Notes to the consolidated balance sheet and profit and loss account

in thousand €, unless otherwise stated

• 1 Property, plant and equipment

  	Land	Buildings	Other fixed operating assets	Total
  Book value 1 January 2016	7,132	3,999	23,389	34,520
  Acquisitions	-	-	293	293
  Additions	-	239	12,899	13,138
  Currency adjustment	-	-	(1)	(1)
  Disposals	-	-	(325)	(325)
  Depreciation	-	(255)	(9,300)	(9,555)
  Book value 31 December 2016	7,132	3,983	26,955	38,070
  Accumulated depreciation	-	6,599	76,371	82,970
  Accumulated revaluation	(3,750)	-	-	(3,750)
  Purchase price	3,382	10,582	103,326	117,290
  Book value 1 January 2017	7,132	3,983	26,955	38,070
  Additions	-	54	17,520	17,574
  Revaluation	(20)	-	-	(20)
  Currency adjustment	-	-	(67)	(67)
  Disposals	(22)	(11)	(174)	(207)
  Depreciation	-	(347)	(10,767)	(11,114)
  Book value 31 December 2017	7,090	3,679	33,467	44,236
  Accumulated depreciation	-	6,827	82,232	89,059
  Accumulated revaluation	(3,730)	-	-	(3,730)
  Purchase price	3,360	10,506	115,699	129,565

  A further explanation of the investments is enclosed in the report of the Management Board.

  The cumulative revaluation relates to the land in Uden, Nieuw-Vennep and Hoogeveen, as well as the value of the land forming part of the retail properties owned. These retail properties are located in Elst, Den Helder and Uden. The land forming part of the retail properties was valued on 30 June 2015 and the land forming part of the distribution centres in Uden and Hoogeveen was valued on 25 November 2015, both by an independent valuer. The valuation of the distribution centre in Nieuw-Vennep was performed on 25 July 2014 by an independent valuer. The valuations have been performed using the rental value capitalisation method.

  The items of property, plant and equipment are intended for own use.

• 2 Intangible assets

  		2017	2016
  Book value 1 January		7,002	3,477
  Acquisitions		-	1,776
  Additions		3,810	3,396
  Currency adjustment		(49)	(34)
  Amortisation		(1,733)	(1,613)
  Book value 31 December		9,030	7,002
  Accumulated amortisation		12,917	7,693
  Purchase price		21,947	14,695

  A further explanation of the investments is enclosed in the report of the Management Board.

  The intangible assets are comprised of the acquired 'Sängjätten' brand name, licenses and software.

• 3 Financial assets

  The financial assets consist on the one hand of non-current receivables of € 526 (2016: € 660) and on the other of deferred tax assets of € 2,353 (2016: € 1,217).

  The non-current receivables relate to guarantee deposits for the rental agreements for stores. These are classified under financial assets due to the non-current nature of these receivables.

  The deferred tax assets at year-end can be broken down as follows:

  	2017	2016
  Tax loss carryforwards	1,772	643
  Difference tax and financial reporting valuation (in)tangible assets	312	291
  Difference tax and financial reporting valuation pension	253	261
  Difference tax and financial reporting valuation stock	16	22
  Balance at 31 December	2,353	1,217

  At year-end 2017, a tax credit of € 1,772 (2016: € 643) for future loss carry-forwards was recognised under financial assets. This relates to losses available for carry-forward in Austria, Switzerland and Sweden. As Beter Bed Holding expects, on the basis of the currently available information, to be able to set off these tax losses within five years, they have been capitalised in full.

  An amount of € 10,790 (2016: € 10,797) in loss carry-forwards has not been recognised. Beter Bed Holding’s policy is that tax losses available for carry-forward are capitalised only if reasonable possibilities for set-off are expected within five years on the basis of a substantiated forecast of the results for tax purposes. Set-off of these losses is insufficiently probable on the basis of the currently available information.

