Annual report 2020
Building a successful future for everyone
Annual report 2020
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Being part of a community requires commitment – also in times of adversity
Highlights from our social contract
The annual report is based on the financial statements from the official annual report. It is a report on the development in the Group’s business areas as well as its strategy and CSR activities.
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Annual report 2020
• 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 believe that committed employees are key to maintaining our competitive advantage. We create an attractive workplace with a strong sustainable purpose. • 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 transformation. • We are transparent and flexible in our partnerships. We work towards close relationships and long-term benefits.
Editorial
T
hey say adversity makes you stronger. At Verdo, we could not agree more. Our bottom line and revenue took a hit in 2020 like they did in many other companies. We found ourselves in a ‘perfect storm’: Declining levels of activity in several of our business areas, COVID-19 and old, unresolved supply cases all took their toll and led to considerable losses. However, seeing the dedication and incredible adaptability of our employees, for example when it came to adhering to restrictions and guidelines, made a big difference for all of us. Despite the pandemic and other challenges, both employees and management have an unwavering belief in Verdo’s relevance and legitimacy now and in the future. Verdo operates sustainable critical infrastructure to ensure comfortable everyday lives for thousands of people – and that mission is so important that we are constantly developing it. 2020 was also the year when we became more open and began a closer dialogue with our customers, business partners and local community, including the Municipality of Randers which is a close customer and business partner of ours. These actions were born out of a wish and a clear ambition to give something back and contribute to the development of our local community. In the future, we will further strengthen our close ties to the community we are part of. This is one of the ways in which we can live up to our corporate social responsibility. We call it our social contract. That is also why it was important that we picked up the ball ourselves in relation
to the old heating cases that have hung like a cloud over the company – a cloud that is now being lifted. In 2020, we worked with authorities to do everything we could to close the cases which are eroding Verdo’s credibility and the trust of the community which we depend on – and which depends on us as a reliable supplier of sustainable infrastructure in Herning and Randers. We need to build bridges, not walls. We have close ties with the local community and with that comes great responsibility. A historic social contract The social contract encapsulates the role that Verdo is seeking to carve out for itself and win support for. It is also the focal point of the strategy which was approved by the Supervisory Board at the end of 2020 and which will shape Verdo for many years to come. Our social contract not only builds on the first tentative steps we took in 1874 when we inaugurated the Oust Mølle Vandværk waterworks, but also points to Verdo’s vision ‘One green step ahead – together’. A vision which means that we take the lead when it comes to exploring new opportunities and investing carefully in the sustainable solutions and expertise we are going to need in the future. To contribute to Denmark’s climate goal of reducing greenhouse gas emissions by 70%, we are developing new renewable technologies such as large heat pumps, carbon capture and geothermal energy. Going forward, as part of the social contract, we will focus on Verdo’s role as a company that makes a difference to
others. We are not in the utilities business with the aim of making money. We make money in order to be able to run and develop the best utility company and play the role in the community that we are meant to play. In 2020, we therefore took steps to focus solely on the regulatory and commercial parts of our business. We intend to further sharpen this focus in the years to come. This allows us to build new collaborations, see new opportunities in the impossible and basically reach out and engage in a new dialogue on how we can cultivate and develop a meaningful community from our position as a sustainable frontrunner.
Torben Høeg Bonde Chairman of the Board
Jakob Flyvbjerg Christensen CEO
“
We are not in the utilities business with the aim of making money. We make money in order to be able to run and develop the best utility company and play the role in the community that we are meant to play. Jakob Flyvbjerg Christensen, CEO
Annual report 2020
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32 8
StepTogether
36
Building a successful future for everyone
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Annual report 2020
Delivering results is my passion
Contents
Editorial.............................................................................................................................
2
Supervisory Board ......................................................................................................
6
Our StepTogether strategy......................................................................................... 8 Organisation, Executive Board and Group Management ....................... 10 Verdo Group companies and structure............................................................ 12
Verdo in numbers Another very difficult year........................................................................................ 14 Highlights.......................................................................................................................... 17
Society One green step ahead – together......................................................................... 20
Customers Warm winter led to reduced demand for heating........................................ 26
Employees Delivering results is my passion........................................................................... 32
Partner Building a successful future for everyone....................................................... 36
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One green step ahead – together
CSR – Corporate Social Responsibility Verdo’s business model ............................................................................................ 42 Environment and climate ......................................................................................... 44 Energy production at Verdo .................................................................................... 46 Social conditions and working environment ................................................. 47 Sponsorships and partnerships ........................................................................... 50 Respect for human rights ........................................................................................ 51 Anti-corruption and anti-bribery ........................................................................ 51
Financial statements Accounting policies ..................................................................................................... 54 Income statement ....................................................................................................... 61 Balance sheet ................................................................................................................ 62 Statement of changes in equity ........................................................................... 64 Cash flow statement .................................................................................................. 67 Notes .................................................................................................................................. 68 The independent auditor’s report......................................................................... 81
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A word from the Supervisory Board We have asked two of our board members, Niels Rasmussen from Randers and Finn Stengel Petersen from Herning, to assess their role in the new strategy from December 2020.
V
erdo was formed in 2000, and much has happened in the 20 years that have passed since then. First, Verdo’s Supervisory Board set about transforming Verdo into a commercial company, and in many ways they succeeded. However, there were also a lot of things that Verdo would have done differently today if one is to believe board member Niels Rasmussen: “With the benefit of hindsight and given what we know today, we would obviously have done some things differently. But we’re now taking action to address any shortcomings. We’ve introduced a strong new strategy to ensure a clear and divided focus on the commercial as well as the regulatory part of the business. And
Green transformation This goal is to be achieved by building a commercial business which is even stronger and even more focused on creating value for the business, among
other things. Verdo has divested business units that no longer fit our purpose and, together with the Supervisory Board, has set the direction with a strategy that will make Verdo a much more purpose-driven company. To get there, we will strengthen our role in relation to the sustainability agenda: “We’re going to explore new ways to produce heat. We also want to support the development of tomorrow’s heat supply systems as an example of our role in the green transformation,” says Niels Rasmussen. A long journey When Verdo took over the heat supply in Herning in 2019, Finn Stengel Petersen joined Verdo’s Board of Representatives
Torben Høeg Bonde
Finn Skaarup Andersen
Pia Maach-Møller
Keld Christensen
Jan Guldmann
Niels Rasmussen
Peter Kjærsgaard
Per Nielsen
Chairman
Board member
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we’re committed to rebuilding trust in us among those who need to be able to trust us – customers, business partners, employees and the local community as a whole. We must ensure an efficient and green supply of utility services to the citizens of Randers and Herning and give back to the community we’re part of by creating jobs, offering sponsorships for sport and culture and supporting the development of the local business community,” says Niels Rasmussen.
Annual report 2020
Deputy Chairman
Board member
Board member
Board member
Board member
Board member
Verdo is an independent, consumer-led company. This means that no owners dispose of any profits that we make. Instead, our Supervisory Board and Executive Board decide how the profits should be used, for example if they should be reinvested in the company or used to lower the price of electricity, water or heat – or if they should be used to support the local community through sponsorships. Verdo’s Board of Representatives is the Group’s supreme governing authority. The Supervisory Board elects its own chairman and sets the direction of the company through our strategy. The Supervisory Board consists of 16 members – 12 board members and four employee representatives. Membership of Verdo’s Board of Representatives is about participation and joint decision-making.
and later became one of four board members from Herning to be elected to the Supervisory Board. For Finn Stengel Petersen, serving on the Supervisory Board is first and foremost about safeguarding consumer interests by focusing on the lowest possible prices, efficiency, high quality and security of supply. This is something he believes that Verdo does well, although there have been several unfortunate cases in the past. “Of course we’ve made mistakes, no doubt about that, and everyone at Verdo acknowledges that. But we can’t change the past. Instead, we should focus on how we can best serve consumers and deliver good quality and low prices in the future.” Finn Stengel Petersen’s past experience includes serving 24 years on Herning City Council and serving as board member and later chairman of
Peter Nowack
the utility Herning Kommunale Værker for a number of years. “Herning Kommunale Værker was very similar to Verdo’s current business combining electricity, water and heating, and like Verdo we were also engaged in heat production. So in a sense things have come full circle, which has also given me relevant experience in some of these areas,” says Finn Stengel Petersen. Ambassadors of Verdo Verdo’s acquisition of the heat supply was well received on Finn Stengel Petersen’s home turf in Herning, and satisfaction rates are high – both among the municipal authorities and among the consumers. Heating prices have declined, and Verdo’s Herning head office has created local jobs. He acknowledges that the situation is different in Randers, although he
Henrik Gottlieb Hansen
Board
Board member
member
Finn Stengel Petersen
Henning Jensen Nyhuus
Board member
Board member
believes that things have calmed down a lot since he joined the Supervisory Board: “CEO Jakob Flyvbjerg Christensen has worked incredibly hard to address the problems and move on. I have a lot of respect for that. At the same time, the Supervisory Board has presented a new strategy to take the company in the desired direction. The members of the Supervisory Board and the Board of Representatives are ambassadors of Verdo, and our role is therefore to help strengthen Verdo and make the company even better. We’re working hard to make this happen.”
Janni Munkholm Nielsen
Ebbe Bagge Hansen
Thomas Post
Stine Brøgger Thygesen
Employee representative
Employee representative
Ve r d o’s S u p e r v i s o r y B o a r d
Ownership
Employee representative
Employee representative
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Our StepTogether strategy On 22 December 2020, Verdo’s Supervisory Board approved the new group strategy towards 2025 called StepTogether. The company worked hard on the strategy for most of 2020.
p e t s n
e e r g ne
O T
he strategy also comprises an updated vision: ‘One green step ahead – together’. Verdo wants to stay one step ahead by building on renewable green technologies, increasing value and simplicity for our customers and ensuring efficient operations supported by digitalisation and innovation. Success comes when we create new solutions together with our customers, develop cities and infrastructure with local partners and build a strong shared group culture. But what does this mean in practice? It means that we are part of a community that extends beyond our own company. We stand shoulder to shoulder with our colleagues, customers, partners and not least the local communities we are part of. We are
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Annual report 2020
driven by a strong purpose with a special focus on our corporate social responsibility and the promises we make and want to deliver on. Our mission is to operate and develop critical infrastructure for the benefit of our customers and the society of the future. Verdo is a group with three core areas of activity: heating, water and technical infrastructure. We also sell electricity to residential and business customers. Verdo has seven business areas – two regulatory and five commercial areas – which are supported by a number of staff functions. Verdo faces four key tasks towards 2025: • Creating a solid platform for running
a regulatory and commercial business • Creating an efficient and value-adding group • Building strong and profitable commercial companies • Turning our social contract into a local flagship. The strategy for 2025 is ambitious and requires a transformation of the Verdo Group. Verdo must go from being a commercially run company to being a more purpose-driven company. The strategy for 2025 aims to establish Verdo as a responsible, profitable and innovative critical infrastructure group which is one step ahead to enable a sustainable transformation – also in the short term.
Strategy
r e h t e g
o t – d a
e h pa
Verdo faces four key tasks towards 2025: • • • •
Creating a solid platform for running a regulatory and commercial business Creating an efficient and value-adding group Building strong and profitable commercial companies Turning our social contract into a local flagship.
Verdo’s business areas: Energi, forsyning og elsalg
Energy
Teknik
Trading
REGULATED Energy and supply • Production • Heating • Water
COMMERCIAL Energy plants • Verdo Energy Systems • VES Poland
COMMERCIAL Technical infrastructure • Verdo Teknik • Verdo Tele
COMMERCIAL Fuels and raw materials • Verdo Trading • Carbon Partners
COMMERCIAL Electricity sales • Residential • Business
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Organisation adapted to our new strategy Following the introduction of our new StepTogether strategy, Verdo decided to make some organisational changes effective from 1 March 2021. The aim is to adapt the organisation to enable us to successfully deliver on our strategy, which requires us to do things differently than we have in the past and to explore new areas. As this is a significant change that has occurred after the end of the financial year, we have decided to mention it here.
W
hen developing our strategy, we identified a main area which will create a solid platform and focus for both the commercial and the regulated part of the business. As a result, we have decided to organise the company under one supply umbrella. Production, i.e. the Randers Kraftvarmeværk CHP plant, belongs to the same area as Heating and Water, gathering all regulated companies in one division. This is the first step towards ensuring transparency in our regulated business, while increasing cooperation across the supply area. We have also set out to define the future of heat supply in Randers, and it is important that we can share knowledge between our distribution and production of district heating. Moreover, it gives us the opportunity to combine all our activities for consumer customers into one division to give it a fresh start and make the most of the obvious synergies this offers. Making life easy for our customers In addition, our customer centre will be moved to the Elsalg department to consolidate our efforts and further sharpen our customer focus. With our
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Annual report 2020
strategy and the new Energi, forsyning og elsalg division, we will deliver on our promise of ‘making life easy for our customers’. Furthermore, we changed the name of our electricity trading activities to Elsalg Privat and Elsalg Erhverv, formerly known as Verdo Go Green and MEH. In order to be able to physically accommodate the Energi, forsyning og elsalg division and provide the best possible conditions for cooperation across divisions and disciplines, we have made some modifications to the space at our head office in Randers. New member of the Executive Board On 1 March, CFO Kenneth R. H. Jeppesen joined the Executive Board, reporting to CEO Jakob Flyvbjerg Christensen. A two-man Executive Board makes it easier for the Executive Board to promote cooperation with the Supervisory Board and the Board of Representatives, while at the same time making it even more visible to the employees on a daily basis. Further to this, the expanded management team – which in addition to Jakob Flyvbjerg Christensen and Kenneth R. H.
Jeppesen comprises Margrete Larsen, Thomas Bornerup, Morten Birch, Henrik Bøgh Nielsen and Brian Seeberg – changes its name from Executive Board to Group Management. Other measures to support the new strategy include: • We have set up a strategy office, headed by our strategy manager. • El-net Kongerslev has been established as a separate department reporting to Verdo’s CFO. This is a direct consequence of the creation of the new Energi, forsyning og elsalg division as electricity sales and electricity grids must be kept separate by law. • Tele will become part of the Teknik division. • Our Trading division has moved from the premises at the Port of Randers to our head office. This will ensure increased cooperation between staff functions and divisions, thereby helping to support a stronger shared Verdo culture.
Jakob Flyvbjerg Christensen
Kenneth R. H. Jeppesen
CEO
CFO
Executive Board and Group Management
Executive Board
Group Management
Thomas Bornerup Division Director, Trading
Brian Seeberg Division Director, Energi, forsyning og elsalg
Morten Birch
Margrete Larsen
Division Director, Teknik
CHRO
Henrik Bøgh Nielsen Division Director, Energy
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Verdo Group overview
Verdo Group companies and structure
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Annual report 2020
Group over view
Verdo S/I
Verdo A/S
Verdo Innovation A/S
EL-NET Kongerslev A/S
Trading
Energy
Energi, forsyning og elsalg
Verdo Trading A/s
Verdo Energiteknik A/S
Verdo Varme A/S
Verdo Teknik A/S
Carbon Partners AS
Verdo Energy Systems A/S
Verdo Herning A/S
Verdo Tele A/S
Carbon Partners Inc.
Verdo Energy Systems GL ApS
Verdo Varme Herning A/S
Verdo Energy Systems sp. z.o.o.
