Verdo annual report 2015

SUMMARY OF THE

2015 ANNUAL REPORT

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 have highly competitive products within telephony and Internet, electrical installation, plumbing and sanitation, energy consultancy, plus the production and sale of biofuels in Denmark and the UK. We are one of the global market leaders in special coal for silicon and the ferrosilicon industry.

Our approximately 500 employees are responsible for an annual turnover of about DKK 2.2 billion.

2

ANNUAL REPORT 2015

Contents GROUP & STRATEGY Foreword

4

Executive and Supervisory boards

6

The Group’s Financial Highlights

8

ANNUAL REPORT Profit and loss statement

11

Balance

12

Balance sheet

13

Statement of equity

14

Cash flow statement

15

ANNUAL REPORT 2015

3

Foreword

Consolidation

- built on focus and simplification Despite a challenging year, Verdo has delivered satisfactory results.

We have managed to simplify our business areas and streamline our supply areas and CHP plants. An optimisation of several internal processes has also contributed to the good results, which have consolidated and reinforced our business. Both are essential when we operate in markets sensitive to weather conditions, with fluctuating commodity prices and new regulations.

We look back on a financially beneficial year at Verdo. Our revenue rose by five percent, ending up at DKK 2.2 billion. The year’s operating profit improved to a total of DKK 248 million before interest and depreciation (EBITDA). The good results were most obvious on the bottom line, which show a pre-tax profit of DKK 46 million – an improvement of 52 percent.

Simplification and increased focus within several divisions was, amongst other things, the key to the great results.

Verdo Entreprise A/S is now targeting sales to business customers within three product areas only, and has closed and sold off several services and products.

Verdo Tele A/S has signed a strategic co-operation agreement with Stofa to reap the benefits of economies of scale. Going forward the primary task will be to expand the fibre optic network.

We have sharpened our cross division consulting business within sustainable energy production, and have turned our attention to advising waterworks and CHP plants among others.

The CHP plant Grenaa Kraftvarmeværk has been sold with effect from 1 January 2018. Until then, Verdo Produktion A/S will continue to operate the plant and supply heat to Grenaa Varmeværk, and thereby continue to help to keep the citizens of Grenaa warm.

Focus and simplification have also characterised the Group’s internal development over the past year.

In 2014, we implemented an ERP system (Enterprise Resource Planning) which led to major changes in our business processes. In 2015 the advantages and positive effects already began to show for our employees, and it will benefit our customers in the future.

Energy companies are sensitive to weather conditions, and this was also the case in 2015, when we encountered climate-related head-

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ANNUAL REPORT 2015

winds. It has in fact been the windiest year ever, which has resulted in historically low electricity prices. 2015 was also the warmest year ever. This has affected sales of wood pellets, production at the CHP plants, and sales of district heating.

Outside Denmark, Verdo Renewables in the UK was also affected by the weather in 2015. Besides the record heat and strong winds, it was also one of the wettest years ever in the UK, which resulted in increased costs. It is impressive that under these circumstances, Verdo Renewables nonetheless managed to double its sales in 2015.

We now have 31 percent of the market in the UK, and have thereby further consolidated our position as market leader. We got three new warehouses in 2015, bringing our total to seven. The new warehouses make us even stronger, and we can now service the entire market.

In 2015 we established a sales department in Croatia to service the Italian market. We also investigated the possibilities for an even stronger sourcing strategy for Africa, in relation to sustainable wood chips.

Our subsidiary, Carbon Partners, has once again been able to navigate in a difficult market for special coal for silicon and the ferrosilicon industry in 2015, while still creating good results. We have done well despite a market under pressure, with declining demand and falling prices for the products.

These years extensive regulatory changes are taking place in the supply of electricity, water and heating; changes that affect the operations of utility companies. In 2015 our granted obligation to supply electricity in the Randers and Hobro area ceased, but we held on to the granted obligation to supply in Hillerød. We acquired new customers to our district heating network In our efforts to be Denmark’s greenest utility company, among other things we have obtained solar panels for our waterworks.

Market conditions are not the only challenging factors in our industry.

