Årsrapport 2022 Eng

A difficult year with much dialogue and impressive performance

2022 was an extraordinary year in every sense. In the shadow of war, Denmark and the rest of Europe suffered an energy crisis and high inflation. After decades of taking a secure supply of electricity, water and heating for granted, we faced a situation where there were no guarantees everyone would get through the winter with adequate heating.

The energy crisis also meant a challenging year for Verdo, with more pressure in all areas of the business. The district heating roll-out to replace Russian gas had to be as rapid as possible. Concerned owners of wood pellet boilers hoarded pellets. Other customers were left waiting for new efficient energy plants to be completed, due to the global shortage of components.

The crisis also had positive effects. We have never before had so much dialogue with so many customers, seeking advice regarding their energy consumption and bills. This meant we had to expand our customer centre several times, and the more extensive dialogue also led to other initiatives. We will maintain these, even after the energy crisis is over.

We look back with pride at the efforts employees have made during a difficult year. We maintained a secure energy supply, and while no consumers in Denmark fully escaped the impacts, we limited the economic fluctuations consumers faced as much as possible – within the political framework we operate under.

Under difficult conditions, we successfully accelerated the district heating roll-out, contributed to energy savings in municipalities and companies, and took a wide range of other steps that you can read about in this annual report. In autumn 2022, we also made an extraordinary payment to heating consumers in Randers and Herning (in collaboration with Ørsted in Herning) – in an attempt to limit price increases for district heating as much as possible.

Despite everything, Verdo’s commercial business areas delivered historically good earnings. This is very satisfying for a turbulent year filled with challenges. It is also extraordinary in the sense that we cannot expect it to happen again.

The strong earnings will also benefit the local community. As a consumer-owned and purpose-driven company, they put

Verdo in a stronger position to accelerate the green transition, for example through the district heating roll-out.

2022 was also the year when the Danish Competition and Consumer Authority approved the acquisition of Verdo’s fibre network by the Norlys energy and telecommunications group, resulting in 26,000 fibre connections in Randers and Hobro being transferred to Norlys.

It was also the year we confirmed that Verdo is on the right track with the Group’s new strategy. This work was initiated at the same time as Verdo was transformed into a cooperative back in 2020, and was built on last year with three new strategic focus areas: 1) Competencies and the future workplace, 2) Stronger sustainable development, and 3) Digitalisation and data.

We have entered a new era, in which energy has become a matter of security policy and global warming is becoming more critical. This places new demands on all energy sector players, but we are ready to face these and see reason for optimism.

With a stronger financial and strategic foundation, we look forward to continuing to make a difference through greater focus on developing the local community, more gas conversions and more cooperation towards the green transition.

Finally, we would like to say thank you to our customers, employees and partners for the year just passed. We look forward to working together in the new year.

We hope you enjoy reading the Verdo Annual Report for 2022.

Torben Høeg Bonde Jakob Flyvbjerg Christensen Chairman of the Board CEO

Board members in profile

We asked two of our board members why they chose to be part of Verdo’s Supervisory Board.

Jan Guldmann Board member since 2020

My motivation to stand for election to Verdo’s board back in 2020 was that I felt a need for a direct voice for the many thousands of tenants in the social housing sector, who for example are charged for heating in a very different manner to private consumers. Verdo also needed to consist not only of politicians and businessmen.

I also wanted to make a difference by helping to improve Verdo’s image, which was characterised by lack of transparency and poor communication with consumers at the time. I think that the new management and Supervisory Board have improved satisfaction among consumers, and this has also had a positive impact on our many capable employees at Verdo.

Since 2011, I have been Chairman of the Board of ‘Randers Boligforening af 1940’ (with 2,500 tenants) and the RandersBolig management company (with almost 8,000 tenants). I have thereby gained extensive experience with management and communication, and have been responsible for financial statements on a large scale. I have been elected as chairman of a trade union since 1993, with responsibility for operations and finances for up to 8,000 members. Both have equipped me well for the board work at Verdo.

Verdo is facing a very exciting future, and must make some big decisions about the future energy supply. I see this as the task that clearly has the highest priority in the coming years. We must also focus on ensuring Verdo’s commercial companies add value in the form of profits – profits that can be used to benefit our consumers and give something back to citizens of Randers and Herning, for example through sponsorships and ensuring clean drinking water and a good forest environment for the next 100 years.

It is also important that we continue to focus on even more direct and transparent communication with our consumers, the media and the Board of Representatives. This will be

Jan Guldmann

The best thing about being a member of Verdo’s Supervisory Board is that I have gained more direct insight into the company’s operations and both the regulated and commercial strands of the company, and have gained direct influence in several areas. I am also proud to have supported the decision to introduce more direct election for the members of the Board of Representatives – a change that took effect with the Board of Representatives election in spring 2022.

particularly important over the next few years, as we face the difficult task of explaining to consumers in Randers the rise in heating prices that is inevitable when the repayments of recent years resulting from the old heating cases – which have artificially lowered the heating price – soon come to an end.

The best thing about being a member of Verdo’s Supervisory Board is that I have gained more direct insight into the company’s operations and both the regulated and commercial strands of the company, and have gained direct influence in several areas. It has also been enriching to help make Verdo function well and as a cohesive unit for both Randers and Herning, after we became an energy company for both municipalities a few years ago.

I am also proud to have supported the decision to introduce more direct election for the members of the Board of Representatives – a change that took effect with the Board of Representatives election in spring 2022. This is a good, democratic change that gives greater influence to each consumer.

Jan Guldmann Board member

Keld Christensen Board member

Ronnie S. Andersen Employee representative

Finn Stengel Petersen Board member

Pia Maach-Møller Board member

Peter Kjærsgaard Board member

Dines Velling Johansen Employee representative

Stine Brøgger Thygesen Employee representative

Bo Svoldgaard Board member

Niels Rasmussen Board member

Peter Nowack Board member

Finn Skaarup Andersen Deputy Chairman

Torben Høeg Bonde Chairman

Verdo’s Supervisory Board

Martin Rubæk Employee representative

Board members in profile

Martin Rubæk Board member since 2022

I chose to become part of Verdo’s Supervisory Board because I find it very exciting to help shape Verdo’s future and contribute to setting the strategic direction. I work at Verdo Energy Systems, where I see how the market for energy plants is constantly changing. This applies to biomass, heat pumps, electricity and gas. Verdo faces some highly important and exciting choices about what future heating should be based on, and how we develop our business further.

I have gained the insight necessary to contribute constructively to the board’s work through my energy engineering studies, where I become acquainted with part of Verdo’s core

business – district heating. During my almost four years at Verdo, I have also gained extensive knowledge of Verdo’s entire business through cooperation and projects with the staff functions. Verdo has undergone a profound transformation during that time. During the period with COVID-19 and just afterwards, there were fewer projects and a slower pace. This has since been replaced by an extreme level of activity in the heating sector. We are seeing rapid development right now, which I am learning a lot from being a part of.

However, it is particularly the work with Verdo’s social contract, sustainability, mission and vision that drives me. It is fantastic to be involved in board work where it is so clear that Verdo is a purpose-driven company, not only concerned about profit. We must of course set the scene for Verdo to grow and be a profitable business, but it in a responsible manner, giving back to the local community and ensuring the best prices and high security of supply for consumers.

Verdo’s key focus areas in the coming years are to consolidate the business areas we already have, and increase awareness of Verdo as a brand. There is much competition

I chose to become part of Verdo’s Supervisory Board because I find it very exciting to help shape Verdo’s future and set the strategic direction. I see how the market for energy plants is constantly changing in my daily work activities. This applies to biomass, heat pumps, electricity and gas. Verdo faces some highly important and exciting choices about what future heating should be based on, and how we develop our business further.

Martin Rubæk

in our market, especially in the battle for qualified labour. We are in a strong position here because we can offer future employees a clear purpose. We must continue in this vein, because it will be important for the future Verdo.

Verdo’s ownership

Verdo a.m.b.a. is owned by the cooperative owners. These are the Group’s heating consumers in Randers and Herning, water consumers in Randers and the consumers connected to the electricity grid in Kongerslev.

As a cooperative, Verdo works to advance the cooperative owners’ common interests by purchasing heat, water and electricity. All cooperative members can have influence by voting in elections to the Board of Representatives, based on the ‘one meter – one vote’ principle. Elections to the Board of Representatives are held every four years.

Board of Representatives

The Board of Representatives is Verdo’s supreme governing authority. The maximum number of members in the Board of Representatives is 85 – elected in the three supply areas: Randers (56 members), Herning (28 members) and Kongerslev (one member). The number of seats per supply area is based on the proportion of meters. On 31 December 2022, the Board of Representatives had 70 members.

Supervisory Board Executive Board

Verdo’s Supervisory Board is elected by and from among the Board of Representatives. The Supervisory Board is responsible for the general management of the company and approves the company and Group strategy. The Supervisory Board also approves the Group’s budgets and financial statements. The board has 10 members – three from the Herning voting area and seven from the Randers/Kongerslev voting area. In addition, there are four employee representatives.

The Executive Board at Verdo is responsible for daily operations and consists of one or more directors elected by the Supervisory Board.

On 31 December 2022, Verdo’s Executive Board consisted of CEO Jakob Flyvbjerg Christensen and CFO Kenneth R. H. Jeppesen.

Verdo in 2022

5.4bn

DKK 5.4 billion in revenue

241m

DKK 241 million in after-tax profit

76,000

530 employees

26,000 530 45%

76,000 private homes and businesses in Randers and Herning receive district heating from Verdo

6

26,000 households in Randers receive drinking water from Verdo

6 offices in Denmark

45% lower CO2 emissions at Randers CHP plant in 2022 than in 2021, despite more district heating connections

99.2% 22

Verdo uses 99.2% biomass to power the Randers CHP plant

1,265

1,265 new connections to district heating in Herning and Randers

1,300

1,300 calls to our customer centre each day during the energy crisis

875,000

Verdo’s eNPS score rose from 10 in 2021 to 22 in 2022

478

875,000 logins to our My Verdo self-service system

3 17

17 subsidiaries of Verdo a.m.b.a.

478 days of training completed at Verdo Academy 3 foreign offices

New internal organisation creates better conditions for strategic and business success

2022 saw several organisational changes at Verdo aimed at ensuring the entire organisation is best equipped in the future to achieve the ambitious goals in Verdo’s corporate strategy.

Continued positive growth at Verdo will not only benefit Verdo’s around 530 employees, but also very much the green transition and development in Verdo’s local community.

New organisation in Energi & Forsyning headed by new director

In 2022, the Energi & Forsyning division was re-organised.

We decided to combine all activities for consumer customers in one division, so Verdo Produktion A/S (the company responsible for Randers CHP plant) was integrated with Verdo Varme A/S and Verdo Vand A/S. EL-NET Kongerslev was also moved into Energi & Forsyning on 1 January 2023.

This was a vital step towards ensuring transparency and openness in our regulated companies, while promoting more collaboration across the utilities division.

Verdo also faces the complex task of defining the future heating supply in Randers and Herning over the next few years, and the new organisational structure aims to better support internal knowledge sharing between our district heating production and distribution.

To head up this work, Jesper Møller Larsen was appointed as director of the Energi & Forsyning division on 1 January 2023, with responsibility for around 110 employees, including three managers who report directly to him.

The Elsalg (electricity sales) commercial business area and Verdo’s customer centre were separated from the regulatory business and given their own area – Sales and Customer Centre – with a strong customer focus, through good customer service and the development of new products and green power and charging station solutions.

The new organisation has already proven its worth with a newly developed concept for charging solutions, new green power offerings and much improved customer satisfaction.

Jesper Møller Larsen has worked with business operations and development and projects in the energy and utility sector for more than 20 years.

Improved internal structure in the Trading division

A new director was appointed for Verdo’s Trading division in 2022. Peter Lønbro Lehm took up this position in May 2022, and together with the rest of the management team in Trading, has created an improved internal structure.

Under the new structure, Trading is divided into three business strands: BIO, CARBON and OPERATIONS.

This helps ensure stronger cohesion between the Verdo Trading and Carbon Partners companies, and as both operate internationally, the new organisation also enables optimisation of processes across companies and countries.

New organisation supports cross-cutting workflows and simpler processes

Verdo Teknik A/S operates primarily in the public procurement market, where being able to put together the right bids, ensure good project execution and manage pricing in operations, maintenance and projects is vital in order to run a profitable business.

To support development of this area, we therefore combined Gadelys and Trafik in the Teknisk Infrastruktur department in 2022. The new organisation will ensure more cross-cutting workflows, digital support and continuous optimisation of workflows and processes.

Peter Lønbro Lehm has worked in the energy sector in various roles since 2002.

Three new strategic focus areas introduced in 2022

Verdo’s StepTogether corporate strategy was launched in February 2021, but the past two years have seen major changes in Verdo, the sector, the local community and the rest of the world. This naturally led us to revisit some of the initiatives and business areas that are central to the strategy work in 2022.

The purpose of this review was to ensure that all Verdo employees optimally utilise their time and resources – on the initiatives that best enable us to realise the strategy objectives.

The review identified that we had reached our goals with the strategic focus areas, defined in the group strategy as mustwin battles* (MWB), for the first two years of the strategy period. It was therefore important to define new strategic focus areas for the rest of the strategy period, that address the most pressing external challenges and internal needs and also cut across the Group and its business areas.

After a thorough internal process, Verdo’s three new strategic focus areas and associated success criteria were announced in autumn 2022. They are:

Competencies and the future workplace

– must-win battle #1

• Right competencies for future aims

• An attractive place to work – today and in the future

Stronger sustainable development

– must-win battle #2

Create competitive advantages

• Ahead of legislation

• Green and responsible supply chains

• Develop green products and green digital services

Digitalisation and data –

must-win battle #3

Accelerate Verdo’s digital transformation.

We create digital customer experiences and a digital mindset and become a data-driven organisation.

The three strategic focus areas are tightly bound, as a high degree of digitalisation is vital in order to be an attractive workplace today and in the future, and create new opportunities for employees. And regarding sustainability, no company can deliver on their ESG goals without having their data and documentation in order and being able to exploit the many new digital technologies.

* Must-win battles are the decisive battles that must be won to achieve the organisation’s key goals. They must be cross-cutting and relevant to several business areas, and concrete so that they can be measured.

Stine Brøgger Thygesen, Head of Strategy at Verdo

Competencies and the future workplace

Must-win battle #1

The framework for our daily work is currently changing. At the same time, the battle for the right competencies will only intensify as fewer qualified graduates enter the labour market in future. Verdo is therefore committed to making the company an even more attractive workplace, and made this a strategic focus area in 2022.

