BDO Statsautoriseret revisionsaktieselskabRoms Hule 4, 1. salDK-7100 Vejle20222670Årsrapport62019-06-12Jesper RoeWatermill ApSNordlundvej 17330 BrandeRevisionspåtegning350242712013-01-01Brande2018-01-012018-12-312017-01-012017-12-31BDO Statsautoriseret revisionsaktieselskabRoms Hule4, 1. sal7100VejleSydbankBrande2019-06-12Jesper RoeVejle2019-06-12BDO Statsautoriseret revisionsaktieselskab20222670Allan LundRevisionspåtegningState Authorised Public Accountantmne10093446000000488000000498000000115000000136000000137000000260000004600000043000000-12000000-15000000-14000000-1120000001000000270000005400000042000000Operation profit before financial income and tax (EBIT)Operation profit before financial income and tax (EBIT)Operation profit before financial income and tax (EBIT)Operation profit before financial income and tax (EBIT)Operation profit before financial income and tax (EBIT)700000028000000150000003160000003340000003530000009000000081000000620000003000000044000000330000003400000051000000Working capital*Working capital*Working capital*Working capital*Working capital*111000000104000000100000000105000000145000000Net interest-bearing debtNet interest-bearing debtNet interest-bearing debtNet interest-bearing debtNet interest-bearing debt-5000-5000-1000-3000-400022.724.525.827.916.7-290.3611.1-1.6-25.922.328.424.36.9-49.30.6813.5-4.5387201000417792000002064640002118390000032500020890001080000011448000929600001036360001470000215800088102000104406000933000092900008109500078547000631500077880001185640002169800000909000283600000-11246600013250003015000150200000-119526000-136530008470009000009400023000100660001605700019120001770000-121685000-13832000-118329000-13898000-308900012000267000-54000-118596000-13844000-118596000-13844000939000011161000006158000113970000001554800012513100000940600084000000016100000095670008400000000007993300016860001006000001686000100600007993300026801000134537000079933000479260005748400000479260005748400000347060004733600000000707100036340003356000054000992100058610001000009890000078890001378000005615000058920000100071250004790500026744000100010001787820002776850002000870590008000080000800008000000010592000-4643100061231000-464310005063900007500000750000-4635100062061000-4635100062061000001908700000019087000043677000554650000024750000228530002475000022853000551000126100000689780007957900024750000228530001251400012916000007701300038375000004442700044481000116000810007500000750000023200091500021300003500003610001680001560001561550001360450002516000214500022513300021562400027266000249980001787820002776850002000870590008000061231000750000-750000-1700010951000-118596000080000-464310000800001059200050639000750000-7500001093400000-21526000-970700000800000-464310000-118596000-1384400061300001516900011856400021698000-2370000-42660009558000-126300020816000-566000-771000-3366000-181390002098000847000900000-8169000-1030600027000-262600079860003680000-5224000-4357000041000-5089000-5074000890000-807000-30020001270009029000-10904000-3363000-1137000-12380000-650000-14559000-34796000-17477000-34479000-1163100022848000-29108000-1163100032700029700016100016700020000110001791765571455000697130005739000713600055270005511000546000624000485500045870003000028000-742000-12640000081095000785470006315000778800000930001700084700090000010006000847000900000940002300019100001763000191000017630008156000142940002000700010066000160570001912000177000064400010670002130000-609000-44800000-3124000-60700054000-54000-308900012000267000-540000750000075000000-21526000-13653000-118596000-14594000-97070000-941000163790003939660000-310001267000395700010000001754600039789200052180002799960000-3700010000003038000111775000815600039173400093900006158000346200000400004928000161000466800003488400016100026220000-2000449000037500002547800094060001610001306000100600080700012700016860001686000693410006934100010592000-17000-9086700010951000-693410000Deferred tax is measured according to the tax rules and at the tax rates applicable in the respective countries at the balance sheet date when the deferred tax is expected to crystallise as current tax.00Regnskabsklasse C, stor virksomhedtrueToday the Board of Executives have discussed and approved the Annual Report of Watermill ApS for the financial year 1 January - 31 December 2018. The Annual Report is presented in accordance with the Danish Financial Statements Act. In my opinion the Consolidated Financial Statements and the Parent Company Financial Statements give a true and fair view of Group's and the Company's financial position at 31 December 2018 and of the results of Group's and the Company's operations and cash flows for the financial year 1 January - 31 December 2018. The Management's Review includes in my opinion a fair presentation of the matters dealt with in the Review. I recommend the Annual Report be approved at the Annual General Meeting. To the Shareholder of Watermill ApS We have audited the Consolidated Financial Statements and the Parent Company Financial Statements of Watermill ApS for the financial year 1 January - 31 December 2018, which comprise income statement, balance sheet, statement of changes in equity, notes and a summary of significant accounting policies for both the Group and the Parent Company, as well as consolidated statement of cash flows for the Group. The Consolidated Financial Statements and the Parent Company Financial Statements are prepared in accordance with the Danish Financial Statements Act. In our opinion, the Consolidated Financial Statements and the Parent Company Financial Statements give a true and fair view of the assets, liabilities and financial position of the Group or the Company at 31 December 2018 and of the results of the Group and the Parent Company's operations as well as the consolidated cash flows of the Group for the financial year 1 January - 31 December 2018 in accordance with the Danish Financial Statements Act. Basis for Opinion We conducted