Independent auditor's report
To: the general meeting and supervisory board of Beter Bed Holding N.V.
Report on the financial statements 2016
In our opinion:
- the accompanying consolidated financial statements give a true and fair view of the financial position of Beter Bed Holding N.V. as at 31 December 2016 and of its result and cash flows for the year then ended in accordance with International Financial Reporting Standards as adopted by the European Union (EU-IFRS) and with Part 9 of Book 2 of the Dutch Civil Code;
- the accompanying company financial statements give a true and fair view of the financial position of Beter Bed Holding N.V. as at 31 December 2016 and of its result for the year then ended in accordance with Part 9 of Book 2 of the Dutch Civil Code.
What we have audited
We have audited the accompanying financial statements 2016 of Beter Bed Holding N.V., Uden (‘the company’). The financial statements include the consolidated financial statements of Beter Bed Holding N.V. and its subsidiaries (together: ‘the Group’) and the company financial statements. The consolidated financial statements comprise:
- the consolidated balance sheet as at 31 December 2016;
- the following statements for 2016: the consolidated profit and loss account and the consolidated statement of comprehensive income, consolidated cash flow statement and consolidated statement of changes in equity; and
- the notes, comprising a summary of significant accounting policies and other explanatory information.
The company financial statements comprise:
- the company balance sheet as at 31 December 2016;
- the company profit and loss account for the year then ended;
- the notes, comprising a summary of the accounting policies and other explanatory information.
The financial reporting framework that has been applied in the preparation of the financial statements is EU-IFRS and the relevant provisions of Part 9 of Book 2 of the Dutch Civil Code for the consolidated financial statements and Part 9 of Book 2 of the Dutch Civil Code for the company financial statements.
The basis for our opinion
We conducted our audit in accordance with Dutch law, including the Dutch Standards on Auditing. Our responsibilities under those standards are further described in the section ‘Our responsibilities for the audit of the financial statements’ of our report.
We are independent of Beter Bed Holding N.V. in accordance with the ‘Verordening inzake de onafhankelijkheid van accountants bij assuranceopdrachten’ (ViO) and other relevant independence requirements in the Netherlands. Furthermore, we have complied with the ‘Verordening gedrags- en beroepsregels accountants’ (VGBA).
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Our audit approach
Overview and context
Beter Bed Holding N.V. is a European retail- and wholesale organisation in the bedroom furnishing sector. The group comprises of several components and therefore we considered our group audit scope and approach as set out in the scope of our group audit section. We paid specific attention to the areas of focus driven by the operations of the company, being revenue and inventories.
We designed our audit by determining materiality and assessing the risks of material misstatement in the financial statements. In particular, we looked at where management made subjective judgements, for example in respect of significant accounting estimates that involved making assumptions and considering future events that are inherently uncertain.
As in all of our audits, we also addressed the risk of management override of internal controls, including evaluating whether there was evidence of bias by management that may represent a risk of material misstatement due to fraud.
We ensured that the audit teams both at group and at component levels included the appropriate skills and competences which are needed for the audit of a retail organisation. Due to the fact that there is a high level of automation and IT, we have added IT specialists to our audit team to perform procedures necessary to assess and validate IT systems as part of our audit procedures. Furthermore, we included specialists in the areas of income tax and employee benefits in our team.
The outlines of our audit approach were as follows:
Key audit matters
The scope of our audit is influenced by the application of materiality which is further explained in the section ‘Our responsibilities for the audit of the financial statements’.
We set certain quantitative thresholds for materiality. These, together with qualitative considerations, helped us to determine the nature, timing and extent of our audit procedures on the individual financial statement line items and disclosures and to evaluate the effect of identified misstatements on our opinion.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Overall group materiality
€ 4,000,000 (2015: € 2,890,000).
How we determined it
1% of total revenue. (2015: 0.75%).