The aim of MWB #1 is to ensure that Verdo continues to attract, develop and retain the right competencies in an appealing working environment – now and in the future –while supporting Verdo’s transition into a purpose-driven company by 2025.

The reason is that it is currently difficult to attract qualified labour, while it is easier than ever to change jobs. We are seeing this at Verdo, where we rely on highly specialised manpower – such as engineers, professional project managers and digital experts – who each contribute to the work of developing and implementing our products and solutions and thereby help make a difference in the green transition of society.

The above challenge was reflected, for example, in higher recruitment costs in 2022. This trend is expected to continue in the years ahead. We are therefore now working more persistently to create an attractive workplace, where we equip employees for the future labour market through individual development in continuing education, and create the framework – physically, mentally and socially – for a dedicated community that promotes growth with tangible values.

Rethinking the physical setting

We are also looking at how work will be organised in the future, and we therefore partnered with the Arkitema architectural firm in 2022 to find a holistic solution for our headquarters in Randers in the long term, that takes into account the future needs and desires for Verdo as a workplace. We will also continually optimise working conditions at our other sites, including Storvorde, which is lacking in space, like the head office. New premises are therefore planned in Aalborg, to gather employees from Storvorde and Aalborg in one office.

This requires an overview of necessary competencies in the business and among support staff – at present, and a forecast of expected future needs. We are therefore also working to create a coherent model and process matching the need for competencies and knowledge of opportunities and tasks, to ensure we always have the right employees to perform the necessary tasks.

But the battle is not won on the home front alone. We also need to praise Verdo’s strengths as a workplace externally. We therefore created a new digital career universe in 2022 that will help present Verdo as an attractive workplace, and thereby help us in the battle for talented new employees – both now and in the future.

Must-win battle #2

2 Stronger sustainable development

An accelerated green transition will place even greater demands on the companies of the future in terms of sustainability knowledge and competencies. This applies strongly to the development of new technologies and green solutions, data understanding and assurance, communication and digitalisation.

That is why our must-win battle #2 is: Stronger sustainable development.

Stronger sustainability entails a greater focus on a strategic approach to sustainability in Verdo. We must create competitive advantages and stay at the forefront of legislation through stronger sustainable development. We must ensure green and responsible supply chains and continue to develop green products and digital services.

Sustainability on the strategic agenda

Over the past year, Verdo’s CSR focus has moved towards a more unified ESG mindset, where Environment, Social and Governance set the framework for sustainable business conduct and development. The strategic foundation has been further strengthened with the appointment of Line Risgaard Mortensen as Sustainability Manager on 1 February 2022. Line and the rest of the sustainability team are part of Verdo’s Strategy office, which reflects the strategic anchoring that sustainability has been given at Verdo.

According to Line Risgaard Mortensen, Verdo experienced a paradigm shift in 2022, when the strategic focus on CSR became a central part of business development. 2022 has been spent defining the framework and setting the goals, so now Verdo is looking forward to execution in 2023.

The appointment of a sustainability team at Verdo is a key part of our preparations to meet the increasing demands in the EU taxonomy, the CSR directive, and other directives and requirements from the EU, which prescribe a very precise and well-documented approach to our entire social responsibility.

Code of Conduct sets direction

One of the initiatives to boost sustainability at Verdo is a greater focus on our Code of Conduct. As an international company with global value chains, we have a social responsibility beyond our local community and the conditions we are used to in our part of the world.

To meet these obligations and our aims, we have continually developed our Code of Conduct – which defines Verdo’s requirements and expectations of business partners, guided by our sustainability team. We recognise that we have work ahead of us, and through dialogue and cooperation with suppliers and partners, we will ensure continued progress.

Focus on materiality

We are in the process of defining our materialities for each of our business areas – with the assistance of our employees. These include the most important initiatives for achieving the greatest possible CO2 reduction, so that we constantly apply our efforts where they have the greatest impact. The new legislation, which puts even greater focus on materiality, can thus help us set the goals that will make the biggest difference.

Digitalisation and data

– Must-win battle #3

During 2022, many Verdo employees attended the Digital Masterclass, to increase awareness of the importance of working with digital transformation and creating a common terminology. The plan is for more employees to attend in 2023.

The intensive training programme has been continually supplemented by appointing new profiles with digital competencies, to help define and advance the Group’s digital maturity and create the future Verdo.

The goal is for Verdo to embark on a digital journey, where employees jointly create digital customer experiences and develop a digital mindset, such that Verdo becomes a data-driven organisation.

To support this journey, two new departments have been created – Digital Forsyning (in 2022), and a commercial digitalisation department, to be realised during the first half of 2023, which will be part of Verdo’s Strategy Office.

Digital Forsyning – new partner for Energi & Forsyning

Digital Forsyning was primarily established to support the Energi & Forsyning division, which consists of the regulated business areas – Verdo Varme, Verdo Vand and Verdo Produktion. Digital Forsyning is the division’s partner, facilitating the work to improve digital maturity. Digital Forsyning also helps implement concrete projects and digitalisation initiatives.

A good example is implementation of the new digital surveying equipment for registering pipes in 2022. We have made data registration more efficient and precise.

The new equipment allows the installer to survey directly on site, while the office can see the measurements in real time and make the adjustments immediately. We previously had to wait for a technician to visit the site, but we can now skip the middleman. This saves a lot of driving and reduces our CO2 emissions.

The solution is thus another step towards our green transition, while also making life easier for employees, ensuring top quality water for consumers and having a positive impact on Verdo’s CO2 accounts.

Commercial digitalisation department aims to give other business areas a digital boost

A commercial digitalisation department is being established as part of the Strategy Office in order to help give our commercial business areas (Verdo Teknik, Verdo Energy Systems, Verdo Trading and Verdo Go Green) a digital boost.

The department will support the commercial business areas by driving various digitalisation initiatives based on their business strategies, defining digital potentials and ensuring development and problem solving focusing on the needs of end customers.

Election for the Board of Representatives led to lower average age and more women

Verdo held elections for the Board of Representatives and some of the seats on the Supervisory Board in spring 2022. The Board of Representatives was expanded from 51 to 85 possible members at this time. Verdo wanted a larger Board of Representatives, to make it possible for more people to stand for election and thus attract both younger and older people, men and women, ordinary consumers and seasoned business people.

A targeted effort was made in connection with the elections to attract more female members and young people, given that Verdo’s consumers are a broad mix of ages and genders. Our goal is for our Board of Representatives to better reflect this diversity.

While we are still some way off achieving gender and age balance, clear progress was evident after the election in 2022. Around 25% of the members of the Board of Representatives are now women (18 out of 70). This is an increase of 10 percentage points compared to the previous board.

The average age has also dropped by about five years. This shows that we have managed to reach a broader range of consumers, which benefits both consumers and Verdo.

Several members of the Supervisory Board were also up for election in spring 2022. There was no change in the proportion of male and female board members here. The Supervisory Board continues to consist of nine men and one woman, as well as four employee representatives, one of whom is a woman.

What do the new members of the board have to say?

We asked some of the new members of the Board of Representatives what made them stand for election, and whether the role is meeting their expectations.

Oliver Jørgensen Planner

I graduated in summer 2021. During most of my time at university I have had a desire to gain experience with board work, so when I heard that there was an election for the Board of Representatives at Verdo, I knew I had to give it a try. Verdo is a key player in the Randers cityscape, and with the energy and climate crises being more pressing than ever, it was a clear opportunity to get closer to the action as a consumer.

Being part of a Board of Representatives offers insight into how a company the size of Verdo works, and the strategic considerations behind any new ideas and initiatives. As a consumer, it has also been interesting to witness how Verdo tries to stay one step ahead of everyday and future challenges. Also, the Board of Representatives is made up of members from very different backgrounds. This has led to many interesting discussions, about the development of the sustainable and green energy sources of the future etc.

Anne Brandborg Senior Manager, Communication

I work in the energy sector and therefore also have a lot of experience from the ‘other side of the table’. I think that the role of boards of representatives is often overlooked by people my age. That’s unfortunate, because it’s a really interesting way to gain insight into and influence some of the companies at the heart of Danish infrastructure and the green transition. I also see it as a good way to gain new experience and expand my network.

I think Verdo is undergoing an exciting transformation, where some things are being tidied up and focus sharpened. It’s interesting to be a part of this, and follow developments a little more closely than via the local media. I also look forward to getting to know some of the other members better.

Lone Maarup Christensen HR employee

I was encouraged to stand for the Board of Representatives. I chose to do so in order to gain knowledge of an interesting new area – the energy sector – and expand my knowledge of Verdo.

As a member of the Board of Representatives, I also get to expand my network and meet people I would not normally meet. Verdo also takes good care of us, also when it comes to preparing for the Board of Representatives meetings. So it is a very positive experience overall.

Verdo’s social contract

As a company, we have a responsibility to contribute to the communities we are part of. At Verdo, we have committed to doing so through our social contract.

The social contract defines Verdo’s efforts in relation to the climate and environment, and economic, social and governance sustainability. It is based on mutual interest and dependence between companies and society, such that we create change together – for the benefit of all.

For companies, it is therefore vital to have a functional society that provides security, opportunities and strong infrastructure, in order to ensure continued growth – and thus the companies’ viability. Conversely, society has an interest

in successful and competitive companies that can support the economy. The social contract thus helps to cement our responsibility towards customers, the local community, partners and each other as colleagues at Verdo.

The social contract was adopted in 2021, and really took off in 2022 – a development we will focus on even more in 2023. The social contract is anchored in Verdo’s StepTogether corporate strategy, and the concrete initiatives have been incorporated into our business plans and goals.

We were put on earth with the social contract as our ‘birth certificate’. We therefore have an obligation to put ourselves in the shoes of our customers, our own people, local communities and partners, to deliver the added long-term dimension that is our purpose.”

Torben Høeg Bonde, Chairman of the Board

The social contract is based on four key promises

Customers – simplicity in daily life

We make an effort to understand and deliver on our customers’ needs, so we can make it easy to be a customer with us.

• We provide sustainable and secure utility services at competitive prices.

• We act with decency and want a relationship based on trust with our customers.

Society – local development

• We give back and contribute to the development of our local communities.

• We create an attractive foundation for a rich and growing business community.

We develop and share knowledge and support projects that promote a sustainable transition.

Employees – a community that promotes growth

• We equip employees for the future labour market through individual development and the opportunity to have great responsibility.

• We create the framework for a committed community and dedicated employees, where we dynamically work towards ambitious common goals.

• We create an attractive workplace with a strong sustainable purpose.

Partners – long-term relationships

• We are transparent and flexible in the way we work with our partners.

• We set the bar high, and place demands on competitiveness, deliveries, working conditions, etc.

We work towards close relationships and long-term benefits.

Update on historical cases

Verdo has had a number of unresolved historical cases for many years, dating back to 2000.

These cases go beyond the regular enquiries that are part of the general supervision of all energy sector companies by the Danish Utility Regulator.

After a concerted effort, we have successfully resolved most of the historical cases, so the business can increasingly focus on its strategic goals.

The cases have been handled in open dialogue with the authorities and with the goal of quick resolution.

In 2022, Verdo accelerated the repayment of amounts that had previously been overcharged. Verdo thus expects to have completed repayments for resolved cases one year ahead of the time frame set by the Danish Utility Regulator.

Verdo is still waiting for the Danish Utility Regulator to process a few outstanding historical cases*. However, most of the cases have been closed. The following cases were decided during 2022:

* Please also refer to note 1 of the financial statements for further information on ongoing cases.

Use of cash pool

In December 2022, the Danish Utility Regulator issued a decision in a case concerning complaints about Verdo’s use of funds in a cash pool for regulated companies. The Danish Utility Regulator upheld that the scheme was legal, and found that funds from Verdo Varme A/S and Verdo Produktion A/S had not been transferred to other companies in the Verdo Group via the cash pool scheme, and that Verdo had not otherwise made funds available to such other companies in violation of section 20(1) of the Danish Heat Supply Act. The case is therefore closed.

Water tariffs

Back in 2015, Verdo Vand A/S acknowledged an error whereby financial costs had been incorrectly counted in the price cap for water tariffs for 2013 and the ensuing years. As agreed with Randers Municipality at the time, repayments to consumers were initiated for the amount that had been overcharged.

In 2022, Randers Municipality sought an extra review of water tariffs dating back to 2000. The review did not identify any further non-conformities, and the case was therefore closed again. The repayments initiated under the 2015 agreement will be completed in 2024.

Turbulent times impacted Verdo’s results in 2022 – positively and negatively

by CFO Kenneth R. H. Jeppesen

2022 was marked by a series of unusual, almost extreme, events. In February, Russia attacked Ukraine in a war that has since led to major impacts on Europe. The war, the aftermath of a global COVID-19 pandemic and pressure on logistics chains all contributed to what is often called an ‘energy crisis’.

In parallel with the energy crisis, and partly fuelled by it, significant inflation was seen for the first time in many years, which also led to rising interest rates over the year.

Despite these extreme events, the Danish and European economies have performed surprisingly well. Unemployment remains very low, and many sectors are seeing skills shortages. Demand has not fallen as much as one might expect given the crisis and inflation, but energy consumption in Denmark has dropped significantly for private households (around 10 per cent compared to previous years). We have also felt this at Verdo.

Earnings

Verdo was highly impacted by the above factors in 2022, positively and negatively. Energy prices soared during the year, peaking in the third quarter. Group revenue was DKK 5.4 billion and operating profit (EBITDA) was DKK 409 million. Both are much higher than in previous years and than budgeted.

Profit after tax for the year was DKK 238 million.

The result is primarily due to Verdo Trading A/S having an exceptionally good year, with high demand for wood pellets and carbon products, and gains in Verdo Produktion A/S, where our power plant had record earnings on electricity production.

Conversely, Verdo Teknik A/S has been under pressure from the market situation. Prices of almost all commodities rose dramatically, and the municipalities (our street lighting and traffic light customers) did not receive more money despite this inflation. We therefore saw a large drop in orders, and thus in revenue and earnings.

Verdo Energy Systems A/S had a year with low activity, but very high sales. We therefore expect some years with higher revenue for Verdo Energy Systems A/S after a number of difficult years.

Despite soaring electricity prices – or perhaps because of these – Verdo Go Green A/S had a challenging year. Many private customers chose to switch from fixed-price to variable-price electricity.

The balance sheet was reduced following the divestment of Verdo Tele, completed in 2022. Conversely, equity and solvency increased after a profitable year. Equity is now DKK 907 million and the solvency ratio is 30 per cent. Both are pleasing developments.

