the distribution channel, the cooperation prospective buyers. A process which quickly growth which compensated for the lower 11.9% (9.8%) which is an improvement of 2.1 with several wholesale customers has been revealed a large interest from many potential revenue from physical stores. During the percentage points driven by the gross margin terminated as these customers did not support buyers. financial year 2017/18, Peak Performance improvement. the right brand positioning while certain opened 3 stores. physical stores have been closed as part of a Discussions with the most relevant potential general review of the brand’s store portfolio. In buyers led to a number of indicative offers at its efforts to achieve a higher share of the beginning of March 2018, and the controlled distribution, the brand subsequently subsequent due diligence process resulted in opened several physical stores – including binding offers from several potential buyers. Earnings overview taking over several franchise stores in the Following a process with parallel negotiations, Nordic region. the Group then announced on 30 April 2018 DKK million 2017/18 2016/17 Change, % that it had entered into an agreement to sell Revenue 1,067 1,035 3.1 The implemented changes to the products as Peak Performance to Amer Sports Wholesale and franchise 652 647 0.8 well as distribution had a negative impact on Corporation. revenue for the financial year 2015/16, Retail, e-commerce and outlets 415 388 7.0 however, the changes were necessary in order The agreed price for Peak Performance Revenue growth in local currency (%) 4.8 11.6 to strengthen the brand in respect of a focused amounted to an enterprise value of DKK 1.9 Operating profit before depreciation and international expansion. billion. Upon approval from the competition amortization (EBITDA) 142 119 19.3 authorities by the end of June 2018, the final EBITDA margin (%) 13.3 11.5 During the financial year 2016/17, the effect closing of the sale was completed on 29 June from the revitalization became visible through 2018. Depreciation, amortization and impairment losses (15) (18) (16.7) a far more clear-cut brand profile, stronger Operating profit (EBIT) 127 101 25.7
EBIT margin (%) 11.9 9.8
ANNUAL REPORT 2017/18 — IC GROUP A/S 24 MANAGEMENT COMMENTARY – FINANCIAL REVIEW
FINANCIAL REVIEW
Revenue from the Group’s continuing operations declined by 9.2% measured in local currency to DKK 1,535 million (DKK 1,714 million). The gross margin was 1.0 percentage point higher than last financial year which, however, was affected negatively by higher than normal write-downs during Q4 2016/17. Costs were significantly lower compared to 2016/17 attributable to the cost-saving measures implemented in the corporate functions as a consequence of the restructuring process. However, significant non-recurring costs in connection with the start-up of this restructuring process had an impact on the financial year 2016/17. The operating profit (EBIT) amounted to DKK 57 million (DKK 24 million) corresponding to an EBIT margin of 3.7% (1.4%). The operating profit of continuing operations amounted to DKK 36 million (DKK 16 million). Peak Performance was divested with effect as at 29 June 2018 and is consequently presented as discontinued operations.
REVENUE GROSS PROFIT Revenue development (DKK million) Revenue from the Group’s continuing The gross profit of the Group’s continuing operations amounted to DKK 1,535 million (DKK operations amounted to DKK 912 million 1,067 2,602
1,714 million) corresponding to a reduction of compared to DKK 1,001 million for 2016/17, and, 1,714 (103) 10.4% (9.2% measured in local currency). the gross margin increased by 1.0 percentage point to 59.4% (58.4%). The improvement was (18) The revenue reduction was primarily driven by primarily driven by the fact that the financial (50) the wholesale channel where especially the year 2016/17 was negatively impacted by (12) 4 1,535 lower order intake in Tiger of Sweden higher than normal inventory write-downs – contributed, however, all of the Group’s particularly in Tiger of Sweden. 2016/17 Tiger of By Malene Saint Tropez Designers Unallocated 2017/18 2017/18 2017/18 continuing brands reported revenue declines. Continuing Sweden Birger Remix Continuing Peak Total Revenue from the wholesale channel was CAPACITY COSTS operations operations Performance reduced by 12.7% compared to last financial Capacity cost declined by DKK 122 million to DKK year. Revenue from the retail channel was 855 million which to a large extent is attributable reduced by 7.6% primarily driven by the to the cost-saving measures implemented in the Capacity costs development (DKK million) development in Saint Tropez’ physical stores. corporate functions. The cost ratio decreased by The same-store revenue for the Group’s 1.3 percentage points to 55.7%. However, the continuing operations was 8.0% lower financial year 2016/17 was impacted by non- 432 1,287 compared to 2016/17 driven by the negative recurring costs of DKK 33 million attributable to development in the physical stores while the the structural changes of the corporate functions e-commerce channel reported growth – as well as non-recurring costs of DKK 11 million in 977 (44) particularly in By Malene Birger. The total respect of impairment of assets in the (57) 9 (30) number of stores in the Group’s continuing distribution of By Malene Birger and Tiger of 855 operations declined by 12 stores during the Sweden. After having adjusted for these non- 2016/17 Non-recurring Distribution- Other costs Coporate 2017/18 2017/18 2017/18 financial year 2017/18 as Tiger of Sweden recurring costs, the cost ratio increased by 1.2 Continuing costs 2016/17 related costs in brands functions costs Continuing Peak Total closed down 4 stores in total and Saint Tropez percentage points driven by higher cost ratios in operations operations Performance closed down 8 stores in total. Tiger of Sweden and Saint Tropez.
ANNUAL REPORT 2017/18 — IC GROUP A/S 25 MANAGEMENT COMMENTARY – FINANCIAL REVIEW
OPERATING PROFIT (EBIT) as well as lower purchases. The working Operating profit development (EBIT), DKK million Operating profit of continuing operations capital constituted 8.8% of the trailing 12 amounted to DKK 57 million (DKK 24 million) months revenue compared to 11.6% for the 127 184 corresponding to an EBIT margin of same period last financial year. 3.7% (1.4%). After having adjusted for the previously mentioned non-recurring costs, the CASH FLOW AND NET EBIT margin for 2016/17 would have amounted INTEREST-BEARING DEBT 63 57 to 4.0%. Cash flow from operating activities for 2017/18 24 (20) 15 (22) amounted DKK 276 million which is an (3) PROFIT FOR THE YEAR improvement of DKK 101 million compared to
Profit for the year of the Group’s continuing the same period last financial year. The 2016/17 Tiger of By Malene Saint Tropez Designers Unallocated 2017/18 2017/18 2017/18 Continuing Sweden Birger Remix Continuing Peak Total operations for 2017/18 amounted to DKK 36 development is primarily attributable to the operations operations Performance million (DKK 16 million). lower tied-up working capital.
PROFIT FOR THE YEAR OF Cash flow from investing activities amounted DISCONTINUED OPERATIONS to an inflow of DKK 1,693 million (an outflow of Development in net interest-bearing debt, DKK million Profit for the year of the Group’s discontinued DKK 88 million) primarily as a consequence of operations for 2017/18 amounted to DKK 1,570 the net proceeds of DKK 1.75 billion from the 1,750 1,873 million (DKK 76 million). divestment of Peak Performance. The net proceeds are expected to be distributed to the Peak Performance was divested with effect as shareholders through a combination of share at 29 June 2018. The proceeds from this buy-back as well as extraordinary dividend (17) 184 101 (42) (61) 41 (83) 123 divestment amounted to DKK 1,475 million. following the announcement of the Company’s Annual Report 2017/18 on 28 August 2018. IC Group will continue to provide cost-covered services to Peak Performance during a Investments in both intangible assets and 2016/17 Operating Working capital Tax paid Non-current Other Dividend 2017/18 Proceeds from 2017/18 Continuing profit investments assets paid Continuing sale of Peak Total transition period of 6 to 18 months following property, plant and equipment were primarily operations investments operations Performance the completion of the sale. placed in existing stores as well as the Group’s Logistics function. These investments For further information in respect of the amounted to DKK 61 million (DKK 89 million). divestment of Peak Performance, we refer to page 22-24 and notes 2.4 and 2.5 to the See chapter 4 in the consolidated financial CHANGES IN EQUITY AND EQUITY RATIO proceeds from the divestment of Peak consolidated financial statements. statements for further information. Equity as at 30 June 2018 amounted to DKK Performance partly offset by ordinary dividend 2,294 million (30 June 2017: DKK 723 million). payment of DKK 83 million. Subsequently, the NET WORKING CAPITAL The Group’s free cash flow thus amounted to This improvement is attributable to the positive equity ratio as at 30 June 2018 amounted to At 30 June 2018, the working capital amounted an inflow of DKK 1,969 million (an inflow of DKK comprehensive income for the year including 83.3% (30 June 2017: 51.9%). to DKK 135 million corresponding to a 87 million). reduction of DKK 183 million compared to 30 June 2017. This reduction is attributable to the Following this, the net bank deposit amounted divestment of Peak Performance as well as to DKK 1,873 million (net interest bearing debt lower inventories primarily as a consequence of DKK 17 million). of adjusting the amount of products on stock
ANNUAL REPORT 2017/18 — IC GROUP A/S 26 MANAGEMENT COMMENTARY – RISK MANAGEMENT
RISK MANAGEMENT
Due to the Group’s activities, IC Group is exposed to a number of very different risks all inherent in the apparel and fashion industry. The Management considers efficient risk management as an integrated part of all Group activities and works continuously to minimize uncertainty and thereby create stakeholder value. Furthermore, the Management regularly assesses the risks in order to determine whether the risks have changed or the risk control measures are adequate or relevant.
The Group creates stakeholder value by Risk overview managing and minimizing uncertainty within the core activities. The Group’s processes are set up in such a manner that risks are Macroeconomic risks controlled efficiently based on the experiences 1 1 and competences achieved over time by the Large Group. Where deemed possible, it is the 1 2 Risk of loss of brand value Group’s policy to take out insurance coverage to hedge against inherent risks. The Board of 2 4 3 Risk in respect of purchase and sale in own stores Directors reviews the Group’s insurance 3 annually to ensure that coverage is adequate. 4 Fashion and collection risks 10 4
The below risks and uncertainties are those Considerable 7 6 5 5 Risk of loss of key employees which the Management considers to be most 8 significant at the present. As Amer Sports 6 Political risks
Financial impact 9 Corporation has acquired Peak Performance 10 as at 29 June 2018, the subsequent description 7 Risk in respect of logistics and order handling Significant of risks as well as monitoring and coverage 9 reflect that the brand is not a part of the Group 8 IT risks in the future. 9 Financial risks Minimal Unlikely Minimal Possible Probable 10 Supplier risks
Probability of occurrence
ANNUAL REPORT 2017/18 — IC GROUP A/S 27 MANAGEMENT COMMENTARY – RISK MANAGEMENT
Risks Monitoring and coverage
1 Macroeconomic trends, changed market conditions or • The geographical distribution of Group activities contributes to spreading the risk. changed consumer behaviour which have a negative impact • The development of the Group’s primary supplier markets is monitored closely in order to plan relocation of production well in on particularly raw material prices, production costs as well advance. The divestment of Peak Performance has resulted in a marginal decline of the geographical distribution of Group as the consumer demand activities. • Adjustment of capacity costs to the extent that it is not deemed to have a negative impact on the long-term strategy execution of the Group brands.
2 Risk of loss of brand value through negative publicity in the • Strong control of quality level during the collection development process. media or changed brand perception with the core customers • Pro-active corporate responsibility policy as well as guidelines and stringent requirements for the product development process. • Distribution channels are adjusted and developed on an on-going basis to support the brand values in the best possible way. • Significant internal resources are allocated to brand building and marketing.
3 Purchase and sale in own stores, including risk of too high • All Group brands work with Sales and Operations Planning in order to optimize purchase of goods to own sales channels. inventory levels and consequently the risk of increased • A network of outlets to where surplus products are channeled and are sold continuously reduces the need for periods with discounted sales discounted sales in the stores and capacity in this network is increased or reduced as required.
4 Fashion and collection risks as a consequence of continuously • Commercial and facts-based approach to collection development where sales statistics and analyses of market trends are changing fashion trends compared to current fashion trends. • A certain level of diversification at Group level due to the number of different and independent brands in the Group portfolio. The divestment of Peak Performance has resulted in a smaller level of diversification at Group level.
5 Loss of key employees • Through the work on HR, guidelines, tools, processes and training are being developed and updated, and an employee surveys are conducted to retain and develop employees.
6 Political risks, including particularly China and Romania • Continuously monitoring of the political conditions of the global sourcing markets. which account for 33% (43%) and 41% (18%) of the Group’s • Geographic relocation of sourcing may take place if deemed necessary. sourcing, respectively
7 Logistics and order handling, including the risk of late, faulty • The Group’s logistics function is continuously working to optimize order handling and enhance the planning systems. Timely or non-delivery delivery to own stores, consumers and wholesale customers is a key focus area.
8 IT risks, including unauthorized access, cybercrime and • The Group’s IT function manages these risks by continuous maintenance of systems, using IT security technologies and keeping system downtime back-up of critical data.
9 Financial risks, including in particular foreign currency • The Group monitors, hedges and controls all financial risks centrally through the finance function in the Parent Company in exposure risk accordance with the Finance Policy as adopted by the Board of Directors. See note 5.3 to the consolidated financial statements for further information. The divestment of Peak Performance has resulted in the Group’s relative foreign exchange exposure in USD, SEK as well as NOK has been reduced significantly.
10 Suppliers, including risk of errors and omissions of ordered • Compliance control of the Group’s business and ethical standards through a systematic scoring of all suppliers. products as well as being dependent of few key suppliers • The Group has a total of 105 (148) suppliers of which the 10 largest suppliers account for 56% (45%) of the total production value. The largest individual supplier accounts for 24% (13%) of the total production value, and the Group is thus not dependent of one individual supplier. The divestment of Peak Performance has resulted in an increase of the Group’s relative supplier dependence.
ANNUAL REPORT 2017/18 — IC GROUP A/S 28 MANAGEMENT COMMENTARY – THE GROUP’S WORK WITH CORPORATE RESPONSIBILITY
THE GROUP’S WORK WITH CORPORATE RESPONSIBILITY
As part of the global apparel and fashion industry, IC Group is committed to being a responsible company working with integrity and sustainability. All of the Group brands strive at creating stakeholder value by addressing and solving the different challenges which any company of the apparel and fashion industry faces.
CORPORATE RESPONSIBILITY POLICY To read IC Group’s Corporate Responsibility in the composition of the Board of Directors We are part of an industry with many Policy and our specific policies, go to our and in the recruitment pool of new board corporate responsibility challenges, and we corporate website at: icgroup.net/ candidates. Previously, the reported target for take these issues seriously. responsibility/ female board members was set at 33% within 30 June 2019. We did not achieve this which is IC Group joined the UN Global Compact in DIVERSITY primarily attributable to the recruitment base 2007, and our corporate responsibility efforts IC Group has signed ”Recommendation for not allowing for this target to be fulfilled. are grounded in the UN Global Compact’s 10 more women on supervisory boards”, and it is principles which are based on internationally the Group’s policy, over the coming years, to The representation of male and female adopted declarations and conventions on work consistently to recruit more female managers is distributed equally at all other human rights, labour rights, environmental managers in the Company in general. organizational levels in the Group. protection and anti-corruption. Together, the Pursuant to section 99b of the Danish Financial UN Global Compact and the UN Guiding Statement Act, the Group’s gender diversity The complete Statutory Corporate Principles constitute the overall framework to targets and its actual gender distribution are Responsibility Report for the financial year guide corporate responsibility policies and set out below. 2017/18 is available on the corporate implementation processes in the Group. website at: icgroup.net/responsibility/ The proportionate share of females in IC corporate-responsibility-report/ By joining the UN Global Compact, we have Group’s Board of Directors constituted 17% at pledged to work pro-actively internally as well 30 June 2018. The Board of Directors’ specific as externally in cooperation with our suppliers target is to increase the percentage of female to promote compliance with these principles. board members to 33% by 30 June 2021 at the We strive at making a positive difference and latest. This target must be reached through a setting up due diligence processes to avoid continues dialogue within the Board of non-compliance issues. Directors on how to ensure optimum diversity
ANNUAL REPORT 2017/18 — IC GROUP A/S 29 MANAGEMENT COMMENTARY – THE GROUP’S WORK ON CORPORATE GOVERNANCE
CORPORATE GOVERNANCE THE GROUP’S WORK ON RECOMMENDATIONS With 2 exceptions, IC Group complies with all Recommendations on Corporate CORPORATE GOVERNANCE Governance issued by NASDAQ OMX Copenhagen (which are based on the Recommendations from the Committee on Corporate Governance). Corporate governance is considered to be an inherent and decisive factor in achieving the Group’s strategic targets. Consequently, continuous development of the Group Management and follow-up on their The complete Statutory Annual performance is an on-going process to ensure an efficient, appropriate and sound management of the Corporate Governance Statement Company which is in compliance with the Recommendations on Corporate Governance. for the financial year 2017/18, cf. section 107b of the Danish Financial Statements Act, is available on the corporate website at: icgroup.net/ MANAGING SHAREHOLDERS’ INTERESTS To read IC Group’s Articles of Association, Committee. Furthermore, the Board of Directors investors/corporate-governance/ The Board of Directors considers it its primary go to the corporate website at: icgroup. will on an on-going basis assess the need for statutory-report/ task to promote the long-term interests of the net/investors/corporate-governance/ establishing other specific ad hoc committees. Group – and thus of all shareholders. To articles-of-association/ undertake this task, the Board of Directors For further information on the Board of holds 5 regular board meetings a year, and BOARD OF DIRECTORS AND Directors and the individual board the Chairmanship engages in an on-going BOARD COMMITTEES committees, go to the corporate website Information on remuneration to the Board dialogue with the Executive Board. The Board of Directors is composed with at: icgroup.net/investors/corporate- of Directors and the Executive Board is emphasis on extensive experience within both governance/board-directors/ presented in note 6.1 to the consolidated As expressed in the Group’s Statutory Annual the fashion industry and general management. financial statements, whereas details on Corporate Governance Statement, the Board It is furthermore emphasized that the Board of REMUNERATION POLICY AND warrants and options granted to a number of Directors has reviewed the Group’s Directors collectively has a professional broad INCENTIVE PAY of members of the Executive Board and relationship with its stakeholders and spectrum, extensive experience and With the purpose of promoting common other executives are presented in note 6.2 environment as well as the tasks of the Board documented strategic and managerial interests between shareholders, the Executive to the consolidated financial statements. of Directors and the Executive Board and their competences to the effect that the Board of Board and other executives and creating a interaction with each other. The corporate Directors can perform their tasks in the best working environment where focus is on meeting OWNERSHIP STRUCTURE AND governance statement describes the possible way. All board members are elected the Group’s targets, IC Group has established TAKEOVER BIDS framework for the Management’s working for one-year terms. bonus and share-based incentive programmes. A description of the Group’s ownership procedures which are intended to ensure Members of the Board of Directors are not structure is provided in the section efficient, appropriate and sound management In compliance with the recommendations from included in the incentive programmes. Shareholders information and share of IC Group. This framework has been NASDAQ OMX Copenhagen, the Board of performance on page 34. In the event of any prepared within the scope of IC Group’s Directors has assessed the need for For further information on IC Group’s takeover bids, no significant agreements will Articles of Association, strategy and values as establishing special, permanent board Remuneration Policy and incentive pay, go to be affected. well as the prevailing legislation and rules committees. As a result of this, the Board of the corporate website at: icgroup.net/ applicable for Danish listed companies. Directors has appointed an Audit Committee, investors/corporate-governance/ a Remuneration Committee and a Nomination remuneration-policy/
