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Statsautoriseret Revisionspartnerselskab Strandvejen 44 2900 Hellerup 2023-01-01 2022-01-01 2023-12-31 2022-12-31 36996862 Lie ApS Blegdamsvej 124 2100 Copenhagen Ø PricewaterhouseCoopers Statsautoriseret Revisionspartnerselskab 33771231 Strandvejen 44 2900 Hellerup Denmark 39 45 39 45 koebenhavn@pwc.dk 2024-06-30 Anne Marie Lie Norvig Regnskabsklasse C, mellemstor virksomhed Revisionspåtegning The Executive Board has today considered and adopted the Annual Report of Lie ApS for the financial year 1 January - 31 December 2023. The Annual Report is prepared in accordance with the Danish Financial Statements Act. In my opinion the Financial Statements and the Consolidated Financial Statements give a true and fair view of the financial position at 31 December 2023 of the Company and the Group and of the results of the Company and Group operations and of consolidated cash flows for 2023. In my opinion, Management's Review includes a true and fair account of the matters addressed in the Review. I recommend that the Annual Report be adopted at the Annual General Meeting. 2024-06-30 Copenhagen Anne Marie Lie Norvig CEO To the shareholder of Lie ApS Opinion In our opinion, the Consolidated Financial Statements and the Parent Company Financial Statements give a true and fair view of the financial position of the Group and the Parent Company at 31 December 2023 and of the results of the Group’s and the Parent Company’s operations and of consolidated cash flows for the financial year 1 January - 31 December 2023 in accordance with the Danish Financial Statements Act. We have audited the Consolidated Financial Statements and the Parent Company Financial Statements of Lie ApS for the financial year 1 January - 31 December 2023, which comprise income statement, balance sheet, statement of changes in equity and notes, including a summary of significant accounting policies, for both the Group and the Parent Company, as well as consolidated statement of cash flows (”the Financial Statements”). 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 Financial Statements” section of our report. We are independent of the Group in accordance with the International Ethics Standards Board for Accountants’ International Code of Ethics for Professional Accountants (IESBA Code) and the additional ethical requirements applicable in Denmark, and we have fulfilled our other ethical responsibilities in accordance with these requirements and the IESBA Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Management is responsible for the preparation of consolidated financial statements and parent company financial statements that give a true and fair view in accordance with the Danish Financial Statements Act, and for such internal control as Management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the 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 Financial Statements unless Management either intends to liquidate the Group or the Parent Company or to cease operations, or has no realistic alternative but to do so. Our objectives are to obtain reasonable assurance about whether the 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 Financial Statements. As part of an audit conducted in accordance with ISAs and the additional requirements applicable in Denmark, we exercise professional judgement and maintain professional scepticism throughout the audit. We also: Identify and assess the risks of material misstatement of the 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 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 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 Financial Statements, including the disclosures, and whether the 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. Management is responsible for Management’s Review. Our opinion on the 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 Financial Statements, our responsibility is to read Management’s Review and, in doing so, consider whether Management’s Review is materially inconsistent with the 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, in our view, 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 in Management’s Review. Hellerup 2024-06-30 PricewaterhouseCoopers Statsautoriseret Revisionspartnerselskab Ulrik Ræbild State Authorised Public Accountant mne33262 355204000 193995000 130157000 73933000 85045000 50439000 -2808000 277000 63782000 39389000 194196000 86548000 2860000 12398000 5469000 2233000 90777000 51729000 3286000 863000 -11641000 -2044000 6674000 -2038000 -1681000 7408000 64 31 0.225 0.277 0.366 0.381 -0.047 0.068 0.239 0.26 0.332 0.397 0.467 0.598 -0.223 0.12 0.895 1.224 With a philosophy of creating fun, functional, and conscious choices, LIEWOOD is made for children to beloved by parents.In our work with designing and producing toys, interiors, nursery, apparel, accessories, and footwear forchildren we keep our strong values as our guideline in our everyday work - making durable safe products ina timeless design for the contemporary family.A strong position in a challenging marketAt the Group, we have experienced strong growth over the past years. A development we are very thankfulfor and proud of.2023 has been both a developing and challenging year. While we expected to grow further, macrodevelopments caused that we did