  The tax losses available for carry-forward expire as follows:

  Term
  1 year	-
  2 to 5 years	2
  6 to 10 years	2,920
  11 to 15 years	3,832
  Indefinite	4,036

  Movements in deferred tax assets in 2017 and 2016 were as follows:

  	2017	2016
  Balance at 1 January	1,217	1,185
  Through profit and loss account	1,136	32
  Through equity	-	-
  Balance at 31 December	2,353	1,217

• 4 Inventories

  This comprises inventories held in stores of € 58,914 (2016: € 55,239) and inventories held in warehouses of € 6,783 (2016: € 6,645). The write-down for possible obsolescence included in this item can be broken down as follows:

  		2017	2016
  Balance at 1 January		1,874	1,633
  Additions		1,236	1,595
  Withdrawals		(1,895)	(1,354)
  Balance at 31 December		1,215	1,874

  In view of the amount of the gross profit, the turnover rate and the fact these products are generally not dependent on trends to any significant extent, the risk of obsolescence of inventories is comparatively low. The prices realised in sales of obsolescent inventories usually exceed their cost.

  The provision for obsolescent inventories relates mainly of returned goods that cannot be returned to suppliers, damaged products, showroom products, products that will no longer be carried and products with a very low turnover. The direct net realisable value is estimated for each of these categories. If the carrying amount exceeds the direct net realisable value, the inventories are written down by this difference.

  The total carrying amount of inventories for which there is a risk of obsolescence is € 5,492 (2016: € 6,203). The direct net realisable value of these inventories is € 4,277 (2016: € 4,329). Therefore the percentage of inventories for which there is a risk of obsolescence compared with total inventories was 8.2% (2016: 9.7%).

• 5 Receivables

  All receivables fall due within less than one year and are carried at amortised cost, which is equal to the nominal value. Sales in stores and deliveries are settled in cash. Receivables relate mainly to receivables due from wholesale customers and trade receivables arising from agreed bonuses.

  Provisions are recognised for individual receivables if there are objective indications that the probability of uncollectibility for them exceeds 50%. This assessment is performed on the basis of past experience and other relevant information, such as bankruptcy of the debtor concerned.

  A provision of € 13 (2016: € 25) has been recognised for receivables due from wholesalers. This is 1.7% (2016: 5.9%) of the overdue receivables.

• 6 Cash and cash equivalents

  Cash and cash equivalents can be broken down as follows:

  		2017	2016
  Bank balances		15,557	20,070
  Cash		407	380
  Cash in transit		1,705	1,342
  Cash and cash equivalents in the consolidated balance sheet		17,669	21,792
  Bank overdrafts		(17,481)	-
  Cash and cash equivalents in the consolidated cash flow statement		188	21,792

• 7 Equity

  Movements in equity items are shown in the consolidated statement of changes in equity. The company’s authorised share capital amounts to € 2,000, divided into 100 million ordinary shares with a nominal value of € 0.02 each.

  Movements in the number of issued and fully paid-up shares and movements in the number of treasury shares are shown below:

  		2017	2016
  Issued and paid-up shares as at 1 January		21,955,562	21,955,562
  Share issue on exercise of employee stock options		-	-
  Issued and paid-up shares as at 31 December		21,955,562	21,955,562
  Shares in portfolio as at 1 January		-	-
  Repurchased during the year		-	-
  (Re)issue on exercise of options		-	-
  Sale of shares in portfolio		-	-
  Shares in portfolio as at 31 December		-	-

  The revaluation reserve relates to land.

  A proposal will be submitted to the Annual General Meeting to distribute a final dividend in cash of € 0.03 per share. The total dividend for 2017 will therefore amount to € 0.37 per share (2016: € 0.74).

• 8 Provisions

  A provision for onerous contracts has been formed for the long-term leases relating to discontinued format operations. This provision is based on the rent and the remaining term, taking account of a subletting probability and a mark-up for service costs.

  The provision for onerous rental contracts can be broken down as follows:

  		2017	2016
  Balance at 1 January		275	898
  Additions		-	-
  Withdrawals		(154)	(450)
  Releases		-	(173)
  Balance at 31 December		121	275
  Of which current (in other liabilities)		77	77
  Total provision for onerous rental contracts		44	198

• 9 Deferred tax liabilities

  The deferred tax liabilities relate mainly to the differences between the valuation of inventories and fixed assets in the Netherlands, Germany and Switzerland for tax and financial reporting purposes. These differences are long-term in nature.