ANNUAL REPORT 2017/18 — IC GROUP A/S 30 MANAGEMENT COMMENTARY – EXECUTIVES
EXECUTIVES
ALEXANDER MARTENSEN-LARSEN* HANS-CHRISTIAN MEYER MORTEN LINNET CEO, IC Group (2017), (Born 1975) CEO, Tiger of Sweden (2017), (Born 1970) CEO, By Malene Birger (2015), (Born 1970)
Alexander Martensen-Larsen holds a BSc in Since Hans-Christian Meyer completed his Morten has served as Vice President of International Business from Copenhagen education in Aarhus, Denmark, he has lived Corporate HR at IC Group where he has Business School and has earned an MBA from abroad and worked in Germany, Sweden and worked on various business projects since IMD Business School. Previously, Alexander the UK for a number of years. Most recently in 2006. Morten holds a B.Com. in Business Martensen-Larsen served as Director in London as President Retail, EMEA, as well as Finance and has previously held positions Corporate Business Development at TDC and part of the Global Management Team at Ralph with Nordea, as a Financial Analyst at Morgan Lauren. Before this, Hans-Christian Meyer was GN Store Nord and Mars Inc. Stanley Investment Banking in London. Senior Vice President and Managing Director of Ralph Lauren in Scandinavia and the Baltic No. of shares: nil (nil) Former Group CFO and member of the region. Hans-Christian has also worked in No of performance shares: 9,988 (9,988) Executive Board since 2015. the management of the Danish companies Sand and Red//Green. Chairman of the Board of Directors of Designers Remix A/S. No. of shares: nil No. of shares: 5,000 (5,000) No of performance shares: nil No of performance shares: 14,920 (14,920) * The Executive Board of IC Group A/S
ANNUAL REPORT 2017/18 — IC GROUP A/S 31 MANAGEMENT COMMENTARY – BOARD OF DIRECTORS
BOARD OF DIRECTORS
PETER THORSEN HENRIK HEIDEBY NIELS MARTINSEN Chairman (Born 1966) Deputy Chairman (Born 1949) Board member (Born 1948) CEO, Kirk & Thorsen A/S CEO, Friheden Invest A/S Henrik Heideby has acquired extensive national and As former CEO of Louis Poulsen, Chairman of international management experience and skills in As the founder of InWear and long-time CEO of BoConcept as well as a number of other businesses, financing, risk management, etc., from his previous InWear Group A/S, later IC Companys A/S, Niels Peter Thorsen has extensive experience in roles as Group CEO of PFA Pension, Alfred Berg Bank Martinsen has acquired extensive national and management, strategy, retail operations, business and FIH Erhvervsbank and as a member of the international management experience and solid development and optimization of business models. Board of Directors of other businesses. knowledge of the international fashion industry. Niels Martinsen also has experience as a member of Chairman of the Board of Directors of Chairman of the Board of Directors of Carlsberg the Board of Directors of other businesses. TK Development as well as Droob ApS. Byen P/S, Kirk & Thorsen Invest A/S, Blue Equity Management A/S, Greystone Capital Partners A/S Member of the Board of Directors of Member of the Board of Directors of Kirk & Thorsen as well as HanCa Holding Aps. Friheden Invest A/S. Invest A/S, Kirk & Thorsen A/S, Thorsen A/S as well as ET 1 ApS. Deputy Chairman of the Board of Directors of Member of the Board of Directors: 2001 TK Development A/S. Member of the Audit Committee: 2009 Member of the Board of Directors: 2016 Chairman of the Board of Directors: 2017 Member of the Board of Directors of FIH A/S Considered a non-independent member of Chairman of the Remuneration Committee: 2017 as well as FIH Holding A/S the Board of Directors Chairman of the Nomination Committee: 2017 No. of shares: 9,386,358 (7,566,128) Member of the Audit Committee: 2016 Member of the Board of Directors: 2005 through Friheden Invest A/S controlled by Deputy Chairman of the Board of Directors: 2017 Niels Martinsen Considered an independent member of Chairman of the Audit Committee: 2017 the Board of Directors Member of the Nomination Committee: 2016 No. of shares: 313,855 (191,556) Considered a non-independent member of the Board of Directors ANNUAL REPORT 2017/18 — IC GROUP A/S No. of shares: 12,500 (12,500) 32 MANAGEMENT COMMENTARY – BOARD OF DIRECTORS
BOARD OF DIRECTORS
MICHAEL HAUGE SØRENSEN CONNY KALCHER JÓN BJÖRNSSON Board member (Born 1973) Board member (Born 1957) Board member (Born 1968) Partner, MindFolio Limited CEO, Festi Iceland Michael Hauge Sørensen has acquired extensive national and international management Conny Kalcher has throughout her career in the LEGO Jón Björnsson has acquired long and extensive experience from a closely related industry and Group acquired strong competences within branding experience within retail thus holding strong therefore has strong business know-how and and marketing – in particular online channels. Conny competences within merchandizing and optimized knowledge in all areas of the value chain, has held several executive positions within the LEGO operations as well as e-commerce. Furthermore, including product development and marketing, Group where she has developed and had the Jón has over 20 years of retail management international sales, retail and production. responsibility of implementing the group’s global experience from several executive positions – marketing and brand strategies. including, among others, CEO of Magasin du Nord. Chairman of the Board of Directors of Fristad Kansas AB, TOP-TOY A/S, TT Holding II A/S, Member of the Board of Directors of Member of the Board of Directors of Åhlens TT Holding III A/S as well as Homemate Aps. DK-UK Association as well as member of as well as Boozt Fashion. Bain’s NPS Client Group, Consumer Advocacy. Member of the Board of Directors of Zebra A/S, Member of the Board of Directors: 2017 Michaso Holdings Limited, Elevate Global Limited Member of the Board of Directors: 2017 Member of the Nomination Committee: 2017 as well as Santa Fe Group A/S. Member of the Remuneration Committee: 2017 Considered an independent member of Member of the Board of Directors: 2014 Considered an independent member of the Board of Directors Member of the Remuneration Committee: 2017 the Board of Directors No. of shares: nil (nil) No. of shares: 4,683 (2,857) Considered an independent member of the Board of Directors No. of shares: 1,350 (1,350)
ANNUAL REPORT 2017/18 — IC GROUP A/S 33 MANAGEMENT COMMENTARY – SHAREHOLDER INFORMATION AND SHARE PERFORMANCE
SHAREHOLDER INFORMATION AND SHARE PERFORMANCE
SHARE CAPITAL AND SHARE OWNERSHIP STRUCTURE Share performance Shareholders at PERFORMANCE At 30 June 2018, IC Group had 5,089 registered (1 July 2017 = index 100) 30 June 2018 IC Group is listed on NASDAQ OMX shareholders who combined held 98% of the Copenhagen and forms part of the MidCap total share capital. The Group has one share Index Number Share index. class, and the share of votes is equivalent to of shares capital 130 the share capital of the Group’s shareholders. Friheden Invest A/S* Share capital 17.1 million shares The breakdown of shareholders is set out in 120 (Hørsholm, DK) 9,386,358 54.9% Nominal value per share DKK 10 the table at the right. 110 Nordea OY Closing price at 30 June 2017 DKK 140.0 (Helsinki, FI) 1,249,165 7.3% 100 Closing price at 30 June 2018 DKK 160.2 INVESTOR RELATIONS ATP (Hillerød, DK) 1,219,973 7.1% Change during the financial year 14.3% The Group aims at informing NASDAQ 90 Highest closing price during the Copenhagen A/S, current and potential 80 Other Danish financial year (28 June 2018) DKK 162.4 investors as well as analysts and other market Aug. 17 Oct. 17 Dec. 17 Feb. 18 Apr. 18 institutional investors 2,395,346 17.5% participants quickly and accurately about all Danish private investorer 1,051,775 6.1% At the end of the financial year 2017/18, the relevant matters relating to the Group. The IC Group A/S market capitalization of IC Group amounted to purpose of such information is to increase the Foreign NASDAQ OMX MidCap institutional investors 898,497 1.8% DKK 2.7 billion. knowledge of IC Group as well as give NASDAQ OMX C25 CAP investors structured, continuous and relevant Foreign private TREASURY SHARES information that meets the requirements for investors 56,989 0.3% At 30 June 2018, the Group owned 442,572 information when making investment decisions Treasury shares 442,572 2.6% (442,572) shares to cover outstanding share about the IC Group share. Non-registered options. This number of shares corresponds to shareholders 390,182 2.3% 2.6% of the total number of issued shares and For further information on the Group’s is at the same level as at 30 June 2017. Investor Relations Policy, financial Total 17,090,858 100% statements, company announcements, * Friheden Invest A/S is controlled by Niels Martinsen, financial calendar, etc., go to the corporate member of the Group’s Board of Directors. website at: icgroup.net/investors/
ANNUAL REPORT 2017/18 — IC GROUP A/S 34 FINANCIAL STATEMENTS
CONSOLIDATED FINANCIAL STATEMENTS
INTRODUCTION TO THE PRIMARY FINANCIAL STATEMENTS CHAPTER 3. WORKING CAPITAL CHAPTER 6. GOVERNANCE FINANCIAL STATEMENTS The consolidated financial statements for the Consolidated income statement 36 3.1 Inventories 54 6.1 Remuneration to the Executive Board financial year 2017/18 have been prepared in Consolidated statement of 3.2 Trade receivables 54 and Board of Directors 72 accordance with the International Financial 3.3 Working capital 55 6.2 Share-based remuneration 74 Reporting Standards (IFRS) as adopted by the comprehensive income 36 EU and additional disclosure requirements Consolidated statement of 3.4 Other adjustments, statement of 6.3 Related parties 77 pursuant to the Danish Financial Statements Act. financial position 37 cash flows 55 6.4 Fee to auditors elected at the annual Consolidated statement of general meeting 77 The consolidated financial statements have changes in equity 38 been divided into 8 sections: primary financial CHAPTER 4. INVESTED CAPITAL statements, basis for preparation, profit for the Consolidated statement of cash flows 39 CHAPTER 7. SUPPLEMENTARY NOTES year, working capital, invested capital, capital structure, governance as well supplementary 4.1 Intangible assets 57 notes. CHAPTER 1. BASIS FOR PREPARATION 4.2 Property, plant and equipment 60 7.1 Retirement benefit obligations 79 7.2 Provisions 80 Each note to the consolidated financial 1.1 Significant accounting policies 41 7.3 Contingent liabilities 81 statements provides information on CHAPTER 5. CAPITAL STRUCTURE 7.4 Events after the reporting period 81 accounting policies and any accounting 1.2 Significant accounting estimates 42 estimates. 5.1 Equity 63 CHAPTER 2. PROFIT FOR THE YEAR 5.2 Net interest-bearing debt 64 5.3 Financial risks and derivative financial
2.1 Segment information 44 instruments 65 2.2 Staff costs 47 5.4 Fair value measurement of financial 2.3 Tax 48 instruments 69 2.4 Discontinued operations 51 5.5 Financial income and costs 70 2.5 Sale of businesses 52 5.6 Operating leases 70
ANNUAL REPORT 2017/18 — IC GROUP A/S 35 FINANCIAL STATEMENTS
CONSOLIDATED INCOME CONSOLIDATED STATEMENT STATEMENT OF COMPREHENSIVE INCOME 1 JULY - 30 JUNE 1 JULY - 30 JUNE
DKK million Note 2017/18 2016/17 DKK million Note 2017/18 2016/17
Revenue 2.1 1,535 1,714 Profit for the year 1,606 92 Cost of sales (623) (713) Gross profit 912 1,001 OTHER COMPREHENSIVE INCOME Items to be reclassified to the income statement when certain Other external costs (373) (437) conditions are met: Staff costs 2.2 (426) (478) Hedging transactions: Other operating income and costs 2 - Fair value adjustments, gains/loss on financial instruments 38 (18) Operating profit before depreciation and amortization related to cash flow hedges (EBITDA) 115 86 Reclassification to the income statement, gains/loss on financial (1) (11) Depreciation, amortization and impairment losses 4.1, 4.2 (58) (62) instruments related to realized cash flow hedges Operating profit (EBIT) 57 24 Tax on items which may be reclassified to the income statement (8) 6 Foreign currency translation adjustments: Financial income 5.5 25 8 Foreign currency translation adjustments, foreign subsidiaries 20 (8) Financial costs 5.5 (35) (11) and intercompany loans* Profit before tax 47 21 Items which cannot be reclassified to the income statement: Actuarial adjustments** (1) 1 Tax on profit for the year of continuing operations 2.3 (11) (5) Other comprehensive income after tax 48 (30) Profit for the year of continuing operations 36 16 Total comprehensive income 1,654 62 Profit for the year of discontinued operations 2.4 1,570 76 Profit for the year 1,606 92 Allocation of comprehensive income for the year: Profit allocation: Shareholders of IC Group A/S 1,652 59 Shareholders of IC Group A/S 1,604 89 Non-controlling interests 2 3 Non-controlling interests 2 3 Total 1,654 62 Profit for the year 1,606 92 * Of which DKK 42 million are attributable to sale of businesses. Earnings per share, DKK 5.1 96.3 5.3 ** Of which DKK (1) million is attributable to sale of businesses. Diluted earnings per share, DKK 5.1 96.3 5.3 Earnings per share of continuing operations, DKK 5.1 2.0 0.8 Diluted earnings per share of continuing operations, DKK 5.1 2.0 0.8
ANNUAL REPORT 2017/18 — IC GROUP A/S 36 FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF FINANCIAL POSITION AT 30 JUNE
DKK million Note 2018 2017 DKK million Note 2018 2017
ASSETS EQUITY AND LIABILTIES NON-CURRENT ASSETS EQUITY Intangible assets 4.1 139 246 Share capital 5.1 171 171 Property, plant and equipment 4.2 86 149 Reserve for hedging transactions 20 (9) Financial assets 5.3 11 22 Translation reserve (50) (70) Deferred tax 2.3 38 61 Retained earnings 2,141 621 Total non-current assets 274 478 Equity attributable to shareholders of the Parent Company 2,282 713
CURRENT ASSETS Equity attributable to non-controlling interests 12 10 Inventories 3.1 211 394 TOTAL EQUITY 2,294 723 Trade receivables 3.2 178 277 Tax receivable 2.3 32 49 LIABILITIES Other receivables 75 32 Retirement benefit obligations 7.1 - 8 Prepayments 44 94 Deferred tax 2.3 3 7 Cash 5.2 1,941 69 Provisions 7.2 5 11 Total current assets 2,481 915 Other liabilities 4 - TOTAL ASSETS 2,755 1,393 Total non-current liabilities 12 26
Current liabilities to credit institutions 5.2 68 86 Trade payables 177 276 Tax payable 2.3 6 10 Other liabilities 183 223 Provisions 7.2 15 49 Total current liabilities 449 644 Total liabilities 461 670 TOTAL LIABILITIES 2,755 1,393
ANNUAL REPORT 2017/18 — IC GROUP A/S 37 FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY 1 JULY - 30 JUNE
2018 Equity Equity ACCOUNTING POLICIES Reserve owned by owned by Share for hedging Translation Retained Proposed shareholders non-contr. Total DKK million capital transactions reserve earnings dividend of ICG A/S interests equity RESERVE FOR HEDGING TRANSACTIONS Equity at 1 July 2017 171 (9) (70) 536 85 713 10 723 Reserve for hedging transactions Profit for the year - - - 1,521 83 1,604 2 1,606 comprises the accumulated net change Other comprehensive income of the fair value of hedging transactions after tax - 29 20 (1) - 48 - 48 which qualify for recognition as cash flow hedges, and where the hedged transaction has not yet been realized, less tax. Total comprehensive income - 29 20 1,520 83 1,652 2 1,654
TRANSLATION RESERVE Transactions with owners: The translation reserve comprises the Dividend on treasury shares - - - 2 (2) - - - shareholders of the Parent Company’s Dividend paid - - - - (83) (83) - (83) share of foreign exchange differences Changes in equity during arising in connection with the translation of 2017/18 - 29 20 1,522 (2) 1,569 2 1,571 foreign subsidiaries’ financial statements Equity at 30 June 2018 171 20 (50) 2,058 83 2,282 12 2,294 as well as intercompany loans reported in their functional currency into the IC Group’s reporting currency (DKK). 2017 Equity Equity Reserve owned by owned by Share for hedging Translation Retained Proposed shareholders non-contr. Total DKK million capital transactions reserve earnings dividend of ICG A/S interests equity
Equity at 1 July 2016 171 14 (62) 525 85 733 7 740 Profit for the year - - - 4 85 89 3 92 Other comprehensive income after tax - (23) (8) 1 - (30) - (30)
Total comprehesive income - (23) (8) 5 85 59 3 62
Transactions with owners: Dividend on treasury shares - - - 2 (2) - - - Dividend paid - - - - (83) (83) - (83) Exercise of warrants - - - 4 - 4 - 4 Changes in equity during 2016/17 - (23) (8) 11 - (20) 3 (17) Equity at 30 June 2017 171 (9) (70) 536 85 713 10 723
ANNUAL REPORT 2017/18 — IC GROUP A/S 38 FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF CASH FLOWS 1 JULY - 30 JUNE
DKK million Note 2017/18 2016/17 CASH FLOW FROM OPERATING ACTIVITIES ACCOUNTING POLICIES Operating profit, continuing operations 2.1 57 24 Operating profit, discontinued operations 2.4 127 101 Operating profit 184 125 STATEMENT OF CASH FLOWS Other adjustments 3.4 35 124 The statement of cash flows shows the Change in working capital 3.3 101 (9) cash flows from operating, investing and Cash flow from ordinary operating activities 320 240 financing activities for the year, and the net cash flows for the year as well as cash and Financial income received 3 4 cash equivalents at the beginning and at Financial costs paid (4) (5) the end of the financial year. Cash flow from operating activities 319 239 The statement of cash flows presents cash Tax paid 2.3 (42) (64) flow from operating activities indirectly Total cash flow from operating activities 277 175 based on the operating profit. CASH FLOW FROM INVESTING ACTIVITIES Investments in intangible assets 4.1 (8) (17) Cash flow from operating activities is Investments in property, plant and equipment 4.2 (53) (72) calculated as operating profit adjusted Sale of businesses 2.5 1,750 - for non-cash operating items, provisions, Change in other financial assets 5.3 3 1 financials paid, change in working capital Total cash flow from investing activities 1,692 (88) as well as taxes paid.
Total free cash flow 1,969 87 Cash flow from investing activities includes CASH FLOW FROM FINANCING ACTIVITIES payments regarding acquisition and Change in non-current liabilities 4 - sale of non-current assets and securities, Dividend paid 5.1 (83) (83) including investments in businesses. Exercise of warrants - 4 Total cash flow from financing activities (79) (79) Cash flow from financing activities includes Net cash flow for the year 1,890 8 payments to and from shareholders as well as the raising and repayment of non- CASH AND CASH EQUIVALENTS current liabilities not included in working Cash and cash equivalents at 1 July (17) (25) capital. Net cash flow for the year 1,890 8 Cash and cash equivalents at 30 June 1,873 (17) Cash and cash equivalents comprise DKK million 2018 2017 cash and net short-term bank loans that are an integral part of the Group’s cash Cash and cash equivalents in the statements of cash flows comprise: management. Cash 1,941 69 Current liabilities to credit institutions (68) (86) Cash and cash equivalents, cf. statement of cash flows 1,873 (17)
ANNUAL REPORT 2017/18 — IC GROUP A/S 39 FINANCIAL STATEMENTS
CHAPTER 1 BASIS FOR PREPARATION
CONTENTS
1.1 SIGNIFICANT ACCOUNTING POLICIES 1.2 SIGNIFICANT ACCOUNTING ESTIMATES
This chapter describes the significant accounting policies for the Group as a whole. Significant accounting policies which relate to a primary statement, specific accounting item or note are described in the relevant note. Furthermore, this chapter contains a description of the new IFRS standards and interpretations, and how these are expected to affect the Group’s financial position and performance.