Verdo Produktion A/S
Verdo Hydrogen A/S (In voluntary liquidation)
Verdo Vand A/S
Teknik
Renewables
Verdo Renewables Ltd. (In voluntary liquidation)
Verdo Go Green A/S Midtjysk Elhandel A/S
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Another very difficult year I
n the last few years, our financial performance has been affected by a number of cases which have obviously taken a toll on our reputation, our business and our employees. Unfortunately, 2020 was no exception, which – combined with the fact that our operations faced difficulties in some parts of the business, in part because of COVID-19 – makes 2020 a year we will remember as very challenging. Values overstated We recorded a net loss for the year of DKK 408 million, which is primarily due to impairment of non-current assets of DKK 307 million in Verdo Varme A/S and Verdo Produktion A/S. The plant values recognised in the regulatory accounts of the two companies turned out to be too high, and the Danish Utility Regulator has estimated that the values of our plant assets
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Annual report 2020
in Verdo Varme A/S and Verdo Produktion A/S were overstated more than 10 years ago. Technically, this means that the value of our regulatory plants must be impaired by DKK 307 million. The adjustment impacts the financial statements by DKK 217 million as we made a provision of DKK 90 million in 2019, reducing the results by a similar amount. Even after the impairment, there are positive depreciation bases in both Verdo Varme A/S and Verdo Produktion A/S, and, consequently, there will be no repayments as we have seen in other cases in previous years. The case’s negative impact on our financial statements is of course very regrettable – not least because it dates back decades – but we believe our handling of the case is a step towards a better dialogue and increased transparency in relation to the authorities, our customers and society in general. We are on the right
track and are continuously taking steps to address issues that could damage our business and our reputation. Unexpected turns on our path Every year, we face unexpected challenges and turns on our path. In 2020, however, these challenges were bigger and more volatile than our forecasts and budgets were able to predict – in part because of COVID-19 and the weather. Throughout 2020, operations were challenged by high temperatures and large fluctuations in commodity and electricity prices, which had a negative impact on our bottom line. COVID-19 affected us financially in several ways. Our sales in several business areas were hurt by the pandemic as decision-making processes became longer and customers put their purchasing decisions on hold. These factors had
Ve r d o h i g h l i g h t s
a negative impact on sales in Verdo Teknik A/S, among other business areas, but Verdo Trading A/S was also hit by COVID19-related challenges with declining demand caused by hot winters, COVID-19 and growing stocks giving us a historically bad year. Moreover, after several years of losses, we decided to permanently close down operations in the UK, resulting in a loss of DKK 15 million. In addition, DKK 29 million was embezzled from the Verdo Group’s US subsidiary Carbon Partners Inc. Legal steps have been taken to deal with the matter. Large loss Overall, this results in group revenue of DKK 2.4 billion compared to DKK 2.6 billion in 2019. Operating profit (EBITDA) amounted to DKK 83 million compared to DKK 99 million in 2019, while a loss
before tax of DKK 408 million – inclusive of discontinuing operations – was recorded. Adjusted for special items, the loss comes to DKK 143 million. The loss from continuing operations amounts to DKK 394 million. Despite the large impairment in Verdo Varme A/S and Verdo Produktion A/S, there will be no refunds to customers as there is still a positive depreciation balance for recognition in the prices. We still expect the amounts provided for in previous years to cover the refunds from the years in which the provisions were made. In 2020, Verdo Go Green A/S made a provision of DKK 18 million for repayments of overstated costs related to energy saving activities. No decision has yet been made in the matter, but we chose to make the provision to be on the safe side. Overall, the Group’s liquidity remains very good.
In view of the above, we consider the results for the year to be unsatisfactory. However, our corporate structure as an independent and consumer-led company with no obligation to pay dividends to shareholders or other owners makes us a healthy company, and we are confident that we will overcome the problems. Continued low interest rates 2020 was marked by low interest rates, despite previous expectations of interest rate rises. However, low interest rates have had a modest impact on operations as the Group’s debt is low. Financial leverage at the end of the financial year was 4.9, down from 4.5 in 2019. Leverage is particularly affected by necessary impairment in Carbon Partners Inc., Verdo Trading A/S and Verdo Energy Systems A/S. The very low interest rates also
Annual report 2020
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resulted in a negative value of the Group’s interest rate swaps at the end of 2020. The value adjustments of the interest rate swaps total DKK -14 million for the year. It is important to stress that only equity is affected as Verdo is not required to make liquidity available for swaps. In the long term, neither earnings nor equity will be affected by swaps. Commercial and regulated business EBITDA in our Energi, forsyning og elsalg division – i.e. the regulated area – was DKK 120 million, while the commercial areas (Trading, Energy and Teknik) had a difficult year and contributed DKK -52 million. As a result, the contribution from our commercial areas was significantly lower in 2020 than in the past. Steps have been taken to address this, among them our StepTogether strategy. In 2021, we have high expectations for the commercial activities in Energy and Teknik. Balance sheet The Group’s unsatisfactory operating loss (EBITDA) of DKK 83 million and not least the impairment of our plant assets of DKK 307 million also affected the Verdo Group’s equity, which stood at DKK 551 million at the end of the year. Our solvency ratio was 19.4%. Both are down from 2019. Our solvency ratio in particular was affected by the large impairment. A solvency ratio below 20 is unusual for a group like Verdo, but it is very important to point out that our commercial areas have a solvency ratio of 67%, while our regulated areas – where the security of cash flow is high – have a solvency ratio of 12%. Despite the large refunds to our heating customers, liquidity remains good. Robust agreements have been reached with the Group’s banks to ensure continued financial backing in the coming years. Material events The general lockdown due to COVID-19 continued into 2021, making it difficult to conduct physical customer visits, in particular. This had an impact on Verdo’s commercial business areas. At the time of approval of the financial statements, the dispute with the Municipality of Randers about Verdo Vand A/S’s clean water prices was nearing resolution. The prices charged by Verdo Vand A/S are expected to be lawful and include the refunds agreed upon. Therefore, no adjustment to the water prices is required in
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Annual report 2020
2021. The water case has no impact on the financial statements. Outlook for 2021 Verdo expects significantly improved results for 2021 compared to the past two years. With our recently adopted StepTogether strategy and new organisation, we expect to be on track to improve our performance. Already in early 2021, we have seen upward pressure on interest rates, and interest rates are expected to be higher in 2021 than in previous years, albeit still at a low level. We still expect COVID-19 to affect our commercial areas in particular, where the sale of new contracts and the conclusion of construction contracts are hampered by the restrictions. As government aid packages expire, we may also see bankruptcies which will affect all the Group’s business areas. Uncertainty regarding recognition and measurement Group Returns on invested capital and loans in the heating activities For a number of years, the Group has been engaged in a dialogue with the Danish Utility Regulator on returns on invested capital for the heating activities and on transactions between the Group’s commercial and regulated activities. This concerns partly returns on invested capital collected for heating activities since 2000 and partly intercompany interest on loans in the heating activities since 2013. In 2019, the Danish Utility Regulator made a final decision in two cases concerning returns on invested capital in Verdo Varme A/S. In 2020, a final decision was reached in the case on returns on invested capital in Verdo Produktion A/S. Repayment has begun in the first two cases, while the Danish Utility Regulator’s approval of the repayment plan for the third case is pending. The Group continues to disagree with some of the decisions made in the Verdo Varme A/S cases and has lodged appeals with the Danish Energy Complaints Board. At present, it is not possible to estimate the extent to which the amount will be recognised should the appeals be upheld in whole or in part. The Group is still awaiting a decision on interest on loans in its heating activities, which is expected in the first half of 2021. As at 31 December
2020, an amount of DKK 124 million has been recognised under Timing differences, provision and surplus income, Danish Heat Supply Act. Impairment of regulatory plant values In 2019, the Danish Utility Regulator reopened the cases on the regulatory plant values of the Group’s heating companies, and since then there have been several discussions on the matter. In 2020, the Group introduced a new regulatory depreciation base, which resulted in impairment of the plant values of the Group’s heating companies. The impairment totals DKK 307 million, of which a provision of DKK 90 million was made in 2019. Consequently, the financial statements for 2020 are negatively impacted by DKK 217 million this year as a result of these cases. The dialogue with the Danish Utility Regulator is still ongoing. The impairment is not expected to result in refunds to heating consumers, but it will restrict Verdo’s ability to collect the amounts going forward. Tax expenses collected At the beginning of 2021, the Group began discussions with the Danish Utility Regulator regarding possible refunds of taxes collected from customers of Verdo Varme A/S and Verdo Produktion A/S. The discussions concern the assessment of whether tax is a fully or partially necessary expense for these companies. At this stage, it is not possible to assess the potential accounting implications or when the discussions are expected to be concluded. It is our view that the item should not be recognised in the financial statements. Parent company Recognition of decisions of 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 subsidiaries Verdo Varme A/S and 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.
3,106,900
Adjusted
Adjusted
-24.4%
Adjusted
2,615,643 2,437,610 2020
Ve r d o h i g h l i g h t s
2,347,610
-6.8%
2019
Revenue
98,683
-15.6%
83,299 2020
2019
EBITDA
-140,077
29,645
Adjusted
Adjusted
2020
2019
-39.3% Profit/loss for the year before tax
-290,459 -404,542 550,572
-41.1%
2020
950,038 2019
Equity
19.4% 2020
28.8% 2019
9.4 percentage points
All amounts are stated in DKK ‘000 and before discontinuing operations.
Solvency ratio Annual report 2020
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STREET LIGHTING
EMPLOYEES
Facts about Verdo
REVENUE
BIOMASS
In 2020, we replaced 5,000 street lights with energy-efficient LEDs for our municipal customers, saving 575 tonnes of CO2 annually.
We use 99.22% biomass to power the Randers Kraftvarmeværk CHP plant.
DKK
2.4 billion
Verdo has around 85,000 district heating customers in Herning and Randers.
Annual report 2020
DISTRICT HEATING
LED LIGHTS
We have switched to LED lights at our head office, saving 43,853 kWh and just over 20 tonnes of CO2 a year. Our target is to achieve 100% green power use.
District heating in Denmark is green – so green in fact that it contributes 44% towards Denmark’s overall target of cutting CO2 emissions by 70% by 2030.
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550
SURPLUS HEAT
CUSTOMER SERVICE
F a c t s a b o u t Ve r d o
In 2020, Verdo’s customer service team responded to 70,600 incoming calls, spending 3,500 hours on the phone with customers. Each call lasted an average of three minutes. For the question ‘Overall, I am satisfied with the service I received on the phone’, customers give us an average score of six on a scale of one to seven.
Since 2016, Verdo has planted 24,000 trees in the Oust Mølle Folkeskov forest, which promotes carbon capture and helps to protect drinking water sources at the large groundwater reservoir. Trees are nature’s CO2 vacuum cleaner. 1 m3 of wood growth binds about 1 tonne of CO2.
In 2020, we successfully reduced NOx emissions from the Randers Kraftvarmeværk CHP plant by 31,793 kg by reducing fuel consumption and using biomass with a lower nitrogen content. This represents a reduction of just over 16% from 2019 to 2020. The reduction is equivalent to the emissions of 5,888 cars.
NOX EMISSIONS
MAD ABOUT TREES
Verdo is among the cheapest utilities in Denmark when it comes to heating prices in both Herning and Randers. The price of heating in Herning is 22% lower than the national average.
DISTRICT HEATING PRICE
Better use of surplus heat reduces consumer heating costs and fuel consumption in heat production. In 2020, Verdo’s initiatives in this area corresponded to the annual heat consumption of some 89 households.
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One green step ahead In the future, Verdo wants to play an even greater socially relevant role in the areas in which we operate through commitment, knowledge sharing and financial support.
V
erdo succeeds when we develop new solutions together with customers and design infrastructure and urban solutions as a local, innovative partner. Verdo CEO Jakob Flyvbjerg Christensen has an ambition. An ambition to involve local communities in the business to a much greater extent than in the past. In 2020, Verdo focused on running its regulatory and commercial business, and these efforts will continue at full steam in the coming years supported by the new strategy. But it is a balancing act as the regulatory business places a special responsibility and obligation on us, while the commercial business obviously needs to be profitable and create value. So the question is whether Verdo exists to make money or whether
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Annual report 2020
it exists for the benefit of the local community, among other things. Jakob Flyvbjerg Christensen has no doubt: “Verdo must be a cornerstone of the local community. We’re now so much more than a utility company focusing on critical infrastructure. We believe that the Verdo Group can make an increasingly positive difference to our local communities by contributing to the green transformation, securing local infrastructure, developing urban and business communities and making Verdo an even more attractive place to work.” Giving back DKK 3 million to the community This requires that Verdo increasingly views itself as an active and committed player in the local communities in which
we operate – a process that will be accelerated in 2021. As a utility company, our roots are in the production and distribution of heat, water and electricity. Over time, however, we have expanded our growing business to include other areas of activity – areas that build on the expertise we have acquired over the years as a utility company. We want to make a difference with our new, purpose-driven ambition. And although we invested heavily in the Group’s portfolio during 2020, we still gave back more than DKK 3 million to the community in the form of sponsorships. Add to this our investments and other activities in the local communities, where we play a major role. Verdo’s sponsorships reflect our values and our responsibility to the local community we are part of. We have
Local development
“
We believe that the Verdo Group can make an increasingly positive difference to our local communities by contributing to the green transformation, securing local infrastructure, developing urban and business communities and making Verdo an even more attractive place to work. Jakob Flyvbjerg Christensen, CEO, Verdo
d – together As part of our social contract, we devote a portion of our profits to promoting business and urban development, innovation projects and local community development. First, we focus on developing our portfolio
We reinvest most of our operating profits in the development of the Group’s portfolio
– then we give back to the community through three investment pools
Business promotion and urban development in Randers and Herning
Innovation projects to promote the transition to sustainable critical infrastructure
Development of social and cultural cohesion in society
Annual report 2020
21
strong Randers roots, which benefits sports and cultural institutions such as Randers FC, Randers HK, Værket, Randers Regnskov and most recently Randers Teater. Proud sponsor of Randers FC Verdo has been a loyal main sponsor of Randers FC since the club was founded in 2003, and in 2020 we renewed our sponsorship agreement for another three years. The agreement is a crucial boost to the club, which had a good year, but suffered financially as a result of COVID-19. “In terms of leisure opportunities, top-level football is important to Randers as it brings the city together. Moreover, top-level football provides increased opportunities for the local business community, and we want to be part of this development,” says CEO Jakob Flyvbjerg Christensen. “Verdo is very proud to have been involved from the beginning. We have a very good working relationship with
22
Annual report 2020
Verdo, and together we’re exploring ideas on how we can expand our cooperation for the benefit of everyone in the city,” says Henrik Jørgensen, CEO, Randers FC. Cooperation based on traditions and shared values Verdo also wants to maintain a significant presence in Herning and support local initiatives through sponsorships, among other things. So far, this has resulted in sponsorship agreements with the handball club HC Midtjylland and the ice hockey club Herning Blue Fox. The sponsorships allow us to build and maintain a close relationship and a good local knowledge of our business partners and customers in Herning and the surrounding area. When Verdo took over the heat supply and street lighting operations in Herning in autumn 2019, we also teamed up with the area’s oldest ice hockey club Herning Blue Fox, which has been around since 1947. This means, among other things, that
Verdo’s logo adorns the ice hockey stars’ familiar navy blue apparel. But Verdo and Herning Blue Fox have many other shared values which cannot be showcased through ads on sports apparel. As a sports club, Blue Fox is moving more and more towards a green transformation of which Verdo is a clear proponent in many areas. “As a culture bearer in Danish ice hockey, we want to be frontrunners in the green transformation of professional sport. We want to take responsibility for the future through representatives from the world of sport and develop Blue Fox as a responsible, enterprising and sustainable sports club. The hockey rink makes ice hockey an energy-intensive sport, and one of our key priorities is to make the most of the energy we use. Our goal is to ensure optimum use and reuse of energy, water and heat. We also want to be first movers in biodiversity at a sports facility and make our parking areas a hub for Verdo charging stations for electric vehicles in the future,” explains Blue Fox
Greener vehicles in the future Sustainable energy is at the heart of Verdo. The implementation of various initiatives and measures to support sustainable development is therefore a natural part of our contribution to the
Promoting local development • We support the sustainable development of water, heat and electricity supply as well as fibre-optic and technical infrastructure. • We create an attractive foundation for a rich and growing business community. • We develop and share knowledge and support projects that promote a sustainable transformation. • We take active responsibility for providing traineeships and apprenticeships. • We support the local community through sponsorships and donations.
local communities. In 2020, we decided to take a step towards a greener vehicle fleet. As advocates of green energy and providers of sustainable solutions, we need to take a critical look at ourselves and identify opportunities for going even greener in a financially responsible way. That is why we are now embarking on a process to replace our vehicle fleet in the years to come. In recent months, Verdo’s procurement department, along with selected mobile staff, have tested several electric and plug-in hybrid vehicles. With our fleet of more than 200 vehicles, the switch will take place continuously as existing vehicles need to be replaced due to age etc. Once the switch is complete, we will have reduced CO2 emissions by 70% compared to now. Expanded biomass certification Another way to support the green transformation is to use sustainable biomass. For many years, we have stayed abreast of the development and the increased
demands that customers, authorities and politicians place on biomass. As a result, we are already one step ahead and well placed to meet the legislative requirements for sustainable biomass announced by the Danish government. We recently expanded our Sustainable Biomass Programme (SBP) certification and are now a certified SBP Biomass Producer. Although we already hold several certifications, we must be willing to embrace the responsibilities and opportunities offered by the increased demands that are being placed on us. Among other things, we do this by giving our customers added peace of mind by offering certified products which not only benefit our customers but also society and the environment.
