BDO Statsautoriseret revisionsaktieselskabRoms Hule 4, 1. salDK-7100 Vejle20222670Årsrapport72020-08-31Jesper RoeWatermill ApSNordlundvej 17330 BrandeRevisionspåtegning350242712013-01-01Brande2019-01-012019-12-312018-01-012018-12-31BDO Statsautoriseret revisionsaktieselskabRoms Hule4, 1. sal7100VejleSydbankBrande2020-08-31Jesper RoeArvind Kumar VijChairmanJesper RoeTim Lund LarsenVejle2020-08-31BDO Statsautoriseret revisionsaktieselskab20222670Allan LundRevisionspåtegningState Authorised Public Accountantmne1009341800000044600000048800000010200000011500000013600000020000002600000046000000-15000000-12000000-15000000-6000000-11200000010000002700000054000000Operation 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)-140000007000000280000002780000003160000003340000006200000090000000810000003300000030000000440000003300000034000000Working capital*Working capital*Working capital*Working capital*Working capital*116000000111000000104000000100000000105000000Net interest-bearing debtNet interest-bearing debtNet interest-bearing debtNet interest-bearing debtNet interest-bearing debt-2000-5000-5000-1000-300024.622.724.525.827.9-1.8-290.3611.1-49-25.922.328.424.3-4.1-49.30.6813.5Return on invested capitalReturn on invested capitalReturn on invested capitalReturn on invested capitalReturn on invested capital3347280003872010000016780500020646400000032500099000001080000084630000929600001431000147000082293000881020008469000933000078201000810950008271000631500091470001185640000010290009090004110000-6084000-112466000-213000301500000-8340000-11952600029460008470001930009400094130001006600020830001912000-12551000-121685000-10443000-118329000-2477000-3089000-369000267000-10074000-118596000-10074000-118596000706600093900000036440006158000001071000015548000007813000940600000016100000781300095670000016850001686000001685000168600000202080002680100000455950004792600000455950004792600000222280003470600000871100036340003690000958100099210000100000442000067150007889000004723500056150000811000100083860004790500010001000121424000178782000812000200080000800008000080000-59548000-46431000-59548000-46431000-59468000-46351000-59468000-463510000019729000190870000019729000190870000436770000019970000146000039047000247500003904700024750000055100000410440006897800039193000247500005510001251400000832050007701300000406220004442700039000116000075000007500004230002320000213000316000350000237000168000139848000156155000135800025160001808920002251330004055100027266000121424000178782000812000200080000-4643100041000-3084000-1007400080000-5954800080000-46431000-3043000-1007400080000-59548000-6083000-1185960000613000091470001185640001408000-2370000233100095580001183900020816000-5607000-771000-6172000-181390002946000847000-8240000-8169000-240900027000-2220007986000-977000-5224000-2173000-5089000089000-62000-80700062000127000-3150000-10904000-710000-1137000131240000-750000019970000-42339000-14559000-45711000-17477000-29108000-11631000-74819000-29108000339000327000414000161000134000200001701795569695000714550007593000573900055660005527000642000546000402000048550003600030000-1080000-74200000782010008109500082710006315000001930009300029460008470000100029460008470001930009400015000001910000150000019100007913000815600058300020009413000100660002083000191200080900064400002130008000-60900000-3294000-3124000-36900054000-2477000-3089000-369000267000000-21526000-10074000-118596000-10074000-97070000175460003978920000390009770000939000566000175840003973650008156000391734000020000939000183000330100021500001051800039372100070660003644000348840001610001100002213000-22130001210002052000202600003520300002547800070001791000369600027390000781300007250001686000-10006200062000168500016850006934100069341000-980000004100031702000-3084000-693410000Deferred 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 Directors and Board of Executives have discussed and approved the Annual Report of Watermill ApS for the financial year 1 January - 31 December 2019. The Annual Report is presented 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 Group's and the Company's financial position at 31 December 2019 and of the results of Group's and the Company's operations and cash flows for the financial year 1 January - 31 December 2019. The Management's Review includes in our opinion a fair presentation of the matters dealt with in the Review. We recommend the Annual Report be approved at the Annual General Meeting. To the Shareholders 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 2019, 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 2019 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 2019 