ANNUAL REPORT 2017/18 — IC GROUP A/S 40 FINANCIAL STATEMENTS
1.1. SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements for the IMPLEMENTATION OF NEW IFRS rewards are transferred. IC Group has assessed financial year 2017/18 have been prepared in STANDARDS AND INTERPRETATIONS the impact of this new standard on recognition ACCOUNTING POLICIES accordance with the International Financial IASB has issued, and the EU has adopted, a and measurement of revenue from contracts with Reporting Standards (IFRS) as adopted by the EU number of new standards, interpretations (IFRIC) customers, and the implementation will not have and additional disclosure requirements pursuant and has revised some of the existing standards, any material impact on the consolidated financial The significant accounting policies deemed to the Danish Financial Statements Act. including IFRS improvement projects for 2014– statements. The time for recognition of revenue by Management to be material for the 2016 as well as amendment to IAS 1 and IAS 12. IC may restrictedly, in isolated cases, be changed. understanding of the consolidated financial The consolidated financial statements comprise Group A/S has implemented the standards with In addition, IFRS 15 requires that provisions for statements are listed in the statement of many complex transactions which are classified effect from the financial year beginning 1 July 2017, return of products must be presented gross changes in equity, statement of cash flows according to nature or function. If an item in itself and these have not had any material impact on in the statement of financial position under as well as below where they are described is not deemed material, it will be consolidated the financial statements of IC Group A/S. inventories and provisions, respectively. Similarly, in more detail in the relevant notes: with other items of a uniform nature in the the implementation will not have any material consolidated financial statements or in the notes. New IFRS standards issued, but not impact on the classification of assets and liabilities, The disclosure requirements provide specific yet effective respectively. The implementation will have no 2.1 Segment information information on the requirements under IFRS, IASB has issued and the EU has adopted IFRS impact on the income statement. IC Group will 2.2 Staff costs unless such information is considered to be 9 ”Financial Instruments” which is effective for implement the standard for the financial year 2.3 Tax insignificant to the economic decisions of users of annual periods beginning on or after 1 January 2018/19 by applying the simplified method where 2.4 Discontinued operations these statements or considered irrelevant. 2018. IFRS 9 forms part of IASB’s project to replace comparative figures are not adjusted. 2.5 Sale of businesses IAS 39, and with this new standard, classification 3.1 Inventories The accounting policies applied in this Annual and measurement of financial instruments as IASB has issued and adopted IFRS 16 ”Leases” 3.2 Trade receivables Report are unchanged as compared to the well as hedging requirements will be changed. which is effective for annual periods beginning 4.1 Intangible assets accounting policies applied in the Annual Report IC Group has assessed the impact of this new on or after 1 January 2019. IFRS 16 forms part of 4.2 Property, plant and equipment 2016/17 except from the below-mentioned standard on financial instruments, and the IASB’s project to replace IAS 17, and with this new 5.1 Equity exceptions. Few reclassifications and adjustments implementation will not have any material impact standard, recognition and measurement of leases 5.2 Net interest-bearing debt of the comparative figures have been made on the consolidated financial statements. Similarly, will be changed significantly. IC Group is currently 5.3 Financial risks and derivative due to the accounting standard applied in the implementation will not have any material assessing the impact of this new standard on financial instruments respect of discontinued operations as well as impact on the impairment model for financial leases. Pursuant to this new standard, a lease 5.5 Financial income and costs the requirement of classification of discontinued assets. IC Group will implement the standard for asset and a lease liability must be recognized 5.6 Operating leases operations. Furthermore, a number of minor the financial year 2018/19. for all contracts with a lease term more than 12 6.2 Share-based remuneration reclassifications and adjustments of the months, except for assets with a low value. At 7.1 Retirement benefit obligations comparative figures have been made. IASB has issued and the EU has adopted IFRS present, IC Group has not assessed the impact on 7.2 Provisions 15 ”Revenue from Contracts with Customers” the income statement, the statement of financial 7.3 Contingent liabilities After having divested Peak Performance, the which is effective for annual periods beginning position and the classification of cash flow when segment information has been changed in this on or after 1 January 2018. IFRS 15 forms part of a implementing this standard. However, the Group Annual Report, and in the future the Group will joint project with FASB to replace IAS 18 and IAS expects that particularly the lease terms will report on its four remaining brands Tiger of 11 as well as interpretations. The new standard have an impact on the income statement, cash The list above specifies the notes that include Sweden, By Malene Birger, Saint Tropez and provides detailed framework definitions of flow as well as statement of financial position detailed accounting policies. Designers Remix. This segmentation reflects the revenue recognition and requires that revenue is when lease assets and lease liabilities are reporting to the Group’s Chief Operating Decision recognized when or as control is transferred to the recognized. In addition, IC Group’s key ratios Maker. customer whether it is transferred over time or at will also be affected, in particular EBITDA as a a point in time in contrast to the existing standards consequence of reclassification of rent payments See note 2.1 for further segment information. where revenue is recognized when or as risks and to depreciation and interest payments on the
ANNUAL REPORT 2017/18 — IC GROUP A/S 41 FINANCIAL STATEMENTS
1.1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) recognized liability to financial costs. The free cash environment in which the individual reporting period, while income statements are translated 1.2. SIGNIFICANT flow will be positively impacted as the repayment entity operates. Transactions in currencies other into DKK at monthly average exchange rates ACCOUNTING of the lease liability is classified as cash flow from than the functional currency are transactions during the year. financing activities instead of cash flow from denominated in foreign currencies. ESTIMATES operating activities. At 30 June 2018, an amount Foreign exchange differences arising on the of DKK 179 million (DKK 368 million) was disclosed The consolidated financial statements and the translation of foreign subsidiaries’ opening equity In the preparation of the consolidated financial as operating leases in respect of cars and stores. parent company financial statements are reported using the exchange rates ruling at the end of the statements of IC Group A/S, Management makes IC Group will implement the standard for the in Danish Kroner (DKK). DKK is considered the reporting period as well as on the translation of various significant accounting estimates and financial year 2019/20. primary currency of the Group’s operations and the income statements using average exchange assumptions that may affect the reported values the functional currency of the Parent Company rates at the end of the reporting period are of assets, liabilities, income, costs, cash flow and See note 5.6 for further information of the recognized under other comprehensive income. related information at the reporting date. Group’s operating leases. Foreign currency translation On initial recognition, transactions denominated PREPAYMENTS, ASSETS The accounting estimates are based on past BASIS OF CONSOLIDATION in foreign currencies are translated into the Prepayments recognized under assets comprise experience and other factors deemed reasonable The consolidated financial statements consist functional currency at the exchange rate ruling costs incurred relating to the following financial in the circumstances. By their nature, such of the financial statements of IC Group A/S (the at the transaction date. Foreign exchange year, including collection samples, rent, insurance, estimates are subject to some uncertainty and the Parent Company) and its subsidiaries in which differences arising between the exchange rates etc. Prepayments are measured at cost. actual results may deviate from these estimates. the Company’s voting rights directly or indirectly at the transaction date and the date of payment The estimates are continuously evaluated and the exceed 50%, or in which the Company is able to are recognized in the income statement under effect of any changes is recognized in the relevant exercise a controlling interest in any other way. financial income or costs, respectively. period. The consolidated financial statements are Receivables, payables and other monetary items The significant accounting estimates and prepared on the basis of the parent company denominated in foreign currencies are translated assumptions deemed by Management to be financial statements and the individual into the functional currency at the exchange rates material for the preparation and understanding subsidiaries by consolidating items of a ruling at the end of the reporting period. The of the consolidated financial statements are uniform nature. Equity interests, intercompany difference between the exchange rate ruling at listed below and described in more detail in the transactions, intercompany balances, unrealized the end of the reporting period and the exchange relevant notes: intercompany gains on inventories and dividends rate at the date when the receivable or payable are eliminated. arose or was recorded in the most recent financial statements is recognized in the income statement The items of the financial statements of under financial income or costs. Property, plant subsidiaries are fully consolidated in the and equipment and intangible assets, inventories consolidated financial statements. The and other non-monetary assets acquired in SIGNIFICANT proportionate share of the income from foreign currencies and measured based on non-controlling interests is recognized in the historical cost are translated at the exchange ACCOUNTING ESTIMATES consolidated income statement for the year. rates ruling at the transaction date. 2.3 Tax FOREIGN CURRENCY Translation in the consolidated financial 3.1 Inventories Functional currency statements 3.2 Trade receivables For each of the reporting entities in the Group, a The statements of financial position of foreign 4.1 Intangible assets functional currency is determined. The functional subsidiaries are translated into DKK at the 4.2 Property, plant and equipment currency is the currency in the primary economic exchange rate ruling at the end of the reporting 7.2 Provisions
ANNUAL REPORT 2017/18 — IC GROUP A/S 42 FINANCIAL STATEMENTS
CHAPTER 2 PROFIT FOR THE YEAR
CONTENTS IC Group operates within a global tax platform Revenue decline (local currency) due to its international operations. The Group’s 2.1 SEGMENT INFORMATION tax strategy is to optimize its tax practice 2.2 STAFF COSTS proactively both in respect of payment of 2.3 TAX indirect and direct taxes while operating at all 2.4 DISCONTINUED OPERATIONS times in accordance with applicable law. The 9.2% 2.5 SALE OF BUSINESSES Group’s effective tax rate amounted to 23% for 2017/18 (24%). Revenue decline in reported currency amounted to 10.4%. This chapter provides a specification of the consolidated operating profit. The FINANCIAL KEY RATIOS Group segments are based on each of the four continuing business units (brands) of the Revenue development (DKK million) Group’s portfolio. All brands are operated as Operating profit, DKK million independent business units, each with their own well-defined strategy plan, and they are 1 72 1 71 1 1 8 responsible for their financial performance. 1 The financial performance of the individual 57 segments is presented in note 2.1. Corresponding to an EBIT margin of 3.7%. IC Group generated a consolidated revenue of DKK 1,535 million (DKK 1,714 million) and an operating profit (EBIT) of DKK 57 million (DKK 2013/14 2014/15 2015/16 2016/17 2017/18 24 million) for 2017/18. Revenue
ANNUAL REPORT 2017/18 — IC GROUP A/S 43 FINANCIAL STATEMENTS
2.1 SEGMENT INFORMATION
BUSINESS SEGMENTS Geographic breakdown of reportable Reporting to the Executive Board, which is Geographic breakdown of revenue (%) assets (DKK million)* considered to be the Chief Operating Decision Maker, is based on the separate reporting of each of the Group’s four continuing business units (brands). The figures have been adjusted 22 after the divestment of Peak Performance. The 22 1 comparartive figures for 2016/17 have been 22 adjusted to the new business segments. 87
UNALLOCATED ITEMS AND ELIMINATIONS In all material respects, unallocated items and eliminations include; 10 12 • income and costs in Group functions which are not allocated to the Group’s business 2017/18 – DKK 1,535 million 2017/18 – DKK 225 million segments;
• intercompany eliminations; and 8 • any differences arising between costs 2 2 invoiced to Group brands and realized costs 18 127 in the Group’s service functions. 1
GEOGRAPHIC INFORMATION Revenue is allocated to the geographic areas based on the customer’s geographic location. Allocation of assets is made based on the 1 geographic location of the assets. In all material aspects, geographic breakdowns of 18 Group revenue and assets are as follows: 2016/17 – DKK 1,714 million 2016/17 – DKK 395 million
Denmark Norway Rest of Europe Denmark Norway Rest of Europe Sweden Rest of Rest of the world Sweden Rest of Rest of the world Nordic region Nordic region
* Reportable assets consist of non-current assets excluding financial assets and deferred tax.
ANNUAL REPORT 2017/18 — IC GROUP A/S 44 FINANCIAL STATEMENTS
2.1 SEGMENT INFORMATION (CONTINUED) ACCOUNTING POLICIES
SEGMENT INFORMATION SEGMENT INFORMATION Segment information has been prepared in accordance with the Group’s applied Total Tiger of By Malene Saint Designers continuing Discontinued accounting policies and is consistent Sweden Birger Tropez Remix operations operations Total with the Group’s internal reporting to the Executive Board. DKK million 2017/18 2017/18 2017/18 2017/18 2017/18 2017/18 2017/18
Total revenue 860 333 265 73 1,531 1,067 2,598 The Executive Board evaluates operating Wholesale and franchise 492 219 149 51 911 652 1,563 profits of business segments separately in order to make decisions in relation to Retail, e-commerce and outlets 368 114 116 22 620 415 1,035 resource allocation and performance Growth compared to 2016/17 (%) (10.7) (5.1) (15.9) (14.1) (10.7) 3.1 (5.4) measurement. The segment results are Growth in local currency compared to evaluated on the basis of operating results, 2016/17 (%) (9.0) (4.0) (15.3) (14.1) (9.4) 4.8 (4.0) which are calculated by the same methods as in the consolidated financial statements. Operating profit/loss before depreciation Financial income, costs and corporate and amortization (EBITDA) 71 26 (14) 6 89 142 231 taxes are calculated at Group level and EBITDA margin (%) 8.3 7.8 (5.3) 8.2 5.8 13.3 8.9 are not allocated to the business segments.
Depreciation, amortization and Segment income and costs comprise impairment losses (24) (8) (6) (1) (39) (15) (54) income and costs that are directly Operating profit/loss (EBIT) 47 18 (20) 5 50 127 177 attributable to the individual segment and the items that can be allocated to the EBIT margin (%) 5.5 5.4 (7.5) 6.8 3.3 11.9 6.8 individual segment on a reliable basis. No material trade or other transactions take Reconciliation of segment information of place between the business segments. continuing operations Revenue from external customers, Operating profit (EBIT), reportable segments 50 which is reported to Management, is Unallocated items and eliminations 7 measured by the same methods as in Operating profit (EBIT) 57 the income statement. Cost allocation between business segments is made on an individual basis. No individual customer Financial income 25 accounts for more than 10% of revenue. Financial costs (35) Profit before tax 47 No information has been provided as to Tax on profit for the year (11) the segments’ share of items concerning Profit for the year 36 financial position or cash flows as the Executive Board does not use this segmentation in the internal reporting.
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ANNUAL REPORT 2017/18 — IC GROUP A/S 45 FINANCIAL STATEMENTS
2.1 SEGMENT INFORMATION (CONTINUED) ACCOUNTING POLICIES
SEGMENT INFORMATION Total (continued) Tiger of By Malene Saint Designers continuing Discontinued Sweden Birger Tropez Remix operations operations Total REVENUE DKK million 2016/17 2016/17 2016/17 2016/17 2016/17 2016/17 2016/17 Revenue from the sale of goods is Total revenue 963 351 315 85 1,714 1,035 2,749 recognized in the income statement when delivery and transfer of risk to the buyer Wholesale and franchise 578 241 168 56 1,043 647 1,690 have taken place and if the income can be Retail, e-commerce and outlets 385 110 147 29 671 388 1,059 reliably measured and is expected to be Growth compared to 2015/16 (%) (0.9) (1.7) (1.6) 9.0 (0.9) 10.6 3.2 received. Revenue is measured excluding Growth in local currency compared to VAT, indirect taxes and less expected 2015/16 (%) 0.6 (0.4) (1.4) 9.0 0.3 11.6 4.4 returns and discounts related to sales.
Operating profit before depreciation See note 7.2 for further information on and amortization (EBITDA) 86 17 10 9 122 119 241 accounting estimates concerning EBITDA margin (%) 8.9 4.8 3.2 10.6 7.1 11.5 8.8 returns and discounts. Depreciation, amortization and Revenue is measured at the fair value of impairment losses (19) (14) (8) (1) (42) (18) (60) the consideration received or receivable. Operating profit (EBIT) 67 3 2 8 80 101 181
EBIT margin (%) 7.0 0.9 0.6 9.4 4.7 9.8 6.6 COST OF SALES Cost of sales includes direct costs incurred Reconciliation of segment information of when generating the revenue for the year. continuing operations The Company recognizes cost of sales as Operating profit (EBIT), reportable segments 80 revenue is earned. Unallocated items and eliminations* (56) Operating profit (EBIT) 24 OTHER EXTERNAL COSTS Other external costs comprise other Financial income 8 purchase and selling costs and Financial costs (11) administrative costs, agents’ commissions Profit before tax 21 to external sales agents, bad debts, etc. Tax on profit for the year (5) Lease costs relating to operating lease agreements are recognized by using the Profit for the year 16 straight-line method over the term of the * Including non-recurring costs of DKK 33 million attributable to the implementation of the new structure in the Group’s corporate functions. lease in the income statement under other external costs. Total Total continuing continuing operations operations Total Total DKK million 2017/18 2016/17 2017/18 2016/17
Segment revenue 1,531 1,714 2,598 2,749 Unallocated items and eliminations 4 - 4 - Total revenue 1,535 1,714 2,602 2,749
ANNUAL REPORT 2017/18 — IC GROUP A/S 46 FINANCIAL STATEMENTS
2.2 STAFF COSTS
DKK million 2017/18 2016/17 Geographic breakdown of average number of employees
Total salaries, remuneration, etc. may be specified as follows:
Remuneration to the Board of Directors, cf. note 6.1 4 4 21 0 Salaries and remuneration 340 389 12 1 2 Defined contribution plans, cf. note 7.1 21 25
Defined benefit plans, cf. note 7.1 - - Other social security costs 39 40 Long-term incentive programmes 4 - 81 Other staff costs 18 20 Total staff costs 426 478
2 8 27 Average number of Group employees 808 889
2017/18 – 808 employees 2016/17 – 889 employees
Denmark Norway Rest of Europe ACCOUNTING POLICIES Sweden Rest of Nordic region Rest of the world
Staff costs include salaries, remuneration, See note 6.1 for further information on retirement benefit schemes, share-based remuneration to the Executive Board and payments and other staff costs to the Group’s the Board of Directors and note 6.2 for employees, including to the members of the further information on the Group’s Executive Board and Board of Directors. sharebased incentive programmes as well as long-term incentive programmes. Staff costs are recognized in the financial year in which the employee performs his/her work. Costs related to long-term employee benefits, e.g., long-term incentive programmes, are allocated and recognized in the period to which they relate.
ANNUAL REPORT 2017/18 — IC GROUP A/S 47 FINANCIAL STATEMENTS
2.3 TAX
TAX FOR THE YEAR BREAKDOWN ON TAX ON PROFIT FOR THE YEAR OF CONTINUING OPERATIONS IS AS FOLLOWS:
DKK million 2017/18 2016/17 DKK million 2017/18 2016/17
Current tax Calculated tax on profit before tax, 22% 10 4 Current tax for the year 34 30 Effect of other non-taxable income and other non-deductible costs 1 - Prior-year adjustments, current tax 9 1 Prior-year adjustments 4 1 Foreign non-income dependent taxes 1 1 Revaluation of tax losses, etc. (4) - Total current tax 44 32 Total tax on profit for the year 11 5
Deferred tax Effective tax rate for the year (%) 23.0 23.8 Change in deferred tax 12 (10) Prior-year adjustments, deferred tax (3) 1 Tax on other comprehensive income Adjustments regarding changes in tax rates, deferred tax 1 1 Fair value adjustment on financial instruments held as Total deferred tax 10 (8) cash flow hedges (8) 6 Tax for the year 54 24 Total tax on other comprehensive income (8) 6
DKK million 2017/18 2016/17
Recognized as follows: Tax on profit for the year of continuing operations 11 5 Tax on profit for the year of discontinued operations 35 25 Tax on other comprehensive income 8 (6) Tax for the year 54 24
Net tax receivable at 1 July 39 5 Tax payable on profit for the year (43) (31) Tax paid during the year 42 64 Foreign currency translation adjustments, etc. (3) 1 Disposal in connection with sale of businesses for the year (9) - Net tax receivable at 30 June 26 39
Recognized as follows: Tax receivable 32 49 Tax payable (6) (10) Net tax receivable at 30 June 26 39
ANNUAL REPORT 2017/18 — IC GROUP A/S 48 FINANCIAL STATEMENTS
2.3 TAX (CONTINUED)
DEFERRED TAX TEMPORARY DIFFERENCES AND CHANGES DURING THE YEAR ARE SPECIFIED AS FOLLOWS:
DKK million 2018 2017 Disposal in connection Recognized Net Deferred tax at 1 July 54 46 Net defer- Recognized with sale of in other deferred Prior-year adjustments 3 (1) red tax at in profit for businesses comprehen- tax at 30 DKK million 1 July 2017 the year for the year sive income June 2018 Adjustments regarding changes in tax rates (1) (1) Deferred tax on other comprehensive income (8) 6 Intangible assets and property, Change in deferred tax on profit for the year (5) 3 plant and equipment 30 2 (5) - 27 Foreign currency translation adjustments, etc. 1 1 Inventories and receivables 5 (4) - - 1 Disposal in connection with sale of businesses for the year (9) - Provisions and other liabilities 10 (2) (2) - 6 Net deferred tax at 30 June 35 54 Financial instruments and intercompany loans 4 - - (8) (4) Recognized as follows: Tax losses 48 (5) (9) - 34 Deferred tax assets 38 61 Impaired tax assets (43) 7 7 - (29) Deferred tax liabilities (3) (7) Total 54 (2) (9) (8) 35 Net deferred tax at 30 June 35 54
Disposal in Breakdown of deferred tax at 30 June is as follows: connection Recognized Net Gross deferred tax assets and liabilities 64 97 Net defer- Recognized with sale of in other deferred Impaired tax assets (29) (43) red tax at in profit for businesses comprehen- tax at 30 Net deferred tax at 30 June 35 54 DKK million 1 July 2016 the year for the year sive income June 2017 Intangible assets and property, plant and equipment 38 (8) - - 30 Inventories and receivables 7 (2) - - 5 Provisions and other liabilities 4 6 - - 10 Financial instruments (2) - - 6 4 Tax losses 48 - - - 48 Impaired tax assets (49) 6 - - (43) Total 46 2 - 6 54
Impaired tax assets relate to tax losses that are in the foreseeable future. In all material respects, assessed not to be sufficiently likely to be utilized the impaired tax losses are not limited in time.
ANNUAL REPORT 2017/18 — IC GROUP A/S 49 FINANCIAL STATEMENTS
2.3 TAX (CONTINUED)
ACCOUNTING POLICIES SIGNIFICANT ACCOUNTING ESTIMATES
TAX FOR THE YEAR countries when the deferred tax is expected to Deferred tax assets, including the tax base IC Group is subject to tax legislation in the Tax for the year consists of current tax for the crystallize as current tax. Changes in deferred of deferrable tax losses, are recognized countries in which it operates. Any significant year and adjustments in deferred tax. Tax for tax as a result of changed tax rates or tax at the expected value of their utilization of accounting estimates relating to the the year relating to the profit/loss for the year rules are recognized in the income statement future taxable income and are set off against statements of current tax, deferred tax and is recognized in the income statement, and unless the deferred tax is attributable to deferred tax liabilities within the same legal pending tax matters in the individual countries tax for the year relating to items recognized transactions which have been recognized entity and jurisdiction. have been provided. under other comprehensive income or previously under other comprehensive income directly in equity is recognized under other or directly in equity. If deferred tax is an asset, it is included in non- Risks relating to transfer pricing, comprehensive income or directly in equity, current assets based on an assessment of the disagreement(s) with local tax authorities, etc. respectively. Foreign currency translation The Parent Company is taxed jointly with potential for future realization. arise as a result of global activity. Based on adjustments of deferred tax are recognized all consolidated wholly owned Danish an assessment and review of the outcome of as part of the adjustment of deferred tax for subsidiaries. The current tax expense is Tax losses are recognized when it is likely that pending matters, Management considers that the year. allocated among the companies of the Danish these will be utilized in the foreseeable future. the provisions made for uncertain tax positions tax pool in proportion to their taxable income recognized in payable and deferred tax are Deferred tax is measured using the tax rates (full absorption with refunds for tax losses). Deferred tax is calculated based on the adequate. and tax rules that, based on legislation in force The jointly taxed companies pay tax under the planned use of each asset and settlement of or in reality in force at the end of the reporting Danish on-account tax scheme. each liability, respectively. period, are expected to apply in the respective
ANNUAL REPORT 2017/18 — IC GROUP A/S 50 FINANCIAL STATEMENTS
2.4 DISCONTINUED OPERATIONS
DKK million 2017/18 2016/17
Revenue 1,067 1,035 ACCOUNTING POLICIES Cost of sales (508) (517) Gross profit 559 518 Discontinued operations are major brands or Cash flow from discontinued operations has Other external costs (241) (237) geographical areas which have been divested been included in the consolidated statement Staff costs (176) (162) or which are held-for-sale according to an of cash flows under cash flows from operating, Operating profit before depreciation and amortization (EBITDA) 142 119 overall plan. investing and financing activities and has been Depreciation, amortization and impairment losses (15) (18) explained in the notes. The results of discontinued operations are Operating profit (EBIT) 127 101 presented as separate items in the income On 30 April 2018 IC Group A/S entered into Financial income 3 - statement consisting of the profit/loss after an agreement to sell Peak Performance to Gain on sale of businesses, cf. note 2.5 1,475 - tax of the relevant operation and any gains or Amer Sports Corporation. The final closing of Profit for the year before tax 1,605 101 losses on fair value adjustment or sale of the the sale was completed on 29 June 2018 after Tax on profit for the year (35) (25) assets relating thereto. which the control of the operations and the Profit for the year of discontinued operations 1,570 76 acquired subsidiaries was transferred to Amer Sports Corporation. The acquisition price has been paid in cash. Earnings per share of discontinued operations, DKK 94.3 4.5 Diluted earnings per share of discontinued operations, DKK 94.3 4.5
THE EFFECT OF DISCONTINUED OPERATIONS ON THE STATEMENT OF CASH FLOWS IS AS FOLLOWS:
DKK million 2017/18 2016/17
Statement of cash flows: Cash flow from operating activities 128 68 Cash flow from investing activities (25) (31) Total cash flow 103 37
ANNUAL REPORT 2017/18 — IC GROUP A/S 51 FINANCIAL STATEMENTS
2.5 SALE OF BUSINESSES
DKK million 2017/18 DKK million 2017/18
Non-current assets: 151 Cash flow effect Intangible assets 84 Gain on sale 1,475 Property, plant and equipment 50 Value of net assets 177 Financial assets 8 Other adjustments (1) Deferred tax 9 Recirculation of accumulated foreign currency translation adjustments in respect of foreign subsidiaries 42 Current assets: 285 Settlement of net balances with IC Group A/S 76 Inventories 125 Disposed cash, cf. above (5) Trade receivables 98 Net cash flow effect 1,764 Tax receivables 17 Other receivables and prepayments 40 Payment to be settled in subsequent financial year (14) Cash 5 Cash flow effect recognized in the statement of cash flow for the year 1,750
Non-current liabilities: 9 Retirement benefit obligations 6 Provisions 3 Current liabilities: 250 ACCOUNTING POLICIES Trade payables 96 Provisions 9 Businesses sold or liquidated are recognized comprehensive income and anticipated Tax payable 8 up to the date of disposal or liquidation. The disposal or liquidation costs. The disposal or Other liabilities 137 date of disposal is the date when control of liquidation amount is measured as the fair Carrying amount of sold net assets 177 the business actually passes to a third party. value of the consideration received. Payment in cash 1,755 Gains or losses on disposal or liquidation IC Group A/S has, in connection with the Value of net assets (177) of subsidiaries are stated as the difference divestment of Peak Performance, sold the Sales costs, etc. (62) between the disposal or liquidation amount subsidiary Peak Performance Production AB Other adjustments 1 and the carrying amount of net assets including its subsidiaries. No subsidiaries were including goodwill at the date of disposal or sold during 2016/17. Recirculation of accumulated foreign currency translation adjustments in respect liquidation, accumulated foreign exchange of foreign subsidiaries (42) adjustments recognized under other Gain on sale 1,475
ANNUAL REPORT 2017/18 — IC GROUP A/S 52 FINANCIAL STATEMENTS
CHAPTER 3 WORKING CAPITAL
CONTENTS Change in working capital (DKK million)
3.1 INVENTORIES 3.2 TRADE RECEIVABLES
3.3 WORKING CAPITAL 18 7
3.4 OTHER ADJUSTMENTS, STATEMENT 2 8 OF CASH FLOWS 20 7
1
This chapter specifies the tied-up
working capital which represents the 2016/17 capital Working Inventories receivables Trade payables Trade liabilities and current receivables Short-tern 2017/18 capital Working businesses Sale of operations of continuing Working Capital assets and liabilities supporting the day-to- day operations of the Group. The working capital is defined as current assets less current liabilities excluding the net interest-bearing items, provisions and financial instruments, Working capital in percentage of revenue which are ensuring the working capital.
