Annual Report Icopal Group. Icopal Group ICOPAL GROUP:

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1 Icopal Group Annual Report 2014 Icopal Group ICOPAL GROUP: Årsrapport 2014 For regnskabsåret 1. januar december 2014 CVR nr Lyskær 5, 2730 Herlev Godkendt på generalforsamlingen d. 23. april 2015 Dirigent:...

2 TABLE OF CONTENTS Company Overview 1 Chairman s Statement 3 CEO Statement 5 Five-year Summary 7 Strategic Overview 8 Financial Review 13 Regional Financial Review 21 Group Functions 34 Risk Management 42 Corporate Social Responsibility 49 Management and Supervision at Icopal 53 Management s Statement 57 Independent Auditor s Report 59 Consolidated Financial Statements, Icopal Group 61 Financial Statements of Parent, Icopal a/s 124

3 Company Overview Icopal is a technology leader in waterproofing for buildings and structures with more than 165 years of experience. Its unique product range and services are based on innovation and continuous improvement. Icopal s mission is to be the preferred partner for the protection and covering of buildings and structures. Icopal markets its products locally through a range of well-known brands with the main brands being Icopal, Siplast, Vedag, Villas and Wolfin. A spectrum of other brands are used for specific products such as Monarflex for building envelope products, Wijo for metal gutters, Decra for steel roof tiles and Awak, Brave, Optilite and Everlite for skylights and smoke ventilation. The basis for fulfilling the Group s mission is the ability to supply a complete range of waterproofing solutions that meets the needs of distributors, architects, installers, building specifiers and building owners with the technical expertise to realise even the most demanding waterproofing projects. The ultimate aim of Icopal, to be the world reference in waterproofing technology, is intended to be achieved by becoming a true multi-material waterproofing specialist delivering the best solution for every project. The three core product lines of the Icopal Group are bitumen membranes, synthetic membranes and liquid applied waterproofing for a broad range of applications within construction and civil engineering. Including accessories, these three product areas represent approximately 53% of total revenue, a share expected to increase in future years through organic growth and acquisitions. The Group has major business activities in Europe and North America divided into six regions and operates primarily through subsidiaries in 28 countries. Services and products are delivered in more than 85 countries worldwide. The Icopal Group operates 36 production units and employs a workforce of 3,551 (fte). Icopal is ultimately controlled by Investcorp, a leading provider and manager of alternative investment products for high net worth private and institutional clients. A number of key Icopal managers have invested together with Investcorp. The financial statements of Icopal are included in the consolidated financial statements of the ultimate Danish parent company, Icopal Holding a/s, CVR no

4 REVENUE (MEUR) EBITDA (BEFORE SPECIAL ITEMS) (MEUR) 1,100 1,050 1, CAPEX (MEUR) TRADE NET WORKING CAPITAL (MEUR) EMPLOYEES (NUMBER), FTE 3,650 3,600 3,550 3,500 3,450 3,400 3,350 3, PRODUCT GROUP REVENUE SPLIT REGIONAL REVENUE SPLIT 10% 9% 10% 2% 9% 60% Flat Roofing Pitched Roofing Building Envelope Civil Engineering Other Products Installation Services 8% 24% 26% 23% 8% 11% Region Europe Central Region Europe East Region North America Region Europe North Region Plastic & Metal Region Europe West 2

5 Chairman s Statement IN 2014, ICOPAL ACHIEVED REVENUE OF MEUR 1,025.3 AND EBITDA BEFORE SPECIAL ITEMS OF MEUR 92.2, SLIGHTLY AHEAD OF THE PRIOR YEAR DESPITE CONTINUING WEAKNESSES IN THE ECONOMIES OF OUR MAJOR MARKETS. Although there were early signs that 2014 would herald the long-awaited recovery of the European building materials industry, this turned out not to be the case. Most Eurozone economies continued to struggle and the situation was further affected by economic sanctions imposed on Russia following the crisis in Ukraine. As a result, growth in construction output across Europe averaged only about 1%. Through the year, Icopal benefitted from its broad geographic diversification. Good performances in the Nordics, UK and Poland in particular offset softness in other markets. During 2014, Icopal made excellent progress towards our goal of becoming a multi-material supplier of roofing solutions. Sales of applied liquid products grew by 22.3% and synthetics grew by 13.8%. This was achieved through both strong organic growth and the successful integration of the Sealoflex and MWK acquisitions announced at the end of last year. In 2014, the Group also completed the restructuring of its manufacturing footprint in Germany, Norway and Slovakia. Results in 2014 were adversely affected by some start-up delays in our Groningen (the Netherlands) factory taking over volumes from the closed factory in Rheinsheim (Germany). However, the full-year benefit of these actions will be captured during In the fourth quarter, Agnete Raaschou-Nielsen joined our Board of Directors. Agnete is the former COO of Aalborg Portland. She currently serves as chairman of Brødrene Hartmann, Arkil Holding and as vice chairman of Novozymes, all of which are listed on the Nasdaq Copenhagen Stock Exchange, as well as on several other corporate and institutional boards. I am con fident that her expertise and experience will serve the Group well. 3

6 Looking to 2015, we expect the market to grow slightly ahead of 2014 and margins to remain stable or slightly improved. We expect to capture the full-year benefits of the restructuring actions taken in 2014 and some early benefits from the implementation of shared services in several business units. Icopal s continued leadership and success depends on many people. I would like to express our thanks and appreciation to our employees, our customers and our suppliers for your loyalty and support during the year. Brian Norman Dickie Chairman of the Board April

7 CEO Statement THE YEAR 2014 SAW VARIED PERFORMANCES IN THE DIFFERENT ICOPAL REGIONS AND COUNTRIES. WHILE THE WINTER WAS VERY MILD IN EUROPE, NORTH AMERICA EXPERIENCED SEVERE WEATHER CONDITIONS AT THE BEGINNING OF THE YEAR. The good weather in Europe combined with the relatively optimistic economic environment led to a strong start of the year for Icopal. However, due to the Ukrainian crisis and unrest in the Middle East, the general confidence in the economy started to falter during the late spring and summer of 2014, which led to a situation in many countries in Europe where construction projects were cancelled or postponed. In the US in general, the demand for building materials developed positively after the very strong winter ended. Towards the end of the year oil prices decreased materially over a short period of time, bringing the oil exporting countries under pressure, with Russia in particular also being impacted by existing sanctions from the Western world. Within Icopal, Region Europe North ended slightly up on the previous year in terms of sales, with a negative development in Norway mainly due to currency effects. Finland in particular was negatively impacted by its weak economy and the Russian slow-down. Sweden and Denmark displayed recovery in sales. Region Europe West displayed healthy growth in the UK, Irish and Benelux markets, while France experienced a negative sales development. In Region Europe Central, the German market showed a very mixed picture with strong demand at the beginning of the year which softened in the second half. The Austrian market displayed a solid recovery in comparison to the previous year. In Region Europe East, Poland, Romania and Bulgaria grew at relatively healthy rates, while the Czech Republic, Hungary and Slovakia did not show any significant recovery. Finally in Region North America, Icopal displayed a flat development despite the strong demand in the US markets. The main driver of that development was poor performance in Canada. Despite a challenging environment Icopal continued to maintain a resilient performance. Group revenues stayed on par with previous year at MEUR 1, These revenues include a first-time consolidation for Sealoflex (Liquid Applied Water proofing) and MWK (Synthetic Membranes) both acquired at the beginning of These acquisitions are core in accelera ting the transformation of Icopal to a true multi-material group including bituminous, synthetic, liquid and metal products. The ultimate aim of Icopal is to be able to offer the best solution to any waterproofing problem on roofs and structures. During the year 2014, margins were in general positively impacted by falling raw material prices but also by the outcome of the Group s continuous improvement program focused on reducing mainly variable costs, as well as the launch of new high-value products. Group EBITDA before special items increased to MEUR 92.2 (+1.9%). The year 2014 was a year of many structural changes for Icopal. After having closed the Norwegian bitumen factory at the end of 2013, the Group closed the Rheinsheim (Germany) and the Štúrovo (Slovakia) bitumen membrane factories. Štúrovo will remain a core centre of excellence for the production of synthetic membranes and building envelope products. Customers in Germany will be supplied by the other three remaining factories in the country, as well as the Groningen (the Netherlands) factory, which is very close to the German border. Customers in Slovakia will be supplied by a web of factories around Slovakia as well as Štúrovo within Slovakia for synthetic products. The Group has also entered the preparation phase ahead of the implementation of regional service centres in early The aim of all these structural changes is to reduce the fixed cost base of the Group and make it more flexible and competitive for the future. 5

8 In terms of new products and developments, Icopal launched a brand new and attractive family of metal tiles for pitched roofs called Quadro by Icopal. The Group also continued to launch new designs of its 3D bitumen rolled tile membrane, which are targeted at residential applications mainly in the DIY (Do It Yourself) segment. Many new products and accessories were also launched in the flat roof segment with the aim of further differentiating Icopal from its competitors. Icopal continued the intensive training courses provided through Icopal University, the Group s internal management development programme with the intention of increasing the knowledge base and allowing the Group employees to become better and more efficient in performing their tasks. Icopal also performs a variety of customer-oriented training measures. Typically, the Group runs more than 2,000 training sessions in which more than 20,000 customers participate. These sessions are also a cornerstone in increasing company and product loyalty towards Icopal. The outlook for 2015 remains mixed. The European market continues to be relatively weak and only a few of Icopal s key markets are showing meaningful recoveries. However, on a more positive note, North America should continue to show healthy growth rates. Icopal also expects some positive effects related to the recent decline of raw material prices as a result of lower oil prices. The Group has a number of strategic initiatives including an accelerated roll out of new synthetic and liquid products alongside its Commercial Excellence programme, which should allow the Group to outgrow the market. All in all, Icopal is well positioned to improve its financial performance in Icopal is a strong Group because it works with outstanding teams. I would like personally to thank all our customers, employees, investors, suppliers and partners for the support extended to Icopal during the year Miguel Kohlmann Group CEO April

9 Five-year Summary ICOPAL GROUP KEY CONSOLIDATED FIGURES (MEUR) Income statement Revenue 936 1,033 1,065 1,026 1,025 Gross profit Fixed expenses incl. other operating items EBITDA before special items EBITDA after special items EBIT before special items excluding impairments EBIT after special items Depreciation and impairments Net profit/loss for the year 18 (6) 14 (9) 4 Average number of employees 3,602 3,455 3,517 3,406 3,551 Balance sheet Total assets 1,160 1,161 1,173 1,096 1,087 Total equity Invested capital (excl. goodwill) Invested capital (incl. goodwill) Trade net working capital Net interest-bearing debt excl. debt to affiliated Net interest-bearing debt incl. debt to affiliated Available liquidity Cash flow statement Cash flow from operating activities Cash flow from investing activities 3 (36) (28) 8 (25) (46) Capex Acquisitions Free cash flow (8) (9) (4) Ratios Revenue growth 1.3% 10.3% 3.2% (3.7%) (0.1%) Revenue per employee in TEUR Gross profit ratio 25.1% 24.8% 23.5% 24.9% 25.6% EBITDA ratio before special items 4 8.5% 8.5% 8.9% 8.8% 9.0% EBIT ratio before special items 4 5.7% 5.6% 6.0% 5.8% 5.8% Capex in pct. of revenue 2.8% 2.9% 3.3% 3.4% 3.9% ROIC (excl. goodwill) % 15.0% 16.0% 16.2% 16.7% ROIC (incl. goodwill) 5 7.0% 7.6% 8.1% 8.0% 8.2% Trade net working capital in pct. of revenue 17.4% 16.9% 16.2% 15.3% 14.5% Cash conversion % 52.2% 65.3% 78.6% 66.2% Equity ratio 12.4% 20.3% 24.2% 24.2% 23.1% 1 Invested capital: Intangible assets (excl./incl. goodwill) + total property, plant and equipment + total inventory + total receivables current provisions trade payables work in progress corporation tax other payables 2 Total inventory + trade receivables trade payables 3 Excluding discontinued activities 4 Ratios are calculated based on earnings before special items excluding impairments 5 ROIC (excl./incl. Goodwill): (EBITA before special items excl. impairments x 100)/(Aver. invested capital (excl./incl. goodwill)) 6 Cash conversion: (EBITDA before special items (+/-) change in net working capital (YE curr.) - Capex) / EBITDA before special items 7

10 Strategic Overview THE MISSION AND VISION The Icopal mission is to be the preferred partner for the protection and covering of buildings and structures. Its unique product range is based on innovation and continuous improvement. In the past years the Group improved the product offering within the core segments of flat roofing, pitched roofing, building envelope products and civil engineering to anchor a focus on high quality and high performance in all of its product groups. The basis for fulfilling this mission is the ability to supply a complete range of waterproofing solutions that meets the needs of distributors, architects, installers, building specifiers and building owners with the technical expertise to realise even the most demanding waterproofing projects. The ultimate aim and vision of Icopal is to be the world reference in waterproofing technology. THE BITUMEN HERITAGE AND THE STRONG MULTI-MATERIAL ASPIRATION Icopal has more than 165 years of experience in the application and development of roofing felt and bitumen membranes and, at present, masters all membrane technologies for the waterproofing of buildings and structures. This makes it possible for the Group to assist customers with all types of waterproofing projects. The Icopal waterproofing membranes represent proven and durable solutions that have been improved with the latest technology by adding environmental protection features and unique advantages to the installer for installing the membranes. The advantages will increase both the speed and quality of the installation. In the past eight years, the Group has committed itself to a multi-material strategy within the waterproofing product lines and started to develop considerable expertise in the area of liquid applied waterproofing and synthetic membranes. Both technologies are growing above the industry average and should continue to do so for the coming five to ten years. In addition, Icopal is committed to increase the market share in these two product areas in the medium term to the same level of the bitumen market shares across Europe where Icopal is the market leader today. This will further propel the growth of the Group. Icopal currently has synthetic membrane capabilities within TPO, monomeric PVC and polymeric PVC which are ideal for structures where lightweight, flexible and high-performance products are required. 8

11 Today Icopal is considered one of the top five synthetic membrane suppliers in Europe with a target to become one of the top three over the next five years. During 2014 extensive work has gone into (i) integrating the acquisition of MWK, a manufacturer of polymeric PVC membranes, (ii) creating a product development and technical knowledge centre and (iii) building the competency levels throughout the local Icopal organisations leading to improved customer acceptance of Icopal as a professional and top quality synthetic solution provider. A similar ambition is found within liquid applied waterproofing solutions, where the Group is now considered a full-range provider that develops, manufactures, sources and sells all main technologies such as PMMA, polyurethane, acrylics, MS polymers and bitumen-based solutions. In Europe, liquid applied waterproofing solutions are mainly used to overcome the challenges of irregular structures or special design features but also for walkways, balconies, parking decks etc. At the beginning of 2014 Icopal acquired a US-based MS polymer and acrylics manufacturer (Sealoflex Inc.). This acquisition, in combination with the Group s own development work, is considered to be a major step in expanding Icopal s position within liquid applied waterproofing solutions. DEVELOPMENT OF BITUMEN MEMBRANES, SYNTHETIC MEMBRANES AND LIQUIDS IN MEUR Synthetic membranes (left axis) Liquids (left axis) Bitumen membranes (right axis) THE MULTI-BRAND APPROACH Through acquisitions, the Icopal Group has collected and built a strong portfolio of brands over a long period of time. It comprises top products and services that can develop and maintain strong customer relationships. Icopal s current strategy is to continue to build the main brands in the following selected markets: Region Europe North: Icopal Region Europe West: Icopal and Siplast Region Europe Central: Icopal, Vedag, Villas and Wolfin Region Europe East: Icopal, Vedag and Villas Region North America: Icopal and Siplast Region Plastic & Metal: Icopal, Decra, Monarflex and Wijo Each local market normally uses one brand as the main vehicle for recognition and sales in the market place. In some countries (particularly Germany and Czech Republic), other main brands are used to increase market penetration and to maximise market shares. 9

12 Segments Flat Roofing Brands Strategic aim Multi brand strategy Be the absolute reference in highend solution in each of the three care technologies, bitumen, liquid, applied waterproofing and synthetic. Pitched Roofing Buliding Envelope Expand and obtain stronger market presence in selected areas, with a focus on European activities, especially in countries with low penetration, as well as developing selected exports around the world. Civil Engineering Installation Service Important distribution channel provides direct customer feedback, and is in the Nordics a 'qualifer' for pushing waterpoofing products. CORE BUSINESS SEGMENTS The most important business segment for Icopal is, as described above, the flat roofing segment with the focus on bitumen and synthetic membranes and liquid applied waterproofing systems. The Group s main resources (fixed costs, CAPEX and acquisition efforts) are channelled to this area. However, the Group also spends substantial resources on developing the other core business areas: (i) pitched roofing products, (ii) building envelope products and (iii) civil engineering products. Installation services are a main distribution channel for flat roofing products in the Nordic region and will be developed and maintained as such. It is not the strategy of the Group to expand installation services outside the Nordic region. CORE PRODUCTS ACCESSORIES ENVIRONMENTAL SOLUTIONS FLAT ROOFING Bitumen membranes Synthetic membranes Liquid Applied Waterproofing Profiles Detailing Primers and adhesives Fastener Skylights and smoke ventilation Thermal insulation Noxite Water management Solvent free technology Green roofs Reflective roofs Recycled membranes Photovoltaic PITCHED ROOFING Shingles Steel tiles Plastic roof panels Design bitumen membranes Gutters Primers Flashings Chimney pipes Roof safety equipment Noxite Green roofs Water management BUILDING ENVELOPE Underroofs Wind and vapor barries Radon and gas membranes Foundation panels Scaffold sheeting and Tarpaulins Sound deadening Fasteners Sealants and Sleeves Tapes Radon membranes Vapour and wind barriers CIVIL ENGINEERING Bridge membranes Tunnel membranes Geomembranes Road construction (PMB/emulsions) Resins Water inlets Fasteners Protection of groundwater 10

13 CORE FOCUS ON CUSTOMER DEDICATION Icopal enjoys strong and long-lasting customer relationships, which form the backbone of its success and plans for longterm organic growth. The Group s customers remain the core of its business success, and one of the most important strategic goals is to exceed customers expectations and continuously increase customer satisfaction by being reliable, keeping promises and always delivering top-quality services and products. The aim is to become the preferred partner for customers in the main target groups: installers, building owners, specifiers, construction companies and distributors. The main vehicles for enhancing growth and to outgrow the market are focused investments in sales-related activities that include the opening or strengthening of sales offices, increased cross-selling of Group products across business units and the introduction of new innovative products to the market. In addition, the Group focuses on complementary and value-creating acquisitions that can further enhance top line growth. These acquisitions are generally seen within the core flat roofing area i.e. bitumen membranes, synthetic membranes or liquid applied waterproofing solutions. A major reason for the pursuit of the multi-material strategy is that our direct customers (primarily installers) are also developing capabilities to handle more than one material/technology. ICOPAL REVENUE SPLIT PER CUSTOMER GROUP 10% 33% 10% 47% Distribution Direct Own Installation Services Civil Engineering STRONG FOCUS ON PRODUCT AND TECHNOLOGY LEADERSHIP Icopal builds its leadership in the waterproofing market through constant innovation, the improvement of products and strong technical know-how. The objective is to generate at least 15% of revenue with products and services that are not older than five years (the percentage in 2014 was 13.2%). The latest developments prioritise environmentally friendly solutions with a focus on recycling, as well as the development of products that interact with and actively improve the surrounding environment and minimise the use of raw materials and energy. Icopal sold MEUR 32.5 of environmental products during the 2014 financial year, which corresponds to 5.3% of the Group s flat roofing revenue. This is 8.9% up on the year before. Another key priority is to improve products and, in that fashion, make the installation process faster, easier and safer for installers. A major part of R&D resources are channelled to these two areas. OPERATIONAL EXCELLENCE Icopal believes in the continuous improvement of all business processes. Three of the main areas for improvement are procurement, production and recipe optimisation. Here the itop (Icopal TOP performance) programme is the key process driver. The key focus is to reduce costs continuously and thereby mitigate inflationary pressure on the operating cost base without jeopardising quality, product performance and delivery service. In addition, ongoing factory network optimisation is being carried out. This resulted in two factory closures in 2014 in Germany and Slovakia. In addition to this significant cost reduction effort, there is also a strong and increasing focus on health, safety and fire risk in the factories in order to (i) provide safe working conditions for employees, (ii) protect the significant investments in factories and (iii) ensure reliable service and delivery to customers. RESILIENT BUSINESS MODEL Although Icopal operates in the cyclical building materials market, its sensitivity to economic cycles is limited. The main reason for this limited cyclicality is that Icopal operates mainly in what can be described as non-discretionary repair and mainte- 11

14 nance markets i.e. projects where the building owners must invest in the repair and maintenance of their buildings and structures in order to protect their value. Icopal is continuously developing products and services for renovation, but is also acquiring companies whose business is focused on these activities. Moreover, Icopal is generally more active in non-residential markets that tend to be less cyclical than residential markets. Civil engineering, which tends to be a relatively stable market, is a growing focus area for the Group. These characteristics give Icopal stable working conditions and create the basis for the uninterrupted pursuit of long-term strategies. ICOPAL EXPOSURE TO THE BUILDING MATERIALS MARKET 10% 10% 31% Renovation 30% Non residential 59% New Build 60% Residential Civil Engineering Civil engineering HISTORICAL FINANCIAL PERFORMANCE FOR THE GROUP Icopal operates in markets that generally are exposed to fluctuations caused by general economic development and the resulting impact on the construction markets. The Group generally monitors six key financial targets: REVENUE DEVELOPMENT (MEUR) EBITDA RATIO BEFORE SPECIAL ITEMS 1, % 1,060 1, % 8.5% 8.0% % CAPEX IN PCT. OF REVENUE TRADE NET WORKING CAPITAL IN PCT. OF REVENUE 4.0% 18.0% 17.0% 3.5% 16.0% 15.0% 3.0% 14.0% 13.0% 2.5% 12.0% 11.0% 2.0% % YEAR END RETURN ON INVESTED CAPITAL* CASH CONVERSION 18.0% 17.0% 16.0% 15.0% 14.0% 13.0% 12.0% % 80.0% 70.0% 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% * excl. goodwill 12

15 Financial Review MAIN PROFIT AND LOSS EFFECTS IN THE 2014 FINANCIAL YEAR GENERAL REVENUE DEVELOPMENT The first four months of 2014 started with a historically mild winter in Europe (contrary to North America), which was the reverse of 2013 when a historically harsh and long winter marked the start of the year. In addition, many building materials markets in Europe seemed to recover in the first half of These two factors, combined with good progress in local sales initiatives engendered a healthy growth in revenue of 4.5% in the first half of Unfortunately, the European building materials markets slowed down considerably during the second half of 2014 only partly countered by better performance in North America. This led to a total revenue of MEUR 1,025.3 for the entire year, which is on par with 2013 revenue. This revenue level is short of the expectations communicated at the beginning of the year in the 2013 Annual Report (MEUR 1,050-1,100). The lack of performance and growth were not attributable to one specific region, as most regions were negatively impacted during In continuation of the 2013 trend, raw material prices remained stable to slightly decreasing during 2014 and there was consequently no need and room for Icopal to raise its end-product prices. This is also reflected by the decline in revenue. Installation services were lower despite the favourable weather conditions in the beginning of the year. A deterioration in the main local currencies versus the EUR during the first nine months of the year led to a further reduction in revenue. REVENUE BRIDGE IN PCT. Volume increase in products 2.1% Price decrease in products (1.3%) Revenue decrease in installation services (0.9%) Acquisitions 0.8% Currency effects (0.8%) TOTAL (0.1%) 13

16 REGIONAL REVENUE DEVELOPMENT As opposed to other sections of the Annual Report the below comments exclude the effects from intercompany sales between the business units and the regions. In Region Europe North revenue reduced by 0.3% (3.2% growth in constant currency) mainly because of weak demand in Finland and adverse currency effects in Norway and Sweden. Denmark and Sweden both delivered strong revenue growth in constant currency, while Norway developed more moderately. The markets of Denmark and Sweden improved but more importantly, a range of important product launches succeeded. In Region Europe West revenue increased by 3.2% (2.1% growth in constant currency) mainly due to improved sales performance in the Netherlands and the UK helped by a strong appreciation of GBP. The Netherlands grew considerably which reflected a recovery in the Dutch market compared to a very low base in the last few years. Despite good underlying UK market growth and successful execution of various sales initiatives by the local business unit, Icopal s UK revenue only grew moderately due to reduced activities with one key account. France revenue decreased in response to poor market developments and given its relative size, pulled down the entire region s performance. The markets in Region Europe Central increased by 0.2% (same in constant currency) with the German business units deliv ering close to the same volume as in Vedag Germany was weak in terms of revenue mainly due to strong price pres sure in the standard membrane market while Wolfin increased revenue strongly due to the inclusion of standard synthetic membranes in the product portfolio. Austria also increased revenue significantly driven by the flat roofing segment and even more from the civil engineering segment (PmB). In Region Europe East revenue decreased by 3.3% (0.9% growth in constant currency) with the Czech Republic, Slovakia and Hungary having softer activity levels due to weak markets and negatively impacted by imported products from Russia. Poland recovered well on the back of improving markets and Russia holding up surprisingly well (in constant currency). In Region North America revenue increased by 4.8% (5.1% growth in constant currency). Adjusting for the Sealoflex acquisition, the growth rates would be 0.0% and 0.3% respectively. These growth rates are not satisfactory given the North American market growth. The main contributors to this year s performance were (i) low activity levels in Canada, (ii) synthetic products (where Icopal is not present in the US) accounting for most of the growth and (iii) the fact that the segments Icopal is targeting in the US (commercial, industrial and municipal/governmental) have not yet shown growth. In Region Plastic & Metal revenue increased by 26.0% (26.9% growth in constant currency). Adjusting for the MWK acquisition, the growth rates would be 5.6% and 6.5% respectively. All business units apart from Monarflex showed negative growth, which in the case of Decra and Wijo has been the case for an extended period. This is the major challenge for the region to turn around. PRODUCT GROUP DEVELOPMENT The flat roofing segment recorded moderate growth of 1.9% during Consistent with the strategy, synthetic membranes (13.8% growth and 6.8% corrected for acquisitions) showed above-average growth in the flat roofing category with a significant increase in market share in the synthetic membrane market. A similar development was seen in liquid applied waterproofing (22.3% growth and 12.5% adjusted for acquisitions). Bitumen membranes (-0.5% growth) showed a slightly decreasing trend mainly as a result of moderate price decreases due to decreasing oil prices. Skylights & smoke ventilation, insulation and accessories decreased by 2.6%. With the exception of a very few subcategories, both the pitched roof (-5.1% growth) and the building envelope products (-3.0% growth) segments exhibited negative growth. This was caused mainly by the continued negative sentiment above all in new residential construction and increasing competition in a few subcategories (steel roof tiles, gutters and plastic membranes). 14

17 Civil engineering (5.2% growth) increased mainly due to a focused effort, improved markets and favourable weather conditions, which is important for road activities (PmB). Nordic roofing installation services decreased by 8.6%. COST OF SALES AND GROSS PROFIT The cost of sales includes fixed production costs, raw material costs, energy and hourly paid employees. In 2014 the cost of sales totalled MEUR (74.4% of revenue compared to 75.1% in 2013), which is MEUR 7.8 or 1.0% down on The major drivers for the positive trend in cost of sales are lower raw material pricing compared to 2013 and the beginning effect of lower fixed expenses following factory closures in sum the impact from the itop actions. An impairment of assets in 2014 of MEUR 2.1 related to the closure of the factory in Štúrovo (Slovakia) partly neutralised the positive effects. As in previous years, the Group hedged approximately 10% of its bitumen needs during March through to November. Oil prices decreased slightly during 2014, and the Group therefore recorded a minimal loss of TEUR 35 from the hedge (a loss of MEUR 0.8 was recorded in 2013). In the fourth quarter 2014 the Board of Directors decided to implement a new hedging policy which is described further in the section commodity price risk under risk management. Further contracts were entered, in 2014 to cover the purchase of bitumen in certain markets during ICOPAL GROSS PROFIT IN MEUR ICOPAL GROSS PROFIT IN PCT. OF REVENUE % % 24.0% 23.0% % Excluding impairment Excluding impairment FIXED EXPENSES Fixed expenses comprise selling, distribution, administrative and R&D expenses. Contrary to previous years, the Group invested more in resources particularly on the back of the good market and company developments in the first half of Fixed expenses totalled MEUR in 2014 (MEUR in 2013) or 20.6% of revenue (19.8% in 2013). This represents an increase of MEUR 8.2 or 4.0% compared to MEUR 4.5 of the increase stems from the acquisitions of Sealoflex and MWK. With regards to R&D, the Group capitalises a portion of these expenses in cases where projects are expected to enhance the Group s future earnings and cash flow generation and fulfil the requirements of IAS 38. The addition of the capitalised amounts to the expensed amounts results in 0.8% of revenue (on par with 2013) being spent on R&D activities. FIXED EXPENSES IN MEUR FIXED EXPENSES IN PCT. OF REVENUE 22.0% 21.0% 20.0% 19.0% 18.0% 17.0% % OPERATING PROFIT AND EBITDA BEFORE SPECIAL ITEMS Operating profit before special items decreased from the previous year and ended at MEUR 57.1 (MEUR 58.9 in 2013). This development was the consequence of a flat revenue development and a moderately increasing gross profit margin ratio that was countered by increasing fixed expenses. 15

18 Excluding impairment charges in both years, operating profit before special items stayed on par with previous year at MEUR 59.2 (2013: MEUR 59.2). Total depreciation and amortisation increased from MEUR 31.6 in 2013 to MEUR 35.1 in 2014 mainly driven by a higher cost base due to increased capital expenditures throughout the last years and an impairment of fixed assets of MEUR 2.1 due to the closure of the Slovakian bitumen line. EBITDA before special items increased by MEUR 1.7 from MEUR 90.5 in 2013 to MEUR 92.2 in In constant currency, EBITDA improved by MEUR 2.5. Approximately half of the improvement stems from the acquired businesses (Sealoflex and MWK). The final EBITDA is slightly short of the bottom of the communicated EBITDA expectation of MEUR as communicated in the 2013 annual report. The major reason for this development was the lower-than-expected revenue combined with rising fixed expenses. ICOPAL EBITDA BEFORE SPECIAL ITEMS IN MEUR ICOPAL EBITDA BEFORE SPECIAL ITEMS IN PCT. OF REVENUE % 9.0% 8.5% 8.0% % SPECIAL ITEMS Contrary to previous years, special items declined to a very low level of MEUR 0.1 (income) in 2014 from MEUR 17.2 (expense) in The costs in 2014 can be ascribed to the three factory closures in Fjellhamar (Norway), Rheinsheim (Germany) and Štúrovo (Slovakia). Most of the costs related to Štúrovo as significant closure costs related to Fjellhamar and Rheinsheim affected the 2013 accounts. These costs were compensated by a reversal of an immaterial accounting mistake from 2012, resulting in an income of MEUR 2.0 included under other non-recurring items. SPECIAL ITEMS (TEUR) Operational restructuring activities (1,048) (10,742) Financial restructuring activities (150) - Net gain from divestments of enterprises and property (34) (153) Other non-recurring items 1,340 (6,291) TOTAL 108 (17,186) FINANCIAL INCOME AND FINANCIAL EXPENSES Net financial expenses decreased from MEUR 39.6 in 2013 to MEUR 37.4 in 2014 or a reduction of MEUR 2.2. The two main reasons for this development were lower base rates (excluding the margin paid to financial institutions) and positive effects from currency translation adjustments. ICOPAL NET FINANCIAL EXPENSES IN MEUR (10) (20) (30) (40) (50) (60) 16