More extensive and comprehensive regulations in 2015 made it more difficult to run an energy company. Despite this, once again in 2015 Verdo succeeded in providing some of the lowest electricity, water and heating prices. We are proud to have yet again shown ourselves to be one of the most efficient utility companies in the country.

Claus Omann Jensen Chairman of the Board

Kim Frimer CEO

ANNUAL REPORT 2015

5

MANAGEMENT’S REVIEW The Supervisory board and the executive board have today, 19 April 2016, considered and adopted the annual report for 1 January - 31 December 2015 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 2015, 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 2015. We are furthermore of the opinion that the management’s review contains a true and fair description of the development of the group’s and company’s activi-

6

ANNUAL REPORT 2015

ties and financial status, profit for the year and for the financial position of the group and company. There is significant uncertainty concerning subsidiaries, including accounting for equity capital. Please refer to note 1. The annual report is recommended for approval by the general meeting.

Claus Omann Jensen Chairman of the Board

Niels Rasmussen Vice-Chairman

Ejvind Clemmensen Board Member

Pia Maach Møller Board Member

Thomas Post Employee Representative

Erik Busk Jensen Board Member

Søren Sørensen Board Member

Arne Erikslev Board Member

Bent Hede Board Member

Jan Holst Employee Representative

Ebbe Bagge Hansen Employee Representative

Jess Hansen Employee Representative

Kim Frimer CEO

ANNUAL REPORT 2015

7

The Group’s Financial Highlights

The year for Verdo Verdo delivered satisfactory financial results in 2015, taking the general economic trends and climate into account.

The Group’s total revenue was DKK 2.2 billion, as against DKK 2.1 billion in 2014. Operating profit (EBITDA) was DKK 248 million, which is a fair improvement and acceptable in relation to the economic trends.

The operating profit is regarded as satisfactory.

Consolidated profit before tax was DKK 46 million, as against the budgeted DKK 44 million, which is also satisfactory. The improved result is primarily due to a strong focus on the Group’s costs and lower expenditure on external financing.

The European economy has not yet totally recovered. We still have low interest rates, which affect both credit facilities and returns. This is actually positive, as the Group’s credit facilities are getting less expensive overall. However, it significantly affects the permissable returns on supply assets (electricity networks, heating networks and CHP plants), as under the applicable legislation, these are tied to the actual rate of interest. Consequently, the low interest rates have an overall adverse effect on the Group.

Another effect of the very low interest rates is that the Group’s interest rate swaps have a significant negative value at year-end. The year’s overall positive value adjustment of interest rate swaps comprises DKK 19 million. It is essential to emphasise that this affects only equity, as the Verdo Group does not have to make liquidity available for swaps. In the long term, neither profit nor equity will be affected by the swaps.

on which to expand the business in the coming years.

In 2015, the Group sold a 25 percent stake in Verdo Tele A/S to Syd Energi Fibernet A/S. Stofa, which is owned by Syd Energi, is taking over the customers and the obligation to supply them.

The Group enjoyed strong liquidity in 2015. Cash flow was better than in both 2013 and 2014.

The satisfactory results have been achieved despite the fact that 2015 was generally a difficult year for most of the markets in which Verdo operates. Industrial and raw materials had and continue to have poor prospects. Electricity prices fell further to an extremely low level, where they remained for almost all of 2015. This is in line with other commodities such as coal and oil, which also had low prices in 2015, and there is no sign of an immediate upturn in 2016.

It is difficult to set a course for the year ahead in relation to trends in the real economy. We expect to see continued low interest rates, low prices for fuel, and electricity prices remaining at the same low level as in 2015. All three factors have a major influence on our overall business. However, we expect to further improve our results in 2016.

The return on equity capital is 2.4 percent, which is a fair improvement in relation to the previous years.