It is the Group’s ambition that the working capital constitutes approx. 12-14% (previously 1 1 18 10-12%) of the annual revenue measured at the 2 8 end of the financial year, however, it may during periods with high growth exceed this 1 level. 12 11 8 11 8 8 10 2
2013/14 2014/15 2015/16 2016/17 2017/18
Net working capital (DKK million) Working capital/revenue (%)
ANNUAL REPORT 2017/18 — IC GROUP A/S 53 FINANCIAL STATEMENTS
3.1 INVENTORIES 3.2 TRADE RECEIVABLES
DKK million 2018 2017 DKK million 2018 2017 Raw material and consumables 41 40 Not yet due 147 220 Finished goods and goods for resale 180 346 Due, 1–60 days 19 37 Goods in transit 28 98 Due, 61–120 days 5 4 Total inventories, gross 249 484 Due more than 120 days 7 16 Total trade receivables, net 178 277 Changes in inventory write-downs: Inventory write-downs at 1 July 90 57 Change in write-downs of trade receivables for the year: Write-downs for the year, addition (recognized in the 34 56 Trade receivables write-downs at 1 July 29 26 income statement) Change in write-downs for the year 1 11 Write-downs for the year, reversal (utilized) (56) (23) Realized loss for the year (5) (8) Write-downs (not utilized) (5) - Disposal in connection with sale of businesses for the year (4) - Disposal in connection with sale of businesses for the year (25) - Total trade receivables write-downs 21 29 Total inventory write-downs 38 90 Total inventories, net 211 394 During the financial year 2017/18, a loss of DKK In general, receivables do not carry interest 5 million has been recognized concerning a until between 30 and 60 days after the invoice Inventories including write-downs recognized at number of small customers in the majority of date. After this date, interest is charged on the net realizable value amounted to DKK 32 million the Group brands. The most significant write- outstanding amount. The Group has recognized (DKK 91 million) at 30 June 2018. down for bad debt in 2016/17 is attributable to a DKK 2 million (DKK 2 million) in connection with wholesale customer in Sweden (DKK 4 million). interest on overdue trade receivables for 2017/18.
ACCOUNTING POLICIES ACCOUNTING POLICIES
Inventories are measured at cost using the FIFO The cost of finished products includes the On initial recognition, receivables are measured Receivables are written down to net realizable method. Inventories are written down to the net cost of raw materials, consumables, external at fair value and subsequently at amortized cost value corresponding to the amount of expected realizable value if this is lower than cost. The production costs and costs to take delivery of which usually corresponds to the nominal value future net payments received on the receivables. cost of raw materials and consumables includes the products. The net realizable value of finished less provision for bad debts. Write-downs are calculated on the basis of the purchase price and direct costs to take products is determined as the expected selling individual assessments of the receivables. delivery of the products. price less costs incurred to execute the sale.
SIGNIFICANT ACCOUNTING ESTIMATES SIGNIFICANT ACCOUNTING ESTIMATES
By nature, product collections have a limited The measurement of inventories is based on Loss on trade receivables is written down distribution, past payment behaviour and life-span. If the right products are not available an individual assessment of season and age by Management as a result of expected customers credit worthiness and any change in the stores at the right time, this may result in and on the realization risk assessed to exist for inability to pay by customers. When assessing of customer terms and conditions of payment. lost revenues or a potential higher amount of individual product items. whether Group write-downs are adequate, Credit periods vary according to customs of the returned and surplus products leading to write- Management makes an analysis of the age individual markets. downs.
ANNUAL REPORT 2017/18 — IC GROUP A/S 54 FINANCIAL STATEMENTS
3.3 WORKING CAPITAL 3.4 OTHER ADJUSTMENTS, STATEMENT OF CASH FLOWS
DKK million 2018 2017 DKK million 2017/18 2016/17 Inventories 211 394 Reversed depreciation and impairment losses and gains/loss on Trade receivables 178 277 sale of non-current assets 73 80 Other receivables excluding derivative financial instruments 49 11 Provisions (21) 33 Prepayments 44 94 Other adjustments (17) 11 Total assets 482 776 Total other adjustments 35 124
Trade payables 177 276 Other liabilities excluding derivative financial instruments 170 182 Total liabilities 347 458
Working capital 135 318
Operating working capital 212 395 Other items (77) (77) Working capital 135 318
The 2018 figures have been calculated after the divestment of Peak Performance.
DKK million 2017/18 2016/17 Change in inventories 183 31 Change in receivables excluding derivative financial instruments 111 1 Change in current liabilities excluding derivative financial instruments (111) (36) 183 (4) Foreign currency translation adjustments (8) (5) Sale of businesses (74) - Total change in working capital 101 (9)
ANNUAL REPORT 2017/18 — IC GROUP A/S 55 FINANCIAL STATEMENTS
CHAPTER 4 INVESTED CAPITAL
CONTENTS FINANCIAL KEY RATIOS
4.1 INTANGIBLE ASSETS Breakdown of property, plant and equipment and intangible assets (DKK million) 4.2 PROPERTY, PLANT AND EQUIPMENT 1
7 77 This chapter describes the operating
assets forming the basis of the Group’s 110 business. The future investment level must support the growth strategies of the Group 1 2 brands. Investments will primarily be prioritized for expansion and strengthening of 2 1 2 own distribution channels (e-commerce and 1 physical stores) as well as a general increase of digitalization. 2017/18 – DKK 225 million 2016/17 – DKK 395 million
Goodwill Leasehold rights Equipment and furniture Depending on the speed of executing these plans, the investment level may vary year-on- Software Leasehold improvements Other year. In the long-term perspective, the Group expects that its investments will attain a level Development in invested capital of 3–5% of the annual revenue. For the financial year 2017/18, IC Group A/S invested a total of DKK 61 million (2.3%) (DKK 89 million 0 1 2 1 (3.2%)). In total, only 5 stores were opened in 772 708 7 2017/18 (19 stores) which is the primary reason 1 for the reduction of the investment level.
1 2
2013/14 2014/15 2015/16 2016/17 2017/18
Average invested capital including goodwill (DKK million) Return on invested capital (%)
ANNUAL REPORT 2017/18 — IC GROUP A/S 56 FINANCIAL STATEMENTS
4.1 INTANGIBLE ASSETS ALLOCATION OF GOODWILL Goodwill on business combinations is allocated 2018 at the acquisition date to the cash-generating Other Total units expected to achieve economic benefits Software and Leasehold intangible intangible from the acquisition. Goodwill has been DKK million Goodwill IT systems rights assets assets significantly affected by disposal in connection Cost at 1 July 2017 192 95 58 16 361 with sale of businesses for the year. The Foreign currency translation adjustments (10) (1) (1) (1) (13) carrying amount of goodwill is allocated to the Addition - 3 5 - 8 respective cash-generating units as follows: Disposal - - (7) - (7) Disposal in connection with sale of businesses for the year (72) (2) (27) - (101) Allocation of goodwill (DKK million) Cost at 30 June 2018 110 95 28 15 248
Accumulated amortization and impairment losses at 1 July 2017 - (79) (34) (2) (115)
Foreign currency translation adjustments - 1 (1) - - 7 Amortization and impairment losses for the year* - (11) (3) (4) (18) Amortization and impairment losses on disposals - - 7 - 7 Disposal in connection with sale of businesses for the year - - 17 - 17 Accumulated amortization and impairment losses at 30 June 2018 - (89) (14) (6) (109) Carrying amount at 30 June 2018 110 6 14 9 139 7 *Of which continuing operations accounted for DKK 17 milllion and sale of businesses accounted for DKK 1 million (note 2.4).
2017/18 - DKK 110 million 2017
Other Total 7 Software and Leasehold intangible intangible DKK million Goodwill IT systems rights assets assets Cost at 1 July 2016 195 94 55 6 350 7 Foreign currency translation adjustments (3) - (2) - (5) Addition - 1 6 10 17 Disposal - - (1) - (1) Cost at 30 June 2017 192 95 58 16 361
Accumulated amortization and impairment losses at 1 July 2016 - (63) (26) (1) (90) 7 Foreign currency translation adjustments - - (1) - (1) Amortization and impairment losses for the year* - (16) (8) (1) (25) 2016/17 - DKK 192 million Amortization and impairment losses on disposals - - 1 - 1 Accumulated amortization and impairment losses at 30 June 2017 - (79) (34) (2) (115) Tiger of Sweden Saint Tropez Carrying amount at 30 June 2017 192 16 24 14 246 Peak Performance *Of which continuing operations accounted for DKK 24 milllion and sale of businesses accounted for DKK 1 million (note 2.4)
ANNUAL REPORT 2017/18 — IC GROUP A/S 57 FINANCIAL STATEMENTS
4.1 INTANGIBLE ASSETS (CONTINUED)
ACCOUNTING POLICIES
GOODWILL Restructuring costs are only recognized in the In case of negative differences (negative money in retail stores where the value is not On initial recognition, goodwill is measured acquisition’s statement of financial position goodwill), the calculated fair values and the impaired due to the location as well as the and recognized as described under the if they represent a liability to the acquired calculated cost of the business, the value of the general demand of leasehold with prime section Business combinations (see below). business. The tax effect of revaluations is taken non-controlling interest in the acquired business locations. Subsequently, goodwill is measured at cost less into account. and the fair value of previously acquired capital accumulated impairment losses. Goodwill is not interests are reassessed. If the difference is SOFTWARE AND IT amortized but tested at least once a year for The cost of a business is the fair value of the still negative following the reassessment, the Software and IT development are amortized impairment. The carrying amount of goodwill is consideration paid. If the final determination difference is then recognized as income in the over the useful life of 3-5 years. Cost includes allocated to the Group’s cash-generating units of the consideration is conditional on one or income statement. the acquisition price as well as costs arising at the date of acquisition. The determination more future events, these adjustments are directly in connection with the acquisition and of cash-generating units is based on the recognized at fair value from the acquisition Acquisition of non-controlling interests in until the point of time where the asset is ready management structure and the internal financial date. Costs directly attributable to acquisitions subsidiaries is recognized in the consolidated for use. Amortization is provided on a straight- management. are recognized directly in the income statement financial statements as an equity transaction, line basis over the expected useful life. from the date of payment. and the difference between the acquisition price BUSINESS COMBINATIONS and the carrying amount is allocated to the Newly acquired or newly established businesses Any excess (goodwill) of the cost of an acquired Parent Company’s share of equity. are recognized in the consolidated financial business, the value of the non-controlling statements from the acquisition date or interest in the acquired business and the fair LEASEHOLD RIGHTS incorporation date, respectively. The acquisition value of previously acquired capital interests Payments to take over leases (”key money”) are date is the date when control of the business over the fair value of the acquired assets, classified as leasehold rights. Leasehold rights actually passes to the Group. liabilities and contingent liabilities is recognized are amortized over the lease term or the useful as an asset under intangible assets and tested life if this is shorter. The basis of amortization is Acquisitions are accounted for using the annually for impairment each year as a reduced by any write-downs. Leasehold rights acquisition method, under which the identifiable minimum. If the carrying amount of an asset with an indefinite useful life are not amortized, assets, liabilities and contingent liabilities of exceeds its recoverable amount, the asset is but tested for impairment annually. Leasehold businesses acquired are measured at fair value written down to the lower recoverable amount. rights with indefinite useful life comprise key at the acquisition date. Acquired non-current assets held-for-sale are measured at fair value less expected costs to sell, however.
ANNUAL REPORT 2017/18 — IC GROUP A/S 58 FINANCIAL STATEMENTS
4.1 INTANGIBLE ASSETS (CONTINUED)
SIGNIFICANT ACCOUNTING ESTIMATES
IMPAIRMENT TEST changed macroeconomic trends and market • Gross margin – The expected gross margin Growth after Tiger of Saint Goodwill conditions or consumer behavior which may is based on both improved efficiency as well 2018/19 Sweden* Tropez The recoverable amounts of the individual cash- result in the need for impairment of goodwill. as changing margins due to changes in the Revenue 0% 6% generating units to which the goodwill amounts distribution channels’ sales mix. Revenue have been allocated are calculated based The estimate of the net present value is based (terminal period) 0% 2% on the unit’s present value, i.e. the expected on a detailed budget planning and strategy • Cost ratio – is based on the present cost discounted future cash flows, compared with process for 2018/19 and onwards taking into base and cost ratio. Gross margin 0% 0.5% the carrying amounts. account the present market situation and Costs 0% 2% business initiatives. • Discount rate – The discount rate reflects the Impairment tests of the carrying amount of actual market evaluations of the specific risks *The applied growth rates are zero due to a significant goodwill have been conducted for the financial The process is conducted annually for all of each cash-generating unit. A discount rate headroom. years 2017/18, and the impairment test indicated business units (segments) and approved by of 10.45% before tax/8.15% after tax using a that there is no need for impairment. the Board of Directors. The most significant risk-free interest rate and with added interest Leasehold rights parametres for calculating the net present value based on the Company’s business areas has Impairment tests have been conducted, and The impairment test for Saint Tropez has been are as follows: been applied. The discount rate was at the it has been assessed that it has not been based on a revenue growth rate of 6% after same level as 2016/17. necessary to write down the leasehold rights for 2018/19 and expresses a headroom of more • Revenue development is based on the the financial year under review. For the financial than DKK 60 million. In case the revenue growth expected order intake of the business • Expected investments are set at an amount year 2016/17, it was necessary to write down rate is less than 5% or growth of the gross units’ collections as well as the expected corresponding to the depreciation of the the Group’s leasehold rights by DKK 7 million margin is not realized (assuming that the other same-store development and growth in year under review which is estimated to as the recoverable amount was lower than the assumptions and parametres are constant), this the distribution channels (retail, outlet and be necessary in order to retain the existing carrying amount. headroom will disappear. e-commerce). The estimates are based on capital base. Consequently, investments are past experience, internal as well external not included in order to improve the total Intangible assets with indefinite useful life The most significant parametres and benchmarks and statistics, Management’s earnings capacity. Intangible assets which are not amortized consist assumptions are explained below. Management expectations for the market development, of key money and amounted to DKK 6 million estimates that the underlying assumptions market trends and initiated projects in (DKK 20 million). and estimates are appropriate. However, the general. assumptions may subsequently be affected by
ANNUAL REPORT 2017/18 — IC GROUP A/S 59 FINANCIAL STATEMENTS
4.2 PROPERTY, PLANT AND EQUIPMENT
2018 Total Land and Leasehold Equipment Assets under property, plant DKK million buildings improvements and furniture construction and equipment Cost at 1 July 2017 16 191 266 14 487 Foreign currency translation adjustments (2) (6) (8) - (16) Reclassification - - 11 (11) - Addition - 15 37 1 53 Disposal - (38) (70) (1) (109) Disposal in connection with sale of businesses for the year - (56) (105) (2) (163) Cost at 30 June 2018 14 106 131 1 252
Accumulated depreciation and impairment losses at 1 July 2017 (10) (139) (189) - (338) Foreign currency translation adjustments 1 4 4 - 9 Depreciation and impairment losses for the year* - (21) (34) - (55) Depreciation and impairment losses on disposals - 37 68 - 105 Disposal in connection with sale of businesses for the year - 46 67 - 113 Accumulated depreciation and impairment losses at 30 June 2018 (9) (73) (84) - (166) Carrying amount at 30 June 2018 5 33 47 1 86 *Of which continuing operations accounted for DKK 41 milllion and sale of businesses accounted for DKK 14 million (note 2.4)
2017 Total Land and Leasehold Equipment Assets under property, plant DKK million buildings improvements and furniture construction and equipment Cost at 1 July 2016 16 198 236 15 465 Foreign currency translation adjustments - (2) (3) - (5) Reclassification - 6 7 (13) - Addition - 11 48 13 72 Disposal - (22) (22) (1) (45) Cost at 30 June 2017 16 191 266 14 487
Accumulated depreciation and impairment losses at 1 July 2016 (9) (142) (180) - (331) Foreign currency translation adjustments - 2 2 - 4 Depreciation and impairment losses for the year* (1) (21) (33) - (55) Depreciation and impairment losses on disposals - 22 22 - 44 Accumulated depreciation and impairment losses at 30 June 2017 (10) (139) (189) - (338) Carrying amount at 30 June 2017 6 52 77 14 149 *Of which continuing operations accounted for DKK 38 milllion and sale of businesses accounted for DKK 17 million (note 2.4)
ANNUAL REPORT 2017/18 — IC GROUP A/S 60 FINANCIAL STATEMENTS
4.2 PROPERTY, PLANT AND EQUIPMENT (CONTINUED)
ACCOUNTING POLICIES SIGNIFICANT ACCOUNTING ESTIMATES
Property, plant and equipment primarily Gains and losses on disposal of property, The depreciation period is determined on The most important parameters in the consist of leasehold improvements and plant and equipment are computed as the the basis of Management’s experience in the calculation of the net present value are equipment, which are measured at cost less difference between the selling price less costs Group’s business area, and Management revenue, EBITDA, store investments, the value accumulated depreciation and impairment to sell and the carrying amount at the date of believes the following estimates to be the best of leasehold rights as well as the applied losses. Cost comprises the acquisition price disposal. Gains and losses are recognized in estimate of the economic lives of the assets: discount rate. The business plans are based and costs directly related to the acquisition the income statement under other operating on Management’s specific assessment of until the time when the asset is ready for use. income or costs. Leasehold improvements up to 12 years the stores’ expected performance during the The net present value of estimated costs Buildings 25-50 years strategy period. in respect of demounting and disposal of Property, plant and equipment are written Equipment and furniture 3-10 years the asset and of restoring the place where down to the recoverable amount if this is lower A discount rate of 10.45% before tax/8.15% the asset was used is added to cost. The than the carrying amount. If the depreciation period or the scrap values after tax using a risk-free interest rate and difference between cost and the expected are changed, the effect on depreciation with added interest based on the Company’s scrap value is depreciated on a straight-line going forward is recognized as a change in business areas has been applied. The discount basis over the expected economic lives of the accounting estimates. rate was at the same level as 2016/17. The assets. applied growth rate has been 0%. When IMPAIRMENT TEST indications of impairment are identified, these Property, plant and equipment in stores are further analyzed and growth rates based The Group’s property, plant and equipment, on growth reported from the stores and the which are located in Group stores, are brands in question are then recalculated. A tested together with any leasehold rights for total amount of DKK 6 million (DKK 3 million) impairment when indication of impairment has been written down for the financial year is identified. The recoverable amounts of 2017/18. the individual stores (cash-generating units) are calculated based on the store’s net The total carrying amount of property, plant present value. Future cash flows are based and equipment in respect of own stores on the individual store’s budget for a period amounted to DKK 34 million (DKK 76 million). corresponding to the average expected useful life of the store’s assets.
ANNUAL REPORT 2017/18 — IC GROUP A/S 61 FINANCIAL STATEMENTS
CHAPTER 5 CAPITAL STRUCTURE
CONTENTS This chapter specifies the Group’s FINANCIAL KEY RATIOS capital structure, including cash flow 5.1 EQUITY and related financial risks. The Group aims at Change in net interest-bearing debt Capital structure target 5.2 NET INTEREST-BEARING DEBT maintaining low financial gearing, since the 5.3 FINANCIAL RISKS AND DERIVATIVE Group, among others, operates in a market • Our target is to retain the level of net interest- FINANCIAL INSTRUMENTS which is sensitive to economic fluctuations. 82 bearing debt at zero. During a financial year 2 5.4 FAIR VALUE MEASUREMENT OF seasonal fluctuations may arise as a 2 17 consequence of the tied-up working capitall FINANCIAL INSTRUMENTS To maintain the highest possible degree of 1 87 • To maintain strategic flexibility, the Group 5.5 FINANCIAL INCOME AND COSTS flexibility in the future and thereby support the allows the net interest-bearing debt including 5.6 OPERATING LEASES growth strategies pursued in the Group’s operating leases to attain a level 3 times higher brands in the best possible way, the Group has 2013/14 2014/15 2015/16 2016/17 2017/18 than EBITDA. At 30 June 2018, this key ratio specifically decided to retain the level of net amounted to 0.4 (1.8) interest-bearing debt at zero for the financial Net interest-bearing debt (DKK million) year as a whole.