our audit in accordance with International Standards on Auditing (ISAs) and the additional requirements applicable in Denmark. Our responsibilities under those standards and requirements are further described in the “Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements and the Parent Company Financial Statements” section of our report. We are independent of the Group in accordance with the International Ethics Standards Board for Accountants’ Code of Ethics for Professional Accountants (IESBA Code) and the additional requirements applicable in Denmark, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the evidence we have obtained is sufficient and appropriate to provide a basis for our conclusion. Material uncertainty related to Going Concern We point out that there is uncertainty that can raise doubts about the company's ability to continue operations. We refer to the note "Continuing operations" in the annual report, which states that the group is in the final phase of an exit process, where management expects that a new owner will ensure the right level of credit lines to support the business. At the time of presentation of accounts, the results of the final negotiations have not been completed, but it is the assessment of the management, that they will turn out positively. Management has chosen to present the accounts on the assumption of going concern. Our conclusion is not modified regarding this matter. Management's Responsibility for the Consolidated Financial Statements and the Parent Company Financial Statements Management is responsible for the preparation of Consolidated Financial Statements and the Parent Company Financial Statements that give a true and fair view in accordance with the Danish Financial Statements Act and for such Internal control as Management determines is necessary to enable the preparation of Consolidated Financial Statements and the Parent Company Financial Statements that are free from material misstatement, whether due to fraud or error. In preparing the Consolidated Financial Statements and the Parent Company Financial Statements, Management is responsible for assessing the Group's and the Parent Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting in preparing the Consolidated Financial Statements and the Parent Company Financial Statements unless Management either intends to liquidate the Group or the Company or to cease operations, or has no realistic alternative but to do so. Our objectives are to obtain reasonable assurance about whether the Consolidated Financial Statements and the Parent Company Financial Statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs and the additional requirements applicable in Denmark will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these Consolidated Financial Statements and the Parent Company Financial Statements. As part of an audit conducted in accordance with ISAs and the additional requirements applicable in Denmark, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: Identify and assess the risks of material misstatement of the Consolidated Financial Statements and the Parent Company Financial Statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group's and the Parent Company's internal control. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by Management. Conclude on the appropriateness of Management’s use of the going concern basis of accounting in preparing the Consolidated Financial Statements and the Parent Company Financial Statements and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group's and the Parent Company's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the Consolidated Financial Statements and the Parent Company Financial Statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group and the Parent Company to cease to continue as a going concern. Evaluate the overall presentation, structure and contents of the Consolidated Financial Statements and the Parent Company Financial Statements, including the disclosures, and whether the Consolidated Financial Statements and the Parent Company Financial Statements represent the underlying transactions and events in a manner that gives a true and fair view. Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the Consolidated Financial Statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion. We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. Statement on Management’s Review Management is responsible for Management’s Review. Our opinion on the Consolidated Financial Statements and the Parent Company Financial Statements does not cover Management’s Review, and we do not express any form of assurance conclusion thereon. In connection with our audit of the Consolidated Financial Statements and the Parent Company Financial Statements, our responsibility is to read Management’s Review and, in doing so, consider whether Management’s Review is materially inconsistent with the Consolidated Financial Statements and the Parent Company Financial Statements or our knowledge obtained during the audit, or otherwise appears to be materially misstated. Moreover, it is our responsibility to consider whether Management’s Review provides the information required under the Danish Financial Statements Act. Based on the work we have performed, we conclude that Management’s Review is in accordance with the Consolidated Financial Statements and the Parent Company Financial Statements and has been prepared in accordance with the requirements of the Danish Financial Statements Act. We did not identify any material misstatement of Management’s Review. * Hedging transactions are not included. The financial ratios are calculated in accordance with the Danish Society of Financial Analysts' guidelines. The ratios stated in the list of key figures and ratios have been calculated as follows: Gross margin: Gross profit x 100 Net revenue Profit margin: Operating