Verdo Annual Report 2018

Verdo

2018 Annual report

Annual report 2018

1

Verdo Editorial

Strong results during green transformation

The annual report is based on the financial statements from the official annual report.

It is a report on developments in the Group’s business areas as well as its strategy and CSR activities.

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Annual report 2018

Editorial Verdo

T

he green transformation of the energy sector is one of the greatest challenges facing Denmark and the rest of the world. As an energy company, we have a positive obligation to contribute to the transitioning from black to green energy.

We have been doing so since converting to biomass in 2009, and in the past seven years we have achieved a 78 % reduction in carbon emissions from our CHP plant in Randers, Denmark Consolidated revenue for 2018 totalled DKK 2.4 billion. We are posting earnings (EBITDA) of DKK 261 million and a profit before tax of DKK 85 million – which are strong results and our best in 15 years.

The year 2018 saw high levels of economic activity. This is a factor which has impacted results positively, but at the same time we have successfully reduced costs and divested activities so as to focus more sharply on our core business.

As a self-governing institution, our focus is on long-term development and investing in the future. In 2018, this enabled us yet again to prioritise our sponsoring of the worlds of sport and culture, while at the same time reducing the price of district heating for the third consecutive year.

In 2018, we stepped up our efforts in the heating value chain in Denmark and internationally. We opened an office in Poland in order to strengthen our international position in the field of sustainable energy systems. The demand for biomass increased further, and the ensuing biomass shortages had a favourable impact on price levels. The district heating network in Randers, Denmark, was again extended, this time under the E45 motorway. On 2 January 2019, we took over the wood pellet distribution company Ole Tietze and established a sales location on Zealand, thereby consolidating our position as a supplier of biomass in northern Europe.

Digitalisation accelerates green transformation and security The digital transformation of the energy sector continued with undiminished force in 2018. Verdo’s business model was digitalised further, and the roll-out of smart meters continued through the year.

As a multi-utility company and supplier of electricity, water and heating, Verdo

again delivered the required high levels of efficiency and security.

We developed IT disaster recovery plans for our electricity distribution and CHP activities in order to protect supplies against cyber threats. The most recent external audit of our electricity grid concluded: The requisite level of security is in place!

In 2018, we established a product management department with the aim of speeding up our R&D into tomorrow’s digital energy solutions. New features were added to our verdo.com website to accelerate the digital customer journey, while our sales organisation was geared to a future where social media selling is becoming increasingly important.

New opportunities with Energy Agreement In 2018, a new and ambitious Energy Agreement was adopted in Denmark, committing to establishing a low-emission society by 2050. A key element in the agreement is the energy sector’s conversion to sustainable energy. As a result of the agreement, the biomass subsidy scheme will end earlier than originally anticipated. This will pose a challenge for our CHP plant from 2024.

However, the Energy Agreement and an increased focus on electrification will also open up new opportunities for energy plants based on a combination of biomass and heat pumps. This is a potential that we are already looking into.

Focused growth In autumn 2018, Verdo entered into an agreement with Eniig on the takeover of their street lighting systems in Herning as from 1 March 2019 as well as the servicing of an additional 100,000 street lights.

As a result, Verdo is now the largest supplier of street lighting operations and maintenance in Denmark.

This development has continued, and in April 2019, we entered into an agreement on the takeover of the district heating company Eniig Varme in Herning. At the same time, Eniig will take over our electricity grids in Randers, Hobro and Hillerød.

Both agreements are subject to approval by the competition authorities. The agreement adds approx. 19,000 heating meters and the distribution of 500,000 MWh of green district heating to our portfolio. With this transaction, we have honed our business and secured one of the cornerstones of Verdo’s strategy.

Headwind In April 2019, we decided to pay back DKK 269 million to our heating customers.

According to the Danish Utility Regulator, we had not applied correctly for inclusion of an approved return on invested capital in the tariffs charged for the 2000-2005 period. Our credibility and our efforts to supply cheap green heating to consumers were called into question. We originally lodged an appeal against this decision, but having listened to our heating customers, we subsequently decided to withdraw our appeal. Because being deserving of the confidence of consumers and of our customers is crucial for us.

In the wake of this matter, Verdo was also criticised for having divested its electricity grids to Eniig and for the takeover of Eniig Varme in Herning. However, the very purpose of the consolidation was to strengthen our ability to guarantee competitive prices – very much for the benefit of consumers.

CEO Kim Frimer left Verdo in April 2019, and Morten Birch stepped in as acting CEO. The Supervisory Board is now looking for the right profile to take Verdo into the future.

Energy that makes a world of difference As a consumer-governed energy company, we are dedicated to balancing our business and focusing on all customers – as a utility and as a commercial business. Our core activities are sustainable energy and technical infrastructure. This is not going to change. In February 2019, we therefore bought the woodlands Randers Sønderskov near the waterworks Vilstrup Vandværk so as to protect our source area and drinking water. In future, we will be buying up more woodlands and also planting trees in order to capture and reduce carbon in the atmosphere.

Based on our 2018 results, we will continue to pursue this strategy as a strong and independent energy group which is helping to shift the carbon curve.

Torben Høeg Bonde Chairman of the Board

Morten Birch Acting CEO

Annual report 2018

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Contents

16 20

Biomass as the key element in sustainable fuels in Denmark and internationally

18

Strongest order book for energy plants despite fewer tenders

4

Annual report 2018

Top-class multi-utility company

Contents

Corporate & Strategy About Verdo...............................................................................................................

6

Highlights for the Verdo Group.........................................................................

8

Verdo’s Supervisory Board................................................................................. 10 Verdo’s Executive Board..................................................................................... 11 Strategy 2019 ........................................................................................................ 12 Group overview........................................................................................................ 14

Reports from our business areas Trading.......................................................................................................................... 16 Energy........................................................................................................................... 18 Supply ......................................................................................................................... 20 Electricity trading.................................................................................................. 22 Teknik........................................................................................................................... 24 Tele................................................................................................................................ 26 Renewables............................................................................................................... 28

24

Biggest supplier of street lighting in Denmark

CSR – Corporate Social Responsibility Verdo’s business model ..................................................................................... 30 Environment and climate .................................................................................. 33 Employees and social conditions .................................................................. 35 Respect for human rights .................................................................................. 37 Anti-corruption and bribery .............................................................................. 37

The financial statements Accounting policies .............................................................................................. 40 Income statement ................................................................................................. 47 Balance sheet ......................................................................................................... 48 Statement of changes in equity ..................................................................... 50 Cash flow statement ........................................................................................... 52 Notes ........................................................................................................................... 53 The independent auditor’s report.................................................................... 65

Annual report 2018

5

About Verdo

Sustainable energy and technical infrastructure A

s an international energy group, we are under a positive obligation to contribute to realising the UN’s Sustainable Development Goals. For this reason, we work every day to deliver green energy at competitive prices in Denmark and other markets.

Our core activities are sustainable energy and technical infrastructure. We supply electricity, water and heating to our customers. We sell, install and service sustainable energy plants and are one of Europe’s leading suppliers of biomass and a world-leading supplier of technical carbon for the iron, alloy and solar cell industries. However, Verdo is also engaged in energy consultancy

services, electricity trading, fibre-optic networks and technical infrastructure.

These are absolutely vital resources to us all, and as such must fulfil certain requirements.

We engage with our customers and partners across the entire value chain.

We engage with corporate customers from industry, utilities, local authorities and infrastructure. We engage with private customers who buy their electricity, water and heating from us.

USA

Aalborg

Ikast

Randers Aarhus Hillerød Næstved

Energy efficiency is important in the green transformation and is a precondition for a sustainable energy supply.

Kerneforetninger Founded

Revenue

Bæredygtig energiproduktion

1905 2.4

Handel med biobrændsler Løsninger til vandværker

Tekniske entrepriser og infrastr

billion DKK

Forsyning af el, vand og varme

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Annual report 2018

About Verdo

Grønland

ruktur

e

England

Norge Danmark Polen

Bahrain

Omsætning

2,4 534 Number of Verdos

Milliarder DKK

Vision Vision

Vi skaber We create green energythat makes a world ofbæredyg difference Annual report 2018

7

Highlights for the Verdo Group

Best results for 15 years I

n 2018, a situation of general economic growth combined with our increased focus on our primary business in the field of sustainable energy resulted in a very positive year.

The Group generated total revenue of DKK 2.4 billion. This is slightly below budget, but on a par with 2017.

Earnings before interest, taxes, depreciation and amortisation (EBITDA) totalled DKK 261 million and were thus appreciably above budget. The profit before tax came to DKK 85 million. This is about DKK 40 million above budget and our best result for 15 years.

The results are positively affected by the sale of our shares in NiaNet A/S, in which we had a 1.74 % stake. The results are inclusive of discontinuing operations. Discontinuing operations are GF Energy B.V. and Verdo Hydrogen A/S, which were divested in autumn 2018, and which accounted for aggregate revenue of less than DKK 5 million.

The profit before tax from continuing operations was therefore slightly lower at DKK 84 million.

The Danish Utility Regulator’s decision ordering the repayment by Verdo Varme A/S of DKK 269 million to its heating customers negatively impacted equity, which is now DKK 1,120 million. The equity ratio is negatively affected and is now 39 %. The matter has been described in note 1 of the financial statements for a number of years.

The Danish Utility Regulator is still working on a number of decisions in relation to Verdo Varme A/S and Verdo Produktion A/S reaching back to 2006.

We hope that Danish Utility Regulator will be able to announce these decisions soon, thereby providing us with clearer guidelines for our work.

Positive synergies between commercial and regulated activities Record earnings from commercial activities were posted for 2018, contributing DKK 59 million to the profit before tax. The regulated areas (electricity, water and heating) generated a profit of DKK 26 million. The record earnings from our commercial business areas greatly benefited our electricity, water and heating customers in the form of competitive electricity and water prices and a further reduction of the district heating price. Thus, Verdo clearly demonstrated the positive synergies that can be derived from focusing on both regulated and commercial business areas.

High levels of economic activity in 2018 The year was characterised by high levels of employment and economic growth. For Verdo, this primarily led to a hike in commodity prices, which was generally a positive development.

Despite the economic upturn, interest rates remained low. This affected both our credit facilities and the return on our supply assets. This was generally positive as it reduced our credit facility expenses. However, the low interest rates also have a significant bearing on the permissible return on our supply assets (electricity grids and heating networks and CHP plants) which, under applicable legislation, are tied to the actual interest rate levels. For the Group, the aggregate effect of the low interest rates was therefore negative.

As another side effect of the low interest rates, at the end of the year, the value of our interest rate swaps was negative, although the total value adjustment for the year was positive, at DKK 13 million. It is essential to stress that only equity was affected as Verdo is not required to provide liquidity for swaps. In the long term, neither earnings nor equity will be affected by swaps. The return on equity was 5 %.

This represents a satisfactory improvement compared to previous years.

Solid basis for developing our business in 2019 The financial gearing (NIBD/EBITDA) is 2, which is highly satisfactory. Our target is a financial gearing of 5 or less, which we achieved already at the end of 2015. This provides Verdo with a solid basis for developing our business in the coming years.

It is difficult to predict the direction of economic developments in 2019. We expect interest rates to remain low, at least in Europe, although we are seeing slightly increasing interest rates in other parts of the world. The market for biomass is strong, and prices are expected to rise further. A flat trend is expected for coal and technical carbon prices, while electricity prices – which hiked in 2018 – are expected to stagnate at the high level in 2019.

We expect to deliver results for 2019 which are slightly lower than in 2018, primarily due to a lower level of non-recurring income.

The profit before tax came to DKK 85 million.

This is about DKK 40 million above budget and our best result for 15 years.