not meet our financial expectations. Therefore, the financial result for2023 is not satisfactory to the management, despite having achieved a continued high revenue of 338million DKK.We have achieved significant growth in our direct-to-consumer channel despite an overall decline incommercial activities in 2023. This underlines the continued high level of trust that consumers place inLIEWOOD and our brand. It reflects the enduring appeal and reputation we have built, highlighting thestrong connection and loyalty that end-consumers have towards our products and values.But operating in a changing market that faces financial difficulties and has a strong competition on pricingis challenging. It has resulted in a natural reluctance among retailers. And like many colleagues in theindustry, we experienced a lower demand due to a changed consumer behaviour and a decreasing costumerconfidence globally due to economic uncertainty.While the organization was geared for a higher growth, this resulted in a too high cost base which isreflected in the results for 2023. This, alongside higher prices on raw materials, high inflation, and higherfreight rates, resulted in lower margins and net profit compared to previous years.In 2023, we have made great investments into the future: we have invested in the relocation of ourdistribution centre to Poland in late 2023 and a new ERP-system, which will further contribute to ensuringoperational efficiency and the company's future growth. Finally, we have invested in a new and improvedB2B shop platform. These investments have been resource demanding and capex investments are reflectedin the net profit.In addition, following the COVID-19 pandemic, both the Group and retailers are facing challenges withexcessive inventory. Consequently, it was necessary to trim the balance sheet and sell out aging stock atlower margins. This exercise has had a significant negative impact on the result for 2023.The income statement shows a profit of -18 million DKK, and as of December 31, 2023, the balance sheetshows a positive equity of 59 million DKK. Sticking to the course by strengthening the financial positionAs a response to the current challenges, we have recalibrated our strategy and financial objectives forLIEWOOD towards 2028. We expect a greater gross profit in 2024 and improvements to networkingcapital.With a focus on continuing to strengthen our market presence, the past year has been prioritized tostabilize and invest in our core business; building a solid platform for the years to come.Additionally, we have strengthened the board and leadership team and made significant developments toour corporate leadership and strategic direction, as part of our journey of strategic realignment. This is notto change the core of the Group but to ensure the best journey for the Group going forth. We are proud ofour vision and our values, and we remain in a strong position across markets, and we aim for growth in ourkey markets in the time to come.Making thoughtful choices on behalf of the futureWe dedicate ourselves to creating high-quality products for families and children across the world. Webelieve in being thoughtful and making responsible and conscious choices when creating safe and longlastingproducts offering sustainable advantages to the consumer.Therefore, we use sustainable materials like organic cotton, recycled polyester, nylon, and plastic andother sustainable materials, as well as mono materials for a large part of textile production, for easierrecycling. The focus is continuously on sourcing responsible materials and suppliers.To ensure that all materials used in the supply chain meet the REACH standards and EU regulations, theGroup has an internal RSL (Restricted Substances List). The Code of Conduct and Supplier Manual isupdated twice a year to make sure the Group follows the updated requirements. To structure and focus ourefforts, we have adopted a systematic approach based on GOTS and GRS goals and we continue to expandand follow GOTS certification requirements in our growing supply chain.In addition, the Group has an Internal Compliance Team to ensure all products are being tested for bothsafety and hazardous chemicals. All the production goes through rigid QC inspections from our partners.Global standards as a driving force in productionThe Group has decided to align with the ten fundamental principles of the United Nations Global Compactfor Corporate Social Responsibility. We are committed to integrating these principles into our strategy andcorporate culture, with a specific focus on human rights, labour rights, environmental preservation, andanti-corruption measures. For the upcoming years, we have planned to perform materiality assessment formaterials within our value chain covering the areas of environment, human rights, and corruption, amongothers.The value chain including raw materials through processing, transport, and the final presentation of ourproducts to end customers involves multiple stages, each with potential risks to people and theenvironment. Consequently, we consider it our duty to enhance our understanding of this process andcontinually improve transparency. Simultaneously, we strive to simplify and promote transparency for endcustomers, empowering them to make informed and responsible choices. Engaged employees as a core valueOur