Local development
CEO Torben Skovsgaard. Verdo wants to play an active role in Herning, especially when it comes to the green transformation. Going green therefore fits perfectly with this ambition as it further strengthens the ties between Verdo and Herning Blue Fox. “Verdo wants to play an active role as a value-creating partner in the green transformation and sustainable development of Herning as a city and a community in close cooperation with local businesses and associations. To do this, we provide green, safe and inexpensive heat and energy-efficient street lighting as well as supporting the roll-out of our charging stations for electric vehicles,” says Brian Seeberg, Division Director, Verdo.
Supporting local businesses In spring 2020, we decided to immediately pay all our Danish suppliers in order to help particularly small and medium-sized enterprises which were hit hard financially by the COVID-19-related lockdown. The initiative, which continued until halfway through the year, saw us transferring around DKK 60 million to our suppliers during this period. We were very pleased to be able to support our business partners through difficult times like this. In Denmark, the Verdo Group has not received any COVID-19-related assistance or aid packages.
Supporting local associations In 2020, Hornbæk Idræt & Kulturcenter near Randers inaugurated its new artificial grass field with LED lighting. Verdo supported the project with a donation, which is a tangible example of our commitment to the local community. The new artificial grass field is a boost to the town’s leisure facilities and helps to attract and retain families with children and many other citizens. This is good for families, for the local community and for the development of Randers. Our sponsorship helped to make the project happen, and in doing so we have come full circle on our promise to give back to our customers.
Annual report 2020
23
24
Annual report 2020
Verdo Group business areas
Annual report 2020
25
Ve r d o’s b u s i n e s s a r e a s
Energi, forsyning og elsalg
Energy
Teknik
Trading
Warm winter led to reduced demand for heating W
hen it comes to strengthening customer relations, 2020 was a difficult year for Verdo. The far-reaching impact of the COVID-19 pandemic on Denmark and the rest of the world made it difficult to meet existing customers, build new customer relationships and close agreements with our business customers. Combined with the warm winter weather in early and late 2020, sales in our regulatory business and Verdo Trading A/S were far below the levels seen during more normal winters. In homes, radiators were switched off
26
Annual report 2020
most of the time, and factories were shut down, while the supply of biomass continued to grow and customer demand fell throughout Northern Europe. Happy customers, but red bottom line Although it may sound like it, it was not all gloom and doom on the customer side in 2020. Far from it. We have seen strong customer interest in our industrial and district heating solutions, and have delivered a biomass plant for the town of Auning and a new wood chip plant for the Balling-Rødding Varmeværk heating plant. Moreover, we recorded a high
order intake in the area in 2020, which will continue into 2021. “In 2020, we saw strong revenue growth, but unfortunately the increase was not reflected in the bottom line as we had to learn how to carry out large projects in-house. However, we’re pleased to note that the clients are happy about the quality projects and plants we’ve delivered. Going forward, we will of course use these learnings in future projects,” says Henrik Bøgh, Division Director, Energy.
Customers Smart, efficient and sustainable wood chip plant In 2020, we delivered a new 5.5 MW wood chip plant to replace two old plants at the Balling-Rødding Varmeværk heating plant. The new plant burns better and is much more efficient than the old plants, reducing our climate footprint and giving consumers more value for money.
“
2020 was a great year with many successful projects, but because they were development projects we had to learn our lessons the hard way at times. Henrik Bøgh, Division Director, Verdo Annual report 2020
27
Energy Verdo has more than 30 years of experience with the development and installation of energy plants. We specialise in building green energy plants with technologies such as biomass, heat pumps and electric boilers and also offer energy consultancy, advising on the best fuel for our customers’ needs, and offer service and operation throughout the plant’s life as well as administrative and customer billing services. • In 2020, we saw strong revenue growth, but unfortunately the increase was not reflected in the bottom line as we had to learn how to carry out large projects in-house, leading to impairment of DKK 9 million. However, we are pleased to note that the clients are happy about the quality projects and plants we have delivered. We will of course use these learnings in future projects.
• Among other things, we have delivered a straw-fired biomass plant for the town of Auning and a new wood chip plant for the Balling-Rødding Varmeværk heating plant as well as a 10.5 MW heat pump project in Faaborg. So far, the electric heat pump is among the largest projects delivered by Verdo in Denmark, and we play a key role in defining the market which is seeing substantial growth at the moment. The heat pump was commissioned in December 2020. We expect the strong order intake to continue in 2021. • We continue to work hard to strengthen our position within heat pumps, both when it comes to the plants themselves and the streamlining of our service, consultancy and sales.
• Energy’s revenue was higher than expected, while profit/loss for the year before tax was lower than expected, primarily due to internal project-related challenges. In light of these developments, the company considers the results for 2020 to be unsatisfactory. • Until March 2021, Verdo Produktion A/S was part of the Energy division. Consequently, the results for Verdo Produktion A/S are included in the highlights below. • The results for Verdo Produktion A/S are negatively affected by the impairment of the depreciation base, which is described in more detail in the article on page 38.
The table comprises: Verdo Energy Systems A/S, Verdo Energy Systems GL ApS, Verdo Energy Systems Sp Z.o.o, Verdo Energiteknik A/S, Verdo Produktion A/S and Verdo Hydrogen A/S (in liquidation).
Ratios
All figures in DKK ‘000 Revenue EBITDA Net profit/loss for the year Investments Equity
New technology supports green transformation In 2020, we received another substantial order for energy plants. We delivered a new heating plant with a 10.5 MW outdoor heat pump and installed a new 20 MW gas boiler at FFV Energi & Miljø in Faaborg. So far, the electric heat pump is among the largest projects delivered by Verdo in Denmark, and we play a key role in defining the market which is seeing substantial growth at the moment. The heat pump was commissioned in December 2020.
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Annual report 2020
62,468 72,876
2020
2019
563,433
543,018
21,363
86,044
-111,869
6,548
33,363
28,900
Customers
Trading Verdo Trading offers strong, sustainable fuel and biomass solutions with a local focus as well as technical carbon for industrial use on the global market. • With revenue of DKK 1.2 billion, Verdo Trading had a historically bad year in 2020. Sales of our products were low, while COVID-19 put a damper on the activities of several of our industrial customers. The warm winter further detracted from sales. This led to increased supply in the market, while prices fell in the bio segment. We therefore had to write down our inventories by DKK 8 million. In addition, it has been difficult to win new customers in the past year as it has been virtually impossible to travel to strengthen relationships and conclude agreements.
because the market is very sensitive to fluctuating weather conditions.
• Our US company, Carbon Partners Inc., welcomed a new CEO in 2020. Carbon Partners Inc. has been subjected to embezzlement in the amount of DKK 29 million. In addition, technical carbon prices fell during 2020, which also had a negative impact on the results. We launched an audit and legal investigation, which resulted in several lawsuits. In 2020, we made a provision of DKK 35 million for bad debts.
• 2020 was not a good year. Verdo recorded a small loss from ordinary operations, while extraordinary costs further detracted from the results. However, these are considered to be one-off costs. Renewables In 2020, we closed down Verdo Renewables Ltd. following a failed attempt to restore the company’s profitability. This negatively affected our revenue and profits compared to the budget as the closure resulted in a loss of DKK 15 million in the 2020 financial statements.
• We introduced stricter governance rules and implemented a new ERP system to address future cases. • Trading will also see large variations in revenue going forward. This is primarily due to currency fluctuations, price fluctuations in raw materials and sales of industrial products, but also
The table comprises: Verdo Trading A/S and Carbon Partners AS (including the subsidiary Carbon Partners Inc.).
Ratios
All figures in DKK ‘000
2020
2019
1,199,009
1,973,696
EBITDA
-51,941
26,401
Net profit/loss for the year
-53,191
11,714
2,090
11,088
Revenue
Investments Equity
212,016
228,002
Annual report 2020
29
More providers give customers more choice For a number of years, Verdo has been installing and expanding the fibre-optic network in Randers and Hobro, and today approx. 25,000 homes and businesses in the two cities are connected to the fibre-optic network. In 2020, we followed the trend in the fibre-optic market and took the first steps towards welcoming more service providers. This is done through the common industry platform OpenNet, which is already working with a number of fibre-optic network owners and service providers. With more providers to deliver content to homes and businesses in the local community, customers have a wider variety of choice.
Verdo Tele We plan, install and expand the fibreoptic network in Randers and Hobro. But the products themselves – internet, TV and telephone connections to the fibreoptic network – are supplied by a content provider. • In 2020, we saw increased demand for fibre connections with unlimited capacity, which prompted us to expand the fibre-optic network in Hobro and Randers. We have done so in already established areas, but we are particularly focused on installing fibre-optic networks in connection with the many development areas and new-build projects in the area.
• OpenNet expanded the potential of existing networks. At the end of 2020, we decided to open up the fibre-optic network to more service providers. Having a greater number of attractive service providers on the fibre-optic network allows us to make even more efficient use of the installed network as they can attract customers to the fibre-optic network.
• Both revenue for the year and the profit/loss before tax are in line with the expectations for the year. We stayed on budget and, against this background, we consider the results for 2020 to be satisfactory.
• We upgraded the technical platforms in 2020. The development of the fibre-optic network and the customers’ use of high data volume services are boosting the demand for better and faster connections.
Ratios
The table comprises: Verdo Tele A/S
All figures in DKK ‘000
2020
2019
Revenue
30,423
29,163
EBITDA
22,483
24,982
8,054
-149,684
31,884
23,662
Net profit/loss for the year Investments Equity
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Annual report 2020
304,221
296,167
• As many of our electricity customers are going green, we saw a continued increase in the demand for green certificates (Guarantees of Origin (GoOs)) from our business customers
in 2020. This development will continue into 2021, where we expect to deliver up to 44 MWh under GoO certificates.
• Revenue was lower than expected, while profit/loss for the year before tax was in line with expectations. In light of the development in electricity prices, we consider the results for 2020 to be satisfactory.
• In 2020, Verdo Go Green A/S made a provision of DKK 18 million for repayments of overstated costs related to energy saving activities. No decision has yet been made in the matter, but we chose to make the provision to be on the safe side. This had a negative impact on the results.
Ratios
The table comprises: Verdo Go Green A/S and Midtjysk Elhandel A/S
All figures in DKK ‘000
2020
2019
331,968
363,773
EBITDA
-7,448
14,118
Net profit/loss for the year
-9,976
11,034
450
2,603
Revenue
Investments Equity
Customers
Electricity trading • In 2020, the electricity market followed an unstable price trend which was lower than expected, resulting in lower than anticipated revenue. Despite the lower prices, we maintained our gross profit as we successfully purchased electricity at prices below the benchmark in 2020.
106,664
118,830
Annual report 2020
31
Delivering results is my passion Verdo’s future and position in the industry depend on our ability to look ahead and foster an environment for new ideas, innovation and room to fail. We need to be able to attract new, competent employees and give something back to the community we are part of, while at the same time retaining and developing our talented employees.
I
n the past 10 years, Smart City has been the subject of much hype and talk about sustainability and urban development. Indeed, numerous stylish presentations and small pilot projects have been developed based on good intentions, but they have often – justifiably – been criticised for not moving beyond the talking stage. However, Smart City does have its merits – also in the real world. We just need to find a way to translate all the talk into solutions that actually increase the quality of life in urban environments. For years, Verdo has been working to
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Annual report 2020
do just that. Not least in 2020, where we further developed our traffic and signalling systems business area, which aims to translate the theory behind Smart City into practice. Project Manager Damir Bajraktarevic is the driving force behind this work. In 2020, he received the Verdo Innovation Award for his efforts which is presented to colleagues who explore new innovative paths. Drawing on a global network “We either grow, or we die – and Verdo wants to grow. Delivering results is my passion, and in 2020 we achieved some
great results,” says Damir Bajraktarevic. Damir Bajraktarevic uses his expert knowledge to develop complicated traffic and signalling systems that tie into the urban visions of Smart City. Before joining Verdo in 2018, Damir Bajraktarevic worked on complex mobility solutions in a large international company, and in his current role he draws on his extensive industry network and many business relations around the world. Among other things, Damir’s relationships have changed the way Verdo sources its products, which saved us a lot of money in 2020.
Employees
“
We either grow, or we die – and Verdo wants to grow. If we see something that works, we scan the market and take quick and efficient action.
Concrete victories In 2020, Verdo won the signalling tender for the high-profile Plusbus project in the city of Aalborg. Plusbus is a bus rapid transit system that ensures shorter transit times and better links between public transport and urban development across Aalborg. Damir Bajraktarevic was part of the tender team involved in the Aalborg tender and the tender for parking guidance and overheight warning systems for the entire city of Vejle as well as a number of signalling projects across Denmark, which Verdo also won.
Damir Bajraktarevic, Project Manager, Verdo Teknik
According to Damir Bajraktarevic, Verdo’s short decision-making processes play a big part in these successes: “If we see something that works, we scan the market and take quick and efficient action,” says Damir Bajraktarevic.
In 2020, he was joined by five new colleagues, and more are expected in 2021 as Verdo continues to develop new traffic and signalling solutions that can make cities even smarter.
International frontrunner and award winner In 2020, Damir Bajraktarevic, Project Manager, Verdo Teknik, won the Verdo Innovation Award, which is presented to an employee who drives the company towards new, value-adding solutions and is not afraid to employ lateral thinking. Damir joined Verdo in April 2018 and has since worked incredibly hard to develop our new traffic and signalling systems business area. Damir received the award for his ability to think outside the box and for being a frontrunner in finding business partners outside Europe. This has opened up new doors and opportunities for Verdo.
Annual report 2020
33
Subscription and charging stations for electric vehicle owners Electric vehicles are a hot topic at the moment, and lower taxes on electric vehicles as a financial incentive to reduce CO2 emissions is a big and important step in the right direction. The transition to greener vehicles is also a social trend that Verdo supports through various initiatives. In 2020, we have been working on our new Charge concept, developing a concept for power and charging stations for electric and plug-in hybrid vehicles. Charge is a complete and attractively priced charging station solution that comes with a flexible and transparent power subscription for electric vehicles which includes consumption. The aim is to facilitate the decision-making process and provide an incentive for those contemplating making the switch to an electric or hybrid vehicle.