profit/loss x 100 Net revenue Rate of return: Profit/loss on ordinary activities x 100 Average invested capital Invested capital: Intangible fixed assets (ex goodwill) + tangible assets + inventories + receivables + other working current assets – trade payables – other provisions – other long and short term working liabilities Return on invested capital: Operating profit x 100 Avg. total assets Principal activities The consolidated financial statements comprise the operating company Watermill ApS and its subsidiaries. The principal activities are design, purchase and sale of garments. The products are purchased in the Far East as well as in Europe and are sold primarily in the European markets. The Company sells fashion for trendy women. Development in activities and financial position Weather conditions were unfavourable for apparel business in 2018, where Europe broke a more than 100 years old heat record and the Danish summer hit the heat record from 1874. Together with an increased share of business going online, we experienced customers going out of business. An unfavourable trend in sales currencies impacted revenue negatively, which ended at DKK 387 million compared to DKK 418 million in 2017. In response to the market challenges we initiated actions to benefit our long term business among other things we terminated a brand, progressed our retail concept etc. We have carried out a reassessment of consolidated goodwill and the activities to which the consolidated goodwill relates to. It is our assessment, that the carrying amount of consolidated goodwill cannot be maintained, therefore consolidated goodwill has been written down to DKK 0. Aforementioned costs are included in 2018 and lowered earnings significantly. The matters mentioned above resulted in a lower gross profit as well as operating profit. Operating profit amounted to DKK -112 million compared to DKK 2 million in 2018. The result for the year ended at DKK -119 million. The result is considered unsatisfactory. The market conditions in 2018 were still challenging and are also expected to be so in 2019. To ensure a positive equity within the next 5 years, initiatives and a new strategy plan have been initiated, just as continued focus on efficient operations will have a high priority. At the end of 2018, the Group had 179 employees which is an increase of 3 compared to the end of 2017. Structure There have been no structural changes in 2018 besides aforementioned closure of one brand. The Group's capital structure Funds tied up as working capital amounted to DKK 30 million (8% of revenues) as opposed to DKK 44 million (10% of revenues) in 2017. The positive change in working capital was due to a lower activity level as well as an increased focus on elements within working capital. In 2018, cash flows from operating activities amounted to DKK 15 million compared to DKK 16 million in 2017. Consolidated interest-bearing debt was DKK 111 million in 2018 compared to DKK 104 million in 2017. BTX is currently in the final stage of an exit process, and we would expect a new owner to ensure the right level of credit lines to support the business during the next 12 months to ensure our going concern. At the time of presentation of accounts, the results of the final negotiations have not been completed, but it is the assessment of the management, that they will tum out positively. The Groups bank engagement has a number of covenants, which must be continuously fulfilled. There could be a risk of a covenant breach in the course of 2019. Management has chosen to present the accounts on the assumption of going concern. Profit/loss for the year compared to expectations The result for the year ended at DKK -119 million. The result is considered unsatisfactory. Important events after the end of the financial year No important events have occurred after the closing of the financial year that will affect the financial statements for 2018. Particular risks The Group is exposed to currency fluctuations with respect to both purchases and sales, particularly fluctuations in USD, NOK and SEK. Other than this, it is management's opinion that the Group is not influenced by any particular risks apart from those characteristic for the industry. The Group operates in a segment that is sensitive to market fluctuations; the financial conditions caused by recession in the macro economies in Europe and changed purchasing conditions in the Far East are particularly hard to predict. Knowledge resources It is the objective of the Group to continue being an attractive place to work and thereby be able to attract and retain highly qualified employees. Through education, training, delegation of duties, clear distribution of responsibilities and targeted efforts, the Group intends to further develop the skills and competencies of its staff on a continuous basis. Research and development activities The Group’s collections are continuously developed throughout the year. Outlook Management expects current market conditions to continue into 2019 and expect not to see improvements before 2020. Corporate social responsibility This statutory statement of the Watermill ApS' corporate social responsibility covers the financial year 1 January - 31 December 2018 and relates to the annual report 2018. The statement includes the auditors' opinion on management's review included in the annual report for the Group. Social responsibility is a focus area for the Group as it works continuously with standards and processes that are evaluated annually by the Board of Directors. Target figures and policies for the underrepresented gender So far the Group has aimed and will continue to aim at recruiting the most suitable managers and other employees regardless of gender, race and religion. The management of the Group are composed in view of the long-term strategy of the Group and recruitment is made with this