Commercial and regulated business

Operating profit (EBITDA) in Energi & Forsyning – the Group’s regulated areas – was DKK 295 million, while the commercial areas – Verdo Trading A/S, Verdo Energy Systems A/S, Verdo Teknik A/S and Verdo Go Green A/S had EBITDA of DKK 169 million.

Overall, the regulated and commercial business areas both performed better than in 2021, and better than budgeted. The conclusion is thus that the extreme fluctuations in the economy and energy markets have had a positive effect on the Verdo Group.

The solvency ratio for the regulated companies is 25 per cent, while it is 48 per cent for the commercial companies (which are subject to competition).

Impact of high energy prices

While the high prices for energy and commodities have contributed very positively to the Group’s revenue and earnings, they have also affected working capital. Working capital has been very high at times during the year. This is particularly because Verdo Trading A/S and Carbon Partners AS both handled large contracts, as did Verdo Go Green A/S. The high prices in these meant that the Group’s working capital has been significantly higher than before.

Verdo has good management of liquidity and working capital. It has therefore been possible to expand the Group’s credit facilities as necessary. These expansions have given Verdo the necessary liquidity to act on all interesting contracts in the market. This has clearly demonstrated the strong and trusting partnership with the Group’s banks. All credit lines have now been normalised.

Four old heating cases resolved

Immediately after year end, Verdo agreed with the Danish Utility Regulator to adjust heating prices by a total of DKK 65 million. This is due to taxes that were included in heating prices as a result of the amounts Verdo wrongly charged consumers in earlier years. It must now be agreed with the Danish Utility Regulator when and how quickly to return the DKK 65 million to heating customers in Randers. Provision has been made for the amount in the annual accounts. The decision brings a final end to four old cases in Verdo Varme A/S and Verdo Produktion A/S.

A few enquiries were received during the year, but no new cases have arisen for which refunds are expected. The provision made in 2021 in Verdo Produktion A/S for the period prior to 2010 and the provision for energy saving measures in Verdo Go Green A/S are therefore the only matters yet to be decided. There has been good dialogue with the Danish Utility Regulator.

The water tariffs in Verdo Vand A/S from 2020 until now were finally approved in 2022 without any corrections. The water tariffs are therefore deemed to be resolved.

Verdo is very pleased to have resolved the old cases, as they negatively affect both our customers and the Group. We are working actively with all authorities to resolve the last outstanding issues.

Uncertainties regarding recognition and measurement

Return on invested capital in the 2000–2009 period for Verdo Produktion A/S.

Back in 2021, when the Group’s production company was investigating similar matters for the 2010-2017 period, indications were found that Verdo Produktion A/S had recognised a return on invested capital of up to DKK 69 million during the 2000-2009 period. It has not been possible to identify a direct legal basis for recognising this return, and discussions have therefore been initiated with the Danish Utility Regulator concerning the matter.

Discussions have continued throughout 2022, but it is still unknown when they are expected to be concluded. Verdo Produktion A/S has therefore continued to recognise the provision made in 2021, corresponding to the entire identified return on invested capital.

Output model

The Danish Utility Regulator contacted the Group in 2021 about the sector’s usual method for allocating costs between electricity production and heat production – the ‘output model’.

The Group is still in dialogue with the Danish Utility Regulator about the use of the model. At present, it is not possible to assess whether this enquiry may result in financial consequences for the Group.

Interest on external credit union loans

The Group received questions from the Danish Utility Regulator in 2022 regarding the inclusion of interest in price demonstrations in the Group’s production company. The discussions concern interest on loans taken out by Verdo Produktion A/S with external credit institutions, as a result of a change in practice in the calculation of interest in the price demonstration in 2018.

The Group deems that the change in the practice of Verdo Produktion A/S is correct, and the interest can be seen as a necessary cost and thus included in the share of heat production. At this stage, it is not possible to assess the potential accounting implications or when the discussions are expected to be concluded. This has therefore not been recognised.

Events after the accounts were closed

The war in Ukraine continued into 2023, and there are currently no indications when it will end. This has led to greater volatility in both market prices and interest rates than we have seen for many years, and this is set to continue. There is consensus that interest rates will be generally higher than in previous years, and this will affect the Group’s credit arrangements.

However, Verdo is in a strong position to handle these fluctuations, as the financial leverage (ratio of earnings to interest-bearing debt) is significantly lower than in previous years, and the debt is generally decreasing. Financial leverage of 0.4 is very satisfactory and far below our target.

After the end of the financial year, we saw a marked drop in energy prices – particularly for electricity, gas and wood pellets – while wood chips continue to trade at high prices. This had a big impact on earnings in the first months of 2023, when it was necessary to sell some products at a loss.

We expect earnings to be below the 2023 budget level given the falling energy prices. This also means earnings that are significantly lower than in 2022.

Overall, we are satisfied with the changes in the Group’s operations, performance and ratios, and we expect to continue implementing our ‘StepTogether’ strategy in the coming years.

Calculation of ratios

Ratios have been calculated based on the Danish Finance Society’s recommendations, and definitions are stated in the accounting policies. Annual revenue and ratios have been calculated after adjustment for special items (see note 3, page 93 of the financial statements).

Business areas in the Verdo Group

Energi & Forsyning

Energi & Forsyning supplies clean drinking water to around 26,000 households in Randers, and district heating based on certified sustainable biomass to around 38,000 households in Herning and 38,000 households in Randers.*

EL-NET Kongerslev will also be part of the division from 1 January 2023. This unit connects about 870 households in Kongerslev to the electricity grid.

Varme Randers and Varme Herning

Verdo has been working for years to expand district heating into new areas, and convert existing areas from natural gas etc. But district heating moved up greatly on the political agenda in 2022 due to the energy and supply crisis. It will also play a key role in relation to sector coupling and expanding green energy production in the coming years, and will thus be central to the green transition of Denmark.

The government wants to phase out natural gas in Denmark – to advance the green transition, and because the war in Ukraine has sent natural gas prices soaring at times. Combined with uncertainty about whether there is enough

natural gas available, this has caused the demand for district heating to explode.

- In relation to Verdo’s district heating areas, the interest in district heating has been particularly overwhelming in Randers. But both Randers and Herning had record years in 2022 for Verdo Varme. A total of 1,265 new customers were connected, exceeding the ambitious goal of connecting 1,000 new customers during the year.

- Natural gas conversions in the Sdr. Borup and Alsvej industrial areas near Randers are close to completion. Over 110,000 square metres of commercial floor space were connected to district heating.

- Natural gas conversions in Over Hornbæk and Neder Hornbæk, on the outskirts of Randers, have also exceeded expectations. The goal for the year was to convert 250 houses. We were slightly behind this during Q1-Q3 2022. But a strong finish in Q4, with 190 conversions, put us far above the target. A total of 370 houses were converted from natural gas to district heating in these two areas alone.

In 2022, projects were also outlined for the conversion of two more towns near Randers: Romalt and Stevnstrup.

- In Herning, a natural gas conversion project was planned in 2022 for the industrial area at Taksvej. This is expected to be physically completed in 2023.

- A large remote meter reading project was also completed in Herning, under an EU tender. Most district heating meters were changed, and a radio network was established to collect data, making it possible to read all of Verdo’s 21,000 district heating meters remotely. The project is expected to be complete in mid-2023, and is currently on time and within budget.

- Plans were also made in 2022 for a large new heating plant at Gødstrup in Herning. The heating plant is necessary in order for Verdo to supply the many upcoming developments south of the new regional hospital in Gødstrup. The plant is expected to be built in 2023.

- There has been high security of supply and stable operation throughout 2022 in both Randers and Herning. District heating prices have also been lower for customers than the national average in both towns. Unfortunately, fuel prices soared at the end of 2022, leading to rising prices in 2023.

- There was a strong focus throughout the year in Verdo Varme on building an organisation to plan and implement the many district heating conversions in Randers. A major shortage of district heating project managers and soaring prices for pipe materials and earthmoving and welding contractors made it difficult to implement natural gas conversions and connect newly built houses at this time.

- Verdo has focused in 2022 on planning what the future heat supply should look like – both in Herning and Randers. The work is ongoing under the title ‘Energy of the future’. The existing CHP plants in both towns are expected to be phased out during 2034-2036. In collaboration with Verdo Produktion A/S, a working group is therefore analysing all known and future heating options. It aims to have a complete plan for phasing in the new green technologies that will produce the future district heating ready by 2025. Verdo Varme is negotiating with Ørsted in parallel about a change to the current collaboration, based on the heating contract we have with Ørsted until June 2034. We will seek to combine our desire to produce much of our future energy and district heating at our own renewable energy plants with a contract extension with Ørsted, whereby Herning CHP plant continues operation until 2044.

Water and Digital Supply

A desire for better customer service and more efficient workflows has led to a higher degree of digitalisation in supply operations in 2022. Digital projects that improve customer experiences are expected to gain momentum in 2023 and beyond.

- The framework for the digital infrastructure at Verdo was set in 2022. Models were devised, tested and systematised, and many employees underwent ‘Digital Masterclass’ training in collaboration with DI2X, so the organisation is equipped for its digital journey.

- Several digital projects were also launched during the year, including a project to improve customer service and better utilise district heating at the customer.

- In 2022, Verdo Vand A/S had a strong focus on finding a new spring site to replace the Oust Mølle spring, and a new waterworks to replace the Bunkedal and Østrup Skov waterworks. A permit has been granted to build a new waterworks east of Randers, and work will continue on the project in the coming years.

- An operating agreement has also been reached with Dronningborg Waterworks, and Verdo Vand A/S entered into a joint development project with AAU/Grundfos concerning solar cell and tank operation.

RATIOS: Energi & Forsyning

The table covers: Verdo Produktion A/S, Verdo Varme A/S, Verdo Herning A/S, Verdo Varme Herning A/S, Verdo Vand A/S, El-NET Kongerslev A/S and Verdo Forsyningsservice A/S.

Production

- 2022 saw extraordinarily high electricity prices, leading to high revenue and thus record earnings for Verdo Produktion A/S, which produces power at the CHP plant in Randers.

- There has been a strong focus throughout the year on security of supply (leading to more emergency planning) and on optimising electricity production and efficiency.

- The plant on Bronzevej in Randers was rebuilt in 2022 to also support a booster role, which will add to the heat supply southwest of the E45 motorway.

Trading

The Trading division has an ongoing focus on quality, sustainability and security of supply, and offers a broad range of fuels and biomass nationally, and coal and coke products on the global market. Customers are primarily dealers and industry and energy sector players who work professionally with heating and energy production.

- An unusual and historic year. That sums up 2022 for the Trading division. Economically, the division saw record advances on all parameters. Revenue, EBITDA and profit for the year all ended up significantly above budget expectations. The Trading division achieved its best earnings ever (since it was founded in 2003) at DKK 176 million after tax.

- The excellent result is primarily due to the Trading division’s ability to manoeuvre in a market experiencing major fluctuations in price, supply and demand. While demand for biomass declined during the year, trading in energy and industrial coal – primarily from the United States to Europe – did not lose momentum, contributing significantly to earnings. The majority of trade in the Trading division (around 60 per cent) consisted of industrial coal for industrial customers and the alloy industry – for steel and aluminium, and for further processing for use in solar cells, microchips etc.

- There were also several other developments in 2022. A new director, Peter Lønbro Lehm, was appointed in Trading, effective from 1 May. This also gave rise to a new organisation in Trading. This has allowed a stronger, sustained focus on ensuring better cohesion between Trading and its subsidiary, Carbon Partners. Process optimisation across companies and countries has been a major focal point. Efforts have been made to develop a stronger, common system landscape to support optimisation, automation and reporting. This work will continue in 2023.

- Trading has for many years bound itself and its suppliers to fulfil international requirements for sustainability, documentation and certifications. Trading set a new and more ambitious goal in 2022. A Code of Conduct was formulated for Carbon Partners and Verdo Trading, to ensure responsibility towards the climate, environment and people throughout the supply chain – from extraction to delivery. The new Code of Conduct will be introduced in the Trading division during 2023.

- Another key impact during the year was that Trading halted all trade with Russia on 2 March, following the outbreak of war against Ukraine. Instead of buying Russian fuel, Trading has successfully intensified sourcing work in regions like the Baltics, without compromising on certification requirements. Trading has built up stocks in Riga and Liepaja.

RATIOS: Trading

The table covers: Verdo Trading A/S and Carbon Partners AS (incl. subsidiary Carbon Partners Inc.)

- A well-developed sourcing network also made it possible to ship 32,000 tonnes of certified wood pellets to Denmark from USA. This was Trading’s largest shipment of wood pellets ever, and it was arranged in October to counter the increasing pressure on the wood pellet market in Denmark at the time. The strong sales and sourcing work is one reason why the financial statements for 2023 are expected to be positive. However, the historical result for 2022 is unlikely to be surpassed.

Energy

Verdo Energy establishes, operates and services all types of energy plants that contribute to the green transition, with a focus on the industrial market and utilities.

- Annual revenue has been impacted by the postponement of several orders. These include projects for Kvitebjørn Varme and Haslev Fjernvarme. The Kvitebjørn project was ultimately launched in late 2022, while the Haslev project is still delayed. Rising material prices and the Norwegian krone have also had a negative impact on earnings, as Verdo has several large projects in Norway. As a result, Verdo Energy had a loss of DKK 22 million after tax in 2022.

- 2022 has looked good in terms of orders. Verdo Energy has accepted orders valued at more than DKK 500 million. These include two large orders for ‘Waste to Energy’ facilities in Norway. These are a waste-fired boiler plant for Kvitebjørn Varme in Tromsø and a CHP plant for Senja Avfall in northern Norway. We have also won orders for biomass plants for Skive and Aabybro. We saw biomass plants make a strong comeback in 2022 due to rising gas prices. Right after the end of the financial year, we contracted with the Region of Southern Denmark to supply district cooling based on a heat pump for the new super hospital in Odense. The many new orders will be realised during 2023-2025.

- The Automation and Service & Industri business areas saw satisfactory growth in 2022. With the appointment of many new employees the current buildings in Storvorde have become too small. We are therefore planning the construction of a more modern new head office in Aalborg, where we will gather the employees from Storvorde along with those currently in Aalborg.

- Throughout Verdo Energy, we are working hard to introduce and better utilise digitalisation, so we can help make life easier for customers. Digitalisation must also contribute to streamlining and optimising the business.

- We now have a strong business and a foundation on which we can build future district heating solutions. Verdo will therefore be able to make a strong contribution to the green transition in Denmark, Northern Europe and Eastern Europe in the future. We have also won the orders we have assumed in the budget. Our expectations for Verdo Energy in 2023 are therefore very positive.