What can a Smart City do? • Save resources if we do it smart. We can reduce economic and material costs and our environmental impact, among other things by using data intelligently to manage energy consumption in public buildings, traffic lights and many other parts of urban infrastructure. • Create more liveable cities. In addition to achieving all-round savings, we also perceive the solutions as smart. One example is traffic signals that change according to the level of traffic – this is perceived as efficient and makes sense for those who use them.
Teknik We operate municipal street lighting, install and renovate street and footpath lighting, service and install traffic systems and traditional electrical installations. • In 2020, we maintained our position as a market leader within operation and maintenance of street lighting.
• We also developed a charging station concept for private individuals named Charge, which we have high expectations for in 2021. • Some of our markets came to a halt in 2020. Many of our customers’ decision-making processes were postponed and prolonged due to COVID-19 which had a negative
impact on our sales. We therefore spent the year improving our digital sales channel skills. • Revenue was lower than expected, while profit/loss for the year before tax was in line with expectations considering the impact of COVID-19. The results for 2020 are therefore considered to be unsatisfactory.
The table comprises: Verdo Teknik A/S
Ratios All figures in DKK ‘000 Revenue EBITDA Net profit/loss for the year Investments Equity
34
Annual report 2020
192,956
2020
2019
226,546
260,126
6,480
13,684
-3,166
3,461
5,927
107,745
196,122
Employees
Sustaining sales during a pandemic In 2020, Verdo, like many others, felt the impact of the COVID-19 pandemic. Decisions were postponed, and processes took longer to complete. This is not unusual when times are uncertain and everyone has to learn to navigate an uncertain future. We have worked proactively to strengthen our sales efforts under the changing circumstances which have required all employees to explore new ways of working. During the year, Verdo’s sales team received training on how to make the best virtual presentation, understand the barriers and how to overcome them.
Desk bikes get things moving in the home office In 2020, new and exciting things happened at our head office in Randers. We bought a number of desk bikes – a kind of exercise bike to replace the office chair. The bikes allow our employees to change their work position during the day and at the same time do some low-intensity (or high-intensity when they get competitive) cardio training. Verdo has also bought chair shells that our employees can take home and use on an ordinary office chair or dining chair in order to vary and improve their sitting posture when working from home. Chair shells are a preventive measure which was generally well received in 2020 when many of our employees worked from home due to COVID-19. Generally, Verdo has focused on being proactive, preparing for restrictions and ensuring good working conditions during the pandemic. “We were prepared even before Prime Minister Mette Frederiksen announced a nationwide lockdown on 11 March. We made sure that everyone was sent home with clear guidelines, tasks and computers that were ready for the home office,” says CHRO Margrete Larsen.
Annual report 2020
35
Building a successful future for everyone Going it alone is not an option when building the Verdo of the future. 2020 showed us that critical infrastructure is far too important for that – for the individual and for the community as a whole. We sought and cultivated relationships and successful partnerships and will continue to do so.
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Annual report 2020
The Municipality of Randers and Verdo have been working closely together on the next steps in the green transformation and how we can ensure high-quality drinking water for the city’s citizens. I really look forward to further strengthening our cooperation for the benefit of the citizens of Randers.
• 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 aim to build close relationships and ensure long-term benefits.
Relations
“
How Verdo builds long-term relationships
Jens Lyngborg Heslop, Director of Development, Environment and Technology, Municipality of Randers
I
t is no secret that Verdo has faced image problems and financial challenges over the past few years, which are also reflected in the 2020 financial statements. In 2020, we worked hard to overcome these challenges and make a fresh start, among other things by continuing to build and rebuild relations with local business partners based on trust and transparency. Shoulder to shoulder In 2020, special focus was given to our partnerships in Randers, where Verdo plays a significant role in the city’s critical infrastructure. This dialogue will also be strengthened in Herning in 2021, where Verdo plays an important role as a district heating supplier. “The dialogue with local business partners and customers is paramount when agendas that extend far beyond our own corporate reality are at stake,” says Brian Seeberg, Division Director, Verdo Energi, forsyning og elsalg. The municipalities of Randers and
Herning are our largest customers, which makes our partnership much more than a customer-supplier relationship. It is a strategic cooperation to realise our ambitious plans for the green transformation, to integrate the entire sustainability agenda and to look towards a future that is far too important to be facing alone. We need to stand shoulder to shoulder and support each other. This approach has been vital to the dialogues we had with current and potential partners in 2020, and which we intend to strengthen in Herning in 2021. In Randers, the approach was well received in the discussions of the municipality’s climate plans and the future of heat supply. A protective ‘big brother’ The new approach has already had a noticeable impact on cooperation in the water sector, with Verdo strengthening its dialogue with the Municipality of Randers and the municipality’s many water utilities. “We’re the ones who must humbly
take on the role of a responsible and uniting big brother that leads the way. We want it to be a cooperation where Verdo can help forge strong, mutually supportive ties between the water utilities and the municipality for the benefit of the water consumers,” says Brian Seeberg. Criticism accelerates development Some critics might say that necessity is the mother of invention. There is no doubt that the unfortunate cases and image problems experienced by Verdo have accelerated a development that has resulted in an increased focus on openness, relations and partnerships. Nor is there any doubt that a successful cooperation with a focus on close relations and an improved image have a positive impact on the way we see ourselves. Many of our employees live and work in the local community, and we want them to continue to be proud to work for Verdo and to keep our customers happy. Verdo will work purposefully to achieve this goal in 2021.
Clean water partnership
intensifying its efforts to protect our ground-
In Denmark, we all have access to clean drink-
water and ensure clean drinking water for the
ing water – a resource many people take for
local communities in which we operate.
granted. But we should not take it for granted
We protect local forests to create non-toxic
because, like in the rest of the world, our drink-
environments, and we are also involved in
ing water is unfortunately under threat from
partnerships to develop new water filtration
pollution. Verdo is therefore continuously
and purification methods.
Annual report 2020
37
Understanding the depreciation case which affected the 2020 financial statements Verdo is engaged in an ongoing dialogue with the Danish Utility Regulator on returns on invested capital in two companies. We have an open dialogue with authorities and have disclosed all figures and data for documentation purposes.
I
n connection with the Danish Utility Regulator’s opening of the case concerning the returns on invested capital in Verdo Varme A/S and Verdo Produktion A/S, uncertainty has arisen as to whether the regulatory values of the plant assets of the two companies have been accurately calculated. Verdo has entered into a constructive dialogue with the Danish Utility Regulator. We want to be open, honest and transparent and have a good relationship with the authorities in this case, too. During 2020, Verdo and the Danish Utility Regulator agreed that the best course of action would be to document the regulatory values based on the
values from 1982 to the present day. Verdo is by law entitled to charge costs and investments needed for the development and operation of our supply business to our customers through the tariffs. Investments are charged to consumers over a period of 5-30 years. The investment is recovered through ongoing depreciation. This is a fundamental principle in the utilities industry. Customers pay for the plant once and only once. The conclusion of the depreciation case was therefore that we must impair the regulatory values of the plant base as the Danish Utility Regulator found the values to be too high*. The impairment
*This happened more than 10 years ago. Moreover, the revalued value was incorrectly used as the regulatory value of the plant assets. A revaluation of the value of regulatory plant assets is not permitted as the same investments may not be charged to consumers more than once.
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Annual report 2020
recognised in the financial statements for the regulated business is directly reflected in the annual report and is the single main reason for the negative results for the year. Even after the impairment, Verdo Varme A/S and Verdo Produktion A/S still have depreciation charges which are not included in the price of heating, and the impairment will therefore not result in any refunds. However, this will mean lower prices in the coming years. You can read more about how this affects the financial statements on page 69.
Relations Relations
“
My core task will be to ensure cheap and efficient green energy for consumers.
57-year-old Brian Seeberg joined Verdo in September 2020, having previously been Division Director of COWI Industri og Energi. He is also a former member of the Supervisory Board of the Grøn Energi think tank under the auspices of the Danish District Heating Association. He has a forward-looking and holistic approach to the supply area and is committed to forging strong relationships with customers and business partners.
Engaging in dialogue and building relationships V
erdo’s supply business has entered a new stage, focusing on building cooperation and relationships and promoting long-term social agendas. To make this happen, Verdo welcomed Brian Seeberg in 2020. “With his insights into energy and climate policy at the highest level and professional skills across the heat value chain, he builds bridges and relationships with partners and customers in the green transformation for the benefit of Verdo, our consumers and the environment,” says Jakob Flyvbjerg Christensen. Brian Seeberg has a solid background in the energy sector, and was brought in to strengthen Verdo’s supply activities
with his insight and understanding of the sector and energy and climate policy. “My main task is to ensure that Verdo’s energy and supply business becomes a value-adding local partner in the green transformation and urban development, and to ensure competitive prices, increased customer focus and digitalisation. In recent years, I’ve been involved in the green transformation and digitalisation of the energy sector, and therefore my work at Verdo will focus on furthering Verdo’s green and digital agenda,” says Brian Seeberg.
and facilitate the transition from gas to greener alternatives in existing areas. District heating is the most common heat source in Denmark for three reasons: district heating is uncomplicated, cheap and green. 93% of our supply customers in Randers and Herning have opted for district heating as their source of heat. Every day, Verdo Energi og forsyning is working to maintain a clean water supply to our customers in Randers. Among other things, we are involved in a partnership to develop new water filtration and purification methods.
Energi, forsyning og elsalg At Verdo, we are constantly working to expand district heating to new areas
• 2020 was a warm year, leading to a reduced demand for heating and falling revenue.
Annual report 2020
39
• In August 2020, Verdo reduced the price of heating by about 7% in Herning. In Randers, heating and water prices are among the lowest in Denmark. • In 2020, we set up a head office in Herning to remain close to our district heating customers and business partners in the municipality. • A lot of work also went into improving relations with local communities in
Randers and Herning and solidifying the cooperation on the municipalities’ climate plans.
• Verdo Produktion A/S became part of the Energi, forsyning og elsalg division in March 2021 and is therefore covered under Energy on page 28.
• There were two factors which affected revenue in 2020: the warm winter in 2020, which led to lower sales, and low electricity prices, which led to poor results in Verdo Produktion A/S and lower revenue in Verdo Elsalg.
The table comprises: Verdo Varme A/S, Verdo Varme Herning A/S, Verdo Herning A/S, Verdo Vand A/S and El-net Kongerslev A/S
Ratios
All figures in DKK ‘000
2020
2019
Revenue
583,323
496,529
EBITDA
127,142
92,782
-168,312
11,720
89,894
107,335
Net profit/loss for the year Investments Equity
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Annual report 2020
202,277
-59,022
• Office environment for Verdo Varme Herning A/S and Verdo Teknik A/S is approx. 260 m2 • Office environment for Verdo Energy Systems A/S is approx. 200 m2 • Canteen is approx. 55 m2 • The rest is used for storage
Par tner
New 1,651 m2 head office in Herning
Customer proximity creates value
“
It allows us to maintain our good relationship with the municipality as well as our close ties and good local knowledge of our partners and customers in Herning and the surrounding area.
I
Sigurd Asser Jensen, Department Manager, Verdo Varme Herning A/S
n 2019, Verdo took over the district heating distribution in Herning and the surrounding area, thereby becoming Denmark’s fifth largest district heating distributor. In August 2020, Verdo Varme Herning A/S relocated its 20 employees to a new head office building close to Herning, the local power plant and the motorway. The 20 employees were joined by 10 employees from Verdo Teknik A/S, followed by another 10 employees from Verdo Energy Systems A/S in January 2021. Instead of focusing on potential economies of scale created by gathering the activities at our head office in Randers, Verdo decided to take a different approach and concentrate on the benefits of being in close proximity to our customers.
“It allows us to maintain our good relationship with the municipality as well as our close ties and good local knowledge of our partners and customers in Herning and the surrounding area. So when we say that it should be easy to be a customer with Verdo, we have the actions to back it up,” says Sigurd Asser Jensen, Department Manager, Verdo Varme Herning A/S. Record number of new district heating customers It has been a great year for the district heating supply in Herning. Verdo Varme Herning A/S welcomed 318 new district heating customers in 2020, which is a new record. The company is looking forward to welcoming even more
customers in 2021, which will see a large number of new land developments around Herning. In August 2020, Verdo Varme Herning A/S reduced the price of heating by about 7%, and in 2021 we will lower the price even further by about 6%. The price of heating a standard 130 m2 home with a standard consumption of 18.1 MWh has now been reduced to approx. DKK 10,275 per year, equal to a reduction of DKK 600 in 2021. The reason for the price reduction is an operating profit from previous years which is passed on to our heating consumers.
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Verdo’s business model Resources
Activities
• People • Capital • Knowledge • Innovation • Wood • Solar
Strategic business
Development and installation: • Biomass • Energy plants • Street lighting • Waterworks • Fibre-optic networks
• Water
• Electrical installation
• Coal
• Charging stations
Value Operation and
Trade:
maintenance:
• Biomass
• District heating
Regulated:
• District
• Power
• District heating • Water • Energy plants • Street lighting • Fibre-optic networks
systems Other
• Electricity grids
Annual report 2020
• Drinking water
• Technical
• Contributes to CO2 emissions
carbon
• Contributes to CO2 reductions
• Electricity sales
• Danish and international jobs • Tax payments in Denmark • Cultural and sports sponsorships in local communities
• Traffic and parking
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heating
CSR – Corporate Social Responsibility
CSR – Corporate Social Responsibility Statutory statement on corporate social responsibility pursuant to section 99 a of the Danish Financial Statements Act
V
erdo’s vision is to be one green step ahead – together. Contributing to the green transformation and delivering sustainable energy are part of our corporate social responsibility. It is an important vision, because worldwide fossil fuels still account for more than 80% of the planet’s total energy consumption. In 2015, the UN adopted 17 Sustainable Development Goals (SDGs) which are to be achieved by 2030. The SDGs provide a new and improved framework for how companies can help solve the big global climate challenges. Verdo acknowledges that we are part of the problem, but we are also part of the solution. That is why we have a firm commitment to the UN’s 17 SDGs. Verdo contributes directly or indirectly to all 17 SDGs. However, our special expertise enables us to contribute solutions to address specific SDGs. In 2019, we incorporated SDG 6 Clean water and sanitation, SDG 7 Affordable and clean energy and SDG 13 Climate action into our strategy. This work continued in 2020.
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Environment and climate The world is facing significant climate challenges. Science has shown that we need to limit the global temperature increase to 1.5 °C to protect life on Earth. If we fail, it is likely to have lasting consequences for the environment and people. To keep the global temperature increase below 1.5 °C, we need to halve global CO2 emissions by 2030 and reduce them to zero by 2050. This is explained in the IPCC Special Report on the impacts of global warming of 1.5 °C report. Sustainable energy is our key focus area. It is at the heart of Verdo and therefore a natural part of our activities. We create solutions with a focus on energy efficiency and lower utility prices, CO2 and NOx reductions as well as ensuring a clean and abundant water supply. SDG 6 Clean water and sanitation In Denmark, we all have access to clean drinking water – a resource most people take for granted. However, like in the rest of the world, our drinking water is under threat from pollution. Verdo is therefore continuously stepping up its efforts to protect our groundwater and ensure clean drinking water for consumers in the local community. In 2020, 48 water samples were taken at waterworks and at consumers connected to the supply network under the statutory analysis
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programme. All water samples complied with the water quality requirements. In addition to the samples required by law, we take water samples every two weeks for own testing using BactiQuant analysis, which provides a comprehensive quantification of total bacterial presence in one water sample. SDG 7 Affordable and clean energy SDG 7 is about ensuring access to affordable, reliable and sustainable energy. Our approach is to increase the use of certified biomass in the form of wood chips and keep coal consumption to an absolute minimum. This way, we gradually reduce our CO2 and NOx emissions from year to year. Every year, we replace an increasing number of street lights with LED technology to reduce energy consumption and CO2 emissions caused by lighting. In addition, we are working intensively to offer customers relevant infrastructure that promotes the green transformation. SDG 13 Climate action SDG 13 is about taking urgent action to combat climate change by, among other things, reducing the impact of greenhouse gases. That is why Verdo
has a long-standing commitment to using surplus heat from the industry. In Randers, we are working with the retailer Bilka, the crematorium and the regional hospital to recover their waste heat from production instead of releasing it into the atmosphere. The 2018 energy agreement states that, in the future, the use of surplus heat from businesses must be improved for the benefit of citizens and for the environment. Better use of surplus heat reduces consumer heating costs and fuel consumption in heat production. In 2020, Verdo’s initiatives in this area corresponded to the annual heat consumption of some 89 households. In 2021, we will explore further opportunities for utilising surplus heat in Randers and Herning. The growing wood consumption – both in the energy sector and in the construction sector – increases the need for sustainable forestry. This creates a natural focus on certification and documentation, where international certification programmes have an important role to play. The certifications reflect our joint commitment to responsible forestry. Therefore, Verdo enters into partnerships with our suppliers and industry associations to push the market and the forest industry in a more responsible direction.
