Nilfisk Holding — Annual Report 2019

2. Result for the year

4. Non-current assets & liabilities

Key developments 2019

2. Results for the year

Revenue by operating segments is split between five segments; EMEA, Americas, APAC, Consumer and Private Label and other. Revenue has decreased by 8% compared to last year mainly due to divestments carried out in 2018 and negative organic growth.

This note relates to results for the year, including revenue, segment information,

research and development costs, special items and income tax.

Gross profit was 408.9 mEUR, down by 33.4 mEUR compared to last year. Gross margin was 42.3%, up by 0.3 percentage point compared to last year. The increase was to a large extent driven by efforts to simplify the business, in particular divestment of low margin businesses in 2018.

Basis for preparation

2. Result for the year

Remuneration
Non-current assets & liabilities
Working capital
Capital structure
Group structure
Other notes

Note 2

2. Results for the year – continued

§ Accounting policy

Segment information

The segment information is based on internal management reporting and is presented in accordance with the Nilfisk Group's accounting policies.

Segment income and expenses include those items that are directly attributable to the individual segment and those items that can be reliably allocated to it.

Operating segments

The reportable segments are generally referred to as operating segments. The operating segments consist of EMEA, Americas, APAC, Consumer and Private Label.

EMEA, Americas, and APAC cover sales of professional products to markets globally, excluding sales in the carved out segments Consumer and Private Label. Consumer covers domestic vacuum cleaners and high pressure washers for the consumer markets. Private Label covers high pressure washers and vacuum cleaners in both the consumer and professional business, sold in their own brands.

A further description of the operating segments is included in the Management review.

The Executive Management Board assesses the revenue, gross profit and EBITDA before special items of the operating segments separately to enable decisions concerning allocation of resources and measurement of performance.

Revenue in the operating segments

No single customer accounts for more than 10% of revenue. The reportable segments are identified without aggregation of operating segments.

Cost of sales in the operating segments

Cost of sales consists of costs incurred in generating the revenue for the year. Costs of raw materials, consumables, inbound freight, production staff and a proportion of production overheads, including maintenance, amortization, depreciation and impairment of intangible and tangible assets used in production as well as operation, administration and management of the production facilities are recognized as cost of sales.

Cost of sales also include shrinkage, waste production and any write-downs on inventory for obsolescence.

Sales and distribution costs

Sales and distribution costs include costs incurred for distribution of goods and services sold and costs for sales and distribution personnel, advertising costs, and amortization, depreciation and impairment of intangible and tangible assets used in the sales and distribution process.

Administrative costs

Administrative costs include costs of staff functions, administrative personnel, office costs, rent, lease payments, amortization, depreciation and impairment of intangible and tangible assets not relating specifically to cost of sales, research and development, and sales and distribution activities.

Other operating income and expenses

Other operating income comprises items of a secondary nature relative to the operations of the enterprise, including grant schemes, reimbursements, share of profit or loss of associated companies and gains or losses on sale of noncurrent assets.

Gains or losses on disposal of tangible or intangible assets are determined as the selling price less the carrying amount at the time of sale. Allowance for expected credit losses is also included.

Assets in the operating segments

As the production units deliver products to several operational segments and as the operating segments in some cases use the same assets, it is not possible to attribute assets reliably to the individual segments.

Geographical information

The revenue is allocated to geographical regions according to the country to which the products and services are sold.

The non-current assets are allocated to the country in which the individual entity is based, and are comprised of the noncurrent assets used in the operations of the geographical segment, including intangible assets, property, plant and equipment, investments in associates and other investments and receivables.

2. Result for the year

4. Non-current assets & liabilities

Note 2

2.1 Segment information

Following the divestments made during 2018 and the integration of the Industrial Vacuum Solution business (IVS) into the Nilfisk Professional sales organizations, Nilfisk has changed the reportable segments with effect from January 1, 2019.

The Specialty Professional segment has been eliminated. The continuing business areas after the divestments in 2018, IVS and Nilfisk FOOD, are now both included in the geographical split of our branded professional business.

Non-allocated within the branded business contains costs allocated to the branded business which cannot be directly attributed to the individual geographical segments. The costs cover shared distribution centers, shared marketing, IT and research and development.

The Consumer business is reported separately. The Private label business area is reported under "Private Label and other" including the remaining other business areas and corporate costs that are not directly associated with any of the operating segments.

Comparative figures for 2018 have been restated accordingly.

Please see Management review for further information on revenue development in the reportable segments.

					Total
EUR million	EMEA	Americas	APAC	Non allocated	branded professional	Consumer	Private label and other*	Group
2019
Revenue	461.3	291.3	85.2	-	837.8	75.8	52.9	966.5
Gross profit	217.2	123.8	34.1	-	375.1	22.6	11.2	408.9
EBITDA before special items	129.0	55.0	11.6	-55.1	140.5	-3.9	-15.2	121.4
Reconciliation to result before income taxes:
Special items								-23.9
Amortization, depreciation and impairment								-67.9
Financial income								5.9
Financial expenses								-19.9
Result before income taxes								15.6
Gross margin	47.1%	42.5%	40.0%	-	44.8%	29.8%	21.2%	42.3%
EBITDA margin before special items	28.0%	18.9%	13.6%	-	16.8%	-5.1%	-28.7%	12.6%
2018
Revenue	487.4	286.5	87.1	-	861.0	94.9	98.4	1,054.3
Gross profit	229.8	124.2	36.6	-	390.6	32.4	19.3	442.3
EBITDA before special items	121.3	57.5	13.9	-56.1	136.6	1.5	-12.6	125.5
Reconciliation to result before income taxes:
Special items								-68.5
Amortization, depreciation and impairment								-38.1
Financial income								15.6
Financial expenses								-26.9
Result before income taxes								7.6
Gross margin	47.1%	43.4%	42.0%	-	45.4%	34.1%	19.6%	42.0%
EBITDA margin before special items	24.9%	20.1%	16.0%	-	15.9%	1.6%	-12.8%	11.9%

The composition of reportable segments has been changed from January 1, 2019. Comparative figures for 2018 have been restated.

Comparative figures are not restated with the effect of IFRS 16.

*"Private label and other" includes non-allocated costs. The divested business areas Outdoor and HydraMaster are included in the 2018 figures.

1. Basis for preparation

2. Result for the year

3. Remuneration

1. Non-current assets & liabilities
1. Working capital
1. Capital structure
1. Group structure
Other notes

Note 2

2.2 Revenue

Geographical information

Nilfisk is present in more than 40 countries with own sales companies reaching more than 100 countries through direct sales and dealers. Below is a split of revenue and non-current assets allocated to the geographical regions. The corporate headquarters located in Denmark is included in the EMEA region.

		2019		2018
EUR million	Revenue	Non-current assets1	Revenue	Non-current assets1
EMEA region	567.0	311.1	631.0	267.9
Americas region	298.7	68.4	313.8	56.8
APAC region	100.8	37.6	109.5	33.0
Total	966.5	417.1	1,054.3	357.7

Revenue by geography

Revenue by country
--------------------	--	--

EUR million	2019		2018
USA	246.4	25%	264.3	25%
Germany	113.3	12%	127.3	12%
France	100.1	10%	109.9	10%
UK	47.2	5%	48.2	5%
Denmark	39.9	4%	46.4	4%
Sweden	32.3	3%	37.6	4%
Australia	27.6	3%	30.4	3%
Canada	27.5	3%	24.3	2%
Netherlands	25.3	3%	26.8	3%
Spain	24.1	3%	26.4	3%
Other	282.8	29%	312.7	30%
Total	966.5	100%	1,054.3	100%

1 Non-current assets less deferred tax asset. Comparative figures are not restated with the effect of IFRS 16.

Revenue breakdown based on product line and service offering

EUR million	2019	2018	Organic growth
Floorcare	317.8	347.6	-3.0%
Vacuum cleaners	202.0	207.6	-2.6%
High pressure washers	145.2	167.6	-12.4%
Aftermarket	301.5	331.5	-2.0%
Total	966.5	1,054.3	-4.1%

Revenue by product line and service offering

Basis for preparation

2. Result for the year 3. Remuneration

Non-current assets & liabilities
Working capital
Capital structure
Group structure
Other notes

Note 2

2.2 Revenue – continued

Contract assets and liabilities

Generally, trade receivables are recognized at the same point in time as revenue recognition and invoicing. Payment terms vary within the different customer segments due to local and specific agreements. In some cases the Group receives upfront payments which is deducted in the actual invoicing and the income from the associated contract is recognized over time, resulting in contract liabilities. Nilfisk does not have contract assets as such.

The Group splits upfront payments into either deferred revenue or prepayments from customers depending on the nature of the payment and activity.

EUR million	2019	2018
Prepayments from customers	2.1	1.5
Deferred revenue (non-current)	0.4	0.3
Deferred revenue (current)	4.7	4.7
Total contract liabilities	7.2	6.5

Prepayments from customers are primarily upfront payments for machines and services that have not yet been delivered.

Deferred revenue covers unsatisfied performance obligations that have not yet been recognized as revenue. These are mostly services, but can also be goods which have not yet been delivered or orders not yet fulfilled.

The Group has applied the practical expedient in paragraph C5(d) of IFRS 15, and the amount of the transaction price allocated to the remaining performance obligations and the timing is not disclosed.

§ Accounting policy

Revenue from sale of goods for resale, finished goods and service is recognized in the income statement when transfer of control of products or services to a customer has taken place. Sales are recognized when control of the goods has transferred, meaning when the goods are delivered to the customer, and there is no unfulfilled obligation that could affect the customer's acceptance of the products.

Revenue from Aftermarket sales which includes service packages relating to products and contracts as well as sale of parts, consumables and accessories is recognized concurrently with the supply of those services. Depending on the type of contract, service revenue is recognized over time or at a point in time.

Some contracts include multiple deliverables, such as the sale of machines and related installation services. However, the installation is simple and does not include an integration service and could be performed by another party. It is therefore not accounted for as a separate performance obligation.

Where the contracts include multiple performance obligations, the transaction price is allocated to each performance obligation based on the stand-alone selling prices. Where these are not directly observable, they are estimated based on expected cost plus margin.

Revenue is measured at the agreed consideration excluding VAT and taxes charged on behalf of third parties. All discounts granted are recognized in the revenue.

Please refer to note 4.7, "Provisions" regarding the accounting policies for warranties.

2. Result for the year

Income statement and statement of comprehensive income Statement of financial position Cash flow statement Statement of changes in equity Notes to the consolidated financial statements

Note 2
	2.3 Research and development costs

Research and development costs specification

EUR million	2019	2018
Staff costs	19.4	23.7
Other costs	16.7	19.0
Total research and development spend	36.1	42.7
Recognized as follows:
Expensed in the income statement	13.4	18.3
Capitalized	22.7	24.4
Total	36.1	42.7
R&D ratio (% of revenue)	3.7%	4.1%
Presented in the income statement:
Expensed in the income statement, cf. above	13.4	18.3
Amortization and impairment	17.5	12.9
Research and development costs excluding special items	30.9	31.2

Special items	3.2	14.3
Total	34.1	45.5

Total R&D spend decreased by 6.6 mEUR and total R&D spend as a percentage of revenue decreased by 0.4 percentage point compared to last year.

For further information see R&D comments in the Management review.

§ Accounting policy

Clearly defined and identifiable development projects for which the technical feasibility, adequacy of resources and a potential future market or internal utilization can be demonstrated, and where it is intended to manufacture, market or utilize the project, are recognized as intangible assets. This provides that the costs can be reliably determined, and that there is also adequate certainty that the future earnings or net selling prices can cover the carrying amount as well as the development costs necessary for finalizing the project.

Other development costs are expensed in the income statement as incurred.

Capitalized development projects are measured at costs less accumulated amortization and impairment losses. The costs include wages, amortization and other costs relating to the Nilfisk Group's development activities.

On completion of the development work, the cost of development projects are amortized on a straight-line basis over their estimated useful life from the date the asset is available for use. The amortization period is 3-10 years. The amortization base is reduced by any impairment losses.

1. Basis for preparation

2. Result for the year

3. Remuneration 4. Non-current assets & liabilities

Note 2

2.4 Special items

This note describes income and expenses that have a nonrecurring and special nature against normal operating income and costs.

Special items

2019	2018
12.4	17.8
11.1	7.8
0.4	42.4
0.4	29.6
-	12.8
-	0.5
23.9	68.5

! Significant judgments and estimates

Identification and classification of income and expenses as special items is based on management's judgment of the individual income and expenses as being nonrecurring by nature.

§ Accounting policy

Special items consist of non-recurring income and expenses that the Nilfisk Group does not consider to be a part of its ordinary operations such as restructuring projects and gains and losses on divestments, including impairment writedowns which are not presented as discontinued operations.

During 2019, Nilfisk continued the execution of Nilfisk Next which includes a number of initiatives to simplify and grow the Group. This included continued execution of the cost saving program.

Special items relating to the cost saving program represent restructuring costs of 12.4 mEUR in 2019. The program includes consultancy fees and supporting tools as well as an alignment of facilities, transitioning costs relating to offshoring of functions, pruning of products and redundancy costs to staff where one-off related costs are paid out.

In Q1 of 2019, the structure of the sales companies in EMEA and North America were aligned, organizing the sales force around Nilfisk's strategic customer segments; CCI, Industry and ABCA as opposed to individual product groups. As part of this, the integration of Industrial Vacuum Solutions (IVS) into the global business was fully implemented enabling the sales force to sell the full product portfolio. Also, key functions such as Finance, Service and Customer Care were organized into global functions.

Special items relating to the business restructuring of 11.1 mEUR contains costs associated with the Blueprint restructuring project in connection with the journey towards becoming a global company. The majority of the cost is related to redundancies but also includes consultancy cost.

The divestments in 2018 relate to the divestment of the Nilfisk Outdoor business, the Nordic Chemical & Utensils, the US carpet restoration business HydraMaster, Rottest and the Nilfisk South Africa sales company. The 0.4 mEUR in 2019, is related to the 2018 divestments.

1. Basis for preparation

2. Result for the year

Income statement and statement of comprehensive income Statement of financial position Cash flow statement Statement of changes in equity Notes to the consolidated financial statements

4. Non-current assets & liabilities

2.5 Income statement classified by function after amortization/impairment of acquisition-related intangibles and special items

The Nilfisk Group presents the income statement based on classification of costs by function to show the 'Operating profit before amortization/impairment of acquisition-related intangibles and special items'. The following table presents the amortization/impairment of acquisition-related intangibles and special items as if they are allocated to each function.