Kenneth R. H. Jeppesen CFO 8

Annual report 2018

Highlights for the Verdo Group Verdo

Revenue 2,365,226

*

2018

2.401.662*

- 1.5 %

2017

EBITDA 257,425*

+ 2.5 % Profit for the year before tax 83,679*

67,087*

2018

2017

251,123*

2018

2017

+24.7 % Equity

+7.1 %

1,120,108*

2018

1,045,440*

2017

*All amounts on this page are stated in DKK ‘000 and before discontinuing operations Annual report 2018

9

Verdo’s Supervisory Board

Søren Sørensen Deputy Chairman

Erik Busk Jensen Board member

Torben Høeg Bonde Chairman

Jan Holst

Employee representative

Thomas Post

Employee representative

Janni Munkholm Nielsen Employee representative

Ebbe Bagge Hansen

Employee representative

Pia Maach-Møller Board member

Niels Rasmussen Board member

Henning Jensen Nyhuus Board member

Henrik Gottlieb Hansen Board member

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Annual report 2018

Arne Erikslev Board member

Verdo’s Executive Board

Torben Rick

Divisional Director, Tele

Margrete Larsen CHRO

Jesper S. Sahl

Divisional Director, Forsyning

Kenneth R. H. Jeppesen CFO

Thomas Bornerup

Divisional Director, Trading

Morten Birch Acting CEO

Hans Christian Wenzelsen Head of Legal

Henrik Bøgh Nielsen

Divisional Director, Energy

Claus Omann Jensen

Sales and Marketing Director

Annual report 2018

11

Verdo Strategy 2019

The strategic path for Verdo S

eeing the way forward and accelerating the development and digitalisation of the energy sector takes both innovation and development. We are therefore further strengthening our strategic focus on digitalisation and innovative solutions which can help drive the delivery of green energy at competitive prices.

We have created a Product Management function in order to further accelerate our R&D into solutions which can ensure a solid pipeline of orders and boost organic growth in parallel with the green transformation.

Digital developments – not only in the energy sector, but in society at large – require an agile working culture and mentality to keep pace with all the changes that are happening and to attract new highly skilled, competent employees. Employees who will be exploring new growth and value creation potentials.

Verdo’s strategic path focuses our efforts in areas where we make the greatest difference, i.e. within the three value chains: Heating, water and technical infrastructure. Our three-part strategy is based on our long-standing experience, expertise and a strong growth platform, which combine to support our ambitions.

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Annual report 2018

Ambitions for heating To be able to continue to ensure sustainable and competitive heating – not only to our own customers, but also to our customers’ customers – we will strengthen our leading position as a supplier of sustainable energy plants and fuels.

Our ambition is to become market-leading in northern Europe when it comes to the development, sale, production, operation and servicing of efficient and sustainable energy systems. The strategy has two primary focus areas: Implementing intelligent solutions in integrated plants based on the combination of multiple energy sources such as biomass, solar, wind and heat pumps. Strengthening our business in the field of electrified heat sources such as electric boilers and heat pumps.

Based on the growth realised by our fuel business in recent years, we want to further strengthen our market position. We want to be the largest and most profitable trading company for biomass in the Nordic region. We want to cultivate new alternatives to supplement biomass and establish long-term supply chains of overseas fuel.

Strategy 2019

Clean water – also in 50 years’ time The supply of clean and affordable drinking water requires efficient and optimised water supply operations everywhere in Denmark. Moreover, ever stricter water supply and operations standards are also making it hard for small waterworks to keep up. Our long-standing experience is a strong platform from which to cement our position as a consolidator in the water sector. We want to further develop the value chain and strengthen our expertise within the fields of water abstraction, the establishment of waterworks, service, distribution and customer billing – the purpose being to develop our water business and maintain sustainable and efficient water supply operations.

Energy-efficient street lights carry on shining Replacing street lights with LED technology delivers significant carbon reductions, and we are leading this conversion.

Our goal is to maintain our position as the biggest player in Denmark within the operation and maintenance of street lights. Therefore, we want to strengthen the value chain within consultancy, energy calculations and planning, sales and service, operation and maintenance.

As part of our growth strategy, we will moreover develop our expertise in the field of traffic lights and parking technology and transform our business with a focus on intelligent infrastructure.

Adjustment of our vision and values As a natural part of the focusing of our business and our strategy, at the beginning of 2019, we adjusted our vision and values. It is a natural development and one which strengthens our brand – both externally in the markets and internally in our organisation.

Our vision – our goals for the future – has changed as a result of developments in the green transformation. Verdo’s most important – our fundamental – value has not changed. It is still ‘We conduct ourselves with decency’. This is the value with which we first and foremost identify. Our underlying values have been condensed into three strong values which guide our cooperation with customers, our cooperation with colleagues and the commitment and enthusiasm with which we embrace the demand for sustainable energy solutions and digitalisation.

2019

2018

Vision

We create green energy that makes a world of difference

We create green energy and sustainable solutions

Values

We conduct ourselves with decency • We see things from our customer’s perspective • We treat each other with respect and trust • We are always one step ahead

We conduct ourselves with decency • We treat each other with respect and trust • We meet customer needs • We are efficient • We challenge our way of doing things • We are loyal

Annual report 2018

13

Verdo Group Group overview overview

The Verdo Group

14

Annual report 2018

Group overview

Verdo S/I

Verdo Innovation A/S

Verdo A/S

Trading

Energy

Supply

Teknik

Tele

Renewables

Verdo Trading A/s

Verdo Energiteknik A/S

Verdo Varme A/S

Verdo Teknik A/S

Verdo Tele A/S

Verdo Renewables Ltd.

Carbon Partners AS

Verdo Hydrogen A/S

Verdo Vand A/S

Carbon Partners Inc.

Verdo Produktion A/S

Verdo Go Green A/S

GF Energy B.V.

Verdo Energy Systems A/S

Midtjysk Elhandel A/S

Verdo Energy Systems GL ApS

EL-NET Hillerød A/S

Verdo Energy Systems sp. z.o.o.

EL-NET Randers A/S

EL-NET Kongerslev A/S

Annual report 2018

15

Verdo Trading

So as to be able to meet the increasing demand and strengthen our market position, in 2018 we started looking at new sourcing channels on the African continent.

Our efforts to develop our supply chains for certified sustainable biomass will continue in 2019.

Thomas Bornerup, Divisional Director Trading

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Annual report 2018

Trading

Significant demand for biomass boosts growth I

n 2018, we yet again reaped the benefits of a high level of trading in biomass and other fuels, competitive and sustainable sourcing of wood pellets and the wider distribution of wood pellets. A marked increase in demand and an increase in the prices of biomass and fuels generated revenue of DKK 1.4 billion.

continent. These efforts to develop our supply chains for certified sustainable biomass will continue in 2019. We are FSC® CoC and SBP CoC-certified and in 2018 decided to work towards implementing the PEFC standard in 2019. In this way, we will document that our biomass is produced in a socially and environmentally acceptable manner.

Biomass key to sustainable fuel supply in Denmark and abroad Carbon emissions from fossil fuels must be reduced, and in 2018 biomass again proved to be the strongest card.

The cool spring in 2018 pushed up the demand for biomass, while the very warm and dry summer in Denmark resulted in a shortage of straw, which in turn intensified the demand for alternative biomass.

The situation was further exacerbated by forest fires in Europe and the USA, leading to further price hikes.

So as to be able to meet the increasing demand and strengthen our market position, in 2018 we started looking at new sourcing channels on the African

Growing our business Based on an agreement made in 2018, on 2 January 2019 we acquired Ole Tietze, a wood pellet distribution company based in Næstved, Denmark, thereby strengthening our distribution on Zealand. The acquisition is adding to our storage capacity and reinforcing our position as a leading supplier of wood pellets in Denmark.

Our subsidiary Carbon Partners entered into a cooperation agreement on a new loading and unloading terminal in Kentucky in the USA with a view to streamlining and strengthening our technical carbon business supplying, for example, the iron, alloy and solar cell industries. This

is a market which is seeing positive development due to the global demand for solar cells as an alternative energy source to fossil fuels.

Fully automated order flow In 2018, we digitalised our order and shipping processes for fuel sales – covering the placing of orders in our webshop, automatic weighing, delivery and billing. The automatic and intelligent order flow is scalable and can quickly be adapted to any increases in orders for both pallet and bulk goods.

The digital transition has optimised our workflows and reduced time-to-delivery for customers, while at the same time streamlining our supply chain.

This is strengthening our competitive edge, and in 2019 we will therefore be disseminating the practice to our other terminals.

Ratios All figures in DKK ‘000

2018

2017

1,427,636

1,447,950

EBITDA

25,699

21,059

Net profit for the year

10,821

9,559

1,938

3,223

211,398

196,909

Revenue

Investments Equity

Annual report 2018

17

Energy

Strongest order book ever despite fewer tenders I

n step with a growing global demand for electricity and heating and a mounting pressure for the phase-out of fossil fuels, the need increased for a conversion to sustainable energy production. In order to meet the demand for a green transformation of district heating and CHP plants, we have intensified our focus on developing, installing and maintaining sustainable energy systems that are both intelligent and reliable.

Energy Agreement challenging for CHP plant The most recent Energy Agreement adopted by the Danish parliament sets out the ambition of a low-emission society in 2050, and the agreement has a considerable bearing on the energy sector. Among other things, the agreement does away with the biomass subsidy. The Energy Agreement is challenging for the energy sector, for our CHP plant and for district heating customers in Randers, who risk higher heating bills.

Following its conversion, the CHP plant Randers Kraftvarmeværk started firing biomass in 2009. The decision to convert the plant was based on a political commitment to paying a biomass subsidy of DKK 150 per MWh of electricity generated. The district heating from the CHP plant in Randers has been produced from sustainable biofuels since 2009. According to the Energy Agreement, the subsidy is due to be eliminated in 2024. We are now working to ensure that this will not lead to price increases for our heating customers.

The Energy Agreement also introduces new possibilities for the sale of energy plants With the Energy Agreement, the electrification of heating production is accelerated through easing of the tax on electric heating, making heat pumps more competitive. The two energy sources – biomass and heat pumps – are perfectly combinable, and in 2018 we supplied heat pumps both separately and in combination with biomass plants.

As we start the new year, our heat pump order book is satisfactory, and we are working to develop our portfolio to meet the growing demand.

Strengthened market position in energy systems As a natural effect of the Energy Agreement, the demand for biomassfired plants declined. Despite fewer tenders, we strengthened our market position. We won important orders for two heating plants: A 5.5MW woodchip-fired plant for Balling-Rødding Varmeværk and a 12MW straw-fired facility for Auning Varmeværk.

Annual report 2018

Focused business and strengthened competences As part of the further focusing of our business, we divested the CHP plant Grenaa Kraftvarmeværk and our hydrogen factory in Hobro, Denmark.

With our new technology department in Poland, we have strengthened our expertise within the design and planning of energy facilities.

Having strengthened our service and installation businesses, we now service and install most plant types in the Nordic region.

Ratios All figures in DKK ‘000

2018

2017

Revenue

514,489

507,711

EBITDA

112,951

78,831

Net profit for the year

25,577

-2,579

Investments

20,615

44,137

172,108

130,669

Equity

18

Performance optimisation through automation Digitalisation and automation were high-priority areas for us in 2018 and will continue to be so in 2019 – in the form of increased automation and performance optimisation both of our own plants and of our customers’ plants. We operate and monitor an increasing number of external plants from the control room at Randers Kraftvarmeværk, and in 2018 we added yet another CHP plant – Lyngby Kraftvarmeværk.

Energy Verdo

Despite fewer tenders, we built our strongest order portfolio so far, while at the same time strengthening our market position.

Henrik Bøgh Nielsen, Divisional Director Energy Annual report 2018

19

Electricity, water Supply

In 2018, we acquired the woodlands Randers Sønderskov, constituting 39 hectares. With the acquisition of the forest, we protect the source area and thereby our drinking water.

Jesper S. Sahl, Divisional Director Supply

20

Annual report 2018

Supply

Top-class multi-utility company – district heating price lowered three years running E

lectricity, water and heating are vital resources for people and for societies.