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. Management's Responsibilities 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 EBIT-margin Operating profit/loss x 100 Net revenue Equity ratio Equitys x 100 Average total assets Return on invested capital Operating profit x 100 Average 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 women. Development in activities and financial position Market conditions continued to be challenging in 2019 with customers going out of business and an increased share of business going online. Furthermore closing of unprofitable own stores impacted revenue negatively. which ended at DKK 335 million compared to DKK 387 million in 2018. In response to the market challenges we initiated actions to benefit our long term business among other things we closed unprofitable stores, restructured our organisation, renegotiated terms on leaseholds etc.. A transformation plan to secure efficient processes and lean cost base was launched in second half year and will continue into 2020, where the impact will benefit the earnings. Costs for these programs are included in 2019 and lowered earnings significantly. The actions mentioned above resulted, despite a drop in revenue of DKK 52 million, in an operating profit at DKK -6 million compared to DKK -16 million in 2018 adjusted for consolidated goodwill depreciation, as higher gross margin as well as lower costs set off the impact from lower sales. The challenging market conditions in 2019 are expected to continue in 2020. Investments in market-oriented activities will continue in 2020, just as the current transformation plan will have a high priority. We had a strong start of 2020, where action plans started to pay off, but COVID-19 caused action plans to be put on hold and management to focus differently, consequently a delay in improvement plans is expected on the account of COVID-19. At the end of 2019, the Group had 170 employees which is a decrease of 9 compared to the end of 2018. Structure In July 2019 a change of ownership was completed as Sun Capital Partners divested Watermill ApS to Grow Capital Global Holdings Pte. Limited. The Group's capital structure Funds tied up as working capital amounted to DKK 33 million (10% of revenues) as opposed to DKK 30 million (8% of revenues) in 2018. In 2019, cash flows from operating activities amounted to DKK 5 million compared to DKK 4 million in 2018. Consolidated interest-bearing debt was DKK 116 million in 2019 compared to DKK 111 million in 2018. As a consequence of the change of ownership BTX was refinanced. Refinancing included a new committed bank facility. The bank agreement has a number of covenants, which must be continuously fulfilled. The expected effect of the coronavirus outbreak has been addressed in the new bank facility agreement and incorporated in the covenants. Furthermore the EKF has granted a loan of DKK 35 million in 2020 so the overall bank facility is ensured throughout the year. No breach of covenant is expected in 2020. 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 -10 million. The result is considered unsatisfactory. Important events after the end of the financial year The outcome and potential impact on the Group’s activity and financial impact on the business due to coronavirus outbreak is as of the date of the approval of the annual report uncertain given the rapid day-to-day development. Management currently expects the coronavirus outbreak to have a negative impact of DKK 20-25 million on the 2020 financial performance. As of the date of the approval of the annual report the Group continues to work with its clients and the financial short-term impact has been limited. The Board of Directors and Executive Board follows the situation closely. There are no other events after the reporting period to be disclosed. 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 Especially in the light of COVID-19 management expects no improvement in market conditions and we see 2020 to be a challenging year, hence we expect not to see improvements in earnings before 2021. Corporate social responsibility This statutory statement of the Watermill ApS' corporate social responsibility covers the financial year 1 January - 31 December 2019 and relates to the annual report 2019. 