Verdo Annual Report 2019

Verdo

Annual report

2019

Annual report 2019

1

Verdo Message from the Chairman and the CEO

A truly extraordinary year

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Annual report 2019

Message from the Chairman and the CEO

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019 was an extraordinary year in every way, with great ups and downs. We were of course challenged by the Danish Utility Regulator’s highly publicised decisions ordering Verdo to repay some of the return on heating prices for the 2000-2017 period. These cases obviously affect the net profit/loss for the year and have generated increased media attention and many questions from our heating customers. This has demanded a lot of attention from both our management and employees. We work incredibly hard to maintain a high level of trust and strengthen our relationship with our heating customers. We are in constant dialogue with the authorities, and our customers can feel confident that Verdo complies with the decisions of the Danish Utility Regulator. However, we do not agree with all parts of the decisions and have therefore appealed the decision of the Danish Utility Regulator to the Danish Energy Board of Appeal. In mid-2019, we already began repayments in accordance with the recommendations of the Danish Utility Regulator. The aim was to prevent a protracted repayment process during the appeals procedure.

In 2019, we acquired the street lighting business from Eniig (now Norlys) and the district heating network in Herning, while selling the electricity grids in Randers, Hobro and Hillerød. These transactions follow the direction of our Next Level strategy, which focuses on strengthening heating, water, technical infrastructure and trading in fuels.

A strong business despite negative results for the year Revenue amounted to DKK 2.6 billion with EBITDA of DKK 99 million and a net loss of DKK 268 million. The results are extraordinarily influenced by three factors, in particular. An amount of DKK 491 million has been recognised in the financial statements concerning the heat supply cases for the 2000-2017 period. The amount is recognised applying the prudence concept.

In addition, the value of the assets of Verdo Tele A/S has been impaired by DKK 194 million. Moreover, the sale of the electricity grids has a positive impact on the results with a gain of DKK 365 million.

Adjusted for these special items, revenue

would have been DKK 3.1 billion and EBITDA DKK 225 million. Liquidity has been very good as a result of our ordinary operations and the sale of the electricity grids. This is testament to the health of our underlying business.

New strategy towards the next stage of development We pursue a strategy focusing on consolidation within heating, water, technical infrastructure and trading in fuel.

With the acquisition of the district heating network in Herning, Verdo Varme A/S now supplies electricity to about 69,000 homes and businesses. The acquisition has contributed to increased revenue in district heating and expanded Verdo’s consumer-governed Board of Representatives with 16 new members from Herning and one from Kongerslev. Four of these members were elected to Verdo’s Supervisory Board.

The increased activity levels in export markets and the growing demand for heat pumps have generated revenue growth in energy systems. The distribution of wood pellets on Zealand adds to our storage capacity and reinforces our position as a leading supplier of wood pellets in Denmark.

Our US subsidiary has seen a substantial increase in sales of coal and technical carbon which are used in the alloy industry and for the manufacture of solar cells, among other things. After taking over the operation and maintenance of an additional 100,000 street lights, we have further strengthened our technical infrastructure business. Verdo is now the largest supplier of street and traffic lighting operation and maintenance in Denmark.

Affordable and clean energy The launch of the UN’s 17 Sustainable Development Goals provides a new and improved framework for how companies can contribute to addressing global climate challenges. In 2019, we therefore implemented goal no. 6 ‘Clean water and sanitation’, goal no. 7 ‘Affordable and clean energy’ and goal no. 13 ‘Climate action’ in our strategy. 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 energy efficiency and lower supply prices, CO2 and NOX reductions as well as clean and plentiful drinking water.

Our focus on sustainable and energy-saving solutions was also instrumental in the Municipality of Aarhus entering into a new six-year contract with Verdo in 2019 for the operation and maintenance of Denmark’s largest lighting system with 58,000 street light points.

In 2019, all Verdo waterworks and water bores were tested and found to be free from 326 different pesticides. Not only is the water clean, Verdo also comes in sixth among Denmark’s 60 largest waterworks when it comes to cheap drinking water. The acquisition and planting of forest areas continued in 2019. The largest acquisition was the 39-hectare Randers Sønderskov forest in order to secure the source area and the water supply from the Vilstrup Vandværk waterworks to 10,000 citizens.

New CEO accelerates sustainable development On 1 January 2020, Jakob Flyvbjerg Christensen took over the post as new CEO from acting CEO Morten Birch. Before joining Verdo, Jakob Flyvbjerg Christensen was CEO of the Port of Aarhus. With Jakob at the helm, Verdo will intensify its long-standing commitment to climate-friendly supplies of energy and water to urban and local communities, focused on attractively priced clean water and sustainable district heating. In addition, Verdo will accelerate the development of digital and sustainable energy solutions as well as its focus on the acquisition of forest areas and tree planting to protect the groundwater, biodiversity and absorb more CO2 from the atmosphere.

Torben Høeg Bonde Chairman of the Board

Jakob Flyvbjerg Christensen CEO

Annual report 2019

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Contents

20 16

Record revenue and focus on the green transformation

18

Makes significant repayment provisions for heating customers and increases green energy sales

4

Annual report 2019

33,000 new customers and decisions in heating cases

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 Forsyning – heating, water and electricity grid .................................................... 20 Forsyning – electricity trading........................................................................................ 22 Teknik........................................................................................................................................... 24 Tele................................................................................................................................................ 26 Renewables............................................................................................................................... 28

24

Largest supplier of street lighting operation and maintenance

CSR – Corporate Social Responsibility Verdo’s business model .................................................................................................... 30 Environment and climate .................................................................................................. 33 Social conditions and working environment ........................................................... 38 Respect for human rights ................................................................................................. 42 Anti-corruption and bribery ............................................................................................ 43

The financial statements Accounting policies .............................................................................................................. 46 Income statement ................................................................................................................ 53 Balance sheet ........................................................................................................................ 54 Statement of changes in equity .................................................................................... 56 Cash flow statement ........................................................................................................... 59 Notes ........................................................................................................................................... 62 The independent auditor’s report.................................................................................. 73

Annual report 2019

5

About Verdo

Sustainable energy and technical infrastructure

V

erdo’s history dates back to 1874, when we began to supply drinking water to the citizens of Randers.

Almost 150 years later, we continue to keep up with society’s and consumers’ demand for energy and supplies and the rapid technological advances in the industry. This makes us an important player in an evolving and constantly changing society. Today, Verdo helps to drive the green transformation locally, nationally and internationally.

We take responsibility by steering our consumer-driven supply in an increasingly green and sustainable direction. We are actively working with the UN’s 17 Sustainable Development Goals towards 2030. Since 2009, we have gradually converted the coal-fired CHP plant Randers Kraftvarmeværk to CO2-neutral biomass, cutting CO2 emissions by 99.3%. We are also Denmark’s largest supplier of street lighting operation and maintenance with a commitment to replacing traditional street lighting with climate-friendly LED technology. This has allowed us to significantly reduce the CO2 impact of street lighting.

Verdo’s commercial business is essential if This makes Verdo a strong, viable energy we are to make a lasting contribution to the group, balancing innovation and tradition green transformation. We sell, install and for almost 150 years. service energy-efficient and reliable energy systems for industry and energy supply in Denmark and the Nordic region. We trade in fuels and are among Europe’s leading Aalborg suppliers of certified biomass as well as being the world’s leading supplier of technical carbon, which is used in the alloy industry and in the manufacture of solar Randers cells, among other things.

Herning

Aalborg

Ikast

Hilleroed

Aalborg

Naestved Randers

Randers

Herning

Herning

Ikast Ikast

Vision

Founded

Aarhus

Aarhus Aarhus

Hillerød Hilleroed

Næstved Naestved

Employees

We create green energy Revenue that Vision Medarbejdere Vision makes a world ofEmployees Weskaber create green difference Vi energy that grøn energi, billion DKK makes world of der gør aen verden difference til forskel

1874 2.6 55 6

Annual report 2019

About Verdo

Greenland

England

Norway Denmark Poland

USA Bahrain

550 Empolyees

Business areas Fuel and commodities Energy plants and technologies District heating Water plants andVision supply Technique and lighting Power trading Energy consultancy

550 Verdo’s

Turnover

2.4

We create green billions DKK energy that makes a world of difference

Annual report 2019

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Financial Review

A year characterised by exceptional circumstances

I

n 2019, the Danish Utility Regulator ordered us to repay an additional DKK 149 million to our heating customers in Randers. Combined with the decision of DKK 269 million from 2018 and the expected decisions for Verdo Varme A/S and Verdo Produktion A/S, we expect a total repayment of around DKK 760 million.

As a result of the repayment decision, we have recognised DKK 491 million in the income statement for 2019. This takes into account both known and potential future decisions. Further details can be found in notes 1 and 3 to the financial statements.

Net profit/loss for the year Verdo recorded a net loss for the year of DKK 268 million, which, in addition to ordinary operations, is mainly due to three special items. The first item is the provision of DKK 491 million for future repayments to heating customers. The amount is recognised in the income statement.

The second item is the impairment of the assets, and thereby the equity, of Verdo Tele A/S of DKK 194 million. The impairment is a consequence of a slower than expected increase in the number of citizens and businesses that are being connected to the fibre-optic network. TV habits have changed, and many people now stream TV shows and films instead of watching linear TV. The impairment is recognised in the income statement and, like provisions, negatively affects the net profit/loss for the year.

The third item is the strategic opt-out of the capital-intensive electricity grids. The Next Level strategy describes our goal of focusing on heat supply and technical infrastructure. That is why we sold El-NET Randers A/S and El-NET Hillerød A/S to Eniig at a profit of DKK 365 million, which is recognised in the income statement. We also acquired the heat supply and street lighting system in Herning, making us the largest street lighting operation and maintenance operator in Denmark.

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Annual report 2019

Overall, this results in revenue of DKK 2.6 billion. Revenue before special items amounted to DKK 3.1 billion. Operating profit (EBITDA) amounted to DKK 99 million, which was also affected by special items. Adjusted for special items, the net profit for the year comes to DKK 18 million and EBITDA to DKK 225 million, which is around DKK 32 million lower than in 2018.

This is mainly due to costs related to the decisions of the Danish Utility Regulator and the increased media attention.

However, it is worth noting that EBITDA, adjusted for special items, is above budget. We consider this year’s result to be unsatisfactory.

Continued low interest rates 2019 was characterised by falling interest rates towards the end of the year. However, this has not had a significant impact on operations. This is partly because we sold most of the electricity grid, where earnings were tied to interest levels, and partly because the Group’s debt is low. Special items affected financial leverage, which at the end of the financial year was 4.5. If the calculation of leverage were based on the profit/loss from operating activities before special items, it would correspond to a financial leverage of 2.0, which is excellent leverage for a company with significant infrastructure investments.

As another side effect of the very low interest rates, the value of the Group’s interest rate swaps was negative at the end of 2019. The value adjustments of the interest rate swaps total DKK 9 million for the year. It is important to stress that it is only the equity that is affected as Verdo is not required to provide liquidity for swaps.

In the long term, neither earnings nor equity will be affected by interest rate swaps.

Commercial and regulated activities Earnings before special items in regulated areas (EBITDA) were DKK 90 million, while commercial areas contributed DKK 135 million on a normalised basis. As a result, approx. 60% of the Group’s total earnings

are generated by the commercial areas.

This development is consistent with what we have seen in previous years.

Balance sheet The provisions related to the Danish Utility Regulator’s repayment decision also affected the Verdo Group’s equity, which stood at DKK 862 million at the end of the year. The solvency ratio is 28.8%. Both represent a decrease compared to 2018.

Our solvency, in particular, is affected by the large repayment provisions. Despite our declining solvency, Verdo is a robust company with very strong liquidity.

Significant events after the end of the financial year – COVID-19 Although COVID-19 has not had any concrete financial impact on Verdo, there is a risk that the pandemic could have a negative impact on revenue and earnings in 2020. We monitor developments closely, but at this point (May 2020) it is not possible to determine the long-term scope and impact of COVID-19.

Outlook for 2020 In 2020, Verdo expects an operating profit (EBITDA) in line with the profit from ordinary activities in 2019. However, the outlook is subject to any long-term impact of COVID-19. This includes indirect factors which may affect the markets, such as rising interest rates or increased transaction costs.

Financial Highlights Adjusted for special items.

See note 3 on page 61.

Revenue 3,106,900

+31.4%

2,615,643

2,365,226

2019

2018

+10.6% EBITDA

-12.5%

225,135

257,424

-61.7%

98,683 2019

2018

Profit/loss for the year 83,679

-64.6%

29,645 2019

-447.1%

2018

-290,459 1,146,945

+2.4%

861,565

-23.1%

2019

Equity 1,120,108 2018

Solvency

28.8% 2019

43.3% 2018

-14.5%

All amounts are stated in DKK ‘000 and before discontinuing operations

Annual report 2019

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Supervisory Board

1

2 5

4 3 6 7 9 8

10

12

11

13

14

17 15

10

16

1. Finn Stengel Petersen Board member

7. Janni Munkholm Nielsen Employee representative

13. Pia Maach-Møller Board member

2. Jakob Flyvbjerg Christensen CEO

8. Stine Brøgger Thyesen Employee representative

14. Niels Rasmussen Board member

3. Thomas Post Employee representative

9. Ebbe Bakke Hansen Employee representative

15. Henrik Gottlieb Hansen Board member

4. Erik Busk Jensen Board member

10. Peter Nowak Board member

16. Finn Skaarup Andersen Board member

5. Søren Sørensen Deputy Chairman

11. Per Nielsen Board member

17. Arne Erikslev Board member

6. Torben Høeg Bonde Chairman

12. Henning Jensen Nyhuus Board member

Annual report 2019

Executive Management Team

Jakob Flyvbjerg Christensen CEO

Thomas Bornerup

Jesper S. Sahl

Divisional Director, Trading

Divisional Director, Forsyning

Margrete Larsen CHRO

Morten Birch

Torben Rick

Divisional Director, Teknik

Divisional Director, Tele

Katrine Møller Jacobsen Head of Legal

Henrik Bøgh Nielsen

Divisional Director, Energy

Kenneth R. H. Jeppesen CFO

Annual report 2019

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Verdo Strategy 2019

Next Level – making a difference

V

erdo launched its new Next Level strategy in 2019. The aim of the strategy is to ensure that we innovate and evolve to further reinforce our market position and lead the green transformation of the energy industry. Towards 2021, Next Level must take Verdo to the next level of growth and development. The strategy will ensure increased growth by strengthening our digital presence and our focus on sustainable energy and consolidation.