Income statement

EUR million	2019	2018*
Revenue	966.5	1,054.3
Cost of sales	-562.0	-647.9
Gross profit	404.5	406.4
Research and development costs	-34.1	-45.5
Sales and distribution costs	-256.1	-253.0
Administrative costs	-88.4	-85.4
Other operating income	7.7	5.2
Other operating expenses	-4.0	-8.8
Result before financial items and income
taxes (EBIT)	29.6	18.9

Amortization/impairment of acquisition-

Total	-5.1	-6.2
Sales and distribution costs	-3.6	-4.7
Cost of sales	-1.5	-1.5
related intangibles are divided into:

Special items are divided into:

Total	-23.9	-68.5
Other operating expense	-0.2	-6.7
Other operating income	-	0.4
Administrative costs	-6.3	-10.4
Sales and distribution costs	-11.3	-3.1
Research and development costs	-3.2	-14.3
Cost of sales	-2.9	-34.4

*Comparative figures are not restated with the effect of IFRS 16.

2.6 Tax

1. Basis for preparation

2. Result for the year

4. Non-current assets

& liabilities

5. Working capital
6. Capital structure
7. Group structure

3. Remuneration 4. Non-current assets

Tax recognized in the income statement
EUR million	2019	2018
Tax for the year is specified as follows:
Tax on result for the year	6.9	-2.4
Tax on other comprehensive income	-0.7	0.4
Total tax for the year	6.2	-2.0
Tax on profit and loss is specified as follows:
Current tax on profit	11.5	13.0
Deferred tax	-5.5	-15.6
Prior year adjustment, current and deferred tax	0.9	0.2
Total tax on result for the year	6.9	-2.4
Tax on other comprehensive income is specified as follows:
Value adjustment of hedging instruments	-0.6	0.3
Actuarial gains/losses on defined benefit plans	-0.1	0.1

The effective tax rate in 2019 for the Group of 44.3% was generally impacted by the corporate tax rate mix in countries where Nilfisk is operating and doing business. The rate was however also negatively impacted by non-deductible expenses as well as revaluation of tax assets and prior year adjustments made.

Total tax on other comprehensive income -0.7 0.4

In 2018 the negative effective tax rate was unusual and driven by previous year's adjustments and one-off positions without taxable impact (i.e. non-taxable income). This had a significantly high effect on the result before tax in 2018.

Tax rate

EUR million	2019		2018
Reconciliation of the effective tax rate for the year:
Calculated tax on profit (loss) before tax	3.4	22.0%	1.7	22.0%
Adjustment of calculated tax in foreign subsidiaries relative to 22%	1.0	6.7%	-0.2	-2.6%
Tax effect of:
Non-deductible expenses/non taxable income	0.5	3.2%	-5.0	-65.6%
Tax assets valuation allowances	1.3	8.4%	-0.4	-5.3%
Change in tax rate	-	-	-	-
Non recoverable withholding taxes	-0.2	-1.3%	1.7	22.5%
Other taxes and adjustments	-	-	-	-
Prior year adjustment	0.9	5.3%	-0.2	-2.4%
Effective tax rate	6.9	44.3%	-2.4	-31.4%

! Significant judgments and estimates

The Group recognizes deferred tax assets, including the expected value of tax losses carryforwards, based on an assessment of the recoverability of the deferred tax assets. The assessment of the recoverability of the deferred tax assets involve judgment by the Executive Management Board as to the likelihood of the realization of the deferred tax assets within a foreseeable future. This depends on a number of factors including whether there will be sufficient taxable profits available in future periods, against which the tax losses carryforwards can be utilized.

The Executive Management Board's assessment of the recoverability of the deferred tax assets is based on taxable income projections which contain estimates of and tax strategies for the future taxable income for the next 5 years taking into account the general market conditions and the Nilfisk Group's future development outlook. The projections are based on the Group's budget and mid-term targets, and are inherently subject to uncertainty, as the realization of the projections are dependent on the outcome of future events. In the event that actual future taxable profits generated are less than expected, and depending on the tax strategies that the Nilfisk Group may be able to implement, impairment of the deferred tax assets may be required.

It is the Executive Management Board's assessment that the budgets and mid-term targets are achievable and supports the recognized deferred tax assets.

Nilfisk operates in a large number of tax jurisdictions where tax legislation is complex and subject to interpretation. Management makes judgments on uncertain tax positions to ensure recognition and measurement of tax assets and liabilities.

NILFISK ANNUAL REPORT 2019 | 61

1. Basis for preparation

2. Result for the year

& liabilities

Note 2

2.6 Tax – continued

§ Accounting policy Deferred tax assets and liabilities

EUR million	2019	2018
Specification of deferred tax assets and liabilities
Intangible assets	-18.1	-18.2
Tangible assets	1.0	3.7
Current assets	5.0	5.0
Other non-current liabilities	3.5	2.5
Current liabilities	7.9	12.8
Tax base of tax loss carryforwards and credits	19.1	6.1
Valuation allowances	-0.3	-0.8
Deferred tax assets/liabilities	18.1	11.1
Presentation of deferred tax:
Deferred tax assets	25.1	20.5
Deferred tax liabilities	-7.0	-9.4
Deferred tax assets/liabilities	18.1	11.1

EUR million	2019	2018
Deferred tax assets, January 1	20.5	14.2
Deferred tax liabilities, January 1	-9.4	-19.8
Additions from divestments	-	-0.5

Foreign exchange adjustment -0.2 -0.2

income 0.7 -0.4

in equity - 2.4

statement 6.5 15.4 Deferred tax, December 31 18.1 11.1

Tax recognized in other comprehensive

Deferred tax recognized in the income

Tax from share option program recognized

Current tax payable and receivable is recognized in the statement of financial position as tax computed on the taxable income for the year, adjusted for tax on taxable income for prior years and for prepaid tax.

Tax for the year is comprised of current and deferred tax on profit/loss for the year, including adjustments to previous years and changes due to change in tax rates. Tax for the year is recognized in the income statement, unless the tax expense relates directly to items included in other comprehensive income or equity.

Deferred tax is measured according to the balance sheet liability method on all temporary differences between the carrying amount and the tax base of assets and liabilities. Deferred tax is, however, not recognized with respect to temporary differences on initial recognition of goodwill and other items, apart from business combinations, where temporary differences have arisen at the time of acquisition without affecting the profit for the year or the taxable income.

In cases where the computation of the tax base may be made according to different tax rules, deferred tax is measured on the basis of management's intended use of the asset and settlement of the liability, respectively.

Deferred tax assets, including the tax base of tax losses allowed for carry-forward, are recognized under Other non-current assets at their expected utilization value, either as set-off against tax on future income, or as a set-off against deferred tax liabilities in the same legal tax entity and jurisdiction.

Deferred tax assets and tax liabilities are offset if the company has a legal right to offset current tax assets and tax liabilities and intends to settle current tax assets and tax liabilities on a net basis or to realize the assets and settle the liabilities simultaneously.

Deferred tax is adjusted for elimination of unrealized intragroup profits and losses.

Deferred tax is measured according to the tax rules and the tax rates of the relevant countries at the reporting date and when the deferred tax is expected to materialize as current tax. The change in deferred tax as a result of changes in tax rates is recognized in the income statement. Changes to deferred tax on items recognized in other comprehensive income are however recognized on other comprehensive income.

Income statement and statement of comprehensive income Statement of financial position Cash flow statement Statement of changes in equity Notes to the consolidated financial statements

3. Remuneration

4. Non-current assets & liabilities

Note 3

3. Remuneration

This note relates to remuneration for the Board of Directors, Nilfisk Leadership Team and employees, including long-term incentive programs.

3.1 Staff costs

Staff costs specification

EUR million	2019	2018
Wages and salaries	249.7	264.7
Share option and phantom share program	0.6	-3.9
Social security costs	26.7	29.2
Defined contribution plans	12.3	12.7
Defined benefit plans	1.1	0.4
Total	290.4	303.1
Number of full-time employees, average	5,158	5,819

Staff costs per full-time employee (EUR thousand)	56.3	52.1

Staff costs decreased by 4% while the average number of employees decreased by 11%. The decrease in staff costs in 2019 was materially influenced by divestments and consolidation of production sites during 2018. The staff costs in 2018 was materially influenced by a lower valuation of the phantom share program for key employees due to a decrease in the share price.

§ Accounting policy

Staff costs is comprised of wages and salaries, remuneration, expenses under long-term incentive programs, pensions, etc.

NILFISK ANNUAL REPORT 2019 | 63

components.

Meeting.

0.6 mEUR (2018: 0.6 mEUR).

Remuneration policy

Note 3 1. Basis for preparation

2. Result for the year

3. Remuneration

4. Non-current assets & liabilities
5. Working capital
6. Capital structure
7. Group structure

Income statement and statement of comprehensive income Statement of financial position Cash flow statement Statement of changes in equity Notes to the consolidated financial statements

3.2 Remuneration to the Board of Directors and the Nilfisk Leadership Team Remuneration to the Board of Directors

incentive and a long-term share-based incentive. This structure ensures commonality of interest between Management and shareholders of Nilfisk and maintains Management's motivation to achieve both short- and long-term strategic goals.

The remuneration to the Nilfisk Leadership Team has increased from 6.7 mEUR in 2018 to 6.8 mEUR in 2019.

Composition of remuneration

The Executive Management Board's remuneration consists of a fixed salary base, including pension and other customary nonmonetary benefits such as a company car. The remuneration further includes a short-term cash-based bonus program and a long-term incentive program (see Note 3.3).

Short-term incentive bonus

The annual cash bonus payment is contingent upon the fulfilment of the prerequisites, goals and conditions defined in the bonus agreement. The criteria for granting a bonus is dependent on the realization of specified financial targets.

Other short-term compensation

Other short-term compensation includes incentives in connection with the demerger.

Term of notice

The term of notice for the Executive Management Board is 18 months for the CEO, and 12 months for the CFO. Beyond this there is no separation benefit plan for the Executive Management Board.

Remuneration Report

Please refer to https://investor.nilfisk.com/corporate governance/governance-overview for the full remuneration report.

Remuneration to the Board of Directors

EUR thousand	2019	2018
Board of Directors	514.6	483.2
Audit Committeee	40.6	40.2
Remuneration Committee	20.4	20.1
Nomination Committee	13.4	13.4
Total remuneration to the Board of Directors	589.0	556.9

Members of the Board of Directors are not awarded warrants or options and do not receive variable remuneration

The remuneration for the Board of Directors is approved prospectively for one year at a time at the Annual General

In 2019 the Board of Directors received a total remuneration of

Nilfisk's remuneration policy contains guidelines for setting and approving the remuneration for the Board of Directors and the salaries for the Nilfisk Leadership Team. The Board of Directors receive a fixed remuneration, while members of the Nilfisk Leadership Team receive a fixed salary, a short-term cash-based

Remuneration to the Nilfisk Leadership Team

	2019			2018
EUR thousand	Executive Management Board	Nilfisk Leadership Team	Total	Executive Management Board	Nilfisk Leadership Team	Total
Salary and pension	1,746.1	4,203.2	5,949.3	1,698.0	4,138.8	5,836.8
Annual bonus	105.1	75.0	180.1	215.2	389.5	604.7
Other bonus	-	-	-	455.2	-	455.2
Long-term incentive	243.9	106.8	350.7	191.4	-786.7	-595.3
Other benefits	22.2	288.4	310.6	40.6	358.5	399.1
Total	2,117.3	4,673.4	6,790.7	2,600.4	4,100.1	6,700.5

Share option program

reflected in the table.

Share options

3.3 Long-term incentive programs

adjusting events have occurred in the period.

In 2019 share options awarded in 2016 have been exercised and no further options exists from the share option program.

The Black & Scholes model was applied for calculation of the fair value of share options at grant date. The calculation was based on the assumptions at grant date stated in the table. No

The development in outstanding share options during 2019 is

1. Basis for preparation

3. Remuneration

4. Non-current assets & liabilities
5. Working capital

Performance share program

In line with the remuneration policy approved by the Annual General Meeting in March 2018, the Nilfisk Leadership Team and selected key employees have been awarded performance share units with a three year cliff vesting depending on performance measures on EBITDA, RoCE and Total Shareholder Return (TSR).

In 2019, 34 employees were granted rights to 64,977 performance share units equal to 0.2% of the total number of shares in Nilfisk Holding A/S. For each performance share unit (PSU) the employee will receive one share. The selected key employees outside the Nilfisk Leadership Team have been offered the opportunity to participate in return for a reduction in their annual bonus. Costs for the performance share programs (PSP) granted in 2018 and 2019 amount to 0.6 mEUR, which is recognized in the income statement in 2019.

Upon exercise of the PSU shares, Nilfisk Holding A/S is entitled to settle in cash. As Nilfisk Holding A/S does not currently have an intention to settle the shares in cash upon exercise the program is accounted for as an equity-settled program. To determine the total value of the performance share program the performance measures have been divided into two separate categories:

1. EBITDA and RoCE are defined as non-market conditions and are based on management's expectations for future financial results. Changes in assumptions will carry a change in the valuation of the EBITDA and RoCE measures.
1. TSR is defined as a market condition which is based on a Monte Carlo simulation in order to determine the expected increase in share price over the period. Since the TSR is defined as a market condition the valuation is fixed at grant date.

	PSU shares
--	------------

		Number of PSU shares		Avg. exercise price per PSU share (EUR)
	2019	2018	2019	2018
Outstanding, January 1	53,245	-	41	-
Granted during the period	64,977	53,245	37	41
Forfeited during the period	-18,179	-	-	-
Outstanding, December 31	100,043	53,245	39	41

Weighted average remaining contractual life (months)			19	24

Number of options Avg. exercise price per option (EUR) 2019 2018 2019 2018 Outstanding, January 1 139,448 555,870 16 16 Exercised during the period -139,448 -416,422 19 16 Outstanding, December 31 - 139,448 - 16 Weighted average remaining contractual life (months) - 6 Number of options fully vested at the balance sheet date - 119,667 Weighted average share price (EUR) at the exercise

date during the period 37 40

NILFISK ANNUAL REPORT 2019 | 65

1. Basis for preparation

3. Remuneration

4. Non-current assets & liabilities

Note 3 3.3 Long-term incentive programs – continued

Phantom share program

In the period 2014 to 2016 a phantom share program granted a number of employees the right to a potential cash payment but no rights to acquire shares. The phantom share program is an alternative approach to part of the short-term bonus program. For the purpose of calculating the bonus under the phantom share program, the participants are treated as if they earn phantom shares on a monthly basis in Nilfisk Holding A/S up to the relevant maximum number of phantom shares during the period beginning at April 1 in the year the phantom shares are granted and the subsequent four years (the vesting period).

The participants are only entitled to the maximum number of phantom shares if they remain employed during the vesting period. Upon termination of the employment prior to the expiry of the vesting period, the number of phantom shares earned shall be calculated pro rata corresponding to the

relevant part of the vesting period in which the participant was employed. The phantom shares can be exercised by the participants in May following the four year vesting period or the subsequent two years in May, meaning for example that the phantom shares granted in 2016 can be exercised in May 2020, 2021 or 2022.