RATIOS: Energy

The table covers: Verdo Energy Systems A/S, Verdo Energy Systems GL ApS and Verdo Energy Systems Sp Z.o.o

Teknik

Verdo Teknik operates, maintains and renovates street lighting and traffic lights in many municipalities throughout Denmark. This makes us one of the Denmark’s largest players in the operation and maintenance of street lighting and traffic lights. We thereby contribute to traffic safety and increased accessibility, energy-efficient solutions that benefit the climate and environment, and security for citizens when we ensure that roads and streets are properly lit.

We also offer solutions in relation to speed displays, parking facilities, indoor and outdoor lighting, effect lighting, electrical contracts, technical property operation and service and energy optimisation.

- In 2022, Teknik continued to experience significant price increases averaging 10 per cent for materials and services from suppliers, due to the global shortage of resources and components in the wake of the COVID-19 pandemic – followed by rising commodity prices due to the war in Ukraine. This has affected all business areas in Teknik, but especially street lighting. Since Teknik and the sector overall, in the vast majority of cases, are bound by long contracts that typically run for 4-6 years with guaranteed fixed prices for customers, it has not been possible to demand an adjustment to the price of the services we provide corresponding to the material price increases we are experiencing. Rising energy prices have also led municipalities to spend less money on street lighting in the past year. This has impacted Verdo’s earnings, as we have not received the expected number of municipal projects. As a result of the above, Verdo Teknik had a loss of DKK 14 million after tax in 2022. Several initiatives have been launched to address this going forward, including new organisation, greater use of digitalisation and cost savings.

- Many of our projects deal with energy optimisation and reducing CO2 emissions. For example, we have partnered with the Danish Road Directorate (along with EDF Danmark A/S, Bravida Danmark A/S and Andel Lumen) to install new LED bulbs along government roads throughout Denmark. We have also won a number of new orders for operation and maintenance of street lighting and/or traffic lights, and delivery of traffic management systems for several municipalities.

- Regarding service of electrical installations, we have particularly focused on three large customers in Aarhus, but also regularly service many small and medium-sized customers. There has generally been a strong focus on energy optimisation, such as switching to LED lighting and intelligent control of lighting and ventilation. In the construction sector, we have worked with lighting projects in connection with the renovation and construction of over 600 homes and institutions.

RATIOS: Teknik

- Over the past year, we have focused even more on implementing digital solutions in Teknik to make it easier to be a customer at Verdo. Digitalisation must also contribute to streamlining and optimising the business.

- Even though municipalities are spending less on street lighting than before, we expect earnings in the Teknik division in 2023 to be close to budget.

Elsalg

- Many private and business customers came under great pressure in 2022 due to soaring electricity prices, especially in the second half of the year when the energy crisis was at its worst. Even though Verdo saw good growth in the number of new electricity customers in 2022 (both private and business customers), losses on debtors and changes in customer behaviour led to Elsalg ending with a loss in 2022 of DKK 11 million after tax.

- Changes in customer behaviour ended up being expensive for Elsalg. Many customers reacted to the high electricity prices by switching from fixed-price to variable-price products, where they could use power when it was cheapest. Elsalg also experienced a significant gap between attained prices and spot prices for a quarter, and a significant drop in consumption of electricity by customers during the autumn. Overall, this meant that too much electricity had been purchased, and at prices that were too high.

- A re-organisation was undertaken in Verdo in 2022, with the establishment of a Sales and Customer Centre, where sales and product development for electricity sales and charging stations were separated from Energi & Forsyning. Instead, a new unit was created where both large and small private and business electricity customers will be serviced. This provides a better framework for a range of integrated solutions, and will help ensure a strong foundation for development of the electricity customer business in the years ahead, and the possibility to later add new products and services, with electricity consumption as the core.

- Verdo’s charging station concept underwent a complete redesign in 2022. From Q1 2023, Verdo can now enter the market with a much more customer-oriented and competitive concept.

- There has also been a focus on developing a new partner strategy during the past year, so that Elsalg can offer additional and more relevant value-creating products to customers in the future.

Number of calls to the customer centre per day during the busiest weeks of 2022 (weeks 43 and 44): 6,200-6,800 calls/week – i.e. an average of 1,300 calls/day

A ‘normal’ week before the energy crisis: 200 calls/day (300 calls/day during busy weeks)

Number of customers in the queue at its worst: · over 100 customers (140-150)

Normal day: 2-8 customers in the queue

Response time for phone calls: Average waiting time: 55-75 min. (3-6 min. on a normal day)

During autumn 2022: Doubled the number of customer service staff

RATIOS: Elsalg

- Midtjysk Elhandel A/S was finally merged into Verdo Go Green A/S (Elsalg) in May 2022. All private and business electricity trading customers were thereby gathered in one place.

- The customer centre came under extreme pressure from customer enquiries due to the high electricity prices, especially in the second half of 2022. The customer centre had long response times on all channels, and also faced system challenges, for example with the self-service My Verdo app, for which the number of logins had markedly increased from a total of 177,000 in 2021 to 875,000 in 2022.

- Yet the customer centre managed to service a large number of customers by phone, email and chat, as well as via physical customer meetings throughout the year. At no time was the facility for customers to contact Verdo

The table covers: Verdo Go Green A/S (incl. Midtjysk Elhandel A/S, which was merged into Verdo Go Green A/S on 1 January 2022)

closed. The level of customer enquiries stabilised after the autumn and winter, but we are seeing new customer behaviour. The number of enquiries is generally higher than before the energy crisis, because customers have become more interested in their energy consumption and bills and are asking more questions. We need to be able to continue to handle this behaviour in the future. We are therefore looking to optimise our solutions in 2023, so we can provide the best possible advice to our customers and meet our goal of making it easy to be a customer at Verdo.

- The goal for 2023 is continued growth in sales to current customers and in the number of new customers. We also aim to introduce at least one new product to customers. The first new product will be the new concept for charging systems, to be launched in Q1 2023.

Summary of the Corporate Social Responsibility (CSR) Report

How Verdo exercised corporate social responsibility in 2022

2022 was a turbulent year for the world, and helped to underscore in many ways the importance of the ongoing work with social responsibility and to advance the green transition.

Verdo’s full statement on corporate social responsibility is available on our website, but you can read an excerpt of Verdo’s key results below.

We have compiled a brief summary of some of the key results of Verdo’s work with corporate social responsibility in 2022. The results are divided into ESG categories (Environment, Social and Governance).

Environment: Decrease in fossil fuel consumption 2022 was a balancing act for Verdo. We focused on maintaining a stable and cost-effective supply to customers, while also keeping up the pace of the green transition towards a more decentralised energy sector that is less vulnerable and less dependent on individual energy sources.

You can see some of the key results for Verdo in 2022:

Drop in consumption of oil, coal and gas: While the energy crisis pushed many energy and utility companies towards fossil fuels with a larger carbon footprint, Verdo’s CO2 emissions at Randers CHP plant were actually reduced by around 45 per cent in 2022. There are several reasons for this: Consumers saved both heat and electricity – aided by a mild autumn and with new behaviour patterns. Verdo’s biomass-fired CHP plant in Randers also had stable operation during the year. This meant there was no need to draw on Verdo’s three emergency load plants, which use fossil fuels. However, the picture was a little different in Herning. There was more downtime at Herning CHP plant in 2022 than in the previous year. It was therefore necessary to make more use of our reserve load plants, which run on oil and gas. This resulted in higher CO2e emissions per kWh.

• Many new district heating customers: The drop in CO2 emissions in Randers also happened in a year during which Verdo helped many new and large customers to connect to the district heating network. A total of 1,265 new customers were connected in Herning and Randers –in industrial and residential areas alike.

• Accelerating conversion of the vehicle fleet: A decision has been made to pursue a greener vehicle policy. We therefore have a strong focus on our vehicle fleet, and continually replace diesel and petrol vehicles with electric vehicles where this makes sense.

The full report

Verdo’s full report on social responsibility, as required under section 99a of the Danish Financial Statements Act, can be found in our Report on Corporate Social Responsibility for 2022 on our website here: www.verdo.com/dk/om-verdo/ økonomi/

Social: Social contract set the direction

Based on Verdo’s social contract, the organisation focused in 2022 on improving and preparing the company for the future labour market. We have worked with Verdo’s role as a workplace and as a player in the local area, and with preparing employees for the future labour market.

You can see some of the key social results for Verdo in 2022 below:

• Employee satisfaction: In September 2022, Verdo conducted a Pulse Survey which showed that overall job satisfaction and motivation among employees had risen from 5.80 to 5.86 (on a scale from 1 to 7). We had not defined a target score for 2022, but towards 2025, our goal is to raise the employee job satisfaction and motivation score to 6.

We also measured Verdo’s eNPS (Employee Net Promoter Score). The eNPS score was 10 in 2021, and the target was 25 by 2025. We already achieved an eNPS of 22 in 2022.

• Employee turnover above benchmark: Verdo’s employee turnover during the past year was 18.4 per cent, above the public sector benchmark of 15 per cent. Verdo’s goal for 2023 is employee turnover of no more than 15 per cent. Verdo wants to be an attractive workplace. This is why we established Verdo Academy in 2022, expanding employees’ opportunities for competency development.

• Space challenges are a high priority: WPAs have revealed that after a major increase in the number of employees, there are space challenges at our head office in Randers and the office in Storvorde. These challenges have high priority, and an architectural firm began to identify needs and opportunities in 2022.

Governance: Policy for responsible management in value chains

If Verdo is to achieve major sustainable development advances, this will require anchoring and leadership. It was thus a paradigm shift when Verdo’s policy for responsible management in our value chains took effect at the start of 2022. The policy is anchored in a steering committee in which Verdo’s top management is represented.

Some of Verdo’s other Governance results for 2022 are listed below:

Revised Code of Conduct: The new policy for responsible management also places new demands on our suppliers. The ambitious new requirements are expressed in Verdo’s Code of Conduct. This was revised in 2022 and is being rolled out in Verdo’s divisions.

No corruption among suppliers: We saw no examples of corruption and identified no human rights violations among our suppliers in 2022.

• No reports made to whistleblowing scheme: Employees can use our whistleblower scheme to report concerns about actual or suspected matters that could impact Verdo or the well-being of its employees. No reports were lodged via the whistleblower scheme in 2022.

Report on the underrepresented gender, in line with section 99b of the Danish Financial Statements Act

At Verdo, we believe that diversity in our workforce makes us better able to understand our customers and partners. However, as the figures show, Verdo still has some way to go. We therefore have a strong focus on improving the gender distribution in the company.

You can see some of Verdo’s key results in 2022 in relation to the underrepresented gender below:

• Continued shortage of female managers: The proportion of women in management positions at Verdo decreases the higher up the ranks we go. At the top management level, the proportion of women is only 13 per cent.

• More women on the Board of Representatives: The proportion of women on Verdo’s Board of Representatives rose from 20 to 25 per cent in 2022.

You can read Verdo’s full report on the underrepresented gender, as required under section 99b of the Danish Financial Statements Act, in our Report on Corporate Social Responsibility on our website here: www.verdo.com/dk/ om-verdo/ økonomi

See also the report on the company’s data ethics policy, as required under section 99d of the Danish Financial Statements Act, in our Report on Corporate Social Responsibility on our website here: www.verdo.com/dk/om-verdo/ økonomi

Verdo’s corporate social responsibility in figures

ESG reporting form

* We will set goals in 2023 based on the 2022 baseline.

** goal 2024

*** goal 2025

**** goal 2026

Note 1: We have used the GHG protocol to calculate our climate accounts. We have not included volatile emissions for 2022. We will work to identify these in 2023, and also restate the figures retrospectively for 2022.

Note 2: Verdo has purchased green power certificates equal to our total electricity consumption. We have therefore used an emission factor for electricity of 0 g CO2e per kWh for our market-based emissions.

Note 3: Biogenic CO2 emissions from the combustion of biofuels (e.g. biogas, bioethanol, biodiesel) are calculated outside scope 1, 2, and 3. Under the GHG protocol, emissions from combustion of biomass are considered to be net zero for scope 1 direct emissions, as the biomass absorbs CO2 during its growth phase equivalent to the amount released during combustion.

Note 4: Calculated as voluntary resignations + forced terminations (in FTEs) during the year in relation to FTEs employed on 1 January.

Note 5: Calculated as the number in relation to the number of hourly paid workers in the companies where we have apprentices/trainees.

Note 6: Counted at the end of 2022.

Note 7: eNPS (Employee Net Promoter Score) indicates whether an employee would recommend that others apply for a job at Verdo – on a scale from minus 100 to plus 100.

Note 8: Pulse Survey – job satisfaction and motivation among employees on a scale from 1 to 7.

Note 9: Counted at the end of 2022.

Note 10: Calculated for the number of working hours, but without taking overtime into account. The Danish Business Authority guidelines state that this must be counted as working time. We will calculate absence due to illness in line with the Danish Business Authority guidelines in 2023.

Note 11: Calculated as a percentage of all employees.

Note 12: Calculated as the difference between the average gross hourly earnings of male and female employees, as a percentage.

Note 13: Counted at the end of 2022.

Note 14: Counted at the end of 2022.

Note 15: Calculated as the percentage of strategic suppliers who have signed the Code of Conduct (strategic suppliers are defined as 80% of spending)

Note 16: Calculated as the percentage of employees with a purchasing role

Note 17: Calculated as a percentage of all board members. Percentage of women on the Supervisory Board excludes employee representatives

Note 18: Calculated as a percentage of the entire Board of Representatives

Note 19: Level 1 is managers and team leaders to whom employees report directly. The proportion of female managers here was unchanged from 2021.

Note 20: Level 2 is middle managers who report to level 3. The number of female middle managers at level 2 was unchanged in 2022 from 2021. The percentage change is therefore primarily because there were fewer middle managers at level 2 overall in 2022 than in 2021.

Note 21: Level 3 (division and support staff directors) is Verdo’s top management level. The number of female directors at level 3 is also unchanged from 2021. The percentage increase here is again due to a change in the total number of directors.

Note 22: Calculated based on CEO remuneration, excluding company car, compared to median employee salary.

Note 23: Calculated as number of reports.

Brief excerpts from Verdo’s sustainable development policy

Green transition

We are an active player in the green transition. We are therefore committed to developing and sharing knowledge, both internally and externally.

CO2 emissions

We monitor and record our CO2 emissions in order to continually lower them and reduce our climate impact.