IC Group is partly financed by equity and partly by external financing. The ratio between Development in dividend payment, gross* Capital allocation and dividend policy these two elements is expressed through the
equity ratio which amounted to 83.3% at 30 2 0 • Value-adding investments including maintaining June 2018 (51.9%). Furthermore, the Group’s assets, strengthening of the e-commerce brands have significant operating leases channel and integration to the physical stores as well as a general digitalization primarily in respect of store leases. At 30 June 100 • Reducing the net interest-bearing debt if the 2018, total operating leases amounted to DKK 100 level exceeds the agreed target 179 million (DKK 368 million) as specified in • Dividend distribution to the Group’s shareholders 8 8 8 note 5.6. 1 2013/14 2014/15 2015/16 2016/17 2017/18
Extraordinary dividend (DKK million) Ordinary dividend (DKK million) * Dividends are stated under the year of payment
ANNUAL REPORT 2017/18 — IC GROUP A/S 62 FINANCIAL STATEMENTS
5.1 EQUITY
DILUTED EFFECT
Number DKK million/1,000 shares 2017/18 2016/17 Share capital at 1 July 2016 17,056,247 Earnings per share (EPS) Share capital increase 34,611 Earnings per share, DKK 96.3 5.3 Share capital at 1 July 2017 17,090,858 Diluted earnings per share, DKK* 96.3 5.3 Share capital increase - Earnings per share of continuing operations, DKK 2.0 0.8 Share capital at 30 June 2018 17,090,858 Diluted earnings per share of continuing operations, DKK* 2.0 0.8
* When calculating diluted earnings per share, 104,050 (128,624) performance shares and warrants have not The share capital consists of 17,090,858 shares capital. There has been no changes to the been included as they are out-of-the-money, but they may, however, dilute earnings per share in the future. (17,090,858) with a nominal value of DKK 10 each. number of treasury share during 2017/18 and No shares carry any special rights. The share 2016/17. The value of the Company’s treasury capital is fully paid up. shares at market price at 30 June 2018 amounted to DKK 71 million (DKK 62 million). ACCOUNTING POLICIES Pursuant to a resolution passed by the shareholders at the Company’s general meeting, DIVIDEND the Company may acquire treasury shares DIVIDENDS TREASURY SHARES equivalent to a maximum of 10% of the share See note 16 to the parent company financial Proposed dividends are recognized as The acquisition and sale of treasury shares and capital. The number of treasury shares amounts statements. a liability at the time of adoption by the dividends thereon are taken directly to equity to 442,572 corresponding to 2.6% of the share shareholders at the annual general meeting. under retained earnings.
EARNINGS PER SHARE
DKK million/1,000 shares 2017/18 2016/17
Profit for the year: Profit for the year attributable to shareholders of IC Group A/S 1,604 89 IC Group A/S’ profit share of continuing operations 36 16
Average number of shares Number of issued shares 17,091 17,082 Treasury shares (443) (443) Average number of outstanding shares 16,648 16,639
Diluted effect of share-based remuneration - - Number of shares excluding treasury shares, diluted 16,648 16,639
ANNUAL REPORT 2017/18 — IC GROUP A/S 63 FINANCIAL STATEMENTS
5.2 NET INTEREST-BEARING DEBT
DKK million 2018 2017 Current liabilities per currency (%)
Net interest-bearing debt comprises: Current liabilities to credit institutions 68 86 1 Gross interest-bearing debt 68 86
Cash 1,941 69
Net interest-bearing debt (1,873) 17 18
The proceeds from the divestment of Peak Performance of DKK 1.75 billion are denominated 7 in DKK.
CURRENT LIABILITIES TO CREDIT Current liabilities are repayable on demand, and INSTITUTIONS therefore the carrying amount corresponds to the 2017/18 The Group’s total current liabilities to credit fair value. Current liabilities to credit institutions 8 institutions comprise Danish and foreign overdraft are denominated in the currencies as follows: 2 facilities. 1
ACCOUNTING POLICIES
FINANCIAL LIABILITIES cost, applying the effective interest method, On initial recognition, financial liabilities, to the effect that the difference between the
including bank loans, are measured at proceeds and the nominal value is recognized fair value. In subsequent periods, financial in the income statement as financial costs over 2016/17 liabilities are measured at amortized the term of the loan.
DKK HKD
SEK Other currencies
ANNUAL REPORT 2017/18 — IC GROUP A/S 64 FINANCIAL STATEMENTS
5.3 FINANCIAL RISKS AND DERIVATIVE FINANCIAL INSTRUMENTS
FOREIGN EXCHANGE RISK At 30 June 2018 The Group’s foreign exchange risk (transaction Million Expected Expected Hedges Hedges Hedges Hedges Average risk) is handled centrally by the Group’s Finance (local currency) inflow outflow 0-6 months 7-12 months 13-18 months 19-21 months hedging rate Department. The Parent Company’s functional USD 2 (39) 12 11 13 1 617 currency is DKK, and foreign exchange positions HKD - (131) 49 40 40 2 80 are generally hedged vis-à-vis DKK. The Group’s subsidiaries are not exposed to any significant CNH - (50) 17 16 16 1 91 foreign exchange risks. The Group’s primary SEK 527 - (178) (144) (196) (9) 75 transaction risk relates to the buying and selling NOK 315 - (99) (104) (106) (6) 77 of goods in foreign currencies. The main part GBP 6 - (2) (2) (2) - 832 of the Group’s sourcing is made in Asia and CHF 4 - (1) (1) (2) - 660 denominated in HKD, CNH, USD and USD-related CAD 7 - (2) (2) (2) (1) 480 currencies while the main part of the revenues and capacity costs are denominated in DKK, SEK, NOK, EUR and other European currencies. The natural currency hedge in the Group’s At 30 June 2017 transactions is thus limited. Hedge accounting as well as hedging of operational risks take place Million Expected Expected Hedges Hedges Hedges Hedges Average by means of forward contracts and/or options. (local currency) inflow outflow 0-6 months 7-12 months 13-18 months 19-21 months hedging rate The foreign exchange risk of EUR is deemed to USD 4 (160) 60 34 56 6 657 be insignificant since the Danish Krone is pegged HKD - (205) 66 62 66 11 85 to EUR. Other foreign exchange positions are CNH 2 (16) - - 12 2 93 hedged at 30 June 2018. SEK 1,012 (5) (370) (257) (335) (45) 77 NOK 548 - (180) (175) (163) (30) 79 The hedging of the Group’s transaction exposure is made from an estimate of the cash flow GBP 7 - (3) (2) (2) - 862 demand for the future 15-21 months. As a general CHF 17 - (7) (3) (6) (1) 688 rule, cash flows in all important currencies are CAD 11 - (4) (3) (3) (1) 501 hedged except from EUR.
During the financial year 2017/18, the Group’s foreign exchange exposure has been significantly reduced by the divestment of Peak Performance.
Foreign exchange contracts only relate to hedging of selling and buying of goods as well as costs pursuant to the Group’s policy hereto.
At 30 June 2018, the Group’s risks for the coming 0-21 months may be specified as follows:
ANNUAL REPORT 2017/18 — IC GROUP A/S 65 FINANCIAL STATEMENTS
5.3 FINANCIAL RISKS AND DERIVATIVE FINANCIAL INSTRUMENTS (CONTINUED)
HEDGE ACCOUNTING OF During the financial year 2017/18, a net income hedges have arisen as no transactions have FUTURE CASH FLOWS relating to ineffective cash flow hedges of DKK 4 taken place primarily as a consequence of the Net outstanding foreign exchange contracts of the million was recognized in the income statement divestment of Peak Performance. Group and the Parent Company designated and (net cost of DKK nil). Ineffective cash flow hedges qualifying as hedge accounting of future cash are recognized in the income statement under flow are as follows: financial income/costs. The ineffective cash flow
2018 fair 2017 fair value adjustments value adjustments recognized in recognized in Notial statement of other Maturity Notial statement of other Maturity DKK million principal* comprehensive income in months principal* comprehensive income in months USD 33 6 0-21 149 (25) 0-21 HKD 131 - 0-21 192 (7) 0-21 CNH 50 - 0-21 14 1 0-21 SEK (527) 21 0-21 (1,007) 3 0-21 NOK (315) (2) 0-21 (548) 13 0-21 Other currencies (17) - 0-21 (35) 3 0-21 Total at 30 June 25 (12) Tax (5) 3 Reserve for hedging transactions at 30 June, after tax 20 (9)
* Positive principal amounts on foreign exchange contracts indicate a purchase of the currency in question. Negative principal amounts indicate a sale
FOREIGN EXCHANGE HEDGES OF RECOGNIZED ASSETS AND LIABILITIES Open foreign exchange contracts of the Group and the Parent Company qualifying as hedges of recognized assets and liabilities are as follows: 2018 fair 2017 fair value adjustments value adjustments Notial recognized in Maturity Notial recognized in Maturity DKK million principal* income statement in months principal* income statement in months USD 4 (1) 0-21 7 1 0-21 HKD - - 0-21 13 - 0-21 Total at 30 June (1) 1
* Positive principal amounts on foreign exchange contracts indicate a purchase of the currency in question. Negative principal amounts indicate a sale
ANNUAL REPORT 2017/18 — IC GROUP A/S 66 FINANCIAL STATEMENTS
5.3 FINANCIAL RISKS AND DERIVATIVE FINANCIAL INSTRUMENTS (CONTINUED)
Fair value adjustments in respect of realized The recognized positive/negative market values statement of changes in equity (DKK 194 million). hedge transactions have been recognized in the under equity have been treated in accordance The calculation is made by using a change of 1%/ consolidated income statement. The fair values with the rules for hedging of future cash flows and (1)% in the EUR exchange rate and a change of have been calculated based on current interest are closed/adjusted during the year according to 10%/(10)% for other currencies. rate curves and foreign exchange rates at 30 June the hedge accounting principles. 2018. Neither the Group nor the Parent Company The existing categories of financial assets and has any open foreign exchange contracts that do The net position of the Group will as a maximum liabilities are as follows: not qualify for hedge accounting at 30 June 2018 result in a loss of DKK 11 million (DKK 22 million) in or at 30 June 2017. the income statement and DKK 107 million in the
DKK million 2018 2017
Unlisted shares and bonds recognized under non-current assets (shares) - 8 Financial assets at fair value recognized in the income statement - 8
Derivative financial instruments for hedging of recognized assets and liabilities, recognized under current assets (other receivables) - 1 Derivative financial instruments for hedging of future cash flows, recognized under current assets (other receivables) 27 20 Financial assets for hedging purposes 27 21
Deposits (financial assets) 11 14 Trade receivables 178 277 Other receivables 48 11 Cash 1,941 69 Loans and receivables 2,178 371 Total financial assets 2,205 400
Liabilities to credit institutions (current liabilities) 68 86 Trade payables 177 276 Share of other liabilities recognized at amortized cost (current liabilities) 180 192 Financial liabilities measured at amortized cost 425 554
Derivative financial instruments for hedging of recognized assets and liabilities, recognized under current liabilities (other liabilities) 1 - Derivative financial instruments for hedging of future cash flows, recognized under current liabilities (other liabilities) 2 32 Financial liabilities for hedging purposes 3 32 Total financial liabilities 428 586
ANNUAL REPORT 2017/18 — IC GROUP A/S 67 FINANCIAL STATEMENTS
5.3 FINANCIAL RISKS AND DERIVATIVE FINANCIAL INSTRUMENTS (CONTINUED) annual general meeting. Any additional surplus liquidity will then be distributed to the shareholders LIQUIDITY RISK DEFAULT ON LOANS CAPITAL STRUCTURE through share buy-backs or extraordinary IC Group A/S secures a sufficient liquidity reserve The Group has not defaulted any loan during the The Company’s Management considers on dividends during the financial year. During the past by a combination of liquidity control and non- year under review or last financial year. a regular basis whether the Group’s capital 5 years, the Group has distributed extraordinary guaranteed credit facilities. Please see below for structure is in the best interest of the Company dividends totalling the amount of approx. DKK 450 maturity profiles on financial assets and liabilities. CREDIT RISK and its shareholders. The general target is to million (including dividend on treasury shares). The Group solely uses internationally recognized ensure a capital structure which supports long- At 30 June 2018, the Group’s total credit facilities banks with a high credit rating. The credit risk term financial growth and at the same time The Board of Directors will propose at the amounted to DKK 610 million (DKK 803 million) in on forward contracts and bank deposits is increases the return on investment for the Group’s Annual General Meeting 2018 a resolution terms of withdrawal rights. Of this amount, DKK consequently deemed to be low. stakeholders by optimizing the ratio between recommending a total ordinary dividend of DKK 68 million has been drawn in relation to current equity and debt. The Group’s capital structure 83 million in respect of the financial year 2017/18. and non-current liabilities to credit institutions and In respect of trade receivables, the Group consists of debt which includes financial liabilities As no dividend is paid on the Company’s treasury DKK 49 million has been drawn in relation to trade typically uses credit insurance in countries in such as bank loans and cash and equity which shares, the dividend corresponds to at least DKK finance facilities and guarantees. Accordingly, which the credit risk is deemed to be high and includes share capital, other reserves as well as 5.00 per eligible share depending on the result of undrawn credit facilities thus amounted to DKK where credit insurance is feasible. This primarily retained earnings. the announced share buy-back programme, cf. 493 million (DKK 504 million). All credit facilities applies to export markets in which IC Group is Company Announcement no. 18/2018 dated 28 are standby credits which may be drawn and not represented through an independent sales To maintain the highest possible degree of August 2018. terminated on short notice. Management company. The credit insurance covering trade flexibility in the future and thereby support the considers the short-term credit facilities to be receivables constituted DKK 13 million at 30 June growth strategies in the Group’s brands in the Furthermore, in respect of distributing the total sufficient for hedging of the Group’s liquidity risks. 2018 (DKK 37 million). best possible way, the Group has decided to net proceeds of DKK 1.75 billion deriving from retain the level of net interest-bearing debt at the divestment of Peak Performance, the Board INTEREST RATE RISK Beyond this, the credit risk regarding trade zero for the financial year as a whole. The Group’s of Directors has decided, in accordance with the The Group’s interest rate risk is continuously receivables and other receivables is limited since credit facilities will then primarily be employed to authorization granted at the last annual general monitored by the Finance Department in the Group has no material credit risk as the fund seasonal fluctuations in the working capital. meeting, to initiate a buy-back of up to 1,709,085 accordance with Group policies. The Group did not exposure is spread on a large amount of counter- At 30 June 2018, the net bank deposit amounted shares corresponding to 10% of the Company’s have any non-current liabilities to credit institutions parties and customers in many different markets. to DKK 1,873 million due to the net proceeds total share capital. For further information on the for 2017/18 and 2016/17 and thereby no significant received in connection with the divestment of share buy-back programme, please see separate interest rate risk on the current liabilities. Peak Performance. Company Announcement no. 18/2018. The Board of Directors expects to propose to have all of the RE-ASSESSMENT/MATURITY PROFILE To maintain a certain degree of strategic Company’s treasury shares cancelled through a More Fixed Effective flexibility, the Group has decided that the net capital reduction at the Company’s next annual than interest interest interest-bearing debt, adjusted for seasonal general meeting. Immediately after the expected At 30 June 2018 in DKK million 0-1 year 1-5 years 5 years rate rate fluctuations and including its operating leases, completion of the share buy-back programme, Trade receivables 178 - - No 2-24% may constitute a level 3 times higher than EBITDA the remaining net proceeds from the divestment Trade payables 177 - - No - should such measures be required. At 30 June of Peak Performance will be determined in order Current liabilities to credit institutions 68 - - No approx. 1% 2018, this key ratio amounted to 0.4 (1.8). to distribute it as extraordinary dividend to the shareholders. The exact amount of the expected More Fixed Effective When distributing dividends to the shareholders, it is extraordinary dividend will be communicated than interest interest the Group’s policy that the total distribution reflects in a company announcement at the same time At 30 June 2017 in DKK million 0-1 year 1-5 years 5 years rate rate the Group’s earnings performance. In concrete as announcement of the result of the share buy- Trade receivables 277 - - No 2-24% terms, this means that, as a minimum, 30% of the back programme. Payment of the extraordinary consolidated profit after tax will be distributed dividend is expected to be effectuated on 20 Trade payables 276 - - No - as an ordinary dividend in connection with the September 2018. Current liabilities to credit institutions 86 - - No approx. 1%
ANNUAL REPORT 2017/18 — IC GROUP A/S 68 FINANCIAL STATEMENTS
5.3 FINANCIAL RISKS AND DERIVATIVE 5.4 FAIR VALUE MEASUREMENT OF FINANCIAL INSTRUMENTS (CONTINUED) FINANCIAL INSTRUMENTS
FAIR VALUE MEASUREMENT DERIVATIVE FINANCIAL INSTRUMENTS ACCOUNTING POLICIES Financial instruments measured at fair value The fair value of derivative financial instruments is in the statement of financial position must be calculated based on market observables by using categorized in one of the 3 levels below: generally accepted methods. Internally calculated DERIVATIVE FINANCIAL INSTRUMENTS FINANCIAL ASSETS fair values are used and these are compared to On initial recognition in the statement Deposits etc. are part of the category loans • Level 1 Listed prices in active markets for externally calculated fair values on a monthly of financial position, derivative financial and receivables which are financial assets with identical instruments. basis. instruments are measured at their fair value. fixed or definable payments and which are Positive and negative fair values of derivative not listed on an active market nor derivative • Level 2 Listed prices in an active markets for financial instruments are recognized under financial instruments. Other financial assets identical assets and liabilities or other methods other receivables and other liabilities, are measured at cost or at fair value at the end of measurement where all substantial inputs respectively, as unrealized gain on financial of the reporting period if this is lower. are based on market observables. instruments and unrealized loss on financial instruments, respectively. OTHER RECEIVABLES • Level 3 Method of measurement where On initial recognition, financial receivables substantial inputs may not be based on market Changes in the fair value of derivative financial are measured at fair value and subsequently observables. instruments designated as and qualifying at amortized cost which usually corresponds for recognition as cash flow hedges are to the nominal value less write-downs for recognized under other comprehensive bad debts. All other receivables are due for income. Gains and losses relating to such payment within 1 year and primarily relate to 2018 2017 hedge transactions are reclassified from other VAT and duties, financial contracts, etc. DKK million Item Level 1 Level 2 Level 3 Level 1 Level 2 Level 3 comprehensive income on realization of the hedged item and recognized in the same line OTHER LIABILITIES Unlisted shares and Financial item as the hedged item. On initial recognition, financial liabilities are bonds assets - - - - - 8 measured at fair value less any transaction For derivative financial instruments not costs. Subsequently, other liabilities are Financial assets at fair qualifying as hedges, changes in the fair value measured at amortized cost. The nominal value recognized in are recognized in the income statement under value of amounts payable under other the income statement - - - - - 8 financial income or costs. liabilities corresponds in all material respect to the fair value of the liabilities. Financial assets used Other for hedging purposes receivables - 27 - - 21 -
Other liabilities primarily relate to VAT and Financial liabilities used Other duties, staff obligations, other costs payable as for hedging purposes liabilities - 3 - - 32 - well as loss on derivative financial instruments.
ANNUAL REPORT 2017/18 — IC GROUP A/S 69 FINANCIAL STATEMENTS
5.5 FINANCIAL INCOME AND COSTS 5.6 OPERATING LEASES
DKK million 2017/18 2016/17 DKK million 2018 2017
Financial income: Store leases and other land and buildings: Interest on bank deposits 2 2 0-1 year 76 133 Interest on receivables 1 2 1–5 years 91 209 Other interest income - 1 More than 5 years 2 10 Interest income from financial assets not measured at fair value 3 5 Total 169 352
Operating equipment, etc.: Realized gain on ineffective derivative financial instruments 22 3 0–1 year 4 7 Total financial income 25 8 1–5 years 6 9 Total 10 16 Financial costs: Total operating leases 179 368 Interest on liabilities to credit institutions (4) (5) Other interest costs (1) (1) An amount of DKK 78 million (DKK 188 million) A number of the store leases contain a rent level Interest costs from financial liabilities not measured at fair value (5) (6) relating to operating leases has been recognized based on turnover amounting to DKK 45 million in the consolidated income statement for 2017/18. (DKK 60 million) for 2017/18. Realized loss on ineffective derivative financial instruments (18) (3) Net loss on foreign currency translation (12) (2) Total financial costs (35) (11) Net financials (10) (3)
ACCOUNTING POLICIES ACCOUNTING POLICIES
Financial income and costs include interest, Interest income and costs are accrued Lease costs are recognized using the straight- Many of the lease contracts contain terms realized and unrealized foreign currency based on the principal and the effective rate line method over the term of the lease starting regarding revenue-based lease. translation adjustments, fair value adjustments of interest. The effective rate of interest is from the date the lease enters into force. of derivative financial instruments which the discount rate to be used in discounting The Group leases cars and other operating do not qualify for hedge accounting and expected future payments in relation to the The Group leases properties under operating equipment under operating leases. The lease supplements, deductions and allowances financial asset or the financial liability so that leases. The lease term is typically between 3-5 term is typically between 3-5 years with an relating to the payment of tax. their present value corresponds to the carrying years with an option to extend upon expiry. option to extend upon expiry. amount of the asset or liability, respectively.
ANNUAL REPORT 2017/18 — IC GROUP A/S 70 FINANCIAL STATEMENTS
CHAPTER 6 GOVERNANCE
CONTENTS
6.1 REMUNERATION TO THE EXECUTIVE BOARD AND BOARD OF DIRECTORS 6.2 SHARE-BASED REMUNERATION 6.3 RELATED PARTIES 6.4 FEE TO AUDITORS ELECTED AT THE ANNUAL GENERAL MEETING
This chapter contains governance- related information, including remuneration to the Executive Board and the Board of Directors as well as share-based remuneration to Group employees. Furthermore, this chapter contains information on transactions with related parties and fee to auditors elected at the annual general meeting.