Rationale for benchmark applied
We have applied this benchmark, a generally accepted auditing practice, based on our analysis of the common information needs of users of the financial statements. On this basis we believe that revenue is an important metric for the financial performance of the company. Profit before taxation is not considered an appropriate benchmark, because this would result in large fluctuations in overall group materiality year over year. Last year we applied a more conservative 0.75% due to our first year as the auditor. Based on our experiences with the organisation and more insight in the organisation and their operating environment we increased the benchmark to 1%.
To each component in our audit scope, we, based on our judgement, allocate materiality that is less than our overall group materiality. The range of materiality allocated across components was between € 200,000 and € 4,000,000.
We also take misstatements and/or possible misstatements into account that, in our judgement, are material for qualitative reasons.
We agreed with the supervisory board that we would report to them misstatements identified during our audit above € 100,000 (2015: € 100,000) as well as misstatements below that amount that, in our view, warranted reporting for qualitative reasons.
The scope of our group audit
Beter Bed Holding N.V. is the parent company of a group of entities. The financial information of this group is included in the consolidated financial statements of Beter Bed Holding N.V.
Beter Bed B.V. and BBH Services GmbH & Co. KG (consolidated) were subjected to audits of their complete financial information as those components are individually significant to the group. Contribution to revenue, total assets and profit before taxation were important considerations in that respect. Additionally, Matratzen Concord GmbH (Vienna, Austria) and Procomiber S.L. were subjected to audits of their complete financial information as well.
Beter Bed Beheer B.V. and Beter Bed Holding N.V. were subjected to specific risk-focussed audit procedures to achieve appropriate coverage on financial line items in the consolidated financial statements.
In total, in performing these procedures, we achieved the following coverage on the financial line items:
Profit before taxation
None of the remaining components represented more than 5% of total group revenue or total group assets. For those remaining components we performed, among other things, analytical procedures to corroborate our assessment that there were no significant risks of material misstatements within those components.
The group audit team performed an audit on the complete financial information of Beter Bed B.V. and specific risk-focussed audit procedures at two components. Where the work was performed by component auditors, we determined the level of involvement we needed to have in their audit work to be able to conclude whether sufficient appropriate audit evidence had been obtained as a basis for our opinion on the consolidated financial statements as a whole.
As the auditor of the group we used the work performed by the component auditor of BBH Services GmbH & Co. KG (consolidated), Matratzen Concord GmbH (Vienna, Austria) and Procomiber S.L. Before the start of their audit procedures we have shared detailed instructions including the results of our risk analysis performed as part of our audit of the financial statements of Beter Bed Holding N.V. We determined the level of involvement at the three components we needed to have in their audit work to be able to conclude whether sufficient appropriate audit evidence had been obtained as a basis for our opinion on the consolidated financial statements as a whole. We have access to the audit file of the BBH Services GmbH & Co. KG (consolidated) audit team and reviewed their audit file in a lot of detail. The group engagement team visited the component team multiple time throughout the year and for example attended the year end clearance meeting on site in Germany for BBH Services GmbH & Co. KG (consolidated) and Matratzen Concord GmbH (Vienna, Austria) and attended the clearance meeting of Procomiber S.L by phone.
The group consolidation, financial statement disclosures and a number of complex items such as share based payments, income tax and related disclosures and the company statements are audited by the group engagement team at the head office.
By performing the procedures above at components, combined with additional procedures at group level, we have obtained sufficient and appropriate audit evidence regarding the financial information of the group as a whole to provide a basis for our opinion on the consolidated financial statements.
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in the audit of the financial statements. We have communicated the key audit matters to the supervisory board, but they are not a comprehensive reflection of all matters that were identified by our audit and that we discussed. We described the key audit matters and included a summary of the audit procedures we performed on those matters.
The key audit matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon. We do not provide a separate opinion on these matters or on specific elements of the financial statements. Any comments we make on the results of our procedures should be read in this context.