Digital developments require an agile working culture and mindset to keep pace with all the changes that are happening and to attract new highly skilled, competent employees. Verdo’s strategic direction is focused on our core areas of expertise and areas where we can make the greatest difference: heating, water, technical infrastructure and trading in fuel.

Verdo’s strong value chains and focus on our core business, good management and systematic improvements help to make us stand out in the market for heating and water supply, energy production, technical infrastructure and sustainable biofuels. Next Level is based on many years of experience, extensive expertise and a solid growth platform in several complex markets.

Next Level also involves a strategic opt-out of the capital-intensive electricity grids. However, we retain electricity trading and further strengthen our focus on trading in green electricity.

Verdo and the UN’s 17 Sustainable Development Goals Verdo wants to generate green energy that makes a world of difference. We see it as our responsibility to contribute to the green transformation and to meet the global demands for sustainable development towards 2030. We have therefore chosen to pay particular attention to three of the UN’s 17 Sustainable Development Goals and have implemented them in our strategy.

Goal no. 6 ‘Clean water and sanitation’ Goal no. 7 ‘Affordable and clean energy’ Goal no. 13 ‘Climate action’ Preliminary results of Next Level We have carried out a number of activities that strengthen the business and create competitive advantages: • Acquisition of the district heating network in Herning • Sale of electricity grids in Randers, Hobro and Hillerød • Integration of 40 employees and the street lighting business from Eniig.

• Acquisition of Randers Sønderskov forest to protect the groundwater in our source areas.

Heating for the next generation Our strategic focus within heating comprises two main areas of action:

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Annual report 2019

• Implementing intelligent solutions and 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.

Our ambition is to become a market leader in Northern Europe when it comes to the sale, development, production, operation and servicing of energy-efficient and reliable energy systems. Our aim is to further strengthen our market position based on the growth in our fuel business realised in recent years. We want to be the largest and most profitable trading company for fuel and certified biomass in the Nordic region, and we also want to cultivate more alternatives to supplement biomass and establish long-term and responsible supply chains of overseas fuel.

In 2019, we expanded our reference portfolio and technical documentation on energy systems and fuels, so we can continue to provide our customers with sustainable and competitive products.

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.

Ever stricter water supply and operations standards are making it hard for small waterworks to keep up. Our long-standing experience is a strong platform from which to help them and thereby strengthen and consolidate the water sector.

We want to further develop our value chain and strengthen our expertise within the fields of water abstraction and treatment, the establishment of waterworks, service, distribution and customer billing – the purpose being to maintain sustainable and efficient water supply operations.

Energy-saving street lights carry on shining Replacing street lights with LED technology delivers significant carbon reductions, and Verdo is leading this conversion. The goal is to maintain our position as the biggest player in Denmark within the operation and maintenance of street lights. Therefore, we strengthen the value chain within consultancy, energy calculations and planning, sales and service, operation and maintenance.

As part of our growth strategy, we 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 mission As part of our Next Level strategy, we have adjusted our vision, mission and values. It is a natural development and one which supports Verdo’s business and strategic direction.

Strategy 2019

Our vision has been adjusted to clarify our goal of a sustainable future centred on creating value from the green transformation of society.

Our mission shows us how we get there. This means that we must keep a keen eye on political regulations which affect Verdo, the local commitment which has always been very important to us and on creating value for our customers.

Verdo’s fundamental value, with which we first and foremost identify, has not changed: We conduct ourselves with decency.

But we are also committed to our underlying values, which place on us an obligation to see things from the customer’s perspective, to treat each other with respect and trust and to always be one step ahead.

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 2019

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Verdo Group Group overview overview

The Verdo Group

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Annual report 2019

Group overview

Verdo Board of Representatives

Verdo Innovation A/S

Verdo S/I

Verdo A/S

Trading

Energy

Forsyning

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 Produktion A/S

Verdo Herning A/S

Carbon Partners Inc.

Verdo Energy Systems A/S

Verdo Varme Herning A/S

GF Energy B.V.

Verdo Energy Systems GL ApS

Verdo Vand A/S

Verdo Energy Systems sp. z.o.o.

Verdo Go Green A/S

Verdo Hydrogen A/S (Under voluntary liquidation)

Midtjysk Elhandel A/S

(Dissolved in March 2020)

EL-NET Kongerslev A/S

Annual report 2019

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Trading Verdo

Highlights 2019 Record revenue in Trading.

New sustainability certificates.

Successful integration of the activities of Ole Tietze ApS. New customers in East Asia with high sales volume.

Increase in sales to private customers.

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Annual report 2019

Trading

Record revenue and focus on the green transformation

I

t is hard to be pessimistic in Trading, which saw record results in 2019.

Revenue amounted to almost DKK 2 billion, and both operating profit (EBITDA) and profit before tax rose compared to 2018. In 2020, we expect lower revenue, but results on a par with 2019.

Success in the USA and new activities in East Asia The record revenue is chiefly due to activities in the US market. In 2019, our subsidiary Carbon Partners Inc. saw a marked increase in coal sales. Together with three partners, they also set up Mark Energy LLC and signed an agreement to take over the decommissioning and clean-up work for a disused coal mine in the USA. The project aims to restore the local indigenous forest and fauna. There is a lot of residual coal in the area, which will be sorted according to quality and used in the steel and alloy industry as well as in the production of solar cells, among other things. The formation of Mark Energy Inc. has resulted in increased investments compared to previous years.

East Asia is also contributing to revenue.

After years of cultivating the market, we successfully welcomed new customers in this region in 2019. Our efforts to expand our technical carbon volume will continue unabated in 2020.

We have also acquired the assets of Ole Tietze ApS in Næstved, thereby expanding the distribution of wood pellets on Zealand and boosting our storage capacity. The acquisition underpins our position as a leading supplier of wood pellets in Denmark. In 2019, the costs of integrating Ole Tietze ApS contributed negatively to Trading’s bottom line compared to 2018.

Sustainable forestry The need for sustainable forestry is growing as a result of the increasing use of wood in the energy and construction sectors. The demand for wood creates a

natural focus on certification and documentation, with international certification schemes playing an important role. We partner with our suppliers, among others, to push the market and the forestry industry in a more responsible direction. We are FSC® and SBP certified, and in 2019 we became one of the first major biomass suppliers in Denmark to obtain PEFC™ traceability certification. In December that same year, we were also awarded the NEPCon GCoC certificate. With some of the world’s leading certification schemes, we are strengthening our ability to expand the market for certified sustainable biomass in Denmark and abroad.

Added digital value for our customers Verdo’s efforts to digitalise a number of processes has significantly improved the competitive situation. We have optimised workflows and reduced the delivery time for customers, while at the same time having streamlined our supply chain. The reason is that the automatic and intelligent order flow is scalable and can quickly be adapted to any increases in orders for both pallet and bulk goods.

Safe and green operations with alternative biofuels Occasionally, we experience challenges with the security of supply of biofuels due to climate-related effects such as fluctuating precipitation or forest fires. At the same time, demand is growing due to the increasing transition to sustainable energy based on biomass. This places greater demands on our storage capacity.

In 2019, we therefore expanded our focus on alternative biofuels to include black pellets, which are a residual product stemming from ethanol production. The price is attractive as these biological residuals are not used elsewhere. In addition, they have a high calorific value and can be stored outside. Our black pellets are FSC® Recycled certified.

Tree planting continues in 2020 In 2019, Trading planted several new trees in cooperation with the Growing Trees Network Foundation. The move is in line with Verdo’s strategy to live up to the UN’s 17 Sustainable Development Goals. We expect to plant more trees in 2020.

The digitalisation process continues in 2020, which will allow us to provide our customers with real-time data and information about their inventories and orders in future.

Ratios All figures in DKK ‘000

2019

2018

1,973,696

1,427,636

EBITDA

26,401

25,699

Net profit for the year

11,714

10,821

Investments

11,088

1,938

228,002

211,398

Revenue

Equity

Annual report 2019

17

Energy

Makes significant repayment provisions for heating customers and increases green energy sales

2

019 was an unusual year for Energy. The Danish Utility Regulator presented a draft decision ordering our subsidiary Verdo Produktion A/S to repay DKK 146 million to heating customers. In 2020, we will submit a response with comments on the draft. However, it is important that our customers can trust us to always comply with the decisions of the authorities. Verdo Produktion A/S is therefore applying a precautionary principle in recognising the DKK 146 million as amounts owed to heating customers (surplus income). The amount negatively affects both revenue, operating profit (EBITDA) and the profit/loss before tax for 2019. Adjusted for special items, 2019 saw an overall increase in revenue and a decline in profit. The weaker profit is due to increased product development costs in Energy Systems A/S and overall low electricity prices as well as lower production at the CHP plant Randers Kraftvarmeværk owing to a warm year. In 2020, we expect to see a much improved bottom line in Verdo Energy Systems A/S and revenue in Energy on a par with 2019.

Global energy consumption, and hence the demand for energy, rose again in 2019. Our customers are increasingly demanding green energy. This development is supported by a number of policy decisions with the aim of phasing out the use of fossil fuels by 2050. Although this is a challenge for the energy industry as a whole, it also opens up new and more sustainable solutions for those – like Verdo – who are willing to seize the opportunity.

We have extensive experience in converting energy production from fossil fuels to renewable energy sources such as biomass.

more competitive, we have seen a marked increase in demand from our customers.

Over the course of 2019, Verdo Energy Systems A/S saw an uptick in the number of orders and delivered heat pumps as standalone solutions and as combined product solutions for energy systems.

Verdo’s consultancy services in connection with the choice of heat pumps ensure optimum and stable plant operations.

At the same time, our customers have discovered the financial benefits of more sustainable and energy-efficient operations.

Combined energy sources bring benefits The growing demand for green, reliable and energy-efficient solutions has also strengthened Verdo’s commitment to further developing new and existing energy systems alike. We combine multiple energy sources in a single energy system to exploit synergies and ensure intelligent and safe operations. This provides greater investment security for our customers.

Moreover, it increasingly enables customers to meet future policy requirements for renewable energy sources.

In 2019, we also began developing future district heating solutions, which are to replace Randers Kraftvarmeværk by the end of 2036.

More focus on sales In 2019, we strengthened our expertise and intensified sales efforts in Denmark and abroad to meet the growing demand for energy. We have built up comprehensive technical documentation and a strong reference portfolio. In 2019, we inaugurated plants in Kjellerup, Balling and Auning. The three plants are examples of how Verdo employs both tried-and-tested and new solutions to ensure efficient operations with optimum efficiency. The development costs for the construction projects detracted slightly from the bottom line in 2019. There is no doubt that this was a necessary investment, which we are already seeing the effect of in terms of the increasing number of orders for 2020 in Denmark and abroad.

We have also stepped up our efforts to digitalise and automate energy systems, both our own and those of our customers.

We continue to operate and monitor external plants in Denmark from the control room at the CHP plant Randers Kraftvarmeværk.

Ratios All figures in DKK ‘000 Revenue* EBITDA*

Growing demand for heat pumps Since the adoption of the Energy Agreement 2018, we have increased our focus on energy-efficient heat pumps. Following the easing of the tax on electric heating on 1 January 2019 which made heat pumps

Annual report 2019

2018

543,018

514,489

86,044

112,951

6,458

25,577

Investments

28,900

20,615

Equity

72,876

172,108

Net profit for the year*

*Adjusted for special items

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2019

Energy Verdo

Highlights 2019 Strengthened order portfolio for energy systems and heat pumps in Denmark and abroad.

Flexible solutions and combined energy sources bring benefits.

Successful reference projects.

Draft decisions from the Danish Utility Regulator.

Annual report 2019

19

Electricity, water and Supply

Highlights 2019 Successful integration of the district heating supply in Herning and sale of electricity grids.

Record intake of new heating customers.

Installation of digital water meters with leak detection.

More emergency lines to ensure reliable water supply to customers.

Water quality at the top of the agenda.

Decisions from the Danish Utility Regulator.

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Annual report 2019

Supply

33,000 new customers and decisions in heating cases

L

ooking back on 2019, the Danish Utility Regulator’s repayment decision was of course one of the major events of the year. We work incredibly hard to maintain a high level of trust and strengthen our relationship with our heating customers. We are therefore in constant dialogue with the authorities, and our customers can feel confident that Verdo complies with the decisions of the Danish Utility Regulator. Applying the prudence concept, we have recognised a total of DKK 345 million for the repayments in the financial statements for 2019. In mid-2019, we began making repayments to our heating customers in line with the recommendations of the Danish Utility Regulator following the 2018 decision. We expect to begin the repayment ordered by the 2019 decisions as early as 2020.

The DKK 345 million is recognised as a provision for amounts owed to customers (surplus income) which affects revenue, operating profit (EBITDA) and profit before tax. This means that Verdo Varme A/S’s equity is now negative. Consequently, the management expects to restore equity as soon as possible.

Adjusted for the special items for repayments, Forsyning recorded strong growth in revenue. The main reason for this is the acquisition of the Herning district heating network. We therefore expect to see normalised results for 2020 on a par with 2018.

Collective economies of scale for customers and the environment With the agreement on the acquisition of the district heating network in Herning and the sale of the electricity grids in Randers, Hobro and Hillerød, we have further focused our heating business. In 2019, we successfully integrated the heat supply in Herning. We expanded the distribution of green district heating by 33,000 homes, making us the fifth largest district heating company in Denmark.

We look forward to a successful

cooperation with Energi Ikast, Sunds Forsyning and Ørsted on the supply of heat from the CHP plant Herningværket.

One of our flue gas coolers was installed at Herningværket as early as 2019. A similar cooler was installed in Randers back in 2009, reducing the need for biomass by about 20%.