  The deferred tax liabilities at year-end can be broken down as follows:

  	2017	2016
  Difference tax and financial reporting valuation tangible assets	1,609	376
  Revaluation of company land	932	937
  Difference tax and financial reporting valuation stocks	770	761
  Difference tax and financial reporting valuation rent obligations	72	80
  Total	3,383	2,154

  Movements in this item in 2017 and 2016 were as follows:

  	2017	2016
  Balance at 1 January	2,154	2,279
  Through profit and loss account	1,229	(125)
  Through equity	-	-
  Balance at 31 December	3,383	2,154

• 10 Current liabilities

  To fund the group the company has current account facilities totalling € 42.3 million at its disposal. Furthermore, facilities totalling € 6.4 million are available for providing guarantees.

  For the purpose of the current account facilities, the company and its subsidiaries have undertaken not to encumber their assets with any security rights without the prior consent of the lenders.

  These current account facilities include two committed facilities in the amount of € 10.0 million each which will expire on 10 July 2020 and 15 July 2020 respectively. No security has been provided for the committed facilities. The main conditions of the credit facilities are a minimum solvency of 25% and a maximum interest-bearing debt/EBITDA ratio of 2.5.

  At the end of the year under review, an amount of € 17.5 million (2016: € 0.0 million) was used under the current account facilities. These facilities were also used for providing bank guarantees for the purpose of rental payments amounting to € 0.5 million (2016: € 0.6 million). Of the facilities available specifically to provide guarantees, a total of € 6.7 million was used at year-end 2017 (2016: € 6.3 million).

  The other liabilities can be broken down as follows:

  	2017	2016
  Prepayments	11,977	9,804
  Accruals personnel and staff benefits	8,413	8,408
  Other	3,470	3,344
  Total	23,860	21,556

  The item accrual for staff costs and employee benefits includes a pension liability for a former employee. This liability of € 1.4 million (2016: € 1.5 million) has been calculated on an actuarial basis.

• 11 Financial liabilities

  	up to 3 months	3 to 12 months	1 to 5 years
  2017
  Accounts payable	30,629	-	-
  Credit institutions	17,481	-	-
  Total	48,110	-	-
  2016
  Accounts payable	31,856	-	-
  Credit institutions	-	-	-
  Total	31,856	-	-

  The market value of the financial liabilities approximates their amortised cost.
  

• 12 Information by geographical area

  Revenue by country	2017	%	2016	%
  Germany	202,426	49	213,800	52
  The Netherlands	149,052	36	138,115	34
  Other countries	66,187	15	59,824	14
  Intercompany adjustment	(1,239)	-	(1,282)	-
  Total	416,426	100	410,457	100

  
  

  (In)tangible fixed assets by country			2017	2016
  The Netherlands			25,285	24,731
  Germany			19,482	13,236
  Other countries			8,499	7,105
  Total			53,266	45,072

• 13 Personnel expenses

  The operating expenses include the following wage and salary components:

  		2017	2016
  Wages and salaries		88,364	82,684
  Social security costs		16,049	14,881
  Pension costs		3,581	2,657
  Employee stock options		268	301
  Total		108,262	100,523

  The pension contributions relate virtually exclusively to defined contribution schemes or schemes designated as such. Within the costs of employee stock options, € 116 relate to the current and former members of the company’s Management Board (2016: € 135).

  With effect from 1 January 2018, the Wonen Industrial Pension Fund merged into the Detailhandel Industrial Pension Fund.

  Average number of employees

  The companies included in the consolidation had an average of 2,814 employees (FTE) in 2017 (2016: 2,621):

  		2017	2016
  Germany		1,667	1,610
  The Netherlands		711	636
  Austria		155	152
  Switzerland		109	96
  Spain		79	69
  Sweden		68	44
  Belgium		18	11
  France		7	3
  Total		2,814	2,621

• 14 Option program

  The options are long-term in nature and can be exercised providing that the profit target has been met. With effect from 2013, the costs of the option program are calculated using a combined model of Black & Scholes and Monte Carlo simulations. An overview of the details of the options granted and still outstanding, as well as the values employed in the Black & Scholes model, is provided below.

  With effect from the options series 2013, in the first three years after the award of the options granted, 33.3% of the options will vest annually if the ‘Total Shareholder Return’ (TSR = share price gains plus dividend distributed) of Beter Bed Holding N.V. exceeds the ‘Total Shareholder Return of the AScX’, based on the year of the award. In addition, the employee is required to continue to be employed by the company for three years. Options can only be exercised if these conditions are met after three years.