ANNUAL REPORT 2017/18 — IC GROUP A/S 71 FINANCIAL STATEMENTS
6.1 REMUNERATION TO THE EXECUTIVE BOARD AND BOARD OF DIRECTORS
The statement of remuneration to the Executive Other executives comprise Senior Vice Presidents, REMUNERATION PACKAGE FOR THE EXECUTIVE BOARD Board and the Board of Directors is prepared Vice Presidents and brand CEOs. Other executives AND THE BOARD OF DIRECTORS pursuant to the Company’s Remuneration Policy. are together with the Executive Board responsible The overall composition of the Executive Board’s for planning, executing and supervising the Board of Executive Comments in respect of remuneration is in general expected to be operations of the Group. 11 employees were defined Remuneration Directors Board top management unchanged for 2018/19. as other executives (12 employees) in 2017/18 of Fixed remuneration/annual salary which 3 employees resigned during the financial Remuneration in respect of Please see the Company’s Remuneration year under review. committee work Policy on the corporate website: icgroup.net/ Bonus payments investors/corporate-governance/ See page 101 for a complete list of other Severance payment The Exceutive Board has a notice remuneration-policy/ executives. period of 12 months Retirement contributions Long-term incentive programmes
REMUNERATION TO THE BOARD OF DIRECTORS, EXECUTIVE BOARD AND OTHER EXECUTIVES IS AS FOLLOWS: Board of Executive Other Board of Executive Other Directors Board executives Total Directors Board executives Total DKK 1,000 2017/18 2017/18 2017/18 2017/18 2016/17 2016/17 2016/17 2016/17
Remuneration to the Board of Directors 3,238 - - 3,238 3,252 - - 3,252 Remuneration to the Audit Committee 400 - - 400 395 - - 395 Remuneration to the Remuneration Committee 200 - - 200 200 - - 200 Remuneration to the Operations Committee - - - - 320 - - 320 Remuneration to the Nomination Committee 200 - - 200 118 - - 118 Salaries and remuneration - 3,792 16,101 19,893 - 8,628 19,232 27,860 Severance payments - - 3,241 3,241 - 8,389 5,386 13,775 Bonus payments - 4,950 12,912 17,862 - - (278) (278) Retirement contributions - - 1,411 1,411 - - 1,076 1,076 Long-term incentive programmes - 1,065 3.786 4,851 - 171 (252) (81) Total 4,038 9,807 37,451 51,296 4,285 17,188 25,164 46,637
Regonized as follows: Staff costs (continuing operations) 4,038 6,207 24,516 34,760 4,285 17,188 23,682 45,155 Staff costs (discontnued operations and transaction costs) - 3,600 12,935 16,535 - - 1,482 1,482 Total 4,038 9,807 37,451 51,296 4,285 17,188 25,164 46,637
ANNUAL REPORT 2017/18 — IC GROUP A/S 72 FINANCIAL STATEMENTS
6.1 REMUNERATION TO THE EXECUTIVE BOARD AND BOARD OF DIRECTORS (CONTINUED)
TOTAL REMUNERATION TO THE BOARD OF DIRECTORS TOTAL REMUNERATION TO THE EXECUTIVE BOARD
DKK 1,000 2017/18 2016/17 DKK 1,000 2017/18 2016/17 Peter Thorsen (Chairman) (appointed to the BoD on 28 Sept. 2016) 1,236 440 Alexander Martensen-Larsen (CEO, IC Group) 9,807 2,848 Henrik Heideby (Deputy Chairman) 1,050 1,236 Peter Thorsen (Interim Group CEO) - 2,100 Niels Martinsen 475 810 Former members of the Executive Board* - 12,240 Anders Colding Friis (resigned from the BoD on 27 Sept. 2017) 113 701 Total remuneration to the Executive Board 9,807 17,188 Ole Wengel (resigned from the BoD on 28 Sept. 2016) - 165 * Former members of the Executive Board consist of the former Group CEO, Mads Ryder. Michael Hauge Sørensen 388 454 Annette Brøndholt Sørensen (resigned from the BoD on 29 Mar. 2017) - 319 Conny Kalcher (appointed to the BoD on 29 Mar. 2017) 388 80 Jón Björnsson (appointed to the BoD on 29 Mar. 2017) 388 80 Total remuneration to the Board of Directors 4,038 4,285
The board fees to the Chairman and Deputy Chairman of the Board of Directors have been increased by a factor 3 and a factor 2 compared to the basic fee, respectively.
HEREOF REMUNERATION DISTRIBUTED ON COMMITTEES
Audit Remuneration Operations Nomination Audit Remuneration Operations Nomination Committee Committee Committee* Committee** Total Committee Committee Committee* Committee** Total DKK 1,000 2017/18 2017/18 2017/18 2017/18 2017/18 2016/17 2016/17 2016/17 2016/17 2016/17
Peter Thorsen 125 75 - 75 275 112 - 61 - 173 Henrik Heideby 175 25 - 62 262 152 87 - 38 277 Niels Martinsen 100 13 - 13 126 105 50 - 42 197 Anders Colding Friis - 13 - 13 26 - 50 - 38 88 Ole Wengel - - - - - 26 13 46 - 85 Michael Hauge Sørensen - 37 - - 37 - - 134 - 134 Annette Brøndholt Sørensen ------79 - 79 Conny Kalcher - 37 - - 37 - - - - - Jón Björnsson - - - 37 37 - - - - - Total 400 200 - 200 800 395 200 320 118 1,033
* The Operations Committee was closed down by the end of April 2017. ** The Nomination Committee was established in connection with the Annual General Meeting 2016.
ANNUAL REPORT 2017/18 — IC GROUP A/S 73 FINANCIAL STATEMENTS
6.2 SHARE-BASED REMUNERATION
WARRANT PROGRAMME The warrants granted represent the right, against PERFORMANCE SHARES to 25% of their fixed annual salary calculated by The pending programme concerns warrants payment in cash, to subscribe for a number of OCTOBER 2015 PROGRAMME using the same method. granted in August 2014 to former members of the new shares equivalent to the warrants granted. Pursuant to the authorization in the Remuneration Group’s Executive Board. The warrants granted The new shares may be acquired following the Policy as adopted at the Annual General Meeting Based on the Group’s financial results during the were exercisable for the first time following the Company’s announcement of its annual report 3, on 30 September 2015, the Board of Directors of vesting period, the performance shares granted announcement of the Annual Report 2016/17 and 4 or 5 years, respectively, after the warrant grant IC Group A/S decided to initiate a programme are expected to become void. will be exercisable for the last time following the date. granting performance shares to members of the Annual Report 2018/19. Group’s Executive Team as well as other selected OCTOBER 2016 PROGRAMME executives. Pursuant to the authorization in the Remuneration Average Policy as adopted at the Annual General Meeting Executive Other exercise price The participants’ opportunity for receiving on 28 September 2016, the Board of Directors of Board executives Total per warrant performance shares is dependent on the IC Group A/S decided to initiate a programme (no.) (no.) (no.) (DKK) achievement of specific goals in respect of granting performance shares to members of the Outstanding warrants at the Group’s financial results achieved in those Group’s Executive Team as well as other selected 1 July 2016 25,299 124,514 149,813 155 financial years during which the programme executives. Transferred (25,299) 25,299 - - runs. 25% of the performance shares granted is Exercised - (34,611) (34,611) 128 calculated based on the realized revenue growth The participants’ opportunity for receiving Expired/void - (77,254) (77,254) 158 whereas 75% of the performance shares granted performance shares is dependent on the Outstanding warrants is calculated based on realized earnings growth achievement of specific goals in respect of at 30 June 2017 - 37,948 37,948 172 (EBIT). the Group’s financial results achieved in those financial years during which the programme Number of warrants The performance period covers the financial runs. 50% of the performance shares granted is exercisable at 30 June 2017 - - - - years 2015/16, 2016/17, 2017/18, and, consequently, calculated based on the realized revenue growth Outstanding warrants at the grant may, at the earliest, take place following whereas 50% of the performance shares granted 1 July 2017 - 37,948 37,948 172 the announcement of the Annual Report 2017/18. is calculated based on realized earnings growth Outstanding warrants The grant of performance shares is free of (EBIT). at 30 June 2018 - 37,948 37,948 172 charge. The performance period covers the financial years Number of warrants The number of shares granted is based on 2016/17, 2017/18, 2018/19, and, consequently, the exercisable at 30 June 2018 - - - - meeting the set criteria. Therefore, the total grant may, at the earliest, take place following the number of performance shares granted under announcement of the Annual Report 2018/19. The The average weighted share price on warrants maturity for outstanding warrants was approx. 1 the programme may vary from 0 to 61,113. The grant of performance shares is free of charge. exercised in 2016/17 amounted to DKK 170 at the year (approx. 2 years). members of the Group’s executives may, as a time of exercise. The average weighted term to maximum, be granted a number of performance The number of shares granted is based on shares corresponding to 50% of their fixed annual meeting the set criteria. Therefore, the total salary (based on the monthly salary on 1 October number of performance shares granted under 2015) calculated by using the average closing the programme may vary from 0 to 79,901. The price of the share of the 5 previous trading members of the Group’s executives may, as a days before 1 October 2015 deducted expected maximum, be granted a number of performance dividends. The remaining participants of the shares corresponding to 50% of their fixed annual programme may, as a maximum, be granted a salary (based on the monthly salary on 26 number of performance shares corresponding October 2016) calculated by using the average
ANNUAL REPORT 2017/18 — IC GROUP A/S 74 FINANCIAL STATEMENTS
6.2 SHARE-BASED REMUNERATION (CONTINUED)
closing price of the share of the 5 previous trading Based on the Group’s financial results during the • The share price is determined as the higher of LONG-TERM INCENTIVE PROGRAMME days before 26 October 2016 deducted expected vesting period, the performance shares granted either the closing price of the IC Group A/S Pursuant to the authorization in the Remuneration dividends. The remaining participants of the are expected to become void. share on the grant date or the average closing Policy as adopted on the Annual General Meeting programme may, as a maximum, be granted a price of the preceding 5 trading days. on 27 September 2017, the Board of Directors number of performance shares corresponding to • The volatility is calculated based on the daily of IC Group A/S has decided to initiate a long- 15% or 25% of their fixed annual salary calculated closing prices during the past 3 financial years. term incentive programme granting cash-based by using the same method. The calculation term corresponds to the bonuses to the CEO as well as certain other minimum term to maturity of the performance executives. The programme is divided into two Executive Other shares granted. programmes – one programme for the CEO Board executives Total (no.) (no.) (no.) • The expected dividend rate is estimated on the and other executives in IC Group A/S and one basis of the historical, ordinary and extra- programme for the CEOs and executives in Outstanding performance shares at 1 July 2016 19,725 37,003 56,728 ordinary dividend payments. brands. Granted 24,701 55,200 79,901 • The risk-free interest rate is determined on Expired/void (29,506) (16,447) (45,953) the basis of 3-year Danish goverment bonds. The cash bonus programme runs for a period • Based on previous experience, the date of of 3 years and is subject to the CEOs/executives Outstanding performance shares at 30 June 2017 14,920 75,756 90,676 exercise is assumed to be during the first remaining employed during the entire vesting Number of performance shares exercisable window opening for trading during the exercise period. The programme for the CEO and the at 30 June 2017 - - - period, and maturity is therefore assumed to executives in IC Group A/S is based on the be 3 years. development of the IC Group share as well as Outstanding performance shares at 1 July 2017 14,920 75,756 90,676 accumulated dividends paid/distributed during Granted - - - The total fair value of the performance shares a period of 3 years. The shareholder’s return Expired/void - (24,574) (24,574) granted in 2016/17 amounted to DKK 11 million at on investment is multiplied by 2 within a fixed Outstanding performance shares at 30 June 2018 14,920 51,182 66,102 the grant date. maximum limit. The programme is classified as Number of performance shares exercisable “share-based payment” governed by IFRS 2. at 30 June 2018 - - - The programme for the CEOs and executives in brands is based on the achievement of brand- The average weighted term to maturity for The assumptions applied at the grant date specific targets for accumulated revenue and outstanding performance shares was approx. 1 (performance shares) are stated in the table accumulated operating profit (EBIT) during the year (approx. 2 years). below (no performance shares were granted in financial years 2017/18, 2018/19 and 2019/20. 25% 2017/18): of the granted cash bonus is calculated based on the realized revenue growth whereas 75% of the DKK million 2016/17 cash bonus is calculated based on the realized operating profit growth (EBIT). The programme Black-Scholes value 133 is classified as “employee benefits” governed by Share price 158 IAS 19. As at 30 June 2018, the Group’s liabilities Expected volatility 32% in respect of this programme amounted to DKK 2 Expected dividend rate in proportion to the share price 5.7% million. Risk-free interest (based on Danish government bonds in respect of maturity) (0.5)% Maturity 3 years
ANNUAL REPORT 2017/18 — IC GROUP A/S 75 FINANCIAL STATEMENTS
6.2 SHARE-BASED REMUNERATION (CONTINUED)
Executive Other DKK million Board executives Total ACCOUNTING POLICIES Liability at 1 July 2017 - - - Recognized as costs during the year 1 1 2 Fair value adjustments - - - With the purpose of motivating and retaining EQUITY-BASED PROGRAMMES: Liability at 30 June 2018 1 1 2 the CEOs and other executives, IC Group The fair value of the incentive programmes Value at grant date 1 1 2 A/S has established incentive programmes. granted on the grant date is recognized as Furthermore, these programmes are to costs in the income statement during the ensure common interest between the CEOs/ vesting period. Such costs represent the executives and the shareholders. calculated value of the incentive programmes The average weighted term to maturity was The assumptions applied at the grant date are granted and are not to be considered cash approx. 2 years at 30 June 2018. stated in the table below: The market value of IC Group A/S’ incentive costs. An equivalent amount is recognized in programmes is calculated by using the so- equity. DKK million 2017/18 called Black-Scholes model for valuation of options. CASH-BASED PROGRAMMES Black-Scholes value 17.5 The liability is recognized on a linear basis Exercise price 147.00-367.50 On the grant date it is estimated how many during the period in which the employee Expected volatility 28%-34% employees who are expected to exercise their performs his/her work. The fair value is rights pursuant to the terms of the individual calculated on the grant date, and the initial Risk-free interest (based on Danish government bonds in respect of maturity) (0.5)% incentive programmes. Subsequently, the recognition is based hereon. The recognized number of employees is adjusted to the effect costs are set off as a liability and its value Maturity 1-3 years that the total calculation is based on the actual is adjusted in the income statement on the number of employees who are exercising their relevant balance sheet dates. rights. • The volatility is calculated based on the daily • Maturity is assumed to be 1-3 years as the closing prices during the past 1-3 financial programme is earned in tranches. years. • The risk-free interest rate is determined on the basis of 1-3-year (average) Danish government bonds.
ANNUAL REPORT 2017/18 — IC GROUP A/S 76 FINANCIAL STATEMENTS
6.3 RELATED PARTIES 6.4 FEE TO THE AUDITORS ELECTED AT THE ANNUAL GENERAL MEETINGR
Friheden Invest A/S is a related party with BOARD OF DIRECTORS, THE EXECUTIVE DKK million 2017/18 2016/17 controlling influence in IC Group A/S. BOARD AND OTHER EXECUTIVES Statutory audit 4 3 The Group did not have any loans from its IC Group A/S’ related parties with significant executives at 30 June 2018 (DKK 2 million). Besides VAT and tax consultancy 1 2 influence include the related parties’ board of this, no transactions with the Board of Directors, Other services 4 1 directors, executive boards and other executives the Executive Board and other executives have Total fee to the auditors elected at the annual general meeting 9 6 as well as their related family members. Related taken place other than payment of ordinary parties also comprise businesses in which the remuneration. Fees for non-audit services in addition to the relating to the divestment of Peak Performance, individuals mentioned above have control or joint statutory audit of the financial statements, which including due diligence service, as well as tax control. Please see note 6.1. were provided by PricewaterhouseCoopers compliance services, transfer pricing services and Statsautoriseret Revisionspartnerselskab to the other general accounting and tax consultancy Group, amounted to DKK 5 million. Non-audit services. services in addition to the statutory audit of the financial statements primarily comprise services
ANNUAL REPORT 2017/18 — IC GROUP A/S 77 FINANCIAL STATEMENTS
CHAPTER 7 SUPPLEMENTARY NOTES
CONTENTS
7.1 RETIREMENT BENEFIT OBLIGATIONS 7.2 PROVISIONS 7.3 CONTINGENT LIABILITIES 7.4 EVENTS AFTER THE REPORTING PERIOD
Chapter 7 contains other statutory notes considered to be less significant to the overall understanding of IC Group’s Annual Report.
ANNUAL REPORT 2017/18 — IC GROUP A/S 78 FINANCIAL STATEMENTS
7.1 RETIREMENT BENEFIT OBLIGATIONS
The Group has used external and independent actuaries for the statement of retirement benefit obligations. The development of the fair value of the assets of the plans is specified as follows:
DKK million 2017/18 2016/17 DKK million 2018 2017 Retirement benefit assets at 1 July (49) (54) Recognized in profit and loss: Disposal in connection with sale of businesses for the year 49 - Contributions for defined contributions plans 21 25 Recognized in profit and loss: Total amount recognized for defined benefit plans - - Calculated interest on assets of the plans - (2) Total recognized obligations in profit and loss 21 25 Actuarial gains/losses (other comprehensive income) - 7 Fair value of the assets of the plans - (49)
The retirement benefit obligations are specified as follows:
DKK million 2018 2017 ACCOUNTING POLICIES
Present value of defined benefit plans - 50 Obligations relating to defined contribution as retirement benefit obligations, however, Fair value of the assets of the plans - (49) plans are recognized in the income statement please see below. Total net retirement benefit obligations - 1 in the period in which the employees Other retirement benefit obligations, cf. below - 7 performed their work, and contributions due Differences between the expected Total retirement benefit obligations - 8 are recognized in the statement of financial development of assets and liabilities in position under other liabilities. For defined connection with retirement benefit schemes benefit plans, an annual actuarial assessment and the realized values are termed Furthermore, an amount of DKK 7 million shares recognized under financial assets. The is made of the net present value of future actuarial gains or losses. Subsequently, all attributable to retirement benefit obligations in liability has been sold as part of the divestment of benefits to be paid under the plan. actuarial gains or losses are recognized in one of the Group companies was included for the Peak Performance. the comprehensive income. If a retirement financial year 2016/17 which was hedged by The net present value is calculated based on plan represents a net asset, the asset is only assumptions of the future developments of, recognized to the extent that it offsets future e.g., salary, interest, inflation and mortality contributions from the plan, or it will reduce rates. The net present value is only calculated future contributions to the plan. The development of the present value of defined benefit plans is specified as follows: for those benefits to which the employees have earned the right through their past The assumptions used for the actuarial DKK million 2018 2017 employment for the Group. The actuarial calculations and valuations may vary from Retirement benefit obligations at 1 July 50 56 calculation of the net present value less the country to country due to local, economic and Disposal in connection with sale of businesses for the year (50) - fair value of any assets related to the plan is social differences. The average assumptions Recognized in profit and loss: included in the statement of financial position for the actuarial calculations at the end of the Retirement benefit obligations for the year - 1 reporting period were as follows: Calculated interest on obligations - 1 Stated in % 2018 2017 Actuarial gains/losses (other comprehensive income): Average discount rate applied 1.9 2.2 Demographic changes recognized in other comprehensive income - (3) Expected future pay increase rate 2.0 2.1 Economic changes recognized in other comprehensive income - (5) Present value of defined benefit plans - 50
ANNUAL REPORT 2017/18 — IC GROUP A/S 79 FINANCIAL STATEMENTS
7.2 PROVISIONS
Provisions primarily include provisions for which primarily relates to severance payments Group is involved from time to time. Management expected discounts, claims and return of and loss-making contracts. Other provisions considers that pending litigation poses no products. Furthermore, provisions for the primarily relate to restoration obligations in significant financial risks. implemented structural changes of the Group’s respect of the Group’s store leases as well as corporate functions in 2016/17 are also included court litigations of various kinds in which the
Provisions 2018 for expected discounts, claims Provisions for Other Total DKK million and return of products restructurings provisions provisions
Provisions at 1 July 2017 24 23 13 60 Provisions utilized for the year (24) (18) (2) (44) Provisions for the year 23 - - 23 Reversed provisions - (5) (2) (7) Disposal in connection with sale of businesses for the year (9) - (3) (12) Provisions at 30 June 2018 14 - 6 20
Provisions specified in the statement of financial position are as follows: Non-current liabilities - - 5 5 Current liabilities 14 - 1 15 Provisions at 30 June 2018 14 - 6 20
Provisions 2017 for expected discounts, claims Provisions for Other Total DKK million and return of products restructurings provisions provisions
Provisions at 1 July 2016 19 - 8 27 Provisions utilized for the year (22) (13) - (35) Provisions for the year 27 37 5 69 Reversed provisions - (1) - (1) Provisions at 30 June 2017 24 23 13 60
Provisions specified in the statement of financial position are as follows: Non-current liabilities - 4 7 11 Current liabilities 24 19 6 49 Provisions at 30 June 2017 24 23 13 60
ANNUAL REPORT 2017/18 — IC GROUP A/S 80 FINANCIAL STATEMENTS
7.2 PROVISIONS (CONTINUED) 7.3 CONTINGENT LIABILITIES
DKK million 2018 2017
ACCOUNTING POLICIES Guarantees and other collateral security 217 576
Provisions are recognized when, as a Provisions with an expected term of more The Group has entered into binding agreements customers. At 30 June 2018, the Group was not consequence of a past event during the than a year at end of the reporting period are with suppliers on the delivery of collections involved in any pending litigation which may have financial year or previous years, the Group measured at present value. until 31 December 2018 of which the majority is a material effect on the Group’s financial position. has a legal or constructive obligation, and it tied to sales orders entered into with wholesale is likely that settlement of the obligation will In connection with planned restructurings require an outflow of the Company’s financial of the Group, provisions are only made for resources. liabilities relating to restructurings that have been set out in a specific plan at the end of ACCOUNTING POLICIES Provisions are measured as the best estimate the reporting period and where the parties of the costs required to settle the liabilities at affected have been informed of the overall the end of the reporting period. plan. Contingent liabilities comprise potential the Group’s resources or actual liabilities which liabilities which have not yet been confirmed are not possible to measure with sufficient as to whether these will cause an outflow of reliability.
