Accounting policies
General
The annual report has been prepared in accordance
with the Danish Financial Statements Act, Danish Accounting
Standards and the Copenhagen Stock Exchange regulations for
class D undertakings. The accounting policies are the same as
in 2002. A few items have been reclassified but they are not
in the nature of changes in accounting policies.
Consolidation
The consolidated financial statements include the undertakings.
The consolidated financial statements comprise William Demant
Holding A/S (the parent company) and the undertakings, in
which the parent company holds more than 50% of the voting
rights, or in which in some other manner it can or actually
does exercise a controlling interest. The consolidated financial
statements have been prepared on the basis of the financial
statements for the parent company and its subsidiary undertakings
by aggregating uniform items. Based on pro rata consolidation,
the consolidated financial statements also include undertakings,
which by agreement are managed jointly with one or more undertakings.
Intra-group income and expenditure, shareholdings, intra-group
accounts and dividends as well as non-realised intra-group
profits on inventories are eliminated.
Undertakings, in which the Group holds between 20% and 50%
of the voting rights or in some other manner can or actually
does exercise a significant interest, are considered to be
associated and have been incorporated proportionately into
the consolidated financial statements based on the equity
method.
Newly acquired or established subsidiary and associated undertakings
are recognised in the profit and loss account from the time
of acquisition or formation. Businesses either sold or closed
down are recognised until the date of divestment or closedown.
Comparative key figures and ratios in respect of newly acquired
or divested undertakings are not restated.
On acquiring new undertakings, the purchase method is applied,
and the identified assets and liabilities of the newly acquired
undertakings are measured at their fair values at the time
of acquisition. Provisions are made for any restructuring
either decided or announced on acquisition.
If acquisition cost exceeds the fair values of the assets
and liabilities identified on acquisition (including any provisions
for restructuring), any remaining positive differences (goodwill)
are recognised in the balance sheet as goodwill under intangible
fixed assets in the acquiring business.
Minority interests
On computation of consolidated profits and shareholders’ equity,
the proportionate shares of profits and shareholders’ equity
of subsidiary undertakings ascribable to minority interests,
are recognised separately.
Translation of foreign currency
When first recognised, transactions in foreign currency are
translated at the exchange rates ruling on the transaction
day.
Monetary items such as debtors and debts in foreign currency
are translated into Danish kroner at their rates on the balance
sheet day. Realised and non-realised exchange adjustments
are recognised in the profit and loss account under gross
profit or net financials.
For independent foreign subsidiary undertakings, profit-and-loss
account items are translated at the average exchange rates
for the year, whereas balance sheet items are translated at
the rates on the balance sheet day. Any exchange adjustments
arising from the translation at average rates of profit-and-loss-account
items of foreign Group undertakings and balance sheet items
at the rates ruling on the balance-sheet day are recognised
via shareholders’ equity.
Any exchange adjustments from translation at the beginning
of the year of shareholders’ equity of foreign subsidiary
or associated undertakings at the rates on the balance-sheet
day are recognised via shareholders' equity. Any exchange
adjustments from intra-group accounts with independent foreign
subsidiary undertakings, considered to constitute part of
the total investment in such undertakings, as well as any
exchange adjustments from the hedging of shareholders’ equity
of such undertakings are recognised via shareholders’ equity.
Some investments in foreign subsidiary undertakings are balanced
via financing in the currency of the particular country. Where
a foreign subsidiary undertaking finances an acquisition,
and where goodwill has been written off via shareholders’
equity at the time of acquisition, the goodwill-related part
of such finance will be treated as hedging of exchange of
any future returns on the investment in such subsidiary undertaking.
Derivative financial instruments
Derivative financial instruments, primarily forward exchange
contracts and interest swaps, are measured at their fair values
and recognised under debtors and creditors.
Changes in fair values of derivative financial instruments
classified as and satisfying the criteria for hedging of the
fair value of a recognised asset or a recognised liability
are recognised in the profit and loss account together with
the changes in value of the hedged asset or hedged liability.
Changes in fair values of derivative financial instruments
classified as and satisfying the conditions for hedging of
future assets ties are recognised direct via shareholders’
equity. Any income or cost relating to such hedging transactions
is transferred from shareholders’ equity on realisation of
the hedged financial instruments and recognised in the same
accounting item as the hedged asset or liability.
Profit and loss account
All major income and costs are recognised on an accruals basis.
The profit and loss account is broken down by function and
all costs including depreciation expenses are therefore charged
to production, distribution, administration or R&D functions,
respectively, regardless of the objectives of the particular
undertaking.
