Verdo annual report 2012

Annual Report

2012

Contents group & strategy Foreword

4

Executive and Supervisory boards

6

The Group’s financial highlights

8

Management interview

10

Strategy 3i13

12

Group chart

13

CSR – focus areas

14

Annual reports Finance

20

Verdo Generation

22

Verdo Renewables

23

Verdo Trading

24

Profit and loss statement

26

Balance sheet

27

Cash flow statement

29

Verdo A/S Verdo is determined to be the greenest, most efficient energy provider in Denmark. Our ambition is to develop the most profitable solutions within production and supply of green energy, at home and abroad.

Verdo produces and distributes electricity, water and heat. We also have highly competitive products within telephony and internet, plumbing and sanitation, energy consultancy, alarms and security, plus the production and sale of biofuels in Denmark and the UK. The group also has activities in Norway and the USA. Our approximately 500 employees are responsible for an annual turnover of around DKK 2.4 billion.

2

Annual Report 2012

Annual Report 2012

3

Foreword

group Foreword ChArt

it makes seNse to combiNe ouR WellcoNsolidated base iN RaNdeRs With aN iNteRNatioNal outlook aNd focus oN GReeN eNeRGy

Record earnings in a difficult market Turnover of DKK 2.4 billion, EBITDA of DKK 260 million and pre-tax profit of DKK 61 million made 2012 a record year, in which Verdo once again increased its top and bottom line in a market in crisis. Even though there were problems during the course of the year, most of our divisions achieved good results, which is highly satisfactory.

This scope of success shows that it makes sense to combine our well-consolidated base in Randers with an international outlook and focus on green energy. Our dealings in biomass abroad have helped us maintain low prices for electricity, water and heat for our customers.

Strict controls have meant that we have now been able to maintain our district heating price for four years, and either been able to reduce or maintain prices for water and electricity, which makes us an exception in Denmark.

Focus on green energy means that we protect jobs, and in the long-term, will create even more. Growth in a difficult market also shows that there are commercial gains to be made from responsible conduct, clear vision and well-defined values.

One of the highlights of the year for Verdo Trading was the arrival of the first consignment of biomass from Ghana. Even though one consignment unfortunately caused an unpleasant smell (since eliminated), seeing the first ship sail in after months of preparation was a proud moment. We increased earnings from trading in fuels for the year as a whole.

2012 was the year when Verdo Generation took over the Grenaa CHP plant, and finally achieved 100% incineration of biomass fuel at our plant in Randers. Verdo

4

AnnuAl report 2012

Energy took Verdo Randers Electricity network to the top of the annual table comparing the efficiency and supply security of Danish electricity companies, and we experienced an increase in the number of new customers from industry.

Verdo Telecom enjoyed significant growth in the sales of fibre networks, and Verdo Contracting experienced a boom in installations of solar cell panels, primarily on the private market.

Verdo Renewables is gradually getting back on track after the fire in 2011, even though there are still problems, and results have not been satisfactory.

Prospects do however look better for 2013.

kim frimer CEO

søren fischer Chairman of the Board

We expect continued growth for Verdo in 2013. The energy market continues to be more competitive, and the motto seems to be 'grow or be left behind'. That's why we will concentrate on continued growth in green solutions, internationalisation, rationalisation and customer focus. Our goal is to be one of the absolute leaders within Danish energy – with a solid base in Randers.

AnnuAl report 2012

5

SuperVISory BoArd 2012

SuperVISory BoArd 2012

board 2012 After General Assembly and Board elections in 2010, the current Board consists of: tom bøttern hansen Employee Representative, Service Manager

ejvind clemmensen Vice-Chairman

bent hede Attorney

søren sørensen Director

henrik Gade brendborg Employee Representative, Area Manager arne erikslev Insurance broker

erik busk Jensen Managing Director

pia maach møller HR Director Niels Rasmussen Factory Manager Jan holst Employee Representative, Area Manager

kim frimer CEO camilla dam Rasmussen Employee Representative, Service Engineer

søren fischer Chairman of the Board

MAnAgeMent'S report

6

The Executive and Supervisory Boards have today considered and adopted the annual report for 1 January - 31 December 2012 for Verdo A/S. The annual report is presented in accordance with the Danish Financial Statements Act. In our opinion, the consolidated accounts and annual accounts give a true and fair view of the group's and company's assets, liabilities and financial position as at 31 December 2012, and of the result of the group's and company's activities and the group's cash flow for the fiscal year of 1 January - 31 December 2012.