Effective utilities are key infrastructural resources. A strong performance in our commercial business in combination with an efficient energy supply is the reason why we have once again been able to lower the price of heating and offer the lowest price in four years. The town of Randers is growing, and the demand for green district heat is rising. This resulted in a record number of new district heating customers in 2018. The target was 90 new connections, but we ended up with a total of 226 new customers.

Expansion of the district heating network took place to the west of the E45, involving the directional drilling of 160-metre-long district heating pipes without joints underneath the motorway to connect the networks on either side. This is the first time this particular technique is used to cross a motorway in Denmark. We started establishing supplies to the new urban district Sporbyen Scandia in Randers. The new district covers 18.5 hectares, and the project will run over several years.

With the agreement on the acquisition of the district heating company Eniig Varme in Herning and the divestment of the electricity grids in Randers, Hobro and Hillerød, we focused our heating business further, adding approx. 19,000 heating meters and the distribution of 500,000 MWh of green district heating to our portfolio. This makes us the fifth-largest distributor of district heating in Denmark.

reducing carbon emissions from heat production. We have already entered into agreements with the regional hospital and the crematorium in Randers utilisation of surplus heat, and in 2018 we entered into cooperation with the Bilka supermarket in Randers.

Digital meters As an important element in the digitalisation of the electricity supply, all electricity meters in Denmark must be replaced with smart meters before the end of 2020.

The meters bring benefits both for our customers and for the green transformation in that from 1 January 2021 we will start settling consumption by the hour. This will allow customers to shift their electricity use to off-peak times when electricity is cheaper. In 2018, we started the replacement of a total of 65,000 electricity, water and heating meters in our supply area in Randers, Hobro and Kongerslev. We completed the roll-out of smart meters in Hillerød in 2012.

Fair competition in the electricity market From 1 July 2018, all electricity distribution companies had to be easily distinguishable from the commercial activities of the groups of which they are part. For this reason, we decided to create a distinct identity for our electricity grids, which are now known as EL-NET Randers A/S and EL-NET Hillerød A/S.

which is now named EL-NET Kongerslev A/S. Under the new agreement signed in April 2019, Eniig acquires the electricity grid in Randers, Hobro and Hillerød, Denmark.

Activities targeting waterworks and water utilities The Danish government sees considerable potential for increasing the efficiency of the water sector, which is evident, among other things, from an increased level of regulation. One requirement concerns the digital mapping of the distribution network and the delivery of network information within a maximum of two hours. This is to avoid damaging critical infrastructure in connection with construction works. In order to meet this requirement, we developed a system that automatically sends information about the distribution network – location, dimensioning and materials.

Water for future generations We marked the UN’s World Water Day in cooperation with the Red Cross, Randers Naturcenter and Museum Østjylland. We invited 300 year 3 schoolchildren to a water-themed adventure race.

In 2018, we acquired the woodlands Randers Sønderskov, constituting 39 hectares. With the acquisition of the forest, we protect the source area and thereby our drinking water.

Ratios All figures in DKK ‘000

In consequence of the district heating case, whereby we were ordered by the Danish Utility Regulator to pay back DKK 269 million to our heating customers, the equity of Verdo Varme A/S was reduced to DKK 836 million.

Surplus heat – another step in a green direction Recovering surplus heat is a way of

2018

2017

Revenue

456,401

431,506

EBITDA

105,826

106,344

Net profit for the year

24,368

26,409

Investments

92,435

56,324

835,781

778,744

In June, we took over Kongerslev El-net, Equity

Annual report 2018

21

Electricity trading

Business development pays off

T

he year was characterised by the concerted development of our business and delineation of our three product areas – pool products, corporate Power Purchase Agreement (PPAs) and Nordic electricity trading. In 2019, we are consequently presenting a stronger product programme for our business customers. We grew revenue, strengthened our bottom line, and retained our private electricity customers.

More renewable electricity for corporate customers in Denmark The market has intensified its focus on advancing the use of renewable energy as commended by COP-16. We look forward to delivering that through corporate PPAs, under which customers usually enter into a ten-year contract and thus know their electricity price for the entire term of the contract. In addition to predictability, the customer is guaranteed certified renewable electricity, as you know the exact source of the electricity.

Predictability in unpredictable market The Danish electricity market was characterised by fluctuating prices in 2018. Price fluctuations can have serious consequences for the cost calculations of high-level electricity consumers. Customers are therefore increasingly demanding predictable electricity prices. Our pool products, Match and Upside, which guarantee a benchmark price, are designed to meet this demand. If we succeed in buying at a lower price than the benchmark price, we split the gain with those of our customers who have chosen our Upside product.

Developing our pool products and corporate PPAs remains our primary focus in 2019.

Electricity trading across the Nordic region Several companies have branches in all the Nordic countries and must enter into electricity contracts in each and every country. In 2018, we entered into cooperation with energy companies in Norway, Sweden and Finland and formed Nordic Sharing Power.

Nordic Sharing Power is a community designed to make life easier for electricity customers operating across the Nordic countries. As a customer, you have one contract covering all your electricity purchases in the entire Nordic region.

Annual report 2018

More customers go digital Customers are increasingly using our digital platforms, and in 2018 63 % of customers without smart meters reported their consumption figures online. This indicates a growing need for digital solutions among our customers because it must be easy to choose green electricity and to monitor and reduce consumption.

Growth despite intense competition for private customers Competition for private electricity customers intensified in 2018. Many electricity suppliers devise short-term campaigns offering free electricity, subscriptions and welcome gifts. In Verdo, we are concerted in our efforts to attract new electricity customers, while also retaining our existing customers, by offering proper and transparent electricity agreements.

And our strategy is working.

Ratios All figures in DKK ‘000

2018

2017

346,709

319,588

EBITDA

14,524

11,895

Net profit for the year

11,384

9,277

Revenue

22

Relations with our customers remain excellent. In combination with the general price increases seen on the electricity exchanges, this resulted in top-line growth which also filtered through to our bottom line.

Electricity trading Verdo

The market has intensified its focus on advancing the use of renewable energy as commended

by COP-16. We will meet this demand through corporate PPAs, under which customers usually enter into a ten-year contract and thus know their electricity price for the entire term of the contract.

Claus Omann Jensen, Sales and Marketing Director

Annual report 2018

23

Electricity, water Verdo Teknik

We still focus our expertise within three product areas: Street and traffic lights, electricity and plumbing contracts and corporate services.

In all three areas, our close cooperation with our customers played a decisive role for our performance in 2018.

Morten Birch, Divisional Director Teknik

24

Annual report 2018

Teknik Verdo

Strengthened market position as the largest street lighting provider in Denmark O

ur customers demand a high level of profitability when it comes to the construction of facilities and technical infrastructure. We must therefore guarantee operational and energy savings in our solutions for contractors, consultants and system operators. At the same time, the sector is expected to contribute to the green transformation via intelligent technology and energy optimisation.

In the quest to reduce our energy consumption, it is important that Denmark converts its street lights to LED, and Verdo is happy to spearhead this development.

Leading position in street lighting In autumn 2018, Verdo entered into an agreement with Eniig on the acquisition of Eniig’s street lights in Herning as of 1 March 2019 and on the servicing of an additional 100,000 street lights.

As a result, Verdo is now the largest

supplier of street lighting operations and maintenance in Denmark.

As an important part of the transition to using more intelligent technology, in 2018 we focused on digitalising workflows with a view to reducing error margins for street lights. These efforts will be stepped up in 2019.

Close customer relations are crucial We still focus our expertise within three product areas: Street and traffic lights, electricity and plumbing contracts and corporate services. In all three areas, our close cooperation with our customers played a decisive role for our performance in 2018.

unemployment rate for electricians was just 2 %. Despite this, we managed to attract the qualified manpower we needed. In addition, we wanted apprentices to account for 20 % of our total number of technicians. We met this target again in 2018. We attracted some of the best and most qualified apprentices. Of this we are proud.

Strengthened sales staff With a view to intensifying the development of our business, at the beginning of the year further strengthened our sales staff – a strategy which already started paying off in 2018.

Highly skilled workforce despite shortage of labour 2018 was characterised by high levels of economic activity and a high level of employment in Denmark. The

Ratios All figures in DKK ‘000

2018

2017

154,934

187,466

EBITDA

5,338

15,243

Net profit for the year

1,767

3,278

Investments

4,280

741

92,613

90,846

Revenue

Equity

Annual report 2018

25

Tele Verdo

Fibre-optic network continues to accelerate digitalisation of Denmark T

he increasing need for more data power is boosting the demand for lightning-fast and scalable fibre-optic connections with unlimited capacity – for the benefit of private and corporate customers as well as public institutions.

In response to this demand, we have rolled out our fibre-optic network so that more than half of all households, businesses and institutions in Randers and Hobro now have access to a stable fibre-optic network. It provides safe and easy access to crucial digital networks for our customers.

Construction is booming and putting fibre-optics on the agenda The town of Randers is seeing growth at present, which stimulated construction in 2018 – in the form of private newbuilds as well as business premises and multi-storey buildings.

We are supporting this development by rolling out fibre-optic network to an ever-larger area, ensuring access to the latest technology. At the same

time, the growing demand for fibreoptic networks has put lightning-fast connectivity on the agenda of both developers and contractors. In 2018, we received an increasing number of enquiries from developers and contractors wanting to integrate fibre-optic networks in their project planning.

Great potential in new fibre lines On new developments, we establish passive infrastructure, i.e. we prepare for the roll-out of fibre-optic networks to individual households, thereby increasing the potential for new fibreoptic lines. Projects in progress and future projects will add up to approximately 5,000 new fibre-optic lines in the coming years. This is the highest number since the financial crisis.

Fibre-optic network for more In 2019, we will continue to roll out our fibre-optic network to new urban areas, where high-speed connectivity is key to ensuring the attractiveness of the areas for both private households and businesses.

Ratios All figures in DKK ‘000

2018

2017

Revenue

28,478

29,124

EBITDA

24,207

30,860

Net profit for the year

19,973

5,139

Investments

19,414

25,903

445,851

485,878

Equity

26

Annual report 2018

Verdo Tele

The town of Randers is seeing growth at present, which stimulated construction in 2018 – in the form of private newbuilds as well as business premises and multi-storey buildings. We are supporting this development by rolling out fibre-optic network to an ever-larger area, ensuring access to the latest technology.

Torben Rick, Divisional Director Tele

Annual report 2018

27

Electricity, water Renewables Verdo

We are now the third-largest supplier of wood pellets in the UK, but with our strengthened supply chain, we are ready to regain our market-leading position.

Alistair McGlynn, Divisional Director Renewables

28

Annual report 2018

Renewables Verdo

Pressure on supply chain reduces revenue and earnings 2

018 was characterised by major challenges. In spite of having an exclusive agreement, our supplier of wood pellets was unable to live up to our agreement. The result was a significant decline in sales.

Weakened results despite high demand To meet the strong demand for wood pellets in the UK in winter 2017/18, we had to import wood pellets from the European continent, for example from Denmark, at a time characterised by shortages everywhere. This resulted in higher transport costs and reduced earnings. For this reason, we did not realise our budget for 2018.

so as to strengthen our supply chain management and become less dependent on certain suppliers. A stronger supply chain is the key to growth and new opportunities in 2019.

We lost market share in 2018 due to the wood pellets shortages. We are now the third-largest supplier of wood pellets in the UK, but with our strengthened supply chain, we are ready to regain our market-leading position.

Market trends Growth in demand has declined. The UK government’s incentive schemes are being phased out, and subsidies for end-customers are being reduced. This has resulted in fewer new wood pellet boilers being installed.

Brexit keeps stirring uncertainty in the market about price levels and investments in new boilers, delaying decisions.