ACCOUNTING ESTIMATES 7.4 EVENTS AFTER THE REPORTING PERIOD
The accounting estimates applied in respect of assumptions and judgments applied. IC Group In respect of distributing the total net proceeds owning shares in the remaining brands. The provisions are based on Management’s best A/S makes provisions to cover expected of DKK 1.75 billion deriving from the divestment Board of Directors will continuously consider estimates of assumptions and judgments. The discounts, claims and return of products. of Peak Performance, the Board of Directors has when it is in the best interest of the shareholders majority of the provisions are expected to be These estimates are based on existing decided, in accordance with the authorization to divest these brands. The Group’s changed settled within one year. Due to uncertainty in contractual obligations and past experience. granted at the last annual general meeting, to business model will result in tasks previously the settlement process, these estimates may Based on the information available, IC Group initiate a buy-back of up to 1,709,085 shares undertaken by IC Group are transferred to be affected significantly by changes in these A/S considers the provisions to be adequate. corresponding to 10% of the Company’s total and performed by the individual brands in share capital. For further information on the share the future to the effect that these brands buy-back programme, please see separate become independent units with their own Company Announcement no. 18/2018. The Board support functions. In addition, the Group is also of Directors expects to propose to have all of the considering divesting its Logistics function. Company’s treasury shares cancelled through a capital reduction at the Company’s next annual Besides this, no material events have taken place general meeting. after the reporting period that have not been recognized or included in this Annual Report. The Board of Directors has determined to change the Company’s business model entailing that IC Group will become a listed holding company
ANNUAL REPORT 2017/18 — IC GROUP A/S 81 FINANCIAL STATEMENTS
PARENT COMPANY FINANCIAL STATEMENTS
PRIMARY FINANCIAL STATEMENTS NOTES – STATEMENT OF NOTES – SUPPLEMENTARY FINANCIAL POSITION INFORMATION Income statement 83 Statement of financial position 84 8 Intangible assets 91 21 Contingent liabilities 95 Statement of changes in equity 85 9 Property, plant and equipment 91 22 Financial risks and derivative Statement of cash flows 86 10 Investments in subsidiaries 92 financial instruments 95 11 Financial assets 92 23 Related parties 95 12 Inventories 93 24 Event after the reporting period 95 BASIS FOR PREPARATION 13 Trade receivables 93 14 Net interest-bearing debt 93 1 Basis for preparation 87 15 Share capital 93 16 Profit allocation 93 17 Provisions 94 NOTES – INCOME STATEMENT 18 Operating leases 94 19 Working capital 95 2 Revenue 87 20 Other adjustments, 3 Fee to auditors elected at the statement of cash flows 95 annual general meeting 87 4 Staff costs 87 5 Other operating income and costs 88 6 Financial income and costs 88 7 Tax 89
ANNUAL REPORT 2017/18 — IC GROUP A/S 82 FINANCIAL STATEMENTS
INCOME STATEMENT 1 JULY - 30 JUNE
DKK million Note 2017/18 2016/17
Revenue 2 933 1,126 Cost of sales (808) (978) Gross profit 125 148
Other external costs (53) (89) Staff costs 4 (80) (132) Other operating income and costs 5 52 77 Operating profit before depreciation and amortization (EBITDA) 44 4
Depreciation, amortization and impairment losses 8, 9 (18) (21) Operating profit/loss (EBIT) 26 (17)
Income from investments in subsidiaries 10 1,215 264 Financial income 6 37 16 Financial costs 6 (45) (17) Profit before tax 1,233 246
Tax on profit for the year 7 - (6) Profit for the year 1,233 240
ANNUAL REPORT 2017/18 — IC GROUP A/S 83 FINANCIAL STATEMENTS
STATEMENT OF FINANCIAL POSITION AT 30 JUNE
DKK million Note 2018 2017 DKK million Note 2018 2017
ASSETS EQUITY AND LIABILITIES NON-CURRENT ASSETS EQUITY Intangible assets 8 5 15 Share capital 15 171 171 Property, plant and equipment 9 24 18 Reserve for hedging transactions 20 (9) Investments in subsidiaries 10 558 1,407 Retained earnings 2,471 1,321 Financial assets 11 219 35 TOTAL EQUITY 2,662 1,483 Deferred tax 7 12 20 Total non-current assets 818 1,495 LIABILITIES Provisions 17 - 4 CURRENT ASSETS Other liabilities 2 - Inventories 12 - 225 Total non-current liabilities 2 4 Trade receivables 13 3 4 Receivables from subsidiaries 220 238 Current liabilities to credit institutions 14 90 90 Tax receivable 7 1 3 Trade payables 23 26 Other receivables 64 25 Payables to subsidiaries 174 326 Prepayments 6 9 Other liabilities 53 83 Cash 14 1,892 33 Provisions 17 - 20 Total current assets 2,186 537 Total current liabilities 340 545 TOTAL ASSETS 3,004 2,032 Total liabilities 342 549 TOTAL EQUITY AND LIABILITIES 3,004 2,032
ANNUAL REPORT 2017/18 — IC GROUP A/S 84 FINANCIAL STATEMENTS
STATEMENT OF CHANGES IN EQUITY 1 JULY - 30 JUNE
2018 Share Reserve for Retained Proposed Total DKK million capital hedging transactions earnings dividend equity Equity at 1 July 2017 171 (9) 1,236 85 1,483 Profit for the year - - 1,150 83 1,233 Other changes in equity - 29 - - 29
Transactions with owners: Dividend on treasury shares - - 2 (2) - Dividend paid - - - (83) (83) Changes in equity during 2017/18 - 29 1,152 (2) 1,179 Equity at 30 June 2018 171 20 2,388 83 2,662
2017 Share Reserve for Retained Proposed Total DKK million capital hedging transactions earnings dividend equity Equity at 1 July 2016 171 16 1,075 85 1,347 Profit for the year - - 155 85 240 Other changes in equity - (25) - - (25)
Transactions with owners: Dividend on treasury shares - - 2 (2) - Dividend paid - - - (83) (83) Exercise of warrants - - 4 - 4 Changes in equity during 2016/17 - (25) 161 - 136 Equity at 30 June 2017 171 (9) 1,236 85 1,483
ANNUAL REPORT 2017/18 — IC GROUP A/S 85 FINANCIAL STATEMENTS
STATEMENT OF CASH FLOWS 1 JULY - 30 JUNE
DKK million Note 2017/18 2016/17
CASH FLOW FROM OPERATING ACTIVITIES Operating profit/loss 26 (17) Other adjustments 20 (54) 63 Change in working capital 19 55 (272) Cash flow from ordinary operating activities 27 (226)
Financial income received 2 1 Financial costs paid (4) (5) Cash flow from operating activities 25 (230)
Tax recovered 7 2 32 Total cash flow from operating activities 27 (198)
CASH FLOW FROM INVESTING ACTIVITIES Investments in intangible assets 8 (1) (1) Investments in property, plant and equipment 9 (16) (6) Sale of subsidiaries and operations 10 1,995 1 Dividend received, proceeds in connection with liquidation, etc. 122 254 Total cash flow from investing activities 2,100 248
Total free cash flow 2,127 50
CASH FLOW FROM FINANCING ACTIVITIES Change in long-term loans to subsidiaries (185) - Dividend paid (83) (83) Exercise of share options and warrants - 4 Total cash flow from financing activities (268) (79) Net cash flow for the year 1,859 (29)
CASH AND CASH EQUIVALENTS Cash and cash equivalents at 1 July (57) (28) Net cash flow for the year 1,859 (29) Cash and cash equivalents at 30 June 1,802 (57)
DKK million 2018 2017 Cash and cash equivalents in statement of cash flows comprise: Cash 1,892 33 Current liabilities to credit institutions (90) (90) Cash and cash equivalents, cf. statement of cash flows 1,802 (57)
ANNUAL REPORT 2017/18 — IC GROUP A/S 86 FINANCIAL STATEMENTS
NOTES
1. BASIS FOR PREPARATION 2. REVENUE
BASIS FOR PREPARATION CHANGE OF LEGAL STRUCTURE DKK million 2017/18 2016/17 The parent company financial statements are During 2017/18, the process of changing the legal Sale of goods to subsidiaries 764 941 expressed in Danish Kroner (DKK) which is the structure was completed after which all sales and functional currency of the Parent Company. sourcing operations were owned by the individual Sale of goods to non-Group related parties 169 185 brands to which their operations belong. Total revenue 933 1,126 Few reclassifications and adjustments of the Consequently, IC Group A/S now solely operates comparative figures have been made. as a financial holding company.
CHANGES IN ACCOUNTING POLICIES SIGNIFICANT ACCOUNTING ESTIMATES 3. FEE TO AUDITORS ELECTED AT THE ANNUAL The accounting policies for the Parent Company GENERAL MEETING have been changed compared to last financial Please see note 1.2 to the consolidated year as the financial statements of the Parent financial statements. DKK million 2017/18 2016/17 Company are presented in accordance with the Statutory audit 3 3 Danish Financial Statements Act. The accounting policies for the Parent Company are the same as Tax consultancy - 2 those applied for the Group with the exception of Other services 4 - the items stated in the below notes. The change Total fee to auditors elected at the annual general meeting 7 5 of the accounting policies has not had any effect on the Parent Company’s recognition and measurement as well as comparative figures. 4. STAFF COSTS It has been decided to include the statement of cash flows as well as separate the statement of DKK million 2017/18 2016/17 financial position into non-current and current Total salaries, remuneration, etc., may be specified as follows: items in the parent company financial statements. Remuneration to the Board of Directors 4 4 Please see note 1.1. to the consolidated Salaries and remuneration 66 115 financial statements for further information on Defined contribution plans 4 8 accounting policies. Long-term incentive programmes 2 - Other staff costs 4 5 Total staff costs 80 132
Average number of employees of the Parent Company 93 128
Remuneration to the Board of Directors and for the Executive Board and other executives the Executive Board of the Parent Company are disclosed in notes 6.1 and 6.2 to the as well as long-term incentive programmes consolidated financial statements.
ANNUAL REPORT 2017/18 — IC GROUP A/S 87 FINANCIAL STATEMENTS
5. OTHER OPERATING INCOME AND COSTS 6. FINANCIAL INCOME AND COSTS
DKK million 2017/18 2016/17 DKK million 2017/18 2016/17
Services provided to subsidiaries 51 76 Financial income: Sales proceeds and other operating income and costs 1 1 Interest on bank deposits 2 2 Total other operating income and costs 52 77 Interest on receivables from subsidiaries 13 11 Interest income from financial assets not measured at fair value 15 13
Administration fees paid by subsidiaries to the operating income under other operating income Realized gain on ineffective derivative financial instruments 22 3 Parent Company covering their share of the and costs. Total financial income 37 16 Group’s overheads are recognized as other
Financial costs: Interest on liabilities to credit institutions (4) (5) Interest on payables to subsidaries (5) (7) ACCOUNTING POLICIES Interest costs from financial liabilities not measured at fair value (9) (12)
Realized loss on ineffective derivative financial instruments (18) (3) Other operating income and costs comprise main activities, including gains and losses on items of a secondary nature in respect of the sale of intangible assets and property, plant Net loss on foreign currency translation (18) (2) and equipment. Total financial costs (45) (17) Net financials (8) (1)
ANNUAL REPORT 2017/18 — IC GROUP A/S 88 FINANCIAL STATEMENTS
7. TAX
TAX FOR THE YEAR BREAKDOWN OF TAX ON PROFIT FOR THE YEAR IS AS FOLLOWS:
DKK million 2017/18 2016/17 DKK million 2017/18 2016/17
Current tax Calculated tax on profit before tax, 22% 271 54 Current tax for the year 3 (4) Effect of other non-taxable income and non-deductible costs (267) (58) Prior-year adjustments, current tax (3) (1) Prior-year adjustments (5) 4 Total current tax - (5) Revaluation of tax losses, etc. 1 6 Total - 6 Deferred tax Change in deferred tax 10 (5) Effective tax rate for the year (%) 0.0% 2.4% Prior-year adjustments, deferred tax* (2) 4 Revaluation of tax losses, etc. - 6 Total deferred tax 8 5 Tax for the year 8 -
Recognized as follows: Tax on profit for the year - 6 Tax on reserve for hedging transactions 8 (6) Tax for the year 8 -
Net tax receivable at 1 July 3 30 Tax payable on profit for the year - 5 Tax recovered during the financial year (2) (32) Net tax receivable at 30 June 1 3
Recognized as follows: Tax receivable 1 3 Net tax receivable at 30 June 1 3
* Including re-allocation of used losses under joint taxation of Danish entities.
ANNUAL REPORT 2017/18 — IC GROUP A/S 89 FINANCIAL STATEMENTS
7. TAX (CONTINUED)
DEFERRED TAX CHANGES TO TEMPORARY DIFFERENCES DURING THE YEAR ARE AS FOLLOWS:
Recognized Net deferred Recognized in reserve Net deferred tax at in profit/loss for hedging tax at DKK million 2018 2017 DKK million 1 July 2017 for the year transactions 30 June 2018
Deferred tax at 1 July 20 25 Intangible assets and property, Prior-year adjustments 2 (4) plant and equipment 13 1 - 14 Adjustment regarding changes in tax rates - - Provisions 2 (1) - 1 Revaluation of tax losses, etc. 2 (6) Financial instruments 3 - (8) (5) Deferred tax on reserve for hedging transactions (8) 6 Tax losses 12 (2) - 10 Change in deferred tax on profit for the year (4) (1) Impaired tax assets (10) 2 - (8) Net deferred tax at 30 June 12 20 Total 20 - (8) 12 Recognized Recognized as follows: Net deferred Recognized in reserve Net deferred Deferred tax 12 20 tax at in profit/loss for hedging tax at Net deferred tax at 30 June 12 20 DKK million 1 July 2016 for the year transactions 30 June 2017 Property, plant and equipment 21 (8) - 13 Breakdown of deferred tax at 30 June is as follows: Provisions 2 - - 2 Gross deferred tax 20 30 Financial instruments (3) - 6 3 Impaired tax assets (8) (10) Tax losses 15 (3) - 12 Net deferred tax at 30 June 12 20 Impaired tax assets (10) - - (10) Total 25 (11) 6 20
Impaired tax assets relate to tax losses that are The impaired tax losses are not limited in time. assessed not to be sufficiently likely to be utilized in the foreseeable future.
ANNUAL REPORT 2017/18 — IC GROUP A/S 90 FINANCIAL STATEMENTS
8. INTANGIBLE ASSETS 9. PROPERTY, PLANT AND EQUIPMENT
2018 Total 2018 Total property, Software and intangible Leasehold Equipment Assets under plant and DKK million IT systems assets DKK million improvements and furniture construction equipment
Cost at 1 July 2017 91 91 Cost at 1 July 2017 8 36 2 46 Addition 1 1 Reclassification - 2 (2) - Cost at 30 June 2018 92 92 Addition - 16 - 16 Disposal - (21) - (21) Accumulated amortization and impairment losses at 1 July 2017 (76) (76) Cost at 30 June 2018 8 33 - 41 Amortization and impairment losses for the year (11) (11) Accumulated amortization and impairment losses at 30 June 2018 (87) (87) Accumulated depreciation and Carrying amount at 30 June 2018 5 5 impairment losses at 1 July 2017 (2) (26) - (28) Depreciation and impairment losses for the year (1) (6) - (7) Depreciation and impairment losses on disposals - 18 - 18 2017 Total Software and intangible Accumulated depreciation and DKK million IT systems assets impairment losses at 30 June 2018 (3) (14) - (17) Carrying amount at 30 June 2018 5 19 - 24 Cost at 1 July 2016 90 90 Addition 1 1 Cost at 30 June 2017 91 91 2017 Total property, Leasehold Equipment Assets under plant and Accumulated amortization and impairment losses at 1 July 2016 (61) (61) DKK million improvements and furniture construction equipment Amortization and impairment losses for the year (15) (15) Accumulated amortization and impairment losses at 30 June 2017 (76) (76) Cost at 1 July 2016 2 31 9 42 Carrying amount at 30 June 2017 15 15 Reclassification 6 2 (8) - Addition 1 4 1 6 Disposal (1) (1) - (2) Cost at 30 June 2017 8 36 2 46
Accumulated depreciation and impairment losses at 1 July 2016 (2) (22) - (24) Depreciation and impairment losses for the year (1) (5) - (6) Depreciation and impairment losses on disposals 1 1 - 2 Accumulated depreciation and impairment losses at 30 June 2017 (2) (26) - (28) Carrying amount at 30 June 2017 6 10 2 18
ANNUAL REPORT 2017/18 — IC GROUP A/S 91 FINANCIAL STATEMENTS
10. INVESTMENTS IN SUBSIDIARIES For the financial year 2017/18, an amount of STATEMENT OF CASH FLOWS DKK 35 million was recognized in the income During the financial year under review an amount 2018 statement regarding prior-year write-downs of of DKK 1,755 million was received in respect of the investments and short-term receivables from divestment of Peak Performance Production AB DKK million Subsidiaries subsidiaries (write-downs of DKK 7 million). and an amount of DKK 240 million was received Received dividends from subsidiaries amounted in respect of sale of subsidiaries to other Group Cost at 1 July 2017 1,697 to DKK 122 million (DKK 254 million). companies Addition 37 Disposal (1,053) Cost at 30 June 2018 681 ACCOUNTING POLICIES
Write-downs at 1 July 2017 (290) Addition - Investments in subsidiaries and associates the net assets recognized in the consolidated are measured at cost. An impairment test is financial statements. Where the recoverable Disposal 167 conducted when the carrying amount of the amount is lower than cost, the investments are Write-downs at 30 June 2018 (123) investments exceeds the carrying amount of written down to such lower value.
Carrying amount at 30 June 2018 558
2017 11. FINANCIAL ASSETS Long-term DKK million Subsidiaries receivables from Total Cost at 1 July 2016 1,707 DKK million subsidiaries Deposits etc. financial assets Addition (10) Carrying amount at 30 June 2016 31 4 35 Cost at 30 June 2017 1,697 Net additions, disposals and foreign currency translation adjustments for Write-downs at 1 July 2016 (290) the year - - - Addition - Carrying amount at 30 June 2017 31 4 35 Disposal - Net additions, disposals and foreign Write-downs at 30 June 2017 (290) currency translation adjustments for the year 185 (1) 184 Carrying amount at 30 June 2017 1,407 Carrying amount at 30 June 2018 216 3 219
All intercompany loans are interest-bearing.
An overview of the Group’s subsidiaries is As at 29 June 2018, Peak Performance Production available on page 99 in this Annual Report. AB was sold to Amer Sports Corporation as ACCOUNTING POLICIES described in note 2.5 to the consolidated financial INCOME STATEMENT statements. For the financial year 2017/18 an Income from investments in subsidiaries amount of DKK 1,106 million was recognized On initial recognition, receivables from downs for bad debts. No security has been amounted to net DKK 1,215 million (income of in respect of this sale. Furthermore, during the subsidiaries in the parent company financial received for the loans. The carrying amount DKK 264 million) and comprises dividends from financial year under review, subsidiaries have statements are measured at fair value and of the financial assets corresponds to the fair subsidiaries as well as gains and losses on been sold to Group companies as part of the subsequently at amortized cost which usually value. disposal of subsidiaries deducted write-downs of changed Group structure and, in this respect, the corresponds to the nominal value less write- investments and receivables for the year. net loss amounted to DKK 48 million.
ANNUAL REPORT 2017/18 — IC GROUP A/S 92 FINANCIAL STATEMENTS
12. INVENTORIES 14. NET INTEREST-BEARING DEBT
DKK million 2018 2017
DKK million 2018 2017 Net interest-bearing debt comprises: Current liabilities to credit institutions 90 90 Finished goods and goods for resale - 153 Gross interest-bearing debt 90 90 Goods in transit - 96 Total inventories, gross - 249 Cash 1,892 33 Net interest-bearing debt (1,802) 57 Changes in inventory write-downs for the year: Inventory write-downs at 1 July 24 12 Write-downs for the year, addition 8 22 15. SHARE CAPITAL Write-downs for the year, reversal (32) (10) For information on the share capital see note 5.1 to the consolidated financial Total inventory write-downs - 24 distribution on number of shares, etc., please statements. Total inventories, net - 225
Inventories recognized at net realizable value During the financial year 2017/18, inventories have 16. PROFIT ALLOCATION amounted to DKK 33 million at 30 June 2017. been sold to Group companies. Furthermore, in respect of distributing the total Dividends from investments in subsidiaries are net proceeds of DKK 1.75 billion deriving from recognized in the income statement for the the divestment of Peak Performance, the Board financial year in which the dividends are declared. 13. TRADE RECEIVABLES of Directors has decided, in accordance with the authorization granted at the last annual general IC Group A/S distributed to its shareholders DKK meeting, to initiate a buy-back of up to 1,709,085 85 million (DKK 85 million) in ordinary dividend in shares corresponding to 10% of the Company’s respect of the financial year 2016/17. The Board total share capital. For further information on the DKK million 2018 2017 of Directors will propose at the Annual General share buy-back programme, please see separate Meeting 2018 a resolution recommending a total Company Announcement no. 18/2018. The Board Not yet due - - ordinary dividend of DKK 83 million in respect of of Directors expects to propose to have all of the Due, 1-60 days 2 4 the financial year 2017/18. As no dividend is paid Company’s treasury shares cancelled through a Due, 61-120 days - - on the Company’s treasury shares, the dividend capital reduction at the Company’s next annual Due more than 120 days 1 - corresponds to at least DKK 5.00 per eligible general meeting. Immediately after the expected share depending on the result of the announced Total trade receivables, net 3 4 completion of the share buy-back programme, share buy-back programme, cf. Company the remaining net proceeds from the divestment Announcement no. 18/2018 dated 28 August 2018. Changes in trade receivables write-downs for the year: of Peak Performance will be determined in order Trade receivables write-downs at 1 July - 1 to distribute it as extraordinary dividend to the Change in write-downs for the year - (1) shareholders. Total trade receivables write-downs - - DKK million 2017/18 2016/17
In all material respect, the carrying amounts of until between 30 and 60 days after the invoice Proposed dividend for the financial year 83 85 trade receivables correspond to their fair values. date. After this date, interest is charged on the Reserve for hedging transactions 29 (25) In general, trade receivables do not carry interest outstanding amount. Retained earnings 1,150 155 Profit for the year 1,262 215
ANNUAL REPORT 2017/18 — IC GROUP A/S 93 FINANCIAL STATEMENTS
17. PROVISIONS 18. OPERATING LEASES
2018 Provisions DKK million 2018 2017 for expected discounts, Store leases and other land and buildings claims and 0-1 year 4 14 return of Provisions for Other Total 1-5 years 6 15 DKK million products restructurings provisions provisions Total 10 29 Provisions at 1 July 2017 3 18 3 24 Provisions utilized for the year - (13) (1) (14) The Parent Company leases properties under An amount of DKK 6 million (DKK 22 million) Provisions for the year (3) - - (3) operating leases. The lease term is typically relating to operating leases has been recognized Reversed provisions - (5) (2) (7) between 3-5 years with an option to extend upon in the income statement of the Parent Company Provisions at 30 June 2018 - - - - expiry. for 2017/18.