19 NET PROFIT FOR THE YEAR Net profit for the year 2014 ended at MEUR 4.4, which was a marked improvement on 2013 which ended at MEUR This development occurred despite a flat operating profit before special items. The main deviations compared to 2013 were significantly improved special items of MEUR 17.3, better net financial expenses of MEUR 2.2, which was partly countered by an increase in tax on profit of MEUR 5.5. ICOPAL NET PROFIT/LOSS IN MEUR (5) (10) (15) DISTRIBUTION OF NET PROFIT FOR THE YEAR The Board of Directors will make a recommendation to the Annual General Meeting to transfer net profit for the year to retained earnings. DEVELOPMENTS IN MAJOR BALANCE SHEET ITEMS IN THE 2014 FINANCIAL YEAR INTANGIBLE AND TANGIBLE FIXED ASSETS Intangible fixed assets were very stable and increased slightly from MEUR in 2013 to MEUR in No major acquisitions or impairments of Group goodwill were the reasons for this development. Tangible fixed assets increased from MEUR in 2013 to MEUR in 2014 driven by slightly higher CAPEX levels and two acquisitions (Sealoflex and MWK) in INVENTORY, TRADE RECEIVABLES AND TRADE PAYABLES Again, the Group continued the successful net working capital optimisation process. Trade net working capital decreased from MEUR (15.3% of revenue) in 2013 to MEUR (14.5% of revenue) in 2014 or a reduction of MEUR 8.4. Trade net working capital days showed a similar trend as they went from 73.2 days in 2013 to 68.9 days in 2014, which is an all-time low. In addition, to specific actions the slight reduction in raw material pricing also supported this development. This trend is expected to continue in 2015 with a continued focus on all three working capital elements. WC COMPONENTS IN DAYS (BUDGET RATES) NWC IN DAYS (BUDGET RATES) Inventory Days (left axis) Creditor Days (left axis) Debtors Days (right axis) CASH AND CASH EQUIVALENTS Cash and cash equivalents fell from MEUR 52.2 in 2013 to MEUR 36.4 in 2014, which represents a decrease of MEUR The available liquidity graph for the period from 2009 to 2014 shows strong available liquidity (cash and cash equivalents and drawing rights on available debt facilities) with highly seasonal development during the year. The available liquidity level was achieved despite scheduled debt repayments of MEUR 20.2 during

20 AVAILABLE LIQUIDITY IN MEUR EQUITY Despite a positive net profit for the year, equity decreased from MEUR (24.2% of total equity and liabilities) in 2013 to MEUR (23.1% of total equity and liabilities) in This development was driven by the other comprehensive income of MEUR mainly due to adverse developments in foreign exchange rates related to the net investment hedges and actuarial losses from defined benefit obligation plans. EQUITY IN MEUR EQUITY RATIO % 25% 20% 15% 10% 5% % INTEREST-BEARING BORROWINGS Interest-bearing borrowings increased from MEUR in 2013 to MEUR in 2014 or an increase of MEUR 6.5. After the deduction of cash and cash equivalents, net interest-bearing borrowings increased from MEUR in 2013 to MEUR in 2014 or an increase of MEUR The three main drivers of the development were (i) the negative free cash flow of MEUR 4.2 related to acquisitions and increasing CAPEX levels, (ii) an adverse currency development increasing the debt facilities by MEUR 9.7, (iii) and interest accruals on the Second Lien and Mezzanine The graph below shows monthly developments in net interest-bearing borrowings since the beginning of 2010 and includes the market value of treasury instruments and net debt from discontinued activities. The numbers above exclude these elements. NET INTEREST-BEARING BORROWINGS IN MEUR* *incuding market value of derivative financial instruments 18

21 CASH FLOW DEVELOPMENT DURING THE 2014 FINANCIAL YEAR CASH FLOW FROM OPERATING ACTIVITIES Cash flow from operating activities before discontinued activities (mainly the former divested and closed-down metal installation entities) improved by MEUR 7.9 from MEUR 35.7 in 2013 to MEUR 43.6 in The main elements of this increase were related to the slightly improved EBITDA (2014: MEUR 92.2, 2013: 90.5), positive working capital development (MEUR 3.8) and lower cash net interest payments (MEUR 27.7). Tax payments on the other hand developed negatively by MEUR 3.2. In spite of the tax assets in the Group the negative development was underpinned by an increasing number of tax rule changes that make the utilisation of tax assets more difficult. CASH FLOW FROM OPERATING ACTIVITIES IN MEUR CASH FLOW FROM OPERATING ACTIVITIES IN PCT. OF REVENUE % 5.0% 4.0% 3.0% 2.0% 1.0% % CASH FLOW FROM INVESTING ACTIVITIES Cash flow from investing activities developed adversely from MEUR in 2013 to MEUR in 2014 or a decrease of MEUR There are three main reasons for this negative development: A sale of a property in Norway in 2013 for MEUR 9.5 was not repeated in 2014 The Group acquired two businesses (Sealoflex and MWK) in 2014 at a price of MEUR 6.6 whereas 2013 was a year without acquisitions CAPEX in tangible and intangible assets was up by MEUR 4.5 higher in CAPEX as a percentage of revenue increased from 3.4% in 2013 to 3.9% in 2014 mainly due to investments made in Groningen (the Netherlands) and Petushki (Russia). CAPEX IN MEUR CAPEX IN PCT. OF REVENUE % % 3.0% 2.5% %

22 FREE CASH FLOW Despite a positive development in cash flow from operating activities of MEUR 7.9, the free cash flow ended at MEUR -4.2 (2013: MEUR 12.8) or a change of MEUR The difference can be fully explained by the absence of Norwegian property sales and the acquisitions as described in the section on cash flow from investing activities. In addition, cash flow from discontinued activities also contributed negatively to the year with MEUR 3.3. FREE CASH FLOW IN MEUR FREE CASH FLOW IN PCT. OF REVENUE % 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% -1.0% -2.0% OUTLOOK FOR THE FINANCIAL YEAR 2015 Despite the challenging conditions experienced in the European building materials market in the second half of 2014, management believes that European markets overall will display modest growth in 2015, while the US market will continue to enjoy more favourable momentum. As a result, the Group expects slightly higher revenues in 2015 compared to The Group expects improving gross profit margins through a combination of formula optimization, better procurement, full-year effects of structural changes to the factory network and declining raw material prices. Following an expansion of the fixed cost base in 2014, management expects this cost base to remain relatively stable in 2015, supported by proactive measures implemented over the period including factory closures and the establishment of shared service centers. Management therefore expects an improvement in EBITDA before special items in 2015 to a level at or slightly above MEUR 95, subject to macro-economic and market conditions. As in previous years, a focal point for 2015 will be the protection of the Group s cash position. Expected improvements in operating performance, combined with the absence of debt maturing in 2015 and disciplined net working capital management are expected to support this objective. SIGNIFICANT EVENTS AFTER 31 DECEMBER 2014 No significant events occurred after the closing of the financial year that would have a material impact on the consolidated financial statements for

23 Regional Financial Review FINANCIAL REVIEW OF THE REGIONS Icopal has grouped its business units into six regions (operational segments) using business culture, size and internal synergy potentials as the classification criteria. The most important structural changes during 2014 in the regions can be summarised as follows: Acquisition of Sealoflex (liquid applied waterproofing) with one factory in Region North America Acquisition of MWK (synthetic membranes) with one factory in Region Europe Central Final closure of the Norwegian bitumen and plastics factory and relocation of production within Region Europe North (i.e. Sweden (bitumen) and Denmark (gutter line) and to Region Europe West (i.e. France (foundation panel line)) Closure of one German bitumen factory and relocation of part of the production to Region Europe West Closure of the Slovakian bitumen factory and relocation of production within Region Europe East All graphs and developments in this section are presented in constant currency. Revenue is presented in actual rates and including intercompany revenue. The numbers of factories presented are based on production locations. All indices, presented in this section compare 2014 figures with 2013 figures in constant currency. REGION Europe North Europe West Europe Central Europe East North America Plastic and Metal REVENUE (MEUR) BUSINESS UNITS EMPLOYEES (FTE) FACTORIES , REVENUE DEVELOPMENT PER REGION IN MEUR Region Europe North (REN) Region Europe West (REW) Region Europe Central (REC) Region Europe East (REE) Region North America (REA) Region Plastic and Metal (RPM) 21

24 BUSINESS UNIT MANAGERS Søren Drewsen Bengt Widstrand Håkan Magnusson Harri Vuoritsalo Denmark Sweden Norway Finland and Baltics N Sales Office(s) Q Bitumen Based Manufacturing Q Others Region Europe North REGION EUROPE NORTH IS THE LARGEST ICOPAL REGION AND INCLUDES PRODUCTION AND SALES ACTIVITIES IN NORWAY, SWEDEN, DENMARK, FINLAND, ICELAND AND THE BALTIC STATES. Icopal also operates a roofing installation services business in this region, which is a major distribution channel for the region s roofing-related materials. In addition to the core brand Icopal, the Group also sells under the brands Decra (steel roof tiles), Monarflex (under-roofs, tarpaulins and scaffold sheeting), Wijo (metal gutters) and Fastlock (plastic roof panels) as well as Brave, Svita, Optilite and Everlite (skylights and smoke ventilation). Revenue recorded by Region Europe North amounted to MEUR in 2014 (25.7 % of Group revenue including intercompany sales), which represents an increase of 3.2% in constant currency. Revenue is generated in three main sales channels: wholesale, external roofing installation companies and Icopal s own roofing installation business. This region recorded year-onyear volume growth due to the mild winter in the first quarter of 2014 and slightly improved underlying business climate. Good progress in implementation of sales initiatives contributed to higher volumes. The product mix continued to improve and modest reductions in raw material prices protected the margins in the region s four main countries. 22

25 Installation services enjoyed the good start of the year, but rainy weather led to a loss of some momentum as the year-end approached. The order pipeline was still solid at year-end, however, which gives some comfort for the coming quarters. In spite of continued excess market capacity with fierce competition, margins were stable. In view of the market conditions, the installation services business in all four main countries delivered acceptable profit ratios. The positive volume development was able to offset negative effects of the development in exchange rates in Sweden and Norway. Three out of the four main countries were able to report sales growth (in constant currency). The building sectors in Norway, Sweden and Denmark showed moderate positive signs, whereas the Finnish economy continues to suffer significantly resulting in a decline of the building activity. In general, the new building activity is still at a low level in Denmark and Finland, whereas Sweden and Norway have a higher underlying demand especially in the residential segment. Public projects and infrastructure projects maintained a positive level and trend in several of the markets. Innovation is a key priority in the region. The level of new product introductions is satisfactory and new products (less than five years old) account for more than 13.1% of total revenue. Environmental products represent a major part of the innovation efforts and in 2014 accounted for 2.3% (2.5% in 2013) of total flat roofing sales in the region. Product supplies to Norway from the neighbouring countries performed well after the decision to close the factory in Fjellhamar. Icopal Norway continues to operate with production facilities in Rogne (slate mine), Egersund (chimney pipes) and Røyken (skylights and smoke ventilation systems). The new investments in the Ikast and Malmö factories were implemented according to plan and they are already delivering innovative products and additional efficiency improvements. The foundation for cross-border regional shared services within finance, IT infrastructure and support was also established satisfactorily with Sweden and Denmark targeting migration to the same platform in early New products and concepts for the skylights and smoke ventilation businesses fuelled sales, in particular to the wholesale market where skylight packages for the Do It Yourself markets were launched with success. Larger installation projects were processed in time and on the back of the positive response from the market, Icopal is confident that similar projects are likely to be booked in future years. In 2014, Icopal acquired a 49% stake in STS Støvring (roofing installation services) in Northwest Denmark, with the aim of reinforcing its market position. Health and safety performance improved during the year. Intensive training programmes have led to a reduction in lost time accidents and further investments in health and fire equipment have reduced personnel and business risks. The outlook for 2015 for the region continues to be moderately positive. The business trends are negative for Finland, which continues to be affected by recessionary pressures. Denmark is slowly moving to a positive growth scenario, and the outlook is therefore flattish. Both Norway and Sweden have delivered relatively decent growth rates, which seem to continue. Over the coming years, we also expect growth in both countries with the Norwegian economy potentially negatively impacted by the trend in oil prices. In spite of the uncertain political climate in the neighbouring countries, the Baltic region seems to be facing a more positive business outlook. Icopal expects to outperform the market still further by continuously focusing on new products and services. Consequently, earnings are expected to improve during 2015 for the region as a whole. PRODUCT GROUP REVENUE (INDEX) REVENUE SPLIT Other Products Civil Engineering Flat Roofing Building Envelope Pitched Roofing Installation Services Flat Roofing (33%) Pitched Roofing (17%) Building Envelope (13%) Civil Engineering (2%) Other Products (3%) Installation Services (32%)

26 BUSINESS UNIT MANAGERS Herman C. Schütte Matthew Scoffield Christian Gagné Benelux United Kingdom and Ireland France and Southern Europe N Sales Office(s) Q Bitumen Based Manufacturing Q Others Region Europe West REGION EUROPE WEST, WHICH IS THE SECOND LARGEST REGION IN ICOPAL, INCLUDES PRODUCTION AND SALES ACTIVITIES IN BELGIUM, LUXEMBOURG, FRANCE, IRELAND, ITALY, THE NETHERLANDS, SPAIN AND UNITED KINGDOM. Icopal also exports products from France and the Netherlands to a number of countries within Icopal Group but also elsewhere in the world with focus on the Middle East, Africa and South America. The key products in Region Europe West include roofing, waterproofing and civil engineering products. In addition to the use of the Icopal brand, Siplast in France and Esha in the Netherlands as well as Monarflex and Decra are important brands used throughout the region. The markets in Region Europe West had varied outcomes in 2014 with healthy growth in the UK construction market mainly led by the residential new-build sector, a decrease in the French market growth in general and a stable market situation in the Netherlands. Spain showed some signs of recovery while Italy remained structurally weak. 24

27 Revenue in Region Europe West amounted to MEUR in 2014 (23.9% of Group revenue including intercompany sales), which corresponds to an increase of 2.1% in constant currency. The growth is mainly attributable to (i) the sales to Vedag (Germany) by the factory in Groningen (the Netherlands), following the closure of the German plant in Rheinsheim, (ii) healthy growth in the UK market and (iii) the acquisition of Sealoflex in the UK. The negative sales effects such as the decline in the French distribution channel and the Dutch road activity were compensated for by a number of sales initiatives in the region with particular focus on synthetics and liquid applied waterproofing products. New product introductions (products less than five years old) accounted for 7.7% of total revenue. Environmental products accounted for 5.5% (4.9% in 2013) of total flat roofing sales in the region. Several improvements and investments were completed across the region in Main projects centred on line upgrades in all three business units: (i) an upgrade of the bitumen line in the UK with the aim to improve efficiency, (ii) a major upgrade to a Dutch line to be able to supply Vedag (Germany) with products following the closure of the Rheinsheim factory (Germany) and (iii) moving the synthetic foundation panel line from Norway to Mondoubleau (France). The market for building materials is expected to improve in 2015 in the countries of the region with the strongest acceleration coming from UK, while France and the Benelux countries are assumed to improve at a modest pace. In addition, an increase in revenue is forecasted for the region driven by a number of local initiatives such as launching the Silver range in France with an extended guarantee period, the recovery in the UK in relation to specific key account customers and the full-year effect from the transfer of German volumes to the factory in the Netherlands. The various tenders planned in the region, in the areas of transportation and reinforcement, but also the investment in a new mixing unit in the French plant of Mondoubleau will support the improvements of earnings in PRODUCT GROUP REVENUE (INDEX) REVENUE SPLIT Other Products Flat Roofing Building Envelope Pitched Roofing Civil Engineering Installation Services Flat Roofing (68%) Pitched Roofing (4%) Building Envelope (14%) Civil Engineering (13%) Other Products (1%)

28 BUSINESS UNIT MANAGERS Ole Rosgaard Markus Kircher Günther Reese Otto Lauritsch Vedag Germany Icopal Germany Wolfin Germany Austria and former Yugoslavia N Sales Office(s) Q Bitumen Based Manufacturing Q Others Region Europe Central REGION EUROPE CENTRAL IS THE THIRD LARGEST REGION IN ICOPAL AND INCLUDES THE GROUP S PRODUCTION AND SALES ACTIVITIES IN AUSTRIA, SWITZERLAND, GERMANY AND THE FORMER YUGOSLAVIA. The Group sells its products under four brand names in Region Europe Central: (i) Icopal, (ii) Vedag (iii) Wolfin in Germany and (iv) Villas and Icopal in Austria and the former Yugoslavia. A few sub-brands are also marketed, such as Decra (steel roof tiles) and Fastlock (plastic roof panels). Revenue in Region Europe Central amounted to MEUR in 2014 (22.6 % of Group revenue including intercompany sales), corresponding to 0.2% growth in constant currency. Demand within the flat roofing market was strong in the first part of 2014 due to the favorable winter. During the year, this high level of activity dropped and normalised during the sub sequent quarters. Wolfin (Germany) and Villas Austria (Austria) continued growing market shares and delivered positive revenue growth in 2014 while Icopal (Germany) stayed on par with their record year in Vedag (Germany) declined in revenue due 26

29 to a strong reduction in market prices in the standard segment in Germany, a delay in the planned closing of the Rheins heim (Germany) production line, and start-up problems related to the upgraded production lines in Bamberg (Germany) and Groningen (the Netherlands). New product introductions (products less than five years old) are important and account for 11.1% of total revenue. Environmental products represent a major part of the innovation efforts and in 2014 accounted for 7.8% (6.9% in 2013) of total flat roofing sales in the region. Significant restructuring work has taken place in the region, and the regional management began realising synergies between the regional business units and optimising the regional manufacturing network. This includes maximising the value of the new high-tech Vedag factory in Bamberg (Germany), which is one of the largest and most modern bitumen membranes factories in Europe. The entire region has begun operating under a shared management structure, and the preparations to operate shared services (Finance, Procurement, HR and Legal) have been concluded, with the region commencing the use of its shared service centre in The region, with Germany being the largest single market in the Icopal Group, operates in the market with four separate brands and sales organisations (front offices). The brands have been aligned to complement each other within the market segments to maximise market penetration and customer service. From an investment and restructuring perspective, two projects impacted the year. Firstly, the closure of the bitumen membrane production in Rheinsheim (Germany) during the first half of The production volumes from the Rheinsheim plant in Germany moved to Bamberg (Germany) and to the upgraded Dutch production facility in Groningen, which is located close to the German border. Secondly, the stabilisation and efficiency improvements at the new Vedag production plant in Bamberg, where a number of investment projects were successfully completed in order to provide a significant reduction in operational variable costs. The market for building materials in the region is expected to be rather stable during 2015, but competition for market shares is expected to increase due to competitors adding further production capacity to the market. There are clear expectations of the ability to regain market shares particularly in Vedag (Germany). This increase in market shares combined with new product introductions will provide a platform for further revenue and earnings growth for the region overall during PRODUCT GROUP REVENUE (INDEX) REVENUE SPLIT Civil Engineering Flat Roofing Pitched Roofing Building Envelope Other Products Installation Services Flat Roofing (65%) Pitched Roofing (3%) Building Envelope (10%) Civil Engineering (21%) Other Products (1%)

30 BUSINESS UNIT MANAGERS Przemyslaw Rasz Kirill Koudoyarov Norbert Ponyi Tomas Wachtl Poland, Romania, Bulgaria and Slovakia Russia Hungary Czech Republic N Sales Office(s) Q Bitumen Based Manufacturing Q Others Region Europe East ICOPAL S REGION EUROPE EAST INCLUDES PRODUCTION AND SALES ACTIVITIES IN POLAND, RUSSIA, SLOVAKIA, HUNGARY, THE CZECH REPUBLIC, ROMANIA AND BULGARIA, WITH EXPORTS TO UKRAINE & MOLDAVIA AND THE CIS COUNTRIES. Sales activities in the region for waterproofing material take place under three main brands Icopal, Vedag and Villas. In addition, smoke ventilation and skylights products are sold under the Icopal Awak brand name. Revenue in Region Europe East amounted to MEUR in 2014 (10.8% of Group revenue including intercompany sales), corresponding to a growth rate of 0.9% in constant currency. Demand within the flat roofing market and civil works was strong in the first half of the year, due to the mild and short winter. Second-half 2014 experienced a weakening as the construction business sentiment in Poland, the Czech Republic, Slovakia and Hungary slowed down and political sanctions against Russia negatively impacted demand for Icopal products in Russia, Ukraine and CIS countries, as well as Eastern Europe countries exports. Overcapacity remains a challenge throughout the region and Russian imports, due to the weak rouble, exert pressure on prices and margins. 28

31 New product introductions (including products that are less than five years old) are important and accounted for 34.5% of total revenue. Environmental products have historically been less important in Region Europe East compared to other regions and in 2014 accounted for 1.8% (1.2% in 2013) of total flat roofing sales in the region. In order to increase the presence in the fastest developing flat roofing segment Synthetic membranes several initiatives within the region were launched and volumes increased significantly (30.8%). The ambition within synthetics is to obtain a market share of more than 10% and become a top three supplier by the end of The Region also continued efforts to establish a leading position within green roofs, with especially strong progress in Poland, but also some improvement in other countries, which represent a solid platform for a increase in the share of revenue from environmental products over the coming years. Region Europe East continued to invest in Russia in 2014 with a MEUR 1 production facility for solvent-based bitumen liquids being completed in the first half of the year. Further investments in Russia have been set in motion but the growing political turmoil around Ukraine/Russia has led to a decision to postpone these projects. Due to existing overcapacity in the region it was decided to close the Štúrovo (Slovakia) bitumen membrane factory in the fourth quarter of Existing production volumes from Štúrovo were distributed between three other Group factories in Hungary, Czech Republic and Poland. In Štúrovo the Group continues to manufacture synthetic membranes for flat and pitched roofs as well as building envelope products. Another priority of Region Europe East was the continued focus on growing high-end products and introducing new products in the market such as: Speed Profile SBS technology (mini-grooves allowing easier and faster membrane application) Speed Syntan SBS technology (ventilated heat-activated membranes) Synthetic membranes (light and easy to apply) Accessories for flat roofs Icopal Rolled Tiles 3D/Do It Yourself 3D membranes Green roofs systems and anti-root membranes Bitumen membranes and liquids dedicated for engineering and underground applications Chimney, skylights and smoke ventilation sales in new parts of the region The market for building materials in Region Europe East as a whole is expected to generate growth during With (i) expected market share gains and (ii) the expansion of the share of high-end products, the region is expected to increase revenue and earnings in At the same time, the political risks related to the instability around Russia/Ukraine may potentially have an adverse effect on the development of the region. PRODUCT GROUP REVENUE (INDEX) REVENUE SPLIT Civil Engineering Flat Roofing Building Envelope Pitched Roofing Other Products Installation Services Flat Roofing (74%) Pitched Roofing (13%) Building Envelope (5%) Civil Engineering (7%) Other Products (1%)

32 BUSINESS UNIT MANAGER Jim Mollenhoff US and Canada N Sales Office(s) Q Bitumen Based Manufacturing Q Others Region North America REGION NORTH AMERICA INCLUDES PRODUCTION AND SALES ACTIVITIES PREDOMINANTLY IN THE UNITED STATES, WITH SALES REPRESENTATION ACROSS THE COUNTRY AND THREE MANUFACTURING FACILITIES. Additionally, Region North America markets its products in Canada, the Caribbean and to a limited extent in Mexico. Sales activities are conducted under the Siplast and Sealoflex brand names. Also two other brand names, Monarflex and Tradesman, represent a small share of the business. Revenue in Region North America amounted to MEUR 93.4 in 2014 (8.3% of Group revenue including intercompany sales) which corresponds to a growth rate of 5.1% in constant currency. This development was impacted by an unusually harsh winter, which postponed many projects to later in the year and beyond. Revenue in the core bitumen membrane category dipped slightly (5.7%) based on both the winter effect and a short-term but pronounced weakness in eastern Canada. Related insulation sales (a commercial product) declined at a greater rate than core membranes due to a weakness in single-source 30

33 demand. The company s core liquid waterproofing product group showed a great strength within this fast-growing segment of the North American market. The region s sales of this product group increased at a rate of 41.2% through both strong organic growth of their existing liquid resin business and the impact of the Sealoflex acquisition early in the year. The company is engaged in ongoing initiatives that will allow it to benefit from the economic turnaround going forward. These initiatives are focused on several key objectives: (i) expanding the customer base of design professionals and building owners (with emphasis on the liquid resin products), (ii) continuing the company s successful differentiation strategy by enhancing existing products (with innovations such as Eco-Activ and RoofTag RFID chips), and (iii) expanding the growing liquid resin product offering by introducing new products into the current exterior waterproofing line and broadening the line to include products for new interior applications. New product introductions (products less than five years old) are important and account for 5.3% of total revenue. Environmental products represent a major part of the innovation efforts and in 2014 accounted for 7.8% (8.3% in 2013) of total flat roofing sales in the region. Overall economic growth is expected to further accelerate in The housing recovery, although more subdued than in past recoveries, has again paved the way to a construction recovery, with commercial and industrial showing a resurgence in the second half of 2014 and institutional construction projected for growth in Architectural activity, a leading indicator for the construction segment, after weakening in the first half of 2014, showed continuing growth through the second half of the year, further bolstering expectations. New construction led the way in Renovation, the largest segment of low slope roofing opportunity and the primary market for Region North America, is projected to engage more strongly in Overall the region is expected to post a substantial increase in both sales and earnings in PRODUCT GROUP REVENUE (INDEX) REVENUE SPLIT Civil Engineering Flat Roofing Other Products Building Envelope Installation Services Pitched Roofing Flat Roofing (97%) Building Envelope (1%) Civil Engineering (1%) Other Products (1%)

34 BUSINESS UNIT MANAGERS Janus Pagh Bob Abildgaard-Jørgensen Mikael Pettersson Miroslav Petrech Icopal Synthetic Membranes Decra Wijo Monarflex N Sales Office(s) Q Bitumen Based Manufacturing Q Others Region Plastic & Metal REGION PLASTIC AND METAL (RPM) WAS FORMED IN MARCH 2013, AND THEREFORE CONTINUES TO BE A RELATIVELY NEW REGION WITHIN THE ICOPAL GROUP. The region encompasses the main metal and plastic business activities of Icopal, and specifically covering the business units Monarflex (building envelope membranes), Icopal Synthetic Membranes (flat roofing membranes), Decra (steel roof tiles for pitched roofs) and Wijo (metal gutters for pitched roofs). The region achieved its objectives for 2014 which were (i) to grow the overall regional sales and EBITDA, (ii) to support the SBUs and customers both commercially and technically, and (iii) to launch new products and build a pipeline of innovations for the coming years. Region Plastic & Metal reached a total revenue of MEUR 96.7 (8.6% of Group revenue including intercompany sales) which corresponds to a growth rate of 26.9% in constant currency. 68.9% of total revenue is comprised of sales to sister companies in the Group. 32

35 Decra is a high-quality producer of pressed steel tiles used mainly in the residential roofing market. In 2014 Decra achieved reasonable revenue growth of 3.8% predominantly driven via internal sales to sister companies in Icopal. The positive trend in revenue, underpinned by continued strict cost control improved EBITDA in In particular, sales to Denmark, Poland, Romania and Russia developed above expectations, whereas the Central European markets remained soft due to the unfavourable economic climate. During 2014 Decra has launched the new designer tile named Quadro by Icopal in most core countries. The sales of Quadro by Icopal significantly exceeded 2014 expectations, and the outlook for 2015 is very bright. The Quadro by Icopal brings a contemporary and aesthetically unique look to the steel tile market, which has been positively received by the market. Wijo is a producer of high-quality pre-painted steel drainage/gutter systems. Main markets are Region Europe North, with some sales to Poland and Russia. Revenue in 2014 was down by 8.2%. The main reasons for this decline are (i) a continued soft Swedish home market, (ii) a change in the market structure with SSAB s acquisition of Ruukki and (iii) increased competition causing revenue and margin pressure. A reinforced commercial team has been put in place in 2014 ensuring a stronger market presence going forward. New customers have been attracted in Sweden and the United Kingdom. Opportunities for growth are also being pursued in Norway, Finland and Denmark. New flashing and steel profiling lines have been installed, and insourcing of products as well as new business opportunities will be explored during 2015 across the Group. Monarflex produces and sells a wide range of high-quality PE-based and reinforced building membranes for scaffold sheeting, under-roofs, below ground and tarpaulins. Monarflex sales developed very positively during 2014 with revenue increasing by 10.8%. This growth was driven by the direct export sales (not via sister companies) at a growth rate of 26.7%. From a product perspective, the core business of Monarflex (scaffold sheeting business) has increased by 20%, and the radon and gas membrane segment by 40%. Aside from the products introduced already during 2013, additional new products and upgrades were launched in The implementation of these new products in more new markets will continue well into Finally, the commercial and technical teams are cooperating closely with the different Icopal business units aiming at introducing new products and applications. Icopal Synthetic Membranes recorded revenue growth of 78.4%. Volumes increased by 28% (adjusted for acquisition volumes), representing a total estimated European market share of approx. 9%. This growth has been driven by specifically addressing the main application segments and roofing contractors of synthetics as well as existing bitumen customers who have sought to complement their business with synthetic applications. This growth has been further increased by offering a high-quality product at competitive prices in combination with a high service level and support from Icopal. Hence, the market and business synergies with the bitumen business have been utilised in full. Several new products have been launched, including lacquering and coloured membranes, but most importantly a full FPO range of products under the name Monarfin. The integration of MWK (IKV) has developed according to the plan, with a positive impact on the realised sales and EBITDA performance. The European markets for RPM products will be stable or slightly increasing during Together with the continued market focus and introduction of new products/solutions the positive performance of RPM is expected to continue in 2015 with growth in revenues and earnings. PRODUCT GROUP REVENUE (INDEX) REVENUE SPLIT Other Products Flat Roofing Civil Engineering Building Envelope Pitched Roofing Installation Services Flat Roofing (44%) Pitched Roofing (41%) Building Envelope (14%) Other Products (1%) Civil Engineering (0%)

36 Group Functions ICOPAL S GLOBAL HEADQUARTERS ARE LOCATED IN HERLEV, DENMARK (A SUBURB OF COPENHAGEN), BUT SEVERAL GROUP FUNCTIONS ARE PLACED IN OTHER EUROPEAN COUNTRIES SUCH AS FRANCE, THE NETHERLANDS AND GERMANY. Group functions cover the following departments: Group Marketing and Product Management (Denmark) Group R&D (Denmark, France, the Netherlands and Germany) Group Technology (France and Denmark) (engineering) Group Operations (Denmark, United Kingdom and Poland) (includes factory optimisation and health & safety) Group Procurement (Denmark, France and Germany) Group Corporate Development (Denmark) (M&A and strategy) Group IT (Denmark) Group Finance (Denmark) Group HR & Legal (Denmark) The Icopal Group functions employed 60 full-time employees (FTEs) in 2014, corresponding to 1.7% of the total Group workforce. The back office-related functions (Management, IT, Finance and HR/Legal) employed 12 FTEs in 2014, while the remaining 48 FTEs were employed in other areas. The five headquarters functions possessing the most in-depth product and process knowledge and having the greatest impact on earnings are: (i) Group Marketing and Product Management, (ii) Group R&D, (iii) Group Technology, (iv) Group Operations and (v) Group Procurement. The main focal points for these departments during 2014 are described on the following pages. 34

37 MARKETING AND PRODUCT MANAGEMENT The Group Marketing and Product Management department is responsible for coordinating commercial activities, supporting local marketing activities and providing central marketing tools to facilitate the realisation of large-scale synergies and best-practice sharing. This department is also responsible for managing the Group s product portfolio and supporting the business units in cross-selling Icopal s products. Another important responsibility is to support and reproduce the most successful strategic growth initiatives. COMMERCIAL EXCELLENCE A Commercial Excellence project was further developed and rolled out during Icopal already has a strong sales and marketing organisation with approximately 800 sales specialists, marketing professionals, product managers and application technicians. The project strives to increase output still further and improve the commercial excellence in our teams through a systematic approach in our different go-to-market models. The rollout will continue during 2015 and includes a Group CRM system to support the activities in the commercial excellence project. CUSTOMER SATISFACTION Icopal strives to develop strong and long-lasting customer relationships. In the annual survey 2014, close to 2,400 customers participated. The NPS (Net Promoter Score) is at a very satisfactory level of 45%. The target for the future is at a minimum to maintain this level. STRONG PRODUCT PORTFOLIO The Group has a line of very strong products to support its mission to be the World Reference in Waterproofing Technology. The focus of Icopal products is the protection of buildings from basement to roof and the waterproofing of structures in all shapes and sizes. These products range from bitumen membranes, synthetic membranes and liquid applied membranes for flat roofs to building membranes applied on foundations and within walls, bitumen shingles, steel roof tiles and metal and plastic gutters. A very important growth driver is the development of new products with enhanced features in order to optimise quality and efficiency in the application. This process is driven by both Group Product Management and Group R&D. Icopal continued to accelerate many innovation projects in A description of the main development areas is provided below. GREEN ROOFING AND ENVIRONMENTAL SOLUTIONS One of the most important market trends is the growing interest in environment-friendly building materials. The Icopal brand is increasingly associated with environmental and green solutions for roofing and waterproofing. Despite challenging market conditions, this positive development continued in 2014 with the Icopal Eco Activ range of environmental products. The product line includes: Noxite bitumen membranes, IcoSun photovoltaic panels and accessories, Icopal Green roofs 35