  The design of the option program was modified in 2016. The options are vested in full three years after their award (in contrast to 33.3% vested annually). In addition, the TSR of Beter Bed Holding achieved after three years is compared with the TSR of nine relevant national and international listed companies that jointly form a peer group. The Management Board of Beter Bed Holding N.V. is under the obligation to retain shares awarded under the option program for a period of at least four years. The former option policy/option agreement continues to prevail for options already awarded until 2016.

  From the 2013 series, this means that the calculation will be based on three different Black & Scholes values, risk-free interest rates and volatility percentages. The ranges of those percentages are set out in the table below.

  	2017	2016	2015	2014
  Number granted	128,500	197,500	186,000	166,700
  of which CFO	30,000	40,000	40,000	32,000
  Number outstanding	70,000	92,000	26,666	29,066
  Value according to Black & Scholes	€ 1.33 - € 1.54	€ 2.41 - € 2.44	€ 2.19 - € 2.67	€ 1.78 - € 1.93
  Exercise from	18-05-2020	19-05-2019	19-05-2018	19-05-2017
  Exercise through	17-05-2022	18-05-2021	19-05-2020	19-05-2019
  TSR > AScX	-	-	-	Partly (33.3%)
  TSR > Peer Group	-	-	-	-
  Share price on the allotment date	€ 15.78	€ 20.00	€ 22.79	€ 17.37
  Exercise price	€ 15.53	€ 19.99	€ 22.79	€ 17.37
  Expected life	5 years	5 years	5 years	5 years
  Risk-free rate of interest (%)	-0.27	-0.52	0.30	0.78 - 0.46
  Volatility (%)1	22.10	25.40	26.58	27.50 - 21.94
  Dividend yield (%)	4.40	3.40	5.40	5.20

  1. ¹ Expected volatility is based on end-of-month closing prices for the most recent period with a length equalling the expected term with a maximum of five years.

  In 2017, 263,667 options expired, as a number of employees holding options left the company before the expiration dates. In addition, a total of 133,650 options expired in 2017 due to the expiry of their term. Furthermore, a portion of the options expired because the vesting conditions were not satisfied. The series concerned are the series 2014 part III and 2015 part II. Lastly, 128,500 new options were granted in 2017. See the summary of options series outstanding.

• 15 Depreciation and amortisation

  		2017	2016
  Depreciation and impairment on tangible assets		11,114	9,555
  Amortisation and impairment on intangible assets		1,733	1,613
  Total of depreciation, amortisation and impairment		12,847	11,168

  
  
  The depreciation and amortisation rates applied are based on expected economic life and are as follows:

  Company land	0%
  Buildings	3.33%
  Other fixed operating assets	10% to 33%
  Intangible assets	5% to 33%

• 16 Other operating expenses

  The other operating expenses comprise € 50.5 million in rental and lease costs (2016: € 47.8 million), with the remainder relating mainly to selling and distribution costs.

• 17 Income taxes

  The reconciliation between the effective tax rate and the results of the calculation of the profit before taxes, multiplied by the local tax rate in the Netherlands, was as follows on 31 December:

  	2017	2016
  Profit before taxes	14,019	25,877
  Tax using the company's domestic tax rate: 25.0% (2016: 25.0%)	3,505	6,469
  Adjustment profits tax previous years	60	105
  Permanent differences	(79)	(1,406)
  Future loss set-off not included	958	602
  Recognition of previously unrecognised deferred tax assets	-	-
  Tax losses carried forward	(120)	(42)
  Effect of the tax rates outside the Netherlands	170	1,134
  At an effective tax rate of 32.1% (2016: 26.5%)	4,494	6,862
  Profit tax in the consolidated profit and loss account	4,494	6,862

  The effective tax rate rose to 32.1% in 2017 (2016: 26.5%). This increase was mainly attributable to the fact that a number of tax facilities in Germany can no longer be used and loss carry-forwards that had (provisionally) not been capitalised.
  