In addition, the Parent Company leases cars 2017 Provisions and other operating equipment under operating for expected leases. discounts, claims and return of Provisions for Other Total DKK million products restructurings provisions provisions
Provisions at 1 July 2016 2 - 1 3 Provisions utilized for the year (2) (13) - (15) Provisions for the year 3 32 2 37 Reversed provisions - (1) - (1) Provisions at 30 June 2017 3 18 3 24
Provisions specified in the statement of financial position are as follows: Non-current liabilities - 4 - 4 Current liabilities 3 14 3 20 Provisions at 30 June 2017 3 18 3 24
Please see note 7.2 to the consolidated financial statements.
ANNUAL REPORT 2017/18 — IC GROUP A/S 94 FINANCIAL STATEMENTS
19. WORKING CAPITAL 20. OTHER ADJUSTMENTS, STATEMENT OF CASH FLOWS
DKK million 2018 2017 DKK million 2017/18 2016/17
Inventories - 225 Reversed depreciation and impairment losses and gain/loss on Trade receivables 3 4 sale of non-current assets 18 21 Receivables from subsidiaries 220 238 Provisions (2) 22 Other receivables 36 4 Other adjustments (70) 20 Prepayments 6 9 Total other adjustments (54) 63 Total assets 265 480
Trade payables 23 26 Payables to subsidiaries 174 326 21. CONTINGENT LIABILITIES Other liabilities 50 54 Total liabilities 247 406 DKK million 2018 2017
Guarantees and other collateral security in respect of subsidiaries 192 387 Working capital 18 74
The Parent Company has issued letters of comfort in respect of certain subsidiaries. Operating working capital (20) 203 Other items 38 (129) Working capital 18 74 22. FINANCIAL RISKS AND DERIVATIVE FINANCIAL INSTRUMENTS DKK million 2017/18 2016/17 Please see note 5.3 to the consolidated Change in inventories 225 26 financial statements. Change in net balances to subsidiaries excluding dividends receivable (134) (315) Change in receivables excluding derivative financial instruments (28) 12 Change in current liabilities excluding tax and derivative financial 23. RELATED PARTIES instruments (8) 5 Total change in working capital 55 (272) On 16 May 2018, Friheden Invest A/S increased its Please see note 6.3 to the consolidated equity share in IC Group A/S to 54.9%. financial statements
The Parent Company’s transactions with subsidiaries are disclosed in the relevant notes to the parent company financial statements.
24. EVENTS AFTER THE REPORTING PERIOD
Please see note 7.4 to the consolidated financial statements.
ANNUAL REPORT 2017/18 — IC GROUP A/S 95 FINANCIAL STATEMENTS
STATEMENTS
STATEMENT BY THE MANAGEMENT statements give a true and fair view of the THE INDEPENDENT AUDITOR’S REPORT statement of financial position, the statement The Board of Directors and the Executive Board financial position at 30 June 2018 of the Group of changes in equity, the cash flow statement have today considered and adopted the Annual and the Parent Company and of the results of the To the shareholders of IC Group A/S and the notes, including summary of significant Report of IC Group A/S for the financial year 1 July Group and the Parent Company’s operations and accounting policies. 2017 – 30 June 2018. cash flows for the financial year 1 July 2017 – 30 OUR OPINION June 2018. In our opinion, the consolidated financial Collectively referred to as the “Financial The consolidated annual report is prepared in statements give a true and fair view of the Statements”. accordance with International Financial Reporting In our opinion, the Management Commentary Group’s financial position at 30 June 2018 and of Standards as adopted by the EU and further includes a true and fair account of the the results of the Group’s operations and cash BASIS FOR OPINION requirements pursuant to the Danish Financial development in the operations and financial flows for the financial year 1 July 2017 to 30 June We conducted our audit in accordance with Statements Act. circumstances of the Group and the Parent 2018 in accordance with International Financial International Standards on Auditing (ISAs) and the Company, of the results for the year and of the Reporting Standards as adopted by the EU and additional requirements applicable in Denmark. The parent company annual report is prepared in financial position of the Group and the Parent further requirements in the Danish Financial Our responsibilities under those standards accordance with the Danish Financial Statements Company as well as a description of the most Statements Act. and requirements are further described in the Act and with those additional options as de- significant risks and elements of uncertainty Auditor’s responsibilities for the audit of the scribed in note 1. facing the Group and the Parent Company. Moreover, in our opinion, the parent company Financial Statements section of our report. financial statements give a true and fair view of In our opinion, the consolidated financial We recommend that the Annual Report be the Parent Company’s financial position at 30 June We believe that the audit evidence we have statements and the parent company financial adopted at the Annual General Meeting. 2018 and of the results of the Parent Company’s obtained is sufficient and appropriate to provide operations and cash flows for the financial year a basis for our opinion. 1 July 2017 to 30 June 2018 in accordance with the Danish Financial Statements Act. Independence Copenhagen, 28 August 2018 We are independent of the Group in accordance Our opinion is consistent with our Auditor’s Long- with the International Ethics Standards Board form Report to the Audit Committee and the for Accountants’ Code of Ethics for Professional Board of Directors. Accountants (IESBA Code) and the additional Executive Board: requirements applicable in Denmark. We have What we have audited also fulfilled our other ethical responsibilities in Alexander Martensen-Larsen The consolidated financial statements of IC Group accordance with the IESBA Code. CEO A/S for the financial year 1 July 2017 to 30 June 2018 comprise the consolidated income statement To the best of our knowledge and belief, and consolidated statement of comprehensive prohibited non-audit services referred to in Article Board of Directors: income, the consolidated statement of financial 5(1) of Regulation (EU) No 537/2014 were not position, the consolidated statement of changes in provided. equity, the consolidated statement of cash flows Peter Thorsen Henrik Heideby Niels Erik Martinsen and the notes, including summary of significant Chairman Deputy Chairman accounting policies.
The parent company financial statements of IC Group A/S for the financial year 1 July 2017 to 30 June 2018 comprise the income statement, the Conny Kalcher Michael Hauge Sørensen Jón Björnsson
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KEY AUDIT MATTER HOW OUR AUDIT ADDRESSED THE KEY Appointment statements and has been prepared in accordance AUDIT MATTER We were first appointed auditors of IC Group with the requirements of the Danish Financial A/S on 25 September 2013 for the financial year Statements Act. We did not identify any material 2013/14. We have been reappointed annually misstatement in the Management Commentary. Divestment of Peak Performance by shareholder resolution for a total period of During 2017/18 the Board of Directors decided to We read the Sale and Purchase agreement and uninterrupted engagement of 5 years including MANAGEMENT’S RESPONSIBILITIES FOR initiate a strategic review process regarding the discussed the presentation of the divestment the financial year 2017/18. THE FINANCIAL STATEMENTS Peak Performance business, which resulted in Peak in the Financial Statements with Management, Management is responsible for the preparation of Performance being divested on 29 June 2018. including the timing of presenting the activity as KEY AUDIT MATTERS consolidated financial statements that give a true discontinued operations in the income statement. Due to the divestment, the Peak Performance activ- Key audit matters are those matters that, in our and fair view in accordance with International ity is classified as disposal group for sale where the We tested the amount recognised as gain on professional judgement, were of most significance Financial Reporting Standards as adopted by results of the activity is presented as discontinued disposal, including the provisions recognised to in our audit of the Financial Statements for the EU and further requirements in the Danish operations in the income statement including the cover guarantees, indemnities etc. in the Sale 2017/18. These matters were addressed in the Financial Statements Act and for the preparation gain on disposal. and Purchase agreement. Further, we tested context of our audit of the Financial Statements as of parent company financial statements that Management accounting estimates applied for We focused on this area because the divestment a whole, and in forming our opinion thereon, and give a true and fair view in accordance with the the net assets. includes non-standard and complex transactions, we do not provide a separate opinion on these Danish Financial Statements Act, and for such which is subject to significant estimates, including Further, we considered whether the disclosures of matters. internal control as Management determines valuation of net assets related to the divestment. the discontinued Peak Performance activity and is necessary to enable the preparation of divestment thereof are in compliance with IFRS. We refer to Note 2.4 in the consolidated financial STATEMENT ON MANAGEMENT financial statements that are free from material statements and Note 10 in the parent financial COMMENTARY misstatement, whether due to fraud or error. statements. Management is responsible for the Management Commentary. In preparing the Financial Statements, Management is responsible for assessing the Valuation of inventories Our opinion on the Financial Statements does not Group’s and the Parent Company’s ability to Inventories consist of clothes and fashion products, We discussed the principles for inventory valuation cover the Management Commentary, and we continue as a going concern, disclosing, as which are measured at the lower of cost and net with Group Management and the brand CFOs. do not express any form of assurance conclusion applicable, matters related to going concern realisable value. Clothes and fashion products may thereon. and using the going concern basis of accounting We evaluated relevant internal controls related to be volatile due to consumer demands and fashion unless Management either intends to liquidate the Group’s inventory valuation, including inven- trends, which increases the risk of impairment. tory write-down. In connection with our audit of the Financial the Group or the Parent Company or to cease The Group’s inventory valuation is dependent on Statements, our responsibility is to read the operations, or has no realistic alternative but to We assessed the principles for write-down of appropriate procedures and controls having been Management Commentary and, in doing so, do so. excess quantities and/or obsolete goods by con- established to ensure proper valuation. consider whether the Management Commentary firming historical consumption, expected future We focused on inventory valuation as write-down of demand, historical accuracy of inventory write- is materially inconsistent with the Financial AUDITOR’S RESPONSIBILITIES FOR THE obsolete inventories is subject to material estimates, down and Management’s future plans in respect Statements or our knowledge obtained in the AUDIT OF THE FINANCIAL STATEMENTS including expectations regarding sales and realis- of selling inventories of obsolete goods. audit, or otherwise appears to be materially Our objectives are to obtain reasonable assurance able value. misstated. about whether the Financial Statements as a We reviewed and challenged material estimates made by Management in accordance with the whole are free from material misstatement, accounting policies of IC Group A/S for inventory Moreover, we considered whether the whether due to fraud or error, and to issue valuation. Management Commentary includes the an auditor’s report that includes our opinion. We refer to note 3.1 disclosures required by the Danish Financial Reasonable assurance is a high level of assurance, Statements Act. but is not a guarantee that an audit conducted in accordance with ISAs and the additional Based on the work we have performed, in requirements applicable in Denmark will always our view, the Management Commentary is in detect a material misstatement when it exists. accordance with the consolidated financial Misstatements can arise from fraud or error and statements and the parent company financial are considered material if, individually or in the
ANNUAL REPORT 2017/18 — IC GROUP A/S 97 FINANCIAL STATEMENTS
aggregate, they could reasonably be expected to disclosures in the Financial Statements or, if We describe these matters in our auditor’s influence the economic decisions of users taken on such disclosures are inadequate, to modify report unless law or regulation precludes public the basis of these Financial Statements. our opinion. Our conclusions are based on disclosure about the matter or when, in extremely the audit evidence obtained up to the date of rare circumstances, we determine that a matter As part of an audit in accordance with ISAs our auditor’s report. However, future events or should not be communicated in our report and the additional requirements applicable in conditions may cause the Group or the Parent because the adverse consequences of doing so Denmark, we exercise professional judgement Company to cease to continue as a going would reasonably be expected to outweigh the and maintain professional scepticism throughout concern. public interest benefits of such communication. the audit. We also: • Evaluate the overall presentation, structure • Identify and assess the risks of material and content of the Financial Statements, Copenhagen, 28 August 2018 misstatement of the Financial Statements, including the disclosures, and whether the whether due to fraud or error, design and Financial Statements represent the underlying perform audit procedures responsive to those transactions and events in a manner that PricewaterhouseCoopers risks, and obtain audit evidence that is sufficient achieves fair presentation. Statsautoriseret Revisionspartnerselskab and appropriate to provide a basis for our CVR No 3377 1231 opinion. The risk of not detecting a material • Obtain sufficient appropriate audit evidence misstatement resulting from fraud is higher regarding the financial information of the than for one resulting from error, as fraud may entities or business activities within the Group Kim Tromholt Dan Bjerregaard involve collusion, forgery, intentional omissions, to express an opinion on the consolidated State Authorised State Authorised misrepresentations, or the override of internal financial statements. We are responsible for the Public Accountant Public Accountant control.. direction, supervision and performance of the mne33251 mne33701 group audit. We remain solely responsible for • Obtain an understanding of internal control our audit opinion. relevant to the audit in order to design audit procedures that are appropriate in the We communicate with those charged with circumstances, but not for the purpose of governance regarding, among other matters, expressing an opinion on the effectiveness of the planned scope and timing of the audit and the Group’s and the Parent Company’s internal significant audit findings, including any significant control. deficiencies in internal control that we identify during our audit. • Evaluate the appropriateness of accounting policies used and the reasonableness of We also provide those charged with governance accounting estimates and related disclosures with a statement that we have complied made by Management. with relevant ethical requirements regarding independence, and to communicate with • Conclude on the appropriateness of them all relationships and other matters that Management’s use of the going concern basis may reasonably be thought to bear on our of accounting and based on the audit evidence independence, and where applicable, related obtained, whether a material uncertainty safeguards. exists related to events or conditions that may cast significant doubt on the Group’s and the From the matters communicated with those Parent Company’s ability to continue as a charged with governance, we determine those going concern. If we conclude that a material matters that were of most significance in the uncertainty exists, we are required to draw audit of the Financial Statements of the current attention in our auditor’s report to the related period and are therefore the key audit matters.
ANNUAL REPORT 2017/18 — IC GROUP A/S 98 FINANCIAL STATEMENTS
GROUP STRUCTURE AT 30 JUNE 2018
Share capital Company Country Currency 1,000 units Subsidiary, wholly owned Saint Tropez af 1993 A/S Denmark DKK 500 By Malene Birger A/S Denmark DKK 500 Tiger of Sweden Denmark A/S Denmark DKK 501 Tiger of Sweden Norway AS Norway NOK 30 By Malene Birger Norway AS Norway NOK 30 Tiger of Sweden AB Sweden SEK 501 IC Group Sweden AB Sweden SEK 50,000 Vingåker Factory Outlet AB Sweden SEK 200 S T Sweden AB Sweden SEK 100 By Malene Birger AB Sweden SEK 100 Tiger of Sweden Finland Oy Finland EUR 10 Tiger of Sweden Netherlands BV Netherlands EUR 2,269 Saint Tropez Netherlands B.V. Netherlands EUR 10 By Malene Birger UK Ltd.* UK GBP 4,350 Tiger of Sweden UK Ltd.* UK GBP 10 Tiger of Sweden Germany G.m.b.H. Germany EUR 2,800 Saint Tropez Germany G.m.b.H. Germany EUR 25 IC Group Spain S.A. Spain EUR 60 Tiger of Sweden France SARL France EUR 10 IC Group Poland Sp. Z o.o. Poland PLN 126 Tiger of Sweden Hong Kong Ltd. Hong Kong HKD 10,000 By Malene Birger Hong Kong Ltd. Hong Kong HKD 50 Tiger of Sweden Romania SRL Romania RON 1,317
Subsidiary, equity share of 51% Designers Remix A/S Denmark DKK 500
* The companies are qualified for audit exemption in the UK, cf. the clauses regarding exemption set out in section 479A of the British Companies Act 2006.
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DEFINITION OF KEY RATIOS
Revenue for the year less revenue last financial year Revenue growth (%) = Revenue last financial year Gross profit Gross margin (%) = Revenue Capacity costs including other operating income Cost ratio (%) = Revenue Operating profit before depreciation and amortization EBITDA margin (%) = Revenue Operating profit EBIT margin (%) = Revenue Profit for the year of continuing operations excluding non-controlling interests Return on equity (%) = Average equity excluding non-controlling interests Equity year-end Equity ratio (%) = Total assets year-end Net average working capital plus intangible assets and property, plant and equipment less Average invested capital = provisions. Goodwill included represents total purchased goodwill after write-down for impairment.
Operating profit Return on invested capital (%) = Average invested capital including goodwill Net working capital in proportion to Net working capital year-end = 12 months trailing revenue Revenue Free cash flow Cash conversion = Operating profit (EBIT) Current and non-current liabilities to credit institutions Net interest-bearing debt = and lease debt less cash and cash equivalents Net interest-bearing debt Financial gearing (%) = Equity year-end Profit attributable to shareholders of the Parent Company Earnings per share = Average number of shares excluding treasury shares Profit attributable to shareholders of the Parent Company Diluted earnings per share = Average number of shares excluding treasury shares, diluted Cash flow from operating activities Diluted cash flow per share = Average number of shares excluding treasury shares, diluted Equity at year-end excluding non-controlling interests Diluted net asset value per share = Number of shares at year-end excluding treasury shares, diluted Market price per share at year-end Diluted price/earnings = Diluted earnings per share A store measured on same-store data has an unchanged location, sales area Same-store definition = and name on shop for a full financial year of comparable sales data.
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INFORMATION ON THE GROUP
OTHER EXECUTIVES FINANCIAL CALENDAR
Hans-Christian Meyer CEO, Tiger of Sweden
Morten Linnet CEO, By Malene Birger AGM Q1 Q2 Q3 AR Sofie Lindahl-Jessen CEO, Saint Tropez Niels Eskildsen CEO, Designers Remix Anders Boelskift CFO, IC Group 26 September 6 November 6 February 14 May 29 August 2018 2018 2019 2019 2019 Martin Christiansen Senior Vice President, Group General Counsel & HR Anders Rahr Senior Vice President, IT & Logistics
IC GROUP A/S’ CORPORATE INFORMATION AUDITOR Share capital 170,908,580 Address IC Group A/S PricewaterhouseCoopers Number of shares 17,090,858 12D Adelgade Statsautoriseret Revisionspartnerselskab Share class one class 1304 Copenhagen K Denmark ISIN code DK0010221803 ACCOUNTING PERIOD Business Reg. No. (CVR) 62816414 The accounting period of the Group and the Phone: +45 32 66 77 88 Parent Company runs from 1 July to 30 June. Reuter ticker IC.CO E-mail: [email protected] Bloomberg ticker IC DC Homepage: icgroup.net
INVESTOR RELATIONS CONTACT
Jens Bak-Holder Phone: +45 21 28 58 32 Head of Investor Relations E-mail: [email protected]
ANNUAL REPORT 2017/18 — IC GROUP A/S 101 FINANCIAL STATEMENTS
LIST OF PHOTOS FORWARD-LOOKING STATEMENTS
This Annual Report contains forward-looking Page 2: Tiger of Sweden, Fall/Winter Collection 2018 tations and forecasts at the time of disclosure statements, including statements regarding the of this Annual Report. Any such statements are Page 4: Tiger of Sweden, Fall/Winter Collection 2018 Group’s future operating profit, financial position, subject to risks and uncertainties and a number inventory, cash flows, Group and brand strategies of different factors, of which many are beyond IC Page 4: By Malene Birger, Autumn/Winter Collection 2018 as well as plans for the future. Forward-looking Group A/S’ control, can mean that the actual de- statements include, without limitation, any state- velopment and actual result will differ significantly Page 4: Saint Tropez, Summer/Autumn Collection 2018 ment that may predict, indicate or imply from the expectations contained in this Annual Page 4: Designers Remix, Pre-Fall 2018 future results, performance or achievements, and Report. Without being exhaustive, such factors may contain the words ”believes”, ”expects”, ”esti- include general economics and commercial fac- Page 8: Tiger of Sweden, Fall/Winter Collection 2018 mates”, ”projects”, ”plans”, ”anticipates”, ”continues” tors, including market and competitive matters, supplier issues and financial issues. Page 9: Tiger of Sweden, Jeans Collection, Fall/Winter Collection 2018 and ”intends” or any variations of such words or other words with similar meaning. The statements Accordingly, forward-looking statements should Page 12: Tiger of Sweden, Fall/Winter Collection 2018 are based on Management’s reasonable expec- not be relied on as a prediction of actual results. Page 14: Tiger of Sweden, New logo on jacket 2018
Page 15: Tiger of Sweden, Fall/Winter Collection 2018 The English version of the Annual Report 2017/18 is a translation from the Danish language. In the event of any discrepancy between the Danish and English versions, the Danish version shall prevail. Page 16: By Malene Birger, Autumn/Winter Collection 2018
Page 18: By Malene Birger, Autumn/Winter Collection 2018
Page 19: Saint Tropez, Summer/Autumn Collection 2018
Page 21: Designers Remix, Pre-Fall 2018
Page 22: Peak Performance, Fall Collection 2018
Page 29: Peak Performance, Fall Collection 2018
Page 40: Peak Performance, Fall Collection 2018
Page 43: By Malene Birger, Autumn/Winter Collection 2018
Page 53: Saint Tropez, Summer/Autumn Collection 2018
Page 56: Designers Remix, Pre-Fall 2018
Page 62: By Malene Birger, Autumn/Winter Collection 2018
Page 71: Tiger of Sweden, New logo on jacket 2018
Page 78: Peak Performance, Fall Collection 2018
EDITOR: INVESTOR RELATIONS · ANNOUNCEMENT DATE: 28 AUGUST 2018 · DESIGN: BystedFFW
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