AnnuAl report 2012

AnnuAl report 2012

7

The Group's financial highlights

The Group’s Financial Highlights

FINANCIAL AND OPERATING DATA

Amounts in TDKK Net turnover Index EBITDA Index

KEY FIGURES

2012

2011

2010

2009

2008

2,429,995

2,283,435

1,547,767

1,386,247

1,563,519

155

146

99

89

100

260,123

238,344

227,851

175,504

161,076

161

148

141

109

100

Amounts in TDKK

2012

2011

2010

2009

2008

Gross margin ratio

24,4%

23,9%

32,3%

31,3%

26,5%

EBITDA margin

10,7%

10,4%

14,7%

12,7%

10,3%

4.9

5.3

5.8

7.4

6.6

Financial gearing Return on equity Solvency ratio

Operating profit or loss Index Result of net financials Index Pre-tax profit Index Profit for the year Index

121,427

108,099

107,647

80,936

81,540

149

133

132

99

100

-60,043

-52,896

-64,240

-38,667

-18,622

322

284

345

208

100

61,384

55,203

43,407

42,269

62,918

98

88

69

67

100

42,978

51,942

43,011

39,853

57,262

75

91

75

70

100

Gross margin ratio

Balance sheet

Index Investment in tangible assets Index Equity Index

3,312,918

3,336,465

3,122,692

2,983,539

2,771,731

120

120

113

108

100

144,345

163,618

243,832

273,464

616,995

23

27

40

44

100

1,256,609

1,257,146

1,266,077

1,229,863

1,152,591

109

109

110

107

100

Liquidity

4.1%

3.4%

3.3%

5.1%

37.7%

40.5%

41.2%

41.6%

Calculation of key figures Key figures have been calculated according to the recommendations of the Danish Society of Financial Analysts:

EBITDA margin

Total assets

3.4% 37.9%

Financial gearing (debt/EBITDA)

Return on equity

Solvency ratio

Gross profit x 100 Net turnover EBITDA x 100 Net turnover Net interest-bearing debt EBITDA Income from ordinary activities after tax x 100 Average equity Equity at year end x 100 Total assets

Definitions:

Net cash flow from: Operations

109,996

250,436

239,691

72,008

87,971

Investments

-86,640

-174,355

-244,622

-270,448

-611,595

Financing

-41,090

372,999

-35,380

158,634

109,735

The year's effect on cash flow

-17,734

449,080

-40,311

-39,806

-413,889

Gross profit is the net turnover with direct expenses deducted.

EBITDA is Earnings Before Interest, Taxation, Depreciation and Amortization is the result before depreciation.

Net interest-bearing debt is interest-bearing liabilities with the deduction of interest-bearing assets.

8

Annual Report 2012

Annual Report 2012

9

Management interview

Management interview

is good business Verdo's CEO Kim Frimer looks back on a year, which with an EBITDA of DKK 260 million and pre-tax profit of DKK 61 million, was yet another financial record result in a time of crisis and difficult market conditions. But most of all, he will remember it as the year when everything went green.

"2012 was definitely Verdo's 'greenest ever'. We increased incineration with biomass fuel at our plant in Randers from 98 to 100%, and we now run exclusively on biomass. We received the first deliveries of wood chips by ship from Ghana, and installation of solar cell panels really took off. We also cemented our position as one of Europe's leading distributors of biomass," states Frimer.

Good business The reason for green success according to Frimer, is that Verdo does not go in for green energy for the sake of being politically correct. It also has to make good business sense. Verdo is also gearing up within alternative forms of energy, because the world's stocks of fossil fuels are limited. That's why sustainability is an important theme.

"Our import of wood chips from Ghana is an excellent example of how we think green at Verdo. Verdo's use of African wood chips from rubber trees is not only good business, but good for the environment. Rubber production is exhausted, and the trees are therefore no further use for their original purpose. They are chipped and shipped to Denmark. One of their best features is that they release a lot less carbon than coal when burned. We can thus combine good business with sustainability," says Frimer.

No price rises Revenue generated, including that from trading in biomass, meant that Verdo was able to maintain or even reduce prices to the customer for heating and electricity at a time when energy costs are rising, and many competitors are putting their prices up. The price of heat has even been held for four years in a row.

"The profit from our foreign trading in biomass helps keep supply prices steady, and even reduced in some cases for our local customers in Randers, Hobro and

10

Annual Report 2012

Hillerød. Having activities which supplement the classic utilities supply business provide us with a big advantage, and contribute to earnings and jobs," adds Frimer.

Green heat in Grenaa Verdo's interest in green energy is on the rise.

The company bought the Grenaa CHP plant in 2012, and Verdo also boosted the sale of solar cell panel installations to businesses and the public sector, and intensified the sale of heat pumps and wood pellet boilers.

"Our plan is to focus and become even better at what we are good at. We have a particularly high degree of expertise in solar cell panels and biomass. We intend to intensify our international trading in biomass over the next few years, including considering the idea of opening our own Asian office, and bolstering distribution in Italy," explains Frimer.

No wind energy On the other hand, wind energy is not a field the group intends to explore any further.

"Our mission is to create green energy, but that does not mean that we have to have the entire range. So wind energy is not something we intend to specialise in. On the other hand, we are looking into long-term potential with Verdo Hydrogen, in terms of generating green energy solutions. 2012 was a challenging year for Verdo Renewables, whereas 2013 already holds more promise," concludes Frimer.

Apart from continued focus on green solutions, 2013 will see more rationalisation, customer focus and increased sales. The group-wide IT-based Work Smarter project is designed to increase efficiency and the quality of internal processes, and another project has been launched to create a more customer-oriented culture.