CO2 emissions by more than 90% compared to using coal as fuel. Coal thus emits more CO2 than wood, and while plants absorb CO2 over decades, for coal it takes millions of years. Trees can play a vital role in solving global climate challenges and have a naturally excellent ability to suck CO2 from the air. For example, a large beech tree with a diameter of 50 cm and a height of 26 metres can bind carbon equivalent to 4.30 tonnes of CO2 during its lifetime. Photosynthesis is the forests’ natural way of helping the environment. We are already planting trees and protecting forest areas – in 2016, we helped to plant the Oust Mølle Folkeskov forest, and in 2019 we acquired the 39-hectare Randers Sønderskov forest. However, in 2020, these efforts were hampered by the COVID-19 pandemic. We hope to plant more trees in 2021. Efforts and results Thanks to our talented employees at the Randers Kraftvarmeværk CHP plant, the efficiency of the plant was very high in 2020, resulting in reduced fuel consumption and CO2 emissions. The high efficiency of the plant is the result of intense operating and optimisation efforts. Since 2002, Randers Kraftvarmeværk has reduced CO2 emissions by 99.2%. The conversion of Randers Kraftvarmeværk has been key to reducing the carbon footprint of our district heating production and thus mitigating the negative climate impact. In 2020, our consumption of biomass at the CHP
Certification of forest area and forest products
plant totalled 180,898 tonnes, while coal accounted for only 444 tonnes or 0.24% of our total fuel consumption. Overall, we reduced our CO2 emissions by 13% from 2,994 tonnes in 2019 to 2,606 tonnes in 2020, mainly by optimising our production planning and operational reliability. In 2020, our coal consumption increased slightly compared to last year. We only use coal as backup fuel in case of problems and to start up the boilers after a stop. Verdo focuses on reducing NOx emissions, among other things by carefully analysing and optimising the composition of the biomass. In 2020, we successfully reduced NOx emissions by 31,793 kg by reducing fuel consumption and using biomass with a lower nitrogen content. This represents a reduction of just over 16% from 2019 to 2020. In the same period, we reduced CO2 emissions by 13% or 388 tonnes, corresponding to the annual CO2 consumption of 23 Danes. According to data from CONCITO, each Dane emits an average of 17 tonnes of CO2 to the atmosphere each year. The data is based on figures from The Global Resource Footprint of Nations report, which examines the consumption of individual nations. If Denmark is to meet its goal of reaching climate-neutrality by 2050, the CO2 emissions of each Dane must be reduced to less than 2 tonnes annually.
CSR – Corporate Social Responsibility
Sustainable biomass All wood-based biomass sourced by Verdo must be certified by reputable and independent organisations. This helps to maintain forest ecosystems, ensure responsible and lawful work processes and give forestry-intensive countries economic incentives to develop sustainable production methods. To make sure that our fuels come from sustainable sources, we are FSC® CoC and SBP CoC-certified. Verdo is also one of the first major biomass suppliers in Denmark to obtain NEPCon Generic CoC certification. PEFC TM Chain of Custody Certification is one of the world’s leading forest certification systems which certify the forest area and the products it supplies. PEFC TM-certification verifies that the wood comes from forests where biodiversity, the environment, workers’ rights and local populations are protected. The wood can be traced from the forest to the sawmill and from there on to the shop or incinerator. The certifications provide assurance that we ensure that we source sustainably and responsibly, and that the biomass is produced safely from an economic, social and environmental perspective. We have also been involved in the drafting of Danish energy companies’ industry agreement on sustainable biomass. According to the agreement, 90% of all fuel used in the industry must be certified and come from sustainable sources. Verdo sees sustainable biomass as a green step towards a fossil-free future. By using biomass, we can reduce
Since 2015, Verdo has supported independent certification programmes that ensure sustainable forestry and safe production of wood-based fuels. We do this because we believe that fuel production must be sustainable and that sustainability must be documentable. Today, we hold several Chain of Custody certifications (CoC) – FSC® CoC, PEFCTM CoC, SBP CoC and Biomass Producer certification and NEPCon Generic Chain of Custody certification.
FSC® (Forest Stewardship Council®)
Certification of forest area and forest products • Social and environmental responsibility • Promotes compliance with the EU Timber Regulation (EUTR) • Ensures sourcing of sustainable wood-based biomass and adherence to the industry agreement
SBP (Sustainable Biomass Programme)
Certification of producer and their products • Ensures that biomass is produced and transported responsibly • Ensures detailed documentation and CO2 accounts • Ensures sourcing of sustainable wood-based biomass and adherence to the industry agreement
PEFC TM (Programme for the Endorsement of Forest Certification)
Certification of forest area and forest products • Social and environmental responsibility • Promotes compliance with the EU Timber Regulation (EUTR) • Recognises other existing national certification systems • Ensures sourcing of sustainable wood-based biomass and adherence to the industry agreement
NEPCon (Generic Chain of Custody certification)
Certification of the chain of custody documentation system, where our FSC, PEFC or SBP procedures are not relevant • We use it to document the chain of custody when sourcing biomass from Danish forests – biomass that meets the requirements for alternative documentation for adherence to the industry agreement
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Energy production at Verdo LED optimisation In 2020, we energy-optimised and replaced 5,000 street lights with climate-friendly LED technology, resulting in annual savings of 1,200 MWh for the municipalities involved. The lower energy consumption of LED lights also provides a sizeable CO2 reduction of about 575 tonnes. This is equivalent to the annual CO2 consumption of about 34 Danes. At our head office in Randers, we switched to LED lights in 2018, saving 43,853 kWh and just over 20 tonnes of CO2 a year. This is a natural extension of our target of 100% green power use at Verdo – a target we have now achieved. The target is inspired by SDG 7 Affordable and clean energy. Green power In 2013, we began offering our customers green power as an alternative to conventional power based on fossil fuels. Today, we offer green power to all our customers, and all power used by the Group is also 100% green. Verdo takes the green transformation seriously. Not only within the Group, but also in relation to the electricity products we offer our customers. Verdo still has some way to go as we are still following the one-leaf model. In the long term, the aim is of course to meet all the requirements of the two-leaf model. In 2021, we will continue our determined efforts to achieve this goal to make it even easier for our customers to choose 100% green power in the future.
Green power Category
Electricity product
1.
Electricity product based on renewable energy sources and additional climate action with a significant climate impact
2.
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Action against pesticides In Denmark, we use about 20 tonnes of pesticides in our gardens every year. One drop of pesticide in the groundwater is enough to make 10 million litres of water unsafe to drink. Tests of 250 water bores across Denmark have shown excessive levels of pesticides in the groundwater. In our efforts to ensure clean drinking water, the use of pesticides on all our premises has been prohibited since 2017. The premises cover a total area of 430,000 m2, which corresponds to an area the size of 65 football fields. The action reflects our support for the ‘Giftfri Have’ pesticide-free garden project launched by the Danish Society for Nature Conservation and the Danish Association of Practical Ecology. The Municipality of Randers followed suit in 2019, and in 2020 more local players decided to back the project. In 2020, we were unable to celebrate UN International Water Day due to COVID-19. Normally, we celebrate the day with more than 500 schoolchildren in collaboration with Vandmiljø Randers and Randers Naturcenter, among others. Our goal is to share knowledge about water and also support and strengthen the involvement of local communities in improving water and sanitation management, and will therefore celebrate Water Day with an online event in 2021. New vehicle policy In 2020, we introduced a new vehicle policy for Verdo’s white-plate and yellow-plate vehicles as we want to demonstrate environmental responsibility by optimising our entire fleet.
Source: New two-leaf scheme from Danish Energy
Documentation requirements
1. Guarantee of origin 2. Individual declaration showing that the power is sourced from 100% renewable energy sources 3. Description of climate action 4. Climate action must be documentable 5. Climate impact must be documentable Electricity product based 1. Guarantee of origin on renewable energy 2. Individual declaration showing that the sources without additional power is sourced from 100% renewable climate action energy sources
Annual report 2020
‘Green Power’ or similar climate statement Yes. Information about category may be used in marketing material
Yes, but information about category must appear in marketing material.
We want to do this by: • monitoring the operating costs of our yellow-plate fleet • focusing on reducing total emissions of environmentally harmful substances in exhaust gases • encouraging our employees to consider electric or hybrid vehicles when choosing a company car. Moreover, it will only be possible to lease vehicles that meet the CO2 emission limits of 130 grams of CO2 per km. Verdo’s goal is to reduce the CO2 emissions of our entire vehicle fleet by 70% by 2030. Energy savings The energy-saving efforts of Danish energy companies require us to identify and realise energy savings each year, which must be reported to the Danish Energy Agency at the end of the year. In 2020, the total target for Verdo was 50,000 MWh. We have achieved savings of 52,075 MWh. The energy companies’ energy-saving efforts ended at the end of 2020 and will be replaced by new programmes that do not impose a commitment on the energy companies. Verdo’s activities concerning energy subsidy payments thus came to an end at the end of 2020. Conclusion Our environmental and climate efforts in the areas of CO2 reduction, fuel sourcing, green district heating and reasonable utility prices produced satisfactory results in 2020. In 2021, we intend to step up our work on the 17 SDGs. To this end, we have entered into a partnership on the goals with the Municipality of Randers. The aim is to raise general awareness of the SDGs and point out ways citizens and businesses can contribute to achieving the goals.
CSR – Corporate Social Responsibility
Social conditions and working environment Statutory statement on corporate social responsibility pursuant to section 99 a of the Danish Financial Statements Act We see it as part of our corporate social responsibility to contribute to growth, knowledge sharing and development, create new local jobs, support sports, culture and associations through sponsorships and support the local community as a whole – both in the Municipality of Randers, where Verdo is one of the largest employers, and in the Municipality of Herning. Policy for social activities Verdo wants to retain and develop our existing workforce while at the same time attracting new employees and thus giving back to the local community we are part of by creating new jobs. That is why we are working actively to be an attractive workplace by promoting sports, cultural and social activities among our employees. Social activities In most areas, 2020 was a year in the shadow of COVID-19. Bans on large assemblies and lockdowns significantly impaired our ability to organise social initiatives and activities for our employees.
Verdo’s dedicated employees usually participate in local running and cycling events. We call the initiatives ‘Den Gode Energi’ or Good Energy. This has been extremely difficult in 2020, and most of the events we normally participate in have either been cancelled or postponed due to COVID-19. In 2020, we continued our internal dialogue meetings, where all employees can put questions to the CEO. However, the meetings were primarily held online as most employees were working from home for much of the year. The purpose of the dialogue meetings is to contribute to a more open and transparent organisation, and the initiative gained strong internal support. Verdo participated in the ‘Knæk Cancer’ campaign to run, walk or cycle to raise awareness of cancer. To stay in touch, we also held virtual coffee meetings and walkand-talk meetings. In 2020, our hunting club was able to go hunting despite the COVID-19 restrictions. Verdo’s cycling club managed to arrange a cycling race starting at our head office in Randers, and after the race we got together over beers and sausages. Furthermore, we moved the Good Energy initiative to Instagram, where
employees could share pictures of their home office with their colleagues. During the pandemic, we also increased the news communication to our employees with daily and weekly Corona News, which helped to navigate the events of the crisis and illustrate its impact on the employees’ everyday lives. We have many other staff benefits that continue regardless of lockdowns and restrictions, including training opportunities, health insurance, attractive pension schemes and personal pension talks for white-collar and hourly paid workers. Verdo has always made a point of working with educational institutions to set up traineeships, apprenticeships and internships. In addition, we are working with the Municipality of Randers to meet the need for testing the ability to work of unemployed citizens and citizens on long-term sick leave. Health and safety Half of our approx. 550 employees work on construction sites, in warehouses and in production on a daily basis. Therefore, we have health and safety standards and are committed to reducing the number of workplace accidents. We also give high priority to the psychological working
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Increased number of apprentices and trainees Verdo has always been a supporter of training and education and has set up attractive internships and apprenticeships for the talents of the future. In recent years, we have welcomed a growing number of apprentices into our business, much to our delight. In 2020, the target for Teknik was for apprentices to account for 15% of the total number of technicians. This target was achieved for the third year in a row. In Energy, apprentices accounted for 14% in both Verdo Energy Systems A/S and Verdo Energiteknik A/S. Verdo Energy Systems A/S and Verdo Energiteknik A/S had 12% apprentices, which is equivalent to 7 out of 58 hourly paid workers. The two companies were merged on 1 January 2021. In 2020, we set up two new flexi jobs to retain staff, but job training opportunities were hampered by COVID-19. The benefits of internships are assessed to be insignificant due to the large number of employees working from home, and so we only had six interns in 2020. Focus on health and safety Overall, Verdo has seen a small increase in workplace accidents and near-misses of 11%. Given our goal of reducing the number of workplace accidents, this is an unsatisfactory development. In 2019, we recorded
a total of nine workplace accidents, resulting in a total of 103 days of absence. Days of absence fell to 93 days in 2020, but the number of workplace accidents rose to 10. Moreover, we recorded 98 near-misses in 2020. To reduce the number of workplace accidents among our technicians, they have all received safety training via instruction videos, followed by a test. Climate-friendly canteen food Verdo’s green sustainability agenda also extends to our canteen at the Agerskellet location in Randers, which not only provides meals to our employees there but also to the CHP plant at the Port of Randers. In addition to being climate-friendly, healthy organic food is also good for the physical and mental well-being of our employees. We strive to use Danish organic produce wherever possible. We are aware that meat production has a considerable climate impact. To minimise this impact, we use meat sparingly in our canteen and focus on animal welfare when sourcing meat. Moreover, we are always looking for new ways to reduce and reuse surplus food. Our food waste is sent to a processing plant in Hedensted, where it is used in the production of biogas. This work continued in early 2020, but when the pandemic hit in March 2020, the canteen was closed completely for a while, later operating on a reduced and more flexible schedule. As a result, comparisons with previous years are not possible. Women and men in management Statutory statement on the gender composition of management bodies pursuant to section 99 a of the Danish Financial Statements Act Workplace diversity remains an important issue in Denmark, and at Verdo we believe that diversity creates value and is a strength for our employees and the business that we can convert into results. A highly diverse management team improves the scope for managing and assessing the various aspects that enable the company to live up to its values and the expectations of the outside world. However, we still have some work to do in this area. 80% of Verdo’s employees are men, and the share of women gets smaller, the higher up the management hierarchy you get. We are not the only company in the energy sector to face such challenges, but we are determined to do what we can to overcome them. That is why, in 2020, we stepped up our efforts to redefine our diversity targets towards 2030, and we
are currently looking into defining subtargets for 2023 and 2027. The targets must apply at all management levels in the organisation. In 2020, the number of female middle managers at management level 1 grew from 9.5% to 12.5%. This means that we still have some way to go to reach our target of 25% female managers at management level 1. Female managers at management level 2 are typically found in staff functions, where the diversity of the recruitment base is usually broader. Here we saw an increase from 17.5% in 2019 to 20% in 2020, thus achieving our target of 20% for 2020. At management level 3, one in seven directors is a woman. This is equivalent to 14% and therefore above our target of 10%. In connection with the recruitment of Verdo’s new CEO, we had a specific requirement that the final pool of candidates should include female candidates. This is a new approach designed to help eliminate gender bias in the recruitment process.