The financial gearing (EBITDA/net interest-bearing debt) has been reduced compared to previous years, which is highly satisfactory. The Group works with a goal for financial gearing of five or less, which was achieved at the end of 2015. The Verdo Group expects that the gearing ratio will continue to decline. This gives Verdo a solid foundation

8

ANNUAL REPORT 2015

Kenneth R. H. Jeppesen Økonomidirektør Verdo A/S

The Group’s Financial Highlights

FINANCIAL AND OPERATING DATA

Amounts in TDKK

2015

2014

2013

2012

2011

2.236.865

2.122.902

2.405.028

2.429.995

2.283.435

98

93

105

106

100

247.759

233.939

234.389

258.178

236.400

105

99

99

109

100

93.894

78.836

95.119

119.482

106.155

88

74

90

113

100

-47.857

-48.559

-62.566

-60.043

-52.896

90

92

118

114

100

46.037

30.277

32.553

59.439

53.259

86

57

61

112

100

32.230

21.777

25.062

41.498

50.463

64

43

50

82

100

3.252.152

3.287.817

3.343.922

3.301.467

3.325.436

98

99

101

99

100

96.160

124.555

127.529

144.345

163.618

59

76

78

88

100

1.355.493

1.289.930

1.294.324

1.238.044

1.240.060

109

104

104

100

100

Financial results Net turnover Index EBITDA Index Operating profit Index Results from net financials Index Pre-tax profit Index Profit for the year Index

Balance sheet Total assets Index Investment in tangible assets Index Equity Index

Liquidity Net cash flow from: Operations

196.113

136.089

143.894

109.996

250.436

Investments

-21.427

-129.944

-133.174

-86.640

-174.355

Financing

-43.764

-25.105

-38.499

-41.090

372.999

The year’s effect on cash flow

130.922

-18.960

-27.779

-17.734

449.080

2015

2014

2013

2012

2011

KEY FIGURES

Gross margin ratio

26,6%

27,1%

23,4%

24,4%

23,8%

EBITDA margin

11,1%

11,0%

9,7%

10,6%

10,4%

Financial gearing

4,5

5,5

5,5

5,0

5,5

Return on equity

2,4%

1,7%

2,0%

3,3%

4,0%

41,7%

39,2%

38,7%

37,5%

37,3%

Solvency ratio

ANNUAL REPORT 2015

9

10

ANNUAL REPORT 2015

Profit and loss statement

GROUP

Net turnover Other operating income Expenses for raw products and auxiliary materials Other external expenses

PARENT COMPANY 2015

2014

2015

2014

DKK

TDKK

DKK

TDKK

2.236.865.208

2.122.902

86.718.812

80.001

5.222.411

0

12.000

0

-1.641.502.619

-1.547.209

-668.792

-845

-132.430.147

-125.250

-41.625.041

-40.652

Gross profit

468.154.853

450.443

44.436.979

38.504

Staff costs

-220.396.227

-216.504

-47.648.866

-37.912

Result before depreciation Depreciation and amortisation

247.758.626 -153.529.288

233.939 -154.327

-3.211.887 -9.241.570

592 -6.476

-335.556

-776

0

0

93.893.782

78.836

-12.453.457

-5.884

-972

Other operating expenses Operating profit or loss

Income from equity investments in subsidiaries

0

0

30.102.589

Income from other equity ­investments

-26.673

-23

0

0

Gains from partial sale of subsidiary

293.034

6.237

293.034

6.237

2.868.528

2.208

43.090.330

30.580

Other financial expenses

Other financial income

-50.992.036

-56.981

-29.483.620

-7.119

Total financial items

-47.857.147

-48.559

44.002.333

28.726

Pre-tax profit

46.036.635

30.277

31.548.876

22.842

Tax on profit

-12.069.884

-8.266

681.150

-1.065

Group profit for the year Of which minority interests

33.966.751 -1.736.725

22.011 -234

32.230.026 0

21.777 0

Profit for the year

32.230.026

21.777

32.230.026

21.777

Profit for the year is proposed transferred to equity as profit carried forward and reserve for net revaluation following the equity value method.