Growing demand for green heating The supply industry is undergoing rapid development, with the high level of activity in the construction industry helping to drive demand for our green and reliable district heating. This trend was also felt in Randers and Herning, where 495 new customers joined the district heating network in 2019. We expect this development to continue in 2020.

Continued roll-out of digital meters at customers 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. We have replaced more than 65,000 electricity, water and heating meters. In 2019, we were able to upgrade the last 3,500 smart water meters to a new generation of meters capable of detecting leaks in the distribution system. The new Verdo meters are intended to prevent unnecessary loss of drinking water.

Cooperation on emergency lines In recent years, several small Danish waterworks have had to shut off the water supply due to contamination. For a long time, we have been establishing emergency lines to small waterworks to ensure the supply of clean and plentiful drinking water should a local waterworks have to shut off the water supply due to contamination. In 2019, we established an emergency line to the Øster Bjerregrav Vandværk waterworks, providing local customers with a safer and more stable water supply.

Clean water for future generations We keep a particularly close eye on the water staying clean. In 2019, an independent test found all Verdo waterworks and water bores to be free from 326 different pesticides and degradation products. The test is more rigorous than the checks normally carried out by a water utility. Not only is the water clean, Verdo also comes in sixth among Denmark’s 60 largest waterworks when it comes to cheap drinking water.

The acquisition and planting of forest areas continued in 2019. Chief among these was the acquisition of the 39-hectare Randers Sønderskov forest to protect the source area and ensure the supply of clean drinking water to our water customers.

This focus continues in 2020 in line with our work on UN goal no. 6 and goal no. 13.

Ratios All figures in DKK ‘000

2019

2018

496,529

456,401

EBITDA*

92,782

105,826

Net profit for the year*

11,720

24,368

Investments

107,335

92,435

Equity

-59,022

835,781

Revenue*

*Adjusted for special items

Annual report 2019

21

Electricity trading

Electricity trading helps more people to go green

2

019 was challenged by low prices in the electricity market and a small decline in sales compared to previous years. This has negatively impacted revenue and profit. We expect results to improve in 2020. This is partly because we have a stronger product range due to our focus on developing green electricity products and not least on boosting three areas: pool products, corporate power purchase agreements (CPPA) and Nordic Sharing Power.

More green electricity for the Danish business community In 2019, we reached our goal of 100% green electricity use at Verdo from January 2020. This goal was inspired by UN goal no.

7. We have therefore set a new goal, which we expect to achieve in 2020: To achieve the highest certification of sustainable electricity products in accordance with the Danish Consumer Ombudsman’s guidelines from 2019. In future, we want it to be even easier to choose green electricity.

But it is not just Verdo that is interested in green electricity. COP19, a new climate act and society’s growing focus on renewable energy have led to an increased demand for green electricity from the business community, which has prompted us to focus on GoO (Guarantees of Origin). We offer our customers green and certified electricity, and we know exactly if the electricity originates from wind, solar or biomass. We also guarantee the customer a 10-year contract with a predictable electricity price (PPA).

For much of the year, we were in the top 5 on the national electricity price portal. The work undertaken in 2019 coupled with the generally higher prices at the electricity exchanges have led to growth on the top line, which also had a positive impact on the bottom line. In 2020, we will continue to focus on the good dialogue with our customers and on the further development of our competitive and green electricity products.

If we succeed in buying at a lower price than the benchmark price, we naturally split the gain with those of our customers who have signed up for our pool products.

The continued development of our pool products and corporate PPAs remains our focus areas in 2020.

Companies are demanding Nordic electricity cooperation Several companies have branches in all the Nordic countries but must enter into electricity contracts in each and every country. In 2018, we formed Nordic Sharing Power in partnership with other Nordic electricity companies. 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. In 2019, we expanded our Nordic order portfolio, and we will continue to do so in 2020.

My Verdo allows customers to make a green choice Customers are increasingly demanding solutions that make it easy to choose green electricity and to read, monitor and reduce their electricity consumption.

An increasing number of customers also want to know their green footprint. We want to support this development, and so in 2019 we rolled out My Verdo (Mit Verdo). My Verdo is an app that gives customers a comprehensive overview of their consumption, bills and payments. The app also offers energy-saving tips and the ability to compare your consumption to the heat, water and electricity consumption of others. In 2020, My Verdo will be further developed with a focus on creating added value for our customers.

Stable customer numbers despite turmoil and growing competition Competition for private electricity customers intensified in 2019, which has garnered the attention of policymakers, and efforts are now underway to ensure clear guidelines in the market. Despite the intense competition and increased media publicity due to the heating cases in 2019, Verdo Go Green A/S managed to keep its customer numbers stable.

Ratios All figures in DKK ‘000

Predictability in unpredictable market The Danish electricity market saw large fluctuations in electricity prices in 2019.

Fluctuations can have significant consequences for customers with high electricity consumption. 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.

22

Annual report 2019

2019

2018

363,773

346,709

EBITDA

14,118

14,524

Net profit for the year

11,034

11,384

-

-

Revenue

Investments Equity

196,909

Electricity trading Verdo

Highlights 2019 All the electricity we use at Verdo is now 100% green.

We have developed a new Verdo app for our customers.

Customer numbers remained satisfactory and stable at the end of 2019.

Annual report 2019

23

Verdo Teknik

Highlights 2019 We double our street lighting operation and maintenance activities and become Denmark’s largest supplier in the area.

Aarhus focuses on green and digital solutions and has chosen Verdo as its system supplier until 2025.

The Municipality of Randers orders Verdo’s intelligent traffic light system to alleviate traffic congestion and promote a greener city.

LED lighting makes it profitable to go green.

24

Annual report 2019

Teknik Verdo

Largest supplier of street lighting operation and maintenance in Denmark

2

019 was one of Teknik’s most successful years ever. The acquisition of Eniig City Solutions, in particular, has significantly boosted both revenue and profit. As a result, we are now responsible for the operation and maintenance of more than 250,000 street light units in a number of municipalities.

The acquisition provides economies of scale and has streamlined our processes.

In addition, the Municipality of Aarhus chose to renew the supplier agreement with us, and the Municipality of Randers chose our intelligent traffic light system.

In 2020, we expect revenue and profit on a par with 2019.

Intelligent infrastructure enables green cities In 2019, we saw a growing interest in intelligent traffic light systems that use digital sensors to improve traffic flow.

To step up the development and meet customer demand, we hired a development manager to expand our product portfolio within intelligent traffic management. The move was a response to the growing emergence of smart cities, which are capable of greatly reducing energy consumption and CO2 emissions and improving urban environments. As an important part of the transition to intelligent infrastructure, we will intensify our digitalisation efforts in 2020. Our goal is to become Denmark’s preferred system supplier of street lighting, LED lighting and intelligent infrastructure.

Green solutions in Aarhus and Randers The Municipality of Aarhus is in the midst of a historic green transformation. In July 2019, the municipality decided to renew its agreement with Verdo on the operation and maintenance of 58,000 street light points. The agreement runs until 2025. We also received our first order for intelligent traffic management in Randers, which for several years has experienced traffic congestion as a result of increasing pressure on local traffic. Many cities are now

having to reduce energy consumption, and lighting and traffic management can help to do that. Our digital solutions ensure efficient and safe operation of street lighting and infrastructure.

LED technology ensures profitable CO2 reductions Verdo is committed to making sustainable energy solutions a profitable investment for our municipal, business and institutional customers. Each year, our electricians replace a large number of street lights with LED lights. This helps to reduce the CO2 impact of lighting. It also improves road safety for urban citizens, as LED lights provide better and brighter illumination than conventional and high CO2 incandescent bulbs. In 2019, we replaced 14,000 street lights with LED lights. This has resulted in savings for municipalities of 3,332 MWh, equivalent to about DKK 5 million a year, and reduced CO2 emissions by about 666 tonnes. This corresponds to the annual CO2 consumption of approx. 40 Danes (according to figures from Concito).

Close customer relations are crucial In 2019, we divested our plumbing division to further consolidate the business. At the same time, we strengthened our three product areas and adapted the business to meet our customers’ demand for technical infrastructure, construction and corporate services. The close cooperation with our customers has been crucial to our strong performance within electricity contract work and corporate services, in particular.

Medals for skilled apprentices Teknik is working to ensure that apprentices account for at least 20% of our total number of technicians. We achieved our goal in 2019, when we managed to attract some of the best and most qualified apprentices. In 2019, two of our apprentices were awarded a medal from Medaljefonden in Aarhus. Today, the two medal recipients are employed at Verdo on a full-time basis and are helping to develop more local talent.

We are also seeing an increasing demand from business customers and educational institutions which have discovered the positive effect of indoor LED lighting on the working environment and learning ability.

Ratios All figures in DKK ‘000

2019

2018

260,126

154,934

13,684

5,338

3,461

1,767

107,745

4,280

Equity 196,122

92,613

Revenue EBITDA Net profit for the year Investments

Annual report 2019

25

Tele Verdo

More customers to be offered wider variety of choice

I

n 2019, Tele continued the roll-out of the fibre-optic network in Hobro and Randers, and we now offer our customers a wider variety of choice than before. However, we must admit that the connection works are not progressing as expected. The number of citizens and businesses being connected to the fibre-optic network is increasing at a slower pace than expected. TV habits have changed, and many people now stream TV shows and films instead of watching linear TV. As a result, more customers move away from TV packages, resulting in lower earnings per customer. In 2019, this trend meant that Tele had to write down the value of the fibre-optic network by DKK 194 million.

This is in line with market trends, as the majority of telecommunications companies have also made major write-downs.

Revenue and operating profit (EBITDA) have improved slightly over 2018, despite the fact that sales have not been as good as expected. As early as 2020, we expect to see markedly improved results as a result of the decrease in depreciation.

Roll-out continues In 2019, we received an increasing number of enquiries from developers and contractors wanting to integrate fibre-optic networks in their project planning. On new

developments, we prepare for the roll-out of fibre-optic networks to individual households. This increases the potential for new fibre lines.

In Randers and Hobro, we continued the roll-out of fibre-optic networks to private and business customers. In Hobro Nord, a brand-new area comprising 400 households was connected to the fibre-optic network. In Randers alone, large projects such as the urban district Sporbyen Scandia and the barracks Randers Kaserne represent a market of more than 4,000 new households. In 2020, 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.

cooling systems with significantly lower energy consumption. Instead of cooling the air mechanically, our new green cooling systems use the low temperatures in Denmark to maintain a constant temperature of 22 °C in the technical cabinets all year round. We expect to have installed the CO2-reducing cooling systems in all our technical cabinets by the end of 2020.

More providers and green solutions Interestingly, it has become possible to open up the fibre-optic network to more providers. By 2020, we will consider whether to offer more suppliers in the area we cover.

Another exciting development is Tele’s contribution to the green transformation.

In 2019, we began replacing all cooling systems in our technical cabinets with new

Ratios All figures in DKK ‘000

2019

2018

Revenue

29,163

28,478

EBITDA

24,982

24,207

-149,684

19,973

23,662

19,414

Net profit/loss for the year Investments Equity

26

Annual report 2019

296,167

445,851

Verdo Tele

Highlights 2019 New households in Hobro and Randers are connected to the fibre-optic network.

Sustainable cooling solution utilises the low temperatures in Denmark.

The value of the fibre-optic network is written down.

Annual report 2019

27

Electricity, water and Verdo Renewables

Highlights 2019 Intensified sales and marketing efforts.

New course towards 2020.

28

Annual report 2019

Renewables Verdo

A difficult market position

R

enewables faced considerable challenges in 2019. Revenue was halved and earnings declined.

Among other things, this is due to a lack of supplies of wood briquettes and reduced demand for wood pellets as a result of the phase-out of the subsidy scheme in the UK and the divestment of production facilities.

Focus on marketing and sales As a consequence of the decline in 2019, Verdo chose to tie Renewables more closely to the Group management. This has led to several new initiatives such as stepping up our sales and marketing efforts. This will enable us to strengthen sales in our web shop, where we see considerable customer potential. Moreover, we are strengthening our supply chain. This has resulted in a major restructuring of

the supply chain with fewer distribution sites and a better managed and more profitable distribution. The initial initiatives have made us less dependent on certain suppliers and have contributed to a more streamlined supply chain.

We are still among the five largest suppliers of wood pellets in the UK, but it is clear that we lost market share in 2019 and saw a decline in revenue and earnings, which is unsatisfactory.

Market characterised by uncertainty The growth in demand for wood pellets has stagnated slightly in the UK due to uncertainty about the Renewable Heat Incentive (RHI) subsidy scheme for wood pellet burners. The UK biomass industry is awaiting clarification from the UK government on whether additional funding will be available after 2021. The uncertainty surrounding Brexit and the sharp fluctuations in the British pound have also contributed to the market turmoil. We will closely monitor this development in 2020.

Ratios All figures in DKK ‘000

2019

2018

Revenue

53,454

106,752

EBITDA

-10,272

44

-8,269

-715

144

55

124,395

130,882

Net profit/loss for the year Investments Equity

Annual report 2019

29

Verdo’s business model Verdo

CSR – Corporate Social Responsibility

Verdo’s business model Resources

Activities

• People • Capital • Knowledge • Innovation • Wood • Solar

Strategic business

Development and

• Energy systems • Street lighting • Waterworks • Electrical installation

Other business

• Coal

Annual report 2019

• Biomass

• Fibre-optic networks

• Water

30

installation:

Value Operation and

Trading:

maintenance:

• Biomass

• District heating

Regulated:

• District

• Electricity

• District heating • Water

heating

• Drinking water

• Technical

• Contributes to CO2 emissions

carbon

• Contributes to CO2 reductions

• Energy systems

• Danish and international jobs

• Street lighting

• Tax contribution in Denmark • Cultural and sports sponsorships in local communities

• Fibre-optic networks • Electricity grids

• Electricity sales

Verdo’s business model

O

ur business model is based on the transformation of resources into value created. We approach CSR in recognition of the mutual impact that Verdo and the outside world have on each other – how we affect and are affected by the environment and climate, as well as by our relationship with customers, business partners and employees. This means that CSR has both a direct and indirect impact on our business model.

electricity, water and heating customers, as they help to keep prices competitive. Trading in certified fuel has given us a unique market position based on quality and competitive prices. At the same time, we are working to push the entire industry in a more eco-friendly direction. In the development, construction and operation of energy systems, we focus on our customers’ demand for flexible energy systems to optimise operations and save energy.