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. The Board of Directors of Watermill ApS may consist of up to five 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 the underrepresented gender should be at least 20% of the Board of Directors and at least 30% in other management positions. Other management position consists of Executive Management, directors as well as middle management. At the signing of the financial statements, no women were in Board of Directors and men accounted for 30% of 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 Total Equity at 1 January 2019 80 -46,431 -46,351 Foreign exchange adjustments 41 41 Reclassification from deferred tax -3,084 -3,084 Proposed distribution of profit -10,074 -10,074 Equity at 31 December 2019 80 -59,548 -59,468 Parent company Share capital Retained profit Total Equity at 1 January 2019 80 -46,431 -46,351 Value adjustments of equity -3,043 -3,043 Proposed distribution of profit -10,074 -10,074 Equity at 31 December 2019 80 -59,548 -59,468 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 339 327 Tax consultancy 414 161 Other services 134 20 887 508 Staff costs 3 Average number of employees Group: 170 (2018: 179) Parent company: 5 (2018: 5) Wages and salaries 69,695 71,455 7,593 5,739 Pensions 5,566 5,527 642 546 Social security costs 4,020 4,855 36 30 Other staff costs -1,080 -742 0 0 78,201 81,095 8,271 6,315 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. The incentive program for the Executive Board and Executives was discontinued in 2019. Other financial income 4 Group enterprises 0 0 193 93 172.110 Other interest income 2,946 847 0 1 2,946 847 193 94 Other financial expenses 5 Group enterprises 1,500 1,910 1,500 1,910 173.107 Other interest expenses 7,913 8,156 583 2 9,413 10,066 2,083 1,912 Tax on profit/loss for the year 6 Calculated tax on taxable income of the year 809 644 0 213 Adjustment of tax for previous years 8 -609 0 0 Adjustment of deferred tax -3,294 -3,124 -369 54 -2,477 -3,089 -369 267 Proposed distribution of profit 7 Allocation to reserve for net revaluation according to equity va 0 0 0 -21,526 514.100.04 Retained earnings -10,074 -118,596 -10,074 -97,070 -10,074 -118,596 -10,074 -118,596 Intangible fixed assets 8 Group Intangible fixed assets acquired Goodwill Cost at 1 January 2019 17,546 397,892 Exchange adjustment at closing rate 0 39 Additions 977 0 Disposals -939 -566 Cost at 31 December 2019 17,584 397,365 Amortisation at 1 January 2019 8,156 391,734 Exchange adjustment at closing rate 0 20 Reversal of amortisation of assets disposed of -939 -183 Amortisation for the year 3,301 2,150 Amortisation at 31 December 2019 10,518 393,721 Carrying amount at 31 December 2019 7,066 3,644 Tangible fixed assets 9 Group Other plants, machinery, tools and equipment Tangible fixed assets in progress and prepayment Cost at 1 January 2019 34,884 161 Exchange adjustment 11 0 Transferred 2,213 -2,213 Additions 121 2,052 Disposals -2,026 0 Cost at 31 December 2019 35,203 0 Depreciation and impairment losses at 1 January 2019 25,478 Exchange adjustment 7 Reversal of depreciation of assets disposed of -1,791 Depreciation for the year 3,696 Depreciation and impairment losses at 31 December 2019 27,390 Carrying amount at 31 December 2019 7,813 0 Finance lease assets 725 Fixed asset investments 10 Group Rent deposit and other receivables Cost at 1 January 2019 1,686 Exchange adjustment -1 Additions 62 Disposals -62 Cost at 31 December 2019 1,685 Carrying amount at 31 December 2019 1,685 Parent company Equity investments in group enterprises Cost at 1 January 2019 69,341 Cost at 31 December 2019 69,341 Revaluation at 1 January 2019 -98,000 Exchange adjustment 41 Profit/loss for the year 31,702 Equity movements -3,084 Revaluation at 31 December 2019 -69,341 Carrying amount at 31 December 2019 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 -40,042 -8,340 100 % Deferred tax assets 11 Group Parent company 2019 2018 2019 2018 DKK '000 DKK '000 DKK '000 DKK '000 Deferred tax relates to: Intangible assets -779 -1,508 0 0 Tangible assets 2,727 2,531 0 0 Current assets -1,362 -3,250 0 0 Liabilities 121 326 0 0 Tax losss carryforwards 6,847 5,289 0 0 7,554 3,388 369 0 Balance at 1 January 3,388 3,356 0 -54 450.600.01 522.100.01 Adjustments beginning of the year 2 -3 0 54 450.600.02 522.100.02 Adjustments for the year over the income statement 3,294 3,124 369 0 450.600.03 522.100.03 Adjustments for the year over equity 870 -3,089 0 0 450.600.04 522.100.04 Balance at 31 december 7,554 3,388 369 0 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 2019 DKK '000 93 (2018: DKK '000. 62). 