in mind. Watermill ApS does not have any Board of Directors. The Board of Directors of Holdingselskabet af 24. februar 2006 A/S and BTX Group may consist of up to seven members and currently consists of three. In view of the Group's ambition about recruiting the most suitable candidates and in the event where the Board of Directors consists of five members or less, it is the objective that at least 20% of the Board of Directors and at least 30% in other management positions should be women. Other management position consists of Executive Management, directors as well as middle management. At the signing of the financial statements, women accounted for 33% in Board of Directors and 62% for all management positions. The Group is developing its code of conduct and related follow-up processes, which are to ensure, among other things, that suppliers live up to the Group's requirements concerning human rights, social and environmental conditions, etc. The group's code of conduct can be downloaded at http://www.btx-group.com. Group Share capital Retained profit Proposed dividend Total Equity at 1 January 2018 80 61.231 750 62.061 Distributed dividends -750 -750 Exchange rate adjustments on translationof foreign entities -17 -17 Adjustment of hedging instruments 10.951 10.951 Proposed distribution of profit -118.596 -118.596 Equity at 31 December 2018 80 -46.431 0 -46.351 Parent company Share capital Reserve under the equity method Retained profit Proposed dividend Total Equity at 1 January 2018 80 10.592 50.639 750 62.061 Distributed dividends -750 -750 Transferred through distribution of profit/loss 10.934 10.934 Proposed distribution of profit -21.526 -97.070 -118.596 Equity at 31 December 2018 80 0 -46.431 0 -46.351 Net revenue 1 Information on business segments and geographical markets has not been disclosed, as such information in Management's opinion may cause substantial damage to the Watermill ApS Group. Fee to statutory auditors 2 Total fee for the auditors appointed at the annual general meeting: Statutory audit 327 297 Tax consultancy 161 167 Other services 20 11 508 475 Staff costs 3 Average number of employees Group: 179 (2017: 176) Parent company: 5 (2017: 5) Wages and salaries 71.455 69.713 5.739 7.136 Pensions 5.527 5.511 546 624 Social security costs 4.855 4.587 30 28 Other staff costs -742 -1.264 0 0 81.095 78.547 6.315 7.788 Remuneration and fees for the Executiv Board and the Board of Directions are not disclosed with reference to Section 98b (3) of the Danish Financial Statements Act. The incentive program for the Executive Board and Executives includes the possibility ofsubscribe new shares at a rate calculated as the net asset value per the date of subscription. 2.160 warrants have been entitle to subscribe one B-share per warrant. However, the amount may be increased in accordance with the warrant program up to 6.800 warrants. Other financial income 4 Group enterprises 0 0 93 17 172.110 Other interest income 847 900 1 6 847 900 94 23 Other financial expenses 5 Group enterprises 1.910 1.763 1.910 1.763 173.107 Other interest expenses 8.156 14.294 2 7 10.066 16.057 1.912 1.770 Tax on profit/loss for the year 6 Calculated tax on taxable income of the year 644 1.067 213 0 Adjustment of tax for previous years -609 -448 0 0 Adjustment of deferred tax -3.124 -607 54 -54 -3.089 12 267 -54 Proposed distribution of profit 7 Proposed dividend for the year 0 750 0 750 515.300 Allocation to reserve for net revaluation according to equity va 0 0 -21.526 -13.653 514.100.04 Retained earnings -118.596 -14.594 -97.070 -941 -118.596 -13.844 -118.596 -13.844 Intangible fixed assets 8 Group Intangible fixed assets acquired Goodwill Cost at 1 January 2018 16.379 393.966 Exchange adjustment at closing rate 0 -31 Additions 1.267 3.957 Disposals -100 0 Cost at 31 December 2018 17.546 397.892 Amortisation at 1 January 2018 5.218 279.996 Exchange adjustment at closing rate 0 -37 Reversal of amortisation of assets disposed of -100 0 Amortisation for the year 3.038 111.775 Amortisation at 31 December 2018 8.156 391.734 Carrying amount at 31 December 2018 9.390 6.158 Tangible fixed assets 9 Group Other plants, machinery, tools and equipment Tangible fixed assets in progress and prepayment Cost at 1 January 2018 34.620 0 Exchange adjustment 4 0 Additions 4.928 161 Disposals -4.668 0 Cost at 31 December 2018 34.884 161 Depreciation and impairment losses at 1 January 2018 26.220 Exchange adjustment -2 Reversal of depreciation of assets disposed of -4.490 Depreciation for the year 3.750 Depreciation and impairment losses at 31 December 2018 25.478 Carrying amount at 31 December 2018 9.406 161 Finance lease assets 1.306 Fixed asset investments 10 Group Rent deposit and other receivables Cost at 1 January 2018 1.006 Additions 807 Disposals -127 Cost at 31 December 2018 1.686 Carrying amount at 31 December 2018 1.686 Parent company Equity investments in group enterprises Cost at 1 January 2018 69.341 Cost at 31 December 2018 69.341 Revaluation at 1 January 2018 10.592 Exchange adjustment -17 Profit/loss for the year -90.867 Equity movements 10.951 Revaluation at 31 December 2018 -69.341 Carrying amount at 31 December 2018 0 Investments in subsidiaries (DKK '000) Name and registered office Equity Profit/loss for the year Ownership Holdingselskabet af 24. februar 2006 A/S, Brande -28.659 -119.526 100 % Deferred tax assets 11 Group Parent company 2018 2017 2018 2017 DKK '000 DKK '000 DKK '000 DKK '000 Deferred tax relates to: Intangible assets -1.508 -2.461 0 0 Tangible assets 2.531 1.184 0 0 Current assets -3.250 -271 0 0 Liabilities 326 2.986 0 0 Tax losss carryforwards 5.289 1.918 0 0 3.388 3.356 0 -54 Balance at 1 January 3.356 -734 -54 0 450.600.01 522.100.01 Adjustments beginning of the year -3 -190 54 -54 450.600.02 522.100.02 Adjustments for the year over the income statement 3.124 607 0 0 450.600.03 522.100.03 Adjustments for the year over equity -3.089 3.673 0 0 450.600.04 522.100.04 Balance at 31 december 3.388 3.356 0 -54 Deferred tax is measured according to the tax rules and at the tax rates applicable in the respective countries at the balance sheet date when the deferred tax is expected to crystallise as current tax. Other receivables 12 Group: Receivables falling due for payment more than one year after the end of the financial year 2018 DKK '000 62 (2017: DKK '000. 