38 and water management systems to reduce the impact of rainfall in urban areas. On the raw materials side, Icopal has in the past developed BiELSo, a unique process that enables the recycling of bitumen membranes from old roofs. The latest developments include the unique Solvent Free Technology (SFT) range with flashing products that are expected to contribute to growth in this segment. The solvent-free product line was further expanded through the acquisition of Sealoflex which held innovative products in the liquid applied waterproofing range. During 2014, the most promising product, Enduroflex was prepared for the European market and it is expected to gain considerable market share during 2015 and In 2014 environmental products accounted for 5.3% (2013: 4.9 %) of total flat roofing sales in the Group. The environmental product range grew by 8.9% which should be compared to the growth of the flat roofing segment in total of 1.9%. This attests to the higher-than-average growth within this product segment. ENVIRONMENTAL PRODUCTS DEVELOPMENT IN PCT. OF REVENUE 5.5% 5.0% 4.5% 4.0% MULTI MATERIALS FOR FLAT ROOFS Icopal is accelerating the rate of strategic change to become a multi-material waterproofing supplier. Considerable efforts have been undertaken to develop the product range within Synthetic membranes and liquid applied waterproofing. In synthetics, we have launched new features such as lacquering and launched a FPO membrane. The acquisition of MWK has further enhanced our capabilities. In the liquid applied range, we have launched PMMA solutions for detailing in several new markets. Both Synthetics and Liquids grew over proportionally during 2014 and are expected to continue to do so in 2015 and beyond. BITUMEN MEMBRANE FEATURES Based on its wide-ranging product programme, unique product features, technical capabilities, extensive experience and innovative thinking, Icopal is in a position to provide optimal solutions to meet specific customer demands. New features are constantly being developed. In addition to environmental considerations, Icopal constantly focuses on making the installation process faster, easier and safer for roof installers. Recently launched features include slate-free end laps, new and improved self-adhesive capabilities and Firesmart membranes, Dog Ear cut (factory cut of the corner of the membrane), theft protection and Zip technology. BUILDING ENVELOPE New innovative solutions for building envelopes and building membranes are currently being developed. The trend towards increased insulation in residential buildings continues. The airtight house concept is developing continuously and Icopal has been investing in new technologies in order to be able to continue to supply the most advanced range of products. A new family of high-performance breather membranes was launched in This high-end range of underroof membranes is expected to make an important contribution to growth in 2015 and beyond. SYSTEM SALES AND EARLY INVOLVEMENT IN PROJECTS Many new initiatives have been introduced and reinforced to enhance Icopal s accessory lines. Icopal is increasingly focusing on systems rather than on individual products. This strategy is creating added security and value for end users as well as improving the Group s revenue and margins from accessories. Examples of new accessories include the T-fast console, a Velcro-based system that provides a cost-efficient solution for installing solar panels and other devices on roofs. Another 36

39 area of focus is liquids. Liquid products are often used in combination with membranes and offer excellent opportunities for increasing accessory sales. Several new liquid products were developed and launched in 2013 and Among others, the unique SFT, Solvent Free Technology range now includes a flashing version for details on the roof. Accessories represented approximately 7.7% of flat roofing sales in 2014 (8.0% in 2013) and management sees significant potential for strong growth in this product segment. ACCESSORIES REVENUE DEVELOPMENT (MEUR) GROUP R&D The Group s Research and Development team (Group R&D) is composed of a mixture of experienced and younger employees who are all highly skilled and accustomed to working at an international level. Group R&D covers all core activities of Icopal, including its traditional bitumen-based products, the growing segments of synthetic membranes and liquid applied waterproofing where a variety of new systems are designed for sealing roofs where polymerisation of a product on the roof is more practical than the application of finished membrane. Specialists from all these fields work in laboratories in Denmark, France, Germany, and the Netherlands, and have in common a general culture of waterproofing technology in order to fully understand market trends and specific customer needs. PRODUCT DEVELOPMENT Approximately one-third of Icopal s product development work is dedicated to priority projects, which are targeted to be implemented in the market within three years time. The Innovation Steering Committee reviews the pipeline on a regular basis. Those projects include new products or features, in general with high added value designed to satisfy the increasingly complex demands of environment-friendly chemistry. In addition, the range of products is increased by sophisticating the recipes, e.g. in the growing portfolio of Icopal s synthetic membranes. The formulation of PVC (plasticised by monomers or by polymers) but also of suitable TPO compounds, is tailored for all climatic regions where high durability of the membranes ensures water tightness even under extreme conditions. 37

40 The number of features of Icopal bitumen membranes increases as well; after the introduction of application-friendly end laps and several new self-adhesive membranes, in 2014 pre-punched side laps for mechanical fixation were launched in Scandinavia. As is the case with the growing business of synthetics, R&D puts a lot of efforts into the development and extension of Icopal s product range in Liquid Applied Waterproofing. In former years, Icopal introduced solvent-free liquid products for detailing and flashing. Since the beginning of the year, as a natural consequence of our search for environment-friendly products Icopal further developed its liquid range, in particular systems around an isocyanate-free, odourless, one-component moisture curing product of the highest standard produced at one of our factories in the USA. The product has found its first European customers in the UK and will be launched on the Continent next year. All those products and systems have no negative impact on health and the environment, which also means they do not carry any special label. LOCAL SUPPORT Another important element of the Group R&D work is to support local country developments. The market for construction materials is often governed by national rules and regulations, which must also be met by the Icopal products. Development is adapted at the local level, and the Group R&D team supports the business units in their work with scientific knowledge, physical and chemical property tests and sophisticated accelerated aging tests. For example, during the year Icopal used its calibrated wind lift-up test at the Kastrup facility for the development of new synthetic membranes designed for geographical areas exposed to high wind loads. PRODUCT OPTIMISATION The properties of products depend on the formula and their ingredients, and Group R&D focuses on optimising both in order to obtain the best results for our customers while complying with rules and laws and efficiently using the technology needed to make these products. Group R&D works closely together with the Group Technology team and thereby aim to achieve optimised production costs for the product formulae developed by the Group R&D team. Technology and patent monitoring represent the basics of each research and development activity. Icopal protects its inventions with international patents, which are established and filed in cooperation with international patent lawyers. The patent portfolio is administrated and aligned with the Group strategy. Every three months the Group R&D manager meets with the Group Executive Team, reviews the progress of the projects and receives feedback from the business units responsible for the launch of the new products. Together with Group Marketing, these projects are examined in accordance with the global market trends and the resulting needs as well as conformity with the Group s strategy. For the years ahead, the team will continue to devote efforts to the development of liquid applied waterproofing of roofs and terraces, will complete the product range and add further features to synthetic and bitumen membranes, all this in order to offer every business unit adequate systems. In addition, Icopal will intensify its investigations of new raw materials, especially those stemming from renewable sources. The ultimate aim of Group R&D is to be able to supply innovative and competitive solutions for every single market of Icopal. 38

41 GROUP OPERATIONS The Group Operations team consists of the Group Production Team (GPT), Group Technology and the Group Continous Improvement Team. In order to ensure consistency with the Group strategy, the focus of Group Operations was revised and new strategic choices and goals were defined in The customer is the focal point of these efforts and has the highest priority. This is supported by strategic targets for quality improvements and service level fulfilment. GROUP PRODUCTION TEAM Icopal s operational excellence strategy was developed by the Group Production Team (GPT). This team consists of the five European Regional Operations Directors, the Group Health and Safety Manager, the Group Technology Director and the Group Operations Director. During 2014 this highly qualified team focused on and set new standards and targets for safety improvement, fire prevention, material yield optimisation, clean and orderly plants and the competence and training of Icopal s plant operators. On top of these important key focus areas, the further development of the KPI and dashboard programme and the establishment of a Group wide skilled maintenance and installation team were achieved. CONTINUOUS IMPROVEMENT (CI) One very important pillar in Icopal s operational excellence strategy is the various continuous improvement programmes. itop (Icopal TOP performance) is one of them, which was established several years ago with the underlying idea to continuously improve and optimise processes and thereby reduce costs and mitigate inflationary pressure on the operating cost base without jeopardising quality, product performance and delivery service. The programme is organised in three work streams: (i) procurement, (ii) operations & logistics and (iii) product material and formula optimisation and ensures a continuous pipeline of quality enhancing and cost improving actions. The successful continuation of this programme will ensure Icopal s future competitiveness. Other key focus areas of the CI team are the training of the local production units in the field of CI and the implementation of CI projects like: goal-oriented management, visualisation in the factories and benchmarking. Trained in these areas and equipped with these skills Icopal s local operational teams are top class in the industry. GROUP TECHNOLOGY TEAM Highly skilled engineers located in France and Denmark are developing specially designed equipment for our mixing departments and membrane lines. The automation and process team is supporting the factories when starting up new lines and equipment. In very close cooperation with Group R&D, the Group Technology Team is also deeply involved in improving our existing products as well as developing new products and processes. This highly skilled team also made a significant contribution to product formula development and adjustments to Icopal equipment during SIGNIFICANT OPERATIONAL PROJECTS The decision was taken to optimise the Group s plant network in 2013 with the main target to improve the operational synergies and optimise the Group s logistics structure. The implementation of this key project for Icopal was one of the operational focus areas in The close-down of the Rheinsheim-based bitumen membrane production in Germany, the Fjellhammar plant in Norway and the Štúrovo bitumen membrane production in Slov aia were the main projects. Some of the Norwe- 39

42 gian machinery and all products had been transferred to France, Denmark and Sweden. In Germany the Bamberg factory had been fully ramped up and together with the Dutch plant in Groningen, these two plants now manufacture all the products for the German Vedag market. Factories in Poland, the Czech Republic and Hungary now supply the needed products to the Slovakian market. Another big achievement was the successful start-up of the Russian liquid bitumen and mastic production and the preparation of the plant for larger volumes in future. FIRE PREVENTION A Group-wide fire prevention program continues to operate under the title iprevent (Icopal fire prevention). This programme has centered on seven critical areas of the bitumen production process (process equipment, holding tanks, hot pipes, ventilation system, hooding process, materials and firefighting). Following work in 2014 with the Group insurers, electricity has been added to the critical areas for evaluation. A new specific pillar will be rolled out in 2015 to assess this in our sites. Basic minimum standards have been installed in bitumen membrane production units, by developing common systems and procedures along with minimum requirements for cleanliness, inspection and maintenance. Compliance with this programme was above 98% at the end of 2014 and conditions at factories have improved significantly along with an understanding of fire risk throughout the Group. A significant push ensured 100% compliance with all procedure- based requirements in 2014, with clear improvement plans in place for plants requiring further CAPEX investments to bring full compliance. WORK SAFETY Icopal continues to improve the work safety of all employees year on year since The number of lost time accidents decreased by another 10% at a current rate in 2014 of 12.4 LTA s (lost time accidents) per million man hours worked for all Group activities. Unfortunately, the overall Group target of 10 LTA s per million man hours worked was not reached, but the overall trend for both installation and production activities is positive. Improvements in hardware, systems and procedures continued. However, an analysis of the accident statistics shows that over 80% of LTA s are linked in some way to behaviour. As a result, an observational safety behaviour programme will be piloted at three plants in 2015, to impact on this area of accident causation. GROUP PROCUREMENT Group Procurement is responsible for managing total expenses of approximately MEUR 800 for materials and services. The key focus of this team is to manage the four key raw materials: bitumen, elastomers (SBS/SEBS/SIS), reinforcement and polymers (PVC/PE/APP). The scope of procurement also covers other raw materials, commercial goods, CAPEX and indirect spend categories; these expense categories are generally managed by the regions or local business units. Icopal s Procurement Management Team consists of Group Procurement and the five European Regional Procurement Directors, each of whom is responsible for a regional procurement team. This team focuses on securing multiple sourcing, 40

43 optimising supply chains, managing supplier relationships, driving continuous cost and quality improvement, establishing and maintaining best teams & processes and optimising net working capital. Group Procurement is engaged in driving the itop continuous improvement programme concerning procurement and also participates actively in the itop continuous improvement programme for Recipe Optimisation. Recipe Optimisation is a shared responsibility with Group R&D and Group Operations. The itop programme is the backbone in ensuring the Groups cost competitiveness. In 2014 Group Procurement was specifically tasked by the Group Executive team with four accelerated procurement actions (bitumen, freight, reinforcement and SBS), all requiring a holistic view on enhancing the Group s ability to work with more sophisticated machinery, more sophisticated recipes and more sophisticated procurement methods. The initiatives produced significant results already in 2014 and will continue throughout 2015 and onwards. Suppliers are divided into two groups: key strategic suppliers and other suppliers. In order to qualify as a key strategic supplier, a number of criteria must be fulfilled, including: Framework agreement Group agreement Financial strength Net working capital optimisation (e.g. standard payment terms throughout the Group) Competitiveness Product quality Service level Volume flexibility The Icopal strategy is to procure the base volumes with key strategic suppliers, while volume fluctuations may be sourced from key strategic suppliers as well as other suppliers in a more opportunistic way. TOTAL SPEND 2014 DIRECT MATERIALS BY COST AREA RAW MATERIALS SPEND 14% 5% 18% 3% 2% 3% 8% 11% 3% 2% 43% 11% 81% 77% 19% Indirect Spend Installation Services Spend Direct Spend Raw Materials Commercial Goods Packaging Others Bitumen Reinforcement Elastomers Polymers Foils Others Mineral surfacing Steel 41

44 Risk Management MANAGING RISK IN ICOPAL Risk management is an integral part of managing a company in a professional and sound way, and should be firmly anchored in day-to-day operations. The major challenge is to control and evaluate significant financial and non-financial risks in order to protect the Group s employees, assets and reputation. The Group Executive Team meets on a monthly basis at different Icopal sites for a thorough review of strategic, operational and financial opportunities and risks. The risk management issues discussed at these meetings include a wide variety of subjects, such as health and safety, debt collection, financing and liquidity risk, financial covenants, market/competitive pressure, product guarantee policies, insurance coverage, anti-corruption, turnaround of unprofitable companies, etc. In addition to the Group Executive Team s efforts to manage risks, the functional managers in the Group headquarters are responsible for best practice execution in relation to cost and performance optimisation as well as risk management and reduction in their respective areas. Functional teams carry out these tasks separately or in combination with other functional teams and also perform site visits, with the focus on optimisation and risk reduction. The main risk factors to which the Icopal Group is exposed are discussed below these factors are reviewed on an ongoing basis by the Group Executive Team and are managed by the organisation on a daily basis. STRATEGIC RISKS EXPOSURE TO MACROECONOMIC RISK As a company operating in the building materials sector, Icopal is inevitably exposed to changes in the macroeconomic environment and the resulting fluctuations in demand. This changing demand can result in significant changes in the construction industry, particularly in the new construction and residential segments, and poses a major management challenge. 42

45 Since Icopal is mainly active in the renovation and non-residential segments of the construction sector, the impact on revenue is lower for Icopal than for the industry in general. Icopal also has a proven ability to reduce costs significantly during downturns. This combination engenders to a situation where EBITDA is relatively stable as evidenced by its performance in recent years. GROWING THE BUSINESS A key strategic success factor for Icopal is the ability to grow the business in order to protect and increase earnings over the longer-term, thereby allowing the Group to make further attractive investments in its different companies. All cost categories tend to increase over time at the inflation rate, and these increases must be offset by similar price increases for end products sold to customers, rationalisation and/or volume growth. The key to reaching this essential strategic success factor is the ability to introduce new and innovative products and to develop existing products. A particular focus in innovation is on environmental-friendly products and developing bitumen, synthetic and liquid-based waterproofing technology solutions. Icopal Group s revenue and market share may suffer if any new or enhanced products or services are introduced by competitors that Group customers find more appealing or if Group competitors offer similar products and services at more competitive prices. If the Group fails to make technological advances, develop innovative products, or meet customer demands, this could have a material adverse effect on the business, results of operations or financial conditions. Key personnel in R&D, marketing and sales are responsible for developing the Group s top line with new products. Icopal s primary R&D expertise is located in the main R&D facilities in Denmark, France, Germany and the Netherlands. Here Icopal employs highly skilled and educated personnel with many years of experience in product development and raw material formulation. This R&D team works closely with local development, marketing and sales personnel to meet and exceed customer needs and demands. This forms the core of the activities needed to pave the way for growth. PROTECTION OF REPUTATION AND BRAND VALUE Ever since its founding, Icopal has been known for its commitment to innovation, the development of high-quality and high performance products and services and its reliability as a supplier of waterproofing products. As a consequence of this strategy, the Group now owns a range of highly respected brand names such as Icopal, Siplast, Vedag, Villas and Wolfin. These strong brands have been developed over the Group s more than 165-year history and are an integral part of Icopal s market positioning strategy. The Group cannot provide any assurances that competitors will not infringe or challenge Group s intellectual property rights and any disputes relating to intellectual property rights may result in increased costs and use of managerial time. If the Group s intellectual property and in particular key corporate and product trademarks, that are owned or licensed by the Icopal Group, cannot be protected or if the reputation of these trademarks is negatively affected for whatever reason, this could have a material adverse effect on the business, results of operations or financial condition. Icopal follows its vision and mission statements in all areas of the organisation and invests significant time and resources to meet the defined goals. This work represents the foundation for the development and protection of brand value and long-term value creation. KEY EMPLOYEE RETENTION AND DEVELOPMENT The main component for value-creation at Icopal is its employees. Committed, experienced and dedicated employees with a passion for their work are fundamental. The retention of key employees and the ability to hire new qualified talents at all times are critical factors for the success of the Group. The Group Executive Team and local management are responsible for hiring and retaining key employees through a combination of (i) a motivating working environment, (ii) developing, training and educating employees and (iii) fair remuneration. These three areas represent a top priority for Icopal and are the necessary ingredients for employee performance and retention. 43

46 OPERATIONAL RISKS PRODUCTION BREAKDOWNS Supply chain risks can interrupt delivery service to customers, and result in a loss of credibility and sales. Icopal invests significant time, efforts and resources in maintaining and developing the factories and supply chain in order to minimise the risk of business interruption. As part of the standard risk management programme, Icopal has entered into a Group property and business interruption insurance scheme. The few subsidiaries that do not participate in the Group programme have arranged for local insurance. Management believes the risk of fires in Group factories, which is the main interruption risk, has been reduced significantly by the introduction of a structured programme with the following objectives: To increase the know-how and awareness of fire risks To carry out an immediate fire-risk assessment and implement minimum standards To focus on and extend guidance on risk-reducing behaviour in the factories To make detailed assessments and implement action plans for higher risk factories A key factor that differentiates Icopal from the majority of its competitors is that the Group s factories are spread widely across the European continent. That makes it possible to cover individual production breakdowns with very short reaction time and for extended periods if necessary. Therefore, customers are rarely affected for an extended time by production breakdowns at the Icopal plants. SECURING THE AVAILABILITY OF AND COMPETITIVE TERMS FOR KEY RAW MATERIALS One of the Group s most important raw materials is bitumen. Icopal has an extensive network of bitumen suppliers throughout Europe and the USA. Every supplier must be approved according to a strict set of specifications. The Group has been working on increasing the number of approved suppliers for each factory in order to strengthen its bargaining power towards suppliers and reduce the risk of supply shortages. The same strategy is also applied to the other three most important categories of raw materials, elastomers (SBS/APP), reinforcement materials and polymers (PVC/PE). Icopal s supply chain network creates the ability to shift volumes between factories to countries or regions where shortage risks are less pronounced. This lessens the impact of potential shortages and/or price hikes. A central procurement team is responsible for Icopal s main procurement categories. This team works closely with the local procurement teams and uses a Group procurement information system that provides access to supplier data and valuable commercial benchmarking data. In addition, the team spends significant time ensuring that relationships with major suppliers and the forecasting for needed materials are as dependable and precise as possible in order to reduce supply risk. SECURING QUALITY Due to the changing quality of incoming materials (especially bitumen), Icopal has implemented strict controls for all material deliveries to its production units. Quality control is performed by local laboratories. When product formulas need to be changed, the central R&D team provides support for the local units. Outgoing materials, including packaging, are also thoroughly checked and controlled to ensure high quality. Most Group factories and suppliers are certified according to ISO ENVIRONMENTAL, HEALTH AND SAFETY AND REGULATORY RISK Public authorities and neighbours are becoming increasingly aware of the environmental impact of the Icopal factories on the local environment, citizens, factory workers etc. This attention is focused, in particular, on emissions (air), noise and employee safety. 44

47 As a traditional production-oriented company, Icopal is exposed to all these risks. The icare programme is designed to handle several of the above-mentioned risks and has been in operation since In addition, Icopal works closely with local authorities to ensure compliance with rules and regulations and in that fashion prevent factories from being exposed to shorter or longer production shutdowns. Icopal has successfully managed these risks to date. There is an increasingly high focus on compliance within this area. Regarding the related risks, reference is made to the separate section Compliance Risk. INFORMATION TECHNOLOGY RISKS Group s production and sales activities are dependent on efficient and uninterrupted operation of sophisticated computer and data process systems. Icopal Group s information and technology platforms are driven both centrally and locally, and some of the software that is used was developed by local personnel. The different platforms in use for key processes may lead to higher costs and other inefficiencies, including problems with interoperability and malfunctions. All computer, telecommunication and data process systems as well as the related infrastructure, including hardware and networks, are subject to the risk of disturbance, damage, electricity failure, computer viruses, fires, cyber-attacks or other interruptions. Any such inefficiencies or interruptions could adversely affect production and sales activities, which could materially adversely affect the business, results of operations or financial condition. Icopal Group monitors on continuous basis potential risk areas and implements relevant systems to mitigate most material risk areas. FINANCIAL RISKS Icopal is exposed to financial market and credit risks as a result of its operating, investing and financing activities. The Group s financial risks are managed centrally in Group Treasury. The Group Treasury department is authorised to manage the day-to-day exposure, while structural changes related to limiting interest rate, commodity and exchange risk exposure must be approved by the Board of Directors of Icopal. Group Treasury uses derivatives for hedging interest, exchange rate and commodity risk exposure. These derivatives are used for hedging purposes only and not for taking speculative positions. The main purpose of the Group s hedging activities is to hedge cash flows and the exchange rate risk exposure on the value of the Group s investments in significant currencies other than the Euro and the Danish Kroner. The financing agreements entered into by Icopal include several financial covenants that require compliance. Hence, the Group uses hedge accounting to manage and avoid volatility in the measurement of its financial performance. INTEREST RATE RISK It is Group policy to fix interest rates on not less than 50% of the cash-paying loan portfolio up to a three-year period. As at 31 December 2014 the Group was engaged in hedging with fixed interest rates from 1 January 2014 to 31 December In February 2015, Icopal s Board of Directors decided to increase the total hedge ratio to 85% (the maturity of the new hedges equals the maturity of the underlying loans i.e. May 2017). The new hedges were placed at the end of February The extension of the hedge will protect the hedged portion of the Group s portfolio from fluctuations in variable interest rates until maturity. Icopal is capable of servicing this interest in a scenario with both an upward and downward business cycle trend. FOREIGN EXCHANGE RISK Icopal has activities in many different countries, and income and cash flows from the Group s operations are therefore exposed to fluctuations in exchange rates. Debt has been structured in different currencies to match the same currency split as Icopal s cash flows. The purpose is to hedge the current cash flows by having interest costs in the same currency, but also to hedge net investments in Icopal s subsidiaries by having a financial liability to offset a change in the value of investments from adverse exchange rates effects. This hedge setup qualifies for hedge accounting, where all currency adjustments are transferred to other comprehensive income. 45

48 Further information on the interest and exchange rate risk exposure, including a sensitivity analysis, is presented in note 34, Derivative financial instruments. COMMODITY PRICE RISK Icopal is exposed to changes in commodity prices especially related to oil-based products. Icopal Risk Management comprises mainly three tools to cover this risk (i) financial instrument hedging (ii) corresponding sales-price adjustments in markets allowing for this and (iii) physical hedging. In 2014 Icopal entered into financial instrument hedging contracts to cover the purchase of bitumen in certain markets during As of beginning of April % of the total Group bitumen needs in 2015 are hedged. The strategy is to hedge the part of the Group s bitumen purchases where the price of the end product sold to customers is viewed to be more stable and thereby to fix the margin of the respective products. Bitumen is the main raw material component in Icopal s production of roofing membranes. Bitumen purchases are hedged through HSFO (High Sulphur Fuel Oil) swaps and applied for volumes where there is a sufficiently high correlation between the bitumen and HSFO price due to agreed price formulas with bitumen suppliers. These commodity hedges qualify for hedge accounting. Hence, all fair value adjustments are recorded to the hedging reserve under other comprehensive income and transferred to the income statement under the cost of sales when the cash settlements in the swap materialise. In December 2014, the Icopal Group was authorised by the Board of Directors to adjust the general hedging policy for commodity hedges. Instead of only hedging once a year the volumes at this point of time being considered to be more price stable, this exercise is repeated on a quarterly basis to keep the hedge ratio higher throughout the year. Consequently, the hedged volumes will increase compared to previous practice. Group policy dictates that no more than 25% of the Group s annual purchase of bitumen may be hedged. CREDIT RISK Icopal s credit risk is primarily linked to trade receivables and the risk of bad debts, which remained well under control in Even if the level of bad debts in our Southern and Eastern European operations remained on higher levels than the Group average, the overall trend remained well under control. The risk that losses on receivables may destabilise Icopal financially is generally low for two reasons (i) in general, Icopal s trade receivable exposure is spread over a large number of customers in many countries and (ii) Icopal has enrolled in a Group-wide credit insurance programme. This programme is based on the following principles: All outstanding receivables above TEUR 10 will be covered by credit insurance (if approved) Standard Operating Procedures have been defined regarding the approval of new customers and credit lines In recent years the Group has placed considerable focus on improving the debt collection process and will continue to do so in the future. The balance of receivables more than 30 days overdue has been relatively stable in the past three years despite the macroeconomic turmoil, as depicted in the graph below. The total amount in December 2014 was MEUR 15.8, which corresponds to 12.8% of total receivables (2013: MEUR 17.1 and 13.2%). A bad debt provision of MEUR 10.5 was recognised to cover 66.4% of total receivables that are more than 30 days overdue. The maximum credit risk before credit insurance is MEUR 179.2, which is the sum of total financial assets, cf. note 34. Traditional trade and other receivables represent 69.5%. The remaining 30.5% of the exposure on financial assets related to Icopal s cash position is considered insignificant as Icopal only deposits cash with financial institutions that have an adequate rating (mainly Nordea and Citigroup). The intercompany netting system was expanded within the Group with the result that all relevant subsidiaries have been integrated from the end of Payment flows within the Group and, consequently, transaction costs have been lowered. 46

49 OLD AGING PER REGION JAN 2010 DEC 2014 (MEUR) (2.0) Region Europe North Region Europe West Region Plastic & Metal Region Europe Central Region Europe East Region North America GOODWILL OR OTHER INTANGIBLE ASSET IMPAIRMENT RISK An acquisition generates goodwill under IFRS to the extent that the price paid exceeds the book value of the net assets acquired. Our historical acquisitions have generated goodwill. Additional goodwill may arise as a result of further acquisitions and any trademarks and other intellectual property rights purchased in connection with such acquisitions. Under IFRS, goodwill and indefinite-lived intangible assets are not amortised but are subject to impairment tests annually or more frequently if warranted. A goodwill impairment does not affect cash flow. However, a significant write-down of goodwill or other intangible assets could adversely affect the Icopal Group s income and equity. Downturns in sales and profitability can trigger impairment testing and lead to impairment charges. Any significant goodwill impairment or write-down of other intangible assets could have a material adverse impact on results of operations or financial condition. As of 31 December 2014, the total amount of goodwill on the balance sheet amounted to MEUR REPORTING RISK In 2012 Group Finance started a controller visit programme with the aim to (i) ensure the fulfilment of accounting and treasury requirements throughout the Group, (ii) collect best practice information from different units within the Group (knowledge sharing) and (iii) utilise this knowledge to further improve the risk management of the entire Group (i.e. building awareness of risks and defining a risk universe for the Group). These visits are based on a frequent cycle, which considers the overall risk structure of each entity and ensures that every entity is reviewed at least once in a 24-month cycle. The results of these controller visits are collected in controller reports and shared with the Board of Directors, Group Management and the auditors. No controller visits were carried out during 2014 due to extensive work on preparing for a potential IPO. 47

50 COVENANT, LIQUIDITY AND REFINANCING RISK Icopal s financing structure is common for private equity-owned groups. The successful completion of the amendment and extension process in September 2013 through a legal court process in London led to prolonged maturities and more favourable covenants with 15-20% headroom when entering into the amended and extended financing agreement. In exchange for the new arrangement, Icopal accepted higher interest levels and up-front fees. The senior facility agreement with the bank consortium that backs Icopal s financing includes four financial covenants: Cash flow / (net interest expense + repayments of debt) EBITDA / net interest expense Net interest bearing debt / EBITDA CAPEX Icopal tests the financial covenants against agreed targets on a quarterly basis. The Group has complied with all covenants in 2014 and expects to do so for 2015 also. The Group monitors the capital structure on an ongoing basis, and the possible need for adjustments is evaluated in cooperation with the Board of Directors. In order to reduce refinancing risk, the maturity profile of the debt portfolio is spread over several years. Following the successful completion of the amendment and extension scheme, all significant loan repayments (with the exception of MEUR 20.2 in 2014 for one tranche of the senior facilities) were postponed to May A revolving credit facility of MEUR 97 (the Group s main credit facility), other externally committed credit facilities of approx. MEUR 5 and cash generated by business activities will suffice to support operations and potential smaller acquisition opportunities in the coming years. Cash management is a key priority on the Group Executive Team s agenda. This will also be the case throughout 2015 and, with an available liquidity position of MEUR at the end of 2014, management does not foresee any liquidity shortages during All cash resources are highly liquid, and Icopal s exposure to liquidity risk is therefore limited. COMPLIANCE RISK The Group is subject to regulatory risks associated with its international operations: Protectionist trade policies and changes in the political and regulatory environment in the markets in which the Group operates, such as foreign exchange import and export controls, tariffs and other trade barriers and price or exchange controls and regulations regarding business ethics (e.g. the UK Bribery Act), could affect the business in several national markets. This, in turn, could impact sales and profitability and make the repatriation of profits difficult, and may expose the Group to penalties, sanctions and reputational damage. Also violation of competition laws and fraud within the organisation are relevant risk elements that are being dealt with on an ongoing basis through enforcing controls and education. PENSION PLAN RISK As of 31 December 2014, the Icopal Group had total employee benefit obligations of MEUR 46.8, including pension obligations of MEUR 41.7 and other employee benefit obligations of MEUR 5.1. The Group maintains pension plans for a significant number of employees. While the majority of the pension plans are defined contribution plans, defined benefit plans are in place in Norway, Sweden, Germany, France and Slovakia. Calculation of the net present value of the retirement benefit obligations involves a number of significant actuarial assumptions, which vary by country due to local conditions, including discount rates, rates of refunds from the plan, future wage increases, medical costs, employee turnover, mortality and disability rates as well as retirement ages and other factors that influence the amount and timing of pension payment, changes to other assumptions and market conditions. If actual results were to differ significantly from assumptions used, the stated pension obligations could be higher than expected and as a result have an adverse effect on the business, results of operations or financial condition. 48