people are our most valuable asset and crucial for the future success of the Group, as we depend ontheir knowledge and expertise. As a result, the Group’s Working Committee has been established to ensurethat the organization focuses on maintaining a safe and healthy work environment. The committeeconducts regular employee surveys to ensure a proper work environment. The employee survey for 2023was satisfactory.We believe we can enact change and positively impact our stakeholders. We are committed to being aresponsible business and respecting fundamental human rights throughout our value chain – from our HQin Copenhagen and through operations and those of external stakeholders. We respect and uphold allhuman rights stated in the International Bill of Human Rights, including the labour rights expressed by theInternational Labor Organization (ILO), and recognize the “protect, respect, and remedy” frameworkoutlined by the UN Guiding Principles on Business and Human Rights. Likewise, we also have a zerotolerancepolicy for corruption and bribery.Financial RisksProduction and procurement take place outside of Denmark, and a considerable part of the revenue isearned outside Denmark and settled in currencies other than DKK. This exposes the Group to continuedfluctuations in exchange rates that affect both earnings and cash flows. To minimize risks, the Groupconducts ongoing hedging. However, the USD had a negative impact on the annual result. The Group onlyhedges cash flows and not speculative transactions.Future ExpectationsThe Group aims to continue its positive development, offering a core range of products to customers,strengthening the corporation with existing customers and continuing the growth within its own direct-toconsumerchannel. Based on the current economic outlook and consumer behaviour trends, we project that2024 will mirror the challenges experienced in 2023. Specifically, we anticipate stagnant revenue growthwith a slight downturn in commercial activities. In response, we have continued our focus on costoptimization and COGS reduction with the aim of achieving an EBITDA margin of +8 % and realizing animproved gross profit by the end of 2024. Consequently, we expect our EBIDTA for 2024 to be between 20– 25 million DKK. Additionally, we will consolidate our operating platform and resources to scale ourdigital business model further in 2025.Subsequent eventsNo events materially affecting the assessment of the Annual Report have occurred after the balance sheetdate. 337677179 385459380 0 0 0 3542293 0 0 202352554 229161601 0 0 59202238 52979602 55816 119458 76122387 106860470 -55816 -119458 76994570 72280122 0 0 14982631 8559117 553533 525617 -15854814 26021231 -609349 -645075 0 0 -12834855 8077663 10016 1559 875896 96487 7269958 11640751 2069 31195 -23114756 14382039 -12570377 7497880 -5136159 3564909 165814 -19924 -17978597 10817130 -12736191 7517804 1000000 300000 1000000 300000 0 0 -13323803 7588171 -5242406 3299327 0 0 -13736191 7217803 -412388 -370367 1750000 1000000 1750000 1000000 16203788 18279806 0 0 979277 1113412 0 0 2160718 2649942 0 0 19343783 22043160 0 0 11783752 15021002 92225 156537 968844 1731443 0 0 12752596 16752445 92225 156537 0 0 33038767 45829073 364173 403040 0 0 364173 403040 33038767 45829073 32460552 39198645 33130992 45985610 63626249 94430358 0 0 27159924 34003782 0 0 90786173 128434140 0 0 31255894 40658856 0 0 0 0 21513804 23191924 4293142 2837276 0 18368 807816 0 3586 19924 2000000 2504000 2000000 2504000 2061716 4589939 0 0 40418568 50590071 23517390 25734216 52286280 8313051 3568293 3041786 183491021 187337262 27085683 28776002 215951573 226535907 60216675 74761612 50000 50000 50000 50000 0 0 25530663 38320696 12638953 14258248 0 0 -115456 -623764 0 0 46441116 58532549 33433950 33846338 59014613 72217033 59014613 72217034 12612160 17636548 0 0 71626773 89853581 59014613 72217034 0 4126417 0 0 0 4126417 0 0 108616744 79060183 0 0 21601859 37288017 52000 40000 586 578 586 578 0 0 1149476 2504000 14105611 16207131 0 0 144324800 132555909 1202062 2544578 144324800 132555909 1202062 2544578 215951573 226535907 60216675 74761612 50000 14258248 -623764 58532549 17636548 0 0 0 25463 10400 0 0 0 -1000000 0 0 0 0 -12736191 -5242406 0 0 -143367 0 0 0 0 651675 0 0 0 -1619295 0 1619295 0 50000 12638953 -115456 46441116 12612160 50000 38320696 33846338 0 25463 0 0 0 -1000000 0 -13323803 587612 0 -143367 0 0 651674 0 50000 25530663 33433950 -17978597 10817130 17142277 23763218 31253460 3222492 30417140 37802840 10024 1559 -7269958 -11640751 23157206 26163648 504000 -19741850 23661206 6421798 -5423154 -18660295 -2860251 -12398334 -40418 -89320 79285 0 -8244538 -31147949 -1000000 -10450000 -1000000 -10450000 14416668 -35176151 -70747132 -35570981 -56330464 -70747132 52286280 8313051 -108616744 -79060183 -56330464 -70747132 No events materially affecting the assessment of the Annual Report have occurred after the balance sheet date. 68404337 65132638 0 0 7665944 6480967 0 0 237886 231749 0 0 686403 434768 0 0 76994570 72280122 0 0 108 105 0 0 Remuneration to the Executive Board has not been disclosed in accordance with section 98 B(3) of the Danish Financial Statements Act. 0 0 865880 96487 10016 1559 10016 0 10016 1559 875896 96487 0 0 149476 0 -4934233 3201033 16338 -19924 -5136159 3564909 165814 -19924 201926 -363876 0 0 Total -4934233 3201033 