98). The fair value of forward exchange contracts regarding hedging of future purchase and sale in foreign currencies is included in other recievables at 31 December 2018 at an amount of DKK 7 million and in other receivables at 31 December 2017 at an amount of DKK 0 million. Long-term liabilities 13 Group 31/12 2018 Repayment Debt outstanding 31/12 2017 Current portion at the beginning total liabilities next year after 5 years total liabilities of the year Bank loan 55.481 11.804 0 67.244 11.779 533.100 533.100.01 Subordinate loan capital 24.750 0 0 22.853 0 532.300 532.300.01 Lease liabilities 1.261 710 0 2.398 1.137 533.200 533.200.01 81.492 12.514 0 92.495 12.916 Parent company 31/12 2018 Repayment Debt outstanding 31/12 2017 Current portion at the beginning total liabilities next year after 5 years total liabilities of the year Subordinate loan capital 24.750 0 0 22.853 0 532.300 532.300.01 24.750 0 0 22.853 0 Other liabilities 14 The fair value of forward exchange contracts regarding hedging of future purchase and sale in foreign currencies is included in other liabilities at 31 December 2018 at an amount of DKK 0 million and in 31 December 2017 at an amount of DKK 12 million. Contingent liabilities Group: The Group's total commitments under letters of credit amount to DKK 15 millon (2017: DKK 20 million). Customs guarantees have been provided in the amount of DKK 3 million (2017: DKK 3 million). Contingent liabilities and warranties other than those above do not exceed DKK 2 million (2017: DKK 2 million). Parent Company: The parent company has provided guarantees for the Group's bank loan and overdraft. The Group'sbank loan amount to DKK 56 million. Operating lease commitments The Group leases properties and operating equipment under operating leases. The Group's domicile properties are leased on contracts that are interminable by both the Group and lessor for 1 to 4 years. The leasing period for other assets is typically between 1 and 4 years with the possibility of renewal. Total non-provided discounted rent liabilities of the Group amount to approx. DKK 19 million (2017: DKK 20 million) Total lease commitments of the Group regarding other operating leases amount to approx. DKK 5 million. (2017: approx. 5 million). Joint liabilities The parent company functions as administrative company for the jointly taxed group companies andhas joint and several liability for the taxes relating to the joint taxation. Mortgages and security 16 Group: As security for the Company’s and the Group’s bank loan and overdraft, a floating charge has been granted in receivables, fixtures and fixtures and fittings, tools and equipment, inventories and intellectural property rights of DKK 109 million. (2017: DKK 109 million). The carrying amount of assets used as security amounts to DKK 90 million (2017: DKK 110 million). Related party transactions 17 Related parties with significant influence include group companies and Boards of Directors andthe Executive Boards of the companies. Related party transactions are conducted under normal market conditions. Continued operations 18 BTX is currently in the final stage of an exit process, and we would expect a new owner to ensure the right level of credit lines to support the business during the next 12 months to ensure our going concern. At the time of presentation of accounts, the results of the final negotiations have not been completed, but it is the assessment of the management, that they will tum out positively. The Groups bank engagement has a number of covenants, which must be continuously fulfilled. There could be a risk of a covenant breach in the course of 2019. Management has chosen to present the accounts on the assumption of going concern. Currency risks as well as use of derived financial instruments 19 Group: The Group uses forward exchange contracts to cover the Group's risks related to variability in cash flows due to fluctuations in exchange rates. The Group has entered forward exchange contracts at 31 December 2018 to hedge future purchases of currency totalling DKK 154 million (2017: DKK 241 million) and sale of currency totalling DKK 72 million (2017: DKK 107 million). The annual report of the Watermill ApS Group for 2018 has been prepared in accordance with the provisions applying to reporting class C large enterprises under the Danish Financial Statements Act. Regnskabsklasse C, stor virksomhed true The accounting policies of the Watermill ApS Group are unchanged compared to last year. The consolidated financial statements comprise the parent company, Watermill ApS, and subsidiaries in which Watermill ApS directly or indirectly holds more than 50% of the voting rights or which it, in some other way, controls. On consolidation, intra-group income and expenses, shareholdings, intra-group balances and dividends, and realised and unrealised gains on intra-group transactions are eliminated. Investments in subsidiaries are set off against the proportionate share of the subsidiaries' fair value of net assets or liabilities at the acquisition date. Business combinations Enterprises acquired or formed are recognised in the consolidated financial statements from the date of acquisition or formation. Enterprises disposed of are recognised in the consolidated income statement until the date of disposal. Comparative figures are not restated for acquisitions or disposals. Gains or losses on disposal of subsidiaries and associates are stated