We combine good business with sustainability

Annual Report 2012

11

Strategy visions

Deploying values We believe it is important that all our employees are aware of Verdo's objectives and 3i13 strategy - and to get there, it is essential that we all pull together. That's why Verdo must be a value-oriented enterprise, in which we work together to reach our common goal. Our values are important for the choices we make now and in the future.

We create green energy Central Jutland Electricity Supply A/S

Mission We will create profitable organic growth, through

• Satisfied customers • Sales and efficiency

verdo S/I

verdo A/S

12

Annual Report 2012

Verdo Hydrogen A/S Carbon Partners AS Norway

Carbon Partners Inc. USA

Verdo Energy A/S

MJ Commodities A/S

Organic Fuel Technology A/S 15.36%

Values

• Respect & trust • Customer focus • Efficiency • Courage • Loyalty

Verdo Randers Electricity Network A/S

Verdo Randers Electricity Utilities A/S

Verdo Hillerød Electricity Network A/S

Verdo Hillerød Electricity Utilities A/S

Verdo Water Holding A/S

Verdo Water A/S

Verdo Heating A/S

CONTRACTS

They are the reason why we made an extra effort in 2012 to ensure that our employees are totally familiar with them. We want our values to mean something to each and every employee, and not just be something on a piece of paper. And to reach our objectives in the years to come, we need to focus in particular on the value we call 'Customer Focus'.

vision

TRADING

Strategy with clear objectives Our strategic objective for 2010-2013 is to achieve total turnover of DKK 3 billion, with operating profit of DKK 300 million before interest, taxation, depreciation and amortisation (EBITDA). Such ambitions make high demands of the group's organisation. Verdo shall continue to be a profitable company within the Danish energy sector, able to create results on competitive terms.

Verdo Renewables Ltd.

Supply

Verdo has a comprehensive strategy, vision, mission and a range of values which eloquently express precisely what we stand and work for.

Verdo Tele A/S

PRODUCTION

Verdo is determined to be the greenest, most efficient energy provider in Denmark

Telecom

Group chart

renewables

Strategy 3i13

Verdo Generation A/S

Verdo Technical Infrastructure A/S

Annual Report 2012

13

CSR - focus areas

CSR - focus areas

Corporate Social Responsibility and business go hand in hand Verdo is introducing a range of activities, focus areas and initiatives designed to take responsibility for the environment, the workforce and society. To formalise Verdo's aims within CSR (Corporate Social Responsibility), a CSR strategy was devised in 2012.

The idea is that we do not think in terms of CSR just to be responsible to society. Every­ thing we do in this area will arise from a desire to be responsible as long as there is a commercial reason for being so. For example, our focus on green energy derives from the fact that it is to the benefit of our business, the environment and society.

The CSR strategy is based on our vision, mission and values, because they are behind everything we do every day at Verdo. It gathers our CSR activities into a framework, and sets specific targets we are to reach. Identifying risks in advance also minimises them.

Our import of wood chips from Ghana is a good example. When we incinerate biomass in our CHP plants, our customers get green heat and electricity, whilst Verdo increases its earnings. The environment wins, the customers win and Verdo wins.

Verdo’s CSR principles Our CSR strategy is based on these principles: ¬ We will be Denmark’s greenest energy company. ¬ We strive to promote green solutions. ¬ We will always choose green solutions if they are not to the detriment of Verdo. ¬ We choose green solutions which benefit the environment, the world around us and Verdo. ¬ We will launch initiatives which boost the loyalty of our employees. ¬ We will launch initiatives which increase the safety of our employees. ¬ We support sport and culture, and provide sponsorships which promote Verdo.

14

Annual Report 2012

UN standard as benchmark Verdo’s CSR policy uses the UN’s Global Compact standard as a benchmark, which is based on international conventions within human rights, labour, environment and anti-corruption.

The essence of Global Compact are the following 10 principles for social responsibility:

Human rights 1. The company should support and respect the protection of internationally proclaimed human rights 2. The company should ensure that it is not complicit in human rights abuses.

Labour 3. The company should uphold the freedom of association and the effective recognition of the right to collective bargaining 4. The company should support the elimination of all forms of forced and compulsory labour 5. The company should support the effective abolition of child labour 6. The company should eliminate discrimination in respect of employment and occupation.

Environment 7. The company should support a precautionary approach to environmental challenges 8. The company should undertake initiatives to promote greater environmental responsibility 9. The company should encourage the development and diffusion of environmentally friendly technologies.

Anti-corruption 10. The company should work against corruption in all its forms, including extortion and bribery.

Annual Report 2012

15

CSr - FoCuS AreAS

CSr - FoCuS AreAS

How we benchmark We already know that our CSR activities must derive from what we do. That's why we measure our results within CSR against the benchmarks we already have. The specific things we measure for CSR reporting in the annual accounts are: co2 emissions Verdo strives constantly to reduce its CO2 emissions. We do so by burning green fuels for instance, which is a major contribution to our total CO2 emission target. Our CO2 emissions in 2012 totalled 801 tonnes. That's a big reduction since 2011, when the figure was 15,380 tonnes.