Strengthened supply chain is key to regaining market-leading position In 2018, all our sales and finance processes were upgraded to a Cloud-based ERP solution, which has significantly streamlined our internal administration. We also started restructuring sales and infrastructure

Ratios All figures in DKK ‘000 Revenue EBITDA Net profit for the year Investments Equity

2018

2017

106,752

141,644

44

9,968

-715

-7,860

55

-

130,882

132,021

Annual report 2018

29

Verdo’s business model Verdo

CSR – Corporate Social Responsibility

Verdo’s business model Resources

Wood, solar, water, coal People Capital Knowledge

Activities Development and installation • Biomass • Energy plants • Street lighting • Waterworks • Fibre-optic networks • Electricity and Plumbing installations

Operation and maintenance • District heating • Energy plants • Street lighting • Waterworks • Fibre-optic networks • Electricity grid

Results Trading • Biomass • District heating • Technical carbon • Electricity sales

District heating, electricity, drinking water Contributes to CO2 emissions Contributes to CO2 reductions Danish and international jobs Tax contribution in Denmark Cultural and sports sponsorships in local communities

30

Annual report 2018

Verdo’s business model

V

erdo creates energy for the future. We operate across the heating, water and technical infrastructure value chains. Our competences therefore centre around the development and installation of sustainable energy systems, the operation and maintenance of utilities and infrastructure as well as trade in fuels and biomass.

Resources create value Our value creation is dependent on a number of resources: people, capital, knowledge as well as wood, solar, water and coal. These resources play a vital role for our long-term value creation, and we therefore want to look after them and develop them.

Carbon-reducing energy source Energy plays a key role in the lives of people and businesses, and we select our energy sources with care so as to ensure

that they are both sustainable and competitive. For example, our CHP plant in Randers is fired with sustainable wood chips.

A carbon-reducing energy source contributing to a better climate.

Competitive position We create value for our customers by having a strong position in the commercial market, thereby ensuring competitively priced electricity, drinking water and district heating.

Based on our unique position as a trader in fuels, we are able to supply sustainable fuels at competitive prices and of the right quality.

Tax matters Our financial responsibility is part and parcel of our corporate responsibility, and we therefore have a clear tax policy. We do not engage in active tax speculation.

Annual report 2018

31

Verdo’s business model

Impact of our operations on the outside world

A

s an energy generator, Verdo engages in activities that affect the climate. But we are working hard to reduce our CO2 emissions. In 2009, we converted our CHP plant to biomass firing. The result is an annual reduction in CO2 emissions by 300,000 tonnes compared to using coal to generate the same amount of energy. We are replacing street lights with energy-saving LED technology. This brings energy savings of up to 90 %, thus counteracting the negative impact of the CO2 emissions associated with lighting the streets.

Requirements for partnerships Some of our activities are dependent on our partners’ production methods and the available technology. Verdo focuses on both quality and sustainability in its partnerships. Among other things, we trade in certified biofuels as certification ensures that our fuels are produced by lawful and sustainable forestry operations so as to minimise the risk of negatively impacting people and the environment.

32

Annual report 2018

In our trading with overseas markets involving a significant risk of corruption and bribery, we adhere to a clear policy stipulating the correct way of concluding contracts to avoid any form of bribery and corruption.

Disaster recovery system and operational reliability The unintended interruption of the supply of electricity, water and heating constitutes a significant risk to society. Our IT disaster recovery plans are regularly updated to meet all regulatory requirements and avoid any breakdowns and consequent interruptions in supplies to our customers.

The most recent external audit of our disaster recovery plan for the electricity grid did not give rise to any non-conformities.

Data protection for customers and employees In our day-to-day administration of sensitive customer and employee data, we ensure data protection and information security in accordance with the GDPR regulation to counter the risk of abuse of our customers’ and employees’ personal data.

Approach to CSR Our approach to CSR is defined in the following sustainable, financial and social guidelines.

We conduct ourselves with decency • We create green energy and sustainable solutions • We promote the use of green energy and sustainable solutions • We choose green and sustainable solutions that benefit the environment, our world and Verdo • We take initiatives that benefit our employees and increase their commitment and safety • We support sporting, cultural and social activities • Our business operations are based on healthy and responsible principles, and we take responsibility for society and the communities of which we are part.

Environment and climate

Environment and climate I

t is our ambition to meet the global demand for sustainable development towards 2030. In our efforts to deliver on this ambition, we are inspired by the principles of the UN Global Compact and the UN’s 17 Sustainable Development Goals with a special focus on goal no. 6 ‘Clean water and sanitation’, goal no. 7 ‘Affordable and clean energy’ and goal no. 13 ‘Climate action’.

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 which focus on efficiency and the lowest possible price for green energy.

aimed at protecting our groundwater resources and thereby guaranteeing clean drinking water for our customers. In 2018, one such activity was woodland protection.

Policy Goal no. 7 ‘Affordable and clean energy’ is about ensuring access to reliable and sustainable energy at affordable prices by the year 2030. As an energy company, we work every year to reduce our CO2 and NOX emissions by firing biomass such as wood chips and alternative biofuels and minimising our coal consumption as much as possible. In this way, we are also working towards goal no. 13 ‘Climate action’, which focuses on a fast response to the threat of climate change by reducing the effect of greenhouse gases.

Moreover, we insist on the sustainable and lawful sourcing of wood-based fuels, while striving to ensure reasonable district heating prices for our customers.

The primary reason for the significant decrease is our divestment on 1 January 2018 of Grenaa Kraftvarmeværk, for which reason the CHP’s fuel

Every year, we replace an increasing number of street lights with LED technology in order to reduce electricity consumption and thereby CO2 emissions caused by lighting.

As a water utility, we are inspired by UN goal no. 6 ‘Clean water and sanitation’.

In Denmark, we all have access to clean drinking water – a resource many people take for granted. However, as is the case in the rest of the world, our drinking water is unfortunately also under threat. We are therefore continuously stepping up activities

Efforts and results In 2018, our consumption of biomass totalled 216,472 tonnes, while coal accounted for only 1,983 tonnes or 0.9 % of our total fuel consumption.

This reduced CO2 emissions from 39,977 tonnes in 2017 to 7,028 tonnes in 2018, equating to a reduction of 32,949 tonnes of CO2 – or 82 % – in a single year.

consumption and emissions are not included in the figures for 2018.

However, looking at the fuel consumption and emission figures for Randers Kraftvarmeværk in isolation, no significant change was seen from 2017 to 2018, except for a slight increase in coal consumption and CO2 emissions equivalent to four hours of full-load operation.

This was due to the malfunctioning of the wood chip conveying system, which meant that we had to use coal so as not to risk interrupting the supply of district heating for customers.

Energy production by Verdo, excluding Grenaa Kraftvarmeværk

CO2 emissions

tonnes

NOX emissions

kg

Consumption of wood chips tonnes

2018

2017

2016

3,314

1,657

2,531

253,011

235,389

243,976

179,494

189,439

209,606

Consumption of straw and other biomass

tonnes

34,157

31,580

31,771

Consumption of coal

tonnes

376

291

533

Net electricity generation based on green energy

kWh 135,891,773

129,184,956

165,458,533

Energy production by Verdo, including Grenaa Kraftvarmeværk

CO2 emissions tonnes NOX emissions

kg

Consumption of wood chips tonnes

2018 7,028

2017 39,977

2016 42,484

260,475

309,077

312,693

179,494

189,439

209,606

Consumption of straw and other biomass

tonnes

36,978

70,398

68,324

Consumption of coal

tonnes

1,983

16,722

17,333

Net electricity generation based on green energy

kWh 137,779,712

153,148,750

189,310,509

Annual report 2018

33

Environment and climate

With reference to UN goal no. 7 on ‘affordable energy’, in 2018 we reduced the district heating price for our customers for the third consecutive year. In order to ensure sustainable sourcing of our fuels, we have been granted FSC® CoC certification as well as SBP CoC certification, and in 2018 we worked towards implementing the PEFC standard in 2019.

39 hectares. This is to protect the source area around our waterworks in Vilstrup. The source area at Randers Sønderskov is situated in a semi-urban area and close to a gravel pit and is therefore at risk of contamination if the woodlands are not protected.

In 2018, we replaced 6,500 street lights with LED technology. This will result in an annual reduction of 1,600 MWh and 800 tonnes of CO2. In addition, we changed the lighting at our head office to LED, saving 43,853 kWh and just over 20 tonnes of CO2 a year.

According to ‘Energiselskabernes energispareindsats’, as an energy company within electricity and heating distribution we are obliged to find and realise a number of annual energy savings, which must be reported to the Danish Energy Agency. Verdo’s target for 2018 was 34,860 MWh, and having realised savings of 38,600 MWh, the target was met.

Stepping up our efforts aimed at ensuring clean drinking water, in 2018 we entered into an agreement on the acquisition of the woodlands Randers Sønderskov, which cover a total of

Conclusion Based on our environmental and climate-related efforts in 2018 within CO2 reduction, the sourcing of fuels, the protection of our source area and

reducing the price of district heating, results were satisfactory, and we complied with our policy.

Importance of certifications for Verdo

34

FSC® (Forest Stewardship Council®)

Certification of forest area and forest products • Social and environmental responsibility • Documentation for lawfulness and compliance with EU Timber Regulation (EUTR) • Ensures procurement of sustainable wood-based biomass and adherence to industry agreement

SBP (Sustainable Biomass Programme)

Certification of producer and products • Ensures that biomass is produced and transported responsibly • Ensures detailed documentation and CO2 accounts • Ensures procurement of sustainable wood-based biomass and adherence to industry agreement

PEFC (Programme for the Endorsement of Forest Certification)

Certification of forest area and forest products • Builds on social and environmental responsibility • Ensures access to wider market of certified products • Recognises existing national certification systems • Ensures procurement of sustainable wood-based biomass and adherence to industry agreement

Annual report 2018

Employees and social conditions

Employees and social conditions

V

erdo is one of the biggest workplaces in Municipality of Randers.

We therefore feel positively obliged to contribute to growth, to create new jobs locally and to give something back to the communities in which we operate.

Policy As an attractive place to work, we want to be able to retain and develop our existing employees and attract new employees. Moreover, we want to help meet the demand from educational institutions for apprenticeships, traineeships and internships and offer work experience arrangements for citizens on sick leave or who are unemployed.

Close to half of our 534 employees spend their working days on construction sites, at storage facilities and in production, where the physical work environment is extremely important.

We are therefore strongly focused on our employees’ working environment and on bringing down the number of accidents at work. We also give priority to our psychosocial working environment and employee well-being in general and conduct regular workplace assessments (WPAs). Among other things, we look at work-related absence and commit to reducing any such absence and increasing the job satisfaction of our employees through the formulation of clear action plans.

We believe in the power of diversity in the workplace and are therefore working to increase the number of female managers at several levels.

Efforts and results In 2018, a wide range of activities were again organised for Verdo employees, and many participated in running and cycling events or accepted the offer of Verdo-sponsored tickets for the home games of Randers FC. We participated in a number of educational and career fairs to attract ‘smart and professional hands’ and graduates with an interest in the energy sector.

We held a number of energy-themed events for schoolchildren aimed at providing insights into how electricity and heating are generated and supplied to their homes.

Increased intake of apprentices and trainees We have generally been welcoming an increasing number of apprentices in recent years. However, numbers declined from 2017 to 2018. In 2018, the target for Verdo Teknik A/S was for apprentices to account for 20 % of the total number of technicians.

Averaged over the year, this target was met. For Verdo Energy Systems A/S the figure was 13 %, and for Verdo Energiteknik A/S it was 11 %. In 2018, the target was four trainees for the group as a whole. However, we had a total of 12 trainees.

Focus on working environment In 2018, we registered a total of nine accidents at work, which resulted in a total of 38 days of absence. Moreover, we registered 115 near-accidents.

So as to reduce the number of accidents at work among our technicians, they have all received safety training via instruction videos, followed by a test.

To ensure a healthy working environment, in 2018 we also mapped the psychosocial working environment in all departments by means of workplace assessments (WPAs). Where a need for action was identified, the problem was described in detail and analysed, and an action plan was prepared and followed up on.