The value of the phantom shares are based on the market value of the Nilfisk Holding A/S shares traded on Nasdaq. When participants exercise phantom shares the value of the phantom shares are based on the average share price for the month prior to the exercise. In 2019, 117,776 phantom shares were exercised, which leaves the total number of outstanding phantom shares at December 31, 2019 at 108,958.

In December 2018 Nilfisk entered into hedge contracts to match the exposure on the long-term incentive programs. Accordingly, the ongoing value adjustments related to the outstanding phantom share program will be offset by a similar hedge (see Note 6.9). The development in outstanding phantom shares in 2019 and 2018 is reflected below. The Black & Scholes model has been applied for calculation of the fair value of the phantom shares. The expected volatility is based on the historical share price volatility for the Nilfisk Holding share from the date of listing. It is expected that the phantom shares on average will be exercised between the vesting date and the expiry date.

The expense for all programs is calculated under the provision for share-based payments in accordance with IFRS 2. The share option program and the PSP are recognized under equity whereas the phantom share program is recognized under other liabilities with the amount of 0.7 mEUR compared to 3.3 mEUR at the end of 2018.

Phantom shares

	Number of phantom shares		Avg. exercise price per phantom share (EUR)
	2019	2018	2019	2018
Outstanding, January 1	227,300	412,405	14	14
Forfeited during the period	-566	-19,440	13	3
Exercised during the period	-117,776	-165,665	18	15
Outstanding, December 31	108,958	227,300	13	14
Weighted average remaining contractual life (months)	3	13
Number of phantom shares fully vested at the balance sheet date			103,097	191,663
Weighted average share price (EUR) at the exercise date during the period			38	39

Recognition of share-based payments

EUR million	2019	2018
PSU program	0.6	0.4
The phantom share program	-	-4.3
Total	0.6	-3.9

2. Result for the year

3. Remuneration

4. Non-current assets & liabilities
5. Working capital
6. Capital structure
7. Group structure

Income statement and statement of comprehensive income Statement of financial position Cash flow statement Statement of changes in equity Notes to the consolidated financial statements

Note 3

3.3 Long-term incentive programs – continued

§ Accounting policy

The Nilfisk Group's incentive programs include a share option program for the Executive Management Board, a performance share program (PSP) and a phantom share program for Nilfisk Leadership Team and selected key employees.

The share option program is accounted for as equity-settled share-based payments to employees and is measured at the fair value of the options at the grant date.

The fair value is expensed on a straight-line basis over the vesting period, based on the Nilfisk Group's estimate of equity instruments that will eventually vest, with a corresponding effect in equity. At the end of each reporting period, the Nilfisk Group revises its estimate of the number of options expected to vest. The impact of the revision of the original estimates, if any, is recognized in the income statement such that the cumulative expense reflects the revised estimate.

The Performance Share Program (PSP) is accounted for as an equity-settled share-based payment to employees and measured at the fair value of the option. The Total

Shareholder Return (TSR vesting condition) is measured at grant date, whereas estimated EBITDA and RoCE (vesting conditions) will be updated based on Management's estimates.

The fair value is expensed on a straight-line basis over a period of three years. At the end of the period the participants will be awarded shares corresponding to the achieved targets.

The phantom share program is accounted for as cashsettled share-based payments. An expense and a liability is recognized for the service acquired on a straight-line basis over the vesting period for the individual portion of the program that vests in the specific month, measured initially at the fair value of the liability. At the end of each reporting period until the liability is settled, and at the date of settlement, the fair value of the liability is re-measured with any changes in fair value recognized in the income statement for the year.

Please see Note 6.9 for hedge accounting policy.

4. Non-current assets & liabilities

4. Non-current assets and liabilities

This note covers Nilfisk Group's investments in non-current assets that form the basis for the Group's operations, and non-current liabilities arising as a result thereof.

The non-current liabilities in this section are regarded as non interest-bearing and are comprised of employee pension benefits and provisions. Interest-bearing receivables and liabilities are covered in Note 6, Capital structure.

The Nilfisk Group mainly invests in production equipment to ensure satisfactory delivery flow to customers. Furthermore, rental machines have become an increasing part of the noncurrent assets. Investments in intangible assets are driven by development projects focusing on renewing and optimizing the product portfolio and on software in relation to front-end applications and ERP systems.

Production sites in Nilfisk are mostly assembly lines and they are therefore not capital-intensive in terms of fixed assets.

Key developments in 2019

Property, plant and equipment and intangible assets by country excluding goodwill

EUR million	2019**		2018*
Denmark	109.2	49%	88.2	53%
USA	31.5	14%	23.4	14%
China	18.2	8%	17.6	10%
Hungary	15.4	7%	9.1	5%
Germany	11.0	5%	8.4	5%
UK	7.9	4%	7.8	5%
Italy	4.5	2%	4.3	3%
Spain	3.1	1%	2.3	1%
Netherlands	2.3	1%	0.1	1%
Other	21.2	9%	6.7	3%
Total	224.3	100%	167.9	100%
Investment ratio (% of revenue)	5.9%		5.0%

*Comparative figures are not restated with the effect of IFRS 16.

** The effect of IFRS 16 amounts to 54.5 mEUR.

1. Basis for preparation

Result for the year
Remuneration

4. Non-current assets & liabilities

Working capital
Capital structure
Group structure
Other notes

Note 4

4.1 Impairment test

! Significant judgments and estimates

Allocation of goodwill on cash-generating units

Goodwill has been re-allocated following the redefined segment structure from January 1, 2019. Goodwill related to the remaining business area in the former Specialty Professional segment has been re-allocated to the geographical segments using a relative value approach based on the realized EBITDA in 2018 for the individual business areas re-allocated to the geographical segments, relative to the realized EBITDA for 2018 for the full business area. Goodwill which had previously been allocated to EMEA, Americas, APAC and Consumer is unchanged and has not been re-allocated.

The calculation of EBITDA for each cash-generating unit is based on certain judgment relating to allocation of future EBITDA which is allocated to the cash-generating units. The carrying amount of goodwill per cash-generating unit as of December 31, 2019, is as follows:

EUR million	2019	2018
EMEA	121.4	102.0
Americas	32.1	23.4
APAC	13.9	11.0
Consumer	1.1	1.1
Specialty Professional	-	29.7
Non-allocated	-	0.6
Total	168.5	167.8

The change in the goodwill balances from January 1, 2019 to December 31, 2019 relates to exchange rate adjustments during the year.

Impairment test on goodwill allocated to cashgenerating units as of December 31, 2019

Impairment tests are performed for each cash-generating unit based on budget for 2020 and forecasts for 2021-2025. The impairment tests performed for the cash-generating units show a comfortable headroom as of December 31, 2019 and no indication of impairment exists in any of the cash-generating units.

Assumptions applied in the impairment test

The future cash flows are based on budgets and Management's estimates of the Nilfisk Group's development in the next five years. The assumptions for the impairment tests are:

Revenue growth:

Projections in the forecasting period for the individual CGUs are estimated on the basis of expected market development including strategic initiatives, autonomous machines and the macroeconomic environment in general. Past experience is taken into consideration as well as the expected impact from the growth initiatives in Nilfisk Next.

Gross margin development:

When estimating the CGUs margin development in the forecasting period, past experience and the impact from expected efficiency improvements are taken into consideration. The expected impact of initiatives such as cost saving program and other initiatives from Nilfisk Next are taken into consideration for the relevant CGUs.

Net working capital:

The development is linked to the current level, budgets and revenue growth.

Terminal growth:

The terminal growth rate does not exceed the expected long-term average growth rate including inflation for the segments and countries in which we operate. The applied terminal growth rate for all cash generating units was 2.0% unchanged compared to 2018.

Capital expenditure:

The development is linked to the budgets and expected future activity level, including only reinvestments.

Discount rate:

A pre-tax discount rate of 8.8% and a post-tax discount rate of 6.9%, compared to 8.9% and 6.9% respectively in 2018 has been applied in the performed impairment tests. The discount rate has been applied to all cash generating units, assuming our targeted ratio between the market value of our debt and equity value.

Income statement and statement of comprehensive income Statement of financial position Cash flow statement Statement of changes in equity Notes to the consolidated financial statements

4. Non-current assets & liabilities

Note 4

4.1 Impairment test – continued

! Significant judgments and estimates – continued

Development projects

Development projects/products completed and development projects/products in progress includes capitalized development costs primarily related to the Group's investments in digitalization and development of new products within autonomous cleaning.

The value of the development projects is dependent on a number of factors, including the timely and successful completion of in-progress development projects as well as the Group's ability to successfully commercialize completed development projects/products.

Since the products are under development or in the early

stages of the product life cycle, any assessment of market potential, product performance and viability, customer demand, potential impact from technological innovations and competitor actions, marketing and services cost, the ability to scale production and reduce productions costs etc. is inherently subject to uncertainty as it is only to a limited extent based on past experience, and is dependent on the outcome of future events.

It is Management's assessment that a significant market potential exists, and that the value-in-use of development projects completed and development projects in progress exceed the carrying amounts, under the assumptions mentioned above.

Sensitivity analysis

The Group has conducted an analysis of the sensitivity of the impairment test to changes in the key assumptions used to determine the recoverable amount for each of the segments (CGUs) to which goodwill is allocated. Management believes that any reasonably possible change in the key assumptions on which the recoverable amount is based would not cause the carrying amount to exceed the recoverable amount of the related segments (CGUs).

§ Accounting policy

Goodwill and intangible assets with indefinite useful lives are tested annually for impairment. Development and software projects in progress are also tested annually for impairment.

The carrying amount of goodwill is tested for impairment together with the other non-current assets in the cashgenerating unit to which goodwill is allocated and written down to the recoverable amount over the income statement if the carrying amount is higher. The recoverable amount is generally computed as the present value of the expected future net cash flows (value in use) from the business or activity (cash-generating unit) to which goodwill is allocated.

Other non-current assets

The carrying amount of other non-current assets is reviewed annually for indication of impairment. If such an indication exists, the recoverable amount of the asset is determined. The recoverable amount is the fair value of the asset less anticipated costs of disposal, or its value in use, whichever is the higher. The value in use is calculated as the present value of expected future cash flows from the asset or the cashgenerating unit of which the asset is part.

Impairment loss

Impairment is recognized if the carrying amount of an asset or a cash-generating unit exceeds the respective recoverable amount thereof. The impairment of nonacquisition-related intangibles is recognized in the income statement under the functions it relates to. If the impairment relates to acquisition-related intangibles it is recognized in 'Amortization/impairment of acquisition-related intangibles', or if it relates to gain or loss of divestment of businesses it is recognized as special items.

Impairment of goodwill is not reversed. Impairment of other assets is reversed in the event of changes having taken place in the conditions and estimates on which the impairment calculation was based. Impairment is only reversed if the new carrying amount of the asset does not exceed the carrying amount that would have applied after amortization if the asset had not been impaired.

4.2 Intangible assets

Income statement and statement of comprehensive income Statement of financial position Cash flow statement Statement of changes in equity Notes to the consolidated financial statements

4. Non-current assets & liabilities

EUR million	Goodwill	Trademarks1	Customer related assets	Development projects completed	Software, Know-how, Patents and Competition Clauses	Development projects and software in progress	Total
Costs, January 1, 2019	167.8	23.8	30.5	125.2	76.2	40.5	464.0
Additions	-	-	-	5.0	5.3	22.7	33.0
Disposals	-	-	-	-0.5	-0.8	-0.5	-1.8
Transferred between classes of assets	-	-	-	21.4	5.4	-26.8	-
Exchange rate adjustments	0.7	0.5	0.7	0.9	0.6	-	3.4
Costs, December 31, 2019	168.5	24.3	31.2	152.0	86.7	35.9	498.6
Amortization and impairment, January 1, 2019	-	-13.2	-20.4	-97.9	-51.6	0.1	-183.0
Amortization for the year	-	-1.3	-2.0	-14.6	-7.8	-	-25.7
Impairment	-	-	-	-	-	-2.4	-2.4
Disposals	-	-	-	0.4	0.7	0.5	1.6
Exchange rate adjustments	-	-0.2	-0.3	-0.8	-0.6	-0.1	-2.0
Amortization and impairment, December 31, 2019	-	-14.7	-22.7	-112.9	-59.3	-1.9	-211.5
Carrying amount, December 31, 2019	168.5	9.6	8.5	39.1	27.4	34.0	287.1
Investment ratio (Additions relative to amortization excl. business combinations)	-	0%	0%	181%	137%	-	233%

1 Trademarks with a carrying amount of 2.7 mEUR (2018: 2.7 mEUR) are not amortized, as they are regarded as having an indefinite useful life.

Impairment losses

Impairment losses of 2.4 mEUR were included in research and development costs in 2019. The impairment losses were a result of continued simplification of the product portfolio.

Basis for preparation

Note 4

4.2 Intangible assets – continued

		2. Result for the year
		3. Remuneration

4. Non-current assets & liabilities

Working capital
Capital structure
Group structure
Other notes

EUR million	Goodwill	Trademarks1	Customer related assets	Development projects completed	Software, Know-how, Patents and Competition Clauses	Development projects and software in progress	Total
Costs, January 1, 2018	164.4	26.8	33.1	134.0	74.4	28.3	461.0
Additions	-	-	-	1.5	3.9	28.4	33.8
Disposals	-	-3.1	-2.9	-17.4	-5.7	-5.9	-35.0
Transferred between classes of assets	-	-	-	7.4	2.8	-10.2	-
Exchange rate adjustments	3.4	0.1	0.3	-0.3	0.8	-0.1	4.2
Costs, December 31, 2018	167.8	23.8	30.5	125.2	76.2	40.5	464.0
Amortization and impairment, January 1, 2018	-	-14.9	-20.0	-96.9	-50.6	-	-182.4
Amortization for the year	-	-1.5	-2.8	-12.9	-6.3	-	-23.5
Impairment	-	-	-0.3	-5.7	-	-5.8	-11.8
Disposals2	-	3.1	2.8	17.4	5.7	5.8	34.8
Exchange rate adjustments	-	0.1	-0.1	0.2	-0.4	0.1	-0.1
Amortization and impairment, December 31, 2018	-	-13.2	-20.4	-97.9	-51.6	0.1	-183.0
Carrying amount, December 31, 2018	167.8	10.6	10.1	27.3	24.6	40.6	281.0
Investment ratio (Additions relative to amortization excl. business combinations)	-	0%	0%	69%	110%	0%	177%

1 Trademarks with a carrying amount of 2.7 mEUR (2017: 2.7 mEUR) are not amortized, as they are regarded as having an indefinite useful life. 2 Disposals includes the divestment of assets related to Hydramaster and the Outdoor business.

Impairment losses

In 2018, impairment losses of 11.8 mEUR were included in research and developments costs and sales and distribution costs of 11.5 mEUR and 0.3 mEUR respectively, mainly related to the divestment of the Nilfisk Outdoor business.