Climate impact

We seek to reduce the company’s climate impact through effective eco-management and targeted efforts.

Apprentices and trainees

We educate for the future. We therefore strive to have a high proportion of apprentices and trainees that reflects Verdo’s needs and opportunities.

Equal opportunities

We strive to give all our employees the same career opportunities, irrespective of gender, age, ethnicity, religion, disability etc.

Attractive workplace

We strive to be a safe and healthy workplace, where current and future employees will thrive. Our OHS organisation works actively with concrete OHS initiatives.

Diversity

We strive to create an equal workplace, where male and female employees have the same opportunities for careers and management positions.

Seniors

We seek to meet the needs of our employees in different life stages and situations. We therefore strive to retain senior employees, in order to keep their experience and knowledge in the company for as long as possible.

Employment conditions

We offer employment and working conditions that comply with national legislation, and work to eliminate discrimination in the working and employment relationship. We also offer a fair wage that can provide a decent living.

Modern slavery

We do not tolerate human trafficking or modern slavery in any form. Employment relationships must be voluntary and based on mutual consent.

Corporate responsibility

We support and respect the 10 principles of the UN Global Compact for corporate responsibility, which provide an ethical and practical framework for corporate responsibility based on international agreements and conventions.

Human rights

We show respect for the universal human rights enshrined both in national legislation and international conventions. Including discrimination, forced labour, child labour, labour rights and several other factors.

Partners

We expect and demand that Verdo’s partners and suppliers meet the same standards as Verdo and other conventions.

Anti-corruption

We have a zero-tolerance policy towards corrupt or dishonest activities, and we refrain from any form of corruption or bribery – either direct or indirect.

Data protection

We respect and comply with applicable data protection legislation – including GDPR.

Local communities

We are involved in our local communities, and seek to contribute as much as possible. In particular, by creating an attractive foundation for a diverse and growing business community.

Social contract – Employees

A community that promotes growth

At Verdo, we have a clear aim of continuing to attract, develop and retain the right competencies in an attractive working environment. We have therefore elevated this area to a strategic focus area in the business. We also launched our three new values in 2022 – Together, Responsible and Ambitious. These are the cornerstones of Verdo’s internal and external identity. They will help guide us towards continuing to be a value-based company in 2025.

It is particularly our daily actions and efforts in the workplace, large and small, that make Verdo a good workplace with a community that promotes growth.

We create the framework for this through the many opportunities for professional and personal development in Verdo Academy and initiatives such as Verdo Awards, where we recognise the employees who advance the community and lead by example. Initiatives such as these are supported by our many social events throughout the year. You can read more about this on the following pages.

At Verdo, our approach to performing our daily work duties reflects great commitment and a desire to make a difference. We therefore have many employees who lead by example in relation to leadership, innovation and performance. We recognise these special efforts every year in December at Verdo Awards, where Verdo’s Group Management presents awards to three talented employees at one of our dialogue meetings. Prior to the awards, employees have the opportunity to nominate candidates for the Innovation Award and Performance Award. Group Management then selects the winners from among the nominees. It is solely Group Management that nominates and selects the candidates for the Leadership Award.

The winners are...

Winner of the 2022 Leadership Award: Martin Hørup Basse, Head of Procurement and Logistics

Winner of the 2022 Innovation Award: Andrew James Standen, Quality Manager, Energy

Winner of the 2022 Performance Award: Mette Brandt, Bioenergy Manager, Trading

Each winner received a diploma and a small monetary award.

Talented employees recognised at Verdo Awards

Employees involved at dialogue meetings

The best path to well-being is through constructive dialogue and giving timely information to all employees. In line with this principle, CEO Jakob Flyvbjerg Christensen holds regular dialogue meetings for employees, where he reports on the latest initiatives throughout the Group and responds to questions submitted by employees beforehand.

The dialogue meetings are held physically at the head office on Agerskellet, and employees from other locations can participate via livestream on Teams. The meetings are also recorded and translated into English, so our international employees have the opportunity to be involved and receive the same information.

ComeTogether brought employees together in Horsens

In June, more than 200 employees from all over Denmark gathered in Horsens for ‘ComeTogether’, our large employee get-together, which was held in the lovely rustic setting of FÆNGSLET.

It was an eventful day, starting with lunch and a presentation of our new values by CEO Jakob Flyvbjerg Christensen. Then people were put into groups to complete various tasks around FÆNGSLET, leading up to the Great Escape, where everyone (as far as we know) got out.

The programme, the atmospheric setting and the jovial, active and eager employees contributed to a memorable day at Verdo, where our value ‘Together’ clearly shone through.

Greater focus on employee development with Verdo Academy

At Verdo, we give high priority to employee development. Verdo Academy is a key element in this, where we have gathered all courses and training for both employees and managers. One of the courses we offer is the Basic Management course, where our external instructors teach participants about leadership behaviour, translating strategy into practice and value-based management over six full days.

The course is expected to be offered once a year in collaboration with Erhvervsakademi Dania, one the local educational institutions in Randers. It culminates with an accredited exam with an external examiner and grants eligibility for 10 ECTS credits. We held the course twice in 2022, in spring and autumn, and a total of 20 employees passed.

It is also worth highlighting the Verdo Academy’s project management course, where we add to each participant’s professional toolbox, so they are better equipped to plan, organise, manage and quality assure a project – from idea to completion. This helps increase collaboration, communication and efficiency, in the project and in Verdo overall.

The course, which is offered via Ledernes Kompetencecenter, also culminates with an accredited exam with an external examiner and grants eligibility for 10 ECTS credits.

Twenty employees completed the project management course in 2022, marking the fourth group to do so.

Social contract – customers

It should be easy to be a customer at Verdo

It should be easy to be a customer at Verdo. This is our ultimate promise to our customers through Verdo’s social contract. We therefore make an effort to understand and meet our customers’ needs. It is also vital to us that the relationship is based on decency and trust.

The energy crisis led to uncertainty and insecurity throughout much of 2022, and placed even greater demands on us as an energy company to fulfil our promise of making life easy for our customers.

We therefore launched a number of initiatives focusing on clear communication about how the energy crisis was playing out and its impact on customers. One of the initiatives was online dialogue meetings on events in the electricity market for electricity customers around Denmark, with the aim of reducing uncertainty. A greater focus on Verdo’s customer communication throughout also resonated positively among customers.

District heating plays a key role in the phase-out of natural gas and the global break with Russian gas in particular. We therefore intensified the roll-out of district heating in 2022, so even more people can enjoy easy, cheap and green heating.

You can read about all this on the following pages.

Verdo’s customer service – how can I help you?

This sentence was spoken thousands of times in 2022. Far more than usual. Our customer service was extraordinarily busy in 2022 – just like our colleagues in the utility sector all around Denmark.

The energy and supply crisis created great uncertainty among customers, and most found it difficult to work out which electricity agreement was the best at the time. This resulted in lots of calls to our customer service.

At times, our capable colleagues fielded almost 7,000 calls a day. If we compare this to an ordinary day before the energy crisis, calls averaged 300 a day.

For the whole of 2022 there were over 100,000 calls, compared to around 70,000 calls in 2021. The many calls also meant waiting time on the phone. Customers sometimes had to hold for over an hour. Fortunately, the waiting time is markedly shorter on an average day.

In addition to employing more staff in customer service to help our customers in the best possible way, our customer service colleagues took on extra hours during the busy periods, often in the evenings. 2022 may have been extraordinarily busy, but our customer service responded with extraordinary service.

Upgrading

smart meters in Herning

Varme Herning has teamed up with Herning Vand. Verdo will pay a fee to use Herning Vand’s network to transport data from smart heating meters. The agreement will help both utilities keep costs down. Herning Varme can thereby use existing networks, while helping private customers to easily have their meters read remotely.

Many of the existing heating meters in Herning and the surrounding area can already be read remotely, but since the current system is being replaced, it is necessary to replace or upgrade the existing meters.

The project will run well into 2023, and be done in collaboration with Kamstrup. Verdo and Herning Vand will collaborate more closely on digitalisation and sustainability in the local area in the future, to improve the customer experience and make life easier for customers using digital solutions.

Randers companies gain huge CO2 benefit

While the media often focuses on the roll-out of district heating to private customers, Verdo launched a major project in the Haslund and Sdr. Borup commercial areas south of Randers in 2022. By replacing natural gas with district heating, several companies are seeing huge CO2 and cost reductions.

In order to realise the project, the motorway was crossed twice using horizontal directional drilling. This made it possible to run 100 metres of district heating pipeline under the motorway.

One of the companies that decided to replace natural gas with district heating is Saint-Gobain/Brødrene Dahl, which has a nationwide distribution centre on Alsvej. The company has achieved annual savings of 360 tonnes of CO2 and several hundred thousand kroner, and has a goal of reducing CO2 emissions by 70 per cent by 2030. The dramatic savings made it an easy decision notes Lasse Halliday, the company’s Logistics Director.

“It was an obvious thing to do. The investment will be quickly recovered, and the conversion makes a major contribution to achieving our 2030 goals,” explains Lasse Halliday, referring to the company’s goal of reducing CO2 emissions by 70 per cent by 2030.

Lasse Halliday sees the district heating roll-out as a classic example of how companies can help each other in the green transition.

“This is the way we need to go, and we can do it together in a way that works. I’m therefore very pleased that the other companies out here helped increase demand, and that Verdo was ready to act on it,” says Lasse Halliday.

Karsten Randrup, District Heating Manager at Verdo, reports that district heating was rolled out to the first commercial customers in Haslund and Sdr. Borup in 2022, with a combined floor space of approx. 70,000 square metres.

Up to 150,000 square metres is expected to be converted in the area during 2023. The total CO2 savings will then amount to around 1,900 tonnes annually.

“We are seeing huge interest from companies in the area. They want to get away from fossil energy, and they can save money at the same time, so the conversions in Haslund and Sdr. Borup will really make a difference,” says Karsten Randrup.

Online dialogue meetings offer electricity market update

At Verdo, we constantly strive to make it easy to be a customer, and it was particularly demanding to fulfil this goal as a utility company during the energy crisis.

When the energy crisis hit, interest in the electricity market and prices exploded. People were suddenly far more aware of their electricity consumption. We found that many – private consumers and companies alike – were unsure of their options and about the approaching winter.

We decide to do something about this, and began holding separate online dialogue meetings in October 2022 for private consumers and for businesses. The meetings were not just for our own customers, but for any utility customers around Denmark who were interested.

The dialogue meeting for private consumers was held via Facebook, and hosted by Mikkel Pugholm Horvath, Customer Manager, and Henrik Bach Pedersen, Sales and Customer Manager for Elsalg. They answered the questions that were typically being raised with employees in customer service. They also talked about the reasons for the sharp price increases, walked through a typical electricity bill and explained the various items and terms, and informed people about the option of freezing parts of their electricity bill.

The dialogue meeting for businesses was held in close collaboration with Centrica Energy Trading. We reported on trends in the electricity market and expectations looking ahead. We also reviewed the possible actions companies could take, purchasing strategy, hedging and security.

Both dialogue meeting forums sought to reduce uncertainty among utility customers.

What do you when you have to keep your ice arena cold, despite record electricity prices?

For the Herning Blue Fox ice hockey club, the answer was simple. They ordered a health check of the club’s energy consumption – and this turned out to be a good idea.

Through dialogue and sparring, Herning Blue Fox and Verdo jointly identified several parameters where the club could save markedly on energy consumption. The club also signed a ‘Match’ agreement with Verdo. The Match agreement locks 50 per cent of the club’s energy consumption at a fixed market price, while the other half is tied to the spot price –i.e. a variable price that follows the market. This ensures a competitive electricity price for Herning Blue Fox whether the market goes up or down. In the market that unfolded in 2022, it turned out to be a very good decision to lock in half of consumption at a fixed price.

“We have received a lot of good input from Verdo. About how we can lower our energy consumption and ensure the best prices,” says Torben Skovsgaard, CEO of Herning Blue Fox.

The Match agreement includes green power – as the CEO is quick to point out. The club has a strong focus on the green transition and reducing its climate footprint.

Verdo already sponsors the ice hockey club, and now also supplies the club’s green electricity.

Secure supply in a time of crisis

Verdo Trading received its largest ever delivery of wood pellets in 2022. The record-breaking shipment helped secure heating throughout the winter in Danish homes that use wood pellets as fuel. When vessel ‘Sider Athena’ docked in the Port of Aarhus on 4 October 2022, it marked the largest delivery of wood pellets to date for Verdo Trading.

The ship came from North America, and had been called to Denmark after a period of wood pellet hoarding and soaring fuel prices. Like the rest of Denmark, the around 100,000 Danish households that use wood pellets were hit hard by the energy crisis. The wood pellet market was under strain, and there was great uncertainty at the time whether there would be enough wood pellets for everyone to keep warm during the winter.

Verdo Trading was therefore very pleased they were able to contribute significantly to security of supply.

‘Sider Athena’ had 32,241 tonnes of wood pellets on board when it arrived in Aarhus. This corresponds to the annual consumption of about 4,000 households. From the Port of Aarhus, the wood pellets were transported to Danish warehouses.

The delivery showed that Verdo is capable of handling even the largest operations in the sector. The deliveries Verdo typically receives under normal circumstances are 8-10 times smaller.

The delivery showed that Verdo is capable of handling even the largest operations in the sector. From the Port of Aarhus, the wood pellets were transported to Danish warehouses by four smaller ships and 64 trucks, which made 558 trips in all.

The deliveries Verdo typically receives under normal circumstances are 8-10 times smaller.

Verdo previously imported wood pellets from Russia. These imports were halted when the war against Ukraine broke out in early 2022.

A good match on several parameters

Social contract – society

Society plays a key role in everything Verdo does

Verdo’s mission is to operate and develop sustainable critical infrastructure for the benefit of customers and future society. As a purpose-driven company, Verdo’s aim is to give back and contribute to the development of our local communities.

This is clearly reflected in our social contract, which is a reciprocal obligation between Verdo and the community around us. We are committed to giving back and contributing to the development of our local communities, creating a good foundation for a vibrant, growing business community, and developing and sharing knowledge and supporting sustainable transition projects.

Verdo is involved in the local community in various ways. In 2022, we supported local sports clubs and cultural life through sponsorships, and we are involved in, and often organise, customer-oriented events. We also arrange meetings for networking and knowledge sharing in collaboration with local businesses in Herning and Randers, and we participate actively in sustainable initiatives, such as FSC Denmark’s efforts to promote sustainable forestry management.

Read more about this on the following pages.