165814 -19924 20164957 1198420 5092196 200000 5423157 0 0 0 25588114 1198420 5092196 200000 1885151 85008 2442254 200000 7499175 134135 489224 0 9384326 219143 2931478 200000 16203788 979277 2160718 0 Liewood's development projects consist of development, improvement and upgrading of the Company’s Webshop for the B2B-segment, logistics and Enterprise Resource Planning system. The development, improvements and upgrading are completed on an ongoing basis and are ready for use upon completion. The software platforms forms the basis of a large part of the Company’s existing business. The improvements and upgrading is expected to have lives of three years which are considered to reflect the useful lives. The projects are progressing according to plan through the use of the resources allocated by Management to the development. 21782988 2777236 192935 2847772 12481 0 102070 0 102070 24528690 2789717 90865 6761988 1045793 36398 6085020 775080 64312 102070 0 102070 12744938 1820873 -1360 11783752 968844 92225 7508104 7508104 7508104 7508104 38320969 56498502 25463 0 -12834855 8077663 0 24850000 508307 -915975 489221 489221 25530663 38320969 33038767 45829073 Liewood A/S Copenhagen 71 Liewood GmbH Germany 71 Liewood UK Limited United Kingdom 71 403040 40418 79285 364173 364173 Positive differences arising on initial measurement of subsidiaries at net asset value 0 0 4892196 4892196 Remaining positive difference included in the above carrying amount at 0 0 2160718 2649942 Investments in subsidiaries are specified as follows: Prepayments under assets are made up of prepaid costs relating to rent, insurance premiums and subscriptions. Deferred tax asset at 1 January -4126417 -925384 19924 0 Amounts recognised in the income statement for the year 5136159 -3564909 -16338 19924 Amounts recognised in equity for the year -201926 363876 0 0 Deferred tax asset at 31 December 807816 -4126417 3586 19924 -10016 -1559 7269958 11640751 14982631 8559117 -5136159 3564909 17142277 23763218 35863 0 37647967 -15016366 10475319 10355183 -17787678 9537656 917852 -1653981 31253460 3222492 Charges and security The following assets have been placed as security with bankers: Inventories 86628136 126176692 0 0 Trade receivables 22852648 36061510 0 0 Other fixtures and fittings, tools and equipment 11691527 14864463 0 0 Leasehold improvements 968844 1731443 0 0 Completed development projects and acquired trademarks 17183065 19393218 0 0 The security with bankers comprise of a business mortgage registered to Liewood A/S totalling kDKK 60,000, providing security for bank loans in Liewood A/S of kDKK 108.617. Rental and lease obligations The company has entered into operational leases. The leases have up to 11 months to maturity and total outstanding lease payments total kDKK 188. The company has entered into a lease on premises. This contracts are non cancellable until 1 June 2028. The annual rent amounts to kDKK 12,782. The total outstanding lease payments is kDKK 56.098. Other contingent liabilities Liewood A/S has issued a letter of financial support to the subsidiaries Liewood GmbH and Liewood UK Limited to cover negative equity balances. The Danish group companies are jointly and severally liable for tax on the jointly taxed incomes etc of the Group. The total amount of corporation tax payable is disclosed in the Annual Report of Lie ApS, which is the management company of the joint taxation purposes. Moreover, the Danish group companies are jointly and severally liable for Danish withholding taxes by way of dividend tax, tax on royalty payments and tax on unearned income. Any subsequent adjustments of corporation taxes and withholding taxes may increase the Company's liability. Basis Controlling interest Lie ApS, Blegdamsvej 124, 2100 Copenhagen Ø Majority shareholder Transactions The Company has chosen only to disclose transactions which have not been made on an arm's length basis in accordance with section 98(c)(7) of the Danish Financial Statements Act. The Annual Report of Lie ApS for 2023 has been prepared in accordance with the provisions of the Danish Financial Statements Act applying to medium-sized enterprises of reporting class C. The accounting policies applied remain unchanged from last year. The Consolidated Financial Statements and the Parent Company Financial Statements for 2023 are presented in DKK. true Revenues are recognised in the income statement as earned. Furthermore, value adjustments of financial assets and liabilities measured at fair value or amortised cost are recognised. Moreover, all expenses incurred to achieve the earnings for the year are recognised in the income statement, including depreciation, amortisation, impairment losses and provisions as well as reversals due to changed accounting estimates of amounts that have previously been recognised in the income statement. Assets are recognised in the balance sheet when it is probable that future economic benefits attributable to the asset will flow to the Company, and the value of the asset can be measured reliably. Liabilities are recognised in the balance sheet when it is probable that future economic benefits will flow out of the Company, and the value of the liability can be measured reliably. Assets and liabilities are initially measured at cost. Subsequently, assets and liabilities are measured as described for each