Key audit matter
How our audit addressed the matter
Accuracy of revenue
Note 12 to the consolidated profit and loss account in the financial statements
Revenue is an important measure used to evaluate the performance of the company (also refer to the materiality). There is a risk that the revenue is presented for amounts higher than what has been actually generated by the company, therefore this is a key audit matter. Revenue is accounted for when the sales transactions have been completed, when goods are delivered to the customer and all economic risks for Beter Bed have been transferred as a result. Revenue is generated through store sales as well as online sales. Delivery has been completed when goods are paid and transferred to the customer in store, or when goods are paid by the customer and delivered on location. These transactions are mainly processed automatically through IT.
Our audit procedures include testing of design, existence and operating effectiveness of (automated) internal control procedures implemented as well as test of details to ensure accurate processing of revenue transactions.
The most important internal control procedure for the accuracy of the revenues is the automated three-way-match in SAP.
We assessed the Information Technology General Controls (ITGC) as a basis to be able to reperform the three-way-match between salesorder-delivery-invoice.
Furthermore, we have performed risk assessment analytical procedures on realized revenue through detailed store comparison.
The results of our controls testing, reperformance of the three-way-match and analytical procedures have been the basis for the nature and scoping of the additional test of details, which mainly consisted of testing individual salesorders by reconciling them to proof of delivery (on location) or release.
Key audit matter
How our audit addressed the matter
Existence and valuation of inventories
Note 4 to the consolidated balance sheet in the financial statements
Total inventories of € 62 million represent 43% of total assets of Beter Bed Holding N.V. These inventories mainly consist of inventories in the stores and inventories kept at the distribution centers. Valuation of the inventories is at cost or at lower net realizable value. Valuation at cost includes different components including allocated supplier bonuses. The allocation of supplier bonuses and the assessment of revaluation of inventories to net realizable value is partly based on management estimates. This, in combination with the significant share of inventories as part of total assets, made us conclude that existence and valuation of inventories are a key audit matter of our audit.
Our audit procedures to test the existence of the inventories mainly consist of testing the relevant internal control procedures, specifically by testing the inventory cycle counts that are periodically performed by management and the automated recording of sales transactions (three-way-match). Throughout the year, we have attended a selection of inventory cycle counts in stores and in the distribution centers, to validate counts performed by the company. We compared our count results with the results of the counts by Beter Bed representatives.
To validate the valuation of inventories, we performed test of details on historical costs, actual margins and valuation of obsolete inventories.
Historical costs were tested through sampling reconciling historical costs with the original purchase invoice.
We assessed whether there were inventories which were sold with a (consistent) negative margin by evaluating recent sales invoices from January and February 2017 to validate management’s assessment and decision whether inventories should or should not be provided for.
Furthermore we analysed the inventory turnaround and compared that to management’s estimates on obsolete inventories.
For the allocation of supplier bonuses to the valuation of inventories at cost we recalculated the supplier bonuses per supplier based on supporting contracts. The settled supplier bonuses were tested by reconciling them to the bank statements. Furthermore we have validated mathematical accuracy of the allocation to inventories as per year end.
Report on the other information included in the annual report
In addition to the financial statements and our auditor’s report thereon, the annual report contains other information that consists of:
- the report of the management board;
- the Corporate governance report;
- the report of the supervisory board; and
- the remuneration report.
Based on the procedures performed as set out below, we conclude that the other information:
- is consistent with the financial statements and does not contain material misstatements;
- contains all information that is required by Part 9 of Book 2 of the Dutch Civil Code.
We have read the other information. Based on our knowledge and understanding obtained in our audit of the financial statements or otherwise, we have considered whether the other information contains material misstatements.
By performing our procedures, we comply with the requirements of Part 9 Book 2 of the Dutch Civil Code and the Dutch Standard 720. The scope of such procedures was substantially less than the scope of those performed in our audit of the financial statements.
Management is responsible for the preparation of the other information, including the directors’ report and the other information pursuant to Part 9 Book 2 of the Dutch Civil Code.