Number of employees undergoing job training and education

Apprentices, young people Apprentices, adults

Trainees (office and technical designer)

2018

2017

24

29

4

4

12

8

Students (interns and student assistants)

9

18

Employees in sheltered jobs or flexjobs Employees undergoing job training

4

3

3

6

Annual report 2018

35

Employees and social conditions

Women and men in management Diversity in the workplace is a strength for our employees and our business which we can convert into results.

In 2018, we therefore continued our work to increase the number of female managers in Verdo.

We saw a positive development for level-2 management positions in that the number of female managers went from 22 % to 23 %, thereby meeting our target of 20 %. Level 2 comprises staff functions, for which the recruitment base is generally wider and more diverse than for level-1 management positions.

Verdo also wants to increase the number of women members of the Supervisory Board. Elections to the Board of representatives were held in 2018. Seven women were elected out of a total of 29 members, corresponding to 24 %. Two women were elected to the Supervisory Board, including one employee representative, taking the total share of women on the Supervisory Board to just under 17 %.

A number of subsidiaries have their own supervisory boards. Members of these supervisory boards are

recruited from among members of the management team in the Verdo Group, which means that they are subject to the same gender diversity target.

The target was not met by any of the subsidiaries. Verdo offers management training and individual programmes which support the personal development and specific managerial responsibilities of managers at management levels 1 and 2. In 2018, the management training was supplemented with individual mentor programmes for new managers and project managers.

Female talents are encouraged to participate in external management courses, supplemented with internal career guidance.

Sponsorships As a company, we are under a certain responsibility, and we would like to give something back to the communities which we are part of.

We support the world of sport, most notably as the main sponsor of Randers FC, a sponsorship which dates back to the early days of the club. We also sponsor women’s and men’s handball, basketball and e-sport teams.

We strive for diversity in our sponsorships. Therefore, we support ‘Værket’ and its wide range of cultural events in the form of opera and ballet, music, theatre and shows for the whole family.

Active citizenship and social responsibility are all about our relations with the rest of society. We therefore reach out where we feel that we can make a small difference for a group of people who – for health or financial reasons – are normally unable to go to the theatre or to watch a football match. What we offer is a modest helping hand, but with great effect.

Conclusion Our employee benefits contribute to Verdo’s attractiveness as a workplace, as well as having helped to ensure that our active efforts to recruit more apprentices and students have borne fruit. We have recruited more female managers, but unfortunately did not meet our target. Judging from the positive feedback which we have received, we have succeeded in giving something back to society via our sponsorships.

Diversity – women in management

36

Annual report 2018

2018

2017

Female managers – level 1 (target: 10 %)

6%

3%

Female managers – level 2 (target: 20 %) Female managers – level 3 (target: 10 %)

23 %

22 %

13 %

13 %

Female managers – level 4

0%

0%

Respect for human rights, anti-corruption and anti-bribery

Respect for human rights H

uman rights constitute one of the cornerstones of the UN Global Compact’s ten principles. We support and respect the principles across our business model.

Policy In Verdo, we strive to integrate and respect the universal human rights.

Respecting human rights is part and parcel of ‘decency’, and our most important value is ‘We conduct ourselves with decency’. In Verdo, human rights translated into employee responsibility also include health cover in connection with illness and a pension scheme. The organisation is characterised by openness and a sense of equality among our employees and in the dialogue between the management and the employees.

Efforts and results In 2018, Verdo introduced dialogue meetings, at which all employees can ask questions of their divisional director, the aim being to create a more transparent and open organisation.

Many employees seized this opportunity, and feedback was positive.

Our values have been condensed into three strong values.

We conduct ourselves with decency • We see things from our customer’s perspective • We treat each other with respect and trust • We are always one step ahead

suppliers to Trading must live up to the human rights as regards, for example, working hours, the prohibition of child labour, health matters and the environment.

Conclusion The human rights are observed by both the Verdo management and the 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.

The Verdo Code of Conduct for Suppliers stipulates that international

Anti-corruption and bribery C

orruption 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 very clear anti-corruption and anti-bribery policy is therefore inspired by the principles of the UN Global Compact. The policy contains guidelines on how to ensure the correct formation of contracts without any forms of bribery, facility payments, gifts or entertainment.

• Bribery: The abuse of entrusted power for private gain is unacceptable

• Facility payments (‘sweeteners’) 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 is intended to increase awareness of corruption and create an understanding of how we combat corruption and bribery in our business activities. At the same time, we require our trading partners to 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 think about anti-corruption and anti-bribery. In Verdo’s opinion, it is expressly necessary to think about these matters in Trading. Similarly, Trading’s trading partners are under an obligation to adhere to the principles

of preventing bribery and corruption.

All Trading employees with procurement responsibilities are required to adhere to the general guidelines for the procurement of wood-based fuels (‘Overordnede retningslinjer for indkøb af træbaserede brændsler’) from 2015.

Moreover, all suppliers to Trading are also required to adhere to the Verdo Code of Conduct for Suppliers, and on Verdo’s request, suppliers must at all times be able to document their compliance with the code of conduct.

We continuously follow up on the policy.

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.

Annual report 2018

37

Verdo Financial statements 2018

The Supervisory Board and the Executive Board have today considered and approved the annual report of Verdo Energy A/S for the financial year 1 January - 31 December 2018.

The annual report has been presented in accordance with the Danish Financial Statements Act. In our opinion, the consolidated financial statements and financial statements give a true and fair view of

38

Annual Annualreport report2018 2018

the Group’s and the company’s assets, liabilities and financial position as at 31 December 2018 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 2018.

Material uncertainties exist regarding matters in subsidiaries, including the statement of equity. Please refer to note 1 for further details.

Financial statements 2018

2018 The financial statements

The financial statements, including the auditors’ report (pages 40-66), are taken directly from the official annual report.

Annual report 2018

39

Accounting policies

The annual report of Verdo A/S for 2018 is presented in accordance with the Danish Financial Statements Act for enterprises in reporting class C (large).

The accounting policies have been applied consistently with last year.

Subsequently, assets and liabilities are measured as described for each item below.

The financial statements are presented in Danish kroner (DKK).

Correction of material errors The Danish Utility Regulator has determined that the return on invested capital recognised by the company for the 2000-2005 period is not admissible, and the company has decided to accept the decision. In the opinion of the Danish Utility Regulator, the return on invested capital for the 2000-2005 period recognised in connection with the presentation of the financial statements for 2017 was not admissible, for which reason this is regarded as a material error in the financial statements presented for previous years.

In the financial statements for 2018, the material error has been corrected directly in the opening equity for 2017 by DKK -200,945 thousand after tax with counter-entries in surplus income/deficit of DKK 257,622 thousand and in deferred tax of DKK 56,677 thousand. Moreover, the change has reduced the net profit for 2017 by DKK -9,043 thousand.

The comparative figures relating to the return on invested capital recognised in previous years have been restated, while the key figures and ratios for 2014-2016 have not been restated.

General Recognition and measurement The financial statements have been prepared in accordance with the historical cost principle.

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 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 company, and the value of the liabilities can be measured reliably.

On initial recognition, assets and liabilities are measured at cost.

40

Annual report 2018

Certain financial assets and liabilities are measured at amortised cost, applying a constant effective interest rate to 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 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 Den Selvejende Institution Verdo.

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

Accounting policies

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

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

Annual report 2018

41

Accounting policies

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.

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

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 company. The stage of completion is calculated on the basis of costs incurred relative to the expected total costs of the construction contract.

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

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.

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.

Other operating income Other operating income comprises gains on the sale of intangible assets and property, plant and equipment.

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

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.

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.

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 company’s employees. Employee expenses are less compensation received from the public authorities.

42

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.

Annual report 2018

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.

Accounting policies

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.

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.

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

Balance sheet Intangible assets 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 5-10 years. The amortisation period is based on the expected payback period.

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

Development costs recognised in the balance sheet are measured at cost less accumulated amortisation and impairment losses.

After completion of the development work, development costs are amortised on a straight-line basis over an estimated useful life of five years.

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

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.

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

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

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

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

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

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

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:

Annual report 2018

43

Accounting policies

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

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

Cost includes the cost price plus delivery costs.

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

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

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

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.

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.

44

Annual report 2018

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.

Accounting policies

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 as 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 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 consists of deposits and operating credit facilities with credit institutions.

Annual report 2018

45

Verdo

46

Annual report 2018

Income statement

GROUP

PARENT COMPANY

2018

2017

2018

2017

Note

DKK

DKK ‘000

DKK

DKK ‘000

Revenue

2

2,365,226,203

2,401,662

82,062,453

92,469

Other operating income

3

6,037,055

5,114

27,276

22

-1,763,474,504

-1,815,214

-913,444

-1,563

-98,476,575

-102,004

-52,354,536

-57,121

Costs of raw materials, consumables and auxiliary materials Other external expenses

4

Gross profit/loss

509,312,179

489,558

28,821,749

33,807

Employee expenses

5

-251,887,524

-238,435

-56,265,827

-50,928

Profit/loss before depreciation and amortisation (EBITDA) Depreciation, amortisation and impairment losses

6

257,424,655 -159,806,565

251,123 -155,644

-27,444,078 -21,523,860

-17,121 -10,825

Other operating expenses

3

-1,515,370

-193

0

0

96,102,720

95,286

-48,967,938

-27,946

Operating profit/loss (EBIT)

Income from equity investments in subsidiaries

7

Value adjustment of earn-out

0

0

86,466,087

54,467

5,858,221

6,397

5,858,221

6,397

Income from other equity investments

7

18,804,807

450

0

225

Financial income

8

984,588

1,329

29,856,689

37,548

Financial expenses

9

-38,071,102

-36,375

-22,614,214

-26,358

-12,423,486

-28,199

99,566,783

72,279

83,679,234

67,087

50,598,845

44,333

-17,944,790

-18,735

9,396,326

2,563

65,734,444

48,352

59,995,171

46,896

969,649

-12,700

969,649

-12,700

66,704,093

35,652

60,964,820

34,196

60,964,820

34,196

5,739,273

1,456

66,704,093

35,652

Total net financials

Profit/loss from continuing operations before tax Tax on continuing operations

10

Net profit/loss from continuing operations for the year

Net profit/loss from discontinuing operations for the year

11

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

25

Annual report 2018

47

Balance sheet

ASSETS

GROUP

Note

PARENT COMPANY

31.12.18

31.12.17

31.12.18

31.12.17

DKK

DKK ‘000

DKK

DKK ‘000

97,243,156

114,353

0

0

334,463

90

0

0

97,577,619

114,443

0

0 98,049

NON-CURRENT ASSETS Goodwill Development projects Total intangible assets

12

Land and buildings

141,941,759

149,977

96,039,919

CHP plant and peak-load stations

373,901,493

401,725

0

0

1,464,274,250

1,413,037

0

0

Distribution systems and installations, and meters Operating equipment

46,903,406

60,415

15,165,386

28,813

Property, plant and equipment under construction

41,342,827

54,278

1,657,854

5,391

2,068,363,735

2,079,432

112,863,159

132,253

Total property, plant and equipment

13

Equity investments in subsidiaries

14

0

0

1,853,099,383

1,789,930

Other securities and equity investments

15

201,568

4,382

0

0

Other receivables

16

2,679,649

3,320

0

0

2,881,217

7,702

1,853,099,383

1,789,930

2,168,822,571

2,201,577

1,965,962,542

1,922,183

96,084,563

73,980

469,815

366

Total inventories

96,084,563

73,980

469,815

366

Trade receivables

361,259,147

463,179

484,565

1,659

Deficit receivable

10,678,624

4,684

0

0

0

0

85,564,849

129,868

34,263,629

25,759

0

0

0

0

647,000,000

647,000

68,137,034

89,369

0

0

0

1,686

0

7,631

55,491,308

32,388

917,637

1,003

7,010,786

7,638

4,696,375

4,059

536,840,528

624,703

738,663,426

791,220

78,855,243

99,622

234,370

147

0

15,943

0

0

711,780,334

814,248

739,367,611

791,733

2,880,602,905

3,015,825

2,705,330,153

2,713,916

Total financial assets Total non-current assets CURRENT ASSETS Raw materials, consumables and auxiliary materials