CSR – Corporate Social Responsibility
environment and to well-being. Verdo conducts workplace assessments to determine the extent of any work-related sickness absence. If we identify cases of work-related sickness absence, we draw up a clear action plan to reduce sick leave and increase well-being among our employees. In 2020, our Næstved location was awarded a green smiley by the Danish Working Environment Authority. It is a relatively new location, where there has not previously been a special focus on a good and safe working environment. There is now, and the employees have welcomed the change. In 2020, we also introduced a variety of measures to prevent COVID-19 infection among our office workers and technicians. Several instructions were prepared on safe practices and conduct among ourselves and when dealing with people outside the company to prevent infection in the workplace. In 2020, we also completed a new workplace assessment survey in Verdo A/S, Verdo Varme Herning A/S, Verdo Tele A/S and Verdo Teknik A/S.
Women on the Supervisory Board Verdo also wants to increase the number of women on the Supervisory Board. This represents a particular challenge because Verdo is a consumer-led company and thus has no say in who is elected to the Supervisory Board. Nevertheless, we encourage our female talents to run for the employee-elected positions on the Supervisory Board. The Board of Representatives has a total of 45 members from Herning and Randers, nine of whom are women. This corresponds to 20%. Only one of the 12 members of Verdo’s Supervisory Board is a woman, corresponding to 8%. For several years, Verdo has been calling on the Board of Representatives to focus on the underrepresented gender when appointing the Supervisory Board. We will step up these efforts until the next election to the Board of Representatives in 2022. The situation is different for the employee-elected members of the Supervisory Board, where two out of the four members are women, i.e. 50%. Some of our subsidiaries have their own supervisory boards. The members are recruited from among the members of the Group Management, which means that they are subject to the same gender diversity target. Women are represented in 13 of our 18 subsidiaries, which usually have one woman and two men. The share is unchanged from 2019. Our focus on improving the gender balance on our supervisory boards continues in 2021.
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Sponsorships and partnerships With our partner and sponsorship policy, we want to promote awareness of sustainability and green energy and create value for the communities we operate in. Sport and culture help bring people together in communities that create value for the individual person and society. That is why we have supported sport for many years, most notably as the main sponsor of Randers FC, a sponsorship which dates back to the early days of the club. In 2020, we added Randers HK’s women’s handball team, the Herning Blue Fox ice hockey team and various local events to our list of sponsorships. We strive for diversity in our sponsorships, which is why we also support culture. In 2020, we did so through our sponsorship of the Værket venue in Randers and its wide range of cultural events, from opera and ballet to music concerts, theatre productions and shows for the entire family. We also
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raised money for the ‘Broen’ project – a social project for disadvantaged children in Randers. In the future, we will give priority to supporting activities for disadvantaged children. For us, citizenship and social responsibility are about building a mutual and value-creating relationship between Verdo and the rest of society. We therefore get involved where we can make a difference. Even a small helping hand can have a big impact on the individual person and the local community. As a result, we will work to ensure a greater breadth in our sponsorships in 2021. This will mean that we will have to slightly scale back our support to some of those who have received large donations in the past to enable us to support small players and passionate individuals in the local community. Conclusion Our employee benefits help to make Verdo an attractive place to work and
have ensured successful recruitment of more apprentices and students. We recruited more female managers in 2020, but unfortunately did not meet our target at all levels. The same applies to our supervisory boards, where the gender distribution is very unequal. For several years, we have encouraged our female talents to run for the employee-elected positions on the Supervisory Board. Likewise, Verdo has been calling on the Board of Representatives to focus on the underrepresented gender when appointing the Supervisory Board. Based on the positive feedback we have received on our sponsorships, we have succeeded in giving something back to the local communities we are part of. We make a difference to culture, sport and in respect of our corporate social responsibility.
Human rights are one of the cornerstones of the 10 principles of the UN Global Compact and of the UN’s 17 SDGs. We respect and are inspired by both across our business model. Verdo’s key value is ‘We conduct ourselves with decency’. As a result, our organisation is characterised by openness, respect and a sense of equality among our employees and in the dialogue between the management and the employees. It also means that we strive to integrate and respect the universal human rights. At Verdo, human rights translated into employee rights also include, for example, health cover in connection with illness and a pension scheme. Efforts and results For several years, Verdo has worked purposefully to ensure compliance with the updated General Data Protection
Regulation (GDPR). In addition, we have developed a number of in-house procedures for dealing with security breaches. To ensure efficient processes throughout the business, we have conducted awareness training for our employees and posters have been put up to maintain a continuous focus on GDPR. Moreover, we have implemented personal data anonymisation methods in our settlement system. In 2020, the project entered an operating phase, and we have therefore primarily worked to improve in-house processes and maintain GDPR compliance. As a natural extension of our compliance efforts, we have sharpened our focus on the new whistleblower directive. It allows employees to report information about unlawful behaviour or serious irregularities without fear of retribution. The scheme will help to increase credibility and employee confidence in the
management and the company’s business processes. However, it is important to see the scheme as a supplement to the existing dialogue and openness in the company. The Verdo Code of Conduct for Suppliers stipulates that our international suppliers must respect human rights as regards, for example, working hours, prohibition of child labour, health matters and the environment. We continuously assess these requirements to determine whether additional requirements should be imposed on suppliers.
CSR – Corporate Social Responsibility
Respect for human rights
Conclusion Human rights are respected by both the Verdo management and Verdo employees. Our dialogue is open and characterised by a sense of equality, and our values aim to ensure that employees and managers treat each other with respect and trust.
Anti-corruption and anti-bribery Corruption and bribery are real challenges in many parts of the world and constitute an important obstacle to economic development in the countries where such practices are widespread. Moreover, these practices also constitute an obstacle to agreements being made in open competition and in an ethically and legally sound manner. Policy Verdo pursues a policy of zero tolerance to corruption and bribery. We operate across national borders, and our anti-corruption and anti-bribery policy is therefore inspired by the principles of the UN Global Compact. The policy contains guidelines on how to conclude contracts without offering or providing bribes, facility payments, gifts or entertainment. The policy is as follows: Bribery: The abuse of entrusted power for private gain is unacceptable.
Facility payments (‘grease payments’) are unacceptable. If observed, such practices must be registered. Gifts and entertainment: No gifts, entertainment or services clearly intended to influence a decision may be given or received. The policy aims to increase awareness of corruption among employees and business partners and understanding of how we combat corruption and bribery in our business activities. At the same time, we require that our trading partners adhere to the guidelines. Efforts and results Verdo has carefully considered the markets and parts of the business in which it is particularly important to address anti-corruption and anti-bribery. In Verdo’s opinion, it is expressly necessary to address these matters in Trading. Similarly, Trading’s trading partners are under an obligation to adhere
to the principles of anti-bribery and anti-corruption. All Trading employees with procurement responsibilities are required to adhere to the Group’s general guidelines for the procurement of woodbased fuels (‘Overordnede retningslinjer for indkøb af træbaserede brændsler’) from 2015. All Trading suppliers are also required to follow the Verdo Code of Conduct for Suppliers. The supplier must be able to demonstrate compliance with the guidelines at all times at Verdo’s request. We continuously follow up on the policy and our suppliers’ compliance. In 2020, we reviewed our Code of Conduct to step up our efforts in this area. Conclusion Verdo enforces its policy of zero tolerance to corruption and bribery to ensure that contracts are made in open competition and in an ethically and legally sound manner. So far, Verdo has not observed any breaches of the policy.
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Annual Annualreport report2020 2020
Financial statements 2020
2020 Financial statements
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 2020. 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 2020 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 2020.
Material uncertainties exist about matters in subsidiaries, including the statement of equity. Please refer to note 1 for further details.
The financial statements, including the auditor’s report (pages 52-74), are taken directly from the official annual report (except for the statement of changes in equity).
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N o t es
Accounting policies The annual report of Verdo A/S for 2020 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 2020 are presented in thousand Danish kroner (DKK).
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/S 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
54
Annual report 2020
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. Verdo A/S is included in the consolidated financial statements of Verdo S/I.
Minority interests Minority interests form part of the Group’s total equity. In the distribution of the profit/loss for the year, the profit/loss 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
Ac c o u nt ing po lic ies
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 generation 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.
Annual report 2020
55
N o t es 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.
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.
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.
Financial income and expenses Financial income and expenses are recognised in the income statement as the amounts relating to the financial year.
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.
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 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.
56
Annual report 2020
Ac c o u nt ing po lic ies
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.
Impairment of property, plant and equipment The carrying amount of property, plant and equipment is assessed annually for indications of impairment over and above any depreciation. In case of indications of impairment, the carrying amount is written down to the lower recoverable amount.
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.
Equity investments in subsidiaries Equity investments in subsidiaries are recognised and measured according to the equity method.
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.
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.
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 10-60 years Buildings 20-100 years CHP plant and peak-load stations 5-19 years Operating equipment 3-15 years Depreciation periods and residual values are reassessed annually.
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.
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.
Annual report 2020
57
N o t es 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 the 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.
Subordinate loans Subordinate loans include interest-only loans to consolidated companies.
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.
58
Annual report 2020
Ac c o u nt ing po lic ies
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.
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
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.
Solvency ratio
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
Definitions Gross profit is revenue less direct costs. Net interest-bearing debt is interest-bearing liabilities less interest-bearing assets.
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.
Annual report 2020
59
N o t es 60
Annual report 2020
Inc o me st at ement
GROUP
PARENT COMPANY
2020
2019
2020
2019
Note
DKK ‘000
DKK ‘000
DKK ‘000
DKK ‘000
Revenue
4
2,437,610
2,615,643
87,999
89,506
Other operating income
5
Work performed on own account listed under assets Costs of raw materials, consumables and auxiliary materials Other external expenses
Profit/loss before depreciation and amortisation (EBITDA) Depreciation, amortisation and impairment losses Other operating expenses
152
70
20,826
4,708
2,323
-1,936,194
-2,490,577
-1,201
-1,677
-143,939
-109,622
-65,123
-43,843
379,278
401,536
26,535
46,379
7
-295,979
-302,853
-61,262
-69,084
3/8
83,299 -453,171
98,683 -364,859
-34,727 -5,470
-22,705 -11,224
5
-6,941
-4,584
-16
0
-376,813
-270,760
-40,213
-33,929
Operating profit/loss (EBIT)
Income from equity investments in subsidiaries
365,266
6
Gross profit/loss Employee expenses
955 20,846
9
0
0
-356,546
-209,588
7,484
11,889
7,484
10,645
9
0
0
0
0
Financial income
10
2,630
5,103
12,763
12,287
Financial expenses
11
-37,843
-36,691
-16,512
-17,505
-27,729
-19,699
-352,811
-204,161
-404,542
-290,459
-393,024
-238,090
11,037
24,661
6,699
8,664
-393,505
-265,798
-386,325
-229,426
-14,017
-1,939
-14,017
-1,939
-407,522
-267,737
-400,342
-231,365
-400,342
-231,365
-7,180
-36,372
-407,522
-267,737
Value adjustment of earn-out Income from other equity investments
Total net financials
Profit/loss from continuing operations before tax Tax on continuing operations
3/12
Net profit/loss from continuing operations for the year Net profit/loss from discontinuing operations for the year
13
Net profit/loss for the year
The Group’s profit/loss for the year is distributed as follows: Shareholders in Verdo A/S Minority interests Total Distribution of net profit/loss
29
Annual report 2020
61
Balanc e sheet ASSETS
GROUP
PARENT COMPANY
31.12.20
31.12.19
31.12.20
31.12.19
DKK ‘000
DKK ‘000
DKK ‘000
DKK ‘000
218,630
244,319
0
0
4,165
4,028
0
0
222,795
248,347
0
0
Land and buildings
144,264
136,560
104,830
94,051
CHP plant and peak-load stations
428,535
523,528
0
0
1,195,491
1,374,901
0
0
Note NON-CURRENT ASSETS Goodwill Development projects Total intangible assets
14
Distribution systems and installations, and meters Operating equipment
44,290
55,621
5,436
7,650
Property, plant and equipment under construction
66,555
40,224
12,788
3,176
1,879,135
2,130,834
123,054
104,877
1,366,355
Total property, plant and equipment
15
Equity investments in subsidiaries
16
0
0
1,320,275
Other securities and equity investments
17
11
11
0
0
Other receivables
18
0
9,714
0
0
11
9,725
1,320,275
1,366,355
2,101,941
2,388,906
1,443,329
1,471,232
Raw materials, consumables and auxiliary materials
121,697
211,569
466
339
Total inventories
121,697
211,569
466
339
Trade receivables
309,764
426,066
475
5,777
Deficit receivable
1,068
967
0
0
0
0
155,089
243,189
Total financial assets Total non-current assets CURRENT ASSETS
Receivables from subsidiaries Construction contracts
19
68,335
54,030
0
0
Subordinate loans
20
0
0
0
285,852
Deferred tax assets
21
101,337
91,947
0
0
3,409
0
0
2,196
52,375
49,070
965
2,007
7,898
8,389
6,950
5,680
544,186
630,469
163,479
544,701
69,074
70,438
224
247
734,957
912,476
164,169
545,287
2,836,898
3,301,382
1,607,498
2,016,519
Income tax receivable Other receivables Prepayments Total receivables Cash Total current assets Total assets
62
Annual report 2020
Balanc e sheet
EQUITY AND LIABILITIES
GROUP
PARENT COMPANY
31.12.20
31.12.19
31.12.20
31.12.19
DKK ‘000
DKK ‘000
DKK ‘000
DKK ‘000
263,024
263,024
263,024
263,024
34,865
36,090
0
0
Proposed dividend
0
0
0
0
Retained earnings
171,858
562,451
206,722
598,540
Verdo A/S shareholders’ share of equity
469,747
861,565
469,746
861,564
80,825
88,473
0
0
550,572
950,038
469,746
861,564
Note EQUITY Share capital Revaluation reserve
Minority interests Total equity NON-CURRENT LIABILITIES Deferred tax
21
0
0
515
5,394
Surplus income, water supply, investment grants and pension obligations
22
309,284
293,555
20,495
19,477
Lease commitments
22
9,629
12,514
224
563
Mortgage credit institutions
22
223,500
245,212
39,320
42,113
Timing differences, provision and surplus income, Danish Heat Supply Act
23
717,876
842,481
0
0
Credit institutions
22
81,204
99,346
81,204
99,346
Other provisions
24
22,415
4,321
0
0
1,363,908
1,497,429
141,758
166,893
Total non-current liabilities CURRENT LIABILITIES Surplus income, water supply, investment grants and pension obligations, provision
22
22,581
19,038
725
750
Lease commitments
22
5,545
6,096
300
408
Mortgage credit institutions
22
22,814
22,970
2,977
2,681
Timing differences, provision and surplus income, Danish Heat Supply Act
23
223,906
131,946
0
0
142,033
130,845
131,719
86,222
Credit institutions Construction contracts
19
Trade payables Payables to subsidiaries
23,819
32,357
0
0
188,197
226,428
8,570
6,949
0
0
777,452
755,162
20,382
20,428
20,382
20,428
147
845
126
0
225,524
262,530
53,743
115,462
47,471
432
0
0
922,418
853,915
995,994
988,062
Total liabilities
2,286,327
2,351,344
1,137,752
1,154,955
Total equity and liabilities
2,836,898
3,301,382
1,607,498
2,016,519
Payables to group enterprises Income tax payable Other payables Deferred income Total current liabilities
Material uncertainty regarding recognition and measurement
1
Events by status
2
Special items
3
Charges and guarantees
25
Contractual obligations and contingencies
26
Related parties
27
Interest rate risks and use of financial instruments
28
Annual report 2020
63
St at ement o f c hanges in equ it y
STATEMENT OF CHANGES IN EQUITY
GROUP
Share capital
Proposed dividend
Revaluation reserve
263,024
10,000
37,339
0
0
0
Distributed dividend
0
-10,000
0
Foreign currency translation adjustments of subsidiaries
0
0
0
Realised revaluation
0
0
-1,249
Pension obligations
0
0
0
Amounts in DKK ‘000
Note
Balance as at 1 January 2019 Transferred via distribution of net profit/loss
29
Value adjustment of hedging instruments: Beginning of year
0
0
0
Year-end
0
0
0
Tax on equity items
0
0
0
263,024
0
36,090
0
0
0
Distributed dividend
0
0
0
Foreign currency translation adjustments of subsidiaries
0
0
0
Realised revaluation
0
0
-1,225
Pension obligations
0
0
0
Equity as at 31 December 2019 Transferred via distribution of net profit/loss
29
Value adjustment of hedging instruments: Beginning of year
0
0
0
Year-end
0
0
0
Tax on equity items
0
0
0
263,024
0
34,865
Equity as at 31 December 2020
64
Annual report 2020
Amounts in DKK ‘000
GROUP
Note
Retained earnings
Total
Minority interests
Equity Total
809,745
1,120,108
131,369
1,251,477
29
-231,365
-231,365
-36,372
-267,737
0
-10,000
0
-10,000
2,033
2,033
77
2,110
Balance as at 1 January 2019 Transferred via distribution of net profit/loss Distributed dividend Foreign currency translation adjustments of subsidiaries Realised revaluation
1,249
0
0
0
Pension obligations
-9,509
-9,509
56
-9,453
St at ement o f c hanges in equ it y
STATEMENT OF CHANGES IN EQUITY – continued
Value adjustment of hedging instruments: Beginning of year Year-end Tax on equity items Equity as at 31 December 2019 Transferred via distribution of net profit/loss Distributed dividend Foreign currency translation adjustments of subsidiaries
29
87,660
87,660
-7,568
80,092
-102,040
-102,040
-953
-102,993
4,678
4,678
1,862
6,540
562,451
861,565
88,471
950,036
-400,342
-400,342
-7,180
-407,522
0
0
0
0
-829
-829
126
-703
Realised revaluation
1,225
0
0
0
Pension obligations
-4,493
-4,493
-92
-4,585
Beginning of year
102,040
102,040
953
102,993
Year-end
-86,267
-86,267
-1,620
-87,887
-1,927
-1,927
167
-1,760
171,858
469,747
80,825
550,572
Value adjustment of hedging instruments:
Tax on equity items Equity as at 31 December 2020
Annual report 2020
65
St at ement o f c hanges in equ it y
PARENT COMPANY Net revaluation according to equity method
Proposed dividend
263,024
0
0
22,263
Distributed dividend
0
Foreign currency translation adjustments of subsidiaries
Amounts in DKK ‘000
Note
Balance as at 1 January 2019 Transferred via distribution of net profit/loss
29
Actuarial changes of pension obligations in subsidiaries
Share capital
Retained earnings
Total
10,000
847,084
1,120,108
0
-253,628
-231,365
0
-10,000
0
-10,000
0
2,033
0
0
2,033
0
-6,886
0
-2,623
-9,509
Value adjustment of hedging instruments: Beginning of year
0
32,276
0
55,383
87,659
Year-end
0
-56,538
0
-45,502
-102,040
Tax on entries on shareholders’ equity
0
6,852
0
-2,174
4,678
263,024
0
0
598,540
861,564
Equity as at 31 December 2019 Transferred via distribution of net profit/loss
0
0
0
-400,342
-400,342
Distributed dividend
0
0
0
0
0
Foreign currency translation adjustments of subsidiaries
0
-829
0
0
-829
0
-3,380
0
-1,113
-4,493
Actuarial changes of pension obligations in subsidiaries
29
Value adjustment of hedging instruments: Beginning of year
0
56,538
0
45,502
102,040
Year-end
0
-52,504
0
-33,763
-86,267
Tax on equity items
0
175
0
-2,102
-1,927
263,024
0
0
206,722
469,746
Equity as at 31 December 2020
The share capital consists of 263,024 shares with a nominal value of DKK 1,000. No shares enjoy special rights. There have been no changes in the share capital in the past five years.