  

  The item tax in the profit and loss account comprises the following:

  	2017	2016
  Tax for current year	4,527	6,802
  Adjustment of profit tax for prior years	60	105
  Temporary differences	(93)	(146)
  Utilisation tax loss carryforwards	-	101
  Profit tax in the consolidated profit and loss account	4,494	6,862

• 18 Remuneration of the Management and Supervisory Boards

  The remuneration of members of the Management Board was as follows in 2017 and 2016:

  	2017			2016
  	CEO	CFO	Total	CEO	CFO	Total
  Salary	297	255	552	350	250	600
  Variable remuneration	-	56	56	110	73	183
  Pension	89	64	153	105	63	168
  Employee stock options	52	64	116	78	57	135
  Social security charges	14	17	31	16	16	32
  Lease car	10	16	26	13	16	29
  Total	462	472	934	672	475	1,147

  The variable remuneration relates to the year under which it is classified and is recognised in the expenses of that year. The maximum variable remuneration for the CEO for 2017 is equal to 60% of the gross fixed annual salary (split into 50% for quantitative targets and 50% for qualitative targets). The maximum variable remuneration for the CFO is 50% of the gross fixed annual salary (split into 40% for quantitative targets and 60% for qualitative targets). However, owing to the CEO’s departure during the financial year, no variable remuneration was awarded to him. For detailed information, see the remuneration report.
  
  The costs listed under ‘Employee stock options’ represent the amount accounted for in the profit and loss account for that year.
  
  At the end of the financial year, the CFO held 1,500 shares in Beter Bed Holding. He holds 10,666 exercisable options for shares in Beter Bed Holding at 31 December 2017.
  
  

  The remuneration of the members of the Supervisory Board was as follows in 2017 and 2016:

  	2017	2016
  D.R. Goeminne	40	40
  A.J.L. Slippens	26	26
  E.A. de Groot	30	30
  W.T.C. van der Vis	30	30
  Total	126	126

  The members of the Supervisory Board hold no shares or exercisable options on shares in Beter Bed Holding.

• 19 Earnings per share

  The net profit of € 9.5 million divided by the average number of outstanding shares totalling 21,955,562 equates to earnings per share of € 0.43 in 2017 (2016: € 0.87). Due to the options series outstanding, the number of shares used for the calculation of diluted earnings per share is equal to 21,955,855. This results in diluted earnings per share of € 0.43 (2016: € 0.86).

• 20 Commitments not included in the balance sheet

  The company has entered into long-term rental and lease obligations concerning buildings and other operating assets. The minimum obligation on the balance sheet date can be broken down as follows:

  Duration	2018	2019	2020	2021	2022	after 2022
  Rental agreements	44,476	32,393	21,947	13,463	6,851	682
  Lease agreements	2,581	1,793	1,310	756	455	297
  Total	47,057	34,186	23,257	14,219	7,306	979

  The majority of the rental agreements for the company premises required for the Beter Bed format are long-term agreements (between five and ten years), with options for renewal. The majority of the rental agreements for the Matratzen Concord format have been concluded for a period between five to ten years, and include a clause stipulating that the agreements can be terminated without charge within the first two years.

  In the year under review, amounts of € 47.7 million (2016: € 45.1 million) arising from rental agreements and € 2.8 million (2016: € 2.7 million) arising from lease agreements were accounted for in the profit and loss account.

• 21 Audit fees

  The fees for the audit of the financial statements and other non-audit services by the independent auditor PwC Accountants were:

  		2017	2016
  Audit of financial statements		265	252
  Other non-audit services		16	16
  Total		281	268

  The fees for the audit of the financial statements and other non-audit services performed by PwC Accountants in the Netherlands were € 130 (2016: € 145).

  The other non-audit service in 2017 relates to the review of the interim figures.

• 22 Related parties

  The companies listed in principles of consolidation are included in the consolidation of Beter Bed Holding N.V. and its participating interests.

  Beter Bed Holding N.V. has issued declarations of joint and several liability for all Dutch group companies for the obligations arising from legal transactions entered into by these group companies. Pursuant to these letters of guarantees, the Dutch group companies have made use of the exemption options laid down in Section 403, paragraphs 1 and 3, of Part 9, Book 2 of the Dutch Civil Code.

  The financial relationships between Beter Bed Holding N.V. and its participating interests consist almost fully in receiving dividends and receiving interest on loans provided.

  There were no transactions in 2017 between the company and natural or legal persons holding at least 10% of the shares in the company that were of material significance to the company and/or the persons concerned.

• 23 Events after the balance sheet date

  On 16 January 2018, it was announced that the Supervisory Board intends to appoint John Kruijssen as Chief Executive Officer (CEO) and Statutory Director. The proposed appointment will be placed on the agenda of the Annual General Meeting on 26 April 2018 in accordance with the articles of association and legal and statutory requirements. No other events that are required to be disclosed occurred in the period between the end of the year under review and the preparation of these financial statements.