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.