66
Annual report 2020
Cash flo w st at ement
GROUP
Operating profit/loss (EBIT)
2020 DKK ‘000
2019 DKK ‘000
-376,813
-270,760
Discontinuing operations (EBIT)
-15,277
-101
Depreciation and amortisation, Other income and Other operating expenses
459,157
4,177
Investment grants
21,158
30,491
Other adjustments of non-cash operating items
19,079
-7,422
107,304
-243,615
Inventories
89,872
-111,230
Receivables
79,814
-2,493
Trade payables and other payables
-21,242
421,953
Cash flow from primary operations
255,748
64,615
Cash flow from primary operations before changes in working capital Changes in working capital:
Interest income, received Interest expenses, paid Income tax paid/refunded
2,630
5,103
-37,963
-39,075
7,251
-4,831
Cash flow from operating activities
227,666
25,812
Purchase of intangible assets and property, plant and equipment
-157,174
-293,125
Property, plant and equipment under construction, adjustment
-26,331
-1,119
-1,244
-159,019
Acquisition of subsidiaries/earn-out/debt conversion Long-term receivables
-15,105
-11,143
Sale of financial assets
0
680,844
Sale of intangible assets and property, plant and equipment Cash flow from investing activities Total cash flows from operating and investing activities Dividend paid Borrowings
3,602
1,430
-196,252
217,868
31,414
243,680
0
-10,000
42,688
15,125
Repayments on non-current liabilities
-86,692
-47,592
Cash flow from financing activities
-44,004
-42,467
Cash flows for the year
-12,590
201,213
0
-144,127
Cash as at 1 January
-41,909
-98,995
Cash as at 31 December
-54,499
-41,909
Cash, acquired enterprises
Cash as at 31 December is specified as follows: Cash
69,074
70,438
Short-term debt to credit institutions
-123,573
-112,347
Total
-54,499
-41,909
The cash flow statement cannot be derived directly from the consolidated financial statements.
Annual report 2020
67
N o t es
1. Material uncertainty regarding recognition and measurement Group: Returns on invested capital and loans in the heating activities For a number of years, the Group has been engaged in a dialogue with the Danish Utility Regulator on returns on invested capital for the Group’s heating activities and on transactions between the Group’s commercial and regulated activities. This concerns partly returns on invested capital collected for heating activities since 2000 and partly intercompany interest on loans in the heating activities since 2013. In 2019, the Danish Utility Regulator made a final decision in two cases concerning returns on invested capital in Verdo Varme A/S. In 2020, a final decision was reached in the case on returns on invested capital in Verdo Produktion A/S. Repayment has begun in the first two cases, while the Danish Utility Regulator’s approval of the repayment plan for the third case is pending. The Group continues to disagree with some of the decisions made in the Verdo Varme A/S cases and has lodged appeals with the Danish Energy Complaints Board. At present, it is not possible to estimate the extent to which the amount will be recognised should the appeals be upheld in whole or in part. The Group is still awaiting a decision on interest on loans in its heating activities, which is expected in the first half of 2021. As at 31 December 2020, an amount of DKK 124 million has been recognised in the accounting item Timing differences, provision and surplus income, Danish Heat Supply Act. Impairment of regulatory plant values In 2019, the Danish Utility Regulator reopened the cases on the regulatory plant values of the Group’s heating companies, and since then there have been several discussions on the matter.
In 2020, the Group introduced a new regulatory depreciation base, which resulted in impairment of the plant values of the Group’s heating companies. The impairment totals DKK 307 million, of which a provision of DKK 90 million was made in 2019. Consequently, the financial statements for 2020 are negatively impacted by DKK 217 million this year as a result of these cases. The dialogue with the Danish Utility Regulator is still ongoing. The impairment is not expected to result in refunds to heating consumers, but it will restrict Verdo’s ability to collect the amounts going forward.
Tax expenses collected At the beginning of 2021, the Group began discussions with the Danish Utility Regulator regarding possible repayment of taxes collected from customers of Verdo Varme A/S and Verdo Produktion A/S. The discussions concern the assessment of whether tax is a fully or partially necessary expense for these companies. At this stage, it is not possible to assess the potential accounting implications or when the discussions are expected to be concluded. It is our view that the item should not be recognised in the financial statements.
Parent company Recognition of decisions of 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 subsidiaries Verdo Varme A/S and 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 by status The general lockdown due to COVID-19 continued into 2021, making it difficult to conduct physical customer visits, in particular. This had an impact on Verdo’s commercial business areas. At the time of approval of the financial statements, the dispute with the Municipality of Randers about Verdo Vand A/S’s clean
68
Annual report 2020
water prices was nearing resolution. The prices charged by Verdo Vand A/S are lawful and include the refunds agreed upon. Therefore, no adjustment to the water prices is required in 2021. The water case has no impact on the financial statements.
N o t es
3. Special items In 2020, the Group had the following special items which have a material impact on the annual report: Impairment of plant values in the Group’s heating companies of DKK 307 million, including reversal of revenue of DKK 90 million set aside as a provision
for the depreciation cases in past years. Adjustment of Other external expenses concerning impairment of prepayments of DKK 29 million and a provision for energy-saving cases of DKK 18 million.
GROUP
Amounts in DKK ‘000
Net profit/loss for the year
Special items
Adjusted result
2,437,610
-90,000
2,347,610
955
0
955
20,846
0
20,846
-1,936,194
0
-1,936,194
-143,939
47,156
-96,783
Gross profit/loss
379,278
-42,844
336,434
Employee expenses
-295,979
0
-295,979
Revenue Other operating income Work performed on own account listed under assets Costs of raw materials, consumables and auxiliary materials Other external expenses
83,299
-42,844
40,455
Depreciation, amortisation and impairment losses and Other operating expenses
Profit/loss before depreciation and amortisation (EBITDA)
-460,112
307,309
-152,803
Operating profit/loss (EBIT)
-376,813
264,465
-112,348
-27,729
0
-27,729
-404,542
264,465
-140,077
11,037
0
11,037
-393,505
264,465
-129,040
-14,017
0
-14,017
-407,522
264,465
-143,057
Net financials Profit/loss from continuing operations before tax Tax on continuing operations Net profit/loss from continuing operations for the year Net profit/loss from discontinuing operations for the year Net profit/loss for the year The profit/loss of the parent company is affected by the same items; however, the impairment affects profit/loss from equity investments instead. The special items also affect the Group’s equity, which as at 31 December 2020 amounted to DKK 551 million, which without the special items would amount to DKK 815 million.
Annual report 2020
69
N o t es
GROUP
PARENT COMPANY
2020
2019
2020
2019
DKK ‘000
DKK ‘000
DKK ‘000
DKK ‘000
4. Revenue Breakdown of revenue by activity: Electricity supply
258,537
318,066
0
0
Water supply
24,519
25,202
0
0
Heat supply
427,435
379,570
0
0
Contract work, electricity, water, heating and energy solutions
473,491
411,099
0
0
1,083,124
1,838,978
0
0
Electricity generation
40,616
56,365
0
0
Fibre and telephony
30,423
29,163
0
0
Other
37,632
48,456
87,999
89,506
Sale of fuel and technical coal
Total revenue
2,375,777
3,106,899
87,999
89,506
Adjustment concerning previous years
90,000
-491,257
0
0
Discontinuing operations, see note 13
-28,167
0
0
0
2,437,610
2,615,642
87,999
89,506
1,581,848
1,597,883
82,759
85,466
249,405
504,753
5,240
4,040
0
0
0
0
120,327
181,899
0
0
28,167
53,454
0
0
396,030
768,910
0
0
2,375,777
3,106,899
87,999
89,506
Total revenue Geographical breakdown of revenue: Denmark Europe Africa and the Middle East Asia and Oceania UK North America Total
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. GROUP 2020
2019
DKK ‘000
DKK ‘000
6. Fees to auditors appointed by the annual general meeting Fee for statutory audit Assurance engagements Tax advice
70
846
721
82
112
372
160
Other services
6,795
1,504
Total
8,095
2,497
Annual report 2020
N o t es
GROUP
PARENT COMPANY
2020 DKK ‘000
2019 DKK ‘000
2020 DKK ‘000
2019 DKK ‘000
276,248
279,631
58,414
65,763
19,169
19,259
3,416
2,963
562
3,963
-568
358
295,979
302,853
61,262
69,084
3,295
0
0
0
299,274
302,853
61,262
69,084
5,369
1,955
5,639
1,955
0
11,775
0
11,775
528
526
103
93
7. Employee expenses Wages and salaries Pensions Other social security costs Total Discontinuing operations, see note 13 Total Remuneration of the Supervisory Board, the Board of Representatives and the Executive Board* Remuneration of the Executive Board* Average number of employees
*Remuneration of the Executive Board is not shown separately for 2020, as remuneration has been paid to one person only. Please refer to the remuneration report available at www.verdo.com. PARENT COMPANY
GROUP 2020 DKK ‘000
2019 DKK ‘000
2020 DKK ‘000
2019 DKK ‘000
8. Depreciation, amortisation and impairment losses Intangible assets
26,619
20,863
0
0
Property, plant and equipment
119,329
148,376
5,470
9,253
Property, plant and equipment, impairment
307,309
195,621
0
1,971
Total
453,257
364,860
5,470
11,224
-86
0
0
0
453,171
364,860
5,470
11,224
Discontinuing operations, see note 13 Total
9. Income from equity investments in subsidiaries and profit/loss from other equity investments Share of profit/loss in subsidiaries, see note 16, and proceeds from the sale of other equity investments, see note 17. GROUP 2020 DKK ‘000
PARENT COMPANY 2019 DKK ‘000
2020 DKK ‘000
2019 DKK ‘000
11,336
10. Financial income Interest income from subsidiaries Other interest income Other financial income Total
0
0
12,365
2,629
4,287
375
581
1
816
23
370
2,630
5,103
12,763
12,287
GROUP
PARENT COMPANY
2020 DKK ‘000
2019 DKK ‘000
2020 DKK ‘000
2019 DKK ‘000
35,084
37,857
15,633
17,902
2,879
1,218
879
-397
37,963
39,075
16,512
17,505
-120
-2,384
0
0
37,843
36,691
16,512
17,505
11. Financial expenses Interest expenses Other financial expenses Total Discontinuing operations, see note 13 Total
Annual report 2020
71
N o t es
GROUP 2020 DKK ‘000
PARENT COMPANY 2019 DKK ‘000
2020 DKK ‘000
2019 DKK ‘000
12. Tax on profit/loss for the year Current tax for the year Deferred tax for the year Tax concerning previous years Total tax on profit/loss for the year
-19,668
1,084
-2,301
-7,054
7,251
-26,290
-4,399
-1,607
0
-2
0
-3
-12,417
-25,208
-6,700
-8,664
Tax on profit/loss for the year comprises: -92,387
-64,448
-86,465
-52,380
Tax on profit/loss for the year in subsidiaries
Calculated 22% tax on profit/loss for the year
0
0
76,794
43,767
Tax on provision for heating cases
0
115,956
0
0
79,970
-76,714
2,971
-48
0
-2
0
-3
-12,417
-25,208
-6,700
-8,664
-11,037
-24,661
-6,700
-8,664
-1,380
-547
0
0
-12,417
-25,208
-6,700
-8,664
1,759
-6,540
2,102
2,174
-10,659
-31,748
-4,598
-6,490
Tax effect of: Non-taxable income and non-deductible expenses Tax concerning previous years Total tax on profit/loss for the year Tax on profit/loss for the year is distributed as follows: Tax on continuing operations Tax on discontinuing operations, see note 13 Total tax on profit/loss for the year Tax on changes in equity Total tax
2020 DKK ‘000
2019 DKK ‘000
13. Discontinuing operations Profit/loss from discontinuing operations is constituted by the following main figures: 28,167
0
Costs of raw materials, consumables and auxiliary materials
Revenue and other income
-32,607
0
Employee expenses and Other external expenses
-10,990
-101
Depreciation, amortisation and impairment losses and Other operating expenses Finance costs Profit/loss before tax Tax on discontinuing operations Net profit/loss from discontinuing operations for the year
153
0
-120
-2,384
-15,397
-2,485
1,380
546
-14,017
-1,939
The Group’s activities in the Netherlands were liquidated in the first quarter of 2020. In addition, the Group’s activities in the UK are in liquidation and are expected to be closed down in mid-2021. The profit/loss from operating activities is presented on a separate line in the income statement as ‘Net profit/loss from discontinuing operations for the year’. The Group’s balance sheet includes current assets of DKK 14,883 thousand and short-term debt of DKK 1,597 thousand relating to discontinuing operations.