Association pool gave out DKK 800,000 to local associations

As part of our social contract, we established an ‘association pool’ in autumn 2022. Non-commercial local associations, clubs and organisations can apply to the pool for grants of up to DKK 20,000 for purposes of their own choosing.

Like the rest of society, associations have been hard pressed, first due to COVID-19 lockdowns and then high inflation. The association pool was set up in recognition of the great importance of the associations in bringing the local community together.

To ensure the best possible selection, an external assessment committee consisting of Mette Bertelsen, Head of the Event Secretariat in Randers Municipality, Axel Præstmark, Editor-in-chief of Randers Amtsavis and Thea Lyng Thomsen, CEO of Sustainable Herning, decided which associations would receive support.

The association pool made grants in response to 44 of the 160 applications from passionate organisers in local associations. Special weight was given to the social commitment of the associations, and the grants were divided equally between associations in Randers and Herning.

Grants were given to such diverse recipients as Dansk Folkehjælp, Dansk Blindesamfund, FDF Kibæk, Den Blå Paraply, DokoCon, Dronningborg Boldklub Fodbold, Frivilligcenter Herning, Giv Julen Mening, Lind Plejecenters Vennekreds, Mad til Herning, Randers Bob & Skeleton, Randers Freja Kidz, Vi Løber i Randers, and many, many others.

We look forward to following the many associations in 2023 and seeing the difference that the association pool makes to local communities.

Verdo sponsors:

The Randers FC, Viborg FF and FC Midtjylland football clubs

• The Herning Blue Fox and Aalborg Pirates ice hockey clubs

• The Randers Cimbria basketball club

• The HC Midtjylland, Herning Forenede Håndboldklubber (HFH) and Randers HK handball clubs

The Harbour Challenge obstacle course event

• Værket, Randers Teater, Randers Festival and Randers Rainforest (cultural institutions)

Verdo supports sport and culture

For Verdo, sponsorship is not just about writing a cheque for a club or association. We seek active collaboration through our sponsorships, where both Verdo and the club – and club members – get value from the partnership in the form of good experiences, for example in connection with match sponsorships or events for club members. We also seek to participate in the clubs’ business networks, in order to create and build relationships.

We added a number of new sponsorships to the list in 2022. Each organisation we sponsor contributes to building the community. Our sponsorships therefore include a large number of sports clubs and cultural institutions. We also regularly support charitable causes.

Free foyer concerts at Værket

Verdo already sponsors Værket, a music and theatre centre, but in 2022 we entered into another agreement specifically aimed at Værket’s free foyer concerts. This means that local Randers residents and anyone else who is interested can enjoy a series of free music experiences. In addition to the financial support, Verdo attended one of the December foyer concerts, where we gave out pancake balls, biscuits and a hot drink to the around 200 attendees.

Oust Mølle Rock

We also decided to support Oust Mølle Rock last year. The aim of the event is to give students in kindergarten to year 5 a festive end to the school year and build a sense of community across all schools in Randers Municipality. Oust Mølle school, a special school project with a focus on improving students’ well-being, also seeks to raise awareness of the school’s activities.

Verdo had a stand where students could taste water from our waterworks, score a global goal and fold their own cootie catcher featuring global-goal messages.

Randers Festival 2022

Verdo has sponsored Randers Festival for many years, and 2022 was no exception. After two tough years of COVID-19 and not much festivity in the streets, we decided to make a special effort for last year’s festivities and organised events together with one of the other clubs we sponsor – Randers FC. We also had a stall in the centre of town offering various family activities related to water and inspiration on how we can all take care of our groundwater.

Harbour Challenge

In recent years, we have supported the Harbour Challenge OCR race, held in the Randers Harbour area. Each year, around 1,100 participants tackle over 50 fun, difficult and entertaining obstacles, spread over a seven-kilometre course in and around the harbour basin.

Verdo is involved as a race sponsor and as part of the route (entrants have to climb the large wood chip pile at the CHP plant), and also has a stand at the start and finish area, where we have given out water and snacks to the hardy participants. Employees have also participated in the race several times.

Viborg FF

We signed a sponsorship agreement with the Viborg FF super league club in 2022. We did this in part because Viborg is a strategically important town for Verdo. We want to help drive the green transition in the town, primarily by offering green power and charging stations.

The sponsorship agreement with Viborg FF gives us great visibility and a local presence. We get to share in the club’s important efforts to involve Viborg’s children and youth in various sustainable initiatives – with a special focus on helping vulnerable children and youth. We also get the opportunity jointly with Viborg FF to launch local initiatives with the aim of creating and advancing green energy.

Global Goals Festival

On 29 April 2022, Randers Municipality and Randers Cityforening hosted the inaugural Global Goals Festival to celebrate the UN’s 17 sustainable development goals.

The festival draws attention to the kind of development our world needs. Development where we make better use of our resources and have fewer and greener impacts. This is precisely aligned with Verdo’s core business. We were therefore quick to accept the invitation and host a stand in one of the town squares.

We presented the global goals in a way children could relate to here, and sought to answer their important question: “What’s this ‘sustainability stuff’ adults keep talking about?”.

It is a big question. And it is important that our children get an answer. One that gives them hope for the future, an understanding of our joint responsibility and a desire to help make a perhaps small, but important, difference.

At our stand at the Global Goals Festival, children were able to taste water from various spring sites and waterworks while we talked about why it is important to take care of our groundwater and what they can do to help. The children competed with football players from Randers FC to score global goals, while talking about how they each score global goals in daily life. The children also tried their luck on our global goal raffle wheel. A wheel packed with questions about our climate and planet.

Thank you to Randers Municipality and Randers Cityforening for a well-planned and meaningful festival that drew attention to better and wiser use of our resources, so we together make a better impact.

Together for Herning

In September 2022, Verdo and Bæredygtig Herning jointly invited local businesses to the ‘Together for Herning’ network meeting, with the theme: ‘How can we together make Herning Denmark’s most sustainable municipality?’

Sustainable development is a high priority in Herning Municipality, which has set the ambitious goal of being climate-neutral by 2050. Many Herning companies are already well underway, and over 100 people took part in the event. We had assembled an exciting guest panel which eagerly and inspiringly discussed the day’s theme together with the participants.

On the panel were:

Dorte West, Mayor of Herning Municipality

Jakob Flyvbjerg Christensen, CEO of Verdo

• Torben Skovsgaard, CEO of Herning Blue Fox

• Morten Dilling, CEO of DILLING

• Steffen Max Høgh, CEO of Bæredygtig Business, moderated the panel debate

For Verdo and Bæredygtig Herning, the aim of the event was to promote inspiration, knowledge and collaboration, so that Herning businesses can all help each other create the development needed to further accelerate the green transition.

“To achieve the goal of a sustainable transition in society, we need to promote collaboration where we can inspire each other and advance the agenda together. Working with sustainability is so complex that no single company or organisation can ever reach the goal alone, but when we meet to address the challenges and share knowledge, we can turbocharge the process,” said Thea Lyng Thomsen, CEO of Bæredygtig Herning, in connection with the event.

Social contract – partners

Building long-term relationships is key

We have a responsibility as a company towards the green transition, but we cannot fulfil this alone. At Verdo, we recognise the importance of forming strong strategic partnerships. This is why the fourth strand of our social contract is ‘Partners’, cementing the fact that we take this responsibility seriously.

Common to all our partnerships – regardless of size, economic scope and strategic anchoring – is that building longterm relationships is key. We believe this only happens when we are transparent and flexible in our work with our partners. But we also set the bar high, and make demands regarding competitiveness, deliveries and working conditions. Only when we are jointly ambitious on these parameters can we deliver solutions that make a real difference.

A common theme of our partnerships is to address challenges tied to the green transition.

For example, we teamed up with Herning Blue Fox and Bæredygtig Herning to create the Bæredygtig Business network for players in the Herning area. The focus is to work together to acquire greater knowledge about sustainability, the green transition and the circular economy. Together with Aalborg University, we are working on using solar cells in water utility operations to achieve energy savings at waterworks in Denmark.

Read about these and other initiatives on the following pages.

Sustainable business network

In 2022, Verdo teamed up with Bæredygtig Herning and Herning Blue Fox to establish the Bæredygtig Business network in Herning. The purpose of the sustainable business network is to acquire greater knowledge about sustainability, the green transition and the circular economy. All interested companies in the Herning area can participate in the network, and eight network meetings are currently planned, through until summer 2023.

The meetings are held at local companies that have a special approach, knowledge or case relevant to the meeting topic. All meetings are professionally facilitated in collaboration with talented speakers, and time is always allocated for networking.

Verdo has facilitated its own network meetings in both Randers and Herning in parallel. Knowledge and networks are key elements for any company seeking to develop, and this is especially true in relation to the green transition.

Verdo provides Herning’s first charging hotspot

Good partnerships can create synergies that benefit the local community. This was proven once again when Verdo and Herning Blue Fox jointly unveiled Herning’s first charging hotspot in June 2022 in the parking lot at Kvik Hockey Arena – Blue Fox’s home ground.

The opening was marked with festivities in Herning Blue Fox’s car park, and speeches from Jakob Flyvbjerg Christensen, CEO of Verdo, and Dorte West, Mayor of Herning.

The partnership is based on Herning Blue Fox’s attitude that it is not only the battles on the ice that are worth fighting. The same is true outside the rink, where the ice hockey club is taking responsibility for the green transition under its ‘blue goes green’ motto. This commitment is in line with Verdo’s vision to engage with the local community, so we can together be a green step ahead.

The charging hotspot in Herning is a good example of how we best succeed when we work together to make the right impact on the future.

Fact box:

The new hotspot features a 100 kW rapid charger, where you can fully charge your car in just 20-30 minutes. There are also three 22 KW charging stations with a total of six outlets. The charging stations are available for public use, and can be used by anyone who lives in Herning or is just passing through.

Verdo expects the charging stations to supply around 65,000 kWh annually to approx. 1,900 motorists. Preparations have already been made for another rapid charger, which can be installed when demand has increased.

Verdo presented at the Danish District Heating Association 2022 national conference

We met together with our sector peers when the Danish District Heating Association once again hosted its national conference. This is the biggest event of the year in the Danish district heating sector.

The days at Tivoli Congress Centre in Copenhagen offered exciting discussions with our peers about the future energy supply and how we can together accelerate towards a green Denmark, which was also the topic for this year’s conference.

It was a national conference in the shadow of the energy crisis. In 2022, the war in Europe put strain on security of supply, and that demands action.

Our answer was ‘combined technologies’. This was therefore also the overarching theme at Verdo’s stand, where we had exciting discussions with visitors about how to create a multi-pronged system based on different energy sources that talk to each other. And how combined technologies reduce dependence on one type of fuel, while increasing the efficiency of each plant. For the benefit of the climate and customers.

Verdo’s Head of Water and Digital Supply also took to the TECH stage at the national conference, and spoke about the first year of digital transformation in Verdo’s utility division. A transformation with a focus on the customer experience and efficiency. And a year of organisation, collaboration and learning.

Verdo Vand Verdo and Flexvirk

In 2022, Verdo partnered with the Flexvirk social enterprise, which offers various services on an hourly basis and under normal market conditions. Flexvirk offers a wide range of services, from cleaning and gardening to bookkeeping and warehousing.

Verdo has two atrium courtyards, which cannot be accessed by large garden machines. Verdo has therefore hired Flexvirk to take care of these. Flexvirk provides a worker to do the gardening and maintenance in the green area. Flexvirk also provides the HR management for this worker in relation to salary and sick leave.

The partnership is a win for both parties. Verdo is keen to support local initiatives that assist people on the fringe of the labour market, where these also offer value. For Flexvirk, the partnership allows them to give even more people on the fringe of the labour market the opportunity to be part of a safe working community, and thus a pathway back to the labour market.

More solar

cell

projects

at

Verdo Vand has partnered with Aalborg University on using solar cells in water utility operations. The primary goal is to optimise production such that water is extracted and distributed when the sun is shining. This will lead to marked energy savings for the waterworks.

The collaboration is based around a PhD project, for which Verdo has made a pipe network model available to Aalborg University. The model contains information about pipe locations, sizes and materials for our entire distribution network. This is being used by the university to develop algorithms that can optimise production.

The project began at the start of 2022 and will run until 2024.

Based on the motto that many small green steps also add up to a sustainable impact on the future, Verdo Vand installed LPS battery generators in the vehicles of its drinking water installers in 2022. They provide power for a full working day and replace the petrol generators previously used for welding work, etc. This takes us one step closer to phasing out fossil fuels.

Financial statements

Management’s statement

The Supervisory Board and the Executive Board have today considered and approved the annual report of Verdo A/S for the financial year 1 January - 31 December 2022.

The annual report has been presented in accordance with the Danish Financial Statements Act.

In our opinion, the consolidated financial statements and the financial statements give a true and fair view of the Group’s and the company’s assets, liabilities and financial position as at 31

December 2022 and of the results of the Group’s and the company’s activities and the consolidated cash flows for the financial year 1 January - 31 December 2022.

There are material uncertainties in recognition and measurement regarding factors in some subsidiaries. This leads to corresponding uncertainty when recognising and measuring in the consolidated financial statements and the parent company. Please refer to note 1.

The annual report is hereby submitted for approval by the Board of Representatives.

Randers, 3 May 2023

Jakob Flyvbjerg Christensen

Kenneth R. H. Jeppesen CFO

Torben Høeg Bonde Chairman

Finn Skaarup Andersen Deputy Chairman

Peter Nowack

Jan Guldmann

Peter Kjærsgaard

Pia Maach-Møller

Finn Enoch Stengel Petersen

Niels Rasmussen

Bo Bach Svoldgaard

Keld Christensen

Ronnie Siegumfeldt Andersen Employee representative

Stine Brøgger Thygesen Employee representative

Dines Velling Johansen

Martin Rubæk Employee representative

Executive Board

Supervisory Board

CEO

Employee representative

Accounting policies

The annual report of Verdo a.m.b.a. for 2022 is presented in accordance with the Danish Financial Statements Act for large enterprises in reporting class C.

The accounting policies have been applied consistently with last year.

The financial statements for 2022 are presented in DKK ‘000.

General Recognition and measurement

Income is recognised in the income statement as earned. In addition, all costs incurred to generate the earnings for the year are recognised in the income statement, including depreciation, amortisation and provisions as well as reversals due to changed accounting estimates of amounts previously recognised in the income statement.

Assets are recognised in the balance sheet when it is probable that future economic benefits will flow to the Group and the parent company, and the value of the assets can be measured reliably.

Liabilities are recognised in the balance sheet when it is probable that future economic benefits will flow out of the Group and the parent company, and the value of the liabilities can be measured reliably.