as the difference between the sales amount and the carrying amount of net assets at the date of disposal including non-amortised goodwill and anticipated disposal costs. Acquisitions of enterprises are accounted for using the purchase method, according to which identifiable assets and liabilities of the acquired enterprises are measured at their fair values at the date of acquisition. Provision is made for costs related to adopted and announced plans to restructure the acquired enterprise in connection with the acquisition. Allowance is made for the tax effect of revaluations made. Any excess of the cost over the fair value of the identifiable assets and liabilities acquired (goodwill), including restructuring provisions, is recognised as intangible assets and amortised on a systematic basis in the income statement based on an individual assessment of the useful life of the asset, not exceeding 20 years. Any excess of the fair values of the identifiable assets and liabilities acquired over the cost of the acquisition (negative goodwill), representing an anticipated adverse development in the acquired enterprises, is recognised in the balance sheet as deferred income and recognised in the income statement as the adverse development is realised. Negative goodwill not related to any anticipated adverse development is recognised in the balance sheet at an amount corresponding to the fair value of non-monetary assets. The amount is subsequently recognised in the income statement over the average useful lives of the non-monetary assets. Goodwill and negative goodwill arising on acquisition can be adjusted until the end of the year after the acquisition. Net revenue Revenue from the sale of goods is recognised in the income statement provided that delivery and transfer of risk to the buyer have taken place before year end and that the income can be reliably measured and is expected to be received. Revenue is measured ex VAT less returned goods, bonuses and discounts in relation to the sale. Exceptional items Exceptional items comprise significant non-recurring income and expenses. These items are presented separately to ensure comparability in the income statement and to provide a better view of the operating results. Other operating income Other operating income comprises items secondary to the activities of the Company, including gains on sale of intangible assets and property, plant and equipment. Other operating expenses Other operating costs comprise items secondary to the activities of the Group and the Company, including loss on sale of intangible assets and property, plant and equipment. Cost of sales Cost of sales includes costs incurred in generating the revenue for the year. It also includes direct and indirect costs of raw materials and consumables. Other external costs Other external expenses comprise costs of sale, advertising, administration, premises, bad debts, costs of operating leases, etc. Staff costs Staff costs include wages and salaries, including holiday pay and pensions as well as other social security costs etc. for the Group's and the Company's employees. Staff costs are stated less reimbursements received from public authorities. Financial income and expenses Financial income and expenses include interest income and expense, financial costs incurred on finance leases, realised and unrealised gains and losses on securities, debt and transactions denominated in foreign currencies, amortisation of financial assets and liabilities as well as surcharges and refunds under the on-account tax scheme, etc. Financial income and expense are recognised at the amounts relating to the financial year. Tax Watermill ApS is jointly taxed with all wholly-owned Danish subsidiaries. Subsidiaries form part of the joint taxation from the date on which they are included in the consolidation of the consolidated financial statements and up to the date on which they exit the consolidation. Watermill ApS is the administrative company for the joint taxation and consequently settles all corporation tax payments with the tax authorities. The current Danish corporation tax is allocated in connection with the settlement of joint tax contributions between the jointly taxed Danish companies in proportion to their taxable income (full distribution of tax with refunds for tax losses). The jointly taxed companies are taxed under the on-account tax scheme. Tax for the year comprises current tax and changes in deferred tax for the year. The tax expense relating to the profit/loss for the year is recognised in the income statement, and the tax expense relating to changes directly recognised in equity is recognised directly in equity. Intangible fixed assets Goodwill is amortised over its estimated useful life determined on the basis of Management's experience of the specific business areas. Goodwill is amortised over 3-20 years corresponding to the Company's time horizon for long-term investments. The carrying amount of goodwill is assessed regularly and written down over the income statement if the carrying amount exceeds the expected future net income from the company or activity to which the goodwill relates. Acquired intellectual property rights are measured at cost less accumulated amortisation and impairment. Cost comprises the purchase price and any costs directly attributable to the acquisition until the date when the asset is available for use. The cost of self-constructed assets comprises direct and indirect costs of materials, components, sub-suppliers, and wages and salaries. Intangible assets are amortised on a straight-line basis over the expected useful lives of the assets which is 3-5 years Tangible fixed assets Fixtures and fittings, other plant and equipment are measured at cost less accumulated depreciation and impairment. Cost comprises the purchase price and any costs directly attributable to the acquisition until