Consequently, we strive to not only reduce our own CO2 emissions from energy production, but also to reduce our customers’ emissions, among other things. The energy optimisation we offer our customers allows them to reduce CO2 emissions from their energy systems, street lighting business and electricity consumption.

Macro trends As an energy company, we are affected by macro trends such as Danish and international energy legislation, consumer demands and the UN’s 17 Sustainable Development Goals. This calls for responsible and CO2-reducing solutions due to the climate impact of energy production. These general drivers and trends both support and challenge growth and value creation.

Among other things, Verdo trades in certified fuels, which are produced by sustainable forestry operations under safe conditions.

The recognised certifications ensure that strict requirements are imposed on manufacturers and business partners which, in turn, allow Verdo to sustainably and responsibly source and resell certified fuels.

Operational and contingency plans Unintended interruptions of the supply of electricity, water and heating constitute a significant risk to the health, educational and emergency organisations and public institutions we supply.

To avoid interruptions, we continuously update our operational and contingency plans on heat, water and electricity supply in line with government requirements. In 2019, there were no significant unintended interruptions of supply.

Approach to CSR Our approach to CSR is defined in the following guidelines: • We create and sell green energy and sustainable solutions for the benefit of people and the environment.

• We take initiatives that benefit our employees and increase their commitment, job satisfaction and safety.

• We actively work with diversity in recruitment.

• We actively work to train the workforce of the future.

• We promote sports, culture and social activities.

Resources Our value creation is dependent on a number of resources: people, capital, knowledge and innovation as well as wood, solar, water and coal. These resources play a vital role for our long-term value creation and competitiveness as well as for the development of a sustainable business, and we therefore want to look after them and develop them. One example is our electricity and heat production at the certified biomass-fired CHP plant in Randers.

This significantly reduces CO2 emissions and contributes to a lower environmental impact.

• Our business operations are based on sound and ethical principles, and we conduct ourselves with decency.

• We launch initiatives to reduce CO2 emissions.

• We actively work with the UN’s 17 Sustainable Development Goals.

Activities We operate across our four main value chains: heating, water, technical infrastructure and trading in fuels. Our expertise is therefore centred on the development and installation of energy-efficient energy systems, street lighting and intelligent infrastructure, operation and maintenance of water and heat supply as well as trading in green electricity and fuels such as certified biomass and technical carbon.

Value creation and competitive advantages Investments in innovation and development are key to our business model and set us apart from our competitors. Synergies between the regulated and commercial business create value for our

Annual report 2019

31

Corporate Social Responsibility

CSR – Corporate Social Responsibility

V

erdo’s vision is to generate green energy that makes a world of difference. We see it as part of our responsibility to contribute to the green transformation and supply more sustainable energy. This is an ambitious but necessary vision, because according to figures from the Danish Energy Agency fossil fuels still account for more than 80% of the planet’s total energy consumption.

Transition from black to green district heating Verdo’s transition from the use of black to green energy in district heating production began in 2002 with the gradual transition from coal to biomass at the CHP plant Randers Kraftvarmeværk. The conversion to biomass was fully implemented in 2009. From 2002 to the present day, Randers Kraftvarmeværk has reduced CO2 emissions by 99.3%. The calculation assumes an emission factor for biomass of zero according to Commission Regulation (EU) on the monitoring and reporting of greenhouse gas emissions.

Since 2016, Verdo has fired with certified biomass in accordance with the Danish Industry Agreement for Sustainable Biomass. The reason is that CO2 emissions from coal are permanent, while emissions from certified biomass are temporary due to documented, responsible reforestation and forest management and the absorption of CO2 emissions by plants and trees over time.

The transition has been crucial in reducing the CO2 footprint of district heating production and thereby the negative environmental impact.

Since 2015, Verdo has supported independent certification schemes that ensure sustainable and safe production of woodbased fuels. We do this because we believe

32

Annual report 2019

in sustainable and documentable fuel production. Today, we have several Chain of Custody certifications (CoC) – FSC®, PEFC™, SBP and the NEPCon Generic Chain of Custody.

From permanent to temporary CO2 emissions The 2018 Energy Agreement significantly boosted the development of fully and partially electrified energy systems. By installing a heat pump at the CHP plant, we have achieved increased efficiency with lower biomass consumption. In 2019, this enabled us to once again lower the price of district heating paid by our customers while also reducing our total CO2 footprint.

Green energy In 2013, we began offering our customers green electricity as an alternative to conventional fossil fuel-based electricity.

Today, we offer green electricity to all our customers, and green electricity now covers 100% of the Group’s own consumption.

Switch to LED lighting Since 2015, Verdo has undertaken the comprehensive task of replacing conventional lighting units with more climate-friendly LED technology, which reduces the CO2 impact of lighting. We have continuously installed LED lighting in our own indoor and outdoor areas, as well as helping an increasing number of customers to replace their street lighting, indoor and outdoor lighting and effect lighting with LED lighting. This has produced energy savings of up to 70%.

Energy companies’ energy-saving efforts As an energy group engaged in heat and electricity distribution, we are required to report our energy savings to the Danish Energy Agency each year. This is

a high-priority area for Verdo, and every year since 2016 we have achieved energy savings in several areas.

Tree planting and forest preservation In 2016, Verdo helped plant the Oust Mølle Folkeskov forest, and in 2019 we took over the 39-hectare Randers Sønderskov forest. This was part of our efforts to protect source areas and water extraction in future. With our new strategy and vision, Verdo is accelerating the contribution to the green transformation by, among other things, living up to the UN’s 17 Sustainable Development Goals with a particular focus on goal no. 6 ‘Clean water and sanitation’, goal no. 7 ‘Affordable and clean energy’ and goal no. 13 ‘Climate action’.

Environment and climate

Environment and climate

T

he world is facing considerable climate change challenges.

Scientists have proved that the rise in global temperatures must stay below 1.5 °C to protect life on Earth.

Exceeding this limit is likely to have lasting consequences for nature and humans. To keep the temperature rise below 1.5 °C, the world needs to halve global carbon emissions by 2030 and reach net-zero emissions by 2050. This is explained in the IPCC Special Report on the impacts of global warming of 1.5 °C. 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 energy efficiency and lower supply prices, CO2 and NOX reductions as well as clean and plentiful water.

In 2015, we adopted the UN’s 17 Sustainable Development Goals towards 2030.

They define a new and improved framework for how companies can contribute to solving major global climate change challenges. Verdo acknowledges that we are part of the problem, but we are also part of the solution. This is reflected in our commitment to the UN’s 17 Sustainable Development Goals.

Verdo directly or indirectly addresses all the 17 Sustainable Development Goals.

However, we have unique expertise to provide solutions to some of them. In 2019, goal no. 6 ‘Clean water and sanitation’, goal no. 7 ‘Affordable and clean energy’ and goal no. 13 ‘Climate action’ were implemented in our strategy. In 2020, we expect to implement more goals.

Policy

Goal no. 7 ‘Affordable and clean energy’ Goal no. 7 is about ensuring access to safe, clean and affordably priced energy. Our approach is to increase the use of certified biomass in the form of wood chips and keep coal consumption to an absolute minimum. This helps to reduce our CO2 and NOX emissions year after year.

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

In addition, we are committed to developing intelligent infrastructure that further promotes the green transformation. It not only makes the infrastructure more energy-efficient, but also uses data and communication via street lighting and intelligent traffic management to optimise traffic flow and reduce congestion and thereby urban CO2 emissions.

Goal no. 13 ‘Climate action’ Goal no. 13 focuses on urgent action to combat climate change by reducing the impact of greenhouse gases, among other things. That is why Verdo has long been committed to utilising surplus heat from industry. In Randers, we work with the Bilka supermarket, the crematorium and the regional hospital to offtake their waste heat from production instead of just releasing it into the atmosphere. Therefore, we welcome the 2018 energy agreement on improving the utilisation of surplus heat from businesses for the benefit of citizens and the environment. Improving the utilisation of surplus heat reduces heating costs for consumers and fuel consumption in heat production. In 2019, Verdo’s initiatives in this area corresponded to the annual heat consumption of about 40 households. In 2020, we will explore further opportunities for utilising surplus heat in Randers and Herning.

Given the increasing wood consumption – both in the energy sector and in construction – the need for sustainable forestry is increasing. This creates a natural focus on certification and documentation.

International certification schemes play an important role in this respect. The certifications reflect a joint commitment to responsible forestry. Verdo is therefore entering into partnerships with our suppliers and industry organisations to push the market and the forestry industry in a more responsible and sustainable direction.

Annual report 2019

33

Environment and climate

certified and sourced from sustainable resources by 2019. Verdo sees sustainable biomass as a green path to a fossil-free future. Biomass reduces CO2 emissions by more than 90% compared to coal. Coal therefore emits more CO2 than wood, and while plants’ absorption of CO2 takes place over decades, the process takes millions of years for coal.

We require that all sourcing of wood-based biomass is certified by reputable and independent organisations. This helps us to maintain forest ecosystems, ensure responsible and lawful work processes and provide financial incentives for countries with major forestry operations to adopt sustainable production methods.

We maintain FSC® CoC and SBP CoC certification to ensure that our fuels are sustainably sourced. In 2019, we were also NEPCon Generic CoC certified and became one of the first major biomass suppliers in Denmark to be awarded PEFC™ traceability certification.

The forest area and the products it supplies are certified by one of the world’s leading forestry certification systems.

PEFC™-certified forests protect biodiversity, climate, safety at work and local communities. The felled wood can be traced all the way from the forest to the sawmill and on to the shop or combustion plant. Certifications ensure sustainable and responsible sourcing, and that the biomass is produced under safe financial, social and environmental conditions.

Trees can play an important role in solving the planet’s climate change challenges.

Trees have an excellent natural ability to absorb CO2 from the atmosphere.

For example, a large beech tree with a diameter of 50 cm and a height of 26 meters can absorb an amount of carbon equivalent to 4.30 tonnes of CO2 in its lifetime. Photosynthesis is the forests’ natural contribution to the fight against climate change. We are already planting trees and protecting woodlands, but in 2020 we expect to increase our efforts in this area.

We have also helped to draft the energy companies’ Industry Agreement for Sustainable Biomass. It stipulates that 90% of all fuel in the industry must be

Goal no. 6 ‘Clean water and sanitation’ In Denmark, we all have access to clean drinking water – a resource most people take for granted. However, as is the case in the rest of the world, our drinking water is under threat. Verdo is therefore continuously stepping up activities aimed at protecting our groundwater and guaranteeing clean drinking water for consumers in the local community. In 2019, one of such activities was the protection of forests and the creation of non-toxic environments in local communities. In addition, we joined partnerships to develop new water filtration and purification methods. In 2019, we entered into a partnership with the waterworks Hjørring Vand and TREFOR Vand and the Danish Technological Institute on maximum pesticide removal through natural, microbiological manipulation of the existing sand filter at Danish waterworks.

Importance of certifications for Verdo

34

FSC® (Forest Stewardship Council®)

Certification of forest area and forest products • Social and environmental areas responsibility.

• Documentation for lawfulness and compliance with EU Timber Regulation (EUTR).

• Ensures sourcing 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 sourcing 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 sourcing of sustainable wood-based biomass and adherence to industry agreement.

NEPCon (Generic Chain of Custody certification)

Certification of traceability documentation system where our FSC, PEFC or SBP procedures are not relevant.

• We use it to document traceability when sourcing biomass from Danish forests – biomass that meets the requirements for alternative documentation for adherence to industry agreement.

Annual report 2019

Environment and climate

Efforts and results In 2019, we measured the highest-ever efficiency at the CHP plant Randers Kraftvarmeværk thanks to our skilled employees. This resulted in reduced fuel consumption and CO2 emissions. The efficiency improvements were achieved through considerable operational and optimisation efforts.

of CO2 to the atmosphere per year. This is based on figures from the Global Resource Footprint of Nations report, which is based on consumption in each country surveyed. If Denmark is to meet its target of becoming climate-neutral by 2050, each person must reduce its emissions to less than 2 tonnes per year.

In 2019, our consumption of biomass at Randers Kraftvarmeværk totalled 206,587 tonnes, while coal accounted for only 399 tonnes or 0.19% of our total fuel consumption. Overall, we reduced our CO2 emissions by 10% from 3,314 tonnes in 2018 to 2,994 tonnes in 2019. Our success in reducing CO2 emissions in 2019 is mainly due to improved production planning and operational reliability.

LED optimisation In 2019, we energy-optimised and replaced 14,000 street lights with LED technology, reducing annual energy consumption by 3,332 MWh in the municipalities concerned. The lower energy consumption of LED lighting also resulted in significant CO2 reductions of about 666 tonnes. This equates to the annual CO2 emissions of 40 Danes. We have used LED lighting at our head office since 2018, saving 43,853 kWh and just over 20 tonnes of CO2 every year. This is a natural extension of our goal that all the electricity used at Verdo must be 100% green. At the end of 2019, we achieved this goal, which is inspired by UN goal no. 7 ‘Affordable and clean energy’.

In 2019, we saw a minimal increase in coal consumption compared to last year. We only use coal as backup fuel if problems arise. While the conveyor belt for biomass underwent major repair work, we had to use coal to keep the heating on in our heating customers’ living rooms.

Verdo is committed to reducing NOX emissions, for example by carefully analysing and optimising the composition of the biomass we use. In 2019, we successfully reduced NOX emissions by 57,446 kg by reducing fuel consumption and the amount of nitrogen in biomass. That is a reduction of nearly 23% from 2018 to 2019.

At the same time, we reduced CO2 emissions by 10% or 320 tonnes. This corresponds to the annual CO2 emissions of 19 Danes. According to figures from Concito, each Dane emits an average of 17 tonnes

Green electricity Verdo takes the green transformation seriously. Not only in our Group, but also in relation to the electricity products we offer our customers. Therefore, our focus for 2020 is to reach the highest category within green electricity to make it easier for our customers to choose 100% green electricity.