51 Corporate Social Responsibility THIS SECTION ON CORPORATE SOCIAL RESPONSIBILITY IS ICOPAL S STATEMENT OF COMPLIANCE WITH THE DANISH FINANCIAL STATEMENTS ACT, SECTIONS 99(A) AND 99(B). IT RELATES TO OUR RE- SPECT FOR LEGAL COMPLIANCE, THE ENVIRONMENT, BUSINESS RELATIONS, HUMAN RIGHTS, CLI- MATE, DIVERSITY AND EMPLOYEES. Corporate Social Responsibility is our commitment to acting ethically in everyday business operations, caring for the interest of all our stakeholders and combining the economic development with the initiatives undertaken for the welfare of our employees, local communities and society. We also check and take responsibility for the Group s impact on the environment and prioritise environmental sustainability in our business decisions. In order to fulfil our responsibility towards investors, customers, other business partners, employees and the society in general, we base our behaviour on principles included in the Icopal Code of Conduct. The Icopal Code of Conduct is available to all employees and business partners on the Icopal homepage under the following link as a subsection of the Corporate Social Responsibility area. THE CODE OF CONDUCT IS BASED ON THE FOLLOWING PRINCIPLES: RESPECT FOR THE LAW All employees must comply with the law Icopal refrains from taking part in any kind of corruption Regardless of local practice, any personal payments, kick-backs or bribes between Icopal and customers, suppliers or public servants are strictly prohibited Icopal competes for business on fair terms and solely on the merits of its products and services Icopal accounts will be reflected accurately in accordance with current legislation and Icopal guidelines 49

52 RESPECT FOR THE ENVIRONMENT AND FOR THE CLIMATE Icopal conducts business with respect for the environment and includes environmental considerations in its business decisions Icopal Group companies are required to adopt all reasonable measures necessary to ensure the protection of health and safety in the workplace RESPECT FOR BUSINESS RELATIONS All employees must comply with competition law Icopal products must meet agreed standards for quality and performance Complaints are addressed effectively and are considered a valuable contribution to constantly ensuring high levels of service Icopal evaluates the procurement of products and services based on the following criteria: quality, economy, environment and ethics RESPECT FOR EMPLOYEES AND FOR HUMAN RIGHTS Icopal is committed to a working environment, which is open, honest and based on mutual respect Employees must disclose, and take reasonable steps to avoid, any real or apparent conflict of interest in connection with Icopal employment Icopal bases employment, recruitment and promotion on skills, talent and experience Icopal demands that employees perform their work without the influence of alcohol or drugs. Icopal consider human rights to have both an internal and an external focus. The internal focus include the well-being of our employees, health & safety, discrimination and diversity, while the external focus relates to how we utilise our influence in promoting the content of our Code of Conduct and the values on which it is built. Despite the Icopal Code of Conduct and increasing external regulation and other measures, poor business behaviour and economic crime continue to present a potential risk to Icopal. In order to avoid and minimise the risk of fraud, violations of competition law and other illegal or unacceptable acts within the Group, Icopal continuously develops and implements various precautionary measures and controls for the effective prevention and detection of issues. Since 2011 work focussing on developing a strong anti-crime climate within the Icopal Group has continued. In 2012 a new icon named Report Wrong-doing was added to our IT-portal to provide information for our employees as to whom to contact in the event of suspicion of corruption or infringement of competition law. Moreover a large number of employees have completed Icopal s e-learning programme Compliance with Competition Law. Information material explaining the rules and our policy on competition law has been prepared and translated into ten languages. Lectures were held on compliance with competition law and anti-corruption during 2014 for instance. in France and on cross border management and leadership trainings (in previous years in Russia, Denmark and the Netherlands), and will continue throughout the Group in Also, updated materials regarding compliance with competition law will be distributed in THE MAJOR FOCAL AREAS FOR THE YEARS AHEAD ARE: Anti-competitive behaviour Corruption and all kinds of economic wrongdoing and crimes The code of conduct reflects Icopal s commitment to human rights as expressed within the section with regards to respect for the law and, specifically also in the section, with regard to respect for employees and human rights. 50

53 EMPLOYEE DEVELOPMENT In an increasingly competitive market environment, the development of employees to ensure the right qualifications and motivation becomes crucial for the company s growth and improved performance. Therefore, Icopal Group is committed to hire the best people and creating a broad spectrum number of initiatives, both at Group and local level. Due to Icopal s decentralised structure, most training takes place locally. New employees attend courses in roofing, product knowledge and various kinds of local introductory training. More experienced employees are trained both internally and externally in various matters ranging from leadership training, safety at work, sales, accounting training to foreign language courses. Training in the Group is mainly provided within the framework of Icopal University. Icopal University is a supplement to local courses and was developed on a corporate basis to cover a wide range of different training and development areas enhancing knowledge-sharing across the Group. The idea behind Icopal University is mainly to use internal capacities for qualified Icopal-based and customised training. Therefore, the trainers are often Icopal employees who share their expert knowledge with their colleagues. However, external trainers and customised e-learning are also used, for instance to provide information on compliance with competition law to a larger number of employees. Icopal University offers a large variety of courses like training in leadership and management, management of production, compliance (e.g. code of conduct) and procurement. Training may include online access to reach a larger number of employees. The courses offered by Icopal University not only support the development of employees professional and personal skills in areas such as product knowledge, but are also designed to increase general knowledge and the achievement of excellence in important areas like such as procurement and sales. Icopal University aims to enhance cross-border cooperation to improve efficiency and knowledge-sharing. This is for instance done by offering expatriations, on both a long- and short-term basis. DIVERSITY Being an international group with a widespread operational network Icopal enhances the understanding and cooperation between both national and organisational cultures. The diversity of the organisation s members in terms of national background, experience, gender or other personal characteristics is emphasised throughout the Group. In 2014, Icopal continued to market the company as a good workplace for both men and women, when communicating with potential future employees of the company. Male and female employees alike are encouraged to apply for open management positions, and throughout the year, the aim has been to ensure both male and female candidates when hiring new employees at management level. Women s representation on Icopal s Board of Directors rose from 0% in 2013 to 20% in We are therefore well on the way to reaching the target of 20% representation by women on the Board of Directors in When looking for candidates for the Board of Directors, we will continue to focus on qualifications and aim for a representation of both men and women among the candidates. BUSINESS PARTNERS Icopal seeks to influence its suppliers and helps suppliers to increase performance within the areas covered by the Icopal Code of Conduct. In 2014, Group Procurement continued to screen significant suppliers to ensure compliance with the procurement Code of Conduct, and these preliminary assessments were followed up by site inspection visits to suppliers by local Icopal teams. Furthermore, all employees in Procurement were updated and received training in Code of Conduct assessment and Business Ethics through e-learning in

54 HEALTH AND SAFETY Construction sites generally contain higher-than-average health and safety risks and, as such, Icopal Group and its employees are exposed to that risk through its roofing installation activities. Icopal s commitment to reducing health and safety risks in roofing installation is illustrated by many of its products. For example, Icopal s FireSmart products have been the leading fireproof bitumen membrane for roofing for many years, and the Group is a leader in the design of flat roof safety systems. In order to enhance its commitment to employees, years ago Icopal Group launched a Group-wide health and safety programme called icare. This programme is (i) part of Icopal University, which will provide training on a wide range of relevant areas throughout the Group and (ii) key in terms of fulfilling the codes tied to respect for employees. Three major initiatives continued throughout 2014 to reduce health and safety risks and to increase safety awareness: Assistance to poorly performing units throughout 2014 with ongoing assessment, guidance and training for those units The causes for the top-five types of accidents accounting for 60% of all LTAs were identified and reviewed: contact with sharp objects, contact with moving machinery, bitumen burns, manual handling and slips, trips and falls Influence Minimum Group standards have been implemented for the use of Personal Protective Equipment, Manual Handling training is being implemented Group-wide with additional standards and training programmes being developed, to reduce accident numbers even further. Since the introduction of icare in 2009, significant progress has been made in reducing risks within the Group and raising levels of safety awareness and competency throughout all areas of the business. Year-on-year improvements continue, with numbers of accidents falling from 134 in 2010 to 76 in The 2014 frequency rate target of 10 was unfortunately missed with a rate of 12.4 achieved for all Group activities and production sites alone having a figure of If three business units can improve their performance to the Group average of the remaining business units, Icopal will meet the target frequency rate of 10. These three business units will be the focus of specific actions to improve their performance in Two of the three units are production facilities and will take part in a pilot behavioural safety programme, which will be closely monitored throughout ENVIRONMENT AND CLIMATE Environmental sustainability and climate change are increasingly becoming determining competitive parameters and a general concern of the global society. Following the code of respect for the environment and for the climate, Icopal is committed to acting with strong environmental awareness and to prioritising environmental sustainability in all decisions that have a direct or indirect impact on the environment. In 2014, we held five meetings in our Group Production team, who meet across the production sites to share knowledge and experience with respect to optimisation of raw material and energy consumption. Saving energy has a direct link to lowering our emissions of CO2. The benchmarking of energy KPIs was part of the reason for management s decision to close two production sites in Germany and Norway within the last two years. Energy efficiency has been benchmarked across our production sites for the purpose of knowledge-sharing and future definition of actual reduction targets. Another 2014 focus has been to map and review all our site-specific environmental authorisations by local municipalities. It is our experience that residential areas over time expand around our production sites throughout Europe, the effect of which is that we need to spend more time and resources to ensure compliance. Those of our production sites, that are certified in accordance with ISO 14001, all maintained their certificates in

55 Management and supervision at Icopal BOARD OF DIRECTORS The Icopal Board of Directors of Icopal is elected by its shareholders and is responsible for overseeing the activities of the company and its management. The Board of Directors of the Icopal Group consists of the following members: BRIAN DICKIE Board position: Chairman Date of birth: 15/ Membership period start: 2007 Elected until: 23/ DANIEL LOPEZ-CRUZ Board position: Deputy Chairman Date of birth: 4/ Membership period start: 2007 Elected until: 23/ Other board positions or job positions: Polyconcept, the Netherlands Sistema JSFC, Russia Afghanistan International Bank, Afghanistan L azurde Company for Jewellery, Saudi Arabia Hydrasun, United Kingdom Other board positions or job positions: SPG Prints, the Netherlands Asiakastieto, Finland Esmalglass, Spain Partner of Investcorp European Corporate Investment 53

56 AGNETE RAASCHOU-NIELSEN Board position: Board member Date of birth: 18/ Membership period start: 2014 Elected until: 23/ CARSTEN HAGENBUCHER Board position: Board member Date of birth: 20/ Membership period start: 2012 Elected until: 23/ Other board positions or job positions: Brødrene Hartmann A/S, Denmark Arkil Holding A/S and one subsidiary, Denmark Novozymes A/S, Denmark Dalhoff Larsen & Horneman A/S, Denmark Solar A/S, Denmark Danske Invest, three other UCITS and two AIF funds, Denmark Danske Invest Management A/S, Denmark Aktieselskabet Schouw & Co. A/S, Denmark Other board positions or job positions: SPG Prints, the Netherlands Tyrrells, United Kingdom Partner of Investcorp European Corporate Investment MIGUEL KOHLMANN Board position: Board member Date of birth: 3/ Membership period start: 2008 Elected until: 23/ HENK TEN HOVE Board position: Board member Date of birth: 28/ Membership period start: 2015 Elected until: 23/ Other board positions or job positions: CEO of Icopal Group, Denmark Consultant for Esmalglass, Spain Other board positions or job positions: Kendrion, the Netherlands Unica, the Netherlands SPG Prints, the Netherlands Rabobank Vaart en Vechtstreek, the Netherlands Stichting Aandelen Remeha, the Netherlands During 2014, the Board of Directors decided to establish two separate committees to support the work of the Board of Directors: Audit committee (Agnete Raaschou-Nielsen (chairman) and Carsten Hagenbucher) Remuneration committee (Brian Dickie (chairman) and Daniel Lopez-Cruz) 54

57 EXECUTIVE MANAGEMENT The executive management of Icopal is structured through four main bodies: Group Executive Team Regional Management Corporate Management Group Group Management GROUP EXECUTIVE TEAM The Group Executive Team, which is the highest-ranking operational decision-making body at Icopal, consists of seven members. Christian Gagné joined the team in 2014 and is therefore the newest member, holding responsibility for Region Europe West. The Managing Directors of the local business units report to the Regional Managing Directors who are members of the Group Executive Team. This team, in turn, reports to the Group CEO as do most of the Group Functional Directors. The Group Executive Team meets once a month to coordinate the short and medium-term development of the Group. The meetings are held at different production sites in order to underscore the interest in local operations and motivate the local teams and to serve an important monitoring and advisory function. REGIONAL MANAGEMENT The regional managers (defined under Group Executive Team) are ultimately responsible for the full regional P&Ls and, as such, responsible for coordinating activities across the region. These activities range from transferring know-how and building expertise, benchmarking and optimising processes across the region and with other relevant regions, securing proper regional management for key functions such as sales and marketing, production, procurement and finance. As stated above, the business unit Managing Directors report to the Regional Managing Directors. CORPORATE MANAGEMENT GROUP The Icopal Group comprises 55 operational legal entities structured into 21 business units and managed through six regional management teams. Most of these business units have one or more production sites and generate revenue ranging from MEUR 7.8 to MEUR The management of these 21 business units is typically structured around the following local management team members: Managing Director Finance Director Sales Director Production Director This management team has full P&L responsibility for the local business unit and is the primary driver for the development of the respective business unit. The local management team involves the relevant Regional Management and/or Functional Directors in Group Management when more strategic or structural changes are to be evaluated and decided upon. The business unit Managing Directors and the Group Functional Directors (see below for description) together form the Corporate Management Group and meet twice a year, primarily to discuss and agree on the implementation of the strategic direction of the Group and to foster cross cooperation within the Group. 55

58 GROUP MANAGEMENT Group Management consists of the following Group Functional Directors: Group CEO Group CFO Group Operations Director Corporate Development Director Group Marketing and Product Director Group R&D Director Group Procurement Director Group ICT Director Group HR Director and Legal Counsel Group Management supports and advises the SBUs in specific areas on a continuous basis. Members of Group Management carry out an annual business review/strategy process visiting each business unit in order to exercise the important management responsibility of monitoring and advising the local business unit management teams. The themes discussed range from short-term business issues to longer-term strategic decision-making. The annual budget process is undertaken in the Group headquarters and focuses primarily on defining the targets for the local teams in the following financial year. 56

59 Management s Statement 57

60 MANAGEMENT S STATEMENT The Executive Board and Board of Directors today reviewed and adopted the Annual Report of Icopal a/s for the financial year 1 January 31 December The Consolidated Financial Statements are prepared in accordance with International Financial Reporting Standards as adopted by the EU and additional Danish disclosure requirements, and the Parent Financial Statements are prepared in accordance with the Danish Financial Statements Act. Management s review is also prepared in accordance with Danish disclosure requirements. In our opinion, the Consolidated Financial Statements and the Parent Financial Statements give a true and fair view of the financial position at 31 December 2014 of the Group and the Company and of the results of the Group and Company operations and consolidated cash flows for the financial year 1 January 31 December In our opinion, Management s Review includes a true and fair account of the development in the operations and financial circumstances of the Group and the Company, of the results for the year and of the financial position of the Group and the Company as well as a description of the most significant risks and elements of uncertainty facing the Group and the Company. We recommend that the annual report be adopted at the Annual General Meeting. Herlev, 23 April

61 Independent Auditor s Report 59

62 INDEPENDENT AUDITOR S REPORT To the shareholders of Icopal a/s REPORT ON CONSOLIDATED FINANCIAL STATEMENTS AND PARENT COMPANY FINANCIAL STATEMENTS We have audited the Consolidated Financial Statements and the Parent Company Financial Statements of Icopal a/s for the financial year from 1 January to 31 December 2014, which comprise the 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 statement of comprehensive income and cash flow statement for the Group. The Consolidated Financial Statements are prepared in accordance with International Financial Reporting Standards as adopted by the EU and additional Danish disclosure requirements. The Parent Company Financial Statements are prepared in accordance with Danish Financial Statements Act. MANAGEMENT S RESPONSIBILITY FOR THE CONSOLIDATED FINANCIAL STATEMENTS AND THE PARENT COM- PANY FINANCIAL STATEMENTS 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 above-mentioned legislation, and for such internal control as Management determines is necessary to enable the preparation of Consolidated Financial Statements and Parent Company Financial Statements that are free from material misstatement, whether due to fraud or error. AUDITOR S RESPONSIBILITY Our responsibility is to express an opinion on the Consolidated Financial Statements and the Parent Company Financial Statements based on our audit. We conducted our audit in accordance with International Standards on Auditing and additional requirements under Danish audit regulations. This requires that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the Consolidated Financial Statements and the Parent Company Financial Statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the Consolidated Financial Statements and the Parent Company Financial Statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the Consolidated Financial Statements and the Parent Company Financial Statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Company s preparation of Consolidated Financial Statements and Parent Company Financial Statements that give a true and fair view 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 Company s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by Management, as well as evaluating the overall presentation of the Consolidated Financial Statements and the Parent Company Financial Statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. The audit did not result in any qualifications. OPINION In our opinion, the Consolidated Financial Statements give a true and fair view of the Group s financial position at 31 December 2014 and of the results of the Group s operations and cash flows for the financial year from 1 January to 31 December 2014 in accordance with International Financial Reporting Standards as adopted by the EU and additional Danish disclosure requirements. Moreover, in our opinion the Parent Company Financial Statements give a true and fair view of the Parent Company s financial position at 31 December 2014 and of the results of the Parent Company s operations for the financial year from 1 January to 31 December 2014 in accordance with Danish Financial Statements Act. STATEMENT ON MANAGEMENT S REVIEW We have read Management s Review in accordance with the Danish Financial Statements Act. We have not performed any procedures additional to the audit of the Consolidated Financial Statements and the Parent Company Financial Statements. On this basis, in our opinion, the information provided in Management s Review is consistent with the Consolidated Financial Statements and the Parent Company Financial Statements. 60

63 NOTE CONSOLIDATED FINANCIAL STATEMENTS ACCOUNTING POLICIES ICOPAL GROUP 1 Significant accounting policies Income statement 2 Critical accounting estimates and judgements Statement of comprehensive income Balance sheet INCOME STATEMENT Statement of changes in equity 3 Revenue by region Statement of cash flows 4 Depreciation, amortisation and impairment losses 5 Staff expenses 6 Fees to auditors 7 Special items & other operating items, net 8 Financial income 9 Financial expenses 10 Corporation tax 11 Net loss from discontinued activities STATEMENT OF CASH FLOWS 12 Adjustments of cash flow 13 Change in working capital 14 Cash flow from discontinued activities STATEMENT OF FINANCIAL POSITION 15 Intangible assets 16 Tangible assets 17 Inventories 18 Trade receivables 19 Work in progress 20 Assets held for sale 21 Other receivables 22 Prepayments 23 Cash and cash equivalents 24 Employee benefit obligations 25 Deferred tax 26 Provisions 27 Borrowings 28 Other payables 29 Acquisitions of enterprises and business activities 30 Divested activities 31 Commitments and contingent liabilities 32 Related parties 33 Events after the balance sheet date OTHER Derivative financial instruments 35 Group chart

64 Consolidated Financial Statements Icopal Group 1 JANUARY - 31 DECEMBER INCOME STATEMENT EUR THOUSAND NOTE Revenue 3 1,025,261 1,025,930 Cost of sales 4,5 762, ,698 GROSS PROFIT 262, ,232 Sales expenses 4,5 109, ,804 Distribution expenses 4,5 37,751 36,756 Administrative expenses 4,5,6 52,856 50,496 Research & development expenses 4,5 11,139 10,285 Other operating income 7 6,233 7,009 OPERATING PROFIT BEFORE SPECIAL ITEMS 57,138 58,900 Special items (17,186) OPERATING PROFIT 57,246 41,714 Financial income 8 21,033 10,054 Financial expenses 9 58,416 49,675 PROFIT BEFORE TAX 19,863 2,093 Tax on profit 10 15,288 9,770 NET PROFIT/LOSS FROM CONTINUING ACTIVITIES 4,575 (7,677) Net loss from discontinued activities 11 (210) (1,586) NET PROFIT/LOSS FOR THE YEAR 4,365 (9,263) Attributable to: Shareholder of Icopal a/s 4,365 (9,263) 62

65 Consolidated Financial Statements Icopal Group 1 JANUARY - 31 DECEMBER STATEMENT OF COMPREHENSIVE INCOME EUR THOUSAND NOTE NET PROFIT/LOSS FOR THE YEAR 4,365 (9,263) OTHER COMPREHENSIVE INCOME TO BE RECYCLED TO THE INCOME STATEMENT IN SUBSEQUENT PERIODS Foreign exchange adjustments of foreign subsidiaries (9,943) (27,858) Fair value adjustment of hedge instruments to hedge net investments (4,051) 14,974 Tax 10 4, NET EFFECT TRANSFERRED TO TRANSLATION RESERVE (9,313) (12,513) Fair value adjustments of cash flow hedges recycled to the income statement (financial income/expenses) 34 1,956 5,950 Fair value adjustments of cash flow hedges (interest rate swaps) 34 (4,448) (1,956) Fair value adjustments of cash flow hedges (commodity hedges) (2,217) - Tax 10 1,153 (998) NET EFFECT TRANSFERRED TO HEDGING RESERVE (3,556) 2,996 OTHER COMPREHENSIVE INCOME NOT TO BE RECYCLED TO THE INCOME STATEMENT IN SUBSEQUENT PERIODS Actuarial losses from defined benefit obligations 24 (7,028) (247) Tax 10 1, NET EFFECT TRANSFERRED TO RETAINED EARNINGS (5,125) (188) TOTAL COMPREHENSIVE INCOME (13,629) (18,968) Attributable to: Shareholder of Icopal a/s (13,629) (18,968) 63

66 Consolidated Financial Statements Icopal Group 31 DECEMBER BALANCE SHEET EUR THOUSAND NOTE ASSETS NON-CURRENT ASSETS Intangible assets , ,219 Property, plant and equipment Land and buildings 16 89,074 92,348 Plant and machinery 16 92,439 85,536 Vehicles, equipment and furniture 16 12,040 12,136 Property, plant and equipment under construction 16 24,718 16,174 Total property, plant and equipment 218, ,194 Other non-current assets Other investments and securities 15,680 15,826 Investments accounted for using the equity method 2,081 1,557 Deferred tax 25 17,959 18,844 TOTAL NON-CURRENT ASSETS 803, ,640 CURRENT ASSETS Inventories Raw materials and consumables 33,157 32,820 Work in progress 3,738 2,896 Finished goods and goods for resale 77,060 75,125 Total inventories , ,841 Receivables Trade receivables , ,745 Work in progress 19 2,444 2,886 Tax receivables 1,383 2,087 Other receivables 21 12,399 11,112 Prepayments 22 3,948 4,209 Total receivables 132, ,039 Assets held for sale ,791 Cash and cash equivalents 23 36,353 52,238 TOTAL CURRENT ASSETS 283, ,909 TOTAL ASSETS 1,087,469 1,095,549 64

67 Consolidated Financial Statements Icopal Group 31 DECEMBER BALANCE SHEET EUR THOUSAND NOTE EQUITY ASSETSAND LIABILITIES EQUITY Share capital 26,876 26,876 Reserves 224, ,810 TOTAL EQUITY 251, ,686 LIABILITIES NON-CURRENT LIABILITIES Employee benefit obligations 24 46,758 40,155 Deferred tax 25 49,039 53,731 Provisions 26 9,627 10,461 Borrowings , ,539 TOTAL NON-CURRENT LIABILITIES 663, ,886 CURRENT LIABILITIES Provisions 26 25,451 25,344 Borrowings 27 1,394 21,765 Trade payables 78,117 72,734 Work in progress 19 1,432 1,666 Corporation tax 6,432 10,279 Other payables 28 58,775 60,916 TOTAL CURRENT LIABILITIES 171, ,704 Liabilities associated with assets held for sale ,273 TOTAL LIABILITIES 836, ,863 TOTAL EQUITY AND LIABILITIES 1,087,469 1,095,549 65

68 Consolidated Financial Statements Icopal Group STATEMENT OF CHANGES IN EQUITY EUR THOUSAND SHAREHOLDER OF ICOPAL GROUP SHARE TRANSLATION HEDGING RETAINED NOTE CAPITAL RESERVE RESERVE EARNINGS TOTAL Balance 1 January ,876 5,333 (4,462) 255, ,654 Net loss for the year (9,263) (9,263) Other comprehensive income - (12,513) 2,996 (188) (9,705) Total comprehensive income - (12,513) 2,996 (9,451) (18,968) BALANCE 31 DECEMBER ,876 (7,180) (1,466) 246, ,686 Net profit for the year ,365 4,365 Other comprehensive income - (9,313) (3,556) (5,125) (17,994) Total comprehensive income - (9,313) (3,556) (760) (13,629) BALANCE 31 DECEMBER ,876 (16,493) (5,022) 245, ,057 SHARE CAPITAL The share capital of Icopal a/s amounts to nominal MDKK 200 (MEUR 26.9) and is divided into shares of DKK 100 each. No capital increases were made during the year The shares are not freely transferable. TRANSLATION RESERVE The translation reserve comprises all foreign currency differences arising from the translation of the financial statements of foreign subsidiaries as well as from the translation of long-term intragroup loans which are considered part of the net investment, loans in foreign currency and derivatives hedging net investments in foreign subsidiaries. The translation reserve also comprises the translation adjustments to centrally allocated goodwill. HEDGING RESERVE The hedging reserve comprises cumulative fair value gains and losses of hedging instruments designated as cash flow hedges. 66

69 Consolidated Financial Statements Icopal Group STATEMENT OF CASH FLOWS 1 JANUARY - 31 DECEMBER EUR THOUSAND NOTE Net profit/loss from continuing activities 4,575 (7,677) Adjustments of cash flow 12 73,994 80,943 Change in working capital 13 3,825 (171) Taxes paid (13,167) (9,047) Interest paid (27,706) (29,074) Interest received 2, CASH FLOW FROM OPERATING ACTIVITIES IN CONTINUING ACTIVITIES 43,648 35,723 Cash flow from operating activities in discontinued activities 14 (1,409) 2,441 CASH FLOWS FROM OPERATING ACTIVITIES 42,239 38,164 Acquisition of enterprises and business activities 29 (7,738) - Investments in intangible assets 15 (1,341) (2,468) Investments in property, plant and equipment 16 (38,222) (32,614) Sale of intangible assets 86 9 Sale of property, plant and equipment 760 9,754 CASH FLOW FROM INVESTING ACTIVITIES IN CONTINUING ACTIVITIES (46,455) (25,319) Cash flow from investing activities in discontinued activities CASH FLOWS FROM INVESTING ACTIVITIES (46,455) (25,319) FREE CASH FLOWS (4,216) 12,845 Short-term financing 3,505 (6,798) Capitalisation of cost related to Amendment and Extension of loans - (16,351) Repayment of loans (20,209) (19,093) CASH FLOW FROM FINANCING ACTIVITIES IN CONTINUING ACTIVITIES (16,704) (42,242) Cash flow from financing activities in discontinued activities 14 (1,849) 112 CASH FLOWS FROM FINANCING ACTIVITIES (18,553) (42,130) NET CASH FLOWS FOR THE YEAR (22,769) (29,285) Cash and cash equivalents at 1 January in continuing activities 52,238 80,415 Cash and cash equivalents at 1 January in discontinuing activities 3, Exchange rate gain of cash and cash equivalents 3,633 3,661 Net cash flow for the year (22,769) (29,285) CASH AND CASH EQUIVALENTS AT 31 DECEMBER 36,367 55,503 Cash and cash equivalents at 31 December in discontinued activities 15 3,265 CASH AND CASH EQUIVALENTS AT 31 DECEMBER IN CONTINUING ACTIVITIES 36,353 52,238 Payments made in relation to the amendment and extension of the existing loan agreements, which were capitalised in 2013 are presented under cash flows from financing activities. For further infomation, we refer to note 27 and 34. Free cash flows in 2014 were mainly affected by outflows for acquisitions of businesses and higher investments in tangible assets compared to

70 Accounting Policies NOTE 1 SIGNIFICANT ACCOUNTING POLICIES The annual report of the Icopal Group was prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB) adopted by the EU, and in accordance with additional Danish disclosure requirements. The 2014 annual report is presented in EUR rounded to the nearest EUR 1,000. The Board of Directors and the Executive Board considered and approved the annual report of Icopal a/s for 2014 on 23 April The ultimate controlling company, Icopal Holdings S.à.r.l., does not have the power to amend the financial statement after the Annual General Assembly Meeting. The parent company applies Danish GAAP. BASIS OF PREPARATION The annual report was prepared based on the historical cost principle. However, derivatives are measured at fair value, and non-current assets and disposal groups classified as held for sale are measured at the lower of carrying amount before reclassification and fair value less costs to sell. The accounting policies set out below were applied consistently during the financial year and to the comparative figures. CHANGES IN ACCOUNTING POLICIES The accounting policies are consistent with those applied to the financial statements for 2013 beside necessary changes due to new standards. NEW AND AMENDED STANDARDS AND INTERPRETATIONS A number of new standards apply for the first time in However, they do not materially impact on the annual consolidated financial statements of the Group. The nature and impact of each new standards and amendments are described below: INVESTMENT ENTITIES (AMENDMENTS TO IFRS 10, IFRS 12 AND IAS 27) These amendments provide an exception to the consolidation requirement for entities that meet the definition of an investment entity under IFRS 10 Consolidated Financial Statements and must be applied retrospectively, subject to certain transition relief. The exception to consolidation requires investment entities to account for subsidiaries at fair value through profit and loss. These amendments have no impact on the Group, since none of the entities in the Group qualifies to be an investment entity under IFRS

71 OFFSETTING FINANCIAL ASSETS AND FINANCIAL LIABILITIES AMENDMENTS TO IAS 32 These amendments clarify the meaning of currently has a legally enforceable right to set-off and the criteria for nonsimultaneous settlement mechanisms of clearing houses to qualify for offsetting and are applied retrospectively. These amendments have no impact on the Group, since none of the entities in the Group has any offsetting arrangements qualifying for offsetting. NOVATION OF DERIVATIVES AND CONTINUATION OF HEDGE ACCOUNTING AMENDMENTS TO IAS 39 These amendments provide relief from discontinuing hedge accounting when novation of a derivative designated as a hedging instrument meets certain criteria and retrospective application is required. These amendments have no impact on the Group as the Group has not novated any derivatives during the current or prior periods. IFRIC 21 LEVIES IFRIC 21 clarifies that an entity recognises a liability for a levy when the activity that triggers payment, as identified by the relevant legislation, occurs. For a levy that is triggered upon reaching a minimum threshold, the interpretation clarifies that no liability should be recognised before the specified minimum threshold is reached. Retrospective application is required for IFRIC 21. This interpretation has no impact on the Group as it has applied the recognition principles under IAS 37 Provisions, Contingent Liabilities and Contingent Assets consistent with the requirements of IFRIC 21 in prior years. ANNUAL IMPROVEMENTS CYCLE In the annual improvements cycle, the IASB issued seven amendments to six standards, which included an amendment to IFRS 13 Fair Value Measurement. The amendment to IFRS 13 is effective immediately and, thus, for periods beginning on 1 January 2014, and it clarifies in the Basis for Conclusions that it is appropriate to assume that the fair value of short-term receivables and payables with no stated interest rates is equal to the fair value when the effect of discounting is immaterial. This amendment to IFRS 13 has no impact on the Group. ANNUAL IMPROVEMENTS CYCLE In the annual improvements cycle, the IASB issued four amendments to four standards, which included an amendment to IFRS 1 First-time Adoption of International Financial Reporting Standards. NEW INTERNATIONAL FINANCIAL REPORTING STANDARDS AND INTERPRETATIONS Accounting standards (IFRS) and interpretations (IFRICs) issued but not yet effective up to the date of publication of the Group s financial statements are listed below. These standards and interpretations will become effective for 2015 or later. The standards and interpretations listed below are those that the Group reasonably expects to have an impact on disclosures, financial position or performance when applied at a future date. The Group intends to adopt these standards when they become effective. The amendments to IFRS 11 Joint Arrangements require a joint operator accounting for the acquisition of an interest in a joint operation, in which the activity of the joint operation constitutes a business, to apply the relevant IFRS 3 principles for business combinations accounting. The amendments are retrospectively effective for annual periods beginning on or after 1 January 2016, with early adoption permitted. These amendments are not expected to have any impact on the Group as the Group does not have any bearer plants. IFRS 9 Financial instruments addresses the classification, measurement and recognition of financial assets and financial liabilities. The complete version of IFRS 9 was issued in July It replaces the guidance in IAS 39 that relates to the classification and measurement of financial instruments. IFRS 9 retains but simplifies the mixed measurement model and establishes three primary measurement categories for financial assets: amortised cost, fair value through other comprehensive income and fair value through profit or loss. The basis of classification depends on the entity s business model and the contractual cash flow characteristics of the financial asset. Investments in equity instruments are required to be measured at fair value through profit or loss with the irrevocable option at inception to present changes in fair value 69