the date when the asset is available for use. Where individual components of an item of property, plant and equipment have different useful lives, they are accounted for as separate items, which are depreciated separately. Property, plant and equipment are depreciated on a straight-line basis over the expected useful lives of the assets. Useful life Fixtures and fittings, other plant and equipment 3-5 years Leases Leases for non-current assets that transfer substantially all the risks and rewards incident to ownership to the Group are initially recognised in the balance sheet at the lower of fair value and the net present value of future lease payments. For the calculation of the net present value, the interest rate implicit in the lease or the Group's alternative borrowing rate is used as discount rate. Assets held under finance leases are subsequently depreciated as the Group's other non-current assets. The capitalised residual lease obligation is recognised in the balance sheet as a liability, and the interest element of the lease payment is recognised in the income statement over the term of the lease. All other leases are classified as operating leases. Services related to operating leases and other lease contracts are recognised in the income statement over the term of the contract. The Group's total liabilities regarding operating leases and lease agreements are disclosed as contingent liabilities, etc. Investments in subsidiaries Investments in subsidiaries are measured according to the equity method. Investments in subsidiaries are measured at the proportionate share of the enterprises' net asset values calculated in accordance with the Group's accounting policies minus or plus unrealised intra-group profits and losses plus or minus any residual value of positive or negative goodwill determined in accordance with the acquisition method. Investments in subsidiaries with negative net asset values are measured at DKK 0 (nil), and any amounts owed by such enterprises are written down if the amount owed is irrecoverable. If the Watermill ApS has a legal or constructive obligation to cover a deficit that exceeds the amount owed, the remaining amount is recognised under provisions. Net revaluation of investments in subsidiaries is recognised in the reserve for net revaluation in equity under the equity method to the extent that the carrying amount exceeds cost. Dividends from subsidiaries which are expected to be adopted before the approval of the annual report of Watermill ApS are not recognised in the reserve for net revaluation. Subsidiaries with a negative net asset value are recognised at DKK 0. Any legal or constructive obligation of the Parent Company to cover the negative balance of the enterprise is recognised in provisions. Impairment of non-current assets The carrying amount of intangible assets and property, plant and equipment as well as investments in subsidiaries is subject to an annual test for indications of impairment other than the decrease in value reflected by depreciation or amortisation. Impairment tests are conducted of individual assets or groups of assets when there is an indication that they may be impaired. Write-down is made to the recoverable amount if this is lower than the carrying amount. Inventories Inventories are measured at cost in accordance with the FIFO method. Where the net realisable value is lower than cost, inventories are written down to this lower value. The cost of goods and goods for resale comprise the cost of raw materials, consumables, external production costs and delivery costs. Receivables Receivables are measured at amortised cost. Write-down is made for bad debt losses where there is an objective indication that a receivable or a receivable portfolio has been impaired. If there is objective indication that an individual receivable has been impaired, write-down is made on an individual basis. Receivables with no objective indication of individual impairment are assessed for objective indication of impairment on a portfolio basis. The portfolios are primarily based on the debtors' registered offices and credit rating in accordance with the Group's credit risk management policy. The objective indicators used in relation to portfolios are based on historical loss experience. Prepayments Prepayments comprise costs incurred concerning subsequent financial years. Provisions Provisions are measured at net realisable value or fair value. If the obligation is expected to be settled far into the future, the obligation is measured at fair value. Corporation tax and deferred tax Current tax payable and receivable is recognised in the balance sheet as tax computed on the taxable income for the year, adjusted for tax on the taxable income of prior years and for tax paid on account. Payable and receivable joint tax contributions are recognised in the balance sheet as ”Corporation tax receivable” or ”Corporation tax payable”. Deferred tax is measured using the balance sheet liability method on all temporary differences between the carrying amount and the tax value of assets and liabilities. Where alternative tax rules can be applied to determine the tax base, deferred tax is measured based on the planned use of the asset or settlement of the liability, respectively. Deferred tax assets, including the tax base of tax loss carryforwards, are recognised at the expected value of their utilisation; either as a set-off against tax on future income or as a set-off against deferred tax liabilities in the same legal tax entity and jurisdiction. Adjustment is made to deferred tax resulting from elimination of unrealised intra-group profits and losses. Deferred tax is measured according to the tax rules and at the tax rates applicable in the respective countries at the balance sheet date when the deferred tax is expected to crystallise as current tax. Liabilities Financial liabilities are