We love trees Trees are nature’s CO2 vacuum cleaner.

According to figures from the Danish Nature Agency, one hectare of healthy

forest absorbs and binds between 8 and 13 tonnes of CO2 per year, depending on the species of wood. This almost corresponds to the annual CO2 emissions of the average Dane.

In 2019, we contributed 1,250 trees to the nationwide tree planting project ‘Danmark planter træer’. The trees are now waiting to be planted outside Randers. Since 2019, we have partnered with the Growing Trees Network Foundation to plant new trees.

The partnership continues in 2020.

Forest acquisitions and planting Afforestation and forest acquisition are part of our strategy and support for UN goal no. 6 ‘Clean water and sanitation, goal no. 13 ‘Climate action’ and goal no. 15 ‘Life on land’. In addition to clean drinking water and CO2 storage, more forest provides habitats for plants and animals as well as new recreational areas. In 2019, we acquired the Randers Sønderskov forest to protect the source area in the forest and the supply of clean drinking water to our customers. The source area in Randers Sønderskov is located in an urban area close to a gravel pit. The source area is therefore at risk of contamination if the forest is not protected. In 2020, we will expand the forest and plant 2,000 new trees.

Verdo extracts 1,000,000 m3 of water annually from the source area around Oust Mølle Folkeskov forest in Randers.

This makes it imperative to protect the groundwater in the area. Therefore, we have planted 24,000 trees in Oust Mølle Folkeskov since 2016, which helps to store CO2 and protect the drinking water supply

Energy production in Verdo

CO2 emissions tonnes NOX emissions kg

2019 2,994 195,565

2018 3,314 253,011

2017 1,657 235,389

2016 2,531 243,976

2015 1,799 259,861

Consumption of wood chips tonnes Consumption of straw and other biomass tonnes

180,772

179,494

189,439

209,606

188,584

25,815

34,157

31,580

31,771

33,008

399

376

291

533

436

120,467,832

135,891,773

129,184,956

165,458,533

160,008,887

Consumption of coal

tonnes

Net electricity generation based on green energy

kWh

Annual report 2019

35

Environment and climate

near the large groundwater reservoir. The forest helps to protect the clean drinking water against contamination, while creating a recreational area for the city’s citizens.

Action against pesticides In Denmark, we use around 20 tonnes of pesticides in our gardens every year. One drop of pesticide in the groundwater is enough to make 10 million litres of water undrinkable. Tests of 250 water bores across the country have shown excessive levels of pesticides in the groundwater.

As part of our efforts to ensure clean drinking water, we have banned the use of pesticides at all our sites since 2017. These sites cover 430,000 m2 , which corresponds to an area the size of 65 football pitches.

We support the ‘Giftfri Have’ anti-pesticide project launched by the Danish Society for Nature Conservation and the Danish Society of Practical Ecology. In 2019, the Municipality of Randers followed suit, and we hope that more local players will support the project in 2020.

In 2019, we once again celebrated the UN’s International Water Day in cooperation with the organisations Vandmiljø Randers and Randers Naturcenter, among others.

500 young school children participated in the star race and learned more about water. Our aim is to share our knowledge of water and to support and strengthen the participation of local communities in improving water and sanitation management.

2009 Transition completed with a CO2 reduction of 99.3%

36

Annual report 2019

Conclusion Based on our environmental and climate-related efforts in 2019 within CO2 reduction, the sourcing of fuels, the protection of our source area and green district heating as well as fair supply prices, results were satisfactory, and we complied with our policy. In 2020, we will step up our efforts in relation to the UN’s Sustainable Development Goals. To this end, we have entered into a partnership on the goals with the Municipality of Randers. The aim is to make the UN’s Sustainable Development Goals relevant for everybody and increase awareness among citizens and businesses of how we all can contribute to achieving the goals.

Plants 24,000 trees in Oust Mølle Folkeskov forest

Offers green electricity to all customers

Transition from coal to biomass

2001

Energy savings ‘Energiselskabernes energispareindsats’ obliges us to find and realise a number of annual energy savings, which must be reported to the Danish Energy Agency. In 2019, Verdo’s overall savings target was 41,830 MWh. We have achieved savings of 33,502 MWh. In so doing, we have reached 80% of our overall energy savings target.

Verdo Go Green A/S realises the majority of its energy saving projects in production companies. In 2019, the project portfolio was characterised by few but large projects. Due to the extraordinarily wet autumn of 2019, some of these projects had yet to be completed by the end of 2019. We expect to make good on the lack of energy-saving projects in 2020.

2013

2016 Fires with certified biomass

2016

Acquires Randers Sønderskov forest to protect the source area

2018 Focus on electrification

2019

70% reduction in CO2 emissions from Verdo’s car fleet

2019 Obtains PEFC certification and introduces UN climate goals

2030

Environment and climate

Annual report 2019

37

Social conditions and working environment

Social conditions and working environment

V

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

We see it as part of our civic responsibility to contribute to growth, to create new jobs locally and to give something back to the local community.

Policy Verdo wants to retain and develop our existing workforce, but we also want to attract new employees and give something back to the communities in which we operate. That is why we are actively working to be an attractive place to work.

Good energy Every year, Verdo’s dedicated employees participate in local running and cycling events. We call the initiative ‘Den Gode Energi’ (good energy). It emphasises the fact that good energy is fundamental to everything we do – both when it comes to energy production in the literal sense and to our employees. Activities include the ‘Fjordløbet’ race in Randers and the DHL Relay race in Aarhus, Aalborg and Copenhagen. In addition, we offer many other employee activities such as team building events, development and training opportunities, health insurance, advantageous pension schemes, personal pension interview for salaried employees and a canteen focusing on healthy and climate-friendly food. It has always been

38

Annual report 2019

important for Verdo to work with educational institutions on apprenticeships, traineeships and internships. We also work with the local municipality to meet the demand for work experience for citizens on sick leave and unemployed citizens.

Working environment and safety Half of our approx. 550 employees spend their working days on construction sites, at storage facilities and in production.

Therefore, we place high demands on the physical working environment and on safety. We are 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. Verdo conducts workplace assessments (WPAs), where 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.

Diversity We believe in the power of diversity in the workplace and are working to increase the number of female managers. In 2020, there will be an even greater focus on diversity in Verdo, and we will develop new targets for how we can attract employees in future based on a broader understanding of diversity than age and gender. These

could be parameters such as educational and professional background, origin and international experience.

Efforts and results In 2019, a wide range of activities were again organised for Verdo’s employees, and many participated in running and cycling events. We participated in a number of educational and career fairs to engage with future talents with an interest in the energy sector. We held a number of energy and climate-themed events for schoolchildren aimed at providing insights into how electricity and heating are generated and supplied to their homes. Verdo wants to share our competences and knowledge with tomorrow’s climate ambassadors.

More apprentices and trainees In recent years, Verdo has welcomed an increasing number of apprentices. We are very pleased with this development.

In 2019, the target for Teknik was for apprentices to account for 20% of the total number of technicians. We have achieved this target for the second year in a row. In Energy, the figure was 14% for both Verdo Energy Systems A/S and Verdo Energiteknik A/S. In 2019, the overall target was four trainees for the Group. However, we had a total of 12 trainees. In 2019, we also increased activities aimed at employees in flexjobs and employees undergoing job training, with an overall increase

Social conditions and working environment

of 50% from 2018 to 2019. Verdo has always supported training and education initiatives and offered attractive internships and apprenticeships to the talents of the future.

Focus on working environment Overall, Verdo has seen an 11% decrease in accidents at work and near misses.

Generally, this is a positive trend in terms of our goal of reducing the number of accidents at work. In 2019, we registered eight accidents at work, which resulted in a total of 103 days of absence. Moreover, we registered 115 near misses. 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.

In 2019, meat accounted for 9% of the total amount of ingredients used in our canteen – a 5% drop from 2018. We thus achieved our target for the year of a reduction in meat consumption to less than 10% of the total amount of ingredients used. One of our other focus areas is to minimise food waste, and in 2019 our food waste amounted to just under 5,000 kg. We are constantly working to reduce and reuse any leftover food. We therefore collect leftover food and send it to Daka in Hedensted, where it is reused in the production of biogas. Verdo’s 5,000 kg of food waste has helped to reduce CO2 emissions by 3,556 kg. This is equivalent to 168 days of heating in an average Danish household.

Climate-friendly canteen Verdo’s focus on sustainability and the environment also extends to our canteen.

Healthy food is good for your physical and mental health and thus for the well-being of our employees.

In 2019, 42% of the food we served in our canteen was organic, and 54% of the ingredients were produced in Denmark.

We are aware that meat production has a negative impact on the environment.

To limit this impact, we are mindful of the role of meat on our menus and source high animal welfare meat where possible.

Number of employees undergoing job training and education

Apprentices, young people

2019

2018

2017

34

24

29

Apprentices, adults Trainees (office and technical designer)

4

4

4

12

12

8

Students (interns and student assistants)

13

9

18

Employees in sheltered jobs or flexjobs Employees undergoing job training

7

4

3

8

3

6

Annual report 2019

39

Social conditions and working

Women and men in management Diversity in the workplace remains an important issue in Denmark. We believe that diversity creates value for Verdo.

It is a strength for our employees and our business which we can convert into results. A highly diverse management team increases the ability to manage and assess the considerations that enable the company to live up to its values and the expectations of the outside world.

Verdo offers management training and individual programmes which support the personal development and specific managerial responsibilities of managers. In 2019, we focused on encouraging female talent to attend our in-house project management course. We did this because 80% of Verdo’s employees are male and the number of women declines the further up in the organisation you go. The project management course consisted of four classes over a two-year period, and 10% of the total number of participants were female. In 2019, we intensified our focus on inviting female talent, which increased the share of women from 6% to 20% in the latest class.

We are not the only company in the energy sector to be facing these challenges, but we are determined to do something about them. As a result, we plan to step up efforts in 2020 to redefine our diversity targets towards 2030, including sub-targets for 2023 and 2027. The targets apply at all levels of management in the organisation.

In 2019, we saw a positive development in the number of female middle managers at management level 1, with an increase from 6% to 9.5%. In so doing, we have almost reached our target of 10% female managers at management level 1. This indicates that our efforts in 2019 have paid off. Female managers at management level 2 are typically found in staff functions, for which the recruitment base is often wider and more diverse. In this area, we saw a decline from 23% in 2018 to 17.5% in 2019. This means that we did not meet our target of 20% for 2019. At management

40

Annual report 2019

level 3, one in eight directors is female.

This corresponds to a share of 13% and is therefore below our target of 25%. In 2019, we therefore had a sharp focus on the recruitment process at the upper levels of management. Thanks to this focus, we are able to welcome a new female general counsel to Verdo’s Executive Board in 2020. In connection with the recruitment of Verdo’s new CEO, it was a specific requirement on our part that the shortlist had to include female candidates. This is a new approach which should help to remove gender bias in the recruitment process.

Verdo also wants to increase the number of female members of the Supervisory Board. This is a challenge because Verdo is a consumer-governed company and thus has no influence over who is elected to the Supervisory Board. Nevertheless, we encourage our female talents to apply for employee-elected positions on the Supervisory Board. Elections to the Board of Representatives were held in 2019 in Herning. Two of the 16 newly elected members were women. The Board of Representatives consists of a total of 45 members from Herning and Randers, nine of whom are women. This equates to a share of 20%. Only one of the 12 members of Verdo’s Supervisory Board is female, taking the total share of women on the Supervisory Board to 8%. For several years, Verdo has encouraged the Board of Representatives to focus on the underrepresented gender when electing members to the Supervisory Board. We will step up these efforts until the next election to the Board of Representatives in 2022.

The situation is different for employee-elected members of the Supervisory Board, where two out of the four members are women, corresponding to a share of 50%. 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 balance target. In 2019, we achieved a gender balance in 13 of our 18 subsidiaries. This is a significant increase from 2018, when

none of the companies had achieved a gender balance. This focus continues in 2020.

Sponsorships and partnerships With our partnership and sponsorship policy, we want to promote knowledge of sustainability and green energy issues and to create value for the local communities in which we operate. Sports and culture help bring people together in communities that generate value for the individual and society. That is why we have supported the world of sports for many years, most notably as the main sponsor of Randers FC, a sponsorship which dates back to the early days of the club. We also sponsor handball, Herning Blue Fox ice hockey and various local events. 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 value-adding relations with the rest of society. We therefore reach out where we feel we can make a difference. Even a modest helping hand can have a big impact on the individual and the local community. In 2020, we will work on increasing the breadth of our sponsorships. This will mean that some of those recipients who have received a lot of money in the past will receive slightly less, which will allow us to support small initiatives in the local community.

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 at all levels. Judging from the positive feedback we have received, we have succeeding in giving something back to the local communities we are part of via our sponsorships.

Social conditions and working

Diversity – women and men in management Diversity

2019

Female middle managers – level 1 (target of 10%) Female managers – level 2 (target of 20%) Female directors – level 3 (target of 25%) Female CEO – level 4

2018

2017

9.5%

6%

3%

17.5%

23%

22%

13%

13%

13%

0%

0%

0%

Annual report 2019

41

Respect for human rights

Respect for human rights

H

uman rights constitute one of the cornerstones of the UN Global Compact’s ten principles and the UN’s 17 Sustainable Development Goals.

We respect and are inspired by both across our business model.

anonymise personal data have also been implemented in our settlement system.

Verdo is continuously working with GDPR to improve internal procedures and systems to maintain the company’s GDPR compliance.

Verdo’s most important value is ‘We conduct ourselves with decency’. This means that we strive to integrate and respect the universal human rights.

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.

As a natural extension of our compliance work, we have enhanced our focus on the new whistleblower directive. It allows employees to report information about unlawful behaviour or serious irregularities without having to fear dismissal.

In 2020, we expect to draw up a policy and organisation for the area. The aim of the scheme is to increase credibility and employee confidence in our management and business procedures. However, it is important that the scheme be seen as complementary to the existing internal dialogue and openness.

Efforts and results In 2019, Verdo worked hard to ensure compliance with the updated General Data Protection Regulation (GDPR).

