PANDORA Annual Report 2017

P A N D O R A A N N U A L R E P O R T 2 0 1 7 G R O U P 7 9 C O N T E N T S Asset Useful life Land Indefinite Buildings 20-50 years Leasehold improvements Lease period Plant and equipment 3-5 years Other fixtures and fittings 3-5 years PANDORA has a large number of individually in- significant leases. The leases are mainly for stores, offices, office equipment etc. The increase in com- mitments in 2017 is mainly related to new owned and operated concept stores. Lease expense recognised in the year was DKK 1,194 million (2016: DKK 934million). Of this amount DKK 423 million was variable lease payments based on store sales (2016: DKK 292 million). ACCOUNTING POLICIES Property, plant and equipment is stated at cost, net of accumulated depreciation and accumulated impairment losses. Depreciation is calculated on a straight-line basis over the estimated useful life according to the table below. LEASES Lease agreements in which a substantial portion of the risks and benefits of ownership are trans- ferred to PANDORA are classified as finance leas- es. All other lease agreements are classified as operating leases. Minimum lease payments under operating leases are charged to the income statement on a straight- line basis over the term of the lease. Contingent (sales-based) rents are recognised in the same pe- riod as the corresponding sales. PANDORA had no finance leases at the reporting date. NOTE 3.3 BUS I NE S S COMB I NAT I ONS ACQU I S I T I ONS I N 2 0 1 7 CITY TIME S.L. On 28 September, PANDORA acquired 100% of the share capital in City Time S.L. in Spain. The purchase price, DKK 786 million (EUR 106 mil- lion), was finally agreed between the parties and paid in December 2017. With this acquisition PANDORA will gain full control of the distribution in Spain, Gibraltar and Andorra. In addition, PANDORA will add 50 concept stores and 14 shop-inshops to its retail chain. Besides assets and liabilities mainly related to the stores, PANDORA reacquired the exclusive distri- bution rights to the above markets. The value of the distribution rights was calculated at DKK 131 million based on the Multi-period Excess Earnings model and is amortised over their useful life of 1.25 years. Acquired gross contractual receivables totalled DKK 105 million and consisted of trade receiva- bles of DKK 99 million, including write-down of DKK 3 million, and prepayments of DKK 6 million. The net receivables acquired, DKK 105 million, are considered to be stated at fair value and are expected to be collected. Acquisition costs were DKK 3 million and are recognised as operating expenses in the income statement. Goodwill, DKK 464 million, mainly consists of know-how, future growth expectations and the effect of converting the acquired business from wholesale to PANDORA owned retail. None of the goodwill acquired is deductible for income tax purposes. Contribution to Group revenue and net earnings for the period 28 September – 31 December 2017 was DKK 270 million and DKK 119 million re- spectively. OTHE R ACQU I S I T I ONS I N 2 0 1 7 On 30 June 2017, PANDORA acquired the distri- bution in Belgium and Luxembourg when the pre- vious distribution agreement with Gielen Trading BVBA ended. The acquisition comprised invento- ry and non-current assets relating to 13 concept stores and 3 shop-in-shops. On 3 July 2017, PANDORA acquired the distribution in South Africa, Mauritius, Namibia, Zambia, Zimbabwe and Réunion from Scandinavian Brand House following the expiry of the distribution agreement on 30 June 2017. The acquisition comprised inventory and non-current assets relating to the addition of 16 concept stores and 18 shop-in- shops to PANDORA’s retail business. PANDORA further acquired 121 stores in the period 1 January – 31 December 2017 (50 concept stores in the US, 23 in the UK, 13 in Poland, 8 in Canada, 6 in New Zealand, 6 in Italy, 6 in Australia, 5 in South Africa and 4 in Germany) in 25 business combinations. Net assets acquired mainly consist of inventory and other non-current assets and liabilities relating to the stores. NOTE 3.2 PROPERTY, PLANT AND EQUI PMENT ( CONT I NUED )