Nox emissions In common with other CHP plants, we emit nitrogen oxide (nOx). We therefore work intensively to reduce emissions using new technologies. We emitted 288,476 kg of nOx in 2012. The figure for 2011 was 413,355 kg. However, these figures are only for the Randers plant. use of biofuels Biofuels such as wood chips and pellets have a big advantage: they are CO2 neutral. We are therefore investing strongly in this form of fuel at Verdo, as the purchase of wood chips in Ghana is a good example of. We used 208,991 tonnes of wood chips at the Randers plant in 2012. employee satisfaction Verdo also works hard to increase employee satisfaction at work. Our 2012 employee satisfaction survey showed that no less than 80% of our workforce are willing to make an extra effort at work, think highly of Verdo and go to work with a high level of commitment. 95% responded to the survey, an extremely positive result. occupational accidents Any accident at work is of course one too many, and that's why we focus on reducing the extent of occupational accidents. One of the measures we use is registration of near-accidents. In fact, we work hard to register as many near-accidents as possible, because doing so increases focus on potential danger, and we avoid accidents. We had 10 occupational accidents and 37 near-accidents at Verdo in 2012 - none of them serious. A total of 42 days of sick leave were taken as a result. electric cars We invested in three electric cars in 2012, used for environment-friendly transport between our locations, and other errands in general. The employees have received them well, and it is highly likely that we will add to the fleet in line with an increase in requirement.

We publish our results We publish a number of measurable CSR activities in the annual report, along with the group's other key figures. That helps us fulfil our promise to constantly improve, and creates pride amongst the workforce when they can see that CSR results are improved.

Because we rank CSR results with other key figures, there is an obvious link between CSR and good business at Verdo.

We also promote our CSR results in other ways. Some of them are described in the annual report, and others are in the public interest, and published through the media. We also put them on the company intranet and other forms of internal communication.

Results in 2012 measurement parameter

2012

2011

CO2 emissions

801 tonnes

15,380 tonnes

nOx emissions

288,476 kg

413,355 kg

Use of biofuels

208,991 tonnes wood chips 182,103 tonnes

Occupational accidents/near accidents 10/37

7/4

employee satisfaction Response by %:

95

75 (2010 figures)

Loyal:

80

70 (2010 figures)

Relationship:

84

55 (2010 figures)

Commitment:

89

62 (2010 figures)

number of electric cars

3

0

Figures for nox, CO2 and bio-fuels are taken from the Randers plant only

16

AnnuAl report 2012

AnnuAl report 2012

17

CSr - FoCuS AreAS

CSr - FoCuS AreAS

11 quick questions on import of wood chips from Ghana One of Verdo's biggest focus areas in 2012 was the import of wood chips from Ghana.

The chips are used as fuel in the Randers CHP plant, where the production of electricity and heat has been made significantly greener than before. The first ship arrived in March, 2012, followed by a further five ships, all part of a deal for the supply of 750,000 tonnes of African wood chips to Verdo.

The chips come from 'retired' rubber trees, and the wood is FSC certified. We keep a close eye on local work felling and shipping the chips from Ghana, and regularly send a Verdo employee down there. Allan Abildskov was most recently on a one-week visit, where he followed the production process closely. He answers questions on the next page concerning our use of wood chips.

1

What state Was the aRea left iN afteR the tRees WeRe felled?

Felling was performed in the most considerate manner possible for the sake of the environment, and the local fauna was not affected any more than is the case for forestry or agriculture here in Denmark. Felling is a mechanical process, in which the trees are pushed down and the roots taken up from the ground. A new rubber plantation was planted on the site as part of FCS certification. The trees were always intended to have been felled or abandoned when they were no longer able to produce rubber after about 30 years.

2

does felliNG cause aNy pollutioN?

There is no lasting damage to the environment. The machines use diesel, and there is only a risk of spillage when they are refuelling. Verdo's local partner African Renewables has taken precautions in the form of soaking up any spills using sawdust when refuelling is taking place.

3

aRe the tRees GeNetically modified?

4

is feRtiliseR used?

The rubber tree (Hevea brasiliensis) is a very common species, originating from South America, and now grown all over the tropics. In historical terms, a number of species have been bred, but not via genetic manipulation. Verdo is satisfied that the trees are not genetically modified, and that GMO technology was not common when they were planted around 1980.

According to Grell, the plantation owner, the use of fertiliser is only permitted during the first seven years of the trees' life, and exhausted trees are not in principle fertilised. These trees have been there for 30 years, and a lot could have happened during that time. Regardless of what could have been used for fertiliser, the aim was to produce rubber, and using them as a source of energy - as now - was never envisaged.

5

hoW aRe the tRees tRaNspoRted?

Lorries and forestry machinery are used in Ghana, and the chips are transported to Denmark by ship. There is nothing in the logistical setup in Ghana that could affect the environment any more than Danish or European forestry does. The chips are fumigated during transport to Denmark, which means that phosphorine is added to avoid importing foreign species to Denmark. Fumigation (the addition of Phosporine) is not something that Verdo or the Danish authorities wanted, but purely a requirement from the Ghanaian authorities.