In 2019 alone, we spent around 8,000 in-house hours to shed further light on which personal data are being processed and which data processing agreements we have entered into. In addition, we have developed a number of internal procedures for dealing with security breaches. To ensure a successful process throughout the business, we have carried out awareness training for our employees, and posters have been put up to maintain a constant focus on GDPR. Methods to

42

Annual report 2019

In 2019, we continued our internal dialogue meetings in which all employees can ask questions of the CEO, the aim being to contribute to a more open and transparent organisation. Many employees seized this opportunity, and feedback was very positive.

In 2019, our values were condensed into three guiding values. Verdo’s fundamental value, with which we first and foremost identify, has not changed: We conduct ourselves with decency. But we also give priority to our three underlying values,

which oblige us to: • see things from our customer’s perspective.

• treat each other with respect and trust.

• always be one step ahead.

The Verdo Code of Conduct for Suppliers stipulates that international suppliers must live up to the human rights as regards, for example, working hours, the prohibition of child labour, health matters and the environment. We continuously evaluate these requirements to assess whether additional requirements should be imposed on our suppliers. The most recent evaluation took place in 2019 to improve our ability to ensure, and not least document, compliance with the Verdo Code of Conduct and our CSR requirements.

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.

Anti-corruption and bribery

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 for 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.

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

• Facilitating payments (‘grease payments’) are unacceptable. If observed, such practices must be registered.

• Gifts and entertainment: No gifts, entertainment or services clearly intended to influence a decision may be given or received.

The policy is intended to increase awareness of corruption among our employees and business partners 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.

Conclusion Verdo enforces its policy of zero tolerance for 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.

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 Group’s general guidelines for the procurement of wood-based fuels (‘Overordnede retningslinjer for indkøb af træbaserede brændsler’) from 2015.

All Trading suppliers are also required to comply with the Verdo Code of Conduct for Suppliers. The supplier must be able to demonstrate compliance with the guidelines at all times upon Verdo’s request. We continuously follow up on the policy and the suppliers. In 2019, we updated our Code of Conduct with the aim of stepping up efforts in this area.

Annual report 2019

43

Verdo Financial statements 2019

44

Annual Annualreport report2019 2019

Financial statements 2019

2019 The financial statements

The Supervisory Board and the Executive Board have today considered and approved the annual report of Verdo A/S for the financial year 1 January - 31 December 2019.

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 the Group’s and the company’s assets, liabilities and financial position as at 31 December 2019 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 2019.

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

The following financial statements, including the auditors’ report (pages 46-74), are taken directly from the official annual report.

Annual report 2019

45

Accounting policies

The annual report of Verdo A/S for 2019 is presented in accordance with the Danish Financial Statements Act for enterprises in reporting class C (large) The financial statements have been prepared in accordance with the same accounting policies as applied last year, although the company has made a reclassification from Employee expenses and Other external expenses to Work performed for own account recognised under assets. In addition, Surplus income payable has been split into Surplus income payable and Timing differences.

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.

The changes do not affect the net profit/loss for the year, equity or the company’s financial position, and all comparative figures have been restated.

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 financial statements are presented in Danish kroner (DKK).

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.

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

Certain financial assets and liabilities are measured at amortised cost, applying a constant effective interest rate 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.

46

Annual report 2019

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 net profit/loss 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.

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

Accounting policies

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 systems.

Income from the sale of goods and services is recognised as revenue when benefits and risks relating to the goods and services sold are passed to the buyer, the revenue can be measured reliably, and it is probable that the economic benefits of the sale will flow to the company.

Contract work in progress (construction contracts) is recognised in step with the performance of the work, whereby revenue corresponds to the selling price of the work performed during the year (percentage of completion method). This method is used when total revenue and costs associated with the construction contract and the stage of completion can be measured reliably at the balance sheet date, and it is probable that the economic benefits, including payments, will flow to the company. The stage of completion is calculated on the basis of costs incurred relative to the expected total costs of the construction contract.

Investment grants to cover the Group’s investments in distribution systems are accrued over the depreciation period of the investment and are recognised in revenue.

Revenue is measured as the consideration received and recognised exclusive of VAT and net of discounts relating to sales.

Annual report 2019

47

Accounting policies

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

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.

Work performed for own account recognised under assets Work performed for own account comprises direct wages and salaries and indirect production costs (IPO) incurred for the full or partial construction of own plants recognised under assets.

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.

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.

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.

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.

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.

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

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.

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

Income from equity investments in subsidiaries In the income statement, the proportionate share of profit/loss for the year is recognised under Income from equity investments in subsidiaries. Moreover, the annual adjustment of earn-out from the acquisition of enterprises is recognised under Value adjustment of earn-out as well as Gain and loss on the divestment of subsidiaries.

48

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.

Annual report 2019

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.

Accounting policies

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 7-20 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 3-5 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.

The cost of self-constructed assets includes the acquisition price and costs directly attributable to the acquisition, including purchase costs and indirect costs of labour, materials, components and subcontractors until the time when the asset is ready to be put into operation. The depreciation base, which is the cost less any residual value, is distributed on a straight-line basis over the expected useful lives of the assets, which are: Distribution systems and installations, and meters 10-60 years Buildings 20-100 years CHP plant and peak-load stations 5-19 years Operating equipment 3-15 years Depreciation periods and residual values are reassessed annually.

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.

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

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

Cost includes the cost price plus delivery costs.

Annual report 2019

49

Accounting policies

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 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.

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.

50

Annual report 2019

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.

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.

Accounting policies

Deferred income Deferred income recognised as liabilities consists of payments received relating to income in the following financial years.

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.

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.

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

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 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 2019

51

Verdo

52

Annual report 2019

Income statement

GROUP

Revenue

PARENT COMPANY

2019

2018

2019

2018

Note

DKK

DKK ‘000

DKK

DKK ‘000

4

3,106,899,798

2,365,226

89,505,528

82,062

1/3

-491,256,701

0

0

0

Revenue

4

2,615,643,097

2,365,226

89,505,528

82,062

Other operating income

5

365,265,863

6,037

70,032

27

20,826,467

22,070

2,323,075

2,031

Adjustment concerning previous years

Work performed for own account recognised under assets Costs of raw materials, consumables and auxiliary materials Other external expenses

-2,490,577,535

-1,763,475

-1,676,822

-913

6

-109,621,698

-108,393

-43,842,953

-52,354

401,536,194

521,465

46,378,860

30,853

7

-302,853,606

-264,041

-69,083,763

-58,297

3/8

98,682,588 -364,859,240

257,424 -159,807

-22,704,903 -11,224,324

-27,444 -21,524

5

-4,583,459

-1,515

0

0

-270,760,111

96,102

-33,929,227

-48,968

Gross profit/loss Employee expenses

Profit/loss before depreciation and amortisation (EBITDA) Depreciation, amortisation and impairment losses Other operating expenses Operating profit/loss (EBIT)

Income from equity investments in subsidiaries

9

0

0

-209,587,625

86,465

11,888,775

5,858

10,644,775

5,858

9

0

18,805

0

0

Financial income

10

5,103,215

985

12,287,457

29,857

Financial expenses

11

-36,690,471

-38,071

-17,505,106

-22,614

-19,698,481

-12,423

-204,160,499

99,566

-290,458,592

83,679

-238,089,726

50,598

24,661,221

-17,945

8,663,879

9,396

-265,797,371

65,734

-229,425,847

59,994

-1,938,817

971

-1,938,817

971

-267,736,188

66,705

-231,364,664

60,965

-231,364,664

60,965

-36,371,524

5,740

-267,736,188

66,705

Value adjustment of earn-out Income from other equity investments

Total net financials

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

3/12

Net profit/loss from continuing operations for the year Net profit/loss from discontinuing operations for the year

13

Net profit/loss for the year

The Group’s profit/loss for the year is distributed as follows: Shareholders in Verdo A/S Minority interests Total Distribution of net profit

29

Annual report 2019

53

Balance sheet

ASSETS

GROUP

Note

PARENT COMPANY

31.12.19

31.12.18

31.12.19

31.12.18

DKK

DKK ‘000

DKK

DKK ‘000

244,319,330

97,243

0

0

4,027,864

334

0

0

248,347,194

97,577

0

0

NON-CURRENT ASSETS Goodwill Development projects Total intangible assets

14

Land and buildings

136,559,844

141,942

94,050,527

96,040

CHP plant and peak-load stations

523,527,545

373,901

0

0

1,374,901,492

1,464,274

0

0

Operating equipment

55,621,338

46,903

7,650,348

15,165

Property, plant and equipment under construction

40,223,973

41,343

3,175,812

1,658

2,130,834,192

2,068,363

104,876,687

112,863

Distribution systems and installations, and meters

Total property, plant and equipment

15

Equity investments in subsidiaries

16

0

0

1,366,355,214

1,853,099

Other securities and equity investments

17

11,014

202

0

0

Other receivables

18

9,714,043

2,680

0

0

9,725,057

2,882

1,366,355,214

1,853,099

2,388,906,443

2,168,822

1,471,231,901

1,965,962

Raw materials, consumables and auxiliary materials

211,568,591

96,085

338,823

470

Total inventories

211,568,591

96,085

338,823

470

Trade receivables

426,066,018

361,259

5,776,967

485

Deficit receivable

966,714

10,679

0

0

0

0

243,189,352

85,565

Total financial assets Total non-current assets CURRENT ASSETS

Receivables from subsidiaries Construction contracts

19

54,030,375

34,264

0

0

Subordinate loans

20

0

0

285,851,804

647,000

Deferred tax assets

21

91,946,722

68,137

0

0

0

0

2,195,649

0

49,069,956

55,491

2,006,815

918

8,389,118

7,011

5,680,387

4,696

630,468,903

536,841

544,700,974

738,664

70,438,327

78,855

247,223

234

912,475,821

711,781

545,287,020

739,368

3,301,382,264

2,880,603

2,016,518,921

2,705,330

Income tax receivable Other receivables Prepayments Total receivables Cash Total current assets Total assets

54

Annual report 2019

Balance sheet

EQUITY AND LIABILITIES

GROUP

PARENT COMPANY

31.12.19

31.12.18

31.12.19

31.12.18

DKK

DKK ‘000

DKK

DKK ‘000

263,024,000

263,024

263,024,000

263,024

36,090,226

37,339

0

0

Proposed dividend

0

10,000

0

10,000

Retained earnings

562,450,715

809,745

598,540,941

847,084

861,564,941

1,120,108

861,564,941

1,120,108

88,472,508

131,369

0

0

950,037,449

1,251,447

861,564,941

1,120,108

7,001

Note EQUITY Share capital Revaluation reserve

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

21

0

0

5,394,000

Surplus income, water supply, investment grants and pension obligations

22

293,554,532

262,311

19,476,743

0

Lease commitments

22

12,514,322

7,185

563,392

498

Mortgage credit institutions

42,112,531

44,798

22

245,212,394

268,333

Timing differences, provision and surplus income, the Danish Heat Supply Act

23

842,480,941

160,049

0

0

Credit institutions

22

99,345,765

118,380

99,345,765

118,380

Other provisions

24

4,320,700

699

0

0

1,497,428,654

816,957

166,892,431

170,677

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

22

19,038,040

15,000

750,000

0

Lease commitments

22

6,096,013

3,129

407,995

355

Mortgage credit institutions

22

22,970,275

22,740

2,681,076

2,623

Timing differences, provision and surplus income, the Danish Heat Supply Act

23

Credit institutions Construction contracts

19

Trade payables

131,946,247

32,010

0

0

130,845,397

195,350

86,222,494

178,596

32,356,911

14,337

0

0

226,428,375

251,149

6,948,571

6,588

Amounts owed to subsidiaries

0

0

755,162,226

1,122,524

Payables to group enterprises

20,428,182

10,453

20,428,182

10,453

844,854

2,620

0

480

262,530,155

247,676

115,461,005

92,926

431,712

17,705

0

0

853,916,161

812,169

988,061,549

1,414,545

Total liabilities

2,351,344,815

1,629,126

1,154,953,980

1,585,222

Total equity and liabilities

3,301,382,264

2,880,603

2,016,518,921

2,705,330

Income taxes payable Other payables Deferred income Total current liabilities

Material uncertainty regarding recognition and measurement

1

Events by status

2

Special items

3

Charges and guarantees

25

Contractual obligations and contingencies

26

Related parties

27

Interest rate risks and use of financial instruments

28

Annual report 2019

55

Statement of changes in equity

STATEMENT OF CHANGES IN EQUITY

GROUP Revaluation reserve

Amounts in DKK

Note

Share capital

Proposed dividend

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

Balance as at 1 January 2018 Transferred via distribution of net profit

29

Value adjustment of hedging instruments: Beginning of year

0

0

0

Year-end

0

0

0

Tax on equity items

0

0

0

263,024,000

10,000,000

37,339,203

0

0

0

Distributed dividend

0

-10,000,000

0

Foreign currency translation adjustments of subsidiaries

0

0

0

Equity as at 31 December 2018 Transferred via distribution of net profit

29

Realised revaluation

0

0

-1,248,977

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

0

36,090,226

Equity as at 31 December 2019

56

Annual report 2019

Statement of changes in equity

STATEMENT OF CHANGES IN EQUITY – continued

Amounts in DKK

GROUP

Note

Balance as at 1 January 2018 Transferred via distribution of net profit

29

Distributed dividend Foreign currency translation adjustments of subsidiaries

Retained earnings

Total

Minority interests

Equity Total

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

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

Value adjustment of hedging instruments:

Tax on equity items Equity as at 31 December 2018 Transferred via distribution of net profit Distributed dividend Foreign currency translation adjustments of subsidiaries

29

809,744,676

1,120,107,879

131,369,409

1,251,477,288

-231,364,664

-231,364,664

-36,371,524

-267,736,188

0

-10,000,000

0

-10,000,000

2,032,600

2,032,600

77,267

2,109,867

Realised revaluation

1,248,977

0

0

0

Pension obligations

-9,509,054

-9,509,054

55,920

-9,453,134

Value adjustment of hedging instruments: Beginning of year Year-end Tax on equity items Equity as at 31 December 2019

87,660,351

87,660,351

-7,568,006

-80,092,345

-102,039,810

-102,039,810

-952,855

-102,992,665

4,677,639

4,677,639

1,862,297

6,539,936

562,450,715

861,564,941

88,472,508

950,037,449

Annual report 2019

57

Notes Statement of changes in equity

PARENT COMPANY Net revaluation according to equity method

Proposed dividend

Retained earnings

Total

263,024,000

0

10,000,000

772,416,041

1,045,440,041

0

30,292,686

10,000,000

20,672,134

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

Entries on shareholders’ equity 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

Amounts in DKK

Note

Balance as at 1 January 2018 Transferred via distribution of net profit

29

Equity as at 31 December 2018 Transferred via distribution of net profit

0

22,263,381

0

-253,628,045

-231,364,664

Distributed dividend

0

0

-10,000,000

0

-10,000,000

Foreign currency translation adjustments of subsidiaries

0

2,032,601

0

0

2,032,601

0

-6,886,129

0

-2,622,925

-9,509,054

Actuarial changes of pension obligations in subsidiaries

29

Share capital

Value adjustment of hedging instruments: Beginning of year

0

32,276,751

0

55,383,600

87,660,351

Year-end

0

-56,538,243

0

-45,501,568

-102,039,811

Tax on equity items

0

6,851,639

0

-2,174,000

4,677,639

263,024,000

0

0

598,540,941

861,564,941

Equity as at 31 December 2019

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.