Basis for preparation

2. Result for the year

Remuneration

4. Non-current assets & liabilities

1. Working capital
1. Capital structure
1. Group structure
Other notes

Note 4

Goodwill

amortized.

4.2 Intangible assets – continued

§ Accounting policy

Other intangible assets

Clearly defined and identifiable development projects for which the technical feasibility, adequacy of resources and a potential market or internal utilization can be demonstrated, and where it is intended to manufacture, market or utilize the project, are recognized in intangible assets, provided the costs can be reliably determined and there is adequate certainty that the future earnings or the net selling price can cover the cost of goods, other costs and amortization, and also the development costs. Other development costs are expensed in the income statement as incurred.

Capitalized development projects are measured at costs less accumulated amortization and impairment losses. The costs include wages, amortization and other direct costs relating to the individual development projects.

Intangible assets are amortized on a straight-line basis over the expected useful life which is:

Trademarks, etc.	Indefinite or 3-20 years
Customer related assets	3-15 years
Development projects	3-10 years
Software, know-how, patents
and competition clauses	2-15 years

On completion of the development work, development projects are amortized on a straight-line basis over their estimated useful life from the date the asset is available for use. The amortization period is 3-10 years. The basis of amortization is reduced by impairment losses.

Patents and licenses are measured at costs less accumulated amortization and impairment losses. Patents and licenses are amortized on a straight-line basis over the remaining patent or contract period or the useful life, whichever is the shorter.

Intangible assets with an indefinite useful life are not amortized but are tested annually for impairment.

The carrying amount of goodwill is allocated to the Nilfisk Group's cash-generating units at the acquisition date. The identification of cash-generating units is based on the managerial structure and internal financial control. As a result of the integration of acquisitions in the existing Nilfisk Group, and identification of operating segments based on the presence of segment managers, the Executive Management Board has assessed that the smallest cash-generating units to which the carrying amount of goodwill can be allocated during testing for impairment are the reportable segments. The reportable segments are comprised of the Nilfisk Group's operating segments without aggregation (Note 2.1 Segment information).

Goodwill is initially recognized in the statement of financial position at cost. Subsequently, goodwill is measured at cost less accumulated impairment losses. Goodwill is not

1. Basis for preparation

4.3 Property, plant and equipment

Income statement and statement of comprehensive income Statement of financial position Cash flow statement Statement of changes in equity Notes to the consolidated financial statements

4. Non-current assets & liabilities

EUR million	Land and buildings	Plant and machinery	Tools and equipment	Assets under construction incl. prepayment	Total
Costs, January 1, 2019	20.7	16.7	145.2	2.8	185.4
Additions	-	0.2	9.3	5.7	15.2
Disposals	-1.1	-1.7	-24.8	-0.8	-28.4
Transferred between classes of assets	-	0.4	3.6	-4.0	-
Exchange rate adjustments	0.1	0.5	2.1	-	2.7
Costs, December 31, 2019	19.7	16.1	135.4	3.7	174.9
Depreciation and impairment, January 1, 2019	-10.6	-11.6	-108.5	-	-130.7
Depreciation for the year	-0.6	-1.1	-12.3	-	-14.0
Impairment	-	-0.3	-0.2	-0.5	-1.0
Disposals	-	1.4	22.3	0.5	24.2
Exchange rate adjustments	-	-0.5	-1.7	-	-2.2
Depreciation and impairment, December 31, 2019	-11.2	-12.1	-100.4	-	-123.7
Carrying amount, December 31, 2019	8.5	4.0	35.0	3.7	51.2
Investment ratio (% of depreciation)	0%	55%	105%	-	137%

Impairment losses

In 2019, impairment losses of 0.5 mEUR were included in administrative costs and 0.5 mEUR were included in cost of sales. The impairment losses were mainly related to the closedown of production in APAC (initiated in 2018).

1. Basis for preparation

4.3 Property, plant and equipment – continued

3. Remuneration

4. Non-current assets & liabilities

EUR million	Land and buildings	Plant and machinery	Tools and equipment	Assets under construction incl. prepayment	Total
Costs, January 1, 2018	21.3	17.1	142.6	3.4	184.4
Additions	-	1.3	13.6	3.7	18.6
Disposals	-0.3	-2.6	-13.9	-0.8	-17.6
Transferred between classes of assets	-	0.7	2.9	-3.6	-
Exchange rate adjustments	-0.3	0.2	-	0.1	-
Costs, December 31, 2018	20.7	16.7	145.2	2.8	185.4
Depreciation and impairment, January 1, 2018	-10.2	-12.2	-104.2	-	-126.6
Depreciation for the year	-0.6	-1.2	-12.8	-	-14.6
Impairment	-	-0.3	-0.2	-0.5	-1.0
Disposals	0.2	2.3	8.8	0.5	11.8
Exchange rate adjustments	-	-0.2	-0.1	-	-0.3
Depreciation and impairment, December 31, 2018	-10.6	-11.6	-108.5	-	-130.7
Carrying amount, December 31, 2018	10.1	5.1	36.7	2.8	54.7
Investment ratio (% of depreciation)	0%	167%	129%	-	125%

Disposals includes the divestment of assets related to Hydramaster and the Outdoor business.

Impairment losses

In 2018, impairment losses of 1.0 mEUR were included in research and developments costs related to the divestment of the Nilfisk Outdoor business and the US carpet restoration business HydraMaster.

2. Result for the year

4. Non-current assets & liabilities

5. Working capital
6. Capital structure
7. Group structure

Note 4

4.3 Property, plant and equipment – continued

§ Accounting policy

Land and buildings, Plant and machinery, Tools and equipment, and other property, plant and equipment, are measured at costs less accumulated depreciation and impairment losses.

The costs are comprised of the purchase price and any costs directly attributable to the acquisition until the asset is ready for use. The costs of self-constructed assets are comprised of costs of materials, components, subcontractors and wages. The costs are supplemented by the present value of estimated liabilities related to dismantling and removing the asset and restoring the site on which the asset was utilized.

Subsequent costs, e.g. relating to replacement of parts of an item of property, plant and equipment, are recognized in the carrying amount of the asset if it is likely that the costs will result in future economic benefits for the Nilfisk Group. The carrying amount of the replaced parts is derecognized in the statement of financial position and recognized in the income statement. All other costs relating to ordinary repair and maintenance are recognized in the income statement as incurred.

If individual parts of an item of property, plant and equipment have different useful lives, they are depreciated separately.

Property, plant and equipment are depreciated on a straight-line basis over the expected useful lives of the assets/components, as follows:

Buildings	8-50 years
Plant and machinery	3-20 years
Tools and equipment	3-15 years
Land is not depreciated

The basis of depreciation is calculated according to the residual value less impairment losses. The residual value is determined at the acquisition date and reviewed annually. If the residual value exceeds the carrying amount, depreciation is discontinued.

When changing the depreciation period or the residual value, the effect on the depreciation is recognized prospectively as a change in accounting estimates. Property, plant and equipment under construction and prepayments are measured at cost. When ready for use, the asset is transferred to the relevant category and depreciated.

2. Result for the year

4. Non-current assets & liabilities

4.4 Right-of-use assets

Right-of-use assets

EUR million		Land and buildings Plant and machinery	Tools and equipment	Total
Costs, January 1, 2019	-	-	-	-
Lease contracts entered into prior to 2019	49.1	2.8	19.9	71.8
Additions	0.8	0.1	8.3	9.2
Termination	-0.2	-	-1.2	-1.4
Costs, December 31, 2019	49.7	2.9	27.0	79.6
Depreciation and impairment, January 1, 2019	-	-	-	-
Depreciation for the year	-14.7	-1.0	-10.3	-26.0
Termination	-	-	0.9	0.9
Depreciation and impairment, December 31, 2019	-14.7	-1.0	-9.4	-25.1
Carrying amount, December 31, 2019	35.0	1.9	17.6	54.5

Operational costs for right-of-use assets

EUR million	2019
Short-term leases	1.1
Low value assets	-
Total	1.1

Payments relating to lease arrangements

EUR million	2019
Repayments of lease liability	24.5
Interests	1.6
Total payments in the year	26.1

See note 6.5 for development of the lease liabilities.

See note 6.9 for maturity analysis of the lease liabilities.

Not recognized right-of-use assets and liabilities at December 31, 2019

The Group has signed lease contracts in which the assets were not available for use by the Group at year-end. The value of these right-of-use assets and corresponding liabilities are not included in the statement of financial position, but will be included when the assets are available for use by the Group.

Total minimum payments for signed but not recognized contracts are 2.8 mEUR.

Expected operational costs for right-of-use assets

EUR million	2020
Short-term leases	1.1
Low value assets	0.1
Total	1.2

4. Non-current assets & liabilities

Note 4
--------	--

4.4 Right-of-use assets – Continued

Disclosures due to changes in accounting policies

EUR million	Total
Operating lease commitments disclosed at December 31, 2018	67.8
Discounted using incremental average borrowing rate of 2.4%	-3.1
Less short term and low value leases. Recognized on a straight line basis as expense	-2.1
Less contracts reassessed into service contracts	-0.5
Adjustments from reassessing expected contract lengths	9.7
New lease liabilities at January 1, 2019 due to IFRS 16 implementation	71.8
Finance lease liabilities per annual report December 31, 2018	0.3
Lease liabilities at January 1, 2019	72.1

§ Accounting policy

Leases are recognized as right-of-use assets with the corresponding liability at the time the asset is available for use by the Group. Assets and liabilities arising from a lease are measured on a present value basis.

Lease liabilities is comprised of expected fixed payments throughout the expected lease period (including options to extend the lease when exercise is reasonably certain), less any lease incentives. The lease payments are discounted using the contract's internal discount rate or the Group's incremental borrowing rate.

The costs of right-of-use assets is comprised of the calculated lease liabilities, payments made prior to entering the lease, initial direct costs, and expected restoration costs.

Right-of-use assets and lease liabilities are re-measured when a factual or contractual change is executed or if a significant event or change affects the expected use of the assets. The impact is discounted to a present value basis.

Right-of-use assets are measured at cost, less accumulated depreciation and impairment losses. When changing the value of right-of-use assets through remeasurement or when changing the depreciation period, the effect on the depreciation is recognized prospectively as a change in accounting estimates.

Right-of-use assets are depreciated on a straight-line basis of the expected length of the contract or the expected useful lives of the assets, whichever is the shorter.

Lease costs for low value assets and short-term leases are included as operational costs throughout the period based on a straight-line basis.

! Significant judgments and estimates

The individual right-of-use assets and the corresponding liabilities are highly impacted by the estimated lease period and the discount rate, where the underlying contracts can be prolonged or terminated early.

As of December 31, 2019 the estimated useful life can be summarized as follows:

Leased buildings: 1-10 years, with an average of 3.1 years. Other leases: 1-6 years with an average of 2.5 years.

Average discount rate for active contracts as of December 31, 2019 was 2.5%

1. Basis for preparation

4. Non-current assets & liabilities

Note 4

4.5 Amortization, depreciation and impairment

This note shows the split of amortization, depreciation and impairment for the Nilfisk Group in the income statement.

Split of amortization, depreciation and impairment in the income statement

EUR million	2019	2018*
Depreciation and impairment of property, plant and equipment
Cost of sales	19.1	11.6
Research and development costs	0.4	0.3
Sales and distribution costs	9.3	1.0
Administrative costs	11.0	1.8
Depreciation and impairment included in special items	1.2	0.9
Total depreciation and impairment of property, plant and equipment	41.0	15.6
Hereof depreciation of right-of-use assets	26.0	-
Total depreciation and impairment of property, plant and equipment excluding right-of-use assets	15.0	15.6
Amortization and impairment of non acquisition-related intangibles
Research and development costs	17.1	12.9
Sales and distribution costs	1.0	1.0
Administrative costs	4.9	3.3
Impairment included in special items	-	11.9
Total amortization and impairment of non acquisition-related intangibles	23.0	29.1
Amortization and impairment of acquisition-related intangibles
Cost of sales	1.5	1.5
Sales and distribution costs	3.6	4.7
Total amortization and impairment of acquisition-related intangibles	5.1	6.2
Total amortization, depreciation and impairment	69.1	50.9

*Comparative figures are not restated with the effect of IFRS 16.

4. Non-current assets & liabilities

Note 4

4.6 Pension liabilities

Most employees in the Nilfisk Group are covered by pension schemes, primarily in the form of defined contribution-based plans or alternatively by defined benefit plans. The Nilfisk Group companies contribute to these plans either directly or by contributing to pension funds administered independently. The nature of such schemes varies according to legislative and regulatory regimes, rules regarding tax and the economic conditions in the countries in which the employees work, and the contributions are usually based on employee salary and seniority. The liability relates to pensions for already retired staff as well as for employees retiring in the future.

If a plan is not fully hedged, a plan liability is recognized in the statement of financial position. Expenses relating to pension benefits are recognized as employee benefits. The Nilfisk Group's defined benefit plans primarily relate to the UK and Switzerland.

Net liabilities recognized in the statement of financial position

		2019		2018
EUR million	Present value of obligations	Fair value of plan assets	Net obligation	Present value of obligations	Fair value of plan assets	Net obligation
Obligations and assets, January 1	26.3	21.8	4.5	28.8	23.1	5.7
Recognized under staff costs in the income statement:
Current service cost	0.3		0.3	0.3	-	0.3
Calculated interest expenses/income	0.6	0.5	0.1	0.5	0.5	-
Curtailment and settlements, etc.	0.7	-	0.7	0.1	-	0.1
Total	1.6	0.5	1.1	0.9	0.5	0.4
Recognized in other comprehensive income:
Actuarial gain/loss from changes in demographic assumptions	-0.6	-	-0.6	-1.2	-0.8	-0.4
Actuarial gain/loss from changes in financial assumptions and other	3.5	1.8	1.7	-	-	-
Total	2.9	1.8	1.1	-1.2	-0.8	-0.4
Other changes:
Contributions to plans	0.1	0.9	-0.8	0.1	0.9	-0.8
Benefits paid	-1.4	-1.2	-0.2	-2.5	-1.9	-0.6
Foreign exchange adjustments, etc.	1.1	1.1	-	0.1	-	0.1
Total	-0.2	0.8	-1.0	-2.3	-1.0	-1.3
Net recognized plan obligations and assets, December 31	30.6	24.9	5.7	26.2	21.8	4.4
Other long-term employee benefits	0.2	-	0.2	0.1	-	0.1
Recognized, December 31	30.8	24.9	5.9	26.3	21.8	4.5
EUR million			2019	2018
Plan assets recognized as follows:
Securities with quoted market price			19.5	15.1
Cash			0.2	2.1
Other			5.2	4.6
Total			24.9	21.8

Basis for preparation
Result for the year
Remuneration

4. Non-current assets & liabilities

1. Working capital
1. Capital structure
Group structure
Other notes

Note 4

4.6 Pension liabilities – Continued

Significant judgments and estimates

The present value of defined benefit plans are based on actuarial assumptions, and an increase/decrease in these assumptions may lead to an increase/decrease in the present value of the defined benefit plans.