Net revenue
The invoicing principle is applied as income criterion. Net
revenue represents the year’s sales with the deduction of
commissions, discounts and returns.
Production costs
Production costs comprise direct and indirect manufacturing
costs, including raw materials, consumables, maintenance costs,
salaries, depreciation on production plant and write-down
on inventories.
Research & development costs
These include all costs that do not satisfy the criteria for
capitalisation in connection with research and development,
prototype construction, the development of new business concepts
as well as depreciation on capitalised R&D costs.
In the Group’s opinion, R&D activities cannot meaningfully
be divided into either the development of new products or
the further development of existing products, consequently
R&D costs are generally charged to the profit and loss
account as previously.
Distribution costs
Distribution costs include costs relating to staff training,
customer support, sales, marketing, distribution and depreciation
expenses.
Administrative expenses
Administrative expenses include administrative staff costs,
office and IT costs as well as depreciation expenses. Losses
on bad debts are also recognised under this item.
Net
financials
These mainly consist of interest income and expenses. They
also include loan costs, realised and non-realised exchange
gains or losses, certain monetary items and value adjustments
at fair values.
Taxation
The parent company is jointly taxed with certain 100%-owned
Danish and foreign subsidiary undertakings. Corporation tax
is distributed among the jointly taxed undertakings according
to their proportionate shares of the joint income or loss
(full distribution with tax relief for losses). For the jointly
taxed Danish undertakings, the tax rate for current and deferred
taxes is 30%.
Tax on the year’s profit includes current tax and any changes
in deferred tax. Any additions, deductions or allowances in
respect of the Danish on-account tax scheme are included in
current tax. Tax on movements in shareholders’ equity is recognised
direct via shareholders’ equity. Current tax includes tax
payable computed on the basis of the estimated taxable income
for the year and any prior-year tax adjustments.
A provision is made for deferred tax on any timing differences
between the valuations for tax and accounting purposes of
assets and liabilities. Deferred tax is reported as a balance
sheet liability. Deferred tax is computed on the basis of
the current tax rules and rates in the particular countries.
Any effect on deferred tax due to changes in tax rates is
reflected in tax on the year’s profit. The tax value of a
loss that may be set off against any future taxable income
will be carried forward and set off against deferred tax in
the same legal tax unit and jurisdiction. Any deferred tax
assets (net) are conservatively estimated and recognised in
the balance sheet.
Any tax payable on the sale of shares in a subsidiary undertaking
is recorded in the balance sheet, if such shares are likely
to be sold within a short period of time.
Balance sheet
Intangible fixed assets
As at 1 January 2002, goodwill is capitalised and depreciated
on a straight-line basis over its estimated economic life,
however maximum 20 years. Any goodwill acquired before 1 January
2002 was written off via shareholders’ equity at the time
of acquisition.
Provided certain criteria are satisfied, R&D costs are
recognised under intangible fixed assets and measured at cost
with the deduction of accumulated depreciation expenses. R&D
costs are capitalised if the conditions for capitalisation
are thought to be satisfied, taking into account whether future
earnings are able to adequately cover such R&D costs.
In the Group’s opinion, the prerequisite for capitalisation
is normally that the development of the particular product
has been completed and that all required registration approvals
have been obtained. If not, R&D costs are charged to the
profit and loss account in line with the payment of such costs.
In the Group’s opinion, its R&D efforts cannot meaningfully
be divided into either the development of new products or
the further development of existing ones, consequently R&D
costs are expensed as previously.
Patents and licences acquired from a third party are measured
at cost with the deduction of accumulated depreciation and
writedown expenses. Patents are written down on a straight-line
basis over the remaining patent period, and licences are depreciated
over their estimated economic life, however maximum 20 years.
Intangible fixed assets are written down to their recoverable
amounts if lower than their carrying amounts. Individual assets
and groups of assets are currently tested for write-down purposes.
Tangible fixed assets
Tangible fixed assets are recognised at cost with the deduction
of accumulated depreciation and write-down expenses. Tangible
fixed assets are depreciated on a straight-line basis over
their
estimated useful life with the exception of land. Assets are
currently tested for write-down purposes.
| Buildings |
33-50 years |
|
Manufacturing plant and machinery |
3-5 years |
| Fixtures,
tools and equipment |
3-5 years |
|
IT hardware and software |
3
years |
| Leasehold
improvements |
over
the lease period |
Assets
acquired at less than DKK 50,000 are fully charged to the
profit and loss account in the year of acquisition.
Financially leased assets are recognised in the balance sheet
at the lower of market value or the present value of future
rental payments at the time of acquisition. Financially leased
assets are depreciated on the same basis as the Group’s other
tangible fixed assets. Any capitalised remaining rental is
recognised as a liability in the balance sheet.