58

Annual report 2019

Notes 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

2019 DKK

2018 DKK ‘000

-270,760,111

96,102

-101,400

3,510

4,176,836

152,968

30,490,646

12,248

-7,422,205

5,102

-243,616,234

269,930

Changes in working capital: Inventories

-111,230,046

-22,105

-2,492,527

113,253

Trade payables and other payables

421,953,308

10,119

Cash flow from primary operations

64,614,501

371,197

Receivables

Interest income, received Interest expenses, paid Income tax paid/refunded Cash flow from operating activities Purchase of intangible assets and property, plant and equipment Property, plant and equipment under construction, adjustment Acquisition of subsidiaries/earn-out

5,103,215

985

-39,074,662

-40,361

-4,830,510

-177

25,812,544

331,644

-293,124,642

-132,277

-1,118,855

-12,936

-159,018,979

-268

Long-term receivables

-11,142,503

641

Sale of financial assets

680,844,412

22,985

1,430,047

32,347

Cash flow from investing activities

217,869,480

-89,508

Total cash flows from operating and investing activities

243,682,024

242,136

-10,000,000

-25,000

Sale of intangible assets and property, plant and equipment

Dividend paid New finance leases

15,124,917

6,030

Repayment of non-current liabilities

-47,592,147

-44,358

Cash flow from financing activities

-42,467,230

-63,328

Cash flows for the year

201,214,794

178,808

Cash, acquired enterprises

-144,126,818

0

Cash as at 1 January

-98,995,046

-277,803

Cash as at 31 December

-41,907,070

-98,995

Cash as at 31 December is specified as follows: 70,438,327

78,855

Short-term debt to credit institutions

Cash

-112,345,397

-177,850

Total

-41,907,070

-98,995

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

Annual report 2019

59

Notes

1. Material uncertainty regarding recognition and measurement Group: Return on invested capital and heating activity loans For many years, the Group has had an ongoing dialogue with the Danish Utility Regulator on the return on invested capital for heating activities and on transactions between the Group’s commercial and regulated activities. It partly concerns the return on invested capital collected for heating activities since 2000 and partly interest on heating activity loans since 2013.

In 2018, the Danish Utility Regulator made its first decision in the case, which was recognised in the consolidated financial statements for 2018, in the form of surplus income with a view to repayment over a three-year period. Repayment began in 2019.

The Danish Utility Regulator subsequently made three decisions, two of which remain draft decisions. In addition, discussions are taking place on the regulatory depreciation base. As a result, the Group has calculated a total possible repayment to heating consumers of DKK 491 million.

The Group disagrees with parts of the decisions and has appealed the settled decision to the Danish Energy Board of Appeal. Based on a prudent assessment of the repayment obligation, the full amount of DKK 491 million is recognised as surplus income in the financial statements with a view to repayment to consumers over a number of years. At the present time, it is not possible to assess the extent to which the amount recognised may be reduced should the appeals be upheld in whole or in part.

Tax entry values The Danish tax authorities (SKAT) have requested information about the determination of tax entry values concerning the company’s heating distribution assets in 2012. SKAT has stated that, in the opinion of SKAT, the entry values must be determined on the basis of an earnings-based 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 Group’s tax entry values. The Group has 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 Group has decided to change its depreciation base for its heating distribution assets to align with SKAT’s decision.

As a result of the above, there is uncertainty about the surplus income calculated by the Group and the calculation of the Group’s equity, as well as uncertainty about the amount of the deferred tax attributable to the tax entry values from the Group’s heating distribution assets.

Parent company There is material uncertainty about the recognition of equity investments in the parent company. The material uncertainty relates to the recognition of decisions by the Danish Utility Regulator in the subsidiaries Verdo Varme A/S and Verdo Produktion A/S, which affects the value of equity investments, as well as the recognition of tax entry values of property, plant and equipment in Verdo Varme A/S. Please refer to ‘Material uncertainty regarding recognition and measurement’ in the Group for further details.

2. Events by status Verdo has not yet identified any concrete impact of COVID-19, but there is a risk that COVID-19 may have a negative impact on the Group’s revenue and earnings in 2020. This is most likely to be felt within the Group’s trading activities in the Trading division and the Group’s construction activities within technical infrastructure and energy systems. In addition, lower electricity consumption prices are expected, which may affect earnings

60

Annual report 2019

from electricity trading and generation. The management is monitoring developments closely, but at this stage it is not possible to determine the magnitude of the potential negative impact on 2020.

Notes

3. Special items In 2019, the Group had three special items which had a significant impact on the annual report: Adjustment concerning

previous years’ revenue from heating activities, write-downs on fibre-optic networks and gain on the divestment of subsidiaries

GROUP

Amounts in DKK ‘000

Special items

Adjusted result

3,106,900

0

3,106,900

-491,257

491,257

0

2,615,643

491,257

3,106,900

365,266

-364,804

462

20,826

0

20,826

-2,490,577

0

-2,490,577

-109,622

0

-109,622

Gross profit/loss

401,536

126,453

527,989

Employee expenses

-302,854

0

-302,854

Revenue Adjustment concerning previous years Revenue Other operating income Work performed for own account recognised under assets Costs of raw materials, consumables and auxiliary materials Other external expenses

Profit/loss before depreciation and amortisation (EBITDA)

Net profit/loss for the year

98,682

126,453

225,135

Depreciation, amortisation and impairment losses and Other operating expenses

-369,442

193,650

-175,792

Operating profit/loss (EBIT)

-270,760

320,103

49,343

-19,698

0

-19,698

-290,458

320,103

29,645

24,661

-34,723

-10,062

-265,797

285,380

19,583

-1,939

0

-1,939

-267,736

285,380

17,644

7-20 years

3-5 years

Net financials Profit/loss from continuing operations before tax Tax on continuing operations Net profit/loss from continuing operations for the year Net profit/loss from discontinuing operations for the year Net profit/loss for the year The parent company’s profit/loss is affected by the same items; however, the item Other operating income affects Net financials instead.

Annual report 2019

61

Notes

GROUP 2019

2018

DKK

DKK ‘000

318,065,925

318,188

4. Revenue Breakdown of revenue by activity: Electricity supply Water supply

25,201,619

27,616

Heat supply

379,570,499

308,670

Contract work, electricity, water, heating and energy solutions Sale of fuel and technical coal

411,098,794

274,457

1,838,977,739

1,297,840

Electricity generation

56,365,488

57,717

Fibre and telephony

29,163,337

28,478

Other

48,456,397

52,260

3,106,899,798

2,365,226

-491,256,701

0

2,615,643,097

2,365,226

1,597,882,798

1,401,522

504,753,000

541,374

0

29,986

Total revenue Adjustment concerning previous years, see further details in notes 1 and 3 Total revenue Geographical breakdown of revenue: Denmark Europe Africa and the Middle East Asia and Oceania UK North America Total

181,899,000

55,549

53,454,000

106,752

768,911,000

230,043

3,106,899,798

2,365,226

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.

Adjustments concerning previous years relate to the Group’s heat supply activities.

5. Other operating income and expenses Income from and expenses associated with the sale of intangible assets and property, plant and equipment, as described in further detail in notes 14, 15 and 16.

GROUP 2019

2018

DKK

DKK ‘000

6. Other external expenses Fees to auditors appointed by the annual general meeting: Fee for statutory audit

721,008

687

Assurance engagements

112,458

106

Tax advice

62

160,000

179

Other services

1,504,025

770

Total

2,497,491

1,742

Annual report 2019

Notes

GROUP

PARENT COMPANY

2019 DKK

2018 DKK ‘000

2019 DKK

2018 DKK ‘000

279,631,601

243,349

65,762,923

55,160

19,259,272

17,217

2,962,868

2,598

3,962,733

3,483

357,972

539

302,853,606

264,049

69,083,763

58,297

0

-8

0

0

302,853,606

264,041

69,083,763

58,297

1,954,646

5,979

1,954,646

5,979

11,775,188

0

11,775,188

0

526

466

93

88

7. Employee expenses Wages and salaries Pensions Other social security costs Total Discontinuing operations, see note 13 Total Remuneration of the Supervisory Board, the Board of Representatives and the Executive Board* Remuneration of the Executive Board* Average number of employees

*Remuneration of the Executive Board is not shown separately for 2018, as remuneration has been paid to one person only.

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

GROUP 2019 DKK

PARENT COMPANY 2018 DKK ‘000

2019 DKK

2018 DKK ‘000

8. Depreciation, amortisation and impairment losses Intangible assets

20,862,618

17,164

0

0

Property, plant and equipment

148,375,602

132,443

9,253,304

12,115

Property, plant and equipment, impairment

195,621,020

10,409

1,971,020

9,409

364,859,240

160,016

11,224,324

21,524

0

-209

0

0

364,859,240

159,807

11,224,324

21,524

Total Discontinuing operations, see note 13 Total

9. Income from equity investments in subsidiaries and profit/loss from other equity investments Share of profit in subsidiaries, see note 16, and gain on the divestment of other equity investments, see note 17.

GROUP 2019 DKK

PARENT COMPANY 2018 DKK ‘000

2019 DKK

2018 DKK ‘000

28,971

10. Financial income Interest income from subsidiaries Other interest income Other financial income Total

0

0

11,336,182

4,287,112

900

581,122

671

816,103

85

370,153

215

5,103,215

985

12,287,457

29,857

GROUP

PARENT COMPANY

2019 DKK

2018 DKK ‘000

2019 DKK

2018 DKK ‘000

37,856,505

38,740

17,901,721

22,153

1,218,157

1,621

-396,615

461

Total

39,074,662

40,361

17,505,106

22,614

Discontinuing operations, see note 13

-2,384,191

-2,290

0

0

36,690,471

38,071

17,505,106

22,614

11. Financial expenses Interest expenses Other financial expenses

Total

Annual report 2019

63

Notes

GROUP 2019 DKK

PARENT COMPANY 2018 DKK ‘000

2019 DKK

2018 DKK ‘000

12. Tax on profit/loss for the year Current tax for the year

1,083,948

4,482

-7,053,688

-5,970

-26,289,752

14,255

-1,607,000

-2,884

-2,191

-542

-3,191

-542

-25,207,995

18,195

-8,663,879

-9,396

-64,447,720

18,678

-52,379,740

11,132

0

0

43,767,427

-20,311

115,956,474

0

0

0

-76,714,558

59

-48,375

325

2,191

-542

-3,191

-542

-25,207,995

18,195

-8,663,879

-9,396

-24,661,221

17,945

-8,663,879

-9,396

-546,774

250

0

0

-25,207,995

18,195

-8,663,879

-9,396

-6,539,936

7,935

2,174,000

2,538

-31,747,931

26,130

-6,489,879

-6,858

Deferred tax for the year Tax concerning previous years Total tax on profit/loss for the year Tax on profit/loss for the year comprises: Calculated 22% tax on profit/loss for the year Tax on profit/loss for the year in subsidiaries Tax on provision for heating cases Tax effect of: Non-taxable revenue and non-deductible expenses Tax concerning previous years Total tax on profit/loss for the year Tax on profit/loss for the year is distributed as follows: Tax on continuing operations Tax on discontinuing operations, see note 13 Total tax on profit/loss for the year Tax on changes in equity Total tax

2019 DKK

2018 DKK ‘000

0

4,377

13. Discontinuing operations Profit/loss from discontinuing operations is constituted by the following main figures: Revenue and other income Costs

-101,400

-657

0

-209

Finance costs

-2,384,191

-2,290

Profit/loss before tax

-2,485,591

1,221

546,774

-250

-1,938,817

971

Depreciation, amortisation and impairment losses and Other operating expenses

Tax on discontinuing operations Net profit/loss from discontinuing operations for the year

The Group’s activities in the Netherlands and within hydrogen will be phased out in full when the companies are closed down in the first half of 2020.

The profit/loss from operating activities and the gains on the sale of assets are presented in a separate line in the income statement as ‘Net profit/loss from discontinuing operations for the year’.

The companies only have inter-company balances and bank deposits.

64

Annual report 2019

Notes

GROUP

Goodwill

Development projects

Total

174,360,000

599,079

174,959,079

0

1,944,501

1,944,501

Additions

167,503,807

2,183,885

169,687,692

Disposals

-6,854,649

-229,212

-7,083,861

335,009,158

4,498,253

339,507,411

Amounts in DKK 14. Intangible assets Cost as at 1 January Completed plant transferred from property, plant and equipment under construction

Cost as at 31 December Amortisation as at 1 January

77,116,844

264,616

77,381,460

Amortisation

20,427,633

434,985

20,862,618

Amortisation, disposed assets

-6,854,649

-229,212

-7,083,861

90,698,828

470,389

91,160,217

244,319,330

4,027,864

248,347,194

7-20 years

3-5 years

Amortisation as at 31 December Carrying amount as at 31 December Amortisation period

Reasons for the amortisation periods for goodwill and development projects Verdo Energy Systems A/S and Carbon Partners AS The investment in subsidiaries will be of strategic importance to the Group for many years to come. In the next few years, the subsidiaries’ activities within technical coal and energy systems are expected to increase in terms of both revenue and earnings, and based on these expectations, the economic lifetime of the assets is determined as 10 years.