72 in other comprehensive income not recycling. There is now a new expected credit losses model that replaces the incurred loss impairment model used in IAS 39. For financial liabilities there were no changes to classification and measurement except for the recognition of changes in own credit risk in other comprehensive income, for liabilities designated at fair value through profit or loss. IFRS 9 relaxes the requirements for hedge effectiveness by replacing the bright line hedge effectiveness tests. It requires an economic relationship between the hedged item and hedging instrument and for the hedged ratio to be the same as the one management actually use for risk management purposes. Contemporaneous documentation is still required but is different to that currently prepared under IAS 39. The standard is effective for accounting periods beginning on or after 1 January Early adoption is permitted. The Group is yet to assess IFRS 9 s full impact. IFRS 15 Revenue from contracts with customers deals with revenue recognition and establishes principles for reporting useful information to users of financial statements about the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity s contracts with customers. Revenue is recognised when a customer obtains control of a good or service and thus has the ability to direct the use and obtain the benefits from the good or service. The standard replaces IAS 18 Revenue and IAS 11 Construction contracts and related interpretations. The standard is effective for annual periods beginning on or after 1 January 2017 and earlier application is permitted. The Group is assessing the impact of IFRS 15. CONSOLIDATED FINANCIAL STATEMENTS The consolidated financial statements comprise the parent company Icopal a/s and subsidiaries that are controlled by Icopal a/s. Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Specifically, the Group controls an investee if and only if the Group has: Power over the investee (i.e. existing rights that give it the current ability to direct the relevant activities of the investee) Exposure, or rights, to variable returns from its involvement with the investee, and The ability to use its power over the investee to affect its returns When the Group has less than a majority of the voting or similar rights of an investee, the Group considers all relevant facts and circumstances in assessing whether it has power over an investee, including: The contractual arrangement with the other vote holders of the investee Rights arising from other contractual arrangements The Group s voting rights and potential voting rights The Group re-assesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control. Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses control over the subsidiary. Assets, liabilities, income and expenses of a subsidiary acquired or disposed of during the year, are included in the statement of comprehensive income from the date the Group gains control until the date the Group ceases to control. Profit or loss and each component of other comprehensive income (OCI) is attributed to the equity holders of the parent of the Group and to the non-controlling interests, even if this results in the non-controlling interests having a deficit balance. When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with the Group s accounting policies. All intra-group assets and liabilities, equity, income, expenses, unrealised gains and losses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation. A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction. If the Group loses control over a subsidiary, it: Derecognises the assets (including goodwill) and liabilities of the subsidiary Derecognises the carrying amount of any non-controlling interests Derecognises the cumulative translation differences recorded in other comprehensive income 70

73 Recognises the fair value of the consideration received Recognises the fair value of any investment retained Recognises any surplus or deficit in profit or loss Reclassifies the parent s share of components previously recognised in other comprehensive income to profit or loss or retained earnings, as appropriate, as would be required if the Group had directly disposed of the related assets or liabilities An associate is an entity over which the Group has significant influence. Significant influence is the power to participate in the financial and operating policy decisions of the investee, but is not control or joint control over those policies. A joint venture is a type of joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the joint venture. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require unanimous consent of the parties sharing control. The Icopal Group does not have any joint ventures with other companies. The considerations made in determining significant influence are similar to those necessary to determine control over subsidiaries. The Group s investments in its associates are accounted for using the equity method. Under the equity method, the investment in an associate is initially recognised at cost. The carrying amount of the investment is adjusted to recognise changes in the Group s share of net assets of the associate or joint venture since the acquisition date. Goodwill relating to the associate or joint venture is included in the carrying amount of the investment and is neither amortised nor individually tested for impairment. The statement of profit or loss reflects the Group s share of the results of operations of the associate. Any change in other comprehensive income of those investees is presented as part of the Group s other comprehensive income. Unrealised gains and losses resulting from transactions between the Group and the associate are eliminated to the extent of the interest in the associate. The aggregate of the Group s share of profit or loss of an associate is shown on the face of the statement of profit or loss outside operating profit and represents profit or loss after tax and non-controlling interests in the subsidiaries of the associate or joint venture. The financial statements of the associate are prepared for the same reporting period as the Group. When necessary, adjustments are made to bring the accounting policies in line with those of the Group. After application of the equity method, the Group determines whether it is necessary to recognise an impairment loss on its investment in its associate. At each reporting date, the Group determines whether there is objective evidence that the investment in the associate is impaired. If such evidence exists, the Group calculates the amount of impairment as the difference between the recoverable amount of the associate and its carrying value, then recognises the loss as Share of profit of an associate in the statement of profit or loss. Upon loss of significant influence over the associate, the Group measures and recognises any retained investment at its fair value. Any difference between the carrying amount of the associate upon loss of significant influence and the fair value of the retained investment and proceeds from disposal is recognised in profit or loss. Investments in subsidiaries are offset against the proportionate share of the fair value of the subsidiaries identifiable net assets and recognised contingent liabilities at the date of acquisition. Subsidiaries assets and liabilities are recognised in full in the consolidated financial statements. The share of profit attributable to non-controlling interests and equity in subsidiaries that are not wholly owned are recognised as part of consolidated profit and equity, respectively, but disclosed separately. 71

74 BUSINESS COMBINATIONS AND FORMATION OF SUBSIDIARIES Entities acquired or founded during the year are recognised in the consolidated financial statements beginning on the date of acquisition or founding. Entities that are disposed of or wound up are recognised in the consolidated income statement until the date of disposal or discontinuation. The comparative figures are not restated for entities acquired, disposed of or wound up. Discontinued activities are presented separately, cf. below. The acquisition method is used to record acquisitions of new subsidiaries, joint ventures and associates. The acquired entities identifiable assets, liabilities and contingent liabilities are measured at fair value at the acquisition date. Identifiable intangible assets are recognised if they are separable or arise from a contractual right, and the fair value can be reliably measured. Deferred tax on revaluations is recognised. The acquisition date is the date when the Group effectively obtains control over the acquired subsidiary. The excess of the cost of an acquisition over the fair value of the identifiable assets, liabilities and contingent liabilities acquired is recognised as goodwill under intangible assets. Goodwill is not amortised, but is tested annually for impairment. The first impairment test is performed before the end of the acquisition year. Upon acquisition, goodwill is allocated to operating segments, which subsequently form the basis for the impairment test. The cost of a business combination comprises the fair value of the consideration agreed upon. When a business combination agreement provides for an adjustment to the cost of the combination contingent on future events, the amount of that adjustment is included in the cost of the combination. Goodwill and fair value adjustments in connection with the acquisition of a foreign entity are treated as assets and liabilities belonging to the foreign entity. Negative differences (negative goodwill) are recognised in the income statement at the acquisition date. If there are any uncertainties regarding the measurement of acquired identifiable assets, liabilities and contingent liabilities at the acquisition date, initial recognition is based on preliminary fair values. If identifiable assets, liabilities and contingent liabilities are subsequently determined to have a different fair value at the acquisition date from that first assumed, goodwill is adjusted up to 12 months after the acquisition. Gains or losses on the disposal or discontinuation of Group enterprises are stated as the difference between the sale amount and the carrying amount of net assets including goodwill at the date of disposal or discontinuation, plus foreign exchange adjustments recognised directly in other comprehensive income and costs to sell or discontinuation expenses. Gains or losses on the disposal or winding-up of subsidiaries are recognised in the income statement under Special items or Discontinued activities. On an acquisition-by-acquisition basis, the Group recognises any non-controlling interests in the acquiree either at fair value or at the non-controlling interests proportionate share of the acquiree s net assets. FAIR VALUE MEASUREMENT The Group measures financial instruments, such as, derivatives, and non-financial assets such as investment properties, at fair value at each balance sheet date. Also, fair values of financial instruments measured at amortised cost are disclosed in note 34. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either: In the principal market for the asset or liability, or In the absence of a principal market, in the most advantageous market for the asset or liability The principal or the most advantageous market must be accessible to the Group. The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that 72

75 market participants act in their economic best interest. A fair value measurement of a non-financial asset takes into account a market participant s ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use. The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs. All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorised within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole: Level 1 Quoted (unadjusted) market prices in active markets for identical assets or liabilities Level 2 Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable L evel 3 Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable For assets and liabilities that are recognised in the financial statements on a recurring basis, the Group determines whether transfers have occurred between Levels in the hierarchy by re-assessing categorisation (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period. FUNCTIONAL CURRENCY AND PRESENTATION CURRENCY Assets, liabilities and transactions of each of the Group s reporting entities are measured in the currency of the primaryeconomic environment in which the entity operates (the functional currency). Transactions in currencies other than the functional currency represent transactions in foreign currencies. The functional currency of the parent company is Danish kroner (DKK); however, due to the Group s international relations, the consolidated financial statements are presented in euros (EUR). TRANSLATION INTO PRESENTATION CURRENCY The balance sheet is translated into the presentation currency at the EUR rate at the balance sheet date. The transaction date rates used in the income statement are based on average rates for the individual months. TRANSLATION OF TRANSACTIONS AND AMOUNTS Transactions in foreign currencies are initially translated into the functional currency at the exchange rate in effect on the date of the transaction. Foreign exchange adjustments arising from differences between the transaction date rates and the rates on the payment date are recognised in financial income or financial expenses in the income statement. Receivables, payables and other monetary items in foreign currencies not settled at the balance sheet date are translated at the exchange rate in effect at the balance sheet date. Foreign exchange adjustments arising from differences between the rates at the balance sheet date and the transaction date rates are recognised in financial income or financial expenses in the income statement. TRANSLATION OF GROUP ENTERPRISES Foreign exchange adjustments are recognised directly in other comprehensive income under the separate translation reserve for the following items: adjustments arising from the translation of the opening equity of foreign enterprises at the exchange rates in effect on the balance sheet date and adjustments resulting from the translation of income statements at the transaction date rates and the exchange rates on the balance sheet date. Foreign exchange adjustments of balances with foreign enterprises that are treated as part of the total net investment in the enterprise in question are recognised directly in other comprehensive income in the consolidated financial statements. GOVERNMENTAL GRANTS Governmental grants related to the acquisition of assets are deducted in calculating the carrying amount of the related asset. The corresponding grant is recognised in profit or loss over the life of a depreciable asset as a reduced depreciation expense. 73

76 DERIVATIVE FINANCIAL INSTRUMENTS Derivative financial instruments are recognised in the balance sheet on the trade date when the Group becomes a party to the contract. These instruments are initially and subsequently measured at fair value. Positive and negative fair values of derivative financial instruments are included in other receivables and payables, respectively. Positive and negative values are only offset when the Group has the legal right and the intention to settle several financial instruments net. The fair values of derivative financial instruments are calculated on the basis of current market data and according to generally accepted valuation methods. CASH FLOW HEDGES Changes in the portion of the fair value of derivative financial instruments designated as and qualifying as a cash flow hedge are recognised under other comprehensive income in a separate hedging reserve until the hedged transaction is realised. At this time, gains or losses on such hedging transactions are transferred from other comprehensive income and recognised under the same position as the hedged item. If a hedging instrument no longer meets the criteria for hedge accounting, the hedging relationship is discontinued prospectively. The cumulative gain or loss recognised in equity is transferred to the income statement when the hedged cash flows affect the income statement. If the hedged cash flows are no longer expected to be realised, the cumulative gain or loss is recognised immediately in the income statement. The part of a derivative financial instrument that is not part of a hedging relationship is presented under financial items. HEDGES OF A NET INVESTMENT Changes in the portion of the fair value of derivative financial instruments or loans designated as a net investment hedge are recognised under other comprehensive income in the translation reserve until the hedged investment is divested or terminated. OTHER DERIVATIVE FINANCIAL INSTRUMENTS For derivative financial instruments that do not qualify for hedge accounting, changes in fair value are recognised in the income statement under financial items. Some contracts have terms and conditions equivalent to derivative financial instruments. Such embedded financial instruments are recognised separately and measured at fair value on a continuing basis if they differ significantly from the host contract, unless the entire combined contract is recognised and measured at fair value on a continuing basis. INCOME STATEMENT REVENUE Revenue comprises the sale of resale goods and finished goods. It is recognised in the income statement if risk was transferred to the buyer before year end; if the income can be reliably measured; and if payment is expected to be received. Revenue is measured exclusive of value added tax and all discounts granted. Contract work in progress is recognised in revenue based on the rate of completion, which means that revenue equals the selling price of the work completed for the year (percentage of completion method). COST OF SALES The cost of sales comprises direct and indirect expenses incurred to achieve revenue for the year, including expenses for material, consumables, wages and salaries, rent and leases and depreciation of production plant. 74

77 SALES EXPENSES Expenses incurred in conducting sales campaigns etc. during the year are recognised as selling expenses. Also, expenses relating to sales staff, advertising, exhibitions and depreciation are recognised as selling expenses. DISTRIBUTION EXPENSES This item comprises expenses incurred in distributing goods sold to customers during the year. ADMINISTRATIVE EXPENSES Administrative expenses comprise expenses for management and administration, including expenses for administrative staff, office premises and office expenses, and depreciation. RESEARCH AND DEVELOPMENT EXPENSES Research expenses are expensed as incurred. Development costs pertaining to the ongoing optimisation of production processes for existing products or to the development of new products are expensed as incurred, where lack of approval by the authorities, approval by customers, and other uncertainties do not fulfill the criteria for recognition in the balance sheet, are expensed as incurred. OTHER OPERATING INCOME AND EXPENSES Other operating income and expenses comprise items secondary to the principal activities of the entities, including gains and losses on the disposal of intangible assets and equipment. Gains and losses are determined as the selling price less selling costs and the carrying amount at the disposal date. SPECIAL ITEMS Special items include significant income and costs of a special nature in terms of the Group s revenue generating activities, such as the cost of extensive restructuring of processes and fundamental structural adjustments, as well as any gains or losses arising from disposals in this connection which have a material effect over a given period. This item also includes significant non-recurring items. Special items are shown separately in order to present a better view of the Group s operating profit and financial performance. FINANCIAL INCOME AND EXPENSES Financial income and expenses comprise interest income and expense, gains and losses on securities and impairment of securities as well as accounts and transactions in foreign currencies and the amortisation of financial assets and liabilities. TAX ON PROFIT/LOSS FOR THE YEAR Icopal is jointly taxed with the parent company RFG Midco a/s and the ultimate parent company Icopal Holding a/s and its Danish subsidiaries. The current Danish corporation tax is allocated between the jointly taxed Danish companies in proportion to their taxable income (full absorption with refunds for tax losses). These companies are taxed under the onaccount tax scheme. Tax for the year comprises current tax and changes in deferred tax for the reporting period. The tax expense relating to profit/loss for the year is recognised in the income statement, and the tax expense relating to changes directly recognised in other comprehensive income is recognised directly in other comprehensive income. DISCONTINUED ACTIVITIES A discontinued activitiy is an entity or a component of an entity that was divested, closed down, or is classified as held for sale. The entity or component represents a separate line of business or geographical area of operations and is part of a single coordinated disposal plan. Discontinued activities are presented in a separate line in the income statement and as assets held for sale and liabilities associated with assets held for sale. 75

78 BALANCE SHEET INTANGIBLE ASSETS GOODWILL Goodwill represents the excess of the cost of an acquisition over the fair value of identifiable net assets of the acquired enterprise. Goodwill is measured at historical cost less accumulated impairment losses. Goodwill is not amortised. The carrying amount of goodwill is allocated to the Group s cash-generating units at the acquisition date. The identification of cash-generating units is based on the management structure and internal financial control. Goodwill is tested for impairment annually and, in the event of impairment, the carrying amount is written down to the value in use. Impairment charges on goodwill are not reversed. Profits and losses on the divestment of an entity include the carrying amount of goodwill relating to the entity sold. DEVELOPMENT PROJECTS, TRADEMARKS, PATENTS AND LICENCES Development projects are recognised as intangible assets if these projects are clearly defined and identifiable; if the technical utilisation degree, sufficient resources and a potential future market or development opportunities for the Group are evident; and if the Group intends to produce, market or use the project. However, these projects are only recognised as intangible assets if the cost can be measured reliably and there is sufficient assurance that future earnings can cover production costs, selling and administrative expenses and costs to complete development. Other development costs are recognised in the income statement as incurred. Development costs that are recognised in the balance sheet are measured at cost less accumulated amortisation and impairment. Following the completion of the development work, development costs are amortised on a straight-line basis over the estimated useful life. Patents and licences are measured at cost less accumulated amortisation and impairment. Other intangible assets, including intangible assets acquired in business combinations, are amortised over the expected useful life. However, intangible assets with an indefinite useful life are not amortised but are tested for impairment annually. The Icopal trademark is not amortised, but other sub-trademarks are amortised over 10 years. Patents and licenses are amortised over the contractual term. PROPERTY, PLANT AND EQUIPMENT Land and buildings, plant and machinery and tools 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. The cost of internally generated assets comprises directly attributable payroll costs as well as the costs of materials, components, sub-suppliers, and wages and salaries. The cost price includes estimated costs for the dismantling and removal of the asset and restoration cost, to the extent these costs are recognised as a provision, as well as interest expense on loans to finance the production of property, plant and equipment during the production period. All other borrowing costs are recognised in the income statement. The cost of a combined asset is divided into components that are depreciated separately if they have different useful lives. Depreciation is calculated on a straight-line basis over the expected useful lives of the assets. The expected useful lives are as follows: Buildings Light buildings Plant and machinery Vehicles, equipment and furniture Land is not depreciated. 50 years 10 years 10 years 5-7 years 76

79 Depreciation is recognised in the income statement under the cost of sales, sales expenses, research and development expenses and administrative expenses. The depreciable amount is determined by taking into account the asset s residual value and is reduced by any impairment losses. The residual value is determined at the date of acquisition and reviewed annually. Depreciation ceases if the residual value of an asset exceeds its carrying amount. Gains and losses on the disposal of property, plant and equipment are determined as the difference between the selling price less disposal costs and the carrying amount at the date of disposal. The gains or losses are recognised in the income statement as other operating income or other operating costs, respectively, except for material gains and losses arising from disposal of land and buildings that are recognised under Special items. The carrying amount is subject to an annual impairment review. When an indication exists that assets may be impaired, the recoverable amount of the asset is determined. The recoverable amount is the higher of an asset s net selling price and its value in use. If neither an asset s net selling price nor its value in use is determinable, e.g. if cash flows from the asset are dependent on cash flows from other assets, the value in use is determined for the cash-generating unit to which the asset belongs. An impairment loss is recognised if the carrying amount of an asset or the net assets of a cash-generating unit, respectively, exceeds the recoverable amount of the asset or the cash-generating unit. Impairment losses are recognised in the income statement. LEASES Leases relating to property, plant and equipment under which the Group assumes substantially all the risks and rewards of ownership (finance lease) are recognised in the balance sheet as assets. The assets are initially recognised at cost, which is equivalent to the lower of their fair value and the present value of the future lease payments. The present value is measured using the interest rate implicit in the lease or an approximation thereof as the discount rate. The capitalised residual lease commitment on finance leases is recognised as a liability. All other leases are accounted for as operating leases. Lease payments under operating leases are recognised on a straight line basis in the income statement over the lease term. Information on the remaining lease commitment is disclosed in the notes under leasing commitments. INVESTMENTS IN SUBSIDIARIES AND ASSOCIATED COMPANIES OF THE PARENT COMPANY Investments in subsidiaries and associates are measured at cost. In the event of any indication of impairment (i.e. in case the carrying amount of the net assets of the subsidiary or the associate is lower than the carrying amount of the investment), impairment tests are carried out. This is the case if the carrying amount of the net assets in the consolidated financial statements is lower than the carrying amount of the investment. When the cost exceeds the recoverable amount, the carrying amount is written down to this lower value. The cost is reduced by dividends received in excess of accumulated earnings after the acquisition date. IMPAIRMENT OF NON-CURRENT ASSETS Goodwill and intangible assets with an indefinite useful life are tested for impairment annually, and the first time before the end of the year of acquisition. Development projects in process are also tested for impairment annually. The carrying amount of goodwill is tested for impairment together with the other non-current assets of the operating segment to which the goodwill was allocated and written down to the recoverable amount in the income statement if the carrying amount exceeds the value in use. As a rule, the recoverable amount is determined as the value in use to which the goodwill relates. Impairment losses relating to goodwill are recognised as amortisation in the income statement. An impairment loss is recognised whenever the carrying amount of an asset or cash-generating unit exceeds its value in use. Impairment losses are recognised in the income statement under depreciation, amortisation and impairment losses. 77

80 Impairment losses relating to goodwill are not reversed. Impairment losses relating to other assets are reversed to the extent that the assumptions or estimates that led to the impairment loss have changed. Impairment losses are only reversed to the extent that the asset s new carrying amount does not exceed the value the asset would have had after depreciation/amortisation if no impairment losses had been recognised. INVENTORIES Inventories are measured at cost in accordance with the weighted average method. If the net realisable value is lower than cost, inventories are written down to this lower value. The cost of goods for resale and raw materials and consumables comprises the purchase price plus expenses incurred in bringing the inventories to their existing location and condition. The cost of goods in progress, finished products and merchandise comprises the cost of raw materials, consumables, direct wages and salaries and indirect production overheads. Indirect production overheads comprise indirect materials, wages and salaries as well as maintenance and depreciation of production machinery, buildings and equipment as well as factory administration and management. The net realisable value of inventories is calculated as the selling amount less the costs of completion and costs necessary to make the sale. It is determined by taking into account marketability, obsolescence and the development of the expected selling price. RECEIVABLES Receivables are measured at amortised cost, which in all material respects corresponds to the nominal value, less impairment losses. Receivables are written down for bad debt losses on the basis of customers anticipated ability to pay and expectations of any changes to this ability, taking into account historical payment patterns, terms of payment, customer segment, credit-worthiness and prevailing conditions in the individual markets. Receivables, for which there is no objective indication of impairment at the individual level, are assessed at the portfolio level for objective evidence of impairment. Portfolios are based primarily on the customers credit office and credit assessment in accordance with the company s and the Group s credit risk management policy. Impairment losses are calculated as the difference between the carrying amount and the present value of the estimated future cash flows, including the realisable value of recoverable collateral, VAT and credit insurance. The discount rate applied is the effective interest rate of the individual receivable. Write-downs and losses on receivables are recognised as selling expenses. WORK IN PROGRESS Work in progress is measured at the selling price of the work performed less progress billings and anticipated losses. Work in progress is characterised by a high degree of individualisation in the design of the goods produced. Furthermore, a binding contract must be signed before commencement of the work that will result in a fine or compensation in case of subsequent cancellation. The selling price is measured according to the stage of completion at the balance sheet date in relation to the total expected income from the contract. The stage of completion is determined on the basis of an assessment of the work performed, and normally calculated as the ratio of expenses incurred to total anticipated expenses for the respective contract. When it is probable that the total contract costs will exceed the total contract revenue, the anticipated loss on the contract is immediately recognised as an expense and a provision. When income and expenses on work in progress cannot be determined reliably, the selling price is measured as the costs incurred that are likely to be recovered. If the selling price of work performed exceeds progress billings and anticipated losses, the excess is recognised as an asset. On the other hand, if progress billings and anticipated losses exceed the selling price of work in progress, the deficit is recognised as a liability. 78

81 PREPAYMENTS Prepayments from customers are recognised directly in liabilities and prepaid costs are recognised directly under assets both on a separate line. Costs relating to sales work and securing contracts are recognised in the income statement as incurred unless they can be directly attributed to a specific contract and it is probable that the contract will be entered into when the costs are incurred. DIVIDENDS Proposed dividends are recognised as a liability at the date when they are approved by the annual general meeting (declaration date). The expected dividend payment for the year is disclosed as a separate item under capital and reserves. TRANSLATION RESERVE The translation reserve in the consolidated financial statements comprises foreign exchange differences arising from the translation of the financial statements of foreign subsidiaries, investments in associates and long-term balances which are considered part of the investment in subsidiaries. Changes in the fair value of derivative financial instruments and external loans used to ensure that the net investment in foreign subsidiaries or associates effectively guards against exchange rate changes in these companies are recognised directly in equity under the translation reserve. When a net investment is realised in full or in part, the foreign exchange adjustments are recognised in the income statement. HEDGING RESERVE The hedging reserve contains cumulative fair value adjustments attributable to the hedged risk from derivative financial instruments (interest rate and commodity swaps) designated as cash flow hedges. These differences remain in the hedging reserve until the hedged transaction affect the income statement or is no longer expected to occur. RETIREMENT BENEFIT OBLIGATIONS AND SIMILAR OBLIGATIONS The Group has entered into retirement benefit schemes and similar arrangements with some of the Group s employees. Contributions to defined contribution plans are recognised in the income statement along with the employees delivering the related service. Any outstanding contributions are recognised in the balance sheet under Other payables. For defined benefit plans, an annual actuarial calculation (based on the Projected Unit Credit Method) is made of the present value of future benefits payable under the plan. The present value is determined on the basis of assumptions about the future development of variables such as salary levels, interest rates, inflation and mortality. The present value is determined only for benefits earned by employees from their employment with the Group. The actuarial present value less the fair value of any plan assets is recognised in the balance sheet under Employee benefit obligations. Pension costs for the year are recognised in the income statement on the basis of actuarial estimates and financial expectations at the beginning of the year. Differences between the expected development of pension assets and liabilities and the realised amounts at the end of the year are recognised directly in other comprehensive income. If changes in benefits relating to services rendered by employees in previous years result in changes in the actuarial present value, the changes are recognised as historical costs. Historical costs are recognised immediately. If a pension plan constitutes a net asset, the asset is only recognised to the extent that it represents future refunds from the plan or will lead to reductions in future contributions to the plan. Net Interest on defined benefit plans are recognised under financial expenses. 79

82 Other long-term employee benefits are recognised similarly based on an actuarial calculation. All actuarial gains and losses are recognised in the income statement immediately under Staff costs. Other long-term employee benefits comprise jubilee benefits, long-service or sabbatical leave etc. 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. Deferred tax is measured using the balance sheet liability method on all temporary differences between the carrying amount and the tax base of assets and liabilities. However, deferred tax is not recognised on temporary differences relating to goodwill and on office premises and other items where temporary differences, apart from business combinations, arise at the date of acquisition without affecting either profit/loss for the year or taxable income. If 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 carry forwards, are recognised at the expected value of their utilisation; either as an offset against tax on future income or as an offset against deferred tax liabilities in the same legal tax entity and jurisdiction. Deferred tax assets and liabilities are offset if the Icopal Group has a legally enforceable right to offset current tax liabilities and assets or intends to settle current tax liabilities and assets on a net basis or to realise tax assets and liabilities simultaneously. 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 be realised as current tax. The change in deferred tax as a result of changes in tax rates is recognised in the income statement. PROVISIONS Provisions comprise anticipated costs related to warranties, losses on work in progress, restructurings, etc. Provisions are recognised when, as a result of past events, the Group has a legal or a constructive obligation and it is probable that there may be an outflow of resources embodying economic benefits to settle the obligation. 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. Warranties comprise obligations to make good any defects within the warranty period of one to twenty years. Provisions for warranties are measured and recognised based on past experience. Provisions expected to be settled more than one year after the balance sheet date are discounted at the average local treasury bond interest rate. FINANCIAL LIABILITIES Amounts owed to mortgage credit institutions and banks are recognised at the borrowing date at the net proceeds received less transaction costs paid. In subsequent periods, the financial liabilities are measured at amortised cost, corresponding to the capitalised value using the effective interest rate. Accordingly, the difference between the proceeds and the nominal value is recognised in the income statement over the term of the loan. Due to the Amend and Extent process in 2013, which resulted in a non significant modification of the outstanding debt, transaction cost from this process were capitalised. CASH AND CASH EQUIVALENTS Cash and cash equivalents comprise cash as well as securities with less than three months to maturity at the time of acquisition, which can readily be converted into cash and cash equivalents and which only carry an insignificant risk of changes in value. 80

83 CASH FLOW STATEMENT The cash flow statement of the Group is prepared according to the indirect method based on the profit/loss after tax for the year. The cash flow statement shows the cash flows for the year broken down by operating, investing and financing activities and the effects of these cash flows on the cash and cash equivalents of the Group. CASH FLOWS FROM OPERATING ACTIVITIES Cash flows from operating activities are calculated as the profit/loss for the year after tax adjusted for non-cash operating items, changes in working capital, payments concerning financial income and expenses and corporation tax. CASH FLOWS FROM INVESTING ACTIVITIES Cash flows from investing activities comprise the purchase and sale of enterprises, the purchase and sale of intangible assets, property, plant and equipment and other non-current assets, dividends paid by associates as well as the purchase and sale of securities. Cost is measured as the purchase price excluding acquisition costs and selling prices less transaction costs. Cash flows related to acquired enterprises are recognised from the date of acquisition, and cash flows from sold enterprises are recognised up to the date of sale. CASH FLOWS FROM FINANCING ACTIVITIES Cash flows from financing activities comprise changes in the size and composition of the Group s share capital, related expenses, external financing and the repayment of interest-bearing debt as well as the payment of dividends to shareholders. NOTE 2 CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS The preparation of the consolidated financial statements requires management to make judgements, accounting estimates and assumptions that affect the application of accounting policies and the reported amounts of the Group s assets and liabilities, income and expenses. The most significant accounting estimates and judgements are presented below. ESTIMATION UNCERTAINTY The determination of the carrying amount of certain assets and liabilities requires estimates and assumptions concerning future events. The estimates and assumptions are based on historical experience and other factors which management assesses to be reliable, but which by their nature are associated with uncertainty and unpredictability. These assumptions may prove to be incomplete or incorrect, and unexpected events or circumstances may arise. Furthermore, the Group is exposed to a number of risks and uncertainties as a result of its operating, investing and financing activities. These risks may lead to actual results differing from estimates, both positively and negatively. Assumptions about the future and estimation uncertainty on the reporting date are described in the notes if there is a significant risk of changes that could result in material adjustments to the carrying amount of assets or liabilities within the next financial year. Short- and mid-term developments are highly influenced by the geopolitical situation in the Middle East and the Ukraine. Especially in the second half of the year, oil prices have been under pressure. These factors have influenced the economies, in the markets, where the Group was exposed in the past year. This meant a continuation of the fluctuations on financial markets experienced in past years. All estimates for the future, based on this knowledge are highly uncertain as there is no possibility of reliable prediction based on this unsteady past data in the current environment. Consequently, special attention was given to estimates and assessments to ensure that one-off effects which are not expected to exist over the long-term do not affect estimates and assessed factors such as discount rates and expectations concerning the future. 81

84 Management believes the preparation of the consolidated financial statements involves significant accounting estimates in the following areas: BUSINESS COMBINATIONS When businesses are acquired, the acquisition method is applied to the recognition of assets, liabilities and contingent liabilities of the acquiree. The most significant assets acquired generally comprise goodwill, brands, customer contract portfolios, related customer relationships and trade receivables. In general, the identification of assets, liabilities and contingent liabilities as well as the measurement of their fair value at the acquisition date are associated with judgment and measurement uncertainty. As there is no active market for the majority of acquired assets, liabilities and contingent liabilities, in particular with respect to acquired intangible assets, management makes estimates for the respective fair values. The determination of assets, liabilities and contingent liabilities may be subject to subsequent adjustment within 12 months. The unallocated purchase price (positive amount) is recognised as goodwill, which is allocated to the Group s cash-generating units. Management makes estimates of cash-generating units and the allocation of goodwill. Considering the uncertainties associated with the determination of the cash flows of acquired cash-generating units, it is the assessment of management that the allocation made by management is based on documented estimates. The difference between the carrying amounts of the acquired entities and the fair value of identifiable assets and liabilities is explained in note 29, Acquisition of enterprises and business activities. IMPAIRMENT OF GOODWILL AND BRANDS Goodwill and brands are tested for impairment at least annually or whenever an indication exists that the intangibles may be impaired. In performing the impairment test, management makes an assessment of whether the cash-generating unit to which the intangibles are allocated will be able to generate positive net cash flows sufficient to support the value of intangibles and other net assets of the entity. The recoverable amount of each cash-generating unit is determined on the basis of its value in use. The value in use is established using certain key assumptions. The key assumptions are revenue growth, the operating margin and the discount rate. Value-in-use cash flow projections are based on financial budgets approved by management for the following financial year. The operating margin is based on past performance and expectations for the future market development. The assumptions applied in the short- to medium-term are based on management s expectations regarding growth and the development of the operating margin. The terminal growth rates do not exceed the expected long-term average growth rate, including inflation, for the business in which the cash-generating units operate. Uncertainties reflecting historical performance and possible variations in the amount or timing of the future cash flows are reflected in the discount rate. To determine the country specific discount rates, which are calculated net of tax, a target equity/debt ratio of 1.5 is used. This was considered the optimal capital structure for Icopal and therefore the target capital structure. A country-specific risk premium was added to the discount rates to reflect the specific risk associated with each cash-generating unit. In addition, a small cap size premium was added to the discount rate for all cash-generating units. The Group s impairment tests are presented in note 15, Intangible assets. 82