For operational leases, rentals are expensed over the term of the lease. Lease commitments are included under contingent
liabilities at nominal values.
Investments
The parent company’s interests in subsidiary undertakings
are measured on the basis of the equity method, i.e. such
interests are recognised in the balance sheet at their proportionate
values of net worth. Loans granted by or to the parent company,
which are considered part of the overall investment, are included
in the value of shares in these undertakings. The parent company’s
proportionate shares of pre-tax profits from subsidiary undertakings
are recognised in the profit and loss account after proportionate
deduction of any differences in non-realised intra-group profits
and with the deduction of depreciation on consolidated goodwill
acquired after 1 January 2002.
Interests in associated undertakings are recognised on the
same basis as subsidiary undertakings.
The accumulated net revaluation of interests in subsidiary
and associated undertakings is retained in a 'Reserve for
net revaluation based on the equity method' and recognised
under shareholders’ equity.
Other debtors are measured at cost on acquisition and subsequently
adjusted at amortised cost. The risk of bad debts is assessed
on an individual basis.
Securities, which include investments in shares and bonds,
are measured at their fair values on the balance sheet day.
Investments, for which a reliable fair value cannot be estimated,
are measured at cost.
Inventories
Raw materials, components and merchandise are recognised at
the lower of cost or net market price. Finished goods or goods
in process are measured at direct cost, direct payroll and
consumables as well as a proportionate share of indirect production
overheads. Indirect production overheads include the proportionate
share of overhead costs directly related to finished goods
or goods in process.
Inventories are measured at cost on a First-In-First-Out basis,
i.e. the most recent deliveries will be in stock. Non-marketable
goods or slow-moving items are written down.
Debtors
Debtors are measured at amortised cost. Provisions are made
for bad debts based on an assessment of the particular risks.
Own shares and dividend
On the buyback or sale of own shares, the acquisition cost
or divestment sum is recognised direct via distributable reserves
under shareholders’ equity. The reduction in capital on cancellation
of own shares will reduce the share capital by an amount corresponding
to the nominal value of such shares. The amount is transferred
to distributable reserves.
The proposed dividend is recognised as a separate item under
shareholders’ equity until adoption at the annual general
meeting, upon which such dividend will be recognised as a
liability.
Provisions for liabilities
Provisions for liabilities include redundancy payments, pensions,
restructuring costs etc. Provisions for liabilities are recognised,
where as a result of an earlier event, the Group has a legal
or actual liability and where the redemption of any such liability
will draw on the corporate financial resources.
On acquisition of undertakings, provisions for restructuring
decided or announced on or before the day of acquisition are
considered part of acquisition cost and recognised under goodwill
or consolidated goodwill.
Mortgages and loans
Mortgages and loans from mortgage credit institutes or credit
institutes are recognised at the proceeds after the deduction
of transaction costs on the raising of such loan or mortgage.
In subsequent periods, mortgages and loans are recognised
at amortised cost corresponding to the capitalised value using
the effective interest rate so that the difference between
the proceeds and the nominal values is recognised in the profit
and loss account over the term of the loan.
Other creditors include taxes and charges payable, holiday-pay
provisions, guarantees and any obligations in respect of returned
goods etc.
Other debts are measured at amortised cost, which more or
less matches their cash values.
Cash-flow statement
The cash-flow statement is based on the indirect method and
reflects the Group’s net cash position by operating, investing
and financing activities.
Cash flows from operating activities include inflows from
the year’s operations, adjusted for operating items not affecting
liquid funds and movements in working capital. Working capital
includes current assets excluding liquid assets and short-term
debts adjusted for repayment of long-term debts, bank debts
and dividends.
Cash flows from investing activities include inflows generated
by the purchase or sale of fixed assets, undertakings or activities.
Cash flows from financing activities include payments to or
from shareholders and the raising or repayment of long-term
or shortterm debts not included in the working capital.
Liquid assets are cash funds with the deduction of bank debts.
Cash flows cannot be compiled exclusively on the basis of
the published accounting material.
Segmental information
The William Demant Group’s activities are based on a
single business > segment, i.e. the development, manufacturing
and sale of products and equipment designed to facilitate
people’s hearing and communication. Consequently, only geographic
segmental information is provided.
Fixed assets in this segment consist of all the fixed assets
used for the direct operation of the segment including intangible
fixed assets, tangible fixed assets and participating interests
in associated undertakings.
Segmental liabilities consist of liabilities linked with segment
operations including trade creditors and services as well
as other creditors.
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