On initial recognition, assets and liabilities are measured at cost. Subsequently, assets and liabilities are measured as described for each item below.

Certain financial assets and liabilities are measured at amortised cost, applying a constant effective interest rate until maturity. Amortised cost is calculated as original cost less any repayments and with addition/deduction of the cumulative amortisation of the difference between cost and the nominal amount. This means that any capital losses and gains are distributed across the time to maturity.

On recognition and measurement, account is taken of predictable losses and risks arising prior to the presentation of the annual report and proving or disproving conditions existing on the balance sheet date.

Principles of consolidation

The consolidated financial statements comprise the parent company Verdo a.m.b.a. as well as enterprises in which the parent company directly or indirectly holds more than 50% of the voting rights, or in which the parent company through shareholdings or otherwise has a controlling interest.

On consolidation, items of a similar nature are combined. All intercompany income and expenses, shareholdings, dividends and balances as well as realised and unrealised internal gains and losses from transactions between the consolidated enterprises are fully eliminated on consolidation.

The parent company’s equity investments in the consolidated subsidiaries are eliminated against the parent company’s share of the equity value of the subsidiaries calculated at the time of establishment of the affiliation.

Minority interests

Minority interests form part of the Group’s total equity. In the distribution of the profit for the year, the profit is divided into the portion attributable to minority interests and the portion attributable to the parent company’s shareholders. Minority interests are recognised at the carrying amount of the acquired assets and liabilities at the time of acquisition of subsidiaries.

Revenue caps

Some of the consolidated companies are subject to the special revenue cap rules applying under the Danish acts on electricity, water and heat regulation. Under these rules, any surplus income or deficit, calculated as the profit/loss for the year under the Danish acts on the supply of electricity, natural gas and heat relative to the tariffs charged, must be transferred back or charged to consumers through reduced or increased tariffs in the year following the year giving rise to the surplus income or deficit. Surplus income or deficit is therefore recognised in revenue. Under the rules of the Danish acts on the supply of electricity, natural gas and heat, any accumulated surplus income or deficit must be recognised in the balance sheet as payables to or receivables from customers.

Leases

Leases under which the company assumes substantially all risks and rewards of ownership (finance leases) are recognised in the balance sheet at the lower of the fair value of the asset and the present value of the lease payments, calculated on the basis of the internal rate of interest of the lease or an alternative borrowing rate as the discount rate. Assets held under finance leases are depreciated and impaired applying the principles determined for the Group’s and the parent company’s other property, plant and equipment.

The capitalised residual lease obligation is recognised in the balance sheet as a liability, and the interest element of the lease payment is charged to the income statement on a continuing basis.

Foreign currency translation

Transactions in foreign currencies are translated using the exchange rates applicable at the transaction date. Exchange differences arising between the transaction date and the date of payment are recognised in the income statement as a financial item.

Receivables, payables and other monetary items in foreign currencies which have not been settled at the balance sheet date are measured using the foreign exchange rates applicable at the balance sheet date. The difference between the exchange rate applicable at the balance sheet date and the exchange rate applicable at the date on which the receivable or payable occurred is recognised in the income statement under financial income and expenses.

Derivative financial instruments

Derivative financial instruments are initially recognised in the balance sheet at cost and subsequently measured at fair value. Positive and negative fair values of derivative financial instruments are classified as ‘Other receivables’ or ‘Other payables’.

Changes in the fair value of derivative financial instruments are recognised in the income statement, unless the derivative financial instrument is classified as and fulfils the criteria for hedge accounting, see below.

Hedge accounting

Changes in the fair value of financial instruments classified as and fulfilling the criteria for hedging the fair value of a recognised asset or liability are recognised in the income statement together with any changes in the fair value of the hedged asset or liability attributable to the hedged risk.

Changes in the fair value of financial instruments classified as and fulfilling the criteria for hedging expected future transactions are recognised in equity under retained earnings with respect to the effective portion of the hedge. The ineffective portion is recognised in the income statement. If the hedged transaction results in an asset or a liability, the amount deferred in equity is transferred from equity and recognised in the cost of the asset or liability. If the hedged transaction results in an income or an expense, the amount deferred in equity is transferred from equity to the income statement for the period in which the hedged transaction is recognised. The amount is recognised in the same item as the hedged transaction.

Segment information on revenue

Information on activities and geographical segments is based on the Group’s returns and risks based on the internal financial management.

Income statement Revenue

The Group’s revenue comprises revenue from the sale of goods and services relating to trading in fuel and technical carbon, the production of heat and electricity, goods and services relating to infrastructure (electricity, water, heat and fibre) as well as contract work relating to electricity, street lighting and energy plants.

Income from the sale of goods and services is recognised as revenue when benefits and risks relating to the goods and services sold are passed to the buyer, the revenue can be measured reliably, and it is probable that the economic benefits of the sale will flow to the company.

Contract work in progress (construction contracts) is recognised in step with the performance of the work, whereby revenue corresponds to the selling price of the work performed during the year (percentage of completion method). This method is used when total revenue and costs associated with the construction contract and the stage of completion can be measured reliably at the balance sheet date, and it is probable that the economic benefits, including payments, will flow to the Group and the parent company. The stage of completion is calculated on the basis of costs incurred relative to the expected total costs of the construction contract.

Investment grants to cover the Group’s investments in distribution systems are accrued over the depreciation period of the investment and are recognised in revenue.

Revenue is measured as the consideration received and recognised exclusive of VAT and net of discounts relating to sales.

Other operating income

Other operating income comprises gains on the sale of intangible assets and property, plant and equipment as well as proceeds from the sale of activities.

Work performed on own account listed under assets

Work performed on own account includes direct wages and indirect production costs (IPO) incurred for the full or partial construction of own systems listed under assets.

Costs of raw materials, consumables and auxiliary materials

Costs comprise direct and indirect costs of sales for the purchase of raw materials and auxiliary materials, including delivery costs, handling and services purchased.

Other external expenses

Other external expenses comprise expenses associated with the maintenance of installations, the disposal of waste, the running of vehicles, marketing, premises and administrative expenses.

Employee expenses

Employee expenses comprise wages and salaries, including holiday pay and pensions, as well as other social security costs etc. for the Group’s and the parent company’s employees. Employee expenses are less compensation received from public authorities.

Depreciation, amortisation and impairment losses

Depreciation, amortisation and impairment losses comprise ordinary depreciation, amortisation and impairment of intangible assets and property, plant and equipment.

Other operating expenses

Other operating expenses comprise losses on the sale or scrapping of intangible assets and property, plant and equipment.

Income from equity investments in subsidiaries

In the income statement, the proportionate share of profit/loss for the year is recognised under ‘Income from equity investments in subsidiaries’. Moreover, the annual adjustment of earn-out from the acquisition of enterprises is recognised under ‘Value adjustment of earn-out’ as well as losses and gains on the divestment of subsidiaries.

Value adjustment of earn-out

Value adjustment of earn-out includes the annual adjustment of conditional purchase fees that will not fall due for payment.

Income from other equity investments

Losses/gains on the divestment of equity investments are recognised in the income statement as the difference between the selling price and the carrying amount.

Financial income and expenses

Financial income and expenses are recognised in the income statement as the amounts relating to the financial year.

Income tax

The parent company is covered by the rules on compulsory joint taxation of the Verdo Group’s Danish subsidiaries, in addition to which the Group has chosen to be taxed according to the rules on international joint taxation. The subsidiaries are included in the joint taxation from the time of their inclusion in the consolidation of the consolidated financial statements and up until the time when they are excluded from consolidation.

The parent company is the administration company and thus handles all payments of income taxes to the tax authorities on behalf of the jointly taxed companies.

Current Danish income tax is distributed through the payment of joint taxation contributions by the jointly taxed companies in proportion to their taxable incomes. In this connection, companies posting tax losses receive joint taxation contributions from enterprises that have been able to use such losses to reduce their own taxable profit.

Tax on profit/loss for the year consists of current tax and changes in deferred tax and is recognised in the income statement with the portion attributable to the profit/loss for the year, and directly in equity with the portion attributable to amounts recognised directly in equity.

Profit/loss from discontinuing operations

All income statement items related to discontinuing operations decided before the presentation of the annual report are recognised on a separate line in the income statement.

Balance sheet

Intangible assets

Goodwill

Acquired goodwill is measured at cost less accumulated amortisation. Goodwill is amortised on a straight-line basis over the useful life of the asset, which is an estimated 7-20 years. The amortisation period is based on the expected payback period.

Development projects

Development projects that are clearly defined and identifiable, and where the technical feasibility of the projects, sufficient resources and a potential future market or scope for development can be demonstrated, and where the intention is to produce, market or use the projects, are recognised as intangible assets. Moreover, it is a precondition that the cost can be measured reliably and that there is sufficient certainty that future earnings can cover production, selling and administrative expenses as well as development costs in step with the costs being incurred.

Development costs recognised in the balance sheet are measured at cost less accumulated amortisation and impairment losses. After completion of the development work, development costs are amortised on a straight-line basis over an estimated useful life of 3-5 years.

Property, plant and equipment

Property, plant and equipment is measured at cost on initial recognition. Operating equipment is subsequently measured at cost less accumulated depreciation. Land is not depreciated.

The cost of self-constructed assets includes the acquisition price and costs directly attributable to the acquisition, including purchase costs and indirect costs of labour, materials, components and subcontractors until the time when the asset is ready to be put into operation.

The depreciation base, which is the cost less any residual value, is distributed on a straight-line basis over the expected useful lives of the assets, which are:

Distribution systems and installations, and meters

Buildings

CHP plant and peak-load stations

Operating equipment

10-60 years

20-100 years

5-30 years

3-15 years

Depreciation periods and residual values are reassessed annually.

Impairment of property, plant and equipment and intangible assets

The carrying amounts of property, plant and equipment and intangible assets are assessed annually for indications of impairment over and above any depreciation and amortisation. If impairment is ascertained, the carrying amount is written down to the lower recoverable amount.

Equity investments in subsidiaries

Equity investments in subsidiaries are recognised and measured according to the equity method.

In the balance sheet, the proportionate share of the enterprises’ equity value is recognised under ‘Equity investments in subsidiaries’, based on the fair value of identifiable net assets at the time of acquisition less or plus unrealised intercompany profits or losses and with the addition of the residual value of any added value and goodwill calculated at the time of the acquisition of the enterprises.

As part of the distribution of profit, the total net revaluation of equity investments in subsidiaries is transferred to ‘Net revaluation reserve according to the equity method’ under equity. The reserve is reduced by dividend distributed to the parent company and adjusted for other changes in equity in subsidiaries.

Subsidiaries with a negative equity value are recognised at DKK 0. If the parent company has a legal or constructive obligation to cover the enterprise’s negative balance, a provision is recognised.

Other financial assets

Equity investments which are not traded in an active market are measured at the lower of cost and recoverable amount.

Long-term other receivables comprise loans for IT investments together with other electricity distribution companies.

Inventories

Inventories are measured at the lower of cost according to the FIFO method and net realisable value.

The net realisable value of inventories is the amount expected to be generated by a sale in the process of normal operations with deduction of selling expenses. The net realisable value is determined allowing for marketability, obsolescence and development in expected sales sum.

Cost includes the cost price plus delivery costs.

Trade receivables and Other receivables

In the balance sheet, receivables are measured at the lower of amortised cost and net realisable value, which usually corresponds to nominal value less provisions for bad debts.

Construction contracts

Construction contracts are measured at the selling price of the work performed based on stage of completion. The stage of completion is determined as the proportion of contract costs incurred relative to the expected total costs of the contract. When it is probable that total contract costs will exceed total revenue from a contract, the expected loss is recognised in the income statement.

When the selling price cannot be determined reliably, the selling price is measured as the lower of costs incurred and net realisable value. Payments received on account are deducted from the selling price. Individual contracts are classified as receivables when the net value is positive, and as liabilities when the net value is negative.

Costs in connection with sales work and securing contracts are recognised in the income statement as incurred.

Receivables from and payables to group enterprises

Intercompany balances comprise both outstanding intercompany trade in goods and services and the companies’ share of the Group’s cash-pool agreement with credit institution as well as the internal settlement of current income tax.

Deferred tax

Deferred tax is measured under the balance-sheet liability method on the basis of all temporary differences between the carrying amount and tax base of assets and liabilities, calculated on the basis of the planned use of the asset or the settlement of the liability, respectively.

Deferred tax assets are measured at the value at which they are expected to be realised, either through elimination in tax on future earnings or through offsetting against deferred tax liabilities within the same legal tax entity.

Deferred tax is measured on the basis of the tax rules and tax rates which, under the legislation in force at the balance sheet date, will apply when the deferred tax is expected to crystallise as current tax.

Prepayments

Prepayments recognised under assets include prepaid operating expenses.

Cash

Cash includes deposits with credit institutions.

Equity

Revaluation reserves from the revaluation of property, plant and equipment are realised in step with the depreciation of the revalued assets.

Dividend proposed by management for the financial year is shown as a separate item under equity.

Other provisions

Other provisions include expected costs of the warranty commitment as well as other charges etc. Other provisions are recognised when, as a result of past events, the Group has a legal or factual obligation and it is likely that the fulfilment of the obligation results in an outflow of financial resources from the Group or the parent company.

Liabilities

Defined-benefit pension obligations are recognised in the balance sheet on the basis of the calculation by actuaries of the obligations and the fair values of the related pension assets. Actuarial gains and losses arise from changes in the actuarial assumptions, including demographic and macroeconomic conditions, and are recognised directly in equity. Pension costs recognised in the income statement consist of costs for pensions for the financial year, calculated interest expenses and returns on the associated pension assets.

Investment grants to cover the Group’s investments in distribution systems are expensed over a 40 to 60-year period from receipt of such grants, corresponding to the depreciation period for the Group’s property, plant and equipment.

Mortgage loans and other long-term loans are recognised initially at the proceeds received, net of transaction costs. In subsequent periods, the loans are measured at amortised cost, so that the difference between the proceeds and the nominal value is recognised in the income statement as an interest expense over the term of the loan.

Trade payables and Other payables are measured at amortised cost, substantially corresponding to nominal value.

Deferred income

Deferred income recognised under liabilities consists of payments received relating to income in the following financial years.

Cash flow statement

No cash flow statement has been prepared for the parent company as the parent company’s cash flows are included in the consolidated cash flow statement.

The cash flow statement shows the consolidated cash flows for the year broken down into cash flows from operating, investing and financing activities, changes in cash and cash equivalents as well as the Group’s cash and cash equivalents at the beginning and end of the year.