Verdo Varme Herning A/S: The investment in the subsidiary is considered to be of strategic importance for the Group’s heat supply activities in Denmark, and combined with synergies the company is expected to generate long-term value for the Group.

Against this background and the outlook for the coming years, the economic lifetime is determined as 20 years.

Other: Other investments in goodwill are individually assessed in terms of their earnings potential and have a recognised value of DKK 7 million. They are amortised on the basis of an economic lifetime of 7-10 years.

Development projects: Investments in development are amortised over the economic lifetime of the assets based on the period of 3-5 years in which the projects are expected to contribute to increased activity and earnings.

Annual report 2019

65

Notes

GROUP

Land and buildings

CHP plant and peak-load centres

192,119,358

1,061,583,064

2,843,094,512

183,883,133

41,342,827

0

22,561,053

122,077,246

1,160,725

-147,743,525

-1,944,501

Additions

220,930

0

101,425,687

26,788,304

155,331,509

283,766,430

Disposals

0

0

-26,813,696

-35,550,181

0

-62,363,877

-1,302,149

291,615,819

-101,043,298

1,193,478

-8,706,838

181,757,012

191,038,139

1,375,759,936

2,938,740,451

177,475,459

40,223,973

4,723,237,958

50,177,599

687,681,571

1,378,820,262

136,979,727

0

2,253,659,159

Amounts in DKK

Distribution systems and installations, and meters

Operating equipment

Property, plant and equipment under construction

Total

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

Additions and disposals, acquired/divested companies Cost as at 31 December Depreciation and impairment losses as at 1 January Foreign currency translation adjustment

4,322,022,894

0

0

0

-76,747

0

-76,747

4,307,240

52,224,897

73,455,672

18,387,793

0

148,375,602

Impairment losses

0

0

193,650,000

1,971,020

0

195,621,020

Depreciation, disposed assets

0

0

-22,433,419

-34,379,101

0

-56,812,520

-6,544

112,325,923

-59,653,556

-1,028,571

0

51,637,252

54,478,295

852,232,391

1,563,838,959

121,854,121

0

2,592,403,766

Carrying amount as at 31 December

136,559,844

523,527,545

1,374,901,492

55,621,338

40,223,973

2,130,834,192

Depreciation period

20-100 years

5-19 years

10-60 years

3-15 years

874,500

9,378,500

26,487,000

0

0

36,740,000

0

0

0

17,175,929

0

17,175,929

Depreciation

Additions and disposals, acquired/divested companies 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

Disposals of assets under construction have been transferred to development projects (intangible assets).

66

Annual report 2019

Notes

PARENT COMPANY

Amounts in DKK

Land and buildings

Operating equipment

Property, plant and equipment under construction

Total

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

116,428,188

61,851,308

1,657,854

Completed projects

0

1,020,151

-1,020,151

0

Additions

0

699,744

2,538,109

3,237,853

Disposals

0

-25,169,215

0

-25,169,215

116,428,188

38,401,988

3,175,812

158,005,988

20,388,269

46,685,922

0

67,074,191

1,989,392

7,263,912

0

9,253,304

Impairment losses

0

1,971,020

0

1,971,020

Depreciation, disposed assets

0

-25,169,214

0

-25,169,214

22,377,661

30,751,640

0

53,129,301

Carrying amount as at 31 December

94,050,527

7,650,348

3,175,812

104,876,687

Depreciation period

5-100 years

3-10 years

0

960,788

0

960,788

Cost as at 31 December Depreciation and impairment losses as at 1 January Depreciation

Depreciation and impairment losses as at 31 December

179,937,350

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

PARENT COMPANY 2019 DKK

2018 DKK ‘000

16. Equity investments in subsidiaries Cost as at 1 January

2,063,008,573

2,056,982

Additions

259,718,362

6,026

Disposals

-275,624,846

0

Cost as at 31 December

2,047,102,089

2,063,008

Value adjustments as at 1 January

-209,909,190

-267,052

Share of profit/loss

-576,330,156

87,436

0

-45,000

Entries on shareholders’ equity

-22,263,381

14,707

Negative equity in Verdo Varme A/S, offset against subordinate loans

361,148,196

0

Disposals

-233,392,344

0

Revaluations as at 31 December

-680,746,875

-209,909

1,366,355,214

1,853,099

This item includes non-depreciated balances

236,196,700

95,834

Gain on the divestment of subsidiaries amounts to

364,803,714

0

Dividend paid

Carrying amount as at 31 December

Balances (goodwill) on initial recognition of subsidiaries amount to DKK 271,174 thousand.

Annual report 2019

67

Notes

Registered office

Net profit/loss for the year

Equity

Ownership interest

Verdo Go Green A/S

Randers, Denmark

12,926,779

98,409,749

100%

Verdo Energiteknik A/S

Randers, Denmark

790,409

14,345,723

100%

Verdo Vand A/S

Randers, Denmark

2,977,575

176,344,161

100%

Verdo Varme A/S

Randers, Denmark

-385,256,701

0

100%

Verdo Herning A/S and Verdo Varme Herning A/S (acquired on 01.09.2019)

Randers, Denmark

-2,652,736

157,017,673

100%

Verdo Tele A/S

Randers, Denmark

-112,263,080

222,124,956

75%

Verdo Produktion A/S

Randers, Denmark

-94,101,097

23,896,460

100%

Randers/Greenland

-14,844,286

103,723,055

100%

Poland

768,019

2,212,193

100%

Verdo Teknik A/S

Randers, Denmark

3,460,955

196,121,657

100%

Verdo Hydrogen A/S

Randers, Denmark

-36,043

3,870,892

100%

Verdo Trading A/S

Randers, Denmark

8,681,430

223,412,689

100%

GF Energy B.V.

The Netherlands

-1,902,774

-36,872,857

100%

Verdo Renewables Ltd.

United Kingdom

-8,268,926

124,324,837

100%

Norway/United States

3,949,387

36,755,091

80%

EL-NET Kongerslev A/S

Randers, Denmark

-302,023

5,671,316

100%

El-NET Randers A/S (divested on 01.09.2019)

Randers, Denmark

7,551,910

0

0%

EL-NET Hillerød A/S (divested on 01.09.2019)

Randers, Denmark

2,013,216

0

0%

Midtjysk Elhandel A/S

Randers, Denmark

177,830

14,997,619

74%

-576,330,156

1,366,355,214

Name Subsidiaries:

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

Carbon Partners AS and Carbon Partners Inc.

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

GROUP 2019 DKK

2018 DKK ‘000

201,568

10,934

17. Other securities and equity investments Cost as at 1 January Additions

10,014

0

Disposals

-200,568

-10,732

Cost as at 31 December

11,014

202

Carrying amount as at 31 December

11,014

202

0

18,805

Tennessee, USA

30.00%

Kolding, Denmark

0.08%

Gains on the sale of shares amount to Registered office/ownership interest: Marc Energy Holding DFF-EDB A.m.b.A.

68

Annual report 2019

Notes

GROUP 2019 DKK

2018 DKK ‘000

2,595,000

2,951

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

12,282,194

0

Disposals

-2,595,000

-356

Cost as at 31 December

12,282,194

2,595

84,649

370

Repayments for the year

Repayments as at 1 January

-898,722

-285

Repayments as at 31 December

-814,073

85

Carrying amount as at 31 December

11,468,121

2,680

Of which recognised as non-current receivables

-1,754,078

0

Receivables over one year

9,714,043

2,680

Other receivables comprise loans repayable after five years. The loans carry interest at a market rate.

GROUP 2019 DKK

2018 DKK ‘000

19. Construction contracts Selling price of the work performed

395,888,232

266,150

Progress billings

-374,214,768

-246,223

21,673,464

19,927

Total net value Recognition in the balance sheet: Construction contracts (assets)

54,030,375

34,264

Construction contracts (liabilities)

-32,356,911

-14,337

Total

21,673,464

19,927

GROUP 2019 DKK

2018 DKK ‘000

Subordinate loans

647,000,000

647,000

Negative equity in Verdo Varme A/S, offset

-361,148,196

0

Total net value

285,851,804

647,000

20. Subordinate loans

Annual report 2019

69

Notes

GROUP 2019 DKK

PARENT COMPANY 2018 DKK ‘000

2019 DKK

2018 DKK ‘000

21. Deferred tax Deferred tax as at 1 January

68,137,034

89,369

-7,001,000

-9,885

Annual adjustment of deferred tax

26,289,752

-14,255

1,607,000

2,884

Deferred tax, divested subsidiaries

-10,996,000

0

0

0

0

-2,665

0

0

8,515,936

-4,312

0

0

91,946,722

68,137

-5,394,000

-7,001

-7,771

Tax previous years, distribution between deferred and current tax Tax on changes in equity Deferred tax as at 31 December Deferred tax is distributed as follows: Property, plant and equipment Accrued income Accrued expenses Changes in equity

21,117,722

-26,825

-5,394,000

59,840,000

88,169

0

0

93,000

0

0

770

822,000

-6,192

0

0

Pension obligations

10,074,000

12,985

0

0

Total deferred tax

91,946,722

68,137

-5,394,000

-7,001

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

At the end of 2019, the Group had recognised tax assets of DKK 91,947 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.

Mortgage credit institutions

Lease obligations

Total debt as at 31 December

268,182,669

Repayment next year

-22,970,275

Non-current portion Outstanding debt after five years

Amounts in DKK

Credit institutions

Other

18,610,335

117,845,765

312,592,572

-6,096,013

-18,500,000

-19,038,040

245,212,394

12,514,322

99,345,765

293,554,532

154,326,000

246,000

25,346,000

245,498,000

22. Non-current liabilities GROUP:

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

PARENT COMPANY:

70

Total debt as at 31 December

44,793,607

971,387

117,845,765

20,226,743

Repayment next year

-2,681,076

-407,995

-18,500,000

-750,000

Non-current portion

42,112,531

563,392

99,345,765

19,476,743

Outstanding debt after five years

31,542,000

0

25,346,000

16,477,000

Annual report 2019

Notes

GROUP 2019 DKK

2018 DKK ‘000

23. Danish Heat Supply Act Provision for investments

129,054,815

0

68,559,054

-77,156

Repayment 2000-2005

247,852,085

269,215

Provision for other repayments

492,500,000

0

36,461,234

0

974,427,188

192,059

Timing differences

Surplus income Total Recognised as current liability

-131,946,247

-32,010

Non-current liabilities

842,480,941

160,049

Outstanding debt after five years

165,409,000

0

GROUP 2019 DKK

2018 DKK ‘000

4,320,700

699

24. Other provisions Warranty commitments The warranty commitment is reduced concurrently with the expiry of the warranties provided on delivered services.

GROUP

Amounts in DKK

PARENT COMPANY

2019 DKK

2018 DKK ‘000

2019 DKK

2018 DKK ‘000

193,158,000

167,889

94,900,000

74,900

1,861,000

10,312

971,000

853

457,935,000

457,935

58,635,000

58,635

652,954,000

636,136

154,506,000

134,388

25. Charges and guarantees Collateral Charge on assets held under finance leases 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 2019 constitutes DKK 270 million.

As at 31 December 2019, the carrying amount of the charge is DKK 443 million.

As at 31 December 2019, the carrying amount of assets held under finance leases is DKK 17,290 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 of DKK 67 million.

Annual report 2019

71

Notes Notes

26. 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 6.9 million of which DKK 0.7 million falls due after five years.

For 2020, 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 2020 with the company’s end-customers, and to hedge the price risk associated with these, financial power purchase agreements have been entered into in conjunction with agreements on the physical delivery of electricity. Moreover, financial purchase agreements have been entered into to hedge future price risks associated with the ‘KvartalsEl’ product. The fair value of these contracts is recognised directly in equity with a loss of DKK 3,679 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.

27. 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.

28. Interest rate risks and use of financial instruments The company uses interest rate swaps to hedge recognised and non-recognised transactions.

In this way, variable interest payments are converted into fixed interest payments.

GROUP

PARENT COMPANY

2019 DKK

2018 DKK ‘000

2019 DKK

2018 DKK ‘000

Term 1-5 years

100,000,000

150,000

100,000,000

150,000

Term 6-15 years

375,654,168

411,061

140,523,629

156,696

Notional amount of interest rate swaps

475,654,168

561,061

240,523,629

306,696

Value adjustment recognised in equity

-99,258,378

-108,237

-45,501,568

-55,384

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 2019 DKK

PARENT COMPANY 2018 DKK ‘000

2019 DKK

2018 DKK ‘000

-231,364,664

50,965

-253,628,045

20,672

0

10,000

0

10,000

29. Distribution of net profit Proposed distribution: Retained earnings Proposed dividend Net revaluation reserve according to the equity method Minority interests Total

72

Annual report 2019

0

0

22,263,381

30,293

-36,371,524

5,740

0

0

-267,736,188

66,705

-231,364,664

60,965

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 2019 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 2019 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 2019 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 in the financial statements, which describes the uncertainty related to the recognised surplus income for cases concerning the price of heating and the size of the deferred tax attributable to the tax entry values for the heating distribution assets of the Group.

We draw attention to note 1 in the financial statements, which describes the uncertainty related to the recognition of equity investments in the parent company.

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

73

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, 28 May 2020 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.

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Annual report 2018

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

Annual reportVerdo 2019

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

Certifications Licence code: FSC® C125676 Licence code: PEFC/09-31-131

Production Edited by: Verdo A/S Print run: 200.

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

Paper: Munken Polar

5041-0856 Svanemærket tryksag

Annual report 2019

75

Verdo

76

Annual report 2019

Agerskellet 7

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8920 Randers NV, Denmark

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+45 8911 4811

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info@verdo.com

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verdo.com