Receivables from subsidiaries Construction contracts

17

Subordinate loans Deferred tax assets

18

Income tax receivable Other receivables Prepayments Total receivables Cash Assets from discontinuing operations Total current assets Total assets

48

Annual report 2018

11

Balance sheet

EQUITY AND LIABILITIES

GROUP

Note

PARENT COMPANY

31.12.18

31.12.17

31.12.18

31.12.17

DKK

DKK ‘000

DKK

DKK ‘000

263,024,000

263,024

263,024,000

263,024

37,339,203

38,595

0

0

EQUITY Share capital Revaluation reserve Net revaluation reserve according to the equity method

0

0

0

0

Proposed dividend

10,000,000

10,000

10,000,000

10,000

Retained earnings

809,744,676

733,821

847,083,879

772,416

1,120,107,879

1,045,440

1,120,107,879

1,045,440

131,369,409

137,167

0

0

1,251,477,288

1,182,607

1,120,107,879

1,045,440

Verdo A/S shareholders’ share of equity Minority interests Total equity NON-CURRENT LIABILITIES Pension provisions

19

65,641,303

69,743

0

0

Deferred tax

18

0

0

7,001,000

9,885

Other provisions

20

699,000

4,699

0

0

Surplus income payable

19

175,250,248

204,164

0

0

Investment grants, accruals basis

19

181,468,391

169,635

0

0

Lease commitments

19

7,184,749

5,353

498,556

327

Mortgage credit institutions

19

268,333,049

291,070

44,797,869

47,422

Credit institutions

19

118,379,940

135,781

118,379,940

135,781

816,956,680

880,445

170,677,365

193,415

Total non-current liabilities CURRENT LIABILITIES Surplus income, investment grants and pension obligations

19

47,009,442

17,327

0

0

Lease commitments

19

3,128,925

2,791

354,579

334

Mortgage credit institutions

19

Credit institutions Construction contracts

17

Trade payables

22,740,340

22,800

2,623,393

2,574

195,350,289

395,226

178,596,178

420,082

14,337,006

10,987

0

0

251,148,771

209,796

6,588,154

7,189

Amounts owed to subsidiaries

0

0

1,122,524,444

936,770

Payables to group enterprises

10,453,031

0

10,453,031

0

2,619,798

0

479,513

0

247,676,083

293,354

92,925,617

108,112

17,705,252

492

0

0

812,168,937

952,773

1,414,544,909

1,475,061

Total liabilities

1,629,125,617

1,833,218

1,585,222,274

1,668,476

Total equity and liabilities

2,880,602,905

3,015,825

2,705,330,153

2,713,916

Income taxes payable Other payables Deferred income Total current liabilities

Material uncertainty regarding recognition and measurement

1

Charges and guarantees

21

Contractual obligations and contingencies

22

Related parties

23

Interest rate risks and use of financial instruments

24

Annual report 2018

49

Statement of changes in equity

STATEMENT OF CHANGES IN EQUITY

GROUP Revaluation reserve

Amounts in DKK

Note

Balance as at 1 January 2017 Material errors in respect of previous years Transferred via distribution of net profit

25

Foreign currency translation adjustments of subsidiaries

Share capital

Proposed dividend

263,024,000

0

39,851,233

0

0

0

0

10,000,000

0

0

0

0

Realised revaluation

0

0

-1,256,151

Pension obligations

0

0

0

Value adjustment of hedging instruments: Beginning of year

0

0

0

Year-end

0

0

0

Tax on equity items

0

0

0

263,024,000

10,000,000

38,595,082

0

10,000,000

0

Distributed dividend

0

-10,000,000

0

Foreign currency translation adjustments of subsidiaries

0

0

0

Realised revaluation

0

0

-1,255,879

Pension obligations

0

0

0

Equity as at 31 December 2017 Transferred via distribution of net profit

25

Value adjustment of hedging instruments: Beginning of year

0

0

0

Year-end

0

0

0

Tax on equity items

0

0

0

263,024,000

10,000,000

37,339,203

Equity as at 31 December 2018

50

Annual report 2018

Statement of changes in equity

STATEMENT OF CHANGES IN EQUITY – continued

Amounts in DKK

GROUP

Note

Balance as at 1 January 2017 Material errors in respect of previous years Transferred via distribution of net profit

25

Foreign currency translation adjustments of subsidiaries

Retained earnings

Total

Minority interests

Equity Total

893,520,251

1,196,395,484

132,371,818

1,328,767,302

-200,944,621

-200,944,621

0

-200,944,621

24,196,054

34,196,054

1,456,447

35,652,501

-2,319,960

-2,319,960

-435,133

-2,755,093

Realised revaluation

1,256,151

0

0

0

Pension obligations

-16,004,109

-16,004,109

-199,027

-16,203,136

Value adjustment of hedging instruments: Beginning of year Year-end Tax on equity items Equity as at 31 December 2017 Transferred via distribution of net profit

25

160,118,461

160,118,461

2,183,315

162,301,776

-116,378,257

-116,378,257

2,910,213

-113,468,044

-9,623,011

-9,623,011

-1,120,589

-10,743,600

733,820,959

1,045,440,041

137,167,044

1,182,607,085

50,964,820

60,964,820

5,739,273

66,704,093

0

-10,000,000

-15,000,000

-25,000,000

-878,011

-878,011

-84,537

-962,548

Distributed dividend Foreign currency translation adjustments of subsidiaries Realised revaluation

1,255,879

0

0

0

Pension obligations

2,797,388

2,797,388

-109,693

2,687,695

Beginning of year

116,378,257

116,378,257

-2,910,213

113,468,044

Year-end

-87,660,351

-87,660,351

7,568,006

-80,092,345

-6,934,265

-6,934,265

-1,000,471

-7,934,736

809,744,676

1,120,107,879

131,369,409

1,251,447,288

Value adjustment of hedging instruments:

Tax on equity items Equity as at 31 December 2018

Return on invested capital included in tariffs 2000-2005 The Danish Utility Regulator has determined that the return on invested capital recognised by the company for the 2000-2005 period with the addition of compound interest for subsequent years, an amount totalling DKK 269 million, is not admissible.The company disagrees with the Danish Utility Regulator’s decision, but has chosen to accept the decision and to make provisions for the commitment with a view to repaying it over the next three years.

Apart from the impact of the inadmissible return on results for 2017, the effect of the decision has been recognised directly in equity as it is considered a material error in the basic assumptions underlying the financial statements for previous years, cf. the explanation provided under accounting policies.

PARENT COMPANY

Amounts in DKK

Note

Balance as at 1 January 2017

Share capital

Net revaluation reserve according to the equity method

Proposed dividend

Retained earnings

Total

263,024,000

20,797,955

0

912,573,529

1,196,395,484

0

0

0

-200,944,621

-200,944,621

0

107,874,658

10,000,000

-83,678,604

34,196,054

Distributed dividend

0

-137,000,000

0

137,000,000

0

Foreign currency translation adjustments of subsidiaries

0

3,241,491

0

-5,561,451

-2,319,960

Entries on shareholders’ equity in subsidiaries

0

-16,004,109

0

0

-16,004,109

Value adjustment of hedging instruments

0

21,090,005

0

13,027,188

34,117,193

263,024,000

0

10,000,000

772,416,041

1,045,440,041

0

30,292,686

10,000,000

20,672,123

60,964,820

Distributed dividend

0

-45,000,000

-10,000,000

45,000,000

-10,000,000

Foreign currency translation adjustments of subsidiaries

0

-878,011

0

0

-878,011

Actuarial changes of pension obligations in subsidiaries

0

2,180,919

0

0

2,180,919

Value adjustment of hedging instruments

0

13,404,406

0

8,995,704

22,400,110

263,024,000

0

10,000,000

847,083,879

1,120,107,879

Material errors in respect of previous years Transferred via distribution of net profit

25

Equity as at 31 December 2017 Transferred via distribution of net profit

Equity as at 31 December 2018

25

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.

Annual report 2018

51

Cash flow statement

GROUP

Operating profit/loss (EBIT) Discontinuing operations (EBIT) Depreciation and amortisation, Other income and Other operating expenses Investment grants Other adjustments of non-cash operating items Cash flow from primary operations before changes in working capital

2018 DKK

2017 DKK ‘000

96,102,720

95,286

3,510,301

-6,183

152,968,214

162,827

12,247,752

9,018

5,101,636

-3,993

269,930,623

256,955

Changes in working capital: Inventories

-22,104,982

66,882

Receivables

113,252,920

-23,149

10,118,763

-25,391

371,197,324

275,297

Trade payables and other payables Cash flow from primary operations Interest income, received

984,588

1,329

-40,361,206

-46,276

-176,503

4,561

Cash flow from operating activities

331,644,203

234,911

Purchase of intangible assets and property, plant and equipment

-132,276,969

-99,136

-12,935,820

-30,206

Acquisition of subsidiaries/earn-out

-267,543

-1,914

Long-term receivables

641,008

2,219

Sale of financial assets

22,984,884

2,688

Interest expenses, paid Income tax paid/refunded

Property, plant and equipment under construction, adjustment

Sale of intangible assets and property, plant and equipment

32,346,795

134,054

Cash flow from investing activities

-89,507,645

7,705

Total cash flows from operating and investing activities

242,136,558

242,616

Dividend paid

-25,000,000

0

6,029,764

2,923

Repayment of non-current liabilities

-44,357,780

-43,450

Cash flow from financing activities

-63,328,016

-40,527

Cash flows for the year

178,808,542

202,089

Cash as at 1 January

-277,803,588

-479,893

Cash as at 31 December

-98,995,046

-277,804

New finance leases

Cash as at 31 December is specified as follows: 78,855,243

99,622

Short-term debt to credit institutions

Cash

-177,850,289

-377,426

Total

-98,995,046

-277,804

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

52

Annual report 2018

Notes

1. Material uncertainty regarding recognition and measurement In the financial statements for 2018, recognition and measurement are subject to the following uncertainties:

Verdo Varme A/S Invested capital and deficit The Danish Utility Regulator has determined that the return on invested capital recognised by the company for the 2000-2005 period with the addition of compound interest for subsequent years, an amount totalling DKK 269 million, is not admissible.The company disagrees with the Danish Utility Regulator’s decision, but has chosen to accept the decision and to make provisions for the commitment with a view to repaying it over the next three years.

The company has reported invested capital of DKK 381 million as at 1 March 1981 to the Danish Utility Regulator, which amount – with the reported return on invested capital and distribution of dividend up until the end of 2018 – amounts to DKK 64 million after repayment of the return recognised for the 2000-2005 period. The Danish Utility Regulator is currently considering the invested capital amount as at 1 March 1981 reported by the company as well as the return on the invested capital for the 2006-2018 period. The Danish Utility Regulator’s decision may change the calculation of the invested capital, including the collected return, which in this case will impact the reported equity, which in the annual report has been calculated at DKK 25 million.

Tax entry values The Danish tax authorities (SKAT) have requested information about the determination of the company’s tax entry values in 2012. SKAT has stated that, in the opinion of SKAT, the entry values must be determined on the basis of an earningsbased valuation model. SKAT thus intends to apply the valuation model which SKAT has used following the introduction of full tax liability for water utilities in Denmark.

The requested information has been sent to SKAT, including an account of the reported values based on an earningsbased valuation model.

SKAT has subsequently requested further documentation and based on this reduced the company’s tax entry values. The company had lodged an appeal against the decision to the Danish National Tax Tribunal.