Principal actuarial assumptions at the

balance sheet date (as weighted average)	2019	2018
Discount rate	0.7%	1.6%
Future salary increases	0.6%	0.5%
Future pension increases	0.8%	1.3%

Sensitivity

The table below shows the sensitivity of the pension liability to changes in the key assumptions

EUR million	2019	2018
0.5% point increase in the discount rate	-2.3	-1.8
0.5% point decrease in the discount rate	2.6	2.1
0.5% point increase in the future salary increases	0.3	0.1
0.5% point decrease in the future salary increases	-0.2	-0.1

The anticipated duration of the plan liability, expressed as a weighted average, was 16 years at December 31, 2019 (2018: 13 years). The Nilfisk Group's expected contribution to defined benefit plans in 2020 amounts to 0.8 mEUR.

§ Accounting policy

The Nilfisk Group has contracted pension plans and similar arrangements with the majority of its employees.

Liabilities with respect to defined contribution-based pension plans, where the Nilfisk Group makes fixed regular payments to independent pension companies, are recognized in the income statement in the period to which they relate. Any contributions outstanding are recognized in the statement of financial position under other payables.

In the case of defined benefit plans, an annual actuarial calculation (the Projected Unit Credit Method) is made of the present value of future benefits payable under the plan. The present value is determined based on assumptions about the future development in 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 Nilfisk Group. The actuarial present value

less the fair value of any plan assets is recognized in the statement of financial position under employee benefits.

Pension expenses for the year are recognized in the income statement based on actuarial estimates and financial expectations at the start of the year. The differences between calculated return and realized return on plan assets and liabilities are designated actuarial gains or losses and recognized in other comprehensive income.

If a pension plan constitutes a net asset, the asset is only recognized if it offsets cumulative actuarial losses or future refunds from the plan, or if it will lead to reduced future payments to the plan.

1. Basis for preparation

4. Non-current assets & liabilities

5. Working capital
6. Capital structure

Income statement and statement of comprehensive income Statement of financial position Cash flow statement Statement of changes in equity Notes to the consolidated financial statements

	Note 4

4.7 Provisions

Development in provisions

EUR million	Warranties	Other	Total
2019
Provisions, January 1	11.2	6.5	17.7
Provisions made during the year	11.2	2.3	13.5
Used during the year	-10.8	-0.6	-11.4
Reversed during the year	-0.3	-4.8	-5.1
Foreign exchange adjustments	0.1	0.3	0.4
Provisions, December 31	11.4	3.7	15.1
Provisions are presented as:
Non-current liabilities	-	1.3	1.3
Current liabilities	11.4	2.4	13.8
Total	11.4	3.7	15.1
2018
Provisions, January 1	10.9	7.1	18.0
Provisions made during the year	12.3	1.8	14.1
Used during the year	-11.5	-2.4	-13.9
Reversed during the year	-0.5	-	-0.5
Provisions, December 31	11.2	6.5	17.7
Provisions are presented as:
Non-current liabilities	-	2.5	2.5
Current liabilities	11.2	4.0	15.2

§ Accounting policy

Provisions are recognized when, as a result of events arising before or at the balance sheet date, the Nilfisk Group has a legal or a constructive obligation, and it is likely that there may be an outflow of financial resources to settle the obligation.

The amount recognized as a provision is the Executive Management Board's best estimate of the amount required to settle the obligation.

When measuring provisions, the costs required to settle the obligation are discounted if this significantly affects the measurement of the liability. A pre-tax discount rate is applied that reflects the current market interest rate and the specific risks relating to the obligation. Changes in present values during the year are recognized under financial expenses.

Warranty commitments are recognized in step with sale of goods and services based on the level of warranty expenses incurred in previous years.

Total 11.2 6.5 17.7 The warranty provision represents management's best estimate of the Group's liability under 12-month warranties granted on products, based on past experience. Other provisions include the restoration of rented facilities, provisions related to restructuring, etc.

Provisions for acquisition-related earnouts are recognized based on the Executive Management Board's best estimate of future financial performance in the acquired businesses.

Provisions for restoring rented facilities when vacated are measured at the present value of the expected clearance and closure obligation at the balance sheet date. The provision is based on existing encumbrances and estimated costs discounted to present value. Specific risks considered to attach to the obligation are included in the estimated costs. A discount rate is applied which reflects the current market interest rate.

The obligations are included as they occur and are continuously adjusted to reflect changed requirements and price levels, etc. The present value of the costs is included in the costs of the relevant tangible assets and depreciated accordingly. The increase in the present value over time is recognized in the income statement under financial expenses.

5. Working capital

4. Non-current assets & liabilities

5. Working capital

necessary to support the day-to-day operations. Working capital is defined as current assets less current and other non-current liabilities, excluding interest-bearing items and provisions, but including derivatives that hedge working capital elements with currency exposure.

Composition and drivers

The Nilfisk Group manufactures products and operates in different markets. The Group's operating model, with several assembly locations and a number of distribution hubs for finished products, leads to a relatively high level of inventory.

Key developments in 2019

The Nilfisk Group decreased working capital by 12.5 mEUR from 170.4 mEUR at December 31, 2018 to 157.9 mEUR at December 31, 2019.

Trade receivables amounted to 175.0 mEUR at December 31, and have decreased by 15.7 mEUR since December 31, 2018. The decline in trade receivables is corresponding to the decline in revenue in 2019 and at December 31, 2019 the DSO were at the same level as at the end of 2018.

The decrease in net working capital was primarily related to a decrease in trade receivables and other current liabilities.

The working capital ratio measured in percentage of revenue on a 12-month average was 20.6% at the end of 2019. This was an increase of 2.1 percentage points compared to 2018 which was impacted by receivables and other liabilities.

NILFISK ANNUAL REPORT 2019 83

The working capital represents the assets and liabilities

This note covers the Nilfisk Group's working capital.

Breakdown of working capital

EUR million	2019	2018
Inventories	172.7	172.9
Trade receivables	175.0	190.7
Other current assets	26.2	31.9
Other non-current liabilities	-2.6	-1.1
Trade payables	-111.9	-113.5
Other current liabilities	-101.5	-110.5
Working capital	157.9	170.4
Working capital ratio (LTM)	20.6%	18.5%

1. Basis for preparation

4. Non-current assets & liabilities

5. Working capital

Note 5

5.1 Inventories

The Nilfisk Group's entities carry inventory to support their operations. Continuous efforts aim to reduce inventory levels while maintaining customer service through short lead times. See the Management review for more details of the inventory development.

Specification of inventories

EUR million	2019	2018
Raw materials, consumables and goods for resale	54.2	61.6
Work in progress	1.0	1.4
Finished goods	117.5	109.9
Total	172.7	172.9
Write-down on inventories, January 1	12.3	13.0
Write-down on inventories for the year expensed in the income statement	1.2	5.6
Disposals from sales	-3.6	-4.4
Scrapping	-0.7	-1.9
Write-down on inventories, December 31	9.2	12.3

! Significant judgments and estimates

Allocation of production overheads, such as indirect materials, wages/salaries and maintenance and depreciation of production machinery, buildings and equipment, along with costs for production administration and management are based on relevant assumptions related to capacity utilization, production time and other relevant factors.

Changes in assumptions may affect gross profit margins as well as the valuation of the inventories.

The write-down in inventories is based on the expected sales forecast and slow moving items.

Inventories are measured at costs in accordance with

the FIFO method or at a weighted average. If the net realizable value is lower than cost, inventories are written down to this lower value.

Raw materials, consumables and goods for resale are measured at cost, comprised of purchase price plus delivery costs.

Finished goods and work in progress are measured at cost, which includes the costs of raw materials, consumables, direct wages/ salaries and production overheads. Production overheads include indirect materials and wages/salaries, as well as maintenance and depreciation of production machinery, buildings and equipment, along with costs for production administration and management.

The net realizable value of inventories is calculated as the sales amount less costs of completion and costs incurred in effecting the sale, and is determined taking into account marketability, obsolescence and development in expected sales price.

4. Non-current assets & liabilities

5. Working capital

Note 5

5.2 Receivables

Trade receivables decreased in absolute terms from December 31, 2018 to December 31, 2019. The receivable balances are being monitored closely but were higher than expected during the year. The days sales outstanding was in line with the same period last year at 60.1 compared to 59.6 at end-2018.

Specification of trade receivables

EUR million	2019	2018
Trade receivables, gross incl. VAT	180.9	194.6
Allowance for expected credit losses	-5.9	-3.9
Total	175.0	190.7

Specification of receivables

EUR million	2019	2018
Trade receivables	166.1	187.7
Trade receivables due from associates	8.9	3.0
Other receivables	11.7	15.7
Fair value of derivative financial instruments	1.5	4.7
Prepayments	7.9	7.8
Total	196.1	218.9

Of which receivables falling due later than 12 months from the balance sheet date - -

! Significant judgments and estimates

The allowance for expected credit losses for trade receivables is based on historical credit loss experience combined with forward-looking information on macroeconomic factors affecting the credit risk. The expected loss rates are updated at every reporting date. The following table details the risk profile of trade receivables based on the Group's provision matrix. The Group's historical credit losses do not show different patterns for different customer segments. Increase in allowance for expected credit losses related to individual impairment in the US.

Disclosure of credit risks and impairment of trade receivables are included in Note 6.9.

Specification of expected credit losses

EUR million	Trade receivables	Lifetime expected credit losses	Expected weighted average credit loss rate
2019
Not past due	144.0	0.3	0.2%
Overdue up to 1 months	18.4	0.1	0.6%
Overdue between 1-2 months	5.9	0.1	2.4%
Overdue between 2-4 months	4.2	0.4	10.5%
Overdue more than 4 months	8.4	5.0	62.7%
Total	180.9	5.9
2018
Not past due	153.9	0.4	0.5%
Overdue up to 1 months	23.3	0.2	0.8%
Overdue between 1-2 months	7.4	0.2	2.9%
Overdue between 2-4 months	4.3	0.5	11.2%
Overdue more than 4 months	5.7	2.6	41.2%
Total	194.6	3.9

§ Accounting policy

Receivables

Receivables are recognized initially at their transaction price and subsequently measured at amortized cost, which usually corresponds to the nominal value less lifetime expected credit losses. The expected credit losses on trade receivables are estimated using a provision matrix with reference to past default experience of the debtor and an analysis of the debtor's current financial position, adjusted for general economic conditions of the market in which the debtor operates. The Group recognizes a loss allowance for expected credit losses and writes off trade receivables when there is information indicating that the debtor is in severe financial difficulty and there is no realistic prospect of recovery.

The amount of write-downs is recognized in the income statement under other operating costs. Subsequent recoveries of amounts previously written down are credited against other operating costs.

Derivative financial instruments are measured at fair value.

Prepayments

Prepaid expenses are measured at cost.

4. Non-current assets & liabilities

5. Working capital

Note 5

5.3 Trade payables and other liabilities

Trade payables and other liabilities are comprised of trade payables, other payables including VAT, employee-related payables, and derivative financial instruments. Prepayments from customers and deferred income are also included.

Specification of trade payables and other liabilities

EUR million	2019	2018
Non-current liabilities:
Fair value of derivative financial instruments	0.4	-
Deferred revenue	0.4	0.3
Other payables	0.2	0.8
Employee related payables	1.6	-
Total non-current liabilities	2.6	1.1

Current liabilities:
Trade payables	111.9	113.5
Employee related payables	34.2	45.1
Other payables	32.7	30.9
Various taxes, including VAT	10.4	14.0
Customer related payables	9.2	9.4
Deferred revenue	4.7	4.4
Fair value of derivative financial instruments	3.2	4.2
Prepayments from customers	2.1	1.5
Total current liabilities	208.4	223.0

Total	211.0	224.1

§ Accounting policy

Liabilities are measured at amortized cost, except for derivative financial instruments which are measured at fair value.

4. Non-current assets & liabilities

6. Capital structure

Income statement and statement of comprehensive income Statement of financial position Cash flow statement Statement of changes in equity Notes to the consolidated financial statements

Note 6

6. Capital structure

This note covers the Nilfisk Group's capital structure, financing costs and financial risks.

6.1 Changes in capital structure, financing, etc.

The Group's objective is to have capital resources to meet operating needs as well as needs for potential acquisitions. To achieve and maintain an efficient capital structure, the Financial Policy states that the Group's long-term net interest-bearing debt should be at 2.5 x EBITDA before special items or below. By the end of 2019, Nilfisk's funding structure primarily consisted of long-term committed loans of 450 mEUR, provided by Nordea Danmark, filial af Nordea Bank Abp, Finland and Danske Bank A/S. The long-term committed loans includes a financial covenant with reference to the ratio between net interest-bearing debt and EBITDA. The facilities are available for general funding purposes.

6.2 Net interest-bearing debt

Specification of net interest-bearing debt

EUR million	2019	2018*
Non-current loans and borrowings	376.9	382.3
Non-current lease liabilities	32.2	0.1
Current loans and borrowings	5.0	7.8
Current lease liabilities	24.0	0.2
Interest-bearing debt	438.1	390.4
Interest-bearing receivables	-4.7	-4.4
Cash and cash equivalents	-19.3	-16.4
Net interest-bearing debt	414.1	369.6

*Comparative figures are not restated with the effect of IFRS 16.

Net interest-bearing debt at December 31, 2019 increased by 44.5 mEUR compared to December 31, 2018, primarily due to IFRS 16. Adjusting for debt relating to IFRS 16, there is a decrease in net interest-bearing debt of 11.7 mEUR

As of December 31, 2019 the net interest-bearing debt primarily consisted of long-term credit facilities and cash and cash equivalents. The interest-bearing debt was denominated primarily in EUR.

6.3 Interest-bearing receivables

Specification of interest-bearing receivables

EUR million	2019	2018
Finance lease receivables	1.5	2.2
Other interest-bearing receivables	3.2	2.2
Total	4.7	4.4

6.4 Payables to credit institutions and other payables

Payables to credit institutions are predominantly based on floating interest rates and are measured at amortized cost.

The carrying amount of payables to credit institutions and other payables corresponds in all material respects to fair value and nominal value.

§ Accounting policy

Payables to credit institutions, etc. are recognized at the amount of proceeds received at the date of borrowing, net of transaction costs paid. In subsequent periods the financial liabilities are measured at amortized costs using 'the effective interest method', the difference between the proceeds and the nominal value therefore being recognized in the income statement under financial expenses over the term of the loan.

3. Remuneration 4. Non-current assets & liabilities 5. Working capital 6. Capital structure 7. Group structure 8. Other notes

6.5 Net liabilities from financing activities

Total liabilities from financing activities at December 31, 2019 increased by 47.7 mEUR compared to December 31, 2018, primarily due to the implementation of IFRS 16.