ANNUAL REPORT 2015

11

Balance

ASSETS

GROUP

PARENT COMPANY 31.12.15

31.12.14

31.12.15

31.12.14

DKK

TDKK

DKK

TDKK

25.496.945

31.417

0

0

399.271

0

0

0

25.896.216

31.417

0

0

Property and buildings

169.085.151

171.042

101.694.684

100.509

CHP plant and peak load stations

442.059.247

471.209

0

0

1.577.056.356

1.575.518

0

0

250.261.108

251.590

28.163.471

29.895

13.720.524

22.454

2.018.842

5.054

2.452.182.386

2.491.813

131.876.997

135.458

FIXED ASSETS Goodwill CO2 rights TOTAL INTANGIBLE ASSETS

Distribution systems and installation as well as meters Operating material Tangible assets under construction TOTAL TANGIBLE ASSETS

Equity investment in associated ­companies

0

0

1.873.797.770

1.445.807

7.250.220

4.080

0

0

Other securities and equity investment

19.729.459

19.841

7.671.038

0

TOTAL FINANCIAL ASSETS

26.979.679

23.921

1.881.468.808

1.445.807

2.505.058.281

2.547.151

2.013.345.805

1.581.265

204.202.704

224.311

157.487

72

0

694

0

0

TOTAL STOCKS

204.202.704

225.005

157.487

72

Receivables from sales and services

Other receivables

TOTAL FIXED ASSETS CURRENT ASSETS Raw products and auxiliary materials Prepayment for products

258.969.045

239.408

573.533

2.247

Current contract work

18.187.595

14.390

0

0

Receivables Receivables from associated companies

84.781.404 0

96.281 0

0 270.072.601

0 824.720

Equity loan

0

0

510.000.000

510.000

55.172.468

69.116

0

1.667

0

0

138.019

0

Other receivables

94.320.026

72.453

61.481.189

18.379

Prepaid expenses

12.125.619

9.257

3.525.813

2.261

523.556.157

500.905

845.791.155

1.359.274

19.334.589

14.756

164.209

1.207

747.093.450

740.666

846.112.851

1.360.553

3.252.151.731

3.287.817

2.859.458.656

2.941.818

Deferred tax assets Corporate tax

TOTAL RECEIVABLES Cash TOTAL CURRENT ASSETS TOTAL ASSETS

12

ANNUAL REPORT 2015

Balance sheet

LIABILITIES

GROUP

PARENT COMPANY 31.12.15

31.12.14

31.12.15

31.12.14

DKK

TDKK

DKK

TDKK

263.024.000

263.024

263.024.000

263.024

53.959.135

53.959

0

0

EQUITY Share capital Revaluation reserves Reserve for net revaluation following the equity value method

0

0

138.314.859

36.770

Retained earnings

1.038.509.799

972.947

954.154.075

990.136

TOTAL EQUITY

1.355.492.934

1.289.930

1.355.492.934

1.289.930

132.938.663

15.028

0

0

53.360.891

56.705

0

0

0

0

6.700.000

0

4.000.000

4.000

0

0

57.360.891

60.705

6.700.000

0

Debt to mortgage credit institute

334.695.705

357.023

52.522.794

55.005

Other credit institutes

173.210.756

190.534

171.286.397

188.633

MINORITY INTERESTS DEBT Reserves for pensions Deferred tax Other deferrals TOTAL PROVISIONS