85 DEFINED BENEFIT PLANS AND SIMILAR OBLIGATIONS Calculation of the net present value of the retirement benefit obligation involves a number of significant actuarial assumptions, including discount rates and the expected increases in future wages, salary, medical costs, mortality rates and retirement benefits. All the assumptions are assessed at the reporting date. The range and weighted average for these assumptions are disclosed in note 24, Employee benefit obligations. The value of the Group s defined benefit plans and other long-term employee benefits are based on valuations from external actuaries. PROVISIONS AND CONTINGENCIES Management assesses provisions, contingent assets and liabilities and the likely outcome of pending or probable lawsuits etc. on an ongoing basis. The outcome depends on future events that are uncertain by nature. In evaluating the likely outcome of lawsuits and tax disputes etc., management bases its assessment on external legal assistance and established precedents. Provisions are disclosed in note 26, Provisions and contingent liabilities are disclosed in note 31, Commitments and contingent liabilities. DEFERRED TAX ASSETS The recognition of deferred tax assets on tax loss carry-forwards is supported by the expected profitability in the foreseeable future. Deferred tax assets relating to tax loss carry-forwards are only recognised to the extent that it is more likely than not that future taxable profit will be available against which the unused tax losses can be utilised in the foreseeable future. It reflects any restrictions in utilisation defined by local tax legislation. This judgement is made on the reporting date based on budgets and estimates. The Group s tax assets are presented in note 25, Deferred tax. RECEIVABLES Receivables are measured at amortised cost less a provision for doubtful items. Provisions for doubtful items are based on management s assessment of the customer s ability to make the required payments. Management analyses impairment for specific receivables and at the portfolio level. All individually significant receivables are assessed for specific impairment. Receivables that are found not to be specifically impaired are collectively assessed for impairment at the portfolio level by grouping together receivables with similar risk characteristics. In assessing collective impairment, the Group uses historical trends for the probability of default, the timing of recoveries and the amount of losses incurred. This assessment is adjusted for management s judgement as to whether current economic and credit conditions are such that the actual losses are likely to be greater or smaller than suggested by historical trends. Receivables are disclosed in note 18, Trade receivables. ASSETS HELD FOR SALE/DISCONTINUED ACTIVITIES Assets held for sale/discontinued activities mainly comprise disposal groups and are measured at the lower of the carrying amount and fair value less costs to sell. Consequently, management makes estimates of the fair value of the disposal group. The estimated fair value may be associated with uncertainty and possibly adjusted subsequently depending on the nature of the disposal group s activity, assets and liabilities. Management considers impairment both on initial classification as held for sale and on subsequent measurement. The estimation uncertainty relating to impairment is described above. Assets held for sale are disclosed in note 20, Assets held for sale. 83

86 Additionally, management assesses the appropriate level of provisions to cover claims from purchasers or other parties in connection with divestments and representation and warranties issued in relation to divestments. JUDGEMENT IN RELATION TO APPLICATION OF ACCOUNTING POLICIES In applying the Group s accounting policies, management makes judgements which may significantly influence the amounts recognised in the consolidated financial statements. BUSINESS COMBINATIONS On investment in other entities, assessments are required to classify the investment as a subsidiary, joint venture or associate. The assessment is based on the agreement entered into on the acquisition of the ownership interest or voting rights in the entity etc. This classification is significant, as the recognition of joint ventures or associates impacts the consolidated financial statements differently than the full consolidation of subsidiaries or the recognition of associates under the equity method. SPECIAL ITEMS The designation as special items entails management judgement to separate these items from the ordinary operations of the Group. When special items are used, it is crucial that these items cannot be attributed directly to the Group s ordinary operating activities. Management carefully evaluates each item to ensure the correct distinction between the Group s ordinary operating activities and special items. LEASES The Group has entered into a number of leases and, for each lease agreement, an assessment is made to determine whether the lease is a finance lease or an operating lease. The Group primarily enters into operating lease agreements. Operating leases consist of leases and rentals of properties, vehicles (primarily cars), production equipment and other equipment. FINANCIAL INSTRUMENTS When entering into financial instruments, management assesses whether the instrument is an effective hedge of recognised assets and liabilities and expected future cash flows. The effectiveness of recognised hedge instruments is assessed on an annual basis and recognised in the income statement as described in note 1, Significant accounting policies. 84

87 Consolidated Financial Statements Icopal Group Notes to the Income Statement NOTE 3 - REVENUE BY REGION EUR THOUSAND REGIONAL STRUCTURE Icopal Group operates in 85 countries which are grouped into six regions based on business culture, size and internal synergy potentials. Furthermore similarities exist with regard to nature of products and production processes, distribution method and regulatory environment and therefore countries are also aggregated into regions. Beside five geographical regions, the Plastic & Metal product divisions which produce, but sell mainly through the five geographical regions, are combined into a region called Plastic & Metal. Chimneys and skylights are not included in this region but included in the geographical regions where production takes place. The Region Plastic & Metal comprises (i) Icopal Synthetic Membranes (synthetic membranes), (ii) Monarflex (underroofs, scaffold sheeting and tarpaulins), (iii) Decra (steel tiles) and (iv) Wijo (metal gutters). Bitumen products are normally produced in each region. However to complement the range of products offered by local entities, products are traded internally. This also applies for Plastic & Metal products, chimneys and skylights. All transactions between the regions are concluded following arm's length principle. Group Functions' comprise headquarter functions like e.g. Management, Finance, Procurement, HR & Legal, IT and R&D functions. REVENUE INFORMATION RECONCILIATION 2014 REGION EUROPE NORTH REGION EUROPE WEST REGION EUROPE CENTRAL REGION EUROPE EAST REGION NORTH AMERICA REGION PLASTIC & METAL TOTAL REGIONS GROUP FUNCTIONS ADJ. AND ELIM. TOTAL GROUP Revenue (external) Revenue (internal) TOTAL REVENUE 287, , , ,540 92,629 29,953 1,025, ,025,261 1,342 14,553 7,785 8, ,725 99,726 - (99,726) - 289, , , ,047 93,443 96,678 1,124,987 - (99,726) 1,025, REGION EUROPE NORTH REGION EUROPE WEST REGION EUROPE CENTRAL REGION EUROPE EAST REGION NORTH AMERICA REGION PLASTIC & METAL TOTAL REGIONS GROUP FUNCTIONS ADJ. AND ELIM. TOTAL GROUP Revenue (external) Revenue (internal) TOTAL REVENUE 288, , , ,620 89,204 31,453 1,025, ,025,930 1,079 9,155 7,987 7,615-45,305 71,141 - (71,141) - 290, , , ,235 89,204 76,758 1,097,071 - (71,141) 1,025,930 Region Europe North: Denmark, Finland, Iceland, Norway, Sweden 1, the Baltics Region Europe West: Belgium 1, France 1, Ireland, Italy, Japan, the Netherlands 1, Northern Africa, United Kingdom, Spain Region Europe Central: Austria, Germany 1 Region Europe East: Bulgaria, Czech Republic, Hungary, Poland, Romania, Russia, Slovakia 1 Region North America: Canada, USA Region Plastic & Metal: Belgium 1, France 1, Germany 1, the Netherlands 1, Slovakia 1, Sweden 1 1 These countries are listed in two different regions because within the countries the business activities are split into different regions PRODUCT GROUPS 85

88 Consolidated Financial Statements Icopal Group Notes to the Income Statement NOTE 3 - REVENUE BY REGION PRODUCT GROUPS Icopal Group product groups are presented below. Other products cover all revenue not covered by one of the above groups and not being installation services. Installation services reflect Icopal Group nordic installation business. FLAT ROOFING PITCHED ROOFING BUILDING ENVELOPE CIVIL ENGINEERING OTHER PRODUCTS INSTALLATION SERVICES TOTAL SALES ,120 97, , ,645 15,467 93,116 1,025, , , ,775 95,632 15, ,885 1,025,930 Products included in product Group: Bitumen membranes Shingles Underroofs Structural waterproofing Synthetic membranes Steel roof tiles Wall barriers PMB Liquid applied waterproofing Skylights & smoke ventilation Insulation Accessories Design membranes (3D) Below ground Scaffold sheeting Tarpaulins Sound deadening GEOGRAPHICAL AREAS Revenue from external customers attributed to Denmark amounted to MEUR 61.4 (2013: MEUR 56.6) while revenue attributed to all foreign customers amounted to MEUR (2013: MEUR 969.3). Revenue from external customers attributed to Denmark (i.e. domestic revenue) in this context means revenue generated by Danish based Group companies. INFORMATION ABOUT MAJOR CUSTOMERS The Icopal Group has no single customer contributing a share of revenue in excess of 10% of total revenue. No single customer contributes with more than 4% of total revenue. 86

89 Consolidated Financial Statements Icopal Group Notes to the Income Statement NOTE 4 - DEPRECIATION, AMORTISATION AND IMPAIRMENT LOSSES EUR THOUSAND INCLUDED IN THE INCOME STATEMENT Cost of sales 23,047 19,819 Selling expenses 1,832 1,949 Administrative expenses 6,379 6,528 Research and development costs 3,840 3,339 TOTAL 35,098 31,635 The depreciation of tangible assets totalled MEUR 23.1 in 2014 (2013: MEUR 21.9). Most of this amount is recognised under cost of sales. Depreciation, amortisation and impairment losses included in administrative expenses in 2014 and 2013 are as follows: DEPRECIATION, AMORTISATION AND IMPAIRMENT LOSSES INCLUDED IN ADMINISTRATIVE EXPENSES Impairment losses and write-downs Amortisation of trademarks 3,671 3,670 Amortisation of patents - 7 Other depreciation and amortisation 2,708 2,738 TOTAL 6,379 6,528 The amortisation of trademarks involves trademarks with a definite useful life (Siplast, Monarflex, Esha and Vedag). The Icopal trademark is classified as a trademark with an indefinite life. Furthermore, the Icopal Group recognised impairment charges for tangible assets of MEUR 2.1 in 2014 (2013: MEUR 0.4) due to the closure of a bitumen membrane factory in Slovakia. 87

90 Consolidated Financial Statements Icopal Group Notes to the Income Statement NOTE 5 - STAFF EXPENSES EUR THOUSAND Wages and salaries, etc 168, ,521 Pension expenses - defined contribution plans 8,629 7,346 Pension expenses - defined benefit plans (see note 24*) 870 2,176 Social security etc 38,072 38,251 Salaries and remuneration, etc. to the Executive Board 1,789 4,917 Board of Directors TOTAL 218, ,561 AVERAGE NUMBER OF EMPLOYEES 3,551 3,406 The average number of employees is calculated on a full-time equivalent basis and the increase is mainly related to the two acquisitions in 2014 and a timing difference between building up of the capacity of the new bitumen membrane line in Groningen and the reduction of staff in the closed bitumen membrane line in Rheinsheim. * Pension expenses from defined benefit plans can be reconciled by adding the effects of current and past service expenses and curtailment or settlement. Furthermore, as regards other employee benefit obligations, the effects of actuarial gains or losses are added. Remuneration to the Executive Board and Board of Directors is as follows: THE EXECUTIVE BOARD Salaries etc 1,606 4,735 Pensions THE BOARD OF DIRECTORS Fee The Board of Directors consists of six persons, and the Executive Board comprises the CEO and the CFO. The remuneration for the Board of Directors totalled a fixed annual fee of TEUR 350 in 2013 and TEUR 360 in The remuneration for the members of the Group Executive Team (GET) consists of a combination of a fixed salary and a bonus. The bonus programme for the Group Executive Team (GET) is capped at 50% of their fixed salary, with the exception of the CEO who has a cap of 100% of the fixed salary. The GET members and other top managers participate in the Group's Management Incentive Programme. The participants have not received warrants, but have been given the opportunity to invest in Icopal Holding a/s by purchasing shares. The share purchase constitutes 0.3% of the total company share capital. The shares do not carry voting rights and the employees covered by the programme are only allowed to sell the shares to a third party in connection with an IPO or divestment of the company to a third part (exit event). If an employee covered by the programme leaves his or her position before an exit event occurs, the person is obliged to offer the shares to the company based on a predetermined price formula. The fair value of this programme has been determined to zero. As a consequence of this setup no further disclosures according to IFRS 2 are required. The remuneration of the Executive Board in 2013 was driven by the payment of an extraordinary bonus of MEUR 3.1 to the CEO and the CFO. The extraordinary bonus was paid out due to the successful finalisation of the renegotiation of the loan agreements (amendment and extension) in the course of 2013 granting the company new covenants and extended debt maturities. The full amount was capitalised as cost related to the amended loan agreement and will be amortised throughout the remaining lifetime of the different loan tranches. 88

91 Consolidated Financial Statements Icopal Group Notes to the Income Statement NOTE 6 - FEES TO AUDITORS EUR THOUSAND Audit fees to PwC Audit fees to other auditors Tax advisory services, PwC Tax advisory services, other Accounting assistance, PwC 5 - Accounting assistance, other Other services, PwC 1 37 Other services, other TOTAL 1,248 1,432 NOTE 7 - SPECIAL ITEMS & OTHER OPERATING ITEMS, NET EUR THOUSAND SPECIAL ITEMS Operational restructuring activities (1,048) (10,742) Financial restructuring activities (150) - Net loss from divestments of enterprises and property (34) (153) Other non-recurring items 1,340 (6,291) TOTAL 108 (17,186) Special items for operational restructuring activities in 2014 are mainly related to the closure of a bitumen membrane line in Slovakia in 2014 and contain mainly severance payments. The financial restructuring activities presented in 2014 is related to external cost with regards to the preparation for an Initial Public Offering. Cost presented under other non-recurring items are mainly related to income from the reversal of an immaterial accounting mistake made in 2012 with MEUR 2.0 income in 2014 and expenses from the restructuring activities in Region Europe Central with the closure of one factory in Germany and the creation of a regional shared service center (i.e. severance payments). Most of the presented costs are compensation payments for terminated employees. Special items for operational restructuring activities in 2013 are mainly related to restructuring expenses in Germany, France and Belgium. The Group initiated a shared service center project in Germany for the whole Region Central, furthermore the production from the factory in Rheinsheim (Germany) is planned to be moved partly to Bamberg (Germany) and partly to Groningen (the Netherlands). The related expenses in special items are MEUR 8.1. The major part of the net loss from divestments of enterprises and property for the year 2013 related to the disposal of Norwegian property (MEUR 0.2). The amount under other non-recurring items is a net position mainly driven by MEUR 6.0 in conjunction with additional costs caused by the loss of margins related to the 2011 fire in Bamberg and Rheinsheim. Furthermore income from an insurance settlement after a fire in Norway (MEUR 1.9), cost related to the settlement of the pension scheme in Norway (MEUR 1.7), extraordinary project cost (MEUR 0.8) and subsequent tax payments related to a divestment made in 2011 (MEUR 0.4). EUR THOUSAND OTHER OPERATING ITEMS Other operating income 7,990 8,604 Other operating expenses 1,757 1,595 TOTAL 6,233 7,009 Other operating income and expenses comprise items secondary to the Group s principal activities such as gains and losses on the sale of equipment, income and expenses related to additional non-core services provided to customers, insurance compensation received and other minor costs. 89

92 Consolidated Financial Statements Icopal Group Notes to the Income Statement Notes to the Income Statement NOTE 3 - REVENUE BY REGION NOTE 8 - FINANCIAL INCOME EUR THOUSAND 2014 Interest Other Fair value adjustments Currency translation adjustments Total Financial assets and liabilities measured at fair value through profit and loss Cash and receivables 2, ,681 Financial liabilities measured at amortised cost - 1,514-16,838 18,352 TOTAL 2,681 1,514-16,838 21, Interest Other Fair value adjustments Currency translation adjustments Total Financial assets and liabilities measured at fair value through profit and loss Cash and receivables 1, ,025 Financial liabilities measured at amortised cost ,029 9,029 TOTAL 1, ,029 10,054 Income from financial liabilities measured at amortised cost in column Other, mainly relates to fair value adjustments of an environmental obligation in the Netherlands and long-term receivables in Norway. NOTE 9 - FINANCIAL EXPENSES EUR THOUSAND 2014 Interest Other Fair value adjustments Currency translation adjustments Total Financial assets and liabilities measured at fair value through profit and loss Financial liabilities measured at amortised cost 44, ,667 56,422 Interest component from Pensions 1, ,295 TOTAL 46, ,667 58, Interest Other Fair value adjustments Currency translation adjustments Total Financial assets and liabilities measured at fair value through profit and loss Financial liabilities measured at amortised cost 40, ,046 47,817 Interest component from Pensions 1, ,271 TOTAL 42, ,046 49,675 According to IAS 19 (Revised 2011), the interest expenses and expected return on plan assets, which were previously presented separately within financial income, have been presented as a net interest amount since Interest expenses from financial liabilities measured at amortised cost consist of paid and accrued interest and amortisation of bank fees from refinancing the Group. 90

93 Consolidated Financial Statements Icopal Group Notes to the Income Statement NOTE 10 - CORPORATION TAX EUR THOUSAND Current tax on profit before tax 16,054 9,261 Change in deferred tax (836) 587 TAX ON PROFIT BEFORE TAX 15,218 9,848 Adjustments related to previous years TAX ON PROFIT BEFORE TAX 15,429 9,912 Tax on profit before tax in discontinued activities (141) (142) TAX ON PROFIT IN CONTINUING ACTIVITIES 15,288 9,770 CALCULATION OF EFFECTIVE TAX RATE: Profit before tax including discontinued activities 19, Corporation tax in Denmark 24.5% 4, % 162 Difference in foreign tax rates 5.4% 1, % 2,039 Non-deductible expenses 39.0% 7, % 5,611 Change in valuation reserve 6.7% 1, % 4,285 One-off impact of changes in the tax rate 1.3% % (2,906) Adjustments related to previous years 1.1% % 721 EFFECTIVE TAX 77.9% 15,429 1,529.6% 9,912 Adjustment for discontinued activities -0.7% (141) -21.9% (142) EFFECTIVE TAX RATE IN CONTINUING BUSINESS 77.2% 15,288 1,507.7% 9,770 Tax on provisions for pensions (Actuarial losses, net) (1,903) (59) Tax on fair value adjustments to financial instruments (1,153) 998 Tax on currency translations (4,681) (371) INCOME TAX RELATING TO OTHER COMPREHENSIVE INCOME (7,737) 568 The difference in foreign tax rates is predominantly related to the USA, France and Germany, where the effective corporation tax rates are 40%, 33% and between 28% and 30%. The development of non-deductible expenses resulted from the write-down of the carrying amount of non-taxable assets in Sweden and Danish interest limitation rules. The line impact of changes in the tax rate for 2013 is influenced by the announced changes in the Danish corporation tax rate in the coming years and the related adjustments of the tax rate used for the calculation of deferred tax in the Danish legal entities and at Group level. The figure presented in the line effective tax rate for the year in continuing business is influenced by the low profit before tax presented for the Group and the fact that the tax expense is still relatively high due to local obligations to pay taxes. 91

94 Consolidated Financial Statements Icopal Group Notes to the Income Statement NOTE 11 - NET LOSS FROM DISCONTINUED ACTIVITIES EUR THOUSAND Discontinued activities comprise business activities that have been closed down, divested or reclassified as assets held for sale. DISCONTINUED ACTIVITIES ARE RECOGNISED IN THE INCOME STATEMENT AS FOLLOWS: Net loss from ordinary activities in discontinued activities (210) (1,586) NET LOSS FOR THE YEAR (210) (1,586) NET LOSS FROM DISCONTINUED ACTIVITIES: Cost of sales GROSS PROFIT (10) (29) Administrative expenses Other operating expenses 6 1,267 OPERATING LOSS (38) (1,331) Financial expenses LOSS BEFORE TAX (69) (1,444) Tax on profit NET LOSS FOR THE YEAR (210) (1,586) Neither in 2014 nor in 2013 did the Group divest any material activities. The following table summarises the status of entities that were classified as assets held for sale as of 31 December ACTIVITY Denmark metal Norway metal Icopal coating Russia roofing Poland roofing STRATEGY Closed down Closed down Closed down Closed down Closed down The companies presented above as being closed down are still in the liquidation process and consequently result in ongoing costs, explaining the result of discontinued activities. 92

95 Consolidated Financial Statements Icopal Group Notes to the Income Statement NOTE 12 - ADJUSTMENTS OF CASH FLOW EUR THOUSAND Depreciation, amortisation and impairment losses 35,098 31,635 Income tax 15,288 9,770 Net financial income 22,550 23,070 Change in provisions 1,283 16,449 Loss from sale of assets or activities Profit on sale of assets or activities (278) (189) TOTAL 73,994 80,943 NOTE 13 - CHANGE IN WORKING CAPITAL EUR THOUSAND Inventories (3,114) 13,000 Change in receivables 5,421 (751) Change in payables 1,518 (12,420) TOTAL 3,825 (171) NOTE 14 - CASH FLOW FROM DISCONTINUED ACTIVITIES EUR THOUSAND Net loss from discontinued activities (210) (1,586) Adjustments of cash flow (1,195) 3,543 Taxes paid 22 - Interest paid (29) (113) Interest received - 1 Change in inventories Change in trade and other receivables Change in trade and other payables (31) 532 CASH FLOWS FROM OPERATING ACTIVITIES (1,409) 2,441 CASH FLOWS FROM INVESTING ACTIVITIES - - Raising of financing (1,849) 112 CASH FLOWS FROM FINANCING ACTIVITIES (1,849) 112 NET CASH FLOWS FOR THE YEAR (3,258) 2,553 ADJUSTMENTS OF CASH FLOW IN DISCONTINUED ACTIVITIES Income tax Net financial income (918) 3,351 Change in provisions (418) 50 TOTAL (1,195) 3,543 93

96 Consolidated Financial Statements Icopal Group Notes to the Balance Sheet NOTE 15 - INTANGIBLE ASSETS EUR THOUSAND 2014 Goodwill Trademarks Patents Other Total Cost at 1 January 481, ,046 16,179 24, ,832 Currency translation 3,101 (685) 38 (100) 2,354 Additions for the year ,133 1,341 Acquisition of companies 2, ,714 Disposals for the year (1,335) (1,335) Transferred to assets held for sale Transferred to/from PPE and/or intangible assets category ,676 3,690 COST AT 31 DECEMBER 487, ,583 16,217 27, ,596 Amortisation/impairment losses at 1 January 59,918 25,653 12,992 15, ,613 Currency translation (150) (77) 79 Amortisation for the year - 4,326 1,409 4,159 9,894 Acquisition of companies Amortisation, disposed assets Disposals for the year (1,248) (1,248) Transferred to assets held for sale Transferred to/from PPE and/or intangible assets category Impairment losses for the year (1,953) (1,936) AMORTISATION AT 31 DECEMBER 57,865 30,255 14,431 18, ,670 CARRYING AMOUNT AT 31 DECEMBER 429, ,328 1,786 9, ,926 Group internal expenses included in assets above Book value of assets pledged as securities for loans, cf. note 31. 4,330 EUR THOUSAND 2013 Goodwill Trademarks Patents Other Total Cost at 1 January 505, ,698 16,171 19, ,669 Currency translation (20,286) (804) - (124) (21,214) Additions for the year ,308 2,468 Acquisition of companies Disposals for the year (3,255) - - (957) (4,212) Transferred to assets held for sale Transferred to/from PPE and/or intangible assets category ,121 3,121 COST AT 31 DECEMBER 481, ,046 16,179 24, ,832 Amortisation at 1 January 63,503 21,259 11,587 12, ,586 Currency translation (443) (108) (365) Amortisation for the year - 4,208 1,405 3,654 9,267 Amortisation, disposed assets Disposals for the year (3,255) - - (733) (3,988) Transferred to assets held for sale Transferred to/from PPE and/or intangible assets category Impairment losses for the year AMORTISATION AT 31 DECEMBER 59,918 25,653 12,992 15, ,613 CARRYING AMOUNT AT 31 DECEMBER 421, ,393 3,187 9, ,219 Group internal expenses included in additions of assets above ,492 2,492 Book value of assets pledged as securities for loans, cf. note 31. 3,773 The Icopal trademark is classified as a trademark (MEUR 95.2) with an indefinite useful life. This asset with an indefinite life is allocated to Region Europe North. The Siplast, Monarflex, Esha and Vedag trademarks are being amortised over a period of 10 years that will end in GOODWILL AND TRADEMARKS WITH AN INDEFINITE USEFUL LIFE 94

97 Consolidated Financial Statements Icopal Group Notes to the Balance Sheet NOTE 15 - INTANGIBLE ASSETS GOODWILL AND TRADEMARKS WITH AN INDEFINITE USEFUL LIFE The Icopal Group tests goodwill and trademarks with an indefinite useful life for signs of impairment each year. These tests compare the respective carrying amount with the recoverable amount of the asset, which is defined as the value in use. SIGNIFICANT ASSUMPTIONS FOR TESTING GOODWILL AND TRADEMARKS The main assumptions for the impairment tests are the growth in the forecast periods, growth in the terminal period and the discount rate applied. Growth rates are determined for each individual cash-generating unit based on current expectations for future years. This assessment is supported by internal market knowledge, but also by external macroeconomical sources. The forecasts used for these analyses were approved by the Executive board. Average nominal annual growth in revenue of % was estimated for the period which was in the following two periods decreased to the target growth rate for the years after 2020 (as described below). Icopal Group uses an impairment model with a ten year time horizon, but the projections based on the initial three years of the planning period are only applied for the first five years, while in the following years the cash flow growth converge the long-term growth rates (terminal growth). For the terminal period, a growth rate equal to the expected long-term inflation rate (2.5%) was applied. This growth rate is not expected to exceed the average long-term growth rate in the Icopal Group's markets. An estimated growth rate of 2-4% p.a. was used for the years after The WACC was determined in line with generally recognised principles and is based on the target capital structure with an equity/debt ratio of 1.5. It comprises the risk-free interest rate in the denominated currency, the premium on borrowings and equity for the targeted capital structure, a country premium and a general market size premium. An after-tax discount rate (WACC) of between 8.3%-11.7% was applied, depending on the Region in question. The discount rate applied in 2013 was calculated applying the same methodology showing a range between 9.3%-13.0%. GOODWILL & TRADEMARKS The Icopal Group was acquired in In connection with the subsequent purchase price allocation, goodwill was allocated to each region and the value of trademarks was capitalised. Intangible assets with an infinite life and property, plant and equipment are tested once each year or more often if there are indications of impairment. The impairment tests to goodwill and trademarks are performed on a regional basis, which is considered the lowest measurable cash-generating unit for these tests. The cash-generating units are based on the management structure. The management of the Group is centralised and directed by regional management teams, which are responsible for performance, investments and growth initiatives in their respective regions. The impairment test of goodwill and trademarks in each cash-generating unit is based on the discounted value of expected future free cash flows (value in use) as indicated in budgets for 2015, forecasts for the next two years and a further projection until 2024 where the growth rate approaches the level of inflation. The forecasts for and the budget for 2014 were approved by the Executive Board in July and December 2014, respectively. Key parameters include revenue growth, operating margins, future capital expenditure and growth expectations beyond the next five years. The regional WACC reflects an earnings-based weighted average of the strategic business units included in the region. The impairment tests of cash-generating units are based on a comparison of the recoverable amount, which corresponds to the discounted value of the expected future free cash flows, with the carrying amount of the individual cash-generating unit. The carrying amount comprises goodwill, trademarks and other net assets. Management does not believe that any probable changes to the fundamental assumptions will cause the carrying amount of goodwill and trademarks to exceed the recoverable amount in any of the regions. Based on the impairment tests, the Group did not have any impairments related to Goodwill or other intangible assets as at 31 December An accounting mistake from 2012 was reversed in 2014 and presented as a reversal of impairment of Goodwill. In the income statement, the amount is presented under special items. Since we did not consider this mistake to have a material impact to the financial statements we did not correct following the guidance for material accounting mistakes under IAS 8.42ff, but corrected directly through profit and loss. In the years Icopal recognised impairment charges of accumulated MEUR 63.5 to goodwill which are presented under the opening balance for accumulated amortisation. GOODWILL ALLOCATION TO REGIONS WACC Region Europe North 9.1% 194, ,711 Region Europe West 8.8% 52,360 54,405 Region Europe Central 8.3% 26,622 26,379 Region Europe East 11.7% 13,913 15,008 Region Plastic and Metal 8.6% 28,238 27,200 Region North America 9.2% 113,470 97,880 TOTAL 9.1% 429, ,583 95

98 Consolidated Financial Statements Icopal Group Notes to the Balance Sheet NOTE 16 - TANGIBLE ASSETS EUR THOUSAND 2014 Land and buildings Plant and machinery Vehicles, equipment and furniture Property, plant and equipment under construction Total Cost at 1 January 154, ,520 46,244 16, ,269 Currency translation (2,545) (2,031) (438) (547) (5,561) Additions from acquisitions 48 5, ,404 Additions for the year 1,759 13,582 3,439 19,442 38,222 Disposals for the year (264) (6,765) (2,936) (4) (9,969) Transferred to/from other PPE category and/or intangible assets 1,239 4, (10,347) (3,690) COST AT 31 DECEMBER 154, ,807 47,582 24, ,675 Depreciation at 1 January 61, ,984 34, ,075 Currency translation (2,063) (1,408) (331) - (3,802) Depreciation for the year 3,809 15,263 4,050-23,122 Additions from acquisitions for the year Disposals for the year (188) (6,765) (2,631) - (9,584) Transferred to/from other PPE category and/or intangible assets 31 (228) 6 - (191) Impairment losses for the year 1, ,065 DEPRECIATION AT 31 DECEMBER 65, ,368 35, ,404 CARRYING AMOUNT AT 31 DECEMBER 89,074 92,439 12,040 24, ,271 Group internal expenses included in assets above 716 3, ,004 8,780 Including assets under finance leases - - 3,147-3,147 Book value of assets pledged as securities for loans, cf. note ,556 Additions from the acquisition of companies are related to the acquisitions of shares in Sealoflex Inc., Charleston, USA, and the assets of MWK Kunststoffverarbeitungs GmbH, Wächtersbach, Germany, which were both made in January Total write-downs of tangible assets in 2014 amount to MEUR 2.1 and relate to the assets of the bitumen membrane producer Icopal a.s., Slovakia, due to the closure of the factory in The recoverable amount of the assets written down in Slovakia is MEUR 1.5, while the book value of the assets before the writedown was MEUR 3.6. The carrying amount of capitalised interest expenses is zero in the above property, plant and equipment balance. It is the Groups policy to capitalise interest expenses for investment projects with a total project value above MEUR 0.5 and a time horizon for implementation of more than 12 months. EUR THOUSAND