18

AnnuAl report 2012

6

do We kNoW foR suRe that oNly eXhausted tRees WeRe used?

Rubber trees in plantations are felled when they no longer produce rubber economically - including in Ghana. Verdo has not seen any other species than rubber trees in its inspections. Rubber trees are worth more if used for rubber production, which means that it only pays the plantation owner to fell them if they are exhausted.

7

aRe the tRees ceRtified?

8

could the tRees haVe beeN sold locally?

The wood is sustainable and FSC certified, which is confirmed by SGS, an acknowledged Swiss certification bureau. FSC is the guarantor for nature and human life being respected during the tree's life. FSC certification covers aspects around the actual plantation and forestry operations. There are more details at FSC’s website, www.fsc.com.

If the huge amount of wood from the plantation were to be used locally, local power generation would have to be based on bio-energy, which it's not, it primarily burns gas and oil. neither is there any timber industry to speak of. Historically, exhausted rubber trees have therefore been left to rot. Felling leaves roots and stumps collected by the local inhabitants for cooking and the like. Some of the locals also collected firewood which is sold on local markets.

9

hoW maNy local families aRe affected diRectly oR iNdiRectly?

There are up to 70 people employed felling the trees. They receive no less than the minimum wage, and often more from African Renewables. Wages in the area are generally high because of the oil industry. Pay rates and safety at work are part of the FSC certification.

10

do they WoRk theRe of theiR oWN fRee Will?

There is relatively high unemployment in Ghana, so there's a lot of interest and prestige in having a paid job.

11

do the employees haVe access to medical caRe?

There is a doctor but no hospital. According to Verdo's information, there are only two hospitals in Ghana.

AnnuAl report 2012

19

FInAnCe

FInAnCe

in a difficult market The economy failed to improve in Scandinavia in 2012 as expected. Many of our business customers suffered from credit restrictions which hampered growth.

Trading conditions were also affected by a relatively warm spring and a wet summer, which meant that sales of heat and fuels were below budget. yet despite difficult market and climatic conditions, the Verdo Group increased turnover to over DKK 2.4 billion. Profit before interest and depreciation (EBITDA) was DKK 260.1 million – an increase of over DKK 20 million compared to 2011 and pre-tax profit was DKK 61.3 million, an increase of DKK 6 million.

The group’s strong liquidity meant another reduction in our financial gearing (the relationship between net interest-bearing debt and operating profit – EBITDA) to 4.9. We expect this trend to continue enabling Verdo to build up sufficient capital for future acquisitions and mergers. better results forecast We expect improved results in the years to come, thanks to constant efforts to optimise the way we work, focus on customer needs and by trimming where we can. self-service and new products In line with the introduction of the national ‘Data Hub’ service, which compiles data for all electricity customers and makes switching provider easier, Verdo will launch a new self-service portal, enabling customers to log in and check their own consumption, buy products etc. We have also developed a number of new products designed to make being a Verdo customer even easier, expected to be launched early in 2013.

Work smarter The “Work Smarter” project is in the final stages of implementation throughout the group, designed to introduce a new financial management system and to optimise all our business processes. The objective is to improve the way the group is run and add value for our customers.

Good results in denmark The Danish divisions all performed according to expectation.

Verdo supply achieved a position as one of the most efficient heat, water and electricity providers in the country, and maintained its focus on increasing efficiency to reduce prices. Electricity sales improved despite the enormous success of subsidised photovoltaic solar cells. The government expected 100 MW of cells to be installed by 2020, but 400 MW were installed in 2012 alone, leading to the partial withdrawal of the subsidy scheme.

20

AnnuAl report 2012

The supply industry in Denmark is one of the most efficient in Europe, but also one of the most regulated. Return on investment is possible to a limited degree on heat and electricity, but not at all on water, making it difficult to attract much-needed investment.

Verdo telecom achieved significant growth in 2012 to a market share of 42% in the Randers and Hobro areas. Customer satisfaction increased to just under 80%, which is undoubtedly the driving force behind sales success. The division expanded onto the national scene via its broadband-based content provider Waoo!, including national TV advertising, which has increased awareness of Verdo Telecom.

Verdo technical infrastructure continued to focus on green energy, advising customers on everything from energy monitoring to investment calculation, savings and payback times. Total savings of 20 GWh were achieved for private, business and public sector customers. The division made the most of the boom in photovoltaic solar cells during the year, installing total capacity of 3.7 GWh. Growth in 2013 is expected to come from heat pumps, large-scale solar cell installations, wood pellet boilers and replacing old street lighting with LED-based solutions.

kenneth R. h. Jeppesen cfo Verdo a/s

Detailed summaries are provided below for Verdo Generation, Renewables and Trading.