72
Annual report 2020
N o t es
GROUP
Amounts in DKK ‘000
Goodwill
Development projects
Total
14. Intangible assets Cost as at 1 January 2020
335,009
4,498
339,507
Completed plants transferred from property, plant and equipment under construction
0
0
0
Additions
0
1,067
1,067
Disposals
0
0
0
335,009
5,565
340,574
Cost as at 31 December 2020 Amortisation as at 1 January 2020
90,690
470
91,160
Amortisation
25,689
930
26,619
0
0
0
Amortisation as at 31 December 2020
116,379
1,400
117,779
Carrying amount as at 31 December 2020
218,630
4,165
222,795
7-20 years
3-5 years
Amortisation, disposed assets
Amortisation period
Reasons for the amortisation periods for goodwill and development projects Verdo Energy Systems A/S and 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.
Annual report 2020
73
N o t es
GROUP
Land and buildings
CHP plant and peak-load centres
191,038
1,375,760
2,938,740
177,475
40,224
0
25,184
72,842
434
-103,514
-5,054
Additions
12,797
14,865
24,784
6,565
134,420
193,431
Disposals
-1,381
-19,223
-7,638
-19,628
-4,575
-52,445
0
0
0
0
0
0
202,454
1,396,586
3,028,728
164,846
66,555
4,859,169
54,478
852,232
1,563,839
121,854
0
2,592,403
Amounts in DKK ‘000
Distribution systems and installations, and meters
Operating equipment
Property, plant and equipment under construction
Total
15. Property, plant and equipment Cost as at 1 January 2020 Completed plant
Additions/disposals of acquired/divested companies Cost as at 31 December 2020 Depreciation and impairment losses as at 1 January 2020 Foreign currency translation adjustment Depreciation Impairment losses Depreciation, disposed assets Additions/disposals of acquired/divested companies Depreciation and impairment losses as at 31 December 2020 Carrying amount as at 31 December 2020 Depreciation period
4,723,237
0
0
0
157
0
157
4,318
48,854
50,557
15,600
0
119,329
0
86,188
221,121
0
0
307,309
-606
-19,223
-2,280
-17,055
0
-39,164
0
0
0
0
0
0
58,190
968,051
1,833,237
120,556
0
2,980,034
144,264
428,535
1,195,491
44,290
66,555
1,879,135
20-100 years
5-19 years
10-60 years
3-15 years
824
8,825
25,573
0
0
35,222
0
0
0
14,801
0
14,801
The carrying amount of property, plant and equipment includes the following: Value of recognised interest Value of lease assets
Disposal of assets under construction has been transferred to development projects (intangible assets).
74
Annual report 2020
N o t es
PARENT COMPANY
Operating equipment
Property, plant and equipment under construction
116,428
38,402
3,176
0
434
-434
0
Additions
12,797
886
10,046
23,729
Disposals
0
-4,015
0
-4,015
129,225
35,707
12,788
177,720
22,378
30,752
0
53,130
2,017
3,453
0
5,470
Impairment losses
0
0
0
0
Depreciation, disposed assets
0
-3,934
0
-3,934
24,395
30,271
0
54,666
104,830
5,436
12,788
123,054
5-100 years
3-10 years
0
960,788
0
960,788
Amounts in DKK ‘000
Land and buildings
Total
15. Property, plant and equipment – continued Cost as at 1 January 2020 Completed projects
Cost as at 31 December 2020 Depreciation and impairment losses as at 1 January 2020 Depreciation
Depreciation and impairment losses as at 31 December 2020 Carrying amount as at 31 December 2020 Depreciation period
158,006
The carrying amount of property, plant and equipment includes the following: Value of lease assets
PARENT COMPANY 2020 DKK ‘000
2019 DKK ‘000
2,047,102
2,063,009
16. Equity investments in subsidiaries Cost as at 1 January Additions
647,000
259,718
Disposals
0
-275,625
2,694,102
2,047,102
Value adjustments as at 1 January
-680,746
-209,909
Share of profit/loss
-370,198
-576,330
Cost as at 31 December
Dividend paid Entries on shareholders’ equity Negative equity in Verdo Varme A/S, offset against subordinate loans
0
0
-2
-22,263
-360,391
361,148
37.510
-233,392
Revaluations as at 31 December
-1,373,827
-680,746
Carrying amount as at 31 December
1,320,275
1,366,356
212,042
236,197
0
364,804
Disposals
Of which non-depreciated balances Gains on the divestment of subsidiaries Balances (goodwill) on initial recognition of subsidiaries amount to DKK 271,175 thousand.
Annual report 2020
75
N o t es
Registered office
Net profit/loss for the year
Equity
Ownership interest
Verdo Go Green A/S
Randers, Denmark
-10,826
87,584
100%
Verdo Energiteknik A/S
Randers, Denmark
2,664
17,010
100%
Verdo Vand A/S
Randers, Denmark
751
176,854
100%
Verdo Varme A/S
Randers, Denmark
-167,907
19,448
100%
Verdo Herning A/S
Randers, Denmark
-46
414
100%
Verdo Varme Herning A/S
Randers, Denmark
0
148,643
100%
Verdo Tele A/S
Randers, Denmark
8,054
228,166
75%
Verdo Produktion A/S
Randers, Denmark
-102,647
22,301
100%
Verdo Energy Systems A/S
Randers, Denmark
-12,661
79,334
100%
Greenland
-33
17
100%
Poland
647
2,667
100%
Verdo Teknik A/S
Randers, Denmark
-3,166
192,956
100%
Verdo Hydrogen A/S
Randers, Denmark
-46
3,825
100%
Verdo Trading A/S
Randers, Denmark
-10,609
212,773
100%
GF Energy (wound up in 2020)
The Netherlands
-636
0
0%
Verdo Renewables Ltd.
United Kingdom
-13,998
109,583
100%
Norway
-930
-758
80%
USA
-41,432
0
80%
El-net Kongerslev A/S
Randers, Denmark
-1,110
4,561
100%
Midtjysk Elhandel A/S
Randers, Denmark
850
14,138
74%
-353,081
1,319,516
Name Subsidiaries:
Verdo Energy Systems GL ApS Verdo Energy Systems sp. z.o.o.
Carbon Partners AS Carbon Partners Inc.
Subsidiaries in total The companies’ equity is calculated inclusive of consolidated goodwill
GROUP 2020 DKK ‘000
2019 DKK ‘000
11
202
17. Other securities and equity investments Cost as at 1 January Additions
0
10
Disposals
0
-201
Cost as at 31 December
11
11
Carrying amount as at 31 December
11
11
Gains on the sale of shares amount to
0
0
Tennessee, USA
30.00%
Kolding, Denmark
0.08%
Registered office/ownership interest: Marc Energy Holding DFF-EDB A.m.b.A.
76
Annual report 2020
N o t es
GROUP 2020 DKK ‘000
2019 DKK ‘000
2,595
18. Other receivables (long-term) Cost as at 1 January
12,282
Exchange adjustment
-1,663
0
Additions
15,105
12,282
Disposals
0
-2,595
25,724
12,282
Cost as at 31 December Repayments as at 1 January
-814
85
Repayments for the year
-2,265
-899
Repayments as at 31 December
-3,079
-814
Carrying amount as at 31 December Of which recognised as short-term receivables in other receivables Receivables over 1 year
22,645
11,468
-22,645
-1,754
0
9,714
Other receivables include loans. The loans carry interest at a market rate.
GROUP 2020 DKK ‘000
2019 DKK ‘000
19. Construction contracts Selling price of the work performed Progress billings Total net value
517,665
395,888
-473,149
-374,215
44,516
21,673
Recognition in the balance sheet: Construction contracts (assets)
68,335
54,030
Construction contracts (liabilities)
-23,819
-32,357
Total
44,516
21,673
PARENT COMPANY 2020 DKK ‘000
2019 DKK ‘000
20. Subordinate loans Subordinate loans
0
647,000
Negative equity in Verdo Varme A/S, offset
0
-361,148
Total net value
0
285,852
Annual report 2020
77
N o t es
GROUP 2020 DKK ‘000
PARENT COMPANY 2019 DKK ‘000
2020 DKK ‘000
2019 DKK ‘000
21. Deferred tax Deferred tax as at 1 January
91,947
68,137
-5,394
-7,001
Annual adjustment of deferred tax
7,251
26,290
4,879
1,607
Deferred tax, divested subsidiaries
0
-10,996
0
0
2,139
8,516
0
0
101,337
91,947
-515
-5,394
Tax on changes in equity Deferred tax as at 31 December Deferred tax is distributed as follows: Property, plant and equipment
49,212
21,118
-515
-5,394
Accrued income
37,766
59,840
0
0
Accrued expenses
88
93
0
0
Changes in equity
1,397
822
0
0
12,874
10,074
0
0
101,337
91,947
-515
-5,394
Pension obligations Total deferred tax
At the end of 2020, the Group had recognised tax assets of DKK 101,337 thousand. 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 2020, the Group had non-recognised deferred tax assets of DKK 429 million 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.
Mortgage credit institutions
Lease obligations
Total debt as at 31 December 2020
246,314
Repayments next year
-22,814
Non-current portion Outstanding debt after five years
Amounts in DKK ‘000
Credit institutions
Other
15,174
99,664
331,865
-5,545
-18,460
-22,581
223,500
9,629
81,204
309,284
131,665
166
7,364
257,687
22. Non-current liabilities GROUP:
‘Other’ covers pension obligations, surplus income and accrued investment grants. Pension obligations are recognised in the income statement in step with the disbursement of pensions. PARENT COMPANY:
78
Total debt as at 31 December 2020
42,297
524
99,664
21,220
Repayments next year
-2,978
-300
-18,460
-725
Non-current portion
39,319
224
81,204
20,495
Outstanding debt after five years
27,420
0
7,364
17,595
Annual report 2020
N o t es
GROUP 2020 DKK ‘000
2019 DKK ‘000
Provision for investments
122,614
129,055
Timing differences
196,349
68,559
Repayments 2000-2005
165,456
247,852
23. Danish Heat Supply Act
Repayments 2006-2017
120,011
0
Provision for other repayments
270,446
492,500
66,906
36,461
941,782
974,427
Surplus income Total Recognised as short-term debt
-223,906
-131,946
Non-current liabilities
717,876
842,481
Outstanding debt after five years
268,254
165,409
GROUP 2020 DKK ‘000
2019 DKK ‘000
24. Other provisions Warranty commitments
4,374
4,321
Other provisions
18,041
0
Total
22,415
4,321
The warranty commitment is reduced concurrently with the expiry of the warranties provided on delivered services.
GROUP
PARENT COMPANY
2020 DKK ‘000
2019 DKK ‘000
2020 DKK ‘000
2019 DKK ‘000
219,964
193,158
100,000
94,900
14,577
18,611
524
971
Mortgage on property
445,335
457,935
46,035
58,635
Total
679,876
669,704
146,559
154,506
25. Charges and guarantees Collateral Charge on assets held under finance leases
Property has been pledged as collateral for mortgages from mortgage credit institutions, of which the outstanding debt as at 31 December 2020 constitutes DKK 248 million. As at 31 December 2020, the carrying amount of the pledge is DKK 360 million. As at 31 December 2020, the carrying amount of assets held under finance leases is DKK 16,540 thousand. 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. Finally, the parent company Verdo A/S acts as a guarantor for the subsidiaries’ commitments with credit institutions of DKK 63 million.
Annual report 2020
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N o t es 26. Contractual obligations and contingencies As an administration company, the parent company Verdo A/S is taxed jointly with the other companies in the Verdo Group, and the company is jointly and severally liable for Danish income tax together with the other jointly taxed companies. The Group has entered into finance leases, all of which are recognised in the balance sheet. The Group’s lease commitments total DKK 5,3 million, of which DKK 0 million falls due after five years. For 2020, 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 2020 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 6,255 thousand 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 harbour in 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.
27. Related parties Verdo S/I (parent company) has a controlling interest in the company. All related-party transactions are carried out on an arm’s-length basis.
28. 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.
GROUP
PARENT COMPANY
2020 DKK ‘000
2019 DKK ‘000
2020 DKK ‘000
2019 DKK ‘000
Term 1-5 years
100,000
100,000
100,000
100,000
Term 6-15 years
339,113
375,654
123,477
140,524
Notional amount of interest rate swaps
439,113
475,654
223,477
240,524
Value adjustment recognised in equity
-81,537
-99,258
-33,763
-45,502
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.
PARENT COMPANY 2020 DKK ‘000
2019 DKK ‘000
-400,342
-253,628
29. Distribution of net profit/loss Proposed distribution of profit/loss: Retained earnings Proposed dividend
0
0
Net revaluation reserve according to the equity method
0
22,263
Minority interests
0
0
-400,342
-231,365
Total
80
Annual report 2020
T he independent au dit o r ’s repo r t
To the shareholders of Verdo A/S Opinion 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 2020 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 2020 in accordance with the Danish Financial Statements Act. We have audited the consolidated financial statements and the financial statements of Verdo A/S for the financial year 1 January - 31 December 2020 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) together with the ethical requirements that are relevant to our audit of the financial statements in Denmark, and we have 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 returns on invested capital, loans in the heating activities, impairment of regulatory plant values and tax expenses collected. 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.
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 consistent 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
Statement on the management commentary The management is responsible for the management commentary.
Annual report 2020
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T he independent au dit o r ’s repo r t
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.
· 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.
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:
· 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.
· 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.
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, 22 April 2021 PricewaterhouseCoopers Statsautoriseret Revisionspartnerselskab CVR no. 33 77 12 31
· 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.
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Annual report 2020
Claus Dalager State-Authorised Public Accountant MNE no.: mne26745
Company information Verdo A/S Agerskellet 7 8920 Randers NV, Denmark E: info@verdo.com +45 7010 0230 T: W: verdo.com CVR no.: 25 48 19 68
Certifications Licence code: FSC® C125676 Licence code: PEFC/09-31-131
Production Edited by: Verdo A/S Print run: 200. Photos: Colourbox and Jakob Lerche Production: Printed on FSC® and Swan-labelled paper at a FSC® and Swan-certified printing house. Paper: Munken Polar
5041-0856 Svanemærket tryksag
Annual report 2020
83
84
Annual report 2020
Agerskellet 7
-
8920 Randers NV, Denmark
-
+45 8911 4811
-
info@verdo.com
-
verdo.com