99 Consolidated Financial Statements Icopal Group Notes to the Balance Sheet NOTE 16 - TANGIBLE ASSETS EUR THOUSAND 2013 Land and buildings Plant and machinery Vehicles, equipment and furniture Property, plant and equipment under construction Cost at 1 January 154, ,817 46,480 27, ,580 Currency translation (3,993) (4,624) (1,188) (158) (9,963) Additions from acquisitions Additions for the year 1,833 11,346 3,538 15,897 32,614 Disposals for the year (13,641) (15,295) (3,352) (101) (32,389) Transferred from assets held for sale 9, ,549 Transferred to/from other PPE category and/or intangible assets 6,089 16, (26,875) (3,122) COST AT 31 DECEMBER 154, ,520 46,244 16, ,269 Depreciation at 1 January 56, ,621 33, ,165 Currency translation (1,611) (2,980) (959) - (5,550) Depreciation for the year 3,980 13,576 4,368-21,924 Additions from acquisitions for the year Disposals for the year (4,088) (12,835) (3,009) - (19,932) Transferred from assets held for sale 6, ,137 Transferred to/from other PPE category and/or intangible assets Impairment losses for the year DEPRECIATION AT 31 DECEMBER 61, ,984 34, ,075 Total CARRYING AMOUNT AT 31 DECEMBER 92,348 85,536 12,136 16, ,194 Group internal expenses included in assets above 108 9, ,537 Including assets under finance leases ,507 3,628 Book value of assets pledged as securities for loans, cf. note ,769 Total write-downs of tangible assets in 2013 amounted to MEUR 0.3 and relate to the assets of the steel tile manufacturing entity Decra, Belgium (MEUR 0.2), and assets of Icopal B.V., Netherlands (MEUR 0.1). The recoverable amount of the assets written down in Belgium is MEUR 7.6, while the book value of the assets before the write-down was MEUR 7.8. The write-down in 2013 in Belgium was caused by recent years' development of the business with steel tiles from a local point of view. The sizeable amounts presented in the lines for disposal of tangible assets are mainly related to the sale and leaseback of the second part of land in Norway, which results in operational leasing. Notes to the Balance sheet NOTE 17 - INVENTORIES EUR THOUSAND Inventories 113, ,841 Amount of write-down of inventories recognised as expense during the year 3,185 3,339 Amount of reversal of write-down of inventories during the year The reversal of write-downs in 2014 and 2013 resulted from the sale of goods at a higher value than the previously adjusted carrying amount. The stated amounts are mainly related to activities in Icopal Region Europe East. Obsolete raw materials and finished goods are generally scrapped and are fully written down. The costs of scrapped goods are included in the cost of sales. Raw materials and finished goods are measured at the lower of net realisable value and cost. 97

100 Consolidated Financial Statements Icopal Group Notes to the Balance Sheet NOTE 18 - TRADE RECEIVABLES EUR THOUSAND Aging of receivables: Trade receivables Provisions Net Net Not due 90,486 (176) 90,310 94,014 Overdue 0 to 30 days 16,874 (128) 16,746 18,144 Overdue 31 to 60 days 2,735 (163) 2,572 2,853 Overdue 61 to 90 days 1,180 (128) 1,052 1,476 Overdue 91 to 120 days 821 (143) Overdue 121 to 150 days 389 (139) Overdue more than 150 days 10,686 (9,628) 1, TOTAL, NET 123,171 (10,505) 112, ,745 Total trade receivables, gross 123, ,477 Provisions for bad debt 10,505 10,732 TOTAL TRADE RECEIVABLES, NET 112, ,745 PROVISIONS FOR BAD DEBTS: Provisions, beginning 10,732 10,794 Currency translation (100) 185 Acquisition of companies 5 - Transferred to/from assets held for sale - - Additions for the year 2,617 3,623 Reversals for the year (2,153) (2,300) Losses realised in the year (596) (1,570) PROVISIONS, END 10,505 10,732 Receivables that are not past due are deemed to predominantly have a high credit quality. Security is not normally required for receivables. The Group s customers are typically large well consolidated builders merchants and contractors, and the credit rating of customers is monitored and evaluated on a regular basis. Only limited security had been provided at 31 December The Group engaged into a Group wide credit insurance programme based on the principles that (i) all receivables from participating companies above TEUR 10 are insured and (ii) standard procedures have been defined regards the approval of new customers and credit lines. Since not all legal entities within the Group participate and still some receivables originate from the time pre this new credit insurance programme, the existing provisions for bad debt are still justified. Receivables are written down if an individual debtors ability to pay has deteriorated, for example as a result of suspension of payments, compulsory winding-up or similar events, based on the individual assessment of each receivable. In these cases, write-downs are made to the estimated net realisable value. Based on our assessment, there are no individually significant provisions included in the presented amount. The income statement for 2014 recognises write-downs and losses on bad and doubtful debts of MEUR 0.8 (2013: MEUR 1.6). Doubtful debts as a percentage of sales remained stable at 1.0% in 2013 and Icopal does not have a single significant trade debtor nor are the trade receivables concentrated in specific regions. NOTE 19 - WORK IN PROGRESS EUR THOUSAND Sales value 47,470 51,761 Invoicing on account 46,458 50,541 TOTAL 1,012 1,220 The following is recognised: Work in progress, receivables 2,444 2,886 Work in progress, payables 1,432 1,666 TOTAL 1,012 1,220 Prepayments from customers on non-commenced contracts Retained payments Revenue recognised from contract work in progress amounted to MEUR 93.1 in 2014 (2013: MEUR 101.9). All receivables relating to work in progress are expected to be received within 12 months. 98

101 Consolidated Financial Statements Icopal Group Notes to the Balance Sheet NOTE 20 - ASSETS HELD FOR SALE EUR THOUSAND Other non-current assets ,791 TOTAL ,791 The business entities included in assets held for sale are described in note 11. Liabilities held for sale amounted to MEUR 1.0 in 2014 and constituted mainly short term bank borrowings and provisions. Liabilities held for sale amounted to MEUR 2.3 in 2013 and constituted borrowings (MEUR 1.6) and trade and other payables (MEUR 0.7). NOTE 21 - OTHER RECEIVABLES EUR THOUSAND Derivative financial instruments Other receivables 11,848 11,112 TOTAL 12,399 11,112 Other receivables mainly consist of VAT receivables, other indirect tax receivables and supplier bonus receivables. NOTE 22 - PREPAYMENTS EUR THOUSAND Insurance 1,293 1,167 Prepaid rent Other prepayments 2,448 2,774 TOTAL 3,948 4,209 NOTE 23 - CASH AND CASH EQUIVALENTS EUR THOUSAND Cash - bank accounts 36,337 52,121 Cash equivalents - short-term deposits TOTAL 36,353 52,238 99

102 Consolidated Financial Statements Icopal Group Notes to the Balance Sheet NOTE 24 - EMPLOYEE BENEFIT OBLIGATIONS EUR THOUSAND Pension obligations 41,686 35,145 Other employee benefit obligations 5,072 5,010 TOTAL 46,758 40,155 Other employee benefit obligations consist of obligations regarding jubilee, long-service benefits and other social benefits. The Group has entered into pension agreements with a significant number of the Groups employees. The majority of the plans are defined contribution plans, but defined benefit plans are in place in Norway, Sweden, Germany, France and Slovakia. DEFINED CONTRIBUTION PLANS: The Group finances the plans through regular premium payments to independent insurance companies that are responsible for the pension obligations. When the pension contributions of the defined contribution plans have been paid, the Group has no further pension obligations towards current or former employees. DEFINED BENEFIT PLANS: For certain groups of employees, the Group has historically entered into agreements to pay certain benefits, including pensions. These obligations are not, or only partly, covered by insurance. These uninsured plans were recognised in the balance sheet and income statement as shown below. Pension obligations Other employee benefit obligations BALANCE SHEET Net present value of funded obligations 8,256 5,321 1, Fair value of plan assets Funded obligations, net 8,195 5,108 1, Net present value of non-funded obligations 33,491 30,037 4,059 4,063 OBLIGATION RECOGNISED IN THE BALANCE SHEET 41,686 35,145 5,072 5,010 TOTAL COMPREHENSIVE INCOME Current service expenses (554) (443) (260) (253) Past service costs Interest expenses (1,161) (1,494) (134) (141) Expected return on assets Payments made Actuarial losses (7,028) (247) (300) (302) Curtailment or settlement 184 (1,511) - - TOTAL AMOUNT RECOGNISED IN TOTAL COMPREHENSIVE INCOME (8,498) (3,331) (693) (696) Realised return on plan assets: Refunds from the plan Actuarial losses/gains - (13) - - REALISED RETURN ON PLAN ASSETS AT 31 DECEMBER Driven by a legal obligation, major parts of the defined benefit plan obligation in Norway were transferred to a defined contribution plan in The impact of this settlement (MEUR 1.7) is visible in the line curtailment or settlement and was booked under special items (note 7) in

103 Consolidated Financial Statements Icopal Group Notes to the Balance Sheet NOTE 24 - EMPLOYEE BENEFIT OBLIGATIONS Pension obligations Other employee benefit obligations MOVEMENT IN THE PENSION OBLIGATION RECOGNISED Obligation at 1 January 35,358 44,478 5,010 5,469 Currency translation (335) (2,012) (36) (6) Current service expenses 554 2, Past service costs (60) Interest expenses 1,161 1, Employee contributions (11) Actuarial losses 7, Benefits paid (1,752) (2,119) (730) (1,149) Transfer to public defined contribution plan (196) (9,077) ACTUARIAL OBLIGATIONS AT 31 DECEMBER 41,747 35,358 5,072 5,010 MOVEMENT IN THE FAIR VALUE OF PLAN ASSETS Fair value of plan assets at 1 January , Currency translation (14) (1,858) - - Refunds from the plan Actuarial gains Employer contributions Settlements (158) (9,122) - - FAIR VALUE OF PLAN ASSETS AT 31 DECEMBER The development of plan assets in 2013 was mainly driven by the transfer of major parts of the Norwegian defined benefit plan into defined contribution plans. APPLIED ACTUARIAL ASSUMPTIONS (%) Range Range Range Range APPLIED ASSUMPTIONS IN GERMANY Discount rate 2.10%-2.40% 3.30%-3.80% 2.10%-4.58% 3.30%-3.80% Refunds from the plan Medical cost trend Future increase in salaries 2.75%-3.30% 2.50%-3.30% 2.80%-3.30% 2.50%-3.30% Future pension increases 2.00%-3.30% 1.50%-2.00% 2.00%-3.30% 1.50%-2.00% The German plan covers most of the total obligation. Therefore, these assumptions are extracted and presented in isolation. APPLIED ASSUMTIONS (REMAINING PLANS) Discount rate 1.08%-3.00% 2.50%-4.00% 2.00%-3.10% 2.50%-4.00% Refunds from the plan 3.00% 3.80% - - Medical cost trend 3.00% 3.50% 3.00% 2.20%-3.30% Future increase in salaries 1.20%-4.60% 2.50%-3.80% 2.00%-4.10% 2.00%-3.30% Future pension increases 0.10%-3.30% 0.60%-2.00% 2.00%-3.30% 2.00% MORTALITY ASSUMPTIONS Female Male Actuaries perform the necessary calculations and valuations for all of the Group s defined benefit plans each year. The actuarial assumptions vary from country to country due to local conditions. The above assumptions represent the presented range within the Group. Discount rates are based on the market yield of high quality corporate bonds or government bonds with a maturity approximating the term of the defined benefit obligations. In Germany, which represents more than 69% of the net obligation, the discount rate was 2.10%-4.58% and future increases in salaries 2.75%-3.30%. At 31 December 2014, 1,125 persons (2013: 1,157 persons) were members of an Icopal defined benefit plan pension programme. The last pension plan in Germany was closed in 1994 and the pension plan in Norway was closed in The Swedish plan is the only remaining long-term pension plan that is open for new members. The plans in France and Slovakia are not long-term pension plans as is the case for the plans in Norway, Sweden and Germany. In the French organisation, including the affiliate in Italy, and in the Slovakian subsidiary, 347 employees are entitled to receive a one-time bonus at retirement. The amount of the bonus depends on the number of years worked at the company, and is calculated as a multiple of the average monthly salary, according to a branch agreement. The range of bonus is between one and six month s salary. These plans are open for new members. Icopal's contributions to its asset plan in Norway amounted to TEUR 14 in Similar amount is expected to be paid in The remaining pension plans are 101

104 Consolidated Financial Statements Icopal Group Notes to the Balance Sheet Icopal's contributions to its asset plan in Norway amounted to TEUR 14 in Similar amount is expected to be paid in The remaining pension plans are uncovered. In 2014 the total benefits paid were MEUR 1.8 vs. MEUR 2.1 in 2013 and are estimated to reflect a similar level in DISTRIBUTION OF PLAN ASSETS TO COVER OBLIGATION (%) Shares 11% 11% Bonds 62% 62% Properties 12% 12% Cash and cash equivalents 15% 15% TOTAL 100.0% 100.0% EUR THOUSAND Actuarial obligations 41,747 35,358 44,478 40,648 38,445 Plan assets ,702 10,743 10,954 UNCOVERED OBLIGATIONS 41,686 35,145 33,776 29,905 27,491 GAIN/(LOSS) GAIN/(LOSS) ON ON PLAN PLAN ASSETS ASSETS Gain (loss) on plan assets (182) 49 (168) Gain/(loss) on projected benefit obligations - 69 (411) - (291) The quantitative sensitivity analysis for significant assumptions at 31 December 2014 as presented below is based on information received for the German pension scheme covering around 69% of the total obligation. ASSUMPTIONS 2014 Discount rate Medical cost trend Future increase in salaries Future pension increases Mortality assumptions Increase 1.0% 0.25% 0.5% 0.5% 1 Year Impact on the net defined benefit obligation (2,981) 1, (1,205) Decrease 1.0% 0.25% 0.5% 0.5% 1 Year Impact on the net defined benefit obligation 3,740 (1,302) - (74) 1,195 ASSUMPTIONS 2013 Discount rate Medical cost trend Future increase in salaries Future pension increases Mortality assumptions Increase 0.7% 0.25% 0.5% 0.5% 1 Year Impact on the net defined benefit obligation (1,738) ,050 (937) Decrease 0.3% 0.25% 0.5% 0.5% 1 Year Impact on the net defined benefit obligation 827 (594) (72) (1,138) 956 The sensitivity analysis above has been determined based on a method that extrapolates the impact on net defined benefit obligation as a result of reasonable changes in key assumptions occuring at the end of the reporting period. The medical cost trend is reflected by applying the assumption of the expected inflation rate to the development of medical costs going forward. The following payments are expected contributions to be made in the future years out of the defined benefit plan obligation: Within the next 12 months (next annual reporting period) 1,085 1,053 Between two and five years 4,608 4,563 Between five and ten years 5,894 5,927 TOTAL EXPECTED PAYMENTS WITHIN TEN YEARS 11,587 11,

105 Consolidated Financial Statements Icopal Group Notes to the Balance Sheet NOTE 25 - DEFERRED TAX EUR THOUSAND Deferred tax at 1 January 34,334 35,275 Addition related to acquisition of companies - - Adjustment due to changed tax rate (623) 112 Reconciliation adjustment in case of different tax rates 250 (1,632) Adjustments related to previous years (253) 67 Change in deferred tax - recognised in the income statement (671) 437 Change in deferred tax - recognised in other comprehensive income (2,341) 75 DEFERRED TAX AT 31 DECEMBER 30,696 34,334 Deferred tax at 31 December in discontinued activities DEFERRED TAX AT 31 DECEMBER IN CONTINUING ACTIVITIES 31,080 34,887 Deferred tax assets 17,959 18,844 Deferred tax liabilities 49,039 53,731 DEFERRED TAX AT 31 DECEMBER 31,080 34,887 SPECIFICATION OF DEFERRED TAX Intangibles 29,488 28,905 Tangibles 22,027 27,928 Financial assets (148) (186) Inventory (430) (67) Receivables 1, Provisions (10,463) (9,702) Other non-current liabilities 4,231 2,983 Other current liabilities (1,550) (696) Tax losses carried forward (16,450) (16,249) Valuation adjustments 2,651 1,087 Tax credits 253 (244) TOTAL DEFERRED TAX AT 31 DECEMBER 30,696 34,334 Deferred tax at 31 December in discontinued activities DEFERRED TAX AT 31 DECEMBER IN CONTINUING ACTIVITIES 31,080 34,887 AMOUNTS DUE AFTER 12 MONTHS, ESTIMATED 28,685 30,549 TAX LOSS CARRY-FORWARD Total tax losses carry-forward 126, ,292 Tax losses expected to be utilised 66,046 65,586 UNRECOGNISED TAX LOSS CARRY FORWARDS 60,863 51,706 DEFERRED TAX ASSETS FROM TAX LOSSES RECOGNISED IN THE BALANCE SHEET 16,450 16,249 UNRECOGNISED TAX LOSS CARRY-FORWARDS PER COUNTRY Germany 18,377 15,824 Slovakia 17,315 12,387 Russia 15,901 14,017 Belgium 5,483 8,859 Other countries 3, UNRECOGNISED TAX LOSS CARRY-FORWARDS 60,863 51,706 The Icopal Group offsets tax assets and liabilities if and only if it has a legally enforceable right to set off current tax assets and current tax liabilities and the deferred tax assets and deferredd tax liabilities relate to income and taxes levied by the same tax authority. The valuation adjustments are higher than last year mainly due to corrected future expectations in Slovakia and Russia. Tax loss carry-forwards are only recognised to the extent that it is more likely than not that future taxable profit will be available against unused tax losses within a five-year time horizon. Any restriction in utilisation in the local tax legislation likely to have an impact has been taken into account. The Group has unrecognised tax loss carry-forwards mainly in Belgium, Germany, Russia and Slovakia. Countries with smaller unrecognised tax loss carryforwards are presented under other countries. These unrecognised tax losses can be carried forward indefinitely in the individual countries with the current business structure, with the exception of Russia and Slovakia where tax losses can be carried forward for ten and five years, respectively. 103

106 Consolidated Financial Statements Icopal Group Notes to the Balance Sheet NOTE 26 - PROVISIONS EUR THOUSAND Warranties Other Total Total Provisions at 1 January 8,980 26,825 35,805 18,564 Currency translations 342 (494) (152) (180) Additions for the year 4,215 15,405 19,620 25,805 Additions from acquisitions Reversed in the year (1,831) (1,336) (3,167) (1,509) Adjusting for discontinued activities (1,830) Used in the year (3,016) (14,589) (17,605) (5,045) PROVISIONS AT 31 DECEMBER 9,157 25,921 35,078 35,805 Current 5,203 20,248 25,451 25,344 Non-current 3,954 5,673 9,627 10,461 TOTAL 9,157 25,921 35,078 35,805 The Icopal Group companies provide normal warranties in respect of products and services supplied to customers. The provision for warranty obligations therefore relates to warranties provided for products supplied prior to the balance sheet date. The warranty period varies depending on normal practice in the market in question. The warranty period is typically between one and five years. Warranty obligations have been determined separately for each company based on normal practice in the specific market and historical warranty costs. Other provisions cover a variety of short- and long-term obligations. However, the majority of the long-term obligations refer to site restoration and similar environmental obligations. The obligations were calculated on the basis of internal and external assessments. These obligations are not expected to materialise within the next five years. The majority of the current obligations refer to environmental obligations in Norway and provisions related to restructuring processes started in Germany and Slovakia. The Group started in 2014 the process of cleaning up the Norwegian land. 104

107 Consolidated Financial Statements Icopal Group Notes to the Balance Sheet NOTE 27 - BORROWINGS Icopal s debt is financed through bank loans and is structured under three loan agreements: the Senior Facilities Agreement, the Mezzanine Facility Agreement and the Payment in Kind (PIK) Facility Agreement. The PIK Facility Agreement was entered into by RFG Midco a/s. The majority of the business units in the Icopal Group are guarantors under the Senior Facilities Agreement and the Mezzanine Facility Agreement. The debt is denominated in different currencies and was pushed down to the business units in the Icopal Group. The following tables show the main conditions in the loan agreements: As of 10 September 2013, Icopal succeeded in the Amend and Extend process, which was initiated beginning of 2013, in front of a London royal court. The Group agreed on new maturities for major parts of the current loan portfolio which postponed repayments of loans to mid Only the maturities for tranche A remained unchanged which left the Group with repayments of appr. MEUR 20.2 in There are no repayments during 2015 and Furthermore new covenants have been agreed with the banks leading to a situation with more headroom throughout the entire loan period. In exchange for more favorable maturity and covenants, Icopal paid consent fees of MEUR 3.6 to the lenders and agreed to higher interest levels going forward. As the new conditions do not reflect a significant change in the conditions of the financing structure from an accounting point of view, a de-recognition of the existing liabilities was not performed and the new borrowing cost were capitalised in December The amortisation period of the existing cost was consequently adjusted to new maturities of loans. EUR THOUSAND LONG-TERM BORROWINGS Senior bank borrowings 383, ,636 Senior bank borrowings - revolving credit facility 2,084 - Second lien bank borrowings 48,932 48,194 Mezzanine bank borrowings 131, ,425 Debt relating to capital leases 2,113 2,688 Other debt and bank borrowings 5,999 6,396 TOTAL BEFORE AMORTISATION OF FINANCING EXPENSES 573, ,339 Amortised borrowing costs (15,232) (21,800) TOTAL LONG-TERM BORROWINGS 558, ,539 SHORT-TERM BORROWINGS Senior bank borrowings - 20,844 Amortised borrowing costs (30) (214) Other debt and bank borrowings Debt relating to capital leases 1, TOTAL SHORT-TERM BORROWINGS 1,394 21,765 TOTAL BORROWINGS 559, , TIME TO MATURITY FOR LONG-TERM BORROWINGS 1-2 years 2-3 years 3-4 years 4-5 years > 5 years Total Senior bank borrowings - 383, ,182 Senior bank borrowings - revolving credit facility - 2, ,084 Second lien bank borrowings - 48, ,932 Mezzanine bank borrowings - 131, ,347 Debt relating to capital leases 1, ,113 Other debt and bank borrowings 2, ,500 5,999 TOTAL 4, , , , TIME TO MATURITY FOR LONG-TERM BORROWINGS 1-2 years 2-3 years 3-4 years 4-5 years > 5 years Total Senior bank borrowings , ,636 Senior bank borrowings - revolving credit facility Second lien bank borrowings , ,194 Mezzanine bank borrowings , ,425 Debt relating to capital leases 933 1, ,688 Other debt and bank borrowings 392 2, ,500 6,396 TOTAL 1,325 4, , , ,

108 Consolidated Financial Statements Icopal Group Notes to the Balance Sheet NOTE 24 - EMPLOYEE BENEFIT OBLIGATIONS BANK BORROWINGS Effective interest rate Maturity Carrying amount % of total borrowing 2014 Inherent rate risk Floating rate 0.17% 1 months 267,187 46% Cash flow Swap rate 0.99% ,894 54% Fair value Fixed credit spread 5.55% 2-3 years - Fair value Amortisation of financing fees 2-3 years (15,262) TOTAL BANK BORROWINGS 559,819 The stated effective interest rates are average weighted values. The fixed credit spread is paid in addition to the floating and fixed interest rates. The floating rate is based on year-end The average interest rate in 2014 was 7.78% (2013: 6.72%). CURRENCY OF THE PRINCIPAL INTEREST-BEARING DEBT TRANSLATED INTO EUR Debt with floating rate Debt with fixed rate Floating rate Fixed rate EUR 148, , % 0.65% NOK 14,618 34, % 2.30% SEK 21,936 26, % 1.87% GBP 12, % 0.00% USD 69,038 61, % 0.88% DKK % 0.00% Other TOTAL 267, ,894 Total interest-bearing debt comprises bank borrowings and shareholder borrowings less amortised costs BANK BORROWINGS Effective interest rate Maturity Carrying amount % of total borrowing Inherent rate risk Floating rate 0.38% 1 months 225,808 39% Cash flow Swap rate 2.13% 0 years 349,510 61% Fair value Fixed credit spread 5.30% 0-4 years - Fair value Amortisation of financing fees 3-4 years (22,014) TOTAL BANK BORROWINGS 553,304 Total interest-bearing debt comprises header bank borrowings plus shareholder borrowings excluding amortised financing fees. CURRENCY OF THE PRINCIPAL INTEREST-BEARING DEBT TRANSLATED INTO EUR Debt with floating rate Debt with fixed rate Floating rate Fixed rate EUR 128, , % 2.09% NOK 15,056 55, % 3.09% SEK 20,301 33, % 3.00% GBP 11, % - USD 49,220 60, % 0.89% DKK % - Other % - TOTAL 225, ,510 Total interest-bearing debt comprises bank borrowings and shareholder borrowings less amortised costs. 106

109 Consolidated Financial Statements Icopal Group Notes to the Balance Sheet NOTE 24 - EMPLOYEE BENEFIT OBLIGATIONS Total interest-bearing debt comprises bank borrowings and shareholder borrowings less amortised costs. PRESENT VALUE OF RECOGNISED LEASING DEBTS FOR FINANCE LEASES Due within one year 1, Due between 1-5 years 2,113 2,688 Due after 5 years - - TOTAL 3,147 3,628 MINIMUM LEASING REPAYMENT AT THE BALANCE SHEET DATE Due within one year 1,101 1,001 Due between 1-5 years 2,553 3,248 Due after 5 years - - TOTAL 3,654 4,249 Lease payments 3,654 4,249 Sublease payments - - TOTAL 3,654 4,249 The Icopal Group leases production equipment under finance leases. The lease term is typically between two and five years, with an option to purchase the asset in question at a favourable price on expiry of the lease term. All leases follow a fixed repayment profile and none of the leases includes provisions for conditional lease payments, apart from a provision for indexation based on public indices. The leases are non-cancellable during the agreed lease term, but may be extended on renewed terms. The leases are normally based on a fixed interest rate. NOTE 28 - OTHER PAYABLES EUR THOUSAND Derivative financial instruments 5,567 5,440 Accrued VAT, duty and payroll tax 10,506 12,105 Prepayments from customers Other creditors 42,326 42,907 TOTAL 58,775 60,

110 Consolidated Financial Statements Icopal Group Notes to the Balance Sheet NOTE 29 - ACQUISITION OF ENTERPRISES AND BUSINESS ACTIVITIES In January 2014 the Icopal Group acquired the assets of MWK Kunststoffverarbeitungs GmbH in Wüchtersbach, Germany, which were transferred into the dormant company Icopal Kunststoffverarbeitungs GmbH, Wächtersbach, Germany (formerly Icopal Coating GmbH). Furthermore the Group acquired 100% of the shares in Sealoflex Inc, United States of America in January The purchase price for the acquisitions totalled MEUR 7.7, which consists of MEUR 6.6 in below table plus MEUR 1.1 for (i) transferred consideration related to the acquisition of Wolfin in 2011 and (ii) for the purchase of 49% in STS Støvring A/S, Denmark (Installation Service). The expected annual revenuefor Sealoflex Inc is approximately MEUR 5.0. The expected annual revenue for Icopal Kunststoffverarbeitungs GmbH (formerly MWK KunststoffverarbeitungsGmbH) is approximately MEUR 15.0 of which approximately 75% is delivered to Wolfin GmbH (internal revenue). Both acquisitions are considered to be immaterial for the total Group. The following table summarizes the allocation of the companies purchase price to the fair value of assets acquired and liabilities assumed: Sealoflex (Group) Kunststoffverarbeitungs GmbH Total ASSETS CURRENT ASSETS Cash and cash equivalents Accounts receivable Prepayments and other current assets CURRENT ASSETS 1,694-1,694 NON-CURRENT ASSETS Property, plant and equipment 191 4,000 4,191 Intangible assets Investments in associates and joint ventures Deferred tax assets TOTAL NON-CURRENT ASSETS 303 4,000 4,303 TOTAL ASSETS 1,997 4,000 5,997 LIABILITIES CURRENT LIABILITIES Accounts payable and accrued liabilities 1,156-1,156 Loans and borrowings TOTAL CURRENT LIABILITIES 2,109-2,109 NON-CURRENT LIABILITIES Loans and borrowings Deferred tax liabilities (101) - (101) TOTAL NON-CURRENT LIABILITIES TOTAL LIABILITIES 2,241-2,241 IDENTIFIABLE NET ASSETS AT FAIR VALUE (244) 4,000 3,756 Non-controlling interests measured at preliminary fair value Goodwill 2,871-2,871 TOTAL CONSIDERATION TRANSFERRED 2,627 4,000 6,627 The acquisition of Sealoflex offers the Icopal Group access to a new range of odour-free liquid-applied waterproofing solutions, which can be sold going forward through the existing sales channels in the Group, supported by the experienced Icopal sales forces. The synergies for cross selling opportunities actually make up the major part of the goodwill capitalised. 108

111 Consolidated Financial Statements Icopal Group Notes to the Balance Sheet NOTE 29 - ACQUISITION OF ENTERPRISES AND BUSINESS ACTIVITIES EUR THOUSAND Pro forma revenue and operating profit before special items. Since all acquisitions in the year were included as from the beginning of January 2014, the effect on revenue and operating profit before special items is included fully in profit and loss for the period. Consequently, we made adjustments for the figures of the acquisitions to present the organic growth of the Group: PRO FORMA REVENUE Revenue recognised in the income statement 1,025,261 1,025,930 Acquisitions (8,643) - Revenue adjusted for acquisitions 1,016,618 1,025,930 Divestments - - PRO FORMA REVENUE 1,016,618 1,025,930 PRO FORMA OPERATING PROFIT BEFORE SPECIAL ITEMS Operating profit before special items recognised in the income statement 57,138 58,900 Acquisitions (49) - Operating profit before special items adjusted for acquisitions 57,089 58,900 Divestments - - PRO FORMA OPERATING PROFIT BEFORE SPECIAL ITEMS 57,089 58,900 Since there were no divestments in 2014, no adjustment of the above presented line items was necessary to show the correct pro forma figures for the Group. Generally, the effects of the divestments are excluded from revenue and operating profit before special items as these activities are classified as discontinued activities in the income statement. APPLIED ASSUMPTIONS The adjustment of revenue and operating profit before special items was based on estimates made by local Icopal management in the respective jurisdictions where the acquisitions and divestments occurred at the time of the transactions or was based on actual results where available. Synergies from acquisitions are not included for periods in which such acquisitions were not controlled by the Group. The estimates are based on unaudited financial information. These adjustments and the computation of total revenue and operating profit before special items calculated on a pro forma basis after such adjustments are presented for informational purposes only. This information does not necessarily represent the results the Group would have achieved had the acquisitions and divestments during the year occurred on 1 January. 109

112 Consolidated Financial Statements Icopal Group Notes to the Balance Sheet NOTE 30 - DIVESTED ACTIVITIES Neither in 2014 nor in 2013 did the Group divest any material activities. The remaining assets held for sale presented in the balance sheet belong to activities, which were already under liquidation or in the process of being liquidated as soon as certain legal requirements were fulfilled. NOTE 31 - COMMITMENTS AND CONTINGENT LIABILITIES Operating leases consists of leases and rentals of properties, vehicles (primarily vans and company cars) and other equipment. The total expense under operating leases in the income statement amounted to MEUR 12.6 for 2014 (2013: MEUR 11.2) and the future minimum lease payments under operating leases are as follows: EUR THOUSAND Due within one year 9,972 9,915 Due between 1-5 years 25,024 18,761 Due after 5 years 9,194 8,750 TOTAL 44,190 37,426 Lease payments in the year 12,701 10,780 Sublease payments in the year (151) 460 EXPENSED PAYMENTS RELATING TO OPERATIONAL LEASING 12,550 11,240 LEASING CATEGORIES Rental expense relating to properties and mobile sites 6,549 5,450 Rental expense relating to cars, machinery, computers, etc. 6,001 5,790 EXPENSED PAYMENTS RELATING TO OPERATIONAL LEASING 12,550 11,240 CONTINGENT LIABILITIES The Group is party to certain lawsuits, disputes etc. of various scopes. It is management s opinion that, apart from what is recognised on the balance sheet or disclosed in the consolidated financial statements, the outcome of these lawsuits, disputes etc. will not have a material negative effect on the Group s financial position. Certain guarantees were issued in connection with previous disposal of entities and business activities. Other than as recognised on the balance sheet or disclosed in the consolidated financial statements, these guarantees will not have a material effect on the Group s financial position. On the 20 November 2014 the Danish Competition and Consumer Authority conducted a dawn raid at the premises of Icopal Danmark a/s. The Danish Competition and Consumer Authority's investigation is still ongoing. Icopal does not expect a potential claim to have a material impact on Icopal's financial position, operating profit or cash flow. CONTRACTUAL COMMITMENTS: The Group has entered into service contracts of various lengths in respect of sales, logistics and IT. Costs related to the contracts are recognised as the services are received. SENIOR FACILITY AGREEMENT AND SECURITISATION Icopal s debt is financed through bank loans and is structured under three loan agreements: the Senior Facilities Agreement, the Mezzanine Facility Agreement and the Payment in Kind (PIK) Facility Agreement. The PIK Facility Agreement was entered into by RFG Midco a/s and subsequently pushed down to Icopal a/s through a shareholder loan. The last part of this shareholder loan (MEUR 36.9) was converted into equity in The majority of the business units in the Icopal Group are guarantors under the Senior Facilities Agreement and the Mezzanine Facility Agreement. Under these Facility Agreements the business units are required to grant security over shares, receivables, intellectual property, bank accounts and real estate in support of their obligations under the Facilities. The following table summarises the carrying amount of pledged assets. INDIVIDUAL ASSETS DIRECTLY PLEDGED Property, plant and equipment 144, ,769 Intangibles 4,330 3,773 Inventory 54,783 61,095 Receivables 98, ,358 Bank accounts 75,649 68,435 BOOKED VALUE OF PLEDGED INDIVIDUAL ASSETS 377, ,430 In addition, as guarantors the business units are subject to a negative pledge covenant which restricts their ability to grant security to other parties. The majority of the shares in entities that acceded to the agreements as well as entities that did not accede to the loan agreements were pledged. The agreements also require guarantor coverage for at least 75% of EBITDA and gross assets of the Group. 110