12.037.964

15.047

0

0

Investment contribution, accrual basis of accounting

Other debt

152.775.947

149.543

0

0

TOTAL LONG-TERM DEBT

672.720.372

712.147

223.809.191

243.638

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

47.340.974

46.396

18.975.000

17.997

575.612.841

701.957

483.370.913

629.674

0

0

667.483.722

664.598

152.899.181

151.121

4.688.656

4.359

Pre-paid current work

5.601.119

1.782

0

0

Corporate tax

3.241.819

7.849

0

2.980

243.918.916

289.304

98.938.240

88.642

5.024.021

11.598

0

0

TOTAL SHORT-TERM DEBT

1.033.638.871

1.210.007

1.273.456.531

1.408.250

TOTAL DEBT

1.706.359.243

1.922.154

1.497.265.722

1.651.888

TOTAL LIABILITIES

3.252.151.731

3.287.817

2.859.458.656

2.941.818

Suppliers of products and services

Other debt Accrued income

ANNUAL REPORT 2015

13

Statement of equity

GROUP

Amounts in DKK

Equity as at 01.01.14

Revaluation reserves

Share capital

Retained earnings

263.024.000

53.959.135

Profit for the year

0

0

991.615.518 24.324.339

Ajustments for exchange rates, subsidiaries

0

0

11.858.743

Equity adjustment prior years

0

0

-14.283.120

Adjustment of hedging instruments: Balance as at 01.01.14

0

0

134.678.682

Balance as at 31.12.14

0

0

-185.907.876

0

0

10.660.489 972.946.775

Tax of equity adjustment Equity as at 31.12.14

263.024.000

53.959.135

Profit for the year

0

0

32.230.026

Adjustment for exchange rates, subsidiaries

0

0

14.206.097

Adjustment of hedging instruments: Balance as at 01.01.15

0

0

185.907.876

Balance as at 31.12.15

0

0

-158.926.247

0

0

-7.854.728

263.024.000

53.959.135

1.038.509.799

Tax of equity adjustment Equity as at 31.12.15

PARENT COMPANY

Amounts in DKK

Equity as at 01.01.14

Retained earnings

263.024.000

89.748.452

955.826.201

Profit for the year

0

1.575.164

22.749.175

Adjustment for exchange rates, subsidiaries

0

3.992.358

7.866.385

Disposals af subsidiaries

0

231.987

-231.987

Paid dividend from subsidiaries

0

-13.527.360

13.527.360

Equity ajustments prior years

0

-14.283.120

0

Adjustment of hedging instruments

0

-30.967.127

-9.601.578 990.135.556

Equity as at 31.12.14

263.024.000

36.770.354

Profit for the year

0

30.102.589

2.127.437

Adjustment for exchange rates, subsidiaries

0

4.239.628

9.966.469

Group contribution

0

25.261.157

-25.261.157

Disposals af subsidiaries

0

44.253.297

-44.253.297

Paid dividend from subsidiaries

0

-10.623.062

10.623.062

Adjustment of hedging instruments

0

8.310.896

10.816.005

263.024.000

138.314.859

954.154.075

Equity as at 31.12.15 The share capital comprises 263,024 shares at nominal DKK 1.000.

No shares have been allocated special rights.

There has been no changes of share capital the last 5 years.

14

Net revaluation following the equity value method

Share capital

ANNUAL REPORT 2015

Cash flow statement

GROUP

Operating profit Adjustments

2015

2014

DKK

TDKK

93.893.782

78.836

142.039.932

147.205

Received interest income and similar income

2.868.528

2.208

Paid interest expenses and similar expenses

-50.992.036

-56.981

-9.846.554

-6.455

177.963.652

164.813

20.802.698

-52.262

Paid company tax Operating income adjusted for non-cash items Change in working capital: Stocks Receivable

1.098.307

72.081

Suppliers of products and services

1.778.604

-46.091

-5.530.152

-2.452

Operation’s cash flow

196.113.109

136.089

Acquisition of tangible assets

-105.293.629

-129.580

Other operation derived debt

Installation under construction

8.734.274

5.025

-10.340.068

-5.890

Long-term receivables

2.045.196

-1.789

Sale of financial assets

77.176.254

0

6.250.918

2.290

Investments´ cash flow

-21.427.055

-129.944

Total cash flow from operations and investments

174.686.054

6.145

Purchase of associated companies / payed earn out

Sale of intangible and tangible assets

Paid dividend Financial leasing contracts Conversion of mortgage loan, net

-2.655.765

0

1.490.875

573

0

14.492

Instalment payments of long-term loan

-42.598.727

-40.170

Financing cash flow

-43.763.617

-25.105

Total cash flow for the year

130.922.437

-18.960

Cash at bank and in hand at the beginning of the year

-687.200.689

-668.241

Cash at bank and in hand at the end of the year

-556.278.252

-687.201

Cash at bank and in hand at the end of the year is specified thus: Short-term bank and savings bank debt

19.334.589

14.756

Kortfristet gæld til kreditinstitutter

-575.612.841

-701.957

Total

-556.278.252

-687.201

ANNUAL REPORT 2015

15

VERDO

|

Agerskellet 7

|

8920 Randers NV

|

Tel. +45 8911 4811

|

info@verdo.dk

|

www.verdo.dk