Specification of net liabilities arising from financing activities

			Non-cash changes
EUR million	January 1	Cash flows	Foreign exchange movement	Leases*	December 31
2019
Interest-bearing loans and borrowings, Non-current	382.2	-5.3	-	-	376.9
Lease liabilities, Non-current	0.1	-	-	32.1	32.2
Interest-bearing loans and borrowings, Current	7.6	-2.9	0.3	-	5.0
Lease liabilities, Current	0.2	-24.5	-0.1	48.4	24.0
Interest-bearing receivables	-4.4	-0.3	-	-	-4.7
Total	385.7	-33.0	0.2	80.5	433.4
2018
Interest-bearing loans and borrowings, Non-current	397.2	-12.6	-2.4	-	382.2
Lease liabilities, Non-current	0.1	-	-	-	0.1
Interest-bearing loans and borrowings, Current	8.0	-4.9	4.7	-	7.8
Lease liabilities, Current	0.2	-	-	-	0.2
Interest-bearing receivables	-4.9	-2.1	2.6	-	-4.4
Total	400.4	-19.6	4.9	-	385.7

6.6 Capital employed

EUR million	2019	2018
Non-current assets	442.2	378.2
Provisions, pension and deferred tax liabilities	-28.0	-31.6
Working capital	157.9	170.4
Capital employed	572.1	516.8

Capital employed increased by 55.3 mEUR or 10.7% compared to 2018. The development in capital employed was largely driven by the implementation of IFRS 16 which impacted capital employed by 54.5 mEUR.

In 2019 Nilfisk's return on capital employed (RoCE) deteriorated by 7.5 percentage points to 9.2% from 16.7% in 2018. The improvement was mainly driven by an decrease in EBIT before special items as well as negative impact from lease liabilities driven by IFRS 16.

*Net impact of right-of-use assets, including additions, terminations and new lease liabilities at January 1, 2019 due to the implementation of IFRS 16.

1. Basis for preparation

4. Non-current assets & liabilities

6. Capital structure

6.7 Financial items

Note 6

Financial items, net represented -14.0 mEUR in 2019 compared to -11.3 mEUR in 2018.

Financial income decreased by 9.7 mEUR compared to 2018 due to lower foreign exchange gains, other financial income and lower forward points. Financial expenses decreased by 7.0 mEUR compared to 2018, which can be explained by a decrease in foreign exchange losses and forward points.

Specification of financial items

		Financial income	Financial expenses
EUR million	2019	2018	2019	2018
Interest on financial assets measured at amortized costs	1.2	1.7	10.6	10.0
Forward points	1.7	4.1	2.2	3.5
Foreign exchange gains/losses	1.9	7.3	3.4	10.0
Foreign exchange gains/losses on derivatives	1.0	0.9	2.6	2.3
Other financial items	0.1	1.6	1.1	1.1
Total	5.9	15.6	19.9	26.9

§ Accounting policy

Financial income includes interest, dividends, gains on receivables and transactions denominated in foreign currencies, amortization of financial assets etc. Positive changes in the fair value of derivative financial instruments not designated as hedging arrangements are also included.

Financial expenses includes interest, losses on and impairment of securities, payables and transactions denominated in foreign currencies, amortization of financial liabilities, including lease commitments etc. Negative changes in the fair value of derivative financial instruments not designated as hedging arrangements are also included.

6.8 Investments in associated companies

Carrying amount of associated companies

EUR million	2019	2018
Carrying amount, January 1	19.1	19.3
Share of result recognized in the income statement	3.7	3.4
Sale/divestment	-	-0.5
Dividends	-1.3	-1.3
Revaluation	-	-1.6
Exchange rate adjustments	-	-0.2
Carrying amount, December 31	21.5	19.1

§ Accounting policy

An associated company is an entity in which the Nilfisk Group has significant influence, but not control, which in general will be when holding 20% to 50% of the voting rights. Such investments are accounted for using the equity method of accounting. The investment is adjusted by the Nilfisk Group's share of the results after tax of the associated company.

The Nilfisk Group's share of the results is recognized in the income statement as other operating income. The share of results will be recognized based on the associated company' full-year outlook, with adjustment for actual full-year result in the following year.

1. Basis for preparation

4. Non-current assets & liabilities

6. Capital structure

Income statement and statement of comprehensive income Statement of financial position Cash flow statement Statement of changes in equity Notes to the consolidated financial statements

	Note 6

6.8 Investments in associated companies – continued

Details of associated companies

2019				2018
	M2H	CFM Lombardia			M2H	CFM Lombardia
EUR million	France	Italy	Total	EUR million	France	Italy	Total
Revenue	68.3	2.0	70.3	Revenue	65.6	1.5	67.1
Result after tax	8.3	0.1	8.4	Result after tax	7.7	-	7.7
Non-current assets	13.3	0.1	13.4	Non-current assets	9.4	-	9.4
Current assets	57.6	1.2	58.8	Current assets	52.9	1.1	54.0
Total assets	70.9	1.3	72.2	Total assets	62.3	1.1	63.4
Equity	46.5	0.3	46.8	Equity	41.0	0.2	41.2
Non-current liabilities	13.6	0.1	13.7	Non-current liabilities	14.2	-	14.2
Current liabilities	10.8	0.9	11.7	Current liabilities	7.1	0.9	8.0
Equity and liabilites	70.9	1.3	72.2	Equity and liabilites	62.3	1.1	63.4
Ownership in %	44%	33%		Ownership in %	44%	33%
Share of result after tax	3.7	-	3.7	Share of result after tax	3.4	-	3.4
Share of equity	20.5	0.1	20.6	Share of equity	18.1	0.1	18.2
Goodwill recognized	0.9	-	0.9	Goodwill recognized	0.9	-	0.9
Carrying value	21.4	0.1	21.5	Carrying value	19.0	0.1	19.1
Goods sold to	20.2	1.1	21.3	Goods sold to	20.5	1.2	21.7
Receivables from associated company	8.6	0.3	8.9	Receivables from associated company	2.4	0.6	3.0

1. Basis for preparation 2. Result for the year 3. Remuneration 4. Non-current assets & liabilities 5. Working capital 6. Capital structure 7. Group structure 8. Other notes

Note 6

6.9 Financial risks and financial instruments

Risk management policy

The Nilfisk Group is exposed to and manages different financial risks through its operations, investments and financing activities. As a matter of policy, the Nilfisk Group does not actively speculate in financial risks.

The overall objectives and policies for the Nilfisk Group's financial risk management are outlined in an internal Treasury Policy, which is approved by the Board of Directors. The general principle is that only financial risk exceeding a defined risk threshold is hedged. The risk thresholds are defined to provide the Nilfisk Group with sufficient risk protection while taking hedging costs into consideration.

The Nilfisk Group uses financial instruments to hedge exposures relating to currency, interest rate risks and remuneration risks.

The financial risks are divided into:

1. Currency risks
1. Interest rate risks
1. Credit risks
1. Liquidity risks
1. Remuneration risks

Currency risks

With sales to more than 100 countries, the Nilfisk Group is exposed to currency risks that could have considerable impact on the income statement and statement of financial position.

Currency risks refer to the risks of losses (or opportunities for gains) resulting from changes in currency rates. Currency risks arise through transactions, financial assets, and liabilities denominated in currencies other than the functional currency of the individual Group businesses.

Translation risks relating to net investments in subsidiaries

As a basic principle, the hedging of currency risks is not performed for net assets (equity) in foreign subsidiaries. Gains and losses relating to unhedged net assets in foreign subsidiaries are accounted for directly in other comprehensive income. For the most significant investments (above 15 mEUR) in foreign currency, excluding EUR/DKK, a rate of exchange which is 10% lower than the actual exchange rate for USD, CNY and GBP would reduce the Nilfisk Group's equity by 16.1 mEUR, compared to 14.7 mEUR in 2018.

Currency risks relating to other investments in foreign entities are not deemed significant.

Net financing

Significant currency risks relating to receivables and payables that influence the Nilfisk Group's net income are hedged. Balances with credit institutions are denominated in the functional currency of the businesses concerned. The Nilfisk Group had no significant currency risks relating to receivables and payables in foreign currency at December 31, 2019 and at December 31, 2018, and the Nilfisk Group's net income would therefore not have been significantly influenced by changes in the exchange rates at those dates.

Future cash flows

The Nilfisk Group's principal currency exposure relates to sales and purchases in currencies other than the functional currency of the individual Nilfisk Group businesses. Hedging of these currency risks is based on assessments of the likelihood of the future transaction being performed and whether the associated currency risk is significant.

Income statement and statement of comprehensive income Statement of financial position Cash flow statement Statement of changes in equity Notes to the consolidated financial statements

1. Basis for preparation

3. Remuneration

4. Non-current assets & liabilities

6. Capital structure

Income statement and statement of comprehensive income Statement of financial position Cash flow statement Statement of changes in equity Notes to the consolidated financial statements

Outstanding FX hedging contracts

on a 14 month rolling basis. The fair value of the effective part of the hedge is recognized in other comprehensive income on a continuous basis. The table to the right shows net outstanding forward exchange hedging contracts at December 31, 2019 for the Nilfisk Group which are used for and fulfil the conditions for hedge accounting of future transactions. Forward exchange contracts relate to hedging of product sales/ purchase. During the year, no ineffectiveness on hedge contracts has been recognized. For comparison, the amount in 2018 was a loss of 1.4 mEUR.

Expected cash flows with significant currency risk are hedged

6.9 Financial risks and financial instruments – continued

		2019		2018
EUR million	Notional value1	Recognized in OCI	Notional value1	Recognized in OCI
AUD/DKK	-5.3	-0.2	-13.2	0.2
CNH/DKK	53.1	0.4	69.2	-0.3
GBP/DKK	-19.1	-1.0	-24.0	0.5
NOK/DKK	-8.6	-	-12.5	0.4
SEK/DKK	-10.3	-0.1	-16.8	0.1
USD/DKK	-9.1	-0.1	-13.8	-0.4
CAD/USD	-11.8	-0.2	-12.8	0.5
Total	-11.1	-1.2	-23.9	1.0

1 Forward exchange contracts with positive notional values are purchases of the relevant currency; negative notional values are sales.

± Sensitivity

The sensitivity analysis shown in the table to the right demonstrates currency rate changes equal to the individual currency's historic volatility, with all other variables held constant. The impact on the profit and loss is due to changes in the fair value of monetary assets and liabilities including fair value hedges. The impact on other comprehensive income is due to changes in the fair value of forward exchange contracts designated as cash flow hedges. The Group's exposure to foreign currency changes for all other currencies is not material. The analysis shows that for instance a 6% increase in the AUD/DKK rate will impact other comprehensive income by -0.3 mEUR.

		2019		2018
EUR million	Historic volatility	Change recognized in OCI	Change recognized in P&L	Historic volatility	Change recognized in OCI	Change recognized in P&L
AUD/DKK	6%	-0.3	-	9%	-1.2	-
CNH/DKK	5%	2.8	-0.2	7%	4.8	-0.4
GBP/DKK	6%	-1.2	-	11%	-2.6	-
NOK/DKK	6%	-0.5	-	5%	-0.6	-
SEK/DKK	5%	-0.5	-	6%	-1.0	-
USD/DKK	6%	-0.5	-	8%	-1.1	0.2
CAD/USD	5%	-0.6	0.1	7%	-0.9	-
MXN/USD	9%	-	-0.3		-	-
Total		-0.8	-0.4		-2.6	-0.2

1. Basis for preparation

2. Result for the year

4. Non-current assets & liabilities

6. Capital structure

Income statement and statement of comprehensive income Statement of financial position Cash flow statement Statement of changes in equity Notes to the consolidated financial statements

The following tables detail the foreign currency forward contracts outstanding at the end of the reporting period, as well as
information regarding their related hedged items. Foreign currency forward contract assets and liabilities are presented in the line
"Receivables/other liabilities" in the statement of financial position.

6.9 Financial risks and financial instruments – continued

2019 Cash flow hedges	Average exchange rate	Notional value: Foreign currency	Notional value: Local currency	Carrying amount of hedges, net	Change in value used for calculated ineffectiveness	Inefficiency recognized in the income statement
		(tFCY)	(tLCY)		EUR thousand
Sell AUD	AUD/DKK	AUD	DKK
- 0-6 months	4.6511	-5,400	-25,116	-108.9	-108.9	-
- 7-14 months	4.5919	-3,100	-14,235	-72.5	-72.5	-
Sell GBP	GBP/DKK	GBP	DKK
- 0-6 months	8.4621	-10,600	-89,698	-597.9	-597.9	-
- 7-14 months	8.3653	-5,700	-47,682	-387.5	-387.5	-
Sell NOK	NOK/DKK	NOK	DKK
- 0-6 months	0.7718	-54,700	-42,215	16.6	16.6	-
- 7-14 months	0.7632	-30,000	-22,895	-17.1	-17.1	-
Sell SEK	SEK/DKK	SEK	DKK
- 0-6 months	0.7149	-72,700	-51,974	-34.3	-34.3	-
- 7-14 months	0.7038	-35,000	-24,632	-70.7	-70.7	-
Sell USD	USD/DKK	USD	DKK
- 0-6 months	6.6498	-6,300	-41,894	-128.8	-128.8	-
- 7-14 months	6.7282	-3,900	-26,240	-11.9	-11.9	-
Sell CAD	CAD/USD	CAD	USD
- 0-6 months	0.7479	-9,450	-7,068	-134.1	-134.1	-
- 7-14 months	0.7584	-7,800	-5,916	-68.2	-68.2	-
Buy CNH	CNH/DKK	CNH	DKK
- 0-6 months	0.9707	276,000	267,903	193.2	193.2	-
- 7-14 months	0.9557	139,000	132,847	214.7	214.7	-
Total				-1,207.4	-1,207.4	-

1. Basis for preparation 2. Result for the year

6.9 Financial risks and financial instruments – continued

Inefficiency recognized in the income statement	Change in value used for calculated ineffectiveness	Carrying amount of hedges, net	Notional value: Local currency	Notional value: Foreign currency	Average exchange rate	2018 Cash flow hedges
	EUR thousand		(tLCY)	(tFCY)
			DKK	AUD	AUD/DKK	Sell AUD
1.3	157.6	158.9	-49,741	-10,875	4.5739	- 0-6 months
-	79.3	79.3	-47,330	-10,500	4.5076	- 7-14 months
			DKK	GBP	GBP/DKK	Sell GBP
0.1	281.2	281.3	-94,396	-11,350	8.3168	- 0-6 months
0.7	168.7	169.4	-84,870	-10,300	8.2398	- 7-14 months
			DKK	NOK	NOK/DKK	Sell NOK
-	227.4	227.4	-51,392	-67,600	0.7602	- 0-6 months
6.9	184.8	191.7	-43,310	-57,200	0.7572	- 7-14 months
			DKK	SEK	SEK/DKK	Sell SEK
-3.4	149.5	146.1	-65,583	-89,000	0.7369	- 0-6 months
-4.9	-43.2	-48.1	-60,203	-83,700	0.7193	- 7-14 months
			DKK	USD	USD/DKK	Sell USD
-88.0	-143.8	-231.8	-42,680	-7,000	6.0972	- 0-6 months
-32.5	-88.0	-120.5	-54,183	-8,750	6.1923	- 7-14 months
			USD	CAD	CAD/USD	Sell CAD
1.7	269.2	270.9	-7,547	-9,800	0.7701	- 0-6 months
-	173.7	173.7	-7,710	-1,015	0.7596	- 7-14 months
			DKK	CNH	CNH/DKK	Buy CNH
-	-295.0	-295.0	179,599	196,400	0.9145	- 0-6 months
-	129.9	129.9	237,951	263,700	0.9024	- 7-14 months
			DKK	CNY	CNY/DKK	Buy CNY
-	-88.4	-88.4	76,718	85,000	0.9026	- 0-6 months
-	-	-	-	-	-	- 7-14 months
-118.1	1,162.9	1,044.8				Total

1. Basis for preparation Note 6

2. Result for the year 3. Remuneration 4. Non-current assets & liabilities 5. Working capital 6. Capital structure 7. Group structure 8. Other notes

6.9 Financial risks and financial instruments – continued

Interest rate risks

Interest rate risks refer to the influence of changes in market interest rates on future cash flows concerning the Nilfisk Group's interest-bearing assets and liabilities. At December 31, 2019, Nilfisk Group's interest-bearing debt exceeded its interest-bearing assets by 414.1 mEUR compared to 369.6 mEUR as of December 31, 2018.