recognised at the date of borrowing at the net proceeds received less transaction costs paid. During subsequent periods, financial liabilities are measured at amortised cost. Financial liabilities also include the capitalised residual obligation on finance leases. Other liabilities are measured at net realisable value. Deferred income Deferred income comprises payments received concerning income in subsequent years and is measured at amortised cost. Derivative financial instruments Derivative financial instruments are initially recognised in the balance sheet at cost and are subsequently measured at fair value. Positive and negative fair values of derivative financial instruments are included in other receivables and payables, respectively. Changes in the fair value of derivative financial instruments designated as and qualifying for recognition as a hedge of the fair value of a recognised asset or liability are recognised in the income statement together with any changes in the fair value of the hedged asset or liability. Changes in the fair value of derivative financial instruments designated as and qualifying for recognition as a hedge of future assets or liabilities are recognised as other receivables or other payables and in equity until the hedged transaction is realised. If the hedged forecast transaction results in the recognition of assets or liabilities, amounts recognised in equity are transferred to the cost of the asset or liability, respectively. If the hedged forecast transaction results in income or expenses, amounts previously recognised in equity are transferred to the income statement in the period in which the hedged item affects profit or loss. For derivative financial instruments that do not qualify for hedge accounting, changes in fair value are recognised in the income statement on a regular basis. Changes in the fair value of derivative financial instruments used to hedge net investments in independent foreign subsidiaries or associates are recognised directly in equity. Foreign currency translation On initial recognition, transactions denominated in foreign currencies are translated at the exchange rates at the transaction date. Foreign exchange differences arising between the exchange rates at the transaction date and at the date of payment are recognised in the income statement as financial income or financial expenses. Receivables, payables and other monetary items denominated in foreign currencies are translated at the exchange rates at the balance sheet date. The difference between the exchange rates at the balance sheet date and at the date at which the receivable or liability arose or was recognised in the latest annual report is recognised in the income statement as financial income or financial expenses. Foreign subsidiaries are considered separate entities. The income statements are translated at average exchange rates for the months, and the balance sheet items are translated at the exchange rates at the balance sheet date. Foreign exchange differences arising on translation of the opening equity of foreign subsidiaries at the exchange rates at the balance sheet date and on translation of the income statements from average exchange rates to the exchange rates at the balance sheet date are recognised directly in equity. Foreign exchange adjustments of intra-group balances with independent foreign subsidiaries which are considered part of the investment in the subsidiary are recognised directly in equity. Foreign exchange gains and losses on the portion of loans and derivative financial instruments designated as hedges of foreign subsidiaries are also recognised directly in equity. On recognition of foreign subsidiaries, which are integral entities, monetary items are translated at the exchange rates at the balance sheet date. Non-monetary items are translated at the exchange rates at the acquisition date or at the date of any subsequent revaluation or impairment of the asset. Income statement items are translated at the exchange rates at the transaction date, although items derived from non-monetary items are translated at the historical exchange rates applying to the non-monetary items. CASH FLOW STATEMENT The cash flow statement shows the Group's cash flows from operating, investing and financing activities for the year, the year's changes in cash and cash equivalents as well as cash and cash equivalents at the beginning and end of the year. The cash flow effect of acquisitions and disposals of enterprises is shown separately in cash flows from investing activities. Cash flows from acquisitions of enterprises are recognised in the cash flow statement from the date of acquisition. Cash flows from disposals of enterprises are recognised up until the date of disposal. Cash flows from operating activities are calculated using the indirect method as profit/loss before tax adjusted for non-cash operating items, changes in working capital, interest received and paid, dividends received as well as corporation tax paid. Cash flows from investing activities comprise payments in connection with acquisitions and disposals of enterprises and activities, intangible assets, property, plant and equipment and investments. Entering of finance leases are considered non-cash transactions. Cash flows from financing activities comprise changes in the size or composition of share capital and related costs as well as the raising of loans, repayment of interest-bearing debt, and payment of dividends to shareholders. Cash flows relating to assets held under finance lease are recognised as payment of interest and repayment of debt. Cash and cash equivalents comprise cash as well as securities with less than three months to maturity, which can readily be converted into cash and cash equivalents and which only carry an insignificant risk of changes in value. 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