Report on other legal and regulatory requirements
We were appointed as auditors of Beter Bed Holding N.V. on 19 May 2015 by the supervisory board following the passing of a resolution by the shareholders at the annual meeting held on 19 May 2015. For the audit of the 2016 financial statements we were re-appointed by the supervisory board on 19 May 2016, following the passing of a resolution by the shareholders at the annual meeting. We have a total period of uninterrupted engagement appointment as auditors of the company of 2 years.
Responsibilities for the financial statements and the audit
Responsibilities of management and the supervisory board for the financial statements
Management is responsible for:
- the preparation and fair presentation of the financial statements in accordance with EU-IFRS and with Part 9 of Book 2 of the Dutch Civil Code; and for
- such internal control as management determines is necessary to enable the preparation of the financial statements that are free from material misstatement, whether due to fraud or error.
As part of the preparation of the financial statements, management is responsible for assessing the company’s ability to continue as a going concern. Based on the financial reporting frameworks mentioned, management should prepare the financial statements using the going-concern basis of accounting unless management either intends to liquidate the company or to cease operations, or has no realistic alternative but to do so. Management should disclose events and circumstances that may cast significant doubt on the company’s ability to continue as a going concern in the financial statements.
The supervisory board is responsible for overseeing the company’s financial reporting process.
Our responsibilities for the audit of the financial statements
Our responsibility is to plan and perform an audit engagement in a manner that allows us to obtain sufficient and appropriate audit evidence to provide a basis for our opinion. Our audit opinion aims to provide reasonable assurance about whether the financial statements are free from material misstatement. Reasonable assurance is a high but not absolute level of assurance which makes it possible that we may not detect all misstatements. Misstatements may arise due to fraud or error. They are considered to be material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements.
Materiality affects the nature, timing and extent of our audit procedures and the evaluation of the effect of identified misstatements on our opinion.
A more detailed description of our responsibilities is set out in the appendix to our report.
Eindhoven, The Netherlands, 16 March 2017
PricewaterhouseCoopers Accountants N.V.
Original has been signed by W.C. van Rooij RA
Appendix to our auditor's report on the financial statements 2016 of Beter Bed Holding N.V.
In addition to what is included in our auditor’s report we have further set out in this appendix our responsibilities for the audit of the financial statements and explained what an audit involves.
The auditor’s responsibilities for the audit of the financial statements
We have exercised professional judgement and have maintained professional scepticism throughout the audit in accordance with Dutch Standards on Auditing, ethical requirements and independence requirements. Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error. Our audit consisted, among other things of the following:
- Identifying and assessing the risks of material misstatement of the financial statements, whether due to fraud or error, designing and performing audit procedures responsive to those risks, and obtaining audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the intentional override of internal control.
- Obtaining an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control.
- Evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.
- Concluding on the appropriateness of management’s use of the going concern basis of accounting, and based on the audit evidence obtained, concluding whether a material uncertainty exists related to events and/or conditions that may cast significant doubt on the company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report and are made in the context of our opinion on the financial statements as a whole. However, future events or conditions may cause the company to cease to continue as a going concern.
- Evaluating the overall presentation, structure and content of the financial statements, including the disclosures, and evaluating whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
Considering our ultimate responsibility for the opinion on the company’s consolidated financial statements we are responsible for the direction, supervision and performance of the group audit. In this context, we have determined the nature and extent of the audit procedures for components of the group to ensure that we performed enough work to be able to give an opinion on the financial statements as a whole. Determining factors are the geographic structure of the group, the significance and/or risk profile of group entities or activities, the accounting processes and controls, and the industry in which the group operates.
On this basis, we selected group entities for which an audit or review of financial information or specific balances was considered necessary.
We communicate with the supervisory board regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
We provide the supervisory board with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.
From the matters communicated with the supervisory board, we determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, not communicating the matter is in the public interest.