Partner

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.

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.

Jens Lyngborg Heslop, Director of Development, Environment and Technology, Municipality of Randers

It 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.

How Verdo builds long-term relationships

• We are transparent and flexible in the way we work with our partners. • We set the bar high, and place demands on competitiveness, deliveries, working conditions etc. • We aim to build close relationships and ensure long-term benefits.

Clean water partnership

In Denmark, we all have access to clean drinking water – a resource many people take for granted. But we should not take it for granted because, like in the rest of the world, our drinking water is unfortunately under threat from pollution. Verdo is therefore continuously intensifying its efforts to protect our groundwater and ensure clean drinking water for the local communities in which we operate. We protect local forests to create non-toxic environments, and we are also involved in partnerships to develop new water filtration and purification methods.

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.

In 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 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.

*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.

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

Verdo’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.

Energi, forsyning og elsalg At Verdo, we are constantly working to expand district heating to new areas 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.

• 2020 was a warm year, leading to a reduced demand for heating and falling revenue.

• 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.

• 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. • 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.

Ratios

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

All figures in DKK ‘000 2020 2019

Revenue 583,323 496,529

EBITDA 127,142 92,782

Net profit/loss for the year -168,312 11,720

Investments 89,894 107,335

Equity 202,277 -59,022

New 1,651 m2 head office in Herning

• 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

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.

Sigurd Asser Jensen, Department Manager, Verdo Varme Herning A/S

In 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.