In 2018, SKAT lost the case before the Danish Supreme Court concerning the water utilities’ tax entry values. This decision is expected to have a positive effect on the tax cases in the heating sector, but remains to be seen at present. Despite not agreeing with the decision, the company has decided to change its depreciation base to align with SKAT’s decision.

As a result of the above, there is uncertainty about the surplus income calculated by the company and the calculation of the company’s equity, as well as uncertainty about the amount of the deferred tax attributable to the tax entry values from the company’s property, plant and equipment values.

Verdo Produktion A/S Invested capital Like similar CHP plants, the company charges a tariff for its heat production which includes a return on the company’s equity. The included return has not yet been approved by the Danish Utility Regulator, but the company is engaged in a dialogue with the Danish Utility Regulator about this issue. The Danish Utility Regulator is currently considering a number of similar cases concerning the estimation of reasonable returns on invested capital. The case may impact the company’s equity, which in the annual report is entered as DKK 122 million, and uncertainty thus surrounds the size of the company’s equity.

Annual report 2018

53

Notes

GROUP 2018

2017

DKK

DKK ‘000

318,188,536

285,438

2. Revenue Breakdown of revenue by activity: Electricity supply Water supply Heat supply Contract work, electricity, water, heating and energy solutions Sale of fuel and technical coal Biofuel production and sale

27,616,019

24,632

308,670,252

376,299

274,456,597

236,563

1,297,839,599

1,192,739

0

141,644

Electricity generation

57,716,611

58,689

Fibre and telephony

28,478,330

29,124

Other

52,260,259

56,534

Total

2,365,226,203

2,401,662

1,401,522,203

1,401,862

541,374,000

502,587

Geographical breakdown of revenue: Denmark Europe Africa and the Middle East

29,986,000

37,958

Asia and Oceania

55,549,000

45,588

UK

106,752,000

141,644

North America

230,043,000

272,023

2,365,226,203

2,401,662

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.

3. Other operating income and expenses Income from and expenses associated with the sale of intangible assets and property, plant and equipment, as described in further detail in notes 12 and 13.

GROUP 2018

2017

DKK

DKK ‘000

Fee for statutory audit

686,917

819

Assurance engagements

106,339

79

Tax advice

179,412

206

Other services

769,627

876

1,742,295

1,980

4. Other external expenses Fees to auditors appointed by the annual general meeting:

Total

54

Annual report 2018

Notes

GROUP

PARENT COMPANY

2018 DKK

2017 DKK ‘000

2018 DKK

2017 DKK ‘000

243,349,127

237,594

55,159,929

51,558

17,217,302

15,886

2,597,891

2,368

3,482,567

4,923

538,632

475

Of which capitalised on construction projects

-12,153,818

-9,870

-2,030,625

-3,473

Total

251,895,178

248,533

56,265,827

50,928

-7,654

-10,098

0

0

251,887,524

238,435

56,265,827

50,928

5,979,203

5,630

5,979,203

5,630

466

475

88

86

5. Employee expenses Wages and salaries Pensions Other social security costs

Discontinuing operations, see note 11 Total Remuneration of the Supervisory Board, the Board of Representatives and the Executive Board* Average number of employees

* Remuneration of the Executive Board is not shown separately, as remuneration has been paid to one person only.

Please refer to the remuneration report made public at www.verdo.com.

GROUP 2018 DKK

PARENT COMPANY 2017 DKK ‘000

2018 DKK

2017 DKK ‘000

6. Depreciation, amortisation and impairment losses Intangible assets Property, plant and equipment Property, plant and equipment, impairment Total Discontinuing operations, see note 11 Total

17,163,816

18,019

0

0

132,443,433

149,763

12,114,856

10,825

10,409,004

0

9,409,004

0

160,016,253

167,782

21,523,860

10,825

-209,688

-12,138

0

0

159,806,565

155,644

21,523,860

10,825

7. Income from equity investments in subsidiaries and profit/loss from other equity investments Share of profit in subsidiaries, see note 14, and proceeds from sale of other equity investments, see note 15.

GROUP 2018 DKK

PARENT COMPANY 2017 DKK ‘000

2018 DKK

2017 DKK ‘000

8. Financial income Interest income from subsidiaries

0

0

28,970,722

36,537

Other interest income

899,939

944

671,054

823

Other financial income

84,649

385

214,913

188

984,588

1,329

29,856,689

37,548

Total

GROUP

PARENT COMPANY

2018 DKK

2017 DKK ‘000

2018 DKK

2017 DKK ‘000

38,740,367

45,132

22,152,663

25,603

1,620,839

1,144

461,551

755

Total

40,361,206

46,276

22,614,214

26,358

Discontinuing operations, see note 11

-2,290,104

-9,901

0

0

Total

38,071,102

36,375

22,614,214

26,358

9. Financial expenses Interest expenses Other financial expenses

Annual report 2018

55

Notes

GROUP 2018 DKK

PARENT COMPANY 2017 DKK ‘000

2018 DKK

2017 DKK ‘000

10. Tax on profit for the year Current tax

4,482,214

-4,558

-5,970,492

-3,925

Deferred tax

14,254,958

19,893

-2,884,000

1,346

Tax concerning previous years

-541,834

16

-541,834

16

Total tax on profit for the year

18,195,338

15,351

-9,396,326

-2,563

18,677,875

11,221

11,131,746

11,743

0

0

-20,311,348

-15,379

Tax on profit for the year comprises: Calculated 22% tax on profit for the year Tax on profit for the year in subsidiaries Tax effect of: Non-taxable revenue and non-deductible expenses

59,297

4,114

325,110

1,057

Tax concerning previous years

-541,834

16

-541,834

16

Total tax on profit for the year

18,195,338

15,351

-9,396,326

-2,563

17,944,790

18,735

-9,396,326

-2,563

250,548

-3,384

0

0

18,195,338

15,351

-9,396,326

-2,563

7,934,736

6,417

2,538,000

3,674

26,130,074

21,768

-6,858,326

1,111

Tax on profit for the year is distributed as follows: Tax on continuing operations Tax on discontinuing operations, see note 11 Total tax on profit for the year Tax on changes in equity Total tax

2018 DKK

2017 DKK ‘000

11. Discontinuing operations Profit/loss from discontinuing operations is constituted by the following main figures: Revenue and other income Employee expenses and Other external expenses Depreciation, amortisation and impairment losses and Other operating expenses Finance costs

4,376,768

34

-656,779

5,921

-209,688

-12,138

-2,290,104

-9,901

Profit/loss before tax

1,220,197

-16,084

Tax on discontinuing operations

-250,548

3,384

Net profit/loss from discontinuing operations for the year

969,649

-12,700

Assets and liabilities from discontinuing operations are recognised separately in the balance sheet as follows: Land and buildings

0

7,552

Operating equipment

0

8,391

Total

0

15,943

The Group is in the process of liquidating its activities in the Netherlands and has sold its hydrogen production plant. The profit/loss from operating activities and the proceeds from the disposal of assets are presented in a separate line in the income statement as ‘Net profit/loss from discontinuing operations for the year’.

56

Annual report 2018

Notes

GROUP Rights ceased production

Goodwill

Cost as at 1 January

0

Additions

0

Disposals

Development projects

Total

188,213,435

317,722

188,531,157

17,416

281,357

298,773

0

-13,870,851

0

-13,870,851

Cost as at 31 December

0

174,360,000

599,079

174,959,079

Amortisation as at 1 January

0

73,860,682

227,813

74,088,495

Amortisation

0

17,127,013

36,803

17,163,816

Amortisation, disposed assets

0

-13,870,851

0

-13,870,851

Amortisation as at 31 December

0

77,116,844

264,616

77,381,460

Carrying amount as at 31 December

0

97,243,156

334,463

97,577,619

5-10 years

5 years

1,767,500

0

0

1,767,500

0

0

0

0

1,767,500

0

0

1,767,500

Amounts in DKK 12. Intangible assets

Amortisation period Assets disposed of: Selling price Carrying amount Gains Gains are recognised in Other operating income.

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 lifetime of the assets is determined as 10 years.

Other Other investments in goodwill are individually assessed in terms of their earnings potential, and the remaining amortisation period is essentially less than one year. They are amortised on the basis of an economic life of 5-10 years.

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

Annual report 2018

57

Notes

GROUP

Land and buildings

CHP plant and peak-load centres

200,452,798

1,061,995,156

2,735,517,610

185,807,918

54,278,647

1,270,336

17,864,185

113,910,085

4,212,323

-137,256,929

0

Additions

0

0

6,142,445

10,637,302

128,151,685

144,931,432

Disposals

-18,191,243

-18,276,277

-12,475,628

-118,873,633

-3,830,576

-171,647,357

8,587,467

0

0

102,099,223

0

110,686,690

192,119,358

1,061,583,064

2,843,094,512

183,883,133

41,342,827

4,322,022,894

50,476,090

660,269,572

1,322,480,813

125,393,173

0

2,158,619,648

Amounts in DKK

Distribution systems and installations, and meters

Operating equipment

Property, plant and equipment under construction

Total

13. Property, plant and equipment Cost as at 1 January Completed plant

Transferred to/from discontinuing operations Cost as at 31 December Depreciation and impairment losses as at 1 January Foreign currency translation adjustment Depreciation

4,238,052,129

0

0

0

734,276

0

734,276

4,298,723

42,688,276

67,254,847

18,201,587

0

132,443,433

Impairment losses

1,000,000

0

0

9,409,004

0

10,409,004

Depreciation, disposed assets

-5,860,014

-15,276,277

-10,915,398

-110,466,336

0

-142,518,025

262,800

0

0

93,708,023

0

93,970,823

50,177,599

687,681,571

1,378,820,262

136,979,727

0

2,253,659,159

Carrying amount as at 31 December

141,941,759

373,901,493

1,464,274,250

46,903,406

41,342,827

2,068,363,735

Depreciation period

20-100 years

5-19 years

10-60 years

3-15 years

925,097

9,931,540

27,402,000

0

0

38,258,637

0

0

0

10,143,458

0

10,143,458

11,359,532

4,500,000

0

10,719,763

0

26,579,295

0

4,000,000

0

0

0

4,000,000

-12,331,229

-3,000,000

-1,560,230

-8,407,297

0

-25,298,756

-971,697

5,500,000

-1,560,230

2,312,466

0

5,280,539

Transferred to/from discontinuing operations Depreciation and impairment losses as at 31 December

The carrying amount of property, plant and equipment includes the following: Value of recognised interest Value of lease assets Assets disposed of: Selling price Demolition obligation, reversed Carrying amount Net gains

Net gains are recognised partly in Other operating income and partly in Other operating expenses as well as under discontinuing operations.

Disposals of assets under construction are expensed as part of Other external expenses.

58

Annual report 2018

Notes

PARENT COMPANY

Amounts in DKK

Land and buildings

Operating equipment

Property, plant and equipment under construction

Total

180,909,230

13 Property, plant and equipment – continued Cost as at 1 January

116,488,060

59,030,136

5,391,034

Completed projects

0

3,560,467

-3,560,467

0

Additions

0

2,804,288

3,657,863

6,462,151

Disposals

-59,872

-3,543,583

-3,830,576

-7,434,031

116,428,188

61,851,308

1,657,854

179,937,350

18,438,918

30,217,171

0

48,656,089

2,009,223

10,105,633

0

12,114,856

0

9,409,004

0

9,409,004

-59,872

-3,045,886

0

-3,105,758

Depreciation and impairment losses as at 31 December

20,388,269

46,685,922

0

67,074,191

Carrying amount as at 31 December

96,039,919

15,165,386

1,657,854

112,863,159

Depreciation period

5-100 years

3-10 years

0

837,780

0

837,780

Cost as at 31 December Depreciation and impairment losses as at 1 January Amortisation Impairment losses Depreciation, disposed assets

The carrying amount of property, plant and equipment includes the following: Value of lease assets Assets disposed of: Selling price

0

524,973

0

524,973

Carrying amount

0

-497,697

0

-497,697

Gains

0

27,276

0

27,276

Net gains are recognised in Other operating income.