Cash flow from operating activities comprises the net profit/loss for the year adjusted for changes in working capital and non-cash income statement items such as depreciation, amortisation and impairment losses as well as provisions. Working capital comprises current assets less current liabilities and excluding items included in cash and cash equivalents.

Cash flow from investing activities comprises cash flows from the purchase and sale of intangible assets, property, plant and equipment and financial assets.

Cash flow from financing activities comprises cash flows from the raising and repayment of long-term debt as well as incoming and outgoing payments to and from shareholders.

Cash and cash equivalents consist of deposits and operating credit facilities with credit institutions.

Ratios

The ratios are calculated in accordance with the Danish Finance Society’s recommendations.

Gross margin

EBITDA margin

Financial gearing (debt/EBITDA)

Return on equity

Solvency ratio

Definitions

Gross profit/loss * 100 Revenue

EBITDA * 100 Revenue

Net interest-bearing debt

EBITDA

Profit/loss from ordinary activities after tax * 100 Average equity

Equity at year-end * 100 Total assets

Gross profit is revenue less direct costs. Net interest-bearing debt is interest-bearing liabilities less interest-bearing assets.

STATEMENT OF CHANGES IN EQUITY

OF CHANGES IN EQUITY (cont.)

STATEMENT OF CHANGES IN EQUITY

PARENT COMPANY

The cash flow statement cannot be derived directly from the consolidated financial statements.

1. UNCERTAINTY REGARDING RECOGNITION AND MEASUREMENT Group:

Return on invested capital in the 2000-2009 period

In 2021, while the Group’s production company was investigating similar matters back in the 2010-2017 period, indications were found that Verdo Produktion A/S had recognised a return on invested capital of up to DKK 69 million during the 2000-2009 period. It has not been possible to identify a direct legal basis for recognising this return, and discussions have therefore been initiated with the Danish Utility Regulator concerning the matter.

Discussions have continued during 2022, but it is still not possible to know when these will be completed. Verdo Produktion A/S has therefore continued to recognise a provision corresponding to the entire return identified.

Interest on external credit union loans

The Group received questions from the Danish Utility Regulator in 2022 regarding the inclusion of interest in price demonstrations in the Group’s production company. The discussions concern interest on loans taken out by Verdo Produktion A/S with external credit institutions, as a result of a change in practice in the calculation of interest in the price demonstration in 2018.

The Group deems that the change in the practice of Verdo Produktion A/S is correct, and the interest can be seen as a necessary cost and thus included in the share of heat production. At this stage, it is not possible to assess the potential accounting implications or when the discussions are expected to be concluded.

This has therefore not been recognised.

Output model

The Danish Utility Regulator contacted the Group in 2021 about the sector’s usual method for allocating costs between electricity production and heat production – the ‘output model’.

The Group is still in dialogue with the Danish Utility Regulator about the use of the model. At present, it is not possible to assess whether this enquiry may result in financial consequences for the Group.

Parent company

Recognition of unresolved cases from the Danish Utility Regulator in Verdo subsidiaries

The recognition of equity investments in the parent company is subject to material uncertainty. The uncertainty relates to the recognition of decisions of the Danish Utility Regulator in the subsidiary Verdo Produktion A/S, which affects the value of the equity investments.

Further details can be found in the section on material uncertainty regarding recognition and measurement in the Group.

2. EVENTS AFTER THE REPORTING PERIOD

The war in Ukraine has continued since the end of the year, and there are currently no indications as to when it will end. This has led to greater volatility in both market prices and interest rates than we have seen for many years, and this is set to continue. There is consensus that interest rates will be generally higher than in previous years, and this will affect the Group’s credit arrangements.

However, Verdo is in a strong position to handle these fluctuations. The financial leverage (ratio of earnings to interest-bearing

debt) is significantly lower than in previous years, and the debt is generally decreasing. Financial leverage of 0.4 is very satisfactory and far below our target.

After the end of the financial year, we saw a marked drop in energy prices – particularly electricity, gas and wood pellets – while wood chips continue to trade at high prices. This had a big impact on earnings in the first months of 2023, when it was necessary to sell some products at a loss.

In 2022, the Group had the following special items which have a material impact on the annual report: In two of the Group’s companies, Verdo Produktion A/S and Verdo Varme A/S, provisions of DKK 8.9 million and DKK 56.1 million, respectively, have been

made with reference to the resolved case with the Danish Utility Regulator concerning taxes collected in connection with the previously resolved cases concerning unauthorised interest on start-up capital.

The profit/loss of the parent company is affected by the same items; however, the provision affects profit/loss from equity investments instead. The special items also affect equity, which as at 31 December 2022 amounted to DKK 907,293,000, and which without the special items would amount to

4. REVENUE

Segment information is provided about the Group’s activities and geographical markets. The information is based on the Group’s accounting policies, risks and internal financial management.

Adjustment concerning previous years concerns the Group’s heat supply activities.

5. OTHER OPERATING INCOME AND EXPENSES

Income from and expenses associated with the sale of intangible assets and property, plant and equipment are described in further detail in notes 14 and 15.

6. OTHER EXTERNAL EXPENSES (excerpts)

appointed by the annual general meeting:

refer to the remuneration report available at www.verdo.com/dk/om-verdo/økonomi.

constituted by the following main figures:

The Group’s telecommunications company, Verdo Tele A/S, and thus the Group’s telecommunications services business, was divested in Q2 2022. The wind-down of the Group’s activity in the UK was also completed in Q2 2022. The profit/loss from discontinuing activities is presented on a separate line in the income statement as ‘Net profit/loss from discontinuing operations for the year’.

14. INTANGIBLE ASSETS

plants transferred from property, plant

Reasons for the amortisation periods for goodwill and development projects:

Verdo Energy Systems A/S / Carbon Partners AS:

The investment in subsidiaries will be of strategic importance to the Group for many years to come. In the next few years, the subsidiaries’ activities within technical coal and energy systems are expected to increase in terms of both revenue and earnings, and based on these expectations, the economic life of the assets is determined to be 10 years.

Verdo Varme Herning A/S:

The investment in the subsidiary is considered to be of strategic importance to the Group’s heat supply activities in Denmark, and, together with group synergies, the company is expected to have a long-term value.

Against this background and the expectations for the coming years, the economic life is determined to be 20 years. Other:

Other investments in goodwill are individually assessed in terms of their earnings potential and have a recognised value of DKK 7 million. They are amortised on the basis of an economic life of 7-10 years.

Development projects:

Investments in development are amortised over the economic life of the assets based on the period of 3-5 years in which the projects are expected to contribute to increased activity and earnings.

15. PROPERTY, PLANT AND EQUIPMENT GROUP

OTHER RECEIVABLES (long-term)

Other receivables include loans. The loans carry interest at a market rate.

CONSTRUCTION CONTRACTS

18.

19.

At the end of 2022, the Group had recognised tax assets of DKK 103,172,000. The management believes that taxable income will be generated in the coming years which can utilise the timing differences in depreciation and amortisation.

At the end of 2022, the Group had non-recognised deferred tax assets of DKK 342,149,000 that management does not expect to be able to utilise in the coming years.

The elimination of deferred tax assets is expected to take place over a number of years as the timing differences primarily relate to assets with a long time horizon. Also, the timing will depend on the size of future investments.

21. NON-CURRENT LIABILITIES

‘Other’ covers pension obligations, surplus income in water supply and accrued investment grants. Pension obligations are recognised in the income statement in step with the disbursement of pensions. The short-term share of credit institutions of DKK 18,044,000 is recognised in the credit institutions item under current liabilities. The remainder of this item consists of bank debt.

20. DEFERRED TAX

The warranty commitment is reduced concurrently with the expiry of the warranties provided on delivered services. Other provisions include cases involving public authorities which have not yet been decided.

Property has been pledged as collateral for mortgages from mortgage credit institutions, of which the outstanding debt as at 31 December 2022 constitutes DKK

As at 31 December 2022, the carrying amount of the pledge is DKK 318,820,000. As at 31 December 2022, the carrying amount of assets held under finance leases is DKK 15,773,000.

Guarantees include both ordinary builders’ guarantees and also guarantees in respect of pension obligations to public servants as well as parent company guarantees to suppliers.

23.

22. DANISH HEAT SUPPLY ACT

25. CONTRACTUAL OBLIGATIONS AND CONTINGENCIES

The Group’s lease commitments total DKK 5,773,000, of which DKK 0 million falls due after five years.

For 2022, the Group’s trading company has entered into significant contracts on the purchase of fuel and freight to cover already concluded and expected future contracts on the sale of fuel.

The Group’s electricity trading company has entered into fixed-price contracts for 2022 with the company’s end-customers, and to hedge the price risk associated with these, financial electricity purchase contracts have been entered into in conjunction with agreements on the physical delivery of electricity. Furthermore,

financial purchase contracts have been entered into to hedge future price risks associated with the ‘KvartalsEl’ product. The fair value of these contracts is recognised directly in equity with a loss of DKK 72,099,000 before tax.

Demolition obligation

The Group is under an obligation to demolish the Randers Kraftvarmeværk (KVR) CHP plant and to clean up the site at the Port of Randers. Uncertainty surrounds the time frame as well as the scope of the obligation, and the demolition is not expected to lead to a material draw on the company’s resources. The amount is therefore not recognised in the balance sheet.

26. RELATED PARTIES

No party has a controlling interest in the company.

As of 1 January 2022, Verdo Teknik A/S has transferred all the company’s activities in the ‘Verdo Charge’ charging station concept to the Group’s electricity trading

company, Verdo Go Green A/S. The transfer of the activity was based on book values and coverage of previous years’ start-up costs.

All other related-party transactions are carried out on an arm’s-length basis.

27. INTEREST RATE RISKS AND USE OF FINANCIAL INSTRUMENTS

The company uses interest rate swaps to hedge recognised and non-recognised transactions. In this way, variable interest payments are converted into fixed interest payments.

The hedged cash flows will be realised on an ongoing basis and will affect the results in the coming years and until the expiry of the interest rate swaps. The terms of the swaps are primarily aligned with the long-term cash flows which they hedge.

28. DISTRIBUTION OF NET PROFIT/LOSS

To the shareholders of Verdo a.m.b.a.

Conclusion

In our opinion, the consolidated financial statements and the financial statements give a true and fair view of the Group’s and the company’s assets, liabilities and financial position as at 31 December 2022 and of the results of the Group’s and the company’s activities and the consolidated cash flows for the financial year 1 January - 31 December 2022 in accordance with the Danish Financial Statements Act.

We have audited the consolidated financial statements and the financial statements of Verdo a.m.b.a. for the financial year 1 January - 31 December 2022 comprising the income statement, balance sheet, statement of changes in equity and notes, including accounting policies, for the Group and the company as well as the consolidated cash flow statement (‘the financial statements’).

Basis of opinion

We conducted our audit in accordance with International Standards on Auditing and additional requirements applicable in Denmark. Our responsibilities under those standards and requirements are further described in the ‘Auditor’s responsibilities for the audit of the financial statements’ section of the auditor’s report. We are independent of the company in accordance with the International Ethics Standards Board for Accountants’ Code of Ethics for Professional Accountants (IESBA Code) and the other ethical requirements that are relevant to our audit of the financial statements in Denmark. We have also fulfilled our other ethical responsibilities in accordance with these requirements and the IESBA Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Emphasis of matter

We draw attention to note 1 of the financial statements, which describes the uncertainty that exists within the Group regarding the recognition of return on invested capital, inclusion of interest and the output model.

We draw attention to note 1 of the financial statements, which describes the uncertainty surrounding the recognition of equity investments in the parent company.

Our opinion is not qualified in respect of this matter.

Statement on the management commentary

The management is responsible for the management commentary.

Our opinion on the financial statements does not include the management commentary, and we do not express any form of opinion on the management commentary.

In connection with our audit of the financial statements, it is our responsibility to read the management commentary and in this connection consider whether the management commentary is materially inconsistent with the financial statements or the knowledge we have obtained during our audit, or in any other way appears to be materially misstated.

Furthermore, it is our responsibility to consider whether the management commentary contains the information required under the Danish Financial Statements Act.

Based on the work performed, we believe that the management commentary is in accordance with the financial statements and has been prepared in accordance with the provisions of the Danish Financial Statements Act. We have not detected any material misstatement in the management commentary.

Management’s responsibilities for the financial statements

The management is responsible for the preparation of consolidated financial statements and financial statements that give a true and fair view in accordance with the Danish Financial Statements Act. The management is also responsible for such internal control as the management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, the management is responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to continuing as a going concern and using the going concern basis of accounting unless the management either intends to liquidate the Group or the company or to cease operations, or has no realistic alternative but to do so.

Auditor’s responsibilities for the audit of the financial statements

Our aim is to obtain reasonable assurance that the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report with an opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with International Standards on Auditing and the additional requirements applicable in Denmark will always detect a material misstatement when it exists.

Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the financial decisions of users taken on the basis of these financial statements.

As part of an audit conducted in accordance with International Standards on Auditing and the additional requirements applicable in Denmark, we exercise professional judgment and maintain professional scepticism throughout the audit. We also:

Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain 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 override of internal control.

Obtain 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 Group’s and the company’s internal control.

Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the management.

· Conclude on the appropriateness of the management’s use of the going concern basis of accounting in its preparation of the financial statements and, based on the audit evidence obtained, on whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s and 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. However, future events or conditions may cause the Group and the company to cease to continue as a going concern.

Evaluate the overall presentation, structure and content of the financial statements, including the disclosures in the notes, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

Obtain sufficient and appropriate audit evidence regarding the financial information on the enterprises or business activities within the Group for the purpose of expressing an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We are solely responsible for our audit opinion.

We communicate with those charged with governance 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.

Aarhus, 3 May 2023 PricewaterhouseCoopers Statsautoriseret Revisionspartnerselskab

CVR no. 33 77 12 31

Claus Dalager

State-Authorised Public Accountant

State-Authorised Public Accountant

MNE-NO.: mne26745

Kristian Kjær Jensen

MNE-NO.: mne35627

Company information

Verdo a.m.b.a. Agerskellet 7 8920 Randers NV, Denmark

E: info@verdo.com

T: +45 7010 0230 W: verdo.com

CVR no.: 25 48 19 68

Certifications

Licence code: FSC® C125676

Licence code: PEFC/09-31-131

Production

Edited by: Verdo Holding A/S

Print run: 250

Photos: Colourbox, Jakob Lerche, Bo Janting

Production: Printed on FSC® and Swanlabelled paper at an FSC® and Swan-certified printing house.

Paper: Munken Polar