AnnuAl report 2012

21

Verdo Generation

Verdo renewables

Verdo is determined to be the greenest, most efficient energy provider in Denmark, which is why

Richard Smith Divisional Director Verdo Renewables

we now exclusively burn biofuels in our CHP plant at

Difficult

Randers. We do so for the sake of the future, and because it makes financial sense. Concurrent production

UK market

of heat and electricity is green common sense, because it makes maximum use of the fuel burned. And given the location of the plant on the harbour, we ensure the most efficient transport of the 240,000 tons of biomass we use every

Verdo Renewables specialises in the production and distribution of

year – to the benefit of our finances and the environment.

environment-friendly, sustainable biomass-based fuels in the UK, with wood pellet and briquette plants in Scotland and England respectively. Head office is near London, from where energy consultancy and the buying and selling of bio-fuels are coordinated.

Acquisition of decentralised Combined

Heat and Power (CHP) plant The biggest event of the year for Verdo Generation was the acquisition of the Grenaa CHP plant, a supplier of district heating, steam for industrial purposes and electricity to the grid. We have partially converted the plant to biomass fuel and are working on renewal of customer contracts, a process expected to be completed in late 2013.

Our plant in Randers celebrated its 30th anniversary in 2012, and began to burn the wood chips imported from Ghana as fuel. We optimised operating processes and the flue gas condensation system, resulting in the highest degree of efficiency ever in 2012.

A significant reduction of both CO2 and NOx has been achieved to the benefit of the environment and our finances, thanks to savings in environmental duties! We are

22

Annual Report 2012

Verdo Generation Amounts in TDKK

2012

2011

415,457

311,805

EBITDA

91,957

73,644

Operating profit or loss

34,686

23,516

Investments

23,642

27,064

Equity

38,526

115,602

Turnover

now in the process of establishing whether a nitrogen oxide removal system is feasible to reduce NOx emissions even further, and we continue to optimise the running of both CHP plants.

Henrik Bøgh Nielsen Divisional Director Verdo Generation

2012 was another difficult year, with stagnation in the heat supply sector due to a delay in government subsidies being introduced, causing commissioning of new installations to be postponed until 2013.

Bulk exports of wood pellets were hit by currency fluctuations, causing one of our plants to run at reduced capacity for three months before being shut down from September to the spring of 2013. Finally, 2012 was the wettest year in the UK’s history, causing problems with high moisture content in our raw materials.

Sales on the increase Q4 2012 saw sales on the increase, which continued into 2013 with record January sales. Focus on expanding the product range has paid off and we now offer wood pellets in sacks and bulk for heating

and animal bedding, plus as an alternative to cat litter.

Hard work begins to bear fruit We believe that all the hard work we have put into Verdo Renewables over the last three years is beginning to bear fruit, and that we will see an improvement in results. Production at the Grangemouth plant is due to restart in May 2013 to build up stocks for the winter, which will reduce our production overheads and improve profits.

The British government has now implemented the Renewable Heat Incentive, designed to subsidise the use of wood pellet boilers. This is already attracting a number of different customers and a massive increase in installations is planned over the summer. We expect demand for wood pellets in the UK to rise by several thousand tonnes.

Verdo Renewables Ltd. Certification and revision LEC certification achieved late in 2011 made it possible for us to sell certificates for our green production in the UK in 2012.

The planned revision of our two boilers was performed in the summer, when replacement of parts of the superheaters was found to be necessary because of corrosion. Renovation of the superheaters will be completed in 2013.

Amounts in TDKK

2012

2011

81,371

46,361

EBITDA

-36,979

-32,664

Operating profit or loss

-47,487

-36,087

4,006

21,082

-2,914

43,916

Turnover

Investments Equity

Annual Report 2012

23

Verdo Trading

Verdo Trading

Thomas Bornerup Divisional Director Verdo Trading

Verdo’s trading division deals in electricity, hydrogen, special carbon and fuels. We are one of the biggest traders in Europe within dif-

profit was satisfactory thanks to several new customers.

A new subsidiary – MJ Commodities – was also formed to trade in financial electricity products.

ferent types of biomass such as wood, cocoa pellets and olive stones – some of the key energy sources of the future. We also trade in coal, oil and related bulk products, and CO2 trading is an important area.

A busy year Verdo Trading Amounts in TDKK

2012

2011

1,616,592

1,647,953

EBITDA

52,524

57,744

Operating profit or loss

26,469

29,367

8,232

3,512

203,068

188,379

Turnover

Investments Equity

24

Annual Report 2012

2012 was a busy year for Verdo Trading, which consists of Verdo Energy, Carbon Partners, Central Jutland Electricity Supply, Verdo Hydrogen and MJ Commodities, dealing in electricity, hydrogen, special carbon and fuels. We are one of the biggest traders in Europe within different types of biomass such as wood, cocoa pellets and olive stones – some of the key energy sources of the future. We also trade in coal, oil and related bulk products, and CO2 trading is an important area.

The bulk import of wood chips from rubber trees from Ghana started in 2012 and has now become an integrated part of our product mix. The process required more resources than we expected, but is an important element in our vision of creating green energy.

Turnover was below budget at DKK 1,617 million, but profit was satisfactory at DKK 53

million. Turnover was affected by the relatively mild winter, the continuing economic crisis, stagnant prices and customers running down stocks.