Nilfisk Group has entered two interest rate cap agreements with the interest rate capped at 0.00% p.a. The notional amount is 150 mEUR compared to 185 mEUR in 2018 and is hedging 34% of gross debt at December 31, 2019 compared to 48% in 2018. The interest rate caps mature June 30, 2021. At December 31, 2019, the total fair value of the caps including interest is -0.4 mEUR, unchanged compared to -0.4 mEUR in 2018.

It is estimated that a 1% rise in market interest rate for the Nilfisk Group's net interest-bearing items at December 31, 2019 would impact pre-tax earnings negatively on an annual basis by approximately 1.6 mEUR p.a. compared to 1.4 mEUR in 2018.

The following table details the effectiveness of the hedging relationships and value adjustments reclassified from hedging reserve to the income statement:

Hedging reserve

		2019				2018
EUR million	Currency risk	Interest rate risk	Remuneration risk	Total	Currency risk	Interest rate risk	Remuneration risk	Total
Balance at January 1	1.0	-0.4	0.1	0.7	-0.1	-	-	-0.1
Value adjustment for the year	-0.2	-	-0.3	-0.5	1.6	-0.4	-0.7	0.5
Value adjustment reclassified to cost of sales	-1.7	-	-	-1.7	-1.1	-	-	-1.1
Value adjustment reclassified to staff costs	-	-	0.9	0.9	-	-	0.8	0.8
Value adjustment reclassified to financial income and expenses	-	-	-	-	1.1	-	-	1.1
Inefficiency reclassified to financial income and expenses	-	-	-	-	-0.1	-	-	-0.1
Value adjustment reclassified to inventory	-0.4	-	-	-0.4	-0.1	-	-	-0.1
Tax on value adjustment of hedging instruments	0.5	-	0.1	0.6	-0.3	-	-	-0.3
Balance at December 31	-0.8	-0.4	0.8	-0.4	1.0	-0.4	0.1	0.7

Remuneration risks

Nilfisk has an exposure on its share-based incentive schemes (LTI programs) – a cash-settled and two equity-settled schemes. The exposure is the development in the price of the Nilfisk share that impacts the costs of the cash-settled scheme and liquidity required to settle the equity-settled schemes by own shares.

To mitigate the risk, Nilfisk has entered into a Total Return Swap (TRS) of 138,347 Nilfisk shares, with a fixed strike price of 162.00 DKK, equivalent to a notional amount of 22.4 mDKK. The TRS carries an interest of 1.43% p.a. on the outstanding amount. For 2019, the interest expense amounted to 0.1 mEUR (2018: 0.0 mEUR). The TRS expires at June 4, 2020. Nilfisk is obligated to exercise all shares within the TRS at the date of expiration. Dividends from the shares are fully compensated to Nilfisk.

The market value of the TRS, including accrued interest, at December 31, 2019 amounted to -0.3 mEUR, of which 0.7 mEUR of the market value was recognized in OCI related to the cash-settled program, and -1.0 mEUR was recognized in financial items related to the equity-settled programs. Value adjustment of -0.9 mEUR was recognized in staff costs related to the cash-settled program.

1. Basis for preparation 2. Result for the year 3. Remuneration 4. Non-current assets & liabilities 5. Working capital 6. Capital structure 7. Group structure 8. Other notes

Income statement and statement of comprehensive income Statement of financial position Cash flow statement Statement of changes in equity Notes to the consolidated financial statements

Note 6

6.9 Financial risks and financial instruments – continued

Credit risks

The Nilfisk Group's credit risks relate partly to receivables and cash at bank and in hand, and partly to derivative financial instruments with positive fair value. The maximum credit risk attached to financial assets corresponds to the values recognized in the statement of financial position.

The Nilfisk Group has no material risks relating to a single customer or partner. The Nilfisk Group's policy for acceptance of credit risks entails ongoing credit rating of important customers and other partners.

Insurance cover and similar measures to hedge receivables are rarely applied as this is not deemed necessary.

Development in trade receivables provision

EUR million	2019	2018
Trade receivables from sales and services	180.9	194.6
Allowance for expected credit losses:
January 1	3.9	4.4
Exchange rate adjustments	-	-0.3
Write-downs included in income statement in "Other operating income, net"	3.1	2.1
Reversal of impairment included in income statement in "Other operating income, net"	-0.7	-1.8
Realized losses included in "Other operating income, net"	-0.4	-0.5
Allowance for expected credit losses, December 31	5.9	3.9
Net receivables from sales and services	175.0	190.7

Liquidity risks

It is the Nilfisk Group's policy to maintain adequate cash resources for implementing planned operating activities and to be able to operate effectively in the event of unforeseen fluctuations in liquidity. The Nilfisk Group's cash resources consist of cash, cash equivalents and undrawn credit facilities.

Maturity of the Nilfisk Group's liabilities

The below items do not include interest. The forward contracts are recognized at fair value and the discount element is considered insignificant due to short maturity.

Payables to credit institutions are consequently recognized in the statement of financial position at the amounts stated in the table below.

						More than
EUR million	Within 1 year	1-2 years	2-3 years	3-4 years	4-5 years	5 years	Total
2019
Forward contracts	3.2	-	-	-	-	-	3.2
Other hedging instruments	-	0.4	-	-	-	-	0.4
Interest-bearing loans and borrowings	5.0	23.8	353.1	-	-	-	381.9
Lease liabilities	24.0	13.2	8.9	4.2	2.0	3.9	56.2
Other financial liabilities	205.2	1.9	0.2	0.1	-	-	207.4
Total	237.4	39.3	362.2	4.3	2.0	3.9	649.1
2018*
Forward contracts	4.2	-	-	-	-	-	4.2
Interest-bearing loans and borrowings	7.6	382.2	-	-	-	-	390.1
Lease liabilities	0.2	0.1	-	-	-	-	0.3
Other financial liabilities	218.8	1.1	-	-	-	0.1	220.0
Total	230.8	383.4	-	-	-	0.1	614.3

*Comparative figures are not restated with the effect of IFRS 16.

Allowance for expected credit losses amounted to 5.9 mEUR compared to 3.9 mEUR as of December 31, 2018. A total of 3.0 mEUR was attributable to individual impairment compared to 1.3 mEUR as of December 31, 2018. Please refer to note 5.2 for a detailed table of the impairment based on the Group's provision matrix.

1. Basis for preparation Note 6

2. Result for the year 3. Remuneration 4. Non-current assets & liabilities 5. Working capital 6. Capital structure 7. Group structure 8. Other notes

6.9 Financial risks and financial instruments – continued

Fair values

Financial instruments measured at fair value in the statement of financial position are designated as belonging to one of the following three categories (the 'fair value hierarchy'):

Level 1: Listed prices (unadjusted) in active markets for identical assets and liabilities
Level 2: Input, other than listed prices on Level 1, which is observable for the asset or liability either directly (as prices) or indirectly (derived from prices)
Level 3: Input for the asset or liability which is not based on observable market data (non-observable input)

Financial instruments measured at fair value consist of derivative financial instruments. The fair value at December 31, 2019 and 2018 of the Nilfisk Group's forward transactions is measured in accordance with Level 2 as the fair value is based on official exchange rates and forward rates at the balance sheet date. The fair value at December 31, 2019 of the TRS is measured in accordance with Level 2 as the fair value is based on inputs of which most are observable including the share price of Nilfisk. There are no financial instruments measured at Level 1 and 3.

Financial assets and liabilities by category

EUR million	2019	2018*
Financial assets:
Receivables	194.6	214.2
Interest-bearing receivables	4.7	4.4
Financial assets at amortized cost	199.3	218.6
Derivative financial instruments	1.4	4.3
Fair value through other comprehensive income	1.4	4.3
Derivative financial instruments	0.1	0.4
Fair value through profit and loss	0.1	0.4
Total	200.8	223.3
Financial liabilities:
Interest-bearing loans and borrowings	381.9	390.1
Other financial and lease liabilities	263.6	220.0
Financial liabilities at amortized cost	645.5	610.1
Derivative financial instruments	2.7	3.6
Fair value through other comprehensive income	2.7	3.6
Derivative financial instruments	0.9	0.6
Fair value through profit and loss	0.9	0.6
Total	649.1	614.3

*Comparative figures are not restated with the effect of IFRS 16.

Basis for preparation
Result for the year
Remuneration
Non-current assets & liabilities
Working capital

6. Capital structure

Group structure
Other notes

Note 6

6.9 Financial risks and financial instruments – continued

§ Accounting policy

Derivative financial instruments

Derivative financial instruments are recognized from the trade date and measured in the statement of financial position at fair value. Positive and negative fair values of derivative financial instruments are included in other receivables and payables, respectively. Fair values of derivative financial instruments are computed on the basis of current market data and generally accepted valuation methods.

Fair value hedges

Changes in the effective portion of the fair value of derivative financial instruments designated and qualifying as a fair value hedge of a recognized asset or a recognized liability are recognized in the income statement together with changes in the value of the hedged asset or hedged liability.

Apart from foreign currency hedging, hedge of future cash flows according to a firm commitment is treated as a fair value hedge.

The ineffective portion of the change in the fair value of a derivative financial instrument is presented under financial items.

Cash flow hedges

Changes in the effective portion of the fair value of derivative financial instruments designated and qualifying as hedges of future cash flows are recognized in other comprehensive income and accumulated in a separate hedging reserve under equity until the hedged item

influences the income statement. Gains or losses relating to such hedging transactions are then transferred through other comprehensive income and recognized in the income statement in the same item as the hedged item. However, when the hedged forecast transaction results in the recognition of a non-financial asset or a non-financial liability, the gains and losses previously recognized in other comprehensive income and accumulated in equity are removed from equity and included in the initial measurement of the cost of the non-financial asset or non-financial liability. This transfer does not affect other comprehensive income.

If the hedging instrument no longer meets the criteria for hedge accounting, the hedging relationship is discontinued prospectively. The accumulated reserve in equity remains in equity if it is still probable that the hedged cash flows will occur and is transferred through other comprehensive income to the income statement when the hedged cash flows influence the income statement.

If the hedged cash flows are no longer expected to be realized, the accumulated reserve in equity is immediately transferred to the income statement.

The ineffective portion of the change in the fair value of a derivative financial instrument is recognized immediately in the income statement and presented under financial items.

LTI program hedges

Cash-settled program Changes in the effective portion of the fair value of derivative financial instruments designated and qualifying as hedges of the impact from development in the price of the Nilfisk share on cash-settled programs are recognized in other comprehensive income and accumulated in a separate hedging reserve under equity. The accumulated reserve in equity is transferred through other comprehensive income and recognized in the income statement under staff costs, when the expenses are recognized in the income statement. The hedge of subsequent changes to recognized expenses are accounted for as a fair value hedge.

If the hedging instrument no longer meets the criteria for hedge accounting, the hedging relationship is discontinued prospectively. The accumulated reserve in equity is immediately transferred through other comprehensive income to the income statement.

Equity-based programs

Hedge accounting cannot be applied on equity-based programs as fluctuations in the price of the Nilfisk share do not affect the income statement. Thus, changes in the fair value of derivative financial instruments hedging the liquidity risk related to the settlement of equity-settled programs are recognized in the income statement under financial items.

Other derivative financial instruments

Changes in the fair value of derivative financial instruments that do not qualify for hedge accounting are recognized under financial items as they arise.

4. Non-current assets & liabilities

6. Capital structure

Income statement and statement of comprehensive income Statement of financial position Cash flow statement Statement of changes in equity Notes to the consolidated financial statements

Note 6

6.10 Share capital

The total number of shares is 27,126,369 with a nominal value of 20 DKK each. No shares carry special rights. Nilfisk Holding A/S' Articles of Association specifies no limits in respect of ownership or voting rights, and the Executive Management Board is unaware of any agreements in this regards.

Earnings per share

Earnings per share of 0.32 is based on Result attributable to shareholders of Nilfisk Holding A/S of 8.7 mEUR and an average number of shares of 27,126,369.

EUR	2019	2018
Basic earnings per share	0.32	0.37
Diluted earnings per share	0.32	0.37

Dividends

At the Annual General Meeting to be held on March 19, 2020, the Board of Directors will propose not to distribute dividends for the financial year of 2019.

EUR million	2019	2018
Dividends distributed	-	-
Dividends distributed per share	-	-

§ Accounting policy

Dividends are recognized as a liability at the date of adoption at the Annual General Meeting (declaration date). Proposed dividend payments for the year are disclosed as a separate item under equity. Interim dividends are recognized as a liability at the date when the decision to pay such dividends are made.

Foreign exchange reserve

The foreign exchange reserve includes exchange rate adjustments arising on translation of the financial statements of foreign entities with a currency that is not the Group's functional currency

Hedging reserve

Hedging reserve covers:

cash flow hedging of interest payments
hedging of currency risk of cash flows
hedging of LTI program

7. Group structure

4. Non-current assets & liabilities

7. Group structure

Income statement and statement of comprehensive income Statement of financial position Cash flow statement Statement of changes in equity Notes to the consolidated financial statements

7.1 Acquisitions/divestments of businesses

and Nilfisk Group's structure at December 31, 2019.