113 Consolidated Financial Statements Icopal Group Notes to the Balance Sheet NOTE 32 - RELATED PARTIES Icopal a/s is wholly owned and controlled by RFG Midco a/s. The ultimate controlling company of the Group is Icopal Holdings S.à.r.l. The controlling entity is managed by Investcorp Ltd. Related parties to the parent company are the Executive Board, the Board of Directors and senior executives in the subsidiaries and associated companies. Apart from employment contracts and a specific bonus agreement in 2013 related to the "Amend and Extent" project with the Group Management (MEUR 3.1), no agreements or transactions have been entered into between the company, the Executive Board, the Board of Directors and senior executives. Remuneration to the Board of Directors, the Executive Board and senior executives is disclosed in note 5. Investcorp. Ltd. took on specifically defined consultancy assignments (board fee) in 2014 and 2013 for a remuneration of TEUR 88 per quarter. Transactions between the Group companies comprise deposits, loans, management fees, royalties and interest. The following table shows the value of the transactions between Icopal a/s and the related parties. EUR THOUSAND 2014 TRANSACTIONS WITH RELATED PARTIES - GROUP Parent company Board of Directors Fees and other considerations Interest expenses - - TOTAL Outstanding amounts at 31 December TRANSACTIONS WITH RELATED PARTIES - GROUP Parent company Board of Directors Fees and other considerations Interest expenses TOTAL Outstanding amounts at 31 December As there are no material transactions between the Group and the associated companies, no information is disclosed. ASSOCIATED COMPANIES Financial information of associates which are measured using the equity method: Country of incorporation Garantiselskabet Dansk Tagdækning A/S Denmark 50% 50% STS Støvring a/s Denmark 49% 0% Syddansk Tagdækning A/S Denmark 49% 49% Multi Cap Tech Oy Finland 19% 24% WUPPI A/S Denmark 20% 20% The only companies of the above which are considered to have a material impact to the financial statements of the Group are Syddansk Tagdækning A/S and STS Støvring a/s. Syddansk Tagdækning is a roofing company which is located in Jutland, Denmark. The remaining 51% are owned by private persons. As the existing shareholder agreements do not indicate that Icopal has the power or authority to exercise control over the company, it is consequently treated as an associated company. The company prepares financial statement as at 30 September. Figures provided below are annualised figures for the period from 1 January to 31 December. STS Støvring a/s is also a roofing company in Jutland, Denmark. Existing shareholder agreements do not indicate that Icopal has the power or authority to exercise control over the company, therefore the company is treated as an associated company. The remaining 51% of the shares are owned by private persons and the financial year of the company follows the calendar year. 111

114 Consolidated Financial Statements Icopal Group Notes to the Balance Sheet NOTE 24 - EMPLOYEE BENEFIT OBLIGATIONS The summarised financial information are provided below. This information is based on amounts before intercompany elimination. Consolidated statement of profit or loss for Syddansk Tagdækning A/S and STS Støvring a/s: EUR THOUSAND Contribution margin 2, Fixed expenses 2, Other operating items - (1) OPERATING PROFIT BEFORE SPECIAL ITEMS Special items Financial items 28 (12) PROFIT BEFORE TAX Tax on profit PROFIT FROM CONTINUING ACTIVITIES TOTAL COMPREHENSIVE INCOME GROUP'S SHARE OF PROFIT FOR THE YEAR Consolidated statement of financial position at 31 December 2014 for Syddansk Tagdækning A/S and STS Støvring a/s (Since STS Støvring was acquired in July 2014, comparative figures do not include this investment): EUR THOUSAND Total non-current assets Total current assets excluding cash and cash equivalents 2, Cash and cash equivalents 589 (84) Total non-current liabilities Total current liabilities 1, EQUITY 1, Proportion of the Group's ownership 49% 49% Carrying amount of the investment 2,081 1,276 NOTE 33 - EVENTS AFTER THE BALANCE SHEET DATE No significant events occurred after the closing of the financial year that would have a material impact on the consolidated financial statements for

115 Consolidated Financial Statements Icopal Group Other Notes NOTE 34 - DERIVATIVE FINANCIAL INSTRUMENTS RISK MANAGEMENT FINANCIAL RISKS The Group's activities create exposure to various financial risks. These risks include market risk (foreign exchange risk, interest rate risk and commodity risk), credit risk and liquidity risk. It is the Icopal Group s policy not to speculate actively in financial risks. The Groups financial risks are managed by Group Finance. The risk management framework is described in the management review. The risk management activities are basically unchanged compared with For further information regarding the refinancing of the Group conducted in 2013, we refer to note 27. MARKET RISK Market risk is the risk that changes in market prices, such as foreign exchange rates and interest rates, will affect the Groups earnings and/or equity. To reduce part of the exposure to these risks, the Group use financial instruments to minimise volatility in profit and loss. FOREIGN EXCHANGE RISK A significant part of the Groups activities and investments take place in countries that have a different currency than the EUR. Foreign exchange risk (i.e. translation risk) is therefore a principal financial risk for the Group and exchange rate fluctuations can therefore have a significant impact on the income statement and the balance sheet. The Group is exposed to foreign exchange risks on revenue and purchases, as the predominant part of revenue and purchases originates from foreign entities and is translated into the Groups presentation currency (EUR). The Group is primarily exposed to foreign exchange risks in the following currencies: USD, NOK, SEK, PLN and GBP. The exposure to fluctuations in EUR/DKK is considered insignificant due to Denmarks fixed exchange rate policy towards the EUR. Furthermore, the Group is exposed to a foreign exchange risk on cash flow from operations in countries where there is no natural hedge relationship between cash flow from operations and loans. The Group has chosen not to hedge the exposure from the translation of revenue or earnings in foreign currencies, but hedges specific cash flows in certain cases. The Group is exposed to transaction risks on purchases in currencies other than the functional currency of the local entities. It is therefore Group policy to hedge sizeable future cash flows in currencies other than the functional currency. INTEREST RATE RISK The most significant interest rate risk in the Group relates to borrowings. The Groups exposure is related primarily to short-term interest rates in EUR, NOK, USD, SEK, and GBP. The interest rate risk on debt is managed centrally by Group Finance with the use of interest rate swaps. The composition of the Groups applicable interest rate is shown in note 27. If all other factors are equal and based on the Icopal Group's average net interest-bearing debt, a 1% p.a. increase in the average interest rate level would have had a pre-tax negative impact of MEUR 0.0 in 2014 (2013: MEUR 2.2). The positive effect on equity would have been MEUR 2.4 million (2013: EUR 5.1 million). The following table shows the position in each denominated currency. FOREIGN CURRENCY EXPOSURE: Financial assets and liabilities in foreign currencies at December 31 are as follows: CURRENCY Maturities Assets Liabilities Derivatives Net position Net position EUR < 1 year 87,116 70,998 32,256 48,374 52, years - 92,409 (2,498) (94,907) years ,202 - (235,063) (5,160) 3-4 years (195) (323,428) 4-5 years (320) > 5 years 843 2,500 - (1,657) (2,173) TOTAL EUR 88, ,304 29,758 (283,437) (278,371) NOK < 1 year 17,438 19,491 - (2,053) (17,064) 1-2 years - - (949) (949) 14, years - 46,891 - (46,891) (447) 3-4 years 3, ,340 (50,320) 4-5 years > 5 years TOTAL NOK 20,778 66,382 (949) (46,553) (53,758) 113

116 Consolidated Financial Statements Icopal Group Other Notes NOTE 34 - DERIVATIVE FINANCIAL INSTRUMENTS SEK < 1 year 8,315 9,200 - (885) 3, years - - (853) (853) years - 48,311 - (48,311) (272) 3-4 years (51,271) 4-5 years > 5 years TOTAL SEK 8,315 57,511 (853) (50,049) (47,824) GBP < 1 year 11,784 4,937-6,847 7, years years - 12,579 - (12,579) years (11,199) 4-5 years > 5 years TOTAL GBP 11,784 17,516 - (5,732) (3,749) USD < 1 year 16,007 7,805-8,202 10, years - - (148) (148) (154) 2-3 years - 129,791 - (129,791) (228) 3-4 years (108,715) 4-5 years > 5 years TOTAL USD 16, ,596 (148) (121,737) (98,897) PLN < 1 year 12,731 6,329 (32,823) (26,421) (25,753) 1-2 years years years years > 5 years TOTAL PLN 12,907 6,376 (32,823) (26,292) (25,461) DKK < 1 year 7,435 15,340 - (7,905) years years years years > 5 years 2, ,081 1,349 TOTAL DKK 9,516 15,340 - (5,824) 2,344 Other < 1 year 11,102 4,308-6,794 8, years years years (38) years > 5 years TOTAL OTHERS 11,213 4,384-6,829 8,795 Capitalised fees (15,262) 15,262 22,014 TOTAL 178, ,147 (5,015) (517,533) (474,907) 114

117 Consolidated Financial Statements Icopal Group Other Notes NOTE 34 - DERIVATIVE FINANCIAL INSTRUMENTS SENSITIVITY ANALYSIS The following table shows the hypothetical impact on the consolidated financial statements including derivalives. SENSITIVITY OF PROFIT BEFORE TAX TO CURRENCY FLUCTUATIONS EUR THOUSAND % increase in USD/EUR % increase in NOK/EUR (7) 62 5% increase in SEK/EUR (52) 11 5% increase in PLN/EUR 24 (69) 5% increase in GBP/EUR 81 9 A decrease in the exchange rates would, all other things being equal, have the reverse impact on the consolidated financial statements. Fluctuations in foreign exchange rates will also affect the level of debt, as borrowing is obtained in different currencies. If USD, NOK, SEK, PLN and GBP increased by 5%, the monetary items would have increased by MEUR 11.9 at year-end 2014 (2013: MEUR 12.1). HEDGE ACCOUNTING The Icopal Group uses financial instruments, including derivatives, to reduce financial risks. The financial instruments used by the Group are classified under level 2. Consequently the fair value of these derivatives, and in most cases non-derivative financial instruments, is determined based on observable market data using generally accepted methods. HEDGING OF INVESTMENT IN FOREIGN SUBSIDIARIES A change in the fair value of financial instruments (both derivatives and debt instruments) used to hedge the foreign exchange risk associated with investments in a foreign currency is recognised in other comprehensive income. Where the fair value adjustments do not exceed the value adjustment of the investment, the adjustments of the financial hedge instruments are recognised in other comprehensive income; otherwise the fair value adjustments of the excess hedged amount are recognised in the income statement. In addition, loans classified as additions to net investments were granted to subsidiaries. Foreign exchange adjustments to these loans are recognised in other comprehensive income together with foreign exchange adjustments of foreign subsidiaries. EUR THOUSAND Net Investments Net Position Net Investments Net Position EUR & DKK 418,726 (289,261) 414,086 (276,027) NOK 77,573 (46,553) 87,605 (53,758) SEK 68,340 (50,049) 67,204 (47,824) GBP 10,134 (5,732) 10,342 (3,749) USD 122,728 (121,737) 116,085 (98,897) PLN 36,785 (26,292) 37,794 (25,461) Others - 6,829-8,795 TOTAL 734,286 (532,795) 733,116 (496,921) The acquisition of Icopal resulted in the implementation of a new financing structure. Bank loans were obtained in different currencies in order to match the composition of the underlying earnings in the different currencies. In connection with the first-time adoption of IFRS, the Icopal Group decided to allocate the bank loans in accordance with the valuation of the subsidiaries. Consequently, this is considered the initial allocation of the net investment and is the value to hedge. Given that the underlying loans match the net investments, no derivatives are used for the currencies related to the major loan tranches net investment hedging. Icopal Group engaged into cross currency swap during the year for NOK and PLN to match the net investment hedge structure. The NOK/EUR swap expired in November In 2014 and 2013 all fair value adjustments were recognised as other comprehensive income. LIQUIDITY RISK Liquidity risk is defined as the risk that the Icopal Group will not, in a worst-case scenario, be able to meet its financial obligations due to insufficient liquidity. Icopal ensures the availability of required liquidity through a combination of cash management and uncommitted as well as committed facilities. Icopal uses cash pooling for the optimisation and centralisation of cash management. For non-cash pool affiliates, surplus cash above the balance required for working capital management is deposited with the parent company, which invests surplus cash in money market deposits and marketable securities. The maturity profile of the assets and liabilities is shown in the following table: The gross amount of financial assets and liabilities within the cash pooling is MEUR 81.8 in 2014 (MEUR in 2013). Accordingly the amount set off in 115

118 Consolidated Financial Statements Icopal Group Other Notes NOTE 34 - DERIVATIVE FINANCIAL INSTRUMENTS The gross amount of financial assets and liabilities within the cash pooling is MEUR 81.8 in 2014 (MEUR in 2013). Accordingly the amount set off in accordance with the underlying requirements is MEUR 80.2 in 2014 (MEUR 60.7 in 2013). MATURITY PROFILE Cash flows from financial assets and liabilities EUR THOUSAND 2014 Carrying < 1 year 1-3 years 3-5 years > 5 years Total Fair value amount ASSETS: MEASURED AT FAIR VALUE THROUGH EQUITY Interest-rate swaps FX swap MEASURED AT FAIR VALUE THROUGH PROFIT AND LOSS Other derivatives MEASURED AT AMORTISED COST Other investments and securities 11, ,340 2,884 17,761 17,761 17,761 Trade and other receivables 124, , , ,514 Cash 36, ,353 36,353 36,353 TOTAL CASH FLOW FROM FINANCIAL ASSETS 172, ,389 2, , , ,179 LIABILITIES: MEASURED AT FAIR VALUE THROUGH EQUITY Interest-rate swaps - 4, ,448 4,448 4,448 Commodity swaps 1, ,119 1,119 1,119 MEASURED AT FAIR VALUE THROUGH PROFIT AND LOSS Other derivatives MEASURED AT AMORTISED COST Bank loans , , , , ,672 Debt relating to capital leases and other debt 1,034 1, ,147 3,147 3,147 Shareholder borrowings trade payables and other creditors 120, , , ,443 TOTAL CASH FLOW FROM FINANCIAL LIABILITIES 122, , , , , ,829 NET CASH FLOW FROM FINANCIAL LIABILITIES 49,607 (591,410) 2, (538,476) (499,507) (506,650) Undiscounted cash flows for floating-rate loans are determined by using current interest rate assumptions for the remaining maturity. RECONCILIATION OF ASSETS, EQUITY AND LIABILITIES: Other investments and securities 17,761 Trade receivables 112,666 Other receivables (excl. derivative financial instruments 11,848 Derivative financial instruments 551 Cash 36,353 TOTAL VALUE ON FINANCIAL ASSETS 179,179 Non-financial assets 908,290 ASSETS 1,087,469 Borrowings 559,819 Trade payables 78,117 Other creditors (cf. note 28) 42,326 Derivative financial instruments 5,567 Amounts owed to affiliated companies - TOTAL VALUE ON FINANCIAL LIABILITIES 685,829 Non-financial liabilities 150,583 Equity 251,057 EQUITY AND LIABILITIES 1,087,

119 Consolidated Financial Statements Icopal Group Other Notes NOTE 34 - DERIVATIVE FINANCIAL INSTRUMENTS MATURITY PROFILE Cash flows from financial assets and liabilities EUR THOUSAND 2013 < 1 year 1-3 years 3-5 years > 5 years Total Fair value Carrying amount ASSETS: MEASURED AT FAIR VALUE THROUGH EQUITY Interest-rate swaps FX swap MEASURED AT FAIR VALUE THROUGH PROFIT AND LOSS Other derivatives MEASURED AT AMORTISED COST Other investments and securities 11,435 4,391 1,557 17,383 17,383 17,383 Trade and other receivables 129, , , ,857 Cash 52, ,238 52,238 52,238 TOTAL CASH FLOW FROM FINANCIAL ASSETS 181,288 11,708 4,595 1, , , ,478 LIABILITIES: MEASURED AT FAIR VALUE THROUGH EQUITY Interest-rate swaps - 1, ,976 1,976 1,976 Commodity swaps 3, ,464 3,464 3,464 MEASURED AT FAIR VALUE THROUGH PROFIT AND LOSS Other derivatives MEASURED AT AMORTISED COST Bank loans 44,084 37, , , , ,676 Debt relating to capital leases and other debt 1,101 2, ,249 3,628 3,628 Shareholder borrowings Trade payables and other creditors 115, , , ,641 TOTAL CASH FLOW FROM FINANCIAL LIABILITIES 164,260 42, , , , ,385 NET CASH FLOW FROM FINANCIAL LIABILITIES 17,028 (31,045) (586,052) 1,848 (598,221) (460,837) (474,907) RECONCILIATION OF ASSETS, EQUITY AND LIABILITIES: Other investments and securities 17,383 Trade receivables 118,745 Other receivables (excl. derivative financial instruments) 11,112 Derivative financial instruments - Cash 52,238 TOTAL VALUE ON FINANCIAL ASSETS 199,478 Non-financial assets 896,071 ASSETS 1,095,549 Borrowings 553,304 Trade payables 72,734 Other creditors (cf. note 28) 42,907 Derivative financial instruments 5,440 Amounts owed to affiliated companies - TOTAL VALUE ON FINANCIAL LIABILITIES 674,385 Non-financial liabilities 156,478 Equity 264,686 EQUITY AND LIABILITIES 1,095,549 CASH FLOW HEDGES 117

120 Consolidated Financial Statements Icopal Group Other Notes NOTE 34 - DERIVATIVE FINANCIAL INSTRUMENTS CASH FLOW HEDGES The Group uses interest rate swaps to hedge its exposure to fluctuations in future cash flows due to changes in interest rates on floating-rate loans. Changes in the fair value of interest rate swaps designated as cash flow hedges are recognised in equity in a separate hedging reserve until the hedged transaction is realised. At this time, gains and losses concerning such hedging transaction are transferred from equity and recognised in the income statement in the same line as the hedged item. The interest rate swaps were entered into in October 2013 under a forward-based agreement where the actual exchange of interest payments will take place from 2014 to As in 2013, Icopal continued to hedge its purchase of bitumen in 2014 as part of the commodity hedging strategy. Bitumen is the main raw material component in the production of roofing membranes. The Group only hedges its purchase of bitumen where the price is linked to the HSFO (High Sulphur Fuel Oil) price, meaning the hedge will always be 100% effective. The commodity swap where the Group pays a fixed USD-denominated price is combined with a forward currency instrument to convert stated USD prices into the reporting currency EUR. MARKET VALUE OF INTEREST RATE SWAPS 2014 Interest expenses from financial liabilities Fair value Fair value changes recognised in OCI Maturity EUR 185 million interest rate swaps, fixed rate payer - (2,497) (1,432) Dec USD 75 million interest rate swaps, fixed rate payer - (148) 24 Dec NOK 315 million interest rate swaps, fixed rate payer - (949) (502) Dec SEK 250 million interest rate swaps, fixed rate payer - (854) (582) Dec Fair value changes transferred to income statement 1, TOTAL 1,956 (4,448) (2,492) 2013 from Interest financial expenses liabilities Fair value Fair recognised value changes in OCI Maturity EUR 185 million interest rate swaps, fixed rate payer - (1,065) (1,065) Dec USD 75 million interest rate swaps, fixed rate payer - (172) (172) Dec NOK 315 million interest rate swaps, fixed rate payer - (474) (474) Dec SEK 250 million interest rate swaps, fixed rate payer - (272) (272) Dec EUR 200 million interest rate swaps, fixed rate payer - - 4,021 Dec USD 83 million interest rate swaps, fixed rate payer Dec NOK 445 million interest rate swaps, fixed rate payer Dec SEK 300 million interest rate swaps, fixed rate payer Dec Fair value changes transferred to income statement (5,950) TOTAL (5,950) (1,956) 3,994 OTHER DERIVATIVES Forward transactions - net investment hedge Fair value changes Fair value recognised in OCI FX swap. PLN 140 million sold forward against EUR 551 4, Maturity In 2014 the entire remaining market value of the existing forward transaction was paid and converted into a cross currency swap. Fair value Fair value changes recognised in OCI FX swap. PLN 140 million sold forward against EUR (3,484) 3, Maturity 118

121 Consolidated Financial Statements Icopal Group Other Notes NOTE 34 - DERIVATIVE FINANCIAL INSTRUMENTS UNDRAWN CREDIT LINES AND AVAILABLE LIQUIDITY The undrawn credit lines are as follows: EUR THOUSAND MATURITY Committed revolving credit facility 89,440 88,833 May 2016 Allocated as back up for operating guarantees (8,384) (11,234) Cash and cash equivalents, incl. discontinued activities 34,323 55,503 AVAILABLE LIQUIDITY 115, ,102 Committed acquisition facility 73,125 73,125 May 2016 Draw down on committed acquisition facility (73,125) (73,125) AVAILABLE LIQUIDITY INCLUDING ACQUISITION FACILITY 115, ,102 COVENANT AND REFINANCING RISK Icopal s financing structure is common to groups under private equity ownership. The loan facility agreements include four financial covenants: Cash flow / (net interest expense + repayments of debt) EBITDA / net interest expense Net interest-bearing debt / EBITDA CAPEX Icopal tests the financial covenants against agreed targets on a quarterly basis. After the Amend and Extend process in September 2013, the Icopal Group has had sufficient headroom in all covenant categories. Icopal monitors the development of the financial covenants on an ongoing basis at least 12 months into the future. In order to reduce refinancing risk, the maturity profile of the debt portfolio is spread over several years. Icopal has no significant debt positions to be refinanced until All cash resources are highly liquid. Thus, Icopal s exposure to liquidity risk is limited. COMMODITY PRICE RISKS The principal raw materials used in production are bitumen, SBS and reinforcement. Energy costs also account for a substantial proportion of total variable costs. The pricing of raw materials is closely monitored by Icopal, and commodity hedging is evaluated on an ongoing basis. The negative market value of commodity hedges as at 31 December 2014 was MEUR 1.1. At year-end 2013 there were no active hedges. CREDIT RISKS Credit risk is the risk of a counterparty failing to meet its contractual obligations and the resulting possibility of a loss for the Group. The Icopal Group is exposed to credit risks in the course of its business activities. These risks are primarily related to receivables arising from sales of Icopal s products. Other credit risks, which relate to bank deposits and counterparties under financial contracts, are considered to be insignificant. The maximum credit risk related to financial assets corresponds to the carrying amounts recognised in the statement of financial position, after the deduction of credit insurance. The Icopal Group has a credit policy which ensures that all customers are rated on a regular basis. Credit limits are determined based on an assessment of the individual customer. If the credit rating of a customer is considered to be insufficient, the payment terms will be changed or security or credit insurance will be obtained. The Icopal Group regularly monitors its credit exposure to customers as part of its risk management. The customer types in the individual segments are typically very similar, regardless of the geographical location of the customer. The Icopal Group s customers are primarily large well-consolidated builders merchants. The Icopal Group has modest credit exposure to residential builders and developers in a few markets. In 2014 the Icopal Group entered a new credit insurance agreement covering customers having a peak receivable balance exceeding TEUR 10. If approved by the insurer, the receivables are fully covered, but there is a non-deductible of 10% for each single case. CAPITAL STRUCTURE Management regularly assesses whether the capital structure is in the interests of the Group and its shareholders. The overall objective is to ensure continued development and to strengthen the Group s capital structure as a means of supporting long-term profitable growth and sound financial ratios. This includes the assessment and decision on the split of financing between equity and debt, which is a long-term strategic decision to be made in connection with major acquisitions and balancing expected cash flows with borrowings in different currencies. 119

122 Consolidated Financial Statements Icopal Group Other Notes NOTE 34 - DERIVATIVE FINANCIAL INSTRUMENTS FAIR VALUE MEASUREMENT The following table provides the fair value measurement hierarchie of the Group's assets and liabilities. Quantitative disclosures fair value measurement hierarchie for assets as at 31 December 2014: EUR THOUSAND 2014 FAIR VALUE MEASUREMENT USED Assets and liabilities measured at fair value Date of valuation Total Quoted prices in active markets (Level 1) Significant observable inputs (Level 2) Significant unobservable inputs (Level 3) Assets Interest rate swap 31 December FX swap 31 December Other derivatives 31 December Liabilities Interest rate swap 31 December ,448-4,448 - FX swap 31 December Other derivatives (commodity hedges) 31 December ,119-1,119 - Assets and liabilities not measured at fair value Assets Other investments and securities 31 December , Trade and other receivables 31 December , Other derivatives 31 December Liabilities Bank loans 31 December , Debt relating to capital leases and other debt 31 December , Shareholder borrowings 31 December Trade payables and other creditors 31 December , There have been no transfers between Level 1 and Level 2 during the period. 120

123 Consolidated Financial Statements Icopal Group Other Notes NOTE 34 - DERIVATIVE FINANCIAL INSTRUMENTS There have been no transfers between Level 1 and Level 2 during the period. Quantitative disclosures fair value measurement hierarchie for assets as at 31 December 2013: EUR THOUSAND 2013 FAIR VALUE MEASUREMENT USED Assets and liabilities measured at fair value Date of valuation Total Quoted prices in active markets (Level 1) Significant observable inputs (Level 2) Significant unobservable inputs (Level 3) Assets Interest rate swap 31 December FX swap 31 December Other derivatives 31 December Liabilities Interest rate swap 31 December ,976-1,976 - FX swap 31 December ,464-3,464 - Other derivatives (commodity hedges) 31 December Assets and liabilities not measured at fair value Assets Other investments and securities 31 December , Trade and other receivables 31 December , Other derivatives 31 December Liabilities Bank loans 31 December , Debt relating to capital leases and other debt 31 December , Shareholder borrowings 31 December Trade payables and other creditors 31 December , There have been no transfers between Level 1 and Level 2 during the period. 121

124 Consolidated Financial Statements Icopal Group Other notes NOTE 35 - GROUP CHART OWNERSHIP Villas Austria GmbH, Austria 100% Villas Holding GmbH, Austria 100% Icopal NV, Belgium 100% Icopal S.A., Belgium 100% Icopal Bulgaria Ltd., Bulgaria 100% Siplast Canada Inc., Canada 100% Icopal VEDAG CZ. S.r.o, Czech Republic 100% Aktieselskabet af 1. oktober 2010, Denmark 100% Decra A/S, Denmark 100% Icopal Danmark A/S, Denmark 100% Icopal DBV ApS, Denmark 100% Icopal Entreprise A/S, Denmark 100% Icopal Steel Coverings ApS, Denmark 100% Monarflex A/S, Denmark 100% Optilite A/S, Denmark 100% Icopal OÜ, Estonia 100% Icopal Holding Oy, Finland 100% Icopal Katto Oy, Finland 100% Icopal Oy, Finland 100% Comptoir de l Etanchéite SAS, France 100% Icopal SAS, France 100% Polytuil France SAS, France 100% RFG Holding SAS, France 100% Decra Dachsysteme GmbH, Werne, Germany* 100% Feumas GmbH, Saarwellingen, Germany* 100% Icopal GmbH, Werne, Germany* 100% Icopal Holding Deutschland GmbH, Werne, Germany* 100% Icopal Kunststoffe Entwicklungs GmbH, Wächtersbach, Germany* 100% Icopal Kunststoffverarbeitungs GmbH, Wächtersbach, Germany* 100% REC Verwaltungsgesellschaft mbh, Bamberg, Germany* 100% VEDAG GmbH, Bamberg, Germany* 100% Viva-Dach GmbH, Werne, Germany* 100% Wolfin Bautechnik GmbH, Wächtersbach, Germany* 100% Icopal Kft., Hungary 100% Icopal S.r.l., Italy 100% SIA Icopal, Latvia 100% Icopal UAB, Lithuania 100% Siplast De Mexico S.A. De C.V., Mexico 100% Esha Infra Solutions B.V., the Netherlands 100% Hoendiep Properties B.V, the Netherlands 100% Icopal B.V., the Netherlands 100% Icopal Synthetic Membranes BV, the Netherlands 100% Fjeldhammer Brug AS, Norway 100% Icopal AS, Norway 100% Icopal Holding AS, Norway 100% Icopal Metall AS, Norway 100% Icopal Norge AS, Norway 100% Icopaltak AS, Norway 100% Icopaltak Holding AS, Norway 100% Icopal AWAK Sp. z o.o., Poland 100% Icopal Polska S.A., Poland 100% Icopal S.A. (PL), Poland 100% VEDAG Polska Spol.z o. o., Poland 100% Villas Polska Sp. z o.o., Poland 100% Icopal Ireland Limited, Republic of Ireland 100% Necoflex Limited, Republic of Ireland 100% Icopal Romania S.r.l., Romania 100% OOO Rovakate (Moscow), Russia 100% OOO Rovakate (St. Petersburg), Russia 100% 122

125 Consolidated Financial Statements Icopal Group Other Notes NOTE 34 - DERIVATIVE FINANCIAL INSTRUMENTS OOO Villaco, Russia 100% Icopal d.o.o., Serbia 100% Icopal a.s., Slovakia 100% Icopal Synthetic Membranes Slovakia s.r.o., Slovakia 100% Monarflex s.r.o, Slovakia 100% VEDAG Slovensko s.r.o., Slovakia 100% Icopal Hispania S.L., Spain 100% Brave System AB, Sweden 100% BS Brave AB, Sweden 100% Icopal AB, Sweden 100% Icopal Entreprenad AB, Sweden 100% Icopal Holding AB, Sweden 100% RFG Holding AB, Sweden 100% Tätskiktsgarantier i Europa AB, Sweden 100% Wijo AB, Sweden 100% Decra Roof Systems Limited, United Kingdom 100% Icopal Limited, United Kingdom 100% Sealoflex UK Ltd., United Kingdom 100% Waterproofing Warehouse Ltd, United Kingdom 100% Vulcanite Limited, United Kingdom (Northern Ireland) 100% Seal-O-Flex Inc., USA 100% Seal-O-Flex Sales Inc., USA 100% Roofing Holding Inc., USA 100% Siplast Inc., USA 100% Tradesman Roofing LLC, USA 100% Garantiselskabet Dansk Tagdækning A/S, Denmark 50% Asunto Oy Rakka-Jussi, Finland 50% Sveriges Tätskiktsfabrikanters förening, Sweden 50% Tätskiktsgarantier i Norden AB, Sweden 50% STS Støvring A/S, Denmark 49% Syddansk Tagdækning A/S, Denmark 49% WUPPI A/S, Denmark 20% Multi Cap Tech Oy, Finland 19% *Companies apply simplification rules of 264(3) HGB (German Commercial Code) and are included in the presented consolidated financial statements. 123

126 Financial Statements of Parent Icopal a/s Significant Accounting Policies BASIS OF PREPARATION The financial statements of the parent company are presented in accordance with the Danish Financial Statements Act (reporting class C enterprises (medium)). The accounting policies of the parent company are the same as those of the Group, however, with the addition of the policies described below. The Group s accounting policies are set out in note 1 to the consolidated financial statements. No changes were made to the accounting policies relative to last year. INCOME STATEMENT Income from subsidiary comprises dividends and gains and losses from divestment of subsidiaries. Dividends are recognised in the income statement in the financial year in which the dividend is declared. INTAGIBLE ASSETS Intangible assets are measured at cost less accumulated amortisation and impairment. Amortisation is calculated using the straight-line method over the expected useful life (five years). FINANCIAL ASSETS In the parent company s financial statements, investments in subsidiaries and associates are measured at cost. If there is an indication of impairment, an impairment test is performed as described in the accounting policies in note 1 to the consolidated financial statements. Where the recoverable amount is lower than cost, investments are written down to this lower value. TAX The parent company is taxed jointly with its domestic subsidiaries. The jointly taxed Danish enterprises are taxed under the Danish on-account tax scheme. Current tax for jointly taxed companies is recognised in each individual company. CASH FLOW STATEMENT No separate cash flow statement has been prepared for the parent company in accordance with the exemption clause of section 86.4 of the Danish Financial Statements Act. 124