Coal and coke sales Coal sales in Denmark continued to decline, but export sales to new customers rose. Turnover in our Carbon Partners subsidiary, which deals in coal and coke products to the iron and steel industry, fell by about 10% measured in tonnes, affected in particular by over capacity in the market in Q3 and Q4. Bad weather also delayed deliveries from the USA. Carbon Partners won new contracts in Asia in 2012, and we consider its results for the year as being satisfactory overall. We expect future growth to come from the Asian and Middle Eastern markets.

Hydrogen Hydrogen consumption fell despite high levels of customer satisfaction, causing a fall in turnover.

New products Verdo Trading took over the sale of Flex Heat wood pellets – one of the biggest brands in Denmark – in 2012 to complement our Greenii brand of pellets and briquettes.

Both brands are now being marketed in parallel and the acquisition gave us access to the private market.

We will continue our search to find new bio-fuels to add to our range, including palm kernel shells and “bio-coal” products, derived from alternative biofuels. Continued product development, consolidation and a higher level of activity will be our focus areas for 2013. Profit projections for 2013 will remain at the same level as for 2012.

Central Jutland Electricity Supply Falling energy prices meant that turnover was below budget, but

Annual Report 2012

25

Profit and loss statement

balance sheet

Group

Parent Company

assets

Group

Parent Company

2012

2011

2012

2011

2012

2011

2012

2011

DKK

TDKK

DKK

TDKK

DKK

TDKK

DKK

TDKK

Net turnover

2.429.994.556

2.283.435

76.571.853

73.980

52.866.941

57.793

0

0

Expenses for raw products and auxiliary materials

1.836.659.848

1.738.574

920.771

784

0

503

0

0

Other external expenses

114.747.004

101.226

37.238.836

34.133 Total intangible assets

52.866.941

58.296

0

0

Total external expenses

1.951.406.852

1.839.800

38.159.607

34.917

Gross profit

478.587.704

443.635

38.412.246

39.063

Property and buildings

178.959.233

178.053

102.435.027

104.013

Staff costs

218.464.965

205.291

42.406.098

40.037

CHP plant and peak load stations

489.466.598

494.639

0

0

1.572.639.580

1.516.414

0

0

256.092.984

255.204

10.090.083

14.243

17.675.487

59.174

7.332.480

2.172

2.514.833.882

2.503.484

119.857.590

120.428

Result before depreciation (EBITDA)

260.122.739

238.344

-3.993.852

-974

Depreciation and amortisation of intangible and tangible assets

138.695.538

130.245

5.726.339

7.399

Operating profit or loss

121.427.201

108.099

-9.720.191

-8.373

Goodwill Licence and CO2rights

Distribution systems and installation as well as meters Operating material Tangible assets under construction Total tangible assets

Equity investment in associated ­companies Income from equity investments in associated companies Income from other equity ­investments Financial expenses for associated companies Other financial income

0

0

55.253.804

63.311

4.018.664 0

9.315 0

0 28.566.133

0 30.286

2.422.178

2.690

1.624.642

762

Other financial expenses

-66.484.326

-64.901

-36.030.427

-37.764

Total financial items

-60.043.484

-52.896

49.414.152

56.595

Pretax profit

61.383.717

55.203

39.693.961

48.222

Tax on profit

17.752.934

2.661

-3.284.413

-3.720

Group profit for the year Of which minority interests

43.630.783 652.409

52.542 600

42.978.374 0

51.942 0

Profit for the year

42.978.374

51.942

42.978.374

51.942

0

0

1.299.879.534

1.730.208

Other securities and equity investment

22.356.442

86.024

1.500.000

0

Total financial assets

22.356.442

86.024

1.301.379.534

1.730.208

2.590.057.265

2.647.804

1.421.237.124

1.850.636

162.201.486

144.579

38.040

112

800.000

2.486

0

0

Total stocks

163.001.486

147.065

38.040

112

Receivables from sales and services

261.592.998

206.407

6.201.688

3.142

8.419.705

13.353

0

0

145.497.856 0

169.361 0

0 896.847.021

0 883.259

0

0

510.000.000

0

12.250.184

15.971

14.766.000

16.572

Total Raw products and auxiliary materials Prepayment for products

Current contract work Receivables Receivables from associated companies Equity loan Deferred tax assets Receivable company tax

Parent Company 2012

2011

DKK

TDKK

42.978.374

51.942

Distribution of net profit Net profit for the year materials Received dividend and other a ­ djustments

525.447.281

5.333

Retained earnings

473.618.475

479.653

1.042.044.130

536.928

483.600

483

483.600

484

Other receivables

94.215.255

69.926

1.693.992

1.500

Prepaid expenses

3.522.878

3.762

2.301.437

1.286

Total receivables

525.982.476

479.263

1.432.293.738

906.243

33.876.538

62.333

645.273

68

722.860.500

688.661

1.432.977.051

906.423

3.312.917.765

3.336.465

2.854.214.175

2.757.059

Cash Total current assets Total assets

Available to the general meeting The amount is proposed to be allocated thus: Transferred to reserve for net revaluation following the equity value method Other financial expenses Total