2019 Acquisitions and divestments

The Nilfisk Group has not acquired new businesses or made divestments in 2019.

2018 Acquisitions and divestments

In 2018, Nilfisk completed several significant divestments across the portfolio. The divestments followed a series of strategic reviews that concluded that the businesses in question were not a strategic fit to Nilfisk's core business and did not represent markets attractive to Nilfisk.

EUR million	Segment	Interest
Chemicals business	EMEA Professional	100%
Rottest	EMEA Professional	Associated
Hydramaster business	Specialty Professional	Activities
Outdoor business	Specialty Professional	Activities
Nilfisk South Africa	EMEA Professional	100%

The above divestments were not classified as discontinued operations as per IFRS 5 as none of the above divestments represented a separate major line of business or geographical area of operations.

The Nilfisk Group did not acquire new businesses in 2018.

Divestment impact

This note describes acquisitions and divestments of businesses during the year

Below table summarizes the divestment impact, the total loss and the cash flow impact from the divestments.

EUR million	2019	2018
Non-current assets	-	12.8
Current assets and liabilities, net	-	21.1
Net assets disposed	-	33.9
Divestment cost	0.4	11.6
Loss on divestment of business1	-0.4	-42.4
Consideration received (cash flow)	-	3.1

Refer to Note 2.4 for further details

The divestments include a mechanism that could subsequently change the gain/loss for the year as the final sales price, in some cases, is dependent on subsequent events and financial performance. Any subsequent adjustment made will be recognized as special items.

Basis for preparation
Result for the year
Remuneration
Non-current assets & liabilities
Working capital
Capital structure

7. Group structure

Other notes

Note 7

7.1 Acquisitions/divestments of businesses – continued

§ Accounting policy

Businesses acquired or formed during the year are recognized in the consolidated financial statements from the date of acquisition/formation. Businesses sold or wound up are recognized in the consolidated financial statements until the date of disposal.

In the case of acquisitions where Nilfisk Holding A/S directly or indirectly gains control of the business acquired, the purchase method is used. The identifiable assets, liabilities and contingent liabilities of the acquisition are measured at fair value at the acquisition date. Identifiable intangible assets are recognized if they are separable or arise from a contractual right.

Deferred tax on revaluations is recognized.

The date of acquisition is the date at which Nilfisk Holding A/S directly or indirectly gains actual control of the business acquired.

Positive differences (goodwill) between on the one side the purchase consideration, the value of minority interests in the acquisition and the fair value of any previously acquired equity investments, and on the other side the fair value of the acquired identifiable assets, liabilities and contingent liabilities, are recognized as goodwill under intangible assets. Goodwill is not amortized but a test for impairment is carried out annually. The first impairment test is performed before the end of the acquisition year. Upon acquisition, goodwill is allocated to the cash-generating units which subsequently form the basis for impairment tests. Goodwill and fair

value adjustments relating to acquisition of a foreign entity having a functional currency other than the Nilfisk Group's presentation currency are treated as assets and liabilities belonging to the foreign entity and, on first-time recognition, are translated into the functional currency of that entity at the exchange rate prevailing at the transaction date. Negative differences (negative goodwill) are recognized in the income statement at the acquisition date.

The purchase consideration for a business consists of the fair value of the agreed consideration in the form of transferred assets, assumed liabilities, and issued equity instruments. If parts of the purchase consideration are contingent upon future events or fulfilment of agreed conditions, this part of the purchase consideration is recognized at fair value at the date of acquisition. Costs relating to business combinations are expensed directly in the income statement as incurred.

If uncertainty exists at the date of acquisition as to identification or the measurement of acquired assets, liabilities or contingent liabilities, or as to the determination of the purchase consideration, first-time recognition is based on values stated provisionally. If identification or measurement of the purchase consideration, acquired assets, liabilities or contingent liabilities subsequently proves to have been incorrect at first-time recognition, the calculation is adjusted retrospectively, including goodwill, until 12 months after the acquisition, and comparative figures are restated. Thereafter goodwill is not adjusted. Revised estimates of contingent purchase consideration are recognized in the income statement.

On whole or partial disposal of wholly owned foreign entities where control is relinquished, the currency adjustments which are recognized in other comprehensive income and which are attributable to the entity are reclassified from other comprehensive income to the profit/loss for the year together with gains or losses arising from the disposal.

On disposal of part-owned foreign subsidiaries the part of the translation reserve relating to minority interests is not transferred to the income statement.

Gains or losses on disposal of winding up of subsidiaries and associates are stated as the difference between the selling price or disposal sum and the carrying amount of net assets, including goodwill, at the time of sale, and selling or winding up costs.

Business combinations between entities under common control

In business combinations between entities under common control, the acquired assets and liabilities are recorded at their existing carrying values and comparative figures are restated to the latter of the beginning of the earliest comparative period and the date on which the combining entities first came under common control.

Denmark

Note 7

7.2 Group companies

4. Non-current assets

& liabilities

7. Group structure

Income statement and statement of comprehensive income Statement of financial position Cash flow statement Statement of changes in equity Notes to the consolidated financial statements

Nilfisk Holding A/S	Denmark
Nilfisk A/S	Denmark
Nippon Investment Corporation ApS	Denmark

Europe
Nilfisk GmbH	Austria
Nilfisk N.V./S.A.	Belgium
Nilfisk s.r.o.	Czech Rep.
Nilfisk Oy	Finland
Nilfisk S.A.S.	France
Jungo Voirie S.A.S.	France
Nilfisk-Advance Eppingen GmbH	Germany
Nilfisk GmbH	Germany
Nilfisk Hellas S.A.	Greece
Nilfisk Production Kft.	Hungary
Nilfisk Commercial Kft.	Hungary
Nilfisk Ltd	Ireland
Nilfisk S.p.A.	Italy
Nilfisk B.V.	Netherlands
Nilfisk AS	Norway
Nilfisk Polska Sp.z.o.o.	Poland
Nilfisk Lda	Portugal
Nilfisk-Advance S.R.L.	Romania
Nilfisk LLC	Russia
Nilfisk s.r.o.	Slovakia
Nilfisk S.A.	Spain
Nilfisk AB	Sweden
Nilfisk AG	Switzerland
Nilfisk Profesyonel Temizlik Ekipmanlari Ticaret. A.S.	Turkey
Nilfisk Trading LLC (49%)*	UAE
Nilfisk Ltd.	United Kingdom
Floor Cleaning Machines	United Kingdom

Nilfisk Canada Company	Canada
Nilfisk de Mexico S. de R.L. de C.V.	Mexico
Nilfisk de Mexico Manufacturing S. de R.L. de C.V.	Mexico
Nilfisk U.S Holding Inc.	US
Nilfisk Inc.	US
Hathaway North America Inc.	US
Hydro Tek Systems, Inc.	US
Nilfisk Pressure-Pro, LLC.	US

South America
	Argentina
Nilfisk S.R.L.
Nilfisk Equipamentos de Limpeza Ltda.	Brazil
Nilfisk S.A.	Chile

Nilfisk Pty. Ltd.	Australia
Kerrick Distributers (Aust) Pty. Ltd.	Australia
Dongguan Viper Cleaning Equipment Co. Ltd.	China
Nilfisk Cleaning Equipment (Shanghai) Co. Ltd	China
Nilfisk Professional Cleaning Equipment (Suzhou) Co. Ltd.	China
Suzhou Nilfisk Research and Development Co. Ltd.	China
Nilfisk Ltd.	Hong Kong
Nilfisk India Private Ltd.	India
Nilfisk Inc.	Japan
Nilfisk Korea Co. Ltd.	Korea
Nilfisk Sdn Bhd	Malaysia
Nilfisk Ltd.	New Zealand
Nilfisk Pte. Ltd.	Singapore
Nilfisk Ltd. (Branch)	Taiwan
Nilfisk Co. Ltd.	Thailand
Nilfisk Company Ltd.	Vietnam
Nilfisk Ltd. (Branch)	Macau

Associates

M2H S.A. (44%)	France
CFM Lombardia S.r.l. (33%)	Italy

Ownership below 100% is disclosed in brackets. *Majority of voting rights

8. Other notes

4. Non-current assets & liabilities

8. Other notes

This note contains other statutory notes and notes considered less essential to the understanding of the Nilfisk Group's financial development.

8.1 Fees to auditors elected at the annual general meeting

EUR million	2019	2018
Deloitte
Statutory audit	0.8	0.7
Other assurance services	0.3	0.3
Tax and VAT advice	-	-
Other non-audit services	-	1.0
Total	1.1	2.0

The fee for non-audit services provided to the Group by Deloitte Statsautoriseret Revisionspartnerselskab Denmark, amounted to 0.0 mEUR in 2019, compared to 1.0 mEUR in 2018. The fee in 2018 consisted mainly of assistance related to Marketing outsourcing, HR System and agreed-upon procedures related to foreign subsidiaries and other accounting advisory services.

8.2 Events after the balance sheet date

No events have occurred in the period from the balance sheet date until the presentation of the financial statements that materially affect the assessment of the consolidated financial statements.

8.3 Related parties

The Nilfisk Group has had the following transactions and balances with related parties:

EUR million	2019	2018
Goods sold to associated companies	21.3	21.7
Dividends received from associated companies	1.3	1.3
Trade receivables from associated companies	8.9	3.0

Please refer to Note 3.2 and Note 3.3 for remuneration to the Executive Management Board.

8.4 Other non-cash adjustments

EUR million	2019	2018
Writedown of non-current assets in relation to divestments	-	19.7
Gains and losses from disposal of assets	0.2	-
Share of profit of net result, associated companies	-3.7	-3.4
Change in provisions	-5.9	-2.5
Other non-cash items	0.5	-2.9
Total	-8.9	10.9

1. Basis for preparation

4. Non-current assets & liabilities

Income statement and statement of comprehensive income Statement of financial position Cash flow statement Statement of changes in equity Notes to the consolidated financial statements

8. Other notes

Note 8

8.5 Contingent liabilities, securities and contractual obligations

The Nilfisk Group has issued guarantees in total of 37.1 mEUR (2018: 36.5 mEUR). This includes rental commitments of 12.5 mEUR (2018: 12.6 mEUR). In addition, guarantees of 24.7 mEUR (2018: 23.9 mEUR) to support local bank facilities for subsidiaries were established by Nilfisk A/S.

Nilfisk Holding A/S is liable for obligations attributable to the activities, assets and liabilities of NKT A/S that existed at the demerger September 11, 2017. The joint and several liabilities of Nilfisk Holding A/S and NKT A/S respectively cannot exceed an amount corresponding to the net value of the assets and liabilities. Nilfisk Holding A/S has entered into an indemnification agreement with NKT A/S, under which each party has a defined right of recourse with respect to any liabilities a party may incur in respect of the other party under the joint and several liability.

The Nilfisk Group is engaged in certain disputes, legal proceedings and inquiries from authorities, including tax authorities, the outcome of which is not expected to materially impact the Group's financial position.

Contractual obligations

EUR million	2019	2018
Contractual obligations relating to purchase
of buildings and production plants	-	0.1

Operating lease commitments

Following the implementation of IFRS 16, operating leases is recognized in the statement of financial position in 2019.

See note 4.4 "Expected operational costs for right-of-use assets" for future payments not included in the statement of financial position.

Operating lease commitments

EUR million	2018
Interminable minimum lease payments are specified as follows:
Within 0-1 year	24.8
Within 1-5 years	39.0
After 5 years	4.0
Total	67.8

§ Accounting policy

Contingent liabilities

Disclosure concerning contingent assets and liabilities and when they must be recognized takes place against the background of evaluations of the expected outcome of the individual issues. These evaluations are based on legal opinions of the agreements contracted, which in significant issues also include opinions obtained from external advisors, including lawyers.

Assets are recognized when it is virtually certain that the issue will have a positive outcome for the company. A liability is recognized when it is likely that, at the balance sheet date, there will be an outflow from the Nilfisk Group's financial resources and when the liability can be reliably stated. If this is not the case, the matter is disclosed in the notes to the financial statements. Decisions relating to such situations may in future accounting periods lead to realized gains or losses that may differ significantly from the recognized amounts or disclosures.

8.6 Definitions

4. Non-current assets

& liabilities

8. Other notes

Item	Key figures and ratios	Definition
1	Cash conversion	Cash flow from operations before financial items and income taxes as a percentage of EBITDA
2	Capital employed	Net total of non-current assets (including goodwill), pensions and deferred tax liabilities and working capital
3	Diluted earnings per share	Result attributable to shareholders of Nilfisk Holding A/S as a percentage of diluted average number of outstanding shares
4	EBITDA before special items	Earnings (profit) before interest, tax, depreciation, amortization, impairment and special items
5	EBITDA	Earnings (profit) before interest, tax, depreciation, amortization and impairment
6	EBITDA margin before special items	EBITDA before special items as a percentage of revenue
7	EBITDA margin	EBITDA as a percentage of revenue
8	EBIT before special items	Earnings (profit) before interest, tax and special items
9	EBIT	Earnings before interest and tax (result before financial items and income taxes)
10	EBIT margin before special items	EBIT before special items as a percentage of revenue
11	EBIT margin	EBIT as a percentage of revenue
12	Earnings per outstanding share (EPS)	Result attributable to shareholders of Nilfisk Holding A/S relative to average number of outstanding shares
13	Equity value per outstanding share	Equity attributable to shareholders of Nilfisk Holding A/S per outstanding share at December 31
14	Finacial gearing	Net interest-bearing debt divided by EBITDA before special items
15	Free cash flow	Cash flow from operating activities less cash flow from investing activities
16	Free cash flow excluding acquisitions and divestments	Free cash flow plus cash flow from acquisition of businesses and less cash flow from divestment of businesses
17	Gross margin	Gross profit as a percentage of revenue
18	Investment ratio	Additions as a percentage of depreciations/amortizations
19	Net interest-bearing debt	Current and non-current interest-bearing loans and borrowings less interest-bearing receivables and cash Specified in Note 6.2 and 6.3
20	OCI	Other comprehensive income
21	Operating performance	EBITDA before special items, phantom shares and impact from IFRS 16
22	Operating margin	Operating performance as a percentage of revenue
23	Organic growth	Organic growth in local currency excluding acquisitions and divestments and foreign exchange rates
24	Overhead cost ratio	Overhead costs as a percentage of revenue
25	R&D ratio	R&D spend as a percentage of revenue
26	Return on capital employed (RoCE)	EBIT before special items as a percentage of the average of the capital employed, calculated by taking the capital employed at December 31 and at the end of the preceding four quarters
27	Solvency ratio	Equity attributable to shareholders of Nilfisk Holding A/S as a percentage of total assets
28	Working capital	Current assets minus current and non-current liabilities (excluding interest-bearing items and provisions)
29	Working capital ratio	Average working capital LTM (latest twelve month) as a percentage of revenue

4. Non-current assets & liabilities