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 2019 at an amount of DKK 4 million and in other receivables at 31 December 2018 at an amount of DKK 7 million. Share capital Specification of the share capital: 13 A-Shares, 70,960 in the denomination of 1 DKK 71 71 B-Shares, 3,200 in the denomination of 1 DKK 3 3 C-Shares, 5,840 in the denomination of 1 DKK 6 6 80 80 Long-term liabilities 14 Group 31/12 2019 Repayment Debt outstanding 31/12 2018 Current portion at the beginning total liabilities next year after 5 years total liabilities of the year Bank loan 0 0 0 55,481 11,804 533.100 533.100.01 Other liabilities 1,997 0 0 0 0 535.600 535.600.01 Subordinate loan capital 39,047 0 0 24,750 0 532.300 532.300.01 Lease liabilities 551 551 0 1,261 710 533.200 533.200.01 41,595 551 0 81,492 12,514 Parent company 31/12 2019 Repayment Debt outstanding 31/12 2018 Current portion at the beginning total liabilities next year after 5 years total liabilities of the year Other liabilities 146 0 0 0 0 535.600 535.600.01 Subordinate loan capital 39,047 0 0 24,750 0 532.300 532.300.01 39,193 0 0 24,750 0 Contingent liabilities Group: The Group's total commitments under letters of credit amount to DKK 11 millon (2018: DKK 15 million). Customs guarantees have been provided in the amount of DKK 3 million (2018: DKK 3 million). Contingent liabilities and warranties other than those above do not exceed DKK 2 million (2018: DKK 2 million). Parent Company: The parent company has provided guarantees for the Group's bank loan and overdraft. 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 5 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 24 million (2018: DKK 19 million) Total lease commitments of the Group regarding other operating leases amount to approx. DKK 5 million. (2018: 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 140 million. (2018: DKK 109 million). The carrying amount of assets used as security amounts to DKK 75 million (2018: DKK 90 million). Parent company: As security for the Company’s and the Group’s overdraft, a floating charge has been granted in receivables, fixtures and fixtures and fittings, tools and equipment, inventories and intellectural property rights of DKK 140 million. (2018:DKK 109 million). The carrying amount of assets used as security amounts to DKK 75 million (2018: DKK 90 million). Related party transactions 17 Watermill ApS has registered the following shareholders holding 5% or more of the share capital: Grow Capital Global Holdings Pte. Ltd., 17 Phillip Street # 05-01, Grand Building, 048695 Singapore, which is ultimately owned by Arvind Kumar Vij, Great Britain. JR Invest Holding 2019 ApS, Enggårdstoften 121, DK-7120 Vejle Øst Related parties with significant influence comprise group companies and the parent company’s Executive Board. Related party transactions are conducted under normal market conditions. Continued operations 18 In July 2019 a change of ownership was completed as Sun Capital Partners divested Watermill ApS to Grow Capital Global Holdings Pte. Limited. As a consequence of the change of ownership BTX was refinanced. Refinancing included a new committed bank facility. The bank agreement has a number of covenants, which must be continuously fulfilled. The expected effect of the coronavirus outbreak has been addressed in the new bank facility agreement and incorporated in the covenants. Furthermore the EKF has granted a loan of DKK 35 million in 2020 so the overall bank facility is ensured throughout the year. No breach of covenant is expected in 2020. 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 2019 to hedge future purchases of currency totalling DKK 151 million (2018: DKK 154 million) and sale of currency totalling DKK 58 million (2018: DKK 72 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. Gains or losses on disposal of subsidiaries andassociates 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. 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 in the company's balance sheet under the equity method. Investments in subsidiaries are measured in the balance sheet at the proportional share of the enterprises’ carrying equity value, calculated in accordance with the parent company’s accounting policies with deduction or addition of unrealised intercompany profits or losses and with addition or deduction of the residual value of positive or negative goodwill Investment in subsidiaries with negative net asset values are measured at DKK 0, 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 transferred under the equity to reserve for net revaluation under the equity value method to the extent that the carrying amount exceeds the acquisition value. Dividens from subsidiaries which are expected to be adopted before the approval of the annual report of Watermill ApS are not regonised 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. 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