Disposals of property, plant and equipment under construction are expensed under Other external expenses.

Annual report 2018

59

Notes

PARENT COMPANY 2018 DKK

2017 DKK ‘000

2,056,982,479

1,875,594

6,026,094

181,389

2,063,008,573

2,056,983

14. Equity investments in subsidiaries Cost as at 1 January Additions Cost as at 31 December Value adjustments as at 1 January Entries on shareholders’ equity, beginning of year Share of profit/loss Share of profit/loss, discontinuing operations Dividend paid Entries on shareholders’ equity Revaluations as at 31 December Carrying amount as at 31 December This item includes non-depreciated balances

-267,052,240

20,798

0

-200,945

86,466,087

54,467

969,649

-12,700

-45,000,000

-137,000

14,707,314

8,327

-209,909,190

-267,053

1,853,099,383

1,789,930

95,834,200

112,029

Balances (goodwill) on initial recognition of subsidiaries amount to DKK 161,946 thousand.

Name

Registered office

Net profit/loss for the year

Equity

Ownership interest

Subsidiaries: EL-NET Randers A/S

Randers, Denmark

9,609,293

461,703,523

100%

Verdo Go Green A/S

Randers, Denmark

14,696,611

85,482,970

100%

Verdo Energiteknik A/S

Randers, Denmark

2,055,880

13,555,314

100%

Verdo Vand A/S

Randers, Denmark

6,663,713

173,932,591

100%

Verdo Varme A/S

Randers, Denmark

1,012,582

25,278,330

100%

Verdo Tele A/S

Randers, Denmark

14,979,581

334,388,037

75%

Verdo Produktion A/S

Randers, Denmark

29,098,228

121,534,550

100%

Storvorde, Denmark / Greenland

-9,223,761

118,567,341

100%

Verdo Energy Systems A/S and Verdo Energy Systems GL ApS Verdo Energy Systems sp. z.o.o.

Poland

1,403,102

1,417,582

100%

Verdo Teknik A/S

Randers, Denmark

1,766,939

92,612,749

100%

Verdo Hydrogen A/S

Randers, Denmark

2,242,666

3,906,935

100%

Verdo Trading A/S

Randers, Denmark

11,039,350

214,913,920

100%

GF Energy B.V.

The Netherlands

-1,273,017

-34,954,833

100%

Verdo Renewables Ltd.

United Kingdom

-715,128

130,881,570

100%

Norway/United States

844,563

32,322,129

80%

Randers, Denmark

-26,661

5,973,339

100%

Carbon Partners AS and Carbon Partners Inc. EL-NET Kongerslev A/S EL-NET Hillerød A/S

Hillerød, Denmark

1,731,334

37,748,541

100%

Midtjysk Elhandel A/S

Randers, Denmark

1,530,461

33,834,795

74%

87,435,736

1,853,099,383

Subsidiaries in total The companies’ equity is calculated including consolidated goodwill

60

Annual report 2018

Notes

GROUP 2018 DKK

2017 DKK ‘000

15. Other securities and equity investments Cost as at 1 January

10,933,645

26,276

Disposals

-10,732,077

-15,342

201,568

10,934

-6,552,000

-21,394

6,552,000

14,842

0

-6,552

201,568

4,382

18,804,807

450

Visue A/S

Aarhus, Denmark

6.69%

DFF-EDB A.m.b.A.

Kolding, Denmark

0.08%

Cost as at 31 December Value adjustments as at 1 January Value adjustments, disposals Revaluations and impairment losses as at 31 December Carrying amount as at 31 December Gains on the sale of shares amount to Registered office/ownership interest:

GROUP 2018 DKK

2017 DKK ‘000

16. Other receivables (long-term) Cost as at 1 January

2,950,577

5,169

-355,577

-2,219

2,595,000

2,950

Value adjustments as at 1 January

370,080

279

Value adjustments

-285,431

91

84,649

370

2,679,649

3,320

Disposals Cost as at 31 December

Value adjustments as at 31 December Carrying amount as at 31 December Other receivables comprise loans repayable after five years.

The loans carry interest at a market rate.

Annual report 2018

61

Notes

GROUP 2018 DKK

2017 DKK ‘000

17. Construction contracts Selling price of the work performed Progress billings Total net value

266,150,121

174,229

-246,223,498

-159,457

19,926,623

14,772

Recognition in the balance sheet: Construction contracts (assets)

34,263,629

25,759

Construction contracts (liabilities)

-14,337,006

-10,987

Total

19,926,623

14,772

GROUP 2018 DKK

PARENT COMPANY 2017 DKK ‘000

2018 DKK

2017 DKK ‘000

89,369,114

46,767

-9,885,000

-7,063

-14,254,958

-19,892

2,884,000

-1,346

18. Deferred tax Deferred tax as at 1 January Annual adjustment of deferred tax Tax previous years, distribution between deferred and current tax

-2,665,385

0

0

-1,476

Tax on changes in equity

-4,311,737

62,494

0

0

68,137,034

89,369

-7,001,000

-9,885

-26,824,966

-9,324

-7,771,000

-9,885

88,169,000

86,890

0

0

Accrued expenses

0

5,460

770,000

0

Changes in equity

-6,192,000

-2,472

0

0

Pension obligations

12,985,000

8,815

0

0

Total deferred tax

68,137,034

89,369

-7,001,000

-9,885

Deferred tax as at 31 December Deferred tax is distributed as follows: Property, plant and equipment Accrued income

Reference is made to the section ‘Material uncertainty regarding recognition and measurement’ and to the management commentary in note 1.

At the end of 2018, the Group had recognised tax assets of DKK 68,137 thousand. The management believes that the coming years will generate taxable income which can exploit the timing differences in depreciation and amortisation.

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.

62

Annual report 2018

Notes

Mortgage credit institutions

Lease obligations

Total debt as at 31 December

291,073,389

Repayment next year

-22,740,340

Non-current portion Outstanding debt after 5 years

Amounts in DKK

Credit institutions

Other

10,313,674

135,879,940

469,369,384

-3,128,925

-17,500,000

-47,009,442

268,333,049

7,184,749

118,379,940

422,359,942

177,310,000

420,000

48,380,000

206,723,000

19. Non-current liabilities GROUP:

Generally covers pension provisions, surplus income and accrued investment grants. Pension obligations are recognised in the income statement in step with the disbursement of pensions.

PARENT COMPANY: Total debt as at 31 December

47,421,262

853,135

135,879,940

0

Repayment next year

-2,623,393

-354,579

-17,500,000

0

Non-current portion

44,797,869

498,556

118,379,940

0

Outstanding debt after 5 years

33,809,000

0

48,380,000

0

GROUP 2018 DKK

2017 DKK ‘000

20. Other provisions Demolition obligation

0

4,000

Warranty commitments

699,000

699

Total

699,000

4,699

The warranty commitment is reduced concurrently with the expiry of the warranties provided on delivered services.

GROUP

Amounts in DKK

PARENT COMPANY

2018 DKK

2017 DKK ‘000

2018 DKK

2017 DKK ‘000

167,889,000

103,793

74,900,000

38,400

10,312,000

8,144

853,000

661

0

8,000

0

0

457,935,000

459,535

58,635,000

58,635

636,136,000

579,472

134,388,000

97,696

21. Charges and guarantees Collateral Charge on assets held under finance leases Charge on goodwill, claims, inventories and operating equipment Mortgage on property Total

Property has been pledged as collateral for mortgages from mortgage credit institutions, of which the outstanding debt as at 31 December 2018 constitutes DKK 294 million.

As at 31 December 2018, the carrying amount of the charge is DKK 477 million.

As at 31 December 2018, the carrying amount of assets held under finance leases is DKK 10,143 thousand.

Guarantees include both ordinary builders’ guarantees and also guarantees in respect of pension obligations for 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.

Annual report 2018

63

Notes Notes

22. Contractual obligations and contingencies The company is, as administration company, 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 company has entered into finance leases, all of which are recognised in the balance sheet.

The Group’s lease commitments total DKK 5 million and all fall due within five years.

For 2019, the Group’s trading company has entered into significant contracts for the purchase of fuel and freight to cover already concluded and expected future contracts for the sale of fuel.

The Group’s electricity trading company has entered into fixed-price contracts for 2019 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. Moreover, 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 gain of DKK 27,966 thousand before tax.

Demolition obligation Verdo Produktion A/S is under an obligation to demolish the CHP plant Randers Kraftvarmeværk (KVR) and re-establish 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.

23. Related parties Den Selvejende Institution Verdo, Randers, Denmark (parent company) has a controlling interest in the company.

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

24. 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 2018 DKK

PARENT COMPANY 2017 DKK ‘000

2018 DKK

2017 DKK ‘000

Term 1-5 years

150,000,000

50,000

150,000,000

50,000

Term 6-15 years

411,060,993

545,382

156,696,248

272,039

Notional amount of interest rate swaps

561,060,993

595,382

306,696,248

322,039

Value adjustment recognised in equity

-108,236,904

-124,704

-55,383,600

-66,917

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.

GROUP 2018 DKK

PARENT COMPANY 2017 DKK ‘000

2018 DKK

2017 DKK ‘000

-83,679

25. Distribution of net profit Transferred to: Retained earnings

50,964,820

24,196

20,672,730

Proposed dividend

10,000,000

10,000

10,000,000

10,000

0

0

30,292,686

107,875

5,739,273

1,456

0

0

66,704,093

35,652

60,964,820

34,196

Net revaluation reserve according to the equity method Minority interests Total

64

Annual report 2018

The independent auditor’s report

To the shareholders of Verdo A/S Opinion In our opinion, the consolidated financial statements and 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 2018 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 2018 in accordance with the Danish Financial Statements Act. We have audited the consolidated financial statements and financial statements of Verdo A/S for the financial year 1 January – 31 December 2018 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 to the financial statements, which describes the uncertainty related to the surplus income calculated

by Verdo Varme A/S, the calculation of the company’s equity and the size of the deferred tax attributable to the tax entry values for the company’s property, plant and equipment as well as the uncertainty related to the size of equity in Verdo Produktion A/S. Our opinion is not qualified in respect of this matter.

Statement on the management commentary The management is responsible for the management commentary.

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

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

Furthermore, it is our responsibility to consider whether the management commentary contains the information required under the Danish Financial Statements Act. Based on the work performed, we believe that the management commentary is in accordance with the consolidated financial statements and the financial statements and has been prepared in accordance with the provisions of the Danish Financial Statements Act. We have not detected any material misstatement in the management commentary.

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

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

Auditor’s responsibilities for the audit of the financial statements Our aim is to obtain reasonable assurance that the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report with an opinion.

Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with International Standards on Auditing and the additional requirements applicable in Denmark will always detect a material misstatement when it exists.

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

Annual report 2018

65

The independent auditor’s report

As part of an audit conducted in accordance with International Standards on Auditing and the additional requirements applicable in Denmark, we exercise professional judgment and maintain professional scepticism throughout the audit. We also: · Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations or the override of internal control. · Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s and the company’s internal control.

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

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

Aarhus, 6 May 2019 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. · 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.

66

Annual report 2018

Claus Dalager State-Authorised Public Accountant MNE no.: mne26745

Verdo

COMPANY INFORMATION Verdo A/S Agerskellet 7 8920 Randers NV, Denmark E: info@verdo.dk T: +45 7010 0230 W: verdo.com CVR no.: 25 48 19 68

Certifications Licence code: FSC® C125676

Production Edited by: Verdo A/S Print run: 110.

Photos: David Bering and Jakob Lerche Production: Printed on FSC® and Swan-labelled paper and printing.

Paper: Munken Polar

5041-0856 Svanemærket tryksag

Annual report 2018

67

Verdo

68

Annual report 2018

Agerskellet 7

-

8920 Randers NV, Denmark

-

+45 8911 4811

-

info@verdo.com

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verdo.com