item below. Basis of consolidation The Consolidated Financial Statements comprise the Parent Company, Lie ApS, and subsidiaries in which the Parent Company directly or indirectly holds more than 50% of the votes or in which the Parent Company, through share ownership or otherwise, exercises control. Enterprises in which the Group holds between 20% and 50% of the votes and exercises significant influence but not control are classified as associates. On consolidation, items of a uniform nature are combined. Elimination is made of intercompany income and expenses, shareholdings, dividends and accounts as well as of realised and unrealised profits and losses on transactions between the consolidated enterprises. The Parent Company's investments in the consolidated subsidiaries are set off against the Parent Company's share of the net asset value of subsidiaries stated at the time of consolidation. Minority interests Minority interests form part of the Group's total equity. Upon distribution of net profit, net profit is broken down on the share attributable to minority interests and the share attributable to the shareholders of the Parent Company. Minority interests are recognised on the basis of a remeasurement of acquired assets and liabilities to fair value at the time of acquistition of subsidiaries. Leases in terms of which the Group assumes substantially all the risks and rewards of ownership (finance leases) are recognised in the balance sheet at the lower of the fair value of the leased asset and the net present value of the lease payments computed by applying the interest rate implicit in the lease or an alternative borrowing rate as the discount rate. Assets acquired under finance leases are depreciated and written down for impairment under the same policy as determined for the other fixed assets of the Group. The remaining lease obligation is capitalised and recognised in the balance sheet under debt, and the interest element on the lease payments is charged over the lease term to the income statement. All other leases are considered operating leases. Payments made under operating leases are recognised in the income statement on a straight-line basis over the lease term. Danish kroner is used as the presentation currency. All other currencies are regarded as foreign currencies. Transactions in foreign currencies are translated at the exchange rates at the dates of transaction. Exchange differences arising due to differences between the transaction date rates and the rates at the dates of payment are recognised in financial income and expenses in the income statement. Where foreign exchange transactions are considered hedging of future cash flows, the value adjustments are recognised directly in equity. Receivables, payables and other monetary items in foreign currencies that have not been settled at the balance sheet date are translated at the exchange rates at the balance sheet date. Any differences between the exchange rates at the balance sheet date and the transaction date rates are recognised in financial income and expenses in the income statement; however, see the section on hedge accounting. Income statements of foreign subsidiaries and associates that are separate legal entities are translated at transaction date rates or approximated average exchange rates. Balance sheet items are translated at the exchange rates at the balance sheet date. Exchange adjustments arising on the translation of the opening equity and exchange adjustments arising from the translation of the income statements at the exchange rates at the balance sheet date are recognised directly in equity. Derivative financial instruments are initially recognised in the balance sheet at cost and are subsequently remeasured at their fair values. Positive and negative fair values of derivative financial instruments are classified as ”Other receivables” and ”Other payables”, respectively. Changes in the fair values of derivative financial instruments are recognised in the income statement unless the derivative financial instrument is designated and qualify as hedge accounting. Changes in the fair values of financial instruments that are designated and qualify as fair value hedges of a recognised asset or a recognised liability are recognised in the income statement as are any changes in the fair value of the hedged asset or the hedged liability related to the hedged risk. Changes in the fair values of derivative financial instruments that are designated and qualify as hedges of expected future transactions are recognised in the fair value reserve under equity as regards the effective portion of the hedge. The ineffective portion is recognised in the income statement. If the hedged transaction results in an asset or a liability, the amount deferred in equity is transferred from equity and recognised in the cost of the asset or the liability, respectively. If the hedged transaction results in an income or an expense, the amount deferred in equity is transferred from equity to the income statement in the period in which the hedged transaction is recognised. The amount is recognised in the same item as the hedged transaction. Changes in the fair values of financial instruments that are designated and qualify as hedges of net investments in independent foreign subsidiaries or associates are recognised