26

Annual Report 2012

55.253.804

63.310

986.790.326

473.618

1.042.044.130

536.928

Annual Report 2012

27

balance sheet

LIABILITIES

Cash flow statement

Group

Parent Company

Group

31.12.12

31.12.11

31.12.12

31.12.11

2012

2011

DKK

TDKK

DKK

TDKK

DKK

TDKK

263.024.000

263.024

263.024.000

263.024

Group profit

42.978.374

51.942

53.959.135

53.959

0

0 Adjustments

218.073.049

190.872

0

0

66.115.137

572.988

Received interest income and similar income

2.422.178

2.689

-144.089.065

-120.716

-59.320.227

-52.484

Paid interest expenses and similar expenses

-66.484.326

-64.901

Retained earnings

1.083.715.166

1.060.879

986.790.326

473.618

Paid company tax

-6.129.562

0

Total equity

1.256.609.236

1.257.146

1.256.609.236

1.257.146

190.859.713

180.602

3.755.531

7.042

0

0

Stocks

-15.937.050

-49.237

Receivables

-42.357.531

97.719

14.043.528

-34.656

-36.612.723

56.008

Operation’s cash flow

109.995.937

250.436

Acquisition of tangible assets

Share capital Revaluation reserves Reserve for net revaluation following the equity value method Net adjustment, hedging instruments

Minority interests

Reserves for pensions

60.800.000

64.610

0

0

Other deferrals

27.761.717

35.116

23.761.717

35.116

Total provisions

88.561.717

99.726

23.761.717

35.116

Debt to mortgage credit institute

385.483.369

407.349

45.932.019

48.983

Other credit institutes

218.634.019

232.553

218.634.019

232.553

Other loan

3.727.899

7.031

0

0

Other debt

21.066.440

0

0

0

Investment contribution, accrual basis of accounting

145.724.764

142.899

0

0

Total long-term debt

774.636.491

789.832

264.566.038

281.536

Operating income adjusted for non-cash items Change in working capital:

Suppliers of products and services Other liabilities relating to operations

-185.743.049

-191.531

Installation under construction

41.398.206

27.913

Purchase of financial assets

-5.587.497

-2.332

Purchase of associated companies / payed earn out

-9.829.691

-19.338

0

4.200

1.934.400

1.934

Long-term Receivables Received dividend Sale of financial assets Sale of intangible and tangible assets

Long-term debts due within 1 year Other credit institutes Debt to associated companies

46.294.455

40.793

16.392.885

15.395

669.297.650

680.020

620.478.263

636.506

0

0

561.332.433

437.591

Suppliers of products and services Pre-paid current work

147.980.643 4.984.066

133.937 5.538

6.678.200 0

3.449 0

Other debt

317.227.225

279.375

104.395.403

90.320

3.570.751

43.056

0

0

Total short-term debt

1.189.354.790

1.182.719

1.309.277.184

1.183.261

Total debt

1.963.991.281

1.972.551

1.573.843.222

1.464.797

Total liabilities

3.312.917.765

3.336.465

2.854.214.175

2.757.059

Accrued income

Investments´ cash flow

Bonds, net purchase and sale Paid dividend minority interests

63.258.208

-14

7.929.331

4.813

-86.640.092

-174.355

0

5.701

-3.885.000

0

0

396.566

Instalment payments of long-term loan

-37.205.408

-29.268

Financing cash flow

-41.090.408

372.999

Raising of long-term loan

Total cash flow for the year Cash at bank and in hand at the beginning of the year Cash at bank and in hand at the beginning of the year, purchased companies Cash at bank and in hand at the end of the year

-17.734.563

449.080

-617.686.549

-1.047.149

0

-19.618

-635.421.112

-617.687

Cash at bank and in hand at the end of the year is specified thus: Cash at bank and in hand

33.876.538

62.333

Short-term bank and savings bank debt

-669.297.650

-680.020

Total

-635.421.112

-617.687

The cash flow statement cannot be directly derived from the consolidated balance sheet.

28

Annual Report 2012

Annual Report 2012

29

xxxxxx

xxxxxxx

company information Verdo A/S Agerskellet 7 DK-8920 Randers NV, Denmark Tel. +45 8911 4811 Fax +45 8911 4800 Registered office: Randers Central Business Register no.: 25 48 19 68 info@verdo.dk www.verdo.dk

colophon Editor in Chief: Else Marie Kahr Thomsen Iglin Margrethe I. Tanggaard Verdo A/S Translation: admark translations Circulation: 300 copies Photo: David Bering og Verdo A/S Production: This brochure was printed using vegetable coloured inks on Munken Polar paper at a Swan ecolabel-approved printworks.

The paper originates from FSCÂŽ certified, sustainable forestry, which protects nature and its flora and fauna plus the people working in the forest, and from other controlled sources.

30

Annual Report 2012

Annual Report 2012

31

VERDO

|

Agerskellet 7

|

8920 Randers NV

|

Tel. +45 8911 4811

|

info@verdo.dk

|

www.verdo.dk