directly in equity as regards the effective portion of the hedge, whereas the ineffective portion is recognised in the income statement. Revenue from the sale of goods is recognised when the risks and rewards relating to the goods sold have been transferred to the purchaser, the revenue can be measured reliably and it is probable that the economic benefits relating to the sale will flow to the Group. Revenue is measured at the consideration received and is recognised exclusive of VAT and net of discounts relating to sales. Cost of goods sold comprise the purchase price etc. for goods sold in the year. Other external expenses comprise expenses for premises, sales as well as office expenses, etc. Staff costs include wages and salaries including compensated absence and pensions as well as other social security contributions etc. made to the entity's employees. Amortisation, depreciation and impairment losses comprise amortisation, depreciation and impairment of intangible assets and property, plant and equipment. The item “Income from investments in subsidiaries” in the income statement includes the proportionate share of the profit for the year. Financial income and expenses comprise interest, realised and unrealised exchange adjustments as well as extra payments and repayment under the on-account taxation scheme. Tax for the year consists of current tax for the year and deferred tax for the year. The tax attributable to the profit for year is recognised in the income statement, whereas the tax attributable to equity transactions is recognised directly in equity. Any changes in deferred tax due to changes to tax rates are recognised in the income statement. The Company is jointly taxed with . The tax effect of the joint taxation with the subsidiaries is allocated to Danish enterprises showing profits or losses in proportion to their taxable incomes (full allocation with credit for tax losses). Goodwill is amortised on a straight-line basis over the estimated useful life of 10 years, determined on the basis of Management’s experience with the individual business areas. Costs of development projects comprise salaries, amortisation and other expenses directly or indirectly attributable to the Company’s development activities. Development projects that are clearly defined and identifiable and in respect of which technical feasibility, sufficient resources and a potential future market or development opportunity in the enterprise can be demonstrated, and where it is the intention to manufacture, market or use the project, are recognised as intangible assets. This applies if sufficient certainty exists that the value in use of future earnings can cover cost of sales, distribution and administrative expenses involved as well as the development costs. Development projects that do not meet the criteria for recognition in the balance sheet are recognised as expenses in the income statement as incurred. Capitalised development costs are measured at cost less accumulated amortisation and impairment losses or at a lower recoverable amount. An amount corresponding to the recognised development costs is allocated to the equity item 'Reserve for development costs'. The reserve comprises only development costs recognised in financial years beginning on or after 1 January 2016. The reserve is reduced by amortisation of and impairment losses on the development projects on a continuing basis. As of the date of completion, capitalised development costs are amortised on a straight-line basis over the period of the expected economic benefit from the development work. The amortisation period is 3-4 year. Rights are measured at cost less accumulated amortisation and less any accumulated impairment losses or at a lower value in use. Rights are amortised over the period of the agreements, which is 10 years. Property, plant and equipment are measured at cost less accumulated depreciation and less any accumulated impairment losses. Cost comprises the cost of acquisition and expenses directly related to the acquisition up until the time when the asset is ready for use. Depreciation based on cost reduced by any residual value is calculated on a straight-line basis over the expected useful lives of the assets, which are: Other fixtures and fittings, tools and equipment 3-8 years Leasehold improvements 3-8 years The fixed assets’ residual values are determined at nil. Depreciation period and residual value are reassessed annually. The carrying amounts of intangible assets and property, plant and equipment and investments are reviewed on an annual basis to determine whether there is any indication of impairment other than that expressed by amortisation and depreciation. The recoverable amount of the asset is calculated as the higher of net selling price and value in use. Where a recoverable amount cannot be determined for the individual asset, the assets are assessed in the smallest group of assets for which a reliable recoverable amount can be determined based on a total assessment. Goodwill, head office buildings and other assets for which a separate value in use cannot be determined as the asset does not on an individual basis generate future cash flows are reviewed for impairment together with the group of assets to which they are attributable. Investments in subsidiaries are recognised and measured under the equity method. The item “Investments in subsidiaries” in the balance sheet include the proportionate ownership share of the net asset value of the enterprises calculated on the basis of the fair values of identifiable net assets at the time of acquisition with deduction or addition of unrealised intercompany profits or losses and with addition of the remaining value of any increases in value and goodwill calculated at the time of acquisition of the enterprises. The total net revaluation of investments in subsidiaries is transferred upon distribution of profit to “Reserve for net revaluation under the equity method“ under equity. The reserve is reduced by dividend distributed to the Parent Company and adjusted for other equity movements in the subsidiaries. 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. Other fixed asset investments consist of deposits. Inventories are measured at the lower of cost under the FIFO method and net realisable value. The net realisable value of inventories is calculated at the amount expected to be generated by sale of the inventories in the process of normal operations with deduction of selling expenses and costs of completion. The net realisable value is determined allowing for marketability, obsolescence and development in expected selling price. The cost of finished goods and goods for resale equals landed cost. Receivables are measured in the balance sheet at the lower of amortised cost and net realisable value, which corresponds to nominal value less provisions for bad debts. Prepayments comprise prepaid expenses concerning rent, insurance premiums and subscriptions. Deferred tax is recognised in respect of all temporary differences between the carrying amount and the tax base of assets and liabilities. However, deferred tax is not recognised in respect of temporary differences concerning goodwill not deductible for tax purposes and other items - apart from business acquisitions - where temporary differences have arisen at the time of acquisition without affecting the profit for the year or the taxable income. Deferred tax is measured on the basis of the tax rules and tax rates that will be effective under the legislation at the balance sheet date when the deferred tax is expected to crystallise as current tax. In cases where the computation of the tax base may be made according to alternative tax rules, deferred tax is measured on the basis of the intended use of the asset and settlement of the liability, respectively. Deferred tax assets, including the tax base of tax loss carry-forwards, are measured at the value at which the asset is expected to be realised, either by elimination in tax on future earnings or by set-off against deferred tax liabilities. Deferred tax assets and liabilities are offset within the same legal tax entity. Current tax receivables and liabilities are recognised in the balance sheet at the amount calculated on the basis of the expected taxable income for the year adjusted for tax on taxable incomes for prior years. Tax receivables and liabilities are offset if there is a legally enforceable right of set-off and an intention to settle on a net basis or simultaneously. Loans, such as loans from credit institutions, are recognised initially at the proceeds received net of transaction expenses incurred. Subsequently, the loans are measured at amortised cost; the difference between the proceeds and the nominal value is recognised as an interest expense in the income statement over the loan period. Mortgage loans are measured at amortised cost, which for cash loans corresponds to the remaining loan. Amortised cost of debenture loans corresponds to the remaining loan calculated as the underlying cash value of the loan at the date of raising the loan adjusted for depreciation of the price adjustment of the loan made over the term of the loan at the date of raising the loan. Other debts are measured at amortised cost, substantially corresponding to nominal value. The cash flow statement shows the Group’s cash flows for the year broken down by operating, investing and financing activities, changes for the year in cash and cash equivalents as well as the Group’s cash and cash equivalents at the beginning and end of the year. Cash flows from operating activities are calculated as the net profit/loss for the year adjusted for changes in working capital and non-cash operating items such as depreciation, amortisation and impairment losses, and provisions. Working capital comprises current assets less short-term debt excluding items included in cash and cash equivalents. Cash flows from investing activities comprise cash flows from acquisitions and disposals of intangible assets, property, plant and equipment as well as fixed asset investments. Cash flows from financing activities comprise cash flows from the raising and repayment of long-term debt as well as payments to and from shareholders. Cash and cash equivalents comprise ”Cash at bank and in hand” and ”Overdraft facilities”. The cash flow statement cannot be immediately derived from the published financial records. Gross margin Gross profit x 100 / Revenue Profit margin Profit/loss of ordinary primary operations x 100 / Revenue Solvency ratio Equity at year end x 100 / Total assets at year end Return on equity Net profit for the year x 100 / Average equity